First Proof - Managing Technology For Inclusive and Sustainable Growth PDF

PART I
INNOVATION
A Research Approach for the Development of a
Framework for Innovation Management in the
Mineral Reseources Industry
Marthinus J. Du Plessis
University of Pretoria, Graduate School of,
Technology Management, South Africa
E-mail: marinus.6108@gmail.com
Marthinus J. Pretorius
University of Pretoria, Graduate School of,
E-mail: tinus.pretorius@up.ac.za
Abstract
The Mineral Resources (MR) industry is not perceived to be leaders in innovation management. (MR) organisations
use different approaches towards the management of innovation and there is no evidence that an integrated best
practice for innovation management has yet emerged. A research study is underway to understand the specific
drivers and barriers of the management of innovation and to develop an innovation management model for this
industry. The intention of this model is to support such organisations to improve their innovation management
practices and therefor the innovativeness of these organisations.
The current innovation management practices not only vary between the different (MR) companies, but it also
differs from best practise characteristics as described in literature as well as from practices that are promoted by
leading innovation management consulting groups. Given this discrepancy as well as the heterogeneity between
(MR) companies, research on innovation management practices are complex and it is pivotal that an appropriate
research methodology is applied to provide unbiased, valid and useable results.
The design of a methodology for the innovation management study comprised out of four main steps namely; 1.
Understand the context of the larger study, the impact factors and constraints it poses to the research approach, the
design and the expected outputs; 2. Study literature to understand research design and methodology for complex
studies including the “Research Onion” approach. Reflect on Systematic literature review, Atlas.Ti and Delphi data
collection and analysis methods; 3. Select a set of applicable methods and develop a research approach, design
and methodology as output of this paper that will provide sound research outcomes for the larger study and 4, to
summarise the output in a research methodology diagram and report.
In this paper, a versatile research methodology is introduced for use in research studies where external expert
knowledge is required to produce solutions in a consensus seeking paradigm. The methodology is based on the
Delphi method that is suitable for complex problem cases and when the problem does not lend itself to precise
analytical techniques.
The proposed research methodology is qualitative in nature, applying systematic literature reviews and consensus
seeking Delphi focus group inputs. It compares literature outcomes with expert knowledge, semi-structured
interviews, data triangulation from different interest groups and a multi-round Delphi method application.
This research study paper contributes towards a better understanding of the possible applications of the Delphi
method in conjunction with other methods to apply in the context of complex and diverse research challenges.
The result of this methodology design will be applied in the study to develop an appropriate and useable innovation
management model for the (MR) industry and similar industries.
Keywords: Research Design, Methodology, Techniques, Delphi Method, Qualitative Studies, Research Onion, Atlas.Ti
1. Introduction
1.1. Context of the Larger Study

The Mineral Resources (MR) industry is under increasing pressure to significantly improve its
environmental, social, legal compliance as well as financial performance. The general external view
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Managing Technology for Inclusive and Sustainable Growth
about the industry is that it is slow to innovate when compared to other industries. Some leaders
within the industry echo this view. (MR) organisations also use different approaches towards the
management of innovation and there is no evidence that an end-to-end, best practice approach towards
innovation management has yet emerged. A research study is underway to understand the specific
drivers and barriers of the management of innovation and to develop an innovation management
model for this industry. The intention of this model will be to support the (MR) industry to improve
their innovation management practices and therefor the innovativeness of these organisations.
The current innovation management practices not only vary between the different (MR) companies,
but it also differs from best practise characteristics as described in literature as well as from practices
that are promoted by leading innovation management consulting groups. Given this discrepancy as
well as the heterogeneity between (MR) companies, research on innovation management practices
are complex and it is pivotal that an appropriate research methodology is applied to provide unbiased,
valid and useable results.
The objective of the larger research study is to identify the key innovation management dimensions,
determine their interrelationships and to propose an integrated management framework to contribute
to the improvement of innovation management in the (MR) industry. This objective is divided into
the following components;
●● To determine under which circumstances an inhouse innovation management structure
or function is required for organisation in general for successful innovation management
●● To identify and understand the key dimensions, the elements thereof and their
interrelationships for successful innovation management within organisations (current
theoretical models).
●● To determine the way innovation is managed in the (MR) industry (related to the current
theoretical models) and to identify the unique attributes and challenges that impact on
the level of innovativeness.
●● To determine the key dimensions of innovation management and their within the (MR)
industry interdependencies (new dimension set).
●● To design an innovation management framework for the MR industry that integrates the
key dimensions of innovation management and its corresponding elements and reflects
the interrelationships thereof.
In order to conduct such a study, an appropriate research methodology needs to be designed, which
is the outcome of the study that is described in this paper.
1.2. Context of this Paper

This paper reports the design following a systematic literature review to addresses the research
question; What research design will provide the required approach and methodology to be applied in
the larger study, (to deliver a framework for innovation management in the MR industry)?
The main assumption and driver of the larger study is that the (MR) industry does not manage
innovation optimally. For that reason, it excludes research methodologies like case studies
or surveys as it will rely on data collected from the industry itself. The study will be biased
towards the current practices and will not reflect current innovation management best practise.
External expert knowledge will be required to produce solutions in a consensus seeking paradigm to
deliver objective outcomes.
Another criterion for success is that the methodology needs to cater for the complexity of the study.
Therefore, the research design is based on the Delphi method that is suitable for cases when the
problem does not lend itself to precise analytical techniques and when a complex problem is studied.
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A Research Approach for the Development of a Framework for Innovation Management
2. Methodology Applied for the Development of a Research Approach

This qualitative literature review focused on publications that report on the development and
design of research methodologies, specifically for application in research of complex, multi-faceted
management problems. The review and methodology design were approached as follows:
2.1. Research Context

Understand the context of the larger study, the impact factors and constraints it poses to the research
approach and design and the expected outputs. The context of the larger study on the development
of an innovation management model for the (MR) industry is covered in the Introduction paragraph
on page 2.
2.2. Research Design

●● Study literature to understand research design and methodology for complex studies
including the research approach and design methodology as outlined by the “Research
Onion” approach (Saunders, M., 2009).
●● Reflect on Systematic literature review, Atlas.Ti and Delphi data collection and analysis
methods.
2.3. Research Design Outcomes

Select a set of applicable research methods and develop a research approach, design and methodology
as output of this paper that, if applied, will provide sound research outcomes for the larger study.
2.4. Summarize the Output in a Research Methodology Diagram
3. Discussion of the Literature; Research Approaches, Designs and Methodologies

This paragraph reports the findings of the literature study to determine the research philosophy and
design to be applied in the larger research study. The content breakdown is according to the research
methodology as described in the previous paragraph.
3.1. Research Approach and Design for Complex Studies

The book, (Walliman, N., 2011) refers to the basic fact that if a researcher uses applicable methods
for the particular type of research, the conclusions will carry more validity and that the newly created
knowledge, is then soundly based.
The selection of a research design derives from the objectives of a research project. The research
design provides a framework for the collection and analysis of data and indicates towards the
appropriate research method. The paper further explains that the analysis of qualitative data, due
to the inexplicit nature thereof, has not been developed into such an exact science as in the case of
quantitative data that are normally analysed by statistical methods.
The term “methodology” refers to the theory of how research should be undertaken while “methods”
refer to techniques and procedures used to obtain and analyse data. (Saunders, M., 2009).
Most research follow a multi-stage process. The initial stages link the research problem and questions
to a certain paradigm or approach and an applicable research philosophy that takes the context of the
study into account. The research design itself covers the research strategy and methodology selected
for the study, followed by the methods of data collection and data analysis and issues like ethics
and limitations are added. It is important to caution that research seldom follows a linear process.
(Saunders, M., 2009), “In reality, you will probably revisit each stage more than once. Each time you
revisit a stage you will need to reflect on the associated issues and refine your ideas”.
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3.2. Research Design with “Research Onion” Methodology

A common approach to guide the design of research is the research “Onion” (Saunders, M., 2009),
as shown in Figure 1: Research Onion. In this book, the research ‘onion’ is used to describe the
different research aspects. It also refers to underlying issues that are sometimes under-valued that
needs attention before the actual data collection and analysis techniques and procedures can be
addressed.
3.2.1. Research Philosophy (Research Paradigm and Philosophical Assumptions)

Research philosophy is the generic term that “relates to the development of knowledge and the
nature of that knowledge.” (Saunders, M., 2009). It reflects the way in which the researcher views
the world and underpins the research strategy and data collection and analysis methods selected as
part of the strategy. The research philosophy therefore also enables the judgement of the validity of
the conclusions from the study, (Walwyn, D., 2018).
3.2.2. Research Paradigm

“Research paradigm” is defined by (Saunders, M., 2009) as “a way of examining social phenomena
from which particular understandings of these phenomena can be gained and explanations
Positivism
Philosophies
Deductive
Approaches
Survey
Experiment
Strategies
Mono Case Realism
Method Study
Choices
Cross Sectional Action
Research
Time Horizon
Data Collection Mixed Grounded
& Methods Theory
Data Analysis
Techniques
and
Procedures
Longitudinal
Multi
Method Ethnography
Pragmatism
Archival Research Inductive
Interpretivism
Figure 1: Research Onion
Source: (Saunders, M., 2009)

attempted”. The philosophical paradigms described in die “Onion” are; Positivism, Realism,
Pragmatism and Interpretivism. The paper, (Tosey, P., 2012) defines research paradigm as an
attempt to find “rich insight into subjective meanings”. Regarding Interpretivism, (Goldkuhl, G.,
2012), noted, “The core idea of interpretivism is to work with these subjective meanings already
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there in the social world; that is to acknowledge their existence, to reconstruct them, to understand
them, to avoid distorting them, to use them as building-blocks in theorizing”. Interpretivism is
defined as focussing on “meaning in context”, (Goldkuhl, G., cite Myers, 2009). It is necessary for
the researcher to understand the differences between humans in their role as social actors. The focus
of the research is on the people in their social stance rather than on objects.
Comparing Interpretivism with Pragmatism, (Goldkuhl, G., 2012), emphasises that the researcher
must enter the social environment of the research subjects and understand the world from their point
of view. The paper also distinguishes between different variants of interpretivism; conservative,
constructivist, critical and deconstructionist.
Understanding these concepts is important in the context of the methodology design (product from
this paper). The applicable paradigm for the research is mainly interpretivism because the subjective
views of the panel of experts on the relative importance of each of the innovation management
dimensions, are key. However, the design of the final innovation management model needs to be
useful and practical as well. When giving their inputs, the expert panel need to keep it in mind that
action will eventually be taken from the outcome. For this reason, the research paradigm reflects
features of a pragmatic research paradigm. A combination of the two philosophies is possible,
(Goldkuhl, G., 2012), mentioned that the two research paradigms can be combined. This paper takes
the position that interpretivist paradigm is dominant and that a pragmatical approach is supportive
to the methodology.
3.2.3. Philosophical Assumptions

(Easterby-Smith, M., 2015). Philosophical issues need to be addressed during the research
design in order to avoid lessening the quality of the research. (Easterby-Smith, M., 2015) stated,
“Ontology is about the nature of reality and existence and epistemology is about the theory and
scope of knowledge”. The relevant philosophical assumptions that are addressed are ontology and
epistemology.
The paper, (Leitch, C., 2009, cite Keat, 1982), emphasises that in management and other social
studies, research should “emanate from beliefs about what constitutes an understanding and
explanation of a social phenomenon”.
Another paper, (Brady, S.R., (2015), emphasised, (regarding the Delphi method), the importance of
opinions and perceptions of people, when the question, “what is reality”? is considered. It is also
noted that the Delphi method was designed for practical research, related to pragmatism. The method
is well suited to bridge the gap between theories and methods, “stemming from the interpretive
paradigm concerned with subjective human experiences and contextual truths, the emphasis is on
generalisability and objectivity. The methodology design has incorporated this approach when
applying Delphi method.
The paper, (Brady, S.R., (2015) cite Alder, 1996) emphasises the importance of Delphi studies to
have a direct impact on policy, practice, or decision making.
As seen in the previous paragraph, the preferred philosophical paradigm for the study is
Interpretivism. This paradigm is dependent on constructivist ontology, (Orlikowski, W., 1990).
In terms of ontology, interpretive research assumes that the social world, like social relationships
and organisations, are not “given” but is produced by the interaction of people. The Epistemology
is about the researchers view about what constitutes knowledge. Three types of knowledge are
identified; conceptual knowledge, descriptive knowledge and prescriptive knowledge. Conceptual
knowledge is dominant in the case of this study. The subjective meaning of detail and the reality
behind the data collected from the expert panel will contribute to the creation of knowledge.
Considering interpretivism as the main research paradigm, as well as the philosophical assumptions
(ontology, epistemology and axiology), the research philosophy for the study can be characterised in
a certain way. The research philosophy reflects subjectivity, that multiple views may occur and these
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views may change over time (ontology). The philosophy further indicates that the focus is upon the
details within a situation and seeking of the real meaning behind these details (epistemology). There
is also a believe that research is value bound.
3.3. Approaches
(Saunders, M., 2009) refers to two main research approaches, when a theory and hypotheses are
developed, a research strategy is designed to test the hypotheses. This is called the deduction
approach and it tests theory like in scientific research. On the other hand, with the induction
approach, data are collected and analysed to develop theory. Induction is about building theory and
is more applicable in social sciences. Research using an inductive approach is more interested in the
context of events and normally smaller samples are more appropriate as with a deductive approach.
Multiple collection methods of qualitative data are common for an inductive research approach.
Another way to describe the differences between the two approaches is found in (Saunders M., 2009).
When a deductive research approach is followed, existing theory will be used when determining the
research process and the data analysis procedures. However, when an inductive approach is used,
there will be a need to build theory that is grounded in the data as no predetermined theoretical or
descriptive framework exist. (Saunders, M., cite Yin R., K., 2003).
Regarding the selection of a research approach for a Systematic Literature Review (SLR), (Saunders
M., 2009) provides the following guidelines. “The precise purpose of your reading of the literature
will depend on the approach you are intending to use in your research”. Literature reviews can assist
with identification of theories and ideas to be tested using data (deductive approach). Literature
reviews may also be done to explore data and to develop theories from the data, (inductive approach).
Considering an inductive research approach (Saunders, M., 2009) refers to the issue in a way that is
particularly relevant to this study. It is mentioned that some studies do not commence with a defined
theoretical framework. It is exploratory in nature and a conceptual framework is developed from
data analysis during the data collection and analysis process and theory is grounded in the data.
Theory or explanation emerges as a result of the research process. The book, (Saunders, M., 2009),
do emphasise that it can be advantageous to combine these approaches in a research study.
For the proposed research methodology, an inductive research approach will be followed when data
from literature is analysed through Atlas.Ti to build a conceptual model. When this conceptual model
is tested (Delphi) the research approach changes to deductive. For the following Delphi rounds, a
new innovation management model will be built, by means of an inductive approach.
3.4. Strategy
According to (Saunders, M., 2009) research strategy is defined as the “general plan of how the
researcher will go about answering the research question(s)”. The importance of selecting the most
appropriate strategy for the research is to enable the researcher to answer the research questions
and to meet the research objectives. The research strategy choice will also be guided by the amount
of time and resources that are available, the extent of existing knowledge and the philosophical
background of the researcher. Types of strategies are not necessarily mutually exclusive.
Other than the more common research strategies like the experiment, case study, grounded theory
ethnography, action research and surveys, the Delphi technique, for data collection and analysis,
can also be considered as being a research strategy. It also relates to grounded theory in qualitative,
inductive cases. (Skinner, R., 2015).
The Delphi technique, as research strategy, is thoroughly described in the following paragraphs but
the Systematic Literature Review method is discussed first as this process will be used to inform the
input data for the Delphi exercise.
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3.4.1. The Systematic Literature Review (SLR) Method

(Delcourt, I., M., 2015), The SLR is a structured method to reviewing published academic research
and follows a systematic, repeatable and transparent procedure. Systematic reviews follow a process
of mapping the status of a subject, followed by a three-phase procedure of data collection, data
analysis and synthesis. The purpose of a SLR which is dependent on the approach that will be taken.
It can be used to develop a conceptual framework, which is usually followed by testing of the data.
The SLR can also be applied to explore collected data to develop theories. (Saunders, M., 2009)
The analysis of relevance and relationships between factors or dimensions of conceptual models
can be done through the application of inductive Content Analysis (TCA), with ATLAS.Ti, which
is Computer-Aided Qualitative Data Analysis Software (CAQDAS). (TCA) is often used to analyse
data in qualitative research. Thematic (Content) Analysis, is an over-arching term for analysing
qualitative data, describing (TCA) as a technique for identifying, analysing, and reporting patterns
or themes within data. (Friese, S., 2018).
The working paper, (Friese, S., 2018) explains that ATLAS.Ti can be used with various research
approaches and different data analysis techniques, also in qualitative research. Therefore, the Delphi
data collection and analysis method can be applied to verify the conceptual framework through the
introduction of an expert panel.
3.4.2. The Delphi Research Method, Theory from Literature

Delphi Theory: The method is described by (Okoli, C., 2004) as effective for forecasting, issue
identification and prioritisation, valuable especially during the early stages of project definition.
The second main application of the method is for concept or framework development. This view of
the two main applications for the Delphi technique is commonly found in literature. The original
application was mainly for forecasting purposes, but it has gradually shifted towards an increasing
number of concept development applications in qualitative studies.
The paper, (Grisham, T., 2008, cite McKenna, 1994), describe the Delphi technique as a multistage
process designed to combine opinion into group consensus. (Von der Gracht, H., A., 2012),
mentions that the Delphi method is executed in a series of rounds with two rounds are considered
the minimum. (Bradley, L., 2003), suggests that three structured rounds are generally adequate.
Analysis takes place in the form of data that are fed to the panellists for evaluation and comments.
Their feedback forms the basis of the next round of analysis until a consensus outcome is reached.
Characteristics of Delphi Technique: The Delphi technique is typified by five main characteristics
according to (Amos, T., 2008). “(1) focussing on researching the future or things about which little
is known, (2) reliance on the use of expert opinion, (3) utilising remote group processes, (4) the
adoption of an iterative research process (rounds), and (5) the creation of a consensus of opinion”.
The paper reasons that, as oppose to other techniques, the Delphi method lends itself to make use
of a range of experts which should be selected to represent conflicting opinions and can also be
geographically dispersed. The Delphi method, it is argued, is more flexible than most other methods
and allows for unfolding of the result through iterative interactions with the panel. The construction
of the outcome through the scrutiny process with the expert panel diverts the monopoly of knowledge
construction from the researcher towards the panel, that increases objectivity.
Advantages and Disadvantages of Using the Delphi Technique: Over and above a thorough
understanding of the characteristics of the Delphi method, the advantages, disadvantages and typical
applications of this technique also need to be considered when deciding possible use thereof.
The publication (Okoli, C., 2004), mentions four main benefits resulting from the use of the Delphi
technique. Firstly, the method assists in identification of variables and generate propositions. It
assists with prioritisation and selection of dimensions, factors or elements. Secondly, the Delphi
method improves “generalisability of resulting theory” because the wide range of experience of
the expert panel extend the empirical observations. The resulting theory is therefore more likely to
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hold across multiple contexts. A third benefit is that of the creation of a deeper understanding of
the causal relationships between factors by requesting the respondents to justify their responses and
reasoning. Fourthly, the paper mentions that a Delphi study can contribute to “Construct Validity”
as the participants initial responses are validated to improve understanding of the meanings of the
concepts, questions and items. This procedure leads to a common language about the subject and
improves the definition of the construct.
Advantages of the Delphi technique listed are; (Yousuf, M., I., 2007)
●● The emergence of a representative opinion from a group of experts.
●● Suitable in cases where precise analytical techniques are not applicable and collective
subjective judgement can benefit the quality and validity of the outcome.
●● Data can be collected from experts with diverse experience and expertise and when the
expert opinions is more likely to address complex problems.
●● Anonymity and confidentiality enhance unbiased, objective feedback.
●● Cost effective as electronic communication is efficient. Costly and timely visits can be
avoided
●● The structured communication process avoids direct confrontation between experts
on strong conflicting views. This reduces group pressure and encourages sharing of
unbiased points of view. (Saunders, M., 2009)
Additional Delphi technique benefits identified by (Skinner, R., 2015):
●● The Delphi method can be used successfully in cases where there is lack of established
or imperfect knowledge or if knowledge did not converge into commonly acceptable
theory.
●● Effectively used to establish the basis for future studies.
●● Relatively easy to use.
Disadvantages of the Delphi technique to be aware of during design
●● (Yousuf, 2007, cite Linstone, H., Turoff, M., 1975), indicated that an over-specification
of the structure of such a study may cause the development of preconceived ideas of the
problem which may limit the contributions from others.
●● A false consensus may develop if participants opt to withdraw from the study if their
disagreements are ignored or not explored by the researcher and participant drop-outs
and slow response rates can hamper the process. (Moodley, R., 2018).
●● Group pressure for consensus may lead to a false consensus.
●● Consensus is based on a selected group of experts and the validity of the outcome is
influenced by the quality of the panel selection. (Moodley, R., 2018 citing Yousuf, 2007)
●● This method tends to eliminate extreme positions as consensus is normally a “middle of
the road” negotiated result.
●● Commitment from participants are crucial for success and the process can be time
consuming
●● There are no standard guidelines for the determination of consensus, sample size nor
sampling techniques
Application Criteria and Reasons for Selection
The Delphi method can be applied in the following circumstances; (Okoli, C., 2004)
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●● In the case when a study is complex and knowledgeable people who understand issues
related to different disciplines, points of view and social interpretations.
●● When a group method is preferred and a panel of experts will provide the biggest
contribution especially in cases when physical meetings is impractical
●● When only a relatively small number of experts (in the order of 10 people) meet the
requirements and are practical to solicit their views.
●● In cases where not only opinions of experts are required but ranking is also needed.
A number of properties that if present, the Delphi method could be used successfully:
(Grisham, T., cite Linstone, 2002)
●● If a focus group approach is appropriate but more individuals are required than can
effectively interact on a face-to-face basis or when long duration of process and high
costs make group gatherings infeasible
●● In cases where disagreements among participants are potentially severe of politically
objectionable an anonymous application is preferable
●● The Delphi method can be applied when the heterogeneity of the expert panel needs to
be protected to enhance validity of the outcomes by avoiding domination by personality
strength or by numbers.
Delphi Application Guidelines (how to use)
The paper (Grisham, T., 2009, cite Hasson et al., 2000) proposed the following research guidelines
for designing a Delphi technique approach.
●● Pilot testing in a small group.
●● Initial questionnaire to solicit qualitative comments.
●● Initial feedback being quantitative after statistical analysis of the initial opinions.
●● Subsequent questionnaire when qualitative comments are solicited.
●● Subsequent feedback is quantitative following statistical analysis.
●● Selection process to identify expert panel members. Informing experts to explain what
the purpose of the study is, what will be done with the information and what is required
from them.
●● Data analysis focussing on the discovery of opinions. According to (Grisham 2009,
T., cite Green et al., 1999) two or three rounds are preferred and that an 80 percent
consensus should be sufficient.
●● Data analysis takes place to determine the most important issues and managing the
opinion inputs. Responses are usually analysed with analytical software. (Grisham,
T., 2009, cite Lincola, 1985), identified the criteria for qualitative studies such as the
Delphi technique as; “credibility (truthfulness), fittingness (applicability), audit ability
(consistency), and confirm ability”.
●● Presentation and interpretation. Depending on the nature of the analysis results the
presentation can be graphical, statistical or descriptive.
Panel of Experts; Structure, Selection Criteria and Selection Process
The objective of a Delphi study influences the practical consideration of which experts are most
qualified to serve as panel members. In this context an expert is defined as “any individual with
relevant knowledge and experience of a particular topic” and are people that have achieved a high
status in their professional group. (Cantrill, J., A., 1996) The paper went on to mention that widely
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used approaches to identify experts to serve on panels, are to make use of selection criteria based
on professional credentials and rank, or to invite relevant disciplinary groups to nominate their own
experts. It is important to select panel members who have an interest in the topic. Selection of people
knowledgeable in the field, and their commitment to multiple rounds of questions on the same topic
are essential. (Grisham, T., (2009).
Regarding panel size (Mullen, P.M., 2003) cite Linstone, 1978), stated that “a suitable minimum
panel size is seven” and that the accuracy deteriorates rapidly with smaller sizes. (Mullen, P., M., cite
(Cavalli-Sforza, 1984), that views the typical Delphi panel size is between 8 to 12 members. Others
are of the opinion that a panel size should be larger, (Mullen, P. M., cite Turoff, 1970) suggests
“anywhere from ten to fifty people” and (Mullen, P., M., cite Wild and Torgersen, 2000) which
suggest panel sizes of 300-500. The group of selected experts tends to be relatively small, between
and 10 to 30 people, preferably from the academic fraternity as well as practitioners. (Baldwin, A.,
A., 2011) states, “with a panel of 15 experts in a given field, it is highly unlikely that another equally
expert panel will produce radically different results”. The answer to what size a Delphi panel should
be is probably best reflected by (Cantrill, J., A., 1996), that reported that published studies used panel
sizes varying from 4 to 3000 and that size should be governed by the purpose of the investigation.
Another approach is to select a smaller group of key experts for participating in the early planning
phases and the increase the number of panel participants for the next phases of the study.
Delphi Method Process, Stages and Procedures
A number of variations on the process of Delphi technique are to be found in literature. A 3
round Delphi process is proposed by (Skulmoski, G.J., 2007), Figure 2: The typical three round
Delphi process.
Experience
Literature Research Research Research Delphi R1 Delphi R1 Delphi R1

Review Question Design Sample Design Pilot Survey & Analysis
Pilot Study
Delphi R2 Delphi R2
Design Survey & Analysis
Delphi R3 Delphi R3
Design Survey & Analysis
Research
Documentation
Verification &
Generalization
Figure 2: The Typical Three Round Delphi Process
Source: (Skulmoski, G.J., 2007)

The process indicates upfront inputs, including provision for a pilot study. It however does not show
the important steps of identification and selection of the expert panel.
Another approach is documented in (Moodley, R., 2014 cite Sadhu), In this case the process is
simplified and allows for any number of rounds as shown in Figure 3: Multi round Delphi process.
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no
Identify Consensus or
Identify Espert Conduct
Research Design Survey Number of Target
Panel Survey
Questions Rounds Reached
yes
Panel Review Summarise

Survey Results Conclusions
Figure 3: Multi Round Delphi Process
Source: (Moodley, R., 2014 cite Sadhu)
In this case, the identification of the expert panel is shown but it is done before the survey is
designed. This approach limits the communication to the panel of experts about their role when
invited to participate.
The Delphi process diagram Figure 4: Block Diagram of the Delphi Process, (Barry, M.L., 2009),
proposes that a key focus group is used to identify the factors to be verified as input into the process.
It also proposes a simultaneous process to identify the participants while a pilot questionnaire is
developed.
The paper (Skinner, R., 2015, cite Hallowell, M.R. 2010), proposed the following process steps,
categorised by three stages: the exploratory stage, the distillation stage, and the utilization stage.
During the exploratory stage, potential experts are identified, selected, based on predefined criteria
and expert status is validated and the panel is informed about the study requirements. The distillation
phase is about the development of the questionnaires, the transmittal to the experts, collection,
analysis and feedback to the panel. After sufficient consensus is reached, the results are reported
during the utilisation phase.
The proses from another paper, (Donohoe, H.M., 2009), is also divided into three main phases
namely the preparation, convergence and consensus phases. Importantly, this paper introduces
the concept of Critical Design Decisions (SDD’s) at the expert panel development step and at the
scoping phase step, to introduce comprehensive assessments.
These processes were considered as inputs towards the design of a research methodology process,
which is proposed to be used in the larger research study and discussed later in this paper.
Data Collection and Analysis
The Data collection process centres around the development and administering of questionnaires
and other data collection tools and the data that is collected. Data collection within the Delphi
process starts taking place during initial stages when dimensions, factors, criteria, or elements
of a new concept or framework are identified. An initial, smaller panel of experts can be
applied or the Systematic Literature Review process can provide these dimensions within a
conceptual framework.
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Figure 4: Block Diagram of the Delphi Process
Source: (Barry, M.L., 2009)

Rounds of consensus seeking data collection steps follow, normally through questionnaires or
sometimes through focus groups. Communication, time and process need to be managed during data
collection. The data collection can also be done through open questionnaire method with the benefit
that more in-depth information are provided. Internet communication and data collection techniques
are used widely to save time and cost.
The following rounds of engagement focus on seeking consensus. Feedback is processed, and
questionnaires are adjusted to sensitise the panel about the previous round of views and to test their
opinions with new information in mind.
Brady, S.R., (2015), remarks that “Questionnaires are the traditional data collection tool used in the
Delphi method, as they provide an easy tool for soliciting and receiving honest expert opinions on a
topic without fear of responses being impacted by unequal power dynamics, in-person group think,
difference in social identities and values, or past history with one another”.
It is also evident that, Delphi study questionnaires tend to start with open type questions and as
data are collected, progressively becoming more structured in the following rounds. This approach
supports the verification of consensus already reached, it tests prepositions, and assist with the
finalisation of models or frameworks.
IAMOT 2019 | 14
Data analysis is the “process of determining the most important issues”. (Grisham, T., (2009).
Analysis take place by evaluating feedback on questionnaires. The outcome of analysis is repackaged
in a following set of questionnaires for the next round. Statistical analysis can be performed to
determine the ranking outcome of data gathered.
The book, (Brady, S.R., 2015), mentioned that the thematic analysis method is widely recommended
in literature to be used for the qualitative Delphi method. The research paper, (Moodley, R., 2018),
indicates that “ATLAS.ti can be employed to perform thematic analysis to consolidate the rationale
behind the respondents’ rankings”.
The development of a Delphi questionnaire needs to reflect the same features and standards as
a typical questionnaire. It should be professionally prepared and the task instructions must be
thoroughly tested. The one-page cover letter invites and thanks the person for participating, explains
what inputs will be required and why the individual is selected for participation. It must also
explain how the questionnaire is to be completed and how the results of the Delphi will be used.
Administrative content including due dates need to be concise and clear.
3.5. Extreme Cases Analysis

Extreme cases research type of analysis is especially useful “to obtain information on unusual cases,
which can be especially problematic or especially good in a more closely defined sense” (De Haes.,
S., 2009, cite Flyvbjerg, 2006). It is suggested to select at least two organisations with the highest
performance, and the two organisations with the lowest performance to compare the alignment of
their practices with the framework or model in question. The organisations are then subjected to
a case analysis that is guided by a set of questions reflecting the model that is tested. The data
collection can take place in the form of a two-hour workshop or a structured interview with a senior
representative of the organisation. A comparative analysis will indicate if the model or practices are
proven valid or not.
The extreme case analysis can serve as an additional verification of the designed model for innovation
management, over and above the Delphi consensus method that is the main verification of validity
for the model.
Triangulation between different research methods is useful. Literature research, pilot case research,
Delphi method research, benchmark research, and extreme case research, can be used together.
Triangulation provides the research “a richer insight in reality” (De Haes, S., 2009).
In terms of the two research “onion” layers that were not discussed as part of the Delphi method,
namely research choices and the timeline of the study the following; Different data collection and
analysis methods and procedures will be applied; therefore, the study is a multi-method study. The
time horizon of this study is cross sectional as the iterations of the multiple rounds will not change
the original data over time.
3.6. Research Strategy Summary

The Systematic Literature Review (SLR) is a structured method to reviewing published academic
research and follows a systematic, repeatable and transparent procedure. The analysis of relevance
and relationships between factors or dimensions of conceptual models can effectively done through
the application of inductive Content Analysis (TCA), with ATLAS.Ti.
Characteristics of the Delphi Technique that fits the need of this study are; it is a structured approach,
its flexible but also rigorous, the technique is iterative and consensus seeking to provide an unbiased
solution. Importantly, it relies on panel experts that are independent from the (MR) industry but are
subject matter experts. (Donohoe, H.M., 2009).
Extreme Case Analysis is a type of case study that compare practices of two well performing and
two poorly performing organisations with the dimensions of a proposed model. This is a means to
test the validity of the designed model of framework.
IAMOT 2019 | 15
4. Discussion of the Designed Research Methodology

The research methodology is designed, guided by the research “Onion” (Saunders, M., 2009) design
approach which is described in this section and is summarised in the diagram, Figure 5: Research
methodology for the development of an innovation management framework.
4.1. Research Philosophy

Considering the ontology epistemology and axiology related to this research design with an
interpretivism paradigm adopted, the research philosophy is subjectivity, multiple views on the
world may exist and these views may change. Regarding the view about what constitutes acceptable
knowledge, the philosophy is that meanings are subjective and are social phenomena. The paradigm
is also to focus upon a reality behind the detail. When the view and role of values in research is
considered, the researcher believes that research is value bound, that the researcher is part of what is
being researched and the research is therefore subjective.
The paper takes the position that an interpretivist paradigm is dominant and that a pragmatic approach
is supportive of the methodology. The overall research type is exploratory in nature as the intent is
to develop a specific, valid and applicable innovation management model for the resources industry.
This model will be the subjective result of the Delphi study panel and the other methods applied.
4.2. Approach
For the proposed research methodology, an inductive research approach will be followed when
data from literature is analysed through Atlas.Ti to build a conceptual model. When this conceptual
model is tested (Delphi) the research approach changes to deductive. During the following Delphi
rounds, a new innovation management model will be built, by applying an inductive approach.
4.3. Research Strategy, Data Collection and Analysis Procedures

Research strategy is defined as the “general plan of how the researcher will go about answering
the research question(s)” (Saunders, M., 2009). The importance of selecting the most appropriate
strategy for the research is to enable the researcher to answer the research questions and to meet the
research objectives.
Other than the more common research strategies like the experiment, case study, grounded theory
ethnography, action research and surveys, the Delphi technique for data collection and analysis, can
also be considered as being a research strategy.
The researcher has wide experience with the industry and there is sufficient time available to
complete the study in a reasonable time, both aspects that favours the proposed strategy.
The strategy also ensuring valid input data by applying a (SLR) effectively to provide a basic set of
innovation management framework dimensions and elements to initiate the Delphi process.
In conclusion of this paragraph, considering different research strategies and data collection and
analysis methods that fit the nature of this study, this qualitative, multi method approach, based on
the Delphi method, supported by SLR and Atlas.Ti data collection and analysis methods, proofed to
be the most promising.
Characteristics of the Delphi Technique that fits the need of this study are; it is a structured approach,
its flexible but also rigorous and the technique is iterative and consensus seeking to provide an
unbiased solution. Importantly, it relies on panel experts that are independent from the (MR) industry
but is subject matter experts. (Donohoe, H.M., 2009).
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4.4. Choices and Time Horizon

Different data collection and analysis methods and procedures will be applied; therefore, the study
is a multi-method study. The time horizon of this study is cross sectional as the iterations of the
multiple rounds will not change the original data over time.
5. The Proposed Research Model

The research methodology for development of an innovation management model for the (MR)
industry is summarised in this paragraph and reflected in the diagram.
1. Systematic literature review (SLR), applying ATLAS.Ti to determine the different
dimensions and elements of an innovation management model: inductive approach as
theory (generic innovation management model) is built from data collected and analysed
during the (SLR).
2. Delphi method round 1. is to be applied to test the generic innovation management
model; deductive approach as the theory will be tested through data collected from the
Delphi expert panel and the consensus seeking analysis that follows.
3. Delphi method rounds 2, 3, and if needed 4, is applied to determine the specific key
dimensions and elements of an innovation management model for the (MR) industry
through consensus seeking iterations: inductive approach as theory (MR industry
innovation management model) is built from data collected and analysed by applying
the Delphi method.
4. Extreme case analysis will be done on two well performed and two poorly performed
organisations to add additional verification to the validity of the innovation management
model.
5. Conclusion
Literature provided theoretical data on the design of research methodologies. This data was analysed
and applied to design a research methodology for use in another study. This larger study aims to
develop an innovation management model for the (MR) industry. The context of this larger study is
well understood and was considered during the methodology design.
This paper reports on the theory of methodology development for complex studies as found in
literature. This includes the “Research Onion” approach that was used to structure the design. Other
data collection and analysis methods and procedures were also studied and described in this report.
A research methodology was designed as required and is captured in a research methodology
diagram. In summary, the methodology identifies the approach towards the research, philosophy
and paradigm and the strategy, method and time horizon follow. Then the inputs for the Delphi
technique are developed. The Delphi technique is then applied as strategy and collection and analysis
method. By applying this iterative consensus seeking technique, the innovation management model,
including its dimensions and their interrelationships are identified. The consensus outcome is then
put together in a management model for use by the industry.
Work following this study report is to finalise the ethical aspects of the larger study before the
process of applying the methodology as on the diagram can commence.
Proposed further research following this study would be to improve on the methodology and add to
detail once applied. Research is also proposed to test the application for methodology development
applications in similar industries. This research has the potential to benefit development of similar
methodologies as well as the (MR) industry is to benefit from the application of this methodology.
IAMOT 2019 | 17
Figure 5: Research Methodology for the Development of an Innovation Management Framework
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IAMOT 2019 | 18
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IAMOT 2019 | 19
Management of Technological Innovation in
Emerging Economies: A Conceptual Framework
Rendani Mamphiswana
University of Johannesburg, Postgraduate School of Engineering Management,
Faculty of Engineering and the Built Environment, South Africa
E-mail: rendani.mamphiswana@gmail.com
Saurabh Sinha
University of Johannesburg, Office of Deputy Vice-Chancellor: Research,
and Internationalisation, South Africa
E-mail: dvc-r@uj.ac.za
Abstract
The previous industrial revolutions took jobs away, thus the income Gini coefficient widened and impacted
emerging economies, like South Africa, even though the automation occurred in another part of the world. This is a
reflection of the interconnected nature of today’s global economy. The Fourth Industrial Revolution, characterised
by robotics and automation powered by artificial intelligence, is likely to widen both income and wealth Gini
coefficient. The introduction of robotics and automation within current business models produces the same products
faster and cheaper, and possibly with increased features or value-add to increase price–catering for the selected few,
the elite. It is predicted that this techno-economics scenario will lead to exclusive and unsustainable growth. The
Fourth Industrial Revolution cannot be left to its own devices in emerging economies, it must be carefully managed
in an attempt to achieve inclusive and sustainable growth. Left to its own devices, the Fourth Industrial Revolution
is likely to worsen unemployment, poverty and inequality in emerging economies such as South Africa. This paper
explores the development of an alternative scenario, geared towards inclusive and sustainable growth for emerging
economies. The paper proposes a conceptual framework to guide emerging economies in the successful introduction
of low cost–market creating–business models, capable of creating new and/or already existing affordable products
and employment opportunities. The objective of the proposed conceptual framework is to strategically and gradually
manage the impact of the Fourth Industrial Revolution in emerging economies, in order to achieve an inclusive
and sustainable growth. The proposed conceptual framework consist of six variables: technical knowledge; regional
partnerships; understanding of the labour environment; firm capability; temporary employment; and knowledge
transfer. The research followed a case study approach, and in relation to the wider ecosystem, the next phase of the
research will test for correlations and causality among the variables composing the proposed conceptual framework.
This paper contributes towards an improved understanding of central mechanisms for emerging economies to
manage technology and move in the direction of inclusive and sustainable growth.
Keywords: Technological Innovation, Low Cost Business Models, Emerging Economies, Industrial Revolutions,
Inclusive and Sustainable, Growth
1. Introduction
South Africa’s Gini coefficient, based on income, in 2006 and as estimated by Statistics South
Africa-was 0.8, thus making South Africa highly ranked on income inequality (Bosch, et al., 2010).
Taking into account welfare policies-social grants, free housing, free electricity for the poor–into the
equation a modified Gini coefficient of 0.59 is obtained (Bosch, et al., 2010). The Gini coefficient of
0.59 is still one of the highest in the world. Wealth and income distribution in South Africa is among
the most unequal in the world; and access to clean water, energy, education and health care remain
unsatisfactorily low (May, 1998).
In another study based on adjusted census data, South Africa’s Gini coefficient rose from 0.66 to 0.69
for the period of 1996 to 2001 (Simkins, 2004). During this period inequality in South Africa increased
by a significant margin (Simkins, 2004). In an assessment of changes in poverty and inequality in South
Africa, between 1995 and 2000, the outcome was as follows: severe and deep increase in poverty; and a
sharp rise in inequality, especially among Africans (Hoogeveen & Özler, 2005). During this period, the
IAMOT 2019 | 20
Management of Technological Innovation in Emerging Economies: A Conceptual Framework
strategy failed to achieve projected growth and create sufficient jobs to reduce the high unemployment
(Hoogeveen & Özler, 2005). However, growth is not automatically followed by a substantial reduction
in poverty; it must be coupled with strategies that bring about improvement in income and wealth
distribution (Hoogeveen & Özler, 2005; Piketty, 2017).
South Africa experienced, within the mining and agricultural sectors, a decline in demand of low
skilled and unskilled labour, leading to high unemployment (Banerjee, et al., 2006). The entrance
of African women into the labour force significantly increased supply of unskilled and low skilled
labour (Banerjee, et al., 2006). The economy of South Africa has shifted towards services, such as
financial services, leading to a demand of more skilled labour (Banerjee, et al., 2006). Though the
economy is more skilled-based, the unemployment rate for tertiary graduates increased from 6%
to 14% during the period of 1994 to 2014, and 65% of technical and vocational education training
(TVET) college graduates could not find work experience (Statistics South Africa, 2015).
South Africa saw an overall unemployment rate increase, in the period of 1994 to 2014, from 22% to
25% (Statistics South Africa, 2015). This unemployment rate was highest for black Africans at 40%
in 2014 (Statistics South Africa, 2015). In 2011, the global unemployment rate was 8%, while it was
over double and almost triple in North Africa and Sub-Saharan Africa–at 17% and 22% respectively
(Ajaegbu, 2012). In South Africa, the period from 1995 to 2011 was marked with the rise in
youth unemployment from 35% to 50%, and that stood at double the national unemployment rate
(Spaull, 2013). A number of factors influenced the current high unemployment: a mismatch between
the location of available jobs and the currently unemployed; and a mismatch between skills required
by the labour market and skills of the unemployed (Banerjee, et al., 2006).
The introduction of technology, to improve operations, in the mining and agricultural sectors
reduced the demand for unskilled and low skilled labour. Recently, the retail sector is seen to adopt
new technologies that would increase self-services. The Fourth Industrial Revolution, driven by
artificial intelligence and big data, is anticipated to automate more jobs. The airport and banks of the
future would be radically different. The adoption of the Fourth Industrial Revolution (Industry 4.0)
will worsen unemployment, poverty and inequality in emerging economies such as South Africa.
This paper proposes a conceptual framework to guide emerging economies in successful introduction
of low cost–market creating–business models, capable of creating new and/ or already existing
affordable products and employment opportunities. The objective of the proposed conceptual
framework is to strategically and gradually manage the impact of Industry 4.0 in emerging
economies, in order to achieve inclusive and sustainable economic growth.
2. Literature Study
2.1. Emerging Economies

Emerging economies are characterised by a fast rate of economic development, and government
policies geared towards economic liberalisation and the promotion of free market systems
(Hoskisson, et al., 2000). According to (Hoskisson, et al., 2000), there are 64 emerging
economies-South Africa included-in Latin America, Africa, Middle East, Europe and Asia.
A study of emerging economies–Argentina, Brazil, Mexico, Korea, and Philippines–found the
economic output to be very volatile and consumption to be consistently more volatile than output
(Neumeyer & Perri, 2005). Looking closely at Argentina, 50% of output fluctuations were
attributed to interest rate shocks, and correlated to recent major economic booms and recessions
(Neumeyer & Perri, 2005). The developed economy of Canada is not characterised by these
fluctuations (Neumeyer & Perri, 2005). Resources, capacity and institutional memory could be
attributes of developed economies to successfully absorb fluctuations.
In a study of Asian and Latin American emerging economies, data revealed that there are stronger
intra-regional financial links than inter-regional links (Montiel & Reinhart, 2001). Changes
in US’s interest rate have a higher influence on Latin American economies’ capital flows and
IAMOT 2019 | 21
volumes; while Japan’s interest rate shifts have a more pronounce influence on Asian economies
(Montiel & Reinhart, 2001). Contagion was observed to be more regional than global–as was the
case with significant reduction in the volume of capital flow in Latin America due to the Mexican
crisis (Montiel & Reinhart, 2001). The realization of rapid economic development by emerging
economies is closely linked to the region and such suggest that policies developed ought to take a
regional outlook as a key variable. For the economic development of South Africa, stronger links
and sustainable partnerships within the Southern African Development Community (SADC) are,
therefore, essential. To state further, the successful economic development of Africa’s regional
economic bloc rests on strong intracontinental links.
India, an emerging economy, is faced with high poverty, and lack of credit access for the
poor is considered a leading cause for the inability of the poor to transition out of poverty
(Narwal & Yadav, 2014). Formal financial institutions consider it risky to provide credit to the poor.
Governments in a number of emerging economies have facilitated the emergence of microfinance
institutions, to reach out to the poor, improve the standard of living for the poor by offering
loans and technical assistance on the development of new businesses (Narwal & Yadav, 2014).
Microfinance institutions are financially sustainable, owing to economies of scale that reduce costs
(Narwal & Yadav, 2014). There are 7000 microfinance institutions worldwide, serving
a clientele of 16 million and loans of up to 2.25 billion US dollars have been issued to clients
(Narwal & Yadav, 2014).
The size and number of offices for 52 microfinance institutions in India are critical indicators for
high performance (Narwal & Yadav, 2014). The large number of microfinance offices ensures that
assistance to the poor is in their location.
2.2. Wealth and Employment Distribution in Emerging South Africa

Credit Suisse’s 2017 Global wealth report approximated South African’s adult net worth to be
R9.5 trillion (Korhonen, 2018). South Africans with assets less than R117 000 constitute the large
majority, at 68%, and fall into the lowest wealth categories (Korhonen, 2018). Allianz, as part of
the 2017 Global report, calculated, using income distribution data, that 70% of net financial asset
is owned by the richest 10% (Korhonen, 2018). This is a lot higher than the average of 53% in the
53 countries included in the study (Korhonen, 2018). The research project on employment, income
distribution and inclusive growth (REDI) paints an even gloomier picture: half of South Africa’s
wealth is estimated to be owned by one percent of the population (Korhonen, 2018). South Africa’s
Gini coefficients, according to REDI, for wealth and income are reported at 0.95 and 0.7 respectively
(Korhonen, 2018).
Skills categories are: Skilled–managers, professionals, and technicians; semiskilled–clerks,
sales, services, machine operators, and craft; and low skilled–elementary and domestic workers
(Statistics South Africa, 2015). In the period of 1994 to 2014, skilled employment increased by
4%, and constitutes 25% of the workforce (Statistics South Africa, 2015). In the same period,
semiskilled and low-skilled employment dropped by 1% and 3% respectively–signalling a move
towards a skilled-based economy (Statistics South Africa, 2015). In 2014, among black African
workforces, 18% occupy skilled employment, 48% in semiskilled, and 34% in low-skilled;
while for whites, 61% occupy skilled employment, 36% in semiskilled, and 3% in low-skilled
(Statistics South Africa, 2015). The next section draws insights on firms’ adoption of technology for
performance and productivity.
2.3. Firm Performance and Productivity

Firms adopt technology to effect performance and efficiency improvements to meet agreed yearly
(or longer) bottom line targets. Contrary to the narrow view of technology as only artefacts or
gadgets, technology is a process to produce products or services (Rooney, 1997). On this basis, all
firms deploy technology in one form or another and at different maturity levels.
IAMOT 2019 | 22
When a firm enters the market, it adopts a technology to make products or services for its clientele.
Within the firm, the technology is in early development stages, during these stages efforts for
progress lead to relatively low improvements (Adner & Kapoor, 2016). With better understanding
of the technology, the speed of progress increases until the stage of maturity, beyond which efforts
for technology improvement lead to diminishing returns (Adner & Kapoor, 2016) . At this stage,
the technology is the dominant design within the firm. To remain competitive and relevant to its
paying customers–the clientele–the firm initiates sustaining–incremental-innovations, by adding
more features to achieve higher product and service performance (Christensen, 2016). Sustaining
innovations retain the core of the dominant technology design within the firm and does not offer new
products to the market. Phones upgrade each year–from iPhone 6 to iPhone x or from Samsung galaxy
S6 to S9–are fitting examples of sustaining innovations. Upgrades from sustaining innovations are
sold at higher and higher prices to meet firms’ yearly revenue and profit targets (Christensen, 2016).
An alternative to achieving higher firm performance–profit-is to reduce cost. Profit is revenue
generated minus cost incurred to make products and/or services and reinvestment for business
sustainability. Investments in information technology led to higher productivity and organizational
transformation due to the development of new business processes, work practices, cost reduction
and increase in output (Brynjolfsson & Hitt, 2000). To lower operating costs in the longer period,
automation of routine work tasks is considered. Automation of jobs is anticipated to trigger rising
inequality as a key challenge for the future and would require adequate retraining for traditionally
qualified workers (Arntz, et al., 2016). To keep the socioeconomic system in equilibrium, the rate
of retraining must be higher than the rate of job losses to automation and robotics. The next section
expands on Industry 4.0 and its impact.
2.4. Industry 4.0 and its Impact

Industry 4.0 is characterised by the cyber physical systems (CPS) concept for application to
industrial production systems and smart electrical grids (Drath & Horch, 2014). The blurring of the
cyber and physical world by industrial CPS already launched an era of system wide collaboration
and information sharing among stakeholders; leading to unprecedented transformation of industries
and businesses (Colombo, et al., 2017). Central to the industry 4.0 are technologies in artificial
intelligence, big data, internet of things and robotics (Schoeman, et al., 2017). It is the combination
of these technologies, at a rate not previously observed, that is anticipated to cause disruption. It is
estimated that artificial intelligence will double economic growth rates and create a market of over
35 billion United State dollars (Schoeman, et al., 2017).
There is currently no consensus about what the impact of industry 4.0 on jobs would be. A study
of 21 Organisation of Economic Co-operation and Development (OECD) countries estimate 9%
of jobs are automatable (Arntz, et al., 2016). Automatability of jobs is higher for low qualified
workers compared to highly qualified workers (Arntz, et al., 2016). This study, as compared to
other studies, considers heterogeneity of workers tasks within the job (Arntz, et al., 2016).
The World Bank estimates 57% of jobs in OECD countries to be automated in the next two decades
(Acemoglu & Restrepo, 2017). Mckinsey & Company predict that higher level jobs are also at risk
for some degree of automation (Chui, et al., 2015).
Though technology in automation and robotics were previously limited to manual routine tasks,
recent advances in algorithms for big data and robotics are opening the landscape in domains for
non-routine cognitive tasks and a broader scope of manual tasks (Frey & Osborne, 2013). A study
of the US labour market estimates that about 47% of jobs are susceptible to automation in the next
10 years (Frey & Osborne, 2013). These high risk jobs are in production, office administration,
transportation, logistics and services (Frey & Osborne, 2013). According to this study, workers of
the future are those displaying, on top of technical skills as a pre-requisite, creative and social skills
(Frey & Osborne, 2013). In another study, it is anticipated that African countries will experience
large-scale job replacement by automation-Ethiopia at 85%, South Africa at 67% and Nigeria at 65%
(Millington, 2017).
IAMOT 2019 | 23
In a survey of just 2000 technology experts, half anticipate a future where a significant number
of blue and white collar workers will be replaced by robots, leading to increase in inequality
(Smith & Anderson, 2014). The other half anticipate industry 4.0 to follow with previous industrial
revolutions in creating more jobs than it destroys (Smith & Anderson, 2014). Highly skilled
workers are anticipated to adapt into new work environments (Smith & Anderson, 2014). It is also
estimated that job losses in other sectors could be absorbed in other sectors–be it existing or new
(Acemoglu & Restrepo, 2017). The future of work is anticipated to be self-employment and ad hoc
online work opportunities (Millington, 2017).
The Mckinsey & Company report suggests that it is the activities within an occupation that would
be automated in the short term, not the entire job (Chui, et al., 2015). Therefore, jobs will be
redefined, similar to the ATM on the bank teller’s job (Chui, et al., 2015). In the US, as much
as 45% of activities within an occupation can be automated with current technologies and these
activities amount to 2 trillion US dollars of annual wages (Chui, et al., 2015). Advances in artificial
intelligence, in particular machine learning, would lead to a further 13% of activities that could be
automated (Chui, et al., 2015). Introduction of new business processes could allow the workforce
to execute higher value work, such as more face-to-face time with customers by sales teams
(Chui, et al., 2015).
Industry 4.0 is here and the way forward is new economic models that alter the ownership of the
means of production to achieve equitable income and wealth distribution (Marwala & Nkomfe, 2016).
To achieve sustainable and inclusive growth during industry 4.0, emerging economies must create
jobs for the low skilled and unskilled labour force. The pace of reskilling and upskilling might not
be fast enough to enable the entire workforce to access higher end jobs. The reskilling and upskilling
would be positioned as a long term strategy–for higher end jobs. With the trend towards information
communication technology (ICT) intensive jobs, employers in Africa identify inadequately skilled
workforces as a bottleneck to business operation and its success (World Economic Forum, 2017).
Essential skills for industry 4.0 are technological, critical thinking, socioemotional, higher order
cognitive, and interpersonal (World Development Report, 2018).
Industrial revolutions brought about an era where progress in innovation and technology emerged
as central variables for economic growth and performance (Meisenzahl & Mokyr, 2011). In an
attempt to develop an understanding of key variables in responding to industry 4.0; the next section
will review how technological innovation was managed, both at firm and national level, during
previous industrial revolutions and now during the early stages of Industry 4.0. Key variables
to enable emerging economies to successfully manage the introduction of low cost–market
creating-business models as the overarching strategy for industry 4.0 will be extracted.
2.5. Management of Technological Innovation at Firm and National Level
2.5.1. Industry 1.0

Industry 1.0 occurred in Britain during the late 18th century, it was characterised by the production
of steam from coal which led to steam powered machineries for extraction of underground minerals
and operations of other processing facilities (Chandler, 1992). A crucial source of innovation and
driver for forward scientific progress during the early industrial revolution was collective inventive
settings–sharing of technological knowledge by competing firms (Nuvolari, 2004). Sharing of
technological knowledge could have emerged from a range of factors at the time–cultural, political,
social and economic (Crafts, 1977). It enabled seamless knowledge transfer and further advances led
to more progress. Industrial revolutions bring about the use of a new technology to alter production
processes while making already existing products (Mokyr, 1974).
Attempts have been made to understand why industry 1.0 took place in Britain, though earlier attempts
placed emphasis on dynamics within Britain alone; recent understanding highlights that economic
dynamics within Europe, the rest of the world at the time contributed to creating conditions that
IAMOT 2019 | 24
when coupled with dynamics within Britain brought about industry 1.0 (O’Brien, 2006). Some of the
internal dynamics argued to have favoured Britain are higher wages and extremely low energy prices,
this scenario might have forced British firms to aggressively search for new production technologies
to replace labour (Allen, 2011). Higher wages also served as an encouragement for the British people
to gain further education and training, and this understanding enabled the development of more new
technologies (Allen, 2011). Therefore, early technologies during industry 1.0 were expensive; other
countries could not afford them, and this could have attributed to low productivity rates in Britain
(Antras & Voth, 2003; Allen, 2011).
Success in advancing the economy in pre industrial revolutions era was linked to large populations, on
this basis industry 1.0 should have taken place in China or India (Lin, 1995). However, to advance an
economy through great technological and scientific progress required more than a large population,
relevant education and training are key drivers–for both the development of new technologies and
adaptation of existing, for local settings, technologies (Lin, 1995).
2.5.2. Industry 2.0

Industry 2.0, during the 19th century, was characterised by technological innovation progress that
fuelled mass production in Western Europe and the United States (Chandler, 1992). The discovery of
electricity generation for industrial power drove production volumes to new levels–not experienced
before (Chandler, 1992). New firms that emerged were capital intensive, could reach much wider
markets due to transportation and communication advances of industry 1.0 (Chandler, 1992).
Though technical change and adoption by firms was fast, productivity remained low for
decades, implying a time lag between technical change and passage to the new economy
(Atkeson & Kehoe, 2001). Firms that succeeded embodied organizational learning as a key variable
and focused on markets in which existing capabilities provided an advantage (Chandler, 1992).
Superior industry specific technical skills among the workforce were, also, a leading indicator for
firms to come up with a large number of inventions (Sutthiphisal, 2006).
Firms that succeeded gave sufficient confidence to local investors, these local investors became–and
not banks or other formal funding houses-the dominant investors in cities such as Cleveland, Ohio,
United States (Lamoreaux, et al., 2004). The close working together of investors–also as managers
within new promising firms–and founders was a key attribute for success (Lamoreaux, et al., 2004).
Breakthroughs were achieved through incremental micro-inventions that leveraged technology
feedback loops (Mokyr, 1998). The rate of industrialization increased rapidly in countries with much
lower wages (Mokyr, 1974).
2.5.3. Industry 3.0

Industrial revolutions are characterised by an increase in speed of organizational and technological
change; coupled with cost reductions, rising average labour productivity, lower growth rates
in labour income, surplus capacity; and followed by staff reduction and eventually close shop
(Jensen, 1993). The failure of incumbent firms to accurately respond and harness disruptive
technological change was thoroughly explored by (Christensen, 2016) and the exploration led
to the theory of disruptive innovation. Incumbent firms almost always lose the battle to entry
firms when it comes to successful introduction and commercialization of a disruptive technology
(Christensen, 2016). In the 1970, the increased speed of technological progress increased
the likelihood of larger firms to exit the market when compared to smaller firms
(Greenwood & Jovanovic, 1999).
Industry 3.0 was driven from East Asia, technological progress in digitization and information
technology as a key variable in winning market share against United States firms (Hsieh, 2002;
Chandler, 1992). Industry 3.0 brought about growth of East Asian countries–Singapore, Hong
Kong, Taiwan and Korea (Hsieh, 2002). The current global economy that came about with industrial
revolutions is mainly depended on decaying natural resources, and in recent times, very high
IAMOT 2019 | 25
unemployment rates are observed as firms struggle to keep operations online (Rifkin, 2012). Thus the
leading firms are struggling to keep up. Sustainable development, leveraging a decentralized approach
in renewable energy systems and 3D printing for advance manufacturing could be the way forward
(Rifkin, 2012; Jovane, et al., 2008). A move towards a decentralization form of production has the
potential to introduce new owners of production–the poor and currently marginalized.
As most technologies are developed outside of emerging economies, available at much lower prices;
emerging economies are in a position to access these technologies for local use, however, a strong
internal research and scientific capacity for adaption, to cater for local settings, is a prerequisite for
successful commercialization (Lin, 1995). The kind of firms suitable for emerging economies are those
with superior capacity to merge and extract value from a number of technologies (Florida, 1991).
2.5.4. Industry 4.0–The Case of Amazon

Amazon-E-commerce giant–is offsetting some of the jobs lost to automation, creating new low end,
high end and tech jobs (Yuk, 2018). In the United Kingdom and United States respectively, 2500
and 100 000 full-time jobs are planned to be created in 2018 (Yuk, 2018; Molina, 2017). Amazon’s
full-time and part-time workforce, in the United States, grew by a significant 545% since 2011–from
56200 (Molina, 2017). According to The Guardian, the new office in Manchester, United Kingdom
is expected to create 600 technology jobs–research and development in software and machine
learning (Butler, 2018). In Dublin, Ireland, the current workforce of 2500 will be increased by an
additional 1000 employees during the second half of 2020 (O’Brian, 2018).
The large number of new jobs is paralleled with concerns over warehouse workers’ wage increases
rooted on benefit cuts (Long, 2018; Butler, 2018). This resulted in a number of unsatisfied
long-serving employees. It appears that wage increase is directing most workers toward some form
of part-time employment. In the United Kingdom, a large majority of the workforce within Amazon
is on temporary employment (O’Connor, 2013). Temporary employment offers flexibility, for the
firm, to reduce workforce during low sales periods and remain profitable. Temporary employment
is incapable of sustainably reducing inequality and to alleviate poverty. The rapid growth of firms
like Amazon put traditional retailers out of business, and thus putting more people out of “secure”
work (O’Connor, 2013). In recent literature studies–for the period 2011 to 2016-on “what do we
know about Industry 4.0 so far?”, human resource management and implementation came as the top
researched areas, with 25 and 24 papers out of 82 respectively (Kiel, 2017). Understanding suitable
management approaches of the human workforce in the era of machines as co-workers and the
implementation of elements of industry 4.0 in a profitable manner is of vital importance.
3. Proposed Framework
3.1. Low-Cost Business Models

It is no doubt that industrial revolutions gave society economic growth levels not known and anticipated
during pre-industrial revolutions (Jovane, et al., 2008). However, the growth came at a price, it has
been exclusive and unsustainable. Emerging South Africa, with her high income and wealth Gini
coefficient, must enable an inclusive and sustainable growth. The implication of high income and
wealth Gini coefficient in South Africa include lack of access, by the poor, to a certain category of
products, such as quality private health care and education. These products are expensive, catering
for a selected few and are inaccessible to the poor. This kind of environment is fertile ground for
disruptive technology, offering affordable and accessible products to the current nonconsumers–the
poor (Christensen, et al., 2016; Christensen, et al., 2017; Christensen, et al., 2017).
Technology alone is not sufficient for business success, it must be coupled with a suitable business
model–a clear outline of value creation and distribution thereof within a defined profit recipe-and
a transformative value network–for successful consistent distribution of products to customers
(Christensen, et al., 2017; Teece, 2010; Chesbrough, 2007). A firm with a superior business model will
IAMOT 2019 | 26
knock a firm with a superior technology (Chesbrough, 2007; Echterfeld, et al., 2015). The wide use of
internet and advances in ICT–i.e. big data-has opened a new world of electronic (e) commerce business
models, creating more options for customers (Timmers, 1998; Teece, 2010; Kiel, 2017). Amazon is
one business leveraging e-commerce as a business model. New and disruptive technologies are threats
to incumbent firms, however, entry firms would only disrupt incumbent firms provided that they make
use of superior business models (Echterfeld, et al., 2015).
To offer sustainable strategic edge, a business model must be almost impossible to copy by
competing firms (Teece, 2010) and should be timeously implemented. The advantage of low
cost–market creating–business models, offering accessible and cheaper products, is that
that the initial margins are too low for larger firms–thus rendering them unattractive
(Christensen, et al., 2016). Also, cheaper and accessible products directed to those unable–the poor-to
purchase mainstream expensive products creates a scenario where firms delivering the products compete
against nothing (Christensen, et al., 2016). This sector of the economy inevitably provides a platform
for the firm to make incremental product improvements without being recognized by larger firms
(Christensen, et al., 2017). The firm starts to offer products to the low end of the market, with product
improvements they begin to access other consumers higher up the market hierarchy. Involving and
integrating customers, during product development, as key partners is central in strengthening the
selected business model (Kiel, et al., 2016).
Low cost business models are transformative, capable of shifting the balance of forces–access to
affordable products and employment opportunities within an economy, and actually begin to expand
the economy by creating new markets (Christensen, et al., 2017; Florén & Agostini, 2015).
In an attempt to reduce current high income and wealth Gini coefficients and for economic
sustainability, South Africa considered small, medium, micro enterprises (SMMEs) as key enablers
(Fatoki, 2014; Mbuyisa & Leonard, 2015). A number of government agencies and ministries
have SMMEs development as a top mandate. SMMEs create the majority of jobs in South Africa,
currently at 55% (Van Scheers, 2011). Despite all the efforts and focus on SMMEs, the failure rate of
entry SMMEs is extremely high–4 in 10 in the first year, 6 in 10 within two years, and 9 in 10 within
10 years (Fatoki, 2014; Van Scheers, 2011). A number of factors are cited for the high failure rate,
ranging from lack of skills in marketing the business, high competition, non-existent distribution
channels and lack of workforce training (Fatoki, 2014; Van Scheers, 2011).
The adoption of ICT is a potential strategy for SMMEs to correctly response to some of the outlined
challenges (Mbuyisa & Leonard, 2015). The success of low cost business models would certainly
rest on correct management of identified challenges faced by SMMEs.
3.2. Proposed Conceptual Framework

The literature study on industrial revolutions in previous sections highlighted a number of variables
that enabled successful management of technological innovation. The successful management of
innovation systems within firms does not resemble a single event, it is a process–from the generation
of ideas to implementation for business impact–and requires continuous interface between the
process and central drivers–both internal and external to the firm (Cortimiglia, et al., 2015).
In no particular order, these variables are: superior industry specific technical skills; organizational
learning; knowledge sharing among firms; sustainable regional partnerships ahead of global
partnerships; understanding of the labour environment; incremental innovation for early profit and
creating investor confidence; smaller firms over larger firms; firms capable of mergers, acquisition
and integration of existing technologies; creation of low-end and temporary jobs. From the variables,
a further optimization and grouping leads to the following variables:
i. Technical knowledge;
ii. Regional partnerships;
iii. Understanding of the labour environment;
IAMOT 2019 | 27
iv. Firm capability;

v. Temporary employment and; and
vi. Knowledge transfer.
Figure 1, below, is the proposed conceptual framework, for emerging economies to strategically and
gradually manage the impact of industry 4.0, and move towards inclusive and sustainable growth.
Figure 1: Proposed Conceptual Framework for Emerging Economies. The Framework Should be Contextualised within
the wider Ecosystem Including that of Government, Related Policy Environment and Red-tape.
In relation to the wider ecosystem, the next phase of the research will test for correlations and
causality among the variables composing the proposed conceptual framework.
7. Research Methodology
From the literature study on industrial revolutions, a few variables were deduced for successful
management of technological innovations (Perry, 1998). As each industrial revolution and country is
unique in its own way, these variables act as a guide and starting point to identify suitable variables
for emerging economies to successfully manage technological innovations in the era of Industry
4.0. The development of the proposed conceptual framework is a step within the process of theory
building. In theory building, both deduction and induction are used in combination (Perry, 1998).
When correlations and causality among variables are central to research, the research is categorised
as quantitative (Golafshani, 2003; Noor, 2008).
A case study research methodology is suitable for research involving dynamics and complexities
(Perry, 1998; Noor, 2008). When research involves integrated systems during an era of rapid change,
a case study approach is recommended (Noor, 2008). Through a diverse range of data sources, a
case study helps surface reasons for the way things are and guides the development of relationships
among concerned variables (Noor, 2008). Understanding dynamics within an emerging economy is
a multifaceted and complex process. On this basis, a case study research methodology was followed.
The development of the proposed conceptual framework, using case studies, followed an explorative
route (Florén & Agostini, 2015; Noor, 2008). Multiple case studies, in this paper the management
of new technologies during industry 1.0 to 4.0, strengthen reliability, validity and accuracy of the
research output (Noor, 2008).
IAMOT 2019 | 28
For the next phase of the research, economies with above average economic growth would form part
of the initial case study pool. Multiple cases, in the next phase of this study the number of selected
countries, would strengthen reliability, validity and accuracy of the research output (Noor, 2008).
Data sources such as published national statistics, budget speeches and recorded interviews will be
used to test for correlations among variables of the proposed conceptual framework. The flexibility
that comes with semi structured interviews increases the richness–diverse angles of gathering data on
a single research-of the collected data (Noor, 2008). Where correlations among variables hold, face to
face and/or online semi structured interviews would be conducted to gather data for causality testing.
The output of the next phase of the research project would, also, outline applicable boundaries and
circumstances for the new and proposed theory. It is these applicable boundaries and circumstances
that would guide policy makers in emerging economies in the development of suitable policy
constructs and intents.
8. Conclusion
In an attempt to guide emerging economies in accurately responding to Industry 4.0 and to achieve
inclusive and sustainable growth, this paper proposes a conceptual framework. The conceptual
framework has six variables-technical knowledge; regional partnerships; understanding of the
labour environment; firm capability; temporary employment and knowledge transfer–that are
considered for successful introduction of low cost–market creating–business models. These new
business models and requisite ecosystem will be geared towards creating affordable products and
employment opportunities. The research followed a case study approach and in relation to the wider
ecosystem, the next phase of the research will test for correlations and causality among the variables
composing the proposed conceptual framework.
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The Conceptual Structure for Developing Reverse
Innovation with Virtual R & D and IOT—
Case Study in Iranian Company
Asghar Jabalbarezisarbijan
Qeshm Voltage Company, Iran
E-mail: b.barezi@gmail.com
Hossein Khalatbary
Qeshm Voltage Company, Collaborative
R&D & Scientific Committee, Iran
E-mail: khalatbary.h@gmail.com
Mojgan Talebi
Qeshm Voltage Company,
R&D & Scientific Committee, Iran
E-mail: m.talebi@qeshmvoltage.com
Abstract
In today’s world we are facing a lot of challenges in different industries. Owners of companies or their managers
should try to use solutions that is more useful for develop better products and expand their market in our
competitive world. Big companies find new ways such as reverse innovation. For example GE that is a big company
used reverse innovation to expand the market in the field of healthcare equipment. This is the way that we are
working in our company. We are following new technologies in the world and use innovation and creativity to find
new solutions to develop new products and give better services to our customers.
In our latest researches and studies, we focused on reverse innovation that is used in various fields by different
companies around the world. We found there is some challenges and difficulties in the way to use reverse
innovation with its normal procedures. We study about different solutions and finally decide to use virtual R&D and
IoT as two helping hand for the base of reverse innovation. As we tried this solution in our products, so we decide
to publish it as a conceptual structure for developing reverse innovation. In the other words, we can imagine this
concept as an isosceles triangle. The base of the triangle is reverse innovation and its two legs assumed as virtual
R&D and IOT.
Virtual R&D and Internet of things (IOT) have an important role in the age of industry 4.0. We had deep studies
about these topics and also we had publish the results in past IAMOT conferences. We use our researches results
and new solutions in our products such as training equipment and softwares.
According to our findings, using virtual R&D and IoT can be so much helpful for developing reverse innovation.
This idea has a lot of benefits and can reduce the costs and time in the reverse innovation procedures. Because in the
reverse innovation process we need to share informations between two or more countries that at least one of them is
a developing country and other is a developed country. In this paper we will try to describe our concept to share it
with others and also receive its feedback from the bigger environment. Based on our findings our concept can help
to develop products that is so much more useful in the global market. It means both of the developing countries and
developed countries can take advantages of this products.
Keywords: Reverse Innovation, Virtual R&D, IOT, Concept, Industry 4.0, Internet of Things, Developing Countries,
Developed Countries, Iran, Qeshm Voltage
1. INTRODUCTION
From the past, innovation in the companies determined the level of development and power of
competition of them. Changes in environment of companies and customers’ needs is increased the
importance of innovation in corporations in different industries.
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The Conceptual Structure for Developing Reverse Innovation with Virtual R & D
Innovation is related to some concepts such as providing new ideas, rationality, improvement,
update & invention.
From lexical point of view the term of „innovation” is taken from Latin word “innovatio”, that its
meaning is „to renew”, also in the economic discussions it’s about implementing new technologies,
creating new organizations, and institutions (Encyklopedia PWN). According to J.A. Schumpeter
(1934) who is pioneer of innovation in economic sciences, innovation and the creative destruction
activities are common practice, which allows to overcome the obstacles emerging in the cyclical
development of the economy. Creative destruction involves the continuous destruction of old
structures and creation of new ones that are more effective. In Schumpeter’s classical approach,
innovation that will cause development can be divided to these topics:
●● Releasing a new or updated product to the market
●● Using a new production method or new technique for sales operation
●● Entering to a new market
●● Using new sources of raw materials or products
●● Introducing new organization for an industry
The Schumpeter’s approach mainly consider innovation as experiments and wide-range changes in
the market that fundamentally changes the structure of entire markets or sectors.
Over the years, the innovation influence has grown due to changes in the global economy, which
has helped companies through a variety of factors, such as trade liberalization, finding new ways to
send products, deliver services, capital, and share technologies to reach to better performance and
better results. According to the Oslo Manual (2005, p. 46), the popular and most used definition
of innovation is: “an innovation is the implementation of a new or significantly improved product
(good or service), or process, a new marketing method, or a new organizational method in business
practices, workplace organisation or external relations”. According to this definition, other types of
innovation can be achieved, such as: product innovation, process innovation, marketing innovation
and enterprise innovation. In the other words, innovation is the result of human ingenuity, ability to
discover and formulate laws, principles, rules, concepts, solutions and ideas as well as to realize and
popularize them. (Duraj & Papiernik-Wojdera, 2010)
Usually, innovation happen in the enterprises that are placed in developed countries. These
enterprises have good capital and knowledge to establish R&D centres and technology centres to
create new things with innovation. And they can use global market opportunities to enter to the new
markets all over the world, including less developed and developing countries.
2. VIRTUAL R & D
As entrance of technology to market is increases, the challenges and competition in the market become
harder. One essential strategy for preservation and perfection of companies is paying more attention
to R&D and use new technologies such as professional social networks, search engines, websites
and many applications. This huge virtual space services can changing R&D to virtual R&D. Virtual
R&D will be a new way for SMEs that focusing on new product, sciences, technology, new product
development (NDP)and open innovation by utilizing cyber systems as we described before in a full
paper in IAMOT 2015. Here we selected some important parts and suggest to refer to full version.
With advantages of cyberspace, R&D can grow faster and some of the tradition R&D structures
problems will be solved. This is why we introduced cyber systems as tools of new structure of R&D
that means Virtual R&D as represented in this figure.
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Figure 1: Virtual R & D (IAMOT 2015)
Endo Pharmaceuticals is one company which has already expanded into virtual R&D, implementing
its new capabilities in early and late stages of the drug development process, in an attempt to combine
strong quality and oversight with international expertise. The executive vice president for research
and development at Endo Pharmaceuticals, explained “Their virtual R&D team now includes
in‐house experts in the United States and partners in India with specific capabilities who work together
toward research goals. Endo has biochemists and other scientists working in our U.S. location, but
we use research labs in India and have up to 80 people working there full time under contract, plus
dozens more providing support services in their labs. This model saves us development time as well
as significant capital costs–it would cost almost four times as much to operate an equivalent R&D
program entirely in the US.”
Commenting on the advantages of the company’s current system, he added: “Not only does this
increase our chances of achieving commercialization of new drug treatments, it gives us the option of
shutting down programs that are not able to advance to the next level, and quickly shifting resources
to accelerating the programs that are demonstrating the most promising results.”
3. Internet of things (IOT)

We are currently living in a period where the Internet is accessible to all humans almost everywhere,
although it was invented less than thirty years ago. Artificial Intelligence and Machine Learning
are topics that have not been announced until a few years ago and now both have the capabilities
needed for companies and professionals. The technologies updated so much right now and it’s more
difficult for companies to compete with others. All companies should find new ways to develop
their new products with new futures and suitable for new customer’s requirements. One of the
important technologies is IOT (Internet of things) that is going to become so popular in different
industries after the 4th industrial revolution. Also virtual R&D is another point that can help to speed
up different procedures in this way.
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Figure 2: Stages of the Industrial Revolutions
Internet of Things (IOT) is a collection of computer systems, mechanical and digital machines,
objects, humans or animals that have unique identifiers and the ability to transfer data to a network
without human intervention. An object on the Internet of things can be a person with an implantation
of a heart monitoring system, an animal equipped with a biological transmitter on the farm, a vehicle
equipped with sensors and communication systems or any natural or man-made object that can
transfer information over a network with specified address.
The fourth industrial revolution, or Industry 4.0, is a term that includes a set of strategic initiatives
aimed at helping to develop and accept the Internet of things (IOT) in the industry. The main idea in
the fourth industrial revolution is that the Internet of industrial things and technology of calculating
cloud computing are key elements in smart factories and leading the fourth industrial revolution
(after the previous revolutions, the use of steam & mechanization, mass production, and then
digitization and automation in the industry).
Figure 3: Fourth Industrial Revolution
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Today, IOT is very popular in smart homes. Digital home appliances and devices are equipped with
communication capabilities such as IOT. The use of IoT capabilities in power boards used in building
management systems (BMS) helps builders and building managers increase their energy savings and
reliability in existing or under construction buildings. Most electrical equipment makers of smart
buildings, produce electrical panels that help to analyse energy consumption and cost optimization.
For example, by using advanced products from high-tech companies such as Siemens and Schneider,
intelligent electrical panels automatically monitor the energy consumption of different parts and
provide a clear view of how and where energy is used in different parts of the buildings.
In the other section, using the Internet of things is increasing in electrical panels in different
industries. When everything in the electrical systems is interconnected, the availability of the system
and its components becomes more important than ever. In the worst case scenario, if only one piece
of the product line’s production process gets in trouble, the whole system may be damaged and stop
the overall production process. Therefore, power distribution systems in factories and workshops
should be combined with maximum safety and maximum flexibility in industrial automation systems
and the Internet of things systems. IOT capable products can protect the cables, equipment, and
industrial systems against electric shock and damages, and, in the event of problems such as short
circuit and overcurrent, the power is cut off securely. In addition, the new models of this product,
combined with new features, will make it much easier to use other applications such as energy data
registration. Thus, products like this will help to create transparency about energy consumption
and system status, which are among the most important issues in the era of the fourth industrial
revolution, providing some kind of infrastructure for the production process efficiently and securely.
4. Energy Efficiency with IOT

Data collected from current, voltage and energy values can be used for accurate evaluation and
systematic management of processes in industrial automation. Errors and problems are identified
at an early stage, avoiding failures, and managing energy in general operations more efficiently.
Energy data can also be used to assess system status, network quality as well as optimize energy
use and use of capacities. For example, the amount of energy per day, each shift, each of the
lines or units of production, can be calculated and used to carry out energy efficiency measures.
The assessment of energy consumption at production time will show the first potential savings
potential compared to non-production time. The comparison may be done with similar factories or
processes and processes within a plant or a specific range and extracts potential. Precise, recyclable
and reliable measured values will form the basis of monitoring the systems of energy and factories.
This process will provide a lot of potential savings for companies and will provide a basis for
sustainable energy management in the digital age.
5. IOT and Data Management in Cloud Computing

Finally, the cloud-connected components will make all the different data available in the cloud
spaces such as cloud computing system from big companies or local cloud systems in each country.
These data are accessible by using the cloud-based Internet of things, and allow to do specific
evaluations for each industry by using cloud computing. This structure provides various services,
the ability to develop, perform work and provide digital programs and services. In this way, a large
amount of data sent from too many numbers of smart devices, can be quickly and effectively scanned
and analyzed in different steps such as R&D procedures.
The results and recommendations of the data review can be used to continuously optimize production
steps. Also for predictable maintenance measures, potential problems can be identified at a very early
stage in order to make the right decisions at the right time. This enables companies to maximize the
profitability and efficiency of their operations, and reduce their sleeping time, increase production,
effective use of facilities and, ultimately, more competitive ability.
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6. Reverse innovation
Nowadays, Innovation is a key point in the business world and usually it will cause introduce
a new product in developed countries, because their power to spending money for research and
development and give value to the ideas. As we can see, most of the high-tech products introduce
in developed countries, first and then release to the global market including developing countries.
But, in recent years, we are seeing that innovation is not only limited to developed countries.
Currently, the corporations in developing countries are also pay more attention to innovation and
want to introduce their products and services to the world. This is the concept of reverse innovation
that is growing in our age. This concept is invented by Vijay Govindarajan, a world expert on
strategy and innovation in 2009. Reverse Innovation is a strategy for innovation happen in developing
countries and markets and then expand the market of an innovation’s results in developed countries
markets. A lot of companies are doing this process in developing countries like China and India
and then distributing the products globally. In the reverse innovation, process begins by focusing
on requirements in developing countries like India that needs low-cost products. After products are
developed, they will introduce their products to other areas including highly developed countries with
low prices which creates new markets. Some of developing countries have low cost and huge pool
of human and natural resources in beside the fast pace of internationalization in the world economy,
slowing down of rich countries and rising level of income and growth in emerging countries. So, the
reverse innovation process has so many benefits for both developing countries as well as developed
countries and help to produce new products with cheaper prices, rise the employment rate, growing
technology etc.
In the normal situations, the products will release in developed countries and after that the producers
will remove some expensive options and features and release the simpler product to the developing
countries. In this approach, mostly the affluent segments of society can benefit from the products
in the developing countries. But in the reverse innovation, situation is so much better. Because the
product is developed on the base of wider range of requirements in the developing countries and also
after the good results, can be used in developed countries with some upgrades.
Reverse innovation played an important role in global health systems. Because low-income
societies, need more health problems and also they cannot pay so much money for health care
systems and skilled operators. So we can see some health care products from big companies like
GE that developed a new product with help of reverse innovation that can be used in developing
countries and also developed countries. We can find different examples of reverse innovation in
different industries, such as:
●● GE Healthcare produced an ultra-portable electrocardiograph machine for doctors in India
and China and later they are selling this machine in the U.S. and other developed societies.
●● Nokia is testing new business models for classified ads in Kenya and created new
features for US users based on experiences in Ghana.
●● Microsoft is creating new phone app services for “dumb” phones to use non-smartphone
devices for access Web sites such as Twitter and Facebook.
●● Tata Motors is upgrading its “Tata Nano” for western markets with the name of
“Tata Europa”.
●● Procter & Gamble is releasing a honey-based cold remedy in Europe and the United
States markets that first was created for Mexico.
●● Nestlé introduced its low-cost, low-fat dried noodles as a healthy alternative in Australia
and New Zealand that originally created for rural areas in India.
And also recently we saw a Bangladeshi doctor who turned a shampoo bottle into a low-cost lifesaver
to save babies from pneumonia (Aamir Rafiq Peerzada and Pauline Mason Innovators, Bangladesh,
10 October 2017, BBC news).
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“It was my first night as an intern and three children died before my eyes. I felt so helpless that I cried.”
In 1996, Dr Mohammod Jobayer Chisti was working in the paediatric department of the Sylhet
Medical College Hospital in Bangladesh. That evening he made a promise that he would do
something to stop children dying from pneumonia. Because in his first night as an intern and three
children died before his eyes.
About 920,000 babies and small children die from the disease each year, mostly in South Asia and
Sub-Saharan Africa. After two decades of research, Dr Chisti has now come up with a low-cost
device with the potential to save thousands of babies’ lives.
Pneumonia affects the lungs after infections from bacteria like streptococcus (strep throat) or a virus
such as respiratory syncytial virus (RSV). The lungs become swollen and fill with fluid or pus,
reducing their ability to take in oxygen. In developed countries hospitals use expensive ventilator
machines to help children with pneumonia to breathe. But each machine can cost up to $15,000
(£11,000) and must be operated by specially trained staff which can make them too expensive
for hospitals in developing countries such as Bangladesh. The World Health Organisation’s
recommended low-cost alternative treatment for severe pneumonia - low-flow oxygen - still results
in one in seven children dying.
Figure 4: Dr. Christi and his Bubble CPAP Device in the Hospital
Dr Christi got his inspiration from a machine he saw while working in Melbourne, Australia.
This uses continuous positive airway pressure (CPAP) to prevent the lungs from collapsing, helping
the body to absorb enough oxygen. But it is expensive. When he returned to work at the International
Centre for Diarrhoeal Disease Research, Bangladesh, he started work on a simpler, cheaper bubble
CPAP device. He and a colleague took a discarded plastic shampoo bottle from the intensive care
unit, filled it with water and inserted one end of some plastic supply tubing. “The children inhale
oxygen from a tank and exhale through a tube which is inserted into a bottle of water producing
bubbles in the water,” Dr Chisti explains. The pressure from the bubbles keeps the small air sacs of
the lungs open. “We tested it on four or five patients at random. We saw a significant improvement
within a few hours.” After a two year study, Dr Chisti published the results in The Lancet magazine.
It showed children treated with the bubble CPAP device had much lower death rates compared with
those treated with low-flow oxygen. At a cost of just $1.25 (£1), the device appeared to cut mortality
rates by 75%.
The device also makes much more efficient use of oxygen, slashing the hospital’s annual oxygen bill
from $30,000 (£23,000) to just $6,000 (£4,600).
So far, about 600 children have benefited from the low-cost life saver. Dr Chisti wants every hospital
in developing countries to have the CPAP device available to them. “On that day, we can say that
IAMOT 2019 | 38
pneumonia-related mortality is near zero.” This is an innovation that can be used in developed
countries also, for example in some emergency situations.
The reverse innovation relates to so many new and old concepts of innovation in developing
economies. Globalization is the first stage of the evolution in innovation development, and caused to
multinational corporations have access to global markets. Before, innovative products and services
only was created in main countries of the multinational corporations and send to all markets in all
over the world without any modifications. The second stage the companies that produce innovative
products or innovative services, try to have some modification for the products to can compete more
in different countries markets and cover requirements of local customers.
The big companies that have office in different countries, usually have some R&D activities in
developing countries, because in this way they can use highly qualified educated people with lower
price and decrees the company’s operational costs. This kind of activities helped to have a transition
to the third stage of innovation that is local innovation. So big company can introduce new innovative
based products and services for local markets by using the power of big or multinational company.
In the fourth stage, we have reverse innovation and products and services that is made on base
of the developing countries’ markets, will introduce to developed countries markets. It look like
the direction of innovation process is reversed. Now, developing countries have different role in
innovation process.
Emerging markets will offer many possibilities for technology innovation, which is important from
the point of view of entrepreneurship development, as there is a high demand for good quality
products or services at affordable price (Hang & Garnsey 2011). Differences in the approach to
innovation in the globalization phase (conventional innovation path) and in the reverse innovation
phase (reverse innovation path) are presented in this figure, labled by (Hang & Garnsey 2011).
Figure 5: Innovation Path, Conventional and Reverse Approach
Source: Hang & Garnsey (2011)
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7. Our Concept
In 2015, we published a paper IAMOT conference about cyber systems and virtual R&D. On that
paper we mentioned different benefits of virtual R&D and some other points that we introduced
some of them in the “virtual R&D” topic in this paper. Obtaining innovation needs to have share of
information which happens by utilizing cyber space such as social networks to augment its R&D to
virtual R&D. The crossing point of these two strategies which has the most overlapping causes the
appropriate innovation for the organization.
We are living in the age of industry 4.0 that virtual R&D and Internet of things (IOT) are two important
topics in this age and we described them in past parts of this paper and also in past IAMOT conferences.
In our figure in the next page, we are presenting the relation between reverse innovation with R&D,
virtual R&D and IOT and also with NPD. This relation can work in both direction.
Figure 6: Our Figure for Relation between “Reverse Innovation”, “R&D, virtual R&D and IOT” with “NPD”
As we described before, reverse innovation has a lot of advantages. But also there is some different
points that we can focus on them to improve normal procedure of reverse innovation. In our concept we
can use virtual R&D and IoT as two helping hand for the base of reverse innovation. We can imagine
this concept as an isosceles triangle. The heart of the triangle is reverse innovation that will happen in
developing country and its two legs assumed as virtual R&D and IoT beside the R&D works.
Figure 7: Our Figure for Reverse Innovation on the Heart, that Souronded by R&D, Virtual R&D and IOT
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So, according to our above figure, we can use this structure to improve the reverse innovation model
that presented by Hang & Garnsey in 2011 to reduce the costs and better performances.
Figure 8: Positioning of our Figure No. 7 in Hang & Garnsey Process
According to our findings, we can use virtual R&D and IoT to develop reverse innovation more
easily. Doing in this way have a lot of benefits; for example reduce the costs and time in the reverse
innovation procedures. In the reverse innovation process we need to share informations between
two or more countries that one of them is a developing country and other is a developed country.
With using virtual R&D, we don’t need to hold face to face meetings and trips to another country
and share information, designs and results with different social media and various communication
environments. Also, by using IOT in the procedures and products, we can give very good and fast
feedback from the devices and process them in local or cloud space. For example if we have IOT in a
medical device that is in R&D procedure, all member of the R&D team (or all virtual R&D members)
will receive the results and feedbacks from device behavior in real-time.
So they can solve the problems much faster and easier than usual. On the other hands, it can help to
develop products that is so much more useful in the global market. It means both of the developing
countries and developed countries can take advantages of this products. The figure 9, shows how our
concept works for developing reverse innovation with virtual R&D and IoT.
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Figure 9: Our Suggestion for the Process
8. Case Study in Iran
8.1. Interactive Training Software

Our company with the name of Qeshm Voltage engineering company is one of the famous companies
in the field of industrial automation in Iran. In our company we have scientific committee that
follows the latest changes and challenges in the world which are related to our fields of work. IOT
is one of the important topics in the fourth industrial revolution that followed by our scientific
committee and technology chief officer. Right now, it’s more than 2 years that we started to do deep
study about IOT and related topics.
Our company’s main focus is industrial automation and we have different departments and small
business units, for example technical, training, projects, production unit, repairing, etc.
Training is very important subjects for industries and we have a lot of different solution for it. One of
our products is “interactive training software” that we produced for different industrial automation
equipment to help engineers for learning how they can work with these expensive and important
devices and get ready for running projects and work in the industrial factories. We made these
training software packages with small scale of our concept for “developing reverse innovation with
virtual R&D and IoT”. Let us describe more about our small scale reverse innovation. This project
done in Iran country. But we have two cities that involved in this project. One of them was Tehran
that is capital city of Iran and other one was a small city in the northwest of Iran that is around 700km
far from Tehran. We have two office in Tehran (as a developed area) and that northwestern city
(as a developing area). In the Tehran office (as a developed area) we have all hardware and training
class that we need for training purposes. But in the northwestern city (as a developing area) the
training facilities is not good; but we have engineers there that are professional on computer
programming.
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Figure 10: Intelligent Robotic Systems Equipped with IOT made by Qeshm Voltage Company
So what we have done is using virtual R&D and IOT to do reverse innovation and produce a training
software in northwest city (as a developing area). So, in this way, engineers in both office was
sharing information with social media and virtual R&D and also with IOT capable devices, engineers
can test the results remotely from long distance. The expert electrical engineers in the main office
(Tehran) prepared some documents and scenarios and send them for program development team in
the other city. The programmers in the developing area worked on the software and share results
with electrical R&D guys in the Tehran throw virtual R&D and receive the feedbacks for improve
the software. In some parts, the programming team need to test something on the exact software
and that was possible with the IOT equipped devices that was in the main office in Tehran. With
working in this way the cost producing this software is very cheaper, as we didn’t need different trips
between these two areas for sharing information, holding meetings and test with hardware. The Final
software is a interactive environment. Interactive phrase means that in some parts the user should
perform the wiring, setting, and other works by himself in the simulated environment. In the next
pictures we have some screenshots from the software that is about servo motors.
Figure 11: Sample Page if Wirring Simulation in the Interactive Training Software
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Figure 12: Sample Page of Setting Parameters in the Interactive Training Software
Since our country is have a lot of engineers that need training before joining to industrial factories,
it is necessary that leading companies in this field try to provide related products and introduce them
more to help to expand this technology in Iran. So, that is why Qeshm Voltage engineering company
started to work on the development of various IOT-capable training and laboratory systems and
collections, which will in turn contribute to the development of this technology in Iran and after that
we can use reverse innovation to introduce our products to the global markets also. For example
we built a training simulation for ourselves with Iranian Cloud system, Raspberry electronic board
and some other industrial equipment for use as a training and testing equipment for students and
technical experts. Also another products include industrial robot with 3 and 5 degrees of freedom
as well as Mechatronics and FMS1 systems as a simulation of a real small factory. We used Iranian
cloud system in these products that provides a complete package to use in educational and research
purposes in the R&D centres, laboratories, industrial centres and universities. By using reverse
innovation with virtual R&D and IOT, we can expand our products in the different parts of Iran and
also in the future we can do reverse innovation with our partners in other countries.
9. CONCLUSION
Reverse innovation is an important topic and it has a lot of socially useful results in different countries.
Also it can increase the speed of information sharing between R&D centres and has good role in the
price of products. With using our concept we can reduce the prices so much and increase the process
speed of the new product development. Our concept will help the communication between R&D and
the innovator. Innovator can share his/ her comments with R&D team.
According to different experiences, it is clear that reverse innovation can be so much helpful for
expanding new products in the word that can solve a lot of problems, like expensive prices or hard
accessibility and etc. In this paper we introduced our new concept to improve some functions in the
reverse innovation process.
Actually presented concept will facilitate the connection between different centres in so many
aspects. It is so useful to develop different products for various sectors such as medical equipment,
food industries, trainings, mobility, electronics, mechanics, computer products and countless
other cases.
We think this concept can be used for a lot of developing countries and also developed countries to
implement reverse innovation in the better way.
1
Flexible manufacturing system
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Schneider Electric, 2017, Smart Panels, digitised electrical switchboards for buildings
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Management Studies Aalto University School of Business, 2014
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COMPANIES?, International Journal of Commerce and Finance, Vol. 3, Issue 2, 2017, 48-52, page 48
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http://encyklopedia.pwn.pl/haslo/3914833/innowacje.html
www.bridgeport.edu/academics/graduate/technology-management-ms/
www.crossborder-technologies.com/Inno/
IAMOT 2019 | 45
Problems and Barriers to Innovation in SMEs in
the Manufacturing Industry in Brazil
Liliana Dennis Mejia Sanchez

Pontifical Catholic University of Rio de Janeiro,
Graduate Program in Metrology, Brazil
E-mail: liliana.dennis@hotmail.com
Maria Fatima Ludovico De Almeida
Pontifical Catholic University of Rio de Janeiro,
Graduate Program in Metrology, Brazil
E-mail: fatima.ludovico@gmail.com
José Eduardo De Oliveira Trindade

Brazilian Institute of Geography and Statistics (IBGE), Brazil
E-mail: zetrindaderj@yahoo.com.br
Abstract
Small and medium-sized enterprises (SMEs) have been the target of economic and academic analysts given their
potential for employment and income generation. Due to their managerial specificities and the problems and barriers
that they face to innovate, these firms need specific Science, Technology & Innovation (ST&I) public policies,
which, in turn, are formulated and evaluated based on the results of National Innovation Surveys, among other
relevant sources. The present research aims to analyze and compare the problems and barriers faced by small and
medium enterprises (SMEs) in the Brazilian manufacturing industry, grouped by distinct levels of technological
intensity (using the classification established by the Organization for Economic Cooperation and Development as
reference). We have drawn the data from the National Innovation Survey 2014 (Pintec 2014), which was associated
with four categories of technological intensity of sectors in which the manufacturing firms have been operated.
The respondent firms belonging to each category (that have implemented innovations or not from 2012 to 2014)
were asked to inform their perceptions on the importance of the problems and barriers that they face to innovate,
in a three-point response scale (high, medium and low importance or not relevant). The research methodology
comprises: (i) literature review on problems and barriers to innovation faced by SMEs; (ii) documentary analysis
covering technological and industry classifications; (iii) definition of research scope and analytical framework,
according to the structure of the primary data source–the National Innovation Survey, published by the Brazilian
Institute of Geography and Statistics (IBGE); and (iv) data gathering and descriptive statistics to compare the
problems and barriers faced by SMEs in the Brazilian manufacturing industry, grouped by distinct levels of sectorial
technological intensity. This work contributes to the advancement of knowledge about problems and barriers to
innovation challenged different groups of SMEs in the manufacturing industry in Brazil, according to different
levels of technological intensity of sectors in which they have been operated. It also contributes to deepening the
debate on the current ST&I mechanisms to enhance absorptive capacity and promote higher innovation performance
of SMEs in Brazil vis-à-vis problems and barriers to innovation perceived by different groups of SMEs in the
Brazilian manufacturing industry.
Keywords: Small and Medium-sized Enterprises, Problems and Barriers to Innovation, Technological Intensity
Classification, Manufacturing Industry, National Innovation Survey, Brazil
1. Introduction
There is a growing recognition of the role played by small and medium-sized enterprises (SMEs)
in promoting economic growth and generating employment and income. however, SMEs face
problems and barriers to implement their innovations, which can be associated with several factors:
(i) economic and financial (excessive economic risks; high costs of innovation; and scarcity of
appropriate sources of funding); (ii) RD&I governance (organizational rigidity; centralization of
innovative activities in another company of the group); (iii) knowledge (lack of qualified personnel,
scarcity of information on market and technological information and scarce opportunities for
cooperation with other companies or institutions); (iv) market (poor consumer response to new
IAMOT 2019 | 46
Problems and Barriers to Innovation in SMEs in the Manufacturing Industry in Brazil
products); and (v) regulation (difficulty of meeting government regulations, legal or voluntary
standards requirements and difficult to access specialized technical/ technological services).
Due to their specificities and the problems and barriers that they face to innovate, these firms need
specific public Science, Technology & Innovation (ST&I) policies, which, in turn, are formulated
and evaluated based on the results of National Innovation Surveys, among other relevant sources.
Two currents of thought in the Management of Technology (MOT) literature address the perception
of companies concerning obstacles and barriers to innovation. The first focuses on how perceptions of
different types of obstacles are affected by business and sectorial characteristics. The second emphasises
the impacts of perceived barriers by companies on their propensity or capacity to innovate. The present
work can be framed in the first stream and aims to analyse and compare the problems and barriers faced
by small and medium enterprises (SMEs) in the Brazilian manufacturing industry, grouped by distinct
levels of sectorial technological intensity (using the OCDE classification as reference).
In Brazil, the various editions of the National Innovation Survey (Pintec), published by the Brazilian
Institute of Geography and Statistics (IBGE) have shown that the innovation rate tends to grow
monotonically with the size of the company. We have drawn the data from the National Innovation
Survey 2014 (Pintec 2014), which was associated to four categories of technological intensity of
sectors in which the manufacturing firms have been operated. The respondent firms belonging to
each category (that have implemented innovations or not from 2012 to 2014) were asked to inform
their perceptions on the importance of the problems and barriers that they face to innovate, in a
three-point response scale (high, medium and low importance or not relevant).
The findings can be summarized as follows: (i) comparative analysis of the problems and barriers
faced by SMEs in the Brazilian manufacturing industry, grouped by distinct levels of technological
intensity; (ii) discussion about the perceived criticality of obstacles on their propensity or capacity to
innovate, according to the level of technological intensity in which they were classified; (iii) critical
features to be considered by Science & Technology (S&T) policymakers and SME’s support agencies.
This work contributes to the advancement of knowledge about innovation capacity and obstacles and
barriers to innovation faced by different groups of SMEs in the manufacturing industry in Brazil,
according to their level of technological intensity. It also contributes to deepening the debate on the
current ST&I institutional mechanisms focusing on innovation capacity and performance of SMEs
in Brazil vis-à-vis obstacles and barriers to innovation perceived by different groups of SMEs in the
Brazilian manufacturing industry.
This article is organized in five sections, including this introduction. The second section presents
the theoretical framework on factors influencing the RD&I cycle, highlighting drivers and barriers
for innovation; characterization of SMEs and discussion on problems and barriers faced by
these firms to innovate; and technological classifications, focusing on the taxonomy of sectorial
technological intensity proposed by the Organization for Economic Cooperation and Development
(OECD) (Hatzichronoglou, 1997; OECD, 2011). Afterward, the third section entails methodological
approach and analyses the Pintec 2014 database focusing on data on the Brazilian manufacturing
sectors, covering the period from 2012 to 2014. The next section presents and discuss the descriptive
statistical results concerning the four groups of innovative and non-innovative firms in the Brazilian
manufacturing that are object of the empirical study. In the last section, we present the conclusions,
implications drawn from the results and suggestions for future research.
2. Theoretical Background
The theoretical background encompasses the following themes: (i) characterization of SMEs and
problems and barriers faced by these firms to innovate; and (ii) technological classifications,
focusing on the taxonomy of sectorial technological intensity proposed by the Organization for
Economic Cooperation and Development (Hatzichronoglou, 1997; OECD, 2011).
IAMOT 2019 | 47
2.1. Characterization of SMEs and Problems and

Barriers Faced by these Firms to Innovate
Although SMEs have to deal with constraints of size and restricted resources to innovate
in comparison with large firms, there is a lot of evidence showing that SMEs have contributed
substantially to commercial exploitation of new product and rapid diffusion of new technology
(Edwards et al., 2005; Forsman, 2011; Hashi and Krasniqi, 2011).
SMEs often face some problems in converting R&D results into innovation that leads to economic
return or growth. Scholars describe and associate such barriers to innovation to a set of factors,
which can be classified into external and internal ones. Among the main internal barriers are factors
such as the high cost of RD&I, lack of financial resources, risk-averse culture, lack of technological
and market information and organizational management problems. Corruption, unfair competition,
lack of public policies and special funding addressed to SMEs are among the main external barriers
faced by these firms to innovate (Hadjimanolis, 1999; Freel, 2000; March-Chorda et al., 2002; Aidis,
2005; Madrid-Guijarro et al., 2009; Xie et al., 2010; Demirbas et al., 2011; Tabas et al., 2011;
Feldens et al., 2012; Zhu et al., 2012; Talegeta, 2014; and Strobel and Kratzer, 2017).
Hadjimamolis (1999) presented a barriers’ approach to innovation aiming at analyzing the main
obstacles faced by SMEs in Cyprus and found that reduction of bureaucracy and the reorganization
of technical education were the most important factors for reducing obstacles to innovation in
this country.
Freel (2000) investigated the nature and extent of barriers to innovation within a sample of 238
manufacturing SMEs in the West Midlands region of England. After categorizing from the literature
four broad types of obstacles (finance, management and marketing, skilled labor and information),
it is found that: (i) among those firms who had applied for external funds, innovative SMEs were
less likely to have been successful than their less innovative peers. However, there remains a
heavy reliance on short-term debt funding for innovation; (ii) improving in-house technical and
marketing competencies is key to improving innovative activity rather than accessing external skills
and increasing the number of internal ‘experts; and (iii) the level of firm interaction with external
agencies is low and the principal barriers to collaboration are lack of trust and inability to find
suitable partner.
March-Chorda et al. (2002) analyzed empirically the barriers to innovation in a sample of 65 SMEs
located in a medium developed region (Valencia) of Spain. The primary objective of this research
was to identify the significant determinants that confront new product development. This study
showed that the most common obstacles to innovation among all the sectors are the excessive cost
of maintaining the project of innovation and the uncertainty of market acceptance.
Aidis (2005) investigated the interrelated effect of nineteen factors grouped into four types of barriers
(formal, informal, environmental and skills) on existing SMEs in Lithuania. Regression analyses
on a sample of 332 business owners indicate that perceived formal barriers were associated with
perceived informal barriers such as corruption. Perceived environmental barriers were associated
with perceived skill barriers such as management problems. The transition effect based on business
start-up date was not found to play a significant role.
Another study in Spain was developed by Madrid-Guijarro et al. (2009) aiming at to examine
barriers to innovation among a sample of 294 managers of SMEs. The study examined the relation
between: (i) product, process and management innovation; and (ii) 15 obstacles to innovation, which
can limit a firm’s ability to remain competitive and profitable. Findings show that barriers have
a different impact on the several types of innovation, so that product, process and management
innovation are affected in a different way by the diverse types of barriers. The most important
barriers are associated with costs, whereas the least significant refers to managers’ or employees’
cultural resistance. Furthermore, the authors demonstrated that the costs associated with innovation
have proportionately greater impact on small than on larger firms.
IAMOT 2019 | 48
Xie et al. (2010) explored barriers, cooperation networks and policy requirements in innovation
on the basis of a survey sample of 188 Chinese manufacturing SMEs. This work revealed that the
‘lack of technical experts’ was the most important barrier; the ‘customer’, the most important
cooperation partner; and the ‘preferential tax policy’, the most favorable policy in innovation
for SMEs in China. These findings also revealed that many Chinese SMEs have difficulties in
accomplishing successful innovation. Therefore, policies should be made based on internal and
external restrictions to facilitate innovation of SMEs and in function of the size and the mode of
ownership of those firms.
Zhu et al. (2012) developed a model characterized by a cost-risk-opportunity (CRO) innovation
triangle. They improved a preliminarY CONceptual model by interviewing 82 top managers and
owners at 41 SMEs in China and identified the five key institution-based barriers to innovation
in China, as follows: (i) competition fairness; (ii) access to financing; (iii) laws and regulations;
(iv) tax burden; and (v) support systems. These results enhanced the institution-based view of
entrepreneurship by discussing how institution-based barriers affect innovation in SMEs.
Demirbas et al. (2011) examined the barriers to innovation, as perceived and experienced by
owner-managers of 224 SMEs operating in Turkey. Empirical data were analysed using a logit
regression model to explore barriers to innovation as perceived and experienced by these
owner-managers. The results exposed that a lack of government research and development policy
represents a formal barrier to Turkish SMEs to innovation. The existence of a substantial and
booming underground economy in this country acts as an informal barrier that impacts negatively
upon investment in SMES and increases their cost of innovation. Besides, a lack of appropriate
sources of finance and skill shortages appeared as significant variables to influence the innovation
decisions of SME owner-managers in Turkey.
Tabas et al. (2011) focused on the determination of barriers to innovation potential of SMEs in the
Czech Republic. The primary research has been carried out in a sample of 173 SMEs from several
sectors and 11 statistical characteristics, mainly qualitative and categorical, have been observed.
These characteristics have been selected as possible factors influencing the innovation potential of
the SMEs. Selection of these characteristics was based on the secondary research on studies of the
focused issue. To determine the interaction between these variables and the innovation potential of
SMEs, analyses of variables dependence have been applied, especially the Chi-Square test, Pearson
coefficient of contingence and Chuprov’s coefficient. The results were compared with those coming
out from secondary research.
Feldens et al. (2012) identified the main barriers to product innovation in a small sample of
technology-based SMEs in Brazil. The innovation process and its obstacles were analyzed,
by interviewing entrepreneurs, venture capital investors and managers of business incubators.
The analyses compared two perspectives: (i) from the entrepreneurs; and (ii) from investors.
As main findings, they found: (i) difficulties concerning legal barriers, costs and availability of
capital; (ii) the lack of investors for advanced steps of the development and scarcity of exit modes,
raising the investment cycles compared to international averages; (iii) the investors participation
close to the entrepreneurs in the business management; (iv) the difficulty to find technical and
management qualified professionals to engage in new and uncertain businesses; (v) cultural aversion
to risks, inducing both the entrepreneurs as the investors to be more conservative in the decision
making; and (vi) sense of good perspectives for the future, tied to the capital availability.
Talegeta (2014) examined barriers for technological innovation in 207 SMEs operating in four
selected sub cities of Addis Ababa (Akaki, Bole, Kirkos and Yeka). The data gathered from managers
or owners’ using ordinary scale was analyzed quantitatively. The mean, mode, percentage and
correlation analyses were used to process variables and data analysis. The result of this study indicated
that the major barriers of introducing or expanding technological innovation for the sampled SMEs
are: (i) lack of government policy and regulation; (ii) lack of technological and market information;
(iii) inadequate research and development; (iv) high cost of innovation; (v) organizational culture; (vi)
lack of skilled personnel; and (vii) lack of finance and absence of cooperation.
IAMOT 2019 | 49
Strobel and Kratzer (2017) proposed a theoretical framework for describing obstacles to innovation
faced by SMEs from Germany and investigate their influence on their innovative performance.
Data were collected in 2013, through face-to-face interviews with executives of 49 technology-based
SMEs from this country. The interviews were planned on the basis of scales for quantitative assessment
of innovativeness, financial/ competitive performance and obstacles to innovation. They found that the
internal obstacles, such as lack of know-how, unclear roles and tasks, capacity overloading, as well
some external negatively influence the innovativeness and competitive performance of SMEs.
2.2. Technological Intensity Classification

In the 1970s, the first efforts to develop a classification system for industrial activities according
to the technological effort of companies was made by the OECD. This first classification aimed to
compare countries, focusing on foreign trade indicators. In the mid-1980s, the OECD started a first
review of the taxonomy and decided to preserve the same objectives. From a sample of eleven member
countries, emerged an industry classification that was broken into three segments: (i) high-technology;
(ii) medium-technology; and (iii) low-technology. To measure technological intensity and classify the
industrial sectors, OECD adopt the indicator ‘share of revenue spent on research and development
(R&D)’.
A new revision was carried out ten years later, but initial purpose of international comparison and
foreign trade was reinforced (Hatzichronoglou, 1997). This revision enlarged the sectoral breakdown
of the classification, which divided the industry into four new segments: (i) high-technology: (ii)
medium-high technology; (iii) medium-low technology; and (iv) low-technology. New indicators
were considered as classification criteria: one for measuring the direct technological efforts
(i.e. share of R&D expenditure over added value); and a second for indirect technological efforts
(i.e. share of expenditure on the purchase of intermediate goods and capital-intensive technology).
Complementary to the sectorial classification, a product classification was also proposed aiming to
reduce problems concerning the assumption of sectors as units of analysis. For the present work,
we will adopt the latest version of the OECD classification (OECD, 2011) and the definitions of
the 3rd edition of Oslo Manual, given that the Pintec 2014 questionnaire was based on this edition
(OECD, 2005).
2.3. Research Gap

As reviewed in this section, there are a large number of empirirical studies that investigate problems
and barriers to innovation faced by SMEs from different sectors and countries. In view of the stage
of socioeconomic development of the countries covered by this literature review, one can say that,
in general, barriers to innovation are similar in developed and developing countries. The main
differences are focused on external barriers, such as lack of public policies, bureaucracy, corruption,
greater access to financing and excess tax burden, which are most frequently mentioned in studies
concerning SMEs in developing countries.
Although considerable research has been devoted to this subject, comparative studies about obstacles
and barriers to innovation faced by different groups of SMEs (classified according to their level
of technological intensity) have remained unexplored to researchers as well as to managers and
policymakers. The purpose of this paper is, therefore, to analyse and compare the problems and
barriers faced by small and medium enterprises (SMEs) in the Brazilian manufacturing industry,
grouped by distinct levels of sectoral technological intensity, using the OCDE classification as
reference and the National Innovation Survey (Pintec 2014) as the main source of data.
In this section, the research gap could be objectively identified and questions were formulated as
the starting point for further analysis, as follows: Based on the literature and documentary review,
i. Which problems and barriers have been perceived as critical by SMEs in the
manufacturing industry in Brazil, which are grouped by different sectorial
technological intensity levels?
IAMOT 2019 | 50
ii. Do the problems and barriers differ from one group to another? which problems and
barriers have been perceived as critical by innovative and non-innovative SMEs in
the manufacturing industry?
3. Research Design
3.1. Methodology
The research methodology encompasses: (i) literature review on problems and barriers to innovation
faced by SMEs; (ii) documentary analysis covering technological and industry classifications; (iii)
definition of research scope and analytical framework, according to the structure of the primary
data source–the National Innovation Survey, published by the Brazilian Institute of Geography and
Statistics (IBGE); (iv) data gathering and descriptive statistics to compare the problems and barriers
faced by SMEs in the Brazilian manufacturing industry, grouped by distinct levels of sectorial
technological intensity; and (v) discussion of the main results and implications for Brazilian Science
& Technology (S&T) policies and government agencies to enhance the innovation of small and
medium enterprises (SMEs) in the manufacturing industry.
Several research methods were selected to address the questions posed in the introductory section.
Firstly, a literature review covered the primary sources of peer-reviewed scientific articles, such
as Web of Science; Scopus; and Science Direct. Additionally, Google Scholar was accessed to
complement the search results. The analysis of current state of research on the central research
theme–problems and barriers faced by SMEs–revealed an opportunity to empirically evidence
which problems and barriers have been perceived as critical by these firms in the manufacturing
industry in Brazil that have implemented (or not) innovations from 2012 to 2014. Previous works
based on National Innovation Surveys (from Brazil or other countries) had not explored the
problems and barriers faced by SMEs, grouped by distinct levels of sectorial technological intensity
(using OCDE classification as reference).
Second, documentary analysis concerning the Brazilian Classification of Economic Activities
(CNAE) and the National Innovation Survey (Pintec) 2014 was conducted in order to classify the
economic activities of the respondent SMEs, according to their sectorial technological intensity.
As a result, four groups of respondent firms were defined, namely: (i) high technological intensity;
(ii) medium-high technological intensity; (iii) medium-low technological intensity; and (iv) low
technological intensity.
Third, an empirical study focusing the problems and barriers faced by manufacturing SMEs in Brazil
was carried out based on data from the National Innovation Survey 2014 (Pintec 2014). Descriptive
statistics was used to examine and compare the problems and barriers that have been perceived as
critical by these firms (innovative and non-innovative firms, from the above mentioned groups).
The empirical study used data from National Innovation Survey 2014 (Pintec 2014), focusing
Brazilian SMEs from the manufacturing industry, which involves the firm-level data on the innovation
performance (if they have implemented innovations or not from 2012 to 2014) and on the perceived
importance on problems and barriers to innovate faced by the innovative and non-innovative firms.
The differentiation between innovative and non-innovative firms is relevant in this case, once
their respective perceptions about problems and barriers are also distinct. When innovative firms
identify a specific problem or barrier, they refer to a problem or barrier that retard or unfeasible their
innovative activities. Non-innovative firms mention that have found problems or barriers that have
impeded them to conduct their innovative activities.
So, the Pintec 2014 questionnaire address two questions concerning problems and barriers to
innovation, differentiating innovative and non-innovative firms. Innovative firms are asked to answer
this question: “During the three-year period 2012-2014, has the company encountered problems or
barriers that may have slowed the implementation of certain projects or made them unfeasible?”.
IAMOT 2019 | 51
For non-innovative firms the question is: “During the period 2012-2014, has the company faced
problems or barriers that have impeded the development of innovative activities?”. The questionnaire
presents twelve factors related to problems and barriers to innovation with three options in terms of
the degree of importance of the problems and barriers (high, medium, low or not relevant).
3.2. Sample and Data

The Pintec is conducted once in three years by the Brazilian Institute of Geography and Statistics
(IBGE). The Pintec 2014 covers the data of 114,494 manufacturing SMEs from 2012 to 2014 and
from this total, 41,240 informed having implemented product or process innovations or both types.
Non-innovative firms in the same period summed 69,872. It is important to mention that 3,382
manufacturing SMEs did not answer the questionnaire.
As shown in Table 1, the sample consists of a total of 37,909 SMEs of which 7,850 belong to high
and medium-high-tech sectors compared with 30,059 firms from the low and medium-low tech
industrial manufacturing sectors.
Table 1: Sample Characterization According to the Sectorial Technological Intensity
Sectorial
Number
Technological Sector %
of Firms
Intensity
Manufacture of pharmaceuticals and medicinal chemicals 752 1.98
Manufacture of air and spacecraft and related machinery 1,108 2.92
High
Manufacture of computers, electronic and optical products 2,858 7.54
Manufacture of instruments and materials for medical and dental use and optical goods 1,648 4.35
Manufacture of chemicals and chemical products except for pharmaceuticals and
356
medicinal chemicals 0.94
Medium-high Manufacture of electrical equipment, apparatuses and materials 212 0.56
Manufacture of machinery and equipment 645 1.70
Manufacturing of motor vehicles, trailers and semitrailers 271 0.71
Subtotal 8 high and Medium-high-tech Sectors 7,850 20.71
Manufacture of coke, refined petroleum products and biofuels 91 0.24
Metallurgy 547 1.44
Manufacture of rubber and plastic products 2,200 5.80
Medium-low
Manufacture of non-metallic mineral products 3,381 8.92
Manufacture of fabricated metal products, except machinery and equipment 3,674 9.69
Maintenance, repair and installation of machinery and equipment 1,258 3.32
Manufacture of beverages 302 0.80
Manufacture of tobacco products 21 0.06
Manufacture of textiles, except apparels 1,209 3.19
Manufacture of diverse products, except instruments and materials for medical and
826
dental use and optical goods 2.18
Manufacture of food products 4,330 11.42
Low Manufacture of clothing and accessories 5,498 14.50
Tanning and dressing of leather and manufacturing of leather products; including
1,539
luggage and footwear 4.06
Manufacture of wood products, except furniture 1,637 4.32
Manufacture of pulp, paper and paper products 667 1.76
Manufacture of furniture 1,929 5.09
Printing and reproduction of recorded media 950 2.51
Subtotal 17 low and medium-low Tech Sectors 30,059 79.29
Total 25 sectors 37,909 100
Source: Own elaboration from Pintec 2014 database.
IAMOT 2019 | 52
The sample for analysis was narrowed to innovative and non-innovative SMEs that contains all
relevant information related to the twelve items of the Pintec questionnaire (those focusing on
problems and barriers to innovation). Firstly, firms included in this sample answered they had
barriers to innovation. Secondly, they were asked about the degree of importance of each of the
twelve items (if high; medium; low importance or not relevant).
In order to test the different effects of independent variables on the criticality of problems and
barriers as perceived by the manufacturing SMEs in Brazil, the sample firms have been split into
four mutually exclusive groups. For the categorization of the sample firms based on sectorial
technological intensity, this study followed the taxonomy established by the Organisation for
Economic Co-operation and Development (OECD) for manufacturing industry, as follows: (i) high
technology level (6,366 firms); (ii) medium-high technology level (1,484 firms); (iii) medium-low
technology level (11,151 firms); and (v) low technology level (18,908 firms).
From Table 1, it is possible to observe that the majority of SMEs belong to the low-tech and
medium-low-tech sectors (30,059 firms or 79,29% of the sample). Firms from the high-tech sectors
is the smallest group (7,850 firms or 20.71% of the sample).
This sample also includes innovative and non-innovative manufacturing SMEs of different sizes.
By using the Brazilian classification (Sebrae, 2018), firms with 99 workers or less belong to the
group of small-sized firms. Firms with 100 to 499 workers are classified as medium-sized. Table
2 presents the sample characterization, according to firm size and innovation performance, using
two intervals of number of workers (small and medium-sized firms) and two classes of innovation
performance (innovative and non-innovative firms).
Table 2: Sample Characterization According to Firm Size and Innovation Performance
Firm Size Innovation Performance
Sectorial Technological
Intensity Number of Innovation
Firm size % Number of Firms %
firms performance
Small 5,550 14.64 Innovative 4,081 10.77
High-tech Medium 816 2.15 Non-innovative 2,285 6.03
Subtotal 6,366 16.79 Subtotal 6,366 16.79
Medium-high-tech Medium 179 0.47 Non-innovative 345 0.91
Medium-low-tech Medium 711 1.88 Non-innovative 5,038 13.29
Low-tech Medium 1333 3.52 Non-innovative 9,724 25.65
All sectors Total 37,909 100 Total 37,909 100
Note: Firm size classification, according to Sebrae (2018): small firms: with 99 workers or less; medium firms: with 100 to 499
workers (Sebrae, 2018).
According to Table 2, the small-sized firms represent the majority in each of the groups of sectorial
technological intensity. The medium-sized firms represent the smallest percentage in each group
of sectorial technological intensity. Thus, the sample is composed primarily by small companies
(37,157 firms, compared to 752 medium-sized firms). innovative firms represent 54.12% of the
sample, while non-innovative firms are 45.88%.
IAMOT 2019 | 53
3.3. Variables
The data from Pintec 2014 were accessed to analyse and compare problems and barriers faced by
SMEs from these four groups. Table 3 summarizes the variables from Pintec 2014 data set that are
relevant for the empirical study.
In this Survey edition (2014), the respondent firms (innovative and non-innovative) were asked
about the presence and the degree of importance of twelve factors related to problems and barriers
to innovation, as follows: (i) excessive economic risks; (ii) high costs of innovation; (iii) scarcity
of appropriate sources of funding; (iv) organizational rigidity; (v) lack of qualified personnel; (vi)
lack of technological information; (vii) lack of market information; (viii) scarce opportunities for
cooperation with other companies or institutions; (ix) difficulty of meeting government regulations,
legal or voluntary standards requirements; (x) poor consumer response to new products; (xi) scarcity of
adequate external technical and technological services; and (xii) centralization of innovative activities
in another company of the group. These factors are the dependent variables of this empirical study.
The control variable is firm size and explanatory variables include innovation performance (if the form
is innovative or not from 2012 to 2014); and industry classification (by CNAE e OECD taxonomy).
Table 3: Summary of Variables
Description Label Type Metric
Dependent Variable
3 – high importance; 2 – medium importance;
Excessive economic risks ECON Ordinal
1 – low importance or not relevant.
High costs of innovation COST Ordinal
Scarcity of appropriate sources of funding FUND Ordinal
Organizational rigidity ORGA Ordinal
Lack of qualified personnel PERS Ordinal
Lack of technological information TINF Ordinal
Lack of market information MINF Ordinal
Scarce opportunities for cooperation with 3 – high importance; 2 – medium importance;
COOP Ordinal
other companies or institutions 1 – low importance or not relevant.
Difficulty of meeting government regulations, 3 – high importance; 2 – medium importance;
CONF Ordinal
legal or voluntary standards requirements 1 – low importance or not relevant.
Poor consumer response to new products RESP Ordinal
Scarcity of adequate external technical and 3 – high importance; 2 – medium importance;
SERV Ordinal
technological services 1 – low importance or not relevant.
Centralization of innovative activities in 3 – high importance; 2 – medium importance;
CENT Ordinal
another company of the group 1 – low importance or not relevant.
Explanatory and control variables
Natural logarithm of the number of employees. Use of
Firm size SIZE Interval
Sebrae classification (Sebrae, 2018).
1-If the firm implemented innovation from 2012 to
Innovation performance INNO Binary 2014; 0-If the firm not implemented innovation from
2012 to 2014.
Two-digit industry classification in CNAE
Industry classification CNAE Categoric
(IBGE, 2007) and Pintec 2014 (IBGE, 2016).
IAMOT 2019 | 54
4. Results
Aligned to previous works reviewed in the second section, the twelve items related to problems and
barriers to innovation were grouped into five categories, namely: (i) economic and financial factors;
(ii) RD&I governance; (iii) knowledge factors; (iv) market characteristics; and (v) regulation.
In this section, descriptive statistics results are summarized by comparing sub-samples disaggregated
by sectorial technological intensity and innovation performance (innovative and non-innovative
firms), as follows: (i) high-tech sectors; (6,366 firms); (ii) medium-high-tech sectors (1,484 firms);
(iii) medium-low-tech sectors (11,151 firms); and (v) low-tech sectors (18,908 firms). Accordingly,
Tables 4 to 7 refer to the descriptive statistics results addressed to the research questions posed in
second section, as follows: (i) Tables 4 and 5 show the results concerning innovative SMEs; and (ii)
Tables 6 and 7 refer to the results of non-innovative SMEs.
Table 4: Problems and Barriers Faced by Innovative SMEs Belonging to High-Tech and
Medium-High-Tech Sectors of the Manufacturing Industry in Brazil
SMEs that have Implemented Innovations from 2012-2014

High Technological Intensity Medium-high Technological Intensity
Problems and Presence Degree of Importance Presence of Degree of Importance

Barriers of problems problems
and barriers and Barriers Low
Low or not
[Number of High Medium [Number of High Medium or not
relevant
firms] [%] [%] firms] [%] [%] relevant
[%]
[%]
ECON 4,081 56.5 30.3 13.2 1,139 53.1 30.1 16.9
Economic COST 4,081 62.3 25.2 12.4 1,139 61.5 19.8 18.6
and FUND 4,081 46.4 19.8 33.8 1,139 45.1 27.6 27.3
financial
Economic and
55.1 25.1 19.8 Econ. and fin. 53.3 25.8 20.9
financial
ORGA 4,081 16.1 30.8 53.1 1,139 13.4 34.2 52.4
RD&I
CENT 523 5.8 13.1 81.3 93 14.0 10.8 63.4
governance
RD&I governance 10.9 21.9 67.2 RD&I gov. 13.7 22.5 57.9
PERS 4,081 24.5 43.9 31.5 1,139 29.8 34.7 35.6
TINF 4,081 17.7 36.6 45.8 1,139 18.5 27.9 53.5
Knowledge MINF 4,081 16.1 27.2 56.6 1,139 30.8 26.6 42.6
COOP 4,081 17.3 27.6 55.0 1,139 30.4 25.6 44.0
Knowledge 18.9 33.9 47.2 Knowledge 27.4 28.7 43.9
RESP 4,081 8.0 32.4 59.6 1,139 9.0 36.5 54.6
Market
Market 8.0 32.4 59.6 Market 9.0 36.5 54.6
SERV 4,081 11.7 23.8 64.5 1,139 11.4 21.0 67.6
Regulation CONF 4,081 30.8 21.5 47.8 1,139 13.8 22.6 63.7
Regulation 21.2 22.6 56.2 Regulation 12.6 21.8 65.6
Economic and financial factors explain the obstacles a firm face to finance its own innovation
projects. RD&I governance refers to organizational rigidity and adverse culture to innovation
and also to eventual centralization of innovative activities in another company of the group.
Knowledge barriers are concerned with lack of qualified personnel; lack of technological and market
information; and scarce opportunities for cooperation with other companies or institutions. Market
barriers are associated to poor consumer response to new products. Finally, regulatory factors explain
a firm’s difficulties in meeting government regulations, legal or voluntary standards requirements
and also the scarcity of adequate external technical and technological services.
IAMOT 2019 | 55
Table 5: Problems and Barriers faced by Innovative SMEs Belonging to Medium-low and Low-tech
Sectors of the Manufacturing Industry in Brazil
SMEs that have Implemented Innovations from 2012-2014
Medium-low Technological Intensity Low Technological Intensity
Presence of Degree of importance Presence Degree of importance
Problems and Barriers problems of problems and
Low Low
and barriers High Medium or not barriers High Medium or not
[Number of [%] [%] relevant [Number of [%] [%] relevant
firms] [%] firms] [%]
Economic and ECON 6,113 53.8 26.3 19.9 9,184 51.1 30.0 18.9
financial COST 6,113 49.4 37.5 13.1 9,184 50.7 34.9 14.4
FUND 6,113 49.4 22.2 28.4 9,184 45.7 26.1 28.2
Econ. and
Economic and financial 50.9 28.7 20.5 49.2 30.3 20.5
financial
RD&I ORGA 6,113 16.6 22.9 60.5 9,184 21.3 24.3 54.5
governance CENT 392 7.4 7.7 84.9 501 3.4 12.6 84.0
RD&I governance 12.0 15.3 72.7 RD&I governance 12.3 18.4 69.2
Knowledge PERS 6,113 34.5 30.1 35.4 9,184 37.1 31.8 31.0
TINF 6,113 17.0 33.9 49.1 9,184 19.3 33.9 46.8
MINF 6,113 11.6 27.7 60.6 9,184 14.2 29.3 56.6
COOP 6,113 19.1 18.0 62.9 9,184 27.1 20.5 52.4
Market RESP 6,113 16.0 21.9 62,1 9,184 11.8 32.1 56.1
Market 16.0 21.9 62.1 Market 11.8 32.1 56.1
Regulation SERV 6,113 13.8 26.6 59.5 9,184 17.7 26.3 55.9
CONF 6,113 12.7 26.3 61.1 9,184 18.9 23.3 57.8
From Tables 4 and 5, the results suggest that there is a homogeneity across items and sectors,
especially in two categories of barriers, namely ‘economic and financial’ and ‘RD&I governance’.
Looking at the highest barriers to innovation perceived by innovative SMEs, these are related
to ‘excessive economic risks’ and ‘high costs of innovation’, both classified into the ‘economic
and financial’ category. These results are consistent with those findings reported by Freel (2000)
focusing on SMEs in England; March-Chorda et al. (2002) in Valencia (Spain) and Madrid-Guijarro
et al. (2009) also in Spain.
At the second level of importance, the innovative SMEs considered the items ‘lack of qualified
personnel’, ‘lack of technological information’ and ‘lack of market information’ as critical barriers
to innovation. The economic and financial factors, together with the difficulty in finding qualified
workers, partners and information seem to be the most important obstacles perceived by innovative
SMEs. The items classified into the categories ‘market’ and ‘regulation’ are not considered so
important in comparison with the ‘economic and financial’ and ‘knowledge’ items. Finally, the
lowest barriers to innovation perceived by innovative SMEs are tose related to ‘RD&I governance’,
that can be explained by their strategic and commitment competencies, competitive scope and
organizational capabilities that positively influence the innovation performance of a SME.
Figure 1 corresponds to the results shown in Tables 4 and 5 and compares in a graphic form the
perceptions of the innovative SMEs about the importance of the problems and barriers that they face
to innovate.
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Figure 1: Problems and Barriers Faced by Innovative SMEs of the Manufacturing Industry in Brazil

The vertices of the graph correspond to the percentage of firms that consider the barriers as being
of high or medium importance for their innovation projects. Perceptions of low importance or
non-relevance were not considered. This graph provides a visual confirmation that there are no
significant sectorial differences in the way that firms perceive barriers to innovation. Slight differences
can be observed in the regulation category, which can be explained by differences in regulatory
frameworks concerning operations of SMEs from medium-high-tech sectors in comparison with
regulation applied to the others sectors.
Table 6: Problems and Barriers Faced by Non-innovative SMEs Belonging to High-tech and Medium-high-tech
Problems and SMEs that have not Implemented Innovations from 2012-2014
Barriers High Technological Intensity Medium-high Technological Intensity
Presence Degree of Importance Presence Degree of importance
of problems Low of problems and Low
and barriers High Medium or not barriers High Medium or not
[Number of [%] [%] relevant [Number of [%] [%] relevant
ECON 2,285 50.3 26.9 22.8 345 61.4 11.9 26.7
Economic COST 2,285 60.4 23.5 16.1 345 63.8 7.2 29.3
and financial FUND 2,285 38.4 26.5 35.1 345 61.2 6.4 32.5
Economic and financial 49.7 25.6 24.7 Econ. and fin. 62.1 8.5 29.5
ORGA 2,285 28.9 24.2 46.9 345 8.7 38.8 52.5
RD&I
CENT 93 37.6 9.7 51.6 27 66.7 0.0 33.3
governance
PERS 2,285 31.6 24.6 43.9 345 8.1 38.6 53.3
TINF 2,285 23.5 13.7 62.8 345 6.4 15.7 78.0
Knowledge MINF 2,285 15.5 20.9 63.6 345 4.9 13.9 81.2
COOP 2,285 26.0 25.0 49.1 345 10.7 18.6 70.7
RESP 2,285 15.8 23.2 61.1 345 5.8 18.0 75.9
Market
Market 15.8 23.2 61.1 Market 5.9 18.0 75.9
SERV 2,285 30.2 17.5 52.3 345 5.8 34.2 60.0
Regulation CONF 2,285 24.2 23.7 52.2 345 16.8 31.3 51.6
IAMOT 2019 | 57
Similarly to the empirical evidence concerning problems and obstacles faced by innovative SMEs,
Tables 6 and 7 show the results regarding non-innovative SMEs belonging to high-tech, medium-high-
tech, medium-low-tech and low-tech sectors of the manufacturing industry in Brazil.
From Tables 6 and 7, the results reveal that there is a heterogeneity in most of the items and sectors,
except for items classified into the category ‘economic and financial’. Looking at the highest barriers
to innovation perceived by non-innovative SMEs, these are also related to ‘excessive economic
risks’ and ‘high costs of innovation’, both classified into the ‘economic and financial’ category.
Similar to findings of innovative SMES, These results are consistent with those results reported by
Freel (2000), March-Chorda et al. (2002) and Madrid-Guijarro et al. (2009).
Table 7: Problems and Barriers Faced by Non-innovative SMEs Belonging to Medium-low and Low-tech
SMEs that have not implemented innovations from 2012-2014
Medium-low technological intensity Low technological intensity
Problems and Presence Degree of importance Presence Degree of importance

Barriers of problems of problems Low
and barriers Low or not and barriers
High Medium High Medium or not
[Number of relevant [Number of
[%] [%] [%] [%] relevant
Economic ECON 5,038 47.0 23.7 29.3 9,725 51.0 25.0 24.0
and COST 5,038 66.8 17.9 15.2 9,725 56.0 24.0 20.0
financial
FUND 5,038 41.8 20.0 38.2 9,725 42.0 22.0 36.0
Economic and financial 51.9 20.5 27.6 Econ. Financ. 49.3 24.1 26.6
RD&I ORGA 5,038 24.2 25.0 50.8 9,725 17.5 22.4 60.2
governance CENT 218 20.6 2.8 76.6 308 12.3 37.7 50.0
Knowledge PERS 5,038 34.5 26.5 39.0 9,725 30.2 22.1 47.7
TINF 5,038 12.5 25.9 61.6 9,725 18.6 25.0 56.4
MINF 5,038 9.4 23.4 67.1 9,725 14.0 25.8 60.3
COOP 5,038 14.8 17.1 68.0 9,725 19.7 17.2 63.1
Market RESP 5,038 14.6 31.1 54.3 9,725 18.8 22.1 59.0
Market 14.6 31.1 54.3 Market 18.8 22.1 59.0
Regulation SERV 5,038 18.8 23.0 58.2 9,725 17.8 25.5 56.6
CONF 5038 14.1 20.7 65.2 9,725 24.8 20.5 54.7
The non-innovative SMEs considered the barriers associated to RD&I governance from different
perspectives. Firms belonging to medium-high-tech sectors react more intensively to organizational
barriers when compared with SMEs from the other sectors. Although differences between the
perceptions of SMEs from different sectors are observed, there is a convergence about the lower
criticality of the items classified into three categories (‘market’, ‘knowledge’ and ‘regulation’).
Figure 2 compares in a graphic form the perceptions of the non-innovative SMEs regarding
problems and barriers that they face to innovate. Similarly to figure 1, the vertices of the graph
express the percentage of firms that consider the barriers as being of high or medium importance
for their innovation projects. This graph also visually confirms that there are significant sectorial
differences in the way that non-innovative firms perceive barriers to innovation, as opposed to
innovative SMEs. By way of illustration, for non-innovative SMEs in the medium-high-tech sectors
the items classified into the ‘RD&I governance’ category are more important than for the firms in
other sectors. In opposite, the items classified into the ‘market’ and ‘knowledge’ categories are less
important than for the firms operating in other sectors.
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Figure 2: Problems and Barriers faced by Non-innovative SMEs of the Manufacturing Industry in Brazil

Finally, with an attempt to answer the last research question, Figure 3 compares in a graphic format
the perceptions of all innovative and non-innovative SMEs about the importance of problems and
barriers that they face to innovate. The vertices of the graph represent the averages of the percentage
of innovative and non-innovative firms (from all four sectors) that assigned high and medium
importance grades to the items in each category. This graph confirms some significant differences in
the way that innovative and non-innovative firms perceive barriers to innovation.
Figure 3: Problems and Barriers Faced by Innovative and Non-innovative

SMEs of the Manufacturing Industry in Brazil

The items ‘excessive economic risks’, ‘high costs of innovation’ and ‘scarcity of appropriate
sources of funding’ are the most important barriers faced by all manufacturing SMEs
(innovative and non-innovative ones). However, the degree of importance attributed to these items
IAMOT 2019 | 59
is slightly lower for non-innovative SMEs, which is consistent with previous works on this subject
(see the second section). However, considerable differences can be observed in reference to the
barriers faced by SMEs that have implemented innovations compared to those that have not
implemented. Some of the most important aspects observed in Figure 3 are highlighted as follows.
The most significant differences that can be observed in Figure 3 are related to the items of
‘RD&I governance’ and ‘knowledge’ categories. For the majority of innovative SMEs the items
‘lack of qualified personnel’, ‘lack of technological information’, ‘lack of market information’ and
‘scarce opportunities for cooperation with other companies or institutions’ are considered crucial
for their innovation projects. This result reinforces the hypothesis that for knowledge-based firms it
is necessary to have a highly qualified team, to have information on new technologies and market
and to establish cooperative relations with other companies or institutions for acquiring new ou
complementary knowledge assets.
It is also interesting to note that the barriers concerning ‘RD&I governance’ is the lowest important
barrier for firms that have implement innovations. Also, it was possible to observe that the
‘poor consumer response to new product’ (‘market’ category) is slightly more important for
innovative companies than for non-innovative companies. Perhaps, this is due to the fact that
innovative companies that try to introduce significantly new products in the market strongly depend
on the acceptance of customers to succeed, while for those non-innovate firms the importance of
this barrier decreases.
In essence, this exploratory and descriptive work allows to gather preliminary evidence on barriers
and problems faced by the small and medium manufacturing firms in Brazil, differentiating them
by the technological intensity of sectors in which they operate and by innovation performance
(if innovative or not).
5. Concluding Remarks
Based on empirical evidence from the Pintec 2014 data, the present study has attempted to analyse
and compare the problems and barriers faced by SMEs in the Brazilian manufacturing industry,
grouped by distinct levels of technological intensity (using the classification established by the
Organization for Economic Cooperation and Development as reference).
One main result of the empirical analysis is that a large percentage of innovative firms find barriers to
their innovation projects. In general, both innovative and non-innovative firms claim that the highest
barriers to innovation are those classified into ‘economic and financial’ category, namely ‘excessive
economic risks’, ‘high costs of innovation’ and ‘scarcity of appropriate sources of funding’.
Although the ‘economic and financial’ items were highlighted in the present research as being the
most important for all SMEs (whether innovative or not and operating in high-tech sectors or not),
it should be noted that barriers may be interdependent or reinforce each other. The formulation of
public policies and regulatory frameworks that promote SMEs’ innovative activities should also
consider both the importance of the barriers depending on the number of firms affected and whether
problems to innovate are complementary or substitutive. By way of illustration, the ‘scarcity of
appropriate sources of funding’ and ‘scarce opportunities for cooperation with other companies
or institutions’ are complementary for innovation projects but they can be substitutive for a SME
to become innovative. this analysis is particularly important for designing an innovation policy,
once institutional mechanisms and frameworks should consider the stage in which the SME is
positioned in the innovation funnel. The innovation policy ought to consider if the SME begins to
be an innovative firm or starts to increase their innovative efforts. A ST&I policy to overcome the
barriers and problems covered in Pintec 2014 (and evidenced in this work) may help the Brazilian
manufacturing SMEs to enhance their innovation performance but also to strengthen their absorptive
capacity, once both indicators are significantly related to each other.
IAMOT 2019 | 60
This study has achieved its aim and establishes a basis for a more complex future research. As a matter
of fact, it is part of an ongoing M.Sc. research project in the field of Management of Technology
(MOT). The general objective of this research is two-fold. Firstly, it attempts to analyze the differences
and similarities between the perceptions about problems and barriers to innovation faced by Brazilian
SMEs from sectors of the manufacturing industry (classified by their technological intensity).
Secondly, it will investigate the correlations between the problems/ barriers and a set of explanatory
variables, such as government Incentives and public financing; sources of information; cooperative
arrangements for RD&I; and strategic protection methods. This paper is particularly aligned to the first
part of the research.
This general objective can be broken down to seven specific objectives that would together achieve the
overall goal of the research as follows: (i) to discuss the contributions of technological classifications,
theoretical references on the measurement of efforts and results of RD&I to support the analysis of
problems and barriers faced by SMEs belonging to sectors with different levels of technological
intensity (second section of this paper); (ii) to analyze empirical studies on problems and barriers faced
by SMEs, in order to identify gaps to be filled by this research (second section of this paper); (iii) to
classify the economic activities of the respondent firms of Pintec 2014, using the National Classification
of Economic Activities and considering the four levels of sectorial technological intensity proposed
by the OECD (third section of this paper); (iv) to characterize the firms sample, according to four
levels of sectorial technological intensity and to firm size (third section of this paper); (v) to analyze
the differences and similarities between the perceptions about problems and barriers to innovation
faced by Brazilian SMEs from the manufacturing industry in Brazil (fourth section of this paper);
(vi) to develop logit models to show the differences or similarities between the perceptions about
problems and barriers to innovation faced by innovative and non-innovative SMEs and coorelations
between problems/barriers and explanatory variables (object of the future work); and (vii) to perform
the specification tests, analyze and compare the results of logit-type models, with special attention to
interaction effects (object of the future work).
6. Acknowledgments
The authors gratefully acknowledge the support and collaboration of the Brazilian Institute of
Geography and Statistics (IBGE), by providing the data from the National Innovation Survey
(Pintec 2014) concerning problems and barriers faced by SMEs from 2012 to 2014.
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IAMOT 2019 | 62
Innovation and Digitalization in SME’s:
A Research Agenda
Hanen Kooli-Chaabane
University of Tunis El Manar, Department of Industrial Engineering, Tunisia
E-mail: hanen.kooli@enit.utm.tn
Mauricio Camargo
Nancy Univercity, ERPI (Equipe de Recherche des processus Innovatifs), France
E-mail: Mauricio.Camargo@univ-lorraine.fr
Vincent Boly
Nancy Univercity, ERPI (Equipe de Recherche des processus Innovatifs), France
E-mail: vincent.boly@ensgsi.univ-lorraine.fr
Abstract
Over the past years, innovation was an important topic not only in the scientific literature but also in all company’s
activities. Indeed, innovation can create long-lasting advantage and produce valuable shifts in competitive position.
However, innovation is not the only concern of a company. In recent years, digitalization brought new forms of
competition to companies and especially to Small and Medium size Enterprises (SMEs). The digital revolution
impacted not only how products and services are designed, manufactured and distributed, but also changed the tools
used to create, collect and treat information. To be competitive, firms are adopting digitalization.
Articulating innovation and digitalization in a coherent development process is becoming imperative for SMEs.
The processes of innovation and digitization are transforming the working processes and routines within
companies. These transformations are reflected at workplaces, methods and processes of collaborations. Moreover,
the strategies of innovation and digitalization are often transverse and involve all the functions of the company.
Thus it could be hypothesized that some decisions, practices and methods are common to innovation and
digitalization processes within SMEs.
The first aim of this paper is to identify and stress the convergence points and analogies between the innovation
process and the digitalization process in SME’s context. In order to reach this target, we examined the available
scientific literature and analyzed the ongoing digitalization process for 9 PMEs working in the energy field.
While many companies are struggling to advance their digitalization process, the second aim of this paper is to
exploit the analogies between the two-studied processes to explore the potential use of the innovation tools and
methods to support the digitalization process.
The result of our work is a list of points of convergence between the innovation process and the digitalization
process in SME’s context. These points have been identified by a mixed approach: literature review and
experimental field feedbacks. Based on this convergence list, a research agenda dealing about the possible
contributions of the use of innovation tools and methods in the digitalization process is proposed.
Keywords: Innovation, Digitalization, Digitation, Analogy, Process, Digital Transformation
1. Introduction
In our everyday lives, Information Technologies (IT) became more common and present in almost
every part of our doings (Kadar et al., 2014). IT artifacts such as computers, software applications
and smartphones are everywhere (Goerzig and Bauernhansl, 2018). At work, in our homes and on
the street, we are witnessing an ongoing radical digital transformation (Stolterman and Fors, 2004).
With the digital transformation our life world became more connected. In this world, digital objects
became the basic materials of the physical reality. In a way, the physical reality became intelligent.
In fact, more and more objects have the power to continuously update themselves and their linked
network (Stolterman and Fors, 2004).
IAMOT 2019 | 63
To face the digital revolution, the company must digitalize, but this is not the only battle it must be
won. Companies have started another battle a long time ago: The battle of innovation. Indeed, to
resist to competition and the rapid renewal of economic data (products, processes, services, markets,
technologies, knowledge and know-how), innovation is an imperative for the company. It is an
important and vital means at their disposal to cope with changes in their environment. Innovation
allows companies to adapt their processes and internal organization to external developments.
It gives them means to take advantage of social, political, environmental, technological and economic
constraints or opportunities (Assielou, 2008).
Nowadays, SMEs must articulate innovation and digitalization in a coherent development process.
The processes of innovation and digitalization are transforming the working tasks and routine of the
company. These transformations are reflected at workplaces, methods and processes of collaborations.
Moreover, the strategies of innovation and digitalization are often transverse and involve all the
functions of the company. The question is then what are the possible analogies between the two
processes of innovation and digitization? While many companies are facing difficulties to carry
out their digitalization process, it is worth to ask if it is possible to exploit the knowledge, tools and
methods acquired on the innovation process to support the digitization process.
To address these questions, our paper is organized as follows. Section 2 describes the research
objectives and methodology. Section 3 presents the state of the art analysis. Finally, section 4
discusses the key findings and provides future research directions.
2. Research Objectives and Methodology

The aim of this study is to explore the existence of convergence between innovation and
digitalization processes within SMEs. More precisely, the research focuses on an exploratory
discussion on the possible contributions of the use of innovation tools and methods to a better fit the
digital transformation. To tackle our research aim, we used a methodology composed by 4 steps:
(1) “Research identification and strategy”, (2) “Research approach and data gathering method ”, (3)
“State of the art analysis” and “Findings and discussion” (see Figure 1)
Figure 1: Research Methodology
2.1. Research Identification and Strategy

We found that most of existing papers regarding innovation process dealt with digitalization as a
context element (Kadar et al., 2014), whereas this subject actually covers a wider potential of scope.
The digitalizing process is an unavoidable for today’s companies (Schreckling and Steiger, 2017).
That’s why it is important to understand, study and optimize this process. At the beginning, we
hypothesize that: “There are multiple convergence points between digital transformation process and
the innovation process” (H1). We intend to contribute to a better understanding of the digitalization
process and how can innovation process methods and tools support this process. To achieve our
aim two Research Questions (RQ1) and (RQ2) are addressed. To answer the question (RQ1) three
intermediate questions are asked (RQ11, RQ12, RQ13). The answers to these questions allow us to
conclude on the validity of our starting hypothesis (H1). Indeed, if the number and nature of the
similarities between the innovation and digitization process is conclusive, then not only (H1) is
validated but also the second research question (RQ2) can be addressed (see Figure 2).
IAMOT 2019 | 64
Innovation and Digitalization in SME’s: A Research Agenda
Figure 1: Research Strategy
H1: There are multiple convergence points between digital transformation process and the
innovation process.
RQ1: What are the convergence points between the innovation process and the digitization
process in SME’s context?
RQ11: Digitalization process: what, why and how?
RQ12: Innovation process: what, why and how?
RQ13: Innovation and digitalization process in SME: what is the connection?
RQ2: How can the innovation tools and methods serve and facilitate the digitalization
operational processes?
2.2. Research Approach and Data Gathering Method

In our study, we adopted a mixed research approach: literature review and experience feedbacks.
A panel of 9 PMEs working in the energy field participates to the research. The selected companies
belong to the energy services sector and deploy infrastructures for telecom industry customers. Their
main performed business activities are:
i. Studies: Consists of defining the target solution to be deployed according to
customer need,
ii. Production: Consists of deploying the infrastructure according to the study’s
resultant solution and customer need,
iii. Maintenance: Consists of repairing the infrastructure in case of incident,
breakdown or minor request for change
Each company can perform one or many of the previously described activities according to its own
structure and customer needs. Table 1 provides the list of the 9 SMEs with their number of employee,
geographic localization in France and the main business activities and processes.
Table 1: Firms’ Description
Business Activities and Processes
Company Number of Employee Localization (French Department)
Study Production Maintenance
A 15 80 X
B 117 94 X X X
C 7 92 X
D 23 02 X X
E 54 62 X X
F 71 62 X X
G 17 91 X X
H 54 91 X X
I 20 38 X X
IAMOT 2019 | 65
All the companies have independent decision-making process and decided to engage a digital
transformation for both business and support processes. Support processes include administrative
management, resources and HR management and other transversal activities. The same Information
and Technology (IT) expert manages the nine-digitalization projects. The IT expert provides data
and information to the present research trough several interviews at each milestone of the different
projects. The aim of digitalization in these projects is:
i. Find new interrelation with the environment (digitalize the relation with
subcontractors, suppliers and customers),
ii. Perform the business processes more efficiently,
iii. Improve the product quality: scope, time and budget,
iv. Improve the working condition for employees.
2.3. State of the Art Analysis

In this step, a list of extracted points of convergence between innovation process and digitalization
process is set up. This list is the result of a research process characterized by a round trip between the
literature and the consultation of the IT expert in charge of the nine studied projects in a constructivist
approach. In our ongoing recursive process, the convergence points highlighted by our literature
review are enriched and confronted to the experimental field. Our starting point in our literature
review strategy consists first in setting up main terms associated to the research questions and then
identifying the most relevant terms. Our discussions with the IT expert also influenced us in the
selection of key search terms. We used the Boolean operators (OR; AND) to associate the selected
terms. For example we use (“digital transformation” OR “digitalization”) AND (“innovation”).
The research was conducted using Scopus database, data available online and other forms of data as
books for example.
2.4. Findings and Discussion

Based on the analysis of the gathered data via the literature review and in the field, the validity of the
starting hypothesis (H1) is examined and the relevance of the research question (QR2) is discussed.
The possible contribution of the use of knowledge (models, methods tools) about innovation in the
digitalization process is examined in order to underline the future directions of research.
3. State of the Art Analysis

In this section, we present our literature review. The first aim of this review is a better understanding
of the innovation process and the digitalization process. The second aim is to highlight the existing
convergence points between the two phenomena.
3.1. The Digital Transformation Tale

In the following, we expose the state of the art about digital transformation in SMEs. First, the
definitions of the terms digitization, digitalization and digital transformation are specified.
Then, the reasons making the digitalization a necessity are pointed out. Finally, a description of how
the phenomenon occurs is presented.
3.1.1. What is Digitalization?

Digitization has been identified by many authors as one of the major trends changing society and
business in the near and long term future (Schreckling and Steiger, 2017). The term digitization
refers to the action or process of digitizing. Digitizing is the conversion of analogue data into digital
form. The term digital covers collecting, storing, treating, providing and exploiting information
by the means of information technologies (IT) (Goerzig and Bauernhansl, 2018). Digitalization or
digital transformation refers to a more fundamental change than just digitizing existing processes
IAMOT 2019 | 66
or work products. Goerzig and Bauernhansl (2018), based on a literature review, state that at the
moment there is no common definition for the digital transformation. Stolterman and Fors (2004)
argue that the digital transformation can be understood as the changes that the digital technology
causes or influences in all aspects of human life. In this paper, we adopt the definition proposed
by Goerzig and Bauernhansl (2018). The authors define digital transformation as “a fundamental
change process in enterprises initiated by new competitive advantages through the evolution of IT
into an essential part of the value creation”.
3.1.2. Why PME’s have to Digitalize?

The potential benefits of digitalization are high. Companies expect digital initiatives to
deliver annual growth and cost efficiencies of 5 to 10 % or more in the next three to five years
(Catlin et al., 2015). According to Parviainen et al. (2017) digitizing information improve turnaround
times and reduce processes costs up to 90 %.  
Henriette et al. (2015) affirm that observations and existing studies from professional papers confirm
that digital transformation affects every aspect of an organization. Digitalization offers extraordinary
potential of improvements for businesses (Schreckling and Steiger, 2017). We can classify these
potential improvements according three dimensions: Productivity, Quality and Opportunities.
This Digital transformation is proven to increase productivity. Digitalization enables outcomes
by reducing the cost of executing activities and empowering the development of new services
and processes (Schreckling and Steiger, 2017). The Digital process offers the opportunity to
generate resource rationalization and restructuring of the flow of information, goods and services
(Goerzig and Bauernhansl, 2018). Digitalization can potentially allow a better efficiency, friability,
quality and consistency of business process by eliminating manual steps. It can also improve
conformity by standardization and recovery by easier backups. Digitalization can also enable a
real-time monitoring of operations and results by integrating internal and external data
(Goerzig and Bauernhansl, 2018). It can allow a better decision-making based on big data and
advanced analysis. For employees, the automation of routine work can lead to a better work
satisfaction and free time to develop new skills.
One of the first and most important benefits of digital transformation is the better focus in
customer engagement. Through online channels and communication technologies, any business
can get closer to what the customers think, want and how their decisions are influenced
(Schreckling and Steiger, 2017). In other words, the company is closer than ever to its customers.
Thus, helps companies to enhance customer experience. This definitely improves the quality of the
products and services offered.
However, digital technology introduced a transformation of consumer expectations
(Kirsten et al., 2018). Customers are more and more using technology, not just for searching
and educating themselves but also comparing products and services. So, it is natural that
potential customers will better appreciate a business more digitally inclined. By transforming
business activities through digital channels, a business can better attain customer satisfaction
(Schreckling and Steiger, 2017). The digital channels are a powerful means to attract consumers and
reach a better profitability.
The digital transformation is creating a large opportunity potential by lowering the entry barriers
to market. Digitalization is allowing companies to experiment new ways for added value creation
and reinventing the company’s traditional business models. Through approaches based on
disintermediation or aggregation of traditional stakeholders traditional boundaries between sectors
can collapse and eventually new businesses can be developed (Schreckling and Steiger, 2017).
PME’s are emerged in digitized world engaged in a digital transformation. Schreckling and Steiger
(2017) argue that “Digital technologies are evolving at an exponential, rather than linear”. Goerzig
and Bauernhansl (2018) emphasize that the speed of the unavoidable digitalization change depends
IAMOT 2019 | 67
on the fact that the company is proactive or obliged to adhere to the transformation process. Digital
imposed new challenges that many organizations struggle to handle (Sousa and Rocha, 2019).
Digitalization brought new forms of competition to companies and especially to Small and Medium
size Enterprises (SMEs) (Kadar et al., 2014). Schreckling and Steiger (2017) claim that digitalization
is no longer a choice but an imperative. The authors affirm that for all businesses across all industries
“the motto is digitalize or drown”.
3.1.3. How Digitalization Occurs?

The digital transformation is a complex process (Goerzig and Bauernhansl, 2018). Matt et al.
(2015) affirm that initial point of digital transformation is a digital business strategy. Henriette et al.
(2015) highlight that a digital transformation project involves implementing digital capabilities to
support changes in habits and ways of working. According to Schreckling and Steiger (2017), in the
digitization’s battle there is four driving forces: (1) digital technology breakthroughs; (2) changes
in people’s attitudes and expectations; (3) comparatively low barriers to became entrepreneur
and (4) the availability of huge amounts of venture capital. The authors discussed a framework
for digitalization composed of eight dimensions, also considered as key factors for success
(Schreckling and Steiger, 2017):
i. Customer Centricity: Internal or external users are the heart of the digitalization
process thanks to their business value evaluation and engagement. That’s why
any digitization step needs to consider the customer needs, expectations and
preferences in terms of business scenarios, digital usages and channels, optimized
journeys and others.
ii. Strategy: Digitalization needs to be a holistic part of the business strategy to achieve
identified objectives. Also, there is a need to monitor the benefit of digitalization in
terms of business activities efficiency.
iii. Business Model and Offerings: They are the key success factors of a business,
which create value for the customer. They are objects of digitalization to gain
competitive advantages against competitors.
iv. Processes: An organization with clear processes is more suitable for digitalization.
Some simple process may be digitized as quick wins to gain effectiveness and
facilitate the global digitalization. In the same time, the digitalization process needs
roles and responsibilities to achieve its end-to-end goal.
v. Structure and Governance: They play an important role to drive digital innovation
and transformation. The role and responsibilities for the digital transformation need
to be supported by the hierarchy with long-term budget and cross-functional teams
decision-making.
vi. People and Skills: People are understood as either an individual or a group,
which affects the digitization and digitalization’s performance. Some skills are
needed to help people adopting new technologies and tools and make the digital
transformation occurs.
vii. Culture: Refers to the importance of the attitudes and behavior for the organization’s
performance. The organization history, social and professional networks are such
elements that influence the digitalization performance.
viii. Technology Foundation: The existing digital capabilities and already adopted
technologies, combined with clear objectives and roadmap are the foundation for
the digital transformation planning and successful transition to production.
Parviainen et al. (2017) proposed a global four-stage model to tackle the digital transformation
in a company. The model is inspired from the well-known Deming wheel: Plan, Do, Check, Act.
IAMOT 2019 | 68
It is used iteratively to progressively set up the solution and refine the digitalization goals and plans.
The first stage consists of analyzing the probable impact of digitalization for the firm and deciding
the position to be taken in the change according to strategic objectives. The second stage is about
evaluating the existing situation of the firm with respect to the target position and assessing the gap
between the existing situation and the wanted one. The third stage is about setting up the appropriate
approach to fill the gap from the firm’s current state to the target situation and establishing the
required action plan to reach this situation. The fourth stage consists of applying and validating the
action plan and iterating the previous stages if needed.
Müller and Hopf (2017) claim that: “The digital transformation of systems and processes includes
risks and potentials, especially for SMEs”. As the financial constraint is very high for SMEs, the
digital transformation should offer a good cost-benefit ratio, a clear description of how the results
shall be realized and a risk benefit evaluation (Goerzig and Bauernhansl, 2018). Goerzig and
Bauernhansl (2018) emphasize the fact that SMEs are generally incapable of funding research and
development activities. Usually, they are unable to provide external support because of the luck
of funds. In addition, their employees frequently do not have the necessary expertise and time to
challenge the digitalization process.
3.2. The Innovation Tale

This section outlines the state of the art in the field of innovation in SMEs. First, a closer look at the
definitions of the term innovation is done. Then the reasons making the innovation a necessity are
pointed out and finally a description of how the phenomenon occurs is presented.
3.2.1. What is Innovation?

Despite the enthusiasm for innovation among researchers and a wide diffusion whether through
technologically new products or through the images of innovation that companies disseminate,
innovation remains a complex concept (Ben Rejeb, 2008). One of the sources of this complexity
is the uncertainty inherent in the innovation process. Several authors have studied the complex
phenomenon of innovation. In 1934, Schumpeter (1934) was one of the first to study the process
of innovation. He defined innovation as one of the following five phenomena: (1) introduction of
a new product, (2) introduction of a new production method, (3) opening of a new market, (4)
conquering a new source of raw material or semi-finished product and (5) the establishment of a
new form of organization. This definition, in view of the developments in the economic world,
seems to be reductive. Boly, (2008) highlighted the importance of the notion of anchoring by
defining an innovative activity as an activity that results from a new object durably integrated into
its environment. Garcia and Calantone (2002) have carried out a very interesting and exhaustive
bibliographical work to identify the different definitions of innovation in the literature. According to
these authors, no less than fifteen types of vocabulary exist in the Anglo-Saxon literature to designate
the term “innovation” and at least 51 scales are used to classify the types of innovation. This has led
to confusion and especially a great blurring between the notions of innovation and innovativeness.
Innovativeness is most frequently used as a measure of the degree of newness of an innovation
(Garcia and Calantone, 2002). According to Garcia and Calantone (2002), this confusion is a source
of a number of problems in the world of innovation, including a lack of academic progress in the
process of developing new products, repetition and redundancy of research work.
In this paper, we adopt the definition proposed by Garcia and Calantone (2002). The authors define
innovation as “an iterative process initiated by the perception of a new market and/ or new service
opportunity for a technology based invention which leads to development, production and marketing
tasks striving for the commercial success of the invention”.
3.2.2. Why PME’s have to Innovate?

At the end of the 1990s, authors such as Dert (1997) and Midler (1998) showed that beyond the
triptych Quality, Cost, Delivery the new frontiers of competition require innovation. Innovation was
IAMOT 2019 | 69
the response for the transition from a mass economy to a responsive economy. Today, innovation
has become a fourth key factor in the competitiveness of companies. Since 2010, innovation has
been seen as ‘the’ solution to major societal challenges and it is expected to boost competitiveness,
maintain employment and protect our social models (Joly, 2017).
Since Schumpeter (1934) many authors have studied innovation in different disciplines
(Garcia and Calantone, 2002). The reason for this interest is the realization that innovation
is a key importance for survival of an organization. Innovation is unavoidable key to
achieve firm’s competitiveness in up-to-date business (Rubera and Kirca, 2012). For some
organizations innovate is an initiative and for others it is mandatory to innovate to subsist
(Cortimiglia and Delcourt, 2015). The need for innovation is imperative in Coopers words, “It’s war:
Innovate or die” (Cooper, 2005).
3.2.3. How the Innovation Process Occurs?

Many authors agree that innovation is an iterative and evolutionary process (Assielou, 2008).
Innovation is not easy (Cooper, 2001) and complex process (Ben Rejeb, 2008). For Boly (2008).
The complexity results from several factors including:
i. The Multiplication of Links between Variables: Multiple interactions between
different actors and processes, modification of the quality and production system,
ii. The Contradiction of Certain Industrial Aspects: New development paths,
contradictions between global and local objectives for certain services,
iii. Disruption of Balance: Modification of the internal and external characteristics of
the company,
iv. The Emerging Nature of Innovation: The emergence of new technological
systems, new ideas and new ways of thinking.
Our literature review reveals that several authors define innovation as a process ((Boly, 2008),
(Garcia and Calantone, 2002), (Cooper, 2001), (Kooli-Chaabane, 2011), (Masson et al., 2006)), i.e.
a set of organized active phenomena that take place over time. For Schumpeter (1934) “innovation
is a (non-linear) series of steps that are coherent with each other and lead to an identifiable
result, represented by a new industrial activity that is anchored in its environment”. According to
Masson et al. (2006) innovation is particularly suited to the notion of process, because it involves
many functions and professions within organizations, sometimes on several projects in parallel.
Only a consolidated vision in the form of a process can respond to such innovation risk management.
Garcia and Calantone (2002) conclude that innovation process is iterative by nature.
The innovation process can also be characterized as a creation-destruction process
(Schumpeter, 1934). Indeed, Joseph Schumpeter has argued in his work that economic development
is driven by innovation, through a dynamic process in which new technologies replace old ones.
He called this process “creative destruction”. It is a risky process, since it takes shape in a changing
environment (Masson et al., 2006). Innovation can also be characterized as a process of value creation
(Morel, 1998). Kooli-Chaabane (2011) has highlighted through a field study that technology transfer
is an iterative and collaborative innovation process where culture and people play a critical role.
According to Boly (2008) under the heading “innovation process” at least five different
sub-processes are considered. These sub-processes different by the nature of the outputs, activities
and people involved. The sub-processes thus distinguished are:
i. The Object: This process is reflected in the evolution of knowledge and objects. It
is the innovative element created by the company. It mainly concerns the company’s
designers and technicians.
ii. The Individual or Group of Individuals: This process is the cognitive and
learning process at certain times each person within the company can become an
IAMOT 2019 | 70
actor in the innovation process. He will play a personal role or participate in a

collective phenomenon.
iii. The Project: This process is the organizational process that supports the design
activities of the object. It is limited in time. This process concerns project teams and
the group of requested experts.
iv. The Company and its Innovation Management: This process is the global process
of managing the company’s innovative potential (know-how, methods, experience,
development processes,...). This level concerns the culture relating to innovative
projects as well as the sustainability of the innovation dynamics. It involves tasks of
strategic definition, information management, project emergence and development
and knowledge acquisition in terms of management.
v. The Territory: This is the space in which the superposition of competences and
legitimacy leads to the use of the concept of governance. Autonomous entities
(companies, collective institutions of individuals) and their managers register their
respective projects in a meta-project. They define their strategy to adjust to the
general policy.
Cortimiglia and Delcourt (2015) present a literature review of the models of the concept of
innovation process as the core of an innovation management. Most of the studies conducted in
the field of innovation identify two major types of innovation: incremental innovation and radical
or disruptive innovation. These two types of innovation are described under different headings in
the literature: “breakthrough/ incremental”, “revolutionary/ evolutionary”, “truly new/ incremental”,
“discontinuous/ continuous” ((Gutmann, 2003), (Schilling, 2013) and (Schmickl and Kieser, 2008)).
Garcia and Calantone (2002), in their review of the literature on new product development, identified
an abundance of typologies. They identified typologies ranging from two to eight categories.
In order to reconcile all types of innovation, Garcia and Calantone (2002) proposed to analyze the
innovations to make a level distinction on two dimensions: macro and/ or micro level perspective
and marketing and/ or technological level orientation.
3.3. Digitalization and Innovation the two Heroes of the Same Tale
The latest decades, innovation and digitalization have gone hand in hand to the point where it is
difficult to know whether it is the digitalization of our society that drives innovation or the reverse.
The two concepts of innovation and digital are vast (Denervaud et al., 2014). In this section, we
are summarizing the convergence criteria that appear to be relevant through the previous literature
review. The partial results of our ongoing study are presented in Table 2. So far, we have found
sixteen points of convergence between the two phenomena studied. Our IT expert proposed two
of the sixteen criteria: “Need of Quick wins” and “Need of change management”. The rest of the
criteria were found in the literature. Eleven criteria have been validated both in the literature and in
the field and three only by the literature review (see table 2). Innovation and digitalization are both
recognized as a process and therefore as a coherent succession of activities that produce added value
within the company. They are complex, iterative and participative. Technology, people, skills and
culture play an important role in both processes. Innovation and digitalization processes are based
on three main stages: (1) observe and define, (3) imagine and design and (3) prototype and test.
They can impact economy, society, opportunities and challenges for business. They can even
produce disruptive change.
The culture of both processes is based on common elements: A focus on the user experience,
strategic questioning on the need, agility, adaptability and risk. Common elements for the benefit of
a common ambition: invent tomorrow, invent the future. A more in-depth analysis on the nature of
these points of convergence and their completeness is underway.
IAMOT 2019 | 71
Table 2: Innovation and Digitalization Process Convergence
Criteria/ Invariant Bibliography Reference for Comments
Innovation Digitalization
1 (Boly, 2008), (Garcia (Schreckling and Steiger, 2017), Validated in the field
and Calantone, 2002), and by the literature
(Cooper, 2001), (Kooli- review
Seen as processes
Chaabane, 2011),
(Masson et al., 2006),
(Morel, 1998)
2 (Boly, 2008), (Denervaud et al., 2014), Validated in the field
(Denervaud et al., 2014), (Schreckling and Steiger, 2017), and by the literature
Complex
(Ben Rejeb, 2008), (Goerzig and Bauernhansl, 2018) review
(Cooper, 2001)
3 (Masson et al., 2006), (Schreckling and Steiger, 2017), Validated in the field
Risky (Cooper, 2001), (Ben (Goerzig and Bauernhansl, 2018) and by the literature
Rejeb, 2008) (Müller and Hopf, 2017) review
4 (Garcia and Calantone, (Denervaud et al., 2014), (Parviainen Validated in the field
2002), (Boly, 2008), et al., 2017) and by the literature
Iterative process
(Kooli-Chaabane, 2011), review
(Assielou, 2008)
5 (Boly, 2008), (Kooli- (Schreckling and Steiger, 2017), Validated in the field
Participative Chaabane, 2011) (Henriette et al., 2015) and by the literature
review
6 (Schumpeter, 1934), (Schreckling and Steiger, 2017), Validated in the field
(Assielou, 2008) (Henriette et al., 2015), (Goerzig and and by the literature
Technology foundation
(Schreckling and Steiger, Bauernhansl, 2018), (Stolterman and review
2017), (Boly, 2008) Fors, 2004)
7 (Boly, 2008), (Kooli- (Goerzig and Bauernhansl, 2018), Validated in the field
People, skills and culture
Chaabane, 2011) (Schreckling and Steiger, 2017) and by the literature
are very important
review
8 (Denervaud et al., 2014) (Denervaud et al., 2014), Validated in the field
Focus on user experience
(Schreckling and Steiger, 2017), and by the literature
(Customer Centricity)
(Kirsten et al., 2018) review
9 (Midler, 1998) (Schreckling and Steiger, 2017), Validated by the
Can produce disruptive (Henriette et al., 2015), (Goerzig and literature review
change Bauernhansl, 2018), (Parviainen et
al., 2017), (Müller and Hopf, 2017)
10 (Boly, 2008), (Assielou, (Schreckling and Steiger, 2017), Validated by the
Impacts: Economy,
2008), (Dert, 1997), (Henriette et al., 2015), (Goerzig and literature review
Society, Opportunities
(Midler, 1998), (Joly, Bauernhansl, 2018), (Parviainen et
for businesses,
2017), (Rubera and al., 2017)
Challenges for business
Kirca, 2012)
11 Objects: process and (Boly, 2008), (Ben (Matt et al., 2015), (Schreckling and Validated in the field
work, products and Rejeb, 2008), (Kooli- Steiger, 2017) and by the literature
services, Business models Chaabane, 2011) review
12 Business Models and (Joly, 2017), (Garcia and (Schreckling and Steiger, 2017) Validated by the
offering Calantone, 2002) literature review
13 3 typical stages: (1) (Denervaud et al., 2014) (Denervaud et al., 2014) Validated in the field
observe and define, (3) and by the literature
imagine and design and review
(3) prototype and test.
14 (Denervaud et al., 2014) (Richard and Devinney, 2005), Validated in the field
Need of strategy (Matt et al., 2015), (Schreckling and and by the literature
Steiger, 2017) review
15 Need of change Under study Under study Proposed by the IT
management expert
16 Under study Under study Proposed by the IT
Need of quick wins
expert
IAMOT 2019 | 72
4. Finding and Discussion

Nowadays, companies have to do more than simply automating existing processes to meet the
challenges of a digital world. To please the increasingly demanding customers, companies must
often reinvent their entire business processes. To meet the customer expectations, they must arm
themselves by cutting-edge digital technology and innovation. Our state of the art reveals a troubling
similarity between the innovation process and the digitalization process. We found sixteen invariants
between innovation and digitalization. Eleven invariants were observed in the literature review and
in our experimental field. Based on these results, we confirmed our hypothesis (H1). So there are
multiple convergence points between digital transformation process and the innovation process.
Moreover, we observed an abundant literature dealing about digitalization and innovation: success
factors, barriers and descriptions of issues. However, we have identified three interesting directions
to build a future study framework: Modeling/ evaluation/ tools.
Our first observation is the lack of modeling at the process level of digital transformation.
We therefore propose to use the modeling efforts of the innovation process to provide interesting
feedback for future work. Our second observation is the existence of limited work to evaluate digital
maturity: a parallel with the ability to innovate seems interesting to us to exploit. Our third observation
is the lack of methodological tools to help PMEs to support the digital transformation. Our proposal
is to explore the use of innovation tools and creativity tools to instrument the digitalization process.
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IAMOT 2019 | 74
Financing Innovation: Benefit of the Innovation
Vouchers to Foster the Link between SME’s
Needs and University Capabilities
Laure Morel
Université de Lorraine,
ERPI (Equipe de Recherche des Processus Innovatifs),
France
E-mail: laure.morel@univ-lorraine.fr
Mauricio Camargo
France
E-mail: mauricio.camargo@univ-lorraine.fr
Pascal Lhoste
France
E-mail: pascal.lhoste@ensgsi.univ-lorraine.fr
Abstract
SMEs play a capital role in regional economies in terms of employment, and added value generation. At European,
national and local levels, several programs and policies oriented to support and enhance innovation capabilities of
SME’s were developed. Nevertheless, some authors consider that direct impacts on SME’s of these investments
are questionable (Morel et al., 2009; Morel, 1998). This can be due to misaligned strategies between firms and
universities. Within this context, new business models appear to fulfil the gap. In this paper, we are interested
particularly on the concept of « Innovation Vouchers (IV)», which are used widely in Anglo-Saxon countries but
still emerging in France.
Innovation vouchers are small lines of credit provided by governments to small and medium-sized enterprises
(SMEs) to purchase services from public knowledge providers with a view to introducing innovations (new
products, processes or services) in their business operations (OECD, 2010). By analogy, we will present in this
paper an original financing tool, the ATI (French acronym standing for Transfer and Innovation Workshops) that
enables to train students, entrepreneurs, and scientists on a real problem provided by a firm, and, at the same time,
allows finding new ways of financing its projects of innovation.
Based on the experience of the use of innovation voucher scheme for several years on two concrete examples: a
company in the field of ergonomic instruments and, a second on the field of roadside mowing machines, within
the framework of a collaborative partnership with an engineering school. The impacts this program over the time
were underlined, searching to have a better understanding on the ability of such program to create a new dynamic of
development giving benefits to both university and firms.
Furthermore, evidences of these two cases, allows us to infer that the concept of “innovation voucher” cannot be
only reduced to a material aspect (financing) but also be considered with a non-material perspective that is today a
real part in the value creation process.
Keywords: Innovation Voucher, SMEs Innovation, Training Modules, Learning Process, Long Term Impacts
1. Introduction
In a context of change toward a knowledge economy, the relation between research, training,
business and territories is a major challenge. However, under this new economic dynamics, there is a
gap between SMEs needs and Universities/Research Centres’ technological offer. The development
IAMOT 2019 | 75
of SMEs is directly related to technological development and the integration of technology into
their product lines and industrial process. However, access to technology, particularly through
collaboration with scientific laboratories, is often very difficult for companies such as SMEs.
Indeed, they often have neither the structure nor the skills to foster a close dialogue with a scientific
structure.
In addition, the public innovation players (laboratories of research, etc.), are not systematically
identified by companies as been relevant innovation partners to provide technological services. This
situation is explained in particular by:
●● The low visibility of academics’ skills and of the results of their research work, added to
the focus and cultural differences with companies.
●● The difficulties of some public partners in understanding the activity and the company’s
needs, and to propose adapted answers.
●● The difficulty of public actors to coordinate in an efficient way their offer of technological
services.
●● Complex communication and administrative procedures that make it difficult to access
public partners. Indeed, the identification of public partners’ competencies and ressources
is most often made by personal network and word of mouth, when a need arises.
●● The difficulty for companies to arbitrate between carrying out the activity to respond to
current orders and time spent, to develop and to mobilising public partners to support the
innovation process. Investment in energy and time to collaborate with public partners
is often perceived as been too high to achieve results that remain hypothetical. This is
linked to the uncertain nature of innovation.
●● The low knowledge and experience capitalization of SMEs (DGCIS, 2011)
Within this context, new business models are required, searching for improving the innovation
capabilities of firms thanks to the creation of new links with its ecosystem. In this paper, we’re
interested particularly on the concept of « innovation vouchers », used widely in Anglo-Saxon
countries but still emerging in France.
Innovation Vouchers are small lines of credit provided by governments to small and medium-sized
enterprises (SMEs) to purchase services from public knowledge providers with a view to introducing
innovations (new products, processes or services) in their business operations (Cornet et al 2006).
By analogy, in this paper we intend to show how this concept allows to redefine the Goverment/
enterprise/university relationships by developing new ways of innovation financing. In a period
of budget reduction, a university and a regional autorities should develop new tools to provide
innovation support services to companies, especially SMEs in a win-win relation. In that way, we
will present an original concept named “ATI” (Transfer and Innovation Workshops) that illustrate the
local organization of resources between universities, enterprises and a region in France (Lorraine).
2. The Concept of Innovation Voucher (IV)

Innovation financing has become a widespread topic of study, particularly in the SME field. This
is due in particular to the fact that “the main obstacles and obstacles to implement innovation are
(therefore) the cost of financing innovation, the availability and access to financing as well as
economic risks that are too high and/or insufficiently controlled” (DGCIS, 2011).
As an example, in 2014, ten billion euros, or half a percentage point of GDP, has been devoted in
France to supporting innovation by the various public players: mainly the central government, the
regions and Europe (CNEPI, 2016). From this study, regions have confirmed their leading position
as players in the innovation policies. The inventory of the regional aids carried out by the European
IAMOT 2019 | 76
Financing Innovation: Benefit of the Innovation Vouchers to Foster the Link between SME’s Needs
Commission evaluates direct contribution at the regional scale represents 15.2% of the total. The
European Union representing 12.7% of direct support, is also a key actor, with almost equal weight.
Currently, due to public policies of shortage of resources and the growing demand about innovation
support, there is a emergence of new innovative financing methods such as crowdfunding,
crowlending and innovation vouchers (IV) among others. Since 2010, it can be noted the increasing
use of a new participatory financing method for innovation: the crowdfunding. “The crowdfunding
is defined as the collective effort of individuals (the crowd) who pool financial resources to support
projects initiated by other individuals or organizations (Belleflamme et al., 2014; Mollick, 2014)” in
(Khelladi et al., 2018). Moreover, recently, we have seen the emergence of a new form of participatory
financing, the crowlending. As noted by (De la Pallière and Goulet, 2018), its appearance in 2014”...
ended the banking monopoly on interest-bearing loans. Since then, individuals can participate
directly in the financing of the real economy and receive financial compensation in the form of
interest. Businesses, especially SMEs, thus have access to a new method of financing. In the same
vein, the concept of microlending is also emerging, on a smaller scale.
In parallel, in 2010, the OECD defined the issues and targets of the innovation concept voucher
as following : « Innovation vouchers normally target SMEs in light of the contribution (normally
below EUR 10 000) they provide for the introduction of small-scale innovations at the firm level.
SMEs tend to have limited exposure to public knowledge providers such as universities and research
organisations as they may see such institutions as irrelevant to their business activities or be
unwilling to invest in the search costs necessary to identify relevant providers. On the other hand,
staff in public knowledge providers may see little incentives in working with small firms when the
latter have lower absorptive capacity and guarantee lower returns as compared to large companies
and other public agencies.
The main purpose of an innovation voucher is to build new relationships between SMEs and public
research institutions which will: i) stimulate knowledge transfer directly; ii) act as a catalyst for
the formation of longer-term more in-depth relationships. In a snapshot, innovation vouchers are
intended as pump-priming funding through which initial industry-university relationships can be
established.
The issuing of the voucher has two main impacts, both of which overcome major incentive barriers
to the usual engagement between SMEs and knowledge providers. First, the voucher empowers
the SME to approach knowledge providers with their innovation-related problems, something that
they might not have done in the absence of such an incentive. Secondly, the voucher provides an
incentive for the public knowledge provider to work with SMEs when their trend might either have
been to work with larger firms or to have no industry engagement at all.” (OECD, 2010). In the next
section a particular type of innovation voucher will be exposed: the ATI workshop.
3. An IV Concept: The Transfer and Innovation Workshops (ATI)
3.1. Objectives and Interest for a SME

The Transfer and Innovation Workshops is a project issued from a collaborative process among
Engineering, Business, Architecture and Design schools. The main expected objectives was to:
●● Increase the exchanges efficiency Research/Training/Companies/Territories
●● Training students through action with concrete and innovative needs.
How ? by igniting a collaboration between the university and a company through a multidisciplinary
project aiming at:
●● Verify the relevance of an innovation project (products or process) and its technical and
economic feasibility
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●● Initiate a new approach in the company for which there are generally no specific
constraints (regulatory, market or customers,...) and/or spinoffs are not easily measurable
in advance.
●● This is why we were interested by the IV concept that lead in fact to set up and test a
simple system for financing an external expertise for SMEs with innovative projects and
to contribute to a “learning by doing” attitude. Indeed, the goal of the ATI is twofold.
The financing principle is simple: it is a co-financing procedure that is to say, the SME
has to give Half of the budget in order to get the IV by the Regional council will with a
limitation of 20.000 euros per project.
3.2. Consequently, the ATI were Designed

●● To gradually integrate SMEs in the knowledge economy, to facilitate and accelerate
their innovation, to develop knowledge of the teams in terms of piloting of innovative
projects, to develop their practices of collaboration and networking, by accessing to a set
of methodological and technological resources devoted to innovation.
●● To mix skills becoming from different backgrounds: engineering, management, Design
and industry.
3.3. Organization of an ATI

The originality of this concept lies in its design. Indeed, three working environments were developed:
●● A multi disciplinarity team: each workshop is composed at least by students becoming
from one engineering school and one business school, two managers (professors of the
previous schools) and one person of the SME (choose by the director). The size of the
team is around 8 to 10 participants.
●● A dedicated period: the Transfer and Innovation Workshops are held every Friday
throughout the year and are organized in 2 semesters, with distinct but complementary
objectives and methods. As a result, all the engineering and business schools concerned
and the SMEs have to homogenize their respective schedules and book the Friday to the
workshops.
●● A free access for the SMEs to a university technological platform and different kind of
resources (training, researches, transfer).
3.4. A Two Stages Structure was Proposed

●● Stage 1: Semester 1 (September to à January): Basics on management of innovative
projects and Project Organization
Figure 1: Semester 1 (September to à January): Basics on Management of Innovative Projects and Project Organization
IAMOT 2019 | 78
The objective of the first semester is to give a common background to the project team. Indeed, these
courses will be useful to help them to have both an individual and collective thinking on the project
they have to develop. This first step is crucial because a lot of innovative project failed due to a lack
of cross studies and a bad definition of the problem.
This is the reason why we decided to have the following timing: Friday morning, the basics and
Friday afternoon, application of the courses on the SME project’s main issue.
Figure 2: Semester 1 (September to à January): Application of the Courses on the Problematic
At the end of this stage, we have a clear and concrete definition of the project, its challenges and the
planning to obtain results.
●● Stage 2: Semester 2 (January to June): Operational implementation of the project
During this period, Friday is now dedicated to the piloting of the project, that is to say that all the
team is working on the concrete development project.
Figure 3: Semester 2 (January to June): Operational Implementation of the Project
One advantage of this structure is that we can benefit from a resource center which aim is to provide
some “flash courses” if needed by the team or that give the access to an expert’s database.
4. Expected Results
As we have already said, the ATI project is a tool for igniting, accelerating and facilitating innovation
through:
●● A better identification and formalization of an industrial issue of technological
development.
●● A more efficient piloting of the project thanks to the access to competencies and tools
that SMEs don’t basically get.
IAMOT 2019 | 79
●● Adapted training sessions for the SMEs employees or managers regarding their project.
●● A progressive integration of the SMEs to the local scientific and technology environment
regarding the project needs.
●● A concrete use of all the methods favouring a collaborative work.
5. Longitudinal Study of Two SMES whitin the ATI Program

Since this program has been implemented since 2007, two companies participant to the program has
been observed, through semi directive interviews with the managers and the existence of projects
reports, and outcomes has been analysed.
The participants are first, a company in the field of ergonomic instruments and the second on the
field of roadside mowing machines, the concept of innovation voucher was applied with the aim to
create a new dynamic of development giving benefits to both university and firms.
As the primary objective of an innovation voucher scheme is to encourage knowledge transfer
between the higher education sector and small and medium-sized enterprises (SMEs), our analysis
is focused on the vectors of knowledge transfer and creation. This analysis based on a longitudinal
study (10 years) of two companies deploying joint-ATIs with a French Engineering School
(ENSGSI) (Boly et al., 2017; Kleine et al., 2017). Figure 1 shows the firms’ ATI project highlights.
The 17 projects already realized focused on three areas: new product development, exploring new
markets and innovation management issues. This experience shows that SMEs first motivation is
related to technical short-term issues related to product development. However, as far as the relation
became more trustful over the time, more strategic issues have been developed jointly. The higher
level of maturity been represented is the firm’s engagement in research projects. The subsequent
discussion aims to underline some positive externalities regarding the main stakeholders of such
projects: students, firms and researchers.
Related Postgraduate
No of Number Type of Project
Students
Firm Sector Employees of Joint
2017 Projets New Product New Market Innovation Post-
Master PhD
Development Exploration Management doc
Firm Ergonomy
16 10 5 3 2 2 2 -
1 instruments
Roadside
Firm
mowing 350 7 3 2 1 1 1 1
2
machines
6. Main Implications
6.1. From the Point of View of Students

These projects are carried out as a part of their academic program. A dedicate period of one day per
week is dedicated to their ATI project along the academic year, from October to June. It allows them
to be familiar with the dynamics of industrial innovation projects, develop communication skills
and technical competencies. However maybe the most important competencies are these related to
self-directed learning skills. Indeed, these latter are of prime importance in the success of innovation
processes. This led the teaching staff to set up a project aimed at integrating self-directed learning
into the curriculum. The system is based on an alternation between active and reflexive phases.
It also provides students with continuous support, thus transforming the role of the teachers into
facilitators (Bary and Rees, 2006).
6.2. Point of View of the Firms

The ATI projects opened a strategic discussion space that allows SMEs to integrate external points
of view and resources from outside of the firm. Because the projects are formalized through reports,
conference paper or journal papers, the companies have higher documented results and so can be
IAMOT 2019 | 80
considered strategic issues. Consequently, one can note that innovation management and strategy
start to be considered and integrated within the firms’ day-to-day routines.
6.3. From the Point of View of Research

The ATI’s are an opportunity to find a compromise between two academic activities: research and
teaching. As these projects represent an occasion to apply and validate theories, methodologies
and tools, they can both be of interest for the research or the pedagogic fields. Moreover, when
integrating mixed teams of Master or PhD students, most of the time there is a synergistic effect that
allows each other to be conscious and take the measure and their role as been part of an important
and applied issue. As a non-negligible outcome, these projects will also contribute to one of the
researchers’ goals “publish or perish”.
7. Conclusion
As a conclusion, the concept of “innovation voucher” cannot be only reduced to a material aspect
(pure financial) but also be considered with a non-material perspective that is today a real part in the
value creation process.
References
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IAMOT 2019 | 81
Smart and Interactive Packaging—On Long Term
Studies and Technological Enablers in Retailing of
Consumer Packaged Goods (CPG)
Torben Tambo
Aarhus University, Department of Business Development and
Technology, Denmark
E-mail: torbento@btech.au.dk
Justina Lydekaityte
Aarhus University, Department of Business Development and
Technology, Denmark
E-mail: justina@btech.au.dk
Abstract
This paper is presenting and analysing the industrial trend of Smart and Interactive Packaging (SIP) that aims at
adding digital elements to consumer packaged goods (CPG) in the form of individual serial numbers, wireless
connectivity, augmented reality, sensors, and internet-enabled functionalities. The purpose of this paper is to
review and understand SIP from a management of technology perspective with respect to innovation drivers
and stakeholders, maturing of technology, types of successful configurations and a projection of technological
design most likely to succeed to a market level of productivity. Key findings are that the area until now has been
technology driven, secondly it seems like brand-driven, to a lesser extent supply chain, retail and consumers
have been driving forces in the area. Originality of this paper attributes to the study of SIP as a technology in its
early stages having passed a number of critical gates on the way to a largely adoption in the industry; the vision
of “everything connected” is technologically demanding and socially challenging and research is fundamental to
responsible priorities of investments and technological enablement. Research implications of this paper relates to, in
the view of technology as driver, how complex and loose networks of technological development can support or fail
to support each other to achieve useful outcomes. Furthermore is interesting to study that complex technologies like
semiconductors, conductive inks, graphene-based printing is first developed in large organisations, then matured
in smaller start-ups, and then again adopted by the largest global players. The social implications of the area are
large and widespread with retailing being one of the largest industries, and CPGs being consumed by the global
consumer.
Keywords: Smart Interactive Packaging, Consumer Packaged Goods, Management of Technology, Technology
Studies, Technology Foresight
1. Introduction
Packaging is fundamental to products and retailing in many sectors, and packaging is thus one of
the brand owner’s most powerful tools to attract and retain consumers (Kim et al., 2017; Cousté
et al., 2012). Smart and interactive packaging (SIP) is the expectation that the packaging of
consumer packaged goods (CPG) (Lamey et al., 2018; Akkas et al., 2017) in certain sectors will
converge and bridge between the digital product development, the digital marketing, the digital
customer engagement and the physical retailing. Smart and interactive packaging (SIP) transforms
traditional passive packaging to internet-enabled devices supporting a range of interactions between
the brand, the product, the retailer and the customer (Ryynänen and Rusko, 2015; Blanco, 2018).
Technological enablers are printed electronics, (semi-) conductive inks, Internet-of-Things (IoT)
particularly networks like NFC, LoRa, Bluetooth LE, new forms of RFID tags, digital paper,
segmented retail digital network architectures, and augmented reality (Lydekaityte and Tambo,
2018; van Kerrebroeck et al., 2017; ten Cate et al., 2014).
With SIP it is possible to create a digital interactivity and personal adaptiveness of the individual
product including storytelling, game inspired features, user support, operational guidance, and
IAMOT 2019 | 82
Smart and Interactive Packaging—On Long Term Studies and Technological Enablers
similar interactive features of the product (Ryynänen and Rusko, 2015). Moreover there might
be established a clearer digital link between product, brand and consumer e.g. in forms of loyalty
programs or consumer guidance (Hunt, 2017; Venkatesan et al., 2015; Akkas et al., 2017; Blanco,
2018). Examples are internet-of-things based lids in bottles of beverages or detergents helping the
consumer but also feeding back to the brand.
This paper is discussing SIP as an emerging technology with characteristics of a high level
of uncertainty and risk in decision making although design opportunities are readily at hand. In
reviewing the technology as emerging, competing technologies, investment capabilities, operational
readiness and maturity must be brought in to question. The research question is: What are the key
characteristics of the development of smart and interactive packaging (SIP) in a management of
technology perspective (MoT) with special emphasis on forecasting of successful configurations for
a larger scale of commercial application?
2. Methodology
The methodology of this paper is ex-ante, qualitative, socially-inspired and placed between
technology studies and design science research (McKay et al., 2012). Design of based on platforms
of requirements, limitations and social and commercial opportunities and restrictions, design science
research is suggestion itself positively to establish necessary reliability when extracting findings
from studies of creation and shaping of technology (Baskerville and Storey, 2017). This paper is
seeking its point of departure in positive outcome of technological development as being based on
diverse and human-driven use of whatever tools at hand (bricolage) and the human ability to invite
and host feasible technology (xenia) (Ciborra, 2002). In the design science tradition, technology is
shaped and configured in environments of key actors interacting with adjacent actors in communities
were users and consumers are necessary participants and key determinants for success (Grobler and
Villiers, 2017). With Iivari (2017) design processes is “allowed” to have a lot of attention on shaping
of artefacts but this can’t take place without addressing the wider system surrounding the artefacts;
ideally a social artefacts must also be defined and placed in the context of the technological artefacts
and the (information) system.
The data collection for this paper has aimed at mostly secondary sources as the experience gathered
from full-scale experiments is limited following the nature of emerging technology studies. Key
sources for the empirical material found has been:
i. Websites of industrial conferences and trade fairs
ii. Industrial magazines, press releases, articles and case presentations
iii. Testing of product samples in our laboratory from Water.IO, Novalia and tagged labels
from selected label manufacturers
Critical to the empirical foundation is the limited information stated by the key actors in the fields
of base technologies (semiconductors, inks, glues, laminates, infrastructure), technology designers
(startups, allround IoT actors) and converters (final packaging manufacturers). Given the amount of
cases and the repeated types of empirical cases from several countries and industries a fundamental
reliability is asserted to the data.
2.1. Theoretical Reflections

To study an emerging discipline as SIP on how successfully to attract and mature the technology in
selected contexts, requires a structured approach of early stage studies, current state assessment along
with projections based on ‘small wins’ from laboratory and pilot stage initiatives. In the following
theory from management of technology (MoT) will be presented along with the fundamentals of
theory from the area of SIP.
IAMOT 2019 | 83
2.2. Management of Technology

A central discipline in Management of Technology (MoT) is corporate foresight setting a string
of institutional processes in the organisation in form of (1) strategizing from innovation, (2)
initiation of innovation, (3) challenging innovation (Rohrbeck and Gemünden, 2011). This is further
elaborated as concepts of managerial cognition, ability for forward looking and sensemaking for
potential technologies, strategies and innovation priorities in (Rohrbeck et al., 2015). In planning
and projecting directions, dependencies and detailed technological understanding, technology
roadmapping is a key planning construct (Phaal et al., 2004) using structured approaches to relate
technology against or with market drivers understanding technology features and solutions (Phaal
et al., 2006). Technology foresight provides research and companies with the fundamentals of
scanning, interpretation and action on technologies (Rohrbeck, 2013).
The innovation timeline from idea to end-of-line needs close coordination between design activities
related to products and those related to the supply chain (Affonso et al., 2013) in considering the
overall objective as to provide value in thinking that value is highly segmented with consumers,
products and stakeholders at large (Almquist et al., 2016). In Bergek et al. (2008) complex
innovation processes are explained as Technological Innovation Systems (TIS) that can be identified
as assessed for furthering the insight in the needed concurrency, collaboration and coordination
between the broadest spectrum of stakeholders in innovation here both assessing positive drivers
(inducement) and blocking mechanisms. The relationship between markets drivers and demands and
the technological offerings and supply opportunities are well described by Brem and Voigt (2009)
as a push-pull balance.
Geels (2002) suggests to see technological development as evolutionary and as a socially-driven effort
of constant reconfiguring. In this model an extended network or eco-system influence acceptance or
rejection of configuration elements with low emphasis on rationality and high on sociological issues
like power, hype, law and individual or group-based assumptions on future trends in that respect
setting layman’s viewpoints as critical. Within the S-curve, see figure 1, for technology transition
and maturity as range or “substreams” offer themselves to the accepted configuration and a range of
technologies are open-minded judged as failed.
Figure 1: The Dynamic Multi-Level S-Curve of Technology Transitions (Geels, 2002)
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This is somewhat in line with Grunert et al. (2011) emphasizing consumer involvement in product
development in the CPG sector. This is in turn also covering customer experience and design for
customer experience with a combination of “professional customers” such as focus groups and a
broader audience (Grewal et al., 2009). Liu et al. (2018) express this vagueness as the corporate
ability to improvise entailing issues like centralisation, formalisation in decision-making, resource
slack and investment irreversibility. Noh et al. (2018) propose to record and use data in the
assessment of technology and innovation feasibility. Lager (2017) is defining product development
to utilise a platform thinking.
Visnjic et al. (2018) discuss that tangible technology is largely to be co-considered with the
development of services. Services are necessarily connected to a service strategy and brought to
action via a service architecture defining actual services (Wittmann et al., 2014). Being a technology
“owner”, service strategies can sometimes be used for opening up for external stakeholders to provide
services under more or less regulated forms (Venkatesan et al., 2015). Technological innovation is
therefore in most case also a matter service innovation. In the actual case of SIP, retailers might see
themselves as service providers to the brand owner. The combination of products and services is
often referred to as a Product Service System (PSS), Olsson and Larsson (2009) underlines strong
potentials in seeing product innovation and packaging innovation as a whole using the philosophy of
PSS to ensure optimum experience for both retailer and consumer.
2.3. Packaging and CPG as a Technology

Retailing is the physical dimension of the meeting between the brand owners’ products and the
consumer (van Kerrebroeck et al., 2017). Retailing is mostly two-fold from what the consumer
need and what the consumer want. Retailing is both convenience and inconvenience (Bronnenberg,
2015). Positive customer experience is rewarded with higher prices and higher mark-ups (margins).
So look and feel is both store and post-store / in-home experience comprised of an assemblage of
visual, physical, verbal, haptic and emotional cues (Rebollar et al., 2017). The last using potato
crisp sales in Spain as case. In CPG, packaging look-and-feel is crucial as it signals the fullest of
the product that otherwise is not visible to the consumer, so consumer perceptions of packaging
in the fully CPG-oriented brands is often more important than the product itself. The interaction
between the consumer and the packaging is thus the most important moment for such brands (Steenis
et al., 2017). Here the difference between perception and interaction is alone a matter as interaction
involves a higher degree of closeness either in stores or digitally.
Hunt (2017) underlines the impact of brand labelling in packaging to consumer purchasing decision
making also suggesting adaptiveness of brand labelling to certain consumer segments; SIP could
give opportunities for customising brand labelling at shelf level. In the current study we see a
differentiation between printed packaging and labelled packaging the latter using “anonymous”
packaging like beer bottles or marmelade jars, and the first giving a more complete visual impact.
2.4. Theoretical Foundations of SIP

Availability and applicability of networked technologies is largely represented as internet-of-things
(IoT). In context of SIP this is framed as Internet of Packaging (IoP). IoP is assumed to follow
technologies spun-off by IoT. The experience within retailing on networked item has a long tradition
most documented from RFID studies (Zhu et al., 2012). Also radio-frequency theft protection has
a wide use. Types of optical readable prints on packaging is well known with EAN numbering and
QR code print, but also newer forms found such as DIGIMARC (Gerlach et al., 2015; Rodriguez
et al., 2015).
Beyond “tagging” technologies, SIP and IOP are also expected to rely on printed electronics.
With printed electronics, it is assumed that all (vision) or most parts of the necessary circuits for
connectivity and interactively can be cheaply printed in the same printing processes as the packaging
is already printed in. No matter if we consider labelled printing or fully printed packaging. The
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basic circuitry will consist of a power source, most likely a battery and a photo voltaic (PV) cell,
some sensors e.g. for touching or environmental sensing, some “user interface” being anything from
digital paper resembling a smart phone to sending a signal to a smart phone. Eventually is some
“intelligence” needed in form of a chip with a processor and a radio module with an antenna. All
“passive” and wires components can be printed, and a great effort is put in improving conductive
and resistive inks. Active components are more difficult. In the case these can’t be printed, a range
of miniature microelectronic components are available to affix with conductive glue (Lydekaityte
et al., 2018; Fescioglu-Unver et al., 2015; ten Cate et al., 2014; Kiel et al., 2017).
2.5. Supply Chain Considerations

Supply chains are to ensure timely relationships between point-of-manufacturing and point-of-
sale (Blanco, 2018). Supply chain management for CPGs has its complexity from inpredictability
of consumption with stores generally representing a speculation approach entailing issues like
timeliness, amount, seasonality, optimisation and reverse logistics (Kumar and Ostor, 2004).
Demand management is to ensure optimal stocking of stores, Bharadwaj (2018) describes relatively
long planning cycles in the CPG industry due to seasonality and the need for load balancing along
with source and especially an increased focus of Sales & Operations Planning (S&OP) to minimize
idling, loss, untimeliness and ensure necessary slack.
The supply chain also exists within the store. Goods are moved from goods receiving to temporary
stocking further to the store. Some left packed, some unpacked. Goods are shifted in the store
dependent on taste, consumer behaviour, new campaigns, near-obsolescence, and staff impressions.
Staff might ideally work for the overall performance of the store but also be regulated by central
look-books and physical boundaries (Liles, 2009).
SIP is to be considered as a factor in supply chain development in several ways. Goods of SIP might
have specialised supply chain requirements, e.g. need for electricity, temperature and humidity
requirements, and instantiation of item data. This can add to supply chain complexity. The smart-
enabling can add to a more sensing supply chain providing opportunities for increased effectiveness,
waste reduction, reallocation and final customisation at e.g. store level.
2.6. A Development Perspective for a Research Model

SIP is a collection of constituting technologies applied in a context of CPG supported by necessary
infrastructure such as networks in shops and connectivity is post-sales environments. Actual SIP
solutions are the result of a product development process matching a supply chain that provides a
manufacturing capability (Primus, 2017).
The theoretical research model derived from the elements above must support our review of
individual technologies for their feasibility through technological “substance”, design opportunities,
interactional opportunities and market implications.
3. Selected Cases and Empirical Positions

Since 2014, the Israeli technology provider Water. IO has been developing and producing smart
and interactive packaging units, see figure 2. The technologies includes sensing and monitoring of
conditions and usage of products. Its lid technology can be used in water bottle lids for ensuring a
stable and healthy consumption of water e.g. for elderly persons at risk for dehydration, and for bottle
reusability by monitoring refillings. The lid can be used for detergent bottle to help the consumer
in correct dosage. For non-fluid products, the lid can monitor a pill glass to register openings
for helping e.g. correct medication or consumption. For non-bottled products, the company also
offers a pill blister pack with intelligent sensing features. In wider use of the tracking technologies,
an application is suggested for tracking of the temperature of storage of sushi foods to illustrate
freshness to the consumer.
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Figure 2: Water Bottle, Smart Lid, Instructions and APP From Water.IO
The Norwegian company Thinfilm is offering a range of solutions based on NFC. Showcases have
been the spirits industry were application has been in consumer engagement and experience with
e.g. story telling connected to whisky bottles, connecting tequila bottles to sponsored football games.
In cosmetics, the company showcases in-store consumer engagement, social media sharing, and a
drive to repurchasing. The company offers solutions for monitoring of glasses and containers with
medicine and food supplements that comply with food safety regulations for correct intake.
The Norwegian company Kezzler is designing codes solutions based on more technologies. A
specific area is serialisation meaning individual product item identification for tracking, verification
(anti-counterfeiting), integrity, supply chain data tracing, and potentially consumer engagement at
an individual level. Kezzler is describing how several elements of the value chain is addressed
in the form of e.g. Amcor is packaging producer, Toppan as ink manufacturer, SGS as test and
verification laboratory and WCO as the world customs organisations for fiscal application and
assurance purposes.
Selinko of Belgium is offering a range of NFC-based tags to be added in labels or in the capsule
of fluent products from beverages to soaps for anti-counterfeiting, opening detection, marketing
services and traceability. Focal industries for application are stated as spirits, wines, perfumes,
cosmetics, pharma, apparel, footwear, and consumer electronics.
EVRYTHNG is a UK-US company within Internet-of-Things aimed at a relatively broad range
of applications and solutions. In this context, EVRYTHNG is supplier to Diageo, Coca Cola, AB
InBev, Unilever, Thinfilm, Dom Perignon, GlaxoSmithKline, Mondelez of smart and connected
solutions for SIP. EVRYTHNG is working on a full technology stack with tags for most types of
networks and a range of infrastructure and analytical solutions.
Novalia is a UK-based company making printed electronics promotional and experiental products
combining touch-functionality, sound, rich graphics and Bluetooth-based connectivity. The
printed electronics can be make in any size. Figure 3 shows a A5 size. The electronics module is
“traditional” printed circuit boards glued to the conductive print. Any graphic and visual image
can be added on the surface as the example from Dunkin Donuts. Examples are also posted from
Hershey chocolate, Disney, Budweiser, and Pizza Hut. Novalia has developed is conductive inks
together with Cambridge University’s Graphene Centre expecting graphene as a carrier for metallic,
semiconducting and insulating nanoparticles.
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Figure 3: Novalia Printed Electronics for Donut Music-based Packaging
The Finnish packaging company of Stora Enso is offering a range of tagging solutions mostly
based on RFID technology embedded into its line of cardboard-based packaging materials. The
technologies are developed in partnership with the US chip designer NXP Semiconductors. The
company is emphasized the four key areas of application
i. Offline retail connectivity with Smart Shelf concept
ii. New product experiences
iii. Leaner supply chain management
iv. Towards a data-driven business model
Application and solution guidelines are branded under the name of ‘TaggedValue’ suggesting
application in four industrial areas being: Converters (of raw cardboard product), medical industries,
retail CPG, industrial products.
In 2011 the Active & Intelligent Packaging Industry Association (AIPIA) was founded in Utrecht. It
now has 1200+ members and partners all along the packaging value chain, such as
i. Packaging raw materials manufacturers like Dupont, 3M, DS Smith
ii. Retailers
iii. Brand agencies
iv. Global brand owners like MillerCoors, Unilever, Starbucks, Diageo, Estee Lauder,
Elizabeth Arden, Ferrero, Gilette, Godiva, Heinz, Johnson & Johnson, Procter & Gamble
v. Technology providers like STMicroelectronics, Esko, Elopak, HP
vi. Universities
AIPIA is posting industry information and held in 2018 the first congress and exhibition in Amsterdam
with around 300 participants. Topically the congress stated the areas of printed electronics, brand
protection, shelf life extension, augmented reality, mobile commerce, supply chain control, smart
labels, condition monitoring, consumer engagement and fighting waste.
Several large, traditional packaging manufacturers have over the last years announced inititatives in
the SIP field. Many announcements have had the form of partnerships with technology entrepreneurs
such as the above mentioned Water.io and Thinfilm. Table 1 presents a range of large packaging
companies, key technologies and partnerships.
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Table 1: Large Packaging Suppliers, Technologies and Partnerships

Packaging
Key Technology Statement Partnerships
Manufacturer
“WestRock is transforming packages into individual data beacons
connected to the cloud, rich with real-time information for consumers, Partnership with
Westrock (US)
brands, suppliers and retailers far beyond what RFID or QR codes EVERYTHNG and Digimarc
provide.”
MaXQ, offers brand owners unique identification codes printed on
every pack. The dynamic codes can be used for digital consumer Kezzler, ‘kezzlercodes’ based
Amcor (AUS)
engagement, anti-counterfeiting, track and trace, and other on visual barcoding or NFC
activations.
Commercial development of functional sensor labels manufactured
from new and emerging printed electronic technology made from
BEMIS (US) Thinfilm using NFC
Thin Film’s proprietary read/writable printed memory and program
logic
Stora Enso (FIN) (See above) NXP Semiconductors
UPM Raflatac launches an innovative new solution for brand Magic Add providing a
promotion, protection and logistics applications. RafMore combines ‘technology stack’ ensuring
UPM (FIN) pressure-sensitive labels and unique machine-readable codes to open connectivity from tag/label
up completely new possibilities for product verification and tracking, level to cloud computing
marketing analytics and consumer engagement. reporting solutions.
4. Analysis and Discussion

SIP has a lot of potentials to change key industries and change the settings of retailing. On the
other side, with the technology of RFID, is has been envisioned for long as a game-changer, but
has also failed to meet expectations. In the following potentials and obstacles for the technological
development will be analysed and discussed from an overall position of MoT.
Technology Foresight
Following Rohrbeck and Gemünden (2011) on technology foresight consisting of (1) strategizing
from innovation, (2) initiation of innovation, (3) challenging innovation, the considerations above
expresses strategy and innovation. Strategy in the form of SIP as being a highly interesting offering
to brand owners, retailers and consumers as a long-term priority. Initiation of innovation in the form
of the innovation stakeholders being presented. Especially as represented in figure 4 with SIP relying
on small technology designers bypassing the much more solid relationships between brand owners,
converters and base technology providers.
Figure 4: Four-Party Development with Base Technology, Technology Design and Brand Ownership
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To discuss the challenger position abover, there is below listed a number of uncertainties and
are found central to an antagonistic position. SIP is anticipated as a break-through technology
characterised by a high level of uncertainty. A listing of uncertainties includes:
1. Wireless. Will it be possible to represent trillions of network ID’s whereas most have
relatively short lifespan? Wireless infrastructures are designed for somewhat static and
somewhat limited amount of ID. New infrastructures are need although the Internet-of-
Things trends is partially paving the way.
2. Printed electronics. Sophisticated circuits that formerly only were possible to reproduce
on complex and highly precise fiberglass substrates have to be transformed into
cardboard, low grade polyethylene and paper. There is a high expectation that printed
electronics must be able to produce active components like batteries, PV-cells, similar
energy harvesting methods, displays and radio frequency elements. Some is simple.
Some is only demonstrated in laboratories.
3. Augmented reality. Can augmented reality offer attraction and excitement? AR is
interesting as it require no extra network ID’s and no connectivity as items are recognised
optically, but most solutions are more gimmicks than actual interactivity.
4. Retailers’ reception. Retailers are dependent on lowest possible level of complexity of
operations. SIP must be effortless to retailers to succeed, and existing solutions seems to
impose some level of complexity to retailers.
5. Consumer value. Do SIP offer relevant and valuable customer experience that corresponds
with the effort consumers need to pay to benefit? No larger study currently exists on SIP
specifically, but traditional non-interactive campaigns and customer outreach has often
proven successfully. Uncertainty might relate to the brand owners ability to transfer
traditional approaches into smart and interactive approaches.
6. Information infrastructure. No standards exists for an end-to-end SIP infrastructure.
Existing e-commerce solutions, digital marketing and loyalty systems, and general
internet backbone infrastructures might be offered, but are not optimised to efficient
operations in the SIP context.
7. Establishment of open service systems. As stated above, there is an eco-system on the
artefact level but not on the system level, this is a priori a weakness. EVRYTHNG offers
some infrastructure elements but this is not the same as an inviting open service systems.
Open service systems is a way of creating credibility and assurance of the investments
that stakeholders must add to SIP.
8. Waste. SIP add complexity to waste. Simple organic printed electronics and augmented
reality are solutions, but so far chips (semiconductors) are added to packaging materials
changing this from pure to blended waste by some stated as a garbage nightmare.
Environmental friendliness is an uncertainty.
A development position from here should call for a clearer strategy position, but the range of
uncertainties makes a clear strategy position disputable against a position based on eco-systems,
configurators and networks of innovators in line with Geels (2002), Grewal et al. (2009) and
Grunert et al. (2011). Lager’s (2017) position on establishment of platforms is sensible with an open
definition of platforms. Platforms can be smart technologies as well as the CPG itself.
SIP has since mid-2017 shown a remarkable momentum in the cross-section between technology
providers, packaging industry and brand owners. Consumers have shown “short time” acceptance
in the available larger cases e.g. alcoholic beverages related to events. The uncertainties seems also
have been addressed one-by-one especially by the technology designers in the first line. Packaging
converters seems first to take up major challenges from now on, and they are only on a limited scale
delivering the same span of solutions as the technology designers. An exception is Stora Enso’s
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Tagged Value initiative branded in the same style as e.g. Novalia, and also offering a range of
solutions to ranges of industry segments.
4.1. Digital Perspectives

In considering a more digital, smart and interactive approach to CPG, it is important to notice that
the very most CPGs are created and marketed digitally already. Demand planning, sourcing, product
replenishment, visual merchandising might been done long before the product reaches the shelf.
Brand promotion, general marketing, consumer profiling, customer loyalty and campaigns are
mostly executed digitally obviously along with e-commerce as being a major threat to retailing. The
as-is situation of CPG as being fully virtualised before they become physical make the SIP a logical
next step. Goods are known digitally until they leave the factory door, enters the store or leave the
store. SIP suggests retaining the digital tracing of the individual product. In a context of customer
experience, data of interest for the consumer can be utilised just as much as data of interest for
retailers, brand owners, marketing analysts.
The digital transformation, big data, data-driven business modelling and AI/ML are additional factors
in driving a desire to a stronger digital representation of the supply chain and consumer behaviour/
consumer engagement. There is reason to assume that SIP successfully can extend existing digital
brand infrastructures and services which is likely to be more successful than SIP build from scratch.
4.2. The MoT Perspective

SIP is outlined as a natural succession to key elements of technology in modern fields of ubiquitous
and pervasive computing using the Internet-of-Things and RFID constructs as leading generations
of innovation and business modelling. With SIP there is not a ‘life and death’ or ‘burning platforms’
incentive for the innovation, it has just the elements of smarter retailing and smarter consumer
experience; from Brem and Voigt (2009) the push supersedes the pull given that positive outcomes
require more pull. However, given the emerging of cashier-less retailing or even unmanned retailing
more urgency might come sooner than later. In food and pharma SIP might be mandated if it can
lead to higher levels of assurance, consumer protection and other benefits to stakeholders. In parts of
B2B SIP is obvious for automated logistics, product verification and similar. In this study we aim at
distance ourselves from the areas of food, pharma and B2B, but focus on non-food CPG.
In this context, SIP is both relying on a range of emerging base technologies and business assumptions
leading to the about stated uncertainties, but SIP is also to be considered as an enabler for a much
broader eco-system in field of post-purchase. Customer loyalty can be extended more solidly into
the home. Third party services can benefit from the extended consumer outreach, e.g. maintenance
services, security services, value added services, reselling services, discarding services, and general
marketing services. SIP can add to the ‘data as gold’ perspective of giving consumers rewards from
making data available. In the tequila bottle example, data from SIP was used for customer loyalty,
but the reward was also vouchers for entering with a betting company.
4.3. Outlining Success Criteria and Onwards for SIP

To further the development, from Lager (2017), the product development platforms for SIP must be
clearer, more proven, more well-defined. The test kits displayed in figure 2 and 3 from our laboratory
are inspiring, but doesn’t proven industrial scale. EVRYTHNG is clearer in the presentation of
offerings as a platform. Most likely will an industrial standard or guideline (RFC) support decision-
making at the brand-owner level and by retailers and potential service providers.
Success criteria for SIP have so far been on the ability to connect brand owners, goods and consumers
and to provide value to both brand owners and consumers. On the ‘product storytelling’ with e.g.
whiskies there are no publicly available information on use of affixed tags for consumers to connect
with brands, but the effort seems ongoing and the price of tags is probably well matching the price
of printed high-quality ‘booklets’. Innovation from brand owners to consumers is “thanksful” a SIP
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is outlined as a natural succession to key elements of technology in modern fields of ubiquitous and
pervasive computing using the Internet-of-Things and RFID constructs as leading generations of
innovation and business modelling. With SIP there is not a ‘life and death’ or ‘burning platforms’
incentive for the innovation, it has just the elements of smarter retailing and smarter consumer
experience. However, given the emerging of cashier-less retailing or even unmanned retailing more
urgency might come sooner than later. In food and pharma SIP might be mandated if it can lead to
higher levels of assurance, consumer protection and other benefits to stakeholders. In parts of B2B
SIP is obvious for automated logistics, product verification and similar. In this study we aim at
distance ourselves from the areas of food, pharma and B2B, but focus on non-food CPG.
In this context, SIP is both relying on a range of emerging base technologies and business assumptions
leading to the about stated uncertainties, but SIP is also to be considered as an enabler for a much
broader eco-system in field of post-purchase. Customer loyalty can be extended more solidly into
the home. Third party services can benefit from the extended consumer outreach, e.g. maintenance
services, security services, value added services, reselling services, discarding services, and general
marketing services. SIP can add to the ‘data as gold’ perspective of giving consumers rewards from
making data available. In the tequila bottle example, data from SIP was used for customer loyalty,
but the reward was also vouchers for entering with a betting company.
By converting existing ‘analog’ and ‘visual’ technologies such as barcodes, QR-codes, scratchcards,
phone-response, coupons and give-aways to digital and networked items, Smart and Interactive
Packaging is a promising and emerging technology. Besides the analog technologies, SIP is based
on micro-networks, digital connectivity, printed electronics, augmented reality, graphene inks and
several enabling base technologies. There is a complex task from brand owners and designers in
configuring the technologies for value creation by the most of the range of stakeholders. With the
above presentations, the way onward is exemplified clearly by companies such as Novalia and
EVRYTHNG.
5. Conclusions
Smart and Interactive Packaging (SIP) represents a tremendous set of opportunities for brand owners
and retailers along with the changes of digital brand creation supported by meaningful technology
for consumers and broader stakeholders. Meeting just a fraction of the envisioned potentials will
transform retailing and consumption. A working eco-system exists now between base technology
developers, converters and technology designers. These join to make the packaging solutions for the
brand owner. Only a few have addressed retail and consumer infrastructures although EVRYTHNG
offers a range of “simple” infrastructures and analytical tools.
This paper has outlined SIP as a driven by a multiplicity of technologies with no clear and obvious
lead driver. SIP is with other words predominantly technology-driven. Applications and brands are
sought after. The technology has for 2017-2018 been characterised by the transfer of technologies
from start-ups and research environments to mainstream packaging industries. Further research aims
at capturing the forthcoming developments in technology, applications, infrastructures and value
creation.
Key characteristics of SIP have been found to be a wealth of technological choices and opportunities–
stated as configurations - with no clear lead technology. A MoT perspective is the SIP has been
highly technology-driven; from now on SIP has to aim at a more social and business dimension
to understand consumers, retailers and broader stakeholder’s desires and idiosyncrasies. A socio-
technical perspective is now what is to be lead driver needing to connect business and technology at
every stage. With the stated partners and customers of especially EVRYTHNG, Novalia, Thinfilm
and AIPIA, there are strong reason to expect that major breakthroughs are to be seen in scale within
the next 2 – 3 years.
IAMOT 2019 | 92
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Open Innovation Learning: from Concepts
to Targeted Competences
Marche Brunelle
University of Lorraine, Nancy, France
E-mail: brunelle.marche@univ-lorraine.fr
Enjolras Manon
E-mail: manon.enjolras@univ-lorraine.fr
Boly Vincent
E-mail: vincent.boly@univ-lorraine.fr
Abstract
Open innovation represents a present major strategy for companies aiming a development dynamic based on
novelty. Open innovation highlights the concept of networking as enterprises position themselves in an inside
and outside double process of knowledge acquisition and diffusion to foster their own new activities development
and possibly those of their partners. This co-innovation approach may involve close known partners (customers,
suppliers, regular interlocutors among others), entities purposely contacted (this includes academic structures
specifically associated to a project, distant companies holding complementary know how and start-ups) and
also occasional or fuzzy contributors (members of social networks, specialist mobilized by internet innovation
intermediaries among others). Open innovation is associated with some theoretical problematic including the
question of the necessary abilities of people in charge of this process. Beyond the technology and business
competencies required within any innovation process, this paper focuses on possible complementary skills linked
with the plurality of structures involved. The aim is to elaborate a competence’s list of reference dedicated to people
piloting open innovation, and, to test this referential through new learning modules.
The first step of the research consists in testing the hypothesis of the existence of specific open innovation
management abilities. Based on a literature review and considering the work of the standard organization) in the
field of innovation management (ISO/TC279), the research focuses on sensing practices that are typical of open
innovation dynamics. These practices are then linked with a set of competences (knowledge and know how) thanks
experts and company members interviews and according to a bibliographic analysis. Hence a competence referential
is proposed for open innovation managers.
In a second step, this referential has been valorized to design a new pedagogical module added to the syllabus of
the Ecole Nationale Supérieure en Génie des Systèmes et de l’Innovation (ENSGSI) a French engineering school
dedicated to innovation and management of technology. The paper gives the results of a two years’ experience
about open innovation learning with students at final engineering level (master degree). The module uses the
pedagogical concept of formative assessment: five evaluation sequences are integrated to the module. Each
associating the students themselves, professors and employees of companies applying open innovation strategies.
This transverse assessment is discussed all along the module by these three groups of people involved in order to
get a continuous feedback.
The outcomes of this evaluation process are detailed and analysed in constructivist terms: do the module gives
students new abilities and are the competencies adapted to the launching phase of an open innovation process?
In conclusion, the hypothesis of specific abilities relating to open innovation is validated. But the generic status
of each of the competencies seems questionable. The wide range of openness situations suggests a necessary
contextualization when identifying the pertinent targeted competencies of open innovation managers.
Keywords: Open Innovation, Partnership, Competencies, Learning
1. Introduction
The way innovation is managed attests of a strong evolution in some companies. New concepts are
achieved: open innovation, open innovation, co-design, cooperation among others. Many companies
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no longer limit themselves to their own resources to engage in innovation. Open innovation consists
in using external contributors to innovate (Chesbrough et al., 2014). Innovation is then based on
partnerships of different forms in terms of: type of the partners and degree of proximity (Boly et
al., 2016). There are associations between companies and technical centres (public, private) or
partnerships between companies. One example is the collaboration between Renault and Bolloré for
the development of electric cars. In this case, the contributors are close and known to the considered
company (a technical centre, a university, another company). There are other situations where the
company is forging links with more distant and not always initially well-known partners. This type
of relationship is found when the company joins a cluster, transnational programs or any form of
consortium. Trust and mutual knowledge increase as the importance of joint work increases. Let us
mention the particular case of companies like Veolia, opening a website where any company can
propose a request for association by presenting an innovative concept. Finally, in some cases, the
contributor is unknown to the designer, for example in cases where an individual provides knowledge
or technical services without requiring a contractual framework or sometimes remuneration. Hence,
it is possible to conduct acceptability studies by associating with social networks. Finally, innovation
sometimes emerges within communities of individuals who themselves exploit novelty or set up
a total sharing approach. Avast the famous antivirus is a freeware developed by a community of
computer scientists. In addition, material object-oriented communities are developing like FabLab
networks, for example.
Thus, open innovation attests of a wide range of organizational forms federating the partners: from
gentleman agreement, contracts, common company creation like joint venture, patent selling to
informal collaboration. Figure 1 provides a representative framework for these different forms of
collaboration. Descriptive variables include the monetary dimension (Chesbrough and Brunswicker,
2014), the autonomy of partners in strategic decision-making (Jolly, 1995; Okongwu, 2015), the
difficulty in finding the knowledge or complexity of the problem to be solved (Felin and Zenger, 2014).
This first representation gives an overview of the specificities of open innovation management for
professionals. Therefore this research aims to identify these specificities, first in the form of practices
and then in the form of skills to be acquired for future project managers in open mode.
Figure 1: Mode of Open Innovation (Chesbrough and Brunswicker, 2014)
2. State of the Art: Implementation of Open Innovation

Considering this great diversity of situations companies seek to promote outside-in and inside-out
processes, depending on whether they value external knowledge or whether they share their own
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Open Innovation Learning: from Concepts to Targeted Competences
knowledge with the environment (West, 2014). The question is then raised as to how to implement
this innovation dynamic within companies. Chiaroni et al (2011) suggest that open innovation induces
a progressive change (awareness, implementation of actions and institutionalization) according to
four dimensions: external networks, internal organization of companies, performance evaluation
methods and the implementation of knowledge management systems. Other authors propose that the
company has to take on six challenges in relation to open innovation, noting that these challenges
remain permanent regardless of the company’s experience (Chesbough and Brunswicker, 2014):
●● Managing people against the NIH (Not Invented Here),
●● Protecting key internal knowledge,
●● Identification external sources of innovation,
●● Managing Intellectual Property,
●● Managing the interrelationships between partners,
●● Managing change.
These activities are in line with findings of Benham et al (2018) about the importance of networking,
competence mapping and relational capabilities. Felin and Zenger (2014) highlight three areas where
particular governance needs to be put in place: modes of communication between contributors,
“incentives” to stimulate collaboration and intellectual property. Open innovation is often facilitated
by strong intellectual property rights (IPRs), but it may also function, and even be boosted, when
firms deliberately waive some of their IPRs (Henkel et al., 2014). Santoro et al (2018) establish a
link between the ability to collaborate and the existence of knowledge management systems. They
also emphasize the climate of trust established between partners.
In the managerial field, Bogers et al (2018) indicates that employees’ educational diversity is
positively associated with firm-level openness, attesting of the role of human resources management
in the adoption of open innovation. Finally, limiting the negative impact of “Not invented here” and
“Not Shared here” syndromes is one of the tasks of open innovation managers (Araújo Burcharth
et al., 2014).
Table 1: Main Practices for Managing Open Innovation
Pilotage practices Authors

Identify sources of innovation Chesbough and Brunswicker, 2014, Chiaroni et al., 2011;
Benham et al., 2018
Mapping the skills of partners Benham et al, 2018
Managing industrial property Felin and Zenger, 2014, Henkel et al., 2014
Protecting key internal knowledge Chesbough and Brunswicker, 2014
Supervise co-design Chesbough and Brunswicker, 2014,
Manage communication between partners Benham et al. 2018; Felin and Zenger 2014; Chesbough and
Brunswicker 2014
Stimulate collaboration and motivation of partners, Felin and Zenger, 2014; Hitchen et al., 2017; Santoro et al.,
including building trust 2018
Evaluate the performance of open innovation Chiaroni et al., 2011
Implement knowledge management in the company Santoro et al. 2018
Managing individuals against NIH and NSH syndromes Chesbough and Brunswicker, 2014 ; Araújo Burcharth et al.,
2014
Managing the diversity of human resources Bogers et al., 2018
Thus, there is no single method for adopting open innovation suggesting that the concept of best
practices adapted to the company’s context may be pertinent. The notion of engineering and/or
open innovation management are proposed aimed at setting up a relevant open innovation process
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at a given moment. Then, in this paper, the problematic consists in identifying the skills to design,
implement, manage and renew this dynamic of openness. More precisely, the aim is to determine
additional skills required complementary to those generally dedicated to so-called “closed”
innovation. This body of knowledge could then be used to build job profiles for open innovation
managers and consider specialized training modules.
3. Research Approach: from Practice to Competence

The research focuses on:
●● open innovation practices,
●● the observable phenomena that attest to these practices,
●● the transition to competence through the knowledge associated with decision-making
and the realization of these observable elements.
The issue of skills relating to open innovation can indeed be addressed by achieving the principles
of systemic to this process of open innovation. The term “process” then covers all observable
phenomena of technological transformation (transition) over time (Serres, 1997). The open
innovation process will ensure the partnership transformation of an idea, a request, or any other
initiating element, into a new activity that creates Value. The description of this process in a
functional way consists in recording the observable elements for the practices and corresponding
tasks (Lemoigne, 1983). The competence to manage open innovation relates to holding the skills
to implement observable phenomena. The hypothesis is then : a company that integrates open
innovation owns the skills to make decisions and implement the elements identified thanks the
list of practices.
The main open innovation practices described in the previous paragraph (Table 1) were
confronted with expert opinion, the aim being to collect observable phenomena. These experts
are four industrial engineers involved in innovation processes in the following supply chains:
health, energy, scientific equipment and automotive. Table 2 shows the elements suggested by
these experts.
Table 2 : Observable Phenomena About Open Innovation Practices Shared by Partners
Category Pilotage Practices Observable Phenomena and Skills (Ability to Achieve...)
List of candidates for collaboration among customers and

suppliers,
Identify sources of innovation Monitoring reports on candidates for partnership,

Idea collection websites,
Partnership
Other forms of collection (including competitions)
Competency mapping,
Mapping the skills of partners
Models of the future supply chain of the innovative product
All types of inter-partner contracts,

Managing industrial property Patents and property titles,
Intellectual Property Known regulatory contexts (including customs)
Protecting key internal knowledge Internal documents on confidentiality,
Collaborative design method,

Implementation of technical platforms: Fab Lab Living Lab,
Product co-design Supervise co-design
test centre,
Internal services performing tests of the future product
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Category Pilotage Practices Observable Phenomena and Skills (Ability to Achieve...)
Collaborative work tool,

Manage communication between
Fluency in languages,
partners
Communication Existence of support presenting the partnership.
Stimulate collaboration and Direct meetings between partners,
motivation of partners, including
building trust Co-financing, co-investment, Rewards.
Assessment of the Value created individually and collectively

Evaluate the performance of open according to various criteria: finance, commercial,
Value reputation....
innovation
Existence of a business model for each company
Implement knowledge
Knowledge
management (KM) in the Existence of KM systems.
management
company
Managing individuals against NIH Internal training in open innovation,

and NSH syndromes Strategic guidance document.
Internal management
Managing the diversity of human
Recruitment of employees with a diversified profile.
resources
The practices and observable phenomena have been classified into seven categories: partnership, intellectual
property, product co-design, communication, value, knowledge management and internal management.
Experts propose observable elements in the form of:
●● documents such as contracts,
●● equipment, such as collaborative platforms,
●● actions that can be proven such as training,
●● financial flows such as co-investments.
Some of these phenomena are mentioned by all the experts: the establishment of a climate of trust among
others. Some are more specific: awarding corresponds to projects with individual external contributors.
The mastery of foreign languages is related to projects involving partners from different countries.
One of the key points of this approach is the distinction between the collaborative aspects and the
closed innovation management skills. To do this, previous research describing job-skills innovation
frameworks are used (Boly et al., 2014-2017). Common competencies between the two approaches
were excluded from the analysis. Thus, the required competency profile is therefore all the knowledge
relating to the control of observable phenomena.
The aim here is not to obtain an exhaustive list: this research has not yet been finalized. Table 2
obviously needs to be consolidated by a broader literature review, additional contacts with experts
and also observation campaigns.
4. Experimental Approach: Implementation of an Open Innovation

Training Module in an Engineering School
4.1. Experimental Approach

According to a constructivist approach, the table 2 of observable phenomena and skills was
confronted with practical application. The aim is to test the relevance of this list by providing skills
to a group of individuals in the form of a training module and then to evaluate their progress. The
module includes presentations, an application on an innovation project and confrontations with
industrialists. The project has a partnership dimension in that the participants have to identify partner
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candidates (companies capable of manufacturing and/or selling the innovative product designed)
and validate this choice with experts. More precisely, the aims are:
●● Validate that these skills, considered specific to open innovation, are well observed
among participants and that they are mobilized throughout their project,
●● Observe the evolution of these skills over time: does the training module make it possible
for participants to evolve? Can progression profiles be identified reflecting correlations
between the reference skills?
The test took place at the ENSGSI (Ecole Nationale Supérieure de Génie des Systèmes et de
l’Innovation) in Nancy (France). The module was followed by eleven engineering students at the end
of the cursus. It takes into account the courses already taken by these students. Thus, the following
practices have not been evaluated:
●● Intellectual property: the students have a course module on this point. It was just observed
their ability to consult patent and standards databases,
●● Internal management: these students have a solid background in change management
and have attended numerous project management training workshops,
●● Knowledge management: this domain is a module in itself within ENSGSI.
One the other hand, in line with our special interest, partnership skills category is divided into three
sub categories: partner’s selection (“Partnership”), international partnership (“international “) and
supply chain design (“Supply chain”).
Finally, it should be noted that some of the students used the Fab Living Lab at ENSGSI during the module.
Figure 2: Schedule of the Module
This training module took place over 5 days (Figure 2). Each day was dedicated to a specific theme:
1- Product/service development, 2- Channel design partnerships, 3- Value creation and business
model, 4- International strategy and finally 5- Valuation, presentation of results. Each day began with
a self-assessment of the students regarding the proposed competency framework (“self-assessment”
blocks on the figure). A lecture on the day’s theme was then proposed, followed by a team work time
during which the teaching team was present to help the student’s progress in their projects. Finally,
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an evaluation by an external expert was carried out in person or at a distance following an exchange
time with each group of students on the day’s theme (“exchanges with expert” blocks on the figure).
Day 5 ended with the final jury where the students presented all their results to 3 industrial experts
and the teaching team.
4.2. Evaluation Method

Through this case study, a formative evaluation was structured at different levels. The evaluation follows a
six-level grid, from the lowest 1 to the highest 6. This formative evaluation therefore takes different forms.
Table 3: Formative Evaluation Applied to the Training Module
Individual Evaluation Group Evaluation
Evaluation by experts X
Self-assessment X
Jury X
Table-top examination X
4.2.1. Evaluation by Experts

First, an evaluation by external, professional experts in the field was carried out at the student group
level. Six expert’s assessment sequences have been planned.
●● A first evaluation was carried out by an expert from the industrial supply chain concerned
on the theme of product development (expert 1). This exchange took the form of a pitch
made by each group of students followed by a discussion with the expert. At the end of
these exchanges, the expert evaluated each group according to the skills of the reference
system associated with the product dimension, as well as those associated with the
communication dimension.
●● The second and third evaluations took place on the second day and were carried out by
two experts, each of them made a lecture on the design of the supply chain on the one
hand (expert 2) and on innovation partnerships on the other hand (expert 3). Each of
these experts was able to interact with each group of students in an informal working
environment where they presented their projects to them. Expert 2 and 3 therefore assessed
the competences concerning the “partnership” and “communication” dimensions.
●● The project was completed at the end of the day 3: a business manager came to discuss
with each group the theme of the business model and value creation. After a presentation
of each project, a discussion period allowed the students to ask questions and gather
advice from the expert 4. He then assessed the skills of each group in terms of value
creation and communication.
●● The 5th evaluation was carried out at a distance by an expert in internationalization, a
company manager in the industrial supply chain concerned (expert 5). The students were
instructed to present their project in a few sentences and prepare specific questions to
ask the expert. Following this exchange time, expert 5 evaluated each group according
to international and communication skills.
●● Finally, the last day was devoted to the final jury, during which 3 external experts were
able to attend the presentation of all the results of each group. They were thus able to
evaluate the entire competency framework for each group of students.
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4.2.2. Individual Self-assessment

Each day began with a self-assessment of the students at the individual level to visualize the perception
of their evolution during the training module. Five evaluations were therefore carried out at the
beginning of each day, then a 6th evaluation was carried out after the final jury (at the end of day 5).
4.2.3. Final Exam

A tabletop examination was conducted at the individual level to validate the acquisition of skills
by students at the individual level. As the students’ self-assessment reflected a perception, this
individual tabletop examination allowed to objectify the acquisition of skills at the individual level.
4.3. Experimental Results

Following this training module, all the evaluations carried out by the students and experts were
compiled. This constructivist analysis approach highlights several elements:
●● An overall progression of students’ skills throughout the module,
●● A strong impact of expert interventions on this progress,
First, Figure 1 represents the average change in students’ skills per day and from their point of view
(via the analysis of the self-assessments carried out). This graph also highlights the competence
thresholds to be reached. These thresholds represent pedagogical expectations and have been set
by the teaching team taking into account the students’ prerequisites and their training curriculum.
6,00 6,00
5,00 5,00
4,00 4,00 Average

Moyenne Jour 1score day 1
Average
Average
3,00 3,00 Average score day 4
Moyenne Jour 4
Average score day 5
Moyenne Jour 5
Average score day 6
Moyenne Jour 6
2,00 2,00
Average
Moyenne pedagogic
seuil pédagogique à atteindre
targeted score
1,00 1,00
0,00 0,00
Conception
Product de Conception
Supply de Stratégie de
Partnership
Proposition
Value de Stratégie
International Communication
Communication
co-design
produit chain
filière partenariats creation
valeur strategy
internationnale
design
Figure 3: Average Evolution of Students Per Day (Self-Assessments)
In general, Figure 3 shows a positive evolution of all the competencies considered. However, the
progression profiles are more or less linear.
The product design skill shows the most linear progression. The initial assessment of students is one
of the highest (almost 4).On the other hand, it is interesting to note that the pedagogical threshold
has not been reached. Indeed, the teaching team is rather demanding on this dimension, because
students have already acquired experience during their university studies strongly oriented towards
the development of new products/services. It therefore seems consistent that the threshold to be
reached should be high. However, the students were not able to reach it and this can be explained in
particular by a lack of time, and by a focus on other skills.
For similar reasons, the threshold of the die design dimension is not reached, although very close.
However, students started from a much lower initial assessment.
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The thresholds defined for the other competencies are all met, including those where students
consider that they were starting from a low level of maturity (value proposition and international
strategy). This is an interesting result that suggests a good match between the content of the module
and the expectations of the teaching team.
Note that between the Day 1 and on day 2, there was a regression on the majority of the competencies
assessed. It seems that the students overestimated themselves slightly when the module was launched,
and finally returned to their position after the first day of work and the first exchanges with an expert.
The communication dimension in particular suffered a sharp drop.
Finally, the progression profile of the international strategy dimension shows a particularity due
to its late evolution. Indeed, student evaluations are relatively stable during the first 4 days, then
a strong increase appears on days 5 and 6. This indicates that the international aspects of open
innovation have been left out at the beginning of the module, which potentially reflects on the part
of students a non-integrative vision of the international in the construction of their project. This
compartmentalization of the international aspect can also be explained by the fact that students
were relatively new to this theme, so the trigger for their progress could be the intervention of an
international expert (in day 4), which would explain their late evolution.
The question of the impact of expert presentations is indeed a variable to be considered in the
students’ progress during the module. Figure 4 shows the student progress profile (self-assessment)
by day and dimension. It is therefore possible to visualize the impact of expert interventions on
student development.
Figure 4: Average Evolution by Competence and Impact of Lectures
In view of the students’ background and experience, no expert presentation has been scheduled
concerning the product dimension. Despite this, the evolution profile shows a continuous progression
with the highest final evaluation.
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The supply chain dimension shows a slightly different profile, with stagnation between day 1 and the
beginning of day 2. Then, following the lecture dedicated to this theme during day 2, the progression
becomes stronger, before stagnating again on Day 6. Thus, the impact of the lecture on progression
seems particularly strong here and allows students to move from a relatively low initial level (level
3) to a final level among the highest (almost 5).
The observation is relatively identical on the partnership dimension. A regression appears in Day
2 but following the presentation of an expert, the evolution starts to increase again until day 6.
However, a very slight decline appears again between days 4 and 5. This transition is marked by
the intervention of an international expert. Thus, it can be assumed that the students’ progress
regarding partnerships has been hampered by their awareness and confrontation with the difficulties
of internationalization. This potentially reinforces the hypothesis that the international has been
considered in a non-integrative way. Its late inclusion seems to have a direct impact on other
dimensions, including partnerships.
The evolution of the international dimension shows, once again, the strong impact of the expert
presentation on the progress of students. The students start from a very low level of maturity, decline
between Day 1 and Day 2, then after a slight progression, the expert gives a strong impetus allowing
the students to exceed maturity level 4.
The Value Creation dimension shows a slightly different profile. A strong increase appears between
day 2 and day 3. However, the expert speech took place on day 3, and seems to have had a moderate
impact. The strongest incentive was therefore given before this lecture. This potentially highlights
a correlation between the “value creation” dimension and the “partnership” dimension, and/or the
supply chain design dimension whose interventions took place on Day 2. The final evaluation of this
dimension is the lowest (close to level 4).
Finally, the Communication dimension shows a high initial evaluation, significantly reduced on
Day 2. This sharp decrease can be explained by an overestimation of the maturity of students at
the beginning of the module, which was then qualified in view of the difficulties encountered, in
particular during the first evaluation by the pairs at the end of the day 1. This first confrontation may
have surprised the students, especially since they had to make a feedback highlighting the substance
of their project, but taking a professional form (pitch). It would seem that after the surprise of this
type of format, the students became familiar with interactions/evaluation. Their evolution return to
the initial level in 3, then stagnates until Day 5 before experiencing a new progression in Day 6,
following the final jury.
Thus, Figure 4 shows a strong influence of expert presentations on the Supply chain, Partnerships
and International dimensions. The value creation dimension seems to be more impacted by supply
chain and/or partnership lectures than by the one dedicated to the business model. Finally, the
communication dimension shows a particular development profile, which is highly dependent
on the evaluations carried out by the experts at the end of each day. The difference between the
initial and final level is relatively small and seems to be mainly due to the influence of the final
jury during Day 5.
5. Discussion of the Results and Conclusions

Experimental results are based on an average analysis of all students in the module. One of
the limitations of our work is that a more individualized analysis would have identified similar
progression profiles among students. Since the students worked in groups, it seems possible
that progression profiles of members of the same group may have similarities. In addition,
a comparison of each student’s evolution profile by peer would probably have led to the
identification of specific cases.
However, the test shows that both students and industrial evaluators were able to use the skills
reference list as a basis for judging an increase in skills in the mastery of observable elements.
IAMOT 2019 | 104

In addition, the relevance of judging oneself on these criteria during the implementation of a
project with a participatory dimension appeared consistent to the participants. If the validation of
the developed reference system remains to consolidate, the relevance of the proposal is attested.
It is therefore possible to identify skills specific to open innovation. These must be considered
as complementary to a general education in innovation, and ENSGSI students have 107 ECTS
in the specialty “innovation management” during their three years of study. Some specific skills
relates to the outcomes of the common projects that have to be shared. Thus inter companies
negotiation competence is highlighted. Some others skills relate to the management of the cluster
and the supervision of the activities of the group: partnership and communication. Finally: some
skills are connected with the possible consequences of the clustering on people inside the company.
This research will have to be complemented by further experimentation and the opening to a
professional audience. In addition, to specify the evaluation criteria and to further objectify the
rating, maturity grids will be defined for each of the practices and observable phenomena. Finally, it
should be noted that a comparison with the ISO standard on innovation management will be carried
out, knowing that a first analysis confirms the consistency of Table 2.
The question arises as to how to better define the targets of these competency tables. They should
depend on the organization set up in the companies individually and collectively. Among these
targets should be distinguished contributors, project managers and decision makers among others.
References
Araújo Burcharth A, A. L., Knudsen, M. P., Søndergaard, H. A. (2014). Neither invented nor shared here: The impact
and management of attitudes for the adoption of open innovation practices. Technovation, 34(3), 149-161.
Behnam, S., Cagliano, R., Grijalvo, M. (2018). How should firms reconcile their open innovation capabilities for
incorporating external actors in innovations aimed at sustainable development?. Journal of Cleaner
Production, 170, 950-965.
Bogers, M., Foss, N. J., Lyngsie, J. (2018). The “human side” of open innovation: The role of employee diversity in firm-
level openness. Research Policy, 47(1), 218-231.
Boly, V., Camargo, M., Morel, L. (2016). Innovation Engineering. Lavoisier, Hermes, Paris.
Boly, V., Camargo, M., Morel, L (2017) Innovation management: twenty-three years of higher education in a French
engineering school, in LI Ragioni di erasmus, n°1, edition Roma Tre.
Boly, V.,Morel L., Assielou G., Camargo M., (2014) Evaluating innovative processes in french firms: methodological
proposition for firm innovation capacity evaluation, Research Policy, Volume 43, Issue 3, p 608-622.
Chesbrough, H., Vanhaverbeke, W., West, J. (2014). New frontiers in open innovation. Oup Oxford.
Chesbrough, H., & Brunswicker, S. (2014). A fad or a phenomenon?: The adoption of open innovation practices in large
firms. Research-Technology Management, 57(2), 16-25.
Chiaroni, D., Chiesa, V., Frattini, F. (2011). The Open Innovation Journey: How firms dynamically implement the
emerging innovation management paradigm. Technovation, 31(1), 34-43.
Felin, T., Zenger, T. R. (2014). Closed or open innovation? Problem solving and the governance choice. Research
Policy, 43(5), 914-925.
Henkel, J., Schöberl, S., & Alexy, O. (2014). The emergence of openness: How and why firms adopt selective revealing
in open innovation. Research Policy, 43(5), 879-890.
Jolly, D. (1995). The Field of Intercompany Alliances. Management, 20 (4): 40-47.
Lemoigne JL: «La Théorie du Système Général», PUF, 1983.
Okongwu, U., Brulhart, F., Moncef, B. (2015). Causal linkages between supply chain management practices and
performance: a balanced scorecard strategy map perspective. Journal of Manufacturing Technology
Management, 26(5), 678-702.
Santoro, G., Vrontis, D., Thrassou, A., & Dezi, L. (2018). The internet of things: building a knowledge management
system for open innovation and knowledge management capacity. Technological Forecasting and Social
Change, 136, 347-354.
Serres M, Farouki N. (1997) : «Le dictionnaire des sciences - le trésor», Flammarion, Paris.
West, J., Salter, A., Vanhaverbeke, W., & Chesbrough, H. (2014). Open innovation: The next decade.Elsevier edition Oxford.
IAMOT 2019 | 105

Bioengineering and Emerging Technology
Treatment of Open-Angle Glaucoma with
Nano-medicine: A Review
Vineeta Khanapuri
Dwarkadas J. Sanghvi College of Engineering,
Vile Parle (W), Mumbai–400056
E-mail: vineetakhanapuri@gmail.com
Abstract
The purpose of this review is to discuss about glaucoma, the evolution of nanotechnology and its potential
diagnostic and therapeutic applications in the field of ophthalmology. Glaucoma refers to a group of eye
conditions that get developed when too much fluid pressure builds up inside of the eye i.e. intraocular pressure.
Increased IOP may lead to damage of the optic nerve and the optic nerve communicates visual information to the
brain. The continuing damage of the optic nerve will eventually lead to loss of vision and if it is left untreated, can
result in total blindness within a span of time.
In several cases, high IOP is secondary to trabecular meshwork dysfunction. The high IOP leads to compaction of
the lamina cribrosa and it causes subsequent damage to retinal ganglion cell axons.
Glaucoma affects 1 in 200 people who are 50 years old or younger and 1 in 10 people who are over the age of 80.
According to the statistics worldwide, Glaucoma is the second leading cause of blindness after cataract. With early
detection and proper medical treatment, it’s possible to slow the progression of Glaucoma.
There are several types of glaucoma. The two main types are open-angle and angle-closure. These are marked
by an increase of intraocular pressure (IOP), or pressure inside the eye. Trabeculectomy is currently considered
the standard filtration procedure for glaucoma. This technique causes numerous and unpredictable postoperative
complications, including hyphema, anterior chamber inflammation, excessive filtration leading to hypotony.
The only documented method to slow or halt the progression of this disease is to decrease the IOP, accurate IOP
measurement is equally crucial for the management, as it is for diagnosis.
The traditional IOP measurement method can be superseded by a Strain Gauge Pressure Sensor. From the
development of IOP sensors with strain gauge sensors to flexible components with integrated sensor and manometer
devices, the sensors have evolved through generations. Currently, In order to measure the IOP, the most common
method used is Applanation Tonometry, which is performed using Goldmann Applanation Tonometer.
This study details the treatment of open angle glaucoma, as of how the advancing technology of bio-markers
advances over the conventional technologies i.e. invasive and non-invasive. The challenges towards the
development and adoption of new technology is outlined and potential solutions for acceptance will be proposed.
Keywords: Glaucoma, Open-angle Method, IOP Sensor, Applanation Tonometry
1. Introduction
Inclination towards glaucoma seems to be inherited from birth but may not show up until later
in life. In most of the cases the disease produces increased pressure within the eye. This elevated
pressure is caused by a backup of fluid in the eye can damage the optic nerve, which transmits
images to your brain. Glaucoma is a group of eye diseases which over time, it causes damage to
the optic nerve. It has been predicted that by the year 2020, OAG will affect more than 50 million
people worldwide[1]. With the progression in damage, glaucoma results towards permanent vision
loss. Without treatment, glaucoma can cause total permanent blindness within a few years. Often,
due to the high pressure in the eye, an eye specialist can help tell the type of glaucoma and the best
treatment for it. The most common types include.
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Bioengineering and Emerging Technology Treatment of Open-Angle Glaucoma with Nano-medicine
1.1. Open-Angle Glaucoma

The most common form of glaucoma and it accounts for at least 90% of all glaucoma cases. It is
caused by the slow clogging of the drainage canals, resulting in increased eye pressure and has a
wide and open angle between the iris and cornea. Although, it develops slowly but is a lifelong
condition. Furthermore, Open-angle glaucoma is also called primary or chronic glaucoma.
Figure 1: Open Angle Glaucoma
Source: https://www.glaucoma.org/
1.2. Angle-Closure Glaucoma

It is caused by blocked drainage canals, resulting in a sudden rise in intraocular pressure, it has a
closed or narrow angle between the iris and cornea. It gets developed very quickly and therefore it
demands for immediate medical attention. Also known as acute glaucoma or narrow-angle glaucoma.
1.3. Normal-Tension Glaucoma (NTG)

Commonly known as, low-tension glaucoma. In the normal-tension glaucoma the optic nerve is
damaged even when the eye pressure is not high. And the cause for the damaged optic nerves is still
not discovered yet.
1.4. Secondary Glaucoma

Secondary glaucoma is the result of another eye condition or disease, such as inflammation, trauma,
or tumor. One such condition is uveitis, an inflammation that can cause secondary glaucoma.
Open-angle glaucoma (OAG)[2] is a leading cause of blindness and visual impairment, especially
in the adult population. OAG is suggested to be a neurodegenerative disorder which often gets
triggered by different factors including stress due to intra-ocular pressure, reduced blood flow to
the retina, reperfusion injury, oxidative stress and aberrant immune response. The most definitive
evidence of glaucoma is documented, as a progressive change in optic disc appearance and
reproducible worsening in automated visual field testing. Structural alterations of the optic nerve
occur more often, habitually prior to visual field abnormalities or visual defects, although the
contrary has been noticed. There is strong evidence that IOP plays an important role as it has been
shown that a reduction in the level of IOP lessens the risk of visual field progression usually seen in
open-angle glaucoma. Apart from IOP, other risk factors include old age, myopia, corneal thickness,
race, female gender, optic disc hemorrhages and positive family history. Since OAG is considered
as a chronic condition, it must be monitored continuously, but early diagnosis is the most crucial
step to preserve the vision of a person. Various factors have been associated to be implicated with
the disease, which also includes genetic and non-genetic markers. OAG is caused due to multiple
genetic and environmental factors, with their interactions. Mutations, copy number variations
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(CNVs) and polymorphisms, could contribute towards the pathogenesis of OAG. Till this date, more
than 20 genetic loci have been implicated in the development. Linkage analysis has been used for the
identification of two POAG-causing genes, which are, optineurin (OPTN) and myocilin (MYOC).
Usually, more than 70 MYOC mutations have been noticed to contribute to the pathogenesis of
OAG and OPTN mutations have been linked with normal tension glaucoma. In OAG, there are
characteristic optic nerve damage associated with open angles that is the area between the iris and
cornea and elevated eye pressure. This is usually in contrast to other types of glaucoma, which are
often considered with abnormal angles.
The exact cause of primary open-angle glaucoma is still unknown. Certain related genes describing
association with glaucoma. Besides, additional research is underway to study these genetic factors.
Identification of any sort of family history of glaucoma is often seen helpful.
Figure 2: General Fluid Movement
Source: https://www.semanticscholar.org
Several risk factors for open-angle glaucoma are:
1. Age: Glaucoma is more common as we age.
2. Race: Africans have been observed with descent get glaucoma more frequently and at
much younger age than Caucasians.
3. Heredity: It is important to know the family history as some cases of glaucoma maybe
hereditary.
4. Corneal Thickness: An eye specialist usually measures the corneal thickness using
specialized instruments. Moreover, thin corneas are usually associated with a higher risk
for glaucoma, also the stiffness of the cornea matters and less stiff corneas are associated
with high glaucoma risk.
5. Myopia (nearsightedness): Diabetes mellitus and hypertension often are associated
with glaucoma.
6. Elevated Intraocular Pressure (high IOP): Higher the pressure, the risk of developing
glaucoma becomes higher. Average eye pressure ranges from 10-21 mm Hg. Not all
people with a pressure in the 20s will develop glaucoma and conversely, people with eye
pressure at the lower range can rapidly cause progressive glaucoma.
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2. Glaucoma Due to Intraoccular Pressure

Measurement for eye pressure is usually done in millimeters of mercury (mm Hg). Usually, normal
eye pressure is in the range of 12-22 mm Hg and it is said that eye pressure greater than 22 mm Hg
is considered higher than usual. However, not all people affected with higher IOP shows indication
of glaucoma, hence it is usually referred to as ocular hypertension.
The standard for IOP measurement is Goldmann Applanation Tonometry (GAT); However,
one limitation of IOP measurement using GAT is that accuracy is influenced by biomechanical
properties of the cornea, including central corneal thickness and corneal curvature. With the increase
in IOP, the pressure pushes harder against the optic nerve fibers, these nerve fibers are responsible
to transmit visual information to the brain. Increased IOP deprives the optic nerve of oxygenation
and nutrients. Over time, high eye pressure can cause irreversible nerve damage and vision loss[3].
When the vision loss occurs from primary open-angle glaucoma(POAG), it usually begins in the
peripheral vision and it slowly moves towards the center. Sometimes, people with later stages of
OAG may bump into doorways as their peripheral vision is significantly affected.
2.1. Excessive Aqueous Production

The aqueous humor is a clear fluid that is produced in the eye by the ciliary body, a structure
located behind the iris. The aqueous humor continues to flow through the pupil and it fills up the
anterior chamber of the eye, that is the space between our iris and the cornea. The aqueous drain
from the eye through a structure is commonly referred to as the trabecular mesh-work. Whenever
ciliary body produces too much aqueous, the pressure in the eye automatically increases, further
causing ocular hypertension.
2.2. Inadequate Aqueous Drainage

If the aqueous drains too slowly from the eye, disrupting the normal balance of production and
drainage of the eye’s clear fluid, this too will cause high eye pressure.
2.3. Certain Medications

Can have the side effect of causing ocular hypertension in certain individuals. Steroid medicines
are generally used to treat asthma and many other conditions have been seen to increase the risk of
ocular hypertension in a person. The steroid eye drops suggested by the doctor after the LASIK and
other refractive surgery can cause high eye pressure in individuals. Whenever a person has been
prescribed steroid medications for any reason, consultation with an eye doctor is a must to see how
frequently IOP should be checked.
2.4. Eye Trauma
It can be classified as an injury to the eye which affects the balance of production and drainage of
aqueous humor from the eye, possibly leading towards ocular hypertension. Sometimes this can
occur months or years after the injury. It is always advised to mention any previous injury or trauma
to the doctor during routine check-ups.
2.5. Other Eye Conditions
Ocular hypertension has been associated with a number of other eye conditions, including pseudo-
exfoliation syndrome, pigment dispersion syndrome and many others.
3. Treatment Methodlogies
Most treatments for glaucoma are intended to lower down or control IOP otherwise, it leads to
damage the optic nerve that transmits visual information to the brain. The biggest cause of this
damage is due to the high pressure inside the eye. Because there is no perfect pressure for all patients.
If you have glaucoma, an eye specialist will assess it with an eye examination. This is often referred
to as your “target pressure” because it is the number that addresses the treatment type. Eye drops
often are the first choice for the treatment option over surgery for glaucoma and as they seem to be
very effective at controlling IOP.
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3.1. Some of the Existing Treatment Options
3.1.1. Medications
This kind of treatment is usually done for the patients with mild to moderate glaucoma and to
start the treatment with once-a-day prescribed eye drops. There are many safe, effective options
and most side effects are temporary, such as redness or irritation after using the drops. The most
common drops are categorized under the class as prostaglandins, which are considered to be safe
and effective in lowering the pressure down. Some examples are Travatan Z (Travoprost), Lumigan
(bimatoprost), Xalatan (latanoprost) and Zioptan (tafluprost). Other types of glaucoma medications
may also include alpha agonists and carbonic anhydrase inhibitors. Most people with glaucoma
usually need to take two different eye drops to reach their target pressure. Some patients can take
one drop that combines multiple drugs, such as Combigan (timolol and brimonidine) or Simbrinza
(brinzolamide and brimonidine) and Cosopt (timolol and dorzolamide).
3.1.2. Traditional Glaucoma Surgeries

Two traditional glaucoma surgeries called trabeculectomy and tube shunt are recommended by the
doctor to people with advanced glaucoma, who have lower target pressures. These surgeries are safe
and effective, but they are more involved than MIGS and they also have a greater risk of complications.
In trabeculectomy, an eye surgeon will make a small incision in eye to create a way for the fluid to
leave and further lowering pressure of the eye. In a tube shunt surgery, the surgeon implants a tube
that can drain fluid from the eye. Both procedures mentioned do require stitches and a recovery
period for the patient undergoing surgery, but many people with advanced glaucoma who have these
particular surgeries benefit from them as the pressure in the eye reduces to a certain extent.
3.1.3. MIGS Surgeries

MIGS is the abbreviation for minimally invasive or micro-invasive glaucoma surgery. During a
MIGS surgery, a tiny device is implanted in the eye to allow it to drain more easily, further reducing
the internal pressure in the eye. These low-risk procedures are generally quick, cause no major
disruption to the eye tissue and but usually require minimal post-operation recovery period.
As this MIGS surgery is safer method and offers lower risks than the traditional glaucoma surgery,
eye specialists recommend it earlier when the disease is detected, so as to reduce the burden of
taking drops for life. For example, patients who also have cataracts, some devices are designed to be
implanted during cataract surgery (iStent). Other devices such as (Xen Gel Stent) can also be used.
Figure 3: Goldmann Applanation Tomometer
Source: https://www.cehjournal.org/
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3.1.4. Laser Treatment

Two laser treatments commonly called selective laser trabeculoplasty (SLT) and argon laser
trabeculoplasty (ALT)[4] are low-risk options for people with a hard time taking drops for any reason.
SLT and ALT both help open up the eyes’ natural drainage system, which reduces the intraocular
pressure. Laser treatment can last for a few years or longer and it can be repeated whenever needed.
Doctors can perform SLT and ALT with no cutting or stitches. People can return to their normal
activities immediately.
3.2. The two most Common Laser Surgeries to Treat Glaucoma
3.2.1. Selective Laser Trabeculoplasty (SLT)

It is for the treatment of primary open-angle glaucoma (POAG). A laser that works at very low
levels, is preferred. It treats specific cells “selectively,” leaving untreated portions of the trabecular
meshwork intact. SLT may be safely repeated. SLT can also be an alternative for those who have
been treated unsuccessfully with ALT or pressure-lowering drops.
3.2.2. Argon Laser Trabeculoplasty (ALT)

It is also used for the treatment of primary open-angle glaucoma (POAG). The laser beam opens the
fluid channels of the eye, helping the drainage system work better in continuation with medication.
Usually, half the fluid channels are treated first.
For the treatment method, the patients are usually pretreated 30-60 minutes before the procedure with
a drop of pilocarpine (1-2%) to put the iris on stretch, creating more space and therefore preventing
inadvertent peripheral anterior synechiae formation and followed by a drop of apraclonidine (0.5%)
to decrease the incidence and the severity of a possible postoperative transient IOP elevation.
The appropriate laser settings are a spot size of 50 μm, a duration of 0.1 sec and power of
500-1200 mW, depending on the level of TM pigmentation. In general, the more pigmented the TM
is, the less energy necessary. The Goldmann 3-mirror lens is first placed on the cornea and adequate
visualization of the angle structures is ensured. The treatment usually begins with the inferior angle,
since it is wider, which makes the procedure technically a lot easier.
To begin with, the laser beam is aimed at the junction of pigmented or non-pigmented TM, then
the laser energy is adjusted until a mild blanching effect is noticed. Vapor bubble formation is an
indication of excessive energy and it should be avoided. To ensure maximum delivery of the energy,
the aiming beam must be kept in the center of the mirror. Fifty laser spots are delivered equally
spaced to the inferior 180° of the angle. Although, the methodology to carry out the treatment carries
certain complications as a transient IOP elevation may occur. The reports for patients with incidence
and severity of IOP elevations have significantly been reduced when patients were pre-treated
with apraclonidine. Most of the IOP spikes distinctly within initial 1-2 hours of the procedure.
Thus, checking the IOP after a brief hour after ALT be recommended by the doctor to determine
if any additional actions are necessary. From the initial postoperative days, the incidence of IOP
elevation has been reported to raised high by 12% i.e. greater than 10mm Hg.
This particular method helps prevent the over-correction and allows minimal risk for the increased
pressure following surgery. Over the years, Argon laser trabeculoplasty has effectively lowered eye
pressure and yielding up to success results in 75% of patients treated.
4. On-Going Research
As all the treatment options discussed have been efficient up to 75-80%. A lot of research is doing on.
Doctors and researchers are working upon building different IOP sensors and review of biomarkers
for the treatment of Glaucoma.
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4.1. New IOP Sensors

This device was designed for periodic monitoring of IOP in patients suffering from glaucoma.
The current IOP measurement technique, Goldmann Applanation Tonometry, lacks accuracy due
to unpredictable variable cornea stiffness between patients. In the past few years, the undergoing
research, MEMS-based sensors have been looked upon, although none of these chips are passive,
all of these chips require an external power supply, along with a complex design. Considering,
an IOP sensor based on capacitance measurement proposed by Wise and Irazoqui can actively
record IOP value but need a solar battery or wireless charging to fulfill the power requirements.
On the other hand, piezo-resistive IOP sensors have shown an inability to integrate an antenna and
a battery together and were thus are not preferred. Tonometers have been modified to make use of
soft contact lens to measure the deformation of the cornea, but they have been inaccurate for some
of the other reasons.
4.2. Beta Blockers

Beta-blocker[5] i.e. beta-adrenergic antagonist medications is considered reliable for lowering
intraocular pressure. They work by decreasing the amount of fluid that the eye continually produces
i.e. aqueous humor. Two general types of beta blockers are categorized as: nonselective and
selective. Nonselective beta blockers have shown to depict more effects on the body’s beta receptors
system-wide and are associated with more side effects. The nonselective beta-blockers have
also been more effective at lowering IOP. Some of the nonselective beta-blockers are timolol
(Timoptic, Betimal, Istalol) andtimolol gel (Timoptic XE). And the only selective beta blocker
available medication is betaxolol (Betoptic, Betoptic S).
4.3. Biomarkers
In vivo cross-section imaging, during an annual comprehensive eye exam were conducted for
glaucoma and macular degeneration, along with cross-section imaging, it uses Optical Coherence
Tomography, which demonstrates to show deficits that are specific to Alzheimer’s Disease and
Cognitive Impairment. The deficits are usually in the form of nerve fiber layer tissue drop in the
retina and optic nerve. The loss of nerve fiber layer tissue in the retina and optic nerve may be an
early biomarker of AD[6]. One such key component of ECM is in the TM which is proteoglycans,
these are macromolecules that consist of a core protein to which glycosaminoglycan side chains
are covalently attached. This class of molecules has also been implicated in the maintenance of
resistance to aqueous humor outflow, by Barany ever since he demonstrated that the perfusion of the
anterior chamber is with the testicular hyaluronidase which greatly reduced the outflow resistance
in enucleated bovine eyes in the 1950s[7]. In these TM tissues, proteoglycans form gel-like networks
seem to function as a gel-filtration system.
5. Conclusion
There have been various methods for the treatment of glaucoma and particularly open angle
glaucoma as it affects most of the people as they age. With this as understanding we saw how
the current methodologies have been towards the treatment of intraocular pressure. Also the
advancing technology in the field of ophthalmology, such as nano-medicine and bio-markers help
in advancement over the conventional technologies i.e. invasive and non-invasive and bring out
better efficiency and optimal results for the patients helping them lead their life comfortably with
respective vision.
The outcome observed for childhood, infant glaucoma and secondary glaucoma is perceived as
very much dependant on the type of glaucoma present and the associated diseases or conditions.
As we know, congenital glaucoma is present since birth and it yields into poor outcome for the
child than as seen in infant glaucoma, which potentially develops over the first few years of life.
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Nowadays, childhood and infant glaucoma often result in poor outcomes than seen in adult glaucoma
as there is higher damage to the visual system, which is still undergoing development.
References
https://www.brightfocus.org/glaucoma/article/glaucoma-facts-figures
Open-angle glaucoma HANS GOLDMANN Berne; Brit. J. Ophthal. (I972) 56.
Risk Factors for Open-angle Glaucoma; M. Cristina Leske, MD, MPH; A.M.S. Connell, MB, ChB, FRCS, FCOphth;
Suh-Yuh Wu, MA; Leslie G. Hyman, Ph.D Andrew P. Schachat, MD;
Argon Laser Therapy for Open-Angle Glaucoma James B. Wise, MD, Stanton L. Witter, MD Jun;107(6):1171-7. 2.
Houde M., Castilloux AM, Tingey D., Assalian A., LeLorier J. Prescription of topical antiglaucoma agents
for patients with contraindications to beta-blockers. Can J Ophthalmol. 2003 Oct;38(6):469-75.
Biomarkers in primary open angle glaucoma Haris Kokotas 1, Christos Kroupis 3, Dimitrios Chiras 4, Maria Grigoriadou
1, Klea Lamnissou 2, Michael B. Petersen 1 and George Kitsos 4
Alzheimer’s Disease and Glaucoma: Imaging the Biomarkers of Neurodegenerative Disease Denise A. Valenti;
SAGE-Hindawi Access to Research International Journal of Alzheimer’s Disease Volume 2010, Article
ID 793931.
https://www.myvmc.com/diseases/glaucoma
Fan B.J., Leung Y.F., Wang N., Lam S.C., Liu Y., Tam O.S. et al. Genetic and environmental risk factors for primary
open-angle glaucoma. Chin Med J (Engl). 2004; 117(5):706-10
Leske M.C. Open-glaucoma–an epidemiologic overview. Ophthalmic Epidemiol. 2007; 14(4):166-72.
Ophthalmology. What you can do to protect your eyes. Harvard Health Letter. 2001; 26 (12):1-3
IAMOT 2019 | 113

Additive Manufacturing in the Spinal Orthopedic
Industry: An Exploratory Review
Lloyd Boustead
Department of Engineering and Technology Management,
University of Pretoria, South Africa
Marthinus W. Pretorius
E-mail: tinus.pretorius@up.ac.za
Abstract
Traditionally spinal implants are not specific to each patient and the surgeon only has a selection of pre-machined
devices from which to choose the closest fit. Additive manufacturing, however, allows for the production of unique
geometries that far exceed conventional machining. With this in mind, there is a possibility that 3D-printing
can be used in the field of spinal orthopedic surgery to obtain a patient-specific implant device. In an initial
study of the literature it is evident that experimental case studies have been performed with the use of additive
manufacturing in the field of spinal orthopedics. It seems that on an international level the technology is already
making progress. There appear to be some advantageous results and applications of 3D-printing in this field, more
specifically with the use of spinal orthopedic patient-specific implants. However, it is believed that South Africa
lags far behind with respect to the adoption of this new technology. The research question therefore focuses on the
possible adoption of 3D-printing in the South African field of spinal orthopedics. Following a review of the current
literature, a conceptual research model was developed to create a foundation through which the research question
could be answered. The model linked the three major role players, namely the potential patient, the surgeon and the
manufacturer. A sample group was interviewed with the purpose of testing, exploring and contributing toward the
proposed model. The interviews with the three research groups identified in the first place the important decision
parameters for each role player to possibly adopt the new technology but also highlighted potential risks thereof.
Because the study encompasses a technology that is in the inception phase of its life cycle, it was important that
certain aspects on how to further commercialize the technology were highlighted. From the findings a refined model
was created. The model is analysed to present a means by which to adopt this technology in the South African field
of spinal orthopedic surgery.
Keywords: Technology Adoption, 3D-printing, Health Technology, Spinal Orthopaedic, Patient-specific Implant
1. Introduction
Evidence suggests that the relative advantage of the risks and benefits contained in the
introduction of a new innovation into the market is a key element, also in the health industry
(Van der Watt and Pretorius, 2008). The aim of orthopaedic surgery is to improve the lives of
patients who have a specific problem with the anatomy of their bone structure whether it be a
deformity or created by injury. Orthopaedic surgery involves the rectification of bone injury or
deformity. In many cases the orthopaedic surgeon will use a pre manufactured orthopaedic implant
to aid in correcting the deformity or injury of the bone. The field of orthopaedics also involves the
correction or replacement of soft tissue joints between the bones by using an artificial joint. One of
the sub-fields of orthopaedics is spinal orthopaedics. Spinal orthopaedics involves the correction of
spinal deformity and injury typically with the use of joint fusion or arthroplasty. To correct spinal
deformity or injury, many different types of implants are used. Typically the joint is removed and
replaced with a fusion device or artificial joint. These implants are manufactured from biocompatible
materials. Commonly, titanium is used due to its superior mechanical and biocompatible properties
(Saprykin et al., 2016). In South Africa these implants are typically manufactured using machining
methods such as computer numerical control, wire cutters and milling machines. This has proven
to produce implant devices which are sufficient, but these machining methods are limited to certain
geometries. Every individual’s bone structure anatomy is unique. Although the spines of patients
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Additive Manufacturing in the Spinal Orthopedic Industry: An Exploratory Review
have similar characteristics, no one has an identical match. Engineers have designed orthopaedic
implant devices to closely match the anatomy of the spine but are limited to certain sizes and
shapes because of the restrictions of conventional machining methods. By not obtaining a close
or perfect match of implant, post-surgical issues, like subsistence, where pressure of the spine
causes the implant to sink or migrate, can occur. Modern manufacturing technologies can however
create opportunities for manufacturers (and ultimately their customers) to solve specific problems
and improve competitiveness (Pretorius and De Wet, 2000). The recent introduction of additive
manufacturing in the field of spinal orthopaedic surgery creates a great potential to improve the
geometry of the implants. With the use of additive manufacturing, the geometry of the implant can
be greatly manipulated (compared to conventional machining methods), thus offering each patient
an implant specific to their anatomy. This offers the potential of fewer post-operative malfunctions
or complications, leading to improved quality of life for the patient. The aim of this research is to
explore the potential, viability and possible advantages of 3D-printing in the South African field of
spinal orthopaedic surgery.
2. Literature and Research Questions

There have been several experimental surgeries where the viability of 3D-printing has been tested.
A case study (Choy et al., 2017) was performed on a 14 year old female patient who underwent a
complex procedure where a vertebra was replaced entirely with a 3D-printed implant. The authors
stated the following, “This advocates the future of patient-specific 3D printed prostheses as a viable
technique for complex cases in spinal surgery”. Another study was performed where an anatomically
shaped intervertebral fusion cage was created. The author stated, “Additive manufacturing
technology presents an excellent opportunity to fabricate ergonomic shape medical implants.’’
(Serra et al., 2016). Podshivalov et al. (2013) stated “Current results show that the processed method
is highly feasible’’. Randazzo et al. (2016) concluded “Rapid prototyping 3D‑printing technologies
provide a practical and anatomically accurate means to produce patient‑specific and disease‑specific
models’’. Tack et al. (2016) commented on the advantages of 3D-printing as “Reduced surgical time,
improved medical outcome and decreased radiation exposure”, but they also stated “Unfortunately,
the subjective character and lack of evidence supporting majority of these advantages does not allow
for conclusive statements.’’ Cramer et al. (2017) also concluded “3D-printing is particularly useful
for modelling patient-specific anatomy such as degenerative disease’’.
Although it does not seem to be widely used in South African spinal surgery, international experience
suggests that additive manufacturing has great potential in the medical field. To further investigate
the potential or viability of additive manufacturing in the South African field of spinal orthopaedic
surgery the following research questions are proposed:
●● How can additive manufacturing aid in the field of spinal orthopaedic surgery in terms
of the adoption of patient-specific spinal orthopaedic implants?
●● How can additive manufacturing be adopted in the field of spinal orthopaedic surgery?
●● What is the current status of additive manufacturing in the field of spinal
orthopaedic surgery?
●● What are the specific needs of patients?
●● How viable is additive manufacturing in the field of spinal orthopaedic surgery, in terms
of cost, facilities, product development, timing and perception of risk?
3. Research Model and Method

A conceptual framework was created in order to hypothesise the driving influential factors that
could dictate the viability of the application of the technology in the field. There are three major role
players: the surgeon, manufacturer and potential patient. Figure 1 shows the proposed framework
of role players forming the base together with the hypothesised linking factors. The linking factors
were drawn from the research questions.
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Figure 1: Research Framework
A central parameter to this model is timing and risk perception of the technology. The manufacturer,
surgeon and patient will have to be ready to use the technology. The manufacturer will have to be
comfortable in manufacturing the product and the surgeon and patient will have to feel comfortable
in using the technology. This will go hand in hand with the perception of risk. It is believed that if
any party perceives the risks to be too great the adoption of the technology will fail. Cost is a second
important parameter. The financial burden will fall on the end-user, the potential patient in this case.
If the end-user is not willing to pay for a product, there is no market. However, if 3D-printing shows
to be a price competitive form of manufacturing and offer similar or superior results, the adoption
will be of interest. The ability of the manufacturer to produce a competitively priced product will
enable the technology to either flourish or dwindle. The third major parameter is how the technology
could aid in terms of providing a better service to the patient. This subjective decision would reflect
the thoughts and feelings of the potential patient, manufacturer and surgeon. One would need to see
competitive or superior results in terms of the functionality, cost and delivery of the product to better
the current status of the potential patient.
The above parameters link to the patient specific needs. The surgeon and potential patient will
have to divulge what their expectations of the product are and the manufacturer and surgeon will
then have to assess whether the development of the technology is capable or mature enough to
fulfil those needs. It must be noted that risk perception of embracing a new technology is very
different to actual financial risk (and a possible ruined career) encountered by those in the medical
profession on a daily basis. When adopting a new technology there is always a risk, coupled with
serious consequences. South African spinal surgeons could suffer law suits against them for loss of
life or loss of quality of life. Because foreign material is being placed into a patient there is a risk
when it comes to the design and materials used. The patient’s body could reject the implant due to
imperfections of the material or design. The manufacturer, surgeon and patient have to place large
amounts of trust in one another. Without trust, there could be severe implications to the adoption and
therefore viability of 3D-printing in the field.
An exploratory study was chosen to investigate the viability and adoption of 3D-printing of spinal
orthopaedic implants in terms of patient needs, cost, facility, product and timing. The choice of
sampling was simple random sampling although certain subjects in the group were difficult to obtain
interviews with. This was particularly with respect to the spinal orthopaedic and neuro-surgeons
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who understandably have extremely busy schedules. Manufacturers interviewed were owners of
companies that preferably had done some work in the medical field. Due to the sensitivity of the
research conducted, potential patients were interviewed. Those selected were individuals who may
require spinal surgery in the future, not specifically those who have spinal damage. The aim was
to put an individual into a fictional situation and ask them questions related to a possible scenario.
For the purpose of this research thirteen respondents were interviewed, including five potential
patients, five manufacturers and three surgeons. Data gathering was mainly in terms of interviews,
both face to face and telephonic. The questionnaire was broken into three sections, providing a
dedicated section for each of the role players. The interview followed both a structured and
unstructured form. This format was believed to be the best way to obtain suitable data. Certain
questions were asked from a structured questionnaire and thereafter the research subject was given
the opportunity to openly discuss their thoughts and opinions.
4. Results
As discussed in the methodology section, the questionnaire was divided into three sections: a
section for each the patient, the manufacturer and the surgeon. Trends in answers from each group
were observed and further compiled into an integrated trend. All answers were individually and
collectively related back to the conceptual framework and research questions.
4.1. The Potential Patient

It was observed that the main concerns of a potential patient are beneficial post-operative results
that could be obtained from an implant that is 3D-printed. If a 3D-printed device could offer a
faster recovery time and a longer service life, the potential patient would show interest in using the
technology. This also correlates with the patient-specific needs. The need of the potential patient
would be to receive a better post-surgical outcome rather than a sophisticated, cutting-edge gadget.
With regard to the viability of potentially using a 3D-printed implant device, there seemed to be a
tendency that the potential patient was not too concerned about the cost of the device but rather the
outcome. The potential patient would consider paying more for a 3D-printed implant custom to suit
their anatomy, provided that there was recommendation from the surgeon and that the surgeon was
comfortable with the material used to manufacture the device. In terms of timing, it was recognised
that there was still much uncertainty about the technology. It does not seem that the potential patient
perceives any risk with the 3D-printed implant itself, but rather the perception that the technology
has still not been rigorously tested. This seems to be the case because the technology of additive
manufacturing in spinal orthopaedic industry is still relatively unheard of. That being said, 3D-printed
in the general medical field seems to be gaining traction, but it still might be too early for the general
stream of potential-patients to be comfortable with undertaking such a procedure.
4.2. The Manufacturer

How can 3D-printing aid in the field of spinal orthopaedic surgery? Answers from the manufacturers
revealed that additive manufacturing might provide a cheaper and faster way to provide patients with
custom implants. Because each patient has a unique anatomy, this translates to the fact that each
patient could potentially receive a patient-specific implant. The words “specific or custom” suggest
that the production output would be relatively small and each implant would have a unique geometry.
This is where additive manufacturing tends to take the lead when compared to conventional machining.
Most manufacturers interviewed would be happy to print small batches or units. Regardless of the
amount printed, the unit price of the product tends to stay the same and seems to, from the results,
work out cheaper than small batches of machined or injection moulded implants. The novelty of the
technology was noted from the South African manufacturers’ feedback. The manufacturers have all
heard of, or been a part of, printing in the medical industry in some way. There seems to be traction
in the field of orthopaedics specifically with facial, hip and knee repair but not one manufacturer
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has been involved in the printing of a patient-specific spinal implant device. The manufacturers
seemed to agree that the technology in the spinal field is still in the inception phase on the technology
curve. It is believed by one manufacturer that work being done is being kept confidential, which
further clarifies the “novelty” of the technology. When it comes to facility, its seems that most
of the manufacturers are not entirely prepared and would have to work in collaboration with
those more qualified and certified to handle the printing of a patient-specific implant device.
This, however, does not imply that they do not possess any knowledge, machinery, software and
material. The greatest deterrent seems to be in obtaining the correct certification. It is believed,
from the response, that it is a costly and rigorous process to become an independent company with
all the facilities to print a patient-specific, spinal, orthopaedic implant device. This being said, most
respondents in the research group were interested in sufficiently equipping themselves should the
demand be sufficient.
It is believed that the development of such a product still has quite a way to go as some of the
manufacturers did perceive a danger in some form with regard to the printing of a spinal implant.
Their concerns involved defect mitigation and risk to the company and therefore suggested that
a sufficient amount of research to mitigate risk should been done. Generally it appears that the
manufacturers are still not entirely comfortable with the idea of supplying the product with the
current status quo and that more education on the technology still needs to take place.
4.3. The Surgeon

From the response of the surgeons interviewed it became clear that additive manufacturing can aid
in the field of spinal orthopaedic surgery by offering the surgeon the ability to change the implant
device to achieve a better fit. The surgeons were mostly satisfied with the current implant devices
available although 3D-printing could offer the ability to further advance the success of the implant.
One of their major concerns was being able to size the implant in a way to custom-fit the patient’s
anatomy. Devices mentioned by all surgeons included the artificial disc and the intervertebral fusion
cage. It is believed that the additive manufacturing would be able to assist in this sense due to the
vast capability of the technology. Additive manufacturing can be adopted to many different types
of spinal orthopaedic implant devices, however, it is believed that the type of surgery in which the
implant would be used might limit the application of the technology. A patient-specific implant
would require some sort of lead time to manufacture. Manufacturing of a custom device could
only commence once the surgeon had decided to undertake the procedure as the specific implant
would have to be modelled from the patient’s anatomy. If a surgeon required the implant within
several hours of the procedure, it may not be possible to produce the product in such a limited
amount of time. With respect to the status of the technology within the field spinal orthopaedics,
the surgeons agreed that it is still in its infancy. Not one of the surgeons has used a device or
instrument in their field that has been manufactured with 3D-printing technology. Although the
surgeons have heard about additive manufacturing in the medical field, it is not mentioned that they
have been in contact with additive manufacturing in the spinal orthopaedic field. With respect to
cost, the surgeons admitted that there is a degree of price sensitivity among patients. It is believed
that most of the research group’s patients do have access to a medical insurance scheme of some sort.
Although their patients do have access to a medical aid there are still co-payments that would need to
be made in order to proceed with the surgery. It seems as if it would be beneficial if the technology
could help to combat the steep cost of spinal surgery. The research group concluded that their
patients would be willing to pay more for an implant device customized to their anatomy, provided
that there was a need. With respect to risk, none of the surgeons indicated that they had any major
concerns that it would harm the patient. This could indicate that the timing for the technology is
right. All the surgeons have heard of the technology and enough has been documented to make them
feel that there is no real threat to their patients, ‘’provided the material subscribes to standards.’’
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4.4. Integrated Trends

To relate back to the proposed research questions, an integrated trend between the three role plays
was analysed. Common trends and links between the research groups have been collated in the
following sub sections.
4.4.1. Status
From the data, not one of manufacturers or surgeons interviewed had been directly involved with
the manufacture or application of any instrument or device. One of the manufacturers believes that
work being done in the field is probably still being kept confidential. There is definitely traction of
3D-printing technologies in the general field of orthopaedics though.
4.4.2. Patient Specific Needs

The biggest concern of the potential patient would be to obtain better post-surgical results. Patients
would prefer a spinal implant device that would offer a longer lifespan and a faster recovery time.
The surgeons interviewed commented that their patients were relatively price sensitive. It would be
highly beneficial if additive manufacturing could offer better post-surgical results at a competitive
or reduced price.
4.4.3. Cost Viability

It is evident that the end user, or the potential patient, would be price sensitive with regards to the
patient-specific implant. The surgeons have noticed that medical aids are becoming restrictive and
the patients are feeling the financial pressure. Although this is the case, potential patients agreed that
they would be willing to pay more or endure steeper co-payments with the medical aid if the implant
device would prove superior and beneficial. This fact too, was verified by the surgeons. Pricing,
however does not seem to be a concern for the manufacturers. They are confident that they could
manufacture the implants at a lower cost to that of conventional machining. This is because the set
up costs are low. It is notable that the price of a 3D-printed device would not change drastically
with respect to quantity. This is important because patient-specific implants would be manufactured
in very small quantities. On a like-for-like basis it seems as though a conventionally machinated
product might be more expensive. What does seem to be a drawback though is the expense that
the manufacturer will have to endure in order to obtain the correct facility and certification to print
patient-specific implant devices. It is important to bear this in mind as it will inevitably affect the
selling price.
4.4.4. Facilities and Product Development

It was observed that facilities are available to print patient-specific implants. The manufacturers seem
to have access to the correct machinery, software and material. What seems to play a significant role
is gaining the correct certification. A significant amount of manufacturers stated that they would
have to work in collaboration with certified parties in order to manufacture a patient-specific implant
device. None of the interviewed manufacturers were entirely independent, should they have the
opportunity to print a patient-specific implant. Most of the manufacturers indicated that they would
be willing to equip themselves to print such implants should there be sufficient demand. In terms of
product development none of the manufacturers interviewed had printed a patient-specific spinal
orthopaedic device. 3-printing, however, does seem to be taking place in other orthopaedic fields such
as maxilla facial, hip and knee repair. It is believed that there is still a long way to go with respect
to the technology in the field of spinal orthopaedics but it is definitely possible in terms of facility.
4.4.5. Perception of Risk

What seems to play an important role in the adoption of 3-D printing in the field of spinal orthopaedics
is the perception of the technology by the role players, i.e. the manufacturer, surgeon and potential
patient. None of the patients perceived a major risk in using the technology however they still felt
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uncertain as to whether they would undergo the procedure without proper research and trials. It is
believed that the patient will definitely consider the implant if there is a recommendation from their
surgeon. None on the surgeons perceived any significant risk in the technology. However, most
surgeons believe the technology is still in the inception phase and would probably need verification
of the research before undertaking a procedure with a 3D-printed patient-specific implant.
The successful use of additive manufacturing in parallel fields of orthopaedics has probably provided
some form of comfort to subjects in accepting the technology. Several manufacturers perceived risk
in the technology. One manufacturer had concerns about the mitigation of defects in the implant
itself, however, another stated further research would serve to overcome any risks. One of the
manufacturers was concerned about the legal implications such an undertaking would have. On the
whole, it seems that there is some nervousness, but there does not seem to be any significant risk.
The perception is that the nervousness is caused by the novelty of the technology as nearly all the
manufacturers believe the technology to be in the inception phase of its maturity. There are surgeons
and manufacturers undertaking the technology in other fields of orthopaedic surgery. It is believed
that with further research and trials, penetration of the technology in the field of spinal orthopaedics
is approaching.
4.4.6. Adoption
From the results it is observed that the use of 3D-printing could aid in the ability to resize the
intervertebral cage and disc replacement in order to custom-fit the disc space of the patient.
By manufacturing a custom size and shape the implant will have better surface contact and
height to match. This could potentially give better post-operative results and mitigate migration
and subsistence of the implant. Due to the anatomy of the individual, dictated by nature, a
patient-specific implant would generally be of complex geometry which would be expensive or
impossible to machine with conventional equipment. Because the unit cost of a 3D-printed implant
does not change much with respect to quantity, due to very low set up costs, small financially
feasible batches can be printed. This makes it viable to produce customized implants for all patients.
This lowered cost could perhaps relieve the patient of the large co-payment on implants that they
currently endure. The greatest limitation is that of certain emergency procedures. The surgeon would
need a turnaround time of one day or less. The custom implant would only be able to be produced
after the patient has been thoroughly examined by the surgeon and certain scans have been done.
This could limit the custom implant to the urgency of surgery.
5. Conclusions and Recommendations
5.1. Refined Model

From the results a refined theoretical model was constructed to better understand how additive
manufacturing can be adopted or applied in the South African field of spinal orthopaedic surgery.
The refined model in Figure 2 supply a visual representation of the research questions and
their outcomes. For the production of a patient specific implant device it is imperative that the
manufacturer has the correct facility to produce such an implant. From the results it is clear that
certain manufacturers will be able to print a 3D-implant in terms of facility. The manufacturer will,
in general, be able to print the implant in collaboration with a partner that is certified to make
such a device. The manufacturer will most likely need the assistance of the surgeon in terms of
design as the results do reveal that there is some knowledge that is lacking in this medical field.
Subsequently, the “knowledge transfer” link has been added to the model. The manufacturer and
the surgeon must collaborate in order to educate one other in each one’s area of expertise. This will
mitigate risk and form a sufficient foundation for product development.
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Figure 2: Refined Model
Each patient has their very own anatomy in terms of geometry and size. Although the surgeon is
fairly satisfied with the current implant devices, there is an interest in using a 3D-printed implant.
Additive manufacturing will allow the patient to have an implant that has the correct height and
footprint (anatomical shape). This may reduce the risk of substance and migration of the implant.
This can be regarded as a surgeon requirement. For the technology to be fully adopted, it is imperative
that the requirements and needs of the surgeon are fulfilled by the technology. The manufacturer
and surgeon will, in future, have to negotiate over the cost of the implant and production output.
It seems as if manufacturers will be willing to print from a case to case basis. This in turn appears
to be a benefit of the technology. As far as cost is concerned, surgeons are of the opinion that
medical aids are becoming restrictive and the patient will, most likely, have to make some sort of
co-payment. The possibility of the manufacturer being able to print a patient specific spinal implant
at a cheaper unit cost (due to low start-up costs of manufacturing) is real. The potential patient
revealed they would rely heavily on the recommendation of the surgeon. Due to the novelty of the
technology though, the patient may ask for research results which would reveal the superiority of the
implant. Mostly the patients will be willing to use the implant and make a co-payment if evidence
shows there is a longer service life and a quicker recovery time.
A decision to proceed with the use of a 3D-printed patient-specific implant will depend on the
confidence of and perception of risk by the three role players. The patient and surgeon generally
don’t perceive any danger in the technology, provided that the materials used subscribe to the correct
standards. It is the belief of the researcher that the technology has made substantial progress in the
extended medical field and this provides a feeling of comfort and security among the surgeons.
The manufacturer will be the weariest role-player. The manufacturer tends to perceive a risk in
the mitigation of defects in the implant itself and possibly a risk to their business if they do not
have substantial legal cover. This being said, the researcher is confident that the manufacturer will
become more comfortable with the use of the technology in the field of spinal orthopaedics after
further research and investigation. It is important that the technology becomes commercialised.
The manufacturers have stated that they will only invest in the technology to 3D-print implants in
the field of spinal orthopaedic surgery if there is sufficient demand. One must keep in mind that
the manufacturers are all running businesses and will only produce such implants with the goal of
financial return.
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5.2. Crossing the Chasm

From the findings it is observed that the manufacture of patient-specific spinal implants with the
use of additive manufacturing is still a new technology. Research subjects on the whole believe the
technology to be in the inception phase. The next step for the technology is to cross the chasm into
the early adoption phase and eventually become fully commercialized. It has been seen that patients
are not adverse to the idea of receiving a patient specific implant, surgeons admit that the technology
can be advantageous on certain aspects and the manufacturer is willing to invest in the technology,
‘’provided there is a demand.’’ It is the opinion of the researcher that the only way to cross the chasm
is through creating sufficient demand. The question is: how will this demand be created? There are
several important aspects that need to be highlighted to create the demand. The first major aspect
is education. All of the spinal surgeons interviewed have not used the technology in their field and
have not heard much about it. If the manufacturer wishes to open a new market there needs to be a
drive to create awareness of the products and a forum to express the superior capabilities of additive
manufacturing. It is important that the manufacturers educate themselves on the industry at hand. It
will be in their best interest to elucidate how the technology can benefit the patient and the industry
as a whole. Before this happens, numerous trials and testing on prototypes will need to take place to
ensure that the technology is safe and adheres to the necessary national standards. Importantly the
technology will have to prove beneficial, in terms of post-surgical results. For this the manufacturer
and surgeon will have to work closely together. Lastly, patients will have to feel at ease with the
technology and understand the benefits. This will be the responsibility of the surgeon. It is important
that the surgeon presents the research findings and recommends the new 3D printed implant device
to the patient. It will be imperative that a handful of pioneering surgeons and manufacturers commit
to the idea of the patient-specific spinal orthopaedic device. The pioneering group, through the use
and adaption of the technology and by educating the patient, will eventually feel at ease with using
this new technology. Coupled with this, continual and substantial research still needs to be ongoing
in order to verify the technology in the field of spinal orthopaedics.
6. References
Choy, W.J., Mobbs, R.J., Wilcox, B., Phan, S., Phan, K. & Sutterlin, C.E., (2017), Reconstruction of Thoracic Spine
Using a Personalized 3-D-Printed Vertebral Body in Adolescent with T9 Primary Bone Tumor, World
Neurosurgery, 105, pp 1032.e13-1032.e17.
Cramer, J., Quigley, E., Hutchins, T. & Shah, L. (2017), Educational Material for 3D Visualization of Spine Procedures:
Methods for Creation and Dissemination, Journal of Digital Imaging, 30(3), pp 296-300.
Podshivalov, L., Gomes, C.M., Zocca, A., Guenster, J., Bar-Yoseph, P. & Fischer, A. (2013), Design, Analysis and
Additive Manufacturing of Porous Structures for Biocompatible Micro-Scale Scaffolds, Procedia CIRP,
5(0), pp 247-252.
Pretorius M.W. and De Wet G. (2000), A model for the assessment of new technology for the manufacturing enterprise,
Technovation, Volume 20 Issue 1, pp. 3-10.
Randazzo, M., Pisapia, J., Singh, N. & Thawani, J. (2016), 3-D printing in neurosurgery: A systematic review, Surgical
Neurology International, 7(34), pp. S801-S809.
Saprykin, A.A., Sharkeev, Y.P., Ibragimov, E.A., Babakova, E.V. & Dudikhin, D.V. (2016), Forming a single layer of
a composite powder based on the Ti-Nb system via selective laser melting (SLM), IOP Conference Series:
Materials Science and Engineering.
Serra, T., Capelli, C., Toumpaniari, R., Orriss, I.R., Leong, J.J. H., Dalgarno, K. & Kalaskar, D.M. (2016), Design
and fabrication of 3D-printed anatomically shaped lumbar cage for intervertebral disc (IVD) degeneration
treatment, Biofabrication, 8(3).
Tack, P., Victor, J., Gemmel, P. & Annemans, L. (2016), 3D-printing techniques in a medical setting: A systematic
literature review, BioMedical Engineering Online, 15(1).
Van der Watt A.J. and Pretorius M.W. (2008), Diffusion of technology in the South African private healthcare market,
PICMET 2008 conference, Cape Town.
IAMOT 2019 | 122

Technological Innovation in Ergonomics & Safety
in Automotive Industries in Egypt
Irene Samy Fahim

Nile University, School Industrial Engineering and
Management, Egypt
E-mail: isamy@nu.edu.eg
Mayada Effat El Sherbiny
Management, Egypt
E-mail: m.effat@nu.edu.eg
Asmahan Mohamed Farid

Nile University, School of Management
of Technology, Egypt
E-mail: a.farid@nu.edu.eg
Abstract
The increase in the complexity and the inspiring environment between the automotive organizations in Egypt forced
the quality experts and management team to propose various tools related to Quality Management Systems but there
is a slight apprehension to the ergonomic concepts in these industries. This study investigates the complications
related to the ergonomics in the assembly line of an automotive company in Egypt. The assembly line is divided
into several stations including trim line, chassis line and a glass handling station. The focus of this study is the
ergonomics of the glass handling station. The front and rear glass in the glass handling station are fixed manually
by the operators to the semi-finished cars. The operators transfer the glass from a glass rack, to a sealant table to
apply the sealant, and then fixate it in its position in the car. There are several problems recognized in this station
concerning the productivity of the company, injuries related to workers in the glass handling station and defects
related to the rear and front glass quality. In this paper we will introduce a technological solution to the safety and
ergonomics of the process. One of the main evaluation methods of ergonomics assessment in automotive industries
is the heuristic evaluation method using checklists. This method is based on the theoretical data collected about
the human abilities and limitations. The ergonomics assessment method used in the automotive industry chosen
assesses both aspects; forces and postures of the process. Force evaluation target is to conduct the total force of
heavy load and handling per day during the process. Posture evaluation is based on categorizing set of postures in
levels from 1- 5 levels. The analysis required interviews with the operators and mangers to collect the data required
for performing the analysis. Several suggestions were made such as installing a glass handling manipulator and
installing a sealant applying robot to shift the station from manual handling to semi-automated handling station and
this will significantly impact both the ergonomics and quality within the station. The implementation of the glass
handling manipulator will affect the ergonomics of the process vastly as the load of the glass will be eliminated and
some postures with high risks will be reduced and/or eliminated. Moreover, the glass rejection rate was reduced by
60% due to the lack of human error. This improvement has a direct correlation with the increase of the productivity
in the assembly line station.
Keywords: Ergonomics, Quality, Automation, Automotive, RULA, REBA
1. Introduction
Ergonomic assessment of work-related musculoskeletal disorders (WMSDs) involves the evaluation
of risk of developing a range of disorders to muscles, nerves and joints. Basically, the upper limb
and low back are the main body parts associated with work-related tasks. The development of
ergonomic risk assessment tools has taken place and is now used by most of the entities to assess the
exposure to known risk factors and to develop programs to prevent/reduce WMSDs (Davis, 2014).
The international standards of muscuskeletal risk assessment procedures are divided into analysis
with a first level method, and analysis with a second level method (ISO 11228/3, 2007). The first
analysis provides an initial risk estimate and is carried out using simplified checklists; such as, Rapid
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Entire Body Assessment (REBA), and Rapid Upper Limb Assessment (RULA). The green colour
shows low or no risk; the yellow colour shows medium risk; and the red colour shows high risk.
The second analysis is conducted to examine the risk level of the individual factors (frequency of
actions/minute, exertion, etc.) to identify appropriate risk reducing measures. Based on the Bureau
of Labour Statistics, assemblers are considered one of the top ten occupations for MSDs. (US DOL,
2000). The physical factor that was most recognized in the assembly lines was the awkward posture
from working with the hand over the shoulder, neck bowing, back forward, continued bowing,
achieving, hunching down and bowing on the hand surface (Rashdan, 2010).
The usage of Rapid Entire Body Evaluation (REBA) is to study the risk factor of the postures and the
load applied on some body parts. From analysing 152 surveys in car manufacturing organizations, the
MSDs were conducted to be from 1.3% to 49.3% for different body parts. The most common issue
occurs in the neck with percentage of 49.3%, the hand and wrists come second with a percentage of
48%. The upper back takes 33.6% and knee with 15.8%. The ergonomics assessment of a process
does not stop at the posture analysis; however, it also includes the cycle times of the process. The
cycle time can be measured using the “predetermined time systems” (PTS).
The aim of this research is to enhance the productivity in glass handling stations in automotive
industries and decrease the ergonomic risks. This study investigates the problems found in the
assembly line in glass handling stations, where the front and rear glass are fixed in the car. This
process is usually done manually as the operators carry the glass from the glass rack available in
the station, on to the sealant table to apply the material needed, then on to the car to fixate it in its
position. The glass station operators have one of the highest absence rates that have an average of
13 days per year per operator. In addition, the rejection and the scrap rate of the glass increases as
the quality of the glass after the assembly process is highly affected. It is affected due to the manual
handling of the process and the human error. These defects are costly as they are either repaired
which means more time, effort and materials are wasted or the whole glass is scrapped and replaced
by another which also means a waste of material.
2. Methodology
2.1. Posture based Analysis

Posture-based analysis is based on ranking the posture of specified parts of the body. As the body
part deviates from the basic posture, the ranking of the posture worsens, and the rank score increases.
The methods take into consideration two categories, distinct parts of the body, such as, the trunk,
arms, and legs, and evaluate their ranking, and also loads applied on the body and its severity on
different body parts (Berlin; Adams, 2017). These analysis tools are Rapid Upper Limb Assessment
(RULA), Rapid Entire Body Assessment (REBA), and CATIA software that 3D model the posture
and give the results of RULA analysis of the drawn model.
2.2. RULA/REBA
RULA and REBA are two similar methods that can be used for frequent posture analysis and
ranking their risks. RULA is more suitable for analysing specified parts of the body as hand-arm
postures, while REBA can be used to analyse the whole-body postures. To conduct the assessment,
an observation of the whole process is done, and the most frequently done postures are identified.
The observer often uses a camera to capture the posture or to record the entire process to select the
main postures. Using the RULA assessment form that is attached in the appendix, the assessor starts
to conduct his analysis (Hignett; McAttemny, 1998). REBA unlike RULA assessment evaluates
the entire body during a task. However, both methods are similar in evaluation. REBA analysis
considers the same six body regions as RULA, but it adds to those regions the couplings and grips
during the posture period. As the number of the rank increases, the risk score worsens giving bad
posture alert (Hignett & McAtamney, 2000).
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Technological Innovation in Ergonomics & Safety in Automotive Industries in Egypt
2.3. CATIA
Computer Aided Three-Dimensional Interactive Application (CATIA) is a multi-platform software
used for computer-aided design (CAD), computer-aided manufacturing (CAM), computer-aided
engineering (CAE), Product lifecycle management (PLM) and 3D modelling. CATIA is developed
by Dassault Systems. CATIA includes ergonomic analysis, where a manikin is drawn with the
posture of the operator is set during the process. It is analysed using the Human Activity Analysis
module. The result of each posture analysis appears within a dialog box giving the options required
to complete the analysis, such as, the duration of the process and its frequency. CATIA provides
a real-time analysis of the posture as the manikin model selected change; the analysis score will
change automatically (Dassault Systems, 2008).
2.4. Activity Sequence

A predetermined motion time system (PTMS) is considered as database of most of the basic motion
elements and their defined normal time values. The PMTS database consists of a set of tables listing
the time values for each basic motion element as grasping, moving, releasing, holding, etc. The
process done within each action taken depends on some variables that determines the theoretical
cycle time (Groover, 2007). One of these systems is the Maynard Operation Sequence Technique
software (MOST).
MOST is considered a high – level predetermined motion time system software. It uses the time
units of TMUs; time measurement unit, which is 0.00001 hour or 0.036 minute. MOST focuses
on activities involving moving of objects, such as, parts and tools from one location to another in
the workplace. All MOST activities that include the movement of objects consists of a pattern of
body motions that is often the same all activities. It uses motion aggregates called activity sequence
models. The three activity sequence models of MOST are General Move, Controlled Move, and
Tool Use. Each of these models consists of a set of sequential standard motions.
General Move is used when an object is moved without constraints from one location to another,
such as picking a part up from the floor and placing it on the table. The General Move sequence
contains four parameters symbolized by:
2.4.1. A B G A B P A
The first three parameters (A B G) represent the basic motion get, the next three (A B P) represents
the motions of put or move the object, and the final parameter (A) apply on the motion return.
Controlled Move sequence model is used when an object is moved through a path that is constrained.
The object cannot be freely moved.
2.4.2. A B G M X I A
This sequence includes the same A B G as the General Move, in addition to other three parameters.
The first three parameters (A B G) are the basic motion of get an object, the next three (M X I)
represents moving the object by a process time and alignment, and the last parameter (A) for the
motion return.
After using the sequence model appropriate to the process analysed, each of these parameters is assigned
a numerical value as its index number that represents the time required to have the process done.
3. Results
To accurately investigate and analyse the process, it is divided into three steps:
1. Carrying the glass from the racks onto the sealant table and the inspection process
The glass is placed in its available racks that are transported from the receiving area to
the station for assembly. The operator takes the glass unit from the rack and places it on
the sealant table and starts the inspection process where he checks for any scratches or
breaks in the glass.
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2. Applying the sealant

The sealant process is applying the material needed to glue the glass to the car. The
materials in their sequential process are; the primer, the black belt and the sealant.
3. Carrying the glass onto the car and fixing it
The glass is then carried onto the car and the operator starts using his fists to fixate it in
its place and apply the outer black belt.
The process is done twice per unit for the front and rear glass which means that it is done 78 times
per shift as the total capacity of one shift is 39 unit. This value is resultant of the multiplication of
the capacity of the plant per hour and the number of working hours per day. The Job per Hour (JPH)
capacity of the automotive industry is estimated to be 5 units and the shift consists of 8 working hours
and an hour break. Thus, the total number of units produced per year is 19,500 units. In addition, the
average weight of the front glass is 12.5 KG and the rear glass is 6.5 KG. The ergonomics problem
was thoroughly investigated using the previously explained methods; RULA/REBA, CATIA and
MOST. All methods collaboratively highlighted where the problem lies.
The following figure 1 illustrates step 1 where the worker is carrying the glass from the racks onto
the sealant table and the inspection process. Table 1 includes the results of REBA analysis and Table
2 includes the results of the RULA analysis. These methods were used to analyse each posture in
figure 1 of the first step to determine the risk factor of each one on the operator using the RULA and
REBA assessment sheets.

Posture 1 Posture 2 Posture 3
Figure 1: Step 1 (Carrying the glass from the racks onto the sealant table and the inspection process)
Table 1: REBA Analysis Table 2: RULA Analysis
Parameters Posture 1 Posture 2 Posture 3 Parameters Posture 1 Posture 2 Posture 3
Side (R, L) R L R L R L Side (R,L) R L R L R L
Neck 1 1 2 2 1 1 Upper arm 5 5 3 1 5 1
Trunk 1 1 4 4 1 1 Lower arm 3 3 2 2 3 1
Legs 1 1 2 2 2 2 Wrist 3 3 1 2 3 1
Table A 1 1 6 6 2 2 Wrist twist 1 1 1 1 1 2
Table A 7 7 3 2 7 2
Force/load 2 2 0 0 2 2
Muscle use 0 0 1 1 0 0
Score A 3 3 6 6 4 4
Upper Arm 5 5 2 1 5 1
W/A Score 10 10 4 3 10 5
Lower Arm 2 2 2 1 2 2 Neck 1 1 3 3 1 1
Wrist 2 2 1 1 1 1 Trunk 1 1 4 4 1 1
Table B 8 8 2 1 7 2 Legs 2 2 2 2 1 1
Coupling 2 2 0 0 1 1 Table B 3 3 7 7 1 1
Score B 10 10 2 1 8 3 Muscle use 0 0 1 1 0 0
Table C 7 7 6 6 8 4 Force/load 3 3 0 0 3 3
Activity 1 1 1 1 0 0 N/T/L
6 6 8 8 4 4
REBA 8 8 7 7 8 4 Score
Risk level H M H M RULA
7 7 6 6 7 5
Score
H: high risk M: Medium risk L Low risk Risk Level H M H M
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The second step of the process; is applying the, primer, black belt and the sealant. The selected
postures 1, 2, 3, and 4 illustrate the risky postures in this step than can cause musco skeletal disorders.
Table 3 includes the results of REBA analysis and Table 4 includes the results of the RULA analysis.
Figure 2: Step 2 (Applying the sealant)
Table 3 - REBA Analysis Table 4- RULA Analysis
Posture Posture Posture Posture Posture Posture Posture Posture

Parameters Parameters
1 2 3 4 1 2 3 4
Side (R, L) R L R L R L R L Side (R, L) R L R L R L R L
Neck 2 2 2 2 2 2 1 1 Upper arm 3 3 3 1 3 3 4 4
Trunk 3 3 4 4 3 3 1 1 Lower arm 1 1 3 1 3 3 3 3
Legs 2 2 2 2 2 2 2 2 Wrist 2 2 2 2 3 2 3 3
Table A 5 5 6 6 5 5 2 2 Wrist twist 1 1 2 1 1 2 1 1
Force/load 0 0 0 0 0 0 2 2 Table A 4 4 4 2 4 4 5 5
Score A 5 5 6 6 5 5 4 4 Muscle use 0 0 1 1 1 1 0 0
Upper Arm 3 3 5 2 4 4 4 4 Force/load 0 0 0 0 0 0 3 3
Lower Arm 2 2 2 1 2 2 2 2 W/A Score 4 4 5 3 5 5 8 8
Wrist 2 2 2 1 3 3 3 3 Neck 3 3 3 3 3 3 1 1
Table B 5 5 8 1 7 7 7 7 Trunk 4 4 4 4 3 3 1 1
Coupling 0 0 0 0 0 0 2 2 Legs 1 1 2 2 1 1 2 2
Score B 5 5 8 1 7 7 9 9 Table B 5 5 6 6 6 6 3 3
Table C 6 6 9 6 8 8 8 8 Muscle use 0 0 1 1 1 1 0 0
Activity 1 1 0 0 0 0 0 0 Force/load 0 0 0 0 1 1 3 3
REBA 7 7 9 6 8 8 8 8 N/T/L Score 5 5 7 7 0 0 6 6
Risk level M H M H H RULA

5 5 7 6 7 7 7 7
Score
Risk Level M H M H H H
The third step: is carrying the glass and fix it to the car. It includes four dangerous postures as shown
in Figure 3 (Occupational Safety and Health Assiociation,2000). Table 5 includes the results of
REBA analysis and Table 6 includes the results of the RULA analysis for the four postures.
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Figure 3: Step 3 (Carrying the glass into the car and fixing it)

1 2 3 4 1 2 3 4
Neck 1 1 1 1 1 1 3 3 Upper arm 1 4 4 4 4 4 2 4
Trunk 1 1 1 1 2 2 4 4 Lower arm 1 2 3 3 3 3 2 3
Legs 2 2 1 1 4 4 1 1 Wrist 1 3 2 2 3 3 2 2
Force/load Table A 1 4 5 4 5 5 4 4
2 2 2 2 0 0 0 0
score
Muscle use 0 0 0 0 0 0 0 0
Score A 4 4 3 3 5 5 6 6
Force/load 3 3 2 2 0 0 0 0
Upper Arm 3 6 5 5 4 4 1 1
W/A Score 4 7 7 6 5 5 4 4
Lower Arm 1 2 2 2 2 2 2 2
Neck 1 1 1 1 2 2 4 4
Wrist 1 3 3 1 2 2 2 2
Trunk 2 2 2 2 3 3 2 2
Table B 3 9 8 7 6 6 2 2
Legs 2 2 1 1 2 2 1 1
Coupling
1 1 0 0 1 1 0 0
score Table B 3 3 2 2 5 5 5 5
Score B 4 10 8 7 7 7 2 2
Muscle use 0 0 0 0 0 0 0 0
Table C 4 9 7 6 7 7 6 6
Force/load 3 3 2 2 0 0 0 0
Activity
0 0 0 0 0 0 0 0 N/T/L Score 6 6 4 4 5 5 5 5
score
REBA RULA
4 9 7 6 8 8 6 6 6 7 6 6 6 6 5 5
SCORE Score
Risk level M H M H M Risk Level M H M M M
After conducting all the postures’ results and observing the highest, the medium and the lowest
postures’ risks, CATIA software was used to represent the posture in 3 dimensions and approve
the manual results done by the REBA and RULA tables. However, the postures with the highest
risk were chosen in each part of the process. For the first part of the process, posture 1 was chosen
as it has the highest risk. Posture 1 has the highest risk because the operator is carrying the glass
that weighs an average weight of 12.5 KG for the front glass and 6.5 KG for the rear glass. And the
CATIA model and results are shown in figure 4.
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Figure 4: CATIA Analysis for Step 1
For the second part of the process, posture 2 was chosen to be more illustrated by CATIA as it has the
highest risk of all the postures analysed in this part of the process. Posture 2 is considered a high risk
because the operator is bending down with his upper limb and his neck while applying the sealant due
to the preciseness the operation requires. CATIA model and results are shown in figure 5.
Posture 3 was selected for CATIA illustration as it has the highest risk level of all the postures
analysed in the third part of the process. Posture 3 is considered a high risk because the operator in
this step of the process is stepping up on the car to fixate the glass in its position as shown in figure 6
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After analysing all the postures involved in the process, the process was also analysed using MOST
software to take into consideration the sequence of the process and its cycle time. It is done using the
software; however, the actual cycle time was measured using a stopwatch for five cycles per day for
a week and the following chart in figure 7 shows the results.
Figure 7: Process Cycle Time
By using MOST, the theoretical cycle of the entire process is illustrated considering each detail in
the three steps of the process in sequential order. The process steps are divided into the following
processes:
1. Carrying the front glass from the rack to the sealant table
2. Cleaning the glass using a soft cloth
3. Applying the black belt Table 7: Cycle Times
4. Applying the primer Step TMUs Seconds Minutes
5. Applying the sealant 1 360 12.96 0.216

2 1160 41.76 0.696
6. Carrying the front glass to another table
3 2700 97.2 1.62
7. Repeat from step 1 – 5 for the rear glass
4 1260 45.36 0.756
8. Carry the front glass to the car
5 1540 55.44 0.924
9. Carry the rear glass to the car 6 680 24.48 0.408
10. Fixate the front glass 7 410 14.76 0.246
11. Fixate the rear glass 8 340 12.24 0.204
12. Each process of is analysed using General Move, 9 1710 61.56

1.026
Controlled Move, or Tool – Use Move. The 10 1860 66.96 1.116
TMUs of the process is calculated and therefore, 11 3720 133.92 2.232
compute the cycle time of the process. Then, by Total 15740 566.64 9.444
adding the cycle time of all the processes, the
total theoretical cycle time of the glass handling process was figured out. The estimated
or theoretical cycle time of the process is 9.44 min. as shown in table 7.
4. Solutions and Implementation

After analysing the current state and determining the problems, Building a step for the station and
installing a glass handling manipulator were the best solutions at hand to decrease the ergonomics
risks. Figure 8 shows that the strain inflected on the operators is completely avoided and it is shown
in the results of the REBA/RULA analysis in tables 8 and 9. The risks shifted from High and medium
risk to low and medium risk which shows the improvement due to adding a step in the glass handling
station ( OSHAcademy, 2018)
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Figure 8: Building a Step for the Station

1 2 3 4 1 2 3 4
Neck 2 2 1 3 3 3 2 2 Upper arm 4 1 3 3 3 3 3 3
Trunk 1 1 1 1 4 4 2 2 Lower arm 3 2 1 1 1 1 2 2
Legs 1 1 1 1 1 1 1 1 Wrist 1 1 2 2 1 1 2 2
Force/load Table A 4 2 4 4 3 3 4 4
2 2 0 0 0 0 2 2
score
Muscle use 0 0 0 0 0 0 0 0
Score A 3 3 1 1 6 6 5 5
Force/load 0 0 0 0 0 0 0 0
Upper Arm 4 1 4 4 3 3 3 3 W/A Score 5 5 4 4 3 3 4 4
Lower Arm 2 1 2 2 1 1 1 1 Neck 2 2 3 3 4 4 2 2
Wrist 1 1 1 1 1 1 1 1 Trunk 1 1 2 2 3 3 1 1
Table B 4 1 5 5 3 3 3 3 Legs 1 1 1 1 1 1 1 1
Coupling 0 0 0 0 0 0 0 0 Table B 2 2 3 3 6 6 2 2
Score B 4 1 5 5 3 3 3 3 Muscle use 0 0 0 0 0 0 0 0
Table C 3 2 3 3 4 4 4 4 Force/load 0 0 0 0 0 0 0 0
Activity score 0 0 0 0 0 0 0 0 N/T/L 2 2 3 3 6 6 2 2
REBA 3 2 3 3 4 4 4 4 RULA 3 3 3 3 5 5 3 3
Risk level L L M M Risk Level L M M L
The other solution which is installing a glass handling manipulator is shown in Figure 9. The REBA
and RULA analysis are conducted in tables 10 and 11 shown below
Figure 9: Installing a Glass Handling Manipulator
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Table 10: REBA Analysis
Parameters Posture 1 Posture 2 Posture 3
Side (R, L) R L R L R L
Neck 1 1 1 1 1 1
Trunk 1 1 1 1 1 1
Legs 1 1 1 1 1 1
Table A 1 1 1 1 1 1
Score A 1 1 1 1 1 1
Upper Arm 2 2 1 1 2 2
Lower Arm 2 2 1 1 2 2
Wrist 1 1 1 1 1 1
Table B 2 2 1 1 1 1
Coupling 0 0 0 0 0 0
Score B 2 2 1 1 1 1
Table C 1 1 1 1 1 1
Activity score 0 0 1 1 0 0
REBA 1 1 1 1 1 1
Risk level L L L
Table 11: RULA Analysis
Parameters Posture 1 Posture 2 Posture 3

Side (R, L) R L R L R L
Upper arm 1 1 1 1 1 1
Lower arm 1 1 1 1 1 1
Wrist 1 1 1 1 1 1
Wrist twist 1 1 1 1 1 1
Table A 1 1 1 1 1 1
W/A 1 1 1 1 1 1
Neck 1 1 1 1 1 1
Trunk 1 1 1 1 1 1
Legs 1 1 1 1 1 1
Table B 1 1 1 1 1 1
N/T/L 1 1 1 1 1 1
RULA 1 1 1 1 1 1
Risk Level L L L
Reviewing these actions taken before the manipulator, assessing the postures and comparing them
with the actions taken and postures assesses after manipulator can be shown in figure 10
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Figure 10: REBA Comparison before and after the Manipulator
5. Conclusion
The implementation of the glass handling manipulator will not only affect the ergonomics of the
process, but it will also affect the quality of the glass affected during the handling in the station. The
main variable in the process is the human error due to the manual handling. Since this variable was
reduced from 100% to almost 80% after using the glass manipulator, hence the rejection rate was
reduced from 0.96% to 0.36%.
REFERENCES
Berlin, C., & Adams, C. (2017). Production Ergonomics: Designing Work Systems to Support Optimal Human
Performance. London: Ubiquity .
Davis, B. (2014). One Standard Fits All. Professional Engineering, 17, pp. 43-45.
Groover, M. P. (2007). Work systems and methods, measurement, and management of work. New Jersey: Peasron
Education Inc. .
Hignett, S., & McAtamney, L. (1998). Rapid Entire Body Assessment (REBA). Applied Ergonomics 31, 201- 205.
Hignett, S., & McAtamney, L. (2000). REBA: A Survey Method for the Investigation of Work-Related Upper Limb
Disorders. Applied Ergonomics.
16949:9000, I. (2009). Quality management systems: Particular requirements for the application of ISO9001:2008 for
automotive production and relevant service part organizations. ISO Website.
Occupational Safety and Health Assiociation. (2000). Ergonomics: The Study of Work. Washington: US Department
of Labor.
OSHAcademy. (2018). Introduction to Ergonomics . Oregon: Geigle Safety Group.
Rashdan, A. I. (2010). Ergonomics Assessment Of Workstation Design In Automotive Industry. ational Conference in
Mechanical Engineering Research and Postgraduate Studies; 2nd NCMER.
Systems, D. (2008). CATIA V5 training; Human Modeling. Dessault Systems.
IAMOT 2019 | 133

Artificial Intelligence in Tourism Software
Solutions: Opportunities and
Challenges until 2024
Tobias Helgemeir
Pontificia Universidad Católica del Perú,
Escuela de Posgrado, Lima, Perú
E-mail: tobias.helgemeir@pucp.edu.pe
Carlos Hernández Cenzano

Pontificia Universidad Católica del Perú,
Escuela de Posgrado, Lima, Perú
E-mail: carlos.hernandez@pucp.edu.pe
Abstract
Artificial Intelligence (AI) used in the software industry has experienced great success during the last years.
Especially emerging and technology affine markets in Asia and Latin America offer great opportunities for new
AI solutions that support the customer. Additionally, to the technological development, there is also a growing
demand in the tourism and hospitality industry. As a result, software companies specialized in the tourism
and hospitality industry have started to adopt artificial intelligence in many different forms in their products.
Especially in the tourism industry, customers require personalized service and are also highly emotional. As a
consequence, the industry lives or dies on excellent service. Furthermore, there is a high pressure on prices, AI and
automatization can help to offer tourism products and services for reasonable costs. However, AI software systems
have become more and more complicated and society’s expectations regarding the capabilities and intelligence
of such systems are also growing. That results in higher costs, higher difficulty levels and higher computational
requirements tourism software companies have to cope with. For these reasons, the main goal of this research is
to find sectors within the tourism industry in which AI software solutions are helpful for the travelers’ experience
and also reasonable in efforts and costs for tourism software technology providers within a defined time horizon
of 5 years. To get an impression of future developments, various foresight methods such as the Delphi method
and a structural analysis were used. This paper elaborates on the practical opportunities and challenges to be faced
by tourism software companies when developing AI software solutions and provides recommendations on how
to deal with these challenges. The analysis shows that major improvements because of AI can be implemented in
online travel agencies (OTAs) which are considered as the most important field for application of AI technology.
Within this sector, chatbots, individual offers, mobile apps and social networks as a data source will improve
travelers experience which leads consequently to an increase in revenues.
Keywords: Forecasting, Tourism, Software Solutions, Artificial Intelligence, Service Automation, Delphi Method
1. Introduction
Artificial Intelligence (AI) has been fascinating people for many years. In 1956, John McCarthy
defined AI as follows: “AI is the science and engineering of making intelligent machines, especially
intelligent computer programs. It is related to the similar task of using computers to understand human
intelligence, but AI does not have to confine itself to methods that are biologically observable” [1].
More than 60 years later, AI has now left the status of a technology in its infancy and has reached a
tipping point in its development: It is able to autonomously produce critical decisions and predictive
insights. Today, we use machine-learning techniques as a part of our everyday lives, whether we
are searching on Google, tagging people in Facebook photos, communicate online with a chatbot
or shop on Amazon. The consulting firm “Roland Berger” also recognized massive improvements
in deep learning methods which have multiplied the possible applications of AI to enhance human
performance. Automatization and personalization deliver opportunities for almost every industry to
enhance their efficiency and rentability [2].
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Artificial Intelligence in Tourism Software Solutions: Opportunities and Challenges until 2024
A search in patentinspiration.com, a website which gives an overview about patents applied and
issued proves a strongly growing importance of AI in especially in China (2230 patents) and the US
(1651 patents) (Figure 1) [3]. Google trends, which measures people’s interest in particular areas,
also reports an increasing importance (Figure 2). However, in comparison to patent applications,
Google trends indicates significantly lower interest in AI in the United States (Figure 3) [4].
Figure 1: Patents Applied in AI 1993–2017
Source: patentinspiration.com
Figure 2: Interest in AI until 2018
Source: Google Trends
Figure 3: Public Interest in AI
Source: Autor’s Evaluation base on Google Trends Data
1.1. Tourism Industry

Tourism is currently a booming industry with a growth rate of 7% in 2017 in terms of arrivals
according to the World Tourism Organization [5]. At the moment, there is a huge disruption in the
market in the way tourism is created, marketed and consumed which is challenging the industry to
deliver value in the future [6]. Travelers seek for untouched authentic places and more transformative
experiences. Moreover, they try to deal directly with experience providers and use tour operators more
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selectively. However, the paradox is, that customers have an expanding ocean of content which often
do not provide an authentic picture of the destination, which leads to customers who struggle to find
the content that helps them to make the right travel decision. Thus, searching for travel information
online makes planning frustrating and time-consuming. Tourism companies, as well as travelers, are
searching for a fast and cost-effective way of planning their business and vacation travel [7] these
systems have become more and more complicated. Society’s expectation regarding the capabilities
and intelligence of such systems has also grown. We have become a more complicated society
with more complicated problems. As the expectation of intelligent systems rises, we discover many
more applications for artificial intelligence. Additionally, as the difficulty level and computational
requirements of such problems rise, there is a need to distribute the problem solving. Although the
field of multiagent systems (MAS. This leads to a need for individual customization of the tourism
product [6]. Currently, eDreams ODIGEO is applying AI across its brands—eDreams, Opodo,
GO Voyages, Travellink and Liligo to predict the customers’ wishes and deliver tailored results.
According to eDreams, technology is the key to understand their customers, eDreams‘ aim is to
trigger their clients emotionally to grasp what makes a journey reasonable to each individual [8]but
the next step is to develop algorithms to factor-in emotional drivers.”,”URL”:”https://www.tnooz.
com/article/edreams-research-brings-the-ei-of-ai-to-otas/”,”language”:”en-US”,”issued”:{“date-pa
rts”:[[“2018”,9,19]]},”accessed”:{“date-parts”:[[“2018”,10,5]]}}}],”schema”:”https://github.com/
citation-style-language/schema/raw/master/csl-citation.json”} . In terms of service, AI will become
increasingly important for destinations in managing end-to-end customer relationships from trip
consideration to the on-site visit [6]. After the trip, customers often post reviews on Facebook,
Instagram etc. Content created by the user can either be helpful or harmful. Akehurst 2009 found
out that tourism organizations cannot afford to ignore the user-generated content which produces a
negative image of the destination or the tourism provider. However, the sheer amount of content in
form of blogs, reviews, social media and traditions marketing communications makes it impossible
to manually monitor the relevant content of a destination or company. Especially new forms of
content such as virtual reality, videos and the growing number of images require new monitoring
technologies [9]. All in all, AI offers great opportunities for the tourism industry, however, there
are some downsides and difficulties for the industry. AI is only useful when additional benefits are
higher than allover cost (factors cost, personnel, training etc.) and efforts. An also important factor
is the customer and the business culture itself. Trust and willingness to be served by a machine and
liberal businessmen attitudes are essential for new technology to be accepted and not sabotaged to run
successfully [10], [11]”container-title”:”2017 International Conference on Infocom Technologies
and Unmanned Systems (Trends and Future Directions).
This paper elaborates on the practical opportunities and challenges faced by the different sectors
in the tourism industry using AI software in the future until the year 2024. To do so, the following
sections of this paper describe the application of strategic foresight, the Delphi method and the
application in this research. The results section is divided into the most important sectors of the
industry (OTAs, destinations, the aviation and the hotel sector). The last part of this paper gives an
overview of four possible outcome scenarios.
1.2. Strategic Foresight

The dilemma of strategic foresight is when the business is going well, businesses can be managed
without it and when the business is not running smoothly anymore, it is too late to take actions.
Therefore, many businesses lack answers to the key question: how to act before it is too late? In other
words, how can we replace emergency actions by foresight and proactiveness? Business decisions
must be based on future expectations. Actions become meaningless without strategic goals which
comply with the mission and vision of the company. Forecasting will permit to identify future
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needs and helps in initiating the work on possible future technologies well in advance which will
consequently help in strategic planning [12]. In this context, Rohatgi and Rohatgi, 1979 proved the
usefulness of the Delphi method to identify future technologies [13] (2).
2. Research Design
2.1. Delphi
Delphi is one of the most famous methods in future studies to deal with the ever-growing complexity
in the decision-making process. It is a useful planning aid to high-level decision-makers in public
and private sectors. In particular, the Delphi method is especially suitable for generating future
information for long-term planning in topics where changes in current trends are expected.
The Delphi technique in its simplest form eliminates committee activity among the experts
altogether and replaces it with a carefully designed program of sequential individual interrogations
(usually best conducted by questionnaires) interspersed with information and opinion feedback.
The process can reveal the convergence of opinions and identify conflicting views [15], [16].
To execute a Delphi, Stevenson, 2010 designed a 13 steps plan:
The first steps are to define the aim and the scope of the survey. The third step is a comprehensive
literature review to identify significant driving forces and variable trends. After that, experts have
to be found and selected. This step is followed by a draft survey which is tested with the help of
selected experts. After necessary adjustments, the first round of the survey can be run. In the second
round, the questions should be adapted according to the responses of the first round. Also, new
information from the answers in the round has to be included. During the second round of the survey,
experts who’re answers are falling out of the interquartile zone that was established in the first, are
requested to justify their answers. Stevenson (2010) suggests repeating the second round as often as
necessary. The last steps are carrying out the final analyses and presenting the results.
However, according to Ortega San Marin, 2013, there are also variations possible.
A common variation is a two-round Delphi followed by a task force evaluation for questions
where no convergence could be reached [17]. In our research, we first planned to execute a
two-round Delphi in form of a questionnaire which could be either done in face to face
interviews, by filling in a paper form or online. In traditional areas, the Delphi method was
created for long-term predictions (20–30 years) where experts are usually the only available
source of information [16]”language”:”en”,”author”:[{“family”:”Stevenson”,”given”:”Elizabeth
Victoria”}],”issued”:{“date-parts”:[[“2010”]]},”accessed”:{“date-parts”:[[“2018”,11,12]]}}}],”sch
ema”:”https://github.com/citation-style-language/schema/raw/master/csl-citation.json”} . However,
because of the fast development of AI and IT technologies, the time frame in our study will not
exceed more than five years.
2.2. Adaption of the Questionnaire

In the Delphi, the questionnaire contained 21 questions, which were developed using the results of
the literature review. During the literature review, we found out that sectors in the tourism industry
are affected differently by AI developments and it would not be reasonable to give the same advice to
the whole industry. Therefore, we distinguish between the following sectors of the tourism industry;
online travel agencies (OTAs), destinations, aviation and the hotel sector.
The questionnaire was structured according to Ortega San Martín, 2013 [18]. First, the participants
were asked to evaluate if the impact of the new technology would be high medium or low.
The second part was a self-evaluation of the interviewee which could also be evaluated with high,
medium and low. In the third part, the interviewee should assess the most affected sectors within the
tourism industry. The last part and fourth part was the estimation of the time span when the factor
was supposed to be dominant. In this part, the expert could distinguish between currently occurring,
the near future, within 2 years (2019 and 2020), a medium future occurrence, longer than 2 but less
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than 5 years (occurrence within the years between 2021 and 2024), the further future after 2024 and
a never expected occurrence (Figure 4).
Figure 4: Delphi Questionnaire According to Ortega San Martín
2.3. Execution of the Research

After a pilot test of the questionnaire with some minor changes, the questionnaire was sent to about
80 experts (tourism software providers and experts in the field of artificial intelligence such as
university professors, Ph.D. and master students in Europe and America). Finally, we found nine
experts in the field of AI which mostly stated that the tourism market would be an important field for
the application of AI. Dalkey et. al. 1969 suggests seven as the lowest limit of participating experts
in the Delphi, which confirms the applied number of nine experts as sufficient and the Delphi can
be seen as valid [19].
In the first round, the participants were asked to fill in a questionnaire, which took about 30 minutes
on average. After executing the first round we observed a broad consistency among the experts and
realized that the research question was already answered. A second round was therefore discarded.
3. Results of the Delphi

The Delphi resulted in the following ranking of the importance of AI. As the most important field of
application we considered OTAs, the hotel sector as the second, the aviation sector as the third and
tourism destinations as the least important field for the application of AI within the tourism industry.
In particular, the following improvements due to the application were identified in the individual areas:
3.1. OTAs
OTAs will make use of chatbots in online consultancy of their customers. Individual offers which
will be supported with data from social networks and better mobile apps can help to improve
customer experience and consequently increase their revenues. However, OTAs will be dependent
on liberal privacy regulations which have a high influence on the AI development in this sector.
3.2. Destinations
Destinations will benefit from data obtained from social networks to improve the traveler’s experience
and increase their revenues. In addition, travelers wish to use mobile applications during their stay at
their destinations which offer individually designed offerings and virtual guidance during their stay.
Travelers are also willing to share GPS data which can be used to target offerings and information
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about sights and points of interest according to the travelers’ current position. However, experts see
strong employee resistance when AI solutions will be executed.
3.3. Aviation
For airlines, we see great opportunities to increase their revenues in the field of individual pricing
in combination with yield optimization and individual marketing. However, the airline industry
is strongly dependent on historical data, therefore, as OTAs, airlines are dependent on liberal
governmental regulations.
3.4. Hotel Sector

App development, social media as a data source and individual pricing will be important factors
within the hotel sector in the future. Hotels will be also dependent on historical data they gained
during the last years from their customers. Governmental regulations that would prohibit the use of
data gained in former years would slow down AI development in this sector as well. In addition, the
destination employee’s resistance will be a hurdle hotels have to face during the implementation of
AI solutions.
4. Scenario Building
A scenario is not a future reality but a way of foreseeing the future, thereby enlightening the present
in terms of all possible and desirable futures. A scenario approach can only be credible and useful
if it meets the five prerequisites: relevance, importance, coherence, plausibility and transparency.
In other words, one must ask the right questions, formulate the right hypotheses clearly and ascertain
the coherence and probability of possible combinations. A scenario is not an end in itself; it only
becomes meaningful when its results and implications are embodied in real action. From this point
of view, it is often advisable to limit the scenarios to about four to six key hypotheses [12].
Due to the evaluation of high uncertainty and high importance, we found out that the development
of mobile apps, the access to customer data, development of natural language processing and the
opportunity for companies to gain revenue are of major importance for the development and the
acceptance of AI in the tourism industry [14]. Afterwards, a structural analysis identified access
to customer data and the opportunity to gain higher revenues as the most influencing factors.
Based on the influencing factors we developed the system structure and designed the axis of Schwartz
according to Ortega and San Martín, 2013 [18] (Figure 5).
Figure 5: Structural Analysis
Source: Ortega, San Martín

This structure served in combination with the information gained in the face-to-face interviews to
construct the following scenarios:
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4.1. Total AI-Travel

Europe and the US fear to be left behind in AI development and adapt to the Chinese data protection
legislation which will lead to great freedom and opportunities in the application of AI solutions.
Moreover, the number of customers who are willing the share their data increases. As a result,
tourism companies will have a good basis for the application of AI. Access to customer data via
application programming interfaces (APIs) from different sources such as public databases, social
media and their historical data which can be used without any restrictions will support travelers and
industry. As a result, AI and new smartphone applications will change the travel industry completely.
AI will be applied in every sector which leads to better travel experiences, higher revenues and lower
costs for tourism providers which will be invested in better development of new technologies such
as natural language processing (NLP). These better applications, AI and location-based services
(LBS) will also help travelers to save time by making their decisions by individual offers, which
are automatically tailored to every single customer before and during their holidays. Later on, better
NLP solutions will be launched and supported by diverse AI applications. Such applications will
coordinate events and will make reservations automatically. Hotels will offer their customers an
unforgettable experience because they know exactly every single customer preference and will
prepare an individual hotel experience for every single guest even before the arrival. The planning
of their preferred room, as well as food and beverages, will be done automatically. Destinations will
provide special deals for every customer group based on their individual interests. Finally, airlines
will provide customer-based offers in terms of destination and price offers calculated with machine
learning algorithms created by historical data.
4.2. AI Travel just for a Group of Individuals

Governmental restrictions will be high and China tightens their data protection regulation due
to increasing resistance in the public. However, customers can decide individually if they share
their data. Public databases will not exist and trade with personal data between companies must
be accepted by every user individually. Due to different attitudes, mostly young and technology
affine persons decide to share their data because they don’t fear the abuse of their personal data
and see more advantages. This user group will buy suggested travel offers from OTAs and use
other advantages of AI which leads to an increase of revenues and earnings that will be invested
in more and innovative technology such as NLP software solutions. Nevertheless, there will also
be businesses that will stand out through the non-use of AI. Personal and individual accessory will
be their USP to find loyal customers. Airlines will have limited access to historical data thus it
cannot be used for individual pricing. Similarly, destinations which are using social media data.
Consequently, both sectors will invest in more traditional methods such as customer surveys and will
try to encourage their customers to share their data to develop their offers further.
4.3. Unlimited data Access without Revenue Growth

Liberal governmental policies and governmental support in fundamental research set the basis for
AI development. In addition, people are also willing to share their data and don’t fear abuse which
leads to more information which can be used for AI development. However, higher complexity in
software and AI development lead to a lack of qualified software developers and existing developers
will recognize their market value which leads to higher expenses for software firms and tourism
providers. Furthermore, new telecommunications technologies and firms avoiding business travel
abolish the expected growth in the industry. Nevertheless, AI technology will be essential in the
future to augment travel experience and saves time and avoid travelers’ inconvenience. Thus, OTAs,
destinations, airlines and hotels will provide similar technologies as mentioned in the first scenario.
Companies that will not use AI technologies will vanish in the tourism market.
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4.4. Digital Natives were Yesterday

Legislation such as the General Data Protection Regulation (GDPR) in Europe will be more strictly.
Even China, after some negative experiences and protests, restricts the use of historical data and
public databases. Furthermore, people are not willing to share private data that leads to a lack of
data in the tourism industry to apply AI effectively. Thus, the development of AI solutions will
slow down extremely. Furthermore, people consider social life more important in the real world and
visit more their families and friend instead of booking ready-made offers produced by AI. Finally,
cost-benefit calculations turn out negative and tourism firms avoid investing money in a technology
that also gets more and more complicated over the time.
5. Conclusion
During our investigation, we applied a Delphi and a structural analysis to identify future developments
in AI software used in the tourism industry. Among the key findings, it should be noted that the
development of an AI solution depends heavily on access to customer data, government restrictions,
the development of mobile applications and the ability to generate additional revenue for tourism
enterprises. However, as the major factor, we identified liberal legislation which sets the basis for
the application of customer data to train algorithms and delivers the raw material to target customers
individually, augments travelers’ experience and leads finally to lower costs, higher revenues
and benefits.
The second aim of the study was to define the sectors which will be most affected by AI. In this
context, we could identify OTAs as the most affected sector. Here, chatbots, individual offers,
mobile apps and social networks as a data source will improve travelers experience. Also, employee
resistance will have a minor influence. In the hotel sector and in tourism destinations, however,
employee resistance will be an important topic management have to deal with.
Finally, we developed different scenarios of the application of AI in tourism software in the future years
until 2024. In that context, it is notable that the presented scenarios are not a forecast of future reality,
rather, this study intends to illustrate possible effects in the future and thus serve as an aid for decision
making. Applying the Delphi research, nine experts with different backgrounds in AI and the tourism
industry participated. During the Delphi, we discovered that there was a strong consensus within the
participating experts even in the first round which made the initially planned second round redundant.
This fact proves that the selection of experts, as well as the questioning, was in itself consistent and
that the results can be seen as valid. However, because of the high influence of legislation, further
research studies could evaluate the influence of different legislation within different regions on the
complexity and the impact on development costs in tourism software development.
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IAMOT 2019 | 142

Technology Selection for Industry 4.0 Digital
Transformation: A Decision-Making Model
Combining AHP, QFD and MIP
Hasan Erbay
Istanbul Technical University / Turkey, Bosch TR Company, Turkey
E-mail: Hasan.Erbay@tr.bosch.com
Nihan Yıldırım
Istanbul Technical University / Turkey
E-mail: yildirimni@itu.edu.tr
Abstract
Digital transformation technologies and tools promises higher productivity and effectiveness levels as well as
for transforming their business models into digital. However these technologies bring uncertainties for return on
investment and require high expertise needs, they rise uncertainty for organizations which plans to adopt. SMEs
are required to identify and select the most feasible roadmap for digital transformation for productivity and
effectiveness improvements. Nevertheless, the recent literature covers only some reports and research cases
on industry 4.0 offering an overall assessment together with generic expressions. There are limited studies from
developing country perspectives which focus on the differences between centre and periphery countries in terms of
benefits and usage areas of Industry 4.0 technologies. In this regard, to fulfil the gap in research, our study proposes
a quantitative hybrid decision making model for technology selection that can be utilized in manufacturing and
particularly in automotive industry for Industry 4.0 technologies and tools. A multi-dimensional framework was
developed for combining Industry 4.0 technological tools and their potential benefits that can act as a decision
support model for manufacturing companies. Analytical Hierarchy Process, Quality Function Deployment and
Mixed Integer Programming methods were used to prioritize, relate and optimize the technological tools for their
benefits to manufacturing operations. In this study, Turkish automotive supplier industry is selected as a case
study of Turkish manufacturing industry. Through interviews and survey among experts from automotive and IT
industries, data was collected and adapted to the multi-criteria decision making model. Proposed model is expected
to function as a decision making tool for SMEs of manufacturing environment for technology selection and
choosing the appropriate strategy in their technology transfer activities for digital transformation.
Keywords: Industry 4.0, Digital Transformation, Quality Function Deployment, Analytical Hierarchy Process,
Mixed Integer Programming, Hybrid Decision Making Models
1. Introduction
Digital transformation also known as industry 4.0 is a concept integrating complicated machineries
and equipment by means of connectivity technologies (smart sensors and software) to prognosticate,
plan and manage the operations for a better sustained business and societal effects attributed the
trends towards digitization of the production taking process automation and business systems to a
disrupting level through smart usage of interconnecting machineries, namely; IoT (the internet of
things). Novel technologies bring uncertainty and hesitation for the organizations planning to adopt
themselves for the disruptive and unclear influences of digital transformation.
In the age of digital transformation, practical and theoretical structure of roadmaps and decision
making models that can be used by the industries of developing country context still remains
insufficient or immature. There are limited studies in literature background on the differences between
centre and periphery countries in terms of benefits and usage areas of Industry 4.0 technologies.
To fulfil the gap in research, our study proposes a quantitative hybrid decision making model for
technology selection that can be utilized in manufacturing and particularly in automotive industry
for Industry 4.0 technologies and tools. For this aim, a multi-dimensional framework was developed
for combining Industry 4.0 technological tools and their potential benefits that can act as a decision
IAMOT 2019 | 143

support model for manufacturing companies. Analytical Hierarchy Process, Quality Function
Deployment and Mixed Integer Programming methods were used to prioritize, relate and optimize
the technological tools for their benefits to manufacturing operations. Through interviews and
survey among experts from automotive and IT industries, data was collected and adapted to the
multi-criteria decision making model.
2. Literature Background
Quoting from Lukac (2015), Lu (2017) discussed that 1st industrial revolution referred to
mechanical production plants based on water and steam power in late 18th century; then 2nd industrial
revolution occurred by the introduction of mass production that was based on electric energy in the
beginning of the 20th century; and the 3rd industrial revolution was defined by the automation of
manufacturing by information and telecommunication technologies with the virtue of internet and
electronics technology in the 1970. Industry 4.0 or the 4th industrial revolution is still ongoing
with the adaptation of cyber physical systems (CPS) production, based on heterogeneous data
and knowledge integration (Lukac, 2015; Lu, 2017). Some basic contributions of Industry 4.0 to
improvement of manufacturing systems were discussed by various scholars in the literature. Major
studies are presented below by different impacts and benefits of Industry 4.0 technologies:
“Work-based learning” (Schuh and Gartzen, 2015): The paper suggests a correlation among
industry 4.0 and necessary competency. As the complexity degree of the product/process arises,
the manpower qualification is needed to be in accordance with the capability requirements to
achieve the targeted levels of transformation. The more products become individualized, the more
qualifications of the employees become challenging. Because industry 4.0 technologies does
not only provides real-time communication, transparency, improvements; but also bring serious
changes on the shop floor level.
“Lean through I4.0” (Sanders, 2016): Authors presents the similarity between the lean manufacturing
Industry 4.0 which makes a production environment smart by means of advanced communication,
information systems and sophisticated technologies. The next generation factories would behave
autonomous with no need of human operators. In this context, “autonomation” means automating
the manual activities. Also, WiFi information and communication systems provide to perform
monitoring the status, location and number of material tracking and traceability via RFID tags.
Manufacturing diverse product types with minimum changeover time has been a challenge in the
manufacturing. Modern manufacturing is transforming into mass customization and cannot bear
long setup times between products in a line.
“Disruptive business models through I4.0” (Aßmann, 2016): In this paper, the digital transformation
is examined with regard to creation new services: continuous quality control, efficient and effective
production, energy management through smart devices gathering data from the operation field,
software visualise the condition and harvest useful information and decision models with customer
benefits. The keywords here covers data analytics, data mining and big data.
“Decision support systems for maintenance through I4.0” (Sipsas et al., 2016): Industry 4.0
system suggests guidance support for blue-collar employees and maintenance team, in an industrial
production scenario, where maintenance needs immediate response.
“Mass individualization / customization by way of smart production” (Zawadzki et al., 2016): They
proposed an overall conception of smart design and smart production control as the key element for
productive operations of a smart factory. Fulfilling individual requirements (mass customization)
of clients is becoming a more important factor in determining the competitiveness of an enterprise.
Industry 4.0 assumes computerized, intelligent manufacturing environment, flexibility and high
efficiency of production, integration of different activities and effective communication between
a client and a producer, as well as between the producer and suppliers. Also Brettel et al. (2014)
reviewed several scientific studies about individual or tailored production, seamless engineering in
a virtual value chain and production networks. They concluded that due to high cost of labor, many
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Technology Selection for Industry 4.0 Digital Transformation: A Decision-Making Model
industries suffered seriously. They relocated of production plants to emerging markets, therefore
closing the productivity and quality gap has become a big challenge.
“Smart maintenance through machine learning” (Isaacs et al. , 2017): This paper suggests a road
map of forming factories smarter by means of machine learning. Connectivity between machines
and systems has enabled data from the operational domain, the Operational Technology (OT),
to become more accessible to the information technology (IT) domain. The continual growth of
machine intelligence and proliferation of sensors generating non-stop data has created a tremendous
body of information. The need for preventative maintenance concept is evolving into a new mind-set
of predictive maintenance by means of sophisticated data analytics fuelled by prosperity of sensor
data and disruptive ways of services. Using this approach, companies can begin to keep their assets
operating more efficiently, more reliably, with longer periods of uptime, without taking their assets
offline, avoiding costly downtime for regularly scheduled maintenance. By increasing uptime, with
the ambitious goal of no unscheduled downtime, companies can keep their assets operational until
the data analytics indicate a specific asset or part of an asset is approaching need for maintenance,
thereby avoiding potential costly unplanned system failure.
“OEE optimization through data analytics” (Garbie, 2016): An empirical method is proposed to
establish OEE optimization in manufacturing IIoT (Industrial Internet of Things) by means of data
analytics to monitor OEE (Overall Equipment Efficiency) and to optimize the processes. One of
the best in manufacturing is the lean Six Sigma key performance indicator of Overall Equipment
Effectiveness (OEE). To make use of analytics, it’s necessary to close the loop and provide a
mechanism to apply the data to process optimization. Total Productive Maintenance (TPM) is
one such tool that can take OEE data and improve the operation of machines and lines. TPM is a
methodology for acting on and resolving issues identified by OEE. Total Productive Maintenance is
used here as an example of ‘what to do with analytics once you have the data and you’ve analyzed
it.’ Without IIoT’s continuous, automated monitoring and feedback, TPM might be used to set limits
on line speed, based on the bottleneck.
“Advanced technologies and effects” (Deloitte, 2015): Advanced manufacturing technologies
were ranked and the opportunities and the challenges of digital transformation for the US case were
assessed. Figure 2.4 represents the key manufacturing technologies and the descriptions (that were
also utilized in our study’s “Industry 4.0 Technologies and Tools” pillar).
Figure 1: A Snapshot of Ten of the Most Promising Advanced Technologies Transforming the
Global Manufacturing Industry (Deloitte, 2015)
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“Rise of AI” (Laney and Jain, 2017). In this study, authors searched about 100 Data and Analytics
Predictions Through 2021. Advanced analytics and data science are fast becoming mainstream
solutions and competencies in most organizations. To become and remain competitive, enterprises
must seek to adopt advanced analytics, and adapt their business models, establish specialist data
science teams and rethink their overall strategies to keep pace with the competition. Also, Campolo
and others (2017) investigates and criticizes the rapid development of Artificial intelligence (AI) from
various perspectives. AI is also transforming a wide range of occupations and roles. Across sectors,
automated management and hiring technologies are being introduced, promising to increase worker
productivity and flexibility, but also exposing workers to new forms of monitoring, manipulation
and control. This changes labor processes and power relations.
Considering all above given and other dimensions of benefits and usage areas of Industry 4.0
and related technological tools, Oesterreich and Teuteberg (2016) highlighted the PESTEL
(political, economic, social, technological, environmental and legal) connotation of their
adoptions (Table 1).
Table 1: Benefits of Industry 4.0 in the Context of PESTEL (Oesterreich and Teuteberg, 2016)
Implications - Benefits PESTEL Perspective
Cost savings: Elimination of labor-intensive task via automation Economic
Time savings: Shorter duration of design by innovative technologies Economic
On-time, on-budget delivery: Reducing delivery time, keep projects under budget. Economic
Improving quality: Elimination of errors via predictive models Economic
Improving collaboration and communication: Simultaneous engineering among the shareholders

Economic
via cloud platforms
Improving customer relationship: Use of simulation technologies to get better customer needs for
Economic
customization
Enhancing safety: Reducing risks via wearables on dangerous tasks Social
Improving the image of the industry: The digital transformation of the whole industry can help to
Social
improve its image.
Improving sustainability: Controlling high carbon dioxide emissions, energy consumption and
Environmental
wastes suggests sustainable conversion processes.
Lu (2017) made a comprehensive review on Industry 4.0 and presented an overview of the content,
scope, and findings of Industry 4.0 by examining the existing literatures in all of the databases within
the Web of Science. Findings of this study revealed that the adaptability, the resource efficiency, and
the integration of supply and demand processes are improved in Industry 4.0, therefore factories,
production, cities, and potential intelligent equipment and objects become smart. On the other hand,
According to a market survey conducted by Bosch Software Innovations (2015), respondent ranked
the following cost objects to be improved my means of I4.0 practices are given in Table 2. The
same study also described the main functionalities to improve the KPI’s as follows ((Bosch SW
Innovations, 2015):
i. Monitoring of deviations
ii. Visualization of production data
iii. Providing relevant information
iv. Identification of the correlations
v. Automatic business processes
vi. Modeling of decision rules
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Table 2: Costs to be Improved by I4.0 Practices (Bosch Software Innovations, 2015)
Cost Type Percentage
Cost of maintenance and repair 66%
Failure costs 60%
Production output 50%
Logistics costs 31%
Inventory 30%
Direct and indirect labor costs 21%
Fixed costs from investments 9%
7. Methodology
Figure 2: Process Steps of Data Collection and Analysis Methodology
To propose a technology evaluation and selection model that leads to the best combination among
we explored the interactions between the pillars that include (1) benefits and (2) Industry 4.0 tools
and technologies that are applicable in manufacturing industry. In this study, Turkish automotive
supplier industry is utilized as a case study of Turkish manufacturing industry. A Mixed Integer
Programming model is used to collect and select the outputs from AHP (Analytical Hierarchical
Process) and Needs Analysis which utilized QFD (Quality Function Deployment) methods. For
collecting data about pillars, after a content analysis in previous literature, in-depth interviews and
a Delphi survey were conducted with 15 knowledgeable experts from major automotive supplier
companies and technology providers in Turkey and Europe. Research outline including the data
collection and analysis phases is given in Figure 2. (AHP and QFD Phases of this research is derived
from Erbay and Yildirim (2018))
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Figure 3: Construction of the Research
8. Data Collection and Dimension Setting

The main pillars of analysis are Technologies/Tools of Industry 4.0 and their benefits. Based on the
academic, practical studies and research reports from Oesterreich and Teuteberg (2016), McKinsey
(2015), Price Waterhouse Coopers-PWC (2016), Deloitte (2015), benefits of I4.0 are listed and was
finalized by a Delphi Survey that was conducted with 12 experts (with minimum master degree, 8
years of professional background) who are knowledgeable with digital transformation in engineering
and manufacturing fields.
Table 3: List of Pillars of Analysis - Tools of I4.0 and Benefits (Adapted from Erbay and Yildirim, 2018)
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Within a stage based approach, AHP method, QFD and Mixed Integer Programming model methods are
utilized: With AHP method, global weights of the pillar elements via AHP pairwise comparisons were
identified. QFD Matrices enabled to combine local weights of the pillar elements via QFD relevancies.
Finally, MIP model is formulated to obtain the best connections in the network of relations.
8.1. Prioritization of Identified I4.0 Elements by AHP Method

To provide the relativity of the technologies and their priorities in a combined structure, we
adapted AHP (Analytical Hierarchy Process) method. As Saaty (1994 , 2008) stated, AHP enables
disintegration of the unstructured program to hierarchy logical decision (Pakizehkara and others,
2016). With AHP method, respondents rated the priorities of elements in the Delphy Survey
(2-rounds) in a 1 to 9 scale (an example is given in Figure 4). Afterwards, scores are calculated by
normalization and prioritization vectors in an AHP matrix to achieve the priority of each element or
global weight.
Figure 4: Example of Overall Scores of Benefits
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8.2. QFD Model

QFD (Quality Function Deployment) is utilized for selecting the most appropriate technology
selection strategy. For this, an intervention matrix is built including various criteria and dimensions,
and their mutual effects as well (adopted by Erbay and Yildirim, 2018). Within a Needs Analysis
Framework, benefits of Industry 4.0 technologies are determined and these benefits are linked
both with the related technological tools and with the difficulties/challenges of adopting these
technologies. This framework is adopted from the framework of Herron and Baiden (2006) which
includes Needs Analysis by using Quality Function Deployment (QFD) QFD (Herron and Braiden,
2006). (As Onar et al. (2016) stated, QFD is a model which represent a tool that match customer
expectations on quality n different stages of product genesis and service in product planning purposes
(Onar and others, 2016)).
To construct the Quality Function Deployment Matrix, The relevancies among the I4.0 tools and
benefits were rated by respondents of the survey in a scale 1 to 4 (Figure 5). QFD relevancies were
ranked within a matrix among Benefits – Tools dimensions.
In Figure 6, both AHP and QFD evaluations are given. The pillar elements are matched each other
to to obtain the relevancies by their relations. Here the research question was; “What benefits can
be gained by which of I4.0 technologies?” In a two-level decision network on which the nodes are
comparison of priorities that were derived from AHP application, and arcs are the relevancies that
were provided by ratings in QFD model. In Delphi survey, experts evaluated the overall scores of
the benefits (shown with B) and the tools (Shown with ) in QFD Framework. Relevance weights are
calculated by normalization of these values.
Figure 6: AHP & QFD Combined Survey Figure 5: AHP & QFD Combined Survey
8.3. Mixed Integer Programming Model

At the beginning, it was intended to find the best alternatives manually in a large table which
contains 120 different global and local relevance weights varying between 0 and 1 as depicted in
Figure 7. Because it is hard to obtain the best decision strategy sets under the given constraints, a
mixed integer programming (MIP) model that seeks the best decision sets with a dynamic parameter
enabling the objective function flexible in terms of trade-off between maximization of the total
weight possible selected decision alternatives is formulated to obtain the best connections among
the network.
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Figure 7: Network Illustration of the Pillars’ Elements (Bn: Benefits, Tn: Tools)
A mixed-integer programming (MIP) problem is one where some of the decision variables are
constrained to be integer values (i.e. whole numbers such as -1, 0, 1, 2, etc.) at the optimal solution.
The mixed integer linear programming model seeks both minimum number of decisions and the
maximum amount of importance value (Quezada and Ospina, 2014). The method utilizes AHP and
QFD to identify the relationships’ importance among the strategic objectives, then it selects the best
and important relations to be considered in the strategy map via MIP
Figure 8: AHP & QFD Combined Survey
Figure 8 shows two sequential steps of the hierarchic model: n and n+1, n=0, 1, 2, 3 and Jn; Jn+1 =
a set of connections (nodes) in levels n and n+1, in sequence. Node i belongs to level n and nodes j
and k belong to level n+1.
Using the QFD, all the nodes of level n+1 are ranked and compared to each node i. Nodes j and
k are pairwise relevance by responding to this question: “What is the relevant importance of the
strategic objective j compared to the strategic objective k to reach the upper level strategic objective
i? The comparability is evaluated employing Saaty’s basic scale (Saaty, 1994) ranging from 1 to
9. The value of 1 refers to expression that the objectives being compared have evenly same weight
or preferability, and the value of 9 refers to the expression that the primary objective has highly
much more importance and preferability than the secondary option. The outputs from the pairwise
comparison are the weight values (0 to 1) of the relationship matrix.
: importance value of node j of level n+1 in relevance to node i of level n (obtained by QFD
relevance value).
So,
(1)
: global importance on node i in level n (obtained by AHP pairwise comparison)

The mixed integer linear model uses local importance value obtained by multiplication of global
weight and importance weight obtained by AHP and QFD, respectively.
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(2)
(3)
Decision variables:
(4)
is the number of the relations chosen from level n to level n+1.
is the difference between 1 and the accrued local importance of the relations chosen from level
n to level n+1.
Parameters: is the local importance of node j of level n+1 in relation to node I in level n.
Constraints: (5)
is the number of chosen relations in a level. The value of is expected to be as less as possible
due to the decision alternatives are needed to be as low as possible.
=1 (6)
is the difference the difference between 1 and the accrued importance of the chosen connections
of level n. the value of is expected to be as low as possible.
Feasibility conditions
(7)
The first set of feasibility condition defines that each node must be connected to at least one node of
the succeeding level.
; 0 , k, n (8)
Objective function
min Z = (9)
The objective funtion has two targets; minimization of the selected connections among the nodes
and the other one is the maximization of the accrued importance degree of the selected relationships.
These are conflicting objectives which develop an optimum solution impossible. therefore a control
variable θ is added to the objective function to maintain and satisfy both increasing total importance
degree and descreaee the number of the selected arcs.
The variable is divided by the overall possible quantity of relationss between levels .
So, both objectives are on the same base (0 to 1), they can be comparised. Obviously, when θ=0,
therefore the model would choose all of the arcs. On th contrary if θ=1, the model would choose
no arcs in the network, this is not desired, too. Thanks to the variable θ, the lowest number of
significant arcs will be chosen. The variable θ guarentees both minimization of the chosen arcs (in
case the decision variable = 1) and maximization of the overall importances of the selected arcs. To
provide this, θ is multiped with the total number of the selected arcs; (1- θ) is multiped with the total
importance weights in the objective function.
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The MIP model is programmed and solved by GAMS (General Algebraic Modeling System) software
in a way of alphanumeric names for variables, parameters, tables and the equations which makes the
model be flexible and easy for adapting new or updated AHP and QFD weights, control variables.
9. Findings
After all the feedbacks from the respondents, the results for each connection arc (which is the
relevance weight among each pillar’s elements) are calculated as the geometric mean. Because
geometric mean gives more accurate and reliable average results when calculating different
feedbacks in AHP (Tomashevskii, 2015).
Figure 9: Overall Scores of Benefits by QFD
The overall scores of the benefits calculated by the QFD matrix are given in Figure 8. The need for
process efficiency is ranked with the highest score followed by quality performance improvement
and reducing inventories respectively. The overall scores of the tools and technologies calculated
by the QFD matrix are given in Figure 9. Data analytics is ranked first with the highest score then
followed by smart sensors and production management software. The overall scores of the challenges
calculated by the QFD matrix.
Figure 10: Overall Scores of Tools by QFD
As the survey suggests both QFD and AHP applications in a combined form, AHP priorization
among the I4.0 pillars as shown in Table 4. AHP results are completely compatible with the QFD
scores for each element with a high level of consistency ratio.
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Table 4: AHP Weights of the Pillars (Benefits and I4.0 Tools)
Benefits AHP Weight Tools AHP Weight

Reducing Inventories 12% RFID 6%
Increasing Process Efficiency 27% Smart Sensor (Data Collection) 19%
Reducing Man Power Requirement 10% Robotization 9%
Improving Quality Performance 19% Production Management Software (MES, APC, ERP) 12%
Improving Maintenance
11% Data Analytics (AI, ANN, Data Mining) 29%
Performance
Efficient & Robust Production

6% 3D Printing 10%
Planning
Rapid time to market 12% VR, AR, Remote Control 10%

Energy Management 4% Image Processing 6%

Sum 100% 100%
CR 0.02 0.01
Figure 11: Number of Relationships Selected (the Optimum Area in Green Circle Where θ =0.6 and θ =0.7)
𝞱 as the control variable to optimize the trade off between the minimization of the number of the
selected arcs and the maximization of the total amount of the weight of the selected arcs is the
major factor to define the best strategy map. In Figure 11, as the value of 𝞱 moves from 0  1 the
selected arcs in the network are reduced. The optimum value of 𝞱 is 0.6 and 0.7 where the decision
alternatives are its best.
The proposed methodology suggests a flexible and adaptable structure which can be employed for
various cases. As the inputs of MIP is derived from AHP and QFD, the MIP would select respective
connections among the network based on the outputs of AHP and QFD. The overall scores of the
benefits and related technological tools were calculated by the QFD matrix. Benefits were found
as the need for process efficiency, quality performance improvement and reducing inventories
respectively. For technological tools, data analytics is ranked first then followed by smart sensors
and production management software.
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10. Conclusion
In this study, the primary aim is to discover the current state of the art and state of practice of
Industry 4.0 technologies in the manufacturing industry and to provide a strategy map concerning
to the potential benefits (WHAT) and tools & technologies (HOW) from different perspectives.
The research is conducted in Turkish automotive supplier industry as a case study of Turkish
manufacturing industry. Based on the comprehensive outcome of the research the following
conclusions can be drawn:
The main benefits and technologies of digital transformation in the manufacturing environment are
identified via expert interviews, rated in a QFD-like survey, ranked by AHP to suggest a technology
selection decision making model for those who target to implement and utilize I4.0 projects in a
manufacturing environment. The use of multiple decision making techniques is not new, but there is
no combined approach to I4.0 in the literature.
The highest expectation of benefits with regard to I4.0 are explored as process efficiency and quality
performance for Turkish automotive supplier industry as a case study of Turkish manufacturing
industry. The highest potential in terms of benefits perspective of I4.0 is in the areas of increasing
process and quality efficiency, reducing inventories. This is compatible with the purposes of the
lean manufacturing philosophy. Especially for the SME’s in Turkey automotive supplier industry
has to improve their productivity to survive under cost reduction pressures from the automobile
manufacturers. According to a market report (Tusiad and BCG, 2016), the highest potential to
be improved via digital technologies are ranked as production efficiency, resource efficiency and
product quality that resembles closely to our findings. According to the Global Manufacturing
Competitiveness Index (2015), decreasing costs and increasing efficiency as well as improving
productivity is vital for Turkish SME’s.
Based on the results from AHP-QFD and MIP in this study, the highest relevance of increasing
process efficiency is to data analytics. Manufacturers suffer from low process efficiency, therefore
investing on data analytics becomes more critical for those who target to remain competitive among
the other rivals. The most critical tools of I4.0 are defined as data analytics and sensor technologies
which is not surprising due to high amount of data in the manufacturing environment via sensors.
Improvement of quality and being able to produce with zero scraps and rework are another challenge
for the manufacturers in the automotive industry that requires uninterrupted supply chain management.
The more machines, products and humans are connected, the more data is generated which is known as
connectivity. Data will fuel the digital transformation and data science is already on the rise.
The essential requirement to overcome the challenges and to create and sustain the development
of independent and high value-adding technologies are the investment on the key manufacturing
technologies, and revolutionary paradigm changes in the national education system. Both government
and private sector should implement short and long term policies to manage the challenges and the
change to protect and sustain the competiveness of the organizations and Turkey’s position in the
manufacturing environment.
The proposed decision making model is expected to represent a solid unique mixed technology
evaluation and selection tool that can be validated and adapted to different contexts by researchers,
as well as to guide practitioners from manufacturing industries of developing countries in identifying
the potential benefits, technologies and barriers of industry 4.0 to allocate resources more effectively.
In this sense, the paper aims to contribute to scientific knowledge on the topics of diffusion and
adoption of new technologies which is a critical issue in developing and periphery countries
11. Acknowledgements
This article is derived from the Hasan Erbay’s MSc Thesis which was completed in Istanbul
Technical University Science and Technology Institute Management Engineering Programme in
2018 Spring.
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Digital Transformation: News ICTs and
Business Model
Marcelo T. Okano
CEETEPS, UPGEP, Brazil
E-mail: marcelo.okano@fatec.sp.gov.br
Patricia K. Inoue
E-mail: patricia.inoue@gmail.com
Giovana Oliveira Fadini
E-mail: gifadini@yahoo.com.br
Eliane Simões
E-mail: eliane@iqeduc.com.br
Samira Antunes
E-Mail: Samira_nascimento@Hotmail.com
Abstract
New information and communication technologies (ICT) are providing new scenarios for companies that were
previously not possible, requiring companies to reformulate or create new business models. The big challenge for
managers is to make sure their organizations are ready for this digital transformation.
These new scenarios have awakened in the researchers several types of definitions for this type of services offered
as shared economy, marketplace, digital business platform, ecosystem, etc. The common features of these services
are that the applications are unique, specific and developed for each provider, the provider mediates between a
service provider and a service provider, there is value creation and use of IT.
Some authors consider that business models are not enough to analyse these new scenarios. The purpose of this
research is to evaluate whether business models are capable of evaluating the scenarios of digital transformation.
For the research methodology, we use the attributes of business models as indicators. In the preliminary
bibliographic research, we find one frameworks Kübel and Zarnekow (2014). The first examines the proposed
dimensions of value, architecture, network and finance, and the second examines the attributes on platforms
and marketplaces. The sample was 3 service companies offered as shared economies and using platforms or
marketplaces.
The results showed that business models are able to identify: Value proposition refers to how organizations create
value for both their customers and each party involved in service delivery; Value architecture represents how an
organization’s capabilities and core competencies are configured to create and deliver value to customers. The value
network defines the interorganizational relationship in a business model and focus on the different actors and ways
of collaboration network. As a consequence, the value network of a platform comprises the roles of the platform’s
sponsor, provider, partner and client, allowing participation in open or closed mode, and the value financing
dimension relates to how revenue is generated, and costs are structured in the business model. Furthermore, the
dimension of value creation refers to the architecture of the value of the company and the mechanisms that allow
the creation of the value proposition; the value delivery dimension contains the elements that generate value for
a defined target customer group, and the value capture dimension or profit formula describes how the company
transforms the value delivered to customers into revenue and profit. The contribution is to demonstrate how
business models are able to analyse the scenarios of digital transformation through business models.
Keywords: Digital Transformation, Business Model
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Digital Transformation: News ICTs and usiness Model
1. Introduction
Companies are adapting to new technologies and becoming digitalized, structured in new ways
are called digital organizations of the future. According to CHEW (2015), they are called DOOTF
(digital organizations of the future).
Digital transformation is profoundly changing how value is captured and created, the new companies
with new and innovative business models are born and existing companies must to rethink their
business models to become digital (ITÄLÄ, 2015).
Digital transformation of a business means discussing various types of business transformation by
introducing or adapting value-added services, using new technologies to generate a direct impact
on the delivery of results and the customer experience, making this one of the company’s main
guidelines. Channels and processes will also be transformed and the need to look for new models and
revenue streams based on customer requirements will become necessary and, consequently, it will
be mandatory to change the company’s internal culture to include “digital” at the heart of everything
is done (LLORENTE, 2016).
In more digitally mature companies, the ability to adapt or redesign the business is determined in
large part by a digital strategy clearly supported by leaders who foster a culture capable of changing
and inventing the new. In digital transformation one of the most evident attitudes is the taking of
risks as a cultural norm, causing the most advanced companies to seek new levels of competitive
advantage. Another equally important aspect is the preparation to adapt to the challenges and
functioning of the company thinking about the retention and attraction of new talents as employees
of all ages that seek compatible opportunities to work and develop in companies committed to digital
progress (Kane et al., 2015).
In view of this process evidenced in the academic and business literature, the contributions are: a)
verify in which factors companies should focus on the digital transformation of their business, through
bibliographic review and interviews with expert consultants in this area. b) to demonstrate how
business models are able to analyse the scenarios of digital transformation through business models.
2. Theoretical Framework
2.1. Digital Transformation

A study presented by Press (2016) reveals that in 2019, global spending on digital transformation
initiatives will reach $ 2.2 trillion, almost 60% higher than that spent in 2016. It is rather arduous for
traditional companies that already have a structure and form, the task of overcoming the obstacles of
their own style and organizational structure, in addition to finding the right talents and strengthening
them, adapting their traditional environment in an environment that allows agility in the creation of
prototypes, rapid decision making and even acceptance because these issues determine whether they
can compete with the new digital markets.
According to Downes and Nunes (2013), as a result of this restructuring, whole business models
can be reformulated or replaced. Because of this broad scope and far-reaching consequences,
digital transformation strategies seek to coordinate efforts to transform products, processes, and
organizational aspects due to new technologies, with a more broadly designed scope that explicitly
includes digital activities in the interface or totally next to the customers.
Digital Business Transformation is the application of technology for building new business
models, processes, software and systems that result in more profitable revenue, greater competitive
advantage and greater efficiency (CISCO, 2018). Companies achieve this by transforming business
processes and models, enabling workforce efficiency and innovation, and customizing client / citizen
experiences (SCHWERTNER, 2017).
In the case of digital business, the question of adapting, transforming and / or replacing the business
model is widely contemplated by the studies on the subject (DÖRNER, EDELMAN, 2015,
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SWANTON, LEHONG, 2017, BURTON et al., 2018). SCHALLMO; WILLIAMS; BOARDMAN

(2017) present in Table 01 further definitions of digital transformation.
Table 1: Definitions of Digital Transformation
Author Author Definition
Typing means the complete network of all sectors of the economy and society, as well as the
BMWi (2015) ability to collect relevant information and analyse and translate that information into actions.
The changes bring advantages and opportunities, but they create completely new challenges.
Digital transformation is a “business reinvention process to digitize operations and formulate

extended relationships with the supply chain . TD’s leadership challenge is to reenergize
Bowersox et al. (2005)
companies that can already succeed to capture the full potential of information technology
across the supply chain “
“TD - the use of technology to radically improve corporate performance or reach - is

becoming an important topic for companies around the world. Executives across all
Westerman et al. (2011) industries are using digital advancements such as analytics, mobility, social media, and
embedded smart devices - and enhancing the use of traditional technologies such as ERP - to
change customer relationships, internal processes, and value propositions “ .
“TD is the deliberate and continuous digital evolution of a company, business model,
Mazzone (2014)
process of idea or methodology, both strategically and tactically. “
TD describes the fundamental transformation of the entire business world through the
PwC (2013) establishment of new technologies based on the Internet with a fundamental impact on
society as a whole.
We understand TD as a consistent network of all sectors of the economy and the adjustment
Bouée and Schaible of actors to the new realities of the digital economy. Decisions in networked systems include
(2015) exchange and analysis of data, calculation and evaluation of options, as well as the initiation
of actions and the introduction of consequences.
Source: Schallmo; Williams; Boardman (2017)

Williams & Boardman (2017) based on a broad bibliographical query propose the following
approach: Digital Transformation includes the network of actors as companies and clients in all
segments of the value-added chain and the application of new technologies, requiring skills that
involve extraction and exchange of data as well as the analysis and conversion of this data into
actions. Information should be used to calculate and evaluate options in order to allow decisions
and / or initiate activities in order to increase the performance and reach of a company. Digital
Transformation involves companies, businesses, models, processes, relationships, products, etc.
2.2. Business Model

When we talk about Digital Companies, the issue of adaptation, transformation and / or replacement
of the business model is widely contemplated by studies on the subject (DÖRNER, EDELMAN,
2015, SWANTON, LEHONG, 2017, BURTON et al., 2018).
According to Veit (2014), in a context where business and society undergo extensive digitalization,
the logic offered by the business model becomes essential for success, and a subject of great interest
to the academic community.
With the digital age, it becomes critical to the success of the business, the availability of adequate levels
of information and knowledge. Organizations need to adapt to survive and succeed as their domains,
processes and business technologies change in a world of increasing environmental complexity.
Improving your competitive positions, improving your ability to respond quickly to rapid environmental
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changes with high-quality business decisions, can be supported by the adoption of business models
appropriate for this new digital business world (Al-Debi, El-Haddadeh, Avison, 2008).
The importance of the business model has also been highlighted in Zott, Amit and Massa (2011)
where the authors state that since 1995, there have been at least 1,177 articles published in peer-
reviewed academic journals, in which the notion of business model is addressed.
Foss & Saebi (2016) also analysed that in two decades, the literature related to the Business Model
has expanded massively. Analysing the Scopus data database, 7391 publications of the topic
“business model” were listed in the period from 1980 to 2015 as we see in Figure 1. The number
of volumes dedicated to the subject “Business Model” grows over the years. In spite of the growth
of the “Business Model Innovation” theme, but also in an increasing number, there are “Open
Innovation” and “Dynamic Capability”.
Figure 1: Number of Documents using the Terms “Business Model”, “Business Model Innovation”,
“Open Innovation” and “Dynamic Capability”
Source: Foss & Saebi (2016)

The source of the data was the Scopus knowledge base, from 1972 to 2015. The term “Business
model” (BM) obtained 7,391 results, the term “business model innovation” (BMI) obtained 349
results, the term “open innovation “(OI) scored 1,700 results and” dynamic capability “(DC) scored
1,562 results. They were considered peer-reviewed documents or equivalent. The terms were
searched by the authors in the fields abstract, title, keyword and within the field of Social Sciences
and humanities, excluding physics, health and life sciences in January 2016.
In another analysis, Dasilva (2013) links the term “business model” with technology companies
through an analysis of the use of the term in the academic base “Web of Science” with the
fluctuation of the NASDAQ index. According to the author, with the development of information
and communication technology (ICT) and emerging Internet companies, the term quickly gained
prominence both in academia and in its practical use.
Figure 2: Nasdaq x Documents Published with the Term “Business Model” in the Web of Science
Source: Dasilva (2013)
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Figure 2 shows the number of documents with Business Model either in the title or as a topic
appearing in the journals indexed in the Web of Science. The author chose the Web of Science
database because it provides reliable coverage and an overview of journal history, articles, and
reference level.
The fact that the term “business model” has propagated along with the rise of NASDAQ stock may
show that the (innovative) business model was initially just a word of the moment. The terminology
of the business model concealed the lack of strategy and the bad revenue models of companies with
fast-growing stock prices, but with low or even non-existent profits.
For Thornton and Marche (2003), the widespread use of business model terminology seems to be
intrinsically linked to technology-based firms. Business models seemed to be the answer to explain
how innovative ventures dealing with technology or any other form of unclear but potentially
profitable concepts, foreign to the logic of traditional industries, were translated into business terms.
In fact, Internet companies could not be valued based on their past performance, since there was no
precedent. As a result, investors speculated on the compelling future promise based on innovative
business models.
Therefore, the term “business model” survived the dot-com bubble and, as we can see in Figure 4,
the number of “business model” articles in its title remained relatively stable between 2004 and 2007
in 25-42 articles per year. After this period, there is a new growth with 45, 68 and 83 articles, in
2008, 2009 and 2010, respectively. A more detailed look at the situation in 2004-2007 may indicate
that these documents were characterized by a shift of focus from the Internet business model to the
analysis of business models in “general business”. in virtually all sectors, the term of the business
model quickly spread to the analysis of companies in a wide range of industries. The business
model terminology has spread to various communities such as marketing, management, banking
and ICT and has been used within a variety of contexts such as business plan, business strategy,
value creation, globalization and organization design. In addition, the growth of the business model
literature in recent years can also be attributed to documents on business models outside the sphere
of business. The term has also been used as a buzzword to analyse basically any type of human
endeavour with a wide range of interpretations (GHAZIANI & VENTRESCA, 2005).
Still on the concept of the business model, Veit et al. (2014) define as a missing link between
business strategy, processes and information technology.
Osterwalder and Pigneur (2010) describe the business model as something that clarifies the logic
of creating, delivering and capturing value in an organization’s vision, translated through nine core
components segregated into four main areas, business, customers, infrastructure, and financial:
●● Clients segment: defines the different groups of people or organizations that a company
seeks to reach and serve;
●● Value proposition: aggregation or set of benefits that a company offers its clients;
●● Channels: the means and means by which the company communicates and reaches its
Customer Segments to deliver a Value Proposal;
●● Relationship with customers: it establishes the types of relations to be had with its
Segments of Clients;
●● Revenue sources: represents the compensation generated by the Customer Segment for
the delivery of the value;
●● Key resources: resources needed to make the Business Model work;
●● Key activities: describes the most important actions that a company must take to make
the business model work;
●● Main partnerships: network of main suppliers and partners;
●● Cost structure: related to all costs involved in the operation.
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In more complex and sometimes unique digital businesses, the business model needs to be explicit
and provide a new layer of information and knowledge essential to support digital business managers
become a necessity (Al-Debi, El-Haddadeh, Avison, 2008).
According to Brousseau and Penard (2007), with the evolution of digital business, it becomes
easier to identify the commonalities between the business models that exploded with the growth
of the Internet and those that existed before. The new models combine new and innovative ways
of organizing the relationship between demand and demand with a pricing strategy that takes into
account network externalities, information specificity and the ability to differentiate and discriminate
through digital technologies.
These new business models contradict the prediction of a massive disintermediation caused by the
strong development of digital technologies and the Internet, due to the fact that the intermediaries in
this context, combine demand and supply plans, then carry out transactions that remain costly within
the process. They also perform the combination of various digital products to take advantage of their
interoperation - as is the case when content is processed by software running a technical interface - is
certainly much easier than it was in the past, thanks to standardized interfaces. However, resource
and time expenditures are still required to ensure effective interoperability between digital products
to generate a service that adds value to customers. Another reason is related to the availability of
goods and services both “on” and “off-line”, making it still a challenge, ensuring the user’s access to
the information or the specific knowledge they need. Those who can provide the information should
receive appropriate incentives as well as potential users should have access to that information.
Figure 3: Derived Analysis Framework For Platform Business Models
Source: Kuebel & Zarnekow (2014)

Kuebel and Zarnekow (2014) have implemented and described a framework for platform business
models based on the concepts presented by Al-Debei and Avison (2010) where they identified the
value proposition, architecture, network and finance as the main elements to be examined in the
design, analysis and evaluation of business models (Kuebel and Zarnekow, 2014).
Parker et al. (2017) still define two types of business models for digital companies: pipelines and
platforms. For authors, pipelines are more traditional systems employed in most companies that
follow a step-by-step scheme that creates value and transfers that value to producers at one end and
consumers to another, i.e. a linear product chain.
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The platform is described as a business that enables an interaction between suppliers and external
buyers, creating value for both sides. It provides an environment that provides an infrastructure that
encourages interactions, facilitating the exchange of goods, services, or “social currencies.”
Many of the Internet success stories - E-Bay, Amazon, Google, Yahoo, Autobytel - have developed
business models based on the concept of platforms, assembling components, then grouping them
into packages that match complex and specific consumer needs.
3. Methodology
To support and better understand the subject, a bibliographical research was elaborated on the main
themes involved that are digital transformation and business models, which compose the Phase of the
theoretical framework (foundation). For this stage, national and international scientific knowledge
bases such as Web of Science, Elsevier, IEEE, among others, as well as books and other information
sites were considered.
In relation to the instruments and protocols used, that is, the form and the mechanisms used to
construct and collect the empirical data, it is used as sources of information, interviews with
specialists of companies that act strongly in projects of digital transformation in clients of various
sizes and segments. The interviews were conducted with open questions, with semi-structured script.
For Yin (2001), a case study is “an empirical investigation that investigates a contemporary
phenomenon within its real-life context, and when the boundaries between phenomenon and context
are not clearly defined.”
The case study is a research strategy that focuses on understanding the dynamics present within
individual configurations, and may still involve a single, or multiple, case (EISENHARDT, 1989). For
this case study, two digital transformation consulting companies will be considered as objects of study.
Qualitative and quantitative evidence will be used for this study. According to Eisenhardt (1989)
case studies can be used to provide a description; test a theory; or generate a new theory.
For field research, the sources of external and internal evidence (YIN, 2001) will be considered.
The sources of external evidence researched will be: documentary analysis, which will include
literature review and consulting documents. The sources of internal evidence: interviews using a
questionnaire with open questions together with consulting professionals, in addition to performing
direct observation techniques at the site
The data analysis procedure will be based on the intra and inter case analysis established by Miles and
Huberman (1994). This analysis aims to describe, understand, explain and cross-refer the conceptual
contents, processes and results of a given phenomenon in a multiple-case context and thus develop a
more detailed understanding of all the cases in the sample (Miles & Huberman , 1994).
The intra-case analysis, a description of each case in isolation, will provide an in-depth analysis
of the data collected in each case, highlighting specific characteristics of each one. According
to Eisenhardt (1989) it is fundamental to know the unique patterns of each case, before seeking
generalization through the cases, this will allow the researcher the deep understanding necessary to
carry out an analysis with cross-referencing of the cases.
The method to verify if it is possible to use the business model with the digital transformation was to perform
a theoretical analysis of the Uber company with the business model of Kuebel & Zarnekow (2014)
4. Results And Analysis
4.1. Case Study: 1
4.1.1. Intra-Case Analysis 1

The first expert interviewed works in an Indian multinational company that operates in Brazil with
several fronts such as technology and service design. The company has a strong technological aspect
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in its operations but sought to acquire other complementary companies that would bring a more
consultative vision to understand, not only the technological issue, but the business as a whole,
supported by these technologies, thus allowing to attend the cycle all for digital transformation.
Serves companies seeking a renewal or disruption, in some cases traditional companies that seek to
reinvent themselves.
The interview was held in October 2018, using the Skype tool with digital file recording and later
transcribed using Atlas software.
One of the main points raised by the interviewee was the question of understanding the business
vision with the centrality of the user, redesigning the process in search of innovation. It also considers
that there is a great lack of alignment with the concept of what is digital transformation and many
customers still understand that only investment in technology is enough for a digital transformation
of the business. Emphasis was placed on the importance of revisiting processes and aligning strategy
and technologies.
In the interview the question of the processes appears in evidence and it helps in the understanding
of where the company wants to arrive and how and what to do to align the strategy for effectiveness
in the digital transformation of the business.
In addition, there have been cases in which customers invest in leading-edge technologies and are
actually involved in the process of digital transformation, but the use of technology in isolation
does not transform the business. It is mandatory to align with the other areas so that the data is
transformed into information that leads to the expected result strategically.
The issue of culture change is also a priority and preparing teams is critical.
4.1.2. Intra-Case Analysis 2

The second expert interviewed works in a Brazilian multinational company that was born as a
software consultant and today works mainly with digital transformation. Some clients come from
the software consultancy, extending the projects aiming at an evolution towards a true digital
transformation, others are already specifically looking for a move to digital.
The interview was held in October 2018, through the phone with digital file recording and later
transcribed using Atlas software.
The interviewee stressed that generally a digital transformation project begins with the management
part. Predicting the scenarios, the company needs to understand the need for digital transformation
within its business and seek out specialists who can assist them in this transformation. An analysis
of the return of this investment, the difficulties and the necessary time is made, going to the training
of the leaders and then arriving in the operational.
It is not possible to do digital transformation in only some areas, it is usually a horizontal process that
takes a product and goes through all areas. In this way all the leaders involved are trained and can
help to clarify internally in the company the importance and benefits of this change.
One premise within digital transformation is the involvement of the ecosystem to minimize risk.
With this the analysis of the company is much more complete, but this process depends on the level
of maturity of the company culture. For this to happen, paradigm shattering and culture shock need
to be very well worked out.
With this closer involvement of customers and partners, there is a need for companies to respond
faster and this is reflected in internal IT processes. Implementation deadlines should be reduced, and
software developments need to adapt to agile cultures, bringing people even from infrastructure into
teams and automating processes to ensure security and risk minimization. Another aspect is that the
owner of the product becomes the owner of the process, assuming the management of production
lead times in the time the market demands, generating dynamism in the analysis through automation
techniques and control tools for a greater aggregation of value for customers.
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When the company’s culture changes, digital transformation takes the company to another reality and
it is mandatory to revisit the business model and update it to this new reality. This is a big challenge
for traditional companies because for a large company today, a failure can cause millions of losses,
but if the business model does not adapt to the agility demanded by the market, competing with the
start-ups that arise presenting new solutions that taking advantage of their agility can transform the
market they enter, that is, they can test their business models quickly and cheaply, changing and
adjusting according to the market response, traditional companies can be swallowed and expelled
from their current markets.
4.1.3. Intercase Analysis

In order to answer on which factors companies should focus on the question of the digital
transformation of their business, a summary table was elaborated from the essential points that were
presented in the intra-case analyses.
Table 2: Summary View of the Main Points
Case 1 Case 2
The value proposition is in the understanding of what the Customers still do not understand the value
client wants, concepts and objectives, but the company’s proposition, it is still very vague for them.
Value offer
own culture does not allow, difficult to understand the The very understanding that the customer
value proposition should participate in the process.
Value creation It is in the processes that will be remodeled In the view of companies is the use of
Generally, value is economical in the view of

Value Delivery Generally, value is economical in the view of companies
companies
There is a lack of culture, to be inserted in a larger It’s time to train the leaders, to implant the
Culture
context. digital culture.
People / Essential to train and train people, there is no

Change the culture, thought.
Training formal education for this digital environment.
On average, only 30% of a project is related
Without processes and alignment with the vision strategy
to technology within Digital Transformation.
does not mean a true Digital Transformation. There is
Technology 60% is the issue of communication and
a need to use technology to capture data and transport
training and disruption of paradigms.
information to results linked to strategy.
It needs a set of changes.
It requires an adaptation of current processes

Processes Focus change on internal and external customers.
to better respond to the market / customers.
Breaking the company’s internal paradigms,
Lack of business understanding of what they want. Need
each area looks at its world and digital
Difficulties for leveling, culture talk and change management. It
transformation requires it to look at the
requires commitment and takes more time.
whole, for the product. It’s a culture shock.
Related issues Agile methodologies. Processes. Agile methodologies, Lean, Culture.
Source: Prepared by the authors
4.2. Case Study: 2 -Uber

Uber is a company that provides transportation services, connecting the user to a driver through an
electronic platform. According to Uber’s website (2018), the idea came in 2009 when Garett Camp
and Travis Kalanick were attending the LeWeb conference in France. After the event, when they
needed to return to the hotel, they found it difficult to find a taxi, other public transportation and
even a private driver. It was then that they thought that it would be incredible power, at the touch
of a cell phone, to hire the service of a private driver. The goal was to facilitate and innovate the
way people move through cities, initially in San Francisco (USA), using sedan vehicles. This is
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how UberBLACK came about, the company’s first product Uber Technologies Inc. was officially
founded in June 2010 in the city of San Francisco and today it is in more than 600 cities in 65
countries. Uber has rapidly expanded its presence around the world to bring people together and
revolutionize the way cities move.
Analyze with the Kuebel & Zarnekow business model (2014).
4.2.1. Value Proposition

The value proposition offered by Uber is to connect the user to the driver and thus, to have an
exclusive and personalized means of transportation to get around. As we have two actors in this
process, user (client) and driver (partner), the value propositions are different. For the user, Uber
offers a form of transportation with comfort and a lower rate than the Taxi. For the driver, Uber
offers the driver a range of users who hire the services and pay for them.
4.2.2. Value Architecture

The technology is developed and controlled by Uber, the necessary technology infrastructure such
as servers, networking devices and application development is the responsibility of Uber. Users and
drivers install an application provided by Uber on the mobile device and through the application
access the Uber platform. The control over the clients is done through login and password of the
user and / or driver.
By application the user can:
●● Anyone who has a smartphone with internet access can register. You must first download
the Uber app on Google Play, App Store (Apple) or Windows Store and install it on your
phone.
●● It is then necessary to register, informing the telephone. In all cities it is possible to
register a credit or debit card so that the value of the trip is charged as soon as the user
leaves the car - cash payment is also available. To call a car, just open the application,
write where you want to go and push a button to request your Uber.
●● When the partner driver is arriving, the application will notify the user with the message
“your Uber is coming now”. Just identify the car (the application shows the model, plate
and color of the car, driver’s name and photo of it) and enjoy the trip.
●● If the user is traveling with a friend who is also a registered user, it is possible to divide
the direct value by the application. When arriving at the final destination just get out
of the car (in the option of payment by credit card) and evaluate the driver with a score
between 1 and 5 stars. If necessary, you can send a message to Uber directly through the
application, with praise, suggestions or any kind of feedback.
By application, the driver can:
●● To be an Uber partner driver it is necessary that the interested party is a professional driver -
that is, that has a driver’s license with authorization to engage in remunerated activity (EAR).
●● It is necessary to register on the Uber website and then go through an information and
security check.
●● Drivers need a luxury sedan, leather-seat, air-conditioning and four-door UberBLACK,
and a compact, air-conditioned, four-door model for uberX, uberPOOL and UberSELECT.
●● When he wants to drive, all he needs to do is turn on the app. There is no minimum daily,
weekly or monthly time for the partner driver to use the platform. It has total flexibility
to work like, when and where you want.
●● In the application for partner drivers, you must log in using the personal and non-
transferable password. After this procedure it is possible to choose which car the driver
will drive, if there is more than one car registered on the platform.
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●● When receiving a call from a user, the application screen flashes and a tone sound. Only
after accepting the trip will the application show who the user is, and the location.
●● As soon as the user enters the car, the partner driver starts the journey through the
application.
●● Upon reaching the destination indicated, the partner driver ends the trip in the application.
The app then shows the price of the trip and the user’s evaluation screen, using a 1 to
5-star rating.
4.2.3. Value Network

Sponsor - A Uber
Supplier - IT company outsourced by Uber
Partner - Drivers
Customer - Users
4.2.4. Value financing

Revenue generation - In Brazil, Uber offers five types of service:
UberX: Compact cars, with air conditioning and 4 doors. The price is competitive and an ideal
option for getting around on a daily basis.
UberPOOL: Available in São Paulo and Rio de Janeiro, this service allows you to share the trip
with other users who are in a similar path to yours, putting more people in less cars. The price is even
more competitive than uberX, but it can generate a slightly longer travel time due to adjustments in
the route. The advantage for users is the most competitive price, already for partner drivers means
more hourly journeys and even greater gains.
UberSELECT: A selection of more comfortable and spacious cars for an average price, up to 20%
higher than uber X
UberBLACK: A service that allows users to order sedan-type cars such as Toyota Corolla, Ford
Fusion, Volkswagen Jetta and others, all with leather seats and air conditioning always on.
UberEATS: Service that allows the user to order meals from the most popular restaurants in the city,
wherever they may be. It is available, in the initial phase, only in São Paulo.
Cost Structure: The cost structure is technology platform, office employees and drivers.
5. Conclusion
The objectives of this project were reached in the first case study we present the expert opinions
on the digital transformation. It can be concluded that the factors pointed out by the interviewees
converge to what the literature cites: there is a need to review the business models of companies
comprehensively, the introduction of new technologies must be accompanied by restructuring of
production processes, people management and changes, introduction of agile methods and ways of
communicating internally and externally.
In the second case study on Uber we can prove that the use of the business model to analyse
digital / computational platforms contributes to the service being accessible and available to a
greater number of users, as well as enabling certain controls and processes that do not would be
possible manually. Defining what each of these is becomes laborious because it involves a series
of processes and services from various areas and some are innovative and not clearly described
or conceptualized.
These services of digital business platforms, business platforms or shared economy, have a great
adhesion due to the ease of use and the quality of the services offered, identified in the texts the clear
presence of the concept of offered value, that induces the concept of value creation.
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6. Acknowledgements
This work is funded by FAPESP (Foundation for Research Support of the State of São Paulo),
through the project “New technological ecosystems in productive systems: A Review and Research
Agenda for digital business platforms”
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IAMOT 2019 | 169

Applications of Blockchain Technology
in the Brazilian Government
Alana Bauer Lacerda

Universidade Federal do Rio Grande do Sul,
Escola de Administração, Brazil
E-mail: alana.lacerda@ufrgs.br
Fernando Dias Lopes
Universidade Federal do Rio Grande do Sul,
Escola de Administração, Brazil
E-mail: fernando.lopes@ufrgs.br
Abstract
Blockchain technology has emerged as a disruptive trend that can influence business,
government and society in the next years. By validating the exact time an action is taken
(births, deaths, property transfers) without the need for an intermediary (a person or institution
that validates the information), the technology has the potential to provide profound modifications
in the public service, setting itself up as a matrix for countless possibilities in digital governance.
For many theorists, it solves old questions of trust, allowing the reliability on the outputs of a
system without any intermediary or mediating entity. Academic research in blockchain is still
sparse though. Emerging markets have been singled out as fertile ground for the implementation
of blockchain-based solutions, as technology can provide the solution to various political and
social issues. The world community expects from these markets several experiments that have the
potential to guide the way the blockchain is used. Given that, this paper proposes an exploratory
study built from the perspective of institutional logics whose research question is: how are the
institutional logics present in the Brazilian public sector responding to the incorporation of
blockchain technology? In order to analyze how this recent technology with a high potential for
transforming logic and routines is being absorbed by the Brazilian public sector, a qualitative
approach was used to understand initial perceptions and to learn about the motivations and
mechanisms of government initiatives that employ blockchain technology. For this purpose,
a documentary analysis was performed and public servants from different institutions of the
federal executive branch were interviewed. Our research has shown that the blockchain technology
has entered the Brazilian public service scenario through an already institutionalized structure.
This structure consists of a hybrid logic of different approaches to public administration, with
strong bureaucratic aspects and a clear intention to become more managerial and democratic,
without normally abandoning aspects of the former. We also observed from data analysis that
the current projects are related to four main approaches: financial market, identification, data
exchange and transparency. Despite the disruptive character of the blockchain technology,
however, it may not be sufficient as a guarantee of its institutionalization in government.
The technology, in our view, has not yet reached a level of implementation that allows us to define
whether it will generate a new logic, imparting its disruptive character in public administration,
or incorporate itself into the dominant logic. At the moment, we believe that by giving space to
all the potential of the blockchain, we may see the creation of a hybrid logic, however, this will
require a greater popularization of the technology in the public service and regulation that allows
its development.
Keywords: Blockchain, Institutional Logics, Brazilian Government, Public Administration
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Applications of Blockchain Technology in the Brazilian Government
1. Introduction
Blockchain emerged as a disruptive technology of our time and rapidly its transformative possibilities
of use in various sectors of society brought to the technology status proportional to the advent of the
internet itself.
The technology allows going beyond the monetary operations through which it became initially
known and may generate impacts in finance, accounting, management and legislation, for example
(Zhao, Fan & Yan, 2016). Blockchain is suggested as a viable matrix for many possibilities in
digital government, being pointed out as a solution to old issues concerning transparency, security,
fighting corruption, identifying people and registration in several areas. In a deeper degree and
because of its decentralizing character, it is possible to identify in the blockchain characteristics of a
“hyper-political” tool, capable of managing social interactions, dismissing a central authority
(Atzori, 2015).
There are high expectations about emerging markets applications of blockchain, about their
experimental projects and initiatives (Potter, 2017). In nations where the structure is extremely poor
or nonexistent, it is believed that there is a fertile ground for the application of more advanced
solutions-a strategy called leapfrogging. In places that already have efficient systems and
consolidated structures, however, technology adoption may face a lack of incentive, occurring in a
more timid way (Gupta & Knight, 2017).
At the same time as the world observes the development of the blockchain, we have in the Brazilian
public sector a typical scenario of emerging countries, with high institutional complexity in which
one must deal with old practices inherited from its patrimonial formation, with consolidated
bureaucratic logic and with pressure to move on a more managerial and transparent way, promoting
citizen participation and responding to it. How do governments with these hybrid characteristics
assimilate the transformative potential of technology? According to Olnes et al. (2017),
for blockchain applications in the governmental sphere, institutional aspects play an important role
that must be taken into account.
From the concept of institutional logic as “the socially constructed, historical pattern of material
practices, assumptions, values, beliefs and rules by which individuals produce and reproduce
their material subsistence, organize time and space and provide meaning to their social reality”
(Thornton and Ocasio, 1999, p. 804), from the studies on the dynamics of these logics and looking
for evidence in the recent initiatives of Brazilian public institutions based on blockchain, we address
the core question: how are the institutional logics present in the Brazilian public sector responding
to the incorporation of blockchain technology?
This paper is structured as follows: the next two sections establish the theoretical context from the
literature review on institutional logics and the bases and applications of blockchain technology.
The research context is then introduced, followed by an explanation of the methods of data collection
and analysis. Finally, the results are presented, describing how the institutionalization of blockchain
technology in the Brazilian public service is taking place. We then discuss the contributions to the
theory, suggest a research agenda and conclude.
2. Institutional Logics
Institutions, in the view of old institutionalism, could be defined as sets of rules and stable
roles and corresponding sets of meanings and interpretations. The development of institutional
theory from the 1970s onwards makes this approach more dynamic, adopting a focus on the
process of institutionalization, but at the same time maintaining an emphasis on rules and roles
(Czarniawska, 2008). This new approach emerged mainly from the research of Meyer and Rowan
(1977), Zucker (1977) and later DiMaggio and Powell (1983) (Thornton & Ocasio, 2008).
The concept of institutional logic arises precisely from the neo-institutional research. After using
the term for the first time in 1985, Friedland and Alford (1991) will later develop it. Arguing that
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neo-institutional theory does not adequately explain the success and failure of institutionalization,
the authors propose a new approach which considers boundaries, instruments and power structures
to vary institutionally. Friedland and Alford (1991) see institutional transformations as a material
and symbolic subject.
In their seminal essay on institutional logic, Friedland and Alford (1991) emphasize that the major
institutional orders of Western society have a central logic that constitutes their organizational
principles. These institutional orders are the capital market, the bureaucratic state, the family,
democracy and religion. Their logic is based on a set of material practices and symbolic constructions.
According to the authors, individuals can manipulate or reinterpret symbols and practices. In this
context, institutional transformations will occur from the creation of new social relations and new
symbolic orders. Table 1 describes the central logics of the major institutional orders of Friedland
and Alford:
Table 1: Central Logics of Institutional Orders
Capital Market Accumulation and Commodification of Human Activity.
State Rationalization and regulation of human activity by legal and bureaucratic hierarchies.
Family Community and motivation of human activity by unconditional loyalty to its members and their
reproductive needs.
Democracy Participation and extension of popular control of human activity.
Religion/ Science Truth, whether mundane or transcendental and the symbolic construction of reality within which all
human activity takes place.
Source: Friedland and Alford (1991, p.248)

Having his empirical research also among the precursors of institutional logics, Thornton and
Ocasio (1999, p.804) define it as a “the socially constructed, historical pattern of material practices,
assumptions, values, beliefs and rules by which individuals produce and reproduce their material
subsistence, organize time and space and provide meaning to their social reality”. While Friedland
and Alford’s (1991) approach is structural and symbolic, Thornton and Ocasio’s (1999) approach is
formed by structural, normative and symbolic dimensions that act in a necessary and complementary
way within institutions (Thornton & Ocasio, 2008).
Thornton and Ocasio (2008) systematize institutional logics in five principles that provide a greater
understanding of the theory. The first one, “embedded agency”, is an assumption that contrasts with
the rational choice approach. The authors cite Friedland and Alford (1991), according to which this
principle presupposes the partial autonomy of individuals, organizations and institutions. “Society as
an inter-institutional system” is the second principle, according to which it is assumed that different
social sectors and institutions have different logics. This point of view, in particular, gives space
to research on heterogeneity and agency, because the difference between the logics will allow this
observation. As a third principle, Thornton and Ocasio (2008) cite another argument by Friedland and
Alford (1991) that each of the institutional orders in society has material and cultural characteristics
and the interaction between these forces explains development and change in institutions.
Thornton and Ocasio (2008, p.106), in describing the fourth principle, “Institutions at multiple levels”,
argue that institutional logic, as meta-theory, has become remarkably comprehensive, allowing to
observe institutional logics in multiple levels, as organizations, professions, markets, industries and
geographic communities. This multiplicity of levels of analysis may, in part, be responsible for the
popularity of institutional logic and its consequent transformation into something vague and without
definite boundaries (Alvesson & Spicer, 2018, p.7). Thornton and Ocasio (2008) are contrary to this
statement, suggesting that institutional logics go beyond strategies or action, configuring themselves
as sources of legitimacy. In this sense, research may not offer adequate accuracy with respect to the
level at which logics become institutionalized.
The fifth principle of institutional logics, according to Thornton and Ocasio (2008), is
“historical contingency”. This principle shows us that the influence of the great institutions of
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Western society will change over time, alternating with their importance and combining themselves
in different forms.
Thornton and Ocasio (2008) emphasize the importance of institutional entrepreneurs in the promotion
of changes in institutional logics. This character will consciously pursue his interests and engage in
creative and transformative activities through the manipulation of cultural symbols and practices.
Ometto and Lemos (2010) point out, however, the problem of collective action that must be overcome
by the institutional entrepreneur, since this can go against his individual interests. The authors cite as
elements of the entrepreneur’s role performativity and analytical, social and political skills.
Research on institutional logics will, therefore, vary in describing processes of change in institutions.
Thornton and Ocasio (1999) and Reay and Hinings (2005) research propose a dominant logic that
overlaps an old logic. Despite the existent tendency to propose this dynamic, in their research, Dunn
and Jones (2010) defend the coexistence of multiple logics in the organizational field in scenarios that
operate with several institutional spheres. Dunn and Jones (2010) also cite the research of D’Aunno,
Sutton and Price (1991), in which the possibility of competing logics present in the same context
is observed, which can make agreement and consensus impossible. In these cases, organizations
respond to external pressures by adopting some practices, according to their limitations, but visible
enough to guarantee a minimum level of legitimacy in the organizational field (D’Aunno, Sutton and
Price, 1991). Finally, the combination of conflicting logics results in the creation of hybrid logics, as
described by Thornton, Jones and Kury (2005) on their research. Table 2 systematizes the observed
dynamics of institutional logics in processes of change:
Table 2: Dynamics of Institutional Logics
Dynamics of institutional logics Context Author(s)
Dominant logic that overlaps an Historical shift in the dominant institutional order in the ·Thornton and Ocasio
old logic higher education publishing industry Government-led (1999) ·Reay and
health reform initiative in Alberta, Canada Hinings (2005)
Coexistence of multiple logics in Coexistence of plural logics in the medical education Dunn and Jones (2010)
the organizational field sector
Competing logics present in the Conflicting institutional environment concerning drug D’Aunno, Sutton and
same context abuse treatment units Price (1991)
Combination of conflicting Changes in the accounting, architecture and higher- Thornton, Jones and
logics resulting in the creation of education publishing industries focusing on different Kury (2005)
hybrid logics changing mechanisms
Source: Author
Institutional logic is also used in several studies on the public sector, sphere permeated by multiple
inter-organizational relations, several actors and sets of rules. Meyer and Hammerschmid (2006),
for example, observe the transformation of the Austrian public administration from a bureaucratic
character to a managerial character from the analysis of the dynamics of institutional logics.
Vickers, Lyon, Sepulveda and McMullin (2017) analyze the path of innovation in the public sector
and its formation from multiple organizational logics.
Innovation in government is placed by Osborne and Brown (2013) as an emerging research topic,
given the recent transformation of public institutions from stable, hierarchical and bureaucratic
in changing environments that translate more plural states. According to the authors, there are
several factors that led to this change: the growth of the managerial approach in the public sector,
political changes, population aging and new expectations on the part of the citizens. We add to these
factors the entrance of a disruptive technology in the global scenario, in order to understand its
institutionalization in an emerging country with a complex institutional environment.
As will be seen below, blockchain technology has many possibilities for use in the public sector,
ranging from increasing transparency to making possible deeper transformations, such as automatic
transactions that no longer require intermediary government entities, redesigning processes and
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achieving decentralized logics of interaction with government (Atzori, 2015). Figure 1 is intended to
outline the scenario on which this research is based.
Figure 1: Institutionalization of Blockchain Technology
Source: Author
The outside part of the image represents the different institutional orders identified by Friedland and
Alford (1991). They are associated with distinct institutional logics, possessing their own meaning
systems and serve as a reference for organizational behavior. Teixeira and Roglio (2015) explain that
organizational practices and structures represent tangible manifestations of logic that, when combined
and configured in a recurrent way over time, provide feedback to the societal domain. The blockchain
technology lies precisely in the organizational boundary, being interpreted and manipulated within
the scope of institutional logics, in order to incorporate itself into the organizational practice of
Brazilian public sector. Its entry takes place via an already institutionalized structure. The objective
of this research is to explore how blockchain technology may affect the dominant logic and how
these logics are responding to the introduction of a new technology in its environment, whether the
tendency is that there will be conflicts and tensions, a merger, if multiple logics will cohabit in the
same scenario or if a new hybrid logic will be created.
3. Understanding Blockchain Technology

The beginning of the blockchain technology discussion is related to the posting of the white paper
“Bitcoin: A Peer-to-Peer Electronic Cash System” authored by Satoshi Nakamoto (author alias) on a
cryptography mailing list in the year of 2008 (Popper, 2015). The first version of the cryptocurrency
was registered in January of the subsequent year. Its creation stimulated the origin of several other
cryptocurrencies, known as altcoins. According to the CoinMarketCap, more than 2,000 altcoins are
currently traded with a market capitalization of $ 138.2 billion in November 2018.
Cryptocurrency is undoubtedly the best known blockchain-based application. Far beyond the
possibilities in the financial market, however, possibilities for its application in business, government
and society are discussed (Tapscott & Tapscott, 2016).
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Blockchain means literally “a chain of blocks”, “each containing a unique set of transactions that
each contain a cryptographic fingerprint called a ‘hash” (Berryhill, Bourgery & Hanson, 2018, p.15).
Each block will contain information about some or all of the most recent transactions not previously
entered in prior blocks. Thus, a block works as a real-time ledger. Within each block, the records of
previous transactions are permanently stored. Every time a block is completed, it gives way to the
next block. These blocks are joined in a linked chain (Fanning & Centers, 2016, p. 55).
Traditional information systems require centralized servers, usually held by an authority, for
data storage. In this type of system, a client-server relationship is established (Ray, 2017). The
blockchain contrasts with this system insofar as its main characteristics are distribution and sharing.
Distribution means that all copies of a document are created equal and are updated identically
simultaneously; sharing means that there is perfect and complete information across all system actors
(Berryhill, Bourgery & Hanson, 2018). Figure 2 compares the types of networks, ending in the
“distributed” network, a diagram used to explain blockchain-based systems.
Figure 2: Comparing Centralized, Decentralized and Distributed Networks
Source: Baran, 1964, p.2.

Another important feature of this technology is its immutability. Once a transaction is added, it can
not be undone by any of the participants (Berryhill, Bourgery & Hanson, 2018). Wright and De
Filippi (2015, p.2) summarize this technology as a distributed, shared and encrypted database that
serves as a public repository of irreversible and incorruptible information. It allows, for the first
time, unrelated individuals to reach consensus on the occurrence of a particular event or transaction
without the need for a controlling authority. Shermin (2017) supplements this assertion by stating
that this distributed and shared database is subject to inspection by any of the users, but none of them
is authorized to control it.
What made blockchain technology compare to the technological revolution brought about by the
internet itself? Tapscott and Tapscott (2016) characterize the internet as the first native digital medium
for information. The blockchain would, in the view of the authors, be the first native digital medium
for value. For many theorists, the blockchain solves old trust issues, allowing one to rely on the outputs
of a system without any intermediary or mediating entity (Shermin, 2017). It is based on the distributed
consensus mechanism and on encrypted data to validate transactions via computer, allowing two
stakeholders to self-organize and conduct an operation among themselves (Nakamoto, 2008).
An expression widely used to illustrate how blockchain technology works is smart contract. Smart
contracts will be those in which agreements between the parties, which define the rules, obligations
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and penalties are imposed digitally. A smart contract will be identified by an address and its code
resides in the blockchain. Its correct execution requires agreement, that is, validation by all parts
of the network. If a new transaction is accepted and sent to the address of this smart contract, all
participants in the mining network must agree to the next status of the contract through a consensus
protocol (Luu et al., 2016).
By validating the exact time an action is taken (births, deaths, property transfers) without the need
for an intermediary (a person or institution that validates the information), the technology also has
the potential to provide profound modifications in the public service, setting itself up as a matrix for
countless possibilities in digital governance. Today, everyday transactions are those in which people
interact with the government to prove their identity or that a car or property has been transferred.
They have to bring their documents in person and request a stamp from the appropriate agency
(Potter, 2016). Not only would blockchain technology make this step unnecessary, but it would
also provide greater security, interoperability and transparency. More than that, the blockchain has
been quoted to act as a supporting factor against corruption, given its high degree of transparency
and inability to manipulate the data. Olnes et al. (2017) point out that the blockchain can be used
for any transaction or exchange of information that involves the government. According to the
authors, the fundamental characteristics of this technology enable the implementation in a wide
range of processes: registration, inventory and information exchange. It works both in tangible
(physical properties) and intangible assets (votes, patents, ideas, reputation, intent, health,
information, etc.) (p.357).
There are still many questions, however, regarding the adherence of government to the use of this
technology. Analyzing its benefits and balancing existing solutions and structures is a challenge.
Deploying new blockchain-based solutions may require changes to other usage technologies and
their adoption should be aligned with governance issues. According to Olnes et al. (2017, p.360),
research on government blockchain initiatives will have to concern “the evolutionary character of
the technology with its institutional and social embedding.”
Atzori (2015) describes the transforming potential of the blockchain in the creation of a
hyper-connected society that performs transactions in a decentralized way and its implications for
politics, demanding new ways of thinking about governance and citizen participation. A new stage
of blockchain-based governance would require, according to the author, the disempowerment of
the state and the transformation of the hierarchical direction from vertical to horizontal. Discarding
the utopian aspect of this proposal, countries with dominant public administration logic and
established practices may find it difficult to use blockchain to promote a new institutional logic
whose characteristics lie in decentralization and less control. However, we suggest that countries
with institutional scenarios still in the process of training, the blockchain can gain more space,
consolidating a new logic that is able to take advantage of all the disruptive potential of technology.
In Brazil, the federal government included blockchain technology in its agenda in 2016. Initiatives
to use blockchain technology in Brazilian government are extremely recent and, in order to analyze
how this technology is being employed in the Brazilian scenario, this research seeks to capture their
motivations, perspectives and expected results for society.
4. Research Context and Methodology

Brazil is a continent-sized country, being the largest in both South America and Latin America. It is a
federal republic that comprises 26 state units and a federal district. Brazil is the eighth world’s largest
economy by nominal GDP. The Brazilian public sector, although considered large and therefore,
receiving a strong population claim for efficiency, remains considerably below the world average
of employment in the public sector of 21.3%. In Brazil, this percentage is 12.1% (OECD, 2015).
This is exploratory research. In order to analyze how a recent technology with a high potential for
transforming logic and routines is being absorbed by the Brazilian public sector, a qualitative approach
was used to understand initial perceptions and to learn about the motivations and mechanisms of
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government initiatives that employ blockchain technology. This approach focuses on the qualities of
entities, processes and meanings that can not be measured in terms of quantity, intensity and frequency
(Denzin & Lincoln, 2005, p.10). For this purpose, a documentary analysis was performed and public
servants from different institutions of the federal executive branch were interviewed.
The documentary analysis was based on data obtained from articles, news and websites about public
institutions and their actions related to blockchain technology. Documentary research provided
support for the formulation of in-depth interviews script and it was also through this information
that contacts were obtained for the initial interviews. The script of the interviews in this research was
formulated both from the theoretical basis and the objectives, as well as aspects previously found
in the documentary analysis. The in-depth interviews went beyond the contextualization given by
the previous phase, capturing nuances and perceptions that allowed to fill gaps and to understand in
greater detail the phenomenon researched.
Professionals from public institutions linked to government projects based on blockchain and to
research centers on this technology were interviewed. The interviews were conducted by telephone
or video conference and lasted an average of forty minutes with representatives of the Department
of Information and Communication Technology (Setic), linked to the Ministry of Planning, the
National Bank for Economic and Social Development (BNDES), the Central Bank of Brazil and the
Blockchain Research Institute-Brazil.
Detailed analysis of all the documents and interview data was conducted using ATLAS.ti software.
The first phase consisted of the development of codes by thematic area identified in the documents
and interviewees’ blockchain-based projects used to facilitate the analysis of the material.
These thematic areas formed the “parent-nodes” of the research. The nodes used for this paper are:
“financial market”, “identification”, “data exchange” and “transparency”.
In the second phase, these data were examined and codified according to the logic of public
administration, whose constitutive elements came from the framework established by Denhardt
and Denhardt (2000) on the approaches of Bureaucratic Administration, New Public Management
(NPM) and New Public Service (NPS)-summarized in Table 3 and the literature on institutional
logic previously discussed.
Table 3: Cnstituent Elements of Public Administration Approaches
Bureaucratic NPM NPS
Theoretical and Political theory Economic theory. Democratic theory
epistemological
foundations
Conception of the public Politically defined and Represents the aggregation of Result of a dialogue about
interest expressed in law. individual interests. shared values.
To whom are public
Clients and constituents Costumers Citizens
servants responsive?
Market-driven—the Multifaceted—public servants
Hierarchical—administrators
accumulation of self-interests must attend to law, community
Approach to are responsible for
will result in outcomes desired values, political norms,
accountability democratically elected
by broad groups of citizens professional standards and
political leaders.
(or customers). citizen interests.
Assumed organizational Bureaucratic organizations Decentralized public Collaborative structures with
structure marked by a top-down organizations with primary leadership shared internally
authority within agencies control remaining within the and externally.
and control or regulation of agency.
clients.
Source: Adapted from Denhardt and Denhardt (2000)
In the third phase of the research, the material was analyzed again and, from the passages found
and codified, it was sought to analyze the entry of new technology in an environment of an already
institutionalized structure.
5. Results and Discussion
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In order to answer the research question, we first examined the main thematic areas in which
government initiatives and projects based on blockchain technology are concentrated. Second, we
examine the entry of this technology in the Brazilian public administration scenario in search of
manifestations and dynamics of the different institutional logics that compose it.
The blockchain technology entered the agenda in the Brazilian public sector in 2016. The first
contact of the analyzed institutions with the technology usually began from the personal knowledge
of public servants that brought it embedded in projects for the analysis of their superiors.
Data analysis shows that the current projects are related to four main approaches:
5.1. Financial Market

The financial sector is undoubtedly the first area on which the benefits of employing blockchain
technology have been investigated. Public banks in Brazil are part of the working group formed
by the Brazilian Federation of Banks. Technology is expected to bring several benefits in
financial applications.
Table 4: Initiative in the Financial Market Area
Initiative Description Excerpt of Documents/ Interview
Blockchain working Working group formed to discuss the effects “Blockchain technology is based on interoperability.
group -FEBRABAN of blockchain technologies on the financial So we have a study group at FEBRABAN that is
-Brazilian Federation market, their applications and their possible looking at the system as a whole. We are testing
of Banks uses to improve banking products and various technologies on various system models.” -
services. All public banks in Brazil are part NBC Bomesp
of this group.
Source: Author
5.2. Identification
Blockchain offers multiple possibilities of use for applications that require identity confirmation
to operate. According to Berryhill, Bourgery and Hanson (2018, p.24), one relevant characteristic
of the blockchain technology to public service is its possibility to “confirm eligibility for benefits,
thus mitigating fraud risk and automating processes that may have previously involved significant
overhead from multiple authorities”.
Table 5: An Initiative in the Identification Area
Initiative Description Excerpt of documents/interview
Verification A successful pilot project in conjunction with “I believe that among the possibilities of application of
of documents Microsoft and another company specialized in the blockchain in government, the identification is the
and identities blockchain. The application was run by uPort, one that will first come into practice”. Staff, Setic.
the Ethereum platform identity system.
Source: Author
5.3. Data Exchange

The data integrity provided by blockchain may provide numerous applications for the public sector.
According to Olnes et al. (2017), “data integrity refers to a broad range of aspects like consistency,
security, reliability, timeliness, non-repudiation and non-manipulation that need to be warranted”.
Data transmission in a secure way is another very significant approach found in the research and is
based on one of the biggest advantages of blockchain technology: its immutability and the guarantee
of authenticity and information authorship.
Table 6: Initiatives in the Data Exchange Area
Initiative Description Excerpt of Documents/ Interview
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Pier-Information The platform will be used to exchange “The blockchain came as an idea of creating a
Integration data related to the authorization processes decentralized network with a database maintained in a
Platform of of a financial institution, which includes collaborative way, allowing an efficient exchange of
Regulatory the exchange of information on punitive information, if possible even automatic. (...) This project
Entities processes, actions of administrators and was prioritized by our management, we spent some time
corporate control of entities regulated by developing and today it is already being installed in the
the Central Bank. participating entities”. Staff, Central Bank
Fingerprint The first proof of concept of “The customer would mark which bank would have
the Blockchain Working Group access to your data. I can also have a biometrics record
(FEBRABAN), created a register with from my client. This will facilitate the opening of a digital
fictitious information. The result has account, will facilitate the use of biometrics for other
proven the ability of banks to operate members of our system.” NBC Bomesp
collaboratively, with the guarantee of the
immutability of shared data, preservation
of privacy and traceability of information.
Source: Author
5.4. Transparency
Respondents whose projects were focused on the perspective of transparency recognize that this is
an emerging issue especially because of societal pressure. Blockchain may act democratizing access
to data. Another feature of the technology that is in the process of achieving greater transparency is
the visibility of the entire transaction history to which all nodes have access (Olnes et. al., 2017). In
the same way, blockchain technology is seen by the interviewees as an efficient manner to promote
mechanisms to track resources.
Table 7: An Initiative in the Transparency Area
Initiative Description Excerpt of documents/interview
BNDESToken BNDESToken is defined as a mechanism “This initiative has been approved reflects very well
to track public funding route in projects the concerns of the institution. The project being voted
counting on BNDES financing, providing on by superintendents shows that transparency is a
society with information on how they are concern”. Staff, BNDES.
promoting the country’s development.
(Arantes et al., 2018)
Ancine-National The goal of this initiative is to develop “The use of technology will allow us to map in real
Cinema Agency an application to improve flexibility time the trajectory of the resources and will generate the
and efficiency in projects that fund the intelligence to know where the processes bottlenecks
audiovisual industry throughout its chain. are and how we can improve and speed up the
development of the audiovisual industry”. Staff, Ancine
(Ancine, 2018)
Source: Author
5.5. Logics in Public Administration

When we mention the Brazilian public sector, we still have to take into account elements rooted in
the history of the country that still act in its characterization. The hybridity of public administration
is one of these elements. There is still a strong patrimonial heritage in the country and some of its
fragments are reflected in the public service. In spite of the economic and social transformations
and the adoption of managerial techniques and tools, the bureaucratic management logic was not
left behind.
The transformations in public administration have occurred in a fragmented way, with old practices
adding to the new ones or even being transposed into new tools, often only responding to the
demands of modernity. Thus, when analyzing the Brazilian public sector from the perspective of
institutional logics, it is possible to observe the combination of multiple logics in the formation of a
hybrid model formed predominantly by bureaucratic aspects, with a strong aspiration to become a
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model focused on managerialism and which, following a trend from more developed countries, adds
some elements of a more democratic administration.
The analysis of the data shows how these three coexisting logics are manifested and combined
in the moment of the inclusion of blockchain technology in the Brazilian government agenda via
institutionalized structure. As the hybrid scenario of the public administration as a whole, the
initiatives demonstrate characteristics of the three approaches cited in this paper.
Interviewees affirmed the benefits of blockchain technology in fluidity, service improvements and
process facilitation. Besides, the decentralization, an inherent characteristic of the technology, lends a
New Public Management character to projects, in a tendency to eliminate the centralizing character of
the government. According to the interviewees, blockchain technology can also assist in governance
between institutions. Another tendency of governments to adopt a managerial focus in their blockchain
projects comes from the knowledge and experience held by industry and consequent strategies of
collaboration and partnership with the private sector (Berryhill, Bourgery & Hanson, 2018).
At the same time, the respondents underscored the blockchain’s potential to promote greater levels
of government transparency. This more open public service posture demonstrates characteristics
linked to the New Public Service approach.
The entry of blockchain-based projects usually occurred from one or more public servants from the
analyzed institutions. The development of these projects within the institutions, however, enters
through formal ways and goes through hierarchical instances, so that bureaucratic logic remains
present in the process of innovation management. The institutional entrepreneur, who manipulates
cultural relations, symbols and practices (Thornton & Ocasio, 2008), thus making it possible to
change institutional logic, has not been identified. This may be a relevant aspect in understanding the
rhythm with which technology has been institutionalized in the analyzed scenario.
The approaches with which technology is entering the Brazilian public service, perhaps by its
recency, end up giving us more evidence about its assimilation than in fact about the interaction
of institutional logics. The blockchain, in our view, has not yet reached a level of implementation
that allows us to define whether it will generate a new logic, imparting its disruptive character in
public administration, or incorporate itself into the dominant logic. The assimilation of a technology
“is not regarded as a form of hybridity, but rather as a gradual evolution of the dominant logic”
(Polzer, Meyer, Höllerer & Seiwald, 2016, p.6).
The interviewees emphasized the time it will take for the government to begin to verify changes
in the logic of public administration processes. Today the technology would allow the flow of
processes with the reduction of the bureaucratic logic. However, the dominance of bureaucratic
logic is strongly perceived by the interviewees, so it is believed that, at least in the short term,
the authorities will continue to restrict direct communication between the nodes of the blockchain
network, preserving its centralizing approach and even adding one more bureaucratic layer by
including more processes in the chain.
In summary, it has been observed through documentary analysis and interviews that the main
objectives of blockchain-based projects in the short term are aimed at bringing significant
improvements, but still within the scope of the coexistent logics in the public service. This leads us
to believe that, at least in the short term, we will not observe a dynamic of conflicts between logics.
The fact that all the analyzed projects are in the initial phase and that blockchain technology itself
is extremely recent can both be determining factors for the impossibility of seeing blockchain enter
this scenario as a dominant logic. However, the data examined reveal the absence of competition
with other logics as well, evidencing that the entry of the technology occurred via an already
institutionalized structure and was thus maintained. We believe that by giving space to all the
disruptive potential of the blockchain, we may see the creation of a hybrid logic, however, this will
require a greater popularization of the technology in the public service and regulation that allows its
development.
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5.6. Regulation
Although it was not the primary focus of the interviews, the regulation of blockchain technology in
Brazil was the subject of discussion with all the interviewees. According to Ducas and Wilner (2017),
this stage presents a significant political challenge that requires a balance between oversight and
innovation. In addition, according to the authors, “potentially disruptive technologies—blockchain
included—necessitate a careful regulatory approach in order to safeguard existing financial systems
and meet security prerequisites” (p. 540).
There are varied discussions on the subject in the Brazilian legal sphere. There is concern among
experts about the regulation of the technology applied to the Brazilian context and if the country can
fully experience its innovative power or whether the technology will coexist with existing solutions.
There is a certain concern that parliamentarians lead initiatives guided by prejudice and lack of
information and that offices and niches protected by monopolies and licenses act strongly to defend
their models of protection.
According to the interviewees, this concern is greater when it comes to applications to the financial
market. It is believed that projects whose approach maintains the focus on identification and
transparency should enter into the flow of governance processes with greater fluidity. In any case,
given previous experiences related to the regulation of new processes and technologies, expectations
are high for the government to place the blockchain on its agenda more quickly.
In this regard, the Federal Revenue issued in November an ordinance that deals with the availability
of federal public administration data through the mechanism of data sharing through the blockchain
network. This is one of the first steps of the country towards regulation.
We find in the future regulation of technology an important factor that can modify the current
combination of logics in the public service. The disruptive character of the blockchain will not alone
guarantee its adoption to its full potential. The establishment of new rules and the modification of
current norms in favor of a more transparent, agile and reliable technology may be able to do so.
6. Conclusion
Our study provided a snapshot of the initial stages of the integration of blockchain technology into
the Brazilian government scenario. Innovations and improvements are demanded by society, by
policymakers and public administrators. This technology has the potential to promote insightful
changes in bureaucratic, managerial and democratic logic. This exploratory study aimed to
increase knowledge about the phenomenon, describing its characteristics and establishing the
basis for future research.
Our research has shown that the blockchain technology has entered the Brazilian public service
scenario through an already institutionalized structure. This structure consists of a hybrid logic of
different approaches to public administration, with strong bureaucratic aspects and a clear intention
to become more managerial and democratic, without normally abandoning aspects of the former.
Our research was able to identify institutions open to innovation projects, albeit in bureaucratic paths
and obeying hierarchies. Most of these projects seek improvements in the managerial sphere. The
importance given to improving the transparency of institutions shows also signs of a concern with
the dialogue with citizens. All these projects, however, are still subject to the dominant logic of the
public service and it has not been possible to observe changes in the sense of the flexibilization of a
centralizing logic of processes.
There are expectations regarding the regulation of technology in the country and, from our study, it
is possible to identify in regulation an important factor that can transform the dynamics of the current
institutional logics.
This research presents some limitations that lead us to identify promising opportunities for future
studies. Our analysis is based on evidence of cases chosen from the documentary analysis and can
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be biased toward cases of greater success, not representing those projects that either are in extremely
early stages or have not been successful. This research also takes place in the Brazilian electoral year
and in the pre-regulation period and for the following years, we may observe changes in staff and
governing bodies of the institutions and new directions for all projects analyzed here. Other research
opportunities are also in the private sector and universities. There are also several opportunities for
further investigation through international comparative research.
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Incremental Risk Chain Mapping Manager and
Linker (iRCM2L) Blockchain Driven Dynamic
Risk Chain Framework
Vikas S. Shah
Ernst & Young US LLP., Financial Service
Organization Technology, United States
E-mail: vikas.shah@ey.com
Abstract
The risk is impacted by a range of physical conditions, changing dynamics of the businesses and their compliances,
volatility of the specific marketplace or industry segment, technological advancements and socio-economic
processes. Although the multitude of changes along the risk chain can occur and impact business operations, there
is a lack of knowledge concerning how and to what extent changes in influencing factors propagate through the
chain and finally affect the economic factors of an enterprise. Besides, complexities are in multiplication due to
globalization and inter-dependencies as well as intra-dependencies of business operations. The current approaches
have identified static risk mapping without considering the real-time characteristics of incremental risks in the
association of their dependencies. Accuracy remains at higher precedence due to growth or increasing dependencies
on socio-economic processes. Automation in risk chain needs a tremendous amount of efforts, time and domain
expertise. In this paper, we present a Blockchain driven framework for incremental risk chain management and
linking. The Blockchain enables to imply the dynamics of incremental risks. It characterizes real-time mapping
management and linking of dependencies between the incremental risk factors irrespective of the specific industry
segment, however, contextualising them based on the specific standard, compliance and regulation of business
operations. It also provisions granular level of visibility, transparency and accurate contingency in the blocks.
Orchestration and nesting of incremental risk chain are possible with the Blockchain driven orientation. The paper
illustrates the case study of incremental risks associated with the food chain industry in Smart City. The imperative
evolving evaluation criteria are identified to govern the incremental risks across a specific industry segment.
Keywords: Blockchain (BC), Business Operation, Dynamic Risk Model (DRM), Incremental Risk (IR), Risk Chain
1. Introduction
Recent advancements in disruptive technologies affecting an enterprise anywhere in the business
function can have a direct effect on a corporation’s ability to continue operations, either go-to-market
or provide critical services or products to consumers (Gejke et al., 2018). Real-time enterprises often
overlook the incremental risks (IRs) due to globalized characteristics of business operations. It is
intensifying in the last decade. IRs may result from unexpected variations in capacity constraints
on other dependent services, quality problems over upcoming competitive products, or even natural
disasters depending on the geolocation (Giannakis et al., 2018). A potential failure of business
operation causes ambiguity for all partnering enterprises.
The vulnerability of business operations of any enterprise increases with increasing uncertainty
and it increases even further if organisations have become dependent on other services, products,
marketplace and commerce. The greater uncertainties in business operations, an increasing level of
globalization in a supply-chain network and time to market due to competitive advantages led to
increased exposure to risk. It is evident that enterprises have flourished and failed at a scale and pace
never seen before due to the binding nature of the risk factors.
For example, the global sea level rise, as well as increasingly attractive real estate marketplace,
are impacting United States coastal housing market (Teicher et al., 2018). The real estate firms are
engaging in various strategies for flood risk management and considers resilience as a competitive
advantage resulting in uneven risk and uneven development. The firms may gain short-term
incentives. However, it provokes neoliberal urban governance threatening to undermine the potential
for more transformative regional adaptation. This trend of urban adaptation is damaging and it a
prominent case of IR at the coastal cities of the United States.
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Incremental Risk Chain Mapping Manager and Linker (iRCM2L) Blockchain Driven Dynamic Risk
Another scenario is the U.S. equities market price process. Its primarily driven by the information
set and actions of large institutional investors instead of the individual retail investor. The analysis
presented in (Ghysels et al., 2018) illustrates the construction of the Herfindahl-Hirschman Index
(HHI) of institutional investor concentration as a measure of granularity. Constructing a low HHI
minus high HHI portfolio produces an annualized return of 5.6%. A conditional asset pricing model
involving various investor demands driven by time-varying beliefs over asset characteristics explains
the cross-section of HHI portfolios. The volatilities and critically are impacting the risk measures at
the portfolio and the firm level.
The risk management is becoming more multifaceted with the increased focus on geopolitical risks,
regulatory changes and new participants entering the markets, including Fintech and non-regulated
entities (Gejke et al., 2018). Consumers are also changing their behaviour with the evolving market
environment and launch of new products and services. In parallel, the technology scene and IT
capabilities have advanced significantly, providing opportunities to create tools that can enhance
the way risk is measured and managed. In this new and highly dynamic environment, how can
enterprise best manage and link IRs? The traditional approaches to risk management have not
considered the involvement of disruptive technologies and market segments. Many risk factors in
the presence of technology advancements are complex, uncertain, or even ambiguous. The potential
benefits and IR are interconnecting in most scenarios. It raises the need for risk governance that
essentially accelerates iteratively tuned risk-related decisions and maximises trust in an enterprise’s
risk management processes, structures and decisions.
The blockchain is a decentralized transaction mechanism and information management technology
(Tsai et al., 2018). It can eliminate the role of third-party with regards to transactions and their
implications across the business operations. Blockchain smart contracts and corresponding
blocks are capable of tracing transactions and computing the impact in the context of previous
transactions associated with products, services and entities trading these products and services
(Thomas et al., 2018). It eliminates the external influence of the third-party as well as alterations
based on the biases. These properties of Blockchain can be advantageous to compute and relate
IR across the enterprise and business operations with real transparency in the contextualised
transaction history.
This research makes three significant contributions to identify challenges associated with the
IR management and linking in the presence of disruptive technologies and the volatilities of
market segments. The iRCM2L framework introduced utilizing blockchain for IR management.
It provides an approach to establishing the DRM to interlink different IRs in the global environment.
Eventually, the framework explored in the context of real issues and contests of a smart city food
chain. It discusses the impact of effective IR management and its advantages. It essentially illustrates
the formulation of the risk chain management strategy for any real-time enterprise irrespective to
the specific industry.
This research makes three significant contributions to identify challenges associated with the IR
management and linking in the presence of disruptive technologies and the volatilities of market
segments. The iRCM2L framework introduced utilizing blockchain for IR management. It provides
an approach to establishing the DRM to interlink different IRs in the global environment. Eventually,
the framework explored in the context of real issues and contests of a smart city food chain. It
discusses the impact of effective IR management and its advantages. It essentially illustrates the
formulation of the risk chain management strategy for any real-time enterprise irrespective to the
specific industry.
2. Related work and Approaches of Managing Incremental Risk

As Dr. Gottlieb (Abram et al., 2018) commented earlier this year, a supply chain is only as
strong as its weakest link indicating that the effectiveness of supply-chain is dependent on
the reliability and security of the links. Unfortunately, the risks existing in every step of global
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supply-chain networks from manufacturing to packaging to distribution in numerous different form

(Abram et al., 2018). The integrity of IRs when approaching products and services to the mainstream
is critical considering the imminent changes of the legislation. For instance, Congress passed the
2012 Food and Drug Administration Safety and Innovation Act (FDASIA) amendments due to the
heparin contamination incident. It enables authorities to address the evolution from relatively simple
supply chains to the more complex and global supply chains. Suppliers credentials and capabilities
are also the risk factors in the presence of increasing proximities of supply-chain.
Globalization offers many opportunities to the enterprise but also poses new sources of uncertainties
and risks (Manuj et al., 2008). The incoherent ecosystem of an enterprise and their dependencies,
rapid rates of change in technology and problems in managing scale and controlling all decisions
across the entire extended enterprise (Mendling et al., 2018) results in uncertainties. IR management
needs to embrace the interconnectivity of the business operations and the technical environment of
an enterprise to address these uncertainties. It has to recognise both its potential and its limitations.
The relevance of information and the recognized patterns are mandatory for even smartest cognitive
systems to make accurate business decisions. Risk managers need to be able to navigate linkages of
IRs and manage the underlying risk factors.
Recently, the researchers and practitioners have placed significant efforts to formulate methodologies,
frameworks and techniques to address complexities of managing IRs throughout the risk chain.
(Janardhana et al., 2018) Proposes organisations to manage risks across the supply chain through
National Coordination and Advisory Framework (NCAF) by assessing dependencies on natural
capital while investing, thereby alleviating the problem of environmental degradation and its impact
from the supply chain. It claims that investing in greening initiatives enhance the sector’s efficiency.
It decouples material consumption from gross domestic product (GDP) growth. The approach is
to reduce the overall environmental impact and enhance human well-being. Financial services
organisations are increasingly considering green aspects in the value-chain to avoid systemic risk
by adapting NCAF.
(Auer et al., 2018) Proposes to use the volatility-rescaled historical value-at-risk (VaR[Ω]) for daily
risk management. It is especially well-suited to capturing future profit & loss (PnL), as it reacts
fast to changes in volatility levels. The concurrent use of the sensitivity-based analytical serves
as a sanity check and provides an additive decomposition to value-at-risk (VaR) contributions of
the risk factors. It is a handy analysis tool because it appropriately weighs risk factors by both
their sensitivity and volatility. Conditional expected shortfall provides a useful complementary
breakdown of risk positioning.
(Li et al., 2018) examines the effect of product market threats concerning the stock crash risk.
The enterprises hold negative information to artificially aggravating the incentives and stock prices.
However, it leads to an abrupt and substantial decline in stock price when information revealed
to the market. The enterprises facing more threats are more prone to stock crashes. The argument
is supported by the instrumental variable analysis and a difference-in-difference analysis with an
exogenous shock to market competition. (Sheedy et al., 2018) Investigates how risk structures and
risk culture together influence risk behaviour. Favourable risk culture together with effective risk
structures was associated with high levels of desirable and low levels of unacceptable risk behaviour.
(Scheibe et al., 2018) Employs a qualitative, grounded theory case study approach to help understand
what drives supply chain disruption propagation. The effort provides theoretical insights into this
emerging area. It studies three interconnected tiers in seven unique supply-chains, a focal firm
(a manufacturer), a supplier to the focal firm and a customer of the focal firm. In (Chin et al., 2018),
the precedence is provisioned to rank risk factors and list them in order of their importance. It uses
firms’ proximity to the investment grade threshold as an exogenous disclosure cost measure and
finds that firms with ratings near the threshold are more likely to move their credit risk factor to a
less prominent position.
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3. Synergy of Blockchain Technology to Address Challenges of Managing IR

Existing IR approaches indicate that researchers and practitioners across the globe are investing
means of identifying most appropriate IR management techniques for existing businesses as well as
inherent variability to the IR. Industry-specific risk management tools and preidentified paradigms
are available to manage IR for an enterprise. However, cross-functional IR management in
considerations of their dependencies and interdependencies due to advancements in technologies or
disruptive factors are ambiguous. The most prominent example is the smart city’s waste management
in the food chain where it requires to consider future advancements to recycle food and regulations
introduced by the state or federal government.
The factors and interdependencies of IR are complex, uncertain, or even ambiguous. The potential
implications of IRs are interconnected. It raises the need for risk chain management that essentially
accelerates iteratively tuned risk-related decisions and maximises effective risk management
processes, structures and decisions. The volatility of IR dependents on many factors depending
on the industry and the type of business. The challenges of IR itself within the context of the
business operations has many dimensions. Following are the primary concerns identified during our
investigation and reviewing numerous different industry verticals.
i. Integrity of incremental risk factors across multiple line-of-businesses addressing
inter-dependencies, intra-dependencies and external dependencies at its granularities.
ii. Influence of socio-economic volatility to the individual business operation indirectly
impacting the reputation of the firm.
iii. Accuracy in analysis and predictability of the business operations and pricing based
on the market supply and demand ratio.
iv. Increased level of automation & learning of incremental risk factors in the association
of the upcoming compliances and changing regulation due to digitalization.
v. Real-time contingency map for the products, services and solutions across the value
chain.
vi. Industry vertical agnostic linking capabilities to explore expansion and unknown
marketplace or market segment.
Recent development in blockchain technologies offers capabilities to manage peer-to-peer
transactions in the context of historical patterns of the transaction between different participants in
trade or exchange. Each of the transaction spreading across the businesses needs to be confirmed and
recorded in the blocks. These blocks are distributed in the whole network and account for initiating
transaction specific actions based on the risk associated with it. Other nodes and transactions validate
each block would be checked proactively in a real-time enterprise.
Blockchain standardises all anticipated criteria with a specific transaction in association with its IRs.
The function associated with the blocks can manage the agreed criteria to validate if the IR associated
with the specific transaction is within the identified or acceptable threshold. The impact is derived
based on the level of violations. For example, the transaction between the product manufacturer and
online retailer and transaction between the online retailer and consumers can have different types of
IR. The online retailer can select nodes that are responsible for validating the block in consortium
blockchain for each type of transaction occurring within their network based on the IR threshold
associated with the specific type of transaction.
The transactions in the blockchain are validated and recorded with a timestamp enabling participants,
including government embodies through a consensus process, to verify and trace the legitimacy of
the transaction in the context of previous transaction records through accessing any node in the
distributed network. Each transaction could be traced to previous transactions iteratively to integrate
with upcoming regulatory requirements in real-time.
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4. Blockchain Enabled iRCM2L Framework

To address and resolve the challenges of managing IRs in the dilemma of industry agnosticism,
discrimination of IRs for an enterprise is necessary. We have introduced the concept of dynamic risk
models (DRMs). It distinguishes between subjects with and without events. Nested level of DRMs
can capture improvement in identification of IRs introducing dynamically integrated discrimination
and the continuous net reclassification of IRs in real-time. The components of IR modelling
may again be differentially defined concerning the subdivision of the particular strands although
most definitions would encompass risk identification and modelling, risk assessment and impact
measurement, risk management and risk monitoring and evaluation.
The blockchain (BC) offers to utilize shared repositories and common processes (Du et al., 2018).
It enables access to the shared ledger (Sun et al., 2016), which not only contains information and
identity details about individuals and businesses but also provides a platform to link transactions,
thereby enabling more efficient and accurate specification of DRMs associated with IRs. Blockchain
enables independence of DRMs. However, it is highly dependent as well as relies on the unified source
of information across multiple business operations (Kouhizadeh et al., 2018). Regulators would need
to enforce standards and rules around blockchain. Eventually, institutions would become responsible
for complying with and reporting on a multitude of regulatory requirements. These activities may be
executed internally by a functional area within the enterprise or through a third-party. It facilitates
transparency from technological and policy perspectives. The actual desired level of transparency is
configurable irrespective to the use of blockchain.
Figure 1 provides components of the blockchain enabled iRCM2L framework to define, develop
and imply risk chains for an enterprise. The constitution of the framework includes DRM Runtime
(DRTM), BC protocol handler (BPH), BC Rule Execution Manager (BREM), BC Configuration
Manager (BCM) and Risk Chain Administrator (RCA). The DRTM includes DRM profiler (DPro),
DRM Linker (DLk), DRM Monitor (DMon) and DRM Classifier (DClass).
Figure 1: Blockchain Enabled iRCM2L Framework
4.1. DRM Runtime (DRTM)

DRTM provisions capabilities to define, place and interlink DRMs associated with the discriminated
IRs. It is the environment to constitute atomic DRMs across the multiple risk chains of an enterprise.
4.1.1. DRM Profiler (DPro)

The DPro is to specify the context of the IR and associated risk factors. The risk factors can be
proactively added, modified and deleted to characterize the specific IR. The DPro can be templatized
and reutilized to profile the DRM. It distinguishes IRs in relationship to the business operation of the
enterprise in association with the specific product or service. It also defines the threshold associated
with the IR and the permissible range of values when computing the level in numeric form.
Each enterprise can define and derive levels of IR threshold mechanisms.
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4.1.2. DRM Linker (DLk)

DLk established the linking between different DRMs to formulate the risk chain. It provides
capabilities to dynamically connect or disconnect DRMs associated with the same IR or different
IRs. The DLk associated with DRM contains all the DRMs that the specific DRM has dependencies
or interdependencies.
4.1.3. DRM Monitor (DMon)

It monitors and evaluates DRMs and their relevancy to the IRs. The automated validation rules
to check the relevancy, as well as the correctness of the DRMs, can be performed using DMon.
The artificial intelligence (AI) and machine learning (ML) can be leveraged (Baryannis et al., 2018)
to increase the automation in monitoring and the respective actions for the occurrence of the actual
risks between DMon and BREM.
4.1.4. DRM Classifier (DClass)

DClass serves as the classification engine for the DRMs. The classification mechanism for IRs varies
based on either industry, business unit, type of products or services, business operation or even
geolocation. The enterprise has capabilities to define their classification through DClass. Eventually,
the DClass places classification of IR within the DPro, profile of a DRM associated with IR.
4.2. Blockchain Protocol Handler (BPH)

BPH is functioning to achieve consensus among participant nodes through the established protocol.
It is responsible for updating blockchain ledger using smart contracts. BPH provides capabilities to
establish the protocol and streamline communication between the participants of business operations.
The BPH uses an address to identify the smart contract. The corresponding smart contract code
resides on the blockchain. The participant invokes a smart contract by sending transactions to the
smart contract address. All participants on the network execute the code with the current state of
the blockchain and the content of the transaction. The enterprise’s consensus process validates the
legitimacy of the transaction with the associated DRM and computed value of IR. Each transaction
mapped with one or more DRMs based on its type and role of the participant invoking the transaction.
Figure 2 represents the physical structure of the DRM and IR. If the role is not specified, then the
DRM is implacable to the transaction irrespective of the participant type invoking the smart contract.
BPH also maintains the error codes during the processing of specific DRM for the transaction. The
error codes are open-ended and vary based on the industry. Enterprises can define their common
error handling codes and whether to proceed with the transaction in case of specific error during the
DRM processing.
Figure 2: Physical Structure of DRM and IR
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4.3. Blockchain Configuration Manager (BCM)

The primary responsibility of the BCM is to set up the BC networks and node for the enterprise.
It configures the block and defines the settings for risk chain and attributes to create a private, public,
or consortium blockchain. The risk chain has an associated set of DRMs to DLk. Secondary activities
of BCM are to define, derive and place the risk chain. The BCM inherently communicates with
Risk Chain Administrator (RCA) to introduce, update and delete risk chains. BCM is responsible
for managing the consensus process. It monitors, introduces and removes the participants in the
blockchain including government embodies.
4.4. Blockchain Rule Execution Manager (BREM)

The primary responsibility of the BREM is to transaction rule processing and rule engine supported
by decision management and regulatory requirements concerning IR threshold specified in DPro.
The participants involved in executing the business operations utilizing BC protocol uses smart
contract to encode and encapsulate the transaction rules in DRM and govern the transactions in the
vicinity of IR thresholds. Smart contacts perform compliance checks based on the rules during the
transaction processing.
There are two types of rules during the mapping of transactions to DRM as illustrated in Figure
2. IR_Rule is the rule associated with the IR threshold whereas DRM_Rule is the rule associated
with the DRM. DRM_Rule addresses any specific overlapping rules need to imply between IRs or
corresponding IR_Rule.
4.5. Risk Chain Administrator (RCA)

The impact of each DRM to others are identified, placed and formulated within the risk chain
utilizing DLk. It makes the risk chain unique for the business operation. RCA overlooks the risk
chains associated with the specific industry in relations to the IR and business operation of the
enterprise. The risk chain can be autonomous based on the linking of DRMs, or it can be manually
performed depending on the human interventions required for the business operation associated with
the risk chain.
If BCM introduces the participants of iRCM2L with appropriate authorization to specify IR threshold,
they can define IR thresholds for the specific type of transaction within the DRM. The impact of
each transaction could have on the IR needs to be assessed in real-time. Typically, it considers
how the transaction could impact paradigms such as cost, material, delays, or supply-demand ratio.
However, the impacts of IR are not limited to these criteria; it is mostly dependent on the proximity
of the transaction. The actions (or decisions) specified by the BREM with respective to the IR
threshold in the form of IR_Rule defines the characteristics of impact.
The impact is directly proportional to the dependencies, interdependencies and the timeframe of the
IR occurrence. It can be custom categorized depending on the need of a business operation. One such
example is a set of online brands is administered based on an overall sells target, timing of purchase,
pricing interdependencies and type of consumer in the relevant environment over time. An IR in
DRM can hold multiple thresholds and IR_Rules. Each IR threshold can have multiple conditions
and actions (or decisions). For example, the investment above $3.2M and below $2M in the specific
brand of products during the December 24th to January 1st timeframe is not permissible due to the
past transactions registered and consumer experience for the specific IR associated with the brand.
The upper bound ($3.2 in the example) and lower bound ($2M in the example) are computed values
in real-time through expressions retrieving statistical values from previous transactions in the block(s).
Essentially, the iRCM2L framework enables to build decentralized, secure and reliable risk chains
for business operations of an enterprise. It is to allow people, companies and governments to design
custom, private or permission risk chain. It brings automated audits, transparency and unparalleled
security and combines them with privacy, efficiency and controllability to the IRs across all the
participants. RCA capabilities ensure the risk governance and consistent identification as well as
management of risks.
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5. Empirical Case Study of Smart City Food Chain (SCFC) Management

Due to increased opportunities, climate change and scarcity of resources, the urban areas across the
globe are experiencing growth in population. Based on (Biswas et al., 2016), 54% lives to cities
compare to 46% to rural areas. The urban population is anticipated to increase to 66% by 2050.
The challenges for smart city establishment are reduced costs, use resources optimally and create
a more livable urban environment. It increases the need to efficiently manage food chain to reduce
risks associated with people, processes, government and businesses. 60% of fresh produce and 85%
of seafood now come into the United States from overseas.
US Department of Agriculture Economic Research Service (USDA ERS) has sponsored research
study at Cornell University to look at a total of 15 different food businesses in 5 different states
(Park et al., 2010). It examines the approaches to introduce local food products. The study
investigates potential barriers to expanding markets for local foods. Following are the local products
and corresponding locations in the research study.
i. Apples in Syracuse, NY
ii. Blueberries in Portland-Vancouver-Beaverton, OR-WA
iii. Spring mix in Sacramento, CA
iv. Beef in Minneapolis-St. Paul-Bloomington, MN-WI
v. Fluid milk in Washington, DC
The case studies reveal the variety of ways that food products can move from farms to consumers.
The primary challenges are to reduce production, material handling, regulatory requirements and
transportation costs for the city and businesses. The higher per unit costs in local supply-chains do
not indicate success. Additional costs incurred to bring the food products to market can reduce the
net returns by 20% to 60%. Transportation fuel efficiency is the primary criteria to determine the per
unit cost (Freedman et al., 2013).
Table 1: SCFC Relationship between Business Operations, IRs and Risk Chains
Business Operation Transporting Food from Producer to Grocery Outlet in Smart City
DRM# Incremental Risk (IR) DRM Name DClass DLk Risk Chain
SCFC_1 Pricing Producer Margin Finance {SCFC_1 to SCFC-6} SCFC_Daily_PnL
SCFC_2 Logistic Transportation Fuel Cost Finance
SCFC_3 Environmental Natural Disaster Geolocation
Processing &
SCFC_4 Unlabeled Items Inventory
Packaging
SCFC_5 Storage Facility Food Contamination Quality
SCFC_6 Food Loss Negative for Recycle Quality {SCFC_3 to SCFC_5} SCFC_Daily_Waste
Many practitioners are interested in applying blockchain for various purposes

(Hölbl et al., 2018). The use cases have been developed on the provenance and traceability of food
products (Kouhizadeh et al., 2018) across smart city ecosystems using pilot blockchains. It leverages
meta-information of food products rather than detailed measurements to compute and associate risks
with smart city food chain network. The iRCM2L framework resolves the issue with formulating
a mechanism to develop risk chains associated with discriminated IRs. Table 1 represents the
example business operation of transporting food from producer to grocery outlet in smart cities.
It essentially identifies discrimination of IR based on the categories of impacts that can have on
various participants. The DClass identifies the impact area as a classification to the IR and DLk links
other DRMs to formulate the risk chain.
The impact of pricing IR is due to the DRMs associated to transport food from producer to the grocery
outlet. For instance, if the transportation fuel cost increases or more items are not labelled, then it
impacts the overall margin. The DLk links the DRMs to indicate the equation between the SCFCs.
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It interns impact the margin for the producer and the associated risk chain defined, that is, SCFC_Daily_
PnL to compute the daily profit and loss for the producer. The grocery outlets have the discriminated
IRs as well. They share the ledger and pricing IR with the multiple producers. However, the DRM for
grocery outlets is different. It constitutes a different risk chain for grocery outlets. The DMon monitors
the producer margin DRM based on the SCFC_Daily_PnL and factors impacting the DRM through
other DRMs specified in DLk. However, RCA manages the relationship between the pricing and the
transporting business operation through the producer margin for food producers.
The recycling methodologies for food chain are advancing and corresponding environmental
regulations are evolving. In the food chain, the food loss is computed based on the nonrecyclable
food items. The risk chain associated with the food loss IR, SCFC_Daily_Waste, shares the DRMs
links of the SCFC_Daily_PnL due to capabilities of the blockchain offering distributed ledger
technologies. The computation for risk management between the multiple risk chains is through the
DPro. For example, the gain from the recyclable food is introduced during the computation of the
producer margin. Food loss management along the SCFC is critical.
The minimization of food loss is the ultimate goal for any city. However, if the waste is generated
then tracking is critical for reasons related to the circular economy and industrial symbiosis.
It may also be critical from the perspective of recyclable food, waste disposal and potential liabilities
associated with disposal. For food waste minimization purposes, smart contracts can be used to
ensure minimized wastage across the smart city ecosystem. Performance criteria for a producer
for waste reduction metrics can be included in BRME as an IR_Rule and tracked using DMon.
Accumulatively, IR_Threshold and IR_Rule dictate the specific level. The food loss minimisation
angle may be to adjust these IR_Rules as part of a continuous improvement process for SCFC.
The impact of risk chain developed for smart city food chain network is significant due to awareness
among people and communities, regulatory requirements and policies and environmental impact
across the smart city ecosystem. Based on the Environment Protection Agency (EPA)’s 2015 report,
solid waste landfills are the third largest source of human-related methane emission. It accounts
for 15.4% of emission in the United States. Many states have bans on landfill disposal of organic
materials like wasted food. Typically, food waste policies are in association with environmental
risks and regulations. The yard trimming waste in landfill is an apparent issue and over 20 states
currently have a policy in place to avoid it (Keller et al., 2016).
The primary source of food waste is by the producer and retailers due to lack of storage and
transportation, precision in the supply-demand ratio within the city and consumers not able to plan
their meal properly (Evans et al., 2018). The smart city administrator can define the IR threshold
linking the food wastes for each of the roles within the DRM. The smart city administrator provisions
and manages transaction-oriented food chain leveraging the blocks to compute the IR threshold.
The policies can be more attuned to the realistic amount of food waste within the smart city ecosystem
employing IR thresholds through RCA. The actual occurrence of the IR in real-time can determine
the action whether the food waste needs to be composed or utilized for biofuels. Composing is
the fifth tier defined in the EPA’s food recovery hierarchy indicating that the biofuel takes the
higher precedence. DMon can monitor and automate the decision hierarchy specified by EPA.
Food Cowboy (Evans et al., 2018) is an example mobile application to monitor the food wastage and
recycle options; however, it is not entirely advanced to address the EPA’s hierarchy and challenges.
6. Conclusion
Blockchain enabled risk chains and their applications are extensive. Significant additional
possibilities exist to address growing issues of IR management and their interdependencies in the
presence of globalization. It has not only the political and economic impact, but also impacted by
the advancements in sociology, innovation and disruptive technologies. The potential advantages
associated with iRCM2L framework provide strong motivation to identify numerous implications
across multiple industry segments. Based on the empirical case study of smarty city food chain,
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4 categories of improvement opportunities are identified to assess the maturity of an enterprise

concerning the iRCM2L framework. Each category of maturity improvement is related to the
anticipated correctness in DRM and corresponding IRs associated with it.
i. Accuracy in determining the vicinity of business operations. It is evident that the
effectiveness of the risk chains is directly proportional to the identified accuracy of
the impact as well as dependencies of business operations.
ii. Detecting right level of classification for the DRMs. The classification of DRMs
can be sometimes complicated and if an upfront analysis is not performed
correctly to identify the classifications of DRM, then the risk chain and their
linking can be misleading.
iii. Precision to metric and compute risk ratings. DRM profiles include the computation
logic between the DRM links to compute risk ratings. The rules are defined to
metric the risks associated with the DRMs. It leads to a specific set of actions for
the business operation based on the identified threshold. It is essential that precision
is necessary for these actions to be as predictable.
iv. Evolving factorisation and discrimination of IRs. IRs are not static due to the
volatility of the number of different activities of business operations and their
interconnectivity across the enterprise. It also has implications due to advancements
in technologies as well as the marketplace. The process to evolve, identify and
update the IRs requires to be continuous through the lifecycle of an enterprise.
The DRM development technique using blockchain presented in this paper provides a mechanism
that is industry neutral, compatible with multifaceted risk factors and scalable. There are different
classes of DRMs and each determines the continuous evolvement of IR in the presence of volatility of
the business operations. The DRM runtime assists enterprises by investigating the effects of external
and internal risks to operate business operations efficiently. It provides the necessary actions and
evolves the enterprise based on rational problem solving to manage IRs. The results are encouraging
and direct benefits are visible regarding the revenue as well as decreasing vulnerabilities for the
specific line-of-business. The primary research interest is to advance risk governance processes of
an enterprise considering dynamics between blockchain enabled risk chains and accuracy in the
business operations for early detection of the IRs.
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Blockchain–Industrial Applications and Potentials
Marie-Christin Schmidt
Friedrich-Alexander University Erlangen-Nürnberg
Lange Gasse 20, 90403 Nürnberg, Germany
E-mail: marie-christin.schmidt@fau.de
Oscar Pakos
E-mail: oscar.pakos@fau.de
Julius Andreae
E-mail: julius.andreae@fau.de
Daniel Kiel
E-mail: daniel.kiel@fau.de
Kai-Ingo Voigt
E-mail: kai-ingo.voigt@fau.de
Abstract
The blockchain technology has become well known in the finance sector, for instance as the basis for the
cryptocurrency Bitcoin. To go beyond its mere use as cryptocurrency, academia and practice expect large potentials
by its application in further, particularly industrial, sectors. One reason is that, being a decentralized and transparent
electronic register managed remotely by subscribers on a distributed network, blockchain creates trust in online
transactions due to its reliability and safety. These are indispensable functionalities for business process digitization.
Despite blockchain’s expected far-reaching economic potential, and its relevance for academia and corporate
practice alike, possible industrial application fields are still relatively unknown. Hence, our research question is:
Which are the potentials of the blockchain technology in an industrial context? Our study’s main goal is to analyze
this technology’s industrial applications and elaborate on its future potentials.
To address the research question at hand, we employ a systematic literature review. By doing so we identify,
evaluate, synthesize, and summarize all relevant scientific publications, which allows us to detect the current state
of research concerning industrial applications and potentials of the blockchain technology. To ensure that the
results are reliable and comprehensible, our literature review is based on previously established, unambiguous, and
repeatable steps: During its course, we search the databases ScienceDirect, Ebsco, Google Scholar, and ABI/Inform
for scientific publications from 2008 until today. These databases are well established in management research and
constitute a source of high-quality information. Applying several criteria, such as quality, rigor, and scope, we select
59 relevant papers, which we examine, synthesize, and eventually discuss in detail.
By displaying the current state of research on blockchain’s industrial application fields, we develop six dominant
research categories: Motivations for using a blockchain, opportunities for IIoT applications, obstacles to
implementation, approaches to implementing a blockchain, impact of blockchain technology on the business model,
and examples of blockchain applications. We elaborate further on two case examples to illustrate how industrial
companies implement blockchain effectively. By doing so, we provide a broad overview on blockchain’s industrial
applications and give detailed insights into the potentials this technology comprises within this context.
Our study provides both researchers and practitioners with a comprehensive understanding of blockchain’s
implications for industrial value creation. With this, we enable managers to draw targeted conclusions on the value
of applying the technology and to take adequate decisions regarding its effective management. As our literature
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review is among the first to synthesize recent research findings on the industrial potentials of blockchain, we
contribute to the academic debate. By identifying further research fields and in particular by providing future
research implications, we lay the fundament for further studies.
Keywords: Blockchain, Distributed Ledger, Industrial Technologies, Industrial Management, Systematic Literature
Review, Industrial Internet of Things
1. Introduction
The blockchain is an electronic register managed remotely by subscribers on a distributed network.
In the financial industry, the technology has already become well known publically as the basis of
the cryptocurrency Bitcoin and has proven its potential to significantly change and even disrupt a
business sector.
Accordingly, various academic publications are already available. In addition to numerous highly rated
articles (Cusumano, 2014; van Alstyne, 2014), there are some basic publications (Giese, 2017; Kerscher,
2013; Miller, 2015) dealing with various questions concerning blockchain in the financial world.
Whereas Bitcoin is gradually reaching its limits due to technical limitations, the blockchain is
increasingly regarded as the real innovation (Rosenberger, 2018; Schütte et al., 2017). Authors
consent that blockchain technology comprises vast potentials in processes that transfer values or
rights, require data or process integrity, allow the bypassing of intermediaries, or in any situation
in which a decentralized network is reasonable (Prinz et al., 2018). Moreover, this technology will
also be important in the public sector, creative industries, and legal, industrial as well as many other
sectors (Voshmgir, 2016).
In the industrial context, the search for such a reliable and secure technology is highly relevant,
because the current central management of databases and processes bears too many risks regarding
performance bottlenecks, error-security or the authenticity of data (Prinz et al., 2018). Especially,
considering the ongoing digitalization and digital interconnection, as reinforced by the Internet of
Things (IoT) and Industry 4.0 (Kagermann, 2014), applying digital solutions like the blockchain in
industrial settings, paves the way to create competitive advantages.
In recent years, several actors entered the field of research developing a large number of
possible industrial application areas. However, currently only a few real-life and functioning
examples of the young technology exist. Reasons for this are the complexity of the technology
required for implementation, as well as open legal, research, and economic questions that need
to be answered due to blockchain’s disruptive potential (Schütte et al., 2017; Walport, 2016).
Consequently, the scope of the blockchain technology is hard to estimate. Corresponding to
different authors’ opinion, the blockchain technology may become a key technology, like the
invention of the internet (Tapscott & Tapscott, 2016), or it may fail completely (Hackius &
Petersen, 2017; Mattila, 2016).
To account for the research gap linking blockchain with industrial settings, the following research
question will be addressed:
Which are the potentials of the blockchain technology in an industrial context?
The aim of this paper is to develop a better understanding of the potentials of blockchain technology
in an industrial context. Furthermore, it aims at disclosing additional areas of research and expanding
the scientific discussion on the various applications of blockchain technology. For this purpose, a
systematic literature review is chosen as method, since it is suitable for the identification, synthesis,
and discussion of the current state of research.
The paper is structured as follows: First, the necessary theoretical fundaments will be presented.
Subsequently, the procedure for the systematic literature review, divided into the individual steps,
is explained. The ensuing part summarizes the content of the identified literature, followed by a
discussion of the results, including an analysis of the development of publications. Based on this,
recommended actions for management and further research are given.
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2.1. Blockchain
For the first time, the term blockchain has appeared in connection with the cryptocurrency Bitcoin
(Nakamoto, 2018). In the financial sector, blockchain technology was used to securely transfer
financial transactions. Since then, the technology could be applied in various business sectors in
which data is generated. The technology is intended to create confidence and security in dealing
with data (Efanov & Roschin, 2017; Li et al., 2017; Swan, 2015; Zhao et al., 2016), and is especially
valuable in the industrial context due to current problems with centralized data management like
performance bottlenecks, error-rates or missing data authenticity (Prinz et al., 2018).
Per definition, the blockchain is a distributed database structure managed by the members of a
network. Often, Distributed Ledger Technology (DLT), comprising a more general definition, is
used as a synonym for blockchain technology. While DLT only stands for the fact that data records
are stored decentralized and are available for several subscribers, the blockchain technology is
characterized by a specific technical design (Isaja & Soldatos, 2018). Likewise, blockchain technology
is often mistakenly used as synonym for the cryptocurrency Bitcoin (Mattila, 2016). Walport (2016)
defines blockchain as a technical concept that groups individual records into blocks and ensures
the integrity of the data through sequential concatenation and cryptographic techniques. Condos et
al. (2016) describe blockchain as a data structure without an associated management system. Swan
(2015), in contrast, defines the blockchain as the public ledger of the cryptocurrency bitcoin in
which all transactions are stored. In general terms, there is an understanding in all definitions that the
blockchain is a distributed system and its most important features are the common consensus finding
mechanism and the application of encryption methods (Schlatt et al., 2016).
The blockchain is characterized by certain properties that ensure its data securing features (Christidis
& Devetsikiotis, 2016). First, a blockchain is decentralized, as the network is managed by the
members rather than a central authority. This means that all members remotely possess a local copy
of the data. The use of consensus mechanisms ensures that only contents verified by the participants,
so-called “miners”, are stored in the blockchain. The subsequent concatenation of the blocks via the
respective hash values ensures that data cannot be changed, manipulated, or deleted. The use of a
public key enables unambiguous identification of all subscribers and their transactions, even if they
are anonymous. Thus, all data in a blockchain is stored securely and comprehensibly (Gatteschi et
al., 2018; Hackius & Petersen, 2017; Lin & Liao, 2017; Zheng et al., 2017).
The blockchain technology also bears high relevance for Smart Contracts, legal agreements transferred
solely and autonomously through the IoT. Through blockchain technology’s security features, Smart
Contracts can achieve their full potential when applied in a blockchain. The immutability of the data
results in trustworthy transactions, which eliminates the need for intermediaries when executing
transactions (Meitinger, 2017).
2.2. Internet of Things

Whereas formerly only people were able to communicate with each other via the internet, meanwhile
also objects interact with people and even other objects. This development collectively is referred
to as IoT (Tan & Wang, 2010). An object can either be part of the physical or the virtual world.
Physical objects, such as industrial robots or goods, can be registered, activated, or connected via
the IoT. Virtual objects, including software applications and datasets, can be stored and processed.
In general, two different approaches to the term IoT have emerged: First, an Internet-oriented
understanding, in which the communication infrastructure is in the foreground. Second, an object-
oriented approach that focuses on the possibilities created by the virtual replication of real objects
(Lee et al., 2013).
There are numerous applications of IoT in various areas of daily life. For example, it can be used in the
medical sector (Smart Health), in logistics (Smart Logistics), in transport systems (Smart Mobility),
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in living spaces (Smart Home), or directly in production (Smart Production) (Bandyopadhyay &
Sen, 2011). The use of IoT in an industrial context is referred to as Industry 4.0 (Wortmann &
Flüchter, 2015).
2.3. Industrial Internet of Things

Industry 4.0, internationally known as the Industrial Internet of Things (IIoT), means the
transformation from defined value-added processes to an intelligent and digital networking of
people, machines, objects, as well as information and communication systems (Bauer & Horváth,
2014). The term was officially introduced in 2011 by the German Federal Ministry of Education
and Research (2017) as a central column of Germany’s high-tech future strategy. However, there
is still no generally accepted definition (Bauer & Horváth, 2014). The “Plattform Industrie 4.0”
(2015) refers to Industry 4.0 as fourth industrial revolution, triggered by the networking of people,
machines, and objects. It bases on cyber physical systems (CPS), which are the result of merging
information and software engineering with mechanical components through embedded systems.
Here, all elements interact mutually through feedback loops (Lee, 2008). Albano et al. (2018)
describe CPS as a bridge between the physical and virtual worlds. CPS capture data from their
environment via sensors, process it, and eventually control real processes based on the results. The
data exchange takes place in real time via a network. This creates decentralized and independent
units that form a flexible and efficient environment in their field of application. In an industrial
context, CPS create smart factories, which act and organize themselves independently, decentrally
and in real time to a large extent (Bauernhansl, 2014).
The classification of Industry 4.0 as a revolution is viewed critically, since its final economic impact
can only be determined retrospectively. An assessment in advance is difficult (Obermaier, 2016).
From a rather technical point of view, Hermann et al. (2015) define Industry 4.0 as a collective term
for technologies and concepts in the value chain. CPS monitor and store physical processes within
modular, smart factories, and make decentralized decisions. Through the Internet of Things all
involved objects exchange information. The Internet of Services (IoS) offers the possibility to access
internal and inter-organizational services. On the other hand, Obermaier (2016) defines Industry 4.0
from a business perspective as a network of the various instances and levels of a value chain and the
resulting changes in products, processes, and business models.
The paradigm shift to Industry 4.0 has been observable for several years. Among other things, Industry 4.0
enables more flexible and efficient manufacturing processes and thus entails not only economic, but also
ecological as well as social chances (Kagermann, 2014; Roth, 2016). However, there are still several
obstacles to a successful implementation of Industry 4.0 (Bauer & Horváth, 2014). For example, the
IT security of Industry 4.0 applications must be ensured as the protection of intellectual property and
privacy, as well as defense against possible malware are critical success factors due to the increasing
interconnectedness of different production systems (Roth & Siepmann, 2016).
3. Methodology
In order to answer the research question concerning blockchain’s influence on industrial settings, a
systematic literature review based on Tranfield et al. (2003) was chosen. By means of this method,
the theoretical foundations for subsequent research can be laid, the current state of research can be
recorded, and new research questions can be answered based on existing publications and knowledge
(Okoli & Schabram, 2010). It is not expedient to purely summarize existing literature. Rather, it
should also be discussed and critically reflected (Hart, 1998). Webster and Watson (2002) emphasize
that a good analysis reveals current evidence and explores areas where further research is needed.
It is important that the entire relevant literature for the topic is reproduced (Webster & Watson,
2002). Fink (2005) defines systematic literature analysis as a systematic, unambiguous, complete
and repeatable method for identifying, evaluating, and merging all completed and published papers
by researchers, scientists, and professionals.
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Predefined, clear, and repeatable methods make the results of a literature review transparent and
comprehensible (Hart, 1998). The methodological approach of this work is based on the literature
reviews of Arnold (2017), Kiel (2017), Soni and Kodali (2011), and Winter and Knemeyer (2013).
Based on their example, we subdivided the analysis into six steps, i.e., time frame of publications,
selection of databases, publication types, relevant articles, categorization of articles, and evaluation
of the categories. These steps are explained in more detail in the following three sections
3.1. Timeline of Publications and Selection of Databases

For the review and evaluation process, literature published between 2008, i.e., the first time the
concept of blockchain emerged (Nakamoto, 2008), and the first quarter of 2018 is considered.
To reflect the latest state of research, the most recent publications available are selected. For this
purpose, scientific databases such as ABI/Inform, Google Scholar, Science Direct, and relevant
databases within the EBSCO host, i.e. Business Source Complete (EBSCO), EconLit with Full Text
(EBSCO), eBook Collection (EBSCO) and eBook Academic Collection (EBSCO) are used. These
databases offer a comprehensive pool of literature from engineering and management science.
3.2. Selection of Publication Types and Relevant Articles

Due to novelty of this research topic, there is no high number of highly-ranked journal articles. That
is why, in addition to journal articles, the search is extended by conference papers, books, reports,
and working papers. In order to ensure a detailed information basis, exclusively publications with
more than five pages are considered.
Figure 1: Search String, Source: Own Illustration
A search string has been defined in order to retrieve the relevant literature from the databases. To do
so, we have elaborated, optimized, and selected several keywords derived from existing literature
and refined the results by discussing them within the research team.
The selected search terms are combined by using the logic operators “AND” and “OR”, which
is shown in Figure 1. The search string connects the terms Blockchain, Distributed Ledger, and
Hyperledger, a blockchain project of the Linux Foundation (Hyperledger, 2018) with relevant
industrial terms. Also, we repeated the investigation in German. In total, 111 publications meeting
our criteria have been identified.
Figure 2 gives an overview of the article selection process undertaken in order to ensure a systematic,
transparent, and replicable literature review. First, duplicates and not sufficiently scientific articles
have been removed (1). Second, the abstracts, introductions, and conclusions have been examined (2).
Third, the full texts have been cross-read (3). Fourth, the papers have been read in their entirety (4).
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In each step, articles unrelated to management, industry, and blockchain technology have been
excluded. In order to also collect literature not contained in the databases employed, all references and
sources have been scanned for relevant publications (snowball method/cross-referencing). Finally, 59
articles have been identified serving as the final literature sample for the systematic review.
3.3. Categorization of the Articles and Evaluation

The final sample of 59 publications is analyzed in depth and classified according to six categories,
which have been developed inductively from the content and respective core statements of the
articles. The categorization is based on the separate analysis of three of the co-authors, followed by
a common elaboration and revision of the final categories:
(1) Motivation for using a blockchain, (2) Opportunities for Industry 4.0 applications through
blockchain technology, (3) Obstacles to implementation, (4) Approaches to implementing a block-
chain, (5) Impact of blockchain technology on business models, and (6) application examples.
Figure 3 illustrates the different categories.
Figure 2: Selection Process of Relevant Articles, Source: Own Illustration
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Figure 3: Categorization, Source: Own Illustration
Finally, the articles are compared, evaluated, and discussed to investigate the current state of
research. Based on this, our aim is to answer the research question, derive academic and practical
recommendations for action, and reveal further research areas. Table 1 provides an overview of the
categorization of all relevant publications in the six research categories.
Table 1: Overview of the Reviewed Literature Sample
Categories
Authors(s) (year) (1) (2) (3) (4) (5) (6)

Overall results 19 20 19 15 7 9
Abadi et al. (2018) X
Abeyratne and Monfared (2016) X X
Albano et al. (2018) X X
Alzahran and Bulusu (2018) X
Andrews et al. (2017) X
Angrish et al. (2018) X X X
Atzori (2016) X
Bacina (2018) X
Bahga and Madisetti (2016) X
Bocek et al. (2017) X X
Catalini and Gans (2018) X
Christidis and Devetsikiotis (2016) X X X
Davidson et al. (2016) X
Debabrata and Albert (2018) X X
Fernández-Caramés and Fraga-Lamas
X X
(2018)
Ferrag et al. (2018) X
Gatteschi et al. (2018) X
Hackius and Petersen (2017) X
Holland et al. (2017) X
Isaja and Soldatos (2018) X X
Jackson et al. (2018) X
Khan and Salah (2018) X X
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Khaqqi et al. (2018) X
Korpela et al. (2017) X
Kouicem et al. (2018) X X X
Kshetri (2017) X X
Kshetri (2018) X
Kumar and Mallick (2018) X X
Li et al. (2017) X
Li et al. (2018a) X X X
Li et al. (2018b) X X
Li et al. (2018c) X X
Lin and Liao (2017) X
Lin et al. (2018) X X X
Madhwal and Panfilov (2017) X X X
Marfia and Degli Esposti (2017) X
Mattila (2016) X
Mattila and Seppälä (2015) X
Mattila et al. (2016) X
Maull et al. (2017) X
Mondragon et al. (2018) X
Nowiński and Kozma (2017) X
Ostern (2017) X
Pinheiro et al. (2018) X X
Posadas (2018) X
Preuveneers et al. (2017) X X
Reyna et al. (2018) X X X X
Sikorski et al. (2017) X
Sklaroff (2017) X
Teslya and Ryabchikov (2017) X
Teslya and Ryabchikov (2018) X X X
Voshmgir (2017) X
Walport (2016) X
Weber et al. (2016) X
Witt and Richter (2018) X
Continuation Categories
Authors(s) (year) (1) (2) (3) (4) (5) (6)
Overall results 19 20 19 15 7 9
Yli-Huumo et al. (2016) X
Zhang et al. (2017) X
Zheng et al. (2017) X
Zheng et al. (2018) X
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4. Results
4.1. Motivation for Using a Blockchain

Current literature agrees that various companies are increasingly networking and promoting the
exchange of knowledge and services regarding blockchain’s application (Angrish et al. , 2018; Li et
al., 2018c; Zhang et al., 2017). In addition, an increasing focus on individual customer needs from
the production-side and the tendency for highly automated mass production are frequently cited
(Preuveneers et al., 2017). Keywords that summarize these developments include Open Production
(Li et al., 2018c), Cloud Manufacturing (Li et al., 2018a), Cyber Manufacturing
(Angrish et al.,
2018) and Network Production (Preuveneers et al., 2017).
In addition, reference is frequently made to the use of IoT for industrial environments (Khan &
Salah, 2018; Kouicem et al., 2018) and the digitization of the supply chain (Debabrata & Albert,
2018; Korpela et al., 2017; Madhwal & Panfilov, 2017). All these developments are based on a
decentralization of the respective processes (Isaja & Soldatos, 2018).
In contrast, the currently used systems are centrally constructed and accordingly have problems in
terms of flexibility, efficiency, availability, and security (Kshetri, 2017; Kumar & Mallick, 2018;
Li et al., 2018a; Lin et al., 2018). Furthermore, the lack of trust in cross-company cooperation is
mentioned as a problem, favoring the use of a blockchain (Li et al., 2018c; Reyna et al., 2018).
4.2. Opportunities for IIoT Applications
4.2.1. Effective Identity Management

With a blockchain, a central authority is not required for identity delivery, verification, and
administration (Preuveneers et al., 2017). Every participant of a blockchain can be uniquely
identified (Angrish et al., 2018; Reyna et al., 2018). This results in three advantages for the identity
management of a blockchain. First, only mutually accepted participants can join the network (Lin
et al., 2018). Second, users are entitled to communicate directly without intermediaries. Third, data
is always assigned to a user and can therefore be traced (Khan & Salah, 2018; Reyna et al., 2018).
4.2.2. Increased Trust in a Network

Using a blockchain can create a common basis of trust between different participants within a
network. In a blockchain, the trust factor is based on authenticity, transparency, and integrity of the
entered data (Li et al., 2018a; Preuveneers et al., 2017; Reyna et al., 2018). In addition, the loss of a
central authority means that no misuse of trust can take place (Marfia & Degli Esposti , 2017; Reyna
et al., 2018). As a result, the communication between various partners within the network can be
significantly and sustainably improved (Abeyratne & Monfared, 2016; Hackius & Petersen, 2017;
Mattila et al., 2016).
4.2.3. Increased System Security

The use of a blockchain guarantees a secure system. In a distributed network, crucial failure points
are avoided that would arise in a central system, for instance due to the loss of a user (Kouicem et
al., 2018; Li et al., 2018a; Mattila, 2016). Moreover, the security of the system is increased by a clear
identification of the users and a common consensus formation in transactions. Potential attacks on the
network require computers with significant computing power, and even then, any change in a node can
result in an automatic exclusion from the network (Kshetri, 2018; Madhwal & Panfilov, 2017).
4.2.4. Use of Smart Contracts

Smart Contracts are legal agreements that are recorded and executed through computer protocols.
They achieve their full potential when applied in a blockchain due to the immutability of data and
the equality of the participants. Thus, decisions can be made autonomously, decentrally, and faster
without any central authority (Bocek et al., 2017; Isaja & Soldatos, 2018; Kshetri, 2018; Madhwal
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& Panfilov, 2017). For example, independant Decentralized Autonomous Organizations (DAO) use
Smart Contracts to install rules in a blockchain (Gatteschi et al., 2018; Voshmgir, 2017).
4.3. Obstacles to Implementation
4.3.1. Security as Technical Obstacle

Improving security is one of the main reasons for the implementation of a blockchain. Data in
blockchains will always be stored invariably and comprehensibly. However, in a distributed
network in which many devices are involved, the correctness of all the entries cannot be verified.
This represents potential for manipulating inputs, and thus a challenge for organizations (Reyna et
al., 2018). Moreover, there is a risk that users will pass on false information. An example is the 51
percent attack, in which one user has more than 51 percent of the computing power in a blockchain.
Hereby information can be arbitrarily manipulated and modified (Li et al., 2017; Sikorski et al.,
2017; Zheng et al., 2018). Especially blockchains that use a consensus mechanism with only few
users involved are vulnerable to this type of attack (Reyna et al., 2018).
4.3.2. Data Protection

Adequate data protection in a blockchain is a challenge, but necessary and legally required (Reyna
et al., 2018). Participants of a network are identifiable via their public keys and visible through their
executed transactions. Based on this, certain patterns can be tracked that indicate conclusions about
a user’s identity (Christidis & Devetsikiotis, 2016; Gatteschi et al., 2018; Yli-Huumo et al., 2016;
Zheng et al., 2017).
Closely related to this is the validation of a transaction by disclosing it to the participating nodes. A
potential workaround would require to store data outside of the blockchain or to verify the transaction
by the zero-knowledge proof, allowing a subscriber to verify the transaction without accessing the
content (Christidis & Devetsikiotis, 2016; Fernández Caramés & Fraga-Lamas, 2018).
In addition, it should be noted that data in a blockchain is encrypted to prevent it from being accessed
by unauthorized persons. Especially for the IoT, this means that encryption software has to be
implemented in every device (Reyna et al., 2018).
4.3.3. Energy Demand

In bitcoin networks, high energy volume is required. This poses particularly great challenges to the
industrial implementation of a blockchain. For example, IoT end devices usually have no permanent
power supply whereas many transactions are to be expected in a production setting. The high energy
demand results from two different factors. First, the process of finding consensus on a transaction
requires a lot of computational effort (Abadi et al., 2018; Fernández-Caramés & Fraga-Lamas,
2018). Second, the IoT terminals involved in the network must be permanently switched on to ensure
error-free communication in the blockchain (Reyna et al., 2018). However, a solution could be
to optimize the resulting energy consumption by adapting the update processes in the blockchain
(Fernández-Caramés & Fraga-Lamas, 2018). For example, updates may be made only at certain
times or intervals and not with every new piece of information received.
4.3.4. Scalability, Throughput and Waiting Time

With each data entry an immutably transaction is stored in the block, increasing the size of the
blockchain. The data is stored in each participating node which requires a large amount of memory
not yet provided on current IoT devices (Fernández-Caramés & Fraga-Lamas, 2018; Kumar
& Mallick, 2018; Teslya & Ryabchikov, 2018). In addition to a high consumption of resources,
blockchains with an increasing length also have negative impacts on the performance of an entire
system (Zheng et al., 2017).
Current blockchain networks have significantly lower transaction throughput and longer waiting
times in comparison to central databases (Christidis & Devetsikiotis, 2016). Throughput describes the
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amount of transactions per second. Due to security standards, current blockchains are maximized to
seven transactions per second while other similar networks such as VISA manage 2000 transactions
per second (Albano et al., 2018). Since large amounts of data and regular updates are to be expected
in industrial processes, the use of a blockchain in the current state of the art should be evaluated in
terms of latency and ease of use (Fernández-Caramés & Fraga-Lamas, 2018; Kumar & Mallick;
Reyna et al., 2018). Solutions would be to optimize space utilization by overwriting existing
transaction data or storing only relevant data in a node (Fernández-Caramés & Fraga-Lamas, 2018;
Zheng et al., 2017).
4.3.5. Further Challenges

Another challenge is the programming of interfaces. Due to various blockchain protocols, it is
essential to develop compatible and user-friendly interfaces for various application programs
(Albano et al., 2018; Yli-Huumo et al., 2016). Furthermore, managing different blockchains often
results in errors, especially if transactions are made between private and public blockchain in an IoT
network (Lin & Liao, 2017; Fernández-Caramés & Fraga-Lamas, 2018).
4.3.6. Legal Issues

In addition to technical obstacles, there are various legal questions regarding the implementation of
a blockchain (Reyna et al., 2018). In particular, the privacy of a blockchain and the effectiveness
of Smart Contracts are mentioned in this context. Since May 25, 2018, the European General Data
Protection Regulation applies, which in its ordinance is only designed for centralized networks.
So far, there is no regulation for distributed networks. Additionally, a central contact for the data
protection provisions is missing (Posadas, 2018).
Smart Contracts are not legally effective in most countries so far. By keeping a smart contract
in code, it has fundamentally different characteristics than traditional paper-based contracts. A
computer program lacks human intuition to interpret the contract for partial performance, limitations
of liability, compensation, or interference with the contract (Andrews et al., 2017; Bacina, 2018;
Sklaroff, 2017).
4.4. Approaches to Implementing a Blockchain
4.4.1. Concepts for the Application of Blockchain

in the Industrial Context
Originally intended for the financial sector, practice shows that there are already concrete applications for
the use of blockchain technology in an industrial context (Fernández-Caramés & Fraga-Lamas, 2018).
Li et al. (2018a) developed a job-specific network of manufacturing facilities called blockchain
cloud manufacturing. The goal is to create a distributed production network through a blockchain
with direct computer-to-computer communication, which is more flexible, efficient, and secure
than established centralized approaches (Li et al., 2018b). In particular, they propose a cloud
manufacturing system for being used in the injection molding industry.
In addition, there are several concepts that focus on improving internal and cross-company data
management. Hereby, Angrish et al. (2018), Li et al. (2018c), and Pinheiro et al. (2018) present
a network for the realization of an exchange of knowledge and product information basing on
blockchain technology, in which all production facilities should be integrated. Lin et al. (2018), for
example, present a system that uses a blockchain to implement decentralized and testable access
control for Industry 4.0 applications to optimize security and data protection in a network.
Furthermore, three articles elaborate possibilities for the application of a blockchain in the supply
chain. Abeyratne and Monfared (2016) present a framework of how a future supply chains can be
controlled, designed, and managed in a blockchain. Alzahran and Bulusu (2018) propose a system
for the implementation of a decentralized supply chain, which uses a blockchain in connection
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with NFC (Near Field Communication) technology to detect counterfeit products. It is suitable for
large amounts of data through a newly developed consensus mechanism. Finally, Debabrata and
Albert (2018) developed a framework for the implementation of an organization’s supply chain
based on a blockchain.
4.4.2. Blockchain Implementation for LoT

Several specific concepts already exist relating to the use of blockchain technology for
the IoT. At the beginning, it must be determined how strongly the blockchain should
be linked to the IoT. Either the whole communication can be handled via a blockchain
(IoT to blockchain), only a part of the data can be stored in the blockchain while objects
communicate directly without involving the blockchain (IoT to IoT), or a hybrid approach
can be chosen (Reyna et al., 2018).
In the existing literature there are two widely spread approaches for implementing blockchain
applications for the IoT. Autonomous Decentralized Peer-to-Peer Telemetry is a platform and
a joint project between Samsung and IBM based on the Ethereum blockchain creating a first
framework (Atzori, 2016; Fernández-Caramés & Fraga-Lamas, 2018; Kouicem et al., 2018;
Reyna et al., 2018).
Hyperledger Fabric is another significant platform. The main difference to other platforms is the
separation of execution and validation of transactions to have a better scalability, e.g., in tracking
goods (Reyna et al., 2018; Teslya & Ryabchikov, 2018). Other cited platforms are Enigma, IOTA-
Tangle (Atzori, 2016), or BPIIoT (Bahga & Madisetti, 2016).
4.5. Impact of Blockchain Technology on Business Models

Some articles adopt a holistic approach and consider the impact of blockchain technology or DLT
on companies’ business models. Almost all elements of a business model can be influenced by
the implementation of a blockchain. Basically, Nowiński and Kozma (2017) identify three ways
of influencing a business model via blockchain: Firstly, by authentication of all tangible and
intangible assets. Secondly, by elimination of intermediaries. Thirdly, by efficiency improvement
of operations. Additionally, Catalini and Gans (2018) mention a fourth advantage, i.e., lower
verification costs of transactions. It turns out that the blockchain technology has a disruptive
character and is able to create new and replace established business models (Davidson et al., 2016;
Walport, 2016).
For example, Ostern (2017) provides five use cases that result in new business models
in connection with DLT, which focus on providing data infrastructure, brokering
development platforms, integrating existing services, deploying applications, or providing
support services.
Witt and Richter (2018) analyzed several blockchain technology applications and identified problems
associated with using a blockchain. They identified seven areas such as payment, information
management, transaction history, communications, automation, transaction intermediaries, and
community managers. Based on these insights, companies’ own business model can be evaluated
(Witt & Richter, 2018).
Maull el al. (2017) developed requirements that must apply for an advantageous use of a
blockchain. Their framework is based on a flowchart of the decision process to evaluate options
favoring or opposing the use of a blockchain. In particular, these requirements include whether
transactions need to be processed quickly, values are transferred, a third party is required for
the solution, a shared write access is necessary and whether the participants already know and
trust each other. Furthermore, it has to be decided who will have access to the blockchain
(public/private) and who will be allowed to participate in administrative processes (approval-
free/approval-based) (Maull et al., 2017).
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4.6. Examples of Blockchain Applications
4.6.1. Secure Supply Chain in the Aerospace Industry

In production networks, the task of the supply chain is to provide products at the right time, in the right
amount, and in the right quality (Madhwal & Panfilov, 2017). Due to many different production steps,
several participating companies, high quality requirements and a wide spatial extension, the aerospace
industry is a suitable example of the accompanying complexity (Madhwal & Panfilov, 2017).
The supply chain in the aerospace industry is characterized by an increasing demand and increased
competition, which can cause costly mistakes. With an inter-organizational blockchain, spare
parts can be identified and all work steps recorded over the lifetime of an airplane (Madhwal &
Panfilov, 2017). In addition, using Smart Contracts facilitates the tracking of individual spare parts,
interactions between production steps, and errors (Madhwal & Panfilov, 2017). In particular, a
blockchain demonstrably enables traceability of the entire production and quality process in case
of possible complaints and claims for damages. This means that the supplier is liable to the original
equipment manufacturer, as the delivered component, which is responsible for a damage can be
identified unambiguously (Madhwal & Panfilov, 2017).
4.6.2. Improved Knowledge Exchange in the Injection Molding Industry

Another example is the use of blockchains to improve knowledge sharing. Li et al. (2018b) show how
blockchain technology can improve knowledge transfer, using the example of the injection molding
industry. The production and improvement of molds in this particular industry are decisive for the cost
and the quality of the final product. In the example, two blockchains are used. While one processes
knowledge, the other blockchain stores transactions. This ensures a secure system in which knowledge,
possession, and control are independent of time and clearly regulated (Li et al., 2018b).
Other examples of blockchain applications identified in the literature, include the pharmaceutical
industry (Bocek et al., 2017), supply chains in the composite materials industry (Mondragon et
al., 2018), emissions trading (Jackson et al., 2018; Khaqqi et al., 2018), and a system for ensuring
copyright in additive manufacturing (Holland et al., 2017).
5. Discussion
5.1. Development of Publications

As part of the literature review, 59 publications were identified consisting of 30 journal articles,
19 conference papers, nine working papers and one book chapter. It is noticeable that only a small
part of the publications has their origin in an economic context. The majority of the publications is
interdisciplinary and has their roots in different disciplines (e.g., law, computer science, and various
fields of engineering sciences).
Figure 3: Course of Publications Over The Recent Years, Source: Own Illustration
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Figure 3 shows the history of the publications. Although the search period for the literature review
begins in 2008, the earliest title relevant to this work was published in 2015. However, although
a unique triggering event cannot be identified during that period of time, a significant increase in
publications is observable. Supposedly, the interest in using blockchain technology for industrial
purposes has been aroused by the increasing success of cryptocurrencies and their public attention
in the last years.
5.2. Current State of Research

Yli-Huumo et al.’s (2016) statement, that there is a good foundation on publications dealing
with technical obstacles such as security and data protection, can be confirmed (n=15 out of
59 publications). Although many of these publications are not directly related to the use of
blockchain in an industrial context, many of the findings can be assigned to various industrial
areas. Thus, the literature already provides practicable approaches to increase security and
privacy (n=5).
The motivation of an organization to use a blockchain has already been examined more in detail
(n=19). This category contains articles, which describe the present issues with central systems, the
current state-of-the-art or future developments in industrial settings.
Opportunities that arise for an organization through the use of a blockchain are treated in the articles
superficially (n=20). The benefits of a blockchain in this context are mainly discussed relating
exclusively to current issues. Specific impacts and further developments are not considered, yet.
Concrete application scenarios for the implementation of a blockchain in the industrial context
only exist as concepts (n=8). However, in the field of IoT, several marketable applications can be
found (n=6).
Several publications deal with the intersection of blockchain technology and companies’ business
models (n=7). In this context, the influence of blockchain technology, its effects, and application
areas on the entire company are examined. Nevertheless, many authors in the articles emphasize that
this is still a young field of research (Maull et al., 2017; Ostern, 2017).
In addition, nine out of 59 publications were identified that include examples of blockchain
application in an industrial context. However, the application examples are still in the conceptual
phase, so they have not been implemented comprehensively yet.
5.3. Potentials of Blockchain Technology in An Industrial Context

It is already becoming clear that blockchain technology will have a major impact on the industrial
environment in the future. As the field of research is still in its infancy, the complete range of
implications is difficult to estimate, yet. That is why four core aspects are identified.
Firstly, blockchain can be a potential solution to current privacy, security, and trust issues in
centralized industrial systems. Of great importance in this context is its decentralized network
structure, which brings many advantages such as the elimination of intermediaries, monitored
processes, and avoidance of central structures.
Secondly, there are threats from the close linkage between blockchain and industrial developments.
The success of the blockchain technology is closely linked to whether the implementation of Industry
4.0 will continue to be determinedly pursued with the necessary dedication. Moreover, there is the
possibility that alternative technologies or solutions to existing problems may be used, possibly
making blockchains obsolete. A switch to blockchain technology should be well considered, as it is
associated with high effort and costs.
Thirdly, besides addressing current issues in the industrial environment, a blockchain has the
potential to change entire business models and replace old ones. Although the literature does not
recommend any concrete recommendations for action yet, blockchains are capable to influence
various areas of business models, at least in the long term.
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Lastly, it is shown that the technology is versatility applicable. However, many technical challenges
in the implementation of a blockchain exist. As long as these challenges cannot be met, the
technology is of limited use.
5.4. Management Implications

Based on the previous findings, the following recommendations for future action dealing with
blockchain technology are derived.
Companies need to actively monitor the development of blockchain technology to maintain
and extend competitiveness. To do so, it is necessary to examine potential applications of a
blockchain within the company and to get an overview of all the resources needed. Testing
blockchain applications in advance helps to build up internal skills. Even if no potential has yet
been identified for the use of a blockchain technology, the development of expertise knowledge
should still be pursued.
A second advice is to thoroughly consider in which areas a blockchain might be implemented, as
it is not expedient to focus solely on the use of this technology. So far, the impact of blockchain
in the industrial context cannot be foreseen. Companies should elaborate guidelines and set up
decision-making processes that indicate if implementing a blockchain in an area brings considerable
advantages. One example for this is represented by the decision-making flowchart developed
by Maull et al. (2017). In case the decision-making process strongly advises not to implement a
blockchain, organizations ought to consider alternatives. However, as the technology is continuously
developing, this test of feasibility should be repeated on a regular basis.
Thirdly, companies should engage in further activities to develop blockchain technology beyond a
company’s borders, to promote acceptance of the technology and unlock synergy effects. For instance,
one possibility is to engage in cluster building and cross-company cooperation to push networking as well
as knowledge exchange. In so doing, blockchain’s exhaustive advantages can be exploited sooner. Beside,
a close cooperation with research and political institutions is advantageous, to create an appropriate legal,
economic, social, and ethical framework for an industrial application of the blockchain. Thereby, explicit
guidelines can be formed and implemented in a suitable manner for companies.
6. Conclusion
6.1. Theoretical Implications

The paper at hand contributes to the current state of research by exploring the potentials of the
blockchain technology in an industrial context. Analyzing 59 relevant publications in a systematic
literature review reveals six main research areas, which reflect the research status quo.
It is shown that the increasing interconnection and digitalization favor the application of blockchains
in an industrial context by addressing the drawbacks of centralized systems and securing trust in
cross-company relationships. Thus, Smart Contracts can be executed more effectively, ensuring
identity management and system security. However, blockchains still pose various obstacles,
especially regarding technical implementation issues, data protection, energy demand, scalability,
and legal questions. Besides, the paper presents concepts for the implementation of a blockchain in
industrial settings and the IoT along with examples of blockchain applications. Additionally, first
implications concerning possible impacts on business models are displayed.
This paper’s main findings include that the blockchain technology can have a significant impact on
industrial enterprises’ value creation. However, it should be noted that the research area is still in its
infancy and thus the holistic potential cannot be grasped yet.
6.2. Limitations
Although, the chosen methodology is suitable for the objectives of this study, there are limitations
that need to be addressed.
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First, it is noteworthy that the search string was defined in advance and not developed inductively.
By adapting the search terms based on newly gained insights during the research process, it would
have been possible to identify further literature. Nevertheless, we faced this effect by applying
cross-referencing.
Besides, the literature review revealed that the topic has a strong interdisciplinary background,
whereas our study primarily focusses on the business environment and economic-related databases.
Although cross-referencing approaches might mediate this issue, supplementary aspects and
viewpoints from other disciplines likely relevant for a holistic approach to blockchain in different
industrial settings, are not covered in the scope of this paper.
6.3. Further Research

Given the scope, limitations, and findings of our study, we propose the following questions for
further research:
Firstly, in order to create a basic understanding for the topic, research has to define a common
terminology. For example, the term blockchain is not clearly defined and the terms platform and
protocol are inconsistently used in the reviewed literature.
Secondly, the current state of research shows that several aspects related to the use of blockchain
technology for industrial settings are still disregarded largely. In this context, a supplementary cross-
disciplinary database search might be useful to obtain additional relevant literature.
Thirdly, an agreement in the literature exists, regarding the opportunities and challenges that
accompany the use of a blockchain. However, it is unclear to what extent they are mutually influencing
each other. Linking the various different topics will help to develop a better understanding.
Finally, literature rather deals with mere advantages of using blockchain technology, than with the
influence of blockchain technology on companies’ business models. However, it would be essential
to point out the economic value it might bring to organizations, particularly regarding its disruptive
potential and possible application in different business areas.
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Innovation in Pharmaceutical Drugs,
Patents and Public Health in Brazil
Quésia Postigo Kamimura

University of Taubaté , Brazil
E-mail: qkamimura@gmail.com
Sóstenes Postigo
Faculty of Medical Sciences of Santa Casa de Misericórdia
de São Paulo / São Paulo, Brazil
E-mail: sostenes.p@uol.com.br
Edson Aparecida Araujo Querido Oliveira

E-mail: edsonaqo@gmail.com
Adriana Leonidas De Oliveira

University of Taubaté, Brazil
E-mail: adrianaleonidas@uol.com.br
Rita De Cassia Rigoti Monteiro

E-mail: rita_rigotti@yahoo.com.br
Vitória Kedy Cornetta

Faculty of Public Health, University of São Paulo, Brazil
E-mail: vkvfsp@usp.br
Abstract
The process of scientific and technological innovation in medications brings to the fore the debate on other
fundamental issues concerning Brazilian independence in research and technology: drug patents, economic growth
and public health. In the context of the Brazilian health system, pharmaceutical patents are a topic of heated
debate. One side promotes the discourse advocating a strengthening of the pharmaceutical industry, extolling the
importance of patents for therapeutic innovation and for enhanced well-being associated with the resultant lower
morbidity and mortality rates of the population. The other side voices concerns over the effects of imposing
barriers to access for more effective treatments and their consequences for public health. The objective of this
study is to present a temporal analysis on the effects of Brazilian public policies for the pharmaceutical sector on
the process of innovation and economic growth, the importance of intellectual property and compulsory licensing
as safeguards in public health. The methodology entails an integrative review, using an approach allowing the
inclusion of experimental and non-experimental studies, to provide a broader understanding of the phenomenon
analyzed. The review also draws data from the theoretical and empirical literature, besides encompassing a broad
range of topics: definition of concepts, review of theories and evidence, and analysis of methodological problems
of the topic studied, namely, innovation, technological development and intellectual property in the pharmaceutical
sector and implications for public health. A total of 22 articles were selected from leading business journals,
congress annals, collected editions, and reports by research institutions, published between 2008 and 2017. The
pharmaceutical industry constitutes a central segment and key driver of its involvement in local and global markets.
The sector has numerous multinational companies which take decisions at a local level and are highly dynamic
both in terms of localization of their companies and levels of national specialization. Amid the innovations and
new processes developed worldwide, Brazil has promoted government actions to promote national production.
The synergic and propitious raft of national policies for health, the industry, technology and foreign trade, among
others – poses a challenge and opportunity in reducing Brazilian vulnerability and strengthening the system of
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innovation in healthcare. Intellectual property rights are fundamental strategic assets. However, compulsory
licensing and the development of effective juridical and administrative structures are also important. Further in-
depth studies are warranted employing tools that can overcome present limitations and better elucidate elements
affecting public policies in research and development, economic growth, market prices of patented drugs in Brazil,
as well as public expenditure on patented drugs and on public health. The present study contributes by identifying
some of these elements influencing and impacting the dynamic of innovation in the pharmaceutical industry and
promoting relevant debate by addressing issues involving Brazilian public policies and pharmaceutical patents,
and in discussing ways to support the policy of universal access to healthcare and of industrial and technological
development in Brazil.
Keywords: Healthcare Policies, Brazilian National Health Service (Sus), Pharmaceutical Industry
1. Introduction
All The pharmaceutical industry developed along with the progress of medicine and the advancement
of medical, chemical, biological and pharmacological research from the 19th century.
This industry is characterized by its high dynamism and its capacity to be one of the most globalized
industries in the world, growing at rates higher than those experienced by the world economy and
showing a growing importance in intra-firm international trade, due to the existence of a strategy of
international distribution of productive activities by multinationals. These characteristics stimulate
the entry of new bidders into the global pharmaceutical market, but there is a lot of resistance as
this industry is associated with the need for high R & D and marketing expenditures, as well as in
the patent protection system, the control of supply of active principles and the reputation of leading
laboratory brands. It is characterized by a structurally concentrated and oligopolistic market, with a
relatively small number of large multinational companies and a large number of small and medium-
sized firms acting in a complementary way to large laboratories. (Bertola, 2006).
According to data from IMS Health (2007), the world pharmaceutical market grew by 7% in 2006, at
constant exchange rates, which represented approximately US $ 643 billion. This growth is based on
maintaining the growth of population longevity, strong economies and the emergence of innovative
products. In 2009, the market grew 7%, which represented US $ 837 billion, compared to a growth
rate of 4.8% in 2008 (IMS HEALTH, 2010).
Some studies (BERTOLAI, 2006; TICKELL, 2004) show that the pharmaceutical industry in the world
presents high growth rates and technological innovation, well above the industry average as a whole,
and is structured as highly concentrated in large multinational laboratories in developed countries, and
that the stages of drug production and especially of R & D are concentrated in developed countries,
while developing countries operate in the stages of production of pharmaceutical specialties in the
conduct of clinical trials, especially in phases 3 and 4, and marketing and marketing of these drugs.
In the scope of the pharmaceutical industry four technological stages are present: stage I -
research and development of new drugs; stage II - production of new drugs; stage III - clinical
research and production of pharmaceutical specialties (medicines); stage IV - marketing and
commercialization of pharmaceutical specialties. These stages define the degree of mastery of
the productive process that has been achieved by the states that have been most industrialized.
In states with less development potential, stages I and II are practically zero (FOTA, 1993;
QUEIROZ; GONZÁLEZ, 2001).
In Brazil, the pharmaceutical industry began to be structured in the 1930s, although at the time local
production was small and dependent on imports of inputs. It originated in family establishments,
through the manipulation of natural substances of vegetable, animal or mineral origin. Afterwards, it
is characterized by the development of biological products to combat epidemic outbreaks in regions
of the country, which motivated the creation by the government of laboratories qualified for research
and production of vaccines and serums, such as Instituto Butantã (1889) and Oswaldo Institute Cross
(1902). And the third period began after World War II, generating a technological gap between the
Brazilian industry and that of the more developed states, which started investing more in research
and development of new products (Fleota, 1993);
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Innovation in Pharmaceutical Drugs, Patents and Public Health in Brazil
In the 1950s, there was a jump in the share of foreign-origin companies in domestic production,
reaching 35 percent in 1940 and 73 percent in 1960. On the other hand, once multinational
corporations internalized production, there was a certain reduction of imports of drugs at a residual
level, while the drugs required for domestic production continued to be imported in increasing
quantities. (PALMEIRA FILHO, PAN, 2003)
The process of scientific and technological innovation in medicines brings to the fore the debate
on other fundamental issues regarding Brazilian autonomy in research and technology: the need to
stimulate innovation and investment in pharmaceutical R & D, protection and compulsory licensing
in the area of public
health.
The objective of this study is to present the temporal analysis on the effects of Brazilian public
policies for the pharmaceutical sector on the process of innovation and economic growth, the
importance of intellectual property and compulsory licensing as safeguards in public health.
The methodology entails an integrative review, using an approach allowing the inclusion of
experimental and non-experimental studies, to provide a broader understanding of the phenomenon
analyzed. The review also draws data from the theoretical and empirical literature, besides
encompassing a broad range of topics: definition of concepts, review of theories and evidence,
and analysis of methodological problems of the topic studied, namely, innovation, technological
development and intellectual property in the pharmaceutical sector and implications for public
health. A total of 22 articles were selected from leading business journals, congress annals, collected
editions, and reports by research institutions, published between 2008 and 2017.
1.1. Public Policies, Innovation, Health Innovation,

Especially in the Pharmaceutical Industry
One of the biggest challenges posed today to the Innovation System in Brazil is the promotion of an
effective articulation of the public and private actors relevant to the development of ST & I. The case
of the health sector also reflects this concern and this challenge, given that this situation translates into
difficulty in obtaining new knowledge and the transformation of these into innovations (new drugs,
equipment, prostheses, clinical procedures, among many others), as well as as a stable and continuous
technical-scientific development, with repercussions on the well-being of the population in general.
The concept of technological innovation is linked to the introduction of a new product or new
industrial process; and, above all, to the idea of its
introduction in the market, without which there
is no innovation. In the case of the pharmaceutical industry, innovating means making a new drug
available for human consumption for the treatment of diseases. Discovering a new active principle,
or a new molecule, is an invention of a new chemical entity, but will only be an innovation when it
has proven its effectiveness in fighting a disease, and its consumption is made possible through a
new drug placed on the market.
Among the types of innovation, innovation in the pharmaceutical industry is expressed as
incremental, when it presents minor modifications or adaptations in an existing product or process,
and that do not bring profound changes in the procedures in force, without presenting therapeutic
novelties. Introducing the development of a new molecule containing an active ingredient that can
form the basis for a new drug to be patented can become a radical innovation.
Santoro (2000), in relation to product innovations in the pharmaceutical industry, presents a
classification from the route of chemical synthesis: a) identification of a new active substance (new
active principle) - discovery; b) obtaining a new molecule derived from structure-activity analysis
(new chemical entity; new drug) - invention; c) new pharmaceutical formulation / compound (new
medicine) - radical innovation; d) development of a new active principle around already known
chemical structure (me too) - incremental innovation; e) new indications of use for already known
chemical entities (new target) - incremental innovation; f) new combinations of formulations (three
in one, for example) - incremental innovation; g) duplication of products already marketed (generic
IAMOT 2019 | 217

or similar) - mere copy of the compound, unless it adds some value, eg the introduction of a new
excipient to improve the absorption of the drug by the organism.
The innovation considered most important in the pharmaceutical sector occurs in product
development, for which there is a permanent search for increased effectiveness, safety of use and
reduction of side effects. This process comes about by changing the characteristics of the drug,
to make it more effective and to cause less adverse or collateral effects; and by changes in the
composition of the other components of the formulation to potentiate the action of the drug, such as
altering the rate of its release in the body (PALMEIRA FILHO; PAN, 2003).
The ability to perform the discovery of a new molecule with therapeutic potential (active principle)
is the most advanced technological competence. Industrial production technologies, both
pharmaceuticals and pharmaceutical specialties, as well as marketing and marketing are not difficult
to master in terms of the degree of technological complexity.
As already explained, the technological stages are basically four: a) Stage I - Research and
Development (R & D); b) Stage II - Production of Phytochemicals; c) Stage III - Production of
Pharmaceutical Specialties; and Stage IV - Marketing and Commercialization of Pharmaceutical
Specialties (FRENKEL, 1978; QUEIROZ; GONZÁLEZ, 2001).
In Stage I, there are developed countries, where there is capacity to perform all stages, from
basic research, ie chemical research for isolation and development of new molecules, until the
commercialization of medicines. The countries in Stage II are those that have reasonable industrial
capacity for fine chemicals, producing their inputs. Stage III is carried out in countries that have a
reasonable ability to formulate medicines and master production activities, even when they import
practically all the raw materials they need. Stage IV does not require any productive capacity and can
occur even in small countries, without local pharmaceutical production, where even the final drugs
are imported, leaving only the marketing activities to the companies.
The countries that dominate the first two stages are those who are at the forefront of chemical
and pharmacological research and have achieved maturity in both academic research and the
state regulatory apparatus, as is the case in the USA, the United Kingdom and Germany. The
incorporation of each of these stages implies the transposition of significant barriers, both economic
and institutional, requiring the support of medium and long-term government and business policies
(FRENKEL, 2002).
In relation to Brazil, Queiroz et al. (2002) highlight a number of factors, including a national drug-
manufacturing industry with low technological capacity, a drug-manufacturing industry dominated
by foreign companies that do not conduct research in the country, a medical equipment sector in
which Brazilian companies produce products with low added value, while those with external capital
dominate the more complex production, but with high import content. A relevant public health
concern is the logic of investments and their low relation to the needs of the population, especially
those poorer and rural, still subject to the incidence of diseases in less developed countries.
The actions of the government focus on a system of innovation in health that does not show the same
dynamism observed in countries with more advanced industrial and socioeconomic development,
both due to the nature dependent on the national industry and their behavior, but not less important,
also of the oscillations in the general panorama of the industrial and technological policy of the
country and its dependent insertion in the scenario of the world economy (FIALHO, 2001).
According to Gadelha, Quental and Fialho (2003), innovation takes place in a perspective that
considers the dynamics, both of the economy of the institutions and of public policy, starting from
some evidences: a) the health area constitutes one of the economic spaces of greater dynamism in
the accumulation of capital and innovation; b) the systemic character involves the generation of
innovations of products and processes, as well as organizational innovations in the health area;
c) health remains one of the areas of greater state intervention, both in the service sector and in
scientific and technological activities.
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Some authors (Albuquerque and Cassiolato, 2000; Gadelha, Quental and Fialho, 2003; Albuquerque,
Souza and Baessa, 2004) have contributed to delimit the national health innovation system as an
economic, political and institutional construction for which converges interests derived from both
business strategies in the different health industries and in science and technology institutions and
from the pressure of civil society for the provision of health services that meet the requirements of
access, full actions and equity. Within this system, it is incumbent upon the State to act as mediator
between the supply and demand of goods and services, facing the challenge of combining issues
related to health promotion and industrial and technological development in the area.
From the point of view of public instruments, the State has a broad and growing role in health,
constituting an important field for the establishment of industrial development strategies, linked to
the use of state purchasing power, National Bank for Social Development, to the performance of the
network of public producers, to the use of legal mechanisms related to the regulatory framework,
such as compulsory licenses to serve the public interest.
1.2. Technological Development and Industrial

Policy in The Pharmaceutical Sector
The issue of external dependence on drugs and medicines has been recurrent and was among the
main issues raised at the National Health and S & T Conferences in Health. The sector has been a
constant subject of discussions in governmental forums and has recently been considered a priority
and included in industrial policy.
The need to stimulate pharmaceutical R & D appears to be relevant in several government programs
to promote innovation: Partnership for Technological Innovation Program (PIPE); Program of
Technological Innovation in Small Business (PITE); Finep - Inovar Project (2001); in the debates of
the MDCI - Forum of Competitiveness of the Pharmaceutical Production Chain; and the Ministry of
Health “Access to medicines, government procurement and social inclusion”, for the identification
of high cost drugs and validation of official laboratories; and in the initiatives of the BNDES
Seminars on the Health Industrial Complex (2002 and 2003) that resulted in Profarma (2004); and
in the Innovation in Health Project, Fiocruz, 2002.
According to Barbosa, Mendes and Sennes (2007), in the case of technological policy, the challenge
is to overcome the disconnect between Brazilian companies and R & D activities. In the case of
trade policy, the search for market access and expansion should coincide with the capitalization and
internationalization of Brazilian companies, but also the qualitative change in the structural position
occupied by the subsidiaries of foreign-owned companies operating in Brazil in the distribution
system of functions and power established by the matrix. They also point out that all these actions
are conditioned by macroeconomic policy, but they can also condition it positively.
Criação
dos
fundos Pro-
setoriais
f
PITCE
Lei da
Criação inovaçã
da
Anvisa
I Conferên-
cia
Modelo de Predominância Lei das Forum
Lei dos Nacional de
substituição de de políticas Patentes de Ciência
Genéricos
importação horizontais competi Tecnologia
vidade e Invoação
Figure 1: Evolution in Time of the Industrial Policy Instruments for the Pharmaceutical Sector
Source: Adapted from Barbosa, Mendes and Sennes, 2007; Kamimura and Cornetta (2015).
Transformations of the pharmaceutical industry in Brazil Continuing the world scenario, the Brazilian
pharmaceutical sector, from the beginning of the 20th century until the 1930s, was more focused
on the production of vaccines. According to Pinheiro (1999, p. 167), “until the 1930s the country
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presented only a more pronounced industrial development regarding the fight against epidemic
outbreaks.” In the 1940s and 1950s, the period of validity of the National-Developmental State, the
transnational pharmaceutical industries began to come to Brazil. This period favored the entry of
foreign capital into the country, making the economy and industry vulnerable to these companies.
In the 1960s and 1970s, it is worth highlighting the emergence of new proposals regarding the issue
of drug supply by the Brazilian public sector. Among them, the creation plan of a state-owned
company Farmoquímica Brasileira SA (Farmobrás SA), which was not implemented, the foundation
of the CEME and the continuation of the process of creating official laboratories, dating from the
beginning of the century (BERMUDEZ, 1995). In the 1980s, the Federal Constitution was enacted,
which advocated health as the right of everyone and the duty of the State, and the institution of the
Unified Health System (SUS). In this context of universal and equal access to health and medicines,
the Brazilian pharmaceutical sector was still characterized by the continued dependence on the
transnational pharmaceutical industries, concentrated and oligopolized, where these industries were
not interested in investments in R & D, but in marketing. In the 1990s, the Brazilian pharmaceutical
industry, following the molds of the world pharmaceutical industry, was characterized by a high
degree of concentration, vertical integration and the processes of acquisitions and mergers, with
consequent changes in its patterns of oligopolistic competition. However, it is worth noting during
this period that the pharmaceutical industry in Brazil opted for
Until 1970, Brazil admitted patents for processes, not for products. During the 1990s, a horizontalist
approach to industrial policy in the country was based on the linear reduction of tariffs and the
absence of policies for specific sectors in a context of strong exchange appreciation in 1994 and
1998. One example of this industrial policy option was the extinction of Annex C of CACEX10 in
1993, which included raw materials, inputs and additives used in the local manufacture of medicines
(BARBOSA, MENDES and SENNES, 2007).
In this context, foreign-owned companies operating in the domestic market started to present high
trade deficits. The import / export ratio of pharmochemicals jumped from 3.8 to 7.3 between 1990
and 1999 (Capanema and Palmeira, 2004), promoting a process of reduction of the productive chain
of the sector and transforming the country into a marginal producer and exporter, pharmaceuticals in
low-value-added segments and stages.
The Industrial Property Law, passed in 1996 after a long period of debate between those in favor and
those against it, came into force in 1997. The horizontalist view of industrial policy lost momentum
when the 1999, directly focused on the pharmaceutical chain, and with important impacts on the
sectoral market structure. It is also worth mentioning the creation of ANVISA in the same year.
In 2003, the Ministry of Development, Industry and Foreign Trade (MDIC), together with other
ministries, started the Forum on Competitiveness of the Pharmaceutical Production Chain, with
the objective of increasing the production of medicines and drugs, and also, with facilitate the
population’s access to medicines distributed by the Ministry of Health. In 2004, it launched the
Technological Industrial and Foreign Trade Policy (PITCE). In that same year, BNDES started
Profarma as an instrument to support the implementation of PITCE.
The MCT launched in 2007 the PACTI - Action Plan on Science, Technology and Innovation for
National Development
1.3. Intellectual Property, Compulsory

Licenses and Public Health
Pharmaceutical industries, as well as companies in general, defend the need for patent protection,
arguing that through this system it is possible to stimulate innovation and investment in R & D,
beyond, of course, monopolistic control over the event, even if temporary, since such industries or
companies need to recover their investments, at the same time, this would favor the competition
among them, to have in the market more advanced products, technologically.
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If, on the one hand, at the international level, emphasis is placed on the strengthening of industrial
property rights and the establishment of appropriate measures against perpetrators of rape, on the
other hand, abusive conduct on the part of rightholders motivates the development and application
of safeguards.
The advent of the Trips agreement on intellectual property and international agreements,
to which Brazil is a signatory, and its incorporation into the legal system of countries, has
increased the discussion on access to medicines. Other factors, such as the accelerated
diffusion of AIDS and the re-emergence of diseases such as tuberculosis, have contributed
to the deepening of debates on access to medicines in developing countries and industrial
property relations (MONIZ, et al., 2005).
Patent breach is the popular term for the compulsory license instrument, misused, since the patent
still exists. Compulsory licenses are measures supported by legal channels (international treaties and
national laws) in force in national territory. They are safeguards intended to promote public interests,
taking into account property rights. Prevent abuses that may result from the exercise of the exclusive
right conferred by the patent.
The effect of Law No. 9,279 in the pharmaceutical area was a general increase in the filing of
patent applications at the National Institute of Intellectual Property (INPI), mainly by non-residents.
Residents’ participation in the filing of patent applications is very low, evidencing a framework of
technological fragility (OLIVEIRA, et al., 2004).
In 2001 and 2005, the threat of compulsory licensing of antiretroviral drugs by the Ministry of
Health produced price cuts. The application of the compulsory license instrument took place in May
2007 after the issuance of ordinance no. 886, of April 25, 2007, that declares of public interest, for
five years and foreseen to renew for an equal period.
The measure taken in May 2007 - although applauded from the point of view of the immediate
concern to reduce the market power of the company and increase the coverage of the anti-AIDS
program - will have to consider the difficulty in translating into internalisation of production or in
significant advance of the capacity of innovation of the public laboratories, and especially refer to
the need of celerity in the technological advance of the sector.
In the evolutionary process of the national system of innovation in health, in 2011 the social
participation in number of participants was increased, from five to thirteen and in representation
through CONITEC (National Commission for the Incorporation of Technologies).
The National S & T Code - changes and adds provisions in the Federal Constitution to update the
treatment of Science, Technology and Innovation activities.
1.4. Final Considerations

The pharmaceutical industry is a central segment and could be an important determinant of its
insertion in regional and global markets. The sector already has a strong presence of multinational
companies that make their decisions at the regional level and act very dynamically both in relation
to the location of their industries and their national specialization standards.
In front of the innovations and new processes developed in the World, Brazil, has been promoting
governmental actions encouraging the national production. The synergistic and fruitful establishment
of the various national policies - health, industrial, technological and foreign trade, among others -
presents itself as a challenge and opportunity to reduce Brazilian vulnerability and to strengthen the
health innovation system. Intellectual property rights are strategic and fundamental assets. On the
other hand, it is also important to emphasize the importance of compulsory licensing and the need to
develop an effective legal and administrative infrastructure.
Regarding the National Policy on Health Technology Management - PNGTS (2010), the objective is
to “maximize the health benefits to be obtained from available resources, ensuring the population’s
IAMOT 2019 | 221

access to effective and safe technologies, in conditions of equity” (BRAZIL, 2010, p.15). In 2011,
it expanded its participation in CONITEC, which replaced CITEC, through various social actors,
which influence, given their respective representativeness, in the decisions and impacts for public
health and the industrial and technological development of health and the country.
In relation to public policies, in Brazil, the challenges are present, in the attribution of the State to
act as intermediary in conflicts of interest (private companies and government) and in combining
issues related to health promotion and the industrial and technological development of the country .
Another trend of the Brazilian pharmaceutical industry is the investment, still incipient, in the
phytotherapeutic and biotechnological medicines, through the financial support of the BNDES.
There is also the fact that, in Brazil, the state is the largest buyer of the private segment of the
pharmaceutical sector, despite the increase in R & D and drug production by official Brazilian
laboratories. Regarding the challenges facing the global and Brazilian pharmaceutical sector, it
should be emphasized that competitiveness must not be eliminated by the formation of large cartels,
and that regulatory apparatuses must adapt to the new world and national contexts. In addition,
the possibility of increased conflicts between regulatory bodies and regulated entities represents
a large scale. It is worth highlighting the challenges related to drug costs and their strong impacts
on health systems, especially those of a more inclusive nature. In Brazil, an additional challenge is
to promote the convergence of the ducts of the Unified Health System (SUS), Anvisa and CADE.
Thus, to reconcile the conduct of these different institutions is a requirement for the policy of access
to medicines to be effective in Brazilian society, making in fact an attribute of Brazilian citizenship.
References
ALBUQUERQUE, E .; CASSIOLATO E. The Specificities of the Health Sector Innovation System: a review of the
literature as an introduction to a discussion about the Brazilian case. Belo Horizonte: Fesbe, 2000.
ALBUQUERQUE, E.; SOUZA, S.; BAESSA, A. Research and innovation in health: a discussion from the literature on
the economics of technology. Ciência & Saúde Coletiva, 9 (2): 277-294, 2004.
BARBOSA, A .; MENDES, A. & SENNES, R. Evaluation of industrial and technological policy and foreign trade for
the pharmaceutical sector. Studies Febrafarma, 13. São Paulo: Brazilian Federation of the Pharmaceutical
Industry, 2007.
CAPANEMA, L .; PALMEIRA FILHO, P.L. “The Pharmaceutical Chain and the Industrial Policy: A Proposal for the
Insertion of BNDES”. BNDES Sectoral, 19. Rio de Janeiro: BNDES, Mar. 2004.
CHINEN, A. Know How and industrial property. São Paulo: Oliveira Mendes and Del Rey, 1997, p. 33.
FRENKEL, J. Technology and competition in the Brazilian pharmaceutical industry. Rio de Janeiro: Finep / CEP /
Gepetec, 1978.
FRENKEL, J. Study of the competitiveness of integrated chains in Brazil: impacts of free trade zones (Chain:
Pharmaceutical). Campinas: IE / NEIT / Unicamp / MCT / Finep, 2002. (Final Technical Note).
FROTA, M. S. P. B. B. Patent Protection of Pharmaceutical Products: the Brazilian case. Brasília, FUNAG-IPRI, 1993, p. 69.
GADELHA, C. A. Biotechnology in Health: a study of the technological change in the pharmaceutical industry and
perspectives of its development in Brazil. Master’s Dissertation, Campinas: Institute of Economics, State
University of Campinas, 1990.
GADELHA, C.A.G. The industrial health complex and the need for a dynamic focus on health economics. Ciência &
Saúde Coletiva, 8 (2): 521-535, 2003.
GADELHA, C.A.G .; QUENTAL, C. & FIALHO, B.C. HEALTH AND INNOVATION: A SYSTEMATIC
APPROACH OF THE HEALTH INDUSTRIES. Cadernos de Saúde Pública, 19 (1): 47-59, 2003.
IMS HEALTH. IMS Health Investor Briefing. Mímeo, april, 2011. Available at http://ir.imshealth.com/phoenix.
zhtml?c=67124&p=irol-irhome. Accessed in April 2011.
KAMIMURA, Q. P .; CORNETTA, V.K. Intellectual Property: Challenges to Public Health. Laes Haes Journal, 2015.
PALMEIRA FILHO, P.L .; PAN, S.S.K. Pharmaceutical chain in Brazil: preliminary evaluation and perspectives.
BNDES Sector. Rio de Janeiro: n. 18, p. 3-22, set. 2003.
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PALMEIRA FILHO, P. L .; PAN, S. S. K. Pharmaceutical chain in Brazil: preliminary evaluation and perspectives.
BNDES Setorial, Rio de Janeiro, n. 18, p. 3-22, set. 2003.
QUEIROZ, S. R. R .; BONACELLI, M.B. M .; MELLO, D. L .; JÔLO, F. S. The CNPq and the Health Innovation
System in Brazil: An Analysis from the Research Groups of the Health Sector. XXII Symposium on the
Management of Technological Innovation. Salvador, 2002.
QUEIROZ, S. R. R .; GONZÁLES, A. J. V. Recent changes in the productive structure of the pharmaceutical industry.
In: NEGRI, B .; DI GIOVANI, G. (Org.). Brazil: health x-ray. Campinas: Institute of Economics / State
University of Campinas (IE / Unicamp), 2001, p. 123-156.
SANTORO, F. M. Innovation and evolutionary path in the pharmaceutical industry: the cases of Argentina and Spain.
Cadernos de Gestão Tecnológica, n. 48. São Paulo: CYTED-PGT / USP, 2000.
IAMOT 2019 | 223

Merging Supply Chain and Blockchain
Technologies
Amr M.A.
Nile University, Management of Technology School, Egypt
E-mail: mamr@nu.edu.eg
Eljazzar M.M.
Cairo University, School of Communication, Egypt
E-mail: mmjazzar@ieee.org
Kassem S.S.
Nile University, School of Industrial and
Service Engineering and Management, Egypt
E-mail: skassem@nu.edu.eg
Ezzat M.
Nile University, School of Industrial and
Service Engineering and Management, Egypt
E-mail: mezzat@nu.edu.eg
Abstract
Technology is a significant component in our everyday life. Many definitions exist for technology, one of which
is “all the knowledge, products, processes, tools, methods and systems employed in the creation of goods or in
providing services”. Due to the impact of technological innovations on organizations, competitiveness levels are
raised noticeably. Hence, reliable means of information exchange and assets tractability are needed, leading to new
challenges facing organizations. This paper introduces different scenarios for solving these challenges utilizing the
technology of Blockchain. In this work, Blockchain is utilized to address data transparency and resource sharing
issues within supply chains. An interdisciplinary approach is adopted in this work, where Blockchain technology,
Information technology (IT) and supply chain process technologies are merged to introduce the developed scenarios.
The interaction of these technologies results in enhancing supply chain processes in the areas of: information,
demand forecasting and resources.
Keywords: Supply Chain, Blockchain, Data Transparency, Resource Sharing, Technology
1. Introduction
Since the rise of the 20th century, the dependency of businesses on supply chains has increased.
Supply chains have become a vital business process that can encourage the competitiveness of a
business in the market. It has been recently emphasized that the success of a company is based
on the interaction between the flow of information, materials, workers, and equipment. Logistics
have been playing a major role in achieving an effective value proposition to the customers as
defined by Kshetri (2018). The author clearly mentioned that retail business logistics are essential
for creating business value as he defined the logistics as “The integrated management of purchasing,
transportation and storage on functional basis”.
Supply chain management was used for decades to deliver goods. Later, the supply chain management
concept changed from focusing just on logistics to become mandatory to track and manage other
flows with in the supply chain. Such flows include, flow of money and flow of information. There
are billions of products being manufactured every day through complex systems of supply chains
that extend to all parts of the world. Several questions regarding these products arise. For example,
what was the origin of these products, where they were manufactured, when, how, and how they were
utilized throughout their entire life cycle. Even before reaching the end customer, these products
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Merging Supply Chain and Blockchain Technologies
move through a wide network of retailers, distributors, transporters, warehouses, and suppliers. All
these stages and functions play a role in every process in the supply chain (i.e. design, production,
delivery, sales, etc...).
Most of these processes need quick actions. Unfortunately, little information is available during the
supply chain life cycle. This is considered among the major challenges in the supply chain domain.
Blockchain – a kind of distributed ledger technology—has been described as the next industry
revolution. Blockchain is a data structure format that makes it possible to create a stack of existence
with a specific time stamp for each digital asset. This could be helpful to sign each transaction in
a distributed digital ledger Lummus, R. R (2001). Due to the above challenges, the main purpose
of this paper is to introduce the merge between Blockchain and supply chain. The rest of the paper
is organized as follows: In section 2, previous work considering adopting Blockchain in the supply
chain domain is presented. In Section 3, investigates different applications of Blockchain. In section
4, a short description of implementation is given. Finally, Section 5 provides conclusion of the paper.
2. Literature Review
Advances in technology and complex production systems result in increasing supply chains’
complexity. In addition, supply chains are getting more extended and global. This results in
increasing the complexity of systems traceability in supply chains. Folinas et. al. (2006) mentioned
that an efficient traceability system should be able to track and trace digital units. Tjandra and Tan
(2002) added that for a traceability system to be efficient it should be able to track and trace digital
entities in a way that facilitates real time monitoring starting at early production stages and ending
at the end the consumer.
Internet of things has been recognized as a tool for systems traceability in supply chains. For
example, Mattoli (2009) develop a Flexible Tag Data-logger (FTD) based on RFID. FTD is attached
to wine bottles upstream in the supply chain to collect and store data as the bottles move along the
supply chain. Data collected are environmental measures, such as light, humidity, and temperature.
Bottles are traced until they reach supermarkets where they are sold to the end customer. Stored
data may be retrieved using smart phones with integrated infrared ports. The entire process aims at
evaluating wine bottles’ safety as they move across different supply chain stages.
According to Mattoli, V (2009), the digital supply chain may be described by the ability to exchange
information among supply chain stages to enhance communication between stakeholders in the
chain. Such information includes: financial, production, design, research, and/or competition.
As every piece of information stored affects the forecasting in supply chain, several models are
developed to collect these features (gathered information), then optimize the forecasting. This in
turn, reflects the accuracy of forecasting models to supply chain demand.
With the wide spread use of Internet of Things, the flow, sharing, and processing of information
cannot be limited to business processes, it is rather extended to include a large amount of data from
low resourced users, e.g. devices, sensors and, social media applications, etc. Moreover, it is essential
to detect casual events when forecasting, for example, weekends, public holidays, sudden events
which are reflected in the decision-making and actions Eljazzar and Hemayed (2016). Integrated
supply chain information models are an essential feature at the current time. Information integration
and service automation are recognized as important business drivers.
All the previous work is based on the using data centralized systems. Data centralized systems
have been the main conceivable approach to achieve information transparency along supply chains.
Recently, with the raise of Blockchain, a new approach has captured the attention of researchers in
different domains in public services, Internet of Things (IoT), smart cities, reputation systems and
security services, Elgazzar and Hemayed (2016), Azaria and Ekblaw (2016).
Supply chain is not far away from Blockchain. Zyskind and Nathan (2015) discussed the benefits of
merging Blockchain technology and manufacturing supply chain. They listed the main characteristics
IAMOT 2019 | 225

of a proper Blockchain software architecture. They mainly included promoting trust through
transparency and traceability in the supply chain network. In addition to the transparency within
different transactions of information, products, and/or financial entities, Blockchain is capable of
providing an innovative network with a mechanism that supports decentralization and transactions’
transparency. This mechanism could be applied in different industries and businesses. The authors
describe, through an example, how Blockchain might be utilized in a global supply chain network.
McConaghy et. Al. (2016) introduced the BigchainDB. BigchainDB acts as a distributed database
(DB) utilizing Blockchain features. Therefore, BigchainDB acquires the characteristics of distributed
databases, namely, linear scaling in throughput and capacity optimized querying. Moreover, the
main Blockchain feature is decentralization, immutability for creation & movement of digital assets.
According to the discussion above, it can be concluded that Internet of Things has been utilized for
supply chain traceability. Nevertheless, most of the work done considers centralized systems that
suffer from several drawbacks. These drawbacks could be overcome using Blockchain technology.
Therefore, the contribution of (Nir Kshetri, 2018) discussed the roles of Blockchain in meeting the
objectives of the supply chain management through exploring different case studies and initiatives.
In the next section, the benefits of merging Blockchain with supply chain are presented. These
benefits include: services’ cost-effectiveness and value-creating activities that are expected to
be advantageous to many actors in the system. Examples of these actors include: firms and their
suppliers, employees and customers. The benefits of Blockchain technology in supply chains could
be seen across two domains, namely, data transparency and resource sharing.
3. Data Transperancy
The main advantage and impact of the Blockchain is the trust of transactions and the ability to
share assets. Every transaction is trusted and secured due to the presence of ledgers. A ledger
is a consensus of replicated, shared, and synchronized digital data geographically spread across
multiple sites, countries, or institutions. There is no central administrator or centralized data storage.
Accordingly, Blockchain users are given the ability to share assets without concerns regarding their
protection. In this section, a short a review for two scenarios on how information flows through the
supply chain could be empowered using Blockchain.
3.1. Enhancing Information

Managing the information in the supply chain is very critical in the supply chain processes since it is
the main component that affects supply chain planning. Supply chain planning requires forecasting
demand, transportation, inventory, etc. As a result of data transparency of the distributed ledger
(Blockchain), trust is built among users. This step leads to enhancing both the level of information
and coordination among the supply chain, leading to more win-win situations towards increasing the
profitability among the supply chain. This is possible since data availability with time stamps allow
for better decision making.
One of the pioneers in this step is Maersk, one of the biggest containers’ carrier in the world. They
apply a system that utilizes Blockchain technology in the international market logistics. The system
tracks the company’s containers and all their associated paper work required at customs and ports.
Sometimes the transportation cost of this paperwork becomes as high as the transportation of the
shipment itself. Moreover, physical delivery of information increases its risk of fraud. By late 2017,
Maersk was able to persuade customs with the efficiency of the solution, and convinced them to
upload paper work online, and copy it digitally.
3.2. Demand Forecasting

The quality of demand forecasting depends on the amount and the quality of shared information
among the supply chain parties. Hence, the more data in a supply chain, the more accurate forecasts
are made. One of the main characteristics of Blockchain technology is that each transaction is
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Merging Supply Chain and Blockchain Technologies
registered in the Blockchain network with a time stamp. Such accurate information is expected to
increase demand forecast accuracy and hence increase the sales and operation planning accuracy.
In 2016, Walmart was testing a service to monitor pork in China. The service was transporting pork
products from Chinese farms to Chinese stores. The trials were complete in February 2017. Walmart
reported that the finished version of the service could be ready no later than a few years. Blockchain
played the major role in digital tracking of pork products. The tracking required a few minutes, while
using the older versions required many days to complete the tracking process. Details related to the
farm, production facility, batch number, temperature during storage and shipping can be viewed on
blockchain as a distributed ledger. These details helped in forecasting and hence enhanced the sales
and operation planning.
4. Resource Sharing
One of the main advantages of Blockchain technology is data transparency. This feature could help
the decision maker to know which digital assets in the supply chain are fully utilized. This assists in
planning for better utilization through sharing resources.
4.1. Sharing Resources in Supply Chain Networks

As mentioned before, one of the main edges of the Blockchain is that it enables the different parties
to share their digital assets. Hence, it can enable normal users to use available resources in houses,
garages, backyard, etc. For example, empty small spaces can be used as warehouses, trucks, vehicles
and all other transportation assets may be rented when not in use. This scenario is not going to affect
the normal flow of logistics, it will help different parties to enhance their reverse logistics plans and
become involved in the network. In another scenario, a factory could share their production lines
based on weekly action plans. The result is increasing resource utilization and profits, as shown in
figure 1 (Karafiloski, E., Mishev, A., 2017).
Figure 1: Interaction between Vast Users in the Blockchain Network
At the end, each one of these scenarios can be enhanced to achieve a better value if we merge it with
other technologies that would result as a disruptive solution to many supply chains.
5. Conclusion
Supply chain processes could be easily transformed to meet the Blockchain architecture.
Blockchain helps in providing valid and effective measurement of outcomes and performance
of major supply chain functions and processes. This is possible through data transparency and
efficient information flow. Blockchain is an emerging field, and the merge between Blockchain and
supply chain is promising. This is because Blockchain has been recognized as promising software
architecture in several domains other than supply chain. This paper proposed 3 scenarios to merge
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Blockchain and supply chain in order to avoid some of the challenges faced by supply chains. The
scenarios are based on Data Transparency and Resource sharing. The paper concludes that the
proposed scenarios of merging Blockchain and supply chain technologies will enhance supply
chains performance.
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Part II
INTELLECTUAL PROPERTY
Conceptualization of Technology Transfer and Its
Impact Evaluation: Case Cotecmar
Salgado Martínez Adriana Lucia
Cotecmar, science, technology and
innovation office, Colombia
E-mail: asalgado@cotecmar.com
Saravia Arenas Jimmy
Cotecmar, science, technology and
innovation office, Colombia
E-mail: jsaravia@cotecmar.com
Abstract
In this changing world and globalized economy, technology transfer processes play a fundamental role in the
learning and development of a company’s capabilities, leading the organization’s growth strategies towards a
technological flow consisting of the dissemination, transmission and appropriation of knowledge, experiences,
know-how and technologies from one organization to another in order to obtain for both a benefit that contributes
to being competitive and remaining in the market. From a business perspective, technology and knowledge
are fundamental assets for the growth and sustainability of the organization, being these the pillars on which
competitiveness and its differentiation in the market are based. Today, technological development and the creation
of new and improved products and services have become drivers for the global economy, whereas emerging as
challenges for organizations that must keep pace with the advance of science, technology and innovation if they
want to remain in the market being competitive and generating returns (Rios and Marroquín, 2012).
Technology transfer strategies then become drivers and generators of knowledge that impact the development of
technological capabilities in the company and directly or indirectly promote the growth of a sector of the economy.
These types of projects bring with them an effort on the part of the organizations that use personnel, resources and
time in a transfer process in search of the increase of their technological capacities and business development. In
Colombia, for example, technology-based organizations are companies that usually make use of this type of transfer
processes such as licensing agreements, technical assistance and services contracts, mobility of personnel towards
other industries, company mergers or acquisitions or intellectual property rights, with the objective of impacting their
business growth through the development of new and better products and services for the benefit of their clients,
in addition to impacting the country’s industrial development. An example of this is the Corporación de Ciencia y
Tecnología para el Desarrollo de la Industria Naval, Marítima y Fluvial - COTECMAR (Science and Technology
Corporation for the Development of the Naval, Maritime and Fluvial Industry), which by developing technology
transfer projects has achieved the country’s technological independence in terms of the manufacture of ships and naval
devices, appropriating technologies and knowledge from shipyards with the most experience in the world.
Given this situation, this article presents a conceptualization and establishes the main characteristics of technology
transfer processes, tracks the main contributions of authors and institutions towards the evaluation of the effects
of such projects on the growth of the company and finally proposes a process for the evaluation of their impact
through a practical case. The evaluation methodology is based on the disaggregation of dimensions used by the
Logical Framework Methodology guided by the four approaches put forward by Daniel Stufflebeam to carry out an
evaluation process.
Keywords: Technology, Know How, Knowledge, Technology Transfer, Impact, Technological Development
1. Introduction
From a business perspective, technology and knowledge are fundamental assets for the growth and
sustainability of the organization, being these pillars on which market competitiveness, profitability
and differentiation are based.
At this point, the concept of technology transfer is seen as a mechanism increasingly used by
companies and industries that direct their actions towards the acquisition and generation of new
knowledge to increase their growth and improve their capabilities on the way to innovation. For this
purpose, they develop projects through which they disseminate, share and appropriate knowledge
and technologies from companies or universities for industrial application (Lewis, 2011; Conti and
Briceño, 2015; Chais, Ganzer and Munhoz, 2017), thus seeking to generate a positive impact on
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their technological capabilities, the training of their personnel and improvement in their production
processes and products offered to the market.
Understanding this dynamic of interdependence between world markets, through which there is a
flow of technology and know-how from where technological development is generated to where
it is required and applied, this article makes an approach to the conceptualization of technology
transfer, the application of the term at the business level, and a tour of the different models that
have approached the evaluation of the impact of these processes in the organizations that use them,
in order to determine their effectiveness. As a contribution, a methodological proposal for impact
evaluation is presented through a model that considers the disaggregation of dimensions and their
measurement through an indicator bank, applied to a case study in the Corporación de Ciencia y
Tecnología para el Desarrollo de la Industria Naval, Marítima y Fluvial - Cotecmar, innovative
organization that has stood out in the Colombian naval industry as a Technological Development
Center that, through the intensive use of knowledge and its University - Industry - Government
Model, represents an important business bet with high social, economic and technological impact in
the country (Tascon, Quintero, Saravia and Sejnaui, 2012).
2. About Technology Transfer

Since the 1950s, Edith Penrose, in her famous book “The theory of the gowth of the firm”
envisioned what is now a fact: the importance of networks and alliances between companies
to expand the limits of each business towards a joint growth of the world economy. Since then,
she mentioned how formal relations between companies, especially technology developers, can
increase their competitive power, and making alliances can be not only a rational response, but
even necessary for business growth (Penrose, 1959). In this sense, the author emphasize that
beyond competition and rivalry between organizations, mutual learning can be an option for their
growth and expansion.
These days, companies as productive units find themselves in a changing and demanding environment
driven by scientific advances and technological developments that promote the use of knowledge
at a level of efficiency and effectiveness that allows them to materialize it in innovations in order to
remain standing in this dynamic market. In this environment, the road to innovation becomes complex
using only the resources of an organization, for that reason terms such as Technology Transfer, ToT
(Transfer of Technology), Knowledge Transfer, Technological Cooperation Agreements, to mention
a few, become an important solution for collaboration between companies, through which a process
of interaction and complementarity is created between the parties, in order to increase capacities and
join efforts for a specific objective. Thereby, project structures are created to manage the scope of
the transfer process, the goals to be achieved, the necessary resources, the schedule of activities to
be developed to meet the objective and the ally or technology provider.
Technology is considered an organized set of scientific and empirical knowledge used in the
production process, marketing and to offer goods and services (UNE 166000, 2006). Technology
refers to all those media, resources and knowledge, used for the manufacture of products or for the
rendering of services; a common error these days, is the limited conception of technology to only
complex and highly elaborated artefacts.
Reviewing the literature, we have that technology transfer as Gonzalez explains (2011) is the
movement of technology and/or knowledge from a provider to a recipient, which implies the
existence of a consensual agreement (license, project, incorporation of personnel, contract) between
the parties, in exchange for a fee, which is usually economic. The author points out that more people
are related to the term “technology transfer” from different professional fields. Actors such as
universities, research centers, external consultants, companies and state bodies participate in the
transformation of knowledge into economic wealth through different market dynamics.
Several authors and organizations have contributed to the meaning of technology transfer, here are
some of the most outstanding.
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Conceptualization of Technology Transfer and its Impact Evaluation: Case Cotecmar
●● Technology transfer is the movement of technology and technology-related know-

how between partners (individuals, entities and companies) with the aim of improving,
at least, the knowledge and skill of one of the partners, as well as strengthening the
competitive position of each of the partners (Abramson, 1997).
●● Agreement by which a company acquires licenses for use relating to property rights held
by other companies, in order to access to technology necessary for the development of
their products (Hidalgo et al, 2002).
●● It is a stage of the global commercialization process and, it is presented as the transfer of
intellectual capital and know-how between organizations, in order to use it in the creation
and development of commercially viable products and services (COTEC, 2003).
Turriago (2002) states that competitive companies take special care in detecting technological
changes, and therefore the administration of technology mainly in the field of ToT will be in the
coming years, the key to the success of companies all over the world. Without a doubt, this is not
an easy task and represents a challenge for organizations, since, as technological advances increase,
they must properly manage their own resources to appropriate the strengths that the most competitive
companies can contribute to their development process.
Therefore, an important issue that must be considered when carrying out a transfer process and
seeking technological appropriation, is the domain that the company has for the use and application
of these technologies. Technological domain does not only mean having the technical knowledge
necessary for the use of the equipment or manage the process, but also the creation and design of
new equipment based on acquired skills (Martínez, 1986). As an ultimate goal, the technological
domain that a company has, must ensure the permanence of the knowledge acquired, so that the
technology transferred becomes a component of the culture of the organization and leads to its
continued growth.
Worldwide, different strategies have been established for the implementation of technology transfer
processes, in this case Gonzalez (2011) mentions the following:
●● License Agreement: Obtaining legal authorization for the manufacture, use or
commercial exploitation of technology and knowledge protected by industrial and
intellectual property rights.
●● Technological cooperation: Collaboration in a research and development project, R&D,
to generate new technologies, products or processes. The project can be under contract
(the recipient subcontracts to the supplier) or collaborative in consortia to develop the
technology.
●● Technical assistance and services: Provision of technical advice or specialized services
outside the scope of property rights or industrial secrets.
●● Personnel mobility: Permanent or temporary incorporation of expert personnel or those
with knowledge of scientific or technical areas.
●● Creation of companies: For the commercial exploitation of technology.
●● Technological Alliance: Collaboration between the parties to share assets, risks, costs,
benefits, capabilities or resources around the development or exploitation of technology
and knowledge.
●● Purchase and sale of capital goods and ICT: The transfer occurs with the acquisition of
the asset; the technology is hidden in the form of knowledge or property rights.
All these mechanisms must be framed in agreements or contracts that establish the main objectives
of the process, its scope and the type of technology or knowledge to be transferred, in order to
determine under measurable assumptions, the effectiveness of the process, the results obtained, and
the impact caused in the organization.
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Authors such as Martínez, Vargas and Salgado (2018), point out that the best way to shield relations
between organizations in this area is through a Technology Transfer Contract, which, being conceived
as a legal act with business content, is structured as a new figure that can be successfully coupled
to the dynamics of the markets and the knowledge society, so that they can access technological
capabilities that other organizations have.
The process of technology transfer can be represented in the following phases:
Figure 1: Stages of the Technology Transfer Process
At each stage, there is a need and an action generated among the actors, in order to make the transfer
process efficient and obtain the benefits expected by each party. In this way, the process begins
with the identification of an opportunity or technology need in the organization. At this point
they identify the different technology providers that play the role of offerors and are in charge
of transferring their capabilities to the receiving company. The next step is negotiation, in which
the scope of the process, the type of technology to be transferred, the objectives to be achieved,
the rights and intellectual property of the technology transferred or developed in the process, the
resources to be used, among others must be established. After this phase the collaboration between
the parties is executed according to the established scope, and finally the technology is implanted in
the organization from where the need was generated. For Gonzales (2011) these are the stages that
constitute the ToT process itself, however after the implementation of technology in the company,
a later phase is required to analyze the effectiveness with which the process has been carried out
(positive or negative results), the quality of the contributions, the appropriation and integration of
technology in the company and in general the benefits generated.
2.1. Characterization of the Company from the Case Study:

Corporación De Ciencia Y Tecnología Para El Desarrollo
De La Industria Naval, Marítima Y Fluvial - Cotecmar
In 2000, the Colombian State through the Ministry of Defense (National Navy) created, in partnership
with Universities of the public and private sectors, the Corporación de Ciencia y Tecnología para el
Desarrollo de la Industria Naval, Marítima y Fluvial, Cotecmar.
Since then, Cotecmar have been an innovative organization that works within the field of scientific
and technological research, supporting the development of the Colombian maritime industry
(Cotecmar, 2018). The mission of the corporation, therefore, derives from the mission of the National
Navy to develop the maritime power of the nation as a source of wealth, welfare and development
for the country. The activities of the Corporation include the development of scientific and industrial
capabilities through innovation in products, services and processes, aimed at satisfying the needs of
the market through its four lines of business: R&D&I activities, shipbuilding, repair and maintenance
of vessels and other services to industry.
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Since its creation, the corporation has played a key role in the sector, being a national reference for
the development of design, construction and ship repair projects as well as distribution of science
and technology services, and has based its activity on a management system aimed at continuous and
permanent innovation as one of its main corporate values, so that it can be conceived as a process
and not as an accidental event.
Based on innovation, the corporation carries out research, technological development, engineering,
design and technology transfer projects, through which it seeks constant appropriation, generation
and exploitation of knowledge to increase its capabilities and market share. The technology transfer
projects implemented at Cotecmar are associated with three fundamental approaches. The first refers
to the processes in which the transfer is made from outside the Corporation and it is Cotecmar
who appropriates the knowledge and incorporate it into its production process: Outside - Inside.
Secondly, are the processes in which the transfer is internal, so both knowledge and technology flow
between the different management areas of the organization: Inside - Inside. The third approach
refers to the knowledge and technological developments that are generated within Cotecmar and
it is transferred abroad as a contribution to increasing national and sector competitiveness: Inside -
Outside, (Dominguez, 2012).
As a result of the management of this system, the Corporation has executed significant projects that
have contributed to increase the capacity and technological level. Given the nature of the company
and the type of technology transferred, which is the naval, maritime and river sector, some of these
projects have impacted not only the company but also the productive transformation in Colombia,
especially in the shipyard sector, and have contributed to achieving the technological independence
of the country, against the vessel design, construction and repair requirements of the National Navy
of Colombia who, up to few years ago, imported most of its naval fleet. Likewise, Cotecmar’s
technological growth has allowed it to compete in the market and offer its innovations to national
and international clients.
Some of the transfer projects are shown in Figure 2:
Figure 2: Timeline Cotecmar ToT Projects
These projects have been executed as Cooperation Agreements, Technology Transfer Contracts,
On the Job Training (OJT), Technology Licensing, OFFSETS (Industrial and Social Cooperation
Agreements), Spin Offs Creations, among others.
The corporation’s experience in this type of process has allowed it to go through a technological change
from being a Technology Receiver a few years ago, to Codeveloper and offeror of Technology, through
the adoption of best practices of leading companies worldwide and develop projects in cooperation
with them. The new capabilities acquired in ToT processes have served as a basis for the development
of countless projects, because the transfer of knowledge added to the experience of the personnel, has
driven the improvement of strengths that have led the company to be recognized as a benchmark for
innovation in the shipbuilding sector at the national and Latin American levels.
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3. Approach To Impact Assessment of

Technology Transfer Processes
Evaluating, according to Daniel Stufflebeam, founder of the Evaluation Center at Ohio University,
is the process of identifying, obtaining, and providing useful and descriptive information about the
value and merit of the goals, planning, realization, and impact of an object in order to guide decision-
making, solve accountability issues, and promote understanding of the phenomena involved
(Stufflebeam in Vara, 2007). In turn, impact is defined as a result of the effects of a project (UN,
1984). The determination of impact requires operational objectives and a causal model to link the
project with the effects resulting from its implementation (Muñoz, 2007).
Then, impact assessment is considered a measurement of the consequences of the implementation
of a project. It can also be expressed as the degree to which previous objectives are met with the
participants, compared to not having participated in the project. In terms of impact, the following
topics are considered, among others: social impact, economic impact, technical impact, scientific
impact, environmental impact, which may be tangible or intangible, depending on how they are
measured, as visible results or through their intellectual representation. Each of them must be
framed in the short, medium and long term, since some impacts take place just at the moment after
project execution, and others as time goes by, when the acquired elements are appropriated and the
achievement of objectives becomes verifiable (Franks and O´Brien, 1981; Abdala, 2004; IDB, 2011;
Ortegón, Pacheco and Prieto, 2005).
For Bozeman (2000) there is a certain degree of complexity at the time of carrying out an impact
assessment in technology transfer, firstly due to the difficulty of delimiting the project in terms of
“the technology to be transferred”, secondly due to the multiple processes that concur in the project,
and thirdly due to the difficulty of separating the effects caused by a project and attributing to it the
growth or improvement of the organization.
However, different authors and institutions have approached the impact evaluation of a ToT process,
being biased to the dynamics of the institution or type of company that presents the model. This is
attributed to the heterogeneity of technology transfer projects and to the diversity of processes that
intervene according to their object, which migrate from linear to parallel and to the nature of the
technology transferred (Autio and Luamanen, 1995).
A first approach is made by Franks and O´Brien (1981), who through exit indicators, evaluate the
impact of R&D initiatives that are supported by the United States and their transfer to the industry. In
this case, the authors propose some variables considered determinant to evaluate transfer activities
in terms of effectiveness, indicating that they must be framed not only in the short term, but also in
the long term, because in this way, not only the transferred technology is evaluated, but also if the
information is used, and the degree in which the economic and social benefits are later attributable to
the implementation of this technology. Some of the output variables cited by the authors are:
●● Identifying user needs and matching technology
●● Staff exchanges / scholarships
●● Technology Transfer Information System
●● Audiovisual materials, reports and publications produced
●● Conferences, seminars, workshops and cooperation networks
For the evaluation, indicators are estimated such as the number of users that have received the
transference, the proportion in the private and public sectors, the quality of the information and the
use between the users, the reports and publications made, the frequency of meetings and collaboration
to satisfy needs, the impact on the use of information for decision-making, etc. These are measured
through ToT information and user surveys.
Ingallinella, Picc, Sabesinsk, Seselovsky and Zossi (1999), propose the measurement of transfer
activities specifically in universities, establishing three models that evaluate processes in the
scientific, economic and market, as shown in Table 1:
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Table 1: Models for Measuring the Impact on University-Business Transfer
Model Traits
Scientific- It is of a qualitative type and is related to the academic evaluation of the activities. The information
Institutional required consists of: technical publications, whether the information generated is public or not, registered
Impact Model patents, licenses granted, technical presentations, reports, etc.
Analyzes technology transfer activities, with special emphasis on those of commercial importance. That
Market
is to say, those in which the market can give some expressly quantifiable signals. This model emphasizes
Impact Model
microeconomic analysis of the enterprise and/or productive sector.
It is a model that registers the socio-economic and environmental repercussions of the projects and services
Economic
related to this activity. It works with large aggregates, mainly in macroeconomic analysis. Some of the
Impact Model
parameters that need to be quantified are the contribution to sustainable socio-economic development.
Another approach was made by Bozeman (2000), which establishes, through effectiveness criteria,
the ToT evaluation. To these criteria the author formulate questions that allow the evaluation to be
carried out under a theoretical foundation.
Table 2: Technology Transfer Effectiveness Criteria
Effectiveness
Base Question Theoretical Foundation
Criterion
Direct impact
Was the technology transferred? Classical theory of the organization
on the processes
Impact on the Did the technology transferred impact the sales of Microeconomic theory of the
market the Company? company
Economic Did the technology transfer lead to regional
Regional science and public finance
development economic development?
Did the technological agent or the recipient
Political politically benefit from participating in the Theory of political exchange
technology transfer?
What was the impact of technology transfer on the Economic policies, cost – benefit
Opportunity cost
alternative use of resources? analysis
Scientific and Did technology transfer generate new capabilities to
Theory of social capital
technical capital develop and use research?
This author highlights that unlike the previous ones, more dimensions are included to evaluate, such as the
impact on business processes, the political impact and the opportunity cost related to the resources used.
The evaluation made by the Italian National Committee for Research Evaluation (CIVR) between 2001
and 2003, was to develop an indicator for the measurement of research and transfer activities of universities
and research centers in Italy. Based on this indicator, researchers from the University of Calabria (2015),
developed a measurement model for the universities of the province in which the effectiveness of the
activities is considered, in terms of the results obtained, considering variables such as patenting, income
from the sale and licensing of the patent, Spin-Offs, the number of university associations and their
estimated value, in order to finally weight these elements according to their relevance. The results are
compared with the innovative growth from companies directly and indirectly associated with universities
because of their close geographical location, which leads to the conclusion that ToT’s activities play a
significant role in the probability of innovation of Italian manufacturing companies.
Figure 3: ToT Activities Indicator - University of Calabria
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Where PATu refers to the number of patents registered by the University, PATactu is the number
of active university patents in the evaluated period. REVu is the revenue from the sale of patents
and licenses, SPINu indicates the number of active spin-offs and PARTu is the number of active
associations (worth more than 500,000 Euros). This measurement is compared with the probability
of introducing at least one innovation in the company, whose measurement model is empirical for
the study.
Another type of evaluation using indicators was provided by Autio and Luamanen (1995), those are
shown in Table 2:
Table 3: Indicators for Measuring Technology Transfer Activities
Category Indicator
Capacity inputs
Input Indicators Technology inputs
Monetary and physical resources
Research results and technology
Output indicators Commercial outputs
Monetary and resource results
New development links
Process indicators Capacity Transfer and Capacity Utilization
New development units
Indicators, as well as evaluation models, are based on theoretical assumptions that determine: what
is meant by evaluation, what is intended to be achieved or what needs are intended to be covered,
how to proceed to cover needs, in such a way that when responding to them the evaluator makes a
choice in his theoretical, pragmatic and methodological position (Colás and Rebollo, 1993), which
is of vital importance in an evaluation process.
Given the heterogeneity of the methods and models used to measure the impact of technology
transfer processes, for this article we propose the design of a joint model that through the
disaggregation of dimensions based on the Logical Framework Methodology, evaluates the
performance of a technology transfer process and its impact on the organization, considering
a large number of variables that determine and classify a project as technology transfer. It
is proposed for it a structure that starts from categories, which group the characteristics in
common of a group of factors that are the relevant points of interest to analyze in the ToT and
at the same time, they are composed by the specific criteria under which the variables will be
measured. These last ones will be quantifiable by means of the use of a bank of indicators able
to define operationally the results to reach.
4. Proposal for Impact Assessment

The proposal consists in the design of a model that, through the breakdown of key topics and a bank
of indicators, determines the impact of technology transfer projects. For this purpose, the evaluation
is framed in a process that provides a series of steps to follow, in order to consider all the elements
that contribute to the determination of the performance of a ToT project and the effects experienced
in the organizations that execute it.
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Figure 4: Process for the Application of the Impact Assessment Model in ToT
The model is developed during the PROCESS stage; however, the initial activity proposed establishes
the minimum requirements for the categorization of a technology transfer project, in order to provide
filters, given the heterogeneity of projects and the different characteristics that surround them,
thus delimiting the possibility of their inclusion in the exercise, projects that, although based on
knowledge, learning and even the increase in capacities, are not really technology transfer projects.
In addition, the list of requirements guarantees the minimum information that must be available
to measure the impact. In order to support these requirements, a bibliographical and contribution
of authors research was rendered which included Castellanos, Zuleta, Medina and Negrin, Gibson
and Mahdjoub, Stock and Tatikonda, the guidelines of the Transfer Institute’s knowledge and
technology transfer manual, and a diagnosis of the state of ToT projects in the company of the case
study, COTECMAR.
Table 4: Minimum Requirements for a ToT Project
Minimum Requirements To Consider A Technology Transfer Project Complies Does Not Comply
Consists of a movement of technology and/or knowledge

There is a technological need
There is a provider of the required technology
There is a receiver
There is a technological contract
There is a consideration for the transfer
It uses a transfer strategy:
License agreement, Technological cooperation, Technical assistance and

services, Mobility of personnel, Creation of companies, Purchase and sale of
goods and ICT, etc.
A diagnosis of capacities has been established prior to the implementation of
the project.
The gap associated with the technological level has been identified
There are clear objectives to be achieved within the framework of the transfer
There is a technological capacity to receive the knowledge
Participating staff are trained to receive the knowledge
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Minimum Requirements To Consider A Technology Transfer Project Complies Does Not Comply
There is a capacity to apply the knowledge in the company
There is an ability to create knowledge from the transferee
There is an activity plan for the transfer
Has a starting date and an ending date
Economic, technological, human resources, etc., are contemplated for the

realization of the project.
The acquisition of knowledge is contemplated for the use of the company and

not only of the direct participants.
Socialization of knowledge is contemplated
The receiver contemplates the generation of capacities to produce economic
benefit with a view on the continuity of the business or the opening of new
opportunities.
It is related to the initiatives of the strategic direction of the company
Industry or sector benefits are identified and generated from the project
Number of
Level of Compliance requirements met /
Total requirements
After analyzing the fulfillment of the requirements, the four approaches proposed by Stufflebeam (in
Vara, 2007) to carry out an evaluation process are proposed:
4.1. Context
The project is situated according to the characteristics that initially gave rise to the transfer. The
capacities that the company has that will be affected in the processes are identified; the incorporation
of the knowledge and practices to be transferred depends greatly on these capacities. It also establishes
the existing technological need and the supplier that can satisfy it. This results in the declaration of
the goal and objectives that the company has, to develop a project that drives the acquisition of
knowledge that will improve their processes, increase their sales or drive a new product or service
to market.
4.2. Inputs
In this phase, the process consider the resources that have been used for the transfer, in order to
keep in mind the investment and capacity used for the success of the project and to be able to
evaluate its evolution and result in the final phase. It considers the human, financial, technological,
and other resources used. The own data of the process affected in the transfer, for example, level of
productivity, man-hours employed, quantity of products obtained per unit of time, among others,
besides the report generated by the participants in the transfer, in which the knowledge acquired
during the activity is evidenced.
4.3. Process
The process, in this case, refers to the application of the evaluation model, that is to say the phase
in which the resources used are related, in the context of the project, making use of the tools that
have been designed to carry out the evaluation. In this case, the process is carried out through the
operationalization of the variables, which can be of: Result (those that demonstrate the effectiveness
in the performance of the ToT) and of Impact (those that demonstrate the effects of having carried
out the ToT, in comparison with not having done so). After the variables have been declared, the
evaluation is made with the synthesis of variables in matrices and a bank of indicators.
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4.4. Product
This consider the outputs of the process. In the case of outcome variables, the output is the
establishment of the gap between the objectives initially planned for the transfer, the effect on the
processes and the objectives achieved. In the case of impact variables, the product is to identify the
state of the company before and after the ToT process. Finally, the impact is analyzed in order to
adopt a positive or negative position according to the effect that the project has brought, based on the
chosen variables; this analysis should serve as a basis for making decisions, regarding the realization
of similar projects, and the lessons learned from it.
The dimensions that make up the model are presented below:
Figure 5: ToT Project Impact Assessment Model
In order to evaluate the impact of technology transfer projects, the Logical Framework Methodology
serves as a basis to illustrate in a simple way how disaggregation provides a greater number of
phases to be considered when analyzing a project, in order to arrive at an orderly and structured
measurement of the aspects to be evaluated.
In this sense, the model is approached from two perspectives, according to the performance of
the transfer and according to the impact caused. From these two approaches, the components to
be validated in each of them are disaggregated to arrive at measurable considerations that allow
evidencing a result. The existing complementarity between the evaluation of the transfer performance
and the impact caused is highlighted, since from the data obtained in the performance the changes
and gaps that can be measured to determine the impact are seen.
5. Performance Evaluation
The performance of the transfer is measured through result variables, these are the ones in charge
of declaring the level of fulfillment of the objectives, the number of activities associated to the
transferred knowledge, the absorption of the same in the company and, in general, evidence the
efficiency of the process. These variables are evaluated through a performance evaluation matrix
(PEM) that contemplates Categories, Factors and Criteria.
CATEGORY 1: Social appropriation of knowledge:
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It refers to the knowledge-individual interaction, which has been generated from the transfer. This
category measures the level at which the stated goals have been met and how the knowledge received
has been absorbed by the largest number of people in an organization.
FACTOR 1.1: Achievement of goals
CRITERION 1.1.1: Level of achievement of objectives
Relationship between what was planned and what was executed.
CRITERION 1.1.2: Transfer Effectiveness
List of the topics or technologies received in the ToT with respect to those planned or stipulated in
the contract.
CRITERION 1.1.3: Identification of transfer defaults
Aspects for improvement, lessons learned from the process.
FACTOR 1.2: Actors
CRITERION 1.2.1: Use of human resources
Associates the retention in the company of the personnel that participated in the ToT.
CRITERION 1.2.2: People training
Analyzes the trainings or teachings that the personnel dictated to the rest of the employees based on
what they learned.
FACTOR 1.3: Knowledge
CRITERION 1.3.1: Absorption of knowledge
Analyzes if the knowledge or technology received was evaluated and approved satisfactorily.
CRITERION 1.3.2: Socialization of knowledge
Dissemination of the process and knowledge by stakeholders in the company. (Stakeholders are all
areas directly or indirectly influenced by the ToT).
CATEGORY 2: Technical aspects
This category focuses on the operational level results of the technology or knowledge transferred,
measuring the level of functionality that the project has had in aspects such as the introduction of
improvements in processes, level of knowledge management for its transformation and adaptation,
impacted production processes, etc.
FACTOR 2.1: Technological Appropriation
CRITERION 2.1.1: Access to technology
Analyzes the extent to which the technologies or knowledge transferred were implemented in the
company.
CRITERION 2.1.2: Technological domain
Relates the capacity to appropriate the technology in such a way that changes in the company’s
processes are generated from it.
CRITERION 2.1.3: Quality of training
Evaluates the level of conformity in the receiver with what is transferred.
FACTOR 2.2: Productive Capabilities
CRITERION 2.2.1: Development of new processes
Number of new processes in the productive structure of the company after the ToT.
CRITERION 2.2.2: Improvement of products quality
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Associates the use of the ToT with the customer’s perception of improvements in the company’s products.
CRITERION 2.2.3: Optimization of production times
Relates the change in the times in which the production of goods and services is carried out, after
introducing improvements by the process of transference, within the company.
CATEGORY 3: Science, Technology and Innovation
This category measures the results of the project at the level of scientific production. It focuses on
performance through obtaining new scientific or technological knowledge and networks created
from the project.
FACTOR 3.1: Scientific Dissemination
CRITERION 3.1.1: Knowledge Generation
Identification of the scientific production that occurred in relation to the transfer. Measures the
number of articles, papers, theses, prototypes, etc.
CRITERION 3.1.2: Creation of Entrepreneurship
Analyzes if new companies or intra-enterprises were created from the ToT; understanding the latter
as new proposals to generate added value or new business models.
CRITERION 3.1.3: Creation of Alliances
Relates the new cooperation networks with universities, companies or research institutes that may
have emerged after the ToT process.
FACTOR 3.2: Intellectual property
CRITERION 3.2.1: Intangible assets generated
Creation of intangible assets for the company after the transfer. New designs, patents, trademarks,
software, know how, customer lists, etc. are considered.
CATEGORY 4: Economic Aspects
The focus of this category is to measure, in economic issues, the changes that may occur in some
variables, given the implementation of the project.
FACTOR 4.1: Economic
CRITERION 4.1.1: Decrease in production costs
Analyzes the efficiency in the productive processes at cost level.
CRITERION 4.1.2: New production.
Identifies the new products or services that have been created in the company from the knowledge
acquired in the transfer.
CRITERION 4.1.3: Value chain development
Identifies whether the transfer has had an impact on the company’s value chain, for example by
demonstrating variation in the acquisition of materials or services from abroad, as opposed to
domestic purchasing or domestic production in the company.
6. Impact Evaluation
Impact is evaluated by a number of variables that consider the evolution of the organization or of the
affected processes after the execution of transfer, it means the effects, whether positive or negative, that
the project brought. In this case the variables are measured through the impact evaluation matrix (IEM).
CATEGORY 1: Technical Impact
This category is measured based on variables that indicate change in technological and production
levels. In other words, it compares the operational performance after the project.
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FACTOR 1.1: Production

CRITERION 1.1.1: Productivity Level
Identifies the change in productivity levels of the company after the transfer. The indicator for
measuring this criterion will change according to the nature of the enterprise analyzed.
FACTOR 1.2: Capacities
CRITERION 1.2.1: Increase in technological level
Measurement of the variation in the technological capacity of the company; this can be represented
in terms of technological level, Technology Maturity Level (TRL) or other methodology.
CATEGORY 2: Scientific Impact
This category measures in quantifiable terms a scientific-technological result that represents a
change in the intellectual production of the company.
FACTOR 2.1: Intellectual property
CRITERION 2.1.1: Intangible assets variation
Measures the change in the analyzed time horizon of the intangible assets that have been capitalized
in the company.
CATEGORY 3: Economic impact
Measures the company before and after the transfer in terms of financial indicators.
FACTOR 3.1: Financial performance
CRITERION 3.1.1: Return on investment
This financial ratio is used to compare the profit obtained by the process against the investment made
in it. This measures the ability to generate value after participating in a ToT process.
FACTOR 3.2: Operation of the company
CRITERION 3.2.1: Ability to generate profits
This criterion proposes the measurement of the gross profit (without consideration of
financial expenses) generated by the company by the exploitation of its processes in the years
of analysis.
CATEGORY 4: Market Impact
This category focuses on measuring the diversification of the portfolio of the company’s offer and
its impact on the competitive position.
FACTOR 4.1: Offer products/services
CRITERION 4.1.1: New products and services
Analyzes the revenue received by new products or services launched on the market after the specific
increase in capacity due to the transfer.
CRITERION 4.1.2: Diversification of activity
Identifyies if the company has managed to enter new markets with the knowledge or technology
acquired in the ToT process.
CRITERION 4.1.3: Access to the international market
Analyzes whether the transfer has enabled the company to offer its products in foreign markets or
whether its level of sales revenue has changed in the international market.
FACTOR 4.2: Competitiveness
CRITERION 4.2.1: Competitive advantages
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Identifies those advantages that the company has developed over the competition, which are
attributed to the transfer process in which it participated.
CRITERION 4.2.2: New customers.
Evaluates whether new customers have been acquired by the new processes or products launched
after participation in the ToT.
In order to choose the pilot project to which the evaluation will be applied, the model
consider the projects executed in Cotecmar and stablish a minimum of characteristics that
they must comply with; according to the level of compliance, the Coastal Patrol Vessel
CPV - STX project is chosen, which is representative for the company in its transfer and
capacity increase activities.
7. Cotecmar Coastal Patrol Vessel CPV - STX Project

At the end of 2012, the Colombian Navy requested the construction of Coastal Patrol Vessel
CPV, which would be used for interdiction, patrolling and surveillance operations in coastal
maritime spaces. With this need, COTECMAR develops the design of the vessel and the
intangible was registered at the Superintendence of Industry and Commerce under code No.
12-159453.
Given the inability of the corporation to build this type of vessel, the company STX Offshore &
Shipbuilding Co. LTD of South Korea is chosen as a strategic ally in the construction of two units;
these would be developed under the licensing of the industrial design of the vessel developed by
COTECMAR.
Based on this, a strategy is established to carry out a Technology Transfer process that allows
the Corporation to appropriate good practices associated with the key technologies of design,
engineering and construction processes, as well as those transversal technologies of a shipyard, for
the strengthening of its capacities and raising its technological level.
A program was then developed under the OJT (On the Job Training) modality for the training
of Cotecmar personnel in the facilities of the Korean company. In summary the transfer
program was:
1. Design (Design & Engineering): Transfer oriented to the accomplishment of the daily
operations of STX, complete access to processes and procedures guidelines, structured
and unstructured interviews in the company, short courses (8-16hrs).
2. Technologies of the Shipyard’s production process: Transfer process oriented to the
execution of the daily STX operations, video recording of the process, full access to
Processes and Procedures guidelines, structured and unstructured interviews in the
company, short courses (8-16hrs).
3. Business process technologies / internships: The ToT business process program will be
implemented through internship programs in the areas of human resources, price and
cost estimation, logistics and supply chain management, R&D management, and process
improvement.
This project was executed between May 2013 and November 2014.
The estimated time period for the evaluation will be 4 years, considering the change of scenario of
Cotecmar’s Strategic Direction, in which the objectives set at each level of the organization must be
met. In this case the impact time is calculated from 2013 to 2017.
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Table 5: PEM - Performance Evaluation Matrix CPV - STX Project
Outcome Variables
Categories Factors Criteria Indicator Measurement Performance
# Of objectives
Level of 1/1=100% Execute
achieved /
achievement of ToT project with High
# of objectives
objectives STX
proposed
# of ToT activities
3/3= 100%
Transfer received / # of
Development of 3 High
Achivement of Effectiveness planned ToT
OJT programs
Goals activities
1) Change of
Themes
Identification
2) Copyright issues
of faults in the # of lessons learned Medium
3) Few people
transfer
from different
areas.
Staff active in
Social the company
appropriation of Use of human participating in
8/12=67% High
knowledge resources the ToT / staff
participating in the
Actors
ToT
# of training
programs (courses)
People training 1/3=33% Low
from transfer /# of
transfers received
# Of evaluations
Absorption of approved / No evaluations
N/A
knowledge # Of evaluations conducted
carried out
# of socialization
Knowledge
activities,
Socialization of dissemination and
1 Forum Low
knowledge documentation
of knowledge
transferred
# of tools or
technologies
(machinery and
Access to No Technology
equipment) N/A
technology Transfer
implemented / #
of technologies
Technological transferred
Appropriation # of improvements
Technological implemented to
1/3= 33% Low
domain the processes / # of
transfers received
Technical
Qualification of the
Aspect Quality of
quality of the training 90% High
training
received
# of new processes
Development of
introduced after the 1 Low
new processes
ToT
Difference in number
Productive Improvement of Prototype: 1st CPV
of complaints N/A
Capacities products quality vessel
received pre and post
Construction times
Optimization of 8 months /12
compared to the High
production times months =67
technological emitter
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# STI products
Knowledge obtained according
11 High
Generation to the Colciencias
classification
# of spin offs
Creation of created or intra-
0 Low
Scientific Entrepreneurship entrepreneurship
Science, Dissemination modalities
Technology Attendance at
and Innovation # of new scientific 1 congress and
(STI) Creation of cooperation networks 2 workshops,
High
Alliances in which you of which no
participate participation was
expected.
# of intangible assets
Intellectual Intangible assets generated after the 13 design concepts
High
Property generated ToT / from a CPV 46
# of expected assets
Decrease in decrease in Prototype: 1st
N/A
production costs production cost Vessel
Satisfactory
construction as
Relationship new
planned of 1 vessel
Economic New Production products or services High
Economic (CPV ARC Punta
Aspect from the ToT
Espada) from
design
31.089.140.427
Value chain Variation in imports -56.731.078.027 =
Medium
development (2017-2013) - 25.641.937.600
(45%)
Table 6: IEM - Impact Evaluation Matrix CPV Project - STX
Impact Variables
Categories Factors Criteria Indicator Measurement Impact
Change in man-hours/ Value 2013: 200

Productivity
Production CGT in study years value 2017: 129 Positive
level
Technical (2013-2017) Decrease by 71
Impact Increase in
Increase in the 3,06 – 2,4= 27,5%
Capacities technological Positive
technological level 2,4
level
increase in equity
(1.412.376.071-
Scientific Intellectual Intangible of intangibles valued
539.321.115) / Positive
Impact Property assets variation from the transfer
539.321.115= 2,62
(2017-2013)
Income from the sale 5.700.000.000,00 -
Financial Return on of the intangible asset 2.251.174.773,30 /
Performance Investment - cost generation / 2.251.174.773,30 = Positive
cost generation 153%
Economic
Impact Earnings before
Ability to interest, taxes, 23.212.059.884
Operation of the
generate depreciation and -5.138.853.899 = Positive
company
profits amortization 18.073.205.985
EBITDA (2017-2013)
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Impact Variables
Categories Factors Criteria Indicator Measurement Impact

CPV ARC Punta
Revenue from new Espada
New products products/services (37.917.346.547 –
Positive
and services launched on the 33.771.527.155)/
market after the ToT 33.771.527.155 =
Offer products / 12%
services
Diversification # new markets
0 Neutral
of activity attacked
Impact on
Access to the 50.101.861.133 -
the market Variation in exports
international 37.802.788.720 = Positive
(2017-2013)
market 12.299.072.413
# of competitive Production of
Competitive
advantages over the vessels type CPVs, Positive
advantages
competitor in the area BDAs, and OPVs
Competitiveness
# of New Customers
New
acquired after the 0 Neutral
customers
transfer
4. Conclusions
The operationalization of the variables was done through the collection of project data, through the
reports generated from the transfer, interviews with the participants, management reports and Expost
evaluation matrix.
In order to bring the results of the evaluation model to quantifiable data, the performance ranges
were established: Low with a score of 1, Medium with a score of 3 and High with a score of 5.
Likewise, a positive impact with a value of 5, a neutral impact would take the value of 3 and a
negative impact the value of 1.
Thus, for the performance evaluation matrix the total of variables rated is:
Table 7: Results
Performance No. Variables Score
Low 5 5
Medium 2 6
High 9 45
TOTAL 56
In other words, of the total results with the best performance that could have been achieved (16
variables with a high score = 80), the project reached a total of 56, therefore it met at least 70% of
the optimum score, which is considered an important effect in favor, shown by variables such as
full compliance with the objectives of the transfer, the development of training plans, the use of
active human resources in the company, optimization of production costs associated with the ship
design and construction processes, scientific products obtained and the intangibles generated by the
acquired knowledge.
The remaining 30% that did not achieve optimum performance has been identified according to the
number of socializations or trainings within the company after the transfer, which did not allow the
knowledge to be disseminated in the interested areas and to be able to show substantial changes in
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the organization’s procedures. In this way, the knowledge remained in the participants, who although
managed to adopt better practices, did not consolidate changes at the level of internal processes.
For the impact assessment matrix, the following variables were scored:
Table 8: Results
Impact No. Variables Score

Positive 8 40
Neutral 2 6
Negative 0 0
TOTAL 46
In other words, out of a total of 10 variables with a score of 5 =50, an impact of 46 points was
achieved, i.e. 92% of the target. This percentage is clearly represented in variables such as the
Technological Level of the corporation which increased in the years of study by 27.5%, a more than
double increase in the capitalization of the intangible assets generated, a positive result in the return
on investment and the income received from the production of a vessel from the process, thanks to
the capacity acquired in the transfer.
It is worth highlighting an important indicator shown by the model, relates the cost-benefit of the
manufacture of an intangible compared to the manufacture of a tangible asset after the ToT. In this
case the economic benefit acquired by Cotecmar by manufacturing an (intangible) design of the
vessel and selling it to the Korean company STX, was 153% in relation to its manufacturing cost,
whereas selling the vessel that was manufactured (tangible) in the company resulted in a profit of
12%. This demonstrates the importance and positive effects of investing in knowledge, and the
profitability that can be produced in a company by basing its business model on the exploitation and
commercialization of intangibles, whose return usually lasts over time based on an initial investment.
Finally, the exercise allowed the qualification of different factors considered as critical in a ToT
process, and which, when measured, showed positive results that support the importance that this
project had for the corporation, especially at the technological level due to the acquired capacities,
economic level due to the return on investment and scientific level due to the intellectual production
experienced in it. And although there were variables whose performance was low, when unifying
the results, on average the impact of the project was positive for the company and this has been
demonstrated in the advances in design and construction of ships that increase the competitiveness
of the shipyard.
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Research to Technology Transfer:
Developing a Roadmap
Sanjay Bhardwaj
International Advanced Research Centre for Powder Metallurgy
and New Metallurgy (ARCI), Hyderabad, India
E-mail: sanjay@arci.res.in
S. Subbarao
CSIR - National Metallurgical Laboratory Madras Centre,
Chennai, India
E-mail: sripadas@gmail.com
T.V. Vijaya Kumar

CSIR - National Metallurgical Laboratory Madras Centre,
Chennai, India
E-mail: tvvk65@yahoo.com
Gadhe Padmanabham
International Advanced Research Centre for Powder Metallurgy
and New Metallurgy (ARCI), Hyderabad, India
E-mail: gp@arci.res.in
Karuna Jain
National Institute of Industrial Engineering (NITIE),
Mumbai, India
E-mail: nitie.director@gmail.com
Abstract
Conversion of research results to transferable and commercialisable technologies is desirable by all stakeholders.
This translational process, however, is fraught with several challenges. Authors have conducted a thorough survey
to identify the relevant literature on the models addressing the process leading to technology commercialisation.
It was observed that existing models don’t address the idiosyncrasies associated with the process leading to
commercialisation of materials technologies, application and market development strategy for a research lab
developing technologies for eventual transfer to industry, as well as ecosystem of a developing nation like India.
A Conceptual Theoretical Model (CTM) shall be developed based on the analysis of existing literature. This model
shall be used to probe the findings of a case in which Column flotation technology - a materials technology - was
transferred to industry by CSIR- National Metallurgical
Laboratory, a government funded research organization. Unique insights from the case study shall be used to
identify the needed modification in the CTM. Contributions of this paper shall pave the way for proposing a model
that is appropriate for a research and technology organization undertaking materials technology development for
technology transfer in the Indian ecosystem.
Findings and analysis of this paper shall be relevant to formulate technology transfer and partnership strategy.
Keywords: Technology Transfer, Technology Commercialisation, Materials Technology, Application Development,
Technological Partnerships
1. Introduction
Technology plays a crucial role in increasing the competitiveness of most contemporary organisations
provided the entire value chain, starting from the conception of an idea to the commercialisation of
the “new” technology-based process or product, is managed effectively and efficiently. Intellectual
Property Value Chain (IPVC) entails activities of generating an idea; development, demonstration
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and transfer of know-how/ techniques/ patented / proprietary processes, materials, equipment,

systems etc.; and marketing of the technology-derived products in a potentially profitable avenue
(Mitchell and Singh, 1996; Bhardwaj et.al, 2015b). A commercialisation model provides linkages
between sub-processes to take an innovative idea to marketplace and renders advice on optimum
decisions with respect to technical, marketing, intellectual property and other business aspects
including handling of any possible bottlenecks on the path to the target market (Richard et.al, 1995).
Such a model should also incorporate features characterizing a domain (McCoy et.al, 2008), for
example, advanced materials domain for this paper. Authors have identified challenges associated
with Advanced Materials Technology (AMT) value chain and then assessed the capability of major
Technology Commercialisation (TC) models to address these challenges in the Indian context,
especially in a scenario in which a Research and Technology Organisation (RTO) effects technology
transfer for eventual commercialisation. A Conceptual Theoretical Model (CTM) is proposed based
on relevant features of existing models. Column floatation technology developed and transferred by
an Indian RTO – CSIR National Metallurgical Laboratory - is used to refine the CTM.
An RTO has to deal with the multiple decision points till it finds an industrial organisation, whether
a start-up or an existing company, with appropriate skills and capabilities to finally mass produce
and sell the product. Therefore, the decisions taken by an RTO play a crucial role in leveraging the
resources - especially intellectual, physical, and financial - committed by several stakeholders.
The commercialisation models have been divided into two major categories: linear (no feedback
mechanism), iterative (having feedback mechanism) models. In addition, a model prescribed by
Sun et al. (2008) to provide insights on different aspects of technology commercialisation has been
mentioned. Assessment of these models vis-à-vis requirements of our envisaged model is highlighted
in Table 1:
Table 1: Linear Models
Assessment of the Model vis-à-vis

Author and Year Constituent Phases
Envisaged Model
Model does not discuss how transition from one phase

Goldsmith (1999) Concept, Development, Commercial to another shall be addressed. Partnership needs also
are not discussed.
Model ignores the requirement of inter-disciplinary

Concept, R & D, Fabrication, Testing,
De Saram (2001) skills to handle each phase and transition from one
Production, Marketing
phase to the next
Basic Research, Applied Research,

Model does not discuss the ways in which
Planning for Market Entry, Formation
Narayanan (2001) collaboration between an RTO and industrial
of Business Firm, Manufacturing &
organization should be handled
Marketing, Sales Growth
Exploring, business planning,

Model does not discuss the specific stakeholders as
product development, scaling-up,
Kotelnikov (2002) well as activities to be performed by these stakeholders
manufacturing, marketing and
during different stages
distribution
Model does not provide elaborate treatment of steps
Andrew and Sirkin Idea generation, commercialisation,
linking idea to commercialisation and beyond. In
(2006) realization
addition, partnership strategy has also been discussed.
Scenario, in which an RTO transfers a technology, is

Excell Partners Pre-seed, Early-seed, Mid-seed, Later-
not addressed. In addition, there is no discussion on
(2007) seed, Early stage
collaboration requirements
Model does not discuss about incubation and

R & D, Proof of Concept (PoC),
demonstration of technologies as well as sustainability
Warner (2008) sustainable business model, growth &
of technology-based business. Partnership needs have
graduation
also been unaddressed.
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Research to Technology Transfer: Developing a Roadmap
Table 2: Iterative Models

Envisaged Model
Ideation, development, prototype Model does not discuss (i) about the manner in which
Rothweld and Zegweld
production, manufacturing, output from a phase is assessed, and (ii) the strategy
(1985)
commercialisation, market to be adopted for mobilising resources for next phase
This model is for software domain. External

Inception, elaboration, construction,
Boehm Barry (1988) approvals are recommended for major milestones and
transition
internal approvals are advised for minor milestones.
This model is meant for new products. Criteria of

execution quality, business rationale and action plan
Ideation, scoping, preparing business
are applied to decide w.r.t. go, kill, hold or recycle
Cooper (1988) case, design & development, testing
a project. ‘Must meet criteria’ are used for go/no go
& validation, launch
decisions, ‘should meet criteria’ are used to rank/
prioritize the projects.
Stages are linked through following mobilisation

bridges
Stages are idea generation through Mobilising interest & endorsement (after idea
techno-market insight, incubation generation and before incubation)
to define commercialisability, Mobilising capital, concrete application opportunities,
Jolly (1997) technology demonstration in end required capabilities (after incubation and before
products, promoting adoption of technology demonstration)
technology-based products, sustaining Mobilising market constituents (after technology
commercialisation to enhance pay off demonstration and before promoting adoption)
Mobilising complementary assets (after promoting
adoption and before sustaining commercialisation)
Model proposes following screens to take forward the

invention:
Invention and innovation, opportunity
Screen 1: when inventing organisation attempts to get
recognition, protecting IP assets,
IP rights.
Kathleen (2002) product development, testing the
Screen 2: when business concept is tested, and
business concept, preparing the
decision needs to be taken whether inventing
business plan, launching the business
organisation should opt for commercialise on its own
or it should license the IP assets.
Model suited to Biotech domain

As projects move from the R & D to profit
R & D, invention, selling invention, realization, organisational capability evolve and
transformation into innovation, market forces become increasingly important.
Shaista, Tomasz &
clinical tests, product design, Model does not prescribe the procedure to be adopted
Bernstein (2006)
production and marketing, satisfy for making decisions to proceed further in the value
market need, profits chain, and does not sufficiently address the stages
like idea generation/screening, proof of concept and
prototyping
Model suggests that increased attention should

be paid during ideation, concept evaluation for
Ideation, concept evaluation, identification of right projects and for better
Goyal and Menke
development & testing, release, allocation of resources
(2006)
support, products’ end of life Model does not address activities associated with the
technology demonstration and with the mobilisation
of stakeholders.
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Envisaged Model
Addresses technology development

Gate 1 (after idea generation): Uses qualitative
criteria like strategy fit, strategic leverage, technical
& commercial promise, long term reward if
successful. Gate team includes senior R & D and
marketing professionals
Gate 2 (after project scoping): Uses qualitative
decision criteria by similar gatekeepers as in gate 1 to
undertake limited experimental work
Gate 3 (after technical assessment): requires relatively
rigorous evaluation criteria than those at gate 2 since
Idea generation, project scoping, clearance at this gate requires comparatively higher
technical assessment, detailed resource commitments and extensive experimental
investigation, entry in new product investigation. Gate criteria are similar as those for
Cooper (2007) process (NPP), after due assessment, gate 1 but with more sub-questions aimed at in-
at Gate 2 (sometimes Gates 1 or 3) depth probing. Gatekeepers usually include head of
in standard 5-stage 5-gate stage-gate technology/R & D, head of marketing and head of
new product process business group that will commercialise the resulting
technology
Gate 4 (after detailed investigation): applications path
gate, final gate in technology development process,
leads to one or more product or process development
projects. Gate team includes senior R & D, marketing
and business executives. These professionals are
expected to lead commercialisation of technologies
developed.
Limitations: Does not consider external stakeholders
at different stages; Modus operandi of technology
demonstration is not addressed.
Table 3: Miscellaneous
Author and Year Constituent Elements Remarks
Technological collaboration, organisational Though model provides insights on few crucial

collaboration, alliance for resources, elements affecting TC, it does not provide
Sun, Chow & Lo (2008)
customer collaboration, government elaborate treatment of the sub-processes that
regulations, university support lead to TC.
None of the above models considers unique features associated with development, demonstration,
transfer and commercialisation of the advanced materials technologies; Indian ecosystem relevant
to science & technology-based businesses; IP management and feedback mechanism. CTM derived
from above analysis comprises six sub-processes (i.e. idea generation, idea screening, pre-incubation,
incubation, pre-demonstration, and demonstration).
Single-case design (Yin, 1984) is used to test the applicability of sub-processes of the CTM, in a
situation in which an RTO is involved in development, demonstration and transfer of an AMT in
the Indian context. Sub-processes identified in the CTM have been used to probe a real-life case
involving an Indian RTO, for instance: Column Floatation (CF) technology in this paper. To gather
data, detailed interview was conducted by the first author of this paper with the scientists from
Council of Scientific and Industrial Research - National Metallurgical Laboratory (CSIR - NML)
involved in the CF technology development and transfer. Since scientists associated with the CF
technology are also co-authors of this paper, they have incorporated additional information that
could not be collected through interviews. Although two of the authors of this paper have been
IAMOT 2019 | 254

associated with the CF technology development and transfer, caution is adopted to be a neutral
observer while gathering evidence about sub-processes leading to technology commercialization.
Points of difference /other interesting insights, while comparing sub-processes of the CTM with the
sub-processes of the real-life case, shall be highlighted and these findings shall be used to attain an
improved understanding of the AMTs’ commercialisation process. Learning gained by the analysis
should guide in taking thoughtful decisions by stakeholders at different stages leading to technology
commercialisation. And these insights may be gainfully utilized by the organisations contemplating
to introduce similar technologies in the marketplace.
3. Results and Discussion

Following analysis compares sub-processes of the CTM with the process adopted by CSIR - NML
to develop/demonstrate and subsequently transfer the CF technology.
3.1. Column Flotation (CF) Technology: Case Summary

Case summary presents the brief description of technology and the process leading to the
commercialisation of the CF technology. CF technology is associated with the counter-current
flow of slurry and air bubbles. This has proved to be a better process than the conventional
mechanical cells for separating the minerals from gangue. Technology was successfully being
utilized in numerous iron ore processing plants globally. Perceiving the commercial potential of CF
technology, an exploratory project for development of a new technique for fine particle processing
was initiated by the CSIR-NML Jamshedpur’s Madras Centre in the year 1987. Initial exploratory
studies received support from the Indian Government’s Ministry of Mines (http://www.nmlindia.
org/technology/columnflotationtechnology.pdf;http://nmlindia.org/download/tech/CFT). Such
governmental programmes are crucial for the efforts towards commercialisation of innovative
technologies (Bhardwaj et.al, 2013).
Work on CF technology was taken up for the development due to the following possible benefits for
mineral beneficiation/ore processing applications: i) better recovery, ii) improved grade, iii) lower
capital and operating costs, iv) lesser wear and tear due to absence of moving parts, and v) less floor
space requirement (Sastri, 1998). Flotation columns of 74 mm diameter, and 10 meters maximum
height were designed, fabricated and field tested at various mineral processing plants. Encouraging
results of exploratory laboratory investigations were followed by technology upscaling work by
CSIR-NML. Fully automated prototype column was prepared in the year 1991 using CSIR-NML’s
internal resources.
Indigenous development of both internal and external types of spargers - a key component of
flotation column – was aimed at import substitution. Prototype column was also required by R
& D departments of some user mineral beneficiation organizations. This helped in assessing the
column’s performance. For example, R & D centre at National Mineral Development Corporation
(NMDC) installed the flotation column to conduct beneficiation R & D studies of iron ore fines in
the year 1999. In the year 2001, an academic institute also installed the similar flotation column to
train its undergraduate mining engineering students. While flotation columns were being fabricated
and field tested with multiple organizations (8 sites of 7 organizations including Hindustan Zinc Ltd,
Hindustan Copper Ltd. etc.) from the year 1992 to the year 2007 - 08, NML continued its upscaling
efforts to make pilot scale flotation columns of 500 mm diameter and 14 meters maximum height
with different spargers to enable their usability for different minerals. CSIR-NML prepared first
pilot scale flotation column in the year 1996 using its internal resources. Field trials were conducted
with 8 mineral beneficiation companies from the year 1996 to the year 2008-09. Demonstration
boosted the confidence of end-users in the technology. After successful field tests with prototype
scale and pilot scale columns, CSIR-NML installed three commercial scale columns (one 1200 mm
diameter and two 1300 mm diameter columns of 150 tonnes per day capacity) from the year 2005-06
to the year 2008-09 in 3 different organizations.
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After successful prototyping / pilot scale demonstration followed by commercial scale launch of the
CF technology, CSIR-NML signed a Memorandum of Understanding in the year 2008 with McNally
Bharat Engineering Co. Ltd. (Now, rechristened as McNally Sayaji Engineering Limited), a leading
mineral processing equipment manufacturer and marketing organization to provide engineering
support and to market CSIR-NML’s CF technology. Such partnerships facilitate utilization of
diverse expertise available within multiple organizations (Bhardwaj et.al, 2015a). In the initial
stage of commercialisation effort, 3 organizations had procured laboratory scale, pilot scale and
commercial scale flotation columns. Commercial column of 2500 mm diameter was supplied by the
technology receiver.
Training was provided to the technology receiver’s staff on conducting the feasibility study
by demonstrating the usage of flotation columns, and for designing, fabrication, erection and
commissioning of flotation columns (Mcnally,2009). Strategic alliances aimed at utilizing
complementary strengths of different organizations have also been discussed by Timothy
and Dibrell (2001). Access, rather than acquisition, to the capability of partners enhances
the competitive strength of the partner accessing the capability of the other partner (Moweri
et al., 1996).
An interesting aspect of CF technology is that the dimensions (here, height and diameter of the
flotation column to be supplied to the users) were not fixed in all cases and they were to be
established for each case based on process data generated from laboratory scale investigations /
pilot scale studies. Newer applications of initial system or its variants were continuously being
developed to tap new customer segments and to provide better solutions to existing customer
segments (Bhardwaj et.al, 2016). For example, following columns have been supplied to variety
of users in the recent past:
●● laboratory scale flotation column by McNally Sayaji Engineering Limited:
●● Indian Institute of Technology (IIT), Hyderabad
●● Demonstration of technology at plant site using 74 mm lab scale flotation column by
CSIR-NML:
●● For two private sector companies for reduction of silica in marble fines, and for reduction
of silica in slimes of limestone washing plant by conventional and column flotation
●● Demonstration of technology at plant site using 500 mm pilot scale flotation column by
CSIR-NML:
●● For two private sector companies in upgrading the quality of sillimanite to >95% with
>75% recovery and for fine coal flotation
●● Supply of commercial scale flotation column by McNally Sayaji Engineering Limited:
●● supply and installation of industrial scale flotation column at four user companies
(two of 2500 mm diameter, one of 1500 mm diameter and one of 1000 mm diameter)
The development and commercialisation of CF technology for beneficiation of low-grade mineral
deposits received the CSIR Technology Award 2014 for most significant CSIR technology of the
five-year plan period.
IAMOT 2019 | 256

(1) Ideation (1987) (2) Idea Screening (1987) (3) Lab Development (1988)
-Possible advantages of column Ministry of Mines (Government Laboratory scale studies lead to
flotation compared to other of India) decision to support the development of 3 types of
alternatives for separation of CSIR-NML for exploratory cells: conventional column,
minerals studies on fine particle electro-column and
processing combination
-Proposal formulated by CSIR-
NML after review of available
literature
(6) Field tests continues (1996- (5) Support for Upscaling (1996) (4) Prototyping (1992 - 1996)
2005)
- Demonstration of 6 pilot scale (500 CSIR-NML provided resources - After testing of 4 prototypes till
mm diameter) columns completed for preparing pilot scale (500 1996, CSIR-NML started fabricating
till the year 2005. Demonstration mm diameter) flotation columns pilot scale columns.
continued even after the year 2005 with automatic controls
either to boost the confidence of - Though prototype columns were
industry in some cases or in other still supplied after 1996 also for
cases, users found pilot scale sensitizing new markets and for
specific users needing columns for R
columns sufficient for their needs
and D studies or for teaching etc.
(7) Technology Transfer (2006 - (8) Support to tech receiver for (9) Continued technological
08) initial production (2008-12) support (2012-ongoing)
-3 commercial scale (more than -3 columns (1 prototype scale, 1 CSIR-NML’s R and D on column
1200 mm diameter) designed, pilot scale and 1 commercial floatation was ongoing to
fabricated and supplied by CSIR- scale) were supplied to end- further improve the
NML to end-users users till the time of data technological aspects
collection.
-Agreement signed with TRC in
2008 for commercialisation -Training to TRC’s staff
Figure 1: Process Map of Column Flotation Technology Commercialisation
4. Conclusion
Unique aspect of CF technology commercialization process has been the parallel occurrence
of lab scale development, upscaling, field tests and commercialisation. While laboratory scale
flotation columns (74 mm diameter with a feed rate of 15-20 Kg/hr) were used for research
investigations and to sensitize prospective end-users about technical merits of the column, pilot
level facility (500 mm diameter with a feed rate of 0.75 -1.50 tonne/hr) was used for on-site
demonstration to boost confidence of the possible end users and for generating parameters to
prepare commercial scale columns. Therefore, laboratory and pilot level columns were used
along with the commercial scale columns (1000 – 2500 mm diameter with a feed rate of 5 to 10
tonnes/hr) to generate newer markets.
Technology receiver was identified mainly due to its understanding/familiarity with the target
markets of flotation columns due to its pre-existing business interactions with the similar customers.
Moreover, it was possible for the technology receiver to leverage its existing sales and distribution
infrastructure to explore the possible markets of flotation columns. Therefore, support requirements
from technology providers is relatively less in such situations.
IAMOT 2019 | 257

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IAMOT 2019 | 259

Measurement of Intellectual Capital using
Information and Communications Technology
Gumercindo Bartra Gardini

Pontifical Catholic University of Peru, Telecommunications
Engineering, Lima, Peru
E-mail: gbartra@pucp.edu.pe
Nérida Del Carmen Pastrana Diaz
National University Hermilio Valdizán, Transfer
and Innovation Direction, Huanuco, Peru
E-mail: ncpastranad@hotmail.com
Marta Lucía Tostes Vieira
Pontifical Catholic University of Peru, Department of
Management Sciences, Lima, Peru
E-mail: mtostes@pucp.edu.pe
Claudia Patricia Motta Villa García
EXCEDESA SAC, Main Research, Lima, Peru
E-mail: claudia.motta@pucp.pe
Abstract
In this millennium, thanks to globalization and the development of information and communication technologies
(ICT), it has become evident that knowledge is the new source of creation of value and wealth (Drucker, 1999),
and emerges as a new factor of competitiveness intellectual capital (Brooking, 1997-a) (Lenart-Gansiniec, 2016)
(Alama, 2010). These intangible assets, which represent the intellectual capital, need to be identified, measured and
evaluated to manage them, using appropriate tools (Bueno, Rodríguez & Salvador, 2003). Because the development
of new information technologies determines a large part of our future (Harari, 2018), ICTs emerge as a support tool
to measure intellectual capital.
The objective of this work is to measure intellectual capital through four factors: human capital (Farias, 2011),
structural capital (Edvinsson & y Malone, 1999), relational capital (Capello & Faggian, 2005) and social capital
(Coleman, 1988) (Durston, 2000) (Baro, 2012). The study has focused on the career of Telecommunications
Engineering at the Pontifical Catholic University of Peru (PUCP), and its main contribution is to become a reference
guide for managing intellectual capital in other university careers (Fazlagic, 2005) (Bueno, 2004).
The methodology used in the research, part of a fieldwork based on interviews, applied to professors and
academic authorities of the career of Telecommunications Engineering of the Pontifical Catholic University
of Peru (PUCP), in which the levels were defined (competitive advantage, differentiating level, stable level
and critical level). The four pillars of intellectual capital were weighted and each one of the items was valued
through a survey. The sample consisted of fifteen teachers who presented research in the period 2012-2017.
The information collected was processed through an application software CI-FII (Pastrana, 2015), to measure
intellectual capital.
The results indicate that the measurement of intellectual capital in the career of Telecommunications Engineering
of the PUCP, reached a percentage valuation of 78.65%, placing it in a competitive advantage position, the Human
Capital contributes 22.60%, the Relational Capital 20.30%, Structural Capital 19.55% and Social Capital 16.20%.
The use of CI-FII software allowed the measurement of intellectual capital, becoming the technological support
necessary to manage intellectual capital in the career of Telecommunications Engineering. In this way, the
application software becomes a management tool for decision making.
Finally, the evaluation of intellectual capital was an important contribution to the career of Telecommunications
Engineering since each of the factors that generate value and inducers of success have been identified and measured,
the results of which will allow us to propose strategies to achieve competitive positioning in a globalized world like
the current one.
IAMOT 2019 | 260

Measurement of Intellectual Capital using Information and Communications Technology
Keywords: Intellectual Capital, Human Capital, Structural Capital, Relational Capital, Social Capital
1. Introduction
Nowadays there are more quality requirements in the academic formation in universities and
knowledge emerges as a competitivity factor, for what it acquires relevance in its identification,
usage and management of tangible assets, which represent the Intellectual Capital in university’s
educational institutes, because they generate value, offer a sustainable strategic advantage and are
the key for future success.
Intellectual Capital conceptualization has been exposed by different authors. Edvinsson and Malone
(1999), the two pioneers in this matter, explain Intellectual Capital from this metaphor:
A useful way to see a company (or as will be seen, any organization) is to imagine it as a tree. The
trunk, branches and leaves, that is, the observer’s visible part, are the market’s knowledge of the
company and what accounting process expresses. The fruit represents the investors’ benefits and the
products clients consume. The hidden value of a company is at the roots, and to flourish and bear
fruit it must be nourished by strong and healthy roots.
It is the measure of the hidden value, of the intangibles from an organization who allows them to
develop, thus the identification, measurement and management of the intellectual capital is important
for decision making and the competitive positioning of the organization.
Stewart (1998), ¨The intellectual capital is constituted by gray matter: knowledge, information,
intellectual property, experience that can be used to create richness¨.
In this research, for the correct measurement of the Intellectual capital in the Telecommunications
Engineering Career of the Pontifical Catholic University of Peru (PUCP), it has been considered
as a theoretical reference the model CI-FII (Pastrana, 2015), based on the intellect model, which
structural base is formed by factors, elements and indicators, allowing the achievement of the
research’s presented objective.
Structurally the CI-FII model is conformed by four pillars: Human Capital, Structural Capital,
Rational Capital and Social Capital.
The Human Capital is conformed by factors which generate value and induce to the career
success: teachers’ competence, professional trajectory, technological scientific production, social
responsibility, innovation and technological transfer. Each of these factors has dimensions
helping on a better precision on the model. On the other hand, Structural Capital has the following
factors: strategies, organizational culture, processes, alignment, technological infrastructure and
applications and innovation. Relational Capital has as factors: users, image, strategic alliances and
service quality. Finally, Social Capital has three factors: dimensions, mechanisms and results. The
latter shows the value generated by networks formation and their corresponding indicators based
on trust, loyalty, sincerity, commitment, transparency, solidarity, responsibility, honesty and ethics
which were used in the research work (Pastrana, 2015, p.119).
The objective was to measure Intellectual Capital in Telecommunications Engineering Career of the
Pontifical Catholic University of Peru (PUCP). A survey was used as data collection technique and a
structured questionnaire as measuring instrument applied to fifteen (15) professors and two (02) career
authorities. Each variable was weighed: Human Capital (30%), Relational Capital (25%), Structural
Capital (25%) and Social Capital (20%). The ranges and intervals were defined: critical state (<=
50%), stable (<= 60%), differentiator (<= 75%) and competitive advantage (>= 75%). Each item was
assessed taking into account strengths and limitations. Measurement of Intellectual Capital was made
using CI-FII Intellectual Capital Measurement Software, reaching a percentage valuation of 79.62%.
This result positions Telecommunications Engineering Career-PUCP in a competitive advantage.
Human Capital was the greatest contributor to Intellectual Capital with 23.05%, followed by Relational
Capital 20.63%, Structural Capital 19.59%, and finally Social Capital 16.35%. The Intellectual capital
management, using Balanced Scorecard, is a proposal incorporated in the CI-FII software.
IAMOT 2019 | 261
The Intellectual Capital represents the intangible assets based in the knowledge, the organization’s
hidden value which generates value and induce to success and its management allows and generates
competitive advantages for the organization.
Sánchez et al. (as quoted in Yong, Rodriguez & Ruso, 2017) indicates that the Intellectual capital
is the combination of intangible assets and valuable capacities that allow the organization to
transform financial assets, materials and humans in a system capable of creating value for all
the agents linked to it.
The Intellectual capital has been introduced by (Sveiby, 1997) and (Stewart, 1998), Brookling
(1996), Roos et al (1997), Edvinsson and Malone (1999), Sullivan (2000), Bueno et al. (2003),
Kaplan and Norton (2004), Schleicher (2006), Salomon (2007), among others, and the tools of
measurement (Bontis, Dragonetti, Jacobsen, & Ross, 1999), Broking (1996), Edvinson and Sullivan
(1996), Ross et al. (1997), Sveiby (1997), Stewart (1998), Bueno (2003).
Ramirez and Manzaneque (2013), indicate that the information’s presentation about Intellectual
capital is relevant in universities considering that the principal activity of this institutions is to
generate knowledge, either through the scientific-technique research and professorate, in which
the most valuable intangible resources are their professors, administration staff and services and
students, along with their organizational processes and relationship networks, without leaving aside
their own university government.
The Intellectual capital represents an innovation factor of social impact in universities, being the
Human capital, Structural capital, Rational capital and Social capital the components that best fit to
the universities. Their identification and measurement generate competitivity (Yong, Rodríguez, &
Ruso, 2017).
3. Intellectual Capital Measurement Models

The measurement models of Intellectual capital proposed by different authors such as: Balanced
Scorecard (Kaplan and Norton, 1992), the Technology Broker (Brooking, 1996), Navegador de
Skandia (Edvinsson and Malone, 1997), Intangible Assets Monitor (Sveiby, 1997), Dirección por
competencias (Bueno 1998), Intelect (EUROFORUM, 1998), Modelo CI-FII (Pastrana, 2015), are
used by different organizations and adapted by the universities.
In the research work the model CI-FII is taken as a base, which is structured in blocks, elements and
indicators. in those blocks are grouped the intangible assets according to their nature: human capital,
structural capital, rational capital and social capital. inside each block are the elements, each one
with their respective indicators which allow to measure the intellectual capital.
3.1. Human Capital

The Human Capital is one of the pillars of the Intellectual Capital. It is referred to the explicit or tacit
knowledge that the people and equipment of the organization possesses, as well as the capacity to
learn in an individual or organizational way, the competences, knowledge, attitudes, skills, creativity
and inventiveness that contributes to the organization. This capital is not an organization’s property
(Edvinsson & Malone, 1999).
3.2. Structural Capital

The structural capital gives support to the human capital of the organization, is another important
pillar of the intellectual capital. it can be described as the infrastructure that incorporates, capacitates
and holds the human capital. includes factors as physical systems, quality, as a reach for information
systems, data base, intellectual property (patents, brands or any intangible element), organizational
culture, innovation, processes (Edvinsson & Malone, 1999). it is the company’s property. it includes
all the elements of intern organizational type that the company put in practice to display their
functions in the most optimal way possible (Roman, 2005).
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3.3. Relational Capital

It’s a key aspect in the organizations through a set of relationships that it maintains with the exterior.
The factors as quality service, sustainability of the client’s data base, the brand image, strategic
alliances, loyalty and potentiality to generate new clients are the key to success, because it allows to
generate value and competitive advantage for the organization. (Edvinsson & Malone, 1999).
3.4. Social Capital

The social capital express a degree of social integration and the organization’s responsibility towards
society as a whole and each of their agents and groups, it is based in values and attitudes, reliability,
cooperation, security, ideals, ethic, compromise and equity. (Bueno, 2004).
The Social Capital considers the next indicators of resources: networks, reliability, norms, attitudes
and values, qualities of institutional frameworks; performance indicators: access and exchange of
information and collective actions and results indicators: production of knowledge, innovation,
company development, employment increase, as the ones exemplified next: Networks, reliability,
norms, attitudes and values, access and exchange of information, collective actions, production of
knowledge, innovation, employment increase (Rodriguez y Roman, 2005).
Table 1: Intellectual Capital Measurement Models
Main Measurement Models of Intellectual Capital
Model Intellectual Capital Types Main Authors
Financial Perspective
Customer Perspective
Balanced Scorecard Kaplan & Norton (1992)
Internal Process Perspective
Learning and Developing Perspective
Market Assets
Intellectual Property Assets
The Technology Broker Brooking (1996)
Individual Focused Assets
Infrastructure Assets
Human Capital
Navigator of Skandia Structural Capital Edvinsson & Malone (1997)
Relational Capital
Human Capital
Intangible Assets Monitor Structural Capital Sveiby (1997)
Relational Capital
Human Capital
Direction by competencies Structural Capital Bueno (1998)
Relational Capital
Human Capital
Intelect Structural Capital Euroforum (1998)
Relational Capital
4. Findings
The applied methodology starts with variables’ definition, operationalization and identification, which
determined survey as data collection technique and structured questionnaire as measuring instrument.
This data collection technique has allowed gathering written information from a sample of persons.
Each professor and authority of Telecommunications Engineering Career of the Pontifical Catholic
University of Peru (PUCP) answered the questionnaire in a self-administered manner.
The weigh of each independent variable, according to its importance, was defined by authorities and
professors of the Telecommunications Engineering Career – PUCP:
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Table 2: Weighted Variables
Human Capital (HC) α%= 30%
Structural Capital (SC) β%= 25%
Relational Capital (RC) θ%= 25%
Social Capital (CS) γ% = 20%
They established two hierarchical levels, comprised by authorities and teachers, whose weight was
the same, according to their decision. The defined ranges and intervals to establish criteria from the
professional career’s point of view were the following:
Table 3: Ranges and Defined Intervals
<=50 Critical
<= 60 Stable
<=75 Differentiator
>75 Competitive advantage
Factors that generate value and induce success, based on the Intellectual Capital pillars of the
Telecommunications Engineering Career-PUCP, were valued through a survey. The following
weighing took into account the strengths and limitations:
Table 4: Survey rating
Major Strenght (MS) 4
Minor Strenght (mS) 3
Minor Limitation (mL) 2
Major Limitation (ML) 1
A survey was applied to fifteen professors and two authorities of the Telecommunications
Engineering-PUCP professional career.
The CI-FII Intellectual Capital Measurement model (Pastrana, 2015) has four pillars: Human
Capital, consisting of the following factors that generate value and induce success: professor
competences, professional trajectory, technological scientific production, social projection
and university extension, innovation and technology transfer; each of these factors has
dimensions that help better define the model. Structural Capital has the following factors:
strategies, organizational culture, processes, alignment, technological infrastructure,
applications and innovation. Relational Capital has factors such as users, image, strategic
alliances and service quality. Social Capital has three factors: dimensions, mechanisms and
results. This research used all the factors.
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Update
Recognition
Competencies Motivation
Satisfaction
Training
Professional Trajectory Professional level
HUMAN CAPITAL
Teaching experience
Teaching staff development.
Scientific Technological Scientific and technological production
Production Conferences
Researchs
Scientific recognition
Scientific meetings participation
CAPITAL
Social Responsibility Social Responsibility

Innovaton and Technological transference
Technological
Transference
Strategic objectives
Monitoring
Estrategies Management tools
Support for the generation and transfer of
STRUCTURAL CAPITAL
knowledge
Organizational Culture Internalization
Suitable environment
Teacher predisposition
Processes Processes
Alignment Alignment
Technological Technologies
Infrastructure and Management Systems
INTELLECTUAL
Applications Informatic applications

Innovation I+D+i
Patents
Users profile
Users role
Users Users support
RELATIONAL CAPITAL
User success
Image Value perception
Providers Cooperation mechanisms
Communication mechanisms
Strategic Alliances Scientific community

Organizations
Quality of Service Awards
Recognition
Certifications
Networks
Trust
SOCIAL CAPITAL
Dimensions Rules, attitudes, values

Institutional framework
Mechanisms Information access
Collective actions
Results Knowledge
Innovation
Career development
Figure 1: Intellectual Capital Measurement Model CI-FII, Source:Pastrana (2015)

Figure 1: Intellectual Capital Measurement Model CI-FII, Source:Pastrana (2015)
4.1. Intellectual Capital Measurement Process Description
Intellectual Capital measurement of Telecommunications Engineering Career-PUCP used the
following measurement equation, which considered success inducing and value generator factors
identified in the CI-FII model (Pastrana, 2015).
Figure 2: Intellectual Capital Measurement Equation Model CI-FII, Source:Pastrana (2015)
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Figure 5: Intellectual Capital Measurement Equation Model CI-FII, Source: Pastrana (2015)
4.2. CI-FII application to Measure Intellectual Capital

Measurement of Intellectual Capital in Telecommunications Engineering Career-PUCP used CI-
FII Intellectual Capital Measurement software (Pastrana, 2015). It operates based on the formulas
described and the data obtained from the surveys applied to various specified stakeholders.
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4.3. Measurement of Intellectual Capital in Telecommunications

Engineering Career -PUCP
Measurement of intellectual capital was on the basis of the weighing factors determined by professors
and authorities of the Telecommunications Career: Human Capital 30%, Structural Capital 25%,
Relational Capital 25% and Social Capital 20%.
Figure 7: Weighings of Human Capital, Structural Capital, Relational Capital,

Social Capital, Source: Own Elaboration
Measurement of Intellectual Capital in Telecommunications Engineering Career-PUCP reported

78,65%, which is a competitive advantage position. Human Capital contributed most to Intellectual
Capital representing 22,60%, followed by Relational Capital (20,30%), Structural Capital (19,55%),
and finally Social Capital (16,20%).
Figure 8: Measurement of Intellectual Capital, Source: Own Elaboration
Figure 9: Intellectual Capital Measurement, Source: Own Elaboration
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Figure 10: Intellectual Capital Measurement, Human Capital, Structural Capital,

Relational Capital, Social Capital, Source: Own elaboration
4.4. Measurement of Human Capital in Telecommunications

Engineering Career-PUCP
Value generator and success inducer factors of Human Capital in Telecommunications Engineering
Career-PUCP contribute with the greatest value to Intellectual Capital. The professors’ competences
factor has been valued with 85.5%, scientific and technological trajectory with 79%. That is,
they have many strengths in production diffusion, publications in indexed journals, institution
recognition and participation in scientific events. In the Professional structure factor, they achieved
77.08%, evidencing greater strengths in teaching experience years, as well as in non-teaching
experience, which adds value to the Career, and minor strengths in sufficient Institution scholarship
programs to achieve the proposed objectives. The R + D + i factor was valued with 69.10%, having
smaller strengths in innovation and creativity promotion and in technology transfer effectiveness
to community and greater strength in research and development areas contribution to increase the
Career’s value. Finally, the Social Responsibility factor contributes the least; all are minor strengths.
The greatest contribution is in career members’ participation in study of the environment and in
formulation of University Social Responsibility projects (RSU) that contribute to problems solution
through formal mechanisms and to diffusion and measurement of social responsibility projects
results impacts.
Figure 11: Human Capital Measurement, Source: Own Elaboration
4.5. Measurement of Structural Capital in Telecommunications

Structural Capital of Telecommunications Engineering Career-PUCP contributes to Intellectual
Capital with 19,55%.
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Figure 12: Structural Capital Measurement, Source: Own Elaboration
In Structural Capital, the Technological Infrastructure and Applications factor obtained the highest
value with 89.38%. The greater strengths were its technological infrastructure as support for value
generation (basic infrastructure, laboratories, databasis, access to libraries, others), their computer
systems, programs effectiveness and applications, which support the Career’s activities. The minor
strength was the use of technology to safeguard, provide security and management of standards and
contingency plans. Organizational Culture factor had a value of 84.17%. Greater strengths were
Professors’ internalization of the organizational culture (values, regulations, commitment, etc.) to
execute strategies that add value to the Career, also the Professors’ predisposition to carry out jobs
inherent to the Career and to consider their environment as the most appropriate. Innovation factor
constitutes a minor Strength, valued with 78.33%; it evidences an Institution that promotes, creates
and generates patents. Alignment factor has 76.67%; according to Professors and authorities, the
career’s strategic objectives are aligned with the Institution’s strategy. These strategies, aligned with
their human resources and information technology programs, align the technological infrastructure
and its applications with processes that generate value. Strategy factor was valued with 70.63%.
A greater strength is the knowledge of the Career’s strategic objectives and the monitoring and
measurement of strategic objectives fulfillment. A major limitation is the use of management tools
focused on strategies implementation and support for knowledge generation and transfer. Finally,
Process Factor valued in 70% represents a minor limitation and its contribution to Structural Capital
is the smallest. It refers to work methods establishment processes and innovation promotion, its
information system, which allows decisions be made for continuous improvement and in general to
processes identification that generate value to the Institution.
4.6. Relational Capital Measurement in Telecommunications

Relational Capital in Telecommunications Engineering Career-PUCP, contributes to Intellectual
Capital with 20,30%.
Service Quality factor obtained the highest value with 90.63%. Evidences of this major strength
are quality recognition awards given to the Institution in acknowledgement of educational service
quality by users, also the implementation of their quality management system and their processes
certification. Strategic Alliances factor achieved 85% valuation, representing a minor strength related
to the promotion of strategic alliances with the scientific community, participation in scientific
meetings, in scientific societies, in research groups, with organizations that finance and / or support
research projects. Image factor obtained a valuation of 73.3%. A major Strength is the promotion
of events that allow transcendence and the evaluation of value perception of the Career’s image. A
minor weakness is compliance perception of the Career’s image. Suppliers factor had a valuation of
72.5%, having as minor strengths communication mechanisms with suppliers (conferences, courses,
etc.) and promotion of cooperation with suppliers to generate value for the Career.
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Figure 13: Relational Capital Measurement, Source: Own Elaboration
4.7. Social capital Measurement in Telecommunications

Social Capital of Telecommunications Engineering Career-PUCP, contributes to Intellectual Capital
with 16,20%.
In Social Capital, Dimensions factor reached the highest valuation (83.25%). A major strength is
the confidence level between professors-students. Minor strengths are confidence level between
professors, confidence level between professors-administrative personnel, satisfaction degree of
its formal and informal collaborators, Institution’s evaluation of assesment level of the values,
regulations or guidelines that define rules in collaborations: teamwork, trust, reciprocity. Other minor
strengths are efficiency evaluation in solution of local problems, from research works, projects and
programs with University Social Responsibility. A minor weakness is the confidence level between
teachers-authorities and the level of trust with companies and institutions.
Mechanism factor had a valuation of 81.67%. Minor strengths are cooperation projects with other
institutions, cooperation agreements with suppliers and communication access and exchange that
generates value to the Career.
Result factor reached a value of 78.13%. It also represents a minor strength, evidenced in the
interaction between collaborators, the importance level of collaborations from innovation
perspective, the benefit obtained by the creation of these networks and the record of the importance
of collaborations results, which add value to the Career.
Figure 14: Social Capital Measurement, Source: Own Elaboration
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5. Conclusions
1. Intellectual Capital of the Telecommunications Engineering Career – PUCP was
measured, the percentage value of 78,65% was obtained, placing it in a competitive
advantage position, the Human Capital contribute 22,60%, the Relational Capital
20,30%, Structural Capital 19,55% and Social Capital 16,20%.
2. The elaborated software, based on the pillars of the Intellectual Capital as technological
support to measure and manage the Intellectual Capital of the Telecommunications
Engineering Career – PUCP, allows to monitor the value generating factors and success
inductors, it can also be included as a part of the process of academic quality because
it points out one of the university objectives wich is to generate knowledge and it can
be aligned with the accreditation subject and the existing innovation programms in the
Superior Education institutions. In the same way, the utility of this tool will generate
impact, measured by its efffectiveness in the achievement of goals.
3. In the Telecommunications Engineering Career, the factors that make up the Human
Capital, Structural Capital, Relational Capital and Social Capital are important intangibles
wich represent the Intellectual Capital in this knowledge age, whose measurement will
generate sustainability and impact, given that the careers are continually working in the
improvement of processes, wich leads to a quality of the educative service they offer,
accrediting them as excellent and positioning them in a competitive advantage.
4. Recommendation
The use of the proposed study is recommended so that it can be extrapolated to other institutions; in
that way, the knowledge can be managed starting from the Intellectual Capital measurement, as it
allows to position the organizations in a competitive advantage.
5. Acknowledgements
To all professors and authorities of Telecommunications Engineering Career of the Pontifical
Catholic University of Perú, for their collaboration in answering the Intellectual Capital survey.
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IAMOT 2019 | 272

Factors that Influence Technology and Knowledge
Transfer Success
Paul Kwangwari
Graduate School of Technology Management, University of
Pretoria, Pretoria, South Africa
E-mail: kwangwarip@gmail.com
Anthon P. Botha
Graduate School of Technology Management, University
of Pretoria, Pretoria, South Africa
TechnoScene (Pty) Ltd, The Willows, Pretoria, South Africa
E-mail: anthon@technoscene.co.za
Abstract
This paper presents a case study of experiences of operations personnel in a South African petrochemical company
during the acquisition of technologies from external suppliers on the success of technology and knowledge transfer.
South African and, broadly, African companies are reliant on technology suppliers in developed countries. Increasingly
research on technology and knowledge transfer is focused on the experiences of Asian and Latin American companies,
with less focus on African and more specifically South African companies. In South Africa, technology transfer
projects often leave maintenance personnel with inadequate capabilities to maintain the technologies.
A detailed literature survey was done on technology and knowledge transfer constructs, mechanisms and factors
that affect transfer, measures of success in transfer and models of transfer. Qualitative research was conducted that
sought to uncover insights on and experiences in technology and knowledge transfer within a particular case. An
electronic web-based survey was used to collect data. A conceptual model was drawn up based on an understanding
of the topic in the literature and gaps identified through the literature review. The conceptual model included
technology and knowledge needs, technology and knowledge transfer processes, outcomes of the respective
transfer projects; technology complexity, internal factors influencing the recipients and external factors shaping the
transferor behaviour.
Through insights gained in this research, initial understanding of reasons for poor technology and knowledge
transfer is related to different approaches at different levels in the systems hierarchy. The more integrated a system
is (subsystem and system level), the more likely that the transfer will be successful. Technology managers should
take note of this aspect and exercise great care when technology and knowledge transfer takes place at component
level. This may be due to the fact that the system or subsystem as a whole is guaranteed by the supplier or local
maintenance services are in place reducing the technical burden on internal maintenance and technical support
services. Indicators and factors were identified that lead to the success of technology and knowledge transfer.
Recognising the level of complexity, ensuring a good communication protocol between transferor and transferee
and closing the gap between technology and knowledge transfer should be on the priority agenda of a technology
manager when advanced technologies are transferred into the enterprise.
This paper is adding to the body of knowledge on technology transfer in management of technology. It links
successful transfer to source of technology, maturity of technology, the level of complexity of the technology
transferred, follow-through support by the transferor, the scale of technology transfer and the influence of
systems levels. Knowledge transfer that supports the technology transfer is discussed in terms of the dimensions
of knowledge transfer, engineering discipline that is involved, skills, communication, attitudes and other factors.
Learning from this work, technology managers will be able to tightly specify technology and knowledge transfer
standards for optimising success.
Keywords: Technology Transfer, Knowledge Transfer, Systems Complexity, Success Factors
1. Introduction
The South African petrochemical industry was established many decades ago, and in the case of
chemical manufactures, more than 100 years ago (Simon and Sohal, 1995; Majozi and Veldhuizen,
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2015). The petroleum industry contributes significantly to the South African economy recording
a combined turnover of R300 billion in 2015 (SAPIA, 2015; Majozi and Veldhuizen, 2015).
As Erdilek (1984) points out, the competitiveness of companies is derived from internally or
externally acquired technologies in an environment of rapid and disruptive change. Petrochemical
companies in South Africa, and other developing countries are dependent on technology transfer
from developed nations for their technological capabilities (Erdilek, 1984). While the subjects of
technology transfer and knowledge transfer (hereafter TT and KT) are receiving significant focus
from both academic and industry practitioners, focus has largely been on certain aspects of TT
and KT in developed countries as well as the experiences of Asian and Latin American countries.
TT and KT research focused on TT and KT outcomes in Africa and South Africa in particular is
limited. More specifically, an analysis of TT and KT outcomes in the petrochemical industry is
necessary, given the reliance of the industry on foreign technologies. Anecdotal experiences in
the industry in terms of maintenance and plant performance beg the question: how well are South
African petrochemical companies able to absorb technologies and knowledge transferred from
external suppliers? This paper seeks to contribute to an understanding of TT and KT outcomes by
analysing the experiences of one of South Africa’s large petrochemical companies from which a
brief overview of anecdotal evidence is discussed.
A number of large projects have been implemented in this company with varying outcomes
in terms of project objectives and maintenance capabilities. Two examples from one of the
company’s business units will be discussed. A catalytic cracker plant was built and commissioned
in 2006 as a multidisciplinary project with multiple work streams involving the use of proprietary
technologies. The experiences of operations personnel post the implementation of this project,
more specifically with certain parts of electrical technologies installed in this plant (namely the
medium voltage variable frequency drives (VFDs)) highlight the challenges facing operations and
maintenance personnel post the acquisition of such complex technologies. Variable frequency
drives are used to drive large compressor machines with a combined output power of 40 MW
representing some of the largest machines in the country. This proprietary, complex VFD with
integrated programmable logic controller (PLC) systems was designed by an overseas manufacturer
utilising proprietary systems for which there are strict conditions for warranty purposes. Whilst
the petrochemical company has a team of electrical engineers and technicians providing technical
support for the electrical infrastructure, support for this VFD system was problematic. The local
representative of the technology supplier does not have the technical expertise to support this
system and the system designers are based in the United States of America. Training provided
to technicians on this system was inadequate due to the integrated nature of the system. Costly
downtime of the system occurred taking on average 24-36 hours to resolve the failures. This
system provides a good example of technology acquisition projects that exhibit less than the
desired outcomes and highlights the need for a focused study to derive lessons learnt that can lead
to more effective TT and KT in the future.
Another example that reflects a different challenge related to TT and KT is a modular water
treatment plant that was constructed in 2014. The modular design and construction of the plant
represented beneficial advancements in the design and construction of water treatment plants. While
a local company supplied the plant, major technologies forming part of this plant were sourced
overseas. This plant was constructed on a build, own, operate and maintain agreement after which
a decision was made to procure the plant. An assessment of the installed technologies and available
documentation was conducted and it was clear that much of the documentation required for effective
operation and maintenance of the plant was not available. In effect, the acquisition and transfer of
this plant changed from a simple to a complex exercise. While the challenges in this example are
different from the first, this project demonstrates the need to examine TT and KT outcomes within
the petrochemical company. This project will provide insights to improve TT and KT outcomes in
the specific petrochemical company examined, and it is believed that the learning applies to the
South African industry in general.
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Factors That Influence Technology and Knowledge Transfer Success
1.1. Objectives and Research Questions

This research project aims to evaluate the outcomes of TT and KT projects within the petrochemical
company by analysing the perceptions of operations personnel on TT and KT outcomes after the
implementation of large projects as well as to explore the reasons for the outcomes. The research
answers these research questions:
●● What are the perceptions of operations personnel in different disciplines in the company
on the outcomes of TT and KT after the implementation of large projects?
●● What are the indicators of successful TT and KT?
●● How does TT relate to KT and what are the factors that influence TT and KT?
●● What information technologies can address the barriers to effective KT?
Insights were obtained on the factors that influence TT and KT outcomes as well as the most
appropriate indicators of successful TT and KT. This research contributes to the knowledge gap on
the outcomes of TT and KT in a South African company.
2. Literature Survey
The subject of TT is an emerging discipline (Reisman, 2005) with increased research focus since the
latter part of the 20th century (Reddy and Zhao, 1990). In their review of research work in the field
of international TT, Reddy and Zhao (1990) pointed out that research findings and knowledge in
this field remain fragmented along different specialisation disciplines. This characterisation seems
to be the prevailing status quo, as highlighted yet again by Reisman (2005) in his cross disciplinary
taxonomy of the field of TT. Reisman (2005) points out that this status quo is a result of the fact
that researchers of TT emanate from various disciplines, such as management studies, engineering,
economics, anthropology and the social sciences. As such, while significant contributions have been
made to the body of knowledge and the practice of TT, such contributions have been made within
narrow disciplinary confines. This literature survey will begin with a discussion of TT and KT
constructs and how they are related followed by a discussion of TT, transfer mechanisms and factors
that influence TT outcomes, measures of successful TT and KT as well as TT models.
2.1.1. Technology and knowledge Transfer Constructs

The concepts of TT and KT have been the subject of much research. As Sung (2009) points out,
although the concept of technology has been defined in many different ways, there is consensus that
technology does not only entail the ‘physical entity’, but also encompasses the human aspect. Stock
and Tatikonda (2000) state that technology is “any tool or technique, any product or process, any
physical equipment or method of doing or making, by which human capability is extended”. They
point out that technology is technical knowledge or ‘know-how’ that an organisation utilises in the
production of products and services. This technology is composed of various physical and non-
physical elements in varying proportions, examples of which are machines, electrical or mechanical
components or assemblies, chemical processes, software, manuals, documentation, operating
procedures and techniques or methodologies. This view is similarly shared by many researchers
(Rogers et al., 2001; Lee et al., 2010; Osabutey et al., 2014). Lee et al. (2010) defined technology
as the systematisation of knowledge in designs, production and management systems, hardware
assets or software that becomes the ‘know-how’ in a specific and unique technique or method
to solve a problem. Similarly, for Osabutey et al. (2014) (quoting Grosse), technology “comes
in three main forms: ‘Product Technology, Process Technology and Management Technology”.
Product technology is the knowledge used in the production of a company’s products and comes
in the products’ technical and functional specifications, while process technology is the knowledge
related to the application of inputs and the operation of machinery in the production process. The
third component, management technology is the knowledge related to managing and directing the
organisation. Osabutey et al. (2014) provide a holistic and neat perspective on technology that brings
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together tangible and intangible aspects of technology embodied in the trio: product, process and
management of the enterprise. This perspective of technology almost self-evidently leads to the
consensus that technology transfer needs to integrate not only the physical technical assets, but
also the knowledge required to utilise the assets. A brief overview of research focus on knowledge
is relevant for a more complete view of technology and TT, before turning more specifically to the
subject of TT.
Gopalakrishnan and Santoro (2004) provided a more thorough overview and discussion of the
distinction between the constructs of knowledge and technology as well as knowledge and technology
transfer. As they point out, the relationship between knowledge and technology is both complex and
variously interpreted (Gopalakrishnan and Santoro, 2004). Some researchers think of technology
transfer and knowledge transfer as interchangeable terms due to the view that the creation of new
knowledge is always linked with the absorption and understanding of some new technology while
for others technology is a form of knowledge. Other researchers holding this conflated view of
technology and knowledge point out that the personal interaction across organisations involved in
the transfer of technology eventually leads to new knowledge (Gopalakrishnan and Santoro, 2004).
They, however, argue that technology and knowledge are two different constructs that constitute
different activities. Technology is a much narrower construct than knowledge which refers to ‘tools,
methodologies, processes and products” while knowledge is a broader term that includes learning
and is reflected in activities such as the organisation’s strategy, culture and work processes. As such
technology is know-how while knowledge is more know-why (Gopalakrishnan and Santoro, 2004).
Knowledge involves “cognitive structures that represent reality” and “takes on conceptual meaning
by application”.
2.1.2. Technology Transfer

In his review, Reisman (1989) pointed out that many terms have been used in studies related to
technology and a convergence to a common set of terminologies and a consolidated definition of
technology transfer was slow to come. He pointed to such terms as technology adoption, technology
diffusion, technology flow, technology spinoffs and many other terms. In his study however,
Reisman (1989) argues that an exact definition of technology transfer may not be necessary, pointing
out that each definition adds a shade of colour to the phenomenon called technology transfer and that
the complexity of the phenomenon, requires a multi-disciplinary approach.
Some definitions of technology transfer offered by various researchers include: “Technology transfer
is movement of the technology from one organisation to another; that is, across the organisational
boundary of the source and recipient” (Stock and Tatikonda, 2000). For Rogers et al. (2001) and Sung
(2009) TT “is the movement of technology via some communication channel from one individual
or organization to another”, while Sunaoshi et al. (2005) saw TT as “the transfer of organisation-
specific embodied knowledge assets such as technology, operating procedures, and organisational
structures”. Póvoa and Rapini (2010) point out that for some researchers; technology transfer is
synonymous with patent licensing with the Association of University Technology Managers
(AUTM) offering the following definition: “Technology transfer is the process of transferring
scientific findings from one organization to another for the purpose of further development and
commercialization” (Póvoa and Rapini, 2010). It is clear that a consolidation of both the definition
and boundaries of technology transfer is yet to be developed.
2.1.3. TT Mechanisms and Factors that Affect Transfer

Different TT mechanisms are utilised for TT projects as seen in the literature. Rogers et al. (2001)
list five different TT mechanisms: spin-offs, licensing, publications, meetings and cooperative R&D
agreements. Lema and Lema (2013), on the other hand list the following five TT mechanisms: trade,
foreign direct investment, joint venture, licensing, and local technology. Stock and Tatikonda (2000)
speak of TT process types and list four different types namely, arm’s length purchase, facilitated
purchase, collaborative hand-off and co-development. While there are some commonalities, it is
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clear that there is no singular understanding of the term ‘technology transfer’ and disciplinary biases
are apparent.
Spin-off is often interpreted as TT in which the technology originates from government, university
or private R&D centres (Rogers et al., 2001). Licensing concerns the granting of rights by an
authorised person or organisation to another person or organisation, in which the recipient party
is authorised to utilise or sell a certain product, design or innovated process (Rogers et al., 2001;
Lee and Win, 2004; Lema and Lema, 2013) . Publications, Rogers et al. (2001) note, can also be a
means of TT, although, due to the fact that they are written primarily for the scientific community,
it is not easy for industry audiences to assimilate these innovations. While Rogers et al. (2001) list
meetings as person-to-person interactions in which TT may take place, this seems to be a less formal
TT mechanism. Cooperative agreements are legal frameworks in which two organisations agree to
share intellectual property rights and even personnel, and cooperate in the development of certain
technologies (Lee and Win, 2004). Cooperative agreements are similar to joint ventures in which
two organisations undertake a combined business venture in which there is shared ownership of
intellectual property rights and even personnel, in the development of certain technologies ( Lee
and Win, 2004 and Lema and Lema, 2013). For Lema and Lema (2013), trade as a TT mechanism
refers to the importation of technologies produced outside the country and may involve arm’s length
purchases or turnkey projects or service contracts. Foreign direct investment on the other hand is
the establishment of a wholly owned subsidiary company in a host country by a company from
another country (Lema and Lema, 2013). Local technology for Lema and Lema (2013), refers to
the innovation and production of technologies by a local technology company and this may involve
linkages with local university research centres.
In view of the success and failures of TT, some attention has been given to understanding factors that
affect TT. Lai and Tsai (2009) provide a helpful summary of some important factors that affect TT,
namely, market scale, product life cycle, government, size of the organisation, culture, experience,
age, R&D, attitude, education, authority, communication, complexity, codification and diffusion.
2.1.4. Measures of Successful TT and KT

The effectiveness of TT has been evaluated in different ways in the literature. Reddy and Zhao
(1990) provide a review of different TT and KT success measures. As they point out, Teece (quoted
in Reddy and Zhao, 1990) used cost to measure the efficiency of the TT process while Davidson
(quoted in Reddy and Zhao, 1990) measured TT effectiveness through the TT transfer scope, transfer
speed and a comparison of the amount of activities carried out internally by the technology receiver
and supplier (Reddy and Zhao, 1990). For Zakariya (quoted in Reddy and Zhao, 1990) effective
TT in the petroleum industry is measured by the ability of the organisation to purchase or hire
complex technologies from international suppliers for an acceptable cost, while for Mason (quoted
in Reddy and Zhao, 1990), effective transfer should be measured by the development of new skills
and technologies by the host country thus improving the country’s competitive advantage. Mytelka
(quoted in Reddy and Zhao, 1990) suggested that the success of TT should be measured by the
extent to which the transferred technology is assimilated, arguing that the subsequent improvements
and extended use of the technology follow successful assimilation of the technology (Reddy and
Zhao, 1990). Stock and Tatikonda (2000) utilised the well-known triad: cost, time and technical
performance (measured as the functional performance of the acquired technology) as measures of
successful TT. In this research the viability of using the following as measures of TT success was
tested: technical performance (functional); ability of the transferee to adequately operate and maintain
the technical assets; and ability of the transferee to sustain high plant or equipment availability.
2.1.5. TT Models
Numerous quantitative and qualitative models for TT are presented in the literature (Khabiri et al.,
2012; Mohamed et al., 2012; Mohaghar et al., 2012; Waroonkun and Stewart, 2008). As Khabiri
et al., (2012) point out, these models have different objectives and have tended to be developed
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for certain specific TT contexts, for example TT between developed and developing countries
(Bommer et al., 1991; De Castro and Schulze, 1995); TT from university and research organisations
to industry recipients (Warren et al., 2008); and intra-organisational TT (Malik, 2002). Qualitative
models aim to describe the activities involved in managing TT processes as well as to outline the
factors that lead to successful TT. Quantitative models on the other hand seek to quantify important
TT parameters and maximise the compatibility between the transferor and transferee. Examples of
quantitative models are: one that was designed and applied to the acquisition of aircraft engines (Liu
1993); and a quantitative decision model that makes use of technology transfer linkages as the key
criterion (Lulu et al.,1996).
Junior et al. (2014) provide an overview of TT models that have been developed and used since the
1950s. Firstly, the appropriability model developed in the 1950s stated that formal TT mechanisms
were not necessary and that TT was effected simply through direct communication between the
potential technology user and the research organisation (Gibson and Smilor, 1991; Junior et al.,
2014). Secondly, the dissemination model developed between 1960 and 1970 focused on the flow
of technological innovations from expert developers to users and presumed that once a link is
established between the innovation developers and the users, TT takes place naturally. Of course,
as Gibson and Smilor (1991) point out, this is hardly the case. Thirdly, the knowledge utilisation
model developed in 1987 (Gibson and Smilor, 1991; Junior et al., 2014) took into account the
interactive communication between the technology transferor and transferee as well as the barriers
against and facilitators of effective TT. As Gibson and Smilor (1991) point out, the weakness of
this model lay in its linearity which greatly minimised complex TT processes to a set of linear
TT activities. Fourthly, Rebentisch and Ferretti, (1995) and Junior et al., (2014) proposed a TT
model consisting of transfer scope, transfer method, knowledge architecture and organisational
adaptive ability. The model seeks to take into account the impact of technology type on the effort
required for effective TT and the transferee’s competencies and how they impact the TT process.
Fifthly is the Malik (2002) broadcast model, a two way iterative intra-firm TT model (Waroonkun
and Stewart, 2008; Junior et al., 2014). Sixthly, Guan et al. (2006) proposed an innovation model
that includes the phases of: acquisition, assimilation and technology improvement (Junior et al.,
2014). Seventhly, Junior et al. (2014) also discuss the Ettlie and Elsenbach (2007) stage gate
model for product development. Sardana et al. (2010) proposed a more detailed stage-gate model
for TT projects. As Sardana et al. (2010) point out, this model was intended for large and complex
projects and later generalised most TT projects.
It is clear that numerous TT models have been proposed for various TT contexts and in some cases,
there is a convergence with traditional stage gate models. This might be expected, since TT in
industrial contexts is mostly executed in terms of projects.
3. Conceptual Research Model

As Lee et al. (2010) pointed out, successful TT enables a company to improve its manufacturing
productivity, adaptability, international expansion and competitive advantage. According to (Lin
and Berg, 2001) research in the field of TT has moved from a focus on macro factors to micro factors
that affect TT from the perspective of the technology receiver. Lin and Berg (2001) further point out
that much of the TT models in the literature lack empirical evidence. This knowledge gap presents
an opportunity for a focused investigation of the indicators of successful TT and KT as well as the
factors that influence these outcomes in the context of a petrochemical company in South Africa.
This research provides further empirical evidence to support some models of TT as well as provide
insight on TT and KT from the perspective of the petrochemical industry.
The conceptual framework for the research project reported on here is shown in Figure 1. Outcomes
of TT and KT were investigated together with indicators of successful TT and KT as well as the
factors that influence these outcomes. Variation of outcomes across different disciplines such as
electrical, control and instrumentation, mechanical and process were investigated.
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Technology/Knowledge TT/KT Process (model) TT/KT outcomes

need
P ropos ed m eas ures w ere tes te d

in th e c ontex t of a S o uth A fric an
pe troch em ic al o rga nisation
S co p e of this rese arc h :

Technology Measures of
Transfer effective/
Factors that
Successful
Influence
Technology and
Transfer
Knowledge Knowledge
Transfer Transfer
Technology Complexity: Internal Factors: External factors (transferor):

Novelty Training Training
Ease of diffusion Education level Attitude of supplier personnel
Level of codification Attitude of personnel Transferor’s willingness to
Complexity of technology Culture of innovation transfer the technology
Extent of sub-system Knowledge of technology and market Personnel skills and know-how
hierarchy and integration Personnel skills and know-how Quality of communication
of sub-systems from Personnel’s years of experience in related interaction
various suppliers technologies Distance between transferor
Size of the organisation and transferee
Age of the organisation
Organisation’s investment in research and
development
Quality of communication interaction
Scope of this research:

Factors proposed in the literature were tested in the context of a South African petrochemical organisation
Figure 1: Conceptual Framework
4. Research Method and Approach

Qualitative research was conducted that sought to uncover insights on and experiences within a
particular case, namely, the perceptions of TT and KT outcomes in a South African petrochemical
company. This research approach is useful in understanding the unique experiences of a particular
case. An electronic survey was used to collect data as it presented the best way of gathering large
amounts of data for analysis.
In contrast to quantitative research in which random samples representative of the population are
used, purposive samples are often used in qualitative research (Welman et al., 2005). In this study,
the sample of respondents selected was composed of respondents from different business units in
the company, different disciplines (electrical, instruments and control, mechanical and process) and
different roles (senior and area managers, foremen, technicians, engineers and scientists). The total
number of potential respondents was 288 individuals. This sampling strategy was utilised for the
following reasons:
●● Different business units ensured varied perspectives in the company were obtained
●● Insights on the variation of TT and KT perceptions across disciplines were obtained
This sample was also representative of different role players on large TT projects. In this study,
statistical analysis was not carried out to validate any hypotheses. Rather, in-depth analysis of data
collected was carried out to draw insights on the experiences of operations personnel in the specific
petrochemical company in South Africa. The analysis was compared to models presented in the
literature.
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5. Results
A total of 72 responses were obtained, out of 288 participants to whom the survey was sent out, which
equates to a response rate of 25%. Forty nine complete survey results were utilised in the analysis
to minimise distortions due to incomplete responses. The analysis of the results provided answers to
the research questions posed. Respondents provided feedback on technology and knowledge transfer
through various large and complex projects implemented within the company in the last 10 years.
5.1. Technology Transfer
5.1.1. Source of Technology Transferor

Europe was the largest technology source market for the company accounting for 51% of the
technologies transferred through these projects, followed by South Africa with 33% of technologies
locally sourced. Only 16% of technologies came from North America.
5.1.2. Maturity of Technology

Seventy three per cent of these technologies involved proven technologies largely transferred
through Engineering, Procurement and Construction (EPC) contracts (66%). Forty five per cent of
the projects involved the full transfer of the technologies to the company, while 27% were transferred
under licence agreements.
5.1.3. Level of Complexity of Technology Transferred

Fifty nine per cent of the respondents indicated that the projects involved the transfer of technologies
seen as medium complexity technologies, while 26% involved high complexity technologies.
5.1.4. Follow-through Support by Supplier

In 51% of the cases, the technology supplier was not involved post the project while in 49% of the
cases, the technology supplier was involved post implementation.
5.1.5. Scale of TT
In 51% of responses, TT took place at plant level, while in 23 %, TT was at systems level. Less than
15% of TT was at assembly, component or material level reflecting limited TT capability at lower levels.
5.1.6. TT Success Over Systems Hierarchy

Feedback was provided on TT outcomes across the technology hierarchy (see Figure 2).
Figure 2: Perceptions of TT Across Technology Hierarchy
The indication is that TT was progressively poorer from system to component level which showed
deteriorating TT capabilities at lower levels. Perceptions of TT success across different disciplines
are shown in Table 1. (Two colours in a cell mean equal weight).
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Table 1: TT Success over Systems Hierarchy as Perceived by Different Disciplines
Discipline Systems hierarchy
System Subsystem Component
Electrical
Mechanical
Control & Instruments
Process & Production

Poor
Moderately successful
Successful
The electrical and process disciplines had the weakest TT outcomes compared to the other disciplines
while the mechanical discipline had the most positive TT outcomes and exhibited the opposite
trajectory of better TT outcomes at lower levels.
Feedback on the perceptions of TT indicates that there are significant constraints that limit the success
of TT in the company, an area that requires greater focus from academia and industry practitioners in
order to enhance TT outcomes in the South African context.
5.1.7. Indicators of Successful TT

●● Respondents provided feedback on the indicators of successful technology transfer. The
three most important indicators of successful TT in order of priority were:
●● high technical performance of the equipment, system or plant
●● the ability to operate the equipment, system or plant
●● the ability to adequately maintain the equipment, system or plant
While Reddy and Zhao (1990) provided a summary of indicators of successful TT proposed
in the literature, these did not include indicators tested in this study. This study adds a
different perspective to the assessment of TT outcomes, placing emphasis on how TT
impacts the organisation.
5.2. Knowledge Transfer
5.2.1. Dimensions of Knowledge Transfer

Feedback was provided on the perceptions on KT in the company across five dimensions of
knowledge transfer as shown in Figure 3.
Figure 3: Perceptions of KT Across KT Dimensions
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Overall, more respondents viewed KT as moderately successful across most dimensions than
those that rated KT as successful indicating significant constraints on the success of KT during
TT projects. Feedback indicated greater KT in terms of know-what, know-when, and know-how
compared to know-why and know-who.
Perceptions on the success of KT by different disciplines are shown in Table 2. (Two colours in a
cell mean equal weight).
Table 2: KT Success over KT Dimensions as Perceived by Different Disciplines
Discipline KT Dimensions
Know What Know When Know How Know Why Know Who
Electrical
Mechanical
Control & instruments
Process & production
Poor
Moderately successful
Successful
Only process and production personnel perceived KT as successful across all KT dimensions. In
all the other disciplines, KT was seen as moderately successful in most of the KT dimensions. Poor
ratings of KT in terms of know-when for electrical and know-who for mechanical highlight the most
deficient areas.
5.2.2. Factors that Impact on KT

Respondents selected factors that affect KT in order of priority and the outcomes were categorised
in terms of high, medium and low impact factors.
High impact factors:
●● personnel skills and know-how in both organisations
●● quality of communication interaction during the transfer process
●● the attitude of personnel in transferor and transferee organisations
●● transferor’s willingness to transfer the knowledge
●● complexity of technologies being transferred
Medium impact factors:
●● culture of innovation within the receiving organisation
●● personnel’s years of experience in related or similar technologies
●● knowledge of technology and market within the receiving organisation
●● the education level (both transferor and transferee personnel)
Low impact factors:
●● organisation’s investments in research and development
●● diffusion (the ease with which the technology spreads)
●● distance between transferor, transferee (physical and cultural)
●● extent of sub-system hierarchy and integration from various suppliers
●● size of the organisation
●● age of the organisation (years of profitable business operations)
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●● level of codification (how much information is written down or captured electronically)

These results show that people and organisational related factors affect KT more than technical
factors and factors related to size and age of the organisations involved. For most respondents, KT
occurred through explicit means rather than tacit means. This validates the common view that tacit
knowledge is much more difficult to transfer. Three top indicators were selected as indicators of
successful KT (in order of priority):
●● the ability to operate equipment, system or plant
●● the ability to adequately maintain equipment, system or plant
●● high asset performance
5.2.3. Information Technologies to Assist with KT

While the use of emerging information technologies such as virtual reality; immersive environments
for operation and maintenance learning; and augmented reality were seen as beneficial in improving
KT, the use of electronic manuals was selected by most respondents as a first choice for the transfer
of knowledge.
6. Conclusions and Recommendations

This study was undertaken to add to the current understanding of TT and KT outcomes in a South
African petrochemical company. TT and KT are seen as moderately successful across the technology
hierarchy and knowledge dimension. Through insights gained in this research, initial understanding
of reasons for poor TT and KT is related to different approaches at different levels in the systems
hierarchy. The more integrated a system is (subsystem and system level), the more likely that TT
and KT will be successful. Technology managers should take note of this aspect and exercise great
care when TT and KT takes place at component level. This may be due to the fact that the system
or subsystem as a whole is guaranteed by the supplier or local maintenance services are in place
reducing the technical burden on internal maintenance and technical support services. This relates
to the indicators for successful TT listed above. Choosing the right level of complexity, ensuring
a good communication protocol between transferor and transferee and closing the gap (albeit not
well understood) between TT and KT are all on the priority agenda of a technology manager when
advanced technologies are transferred into the enterprise. The study contributed to the understanding
of indicators of successful TT and KT. These included the ability to operate the equipment, system
or plant; high technical performance; and the ability to adequately maintain it.
Areas of further study are recommended to shed more light on TT and KT outcomes. Firstly, the
study should be expanded to other companies in South Africa in order to validate the results of this
study. Secondly, further research is required to uncover the reasons for the limited success of TT
and KT in South African companies. Thirdly, the nature of post-implementation involvement by
the technology supplier needs further study to uncover the areas of deficiency on the part of the
technology receiver or the added benefits that necessitate this extended involvement.
Technology transfer and knowledge transfer go hand-in-hand. Although these are topics that are
well-studied and often referred to, this research showed that there are several factors that influence
its successful outcome, jointly and separately. This research illustrates the importance of a critical
awareness of the importance of handling these two entities in any major project, especially where the
transfer is from a distance and over different cultures and business environments.
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Development of Intellectual Property Evaluation
System to Aid Intellectual Property Valuation
in an Academic Institution
Priyadarshini Singh
Indian Institute of Technology, Kharagpur, India
E-mail: priyadarshinisingh92@iitkgp.ac.in
Atul Singhal
E-mail:atulkrsinghal654@iitkgp.ac.in
Gouri Gargate
E-mail: gouri@rgsopil.iitkgp.ac.in
Abstarct
Academicians around the world put their sweat and blood in the paradigm they believe in. Little do they know the
economic potential it holds. The whole process of creation and building that naïve invention into a full-fledged market
product requires a constant effort and the basic step involved is identification of such market driven Intellectual
Property (IP). IP is very precious in today’s economy and its existence becomes crucial if the creator of such IP is
unaware of the commercial potential it cajoles. The IP creator might not have an expertise to understand the economic
intricacies which an IP possess. To understand these economic intricacies and to value IP, experts have suggested
various IP valuation methods. However, for any IP valuation to follow, the first step is IP evaluation. Moreover,
this lag in understanding usually widen because an IP involves expertise from law, management and technology to
handle it well. In this paper, authors have tried to pull all the relevant data with reference to IP management (IPM),
of one of the academic units of Institute of National Importance (INIs) and tried to structure the same in an IPM audit
model. This structured data is further analyzed to develop an IP evaluation framework which is a first step towards
IP valuation. This IP evaluation framework may help IP valuators to manage cumbersome processes of IP valuation
efficiently and to assign the value to an IP under consideration. Thus, the system will help IP creators to self-evaluate
their IP. The authors have adopted exploratory, case study research methodology. The focus of the research is limited
to 8 types of IP which can be generated by academic institution. The study demonstrates exploration of IPM audit
model to reduce complexity involved in IP evaluation.
Keywords: Intellectual Property, IP Evaluation, IP Valuation, IPM Audit Model, Academicians
1. Introduction
As the Intellectual Property (IP) generation capacity of an organization increase, the management of
those IP becomes inevitable task. IP generation is a part of IP management. IP Audit being the first
step towards IP Management, it becomes essential to know the pre-requisite of the same. IP audit
is an efficient and the most effective way by which any organization can develop its IP portfolio or
increase the revenue generated by the IP owned.1 The review of the IP held and their performance to
mitigate risks if any, and device effective technique for a better performance of IP, remedy the issues
and manage the IP system is the most important objective of an IP audit. On the basis of effective
IP audit the IP policy and IP strategy of the organization are designed which aims at assessment and
revision of IP owned, licensed-in, licensed-out, acquired or rented. The review serves as an insight
for an organization to see the better performing IPs and to identify and understand the weaknesses
and strengths it holds. Through IP audit an organization gathers a huge data of the existing technology
and the strategies which would transform them into future technologies through implementation of
various evaluative processes.2 It contains data regarding the IP owned by the organization, the IP
under conflict, Infringed IPs if any, the actions taken to achieve an organizations objective, etc.
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Development of Intellectual Property Evaluation System to AID Intellectual Property Valuation
The leverage point is an organization’s IP audit can be done in various ways. The standard general
classification of IP audit being the broad IP audit and a narrow IP audit. Further it is categorized as
general-purpose IP audit; event driven IP audit and limited purpose focused IP audit.3 IP audit does
not only serve as the balance sheet for the organization but also is a self-assessing document for the
organization and increases the awareness. It involves the evaluation of the IPs and highlights the
strength and weakens of an organization, helps in minimizing the issues involving third party relating
to ownership, infringement and also helps in better planning and positioning those technologies.4
IP audit involves collection of data, preparation of audit plan, conducting an audit, review of the
existing IP strategy, scrutinizing of the IP and examining IP contracts and agreements and also the
review of information flow in an organization.
The aim of IP audit is governed by the objective it is being implemented. IP Audit helps in effective
realization of the value of the IP assets. Important aspects like significance of IP, the management
level issues with reference to IP mapping of existing IPs and formalization of IP strategy/ policy are
the essence of the IP audit also it governs the linking of IP strategy with business strategy which is
crucial to any entity in today’s marketplace.
After IP audit, follows the evaluation of the information collected in relation to IPs. The evaluation
of the data is important step as its analysis gives direction to IP policy and strategy which helps in
recommending the best practices. The IP evaluation process engages in IP generation, increasing
efficiency, reduction of cost associated with IP and productivity of IP portfolio.5 IP evaluation helps
in determining the monetary value of the IP portfolios. The process of evaluation helps in decisions
making where business planning is involved. Once the organization reaches the IP evaluation
stage, issues like joint ventures, licensing, acquisitions, mergers, investments, loans against IP etc.
are examined in micro detail. These securitization of IP assets has been widely practiced and has
become indispensable part of the financial transaction of an organization. During the investment
decisions the financial quality and quantity of IP asset is considered. Through IP evaluation a
well-structured IP portfolio and IP strategy are integrated to produce revenue and attract investors
which would in turn help in development of organization’s IP asset further. The IP assets are listed
and evaluated to ensure the ownership of IPs and asses their value in relation to the organizations
policy. IP evaluation of assets particularly IP is crucial for various purposes such as funding of any
venture, mergers and acquisitions, licensing.
Indian academic organizations like institutes of national importance (INI) being the pioneer in
inventions and innovation involving technologies are reservoirs of IP. However, lack of IP awareness
does not allow them to extract value. Evaluation of IP for academic institution becomes elementary
as the investment in the form of legal fees for the whole life cycle of the IP and its maintenance is
the primary investment. The investment used for turning an invention into a functioning technology
involving various innovation can be handled efficiently when an IP portfolio is thoroughly evaluated.
Once the portfolio is developed it can be put out into the market for licensing or other revenue
generating activities. A few academic institutes usually recoup the investments as soon and as
efficiently to pump in the funds for next R&D which would generate another IP. Since, the institutes
have this cyclic pattern hence the evaluation of IP becomes the next important step after IP audit.
The use of IP evaluation in any research institute is to facilitate6 the following actions:
a. Decision making: is very crucial during development and exploitation stage of any IP.
A correct IP evaluation can change the fate of the IPs of academic institute and can
strategically place them above different entities involved in IP generation market.
b. Adding value to IP assets: the invention has certain value at its R&D stage.
The investment made in R&D can be recouped by a well-planned and well-structured
IP evaluation.
c. Communication: well-founded decision is the masonry of the IP owned by the academic
institutes. The decision involving the IP should be formulated and communicated as
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necessary and required among its stakeholders like teachers, research staff, students and
the third party if any. IP evaluation facilitates and gives the necessary direction to the same.
d. Indicator/ monitoring: the allocation of funds during any R&D project is critical in future
output. Whether the concern invention has been allocated adequate amount of funds and
the return generated by the inventions are adequate can be answered through IP evaluation.
Academic institutions like Indian Institute of Technology have become hub for invention and research
which impact the society at large. These academic institutes have served us with great inventions
and annually generate a huge amount of IP. Indian Institute of Technology, Kharagpur aims to serve
the national interest and provide broad-based education. It helps students in development of their
professional skills and acquire the best in research and further their interests. It aims to imbibe a
spirit of entrepreneurship and innovation in its students and to undertake sponsored research and
provide consultancy services in industrial, educational and socially relevant areas.
Established in 1951, Indian Institute of Technology (IIT) Kharagpur started the institute’s functioning
with 224 fresher’s, 42 teachers and 10 departments. The institute has grown now with about 40
academic units, 11500 students and 700+ faculty members. With time IIT Kharagpur has expanded
its research domains from core engineering to life sciences, management, IP law, psychology etc.
with an introduction of various interdisciplinary studies.
Also, opportunity of cross-cutting research across disciplines in science, technology, medicine,
law and the humanities, advance manufacturing, transportation technologies, healthcare & medical
technology, innovative infrastructure, digital convergence, geoscience for future of earth, climate
change, bioscience, data science also exists in IIT Kharagpur.
IIT Kharagpur has made a mark and rated as top three research institutions in India, by the Department
of Science and Technology (Department of Biotechnology) and National Institutional Ranking
Framework (NIRF). About 2000 research papers are published each year by researchers. The institute
files about 50-100 patents in a year. IIT Kharagpur has been awarded the top academic institute for
patents, 2016 by Indian intellectual property office and Confederation of Indian Industries (CII).
About 300 R&D sponsored projects are undertaken every year, valued at Rs 150-200 Crore.
Intellectual Property (IP) is formalization of ideas into a workable manner. Evaluation of ideas into
an applicable and professional product and/or process generates further technologies and devices.
IP serves as the key element for any organization which builds the value and future technologies.
It has major role in institute restructuring and accordingly IP strategies, vision, goals and managing
tools are evolved and evaluated on a continuous basis. The evaluation of IP is a continuous process
and cannot be fixed in a block structure. It must be conducted on a cyclic basis. Activities involving
managing, protecting and risk analysis of IP are interwoven to evaluation process.
The evaluation process is so essential to IP that we may not find separate mention of them, but
they are practiced and employed daily. The knowledge driven Institutes embrace the lifecycle of IP
from its idea generation stage till technology maturation and consider the core challenges involved
in the process. Evaluation process provides solution to the challenges and alerts them accordingly.
The management of IP becomes very smooth and efficient with evaluation process being integrated
in the functioning system of the institutes.
IP evaluation is not just limited to estimation of IP portfolio7. It facilitates the IP issue discussion,
spreading awareness, IP alignment and related activities across the institutes. The limited approach to
IP portfolio value is not a good evaluation process. Evaluation process facilitates the strategy, policy
and IP related activities with the objectives and working of the institute’s R&D unit. Evaluation is an
elaborated and inclusive process. It entails management and control of invention and innovation in
the institute; the interaction and functioning of units like finance, accounts, management and policy;
evaluation of research methods and challenges involved; case studies and field research relationship
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in intellectual capital management; implementation and evaluation of new methods, theories in

furthering the development of IP etc. The evaluation process helps in finding the relative strength
in the existing IP portfolio of the organization and visualizes and aligns the IP activities within an
organization functioning.
While evaluation is integrated in the IP lifecycle another most essential process in the IP lifecycle is
IP due diligence. A comprehensive planning and knowledge about the IPs in an organization furthers
research strategies and technologies. The main purpose of IP due diligence is to keep a check on the
existing, evolving and future IPs which are and can be a part of the IP portfolio of an institute. IP
due diligence is a process which must be religiously followed and the results are to be integrated and
considered before taking any decisions relating to IPs.
The primary goal of this process is an identification and checking the legal status of IP assets of
an organization at micro level. It also involves checking and understanding the legal status of a
potential association forming entities. These associations may be merger, acquisition, joint venture
or otherwise as per the type and strength of the IP under consideration. IP due diligence assesses
the validity of these entities and ascertain the scope of an IP assets. It also enlists the potential
infringement and its remedies. The process of IP due diligence follows a pattern, but it can be
molded according to the strategy and policy of individual Institute. The pattern is altered as per the
expected outcome and a target IP and associating entities involved.
IP due diligence gives an upper hand and prepares an institute for the future course of action in relation
to IP strategies and decisions. It helps in strategizing the decisions for acquisition, expansion and
abandonment of IPs. If performed with due care IP due diligence output can help and direct an
institute’s decision concerning IP and its course as a technology after commercialization.
After understanding audit, evaluation and due diligence next step is valuation of IP. The real value of
an IP is realized when it is successfully commercialized. The correct positioning and evaluation of IP
accompanied by appropriate IP valuation method makes the innovation and invention undefeatable
in the long run. IP valuation is important in business success. The accuracy of IP valuation will
reflect on the success of business transactions. The decision relating to investment is dependent on
the valuation process of IP.
For valuation of IP, as per Indian Accounting Standards (IAS) the asset must be recognizable and
should have a separate identity. The IP being valued should be legally enforceable and transferable.
The income streaming from the IP should separately be assessable. Certain factors influence
valuation of IP. The valuation process is governed by the context or circumstances which exist
and the standard of the value globally. Reason and purpose are the pivot governing IP valuation.
Factors like time, date and accessibility of relevant data is crucial in the process. IP valuation has
various methods for assigning the value to IP. There are advantages and disadvantages of each of the
known IP valuation processes.
The IP valuation methods are as follows. The first approach is cost-based approach. The development
cost of IP is considered equivalent of the value. The previous (historical) cost of IP is considered or
the cost of similar IP existing in the market is considered. Also, the cost of any similar IP development
already happening in the market would be equated to find out the value. This method helps in fixing
a benchmark for the value. This method lacks relation of IP development cost and the future revenue
generation potential. This approach is a useful benchmark for value.
Market-based approaches considers market status. The value of the IP is dictated by the market
flow. This serves as the base assumption while employing this method. It is assumed that market
decides the accurate value of commodities so of IP. By comparing the prices of similar kind of
IP or by comparison of a rate of royalty of similar licensed IP, the value of IP can be determined.
This method is like all forms of property valuation. Although availability of the relevant information
is a huge set back in implementation of this valuation method.
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Income-based approaches regards the future benefit which IP can generate. Hence, the
benefits are the IP value. Assertion of economic benefits attributed to the IP are essential.
Factors like time, life and risks which an IP entail, dictates this valuation method. There are certain
principles like relief-from-royalty method (royalty savings method), premium profits method,
(incremental income method), excess earnings method which are seen in Income-based approach.
In addition to this, there are a few non-monetary methods which serve as a guide for value of IP asset
by way of observation and scoring different factors relating to IP. These factors are also referred as
value indicators which influence the value of IP either in incremental way or in a negative direction.
Background of IP, legal factor, technological development and market utility with management
capacities are inclusive elements in these factors.
Thus, the IP life cycle does not only entail the idea or innovation but a whole complex but
intricate procedure which governs the processes related to technology to bring it in the market for
commercialization. The processes like IP audit and due diligence, evaluation, and IP valuation are
essence of the IP commercialized and the revenue generated is dictated by application of these
procedures. It is expected that the institutes should implement these processes with utmost care and
should keep a recurring review of such processes. By doing so the institute always make sure that the
processes are updated and implemented timely to reap maximum value of the IP.
The methodology adopted for this study is qualitative and exploratory in nature. The data has been
collected through the institute websites, the departmental records and the annual report published by
the institute. Interviews with the concern authorities were conducted. Exploratory research design
has been used and the qualitative enquiry mode is employed. Conjoint analysis is employed for
calculating the IPR Credence mentioned in Table 1. The whole process is shown by a flow chart
representing the line of work employed during data collection stage (Figure 1). The IP evaluation
process includes listing down of all the IPs and segregating them and then strategically putting data
in the IP audit model which is further analyzed.
Figure 1: Flow Chart Representing Research Methodology
3.1. IP Management System of IIT Kharagpur

Intellectual property management system (IPMS) is a tool available for managers to accumulate and
put the IP in the best exploitation mode. Intellectual property management system (IPMS) includes
certain steps which essentially helps in accumulation of IP related information leading us to take
strategic decisions relating to the commercialization of the IPs. These various steps or subsystems
help the academic institution to realize the full value of the IP generated. The sub systems8 are listed
and explained below:
Generation of IP: Academic institutions being the generation of knowledge are the most efficient
IP generators.
IP Portfolio management: it is crucial to any IP to perform to its full extent, which require recurrent
IP portfolio development and management to realize the full potential of IPs.
IP Valuation: Is a process were the IPs are evaluated and assigned a value as per the market pull
demand and the technology life cycle.
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Competitive assessment: process following evaluation of IP is assessment of IP in relation to the

other competing technology or innovation been developed. It helps in assessing the need and demand
of the IP in the market.
Strategic Decision Making: After all the steps mentioned above are diligently performed, a structured
outcome must be devised for the IPs generated in an institution. Based on the outcome of above step
strategic decision is made which would enhance the IP portfolio and generate revenue.
Similar procedure can be seen interwoven in IIT Kharagpur’s functioning. The IIT Kharagpur
IPMS is strong and has been developed over the years. The departments, centers and schools in IIT
Kharagpur are generator of IPs and the research facilities available in the departmental laboratory
is the birthplace of various inventions which are managed by sponsored research and industrial
consultancy (SRIC).
The sponsored research and industrial consultancy (SRIC) cell is responsible for sponsored research
activities in IIT Kharagpur as well as for the IP management of inventions and innovations.
IIT Kharagpur every year takes up various research projects. SRIC looks after project management
which involves IPR protection and technology transfer. SRIC initiates various new research projects
which are vital for IP Portfolio development and its commercialization and implements various
national initiatives. SRIC is supported by in-house banking facility and has well equipped and
computerized offices. The cell has handled about 1221 research projects worth Rs. 104 Crore till date
and has capacity to handle 600 R&D projects at once. Currently, SRIC is involved in 450 sponsored
projects including national and international collaborations.
With all the research projects being lined up before the cell, it has an IPR cell which looks after
the IP generated during the research and accumulated and protects them. IIT Kharagpur has its
own IPR policy which is exhaustive in nature and has a wide coverage. Events like patent drives
and technology transfer (TT) group initiative keep spreading awareness and protecting IPs.
Also, IPR Cell has in-house patent claim examination which helps the inventors of IIT Kharagpur
to get their invention protected under the law. The most important advantage of IIT Kharagpur is
Rajiv Gandhi School of IP law (RGSOIPL). Professors of RGSOIPL are actively involved in IP
moderation. Double review process that is in two perspectives legal and technology, provide more
chances of granting the application filed. Rajendra Mishra School of Engineering Entrepreneurship
is another important part of the IPMS of IIT Kharagpur. The school focuses on commercialization
of the inventions. It imparts entrepreneurial values and creates ecosystem for early start-ups.
The school has product-first approach and optimizes its functioning accordingly.
IIT Kharagpur has a well evolved IPMS where not just the IP generation is structured and secured,
but also, the institutes have various cells, laboratories, centers and schools to further the step by step
process of IPM and to successfully commercialize its generated IPs.
4. Data Collection and Analysis

The academic unit under consideration is electrical engineering department of IIT Kharagpur which
was established in the year 1951 and is actively engaged in research. The department is well equipped
with modern laboratories and excellent faculty members. It offers two undergraduate programs in
electrical engineering and instrumentation engineering. The department has four research groups
which are electric drives & power electronics, control systems, power & energy systems and sensors
& signal processing. These research groups offer four postgraduate programs in their respective
areas. The department offers doctoral program in the area of control systems, instrumentation,
machine drives, mixed signal Very-large-scale integration (VLSI), power electronics, power
& energy systems, signal/image processing and machine learning. The department also engages
in industrial consultancy, sponsored research, collaborative R&D and technology incubation.
The faculties have been active in offering consultancy services to industries in relation to research
and development. The data was collected from the Annual Report published by institute every year.
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4.1. Physical Security and Legal Document Maintenance

Institute is a public entity, considering physical security to laboratory access and protection of
confidential information, due care is taken by the department. Laboratory notebook maintenance
practice is followed to record research work. The department consults with institute legal and IPR
cell whenever necessary. The institute staff and faculty as a part of appointment procedure signs
non-disclosure agreement (NDA). If there is any involvement of third party all required agreements,
protocols are duly followed by the department.
4.2. Human Capital

Professors, students, research staff, laboratory staff etc. forms the human capital of the department.
The faculty members are grouped under four broad specializations–machine drives and power
electronics, control systems engineering, power and energy systems, instrumentation and signal
processing. At present (2016-17), the department have 36 core faculty members and 12 visiting
experts. The undergraduate student strength of the department is 536. Total postgraduate student
strength is 220 which include doctoral scholars and master students. The department have 20
permanent supporting staff. Graphical representation of human capital is given in figure 2.
Figure 2: Graphical Representation of Human Capital in Respective years and the
4.3. Organizational Capital

The academic activities are supported by 13 laboratories. The department has focused research in
the area of control systems, instrumentation, machine drives, mixed signal VLSI, power electronics,
power & energy systems, signal/Image processing and machine learning. Department offers
specialization in four areas as electric drives & power electronics, control systems, power & energy
systems and sensors & signal processing. Department runs 29 courses. The department received
various recognitions and awards as shown in figure 3.
Figure 3: Graphical Representation of Organisational Capital
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4.4. Relational Capital

As suggested by Sanchez9, relational capital is the external relationship of the institution such
as customers, suppliers, R&D partners, government etc. Figure 4 presented below gives details
about the relational capital of the department. Relational capital considered here is collaboration
of the department with external partners for consultancy projects, research projects and visitors
to the department. Visitors include experts, alumnus. The total number is presented against the
academic year.
Figure 4: Graphical Representation of Relational Capital
4.5. IPRs-Patent and Copyrights

IPRs considered are patents and copyright material. Figure 5 represents mapping of overall projects:
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Figure 5: Mapping of IPR in the Academic Unit
which were undertaken in respective years against IPRs generated. In year 2014-15, 53 research
projects were completed and in year 2015-16 and 2016-17, 52 research projects were completed
respectively. Also, the patent generated by the academic unit in year 2014-15 is 7 and for year 2015-16
is 2. Copyright generation in the form of articles published in journals, conference papers was done.
4.6. Application of IP Audit Framework to Academic unit

IP audit of the academic unit is conducted for the academic years 2014-15, 2015-16 and 2016-17 using
the “IP audit Framework”. There is a limit to data due to institute’s confidential information policy.
The available data which is presented above in graphical manner is applied in the IP audit framework.
Figure 6: IP Audit Model for year 2016-2017
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4.7. IP Score for the Academic unit (Electrical Engineering Department)

The IPR score10 of any department of the institute can be suggested for a specific time frame by
using weightage unit calculation against the value assigned to each IPR. Table 1 given below give
the information relating to the weightage of the IPR. Institute being academic in nature and serving
as knowledge base copyright is given highest weightage. Activities like Patent filing requires
comparatively higher efforts. That is why it is designated higher credence than any other IPR.
Also, activities relating to consulting and R&D is carried out in an academic institute but the
information related to those are kept confidential. The data for the same cannot be easily obtained.
Sometimes no records exist as to the number of trade secrets held by an institute. Hence, 0 credence
is allotted to trade secret.
Table 1: IPR Credence
IPR Credence
IPR Credence (Unit)
Patent 03
Copyright 01
Industrial Design 02
Trademark 1.5
Layout Design of IC 02
Geographical Indication 1.5
Plant variety and Farmer’s right 03
Trade secret 00
Source: Gargate & Jain, 2012
The IPR score of each year is calculated by the above mentioned IPR credence. The data was collected
regarding each academic year and was accordingly segregated and put in the IPR credence. In academic
year 2016-2017, the copyright output is 70 and in academic year 2015-2016 the copyright output was
same as 70, patent output was 2 and the technology transferred was 1. Similarly, in academic year
2014-2015 the copyright output was 55, the patent output was 7 and the technology transferred was 1.
Therefore, the IPR score for academic year 2016-2017 is 70 + (3x0) = 70; for 2015-2016 the score is
70 + (3x2) = 76 and for 2014-2015 the IPR score is 55+ (3x7) = 76. The annual score for every year
is shown in the Table 2 below.
The data collected of electrical engineering department generates a consistent IPR score for three
consecutive years (2014-2015, 2015-2016 and 2016-2017). An effective IP evaluation system is the
essence of a strong IP based institution. Where the evaluation system is wide and inclusive the IPs
can be well structured and scrutinized accordingly. The IP evaluation system has some elements
which further the evaluation process in a well formulated fashion as shown in Figure 9. Elements
like IP policy and relevant institute policy evaluation element helps the IP creator to keep a check on
dos and don’ts while doing business. Legal documents like contracts and other agreements should
be diligently drafted and vetted, statutory provisions should be thoroughly read and understood
which can be put into effective use. Also, innovation and inventions should be critically approved to
carry them forward as a product. IP assessment system from time to time helps to keep application
of things at best. Inventory evaluation is also a very crucial part and revenue evaluation including
maintenance cost and commercialization fees are one of the important elements of the IP evaluation
process. Licensing decisions and evaluation of enforcement procedure evaluation help in efficient
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commercialization. As we have emphasized on existence of a well formulated IP evaluation system

the author proposes a framework system for same purpose. Figure 9 represents elements in IP
evaluation process.
Table 2: IPR Score of Academic unit
IPR Score
Academic Year IPR score (unit)
2014-15 76
2015-16 76
2016-17 70
The elements of IP evaluation system are strong factors governing the future processes and markets.
The proposed IP evaluation system is applied to the data regarding total number of patents.
By application of this proposed system the author has tried to seek the best possible commercialization
partner based on domain specification. Table 3 below shows the analysis relating to 9 patents
in the three consecutive academic years 2014-2015, 2015-2016 and 2016-2017 respectively.
According to the analysis drawn as per the elements of IP evaluation system the author has tried to
propose a tentative commercialization partner.
Figure 9: Element in IP Evaluation Process
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Table 3: Patent Analysis Result
Publication Date
SRIC Website)
Current Status
Work Domain
Mentioned on
Patent Name
Patent Type
Application
Industries
Tentative
Inventor
Date (As
Number
A System and
Method for Power
Avinash
Maximizing 27th, Generation Requested
Kumar Sinha; Process General
Power Nov 26/08/2016 1251/Kol/2014 (Non- for
Binoy Kumar patent Electric
Generation 2014 Renewable Examination
Karmakar
from Solar PV Energy Sector)
Array
Low Voltage Electrowetting-
Karabi
Electrowetting On-Dielectric
Biswas;
On Dielectric (Ewod)
Susanta
(Ewod) 17th, Microfluidic Application
Banerjee; Process
Actuation Apr 26/08/2016 466/Kol/2014 Device Awaiting Apple
Shiraz Sohail; patent
Using 2014 (Droplet Examination
Ershad Ali
Nanocom- Manupilation
Mistri; Afzal
posite Thin By Ewod
Khan
Film Technolog)
Real-Time
Indrajit Motion
Chakrabarti; Estimation in
System for Ajoy Kumar Video Signals.
Real-Time Roy; Rohan 30th, Facilitates Application Amazon
Process
Motion Mukherjee; Apr 01/12/2017 484/Kol/2015 Facilitating the Awaiting Recogn-
patent
Estimation in Baishik 2015 Video Coding Examination ition
Video Signals Biswas; Process. (Real
Pranab Kumar Time Video
Dutta Processing
Sector)
Avinash
Smart Socket Kumar Sinha;
11th, Home Energy Requested
and Smart Binoy Kumar Process
Mar 10/11/2017 269/Kol/2015 Management for Honda
Home Energy Karmakar; patent
2015 (Power Sector) Examination
Manager Puja Kumari;
Subir Sen
Ayush
Pandey,
Subhamoy
Mahajan,
Automated
Dhananjay
Bikes Utilizes
I-Bike: Yadav, Adarsh
Process Range Sensors
Autonomous Kosta, Aniket
and 28th for Obstacle
Two- Wheeler Bhushan, Application
Prod- July, 02/02/2018 201631025904 Detection and Wiggle
with Dual Vikas Pandey, Published
uct 2016 Processing
Mode of Shubh
patent Computers
Locomotion Agrawal,
(Transpor-
Aashay Bhise,
tation Sector)
Hrishyank
Shetty & Prof.
Debashish
Chakravarty
Chandan
Chakraborty;
Brushless invention
Yalla
Induction 22nd, relates to
Tirumala Rao; Product Application
Excited 2016 25/05/2018 201631039892 brushless Siemens
Sabyasachi patent published
Synchronous Nov synchronous
Sen Gupta;
Generator generators
Saptarshi
Basak
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Publication Date
SRIC Website)
Current Status
Work Domain
Mentioned on
Patent Name
Patent Type
Application
Industries
Tentative
Inventor
Date (As
Number
Sumit Kumar
Hybrid
Chattopa- 26th,
Asymmetrical Not
dhyay; - 2017 - 201731046611 - -
Multilevel published
Chandan Dec
Inverter
Chakraborty
Synchronous
Machines Chandan
With Chakraborty; 22nd,
Not
Embedded Saptarshi - Sep - 20173103372 - -
published
Brushless Basak; Yalla 2017
Synchronous Tirumala Rao
Exciter
A Cnt-Epoxy
a CNT-epoxy
Nanoparticle
nanoparticle
Based Dina Anna
Process th based
Fractional John; Prof. 9 Application
and fractional
Capacitor And Susanta Dec, 15/06/2018 2 01631042210 awaiting Siemens
Product capacitor
A Method Banerjee; Dr. 2016 examination
Patent and a method
For Karabi Biswas
for fabricating
Fabricating
the same
The Same
5. Discussion
The proposed IP evaluation system helped to understand the intricacies about IP especially patent.
Further application of the framework to other types of IP like copyright to extract a value from it
can be explored. The application of framework helped to identify possible representative industry
partner with whom collaboration can be considered in a near future to strengthen the particular
domain. At this stage, the proposed IP evaluation system may be helpful to understand possibility
of any type of technology transfer or collaboration. Further refinement in the framework can be
achieved by applying the framework to various academic units and then to a few micro, small,
medium enterprises (MSMEs). Availability of IP data limits the study however, practical experience
of a researcher and expert opinion play major role to overcome the limitation.
6. Conclusion
Academic institutes serving as knowledge base for the world have a crucial role. It can be established
that a strong IP evaluation system would help to generate and maintain a better IP driven economy.
A structured framework would govern the institutes working in an effective manner considering
all the possible factors. Implementation of the IP evaluation framework diligently and its revision
on a periodic basis for the IPs generated in an institute would probably give better results and help
in decision making with reference to the IPs as well as innovation and potential inventions. The IP
evaluation framework proposed is inclusive and can be explored by relevant stakeholders to get the
benefit from their intellectual capital as well as IPs already in their portfolio.
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IAMOT 2019 | 300

Firm Size, Technological Intensity and Informal
Appropriation Mechanisms in Innovative
Manufacturing Firms
Marcelo Oliveira Gaspar De Carvalho

Pontifical Catholic University
of Rio de Janeiro, Brazil
E-mail: mogcarvalho@gmail.com
Maria Fatima Ludovico De Almeida
Pontifical Catholic University
of Rio de Janeiro Brazil
E-mail: fatima.ludovico@gmail.com
José Eduardo De Oliveira Trindade
Brazilian Institute of Geography and Statistics (IBGE), Brazil
E-mail: zetrindaderj@yahoo.com.br
Abstract
This paper aims to analyze how firm size, sectoral technological intensity (using OCDE classification as reference),
and strength of the sectoral appropriability regime influence the use of informal appropriation mechanisms by
innovative firms for protecting their efforts to innovation. We have drawn the data from the National Innovation
Survey 2014 (Pintec 2014) to examine and compare the adoption of informal appropriation mechanisms
by innovative manufacturing firms in Brazil. The Pintec 2014 data was associated with four categories of
technological intensity/strength of the sectoral appropriability regime, and the respondent firms of each category
that have implemented innovations during the period of 2012-2014 were asked to inform which informal protection
mechanisms they have adopted for protecting product and process innovations (or both), using a binary response
scale. This work offers insights for Brazilian manufacturing firms from different sizes and technological intensity
levels about the use of informal mechanisms that can be most effective in appropriating an economic return
from product or process innovations, in addition to the formal mechanisms. The understanding of how firm
size, technological intensity, and strength of sectoral appropriability regime influence the adoption of informal
appropriation mechanisms by Brazilian manufacturing firms is chiefly relevant, not only for policymakers but also
for managers and academicians engaged in the field of management of technology and innovation.
Keywords: Appropriation mechanisms; Technological intensity classifications; National Innovation Survey;
Manufacturing innovative firms; Brazil.
1. Introduction
The appropriability regime comprises of a combination of strategies to protect knowledge and
the return of investments made on R&D and other innovative activities. Formal and informal
mechanisms can provide protection against imitative activities of competing enterprises (OECD
(2005, p. 114). Secrecy, lead-time to market, and complexity of design are examples of informal
appropriation mechanisms. Accordingly, this work aims to analyze and compare the adoption of
informal appropriation mechanisms by innovative firms in the Brazilian manufacturing industry.
For this analysis the firms were grouped by distinct levels of sectoral technological intensity/
appropriability regime and firm size. The research methodology comprises: (i) literature review on
appropriability regime theory; innovative capacity and innovation performance; (ii) documentary
analysis covering current policies designed for strengthening innovative capabilities in manufacturing
sectors in Brazil; (iii) delimitation of research problem, the analytical framework, and the primary
data source – the National Innovation Survey (Pintec), published by the Brazilian Statistical
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Office (IBGE); (iv) data gathering and statistical analysis; and (v) discussion of main results and
implications for policymakers, R&D managers and entrepreneurs.
The findings can be summarized as follows: (i) comparative analysis of the informal appropriation
mechanisms adopted by innovative firms in the manufacturing industry in Brazil, classified by their
size and OECD technological intensity level; (ii) discussion of main results according to size of
innovative firms and the technological intensity/strength of appropriability regime of the sectors in
which they operate; (iii) relevant features to be considered by policymakers, R&D managers and
entrepreneurs.
This article is organized in five sections, including this introduction. The second section presents
the theoretical framework encompassing the appropriability regime theory; external environmental
conditions and innovation performance; and technological classifications, with special emphasis
on the taxonomy of sectoral technological intensity proposed by the Organization for Economic
Cooperation and Development (2011). Afterward, the third section entails methodological approach
and analyses the Pintec 2014 database for Brazilian manufacturing sectors, covering the period from
2012 to 2014. The next section presents and discuss the descriptive statistical results concerning the
four groups of innovative firms in the Brazilian manufacturing that are object of the empirical study.
In the last section, we present the conclusions, implications drawn from the results and suggestions
for future research.
The theoretical background covers the following topics: (i) appropriability regime theory; (ii) and
(iii) technological classifications, highlighting the classification of sectoral technological intensity
proposed by the Organization for Economic Cooperation and Development (Hatzichronoglou, 1997;
OECD, 2011).
2.1. Appropriability Regime Theory and Empirical Studies

According to OECD (2005, p. 114) “the ability of enterprises to appropriate the gains from their
innovation activities is an important factor affecting innovation. If, for example, enterprises are
unable to protect their innovations from imitations by competitors, they will have less incentive
to innovate. On the other hand, if an industry functions well without formal protection methods,
promoting these may slow the flow of knowledge and technology and lead to higher prices for goods
and services”.
Based on the reviews by Winter (2006) and Hurmelinna-Laukkanen and Puumalainen (2007), the
concept of appropriability regime can be synthesized as a system of different mechanisms to protect
innovation. Previous studies, particularly Teece (1986; 2006); Harabi (1995); Pisano (2006); and
Hurmelinna-Laukkanen and Puumalainen (2007) have conceptualized different mechanisms which
protect imitative activities of competing enterprises. These mechanisms can be classified as formal
(patents, copyrights, confidentiality agreements, trademarks, and other legal methods) and informal
(secrecy, lead-time advantage over competitors, and complexity of design, among other informal
protection methods).
Teece (1986) introduced a new theoretical framework, titled ‘Profit from Innovation’ (PFI), in
which a key awareness was that imitability depends on legal mechanisms (patents, copyrights, trade
secrets, trademarks) and the inherent replicability of the technology, which, in turn, depends in part
on whether the know-how is tacit or codified. The influence of the Teece’s framework on subsequent
research is thoughtful and far-reaching (Harabi, 1995; Pisano, 2006; Hurmelinna-Laukkanen and
Puumalainen, 2007; Hurmelinna-Laukkanen et al., 2008; and Olander et al., 2014).
Harabi (1995) investigated the effectiveness of different mechanisms for protecting technological
innovations by Swiss firms. The analysis was based on a version of the Yale survey, which was
developed in Switzerland in 1988. For this study, 358 Swiss respondent firms operated mainly in
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Aspects of Design for Chain Convenience Stores and Logistics System Integration
the manufacturing sector. He concluded that lead time is generally considered as the most effective
means of appropriability for process innovations. In turn, superior sales and service efforts are
considered as the most effective means for product innovations, followed by lead time. Patents
are generally considered to be the least effective means of appropriability for both product and
process innovations. Patents as a means of appropriability in the Swiss context are only effective
in a few industries, such as chemicals, including drugs, and in some cases in the machinery and
electrotechnics sectors.
Pisano (2006) re-examined the central concept of appropriability from the perspective of further
developments in the market and academic contexts. The strategies adopted by firms that have
successfully earned from their innovative activities, according to Pisano broadened the understanding
of the impact of intellectual property protection on the rate and direction of innovation.
Hurmelinna-Laukkanen and Puumalainen (2007) categorized the appropriability regime by
combining and complementing previous research. Empirical information from Finnish industry
could be evidenced from data collected among 299 companies to determine the roles, availability,
strength, and efficiency of appropriability mechanisms. Although limited to Finnish industrial
context, the authors suggested a conceptual elucidation of the appropriability regime, and offer
empirical evidence to clarify the understanding of the appropriation of returns on innovation.
Hurmelinna-Laukkanen et al. (2008) examined appropriating from radical and incremental
innovations. Assuming that many significant differences exist between the two innovation categories,
they provide empirical evidence by analyzing survey data collected among 299 Finnish firms. As
a result, they could demonstrate the effects of business dynamism and research and development
(R&D) intensity on radical and incremental innovation. They also reinforced the role of the
appropriability regime in increasing the potential to profit from radical and incremental innovations.
Hurmelinna-Laukkanen (2009) developed an empirical study based on data from five different-
sized ICT firms situated in the San Francisco Bay Area (USA), by interviewing representatives of
these firms in 2004. The author concluded that the availability and strength of various mechanisms
differ according to the products and processes of different firms. She also highlighted that the firm’s
business model and strategic goals substantially influence the formation of its appropriability regime.
These findings show that studies of appropriability regimes and individual mechanisms should not
be restricted to the perceived importance of the means of protecting knowledge.
Hall et al. (2012) addressed a fundamental question on the appropriability subject as following: “for
what reasons would a firm with a given innovation that can be protected by formal mechanisms
choose not to rely on such methods to protect an innovation?” The authors reviewed the literature,
encompassing both theoretical and empirical works, to determine which of the theoretical arguments
are supported by the empirical information. As pointed out by Hall et al. (2012, p. 4), the existing
evidence shows that there are enormous differences in the use of IP at the firm-level—differences
that are beyond expected differences in the applicability of IP (especially patents) to firms’
innovations”. They concluded that “the most robust finding is heterogeneity in the use of patents
across industries. Patents play an important role in the pharmaceutical and chemical industry, and
sometimes in the medical instrument industry and parts of the machinery sector. Most firms consider
patents a relatively ineffective means to protecting their inventions. Instead, they favor a range of
different informal protection mechanisms, above all lead time. But companies also regard secrecy as
more effective than patents” (Hall et al. (2012, p. 44).
Olander et al. (2014) used a quantitative sample of 209 Finnish firms to examine how different
formal and informal appropriability mechanisms can be associated to value capture and creation, and
whether these relationships are affected by the strategic goal to reduce imitation of competitors or to
improve safe knowledge sharing to partners. This empirical study contributed to the advance of this
knowledge field by concentrating on focused appropriability mechanisms. The authors corroborated
the findings by Teece (1986) and Hall et al. (2012), confirming that not only a range of mechanisms
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can actually be utilized (cf., e.g., Teece, 1986), but that formal and informal mechanisms may have
different kinds of effects on value creation and value capture, especially depending on their strategic
uses (cf. Hall et al., 2012, p.44).
Smit (2014) employed the concept of appropriability regime established by Hurmelinna-Laukkanen
and Puumalainen (2007) to analyze the appropriability strategy of a GPS producer. The study used
secondary data as a source to investigate the appropriation mechanisms and the usefulness of the
appropriability regime framework to explain past events and to foresee and predict future cases of
appropriability strategies.
The work of Spithovena and Teirlincka (2015) is an empirical study that analyzed the determinants
of R&D outsourcing by integrating the influence of internal capabilities, network resources, and
appropriation mechanisms. According to the authors, appropriation encompasses formal and
informal protection mechanisms. Data from the 3rd and 4th European Community Innovation Survey
for Belgium revealed that internal R&D intensity has a strong positive association with R&D
outsourcing intensity. Concerning appropriation mechanisms, they found a positive association with
formal and informal protection mechanisms, but this last mostly through the complexity of design
rather than industrial secrecy.
If the intellectual technical assets of a firm were to be visualized as an iceberg, the visible part refers
to patents and other formal mechanisms. Secrecy, lead-time to market, complexity of design, and
other informal protection methods are the submerged part. Some researchers have argued that from
a social perspective it is better for inventions to be patented, however, the disclosure of patents
also enables competition by imitators once the patent lapses. Such competition may be much more
difficult if the knowledge is kept secret and never disclosed (EUIPO, 2017).
As reviewed in this section, firms use a range of different protection mechanisms— from patents
to lead-time advantage over competitors — by which they appropriate returns on invention and
innovation (Lippman and Rumelt, 1982; Teece, 1986; 2006; Harabi, 1995; Pisano, 2006; Hurmelinna-
Laukkanen and Puumalainen, 2007; Hurmelinna-Laukkanen et al., 2008; Olander et al., 2014; Hall et
al., 2012). Available empirical evidence suggests that firms rely on strategic (informal) mechanisms
much more than on formal ones (patents, trademarks, designs, copyright, and others) and that most
firms do not use any intellectual protection mechanisms (cf. Hall et al., 2012, p. 4).
2.2. Technological Classifications

In the 1970s, the first efforts to create a classification system for industrial activities considering the
technological intensity of firms was made by the OECD This first classification intended to compare
countries, with special attention to foreign trade indicators. In the mid-1980s, the OECD started an
early evaluation of the taxonomy and resolved to preserve the same objectives. From a sample of
eleven member countries, emerged a sectoral classification that was broken into three segments: (i)
high-technology; (ii) medium-technology; and (iii) low-technology. To determine the technological
intensity and classify the industrial sectors OECD used the indicator ‘the share of revenue spent on
research and development (R&D)’ (Abdala et al., 2013).
A new revision was carried out ten years later, but the initial purpose of international comparison and
foreign trade was reinforced (Hatzichronoglou, 1997). This revision enlarged the sectoral breakdown
of the classification and the results comprised four segments instead of the three previous ones. They
were: (i) high- technology: (ii) medium-high technology; (iii) medium-low technology; and (iv)
low-technology. New indicators were considered as classification criteria: (i) one for measuring the
direct technological efforts (i.e. the share of R&D expenditure over added value); and (ii) a second
for indirect technological efforts (i.e. the share of expenditure on the purchase of intermediate goods
and capital-intensive technology).
Complementary to the sectoral classification, a product classification was also proposed aiming to
reduce problems concerning the assumption of sectors as units of analysis. For the present work, we
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will adopt the latest version of the OECD classification (OECD, 2011) and the definitions of the 3rd
edition of Oslo Manual, given that the Pintec 2014 questionnaire was based on this edition (OECD,
2005).
2.3. Research Gap

As reviewed in this section, there are a large number of studies to analyse the determinants of
the effectiveness of the use of different appropriation mechanisms. Considerable research has been
devoted to the protection of the output of innovation, rather than the protection of the input of
innovation, i.e. knowledge generated since the early stages of the innovation process. Moreover,
considering that the research focused on the output of innovation tends to favor formal mechanisms,
and informal mechanisms have remained unexplored to researchers as well as managers. The
purpose of this paper is, therefore, to learn about the influence of sectoral technological intensity
and strength of the sectoral appropriability regime to the use of informal appropriation mechanisms
by innovative manufacturing firms in Brazil, using the National Innovation Survey (Pintec 2014) as
the main source of data.
In this section, the research gap could be objectively identified and questions were formulated as the
starting point for further analysis, as follows:
i. “how sectoral technological intensity and strength of the sectoral appropriability
regime influence the use of informal appropriation mechanisms by innovative
manufacturing firms in Brazil for protecting their innovations?
ii. Do the informal appropriation mechanisms differ from one group to another? In the
same group of sectoral technological intensity (high- or low-tech), how does the
strength of the appropriability regime influence the use of informal mechanisms of
protection by innovative manufacturing firms? which informal mechanisms have
been adopted by firms of different sizes (small, medium and large) in these cases?”
3. RESEARCH DESIGN
3.1. Methodology
The research methodology comprises: (i) literature review on appropriability regime theory;
innovative capacity and innovation performance; (ii) documentary analysis concerning the Brazilian
Classification of Economic Activities (CNAE) and the National Innovation Survey (Pintec) 2012-
2014, both published by IBGE; (iii) content analysis to classify the economic activities of the
respondent firms, according to sectoral technological intensity, appropriability regime of the sectors
in which they operate and number of employees; (iv) delimitation of research problem and analytical
framework to request formal access to statistical tabulations of primary data from Pintec 2012-2014;
(v) discussion of main results and implications for policymakers, RD&I managers and entrepreneurs.
Firstly, a literature review covered the main sources of peer-reviewed scientific articles, such as
Web of Science; Scopus; and Science Direct. Additionally, Google Scholar was accessed to
complement the search results. The analysis of current state of research on the central research
theme – appropriation mechanisms in innovative firms – revealed an opportunity to empirically
evidence which informal appropriation mechanisms have been adopted by innovative firms in
the manufacturing industry in Brazil, according to their size (number of employees); the sectoral
technological intensity; and the appropriability regime of the sectors in which they operate. Previous
works based on national innovation surveys (from Brazil or other countries) had not explored this
topic.
Second, documentary analysis concerning the Brazilian Classification of Economic Activities
(CNAE) and the National Innovation Survey 2014 (Pintec 2014) was conducted to classify the
economic activities of the respondent companies, according to the sectoral technological intensity
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and the appropriability regime of the sectors in which they operate. As a result, four groups of
respondent firms were defined, namely: (i) high technological intensity and strong appropriability
regime; (ii) high technological intensity and weak appropriability regime; (iii) low technological
intensity and strong appropriability regime; (iv) low technological intensity and weak appropriability
regime.
Third, an empirical study focusing the adoption of informal appropriability mechanisms by
innovative manufacturing firms in Brazil was developed based on data from the National Innovation
Survey 2014 (Pintec 2014). Descriptive statistics was used to examine and compare the adoption of
informal appropriability mechanisms by innovative manufacturing firms in Brazil. The respondent
firms that have implemented innovations from 2012 to 2014 were asked to inform which informal
protection mechanisms they have adopted for protecting product and process innovations (or both),
using a binary response scale.
3.2. Sample and Data

The empirical study used the National Innovation Survey 2014 (Pintec 2014), focusing innovative
firms from the Brazilian manufacturing industry, which entails the firm-level data on the innovation
performance and the adoption of informal appropriation mechanisms from 2012 to 2014. The Pintec
is conducted once in three years by the Brazilian Institute of Geography and Statistics (IBGE). The
Pintec 2014 covers the data of 115,268 manufacturing firms in the period of 2012 to 2014, and from
this total, 41,850 informed having implemented product innovations, process innovations or both
types.
The sample for analysis was narrowed to those 41,850 innovative firms that contains all relevant
information related to the items of the Pintec questionnaire focusing on strategic (informal)
protection methods used by innovative manufacturing firms (I.E., Complexity of design; industrial
secrecy; lead time to market; and other strategic protection methods). The innovative firms included
in this sample were asked to inform which method they had adopted during the period 2012-2014
(binary answers).
To exam the different effects of Independent variables on the use of informal appropriation
mechanisms by manufacturing firms for protecting their innovations, the sample firms was broken
down into four mutually exclusive groups. For the categorization of the sample firms based on sectoral
technology intensity this study followed the technological intensity classification established by
OECD (2013) for manufacturing industries, as follows: (i) high technology level; (ii) medium-high
technology level; (iii) medium low technology level; and (v) low technology level. Afterward, the
sample firms classified into high and medium-high technology levels were reclassified as HT group.
Accordingly, the sample firms classified into low and medium-low technology levels were included
in the LT group. A supplementary categorization of the sample firms focusing on the strength of
the appropriability regime of the sectors the operate was required. For this, a sectoral average of
strategic appropriability conditions was calculated according to previous works by Veugelers and
Cassiman (2005); Bönte and Keilbach (2005); Lhuillery and Pfister (2009); and Seo et al. (2017).
The data from Pintec 2014 were accessed to assess the appropriability conditions. In this survey edition,
the respondent firms were asked to inform if they have utilized or not different informal methods for
protecting product and process innovation outcomes. The informal (strategic) appropriation methods
include secrecy, complexity of product design, lead time, and others methods. The scores on these
four items were averaged at two digit level of the Brazilian Industry Classification (CNAE). If the
average value of each sector was above the median value, the sector was classified as having a
strong appropriability regime; otherwise, the sector was classified as having weak appropriability
conditions. So, the sample firms were regrouped as follows: (i) firms from high-tech sectors (HT)
with strong or weak appropriability regimes; and (2) firms from low-tech sectors (LT) with strong
or weak appropriability regimes.
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Taking into account the two criteria – sectoral technological intensity and the strength of
appropriability regime – four groups of the sample firms were obtained. The designated level of
sectoral technology intensity and appropriability regime is showed in Table 1.
Table 1: Manufacturing Industry Classification according to Sectoral Technology
Intensity and Appropriability Regime Strength
Sectoral
Appropriability Appropriability
technology Sector
regime strength score
intensity
Manufacture of pharmaceuticals and medicinal chemicals 0.811321
Stronga
Manufacture of air and spacecraft and related machinery 0.894273
Manufacture of computers, electronic and optical products 0.536562

Manufacture of chemicals and chemical products except
0.616537
High-tech (HT) pharmaceuticals and medicinal chemicals
Weaka Manufacture of electrical equipment, apparatuses, and materials 0.534247
Manufacture of machinery and equipment 0.520135

Manufacture of instruments and materials for medical and
0.369710
dental use and optical goods
Manufacture of motor vehicles, trailers and semitrailers 0.564815
Manufacture of coke, refined petroleum products, and biofuels 0.496000
Metallurgy 0.361734
Manufacture of beverages 0.295508

Strongb
Manufacture of tobacco products 0.708333
Manufacture of textiles, except apparels 0.305511

Manufacture of diverse products, except instruments and 0.394313
materials for medical and dental use and optical goods
Manufacture of rubber and plastic products 0.315897
Manufacture of food products 0.176556
Manufacture of clothing and accessories 0.091051

Low-tech (LT) Tanning and dressing of leather, and manufacturing of leather 0.152650
products; including luggage and footwear
Manufacture of wood products, except furniture 0.108679
Manufacture of pulp, paper, and paper products 0.248841

Weakb
Manufacture of furniture 0.163228
Printing and reproduction of recorded media 0.113230
Manufacture of non-metallic mineral products 0.127926
Manufacture of fabricated metal products, except machinery 0.229434

and equipment
Maintenance, repair, and installation of machinery and

0.115261
equipment
Notes: a median value is 0.678673.
b
median value is 0.271399.
As shown in Table 2, the sample consists of a total of 41,849 firms of which 8,419 belong to high and
medium-high-tech sectors (HT group) compared with 33,430 firms from the low and medium-low
tech industrial manufacturing sectors (LT group).
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Table 2: Sample Characterization according to Sectoral Technology Intensity and Appropriability Regime Strength
Sectoral technology Appropriability Number of

Sector
intensity regime strength firms
Strong Manufacture of pharmaceuticals and medicinal chemicals 212

Manufacture of air and spacecraft and related machinery 598
Manufacture of computers, electronic and optical products 1,053
Manufacture of chemicals and chemical products except for
1,802
pharmaceuticals and medicinal chemicals
High-tech (HT) Manufacture of electrical equipment, apparatuses, and
1,022
Weak materials
Manufacture of machinery and equipment 2,657
Manufacture of instruments and materials for medical and

449
dental use and optical goods
Manufacturing of motor vehicles, trailers, and semitrailers 1,080
Total of firms belonging to HT group 8,419
Manufacture of coke, refined petroleum products, and
125
biofuels
Metallurgy 669
Manufacture of beverages 423

Manufacture of tobacco products 24
Strong
Manufacture of textiles, except apparels 1,234
Manufacture of diverse products, except instruments and

1,055
materials for medical and dental use and optical goods
Manufacture of rubber and plastic products 2,925
Manufacture of food products 6,168

Low-tech (LT) Manufacture of clothing and accessories 5,107
Tanning and dressing of leather, and manufacturing of
1,415
leather products; including luggage and footwear
Manufacture of wood products, except furniture 1,325
Manufacture of pulp, paper, and paper products 647
Weak Manufacture of furniture 2,714
Printing and reproduction of recorded media 839
Manufacture of non-metallic mineral products 4,229

Manufacture of fabricated metal products, except
3,513
machinery and equipment
Maintenance, repair, and installation of machinery and
937
equipment
Total of firms belonging to LT group 33,430
Total of sample firms 41,849
This sample also includes manufacturing firms of different sizes. By using the Brazilian classification
(Sebrae, 2018), firms with 99 workers or less belong to the group of smaller firms. Firms with 100
to 499 workers are classified as medium ones; and firms with over 500 workers are in the goup of
larger firms. SMEs (firms with 449 workers or less) belonging to the high-tech sectors with strong
appropriability regime represent 92.4% of this HT subgroup. The same pattern can be observed in
the other remaining subgroups fo the sample, as shown in Table 3.
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Table 3: Sample Characterization according to Firm Size
Appropriability
Sectoral technology intensity Firm size Number of firms %
regime % SMEs
Small 2,033 68.6
Medium 704 23.8

Strong
92.4
Large 225 7.6
Subtotal 2,962 100

High-tech (HT)
Small 4,489 82.3
Medium 732 13.4

Weak
95.7
Large 236 4.3
Subtotal 5,457 100
Total of firms belonging to HT group 8,419 94.5
Sectoral technology intensity Appropriability regime Firm size Number of firms %

% SMEs
Small 5,416 82.8
Medium 861 13.2

Strong
Large 269 4.1 95.9
Subtotal 6,545 100

Low-tech (LT)
Small 24,371 90.6
Medium 1,968 7.3

Weak
98.0
Large 546 2.0
Subtotal 26,885 100
Total of firms belonging to LT group 33,430 97.6
Total of sample firms 41,849 96.5
Note: Firm size classification, according to Sebrae (2018): small firms: with 99 workers or less;
medium firms: with 100 to 499 workers; large firms: with over 500 workers (Sebrae, 2018).

3.3. Variables
The following table summarizes the variables from Pintec 2014 data set that are relevant for this
empirical study. They were classified as dependent, explanatory and control variables (Table 4).
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Table 4: Summary of Variables
Description Label Type Metric
Dependent variable
Complexity of design COMP Binary 1 if the firm utilized this mechanism during 2012-2014; 0 otherwise.
Industrial secrecy SECR Binary 1 if the firm utilized this mechanism during 2012-2014; 0 otherwise.
Lead-time advantage TIME Binary 1 if the firm utilized this mechanism during 2012-2014; 0 otherwise.
Other informal mechanisms OTHER Binary 1 if the firm utilized this mechanism during 2012-2014; 0 otherwise.
Explanatory and Control Variables

Continuous Natural logarithm of the number of employees. Use of Sebrae
Firm size SIZE
classification (Sebrae, 2018).
Categoric Two-digit industry classification in CNAE (IBGE, 2007) and Pintec
Industry classification CNAE
2014 (IBGE, 2016).
4. Results
This section summarizes descriptive statistics results by comparing sub-samples disaggregated
by sectoral characteristics, as follows: (i) HT/SR group (firms from high-tech sectors with strong
appropriabilty regime); (ii) HT/WR group (firms from high-tech sectors with weak appropriabilty
regime; (iii) LT/SR (firms from low-tech sectors with strong appropriability regime); and (iv) LT/
WR group (firms from low-tech sectors with weak appropriability regime).
Tables 5 and 8 refer to the descriptive statistics results addressed to the research questions formulated
in the second section of this work.
Table 5: Strategic (Informal) Appropriation Mechanisms used by Innovative Firms from High and Medium-high
Technology Manufacturing Sectors with Strong Appropriability Regime in Brazil
Firms that have implemented innovations from 2012-2014
Strategic (informal) appropriation mechanisms used by innovative firms
Firm size
Total Complexity of Lead-time Other informal
Industrial secrecy mechanisms
design advantage
Total 2,962 621 979 548 139
Small 2,033 331 501 287 70
Medium 704 211 351 189 44
Large 225 79 127 72 26
Table 6: Strategic (Informal) Appropriation Mechanisms used by Innovative Firms from High and Medium-high
Technology Manufacturing Sectors with Weak Appropriability Regime in Brazil
Firm size Strategic (informal) appropriation mechanisms used by innovative firms

Total Complexity of Industrial Lead-time Other informal
design secrecy advantage mechanisms
Total 5,457 622 888 622 294
Small 4,489 341 483 338 241
Medium 732 195 288 220 37
Large 236 86 116 65 17
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Table 7: Strategic (Informal) Appropriation Mechanisms used by Innovative Firms from Low and Medium-low
Technology Manufacturing Sectors with Strong Appropriability Regime in Brazil

Total Complexity of Industrial Other informal
Lead-time advantage
design secrecy mechanisms
Total 6,545 408 1,004 558 242
Small 5,416 171 606 306 179
Medium 861 162 281 189 42
Large 269 74 118 64 21
Table 8: Strategic (Informal) Appropriation Mechanisms used by Innovative Firms from Low and Medium-low
Technology Manufacturing Sectors with Weak Appropriability Regime in Brazil

Total Complexity of Industrial Lead-time
Other informal mechanisms
design secrecy advantage
Total 26,885 723 1,772 982 582
Small 24,371 308 1,011 491 489
Medium 1,968 311 564 373 75
Large 546 104 196 118 19
Figure 1 compares in a graphic form the use of strategic (informal) appropriation mechanisms
by innovative manufacturing firms in Brazil, classified according to their sectoral technological
intensity/ strength of appropriability regime.
Figure 1: Innovative Manufacturing Firms using Informal Mechanisms for Protecting their Innovations Grouped by
Sectoral Technological Intensity/ Appropriability Regime Strength
Note: HT/SR Group (firms from high-tech sectors with strong appropriabilty regime); HT/WR
Group (firms from high-tech sectors with weak appropriabilty regime); LT/SR Group (firms from
low-tech sectors with strong appropriability regime); and (iv) LT/WR Group (firms from low-tech
sectors with weak appropriability regime).
The histograms in Figure 1 express the percentage of firms within each group (HT/SR; HT/WR; LT/
SR; and LT/WR) using one of these mechanisms (complexity of design; industrial secrecy; lead time
to market; and other informal mechanisms). They are addressed to answer the following research
questions: “how sectoral technological intensity and strength of the sectoral appropriability regime
IAMOT 2019 | 311

influence the use of informal appropriation mechanisms by innovative manufacturing firms in Brazil
for protecting their innovations? Do the informal appropriation mechanisms differ from one group
to another?”
The graphs from Figure 1 visually show that the most adopted mechanism by all groups of
innovative manufacturing firms is ‘industrial secrecy’, followed by ‘complexity of design’ and
‘lead-time advantage over competitors’. The use of ‘industrial secrecy’ higher than the use of other
informal mechanisms can be explained by several factors: (i) broad range of protectable subject
matter, including inventions that may not qualify for patent protection; (ii) no formal registration
is required; (iii) applies to innovation in the early stages of innovation funnel; (iv) disclosure of
invention not required; (v) may be used in combination with other protection mechanisms to protect
complex innovations; and (vi) unlimited term of protection (cf. EUIPO, 2017).
The histograms in Figure 2 reveal the percentage of innovative manufacturing firms from high-
tech sectors using one of these mechanisms (complexity of design; industrial secrecy; lead time to
market; and other informal mechanisms) for protecting their innovations.
Figure 2: Innovative Manufacturing Firms from High-tech Sectors using Informal

Mechanisms for Protecting their Innovations
Note: HT/SR group (firms from high-tech sectors with strong appropriabilty regime); and HT/WR
group (firms from high-tech sectors with weak appropriabilty regime).
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From Figure 2, it can be observed that in the two groups of firms operating in high-tech ou medium-
high-tech sectors the strength of the appropriability regime influence the adoption of informal
appropriation mechanisms by innovative manufacturing firms, but the differences observed between
the two groups are not so significant.
In the HT/SR group the percentage of firms that adopt informal mechanisms in each size class
(small, medium or large) is higher than the observed in the HT/WR group. This result was already
expected since the calculation of the strength of the sectoral appropriation regime took into account
the use of informal mechanisms by firms in each group of technological intensity (see Table 1).
Another important result concerning both HT groups is that ‘industrial secrecy’ is the most used,
whether by small, medium or large companies, followed by ‘complexity of design’ and ‘lead-time
advantage over competitors’. These results are in line with previous empirical works reviewed in
the second section.
Figure 3 show how innovative manufacturing firms from low-tech sectors do use one of these
mechanisms (complexity of design; industrial secrecy; lead time to market; and other informal
mechanisms) for protecting their innovations.
Figure 3: Innovative Manufacturing Firms from Low-tech Sectors using Informal

Mechanisms for Protecting their Innovations
Note: LT/SR Group (firms from low-tech sectors with strong appropriability regime); and (iv) LT/
WR Group (firms from low-tech sectors with weak appropriability regime).
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Now analysing the results related to the two low-tech groups, one can conclude that the strength of
the appropriability regime influence the use of informal mechanisms of protection by innovative
manufacturing firms, and the differences observed between the two groups are quite significant, as
opposed to HT groups (Figure 2).
Here, the mechanism ‘industrial secrecy’ is also the most used, whether by small, medium or large
companies, followed by ‘complexity of design’ in the case of LT/SR group, and ‘lead-time advantage
over competitors’ in the case of LT/WR group. These results are also in line with previous empirical
works reviewed in the second section.
Both Figure 2 and 3 were addressed to answer the following research questions: “In the same group
of sectoral technological intensity (high- or low-tech), how does the strength of the appropriability
regime influence the use of informal mechanisms of protection by innovative manufacturing firms?
which informal mechanisms have been adopted by firms of different sizes (small, medium and large)
in these cases?”
Based on empirical evidence from the Pintec 2014 data, the present study has attempted to analyse
how firm size, sectoral technological intensity (using OCDE classification as reference), and strength
of the sectoral appropriability regime influence the use of informal appropriation mechanisms by
innovative firms for protecting their efforts to innovation.
One main result of the empirical analysis is that, regardless of the group in which the innovative
manufacturing firms were classified, the informal appropriation mechanism most adopted is
‘industrial secrecy’, followed by ‘complexity of design’ and ‘lead- advantage over competitors’.
In line with the existing literature, as reviewed in the second section, one main result of the empirical
analysis is that the most adopted mechanism by all groups of innovative manufacturing firms in
Brazil during the period 2012-2014 is ‘industrial secrecy’, followed by ‘complexity of design’ and
‘lead-time advantage over competitors’.
In the HT/SR group the percentage of firms that adopt informal mechanisms in each size class
(small, medium or large) is higher than the observed in the HT/WR group. Another important result
concerning both HT groups is that ‘industrial secrecy’ is the most used, whether by small, medium
or large companies, followed by ‘complexity of design’ and ‘lead-time advantage over competitors’.
From the results related to the two LT groups, one can conclude that the strength of the appropriability
regime influence the use of informal mechanisms of protection by innovative manufacturing firms,
and the differences observed between the two groups are quite significant, contrary to that observed
in the HT groups. The mechanism ‘industrial secrecy’ is also the most used by LT firms, whether by
small, medium or large companies, followed by ‘complexity of design’ in the case of LT/SR group,
and ‘lead-time advantage over competitors’ in the case of LT/WR group.
The understanding of how firm size, technological intensity, and strength of sectoral appropriability
regime influence the adoption of informal appropriation mechanisms by Brazilian manufacturing
firms is chiefly relevant, not only for policy makers but also for managers and academicians engaged
in the field of management of technology and innovation.
This study has achieved its aim and establishes a basis for a more complex future research. However,
as any other, has its limitations. One important limitation is that the Pintec 2014 questionnaire does
not include questions related to the use of formal mechanisms of appropriation (patents, copyrights,
trademarks, and others methods), so the calculation of the strength of the sectoral appropriability
regime here in this work was based only on data on the use of informal mechanisms by innovative
manufacturing sectors. Although the research questions focus the use of informal mechanisms,
it would have been interesting to compare the use of informal and formal mechanisms, as in the
previous work reviewed in the second section.
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Finally, it is important to mention that this exploratory-descriptive study is part of an ongoing

M.Sc. research project in the field of Management of Technology (MOT) in Brazil. The general
objective of this research is two-fold. Firstly, it attempts to analyze the differences and similarities
between the use of informal mechanisms of appropriation by firms from different sizes and sectors
of the manufacturing industry in Brazil (classified by their technological intensity and strenght of
appropriability regime). Secondly, it will investigate the influence of interorganizational cooperation
on innovative activities and innovation performance of manufacturing firms, considering
environmental factors and internal characteristics. This paper is aligned to the first part of this M.Sc.
research.
In order to achieve the general objective, the following specific objectives were established: (i)
to discuss the contributions of technological classifications and appropriability regime theory to
ground the analysis of the impacts of interorganizational cooperation on innovative activities and
innovation performance of manufacturing firms in Brazil (second section of this paper); (ii) classify
the economic activities of the respondent firms of Pintec 2014, according to the four levels of
sectoral technological intensity proposed by the OECD (2011) (third section of this paper); (iii) to
calculate the appropriability regime of the sectors in which companies operate, based on the Pintec
2014 data associated to strategic no-formal protection methods (third section of this paper); (iv) to
analyze the differences and similarities between the use of informal mechanisms of appropriation by
Brazilian firms from different sizes and sectors of the manufacturing industry in Brazil, classified by
their technological intensity and strenght of appropriability regime (fourth section of this paper); (v)
to develop logit models to investigate the influence of interorganizational cooperation on innovative
activities and innovation performance of firms, considering environmental factors and internal
characteristics (object of the future work); and (vi) to perform the specification tests, analyze and
compare the results of logit-type models, with special attention to interaction effects (object of the
future work).
6. Acknowledgments
The authors gratefully acknowledge the support and collaboration of the Brazilian Institute of
Geography and Statistics (IBGE), by providing the data from the National Innovation Survey (Pintec
2014) concerning sectoral technological intensity and informal appropriation mechanisms adopted
by innovative manufacturing firms from 2012 to 2014.
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IAMOT 2019 | 316

Flow of Spin-off Technologies from Bhabha
Atomic Research Centre: A Technology
Management Perspective
Thyagaraju P.H.
Uranium Extraction Division, Bhabha Atomic Research Centre
E-mail: thyaguph@barc.gov.in
Kirankumar S. Momaya
Shailesh J. Mehta School of Management, IIT Bombay
Email: momaya@iitb.ac.in
Abstract
Dr. Homi Jehangir Bhabha, during late 1940s, seeded BARC with a vision of establishing self-sufficiency in nuclear
technology in India. The vision was indeed very ambitious considering the fact that in those days India did not
quite possess the necessary levels of scientific or industrial inputs. Albeit, true to the founder’s vision, BARC
rose to become an outstanding research centre with substantial transfer of nuclear technologies to several units
under Department of Atomic Energy (DAE) for implementing nuclear technologies in sizeable scale. Down the
line, there were several instances of flow of spin-off technologies into industry. Further, BARC had enhanced the
organizational processes such as setting up of ‘Technology Transfer & Coordination Division’ in order to accentuate
the flow of technologies. While BARC has a very satisfactory record of technology development in the areas of
reactors and radioisotope applications, there seems to be a long way ahead to reach the competitiveness of spin-off
technologies of nuclear organizations of advanced countries. This paper is an attempt to appraise this aspect.
Literature is quite limited in this area; still we identified some reports and other artefacts. A conference paper of
R.B. Grover has been a good starter. BARC’s website and annual reports of Department of Atomic Energy gave
voluminous account of technology-transfer activities. The report “Cross-Flow of Technology” by the XII Plan
Working Group of Government of India gave some inputs on analysis on flow of technologies from Indian research
organizations to industry.
We made some quick benchmarking in respect of spin-off technologies of other research organizations. We adopt
a ‘single case study’ to identify key problem in the context of BARC. As an illustrative example, a market survey
report mentions India as a fast-emerging market for Mass Spectrometers being eyed by the global suppliers. While
BARC’s internal customers use as many as 46 numbers of BARC-made mass spectrometers, these seem yet to make
a mark in the commercial domain. This provides a scope for study in this paper.
Root-cause-analysis is attempted on possible reasons for the current position of flow of spin-off technologies.
Technology denial seems to be the major cause from the external environment. Another external cause is related to
competence of the industry in reciprocally receiving the high-end technologies. Internal causes seem to be related to
entrepreneurial ecosystem, collaborative networking, product positioning, etc.
An important proposition by this paper is that, while the techno-managerial processes of BARC seem adequately
suited for the mandated nuclear technologies, altogether different processes may be needed when it comes to
commercialization of spin-off technologies. This idea stems from the fact that the knowledge areas such as
Technology Management, Entrepreneurial Management have emerged relatively recently and are yet to percolate
into hard core research groups in general. All this analysis is attempted here in order to prove useful for enhancing
the flow of BARC’s spin-off technologies into industry.
Keywords: Spin-off Technologies, Technology Transfer, Competitiveness, Nuclear Spin-offs, Techno-managerial
Intervention, Collaborative Strategies
1. Introduction
“Science of today is the technology of tomorrow”
—Edward Teller
This quotation (Edward Teller Quotes) is quite relevant for the spin-off technologies from the
science-research centres. In the current era of technological economy, it is desirable that the
IAMOT 2019 | 317
research centres substantially contribute to the technological-competitiveness in the industry.

Accordingly, this paper is an attempt to study the aspect of flow of spin-off technologies from a
nuclear research centre of an emerging country such as BARC (Bhabha Atomic Research Centre)
into the general industry.
It is interesting to pick two ideas from Edward Teller (Dyson, 2007). One idea is about his
collaborative attitude and the other, his commercialization drive. Collaboration is the mantra for
timely development of today’s complex technologies. Also, commercialization drive is the necessary
force for reaping economic benefits to the industry from Research & Development activity.
These ideas drawn from Teller set the stage for this paper.
The paper covers the following points:
●● Literature review
●● Brief success story of mandated, nuclear technologies developed by BARC
●● Brief account of spin-off technologies of BARC
●● Problem statement
●● Method of Study
●● Techno-managerial journey of BARC
●● Emerging Findings
●● Analysis
●● Some interventional ideas.
●● Conclusions
Some historical reports were seen in order to grasp the techno-managerial steps (though not exactly
denoted in these terms) taken by Bhabha and his colleagues in acquiring, absorbing and nurturing
the technological skills in establishing the nuclear research centre. The reports reveal interesting
facts that BARC (then called as Atomic Energy Establishment Trombay-AEET) was able to
indigenously extract & refine uranium and further fabricate, the nuclear fuel for the first time, for
use in the research-reactor called CIRUS (Canada India Reactor United States). All this work was
begun and accomplished during the same time while the reactor was under construction from 1956
to 1960. Interestingly, Indian fuel had much better metallurgical properties than Canadian fuel.
The reports also talk about the transfer of BARC’s research output for larger scale facilities of
nuclear technologies such as nuclear fuel complex, heavy water plants, nuclear power plants and
so on. Most of the reports of BARC are for internal circulation. Hence these have not been listed
among the references of this paper. The book Atomic Energy in India, 50 Years (Sundaram, 1998)
is a publication that gave a picture of technological growth of the department, particularly in the
early years.
While India has been an early mover in the nuclear technologies among Asian countries, in
comparison with US, Canada and UK, India has been a technology-follower. The websites and some
reports on public domain, of nuclear departments of US and Canada gave some idea about their
techno-managerial processes.
Commercialization drive of Federal research centres of the US were found to have intensified during
and after 1980. The Bayh-Dole Act of 1980 and other legislations of USA (Marina Lamm, 2010)
gave an idea about the changes in norms that intensified technology transitions in the recent decades.
Both USA and Canada stated in their official literature that the prominent objective of their nuclear
establishments is to raise commercial competitiveness of their countries. Literature of nuclear
establishments of France and Germany too echoed similar objectives.
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Flow of Spin-off Technologies from Bhabha Atomic Research Centre: A Technology Management
Annual Reports for last several years of Department of Atomic Energy of India were available on
public domain. These gave elaborate details about technology transfer activities, patents, research
collaborations and other useful information. (Report, 2017) gave some statistics in respect of R&D
expenditure in government research centres and in private sector.
Knowledge and technologies created in institutions can flow to industry through multiple pathways
such as collaborative projects, formal technology transfers, technological consultancy, etc. Momaya,
Bhat and Lalwani (2017) developed a conceptual framework and demonstrated its utility by applying
it to context of IITs-the institutes that are trying to enhance the flow of technologies for industrial
competitiveness. They identified the critical role of leadership and innovation to enhance strategic
flexibility of the flow. This and other research papers lent some ideas that could be relevant to BARC
too in enhancement of flow of spin-off technologies.
3. Brief Success Story of Mandated,

Nuclear Technologies Developed by BARC
BARC had commendably developed and transferred the mandated nuclear technologies for applying
at commercial scale (Grover, 2001). BARC’s technologies have resulted into establishment of firms
such as Uranium Corporation of India Limited (UCIL), Electronics Corporation of India Limited
(ECIL), Nuclear Fuel Complex (NFC), Heavy Water Board (HWB), Nuclear Power Corporation
of India Limited (NPCIL) and Board of Radio Isotopes Technology (BRIT) which operate at
commercial level.
UCIL carries out mining and extraction of uranium-concentrate. ECIL supplies comprehensive
instrumentation to all Indian nuclear power plants. NFC produces nuclear fuel for all Indian
power reactors. HWB provides heavy water (D2O) that works as neutron-moderator as well as
heat-extractor in a nuclear power reactor. NPCIL constructs and operates all nuclear power plants
of India. BRIT makes available into public domain, the non-power nuclear applications such as
radiopharmaceuticals, food-irradiation, radiation-sterilization medical products, radiography
systems, industrial radioactive sources, etc. Also, BARC provides research and services of nuclear
agriculture by creating better variety of crops by use of radiation mutation. Indian atomic-energy
department always aimed at self-sufficiency in nuclear technology. India’s technological isolation
from rest of the nuclear countries in the wake of experimental ‘Peaceful Nuclear Explosion’ of 1974,
had accentuated the drive for such self-sufficiency.
4. Brief Account of Spin-off Technologies of BARC

While meeting the requirements of nuclear applications, BARC had generated several spin-off
technologies (spin-offs, in short). A number of these were transferred to general industry. Examples
were vacuum systems, HEPA (High Efficiency Particulate Air) filters, etc. Further, BARC had set
up ‘Technology Transfer & Coordination Division’ in order to facilitate technology-transfers.
BARC’s website lists around 130 spin-off technologies. There has been a commendable record of
transfer of biological and agricultural technologies to public domain. Over hundred numbers of
biogas plants have been installed across the country. BARC had developed sea-water desalination
plants, sewerage treatment plants, domestic water purifiers, etc. for large scale public use.
Coming to certain specific advanced instrumentation systems, BARC had deployed as many as 46
Nos. of Mass-Spectrometers in various units of atomic energy department (Unpublished Souvenir
of Symposium-31 of Indian Society for Mass Spectrometers). Many more instrumentation systems
such as radiation detectors and radiation sources have been developed for internal use and later
licensed to commercial manufacturers.
5. Problem Statement
Out of around 130 spin-offs listed in BARC’s website, around 48 technologies were transferred to
136 entities. The corresponding scores for USA (Report, 2015) are multitude for justifiable reasons.
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While BARC has a very satisfactory record of technology development for internal consumption in
the mandated nuclear area (Grover, 2001), there is much scope ahead to reach the level of commercial
competitiveness of spin-off technologies that exists in advanced countries such as USA and Canada.
5.1. An Illustrative Example

Market survey report No. MA1000 of M/s Micro Market Monitor mentions India as an emerging
market for Mass Spectrometers. However, technology-transferees of mass spectrometers from BARC
do not seem to have appreciably penetrated into the market, perhaps due to issues of competitiveness
in globalized world. The paper attempts to identify key problems and use ‘problem structuring’
(Momaya et al., 2017) to find root causes and ambiguities.
All the above scenario sums up the problem attempted to address in this paper.
6. Method of Study
We adapted elements of systematic method of ‘problem structuring’ (e.g. Momaya, Hayashi, Tokuda,
2006; Momaya et al., 2017) to diagnose issues. We start with an appraisal of techno-managerial
journey of BARC. We sent across a questionnaire to some technology transferees, requesting for
information such as their local R&D facility and their market penetration. This had fetched some
lukewarm response. Then, we made a quick benchmarking and we characterized the key problem by
performing root cause analysis. At the end, we recommend certain interventional recommendations
for pilot study.
7. Techno-Managerial Journey of BARC
7.1. The following Points Illustrate BARC’s

Growth in Techno-managerial terms
7.1.1. Early Mover

India had the privilege of being in the band of the earliest countries taking up the novel nuclear
technology.
7.1.2. Strategic Planning

Methodical planning was carried out for building of whole nuclear fuel cycle right from exploration
of uranium resources to nuclear waste-management. On the basis of our scarce uranium resource and
abundant thorium resource, a 3-stage programme was initiated by which phased breeding of nuclear
fuel can happen over a length of time.
7.1.3. Technology Acquisition

The first two research reactors, two power reactors and heavy water plant were acquired from
developed countries, albeit with substantial Indian participation, supporting technology acquisition.
7.1.4. Complementary Collaborative Linkages

As an example the civil construction and instrumentation for Apsara reactor were implemented
in-house, but fuel was obtained from United Kingdom. As another example, CIRUS
(Canada India Reactor United States) research reactor was constructed under supervision of Canada,
heavy water was obtained from United States, but the fuel was indigenous.
7.2. Technology Absorption

Indian engineers proved their absorption capabilities that BARC had soon enough undertaken
indigenization programme of various nuclear technologies.
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7.2.1. Strong Alliance with University System

Through grant-in-aid institutions, Inter-University Consortium, Board of Research in Nuclear
Sciences, etc. [R.B. Grover, 2003]
7.3. Internal Transfer of Technology

There have been internal technology transfers to Uranium Corporation of India Limited, Electronics
Corporation of India Limited, Nuclear Fuel Complex, Heavy Water Board, Nuclear Power Cover
Corporation of India Limited and Board of Radio Isotopes Technology [R.B. Grover, 2001].
7.3.1. External Transfer of Technology

There have been a sizable number of technology transfers to private industry. However, it has been
perceived that the volume and market penetration are somewhat less than what could be expected.
This is the issue of exploration in this paper.
7.4. Some of the External Environmental Hurdles

Faced Particularly in the Initial Years
Inadequate scientific and industrial infrastructure in the country; relatively poor economic condition
of the country as such; Scant availability of educated manpower; Endowed with scant and of low-
grade uranium resource.
7.5. Some Salient Features of Indian Nuclear

Technology where BARC Plays Pivotal Role
Following features throw some light on technological maturity attained by the Department of Atomic
Energy (DAE) of India. They are currently one of largest producers of natural uranium oxide fuel
in the world (Linkmint, 2015). They are among the leading producers of heavy water in the world,
as mentioned in website of Heavy Water Board. DAE’s R&D labs span complete fuel cycle of
nuclear energy technologies and in addition produce a number of spin-off technologies [www.dae.
gov.in]. Department of Atomic Energy runs a commercial entity called ‘Board of Radio Isotopes
Technology’ focused on non-power applications of nuclear technology.
8. Emerging Findings
8.1. Quick Benchmarking

Tables 1 and 2 (author compiled from data on public domain) lend some quick benchmarking in
respect of spin-off technologies.
Table 1: Cross-sectional Data for 2016-17 Across National Research Organizations of India
Sector of R&D No. of patents Funding (Approx.) Remark

CSIR 3000 Cr Meant completely for
230
(Council for Scientific & Industrial Research) industrial development
DRDO 14000 Cr Plenty of dual use
58
(Defence Research & Development Organization) technologies, High funding
ISRO 6000 Cr Mandate is on space, spin-off
13
(Indian Space Research Organization) is incidental, like Nuclear
DAE 4000 Cr Mandate is on nuclear, spin-
(Department of Atomic Energy) off is incidental
11
Patenting is not allowed for
nuclear technologies
Source: Author compiled from data obtained from following sources:
DAE Annual Report 2016-17, page XXIX for No. of patents of DAE
IPO Annual Report 2016-17, page 28 for No. of patents of ISRO, DRDO and ISRO
Report ‘R&D at a Glance, 2017, DST, India’, page 5 for approximate indicative values of funding
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Table 2. Quick Benchmark of Commercialization of India’s Spin-off Technologies
with USA’s Nuclear Organizations for the year 2014 (Merely Indicative Data)
No. Tech. R&D No. of Research History Entrepreneurial Innovation Private
Transfer Spending as units and Staff in Environment & participation
Activities in % of GDP Strength science Enterprise in R&D
2014 & tech
Socialistic;
5 Nos. At policy
India 300 0.8% 70 years Somewhat < 30%
16000 staff level
enterprise-averse
17 Nos. Highly At legislation
USA 15000 2.7% 170 years > 70%
60000 staff capitalistic level
Source: Author compiled from data on public domain, such as DAE Annual Report 2014-15 and
US DOE Technology Transfer Report 2015
8.2. Technology Transfers from BARC

An example case of mass spectrometers was taken to make sense of the dynamics. A glimpse of
transferees of different types of spectrometer is given in Figure 1.
Figure 1: Technologies of Mass Spectrometers Transferred to Firms
Source: (Thyagaraju, 2017)
The transferees were approached with a questionnaire, to query on their business performance in
respect of mass spectrometers. Only one firm, i.e., M/s Autosys had responded positively that they
were building their first system for a customer.
Another case of medical product was with M/s Panacea Medicals, who responded that they were
making moderate business with BARC technology. They further mentioned that a public policy to
secure customers for them would have helped.
The general finding revealed the following points:
●● Biological technologies such as biogas plants & water purifiers and some agricultural
technologies such as mutated seed varieties had made a reasonable dent in the public
●● Instrumentation and industrial technologies seem yet to make a dent in spite of strengths
mentioned in points of 7.1 above.
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9. Analysis
9.1. Postulated Reasons for Difference between BARC’s Flow

of Spin-offs and that of global players
9.1.1. External Reasons

1. Institutionalized science research in India had started relatively recently
(basically after 1945).
2. R&D spending in India is lesser than 1% which is much lesser than that in more advanced
countries, as shown in Table 3.
3. R&D spending by private sector is very important for good commercialization. This is
seen to be relatively lesser in Indian case, as shown in Table 4.
4. Sub-normal R&D effectiveness in private sector though its importance has been
recognized after economic reforms of 1991 [Karuna Jain et al]. This in turn leads to poor
absorptive capability to match up BARC’s technology-intensive spin-offs
5. Technological denial for nuclear establishments in India. This thwarts development of
spin-offs of global standards.
9.1.2. Internal Reasons

1. Sub-normal entrepreneurial ecosystem. Mashelkar (2001) echoed this saying, “the fact
that new knowledge has to make an economic sense has not been by and large realized
by our institutions”
2. Need for fine tuning of research objectives towards enhancement of technology transfers
3. Stress on conversion of scientific developments into marketable technologies.
4. Department has alliances with academic institutions for research purposes and
with industrial houses for power-reactor-subsystems. However, alliances for
commercial-nurturing of spin-offs seem to be much more wanting. This is an important
idea emerged from this paper.
5. By and large the work culture is individual or group-centric. Culture of timely pooling
of complementary expertise is yet to penetrate into R&D-groups (Momaya et al., 2009).
Table 3: R&D Expenditure of Various Countries as Percentage of GDP
Country R&D Expenditure as % of GDP
Korea 4.3
Israel 4.1
Japan 3.6
Germany 2.9
USA 2.7
France 2.3
China 2.1
UK 1.7
Canada 1.6
Brazil 1.3
Russian Federation 1.2
India 0.7
Argentina 0.6
Pakistan 0.3
Sri Lanka 0.1
Source: Report, “R&D Statistics at a Glance, 2017-18, Dept. of Science & Technology, Govt. of India”, page 10
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Table 4: Gross Expenditure on R&D (GERD) Across Sectors in Various Countries
Country Government Business Enterprise Higher Education Others
Japan 8 78 12 2
China 16 77 7 -
USA 11 72 13 4
Germany 15 68 17 -
UK 7 66 26 1
France 13 65 20 2
Russian Federation 31 59 10 -
India 52 44 4 -
Source: Report, “R&D Statistics at a Glance, 2017-18, Dept. of Science & Technology, Govt. of India”, page 7
Some important reasons revealed by root-cause analysis are given in the Figure 2.
Figure 2. Root-cause-analysis Diagram in Respect of Performance of Spin-off Technologies
Source: Author generated by study
9.1.3. Discussion on Root-cause Analysis Diagram

Three of the main causes shown below the centre-line are related to culture within the organization.
Three causes shown above the centre-line are related to the technology-transferees, customers and
features of technologies respectively. Each of the main causes probed into one to three sub-causes
as shown. Some of the sub-causes conjectured are related to: market disconnect of the scientists,
techno-managerial processes while developing the technology, incentive for product development,
measures against obsolescence of technologies transferred, technological capabilities of transferees,
aesthetics & ergonomics of product and so on as given in the diagram.
Overall picture revealed is that, though BARC is strong enough for scientific development it
seems yet to be adequately oriented towards creating commercial products, which need additional
considerations such as cost, aesthetics, ergonomics, features, reliability, etc., in comparison with
competing products. These call for several techno-managerial tools and processes.
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10. Some Interventional Recommendations Proposed

Exploratory nature of this study does not permit empirical research. Still, some recommendations
are proposed to be explored for pilot interventions to learn which among alternate approaches to
technology commercialization may work for the context.
1. To pick and pilot implement some relevant features of USA’s model of commercialization
of spin-off technologies given in [Marina Lamm, 2010].
2. Incorporate modern processes of Technology Management, with a focus on
i. Frugal innovation suiting developing countries
ii. Differentiated products for developed countries
iii. Creating consortia to speed up R&D by collaborative efforts
iv. Introduce ‘Systems Engineering’ approach
While institutes such as IITs are different, lessons from high success rate of the ‘venture
path’ (Momaya et al., 2017)—as reflected in number of ventures graduated should be
reviewed. For instance, out of 136 companies in various domains under incubation with SINE
(Society for Innovation and Entrepreneurship), IIT-Bombay as of 2018, 49 graduated and were
operational with more than 380 entrepreneurs (SINE, 2018).
11. Conclusion
This study aimed at making an appraisal of the technological processes of DAE in general and BARC
in particular, in order to specifically understand the processes that go into spin-off technologies of
BARC. It emerges that the organization has reasonably effective processes in place for research,
development and deployment of mandated nuclear technologies; however, there is a scope to nurture
the processes for effective commercialization of spin-off technologies. This idea got strengthened
on taking a look at US’ accentuation of commercialization of government R&D in the wake of
legislations such as Bayh-Dole Act of 1980 and subsequent measures taken. A root-cause analysis
diagram has been constructed particularly highlighting internal causes. A review of relatively newly
emerging managerial discipline ‘Technology Management’ encompassing necessary processes at
BARC to generate options is a recommendation evolved by this paper.
Thyagaraju would like to thank Prof. R.B. Grover, his PhD guide for intimate mentorship and he
would like to thank Prof. Karuna Jain, his PhD co-guide for support and encouragement. He would
like to thank Shri M.L. Sahu, Head, UED/BARC and Dr. Madangopal Krishnan, Associate Director,
Materials Group, BARC for supporting his work. He would like to thank Dr. Srikumar Banerjee,
Chairman of his Doctoral Committee for overall guidance and encouragement.
13. References
Dyson Freeman J. (2007), Edward Teller 1908-2003, A biographical memoir, National Academy of Sciences, accessed
fromhttp://www.nasonline.org/publications/biographical-memoirs/memoir-pdfs/teller-edward.pdf
Edward Teller Quotes. Brainy Quote.com, Brainy Media Inc, 2018. https://www.brainyquote.com/quotes/edward_
teller_102595, accessed November 29, 2018.
Grover, R.B. [2001], “Technology Management by the Department of Atomic Energy”, Proceedings of National
Seminar on Technology Management, Conducted by Indian Academy of Engineering at National Chemical
Laboratory, Pune, during October 12th -13th, 2001.
Grover, R.B. (2003], Alliances for R&D, Proceedings of International Conference on Management of R&D conducted
by Dept. of Management Studies, IIT Delhi, Pages 305-309
HWB, website of Heavy Water Board, http://www.hwb.gov.in/htmldocs/general/about.asp
Karuna Jain and Rajiv S. Narvekar [2003], Metrics for Measuring Industrial R&D Effectiveness in India, ibid, Pages
447-452]
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Livemint (2016), News report: “Nuclear Fuel Complex sets new production record” downloaded from: https://www.
livemint.com/Industry/fUL3BM0JFb7KnQnVdzXbQK/Nuclear-Fuel-Complex-sets-new-production-
record-in-201516.html
Marina Lamm [2010], Patent Attorney, Report “Technology Transfer: United States Policy and Laws” downloaded on 07th
September, 2018 from: https://www.unece.org/fileadmin/DAM/ceci/ppt_presentations/2010/eed/lamm.pdf
Mashelkar R.A. (2001), Five Technology Management Mantras for Indian Industry, Proceedings of National Seminar
on Technology Management, 12th–13th October, 2001, pages 1-2.
Momaya K., Hayashi T. & Tokuda A. (2006), Competitiveness of Japan, International Affairs, 4, 71-93.
Momaya K.S., Yonekura S., Sape T., Tominaga M. (2009), Cooperative Strategies between India and Japan: Glimpse
of opportunities with Focus on ICT Industry, Published in the book Jain K. and Patil R. (Eds.), Decision
Sciences in Global Enterprise Management, MacMillan, New Delhi, pp. 680-693.
Momaya K.S., Bhat S. & Lalwani L. (2017), Institutional growth and industrial competitiveness: Exploring the role
of strategic flexibility taking the case of select institutes in India. Global Journal of Flexible Systems
Management, 18(2), 111-122.
Report (2015), Technology Transfer and Related Technology Partnering Activities at the National Laboratories and
Other Facilities Fiscal Years 2009-2013, downloaded from public domain
Report (2017), Research and Development Statistics at a Glance, Department of Science and Technology, Government
of India, downloaded from public domain.
SINE (2018), Presentation at the Wadhwani Research Centre for Bioengineering Industry Day, Society for Innovation
and Entrepreneurship (SINE), Indian Institute of Technology Bombay.
Sundaram C.V., Krishnan L.V., Iyengar T.S., (1998), Atomic Energy in India-50 years, Mumbai: Department of
Atomic Energy
Thyagaraju P.H., (2017), A study on Technological Up-Gradation of Mass-Spectrometers for achieving Commercial
Viability, as a Case Study with Bhabha Atomic Research Centre, Unpublished Masters Dissertation, Indira
Gandhi National Open University IGNOU, School of Management.
IAMOT 2019 | 326

The Effect of Managerial Characterristics on
the Performance of Technology-Baseed
Start-UPS in Korea
Seungku Ahn
Korea Institute of Science & Technology Evaluation and Planning (KISTEP),
Institute of Innovation Strategy Research, South Korea
E-mail: ask@kistep.re.kr
Juil Kim
Korea Institute of Science & Technology Evaluation and Planning (KISTEP),
Center of R&D Budget Policy, South Korea
E-mail: juil@kistep.re.kr
Abstract
This study analyzed how managerial characteristics affected the performance of technology-based start-ups in
Korea. This study conducted a multiple regression on 248 start-ups that were established on a technology basis.
According to the study, gender, education and career of entrepreneur did not affect the firm performance. The
entrepreneurship does not affect financial performance, but innovativeness and progressiveness have positive effects
on non-financial performance among the sub-factors of entrepreneurship. However, risk-taking has a limited impact
on product competitiveness and non-financial performance of early growth period, and it has a low correlation with
firm performance. These findings suggest the need to foster specialized education for senior CEO, and promote the
entrepreneurship culture of risk-taking.
Keywords: Technology-Based Start-Ups, Entrepreneurship, Managerial Characteristics, Firm Performance
1. Introduction
The importance of technology-based start-ups is emphasized as an alternative to overcome the
problem that the growth formula of industrial society does not work properly. Already, the main
players in the past industrial society have been replaced by technology-based start-ups. Already
in the photographic industry, smartphones and Instagram have replaced Kodak, Airbnb for hotel
and lodging industry, and LinkedIn for manpower market more aggressively than traditional
conglomerates.
The national effort to promote start-ups and to create growth engines is a worldwide phenomenon.
In Korea, technology-based venture businesses such as venture companies have been on the rise
since the 2010s. In 2009, the number of venture companies rose from about 19,000 to more than
34,000 in 2017(Korea Venture Business Association, 2017). At the time of start-up, the average
number of representatives was 1.1, with 93.8% for single start-ups and 6.2% for co-start-ups. These
figures show that entrepreneurs are the most important factors that determine the success of start-
ups. It is because all ideas start from the entrepreneur, the business plan becomes concrete, and
ultimately it takes final responsibility for the entrepreneurial activity. Recognizing the importance
of entrepreneurship earlier, Schumpeter (1934) emphasized the role of entrepreneurs as the subject
of creative destruction.
Since new start-ups have few employees and organizational decision-making systems are not
established, entrepreneurial decision-making has a large impact on the entire company. In this
respect, various characteristics such as entrepreneurial competence, entrepreneurship, and leadership
have a great influence on firm performance. According to a survey by the government, the added
value and employment effect of technological start-ups were superior to those of subsistence start-
ups and small business start-ups. According to the Small and Medium Business Administration
(2015), the average number of technological start-ups in Korea is 4.6, which is higher than that
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of 2.0 in retail and 2.7 in lodging and restaurant business. In addition, the average sales amounted
to 800 million won, which is higher than the 560 million won for the food and retail business and
190 million won for the lodging and restaurant business. Based on these evaluations, researches on
ways to maximize the performance of technological start-up companies are being actively carried
out. In particular, entrepreneurship, which provides a driving force for innovative and challenging
technologies, is a very important variable in technology start-up companies, and technological
competence, background knowledge and experience possessed by entrepreneurs can be directly
linked to company’s technology and management performance.
In order to activate technology-based start-ups, many technology-based entrepreneurs must end up
with personal and social conditions that they can start with entrepreneurship. In this sense, it is
necessary to analyze what factors lead the entrepreneur to have a willingness to start a technology and
lead to implementation. Therefore, this study aims to suggest the policy implications of government
support for entrepreneurs by analyzing what characteristics of technology entrepreneurs influence
financial and non-financial performance of technology-based start-ups.
2. Literature Review and Hypothesis Setting
2.1. Technology-based Start-Ups

Business start-up is the first step in a company’s life cycle and means that an individual or entrepreneur
starts a business activity for profit. It is possible to create a business with sufficient growth potential,
and in some cases, from the stage of actual entrepreneurship to the stage of independent self-
sustaining (Low and MacMillan, 1988). But the meaning of start-up is ‘start’. It is a humanistic and
creative action that creates something of value in a state of virtually nothing (Timmons et al., 1985).
This study focuses on technological start-up in various types of business start-up. it is necessary
to understand the differential nature of technology-based start-up. In general, technology-based
start-up is technology-intensive company that creates new markets based on innovative technology
among many types of business start-up (Korea Business Incubation Association, 2015). Researchers
have found that technology-based start-ups have a high share of scientists, professional engineers,
and technicians (Butchart, 1987), and have new technologies in medical science, IT, computers,
software and services (Jones-Evans, 1995; Maula, 2001).
In this study, technology-based start-ups refer to a corporation or an individual who has not been less
than seven years from the date of commencement of a business corresponding to the manufacturing
and knowledge service industry, pursuant to the definition of ‘Small and Medium Enterprise
Establishment Support Act’.
2.2. Entrepreneurs and Firm Performance

The most important factor in the performance of a start-ups is the entrepreneur. Although not limited to
technology-based start-up, individual entrepreneurs are the key players in economic growth and seek
capitalist development in the process of seeking and creating diverse changes (Schumpeter, 1934).
In several studies, it has been found that a variety of characteristics such as managerial competence,
entrepreneurship, and leadership influence corporate performance (Roure and Maidique, 1986;
Sandberg and Hofer, 1987; Lee et al., 2001). This study focuses on demographic characteristics,
technological background and entrepreneurship among various characteristics of entrepreneurs.
First, demographic characteristics such as gender and age of the entrepreneur tend to be neglected in
empirical analysis studies, but they are very important in the practical aspects of policy. As a policy
direction for startup support projects, many opinions have been suggested that customized support
should be designed. In order to be able to provide customized support, it is essential to identify
discriminatory performance based on the most basic demographic characteristics. Nevertheless, there
is a lack of precedent studies focusing on the detailed demographic characteristics of managers in
prior research on technology-based start-ups. Park (2010) and Shin (2011) examined the gender and
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The Effect of Managerial Characterristics on the Performance of Technology-Baseed Start-UPS
age of managers, but did not verify the impact on performance. In the case of Song and Park (2013),
the results of the venture firms are not significant according to the gender of the representative, but
the age has a positive effect. Yun et al. (2018) confirmed that the gender and age of executives did
not significantly affect business performance. The gender and age of entrepreneurs are the most
basic demographic characteristics, and analysis is needed to find out the possibility of establishing a
differentiated support direction for each type of enterprise.
Second, the prior technical experience means the technical experience and knowledge of the
entrepreneur. Major indicators such as academic background (Shin, 2011; Song and Park, 2013;
Yun et al., 2018), major (Park, 2010), industry experience (Shin, 2011; Kwun and Jeong, 2012;
Yun et al., 2018; McGee and Dowling, 1994; Marino and de Noble, 1997), technical competence
and experience (Yang, 2011; Kim, 2015; McGee and Dowling, 1994; Kazanjian and Rao, 1999)
were analyzed. Among them, the academic achievement of managers is the most closely related to
knowledge level of technology and management. It can be regarded as an important performance
factor for technology-based start-ups who are highly dependent on entrepreneurs’ knowledge (Song
and Park, 2013; Roure and Keeley, 1990). In addition, it is important to identify how the entrepreneur
of a technology-based start-ups has a career prior to start-up, given that the technical career and
training of an entrepreneur have a significant impact on the organization’s problem recognition and
resolution.
Third, entrepreneurship has been analyzed by various researchers after Miller (1983) has
systematized, and generally positive effects on firm performance have been confirmed (Stuart and
Abetti, 1987; Covin and Slavin, 1989; Lee et al., 2001). Entrepreneurship consists of innovativeness,
risk-taking, and progressiveness. The influence of individual components is somewhat different
depending on researchers. Kim (2016) showed that the progressiveness had a positive effect on the
emotional commitment of the members. Park (2010) and Song (2010) analyzed that innovativeness
had positive effects on product competitiveness, financial performance, and technology development
performance. Park et al. (2017) analyzed that manager’s desire for achievement and risk-taking had
a positive effect on managerial performance. However, there is also an analysis that risk-taking may
be negative for financial performance (Song, 2010), and it is suggested that the effect on financial
performance is not significant (Shin, 2010). Based on the above discussion, the following hypotheses
were set about the effect of managerial characteristics on firm performance.
H1:The demographic characteristics of entrepreneurs will affect firm performance.
H2:The technological background of entrepreneurs will affect firm performance.
H3:The entrepreneurship of entrepreneurs will affect firm performance.
As the process of solving the problems faced by the organization (Greiner, 1972), it has been tried
to find out the different required competencies for each stage of the company and to systematically
develop them in relation to the organization life cycle theory (Kazanjian, 1988; Kazanjian and
Drazin, 1990; Yu, 2017). From this point of view, the following hypotheses have been set up in view
of the fact that the influence of managerial characteristics on firm performance depends on the stage
of firm growth.
H4: There will be differences in the effect of entrepreneurs’ demographic characteristics on
firm performance in the stages of growth.
H5: There will be a difference in the effect of entrepreneurial technical background on firm
performance in the stage of growth.
H6: There will be a difference in the effect of entrepreneurship on firm performance in the
stage of growth.
Factors influencing the firm performance by industry may also appear differently. The Small and
Medium Business Administration and the Business Development Agency categorize enterprises
with a business performance of 7 years or less that corresponds to the manufacturing and knowledge
IAMOT 2019 | 329

service industries as technology-based start-ups. However, in the case of technology-based start-ups,

manufacturing and knowledge service companies have different value chains in the development,
production, and delivery of products and services. Therefore, we hypothesized that the characteristics
of entrepreneurs of manufacturing companies and knowledge service firms will have different
effects on firm performance.
H7: There will be differences in the effect of entrepreneurs’ demographic characteristics on the
firm performance by industry.
H8: There will be differences in the effect of entrepreneurial technical background on the firm
performance by industry.
H9: There will be differences in the effect of entrepreneurship on the firm performance by
industry.
3. Research Method
3.1. Data
This study conducted surveys of technology-based start-ups and obtained data for empirical analysis.
The surveyed companies were limited to companies within 7 years belonging to the manufacturing
and knowledge service industries that are compatible with the technology start-ups defined by the
Small and Medium Business Administration. The detailed list was extracted from the corporate
yearbook produced by the Korea Contents Media (Korea Contents Media, 2016). A total of 441,528
companies in the database were extracted from 71 industries, and a total of 9,134 firms were selected
as surveyed companies. From September 26, 2016 to October 26, 2016, we conducted a survey using
the Internet, mobile, e-mail, etc. to collect a total of 251 responses, which was 2.7%. A total of 248
responses were used for the analysis.
3.2. Variables
3.2.1. Dependent Variables: Firm Performance

The dependent variable, firm performance, is designed to be divided into financial performance and
non-financial performance. The subjective effects are also taken into account in the fact that there
are limitations on the objective performance measurement methods of the start-ups (Cooper, 1971;
Robinson and Pearce, 1986) and it is accepted that the prior researches that the various performance
indicators should be considered in a comprehensive manner (Romanelli, 1989; Stearns et al., 1995;
Phillips, 1996; Helms et al., 1997).
Annual average sales are considered as the financial performance corresponding to the objective
effect (Shin, 2011; Doutriaux, 1991). In this study, we surveyed the financial status of the three-year
period from 2013 to 2015. In order to calculate an average sales amount of a company, at least one
year of sales information must exist. Therefore, 51 companies that did not have sales information for
3 years or did not generate sales were excluded from financial performance analysis.
Product competitiveness, organizational performance, customer performance, and goal achievement
corresponding to non-financial performance were measured using a 5-point Likert-type subjective
measurement method. Based on Zahra (1996) and Park (2010)’s reference to the product
competitiveness, we presented five questions about the status and performance of products and
services in the market. The organizational performance was structured so as to grasp the overall
stability and working environment of the organization through three questions about employment
stability, turnover rate, and employee satisfaction (Kohli and Jaworski, 1990). Customer performance
was measured by four questions regarding increase of customers, decrease of claims, increase of
satisfaction with reference to Park(2014), Kaplan and Norton(1996), Khirallah (2000). The goal
achievement level refers to the method of Kim (2015), who directly inquire how much achievement
of their own goals or visions, which are variously set for each company.
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3.2.2. Managerial Characteristics

The demographic characteristics of entrepreneurs were examined for gender and age of the
entrepreneur. The gender was dummy variable for 0 for female and 1 for male, and the age of the
entrepreneur was calculated by subtracting the year of birth from the survey year of 2016.
In this study, the education and career of the entrepreneur as a technical background were examined.
Education is a variable that indirectly gauges the basic level of knowledge of an entrepreneur in the
institutional education system. Dummy variables were used as 1 for graduate and above graduates
and 0 for under college graduates. The division based on the graduate school is based on the
assumption that the academic achievement of the entrepreneur can have a positive effect on the
firm performance. This is because the most discriminating standard can be regarded as a graduate
graduation in consideration of the situation in Korea where university graduation is expected. Prior
to the start-up, career was divided into professors, research institutes. If it belongs to professors,
research institutes, it is dummy variable by 1 or 0. 1 is to select entrepreneurs from professional
technical personnel. According to the Small and Medium Business Administration (2015), the
performance of start-ups from professional technical personnel is superior to those that are not.
Entrepreneurship was identified as an influential factor in performance in various studies. In previous
research, innovativeness, risk-taking, and progressiveness were generally regarded as details of
entrepreneurship. In this study, 8 items including innovativeness, risk-taking, and 3 progressiveness
were constructed as 5-point Likert scale.
3.2.3. Control Variable

The control variables were set as firm age, firm size, and industry. The age of firm is calculated by
deducting the start-up year from 2016. This is the period from the establishment of the company to
the time of the investigation. The size of the firm is defined as the number of employees in 2015. The
type of firm is a dummy variable that is divided into manufacturing and knowledge service industry,
1 for manufacturing and 0 for knowledge service industry.
Table 1: Operational Definition and Measurement of Variables
Division Variables Measurement Method Remarks
Doutriaux (1991), George

financial et al. (2001)
annual average sales
performance Park et al.(2017)
Yun et al.(2018)
non-financial performance: 5-point Likert scale
▪ market creation of products and services

▪ functional diversity of products and services
product ▪ market convergence of products and services Zahra (1996),
competitiveness ▪ industry competitiveness of products and Park (2010)
Services
firm ▪ innovation of products and services
performance
▪ employment stability
organizational
▪ turnover rate Kohli and Jaworski (1990)
Performance
▪ employee satisfaction
▪ decrease in claims
Kaplan and Norton (1992),
customer ▪ increase in re-purchase rate
Khirallah (2000),
performance ▪ increase of regular and new customers
Park (2014)
▪ increased customer satisfaction
goal
goal achievement of firm Kim(2015)
achievement
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Division Variables Measurement Method Remarks
Park (2010,
Shin(2011),
gender male: 1 / female: 0
Song et al.(2013),
Yun et al.(2018)
Park (2010,
Shin(2011),
CEO age age of entrepreneur Song et al.(2013),
Park et al.(2017),
Yun et al.(2018)
Shin(2011),
education of graduate and above graduates: 1 / under college Song et al.(2013),
entrepreneur graduates: 0 Park et al.(2017),
Yun et al.(2018)
managerial
career of Kim(2015),
characteristics professors, research institutes: 1 / Other: 0
entrepreneur Yun et al.(2018)
entrepreneurship: 5-point Likert scale
▪ creativity and innovation

▪ teamwork and capacity supplement Miller(1983),
innovativeness
▪ securing resources and driving force Covin and Slavin (1989),
▪ overall view Lee et al. (2001),
Park (2010),
risk-taking risk-taking Song(2010),
Shin(2011),
▪ ability to respond to the environment Kim(2016),
progressiveness ▪ systematic accessibility Park et al.(2017)
▪ resource aggregation ability
firm age 2016 - established year Kazanjian and Rao (1999)

control
firm size number of employees in 2015 Kazanjian and Rao (1999)
variable
industry manufacturing, knowledge service industry
Kazanjian (1988), Kazanjian
stages of establishment period, early growth period, high
moderator and Drazin (1990)
growth growth and maturity
variable Yu(2017)
industry manufacturing, knowledge service industry
3.2.4. Analytical Methods and Estimation Equations

The statistical package for empirical analysis was SPSS 20. The mean, standard deviation, correlation
coefficient, and other factors that can be used to obtain general characteristics of each variable
and subjects were calculated. Multiple regression analysis was conducted on factors affecting
firm performance. First, it analyses the whole technology-based start-ups. The growth stage was
divided into entrepreneurship, early growth phase and high growth phase. Finally, we analyzed the
manufacturing industry and knowledge service industry by firm type. The research hypothesis can
be expressed by the following equation.
4. Empirical Results
4.1. Basic Statistics

The basic statistics of variables are shown in Table 2 below. The average sale of the surveyed
companies was 274 million won. Among the non-financial performance, customer performance is
the highest, while the goal achievement is the lowest. The average age of entrepreneurs was 43.7
years old. Among the sub- factors of entrepreneurship, innovativeness (3.94) was the highest and
risk- taking (3.10) was lowest. The number of employees was 3.6 persons.
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Table 2: Basic Statistics

Average
Knowledge
Total Manufacturing(A) Comparison
Variable Service(B)
(n=248) (n=129) (A-B)
(n=119)
(t-value)
financial performance 274.35 357.20 165.19 192.01
(average sales, million won) (887.41) (1145.76) (285.58) (1.51)
3.22 3.32 3.11 0.21*
non-financial performance
(0.76) (0.74) (0.78) (2.17)
3.15 3.23 3.06 0.17
product competitiveness
dependent (0.91) (0.93) (0.88) (1.44)
variable 3.22 3.27 3.16 0.12
organizational Performance
(0.92) (0.90) (0.94) (1.00)
3.40 3.53 3.25 0.29*
customer performance
(0.94) (0.88) (0.97) (2.44)
3.11 3.24 2.97 0.27*
goal achievement
(1.00) (0.97) (1.01) (2.11)
43.70 45.32 41.95 3.37**
CEO age
(10.03) (9.99) (9.81) (2.68)
3.56 3.61 3.49 0.12
entrepreneurship
(0.61) (0.59) (0.62) (1.53)
managerial 3.94 3.98 3.90 0.08
innovativeness
characteristics (0.62) (0.61) (0.64) (1.02)
3.10 3.16 3.04 0.11
risk-taking
(0.93) (0.93) (0.93) (0.95)
3.62 3.70 3.54 0.16
progressiveness
(0.73) (0.70) (0.75) (1.73)
4.01 4.17 3.84 0.33
firm age
control (1.70) (1.64) (1.77) (1.53)
variable firm size (number of 3.60 3.29 3.93 -0.64
employees) (10.25) (4.76) (13.96) (-0.49)
4.2. Reliability of Measurement Tools

In order to confirm the reliability of the measuring instrument, the Cronbach’s alpha was derived as
shown in Table 3. As a result, Cronbach’s alpha was found at 0.80 ~ 0.95 level.
Table 3: Reliability of Measurement Tools
Division Variables Item Reliability(α)
▪ market creation of products and services

▪ functional diversity of products and services
product competitiveness ▪ market convergence of products and services 0.90
▪ industry competitiveness of products and services
▪ innovation of products and services
▪ employment stability
non-financial organizational Performance ▪ turnover rate 0.86
▪ employee satisfaction 0.92
performance
▪ decrease in claims
▪ increase in re-purchase rate
customer performance 0.95
▪ increase of regular and new customers
▪ Increased customer satisfaction
goal achievement goal achievement of firm -
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Division Variables Item Reliability(α)
▪ creativity and innovation

▪ teamwork and capacity supplement
innovativeness 0.81
▪ securing resources and driving force
▪ overall view
entrepreneurship 0.87
risk-taking risk-taking -
▪ ability to respond to the environment
progressiveness ▪ systematic accessibility 0.80
▪ resource aggregation ability
4.3. Correlation of Variables

The correlation of variables is shown in Table 4. The financial performance (average sales) were
significantly correlated with all variables except product competitiveness, CEO age, and risk-
taking. There is a significant correlation between non-financial performance such as product
competitiveness, organizational performance, customer performance, and goal achievement. In
addition, entrepreneurship and technological competitiveness showed a significant correlation with
other subjective variables.
Table 4: Correlation of Key Variables
Division ① ② ③ ④ ⑤ ⑥ ⑦ ⑧ ⑨ ⑩ ⑪
① average sales 1.00
② product 0.11 1.00

competitiveness
③ organizational 0.31 0.43 1.00
Performance *** ***
④ customer 0.29 0.42 0.69 1.00
performance *** *** ***
⑤ goal 0.19 0.45 0.55 0.70 1.00
achievement *** *** *** ***
⑥ CEO age -0.02 0.03 0.01 -0.15 -0.19 1.00
** ***
⑦ innovativeness 0.20 0.52 0.52 0.51*** 0.51 0.04 1.00
*** *** *** ***
⑧ risk-taking 0.02 0.33 0.22 0.23*** 0.24 -0.09 0.30 1.00
*** *** *** ***
⑨ progressiveness 0.24 0.52 0.52 0.55 0.55 -0.03 0.77 0.37 1.00
*** *** *** *** *** *** ***
⑩ firm age 0.25 -0.10 0.01 -0.07 -0.07 0.26 -0.10 -0.11 -0.10 1.00
*** *** *
⑪ firm size 0.56 0.20 0.19 0.18 0.21 0.05 0.18 0.17 0.22 0.02 1.00
*** *** *** *** *** *** *** *** ***
※ *p < .10; **p < .05; ***p < .01
4.4. Hypothesis Testing: Factors Affecting Firm Performance

This study conducted a regression analysis to identify factors affecting firm performance. We
analyzed the factors affecting the company performance such as financial performance and non-
financial performance
First, managerial characteristics do not affect sales as financial performance. Second, the
innovativeness, risk-taking, and progressiveness of the entrepreneur were all significant factors
IAMOT 2019 | 334

influencing product competitiveness. This implies that entrepreneurs must take an aggressive
attitude to take risks based on innovative thinking and actions. In addition, this entrepreneur’s effort
leads to accumulation of intellectual property and technical competitiveness, which means that
product competitiveness is formed in the market. Third, the positive factors affecting organizational
performance are entrepreneurs’ innovativeness and progressiveness. Fourth, variables that have
a significant effect on customer performance are age, innovativeness, and progressiveness of
entrepreneurs. Among them, the age of entrepreneurs showed the only negative effect. These
results indicate that the higher the age of entrepreneurs, the more likely it is that they will not
meet their needs. This means that tailored training on market and customer trends is needed for
senior entrepreneurs. Fifth, variables that have a significant effect on goal achievement are age,
innovativeness and progressiveness of entrepreneur. The age of entrepreneurs was identified as a
negative factor in achieving entrepreneurial goals.
In general, entrepreneurial factors in non-financial performance are shown to have a positive effect.
On the other hand, the age of entrepreneurs had a negative impact on customer performance and
goal achievement.
Table 5: Factors Affecting Firm Performance by Entrepreneurs’ Characteristics
Non-financial Performance
Model-1
Variables
Model-2
Model-3 Model-4 Model-5 Model-6
-0.021 -0.080 -0.198 -0.072 -0.049 -0.002

Gender
(-0.075) (-0.772) (-1.402) (-0.490) (-0.337) (-0.015)
-0.010 -0.007* 0.005 -0.001 -0.013** -0.020***
CEO age
(-1.005) (-1.895) (1.052) (-0.197) (-2.474) (-3.564)
-0.053 -0.001 -0.051 0.018 -0.031 0.058
education
(-0.574) (-0.034) (-1.032) (0.363) (-0.608) (1.091)
managerial -0.393 -0.002 0.190 -0.024 -0.095 -0.079
career
characteristics (-1.529) (-0.23) (1.395) (-0.173) (-0.677) (-0.537)
0.345 0.383*** 0.378*** 0.441*** 0.348*** 0.365***
innovativeness
(1.453) (4.292) (3.123) (3.511) (2.778) (2.774)
-0.129 0.045 0.138** 0.025 0.004 0.013
risk-taking
(-1.180) (1.102) (2.485) (0.436) (0.071) (0.221)
0.089 0.394*** 0.295*** 0.339*** 0.461*** 0.482***
progressiveness
(0.421) (5.012) (2.767) (3.065) (4.167) (4.157)
0.218*** 0.012 -0.029 0.038 0.018 0.021
firm age
(3.641) (0.551) (-0.992) (1.245) (0.579) (0.667)
0.164*** 0.005 0.006 0.006 0.003 0.007
firm size
(7.352) (1.467) (1.153) (1.141) (0.625) (1.235)
0.418** 0.125* 0.230** 0.122 0.102 0.047
industry
(2.112) (1.726) (2.332) (1.196) (1.001) (0.442)
1.685* 0.273 -0.028 -0.138 0.852* 0.405
constant
(1.953) (0.885) (-0.068) (-0.319) (1.969) (0.892)
Adj. R² 0.374 0.482 0.330 0.297 0.322 0.342
F 12.727*** 24.004*** 13.144*** 11.456*** 12.732*** 13.859***
Number of firms 197 248 248 248 248 248
※ Model-1: Financial performance

Model-2: Non-financial performance –Total
Model-3: Non-financial performance –Product competitiveness
Model-4: Non-financial performance –Organizational Performance
Model-5: Non-financial performance –Customer performance
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Model-6: Non-financial performance –Goal Achievement

※ *p < .10; **p < .05; ***p < .01
※ ( ) : t value
4.5. Hypothesis Testing: Factors Affecting Firm Performance by Growth Stages

We attempted to analyze whether it affects firm performance by growth stage. To this end, the
growth stages of technology-based start-ups were reclassified into three types: establishment period,
early growth period, high growth and maturity.
It can be seen that entrepreneurship has different effects on firm performance by stages of growth. We
examined the factors affecting financial performance (sales) by growth stage. In the establishment
period, progressiveness has a positive effect on financial performance (sales). Innovativeness has a
positive effect on financial performance (sales) in early growth period. On the other hand, the age of
entrepreneurs had a negative effect on financial performance.
Next, we examined the factors affecting non-financial performance by growth stage. In the
establishment period and the high growth period, progressiveness has a positive effect on non-
financial performance. In early growth period, innovativeness, risk-taking, and progressiveness all
showed positive effects. It is analyzed that the characteristics of the entrepreneurs who are willing to
take risks based on the experience of the start-up process are reflected.
Table 6: Factors Influencing Firm Performance by Growth Stage
Financial performance Non-financial performance

Variables
Model-7
Model-8 Model-9 Model-10 Model-11 Model-12
0.517 -0.289 0.157 0.020 -0.075 -0.122

gender
(0.684) (-0.695) (0.329) (0.079) (-0.612) (-0.548)
-0.062* -0.003 -0.011 -0.028** -0.002 -0.005
CEO age
(-1.843) (-0.202) (-0.590) (-2.353) (-0.401) (-0.422)
0.285 -0.048 0.034 0.086 0.022 0.014
education
(0.926) (-0.401) (0.159) (0.874) (0.585) (0.130)
managerial -0.883 -0.330 -0.712 -0.576* 0.071 0.106
career
characteristics (-1.009) (-1.008) (-1.454) (-1.944) (0.712) (0.418)
-0.573 0.551* 0.208 0.274 0.462*** 0.276
innovativeness
(0.968) (1.732) (0.411) (1.423) (4.808) (1.035)
-0.159 -0.153 -0.063 -0.058 0.081** 0.016
risk-taking
(-0.562) (-1.072) (-0.277) (-0.559) (1.935) (0.137)
1.099** -0.231 0.324 0.503*** 0.254*** 0.664***
progressiveness
(1.945) (-0.857) (0.708) (2.790) (2.983) (2.766)
0.055 0.242*** -0.012 -0.097* 0.011 0.074

firm age
(0.332) (2.826) (-0.093) (-1.834) (0.423) (1.165)
0.139 0.174*** 0.119** 0.015 0.004 0.005

firm size
(0.970) (6.509) (2.683) (0.295) (0.516) (1.116)
0.534 0.189 1.050** 0.321 0.061 0.010
industry
(0.922) (0.744) (2.622) (1.601) (0.777) (0.052)
2.503 2.285*** 1.469 1.014 0.239 -0.523
constant
(1.136) (1.946) (0.859) (1.342) (0.701) (-0.645)
Adj. R² 0.058 0.344 0.504 0.400 0.493 0.594
F 1.191 7.386*** 5.163*** 4.526*** 14.520*** 8.746***
Number of firms 32 123 42 54 140 54

※ Model-7: Financial performance -Establishment period
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Model-8: Financial performance -Early growth period

Model-9: Financial performance -High growth and maturity
Model-10: Non-financial performance -Establishment period
Model-11: Non-financial performance -Early growth period
Model-12: Non-financial performance -High growth and maturity
※ *p < .10; **p < .05; ***p < .01
※ ( ) : t value
4.6. Comparison by Industry

Table 7 shows that there is a difference in the factors affecting company performance by industry.
First, we examined the model of financial performance by firm type. In the manufacturing industry,
the risk-taking of entrepreneurs has a negative effect on sales. There is no characteristic of the
entrepreneur who influences the sales of the knowledge service industry.
Next, we examined the model of non-financial performance by industry. In both manufacturing and
service industries, it has been confirmed that entrepreneur innovativeness and progressiveness have
positive effects on non-financial performance.
Table 7: Factors Affecting Firm Performance (by Industry)
Financial Performance Non-Financial Performance

Variables
Model-13
Model-14 Model-15 Model-16
-0.121 0.041 0.037 -0.136

Gender
(-0.361) (0.082) (0.265) (-0.849)
0.004 -0.018 -0.007 -0.007
CEO age
(0.291) (-1.227) (-1.297) (-1.269)
-0.085 0.004 0.024 -0.015
education
(-0.823) (0.025) (0.560) (-0.239)
-0.278 -0.549 -0.087 0.085
managerial characteristics career
(-0.949) (-1.178) (-0.733) (0.489)
0.128 0.438 0.409*** 0.346**
innovativeness
(0.420) (1.172) (3.388) (2.547)
-0.294** 0.042 0.019 0.065
risk-taking
(-2.280) (0.223) (0.371) (0.962)
-0.077 0.211 0.334*** 0.429***
progressiveness
(-0.311) (0.574) (3.414) (3.262)
0.283*** 0.125 -0.011 0.022

firm age
(3.958) (1.219) (-0.395) (0.619)
0.172*** 0.233** 0.005 0.065

firm size
(8.318) (2.368) (1.615) (1.656)
3.757*** 1.181 0.605 0.319
constant
(3.577) (0.869) (1.527) (0.652)
Adj. R² 0.467 0.159 0.487 0.452
F 11.918*** 2.746*** 14.802*** 11.531***
Number of firms 113 84 132 116
※ Model-13: Financial performance -Manufacturing industries

Model-14: Financial performance -Service industries
Model-15: Non-financial performance -Manufacturing industries
Model-16: Non-financial performance -Service industries
※ *p < .10; **p < .05; ***p < .01
※ ( ) : t value
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5. Conclusion
This study analyzed the effects of managerial characteristics of technology-based start-up firms on
firm performance such as annual average sales, product competitiveness, organizational performance,
customer performance, and goal achievement. In addition, we examined whether different effects
occur depending on the stage of growth and industry. The results of this analysis suggested the
following policy implications for each factor.
First, among the demographic characteristics of entrepreneurs, gender did not affect firm
performance. However, as the age of the entrepreneur increases, the tendency of the firms to decrease
the performance of the firms has appeared, especially in the establishment period. This phenomenon
suggests the need for a specialized education system for senior entrepreneurs in the start-up process.
Second, the technical background of the entrepreneur did not affect the performance of the start-up
firms. Growth stage and industry did not have a distinct effect on firm performance. This suggests that
it is necessary to seek policy support from other aspects than policy support based on entrepreneurs’
academic background and experience.
Third, entrepreneurship of entrepreneurs does not affect financial performance, but innovativeness
and progressiveness have positive effects on non-financial performance among the sub-factors of
entrepreneurship. Risk-taking has a limited impact on product competitiveness and non-financial
performance of early growth period, and it has a low correlation with firm performance. This implies
that there is a need to more consistently promote policy directions such as the diversification of
recovery methods and the provision of rehabilitation opportunities for sincerity failures in connection
with the government’s proliferation of entrepreneurship and revitalization of rehabilitation. In
addition, it suggests that there is a need to strengthen efforts to improve regulations so that there is
no entrepreneur who cannot start business because of fear of failure.
Fourth, a differentiated support system for entrepreneurs should be established for each stage of
growth. Entrepreneurial progressiveness had a positive effect on the financial and non-financial
performance of the firms during the period of the establishment and the high growth period.
Entrepreneurial innovativeness has a positive effect on the financial and non-financial performance of
firms in the early growth period, and the risk-taking positively affects the non-financial performance
of the early growth firms. It is important to support the linkage at each stage of growth, but it is
difficult to simply go to the next step. In order for the linkage support to be effective, it is necessary
to provide a detailed support system for what kind of support the company has in the previous stage
and which characteristics the company has.
Fifth, by comparing the factors affecting firm performance by industry, it is shown that the risk-
taking of entrepreneurs in manufacturing affects the firm performance (sales) negatively. This
implies that the risk of entrepreneurs who prefer investment plans with high profitability may be
detrimental to the sales growth of the manufacturing industry, which is why it is necessary for the
entrepreneur to make detailed investment decisions.
6. Acknowledgements
This paper is based on the results of “A Study on the Factors Affecting the Performance of the
Technology-based Start-ups (KISTEP Research Report 2017-009)”, some of the contents were
quoted, revised, or supplemented. The contents of this paper are opinions of the authors and do not
relate to the official views of the Korea Institute of Science and Technology Evaluation and Planning
(KISTEP).
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IAMOT 2019 | 340

A Policy Design Framework for Digital
Transformation: University-based Innovation
and Entrepreneurship Ecosystems Revisited
Ni̇han Yildirim
Istanbul Technical University/ Management,
Engineering Department, Turkey
E-mail: yildirimni@itu.edu.tr
Deni̇z Tunçalp
Istanbul Technical University/ Management Engineering,
Department & ITU Teknokent, Turkey
E-mail: tuncalp@itu.edu.tr
Abstract
The digital economy requires strong interaction among its constituents and a co-creation climate so that the
expected socio-economic values are acquired. Within this general framework, there is a need for understanding
the dimensions of digital transformation which can affect or even disrupt, or be driven by from technological
entrepreneurship ecosystems. In the digital transformation era, especially university-based innovation and
entrepreneurship ecosystems are expected to play an essential role in building linkages between researchers,
technology start-ups, idea/ prototype developers and industrial enterprises.
In this context, our study aims to explore the possible roles of science and technology universities for the adaptation
and development of Industry 4.0 technologies for manufacturing industry through their participation in innovation
ecosystems. We also analysed the linkages between these roles and the challenges of adapting Industry 4.0
technologies. After a content analysis in previous literature, in-depth interviews were conducted with 15 experts
from (4 Managers from UIEEs, ten industrial experts working on digital transformation in the manufacturing
industry, two management consultants and three academicians). AHP (Analytical Hierarchical Process) multicriteria
decision-making method and needs analysis by quality function deployment techniques are utilized to combine
pillars of digital transformation pillars (that include (1) challenges and (2) Industry 4.0 tools and technologies
that are applicable to manufacturing industry) with the key roles of Science and Technology Universities which
contributes to technological innovation and entrepreneurship ecosystems. Additionally, with experts we discussed
the potential challenges of Universities for effectively performing their roles in innovation ecosystems for adapting
Industry 4.0 technologies and digital transformation. Finally we proposed a technology policy design framework
that can provide appropriate policy options on embedding university-based innovation and entrepreneurship
ecosystems (UIEE) in digital transformation roadmap for the manufacturing industry in Turkey as a case study for
developing countries to promote sustainable innovation in critical industries.
Keywords: Industry 4.0, Digital Transformation, University-based Entrepreneurship Ecosystems, Triple Helix,
University-industry Collaboration, Digital Convergence, Innovation Networks
1. Introduction
In era of digital disruption that is fuelled by digitalization or by succession of advances in different
domains of the digital infrastructure (Autio, 2017), digital economy is forcing all existing value
chains and ecosystems to converge their processes, structures, business models and cultures for
taking advantage of the technological change in competitiveness and apply effective technology
transfer activities for this. Here, digitalisation can be referred to as “the sociotechnical process
of applying digitising techniques to broader social and institutional contexts that render digital
technologies infrastructural”1 (Tilson, Lyytinen & Sørensen, 2010). A valuable research topic is
exploring the dimensions of digital transformation which can affect or even disrupt, or be driven by
from technological entrepreneurship ecosystems. University-based innovation and entrepreneurship
ecosystems can contribute in building linkages between researchers, technology start-ups,
idea/ prototype developers and industry.
IAMOT 2019 | 341

In this study we explore the roles of science and technology universities for transformation
of manufacturing industry by utilizing Industry 4.0 technologies. For this aim, we analysed the
linkages between these roles and the challenges of adapting Industry 4.0 technologies. After a
content analysis in previous literature, data was collected from in-depth interviews with 15 experts
from industry, universities and innovation ecosystem institutions. To rank and compare the Industry
4.0 technologies in terms of their challenges, the possible roles of universities in their adaptation,
AHP (Analytical Hierarchical Process) multicriteria decision-making method and needs analysis
by quality function deployment techniques are applied. Also potential challenges of Universities
are discussed in for their roles in innovation ecosystems for adapting Industry 4.0 technologies
and digital transformation. Finally some concerns about the challenges of universities in effectively
participating in innovation ecosystems are outlined for the policy design framework in digital
transformation roadmap for the manufacturing industry in Turkey as a case study for developing
countries to promote sustainable innovation in critical industries.
2. Literature
When designing policies and enabling systems in technological transformation of developing
countries, some basic constructs should be discussed. These constructs can be listed as the
“content and definitions of the technologies to be adopted”, “the economic and technological
conditions of the adopter countries”, “challenges in the adoption of the technologies in the regional
settings”, “existing options for overcoming the challenges including the triple/ quadruple helix
innovation systems”. Within this mindset, following sections present the literature and theoretical
background on these topics.
2.1. Digital Transformation Tools and Technologies

The fourth industiral revolution will exert a significant impact on all industries around the world at
a rapid speed, bringing about wide, comprehensive and systematic transformations (WEF, 2015).
As Autio and Thomas (2016) underlined, the power of digital disruption derives from the ability of
digital technologies and infrastructures to shape how individuals, businesses and other economic
and societal constituents interact. This digitisation makes digital technologies and infrastructures
generic purpose technologies: they can be applied in any sector, which explains the wide reach of the
current era of digital disruption. Nine fundamental technological advances in the digitization process
(big data and analytics, autonomous robots, simulation, horizontal and vertical system integration,
the industrial internet of things, cyber security, cloud, additive manufacturing and augmented reality)
are listed as the building blocks of Industry 4.0 by Rüssman et al. (2015) from BCG and this list was
also utilized by TUSIAD (2016) in digital transformation roadmap report for Turkey:
2.1.1. Big Data and Analytics

Analysis methods based on large data groups that are being used in production can increase the
quality of production, save energy and facilitate equipment maintenance. In Industry 4.0, collection
and comprehensive evaluation of data from many different sources, such as production systems as
well as institutional-and customer-based management systems support real-time decision making.
2.1.2. Autonomous Robots

Manufacturers in various sectors have been benefiting from robots for a long time in their operations.
In the world, robot technology is now becoming more flexible, autonomous and collaborative through
improving its competencies. It can be argued that, in the near future, robots will interact with each
other, work with people and provide a safer working environment and increase their learning ability.
2.1.3. Simulation
Currently, 3D simulation of products, materials and production processes is being utilized at the
design stage, but future simulations will become even more widespread in factory operations.
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A Policy Design Framework for Digital Transformation: University-based Innovation
Thanks to these virtual models, which are prepared using real-time data, the virtual reality of the
physical world will be created together with machines, products and people. Operators will test
machine parameters for the following product in the production line in the virtual world before
actually setting the machine parameters and thus, the machine setup time will be shorten and quality
will be increased.
2.1.4. Horizontal and Vertical System Integration

Most of today’s IT systems are not fully integrated. Companies, suppliers and customers are rarely
connected to each other (Türkmen, 2018). The same applies to engineering design, production and
service functions. However, if universal data integration networks develop, companies, units and
competencies will become more compatible with each other.
2.1.5. The Industrial Internet of Things

Today, some of the sensors and machines benefit from integrated and network-connected data
processing. They are organized in a vertical automation pyramid where sensors and field devices
with limited artificial intelligence and automation control mechanism are connected to an
overarching production control system. However, internet of things will provide devices and even
semi-products with opportunity of benefiting from integrated data processing. In this way, field
devices can communicate with each other and with central control systems as necessary. Also, IoT
will decentralize analytics and decision making, enabling real-time responses.
2.1.6. Cyber Security

Many companies still use unconnected management and production systems. However, in order
to protect critical industrial systems and production lines against cyber security threats, the
identification of machines and secure communication for managing access to machines will gain
importance owing to increased connectivity.
2.1.7. Cloud
Companies are already using cloud-based software for some institutional and analytical applications.
However, in the near future, more data regarding products will need to be shared between the
companies. At the same time, due to the increased performance of cloud technologies, the reaction
time will be reduced to just several milliseconds. As a result of this, the data and functions of the
machines involved in the cloud platforms will increase and more services based on the data will be
provided to the production systems.
2.1.8. Additive Manufacturing

Companies have recently begun to adopt additive manufacturing techniques, such as three-dimensional
printing in order to create prototypes and produce parts. With Industry 4.0, this method will be used
widely, especially in areas such as complex and lightweight designs, in order to produce small batches
of customized products. As a result, high performance and decentralized additive manufacturing
systems will reduce logistics costs and stock levels.
2.1.9. Augmented Reality

Systems that use augmented reality support for various services such as selecting parts in a warehouse
or sending repair instructions to mobile devices etc. Although these systems are still in their infancy,
companies will benefit more from the augmented reality in the future in order to improve their
operational processes and deliver real-time information to their employees.
From an industrial policy perspective, these intelligent automation and networking systems will
provide advantages such as broad collaborations, scale economy, new market and sales opportunities
(Dregger et al., 2016). In addition, they are also very important to ensure comprehensive
macroeconomic stability (Dregger et al., 2016). For this reason, digitization has a profound impact
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as a leading expression of progress and prosperity in many national policy programs and business
strategies (Zuboff, 2015, Dregger et al., 2016).
McKinsey (2015) also presented “digital drivers’ compass” which categorized the technologies by
their impact on “Time to market, Service/ aftersales, Resource/ process, Asset/ utilization, Labor,
Interventories and Quality” dimensions. Deloitte (2015) ranked the advanced manufacturing
technologies and addresses the opportunities and the challenges of digital transformation for the
US case in their study as shown in Figure 1. representing key manufacturing technologies and
the descriptions.
Figure 1: 10 Most Promising Advanced Technologies Transforming the Manufacturing Industry (Deloitte, 2015)
The technologies that act as Tools of Industry 4.0 were categorized by Erbay and Yildirim (2018) as
pillars of analysis in technology selection (Table 1).
Table 1: Industry 4.0 Technologies as Pillars of Technology Selection Analysis (Erbay and Yildirim, 2018).
Tools Description
RFID Radio Frequency Identification: Real time inventory, production level, transparent value chain
Smart Sensor Devices converting physical inputs such as movement, pressure, flow rate, color, light, humidity,
(Data Collection) magnetism, noise into digital outputs.
Robotization Machines using for repetitive, precise and dangerous tasks, collaborates with human.
Production
Computerized systems used in manufacturing, to track and document the transformation of raw
Management
materials to finished goods. Monitoring all production data real time, getting the instant and last minute
Software (MES,
data from machinery, labor and the other entities from the manufacturing environment.
APC, ERP)
Process of examining data sets to extract meaningful information using specialized mathematical
Data Analytics
models.
3D Printing The creation of a 3D printed object is achieved using additive processes without using special fixtures.
VR, AR, Remote Use of computer technology to create a simulated environment, integration of digital information with
Control the user’s environment in real time.
Method converting images and videos into digital outputs using algorithms (pattern recognition
Image Processing
quality control)
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2.2. Challenges of Digital Transformation for Industry

As Autio and Thomas (2016) Digital technologies are, in essence, interaction technologies: they can
be harnessed to enhance, extend and enrich interactions among economic and societal constituents.
Challenges are the potential barriers to be faced in the I4.0 projects. It covers both internal and
external factors of an organization (Frost & Sullivan, 2015). Oesterreich and Teuteberg (2016)
(as quoted from Erbay and Yildirim (2018)) explore the state of the art as well as the state of practice
of Industry 4.0 relating technologies by pointing out the PESTEL (political, economic, social,
technological, environmental and legal) implications of its adoption illustrated in Table 2.
Table 2. Challenges of Industry 4.0 Technologies in PESTEL Framework (Oesterreich and Teuteberg, 2016)
Challenges
Hesitation to adopt: Resistance against the transformation within an organization Political
High implementation cost: High cost of technology, training and skilled workforce Economic
Organizational and process changes: Redesign of the current business models Economical
Need for enhanced skills: Need for competent employees Social
Knowledge management: Difficulty against large volume of data along with the entire value chain Social
Acceptance: Conservatism and inability to adapt by staff members of its companies Social
Lack of standards and reference architectures: Need for complete and international standard, Technological
software incompatibility
Data security and data protection: The concern for large amount company data against unauthorized access Technological
Enhancement of existing communication networks: Requirement for a fast and reliable internet access, Technological
broadband connectivity.
Regulatory compliance: Ethical and legal concerns about the tracking and monitoring of employees. Legal
Also Semolic (2018) listed some traditional problems that act as challenges to Industry 4.0
technologies adoption like “Lack of adequate technology literacy”, “Lack of holistic and
multidisciplinary approaches to the strategic transformation and change”, “Lack of understanding
on needed and involved professional disciplines (limited communication and understanding
between different professional communities; different terminologies and different subcultures”,
“Lack of collaboration culture between the value chain’s internal and external stakeholders” “Poor
transformational leadership, management, coordination and governance”. These challenges are also
aligned with the findings of Oesterreich and Teuteberg (2016).
Adapted from Oesterreich and Teuteberg (2016), Deloitte (2015) and Mc Kinsey (2016), these
challenges were discussed by Erbay and Yildirim (2018) for automotive supplier industry in Turkey
(Table 3):
Table 3.: List of Industry 4.0 Challenges and Corresponding Descriptions
Challenges Description
Data Security Concerns Abuses by unauthorized accesses on confidential data, know-how. Cyber attacks
Lack of Budget Financing issues of high cost equipment investments, training and consultancy
Lack of Top Mng. Involve Lack of top management support
Lack of expert know-how Lack of expertise persons in terms of I4.0 technologies
Poor Cost-Benefit (ROI) Ratio Unclear and poor ROI calculations
Lack of world-wide approved standards for interoperability and end-to-end seamless
Unclear Standards
communication
Government Support & Promotion Lack of tax and custom exemptions, funding pilot projects
Resistance to Change Organizational challenges in adopting changes (worry to lose their jobs)
High dependency risks on the I4.0
Concerns on high dependency I4.0 providers and losing control over the system
tech. Providers
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In this study, by collecting data by Delphi Survey and in-depth interviews with experts and by
using Analytical Hierarchy Process and Quality Function Deployment methods, authors of this study
concluded that the highest challenge is the lack of expert know-how. Overall scores of Challenges of
Industry 4.0 adoption with respect to the technologies are presented in Figure 2. Findings reveal that
Lack of Expert and Know-how, Lack of Budget, Unclear standards and resistance to change stand
as the major challenges.
Figure 2: Overall Scores of the Challenges with Respect to the Tools on QFD Matrix (Erbay and Yıldırım, 2018)
2.3. Digital Transformation in Turkey

KPMG (2016) in its report on future business models states that to catch up with developed countries
such as Germany, US, Finland and UK that have already started their journey, emerging economies
like Turkey have to observe and learn quickly to get on track if they want to remain competitive
and become high value added products suppliers. The recent (2016) TÜBİTAK’s study made with
1,000 companies that applied for R&D support showed that the maturity in Turkey is more between
Industry 2.0 and 3.0. The lack of investment in R&D in Turkey is one of the reasons why Turkey is
still late on Industry 4.0.
It’s an important question to consider that 99% of more than 1.7 million Turkish companies are
SME’s and that big companies source intermediate goods and don’t always internalize all the
production. In a way, the success of big companies is based on SMEs adaptation to Industry 4.0 as
well. However, SMEs aren’t yet so enthusiastic about dematerialization that comes with all these
new technologies. (KPMG, 2016).
In report prepared by Tusiad and BCG (2016) for digitalization transformation of Turkey it is
stated that Turkey has competitively positioned itself along the global value chain by leveraging its
geographical location for logistics advantages and providing low at-value labor costs for flexible and
cost-efficient production. However, in the pursuit to maintain and grow its participation in the global
value chain, Turkey faces some structural challenges. (Tusiad and BCG, 2016).
New manufacturing methods have the potential to allow Turkey to preempt the above-mentioned
global competitive threats and replace the vicious low value-add production cycle with a virtuous
high value-add cycle. Industries with a high level of product variants, such as automotive and
food and beverage industries, will benefit from a greater degree of flexibility that can generate
productivity gains. Industries that demand a strict focus on quality, such as semiconductors and
pharmaceuticals, will benefit from data-analytics-driven improvements that reduce error rates.
Countries with high-cost skilled labor will be able to capitalize on the higher degree of automation
combined with increased demand for more highly skilled labor (Tusiad and BCG, 2017).
Five main findings emerged from the research results of TUSIAD and BCG (2016) on the digital
transformation challenges of Turkish manufacturing companies are listed as follows:
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●● While the vast majority of companies indicate a high level of information and interest in
Digital Transformation in the industry, the percentage of companies that think that their
company is ready for transformation is relatively low.
●● According to the results of the research, companies in Turkey are still at the level of pilot
projects in terms of digital transformation
●● It is seen that the competencies of companies in Strategy and Roadmap and Governance
are low.
●● It is observed that the competence levels of the companies do not differ according to the
sectors. On the other hand, large companies (companies with annual revenues of more
than 250 million Turkish lira) have higher digital transformation competence levels
(50/100) than smaller companies (33/100)
●● Companies state that the biggest challenges against digital transformation are the high
investment costs and the uncertainty of return on investment
●● Unlike the developed countries, companies in Turkey are still in pre-investment and
planning period in terms of the obstacles encountered in the digital transformation
journey
●● Technology companies indicate that there is no domestic suppliers, while technology
suppliers indicate that demand is a major problem for companies, indicating that
technology is a disconnect between supply and demand Companies should set the digital
transformation strategy before the investment decisions. Spending limited resources on
investments without strategy contains the risk of wasting resources. For this reason, it is
critical for Turkey to move in accordance with an inclusive road map consisting of three
steps in order to be permanent in this race:
As can clearly be seen from these findings, Turkey and similar developing countries are in need of
building collaborative ecosystems of innovation and technology transfer to overcome the challenges
that are especially related to high investment needs, know-how/expertise gaps and lack of technology
value chains.
2.4. Triple and Quadruple Innovation Systems and Role

of Universities in these Frameworks
In era of digital disruption that is fuelled by digitalization or by succession of advances in different
domains of the digital infrastructure (Autio, 2017), digital economy is forcing all existing value
chains and ecosystems to converge their processes, structures, business models and cultures for
taking advantage of the technological change in competitiveness and apply effective technology
transfer activities for this. Here, digitalisation can be referred to as“the sociotechnical process
of applying digitising techniques to broader social and institutional contexts that render digital
technologies infrastructural” (Tilson, Lyytinen & Sørensen, 2010). Due to the ever-changing
economic environment, countries around the world have been adjusting development strategies to
bring about revitalization for their manufacturing (Chung Lin, et al., 2017) .The complexity and
complementarity of new technologies require new forms of collaboration within a broad set of
actors in a specific local ecosystem, in order to generate innovation in a specific industrial sector
(Bedford et al., 2018).
Legitimacy of innovation and entrepreneurship rest upon the general notion of entrepreneurs and
innovators as having a crucial role in society in putting all their energies into innovative actions that
will lead to prosperity and growth (Lindberg et al., 2012; Sorensen, 2008; Ogbor, 2000) Governments
and societal discourses support the notion of innovative entrepreneurs (Perren and Jennings, 2005).
To enable the effectiveness of the supporting mechanisms to innovation and technological advancement,
the concepts of innovation ecosystems came into the scene as a remedy for overcoming resource
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constraints and conflicts between actors of innovation. Debackere et al. (2014) defined innovation
eco-system as a” “complex set of relationships among the actors or entities whose functional goal is to
enable technology development and innovation” which includes higher education institutions, public
research organisations, firms, finance sector, public funding agencies, policy-makers and citizens
as its elements. As widely discussed and referred in literature, in 1980’s, as a response to national
innovation systems concept, triple Helix innovation systems that include collaboration and cooperation
of university-industry and government were introduced to sustain notions of entrepreneurship and
innovation to bridge the gaps between actors (Etzkowitz, 1995). In the recent debate, an extension of
the Triple Helix model into a Quadruple Helix model—including civil society besides the industry,
state and academy—has been proposed to overcome the problem of marginalisation in innovation
policies (Carayannis and Campbell, 2009; 2010; Lindberg et al., 2012).
While triple helix innovation model focuses on university-industry-government collaboration
and interaction for promoting innovative technological advancement and entrepreneurship
(Etzkowitz and Leydesdorff, 1995), in the Quadruple Helix model includes NGO’s and civil
society as the fourth actor in the ecosystems (Carayannis and Campbell, 2009). Etzkowitz et al.
(2000) stated that universities act as the engine of social, cultural and economic development
through their knowledge generation and technology transfer activities and by integrating their
process of knowledge creation with its application in industry. In the era of digital transformation,
there is a need for new approaches to transfer of knowledge and technology from universities
to business and industry and to develop a new generation of entrepreneurial innovation leaders
(Bedford et al., 2018). On the other hand, Pertuze et al. (2010) argued that, university-industry
collaborations may produce outcomes like technical/ working papers, process proposals, software
products etc, how ever they generally fail to contribute to productivity or competitiveness of companies.
To catch up with the developed contexts of technology, in developing countries, improving the
absorbtive capacity of local companies became the prior and critical clause in economic growth
policies. Here absorptive capacity can be defined as the ability of a firm to recognise the value of new,
external information, assimilate it and apply it to commercial ends, being critical to its innovative
capabilities (Cohen and Levinthal, 1990). Hence, current agenda of innovation ecosystems prioritize
their supporting activities to enhance absorptive capacity of companies for for digital transformation
and utilization of Industry 4.0 tools today.
Modern Industry 4.0 organisations in regions and countries are searching for new mechanisms
to create favourable business conditions by providing adequate supporting services
(Steyn and Semolic, 2017). Many universities have fostered symbiotic relationships with the
companies in their area and often with the businesses working in the sectors where their academics
specialise. Universities benefit from the use of companies’ cutting-edge facilities to test the practical
applications of their research in real-world situations and the companies benefit by obtaining
up-to-date knowledge from the leading academics in their field (Wilkins, 2018). For example,
in ITU Telecom World forum (2018), one of the main conclusions had been “working across
boundaries, sectors and industries and building multi-stakeholder partnerships as it it the key to
deploying digital infrastructure”. S&T universities can act as key institutions within their innovation
ecosystems by integrating their knowledge creation with application in different industrial fields
(Bedford Et al, 2018). Because of the nature of digital affordances, the modern ‘Digital Economy’ is
very much an interaction economy, where economic and societal value is ‘co-created’ in interactions
among its constituents. This is different from the ‘Manufacturing Economy’ paradigm, where value
is ‘produced’ in a linear and vertical manufacturing process. Although manufacturing continues to be
relevant, the current digital disruption increasingly emphasises a service-dominant logic of horizontal
value co-creation in ecosystem interactions. (Autio, 2017). As Arnold and Voigt (2017) concluded,
most of the manufacturing companies conduct joint development activities with universities and
similar institutions in their efforts to digital transformation and the author recommended manufacturers
should increasingly cooperate with external research institutions, e.g., universities to benefit from a
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larger knowledge base, which enables them to quickly and establish targeted and required know-how.
The university is conceptualized as an economic actor and entrepreneurial activities not only of
individual faculty, but of the organization as a whole are encouraged (Krücken et al. (2007).
Salminen et al. (2017) also underlined that universities has an important role in supporting enterprises
by applied research and creation of research and learning environments for continuous piloting of new
technologies and preparation of new business models on Industry 4.0. in regional development context.
When we explore the roles of and impact of leading European S&T universities in innovation
ecosystems, it can be seen that besides being a provider of skilled human capital and knowledge
base, most of the universities act as a leader in technology transfer and incubator of technological
entrepreneurship. As adapted from Bedford et al. (2018) some highlights from EU are shown
in Table 4. Among these universities, there are initiatives towards building sub-ecosystems that
focus on digitization and Industry 4.0 with in broad innovation ecosystems. Also numbers of
collaborations between digital transformation technology providers and universities take place
in particular technologies like the joint project between SKF, Chalmers University and Ericsson
(Bearing.news.com, 2016) and collaboration between Valuechain SW Co and University of
Liverpool on smart factories (University of Liverpool, 2017).
Table 4: European S & T Universities’ Impacts and Roles in Innovation Ecosystems
University Impact and Role in Innovation EcoSystem

coordinates actions, programmes, interests and needs of the different agents
Universitat Politècnica De Catalunya (UPC)
of the ecosystem, increasing the degree of public-private collaboration
Intensive collaboration with the business community Cooperation with

Delft University of Technology (Tu Delft) regional knowledge institutions, companies and governmental bodies-by
means of regional innovation clusters
brings together all the parties in a commitment to develop the district of the
University of Strathclyde city around the Technology and Innovation Centre disruptive programme
linking enabling tech with manufacturing
work actively in spreading the innovation and entrepreneurial culture

Politécnico di Milano (PoliMi) inside the University A strong inclination to technology transfer and
entrepreneurship
acts as an integrator in its knowledge ecosystem at different levels, creating

Politécnico Di Torino (Polito) and promoting exchanges of knowledge among the various actors in its
regional ecosystem
encompasses all stages of social and economic valorisation of knowledge,

University of Porto (UPORTO) from its transfer to incubation, including the support to the creation of new
ventures
one of the leading entrepreneurship-oriented universities of S&T in the

RWTH AACHEN University world, the field of entrepreneur and innovator education has been chosen
(RWTH AACHEN) as a specific facet to elaborate upon, facilitated by a strategic focus on
digitisation
stimulate and support entrepreneurship with its population of students, staff

KU Leuven
and faculty
all students would get an introduction to entrepreneurship and innovation

Norwegian University of Science and
during their studies
Technology (NTNU)
Facilitate new business growth in the region
leading role in popularising innovation and entrepreneurship at regional and

Tomsk Polytechnic University (TPU) national levels by implementing a university-wide strategy for engineering
entrepreneurship
Krücken et al. (2007) also concluded that discourses about academia and industry ties exhibit both
transnational and national features. However it is important to note that the authors explored the
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differences in German and US university-industry innovation networks and they revealed that
the pace of adoption and the specific content of these ties differ strongly by country and culture
(Krücken et al., 2007).
2.5. Methodology
In this study, by using needs analysis and quality function deployment techniques, we matched
pillars of digital transformation pillars (that include Industry 4.0 tools and technologies (1) and their
adoption challenges (2) that are applicable to manufacturing industry) with the two dimensions
(Strengths, Constraints) of university-based innovation and technological entrepreneurship
ecosystems.
2.5.1. Dimensions of Industry 4.0 adaptation and Contribution

of University Based Innovation Systems
For identifying these dimensions and pillars, we referred to the literature review on the previous works
of various scholars and institutions. For Industry 4.0 Tools to be utilized in Turkish Manufacturing
Industry, we used a hybrid list that is derived from the digital transformation report of TUSIAD and
BCG (2016), Deloitte (2015) and Erbay and Yıldırım (2018). As can be seen from the table, Big Data
and Analytics (Predictive Analytics), Robotization, Simulation and Advanced Process Control, IIoT
and Sensors (Smart factories), Additive manufacturing and 3D Printing, Augmented Reality and
Remote Control technologies and tools exist in all of the resources. As well all of them are directly
related to “manufacturing” systems rather than all functions in firms. As in Turkish manufacturing
context which is struggling for protecting its “original equipment manufacturer” and which majority
of the companies are manufacturing SMEs (rather than product developer and designer producers),
the digital transformation by Industry 4.0 tools which especially improves manufacturing processes,
quality and resource utilization has prior importance in adapting the manufacturing base. As Cloud,
Data Security are infrastructural, they are excluded from the research as a limitation of the study.
Table 5: Industry 4.0 Technologies and Tools by Classifications from Different Resources
TUSIAD and BCG (2016) Erbay and Yildirim (2018) Deloitte (2015)
Big data and analytics Data Analytics Predictive Analytics
Autonomous robots Robotization Advanced Robotics
Simulation Advanced Process Control Digital Desing Simulation and integration
The industrial internet of things Smart Sensor Smart, Connected Products; Smart Factories
Additive manufacturing 3D Printing Additive Manufacturing, 3D printing
Augmented reality VR, AR, Remote Control Augmented Reality
RFID
Image Processing
High Performance Computing
Open Source Design/Direct Customer input
Advanced Materials
Cyber security
Cloud
Horizontal and vertical system integration
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Table 6. Industry 4.0 Adaptation Challenges by Classifications from Different Resources
Oesterreich and Teuteberg, 2016 Erbay and Yildirim, 2018

High implementation cost Lack of Budget
Hesitation to adopt Lack of Top Mng. Involve
Need for enhanced skills Knowledge management Lack of expert know-how
High implementation cost Poor Cost-Benefit (ROI) Ratio
Lack of standards and reference architectures Unclear Standards
Regulatory compliance High dependency risks on the I4.0 tech. Providers
Acceptance Resistance to Change
Enhancement of existing communication networks
Government Support & Promotion
Data Security Concerns
For Challenges that are expected to be faced for adaptation of Industry 4.0 Tools in Turkish
Manufacturing Industry, we again adapted a combined list that is derived from the digital
transformation Oesterreich and Teuteberg (2016) and Erbay and Yıldırım (2018). As can be seen
from the table, most of the challenges are overlapping (due to the fact that Erbay and Yildirim
(2018) adapted most of these topics from Oesterreich and Teuteberg (2016)). However as our major
research question is about the possible contributions of university based innovation systems on
Industry 4.0 adoption, “Enhancement of existing communication networks” challenge is added from
the original source to the evaluation in our analysis.
2.6. Data Collection

For collecting data, after a content analysis in previous literature, in-depth interviews were
conducted with 15 experts from (4 Managers from UIEEs, ten industrial experts working on digital
transformation in the manufacturing industry, two management consultants and three academicians).
3. Analysis and Findings

For critical issues, we applied AHP (Analytical Hierarchical Process) multicriteria decision-making
method to rank options. Decision making model for prioritizing the challenges. Saaty (2008) define
the Analytical Hierarchy Process as follows: “The Analytic Hierarchy Process (AHP) is a theory
of measurement through pairwise comparisons and relies on the judgements of experts to derive
priority scales. It is these scales that measure intangibles in relative terms. The comparisons are
made using a scale of absolute judgements that represents, how much more, one element dominates
another with respect to a given attribute. The judgements may be inconsistent and how to measure
inconsistency and improve the judgements, when possible to obtain better consistency is a concern
of the AHP. The derived priority scales are synthesised by multiplying them by the priority of their
parent nodes and adding for all such nodes”
3.1. The need for Enhancing Communication Networks

First of all, for validating the need for university based Innovation Networks, we adapted
the Needs Analysis frame work that include the interrelations between the challenges vs.
Technologies tools of Industry 4.0 analysis of Erbay and Yildirim (2018) that was adapted from
(Herron and Braiden, 2006). As stated above, we added “Lack of existing communication
Networks” challenge (from Oesterreich and Teuteberg, 2016) to this framework. We repeated the
Challenges survey with 10 industrial experts working on digital transformation in the manufacturing
industry, 2 management consultants and 3 academicians. Table 7 shows the results of the survey.
In survey first we wanted respondents to weigh the challenges and tools relatively in a given scale.
These findings reveal that in overall evaluation, . Lack of Budget remains as the major problem.
However the following most important challenge is “Lack of existing communication networks” in
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Turkish manufacturing industy setting. Lack of expert know-how and Unclear Standards are other
critical challenges.
Table 7: Challenges of I4.0 Transformation by Technologies and Tools-Needs Analysis Framework
(Adapted from Erbay and Yıldırım (2018))
Challenges of I 4.0 transformation
N umeration of rating (0 to 4) 18,4% 17,7% 17,0% 16,3% 16,3% 14,3% 31%
4: 9
3: 5
27 26 25 24 24 21 147
2: 3
1: 1
Lack of Budget 4 4 4 3 3 3 21 14,3%
Lack of existing communication networks 3 3 3 3 4 3 19 12,9%
Lack of expert know-how 3 2 3 4 3 2 17 11,6%
Unclear Standards 4 2 2 3 3 2 16 10,9%
Resistance to Change 3 3 3 2 3 2 16 10,9%
Poor Cost-Benefit (ROI) Ratio 3 4 3 2 2 2 16 10,9%
High dependency risks on the I4.0 tech. Providers 2 4 2 3 2 2 15 10,2%
Lack of Top Mng. Involve 3 2 3 2 2 2 14 9,5%
Government Support & Promotion 2 2 2 2 2 3 13 8,8%
The industrial internet of

Big data and analytics
Simulation Advanced
Autonomous robots
things Smart Sensor

Augmented reality
manufacturing3D
Process Control
Remote Control
Additive
TECHNOLOGİES and TOOLS 147 100%
Additive Manufacturing and Autonomous Robotics and AR technologies occur as the mostly
challenged tools of Industry 4.0 in Turkish manufacturing industry setting. Bu when we focus on
the technology/challenge combinations, following challenges were found to be the most important.
●● Lack of Budget in all of Additive Manufacturing, Robotics and Augmented reality
●● Unclear Standards in Additive Manufacturing/3D printing
●● High dependency on technology providers in Robotics
●● Poor ROI in Robotics
●● Lack of Experts and knowhow in Data Analytics and
●● Lack of existing communication networks in IIoT
Due to these findings, policies and action plans are needed to support industry in these challenges.
However, building communication networks of innovation and technological transformation still
may contribute to the solutions that have wide impact in adapting all I4.0 technologies.
Quality Function Deployment (QFD) for matching the Missions of University based Innovation
Networks with the Needs Analysis Results
University based Innovation Networks are among the candidate solutions to overcome the challenges
of I4.0 adoption in manufacturing industries in developing country settings (REF) To validate
their mission allignments with the needs that are presented in previous section as derived from the
findings in Table 6, we constructed a Quality Function Deployment Matrix by matching the Industry
4.0 technologies and related challenges with the “five key messages on the role of S&T universities
in innovation systems” that are adapted from the “Role of Universities of Science and Technology
in Innovation Ecosystems: Towards Mission 3.1” report of Bedford et al., 2018 which was adapted
from European Commission’s and Pascal Lamy’s Report on (2017).
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Table 8 presents the dimensions and their sub-topics on the “Role of Universities in Innovation
Systems” that are derived from Bedford et al. (2018).
Table 8: Role of Universities in Innovation Systems
Dimensions - Roles of
Universities sub-topics
a provision of appropriately skilled human capital via teaching (first mission),
Mission-oriented
b advancement of scientific and technical knowledge via academic research (second mission)
1 and innovation
transfer of knowledge and technology from academia to industry and society via technology
leaders c
transfer (third mission).
a collaborating with the actors of their ecosystem
Innovation system b collaborating with the actors of their ecosystem
2
integrators c sponsoring innovation
d sharing resources, knowledge, competences and Research & Industrial Infrastructures
a research commercialisation, entrepreneurship education to students
b academic engagement,
Engines of c support to start-up creation and growth,
3
innovation d funding support,
e entrepreneurship education to students
f creation of entrepreneurial climate within the university
Definition of mindse : attributes need to be strengthened when striving to stimulate
a
Source of innovativeness and entrepreneurship
entrepreneurship b Extra-curricular activities , Incubators
4
and innovation c Centre for entrepreneurship
skills d Incentives for students
e Involvement of stakeholders
a Universities network with other universities and companies
b to exploit opportunities coming from research
Pillars of global
5 c Integrate different knowledge sources
open innovation
d Provide access to a vast range of contacts
e Open the door to international value chains and international impact.
The ratings for the pairwise comparisons of the technologies and the related roles of the universities
in these technologies are collected both from the interview respondents and from the secondary
information /data sources about the 4 Technical Universities (Gebze Technical University, İstanbul
Technical University, Izmir High Technology University and Middle East Technical University)
that are competent in science and engineering disciplines. These universities were selected among
the 10 Research Universities that were identified and selected by Higher Education Council of
Turkey in 2017 for being leaders in science and technologies in Turkey.
Table 9: Turkish S&T Universities’ Impacts and Roles in Innovation Ecosystems
University Impact and role in Innovation EcoSystem
Large scale technology development zone; Fully-integrated incubation centre of early-stage
Istanbul Technical
entrepreneurs who bring science, technology and design together; Center for entrepreneurship and
University (ITU)
innovation, curriculum on entrepreneurship
Pioneers in the incorporation of ODTÜ’s research capacity and know-how with the entrepreneurs’
Middle East Technical innovative qualifications, supports the development of Turkey’s technological infrastructure. have
University (ODTU) a successful technopark; incubation centre, entrepreneurial curriculum and continuously working
towards the development and extension of this model.
Industry Collaboration program, work in collaboration to contribute to the solutions of industry’s
Gebze Technical
problems; conduct value-added R&D projects, ranks 1st in Entrepreneurship index among
University
universities without technoparks
Leading largest technopark in the region, collaboration between the university and the business
Izmir High
firms functioning in the region, ongoing support to research and helping to solve the problems of
Technology Institute
universities and industrial establishments
Leading research university, Incubation center and TTO, Entrepreneurship Research Center for
Koc University*
Industry 4.0
Entrepreneurial reA1:B17search university; Industry 4.0 Excellence Center with Durable Goods
Ozyegin University*
Manufacturers Association, Entrepreneurship Center and Labs for Digital Transformation
IAMOT 2019 | 353

Adapting the EU university analysis in Table 3, For S&T technologies in Turkey, these impacts and
roles in innovation ecosystems are derived from universities’ information resources in following
Table 9. In this table, there are two additional universities (indicated with*) which are privately
owned by the foundations of large congromolate holdings in Turkey and have significant activities
in supporting digital transformation ecosystems:
The ratings about the technologies and challenges are evaluated by respondents from the perspective
of Science and Technology Universities. In Turkey, Middle East Technical University and Istanbul
Technical University act as best practitioners of taking role in technological innovation and
entrepreneurship systems by their existing performance in their academic and scientific outputs,
Technology Development Zones, Incubation and Acceleration Centres and their curricula which
support science, technology and innovation competencies of their students. Other selected S&T
universities and private universities in table 8 are very newly established universities. So the
respondents were asked to consider the performances of these 2 universities when answering
the scoring and relevancy questions. The secondary information/ data sources that are utilized in
evaluations are as follows:
●● Patent Databases of Universities, nr of patent applications and granted patents on the
listed Industry 4.0 technologies from academics and partners
●● Statistics about the Alumni of Mechanical, Electronics, Mechatronics, Computer,
Software, İndustrial and Management Engineering–Employed Graduates in companies
and projects that are related to Industry 4.0 technologies
●● Statistics about the Incubated and Accelerated Projects and Entrepreneurs in the
Incubation and Acceleration Centres–Nr of projects and researchers/ entrepreneurs on
Industry 4.0 technologies
●● Statistics about the University-Industry Collaboration Protocols–Collaborations about
Industry 4.0 adoption and transfer of technologies
●● Statistics about the contracted partners–Enterprises, Public Institutions and NGOs
However, it must be noted that limited data is available in the above given statistics. (In further
research, a database which integrates all existing data sources would better be deployed, additionally
a database for collecting such information should be built and integrated with related external
databases of TurkStat (TUİK), Higher Education Council, Universities’ Organizational Units
(Student Affairs, Technology Development Zone Management Companies, Technology Transfer
Offices, Incubation and Acceleration Centres, Entrepreneurship Centres, Industry Collaboration
Offices etc.) Hence expert opinions had been the major source of data for evaluations.
The ratings for the pairwise comparisons of the technologies and the related roles of the universities
in these technologies are collected both from the interview respondents and from the secondary
information/ data sources about the 4 Technical Universities (Gebze Technical University, İstanbul
Technical University, Izmir High Technology University and Middle East Technical University)
that are competent in science and engineering disciplines. These universities were selected among
the 10 Research Universities that were identified and selected by Higher Education Council of
Turkey in 2017 for being leaders in science and technologies in Turkey.
The ratings for the pairwise comparisons (technologies and the related roles of the universities) that
are collected from interview respondents of the in these technologies are given in Table 9.
As can be seen from the table,
●● “Support to start-up creation and growth” and “sponsoring innovation” stands as the
prior roles of the universities in Industry 4.0 technologies and tools support
●● Collaborating with the actor of the ecosystem”, “Advancement of scientific and
technical knowledge via academic research (second mission)” together with “Exploiting
opportunities coming from research”, “Extra-curricular activities, Incubators” and
“Universities network with other universities and companies” remain as the significant
roles of universities.
IAMOT 2019 | 354

●● “Research commercialisation“, “Academic engagement”, “Funding support” and

“international impact” are among roles which are not prioritized among the roles of
universities in overcoming challenges about Industry 4.0 tools.
It is important to note that, the importance of technology types are almost aligned in the same way
with the findings in “Table 6. Challenges Of I4.0 Transformation by Technologies and Tools- Needs
Analysis Framework”.
Additionally, the roles of universities that are discussed in Table 10 are matched with the Challenges
of adoption of Industry 4.0 tools and technologies by the industry. Table 11 presents the results of
this comparison:
Table 10: Pairwise Comparison Ratings of the Respondents for the Industry 4.0 Tools and Technologies
and Key Roles of Science and Technology Universities-QFD Framework
manufacturing3D Printing
things Smart Sensor (Data

The industrial internet of
Big data and analytics
Simulation Advanced
Autonomous robots
Augmented reality
Process Control
Remote Control
Collection)
Additive
Dimensions -Key Roles of Universities

TECHNOLOGİES and TOOLS 147 100%
(adapted from Bedford et al., 2018)
Support to s ta rt-up crea ti on a nd growth 4 4 3 4 3 4 22 7,1% Engines of innovation

Spons ori ng i nnova ti on 3 4 3 3 3 3 19 6,1% Innovation system integrators
Col l a bora ti ng wi th the a ctors of thei r ecos ys tem 3 3 3 3 2 2 16 5,1% Innovation system integrators
Adva ncement of s ci enti fi c a nd techni ca l knowl edge vi a a ca demi c
3 2 2 3 2 3 15 4,8% Mission-oriented and innovation leaders
res ea rch (s econd mi s s i on)
Extra -curri cul a r a cti vi ti es , Incuba tors 3 4 3 2 2 1 15 4,8% Source of entrepreneurship and innovation skills
Uni vers i ti es network wi th other uni vers i ti es a nd compa ni es 3 3 3 4 2 2 17 5,5% Pillars of global open innovation
Expl oi ti ng opportuni ti es comi ng from res ea rch 3 3 3 3 2 1 15 4,8% Pillars of global open innovation
Col l a bora ti ng wi th the fi rms 3 2 2 4 2 2 15 4,8% Innovation system integrators
Invol vement of s ta kehol ders 2 2 2 2 2 2 12 3,9% Source of entrepreneurship and innovation skills
Provi de a cces s to a va s t ra nge of conta cts 2 2 3 2 2 1 12 3,9% Pillars of global open innovation
Provi s i on of a ppropri a tel y s ki l l ed huma n ca pi ta l vi a tea chi ng
(fi rs t mi s s i on),
Sha ri ng res ources , knowl edge, competences a nd Res ea rch &
2 1 1 2 2 2 10 3,2% Innovation system integrators
Indus tri a l Infra s tructures
Tra ns fer of knowl edge a nd technol ogy from a ca demi a to i ndus try
a nd s oci ety vi a technol ogy tra ns fer (thi rd mi s s i on).
Res ea rch commerci a l i s a ti on 2 1 2 1 2 1 9 2,9% Engines of innovation
Aca demi c enga gement 1 1 1 2 1 2 8 2,6% Engines of innovation
Open the door to i nterna ti ona l va l ue cha i ns a nd i nterna ti ona l
1 1 1 2 1 2 8 2,6% Pillars of global open innovation
i mpa ct.
Fundi ng s upport 1 2 1 1 1 1 7 2,3% Engines of innovation
58 58 53 55 46 41 311 100%
19% 19% 17% 18% 15% 13% 100%
Table 11: Roles of S&T Technologies and their Relations with Challenges of Adoption of Industry 4.0 tools
Dimensions -Key Roles of
Sub Topics of Dimensions -Key Roles of Universities (adapted Challenges of Industry 4.0
Universities (adapted from
from Bedford et al., 2018) Technologies Adoption
Bedford et al., 2018)
High dependency risks on the
Engines of innovation Support to start-up creation and growth
I4.0 tech. Providers
Lack of existing communication
Innovation system integrators Sponsoring innovation networks, Lack of Top Mng.
Involve
Innovation system integrators Collaborating with the actors of their ecosystem
networks
Mission-oriented and Advancement of scientific and technical knowledge via
Lack of expert know-how
innovation leaders academic research (second mission)
High dependency risks on the
Source of entrepreneurship
Extra-curricular activities , Incubators I4.0 tech. Providers, Lack of
and innovation skills
Top Mng. Involve
Pillars of global open Lack of existing communication
Universities network with other universities and companies
innovation networks
Pillars of global open
Exploiting opportunities coming from research Lack of expert know-how
innovation
Innovation system integrators Collaborating with the firms
networks
Source of entrepreneurship Lack of existing communication
Involvement of stakeholders
and innovation skills networks
Pillars of global open Lack of existing communication
Provide access to a vast range of contacts
innovation networks
Mission-oriented and Provision of appropriately skilled human capital via teaching
innovation leaders (first mission),
Sharing resources, knowledge, competences and Research &
Innovation system integrators Lack of Budget
Industrial Infrastructures
Mission-oriented and Transfer of knowledge and technology from academia to

innovation leaders industry and society via technology transfer (third mission).
Engines of innovation Research commercialisation Lack of expert know-how

Engines of innovation Academic engagement Lack of expert know-how
Pillars of global open
Integrate different knowledge sources Lack of expert know-how
innovation
Pillars of global open Open the door to international value chains and international
Resistance to Change
innovation impact.
Engines of innovation Funding support Lack of Budget
IAMOT 2019 | 355

Potential Challenges of Universities’ Participation in Digital Transformation Innovation Ecosystems

Respondents are also asked to list the potential challenges of Universities may face during their
participation and activities in innovation ecosystems for adapting Industry 4.0 technologies and
digital transformation. Their answers were collected through open ended questions and the answers
that have been expressed by more than 3 experts are presented in the following list:
1. Unbalanced governance in institutions of ecosystems (like excellence centers, incubators,
research labs and consortiums),
2. Lack of autonomy in Universities’ management and financial control,
3. Overload of academicians by the assignments about teaching (due to increaisng number
of students) and research/publication expectations that occured by Research University
Support procedures and university ranking focus,
4. Resistance of industry to shared authorization on Asset and Fund Management of
partnered institutions in the ecosystem,
5. Nepotism that prevents fair and expertise-based participation of academics in the
partnered institutions
6. Competition between consultancy firms and universities that may hinder the cooperation
between stakeholders,
7. Communication problems and differences in approach/focus and culture between
academia and industry about the context of co-creation,
8. Lack of agility/flexibility of public S&T University administrations due to restrictive
regulations,
9. Funding problems for establishing and sustaining partnered institutions in ecosystems.
10. Conclusion and Discussion

In this study, the potential roles of science and technology universities for the adaptation and
development of Industry 4.0 technologies in manufacturing industry through their participation in
innovation ecosystems are analysed for their linkages with the challenges of adapting Industry 4.0
technologies. AHP (Analytical Hierarchical Process) multicriteria decision-making method and
needs analysis by quality function deployment techniques are used to evaluate the (1) challenges and
(2) Industry 4.0 tools and technologies pillars of digital transformation for manufacturing industry.
Finding revealed that building collaboration with innovation ecosystems, knowledge creation and
transfer and supporting entrepreneurship and innovation systems through sponsoring innovation
should be primary roles of the science and technology universities in Industry 4.0 technologies and
tools support. When these roles of universities are discussed with the challenges, it makes sense to
conclude that Universities can not solve financial problems like Lack of Budget, Poor ROI but can
contribute to Lack of Expert and Knowhow and especially communication networks for innovation.
Challenge of “Unclear Standards” can also be overcome embeddedly by the research and
development support of S&T technologies. Challenges like “Poor Cost-Benefit (ROI) Ratio”, “Lack
of Top Mng. Involvement” and ”Government Support & Promotion” can not be matched with the
roles of the universities and they remain as issues that needs to be considered by upper level national
and regional institutions and policies.
Additive Manufacturing and Autonomous Robotics and AR technologies occur as the mostly
challenged tools of Industry 4.0 in Turkish manufacturing industry setting, hence these technologies
should be prioritized in innovation ecosystems agenda.
Potential challenges of Universities about their participation and activities in innovation ecosystems
for adapting Industry 4.0 technologies and digital transformation have to be utilized in designing these
IAMOT 2019 | 356

ecosystems and by policy makers from academia, regional and national government institutions.
To prevent negative impacts of unbalanced governance and lack of agility of universities,
organizational structures in ecosystems should be regulated by specific administrative regulations
and directives. Funding problems can be solved by the supporting funds from Govermental Bodies
like Science and Technology Councils and European Union funds. Also competition between
consultancy and solution providers and universities should be prevented by introducing processes
and platforms that can enable coopetition (cooperative competition) between these stakeholders.
Nepotism stands as the major concern that require high governance standards in ecosystems of
innovation. For all these challenges, ecosystem designers will be in need of advanced consultancy
services and international collaboration from leaders and best practitioners in innovation ecosystems.
Our study is expected to contribute to the research community by opening a research agenda
for exploring the interrelations between pillars of digital transformation and university-based
innovation ecosystems. We aim to start a discussion for leveraging current entrepreneurship
ecosystems during disruptions in techno-economic environments. The expected outcome is to
contribute to body of knowledge in the management of digital transformation technologies from
a developing country perspective.
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IAMOT 2019 | 358

Knowledge Spillovers from Foreign Firms in India:
Evidence based on Patent Citation Data1
Ruchi Sharma
Associate Professor, School of Humanities and Social Sciences,
Indian Institute of Technology Indore, Simrol,
Khandwa Road, Indore M.P. India–453552
E-mail: ruchi@iiti.ac.in
M.D. Danish
Research Associate, School of Humanities and Social Sciences,
Indian Institute of Technology Indore
E-mail: mddanish@iiti.ac.in
Abstract
Patent documents are an important source of knowledge spillovers which can be traced by using patent citations
data. In the current study, we have employed patent citations data for the patents granted to Indian assignee
during year 1990-2001. The study finds that knowledge spillovers are geographically localised and there exist
different patterns of knowledge spillovers between the foreign and domestic firms. The estimated result suggests
that domestic firms are gaining significant knowledge inflows from subsidiary and their parent’s organisation.
Finally, the study claims that firms belongs to same industry class frequently cites patents of its own industry.
Keywords: Patent Citations, Knowledge Spillovers, Geographically Localised, Foreign Firms
1. Introduction
Knowledge spillovers of R&D conducted in a country spread over her trading partners through
international trade and enhance their total factor productivity (Coe, Helpman and Hoffmaister 1997).
Foreign direct investment (FDI) plays an important role in transferring as well as diffusing knowledge
to the host country. Thus, governments around the world continue to spend huge resources to attract
multinational firms (MNCs), at least partly in the hope of gaining knowledge. However, literature
on how foreign direct investment (FDI) contributes to knowledge diffusion still remains fragmented
and inconclusive. Existing literature emphasizes both uni-directional and bi-directional knowledge
flows from foreign MNCs to host country’s domestic firms and vice versa. However, Krugman
(1991, p.53) pointed out that “knowledge flows...are invisible; they leave no paper trail by which
they can be measured and tracked.” This challenge was taken up most prominently by Jaffe et al.
(1993), who argued that knowledge spillovers may well leave a paper trail in the citations to prior
work recorded in a patent. They were pioneers of utilizing the patent citations data as a proxy for
knowledge flows. Following their work, many studies were undertaken that use patent citations as a
proxy of knowledge flows2. Evidently, these studies focus on developed countries except a few that
analyse knowledge spillovers using citation data for China (Yu and Wu 2014).
In Indian context, we undertake the present study to analyse knowledge spillovers from foreign
firms. The present study utilizes patent data from 1990-2001 and focus on the citations made to
foreign firms’ patents by domestic firms utilizing matching approach. We find that foreign firms’
subsidiaries are a major source of transfer as well technology diffusion in Indian context.
1
This paper is part of a project funded by ICSSR under its Research Programme Scheme. We acknowledge with thanks the
financial support of ICSSR for undertaking this study.
2
See for instance, Duguet and Garvie 2007; Singh 2007; Thomson 2005; Audretsch and Feldman 2009; Tijssen 1999; Yu and Wu
2014; Lukach and Plasmans 2002; Alazzawi 2011; Thomson and Fox-kean 2005.
IAMOT 2019 | 359

MNCs are an important instrument that facilitates global diffusion of knowledge by setting up its
subsidiaries in foreign market. In recent times, several country level studies have been conducted to
gauge technological spillovers from FDI. See, Aitken and Harrison (1999) for Venezuela; Liu and
Wang (2003) for China; Mathiyazhagan (2005) for India; Marin, Sasidharan and Costa (2006) for
Argentina and India; Ng (2006) for East Asian Economies. The empirical evidence on spillovers
from FDI is mixed. Saggi (2002), Maskus (2004), Görg and Greenaway (2004) and Keller (2004)
provide literature surveys on theoretical and empirical issues involved in technological spillovers
from different modes of technology transfers. As covering the extant literature on spillovers from
FDI is outside the scope of this paper, we focus on studies based on patent citations data for capturing
these spillovers.
The use of patent citation data for spillovers analysis is relatively novel though studies have used
patent count as a measure of innovation. As an economic indicator, patent data provide a unique
source of information on industrial innovation (Griliches 1990; Archibugi and Pianta 1996).
It is noteworthy that technology diffuses through foreign patents by dissemination of information
contained in patent applications. Patent citations are the references made to earlier patents in
the document related to new patent. Patent citations data reflect on the spread of knowledge and
has become an alternate empirical approach to study spillovers (Jaffe and Trajtenberg 2002).
According to Jaffe and Trajtenberg (2002, pg. 138), “patents are a proxy for “bits of knowledge”
and patent citations are a proxy for a given bit of knowledge being useful in the development of a
descendant bit.” Patent citations leave behind a trail of the manner in which new innovation builds
upon existing knowledge. Studies by Jaffe and Trajtenberg (2002) and Duguet and MacGarvie
(2002) that compare citation data with inventor surveys show that the correlation between patent
citations and actual knowledge flow though not perfect but indeed is high.
Studies have employed patent citations to measure pure knowledge spillovers. For instance, Jaffe,
Trajtenberg and Henderson (1993), in their seminal work, use citations at the United States Patent
Office (USPTO) to analyse the geographical dimension of spillovers. Further, Jaffe and Trajtenberg
(1999), explore the patterns of citations and find evidence of a diffusion process through geographic,
institutional and technological spaces. Branstetter (2000) evaluates knowledge spillovers between
Japan and the United States by using the similar framework and citation data. Maurseth and
Verspagen (1999) use citations by European patents to study the patterns of knowledge flows between
European regions. Lukach and Plasmans (2002) have analysed the patent citation behaviour of the
Belgian private firms using patent citation data. The study sketched down that the industries with
complex technologies are more open towards inter-industry knowledge flows as against the uniform
technological setup which are found to be more oriented towards the intra-industry knowledge flows.
MacGarvie (2003) explore the technology transfer to French firms through international trade.
Globerman et al. (2000) used data on citations from Swedish patents to study the effect of inward
and outward FDI on Swedish firms’ access to technology. They find that trade and outward FDI are
important channels of knowledge diffusion to Sweden, while inward FDI is not important for both
multinationals and small and medium enterprises. Bascavusoglu (2004) studies patent citation and
its impact on productivity. This analysis is based on 13 developing countries for R&D conducted
in U.S., Japan and 11 European countries for 1982-98. The study provided evidence on the impact
of technology transfers in embodied form (measured by bilateral trade) and disembodied form
(measured by patent citation) on total factor productivity growth. Singh (2004) use citation data
of patents taken by 4400 MNCs and domestic organizations in the US, Japan, Germany, France,
UK and Canada and find that there are significant bi-directional knowledge flows between MNCs
and their host countries, but that MNCs gain more than they contribute. The pattern varies across
countries and sectors, depending on the knowledge-intensity of FDI.
Alazzawi (2011) examines the impact of MNCs over knowledge flows between domestic and foreign
firms. The objective of the study is to determine the role of FDI in knowledge’s diffusion between
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Knowledge Spillovers from Foreign Firms in India: Evidence based on Patent Citation Data
“centers of knowledge production” located in different countries. The study has also considered
technological leader as well as follower from different countries. This study has employed data set of
more than 1.8 million patents and 8.7 million citations from 30 different nations over a period of 20
years. The study finds that foreign subsidiary allows domestic firm to collect more knowledge than
what the parent company can receive through other means of communication. Furthermore, overall
knowledge flow increases with FDI and firms involved in same area of research get benefited from
each other’s research.
Evidently most of the studies discussed so far are based in developed countries. Yu and Wu (2014)
have examined the US patent data and analysed how different firms in China gain from knowledge
spillovers. Firm-level patent citations data has been collected from US patent office for 1980 to
2009. The key finding of the study is that MNCs from US, Taiwan and Chinese privately owned
firms performs betters than Chinese State owned enterprises in term of the number of patents and
patent citations.
In view of limited research that focuses on developing countries, in this paper, we focus on India and
knowledge spillovers from foreign companies to domestic firms using patent citation data. India as an
emerging economy is mainly focus of MNCs for its extant market. However, the evidence on gains to
the domestic economy by providing access to its market is rather mixed. We contribute to the existing
literature by exploring patent citation as a channel of knowledge spillovers to domestic firms.
3. Data
Indian Patent office (IPO) maintains the patent data record in India. We are looking for patents
and its citations registered with IPO but unfortunately the citations record is not available at IPO.
A very few patents filed in IPO has citations records of examiners. So, we are using an indirect
way to address the problem. The database used for collection of patents data is PatSeer. We have
verified the authenticity of PatSeer database by comparing it with World Intellectual Property Rights
Organization (WIPO). The details are given in Annexure 1. We have collected data on patents which
are filed by Indian Assignee3 in the foreign patents offices mainly in US, Europe, Japan. The details
of data processing steps are given below.
First, we have collected grant data using Patent assignee as Indian and patents filed in foreign patent
office. We have collected patents granted data for firms only excluding individuals and institutes
due to the focus of study. Further, we exclude patents having zero citation and self-citation. Then we
categorize the remaining patents between foreign and domestic assignee (based on their ownership
group as categorised in Prowess CMIE database). Further, we collected backward citations made
by these patents. In order to ascertain whether the cited patent is used in India we have further
narrowed downed to the backward citations which have family patent in India (FC). Later, we have
constructed the control of FC patents having same technology class and application year. We find
that during 1990-2001 in total 8549 patents were filed from India and 3309 were granted. The details
of these patents are given in Table 1.
Table 1: Classification of patents granted during 1990-2001
Application Patents Granted
year
Firms Government University Individual Hospital Other Total
1990-2001 1647 1213 25 222 02 234 3,309
Share (%) 50 37 0.7 06 0.06 06 100
Among these 3309, patents which have at least one backward citations are only 442, remaining 1205
have zero citation. These 442 patents have made a total of 4982 citations. Out of these 4982 patent
citations only 55 have family patent in India. Following literature, the present study employs case
control matching approach to verify the knowledge spillovers effects. To identify controls, we have
used IPC classification up to finer level (group level) to avoid the over estimation.
3
Location Assignee is defined as the residence of assignee at the time of filing application.
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4. Model and Estimation
4.1. Citation Pair Modelling

Existing literature shows that patent citations data can be analysed using binary choice qualitative
response model. The probability of citations with particular attributes represents a binary events
(citation occur or not), of which it is possible to estimate the probability of citing a particular patent.
We study the estimated probability of citing event and its relationship with a set of explanatory
variables in order to analyse different pattern of knowledge flows. In the study, the dependent
variable is a binary with value 1, if citation exists between citing and cited patents and 0 otherwise.
The probability to cite varies with entity type and technology class. In order to capture these aspects,
we have indicators to assess the probability of citing as given below.
●● Same country a binary variable with value 1, if citing and cited patents originate from
inventors located in the same country, 0 otherwise.
●● dd a binary variable with value 1, if Indian domestic firm cites another domestic firm
and 0 otherwise.
●● mdd a binary variable with value 1, if Indian domestic firm cites patents of foreign firm,
0 otherwise.
●● dfi a binary variable with value 1, if Indian domestic firm cites foreign Indian firm, 0
otherwise.
●● ffi a binary variable with value 1, if foreign Indian firms citing foreign firm, 0 otherwise.
Technology Related Variables
●● Same technology category; a binary variable with value 1, if both citing and potentially
cited patents belong to same broad industry category as defined in IPC 2008 Industry
classification section, 0 otherwise.
●● Same technology subcategory; a binary variable with value 1, if both citing and
potentially cited patents belong to technological subcategory class, 0 otherwise.
●● Primary technology Sub class; a binary variable with value 1, if both citing and
potentially cited patents belong to same sub-class (4 digit), 0 otherwise.
●● Main group; a binary variable with value 1, if both citing and potentially cited patents
belong to same main group, 0 otherwise.
●● Sub group; a binary variable with value 1, if both citing and potentially cited patents
belong to same subgroup, 0 otherwise.
Control variables affecting probability of citation
Firms working in similar technologies tend to locate near each other, often for reason such as
availability of specialised labour, or intermediate goods rather than just knowledge spillovers
(Marshall, 1920; Krugman, 1991; Jaffe et al., 1993). Therefore, in studying knowledge spillovers
it is important to rule out the possibility that frequent citations from co-located patents is just an
artefact of being technological relatedness rather than a genuine outcome of location. Here, we are
using technological matching approach by using IPC technological classification up to group level.
Control variables are created for each cited patents with having same technological classification
and application year.
5. Results from Citation Level Regression Analysis

The sample used in this study is 113 actual citations (‘one’) and 113 control citations (‘zero’), giving
a total sample of 226 patent dyad. Both logit and probit model are used in this study; results are
given in Table 2.
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Table 2: Analysis of Domestic and Foreign Knowledge Flows
Variables 1 2
Logit Probit
Same Country 1.052** 0.640**
(0.444) (0.263)
mdd -1.712*** -1.009***
(0.511) (0.311)
dd -0.754 -0.451
(0.712) (0.426)
dfi 1.616* 1.032**
(0.935) (0.526)
ffi -0.725 -0.515*
(0.513) (0.312)
Industry Class 1.496** 0.876**
(0.748) (0.432)
Industry sub class 3.439*** 1.838***
(1.226) (0.596)
Primary technology Sub class -3.792*** -2.068***
(1.109) (0.504)
Main group -0.264 -0.152
(0.481) (0.283)
Sub group 0.680 0.414
(0.444) (0.266)
Constant -0.282 -0.151
(0.640) (0.377)
Observations 226 226
Note: The dependent variables are 1, if the citation exists, 0 otherwise. A simple logit and probit regression model is used to
estimate the probability of citing a patent. *** Significant at 1%, ** significant at 5% and * significant at 10%.
Columns 1 and 2 give the estimated results from logit and probit model respectively. Both the
models suggest that variables including same country, mdd, dfi, ffi, Section, Class and Subclass are
significant at different levels.
Patent citations occur frequently within the same country. The estimated result suggests that
Indian domestic firms significantly cite the foreign Indian firms (foreign firms working in India).
The positive coefficient of the variable same country indicates that there exists a positive relationship
between the inventors having same geographic location and the probability of occurring citations
between them. It state that inventors likely to cite a patent whose inventor also resides in same
location which confirm the “localization effect”. The negative coefficient of variable mdd suggests
that there exists a negative relationship between probabilities of occurring a citation between Indian
domestic firms to foreign firms (firm not working in India) which refers that Indian domestic firm
is more likely to cite a patents of firms working in India, rather than foreign firms which are not
working in India. This also claims that geographical proximity matters in knowledge spillovers.
Hence, it can be stated that firms likely to learn more if the firms locate in same geographical location
rather than different location. Similarly, the coefficient of dd is also negative, which suggests that
the probability of citing a domestic patents by domestic firm is negative and insignificant, which
further states that the domestic firms are less likely to cite Indian domestic firms. This negative
relationship states that domestic firms are not technologically advanced whereas the foreign firm
IAMOT 2019 | 363

has better technology that diffuses through patent taken in domestic market. The variable dfi clearly
state that the probability of citing a patent by Indian domestic country to foreign Indian is positive
and significant which shows knowledge spillovers from those foreign firms that are working in
India. Finally, the coefficient of variable ffi is negative and insignificant highlighting the relative less
chances of bi-directional flows in case of Indian economy.
The coefficients of technological Industry main class and Industry sub class how a positive relation
between the probability of citing a patent from same Industry class and sub-class. It implies that
patents belong to same broad technological classification is likely to cite frequently the patents
which have the same broad technological classification. However, the group level coefficient
is negative which suggests that the probability of citing a patent which has similar group is not
positively related to group level technological classification. It indicates that there is a chance of
technological overlap at subgroup level as citations occur frequently between the patents sharing
similar broad technological category.
6. Conclusion
On the basis of above discussion, we can conclude that geographic localization exists as inventors
more likely to cite patents from their own location. This is also clear from the above discussion
that the there exists a significant knowledge spillovers from foreign Indian firms to Indian firms.
Foreign firms working in India are contributing significantly through knowledge spillovers providing
a golden opportunity for Indian domestic firms to absorb the new technologies to catch up.
In this paper, we have focused on data from 1990-2001, a time-period when India manufacturing
sector has gone through immense changes following liberalization policies by the government.
Further, the changes in domestic patent policy to comply with international commitments also
influence the patenting behaviour of firms. We will take this work further by considering data from
2001-2016 that will provide us opportunity to also analyse impact of various policy changes.
7. Aknowledgements
This paper is part of a project funded by ICSSR under its Research Programme Scheme.
We acknowledge with thanks the financial support of ICSSR for undertaking this study. We also like
to thanks our project team members, Shruti Aggarwal, Avi Vani, Shweta Sudele and Shaik Baji for
their efforts and cooperation throughout the research.
8. Appendix A
Table A1: Comparison of Patent data between PatSeer and WIPO from 1990-2016
Sources Application Year Granted Year PBC ASNC Total Patent Application Granted
Filed Number Patents
PatSeer 1990-2016 - Not- IN IN 1,23,750 87,085 35,139

PatSeer - 1990-16 Not- IN IN - - 30,861
WIPO - 1990-16 Not- IN IN - - 31,748
WIPO 1990-2016 - Not- IN IN - 92,671 -
Note: PBC: Publishing Country, ASNC: Assignee Country, IN: India
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Table A2: Yearly Comparison Table between WIPO and PatSeer
Patent Applications Patent Grants
Year
WIPO PatSeer WIPO PatSeer
1990 N.A 29 N.A 40
1991 N.A 36 N.A 31
1992 N.A 46 N.A 42
1993 N.A 54 N.A 38
1994 129 36 55 41
1995 163 53 79 48
1996 294 120 83 58
1997 322 174 80 69
1998 393 306 119 104
1999 439 686 157 143
2000 680 1271 182 175
2001 1093 2331 265 138
2002 1381 3060 335 340
2003 1847 3790 523 603
2004 2476 3178 650 801
2005 3026 3550 734 851
2006 3524 4356 871 973
2007 4009 5068 1007 1177
2008 4833 5441 1274 1213
2009 4493 5531 1300 1240
2010 5792 7786 1782 1326
2011 6831 9459 2056 1495
2012 8372 9254 2746 3432
2013 9661 5696 3563 4404
2014 9993 5787 4030 4651
2015 10928 5200 4677 4039
2016 11992 4787 5180 3362
Total 92,671 87,085 31,748 30,834
Note: Granted patent is searched by Published date and Patent application is searched by application
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IAMOT 2019 | 366

PART III
MANAGEMENT OF TECHNOLOGY
Reference Architecture and Classification of
Technology Induced Scenarios of Digitized Work
Michael Bansmann
Fraunhofer-Institut für Entwurfstechnik Mechatronik IEM
Zukunftsmeile 1, 33102 Paderborn
E-mail: michael.bansmann@iem.fraunhofer.de
Marc Foullois
E-mail: marc.foullois@iem.fraunhofer.de
Daniel Röltgen
E-mail: daniel.roeltgen@iem.fraunhofer.de
Lars Wöste
E-mail: lars.woeste@iem.fraunhofer.de
Roman Dumitrescu
E-mail: roman.dumitrescu@iem.fraunhofer.de
Abstract
Introduction and Purpose: Digital technologies have great potential to fundamentally change the way we do
business and work. This is expressed by the term digitized work. The introduction of digital technologies into
working environments can increasingly be observed in practice: The use of data glasses in production, concepts
such as Big Data for the design of powerful PLM systems or intelligent algorithms for decision support are
prominent examples. In this context, we speak of technology-induced scenarios of digitized work. Companies in
the manufacturing industry are increasingly recognizing the associated potential benefits. Due to the multitude, the
heterogeneity and the countless possible combinations of digital technologies, there is an unmanageable variety
of applications within the working environments. Because of this variety, companies are struggling with the
implementation of such scenarios. It is unclear how applications of technology-induced scenarios of digitized work
can be structured and made “tangible”. Without appropriate structuring and classification, a sustainable introduction
of applications of technology-induced scenarios of digitized work and the exploitation of the associated potential
benefits is hardly possible. Therefore, we present a reference architecture and classification of technology induced
scenarios of digitized work.
Methodology: The reference architecture and the classification was derived based on a three-step method. In a
first step, characteristics of technology-induced scenarios of digitized work (e.g. work activity) with corresponding
characteristics (e.g. cognitive) and their interdependencies were identified. In a second step, over 100 examples
of scenarios of digitized work from research and practice were analyzed and classified according to the reference
architecture. Thirdly, this investigation enabled the identification of classes of technology-induced scenarios of
digitized work. This was based on a distribution analysis carried out by a statistics tool.
Findings: The results of applying the described method are a reference architecture and a classification of
technology-induced scenarios of digitized work. The reference architecture consists of five core elements with each
two to four characteristics and their interdependencies. In addition, eight classes of technology induced scenarios of
digitized work were identified based on the empirical study. The classes describe the field of digitized work. Further
results are 100 application-oriented scenarios of digitized work described in detail. In this paper, we present a brief
profile of selected examples.
IAMOT 2019 | 369
Contributions: The presented reference architecture and the classification of scenarios of digitized work offers
two major potential benefits. On the one hand, the findings are the prerequisite for a comprehensive understanding
of digital change in the working environments. The findings make it possible to structure the topic area of
technology-induced scenarios of digitized work. On the other hand, it offers an orientation guide to companies
in the manufacturing industry and support them to identify their needs for digitization technologies. This reduces
reservations and it is the first step on the way to digitized working environments. Companies must exploit the
associated potentials in order to be able to contribute to the economic growth in a sustainable way. In summary, the
paper contributes to the conference theme of management of technology.
Keywords: Digitized Working Environments, Technology-Induced Scenarios of Digitized Work, Reference
Architecture; Classification
1. Introduction
1.1. Digitalisation of Working Environements

Technology-induced transformation processes currently characterize all areas of our lives.
Digitalization has a particularly strong influence on companies in the manufacturing industry.
The term industry 4.0 expresses this (Kagermann et al., 2013). It refers to the three revolutions
of industrial value creation to date. Technological progress has led to significant changes in both
the industrial and working worlds. A closer look reveals the close intermeshing of industrial and
working worlds. Thus the invention of the steam engine (first industrial revolution, end of the 18th
century) not only led to the mechanization of production, but also to the beginning of industrial
work in factories. The use of electricity as a driving force for production machines (second industrial
revolution, beginning of the 20th century) led on the one hand to rationalisation through mass
production influenced by Taylor, and on the other hand to the systematisation of assembly line work.
The integration of IT to automate manufacturing processes (third industrial revolution, 1960s) led
to the use of IT systems as work tools. The increasing digitalization and the use of so-called cyber-
physical systems (Geisberger et al., 2012) are leading to the fourth industrial revolution. At the same
time, we are on the threshold of another revolution in the world of work. This is expressed by terms
such as work 4.0 or digitized working worlds (Neugebauer, 2018) (cf. The National Academies Of
Sciences, Engineering, Medicine, 2017)
Three levels can be distinguished when considering working environments: The levels of
the work process, the company organisation and the embedding of the company in its value
creation network (Trist et al., 1981), (Nerdinger et al., 2015). The current change in these
working environments is characterized by a rapid and broad adaptation of technologies from
the context of digitization. Such technologies have great potential to fundamentally shape and
change the way we do business and work (Brynjolfsson et al., 2014), (Bundesministerium für
Wirtschaft und Energie, 2016), (Bundesministerium für Arbeit und Soziales, 2016). Following
the example of Roland Berger Consulting, the technological foundations can be divided into
four fields of technology (Roland Berger Strategy Consultants, 2015). The first technology field
refers to technologies that enable the collection, processing and analysis of digital data (e.g.
big data approaches). In addition, a distinction is made between technologies for automating
value chains and products, such as robotics approaches. The third field comprises technologies
for networking systems, such as cloud computing. The fourth building block is virtualisation
technologies such as augmented and virtual reality (AR/VR) (Lipsmeier et al., 2018). These
digital technologies enable innovative, diverse applications in the world of work. In this context
we call the application of digital technologies in the working environment technology-induced
scenarios of digitized work (TSW) (Bansmann et al., 2018).
The entry of such digital technologies into the working environments can increasingly be
observed in industrial practice. For example, the use of data glasses within the shopfloor enables
the integration of so-called remote experts. Thereby, detailed expert knowledge can be transmited
via an acoustic connection (Neugebauer, 2018), (Wu et al., 2014). Another example is the digital
processing of orders (Milosevic et al., 2016), which enables a purely IT-based and thus more
IAMOT 2019 | 370

Reference Architecture and Classification of Technology Induced Scenarios of Digitized Work
efficient order processing from the order acceptance to production and logistics. A third prominent
example is predictive maintenance. Such an application enables the prediction of necessary
maintenance based on data analysis procedures on the basis of intelligent condition monitoring of
plants (Selcuk et al., 2016).
1.2. Challenges in the Implementation of Technology-Induced

Scenarios of Digitized Work
The three exemplary sketched TSW illustrate that both their potential benefits and their effects
are very heterogeneous and multi-layered. Thus, the AR-based remote expert supports employees
carrying at their work tasks, yet at the same time the handling of new work equipment is necessary
and the monitoring of work performance is possible. The digital processing of orders allows the
efficiency of a central business process to be increased, but the competence profiles along the order
processing process change. Predictive maintenance reduces costs, and at the same time requires new
job profiles (such as Data Scientist).
Due to the heterogeneity, diversity and countless possible combinations of digital technologies,
there is an unmanageable variety of applications in the working environments. Companies in the
manufacturing industry are increasingly recognising the associated potential benefits for all sectors
and all occupational groups. Yet, it is unclear how the digitalisation of the working environments
and the associated potential benefits can be structured and made “tangible”. However, this is a
critical success factor for the sustainable introduction and exploitation of the potential benefits.
Therefore, a structuring of technology-induced scenarios of digitized work is required.
1.3. Aim of the Contribution

The goal of this paper is a reference architecture as well as the classification of technology-induced
scenarios of digitized work and the corresponding benefits. This is the prerequisite for the penetration
and design of the topic area. In this contribution, at first the reference architecture will be presented
in detail. This includes generally valid features of TSW (e.g. work activity) with corresponding
characteristics (e.g. cognitive) as well as their interdependencies. It serves as a guideline for the
structuring. In a second step, the developed reference architecture is validated on the basis of a
sample of over 100 examples of investigated application scenarios from research and practice. The
examples are based on the results of the industrial group work 4.01 and the project “IviPep - Work
4.0 in product development” which is funded by the German Federal Ministry of Education and
Research2. In addition, further examples could be found from the activities of the excellence cluster
it’s OWL3. Thirdly, classes are formed by this empirical survey. The classes relate to concentrations
of certain characteristics. Finally, the potential benefits are classified. Thus, a structuring of the topic
field of digitized working environments becomes possible.
1.4. State of the Art and Resulting Need for Action

As stated above, TSW and their potential benefits need to be structured. Against this background,
relevant approaches to structure solutions from the context of digitisation and their potential benefits
are analysed below.
As a first approach, the nine Industry 4.0 application scenarios of the Industry 4.0 platform provide a
comprehensive overview of the topic area. In a solution-oriented manner, it is shown how technologies
from the context of digitization can create added value for companies in the manufacturing industry.
1
The aim of the industrial group work 4.0 is a Master Plan of Action to shape the digital change of the working environments. It
was developed in 12 cross-company workshops with GEA, Hettich and Miele.
2
The goal of the “IviPep - Work 4.0 in product development” is an intelligent set of instruments for the humane design of the
digital working world while simultaneously increasing the efficiency of product development. The joint project is funded by
the German Federal Ministry of Education and Research (BMBF) and the European Social Fund (ESF) as part of the “Future
of Work” programme.
3
Within the excellence cluster it’s OWL recommendations from industry were developed on how the digital transformation of
working environments can succeed.
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The technically possible is pointed out and its effect on the creation of value chains are sketched.
The focus is mainly on production and logistics as well as on engineering. Yet, further areas of the
company are not considered. In particular, neither people nor the organization are considered. An
exception forms the scenario human-technology interaction, which is however not comprehensive
enough and does not do justice to the topic field work 4.0 in its breadth (Bundesministerium Für
Wirtschaft Und Energie, 2016).
The VDMA Industry 4.0 Guideline provides small and medium-sized enterprises with guidance
on the introduction of Industry 4.0 solutions. The toolbox developed for this purpose structures
industry 4.0 solution modules in a total of 12 application levels, each with five development
stages. These focus on the technical aspect, but not on the human and organizational aspects.
Nevertheless, individual elements address the areas of human (human-machine communication)
and organization (company-wide networking with production). Overall, the derivation of the
application levels and their technological basis remain vague (Verband Deutscher Maschinen-
und Anlagenbau, 2015).
The reference architecture model Industry 4.0 presents three basic criteria for the classification of
situations within Industry 4.0. Essential aspects such as life cycle and value chains as well as various
perspectives on the topic are taken into account. However, the applicability and its benefits in
industrial practice remain unclear. In addition, people and organisation are hardly taken into account
in the reference model (Verein Deutscher Ingenieure e.V., 2015).
The modelling approach for a workplace-related description model of the “Working World Industry
4.0” offers a pragmatic and practically applicable approach for the assessment of changes in the
working world due to industry 4.0 application cases. However, the focus is only on the production
environment. In addition, no interpretation aids or recommendations for action are given on the basis
of the evaluated changes. Furthermore, the underlying industry 4.0 application cases are not defined
or structured (Bauer et al., 2018).
The process-oriented potential analysis of industry 4.0 technologies according to Dombrowski
et al. (2018) enables the selection of industry 4.0 technologies on the basis of their benefits
for business processes. The Ishikawa diagram is used to identify the causes of problems.
In addition, criteria for determining the implementation effort are provided. However, the
approach addresses the human and organizational aspects only marginally. Industry 4.0
technologies are also not discussed in detail, so that a structured pre-selection of suitable
technologies is not supported.
It becomes clear that the current state of the art is not sufficient. To support companies in
the structuring of the subject area, the structuring of TSW must enable companies to classify
all scenarios in general. Therefore, the aspired classes of work 4.0 must be general valid for
companies in the manufacturing industry. The specific characteristics of such companies
should be taken into account. During structuring, the potential benefits of TSW are in particular
focus. Moreover, all levels of working environments should be considered (work process, the
company organisation and the embedding of the company in its value creation network). These
perspectives differ fundamentally. It is therefore necessary to consider them independently of
each other.
2. Reference Architecture of Technology Induced Scenarios of Digitized Work

In the following, the reference architecture is presented in detail. This includes generally valid
features of TSW (e.g. work activity) with corresponding characteristics (e.g. cognitive) as well
as their interdependencies. It serves as a guideline for structuring. The reference architecture was
developed and validated on the basis of a sample of over 100 examples of investigated TSW from
research and practice. Figure 1 shows an overview of the reference architecture.
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Figure 1: Reference Architecture of Technology Induced Scenarios of Digitized Work
Five elements form the basis of the reference architecture. These were identified during the analysis
of the similarities of over 100 examples of TSW from research and practice. The examples are
based on the results of the industrial group work 4.0 and the project “IviPep - Work 4.0 in product
development” which is funded by the German Federal Ministry of Education and Research. In
addition, further examples could be found from the activities of the excellence cluster it’s OWL.
Digital Technologies
Communi-
Connectivity Data analysis Virtualization
cation
Actor
Human-
System
System
Work Assignment
Manual Manual non- Kognitive Kognitive

Routine routine Routine non-routine
Challenge
Time Costs Quality
Situation
Activity Process Structure
Figure 2: Characteristics of The Elements of the Reference Architecture
The relationships between the elements complete the reference architecture. These are shown
in Figure 1. The work assignment forms the core of the reference architecture. It is executed
by an actor and therefore the assignment has requirements on him. The work assignement
takes place in a situation within the working environement, i.e. the conditions of the working
environement determine the work assignment. Furthermore, the situation has requirements
on the digital technologies used. A further central element of the reference structure is the
challenge underlying the scenario (e.g. inefficient and incorrect assembly activities), which
results from the work task and the situation. The digital technologies address the challenges,
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at the same time requirements for the digital technologies result from the challenge. Moreover,
the digital technologies support the actor in the execution of his work assignment. This imposes
demands on the actor. The elements are each characterized by two to four characteristics. This
is shown in Figure 2.
The elements and their characteristics are described in more detail below.
2.1. Digital Technologies

Digital technologies include the acquisition, processing, transmission and storage of data. They
are based on a physical foundation and are used for information gathering as well as data analysis.
They can be used to improve both the market performance and the value creation. Within the
framework of the reference architecture, a distinction is made between technologies that primarily
relate to networking, communication, data analysis or virtualization (Lipsmeier et al., 2018).
2.2. Actor
This element describes the acting object within the TSW. This can be either a cooperation between
human and system (in the sense of digital technologies) or just a system. Such a system usually
consists of several digital technologies (Razzaq et al., 2017).
2.3. Work Assignment

The work assignment is the central element of the reference architecture. It describes the task to be
carried out in the context of the TSW. Four types of work tasks are distinguished: manual routine,
manual non-routine, cognitive routine and cognitive non-routine (Autor et al., 2003).
2.4. Challenge
A mandatory prerequisite for TSW is that a digital technology is used within the working environment
to address a challenge. Therefore it is another central element. The challenges addressed can be
located within the d magic triangle with the dimensions time, costs and quality.
2.5. Situation
The situation describes the level of the working environment in which the TSW can be located. The
characteristics are therefore activity, process, and structure. This refers to the three levels of working
enviroments: 1) work process, 2) the company organisation and 3) the embedding of the company in
its value creation network (Trist, 1981), (Nerdinger et al., 2015).
2.6. Technology-Induced Scenarios of Digitized

Work from Industrial Practice
Companies are facing different and individual challenges when it comes to digitization. Thus, the
objectives must also be differentiated. These can be, for example, an increase in efficiency or a
human-oriented work design. In the following, two industrial application scenarios will be described
for a better understanding of the concept of the reference architecture and to underline its practical
relevance. Therefeore it is shown which characteristics these senarios include on the basis of the
reference architecture. The application scenarios were developed as part of the project “IviPep - Work
4.0 in product development”. The joint project is funded by the Federal Ministry of Education and
Research (BMBF) and the European Social Fund (ESF) as part of the “Future of Work” programme.
2.6.1. Mixed Mock-Up for Production System Planning

The first example is the so-called “Mixed Mock-Up”. It refers to the design and testing of new
assembly systems. An automotive supplier relies on the method of cardboard engineering. With the
help of mock-ups (physical structures with cardboard), the workplaces of an assembly system are
modelled in interdisciplinary workshops and the corresponding processes and gripping paths are
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simulated and processes are analyzed (Röltgen, 2018), (Bansmann, 2018). In particular, project staff
are invited to contribute their implicit knowledge to the planning process. The work assignment can
thus be classified as a cognitive non-routine. Since the focus is on the entire planning process, the
situation within the work environment is assigned to the process level. Before the actual production,
workplaces or structures can easily be reconstructed as cardboard mock-ups. The challenge,
however, lies with the components used to simulate the assembly process. Real prototypes of
these components, which must be available physically for cardboard engineering, are not available
until much later. In addition, up-to-date prototypes are often not available because the design
status changes continuously during development. The challenge under consideration can therefore
primarily be classified as time.
This challenge is now addressed by augmented teality, resulting in a technology-induced scenarios
of digitized work. The cardboard mock-up of the assembly systems and devices is extended by
virtual models, the cardboard mock-up becomes a Mixed Mock-Up. By fading in current 3D design
data into the field of vision of the operators using AR, the design status of the components is always
available and the digital technology used is thus classified as virtualisation. Accordingly, the actor is
classified as a human-system. This scenario combines the advantages of the haptics of the physical
cardboard construction with the flexibility of the digital mock-up. This significantly shortens the
set-up and testing phase (Figure 3).
Communi-
Connectivity Data analysis Virtualization
cation
Actor
Human-
System
System
Work assignment
Manual Manual non- Cognitive Cognitive

Challenge
Time Costs Quality
Situation
Figure 3: Classification of the Mixed Mock-Up [Sbb+18] [Bh18] Using the Reference Architecture
2.6.2. Service System for Conformity Management

The second example from industrial practice is the so-called “service system for conformity
management”. This scenario refers to the mandatory certification of substances contained in
manufactured products. Due to increasing globalization, a mechanical engineering company
sells its technical products on global markets, which results in strong networks of customers,
manufacturers and suppliers. Especially for complex technical products, this has an enormous impact
on product safety. Companies are confronted with the fact that they are always able to provide up-
to-date information on any harmful substances contained in their products (Schlagowski, 2015). In
addition to the legal requirements of the legislature of the countries on whose markets the product is
offered, further requirements arise from the industries and the customers. On request, the suppliers’
information must be aggregated and compared with the various requirements. The work assignment
can thus be classified as a cognitive non-routine. The work assignment is integrated into the conformity
management situation and thus represents a process from the customer’s request to the aggregation
of information and the signed evaluation of the ingredients. Today, this process usually takes more
than a day. The information retrieval from international suppliers and the search of already existing
knowledge from huge Excel lists (several thousand lines) result in the challenge time.
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With the implementation of a graph database, information such as employees, project, product,
components, substances and suppliers can be conveniently linked. This representation in knowledge
networks and access via a proper interface results in a service system for conformity management.
Through queries, the system can evaluate and display critical substances with all associated
information. The digital technology can thus be classified as data analysis. The employee is supported
by the system during the processing of conformity inquiries, which reduces the effort considerably.
The actuator is thus classified as a human-system (Figure 4).
Communi- Data
Connectivity Virtualization
cation analysis
Actor
Human-
System
System
Work assignment
Manual Manual non- Cognitive Cognitive

Challenge
Time Costs Quality
Situation
Figure 4: Classification of the Service System for Conformity Management Using the Reference Architecture
3. Classification of Technology Induced Scenarios of Digitized Work

Technology induced scenarios of digitized work are classified on the basis of the elements and their
characteristics. Therfore, 100 examples of such application scenarios are classified in the reference
architecture analogous to the examples outlined (see Figure 3 and Figure 4), i.e. the respective
characteristics of these examples have to be identified. Figure 5 shows an extract of the analysed
scenarios.
No. Titel Digital Technologies Actor Work assignment Situation Challenge
1 Mixed MockUp Connectivity Human-System Cognitive non-routine Activity Time
2 Service system for conformity management Data analysis Human-System Cognitive non-routine Process Time
3 Digital documentation of production progress Connectivity System Manual Routine Process Costs
4 Provision of information via language assistants Communication Human-System Manual Routine Activity Time
5 Mobile co-robots for automated production Communication Human-System Manual Routine Activity Costs
6 Mobile co-robots for manual assembly support Communication Human-System Manual Routine Activity Costs
7 Quality control through gesture recognition Virtualization Human-System Manual Routine Activity Time
8 rapid prototyping Communication System Manual non-routine Activity Time
9 Exo-skeleton for relief during lifting activities Communication Human-System Manual Routine Activity Costs
10 Digital Recruiting Platforms Connectivity Human-System Cognitive non-routine Structure Quality
11 Plant monitoring at the customer's site Data analysis System Cognitive non-routine Structure Quality
12 Enterprise Microblogging for idea dev. Connectivity Human-System Cognitive non-routine Structure Quality
13 MB dev. to support traceability of req. Data analysis Human-System Cognitive non-routine Process Quality
14 Collaboration tools to support communication Communication Human-System Cognitive non-routine Activity Quality
15 E-Learning for flexible and needs-based training Data analysis Human-System Cognitive non-routine Activity Quality
16 AI for the replication of empirical knowledge Data analysis System Cognitive non-routine Process Quality
17 Remote expert to support consulting services Communication Human-System Cognitive non-routine Activity Quality
18 Hybrid "Service Bot" Data analysis Human-System Cognitive non-routine Activity Quality
19 Remote maintenance support expert (AR) Communication Human-System Manual Routine Activity Costs
20 BYOD-based communication tools Communication Human-System Cognitive non-routine Activity Time
21 Semi-automated quotation creation in B2B Data analysis Human-System Cognitive Routine Process Time
22 Automated definition of assembly times Data analysis System Cognitive non-routine Activity Time
23 MB stakeholder-specific information provision Virtualization Human-System Cognitive non-routine Activity Quality
24 AI-based expert system for knowlege managment Data analysis System Cognitive non-routine Activity Quality
25 Digital logbook to support business trip accounting Connectivity System Cognitive Routine Process Costs
26 Model-based provision of information for multi-project management
Data analysis System Cognitive non-routine Process Quality
27 Slido to support decision making in workshops and meetings Virtualization Human-System Cognitive non-routine Activity Quality
28
29
Figure 5: Extract of the Analysed Technology
Mobile and intelligent workflows (e.g. for faster decision release)
Induced Scenarios
Intelligent representative regulation (e.g. for e-mail forwarding) Data analysis
System Cognitive Routine
Connectivity
Human-System Cognitive Routine
of Digitized Work
Process
Process
Quality
Time
30 Assignment of knowledge-based tasks (Clickwork) to HR platforms
Connectivity
(e.g. Mturk) Human-System Cognitive Routine Structure Costs
Concentrations
31 of certain characteristics could be identified. The classes of TSW developed
Gamification in the context of e-learning Virtualization Human-System Cognitive non-routine
Quality areActivity
32 Gamifaction in the context of digital assistance systems Virtualization
Human-System Manual non-routine Activity Quality
based
33 on combining
Platform a cluster
for decentralized procurement analysis
of small volume and a multi-dimensional
parts Connectivity System scaling
Cognitive Routine using Structure
the software tool
Costs SPSS.
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In a first step, the nominal data set as shown in Figure 5 were dichotomized into binary data. In a
second step, a hierarchical cluster analysis was performed (including the generation of a similarity
matrix). Thereby, as a similarity measure the Jaccard coefficient was chosen, as a cluster method the
average linkage was used. Based on this, classes can be determined using the assignment overview
or the dendrogram. In a third step, a multidimensional scaling was performed. The similarity matrix
from the cluster analysis provides the basis. As a result, the identified classes are visualized as shown
in Figure 6. The following classes could be identified
Class 1 – Digital Supporter: The Digital Supporter class refers to such work 4.0 application scenarios
that support a human actor in performing manual work tasks. The support of non-routine tasks,
however, is also part of this class. The task to be supported and the result to be achieved must be
clearly defined. Technologies from the field of communication or virtualization are used. The support
is provided by haptic feedback, visual support or the involvement of remote experts. A typical field of
application is the production environment. In this class, the element digital technologies is strong in
communication and medium in virtualization. The element actor is pronounced with human system,
the work task is manual routine. As typical examples can be mentioned the application scenarios
of worker guidance in assembly, remote expert for maintenance support, quality control through
gesture recognition or information provision via language assistants. These scenarios usually have a
comparatively high degree of technical maturity.
Class 2 – Digital Man of Action: The Digital Man of Action class describes work 4.0 application
scenarios in which a technical system performs manual work tasks. Explicitly stressful, challenging
or repetitive physical tasks can be performed autonomously. Such systems are particularly suitable for
use in production or logistics. Digital technologies in the field of communication and virtualization
are being used within this class. The actor is a technical system. The manual routine is particularly
addressed within the work task. With this type of work task, automation is much more economical,
so that costs are adressed within the field of challenges. Typical examples are humanoid robots,
drone-based inventory or light-controlled driverless transport systems.
Agile Value
Systems
Intelligent Digital
Processes Processes
Digital Man
of Action Smart
Decider
Agile
Ressource
M anagement
Legend
technology induced scenarios
of digitized work (TSW)
Class of TSW
Digital Smart
Supporter Aide distinguishing characteristics
Figure 6: Classification of Technology Induced Scenarios of Digitized Work
Class 3 – Smart Aide: This class refers to intelligent assistance systems. These support people in
performing cognitive tasks. Both routine and non-routine tasks are supported, in which, for example,
additional needs-based information is made available via language assistants. Areas of application
are creative and knowledge-based areas such as product development. Digital technologies include
data analysis, communication and virtualisation. The actor is a human system, the work task can
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be both the cognitive routine as well as cognitive non-routine. Quality is addressed as a challenge.
Typical examples are “hybrid service bots” to support the processing of service requests, generative
design to support designers or a remote expert to support consulting services.
Class 4 – Smart Decider: The fourth class describes intelligent systems based on machine learning
processes. This gives them reasoning and cognitive abilities. They can judge situations autonomously
and make decisions without human interaction. Thus, the systems can perform cognitive non-
routine tasks. The ability of such systems and the quality of the decisions they make depends on the
underlying algorithms and training data available to them. As a digital technology, data analysis is
pronounced, the actor is a system. Cognitive non-routine tasks are performed, usually to improve
their quality. Typical examples are predictive analytics for automated decision making or AI-based
expert systems for replicating expert knowledge or AI-based monkey testing for software validation.
Class 5 – Digital Processes: While the first four classes refer to the level of the work situation, the
upcoming classes are classified at the level of business processes. This class describes systems that
map simple processes and workflows completely digitally. This avoids media discontinuities. The
main work activities along such processes are manual routine tasks. These are eliminated by the use
of work 4.0 application scenarios of this class. A typical example is the digitalization of business
trip applications based on electronic signatures. Manual routine tasks such as scanning paper-based
signatures are then obsolete. A typical field of application for digital processes is administration.
In this class of digital technologies, the networking is pronounced, the actor is the system. It uses
manual routine tasks to save costs. The situation is the process. Typical examples are a digital order
flow or the digital documentation of a production progress.
Class 6 – Intelligent Processes: The sixth class also refers to work 4.0 application scenarios within the
level of business processes. In contrast to the Digital Processes class, processes based on cognitive
tasks are digitized in this class. Intelligent processes create added value through intelligent data
collection, processing and usage. Two different directions can be distinguished. On the one hand, the
systems that relieve people of cognitive routine tasks in the form of intelligent workflows. Examples
include intelligent representative control (e.g. by e-mail forwarding) or a digital driver’s logbook to
support business trip accounting. Secondly, systems can be distinguished that take over processes
from cognitive non-routine tasks. This can be done completely autonomously or in cooperation with
humans. Examples for autonomous execution are AI for the simulation of empirical knowledge or
the model-based provision of information for multi-project management. Examples of cooperation
between humans and systems are model-based development to support traceability or semi-automated
offer generation in the B2B area. The cooperations are characterized by the fact that information is
captured, processed and visualized along a process. The user can make decisions based on this. In
this class the data analysis is pronounced with the digital technologies. In the element actor both
the human being and a cooperation between human being and system are adressed. The underlying
work activities are cognitive routine as well as cognitive non-routine. The challenge of quality is
addressed. Within the element situation the characteristic process is addressed.
Class 7 – Agile Ressource Management: This class is assigned to the level value-added system and
enterprise environment. It describes such work 4.0 application scenarios that make internal processes
and organizational structures more flexible. A special focus is on the management of internal
resources. A typical example is the self-organized capacity flexibility based on a doodle-system.
Employees can organize their availability independently. Another example is crowdsourcing. For
example, knowledge-based tasks are assigned to HR platforms (e.g. Mturk). This enables companies
to benefit from innovative impulses from external sources. Scenarios of this class are based on
networking. The underlying work activities are usually cognitive routine and non-routine tasks (e.g.
coordination and procurement of human resources). Scenarios of this class address the challenge of
quality within the situation structure.
Class 8 – Agile Value Systems: The eighth class is similar to Agile Resource Management and is
classified at the level of value creation system and corporate environment. The aim of scenarios
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of these classes is to make supplier and customer relationships more flexible. An example is the
integration of feedback based on field data into product development. This can support, for example,
adaptation development. In this class, the elements are defined in the same way as in the seventh
class. In contrast to this, the focus here is on embedding the company in its value-added network. In
contrast, the Agile Resource Management class focuses the internal structures.
4. Classification of Benefits of Technology

Induced Scenarios of Digitized Work
In this section the benefit potentials of TSW are identified and transformed into a classification
scheme for the added value of technology induced scenarios of digitized work. For this purpose,
a so-called potential matrix was created in a first step. This enables the identification of generic
potential fields of the TSW. The potential matrix is shown in Figure 7.
Integration of the knowledge of ext. experts
Potential matrix
Improved communication in the dev. proc.

More flexible work and personnel deploy.
Avoidance of errors during assembly act.
Avoidance of errors during assembly act.
Faster response times to changes in req.

Fast and inexpensive prod. of prototypes
Greater transparency in the supply chain

Earlier/ cheaper testing of assembly sys.
Reduced error rate in quality inspection
Avoidance of change loops during dev.

Simplified access to expert knowledge
Cheaper/faster dev. of CAD drawings
Faster response times to market fluct.

Question:
eduction of occupational accidents
Faster learning of new employees
More humane working conditions
Lower operating costs in logistics
Simpler execution of simulations

Reduction of maintenance costs
"Is the potential i (line) similar to
Better customer understanding
Potential j (column)?"
Reduction of planning errors

Faster intervals in the Q test
Savings on travel expenses

Reduction of energy costs
Better availability of cross-

Improved ergonomics
0: i is not similar to j
1: i is similar to j
location and person-related
knowledge
Potentials
Potentials Nr. 7 11 21 22 24 26 1 2 4 5 8 12 13 3 6 10 17 9 25 69 73 55 77 95 70 83
Simplified access to expert knowledge 7 1 1 0 0 0 0 0 1 1 0 1 0 1 1 0 0 0 0 1 1 1 1 1 0 1
Earlier/ cheaper testing of assembly systems 11 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 1 1 1 1 0 Increasing the
Integration of the knowledge of external experts 21 1 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 1 1 0 0 organization's ability
Better customer understanding 22 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 0 0
More flexible work and personnel deployment 24 1 0 1 0 0 0 1 0 0 1 0 0 0 1 0 0 0 0 0 0 0 1 1 0 0
to innovate
Reduction of energy costs 26 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Improved ergonomics 1 0 0 0 0 1 0 1 1 1 1 1 0 1 1 0 1 0 0 1 0 1 0 0 0 0
More efficient motoric work

More humane working conditions 2 0 0
4 0 0
Avoidance of errors during assembly activities
0
0
0
0
1
0
0
0
1
0 0
1 1
0
1
1
1
1
1
1
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
0
0
0
0
0
activities
Faster learning of new employees 5 0 0 0 0 1 0 0 1 0 1 1 0 0 0 0 0 1 0 0 0 0 0 0 0 0
eduction of occupational accidents 8 0 0 0 0 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Reduced error rate in quality inspection 12 0 0 1 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 1 1 1 1 0 1 0
Faster intervals in the Q test 13 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 0 1 0
More efficient cognitive

Avoidance of errors during assembly activities
work3 0 0 0 0 0 0 0 0 0 0 0 0 1 0 1 1 0 0 0 0 1 1 1 0 0 More efficient use of
Savings on travel expenses 6 1 1 0 0 1 0 1 0 0 0 1 0 0 0 1 1 1 0 0 1 1 0 0 0 0
resources
Fast and inexpensive productionactivities
of prototypes 10 0 1 0 0 0 0 0 0 0 0 0 1 1 0 0 1 0 0 1 1 1 1 1 0 0
Cheaper/faster development of CAD drawings 17 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 0
Lower operating costs in logistics 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Reduction of maintenance costs 25 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0
Improved communication in the development process 69 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 1 1 1 1 1 1

Avoidance of change loops during development 73 0 0 0 0 1 0 0
Reduction of
0 0 0 0 0 0 0 0 0 1 0 0 1 1 1 1 1 0 Leaner processes and
Reduction of planning errors
Faster response times to changes in requirements
55
77
0
0
1
0
0
0
0
1
0
1
0
0
0
0
0 0 0 0 0 1 0 0
reaction
0 0 0 0 0times
0 0 0
1
0
1
0
1
1
0
0
0
0
1
0 0
1 1
1
1
0
0
0
structures by increasing
Faster response times to market fluctuations 95 0 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 1 0 0 transparency along the value
Simpler execution of simulations 70 0 0 0 0 0 0 0 0 0 0 0 1 1 0 0 0 1 1 0 1 1 1 1 1 1 chain (product data)
Greater transparency in the supply chain 83 0 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 0
Figure 7: Potential Matrix for the Identification of Potential Fields
The benefit promise was defined for each of the 100 TSW examined. For the Mixed Mock-Up
scenario, for example, the identified benefit potential is “Earlier and more favorable testing of
assembly systems”. The 100 benefit potentials identified in this way were then entered into the
matrix shown in figure 7 and evaluated for similarity in a pairwise comparison. The corresponding
question was “Is the potential i (row) similar to po tential j (column)? In case of similarity, a 1 is
entered in the corresponding cell, otherwise a 0. So for example, the potential “Simplified accedd
to expert knowledge” is similar to the potential “Integration of knowledge of external experts”. The
corresponding cell entry is therefor a “1”. Using a binary design structure matrix, the relationships
between the respective potential benefits were analyzed using the software tool LOOMEO. The
benefit potentials are sorted according to similarity, so that groups with as many “1” as possible are
formed within the matrix. Such a group is called a potential field.
The section of 25 potential benefits shown in Figure 7 illustrates that seven potential fields could be
identified within these potential benefits. When examining the potential fields, it becomes clear that
they can be assigned to the following three generic benefit categories:
4.1. Efficiency Enhancement

TSW contribute to increasing efficiency within all level of the working environments. At the level
of work activities, for example, the more efficient performance of motoric and cognitive work
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assignments is made possible. At the level of business processes and organizational structures, for
example, the potential field of “more efficient use of resources” is classified.
4.2. Strengthening Innovation Capacity

The second benefit category of TSW refers to increasing innovation capacity. To this end, the
potential fields of “better availability of cross-location and person-related knowledge” as well as
“increasing the organization’s ability to innovate” can be assigned to the organisation.
4.3. Flexibilization of Structures

Finally, TSW enable the flexibilization of structures. The potential fields “leaner processes and
structures by increasing transparency along the value chain (product data)” can be classified here as
an example. This can be achieved by increasing transparency along the value chain with regard to
product data. Another potential field is the “reduction of reaction times”.
The benefit categories form the basis of the classification scheme of the added value of TSW.
The scheme classifies the TSW-classes in terms of added value for the working environments of
manufacturing enterprises according to three categories. This is shown in Figure 8.
Address the forms and

characteristics of the organization
as well as its embedding in the value
creation system
Value creation
Address business processes

and organizational structures
Working environment
Processes
Addressing cognitive tasks in the office

floor area
Work activities
Address work tasks and

work activities
Efficiency Innovative Capacity Structures

Addressing motoric tasks in the shop floor
Enhancement
Potential benefits area
Address lack of
Addressing rigid
efficiency in terms of address lack of structures
time, cost and quality innovation capacity
Figure 8: Classification Scheme of the Added Value of Technology Induced Scenarios of Digitized Work
The following three categories form the basis of the classification of the added value of work 4.0:
4.4. Potential Benefits

The potential benefits are divided into the three mentioned groups: efficiency enhancement,
strengthening innovative capacity and making structures more flexible. These form the basis of the
scheme and therefore represent the X-axis of the cube shown in Figure 8.
4.5. Working Environment

The three levels of the working environment form the second category: The work process, the
company organisation and the embedding of the company in its value creation network. This shows
that the three benefit categories basically concern all levels of the working environment.
4.6. Area
The third category is formed by the area. This refers to the distinction between the shopfloor and
office divisions. While the term shopfloor refers to the production environment, the term office
refers to the areas of the company that focus on knowledge-based activities. This distinction is made
because the TSW classes 1-4 have shown the distinction between motoric and cognitive tasks.
The three axes span the cube shown in Figure 8. The eight identified TSW classes can be located in
this cube as follows:
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Digital Supporter: Such application scenarios support the execution of manual work activities.
Accordingly, the class is to be assigned to the work activity level in the working environment. Since
this class concentrates on manual activities, the class belongs to the shopfloor area. Since the class
supports the execution by haptic feedback, visual support or by involving remote experts, the aim is
usually to increase the efficiency of the supported work activities. Accordingly, the class is assigned
to the Efficiency Enhancement group for the potential benefits. Among other things, the potential
field of „more efficient motoric work activities“ applies to this class.
Digital Man of Action: This class contributes primarily within the level of work situation in terms of
increasing efficiency. Manual work tasks are performed autonomously by systems. Due to the high
degree of automation, related activities can also be carried out, so that benefits can also be created
within the level of business processes. Since manual tasks are the focus of this class, it is assigned to
the shopfloor. The potential field of „more efficient use of resources“ is underpinned by this class.
Smart Aide: Application scenarios of this class support cognitive tasks by providing information
as needed. Thus, both cognitive routine and non-routine tasks can be supported. This increases
efficiency and innovation within the work situation, as the persons involved can concentrate on
value-adding activities and thus increase their creativity. The class is assigned to the officefloor
because cognitive tasks are focused. A typical potential field of this class is the „better availability
of cross-location and person-related knowledge“.
Smart Decider: The class includes application scenarios that perform both cognitive routine and
non-routine tasks autonomously. Corresponding scenarios allow decisions to be made and creative
tasks to be solved. This allows an increase in efficiency and innovation within the work activity level
in the officefloor area. In addition, the level of business processes is addressed, since related work
activities can be performed autonomously by application scenarios of this class. A corresponding
potential field of this class is the „more efficient execution of cognitive work activities“.
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Digital Processes: Application scenarios that are assigned to this class enable the digital
representation of simple processes. This results in an increase in the efficiency of business processes.
This applies both to the shopfloor and the officefloor. However, the officefloor is more in the focus
of this class, since the typical application area of this class is administration. As an example, the
potential field „more efficient use of resources“ can be assigned to this class.
Intelligent Processes: This class refers to application scenarios that create benefits from the
intelligent collection, processing and use of data. This leads to an increase in efficiency and
innovation within the process level. Shopfloor and officefloor are addressed equally. A typical
potential field which is addressed by this class is the „increase of the innovation capability of
the organization“.
Agile Resource Management: Application scenarios of this class offer innovations for the
management of internal resources. The focus is on making internal processes and structures more
flexible. In the classification scheme, this class is assigned to the level of the value creation, since the
focus is particularly on networking internal resources with the corporate environment. Within this
level, the class promises an increase in the ability to innovate and a flexibilization of structures. This
applies to both the shopfloor and the officefloor. A corresponding potential field is the „reduction of
reaction times“.
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Agile Value Systems: This class focuses on application scenarios that enable the flexibilization of
supplier and customer relationships. The associated potential benefits relate to the flexibilisation of
structures both within the company (level of business processes and organisational structures) and
within the level of the value creation system. Both the shopfloor and the officefloor are addressed
equally. The potential field „leaner processes and structures by increasing transparency along the
value chain (product data)“ is addressed by this class.
5. Conclusion and Cutlook

Digital technologies have great potential to fundamentally change the way we do business and work.
This is expressed by the term digitized work. In this context, there is an inscrutable number of
possible technology induced scenarios of digitized work. Although the usefulness of these scenarios
is increasingly recognised, there is a need to structure such scenarios and the associated benefits.
Through an analysis of more than 100 application scenarios from research and practice (Figure 5),
similarities were identified and transferred into a reference architecture (Figure 1). On this basis,
eight characteristic classes of work 4.0 could be derived (Figure 6). These could be placed in a
classification scheme (Figure 8) of the added value of technology induced scenarios of digitized
work. This is the prerequisite for a selection method, which supports companies in identifying
suitable TSW against the background of company-specific conditions. Such a selection method must
be developed in a next step.
6. Acknowledgements
The results were developed within the project „IviPep - Work 4.0 in product development“. The
joint project is funded by the German Federal Ministry of Education and Research (BMBF) and the
European Social Fund (ESF) as part of the „Future of Work“ programme.
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IAMOT 2019 | 384

Application of MCDM in Evaluating Emerginging
Technology for Artisanal Mining
John Agwa-Ejon
University of Johannesburg, Department of Quality and
Operations Management, Johannesburg, South Africa
E-mail: jagwa-ejon@uj.ac.za
Antoine Floribert Mulaba-Bafubiandi
Department of Engineering Metallurgy, University of Johannesburg,
Doornfontein Campus, P. O. Box 17011, Doornfontein 2028, Johannesburg,
South Africa
E-mail: amulaba@uj.ac.za
Jan-Harm Pretorius
School of Engineering Management, University of
Johannesburg, Bunting Road Campus,
E-mail: jhcpretorius@uj.ac.za
Abstract
The paper reports on the an extensive study conducted on artisanal mining of sandstone in QwaQwa. The purpose
of which was to develop a comprehensive method of assessing emerging technology in the mining of sandstone in
QwaQwa. The techniques being evaluated if successful would improve the mining of sandstone at a lesser risk to
the miners and increase the productivity of sandstone as well as the processing capacity of the sandstone thereby
resulting into a reduced pricing of the sandstone as a product. The technology at the forefront of the research was
the solar energy microwave activated equipment which would be used to heat the sandstone rock to very high
temperatures resulting to the blocks of stone scrambling due to differential expansion rates and internal stresses. The
methodology used in the research was the Multi-Criteria Decision Making (MCDM) tool based on five perspectives
used in the comparison of two mining techniques. The MCDM technique relies on the judgement by experts in
the mining paternity to give credible decisions. These experts are usually individuals with a wealth of knowledge
acquired through experience over the years in employment. The experts normally consider both qualitative and
quantitative measurements in arriving at a credible judgement quantification value. The data obtained from these
experts were synthesised to provide an overall numerical score which in this study favoured the solar energy
microwave activated magnetron mining technology. The intellectual merit of this paper is the development of a
comprehensive model for the evaluation of emerging technology in the mining paternity to enable better decisions
to be taken regarding mining techniques and commercialisation. The targeted audience for this paper are the
academicians, Government officials, Policy makers, Mining Practitioners and the QwaQwa community where
sandstone was being mined.
Keywords: Artisanal mining, Sandstone, MCDM, Microwave Energy, Solar Energy and Community
1. Introduction
The artisanal mining of sandstone has been in existence for centuries as a means of job creation
for unconventional miners. The traditional method of mining using chisel and hummer puts these
miners at enormous risks. Research and Technology has enabled the introduction of new emerging
technologies which would improve productivity, reduce cost and conserve energy considerably.
This paper attempts to tackle this problem by posing the following two questions.
●● What are the viewpoints of practitioners and experts regarding the use of solar-energy-
activated microwave technologies to mine sandstone based on social, technological,
economic, environmental, and political (STEEP) perspectives?
●● What best-known concepts and applications will enable the development of a scientific
judgement on the best technology concerning the mining of sandstone in QwaQwa?
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The objective of this paper therefore is to study the opportunity to use solar energy in activating
microwave energy used in the mining of sandstone. The intended outcome is to assess the potential
of developing a new mining tool to be used by artisans – at lesser risk to themselves and at lesser
cost. The means under investigation has its own hazards that need to be managed. The methodology
used to address the research problem effectively is the formulation of a hierarchical decision model
that will help to assess the various expert viewpoints.
The model shall provide guidance in the selection and improvement of mining technologies. This
would be for the benefit of government decision-makers, the QwaQwa community, and the small-
scale mining industry worldwide.
Multi-criteria decision-making (MCDM) is a tool which is used to make decisions to attain the
optimum solution from multiple alternatives and conflicting criteria. MCDM is widely used to make
decisions for common problems of everyday life (e.g. purchase of television set or car) to complex
problems of large businesses (e.g. self-assessment of organizations services using large number of
criteria and sub-criteria). MCDM model can be applied in all major fields (e.g. energy, environment,
tourism, operations research, manufacturing, project management, etc.), and thus has a wide range
of applications (Toloie-Eshlaghy and Homayonfar, 2011; Mardani et al., 2015a).
3. Artisanal Mining of Sandstone

Artisanal mining is informal mining activities mostly carried out by individuals and families as a
mean of sustaining their day-to-day life (Seccatore, 2015). In addition, artisanal mining is seasonal
and it does not guarantee sustained income (Ahmad, 2015). It is mostly considered as income
generating activities in the developing world, and thus most artisanal miners exploit gold and
diamonds. Artisanal miners also exploit industrial minerals such as dimension stones, however they
face several challenges including access to mineral rights, technology, skills, finance and market
support (Ledwaba, 2017). Furthermore, lack of sufficient data and interventions makes it difficult to
track the progress of artisanal mining.
Sandstone, a dimension stone, exists as a natural stone and has a potential market for domestic
construction material, housewares, ornaments, etc. The artisanal mining of sandstone involves
extraction of large blocks from the site using chisel and hammer, which are then transported to
processing plants where the slabs are cut and polished to meet the market requirements. In contrast
to large scale mining, the literature on artisanal mining is quite limited.
Use of renewable energy in artisanal sandstone mining
Artisanal mining is mostly done using traditional hand tools, such as hammer and chisel, which
makes it labor intensive and prone to casualties. The introduction of some form of renewable
energy source at the quarry will assist in lowering physical labor. For instance, an introduction
of solar powered drilling machine will help lessen the drudgery. Solar technology has two major
benefits over other renewable sources: (i) South Africa has an abundance of solar energy with steady
intensity in South Africa, and (ii) Relatively low cost of initial investment for Solar PV technologies
compared to other renewable energy technologies (Votteler and Brent, 2016).
According to Votteler and Brent (2017a, 2017b), the operations of mining companies in South Africa
rely on either electricity from national grid or diesel generators. The increasing cost of electricity and
diesel has strained these mining companies. However, these energy sources can be complemented
by renewable sources (such as solar, wind and geothermal) to reduce the strain on rising cost. The
authors used MCDM methods to: (i) evaluate possible electricity generating sources of mining
companies using the internal business structure, and (ii) analyse hybrid renewable sources using
combination of external macroeconomic environment and internal business structure. They reported
that MCDM method has not been applied in energy planning for South African mining sector
because most of the previous approaches were focused on technological and environmental factors
IAMOT 2019 | 386
Application of MCDM in Evaluating Emerginging Technology for Artisanal Mining
rather than electricity generation. The authors used multi-attribute value theory (MAVT) and found
that hybrids with solar and wind has advantage over generators and grid electricity alone. Whilst
wind hybrid is more suitable in coastal region and geothermal hybrid needs high initial investment
costs, solar hybrid showed the most potential.
Agwa-Ejon et al. (2015) discussed about the availability of efficient and productive technologies for
artisanal mining. The authors investigated the technical feasibility and social acceptability of solar
powered microwave assisted artisanal sandstone mining in QwaQwa, Free State, South Africa. They
mentioned that the microwave energy triggered through solar power has a potential to break the
rock. Despite the fact that solar triggered microwave mining will assist the miners, the introduction
of any new technology must be dealt with utmost care.
Georgiou and Skarlatos (2016) combined MCDM, remote sensing technique and geographic
information system (GIS) to determine the best location for solar park in Cyprus. The authors applied
pairwise comparison method within the analytic hierarchy process (AHP) for the site evaluation
using multiple criteria (technical, environmental, social and economic). The suitability of the land
within the study region for solar park ranged from 3% (with most strict application of the framework
minimizing potential investment risk) to 83% (using different weighting schemes for criteria).
Several studies have used MCDM techniques to select renewable energy system that is appropriate
for the specific purpose and location (Wimmler et al, 2015; Chatterjee and Kar, 2016; Kumar
et al., 2017; Azam et al., 2018). Taha and Daim (2013) and Mardani et al. (2015c) conducted a
comprehensive review of the literatures which applied different MCDM techniques (such as AHP
and F-AHP, ANP and VIKOR, TOPSIS and F-TOPSIS, PROMETHEE, and Integrated methods) in
renewable energy issues
The research methodology used in this study is the Multi-Criteria Decision Making (MCDM)
technique combined with surveys and interviews at the preliminary stages of the study. Figure 1
below shows the three stages used in the information gathering and execution of the research.
The expert pairwise comparison questionnaires designed to suit each perspective were served to
thirty-five experts in each category of the perspective namely Social; Economical; Environmental;
and Political (STEEP) perspectives. In the end only sixty questionnaires were analysable after a
thorough and intense scrutiny of the comparison consistency. The results obtained for these twelve
questionnaires per perspective was analysed using both excel and SPSS software. The excel software
model had been specifically developed to suit the analysis as a replacement to the commercial
MCDM software which was not affordable by the researcher.
Stage One Stage Two Stage Three
Case Study: General Survey: (40) Expert Survey: (60)
Site visits (04) Questionnaires Questionnaires based on
Notes taken during Pairwise comparisons
Research Questions Research Questions

3,4 and 5 1 and 2
Figure 1: Research Methodology Used in the Investigations.
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In the formulation of the hierarchical model for the evaluation of the sandstone mining technology
various levels of the criteria were selected by the experts themselves as shown in figure 2 below.
These criteria would then form the basis for making credible choices by the experts. The collective
judgment by these experts is based on both the qualitative and quantitative inputs from these experts.
The common major steps used in the formulation of MCDM are as follows:
●● The building of the hierarchical decision model.
●● The selection of the experts.
●● The collection of data and the establishment of their validation.
●● The analysis of the results using excel software specifically designed for the pairwise
judgement analysis
Emission of
Solar Energy Total Cost of
Greenhouse Gases
Microwave- Mining One Tonne Governmen
Job during Production
Activated Mining of Sandstone t Backing
Negative Ecological
Operational Footprint Warranty/
Safety and Sophistication Maintenance
Use of Available
Protection Human Ergonomics
Recyclability at Local
Disposal Cost
End-of-Life Sourcing
Training and
Health Operations Waste Chemicals Cost of
Effects - at End-of-Life Transportation
Use Hazardous Waste Gases at of Sandstone Conformanc
Equipment End-of-Life Rocks for e to Existing
Water Political,
Maintenance Return on Legal, and
Health Required Consumptions
Investment Managemen
Effects - during Operations
t Constructs
Lifespan of Solar Consumption of
Risk Assessment by Artisanal
Panel or Other Materials
of Capital Miners
Microwave during Operations
Solar Manual Solar Manual Solar Manual Solar Manual Solar Manual
Triggered Chisel and Triggered Chisel and Triggered Chisel and Triggered Chisel and Triggered Chisel and
Microwav Hammer Microwav Hammer Microwav Hammer Microwav Hammer Microwav Hammer
e Mining Mining e Mining Mining e Mining Mining e Mining Mining e Mining Mining
Figure 2: Formulated Model for the Evaluation of Sandstone Mining Technology
The development of the hierarchy process is done through four distinct stages as stated below
beginning with the highest which is normally the goal under investigation.
●● In this study the mission or ultimate goal of the study is to undertake a comprehensive
evaluation of the emerging technology for the mining of sandstone in QwaQwa.
●● The STEEP perspectives, which follows the top most mission, are the important enablers
of the mission to be achieved. Therefore, the mission is weighed against each of the
perspectives (social, technological, economic; environmental, and political).
●● The criteria and factors for each perspective are a sub-division of each perspective to a
lower level to be use by the expert decision-makers in their pairwise comparisons. For
example, the social perspective can be divided into job creation; health and safety that
may be further split into public safety and work safety.
IAMOT 2019 | 388
●● The HDM represents the overall relationship in the framework. The judgement
quantification instrument based on the pairwise comparison is then used to gather
information from the experts – for the synthesis and ranking of the two alternatives.
Figure 3: Diagrammatic Representation of the Hierarchical Structure for the Evaluation

of The Solar-Energy-Triggered Microwave Artisanal Mining.
The selection of experts was accomplished using the stratified sampling complemented by the
snowball sampling which was handy within the academic circles. All the respondents were willing
to participate in the study. Structured questionnaires were administered to the experts for data
acquisition and gathering in the form of a pairwise comparison tool.
The pairwise comparison is a preference choice made by the experts mandated by the researcher
to show preference for one of two items. The magnitude of their liking of one item better than
the other is indicated on a relative scale, as shown in Figure 4 below. In the latter, the pencil
is liked more than the rubber; hence, a mark is made as shown in the figure. The relative scale
to measure how much one likes one item in comparison to the other has descriptive wordings
attached to the number scale – ranging from 1 to 9 on either side. The example of a pencil
and a rubber shows a preference of seven (7) on the left hand side – towards the pencil. Since
the choice is on the left, the number seven is entered in the matrix structure. The opposite
preference of the rubber over the pencil is given by the reciprocal of the first choice, 1/7. The
preference of the same item is always of an equal value; hence, the comparison of one rubber
to another is given the value of one.
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9
Pencil Rubber
Figure 4: Pairwise Comparison Scale used by the Experts in Each Category
In order to establish the ranking of the perspective, criteria and sub-criteria a matrix structure is
constructed to assist in the derivation of the priority eigen vectors. The results obtained from the
experts were captured in a matrix an example of three items is shown in table 1 below.
IAMOT 2019 | 389

Table 1: Pairwise Comparison of Three Items Captured as A Matrix
Pencil Rubber Ruler

Pencil 1 1/3 5
Rubber 3 1 7
Ruler 1/5 1/7 1
SUM 21/5 31/21 13
The matrix structure is normalised arithmetically by dividing each element in a column by the sum
of all the elements in that specific column. When the results in each column is added it should total
to one (01). The normalised principal eigen vectors can be obtained by averaging across each row
as shown below.
Table 2: Normalised Matrix of the Three Items
Pencil Rubber Ruler
Pencil 5/21 7/31 5/13
Rubber 15/21 21/31 7/13
Ruler 1/21 3/31 1/13
SUM 1 1 1
Table 3. Normalised Principal Eigen Vector (W) for the Three Items
Pencil Rubber Ruler
Pencil 5/21 7/31 5/13 0.2828
Rubber 15/21 21/31 7/13 = 0.6434
Ruler 1/21 3/31 1/13 0.0738
The analysis has shown that rubber is most preferred than pencil and ruler, these figures when
converted to percentages should add up to 100%. To test for the consistency of each expert, the
principal eigen value should be determined and used to evaluate the consistency ratio. The principal
eigen value is obtained by multiplying the sum of each column by the corresponding elements in the
eigen vector and summing them. In the above example, this value is given by:
λmax = (21/5*0.2828) + (31/21*0.6434) + (13*0.0738) = 3.0967 (1)
To measure if the experts’ opinions are consistent, we check if the comparison is transitive. This can
only be achieved if the experts maintain a logical flow in their judgement.
A comparison matrix is consistent if ai*aj = ak (Catala-Lopez, 2014). This conclusion was also reached
by Saaty (1980) who later developed the consistency measure called the degree of consistency –
based on the formula given below:
CI = (λmax- n) / (n-1) (2)
In the above-example, λmax was 3.0967 for the three comparisons where the value of n = 3. CI would
therefore be given by: (3.0967 – 3) /2 = 0.0484. Saaty (1980) also developed a universal consistency
index called the random index. The samples used in the derivation of this index comprised of up to
500 matrices. The standard index for a maximum of ten comparisons is shown in Table 4 below.
Table 4: Standard Random Consistence Index (Ri)
n 1 2 3 4 5 6 7 8 9 10
RI 0 0 0.58 0.9 1.12 1.24 1.32 1.41 1.45 1.49
The RI is then compared to the CI by means of a ratio. If the value of this ratio is smaller than 10%,
the comparison and expert opinion are accepted. However, if the ratio were greater than 10%, the
expert would have to be consulted and adjustments made on the judgement values.
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CR = CI/RI (3)
In the above example involving the three items, the CR value is given as 0.0484/0.58 = 0.083, which
is 8.3%. a figure acceptable, since 8.3% ≤ 10%.
5. Research Results and Discussions

The results discussed in this section of the paper involves statistical and mathematical analysis and
the data was acquired through the pairwise-comparison expert questionnaires. A total of thirty-five
(35) questionnaires – per perspective – were administered to each group of experts in their specific
field. However, due to extensive inconsistencies, only twelve questionnaires per perspective were
analysed. Generally, the number of experts per decision perspective is capped at six to twelve –
giving an overall total of just under sixty experts. Any additional experts beyond twelve does not
give significant benefits to the aggregated results (Sheikh, 2013).
The experts made judgements based on pairwise choices relating to the adoption of the emerging
technology in mining sandstone. A matrix of results based on these choices was developed and used
to build a model for the selection of the technology that could subsequently be used for the mining
of sandstone. Figure 5 below shows the four levels of the model.
The first level in the hierarchy structure is level 0 which is related to the goal the study. In this
case, the goal of the investigation is to evaluate the use of an emerging technology for the artisanal
mining of sandstone. The second level is level 1 which is where the designated experts are given the
questionnaires to enable them to express their opinions and judgemental values. In this level, five (5)
perspectives are compared and judged against the goal. A (5 x 5) matrix was then developed – based
on the judgment values chosen by these experts – to compare the perspectives with respect to the
goal. An example of one matrix, taken from one of the twelve participants, associated with the social
perspective is shown in Table 5 below.
Table 5: Pairwise Comparison of the Perspective Matrices Associated with the Social
Scientists’ Expert Judgements With Respect to the Goal
Pairwise Comparison Matrix by A Social Scientist with Respect to the Goal

Criteria Social Technological Economical Environmental Political
Social 1.00 4.00 2.00 6.00 7.00
Technological 0.25 1.00 2.00 2.00 6.00
Economical 0.50 0.50 1.00 3.00 6.00
Environmental 0.17 0.50 0.33 1.00 3.00
Political 0.14 0.17 0.17 0.33 1.00
Sum 2.06 6.17 5.50 12.33 23.00

Normalising the Comparison Matrix
Priority
Criteria Social Technological Economical Environmental Political
Vector
Social 0.49 0.65 0.36 0.49 0.30 0.4577
Technological 0.12 0.16 0.36 0.16 0.26 0.2140
Economical 0.24 0.08 0.18 0.24 0.26 0.2020
Environmental 0.08 0.08 0.06 0.08 0.13 0.0868
Political 0.07 0.03 0.03 0.03 0.14 0.0394
Sum 1.00 1.00 1.00 1.00 1.00
IAMOT 2019 | 391

Principal Eigen Value 5.35138
Consistency Index (CI) 0.087845
Consistency Ratio (CR) 0.0784
The values of the consistency index (CI) and the consistency ratio (CR) varied considerably from
the results given by these experts. After the initial screening – and where economically viable –
the inconsistent questionnaires were sent back to the experts, requesting their second judgement
– with the hope of reducing the inconsistency to an acceptable level. Eventually, only twelve (12)
questionnaires per perspective were analysed. The final weighted average of all sixty (60) (5 x 5)
matrices was calculated using the arithmetic mean. The mean of all the priority vectors, consistency
indexes, and consistency ratios was also calculated using the arithmetic mean.
In level two, each of the criteria is compared to its associated perspective. An example relating to the
environmental criteria matrix is shown in Table 6 below. It must be noted that the matrix structure
varied according to the number of criteria associated with a particular perspective. The arithmetic
mean of these criteria matrixes is again also calculated to find the average judgement value for the
twelve expert participants.
Table 6: Pairwise Comparison Matrix for Criteria Developed by an Environmental Expert
With Respect to the Environmental Perspective
Pairwise Comparison Matrix For Environmental Criteria
Criteria EGG NEF UAL RE WC WG WCO CMP
EGG 1.00 1.00 2.00 1.00 2.00 1.00 1.00 1.00
NEF 1.00 1.00 1.00 1.00 0.25 2.00 2.00 0.33
UAL 0.50 1.00 1.00 1.00 1.00 0.50 2.00 1.00
RE 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
WC 0.50 4.00 1.00 1.00 1.00 0.33 1.00 1.00
WG 1.00 0.50 2.00 1.00 3.00 1.00 1.00 2.00
WCO 1.00 0.50 0.50 1.00 1.00 1.00 1.00 1.00
CMP 1.00 3.00 1.00 1.00 1.00 0.50 1.00 1.00
Sum 7.00 12.00 9.50 8.00 10.25 7.33 10.00 8.33
Normalising the Comparison Matrix for Environmentalists
Priority
Criteria EGG NEF UAL RE WC WG WCO CMP
Vector
EGG 0.14 0.08 0.21 0.13 0.20 0.14 0.10 0.12 0.1392
NEF 0.14 0.08 0.11 0.13 0.02 0.27 0.20 0.04 0.1242
UAL 0.07 0.08 0.11 0.13 0.10 0.07 0.20 0.12 0.1088
RE 0.14 0.08 0.11 0.13 0.10 0.14 0.10 0.12 0.1138
WC 0.07 0.33 0.11 0.13 0.10 0.05 0.10 0.12 0.1248
WG 0.14 0.04 0.21 0.13 0.29 0.14 0.10 0.24 0.1611
WCO 0.14 0.04 0.05 0.13 0.10 0.14 0.10 0.12 0.1020
CMP 0.14 0.25 0.11 0.13 0.10 0.07 0.10 0.12 0.1261
Sum 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
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Principal Eigen Value 8.940234
Consistency Index (CI) 0.134319
Consistency Ratio (CR) 0.0953
The final level is level 3 where the alternatives are compared against each of the criteria. Because
of the large outcry for land preservation, the researcher incorporated land preservation in the two
mining alternatives to assess the impact of the emerging technology. In total, twenty-eight (28) (3
x 3) matrices were developed for each of the twelve participants. Again, the average of all twelve
nominated participants was calculated using the arithmetic mean. The impact of the criteria on the two
alternatives and the incorporation of the predominant view of landscape preservation was weighted by
combing the two matrices. The final (3 x 5) matrix is then derived from these two matrices.
The alternatives are then ranked by preference, based on the expert choices provided by the sixty
participants, by combining the weighted average of the criteria and the final average priority vector
of the five perspectives.
Table 6: Aggregate Overall Matrix Including All Levels of the Framework
Overall Idealized
Social Technological Economical Environmental Political Rank
Priority Priority
Solar 0,0733 0,1062 0,0892 0,0949 0,0556 0,4193 1,0000 1
Manual 0,0678 0,0393 0,0686 0,0591 0,0480 0,2829 0,6747 3
Land
0,0603 0,0295 0,0511 0,1019 0,0591 0,3020 0,7203 2
Preservation
Overall CI Overall RI Overall CR
0,1159 2,2400 0,0517
The overall consistency ratio is also calculated using the formula below that represents the weighted
average of all the matrices involving all the criteria and the five perspectives.
CRT = ∑wi CIi / ∑wi RIi = 0,0517 (<10%, is therefore acceptable).
Figure 6: The Overall Final Weights eith Respect to the Goal, After Accommodating the
Views of Land Preservation Supporters
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The overall ranking of the alternatives whilst accommodation the land conservation views revealed
an average weighted value of 0.42 as shown in Figure 6 above. The result shows more support for
the solar-energy-microwave-activated emerging technology. A weight of 0.28 was derived from the
experts as supporting the traditional mining methods. Another way of interpreting these weights is
that solar-energy-activated microwave mining is (0.42/ 0.28) fifteen times more preferred than the
traditional tools. The difference in the choices exercised by the experts is not significant. This is
probably because of the high initial investment cost of implementing such an emerging technology.
For instance, all the miners would need to be technically trained and assisted, to be able to adapt to
the new technology.
6. Conclusion
In this paper an integrated-analytical-hierarchy decision model was developed to evaluate the solar-
energy-activated microwave sandstone gun – using the STEEP perspectives. Experts from specific
fields of expertise gave their judgment quantification values. These latter were used to rank the
available alternatives, namely, mining with traditional tools such as chisel and hammer, and mining
using the solar-energy-activated microwave. The ranking of these alternatives revealed good support
for the solar-energy-activated microwave mining equipment – with a score of up to 42% - – followed
by land preservation at 38%. The land debate became a prominent area of deep engagement that had
to be considered in the evaluation. Traditional mining tools had a score of 20%. The resultant model
is expected to provide guidance in the selection and improvement of emerging mining technology.
The model will also benefit decision-makers in government, the QwaQwa community, and the
small-scale mining industry worldwide. It is hoped that, if this new technology were adopted, it
would change the way miners in QwaQwa operate. The increased productivity of sandstone would
result in the better pricing of sandstone and its by-products in Southern Africa. In addition, more
efficient and cost-effective operations in the artisanal mining of sandstone would be developed. If
unsuccessful, the model will nevertheless be useful in showing what does not work effectively and
will open the possibility for others to make viable improvements.
7. Acknowledgements
The authors would like to give gratitude to the University of Johannesburg, the mining community
in QwaQwa and the NRF for funding the Operational costs during the research.
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IAMOT 2019 | 396

Technological Catch-Up Challenges on Complex
Product Systems in Developing Economies:
A Case Study of Measurment Systems
for Oil & Gas Wells in Iran
Ali Daghaieghi
University of Tehran, Alborz Campus, Iran
E-mail: daghaieghi@ut.ac.ir
Naser Bagheri Moghadam
National Research Institute for Science policy, Iran
E-mail: bagheri@nrisp.ac.ir
Ahmad Jafarnezhad Chaghoshi
University of Tehran, Department of Industrial Management,Iran
E-mail: jafarnjd@ut.ac.ir
Reza Kabiri
National Iranian Drilling Company, Iran
E-mail: rkabiri@gmail.com
Abstract
Complex product systems (CoPS) are known as backbone of modern economy in both developed and developing
societies because of their specific characteristics comparing to mass-production goods. As a developing economy,
a growing body of attempts have been made in Iran to achieve manufacturing technology of complex product
systems in the last decades. This paper provides a review on previous achievements and current research interests
for manufacturing measurement systems identifying characteristics of oil and gas wells by National Iranian
Drilling Company. Furthermore, it aims to investigate the research potentials, technological capabilities and firm
level catch-up strategy to overcome barriers of manufacturing complex product through case study. The evidence
shows the importance of multidisciplinary integration and product verification, government’s policies and intensive
investment, close interaction with clients, networking and collaboration between R&D centres and product
developers, firm organization and capacities contribute to resolve the challenges of manufacturing measurement
systems for oil and gas wells in Iran.
Keywords: Catch-up Strategy, Complex Product and System, CoPS, Measurement Systems, Oil and Gas Wells, Iran
1. Introduction
During the last decades, considerable attempts have been made by several latecomer countries
to catch-up with new technologies. Scholars’ studies demonstrate that several factors including
geographical situation, national resources, governmental strategies, time dependent items, and
product characteristics have played important roles in latecomers’ technological catch up and
therefore diverse approaches to technological catch up have been introduced. Miller and Hobday,
classified products into complex product systems (CoPS) and mass-produced consuming goods
(Miller et al., 1995; Hobday, 1998).From Hobday’s point of view complex product and systems
(CoPS) are high value, low-volume, technology and engineering-intensive products, systems,
networks and constructs supplied by a unit of production, purchased by one or more users, usually
under one or more formal contracts within a recognizable single project. They are business to
business capital goods which form the backbone of modern economy and society.
Although latecomers have made remarkable achievements in recent years, they are still lagging
behind the technological leaders in the capabilities of providing CoPS, an effective response is needed
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to close the gap. The challenges facing latecomer countries, all of whom previously specialized
in mass-produced goods, seem quite daunting due to the differences in the associated innovation
systems of CoPS and mass-produced goods. (Park, 2012) (Hobday, 2000), (Ren and Yeo 2006).
In addition to inherent obstacles facing developing countries in producing complex product systems,
international sanctions have made technological catch up more challenging in Iran. Meanwhile,
Iranian firms have continuously followed catching up with CoPS mostly focused on energy sector.
The examples of previous studies included wind turbines electricity generation systems (Bagheri
Moghadam et al, 2011), heavy duty gas turbines (Majidpour, 2012), hydro power generation
(Kiamehr et al, 2013), thermal electricity generation systems (Kiamehr et al, 2015), thermal
power plant (Shahrzad et al, 2017), gas turbine (Safdari Ranjbar et al, 2017), ship manufacturing
(Tahmasebi et al, 2017).
Despite the attractiveness of the market’s huge demands, the diversification of similar projects
to the state-sponsored system of governmental firms, the international sanctions has had an
adverse effect on the international cooperation and considered as an obstacle to international
processes to attract knowledge. In the past decade, the National Iranian Drilling Company has
made call for an international tender to supply equipment for measuring Down hole and Surface
Equipment and localizing knowledge of their construction. The outcome of the bidding process
resulted in the definition of a consortium consisting of the private domestic and European-owned
companies. Upon the commencement of sanctions in 2010, foreign parties left the consortium
and the contracts were cancelled. The National Iranian Drilling Company considered this
action to be a window of opportunity and, in order to meet the necessary requirements, created
the conditions for creating knowledge within the firm through an organizational review, and
by defining small projects have deepened it. After building capacity in the firm, it has been
attempting to create the capacity and empowerment of the scientific centres and private sector
of the country. In recent years, considerable success has been achieved in the production of
these equipment in accordance with the conditions of the country’s oil and gas reservoirs in the
offshore and onshore oil and gas fields.
The present study seeks to analyse the role of the various factors in technological catch-up
by reviewing the records of the activities and achievements of the National Iranian Drilling
Company. The purpose of this article is to use a qualitative approach and research strategy to
study the case of a deep study of the National Drilling Company’s experience and the process
of acquiring and creating the technological capabilities necessary for the construction and
upgrading of measuring equipment by the company and, while studying the effective factors
identify the challenge on this experience.
The distinctive features of this research are with previous research in Iran, in particular
with regard to the industry in the field of electricity, the great variety of knowledge used
in manufacturing of equipment, the unusual working conditions of equipment, and the
impossibility of official cooperation in transferring knowledge and technology from foreign
companies and also the company has been able to build and upgrade its equipment based on
its internal capabilities.
The paper begins with a description of CoPS and the development of an industrial classification
system for CoPS-based industries. By integrating and classification effective factors on CoPS,
major item in these projects were gathered through interviews. Overall, the analysis shows that most
introduced factors in latecomer’s best practices, have limited effect on catch up in Iran because of
sanctions. The paper is organized into five sections. In the next section a quick review has been
made on technological CoPS definitions and background in developing countries especially in Iran
and continues to show effecting factors on previous projects. Next section describes the research
methodology and analysed result are provided in next section named findings. The survey reached
to conclusion in the last section with a summary and points to future research underway using the
method developed in this paper.
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Technological Catch-Up Challenges on Complex Product Systems in Developing Economies
2.1. Complex Products and Systems

The starting point for the use of these products is at a historic point of view to industrial countries.
This began at first with the category of military systems, system complexities, large technical
systems, project management, and industrial organization studies. However, this idea was not central
to any of these study trends, and was mainly considered as a case study, research topic, modelling,
and so on. The first definition of this concept was presented by Hobday in 1996: Products with
sophisticated systems, including products, systems, networks and high-cost infrastructure, require
high level engineering, high-tech, customized technology, and their production with the goal is to
meet the needs of specific customers. These products and systems, for example, include airplanes,
advanced communication systems, high-speed trains, nuclear technology, drilling facilities in the
oceans, turbines, and naval vessels. These products have important political and economic values
for producers and users (Hobday, 1998).
Unlike most conventional products and consumables that the manufacturing system complies
with the mass production model, the sector of complex product structure consists of a very large
number of very large suppliers, builders and customers. This small number of firms is all involved
in the design, research and development processes, system integration, future product upgrades and
product maintenance. These products generally grow in complexity and as technology progresses
progressively and suppliers respond to the economic environment and the demand for innovation
from multiple buyers. That’s why these products require high level engineering capabilities to meet
the specific needs of each customer. One of the tools for differentiating complex products is that the
mechanism and management of innovation in these products varies with simple mass production
products, and innovation studies are also between mass-produced goods with complex and high-tech
goods, low capital goods, and Highly distinguished products are one of the most important reasons
for the difference between complex products and mass production in the complexity of product
and process technology, the nature and size of demand (on a small scale and based on customer
orders) and a higher concentration in the supply market, which is It leads to the cost of design and
production process Products complicated. In summary, the following features can be considered for
complex products: These products are mostly Job for B2B jobs; They have high economic value
for the producer and the customer; Their structure is complex and consists of various subsystems
and components that are diverse and relevant; They have important and vital functions; They are
mostly in the form of projects or in small categories; They have high level of innovation; Generally
customized for specific customers; they need a high level of coordination and collaboration during
the design, production and operation phases; They need extensive and profound knowledge and
skills; Usually include complex software; They have a long life span and require a high level of
integration of the system (Kiamehr et al., 2015; Davies et al., 2011) .
In the drilling industry, various equipment can be found, which, according to the above definition,
includes complex product definition. Meanwhile, in-field measuring equipment is also due to
the wide variety of subsystems and the dependence on a wide range of knowledge have a varied
and complex. Examples of engaged knowledge in this multi-disciplinary equipment are: geology,
petroleum engineering, mechanical engineering, metallurgy, electrical engineering, nuclear
engineering, and computer science.
According to the Lall definition for the levels of complexity of each functional component and their
classification into the preliminary, intermediate and advanced levels, the components of measuring
equipment can be classified as follow: (Lall, 1992).
●● Introductory level: Used in down-hole measuring equipment, these functional
components are mostly consumable, although the volume of these parts is not high. For
example Cable Head, Knuckle Joints, Candle Rod, O-rings, and MSFL pad and other
accessories.
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●● Intermediate level: Used in surface and down-hole equipment including input/output

modules, power supply, and tool housings. Although technology is less complicated,
things like reliability and standards for working in hostile environment (exposed to high
humidity, high temperatures, vibration and shock, etc.) have direct impact on achieving a
mature product. Additional accessories and complementary operations such as offshore
and onshore units and Perforation equipment can also be placed in this category.
●● Advanced Level: In both surface and down-hole measuring equipment, instrumentation
parts, data communication boards, data analysis and processing are very complex.
Designing an algorithm for these sub-systems requires years of deep expertise and
knowledge. In addition, a team work through professional networks should be involved
to manage and adapt different sectors.
According to the scholars, developing countries attempt to acquiring technology by choosing
appropriate technology and imitating in the first stages. Ideally, firms may be able to make
changes to imported technology to adapt them with new working condition in new country. Even
internationally matured measurement equipment and tools need upgrading and reconfiguration to
meet client’s requirements and overcome environmental effects. These corrections and adjustments
resulting from the two main factors below may last up to one year during commissioning.
●● In the process of measuring the down-hole, a combination of several equipment (for
example, ten), each of which has its own independent technology, is used. Even
if equipment cannot perform the correct measure, the entire work will be disturbed.
Therefore, the compatibility subject requires time according to the variety of equipment.
●● Down-hole measurement equipment measures various geological parameters,
characteristics of underwater fluid, and so on. Due to the diversity of these features in
different geographical regions of the world, the process of adapting mature technology
to the geographical condition of Iran in the operational Offshore and Onshore requires
time.
2.2. Complex Products and Systems in Developing Countries

Over the past decades, research on complex products in Asian and Latin American countries such as
China, South Korea, India, Iran and Brazil has been conducted, and there have been many attempts
to enter the Jirga of the producers of these products. A number of researchers over the past two
decades have addressed the issue of complex products and systems in developing countries, and
have been examining this in a number of different ways.
With the study of the Integrated Services Digital Network in Indonesia by Ganwan and his colleagues,
they found out and concluded that developing countries’ capacity to produce complex products were
dependent on factors such as the level of technological capability, regulatory subjects, the network of
partners, and the appropriate marketing plan. (Gunawan et al., 2002)During the Brazilian oil industry
study, Ticksra and his colleagues identified some barriers to the formation of a learning network
in complex products and systems. Some of these barriers include the attractive and opportunistic
behaviours by some actors, the lack or insufficient incentive for actors to participate in the network,
the high diversity among actors in terms of organizational and technological capabilities, and some
problems associated with supporting structures, coordination activities (Teixeira et al., 2006).
Park studied the three communications projects in South Korea by studying how latecomer
countries can succeed in the complex products and systems industry. He believes that the catch-up
of technology with leading countries in complex products and systems is not easy because there
are fundamental differences between these mass-produced products and goods that the latecomer
countries are specialized in. In general, he presents four key suggestions for the success of latecomer
countries in the field of complex products and systems: Special attention to institutional and political
factors that play a key role in the development of complex products and systems; Acquisition and
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utilization of basic capabilities to transition to spontaneous and inclusive partnership, global networking,
standardizing activities and policies and focusing on endogenous research and development; Working
with global companies and groups; Attention to the key role of large domestic enterprises in becoming
a world-class leading company in the field of complex products and systems (Park, 2012).
Chang and Huang studying the successful experience in the development and commercialization of
South Korea’s telecommunications systems from various actors’ integration, project management
and planning, management capabilities, evolution of institutions and technology, and collaboration
between large firms and research centres and internal development as effective factors (Choung et al.,
2007) .In the process of studying the locomotive industry in China, Su and Liu, have identified three
key dynamic capabilities in the development of complex products: customer-centric understanding
of capability, technology acquisition capability and organizational learning (Su et al., 2012). Rang
and colleagues studied the technological leadership and capabilities of leading Chinese enterprises
in the field of medical equipment. Their findings suggest that interdisciplinary integration, investing
in compilation, collaboration, networking, and supporting institutions to overcome the challenge
facing the development and development of complex products, have paid great importance for the
study of governmental electronic systems (Zhang et al., 2013).
Lee and Yoon studied the military aircraft industry in South Korea, China, and Brazil, concluding
that government actions and initiatives, firms’ strategies for technology acquisition (purchase,
construction or cooperation), and the degree to which foreign partners were active in creating the
technological and organizational capabilities in this industry (Lee et al., 2015). Hobday has found
similar paths in the growth of the electronics industry in four Southeast Asian countries. His findings
show that later firms began with simple tasks such as assembling, then they began to improve the
process and then learn the technology of the product through reverse engineering, and eventually
they were able to research and develop the product and process, namely, the ability to innovate in
the product and process ( Hobday, 1996) .
Chudnovsky suggested that the technology accumulation pattern in companies involves the production
of complex capital goods, starting with the maintenance and operation of imported systems, which gives
companies the knowledge and ability needed to produce capital goods. After a while, the companies
that are studying can do repair work on the equipment and partly work on product design (Chudnovsky,
1985) .Hwang considered South Korean experience in the airplane manufacturing industry to consider
the development of Korean technology’s technological capability, including gradual and continuous
movement in the product pyramid system. Korean companies began to assemble aircraft and build
some simple parts, gradually entered into the design and construction of some systems and manufacture
of the tools needed for production, and eventually tried to enter the aircraft design, test and develop the
production process. But their success was limited to small aircraft and could not achieve a decent sales
volume (Hwang, 2000) .Davies refers to the role of repairs and services in increasing the profitability
of suppliers, and shows how feedback from the operation of complex capital goods can be used to
improve exploitation and production (Davies, 2004).
2.3. Complex Products and Systems in Iran

In recent years, in Iran as a developing country, studies and analysis of experiences in the field of
complex products and systems have been considered. These studies are more energy-intensive and
military industries, but there is no remarkable effect in the oil industry.
In the study of the wind energy industry, for example, Bagheri Moghaddam and his colleagues have
analysed the technological capabilities, institutions, policies and laws that affect this industry in
Iran. They used the concept of technology-level features in order to assess the level of technological
capabilities in Iran to produce the main components of wind turbines. The results of their research
indicate that due to the strong dependence on fossil fuels such as oil and gas, the technological
capabilities needed for renewable energy such as wind energy and solar energy are not formed in
Iran. They also found that the existing policies and laws in the country were not able to support the
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increasing use of renewable energy, especially wind energy, and these rules need to be reviewed
(Bagheri Moghaddam et al., 2011) .
In the field of gas turbines, Majidpour investigated the study of heavy gas turbines in three developing
countries, namely Iran, India and China, and concluded that state involvement in supporting and
intervening in this industry was important in all three countries. In the area of development
and
development of the industry in all three countries, macroeconomic policies of the countries have
played a major role. In another study, which the researcher has done in the field of gas turbines as a
domain of complex products and systems in Iran, It points out that although LGT’s alignment is not
an impossible phenomenon, there are many obstacles in developing countries. LGTs are advanced
industrial products that have grown over the course of fifty years. Some of these technologies
are rooted in jet aircraft engines, whose industry owners are reluctant to transfer knowledge to
developing countries. Therefore, the issue of technological coherence in complex products and
systems, including LGT, has many challenges. He also found that with regard to the technological
and market regime in the LGT industry, the concepts of jump in South Korean complications
could not be developed into the LGT industry. It is also almost impossible for a later state without
historical experience in LGT’s core capabilities, such as system integration. Also, the latter countries
cannot cross this route without heavy investment in previous technologies, because LGT continues
to innovate on subsystems and productivity after installing it. So, in his view, it is more appropriate
to continue the route for the related products and industries, and a later country can pass this route
to the leading country in shorter time. In this way, government-sponsored, government support
and collaboration with universities create infrastructure-based infrastructures for paving the way
(Majidpour, 2012; 2016a).
Kayamehr studied on hydropower and hydropower systems in Iran concluded that in the field of
hydroelectricity, the integration system in developing countries in the industry has been promoted
in the relatively short time of project management skills to innovation capabilities. It is backed by
complex engineering know-how and ultimately led to success in domestic and foreign markets.
Also in the field of thermal energy of Kiamehr, the importance of marketing capabilities and some
of the strategies, such as the acquisition of production capabilities and the creation of design and
engineering capabilities for the development of markets and exports, as well as the transition to the
market leadership stage in the thermal power generation industry, was demonstrated. He pointed
to four stages of transition to market leadership: Overcoming barriers to entry into the industry;
producing production capabilities; Creating design and engineering skills for market development
and exports; and transitioning to market leadership. In addition, Kiamehr studied the accumulation
of technological capabilities in suppliers of complex capital goods in the field of electric power
generation systems. His findings suggest that, instead of starting with the initial stages of the product
life cycle, technological capabilities in this case have been achieved through a non-linear motion
within the design and installation of complex capital goods in these projects. In other words, the
process started from the middle phase, engineering and identifying complex products in the form of
projects, and then the final stage, the operation of complex products, and finally returned to the first
stage, the design of complex products (Kiamehr et al., 2013; 2015).
In the field of airline industry, Naghizadeh and his colleagues Studied the plan of the aircraft
(150-IR) to study the network structure and interaction mechanisms in the innovation network,
as well as the capabilities needed for the network integrator, in general, 12 challenges as well
as 17 mechanisms and tools for integrating into the design phase of the 150-IR aircraft. They
concluded that, firstly, the challenges facing developing countries in integrating a diversified
innovation network differ from developed and developing countries; secondly, the very dynamics
of projects of complex products and systems makes the integration structures and machinery
during the development different from others. Thirdly, the complexity and interconnectedness of
these projects makes the challenge of one of the components quickly spread to other components
of the network (Naghizadeh et al., 2016).
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In the field of marine industries, Tahmasebi and his colleagues have reviewed the development of
technological capabilities in one of the industrial organizations in the Iranian maritime industry. In
spite of the fact that most of the models offered in the field of developing technological capabilities
for companies in developing countries as well as new companies emphasize on international
cooperation with leading countries, according to them, but given the sanctions imposed on Iran,
especially in the field of industry Sophisticated dual use, the possibility of widespread international
cooperation in this area is not feasible or very limited. Given these conditions, in order to achieve
different levels of technological capabilities, inevitably, reverse engineering should be used. In
spite of the difficulty in supplying complex products and reverse engineering, complex efforts
have been made in this area, but efforts have been made in this direction, but first of all, it is
necessary to create the necessary infrastructure and invest in necessary capacity for additional
measures are to be provided. In the next step, reverse engineering will create products with a
modest level of technology, including the use of specialist mutatis mutandis experts. Ultimately,
the development of research and development units and the efforts to design and innovate with
reverse engineering of more complex products will streamline the upgrade path. The path to growth
of this industry is a gradual and logical path and the capabilities are gradually accumulating and
developing (Tahmasebi et al., 2017).
3. Influencing Factors
By reviewing and previous practices in literature of technological catch-up in CoPS, relevant factors
influencing by latecomer countries and firms are summarized. The results are categorised and
presented in Table 1. These factors were the base of dissections during interviews.
Table 1: Influencing Factors on Technological Catch up
Category Criteria Reference
Types of policies and methods of government intervention Majidpour, 2013
Suitable technology acquisition: make, buy or collaborate Lee and Yoon, 2015
Roles of government, management in large-scale user, public

Choung and Hwang,2007
procurement, and standard setting for developing CoPS
Government roles in investing in engineering and design innovations,

Kiamehr, Hobday, and
and promoting educational programmes for acquiring knowledge and
Kermanshah, 2014
technology of CoPS
Important government roles: Direct supervision; Long-term

Governmental investments for building infrastructure; Enactment of proper Park and Kim, 2014
Policies legislation to succeed in CoPS
Economic performance and value added by CoPS Acha et al.,2004
Governmental direct role in the provision of government subsidies,

and indirect role in regulatory measures such as establishing technical Davies and Brady, 1998
standards in CoPS
The role of institutions and political; Acquisition or utilisation of

major capabilities; Collaboration with an international standardisation Park, 2013
work group, and the role of large firms
Foreign partners’ role and government initiatives Lee and Yoon, 2015
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Close and organic network between users, suppliers, academic Igel and Wei,
institutes, government and regulators, investors and other companies 2002; Park and Ji, 2015
Choung
Interaction between large-scale companies and local R&D centres
and Hwang, 2007
Networking and collaborating with international standardization team Park, 2012
Kiamehr et al., 2015;

Foreign engineering collaboration of key players including
Lee and Yoon, 2015;
deployment sector and R&D core
Interactive Majidpour, 2016b
Learning and
Multi-player System integration, large scale project management, complex supply
Networks chain and logistics management, knowledge management, risk
management and soft intangible skills such as appropriate project Ren and Yeo, 2006
leadership style and political skills, Cross-cultural and people
management, contract administration and legal expertise
Improving learning capacity through doing projects with technology

Majidpour, 2016a
leaders; Using multiple sources of technology
Network integration Naghizadeh et al. 2016
Acquiring required aspects of technological capabilities including

Igel and Wei, 2002;
research, design and development capabilities; Technology
Kiamehr et al., 2015
adaptation; Manufacturing and engineering capabilities
Localized research and development Park and Ji, 2015
Importance of contract types and terms Majidpour, 2016b

Deployment
of All
Infrastructures R&D capabilities, creating organic network among various actors,
the capability to leverage suitable support from government, and the Park and Ji,2015
establishment of a large demand base
Kiamehr, Hobday, and

Systems integration capability
Kermanshah, 2014
Importance of developing and maintaining broad and deep range of

Prencipe, 2000
technological capabilities
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Marketing plan Gunawan et al.,2002
Politicized market Choung & Hwang,2007
Client satisfaction and expanding markets, gathering knowledge on

Kiamehr et al., 2013
markets and forming relationships
Insurance coverage to deal with clients Kiamehr et al., 2013
Market and Establishment of a large demand base Park and Ji, 2015
Demand
Size and orientation of markets Majidpour, 2016a
Market regimes Majidpour, 2016b
Market and industry Coordination,

Majidpour, 2016a
managing and regulating market
Users (buyers or consumers) Baraldi 2009; Su & Liu 2012
Customer-oriented perception, controlling multi-organisation network Su and Liu,

and absorptive capability on organisational learning 2012
Choung & Hwang, 2007;

Importance of integration and coordination, role of system integrator,
Kiamehr et al., 2015;
project planning and managerial capabilities
Naghizadeh et al., 2016
Common challenges using project capabilities:

Discontinuities in knowledge flows and learning and barriers in front
of learning within, between and beyond projects; Disjuncture between
project-based learning and company’s business processes; Difficulties Davies et al. 2011
in managing long-term client relations; Developing strong systems
integration capability; Organising for project business opportunities
and providing project-based solutions;
Weakness of project-based organization in per

forming routine tasks, achieving economies of scale and scope, Davies and Hobday 2005,
Organizational enabling firm-wide learning, and allowing overall business Hobday 2000
and Managerial coordination
Capabilities
Method of supplier selection in CoPS projects Du et al. (2015)
Unproven management and IT tools,some of the conventional

Hobday and Rush (1999)
managerial methods are unlikely to apply to CoPS
Human resources development capability and integration capability Igel and Wei, 2002
Bid preparation and project management capacity in CoPS production Davies and Brady (2000)
Project management; Partnership network management;

Hardstone (2004)
Market capabilities; Systems integration
Organizational knowledge management capabilities Ngai etal., 2008
Managerial leverage to receiving support from government Park and Ji, 2015
4. Methodology
A case study is one of the many qualitative and quantitative methods that can be adopted to collect
data for research. Such methods represent part of what is referred to as the research strategy that
details the design and data collection approaches to be used in the research. This study employed the
case study method based on Yin (2014) definition and conducted in-depth analysis of firm level’s
technology accumulation process and catch up activities in Iranian oil & gas industry and targeted
well measurement and real-time data monitoring systems. According to Yin (2014) evidence of
case studies come from six sources: documents, archival records, interviews, direct observation,
participant observation and physical artifacts.
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The results are based on qualitative data gathered during a 12-month period of fieldwork in Ahwaz,
including participant observation onshore and offshore field tests and 30 interviews with experts in
R&D, engineering, operation, and maintenance departments of National Iranian Drilling Company
(NIDC) as well as 15 interviews with key players in product research and deployment sectors. In spite
of providing more interview chances, the answers were saturated and no new idea were introduced.
Most interviews were conducted in Tehran and Ahvaz, but some were held in operational bases in
south west of Iran. Information was also collected through participation and observation at brain
storming meetings.
The interviews were semi-structured, containing a sequence of themes to be covered, as well as
suggested questions’. Therefore each interview began with proper general questions related to the
project and continued with focusing on participants’ perspectives on physics of measurement and
output challenges such as quality, reliability, precision. For instance in interview with talents in
R&D institute, we focused on prototyping capabilities, while in interview with NIDC and National
Iranian Oil Company (NIOC) managers we focused on government policies, market factors and the
role research institutes and developers. Interviews ended with free discussion session to gather all
probable factors affecting the projects from both technical and managerial aspects. Interview lasted
50 minutes on average, ranging from 30 to 100 minutes which shows most interviewers participated
effectively. Interview candidates were identified through stakeholders, industry association lists,
organization chart of each sector, and most importantly through the snowball method. Meanwhile,
several documents including long-term strategies, organizational charts, projects reports and
achievements were reviewed. As per interviewer request, their name and position are not published
in this paper.
Once the data collection process for the case studies is commenced, Yin (2014) suggests that the
early analysis of the data is a critical step in the overall interpretation of the case studies According
to Yin (2014) Data analysis in case studies consists of examining, categorizing, tabulating, testing or
otherwise recombining both quantitative and qualitative evidence to address the initial propositions
of a study. This research has been analysed base on theoretical propositions approach. In table one,
previous practices and research background have been summarized and then have been used to
analyse collected data. After categorizing gather data, five major items were generated. In some
cases, a summery covered several categories and to avoid multiple usage of one reference it only
was assigned to one category.
According to Miles and Huberman (1994) then information were extracted from interviews
documents and observations and drown out evidences of challenges. Data checking process were
continued through brain storming and review meetings and other communication methods like
webinars. This type of research methodology including data collecting and analysing methods
had been employed in several previous research related to CoPS in latecomer firms and countries
including Park (2012), Park and Kim (2014), and Park and Ji (2015) .
5. Catching up with CoPS at NIDC

The oil and gas industry has been the engine of economic growth, and the first source of energy in
domestic market ever since. After more than 100 years of exploration and production, most of the oil
production reservoirs of country are in the second half of their life and production methods has been
changing. The increasing trend of domestic consumption also affects exports and foreign exchange
earnings of the country greatly.
According to the oil and gas industry value chain, new dynamic technologies in the areas of detailed
petro-physical assessment of exploration wells, and planning for development wells, updated and
detailed acquired data from reservoirs and preserved production and security of data acquisition
of oil and gas fields are extremely important. Restrictions on access to new equipment and getting
help from foreign companies to acquire information about oil and gas reservoirs can lead to the
withdrawal of valuable information on the reservoirs from country. In addition to leaking of large
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amounts of currency, unstable foreign cooperation including shutting down the projects for different
reasons such as sanctions or irrationally increase the cost of services, caused crisis in oil production.
Technologies available in the oil and gas industry have always been part of high tech industries.
Drilling industry, due to tough environmental conditions and exposure to unpredictable events
during drilling, is one of the industries that have taken the highest advantage of technology in
relation to time management, financial resource management, safety standards observance and
keeping oil production ceiling. Identification of the parameters of the earth layers and oil and gas
reservoirs in the depths of more than 3,000 meters from the ground is done by logging services in
very poor conditions and at high temperature and pressure and in the presence of corrosive gases
based on a diverse range of technological equipment and by observing the highest standards.
For the detection of hydrocarbon layers between layers of the earth, the outputs resulting from
logging need to be very accurate and sensitive. Failure to use appropriate technology to obtain this
information can waste the huge costs of initial exploration and drilling and deprive the country
of access to new resources. The importance and value of logging services are also tangible in the
comparison of revenue ratio of home services for wellhead technical services. Among the 15 main
services, logging services alone, have allocated more than 25% of technical service revenues
to themselves bases on cost analyses at NIDC. The average cost of drilling a well is about 150
million Euros in Iran and it can be said through the experience that about 10% of the costs are
allocated to logging services.
A look at the history and life of more than one hundred years of exploration and production of oil in
Iran emphasizes the fact that an acceptable level of localization and technology acquisition in this
industry has not been achieved yet. Diversity of technical knowledge and high level of reliability
expected from products, in the one hand, and the lack of infrastructures and validation references,
on the other hand, have had a significant impact on the dullness of technology acquisition process.
In the evaluation and selection of technology acquisition method, it should be tried to meet all the
goals of the organization in relation to the use of technology, and technology-related risks must also
be taken into account. According to the above-mentioned limitations, technology assessment in this
industry is largely based on personal experience. This matter has created a major challenge for the
decision makers who have to make appropriate decisions for the survival of the organization and
development of competitive advantages and also have to make reasonable decisions in relation to
choosing an appropriate technology acquisition method and its localization.
There have been a few number of companies in western countries that have developed this technology
over the last 50 years and mostly they preferred to provide operational services instead of equipment
sales. A closer look at the historical development of measurement tools reveals that their evolutionary
path has been greatly influenced by the technological development in science especially electronic
and computer science in addition to expanding oil exploration in different geographical places with
wide variety of reserve behaviour.
Among countries that entered the measurement tools industry in the last decade, China was the first
latecomer country to promote the industry under the national initiative. China had been actively
conducting research and development on its own by founding the national institutes. In addition to
main duties of each institute, they accepted related projects as well. For instance main researches
of sonic tools have been conducted in national institute of shipbuilding and ocean engineering.
Meanwhile, some privet companies started technological catch up by imitating and reverse
engineering. Some others, negotiated with well-known western companies to move assembly line to
China. On the other hand, in addition to conducted research in local universities, records of conducted
researches by Chinese talents in well logging laboratory of university of Houston shows that china
is reaching a considerable capacity in this industry and will move to technological innovation from
catch up. Chinese brand are widely used in Iran.
Measurement equipment are classified based on operational methods and are often recognized as
wireline logging, logging while drilling, and surface logging. In general three main service providers,
Schlumberger, Halliburton, and GE are the market leaders both in advanced technologies and market
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sharing. Due to a high number of production wells as well as a considerable amount of drilling rigs,
Iran is valuable market in oil well logging services. This demand had been supplied by governmental
sector (NIDC) via purchasing equipment from foreign leader companies as well as few well-known
fringe service providers before 2010. In 2010, due to strict and wide sanctions against Iran, previous
players limited their activities and some local privet companies entered to cooperation with foreign
newcomers in order to supply appeared gap in Iran’s domestic needs to logging services.
By emerging this market demand, NIDC decided to expand his activates to build and acquire
necessary knowledge and technologies of manufacturing these tools. One year close cooperation
between NIDC and universities led to a deep feasibility study and provision of RFP. Through
different tenders three high ranked universities were selected and specific industrial poles were
established. The main goal of the contracts were acquiring knowledge and technologies of
measurement equipment of surface logging, wireline logging, and logging while drilling through a
sustainable organization to achieve mature equipment. Through this projects, Iran cached up with
the knowledge and technologies required to manufacture tools to provide above mentioned services
and still working on more improvements.
Table 2: Catch up in Various Sub-systems
Sub Systems Type of Project Field Tests
Surface Logging DAS Software & Hardware, On-line Data Transmission 100%
Production Logging DAS Software & Hardware 100%
Cement Bond Tool Hardware 100%
Navigation Tool Hardware 100%

Open Hole Logging DAS Software & Hardware 50%
Logging While Drilling DAS Software & Hardware 70%
In table 2 sub-systems are divided into surface and down-hole part of Data Acquisition Systems
(DAS), Cement Bond Tool and Navigation Tool ate two specific down-hole sub systems which
can be connected to Production or Open Hole Logging platforms. Some general achievements in
measurement equipment project include: improving reliability by applying new scientific subjects,
ease of operation, down-time reduction, localizing spare parts and technical supports, establishing
research centres and localization knowledge, ability to manufacturing new versions in future,
establishment test facilities and other infrastructures, provision of job opportunities for talents,
definition of new business in country, reducing time and cost of equipment, developing system
integration and supply chain management knowledge.
6. Findings
6.1. Governmental Policies

Complex products and systems are high cost equipment which are manufactured in limited quantities.
Iran has been suffering war and sanctions over the last 40 years. In this situation government priories
it’s investment to mass production and general needs of country. Although similar projects had been
offered to ministry, but general polices were focused on consumables. Along with policies, some
projects like manufacturing perforation equipment were defined and eye catching results achieved.
These projects were good evidences to satisfy top management to invest in new projects. By intense
of sanctions in 2010, well-known service providers abandoned Iran and limited their collaboration
with NIOC. Emerging a real need, previous successful projects and one year deep feasibility study
were main three factors which led to new governmental policies.
In these projects, National Iranian Oil Company and National Iranian drilling Company were directly
in charged in whole process from project definition to product validation and industrialization.
Technological capacities were build up through research institutes as core of knowledge and privet
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sectors as product developer by governmental supports. By creating a network between R&D poles,
product developers and end user a committee consist of stockholders monitored the progress and
coordinated the tasks through holding monthly meetings. Both NIOC and R&D poles invested in
test facilities and laboratories for product validation and also evaluation of components which were
supplied trough supply chains.
6.2. Interactive Learning and Multi-Player Networks

Measurement tools in western countries have been matured over the 50 years of operation all around
the world. Thanks goodness, Iran enjoys a wide variety of oil and gas zones with absolutely different
behaviours. This factor is highly affected the organisation chart of NIOC. Each subsidiary of NIOC
like National Iranian Sought Oil Company (NISOC), Iranian Offshore Oil Company (IOOC), Iranian
Central Oil Field Company (ICOFC),Pars Oil &Gas Company (POGC), and Khazar Exploration and
Production Company (KEPCO) are in charge of oil and gas production in specific geographical
places across the country .A massive body of highly experienced and educated experts are working
in these companies .As long as formation characteristics of each individual oil and gas zones differs
across the country, these experts have extensive experience in their production field. Therefor a
valuable body of knowledge from client side exists in the country.
On the other side, NIDC as the other subsidiary is in charge of drilling wells and technical services.
One major part of these technical services is operation and maintaining of measurement tools.
Similar to other subsidiaries, NIDC enjoys its professional people which have been operated well-
known brands of measurement tools over the last 20 years. It can be interpreted that considerable
knowledge of measurement physics and tool characteristics exists in the country.
Last two parts of the network were highly qualified in their background which was conceptual
knowledge and manufacturing. R&D core were consisted of multi-layer sub-cores including
electrical, computer, mechanical, metallurgy, physics, chemistry, oil science. Respectively
manufacturing team were consisted of several sections.
To catch up with technology and shorten the path, an interactive learning and reaching to common
literature was essential and therefore a matrix organisation was set up in a project-based organization.
Evidences shows lake of communication in the teams. Team plays were not totally isolated from
their daily routines. They were working in different cities and traveling for information sessions
and coordinating meeting was an obstacle. They were added to team based on their knowledge and
backgrounds and some were not motivated enough. Also, verity of working and personal culture
were a barrier to exchange information.
To overcome this situations, virtual discussion groups were established. Team players joined the
discussion items at their convenience time and all the records were accessible for future reviews.
Depend on activities team members received compensation. Using cyber technology limited
traveling costs and reduced complains .Savings were paid to key players and improved motivations.
6.3. Client Satisfaction

Measurement systems especially formation determination tools act as navigation system in an
airplane. Tools are run down to earth in unknown zones to measure and transfer data from long
distances (3500 meters or more).So, if this measurement system doesn’t work properly, it may led
to a catastrophe .
Challenge appears when designer comes to prove of readings while real samples are more than 3500
meter down in the earth. Although there are some pilot facilities but expanding few points to a full
span curve is not always acceptable. Therefore clients refused to accept these tools at beginning.
General method of ensuring that a product conforms to an established standard, and hence reaches
accepted quality levels, is to certify the technology. But custom design products are only certified by
manufacturer. So, this method was used for components and some subsystems during procurement
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procedure. Also manufacturing was done under supervision of 3rd party inspection team. Following
actions were taken for output quality assurance:
For fluid determination tools, a test facility was designed in R&D centre. It consisted of a long tube
with following factors: visible inside, 5 different diameters along the tube, ability to heat up the fluid
up to 125 C, ability to mix oil, water, and gas to make multi-phase fluid in linear and turbulence
conditions.
For formation determination tools some holes including predefined formation blocks were made. In
each sample blocks main factors including material, porosity, density, and saturation ratio were issued.
Periodic tests were taken from the blocks to insure the characteristics are unchanged. Although these
blocks were helpful but couldn’t simulate down-hole high pressure and high temperature conditions.
To overcome these challenges, one abandoned well was assigned to the project.
New tools were run to the well and results were compared to previous results which were taken by
mature tools. In the next stage client agreed to run new products in low risk wells and also asked for
running mature tools to compare the results. Expenses of this method was two times for NIDC but
it was the only way to check and compare the results with well-known brands and mature tools and
reaching to client satisfaction.
6.4. Supply Chain and Dual Purpose Components

As long as tools are designed to work in harsh environment including high pressure, high
temperature, and high vibration conditions highest level of standards are applied in all process.
When it comes to bill of materials component specification are very similar to the ones which are
used in military equipment. For instance electronic chip sets which are used in tools are the same
as chip sets which are used in military aircrafts. One the other hand nuclear measurement was the
major part of project. Two words of military and nuclear usage when comes together in component
data sheet made purchasing impossible in sanction condition. Purchasing from middle suppliers
in some cases had led to fake components. Several attempts were made to recognize capable and
trustable privet companies which enjoyed an especial line of credits. Nevertheless the projects were
lagging behind schedules because of late delivery times. During interviews, most experts argue that
as far as consumables and redress kits are concerned, projects can rely on quality of local products
and standards certificates. Many believed that investment for manufacturing all components is not
required and as long as the wide variety of components with few quantities are required, the best
strategy is establishment of multi-channel supply chain. Measurement tools as a complex produces
are supposed to be manufactured in limited volume therefore providing few number of components
seems to be ordinary process. But because of high level of standards involved in manufacturing and
also usage in military and nuclear industries, some were manufactured only by customer’s order.
Overall supply chain was considered a big challenged according to most experts.
6.5. System Design

As mentioned earlier, product validation was a major challenge. One of the possible approaches
was comparing similarity of new system behaviour to mature systems. Depend on functionality, an
individual subsystem or a combination of few subsystems considered as a black box and R&D team
designed new replacement subsystem with exactly the same functionality. On the other word, the
project switched to retrofit project in this stage. Existing mature systems were quite customized in
term of communication protocols and data processing. On the other hand, hardware and circuits were
designed and manufactured base on 1980’s technology and components were out of market. These
factors limited R&D team in their design approaches and caused an extra efforts for compatibility and
interchangeability. After prototyping, new subsystems were installed in matured tools as replacement
of original parts and tool behaviour monitored until system integration stage. This practice led to two
side achievements. Firstly, deep knowledge of reliability in circuit design was acquired by reviewing
design ideas in mature tools. Secondly, existing tools were retrofitted during the project.
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7. Conclusions
This paper has examined the case of technological catching up of CoPS in Oil and Gas Industry
of Iran through measurement equipment project to identify project challenges on this successful
process. In This study, NIDC as a service provider or end user,has established a new work flow
from scratch to supply its technological needs in situation that due to vast and strict sanctions,
any type of formal technology transfer and collaboration were impossible. On the other hand,
limitation on local infrastructures and manufacturing facilities were a major concern at the
beginning of projects.
Although government role is significantly different from one country to another, it plays significant
roles in development and use of CoPS especially in latecomer comparing to developed countries.
NIDC as a subsidiary of NIOC and oil ministry can be conceded as a part of government. The
rule of NIDC management at the beginning was initiating and managerial leverage to receiving
support from NIOC and Oil ministry. It started by accumulating all demands to new assets and spare
parts and continued by signing contract with R&D centre, contribution in leading, coordinating
and monitoring progress of project through steering committee. Conducting a deep feasibility
study and previse success satisfied NIOC to invest in all aspects of projects including R&D costs,
infrastructures and setting regulations and standards.
Some scholars suggested that governments involve both directly in CoPS innovation and
development through the provision of governmental subsidies and indirectly through a number of
regulatory measures. In this practice, the role of government is limited to support R&D centres.
On the other, as long as universities and R&D centres are governmental, government compensates
part of these organization costs by these projects without provision of new subsidiaries. Regarding
manufacturing, this process is outsourced to private companies and a committee consisted of R&D
centre, end user and standard team monitor its activity. For evaluate of privet companies have been
selected trough tender procedure and capacity assessment of manufacturing readiness level (MRL),
Capability Readiness Levels (CRL), and technology readiness levels (TRL). For next step and after
completion of first generation of equipment, rule and work flow between NIOC, NIDC, R&D centre
and manufacturer should be reconstructed.
Interactive learning and multi-player networks, interactions and collaboration among key actors at
the begging was a big challenge. As the CoPS producer did not have all the skills, resources and
capabilities to handle all of the required sub-systems and technologies were essential. After few
months, team member (including combination of stakeholders) reached to better understanding of
technical concerns and reach to common literature. After few months of interactive learning, some
team member were laid off and teams limited only to key players. Although managing these teams
at the begging was challenging but by resizing the teams and reaching to common understanding it
was managed in proper way.
Existence of large and remarkable domestic market governmental support to limit import of similar
goods which are manufacturing locally increased the demand for measurement tools in Iran. Due
to the country’s need to measurement tools, accumulating real demand to tools and spare parts led
to create a unique opportunity for investing on research and development, manufacturing facilities,
and infrastructures. At this phase, manufacturing is busy to satisfy local market needs and as long as
the life cycle of products are big enough (more than 5 years), manufacturing will find opportunity
for entering into global competitive markets. Key items for capturing markets of measurement
tools are performance and data precision. Newly developed tools should start their competition
with well-known brands from the first day. So this is an absolute condition of survive or death.
Therefore experts claimed that client satisfaction is vital in operation market and consequently, if
tools fails according to client’s standards, manufacturing market will be lost. According to the client
satisfaction is more challenging than market.
Because of importance of oil production in Iran, any progress and advancement in this sector are
under influence of national and sectoral policies including national science and technology availability.
International relationships and sanctions played a double roles on this process. In first sight, sanctions
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limited international collaborations between local universities, R&D centres with leaders. It had direct
impact on design approaches of systems and supply chain. It also imposed extra costs and time on
NIOC to build needed knowledge and technologies. In contrast, it was the initiator of the projects and
main reason to bring justifications to top management. As long as deploying measurement tools as a
strategic and vital project are concerned, sections can be considered as an opportunity window.
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IAMOT 2019 | 413

Identifying, Analyzing, Ranking Barriers and
Challenges of Technological Collaboration
Forming; in Electronic and Hardware Sector
Mohammad Torabi Khargh

University of Tehran, Tehran, Iran
E-mail: m.torabi1390@gmail.com
Hadi Nilforoushan
Shahid Beheshti University, Tehran, Iran
E-mail: hadinil@gmail.com
Hashem Moazzez
University of Tehran, Tehran, Iran
E-mail: h.moazzez@ut.ac.ir
Seyed Mohammad Sahebkar Khorasani

Technology Studies Institute, Tehran, Iran
E-mail: sahebkar@gmail.com
Abstract
In recent years, many studies have been conducted on technological collaboration, however, the process of
evolution and the sustainable technological collaboration forming has been considered in a small number of
studies. Firms face two major challenges in evolving and creating technological collaboration. First; identifying
the right partners to establish a technological collaboration; and second, learning how to work with them. About
this, comprehensive identification and analysis of the barriers and challenges in the process of evolution and the
forming of technological collaboration has great importance. These challenges, which relate to different aspects of
management, are due to the differences of partners in their strategy, culture, goals, values, customer, market and etc.
And have different priorities for them. In this study, in order to comprehensive and integrated identify and analyze
of barriers and challenges of the forming and management of technological collaboration, 5 different technological
collaboration in the field of electronics and hardware was studied. These technological collaborations are formed for
various purposes such as new product development, technology development, innovation, technology transfer, and
among different partners including large corporation, SME, contractor, startup, business accelerator, venture capital
fund and technology exchange broker. The collaborations studied were structured differently, but a common feature
of all these collaborations was the presence of at least one large corporation and one SME in each of them. Finally,
by reviewing this technological collaboration, 34 challenges in 8 categories were identified a comprehensive model
for analyzing the emergence of challenges in technological collaboration was presented. In the following, in order to
rank the significance of the identified barriers and challenges, different from large firms and SMEs, a questionnaire
was designed and distributed among all technology-based firms on the field of electronics and hardware in Iran.
The results of this section indicate that for large corporations, “Being time-consuming the proof of technological
claim” by the SMEs and for SMEs “Lack of intellectual property mechanism” are the most important challenges.
Also, for both groups, the “geographical distance between firms and consumer industries” was identified as the least
important challenge.
Keywords: Technological Collaboration, Partnership, Challenge, Barrier, Electronics and Hardware, Grand
Theory
1. Introduction
The management of technology in today turbulent environment is less and less a matter of single
firm. The key technical knowledge and assets needed for the development and production of
product and processes are often dispersed among a number of firms. Even when all the assets are
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Identifying, Analyzing, Ranking Barriers and Challenges of Technological Collaboration Forming
embodied in one company, managers prefer to undertake technological activities together with
other companies, in order to share risks and costs. When companies are exchanging technology, the
traditional relationships based on economic exchange are often overtaken in favor of co-operative
relationships with other firms that are characterized by a relative long-term, strategic orientation that
called technological collaborations (Cagliano et al., 2000).Nevertheless, firms are faced with two
major challenges in building a collaboration. First; identifying the right partner for collaboration, and
learning how to work with them. One can divide the process of creating a technological collaboration
from separate firms into three main parts: (Birkinshaw et al., 2007)
●● Finding: find the right partner for collaboration
●● Forming: negotiation, and forming of collaboration requirements
●● Performing: implementation of collaboration and operationalization of agreed details
studying different types of technological collaboration, studying the method and model of selection
of the most appropriate type of technological collaboration, studying the process and framework
of technological collaboration forming, studying the goals and impact of the presence of firms in
technological collaboration and studying the various factors affecting in a technological collaboration,
are topics that have been addressed in previous research on technological collaboration (Hoffmann
and Schlosser, 2001).In this regard, identifying and analyzing the challenges facing technological
collaboration, with the goal of solving them and collaboration stability is important, which has been
studied in less research. On the other hand, these little studies on the challenges and barriers of
technological collaboration forming are about a bunch of these challenges. (Such as (Akdoğan and
Cingšz, 2012; Darabi and Clark, 2012; Mohr and Spekman, 2016; Muegge, 2013) that behavioral
challenges or (Evans and Wolf, 2005; Nan and Kumar, 2013) that structural challenges and (Ansari
et al., 2013; Muscio, 2007) that has investigated the technological challenges.) So, there is a lack of
researches that examine all these challenges simultaneously and has been thoroughly analyzed. In this
context, there is lack of research that examines all these barriers and challenges simultaneously and
has been thoroughly analyzed. Especially what is important in this regard is the study of the process
of the emergence and appearance of these barriers and challenges, examining their relationship with
each other, providing a comprehensive model for them, and ultimately examining their importance
for different actors. Therefore, there is a significant gap in the previous researches, which in this
research is being investigated. Therefore, the research questions include:
1. What are the barriers and challenges in forming of technological collaboration?
2. What is the process of the emergence and appearance of these barriers and challenges?
3. What is the significance of each of these barriers and challenges for different partners of
a technological collaboration?
The overall framework of this study is that initially, because of the inability to study all the sector of
technology, the sector of electronics and hardware was chosen for study. Subsequently, for a deep
study of this sector of technology in Iran, a number of technological collaboration were selected
by using purposive sampling. In this regard, attention was paid to the selection of cases that could
properly describe the aspects of the phenomenon under study. The study of these technological
collaborations began qualitatively and through semi-structured deep interviews and continued to
reach the theoretical saturation in barriers and challenges of technological collaboration forming.
After each interview, its analysis was carried out in accordance with Grounded theory. Because after
examining the barriers and challenges that identified in previous studies, it has been found that in
many researches, the studying of these barriers and challenges is not the main question of research
and the focus of researchers, and many of the barriers and challenges of technological collaboration
IAMOT 2019 | 415

forming have not been introduced in them. There are also very few of these researches in the sector
of electronics and hardware. Finally, 5 technological collaborations were studied and 34 barriers
and challenges were identified in process of technological collaboration forming and a final model
was presented for the process of their emergence and appearance. In the following, in order to
assess the identified barriers and challenges in a larger society, a questionnaire was designed and
distributed among all technology-based firms of electronic and hardware sector in Iran, and ranked
the importance of these barriers and challenges for various partner of technological collaboration
(with the exception of small and big firms).
2.1. Technical Collaboration; Objectives and Implementation Framework

In the new competitive environment where firms need innovation resources, their competitive
advantages and their internal resources are not enough to compete, and on this basis, technological
collaboration is an effective tool for the development and improvement of competitive advantages
and eliminates the gap between existing and desired capabilities. In the simplest definition,
technological collaboration is an informed and free agreement between two or more firms for
the exchange, sharing and development of technology(Shamsuzzoha et al., 2013). In general, the
objectives of firms for technological collaboration forming with other partners are divided into two
categories, including (Mueller and Herstatt, 2000)
●● Market-Based objectives
●● Technology-based objectives
When firms seek to reduce their product development costs by combining their resources with other
firms, market-Based objectives exist. Especially in products that can reduce prices by increasing
production volumes. Moreover, when the production of a product is not economically viable and
other firms produce it more quality and more flexible, this objective of collaborative emerges as
outsourcing. In addition, whenever firms aims to collaborate with other, to globalize and expand its
market, its objective is market-Based, in which case the firms will be able to access local markets
and information through expansion of collaborations. This also reduces the risk of investment and
activity outside the borders. Market-Based collaboration with other firms can keep the market as
well as prevent other competitors from entering their business.
The complexity and similarity of technology sectors in the future will force firms to search for finding
partners, and through this way, firms with a diverse range of activities will be able to synchronize,
with this possible synergy, there will be a supply of new, superior and cheaper products. These cases
reflect the technology-based objectives for collaboration between the firms. In addition, when two
firms with complementary technology work together, this collaboration can lead to their awareness
of the importance and application of their technology in other areas, and this is another technology-
based objective of technological collaboration.
In a technological collaboration according to a framework that provided by(Mueller and Herstatt,
2000) after defining of objectives of the commencement of collaboration, the appropriate partner
must be selected according to required capabilities and competencies. This partner can be from
the same or other industries, universities, research centers, supplier, customers, and etc. Then, the
various collaborative aspects, such as resources from each of the partners, duties and responsibilities,
the benefits of collaboration for each partner, must be determined and ultimately collaboration to be
implemented. This process displayed in the Figure1.
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.
Figure 1: Framework of Technological Collaboration Forming (Mueller and Herstatt, 2000)
What is important here is the barriers that prevent firms from entering into this process, as well as
the challenges faced by firms during this process. Therefore, we will continue to review the barriers
and challenges presented in previous studies.
2.2. Barriers and Challenges of Technological Collaboration Forming

Identifying and analyzing barriers and challenges of technological collaboration forming is
important in order to solve them and to stabilize the collaboration. These barriers and challenges
have different resources. The diversity of members is one of the most important of these resources
because partners have different interests, goals, values, culture, customer, market, etc. And despite
all these differences, they must collaborate together. (Chen, 2017; Smith et al., 2014)
These barriers and challenges are about different aspects of management. (Birkinshaw et al., 2007)
by examining the steps to create a collaboration network for innovation considers the barriers and
challenges of this process in six general topics including Geographical, Technological, Institutional,
Ideological, Demographic, Ethnic. Each of these can be found in different ways and different formats.
Many of the barriers and challenges addressed relate to the demographic and behavioral aspects
of network members. Many researchers after examining a wide range of collaborations between
different actors have highlighted the lack of trust in relationships as one of the greatest challenges
of collaboration. (Akdoğan and Cingšz, 2012; Darabi and Clark, 2012; Hanna and Walsh, 2008;
Karlsson et al., 2007; Ramesh et al., 2010; Shamsuzzoha et al., 2013; Vangen and Huxham, 2003)
Since the presence on the technological collaboration needs to open structure (Muegge, 2013;
Skerrett, 2011), there is a danger of disclosing the competitive advantage of the members and the
possibility of abuse of the capabilities of partners. (Fiaz and Naiding, 2012; Mohr and Spekman,
2016; Shamsuzzoha et al., 2013; Yih-Tong Sun and Scott, 2005) Also, the selfishness of the corporate
executives and not considering the various profits of other partners will also be a challenge in this
open environment. (Muegge, 2013; Ramesh et al., 2010) Many technological collaborations are
formed in the intersection between different technologies and between new companies (Birkinshaw
et al., 2007), which requires the interaction of new people from different companies, so the challenge
of facing new people with different knowledge background is another challenge of technological
collaboration. (Hemetsberger and Reinhardt, 2009)
Another group of barriers and challenges is due to differences in internal strategies and ideologies
of partners. The lack of an organized strategy and program for collaborating and close structure of
members are two of the most important challenges. (Ramesh et al., 2010; Richbell, 2006) On the
other hand, it is impossible to reach the goals of the technological collaboration (as a team) without
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the presence of a leader among the members (Sarker et al., 2009), and without acceptable vision and
goals to all members. Lack of these is other major challenges in the technological collaboration.
(Darabi and Clark, 2012; Lindman and Rajala, 2012; Shamsuzzoha et al., 2013) In addition to
the vision and goals, the lack of shared values also challenges the members of a technological
collaboration. (Shamsuzzoha et al., 2013)
Institutional challenges and challenges related to the internal organization of the members are other
challenges. In the technological collaboration, partners have roles and responsibilities, and the lack
of a clear definition of these roles and responsibilities is one of the identified structural challenges.
(Evans and Wolf, 2005; Shamsuzzoha et al., 2013) In addition, the lack of a formal and coherent
team structure of some partners of the technological collaboration (especially small and medium
enterprises) (Nan and Kumar, 2013) is another structural challenge of technological collaboration.
Although the creation of a network among small and large firms is one of the most common types
of technological collaboration, in some cases, the imbalance between the sizes of the members
financially, become a barrier to collaboration creation. (Kshetri and Schiopu, 2007)
Finally, since many technological collaboration are designed for innovation and using the
technological capabilities of other members (Birkinshaw et al., 2007; Schøtt and Jensen, 2016),
technological challenges such as low absorbing capacity (Muscio, 2007; Scaringella and Burtschell,
2017), lack of R & D in the members (Ansari et al., 2013; Muscio, 2007; Shane and Venkataraman,
2000), and the lack of familiarity of manager’s companies (especially small and medium-sized
enterprises) with technological collaborations (COY et al., 2007; Shamsuzzoha et al., 2013) have
also been introduced as another challenge in collaboration forming.
3. RESEARCH DESIGN
3.1. Research Outline and Cases Selection

This research has been done by using a multiple case study method. Because the aim of most
case studies is to answer the question of “why and how” of a phenomenon and according to
(Clarovy, 1997) suggests a complete description of a particular event. In this research, as stated in
the introduction, the main goal is to identify the existing barriers and challenges in technological
collaboration forming and provide a comprehensive model for their emergence and appearance. The
research field consists of Iranian firms in the sector of electronics and hardware, which have used
some kind of technological collaboration in their business network. Also, since the acquisition and
study of all these firms are impossible, the case study method was used and the study of the cases and
the interviews continued until the theoretical saturation in barriers and challenges of technological
collaboration forming. For this purpose, a number of technological collaboration in the sector of
electronics and hardware have been selected through purposive sampling. In this regard, attention
was paid to the selection of cases that could properly describe the aspects of the phenomenon under
study. Because the purpose of the purposive sampling is not accessing to statistical inferences, but
rather identifying the most suitable case that can describe the aspects of the phenomenon under
study. Therefore, by examining this sector of technology, a number of technological collaborations
were identified and the interviews and studying of them continued to reach theoretical saturation.
The information about the technological collaborations that have been studied in this article is in
Table1.
Although the main tool of data collection and the case study in this research is the interview, however,
we tried to provide information related to each firm and technological collaboration in cyberspace
and in writing, such as director’s interviews, internet sites and etc. All interviews were conducted in
semi-structured deep interviews and recorded in audio. The deep interview is a suitable method for
data collection when requires knowledge of specific components in a specific context, as well as a
detailed and comprehensive picture of the components related to the subject of research. Therefore,
in each of these interviews, the details of the two subjects were considered and emphasized, and
IAMOT 2019 | 418

the interviewees were asked to express their views on these two issues freely. First, details of the
collaboration (including how to find partners, points of interest in the initial negotiations, business
plan, shared resources, agreements and initial objectives, and finally the results). Second, the various
barriers and challenges of technological collaboration. Finally, the audio file of these interviews
turned into text and analyzed.
3.2. Data Collection and Analysis of Qualitative Section

Due to the lack of research in this regard, and Since the present research attempts to provide a
comprehensive model for the subject of research, which was compatible with the specific conditions
of electronics and hardware and Iran in the technological collaboration, the role of the researcher
should be as limited as possible, and the final model resulting from the research should, as far as
possible, be consistent with the data obtained from the interviews. Therefore, we tried to avoid
using pre-fabricated models for modeling. Therefore, the Grounded theory was used and among its
different methods, Glaser’s approach was used according to its principles and approach to problem
analysis. The Glaser’s approach has simple steps. According to Glaser’s view, this method is a set
of basic data and concepts that are organized around an axial category and ultimately turned into a
number of hypotheses. The Grounded theory is not true truths, accurate descriptions, or findings,
but only conceptualizations that are expressed in the shape of theory. If new data are obtained from
new sources, this theory can be changed, and new literature and new data change the Grounded
theory. What is important is that the Grounded theory be done accurately and in accordance with its
principles (Glaser, B. and Strauss, 1967).
Table 1: Details of Cases
technological
ctive
Indu
obje
Title technological collaboration details
stry
collaboration structure
This technological collaboration done to design and manufacture a 6-
channel electrocardiograph (used to record ECG), between two rival
New product development
companies (A and B) and two contractors. The design and development of
Medical Equipment
Common A
various parts of this new product, according to the technical and
design and
managerial capabilities of each partner, is divided between them. The
productio M N
1 achievements of this collaboration are as follows:
n of the
1. Convert potential competitor to a business partner
electrocar B 2. Reduce costs by dividing the costs of design, production and
diogram
commercialization of the product between the two firms A and B.
3. Reduce time to market and reduce product risk by dividing tasks based
on the key capabilities of firms A and B
In this technological collaboration, firm C, as a start-up in accelerator D,
Was formed around an innovative module for rapid diagnosis of heart
design and D attack and entered to technological collaboration with firm B after
Medical Equipment
manufactu
successfully testing and initializing a sample of its product. This strategic
re of a
innovation
C decision resulted in the following objectives:

module
2 1. Firm C's use of the active market, brand, export capability and the after-
for rapid
sales service of firm B.
diagnosis B O 2. Firm C's use of firm B's consulting and management capabilities in
of heart
developing new products and achieving international standards.
attack
3. Firm B gain competitive advantage through the use of firm C's
innovative product in competition with competitors.
This technological collaboration was started by providing the project of
Telecommunication equipment
designing, manufacturing and installing part of a telecommunications

New product development
system from G to F, and the firm F implemented the project in

Designing E collaboration with firm E. Implementation of this technological
and
collaboration have achieved the following goals:
installing a F 1. The use of E's specialized capabilities in designing and manufacturing
3 part of a
advanced processing boards, rather than using energy for their domestic
telecomm
production at firm F.
unication G 2. Apply discounts and internal mechanism of payment between existing
system
companies in technological collaboration.
3. Integrate all F's products with the E's processor and its technical
support.
Technical This technological collaboration was formed to transfer technical
Transfer of technical knowledge
Power station equipment
knowledge knowledge of automation system and process control from firm H to firm
transferrin I. The automation system of the firm H was used in the oil and gas industry
g to build H
and firm I used it in power station. Achievements of this decision include:
the
4 1. Firm I access to the required technology quickly and had more stable
automatio I
n system
entry into the competitive market.
and 2. Significant income of firm H from the industry that did not enter it.
process 3. The development of the internal capabilities of the company H during
control the collaboration with the company I.
In this technological collaboration, the challenge of unique counting of
Solving of technological challenge
Designing people traffic in the firm L (active in the tourism industry) was transformed
and into RFP by firm J, as technology exchange broker, and after publishing it
building a and collecting and checking received proposals, eventually, proposal of
system for K firm K was selected and entered into an executive phase. The
counting L achievements of this collaborative effort include:
Tourism
5 the 1. Reduce the cost and time of access to the product for the firm L.
number of 2. Examining all possible technological solutions through RFP and
human J collecting various proposals due to the presence of technology exchange
traffic of broker J.
the public 3. Facilitating the forming of technological collaboration with the presence
centres of technology exchange broker J, despite the activity of firm L is in a
diverse industry.
Broker Venture capital Fund Accelerator Contractor Small firm Big firm
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According to the main approach of the study, which is a multiple case study by using Grounded
theory, the extracted codes from each interview form the basic paradigms of each case. Then, with
the aggregation of the data and the pattern obtained from each case, the integrated model is formed,
and the analysis of the subsequent cases continued. This comparison also revises coding or changes
to the primary pattern, and this process continues as long as other new interviews and coding do not
change the model created. The executive procedure and the sequence of interviews as well as the
mechanism for achieving theoretical saturation shown in the table2.
Accordingly, in order to study the first case, two interviews were conducted and analyzed and coded.
All interviews were recorded and some suspicious claims were verified by talking to other people
or archival documents, and finally, 15 concepts that express barriers and challenges of technological
collaboration forming, were identified. In the following of research, by studying the second case and
conducting three interviews with the managers of the firms present in this technological collaboration,
all the information was analyzed like the first case. Studying this case led to the identification of 5
new barriers and challenges, based on the primary model was completed and some of the coding
in the first case were redone. Studying the third case was conducted with three interviews and their
analysis and completion of the model continued with the identification of 14 new concepts. In the
fourth case, three interviews were conducted with firms participating in the collaboration, but none
of these interviews resulted in the addition of a new concept (barriers and challenges of technological
collaboration forming), which this meant achieving theoretical saturation. But in order to ensure
this, the fifth technological collaboration was followed up by conducting three other interviews, but
the study of this case did not lead to the identification of the new concept, and thus the qualitative
section, with performing 14 interviews and analyzing them and achieving the 34 final concepts
(barriers and challenges of technological collaboration forming), which are in Table 3, stopped and
the final model was extracted in Figure 2.
It should be noted that all interviews lasted from 40 to 90 minutes and recorded in audio and after
converting audio file to text, the coding steps done. The coding steps used in this study include open
coding, axial coding and selective coding. In open coding, the raw data obtained from the interviews
was classified according to the same issues. The output of this coding was a summarization of
massive information of interviews in the form of 257 codes. After reviewing these codes, they
were categorized in the form of concepts. Each concept contains codes that have the same content.
In the following, with the aim of establishing a relationship between concepts, axial coding was
done and concepts dividing into 8 categories. Finally, in order to select the main category, sorting
it with other categories and validation, the selective coding was done. In this coding, the main
category as a phenomenon, define and other categories were related to this principle and axial
category(Boyatzis, 1998; Strauss and Corbin, 1998). The MAXQDA12 software was used here to
ease code identification, analysis and management of data.
3.3. Distribution of Questionnaires and Quantitative Section

After identifying the barriers and challenges of technological collaboration forming (available in
Table3) and the formation of an innovative model (available in Figure2), we tried to test the findings
in a larger society. Therefore, by using identified barriers and challenges in the qualitative section
and 5 point likert scale, a questionnaire was prepared and sent to all Iranian technology-based firms
in the sector of electronics and hardware. All of these firms were certified by the Iranian Vice-
Presidency for Science and Technology and at the starting time of the distribution of questionnaires
(April 2018), the total number of these firms was 415. Also, with the additional information provided
by Iranian Vice-Presidency for Science and Technology, these firms were divided into two sections
of big firms and small firms. In this research, firms with more than 100 staff are big firms and firms
with fewer than 100 staff are considered as small firms. In the Table2, the number of these firms and
the number of questionnaires are presented separately.
IAMOT 2019 | 420

Table 2: Interviews, theoretical Saturation and Questionnaires
num- firm’s total number new con- duplicate

position in
firm
cases ber of interviews
age firm of codes cepts concepts
staff
Managing
A 34 11 interview 1 16 12 0
Director
case 1
R&D
interview 2 30 3 8
B 290 20 Manager
interview 3 Manager 14 3 6
Managing
case 2 C 10 2 interview 4 7 2 4
Director
D 33 3 interview 5 Manager 3 0 3
case studies and qualitative interviews
Managing
E 26 14 interview 6 27 4 15
Director
case 3 Managing
F 8 28 interview 7 43 10 18
Director
G 4000 46 interview 8 Manager 13 0 9
R&D
interview 9 17 0 12
Manager
H 80 14
interview R&D
case 4 22 0 14
10 Manager
interview R&D
I 525 14 20 0 12
11 Manager
interview
J 320 40 Manager 15 0 9
12
interview Managing
case 5 K 10 6 19 0 15
13 Director
interview
L 25 3 Manager 11 0 7
14
num- aver- total required number of
% of col- volume of
Quantitative ques-
type of firm ber of age number of sample question-

laboration society
staff staff firms (Cochran) naires
tionnaires
100 -
Big firms 170 61 100 61 52 54
795
Small firms 3 - 100 18 354 60 212 136 140
Finally, it is necessary to explain that in the questionnaire, in addition to ranking 34 identified

barriers and challenges on the basis of 5 point likert scale, several supplementary questions, such
as “Has the firm had an experience of technological collaboration?” And “What other barriers
and challenges exist in the firm’s technological collaborations?” The questionnaires that response
“No” to the first question were omitted (all big firms and 60% of small firms had an experience of
technological collaboration), and in response to the second question, no new barriers and challenges,
were introduced. Also, before starting of distribution, the questionnaire was distributed to some of
IAMOT 2019 | 421

the experts in technology management and experts in the sector of electronic and hardware and the
content of the questionnaire was revised according to their point of view.
Finally, in order to analyze the collected data from questionnaires, studying the relationship between
the identified barriers and challenges and ranking them, Friedman test was used. The results were
presented by separating of small and big firms in the table3. Also in the APPENDIX information
from the SPSS software is provided to implement the Friedman test.
4. DATA ANALYSIS
4.1. Identified Barriers and Challenges
Table3 expresses the barriers and challenges of technological collaboration forming. As stated, these
identified barriers and challenges include 8 main categories, each of which represents an aspect of
the management of technological collaboration. These 8 categories include 3 barriers and 5 challenge
categories. Barriers prevent firms from entering technological collaboration and appear in the early
stages of the process of technological collaboration forming (defining of objective and finding
the partner), and challenges appear at the time of implementation and operation of technological
collaboration (the forming of collaboration and its implementation).
Three categories of barriers (including geographical barriers, cultural barriers and organizational
barriers) in a way express the differences between the partners of the technological collaboration
in different organizational characteristics. The geographical barriers are due to the geographical
distance between the partners of the collaboration and among them with the consumer industries.
Cultural barriers point to the differences in the various cultural aspects of the various actors. This
difference is different in the culture of the firms, the lack of common internal values and the various
interests of firms in their business. Organizational barriers arising from differences in programs
and visions and internal strategies of the partners. In addition, the organizational hierarchy of each
partner can also prevent forming of technological collaboration, which is also considered to be
organizational barriers.
Five categories of challenges in the final model include various managerial aspects. Challenges
that emerged after the forming of technological collaboration, in the direction of the realization of
planned objectives, were called operational challenges. These challenges refer to the challenges that
involved in achieving the planned objectives and fulfill the obligations of the various partners of
technological collaboration. Behavioral challenges and human challenges are two other categories of
challenges identified. Behavioral challenges refer to the challenges in the organizational behavior of
the partners of technological collaboration or the individual behavior of their managers and happen
due to the inattention to the interests of other partners of the collaboration or the lack of trust among
the partners. But human challenges refer to problems in the interactions of human resources that
are active in collaborative partners, including challenges in the internal interaction of the members
of each partner or problems in the interactions of the members of the various firms in collaboration
with each other. The technological challenges that had the highest number of initial codes in open
coding, have a wide range, but all identified challenges in this category are related to technology
(that collaboration has done around development, commercialization or exchange it). Some of these
technological challenges are limited to small firms, and some of them are found in big firms. Due
to the fact that the main purpose of every technological collaboration in this study is a technological
goal, it seems that the high number of initial codes of this category is due to this reason. Ultimately,
legal challenges are infrastructural and emerging from legal and governance institutions, and affect
any kind of technological collaboration due to their infrastructure nature.
4.2. Ranking of Barriers and Challenges
In the table3, the results of the quantitative section of research and Friedman test are also presented
separately in small and big firms. Based on the identified barriers and challenges from the
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perspective of big firms, “Being time-consuming the proof of technological claim by small firms,”
“High risk of success in technological collaboration with small firms” and “Lack of familiarity with
technological collaboration” are the most important challenges, that all three of these challenges
are from the technological challenges. In terms of these firms, two geographical barriers, namely,
“Geographical distance between partners”, and “Geographical distance between partners and the
consumer industries” are the least important challenges. From the perspective of small firms, the
most important challenges include “Lack of intellectual property mechanism in Iran”, “Threat of
disclosing the competitive advantage and technology in technological collaboration” and “Lack
of familiarity with technological collaboration”. The first challenge is a legal challenge and the
next two challenges are technological challenges. Also from the perspective of these firms, the
challenge of “Lack of familiarity with the technological requirements of design and production” and
“Geographical distance between partners and the consumer industries” has been introduced as two
the least important challenges.
What can be expressed Based on the ranking, is that seems for big firms quick and cost-effective
achieving to objectives of technological collaboration is desirable, and barriers and challenges that
are obstacle to realizing this, have a higher position in the ranking. Because of challenges such as
“Being time-consuming the proof of technological claim by small firms”, “High risk of success in
technological collaboration with small firms”, “Lack of attention to the cost of activities by small
firms”, “Lack of specific team and organizational structure to achieve goals in small firms” and
“Inability to implement technology in industrial scale”, which postpones quick and cost-effective
achieving to objectives of technological collaboration, are ranked higher than other barriers and
challenges from the perspective of big firms. Also, for small firms, the barriers and challenges that
somehow point to the possibility of abusing of technology and their technical knowledge by big
firms, as well as failure to fulfil collaboration obligations of big firms, are higher than other barriers
and challenges. Because the challenges of “Lack of intellectual property mechanism in Iran”, “Threat
of disclosing the competitive advantage and technology in technological collaboration”, “Failure
to run obligations on time by big firms”, “Lack of professional reference to solve conflicts and
disagreements”, “Lack of trust in relationships” and ultimately “One-sided vision to collaboration’s
outcome (less attention to partner’s interests)” all of which refers to these two concerns, are ranked
higher for small firms.
Table 3: Identified Barriers and Challenges and Ranking
Importance rank among small firms Importance rank among big firms (by using Friedman test) Categories
Code (by using
Concepts (barriers and challenges) by using Grounded
The content of each category in
Grounded theory theory)
SPSS
geographical barriers are due to the 11 33 Ch01 Geographical distance between partners
geographic
geographical distance between the Geographical distance between partners and
34 34 Ch02 al barriers
partners of the collaboration. consumer industries
Cultural barriers point to the differences Differences in internal culture of partners
23 19 Ch03
in the various cultural aspects of the
various actors. This difference is different cultural
25 23 Ch04 Lack of shared values within the partners barriers
in the culture of the firms, the lack of
common internal values and the various
20 24 Ch05 Different interests of partners
interests of firms in their business.
Disproportionate size of partners in terms of
Organizational barriers arising from 30 29 Ch06 income
differences in programs and visions and
Lack of transparent objectives and acceptable
internal strategies of the partners. In 22 10 Ch07 visions for defining collaboration organizatio
addition, the organizational hierarchy of
Lack of program and strategy for collaboration in nal barriers
each partner can also prevent forming of 15 9 Ch08
firms
technological collaboration, which is also
Forcing to collaboration from senior executives
considered to be organizational barriers. 8 28 Ch09
side
Challenges that emerged after the 4 20 Ch10 Failure to run obligations on time
forming of technological collaboration, in Ch11 Lack of attention to the cost of activities
29 5
the direction of the realization of planned
32 31 Ch12 Impossibility of clear definition of responsibilities
objectives, were called operational operational
challenges. These challenges refer to the 10 4 Ch13 Lack of successful experience of collaboration challenges
challenges that involved in achieving the High risk of success in technological
26 2 Ch14 collaboration
planned objectives and fulfill the
obligations of the various partners of Lack of leadership and comprehensive
18 14 Ch15
technological collaboration. management of collaboration
Behavioral challenges refer to the Self-esteem and unrealistic perception of
31 16 Ch16 abilities
challenges in partners organizational
behavior or the individual behavior of One-sided vision to collaboration's outcome (less behavioral
7 15 Ch17 attention to partner's interests)
their managers and happen due to the challenges
inattention to the interests of other 6 13 Ch18 Lack of trust in relationships
partners or the lack of trust among them. 28 8 Ch19 Abuse of the capabilities of partners
human challenges refer to problems in Challenge of new people's entrance (resistance
24 32 Ch20
the interactions of human resources that of human resource with collaboration)
are active in partners, including 16 22 Ch21 Human resource changes(especially key people) human
challenges in the internal interaction of Lack of specific team and organizational challenges
members of each partner or problems in 19 6 Ch22 structure to achieve goals
the interactions of members of various 12 27 Ch23 Time to make internal decisions
firms in collaboration with each other.
33 21 Ch24 Lack of familiarity with design and production
Inability to implement technology in industrial
27 7 Ch25 scale
all identified challenges in technological 9 30 Ch26 Low technology absorption capacity in partner
challenge are related to technology (that Being time-consuming the proof of technological
collaboration has done around 17 1 Ch27 claim technologic
development, commercialization or al
21 25 Ch28 Facing people that have different technology challenges
exchange it). Some of these technological
Lack of familiarity with technological
challenges are limited to small firms, and 3 3 Ch29 collaboration
some of them are found in large firms.
2 26 Ch30 Threat of disclosing the competitive advantage
Lack of recognition about the capabilities of each
14 18 Ch31
other
legal challenges are infrastructural, legal Lack of policy-makers and government's
13 12 Ch32 familiarity with collaboration
and emerging from legal and governance
institutions, and affect any kind of legal
1 17 Ch33 Lack of intellectual property mechanism
technological collaboration due to their challenges
Lack of professional reference to solve conflicts
infrastructure nature. 5 11 Ch34 and disagreements
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5. DISCUSSION AND CONCLUSION

In this research, by studying and analysis of 5 technological collaboration, 34 barriers and challenges
were identified in the process of technological collaboration forming in the sector of electronic
and hardware. Further, these barriers and challenges divided in 8 categories by Grounded theory.
Each of these categories refers to one aspect of technological collaboration management. In order to
present the final model for identified barriers and challenges as a huge and general view, selective
coding was done and final model of the research is in Figure 2 which represents the process of
emergence and appearance of barriers and challenges in technological collaboration forming and
their relationship with each other. In this model, the technological challenges identified as the axial
challenges and other barriers and challenges associated with it, are presented in the model.
Figure 2: final model
Here, the technological challenges were identified as axial categories and are at the heart of the
model. Other challenges somehow play an important role in relation to these axial challenges and
ultimately cause them to emerge. Based on this model, the geographical, organizational and cultural
barriers that occur more in the finding of partners and forming of technological collaboration, are
productive and provide the basis for creating operational challenges, and operational challenges lead
to technological challenges. In this way, while human and behavioral challenges appearance, the
emergence of technological challenges from operational challenges increase, and ultimately, legal
challenges will have an impact on the formation of operational and technological challenges due to
their infrastructure role. The operational, technological, human, behavioral, and legal challenges
occur more in the performing and implementation of technological collaboration.
Here it is necessary to explain that the geographical, organizational and cultural barriers arising from
the differences between the partners of technological collaboration and have the role of the agent and
basis for operational challenges. These differences may include differences in geographical region,
internal culture, internal values, strategy, business visions, missions, goals of different partners of
the technological collaboration. Each of this three categories can lead to two general conclusions.
First, the lack of formation of technological collaboration and the challenge of lack of successful
experience of technological collaboration in the members, and second the failure to achieve planned
objectives for the forming of technological collaboration and failure to fulfil obligations of partners.
These two results emerge as operational challenges. By emergence of operational challenges, the
initial objectives of technological collaboration forming (which are technological objectives and
IAMOT 2019 | 424

can include the development, commercialization or exchange of a specific technology or product)

are not achieved and continued by the emergence of technological challenges. The mechanism
of creating technological challenges from operational challenges is exacerbated by human and
behavioral challenges. Because behavioral challenges refer to the challenges in the organizational
behavior of the partners of technological collaboration or the individual behavior of their managers,
and human challenges refer to problems in the interactions of human resources that are active in
collaborative partners, and both refer to human resources involved in technological collaboration
and if there are behavioral and human challenges among them, the achievement of the planned
objectives will be less (More technological challenges). It should also be noted that the legal
challenges due to their infrastructural and basic situation have a background effect and operational
and technological challenges are intensifying in the context of legal problems and challenges arising
from legal deficiencies.
Finally, in order to investigate the importance of each of these barriers and challenges for small and
big firms and to compare them, quantitative approach and distribution of questionnaires among all
Iranian technology-based firms in the sector of electronics and hardware did. The results of this
section indicate that for big firms, quick and cost-effective achieving to objectives of technological
collaboration is desirable, and barriers and challenges that are the obstacle to realizing this, have a
higher position in the ranking. Also, for small firms, the barriers and challenges that somehow point
to the possibility of abusing of technology and their technical knowledge by big firms, as well as
failure to fulfil collaboration obligations of big firms, are higher than other barriers and challenges
in ranking.
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APPENDIX
Ranks of small Ranks of big Test Statistics of small firms Test Statistics of big firms
Mean Rank Mean Rank N 140 N 54
Ch01 20.90 Ch01 9.06 Chi-Square 1278.804 Chi-Square 552.522
Ch02 9.08 Ch02 8.36 df 33 df 33
Ch03 14.05 Ch03 16.60 Asymp. Sig. .000 Asymp. Sig. .000
Ch04 13.52 Ch04 15.19 a. Friedman Test a. Friedman Test
Ch05 15.69 Ch05 14.06
Ch06 11.08 Ch06 11.28
Ch07 14.71 Ch07 22.40
Ch08 18.43 Ch08 23.20
Ch09 23.10 Ch09 12.33
Ch10 23.99 Ch10 16.03
Ch11 11.66 Ch11 24.39
Ch12 10.45 Ch12 10.10
Ch13 22.18 Ch13 24.66
Ch14 12.95 Ch14 25.31
Ch15 17.04 Ch15 18.18
Ch16 11.03 Ch16 17.29
Ch17 23.11 Ch17 17.79
Ch18 23.30 Ch18 19.33
Ch19 12.45 Ch19 23.28
Ch20 13.62 Ch20 9.37
Ch21 18.01 Ch21 15.72
Ch22 16.98 Ch22 23.53
Ch23 20.88 Ch23 12.85
Ch24 10.11 Ch24 15.81
Ch25 12.80 Ch25 23.44
Ch26 23.09 Ch26 10.53
Ch27 17.87 Ch27 27.19
Ch28 15.10 Ch28 14.01
Ch29 24.15 Ch29 24.76
Ch30 24.47 Ch30 13.76
Ch31 19.61 Ch31 16.64
Ch32 19.81 Ch32 19.69
Ch33 26.00 Ch33 17.06
Ch34 23.81 Ch34 21.81
IAMOT 2019 | 427

Technology Disruptions by Paytm
in Fintech Industry
Pushkar S. Narsikar
NITIE, Mumbai
E-mail: pushkar.narsikar.2020@nitie.ac.in
Vivekanand B. Khanapuri
Faculty, Engg Tech & Project Mgt, NITIE, Mumbai
E-mail: vbkhanapuri@nitie.ac.in
Shivesh Doharey
NITIE, Mumbai
E-mail: shivesh.doharey.2020@nitie.ac.in
Abstract
Disruptive technologies shift the established systems and processes and have the potential to increase productivity,
create wealth and economic well-being. These technologies create market segments which are small initially and
have not been targeted by the existing companies. Startups are leveraging these types of innovations and are giving
tough fight to the traditional organizations. These organizations need to project themselves as the technology
leaders, else there is a constant threat for them to be thrown out of the market by new disruptors. This paper
investigates technology used by a startup which has the potential to disrupt existing business models.
This paper adopts a case-based approach which is a startup along with specific comparison with those
organizations which are still relying on traditional methods. For comparison purpose, Paytm is taken as the subject
which is leveraging on digital technologies to break the conventional practices followed by brick and mortar
banking system.
Analysis is done on how Paytm has grown in an accelerated manner by taking advantage of penetration of financial
services in India. Favourable ecosystems in the form of government support and markets available in countries like
India has definitely fuelled the growth of Paytm. Research also analyses the funding opportunities which have been
tapped by Paytm from giant foreign investors like Alibaba group, SoftBank and Berkshire Hathaway.
These disruptors do not rely only on opportunity discovery, but also on opportunity creation. They work on
combining discovery and creation to tap wide range of possibilities. For example, Paytm has become a synonym
for online money transactions. It is also found that these entrepreneurial innovators make optimum use of available
resources for their start-ups to create multiple segments of customers. Paytm is also trying to venture into the field
of investment banking and fund management for profitability and sustainability of its business.
In conclusion, startups with disruptive technologies can create business models which will contribute towards the
overall economic development.
Keywords: Disruptive Technology, Startups, Banking system
1. Introduction
The present period is going into a different space of payments by usage of e-wallets loaded up with
promotional coupons and discounts. Eliminating the paper from business places and also promoting
the cashless transactions are some of the important objectives of the Digital India programme
launched by the Department of Electronics and Information Technology. Digitization comes with
many advantages such as the transparency in money exchanges, minimization of parallel economy
and enhancement in ease of doing business. Field of digital payments has recently seen many
changes. Many e-wallets and payment gateways have started to make their own mark. Government
has also started many Unified Payments Interfaces and BHIM application for smooth change to
cashless economy. The activities undertaken by the administration and RBI have brought about
more digital penetration of financial services and cashless transactions.
IAMOT 2019 | 428

Technology Disruptions by Paytm in Fintech Industry
Major player which emerged taking advantage of the changing banking ecosystem was the PayTM.
It is headquartered in National Capital Region and is headed by Mr. Vijay Shekhar Sharma.
Company has transformed itself from being just a mobile recharge website to becoming a leading
e-commerce platform. The PayTM wallet now has more than 200 million authenticated user base.
The company now allows its users to book movie, flight, train and bus tickets, payment for the utility
bills, insurance premiums, interests and engages in many other financial services. Major investors in
Paytm include Alibaba group, Softbank, SAIF partner and Sapphire venture.
2. Literature Survey
As per Das et al. (2015), online business is in the rapid phase of development in Indian markets.
Use of internet is expanding stage by stage in our country. Web users are developing so quickly that
soon Indians will top the list. Right now, India is positioned second after the USA. The nation has
managed to achieve a growth rate of 9142.5% from 2000 to 2016 in the number of internet service
users. But there is a great potential of improvement for the online market to grow in the future in
India as still just 36.5% of the total population uses internet to some extent. Trade at the global
level is rapidly growing and remote speculators are finding the importance of putting resources
into e-commerce segment. This is the reason why investors like Alibaba group and SoftBank have
invested a lot in PayTM.
As per Chanana et al. (2012), after the internet got commercialised, there has developed another
mechanism of trade famously known as e-commerce. The companies involved in e-commerce have
different business models such as B2B, B2C, B2G, C2C, B2G, C2C (B=Business, C=Consumer,
G=Government) and mobile commerce. PayTM has its presence in each category. CAGR of around
60% has been estimated for Indian e-commerce sector by the leading advisory and research firm,
Forrester. This shows that PayTM has targeted the correct set of customers at the perfect time.
PayTM’s plan of action for business expansion is much synchronized with the present monetary
circumstances in India and they are developing themselves without any help from the external forces.
Ghuman et al. (2016) has done a case study for finding out usage of wallets like Freecharge and
PayTM. Case study investigates the details of past performance and present condition of PayTM.
One97 communication, under which the PayTM operates, had initiated the mobile recharge platform
and now it has successfully managed to be a leading e-commerce company in India. Diversification
in terms of product portfolio has helped it to be used by general consumers. Consumers from both
rural and urban parts of the country use the platform for various purposes. Therefore, PayTM has
grabbed the spot in the leading seven electronic commerce organizations in India having valuation
of more than one billion dollar.
3. Evolution of PayTM
IT sector has gained grounds at a very fast rate and will definitely continue to grow with the same
pace. The use of cashless business transactions has been favoured by the government to have
transparency and eliminate corruption. Digital India program has been initiated by the Indian
government for enhancing the digital penetration. Government has been trying to provide favourable
ecosystem for the startups like PayTM to grow. PayTM was started as a mobile and DTH recharge
platform. Later on, it started adding different products like ticket booking, money transfer, online
shopping facility etc on its platform. From the start itself, PayTM was growing at a good rate.
Boost to the development of PayTM was given by the government’s move of demonetization. PayTM
took opportunity of the situation and promoted itself very aggressively for attracting customers to do
cashless transactions on its platform.
PayTM has been continuously launching new products to have a good customer retention rate and
it has successfully managed to retain major fraction of customers. Consumers now do numerous
e-exchanges each day and this has turned into a typical component for nearly everybody in the
nation. PayTM is one of the pioneers in this area in India. Small vendors such as vegetable sellers
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are also accepting transactions done using PayTM’s platform. PayTM has focussed on giving easy
to use new technological solutions to the involved customer base of merchants, businesses and
individual consumers. Recently PayTM has started the operations of its newly launched payments
bank and is trying to tap more opportunities in the financial ecosystem. It is also creating its own
space in the field of wealth management and insurance sector. This diversification into various fields
has paved way for PayTM to have rewarding future.
4. Revenue Model
One97 communication is the parent company of PayTM and has a lot of sources for generating
the revenue with e-commerce as the most important one. PayTM has launched several platforms
like online travel agency bookings, e-wallets, online money transfer, ticket bookings and utility bill
payments for revenue generation. A basic commission framework is used by PayTM to generate
revenue from its diversified product portfolio. The marketplace provided by PayTM is utilized by
sellers to make their products available to the right consumer. Consumers compare and choose
products from different alternatives present on the online marketplace, then they look for the
availability of coupons, product specific discounts and cashbacks before placing the final order.
Shipment of the ordered product starts after the order is confirmed by the seller. The seller is eligible
to get the agreed price of that product. Sellers have to pay PayTM the commission for using its
platform for displaying their products. PayTM may also demand delivery fees which accommodate
convenience and product listing costs if applicable.
As earlier stated, company has payment gateways for making payments towards utility bills,
insurance premiums, mobile top-ups etc. PayTM charges commission on every transaction that
takes place on its payment gateways. People have started giving preference to the usage of PayTM
over the conventional methods of money transactions. They are attracted more by the promotional
discounts, cashbacks and coupons which the company offers time to time on various platforms.
PayTM has tied up with Uber and IRCTC and hence the money stored in its e-wallet can be directly
used for paying money towards the taxi fare or booking train ticket. Day by day the average amount
of money kept by a user in the wallet is increasing resulting in more interest generation for PayTM.
It has recently launched payments banks with various services provided to the account holders which
earn interest on deposits and charges on services.
5. Utilization of External Factors by PayTM

After a good start, PayTM was struggling to manage high growth rate during 2015-16. E-wallets were
being used by a fairly large number of internet users but the rate of increment was not satisfactory.
In November 2016, Indian government brought demonetization which resulted in making INR 500
and INR 1000 notes a mere piece of paper. It was not possible for the Reserve Bank of India to make
available such a large portion of money with new notes. Hence in the next few months, there was a
tremendous gap between the supply and demand of currency notes. The residents were not able to
perform transactions even to pay for their daily common needs. This was the biggest opportunity
for PayTM to market its platform for making citizens use its e-wallet for cashless transactions.
PayTM heavily invested in making its infrastructure robust to handle millions of transactions
seamlessly in a very short period. The company ran its marketing campaign with the famous slogan
‘PayTM Karo’ to promote the use of its e-wallets. Representatives were sent to every corner of the
country to educate small retailers, roadside vendors for using the platform of cashless transactions.
Tremendous efforts put forth by the company following the move of demonetization made it the
most used Indian e-wallet. The average amount of money kept by the users was increased by four
folds after the demonetization. In just one month of time, PayTM successfully added 0.15 million
merchants to use its platform. It has also managed to retain the network of wallet users and merchants
by providing concessions in different forms.
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Technology Disruptions by Paytm in Fintech Industry
Started as a digital payments startup, PayTM over the past two years has forayed into various
segments integrating multiple platforms in the process. Supported by two major global aggregates
SoftBank and Alibaba, PayTM Life Insurance Corporation Ltd and PayTM General Insurance
Corporation Ltd have been incorporated by PayTM. As per IBEF, Insurance penetration in India
is as low as 4%. Government has recently proposed National Health Protection Scheme and also
various government backed policies are raising awareness at an increased pace. PayTM, as it did
with mobile based digital payments solution, is currently prepared to tap the opportunities in this
sector as well. The Indian government recently increased the Foreign Direct Investment limit in the
Insurance sector from 26% to 49% under the automatic route which would additionally help draw
in investments in this segment. PayTM has recently started PayTM Money Ltd to cover the wealth
management sector and is planning to add more investment offerings going forward.
6. Unique Technology Architecture Followed by

PayTM to Disrupt the Space
PayTM app is very simple to use; but the architecture behind it is very complex in nature. A huge
workforce of product managers and engineers has been employed by PayTM to handle the transaction
traffic. Anything with which a consumer interacts is classified as a product by PayTM. Unified
Payment Interface, mobile wallet, mobile recharge etc are some of the popular products of PayTM.
Use cases are built on the Unified Payment Interface such as person-to-person, business-to-business
and person-to-merchant for enabling transaction among user entities. Smooth transition between the
uses of different products is achieved because of the availability of all the products within the same
PayTM app. Users can move from one product to another in a seamless manner. Integration of all
products in the same app helps PayTM facilitate cross-sale to end consumers.
It has been found that the retention rate is higher for those customers, who are using multiple products
on PayTM platform like transferring money, booking tickets, bill payments than those using just one
or two basic products like mobile recharge. Hence customer relationship is given great importance
by PayTM. They have a dedicated team of data scientists to mine useful information from the huge
pool of data which they refer to as the Data Lake. Machine learning algorithms have been developed
to process the collected data and the extracts are used to get insights about the transactional as well
as behavioural data. Promotional activity is automatically carried out by using these data extracts.
7. Challenges Ahead
PayTM is known to the masses because of its cashless transaction gateway. Seeing its success in
the Indian market, many big players are trying to venture into this segment. The biggest threat to
PayTM is from Whatsapp. It has the largest customer base in India and is currently running a pilot
of cashless transactions through its application. Many other players like Google, Mobikwik, State
Bank, ICICI etc have started their own mobile wallets and are grabbing market share of PayTM at
a fast rate.
Also there is a competition to mobile wallets from credit and debit cards. There is a limit to the
transaction amount on mobile wallets which is much lesser than that in the case of credit or debit
cards. So, this is creating a strong roadblock for growth of mobile wallet adoption.
PayTM has started the payments bank to provide enhanced banking experience to its customers.
But the limitations imposed by the RBI on the working of these banks are becoming a hurdle in their
acceptance by public. There is a limit on amount that can be deposited in these banks and they can’t
engage themselves into any kind of lending business. So, the government policies will play a big
role in the payments bank space.
8. Conclusion
Disrupting the business model with the new technology is difficult and sustaining in the same
business is even more difficult. Life cycle of a product or service in the technology space is very
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small. This makes it difficult for any startup to do sustained business for longer duration. So it is
necessary to bring new innovations to remain in front of competitors. Giving the end user a different
experience altogether is very important. PayTM along with other players like Flipkart, Ola, Zomato
has been successfully bringing in new dimensions to its business for sustainability. PayTM has
certainly changed the way of consumer transactions by providing alternative to carrying cash. It
is trying to expand its business in the segments such as wealth management, insurance and retail
banking. The traditional banking facilities are being disrupted by PayTM with the use of digital
technologies. It has certainly utilised the increasing digital penetration. Government policies have
helped to some extent in its growth. But there are many challenges ahead in the form of competition
from big players, restrictions by RBI, security threats in the cyberspace.
References
Das, K. and Ara, A., 2015. Growth of E-Commerce in India. Growth, available at: http://ijcem. in/wp-content/
uploads/2015/08/Growth_of_E_Commerce_ in_India. pdf (accessed 9 December 2015).
Chanana, N. and Goele, S., 2012. Future of E-commerce in India. International Journal of computing and business research.
Ghuman, K. and Srivastava, C.S., Recharging: The Right Way, a case study on Freecharge and PayTM, IOSR Journal
of Business and Management.
Rathore, H.S., 2016. Adoption of digital wallet by consumers. BVIMSR’s journal of management research, 8(1), p.69.
Aparna, R.R., Ostwal, T. and Sreekumar, N., 2015. Overview of Digital wallets in India. International Journal of
Advanced Research in Computer Science, 6(8).
Mandaliya, M.P., 2014. Mobile Commerce: The New Era of Shopping. International Journal of Innovations in
Engineering and Technology (IJIET), 4(4).
Shamsher Singh, Study of Consumer Perception Of Digital Payment Mode, Journal of Internet Banking and Commerce,
December 2017, vol. 22, no. 3
Pushpa, S. and Shettar, R., The Changing Trends in Payments: An Overview, International Journal of Business and
Management Invention.
Patil, P.A., 2017. Has Demonetization Really Helped in Growth of PayTM?, International Journal of Advance Research,
Ideas and Innovations in Technology, 3(6), pp.356-358.
Dixit, P., Prakash, A. and Tiwari, T., Heuristic Analysis of “Growth of PayTM”.
Sanjay Gupta (2018, July 16), The Complex Architecture behind PayTM’s simplicity, Mint, www.livemint.com
www.rbi.org.in
www.paytm.com
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Risk Management of Emerging Biotechnologies
Sung-Goo Han
Korea Institute of S&T Evaluation and Planning (KISTEP), Republic of Korea
E-mail: hsg@kistep.re.kr
Abstract
The World Economic Forum (WEF) has pointed the dual use dilemma of biotechnology innovations through a
Global Risks Report and discussed the risk reduction and opportunity capture of biotechnology in relation to the
Fourth Industrial Revolution (4IR).
Recent emerging biotechnologies, such as synthetic biology, gene editing and nano-biotechnology, as well
as open source software and hardware, are concerned about the ease and sophistication of life manipulation and
generation at low cost. These explosive synthetic biology and gene editing developments are also concerned with
the possibility of dual use with biological weapons, which may be intentional or unintentional.
The technological innovation of gene synthesis is rapidly advancing the synthetic biology that can dramatically
reduce the costs and increase the accuracy and enable genome synthesis. Synthetic biology can revolutionize the
function of living organisms by engineering and synthesizing genes as parts with one unit. The entire genome
of the microbial organism was synthesized from small pieces, reaching the level at which other microorganisms
were transferred and operated. Synthetic biology can be used to produce microorganisms that produce biofuels,
medicines, or organic substances. On the other hand, the possibility of creating new pathogens with various risk
characteristics as well as gain of function is increased for dual use.
The research objective is to suggest the policy directions for risk management of emerging biotechnologies,
including synthetic biology and gene editing and so on. The approach taken in this paper combined with qualitative
and quantitative analysis methods, such as bibliographic analysis, peer reviews and in-depth interviews.
We analyzed the policy formation, policy implementation and policy coordination for risk management on emerging
biotechnologies and suggested science and technology-based policy directions to increase resilience to risk
management in these areas.
We hope this paper has been helpful to understand and overcome the risks of emerging biotechnologies.
Keywords: Biotechnology Innovation, Dual use, Synthetic Biology, Biosecurity, Science and Technology Policy
1. Introduction
Recent convergence and innovation in biotechnology field is accelerating the rise of the bioeconomy
era in which biotechnology achieves human well-beings and economic growth at the same time.
In the bioeconomy era, biotechnology is not only the creator of new industries, but also the enabler of
new economic changes, such as aging, infectious diseases, safe food and social problems. Therefore,
some argue that biotechnology field should be expanded from the research and industry sector to the
overall economy.
In addition, synthetic biology, which is able to synthesize genes in genetic synthesis, is rapidly
developing due to the dramatic decrease in costs and increased accuracy through gene synthesis.
Synthetic biology sees the gene as a single unit and engineering synthesis, combined to control the
function of life in innovative ways, synthesizing the entire genome of a microorganism from a small
piece to move it to another microbial. Synthetic biology has a variety of uses, such as producing
biofuels, medicines and organic materials.
The world has recently experienced many human-related biosecurity risk factors and shared
knowledge in the process of realizing the bioeconomy through biotechnology innovation.
Examples include international cooperation to prevent the spread of Ebola (2014), the Obama
administration’s establishment of national strategies for antibiotics-resistant bacteria (2014), the
MERS outbreak (2015), the Global Health Security Agenda (GHSA) high-level meeting (2015) and
food security.
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These global risks are multi-layered and complex issues, emerging security issues of a new concept
that cannot be understood by the perspective and concept of traditional security. Emerging security
in the context of a complex system refers to a phenomenon in which micro-interactions within the
system increase quantitatively and change qualitatively which is a serious threat to national security
at the macro level.
Meanwhile, emerging security threats have an intensive nature of scientific, technology, knowledge
and information, which is why they are increasingly related to science and technology. The threat
in the field is not generated solely by human actors, but by the nature of the variables themselves
and in solving emerging security issues, the variables are more than just tools used by human actors.
Thus, in order to identify the causes of emerging security threats and prepare solutions, securing the
technology capabilities necessary to break the rising link that micro-safety becomes macro-security
(e.g. innovation and human resources development) is emerging as an important issue.
In this paper, we are going to suggest technology-based policy directions in order to identify the
causes of the threat on emerging biotechnologies and to respond to policy issues of biosecurity.
1.1. Overview of Synthetic Biology

Synthetic biology introduces an engineering perspective on the basis of biology and scientific
understanding, including the area in which non-existent components and systems of life are designed,
synthesized and re-engineered. The engineering concepts of componentization, standardization and
modularization, as well as biological knowledge in biology, are introduced to design and operate
new biological parts, devices and systems by introducing engineering concepts, such as machinery,
electricity and so on, with the goal of designing and synthesizing artificial life into an engineering
approach and then modifying existing DNA, cell and so on, genetic engineering.
1.1.1. Parts
Define the DNA fragments as bio-parts, such as promoters (DNA transcription starting points),
genes (fields containing protein information) and terminator (DNA end points), which are functional
basic units of biological systems and artificial life.
1.1.2. Unit
Genetic circuit or artificial biosynthesis path designed to perform functions designed through a
combination of biological parts is defined as a biomechanical device.
1.1.3. System
Predictable artificial biosystems or living organisms produced by combinations and introduction of
various biological devices.
The key to synthetic biology is how to design, build, connect and control the necessary biomechanical
components. In order to design and manufacture bio parts, devices and systems, it is essential to link
various technologies such as genetic analysis, system biology, genetic synthesis and genetic editing
techniques that enable their implementation.
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Key Technologies of Synthetic Biology

Gene Analysis Techniques
With the development of next generation sequencing technology, a parallel analysis of large-
scale DNA sequence information is possible and various layers of Omics data such as genes and
transporters are produced.
System Biology
System biology aims to understand life phenomena at a system level, not individual components,
based on various omics data such as genes, transporters, proteins and metabolites. The principles
of the composition of life and the gene-controlled network found in system biology are applied to
the composition of biomass or gene circuits required for synthetic biology.
Gene Synthesis
Genetic synthesis is a technique of chemically synthesizing DNA at a genomic level.
Gene Editing Techniques
It has the benefits of being easy to design and manufacture and is widely available as a synthetic
biomedical tool for all biological systems.
To create an optimized biological system, the above core technologies must be applied to execute the
design-build-test-learn cycle repeatedly.
Synthetic biology is used as a means to produce useful compounds such as alternative energy
industry, pharmaceutical development industry, food and chemicals at low prices. As it has
standardized component-based design and engineering principles, it has features similar to the
existing manufacturing industries such as pre-design, optimization and mass production, so it has a
wide range of applications. Although the market for synthetic biology has a high share in the U.S.
and Europe as demand for bio-based products increases, it continues to expand to Asia-Pacific.
The synthetic biology market is expected to grow at its highest growth rate by 2023 and the global
market is expected to expand to about $10.5 billion. Increased demand for DNA synthesis and
transformation genes among the core technologies of synthetic biology creates the largest market
for gene synthesis and sequencing (which is expected to expand to $3.3 billion in 2023) but the
development of CRISPR-CAS9 technology has the highest rate of growth. In the short term, it is
expected that the research direction will be developed to produce useful materials by replacing
natural or petrochemicals and in the long term, the application of personalized gene therapy using
sophisticated genetic editing techniques will be developed. According to iRunway, DowDupont
owns the most CRISPR patents and applications. It owned globally 514 (i.e., 12% of the total) as
of 2017.
Figure 1: CRISPR Genome Engineering Global Market Players
Source: iRUNWAY (2018)
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1.2. Examples of Synthetic Biology
1.2.1. Bio-CAD
In order to create new organisms or biological devices using synthetic biology, it is necessary to build
an optimized metabolic circuit through standardised biological components and their appropriate
combination.
1.2.2. Biofoundary
Biofounder allows thousands of different kinds of genes and biomaterials to be tested in a variety
of climate environments to quickly build the most complete biological system, opening up the
possibility of unimaginable organic composition
1.2.3. Genome Synthesis

How accurately DNA can be synthesized is one of the most important factors in synthetic biology
because if a single sequence is added or altered, it can result in a protein or cell that you want to express.
1.2.4. Exploring the Useful Enzyme Using Genetic Circuits

A lot of living things live in different environments, reacting to different materials in different
environments, expressing or turning off related genes and living in response to the environment.
As an artificially designed electronic circuit to make semiconductors, if applied to genetic circuits,
a biomechanical device could be detected and quantify various substances can be developed.
This approach enables the existing labor/ time intensive enzyme screening process to be very fast.
1.2.5. Editing Genome through Gene Editing

Gene editing technology is a technique of placing an enzyme that can edit DNA accurately within the
genome to transform, remove, or insert the gene. Tools used for editing genes have been developed
into the 3rd generation gene scissors Crispers (CRISPR) through the 1st generation Zinc Finger
Nuclear, 2nd generation TALEN. Although the regulations for GMOs are different and currently
under discussion, the majority of countries do not treat GMOs as GMOs if they do not deliver
foreign DNA and change their genes.
1.2.6. Metabolic Engineering

Metabolic engineering with synthetic biology technology enables the production of new chemicals
as well as existing ones. Complex chemicals such as lactic acid and xylitol, which can be produced
by a single enzyme and produced by a number of enzymes, can also be produced.
1.2.7. Biocontamination
There are still many issues to apply artificial life, redesigned by synthetic biology, to the diagnostic
and therapeutic fields. If artificial life spreads out, it could disrupt the ecosystem or become a deadly
disease through unexpected evolution. The development of technologies for biosafety and biological
containment is also considered important because there is a possibility that artificial life forms could
be used as biological weapons.
1.3. Methodology
This research was conducted in five main sections. First, we began with a review of the extant literature
on biosecurity, focusing on earlier work regarding the implications of technological change on
biosecurity. Second, we selected interview subjects in relevant fields, interest in problems involving
the nexus between biotechnology and biosecurity. Third, we checked our initial conclusions with
our original interview subjects and then consulted a wide variety of expert sources knowledgeable
about biotechnology and/ or biosecurity. Finally, we solicited feedback on preliminary versions of
our analysis and conclusions through presentations at conferences.
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In addition, we visited overseas policy research institutes for benchmarking foreign cases, such
as Belfer Center for Science and International Affairs of Harvard Kennedy School, Center for
International Studies (CIS), MIT and International Genetically Engineered Machine (iGEM)
Foundation and conducted expert interviews.
2. Main Findings
2.1. Dual use of Biotechnology

Biotechnology, which is rapidly developing into technological innovation, potentially controls or
creates disease and also increases the risk of dual use, including the potential for destruction and
utilization of biological weapons. There is a risk that new technologies, such as genetic engineering,
could cause new diseases by manipulating viruses and bacteria, or that could facilitate the production
of highly weapons-effective pathogens.
Especially, the recent emergence of biotechnologies such as synthetic biology, gene editing,
nano-biotechnology and open source software and hardware are making life easier and more
sophisticated at a lower cost. Biological weapons are manufactured for low cost and can kill many
lives in small quantity and are easy to transport. Also, it is difficult to detect and treat early on
because there are no symptoms due to a period of incubation period after spraying.
Biological agents used in biological weapons differ in characteristics different from those of
spontaneous pathogens (transmissions and immunity). So biotechnology innovation can make
us more lethargic and in fact, the Soviet Union has manipulated anthrax to be immune to all
antibiotics. There are also studies that have been conducted to make it easier to move and distribute
genes and there are also records of manipulating them to work only on certain species. And in
developed countries where antibiotics are often used as a treatment, resistance to pathogens can
be frequent, resulting in greater effects of inorganic germs. According to a study of 335 infectious
diseases from 1940 until recently, 60 percent of them are infectious diseases, such as SARS
(Severe Acute Respiratory Syndrome) and HIV (HIV) and 20 percent are resistant pathogens.
Biotechnology innovations such as gene recombination and genetic modification further amplify the
risk of dual use of biological weapons, which the World Economic Forum pointed out in its 2016
Global Risks Report. Concerned in the field of biotechnology presented by the National Research
Council (NRC) has the following possibilities.
How to render a vaccine ineffective

How to confer resistance to therapeutically useful antibiotics or antiviral agents
How to enhance the virulence of a pathogen or render a non-pathogen virulent
How to increase the transmissibility of a pathogen
How to alter the host range of a pathogen
How to enable the evasion of diagnostic/ detection modalities
How to enable the weaponization of a biological agent or toxin
In addition to the innovation of biotechnology fields, including synthetic biology, the chance to
create new pathogens with different risk characteristics as well as gain of function is increased and
another risk is cost reduction and convenience-induced de-skilling. The ability to synthesize DNA or
order DNA online at a relatively low price and the ability to equip relevant experimental equipment
makes it possible for amateurs and citizens to manufacture biological weapons (loana pusca, 2016)
and H5N1 avian virus to be reproduced by amateurs.
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The concern is that these explosive developments in synthetic biology also amplify the potential for
dual use as biological weapons that may be intentional or unintentional.
2.2. Biosafety and Biosecurity

In the field of diplomacy and security, biosecurity is defined as measures to protect various
actors from pathogenic microbes that sprayed intentionally or accidentally or occurred naturally
(David P. Fidler, 2008). However, in this paper, considering the definition and characteristics of
expanding biotechnology, biosecurity has been newly developed in the broad meaning of measures
to protect various actors from living organisms, biological systems, genomes or substances derived
from them (Sung-Goo Han et al., 2016).
Biosecurity includes various phenomena in the areas of national security, targets, types of threats,
actors, etc. For example, biosecurity is to maintain biodiversity by preventing natural diseases from
spreading to crops and livestock.
Figure 2: Scope of Biosecurity
Source: Sung-Goo Han et al. (2016)
Threat delivery paths, threats raised by actors and responders (security providers) and relevant
governance are classified into the following types. First, the natural occurrence of large-scale
infectious diseases that potentially disrupt the normal functioning of society is a matter of biosecurity.
Second, bioterror refers to biological attacks by non-state actors and has been recognized as a
biosecurity issue since the early 1990s. Third, biological weapons are the oldest biosecurity issue
with biological weapons, where national actors use pathogenic microorganisms for military attacks.
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2.3. Synthetic Biology and Biosecurity

The Global Risks Report of the World Economic Forum (WEF) presents ‘synthetic biology’ as an
example of the risks posed by ‘Adverse consequences of technological advances’ in the technology
risks. When comparing and analyzing the technical risks list of global risks on a yearly basis,
‘Adverse consequences of technological advances’ was presented from 2015 and ‘synthetic biology’
was specifically specified with AI and geo-engineering from 2015 to 2018.
Among the three types of threat delivery pathways, threats raised by actors and security providers
and related governance, bioterror and biological weapons are closely related to synthetic biology.
In case of an infectious disease, the type is indirectly related rather than directly related. As part of
analyzing the latest status of biosecurity, including synthetic biology, we analyzed Boston’s local
case where biotechnology innovation and biosecurity policy studies are actively conducted. Boston,
continuously researches policies on science and technology, with research centers and research
institutes related to Harvard University and MIT. Especially, as the best biotechnology and industrial
cluster in the U.S., the biosecurity policy issues, including synthetic biology, are being promoted
and the biosecurity issues related to infectious diseases and synthetic biology are also being held in
active areas.
2.3.1. Benchmarking Ⅰ: Belfer Center for Science and

International Affairs, Harvard University
The Bellfer Center, ranked number one (2018) in the world for the fifth consecutive year in a university,
has been studying major international security topics since its establishment in 1973 and has been
studying policy issues on nuclear security, technological innovation and security since the 1980s and
has been studying international security issues, resource issues, science and technology policies.
In the meantime, the Belfer Center has continuously conducted policy research focusing on military
and security areas such as nuclear weapons, stressing the function and role of technology in security
policy, including environmental security, energy security, nuclear security in the international
security sector, cyber security in the information technology and innovation sector. Ash Carter, who
served as U.S. Secretary of Defense and returned to Harvard in 2017, is currently the director of the
Belfer Center. He is especially interested in security issues and technology and is also focusing on
the connectivity between related security issues.
Biosecurity issues have strong links to climate change, energy security due to biological natural
disasters and the spread of pathogen. Interest in combined security related to biosecurity
and energy security is increasing and energy security is closely related to food security.
Recently, non-state actors have increased their role and importance in the issue of bio and chemical
terrorism (such as chemical and biological weapons). The Belfer Center has recently planned the
Managing the Microbe project and is currently discussing internally.
2.3.2. Benchmarking Ⅱ: Center for International Studies (CIS), MIT

CIS is a top security policy research institute that is involved in biosecurity, particularly synthetic
biology, through the Program on Emerging Technologies (PoET), a multi-disciplinary program.
The Boston area is emerging as the most concentrated source of bio-medical technology in the
United States. In addition, the region’s interest in biosafety and biosecurity issues is also growing,
along with breakthrough developments in biotechnology and bioindustry
In case of the International Genetically Engineered Machine (iGEM Foundation, which is now a
separate corporate entity), biosecurity policy experts are participating to derive important biosecurity
issues and make major decisions in response to the development of synthetic biology. The SynBio
Policy Group is currently in operation, consisting of professors and researchers participating in the
Security Studies Program (SSP) and PoET, MIT and professors from other universities. The policy
group’s October 2018 meeting was followed up on security issues (Reeves R.G. et al., 2012) due to
the presence of pathogens such as viruses in plants.
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2.3.3. Benchmarking Ⅲ: International Genetically Engineered Machine (iGEM) Foundation

The iGEM Foundation is an independent non-profit organization that aims to develop synthetic
biology and to educate and cooperate with others. This Foundation hosts the highest level of synthetic
biology competition (iGEM 2018 Giant Jamboree) and organizes and operates biorisk management
research and a meeting of the Safety and Security Committee.
The issues discussed in this Committee are typical examples of many organizations and facilities
around the world using advanced biotechnology. This Committee will share experience and
information to make the collected biosafety and biosecurity documents and data available to relevant
organizations and experts more widely to help technical experts, policy makers and technical
communities maintain biotechnology, particularly synthetic biology. The Committee’s Safety and
Security Program is conducted as a step in forecasting and guidance, self-assessments, peer and
expert evaluations.
The Committee focused on detailed topics such as screening results in 2018, safety and security update,
risk assessment and management, biosecurity awareness and training and bioforensics and attribution.
Important biosafety and biosecurity issues considered by the Committee include:
Safety and Security Substantive Issues
 Request to use hazardous materials (chem & bio)
 Issues around proposed containment level
 Use of Anti-microbial resistance factors
 Wish to take product from project outside the lab
 Dual use concerns
 Info hazard concerns
 Potential gain-of-function
 Export controls
3. Conclusion
This paper considered the cases that have taken place in related organizations and facilities
and in-depth analysis of the current status of biotechnology development and utilization of
synthetic biology.
The goal is to make biosecurity-related experience, documents and data more widely available to
scientific experts, policymakers and technical communities to help keep biotechnology, particularly
synthetic biology. The main targets of biosecurity are living, biological systems, genes or materials
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derived from humans, animals and plants and there are many similarities in the view of science and
technology. In addition, there are many common factors in the detailed policy areas of biosecurity,
including the presence of pathogens as the first cause of security issues.
Traditionally, the three policy areas of biosecurity are infectious diseases, bioterrorism and biological
weapons. Synthetic technology operates cross-sectionally in these three areas and we would like to
propose a biosecurity policy directions for the development of synthetic biology.
First, since Korea is highly dependent on foreign countries and is open to some extent exposed to
biosecurity threats such as synthetic biology, it is necessary to implement biosecurity policies on a level
equal to foreign diplomacy and security policy. Security threats posed by anthrax attacks and epidemics
of infectious diseases in the 21st century no longer leave biosecurity issues as low politics issues.
The issues of biosecurity should be included in bilateral and regional diplomacy and should be involved
in global discussions. Therefore, in recognizing and responding to security issues such as synthetic
biology, infectious diseases, bioterrorism and biological weapons as security threats, individual state
efforts alone are not enough and response and cooperation are essential at the global level.
Second, in order to identify the causes of threats in biosecurity such as synthetic biology and to
come up with solutions, it is necessary to secure technological capabilities, i.e. to innovate and foster
human resources. Threats in biosecurity are generated not only by human actors but also by the
variables themselves and scientific variables are more than just tools used by human actors to solve
problems. Therefore, strengthening the role of science and technology should be a priority in order
to accurately understand the threats posed by various issues of biosecurity, such as synthetic biology.
Third, it is necessary to understand the characteristics of biosecurity, such as synthetic biology and to
seek new security governance to suit them. The establishment of governance regarding biosecurity
requires strengthening mutual functions such as the Presidential Advisory Council on Science
and Technology, the special committee under the Biotechnology Support Act and the Council for
Comprehensive Biotechnology Policy. Some of the issues will need to be discussed with the National
Bioethics Committee.
Fourth, there is a need to carry out a regular biosecurity policy study, with continuous innovation
in synthetic biology represented by de-skilling and the role of game changer. While the focus has
been on biotechnology innovation and development, it is time to form and operate a joint forum
with technologists and biosecurity policy experts, such as the case of MIT and Harvard University,
in which the field of synthetic biology is accumulated by world-class technological achievements.
Fifth, there is a need to expand the biological industry base to strengthen biodefense capabilities.
This will be a key factor in the development and stockpiling of vaccines and treatments and
enhancement of diagnostic capabilities, so the domestic production and stockpiling of vaccines
and treatments for biological agents that can be used as biological weapons should be increased.
This should increase the strategic deterrent capability of the actors who can cause biological warfare.
In addition to the common policy directions for the above synthetic biology, the policy directions for
the relevant detailed policy domains are as follows:
In case of bioterrorism, first, the related laws are enacted or improved accordingly, second,
the Ministry of National Defense or the Ministry of Health and Welfare need to integrate
counter-terrorism services to maximize response capabilities and third, it is necessary to improve
response methods such as procedures and tips for responding to bioterrorism.
For biological weapons, first of all, the relevant laws need to be supplemented in order to effectively
respond to a bio-crisis in the Ministry of National Defense. Second, it is necessary to establish a
biodefense-centered organization within the ministry, establish and announce key implementation
agendas and measures for bio defense, establish a biological defense procurement system, establish
and operate a national R&D roadmap. Third, it is necessary to expand the capabilities of the Armed
Forces Medical Command and the Armed Force CBR Defense Command to effectively respond
to bio crisis situations and to reestablish the cooperative system with the outside of the Ministry of
National Defense.
IAMOT 2019 | 441

References
Carlson, Robert H., (2010), Biology is Technology: the Promise, Peril and New Business of Engineering Life. Harvard
University Press.
Filder, David. P. and Gostin, L.O., (2008), Biosecurity in the Global Age: Biological Weapons, Public Health and the
Rule of Law. Stanford University Press.
iRUNWAY, (2018), CRISPR: Global Patent Landscape.
Katona, Peter and Sullivan, John P. and Intriligator, Michael D., (2010), Global Biosecurity: Threats and Responses. Routledge.
Kim, Hyun-Kyung and Philipp, E. and Chung H., (2017), North Korea’s Biological Weapons Program: The Known and
Unknown. Belfer Center for Science and International Affairs, Harvard Kennedy School.
National Academy of Sciences, (2010), Understanding Biosecurity: Protecting Against the Misuse of Science in Today’s
World. NAS.
National Research Council, (2004), Biotechnology Research in an Age of Terrorism. National Academies Press.
National Science and Technology Council, (2016), A 21st Century Science, Technology and Innovation Strategy for
America’s National Security. NSTC.
NIAID, (2007), NIAID Strategic Plan for Biodefense Research 2007 Update. NIAID.
OECD, (2009), The Bioeconomy to 2030: designing a policy agenda. OECD.
Puscas, Ioana, (2016), Synthetic Biology and ‘Amateur Science’: Dual-Use and Challenges of Regulation. Geneva
Centre for Security Policy.
Tucker, Jonathan B., (2012), Innovation, Dual Use and Security: Managing the Risks of Emerging Biological and
Chemical Technologies. MIT Press.
WHO, (2007), World health report 2007: A safer future, global public health security in the 21st Century. WHO.
World Economic Forum, (2015), Global Risks Report 2015. WEF.
Bugl, et al. (2009), DNA Synthesis and Biological Security. Nature Biotechnology, 25(6).
Han, Sung-Goo et al. (2018), Development of Synthetic Biology and Directions of Biosecurity Policy. KISTEP Issue
Paper, 2018-39.
Han, Sung-Goo et al. (2018), Biotechnology Innovation, Dual Use and Biosecurity. Korea Association for Public
Studies Conference.
Han, Sung-Goo et al. (2018), Global Risks, Biotechnology and the Future of Biosecurity. IAMOT 2018
Proceedings.
Han, Sung-Goo et al. (2016), Rise of Biosecurity and the Directions of Science and Technology Policy: Focusing on
Health Security and Food Security. KISTEP Issue Paper, 2016-15.
Katherine, F.S., et al. (2014), Global rise in human infectious disease outbreaks. Journal of the Royal Society Interface,
11:20140950.
Kim, Sangbae, (2016), Emerging Security and Meta-governance: Theoretical Understanding of the New Security
Paradigm. Journal of Political Science Studies, 50(1), 75-104.
Min, Byoung Won, (2007), Extending the Concept of Security in the Post-Cold War Era and the Network Paradigm.
Journal of National Defense Studies, 50(1), 23-55.
Ng, Nora Y. and Ruger, Jennifer P., (2011), Global Health Governance at a Crossroads. Global Health Governance, 3(2).
Reeves, R.G., et al. (2018), Agricultural Research or a New Bioweapon System?. Science, 362(6410), 35-37.
Smith KF et al. (2014), Global rise in Human Infectious Disease Outbreaks. J.R. Soc. Interface, 11:20140950.
Belfer Center for Science and International Affairs of Harvard Kennedy School, https://www.belfercenter.org/project/
managing-microbe.
IAMOT 2019 | 442

Understanding the Adoption of Healthcare
Wearables among Health-Conscious Youth
Shivesh Doharey
NITIE Mumbai, India
E-mail: shivesh.doharey.2020@nitie.ac.in
Vivekanand B. Khanapuri
Faculty, Engg. Tech & Project Mgt NITIE Mumbai, India
E-mail: vbkhanapuri@nitie.ac.in
Pushkar S. Narsikar
NITIE Mumbai, India
E-mail: pushkar.narsikar.2020@nitie.ac.in
Abstract
Technological developments in the field of healthcare management has changed dramatically across the different
stages of patient healthcare right from diagnostics, clinical, operative and post-operative stages.
Globally, technology in healthcare has transformed rapidly with the introduction of technologies like magnetic
resonance imaging scanners, radiotherapy, Blood flow restriction training, Teletherapy, Precision meds for cancer
treatment, applications of AI in health sciences, Internet of Medical Things (IoMT) etc. It is also seen that hospitals
are adopting the new medical technologies and government initiatives to standardize Electronic Medical Records
(EMR) is facilitating faster adoption.
These new initiatives along with the new medical devices will help the hospitals to align with the 21st century
customers who believe in the fast delivery of services. However, the customers are exploring new technologies
specially wearables and smart sensors used for suggesting preventative strategies for the customers. However, in
India, the adoption of these healthcare technologies is still in the nascent stage. The objective of this paper is to
find the level of adoption of new healthcare technology like clinical wearables and sensors especially among the
Heath concours youth in developing countries. Clinical wearables are biosensors for monitoring blood pressure,
heart rhythm, respiratory rate, blood oxygen saturation, temperature, eye pressure, glucose level, brain waves,
sleep metrics, etc. These can be used for monitoring in patients and for remotely monitoring patients after they are
discharged from hospitals or under home care.
As most of the wearables are available through e-commerce. Market research of purchase level, product availability
customer on e-commerce platforms and analysis is used to find the level of adoption of such technology.
Also, the researchers propose to conduct interviews with existing users of clinical wearables and sensors and
identify the key issues with the adoption of technology and understand the impact on customer satisfaction.
Keywords: Clinical Wearables, Purchase Level, Customer Satisfaction
1. Introduction
Innovation is the most ideal approach to accomplish the vision of an associated medicinal services
environment. Medicinal gadgets in doctor’s facilities/ centers, portable consideration applications,
wearables and sensors are for the most part unique types of innovation that are changing
this environment. These empower parental figures to play out their jobs more effectively via
mechanizing the signing on component, robotizing constant updates of patient vitals and giving bits
of knowledge into early identification of infections. Advancements help to gather, store and offer
basic patient information. By adding an examination layer to this, parental figures can give a vastly
improved investigation of the condition and suggestions to the patient. Man-made intelligence can
help parental figures in the early recognition of infections dependent on specific triggers in vitals.
Indeed, even outside the healing facilities, wearables and savvy sensors can help track persistent
history or any danger to a person, which might be advantageous, particularly to the individuals who
IAMOT 2019 | 443

are at a higher hazard, for example, those with diabetes or a past filled with heart assaults. From
basic wellness and pulse screens to shrewd glasses and keen attire, there are a few alternatives for
people to look out for their very own wellbeing parameters to have a solid existence as well as get
master supposition by just imparting these parameters to their guardians.
According to article by Jai Prakash Narain in Indian J Community Med on Public Health Challenges
in India: Seizing the Opportunities, the major challenges in healthcare are:
i. The communicable diseases are relied upon to keep on residual a noteworthy
general medical issue in the future representing a risk to global wellbeing security.
ii. Diseases such AIDS, TB, malaria, the communicable disease outbreak will put a
challenge to public health due to which it requires high level of readiness in terms
of detection at earliest stage and fast response.
iii. Nowadays 60% of deaths are caused by the non-communicable diseases. Among all
NCDs, about 80% of all deaths caused due to four diseases namely cancer, diabetes,
heart disease and chronic pulmonary diseases and absence of physical exercises,
hurtful utilization of liquor, specific tobacco use, unfortunate eating regimen are
four regular hazard factors leads to NCDs.
The epidemic progress in these diseases is depend on new hazard factors, for instance, unregulated
urbanization, globalization, changing lifestyle, ecological contamination due to pollution and easy
propagation through media. In addition, wellbeing administrations is not equally accessible to poor
and rural people as easily accessible to rich and urban people. [1]
According to the article published in ICS Irish Computer Society, technologies that will change
healthcare sector are:
2.1. Digital Diagnostics

Making social insurance progressively available incorporates giving advanced diagnostics choices to
individuals who require it, particularly the individuals who can’t get to a specialist’s office. Digital
diagnostics like Neurotrack uses a software for diagnosing Alzheimer by detecting impairments in
the hippocampus through examining eye movement.
2.2. The Cloud

Research report by Skyhigh Networks says that over 13% of cloud benefits in human services
are viewed as high-chance for security breaks and 77% of them are medium-hazard. Cloud
administrations give a great deal of advantages to therapeutic suppliers, particularly in immature
or country territories, yet there is unmistakable hazard included. The exploration demonstrated
that there are 944 cloud benefits being used crosswise over social insurance suppliers and 53% of
representatives use no less than three gadgets at work.
2.3. Wearables
One cannot think about health care without Wearable technology in years to come. Be that as it may,
observing wellness is just the start. For example, Michael J. Fox collaborated with Intel to utilize
wearables to discover certain characteristics of Parkinson’s disease.
2.4. Health Informatics

Researchers at the University of Chicago state that half of human services dollars are squandered
on useless record keeping forms. Electronic records have been appeared to spare extensive doctor’s
facilities anyplace somewhere in the range of $37 to $59 million. It smoothens the therapeutic
consideration process and reduces misbehavior claims and builds coordination among suppliers.
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Understanding the Adoption of Healthcare Wearables among Health-Conscious Youth
2.5. Digital Therapy

For patients require medical care at home after being discharged from the hospital, a platform that
combines mobile technology and artificial intelligence called Welframe is very useful to track their
medical condition. Welframe has inbuilt “GPS navigation system for patients.” It provide day to day
plan for the patients and a tracker for eating regimen and exercise. The organization has performed
preliminaries with cardiovascular, pneumonic and psychological wellness patients.
2.6. Networks and Coaching

With portable innovation, it’s simpler than any time in recent memory to have a modified eating
routine or wellbeing plan. ThriveOn is customized training for emotional well-being, putting forth
designs by evaluating your rest, inclination, stress, tension and self-perception. Retrofit offers
instructing and master guidance for weight reduction and weight the executives. [2]
According to PC Lai (2017), consumers’ acceptance and their intention to use new technologies
can be explained by one of the most popular theories, the Theory of Reasonable Action
(Fishbein and Ajzen, 1975) which is about one factor that determines behavioral intention of the
person’s attitudes toward that behavior. [3]
Seul Chan Lee* and Yong Gu Ji (2016) used technology acceptance model (TAM) and the
task-technology fit model (TTF) as an integrated model to investigate the important factors affecting
usage behaviour of wearable devices. This model explained that there is 50.3% behavioral intention
variance. [4]
3. Data Collection
3.1. Secondary Market Research on Purchase Level of Clinical Wearables

Table 1: Types of Devices, Data Collected and Available Products in the Market [5]
Device Type Data Collected Product in the Market
Wrist worn Actigraphy, Heart Rate, BP, Electrodermal E4 by Empatica, ViSi Mobile by Sotera Wireless,
activity ActiGraph Link by ActiGraph
Skin patch ECG, actigraphy, skin temperature HealthPatch by Vital

Connect, BioStampRC by MC10
Cuffs BP, HR Intellisense Digital BP Monitor by Omron Healthcare

Finger worn HR, SpO2 iSpO2 Pulse Oximeter by Massimo
Clothing HR, HRV (Heart Rate Variability), Smart shirts by Hexoskin
embedded ECG,Breathing Rate, actigraphy
sensors
Headbands EEG (Electroencephalogram), EMG EMOTIV EPOC by Emotiv, 4D FORCE by 4D FORCE

(Electromyography)
According to the forecast by Gartner, 310 million wearable devices were to be sold worldwide in
2017, an increase of 17% from 2016,. Bluetooth headset sales generate the largest number of units
sold, growing from 150 million in 2017 to a forecast of 206 million by 2021. When it comes to sales,
smart watches lead the way. Sales of wearable devices generated a revenue of $31 billion in 2017,
with smart watches accounting for $9 billion.
Here is MediaPost’s shows the numbers of wearable devices projected to be sold in four years for
different wearable devices. [6]
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Table 2: MediaPost’s Breakdown of Numbers of Devices
Wearable Device Number of Users (millions)
Bluetooth headset 206
Smartwatch 81
Head-mounted display 67
Wristband 64
Other fitness monitor 59
Sports watch 22
Body-worn camera 6
Here is CSS Insight on Global wearables forecast, 2016-2020 in figure 1.
Figure 1: CSS Insight on Global Wearables Forecast, 2016-2020
Source: www.forbes.com
3.2. Primary Research on Adoption of Wearables

Upon conducting group discussion with 15 people of age group 20-26 about the factors that influence
the demand of wearables in the market, following factors are concluded as a result of discussion:
i. Increase in the number of early age diseases
ii. Helpful for people suffering from heart diseases, obesity, diabetes, high blood pressure
iii. People are becoming health conscious
iv. Wearables are trendy, have aesthetic appeal and informative and these features
attract youth
v. Market price of wearables
vi. Product life of wearables
vii. Ease of using multiple features
viii. People want to keep track of their health
ix. Promotion of wearables by celebrities and role models
x. Wearables popularity among people regularly going to gym
xi. Price of substitute products
xii. Additional features of wearables other than clinical tracking.
xiii. Wearables are easy to integrate with smart phones, computers and many other devices
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To understand the adoption of wearable, product availability, problems with wearables, following
questionnaire was prepared and surveyed with 21 people of age group 20 to 30 years
i. Do you use any wearables?
ii. Why would you like to purchase wearable?
a. To track general fitness
b. To track specific ailments like heart disease, blood pressure, etc
c. Because you are sport enthusiast
d. Because it is trendy and has aesthetic appeal
e. Because it has many features other than those health concerns
f. Because wearables are used by celebrities and role models
g. Other
iii. Where would you like to purchase it?
iv. What is the product availability?
v. What are the problems with wearables?
vi. How cost of wearables seems to you?
vii. Would you like to suggest your friends to use it?
Given below are the findings from the Survey through google forms
Figure 2: Do you use Wearables?
Source: Google form
Figure 4: Why would you like to Purchase Wearable?
Source: Google form
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Figure 5: Where would you Like to Purchase it?
Source: Google form
Figure 6: Is it
Source: Google form
Figure 7: What is the Product Availability?
Source: Google form
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Figure 8: Would you like to Suggest your Friends to use it?
Source: Google form

Following problems are responded by the users of wearables:
i. Not much accurate
ii. Doesn’t give exact results
iii. Wearables user interface can be improved
iv. Doesn’t give the real time data
v. Accuracy regarding distance when you are walking inside a building because of
low GPS accuracy
vi. Low coat wearables are having some issues like technical accuracy.
vii. Weight and since it’s an electronic device so reliability issues.
viii. It is mostly battery operated and will need battery replacement
ix. It counts even when I am not walking
x. Less no of designs
xi. Wrong calculation of walk counts
xii. Less colors available
8. Analysis
Secondary research shows that demand of wearables is likely to increase by up to 411 million and
market share of 32 billion dollar globally in the coming two years. [figure 1]
It is observed that 38.1% people in the survey are using wearables [figure 2], which shows that
wearables are becoming popular in the market. Most of the people are using to track the general
fitness, to track specific ailments and it is trendy and has aesthetic appeal [figure 3]. 95% people
purchased it on e-commerce platform [figure 4], this shows that it is not easily available on retail
outlets, but customers can easily purchase it online, it also shows that wearables are not reachable
to the people of tier 3 cities where the penetration of e-commerce is less. More than 85% people
reported wearables to be either expensive or costly [figure 5]. Product availability is 90% on
e-commerce platform this shows that market is responsive in providing wearables [figure 6,]. 85%
people suggested their friends for using wearables this shows that product will likely to have huge
demand in the future. [figure 7]
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Although wearables are appreciable in the market there are few problems which mostly related to
technology error. It may be because it is a new product and need some research and development.
9. Conclusion
Research shows that wearables have appreciable adoption among health-conscious youth.
Adoption is likely to increase in the coming future which shows its market has potential to create
higher revenues for the wearable manufacturer. Increase in the adoption of wearables is a sign that
India will likely to have healthy youth in the coming future.
References
Jai Prakash Narain, (2016), Public Health Challenges in India: Seizing the Opportunities. Indian J Community Med.
2016 Apr-Jun; 41(2): 85–88.
Irish computer Society, Top 10 technologies which will change the healthcare sector from https://www.ics.ie/news/
view/1158
PC Lai, (2017), The literature review of technology adoption models and theories for the novelty technology, Help
University, Malaysia. JISTEM-Journal of Information Systems and Technology Management Vol. 14, No.
1, Jan/Apl, 2017 pp. 21-38
Hyung Sik Chang and Seul Chan Lee* and Yong Gu Ji, (2016), Wearable device adoption model with TAM and TTF.
Int. J. Mobile Communications, Vol. 14, No. 5, 2016
Elena S. Izmailova, John A. Wagner and Eric D. Perakslis, (2018), Wearable Devices in Clinical Trials: Hype and
Hypothesis. Clinical Pharmacology & Therapeutics published by Wiley Periodicals, Inc. on behalf of
American Society for Clinical Pharmacology and Therapeutics, Vol. 104, No. 1
Michael Sydes, (2018), Wearables are Improving Clinical Trial Research in More Ways than One. Blog, Public
Responsibility in medicine and research
IAMOT 2019 | 450

Safety Risk Minimization Through
Increased Productivity
Manoj Jha
Prism Johnson limited
E-mail: manoj.jha@prismjohnson.in
Abstract
Safety is heart of manufacturing. It is possible to drive Manufacturing excellence keeping safety as an engine.
The study conducted revealed that zero harm culture towards man and machine can improve safety and productivity
together to a great extent. A system was developed and applied around man and machine to reduce risk of life and
risk of slow run. The safety index was linked with Overall equipment effectiveness. In this study a large number
of risks were identified for safe operation and maintenance for correction. The results revealed not only a specific
trend but the solution as well for the given condition. The defects which were getting corrected for the first time
and recurring type were found to be most unsafe in maintenance. The first time defects were mostly attributed to
inspection whereas the recurring one was the result of inability to fix the defect in first attempt. These failures
were reducing the Machine Utilization Index and also impacting morale. Similarly, the operational defects were
causing slow run and resulting in lower production rate index. Together the lower production rate index and
machine utilization index was reducing the overall equipment effectiveness. The detail examination of the recurring
unsafe act was subjected to Pareto and why why analysis which led to a solution to prepare additional standard
maintenance procedure for recurring defects. Similarly, the slow runs of the machine were corrected by additional
operating procedure. These procedures increased the machine output and machine run factor. Further a data
base was created to understand the impact of productivity on safety for about three years. It was established that
whenever the Production Rate Index and Machine Utilization Index exceeds a benchmark of 95 % and 92 %, the
risk of harm moves towards zero.
Zero harm
Slow run
Recurring defect
Overall equipment effectiveness
1. Introduction
This paper aims to apply the best practices of safety and to find synergy between safety and
productivity aiming at zero harm concept.
2. Methodology
Human life is precious and so in any industry the incidents are to be reduced by all means to zero
harm level. This can be predesigned and structured. To begin with defect needs to be rectified with
tailor made solution. A safety committee consisting of workmen and staff under guidance of Safety
professional chart out a programme to find out defects and erase them in a systematic way. Hazard
identification and risk assessment (HIRA), Improvement in mean time between failure, slow run
improves the overall equipment effectiveness (OEE). These measure support safety performance as
the operational productivity of man and machine improves.
3. Findings
The practices those improved the safety performances are described as under:
i. Safety Committee: Safety committee (1) is an excellent apex team which takes
decision on all aspects of safety and coordinates execution and monitoring of
results. This is effective as the participants are both workmen & top management
from each function. It is a platform where the workmen directly participate and
organise action with regards to safety.
ii. Hazard Identification and Risk Assessment (HIRA): HIRA (2) is very essential
tool to identify the hazard & take the control measures as per risk priority.
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We identified about 13000 hazards & rectified them which helped us to reap
towards zero incidents.
iii. INDEX Development Plan: To have mass acceptance of the employee a platform
called INDEX was created. The INDEX meant Inspection, Notification, Delivery
and Excellence. This platform delivered a list of critical jobs through Inspection.
Notifications were generated on all the actionable. Solutions were delivered through
job planning to take corrective action.
Table 1: Summary of Hazards and Risks Attended in last 3 years
Apr- Sep 2018
2015-18 Total Completion (%)
Complete Pending
Line -I 185 36 10 96%
Safety Committee 502
Line -II 229 31 11 96%
Line -I 5445 1167 569 92%
HIRA 13057
Line -II 4722 846 326 94%
INDEX and Golden triangle* - 75 47 122 61%
Total 10581 2155 963 13681 93%
*INDEX – A new initiative comprising of Inspection, Notification, Delivery and Excellence and Golden triangle was about
three R comprising of Reason, Resource and Result:
Figure 1: Summary of Hazard Identification & Risk Assessment
Compliance to legal aspect is important and serves as a guideline for incident prevention
(3). Control measures to minimize the high risk hazard are essential to run the process smoothly.
Incident investigation& analysis plays a vital role in avoiding the repetitive incidents and it also
helps in identifying the root cause to remove the hazard from workplace. Root cause was arrived
and corrective measures taken to prevent repetitive incident. Believing in this theory we moved
towards Fatality prevention. Even a simple process can lead to fatality when the work instruction is
not known or not understood by the workmen, or without recommended PPE or unwanted behaviour
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Safety Risk Minimization Through Increased Productivity
apart from work place hazards. Fatality is the highest risk, so the typical areas were identified for the
present case. The area identified like confined space, working at height, hot work area and fire prone
area. Control measures and emergency preparedness were brought into action through mock drill.
Tailor made training need (4) was arrived and training imparted. The details are provided in Table 2.
Table 2: Year Wise Table of Number of Employees Trained as per FPE’s
Year No. of Workmen Trained No. of Training
2015-16 2305 70
2016-17 2237 73
2017-18 1656 56
Apr-Sep 2018 1188 42
Further to strengthen the systems developed for mass involvement two more initiative launched.
One of them was safety awareness drive and another was popularising Golden rule of safety. These
rules were framed on the basis of past history of incident.
Safety Awareness Drive: Safety awareness (5) drive is essential in creating safety awareness
among the employees. We organized various safety awareness drives periodically which helped
using maintaining safe ambiance in the plant like National Safety Day celebration, State Safety Day
celebration, Road Safety Week celebration, monthly safety gate meeting, Fire Week celebration, No
Tobacco Day celebration, World Environment Day celebration etc.
Golden Rules for accident prevention: Efforts to discipline is surely important to follow safety rules,
it is often productive to focus on what actually hinders employees from making safe decisions.
For e.g. some of the Golden Rules for accident prevention was found result oriented, they are:
●● Leaders influence the culture of a zero harm environment.
●● Safety starts with the employee. Never walk past unsafe acts or conditions.
Never remove, bypass or modify a safety device without authorization.
●● Operate - if you are trained, assessed and obtained a safety permit and undertaken an
inspection before starting the work.
●● Drive to conditions and comply with project rules when on site. Use journey plans and
comply on road.
●● Isolate, lock out or tag out equipment being worked on. Never remove an employee’s
Underground Tag from the Tag Board or Personal Danger Tag from a piece of equipment.
●● Working with electrical devices is a restricted work activity. Take special work permit.
●● Working at heights space is a restricted work zone and activity. Take special work permit.
●● Never enter a delineated hazardous area without authorization. Restricted work zones
are confined spaces, any area involving welding or hot work activity, working with
explosives (blast zones, magazines) and incident investigation zones. Take special
work permit.
●● Similarly lifting work, working on/near water or mud, fire prone area work (Hot work),
is a restricted work zone and activity. Take special work permit.
●● Regularly assess ground and high wall conditions for movement, cracking, rock falls or
signs of instability.
●● Identify hazards and manage risks till the solution is not implemented. Ensure controls
are appropriate and robust.
●● There cannot be universal solution but this can be improvised by non-compromising
decision making abilities at high risk area.
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With activities summarised in Table 1 and 2 the incident trend reduced and the details are given in
Graph 1, Graph 2, Graph 3 and Graph 4.
Graph 1: Year wise Incident Trend
Graph 2: Year wise AFR** (Accident Frequency Rate) Trend
**AFR =No. of accident × 1000000 / Man hour work
Graph 3: Year wise LTIFR*** (Lost Time Injury Frequency Rate) Trend
***LTIFR = (No. of reportable lost time injury × 1000000)/Man hour worked in period
IAMOT 2019 | 454

Graph 4: Year wise LTISR**** (Lost Time Injury Severity Rate) Trend-
****LTISR =(No. of reportable Man Days Lost × 1000000)/Man hour worked in period
After completion of the identified jobs positive results were seen. Before 2015-16 about 13000
hazards were present & unattended, so the number of incidents was high but after completion of
93% of jobs the frequency & number is very low and reduced gradually which is shown in above
trend. To improve further it was observed that equipment and machine failures were reducing the
machine utilization Index and also impacting moral. Similarly, the operational defects were causing
slow run and resulting in lower production rate Index. Together the lower production rate index and
machine utilization index was reducing the overall equipment effectiveness. The detail examination
of the recurring unsafe act was subjected to Pareto and why-why analysis led to a solution to prepare
additional standard maintenance procedure for recurring defects. Similarly, the slow runs of the
machine were corrected by additional operating procedure were. These procedures increased the
machine output and machine run factor. Further a data base was created to understand the impact of
productivity on safety for about three years. It was established that whenever the Production Rate
Index and Machine Utilization Index exceeds a benchmark of 95 % and 92 % the risk of harm moves
towards zero. The details are provided in Graph 5, Graph 6, Graph 7 and Graph 8.
Graph 5: Trend of Running Hours (Actual Operating Hours)
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Graph 6: Trend of Production Rate (TPH)-
Graph 7: Trend of Net Overall Equipment Efficiency (OEE %)
Graph 8: Trend of Mean Time between Failure (MTBF in Hours)
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Table 3: Month wise Production (MT) Vs Incident Table
Production Production Vs Incident
Production
Production
Production
Production
Apr–Sep
Apr–Sep
Incident
Incident
Incident
Incident
Incident
2014-15
2014-15
2015-16
2015-16
2016-17
2016-17
2017-18
2017-18
Month
No. of
No. of
No. of
No. of
No. of
2018
2018
1 387232 2 355762 2 378750 2 438082 0 448435 0
2 381655 0 312904 1 317449 1 263719 1 422901 0
3 360014 1 273769 3 394931 0 327953 1 382065 0
4 340046 0 414711 0 318018 1 400497 1 444730 0
5 248891 2 325276 1 273755 0 235320 1 335506 1
6 287936 4 139804 0 271278 0 147778 1 279271 0
7 329684 1 404798 0 418998 0 289346 3
8 365811 1 215488 0 305497 1 419034 0
9 169512 3 353471 0 181201 0 249552 2
10 375736 4 282598 3 363650 0 447178 0
11 360093 3 274911 2 285688 0 349461 2
12 307964 3 383587 1 463017 1 444098 1
Graph 9: Zero Incident Frequency Achieved in Highest, Second Highest and third Highest Productive Months
Table 4: Month wise Table of Highest Production with Zero Incidents
Highest 2nd Highest 3rd Highest

Apr-18 448435 Apr-17 438082 Aug-16 273755
May-18 422901 May-14 381655 Sep-16 271278
Jun-16 394931 Jun-18 382065 Dec-17 181201
Jul-18 444730 Jul-16 414711 Jan-17 363650
Oct-16 418998 Sep-18 279271 Feb-17 285688
Nov-17 419034 Oct-15 404798
Dec-15 353471
Jan-18 447178
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From Table 4 it was inferred that when the process runs continuously without interruption the
likely hood of zero harm is assured to a great extent. This indicates that the probability of incident
occurring at highest productivity is close to zero. Zero incident has been achieved 8 months out of
12 highest productive months. A system targeting Overall equipment effectiveness and backed up
by best safety practices can create a synergy to deliver zero harm.
4. Contribution
The measures to improve machine availability and improve continuous operation can result into
improved safety performance. A synergy of operation, maintenance and safety initiatives create a
value for organisation and so excellence is achieved in business performance.
References
Potdar, B.R. and Patwardan, Girish, The Factories Act 1948 with The Madhya Pradesh/ Chhattisgarh Factories Rules
1962, Section 41G, pp. 37, Indore, India
Mistri, K.U., Fundamentals of Industrial Safety & Health, Hazard Identification and Risk Assessment, pp. 19.1-19.78,
Gujarat, India.
Mistri, K.U., Fundamentals of Industrial Safety & Health, Accident Causation and Prevention, pp. 4.1-4.24,
Gujarat, India
Mistri, K.U., Fundamentals of Industrial Safety & Health, Safety Management, Safety Education & Training, pp. 6.48,
Gujarat, India
Mistri, K.U., Fundamentals of Industrial Safety & Health, Safety Psychology, pp. 3.3-3.22, Gujarat, India
IAMOT 2019 | 458

Optimization of Time and Resources in a Multi
Project Environment: A Case Study
B. Koteswara Rao Naik

National Institute of Industrial Engineering, Mumbai
E-mail: dr.bkrnaik@gmail.com
Nikhilesh Kasare
E-mail: nikhilesh.kasare.2017@nitie.ac.in
Vilas Kharat
E-mail: vilas1221@gmail.com
Abstract
Strategic capacity planning is top management decision and its tough task. This paper talks about Strategic Capacity
Planning for the entire plant/ company for next two years and devising a Excel template for the same to get optimal
solution using Excel function-solver which would help top management to take strategic decision of utilizing plant’s
capacity to its maximum extent and how much work load to do in-house, outsource, overtime and postpone to next
work cycle to best meet demanded work load. After achieving Strategic Capacity Planning for next two years on
monthly basis, now, next work is to allocate this work load capacity to different projects of the company according
to the priority of the projects under multiple criteria decision making using analytical hierarchy process (AHP).
AHP is used to rank the projects, in order to prioritize them for time and resource allocation. Analysis has been
carried out by using Chase (demand matching) strategy and Hybrid (xixed) strategy.
Keywords: Project Portfolio Management (PPM), Multi-Project Environment (MPE), Strategic Capacity Planning, AHP
1. Introduction
Projects are unique, there is an own best way managing projects portfolio (PP) and this phenomenon
is called contingency theory (Woodward, 1958). Managing multiple and different projects within an
organization in the same time is called as projects portfolio management (PPM), which, is based on
modern portfolio theory (MPT) (Markowitz, 1952). MPT has been influential as a significant tool
of identifying and assessing the project risks that can happen during the course of action in any
project-oriented organization. The project portfolio management has gained significance in recent
times, it is an emerging aspect of business strategy that focuses on how projects are selected,
prioritized, integrated and managed in multi-project environment which is prevalent in current
organizations (Young and Conboy, 2013). Literature shows more on gaining better understanding
of the strategic PPM decision processes involved in project selection, prioritization, balancing and
their alignment with organizations strategy (Archer and Ghasemzadeh, 1999; Greiner and Fowler,
2003, Cooper et al., 1999; Lager, 2002; Jolly, 2003; Roussel et al., 1991; and PMI, 2013). However,
with the greater complexity, uncertainty, information flow, reliability of information, information
technology (IT) infrastructure and information reach globally also important for portfolio management
(Artto and Dietrich, 2004; Barczak and Sultan, 2006; Salem and Mohanty, 2008; Browning, 2010;
Froese, 2010; Lam et al., 2010 and Vaccaro et al., 2010; Martinsuo et al., 2014). When organizations
start coordinating with different projects within the organization can deliver better results than doing
them individually, which would not possible to get better results (Cleland, 1999).
A big company or manufacturing plant has to handle so many projects at a time. Managing these
projects broadly means to allocate plants capacity or resources to these projects to get it done
within the deadlines and budget. A project manager or head of project management office has a
responsibility to optimally manage plant capacity and allocate it wisely to the project portfolio (PP)
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in order to minimize the overall cost of operation. In this study, the research has been carried out
on, how to optimize the plant’s capacity (in terms of man-hours) for the next two years, so, we have
used two strategies of strategic capacity planning, one is Chase Strategy and another one is Mixed
(Hybrid) Strategy which is amalgamation of level strategy, outsourcing and postponement of work.
Under Chase strategy capacity of the plant is matched with the demanded work load by all projects
in the particular period. So, there is no need to prioritize the projects to allocate plants capacity as
ultimately capacity requirement of all projects are fulfilled in the particular period only when demand
is matched with the capacity. While in Mixed (hybrid) strategy, capacity of the plant is kept constant
over the period and there exist two situations, if demand exceeds capacity, then, excess demand is
catered through outsourcing, overtime, postponing some work load to next consecutive period and
if, capacity exceeds demand, then, capacity remained unutilized or can be reduced to certain extent
by pulling some work load of the period where demand exceeds capacity. After achieving optimal
strategic capacity plan next step is to allocate this capacity to project portfolio of the company.
But, these all to be done by keeping in mind that, no project should get delayed or if the situation
where delay cannot be avoided then delay penalty (loss) should be minimum. So, before allocating
plants capacity to projects, project manager must prioritize projects based on multiple criteria. Some
general and important criteria are as follows;
●● Penalty cost on the project
●● Profit margins
●● Project Buffer consumed till current date
●● Project Due date (Total Months Left)
●● Project completed till current date
In this paper, we have used the multi criteria decision making tool Analytical Hierarchy Process
(AHP) to prioritize projects based on above criteria. After prioritizing the projects, one can take
a decision to allocate plant’s capacity to high priority projects and postpone work of low priority
projects to subsequent periods and allocate the same to the project portfolio by prioritizing the
projects based on multiple criteria decision making.
Aforementioned problem is real situation faced in many organizations, where, multiple projects
are going-on and resources and capacity of the plant are limited to cater demand requirement of the
projects. So, top management has to decide capacity of the plant and allocate same to project portfolio
by prioritizing the projects based on multiple criteria decision making. Many a times, decisions are
taken by general discussion and based on experience of project manager, production manager and
other top management officials. But this is not right practice to take decision based on experience and
general discussion. This paper highlights a proper process to take such top management decisions
by gathering useful data, formulating real life problem in a mathematical model, solving it using
Excel-Solver to get optimal solution under given set of constraints and prioritize projects using AHP
to allocate capacity.
PPM has gained an important role in as making the strategy in multi-project environment as suggested
by many authors (Carvalho; Laurindo, 2003; Roussel et al., 1991; Cooper et al., 1999, 2001).
In order to achieve competitive advantage, the PPM output process should be able to meet the
company strategic requirements and also achieve its goals (Carvalho et al., 2003). The scholarly
work by several authors also stressed the importance of achieving steadiness in portfolios in different
ways, such as balancing between product innovation and process innovation; balance between
incremental and revolutionary projects; balancing between long term and short term; and balancing
between risk and reward (Adner; Levinthal, 2001; Roussel et al., 1991; Cooper et al., 1997, 1998,
1999, 2001; Tritle et al., 2000). Huanga et al. (2013) have practically implemented the theory of
constraints critical chain project management method and achieved good results over traditional
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Optimization of Time and Resources in a Multi Project Environment: A Case Study
approach. Alneyadi and Asbin (2014) have used artificial intelligence approach in Information
Technology (IT) PPM in time and cost management and found impressive results over the
traditional approaches.
In any organization, which, manages large number of projects, in other words we can say the
multi-project environment the number of operations are carried out simultaneous projects, is more
often complex and challenging to manage (Hobday, 2000; Engwall & Jerbrant, 2003; Elonen
& Artto, 2003; Sydow, Lindkvist & DeFillipi, 2004; Söderlund & Tell, 2009; Arvidsson, 2009;
Jerbrant, 2013; Jerbrant & Gustavsson, 2013), in such an environment where complex city is
involved in PPM, where, there is a more focus on time and activity planning in order to facilitate the
coordination of scarce resources with limit on time. On the other side, the multi-project environment
theory stresses on improving efficiency and rationality in the structuring of the project portfolio’s
performance by means of practical methods, techniques & tools for effective resource allocation and
project prioritising (De Maio, Verganti & Corso, 1994; Van der Merwe, 1997; Cooper, Edgett &
Kleinschmidt, 2002; Danilovic & Sandkull, 2005; Moore, 2010). Some scholars have concluded that
the interdependencies which arise between different projects, as well as within the project and their
environment remain suggestively difficult (Cooper et al., 2002; Engwall & Jerbrant, 2003; Engwall,
2003; Blichfeldt & Eskerod, 2008).
Several researchers, in case of multi-project management have stressed on resource allocation,
control and prioritisation between projects (Gunnarson, Linde & Loid, 2000; McDonough & Spital,
2003; Crawford, Pollack & England, 2006; Dawidson, 2006; Jerbrant, 2009). The main area of PPM
research has followed a rational approach and in developing methods, tools and techiniques which
have focused on project structure and controlling mechanisms (Cooper et al., 2002; McDonough &
Spital, 2003; De Reyck, Grushka-Cockayne, Lockett, Caldemi, Moura & Sloper, 2005; Dawidson,
2006; Turner, 2009; Moore, 2010; Teller, Under, Kock & Gemünden, 2012). The PPM managers
are more often flooded by issues relating to project prioritisation and the distribution of resources to
low-priority cum smooth-running projects and more resources to high-priority cum projects in crisis
(Blichfeldt & Eskerod, 2008). However, most of the time the project manager faces difficulties in
getting more resources and there is no question of dreaming about surplus, hence, in multi project
environment managers primarily relay on methods, tools and techniques in project selection,
prioritization and resource allocation in most effective way possible (Hendriks, Voeten & Kroep,
1999; Cooper et al., 2002; Pennypacker & Dye, 2002; Turner, 2009; Moore, 2010). The mounting
acceptance of PPM theory and practice with the rationality of methods, tools and techniques for
structuring work and directing responsibility has encouraged the movement of formalization for the
multi-project enviroment (Thiry & Deguire, 2007).
PPM has got a significant role in project management research, product development management
research and in companies’ strategies in the past decade. In spite of the guidelines, instructions and
success strategies, companies still struggling in how projects should be selected to the portfolio,
how resources should be allocated across projects, how to align the entire portfolio with strategy
and how to assess the success of the portfolio across projects (Martinsuo, 2012). In order to aid
the project managers to make decisions properly in allocation allocate resources, project portfolio
management researchers (Elahi & Najafizadeh, 2012; Murray, Alpaugh, Burgher, Flachbart, &
Elrod, 2010; Rafiee, Kianfar & Farhadkhani, 2013; Bhattacharyya, Kumar & Kar, 2011; Rebiasz,
2013 and others) have developed different resource allocation models. However, several researchers
(Liberatore & Titus, 1983; Schmidt & Freeland, 1992; Eilat, Golany & Shtub, 2006; Solak, Clarke,
Johnson & Barnes, 2010; Lawson, Longhurst & Ivey, 2006; Meredith & Mantel, 2008; Verbano
& Nosella, 2010; Ghasemzadeh, & Archer, 2000) have concluded that the use of quantitative and
computer-aided project selection and resource allocation methods are not sufficient enough, rather
limited, due to their complexity, also, there is no consensus on which method to be used under which
circumstances will yield effective results. Artificial neural network methods were used in bringing
the relationships in R&D projects (Yu-Shan Chen, Ke-Chiun Chang and Ching-Hsun Chang, 2012),
which, has further strengthened the ANN in determining various factors which contributes the
success of R&D projects (Chen, Chang, & Chang, 2012).
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There are many antecedents to measure the project portfolio success which eventually lead to
organizations success (Kester, Hultink, & Griffin, 2014; Martinsuo, 2013; Meifort, 2015), the
organizations ability to innovate is termed as the major antecedent (Eisenhardt & Martin, 2000;
Wheelwright & Clark, 1992). In-depth research has been carried out on new product development
(NPD) in the last decade (Evanschitzky, Eisend, Calantone, & Jiang, 2012; Kock, Gemünden,
Salomo, & Schultz, 2011; Salomo, Weise, & Gemünden, 2007; Sicotte, Drouin, & Delerue, 2014).
In the NPD research, successful product launches and business success were driven by front-end
activities (Cooper, 1988; Martinsuo & Poskela, 2011; Pinto & Slevin, 1989; Poskela & Martinsuo,
2009; Reid & de Brentani, 2012; Verworn, 2009; Williams & Samset, 2010). Fernandez Carazo
et al. (2008) have studied on the project prioritization based on the results obtained during the
evaluation process, or by means of other methodologies like multi-attribute utility analysis, the
analytical hierarchical process (AHP) proposed by Saaty (1980).
The methods, tools and techniques used in PPM, are often based on the ability to handle prerequisites
that may happen in day-to-day operations, in selection, prioritization and resource allocation of the
projects, most of the project intense organizations are having objective of meeting time deadlines,
uncertainties and day-to-day organization practices (Eskerod, 1996; Ward & Chapman, 2003).
In the other hand, in the context of PPM, the notion of flexibility is very important (Petit & Hobbs, 2010),
with the output, the coordinative and communicative managerial activities have become significantly
important (Dainty, Moore & Murray, 2006; Winch, 2010), this is in turn brings the importance of
uncertainty management with respect to PM and PPM prerequisites (Petit & Hobbs, 2010; Petit, 2012).
Three or four basic strategies can be used in developing a production plan;
2.1. Chase (Demand Matching) Strategy

Producing the amount demanded at any given time, where, Inventory levels remain stable while
production varies to meet demand.
2.2. Level (Production Leveling) Strategy

Continually producing an amount equal to the average demand. Companies calculate their total
demand over the time span of the plan and, on the average, produce enough to meet it. Production
leveling means the company will use its resources at a level rate and produce the same amount each
day it is operating. The advantage is that it results in a smooth level of operation that avoids the
costs of changing production levels. The disadvantage is that inventory buildup during periods of
low demand.
2.3. Subcontracting
Means producing at the level of minimum demand and meeting any additional demand through
subcontracting. Costs associated with excess capacity are avoided and because production is leveled,
there are no costs associated with changing production levels. The main disadvantage is that the cost
of purchasing may be greater than if the item were made in the plant.
2.4. Hybrid (Mixed) Strategy

Is a combination of the other three strategies. Production management is responsible for finding the
combination of strategies that minimizes the sum of all costs involved, providing the level of service
required and meeting the objectives of the finance and marketing plans.
3. Data Collection and Analysis

Major steps of strategic capacity planning are; relevant data collection from various sources like
ERP, MIS software databases, actual field data, etc. Collection of data from various sources like,
ccurrent & forecasted projects for next two years, start and end dates of the projects, monthly work
load allocation for two years as per MS project & concerto plan, number of working shifts, working
hours, working days in a month, number of workforces, absenteeism, etc. and direct labour cost,
overhead costs, overtime work cost, outsourcing (subcontract) labour cost.
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Table 1: Deployment of Manpower (in hours) Data (Present and Forecasted)
Financial Years Shop Capacity (Required) Gross Load Excess Load No. of Working Days in a Month
April 33698 34850 1152 26
May 33397 34203 806 27
June 33397 34051 654 25
Financial Year 2016-17
July 34682 29963 -4719 25

August 32113 28350 -3763 26
September 33397 28500 -4897 26
October 32113 36240 4127 27
November 30828 37500 6672 24
December 34682 41300 6618 25
January 30828 39000 8172 26
February 30898 38100 7202 23
March 33397 40500 7103 26
April 32113 37800 5687 26
May 34682 31000 -3682 27
June 33397 20000 -13397 26
July 33397 14000 -19397 26

August 32113 16000 -16113 24
September 33397 15000 -18397 25
October 32113 11500 -20613 26
November 30828 13500 -17328 23
December 34682 13500 -21182 24
January 32113 13500 -18613 26
February 30828 12500 -18328 28
March 33397 10700 -22697 26
For calculating the total expenses on various heads, the current rates, which are followed at the
organization has been considered, number of shits are taken as two per day, number of hours per shift
is eight and total number of labours per shift is eighty. The following table shows various expenses
and their rates.
Table 2: Current Labour Force, Work and Wages Structure
Various Expenses In Rs.
Labour wages per labour per day 600
Total number of labours currently working in the plant 160
Subcontract labour wages per labour per day 400
Total working hours per day 16
Labour wages per labour per hour 75
Subcontract labour wages per labour per hour 50
Hiring and training cost of 1 labour 2000
Layoff(firing) cost of 1 labour 2500
Straight-line cost (Labour cost) of 1 labour per hour 75
Overtime cost of 1 labour per hour 140
Subcontract labour cost of 1 labour per hour 50
Factory premises, consumables, Power, electricity, etc. per hour basis (Overheads-1) 300
Staff manager charges per hour basis (Overheads-2) 300
As per Chase Strategy of Strategic Capacity Management, from the above data, the calculations have
been carried out. The following table shows per labour hours, costs, total labour cost and labour
required and availability matrix.
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Table 3: Chase strategy formulation (FY 2016-17 & 2017-18)
Financial Years A B C D E F G
April 208 168 160 8 0 16000 0
May 216 158 168 0 10 0 25000
June 200 170 158 12 0 24000 0
July 200 150 170 0 20 0 50000

August 208 136 150 0 14 0 35000
September 208 137 136 1 0 2000 0
October 216 168 137 31 0 62000 0
November 192 195 168 27 0 54000 0
December 200 207 195 12 0 24000 0
January 208 188 207 0 19 0 47500
February 184 207 188 19 0 38000 0
March 208 195 207 0 12 0 30000
April 208 182 195 0 13 0 32500
May 216 216 182 0 38 0 95000
June 208 208 144 0 48 0 120000

July 208 208 96 0 29 0 72500
August 192 192 67 16 0 32000 0
September 200 200 83 0 8 0 20000
October 208 208 75 0 20 0 50000
November 184 184 55 18 0 36000 0
December 192 192 73 0 3 0 7500
January 208 208 70 0 5 0 12500
February 224 224 65 0 9 0 22500
March 208 208 56 0 5 0 12500
A: Monthly work load per labour, B: Total labours required (Gross work load per work done a labour), C: No. of workers in
that plant, D: New workers hired, E: Workers fired, F: New workers hiring cost, G: Workers firing cost
As per the chase strategy, the total cost for two years is Rs. 42.72 Crores and cost saving after two
years is Rs. 11.76 Crores. The savings will go down in case, new projects are added to the portfolio.
Permanent labour required for one-year plan is 136 (minimum of one year’s total labour required)
and for two year’s plan 51 (minimum of two year’s total labour required). Additional monthly work
load cab be done by hiring contract labour and if lesser monthly load can be catered by firing the
contract labours.
This strategy is useful in the situation where demand is more stable but most of demand is highly
fluctuating. Chase strategy is occasionally followed in actual practices, because, every time to hire
new workers, train them and fire workers which are not required, is not a good practice to follow
and, it creates bad work culture. Hence, strategic capacity planning strategy is generally followed in
the actual practice.
Mixed (hybrid) strategy is a total combination of level strategy, overtime, outsourcing and
postponement of work to next period. To optimize the monthly workload distribution the following
options are followed;
●● Perform in-house
●● Outsource (Sub-contract)
●● Get done by Overtime
●● Postpone to next subsequent months
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For the two consecutive years, the cost minimization is carried out under the following constraints;
●● Overhead cost to be considered 100%, if, work is done in-house and 50%, if, it is done
through sub-contracting.
●● Subcontracting work has only one shift with eight hours span.
●● Overtime working consumes ‘overhead’ cost.
●● Max work load that can be postponed in a month is 10% of gross load of that month.
●● Max work load that can be overtime in a month is 6% of gross load of that month.
●● Work load postponement is done considering availability of work load of next two months.
●● Minimum work can be postponed is either minimum of load requirement of next two
months or excess load of the current month or max work that can be postponed
Now, after following above constraints, the data table1 has been analysed using Excel-Solver, by
keeping the objective function of minimization of total cost.
Table 4a: Work Hours Under Various Category for the Period 2016-17
Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb
A 0.00 0.00 0 0 0 0 503 6546 6239 8402 7292 6862
B 0.00 0.00 0 0 0 0 0 0 0 0 0 0
C 1152 1957 2611 0 0 0 3624 3750 4130 3900 3810 4050
D 34850 35355 36008 32574 28350 28500 36240 41124 45050 43130 42000 44310
E 33698 33397 33397 32574 28350 28500 32616 37374 40920 39230 38190 40260
F 33698 33397 33397 34682 32113 33397 32113 30828 34682 30828 30898 33397
G 0 0 0 0 0 0 503 6546 6238 8402 7292 6863
H 33698 33397 33397 32574 28350 28500 32113 30828 34682 30828 30898 33397
I 3485 3420 3405 2996 2835 2850 3624 3750 4130 3900 3810 4050
J 0 1957 2611 0 0 0 0 0 0 0 0 0
K 2091 2052.18 2043.06 1797.78 1701 1710 2174.4 2250 2478 2340 2286 2430
Table 4b: Work Hours Under Various Category for the Period 2017-18
Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb
A 5957 0 0 0 0 0 0 0 0 0 0 0
B 0 0 0 0 0 0 0 0 0 0 0 0
C 3780 98.3 0 0 0 0 0 0 0 0 0 0
D 41850 34780 20098 14000 16000 15000 11500 13500 13500 13500 12500 10700
E 38070 34682 20098 14000 16000 15000 11500 13500 13500 13500 12500 10700
F 32113 34682 33397 33397 32113 33397 32113 30828 34682 32113 30828 33397
G 5957 0 0 0 0 0 0 0 0 0 0 0
H 32113 34682 20098 14000 16000 15000 11500 13500 13500 13500 12500 10700
I 3780 3100 2000 1400 1600 1500 1150 1350 1350 1350 1250 1070
J 3780 98 0 0 0 0 0 0 0 0 0 0
K 2268 1860 1200 840 960 900 690 810 810 810 750 642
A: Total Outsourced work hrs, B: Total Overtime work hrs, C: Postponed work hrs, D: Total opening load for this month, E: Total
demand (load) to cater in this month including past postponement, F: Total plant capacity, G: Total work to outsource & Overtime,
H: Total work to do in-house, I: max work hrs can be postpone, J: Min work hrs to postpone, K: Max work can be overtime.
IAMOT 2019 | 465

As per optimal solution given by Solver in MS Excel under real-life constraints, as we come to know
how much work load capacity to manage in house, Outsource, Overtime and with Postpone. As per
the hybrid (mix) strategy, the total minimum cost for two years is Rs. 54.48 Crores. Starting three
month’s work load postponement to fourth month (July-16) incurs more labour utilization from
86.4% to 94%. Work load postponement from the months Oct-16 to Apr-17 resulted in increasing of
labour utilization of the month may-17 from 89.4 to 100%.
Figure 1: Work Load Curve and Plant’s Capacity Curve
3.1. Allocating the Capacity to Project Portfolio

After achieving strategic capacity planning (SCP) by mixed strategy for the entire plant for next
two years on monthly basis, now, next step is to decide work load of which project to be postponed
to next period and reallocate work load capacity to the actual plan as per MS Project & Concerto.
To do this work load allocation planning to project portfolio of the company, one must set priorities
for the projects based on multiple criteria. The criteria based on which projects are generally
prioritized are as (in the decreasing order of their importance) follows;
●● Penalty cost on the project
●● Profit margins
●● Project Buffer consumed till current date
●● Project Due date (Total Months Left)
●● Project completed till current date
So, we used multi criteria decision making tool-AHP (Analytical Hierarchy Process) for the project
prioritization.
Table 5: Data Pertaining to the Given Criteria in the Company’s Project Portfolio
Criteria 1 Criteria 2 Criteria 3 Criteria 4 Criteria 5
Project Buffer
Project Project Completed Consumed Profit Margins Penalty
Total Months Left
(Percentage completed /100) (Percentage Buffer (Rs.) (Rs.)
Consumed/ 100)
Project 1 0.9 0.6 1 135328098.3 22554683.05
Project 2 0.17 0.35 2 31922246.7 9576674.01
Project 3 0.14 0 3 40964789.4 6827464.9
Project 4 0.42 0.8 2 105771144 3525704.8
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Project Buffer
Project Project Completed Consumed Profit Margins Penalty
Total Months Left
(Percentage completed /100) (Percentage Buffer (Rs.) (Rs.)
Consumed/ 100)
Project 5 0.61 0.3 4 61203376.2 16320900.32
Project 6 0 0.8 7 44582200.5 0

Project 7 0 0 8 53312653.2 7108353.76
Project 8 0 0 13 21815389.5 4363077.9
Project 9 0 0 11 54959793 7327972.4
Project 10 0 0 4 139778641.5 18637152.2
Project 11 0.76 0.85 1 47273437.8 3151562.52
Project 12 0 0 14 88571280.6 8857128.06
Project 13 0 0 9 99262660.2 23161287.38
Project 14 0.93 1 1 16216006.8 0
Project 15 0 0 1 101238053.4 10123805.34
Project 16 0.16 0.36 19 54156046.5 14441612.4
Project 17 0.59 1 6 38679293.4 0
Project 18 0.8 1 2 131508594.6 0
Project 19 0 0 31 64115708.1 14960331.89
Project 20 0 0 42 76833411.6 20488909.76
Project 21 0.65 0.9 7 124828916.7 37448675.01
Project 22 0 0 10 98581492.8 9858149.28
Project 23 0.11 0.1 9 42039626.7 7006604.45
Project 24 0 0 15 110786673 18464445.5
Project 25 0 0 18 16459222.8 3840485.32

Project 26 0 0 14 128205198.6 34188052.96
Project 27 0 0 15 97572046.5 26019212.4
Project 28 0 0 39 47270138.7 0
Project 29 0 0 15 121848012.6 36554403.78
Project 30 0 0 15 35277504 10583251.2
Project 31 0 0 24 148588254.3 14858825.43
Minimize Maximize Minimize Maximize Maximize
Table 6: Criteria Consideration for Maximization/ Minimization

Maximize/
Criteria Comment
Minimize
Penalty cost Project which has highest penalty on delay should be given higher priority Maximize
Profit margins Project which has highest Profit margins should be given higher priority Maximize
Project Buffer consumed Project which has highest Project Buffer consumed should be given higher priority Maximize
Project Due date Project which has shortest Project Due date should be given higher priority Minimize
Project completed Project which has percentage completion less should be given higher priority Minimize
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But for solving any problem in AHP, either we must convert all criteria to either minimization or
maximization. We prefer to convert all to maximization (taking reciprocal of minimization criteria
values and keeping maximization criteria values same).
Table 7: Conversion of all Minimization Criteria to Maximization

Project Project Buffer Profit Margins
Project Completed Total Months Left Penalty (Rs.)
Consumed (Rs.)
Project 1 1.111111111 0.6 1 135328098.3 22554683.1
Project 2 5.882352941 0.35 0.5 31922246.7 9576674.01
Project 3 7.142857143 0 0.33333333 40964789.4 6827464.9
Project 4 2.380952381 0.8 0.5 105771144 3525704.8
Project 5 1.639344262 0.3 0.25 61203376.2 16320900.3
Project 6 0 0.8 0.14285714 44582200.5 0
Project 7 0 0 0.125 53312653.2 7108353.76
Project 8 0 0 0.07692308 21815389.5 4363077.9
Project 9 0 0 0.09090909 54959793 7327972.4
Project 10 0 0 0.25 139778641.5 18637152.2
Project 11 1.315789474 0.85 1 47273437.8 3151562.52

Project 12 0 0 0.07142857 88571280.6 8857128.06
Project 13 0 0 0.11111111 99262660.2 23161287.4
Project 14 1.075268817 1 1 16216006.8 0
Project 15 0 0 1 101238053.4 10123805.3
Project 16 6.25 0.36 0.05263158 54156046.5 14441612.4
Project 17 1.694915254 1 0.16666667 38679293.4 0
Project 18 1.25 1 0.5 131508594.6 0
Project 19 0 0 0.03225806 64115708.1 14960331.9
Project 20 0 0 0.02380952 76833411.6 20488909.8
Project 21 1.538461538 0.9 0.14285714 124828916.7 37448675
Project 22 0 0 0.1 98581492.8 9858149.28
Project 23 9.090909091 0.1 0.11111111 42039626.7 7006604.45
Project 24 0 0 0.06666667 110786673 18464445.5
Project 25 0 0 0.05555556 16459222.8 3840485.32
Project 26 0 0 0.07142857 128205198.6 34188053
Project 27 0 0 0.06666667 97572046.5 26019212.4
Project 28 0 0 0.02564103 47270138.7 0
Project 29 0 0 0.06666667 121848012.6 36554403.8
Project 30 0 0 0.06666667 35277504 10583251.2
Project 31 0 0 0.04166667 148588254.3 14858825.4
Decision Maximize Maximize Maximize Maximize Maximize
Total 40.37196201 8.06 8.0418549 2378949912 390248726
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Table 8: Fractional Conversion Cum Standardization
Project
Project Completed Project Buffer Consumed Total Months Left Profit Margins Penalty
Project 1 0.144 0.074 0.003 0.057 0.058
Project 2 0.027 0.043 0.006 0.013 0.025
Project 3 0.022 0.000 0.008 0.017 0.017
Project 4 0.067 0.099 0.006 0.044 0.009
Project 5 0.098 0.037 0.011 0.026 0.042
Project 6 0.000 0.099 0.019 0.019 0.000
Project 7 0.000 0.000 0.022 0.022 0.018
Project 8 0.000 0.000 0.036 0.009 0.011
Project 9 0.000 0.000 0.030 0.023 0.019
Project 10 0.000 0.000 0.011 0.059 0.048
Project 11 0.122 0.105 0.003 0.020 0.008
Project 12 0.000 0.000 0.039 0.037 0.023
Project 13 0.000 0.000 0.025 0.042 0.059
Project 14 0.149 0.124 0.003 0.007 0.000
Project 15 0.000 0.000 0.003 0.043 0.026
Project 16 0.026 0.045 0.052 0.023 0.037
Project 17 0.095 0.124 0.017 0.016 0.000
Project 18 0.128 0.124 0.006 0.055 0.000
Project 19 0.000 0.000 0.086 0.027 0.038
Project 20 0.000 0.000 0.116 0.032 0.053
Project 21 0.104 0.112 0.019 0.052 0.096
Project 22 0.000 0.000 0.028 0.041 0.025
Project 23 0.018 0.012 0.025 0.018 0.018
Project 24 0.000 0.000 0.041 0.047 0.047
Project 25 0.000 0.000 0.050 0.007 0.010
Project 26 0.000 0.000 0.039 0.054 0.088
Project 27 0.000 0.000 0.041 0.041 0.067
Project 28 0.000 0.000 0.108 0.020 0.000
Project 29 0.000 0.000 0.041 0.051 0.094
Project 30 0.000 0.000 0.041 0.015 0.027
Project 31 0.000 0.000 0.066 0.062 0.038
Decision Maximize Maximize Maximize Maximize Maximize
Total 1 1 1 1 1
Pairwise comparison and setting priorities among the criteria.

Table 9: Pairwise Comparison Matrix of Multiple Criteria
Profit Project Buffer Total Months
Criteria Penalty Project Completion
Margins Consumed Left
Penalty 1 2 5 7 8
Profit margins 1/2 1 3 6 8
Project Buffer
1/5 1/3 1 4 7
consumed
Total Months left 1/7 1/6 1/4 1 3
Project
1/8 1/8 1/7 1/3 1
Completion
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After solving by AHP, we get AHP weighted factor for each criterion by using Saaty (2008)
pair-wise comparison scale.
Table 10: AHP Weighted Factor for Each Criterion
Criteria AHP weightage factor
Penalty 0.505
Profit margins 0.274
Project Buffer consumed 0.114
Total Months left 0.061
Project Completion 0.046
Total 1
So now multiplying fractional values of each project with AHP weightage factor, we get final
normalized AHP factors for each project as follows and hence based on which projects can be
prioritized for the mentioned 5 criteria.
Table 11: Normalized AHP Factor for Each Project
Project Final Normalized AHP Factor Project Priorities (Ranking)
Project 1 0.060062951 2
Project 2 0.02260996 16
Project 3 0.015090829 22
Project 4 0.031493122 13
Project 5 0.037583221 11
Project 6 0.017629533 26
Project 7 0.016686991 28
Project 8 0.010349262 29
Project 9 0.017666425 27
Project 10 0.040890641 7
Project 11 0.02731648 17
Project 12 0.024022014 23
Project 13 0.04292112 6
Project 14 0.023035907 21
Project 15 0.024929465 15
Project 16 0.034398598 8
Project 17 0.023959289 24
Project 18 0.035525121 14
Project 19 0.031967769 18
Project 20 0.042440382 12
Project 21 0.081538484 1
Project 22 0.025796294 20
Project 23 0.017650729 19
Project 24 0.039181537 9
Project 25 0.009898638 30
Project 26 0.06136632 4
Project 27 0.047435738 5
Project 28 0.01201625 31
Project 29 0.063864795 3
Project 30 0.020285996 25
Project 31 0.04038614 10
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So now after setting project priorities, the projects which have lesser AHP rating than others are
less important based on above 5 criteria and work load requirement of the same can be kept on
postponing to match work load capacity as per mixed (hybrid) strategy of capacity planning, till the
projects enter into the last phase and won’t get delayed.
4. Conclusion and Recommendations

Strategic capacity planning is management decision and its tough task. We can formulate strategic
capacity planning problem for the entire plant/company into the Excel and solve using Excel
function-Solver to get optimal solution under given real-life constraints, which would help top
management to take strategic decision of utilizing plant’s capacity to its maximum extent and how
much work load to outsource, overtime, postpone to next work cycle to best meet demanded work
load with maximum capacity utilization and minimum total cost. Project which has less AHP rating
based on criteria, is treated as less important and work load requirement of the same can be kept on
postponing to match work load capacity as per mixed (hybrid) strategy of capacity planning, till the
projects enter into the last phase and won’t get delayed. So, hybrid (mixed) strategy is used widely
in multi-project environment to minimize cost and maximize the resources utilization.
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Deriving Value for and from
Adoption of Cloud CRM
Preeti Sharma
Analytics & IT, Institute of Management Technology,
Hyderabad, India
E-mail: preetisharma@imthyderabad.edu.in
Purnima Sangle
Decision Sciences & Information Systems, National
Institute of Industrial Engineering, Mumbai, India
E-mail: purnima@nitie.edu
Abstract
Technological disruptions have been changing the organizational landscape of managing the customer
relationships. Organizations continuously struggle for the effective implementation of technological innovations
and synchronization of customer data thereafter over multiple channels. Cloud CRM offers multifold benefits in
such scenarios. This paper aims to study the challenges organizations face in the implementation of Cloud CRM
verses the value derived from such initiatives. Given the scars literature supporting the decision making process
of such initiatives the motives tend to differ from the pre adoption stage and after the initial implementation is
completed the organizations find it difficult to overcome the changing motivational levels of implementation teams
without demonstration of additional value created by such initiative. It becomes imperative to explicitly identify and
demonstrate the value created for the continuous usage of such implementations. The study also attempts to identity
the different values created at different levels of the organization.
Keywords: Cloud CRM, Technological Disruption, Relationship Management, Organizational Initiatives, Value
Creation, Indian Study
1. Introduction
In the information systems, customer relationship management (CRM) is the overall process of
building and maintaining profitable customer relationships by delivering superior customer value
and satisfaction with the goal of improving the business relationships with customers. Also, it is
the strongest and the most efficient approach to maintaining and creating the relationships with
customers. (Soltani and Navimipour, 2016). In this context the latest surge of cloud-based CRM
applications (e.g. Sales cloud by Salesforce, Microsoft Dynamics CRM, Sage CRM, etc.) can now
be delivered through the Internet which can be accessed by agents, supervisors, and executives in
real time (Lal and Bharadwaj, 2015). Further the Cloud-based CRM systems can be implemented
as SaaS which will help organizations in minimizing their investments in IT infrastructure. These
cloud-based systems not only help organizations to get off the ground rapidly but are best suited for
sales persons as they are generally on the move and can access these solutions from any location
and on any device, be it a laptop or a smart phone (Lal and Bharadwaj, 2015). The ultimate aim is to
provide useful cloud based CRM systems that are not only easy to manage but also enhance business
value (Wardley & Mahowald, 2011).
The main difference between traditional CRM and cloud CRM can be seen the way the software
service is delivered and the way customer data is handled and utilized. Cloud CRM also allows
through various platforms customers to actively participate in partnership with their vendors.
Moreover it can influence and contribute to the improvement and adaptation of the product according
to their wishes and requirements. In this regard the pioneer customers of such systems also generate
value by means of their product/service improvement feedback.
The above settings make cloud CRM a perfect solution for medical practitioners who provide their
services to remotely situated areas where commuting to the practitioner takes a lot of time, the
IAMOT 2019 | 475
patients are not much educated and also there are other factors like week socioeconomic conditions
of the patients. Nevertheless the problems of successful adoption of cloud CRM are still poorly
explored primarily in such medical practice field. Vendors often do not know modern techniques
and metrics for assessing implementation of cloud CRM. Besides the customers who have another
level of customers (as in current study the medical Practitioners and their patients) are also not
much responsive and don’t leverage the benefits. This study aims to study the challenges vendor
face in the implementation of Cloud CRM verses the value derived from such initiatives by medical
practitioners. It also attempts to identify and demonstrate the value created for the continuous usage
of such implementations. The study also attempts to identity the different values created at different
levels i.e. vendor, practitioner and patients.
2. Objective
The objectives of the study are spread across three different levels (refer figure 1 & 2) and can be
enumerated as follows:
●● To find out what challenges are faced by the vendors when pitching for the Cloud based
CRM service to medical practitioner?
●● To find out what inhibits medical practitioner from using the Cloud based CRM service?
●● To find out what inhibits Patients from using the Cloud based CRM service?
●● To find out how the value is derived by the vendor providing the Cloud based CRM
service?
●● To find out what value is derived by the medical practitioner who is using the Cloud
based CRM service?
●● To find out what value is derived by the patients who are using the Cloud based CRM service?
Figure 1: Challenges at Various Levels Figure 2: Value Pyramid
3. The Current State of Dealing with the Issues

The existing literature on CRM suggests different viewpoints on CRM and is not consistent on
one single definition of CRM. Many studies emphasize on the strategic nature of CRM (Chen and
Popovich, 2003; Roberts et al. 2005; Pedron et al. 2016) where as others focus on operational (Iriana
and Buttle 2007; So, 2007; González-Benito et al. 2017) or technological aspect of CRM (Park and
Kim, 2003; Awasthi and Sangle, 2012; Awasthi et al., 2014). As the focus of current study is on
specific cloud based CRM product and services we consider the definition of CRM based on claims
of Storbacka (2002) and Brown (2000). Storbacka (2002) claims that “CRM is an interactive process
aimed at achieving the optimum balance between corporate investments and meeting customer
needs. Optimum balance is determined by the maximum gain of both parties”. And according to
Brown (2000), “CRM is the process of addressing, maintaining and further developing relationships
with profitable customers”.
Furthermore the present study puts emphasis on cloud based CRM for which we find it essential
to look for the definition of cloud based services first and then combine cloud and CRM. Thus for
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Deriving Value for and from Adoption of Cloud CRM
the current study the definition of Cloud Computing considered is “It is an information technology
service model where computing services (both hardware and software) are delivered on-demand to
customers over a network in a self-service fashion, independent of device and location. The resources
required to provide the requisite quality-of-service levels are shared, dynamically scalable, rapidly
provisioned, virtualized and released with minimal service provider interaction. Users pay for the
service as an operating expense without incurring any significant initial capital expenditure, with
the cloud services employing a metering system that divides the computing resource in appropriate
blocks” (Marston et al. 2011). At last we define cloud CRM as cloud based CRM services where
the software as well as the customer data is kept on the software provider’s servers on a data-center,
which is accessible using an internet browser or an app on desktop/tablet/mobile.
There are many issues related to CRM and cloud based CRM enumerated earlier in the studies (Dillon
et al. 2010; Rong, et al. 2013). One of the major problems faced with CRM is the large investment
to build and maintain a customer database which requires computer hardware, database software,
analytical programs, communication links, and skilled personnel (Minwir Al-Shammari, 2009).
Also, there is the difficulty of getting everyone in the organization to be customer oriented and to get
everyone to actually use the customer information that is available (Chowhan and Saxena 2011).
Moreover Cloud computing introduces significant concerns about privacy, security, data integrity,
intellectual property management, audit trails, and other issues (Singh et al., 2016). Furthermore,
because of the control that consumers of cloud services cede to providers, successful initiatives rely
on a high degree of trust between medical practitioner and the vendor, including confidence in the
provider’s long-term viability.
Even though the concept of CRM is new for the private healthcare sector in developing country like
India but the hospitals are trying hard to gain knowledge about CRM and to promote CRM towards
service orientation (Vaish et al., 2016). A study by Habidin et al. (2015) stated that Healthcare
providers interact with patients through multiple of ways. CRM is viewed as one of the organization
strategy to manage the relationship between healthcare providers and patient. Further it also showed
through the empirical analysis that organization can improve their organizational performance to a
better quality using service quality improvements.
Furthermore Laurenza et al. (2018) state that as innovation plays a key role in the sustainability of
healthcare systems, which can be considered a huge challenge, managers should understand whether
new digital technology-based approaches in healthcare can provide the long-term economic benefits
they expect. Moreover this article also shows the need for a greater patient orientation toward
healthcare service development, supporting the idea that patients do not need to be seen in a passive
position but rather that they are the targets of care and are able to give feedback and change service
providers. Poku et al. (2017) in another study assert that healthcare organizations must emphasize
on building relationships with their patients just as companies in non-healthcare industries have done
with the concept of customer relationship management (CRM). They emphasized that though some
providers have already made strides in this area, yet overall it has been underemphasized or ignored
by most healthcare systems to date (Poku et al., 2017). The authors also suggested that the healthcare
providers should work to develop their dedicated patient relationship management (PRM) systems,
tools, and processes by emulating companies in other industries who have been able to leverage
CRM to engage their customers in innovative ways while acknowledging the differences between
healthcare and other industries.
5. Proposed Framework
The proposed study draws line of action from Stabell and Fjeldstad (1998) study based on Porter’s
Value chain model (Porter, 1985) and value concept discussed by Kumar and Reinartz (2016).
Stabell and Fjeldstad (1998) divided the analysis of entire value chain model into value chain, value
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shop, and value network and suggested that application of original model as a whole may not capture
the entire gamut of values for the organization due to variation in the nature of services being offered
and the type of vendors and customers involved. They also presented that implementing the original
value chain model witnessed serious problems and was found less suitable in a numbers of service
industries. As the technological components are found to be heavily interlaced with all kinds of
activities organization perform, it would be better to model the value separately at value chain, value
shop, and value network. They mentioned that healthcare, schools / universities, and consulting
firms are examples of value shop as these rely on an intensive technology and the value is created by
mobilizing resources and activities to resolve a particular customer problem.
Furthermore, while discussing the concept of customer value, Kumar and Reinartz (2016) state that
despite the fact the value creation happens fairly regularly, this process is beneficial only if it is long-
lasting, which is possible only when the customer perceived value (i.e., value to customers) and firm
value (i.e., value from customers) are aligned. Moreover, creating and communicating perceived
value to customers is better served when firms align perceived value with the resources they spend
on customers, to ensure that the right amount of resources go toward managing perceived value.
Besides, the alignment process is constantly shaped by what we know about value and the knowledge
we still seek. When these two value sources are aligned, it leads to the creation of enduring customer
value, as opposed to just value.
The current study based on the concept of value shop presented by Stabell and Fjeldstad (1998) would
attempt to identify the set of values that are created at the vendor as well as medical practitioner’s
level for adoption of cloud CRM. Further it would examine the resources and activities used by the
vendor to resolve medical practitioners’ challenges in adoption of cloud CRM hence mitigating
vendor’s own challenges. Moreover the challenges faced by the patients and medical practitioners as
well will be studied from Kumar and Reinartz (2016) point of view to identify the values which can
be created at these levels from adoption of cloud CRM.
6. Proposed Methodology
As the study involves different types of informants (vendor who is the provider, medical practitioner
who is a user as well as a provider for patients and patient who is also a user of the system/information
coming through system) it requires different methods to find out the answers to examine the issues.
For data collection interview method is found to be suitable guided by semi-structured interview
technique. Also for further information collection of documents, promotional material etc. is also
proposed. Further the observation method is suggested for collecting information from patients. For
achieving the research objectives methods of induction and deduction both are suggested.
7. Expected Outcomes
In the current study we attempt to look at three different dimensions for compiling the values derived
from cloud CRM adoption. These three dimensions/levels are considered to be the vendor, the medical
practitioner and the patient. As we understand that the vendor has to convince the medical practitioners
for usage of the cloud CRM system, the value proposed by the vendor for usage and the value perceived
by the practitioner may be different and therefore the objectives of cloud CRM usage may differ at
these two levels. Furthermore the patients may also have their own set evaluation depending upon
their understanding, requirement and push from the practitioner. The study of the later would help in
enlisting the places where value can be added for and from adoption of cloud CRM.
8. Conclusion
Values have been considered as principles that people adhere to and use to evaluate situations
accordingly (Pedron et al., 2016). Keeney (1992) stated in his book “Values are what we care about.
As such, values should be the driving force for our decision making”(page. 3). According the value
theory given by Keeney (1992) it is only possible for decision makers to make good decisions if their
values are expressed by objectives. Thus, it is particularly essential to build up a set of objectives that
will support a decision process.
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Deriving Value for and from Adoption of Cloud CRM
This study proposes to identify a set values perceived at the three levels stated above. Furthermore
with the help of these values the study will also attempt to enumerate various objectives at different
levels and will see whether the objective remain same as projected by the vendor or vary based on
the user.
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Enhanced Customer Satisfaction through Retail
Service Quality (RSQ): A Study of In-Store and
Online Shoppers in the Retail Clothing Industry
Nita Sukdeo
Faculty of Engineering and the Built Environment
University of Johannesburg
Gauteng, South Africa
2006
E-mail: nsukdeo@uj.ac.za
Andre Vermeulen
Gauteng, South Africa
2006
E-mail: avermeulen@uj.ac.za
Abstract
With the aim to augment the number of customers in the retail sector, organisations attempt to assess customer
satisfaction and loyalty level achieved in their sector. Retail service quality (RSQ) is a fundamental factor in
determining the success of service organisations. The study aims at investigating in-store shoppers’ as well as
online shoppers’ level of satisfaction. This paper’s purpose is to correlate the quality of retail service to customer
satisfaction as well as loyalty in the framework of the retail industry in Johannesburg. The literature review
enabled the identification of key elements of loyalty of customer, the quality of service and the satisfaction
of customer. Literature has shown that the quality of service is significantly correlated with customer loyalty
customer satisfaction. With the end goal of this investigation in mind, in-store shoppers were carefully chosen,
as these customers prefer to frequent the stores due an enriched shopping experience. A structured mall intercept
questionnaire was administered to 500 in-store retail shoppers in selected shopping malls, in the greater
Johannesburg area. Simple random sampling was conducted in order to obtain a conducive sample size. A response
rate of 476 out of 500, which equates to 95%, was obtained. Online shoppers also form part of the basis of the
study, since organisations are progressing toward a digital era, shoppers can purchase item within the comfort of
their homes and take advantage of products beings delivered to their door. In this regard, an online questionnaire
was administered to 200 online retail shoppers. A response rate of 187 out of 200, which equates to 93%, was
obtained. A proposed research framework and research hypotheses were developed through the information derived
from existing researches and literature reviews, and thereafter the relevant hypotheses were tested through multiple
regression analysis. Cronbach’s Alpha Coefficient and exploratory factor analysis were employed to verify the
reliability and validity of the measuring instrument, respectively. The results of the study empirically indicated
a strong positive link between customer loyalty and service quality including the quality of service and customer
satisfaction with regard to in-store and online shoppers. This indicated that clients are happy with the quality of
service supplied by retailer stores, leading to the loyalty of customer and repeat purchases, eventually.
Keywords: Retail Service Quality (RSQ), Customer Loyalty, Customer Satisfaction, Retail Industry
1. Introduction
Due to the current business environment becoming increasingly competitive, customers tend to
become excessively demanding (Wong and Sohal, 2003). Loyalty of customers are a critical factor
for service organisations. An effective and efficient technique to guarantee that the purchases by
customers are repeated, is to supply a service that meets or exceeds the customer’s expectations
(Miller et al., 2000). The fundamental factor of success in a demanding competitive environment, is
determined by the delivery of quality services, which will grow customer satisfaction and retention
level (Spreng and Mackoy, 1996). The subject related to the satisfaction as well as the quality of
service is critical for research initiatives, as organisations attempt to enhance the quality of service,
they provide to enhance the satisfaction of their customers (Gilbert and Veloutsou, 2006). In order
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for organisations to accelerate the number of their customers, enhance their loyalty, and increased
competition advantage, they endeavour to evaluate and assess customer satisfaction levels as well as
repurchase behaviour for positive business results (Gilaninia, Taleghani and Talemi, 2013).
1.1. Retail Industry

The retail industry has expanded vastly over the past years. This is sustained by a rise in both supply
of retail space and the growth of several shopping malls in the country. This has led to increased
retail trade sales in certain retail sectors (Gauteng Provincial Treasury, 2012).
Figure 1: Retail Sales Trends
Figure 1 represents the composition of retail sales trends from 2011 to 2017 (Statistics SA, 2017).
The past six years indicates an increase in sales in the General dealers’ sector, however, there is a
decline in sales in the textile and clothing sector. Hence, this study’s purpose was to concentrate on
the clothing sector.
1.2. Problem Statement

From a management perspective, the South African retail clothing industry has witnessed a growth
that is gradual for the previous few years. The abundance of retail clothing stores and the intense
nature of competition has led these organisations to enhance the satisfaction and loyalty of their
customers. Hence, it is imperative for management to ensure that they retain customer base as well
as increase their clientele. Losing clients to rivals may not only highlight quality issues but could
also translate to loss of sales, low organisational profitability which ultimately impacts on overall
organisational performance. Therefore, there is a need to measure and evaluate customer satisfaction
and loyalty.
1.3. Objectives of the Study

i. To identify the dimensions of retail service quality that influences the loyalty as well as
satisfaction of customers.
ii. To develop a hypothesis to examine the correlation existing between the quality of
service and the loyalty shown by customers.
iii. To develop a hypothesis to examine the correlation existing between the quality of
service and the satisfaction of customers.
iv. To determine the impact of demographics (age) on shopping experience.
2.1. Quality of Service vs. Retail Service Quality (RSQ)
As stated by Parasuraman, Zeitaml and Berry (1988) the quality of service is understood as the
holistic evaluation of an organisations service offering. This evaluation is conducted by comparing
customers’ perceptions against customers’ expectations. Through this evaluation, service
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Enhanced Customer Satisfaction through Retail Service Quality (RSQ)
organisations can significantly enhance their competitiveness through greater market share and
higher level of customer satisfaction (Cronin and Taylor, 1992). In a study by Parasuraman et al.
(1988) it is recommended that the five dimensions of the quality of service: assurance, reliability,
tangibles, responsiveness, and empathy, are utilised to estimate the gap that exists between the
expectations as well as perceptions of service quality. It is well documented that to study the quality
of service in various sectors, researchers widely made use of the SERVQUAL scale. Oliver (1981)
postulates that retail customers react well the experience associated to purchases made in-store in
a similar way as they respond to the decisions related to their consumption of product. However,
Carman (1990) indicates that the SERVQUAL model was too basic in computing the quality of
service provided by retailers and should be adjusted based on the distincts services provided.
In order to evaluate the retail sector service quality, Dabholkar, Thorpe and Rentz (1996) established
a better all-inclusive scale called the Retail Service Quality (RSQ) scale. Preceding 1996, no
validated scale to compute RSQ ever existed (Dabholkar et al., 1996; Siu and Chow, 2003). The
following five RQS dimensions make up the scale:
i. Aspects that are Physical (PA): The layout as well as appearance of the store.
ii. Reliability (RE): Being able to keep promises and to do things right the first time.
iii. Interaction that is Personal in Nature (PI): Courteous employees, ready to help and
inspiring within customers the trust and the confidence.
iv. To be Able to Solve Problems (PS): Trained staff who are able to solve possible issues,
such as complaints laid by customers, items being returned and/or being exchanged.
v. Policy (P): Business working hours, different options available for payment, and
available space to park cars.
The dimensions of RSQ then serves as predecessors to the complete evaluation of RSQ, which in
turn effects the strength of their customer relationship. Consequently, enhanced retail service quality
is crucial to the formation of strong customer relationships. Therefore the following hypotheses were
developed:
H1: The five RSQ dimensions and customer loyalty are strongly correlated.
H2: The five RSQ dimensions and customer satisfaction are strongly correlated.
2.2. Loyalty of Customers (CL)

The loyalty of customers refers to the opportunity for customers to recurrently purchase detailed
products (shops, service, product, brand, etc.) irrespective of the changing business environment.
Customer loyalty is the fundamental purpose of relationship marketing and is meticulously
correlated to organisational profitability (Heskett et al., 1994; Rust and Zahorik, 1993). The main
reason behind the pursuit for developing and maintaining a strong loyal customer base includes
the ability to expand business and acquire a greater market share as this will lead to long term
profitability for the organisation.
2.3. Satisfaction of Customer (CS)

The satisfaction of customer points to the complete expectation of clients toward a service or product
following the acquisition and consumption of the service or product by the customer (Malhotra; 1999).
Throughout and following the purchase process, clients will foster satisfaction or dissatisfaction
moods. The level of dissatisfaction or satisfaction is the distinction between recognised expectations
and performance of a service or product (Kotler and Armstrong, 1996; Stahl, 1999).
2.4. The relationship between Customer Satisfaction (CS) and Customer Loyalty (CL)
With regard to several studies conducted in order to explore the liaison of customer satisfaction
and customer loyalty, the following dimensions of service quality and customers satisfaction are
considered significant precursors for organisations to retain valuable, loyal customers. Therefore the
following hypothesis was developed:
H3: Customer loyalty and customer satisfaction are strongly correlated.
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2.5. Research Framework for In-Store Shopping Dimensions

The following framework was developed for the study:
Figure 2: Proposed Research Framework for In-Store Shoppers
2.6. Online Shopping

The subject of customer satisfaction has been discussed extensively in retail literature. However,
recently, some researchers have investigated the influence of websites and online shopping attributes
on customer satisfaction and loyalty. There have been several initiatives to develop a framework in
order to identify dominant factors which impact on customer satisfaction of online shopping from a
perspective of website users (Ranganathan and Ganapathy, 2002).
Literature on online service quality has identified several service convenience factors which are
unique to the virtual shopping experience (Wolfinbarger and Gilly, 2003; Yang and Peterson, 2004;
Yang, 2005). Colwell (2008) have developed a multi-item scale, based on the work of Berry (2002),
which measures the five dimensions of service convenience for online shoppers.
In the context of retailing. Seiders (2000) Jiang, Yang and Jun, (2013) propose the following
dimensions for providing convenience:
i. Access – Customers can reach a retailers therefore making the service accessible.
ii. Search – Customers can identify and select products / services which they purchase.
iii. Evaluation – Customers makes a judgement on the product’s value and assess the
product’s details before purchase.
iv. Transaction – Customers can affect or make amendments to transactions.
v. Possession – Customers can obtain the desired product which has been ordered.
The hypothesis, therefore, proposed in this research is as follows:
H4: Online shopping dimensions and customer satisfaction are strongly correlated.
2.7. Research Framework for Online Shopping Dimensions
Figure 3: Proposed Research Framework for Online Shoppers
2.8. Research Methodology

A quantitative research approach was adopted. In this instance a questionnaire was distributed at
clothing retail stores in shopping malls through an intercept survey technique. The investigation
followed the mall intercept method (Bush and Hair; 1985). Simple random sampling was adopted
and this ensured a large sample size. Respondents were contacted randomly at retail stores as they
visited the store for their shopping experience. Mall intercept technique have been utilized in other
research as a method for collecting data and is considered free of bias (Griffin et al., 2000; Keng
et al., 2007; Wang et al., 2010). For online shoppers, an online questionnaire which was created on
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google forms had been distributed. Simple random sampling was adopted to generate a large sample
size of online shoppers.
2.9. Reliability Analysis

Cronbach’s Alpha Coefficient is the variable related to reliability of a research instrument and it is
grounded on the existing correlation amongst items of the research instrument (Cronbach, 1951).
The following guidelines for Cronbach’s Alpha Coefficient have been presented by Maree (2007):
0.90 – Reliability is high
0.80 – Reliability is moderate
0.70 – Reliability is low
A research instrument is considered to be satisfactory when the value of the Cronbach’s coefficient is
at least 0.7. With this in mind, each variable’s coefficient of reliability has been presented in Table 1.
2.10. Validity Analysis

The validity of each construct will be evaluated through Confirmatory Factor Analysis. Factor
analysis will be applied to the measurement dimensions with regard to every construct. Construct
validity is crucial for the perceived overall validity of the test (Tiku and Pecht, 2010).
Table 1 represents the factor loading and reliability coefficients for the in-store questionnaires. With
regard to reliability, each construct has an alpha coefficient of above 0.70, therefore indicating that
the measuring instrument is acceptable and reliable. With regard to the validity of the study, the
factor loading is above 0.70, therefore indicating that the study and measuring instrument is valid.
Table 1: Factor Loading and Reliability Analysis of In-Store Customers’ Questionnaire
Item/Construct Factor Loading Reliability

Factor 1 – Physical aspects
Visually appealing physical facilities 0.821
0.890
Customers easily find what they need because of the layout of the store 0.803
Availability of merchandise 0.811
Factor 2 – Reliability (Promise)
Providing a service at the time it is required 0.788 0.878
Promise to do something at the required time 0.801
Factor 3 – Personal interaction
Knowledge of the employees 0.772
Consistently courteous to customer 0.794 0.902
Perform the service right the first time 0.767
Individual attention 0.772
Factor 4 – Problem solving
Handling customer complaints directly and immediately 0.857 0.872
Ability to solve problems efficiently 0.842
Factor 5 - Policy
Quality of merchandise 0.875
Error free sales transactions and records 0.821 0.853
Willingly handle returns and exchanges 0.801
Convenient operating hours 0.798
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Table 2 represents the factor loading and reliability coefficients for the online questionnaires. With
regard to reliability, each construct has an alpha coefficient of above 0.70, therefore indicating that
the online measuring instrument is acceptable and reliable. With regard to the validity of the study,
the factor loading is above 0.70, therefore indicating that the study and measuring instrument is
valid.
Table 2: Factor Loading and Reliability Analysis of Online Customers’ Questionnaire
Item/Construct Factor Loading Reliability
Factor 1 – Access convenience
Flexibility of time 0.827

0.899
Accessibility of websites 0.865
Availability of products and brands 0.844
Factor 2 – Search convenience
Website design 0.831

0.923
Search engine capacity 0.867
Download speed 0.796
Factor 3 – Evaluation convenience
Product information 0.823

0.878
Standardized or branded products 0.864
Pricing information 0.882
Factor 4 – Transaction convenience
Type of payment methods 0.789

0.919
Check-out process 0.821
Confirmative reply 0.876
Factor 5 – Possession convenience
On time delivery 0.786

0.912
Product undamaged upon delivery 0.843
Attitude and performance of delivery personnel 0.866
2.11. Testing of the Hypothesis

In order to test the hypothesis, an analysis of correlation and multiple regression analysis was
conducted.
H1: The five RSQ dimensions and customer loyalty are strongly correlated.
Table 3: Hypothesis Model 1
R R2
Adjusted R2 Std. Error of Estimate
0.872 0.612 0.562 0.56201

a.
Predictors: Physical aspects, Reliability, Personal interaction, Problem solving, Policy
b.
Dependent variable: Customer loyalty
0.872 representing the R value as indicated in the above Table 3, provides a validation that the
dependent relationship is fairly strong, and it explicates 87.2% of the variable that is dependent in
nature i.e. customer loyalty.
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Table 4: Dependent Variable Coefficient (Customer Loyalty)

Standardized
Unstandardized Coefficients Coefficients
B Std. Error Beta t Sig.

Customer loyalty 0.853 0.439 1.901 0.494
Physical aspects 0.678 0.154 0.232 1.667 0.442
Reliability 0.665 0.154 0.273 0.813 0.420
Personal interaction 0.674 0.156 0.163 1.692 0.326
Problem solving 0.617 0.154 0.258 1.737 0.488
Policy 0.612 0.143 0.146 0.998
Table 4 shows the results of the regression analysis. It pointed at the connection between the
predictors (five RSQ dimensions) and the variable that is dependent in nature, in this case being
customer loyalty (CL). Making use of the results denoted in the above Table 4, the predictable
regression model is highlighted in the following regression equivalence:
y(CL) = 0.853 + 0.678(x1) + 0.665(x2) + 0.674(x3) + 0.617(x4) + 0.612(x5)
where CL = Customer loyalty
xi = relates to each element
i
= 1, 2, 3, 4, 5
x1 = physical aspects
x2 = reliability
x3 = personal interaction
x4 = problem solving
x5 = policy
The coefficient of determination (R2) indicates the extent to which the model related to multiple
regression fits the set of data. A coefficient with value that is near zero indicates a weaker fit while a
coefficient with value that is near one indicates a good fit. The value of 0.612, in Table 3, representing
R2, shows that 61.2% of the difference in CL can be elucidated by the five predictor variables
singled out in the equation related to the regression analysis. 0.678 is the larger beta (β) coefficient,
which corresponds to physical aspects, meaning that one distinct standard deviation augmentation
in physical aspects succeeded by 0.678 standard deviation augmentation in CL. It is obvious that
physical aspects (t = 1.901) as well as problem solving (t = 1.737) both have a considerable bearing
on the loyalty of customers. Consequently, grounded on the multiple regression analysis referred to
above, the first premise (H1), is maintained.
H2 : The five RSQ dimensions and customer satisfaction are strongly correlated.
R R2 Adjusted R2 Std. Error of Estimate
0.817 0.614 0.562 0.56201
c.
Predictors: Policy, Problem solving, Personal interaction, Reliability, Physical aspects
d.
Dependent variable: Satisfaction of customer
nature i.e. customer satisfaction.
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Table 6: Dependent Variable Coefficient (Customer Satisfaction)
Standardized
Unstandardized Coefficients
Coefficients t Sig.
B Std. Error Beta
Customer satisfaction 0.770 0.430 1.830 0.081
Physical aspects 0.282 0.160 0.370 1.834 0.085
Reliability 0.261 0.162 0.270 1.045 0.276
Personal interaction 0.260 0.160 0.098 0.484 0.654
Problem solving 0.415 0.153 0.610 3.877 0.100
Policy 0.118 0.160 0.217 0.723 0.473
Table 6 above shows the results of the regression analysis. It pointed at the connection between the
predictors (five RSQ dimensions) and the variable that is dependent in nature, in this case being
customer satisfaction (CS). Making use of the results denoted in the above Table 6, the predictable
regression model is highlighted in the following regression equivalence:
y(CL) = 0.770 + 0.282(x1) + 0.261(x2) + 0.260(x3) + 0.415(x4) + 0.118(x5)
where CS = Customer satisfaction
i
= 1, 2, 3, 4, 5
x1 = physical aspects
x2 = reliability
x3 = personal interaction
x4 = problem solving
x5 = policy
regression fits the set of data. A coefficient with value that is near zero indicates a poorer fit
while a coefficient with value that is near one indicates a good fit. The value of 0.614, in Table 3,
representing R2, shows that 61.4% of the difference in CS can be elucidated by the five predictor
variables singled out in the equation related to the regression analysis. 0.415 is the larger beta (β)
coefficient, which corresponds to problem solving, meaning that one distinct standard deviation
augmentation in problem solving succeeded by 0.415 standard deviation augmentation in CS. It
is obvious that problem solving (t = 3.877) as well as physical aspects (t = 1.830) both have a
considerable bearing on the satisfaction of customers. Consequently, grounded on the multiple
regression analysis referred to above, the first premise (H2), is maintained.
H3: Customer loyalty and customer satisfaction are strongly correlated.
R R 2
Adjusted R2 Std. Error of Estimate
0.798 0.634 0.455 0.58019

e.
Predictors: Loyalty of customer
f.
Dependent variable: Customer satisfaction
nature i.e. satisfaction customer.
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Table 8: Coefficients of the Dependent Variable (Customer Satisfaction)
Constant b Std. Error β t Sig.
Customer satisfaction (CS) 0.759 0.427 1.702 0.094
Customer loyalty 0.436 0.142 0.135 1.821 0.405
y(CS) = 0.759 + 0.436(x1)

where CS = Customer Satisfaction
i
=1
x1 = customer loyalty
The value of 0.634, in Table 7, representing R2, shows that 63.4% of the difference in CS can
be elucidated by the five predictor variables singled out in the equation related to the regression
analysis. 0.415 is the larger beta (β) coefficient shown in Table 8, which corresponds to satisfaction
of customers, meaning that one distinct standard deviation augmentation in the satisfaction of
customers, succeeded by 0.436 standard deviation augmentation in CS. It is obvious that the loyalty
of clients (t = 1.821) has a considerable bearing on the satisfaction of customers. Consequently,
grounded on the multiple regression analysis referred to above, the first premise (H3), is maintained.
H4 : Online shopping dimensions and customer satisfaction are strongly correlated.
Table 9: Model of Hypothesis 4
R R Square Adjusted R Square Std. Error of Estimate
0.822 0.631 0.553 0.55301
g.
Predictors: Access, Search, Evaluation, Transaction, Possession
h.
Dependent variable: Customer satisfaction
nature i.e. satisfaction customer.
Table 10: Dependent Variable Coefficient (Customer Satisfaction)
Standardized
Unstandardized Coefficients
Coefficients
t Sig.
B Std. Error Beta
Customer satisfaction 0.891 0.413 1.841 0.071
Access 0.272 0.150 0.270 1.834 0.075
Search 0.361 0.152 0.170 1.055 0.296
Evaluation 0.370 0.150 0.068 0.464 0.644
Transaction 0.514 0.133 0.510 1.858 0.000
Possession 0.207 0.150 0.117 0.723 0.472
Table 10 above shows the results of the regression analysis. It pointed at the connection between
the predictors (online shopping dimensions) and the variable that is dependent in nature, in this
case being customer satisfaction (CS). Making use of the results denoted in the above Table 1, the
predictable regression model is highlighted in the following regression equivalence:
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y(CS) = 0.891 + 0.272(x1) + 0.361(x2) + 0.370(x3) + 0.514(x4) + 0.20(x5)

where CS = Customer satisfaction
i
= 1, 2, 3, 4, 5
x1 = access
x2 = search
x3 = evaluation
x4 = transaction
x5 = possession
regression fits the set of data. A coefficient with value that is near zero indicates a poorer fit
while a coefficient with value that is near one indicates a good fit. The value of 0.631, in Table 3,
representing R2, shows that 63.1% of the difference in CS can be elucidated by the five predictor
variables singled out in the equation related to the regression analysis. 0.514 is the larger beta (β)
coefficient, which corresponds to transaction convenience (independent variable), meaning that one
distinct standard deviation augmentation in transaction convenience succeeded by 0.514 standard
deviation augmentation in CS. It is obvious that transaction convenience (t = 1.858) as well as
access convenience (t = 1.834) both have a considerable bearing on the satisfaction of customers.
Consequently, grounded on the multiple regression analysis referred to above, the first premise (H4),
is maintained.
In summary, it is evident from the in-store questionnaire analysis that customers strongly correlate
physical aspects and problem solving as predictor variables of the loyalty of customer and satisfaction
of customer. With regard to the online questionnaire, the analysis indicates that customers strongly
correlate transaction convenience and convenience of access as predictor variables of customer
satisfaction.
3. Descriptive Analysis for In-Store Customer Responses
3.1. Demographics of In-Store Shoppers

Table 11: Age of In-Store Shoppers
Age Group Responses % of Responses
Under 30 152 32
30 - 40 101 21
Over 40 222 47
476
The results shown in Table 11, indicates that a high percentage of 47% belonging to the age group
of over 40 years, prefer the in-store experience associated with retail shopping. This means that
the older generation in this age group do not prefer online shopping. The results also shop that the
younger generation in the age group under 30 at 32%, also prefer doing in-store purchase as most of
them were unemployed and did not have the advantage of having a credit card for online purchases.
The results is graphically represented in Figure 4.
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Figure 4: Graphical Representation of Age Groups for In-Store Shoppers
The findings in Table 12, indicates that there is a large percentage of in-store shoppers whom enjoy
the benefits of the in-store retail experience. The results show that in-store customers preferred
hands on problem solving techniques as well as proper store policies being implemented.
Table 12: In-Store Customer Responses
Item/Construct % Responses Overall % of Constructs
Factor 1 – Physical aspects
Visually appealing physical facilities 88
88.3
Customers easily find what they need because of the layout of the store 87
Availability of merchandise 90
Factor 2 – Reliability (Promise)
Providing a service at the time it is required 82 83.5
Promise to do something at the required time 85
Factor 3 – Personal interaction
Knowledge of the employees 89
Consistently courteous to customer 92 89.5
Perform the service right the first time 90
Individual attention 87
Factor 4 – Problem solving
Handling customer complaints directly and immediately 94
93
Ability to solve problems efficiently 92
Factor 5 - Policy
Quality of merchandise 97
Error free sales transactions and records 96 95.75
Willingly handle returns and exchanges 92
Convenient operating hours 98
3.2. Demographics of Online Shoppers

Table 13: Age of Online Shoppers
Age Group Responses % of Responses
Under 30 93 49
30 - 40 54 29
Over 40 40 22
187
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Table 13 indicates a high percentage of 49% in the age group of under 30, as this generation is
technologically savvy and prefer online purchases. The lower percentage of 22% in the age group
over 40, indicated that they are not as technologically advanced and do not do online shopping. The
results is graphically represented in Figure 5.
Figure 5: Graphical Representation of Age Groups for Online Shoppers
The results in Table 14 indicates that shoppers enjoy the online shopping experience at their own
convenience and comfort of their own home without the hustle and bustle of in-store shopping. The
experience resulted in easy access to websites and user friendly search options as well as digital
transactions at the touch of a button.
Table 14: Online Customer Responses
Item/Construct % Responses Overall % of Constructs
Factor 1 – Access convenience
Flexibility of time 90
93.6
Accessibility of websites 95
Availability of products and brands 96
Factor 2 – Search convenience
Website design 97
95.6
Search engine capacity 98
Download speed 92
Factor 3 – Evaluation convenience
Product information 90
91.7
Standardized or branded products 94
Pricing information 91
Factor 4 – Transaction convenience
Type of payment methods 90

89.6
Check-out process 90
Confirmative reply 89
Factor 5 – Possession convenience
On time delivery 85
88
Product undamaged upon delivery 89
Attitude and performance of delivery personnel 90
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4. Conclusions
It was found that great emphasis has been put on the retail shopping experience. The general consensus
is that shoppers who are satisfied with their shopping experience will spread their experience through
word of mouth, thus enhancing the image of the organisation. The shopping experience is a feeling
associated with superior service and customer satisfaction. The findings of the study indicates that
some shoppers prefer the in-store experience with regard to ambiance and overall interaction in the
store, however, some shoppers preferred the online experience as they did not have to deal with the
traffic of shoppers in the store and long queues. It was found that there is a significant relationship
of between in-store shoppers and customer satisfaction as well as a significant relationship between
online shoppers and customer satisfaction.
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IAMOT 2019 | 494

Predicting Ease of Implementation of GSCM
Sagar S Jalui
Svkm’s Nmims University’s Mukesh Patel School of
Technology Management and Engineering,
Mechanical Engineering, India
E-mail: jaluisagar@gmail.com
Suraaj Gardi
E-mail: gardisuraaj@gmail.com
Dhanashree Chityala
E-mail: dhanashreechityala.nmims@gmail.com
Jinu Kurian
Technology Management and Engineering, Operations Management, India
E-mail: Jinu.kurian@nmims.edu
Abstract
Processes for green supply chain management (GSCM) combine environmental processes with
automated processes. It involves two key deliverables–the elimination of carbon footprint and the
effective disposal of the product by eco-friendly methods from its inception to its end of life. The
overall picture currently shows that regulatory authorities have increased the number of regulations
without offering additional benefits, the cost of technology acquisition to optimize processes is
exceptionally high and the enforcement level is very low due to easy handling. While managers
report increased efficiency after implementation, economic and financial benefits remain the focus.
Some hurdles that delay the implementation of GSCM processes include lack of knowledge and
expertise, resistance to technological advances, lack of government support, customer awareness,
cost implications and uncertain events. Includes lack of knowledge and expertise, resistance to
technological advances, lack of government support, customer awareness, cost implications and
uncertain events that delay the implementation of GSCM processes. Companies are certain to
achieve long-term benefits through the use of new and advanced technologies such as IoT, AI, Big
Data, additive manufacturing and cloud computing to overcome these obstacles. In this paper, we
introduce a model that makes it easier to implement GSCM processes by considering key variables
for companies that want to optimize their processes. Identification of factors influencing GSCM.
These variables have been operationalized taking into account the management of technology.
These variables were implemented taking into account how technology management will help us
to improve these factors. To prepare a model to help predict the implementation of the GSCM,
a questionnaire was prepared to affect the current scenario in general. The model was developed
following a survey consisting of responses from key elements of the supply chain management
hierarchy. Most important variables included technology, policies and the average length of the
supply chain as well as some interaction effects. Using this model, GSCM processes can be easily
implemented on a scale of 1-5, 1–very difficult and 5–very easy. This research was conducted at an
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intermediate level and can pave the way for future researchers to develop a better model that can
help predict the implementation of green processes in their supply chain in individual details. Such
models can be helpful in allocating resources efficiently to the manufacturing industry to optimize
its processes. This will help to achieve minimum regulatory requirements and achieve competitive
advantages for industries in developing countries such as India in order to survive in industry and
contribute to the growth of the country.
Keywords: Green supply chain management; Digitalisation; IOT; AI; Additive Manufacturing; Big data; Cloud
Computing
1. INTRODUCTION
The current state and trend in environmental degradation require a change in the production and
supply chain philosophy. The way manufacturing systems operate must fundamentally change.
Sustainability must be moved forward. This must be achieved by significant reductions in the use
of resources and waste generation and by withdrawing product use and disposal once. The first step
in this process is to extend the existing one-way supply chain structure to a closed loop, including
supply chain operations to recover, collect and reuse end-of-life products and packaging in recycling
and/or remanufacturing forms (Beamon, 1999).
In this globalized era, most industries cannot simply survive by optimizing corporate strategy-
based internal structures and infrastructures. The most successful manufacturers seem to be closely
linked to external suppliers and customers in unique supply chains (Zailani & Rajagopal, 2005).
With the development of Industry 4.0 technologies such as Big Data Analysis, Internet of Things,
Artificial Intelligence and Additive Manufacturing, the integration of companies into their supply
chain management processes is imperative. To achieve their implementation and supply chains in
an efficient and effective manner, the management of these technologies becomes a critical aspect
of any business.
Over the next five to ten years, supply chains will change dramatically. The current supply
chains represent a progression of careful, marginalized steps, including promotion, assembly,
appropriation. The change is disrupted by digitization; by the elimination of dividers and the creation
of a coordinated biological community that is completely straightforward for each component.
This biological community depends on a number of important computer advances— including
coordination phases, robots, testing and even additive manufacturing. People who move quickly to
digitize their production network will gain efficiency, develop new action plans and revenue streams
and have a competitive advantage (“Digitizing the Supply Chain”, 2018).
2. RESEARCH OBJECTIVES
1. To find out factors influencing GSCM processes
2. To find a relationship between factors affecting implementation of GSCM
3. To assess correlation amongst the variables influencing GSCM
4. To check for multicollinearity in identified variables
5. To develop a predictive model to calculate ease of implementation of GSCM
3. LITERATURE REVIEW
3.1. Supply Chain Management

The Global Supply Chain Forum’s meaning of inventory network the executives is the accompanying:
“Store network the board is the incorporation of key business forms from end client through unique
providers that gives items, administrations, and data that include an incentive for clients and partners”
(Lambert, Cooper, and Pagh, 1998).
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3.2. Green Supply Chain Management

A long time back, the idea of ecological quality was almost non-existent in the United States
(Beamon, 1999). At that point, the idea came to mean cleaner air and water. Now, ecological
quality has come to mean “... safe drinking water, solid biological systems, safe sustenance, harmful
free networks, safe waste administration, and the reclamation of debased locales’’ (Council on
Environmental Quality, 1996). Increasing environmental concerns have given suppliers a “greener
“way to handle the functionality of their store network. Srivastava (2007) characterizes Green Supply
Chain Management as coordinating ecological reasoning in the board’s store network, including
item plan, material sourcing and determination, manufacturing forms, transferring the last item to
the customers after its useful life.
3.3. Management of Technologies in Green Supply Chain Management

Organizations today progressively perceive that enhanced administration of supply chains can be
a wellspring of an upper hand. Accordingly, many have redesigned obtaining and coordination
capacities into inventory network the board. They have put vigorously in programming to deal with
the data streams in the store network. From 1999 to 2002, merchants sold more than $15 billion in
Supply Chain Management programming licenses which do exclude the expense of establishment
and support contracts (Kanakamedala et al., 2003).
3.3.1. Big Data Analysis

Worldwide supply chain management is gradually becoming complex and administrators find that
conventional techniques fail to recognize many related difficulties satisfactorily. It, therefore, calls
for fantastic administrative measures. As progress has been further improved, the GSC has entered
the enormous period of information during which inventory network individuals have a gigantic
measure of highly unstructured information (Richey et al. 2016). In general, the information has a
high assortment and requires extremely timely preparation. The most effective method to increase
the benefit of the enormous information, especially for GSCM, becomes a fundamental problem.
The impact of Big Data related technologies to achieve the objectives of Green Supply Chain
Management processes are -
1. ICT – Increasing visibility to help supply chain members align their goals with the GSC
System of Systems (SoS) risk problem.
2. ERP Systems – Improving the implementation of sensory systems and responding to the
GSC risk management goal.
3. Cloud Computing – Supporting the sharing of information and improving rapid data-
driven cooperation to achieve the GSC objective.
4. IoT – In improving the visibility of the supply chain, IoT-based applications support risk
monitoring to help achieve the objective of risk management.
5. Social media – Social media enables GSC members to learn about market consumers and
set the right targets for risk sharing and management.
Hence, the SoS approach can be applied to improve GSCM with the use of big data related
technologies. (Choi, 2018)
3.3.2. Artificial Intelligence

Hazardous substances in suppliers ‘ raw materials can have a serious environmental impact on the
supply chain. Choosing suitable suppliers, therefore, becomes a crucial issue. The problem with
the choice of suppliers is the multi-attribute decision analysis. Techniques such as artificial neural
networks and analytical network processes can be combined in the analysis of data envelopes to
create a green supplier selection system.
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Carbon Footprint is a very important green topic recently. It is the total set of greenhouse gas
emissions from individuals, organizations, events or products directly and indirectly. Future research
can take this type of environmental subject into account to make the study more practical. Another
important issue is how to assign orders after ranking all suppliers. In recent years, data mining
techniques have also been used in the selection of suppliers. It could be promising to integrate them
into the model of selection (Kuo et. al, 2010).
3.3.3. Internet of Things

In a green supply chain, IoT applications are divided into two categories: practical and process.
Environmental protection and sustainable development, green products and the selection of green
suppliers are mainly linked, while GSCM implementation, green procurement and economic
performance are linked to green practices and drivers (Sianaka et. al, 2018).
3.3.4. Additive Manufacturing

Supply chains can meet the demand for different products, delivery in good time or low costs, either
as separate targets or at the same time. Endless customization options are possible without a cost
penalty. This goal, driven by customer requirements, can include low-cost products, customized
products, high-quality products or fast deliverables. This can be achieved through the introduction
of additive production technologies into the supply chain process. At present, there are many
obstacles, such as high costs, time-consuming and limited materials, but they will be overcome as
the technology progresses (Nyman & Sarlin, 2014).
4. Present Scenario
La Londe and Masters (1994) claim that “The supply chain is a set of firms that pass materials
forward”.
Sustainability and environmental issues are among the most pressing concerns for modern humanity,
governments and environmental business organisations, especially for emerging economies, to
promote organizational sustainability (Hsu et al., 2013; Fabbe Costes et al., 2014; Tseng et al., 2015).
In recent time, Dubey et al. (2015) and Zhu et al. (2012) suggest that regulatory bodies have forced
industries to improve the adoption of GSCM practices. The 21st-century organizations operate under
the strict assessment of government and NGO stakeholders or their accountability to environmental
and social concerns. Kirchoff et al. (2016) emphasize that managers are motivated by the potential
benefits associated with GSCM, including improved reputation, increased efficiency, efficiency,
differentiation and revenue growth, but the economic benefits potential is key to managing green
practices and adequate resource allocation. The different operational and organizational challenges
involved in the adoption of GSCM make it a promising field in both academia and industry (Zhu et
al., 2013).
Indian organizations reported reducing costs, increasing profitability and productivity through
improved management of the supply chain (Seuring and Muller, 2008; Ravi and Shankar, 2005).
Indian organizations have redirected their business practices by focusing on how to manage the
process, technology and competitive advantage of their suppliers (Srivastava, 2007). The SCM
process involves the extraction and exploitation of natural resources; the waste and pollutants emitted
by the supply chain were harmful and responsible for global warming and acid rain, which poses a
serious environmental risk (Hartmann and Moeller, 2014; Seuring and Muller, 2008). Green supply
chain policies are therefore desirable to reduce these environmental risks and to make companies
sustainable through the greening of their supply chain (Jayaram & Avittathur 2015; Mitra and Datta,
2014).
Although the legal framework to promote environmental protection in India is at the same level
as any other country in the world, the degree of enforcement is very low, which means that
industry gives very little priority to the environment. Although India has a regulatory framework
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to ensure environmental protection, it is far behind satisfactory standards, mainly due to lack of
implementation, ease of manipulation, corruption, lack of adaptability and short-term measures.
This justifies the urgent need for the adoption of GSCM in Indian companies. The various factors
that affect GSCM are Technology & Innovation, Economics, Markets & Competition, Policy &
Regulation, Procurement & Sourcing, and Supply chain strategies & Re-engineering (MacCarthy et
al., 2016). On the basis of these factors, we will propose a model to predict how easy GSCM is to be
implemented by studying and analyzing its effects individually and together.
4.1. Advantages of implementing GSCM

Companies that adopt an environmental policy will see many tangible and intangible positive
results. Early adoption of environmental strategies and green supply chain initiatives will mitigate
business risks by distinguishing themselves from competitors, turning their companies into leaders
in the industry, building credibility with stakeholders and attracting investors. It motivates better
suppliers to become preferred suppliers in the green supply chain and attracts consumers in the
fast-growing green market. It helps to maintain business continuity by attracting top job applicants,
improving employee satisfaction and improving market access and freedom in business strategy.
It creates an important competitive advantage by distinguishing and recognizing brands. On the
other hand, it is helpful for society and the general public, as well as initiatives in the Green Supply
Chain, are rapidly becoming high priorities for society today, as it reduces the carbon footprint and
improves the management of the planet’s resources. More than 75% of the carbon footprint of a
company relates to transport and logistics. Organizations produce technologically advanced and
environmentally friendly products (Bhattacharjee, 2015).
Results show that Chinese small and medium-sized logistics service providers are attracted by Cloud
Computing (CC) to reduce costs in the short term and achieve sustainability through long-term green
benefits (Subramanian, Abdulrahman and Zhou, 2014). The integration of CC not only enables
transport and logistics services to be more efficient through optimal utilization, reduced empty
kilometres, improved throughputs and reduced overheads, but also offers logistics service providers
other important benefits, such as integrated promotion and customer relationship management, and
consolidated bidding across various channels (Yang et al., 2010; Oliveira et al., 2013). CC also
allows the consolidation of transport and logistics services to reduce negative externalities related to
freight, such as environmental pollution (Barnatt, 2010; Oliveira et al., 2013)
4.2. Hurdles in Implementing GSCM

i. Resistance to technological advancement: as this requires more employee potential,
they demonstrate resistance to technological advancement changes.
ii. Lack of knowledge and expertise: most organizations do not have experts, and
insufficient knowledge of the advantages of GSCM is also a major barrier to GSCM
implementation.
iii. Poor quality of human resources: quality brings the costs to the organization with
which top management focuses on cost reduction rather than mentally preparing for
the implementation of a green concept with quality staff.
iv. Market competition and uncertainty: discourage companies from implementing
GSCM concepts because market competition influences both innovative capacity
and the intention to innovate.
v. Lack of government support: GSCM expects more subsidies and tax exemptions to
be implemented by the automotive industry. But the government lacks this support.
vi. Failure to implement green practices: Management shows resistance to
implementing green practices because of increased market competition, cost and
time-limited objectives.
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vii. Market competition and uncertainty: discourage companies from implementing

GSCM concepts because market competition influences both innovative capacity
and the intention to innovate.
viii. Lack of government support: GSCM expects more subsidies and tax exemptions to
be implemented by the automotive industry. But the government lacks this support.
ix. Failure to implement green practices: Management shows resistance to green
practices due to increased market competition, cost and time-limited objectives.
x. Lack of Top Management Commitment: Top management is not able to initiate
and implement the green concepts as it increases the financial burden wherein
the assessment of ROI and distribution of costs cannot be done perfectly so this
has become a big obstacle to top management to initiate green SCM across the
organization.
xi. Cost Implications: Too high is the initial investment requirement for green
methodologies such as green design, green manufacturing, green labelling, green
packaging. High costs have therefore become a focal point in the implementation
of GSCM compared to conventional SCM.
xii. Supplier Reluctance to GSCM Change: GSCM suppliers need to understand the
social and environmental impact of the manufacturer’s product. The relationship
between supplier and manufacturer is considered most important for the
development of competitive advantage for the manufacturer. The manufacturers
cannot produce green products unless the supplier supply eco-friendly raw material
to meet the GSCM requirements of the manufacturer.
xiii. Customer unawareness: a major barrier to GSCM seen in the Indian automotive
industry is the lack of customer awareness of the benefits of green products. The
awareness of customers means greater demand for eco-friendly products; the
company must incorporate new technologies for innovative green products in order
to meet customer requirements.
xiv. Lack of Systematic Economic Recycling: The timing of collection and disposal of
the product at the end of life may lead to some serious environmental concerns for
government agencies and ordinary people.
xv. Lack of coordination: Green Supply Chain members should function as integrated
systems rather than individually working to improve overall GSCM performance.
Most SCM companies are affected by lack of coordination and the consequences of
which are like uncertainty in forecasting, excessive inventory, inadequate customer
service, inventory costs, time constraints, poor quality, poor customer focus and
poor customer service.
The implementation of GSCM practices, in particular on external relations such as green
procurement and customer cooperation focusing on environmental concerns, is lagging behind.
In most cases, these companies only plan to consider or at most consider the implementation of
corporate environmental management and GSCM. The implementation of GSCM has therefore
only slightly improved environmental and operational performance and has not led to significant
economic performance.
4.3. Future Prospects

Although an increasingly necessary strategic initiative, big data and predictive analysis are still
not fully exploited in these companies using their tools and methodologies every day (Hazen et al.,
2016). Enterprises that do best are those that make the best use of big data. More things will become
integrated, and the future looks like a framework that can store, process, visualize and support smart,
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advanced and timely decision-making (Koetsier, 2014). The growing data volume from service and
production supply chain management (SM-SCM) is a challenge that requires tools to make full
use of data (Huang, Zhong and Tsui, 2015). The digitization of after-sales, especially spare parts
sales, is both a strategic opportunity (Wise et al., 1999) and a threat (Markillie & Baumgartner,
2012) to many original equipment manufacturers, as the focus of competition shifts from price and
quality to value delivery to customers (Vargo and Lusch, 2014). Additive manufacturing aims to
achieve this as technology improves, enhancing current technology parameters (Khajavi, Partanen
and Holmström, 2014). Additive Manufacturing could eventually lead to complete elimination of
transportation within the supply chain as designs could be shared and printed in the printing setup.
The following potential advantages of using AM machines for the distributed production of spare
parts can be summarized as follows: lower overall operation costs, lower downtime, higher potential
for customer satisfaction, lower capacity utilization, higher flexibility, higher robustness to supply
chain disruptions, reduced need for inventory management and logistics information systems, and
potential for sustainability improvements as AM machines become smaller and more energy efficient
(Khajavi, Partanen and Holmström, 2014). From the green supply chain perspective of the internet
of things, the actualization of the IoT into the complex system for green inventory management will
link the real world with the digital world seamlessly. Modelling the complex systems in the green
supply chain can be hard in a computational utilization and inventory management of relationships
exists (Chen, 2015). Potential supply chain management enhancements prevail in integration, green
collaboration and sustainability by the adoption of digitalization (Subramanian, Abdulrahman and
Zhou, 2014). A study conducted in India’s petroleum industry (Kurian et al., 2018) found that
the green supply chain improves agility, mitigates risks, promotes innovation and often leads to
innovative processes and continuous improvements. It further states that in the petroleum sector,
all product transfers in bulk must be replaced by pipeline transfers because they reduce carbon
emissions as no vehicles are involved in the receipt process. The study also emphasizes that the
greening of the supply chain provides an organization with operational and financial benefits along
with environmental sustainability. Moreover, the integration of sustainability into SCM is a key
issue for ensuring corporate competitiveness in face of dynamic ecological and social environments.
Circular economy is a contraction of cyclically closed loop liquidity economy and resource circular
economy, aims at high-efficiency resource utilization and recycling, reduction, reuse, recycling as the
principle characterized by cyclically closed loop cycle and energy echelon utilization, the economic
model that works according to the natural ecosystem circulation The circular economy is a resource-
saving economy, an ecological economy and a technologically advanced economy. Use the ideas
of circular economy and sustainable development to build a green supply chain model and carefully
design each link in the closed loop of the green supply chain, only in this way can the comprehensive
system optimization, including society, ecology and economy, advance the sustainable development
of global resources, the environment and society be achieved (Yang, 2011)
5. THEORETICAL FRAMEWORK
Figure 1: Theoretical Framework Explaining the Relationship of Ease of Implementation of GSCM

with the identified variables
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6. HYPOTHESIS
i. H0 = There is no relationship between factors identified and ease of implementation
of GSCM processes.
ii. H1 = There is a relationship between factors identified and ease of implementation
of GSCM processes.
iii. H0 = There is no relationship between technology & innovation and ease of
implementation of GSCM processes.
iv. H1 = There is a relationship between technology & innovation and ease of
v. H0 = There is no relationship between markets & competitors and ease of
vi. H1 = There is a relationship between markets & competitors and ease of
vii. H0 = There is no relationship between procurement & sourcing and ease of
viii. H1 = There is a relationship between procurement & sourcing and ease of
ix. H0 = There is no relationship between policy & regulations and ease of
x. H1 = There is a relationship between policy & regulations and ease of implementation
of GSCM processes.
xi. H0 = There is no presence of an interaction variable(s).
xii. H1 = There is a presence of interaction variable(s).
7. METHODOLOGY
7.1. Method of Data Collection

The data was collected using a Questionnaire using a Google Form. It consisted of 21 Questions
which was divided into 2 Sections, post a screening Question. The first question was a screening
question which checked the user’s ability to answer the other questions which would allow for
authentic data collection. The screening question asked the user if they were aware of the concept of
GSCM. If they were, it progressed to Section A where the questions for data collection were asked.
If not, it progressed to Section B where a paragraph explaining GSCM briefly was provided. After
reading it, the respondent could choose if they were interested to answer our questions or could
terminate the questionnaire.
The questions required responses in the form of Multiple Choice, Single Choice, and Likert Scales
from 1-5.
7.2. Demographics
The questionnaire was forwarded to multiple individuals in the manufacturing supply chain, having
industrial experience of more than 5 years. Responses were collected in a period of 7 days which
generated 69 responses. The respondents comprised of Manufacturers (38.2%), Suppliers (29.1%),
Distributors (16.4%), Retailers (14.5%), and Employees (1.8%). The respondents were from the
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region of Maharashtra, Gujarat, Delhi, Karnataka and a few from South Korea, Germany, London
and California. The lengths of their supply chains extended from 50 – 2000+ Kms.
8. DATA ANALYSIS AND INTERPRETATION
8.1. Response Analysis

Using the collected responses, it was found that 81.2% of people were aware of GSCM processes
while 18.8% were unaware. The Internet (66.2%) contributed the most as a source of information,
while Industry Meetings (41.55%) and Media – TV & News (33.8%) were other major sources.
Most people (27.7%) said they do not talk much about GSCM processes with colleagues in the
industry.80% of the people who were aware of GSCM processes were implementing it in some
form or another while 20% still were not. The most commonly implemented GSCM process was
Electronic Fund Transfer (80.4%) or Paperless processes, while Waste Management (Reusing
& Recycling) (60.7%), Full Truck Load (42.9%), and Economic Order Quantity (41.1%) were
some other commonly implemented practices.70% People reported changes in efficiency after
implementing GSCM processes while 30% said it remained pretty much the same. Most people
also reported a marginal change in their demand and supply after implementing GSCM processes.
It was noticed that 80% of people were highly aware of the growing technologies (IoT, AI, Big
Data, and 3D Printing) which helps in digitizing the supply chain and makes it greener. Also, 64.1%
people said it was not very difficult to procure these technologies. Majority (73.4%) people said the
Government policies were moderate to difficult to implement in their supply chains. Out of these
very few (<25%) were related to the environment according to majority responses. 71% also said
that Environmental Audits were conducted in their organizations. 51.6% of the respondents said that
they provided Specifications to the suppliers which are environmentally friendly while the others
did not. In conclusion, we found that 80.3% people said that GSCM has great benefits both in terms
of eco-friendliness and economy, 60% individuals strongly believed that the cost implications of
GSCM yielded benefits which compensated for it, and 67.3% say it was difficult to implement
GSCM processes, but 76.9% believe that companies must incorporate GSCM processes in order to
create a sustainable work environment and keep up with competition.
8.2. Statistical Analysis

The data collected was used to develop a Regression Model to predict the Ease of Implementation of
GSCM Processes in any supply chain based on the parameters which were identified earlier.
The responses were collected using a Likert Scale from 1 – 5 and ranges of values as Multiple-Choice
Answers for obtaining the quantified data for the independent variables. The variable – “Technology
& Innovation” was operationalized as “Ease of Procuring Technology”. “Policies & Regulations”
was measured using “Ease of implementing Government Policies”, “Procurement & Sourcing”
was measured using average length of the supply chain in brackets of ‘Kms’ as specified in the
questionnaire. “Markets & Competitors” were operationalized as “Number of firms implementing
GSCM”.
Table 1: Coding for Procurement & Selection
Range Coded Value
0 – 50 Km 25
50 – 100 Km 75
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100 – 200 Km 150
200 – 500 Km 350
500 – 1000 Km 750
1000 – 2000 Km 1500
2000+ Km 2500
The values for “Number of Firms” were coded as:

Table 2: Coding for Markets & Competitors
Range Coded Value
0–2 1
2–4 3
4–6 5
6+ 7
The unusable (blank) responses were removed which allowed for 65 responses to be carried forward
for statistical analysis.
The data collected had to be checked for reliability first. The responses collected using the Likert
Scale were imported into SPSS Software for reliability testing. The Cronbach Alpha method of
checking the reliability of the Likert Scale obtained was 0.864 for the 65 usable responses.
Figure 2: The Cronbach Alpha Value for the Responses using SPSS Software
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As the Cronbach Alpha value was greater than 0.5 – 0.6 we could say that the scale is reliable and
proceed with Statistical Analysis. Statistical Analysis was done using Microsoft Excel 2016. The
tools used were Regression and Correlation.
9. Regression with Multicollinearity

The first regression was done using all the variables which were quantified in the questionnaire. The
dependent variable was ‘Ease of Implementing GSCM Processes’ and the dependent variables were:
i. Ease Tech Proc – Ease of Procuring the technologies required to implement GSCM
Processes
ii. Talk GSCM – How frequently does one speak about GSCM processes with
colleagues
iii. DD/SS Change Level – The level of change in demand and/or supply after
implementing GSCM processes
iv. Awareness Tech – The level of awareness about the technologies that affect GSCM
processes
v. Ease Govt. Poli – Ease of implementing the government policies in a supply chain
vi. Benefits GSCM – The benefits associated with GSCM processes
vii. Cost Impl v/s Benefits – The motivation of an individual to adopt GSCM while
considering benefits over cost implications
viii. Distance Procurement – The average length of the Supply Chain
ix. No. of Firms – Number of firms that are using GSCM processes in their supply
chain
Regression Analysis was performed on the data and the Summary Output is as follows:
Figure 3: Regression showing the presence of Multicollinearity as Model Significance is Acceptable

but individual variable Significances are Unacceptable
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10. This summary output Shows that

i. The Adjusted R Square value is 0.3004 which means that 30% of the variability in
our data is explained by this model of regression.
ii. The Standard Error (Deviation) is 0.88 which is significantly high as the predicted
output would be a value between 1 – 5.
iii. The significance F for the model is less than 0.05 and hence we can reject the
Null hypothesis and say that there is a relationship between the dependant and
independent variables.
iv. The P-Values of each of the independent variables except “Ease Govt. Poli” exceed
0.05 which means that all those variables are insignificant.
The trend showing a highly significant model but insignificant independent variables indicates the
presence of multicollinearity in the regression model. This means that the independent variables
show high correlation amongst themselves which reflects as an insignificant P-value.
Thus, this was verified using a Correlation Matrix. The output of the Correlation Analysis was
Figure 4: Correlation Matrix Explaining the Presence of High Correlation Amongst Independent Variables
In the above Matrix, the cells in red represent weak correlation (0 – 20%), the cells in blue represent
medium to strong correlation (20 – 50%), and the cells in green represent very strong correlation
(50 – 99%). The correlation of the independent variables with the dependent variable can be seen in
the first column with a yellow highlighted cell. It was observed that many variables such as “Ease
Tech Proc”, “Talk GSCM”, “DD/SS Change Level”, “Cost Impl v/s Benefits”, and “No. of Firms”
showed a very strong correlation with one another as compared to the dependent variable. The other
variables also showed a strong correlation with one another. Hence it can be seen that there is a high
level of multicollinearity present in the model.
10.1. Regression with Interaction Effect

In some cases, a model is better represented when it contains interaction variables in the regression
equation. The interaction effect is when the relationship between the dependent and independent
variables is explained by the interaction of 2 independent variables.For example: For dependent
variable Y and independent variable X1& X2, the regression equation Y = f(X1X2) would represent
a better relationship when compared with Y = f(X1, X2). In the theoretical framework developed
earlier, it was hypothesized that “Ease of Implementation of GSCM” (Dependent variable) would be
influenced by “Technology & Innovation”, “Markets & Competitors”, “Procurement & Sourcing”,
and “Policies & Regulations” (Independent variables). These 4 variables were operationalised as
mentioned above. In order to account for interaction effect, all possible combinations of these in
pairs, triplets, and all 4 at a time were considered in the regression analysis by simply multiplying the
values in the said combinations. The Summary for the Regression Analysis was as follows:
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Figure 5: Summary Output for Regression Analysis showing interaction Variables of all Possible Combinations
11. According to this output

i. The Adjusted R square 0.2186 which means 21.86% of the variation in data is
explained by this regression model
ii. The Standard Error is 0.93 which is very high for a prediction lying between 1 – 5
iii. The model is significant.
iv. None of the variables is significant.
In order to reduce the standard error of the model, the observations with residuals higher or lower
than the positive and negative value of the existing standard error were eliminated on basis of being
outliers. The result of this was 18 observations were eliminated and the regression analysis was
repeated. The summary output obtained was:
Figure 6: Regression output with 47 Observations Showing Improved R Square and Standard Error
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i. The adjusted R Square value is 0.6646 which means that 66.46% of the variation in
data is represented by this model.
ii. The standard error has reduced to 0.5.
iii. The model is significant.
iv. The P-Values of 4 out of 14 variables are significant.
Thus, the model represents the variation for a significant amount of data with a low standard error.
Although, there are a number of insignificant independent variables. These were removed using
Backward Removal of variables. In order to preserve the hierarchical effect, the components of
the interaction variables were considered in the regression model even though the P-Values were
insignificant.
After 8 trials of removing the insignificant variables, the following output was obtained:
Figure 7: Regression Output Showing the final Regression Model Considering the Interaction Effect

(a) The adjusted R Square value is 0.672 which means that 67.2% variation in data taking
into account multiple variables is explained by this model.
(b) The Standard error is 0.496.
(c) The model is significant.
(d) The P-Values for each independent variables along with interaction variables are
significant. (The P-values of “Ease Govt. Poli” & “Distance Procurement” are considered
to be significant due to the hierarchical effect).
5. Using this output summary, for the Hypotheses

i. H0 = There is no relationship between factors identified and ease of implementation
of GSCM processes.
H1 = There is a relationship between factors identified and ease of implementation
of GSCM processes.
We will reject the H0as the Significance F-value for the model is < 0.05. Thus, we accept the H1that
there is a relationship between the factors identified and Ease of implementation of GSCM processes.
This relationship is given by the equation developed using the regression model:
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ii. H0 = There is no relationship between technology & innovation and ease of

H1 = There is a relationship between technology & innovation and ease of
We will reject the H0as the P-Value for “Ease Tech Proc” is <0.05. Thus, we accept the H1that there
is a relationship between technology & innovation and Ease of implementation of GSCM processes.
This relationship is positive and is given by the coefficient +0.598.
iii. H0 = There is no relationship between markets & competitors and ease of
H1 = There is a relationship between markets & competitors and ease of
We will accept the H0 that there is no relationship between Markets & Competitors and Ease of
Implementation of GSCM as the P-Value was >0.05 and removed using a backward selection
method.
iv. H0 = There is no relationship between procurement & sourcing and ease of
H1 = There is a relationship between procurement & sourcing and ease of
We will reject the H0 as the P-Value of “Dist. Proc.” is >0.05, but is considered significant as being
a part of the composition of the significant interaction variable(s) prevents it from being rejected
from the regression equation. Thus, we will accept H1and the relationship is given by the coefficient
+0.0001.
v. H0 = There is no relationship between policy & regulations and ease of
H1 = There is a relationship between policy & regulations and ease of implementation
of GSCM processes
We will reject the H0 as the P-Value of “Ease Govt. Poli.” is >0.05, but is considered significant
as being a part of the composition of the significant interaction variable(s) prevents it from being
rejected from the regression equation. Thus, we will accept H1and the relationship is given by the
coefficient +0.011.
vi. H0 = There is no presence of interaction variable(s).
H1 = There is a presence of interaction variable(s).
We will reject the H0as the P-Value for Interaction 1 – ETP*DP and Interaction 2 – EGP*DP is <
0.05. Thus, we accept the H1that there are 2 Interaction variables affecting Ease of implementation
of GSCM processes. The relationships are given by -0.004 & +0.005 for Interaction 1 & Interaction
2 respectively. The Sum of Squared Errors (SSE) for this model was found to be 10.08.
6. Interpretation
According to this model, the regression equation obtained was:
Where,
y = Ease of implementation of GSCM Processes (1 – 5)
x1 = Ease of Procuring Technology (1 – 5)
x2 = Ease of implementing Government Policies (1 – 5)
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x3 = Distance of Procurement
x1x2 = Interaction of x1 & x2– Interaction 1
x1x3 = Interaction of x1 & x3– Interaction 2
7. Thus, looking at the equation:

i. When no information was specified, the Ease of implementation would be 0.968.
which is approx. 1 which means it would be Very Difficult.
ii. Increasing the Ease of Procuring Technology by 1 unit causes 0.598 units to rise in
Ease of Implementing GSCM.
iii. Increasing the Ease of Implementing Government policies by 1 unit causes 0.011
units to increase in Ease of Implementing GSCM Processes.
iv. Increasing the Distance of Procurement by 1 unit causes a 0.0001 increase in Ease
of implementing GSCM.
v. The combined effect of Ease of procuring technology and Distance of Procurement
causes a decrease of 0.0004 units for per unit increase. (Note that this value will be
higher for larger distances)
i. The combined effect of Ease of implementing Government Policies and Distance of
Procurement causes an increase of 0.0005 units for every unit increase.
Overall, this model outputs a value between 1 – 5 which can be interpreted as Very Difficult – 1 to
Very Easy – 5.
Taking the worst-case scenario (Ease of Procuring Technology – 1, Ease of Implementing Govt.
Policies – 1, Distance of Procurement – 2500, Interaction 1 – 2500, Interaction 2 – 2500) the model
gave a value equal to 2.006 which suggest difficulty in implementing GSCM.
Taking the best-case scenario (Ease of Procuring Technology – 5, Ease of Implementing Govt.
Policies – 5, Distance of Procurement – 25, Interaction 1 – 125, Interaction 2 – 125) the model gave
a value equal to 4.03 which suggests the easy implementation of GSCM processes.
Thus, by inputting desired levels of each variable, one can predict the level of ease of implementation
of GSCM in their supply chain.
8. Limitations and Scope for Further Study

The regression model gave satisfactory results. However, the number of observations considered
was just above the minimum number of observations necessary to carry out a significant statistical
analysis which was the critical limitation. The responses recorded were in brackets of certain values
and coded as the central value of the extremes of the range. Instead, if the actual values of the
number of firms and distance of procurement could be recorded, it would explain the relationship
better. Using Principal Component Analysis could have helped explained the relationship using a
lesser number of variables. The data collected could be expressed in terms of monetary value which
can help predict the Ease of implementing GSCM in terms of money which would help in budgeting
decisions.
9. CONCLUSION
Using the Literature Review, the necessary variables were identified (Jalui et. al., 2018). Using
this, an appropriate Questionnaire was developed which generated responses that gave quantified
variables. After coding the variables appropriately, a Cronbach’s Alpha value of 0.864 was obtained
which verified the reliability of the scales used to obtain the data. On doing Regression Analysis in
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2 ways it was found that there was a presence of Multicollinearity present when all variables were
considered and an Interaction effect between 3 significant variables when the identified relationship
was related. The H0 for “Number of Firms” was accepted as it proved to be statistically insignificant
and removed from the Regression Model. This was as per our interpretation of MacCarthy et al.,
2016, which was consistent for all other factors except “Markets & Competitors”. It was found that
Ease of Implementation was related to the “Ease of Procuring Technology”, “Ease of implementing
Government Policies”, “Distance of Procurement”, Interaction of the first 2 and the other 2. It was
found that a major factor that governed Ease of Implementing GSCM was Procuring the technology.
This suggests that due to the increasing digitalization, the implementation of Green processes in the
supply chain is becoming more feasible and as the technology becomes more available to individuals
more easily, it will cause a radical change in supply chains providing both environmental and
economic benefits (Yang et al., 2010; Oliveira et al., 2013). Using this model, any component of a
supply chain can input the related parameters and obtain a value between 1 – 5 suggesting the level
of difficulty of implementing GSCM processes. This value can then be extrapolated into monetary
terms to make strategic decisions to maximize operational efficiency and optimal use of resources as
per Seuring and Muller, 2008; Ravi and Shankar, 2005; Srivastava, 2007. Using the interaction terms
one can consider the combined effect of the parameters and make investment decisions accordingly.
This model just provides a macro level idea of the Ease for components of Supply Chain looking
for implementing Green Supply Chain Processes in their facilities to get a broad level picture of
the first step while considering a change that will yield long term benefits. Effective management
of technologies will eventually aid in easing the process of implementation of green supply chain
management processes and help businesses gain a massive competitive advantage.
10. ACKNOWLEDGEMENT
This report is an accumulation of many people’s endeavour. We would like to express our sincere
gratitude to everyone who contributed to preparing and making this study successful. We take this
opportunity to acknowledge the indispensable assistance we received in the due course from our
Mentor Dr. Jinu Kurian, Professor, NMIMS whose expertise, understanding, generous guidance
and support made it possible for us to work on the project. We are highly indebted and thoroughly
grateful to Ms. Vanashree Mundewadi, Professor, NMIMS for her support and aspiring guidance,
during the project work. Finally, we would also like to extend our gratitude to all the respondents
who have worked in the manufacturing sector or supply chain related to manufacturing and for
giving us insights into their working methods, which was invaluable to increase our understanding
about supply chain.
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The Effect of Project Portfolio Selection on
Business Success: An Empirical Study in the
Indian Auto Component Industry
Vilas Kharat
E-mail: vilas1221@gmail.com
B. Koteswara Rao Naik
E-mail: dr.bkrnaik@gmail.com
Abstract
Project Portfolio Management (PPM) has a proven record of success in organizations. There is a
growing set of literature focussing on the success criteria of PPM. These set of standards affect
the PPM success and has an overall outcome on the business success in organizations. From the
strategic perspective, project selection plays a substantial role. In the world of a dynamic market
with colossal competition, taking up the wrong project will not only end up using resources but in
the long run, it can be critical. Indian Auto Component Industry (IACI), due to varying demands
and global competition, face the daunting task of survival in such a situation. The research paper
is written on the empirical study and focusses on the effect of project selection in the portfolio on
business success in IACI.
Keywords: Project Portfolio Management, Project Selection, Indian Auto Component Industry, Business Success
1. Introduction
In this highly competitive world with rapidly changing demand for the products, sustainability is a big
question now for any organization. Those whose are following standard practices and adapt themselves
to the changing internal and external factors, do not strive hard for success. PPM has evolved as one
such way of managing multiple portfolios, programs and projects efficiently. PPM is one of the most
thought-provoking problems in contemporary business (Cooper et al., 1997, 2001, 2006). Firstly, it
deals with future measures in an organization and the data gathered for the decisions is uncertain.
Secondly, investments in project portfolio are at different phases of completion, so it is challenging
to do the comparative analysis of the investments that are estimated. Thirdly, the organizational
environment is very dynamic because of which the status of the portfolio keeps on changing and
new data or information is made available. Finally, resources constraints are majorly impacting the
projects wherein insufficient funding for another project may take away the allotted resources for some
other projects. In the world of globalization, new business practices are motivating organizations to
reassess their competition level strategy. An organization’s success mostly depends on its capability
to grow globally. Shorter product life cycle and increasing complexity in business are forcing
the organization to work upon the strategy at the company level and aligning all the projects to it
(Petro & Gardiner, 2015). Moreover, firms have started inclining to assess their technologies from a
portfolio’s viewpoint in which the projects are assessed together relatively. Project portfolio techniques
help strategic decision makers to evaluate whether a collection of projects is acceptable from the
perspective of corporate development in long term and profitability. IACI caters to the need of the
Indian automobile industry. The companies are nowadays facing tremendous problems due to rapid
change in demands. Singh et al. (2007), carried out a survey of 75 Indian auto component manufacturers
to mention challenges faced by the automobile sector. Looking at the tremendous growth potential and
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big market in India, many multinational auto companies have already established their businesses
or are planning to do so. In such a situation, there is a fierce competition to survive in the market,
not only to domestic companies but those who also collaborated with the multinational companies.
Moreover, the auto component manufacturers feel the pressure of producing high-quality component
at a lower cost, products with shorter lead time and customizing the products as per the requirement of
Original Equipment Manufacturers (Singh et al., 2007; Jain et al., 2008; Scavarda et al., 2009). The
companies need to implement new industry practices so that it will take care of the challenging tasks and
also a restructuring of the IACI is required (D’Costa, 2004). Owing to such challenges, it has become
essential for the IACI to increase its performance and competitiveness by considering more continuous
improvement approaches and impactful business practices to take advantage of the increasing business
opportunities. Moreover, to survive in the global cut-throat competitive automotive industry, developing
and emerging economies must adopt and upgrade to world-class manufacturing practices and standards
(Barnes and Morris, 2008). The companies using standard methods are expected to sustain in this
competitive world with a right margin over others. In the Indian context, there are insufficient studies
related to PPM and is mostly in the IT industry. Manufacturing industry does have their issues and
challenges and with dynamic changes in the market, this situation further gets worsened. Right from
government policies to strategy Implementation, the companies do have lost their way, resulting in
many shutdowns. PPM has a proven record in managing multiple portfolios or projects in a very
efficient manner. Cooper et al. (1997, 2001, 2006) states that PPM helps an organization to focus on
return on investment, apt balance of the portfolio and strategic alignment of the project portfolio keeping
business objectives in mind. Firms should align a portfolio of projects with their strategic business
objectives, uniting performances of its components to maximize the shareholders’ worth whereas
balancing resources and mitigating risks. The primary purpose or goal of the PPM is to identify, grade,
prioritize, select and final approval of projects or programs. Ambiguity and instability are increasing
and the decisions taken by managers on project portfolio with minimum or no information resulting in
a burden on resources and least outcome (Costantino, Di & Nonino, 2015).
Cooper et al. (2007) state that in organizations, portfolio management is implemented to select a
portfolio to achieve the following goals;
●● To exploit and maximize project portfolio value.
●● To pursue the right balance of the projects, to accomplish a stable and balanced portfolio.
●● To create a strong association with the strategy.
PPM is considered to be the model for effective resource allocation, for the selection of those projects
with the first potential that goes out to be tomorrow’s new product winners. The flawless execution
and implementation of the Project portfolio methodology are finally linked to sound innovation
management practices. The time taken during the development of new or improved strategies, when
the previous ones discarded, is said to be the most dangerous time for a company. The deviations or
changes that are going to take place in the global market have no dominance; to endure in present
day’s demanding market-place desires unusual variations in the firm’s services, products, company
functions that conceptualize, produce, progress, then market something of value to the clientele.
Projects, similar to the structure in plan and the application of a sound strategy, provide the ways to
carry the possible changes in the processes and products (Cleland, 1999: p. 91).
Many companies have project portfolio selection and associated action of managing selected projects
throughout their lifetime as the significant aspects. Similar to project management methods, which
are so commonly practiced in many industries for the activities such as research and development
(R & D) of the new products, implementing the new systems, also processes in manufacturing
and information operations and finally contracting engineering and the construction projects
(Cooper, R, 1995). But there are regularly more projects available for the selection than that is
undertaken within physical and financial constraints of the firm, so is done in making up the suitable
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The Effect of Project Portfolio Selection on Business Success: An Empirical Study in the Indian Auto
project portfolio. The Project portfolio concept, shown in figure 1 which explains project portfolio
as a collection of programs and projects and other work that are organized to facilitate the effective
management of work and to encounter and meet strategic objectives of the business (Rajegopal, 2007).
Figure 1: Project Portfolio Substructure (PMI, 2006)
Cooper et al. (2001) wanted to learn about the levels of support of the senior management to portfolio
management, the most usual methods implemented along with their popularity and what differs the
best firms from the worst. Cooper et al. (2007) have also investigated why some firms are successful
at the product innovation and identify portfolio management and the resource allocation as among
the four primary performance drivers. These drivers depict a diamond, which at its center placed a
business’s new product performance.
Firms that wish to be competitive, by selection of the appropriate projects, must consequently use
techniques and the procedures for a portfolio selection which supported on the most critical project
measures, but these methods will not utilize if they could not be understood readily by the managerial
decision makers. Even though there is no dearth of techniques for a project assessment or evaluation
in the selection of projects, there is a comprehensive lack of a framework for establishing methods.
Some significant conclusions are taken after the analysis of the project and the program management
in relation with PPM. The projects within a program share the common objective and the projects in
portfolio share the same set of the resources (Blomquist& Müller, 2006). Gardiner (2005) to suggests
that in case of a conflict (e.g., in the selection of projects within the limited budget, or resources like
workforce, or technology, etc.) it is the dominant role of a program manager to prioritize the projects
which ensure the best complete results for a company.
In a company, PPM is on a top level compared to project management. The final goal of PPM is the
accomplishment of strategic objectives by the projects included in the portfolio. Companies have a
different attitude towards the implementation of PPM, So PPM processes differ from one company
to another.
Table 1: Effects of Non-implementation of PPM Practices in Organizations
No PPM Short-term effect Long-term effect
No strategic fit project selection standards. There is a Nonalignment of projects with The resources misused on
the firm’s strategy. improper projects.
There is a reluctance to cancel projects; Too Resources thinly spread; Too many projects More time to market;
Many projects in line. Quality declines. Increase
in failure rates.
Difficulty in go/kill choices. There is a great number of trivial projects; Less number of high
Important projects starving to get funds. performing projects.
Projects selected on emotion, Absence of Badly chosen plans. High chances of project
difficult project selection techniques; politics. failures.
Source: Moustafaev, 2011
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Table 1 gave the effects of not implementing proper PPM practices within an organization. There is
a blurred understanding of what PPM is. Some business units claim that PPM is in full stride; others
show attention in the discipline, yielding that they do not know sufficient about it; others mention
PPM as just another method of project management with a new tag to what has been practiced for
many years, specifically project management.
2.1. Project Portfolio Selection

PPM has developed a fundamental way for firms to manage their product development competently
and effectively (e.g., Cooper et al., 1997b). Amid the critical matters, projects that are nominated
and maintained in line with strategy and resources distributed to projects with optimization of
the complete project portfolio in mind gives the best results. (e.g., Archer and Ghasemzadeh,
1999a, b; Artto and Dietrich, 2004; Artto et al., 2003). At times, a lot of research consideration
has been on the techniques and tools for portfolio assessment and ranking (Henriksen and
Traynor, 1999; Ringuest and Graves, 1999) portfolio-based product growth process management
(Cooper et al., 1997a, b, 2002) and resource management (Hendriks et al., 1999). Holistic approach
in PPM frameworks also have been developed (Archer and Ghasemzadeh, Cooper et al., 2001;
Dye and Pennypacker, 1999) and shows that PPM could well see as an all-encompassing system
and method for managing product development. Successful companies have revealed to have a
systematic approach to their portfolio assessment, decision making and resource distributions
(Cooper et al., 1997, 2002; Fricke and Shenhar, 2000) and some revisions show explicit positive
relations between some systematic methods of PPM and designated measures of presentation
(Artto et al., 2004; Fricke and Shenhar, 2000; Müller et al., 2008). Factors explaining PPM
performance is still inadequate and more research is needed to test all aspects (Martinsuo, 2013).
PPM developed into global standards (PMI, 2008) as well as practical tool books (Cooper et al.,
2001) that are likely to help firms form and implement their PPM. Firms also have adopted PPM
frameworks, including the use of project assessment and decision criteria (Martinsuo et al., 2013),
project assessment and control routines (e.g., Müller et al., 2008) and other means to ratify their
PPM (Teller et al., 2012). Though mentioned in the instruction books and manuals on how project
selection should take place in the portfolio, how to assess the portfolio success, how to align strategy
with the entire portfolio, how to allocate resources to the projects, forms are still struggling with the
problem of resource sharing across the projects (Engwall and Jerbrant, 2003).
Figure 2: Project Portfolio Selection Problems (Adapted from Elbok et al., 2017)
Strategic planning process further leads to multiple objectives and goals to be achieved in different
time horizons. The project selection methods are mainly dominated by statistical methods and
mathematical modeling (Elbok et al., 2017). Archer and Ghasemzadeh (1999) considered a
single objective function to solve multiple objectives and noted that linear programming, AHP
and weighted scoring are possible methods for project value determination. It seems that, though
the PPM frameworks and their well-intended portfolio evaluation and investment optimizations
during portfolio selection and planning, PPM models, are critiqued (Henriksen and Traynor, 1999),
attention managers give to portfolio activities is inadequate (Elonen and Artto, 2003) and working
with multiple projects overloads the employees (Zika-Viktorsson et al., 2006). Many companies
have project portfolio selection and associated action of managing selected projects throughout their
lifetime as the significant aspects (Cooper, 1993). But there are regularly more projects available
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for the selection than that can be undertaken within physical and financial constraints of the firm,
so the choice must be made in making up the suitable project portfolio. PPM considers the whole
portfolio of the projects a company is working on, to make decisions regarding which projects
to be given importance and which projects are to be added to or taken out from the portfolio
(Reyck et al., 2005). There is a good number of relatively different methods that can be utilized
to estimate, assess and choose project portfolios. Scores of these techniques not extensively used
because they are too multifaceted and require much input data, they offer an inadequate treatment
of risk and uncertainty, they fail to identify interrelationships and the interrelated criteria, they
may be too complicated to understand and also use, or they could not employ in the form of an
organized process (Santos, B.L, 1989). There is no scarcity of techniques for project evaluation
in portfolio selection but still, there is a lack of a framework for establishing methods rationally in
the simple process. Presently, many firms have four most significant problems such as too many
running projects, almost double at times what a company should have; too many wrong projects
selected that will not add value to the company; projects are not related to the strategic goals of
a company (Rasiha Delilbasic, 2012). Portfolio management practices found that they support
managerial decisions towards product development and accelerate improvements in processes.
The only point where the project is located to be inconclusive was the ranking criteria for the
projects. It shows that it becomes objectively feasible to theoretically rank projects using incomplete
constraints without seeing what the outcome is (Paulo Augusto et al.2013). It further raises a question
about the seriousness of project selection in the portfolio in IACI and leads to a hypothesis:
H0: There is no positive effect of project selection on business success in IACI.
HA: There is a positive effect of project selection on business success in IACI.
2.2. Business Success in the Purview of PPM

When talking about risk management in project portfolios, is observed that literature generally
acknowledges only a single project positively (De Bakker et al., 2011). It also indicates that
its rarely been found to consider managing risks in project portfolios. (Sanchez et al., 2009).
However, there are some case studies and research at the conceptual level done on risk management
in project portfolios (Olsson, 2008; Sanchez et al., 2009). The only issue where the project is
found to be inconclusive was the ranking criteria for the projects. It shows that objectively feasible
to theoretically rank projects using incomplete constraints without seeing what the outcome is.
The PPM objectives well recognized in the literature: the balance of the portfolio, maximization of the
portfolio value and linking projects to strategic goals (Cooper et al., 2001; Elonen and Artto, 2003).
The success of the project portfolio, in any organization, includes the following dimensions;
(i) strategic fit, (ii) portfolio balance, (iii) project success (iv) product success, (v) economic success
and (vi) preparing for the future. (Cooper et al., 2001; Martinsuo and Lehtonen, 2007; Meskendahl,
2010; and Müller et al., 2008).
Fig 3: Success Dimensions Versus Term. Adapted from Shenhar et al. (2001)
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Balancing project portfolios is considered to be a time-bound concept of the projects

(long vs. short-term projects) or the use of technologies (mature vs new). Preparing for the future
considers the long-term aspects and reflects the skill to grab chances that ascend after the projects
have been carried to an end (Shenhar et al., 2001). Lastly, economic success talks about the
short-term economic aspects at the company level, including complete market success
and commercial success of the organization or business unit as shown in fig. 2.
(Shenhar et al., 2001; Meskendahl, 2010).
Table 2: Different Dimensions of the Success of Projects
Dimensions of success Measures/ Used Variables
Meets Budgets.
Project Efficiency
Meets Budgets.
Meets customer needs.
Complies with technical specifications.
Contributes to functional performance.
Consumer Impact
Resolves customer issues.
Used by the customer.
Adds to customer satisfaction.
Creates or increases market share.
Business success
Enhances Commercial success.
Creates a new market.
Preparing for the future Creates a new technology.
Creates a new product line.
According to Shenhar et al. (2001)

Many researchers nowadays are focussing on effective management and portfolio success with
its impact on business success. (Unger et al., 2012) Talks about the proper timing about deciding
for project termination and its effect that takes place positively on the effectiveness of the entire
portfolio and accomplishing strategic alignment. The success factors in portfolio management are
linked to quality management regarding information, resource and coordination (Jonas et al., 2013).
The attributes of PPM effectiveness defined with a qualitative approach. (Patanakul,2015). Projects
are carried out to execute the firm’s strategy (Morris, 2009). Moreover, linking projects with the
firm’s strategy to ensure business success (Dietrich and Lehtonen, 2005).
2.3. An Overview of Indian Auto Component Industry (IACI)

The auto industry in India includes automobile manufacturers and auto component manufacturers.
The industry is a significant driver to enhance the Indian economy. The sector, over the years, has
established the competence of manufacturing all components essential to produce vehicles. It is
achieved from the high levels of indigenization/localization accomplished in the automobile industry
as well as the parts developed for the entirely Indian made vehicles. Now, the auto component
industry has the holistic capability to manufacture the entire range of auto-components like engine
parts, drive, transmission parts, suspension & braking parts, electricals, body and chassis parts,
equipment, etc. Engine and drive transmission parts together contribute about 50 percent of the auto
component industry production. Engine parts, which constitute 31 percent of the production which
mainly includes pistons, engine valves, carburetors, fuel injection systems, camshafts, crankshafts
and cooling systems. The IACI is comprising of Tier 1, Tier 2 and Tier 3 companies. A Tier 1
auto-component manufacturer are the members of the ACMA. ACMA is an apex body of
auto component industry in India. The IACI classified as organized and unorganized players.
The organized sector caters essentially to OEMs and some extent in after-market dealing in the
manufacture of high value-added precision engineering components. The unorganized players
are mainly providing to replacement market or aftermarket coping in lower value components.
This industry classification (more technically) in a three-tier structure is as follows:
●● Tier 1 is involved in Integrated systems and critical enablers to OEMs and manufacture
multiple auto components,
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●● Tier 2 supply auto components to Tier 1 suppliers and finally

●● Tier 3 use traditional method of manufacturing (negligible IT systems) involved in raw
material and single component manufacturers to Tier 2.
In some cases, OEMs themselves are in Tier1 group because of the criticality of the component
(where there is zero tolerance), (Bhasker et al., 2013, ACMA Report 2015). Considering
infrastructural issues in the automobile industry, the automotive companies find it difficult to
supply components just-in-time (it is progressively leading the manufacturing norm for existence
in the OEM segment) to the OEMs except they maintain a few weeks or months of raw material,
work in progress and inventory of finished goods(Haritha Saranga, 2009). The Indian automobile
industry divided into clusters as shown in figure 3. Most of the auto component firms are situated
in these clusters.
Figure 4: Automobile Clusters in India
(source www.ibef.com)
The four main auto clusters in India are;
●● MPNA (Mumbai-Pune-Nashik-Aurangabad)–West zone
●● DGF (Delhi–Gurgaon–Faridabad)–North zone
●● KJ (Kolkata–Jamshedpur)–East zone
●● CBH (Chennai–Bangalore–Hosur)–South Zone
3. Research Questions
PPM techniques are the tools and policies used in successful organizations for allocating resources
among project portfolios that lead to the overall development and achievement of the firm
(Cooper et al., 2001, Levine, 2005). This research paper talks about the significance of project
selection in the portfolio in IACI and its influence on the business success of a firm. Furthermore,
relating the successful products with project selection in PPM is not possible. The products that are
launched not more than three years old in the market are considered for the research. This study
targets to investigate the following research query.
Does Project selection in the portfolio, impacts on the business success of an organization in IACI?
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This research paper explores the relationship between project selection in PPM and business success
in the purview of IACI. The first stage deals with exploratory research with a chosen method as a
literature review. Exploration directed towards reviewing all relevant information about PPM from
a strategic and operational perspective. Moreover, it also included collecting information about the
IACI. The constructs, that are used in the conceptual model also carried for the development of a
research instrument. The first stage completed by preparing the sampling method for collecting the
data. Stage II dealt with data collection in three steps–pre-test, pilot study and main study (survey).
The pre-test and pilot study was carried out before the main study to confirm optimal research
measures. The results produced from these two activities were used to improve measurement items
used in the questionnaire. The main study included the circulation of survey questionnaires to
the respondents. The research protocol was the same as that used in the pilot study. The required
number of samples derived from the requirement for executing structural equation modeling and
was based on the type of sampling method used. In Stage III, the data collected were analyzed using
statistical techniques.
The total number of responses was 387, but due to some incomplete responses the final number of
responses are 356 and are taken forward for data analysis.
5. Data Analysis
The data for the research is collected and then analyzed to find out the demographic details of
the respondents. For carrying out the study, SPSS 23.0 used. The respondents in the study were
senior managers, Deputy General Managers, plant managers, line managers and those managers
with experience varying from 1–20 yrs. The study helps us in understanding the background of the
respondent and indirectly gives an idea of the relevance of the research carried out.
5.1. Data Screening and Preparation

Before analyzing the data, it was screened and checked for missing values, outliers, linearity,
normality and multicollinearity. These steps were carried out to ensure the success of the model
estimation (Kline, 2005). The data collected were scrutinized using SPSS, a statistical tool.
SPSS is an extensively used in social science for statistical analysis also practiced by survey
companies, market researchers, health researchers, government, education researchers, marketing
organizations, data miners and many others.
5.2. Demographic Details

The details collected were classified into the three tiers to which they belong, work experience,
employee size of the company, turnover of the company, sectors of IACI and the department in
the organizations.
5.2.1. Category (Tiers) of IACI

The data collected is analyzed and divided into three tiers. Table 3 shows the frequency of the
respondents for the given survey.
Table 3: Category (Tiers) of IACI
Frequency Percent
Tier I 149 41.9
Tier II 126 35.4
Tier III 81 22.8
Total 356 100.0
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Table 3 shows that from 356 valid responses collected,41.9 percent were from Tier I, 35.4 percent
from Tier II and 22.8 percent from Tier III are there. The total responses collected indicates that there
are more than 3/4th respondents belong to Tier I and Tier II companies.
5.2.2. Work Experience of the Respondents

The data collected was also analyzed for finding out the work experience of the respondents of IACI.
Table 4 shows the frequency and percentage of the work experience of the respondents in IACI.
Table 4: Work Experience of the Respondents
Frequency Percent
< 5 YRS 58 16.3
5 -10 YRS 229 64.3
11–15 YRS 59 16.6
>15 YRS 10 2.8
TOTAL 356 100
The above table shows that the maximum respondents are in the range of 5-10 yrs. Work experience.
The percent of respondents having work experience less than five years is 16.3, in between 5-10
yrs. is 64.3, in between 11–15 years is 16.6 and more than 15 years is 2.8. The respondents are from
the top level, middle level and entry level management. Some of the organizations have people
with more than ten years of experience in the top level of management. Respondents with 5-10 yrs.
of experience play an essential role in the middle management where they form a bridge between
strategy and implementation from PPM perspective.
5.2.3. Annual Turnover the Companies of Respondents

This section of data analysis shows the annual turnover of the companies of the respondents in IACI.
Table 10 indicates the yearly turnover of the companies of the respondents in IACI.
Table 5: Annual Turnover of the Companies of Respondents
Frequency Percent Valid Percent

50–100 Cr 154 43.3 43.3
101–500 Cr 108 30.3 30.3
501–1000 Cr 94 26.4 26.4
Total 356 100 100
The above table shows that 43.3 percent of respondents are in the range of 50–100 Cr, 30.3 in
101– 500 Cr, 26.4 in 501–1000 Cr annual turnover of the companies. According to the literature
(Cooper, 2001), well-established companies, do have a positive approach towards PPM. Moreover,
research carried out in the organizations in the USA, points out that the large organization does have
standard practices followed on a regular basis.
5.2.4. Respondents Belonging to Different Sectors of IACI

The PPM study is in Indian Context. The Indian auto component industry spreads in various
locations across India. These locations are generally called the clusters where the Indian automobile
companies have set up their manufacturing units. Auto component companies also have set up their
units in these clusters to cater to the needs of manufacturing companies. The collection of responses
from the respondents are from these companies only. Table 6 shows the percentage of respondents
from the different sectors in India.
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Table 6: Respondents from Different Sectors * of IACI
Frequency Percent
MPNA (Mumbai-Pune-Nashik-Aurangabad) 158 44.4
DGF (Delhi–Gurgaon–Faridabad) 59 16.6
KJ (Kolkata–Jamshedpur) 36 10.1
CBH (Chennai–Bangalore–Hosur) 103 28.9
Total 356 100.0
The above table shows that 44.4 percent belong to MPNA (Mumbai-Pune-Nasik-Aurangabad), 16.6
from DGF (Delhi–Gurgaon–Faridabad), 10.1 from KJ (Kolkata–Jamshedpur) and 28.9 from CBH
(Chennai–Bangalore–Hosur).
Most of the auto component manufacturing units are situated in these clusters (Fig. 4.4).
5.2.5. Respondents from Different Department of Companies

The data collected from various departments of the companies. Table 7 shows the percentage of
respondents from different departments in companies of IACI.
Table 7: Respondents from Different Departments in Companies of IACI
Frequency Percent
Design & Engineering 55 15.5
Finance 38 10.7
Production 146 41.0
Supply Chain 35 9.9
Quality Assurance/ Quality Control 18 5.0
Sales & Marketing 46 12.9
Others 18 5.0
Total 356 100.0
The above table shows, the majority of the respondents are from the production Department, i.e.,
41 percent. These respondents are from various levels of the management which contributed to
the research.
6. Results and Findings

The descriptive statistic is summarizing the features of collected data. It provides simple summaries
of the sample and also about the observations made.
Based on the data collected, the mean and standard deviation is calculated as shown:
Table 8: Mean and Standard Deviation of Project Selection in Portfolio
S. No Project selection components Mean S. D
1. The company understands the importance of project selection 3.76 0.76
2. Proper Project selection is beneficial for a robust competitive presence of the firm in the market 3.52 0.79
3. The company uses standard practices for project selection 3.46 0.88
4. We have a stringent mechanism of project selection for the portfolio 4.00 0.73
5. The firm studies all the constraints required for project selection 3.80 0.58
6. There is a clarity in the company on the selection of projects 3.70 0.53
7. The senior management puts an impact on project selection 3.90 0.55
8. Our firm follows different approaches of selection for project portfolio 3.95 0.83
9. The financial methods (NPV, IRR, etc.) are the most dominant method in project selection. 4.39 0.72
10. Risk management is an integral part of project selection. 3.94 0.67
11. The management practices different techniques of balancing the project portfolio 3.63 0.58
12. Apart from Standard methods, our company also has some signature(own) methods of project
3.48 0.78
selection
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From table 8, it is clear that majority of the respondents do agree that project selection is a crucial
aspect in PPM and choice of right projects will undoubtedly increase the probability of business
success. Concerning with the objective of the research is to analyze the influence of project
selection on the business success of the organization in IACI, regression analysis was carried out.
The hypotheses derived from the model were tested. The following table shows the result of the
hypothesis testing:
Table 9: Hypothesis Test Results
Null Hypotheses Spearman Coeff. P Value Significance
Project portfolio selection does not positively affect the Business success
0.774 0.028 Rejected
of an organization in IACI.
Above results show that project selection does have a positive impact on the business success of an
organization of IACI. Due to the dynamic nature of the businesses and to sustain in the cutthroat
competition, there are high chances that the organizations may pull in the projects without actually
worrying about the resources at the strategic level. Moreover, the organizations having less turnover
might go for the projects which may account for financial benefits rather than balancing the given
portfolio of projects. The practice of PPM in its real-life context is slightly messier and less rational
than the decision-process cantered frameworks (Martinsuo, 2013).
7. Conclusion
To build an optimal project portfolio in a competitive business environment is a significant concern
for every organization. The method of generating a good portfolio mix of components with excellent
potential, with many constraints, is complicated and knowledge consuming. This complexity is
mainly because of the numerous dimensions in decision making. The decision maker has to deal
with multiple criteria, multiple objectives, uncertainty and risk, interdependencies between different
components and balancing effectively with varied goals of the organization. Mostly the decision
is regularly made by top managers with dissimilar perspectives that need alignment of the projects
across the portfolio building stages. Considering the increased competition in the market, there is
a much broader scope of possible strategic directions that need the active participation of top-level
management, which helps in navigating for both long and short-term strategy. It suggests that a
commitment, both regarding actions and time, is desired. This also indicates that the management
involved in operational aspects has to be supported with a proper project methodology on individual
project level and also on a portfolio of projects. Project selection is indeed an essential phase
in PPM. The results show that there is a good understanding of project selection is there in the
organizations of IACI. But this can be only one side of the coin. A strategy should be accompanied
with an in-depth plan of implementation of it. Without the effective implementation of the strategy,
the probability of business success is reduced.
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Hazardous Industrial Waste Transport
Partner Selection using Dynamic
Weight SIR under Uncertainty
Huiyun Sang
shandong jiaotong university
E-mail: 672843102@qq.com
Yan Bai
Shandong Jiaotong university
Yuchen Zhang
Lixue Fan
Bo Wang
COSCO Shipping Tanker (Dalian) co. Ltd
E-mail: Wangbo31346@126.com
Abstract
Evaluation and selection of hazardous industrial waste transport partner is a key issue for hazardous waste
generators, as hazardous and toxic industrial wastes may cause heavy damage to human and the environment if
mishandled. However, selection of the most suitable partner from a group of candidates remains a challenging task,
especially when the scheme selection issue based on the evaluation information with imprecise, uncertainty and
incompleteness. In order to solve these scheme selection issues, with a view to the effect of short-board attributes in
the decision making, a novel dynamic-weight Superiority and Inferiority Ranking under Uncertainty(DWUSIR) is
developed in this paper, based on the concept of degrees of belief and the dynamic-weight theory.
Firstly, The linguistics terms with degrees of belief is introduced to deal with the subjective expert knowledge,
the uncertain judgment of decision makers and vague, incomplete, or imprecise input data. In addition, the
conversion rules are drew up for converting the linguistics terms into triangular fuzzy number for easy calculation.
Next, Referring to the dynamic weight theory, the dynamic weight model is constructed based on a set of state
weight vector functions which is built on incentive-penalty mechanism. The variable weights are determined by
preset weights and state values of the attributes, so that the weight can reflect the influence of the short-board
attributes during the decision process. Then, in the light of combining the above theory with the SIR method, a new
dynamic-weight Superiority and Inferiority Ranking under Uncertainty (DWUSIR) for evaluation and selection
of hazardous industrial waste transport partner is put forward. Finally, A numerical example is used to verify the
validity and the feasibility of the DWUSIR.
The results of case study show that the new method can support multiple-criteria hazardous industrial waste transport
partner selection processes when both qualitative and quantitative information with or without uncertainties have to
be taken into account. The outcomes generated by the method include the ranking of the candidates and indications
of their strengths and weaknesses in the format of performance distributions over different assessment grades
presented by linguistics terms and/or a certain number. Such information is vital in helping decision makers to make
an informed selection and be aware of any risk implication associated with the selection.
The proposed method can be easily extended to deal with other multiple-criteria decision-making problems related
to Sanitation and Waste Management issues and Safety and Risk Management issues, such as assessment of risk in
hazardous materials transportation, dangerous goods transportation, supply chain partner selection and so on.
Keywords: Hazardous Industrial Waste Transport Partner, Multiple-attribute Decision Making, Uncertainty,
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Dynamic Weight, Superiority and Inferiority Ranking (SIR)
1. Introduction
As a result of various activities such as industry, agriculture and transportation, the quantity of waste
and pollutants is increasing day by day. Kabir et al. (2015) and Gumus et al. (2009) claims that
“In modern societies almost everything (materials, devices, objects, etc.) sooner or later becomes
waste”, among which some with one or more of the given attributes like ignitability, corrosiveness,
reactivity or toxicity will be characterised as hazardous wastes, which may present immediate or
long-term risks to humans, animals, plants, and/ or the environment when poorly handled during
transport, treatment, storage and/ or other links. So, the management of hazardous wastes has
become one of major international concern, particularly for developing countries.
In order to effectively avoid damage caused by hazardous wastes, it is necessary not only to introduce
advanced disposal technologies, but also to establish scientific and rational hazardous waste
management systems, including the choice of transport treatment and disposal facilities, allocation
of hazardous waste and waste residues from generators to treatment and disposal sites, as well as
selection of transport routes(Kabir et al., 2015). It provides sufficient raw materials for harmless
disposal and utilization of resources, thus effectively reducing the negative effects of hazardous
wastes on society, environment, economy and so on.
Hazardous wastes are high-risk during the process of movement, and it will cause heavy damage
if there’re accidents, even though the probability is small. That’s why the public pays much more
attention on the transportation accidents of hazardous wastes than the ordinary ones. So it is very
necessary to choose the best transport partner to ensure transport safety. A subsequent problem arises
as to which one would be the most proper alternative with all relevant factors taken into account.
If only a few candidates are for selection on the basis of very limited attributes, an experienced
manager may not be difficult to pick out a suitable one with confidence. However, hazardous waste
transport partner selection involves several objectives, such as cost, safety, time window and so on.
In other words, hazardous waste transport partner selection is a typical multiple-criteria decision
problem. It is not a easy problem for hazardous waste generators, especially when the scheme
selection problem based on evaluation information which is imprecise, uncertain and incomplete.
For multi-attribute decision making problems, there is barely optimal scheme, but generally the best
compromise scheme is selected according to certain rules. So how to choose the best compromise
scheme is another important question faced by decision makers. Many scholars have devoted
themselves to the research of the theory and method of multi-attribute decision during the past
years, and put forward many practical and effective methods, which are the crystallization of many
scholars intensive study, and each has its own characteristics and advantages.
The Superiority and Inferiority Ranking Method (mentioned as SIR for short in the following text)
has been widely used in solving multi-attribute decision making problems since it was proposed.
And in order to expand the scope of its application, many scholars put forward many improved
methods. For example, SIR method proposed by (Marzouk, Shinnawy et al., 2013) is utilized for
evaluation of most suitable offer for procurement of equipment installed inside a facility, whereas,
analytical hierarchy process (AHP) is used to calculate the weights of factors that influence
procurement decision. (Wang et al., 2004) proposed the a new superiority and inferiority ranking
method multiple criteria decision-making problem with incomplete information on weights used for
the multiple criteria decision making that the numerical values of alternatives of some criteria are
subject to imprecision , uncertainty and indetermination and the information on weights of criteria is
incomplete.(Chai et al., 2012)proposed a new Intuitionistic Fuzzy SIR (IF-SIR for short) approach
and focuses on its application to supplier selection which is introduced to solve the decision problem
with DM (expert/ manager/ etc.) in the form of decision group involving multiple participants and
all decision information provided in the form of linguistic terms.
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Hazardous Industrial Waste Transport Partner Selection using Dynamic Weight SIR
In view of the above practical situation and inspired by the related research results in the field of
multiple attributes decision-making, this paper proposes a new dynamic weight SIR method under
uncertain conditions to solve evaluation and selection of hazardous industrial waste transport partner
problems based on evaluation information with fuzziness, uncertainty and/or incompleteness.
In this paper, the concept of confidence degree (Xie, Xu et al., 2008) is introduced to express the
incompleteness of evaluation information or the uncertainty and vague of expert evaluation based
on linguistic evaluation value with confidence degree structure; and based on the dynamic weight
theory (Yao and Maa , 2012, Sun, Liu et al., 2013), the dynamic weight model is constructed by
the state variable weight function. The variable weights are determined by present weights and state
values of the attributes. And then a new dynamic-weight Superiority and Inferiority Ranking under
Uncertainty (DWUSIR) for evaluation and selection of hazardous industrial waste transport partner
is put forward.
The remainder of article is organized as follows: the problem to be tackled is first defined briefly in
the second section. The proposed methodology has been presented in the third section, and in the
fifth section an illustrative example is given to demonstrate their capability. The conclusions is given
in the last section.
2. Problem Description
Because of both quantitative factors and qualitative factors are involved, it is a complex problem to
find out the best hazardous industrial waste transport partner. The most suitable hazardous industrial
waste transport partner, from the transportation firm’s viewpoint, the best solution would be the one
with the least cost, while for the government, the best solution would be the one with the least risk.
In addition to this ultimate desire, there are also many other important requirements. For example,
the transport time may be considered to measure the exposure period.
The reason that quantitative mathematical models for the hazardous industrial waste transport
partner selection problem are widely employed already is because the economy of transportation is
normally the ultimate goal of generators (Xie, 2008, Sang, 2016). However, the outcomes produced
by the approaches are not always completely satisfactory. The best transport partner for hazardous
industrial waste, which is chosen by mathematical models usually based only on the quantitative
attributes, is sometimes rejected by waste generators because of other qualitative attributes.
During the decision-making process, various attributes should to be evaluated and balanced, which
is a multifaceted activity that requires the effective use of all available information.. The purpose of
this paper is to select the best option of hazardous industrial waste transport partner which is both
satisfied by the waste generators and the government.
3. Methodology
The characteristics of selection problem of hazardous industrial waste transport partner are listed
above. In order to solve these scheme selection issues, based on the concept of belief degree and the
theory of dynamic weight, a new dynamic-weight Superiority and Inferiority Ranking (DWUSIR) is
proposed in this paper. This section describes the research methodology adopted to establish a model
of selecting an appropriate hazardous industrial waste transport firm. This model provides criteria
for waste generators to select hazardous industrial waste transport firms.
3.1. The SIR Method

Without lose of generality, let c1,c2,…,cn∈E be n decision indexes , a1,a2,…am∈A be m candidates,
and wj (j=1,2,…,n) be the weights of the criteria(i.e. the relative importance coefficients of all the
alternatives), and
∑ j =1 w j 1=
n
= ( w j 1) (1)
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Let cj (·) be the real-valued function (j=1,2,…,n) and cj(ai) be the value of alternative ai with respect
to criterion cj (i=1,2,…,m). The decision matrix D, which is showed by Eq.(2), is formed by these
criteria values :
 c1 (a1 )  c j (a1 )  cn (a1 ) 
 
      
D =  c1 (ai )  c j (ai )  cn (ai )  (2)
 
      
 c (a )  c j (am )  cn (am ) 
 1 m
An appropriate generalized criterion function ϕ (⋅) should be introduced to express the intensity of
the preference of ai over ak on criteria cj, in order to take into account value differences and more
general types of criteria:
P ( ai , ak ) = ϕ ( c(ai ) − c(ak ) ) = ϕ (d ) (3)

ϕ (d ) ∈ [ 0,1]
where ϕ ( d ) , which is called a generalized criterion , is a non-decreasing function and
.Such that ϕ ( d ) =0 for d ≤ 0 (i.e.
c(ai ) ≤ c(ak ) ). Xu et al. (2001) bring in six such generalized
criteria, and different generalized criterion represents different attitude towards preference structure
and the intensity of preference. The users can select any one of them for practical applications based
on their preference.
( ai , ak ) ϕ (c j (ai ) − c j (ak )) be the superiority

For the given pair of alternatives ai and ak, let Pj =
of ai over ak or the inferiority of ai to ak with respect to the jth criterion, when c j (ai ) − c j (ak ) ≥ 0 ,
Pj ( ai , ak ) represents the superiority while Pj ( ai , ak ) represents the inferiority if.
We define its superiority index Sj(ai) for each alternative ai with respect to the jth criterion by Eq.(4),
and the inferiority index Ij(ai) correspondingly by Eq. (5):
m m
S j (ai )
=
=k 1=k 1
∑=
Pj (ai , ak ) ∑ ϕ (c (a ) − c (a ))
j i j k (4)
and
m m
I j (ai )
=
=
j
k 1=
k i
k 1
∑=
P (a , a ) ∑ ϕ (c (a ) − c (a ))
j i j k
(5)
And then, based on the superiority index Sj(ai) and the inferiority index Ij(ai) we can get the superiority
matrix (S- matrix) and the inferiority matrix (I- matrix) respectively, which is listed as follows:
The S- matrix:
 S1 (a1 )  S j (a1 )  S n (a1 ) 
 
      
S =  S1 (ai )  S j (ai )  S n (ai )  or S = ( S j (ai ) )m×n (6)
 
      
 S (a )  S j (am )  S n (am ) 
 1 m
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and the I- matrix:
 I1 (a1 )  I j (a1 )  I n (a1 ) 

 
      
I =  I1 (ai )  I j (ai )  I n (ai )  or I = ( I j (ai ) ) (7)
  m×n
      
 I (a )  I j (am )  I n (am ) 
 1 m
Based on the superiority matrix and the inferiority matrix , the Superiority flow ϕ > (⋅) and the
Inferiority flow ϕ (⋅) can be calculated correspondingly , which represent the global intensity of
<
superiority and inferiority of each alternative respectively.
The superiority flow ϕ (⋅) and the Inferiority flow

>
ϕ < (⋅) can be calculated by Eq. (8) and Eq. (9):
ϕ > (ai ) = f  S1 (ai ), , S j (ai ), , Sn (ai ) 

(8)
and
ϕ < (ai ) = f  I1 (ai ), , I j (ai ), , I n (ai ) 

(9)
where f is the aggregation function.
The S-flow ϕ (ai ) and the I-flow ϕ (ai ) measures how ai is globally superior and inferior to all
> <
the others. It is easy to see that the higher the S-flow ϕ > (ai ) and the lower the I-flow ϕ < (ai ) , the
better ai is. On the basis of the descending order of ϕ (ai ) , the complete ranking (S-ranking, R> ) of
>
the alternatives is obtained as follows:
if ϕ (ai ) > ϕ (a j ) then ai P> a j ; and if ϕ (ai ) = ϕ (a j ) then ai I > a j (10)

> > > >
Similarly, The I-ranking R< is obtained based on the ascending order of ϕ < (ai ) of the alternatives
as follows:
(11)
if ϕ (ai ) < ϕ (a j ) then ai P< a j ; and if ϕ (ai ) = ϕ (a j ) then ai I < a j
> > < <
In general, the above two complete rankings are different. The two complete ranking structures
(S-ranking and I-ranking) can be combined into a partial ranking structure based on the following
intersection principle. For each pair of alternatives ai and aj, we define:
a. The preference relation P by
ai Pa j iff ( ai P> a j and ai P< a j ) or ( ai P> a j and ai I < a j ) or ( ai P< a j and ai I > a j )
b. The indifference relation I by
ai Ia j iff ai I > a j and ai I < a j
c. The incomparability relation R by
ai Ra j iff ( ai P> a j and ai P< a j ) or ( ai P< a j and ai P> a j )
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3.2. DWUSIR Method
3.2.1. The Decision Matrix
3.2.2. The Initial Decision Matrix

For the multi-attribute decision making problems, fuzzy, uncertain or incomplete evaluation
information is allowed when evaluating the attributes of each scheme (Ma, Zhang et al., 2014).
So the evaluation information of attributes can be expressed in the form of exact numbers, fuzzy
numbers (such as triangular fuzzy numbers) as well as the linguistics terms with degrees of belief
(Yang, Bonsall et al., 2011). The decision matrix is defined as follows:
T =  rij  (12)
m×n

where rij is the criteria value of the ith alternative ai with respect to the jth criterion. The form of the
evaluation value of attributes can be expressed as follows:
 rij

rij =  (oij , bij , cij ) (13)

{( βij , f , h f )}
where, rij represents the evaluation information of attributes which is expressed as real numbers;
(oij , bij , cij ) represents the evaluation information of attributes which is expressed as triangular
fuzzy numbers; h f ( f = 1, 2, , N ) is the determinate rules of linguistics terms, whose value range is
shown in Table 1. β ij , f denotes the degree of belief. ( βij , f , h f ) represents the evaluation information
of attributes is expressed as the linguistics terms with degrees of belief, and represents an attribute
ej at an alternative ai is assessed to grade hf with a belief degree of β ij , f . Belief degrees are a type of
subjective probability, and they must be satisfy the following relationships (Xie, Xu et al., 2008):
0 ≤ βij , f ≤ 1 and 0 ≤ ∑f βij , f ≤ 1 (14)
when ∑β
f
ij , f < 1 , it means there is the belief degree unassigned to any specific grade, representing
there is unknown or missing percentage of information in the assessment. β H = 1 − ∑ f

βij , f
is the
degree of belief unassigned to any individual evaluation grade after all the basic attributes have been
assessed (Yeo, Ng et al., 2014). It denotes the degree of incompleteness in the assessment generated.
The evaluation of an attribute can be into one of these descriptive grades or a set of adjacent grades.
Table1: The Correspondence between Linguistic Evaluation Value and Triangular Fuzzy Number
Linguistic Evaluation Value The Descriptive Grades Triangular Fuzzy Number
Worst h1 (0.0,0.1,0.3)
Poor h2 (0.1,0.3,0.5)
Average h3 (0.3,0.5,0.7)
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Good h4 (0.5,0.7,0.9)
Excellent h5 (0.7,0.9,1.0)
3.2.3. Data Transformation and Normalization Matrix

Rule and utility based techniques will then be developed to provide a systematic procedure to
transform various types of information into a unified format, so that both quantitative, qualitative
information and subjective assessment with uncertainties can be handled in a consistent manner.
This lead to the development of a new rule and utility as (15):
rijF= H ⊗ β (15)
where, rijF is the transformed value, whose structure is same to H . H is the linguistic evaluation
grades of the ith alternative ai with respect to the jth criterion cj.
The excellent and the worst linguistics evaluation terms is assigned to the unassigned belief
respectively, and the excellent and the worst evaluation extreme value is obtained as (16) and (17):
 − 5 5
 r =
ijF ∑ h f ⊗ β ij , f + (1 − ∑ βij , f ) ⊗ h1
=  f 1= f 1
tij  5 5
ej ∈ B (16)
r ijF
*
= ∑ h f ⊗ βij , f + (1 − ∑ βij , f ) ⊗ hN
=
 f 1= f 1
 − 5 5
= ∑ h f ⊗ βij , f + (1 − ∑ βij , f ) ⊗ hN
r ijF
=  f 1= f 1
tij  5 5
ej ∈C (17)
r ijF
*
= ∑ h f ⊗ βij , f + (1 − ∑ βij , f ) ⊗ h1
=
 f 1= f 1
The linguistic terms have been translated into triangular fuzzy numbers based on (15)-(17).
The linear normalization function is used to standardize the quantitative evaluation data measured
by the exact number:
r ij − rj−
tij = (18)
rj* − rj−
*
where rj = max
j
r ij { }
Then we obtain the normalized decision matrix as follows:
R = tij  (19)
m×n
3.2.4. Inferiority and Superiority Index

In this paper, the positive and negative ideal schemes are used as reference points to calculate the
inferiority index and superiority index of each scheme relative to the positive ideal scheme and the
negative ideal scheme. There are two methods to define the positive ideal scheme and the negative
ideal scheme through extreme value: (1) selecting the optimal and the worst evaluation value of each
attribute as the positive and negative ideal scheme; (2) taking the limit value of the range of values of
IAMOT 2019 | 537

each attribute as the positive and negative ideal scheme. It is obvious that if the number of candidates
increases or decreases, it is likely to cause the change of the optimal and the worst evaluation value.
Therefore, the positive and negative ideal scheme determined in method (1) is no longer applicable. In
this paper, positive and negative ideal schemes are defined by method (2), showing as (20) and (21):
a* = (t1* , t2* , , tn* ) (20)
a − = (t1− , t2− , , tn− ) (21)

where, for the triangular Fuzzy number
=t *j (1,1,1),
= t −j (0, 0, 0) ej ∈ B
,iff
=t *j (0,
= 0, 0), t −j (1,1,1) ej ∈C
, iff
for the real number
t *j 1,=
= t −j 0 ej ∈ B
, iff
t *j 0,=
= t −j 1 ej ∈C
, iff
Calculating the difference between the options and the positive ideal solution as (22)
n
d − (ai , a* ) = ∑ d (tij , t *j ) (22)
j
and the difference between the options and the negative ideal solution as (23)
n
d * (ai , a − ) = ∑ d (tij , t −j ) (23)
j
where,
for the triangular Fuzzy number
1
d (tij , t *j ) = (tij − t *j ) = (oij − 1) 2 + (bij − 1) 2 + (cij − 1) 2
3
1
d ((tij , t −j )) = (tij − t −j ) = (oij − 0) 2 + (bij − 0) 2 + (cij − 0) 2
3
for the real number
d ((tij , t −j )) =(tij − t −j ) =
1 − tij
d ((tij , t −j )) = (tij − t −j ) = tij
3.3. Inferiority and Superiority Matrix

For each alternative ai, we define the superiority index Sij and the inferiority index Iij with respect
to the jth criterion ej as following formulas:
S=
ij P=
ij ϕ[d * (ai , a − )] (24)
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I=
ij P=
ij ϕ[d − (ai , a* )] (25)
Among the six common general criteria given in (Xu, 2001), Gaussian criterion has been widely
selected by users for practical applications. Therefore, we choose Gaussian criterion to reflect the
preference structure and the intensity of preference of decision makers, shown as (26):
2
ϕ (t ) = 1 − exp(−t ) (26)
2σ 2
Now, the superiority matrix and the inferiority matrix (seen Eq.(27) and Eq.(28) )can be achieved by
the superiority indexes and the inferiority indexes:
The S- matrix:
 S11  S1n 
  S (27)
=S [ S=
ij ]m×n  ij  
 S m1  S mn 
and the I- matrix:

 I11  I1n 
=I [ I= ]   I   (28)
ij m×n  ij
 I m1  I mn 
3.3.1. Dynamic weight

Generally speaking, in the multi-attribute decision making problem, the cardinal factors are
influenced by each other. If one of the indexes is poor, it may have a serious impact on the actual
performance of the candidate. But during the aggregation process, the poor index may be possible
to be “neutralized” by other superior indexes, no matter what kind of constant-weight aggregation
operator is applied, which makes the evaluation results unable to reflect the true performance of the
candidate (Yao and MA, 2012, Llamazares and Pena, 2013). And thus reducing the effectiveness of
the method and the reference value of the evaluation results. In order to weaken this “neutralization”
effect, the dynamic weight theory is introduced and a set of state weight vector functions based on
the variable weight mechanism (Sun and Liu, 2014) of reward and punishment are constructed,
so that the weight can reflect the influence of each attribute on the decision result.
The principle of dynamic weight setting is to strengthen the influence of inferiority index of each
scheme in the comprehensive evaluation(Ma and Zhang, 2014). The penalty dynamic weight is adopted
for the calculation of inferior flow. That is, the smaller the superiority degree of a cardinal criterion is,
the greater the weight is given; The incentive dynamic weight is adopted for the calculation of inferior
flow. That is, the greater the inferiority degree of a cardinal criterion is, the greater the weight is given.
The purpose of the above action is to achieve the penalty effect by reducing the “superior degree”.
According to the theory of variable weight, the degree of punishment and incentive is determined by
the difference between each scheme and the negative and the positive ideal scheme.
The state variable weight function of the inferiority matrix is defined as follows:
λij ( =
I) wj ⋅ eI ij ⋅ x
(29)
where, x ∈ [0,1] is the variable weight coefficient. The smaller x, the smaller the fluctuation
amplitude of λij ( I ) is and vice versa.
The corresponding variable weight formula is denoted as follows:
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λij ( I ) (30)
wIij =
∑ λij ( I )
Likewise, the state variable weight function of the superiority matrix is defined as follows:
λij ( S=) w j ⋅ e S ij ⋅( x −1)

(31)
And its corresponding variable weight formula is denoted as follows:

λij ( S )
wSij = (32)
∑ λij ( S )
Ranking and selecting optimal scheme
The S-flow and the I-flow can be obtained based on the weighted sum average method showing by
the Eq. 33 and Eq. 34:
γ >=
(ai ) ∑Sj
ij ⋅wSij (33)
γ <=
(ai ) ∑Ij
ij ⋅wIij (34)
According to the descending order of the γ > (ai ) and the ascending order of γ < (ai ) , we obtain a
complete ranking of the alternatives respectively. And finally, the two complete ranking structures
are then combined into a partial ranking structure based on the net flow. The net flow is defined as
the following equation:
γ (ai ) γ > (ai ) − γ < (ai )
= (35)
4. Decison Model Application and Results

To demonstrate the application of the above procedure, the case study of the selection of industrial
waste transport partner is performed in this section. The details of the candidate industrial waste
transport partner is listed in Table 2. The hierarchical structure of the criteria for the industrial
waste transport partner selection problem is shown in Figure 1, with the numerical values in the
parentheses being the weights of the corresponding criteria or attributes.
Table2: Technical Parameters of the Candidate Industrial Waste Transport Partner
Attribute Firm 1 Firm 2 Firm3 Firm 4
Unit freight rate ($/t) 23.13 21.46 20.99 21.42
Transport time (t) 6.92 6.91 6.92 6.84
Benefit and risk sharing (0,0,0,0.6,0.2) (0,0.2,0.8,0,0) (0, ,0,0.3, ,0.7) (0,0,0.6,0.3,0)
Quality of service (0,0,0,0.9,0) (0,0.3,0.6,0,0) (0,0,0,1,0) (0,0,0 ,0.6,0.2)
Flexibility (0,1,0,0 ,0) (0,0,0.5,0.3,0) (0,0,0.8, 0,0) (0,0,0.4,0.2,0)
Accessibility (0,0.1,0,0,0) (0,0,0,0,1) (0,0,0,0.7,0) (0,0,0,1,0)
Work experience in related field (0,0,0,0,1) (0, 0.3,0.5,0,0) (0, 0, 0.2, 0.8,0) (0,0.7,0.2,0,0)
Compatibility (0,0,0,0.1,0.8) (0,0.2,0.5,0,0) (0, 0, 0.7,0.3,0) (0,0.1,0.8,0,0)
Logistics manpower (0.2,0.6,0,0,0) (0,0,0,1,0) (0,0,0,0,0.6) (0,0,0.4,0.6,0)
Human health and environmental protection standards (0,0,0,0,1) (0,0,0.6,0.3,0) (0,0, 1,0 ,0) (0,0,0,0.1,0.7)
Reputation of service (0,0,0,0.7,0.2) (0,0.3, 0.5,0,0) (0, 0,0, 0.2 ,0.6) (0, 0,1, 0,0)
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Figure 1: Hierarchy of Assessment Criteria of the Industrial Waste Transport Partners and their Weights
The steps are as follows:

Step1: Based on the evaluation index system and the weight of each index given by experts
in figure 1, the initial weight of each attribute is calculated, the solution is as follows:
w o = w* ⋅ w = [ 0.15 0.09 0.1 0.08 0.15 0.16 0.05 0.06 0.09 0.01 0.06] (36)
where, w is the weight of the bottom index, and w* is the weight of index in two layers.
Step2: Based on Eq. 8 ~ Eq. 27, the superiority matrix and the inferiority matrix of each
candidate are obtained, as shown in the Eq. 32 and Eq. 33:
 0 0 0 1 0.71 0.93 1 0.31 0 0 1 
 0.6 0.54 0.85 0.23 0 0.07 0.18 1 0.79 0.91 0.2 
S=  (37)
 1 1 1 0 0.87 0 0 0.46 0.8 0.62 0 
 
0.62 0.68 0.86 0.49 0.83 0.95 0.09 0.32 0.58 0.71 0.24 
 1 0.15 0.03 0 0 0 1 0.61 1 0 0 

 0.05 1 0.89 0.58 0.43 0.5 0.05 0 0.11 1 0.25
I = (38)
 1 0.09 0.98 1 1 0.87 0.25 0.46 0.08 1 1 
 
0.04 0.09 0.12 0.76 0.38 0.75 0.22 0.56 0.24 0 0.05
Step3: Based on Eq.28- Eq.33, the dynamic weights based on punishment-reward mechanism
are obtained respectively;
First of all, according to the Eq. 29, we obtain the inferiority index state function of each bottom
index (Let x=0. 5) and then the state variable weight function of the inferiority matrix of each
candidate is calculated as shown in Eq. 39:
0.247 0.150 0.162 0.152 0.150 0.150 0.150 0.247 0.247 0.204 0.247 
 0.153 0.205 0.247 0.234 0.2 0.186 0.193 0.154 0.150 0.150 0.158 
λij ( I ) = (39)
 0.150 0.247 0.157 0.245 0.247 0.247 0.231 0.170 0.171 0.188 0.156 
 
 0.153 0.177 0.157 0.151 0.219 0.181 0.218 0.168 0.150 0.198 0.169 
Based on the state variable weight function of the inferiority matrix of each candidate, using Eq. 40,
the variable weight of each index will be the following:
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0.072 0.072 0.072 0.043 0.044 0.043 0.072 0.043 0.072 0.059 0.072 
 0.045 0.045 0.064 0.060 0.068 0.054 0.049 0.062 0.044 0.044 0.046 
w Iij =  (40)
 0.04 0.04 0.066 0.066 0.065 0.066 0.045 0.066 0.046 0.050 0.042 
 
 0.05 0.04 0.049 0.058 0.050 0.059 0.055 0.068 0.049 0.065 0.055
In the same way, according to (35)-(40), the superiority index state variable weight function and
variable weight of each index can be obtained.
Step4: Based on (37)-(39), the superior flow and inferior flow of each scheme are obtained
respectively. The partial ranking based on the superior flow and the inferior flow can
be obtained by sorting the superior and inferior flows respectively, which is shown in
Figure 2.
Figure 2: The Resulting Partial Ranking
After the above four steps, the best scheme can be identified. In order to obtain the complete
ranking of all the alternatives, the net flow can be calculated based on formula (39), and be sorted in
descending order. The results are as follows:
Firm 2→Firm 4 →Firm 1 →Firm 3
According to the above ranking, Firm alternative 2 is ranked as the best among all the candidates and
Firm alternative 2 will be figured as the industrial waste transport partner, which is followed by the
Firm alternative 4, and then by Firm alternative 1 and Firm alternative 3 cordially.
Compared with the existing methods, the DWUSIR method proposed in this paper inherits all the
characteristics of the classical SIR method, and it takes into account the influence of the short board
index on the decision process in the actual decision-making scene. According to this principle, the
decision rules are introduced to form the decision scheme selection problem under the dynamic
weight. In practice, it provides an opportunity to perfect the multi-attribute comprehensive evaluation
problem in the actual decision-making scene by compatible with more kinds of evaluation values.
The results of case study show that the new method can support multiple-criteria hazardous industrial
waste transport partner selection processes when both qualitative and quantitative information with
or without uncertainties have to be taken into account. The outcomes generated by the method
include the ranking of the candidates and indications of their strengths and weaknesses in the format
of performance distributions over different assessment grades presented by linguistics terms and/ or
a certain number.
5. Conclusions
The dynamic weight SIR method proposed in this paper provides a new idea for solving the mixed
multi-attribute decision making problem with fuzzy, uncertain and incomplete information, and pays
more attention to the selection of equilibrium scheme. To some extent, it makes up for the limitation
of the classical SIR method, and widens its application. An example shows that the method is
simple, effective and reliable. In the next stage, we will deeply analyze the conversion of various
forms of evaluation data in order to further broaden the scope of application of the SIR method.
The method is flexible and can be applied to (mixed) multiple attribute decision making problems in
other disciplines, at the same time, this method is easy to be implemented in various decision support
systems to improve the efficiency of decision-making.
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6. Acknowledgements
The authors are very grateful to the anonymous reviewers for their careful, insightful, and constructive
comments that led to an improved version of this paper. This work is partially supported by Ph.D
research startup foundation of Shandong Jiaotong University.
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Kabir, G. and Sunmi, R.S., (2015), Hazardous waste transportation firm selection using fuzzy analytic hierarchy and
PROMETHEE methods. International Jounal Shipping and Transport Logistics, 7(2), pp.115-136.
Kabir, G., (2015), Selection of hazardous industrial waste transportation firm using extended VIKOR method under
fuzzy environment. International Journal of Data Analysis Techniques and Strategies , 7(7), 40-58.
Marzouk, M. and Shinnawy, N., (eds.) (2013), Measuring sensitivity of procurement decisions using superiority and
inferiority ranking. International Journal of Information Technology &Decision Making, 12(3), 395-423.
Sun, X. and Liu,Y., (eds.) (2013), Feaure selection using dynamic weights for classification. Knowledge-Based Systems,
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information on weights. Systems Engineering and Electronics, 26 (9), 1205-1208.
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Xu, X., Z., (2001), The SIR method: a superiority and inferiority ranking method for multiple criteria decision making.
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Ma, Z, J. and Zhang, N., (eds.) (2014), A novle SIR method for multiple attributes group decision making problem under
hesitant fuzzy environment. Journal of intelligent and fuzzy systems, 26 (5), 2119-2130.
Yao, R. and Maa, G., (2012), Tendering evaluation method of hydraulic projects based on variableweight. Procedia
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Sang, H., Y., (2016), Study on The Application Demonstration and Deployment of Self-propelled Semi-submersibe
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Transportation Management.
IAMOT 2019 | 543

Evolutionary Algorithm for Cognitive Coefficient
Optimization in Human Reliability Model
M. Karthick
Safety Research Institute, Atomic Energy Regulatory,
Board, Kalpakkam, India–603102
E-mail: mkarthik@igcar.gov.in
T. Paul Robert
Department of Industrial Engineering, Anna University,
Chennai, India–600025
E-mail: prpaul@annauniv.edu
C. Senthil Kumar
Department of Industrial Engineering, Anna University,
Chennai, India–600025
E-mail: cskumar@igcar.gov.in
Abstract
The evolution and analysis of computational models of cognition in Human Reliability Analysis (HRA) is typically
ad-hoc. Human reliability is a complex subject which cannot be addressed straightforward reliability models like
those for components and systems. The study of how cognition affects the operator’s performance in complex
systems such as nuclear power plants (NPP) is a challenging task for engineers, psychologists and human factor
experts. The natural complexity and variability of ordinary human behavior creates a necessity for significant
methodological model in cognitive research. Modeling the behavior of operators in NPPs in transient condition
implies primarily the simulation of primitive cognitive process performed by the operators. Human Cognitive
Reliability (HCR) is one such cognitive model in HRA, which was developed for quantification of crew success
probability as a function of normalized time, in which three kinds of human cognitive behaviors viz. Skill-based,
Rule-Based and Knowledge-based were modeled. In this paper, the issues identified in the HCR model are
discussed in the perspective of the consideration of human cognitive errors managing complex plants. The objective
is to determine the optimal critical cognitive coefficients which would minimize the human error probability.
To deal with the objective function, a modified genetic algorithm is proposed in this paper. Orthogonal Array is
applied to calibrate the initial parameters of the HCR model into provides reliable solution. The parameters of the
algorithm are discussed in detail and the proposed heuristic is found to be very effective in yielding optimal or
near-optimal solution when compared to other popular heuristics.
Keywords: Modified Genetic Algorithm, Optimization, Human Cognitive Reliability Model, Cognitive Error, Human
Reliability Analysis
1. Introduction
Since the main control room in the Nuclear Power Stations (NPP) has now shifted from analog to
digital control system, the existing Human Reliability Model (HRA) should be upgraded. The Human
Cognitive Reliability (HCR) model is one of the well-known cognitive HRA models, in which the
parameters and cognitive coefficients for Skill-based, rule-based and knowledge based actions are
derived from the conventional control room (Zhang et al., 2007; Sun et al., 2011; Licao et al., 2011).
The optimal cognitive coefficient is to be determined in the HCR model to minimize the human
error during operations. Generally, two major ways have been used to modify the human cognitive
coefficient. The first way is by using the simulators studies and the second way is by using the
optimization algorithms. Though the cognitive coefficients can be modified easily in the first way,
the simulators have limited flexibility to manipulate plant parameters and operational situations and
it consumes huge cost and time (Wu and Yoshikawa, 1997; Sun et al., 2011). Using the second way
is to choose the optimal cognitive coefficient levels; the level can be determined easily, and the cost,
time, etc. will be decreased as well, since the cognitive coefficients in HCR model has already been
established. The parameters derived for that model are already been validated and accepted by the
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Evolutionary Algorithm for Cognitive Coefficient Optimization in Human Reliability Model
HRA community (Sharma, 2008; Licao et al., 2011). Hence, the second approach is used in this
study to determine the optimal cognitive coefficient to enhance human performance. Such problems
of minimizing human error probability through optimal cognitive coefficient choices are called the
‘‘Human Cognitive Coefficient Optimization (HCCO) problem’’. The higher demand for more
reliable and safe operation requires further study of the reliability optimization. Thus, more accurate
and efficient methods are needed in finding the optimal coefficient; otherwise, the safe operation by
an operator during the emergency situation cannot be achieved.
In order to cope with modifying HCR cognitive coefficient arising in HRA in Probabilistic Safety
Assessment (PSA) studies, important contributions have been made since 1990. Wu and Yosikawa
(1997) assessed the operator cognitive behaviors using simulator experiments and estimate the
non-response probability of operator using HCR method. Zhang et al. (2007) derived new co-efficient
Ai, Bi, Ci for Skill based, rule based and knowledge based action through the simulator experiments
in Quinson NPP. The parameters were computed by utilizing Weibull distribution and lognormal
distribution. Results revealed that the derived new data has not much significant difference with
IAEA and ORE dataset. Sun et al. (2011) analyzed the risk of inadequate flight separation based
on HCR model and also the consequences of such incidents depend on the abilities and mental
state of the pilots and air-traffic controllers. Licao et al. (2011) applied Weibull distribution to
modify the original HCR co-efficient A, B and C, for SB, KB and, RB actions through simulator
experiments in Chinese NPPs. However, most attributes have been derived from the simulators.
Simulators are more difficult to use because they have more complex systems and will have a great
deal of cost. To solve this difficulty, Heuristic algorithms (HA) are a good solution. Though the
HA was not used in HRA, was successfully applied in PSA studies in NPPs. For example, Lapa
et al. (2000) developed an efficient genetic algorithm based on Weibull distribution to find an
optimum scheduling to the preventive maintenance of a nuclear safety system to minimizing the
failure probabilities. Volkanovski and Cizelj (2014) developed a method for maintenance scheduling
optimization of safety system components of the nuclear power plant. The optimal solution was
obtained with genetic algorithm.
The major focus of recent work in the reliability studies in PSA is on the development of heuristic/
meta-heuristic algorithms to address the reliability issues in the safety utility. Genetic algorithm, the
most widely used heuristic algorithms, has attracted more recent attention in nuclear field including
the reliability problems. It has many advantages over other heuristic algorithms viz. it search parallel
from a population of points, uses probabilistic selection rules, can find fit solutions in a very less
time, support.
Multi-objective optimization, work well on mixed discrete/ continuous problem etc
(Yusup et al., 2012; Kar, 2016). Nowadays, new algorithms are evolving through modifying the
conventional algorithms, in which intrinsic parameter are modified, so as to design most efficient
algorithm. For example, the Genetic algorithm can be modified by reshaping or altering the intrinsic
parameters such as crossover, mutation, and chromosome selection operations. For example, the
crossover operator is a key factor in selecting individuals from population to create offspring. Various
modifications have been made on crossover to produce offspring in conventional GA viz. optimized
crossover operator (Nazif et al., 2010), one cut point crossover (Zhang and Gen, 2005), NOX
crossover operator (Zhong-yue et al., 2010).
In this paper, we propose a Modified Genetic Algorithm (MGA) of HCCO model for HCR.
The study is aim to achieve an optimal solution for HCCO of HCR with the following accompanying
target: To minimize the human error through optimizing the cognitive coefficient.
The rest of the paper is arranged as follows. In section 2, HCCO is formulated and the problem
is briefly explained. In section 3, the proposed approach is described. In section 4, computational
results are discussed. Finally conclusions are summarized in section 5.
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2. Description of Human Cognitive Coefficient Optimization (HCCO) Problem

The goal of the HRA in PSA is to reduce errors in human activities in nuclear operations. HCR is
a widely applied quantitative model used in HRA to estimate the non- response probability of the
operator in NPPs (Hannaman et al., 1985; Moieni, 1994) HCR follows three-parameter Weibull
distribution, in which nominal time of the operator is adjusted with three different performance
shaping factors viz. stress, human-machine interface and experience to obtain median time (Tm) to
estimated HEP for the human action (Prasad et al., 2015; Karthick et al., 2017). The mathematical
expression for HCR model is given in equation 1(Hannaman et al.1985).
HEP = exp - (1)
where,t is time for diagnosis/ action to be performed, Tmis median time for the action/ diagnosis and
t/Tm is the response time allowed for a reacting to a certain event. Ai, Bi and Ci are the coefficients
which correspond to skill-based behavior (SB), rule-based behavior (RB) and knowledge-based
(KB) behavior respectively. The coefficient for various human behaviors is shown in Table 1.
Table 1: Coefficient for Cognitive Process Type
Type of human Ai Bi Ci
Behaviour
SB 0.407 0.700 1.200
RB 0.601 0.600 0.900
KB 0.791 0.500 0.800
Cognitive Coefficient optimization in HCR Model in HRA studies is useful to assess true human
error probability and to minimize the human error (Pan et al., 2016). Typically, the three behaviors
are studied exclusively, that is, the operators are presumed to possess either SB or KB or RB
behaviour. Cognitive coefficient optimization problems are categorized into seven typical problems
according to the type’s cognitive behaviors: SB, RB, and KB, combination of SB-RB, RB-KB,
SB-KB and integration of S-R-K Based.
The operators follow one of these strategies of using their innate or acquired skill to resolve a
problem or they use the knowledge they had learnt over time to respond to an incident or they follow
the procedures and rules laid down at the advent of an untoward incident. However, an operator can
possess all three characteristics and could utilize the same simultaneously, thus, in this study; all
three possible behavior traits are taken into account. The formulation of the three-parameter Weibull
distribution model in general forms as follows:
Minimize Z = exp(- s
)+exp(- )+ exp(-
k r
) (2)
where Z is non- response probability of the operator, Ais, Bis and Cis are coefficients for Skill-based
behavior, Aik, Bik and Cik are coefficients for rule-based behavior and Air, Bir and Cir are coefficients
for knowledge-based behavior.
3. Proposed Modified Genetic Algorithm for HCCO

The proposed approach is described in this section. Firstly, a brief overview of the conventional GA
is given, and finally the proposed modified GA (MGA) process is discussed.
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3.1. Genetic Algorithm

Genetic Algorithm (GA) is a widely used method in many applications such as scheduling, vehicle
routing, network problems etc. The search technique of GA is based on principles of mimic biological
evolution concepts such as individual surviving ability, crossover of individual and mutation process
(Jothiprakash and Shanthi, 2006). A GA begins with a randomly created early population, each
of which is evaluated by a fitness function. The encoding of solutions as chromosomes which
contains genes in the form of bits of arrays or strings, genetic operators plays a role to manipulate
these strings and a solution is determined by computing fitness values (Kanagaraj et al., 2013).
The main operations that are performed in the algorithm are Crossover and Mutation. The crossover
probability Pc is usually set to a high level typically above 0.5. On the other hand, the mutation
probability Pm is generally very small (Sowmiya et al.2018). Reproduction is the process of survival
of fittest selection (Raj and Rajendran, 2016). There are several advantages of GA that make it a
robust algorithm, GA optimizes with both continuous and discrete variables, it has the ability to deal
with a large number of variables, it has the ability to provide a list of optimum solutions and not just
one and it works well with numerically generated data, experimental data or analytical functions
(Yusup et al., 2012; Kar, 2016).
3.2. Modified Genetic Algorithm

The initial motivation of developing a Modified GA is to overcome the disadvantages of
Conventional GA. One of the major disadvantages of GA is that it gets trapped in local minima
(Elhoseny et al., 2018; Kanagaraj et al., 2013). It results only in a near-optimum solution
and not a global optimum. It is also vulnerable to premature convergence. Premature
convergence is primarily due to the dependence of the results on the crossover probability
(Raghavan et al., 2018). This dominance of crossover could result in stagnation as the population
tends to become more homogeneous also, the mutation rate will be too low to encourage diversity
or to move to other search spaces (Sowmiya et al., 2018). Several researchers have used modified
GA in various applications such as vehicle routing problem (Nazif and Lee, 2010), Bezier
curve path planning problem (Elhoseny et al., 2018), Machine part cell formation problem
(Sowmiya et al., 2018). The flowchart for the modified GA is as shown in figure 1.
Figure 1: Proposed MGA Flowchart
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3.2.1. Chromosome Representation

In general, chromosomes can be generated using random search or by applying algorithms.
In this study, a new approach of Orthogonal Array (OA) is proposed to generate chromosomes.
The chromosome structure used in this paper is shown in Table 2. A set of nine genes addresses one
chromosome. A chromosome is a matrix of order j*k, in which each elements becomes its gene.
A gene in the jth row kth column indicates the coefficients Xjk to the respective human behavior.
Table 2.Chromosome Representation
Coefficie Coefficie Coefficie
Coefficie Coefficie Coefficie nt of nt of nt of Coefficie Coefficie Coefficie
nt of Skill nt of Skill nt of Skill knowled knowled knowled nt of rule nt of rule nt of rule
based based based ge based ge based ge based based based based
AS BS CS AK BK CK AR BR CR
3.2.2. Initialization and fitness function

The five levels under each of the three factors for each Skill-based behavior, Rule-based behavior
and Knowledge-based behavior have been derived from the standard values of the HCR model.
Considering these standard values for a normal distribution, the standard deviations are calculated.
The various levels represent the 3σ, 2σ, 1σ limits on either side of the mean. L27 orthogonal array
is used to generate initial population of the GA. First 10 combination which yield minimum HEP
have been taken as initial population for MGA. The initial population values are shown in Table
3. The fitness function for the initial chromosomes was computed by applying the HCR equation
shown in 2.
Table 3: Initial Population and their Fitness Function
Chromosome Ai s
Bis Cis Aik, Bik Cik Air Bir Cir Fitness value
1 0.271 0.233 0.8 0.2 0.601 0.9 0.333 1.055 1.601 4.96062E-05
2 0.271 0.233 0.8 0.6 0.801 1.8 0.166 0.527 0.8 5.03883E-05
3 0.814 0.233 2.4 0.4 0.4 1.8 0.5 1.055 1.067 0.000116095
4 0.814 1.4 1.6 0.2 0.2 1.2 0.333 0.791 0.8 0.000516017
5 0.814 0.933 1.2 0.4 0.2 1.8 0.333 0.264 1.601 0.001015325
6 0.136 1.4 2.4 1.2 1.202 1.8 1 1.582 1.601 0.001132166
7 0.136 0.933 1.6 0.8 0.801 1.2 0.666 1.055 1.067 0.00193146
8 0.543 1.4 1.2 0.2 0.801 0.6 0.666 0.527 1.601 0.002066754
9 0.136 1.4 2.4 0.6 0.801 0.9 0.333 0.264 1.067 0.003148117
10 0.543 0.467 2.4 0.6 0.2 1.2 0.166 1.055 0.533 0.004467142
3.2.3. Crossover
In the proposed MGA, the order of selection and crossover operations are swapped. The crossover
of every chromosome with every other chromosome is carried out to explore all the possibilities.
The crossover probability is not defined since every chromosome is crossed over with the remaining
chromosomes.
3.2.4. Mutation
To produce good genes that were lost by chance through poor selection of mates, mutation
probability has been assumed as 0.01. In selection process, the chromosomes are selected using
Roulette Wheel Selection.
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3.2.5. Termination Criteria

The proposed MGA gets terminated when there is no further improvement in the fitness value or
until it finds the best solution for ‘n’ number of generations. The maximum fitness value obtained for
the problem is 0.00851 after the 14th generation and remains the same for the next all generations,
hence the algorithm terminates.
3.2.6. Methodology of the Proposed Algorithm

The algorithm for the proposed MGA is explained in this section.
pop_size population size

pp Population Pool after crossover
g number of generations
pa probability of acceptance
temp temperature
Z Objective Function
C Chromosome
Z* Best Fitness Value Obtained
C* Best Chromosome
L Length of Chromosome
R Random Number Following Normal Distribution
M Mean
S Standard Deviation
r Random Number Following Uniform Distribution
t_gen Total Number of Generations
mutprob Mutation Probability (0.01)
Input pop_size, g, pa, temp, L
For ig=0, generate pop_size, initial population:
●● For bit 1 to L, generate R = N[ML,SL]
●● Compute Z
●● Determine Z* and store corresponding C*
Perform crossover for all chromosomes:
●● Make duplicates of initial population, two duplicates for first chromosome, i (P and Q)
and one duplicate for the second chromosome j (V)
●● Generate r = U[1,9], to determine crossover point
●● for i=1 : (pop_size-1) and j= 2: pop_size (i and j are the two chromosomes selected for
crossover)
●● Perform crossover by P(1, r : end) = V(1, r : end) and V(1, r : end) = Q(1, r : end)
●● One-to-one crossover yields many possibilities. Eliminate recurring values of objective
function to reduce redundancy. [~,idu]=unique (OBJECT (:, 10)), OBJECTIVE=OBJECT
(idu,:)
●● If the number of unique values obtained after crossover operation > pop_size,
PP = OBJECTIVE (randperm(length(OBJECTIVE), pop_size))
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●● Else, PP=OBJECT(randperm(length(OBJECT),pop_size))
●● Compute Z for all C in PP
Selection of chromosome using Roulette Wheel Selection:
●● for i = 1:pop_size, compute F = 1+ 1. Also compute Fn = F/ƩF for all the
●● Next step, compute the Fa = cusum (Fn). Generate random number r =U[0,1].
●● Set flag =0. For i=1:pop_size,
●● if r < Fa, that chromosome a is added to the mating pool MP(i,1:9) = PP(a,1:9) and the
value of the flag is updated as flag =1. Loop is terminated and flag is reset.
●● Else, loop is terminated, i= i++. This step is repeated till i=pop_size.
●● The final mating pool proceeding to mutation is updated, MP (1:20, 1:9).
Mutation operation:
●● Generate a random number r = U[0,1]
●● Check if r < mutprob. If yes, then proceed with mutation
●● Generate r = U [1, pop_size] to determine the chromosome to mutate
●● Determine the gene to mutate within the chromosome, generate r = U[1,L]
●● C(r,rg) = R, where R = N[M,S], rgth gene of the rth chromosome is randomly mutated
●● Else, r>0.01, proceed.
Next g:
●● If g > t_gen, terminate search and report Z* and C*
●● Else, g<=t_gen, repeat until stopping criterion is reached and update Z* and corresponding
C*
3.3. Computation Results, Analysis and Discussion

To evaluate the quality and performance of proposed MGA for HCCO, the proposed method is
applied to the human performance related event in safety critical application in NPP. The MGA
algorithm was coded in Matlab and the simulations were on the Intel(R)-32 Core(TM) 2 CPU,
E8400@3 Ghz having 2 GB of memory. Parameter optimization was carried out to determine if
all three, Population size, Mutation probability and number of generations exert influence on the
result. The analysis was carried out using Minitab; the problem was analyzed as “smaller the better’.
The best result (Chromosome) obtained using the proposed MGA is presented in Table 4 for the
HCCO problem. Conventional GA has also been implemented to compare the results obtained by
MGA and shown in Table 4.
Table 4: Best Chromosome Obtained Using Modified GA
Coefficient As Bs Cs Ar Br Cr Ak Bk Ck HEP
Proposed 0.00851
0.136 0.467 0.8 0.4 0.4 1.8 0.333 0.527 1.1269
MGA
Conventional 0.01135
0.271 0.233 0.8 0.2 0.601 1.8 0.166 0.527 1.067
GA
From the results, it can be concluded that our approach outperforms in terms of better solution on
HCCO with a less computational time. The graph for both MGA and GA is shown in Figure 2.
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Figure 2: Result Plot
The figure 2 the clearly shows that the best result is obtained at 14th generation. No improvement
is observed after the 14th generation. Though the conventional algorithm quickly converges than
proposed MGA, it yields fitness value less than that of the proposed approach.
4. Conclusion
A modified genetic algorithm has been proposed to optimize the cognitive coefficient for the Human
Cognitive Reliability (HCR) model. The existing HCR provides independent cognitive coefficient of
each of Skill based, rule based and knowledge based behavior independently. In this study, all three
human behaviors in the HCR are considered simultaneously to overcome the lack of understanding
regarding which behaviour is accessed in the case of an emergency, and the optimal value is obtained
through the proposed algorithm. The parameters of the proposed algorithm were tuned using the
Orthogonal Array. The proposed MGA improves the local search ability of the original GA approach
to solve the HCCO problem. In order to verify the optimization performance of the proposed
approach, it has been compared against with Conventional GA. Results revealed that the proposed
approach outperforms than GA. This research is one of the pioneer works that improve the existing
HCR model in HRA with considering all the three behavior altogether, for which a mathematical
model was derived and a modified heuristic algorithm was developed to solve it. For future work
extensions, the followings are recommended.
1. Presenting the HCCO model in an uncertain environment that is closer to reality.
For instance, coefficient for combined actions SB-KB, KB-RB and SB-RB can
be developed.
2. Some other meta-heuristics such as the Simulated Annealing, Ant Colony Optimization and
Particle Swarm Optimization (BAs) can also be employed to find approximate solutions.
3. Simulators can be used to verify the obtained coefficients and to establish more accurate
cognitive coefficient.
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IAMOT 2019 | 552

Ergonomic Intervention in the Postal
Addressing Workstations Centre in
Santo Cristo: Rio De Janeiro
Norma De Melo Pinto

Ergonomic Consulting Office/ Vitoria,
Espirito Santo, Brazil
E-mail normapintodemelo@gmail.com
Kazuo Hatakeyama
Enterprise Consulting Office/ Salvador, Bahia, Brazil
E-mail khatakeyama875@gmail.com
Abstract
The Regulatory Standard NR-17 sets out parameters that allow the adjustment of the working conditions to the
psychophysiological, safety and efficient performance. So that, the employer to meet the requirements of the
Regulatory Standard necessary to deploy a production system that is based on the anthropometric study of the
workers. The Machine-Man-Task System (MMTS) approach allows the voice of the worker to be included in the
design of the production system. The aim of this work is, by using the MMTS approach, assess the tasks of postal
workers in their jobs and propose suggestions to eliminate or minimize the risks of accidents, injuries and illnesses.
The diagnosis made showed that levels of illuminance, effective temperature, relative humidity, ventilation and
fire extinguishers coverage met the requirements of the regulatory standards. The noise level and workers’ comfort
according to their anthropometric measurements of both the table of Operational Performance Management System
(OPMS) and the compact monitor on Label Maker Table (LMT) did not answer the requirements of the standard.
The design of a new table of OPMS carried out and tested as well as the design and adjustment of the positioning of
the LMT compact monitor. A new layout model was run to reduce ambulation and validated by the workers as well
as labor gymnastics introduced. The results obtained contribute to show the applicability of the MMTS approach in
addition to NR 17.
Keywords: Machine-Man-Task System, Postal Workers, Anthropometric Measures, Voice of Workers,
Ergonomic Validation
1. Introduction
The Regulatory Standard NR-17-Ergonomics set by Ordinance 3214/78 of the Ministry of
Labor and Employment sets out parameters that allow the adjustment of the working conditions
to the psychophysiological, safety and efficient performance. So that, the employer to meet the
requirements of the Regulatory Standard necessary to deploy a production system that is based on
the anthropometric study of the workers. The Machine-Man-Task System (MMTS) approach allows
the voice of the worker to be included in the design of the production system, also includes the steps
of implementation and validation. This approach has been in use approximately for three decades;
however, there are very few documented studies on this issue.
1.1. Purpose
The aim of this work is, by using the MMTS approach, assess the tasks of postal workers in their
jobs and propose suggestions to eliminate or minimize the risks of accidents, injuries and illnesses
of these professionals.
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2. Methodology
The methodology utilized the systemic approach of the MMTS based on the theoretical reference
of the studies carried out by Anamaria de Moraes and Claudia Mont’Alvao that defend the stages
and the phases of the ergonomics intervention: appreciation, diagnosis, design, validation and tests.
3.1. Ergonomics Appreciation

The ergonomics appreciation is the first stage of the method and encompasses the exploratory phase
that comprehends the mapping of ergonomics problems of the enterprise. In the practice, this stage
starts with the presentation, by the Pontifical Catholic University, PUC-Rio, the multi-professional
team to the enterprise, requesting permission to apply the methodology of ergonomics intervention,
stating that the activities of the academic nature.
The formal authorization of the enterprise allows observation of workers in their activities and tasks;
local access, to the organization and the work management. Authorize observation, interviews,
questionnaires, image recording, photos (with permission of the workers) perform environmental
assessment required to the research work. Consent the access to the layout of existing machinery
and floor plant.
The ergonomics appreciation starts with recognition of problems and the presentation of the target
system ending with the ergonomics seem that is the foundation for ergonomics diagnosis.
The research analyses and makes the systematization of the MTMS producing the models of the
system that operates by means of characterization and serial position, hierarchical order, expansion,
modeling communication, the flowchart of the activities and other models of work improvements.
The research also does the identification and delimitation of ergonomics problems, organizing the
problematic of the MTMS. For this purpose, the observations of the activities performed by the
clerks recorded. It has noticed that the work starts with orders already delivered to CEE Santo Cristo
in the wired container. Understand that the time requirement of Express Delivery Service until 10
o’clock (SEDEX 10), demands an intense pace in the execution of tasks, the commitment with the
needs of the enterprise noticing the work environment relaxed among all.
With the identification and limitation of problems, prepare the table of (Severity, Urgency, Tendency)
SUT, a technique proposed in the methodology, the Ergonomic Opinion Framework that is the basis
for the activities performed in the stage of ergonomics diagnosis followed by the modeling the
communication system.
3.2. Modeling the Communication System

The modeling of communication starts with the source of information correlated by numbers.
The communication of the CEE Santo Cristo involved with the transmission of information system
shown in Figure 1.
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Ergonomic Intervention in the Postal Addressing Workstations Centre in Santo Cristo: Rio De Janeiro
Figure 1: Modeling the Communication System
Source: Authors
3.3. Hierarchical and Prioritization of the Problems-Table SUT

To prioritize the problems utilized the global analysis technique that allows approximate the situations
as a whole, hierarchy and decides from which starts. The study utilized the technique proposed by
Kepner and Tregoe named SUT according to the methodology of ergonomics intervention of Moraes
and Mont’alvao (2009) applied in this study.
The table SUT provides:
1. Subsidy for suggestions of the ergonomics appreciation;
2. Subsidy for a conclusion of the ergonomics appreciation.
Table SUT, elaborated after each of five participants of the team had analyzed the problems
and attributed individually, for each problem, the values according to the methodology adopted.
Individual tables processed estimating the averages as represented in Table 1.
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Table 1: Table SUT, Source: Authors
Class of the Problem Problem G U T Total SxUxT
1.Psychosocial Emotional unbalance due to robberies 5.00 5.00 5.00 125.00
2. Operational Intense pace to attend delivery dead lines 5.00 5.00 5.00 125.00
3. Interfacial Flexion and rotation of the column to reach orders in the 4.75 4.50 4.50 96.19
wired container.
4. Psychosocial Embarrassment in the Federal Police 4.75 4.50 4.50 96.19
5. Urbanistic Lack of vacancies 4.00 4.75 4.75 90.25
6. Architectural/ Spatial Inadequate number of elevators 3.75 4.25 4.25 75.70
7. Moving Push and pull cart with orders 4.50 4.00 4.00 72.00
8. Accident Irregularity of the floor 3.75 4.25 4.25 67.73
9. Informational Visualization of information in the label of the pouch 3.75 3.75 4.25 59.77
10. Organizational Lack of labels 3.75 3.75 4.00 56.25
11. Organizational Rework of orders in the cart 3.50 4.00 4.00 56.00
12.Informational Bad signal visualization in the monitor 3.75 3.75 3.75 52.73
13. Interfacial Flexion-extension of the column in the 3.50 3.75 4.00 52.50
14. Accidental Orders above the maximum limit in the internal transport cart 4.00 3.50 3.75 52.50
15. Interfacial Crouch to label the order 3,75 3,50 3,75 49.22
16. Interfacial Flexion of the column to use computer terminal 4.25 3.50 3.25 48.34
17. Natural Exposition to rain, wind and sun 3.50 3.25 3.50 39.81
18. Interfacial Rise of the arms above the shoulder to reach the bar to 3.75 3.25 3.25 39.61
push the cart
19. Interfacial Rise of the arms to access the recess 3.00 2.75 3.25 26.81
20. Displacement Postman walks long distance to deliver orders 3.00 2.75 3.00 24.75
(external)
21. Interactional Use of smartphone 2.75 2.75 2.75 20.80
22. Moving Move manually pallets with orders 3.00 2.50 2.75 20.63
23. Action Lack of braces in the orders 2.50 2.75 2.75 18.91
24. Displacement Internal ambulation during sorting out 2.25 2.25 2.25 11.39
(internal)
3.4. Prediction
After the analysis done in the target system and localized the queries on ergonomic problems, the
technique SUT prioritized and classified. The predictions, that portrays the cause of the problems
described herein:
Unsystematic observations pointed out the existence of six types of interfacial problems that can
generate discomfort and pains at the end of the working day:
1. The first, related with the flexion and the rotation of the column to reach the package in
the bottom of the container, the elevation and disposition at the height of the labeling
table, LOEC. Believe that such facts occur due the lack of the supporting stand in
the anthropometric height to perform the task. Suggest the application of the NIOSH
(National Institute for Occupational Safety and Health, of the USA) method of lifting
and vertical displacement of loads for maximum load flooring to lift the job, in the
sagittal plane.
Kroemer and Grandjean (2005) stated that in the too low places of work, backs overloaded by
the excess of bending of the trunk could lead to the appearance of back pains. To avoid such
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embarrassment is indispensable that the height of the work surface be in accordance with the
anthropometric measures of operators, both for the tasks performed standing, as seated.
The criteria to establish the limits of load are of biomechanics, physiologic and psychophysical
character. Regarding biomechanics character, handling a heavy load or do it incorrectly, appears
some mechanical momentums in the vertebral column–concretely in the region of the segments-L5/
S1–that cause considerable stress in the lumbar region (Masculo, 2011).
When the job involves handling and transportation of load, force requirement, inclination and
rotation of the trunk, for example, as large as the inclination of the body forward and more weight
sustained by the hands, more will be the intra-disc pressure as the effort is transferred to the vertebral
column. Imperious the adoption of comfortable posture with forces directed towards the vertical
axis, in the cases of lifting and transportation of load (Jouvencel, 1994; Iida, 2005).
2. The second problem interfacial points the flexion-extension, of the cervical spine and
head in the reading of information in the monitor and digit of the data to printing the
label. Suggest the search in the market of computer shop the furniture that contemplates
and generate physical comfort.
3. The third interfacial problem refers the squat to label the package that is near to the floor
of the light collapsible container (LCC). Check the possibility to search in the market
adjustable lifting apparatus. Suggest the training and lecture of awareness of risks of
postural accidents.
4. The fourth interfacial problem points out the flexion of the column to utilize computer
terminal. The desk of the operational performance management system, OPMS, utilized
for the job with the computer to register the exit of the orders to the clients, is short
and make the flexion of the trunk to perform the task. To expedite the exit of orders to
attend the delivery on time, they do not sit. Check the possibility of execution the table
to attend the percentile of 95% of the shortest woman and 95% of tallest man could be
the ideal solution.
Observation: One adjustable table is not the solution, as the requirement of schedule of the delivery
of the orders does not allow the table with individual adjustment.
5. The fifth interfacial problem refers to elevate the arms above the shoulders to reach the
bar to push the chart with the package of orders. Besides, the elevation of arms above the
shoulders apply the muscle strength to push the cart full of orders.
It is believed that labor gymnastics with the guidance of heating, stretching and strength of the
muscles utilized prevents lesions. Suggest checking the possibility to weld the bar similar in height
of action zone ergonomically analyzed.
6. The sixth interfacial problem refers the elevate the arms above of the shoulders to reach
the upper row of the recess, 1.60 m to 1.70 m from the floor level. In observation, the
time of permanence in the position in this task is up until 10 minutes by the morning and
the afternoon, once of a recess of letters and SEDEX. Believe that the labor gymnastics
could strengthen the musculature and prevents possible lesions.
The internal ambulation of the postman since the labeling tables carrying the orders to the district
tables, to the recess, to table of the SEDEX, SEDEX 10, as well as, internal circulation seeking out
the pouches in the wired basket, organizing and transporting the carts to the exit and delivery of
orders it’s about a big ambulation. Check the possibility of new layout making to stay more close
to the tables of the districts and the displacements with loads become smaller. Present disposition
favors some districts whereas others displace longer distances.
In a vision of Grandjean (1998), in the dynamic work the muscles alternatively they contract and
relax by pumping new flow of blood that invigorates the muscles, helping in the alternation of the
pressure and the relaxation. Thus, the dynamic work can maintain by more time than the static work.
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To Iida (2005), the occupational biomechanics analyses the body postures and the application
of forces in the achievement of works. Inappropriate places of work generate muscle tensions or
fatigue. Simple measures of orientation to work and/ or alterations in the place of work to solve or
soften the problems. In some cases requires accurate solutions.
The frame of the ergonomic opinion shows the summary of the problems found in the CEE Santo
Cristo, well as, its class, the requirements, embarrassments, human costs due to dysfunctions of the
system, preliminary suggestions for improvements and restrictions of the system.
Considering the problems and evaluation through the table SUT, have some suggestions for
improvements, upon the results of the survey.
4. Field Survey
The fieldwork carried out in the Orders Addressing Center Santo Cristo of the Brazilian Post Company
in Rio de Janeiro, Brazil. The approach used has four phases: ergonomic diagnosis, ergonomic
assessment, ergonomic design and ergonomic validation. The study conducted between August
2013 and December 2014, by a multidisciplinary team composed of the occupational physician, the
occupational safety engineer, the designer and the teacher of physical education, has involved the
participation of 40 postal workers. The diagnosis made showed that levels of illuminance, effective
temperature, relative humidity, ventilation and fire extinguishers coverage met the requirements of
the regulatory standards.
Next stage was to understand the flow of activities in the specific sector of the express mail (SEDEX).
This sector structured to flow the tasks as shown in Figure 2.
Figure 2: Characterization of the task–identification of orders
Source: Authors
All the following tasks as sort out the packages by district, separation of pouches by district, organize
the pouches by order of delivery, prepare the vehicle for delivery, delivery the packages to customers
and collect the empty pouches, follow similar flow procedures as shown in Figure 2.
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4.1. Discrimination of the tasks

Describes the activities involved (take information and action, oral and gestural communication,
spatial displacements with or without moving materials and postural assumption) and the means
utilized in the center CEE Santo Cristo.
4.2. Flowchart of Activities of the Task

Tasks performed according to designed in the flowchart indicating the sequence of operations to
follow. According to Moraes and Mont’alvao (2009) comprehend taking information, the actions,
the displacements, the communications and the decisions of the operator.
5. Findings
The noise level and workers’ comfort according to their anthropometric measurements of both the
table of OPMS and the compact monitor on LMT did not answer the requirements of the standard.
In addition, it was found that ambulation of workers was excessive. The design of a new OPMS table
carried out and tested as well as the design and adjustment of the positioning of the LMT compact
monitor. A new layout model was run to reduce ambulation and validated by the workers as well as
labor gymnastics.
6. Analysis and Discussion

The results obtained contribute to show the applicability of the MMTS approach in addition to NR
17. Consider as the practical character the result of validation as the OPMS table designed, proposed
and provided the execution by the team, obtaining the validation and approval of clerks participating
in the research.
The proposal to set the monitor ergonomically correct to work stand up in the LOEC tables, by
the design of adjustable stand and in the front side attending 97.5% of the users attended by the
availability of furniture in the local market.
The stand set in the test that the validation had the effective participation of clerks about the position
and the fixing in the corresponding height to the intersection of the visual and action field, according
to the design.
Was tapped the existing monitor of daily use, make the project accessible to implant, once the
federal administration and the country face the period of investment restraint. The purchase of touch
monitors, suggested, could make it unfeasible so relevant study.
Regarding interfacial problems involving the load lift and specific task to apply the NIOSH method,
studies performed in the diagnosis and solutions as described:
1. For the mail carrier with orders in the LMT there was the limit of weight recommended,
WLR = 9.55 kg, the value of the lifting index, LI = 1.05.
The latter figure points out to a moderate increase of risk of low back pain for weights greater than
9.55 kg. In tasks of this type can eliminate the angle of asymmetry placing the wired container or
the CDL in the same direction and continuing to the LMT, while search in the market the lifting
apparatus, eliminating the vertical lifting of the load.
With these measures, the new WLR = 15.50 kg and for the weight more than 15.50 kg to 30.0 kg
the LI will have values more than 1.0 to 0.93. Continue the increase of risk of lesion in the column
and in the ligament muscle system. The best solution will be the mechanization of the system that
requires modernization with huge investment or the increase of personnel for double work for more
heavy orders.
2. The NIOSH equation also applied for lifting the pouch from the wired container to
the cart conveyor obtained WLR= 15.50 kg and the value of the Ll = 0.60. This value
indicates that the minimum risk of lesion in the column in the ligament muscle system
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to weights up to the limit. In these working conditions, that perform this type of task do
not have problems.
The equation was recalculated eliminating the angle of symmetry of lifting obtained WLR = 18.01 kg
and for the weight more than 18.01 kg to 30.0 kg the LI will have values more than 1 to 1.66 exposing
the risk of low back pain and lesion of the ligament muscle system. As the wired container of the
pouches is a set of four containers joined together and the time of execution of the task is 15 to 20
min. by the morning and by the afternoon, suggest the work in the double for more heavy packages.
The problems pointed out are the medium to ease solution, such as to fix the defective floor, organize
the use of elevators in the rush hours of the postmen, implant the labor gymnastics that had practiced
in the past, being requested the comeback for its validation. Management of distribution and control
of coils of labels to the responsibility of supervisors, keeping centralized the purchasing process to
obtain a good deal, are solutions that can adopt immediately or within 3 to 6 months.
Solutions of problems that involve the general administration of the enterprise and other entities, as
Federal Police for burglars and robberies of goods, department of transit and prefecture to reorganize
exclusive corridors for bus transportation, ambulances, already existing in the city. Also needs to
include the post office transports and the delimitation of special vacancies to park the post office cars
during the day, require awareness, determination and the involvement of management, political will,
the responsible internal team involved to obtain solutions.
Regarding internal ambulation of users, suggest the new layout with central positioning of LMT,
validation approved by the clerks, but the solution of at high cost.
7. Conclusion
Consider the practical character the result of the validation, once the OPMS table designed, proposed
and built by the team waived successfully. Obtained the approval and validation by the operating
clerks participating in the research. The proposal to set the monitor ergonomically correct to work
standing in the LMT, designing adjustable stand, locating in the front to attend 97.5% of the users,
approved by the availability of the apparatus in the local market.
The adjustable stand placed in the test for the validation with the effective participation of clerks about
the position and the fixing in the corresponding height to the field of vision and action intersection
as designed. For the test, used the existing monitor of daily use, this becomes the project accessible
to implement, once the federal administration of the country is in the stage of scarce investments.
Meanwhile, the purchase of screen touch suggested could be inviable such relevant study.
Regarding interfacial problems involving the lifting loads and specific application of the method
NIOSH, studies performed in the diagnosis and solutions. For clerks provider of orders for the
LMT, the weight limit recommended, WLR = 9.55 kg and lifting the index, LI = 1.05. These values
indicate that the minimum the risk of lesion in the column ligament muscle system for the weights
up to the limits. In such conditions of work, clerks working with these tasks will not have problems.
The problems pointed out are the medium and easy solution as to mend the defective floor, organize
the use of elevators in the pick hours for clerks to work with more freedom, to implant the labor
gymnastics that had practiced once and requested the comeback and validated.
The management of distribution and control of the coils of labels pass to the responsibility of the
supervisors, keeping centralized the purchase to get better discounts, are solutions that can adopt
immediately or in the time span of 3 to 6 months.
Solutions of problems that involve the general administration of the enterprise also other bodies
such as Federal Police regarding assaults and burglars of loads. The department of transit and the
prefecture to reorganize exclusive corridors for buses, ambulances already existing in the city, also
including the mail transports and the limitation of special vacancies to park the mail vehicles during
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the day. Requires concern, the determination to involve the top administration, political will and
responsible internal team to get solutions.
Regarding internal ambulation new layout with the central location of the compact monitor of LMT,
validated and approved by clerks, but the solution at expenses of a high cost.
8. Acknowledgments
Thanks to the Brazilian Enterprise of Post Office and Telegraphs for opening the door to contribute
to complete the present research work.
References
ABNT (Brazilian Association Of Technical Norms). (1985). Norm 5382/1985: Verification of lighting of interiors. Rio
de Janeiro. (in Portuguese)
_____. (1992). Norm 5413/1992: Lighting of indoors. Rio de Janeiro. (in Portuguese)
_____. (1991) Norm 5461/1991: Lighting (terminology). Rio de Janeiro. (in Portuguese)
_____. NBR 10152. Levels of noise for acoustic comfort. Retrieved from
<http://www.trabalhosfeitos.com/ensaios/Abnt-Nbr-10152-N%C3%ADveis/32749267.html>. Access on Oct. 10, Nov.
17, Dec. 11, 2014. (in Portuguese)
_____. (2013) NBR ISO/CIE 8995-1: Lighting of workplaces–part 1: Interior. Retrieved from <http://www.abntcatalogo.
com.br/norma.aspx?ID=196479>. Access on Nov. 17, 2014; in Dec. 11, 2014. (in Portuguese)
Brasil. (2002) Handbook of application Regulatory Norm nº. 17. Brasilia: Ministry of the Work and Employment,
Secretary of Inspection of the Job. 2nd edition. (in Portuguese)
Corlett, N., Wilson, J. and Manecca, I. (1986). The ergonomics of working postures. London: Taylor & Francis.
Corllet, E.N. and Manecca, I. (2014). The effects and measurement of working postures. Applied Ergonomics, v.11, n.
1, pp.6-12.
Couto, H.A. (2007) Ergonomics applied to work: the basic content and practical guide. Belo Horizonte: ERGO Editora.
(in Portuguese)
Couto, H.A. (1995) Ergonomics applied to work: Technical handbook of the human machine. v.1 and v.2. Belo
Horizonte: ERGO Editora. (in Portuguese)
Cybis, W. (2010). Ergonomics and Usability. Knowledge, Methods and Applications. 2nd.ed. Sao Paulo: Novatec
Editora. (in Portuguese)
Dul, J. and Weerdmeester, B. (2004).Practical Ergonomics. 2nd. ed. Sao Paulo: Edgard Blücher. (in Portuguese)
The Brazilian Enterprise of Post Office and Telegraph (EBCT). Enterprise Report 2008. Retrieved from <http://www.
correios.com.br/sobreCorreios/empresa/publicacoes/relatoriosEmpresariais/default.cf m>. Access on Nov.
26, 2013. (in Portuguese)
Giga S.I., Hoel H. and Cooper C.L. (2003). Violence and stress at work in the postal sector. Geneva: International Labor
Organization.
Gomes Fo, J. (2003) Ergonomics of the object: the technical system of ergonomics reading. Sao Paulo: Escrituras
Editora. (in Portuguese)
Gomes, V.B. (1999). Back pain in workers in the municipality of Rio de Janeiro: the prevalence, factors associated and
occupational risks. Rio de Janeiro. Doctoral Thesis – Institute of Social Medicine, The University of the State
of the Rio de Janeiro –UERJ. (in Portuguese)
Granjean, E. (1998). Handbook of ergonomics: the adaptation of work to man. Porto Alegre: Artes Medicas.
(in Portuguese)
Iida, I. (2005). Ergonomics, Design and Production. Sao Paulo: Edgar Blücher. (in Portuguese)
INMETRO. (2003). Base unity of the international system for lighting. Retrieved from <http//:www.inmetro.org>.
Access on Apr. 21, 2014. (in Portuguese)
Jorge, M. do. C.T. (2003). The Posture of work in stand up: the study with shop workers. Florianopolis. Master’s
Dissertation. UFSC. Retrieved from <http://www.tede.ufsc.br/Teses/PEPS3751.PDF>. Access on Apr. 12,
2014. (in Portuguese)
Lidwell, W., Holden, K. and Butler, Jl. (2010). Universal principles of the design. Porto Alegre: Bookman.
McKenzie, R. (1998). Treat yourself your column. New Zealand: Spinal Publications Ltda.
Medeiros, I.M. (2001). The study, the learning d the dissemination of ergonomics concepts as the means of creation of
the ergonomics culture within the ECT, aiming to reduce the absenteeism and the incidence of occupational
diseases. Master’s Dissertation. Porto Alegre: UFRS. (in Portuguese)
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Mingrone A.C. (1985). Lighting: importance and methodology of application in the architecture. Master’s Dissertation.
Faculty of Architecture and Urbanism, USP, Sao Paulo. (in Portuguese)
Mont’alvao, C. and Damazio, V. (orgs.). (2008). Design, ergonomics and emotion. Rio de Janeiro: Manual X: FAPERJ.
(in Portuguese)
Moraes, A.M. de and Mont’alvao, C. (2009). Ergonomics Concepts and Applications. Rio de Janeiro: 2AB, (4th edition,
expanded). (in Portuguese)
Morais, R. (2010). Foundations of the design of a product. Porto Alegre: Bookman. (in Portuguese)
Quaresma, M.M.R. (2001). Application of Anthropometric data in design projects: how to design correctly ergonomics
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(in Portuguese)
Quaresma, M.M.R. (2010). Evaluation of usability of information systems available in automobiles: ergonomics
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Serrano, R.C. (1996). New equipment of anthropometric measurement. Sao Paulo: Editora Rev, FUNDACENTRO.
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WinOWAS. (1996). A computerized system for the analysis of work postures. The Tampere University of Technology.
Occupational Safety Engineering. Retrieved from <http://turva.ma.tut.fi/owas/index.html>.
IAMOT 2019 | 562

Design and Energy Conservation for
Reverberatory Aluminium Melting
Furnace for Wire Rod Manufacturing
Mahesh Kisan Borate

University of Mumbai / Datta Meghe College of Engineering, Department of Mechanical
Engineering, Airoli, Navi Mumbai, India
E-mail: maheshborate2007@rediffmail.com
Rajesh R. Jaware
University of Mumbai / Datta Meghe College of Engineering,
Department of Mechanical Engineering, Airoli, Navi Mumbai, India
E-mail: rajeshjaware@gmail.com
Abstract
Industrial Furnaces are used for Melting, Reheating, Galvanizing, Heat Treatment and many other applications in
Industry for ferrous & non-ferrous metals and their alloys on a large scale. The design use to change with invent
of digital technology, Computer integration with machinery and software development. From literature survey as
well as actual survey and practical observation of furnaces in operation, it has been found that there is scope for
developments over thumb rules applied by academics for designing and energy conservation in manufacturing of
industrial furnaces by the industry.
This study & research work focuses mainly for Reverberatory aluminium melting furnace used for manufacture of
wire rods. These wire rods are reduced to wires in conductor plant that are used for overhead power transmission
on a large scale all over the world. Hence study & development is required in the subject as a part of continuous
development. The focus is on to design as per customer requirement. A reverberatory furnace is a metallurgical or
process furnace that isolates the material being processed from contact with the fuel, but not from contact with the
combustion gases. The term reverberation is used here in a generic sense of rebounding or reflecting. The burners
are fired from side wall with location towards the top roof side. An angle is given to the flame so that flame travels
the front side wall & reflected downwards towards the charge. The mode of heat transfer is radiations through the
walls as well as Convection transfer.
Energy conservation is an important task while operating reverberatory furnace. The efficiency of the furnace is
considered 30% for design calculations globally for metal & its alloys treatment. This indicates that almost 70% of
the heat is going to waste. Hence the study is mainly focused on recovering these heat losses to improve efficiency
and cost reduction. By introducing equipment like steam turbine to generate electricity in the exhaust flue path
& Damper / motorized control in the chimney, Developed material for refractory lining, Automated combustion
system to achieve perfect ( 100% ) combustion of fuel. A solar cell is the new concept to recover heat losses and
study is going on to recover heat losses. Following check list is recommended to save heat losses.
1. Better heat transfer by radiation exposure and convection circulation.
2. Closure to stoichiometric air/fuel ratio control.
3. Better furnace pressure control to minimise leaks and non-uniformities.
4. Preheating furnace loads by using waste heat.
5. Preheating air or fuel or both if fuel has low heat value.
6. Waste heat boilers
7. Better location of zone temperature control sensors.
8. Rezoning furnaces into more small zones like independent burner control system.
9. Oxy-fuel firing.
10. Regenerative Burners
11. Automation - Safety to the personnel & quality of the product are the key factors demanding automation,
development in the existing system of any product manufacturing.
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Keywords: Reverberatory, Customized, Digital Technology, Energy Conservation, Automation
1. Introduction
Heat Treatment is the controlled heating and cooling process of a Material to achieve desired
shape & certain mechanical properties, such as hardness, strength, flexibility & the reduction
of residual stresses. Industry deals with the Heat Treatment of Metals & eventually shaping
them into finished goods with improved properties. Many heat-treating processes require the
precise control of temperature over the heating cycle. Heat-treating is extensively used in metal
production & other industry like glass, ceramics. Typically the energy used for process heating
accounts for 2% to 15% of the total production cost. Thermal efficiencies can range from 90%
for condensing boilers to under 10% for small, batch operated high temperature furnace like
heat treatment furnaces.
Many of existing Industrial furnaces are operated through manual operations, which incur huge
energy loss as well as cost. Hence to improve upon the same, it is necessary to have automation to
save the energy & running cost.
In order to save energy efficiency & optimize the loading capacity, it’s need for numerical modelling
capability to accurately simulate the heat treatment process. There are many solutions for modelling
the heat transfer & material properties for a single work piece but none of them have a furnace model
for simulating the thermal profile of the entire load. A comprehensive furnace model is crucial to
accurately simulate the temperature of the load. To obtain temperature uniformity inside the furnace
is a major task, which also necessitates the research work to be carried out. The flame should be
in free space inside the combustion chamber & hence optimum design of combustion chamber is
required. Refractory material development is an area for research.
The study & research work will be divided into two parts.
i. Study of Literature, Journal papers, Text book, Magazines & others publications through
seminars.
ii. Practical observations of furnaces on site while in operation & taking a timely feedback
from the person who is actually operating the furnace.
2.1. Text Book

(a) Title: Industrial Furnaces – sixth Edition, John Wiley & Sons Inc.
Author: W. Trinks. M. H. Mawhinney
Findings: This book covers the study on design, manufacture, installation, service, energy
conservation for different types of furnaces. The book has received an excellent assistance
from American society of metals. The first edition published by them is in 1923.
(b) Title: Manufacturing Process – Fifth edition, Pearson Publication
Author: Kalpakjian, Schmid
Findings: This book covers the advance manufacturing techniques, processes,
automation, computer integration with machinery. The content of this book is useful for
to study how the accuracy is achieved at micro and nano scale.
(c) Title: North American Combustion Handbook, North American Manufacturing Co., USA.
Author: Brown, Reed
Findings: Combustion system in industrial furnace, How combustion system is well
controlled for energy saving is explained. This book covers the technique, methodology,
steps to be followed while actual commissioning the furnace.
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Design and Energy Conservation for Reverberatory Aluminium Melting Furnace for Wire
(d) Title: Principle of Metal Casting

Author: Richard Heine, Carl loper
Findings: This book covers the processes, types of furnaces used for melting metals &
alloys.. The content of this book is useful for the people in the educational field as well
as to those who active in metal casting process.
(e) Title: Research Methodology
Author: Kothari, Garg
Findings: This book covers the technique, methodology, steps to be followed while
doing research. How Hypothesis is tested & concludes the theoretical research for
practical application.
2.2. Journal Article

International Journal of Research in Engineering & Technology – ISSN:2319-1163 /pISSN 2331-
7308 ( Nigeria – March 15 )
(a) Title: Design of 50 kg Capacity cast iron crucible furnace using locally available material.
Author: Asibeluo, Ogwor
Findings: The designed operation range is 1300˚C to 1400ºC with diesel fuel by using
easily available material which reduces the cost of installation & service.
International journal of Control, Automation & systems, Vol. 5, No. 1, pp 43-50, Feb-2007.
(b) Title: An estimation of Billet temperature during reheating furnace operation.
Author: Sang Woo Kim, Yu Jin Jang
Findings: A billet heat transfer model is proposed for an online billet temperature
operation with the help of finite element method.
IOSR Journal of Mechanical & Civil Engineering - ISSN (e) : 2278-1684
(c) Title: Numerical Analysis of combustion performance by Computational Fluid dynamics
(CFD ).
Author: V. N. Chougule, G. R. Gupta, V.S. Shelke
Findings: Industry lacks a full proof method to estimate the within a furnace. Hence
industry & market needs an accurate method of estimating the flow characteristics of
furnace operation. CFD has become a very useful tool to improve process understanding
& development.
Paper publication by University of Virginia.
(d) Title: The Data Furnace, Heating up with cloud computing.
Author: Jie Liu, Christan Belady
Findings: The problem of heat generation can be turned into advantage. Computers can
be placed directly in connection with automation of the furnace. Data can be generated
to study the performance as well as to compare the data from time to time.
2.3. Literature & Bulletin

a. Agnee Engineering
Furnace Designer, Manufacturer & seller to various industries in India as well as overseas. Serving
more than 2o years to the industry & created their own design are useful for study purpose.
b. Honeywell
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Widely accepted & trusted brand in India as well as globally. Findings - Literature / Bulletins of these
organizations provide details of their product. These are helpful for selection of their equipment,
installation & maintenance. This also provides dimensions of the product to understand the size
constraint before installation. No of series of products are given in one bulletin & designer can select
with regard to their requirement.
c. IS 15562 :2005 – IS guidelines
●● Title: Guidelines for Design & construction of fuel fired bogie hearth furnace.
●● Findings: To promote transparency & accountability, Parliament of India set out
right to information in an accurate manner to the public. The publication of bureau of
Indian Standard is of particular interest to those engaged in the pursuit of education &
knowledge in which safety standard is made available.
●● NABL Guidelines to compile their requirement for calibration
●● Author: National Accreditation Board for Testing & Calibration laboratories
●● Findings: An autonomous body under the aegis of Department of science &
Technology, Government of India. This accreditation assist the Indian Industry to
enhance the quality & reliability of Indian goods & Exports, thereby catalyses the
growth of Indian economy. WTO has identified accreditation as the first essential step
towards removing technical barriers. They have set standardization of Tolerances for
calibration of temperature inside the furnace for necessary validation, which ensures
0% rejection of the job.
d. Wesman Group Handbook / Literature
This company is more than 60 years Old & now the most trusted brand in India as well
as globally. Hence the technology provided by them is proven. Their books & literature
helps designer to design the furnace, Service providers to find solution when the furnace
is in operation & upgrading the performance of the Furnace by combustion experts. The
bulletins provided by them helps the designer to select the right equipment from the
series for particular application. All handbooks / bulletin are studied to understand the
combustion systems.
2.4. Thesis
a. Submitted to Worcester Polytechnic institute.
●● Title: Furnace Modelling
●● Author: Radhakrishnan P.
●● Findings: The objective of this work is to develop a furnace model to accurately simulate
the thermal profile of load. No. of visits are done in different manufacturing locations to
identify the specific problem in the current model.
2.5. Online Research

a. Google search
●● Findings: Modern method of finding solutions & study of all kind of research. Any
information desired on specific topic is instantly available. Widely accepted all over
the world.
3. Case StudiesL: Actual Visits & Observation of Furnaces in Operation
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Table 1: List of Case Studies for Different Furnaces at Different Locations
Furnace Company Name Location No. of visits
Continuous -Reheating Twenty First Century Wire Rods Ltd. Silvassa– DNH, UT 02
Sterlite Power Transmissions Ltd. Silvassa– DNH, UT 03
Continuous Melting Hind aluminum Inds. Pvt. Ltd. Silvassa– DNH, UT 04
Gammon India Ltd. Silvassa– DNH, UT 02
Karamtara Engineering Pvt. Ltd. Boisar, MS 04
Encorp Power Transmissions Ltd. Boisar, MS 03

Galvanizing
Lloyds Line Pipes Ltd. Murbad, MS 03
Technocrat Industries Pvt. Ltd. Murbad, MS 03
Batch ICEM Engg. Pvt. Ltd. Wada, MS 02
Wadekar Krishi Udyog Wada, MS 02
Sai Metal Treat Vasai, MS 02
Total Visits 30
Table 2: Automation – Auto Ignition / Temperature Control
Furnace Company Name Ignition Temp Control
Continuous -Reheating Twenty First Century Wire Rods Ltd. Manual Auto
Sterlite Power Transmissions Ltd. Auto Auto
Continuous Melting Hind aluminum Inds. Pvt. Ltd. Manual Auto
Gammon India Ltd. Auto Auto
Karamtara Engineering Pvt. Ltd. Auto Auto
Encorp Power Transmissions Ltd. Manual Auto

Galvanizing
Lloyds Line Pipes Ltd. Manual Auto
Technocrat Industries Pvt. Ltd. Manual Auto
Batch Icem Engg Pvt. Ltd. Auto Autol
Wadekar krishi Udyog Manual Manual
Sai Metal Treat Manual Auto
DESIGN Industrial furnace is an Insulated enclosure for heat transfer designed & manufactured for
increase in temperature of the charged material for industrial applications such as Melting of ferrous
& non-ferrous metals. Furnace consists of a fabricated MS steel structure with suitable angles,
channels at its outside with MS steel sheet as outer shell casing called cold face of the furnace. At
innermost layer of furnace refractory bricks called hot face with high alumina content are used to
form a structure.
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Figure 1: Furnace Photograph
4. Furnace Data & Design Calculations:

1. General Arrangement Drawing of the furnace or Major dimensions.
2. Combustion Chamber : To be designed ( L x W x H )
3. Type of Furnace : Aluminium Melting Reverberatory Furnace
4. Capacity : 03 Ton
5. Type of charge : MS ( Mild Steel )
6. Blower : To be Designed
7. Burners : To be Designed
8. Fuel To be used :Oil / Gas
9. Heating & Pumping Unit : To be designed
10. Any Other information : Automation Required
11. Application of Furnace : Melt Aluminum for Wire Rod Manufacturing
4.1. Design Elements of Industrial furnace

Design the Furnace which is safe, Reliable, Compact & Cost effective which also meets the exact
customer requirement.
The most Important components of design are as under.
a. Design of Combustion Chamber
b. Design of Combustion System
c. Design Of Chimney
d. Design of Wall Thickness ( Refractory Lining )
e. Design of Furnace Door ( Automated / manual operated )
Combustion system is the most important design element & is called as Heart of the Furnace.
4.2. Thermal
A general heat [energy] balance equation for a furnace may be stated as follows;
Heat Input to system = Heat utilized + Heat losses from the system.
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QF = QC + QS + QL + QE – QR [ QF = Heat generated by burning of fuel, QC = Heat utilized by the

charge, QS = Heat storage by furnace refractory & insulation materials, QL = Heat loss thru’ furnace
walls, openings, ground, QE = Heat loss thru’ exhaust gases, QR = Heat regained from the exhaust ].
4.3. Mechanical
For designing the furnace outer casing, roof & other load bearing areas, metal well, slag tap
knowledge of mechanical & structural engineering are essential.
4.4. Electrical & Instrumentation

Instrumentation is an integral part of furnace design. Modern furnaces are all equipped with PLC
system with PC & SCADA software.
4.5. Furnace Accessories

Accessories like charging system, door, metal well, slag tap hole, molten metal tapping arrangement
arrangement are integral part of furnace design.
4.6. Analysis / Solution
d.0.1. Design of combustion Chamber

*Rule of Thumb – Bath capacity : 3 to 10 times of melting rate. Higher bath to melt ratio when
holding furnace is not in use. Bath depth : 10” to 12” – Hearth area = 4’ x 6’, 20” to 24” – Hearth
area = 10’ x 14’, 24’” – Hearth area = Larger Furnace.
Melt rate – 40 lb/hr. per sq. ft. of Hearth area.
* All Rule of Thumbs in this paper are hypothetical and do not stand any guarantee for design
perfection. Furnace manufacturers are recommended to use their own experience and after hypothesis
testing while designing. However these rules of thumbs are practically proven & used since many
years.
Metal Depth calculation - Density of aluminium = 166.7 lb/cu. Ft. Considering Hearth area 6’ x 7’.
e 3000 x 2.2 = 6 x 7 x H x 166.7
H = 0.94 Feet ≈ 1 feet. Hence Combustion chamber Height = 5’ ( Rule of thumb – Should be 2 to 4
times of metal depth. Minimum combustion chamber Height to Metal depth – 3:1 ).
Final combustion chamber dimensions are – 6’ x 7’ x 5’.
d.0.1. Combustion system ( Heart of the Furnace )

Heat Input - Melt rate = 6 x 7 x 40 lb/ hr = 1680 lb/hr = 763.6 kg/hr; Heat Input = 2500 btu /lb of
melted; Hence oil firing rate = 2500 x 1680 = 4000000 btu/hr = 105 LPH. ( 1 LPH = 40000 btu )
For 02 Burner ( Diagonal firing ) capacity required = 50 LPH. Select 02 burners having oil firing
capacity of 50 lph from company std. catalogue.
There is difference between Thumb rule practically proven and theoretical formula from text book.
Hence only 30% efficiency is considered for calculations in all kind of furnaces. The Heat input can
be calculated by academics formula as below.
i. Burner capacity – Heat Load is to be calculated with the help of standard Text Book
formula – Heat Input = Mass x Specific heat of the charge x Temperature Gradient
/ ( Furnace Efficiency x Cycle Time )
Hence heat input = 3000 x 2.2 x 0.215 ( BTU / LB - ºF ) x ( 1562-82) ( ºF ) / ( 0.3 x 1 ) = 2114310
BTU / Hr. = 52.85 LPH x 2 (Factor Of Safety) = 104 LPH ≈ 100 LPH*
* 1 LPH ( Litre per Hour ) = 40000 BTU ( British Thermal Unit )
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ii. Blower Capacity - Flow = Burner Capacity ( LPH ) x 400 x 1.699 / 60 = 100 x 400
x 1.699 / 60 = 1132 x 1.2 ( FOS ) = 1359, ii Pressure = 44” of WG. ( Atomisation
+ pipe loss )
Hence Blower selected of 15HP from std. company Literature for above pressure & Volume
requirement.
iii. KW rating of Pumping Unit = LPH x Specific heat of Fuel x Raise in Temp. x FOS
KW = 100 x 0.0018 x 142 x 1.5/4.54 = 8.44 KW
iv. Air Pipe Line ( Main Header ) Control Valve – for std. Chart available, for blower
volume of 1359 cubic meter per hour, the main header pipe line of 8” selected.
Branch pipe lines are as per burner std. Port size.
v. Auto Temperature control system with the help of Air-Oil ratio regulator of ¾” size
in the Oil line & Modulating Motor of Honeywell make with air control valve of
Burner Port size is provided optionally.
vi. Automatic firing with the help of Pilot & UV flame detector is Provided as
optionally.
d.0.1. c Chimney
In this chimney diameter & Height of the chimney to be designed.
D = Л x √ LPH = 3.14 x √ 50 = 23.28” = 560 MM ( Thumb rule )
b. Height of chimney – Minimum Height of chimney is to be maintained as 15M or 03M more than
height of the tallest building within 100M circumference.
d.0.1. d Wall Thickness

Book of Design & Optimisation of Thermal systems by Taylor & Francis Group, the ratio of wall
thickness to the furnace diameter is considered as 0.067. IS 15562 : 2005 guidelines gives idea
about wall thickness to be maintained. For smaller reverberatories two layers of refractory bricks
(9”refractory bricks + 4” insulation bricks) are used. For higher melt rate more than 2.5 TPH, three
layers (9”refractory bricks + 9”refractory bricks + 4” insulation bricks) are used.
Figure 2: Design Composite Wall Thickness Calculation
Figure shows a composite wall consisting of two different material through which heat is being
transferred by conduction. Let X1, X2 = Thickness of first and second material. K1, K2 = Thermal
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conductivity of first & second material. T1, T2, T3 = Temperature at hot, junction point and cold
face of the furnace. A = Surface area of the wall. Then under steady conditions, rate of heat flow is Q
= T1 – T3 / ( Ʃ X /KA ) Cold face is normally maintained at 45˚C. Hot face is temperature required
inside the furnace. By using this equation and selecting suitable thermal conductivity material, Wall
thickness can be designed for minimising heat losses.
d.0.1. Furnace Door

Furnace door is used from the side wall of the burners firing opposite to tapping of the molten metal.
5. Energy Conservation and Saving

Energy conservation is like power generation, Eco-friendly, Fuel saving and cost reduction. The way
energy conservation is done are listed below.
i. Energy Conservation by Heat Recovery from Flue Gases
ii. Energy saving by using VFD ( Variable Frequency Drive )
5.1. Energy Saving by Heat Recovery from Flue Gases

% Available Heat = Best possible efficiency after flue loss i. e. % of gross input used to heat the load
and any losses other than flue losses. Hence % Gross Input = 100% x ( Required available heat / %
available heat )
Sankey diagram ( refer fig.3 ) assist to analyse where the heat is being wasted and how to divert
wasted heat to to optimum use. Heat recovery methods are listed below.
a. Preheating Cold Loads: Preheating cold loads with flue gases can be accomplished in
preheating chambers, in a preheat zone of a continuous furnaces, or in the first part of
the time cycle of a batch or shuttle furnace. Sterlite Power Transmission Ltd., Silvassa (
DNH-UT ) has recently commissioned a Tower furnace for aluminium melting furnace
where the charge is fed from the top and flue gases are taken away from the top via
charge. The practical fuel saving by preheating the charge is about 10% achieved.
Figure 3: Sankey Diagram After Addition of Heat Recovering Air Preheater
b. Preheating Air
By using recuperative burner or installing recuperator in the exhaust flue path, combustion air is
preheated & in turn fuel saving.
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Figure 4: Recuperator as Heat Exchanger
Table 3: Fuel Saving by Preheated Combustion Air Vs. Flue Gas Temperature
d.0.1. Steam Generation in waste Heat Boilers

Waste heat Boilers are mounted in exhaust flue path and can convert much waste heat to useful free
steam. Research work is under progress wheather this steam can be used to generate electricity by
incorporating a steam turbine.
d.0.1. Oxy-Fuel Firing

Substituting “ commercially pure oxygen ” in place of air called as oxy-fuel firing. It does save
energy by reducing the mass of hot waste gases thrown away through the flue. It save fuel, improve
heat transfer and lower NOx. For 01 volume of methane ( the principal constituent of natural gas ),
the combustion reaction with air is CH4 + 2O2 + 7.57N2 →C02 + 2H2O + 7.57N2 ( 10.56 Volume
of flue gas ), whereas with oxy-fuel firing is CH4 + O2 + →C02 + 2H2O ( only 3 volume of flue gas
= 28.4% of w/air ). As there no existence of nitrogen in the POC ( product of combustion ) helps keep
NOx formation to a minimum. Leakge of air inside the furnace needs to be avoided.
IAMOT 2019 | 572

d.0.1. ii. Energy saving by using VFD ( Variable Fan Drive ).

Blower operates at lower capacity than it’s rated due to non-customization availability of of exact
HP requirement in the market. VFD automatically saves the energy by lowering the speed of the
motor as per energy requirement. It is basically a green energy savings product that matches the
amount of work or load on a motor to the amount of energy it needs to power that amount of work.
It has variable speed controls. Below is example for energy saving.
Example 1 : If a 30 HP blower is operated at an average of 70% of its volume for 50 weeks per year
. Then how much energy is saved by using VFD.
Ans : From the fan law, Flow is proportional to RPM but power required is proportional to cubic
RPM. Here HP1 = 30 HP given. HP2 = HP1 x ( Q2/Q1 )ᶟ = 30 ( 70/100) ᶟ = 10.3 HP consumed by
VFD. Therefore HP saved = 30 – 10.3 = 19.7 HP x 0.746 = 14.7 KW. If power cost is $0.05/KWH,
then saving will be 14.7 x 24 hrs/day x 350 ( 50 weeks per year ) x $0.05 = $6174.
6. Conclusion
Complete combustion and Heat losses in Industrial furnace is an important area for research and
development. 1 kg. of carbon requires 8/3 kgs. of oxygen for complete combustion & produces 11/3
kgs. of carbon dioxide gas must for energy saving. Viscosity, Atomisation of fuel, Air/fuel ratio,
Insulation for furnace wall, Design of combustion chamber / Wall / chimney of furnace are important
factors for energy conservation, best quality product, fuel saving & in turn major cost reduction for
any industrial furnace. Efficiency of any industrial furnace is considered to be about 30% globally
for design calculations which implies that almost 70% efficiency is not being used. Hence research
focus is required on enhancing the furnace efficiency in industrial furnaces in particular. Best quality
product requires uniform heating of the charge. While making survey & practical observation of
Furnaces, The practical and proven examples of fuel saving & best quality product are listed below
as per feedback received.
1. Sterlite Power transmission Ltd., Silvassa (DNH,UT) - By preheating the cold loads
via installing a Tower furnace for aluminium melting, fuel saving about 10% achieved.
2. Apar Industries Ltd. silvassa (DNH,UT) – By Installing regenerative burner system to
preheat combustion air fuel saving about 15% is achieved.
3. ICEM Engineering Pvt. Ltd., Wada ( Maharashtra ) – Incorporating an automation
system over manual system fuel saving about 25% is practically achieved with the help
of team work. Uniform heating is calibrated by NABL. ( National Accreditation Board
for Testing Laboratories ). Necessary changes adopted and uniform heating of the job
achieved by repeated experiment during trial of the furnace and almost 0% job rejection
is achieved.
7. Acknowledgements
We wish to express our sincere thanks to all those Authors of the reference books, journal papers,
thesis, Industrial magazines, bulletins and newsletter used for study and preparation of this research
article. Also special thanks to all industry people who have shared their experience and information
during our visit to their plant for study.
Study of different books, journal papers, literatures has helped us to understand basics of furnace &
combustion system in industries theoretically while actual visit & practical observation helped us in
practical way making combination of theory as well as practical approach.
Finally last but not the least, Thanks to all our family members who considered us with their patience
while preparing this Research article.
Errors will be thankfully acknowledged and rectified.
Looking forward for suggestions and feedback as a part of continuous development.
Best Regards.
IAMOT 2019 | 573
References
Book
Industrial Furnaces by W. Trinks, M. H. Mawhinney. Vol. II, 6th edition, Wiley & Sons Inc., USA.
Manufacturing Processes by Serope kalpakjian, Steven Schmid. Fifth Edition.
North American Combustion Handbook by Brown, Reed. North American Manufacturing Co., USA.
Principle of Metal Casting by Richard Heine, Carl Loper
Research Methodology by C. R. Kothari, Gaurav Garg. New Age International Publishers., India
Journal Article
Data furnace, heating up with cloud computing by Jie Liu, Christan Belady. University of Virginia, VA22904
Design of 50 Kg. CI crucible furnace by using local materials by Asibeluo, Ogwar. International Journal of Research in
Engineering & Technology, ISSN 2319-1163.
Estimation of billet temperature during reheating furnace operation by Yu Jin Jang, Sang Woo Kim, Korea.
Increasing efficiency of cupola furnace of a small size foundry, IOSR Journal of Engineering, Vol 2, sep.2014.
International Journal of control, automation & systems, Vol. 5, no. 1, pp 43-50. Feb. 2007.
Performance analysis of Recuperator, IOSR Journal of Mechanical & Civil Engineering, Vol 2, Dec.2014.Boey, K.M.,
(1998), Social network and the subjective well-being of the elderly in Hong Kong.
Literature & Bulletin
Agnee Engineering
Combustion Tool Kit, Industrial Heating, The international journal of thermal technology, Feb. 2008.
Honeywell Group
IS 15562 ( 2205 ) – Guidelines for design & construction of fuel fired bogie hearth furnace.
NABL guidelines for calibration.
Wesman Group.
Thesis
Furnace Modelling by Radhakrishnan P., submitted to Worcester Polytechnic Institute for his partial fulfilment of
Doctor of Philosophy in June 2008.
IAMOT 2019 | 574

Aluminium Powder Sieving Unit Forprocessing
of Composite Propellant
Ziyaur Rahman
ACEM, DRDO, India
E-mail: ziyaur.amu@gmail.com
Ashutosh Sharma
ACEM, DRDO, India
E-mail: ashu1711@gmail.com
S. Das
ACEM, DRDO, India
E-mail: sushanta76@gmail.com
T.V. Jagadeeswar Rao

ACEM, DRDO, India
E-mail: tvjr66@yahoo.com
Abstract
Aluminium is virtually the universal secondary fuel for composite propellants. It constitutes upto 20% aluminium
by weight. Composite propellant consists of a small spherical aluminium particles of size of approximately 15
microns. This powder aluminium is first sieved to check for foreign inclusion before mixing in composite propellant.
Powder aluminium undergoes explosive reactions in the presence of numerous chemical substances thereby making
it hazardous operation. It also sensitive explosive mixture with oxidants. Aluminium dust is moderately flammable,
explosive by heat, flame, or chemical reactions with powerful oxidiser. Threshold limit (TLV) of aluminium is
10 mg/m3. Inhaling finely divided particles may cause pulmonary fibrosis. Long term exposure to dusts may cause
dyspnea cough and weakness. Skin and eyes contact with powder fibres can result in scratches and minor irritations.
Sieving of aluminium is a process requirement to sieve out the foreign material. This paper discusses about remotely
operated technology which successfully sieves aluminium powder in a dust free environment. This system is creditable
in safety point of view, low manpower demand along with efficient monitoring and controlling of all process in a single
window. This paper deals with equipment design and selection of various sub-assemblies for process optimization,
safety with minimum human interference and improved productivity
Keywords: Aluminium Powder, Design, Safety, Hazard Operation
1. Introduction
Composite Solid Propellant has become the main stay of Strategic as well as tactical missiles in
general. Composite propellant consists of a polymeric binder in which solid particles of oxidiser
and fuel along with other additives are added and mixed. A curator is added at the end to carry
out polymerization reaction and solidify the slurry to achieve required mechanical properties.
Aluminium powder, which consists of about 20 % by weight of composite propellant, is used as a
fuel almost universally owing to its convenient properties [2]. It increases the specific impulse and
Energy content of Composite Propellant. Aluminium powder of 6 microns to 20 microns are used
in composite propellant. Aluminium powder which is sourced from third party vendor is obtained
in bags of 50 kg. Before addition in composite propellant, the aluminium bags are opened and
sievedmanually for removal of any foreign particles and impurities. This is a tedious and time
consuming as well labour intensive process. Also during sieving huge amount of dust is generated.
Inhaling and exposure to dust is detrimental to one’s health as it results in several health problems
such as pulmonary fibrosis, dyspnea, cough, weakness, skin and eye problem. Further, the dust in
the environment is makes a sensitive explosive mixture which is dangerous with regard to safety
of operators. Hence there is a need to design and develop equipment which eliminates this manual
process of sieving
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2. Requirement
The traditional method of sieving generates huge amount of dust. Threshold Limit (TLV) for dust
is 10mg/m3.
Considering this, there is a need to design and develop a special purpose Aluminium Powder sieving
unit to eliminate manual sieving operation and which incorporates automated dust free sieving and
weighment of aluminium powder.
The method adopted to design the Aluminium Powder sieving unit is strategic planning which shows
how a plant designs can evolve systematically taking account the processing objective, external
constraints and processing interactions.
The unit shall comprise of the following
a. Bag dump station with dust extraction and collection unit
b. Feeding system
c. Sieving system
d. Weighing System
e. Aluminum Powder collection system Collection
The unit is designed to serve the two basic purposes.
1. Manual unloading of metal powder from 50 kg gunny bags to a bag dumping station
2. Accurate weighment and batching of the powder into a bin for subsequent processing.
3. Concept and Design

Aluminium powder sieving unit is conceptualised as follows. First the Aluminium bags of 50 kg
weight obtained from vendor is opened and powder is dumped in a hopper of suitable capacity.
The hopper has dust collection system which comprises of HEPA filter and ID fan to remove and
collect the generated waste. Powder from Hopper is then fed to a screw conveyor through a slide gate
valve. Powder is then fed to a vibro-screen for sieving of aluminium powder. Powder from which is
fed to a screw conveyor and then into an Aluminium powder bin which is on weigh scale. The entire
system operates in a closed environment so as to minimise dust generation and the system is optimised
to reduce the manpower and work content required. Following is the flow chart of the above process.
3.1. Process Flow

The process for aluminium powder processing unit is conceptualized and a schematic diagram and
process flow diagram is presented below.
Figure 1: Process Flow Diagram for Aluminium Powder Sieving Unit
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Aluminium Powder Sieving Unit Forprocessing of Composite Propellant
Figure 2: Schematic Diagram for Aluminium Powder Unit
3.2. Design
The equipment is designed as per standard engineering practice. As the process comes under Hazard
Division 1.3 (HD 1.3) category, utmost care is taken of safety aspect. All control valves and motors
are remotely operated through PLC and SCADA. All electric components to be used be FLP type
(Flame Proof).
Figure 3: P & ID Diagram for Aluminium Powder Sieving Unit
3.2.1. Screw Conveyor

Screw conveyors are used to feed volumetrically or to discharge a bin operating with little or no
pressure difference between the solids inlet and outlet. It is used for conveying material to relatively
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short distance (usually upto 40 m horizontally and 30 m vertically). The advantage of screw conveyor
lies in the simple design, easy maintenance, and easily enclosed to be dust or gas tight. It consists
of a screw arranged on a shaft supported on bearing, a trough with a cylindrical bottom arranged
coaxially with the screw and a drive (electric motors and reducer gear) to rotate the shaft with
screw. The material to be conveyed is fed into the trough and as the screw rotates, the material gets
propelled along the shaft in the same way as a nut would move on a threaded rod if it is prevented
from rotating together with rod. Rotation of material together with the screw is prevented by its own
weight as well as the friction on the trough wall [3].
Calculations for Screw Conveyor.
3.2.2. Assumptions
i. Ds=0.25,
ii. Capacity C=500Kg/hr = 8.33 Kg/min
iii. No of Peaks=10
iv. HBF=Hanger Bearing Factor=0.9
v. DF=Diameter Factor=106 (From Literature)
vi. E=Drive Efficiency=0.88… (From Literature)
vii. W=Bulk Density
viii. MF=Material Factor = 1.8 (From Bulk Density Materials Table)
ix. N=Conveyor Speed (RPM)
Formula for Capacity C=Π/4 [Ds2-Dp2]/*P*K*ƪ…Eqn (1)
i. Ds=Diameter of Screw [m].
ii. Dp=Diameter/ Pitch [m].
iii. P=Length of Pitch [m].
iv. K=Loading Factor
v. ρ=Density kg/m3.
vi. DF=Diameter Factor.
vii. CFH=Conveyor Capacity (Ft3/hr)
viii. Substituting in eqn 1
ix. Ds=0.078, Dp=0.0195 m
Formula for Pitch is=No of Peaks*Length of Pitch+Thickness
Pitch Length =L==10*7.8+25=103 cm=1.03 m.
Calculations for Total Horse Power Required for the Screw.
Total Horse Power = Friction Horse Power + Material Horse Power/…Eqn (2)
Where, Friction Horse Power= DF*HBF*L*N/106……Eqn(3)
Material Horse Power=CFM*W*MF*L/106. ……Eqn (4)
Calculations for Speed of Conveyor:
Capacity at 1 RPM at 30% loading=0.4 kg/min
3.2.3. Speed of Conveyor

Required Capacity (Ft3/hr)/ 1 RPM Capacity (Ft3/hr)=13.419/0.4=34 RPM.
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After Substitution FHP=0.1315 HP

MHP=0.066 kW
Total Horse Power = 0.228 kW
3.3. Bag Dumping Station

The bags shall be cut manually and batching over the bag dumping station. The dumping station
shall have integrated dust and collection units to remove any dust that may be generated during
the dumping of the bag. The material shall be collected in hopper below the bag dump station.
After that gate valve gets open and the material will fall screw conveyor, from where it will be
conveyed to vibro screen [3]
Bag dumping station with dust extraction and collection system
3.3.1. Design of Hopper
Figure 4: Design of Hopper
Assumptions: Bulk density of material=1300 kg/m3

Mass = 500 Kg
Determination of Duct Velocity= 4000 Ft/min or 4500 Ft/min (from literature) =20.32 m/sec
Hence volume required can be calculated by volume= mass/density =500/1300=0.3486 m3.
Taking Factor of Safety = 3.
Hence volume required = 1.153 m3.
Assumptions made while calculating dimensions of hopper are as follows.
i. X1=Bigger side length of the hopper (m): X2= Smaller side length (m)
ii. x1=Bigger side width of the hopper (m). : x2=Smaller side width (m)
iii. H= Height of hopper.
iv. X1=8 X2; 7 X2= H
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Volume of Hopper =V=H/3 {X12*x1-X22*x2}\(X1-X2)

Hence: 1.153=7X2\3 {511X22} \7 X2.
X2=0.189 m2.
H=1.324 m=4.96 feet.
X1=1.512.
Calculations for Angle of Repose
As Sinᴓ=a/H…. Eqn (1)
Where a=side section as shown in figure.
From the figure: X1=2a + X2.
8X2=2a + X2
a=3.5X2…..Eqn(2)
Substitute Eqn (2) in Eqn (1).
Sin ᴓ= 3.5 X2/7 X2………As H=7X2
Hence ᴓ=300.
Angle of Repose=300.
Calculations for the Equivalent Diameter
Formula: ΠD2/4=X22.
Hence D=0.213 m =8 inch.
NOTE: Equivalent Diameter is found out in order to use the data from the literature available.
3.4. Blower Design for Dust Extraction (For Diameter 8 inch)

i. Conveying Velocity For Material = 4000 ft/min=20.32 m/sec.CFM=1570=2674.4
m3/hr…(for conveying velocity 4000ft/min)
3.4.1. Static Pressure Per 100 ft of Duct

@ FPM=4500, St = 3.78
Where FPM= Feet Per Minute; St= Static Pressure
As per the calculations the height of the Hopper is 4.96 feet. Hence St for 4.96 feet= 0.187 inch. @
4500 FPM
3.4.2. Calculations of RPM of Blower

RPM @ 1200 CFM = 750 RPM [1]
Therefore, RPM @ CFM = 1570 is RPM2=981.25
3.4.3. Pressure Calculations

Pt=Pv+Ps
Pt=Total Pressure
Pv =Dynamic Pressure
Ps=Static Pressure=3.91
Formula for Pv=(Vm)2/2=1300*(20.32)2/2=206.451
Pt=Pv+Ps=206.45+3.81=210.26
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3.4.4. Power Calculation

Formula for FKW=Pt*V1/36.7*104*0.6
Where FKW=Fan Kilowatt.
V1=Inlet Velocity=20.32 m/sec=2674.44
Substitute the value of V1 in Eqn (1).
Hence
FKW=210.26*2674.44/36.7*104*0.60=2.5KW=3.42 HP
FKW=3.42 HP.
3.5. Vibratory Screen

Screening is the methods of separating particles according to size alone. During screening of solid,
the undersize particles pas through the screen openings, oversize particles do not. Industrial screens
are made from woven wire’ silk or plastic cloth, metal bars, perforated or slotted metal plates or wires
thread are wedge shaped in cross section. The most common metals used are steel and stainless steel.
In most screens the particle drops through the opening by gravity. Coarse particles drop easily through
large openings in stationary surface, but with fine particles the screen surface must be agitated in
some way such as by shaking, gyrating or vibrating it mechanically or electrically. Mechanical
vibrations are transmitted from high speed eccentric to the casing of the unit and from there to the
screens. Material being screened form a pattern of travel over the screen cloth that will give the
efficiency and the final product.
Pattern varies with wet and dry materials, their size, moisture content, and percentage of solid
present. Based on the desired material travel pattern a vibro screen with a 0 degrees lead and double
deck type vibroscreen is chosen. Screens that are rapid vibrating with small amplitude are less likely
to bind then gyrating screen.
4. Results
The equipment design and development has resulted in drastic reduction of dust generation in the
environment. The Short Term Exposure to Aluminium dust has been almost eliminated.
Also with introduction of Aluminium powder sieving unit the requirement of manpower has also
reduced. Traditional sieving required 6–8 Manpower (6 Operators and 1 Supervisor) depending upon
load and requirement. However, Aluminum powder unit requires only 2 Operator and 1 Supervisor
(for operation of PLC and SCADA)
8
6
4
Manpower
2
0
Before After
Figure 5: Reduction in Dust Exposure by Introduction of Aluminium Powder Sieving unit
IAMOT 2019 | 581

5. Conclusion
Introduction of Aluminium Powder processing unit in processing of solid rocket propellant has not
only reduced the manpower requirement but also improved safety and health of personnel involved
as human involvement in sieving has been eliminated which reduces exposure to Aluminium dust
during sieving. The equipment utilizes sophisticated remotely operated technology through PLC
and SCADA for sieving and weighment of Aluminium powder which improves quality and human
error during weighing.
6. Acknowledgement
We would like to acknowledge kind guidance and support of Shri Srinivasan Seshadri Sc G, General
Manager ACEM, without whom this paper would not have been possible.
References
Narayanan C.M. and Bhattacharyya B.C. 3rd (eds)(2009), Mechanical Operations for Chemical Engineers, New Delhi,
Khanna Publishers
Sutton George P. and Biblarz Oscar 7th (eds) (2001), Rocket Propulsion Elements
Perry H. Robert, Green Don W., 8th (eds) (2001), Perry’s Chemical Engineers Handbook, New York McGraw Hills
Budynas Richard G., Nisbett J. Keith, 9th (eds), Shigley’s Mechanical Engineering Design, New York McGraw Hills
Design Data: Data book of Engineers by PSG college
Aluminium powder Safety Data Sheet, Revision nr: 4, issue date: 09.03.2015
Davenas Alain, Solid Rocket Propulsion Technology, New York, Pergamon Press
IAMOT 2019 | 582

Aspects of Design for Chain Convenience Stores
and Logistics System Integration
with Focus on Appropriate Technology
Huaqiong Liu
University of Pretoria, Department of Engineering and
E-mail: Lhq5983442@163.com
Leon Pretorius
E-mail: leon.pretorius@up.ac.za
Dongdong Jiang
E-mail: dongdongjiang1212@163.com
Abstract
Since convenience stores are accessible everywhere around cities in China, it is common to see them as logistics
terminals in daily life, which play an important role in logistics industry. However, problems exist with the
logistics distribution of convenience stores in China: low efficiency, high cost, backward logistics infrastructure,
and low-level informatization. All these problems lead to low economic benefits for convenience stores as logistics
terminals. Through research and analysis on chain convenience stores, this paper aims to address ways to reduce
logistics cost of the convenience stores and to achieve logistics integration. It also provides based on the findings of
this paper some suggestions for the development of convenience stores in China.
Keywords: Logistics Integration, Chain Convenience Stores, Logistics
1. Background and Research Approach

China is now in a period when its economy is growing rapidly; its traditional economy is trying to
keep in line with the world economy, and new things are springing up and easily accepted (XY.
Huang et al., 2009). This Internet-based new period, featuring economic globalization, sees the
combination of personalized and high consumption. By means of the modern business operation
concept, the chain convenience stores have gradually formed a unique management mode through
continuous innovation and development, scientific analysis and planning (J. Li, 2011). Also,
based on the traditional retail industry and by constantly absorbing new ideas, they have become
indispensable in people’s lives.
By studying the mode selection and route optimization of logistics distribution of chain convenience
stores, this paper aims to reduce the operating costs of chain convenience stores, realize low-carbon
urban logistics, and introduce customer self-pick-up through e-commerce. More efforts will be paid
in this research to the antinomy of logistics cost and logistics service, to balance the demands of
logistics links and obtain sustainable development.
By expanding the business of chain convenience stores, advantages of convenience stores can
be used to improve the comprehensive strength of the sales market and generate more economic
benefits. Especially in the aspect of urban logistics, the “last-mile” distribution of convenience stores
has a unique competitive edge. Furthermore, these stores can attract more consumers with lower
promotion cost (J.Li, 2011). For franchised stores, better brand effect may be created.
IAMOT 2019 | 583

This paper focuses on the comprehensive systems thinking about the logistics integration and
countermeasure analysis of the construction of convenience stores and then proposes a scheme
of chain convenience stores and logistics system integration. This is then in essence exploratory
research based on the abovementioned concepts complemented by an appropriate literature review
as well as a case study. The logistics integration designs presented in the next sections of this paper
is also partly based on the concept known as Design Science Research (Scribante, Pretorius et al.,
2018) (Wieringa, 2010).
2. Comprehensive Thinking about the Logistics

Integration of Convenience Stores
2.1. Overview of Terminal Logistics

Convenience stores logistics is a type of terminal logistics. Generally speaking, a logistics system
is composed of warehousing, feeder logistics as well as line haul logistics from the origin, and
feeder logistics as well as terminal logistics to the destination. The terminal logistics discussed
in this paper is the “last miles” in logistics. Specifically, it refers to the logistics activity where
goods are ultimately delivered to consumers. It is one link of a supply chain that has direct contact
with consumers. (XH. Sun et al., 2006) Since terminal logistics for consumers in different places
such as workplaces, office buildings, colleges, and communities may be different, this research
just focuses on terminal logistics for consumers in communities in China. The terminal logistics
now presents the characteristics of “small batch, multi-frequency, being highly real-time, scattered
location, customers with complicated backgrounds and higher service requirements” (BB. Zheng,
2017). This is currently not efficient enough in the supply chain system. At present, the logistics
companies in China are trying to solve the problems in “last-mile” delivery with the application
of various terminal logistics models. However, due to certain defects of and based on the specific
characteristics of the existing business models, it is necessary to make an analysis about the users’
needs and actual conditions first, and then to optimize the current terminal distribution models. This
is presented as follows:
2.2. Analysis of Cooperative Partners of Terminal Logistics

Since the last-mile distribution mainly takes place in living quarters where consumers have other
living needs except their needs for logistics distribution, the stores in living quarters can be chosen
as the main cooperative partners of terminal logistics distribution.
2.3. Convenience Store Terminals and Cooperative Enterprises

Jointly Making Logistics Development Plans
For the cooperation planning of the terminal logistics, this research will focus on the infrastructure
construction, the policy direction of the terminal logistics and the development of logistics industry.
At the same time it tries to optimize the site selection of terminal logistics stores. It is anticipated that
through reasonable site selection, areas and enterprises can be connected to form a comprehensive
logistics system and an effective distribution network. Through the investigation about the target areas
and according to their traffic conditions, the distribution centre should be set up at the transportation
hub of the logistics network to fully radiate the entire distribution network. The sites of the terminal
stores in the distribution network should be selected by considering the reality of the target areas, such
as land premiums and prices to reduce fixed costs and logistics costs. Meanwhile these convenience
stores should be provided with financial support and technical support like land management, talent
management, and distribution optimization (N. Li, 2016). In the construction of the convenience
stores logistics integration system, the logistics requirements of the enterprises that cooperate with the
convenience stores should be taken into account in the logistics planning. It is necessary to optimize
the transportation routes and cover all the customers, convenience stores, distribution centres, and
cooperative enterprises, thus giving full play to the capacity of the logistics system.
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2.4. Integration of Convenience Stores with other Types of Businesses

With the advancing of science and technology, the logistics-related theories are becoming mature
and the logistics system is constantly improving. At present, China’s logistics industry is developing
rapidly. The expansion of terminal logistics is based on convenience stores and the combination
of logistics distribution with other types of businesses in communities, which is conducive to
diversifying the functions of convenience stores, thereby increasing their competitiveness and giving
full play to their distribution capacity (GZ. Li, 2005). Here the goods from different enterprises are
jointly distributed, thus reducing logistics costs and enhancing shopping experience. Manufacturers,
distributors and consumers are connected through logistics; therefore if customers are satisfied with
logistics services, they will, to some extent, more possibly feel satisfied with the manufacturers and
distributors (CH. Zheng, 2010). High-quality distribution services will enhance the competitiveness
of merchants and achieve win-win results. The integrated logistics system is shown below:
Figure 1: Structure of the Logistics System
SF Heike is taken as a case study example in this research. SF Express is one of leading logistics
companies in China. As the leader in logistics industry, SF Express continues to carry out technological
innovation. In 2014, SF Express established ‘SF Heike’, in order to start a new business model of
“Express Delivery Station + Community Convenience Stores + Offline Experience Stores”, which
breaks the traditional pattern of convenience stores: these stores not only provide customers with
daily consumer goods, but also act as express delivery stations. When a customer is shopping at
these convenience stores, he can send and pick up by the way his express items in the convenience
stores, which provide an O2O experience platform (LY. Zeng, 2010). However, after being put
into operation for some time, some deficiencies of SF Heike have been exposed. For example,
although these are physical convenience stores, customers can experience the goods only by pictures
in the stores due to their special business mode but purchase the goods by placing an order online.
Influenced by the traditional consumption mode, customers are more willing to buy goods directly
in the stores. Though ‘SF Heike’ provides customers with home delivery services, this business
model violates the basic principle of convenience stores: convenience. Although SF Express hopes
to achieve multi-business-model cooperation through offline physical stores, the results are not
satisfactory. For the reason that SF Express can provide excellent delivery services, customers prefer
to choose convenient home delivery service rather than pick up goods by themselves in the physical
stores. Therefore, how to enrich the functions of its offline stores, attract more consumers, and make
consumers choose to go to a physical store have become problems to be solved.
IAMOT 2019 | 585

The construction and design of convenience stores logistics integration system may promote the
optimization and integration of terminal distribution. By choosing suitable cooperative partners,
making reasonable logistics development plans, and integrating convenience stores with other types
of businesses, the distribution capacity may be made good use of, the logistics costs reduced, and
a more effective distribution network and an integrated logistics system take shape. Furthermore,
according to the countermeasure analysis of the construction of convenience stores logistics
integration system, a more reasonable cooperation mode is adopted to take advantage of logistics
integration, thereby improving the transportation efficiency of the last mile delivery, enriching
customer experience and improving customer satisfaction. Such an analysis is presented in the next
section as part of the integrated system design.
3. Countermeasure Analysis of the Construction of

Convenience Stores Logistics Integration System
3.1. Choosing the Right Business Partner

According to surveys, the catering service accounts for the largest proportion of the businesses
in a community. In addition, chain convenience stores, vegetables and fruits wholesale markets,
clothing stores, hairdressers, waste recycling stations and laundries are essential components in each
community. In order to realize the logistics integration of chain convenience stores, these common
business forms in communities should be selected as cooperative partners. This design concept is
shown below:
Figure 2: Cooperation Mode of Chain Convenience Stores
From the perspective of chain convenience stores, the products sold by them are mainly daily
necessities with strong timeliness, frequent replacement of goods; so large customer flow is what the
convenience stores hope for. By cooperating with the express delivery enterprises, the convenience
stores also act as express delivery stations. When customers send and pick up express items on the
way to and from work, they can browse the goods in the convenience stores by the way, so that their
consuming desire may be stimulated and sales volume may increase.
In addition, with the development of the supply chain, cold-chain logistics services need to be introduced
in community terminals. The chain convenience stores are capable of undertaking cold-chain logistics,
for the convenience stores are always equipped with refrigeration installations which can play the role of
transit and storage in the cold-chain logistics.
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3.2. Choosing the Right Cooperation Mode

The combination of chain convenience stores and other types of businesses in the communities can
increase the customer flow. At the same time, choosing cooperation mode by the two parties is of great
importance to the change of logistics distribution mode of chain convenience stores. The cooperation
modes can be generally divided into: enterprise cooperation network, supply chain management,
enterprise group, business outsourcing, virtual enterprise, and strategic alliance (Enrique Alba et
al., 2006), as shown in Table 1. The initial stage of cooperation between the two parties is the stage
of exploration when the two sides have not understood each other’s business methods and logistics
transportation requirements. So in the operation, there will be many unpredictable contradictions
and problems, and the result of cooperation is also quite unpredictable. What’s more, cooperation
is two-way. There are many convenience stores and many other businesses in the communities.
The two sides choose each other based on their own characteristics and requirements. When other
businesses in the communities choose a convenience store, the geographical location is an important
factor for the geographical location greatly affects the customer flow. Besides, what should also be
taken into consideration is the rental cost, logistics status, payment method, and so on. Choosing the
most suitable convenience store as a partner can help to reduce potential risks as much as possible.
Table 1: Cooperation Modes
Cooperation Mode Contents

Enterprise cooperation The enterprise cooperation network regards the interdependent relationships between the enterprises
network and the economic organizations as a kind of enterprise network, and various economic actors engaged
in such activities are the nodes in the network.
Supply chain Supply chain management refers to the integration and optimization of information flow, logistics
management and capital flow in the supply chain by improving the upstream and downstream supply chain
relationships to obtain competitive advantages of the enterprises.
Enterprise Group An enterprise group is a large-scale economic joint organization composed of a number of legal
entities, which have multiple ties and may be cross-industry, cross-sectoral, cross-ownership, and
transnational.
Business outsourcing In business outsourcing, the core competitive advantages of an enterprise should be determined first
and all the intelligence and resources of the enterprise are put into the businesses of competitive edge,
and then the enterprise outsources other businesses to specialized companies.
Virtual enterprise The so-called virtual enterprise means that under the condition of limited resources, in order to
obtain the greatest competitive advantage, the enterprise, centring on its own competitive products
or brands, and with several small enterprises or workshops of different scales and expertise, form an
open organization through the information network and the rapid transport system.
Strategic alliance A strategic alliance is a form of cooperation between two or more enterprises or economic
organizations through certain contracts or partial equity relationships in order to achieve a certain
strategic purpose.
3.3. Saving Transport Capacity by Working Together

Logistics integration refers to a high-level and mature stage of the development of the logistics
industry. Only when the logistics industry is highly developed, the logistics system is becoming
more and more effective and efficient, and the logistics industry becomes the leader and coordinator
of the social production chain, can all-round logistics services be provided for the whole society.
As far as the distribution process is concerned, it is in the terminal distribution that the misuse
of transport resources and capacity occurs, thus causing waste. Therefore, many people of vision
have proposed that the terminal distribution should be optimized and integrated. Adjusting capacity
has become the most critical link to make the distribution more effective. The rationalization of
transportation capacity refers to the adjustment of the distribution system and the transportation
system, so as to achieve the coordination between them, thus achieving logistics integration (David
Pisinger et al., 2005). To be specific, it is to improve the transport capacity with fewer vehicles,
lower empty-loaded rate, facilitate the efficiency of franchised vehicles, and relieve the burden of
users.
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Figure 3: Logistics Cooperation
3.4. Establishing Brand Advantages and Differentiation Advantages

The higher the degree of customer’s recognition about a convenience store brand, the higher the
degree of their recognition of other businesses in the convenience store. Therefore good brands can
lay a foundation for the logistics integration and is also related to the topic of critical success factors
in supply chain management. The convenience stores should draw on the characteristics of their
own logistics system to achieve specialization in the dominant areas and differentiate with other
companies.
3.5. Carrying Out Cross-Border Cooperation

Through cross-border cooperation, enterprises can absorb external resources, use the supply chain
as a platform, integrate other business models with the supply chain, complement each other’s
advantages, and fully utilize the capabilities of logistics, thereby reducing their own costs, breaking
the limitations of the enterprise, and discovering more profit sources (Ayed Salman et al., 2002).
3.6. Taking Advantage of the Offline Advantages of Physical Stores

The physical stores have irreplaceable advantages over online stores. Consumers can directly access
the goods in the physical stores. Enterprises that cooperate with the convenience stores can use the
convenience stores to provide customers with physical display, or on-site service guidance. And
online and offline services are combined to enhance the consumer experience.
The “last-mile delivery” directly serves the terminal customers and it is the key link that affects
the overall quality of the delivery service. Based on countermeasure analysis of the construction
of convenience stores logistics integration system, the reasonable and feasible convenience store
logistics integration design scheme is devised to effectively integrate the existing resources of the
convenience stores, draw on the strength in terms of location, human flow and logistics capacity and
other favourable conditions, and optimize the last-mile delivery network so as to the distribution
efficiency of the last-mile delivery.
4. Conclusion
As one of the retail businesses, the chain convenience stores play an important role in economic
development. The development of the logistics industry and associated integrated technology is
undoubtedly closely related to the retail industry. In fact, the quality of logistics and distribution
services is directly related to the development of chain convenience stores. Improving the quality
of logistics as well as reducing costs has become one of the key points in the development of
chain convenience stores. So far, due to the restrictions in terms of economic system, information
technology, and infrastructure, the quality of logistics and distribution services has not been improved.
Through the cooperation between multiple enterprises, the optimization of distribution routes, and
the exercise of transport capacity, this research aims to improve logistics services and technology,
to reduce the logistics costs of chain convenience stores, to enrich the customer experience, and to
explore more profit sources from different aspects.
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In the process of integrated planning, the chain convenience stores should flexibly choose the
logistics distribution mode according to the business model of the cooperative enterprise and their
own needs. After operating to a certain scale, they can consider establishing their own logistics
system and establishing specialized logistics departments to improve transportation efficiency. It is
also possible for them to purchase goods with higher value and timeliness and distribute them by their
own logistics system independently. But some goods with lower value or lower timeliness should be
outsourced to third-party logistics enterprises, which may reduce transportation costs and guarantee
the quality of the goods. Through cooperation with third-party logistics enterprises, the convenience
stores can learn from their professional management modes, find the drawbacks and shortcomings
of their own self-operated logistics, and then continuously improve their business models to reduce
logistics costs from the source, improve distribution efficiency, and reduce inventory and the amount
of capital occupied, thereby reducing the overall operating costs, increasing the competitiveness of
enterprises, and finally achieving logistics integration.
References
XY.Huang, YX.Zhang.(2009). “Research on Optimization Strategy of Logistics Management in China’s Chain
Convenience Stores.” Chinese and Foreign Entrepreneurs (6X), 124-124.
XH.Sun, FZ.Chen.(2006). “Thoughts on the convenience store logistics distribution system.”Food and Oil (6), 17-18.
BB.Zheng.(2017).”Comparative Analysis of Regional Competitiveness of China’s Convenience Stores.” Journal of
Putian University(6), 54-59.
N.Li.(2016). “Talking about the Problems and Countermeasures of Logistics Distribution of Chain Convenience Stores.”
Market Modernization(17), 31-34.
Abdul Hamid, A. B., M. S. Ab Talib and A. C. Thoo (2015). “Critical success factors of supply chain management:
A literature survey and Pareto analysis.” EuroMed Journal of Business 10(2), 234-263.
Enrique Alba, Bernabé Dorronsoro.(2006).”Computing nine new best-so-far solutions for Capacitated VRP with a
cellular Genetic Algorithm.” Information Processing Letters98(6), 225-230.
Pisinger, D., & Ropke, S. (2007). “A general heuristic for vehicle routing problems.” Computers & Operations
Research, 34(8), 2403-2435.
Salman, A., Ahmad, I., & Al-Madani, S. (2002). “Particle swarm optimization for task assignment
problem. “Microprocessors and Microsystems, 26(8), 363-371.
Scribante, N., L. Pretorius and S. J. Benade (2018). “Applying a Design Science Research methodology to the design
of a research instrument.” 14th INCOSE SA Conference 2018. Pretoria, South Africa, INCOSE SA, pp 14.
Wieringa, R. (2010). “Design science methodology: principles and practice.” Proceedings of the 32nd ACM/IEEE
International Conference on Software Engineering - Volume 2. Cape Town, South Africa, ACM, 493-494.
J.Li.(2011).”Research on the profit model of chain convenience stores.”Shandong University.
GZ.Li.(2005). “Research on Logistics Process Optimization and Implementation Method in Logistics Integration.”
Wuhan University of Technology.
CH.Zheng.(2010). “The implementation of SME logistics integration and its performance evaluation.” Shan Dong
University.
LY.Zeng.(2008). “Research on Logistics Integration Development Planning of Changsha, Zhuzhou and Xiangtan City
Group.” Changsha University of Science and Technology.
IAMOT 2019 | 589

Industry 4.0 Architecture and Outbound Logistics
Operations in Petroleum Companies:
A Systematic Literature Review
Pavitra Dhamija
University of Johannesburg, Faculty of Engineering and
The Built Environment, South Africa
E-mail: dhamijaresearch@gmail.com
Arnesh Telukdarie
E-mail: arnesht@uj.ac.za
Abstract
The term Industry 4.0 or the Fourth Industrial revolution originated in 2011 at the Hannover Fair, Germany. This
concept has received enormous attention and importance among practitioners, academics, and government officials
across the world. The attributable reason for the existence of this concept is technological advancements via
information and communication technologies, internet of things, and cyber physical systems. The purpose of this
study is to explore the association between Industry 4.0 architecture and outbound logistics operations in petroleum
companies. Petroleum logistics, as a resource, in South Africa is complex in nature requiring intense infrastructure.
The review of extant literature is conducted to understand the link between Industry 4.0 and business logistics
process optimization. The study concludes with key take away for managers and future research directions. This
study revolves around the concept of Industry 4.0 architecture and outbound logistics operations with reference
to petroleum companies. The method of systematic literature review has been adopted to analyse the existing
body of global research. The research also highlights the opportunities for future research. The key objective is
to assess the importance of industry 4.0 architecture and its impact on outbound logistics operations. The results
unveil the different aspects relate to the link between Industry 4.0 and business logistics process optimization.
This study proposes the definition of the entire business process, together with the industry 4.0 assumption of total
digitalisation. It has also served various implications for managers and industry at large. The findings confirm the
strategic involvement of Industry 4.0 in the petroleum industry of South Africa. All of this and the related aspects
have been discussed in the forthcoming sections of the paper.
Keywords: Outbound Logistics, Industry 4.0 Architecture, Petroleum Logistics, Optimization, Automation, Smart
Logistics
1. Introduction
Growing global competition has created possible opportunities for the logistics organization
to develop and enhance the scope for logistics. The enablement of personalised distribution and
warehousing has also delivered great benefits to the suppliers and manufacturers. The theme of the
current paper revolves around the aspect of outbound logistics in petroleum companies.
The most important sources of non-vegetable petroleum products are crude-oil wells in production
areas and natural gas fields and coal mines. Leonard (1982) shared three basic types of petroleum
pipeline transport systems (1) Gathering pipeline systems (2) Crude-oil trunk pipeline systems, and
(3) Refined-products pipeline systems. The different logistics management activities involved in
the flow of goods and information between place of origin and place of consumption (Ballou, 2004;
Bowersox et al., 2007) include demand forecasting, facility site selection, procurement, materials-
handling, packaging, warehouse management, inventory management, order processing, logistics
communications, transport, and reverse logistics.
The revenue generated from petroleum industry act as a major source of contribution towards
the interest of the economy as a large. Similarly, the situation in South Africa in not different. To
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Industry 4.0 Architecture and Outbound Logistics Operations in Petroleum Companies
receive maximum income, it is highly important for the organization to provide customised logistics
operations to the end users at reasonable prices, which is in turn possible, only by adopting the
latest technology in terms of digitization. To understand the relation between the latest technology
(Industry 4.0) and outbound logistics operations with respect to petroleum companies, it is highly
essential to explore the current stage of this association, the present research that has been already
conducted in this specific area. It has been rightly said that the current research related to particular
area explains its penetration into the system. In a similar vein, the consulted literature confirms that
this area is unexplored and has a lot of scope for future researchers. This study has explored the
potential of the selected topic with the systematic literature review.
2. Review of Literature
The broad range of petroleum industry products and further its deliverables have actually raised
both challenges and opportunities for the petroleum organizations. Requirement of petroleum
organizations and its products are needed by each and every country placed in the category of
developed or under-developed or emerging (Moller, 2008). The outbound logistics challenges
faced by the petroleum companies to make the products available to the end user is creating a lot
of hurdle in the development of this industry. The supply chain management of each and every
organization has to be strong for the timely availability of the products to its end user (Grant et al.,
2006). Petroleum as a product cannot be used again or it cannot be recycled for the second time. Due
to this reason it becomes more necessary to save this source of energy. The paper has put some light
on the existing state of research and ensures that very less work has been carried out in this subject.
Hence, in the best of the economic development of the country, it is important to investigate the
existing extent of conducted research which can play an important role and contribute towards the
betterment of national interest.
This section provides a series of steps to be followed for a systematic literature review and further
analysis. The need of this study has arisen because of the involvement of information systems in
logistics process adopted by the companies who want to create a niche segment for themselves.
The contribution of digitization (Industry 4.0) towards logistics has introduced a term logistics
4.0, which conveys the transformation of major manual logistics oriented activities into digitized
logistics format. It will serve as basis of future studies in this area (Kagermann, 2015). The major
reason for advantages to relate digitization with logistics is to meet out the goal of reliability in
operations. The other benefits but not limited to include better planning, transparency, better air
quality and sustainability, effective architectural designs, reduced risk, and personalised products for
customers (Hofmann and Rüsch, 2017). Moreover, it provides more flexibility to respond to demand
of the market and customers. The digitization of logistics also extends better management practices
by minimising complexities in the activities.
3.1. Database Selection

The database selection for the present study has been carried out by using Scopus database. The
selected database is widely accepted due to its extensive collection of peer-reviewed papers from
covering different subject areas not limited to science, business, accounting, and management, and
medicine. The publication houses for the same includes but not limited to Elsevier, Emerald, Taylor
and Francis, and Wiley.
3.2. Keyword Selection

The selection of keywords for the present study has been done very carefully. The selected keywords
are chosen while keeping in mind various factors and the associations between different aspects. To
the best of researchers’ knowledge and understanding, the following keywords but not limited to
IAMOT 2019 | 591

cover outbound logistics, outbound logistics operations, logistics optimization, petroleum logistics,
smart logistics, and petroleum logistics automation.
3.3. Article Search, Collection, Filtration

The initial search consists of articles from the last 10 years of time (2009-2018). A total number of
23 articles have been received with the selected keywords. In the next step, with the implementation
of filters (Journal papers (articles and articles in press); Language: English; Subject: Business,
Management and Accounting, Engineering), a total sum of 10 articles have been received by the
researcher. The process of structured literature review has been demonstrated below (see Figure 1).
Figure 1: The Process of Structure Literature Review
4. Descriptive Statistics of Articles

The descriptive statistics related to the publications of the articles based on various parameters
includes information year-wise, country-wise, author-wise, subject-wise, affiliation-wise, and
keyword-wise.
Table 1: Descriptive Statistics: Year-Wise: Industry 4.0 Architecture and Outbound Logistics
Year Number of Publications
2018 4
2017 5
2016 1
Source: Scopus Database; 2009 to 2018 (04 Nov)

th
Figure 2: Yearly Distribution Trend of Published Articles
4.1. Year-Wise Publications

The number of articles published in the past 10 years have been shared above (see Table 1 and Figure
2). It is evident that the topic came into picture in 2016 with only one publication, followed by 2017
(5) and 2018 (4).
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4.2. Country-Wise Publications

The top 10 countries which contributed towards this field have been mentioned in table (2) and
figure (3) below. The statistics confirm a uniform contribution by top 10 countries.
Table 2: Descriptive Statistics: Country-Wise: Industry 4.0 Architecture and Outbound Logistics
Country Number of Publications
United Kingdom 1
Brazil 1
Estonia 1
Germany 1
Norway 1
Serbia 1
Slovakia 1
Sri Lanka 1
Taiwan 1
Turkey 1
th
Figure 3: Country-Wise Publication of Articles
4.3. Author-Wise Publications

The author-wise publication with respect to selected area of research has been shared below (see
Table 3 and Figure 4). The list of top 10 authors who have been producing articles towards Industry
4.0 and outbound logistics.
Table 3: Descriptive Statistics: Author-Wise: Industry 4.0 Architecture and Outbound Logistics
Author Number of Publications
Prause. G. 2
Alveranga, J.C. 1
Araujo, A. F. 1
Atari, S. 1
Barreto, R.C.C. 1
Baum, J. 1
Bin Abd Rahman, R. 1
Buyukozkan, G. 1
Chandra, C. 1
Choy, K.L. 1
th
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Figure 4: Author-Wise Publication of Articles
4.4. Subject-Wise Publications

The subject-wise publication of articles has been summarised below (see Table 4 and Figure 5). The
maximum number of documents have been published in the subject area of engineering, computer
science, and business, management, and accounting.
Table 4: Descriptive Statistics: Subject-Wise: Industry 4.0 Architecture and Outbound Logistics
Country Publications (%)
Engineering 26.5
Computer Science 14.3
Business, Management, and Accounting 12.2
Social Sciences 10.2
Decision Sciences 8.2
Environmental Sciences 8.2
Economics and Econometrics 6.1
Energy 6.1
Chemical Engineering 4.1
Mathematics 2.0
Other 2.0
Source: Scopus Database; 2009 to 2018 (04th Nov)
Figure 5: Subject-Wise Publication of Articles
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5. Affiliation-Wise Publications
The affiliation statistics shared below explains the contribution by different universities (see Table 5
and Figure 6). The University of Zilina and Tallinn University of Technology topped the list.
Table 5: Descriptive Statistics: Affiliation-Wise: Industry 4.0 Architecture and Outbound Logistics
University Publications (%)
University of Zilina 2
Tallinn University of Technology 2
Wismar University 1
National Applied Research Technology 1
Manaus Instituto De Tecnologia 1
Shenzhen University 1
Universidade Federal Fluminense 1
The Royal Institute of Technology KTH 1
University Auckland 1
University of Michigan-Dearborn 1
Figure 6: Affiliation-Wise Publication of Articles
5.1. Keyword-Wise Publications

The top keywords used by the authors for Industry 4.0 architecture and outbound logistics (see Table
6 and Figure 7). This shows the current areas of interest for future researchers also.
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Table 6: Descriptive Statistics: Keyword-Wise: Industry 4.0 Architecture and Outbound Logistics
University Citations
Industry 4.0 6
Internet of Things (IoT) 5
Supply Chains 5
Sustainability 4
Adoption of Innovations 4
Air Quality 4
Analytical Methods 3
Antennas 3
Architectural Design 2
Digital Supply Chains 1
Figure 7: Keyword-Wise Publication of Articles
6. Discussion and Contribution

The present study has genuinely highlighted an unexplored area of research. The combination of
Industry 4.0 architecture with outbound logistics operations in petroleum organizations has not been
identified. The aforementioned results in the form of descriptive statistics elaborates the presence
of this topic on parameters not limited to yearly publication, the most cited keywords, affiliated
universities, country wise contribution, subject wise articles, and the most contributing authors. This
paper presents a new direction for the future researchers. It paves the way for future researchers to
investigate this topic on a larger scale and statistical tool simulation to develop a model can be used
which will give meaning insights for the managers and policy makers.
6.1. Limitation of the Study

The selected keywords are based on the discretion of the researcher. If applied, a statistical tool can
provide meaningful results.
7. Conclusion
This paper ensures a lot of scope to explore Industry 4.0 architecture combined with outbound
logistics especially in petroleum organizations. No doubt, it is one of the burning areas in research,
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but yet to be effectively captured by the researchers’ and academicians. The shared concept shall
be captured in phases by applying a step-wise process. This paper provides a systematic analysis,
followed by developing a logistics model that will predict the involvement of digitization in the
process of logistics and its practical application.
References
Leonard, V. K. (1982). Petroleum pipelines. In Homburger, W.S. (ed.). Transportation and traffic engineering handbook
(2nd edition). Institute of Transportation Engineers, Englewood Cliffs: Prentice Hall, pp. 101-13.
Ballou, R. H. (2004). Business logistics/supply chain management (5th edition). Upper Saddle River: Pearson Prentice
Hall.
Bowersox, D. J., Closs, D. J. & Cooper, M. B. (2007). Supply chain logistics management (2nd edition). New York:
McGraw-Hill.
Grant, D. B., Lambert, D. M., Stock, J. R. & Ellram, L. M. (2006). The fundamentals of logistics management (European
edition). Berkshire: McGraw-Hill.
Hofmann, E., & Rüsch, M. (2017). Industry 4.0 and the current status as well as future prospects on logistics. Computers
in Industry, 89, 23-34.
Kagermann, H. (2015). Change through digitization—Value creation in the age of Industry 4.0. In Management of
permanent change (pp. 23-45). Springer Gabler, Wiesbaden.
Moller, C. (2008). Chief executive: Transnet pipelines. Private communication on 7 October 2008.
IAMOT 2019 | 597

PART IV
STRATEGY
Identifying and Prioritizing Affecting Factors on
Satisfaction of NTBF’s in Collaborating with
National Financial Funds from Perspective of
Policy Makers and Executives in Iran
Reza Naghizadeh
National Research Institute
for Science Policy (NRISP), Iran
E-mail: naghizadeh@nrisp.ac.ir
Mahdi Hajari
University of Tehran /
Faculty of Management, Iran.
E-mail: mhajari.67@ut.ac.ir
Sajedeh Basavand
Allameh Tabataba’i University, Iran
E-mail: sajedeh.basavand@gmail.com
Abstract
This paper identify and prioritize the affecting factors on satisfaction of NTBF’s in collaborating with national
financial funds from perspective of policy makers and executives in Iran. The research methodology is
quantitative method based on explanatory factor analysis. First, the preliminary affecting factors such as quality,
adaptability and diversity of service proportionate to NTBFs need, proper employee interaction, suitable
communication platform, flexibility in monitoring, demand classification in terms of importance and
required speed were identified based on literature review and interviews with experts. Thereafter, based
on explanatory factor analysis method, the preliminary factors are classified in 6 aspects. The results presents the
affecting factors and priorities for increasing satisfaction of NTBF’s in collaborating with national financial funds.
The integrated system and transparency category is the most important category.
Keywords: NTBF, Collaboration with Financial Funds, Financial Funds
1. Introduction
Developing the knowledge based economy concept and accepting the principle that, today, the
production and use of knowledge are the main source of wealth creation and economic growth have
encouraged the policy makers in different countries to develop policies, strategies and frameworks
in order to achieve knowledge base economy.
NTBFs are one of the most important factors in knowledge based economy and therefore,
strengthening this firms is one of the most important policies and strategies in transition to
knowledge based economy. Appropriate financing for NTBFs, based on their development stage
and their requirements, is one of the most important challenges in establishing and continuing the
activities of NTBFs (Ghazinoori, Bamdad Soofi, & Radaei, 2017). Therefore, funding NTBFs in a
way that provides appropriate financial resources, in a right time and in an appropriate situation for
this firms, is crucial. In addition, because of the differences in NTBFs activities compared to other
firms, solving their financial issues need institutions that synchronize the financial resources based
on the special nature of NTBFs (Aboojafari, Elahi , & Paigham, 2013). These institutions must
choose the best financing mechanism for NTBFs based on their needs and their life-cycle. Therefore
in some countries like Iran, in order to provide special financing for NTBFs, national financial
institutions were established.
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Identifying and Prioritizing Affecting Factors on Satisfaction of NTBF’s in Collaborating
Then the NTBFs collaborations with national financial funds and their satisfaction in this
collaborations become important. This satisfaction and the affecting factors on that, can be studied
from two perspective. One is from NTBFs perspective and another is from executives of national
financial funds as well as related policymakers. This research is designed with the aim of identifying
the affecting factors on satisfaction of NTBF’s in collaborating with national financial funds from
perspective of policy makers and executives in Iran.
By the Iranian knowledge based firms and commercialization of innovation and invention support
law, in this research NTBFs means “a private or cooperative firm or institution which is established
in order to synergizing science and wealth, the development of knowledge based economy, the
achievement of scientific and economic objective (including the expansion and application of
invention and innovation) and commercialization of R&D results (including the design and
production of goods and services) in the field of high technology and high value added technology
especially in the production of related software” (knowledge based firms and commercialization of
innovation and invention support law, 2010).
The article is organized as follow. Section 2 gives a brief overview of the existing literature about
NTBFs financing. The details of the methodology are discussed in section 3. In section 4 we present
the result. Conclusions are discussed in section 5.
Financing means providing capital for businesses, consumers and investors in order to achieve
their goals. In fact, investment, profitability, reduce risk and meet the economic and social need are
financing goals (Azizi & Malayjerdi, 2017).
NTBFs transform new ideas to new products and services and present them to the market, because
of this firms have an important role as an engine of knowledge based economy. On the other
hand, this firms, as the main source of innovation, have challenges in financing and acquire their
required financial resources (Alizadeh, Sirkesian, & Ghazinoori, 2009). Appropriate financing can
be mentioned as an important issue for the survival and growth of this firms (Ghazinoori, Bamdad
Soofi, & Radaei, 2017).
NTBFs have different characteristics in terms of risks and efficiency, in the different stage of their
life cycle. Therefore, the financing of these firms is different in each stage of their life cycle. The
appropriate financing method for each stage is shown in figure 1.
Figure 1: The Appropriate Financing Method for Each Stage of NTBFs Life Cycle (Lasrado & Lugmayr, 2013)
IAMOT 2019 | 601

In addition, traditional financial institutions such as banks are not interested in financing NTBFs
because of the innovative nature, the short life cycle of technology, the need for new markets, the
non-linear and complex work processes and uncertain future of NTBFs. Therefore in some countries,
like Iran, government establish national financial funds in order to provide financial assistance,
facilities and investments for these firms (Gol Alizadeh, Tabatabaeiyan, & Zaeferanian, 2009).
The researches in this area studied the extent and the factors affecting the satisfaction of different
firms in collaborating with financial institutions. In fact, studying the affecting factors on satisfaction
of NTBF’s in collaborating with national financial funds from perspective of policy makers and
executives is neglected.
Table 1, which is summarized the literature review, show the affecting factors on NTBFs satisfaction
in collaborating with financial funds.
Table 1: Show the Affecting Factors on NTBFs Satisfaction in Collaborating with Financial Funds
Affecting Factor Reference

Quality, Adaptability And Diversity Of Service ( Sabir, Ghafoor, Akhtar, Hafeez, & Rehman, 2014),
1
Proportionate To NTBFs Need (Skordoulis & Pekka-Economou, 2015), (Maswadeh, 2015)
2 Proposed Projects Reviewing And Monitoring Time (Mokhtari, 2009), (Bazaei & Rezaeian, 2014)
Demand Classification In Terms Of Importance (Bazaei & Rezaeian, 2014) , (Skordoulis &
3
and Required Speed Pekka-Economou, 2015),
(Ravanband, 2005), (Gol Alizadeh, Tabatabaeiyan, &
4 Proper Employee Interaction
Zaeferanian, 2009)
5 Appropriate Mental Image (Ravanband, 2005), (Ahmadi & Pourashraf, 2007)
6 Suitable Communication Platform (Mokhtari, 2009), (Bazaei & Rezaeian, 2014)
Management Advice That Will Lead To Project
7 (Bazaei & Rezaeian, 2014), (Ravanband, 2005),
Success
(Bazaei & Rezaeian, 2014), (Ravanband, 2005),
8 Complaints Management
(Ahmadi & Pourashraf, 2007)
The research methodology is quantitative method based on explanatory factor analysis. This research
is designed in three steps. First, based on literature review and library studies, the affecting factors on
satisfaction of NTBF’s in collaborating with national financial funds from perspective of policy makers
and executives in Iran are identified. Next, 7 interviews were done to confirm the identified factors
from perspective of policy makers and executives in Iran. The interviews are semi- structured and
gradually, based on the responses and coding the responses 10 factors were added to identified factors.
In the last step, in order to classify and prioritize the identified affecting factors, a questionnaire
with seven-point scale and 18 questions were designed. 37 questionnaires were received from funds
managers and experts and also analyzed based on explanatory factor analysis. After designing the
questionnaire, Content Validity Method was used to test the questionnaire validity and
Cronbach’s Alpha was used to estimate the reliability of the questionnaire. Alpha coefficient was
calculated for each of the variables separately all of which were greater than 0.7 (0.799).
Therefore, the questionnaire was considered reliable.
Also, to determine the suitability of gathering data for using the explanatory factor analysis, Kaiser-
Meyer-Olkin test is used. The KMO value is 0.534 for gathered data and sig value is 0. Because
the KMO is between 50 to 69 percent and sig value is less than 5 percent, the gathered data in the
third step of this research have the required correlation for using explanatory factor analysis and are
appropriate for this analysis.
The target population of the research includes all the national financial funds experts and managers
as well as financial funds experts and policy makers in Iran.
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This research steps are shown in figure 2.
Figure 2: The Steps of this Research
4. Results
The preliminary affecting factors on NTBFs satisfaction in collaborating with funds are shown in
table 1. In order to valid these factors from perspective of policy makers and executives in Iran 7
interviews were done. After coding and analysing the responses the affecting factors on satisfaction
of NTBF’s in collaborating with national financial funds from perspective of policy makers and
executives in Iran are increased to 18. Table 2 show these factors.
Table 2: the Affecting Factors on Satisfaction of NTBF’s in Collaborating with National Financial Funds from
Perspective of Policy Makers and Executives in Iran
Affecting Factor Source Abbreviation
1 Rational Expectations from National financial funds Interview with Experts VAR00001
2 Professional Performance of Related Institutions Interview with Experts VAR00002

Awareness and Transparency of the Terms of Obtaining the
3 Interview with Experts VAR00003
services and financial resources
4 Easy Entrance or Submitting Primary Documents to the Fund Interview with Experts VAR00004
Quality, Adaptability and Diversity of Service Proportionate
5 Literature Review VAR00005
to NTBFS Needs
6 Proposed Projects Reviewing and Monitoring Time Literature Review VAR00006
Transparency in the Implementation Stages and Lack of dual
7 Interview with Experts VAR00007
behaviour
8 Lack of Similar Document Requests Interview with Experts VAR00008
Demand Classification in terms of Importance and
9 Literature Review VAR00009
Required Speed
10 Proper Employee Interaction Literature Review VAR00010
11 Appropriate Mental Image Literature Review VAR00011
12 Suitable Communication Platform Literature Review VAR00012
13 Transparency of The Collateral System Interview with Experts VAR00013
14 Flexibility In Monitoring Interview with Experts VAR00014
15 Deferred Payments Management Interview with Experts VAR00015
16 The Achievements of The NTBFs Show Interview with Experts VAR00016
17 Management advice That Will Lead To Project Success Literature Review VAR00017
18 Complaints Management Literature Review VAR00018
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After identification of the affecting factors on satisfaction of NTBF’s in collaborating with national
financial funds from perspective of policy makers and executives in Iran, the identified factors were
categorized and prioritized with explanatory factor analysis. For that, 37 received questionnaire were
analyzed. Table 3 shows the rotated matrix of identified factors.
Table 3: The Rotated Matrix of Identified Factors
Component
1 2 3 4 5 6
VAR00001 -.276 -.078 .201 .816 .002 -.070
VAR00002 -.032 -.136 .708 .284 .078 .026
VAR00003 -.177 .293 -.043 -.186 .727 .403
VAR00004 .340 .645 .259 -.329 -.023 .245
VAR00005 .126 -.106 .077 .333 .806 -.224
VAR00006 .160 .191 .382 -.110 .685 -.040
VAR00007 .624 .013 .502 -.121 .173 .096
VAR00008 .122 .817 -.081 .126 .226 -.203
VAR00009 .104 .464 .588 .142 .396 .059
VAR00010 .230 .078 .039 -.004 -.042 .909
VAR00011 .204 .024 .812 .083 .049 -.032
VAR00012 -.006 .887 -.007 .039 -.022 .091
VAR00013 .489 .409 .121 -.167 .121 .041
VAR00014 .795 .164 .189 .021 .054 .101
VAR00015 .773 -.049 .027 -.193 -.055 .261
VAR00016 .817 .208 -.082 .347 .031 -.095
VAR00017 .199 .668 -.089 .197 .110 .446
VAR00018 .200 .223 .189 .854 .051 .083
Extraction Method: Principal Component Analysis.

Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 7 iterations.
Based on table 3, the 18 affecting factors were categorized in 6 categories: 1. Integrated system
and transparency, 2. Entrance interactions, 3. Mental Structure, 4. Management of Expectations,
5. Compatibility of Facilities(services and financial supports) and 6. Proper employee interaction.
Then the weight of each category is calculated and based on that, the priority of each category is
determined. Table 6 shows this results.
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Table 4: The Results of Explanatory Factor Analysis
Factor Category Category Weight Priority Factor Factor Loading

Transparency In The Implementation
0.624
Stages and Lack of Dual Behaviour
Transparency of the Collateral System 0.489
Integrated System and
22.22 % 1
Transparency Flexibility in Monitoring 0.795
Deferred Payments Management 0.773
The Achievements of the NTBFs Show 0.817
Easy Entrance or Submitting Primary
0.645
Documents to The Fund
Lack of Similar Documents Requests 0.817
Entrance interactions 22.20 % 2
Suitable Communication Platform 0.887
Management Advice that will Lead to
0.668
Project Success
Professional Performance of Related
0.708
Institutions
Mental Structure 15.7 % 3 Demand Classification in terms of
0.588
Importance And Required Speed
Appropriate Mental Image 0.812
Rational Expectations From National
Management of 0.816
15 % 4 Financial Funds
Expectations
Complaints Management 0.854
Awareness and Transparency of the
0.727
Terms of Obtaining The Facility
Compatibility of Quality, Adaptability and Diversity Of
14.3 % 5 0.806
Facilities Service Proportionate To NTBFs needs
Proposed Projects Reviewing and
0.685
Monitoring Time
Proper employee
10.8 % 6 Proper Employee Interaction 0.909
interaction
5. Conclusion
The 18 affecting factors on satisfaction of NTBF’s in collaborating with national financial funds
from perspective of policy makers and executives in Iran were identified in this research.
Then, the identified factors were categorized in 6 categories and their priority to policy makers
and executives were determined. These categories based on their priority are: 1. Integrated system
and transparency, 2. Entrance interactions, 3. Mental Structure, 4. Management of Expectations, 5.
Compatibility of Facilities and 6. Proper employee interaction.
Identifying the affecting factors on satisfaction of NTBF’s in collaborating with funds which provide
special financing for NTBFs is neglected in the literatures. In this research, researchers were focused
on this concept and identified the factors from perspective of policy makers and executives in Iran.
Because the results are extracted from perspective of policy makers and executives, the policy
makers and researchers in Iran and other countries especially developing countries can use the
findings of the research to develop and modify the laws, policies and strategies related to national
financial funds in order to presents better special financing to NTBFs and consequently acquiring or
developing knowledge base economy in their country.
The affecting factors on satisfaction of NTBF’s in collaborating with national financial funds can be
different from perspective of NTBFs. So identifying these factors from perspective of NTBFs and
comparing the differences and similarities can be suggested topics for the next researches.
IAMOT 2019 | 605

REFERENCES
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Bazaei, G., & Rezaeian, N. (2014). Investigating and ranking the factors affecting the satisfaction of city bank customers
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Gol Alizadeh, M., Tabatabaeiyan, H., & Zaeferanian, R. (2009). Provide a systemic solution for establishing institutions
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(2010). knowledge based firms and commercialization of innovation and invention support law.
Lasrado, L., & Lugmayr, A. (2013). Crowdfunding in Finland: A New Alternative Disruptive Funding Instrument for
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Ravanband, F. (2005). Investigating the main factors creating and increasing trust among key customers of the banking
system (Case Study: Key Customers of the Bank of Entrepreneurship). Tehran: Alzahra University (M.A
Thesis).
Sabir, R., Ghafoor, O., Akhtar, N., Hafeez, I., & Rehman, A. (2014). Factors affecting customer satisfaction in banking
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IAMOT 2019 | 606

Strategies to Conduct a Student-Centered
Evaluation System to Enhance the Quality of
International Students’ Education in China
Cheng Yin
Northwestern Polytechnical University, Office,
of International Cooperation, China
E-mail: chengyin@nwpu.edu.cn
Abstract
Along with the development of higher education in China, the country has become an increasingly popular study
destination for overseas students at both under-graduate and post-graduate levels. While the market for international
education in China has thus started to prosper, it has also drawn the attention of government and society with a
particular focus on the quality of education provided. This article will put forward strategies to conduct a
student-centered evaluation system for the quality of international students’ education and thus aims to enhance the
attractiveness of Chinese universities in today’s global education market.
Keywords: Higher Education, International Students, Education Quality, Quality Assessment
1. Introduction
As more and more international students come to China to pursue higher education, Chinese
universities have begun to pay much greater attention to the quality of education these students
require. Therefore, it is vital to consider ways of improving evaluation systems both to enrich the
underlying theory and to extend related fields of research. This will help us to establish a more
comprehensive evaluation system that will enable us to improve the quality of education provided
to international students.
To evaluate the education quality of international students scientifically and precisely will offer a
useful source of reference for the government’s official management and decision-making. It will
help the government to update educational concepts, conduct educational reform and improve the
guarantee mechanisms of education quality. It will also encourage Chinese universities to upgrade
their management capacity and promote the development of international students’ education quality.
Furthermore, the evaluation system will improve the global reputation of Chinese universities and
attract more high quality international students to study in China.
2. Evaluation of Education Quality

In order to meet different needs, the assessors of education quality may range from students,
professors, university administrators as well as governmental organizations. But ultimately the most
critical assessment will come from international students themselves given the trend towards the
commercialization of the global education market. Students experience the education process at first
hand and become its direct customers accordingly. More and more scholars now argue that students’
requirements should be met since they are the major customers of higher education [3]. This article
will thus focus on research into student-centered evaluation systems.
In “Several opinions of the Ministry of Education on comprehensively improving the quality of
higher education” released in 2012, it is mentioned that we must rapidly promote international
education exchange and cooperation. And we must continuously improve the education quality of
international students as well as recruiting more high quality overseas students and thus making
China an attractive study destination within Asia.[5]
IAMOT 2019 | 607

In “Several opinions of the Ministry of Education on comprehensively improving the quality of

higher education”, it is also proposed to establish evaluation systems for higher education. On one
hand, universities should be aware of their own education quality. They must identify any existing
problems and resolve them. On the other hand, we must also establish evaluation systems taking
into account the wider needs of society, involving government, professional organizations, students
etc. as assessors of education quality to cope with the growing importance of education quality
evaluation. This article will put forward proposals for constructing a student-centered education
evaluation system for international students in this context.[5]
3. Attention to the Demands of Students

International students are the customers of our education service. We should start from their
perspectives and be more concerned with their interests and demands. The university authority should
figure out the difficulties of international students in life and study through careful observation and
offer them relevant support and assistance. Secondly, the administration staff should continuously
improve their professional competence so as to provide international students with high quality
service. They must persist in the student-centered concept and master the ideology and behaviors of
the international students, thus adopting corresponding strategies to offer them satisfactory service.
4. Government Should Further Improve Relevant Policies and Regulations

and Support The Self-Evaluation Of Universities
The education quality of international students will greatly influence the reputation of China’s higher
education in the global market. Therefore, it is vital to guarantee the education quality of international
students. Government should take part in the evaluation process and play a supportive role in
encouraging universities to conduct self-evaluation. It is suggested that government provide funding
for universities to carry out self-evaluation. The funding can support universities in developing
evaluation systems with the application of computer technology. It can also help organize training
for assessors and seminars for personnel from different universities to discuss the theory of education
quality evaluation and exchange ideas in the related fields. With the government’s investment in this
regard, we can have a clear overview of the education quality for international students. And we
may establish corresponding policies and regulations to further improve the education quality of
international students.[2]
5. Universities Need to Establish Self-Evaluation Organizations and Standards

The student-centered evaluation system is a part of the universities’ self-evaluation procedures.
Universities organize and implement the self-evaluation in order to make appropriate adjustments
and improvements in respect of internal education quality. Currently, the government is gradually
reducing its involvement in the process thru external evaluations, while the self-evaluation
of universities is playing a more and more important role. However, the aim of self-evaluation
is to continuously optimize education quality. We need to establish a self-evaluation system so
as to achieve this goal. We must pay much greater attention to self-evaluation and give full play
to its function within the broader education system. Most American and British universities have
constructed an evaluation committee. Chinese universities may establish their own evaluation
committees to assess the education quality for international students relevant to their own particular
situation. The targeted evaluation standards can accurately reflect the pros and cons within the
international students’ education process and therefore offer an important reference point for the
development of an appropriate strategy for the education of international students. Furthermore,
it will improve the education quality of international students as well as the global reputation of
Chinese universities in a broader sense. To establish the self-evaluation system is a way to regulate
the evaluation method, evaluation period as well as other details which can safeguard the smooth
implementation of evaluation.[4]
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Strategies to Conduct a Student-Centered Evaluation System to Enhance the Quality of International
6. The University Authorities and International Students Should

Establish A Correct Evaluation Concept
It is important to build any evaluation system on a sound theoretical foundation that can better
guide evaluation practice. This will help to resolve any conflicts and contradictions in the evaluation
process and thus improve the efficiency of the evaluation system. Both the university authority and
the international students should establish correct evaluation concepts. Universities should not wait
for the government’s official order to conduct education quality evaluation. They must give full
play to the internal control of the universities and be more concerned with the education quality of
international students. They must pay more attention to the evaluation of quality by international
students themselves. In this way, they can improve the education quality for the international
students more effectively and attract more high quality students to study in China.
Some international students choose to study in China just to get a degree and they tend to be
indifferent to the quality of education, which gives the universities an excuse to neglect it.
Actually, choosing China as a study destination demonstrated their recognition of the education
quality of Chinese universities. If we overlook the education quality, our international students
will not be able to apply what they have learned to serve their countries after graduation. It will
negatively affect the image of Chinese higher education and the recruitment of overseas students in
the long run.
7. Conclusion
In a student-centered evaluation system, the international students can choose the evaluation
indexes according to their own demands from the education service. As the direct customers of the
education service it is the international students who can best decide its quality and value. Such an
evaluation system based on the principles of student-centered education is an effective response to
the commercialization of the global education market.
Reference
Kerlin, Christine A.,(2000), Measuring Student Satisfaction with the Service Processes of Selected Student Educational
Support Services at Everett Community College [D]. Oregon State University, 46.
Liu, C.Y., Wang, Y. and Liu, X.Q., (2018), Research on the Education Quality Assurance System of Undergraduate
International Students[J]. Finance Theory and Teaching, (02), 110-112+118.
Lv, Y.Z., (2018), New Strategies to Assure the Education Quality of International Students [J]. Journal of World
Education, 31(02), 23-28.
Shen, X. and Hu X., (2017), Strategies to Assure the Education Quality of International Students Under the “Belt and
Road” Initiative [J]. Journal of World Education, 30(22), 18-22.
Zeng, W., G. and Yang, J.F., (2017), The Evolution of Constructing the Education Quality Assurance System for
International Students in China. [J]. Jiangsu Higher Education, (11), 44-47.
IAMOT 2019 | 609

Techno-managerial Considerations for
5G Deployment in India
Ashutosh Jha
Indian Institute of Management Calcutta
E-mail: ashutoshj14@iimcal.ac.in
Prakrit Silal
E-mail: prakrits16@iimcal.ac.in
Debashis Saha
E-mail: ds@iimcal.ac.in
Abstract
A seamless high-speed wireless network connectivity is the most fundamental requirement of the rapidly emerging
hyper-connected society. Such network connectivity must be able to exchange high volume data traffic at low
latencies actively. The currently existing mobile network generations, namely second (2G), third (3G) and fourth
(4G) generations, are inadequate to meet such requirements of data volume and speed. However, the fifth generation
(5G) of mobile networks - to be available commercially after the year 2020 - are hailed as the solution to these
rising demand for service quality levels. The early prototypes of 5G exhibit: highly improved user experience due
to enhanced efficiencies in spectrum utilization, higher throughput per unit cost, and lower energy consumption.
The regulatory bodies in various parts of the world, including the USA, China, Europe, and India are understandably
aligning the road-maps and priorities for a coordinated 5G deployment in their respective countries.
The slowly evolving business case for 5G, however, still needs to be made on a country by country basis. We draw
attention to one such aspect which is missing emphasis in the extant academic research related to the business case
for 5G in India. Specifically, the extant research in the Indian scenario lacks in the techno-financial feasibility
assessments for different deployment use-cases, i.e., metropolitan, urban, suburban and rural. The available
literature also does not incorporate rigorous demand forecasting of the market potential (in terms of the number
of subscribers as well as the transient data volume demand) for 5G under each use-case. In the absence of these
feasibility analyses, the Mobile Network Operators’ (MNOs) uncertainty regarding the returns from infrastructure
deployment and service provisioning remains high.
This study, therefore, provides a use-case scenario-based assessment of techno-financial feasibility for 5G
deployment in India. We take into account growth curve-based demand forecasting of 5G services from the
MNOs perspective. The analysis incorporates 5G characteristics of network densification, use of newer spectrum
bands belonging to the millimeter-wave (mmWave) frequency and the cellular coverage and capacity constraints
in a heterogeneous network (HetNet) framework. We evaluate the demand of 5G during 2020-2030, the expected
levels of network infrastructure to ensure cellular coverage and cellular capacity, and the capital (CAPEX) and
the operational (OPEX) expenditures incurred in such deployments. The modeling approach followed in the paper
uses a combination of ordinary- and non-linear least-squares (OLS and NLS, respectively) regression – used for
the growth curve-based forecasting. Based on our analysis, we posit that standalone deployment of 5G services can
ensure seamless delivery of mobile broadband services in the wake of higher data demand of the consumers, while
also being financially feasible, however, the legacy networks and the financial locking-in of the incumbent MNOs
due to the presence of such legacy networks, would be the real challenge for all the stakeholder to overcome in the
coming years.
Keywords: Cellular Networks, Demand Forecasting, HetNets, Massive MIMO, Sensitivity Analysis, 5G
1. Introduction
A hyper-connected society is rapidly emerging, owing to the vast growth in the wired and
wireless network connectivity that is capable of exchanging high volume data at staggering speeds
(Xiang et al., 2017). The global data traffic is likely to witness a 20000 fold increase between years
2020-2030 due to the rise in the number of interconnected devices and the emergence of newer
services therefrom. This unprecedented growth in data traffic and radio network infrastructure
IAMOT 2019 | 610
Techno-managerial Considerations for 5G Deployment in India
calls for the fifth generation (5G) of mobile communication systems (Gupta and Jha, 2015).
5G promises greatly improved user experience at much lower costs due to its enhanced
efficiencies in spectrum utilization, higher throughput per unit cost, and lower energy consumption
(Xiang et al., 2017; GSMA Intelligence, 2014). The improvements in 5G are a result of new air interfaces
and multiple access schemes operating in high-frequency spectrum bands, such as millimeter wave
(mmWave ~ 30-300 GHz) (Nikolikj et al., 2014), which allows for higher bandwidth availability
(up to 1 GHz) and increased data rates. Massive MIMO is one such new air interface that can
leverage the high spectral efficiency of mmWave, when used in a heterogeneous network (HetNet)
configuration (Figure 1), to deliver enhanced cellular throughput (Xiang et al., 2017; Gupta &
Jha, 2015). The 5G HetNets are capable of combining several cellular layouts, such as macrocells,
microcells, and small cells (picocells, femtocells, and Wi-Fi), that can cater to the requirements
of both lower-frequency wide-area-coverage networks and higher-frequency ultra-dense networks
(GSMA Intelligence, 2014). This is achieved by the intelligent integration of Long-Term
Evolution (LTE) technologies (viz., LTE and LTE-Advanced (LTE-A)) operating in
macrocellular configurations with ultra-dense cellular networks comprising micro and small-cells
(GSMA Intelligence, 2014). The HetNets can also free up large amounts of radio spectrum
bandwidth via local offloading techniques, use of unlicensed spectrum bands (Wi-Fi and femtocells),
and close internetworking of communication end-points, leading to greater spectrum utilization
(Gupta & Jha, 2015; GSMA Intelligence, 2014; Nikolikj et al., 2014).
It is, therefore, not surprising that several countries are aligning roadmaps and priorities for
coordinated 5G deployment in the near future. In the United States, the Federal Communications
Commission’s (FCC) Spectrum Frontiers Order has already laid the groundwork for 5G
deployment by 2020. Similar initiatives pertaining to the early deployment of 5G networks have
also been started by regulatory agencies in China, Japan, South-Korea and Sweden, to name a few.
In Europe, the European Commission has recently released its “5G Action Plan”, which targets early
network introduction by 2018 and commercial large-scale introduction by the end of 2020, for all
member states (EPRS, 2017). One of the key aspects of the envisaged 5G rollouts is the selection
of the radio spectrum bands. The leading countries are selecting bands within the frequency range
26.5 – 29.5 GHz (commonly known as 28 GHz band) apart from other portions of the radio spectrum
(EPRS, 2017). These mmWave frequency bands have a massive amount of spectrum bandwidth
availability which could be used for both cellular and backhaul services, making them a favorite
choice for 5G deployments (Xiang et al., 2017; Sulyman et al., 2014). In Europe, the use of lower
frequency bands, such as 700 MHz, has also been mentioned for 5G deployments. The lower
frequency 700 MHz band is found to be suitable for Internet-of-Things (IoT) and automotive
applications (EPRS, 2017).
Figure 1: 5G Heterogeneous Network
IAMOT 2019 | 611

The slowly evolving business case for 5G, however, still needs to be made on a country by country
basis. We draw attention to one such aspect that lacks emphasis in the extant academic research related
to the business case for 5G in India. Specifically, the extant research in the Indian scenario lacks in
the techno-financial feasibility assessments for different deployment use-cases, i.e., metropolitan,
urban, suburban and rural. The available literature also does not incorporate rigorous demand
forecasting of the market potential (in terms of the number of subscribers as well as the transient data
volume demand) for 5G under each use-case. In the absence of these feasibility analyses, the Mobile
Network Operators’ (MNOs) uncertainty regarding the returns from infrastructure deployment and
service provisioning remains high.
This study, therefore, provides a use-case scenario-based assessment of techno-financial feasibility
for 5G deployment in the Metros Telecom Circles1 of India, which comprises the cities of Delhi,
Mumbai and Kolkata. We take into account growth curve-based demand forecasting of 5G services
during years 2020-2030, from the MNOs perspective. The analysis incorporates 5G characteristics
of network densification, use of newer spectrum bands belonging to the millimeter-wave (mmWave)
frequency and the cellular coverage and capacity constraints in a heterogeneous network (HetNet)
framework. We evaluate the capital (CAPEX) and operational (OPEX) expenditures that would
be incurred in 5G network infrastructure once the commercialization of 5G services begins to take
place. We follow a modeling approach which combines ordinary- and non-linear least-squares
(OLS and NLS, respectively) regression analysis for the growth curve-based demand forecasting of
5G services. While the case chosen in the study is that of the country of India, the methodology is
generic enough to be applied for any other country as well.
The remainder of this paper is structured as follows. Section 2 provides an overview of the related
literature and therefrom draws upon our research objectives. In Section 3, we explain our research
methodology, providing details on various components of our techno-economic model along with
their theoretical background. In Section 4, we provide the dataset used, the input values of the
decision variables, and the subsequent results. Finally, Section 5 concludes on our findings and
identifies the implications for praxis.
In this section, we provide a brief overview of the background and the previous research works that
have studied the techno-economics behind provisioning of 5G wireless networks under different
deployment scenarios. We also introduce, in addition, the related literature coherent with various
modeling approaches undertaken in this study. We then summarize the research gaps and propose
our extensions.
2.1. Techno-Economics of 5G Networks

There are very few studies available in the literature, to the best of our knowledge, that are
relevant to the analysis of financial viability of 5G deployments (Jha and Saha, 2018; Oughton
et al., 2018; Nikolikj et al., 2014; Bouras et al., 2016; Bouras et al., 2016; Nikolikj & Janevski,
2014), although, such studies do exist for the case of third and fourth generations (3G and 4G)
of mobile network deployments (Jha & Saha, 2017). In one of the early works, Nikolikj (2014)
analyzes the cost parameters of 5G network deployments using a conceptual model, mainly keeping
in mind the capacity aspect of the network. Nikolikj (2014) in this work evaluates the profit margins
(via EBIT) using a fictional deployment scenario in an urban setting with varying levels of assumed
demand. The study also compares 5G network deployment scenarios with 4G LTE-A deployments.
Another study by Nikolikj and Janevski (2014) highlights the cost-effective deployment strategies
for heterogeneous wireless network deployment. In this particular study, Nikolikj and Janevski
(2014) evaluate the discounted costs under different combination of cellular layouts and technologies
1
“A telecom circle is a cellular mobile service area in India classified by subscriber base and revenue potential. The four types of
telecom circles are Metro, A, B and C. While a Metro telecom circle has the highest revenue potential, a C telecom circle has
the lowest.” Source: www.wikinvest.com/wiki/Telecom_Circle, Date of Access: November 29, 2018.
IAMOT 2019 | 612

(LTE and LTE-A), assuming varying scenarios for data volume demand. The study does take into
account the size of the spectrum bandwidth, albeit the bands belonging to 4G LTE and LTE-A
technologies only (Nikolikj & Janevski, 2014).
Another study by Yunas, Niemela, Valkama, & Isotalo (2014) analyzes the technical and cost
parameters in utilizing the three cellular layouts, namely macrocells, microcells and femtocells
for network densification. Considering four main deployment strategies, namely, macrocells only,
microcells only, femtocells only, and macro-femto HetNet combinations, the study evaluates
the cellular coverage, interference characteristics, area spectral efficiency, and energy and cost
efficiency (Yunas, Niemela, Valkama, & Isotalo, 2014). Few more studies have evaluated
the cost implications arising out of the integration of two enabling paradigms viz., Software
Defined Networking (SDN) and Network Function Virtualization (NFV), in 5G deployment
(Bouras et al., 2016). Specifically, the work by Bouras (2016) compares the cost aspects
(CAPEX, OPEX and TCO) for such virtualized 5G networks vis-à-vis traditional 5G network.
In another study, Bouras (2016) evaluates the cost aspects (CAPEX, OPEX and TCO) of 5G
deployment scenarios involving two network architectures, namely Ultra-dense technology
(femtocells) and Distributed Antenna Systems (DAS) (Bouras et al., 2016; Bouras, Kollia, &
Papazois, 2016b; Bouras, Kollia, & Papazois, 2016a). The above-mentioned works have highlighted
the advantages in catering to the challenges of limited connectivity in indoor environments, due to
these two network architectures.
Some studies have highlighted the benefits of using small cell technology for ensuring connectivity
in indoor environments owing to its enhanced cell coverage and network capacity (Bouras,
Kokkinos, & Papazois, 2014). These studies have explored the cost aspects (CAPEX, OPEX and
TCO) of small cells deployment from the point of view of the telecom operators while listing the
subscriber incentives for choosing small cells over other access types such as WiFi. The results of the
techno-economic analysis for small cells have also been compared against a macrocellular
deployment scenario in order to highlight its advantages (Bouras et al., 2014). In another recent
work, Smail & Weijia (2017) analyze the demand aspects of a newly proposed pricing model of 5G
mobile services for the telecom operators in China. The work formulates the likely migration scenario
of subscribers from the 4G mobile services to 5G mobile services and evaluates the sensitivities of
data volume demand with respect to the price of the 5G mobile services (Smail & Weijia, 2017).
In another extensive work related to the techno-economics of 5G networks, Oughton et al.
(2018) have conducted “a scenario-based assessment of 5G infrastructure strategies in relation
to mobile traffic growth” for the country of United Kingdom (Oughton et al., 2018). Similarly,
Jha and Saha (2017) in their work pertaining to the 5G infrastructure deployment in Texas, US,
“evaluate the profitability potential for realistic 5G deployment scenarios over 28 GHz frequency”
(Jha and Saha, 2018).
2.2. Our Objectives

We find several noticeable gaps in the currently available literature based on the review of the
literature, as explained in the previous sub-section. Firstly, the prior works have not considered a
real-life 5G deployment scenarios that account for the geographical characteristics and demographic
aspects of the region. Secondly, the diffusion analysis of 5G services and the adoption forecasting
–including the data volume demand forecasts–for the case of India, have not been covered by any
prior literature. We attempt to fill the above-mentioned gaps in this paper through formulating
an overarching model for the techno-commercial evaluation of the deployment of 5G Wireless
Heterogeneous Networks (HetNets) over mmWave. While the case chosen in the study is that of
the country of India, the methodology is generic enough to be applied to any other country as well.
In this section, we explain the research framework followed in our study. Additionally, the model
formulation steps for our techno-economic evaluation exercise is highlighted in the relevant sections
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pertaining to demand modeling, coverage and capacity modeling, and finally, cost modeling.
Figure 2 summarizes the scenario considered in the evaluation carried out as part of this study.
As mentioned earlier, we choose the three major cities of India, namely Delhi, Mumbai and Kolkata,
for initial 5G deployment. Previous studies have posited the temporal growth in 5G deployment to
move from urban to rural areas (Oughton et al., 2018). This study also assumes that 5G would be
initially deployed in the urban metropolis of India and slowly diffuse to other regions based on the
learning effects.
For a comparative evaluation, we consider the following network types in our analysis: (i)
Macrocellular layout–a high power cell site mounted on ground-based masts, rooftops, etc., and
having cellular coverage of up to 35 km, (ii) Microcellular layout–a low power base station having
cellular coverage of up to 2 km, (iii) Picocellular layout–a low power small cellular base station
having cellular coverage of 200 meters or less and typically used in residential premises, shopping
malls, train stations etc., and (iv) Femtocellular layout–another low power small cellular base station
having cellular coverage of up to 10 meters, and typically designed to be used in smaller premises,
such as homes and small size offices. These deployment types are combined in various ways to
form several 5G specific scenarios, such as Indoor Hotspots, Dense Urban and Urban Macro to
name a few, as per the guidelines of 3rd Generation Partnership Project (3GPP) (Xiang et al., 2017),
(“5G PPP Architecture Working Group View on 5G Architecture View on 5G Architecture,” n.d.).
Largely, we combine the above-mentioned layouts into two network deployment types, namely
Macrocellular–which includes the microcellular layout, and the Picocellular layout–which combines
Pico- and Femtocellular layouts.
Figure 2: Research Framework
Considering that 5G services will be data-intensive, with cellular data per population per time period
being the primary metric for service usage, we utilize the data demand forecast (in Gigabyte (GB)
per subscriber per year) for India, during the period 2020-2030, in our analysis. Subsequently, to
evaluate the aggregate data demand over the duration of the study, we also forecast the likely market
adoption – in terms of subscriber volume per year – of 5G services in the chosen cities. The data
demand per population per time period and the annual subscriber forecast is used for evaluating the
aggregate data volume demand in each city. We utilize the micro-level demographic dataset, which
comprises the population density and the habitable land area details, for each of these chosen cities
in our analysis (Indiastat, n.d.).
In the absence of prior 5G market adoption data, we approximate the initial adoption trend
of 5G to be similar to 4G services across the chosen cities. While this may be a simplistic
suggestion, to say the least, it is justified considering the similarity in the 4G and 5G family of
mobile broadband service innovations along with the fact that the realization of the full potential
of 5G will happen in an incremental manner involving intermediate generations, such as 4.5G
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(LTE-Advanced). Approximating the future market adoption trend of a newly launched innovation
with the prior generation of the innovation is also a recommended practice in the literature
(Rogers, 2010). Additionally, since 5G will cater to a variety of use cases (especially pertaining
to large-scale industrial applications, such as Industrial Internet-of-Things (IIOT)) this study does
not intend to incorporate them all, and further studies would need to undertake the analysis of each
specific use case instance. We only focus on the techno-economic implications of mobility-centric
usage of 5G services. We also must note that the MNOs in India are already gearing up for 5G
through rapid phasing out of legacy networks (2G and 3G) along with the overhaul of their radio
network infrastructures to keep them 5G-ready. For the 5G-ready network infrastructure migrating
from 4G to 5G may only be a matter of a firmware update.
3.1. Demand Modeling

The demand estimation methodology applied in this paper is based on the diffusion of innovations
(DOI) paradigm. We deploy Bass model of diffusion, which is based on the DOI principles, for our
forecasting purposes. Bass model is widely deployed in literature for explaining the diffusion and
forecasting of the future adoption of innovations. The probability density function for adoption at
time t is expressed in the Bass model as:
(1)
where f(t) is the likelihood of purchase at time t, F(t) is the fraction of the ultimate potential of
the market that has adopted by time t, p is the coefficient of innovation, and q is the coefficient of
imitation. The solution to the above equation is given as:
(2)
where M is the ultimate market potential. The ultimate market potential is an estimate of the
maximum adoption that is expected of the innovation during its lifetime. The Bass model assumes
a finite market size due to which the adoption curve reaches saturation once the peak sales have
occurred and starts declining afterwards. The parameters mentioned in the above equations are
initially estimated using the discrete form of Bass model using OLS regression over the historical
data of Broadband adoption. These estimated parameter values are then supplied as initial inputs in
the NLS estimation procedure using the above equations. The discrete form of Bass model equation
utilized in the study is given as:
(3)
where N(ti) is the cumulative number of adoptions till time period i, and b1,b2 and b3 are the
coefficients of the discrete Bass model. Knowing the parameters b1,b2 and b3, we can calculate M, p
and q using the relations mentioned below:
(4)
We use equations (1)-(4) for explaining the diffusion of 4G services in India. Towards this, we use
the monthly adoption data of 4G Vo-LTE services for the chosen regions provided by the Wireless
Subscribers report of Telecom Regulatory Authority of India (TRAI, 2017). We remind the readers
that, the VoLTE services were launched countrywide, starting September 2016, by the new entrant
“4G-only” operator, Reliance Jio Infocomm. We prefer the dataset of 4G VoLTE adoption, when
compared to the mobile services dataset made available by TRAI, considering that the mobile
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services dataset only measures aggregate subscription taking together all mobile service generations
(2G, 3G and 4G). This is also justified by the apprehensions of intense inter-MNO competition at
the time of the launch of 5G services (Khan, 2018), which may lead to reduced service prices of 5G
for the consumers.
The monthly data of 4G VoLTE market adoption corresponds to the duration September
2016–August 2018. We first estimate the Bass model parameters using the ordinary least-squares
(OLS) approach as mentioned above. This is followed by the non-linear least-squares (NLS)
approach, whereby we derive the parameter values to be used for forecasting. The forecast duration
is kept between years 2020-2030, considering that 5G services will be commercially available only
after 2020.
We also use the forecast of mobile data demand per subscriber, during years 2020-2030, provided
by Business Monitor International (BMI) database, in order to derive the aggregate data demand,
which takes into account the annual subscriber forecast from the Bass model. We should note that
the mobile data demand estimates are at the pan-India level and not specific to any city. However,
the city-specific 5G subscriber forecast, to an extent, takes care of the likely inter-city deviations in
the aggregate data demand during 2020-2030.
We combine the annual 5G subscriber forecast (Ncity,year) and the individual data demand forecast
(Dyear) to derive the aggregate annual data demand in each city (TBcity,year), as follows.
(5)
3.2. Coverage and Capacity Modeling

In this section, we determine the achievable cellular coverage area for each network deployment
type, namely macrocellular, microcellular, picocellular and femtocellular. We utilize the cellular
radius data available from prior studies for each of these deployment types to determine the
achievable cellular coverage area per deployment type. Assuming a circular cell with radius , for
the chosen deployment type (i, where i=macrocellular, microcellular, picocellular, femtocellular)
and frequency band (f), the coverage area Ci,f for each deployment type and frequency-band is
expressed as:
(6)
We then determine the required number of cellular deployments (base transceiver stations (BTS)),
for each deployment type and frequency band combination, by taking into account the data for the
habitable area for the chosen cities. The number of BTSs required for cellular coverage under each
scenario can be evaluated as:
(7)
While the BTS requirements for ensuring cellular-coverage are static for a given city and deployment
type combination (due to the fixed land area and cellular radius under a frequency band), the
cellular-capacity is subject to the service usage pattern (data demand, busy-hour period, peak uplink
and downlink rate, spectrum bandwidth deployed, number of subscribers per BTS, etc.) specific to
the location of deployment. Therefore, the BTS requirements are temporal and dependent on such
service-usage patterns. Additionally, there may be differences in the BTS requirements for ensuring
cellular-coverage and cellular-capacity (since, cellular coverage is dependent on the geographical
area and frequency band, whereas cellular-capacity is frequency-agnostic and only depends on the
factors related to service usage patterns, as mentioned earlier).
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We determine the BTS requirements for ensuring cellular-capacity (BTSCAPcity,year), by taking into
account the annual aggregate subscriber data demand in each city (TBcity,year) and the data delivery
capability of a single BTS pertaining to each deployment type (BTSi,year). This is expressed as:
(8)
As explained earlier, the effective number of BTSs under each deployment scenario, required for
meeting both cellular-coverage and cellular-capacity requirements, are evaluated by taking the
maximum of equation (7) and equation (8).
(9)
3.3. Cost Modeling

The total cost of ownership (TCO) for an operator comprises (i) the investments in the network
infrastructure, (ii) radio spectrum acquisition and (iii) recurring operational, administrative and
maintenance (OA & M) expenses. We refer to (i) and (ii) together as the Capital Expenditure
(CAPEX) and (iii) as Operational Expenditure (OPEX). The CAPEX includes “capital investments
made in Radio Access Network (RAN) infrastructure (including backhaul, procurement and
installation costs) and spectrum acquisition (radio spectrum is a long-lived asset) (Jha and Saha, 2018).
The OPEX comprises of costs in site rental, electricity, and personnel and marketing.
We evaluate the CAPEX and OPEX for each deployment scenario as follows. Firstly, the total
CAPEX per unit BTS per year, for each deployment scenario, is evaluated as:
(10)
where CAPEXi is the required capital expenditure per BTS for i-th deployment scenario, BTSCi and
INSTi are the annual costs incurred in BTS equipment procurement and installation, respectively,
and BHLi is backhaul cost. We do not consider the spectrum investments due to unavailability of
spectrum costs data for India. Similarly, the OPEX per unit BTS per year, for each deployment
scenario is evaluated as:
(11)
where OPEXi,annual is the required operational expenditure per BTS for i-th deployment scenario,
OAMi,annual is the annual OA&M costs per BTS for i-th deployment scenario and MAi,annual is the
aggregate annual marketing and advertising expenses incurred by the operator. Finally, the annual
TCO for the operator is calculated as:
(12)
We must note that the TCO in equation (12) only represents the infrastructure costs (both fixed
and recurring), and do not incorporate the costs incurred in acquiring the radio spectrum for 5G.
The CAPEX and TCO also assume a Greenfield deployment scenario, since the data pertaining to the
Brownfield scenario, i.e., the city-wise aggregate investments under legacy network infrastructures
are unavailable. However, such scenarios can be incorporated by adjusting the additional CAPEX
required in infrastructure upgrade from legacy networks to 5G network.
Data and Results
In this section, we mention the modeling assumptions pertaining to each variable and highlight
the results for each scenario considered. Table 1 below summarizes the assumptions pertaining to
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the deployment scenarios considered in the analysis. We use the macrocellular and picocellular
network layout to correspond to 4G LTE-Advanced and 5G deployments, respectively. The 5G
network will also deploy radio access network based on Massive MIMO configuration functioning
on the millimeter Wave (mmWave) spectrum. We consider a minimum data rate of 50 Mbps for all
deployment scenarios.
Table 1: 5G Deployment Scenarios Assumptions
Geotype Dense Urban:

-Delhi, Mumbai and Kolkata
Deployment type (i) Macrocellular and Picocellular
RAN LTE-A and 5G Massive MIMO with mmWave
Frequency (f) and bandwidth (B) 700 MHz having 20 MHz bandwidth,
30 GHz having 500 MHz bandwidth
Market Adoption Trend S-curve based market growth similar to 4G
Project Duration 2020-2030
Data Rate 50 Mbps
Demand Scenarios Low (25% of the ultimate market potential),
Medium (50% of the ultimate market potential),
High (80% of the ultimate market potential)
3.4. Demand Modeling Results

We use the formulations from the demand modeling section and evaluate the corresponding variables
using equations (1)-(5). Table 2 summarizes the data assumptions related to the market considered
along with the sources. There are three demand scenarios considered in this analysis, namely low,
medium and high (Table 1). The fraction of the ultimate market potential takes on different values
based on the demand scenario considered, namely low, medium and high demand. The ultimate
market potential for 5G subscription is assumed to correspond to the volume of cellular subscribers
in each city (Table 2). This, in turn, is based on our assumption that all the mobile subscribers on
these legacy networks will sooner or later switch to the 5G network.
Table 2: Market Assumption Details
City Cellular Subscribers Geographical Area Population density
(as of August 2018) (in sq. km) (per sq. km)
Delhi 49957277 - (TRAI, 2017) 1484 29260
Mumbai 34992362 - (TRAI, 2017) 603.4 28508
Kolkata 26415227 - (TRAI, 2017) 185 24000
Table 3 summarizes the results of the Bass model estimation when applied to the data of 4G-VoLTE
subscription as mentioned earlier. The coefficient of innovation (p) evaluates to be much higher
than the coefficient of imitation – emphasizing the importance of the innovators over early and
late majority adopters. The results, however, are in contrast to the Bass model parameter values
estimates for other innovations, where the coefficient of imitation (q) is almost always higher than
the coefficient of innovation (p). We ascribe this behavior to the dataset used for the Bass model
analysis, which is the adoption data of 4G VoLTE in India, currently in the early growth phase where
the innovators have a major role to play. We assume the values of M for each city (Table 3) due to
the underestimation of M values in the Bass model from the given data – based on OLS and NLS
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regression analysis. Figure 3 illustrates the adoption trend of 5G services – as approximated from the
4G VoLTE forecast – during years 2020-2030.
Figure 3: Bass Model-based 5G Adoption Forecast in India (High Demand scenario only)
In Figure 4, we have only presented the forecast for high demand scenario, pertaining to the city of
Delhi, for brevity’s sake. We can infer that the 5G market adoption trend shows promising uptake
till the year 2026, post which there is a decreasing rate of adoption. The adoption will likely saturate
by the year 2027 similar to the decadal diffusion pattern of early generations of mobile services
(2G, 3G and 4G). We use the forecast for the mobile data demand of individual subscribers to
evaluate the expected aggregate data demand from the 5G networks (BMI Research, 2017). Figure 4
highlights such mobile data demand forecast. The aggregate data demand forecast during 2020-2030
is not presented due to space constraints.
Table 3: Bass Model Estimation Results
M (assumed)
City p q M (estimated)
Low Medium High
Delhi 0.336194 0.00001 9409938 12489319 24978638 39965821
Kolkata 0.207618 0.00001 4734966 6603806 13207613 21132181
Mumbai 0.188156 0.00001 7236469 8748090 17496181 27993889
Figure 4: Mobile Data Demand Forecast per Subscriber (Source: BMI Database)
3.5. Coverage and Capacity Modeling Results
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We use equations (6)-(9), to evaluate the coverage and capacity variables for the considered 5G
and 4GF LTE-A demand scenarios. The evaluated variables are summarized in Table 4. The input
assumptions pertaining to the variables in the model formulations, along with the sources, have also
been summarized in Table 4.
Table 4: Cellular Coverage Calculations
Variable\ Layout Macrocellular Picocellular Source
Frequency 700 MHz 30 GHz -
Cellular radius (km) 1.250 0.150 (Jha and Saha, 2017; Jha and Saha, 2018)
Cellular Coverage (sq. km) 7.812 0.112 -
Spectral Efficiency (bit/s/Hz/BTS) 3.8 52
(Jha and Saha, 2017; Jha and Saha, 2018)
Data Rate 76 Mbps 26 Gbps
Busy Hour 70% 70% -
Data capacity per BTS (TB/year) 295.5 101088.0 -
Delhi 190 13250 -
Coverage
Mumbai 77 5388 -
Requirements of BTSs
Kolkata 24 1652 -
We can infer from Table 4 that, the number of BTSs required for ensuring cellular coverage pertaining
to the picocellular layout is very high when compared to those required under the macrocellular
layout. Specifically, in the macrocellular deployment scenario, the number of BTSs required to
provide full cellular coverage to the cities of Delhi, Mumbai and Kolkata, evaluate to 190, 24 and
77; however, in the macrocellular layout, the same figures evaluate to 13250, 5388 and 1652 for
Delhi, Mumbai, and Kolkata, respectively. This is ascribed to the higher cellular radius achievable
under macrocellular BTSs functioning over lower frequency bands. Based on the cellular capacity
calculations, we highlight in Figure 5 and Figure 6, the effective number of BTSs required under
different demand scenarios. As can be inferred, 700 MHz-based macrocellular deployments will
enable a paradigm where the MNOs can do away with minimum network infrastructure deployment,
saving them crucial time which would otherwise be spent in the maintenance of their already existing
complicated networks. However, in use cases where the demand for mobile data is very high, a
combination of macro- and picocellular deployment would be more useful in providing seamless
service usage experience.
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Figure 5: Number of BTSs Required to Ensure Capacity (sample results)
Figure 6: Number of BTSs Required to Ensure Capacity (Sample Results)
We can infer from Figure 4 and Figure 5, the temporal demand for the amount of radio network
infrastructure required during 2020-2030 under each deployment scenario considered. Comparing
the BTS demand for ensuring cellular capacity with that required for ensuring cellular coverage
(Table 4), we find that (i) the demand for infrastructure (BTSs) for ensuring cellular capacity is way
above that of cellular coverage for 700 MHz-based deployment, and (ii) much fewer infrastructure
(BTSs) is required for ensuring cellular capacity as compared to cellular coverage, for 30 GHz-
based deployment. This points to the unsustainable strategy of utilizing 30 GHz-based picocellular
infrastructure in a standalone manner, especially for cellular coverage purposes.
3.6. Cost Modeling Results

We use equations (10)-(12), to evaluate the CAPEX and OPEX associated with the 10-year project
duration under the considered deployment scenarios. The assumptions pertaining to the cost of
various components under both network architectures are summarized in Table 5. We note here that,
since the radio access network components for 5G are undergoing continuous field trials and hence
improvement in terms of efficiency, the cost structures are, therefore, likely to evolve in the coming
years. The general belief across the industry is that the cost of individual network infrastructure
components are likely to reduce over the years as the technology matures.
Table 5: Input assumptions related to the cost of 5G network infrastructure components
Macrocellular Picocellular Source
RAN 4G LTE-A 5G mmWave
Total annual CAPEX per BTS = (Nikolikj and
BTSCannual,i+ Janevski, 2014)
125000 USD 35260 USD
INSTannual,i +
BHLannual,i
OAMi,annual 34123 USD 21612 USD
MAi,annual 0.25% of OAMi,annual 0.25% of OAMi,annual
Total evaluated annual OPEX per BTS 42654 USD 27015 USD
Figure 7 summarizes the CAPEX (during the project duration years 2020-2030) incurred by the
MNOs under both 4G LTE-Advanced and Massive MIMO-based 5G network deployment scenarios.
We can infer from Figure 6 that, the macrocellular layout based deployment are almost always
higher than picocellular deployments for all the cities. The highest amount of CAPEX – of the order
of 100 billion USDs for macrocellular and 250 million USD – is required in the city of Delhi. We
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must note here that, these figures correspond to a very high quality of mobile broadband services
(referred to as the Enhanced Broadband services) having hyper-fast downlink data rate of the order
of 50 Mbps – 25 Gbps. Since such data rates would be a giant leap from the currently existing data
rate pertaining to the 4G LTE services, suitable business cases will have to be made therefore, for a
financially feasible investments in such 5G networks.
Figure 7: CAPEX During 2020-2030 in 4G LTE-A and 5G Infrastructure Deployment
4. Conclusions
This paper conducts a thorough techno-economic assessment for possible 5G HetNet deployment
scenarios for the three Metros Telecom Circles of India, namely Delhi, Mumbai, and Kolkata, taking
into account the advanced air interface technologies of Massive MIMO operating at the mmWave
frequency of 30 GHz. The study utilizes a Bass model of diffusion-based demand forecast of 5G
subscription in India, for the 10-year horizon (2020-2030), for evaluating the aggregate network
infrastructure requirements for 5G and LTE-Advanced networks. These figures subsequently lead
to the evaluation of CAPEX, OPEX and TCO figures for each of these network technologies.
Assuming the diffusion of the mobility-centric 5G services to follow a similar approach to that of
the recently launched 4G Vo-LTE services in India, the study estimates the maximum subscription
to rise to 24 million, 15 million and 12 million subscribers, for the cities of Delhi, Mumbai and
Kolkata, respectively. The saturation of 5G services will likely begin by the year 2027 onwards.
The study also estimates the aggregate data volume demand in these cities to rise from 17 GB per
subscriber in the year 2020, to a staggering 1690 GB per subscriber in the year 2030. We find that,
for enabling full cellular coverage, much fewer network infrastructure would be required for the
case of 4G LTE-Advanced infrastructure using 700 MHz frequency as compared to the 5G Massive
MIMO over mmWave-based networks. However, the same is reverse when it comes to ensuring the
cellular capacity, which incorporates the impending demand for mobile data in the coming years.
Although in both the cases, the deployment of 5G infrastructure evaluates to a lower CAPEX, OPEX
and TCO. Therefore, we posit that standalone deployment of 5G services can ensure seamless mobile
broadband services in the wake of higher data demand of the consumers while also being financially
feasible, the legacy networks and the financial locking-in of the MNOs due to the presence of
such networks, would be a challenge the stakeholders would have to deal with in times to come.
The emphasis in future research works may, therefore, shift to achieving the optimal combination of
the “thick” high capacity radio network infrastructure deployments (for example, Massive MIMO
and mmWave frequencies- based 5G networks) with the “thin” high cellular coverage macrocellular
deployments (for example, lower frequencies-based 4G LTE-Advance networks), in order to both
reduce the costs as well as cater to the rising consumer demand.
IAMOT 2019 | 622

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IAMOT 2019 | 624

Destruction as Strategy?
Business Ethical Ruminations
Jürgen Poesche
Aalto University, Department of Industrial Engineering and Management
Maarintie 8, 02150 Espoo, Finland
E-mail: jurgen.poesche@aalto.fi
Ilkka Kauranen
Aalto University, Department of Industrial Engineering and Management
Maarintie 8, 02150 Espoo, Finland
E-mail: ilkka.kauranen@aalto.fi
Abstract
Sustainability is founded on the implicit assumption that the interaction of economic, environmental and social
considerations results in constructive solutions for human and Nature alike. To what degree does this implicit
assumption hold true? To ruminate on this issue the Trans Mountain Pipeline expansion project is used as a
case example. The detractors and proponents of the project effectively impute each other of pursuing a strategy of
destruction. Challenges are not only posed by the different worldviews espoused by various stakeholders, but also by
different interpretations and prioritizations of economic, environmental and social factors. For Rawlsian processes,
among them those used by the National Energy Board, designed to find reasonable compromises between stakeholders
the diverging worldviews represent a fatal blow. The purpose of this paper is to study the dynamics of the divergence
and radicalization of stakeholders in the Trans Mountain Pipeline expansion project permitting process, and to
formulate solutions. This paper relies on the case study approach. The paper is based on publicly available Federal
Court of Appeal, National Energy Board and other sources related to the Trans Mountain Pipeline expansion project
permitting process. This paper finds that divergence among the settler colonists epitomized by the radicalization of
the groups promoting the Trans Mountain Pipeline expansion project and the strengthening of the environmental
movement in association with decoloniality among First Nations make Rawlsian processes like the one used by the
National Energy Board unfeasible. This paper contributes to the understanding of the limits of Rawlsian processes
particularly in the context of coloniality and irreconcilable worldviews, and solutions are formulated.
Keywords: Coloniality; Radicalization; Rawlsian Processes; Sustainability
1. Introduction
The ground zero for the Canadian bitumen and oil extraction is in Alberta and Saskatchewan. The
bitumen and oil extraction sectors are of great interest to sustainability-related scholarship, because
these sectors are associated with economic, environmental and social conflicts along their value
chains. Because an assessment of the entire value chains would be prohibitively long, this paper
deals with the pipeline segment of the value chains. One reason for demands of construction of
diluted bitumen and oil pipelines has been that the crude oil price differential has increased between
Canada and the USA to the detriment of Canadian extractors. The price difference between the
West Texas Intermediate (WTI) and Western Canada Select (WCS) has resulted in calls for the
construction of diluted bitumen and oil pipelines (Tarnoczi, 2013). Increasing diluted bitumen and
oil pipeline capacity to allow for increased exports has been proposed, for instance, the expansion
of the Trans Mountain Pipeline to shipping ports in British Columbia and Keystone XL to the USA.
Moreover, limited diluted bitumen and oil pipeline capacity from Alberta and Saskatchewan to
Atlantic and Central Canada has been considered a hindrance to the aim of improving the country’s
energy security by means of replacing imported oil with domestic diluted bitumen and oil (Hughes,
2010).
Railways offer an alternative to pipelines. An advantage of railways over pipelines is that contrary to
the latter the former is not solely dedicated to one transportation need, in this case the transportation
of diluted bitumen and oil. Railway transportation is therefore conducive to product-based economic
IAMOT 2019 | 625

diversification. Furthermore, the use of rail transportation is conducive to a flexible choice of markets
(Kaminski, 2014). A drawback is that the locomotives used by the main Canadian railway operators,
CNR and CPR, result in higher greenhouse gas, nitrous oxides and particulate emissions in diluted
bitumen and oil transportation than transportation by pipelines (Tarnoczi, 2013).
Sustainability-related assessment of the Alberta and Saskatchewan diluted bitumen and oil sectors
is rendered complicated because of the fragmentation of the permitting process. This creates an
incentive for segmented research. Instead of focusing on the entire extraction, upgrading and
transportation chain, some research has solely concentrated on the greenhouse gas emissions in
the transportation segment, as exemplified by Tarnoczi (2013). Bitumen extraction and upgrading
has been deemed inviable in the case of globally implemented greenhouse emission reduction
programs (Chan et al., 2012). Opposition against extraction may be hardened by the existing legal
issue in the Occident that those who destroy Nature in extraction and the subsequent value chain
do not pay for the damage (Salassa Boix, 2016). The fragmentation offers fuel for conflict, because
lowering transportation cost may be construed to provide an incentive for additional bitumen and oil
extraction. An analysis undertaken in Galay (2018) has come to the conclusion that a lowering of
transportation costs as the result of pipeline construction would increase capital investment in new
bitumen extraction capacity. The construction of diluted bitumen and oil pipelines has thence wider
implications for the different stakeholders. The purpose of this paper is to study the dynamics of
the divergence and radicalization of stakeholders in the Trans Mountain Pipeline expansion project
permitting process, and to formulate solutions.
2. Methodology
This paper relies on the case study approach. The paper is based on publicly available Federal
Court of Appeal, National Energy Board and other sources related to the Trans Mountain Pipeline
expansion project permitting process.
3. Framing and Lack of Debate

Trans Mountain Pipeline faces competition from the Northern Gateway Pipeline. In newspapers in
Alberta and British Columbia, the discussion of the proposed construction of the Northern Gateway
Pipeline has been framed along a dichotomy of economy versus environment (Dusyk et al., 2018).
This framing effectively prevents a nuanced discussion as there are fault lines within economy and
environment. Murphy (2015) has forwarded the idea that the media has been used to make a societal
non-problem out of a scientifically proven problem.
The oversimplification in the framing and lack of debate has camouflaged, among others, innovation-
related issues. It is therefore more interesting what has not been discussed in a meaningful way
than what has been discussed. While the West Texas Intermediate (WTI) versus Western Canada
Select (WCS) price differential has received ample attention in the media, the implications of diluted
bitumen exports on industrial production in British Columbia, Ontario and Québec has received
scant nuanced attention in the media (Dutch Disease). The problems of the Canadian manufacturing
industry are highlighted by the declining automotive and aerospace industries. The less capital
intensive information technology sector has fared better. This has implications for innovation in
addition to capital investments in Canada. Hence, the framing and lack of debate has deluded a non-
problem in the economic realm.
Firms’ capital investment in capital intensive industries exemplified by the automotive and
aerospace industries are a result of extensive qualitative and quantitative assessments. The choice
of the production site also signals the investing firms’ values. With the automotive industry moving
toward replacing the internal combustion engine with electric or hydrogen technology, the investing
firms ask themselves whether a country associated with bitumen and oil extraction emits the correct
signals. This consideration goes back to the concept of liability of origin (Kolk and Curran, 2017).
The existing framing and lack of debate has deluded a non-problem in the economic realm.
IAMOT 2019 | 626

Destruction as Strategy? Business Ethical Ruminations
The oversimplification in the framing and the lack of debate can also be observed in the environmental
realm. The debate has been predicated on the assumption that the chemical and physical properties
of diluted bitumen are the same as those of (crude) oil. If this assumption does not hold, then the
framing and lack of debate has deluded a non-problem in the environmental realm.
Firms commencing corporate social responsibility and sustainability reporting can be seen as an
attempt to frame the debate. The bitumen and oil sectors have striven to gain legitimacy with the
adoption of the corporate social responsibility and sustainability concepts (Escobar and Vredenburg,
2011; Du and Vieira, 2012; Roeck and Delobbe, 2012; Comyns, 2016). It is doubtful that corporate
social responsibility and sustainability can be successful, if a firm is not perceived credible. Some
research casts doubts on the success chances: The extraction sector has lost its credibility vis-à-
vis human rights according to, for instance, Chandler (1998), Burgos Gonzáles (2006), Castillo
Meneses (2012), and Avellaneda Cusaría (2014). Human rights are a key component of corporate
responsibility and sustainability, of course.
4. Rule of Law
The Federal Court of Appeal (2018) has found: “The Government of Canada was required to engage
in a considered, meaningful two-way dialogue. However, for the most part, Canada’s representatives
limited their mandate to listening to and recording the concerns of the Indigenous applicants and
then transmitting those concerns to the decision-makers. On the whole, the record does not disclose
responsive, considered and meaningful dialogue coming back from Canada in response to the
concerns expressed by the Indigenous applicants. The law requires Canada to do more than receive
and record concerns and complaints.”
In Canada, key to jurisprudence by the Supreme Court of Canada regarding Indigenous rights is
Section 35 of the Constitution Act (1982). The claim underpinning Section 35 that Canada has
sovereignty over Indigenous peoples has been rejected in the Indigenous law literature, e.g., Bennett
(2005). Moreover, there has been a debate on Canadian courts’ need to and challenges in respecting
Indigenous laws, e.g., Ariss and Cutfeet (2011), Harland (2018), and Tousaw (2018). It may be
that Indigenous law and Occidental law are fundamentally incompatible (Christie, 2003; Ma’lingan,
2010). Canada is by no means an outlier increasingly respecting the rights of Indigenous American
nations. Indigenous rights have received increasing recognition in jurisprudence in the Americas
(Ríos Zamudio, 2011; Colmenares Olíver, 2015; Frizzo Bragato and Bigolin Neto, 2017; Fuenzalida
Bascuñán, 2017; Meza Salcedo, 2017; Pulzatto Peruzzo, 2017; Negrín Muñoz, 2018).
For this paper, the Federal Court of Appeal’s call for a “responsive, considered and meaningful
dialogue” is of interest. The specific case before the Federal Court of Appeal related to a project
of low-level technology and potentially high-level environmental damage. From the standpoint
of innovation, the legal principle cited by the Federal Court of Appeal raises the issue of a need
for firms to engage in innovation congruent with Indigenous American cultures and laws in the
coming years. Such a cultural-ethical diversification of the foundations of innovation is particularly
interesting, if a “responsive, considered and meaningful dialogue” is required for technologically
and scientifically ambitious projects.
Epistemologically, a cultural-ethical diversification is supported by Smith’s and High’s (2017)
argument that technology is a branch of philosophy instead of science. One outcome of a cultural-
ethical diversification could be technological innovation that would be better congruent with
sustainability.
5. Sustainability
Sustainability is founded on the implicit assumption that the interaction of economic, environmental
and social considerations results in constructive solutions for human and Nature alike. Safeguarding
that sustainability is respected in capital investment projects is left to government and ultimately
to the courts. Both administrative and legal proceedings contain participatory elements. Social
IAMOT 2019 | 627

mobilization has been seen as valuable in the development and implementation of climate change
programs (Westerhoff et al., 2018), but this is contingent on meaningful participation. The legal
importance attributed to a “responsive, considered and meaningful dialogue” by the Federal Court
of Appeal underlines the quality of participation in administrative proceedings. Challenges are not
only posed by the different worldviews espoused by various stakeholders, but also by different
interpretations and prioritizations of economic, environmental and social factors (Gailus, Westman,
2013; Finch et al., 2015; Davidson et al., 2018; Dusyk et al., 2018). For Rawlsian processes (Rawls,
2001; Luetge et al., 2016), among them those used by the National Energy Board, designed to find
reasonable compromises between stakeholders the diverging worldviews represent a fatal blow.
Different worldviews can enter the process via two paths. First, different parties may have
fundamentally different weightings of economic, environmental and social considerations. A
securitization – described in Wilson (2019) as “the process by which a political group frames an issue
as an existential threat to political order” – of energy is not conducive to a meaningful participation.
Second, there may exist cultural and legal differences between the colonial state and Indigenous
American nations. The extraction sector is often perceived as colonialism (Reed, 2002). The result
may be that a credible “responsive, considered and meaningful dialogue” participatory process has
reached its limits. This points to the dark side of Rawlsian processes: An institutionalization of
cultural and epistemic racism. Cultural and epistemic racism has been addressed in, for instance,
Quijano (2006), and Mejías Sandia and Suárez Manrique (2017). By insisting on a “responsive,
considered and meaningful dialogue”, the Federal Court of Appeal recognizes the danger of
institutionalized racism in Rawlsian processes.
The Federal Court of Appeal focusses on the social dimension of sustainability. Because the
economic and environmental dimensions have dominated in the literature, the focus on the social
dimension recalibrates the respective weight of the economic, environmental and social dimensions
in innovation in the context of sustainability. It may also result in a recalibration in the weighting
between different natural resources, for instance, from bitumen and oil to geothermal energy.
The natural gas-related and oil-related knowledge could be used to take advantage of Alberta’s
geothermal heat resources (Leitch et al., 2019).
A recalibration of the societal power structures may cause resentment among those who have
benefitted from the status quo. Discouragement for fighting for unjust societal power structures
comes from a somewhat surprising corner: Referring to Niccolò Machiavelli, Cosans and Reina
(2018) have argued that goodwill is a more solid foundation than power.
6. Consolidated results and discussion

The purpose of this paper was to study the dynamics of the divergence and radicalization of
stakeholders in the Trans Mountain Pipeline expansion project permitting process, and to formulate
solutions. The framing and lack of debate is both a cause and a symptom of a radicalization among
the parties involved. A radicalization effectively undermines Rawlsian processes in general, and
the participatory elements in administrative proceedings in particular. By favoring the status quo,
radicalization is detrimental for innovation outside of the narrow scope of the optimization of extant
technologies.
Jurisprudence offers a path out of technological stagnation that is a result of radicalization among the
parties. The Federal Court of Appeal’s call for a “responsive, considered and meaningful dialogue”
forces firms to reduce cultural and epistemic racism associated with coloniality directed against
Indigenous American nations. This also leads to increasing sustainability because innovation
activities will take place based on a broader cultural and epistemic foundation. Increased diversity
is a catalyst for more innovation. In view of the favorable role that jurisprudence plays here in
innovation, calls to reduce the role of jurisprudence under the disguise of cutting red tape is a poorly
camouflaged attempt to hamstring innovation.
IAMOT 2019 | 628

Destruction as Strategy? Business Ethical Ruminations
The Federal Court of Appeal called for a “responsive, considered and meaningful dialogue” with the
affected First Nations. Because a “responsive, considered and meaningful dialogue” is beneficial for
innovation and sustainability, the courts should consider broadening this requirement to encompass
society at large. Jurisprudence plays a constructive role in encouraging innovation and discouraging
destruction.
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IAMOT 2019 | 630

Designing Business Models
For Augmented Reality
Daniel Röltgen
Fraunhofer Institute for Mechatronic Systems Design,
Product Engineering, Germany
E-mail: roeltgen@iem.fraunhofer.de
Fabio Wortmann
E-mail: wortmann@iem.fraunhofer.de
Eva-Maria Grote
E-mail: eva-maria.grote@iem.fraunhofer.de
Roman Dumitrescu
E-mail: dumitrescu@iem.fraunhofer.de
Abstract
Almost all sectors of the manufacturing industry are affected by a shift in which the traditional product portfolio
is being replaced by highly integrated product service systems. This shift – also referred to as “servitization
in manufacturing” – is accelerated by innovation potentials that arise from the progress of digitally enabled
technologies. A technology with a considerable potential for the digital refinement of the product service business
is Augmented Reality (AR). It enables real-world environments to be enriched with additional virtual content. For
example, repair instructions can be visualized as a 3D animation superimposed on a physical machine, enabling
service technicians to carry out complex tasks more time and cost efficiently.
However, the integration of AR into the product service portfolio requires adjustments to the business model:
(1) Companies have to identify promising use cases for AR that create value for the customer, thereby defining
the value proposition of the business model. (2) The identified use cases need to be translated into products and
services, integrated into the existing product service portfolio. (3) Promising business models have to be designed,
taking into account the technology-specific challenges posed by AR (e.g. ensuring user acceptance, finding revenue
models to cover the investment costs for AR devices). Despite the large variety of potential AR applications,
business models successfully exploiting AR are still the exception, indicating that the development of sustainable
business models is a significant challenge. With this in mind, in this paper, we present an approach for designing
business models for AR.
The approach consists of a procedure model providing step-by-step instructions on how to develop business models
for AR and additional tools (e.g. catalogue with AR use cases, business model cards), that help to tackle the
technology-specific challenges caused by AR. It combines a methodical procedure with technology-specific solution
knowledge, allowing companies to utilize the benefits of AR for their product service business. The approach is
described using an industrial use case from the joint research project “AcRoSS – Instruments for the Implementation
of AR-based Product Service Systems” in which the use of AR is analysed for supporting repair processes in the
machine and plant engineering industry.
Keywords: Business Model; Augmented Reality; Product Service System; Servitization
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1. Introduction
The product portfolio of manufacturing companies is undergoing a change: the traditional business
focused on the manufacture and sale of products is being replaced by hybrid system solutions, so-
called product service systems (PSS), which combine product and service components (Aurich et
al., 2007), (Tukker and Tischner, 2006). This paradigm shift is also referred to as Servitization in
Manufacturing (Herterich et al., 2015) and reflects the economic transformation to a service society
at the corporate level. The reasons for this change are manifold. Due to the increasing quality of
competing products, differentiation from competition can only rarely be achieved by product quality
alone (Li et al., 2016). Further strategic motivations for the product service business are higher profit
contributions and customer loyalty (Schuh et al., 2016). Thus, the transition from product-oriented
to service-oriented thinking is becoming increasingly important for companies. The term service
dominant logic, which has been intensively discussed in marketing theory in recent years, expresses
this new mindset (Vargo and Lusch, 2004), (Vargo and Lusch, 2006).
2. Augmented Reality in the product service business

With the ongoing digitalization and rapid advances in information and communication technology
new innovation potentials arise for product service systems (Porter and Heppelmann, 2014).
One of the key technologies that is considered to significantly impact the future industrial value
creation is Augmented Reality (AR) (Rüßmann et al., 2015), (Porter and Heppelmann, 2017). In
general, AR enables real-world environments to be enriched with additional virtual information.
There are various definitions of the term in the literature, some of which differ greatly from
one another (Azuma, 1997), (Milgram et al., 1994), (Fink, 2018). One of the most prominent
definition comes from Azuma, according to which the term AR refers to a combination of real
and virtual objects that are three-dimensionally related to each other and allow interaction in real
time (Azuma, 1997).
By providing relevant information directly in the context in which it is needed, AR bridges
the gap between the physical and digital worlds (Craig, 2013). With AR, the interpretation of
digital data is no longer limited to two-dimensional representations (e.g. on a monitor) but is
instead extended to the three-dimensional space perceptible by humans. Thus, AR solves the
discrepancy between the abundance of digital data generated by the Internet of Things and the
limited ability of humans to benefit from it in the physical world (Porter and Heppelmann,
2017). The context-specific provision of information by using AR results in a cognitive relief
of the user, since the mental effort is reduced that is needed to transfer information from an
abstract representation to the context of the physical world. This enables AR to exploit the
economic potential of digital data more comprehensively than traditional human-machine
interfaces (Porter and Heppelmann, 2017).
Considering industrial applications, AR can be used to support activities along the entire value chain
(Porter and Heppelmann, 2017), (Röltgen et al., 2016). For example, in research and development
product concepts can be visualised as a 3D model to discuss design decisions (e.g. virtual design
reviews) (Ran and Wang, 2011). In production AR can be used to support assembly activities
(e.g. visual quality control), in marketing and sales product presentations can be supported by
highlighting product features (e.g. X-ray view inside a machine) and in after-sales service operating
or repair instructions can be visualized as a 3D animation superimposed on a physical machine (e.g.
augmented manual, see Figure 1) (Nee et al., 2012), (Kipper and Rampolla, 2013), (Dini and Mura,
2015).
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Figure 1: Example for the use of AR for supporting the repair process of a plant
The enormous potential of AR is also reflected in current market forecasts for AR. For the year
2022, a market volume of US$ 90 billion is expected, which corresponds to an increase by a factor
of nearly 500 compared to US$ 181 million in 2011 (Digi-Capital, 2018a). Based on the figures,
the enterprise sector will account for an increasing share of the revenues, with the use of AR in the
product service business being the most important driver as a recent survey by PTC implies (Porter
and Heppelmann, 2017). By enhancing products with additional AR-based services, companies can
generate additional customer benefits, increase the quality and efficiency of manual tasks and thus,
differentiate themselves from competition (Porcelli et al., 2013).
3. Challenges in designing business models for AR

Although the idea of using AR in industrial applications is not new and dates back to the origins of
AR in the 1960s, scientific discourse has so far been strongly influenced by technical issues. This is
due to the fact that, because of long prevailing technical limitations, research in the context of AR
was primarily focused on exploring the technical feasibility (Koch, 2017). Among the largest fields
of research are for example the optimization of tracking algorithms (software) (Zhou et al., 2008)
and the development of new optic technologies (hardware), e.g. for enlarging the field of view of
smart glasses (Maimone et al., 2014). However, considering the increasing importance of AR for
the product-service-business, decisive questions regarding the commercialisation of AR have not
been sufficiently investigated so far. With the increasing technical maturity and importance for the
product service business, new questions regarding the strategic planning of AR are opening up for
science and industry (Porter and Heppelmann, 2017).
One of the central questions is the development of business models for AR, which are referred to in
this paper as “the rationale of how an organization creates, delivers and captures value” (Osterwalder
and Pigneur, 2010). Business models are structured in so-called business model frameworks, which
present the relevant aspects of business activity and their interactions in a compact manner. In the
literature, there are many different business model frameworks, with the Business Model Canvas by
Osterwalder and Pigneur (2010) being the most well-known. In this paper, we use a slightly modified
version of the Business Model Canvas according to Köster (2014) and Gausemeier et al. (2017). It
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covers four partial models: offer, customer, infrastructure as well as finances, which represent the
main areas of a business (Osterwalder and Pigneur, 2010). Each partial model in turn comprises
several business model elements that describe specific aspects of the business activity (e.g. customer
segment, value proposition as well as products and services as part of the partial model offering).
Despite the numerous advantages that AR offers, the number of companies that have successfully
integrated AR into their business model is limited so far, indicating that the development of
sustainable business models for AR is a significant challenge for companies (van Kleef et al., 2010).
As shown in Figure 2, the main challenges can be divided into three groups.
Offer Customer Infrastructure Finances

Customer Segment Channels Key Activities Cost Structure
Defining the value proposition
Technology-specific challenges of AR
Value Proposition Key Resources
Customer Relationships Revenue Streams
Products & Services Key Partners

Interdependencies
Figure 2: Main challenges in designing business models for AR
Defining the value proposition: As the definition of Osterwalder and Pigneur shows, value is the
pivotal point in a business model. For AR, this means identifying use cases that create value for the
customer and translating them into new products and services. Missing experiences and empirical
values as well as a lack of transparency about the benefits of AR makes it difficult for companies to
weigh the impact of AR for the existing product service business. The significance of this challenge
is illustrated by a survey conducted by DigiCapital (2018a, 2018b), according to which critical use
cases as well as new products and services are seen by respondents as the most important prerequisite
for a scalable business model.
Interdependencies with the product service system: The integration of AR functionalities usually
requires modifications to existing products and services. For example, it might be necessary to
add new components to the product (e.g. visual marker for tracking) or change service processes
(e.g. customers doing self-service). It is especially important to consider the technology-specific
requirements of AR, which can be divided into technological constraints (e.g. limited capabilities
of mobile AR devices) and environmental dependencies (e.g. appropriate light conditions for
the AR device to calculate its position and orientation) (Craig, 2013). While on the one hand the
characteristics of the product service system result in requirements on the business model (e.g. new
key resources that are required), on the other hand the available business options might end up in
limitations for the product service design (e.g. lacking competencies, cost restrictions). For this
reason, business model design must be closely interlinked with the product service system design
(Barquet et al., 2011), (Köster, 2014).
Technology-specific challenges of AR: Companies trying to implement AR into their business model
are faced with technology-specific challenges that have to be considered at an early stage (Kipper
and Rampolla, 2013). For example, since the use of AR is not yet established in the industrial sector,
the majority of customers do not have dedicated AR devices (e.g. smart glasses) which are however
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necessary to enable AR visualizations. Considering the significant acquisition costs for AR devices
(handhelds: 500-1,000 €; smart glasses: 1,500-3,000 €), companies must find ways to compensate
for the high initial investments in the business model (e.g. by providing AR devices for a monthly
usage fee). Other challenges besides this example include ensuring user acceptance, providing the
necessary AR content and dealing with the technological dynamics in the market for AR (Craig,
2013), (Schmalstieg and Höllerer, 2016).
The challenges outlined above illustrate the need for methodological support in designing business
models for AR. With this in mind, the following section analyses the state of the art.
4. Reference to the state of the art

As described in the previous chapter, the scientific discourse on AR is primarily characterized
by technical research questions. However, an increase in publications on strategic planning and
business models for AR can be observed in the past ten years. Based on 5 basic technical types of
augmented reality, Hayes (2009) derives 16 idealized business models for AR (e.g. training, virtual
demo). Each business model is described in a short text and is ranked in a portfolio according to its
commercial value and adoption. The list developed by Hayes does not claim to be exhaustive but is
rather a starting document towards a classification. Based on Hayes’ findings, van Kleef et al. (2010)
investigated success factors for AR business models. For each of the nine elements of the Business
Model Canvas by Osterwalder and Pigneur, the authors identified AR-specific sub-elements (e.g.
patents, expertise, devices and staff as a specialization of the business model element key resources).
The identified sub-elements are success factors in the sense that they indicate which technology-
specific aspects are to be taken into account in developing business models for AR.
A general view on the business model for mobile AR was provided by Bernados and Casar (2011),
which is based on an analysis of more than 400 mobile AR applications available in Android Market
(e.g. regarding monetization strategy, user adoption). In various publications, the impact of AR
on specific business processes and industries is examined, e.g. manufacturing (Ong et al., 2008),
marketing (O`Mahony, 2015) and business in general (Kiryakova et al., 2018). Considering the
widespread effects of AR on value creation, Porter and Heppelmann (2017) derive the necessity for
every company to develop an AR strategy. For this purpose, the authors raise a set of questions that
companies face in the course of strategy development (e.g. make-or-buy decisions).
In summary, it can be stated that the challenges described in the previous section are tackled only
partially by the state of the art. Most of the approaches are too generic to be used as guidelines
for business model development. While there are numerous established approaches to business
model design in general, there is clearly a lack of methodological support taking into account the
technology-specific challenges posed by AR.
5. Approach for designing Business Models for Augmented Reality

In the following sections, we present an approach for designing business models for AR, specifically
focusing on industrial applications. The approach follows the four-phase process depicted in Figure 3.
AR Use Case Product Service Business Model Business Model

1 2 3 4
Selection System Design Design Assessment
 Analysis of customer  Specification of the  Development of  Evaluation and

needs product service business model selection of business
 Evaluation and selec- system variants model variants
tion of AR use cases
Selected Specified Product Business Model Selected
AR Use Case Service System Variants Business Model
Figure 3: Approach for Designing Business Models for AR
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To ensure a better understanding, the approach is illustrated and has been successfully validated by
applying to an industrial case study from the current joint research project “AcRoSS – Instruments for
the Implementation of AR-based Product Service Systems”, which is funded by the German Federal
Ministry for Economic Affairs and Energy. Within the project, AR is analysed for improving the
product-service business of a small-sized German mechanical engineering company that provides
solutions for the printing process of newspapers and magazines.
6. AR use case selection

Given the importance of the value proposition for business models, the first step is to identify AR use
cases that promise to create value for the customer. To support this task, a catalogue of AR use cases
is provided, as described by Röltgen et al. (2017), which was created as part of the project AcRoSS
based on a comprehensive internet and literature research on best practices from the enterprise sector.
In addition to use cases already in productive use, pilot applications and research demonstrators were
also taken into account. From the perspective of the company using the AR application, the use cases
can be assigned to the activities of the value chain (Porter, 1985), as illustrated in Figure 4.
Virtual Design AR-Supported AR-Enhanced

Review Product Design
Mixed Mock-Up … See-Before-You-Buy
Print Media
AR-Supported
Corporate Management
Customer Integration
AR-Enhanced
Human Resource Management
Trainings AR-Supported Spare
Research & Development Parts Procurement
AR-Supported AR-Enabled Product
Picking Procurement
Presentation
Marketing
Inbound Outbound
Operations & Service
… Logistics Logistics
Sales …
AR-Sup. Process AR-Supported AR-Supported See-What-I-See AR-Enhanced

Data Visualization Assembly Process Control (Remote Assistance) Repair Instructions
AR-Enhanced Main- AR-Enhanced
tenance Instructions Operating Instructions
Figure 4: AR use cases assigned to the value chain, based on Porter (1985), Röltgen et al. (2017)
In order to create transparency about the potential benefits, each use case is described in a use case
profile. Figure 5 shows an example of a profile for the use case “AR-enhanced repair instructions”.
The profiles contain a brief summary of the use case, examples of best practices and a detailed
description of the benefits from both the customer’s and provider’s point of view. Based on an
analysis of the identified application scenarios, 12 generic potential benefits resulting from the use of
AR were identified, which in turn are divided into three categories: time, quality and communication.
In the category time, benefits are summarized that result in time savings because of AR use (e.g.
faster response time, elimination of activities). The category quality covers benefits, which cause an
increase in quality (e.g. improved error prevention, error detection). The category communication
includes benefits that have a positive effect on communication and the exchange of information (e.g.
avoiding misunderstandings, visualising potential hazards). For each use case, an evaluation of the
potential benefits for customer and supplier is given on a scale from 0 (no benefit) to 3 (high benefit).
In the following, the AR profiles are used to support the development of the value proposition.
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AR-Enhanced Repair Instructions (for the customer)
Brief description:
The repair process for a technical plant can be supported by AR-enhanced
instructions. This can be done, for example, on the basis of known error codes.
The customer is shown step-by-step instructions and can therefore carry out
repair procedures himself (self-service).
Benefits from customer‘s Benefits from provider‘s Examples:

perspective: perspective:  Leybold: Repair of pumps
 Customer is enabled to repair the  Availability of service technicians  Volkswagen: Repair of the
machine himself increases XL1
 Customer can react more quickly  Higher availability can be
in the event of a system defect guaranteed to the customer  Wincor Nixdorf: Repair of
 Service technicians only have to be cash mashines
involved for demanding repairs
Evaluation
Potential benefits (from the customer‘s and provider‘s perspective)
Customer Provider not low medium high
0 1 2 3
Faster response time
Faster execution of the same acitivities

Time
Elimination of activities
More flexible planning of personnel and resources
Faster learning progress
Avoidance of errors in executing tasks (preventive)

Quality
Avoidance of errors in planning tasks (preventive)
Improved error detection (reactive)
Avoidance of misunderstandings
Communi-
Improved understanding of customer needs

cation
Improved communicability of purchase decisive information
Improved communicability of potential hazards
Figure 5: Profile for the use case “AR-enhanced Repair Instructions”
The first step is an analysis of customer needs. This involves examining the extent to which the
existing product service portfolio meets the needs of customers within a specific business segment.
Starting point is a product-market matrix according to Gausemeier and Plass (2014), in which the
relevant market segments are assigned to the company’s products and services. Within the matrix,
(main) business areas are to be identified. Depending on the strategic objectives, a business area is
to be selected in which the needs of the customers are to be analyzed more closely. In the validation
example, the main business area “newspaper printing” was selected in order to strengthen the
company’s position as a technology leader with additional AR-based services and thereby gain
competitive advantages.
For the analysis of customer needs within the selected business segment, a Value Proposition Canvas
according to Osterwalder et al. (2014) is used. As shown in Figure 6, the Value Proposition Canvas
consists of two sides, the value map (left side) and the customer profile (right side). Within the
customer profile, the jobs of the customer are analyzed, as well as pains and gains that are related
to the jobs, in order to clarify customer understanding. The value map, on the other hand, specifies
characteristics of the value proposition, by analyzing the contribution of products and services
the company offers to relieve customer’s pains (pain reliever) and create gains (gain creators). By
comparing the customer profile with the value map, unsatisfied customer needs can be discovered,
i.e. pains and gains that have not or only insufficiently been addressed by the products and services
currently offered by the company. The unsatisfied customer needs reflect the company’s need for
action and should be aimed at when identifying AR use cases.
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Figure 6: Analysis of customer needs within a business segment with a Value Proposition Canvas
The identification of AR use cases is based on a comparison of the previously determined unsatisfied
customer needs with the 12 generic potential benefits from the AR use case profiles. As shown in
Figure 7, the comparison can be done by using a matrix. By comparing in pairs, it is evaluated to
what extent a potential benefit (row) is suited to satisfy a customer need (column). The evaluation is
done on a scale from 0 (= potential benefit does not satisfy customer need) to 3 (= potential benefit
satisfies customer need completely). By using an example from the case study, the potential benefit
“faster response time” is well suited to cover the customer need “plant must not fail for longer time“,
whereas the potential benefit “improved communicability of potential hazards” does not affect this
customer need.
Figure 7: Mapping potential benefits of AR with unsatisfied customer needs
In the matrix, line sums can be calculated that indicate how suitable a potential benefit is to meet
the overall unsatisfied customer needs, thus representing its importance. Since each AR use case
profile contains a characteristic specification of the potential benefits, suitable AR use cases can
now be identified based on the results from the matrix. For this purpose, a weighted-point evaluation
(benefit analysis) of the AR use cases is carried out, as shown in Figure 8. The weights are based
on the line sums, whereas the scores, which are multiplied by the weights, are taken from the AR
use case profiles. By summing up the weighted points, a score is determined for each use case that
reflects the specific customer benefit. In addition, the provider benefit and the implementation effort
for each use case are evaluated. For the provider benefit, the evaluation is carried out analogously
to the procedure described above, with the benefit profiles from the provider’s point of view being
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used. The calculation of the implementation effort for each use case is based on a list of criteria
described in more detail by Röltgen et al. (2017). For more clarity, it is advisable to transfer the
results to a portfolio, with the customer benefit on the ordinate, the implementation effort on the
abscissa and the provider benefit depcited by the sphere size.
Figure 8: Assessment of the AR use Cases Regarding Benefits and Implementation Effort
In general, we recommend the selection of use cases that are characterized by a high customer
and provider benefit as well as a low implementation effort. However, experience from projects
shows that use cases with at least two evaluation dimensions that are medium to high should also be
considered more closely. This applies in particular to use cases, which have a high customer benefit,
as for those the customer’s willingness to pay may outweigh the implementation effort. With an AR
use case selected, the value proposition is largely determined based on the specific benefit profile
of the selected use case. However, it is advisable to further specify the benefits from the use case
profile in terms of the particular case at hand (e.g. specifying what the faster response time refers to).
The results for the case study are illustrated in Figure 8, showing that providing an AR-enhanced
repair service for so-called Computer-to-Plate (CtP) systems seems promising, which are used in
the printing process of newspapers and magazines. Especially with daily newspapers, the printing
process takes place late in the evening in a very short time frame, in order to be able to integrate
as much information as possible into the next issue. This reduces the time available for action if
problems occur during the printing process (e.g. machine errors). By offering an AR-enhanced
repair service, the provider of CtP systems could enable the customer to carry out repair procedures
by themselves, resulting in benefits for both the customer and supplier. From the point of view of
the customer, machines are repaired more quickly, decreasing unprofitable downtimes, whereas the
provider benefits from cost savings due to an increasing availability of service technicians.
7. Product service system design

In the second phase, the selected AR use case and the value proposition are specified and translated
into a product service system that is offered to the customer. Referring to the Business Model
Canvas, shown in Figure 2, that means, the focus is now on the business model element products &
services. The specification of the product service system is based on a system model, as proposed by
Röltgen et al. (2018). In this context, a system model according to model-based systems engineering
describes a cross-disciplinary description of the product service system that contains all essential
information about the system and serves as a basis for the communication between the stakeholders
of the disciplines involved (e.g. mechanics, electronics, service and software engineering).
For describing the system model, a modelling concept is used that consists of a set of partial models
with each partial model reflecting a certain aspect of the product service system. In the paper at
hand, we use a modelling concept that is based on CONSENS (CONceptual design Specification
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technique for Engineering of complex Systems) (Gausemeier et al., 2018). As shown in Figure 9,
it contains eight partial models that are closely related to each other, thus enabling transparency
with respect to interdependencies. Since in most cases AR functionalities will be added to either an
existing product (e.g. machine) or a product service system (e.g. machine with conventional repair
service), the following procedure is based on the assumption that a system model of the existing
product service system is available. Therefore, particular emphasis is placed on the analysis of
adaption needs that result from integrating AR functionalities to the existing products and services.
For methodological support, additional guiding questions are attached to the partial models to help
consider technology-specific requirements of AR.

Customer Segments Channels Key Activities Cost Structure
CtP Machine with AR-Enhanced Repair Instructions

Analysis
Value Proposition Environment Requirements
Key Resources Application scenarios
Functions
Products & Services Resources Key Partnerships
Active Structure Behaviour Processes
Synthesis
Figure 9: Model-based description of the product service system in the Business Model Canvas
In the following, the partial models are briefly described in a reasonable sequence according to
which they should be implemented, for further information see (Röltgen et al., 2018). The sequence
can be divided into two phases, analysis and synthesis.
7.1. Analysis
The integration of AR functionalities usually results in changes in the user’s interaction with the
physical product. For this reason, it is recommended to start with the partial model application
scenarios, in which characteristic situations of the system and its desired behaviour are specified.
Usually, application scenarios cover the entire life cycle, e.g. from installation at the customer’s site
to actual operation, repair and disposal. According to the selected AR use case, modifications to the
application scenarios need to be implemented. In the case study, for example, the application scenario
“repairing the CtP machine” needed to be changed, since the repair process is now conducted by the
customer.
In the partial model environment, the system environment and its effects on the system are analyzed.
The system is considered as a “black box”. Elements from the environment that are related to the
system are identified and the interactions described as either information, energy or material flows.
Considering the strong interdependencies between AR and environmental influences (e.g. light
conditions, temperature, ambient sounds), the analysis of the environment is of crucial importance.
Based on the existing environment model of the product, new environmental elements and their
influences are added that need to be considered due to the integration of AR. In the case study,
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the analysis of the environment revealed, for example, that the light conditions when repairing
the machine (usually dimmed yellow light to prevent exposure of the printing plates) have to be
improved.
In the partial model requirements, based on the application scenarios and the environment model,
requirements are derived. They are collected in a list of requirements that includes the original
requirements of the existing product service system as well as those that result from adaptation needs.
A distinction is made between product-related requirements (e.g. transferring error codes from the
machine to the AR device), service-related requirements (e.g. ensuring that the customer can contact
a service technician if the repair process has not been successful), and AR-related requirements (e.g.
interaction via voice user interface).
Based on the list of requirements, functions of the product service system are derived, distinguishing
between product- and service-related functions. The term function refers to the relationship between
input and output parameters in order to fulfil a specific task. Functions are usually described as a
combination of noun and verb (e.g. transfer error codes) and are hierarchically ordered in a function
structure. For analysing changes that occur due to the integration of AR, the function structure of
the existing product service system is used. New functions that are relevant for the usage of AR are
added and marked accordingly.
7.2. Synthesis
The functional structure is the main link between the analysis and synthesis phase. With the help
of additional tools such as the morphological matrix by Zwicky (1949), solutions for fulfilling
the functions are identified (e.g. Bluetooth module for transferring error codes from the machine
to the AR device). According to principles of systems thinking, solutions can be considered as
system elements, being a discrete part of a system, which can be implemented to fulfil specified
requirements (Arnold, 2002). In the partial model active structure, the system architecture of the
physical product is defined by combining the system elements and specifying their relations amongst
each other (material, energy and information flows, and logical relations). In the context of this
paper, we use the active structure to analyse and incorporate adjustments that need to be made to
the physical product due to the integration of AR. These are usually based on new product-related
functions that have been added to the function structure. For example, in the case study an optical
marker as well as an artificial light source had to be added to the CtP machine to support the tracking
of the AR device.
The active structure provides only a static view on the system. In the partial model behaviour, the
behaviour of the system is specified in terms of states, state transitions and events that initiate state
transitions. In the context of integrating AR functionalities, the behaviour model is used to describe
the interactions between the product and the AR device. In the case study, for example, the machines
transfers information on the error code to the AR device, which in turn automatically suggests
suitable repair instructions to the user.
Analogous to the procedure for transferring product-related functions to system elements, in the
partial model process the service-relevant functions are translated into process steps of the service.
For decribing the process model, we use a Service Blueprint (Shostack, 1984), which differentiates
between activities done by the customer and the service provider and whether the activities are
visible or invisible from a customer’s point of view. As shown in Figure 10, it further allows to
illustrate AR-relevant activities directly related to the use of an AR device (e.g. switch on AR device,
follow AR instructions). In case an existing service is to be enhanced by AR, it is recommended
to use the existing process model as a starting point and adjust it. Otherwise, the process has to be
defined from scratch. The process model for the case study is shown in Figure 10 and was derived
from an existing process model for a conventional repair service.
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Switch machine
Customer activities
Confirm
to operating
message
mode
Customer
Repair
successful?
activities
AR Switch on AR- Follow AR Confirm
Report an error
system instructions successful repair
Visible
Line of Interaction
activities
Personnel profile: Service Technician (Service Level 2)

AR
Onstage activities
Description Activities in the service process

The service technician is responsible for maintaining and  Switch on AR system
repairing machines in the newspaper printing plant and is  Follow AR instructions
either employed by the printing shop or by a sales company. Confirm
The focus of his work is on complex repairs (service level 2).  Confirm successful repair processing by
Provider
service
technician
Competence profile
Kompetenzprofil
Line of Visibility
Competence Scale Competence Scale
low 1 2 3 4 high low 1 2 3 4 high
Backstage-
Backstage
aktivitäten
Repair of CtP systems IT skills and programming

Invisible
activities
Analyzing data
Record repair Set up service
(time, repetition
case case
Fine motor skills Adaptability and continuous learning
of steps)
Gross moter skills and strength Inspecting of CtP systems
Training and instructing others Critical thinking and decision making
Basic digital skills Target profile Current profile
Figure 10: Assigning resources to the process model
Closely related to the process model is the partial model resources that assigns relevant resources
to the activities of the process model. Besides tangible resources such as equipment, also intangible
resources (e.g. skills, knowledge) should be taken into account. With this in mind, we use profiles
to specify the tools and personnel that are required and attach them to the activities in the process
model, as depicted in Figure 10. In the context of AR, adjustments will often affect both tools (e.g.
AR devices that are required) as well as personnel (e.g. new stakeholders that are involved). Since
AR-based services often require new skills (e.g. using the AR device), it is important to compare
the existing and required competencies in a chart, as part of the personnel profile, and analyse the
resulting shift that is needed (see Figure 10). In the case study, selected skills of the McKinsey
Global Institute workforce skill model (Bughin et al., 2018) were used to analyse the competencies.
Since with the AR-enhanced repair service customers should be enabled to carry out repair processes
by themselves, new skills in terms of handling the AR device (basic digital skills) as well as fine
motor skills are required.
With the eight partial models adjusted to the needs of AR, the product service system is holistically
specified. As the results from the case study show, the partial models also provide valuable
information for detailing the Business Model Canvas (e.g. required skills from the personnel profile
as input for the business model element “key resources”) which we will focus on in the next section.
8. Business model design

With regard to the Business Model Canvas, in the previous sections, the value proposition and the
customer segment were determined by selecting the AR use case, and the products and services to
be offered on the market were defined based on the product-service concept. This means, that in
the Business Model Canvas the partial model offer is largely described on the basis of the results
generated so far. The focus is now on the design of the remaining business model aspects, i.e. the
partial models customer, infrastructure and finances.
As stated in the introduction, when designing business models for AR, it is important to consider
ways on how to tackle technology-specific challenges that come up with AR. As part of the research
project AcRoSS, we identified 10 generic challenges, as shown in Figure 11, that companies are faced
with when designing business models for AR. The findings are based on an explorative literature
research, workshops with company representatives from the consortium as well as experiences made
in the industrial case study. In the following, the challenges are briefly described.
IAMOT 2019 | 642

Uncertainty Dependency on the Compliance to legal Uncertainty in Lacking

concerning user customer's operational regulations selecting AR competencies
acceptance environment technologies
Challenges of Business Models for Augmented Reality
Uncertainty concerning
Limited availability Effort for providing Uncertainty in Economic provision the customer's
of model data AR content choosing partner of AR devices willingness to pay
Figure 11: Technology-specific Challenges for Designing Business Models for AR
Uncertainty concerning user acceptance: AR applications result in many changes for the user due to
the limited prevalence so far. Especially smart glasses are a novel device category, the use of which
must be learned (e.g. gesture recognition of Microsoft HoloLens). In particular, the user guidance
and presentation in AR are new to many users, which is why operation must be intuitive. Some
application scenarios also require the user to be willing to take on new tasks, in the case study, for
example, repairing CtP machines. For this reason, it is important to think about ways on how to
ensure user acceptance.
Dependency on the customer’s operational environment: If AR is offered as part of a product
service system, the operational environment of the AR application is usually outside of the
provider’s company (e.g. at the customer’s site). In many cases, the operational environment differs
from customer to customer and can only be influenced to a limited extent. On the other hand, the
environmental influences have a significant effect on the proper functioning of the AR application
(e.g. lighting conditions for tracking, Internet connection).
Compliance to legal regulations: The use of AR raises new legal issues, for example concerning
information security, employee safety and liability. However, not all questions have yet been
clarified by jurisdiction. In order to avoid lawsuits, conformity with existing national and
international regulations have to be ensured (e.g. general data protection regulation, principle of data
minimisation). In the case study, in particular, questions regarding liability must be clarified in case
the customer causes damage to the machine during repair.
Uncertainty in selecting AR technologies: The market for AR technologies (e.g. AR devices,
platforms) is highly dynamic: Due to technical progress, there is a risk that these technologies will
quickly become outdated (e.g. performance, ergonomics) or are no longer supported (e.g. Tango from
Google). In order to deliver a striking customer experience and to remain successful in competition,
it is crucial to keep pace with technological development. This results in uncertainties regarding the
choice of AR technologies and the time of investment.
Lacking competencies: By offering AR-based services, new competencies are needed. Among
others, these include the development, testing and maintenance of the AR application; conception,
development and administration of the required IT infrastructure; operation and use of the AR
application; commercialization of the AR-based service through marketing and sales; after-sales
support for the customer (e.g. hotline). It has to be decided whether competencies should be built
up or outsourced.
Limited availability of model data: AR use cases usually require 3D models specially prepared
for visualization by AR (e.g. in formats such as .fbx, .obj, .stp). However, if the vertical range of
manufacture is low, 3D models are often held by the supplier and are not or not in the latest version
accessible.
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Effort for providing AR content: A central component of an AR application is the content (e.g. 3D
models, instructions), which must be kept up-to-date and consistent with the specific configuration
of the product at the customer’s site (e.g. machine). The effort for creating content and the frequency
for necessary updates can be very high, depending on the AR use case (e.g. repair instructions) and
company-specific factors (e.g. complexity of repairs, number of product variants).
Uncertainty in choosing partners: The market for AR applications offered by software providers is
highly dynamic and fragmented. Hardly any solutions have established themselves as standards,
instead there is often a co-existence of numerous, almost equivalent offers for a certain use case (e.g.
AR-enabled remote assistance). In addition, many start-ups are entering the market whose continued
existence is uncertain (e.g. lack of support due to bankruptcy or acquisition). In addition, software
providers try to bind companies to their products (vendor lock-in). For companies, the selection of
partners is therefore associated with a high degree of uncertainty.
Economic provision of AR devices: For the use of an AR application, AR devices are required.
Since the use of AR is not yet widespread in the industrial sector, the majority of customers do
not own dedicated AR devices (especially smart glasses). The purchase proves to be very cost-
intensive (handhelds: 500-1,000 €; smart glasses: 1,500-3,000 €), since the scaling is generally poor,
considering an AR display device is mandatory for using an AR application.
Uncertainty concerning the customer’s willingness to pay: AR-enhanced services are often based
on an existing service for which the customer is paying a price (e.g. conventional repair service).
For AR-based services to be profitable, higher costs resulting from AR must be covered by higher
revenues or cost savings. Due to the novelty and a lack of experience with AR, there may be
reservations from the customer to pay a higher price than for the existing service, especially since
the added value of AR is currently difficult to quantify in monetary terms.
As shown in Figure 12, each technology-specific challenge is described in a profile, a so-called
business model card. It contains a brief description of the challenge as well as a related key question
to which an answer needs to be found in the course of business model development in order to solve
the challenge. Furthermore, the business model card includes exemplary solutions that might be
suited to address the challenge. For example, to reduce the high initial investments for AR devices,
customers can be given the opportunity to use their own devices. In the case study, this solution
concept, also referred to as “bring your own device”, was implemented in the business model, using
tablets for the AR applications that are already attached to the CtP machines as a human-machine
interface.

Customer Segments Channels Key Activities Cost Structure
Cost Structure
1 Economic provision of AR devices

Question: How can the high initial investment costs in AR devices be
compensated in the business model?
Explanation Value Proposition Key Resources
 For the use of an AR application, AR devices are
required
 Since the use of AR is not yet widespread in the
industrial sector, the majority of customers do not own
dedicated AR devices (especially
Products & smart glasses)
Services Key Partnerships
 The purchase proves to be very cost-intensive

(handhelds: 500-1,000 €; smart glasses: 1,500-3,000 €)
 The scaling is generally bad, since an AR device is
mandatory for using an AR application
Exemplary solution concepts

 Bring your own device: Customers can use their own devices (e.g. existing tablets)
 Device sharing: Partnership with companies which already provide the customer with
AR-based services and whose devices can be shared
 Rent instead of buy: Devices are provided for a usage fee
Figure 12: Business Model Cards to Support the Design of Business Models for AR
The business model cards serve as a tool for detailing the Business Model Canvas. As shown in
Figure 12, the business model element to which the business model card refers to is noted in the upper
right corner. Experiences from the research project AcRoSS show that the business model cards are
a suitable tool for supporting business model workshops. From our experience, it is recommended to
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first create an initial draft for the Business Model Canvas in an interdisciplinary team, utilizing the
creative energies of the team members, and then refine it with the help of the business model cards.
In this way, risks of the initial business model draft are reduced and often new ideas emerge resulting
in additional business model variants.
9. Business model assessment

From the business model variants, the one that promises the greatest potential for success has to be
selected. For this purpose, a weighted point evaluation of the business model variants is carried out,
based on the evaluation dimensions attractiveness and accessibility. Each dimension is composed
of three criteria. For the evaluation of the business model attractiveness, describing how promising
the implementation of the business model is, the customer acceptance, the market potential as well
as the profitability are considered. On the other hand, the business model accessibility reflects how
difficult it is to implement the business model in terms of resources and risks and is based on the
technical implementation effort, the organisational implementation effort and the implementation
risk. For a better overview, the results of the evaluation are presented in a portfolio, as shown
in Figure 13. Based on the evaluation, a business model variant is to be selected, ideally being
attractive and accessible. In the case study, three business model variants were developed which
differ particularly regarding the degree to which activities are outsourced. Due to the high risks and
implementation costs, which are all the more severe given the small size of the company, as well as
a lack of experience with AR so far, business model variant 2, in which the development of the AR
software is outsourced to a software provider, was selected for further implementation.
Business model variants

1
Attractiveness
2 Variant 1: Develop
1
everything yourself
3 Variant 2: Buy the
2
software, do the content
Variant 3: Outsource
3
everything
Customer acceptance Technical implementation effort

Market potential Organisational implementation effort
Profitability Accessibility Implementation risk
Figure 13: Portfolio showing the result of the business model assessment
10. Conclusion
Augmented reality will fundamentally change the way people interact with virtual information.
These changes will not only affect everyday life, but also the industrial value creation. The
potential benefits associated with the use of AR, such as increased efficiency and cost savings,
open up innovation impulses for the product service business and thus enable companies to achieve
competitive advantages. In the paper at hand, we introduced an approach that supports companies
in (i) analysing the potentials of AR for their own product service portfolio, (ii) translating these
potentials into products and services and (iii) developing a sustainable business model. The value
added compared to existing approaches of the state of the art is based on the consistent consideration
of the technology-specific characteristics of AR. Thus, this paper bridges the gap between research
in the context of AR, which is mainly focused on technical issues so far, and research on the strategic
planning of product service systems, which is often technology-agnostic. In our view, there is a
need for further research, particularly with regard to the implementation planning of the business
model. In order to minimize the risks associated with AR, an agile approach could prove promising,
involving the customer at an early stage and implementing the business model gradually.
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Part of this research and development work was carried out in the research project “Instrumentarium
zur Implementierung von Augmented-Reality-basierten Produkt-Service-Systemen” (AcRoSS)
[Instruments for the implementation of Augmented Reality based product service systems]. The
project has been funded by the German Federal Ministry for Economic Affairs and Energy. The
authors would like to thank the project committee for their advice.
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IAMOT 2019 | 647

Developing and Evaluating Concepts
for a Digital Platform
Fabio Wortmann
Fraunhofer-Institute for Mechatronic Systems Design IEM,
Germany
E-mail: Fabio.wortmann@iem.fraunhofer.de
Robert Joppen
Fraunhofer-Institute for Mechatronic Systems Design IEM,
Germany
E-mail: Robert.joppen@iem.fraunhofer.de
Marvin Drewel
University of Paderborn, Advanced Systems Engineering
E-mail: marvin.drewel@hni.upb.de
Arno Kühn
Fraunhofer-Institute for Mechatronic Systems Design IE,
Germany
E-mail: arno.kuehn@iem.fraunhofer.de
Roman Dumitrescu
University of Paderborn, Advanced Systems Engineering
E-mail: roman.dumitrescu@iem.fraunhofer.de
Abstract
No other area shows such a potential for disruption as digital platforms. B2C platforms, like Amazon and Uber,
have radically changed the market situations within their industry. Until today, this change has mainly taken
place in the B2C sector. Still, first platforms are already established in the B2B sector. Examples are Adamos in
manufacturing and 365FarmNet in agriculture. With the entrance into the platform economy, companies are
confronted with huge challenges. One question is whether a platform can be established in a certain industry due to
its specific characteristics. Further questions are how a promising overall platform concept looks like, what relevant
platform services are and who the essential actors on the platform are. In literature, there are different approaches
for describing the benefits of a platform and designing a basic platform setup. Examples are the Platform Design
Toolkit and Platform Value Canvas, which can be used for describing a platforms value proposition. Another
example is the Platform Shell Model to describe the stakeholders of a platform. Still, those methods do not help
companies to create a basis for decision-making for a platform strategy.
In this paper we present a method for developing and evaluating concepts of a digital platform. Based on our
project experience, we derived a thorough procedure complemented with adequate methods to do so. The starting
point is the question of how a company should act regarding platforms in a certain industry. The goal is to develop
platform concepts and to provide an initial evaluation. All relevant actors of an industry and their pains and gains
should be considered. The platform concepts are based on the assumption that a platform can be described by its
services and actors. The services should also be bundled into clusters with regard to their synergies in order to
obtain consistent concepts. The validation shows that different platform concepts are promising depending on the
ecosystem. The most attractive services crystallize individually for each branch. Summing up, this paper describes a
thorough approach for developing and evaluating concepts of a digital platform. The results are a starting point for
the development of a detailed concept and a platform strategy.
Keywords: Digital Platform, Digitization, Platform Economy
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Developing and Evaluating Concepts for a Digital Platform
1. Introduction
The disruption potential of digital platforms has been shown in the B2C and C2C areas. Platforms
dominate our daily lives (e.g. Booking.com, Amazon) and have an enormous growth and scaling
potential. Digital platforms, which were founded 10 years ago (e.g. Airbnb), are today often much
more valuable than companies in the same industry that have existed for 100 years (e.g. Hilton Hotels)
(Machatschke, 2016). The increasing interconnection of industries and the massively generated data
opens up new potentials for digital platforms in the B2B sector (Engels et al., 2017). Beyond the
classical trading or agency functions, smart services such as predictive maintenance can now be
offered via platforms. By aggregating the production data of a company, many other potentials are
also imaginable. For example, real-time data regarding machine utilization can be used to offer free
machine capacities on a marketplace.
A digital platform is characterized by its offered services and its roles. The services are necessary to
generate value for the actors. The roles must be filled by different actors to make the ecosystem work.
But the definition of platform services and the selection of actors for each role brings a variety of
challenges. Figure 1 shows the challenges different actors face when entering the platform economy.
Roles Actors
Component
Manufacturer
Consumer
 Make use of services via digital
platforms (e.g. condition
monitoring) ? ?
 Can be bound to platforms by
hardware (e.g. machines) ? Automation
Producer
?
 Offer services via an existing
digital platform (e.g. condition Digital Platform
Mechanical and
monitoring)
Platform Core
? ? Plant Engineers
Platform Operator Services ?

 Is able to offer services ?
 Is able to open the platform for
external suppliers Producing
Companies
Services must address the needs of
customers. It requires sector-specific
application knowledge.
Figure 1: Challenges by Entering the Platform Economy
The consumer makes use of the platform services and has to perceive value through using the
platform. By chosing one platform to use, the consumer also binds himself to the data standards
an interfaces pretended by the platform. Thus the consumer can get dependent from the platform.
The producer offers the services on the platform for consumers to use. On the one hand, producers
have the opportunity to get access to a variety of consumers due to the platform. On the other
hand, the transparency forces producers to offer fair conditions to consumers, because they are
compareable to others. The operator offers the platform to consumers and producers and has to
manage the network. The main challenge is to establish the platform and to create incentives for all
necessary actors.
The different actors in B2B have different sights to the platform topic. For component suppliers,
other services are interesting than for producing companies. Component suppliers are for exemple
more attracted by service regarding the offering of components and consulting. Producing companies
for example need service for optimizing their machines and plants and the procurement process.
Platform operators have the challenge to create a value for a maximum number of actors and to
connect them via the platform. This is the only way to address a sufficiently large target group and
to positively affect the success of the platform.
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In the forthcoming platform economy, companies now have to make difficult decisions. Which
platform are they able to use? The amount of possible platforms is huge and non-transparent.
Which Interfaces do they have to serve and how does the company change by realizing a platform
strategy? The decision for a platform may involve technical lock-in. Is the development of an own
platform the best strategy?
In this Paper we present a methodology for developing and evaluating concepts for a digital platform.
Through the developed platform concepts and the first evaluation by experts, companies should
receive a first point of reference for a strategic direction and the further planning and implementation
of a platform strategy. The focused main question in this paper is: Will the development of an own
platform be promising? The following sub-questions are associated with this:
●● Which are the relevant actors of an ecosystem and what are their pains and gains?
●● Which platform services address pains and gains and are they desired by potential actors?
●● What are possible platform concepts and are they promising?
The paper is structured as follows. In the next chapter, the problem for companies in context of digital
platforms is pictured. The term digital platform is explained and opportunities and challenges are
described. The chapter closes with the need for action for a basis of decison. The following chapter
presents the state of research. It lists approaches in three categories that already address parts of the
problem. Finally it is shown, that existiting approaches do not serve as a basis for decision at all.
The need for the methodology developed is derived. The next chapter describes the developed
methodology. Therefore a procedure model is presented. The methodology is then explained in detail
based on the phases of the procedure model. In the final chapter a short conclusion and outlook is given.
2. Analysis of the Problem when Planning a Platform Strategy in B2B

This chapter describes the challenges by entering the platform economy and how companies could
begin to plan a platform strategy. At the beginning, a definition of the term “digital platform” is
given. Afterwards reasons for the success of digital platforms in B2C are described. Based on this,
opportunities and challenges for the B2B sector are derived and the need for action for a decision
basis is explained.
2.1. Definition of Digital Platforms

In the literature, there is a multitude of synonyms for the term “digital platform” such as platform
ecosystem, two sided market or IoT platform (Reuver et al., 2017), which essentially differ in a
technical or market perspective. In this paper, the topic is examined from a market perspective in
order to be able to make statements about a strategically promising positioning in the market.
Through the market perspective, digital platforms are defined as intermediaries that link different
groups of actors. A characteristic feature is the creation of a two- or multi-sided market.
The platform’s task is to match the producers’ offers with the consumers’ requests, so that transactions
can be achieved (Parson et al., 2016), (Engelhardt et al., 2017). This process of matchmaking and value
creation is supported by platform services. Digital platforms have technology-based business models
that add value by efficiently enabling interaction, communication, co-creation and exchange between
two or more actors (Choudary, 2015), (Plugmann, 2018). The actors act within a predetermined
infrastructure and a set of rules defined by the platform operator, so-called platform governance
(Massa et al., 2016), (Plugmann, 2018), (Evans, 2012), (Tiwana et al., 2010), (Manner et al., 2013).
As the definition shows, digital platforms can generally be described by their platform services
(How does a platform fulfill its functions) and their actors (Who is using and operating the platform).
2.2. Digital Platforms as a Successful Business Strategy for the Consumer Sector
In B2C, platforms have proven to be a successful business strategy. This has changed the mechanisms
of entire industries. So far, these changes have mainly taken place in the B2C sector (Libert et al., 2016).
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The cause of the fundamental change and the basis for the success of digital platforms is the network
effect (van Alstyne et al., 2016), (Baums et al., 2015), (Eisenmann et al., 2006). (Plugmann, 2018),
(Parker et al., 2012).
Through the network effect, a platform gets more attractive for a group of actors, when another
group is growing. In the end, the majority of actors uses platforms. The value creation based on
pipelines dominated industries in the past. This now changes fundamentally to the use of platforms.
This is shown by the example of Airbnb. Seekers for housings are more attracted by the platform,
if there is a multitude of providers. Providers are interested in offering housings on a platform
with lots of potential customers. Nowadays, the majority of bookers uses platforms and wont book
housings directly from the provider.
There is a reason that B2C platforms can achieve those network effects. In contrast to the B2B
sector, entry barriers for actors are very low and target groups of such platforms are usually
huge. Therefore, B2C platforms are characterised by enormous growth and scaling potentials
as soon as the critical mass is reached (Van Alstyne et al., 2016), (Plugmann, 2018). Critical
mass is the point at which the platform grows independently and the start-up phase is overcome
(Schüler, 2017). According to a VDMA study, the seven largest B2C platforms now have higher
market capitalisation than the entire Euro Stoxx 50 (Rauen et al., 2018).
Platforms are very popular in the B2C area, as they create value in many different ways. Platforms
reduce transaction costs through their function as intermediaries. On the one hand, it is the result
of the simplified interaction via a platform. On the other hand, it results from the use of specific
platform services. These allow the mediation between supply and demand, the provision of data or
the handling of contract or payment processes. The standardization of these processes, the reduced
coordination effort and the coordinated ecosystem reduce transaction costs (Rauen et al., 2018).
Furthermore the resource requirements are moderate. (Plugmann, 2018), (Van Alstyne et al., 2016).
In addition to decreasing transaction costs, platforms offer customers very specific benefits. This
benefit is generated by the fact that many transactions would not be possible without the platform.
The network and the transparency allow users to find offers they would not see without a platform.
The main value creator in B2C is the offered network and the transparency (Engelhardt et al., 2017).
The success of most B2C platforms can be traced back to this.
2.3. Potentials and Challenges for Digital Platforms in B2B

In the B2B sector it is noticeable, that companies try to reach the success potential of B2C platforms
as well. Due to the digitalization, the industry is being increasingly interconnected and data
is progressively being produced. One result of digitalization is the so-called vertical integration
(interconnection within a company) and the horizontal integration (interconnection between
production sites or companies). Consistent vertical and horizontal integration reveals new potentials
for the use of digital platforms. Those exist along the entire value chain of manufacturing companies.
In the area of procurement, platforms can be used to compare suppliers’ offers transparently and
to systematize order processing (e.g. VW ONE.Konzern Business Plattform (Flörecke, 2017)).
In the area of production, there is a lot of potential for Smart Services based on aggregated data on
a platform. Smart services are value-added services that are based on the processing of data and are
combined with a product (Mittag et al., 2018), (Rabe et al., 2018). As an IIOT platform, ADAMOS
offers the possibility to link machines and to obtain apps via an App-Store. These apps can provide
various benefits, e.g. the monitoring of operating parameters or predictive maintenance. Even the
selling of products and services can be optimized by digital market places. The transparency offered
by the platform helps customers by making purchasing decisions. Producers have a wider mass of
potential customers they can offer their products and services.
For the most companys in B2B, planning and realizing a platform strategy is a huge challenge.
In context of Digitalization, the platform topic gets more and more complex due to interconnectivity
and data processing (Figure 2).
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Classic B2B Platform Platform in the age of Industry 4.0

Heterogeneity
of the Data Smart Unclear Benefits
Products and Service
Consumer Data
Services Consumer
Processing
Producer Producer
Platform 100101 Security &

01101
Platform Privacy
Incentive for 01101001
01101001
Actors Data
01101001
01101001
Operator Monetari- Operator Heterogeneity of

sation the Interfaces
Legend: Challenge
Figure 2: New Challenges through Platforms in the age of Industry 4.0
The main difference between classic B2B platforms and platforms in the age of industry 4.0 is
the increasing aggregation and processing of data through the platform. So it is not so much the
pure intermediary role that will characterize future platforms. The aim will be to create added value
through the processing of data. This results in a multitude of new potentials for services, which
can be offered via digital platforms. As already mentioned, unlocking these potentials confronts
companies with various challenges.
Aggregating production data on one platform is a technical challenge. In many companies, machines
and plants of different ages and manufacturers are used. The resulting heterogeneity of interfaces
makes it difficult to aggregate data on a single platform. On the one hand, there must be connection
options for heterogeneous industrial machines and systems using standardized and open interfaces.
On the other hand, the analysis of operational data must be possible. Aggregated production data
can be very heterogeneous. Industrial machines and plants are digitized context-specifically.
Furthermore, communication protocols must be provided and modularized expandability of the
platform should be ensured (Dremel and Herterich, 2016). Even if the technical connection and data
processing is possible, companies must first be convinced to store their data on the platform.
Reservations regarding security and privacy and the imminent loss of data sovereignty can frighten
companies from joining the platform (Wlodarczyk et al., 2009). If this hurdle is also overcome, the
variety of data must be processed and evaluated in order to generate useful smart services. This also
raises the question which smart services provide the customer sufficient benefits, so that he joins
the platform. Last but not least, it is also important to create incentives for producers to use the
platform and accept the threat of losing the direct customer access.
The multitude of possible platform szenarios and the challenges connected with the planning and
realizing of a platform complicates the decision of entering the platform economy. To face those
challenges, every company needs an individual platform strategy. The development of such
strategy is in no way trivial. Every company has its own needs and skills that has to be mentioned.
Also every branch is different. Different branches offer different potentials for digital platforms.
It is necessary to understand the mindset and to identify the needs of the actors within a branch.
Every company needs an adequate decision basis for a strategic direction.
2.4. Need for a basis of Decision

On the highest level, companys can chose between three options for a strategic direction: Developing
an own platform, joining an existing platform and not partizipating in the platform economy.
The development of an own platform can be promising, if potentials exist. In addition, a company
must have sufficient competence and resources as well as the appropriate standing in the community.
Joining a platform can be useful if a company does not have the possibility to establish its own
platform. It is also conceivable that successful platforms to use already exist. It is also possible
that neither developing nor joining a platform is promising. In this case, companies should not
participate in the platform economy. To select one of those strategic directions, a basis for
decision is required.
IAMOT 2019 | 652
In this paper we focus the first mentioned option. We serve a basis to decide wheather developing
an own platform is promising or not. To do so, several aspects has to be taken in calculation.
It is necessary to analyze the branch to identify potentials for digital platforms. To do so, key actors
in the branch must be identified and their value-adding activities analyzed. In addition, it is useful
to scan for existing platforms in the branch. This shows if the needs of actors are already addressed
by platforms. Even if potentials exists, the success of a platform is by no means assured. Different
potentials result in different conceivable platform concepts. In addition to a number of platform
services, these also include the necessary actors. It is important that the necessary actors accept the
platform concept and are willing to join. In order to obtain an initial direction for the planning of a
platform strategy, it is therefore necessary to create an appropriate basis for decision. The aim of this
paper is therefore the development and evaluation of platform concepts, which serve as a decision
basis for the planning of a platform strategy.
3. Approaches for Developing and Evaluating Concepts of a Digital Platform

Approaches for developing and evaluating concepts of a digital platform can be roughly divided into
three categories 1) general evaluation approaches 2) holistic framework models of digital platforms
and 3) specific approaches to design digital platforms.
3.1. General Evaluation Approaches

General approaches to evaluate alternatives by using multi-criteria decision support can be
adapted to evaluate concepts of a digital platform. Exemplary approaches are the value analyses
by Zangenmeister, the Technique for Order Preference by Similarity to Ideal Solution (TOPSIS)
by Peters and Zelewski and the Analytic Hierarchy Process by Bhushan and Rai (Zangenmeister,
1970), (Peters and Zelewski, 2007), (Bushan and Rai, 2004). The results of these approaches can be
visualized within a multidimensional scaling (Gausemeier and Plass, 2014). While these approaches
can be adapted to the task at hand, all mentioned approaches lack specific platform criterions and
are therefore not sufficient to evaluate concepts of a digital platform. Nevertheless, the mentioned
approaches can be used as a foundation for the developed method.
3.2. Framework Models

Holistic framework models aggregate several relevant elements of digital platforms. The aim of
these frameworks is to support companies in planning and building their own digital platforms.
Choudary describes a four-stage process for building a digital platform based on key interaction.
This construction process is tangled by a platform canvas, which shows all elements for the platform
construction (Choudary, 2015). Similar canvas-based approaches for platform construction are
provided by Walter and Lohse as well as Scholten (Walter and Lohse, 2017), (Scholten, 2016).
Such approaches have in common that they deal in detail with the procedure for building a digital
platform, but the design of the individual process steps is not particularly detailed. Moreover these
approaches don’t assess the actual chances of success of a digital platform but the development
process of a platform.
3.3. Specific Approaches

In order to develop a digital platform, more is required than mere knowledge of a corresponding
procedure. Therefore, approaches have been incorporated into the analysis of the state of the art,
which deal with the design of individual platform elements. Scientific literature has been dominated
by approaches to the acquisition of platform participants, which often are referred to as approaches
to overcoming the chicken-and-egg problem. Leading works in this field come from Moazed and
Johnson, Hagiu and Altman as well as Evans and Schmalensee (Moazed and Johnson, 2016),
(Hagiu and Altman, 2017), (Evans and Schmalensee, 2016). The authors describe different strategies
to convince participants to use a platform. Another topic that is intensively discussed in the literature
is the monetarization of platforms. Leading works on this topic come from Parker et al. as well as L.C.
IAMOT 2019 | 653

Reillier and B. Reillier (Parker et al., 2016), (L.C. Reillier and B. Reillier, 2017). These works
can be used to evaluate the chances of success of a digital platform in terms of monetarization
and canvassing for participants. Approaches to find and evaluate already existing platforms can
be used to assess the chances to differentiate a concept for a new platform as well as to rate a
new concept within the process. An exemplary method is proved by Drewel and Gausemeier
(Drewel and Gausemeier, 2018). Additionally these works can be used to increase the chances
of success of a digital platform as they can help to gather participants or to earn money with an
already developed platform.
The mentioned and further approaches from the state of the art were examined for a possible
utilization for developing and evaluating concepts of a digital platform and they were incorporated
into the developed method, which will be presented in the following chapter.
4. Methodology for Developing and Evaluating Concepts of a Digital Platform

This section describes the method for evaluating the chances of success of a digital platform.
First, the process model is described in the overview. The individual phases of the method are then
presented in detail.
4.1. Procedure Model

The procedure model is divided into four phases. Each phase uses methods that are necessary to
achieve the results. Figure 3 shows the procedure model in a phase-milestone diagram.
Figure 3: Procedure Model for Developing and Evaluating Concepts of a Digital Platform
In phase 1, the analysis of the ecosystem will reveal relevant actors and identify unsatisfied needs
of those actors. For this purpose, value-adding activities of the actors will be analyzed and pains
and gains of the actors will be identified by using a Value Proposition Canvas. In addition, existing
platforms within the industry will be analyzed. It is important to assess wheather they already address
some needs of the actors. Based on the unsatisfied needs, satisfying platform services are identified
in the second phase. For this purpose, a comparison is made with a catalogue of platform services.
Additionally, depending on unsatisfied needs, ideas for new services are collected. In the third
phase, the services and actors from phases 1 and 2 are evaluated in an interview series with regard
to their importance for a platform. The evaluated services are then subjected to a synergy analysis so
that consistent service clusters can be represented in an MDS. In the last phase promising platform
concepts are developed. For this purpose, service clusters are selected that have been assessed
as “important” in total. The selected service clusters are then bundled into meaningful platform
IAMOT 2019 | 654
concepts. Necessary actors that serve the services have to be identified. The platform concepts are
finally documented in a profile and evaluated by experts. In the following, the method will be shown
using the example of the ecosystem “switch gear manufacturing”.
4.1.1. Phase 1–Analysis of the Ecosystem

In the first step, the ecosystem has to be described and analyzed. The ecosystem “switch gear
manufacturing” was modelled for this purpose. Afterwards the essential actors of the ecosystem are
identified and named. The actors are then classified based on the value chain. Figure 4 shows the
value chain including the major actors in switch gear manufacturing.
Cabinet Mechanical Customer
Component suppliers
Building Engineering
Mechanical components
small
Simple mech. Complex mech. 1. Mechanical engineers incl. control cabinet building
Components Components Short description Value proposition

The mechanical engineer receives by the customer the specified machine. He Machines and systems, including the
medium
usually takes over the specification of the control cabinet and uses for the work control cabinets which were required
Electric and electronic components various engineering software. for this purpose, are manufactured as
requested. This also includes the
standards of specific industries.
Essential value-adding activities Pains and gains

Pains:
 Missing data from manufacturers
in engineering
Project Installation,  Heterogeneity of different
Simple elec. Complex elec.
Development, Mechanical Equipment,
planning, commission- engineering solutions
construction processing wiring
programming ing
Components Components large Gains:

 Higher level of automation and IT
integration
Tools
Simple Tools Complex Tools

Mechanical Engineering
incl. Cabinet Building
Engineering Software
Complementary Software
Figure 4: Value Chain in the Ecosystem “Switch Gear Manufacturing” and Actors
Based on a customer order, a machine is developed by the mechanical engineering. The corresponding
ECAD data is forwarded to the switch gear manufacturer together with an order for a switch cabinet.
The switch cabinet can be built directly by a machine and plant manufacturer with its own switch
gear manufacturing or outsourced to an external switch gear manufacturer. Based on the order, the
switch gear manufacturer procures necessary components and tools from the component suppliers.
A distinction is made between mechanical components, electrical or electronic components and
tools. Engineering and complementary software are also used along this value chain.
The individual actors are then specified in more detail. For this purpose, a profile is created, which
contains essential information for the further procedure. Figure 5 shows an exemplary profile of
the actor “Machine and plant manufacturer including switch gear manufacturing”. In addition to a
description of the actor, value-adding activities are identified. These are used as input for the Value
Proposition Canvas.
1. Mechanical engineers incl. control cabinet building
Short description Value proposition

The mechanical engineer receives by the customer the specified machine. He Machines and systems, including the
usually takes over the specification of the control cabinet and uses for the work control cabinets which were required
various engineering software. for this purpose, are manufactured as
requested. This also includes the
standards of specific industries.
Essential value-adding activities Pains and gains

Pains:
 Missing data from manufacturers
in engineering
Project Installation,  Heterogeneity of different
Development, Mechanical Equipment,
planning, commission- engineering solutions
construction processing wiring
programming ing
Gains:
 Higher level of automation and IT
integration
Figure 5: Example of an Actor Profile
The identified pains and gains associated with the value-adding activities are also recorded in
the profile. These will later be used to select satisfying platform services. In addition, the value
proposition of the actor in the value chain is documented. A list of exemplary companies that fulfill
this role completes the profile.
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Once the existing ecosystem has been analyzed, existing platforms within the industry are also
researched and examined to see whether they already address pains and gains. Figure 6 shows an
exemplary platform profile. The platform profile contains a description and key information about
the platform. Furthermore, the platform is characterized by generic platform features from literature.
The platform focus indicates whether the platform is more mercantilistic-oriented or
technological-oriented. The openness shows how strong the regulations are for the access of actors.
Neutrality indicates the influence of the platform operator on the platform. The asset ownership
indicates how much of the necessary resources are provided by the operator (E.g. DriveNow has a
high asset ownership. BMW provides the cars that are used for the platform). The service portfolio
indicates whether the type of goods transferred is digital or physical. The customer segment
specifies whether the platform is more regionally or globally oriented.
In addition, exemplary actors of the platform are listed and special features of the platform are
documented. The identified platforms are compared with the needs of the actors. On the basis of the
unaddressed pains and gains, the potentials for a new digital platform can be derived.
Short description
CADUNITY is a virtual marketplace for the exchange of standardized ECAD article master data. Field-proven, high-quality
ECAD data of various technical components can be sold or purchased. They can be used in any ECAD software and are
therefore directly available for the engineering process for a fee. (The providers receive money according to the use of their
data.)
Facts and figures Features of the platform

Headquarters: Düsseldorf, Germany mercantilistic Focus technological
Foundation: 2017
Employees: -
open Openness closed
Turnover: -
Users: -
Sales markets: global neutrally Neutrality conditionally
Income sources: participation in transaction fees
no assets Asset ownership assets
Main services physical digital

Service portfolio
commodity commodity
 Aggregation of data
 Processing of data locally Customer segments global
 Payment processing
 Matching
 … Specifics
 Uniform, superordinate ECAD design standard
 Guaranteed high data quality
 Compatible with any ECAD software
Figure 6: Exemplary Platform Profile
4.1.2. Phase 2–Identification of Potential Platform Services

In order to be able to address unsatisfied needs, it is necessary to identify potential platform services.
As mentioned before, the assumption is made that platforms can be described by their services
and actors. Each platform service provides a specific value. This value must be highlighted and
compared with the unsatisfied needs of the actors. A multi-stage procedure was chosen to identify
platform services that cover needs (Figure 7).
Creating Conducting Creating Creation of
long-list pre-evaluation short-list platform concepts
Existing and
adressed services
Needs of actors
Proceeding Proceeding Proceeding Proceeding

 Analysis of  Eliminating  Formulation of  Evaluation of the
existing platforms double hypotheses interview series
 Ideas for new nominations  Conducting of  Design of the
Services  Clustering of depth interviews platform modules
similar services
 112 Possible  65 Pre-evaluated  48 Evaluated  Elaborated
services services services service offer
Figure 7: Procedure for the Identification of Platform Services
IAMOT 2019 | 656

In the first step, existing platforms such as ePlan Dataportal, ADAMOS or Airbnb were examined
for platform services. In addition, ideas for further platform services were collected on the basis of
the unsatisfied needs of the actors within the ecosystem. This resulted in a longlist of 112 services.
The list was reduced to 65 services by a pre-evaluation, in which double entries were eliminated and
similar services were combined. A shortlist with a total of 48 platform services was derived from a
subsequent comparison with the needs of the actors. These services will be used to develop platform
concepts in the last phase.
The services were recorded in service profiles (Figure 8). Each service was provided with a
short description and a pictogram. In addition, the value proposition of a service is noted in key
points. After the services in phase 3 have been evaluated by experts from the departments cabinet
manufacturer, machine builder, component supplier and software provider, the relevance of the
services is supplemented from the point of view of the respective expert group. The catalogue of
platform services serves as the basis for the expert surveys in the next phase.
Capacity fare for machines Short description

Capacity fare for employees With
Short a capacity exchange for personnel, companies can respond to fluctuating
description
demand according to need. In times of underutilization, they can offer free
With
Short a capacity exchange for personnel, companies can respond to fluctuating
description
personnel capacities on a marketplace. In case of overload, you can recruit
temporary
With a capacity personnel
exchange for in a targetedcompanies
personnel, manner. can respond to fluctuating
personnel capacities on a marketplace. In case of overload, you can recruit
temporary personnel in a targeted manner.
Value proposition personnel capacities on a marketplace.
Relevance In bycase of overload,
Player Group you can recruit
temporary personnel in a targeted manner.
Demand-related adjustment of personnel Relevance by Player Group
 proposition
Value low high
capacities Cabinet manufacturer
 Demand-related
Value proposition adjustment of personnel Relevance by actor group low high
 Cross-company optimal utilization of
capacities Cabinet manufacturer
Machine builder
personneladjustment
 Demand-related capacitiesof personnel low high
 Additional source of revenue for companies
capacities Component
personnel capacities Cabinet builder supplier
manufacturer
Machine
 Additional source of revenue for companies Software
Component provider
personnel capacities Machine builder supplier
 Additional source of revenue for companies Softwaresupplier
Component provider
Software provider
Figure 8: Exemplary Service Profile
4.1.3. Phase 3–Evaluating and Structuring of Platform Services

To develop meaningful platform concepts based on the services, these have to be evaluated in
an expert survey. All 48 services are evaluated independently with regard to their importance.
The attractiveness of a platform concept is then determined by the aggregation of the individual
evaluations of the services. The evaluation of the services by experts alone, however, is not sufficient
to develop meaningful platform concepts. In a second step, the services are also subjected to a
synergy analysis. This serves to identify service clusters that are coherent and feasible.
An interview guideline was developed for the expert survey. In addition to the 48 platform
services, this also contains a section for the evaluation of the actors in the ecosystem switch gear
manufacturing. These are evaluated with regard to their role as providers on the one hand and as
customers of the platform on the other. The results give an indication of which actors should be
addressed by a platform concept. A total of 32 experts were interviewed. In addition to the synergy
analysis, the results serve as a basis for the development of the platform concepts in phase 4.
The purpose of synergy analysis is to bundle services that support each other into service clusters.
For this purpose, the 48 services are matrixed against each other and evaluated with regard to their
synergies. Figure 9 shows an excerpt from the synergy analysis.
IAMOT 2019 | 657

Synergiematrix
Synergy matrix
Aspekt: Nutzen
Which service in row i has
Suchmaschinenoptimierung
Engine Optimization
synergies with services in
Webshop
Produktkonfiguratoren
Kollaborationsbereich
column j?
Skala
22Community-Functions
CAE-Funktionalitäten
Community-Funktion
Area
Functionalities
Vergleichsfunktion
1: Keine Synergien
Scale
Function
Webshop
Service
Gebrauchtmarkt
2:
1: In
NoAusnahmenfällen
synergies
Support
OnlineSupport
Bezahlservice
Simulationen
10Collaboration
Umfassender
11Configurator
Shop
3:
2: Kann Potentiale
In special casesbergen
Dashboard
12Simulation
55Dashboard
3: Synergien
4: May contain synergies
wahrscheinlich
66Compare
33Payment
44Search
11Holistic
77Resale
4: Zwingende
Synergies Kombination
likely
88Online
5:
99CAE
5: Forced combination
10
11
12
A comprehensive web shop
11Holistic
Umfassender Webshop
Webshop 5 3 5 4 3 5 3 3 3 2 5 1 has to include a payment
22Community-Functions
Community-Funktionen 3 5 1 1 2 1 3 3 1 4 1 1 service.
33Payment
Bezahlservice
Service 5 1 5 5 2 5 5 1 2 1 2 3
44Search
Suchmaschinenoptimierung
Engine Optimization 4 1 5 5 4 2 3 2 2 1 2 1
55Dashboard
Dashboard 3 2 2 4 5 3 3 3 2 1 4 2
66Compare
Vergleichsfunktion
Function 5 1 5 2 3 5 5 1 3 1 3 2
77Resale
Gebrauchtmarkt
Shop 3 3 5 3 3 5 5 1 1 1 1 1 A general, freely accessible
88Online
OnlineSupport
Support 3 3 1 2 3 1 1 5 3 3 3 3 online support does not
99CAE
CAE-Funktionalitäten
Functionalities 3 1 2 2 2 3 1 3 5 4 3 3 require a payment service.
10Collaboration
10 Kollaborationsbereich
Area 2 4 1 1 1 1 1 3 4 5 1 3
11Configurator
11 Produktkonfiguratoren 5 1 2 2 4 3 1 3 3 1 5 3
12 Simulationen 1 1 3 1 2 2 1 3 3 3 3 5
Figure 9: Extract from the Synergy Analysis
The assessment of synergies is based on a five-step scale. The scale is graduated as followed:
No synergies, in special cases, may contain synergies, synergies likely and forced combination.
After the filled triangular matrix has been mirrored at the diagonal, it represents an invertet distance
matrix. The distrance matrix serves as input for a multi dimensional scaling (MDS). Figure 10 shows
the result of the multidimensional scaling. Service combinations that were highly rated will be closer
together in the MDS than combinations that were low rated. The inverted value of a cell is therefore
used to calculate the MDS (e.g. 5 is turned to 1/5). The aim of MDS is to identify service clusters
with high synergy.
Six service clusters were then identified within the MDS. The clusters comprise services in the areas
of Webshop, Analysis, Digital Qualification, Specific Consulting, Human Resources and Service.
The next step is to form meaningful platform concepts from the clusters.
30 Webshop
7 11
35
14 1 15
16
Analysis 22
21
25
20 Digital 8 4
27 5
19 Qualification
26 2
12 34 32
17 9 3 31
18 33
37 29 13
6 Human
Resources
28 23
36 10
41
48 42
Specific
24 44 39 40
Consulting 46 45
47 43
38 Service
Legend
Important Service Rather important Service Rather unimportant Service Cluster
Figure 10: Multi Dimensional Scaling of the Synergy Analysis
IAMOT 2019 | 658

4.1.4. Phase 4–Developing and Evaluating Platform Concepts

In the last phase, platform concepts must be derived from the identified service clusters. A platform
concept comprises a sum of platform services as well as actors that are required to provide the services
(providers and partners of the platform) or to make use of the services (customers of the platform).
Multi dimensional scaling is used to select suitable service clusters. A platform concept should
include service clusters that are close to each other within the MDS and tend to be rated as important.
A platform concept would be, for example, the consulting and service platform. For this purpose,
the service clusters “Specific Consulting” and “Service” are combined. The required actors for the
platform are now identified according to the selected services. For the consulting and service platform,
component suppliers (mechanical as well as electrical or electronic components), engineering service
providers, switch cabinet builders, machine and plant manufacturers and software providers are needed.
The services and actors will be documented in a platform concept profile. Figure 11 shows the profile
using the example of a consulting and service platform.
Service and Consultancy Platform
Short description Findings based on the survey

A platform of engineering software manufacturers with focus on consulting and  Especially a service for cable assembly and
services in the areas: Engineering, marking, cable assembly, wiring, assembly and marking is considered very interesting by
testing. These are flanked by general platform services and training offerings. switch cabinet manufacturers and machine
builders.
 In addition, mechanical engineers see great
potential in services such as engineering,
wiring and testing.
Services Player
 Topic-specific experts  Component suppliers (mechanical, Chances and risks
 Production / Manufacturing electric and electronic)
 The platform around consulting offers
 Planning / Engineering  Engineering Consultants
enables a relatively simple market access.
 engineering  Cabinet Builder
 indentation  Machine Builder
 checkup  Software Provider
 cable manufacture
 wiring
 …
Figure 11: Exemplary Profile of a Platform Concept
In addition to the platform services and actors, the profile contains a brief description of the platform
concept. Furthermore, findings from the expert survey related to the platform concept are documented.
In addition, the profile contains opportunities and risks associated with the implementation of this
concept. In a final step, the identified platform concepts are evaluated by an internal expert survey
with regard to their attractiveness for the company and the attractiveness for the industry. The results
are presented in a portfolio (Figure 12).
5
? +
Realize
5
4
2
Attractiveness
Monitor
3 1 Trading Platform
2 Service and consulting platform
1 3 Capacity fare
Discard 4 Community platform
1 - 5 Education platform
1 Reachability 5
Figure 12: Results of the Evaluation of the Platform Concepts
IAMOT 2019 | 659

The experts rated the attractiveness for the industry and for the organization for each platform
concept on a scale from 1 (very bad) to 5 (very good). The portfolio is the basis for deriving
recommendations for a strategic direction. Companies must now decide which platform concept
is most popular for potential actors and at the same time offers a sufficiently high value for the
company itself. In addition, the risks that have been identified by the expert survey must be taken
into calculation. For the development of a platform strategy, the selection of a promising platform
concept serves as a starting point.
5. Conclusion and Outlook

The complexity of digital platforms and the variety of aspects to be considered when planning
digital platforms, requires a basis for decision for a strategic direction. To receive this, a structured
approach for developing and evaluating concepts of a digital platform is needed. The approach
presented is based on an analysis of the ecosystem in which the platform should be established.
This allows the consideration of the needs of relevant actors and the derivation of potentials for a
platform. The synergy analysis showed that certain groups of services should be used in combination.
By assuming that platforms are described by their services and actors, a simple evaluation by experts
can be made. However, it has been shown that platform concepts should contain further aspects
(e.g. statements about the openness of a platform). This means that the decision for a strategic
direction is based only on the evaluation of platform services and actors. Further research is needed
to develop a more detailed evaluation model for platform concepts, which also takes other aspects of
digital platforms into calculation. Nevertheless, the approach provides initial information on which
services are promising and whether a platform would be accepted within an ecosystem.
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Co-aligning Strategy, Structure, Process and Culture
Sonal Daulatkar
National Institute of Industrial Engineering (NITIE), Decision,
Sciences and Information Systems, India
E-mail: research.sonal@gmail.com
Purnima S. Sangle
National Institute of Industrial Engineering (NITIE), Decision,
Sciences and Information Systems, India
E-mail: purnima@nitie.ac.in
Shirish Sangle
National Institute of Industrial Engineering (NITIE), Industrial Safety,
and Environmental Management, India
E-mail: shirishsangle@nitie.ac.in
Abstract
Technology Management has been long acknowledged as a tool for Global competitiveness. At the firm level,
organizational factors have been focused on by researchers among those likely to have an influence on how
technology may be managed. This work posits that the key to attaining maximal business value lies in maximizing
Shareholder Value for achieving Sustainable Value. The maximization of Business Value, as proposed here,
depends on the perfect co-alignment of four main organizational factors–Strategy, Structure, Process and Culture.
Any technology resource may then be co-aligned with them for successful technology management.
The foundation of the ‘Strategic Business Value Cube’ has been laid in this work. It builds on the two dimensions
-i. Organizational Strategy and ii. Organizational Structure and Process mechanism, as originally proposed by Miles
and Snow (1978) as Strategic Archetypes, but further entwines the implied and matching Organizational Culture
types by Miles and Snow, using Cameron and Quinn’s (2011) Culture Vale Framework as the third dimension.
It thus derives four ideal Organizational Archetypes along the diagonal cells across the four lattices of the
proposed Strategic Cube and the corresponding maximal business value. The other cells represent other plausible
configurations of Organizational characteristics that an organization may possess. The measure of Business
Value used here, Shareholder Value, is the corporate pay-off in the Hart and Milstein’s (2003) Sustainable Value
framework which suggests Sustainability strategies for organizations. The work tests first and second-order
statistical models for each of the four hypotheses for a pilot sample of 198 organizations.
The work proves that co-variation model is a better measure of fit between Strategic Archetypes and Culture than
structural equation model or main effects model. Since none of the hypotheses may be rejected, the work lays the
foundation of the foundation of the existence of the concept of the Strategic Business Value Cube. The Strategic
Business Value scale has been developed. The study suggests that future work could co-align the Organizational
Archetypes, conceptualized in this study, with technology resources to enhance management of technology.
Keywords: Strategic Business Value Cube, Organizational factors, Co-alignment, Co-variation, Organizational
Archetypes, Shareholder Value, Strategic Archetypes
1. Introduction and Purpose

Amongst the many tools that affect Global Competitiveness, Technology Management is a key one.
Of the firm level factors studied by researchers, Organizational factors have more recently focussed
on their influence on how technology may be managed.
Every organization has stakeholders in the society–both internal and external stakeholders.
Organizations have a responsibility to give back. To integrate Sustainability in the actions of the
corporate world, this work proposes that the key to attain maximal business value lies in integrating
the key drivers of Sustainability with Organizational Strategy, Structure and Process and Culture.
However to address the interest of the most important stakeholders, organizations must maximize
Business Value in terms of Shareholder Value while implementing the Sustainability Strategies.
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The Miles and Snow (1978) framework has continued to be the most widely used categorization for
strategy, which specifies strategy, structure and process characteristics quite clearly in the form of
SA (Strategic Archetypes). This study has developed this thread further with the help of Hart and
Quinn’s (1993) Executive Leadership which maps the leadership roles onto the Cameron and Quinn’s
(2011) CVF (Competing Values Framework) and to culture types for each Strategic Archetype
(SA). This results into the development of four OAs (Organizational Archetypes)–Defender,
Analyzer, Product/ Service Innovator and Market Prospector, each of which is based on Hart and
Milstein’s (2003) Shareholder Value framework to create differing types of intangible BV (Business
Value)–a. cost and risk reduction, b. reputation and legitimacy, c. innovation and repositioning and
d. growth path and trajectory, respectively. This is visualized as the Strategic Management Cube
with three dimensions–Business strategy, structure and process mechanism to derive the SBVC
(Strategic Business Value Cube). The four alternate hypotheses that have been tested for fit as
co-variation as suggested by Venkatraman (1989) by using first and second-order statistical models.
The derived Organizational Archetypes may be co-aligned with Technology resources for
maximizing Business Value using Technology Management.
Although the corporate world uses the term ‘Strategy Cube’ to describe their services or the business
itself, research literature has very few analogies in the cube form, wherein the main ones include
the Kopelman and associates’ (Kopelman and Prottas, 2012) Cube One framework which posits
that three distinct sets of practices drive organizational performance: enterprise, customer and
employee-directed and Rubik’s Cube of Organization Structure suggests that managers work with
current structure which is aligned with strategy and structure around purpose rather than personalities
(Ashkenas, 2011).
3. Research Objective and Research Question

The objective of this study is to test the co-alignment of four Organizational factors-Strategy,
Structure, Process and Culture to derive maximal Business Value.
RQ1: Which ideal configuration fit of Strategy, Structure, Process and Culture types can
result into attainment of Strategic Business Value?
4. Strategic Business Value Cube

Miles and Snow’s Strategy typology, suggested in 1978, remains the most widely used Strategy
Classification based on their research and interpretation of literature. It presented four Strategic
Archetypes–Reactor, Defender, Analyzer and Prospector.
Reactor organization was phrased as strategic “failure” in that “inconsistencies exist among its
strategy, technology, structure and process” and “sooner or later, it must move toward one of
the consistent and stable strategies of Defender, Analyzer or Prospector”. Defender “enacts and
maintains an environment for which a stable form of organization is appropriate” and “strives
aggressively to prevent competitors from entering its turf”. Prospectors are highly capable in
“finding and exploiting new product and market opportunities”. Between the opposite ends of
Prospector and Defender lies the Analyzer which “attempts to minimize risk while maximizing
the opportunity for profit”. Every organization predominantly appears to fit into one of the four
archetypes. (Miles and Snow, 1978)
Cameron and Quinn’s (2011) CVF gives four culture types–Hierarchical, Market, Clan and
Adhocracy. It postulates that most organizations develop one or more dominant cultural style
amongst the four types identified by the framework and those that do not, are predisposed to be
either unclear or emphasize them equally like a Reactor organization. The organizational culture
consistent with Hierarchy form is “characterized by a formalized and structured place to work”
and “procedures govern what people do” (Cameron and Quinn, 2011). This form of organization
seems to correspond to the Defender type. Market Culture refers to an organization that “functions
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as a market itself” and that as assessed in Cameron and Quinn (2011), OCAI is a results-oriented
workplace and seems to correspond to an Analyzer SA. The Clan culture is typified as “a friendly
place to work where people share a lot of themselves” (Cameron and Quinn, 2011). It seems that
the Clan culture reflects the culture of a Prospector SA with a Product/Service transformation and
innovation orientation. A chief objective of Adhocracy culture is “to foster adaptability, flexibility
and creativity where uncertainty, ambiguity and information overload are typical” and “an important
challenge for these types of organizations is to produce innovative products and services and to
adapt quickly to new opportunities” (Cameron and Quinn, 2011). Hence, the adhocracy culture, as
assessed in the OCAI, is characterized by a dynamic, entrepreneurial and creative workplace. This
culture type seems to be prevalent in Prospector type of an organization with an orientation towards
market-innovation.
4.1. Juxtaposing CVF, Model of Executive Leadership, Sustainable Value Framework,

Sustainable Value Framework and Mapping of Strategic Archetypes
Each quadrant of CVF represents a major model of organization and management theory
(Quinn and Rohrbaugh, 1983). Hart and Quinn (1993) plotted the Executive leadership roles on to
CVF. The CVF has been further worked upon to give four organizational culture types–Hierarchical,
Market, Clan and Adhocracy by Cameron and Quinn (2011) who ascertained that most organizations
tend to develop one or more dominant cultural style of the four types identified by the framework.
Hart and Milstein’s Sustainable Value framework shares its axes with Hart and Quinn’s (1993)
model of Executive Leadership.
Chandler concluded in 1980 that ‘Structure follows Strategy’. The structure can strengthen or even
change the existing culture and therefore their relation is twofold (Janićijević, 2013). Drawing
on the above, it may be concluded that a match between strategy and structure is crucial for an
organization’s success. The study proposes that certain culture types are likely to correspond to
certain SA (which in turn corresponds to certain Executive Leadership roles as has been derived
in Table 1 (Appendix A). In tune with Andrews et al. (2009) observation that Prospectors may
outperform Defenders under certain circumstances, this paper proposes that different SAs lead
to different performance levels which in turn correspond to different BV (Business Value) being
created especially when co-aligned with culture of the organization. This is evident from Hart and
Milstein’s (2003) Shareholder Value framework wherein the quadrants which share the axes of CVF
and Hart and Quinn’s (1993) leadership model shows a quadrant-wise progression in the corporate
pay-off-Cost and Risk Reduction, Reputation and Legitimacy, Innovation and Re-positioning
and Growth path and Trajectory. On mapping the SAs on to CVF and juxtaposing the Executive
Leadership roles, the four culture types and the Sustainable Value framework, we obtain Fig.1.
Figure 1: Juxtaposing the Frameworks and Mapping SAs onto it
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Borrowing from the evolved axes of the Sustainable Value framework, it is suggested that:
i. Defender SA should ideally co-align with Hierarchical culture to create BV1
(Cost and Risk Reduction) and such an OA (Organizational Archetypes) name be
retained as Defender.
ii. Analyzer SA should ideally co-align with Market culture to create BV2 (Reputation
and Legitimacy) and such an OA name be the same as Analyzer.
iii. Prospector SA which co-aligns with Clan culture should result in the creation
of BV3 (Innovation and Repositioning) and such an OA be named as
Product/ Service-Innovator (Prospector1) wherein the strategy is to develop
innovative products/services to reposition the business.
iv. Prospector SA which co-aligns with Adhocracy culture should result in the
creation of BV4 (Growth Path and Trajectory) and such an OA be named as
Market-Innovator/ Prospector (Prospector2) wherein the strategy is to reach innovative
products/ services into new markets and envision the strategies for the future.
4.2. Conceptualizing the Strategic Business Value Cube

Strategic Business Value Cube (SBVC) is the very first attempt at bringing out alignment of
progressive types of Strategic Archetypes with Culture to create progressive levels of BV in terms
of Shareholder Value. It employs two dimensions from the Miles and Snow (1978) typology,
enveloping organizational strategy, structure and process mechanism while the Cameron and Quinn
Culture types are represented as the third dimension to derive the Cube. The four diagonal cells
across the lattices of the cube stand for four ideal OAs (Fig.2).
Figure 2: Conceptualizing the OA within the SBVC
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4.2.1. Propositions
P1: Organizational Archetype D–Defender (Defender SA co-aligned with Hierarchical
Culture) will achieve BV1 of Cost and Risk reduction.
P2: Organizational Archetype C–Analyzer (Analyzer SA co-aligned with Market Culture)
will achieve BV2 of Reputation and Legitimacy.
P3: Organizational Archetype B–Prospector 1 (Prospector SA co-aligned with Clan
Culture) will achieve BV3 of Innovation and re-positioning.
P4: Organizational Archetype A–Prospector 2 (Prospector SA co-aligned with Adhocracy
Culture) will achieve BV4 of Growth path and Trajectory.
The ideal path of progression followed by an organization to attain maximal BV should flow along the
OAs. It may be noted that in all lattices, the low BV1 is definitely achievable and corresponds to that
achievable by OA Defender although the corresponding lattice may have some of the organizational
characteristics different from this archetype, the next level being BV2, the third being BV3 and
the fourth being BV4. It is proposed that only the four ideal OA–Defender, Analyzer, Prospector1
and Prospector2 achieve the highest level of Business Value possible with the ideal co-alignment
of matching Strategy, Structure, Process and Culture and is hence strategic in nature. The other
combinations will achieve BV limited by the lowest organizational factor in the combination.
4.3. Conceptual Model and Hypotheses Development

Doty and Glick (1994) opined that archetypes must not be treated as classification but be represented
on a continuum, thus ruling out some of the techniques including Analysis of Variance (ANOVA)
used in demonstrating matching as fit. Venkatraman (1989) brought out that researchers face two
decisions–degree of specifity of the theoretical relationship and anchoring to a particular criterion.
In the SBVC, since the former is medium and there’s no anchor to a criterion variable so as to
have universal applicability, it instead is a measure of the extent of internal consistency in resource
allocation for related variables having a significant impact on performance. Thus, fit as co-variation
is most suitable herein.
Figure 3: Co-variation Model Figure 4: Main Effects Model
a–Archetype, r–Resource or Factor herein Culture, y–Strategic, α-factor loading, β–standardized

structural equation model coefficient, BV–Business Value, R2–Coefficient of determination,
x-number of the BV which assumes value 1-4, Co-Align–Co-alignment
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4.4. Research Hypotheses

The Lattice-wise hypotheses are presented in Table 1 below.
Table 1: Hypotheses for SBVC
Hypothesis Lattice Row Description
HL1: Hierarchical culture co-aligns with 1 R1 Defender SA to create Strategic BV1
HL2: Market culture co-aligns with 2 R2 Analyzer SA to create Strategic BV2
HL3: Clan Culture co-aligns with 3 R3 Prospector SA to create Strategic BV3
HL4 : Adhocracy culture co-aligns with 4 R4 Prospector SA to create Strategic BV4

Survey method has been adopted for data collection using the self-administered questionnaire as
an instrument for data-collection. Respondents were contacted face-to-face, telephonically, by
email and social media communication tools to solicit their response to the questionnaire survey
and were assured anonymity. This study employs a 7-point Likert scale for its questionnaire
(where 1–strongly disagree and 7–strongly agree) which is an improved, more accurate and
easier to use scale ewhich better reflect’s the true evaluation of a respondent (Finstad, 2010) as
compared to a 5-point one. However, since the proposition involved four types for each construct,
it eventually is converted to a 1-25 Likert with 7, 13, 19 lying on both the (upper bound of the lower type)
earlier and the later (the lower bound of the next type), thus on a continuum as suggested by Doty and
Glick (1994).
5.2. Sampling and Data Collection

A probabilistic sampling combined with snowball method has been adopted to choose
organizations. The target respondents were managers with over 5 years of experience in BFSI
(Banking, Financial Services and Insurance), IT & ITeS (Information Technology and Information
Technology-enabled Services), other services and manufacturing organizations. Approximately 738
people were contacted of which 350 agreed to fill the questionnaire, while only 202 returned it.
However, since 4 were deemed unusable, a sample size of 198 was used for pilot study, thus fetching
a response rate of 56.6%. After deleting extreme outliers which ran common across constructs, a
sample size of 184 has been retained, whose industry-wise distribution is as shown (Fig. 5).
Figure 5: Distribution of Respondent Organizations
The scale development procedure as suggested by Arnold and Reynolds (2003) is divided into three
following phases–item generation and selection, pilot testing and scale validation.
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5.2.1. Phase I. Item Generation and Selection

For the Miles and Snow typology, the scale for Strategic Archetype, as operationalized by Conant
et al. (1990) with 11 main questions each having 4 options, has been used. For questions 1-7 and
11, the option ‘a.’ represents Reactor organizations, ‘b.’ represents Defenders and ‘c.’ represents
Analyzers, while ‘d.’ represents Prospectors. For questions 8-10, the fourth option was split was
split into two (‘d.’ and ‘e.’) which referred to Product/ Service Innovator and Market Innovator
respectively. The modifications made are: a. ‘Services’ has been replaced with ‘Products/ services’
and ‘HMO (Health Maintenance Organization)’ with ‘competitors’, b. For question numbers
8, the option ‘d’ has been split into 2–‘Developing new products/ services’ for Prospector1 SA
in third quadrant and ‘Developing into new markets or market segments’ for Prospector2 SA, c.
For question number 9, the option ‘d’ has been split into 2–‘Indentifying trends and opportunities in
the marketplace which can result in the creation of product offering which are new to the industry
or reach new markets’ for Prospector1 SA and ‘Identifying those problems which, if solved, will
maintain and then improve market position’ for Prospector2 SA, d. For question 10, the option ‘d’
has been split into 2–‘Market-oriented’ for Prospector1 and ‘Product oriented’ for Prospector2.
For Culture construct Cameron and Quinn’s (2011) OCAI has been used with The following
alterations: a. For question 5 about Strategic Emphasis, the third option has been tweaked to
‘The organization emphasizes human development. High trust, openness and participation
persist. Acquiring new resources and creating new challenges for innovation’ to better depict
Clan culture for Prospector1 SA, while the fouth option ‘trying new things and prospecting for
opportunities. Innovative products into new markets are emphasized’ to better suit Adhocracy
Culture for Prospector2 SA. b. For question 6 about ‘Defining success’, the third option has been
re-phrased to ‘development of human resources, teamwork, employee commitment and concern for
people for having most innovative products’ to reflect Clan culture better for Prospector1 SA and
‘reaching innovative products into new markets’ for Adhocracy culture for Prospector2 SA
For the SBV scale, initially 15 items were derived using Dao et al.’s (2011) framework. However,
after screening for Content Validity by group discussion with 13 industry experts and 4 from
academia, changes were made to the items in accordance with their opinion and two items were
deleted as they were specific to Supply chain Management and IT thus resulting in a 13-item scale
(Table 2, Appendix A).
5.2.2. Phase 2: Scale Refinement

Scale purification includes detailed item analysis, Exploratory Factor Analysis (EFA), Confirmatory
Factor Analysis (CFA), scale reliability, uni-dimensionality and convergent and discriminant
validity as brought out by Arnold and Reynolds (2003).
For Item and Reliability Analysis, Cronbach’s alpha and corrected item-total subscale correlations
being of utmost importance (Churchill Jr., 1979), have been examined. The threshold value of
Cronbach’s alpha (> 0.70), considered highly reliable (Nunnally, 1994), has been adhered to and
found to be (> 0.8) for all the constructs. The inter-item co-relation matrix fetched all off-diagonal
elements positive and assumed values indicating good co-relation of each item with the respective
scales. The corrected item-total correlation for each item (> 0.5) for the items belonging to the same
dimension but (< 0.72) for the BV scale, (< 0.75) for SA scale, (< 0.70) for the Organizational
Culture scale for items belonging to different dimension, demonstrates that there isn’t really a need
to delete items at this stage to increase the Cronbach Alpha beyond the initial values of 0.913, 0.943,
0.049, 0.70 and 0.931 respectively.
For Exploratory Factor Analysis, this study has used principal component analysis (PCA) employing
Varimax rotation for the extractiong of factors, as recommended by Costello and Osborne
(2011), using the software SPSS 20.0. Factor loadings ( <0.50) and communalities (< 0.30), in
accordance with Hair et al. (2006), were considered as threshold for items to be considered for
deletion and none were consequently required to be deleted. The sampling adequacy of (> 0.60) for
IAMOT 2019 | 668

Kaiser-Meyer-Olkin (KMO) test as suggested by Tabachnick and Linda (2012) and significant
Bartlett’s test of spherecity with all diagonal elements (= 1) and non-diagonal being non-zero, have
been adhered to. For SA, all the communalities (>0.466), the KMO (0.923), Bartlett’s is significant
and variance explained (44.47%) respectively. On carrying out EFA, two items of the three from
the Analyzers grouped themselves under Defender attribute, which is acceptable since as brought
out by Conant et al. (1990), Analyzers may sometimes behave as Defenders or Prospectors.
Thus, the obtained factor structure does corroborate with Miles and Snow typology’s theory and
hence the factor structure is acceptable. For the OCAI scale, the three factor solution accounted
for 63.496% variance in the items that were analyzed, KMO value (0.889) and Bartlett’s Test of
Sphericity has also been found to be significant, while the communalities were medium (0.5-0.723).
The Clan and Adhocracy culture types’ items grouped together into component 1, while component
2 clearly had all the Market culture type’s items and component 3 had Hierarchical culture types.
For the SBV scale, KMO test fetched (0.914) with significant Bartlett’s test of sphericity,
Communalities (0.461-0.716) and the total variance explained was found to be (63.45%).
A two-factor solution grouped BV1 and BV2 together for the BV scale, thus reflecting the lower
quadrants of Shareholder Value framework together representing ‘today’ and the BV3 and BV4 and
of the upper quadrants together representing ‘tomorrow’.
The Convergent Validity for the scales above has been evident from the high factor loadings within
each component and so is the Discriminant validity from an absence of cross-loadings or those with
values (<0.3).
A CFA of the measurement models for the pilot sample of 198 organizations has been carried out.
There were no Convergent Validity issues for any of the four constructs’ sub-constructs as CR>
AVE and AVE > 0.5. As far as Discriminant validity is concerned, the BV scale showed no issues
as MSV < AVE and ASV < AVE. However, it was not the case for SA and Culture and hence we
went ahead to check for covariance between the two so that co-alignment is confirmed as suggested
in the SBVC.
5.2.3. Phase 3: Scale Validation

A 25-point Likert-type scale has been used to show progression from Quadrant 1 through to 4 thus
resulting into option ‘a’ being marked on a scale of 1-7, option ‘b’ being marked from 7-13, option
‘c’ on a 13-19, while option ‘d’ from 19-25 scale for each of SA, Organizational Culture and BV
so that mixed types of each are taken into account and co-exist. Thus, the anomaly/ criticism in
previous literature which used 7-point scale for each of the 4 options of the SA/OCAI questions but
which actually represent a continuum has been addressed.
6. Testing CO-Alignment of SA and Culture to Create BV

Venkatraman’s (1989) Fit as Co-variation has been employed to test the co-alignment by comparing
the Main effects model with the co-variation model. It may be observed that (Table 3, Appendix B),
for all the models the fit indices are found to be within the threshold limits except for the incremental
fit index (χ2/df) which is (<5) in case of function of Log likelihood. Also, for certain models
(hypotheses HL2 and HL3) the error term for SA exhibits a small negative variance and hence in
keeping with IBM’s guidelines for AMOS v 18 and above, it has been limited to a small positive
variance (0.001) to fetch an admissible solution. Three complementary test statistics, in keeping
with Venkatraman’s (1989) suggestion, have been employed to test the impact of fit on performance
modelled as co-variation: i. Criterion 1-comparison of coefficients of determination showing both
to be nearly equal, ii. Criterion 2-calculation of Target coefficient (T) as ratio of Chi-square of first
and second order models to be close to 1 and iii. Criterion 3-second-order factor loadings (α1-2) to
be significant, thus giving the performance effect of fit as the magnitude and significance of path
coefficient (α3) as the preferred specification.
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7. Findings and Discussion

It was found in this study (Table 3, Appendix A) that the Covariance model better explains the
phenomena as compared to the Main effects model since three complementary test statistics
(criterion 1-3) employed were found to be fulfilled, giving the performance effect of fit as the
magnitude and significance of path coefficient. It has also been found for the SBVC for 95%
confidence interval (p<0.05) that:
a. Defender SA’ co-alignment with its ideal Hierarchical culture type ‘Hierarchical’ is
(α3=0.56) and explains (35%) variation in BV1 (Cost and Risk reduction).
b. Analyzer organization exhibits good co-alignment with Market culture (0.72) and
explains (52%) variation in BV2 (Reputation and Legitimacy).
c. Prospector1 organization’s co-alignment with Clan culture is (0.75) to predict (57%)
variation in BV3 (Innovation and Re-positioning).
d. Prospector2 organizations have good co-alignment with their ideal matching Adhocracy
Culture (0.77) to explain (60%) in BV4 (Growth path and Trajectory).
The fit indices are found to be within the threshold limits and a moderate-high value coefficient of
determination has been found. Hence, none of the hypotheses may be rejected.
Xu et al. (2006) demonstrated the co-alignment of Strategy, Structure and Process, all of which
are included in the SA typology. However, no other study has suggested and empirically proven
co-alignment of the three OFs with culture to develop four ideal OA. The criticism for using Miles
and Snow SA typology that organizations have mixed cultures and hence cannot be classified into
the all too simplistic single types has been addressed in keeping with Doty and Glick’s (1994)
suggestion, by measuring the Strategic Archetypal orientation on a continuum with every 7-point
range representing one of the four ideal archetypes, thus representing the ‘mixed’ feature of
organizations wholesomely and conforming to the provision of a parsimonious framework for
describing complex organizational forms.
5. Conclusion and Implications

The World Economic Forum’s Global Competitiveness Index 4.0, as given in the Global
Competitiveness Report, 2018) calls for better use of technology for economic leapfrogging
through a holistic approach with other factors of competitiveness. Information and communication
technologies (ICTs) can be enablers of productivity for innovation and business dynamism.
This paper studies the co-alignment of the four most important organizational factors–Strategy,
Structure, Process and Culture to create four Organizational Archetypes. The empirical validation of
the existence of the cube in real life and the four diagonal cells which represent the four Organizational
Archetypes–Defender, Analyzer, Prospector1 and Prospector2 is carried out by testing 4 hypotheses.
Shareholder Value as given by Hart and Milstein (2003) superimposed onto the CVF and mapped
with SAs is employed towards assessing Business Value by using Venkatraman’s (1989) Fit as
Co-variation to test two statistical models (i.e. first and second-order) each for the hypotheses for 198
organizations. Any technology resource may, in turn, be co-aligned with them to enhance technology
management to maximize Business Value. Also, the other hypotheses of the SBVC may be tested to
confirm maximal BV attainment of the four Organizational Archetypes in comparison with the other
mismatched alignment of the Strategic Archetypes with different Culture types.
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6. Appendix A
Table 1: Organizational Archetype
OA(using
Administrative Executive Structure-
Organizational Miles and
SA
Problem and Solution Organizational Culture Description Remark Leadership process Strategic BV
Culture type Snow’s
Description Role mechanism
typology)
Hart and
Source: Miles and Snow Miles and Snow Current
Cameron and Quinn (2011) Derived Quinn, Hart and Milstein (2003)
(1978) (1978) Study
(1993)
“How to maintain Hierarchy “A very formalized and structured It is thus a Mechanistic Defender: Cost and Risk-efficiency (D)
strict control of the place to work. Procedures govern perfect culture – “include a Strategy- Remark: Coincides with the
organization to ensure what people do. The leaders for a Defender top-management maintaining a Defender’s goals : “How to “seal
efficiency” pride themselves on being good as it provides group heavily secure niche off’ a portion of the total market
Solved “through coordinators and organizers, who the cultural dominated by in relatively to create a stable set of products
a combination of are efficiency minded. Maintaining a solution to the production and stable market and customers. How to produce
structural and process smooth-running organization is most Defender’s cost-control segments and distribute goods or services
mechanisms that can be critical. Formal rules and policies administrative specialists, little as efficiently as possible.”
generally de-scribed as hold the organization together. The problem. or no scanning of
‘mechanistic’”. long-term concern is on stability the environment
and performance with efficient, for new areas
smooth operations. Success is defined of opportunity,
in terms of dependable delivery, intensive
smooth scheduling and low cost. planning oriented
Analyzer
The management of employees is toward cost and
Defender
concerned with secure employment other efficiency
and predictability.” issues, functional
structures
characterized
by extensive
division of labor,
centralized
control,
communications
through formal
hierarchical
channels and so
on.”
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OA(using
SA
typology)
Hart and
(1978) (1978) Study
(1993)
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“How to differentiate Market “A results-oriented organization. The It is thus a Matrix- Analyzer: Reputation and legitimacy (C)
the organization’s major concern is getting the job done. perfect culture “include a Strategy - Remark: This coincides with
structure and processes People are competitive and goal- for a Analyzer top-management “the Analyzer’s goals: How to
to accommodate both oriented. The leaders are hard drivers, as it provides group dominated locate and exploit new product
stable and dynamic areas producers and competitors. They are the cultural by marketing and market opportunities while
of operation” Solved tough and demanding. The glue that solution to the and research and simultaneously maintaining a
through “some version of holds the organization together is an Analyzer’s development firm base of traditional products
a ‘matrix’ organization emphasis on winning. Reputation and administrative experts, and customers. How to be
structure”. Intensive success are common concerns. The problem planning that efficient in stable portions of the
planning supp-orts the long-term focus is on competitive is broad rather domain and flexible in changing
structure. actions and achievement of than intensive portions.”
measurable goals and targets. Success and oriented
Task Master
is defined in terms of market share and toward results
Analyzer
penetration. Competitive pricing and not methods,
market leadership are important. The product or
organizational style is hard-driving project structures
competitiveness.” characterized by
a low degree of
formalization,
decentralized
control, lateral as
well as vertical
communications
and so on.”
OA(using
SA
typology)
Hart and
(1978) (1978) Study
(1993)
“Prospector’s “A very friendly place to work where It is thus a Motivator Organic- Product/ Innovation and Re-positioning
administrative problem people share a lot of themselves. It is perfect culture “include a Service (B)
flows from its changing like an extended family. The leaders for a Product/ top-management Innovator: Remark: This coincides with the
domain and flexible or head of the organization, are Service group dominated The strategy Innovator’s goal : i. “How to
technologies: how to considered to be mentors and, maybe Innovator as by marketing is “to find locate and exploit new product/
facilitate rather than even, parent figures. The organization it provides and research and and exploit service opportunities.
control organizational is held together by loyalty or tradition. the cultural development new product”/ ii. How to avoid long-term
operations.” Commitment is high. The organization solution to the experts, service commitments to a single
The deployment Clan emphasizes the long-term benefit of Innovator’s planning that opportunities. technological process”.
and coordination of human resource development and administrative is broad rather
“resources among attaches great importance to cohesion problem. than intensive
numerous decentralized and morale. Success is defined in and oriented
units and projects rather terms of sensitivity to customers and toward results
than to plan and control concern for people. The organization not methods,
the operations of the places a premium on teamwork, product or
entire organization participation and consensus.” project structures
centrally. To accomplish characterized by
overall facilitation a low degree of
and coordination, the “A dynamic, entrepreneurial and It is thus a The Vision formalization, Market Growth path and Trajectory (A)
Prospector
Prospector’s structure- creative place to work. People stick perfect culture Setter (Rule decentralized Prospector: Remark: This coincides with
process mechanisms their necks out and take risks. The for a Market breakers) control, lateral as The strategy the Market Prospector’s goal : i.
must be ‘organic’ “. leaders are considered to be innovators Prospector well as vertical is to find How to locate and exploit new
and risk takers. The glue that holds the as it provides communications and exploit market opportunities.
organization together is commitment the cultural and so on.” new market ii. “How to avoid long-term
to experimentation and innovation. solution to its opportunities. commitments to a single
The emphasis is on being on the administrative technological process”.
Adhocracy leading edge. The organization’s problem.
long-term emphasis is on growth and
acquiring new resources. Success
means gaining unique and new
products or services. Being a product
or service leader is important. The
organization encourages individual
initiative and freedom.”
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Table 2: Strategic Business Value scale (Adopted from Dao et al., 2011)
Business Value Description
SBV1 = D Business activities have helped my organization reduce costs of energy
Business activities have helped my organization reduce costs of paperwork processing
Organizational information collecting and processing ability helps my organization improve operational
efficiency by integrating metrics of waste reduction.
SBV2 = C My organization effects fast communication between firms and their external stakeholders and
supply chain
My organization enables information exchange and collaboration capabilities up and down the supply
chain to allow the chain to react to supply and demand changes and to facilitate coordinated
decision-making.
My organization’s resources help gain reputation (in the marketplace)
My organization’s resources help gain legitimacy
SBV3 = B My organization’s resources help my organization develop new products/services
My organization’s resources help my organization reposition in the market place
My organization’s resources help my organization break into new markets
SBV4 = A My organization communicates its Strategic Vision to all its employees and related business partners
My organization’s resources help explore new markets and serve unmet needs by collaborating with
business partners
My organization’s resources help integrate platforms across the supply chain and use of technology
in collaboration for innovation, both within firms and among firms’ employees with relevant outside
stakeholders
Table 3: Results of Fit as co-variation for Hypotheses Testing for SBVC

Variation Model
Main Effects vs
Co-Variation
For co-
Model
Organizational Archetype
Model Fit Achieved (Y/N)
Are 3 criteria fulfilled?

Hypothesis
Culture
Result
Culture)
BV
SA
α1 (for
α2 (for
α3 (for
BVx)
SA)
T (Criterion 2)
(Criterion 1)
RSBVx2
Crietrion3
Preferred
spec.
HL1 Defender Hierarchical D Defender 1 Y 39 vs 32 1 1*** 0.80*** 0.56*** Yes α3 is

HL2 Analyzer Market C Analyzer 2 Y#1 42 vs 49 1 0.79*** 0.91*** 0.70*** significant,
good
HL3 Prospector Clan B Prospector1 3 Y#1 50 vs 49 1 1*** 0.83*** 0.70*** magnitude
HL4 Adhocracy A Prospector2 4 Y 52 vs 54 1 0.97*** 0.90*** 0.73***
# - CMIN/df (>5) due to Function of Log likelihood, ***-significant at p<0.01, –after correction for Heywood case by 1
constraining the small negative error variance to very small positive variance (0.001)
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IAMOT 2019 | 675

Effect of Absorptive Capabilities on Acquisition
and Exploitation Open Innovation Capabilities
Geovanny Perdomo-Charry
School of Business, CEIPA University, Calle 77 Sur No. 40–165,
Medellin, Antioquia, Colombia
E-mail: geovanny.perdomo@ceipa.edu.co
Nelson Lozada Barahona
Faculty of Administrative Sciences, Universidad de Antioquia,
Calle 67 No. 53 – 108, Medellín, Antioquia, Colombia,
E-mail: nelson.lozada@udea.edu.co
Jose Enrique Arias-Pérez

Faculty of Administrative Sciences, Universidad de Antioquia,
Calle 67 No. 53–108, Medellín, Antioquia, Colombia,
E-mail: jenrique.arias@udea.edu.co
Abstract
Colombia is a country that has achieved important growth in innovation in its services and industrial sector.
However, both research and empirical evidence about its development is very limited. Innovation based on
firms’ capacity of transformation and exploitation is one of the main keys to acquisition and exploitation of
open innovation. This empirical study analyses the relationship between absorptive capabilities and acquisition
and exploitation open innovation capabilities in a sample of 123 organizations situated in the city of Medellin,
Colombia. The findings show that firms developing absorptive capabilities may have better probabilities to improve
their open innovation acquisition and exploitation. This study suggests that companies where managers motivate
their employees to use external information and external knowledge in the innovation process may have a better
chance of improving their innovation performance.
Keywords: Absorptive Capabilities, Open Innovation Acquisition, Open Innovation Exploitation, SEM, Colombia
1. Introduction
In the field of organizational analysis, absorptive capabilities (AC) and open innovation (OI) are
already accepted as relevant concepts. In the first, the importance lies in the possibility of generating
new knowledge that is pertinent for the present and future of organizations from a real and potential
perspective. This development has been possible because studies that deal with this capacity, besides
being two-dimensional, is multidimensional (Arbussa and Coenders, 2007; Grimpe and Sofka, 2009;
Lane et al., 2006; Malhotra et al., 2015; Nieto and Quevedo, 2005; Zahra and George, 2002).
OI, on the other hand, is summarized by Cepeda and Arias as “the intentional use of internal
and external knowledge flow to accelerate internal innovation (Chesbrough et al., 2008;
Chesbrough, 2012; Popa et al., 2017). OI includes two capabilities: exploitation and acquisition
(Huizingh, 2011). Exploitation refers to the intentional flow of knowledge to take advantage of
internal developments or innovations outside the company. This includes co-exploitation with
external partners through mechanisms such as venturing and outward licensing of intellectual
property. On the other hand, acquisition has relation with the innovation activities necessary
to obtain knowledge from external sources and co-create it with external partners. This aims at
improving the company’s current technological capabilities using mechanisms such as customer
involvement, external networking, external participation, outsourcing R&D and inward licensing
of intellectual property (Van de Vrande et al., 2009)” (2018, p. 6).
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Effect of Absorptive Capabilities on Acquisition and Exploitation Open Innovation Capabilities
Furthermore, in the literature of the first decade of the XXI century it is observed that AC and OI
are associated to different levels of the organization and its environment; even for Perdomo-Charry,
et al., “the construct of AC is made up of four first-order variables: (1) acquisition, (2) assimilation,
(3) transformation, and (4) exploitation (Camisón and Forés, 2010; Kostopulos et al., 2011; Flatten
et al., 2011a, Flatten et al., 2011b; Engelen et al., 2014; and Enkel and Heil, 2014)” (2017a, p. 9).
Meanwhile, for Van de Vrandea, De Jongb, Vanhaverbekec and Rochemontd, “OI is a broad concept
encompassing different dimensions. Following the definition mentioned earlier, most studies
distinguish between purposive outflows and inflows of knowledge to accelerate internal innovation
processes and to better benefit from innovative efforts, respectively (e.g. Chesbrough et al., 2006;
Chesbrough and Crowther, 2006). Purposive outflows of knowledge, or technology exploitation,
implies innovation activities to leverage existing technological capabilities outside the boundaries
of the organization. Purposive inflows, which we will refer to as technology exploration, relates to
innovation activities to capture and benefit from external sources of knowledge to enhance current
technological developments. In a fully open setting, firms combine both technology exploitation and
technology exploration in order to create maximum value from their technological capabilities or
other competencies (Chesbrough and Crowther, 2006; Lichtenthaler, 2008)” (2009, p 424).
The researches adopt the more novel academic work focus of Cepeda and Arias-Pérez “that centre
the relevant of collaborative work and of the use of external resources that are implicit in the open
innovation capabilities (OIC). For another, this AC implies external embeddedness, which is usually
approached mainly from the network theory in the international business literature; however, this
study offers a more interesting study focus in which externally oriented organizational abilities such
as open innovation is more important for external embeddedness than are the size and quality of the
external network” (2018, p. 1). The previous claims are supported by the limited empirical evidence
resulting from this relationship. For this reason, the aim of this study is to analyse the effect of AC
on acquisition and exploitation of OIC in a significant sample of organizations in Medellín.
2. Theoretical Background and Hypotheses

The literature has been recently proposing a need to consider the effects of different AC on
OIC-related organizational factors under the assumption that AC require the support of other
organizational routines to have an effect on OIC (see Section 2.3 below for further details). Therefore,
research in the field has explored the effect of AC (Volberda et al., 2010) and soft organizational
routines such as the capability to absorb knowledge (Felipe et al., 2016).
2.1. Absorptive Capabilities (AC)

For Perdomo-Charry, et al. “Although the most commonly accepted definition of AC is the one
developed by Cohen and Levinthal (1990), who see them as an ability of a firm to identify, assimilate,
and apply external knowledge with commercial aims; for Mowery and Oxley (1995), AC are a wide
array of abilities necessary for dealing with the tacit element of acquired knowledge. In more general
terms, Kim (2008) established AC as the capacity to learn and solve problems that enables a company
to assimilate external knowledge and create new knowledge. With certainty, one of the studies with
the greatest impact in the field is the one carried out by Zahra and George (2002)” (2017b, p. 11).
Research and development (R&D) intensity, R&D investment and patent have been used as proxies for
measuring a firm’s AC. However, such proxies are unidimensional measures that are not able to fully
gauge this multi-dimensional construct (Roberts et al., 2012, Volberda et al., 2010) and cannot capture
a firm’s learning processes (Setia and Patel, 2013). In addition, they only focus on technological
management and knowledge management whereas they neglect or undervalue knowledge of the
environment and market (Lane et al., 2006; Ritala and Hurmelinna-Laukkanen, 2013).
With few exceptions (Patel et al., 2012; Sanez et al., 2014; Zhang et al., 2015), empirical operations
management studies measure AC using prior related knowledge and communication routines
(Tu et al., 2006; Nagati and Rebolledo, 2012; Kauppi et al., 2013; Tavani et al., 2014) or
IAMOT 2019 | 677

general scales related to organizational learning (Zacharia et al., 2011; Whitehead et al., 2016).
However, they do not directly capture a firm’s capability to implement and apply knowledge
(Lane et al., 2006; Roberts et al., 2012), nor do they reflect the richness of the construct
(Volberda et al., 2010).
Perdomo-Charry, et al. raises that “According to Zahra and George (2002), AC are conceived as
the ability of an organization to generate processes, routines and business dynamics that facilitate
generation of value based on knowledge acquired in the external environment of the company. This is
done through acquisition, assimilation, transformation and exploitation. These are multidimensional
variables which facilitate an approach to the four dimensions from different viewpoints (Table 1)”
(2017b, p. 10).
Table 1: Definitions of the Dimensions of Absorptive Capabilities (AC)
Dimension Definition
Acquisition capacity It refers to the possibility of obtaining knowledge from sources external to the company.
It is associated with the possibility that the new external knowledge is understood and learned by
Assimilation capacity
the members of the company.
Transformation It is given by combining the two previous capabilities to create new knowledge that is useful for
capacity generating value in the company.
It refers to the development of routines that allow the generation of new processes, products
Exploitation capacity and systems that strengthen current capabilities, or which allow for the development of new
capabilities in the company.
Source: Perdomo-Charry (2017b, p. 10), based on Zahra and George (2002), Jansen (2005) and Volberda et al. (2010).
For Perdomo-Charry, et al. “These authors have featured AC as a dynamic ability related to the
creation and use of knowledge, in which both processes are oriented to increasing the capacity
of a firm to maintain and create comparative advantages; all of this by means of the development
of other organizational capabilities or arrays of organizational routines and processes such as
marketing, distribution and production, through which firms acquire, assimilate, transform and
exploit knowledge” (2017b, p. 13).
Perdomo-Charry, et al. Submits that “The work of Zahra and George (2002) has allowed several
authors (Jansen et al., 2005; Volberda, Foss and Lyles, 2010; Zhang et al., 2015) to advance and
deepen their studies on how organizational management affects the realized and potential absorptive
capacity” (2017b, p, 13). On the other hand, it has made possible for other authors to work on
both capacities separately, potential absorptive capacity (Fosfuri and Tribó, 2008) and realized
absorptive capacity (Flatten, et al., 2011a and 2011b), on the effect of potential absorptive capacity
on the opening to new changes or organizational knowledge (Liao, Welsch and Stoica, 2003) and
on innovation performance (Fosfuri and Tribó, 2008; Flatten, et al., 2011a), compatibility and
innovation (Sanez et al., 2014).
Studies also report that AC positively moderate the relationships between manufacturing
flexibility and firm performance (Patel et al., 2012), between E-purchasing tools and category
performance (Kauppi et al., 2013) and between supplier involvement and agile product innovation
(Tavani et al., 2014). Other works report that the effect of AC is moderated by environmental
conditions such as complexity (Setia et al., 2013), uncertainty (Sanez et al., 2014) and appropriability
regime (Ritala and Hurmelinna-Laukkanen, 2013). However, there is a lack of empirical studies on
how AC interact with OIC.
2.2. Open Innovation Capabilities (OIC)

For Si Zhang, “External sources of technology can have a more significant impact on the innovation
model that companies choose to adopt. Enkel et al. (2009) studied the knowledge sources of
organisation and established the fact that clients, suppliers and even competitors have become
main sources of knowledge. In most industries, even industry leaders cannot research and develop
IAMOT 2019 | 678

a new technology completely on their own. Technological challenges and financial constraints push
independent organisations or even competitors, to collaborate. With progression in technology, more
interdisciplinary subjects have emerged. Therefore, a different innovation environment started to
form, which Chesbrough (2003) later called -open innovation-” (2018, p. 77).
Previous authors also point out that “Christensen (2006) argued that, although external
knowledge can become more accessible, companies should not abandon their core technologies.
Knowledge and knowhow regarding organisations’ core competitiveness, as well as in-depth R&D,
should be maintained within the companies. But most of the research focuses on the technological
outcomes from openness and financial performance, as an indicator of value capture from open
innovation. Chesbrough’s study discovered that external forces can enhance the efficiency of
projects, and shorten working time, which can make a difference for short-term projects in particular.
Yet, an over-dependence on external R&D may have a crowding-out effect on long-term innovation
programmes” (Si Zhang, et al., 2018, p. 77).
Chesbrough defined open innovation (OI) as an organization that “uses external ideas as well as
internal ideas, and internal and external paths to market” (2003, p. 34). Lichtenthaler also referred
to the OI approach as “systematically relying on a firm’s dynamic capabilities of internally and
externally carrying out the major technology management tasks, technology acquisition and
technology exploitation, along the innovation process.” (2008, p. 148). The adoption of OI strategies
lies on a continuum. At one end are those companies with entirely closed innovation, whereas at the
other end are those companies with fully open approaches to innovations.
This study identifies the two core OI processes (Chesbrough’s, 2003, p. 17): first, External
Technology Acquisition (ETA, also termed inbound open innovation or acquisition open innovation);
and second, External Technology Exploitation (ETE, also termed outbound open innovation or
exploitation open innovation), for creating economic value (Chesbrough, et al., 2006; Chesbrough
and Crowther, 2006; Chesbrough and Garman, 2009; Dodgson, et al., 2006; Enkel, et al., 2009;
Lichtenthaler, 2008, 2009b; Spithoven, et al., 2010).
For Hung and Chou “ETA assesses the degree to which a company accesses available external
technologies to complement the ones it already possesses. This process allows firms to acquire
technological knowledge from suppliers, customers, and external knowledge sources to enrich
their knowledge base (Grant and Baden-Fuller, 2004). ETE refers to a firm’s purposive pursuit of
commercialization or outward transfer of its technological knowledge to outside firms to obtain
monetary or non-monetary benefits (Lichtenthaler, 2009b)” (2013, p. 369).
Previous research has divided OI into ‘outside-in’ and ‘inside-out’ processes (Enkel et al., 2009).
This paper focuses on the two processes and investigates its associations with AC. Organisations,
especially those in developing countries such as Colombia, perform more inbound than outbound
OI. The inbound strategy may take the form of technology purchases, inter-companies R&D
collaborations, technological spinoffs, and user-driven innovation (Huston and Sakkab, 2006;
Waites and Dies, 2006; Kim et al., 2008; Piller, 2011). Here, we specifically focus on the effect
of AC on OIC. It is well recognized that AC play an important role in open innovation, but what
contributes to success and whether a company can profit from purchased technology still need to be
identified (Gassmann et al., 2010).
In accordance with Naqshbandi and Tabche “As OI deals with the inflows and outflows of knowledge
that involve knowledge exploration and exploitation (Xia and Roper, 2016), it requires human capital
that is capable of selecting, acquiring, transforming and utilizing knowledge for innovative purposes
(Tirabeni, et al., 2015). Hence, open innovation requires leaders who can effectively manage human
capital (Lee and Cole, 2003; Lerner and Tirole, 2001).
West and Bogers (2017) contend that the open innovation activity of an organization is interpreted,
decided and implemented by its employees. In this context, empowering leadership fosters creativity
and flexibility among followers, resulting in “very high innovation” through followers’ development
IAMOT 2019 | 679

and self-confidence (Sims et al., 2009). Empowerment is one of the crucial factors for achieving
innovative outcomes (Sok and O’Cass, 2015)” (2018, p. 156).
Absorptive Capabilities and Acquisition and Exploitation of Open Innovation
Zhang, Zhao and Lyles pose that “Researchers find that AC positively influence knowledge transfer
(Lawson and Potter, 2012; Whitehead et al., 2016), innovation (Cepeda-Carrion et al., 2012; Ritala
and Hurmelinna-Laukkanen, 2013), manufacturing capabilities (Tu et al., 2006; Zhang et al., 2015)
and business performance (Francalanci and Morabito, 2008; Nagati and Rebolledo, 2012).
In addition, empirical evidence exists that AC mediate the relationships between information
systems and business performance (Francalanci and Morabito, 2008; Liu et al., 2013; Setia and
Patel, 2013; Iyengar et al., 2015) and between organisational compatibility and innovation
(Saenz et al., 2014).” (2018, p. 5).
They also emphasize that “Researchers also report that AC positively moderate the relationships
between manufacturing flexibility and firm performance (Patel et al., 2012), between E-purchasing
tools and category performance (Kauppi et al., 2013) and between supplier involvement and agile
product innovation (Tavani et al., 2014); and the effect of AC is moderated by environmental
conditions such as complexity (Setia et al., 2013), uncertainty (Saenz et al., 2014) and appropriability
regime (Ritala and Hurmelinna-Laukkanen, 2013)” (Zhang et al., 2018, p. 6). However, there is a
lack of empirical studies on how AC affect OIC.
For AC to influence OIC, specifically on the creation of value using the four dimensions of AC, it
is necessary to make OI acquisition and exploitation capabilities converge to fulfill this purpose.
In the case of contexts with too much turbulence, the internal ability to align AC with the changing
market requirements demands from the company to have developed the capability to co-create and
co-exploit new technological information uses with external partners (Hung and Chou, 2013).
With them, the company can reach economies of scale and technological complementarities and
in this way react agilely when the competition launches new products to update service portfolios
(Overby et al., 2006; Schweitzer et al., 2011; Chesbrough, 2012; Popa et al., 2017). Furthermore,
both OI capabilities play an important role in the relationship between AC because the internal
ability to foresee new technological information that could affect the company’s business must be
complemented with the capability to do so with external partners. These partners understand the
future of technological information and this complements the company’s internal vision and its own
capability to absorb new technological information.
At the early stage of openness, companies are capable to handle external knowledge to
commercialize it for profit; however, with more technology purchased, organisations are faced
with a more complicated knowledge integration and transformation process, which could
largely increase the cost of openness, and at the same time, reduce the benefit of open innovation
(Koput, 1997; Laursen and Salter, 2006). From a perspective of trade-off between the benefits and cost
of open innovation, it could become generally accepted that the degree of open innovation should have
a marginal value, beyond which open innovation has a negative impact on the company’s profitability.
For Zhang et al. “In addition to the purchasing expenditure, other non-monetary costs are often
incurred in the process of searching, evaluating and filtering proper external technology, assimilating
and integrating the purchased technology, and transforming and commercialising external technology
to the markets (West and Bogers, 2014; Salge et al., 2013)” (2018, p. 78). As a result, knowledge
access exceeds the benefits of OIC and the profit of the companies are gradually reduced. Therefore,
we expect that:
H1: Absorptive capabilities positively influence the Open innovation capability of acquisition.
Knowledge is a strategic resource and the capabilities in knowledge absorption and development
have persisting effects on innovation (Hult et al., 2006, Lane et al., 2006). Trust among employees
enhances OIC by facilitating cooperation and collaboration among internal -marketing, production
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and R&D departments-and external areas (Swink and Song, 2007). Information systems provide
a platform and tools that facilitate employees and stakeholders to process information and make
decisions related to new product development quickly (Liu et al., 2013).
It is the new knowledge and new applications of existing knowledge developed through
cross-functional collaboration and by using information systems that lead to product innovation
(Nonaka, 1994; Nahapiet and Ghoshal, 1998). Hence, this study argues that AC, which enable a
manufacturer to acquire and implement knowledge, mediate the effects of trust and information
systems on product innovation. Application helps employees implement new knowledge and
suggestions obtained from both external and internal stakeholders to develop open innovation
(Zhang et al., 2015). Thus, the AC components jointly enable a manufacturer to take advantage
of existing knowledge and develop new knowledge, enhancing open innovation. Therefore, the
following hypothesis is proposed.
H2: Absorptive capabilities positively influence the Open innovation capability of exploitation.
Definitely, OIC require the support of the AC dimensions to be able to affect IO, especially in
contexts with high turbulence, because the capability to react agilely demands resources that are
beyond organizational limits. In the case of OIC, taking advantage of external partners’ knowledge
and competencies facilitates the interpretation of the information that services capture. This will
allow companies to respond agilely to context changes; more specifically, it will allow companies to
adjust prices and update and customize the product and service portfolio among other possibilities.
Therefore, this study proposes the following hypotheses (see Figure 1):
Figure 1: Hypotheses Model
Source: The authors.

A good environment enables the follower according Naqshbandi and Tabche “from various
functional departments to communicate effectively to understand market trends, evaluate external
market opportunities constructively and collaboratively, and appraise the expected benefits likely
to be brought about by acquiring external knowledge (Bligh, 2017). A trusting environment also
extends the followers’ ability to incorporate external knowledge and integrate it successfully into
organizational processes (Burke et al., 2006). Khazanchi et al. (2007) stated that innovation requires
flexibility, empowerment, control and efficiency, all at the same time” (2018, p. 157).
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3. Methodology
3.1. Sample and Data Collection

The study sample is made up of 123 low-and medium-technology manufacturing and
services companies (Eurostat, 2009), located in an emerging and technology-follower country
(Hoskisson et al., 2000; Castellacci, 2011) such as Colombia. The sectors represented in the sample
are: information and communications; human health care; professional, scientific and technical
activities; retailing; foods product manufacturing; among others.
The method used to collect the data consisted in a form sent by electronic mail to the firms’
management between November 2015 and May 2016, obtaining 123 valid responses which,
according to Cohen (1988), allows a statistical power of 80%, which is considered satisfactory.
Table 2. :Characteristics of the Firms in the Sample
Sector Frequency Percentage

Information and communications 20 16.3
Human health care activities 16 13
Professional, scientific and technical activities 13 10.6
Retailing 9 7.3
Food products manufacturing 8 6.5
Education 7 5.7
Construction 6 4.9
Administrative service and support activities 5 4.1
Metal products manufacturing, except machinery and equipment 5 4.1
Transport and warehousing 5 4.1
Financial and insurance activities 4 3.3
Lodging and food services 4 3.3
Machinery and equipment manufacturing 4 3.3
Plastic products manufacturing 3 2.4
Electrical devices and equipment manufacturing 2 1.6
Associations’ activities 1 0.8
Printing activities 1 0.8
Real estate activities 1 0.8
Clothing manufacturing 1 0.8
Leather products manufacturing 1 0.8
Manufacturing of other non-metal mineral products 1 0.8
Paper and cardboard manufacturing and paper and cardboard products manufacturing 1 0.8
Manufacturing of basic metallurgical products 1 0.8
Textile products manufacturing 1 0.8
Substances and chemical products manufacturing 1 0.8
Other sectors 2 1.6
Functional Area of the Respondent Frequency Percentage
Presidency or General Management 42 34.1
Research and Development 15 12.2
Marketing and Sales 15 12.2
Systems and Technology 13 10.6
Human Resources 10 8.1
Finances 7 5.7
Production 6 4.9
Quality management 4 3.3
Other areas 11 8.9
Source: Own Elaboration from the Surveys Conducted.
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3.2. Measurement Scales

The absorptive capabilities of transformation and exploitation were measured with the scale
developed by Flatten et al (2011). For measuring OI, we used the scale of Hung and Chou (2013).
For both cases a Likert scale with 5 response levels was employed.
Table 3: Scale Items
Open Innovation
External Technology Acquisition
OI Ac1 We often acquire technological knowledge from outside for our use
OI Ac2 We regularly search for external ideas that may create value for us
OI Ac3 We have a sound system to search for and acquire external technology and intellectual property
OI Ac4 We proactively reach out to external parties for better technological knowledge or products
OI Ac5 We tend to build greater ties with external parties and rely on their innovation
External Technology Exploitation
OI Ex1 We are proactive in managing outward knowledge flow
OI Ex2 We make it a formal practice to sell technological knowledge and intellectual property in the market
OI Ex3 We have a dedicated unit (i.e., gatekeepers, promoters) to commercialize knowledge assets (e.g., selling,
cross-licensing patents, or spin-off)
OI Ex4 We welcome others to purchase and use our technological knowledge or intellectual property
OI Ex5 We seldom co-exploit technology with external organizations (R)
Absorptive Capabilities
AC1 Our employees successfully link existing knowledge with new insights.
AC2 Our employees are able to apply new knowledge in their practical work.
AC3 Our management supports the development of prototypes.
AC4 Our company regularly reconsiders technologies and adapts them accordant to new knowledge.
AC5 Our company has the ability to work more effective by adopting new technologies
Source: Scales taken of Flatten et al. (2011) and Hung and Chou (2013).
3.3. Reliability and Validity

Table 4: Reliability and Convergent Validity
Constructs’ Items Loading t value CA CR(pC) VEI pA
External Technology Acquisition 0.99 0.99 0.95 0.99
OI Ac1 1.00 7.47
OI Ac2 0.90 4.74
OI Ac3 1.00 14.37
OI Ac4 1.00 11.29
OI Ac5 1.00 9.32
External Technology Exploitation 0.95 0.97 0.96 0.84
OI Ex1 0.91 3.50
OI Ex2 0.91 7.46
OI Ex3 0.95 7.08
OI Ex4 0.84 6.18
OI Ex5 0.98 8.30
Absorptive Capabilities 0.98 0.99 0.94 0.99
AC1 0.99 7.29
AC2 0.99 7.30
AC3 0.99 9.04
AC4 0.87 2.73
AC5 0.99 2.96
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Equations by the consistent least squares method (PLSc) were used with the aim of examining
the reliability and validity of the measurement model (Dijkstra and Henseler, 2015). The Dijkstra-
Henseler (pA) construct reliability indicator was applied, verifying that it was above 0.7. Additionally,
the Cronbach’s Alpha (CA) and the Dillon-Goldstein’s (pC) index, which is related to the composite
reliability, were verified, confirming that they were above 0.7. For the case of the variance extracted
index (VEI), it was corroborated that it was greater than 0.5.
3.4. Discriminant Validity

The Fornell-Larcker criterion was used to determine discriminant validity, observing that the variance
extracted index is greater than the squared construct correlations (Fornell and Larcker, 1981).
Table 5: Discriminant Validity
Fornell-Larcker
Construct
1 2 3
1. AC 0.97
2. OI - acquisition 0.81 0.98
3. OI - exploitation 0.74 0.91 0.92
VEI on the diagonal; squared correlations below the diagonal.
4. Results
The structural equations results show that AC have a positive and significant influence on the OI
acquisition capability (β = 0.81, t-values = 3.39), which leads to accepting H1 in the study. Besides,
it is observed that AC also have a positive and significant influence on the OI exploitation capability
(β = 0.75, t-values = 3.29), which leads us to accept H2. Additionally, it is observed that the control
variables do not have significant influence.
Table 6: Structural Equations Results
Trajectories Coefficient t value

AC -> OI Ac 0.81 3.39
AC -> OI Ex 0.75 3.28
Control Variables
Age -> OI Ac -0.02 0.39
Age -> OI Ex -0.06 1.02
Size -> OI Ac -0.09 1.30
Size -> OI Ex -0.09 1.27

Examining the weight of the individual loadings of the items, it can be observed that in the AC
construct, four items (Our employees successfully link existing knowledge with new insights; Our
employees are able to apply new knowledge in their practical work; Our management supports
the development of prototypes; Our organizations has the ability to develop more effective by
incorporating technologies distinctive) present a very high loading (0.995). In the case of the OI
acquisition capability construct, four items also present a very high loading (0.995): We often
acquire technological knowledge from outside for our use; We have a sound system to search for
and acquire external technology and intellectual property; We proactively reach out to external
parties for better technological knowledge or products; We tend to build greater ties with external
parties and rely on their innovation. In the OI exploitation capability construct, two items report
high loadings: We have a dedicated unit (i.e., gatekeepers, promoters) to commercialize knowledge
assets (e.g., selling, cross-licensing patents, or spin-off) (0,952); We seldom co-exploit technology
with external organizations (0,978).
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Figure 2: Results of the Model
5. Conclusion And Future Research Directions

The research contributes to innovation management field in three ways. First, the findings
provide reliable and truthful empirical evidence of the AC effect on acquisition and exploitation
of open innovation. Researchers find that AC facilitate knowledge transfer and innovation
(Lawson and Potter, 2012; Nagati and Rebolledo, 2012; Tavani et al., 2014).
For Perdomo-Charry, et al. “this study adopts a view of AC conceived as the ability of an organization
to generate processes, routines and business dynamics that facilitate generation of value based on
knowledge acquired in the external environment of the company. This is done through acquisition,
assimilation, transformation and exploitation (Zahra and George, 2002; Roberts et al., 2012;
Volberda et al., 2010)” (2017b, p. 10). The findings enrich existing knowledge on how to design
knowledge management processes to absorb and leverage knowledge to achieve open innovation
monetary or non-monetary benefits (Lichtenthaler, 2009b; Xia and Roper, 2016).
Second, this study provides empirical evidence that AC improve the two core OI processes
(Chesbrough’s, 2003, p. 17), extending current understandings on the antecedents of AC
(Marabelli and Newell, 2014). The majority of existing empirical studies focus on the effects
of either socialization (Zahra and George, 2002, Jansen et al., 2005) or information technology
(Roberts et al., 2012, Setia and Patel, 2013) capabilities on AC development.
We take an integrative view on AC and OIC and simultaneously investigate the effects
of AC on OIC. The findings reveal that AC are complementary in improving OIC,
highlighting the importance that AC positively influence knowledge and technology transfer
(Lawson and Potter, 2012, Whitehead et al., 2016), innovation process (Cepeda-Carrion et al., 2012,
Ritala and Hurmelinna-Laukkanen, 2013), manufacturing capabilities (Tu et al., 2006, Zhang et al., 2015)
and business performance (Francalanci and Morabito, 2008, Nagati and Rebolledo, 2012), developing
the OIC (Zhang et al., 2018). These elements support the construction of competitive advantage, even
more so considering that the results are clear when demonstrating that the relationship with external
organizations is strengthened and developed over time.
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The results also provide a holistic picture on the complex relationships between an AC construct and
OIC processes. The two items of the OI exploitation capability construct that reported high loadings
were: You have a dedicated unit (i.e., promoters, gatekeepers) to transfer and commercialization
of current knowledge (e.g., spin-off, selling, or cross-licensing patents); We seldom co-exploit
technology with external organizations (Spithoven, et al., 2010).
Third, this study finds that AC affect OIC on product innovation, providing insights into how
to fully capitalize the relationships among the organizations and stakeholders for new product
development (Swink and Song, 2007, Roberts et al., 2012). The results show that both OI
acquisition and exploitation capabilities improve new product development indirectly through AC,
which enhances current understandings of how OIC and AC interact to affect product innovation
(Hotho et al., 2012, Saenz et al., 2014, Marabelli and Newell, 2014). This study also reveals that
a relationship exists among AC, OIC and product innovation, suggesting that a firm should jointly
design its organizational systems and knowledge management processes to support new product
development (Lane et al., 2006, Mazzola et al., 2015b).
While this study makes significant theoretical and practical contributions, it has limitations that open
up avenues for future research. First, we conduct this study in Colombia. The relationships among
AC and OIC might be influenced by the Colombian business, cultural and institutional environments.
Future research could examine the research model in other countries to generalize the findings.
Second, this study tests the research model using cross-sectional data. Researchers argue that OIC
may influence AC (Cohen and Levinthal, 1990; Zahra and George, 2002; Xia and Roper, 2016;
Zhang et al., 2018) and an organizational environment promoting innovation may improve trust
among employees (Adler and Kwon, 2002) and stakeholders (Zhang et al., 2018). Future research
could extend the study by using a longitudinal design to investigate the evolution and dynamics
among AC and OIC. Third, this study may have the problem of endogeneity because some
uncontrolled confounders may affect both independent and dependent variables of the model, which
is a limitation.
Fourth, researchers argue that relational embeddedness in an innovation network positively influences
AC (Mazzola et al., 2015b). Fifth, this study focuses on both acquisition and exploitation of open
innovation. Researchers argue that OIC are associated with exploitative and exploratory learning
respectively (Hargadon and Sutton, 1997; Katila and Ahuja, 2002) and a firm’s AC may employ
different levels of exploitation and exploration (Lane et al., 2006). Future studies could investigate
how different types of AC influence product innovation and organization’s performance. Sixth, this
study does not consider internal R&D investments, which is a limitation (Cohen and Levinthal, 1990).
Future studies could examine the impacts of internal R&D investments on acquisition, assimilation,
transformation and exploitation processes.
6. Acknowledgements
This article is the product of the research project: “Effect of co-creation of value and co-innovation
on innovative performance in SMEs of Medellín-Antioquia”, which was financed by the
CODI-Committee for the Development of the Research-from the University of Antioquia and the
CEIPA University, during the years 2017-2018.
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Towards Designing the Standard
Technology Intelligence System
Hadi Nilforoushan
Shahid Beheshti university, Research center for fundamental,
research in science and technology, Iran
E-mail: h_nilforoushan@sbu.ac.ir
Soma Rahmani
Mazandaran university, Faculty of economics,
and administrative sciences, Iran
E-mail: srahmani@umz.ac.ir
Abstracts
Introduction and Purpose: In order to respond to environmental changes, especially technological ones, different
organizations need to use technology intelligence systems. The purpose of these systems is to help decision makers
to make the right technology decisions by collecting, analysing, distributing and using relevant information.
This paper reports a study of designing some sort of standard technology intelligence system in National Iranian Gas
Company in order to enable superior managers and decision makers all over the country to scan their environment
and use the information related to their decisions.
Methodology: Qualitative approach was used and information was collected through semi-structured interviews
with gas company experts and managers. Each respondent was asked to present his/her important decisions. These
decisions were analysed according to the information needs and then technology intelligence system was designed
in a way that can transform information needs to the products required to decision processes.
Findings: This paper suggests a standard system for technology intelligence. This system, like other systems, is
divided into inputs, processes and outputs. Inputs are decision-maker’s technology related information needs,
which are defined precisely in the proposed model. Outputs are also standardized in the three forms of scanning,
monitoring and scouting reports and ultimately the processes, which outputs based on them are provided, have been
introduced.
Contributions: This study can help companies in different sectors to have a standard approach in doing technology
intelligence processes.
Keywords: Technology Intelligence System, Standardization, Technology Scanning, Technology Monitoring,
Technology Scouting, Technology Related Decisions
1. Introduction
policy-makers and decision-makers need to have relevant technological information in order to make
proper decisions. Today, managers and organizations are faced many environmental challenges,
including the speed of environmental changes, the different data from various sources of information,
ambiguous data and increased competition. If companies can’t deal with technological development
trends in their industries, they will face very serious problems. Firms will gradually lose their market
positions (Chesbrough, 2003) when they can’t predict the impact of new technologies and not be able
to innovate. Under such conditions, technology intelligence can be a good solution to these challenges.
Top of FormThrough technology intelligence, decision makers and researchers can identify
different methods, processes and tools to respond environmental changes, the development of
technologies and trends that affect the company’s future competitive position (Ethel, Choo, 1994).
However, how organizations use this technology intelligence to find the right answers is the most
important challenge for organizations. Implementing technology intelligence requires organized
efforts. Different authors have examined the technology intelligence from different perspectives
and introduced various methods and tools for implementing. In the past, many studies focused only
on empirical studies (Utterback and Brown, 1972), as well as reviewing processes of technology
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intelligence (Ashton, 1991, Ashton and Stacy, 1995). Whereas, in recent years, with increasing
the importance of implementing TI, more researchers have been interested in studying the
industrial needs for understanding of how this system works. For example, Lichtenthaler
(2003, 2004a, 2004b, 2007) explored the process of doing technology intelligence in multinational
organizations. Besides, Savioz has provided a systematic model for collecting, analyzing and
disseminating information in a technological environment to introduce new opportunities. He and
his colleagues in another paper, has investigated the technology intelligence system in SMEs and
medium-sized companies. (Savioz et al., 2001, Savioz and Blum, 2002). Then, researchers have
changed their studies and interests towards relationships between managers and decision makers
with intelligent of technology (Savioz and Tschirky, 2004, Karshenas et al., 2016). A study by
Mortara and others in 2009 was also devoted to analyze how systems were designed to connect
decision makers to each other and how they use relevant information. Despite many researches on
the subject of technology intelligence, technology intelligence processes, technology intelligence
design and implementation, there are few studies on designing a standard system based on system
inputs (information needs) transform to outputs (Intelligent production) in order to apply by decision
makers. Ethel and Choo (1994) categorized Mintzberg (1973) decision roles to explore how decision
makers use scanned information in the environment. The study determines what information
is needed for what decisions? Which part or parts of the environment should be scanned? And
from what resources this information can be obtained? However, this research also is incomplete,
because the type of outputs and intelligent products that decision makers will need have not been
identified, therefore, it can’t be known as a standard system. The present study seeks to fill this gap.
The main objective of this paper is to examine the technology intelligence as an open system and
its relationship with decision-making systems in the organization. In fact, designing of the standard
system of technology intelligence that meets technological decisions of the organization is the main
objective of the research that researchers are pursuing. The National Gas Company of Iran, which
operates in the dynamic environment of the gas industry and need to identify changes as soon as
possible to respond quickly, is considered as a case in this study.
2.1. Technology Intelligence

Creating value based on knowledge creation is a key factor in dealing with environmental changes,
especially technological ones. For this reason, formal intelligence systems have a fundamental role
due to their adaptability in identifying internal capabilities and environmental changes through the
transformation of data into valuable and strategic knowledge. Technology intelligence provides
both the possibility of proper negotiation and the basis for improving the decision-making process,
especially those related to innovative processes by predicting technological trends and providing
knowledge to decision makers (Ethel and Choo, 1994).
The definition of technology intelligence is based on two main schools of thought. The first school
is dedicated to authors who introduced methods to predict the development of future technology.
Often, these authors consider technological intelligence as a tool (Kostoff, Tghiteya, Malpohl,
Humenik, Karypis, Toothman, 2003, 2005). In contrast, there are other authors and researchers who
are trying to develop systems to monitor the technological environment in which the organization
operates on a periodic basis and with a view to assessing its impact. It means that the latter is more
systematic than the former one (Licktenthaler, 2003, 2004, 2007, Rodrigues and Escorsa, 1998,
Norling, 2000, Lopez, 2002).
The first school, in which intelligence technology is a way to predict the future development of
technology, belongs to Porter (Castellanos, Torres, 2010). He states that “intelligence of technology
is one of the various types of technology forecasting techniques, such as foresight and roadmap”.
He has categorized technology intelligence as one of the techniques for future technological analysis.
In this case, Lang and Mueller (1997) state that “intelligence of technology is a tool that identifies
technological developments and trends over time, a model that links market needs and technological
innovation”.
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Towards Designing the Standard Technology Intelligence System
The authors of the second school look at the intelligence of technology as a system. Lopez (2002)
considers technology intelligence as a system related to knowledge and technological trends,
identifies key actors and competitor’s actions. Licktenthaler defined technology intelligence a
group of activities related to the collection and analysis of information of technological trends,
which supports the organization’s technological decisions. Lang and Mueller (1997) argued that
the intelligence process involves identifying information needs, selecting sources, collecting data
and analyzing information. This is why he chose a system approach for technology intelligence.
In another study, Escorse and Rodrigues (1998) also agreed with him and considered intelligence
as an analytical work over time. Moreover, according to systematic approach, Davis (1999)
states that working with technology intelligence as a system involves collaborating to do especial
tasks. Castellanos and Torres (2010) suggested a model of technology intelligence that redefines
technology management. It is a dynamic and flexible system that is an integrated tool for technology
management (technology prediction, foresight and roadmap) that is used independently. Since the
1970s, between these perspectives, a systemic approach has been used. Different authors have
become more interested in systematic observation and systematic monitoring of technological trends
(UtterbAck and Brown, 1972, Cooper and Schendel, 1976, Licktenthaler, 2003, 2004b, 2004a, 2007,
Karshenas et al., 2016). This is why the approach of formal technology intelligence system has been
used in this paper.
2.1.1. Technology Intelligence System

The concept of system has several definitions. Miller (1965) states that the universe consists of
several systems, each of them at the higher level includes lower-level systems. Bertalanffy (1968)
described the system as a set of units that interact with each other and each component has its own
function. In all definitions, the commonality is existence of separated units that interact with each
other and can effect each other. Thus, the three main features of open systems are the concept of
universality, the interrelationship between the components and the existence of the goal. components
of System are inputs, processes (conversion), outputs and feedback (solos).
Figure 1: Open Systems Components
Components of technology intelligence system include identifying key Stakeholders/ Decision

makers, information needs, aggregation, analyzing, publishing and disseminating relevant
technology information, which ultimately leads to value creation for the organization by improving
the decision-making process. Savioz stated that Some indirect activities such as technology
intelligent management, mission/ Objectives, intelligent technology tools can be considered as
enablers of direct technology intelligence activities [5]. If the technology intelligence is viewed as an
intricate adaptive system with inputs (information needs), outputs (intelligence products), processes
(data collection, information analysis and information distribution) and feedback, internal and
external information is permanently acquired in order to transform data into intelligence which
helps people involved in decision making process in the organization to make changes that are
consistent with the external environment. In a study by Castellano and Torres in 2010, the technology
intelligence system has been studied based on three components or subsystems, Management of the
technology tools that manage the information, Creating knowledge through the transformation of
data into valuable and strategic information and Formulation and implementation of strategies in
accordance with organizational policies to facilitate decision making.
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Not only are these components successive phases, but they are complementary and complement
each other through a complex process of continuous feedback flows.
Figure 2: Suggested Technology Intelligence System

source: Castellanos and Torres (2010)
The technology intelligence system in its organization is a subsystem for other organizational
system, such as the production system, support system (3). In the present article, based on the logic
of the system (input, output and process), to design technology intelligence system has paid special
attention to the principles of the system and its components. In Figure 1, the main components of the
technology intelligence system are shown briefly.
Figure 3: Proposed Technology Intelligence System of this Paper
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As shown in the figure above, the organization needs some related inputs in order to design a system
of technology intelligence. Identifying key stakeholders and decision makers in the organization
is essential to obtain these information needs. As well as identification needs, sources should be
considered in order to capture the identified information needs. Collected data from sources alone
can’t provide useful information to decision makers; this information should be analyzed and
presented in the form of intelligent products (standard seminar reports, etc.). In the instrumental
approach of technology intelligence, only information about the future of technology was gathered
and no analysis was made on this information. However, in the system approach, not only information
is analyzed and made available to decision makers, but also feedback is received from decision
makers about the nature of the analyzed data and the extent to which data and intelligent products
are relevant to their needs. Each step in the systematic process of technology intelligence returns to
its previous stage.
Most studies on the technology intelligence system only describe the inputs, outputs and processes
of intelligent technology systems. Technology intelligence is a vital issue for organizations,
however because of existing numerous publications on how to manage the process of technology
intelligence and effective factors, this is no consensus on this concept both theoretically and
practically. Therefore, using credible and reliable standard that can both promote the consensus
and improve understanding of technology intelligence in practice deeply, is necessary.
The standard is a common and inclusive framework which provides the basis for deep understanding
and the creation of uniformity. However, it is possible also that the concept of standardization
may be generally understood negatively, because people think standard means using a same
method and a framework in different situations. In the present study, the goal is not to provide
the same framework for different situations. The purpose is to familiarize with how to standardize
the technology intelligence system in different organizations. The standard intelligent technology
system can help integration and coordination of intelligent technology activities more. The purpose
of the design of the standardized intelligent system is the stabilization, definition and normalization
of inputs (demands) based on the type of technological decisions of the organization, linking inputs
to outputs, definition of standard outputs and definition of standard and appropriate processes for
providing reports related to the outputs.
2.1.2. The Most Important Factors in Implementing of Technology Intelligence System

Technologies play an important role in business. Having accurate and comprehensive information
in order to support technological decisions about emerging trends outside of the company can
help to boost competitive advantage of the organization. Technology intelligence as explained is a
systematic program for collecting, analyzing and disseminating information about the technological
environment aimed at finding new opportunities. Savioz (2001) stated that implementation of
technology intelligence system depends on a number of key factors that need to be addressed. These
factors include.
2.2. Cultural Factors

The culture of the organization is the basis for the success of the technology intelligence system.
Appropriate conditions in the organization can help to share information, improve ideas, accept
change. Human being always resists changes, on another hand the issue of time constraints for
information sharing always causes problems. In this circumstances a proper and collaborative
environment can reduce the burden of these problems in the organization and help to make it
intelligence more gradually.
Having a specific concept and standard for the technology intelligence system: technology
intelligence system requires a standard in a standardized manner that should be involved in definition
of technology intelligence purposes, determination of users and key stakeholders, determination
of the sector and area for technological intelligence and Determination of a proper structure for
technology intelligence.
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2.3. Operations Set up

In order to initiate technological intelligence activities, the key stakeholders needs are the most
important inputs to collection of information that are relevant to the information sources.
An interdisciplinary team should collect information and then analyze them. Outputs should be
linked to the needs and technological decisions. Organizations sometimes provide only one source
and collect information based on unofficial communications, in which case the collected information
will be unreliable.
2.4. Course of Implementation Project

The implementation of the TIS can be an individual or a broad project throughout the company.
The organization must have a precise definition of the scope of implementation of TIS. Also,
the time and budget allocated to the project must be taken into account before implementing.
The whole technology intelligence project is carried out in four stages, introduction phase, pilot
phase, modification phase and finally the permanent phase with regular reviews. Acceptance of the
technology intelligence project by individuals is very important in the organization, especially in the
pilot phase.
2.5. Performance Measurement

The purpose of performance measurement is to capture the TIS effectiveness, efficiency, profitability
as well as to support general management processes. There are several scopes of measurement,
direct impact of implementing the technology intelligence system, impact on the general results and
outcomes of the company and the level of resources and process effectiveness.
2.6. Human Issue

TIS is a complex system of technology implemented by individuals. Because of this reason, it should
be done by people with high technical skills.
2.7. Awareness of Introduction Barriers to Implement TIS

Despite the fact that TIS is a consistent system, however many TIS projects fail due to a number of
barriers. The most important and relevant barriers are Knowledge barriers, Willingness barriers and
Capability Barriers. These three barriers appear at the individual level as well as at the whole team
level. The awareness of such barriers should be included as soon as possible in the implementation
project (Savioz et al., 2001).
3. Methodology of Research
In this study, qualitative research approach and content analysis method have been used. content
analysis method is the process of subjective interpretation of text content through the systematic
categorization process, coding, identifying themes and patterns (Hsieh and Shanon, 2005).
The purpose of this study is to design a standard technology intelligence system. The study was
conducted at the National Iranian Gas Company. In order to identify the important technological
decisions of the National Iranian Gas Company and identify the data needs to meet these needs, some
interviewees have been done with some of the experts of Iran Gas Company. The most important
interview questions are given in the following table.
Table 1: Research Questions
Question 1 What are the main decision makers at Gas company?

Question 2 What is the structure of the decisions? (Centralized/Decentralized)
Question 3 What kind of technological decisions will be made at the Gas company?
Question 4 What information, people and resources are needed to make decisions at the company?
Question 5 What are the main problems with decision making and their proper implementation?
Question 6 How information needs are acquired to make decisions now? And how should be done in the future?
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The method of selecting samples is a purposeful sampling. This involves identifying and selecting
individuals or groups of individuals that are especially knowledgeable about or experienced with a
phenomenon of interest. Interviews continued as long as to get theoretical saturation (Krsul, Planck,
2011). The list of interviewees is presented in the table 2.
Table 2: List of Interviewees
Interviewee Code Organizations Date
A1 Research and Technology Management of Gas Company 2017/11/11
A4 Engineering and Development Company 2018/02/05
Interviews were coded and important points were made about the types of technological decisions,
the type of data needed for decision making and the stakeholders and decision makers of the National
Iranian Gas Company.
3.1. Analysis of Research Findings

Regarding the system approach adopted to implement technology intelligence, using key interviews,
key stakeholders and decision makers of the National Iranian Gas Company, the most important
decisions, the most important information needs for decision making, the appropriate information
resources for the collection of needs Information and analysis and, finally, intelligent products that
are relevant to each of the needs and decisions have been extracted. In the following section the
findings of each of these steps is presented.
3.1.1. The Main Stakeholders and Actors of Technology

Intelligence in National Iranian Gas Company
Based on semi-structured interviews, the main stakeholders and decision makers of the National
Iranian Gas Company are identified and are presented in the table below.
Table 3: The Main Interests of the National Iranian Gas Company
Source (Interviewee) The main Decision Makers
A4, A5,A6,A1,A2,A3 The board of directors
A1, A2, A3, A6 Directors of subsidiaries
A1, A2, A3, A5 Director of Research and Technology Affairs
A1, A2, A3, A4, A5, A6 Standard development unit
A4, A5, A6 Technical inspection and control unit
A1, A2, A3, A4, A5, A6 Planning management
A4, A5, A6 Production monitoring management
A1, A2, A3, A4, A5, A6 Consultants
A1, A2, A3, A4, A5, A6 Contractors
3.1.2. The Most Important Decisions of the Stakeholders

of the National Iranian Gas Company
Strategic decisions are most important decisions of the stakeholder of the National Iranian Gas
Company. Strategic decisions can lead to competitive advantage in the organization. In order to
make such decisions, there is a need for proper information that the organization can achieve this
through intelligence. Because an intelligent organization understands the strategy of competitors
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better and faster and learns more about their failure and success. It enables managers to make
decisions by systematical monitoring and greater awareness. The most important features
of strategic decisions are Unstructured, Creative and non-repetitive, uncertainty, ambiguity,
complexity and chaos environment, Based on hard data (statistics and figures) and soft data
(ideas, intuition and management judgment), a forward-looking and relatively long-term horizon,
Under resource constraints and competitive pressure, Related to the external environment,
Effective on the overall organization, Key role for long-term success and Based on hybrid thinking.
These kind of decisions have three steps in strategic decisions 1) Identifying opportunities and threats
2) Development of options and solutions 3) selecting proper options and solutions and finalization.
The fundamental strategic decisions include changing sales and service strategies, deciding to enter
new markets, changing products and services, changing technology and research and development
strategies and so on (Rezaeian and Lashkar, 2010). Other important decisions in the Iranian gas
companies, that the experts have pointed out, are decisions to develop a technology strategy that
mainly addresses two fundamental questions: 1) Does the organization need to change technology
and adopt a new technology? 2) What if the acquisition of a new technology is needed, what is the
most appropriate acquisition method and what decisions should be made in this regard?
Figure 4: The ost Important Decisions About Adopting a Technology Strategy
3.1.3. Determine the Required Information Resources

In general, two types of resources are used to collect data. Primary resources which are the sources
that are available without modification and they can be achieved directly for example by attending
seminars, conferences. Whereas, Secondary sources can be accessed through articles, patents and
databases. Although, the latter are less costly and resource-efficient than the former, so they play
an important role in collecting data, it is better to use both sources to collect the required data.
Secondary sources include databases related to inventions, administrative archives of organization,
organizational documents, financial information archives, organization backgrounds, government
reports and statistics, media, Published reports of market research and reports on the publication of
scientific articles. Most important of these secondary sources are publications, patents and market
research reports.
Access to the information resources is required to answer any of the information needs. The weight
of these resources may vary for some needs, meaning sources may use for some needs more
than others. However, all needs require both types of primary / secondary information resources.
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For example, for investing in new technology the important information that will be needed are both
to know what the market is and how technology is developed (West, 2001). The following table
shows what resources are more relevant and needed for the making the decisions. Darker colors
show more and clear colors show less importance. The white color indicates the ineffectiveness
and irrelevance of the sources in accessing relevant information needs to make identified decisions.
Figure 5: Match Resources with Needs
3.1.4. Analysis of Data Extracted from Various Sources

After collecting data, analyzing the data should be performed. In order to carry out the analysis
for extracting intelligent products in the National Iranian Gas Company, two phases were
used. First, the data have been analyzed by various softwares (Orbit, VOS viewer and so on).
Second, in order to extract intelligence, the analyzed data were sent to the experts. However, according
to the information needs of the gas company, other methods also can be used, which we will continue
to introduce. They are Publication frequency analysis, Publication citation analysis, Quantitative
conference analysis, Patent frequency analysis, Patent Citation Analyzes, S-shape curve analysis
and Benchmarking studies.
3.1.5. Intelligent Products

According to the identified needs in the gas company, different intelligence products should be
produced to make two kind of decisions (strategic, technology acquisition decisions). These products
can be derived from patent analysis, publication analysis (papers and articles) and market and
competitor analysis. Various searching in three level should be used according to type of decisions
and products needed. There are three kinds of searching level scanning, monitoring and scouting.
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On one hand, in order to obtain strategic decision-making at the enterprise level, such as the
acquisition of data in order to identify the weak signals, the continuous scanning approach should be
used to obtain information and scanning reports as an intelligent product of the analysis of this type
of data. Scanning is a continuous activity that examines the external environment and the extent to
which science and technology are developed in a variety of areas that may be needed in the future.
Scanning without focusing on specific domains, continuously collecting information that can cover
unspecified needs. Scanning reports require more secondary resources because of its broad and
comprehensive approach. It is not necessarily possible to use the patent analysis to analyze its data.
The most important methods of scanning analysis are Delphi method analysis. scanning reports can
be applied for technology foresight, strategic planning and strategic decisions.
On the other hand, in order to make decisions of technology acquisition, it is also necessary to
collect relevant data. In this section, the most important ways of obtaining data are monitoring
and scouting and intelligent products that can be helpful here are monitoring and scouting reports.
Monitoring routinely organizes the topics of science and technology and aims to follow trends
and developments. Technology scouting seeks to collect and review information about specific
technologies, consultants and experts that respond to user needs. Both monitoring and scouting
reports look at trends more detailed. At these two levels, primary resources are more important
sources than the level of scanning.
The following table provides a clear explanation of the type of decisions based on literature and
interviews with gas company experts and based on each decisions, related needs have been defined.
Then, it has been determined that what kind of intelligence reports are needed to obtain these
defined needs to make the specified decisions. It should be noted that the first and second columns
of Table 1-2 (technological decision-making positions and defined needs) can be completed more,
considering other needs that Gas company may define in the future.
Table 4: Standard Intelligent Technology System
Decision Information
Information Sources Intelligence Products
Types Needs
Scouting Monitoring
Primary Resources (Interviews, Observations , …)
Market research databases
Articles and Publications databases
Company’s websites
Business analysis reports of company
Report and patent databases
Scanning Reports
Reports Reports
Patent analysis
Publication analysis
Market analysis
Patent analysis
Market analysis
Market analysis
Delphi analysis
Benchmarking
Scenario analysis
Strategic dentifying
decision at weak signals
agent level
Identifying
opportunities
and threats
of new
technologies
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Types Needs
Strategic Identifying
decision at need to change
technology technology
level
Determining
the best way
of technology
acquisition
Technology Identification
purchase of consulting
decision companies
Identification
of main
competitors
Techno-
economic
analysis of
technological
choices
Forecasting
technological
trends
Market
analysis of
technological
choices
Technology Identification
development of main
decision competitors
Identification
of consulting
companies
Analysing the
technical and
economical
attractiveness
of
technological
options
Determining
the position
of identified
technological
options in the
life cycle
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Types Needs
Technological Identification
cooperation of main
decision competitors
Identification
of selected
technological
trends
Techno-
economic
analysis of
technological
options
Analysis of the
competition
position of
company
Identification
of suppliers
and
manufacturers
of identified
technological
options
3.1.6. Documentation and Dissemination of Intelligent Technology Products

After extracting the outputs from data analysis, the most fundamental issue is distribution and
publication of intelligent products. The question that arises here is why publishing intelligent
products is an important topic? The answer is that successful publication of intelligent products
ensures that the achievements of the technology intelligence system are used at the appropriate
level of the organization. There are appropriate reports and strategic outcomes derived from the
technology intelligence system, but they can’t impact decisions because of inappropriate distribution
strategy. So the appropriate strategies must be applied to distribute the intelligent products.
4. Conclusion
Chang emphasizes that researchers and decision-makers need accurate definition of technology
intelligence to make appropriate decisions. Technology intelligence can create opportunities for the
company, therefore its implementation should be an organized effort. Norling (2000) recommends
the use of sophisticated tools for analyzing relevant information and providing intelligent products
and sending them to empowered and experienced people in the organization to make decisions.
Lichtenthaler (2003) provides intelligent methods and different structures of intelligence. He argued
that technology intelligence is a capacity that identifies technological advances over time. He also
insists that the most important technology intelligence function is to develop knowledge about
the opportunities and threats of technologies. In this regard, Savioz (2004) recalls the technology
intelligence as a systematic model for collecting, analyzing and distributing information to find
new opportunities. In 2006, Ker et al. Examined technology intelligence in three levels framework,
system and process. At the level of framework, it seeks to connect decision makers (clients) and
intermediaries to map the information needs and knowledge gaps of decision makers and also extract
relevant information from different sources. The system level explores how to link inputs and outputs
of technology intelligence and the process level involves activities technology intelligent across
the organization. Accordingly, the present study seeks to provide a systematic and standardized
framework for intelligent technology in the National Gas Company of Iran. In this study based on
interviews key decision makers, key information needs, relevant information sources and intelligent
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product have been determined. Then according to systematic perspective these components were
linked to each other in a standard way to help the company respond the environmental changes and
make appropriate decisions quickly. The study tries to bridge the gap in researches and explains how
you advance the previously cited literature by designing a standard technology intelligence system.
5. Acknowledgements
The authors would like to express their acknowledgements to the following people and institutions,
whom with their kind collaboration, made this work possible:
To the National Gas company of Iran and subsidiaries, which supported authors to adjust appointments
to interview with the experts of Gas company and provided supervision for the implementation of a
technology intelligence system.
6. References
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approach. International gournal of Technology mnagement, 32 (3/4), 388-407.
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educativos, Madrid: Praxis .
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Mortara, L.K., (2009), A toolbox of elements to build technology intelligence systems. International Journal of
Technology Management, 47(4), 322-345.
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Norling, P.M., (2000), Putting competitive technology intelligence to work. Research-Technology Management 43(5),
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IAMOT 2019 | 704

The Relationship between Competitive
Intelligence and Innovation Performance
of SMEs: A Case Study
Abdeslam Hassani
Université de Sherbrooke, École de gestion, Canada
E-mail: a.hassani@usherbrooke.ca
Elaine Mosconi
Université de Sherbrooke, École de gestion, Canada
E-mail: elaine.mosconi@usherbrooke.ca
Abstract
Introduction and Purpose: Despite the importance of the Small and Medium-sized Enterprises (SMEs) in
Canada’s economic growth, competitiveness in a dynamic and complex environment is becoming more and more
difficult to ensure for SMEs. In order to survive and achieve business performance, there is a need for SMEs to
innovate. Innovation is based largely on investing in research and development (R&D). However, most SMEs do
not have sufficient resources to invest in R&D. Therefore, to innovate, SMEs can use information from a variety of
external sources using competitive intelligence (CI). CI enables companies to improve innovation process. However,
it requires a Prospector owner-manager. This paper presents how Prospector owner-manager has a positive influence
on the CI in his company. In addition, the information gathered from immediate environment made up of customers,
competitors, suppliers and technologies has a positive influence on an innovation performance.
Methodology: The paper is based on a case study of a SME located in Quebec’s Eastern Townships in Canada. A
triangulation perspective based on semi-structured interviews with managers, document analysis and non-participant
observation, was used for data collection. Managers interviews and data collected were analyzed to understand how
competitive intelligence contribute to the innovation performance of their business.
Findings: The innovation performance of SMEs seems to be associated with the activity of competitive intelligence.
The results indicate that the innovation performance of SMEs is associated with intelligent information from
customers, competitors, suppliers and technologies. In addition, prospector owner-manager positively influences
competitive intelligence
Contributions: The study suggests the need to move towards the external environment of the company to
collect and analyze information to feed the innovation process. The results also imply the need, for SMEs,
to focus on its immediate environment of customers, competitors, suppliers and technologies to improve its
innovation performance.
Keywords: Innovation Performance, Competitive Intelligence, Prospector Owner-manager, SME, Canada
1. Introduction
Small and medium-sized enterprises (SMEs) are considered the primary source in creating job
and economic wealth (Julien 1995; Olawale and Garwe 2010) employing more than 95 % of
the world’s working population (Pellissier and Nenzhelele 2013). In Canada, SMEs account for
99.7% of total firms in terms of working population and contribute about 54% of Canada’s GDP
(Statistics Canada, 2016).
Despite the importance of the SMEs in economic growth, significant obstacles impede their
sustainability, leading in most cases to failure. One way to overcome this challenge and survive
innovation is necessary (Becheikh et al., 2006; Rujirawanich et al., 2011). To innovate, companies
must invest more in research and development (R & D) (Baldwin and Hanel, 2003), which is a
determinant of innovation (Raymond and St-Pierre, 2007). However, most of SMEs do not have
sufficient resources to invest in R & D (Moilanen et al., 2014). Moreover, they are not qualified to
benefit from government assistance programs for R & D (Institut de la Statistique Quebec, 2002).
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For this reason, they are forced, more than ever, to exploit external information
(Amara and Landry, 2005; Davila et al., 2009) by adopting environment analysis activities such as
competitive intelligence (CI) (Guimaraes et al., 2016).
CI allows companies to gather information from customers, suppliers, competitors and technologies
and thus build a strong foundation for the innovation process (Pacitto and Tordjman 1999; Tidd,
et al., 2005). However, the literature shows that the effectiveness of CI in SME context, depends,
among other things, of the profile of the owner-manager of the company. The SME prospector
owner-manager is a determining factor in acquiring and interpreting external information
(Baldwin and Gellatly, 2003).
Although CI is useful for businesses, very few studies have devoted concentrated on SMEs
(Savioz et al. Tschirky, 2004), particularly in the Canadian context (Bergeron, 2000). More
specifically, regarding the relationship between CI and SME innovation performance, a systematic
literature review (Hassani and Mosconi, 2017) could identify only two research studies: Laforet
(2008) and Tanev (2004). Considering how strategic CI can be for SMEs, this exploratory study
investigates the contribution of CI to the innovation performance. More specifically, the research
question is: What would be the contributions of prospector owner-manager to the CI in gathering
intelligent information from customers, competitors, suppliers and technologies to the SMEs
innovation performance?
In the following, we will first present the literature and introduce the proposed conceptual framework.
In section 3 we explain the research methodology. In sections 4 and 5 we present results and discuss
findings related to this case study. Finally, conclusion, limits and future research are presented.
2.1. Innovation Performance

Innovation is considered as the engine of growth and development of SMEs
(Raymond and St-Pierre, 2007). Empirical studies have shown that the most successful innovative
SMEs in Canada, the United States and Europe generate strong growth (Baldwin, 1994) and are
able to survive for a long time (Baldwin and Gellatly, 2003). Innovation performance is a critical
requirement for business competitiveness (Baldwin and Gellatly, 2003; Song et al., 2015).
Innovation performance can be defined as a concept with two dimensions such as efficiency and
effectiveness (Alegre et al., 2006). According to the latter, the dimension of efficiency refers here
to the degree of effectiveness of innovation and efficiency refers to the resources in terms of time
and cost required to complete the innovation project. In the same sense, Guimaraes et al. (2016)
emphasize that the performance of innovation represents the degree of effectiveness of the firm in
implementing innovation, which in turn, has a significant impact on the organization’s performance.
To stimulate innovation, companies are investing more and more in R & D. Large companies
can cover the fixed costs associated with R & D activities and spread the risks associated with
innovation across their entire project portfolio (St-Pierre and Mathieu, 2003). They have access to
resources to invest in equipment, marketing and technical work, which can lead to major innovations
(Laforet, 2008). However, most of SMEs do not have sufficient resources to invest in R & D
(Moilanen et al., 2014). Therefore, in order to promote, then to perform in innovation, SMEs must
have competitive intelligence activity (Guimaraes et al., 2016).
2.2. Competitive Intelligence

Competitive Intelligence is an evolving concept (Brody, 2008). Its definition presents a debate
for both academics and practitioners in French (Jakobiak, 2006; Larivet, 2001) and in English
(Brody, 2008; Smith et al., 2010). CI is an amalgam of disciplines covering economics, marketing,
military theory, information science and strategic management (Pellissier and Nenzhelele, 2013).
In addition, CI is different from industrial espionage, which is an illegal and unethical activity
(Crane, 2005).
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The Relationship between Competitive Intelligence and Innovation Performance of SMEs
Competitive intelligence, also known as business intelligence, is both a process and a product
(Vedder et al., 1999). In this paper, CI can be defined as a product which refers to intelligent
information about competitors’ activities from public and private sources and its scope is the present
and future behavior of competitors, suppliers, customers, technologies, acquisitions, markets,
products and services and the general business environment (Vedder et al., 1999).
The main objective of CI is to provide an alert system for external turbulence that may have
an impact on the company’s strategy and performance (Ngamkroeckjoti and Speece, 2008).
The three main sources of these environmental turbulence are market, technologies and competitive
intensity (Jaworski and Kohli 1993; Ngamkroeckjoti and Speece 2008). In the context of SMEs,
empirical studies highlight that SMEs prefer to monitor sources of their immediate environment
(Johnson and Kuehn, 1987; Ramangalahy, 2001). This environment is made up of customers,
competitors, suppliers (Dill, 1958; Smith et al., 2010) and technologies (Duncan, 1972).
CI is essential for business because it not only provides a solid foundation for the innovation
process (Pacitto and Tordjman, 1999; Tidd et al., 2005), but also its absence considered as a barrier
(St-Pierre and Trépanier, 2013) or even a determining factor of the failure of innovation
(Wycoff, 2003; Baldwin et al., 2000).
CI as an activity for the collection, interpretation and dissemination of external information requires a
prospector owner-manager support. This prospector owner-manager is characterized by proactivity,
innovation and risk-taking (Chandler and Jansen, 1992). Thomas et al. (1993) argue that proactive
managers are more knowledgeable about environmental dynamics and able to create a fit between
external environmental analysis and internal factors’ organization.
2.3. Theoretical Framework

Our theoretical framework is based on the idea that the information collected from customers,
competitors, suppliers and technologies, then analyzed, allows the SME to perform in innovation.
In addition, the prospector CEO of the SME is a determining factor in competitive intelligence.
2.3.1. SME Owner-manager

Ramangalahy et al. (1997) found that, among several organizational factors, strategy is the factor
that best explains CI. In the context of SMEs, the strategy is intimately linked to the profile of its
owner-manager (Geraudel, 2008). In fact, the owner-manager has a relevant impact on the strategy
and behavior of his company over time (Serrano-Bedia et al., 2016).
The literature has pointed out that the owner-manager of the SME is concerned with the collection,
analysis and dissemination of information (Ramangalahy, 2001). In order to perform in innovation,
the owner-manager is, among other things, developing new technologies and implementing
new processes, especially those that allow the generation of new knowledge on the market
(Baldwin and Gellatly, 2003). These processes may include, for example, how companies coordinate
and disseminate information flows from their customers, competitors and suppliers to their research
and development teams and production units (Baldwin and Gellatly, 2003).
According to strategies typology of Miles & Snow (1978), the prospector owner-manager,
characterized by innovation, proactivity and risk-taking, significantly affects CI (Ramangalahy et al.,
1997). Thomas et al., (1993) argue that proactive managers who analyze the external environment
can detect disturbances and react before the emergence of threats. In the same vein, the prospector
owner-manager analyzes the external environment, selects promising opportunities and formulates
strategies (Chandler and Jansen, 1992). Belley and Ramangalahy (1994) note that the prospector
owner-manager greatly contributes to developing new activities (innovation) and to anticipate new
needs and market demands (strategic planning). Drawing upon these arguments, we can propose the
next proposition:
P1: Prospector owner-manager seems to have a positive link with competitive intelligence
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2.3.2. Customers
According to Kohli and Jaworski (1990), the companies need to have an intelligence information
from customers. This intelligence increases the level of innovation (Bayarçelik et al., 2014) and
positively affects the development activity of new products (Bayarçelik et al., 2014; Voss, 2012). More
specifically, intelligence on customers has a positive effect on the radical innovation performance
(Nguyen et al., 2015; Frambach et al., 2016) incremental innovation (Laforet, 2008, Nguyen et al.,
2015) in particular, in the early stages of its life cycle (Laforet, 2008). From these arguments, we can
propose the next proposition:
P2: Intelligent information from customers seems to have a positive link with the innovation
performance of the SME.
2.3.3. Competitors
Prior research advises companies to monitor competitors in order to develop greater ability to
accelerate product innovation activities (Lee and Wong, 2012; Laforet, 2008) and to innovate in areas
where competitors are not strong (Story et al., 2015). Competitive intelligence from competitors can
affect the different types of innovation in companies. It contributes to radical service innovation
(Cheng and Krumwiede, 2012). In the same vein, Frambach et al. (2016) note that intelligent
information from competitors stimulates the exploitation of skills and leads to the development of
radical innovation. Thus, we can propose:
P3: Intelligent information from competitors seems to have a positive link with innovation
2.3.4. Supplier
Suppliers often establish strategic partnerships with customers and competitors to implement
technologies, process or new product. To gathering information from suppliers, the company can
therefore conduct primary research (Slater et al., 2012). According to Carbonell and Rodríguez
Escudero (2010), intelligent information from suppliers allows the product development team to
understand the market dynamism and act faster, which can contribute to new products performance.
Zhang and Chen (2014) argue that intelligent information from suppliers has a positive influence on
innovation performance.
Drawing upon these arguments, we can propose the next proposition
P4: Intelligence information from suppliers seems to have a positive link with innovation
2.3.5. Technologies
Several research results highlight the importance of technologies as a rich information source which
contribute to the emergence of innovative ideas. Information from technologies allows organizations
to be more competitive (Duncan 1972; Souitaris 2001; Vedder et al., 1999).
The literature highlights multiple tools and technologies platforms that can help companies
gathering information about their external environment. The internet, especially social media, can
be considered as sources of information most often mentioned in the literature. Teo and Chow
(2001) argue that the internet helps companies to gather quality market information and make
more informed decisions. In the same vein, Afuah (2003) emphasizes that the internet improves the
integration of innovation activities through the exchange of ideas with external actors, especially
with customers. Social media, on the other hand, is seen as both a source and a tool for gathering
information about competitors’ offer and the customers’ needs (Itani et al., 2017). Laforet (2008)
notes that the company, especially the SME which is more interested in technologies, can achieve
a high degree of novelty of its product and consequently to perform in innovation. From these
arguments, we can propose the next proposition:
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P5: Intelligent information from technologies seems to have a positive link with innovation
2.3.6. Conceptual Framework
Figure 1: The Prospector Owner-manager Influence to IC and the Contribution to Innovation Performance
3. Methodology
The purpose of this study is to understand how CI affects the innovation performance of SME.
This exploratory aim of work justifies the use of a qualitative methodology. A case study research
approach was used in this paper, as it provides better internal validity through close observation
of the phenomenon of interest in the natural context (Eisenhardt, 1989; Yin, 2003). As the topic
of effects on CI on the innovation performance of SMEs is relatively unexplored, the case study
approach has been found appropriate. In this paper, our case study is a SME located in Quebec’s
Eastern Townships in Canada. It develops products and services for companies operating in the
manufacturing sector. In the next sections, this SME will be named “Company A”.
3.1. Data Collection

Multiple data collection methods, including semi-directed interviews, document analysis and
non-participant observation were used for triangulation (Miles and Huberman, 2005; Yin, 2003).
Semi-structured interviews were conducted with a sample of seven members of Company A,
including the Chief Executive Officer, six managers and middle managers representing management,
marketing departments and development of new services and systems engineering. These managers
were selected using the non-probabilistic method of convenience.
Data was collected between November 2016 and March 2017. Before each interview, a list of
topics was sent to the interviewees. In total, ten interviews, including three interviews with the
Chief Executive Officer (CEO) were conducted in the field. These interviews lasted between 60 to
90 minutes. Then, we transcribed these interviews and we used thematic analysis. In addition, we
were non-participating free observers in Company A. Data was collected by note taking in several
activities. These activities mainly involve weekly meetings and strategic planning workshops.
The secondary data were collected from the official documents and the website of Company A.
4. Results
The purpose of this study is to understand how CI affects the innovation performance of the SME.
This section presents the activities of innovation and CI within Company A. Then, it highlights
the main data collected on the CEO prospector and components of the immediate environment of
Company A.
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4.1. Innovation in Company A

Company A has an innovation process called “development offering”. This process aims to develop
new technological solutions, new approaches and working methods to create added value for customers.
In order to produce new ideas, the CEO (MD) reports these ideas generated through different
techniques. The manager (FG) explains that these techniques can be creative workshops that are
organized around a service development project or specific meetings to discuss the emergence of a
new technologies or a work approach. According to the CEO (MD), the creativity workshops within
Company A have led to several innovative projects. For example, operations support projects, cost
reduction applications and other projects associated with operational excellence and industrialization
activities.
4.2. Competitive intelligence in Company A

CI activity has been identified in Company A as “monitoring”. CI allows the company to develop a
new vision, strategies and new projects. As the sales manager explains:
“We have already done a strategic monitoring, we reviewed the market trends before doing our
strategic planning”.
The most prominent CI activity in Company A was when the concept of Industry 4.0 emerged. In
this sense, the CEO (MD) of the company says:
“In doing the strategic monitoring, industry 4.0 has emerged. We retrieved this information to clarify
our position in the market and develop new projects”.
In the same vein, the manager (FG) reports that the shift in Industry 4.0 is the result of a reflection,
a monitoring, especially a customer needs analysis. The results of this case study reveal that the
CEO plays an important role in the business of CI within Company A. Indeed, his presence in
conferences, fairs and exhibitions, local and international shows allow him to collect information on
market dynamics and trends through the exchange with experts and CEOs of other companies. The
manager (FG) emphasizes that its CEO often generates a quality information and creative ideas. In
the same vein, the manager (MC) says that its CEO is a visionary person, using his great ability to
analyze the market, he manages to unlock crisis situations.
The primary data in our case study show that Company A uses CI to collect information from multiple
external sources. The Manager (ES) claims that the activities organized by various professional
and socio-economic associations allow the leaders of Company A to interact with the presidents,
directors and managers of other organizations including competitors. These events promote the
exchange and collection of strategic information.
According to the managers (ES), (FG), (PV), (MC), (MF) and (NS) the most important source of
useful information is the clients. The Manager (FG) points out that some members of Company A are
directly connected to their customers’ factories, which allows them to collect information about the
needs of these customers. In addition, Company A directors organize regular meetings with clients
to evaluate projects and therefore to have feedback on their product and service development work.
Collaboration with external partners, especially with suppliers, plays an important role in acquiring
information. The manager (ES) maintains that their company has established partnerships with
suppliers, which led to the deployment of a new technological solution. Similarly, the CEO (MD)
mentions that:
“We are in constant contact with some suppliers to develop products and meet the needs of customers”.
For monitoring external environment’s dynamics, Company A uses largely technologies platforms.
Several managers talk about the importance of technologies platforms in CI’s business. For example,
the Manager (PV) argues that for acquiring new information, employees use the internet, especially
digital media. More specifically, Company A use the Internet, in particular professional networks,
newspapers, social media (ES, FG and MC), blogs and forums and Google alerts (PV).
IAMOT 2019 | 710

5. Discussion
To present our data results in Company A, we adopted a narrative perspective. This allows us
to discuss in more detail the implications of our results for CI and its contribution to innovation
performance of Company A.
In general, the results show that despite the lack of resources, SMEs can practice, at least in part,
competitive intelligence (Fleisher and Blenkhorn, 2001). However, this activity is incomplete,
unsystematic and informal, which makes it inefficient (Bergeron 2000; Dishman and Calof, 2008).
P1: The prospector CEO has a positive impact on competitive intelligence activity in SMEs.
The CEO (MD) conducts thought and imagination exercises in the presence of several managers
and middle managers to bring out innovative ideas. According to McAdam and McClelland (2002),
the expertise and imagination of CEOs are components of creative problem solving. The strategic
planning activities held periodically by the CEO (MD), aim to anticipate changes in the external
environment of Company A. In this sense, the literature reveals that the CEO with a proactive
personality is able to understand the market trends and therefore anticipate planned changes
(Becherer and Maurer, 1999). Drawing upon these arguments, we presume that there is a positive
relationship between the prospector CEO and CI.
P2: Intelligent information from customers seems to have positive links with the innovation
According to several managers in Company A, employees are directly connected to customers’ factories,
allowing them to understand the needs and preferences of these customers (Kohli and Jaworski, 1990).
Considering the needs and preferences of customers leads to new ideas, products and services
(Narver et al., 2004). The transformation and exploitation of customer insights into innovation relies
heavily on the skills of the individuals at Company A. In fact, coordination and communication with
customers contributes to the creation of new knowledge and to increase absorptive capacity, which
in turn leads to innovation (Gatignon and Xuereb, 1997). From these arguments, we presume that
there is a positive link between intelligent information from customers and innovation performance of
Company A.
P3: Intelligent information from competitors seems to have positive links with the innovation
performance of SMEs.
The results show that Company A is more interested in understanding customer needs and
preferences by practicing less of CI from competitors. This orientation can be explained by Groom
and David (2001) for whom “ Small organizations with high revenues are more satisfied with current
intelligence than small organizations with low revenues”. In addition, literature in the field suggests
that excessive customer orientation hampers the monitoring of changes in the external environment
(Koberg et al., 1996).
Company A would have taken full advantage of its innovation activities if its employees were
collecting strategic information about competitors. As highlighted by the CEO (MD), the low
intensity of CI from competitors within his company is a barrier for innovation and growth of
the company. In the same vein, the lack of the CI from competitors led to the losses of several
opportunities of innovation and growth, adds the CEO (MD).
According to Theodosiou et al. (2012), CI from Competitors aims to learn about their objectives,
strategies, activities, offers, resources, capabilities and competitive advantages. However, within
Company A, managers find it difficult to collect strategic information about competitor. Thus,
we presume that there is a positive link between intelligent information from competitors and the
innovation performance of Company A.
P4: Intelligent information from suppliers seems to have positive links with the innovation
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As the OECD report (2005) points out, companies in all countries prefer to collaborate with
customers and suppliers rather than with competitors and private R & D centers to protect their
internal development model. Indeed, the results of our study show that the management of Company
A is more open to collaborate with suppliers, which allows them to collect information on customers
and on competitors.
Collaboration with suppliers allows employees of Company A to collect, interpret and then suggest
innovative ideas. This collaboration has enabled Company A to identify opportunities for developing
new technological solutions and to become a leader in its field. This is also the position of Song and
Thieme (2009) for whom “the participation of suppliers in competitive intelligence activities has an
impact on the success of innovations”.
The literature shows that close relationships with suppliers serve to stimulate the exploitation
of individual absorptive capacities and thus enhance organizational absorptive capacity, which
contributes to the success of innovation (Cohen and Levinthal, 1990). From these arguments, we
presume that there is a positive link between the intelligent information from suppliers and the
innovation performance of Company A.
P5: Intelligent information from technologies seems to have positive links with the innovation
As mentionned by the CEO (MD), his company’s focus on technologies has led to the identification
of needs, which have been transformed into innovative projects. According to MD, these projects
contributed to a 15% increase in business volume. In the same vein, the literature reveals that a
CI from technologies allows firm to create new technical solutions and develop new products
(Gatignon and Xuereb, 1997).
Using technologies, including supplier websites, social media, blogs and forums and Google Alerts
within Company A enabled its managers to monitoring changes related to new technologies trends.
Technological vigilance has led Company A to take the shift of the 4.0 industry and then to become
leader in Quebec province.
Many studies have pointed out that technologies are considered as information source which
contribute to business competitiveness (Souitaris, 2001; Vedder et al., 1999). To exploit these
information sources, the company must have individuals with prior knowledge in the field. For
Company A, more than 90 engineers have technical training and diversified experiences in several
technological fields. These skills enable to transform technological information into innovative
projects. Thus, we presume that there is a positive link between intelligent information from
technologies and innovation performance of Company A.
6. Conclusion, Limits and Futures Research

This study aims to understand the contribution of CI to the innovation performance of SMEs. First,
CI requires a prospector owner-manager characterized by innovation, proactivity and risk-taking.
This type of owner-manager analyzes the external environment, detect disturbances and affects
CI. Second, the contribution of CI to the innovation performance of SMEs is mainly based on the
collection, interpretation and exploitation of information from customers, competitors, suppliers
and technologies. More specifically, our case study shows that understanding customers’ needs
and preferences allows companies to create innovative ideas (Narver et al., 2004). However,
focusing more on clients without considering competitors’ strategies, activities and objectives
(Theodosiou et al., 2012) can lead to the loss of growth opportunities and to the failure of the
SME. Findings also allowed to understand that collaboration with suppliers is seen as an opportunity
to gather information from customers, competitors and the market as well as to develop new
creative ideas (Song and Thieme, 2009). Finally, the SME, which attaches particular importance to
technologies, as tools and information sources, is able to monitor the environment dynamic, which
allows it to capture opportunities and develop new products (Gatignon and Xuereb, 1997).
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As a limit of this study, the results obtained are not generalizable because of the research approach
chosen as well as the heterogeneity existing between SMEs (Julien, 2005; Tidd et al., 2005).
Given that there is no unique way to innovate (Tidd et al., 2005) and that CI practices are
heterogeneous (Julien et al., 1995), our future research plans to test the conceptual model using
a quantitative method through a survey that will be conducted among a large sample of SMEs
across Canada.
7. Acknowledgements
This work has been supported by the MITACS Accelerate Program in Canada. The authors thank
our industrial partner for their support of this research. Abdeslam Hassani wants to acknowledge
that his portion of this article was prepared within the framework of his doctoral program and the
framework of traineeship in Company A .
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Base of Pyramid Driven Innovation: 20 Years
of Retrospective Study
Panda Swapna Sonali

E-mail: swapna.panda.2015@nitie.ac.in
Sangle Shirish
E-mail: shirishsangle@nitie.ac.in
Abstract
Introduction to the concept of Base Of Pyramid or Bottom Of Pyramid (BOP) by C.K. Prahalad in 1998 led to
a paradigm shift in how Multi National Enterprises (MNEs) work towards elevating poverty. The notion of
philanthropic contribution for poverty elevation of BOP was replaced with the idea that BOP represents a unique
market with challenges that are distinctly different from other segments of the economic pyramid. The BOP market
consists of multiple cultures, ethnicity, literacy, capabilities and needs and thus can be segmented multiple ways.
While this segmentation provides an opportunity to explore new markets with a purchase power parity of about $ 5
trillion, BOP has its own set of constraints as well. These constraints provide MNEs with extraordinary situations
which test the innovative capability of firms to meet the needs of BOP while profiting the firm itself. BOP provides
an untapped market potential and are hotbeds of commercial and technological experimentation. The purpose of this
paper is to answer the question of “what happened to BOP driven innovations since the inception of the concept of
BOP two decades ago?” To answer this question, the authors have conducted a retrospective study of articles on
BOP innovations over a period of twenty years from 1998-2018.The retrospective review of articles was done in
two stages. First, two databases, Web of Science and Google Scholar were referred to create a collection of articles
on BOP innovation from the period of 1998-2018. Only journal articles and conference proceedings were selected
for the review. Once the bibliographic records of BOP innovation papers were done, in the second stage, Analysis
of the selected articles was done. Initial analysis was done by Web of Science and then further analysis of the
articles was done by Vantage Point software. The review indicates that BOP innovations have evolved dramatically
over time. The number and type of BOP innovations have seen a rapid development in the last few years.
The article lists some of these innovations through cases and examples. Despite these developments, the review of
academic literature indicates a complex picture of the needs of BOP and how MNEs should work towards meeting
these demands. The study focuses on three aspects of BOP innovation evolution. First theme is the theoretical
evolution of the concept of BOP innovation. Second theme is the evolution in research methods for studying BOP
innovations. Finally, the third theme is evolution in the research type for BOP innovations. This article presents a
longitudinal study by analysing literature on BOP innovation from a period of 1998 to 2018. This study shows the
evolution in BOP literature since the introduction of the concept. This article contributes by presenting the trends
in BOP innovations. Based on the current trends, this article suggests projects future possibilities with regards to
BOP innovations.
Keywords: Base of Pyramid, Innovation, Poverty, Development, Market Driven Innovation, MNEs
1. Introduction
The idea that a capitalistic economy can solve the problems posed by poverty led to adoption of
profit maximization business models by Multi National Enterprises MNEs. The thought that market
forces and private ownerships of production leading to a prosperous society failed to make an impact
on the poverty situations all over the globe. The increasing population, decreasing quality of life
and environment pose a threat not only to governments but demands solutions from all aspects of
society. So, instead of visualizing the Bottom of Pyramid/ Base of Pyramid (BOP) as a liability,
the change in how MNEs can simultaneously involve and elevate the quality of life for BOP was
introduced through the works of C.K. Prahalad in 1998. While the business management initially
saw scant potential of engaging with the poor, there has been a paradigm shift in seeing BOP as an
opportunity rather than a threat.
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Base of Pyramid Driven Innovation: 20 Years of Retrospective Study
The BOP market consists of multiple cultures, ethnicity, literacy, capabilities and needs and
thus can be segmented multiple ways. This segmentation provides an opportunity to explore
new markets with a purchase power parity of about $ 5 trillion. Since the attributes of BOP is
distinctly different from that of other sections of the society, the requirement are also quite different.
For example, in a developed country, say like UK or US, the mode of personal transport is a car.
While, for a country like India or Brazil, a car is a luxury and a symbol of being economically sound.
The mode of personal transport for such countries is a two wheeler. But a shift was observed when
Tata introduced a low-cost car, Nano to such a market. The identification of a market opportunity
and innovating for the said market has led to creation of a niche for such products, for which the
market didn’t exist before. The spending capability of BOP urges MNEs to innovate with and for
BOP markets with a vision to incorporate their needs and demands.
BOP has its own set of constraints as well. The reluctance to invest in BOP markets is easy to
understand. MNEs doubt the spending capability and barriers to commerce such as corruption,
illiteracy, inadequate infrastructure, currency fluctuations etc. (Prahalad and Hammond, 2002).
Along with the above challenges, there is also the challenge to uncover new sources of innovation
(Prahalad and Hammond, 2002) and diffusion of innovation (Rogers and Shoemakers, 1971).
These constraints provide MNEs with extraordinary situations which test the innovative capability
of firms to meet the needs of BOP while profiting the firm itself. BOP provides an untapped market
potential and are hotbeds of commercial and technological experimentation.
Although the concept of BOP arose almost 20 years ago, the question posed here is, how much of it
has actually been realised? The concept arose as an answer to how business can contribute towards
elevation of poverty (Kolk et al., 2014). Since then there has been a lot of debate over the concept
and its adoption by MNEs. Of the BOP research, the BOP driven innovation forms a very small,
but significant segment. BOP driven innovation brings into limelight the institutionalization of BOP
concept and how it has been adopted by MNEs.
The purpose of this paper is to answer the question of “what happened to BOP driven innovations
since the inception of the concept of BOP two decades ago?” To answer this question, the authors
have conducted a retrospective study of articles on BOP innovations over a period of twenty years
from 1998-2018.
Following the introduction, the paper is divided into four sections. First, the authors describe the
methodology used to identify relevant BOP articles. The following section describes the characteristics
of BOP driven innovation that emerged from the review including number of publications over the
years, countries from where publications are done, broad themes under which research has been
done followed by the thematic evolution of BOP driven innovation. The subsequent section provides
the discussion of the review followed by conclusions.
2. Methodology
For the systematic review, the first step was identification of articles which was done through
inclusion/ exclusion criteria. This involves selecting a particular set through identification of
boundaries for the review.
The first set of potential articles was selected by performing a keyword search in Web of Science,
Ebscohost and Google Scholar. These databases are major online databases of published articles in
business related disciplines. The initial keyword search was performed with two variants of the names
given to BOP, “Bottom of Pyramid” (e.g. C.K. Prahalad, 1998; Prahalad and Hart, 2002; Karnani, 2007)
and “Base of Pyramid” (e.g. Hart and Christensen, 2002; Simanis et al., 2008). Along with keywords,
the publication year range was given from 1998-2018. This database search led to identification of a
total of 141 papers, book chapters and conference proceedings.
For the next stage of the procedure, the identified papers were further scrutinized through a keyword
search of a combination of words such as, “BOP + innovation”, BOP driven innovation”, “Innovation
IAMOT 2019 | 717

for BOP”, “Bottom of Pyramid + Innovation”, “Base of Pyramid + innovation”, “innovating for
poor” and “poverty + innovation”. This keyword combination led to exclusion of articles which were
not relevant for the systematic review. The number of articles reduced to 87.
Further inclusion and exclusion criteria of selecting relevant articles included selecting only research
articles and excluding book chapters and conference proceedings. This further reduced the number of
articles to 62. Following this, only those articles were selected which belonged to highly cited journals.
The selected 62 journals were reviewed for bibliographic records such as title, author, journal, year
of publication, author’s keyword, country of publication, research type and abstract.
In the final stage of selection procedure, the authors studied all 62 papers identified after the
completion of keyword search and further discarded an additional of 25 papers because the actual
content of the articles were not directly related to BOP driven innovation. This reading led to a final
set of 37 papers which were selected for review.
Figure 1: Systematic Review Approach Adopted for the Study
3. Results
3.1. Categories of Publications

On reviewing the final 37 papers, the authors categorised the papers into the broad categories in
which the research has been conducted. Figure 2 shows a bar graph of the categories of publication
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Figure 2: Categories of Publication
The maximum number of articles is related to business and business models focused on innovating
for BOP followed by management. The relevance of BOP innovation is quite high in the business
context; hence the amount of research is also high in these two categories. Most articles are related
to development of concepts to venture into BOP markets with innovations exclusively targeting
consumers of BOP. Apart from business and management, the canvas of BOP driven innovation is
shared by industrial engineering, business ethics, computer science information etc. the common
denominator in all these categories is that all of them reflect the application and potential of
BOP innovations.
3.2. Countries of Publication

The country of publication illustrated by figure 3 indicates which country is leading the BOP
driven innovation.
Figure 3: Country of Publications
From the review, it is clear that USA has the highest number of publication followed by England,
India, Denmark, Germany etc. while it is expected that developed countries have the necessary
capabilities including financial capability to take business risks by venturing into BOP innovations,
it is definitely promising to see developing countries such as India and Brazil to have a share in
BOP innovation research. Since BOP is relevant in developing countries, it is imperative that such
countries take a keen interest in developing products and processes aimed for the citizens of their
own. Also, the problems of cultural difference and language barriers can be avoided when a country
IAMOT 2019 | 719

innovates for its own people. This provides the firms of that country with a competitive advantage
over firms belonging to other countries who want to enter the market.
3.3. Journal of Publication

Figure 4 shows the tree map journals of publication for the 37 papers.
Figure 4: Journal of Publications
Harvard Business Review has the highest share of research articles followed by Journal of
Information Technology, Journal of Business Ethics etc.
3.4. Broad Characteristics of BOP Driven Innovation Research

This section provides the analysis of BOP driven innovation research in the context of dimensions
of research conducted and the evolution of themes in BOP driven innovation. Figure 5 represents the
number of publications from the duration of 1998 to 2018.
Figure 5: Year wise Publication
Although the inception of the concept was in 1998, the extrapolation of the concept towards
innovating for the BOP wasn’t reported until 2002. The works of Prahalad and Hammond (2002)
illustrated the buying potential of the so called poor and indicated why MNEs should be investing
in these markets rather than following the markets they are already in. Such a thought process
was illustrated with a number of examples which marked the beginning of the application of BOP
concept for innovation. This article gave a clear picture of the misconceptions regarding BOP and
the reluctance of MNEs to invest due to “assumed” constraints.
Following the publication by Prahalad and Hammond, the next few years didn’t see any major
improvements in the BOP driven innovation canvas. The conversion from an idea to a reality
IAMOT 2019 | 720

took almost six years and the works of Vikram Akula (2008) further reinstated the hypothesis that
business can profit by investing in BOP. He provided three principles through which a firm can
succeed in BOP driven innovation sphere. First, Adopt a profit-oriented approach in order to access
commercial capital; boost capacity by standardizing products, training and other processes; and use
the latest technology to reduce costs and limit errors.
Post 2008, there was a steady increase in the number of research publications on BOP driven
innovations and the themes of such research improved from an ideation towards a more practical
oriented approach. Over the years, there was social inclusion into business processes which involved
taking BOP demands into account while innovating (Vishwanathan et al., 2009) followed by
inclusion of corporate citizenship with an aim to improve the quality of life of BOP (Hahn, 2009).
In 2011, the paper by Karamchandani (2011) urged MNEs to rethink their business models in order
to orient them towards BOP. This paper in particular raised the relevant question of whether the firm
is competent enough to venture into BOP innovations or not. This article can serve as a checklist
which tells the firm about the challenges of BOP and the potential benefits of venturing into BOP
markets. Rangan et al. (2011) further added to this by segmenting the BOP by categorising the risks
and uncertainties involved in value creation in the BOP segment.
The year 2012 saw the maximum number of research publications on BOP driven innovations with
the landmark publication by Prahalad (2012) titled “BOP as a source of breakthrough innovations”.
This paper identified the bottom of the pyramid (BOP) markets as a new source of radical innovation.
By focusing managerial attention on creating awareness, access, affordability and availability
(4As), managers can create an exciting environment for innovation. Prahalad also cautioned against
constraints of such BOP driven innovation but concluded by saying that if identified properly, even
the constraints will work in favour of the firm. From BOP market driven innovation, the research
was directed towards community empowerment and social capital development and new product
development with focus on BOP.
From the year 2013 to 2018, there was a steady development in the themes of BOP driven innovation.
Over the years, BOP has been regarded as a source of intellectual property along with idea providers
for radical product, process and behavioural innovations. The literature of BOP driven innovation
has improved drastically over the years. Although the incubation period for BOP driven innovation
took almost ten years from the introduction of the concept, the steady increase of the application of
it has been fast growing and looks promising for the future.
4. Discussions and Conclusion

The goal of this review was to summaries the concept of BOP driven innovation for a period of
20 years from 1998 to 2018. The authors conducted a systematic review of articles and a total of
37 articles were finalised for the review. This review indicates that the application of BOP driven
innovation concept took some time to start. The potential that BOP innovation provides is huge since
the purchasing power lies with the BOP. There are numerous challenges as well as opportunities at
the BOP, which utilized effectively can lead to new product, process and behavioural innovations.
Further, venturing into the sphere of BOP innovation requires expertise as well as risk taking
ability. The benefit potential is also high since there is an untapped market waiting at BOP, hence
customizing for BOP requires adequate knowledge about the requirement of the market as well as
inclusion of those requirements in the innovation. Since innovation is not a quick process often,
R&D will have a major role to play.
Although research on BOP driven innovation has initiated, it still lacks momentum. The possible
reason for this might be reluctance of big MNEs to be involved in BOP. Yet, over the years, there
has been a steady increase in the research being conducted on BOP innovation and the shift from
conceptual research towards a case based and empirical research. This indicates the gradual shift from
idea to reality which is the need of the hour. The ever increasing gap between the rich and the poor
resulting in economic imbalance needs to addressed so that the quality of life of BOP can be elevated.
IAMOT 2019 | 721

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IAMOT 2019 | 723

Modelling of the Digital Inequality in Russia1
Arkhipova Marina
National Research University Higher School of Economics
E-mail: archipova@yandex.ru
Khodzhaeva Anastasiia
National Research University Higher School of Economics
Email: khodznastya@yandex.ru
Abstract
Digital inequality is an important social problem of the present and if it does not have a significant sociological,
socio-philosophical and legal consideration, then it can lead to significant negative consequences. With the advent
of new information and communication technologies (ICT), the problem of digital inequality is becoming more
urgent in the modern world, therefore it is necessary to conduct current analyzes to identify current problems,
since they can change along with the dynamics of ICT development. There are many studies of digital inequality
in the world, but there are few such statistical researches for Russia. In this paper we analyze the problem of digital
inequality in Russia taking into account the specific characteristics of the country.
Within the framework of the study, using econometric tools, the main groups of factors influencing the inequality
in access to information and communication technologies in Russia were identified and Russia’s place in the world
rating of accessibility and use of ICT was determined. A special index was calculated for the Russian regions,
reflecting the level of their digitization. In addition, the main clusters of Russian regions were determined according
to the level of ICT development, a conditional map of access to technologies was developed.
In the study the impact of the age structure of the population and economic factors on digital inequality were
identified. It was also found that the policy of the state to address the digital divide in recent years has been quite
successful. With the help of the calculated index of digitisation of the population of Russia, groups of regions that
differ in the level of ICT development were identified and the differences in the average values of clusters were
high. However, there is a tendency to narrow the gap and in order to prevent its increase, first, it is necessary at
least to adhere to the current policy to increase the digitisation of the population, as well as to pay attention to
the increase in the level of information literacy of the population, which is also the main obstacle to development.
However, we must not forget the complex geography, which greatly hinders the bridging of the digital divide
between regions.
This paper includes practical utility. First, it shows what the government should pay attention to in order to
minimize the problem of local digital inequality. Then, the developed research methodology can also be applied to a
country with similar specifics to analyze the level of digital inequality.
Keywords: Digital Inequality, Modeling, Groups of Regions, Level of ICT, Digital Divide
1. Introduction
Nowadays, advanced technologies and innovations play a significant role in economic development,
which generates a digital economy. With the development of the digital economy, the problem of
the digital divide is increasingly felt. The digital divide means an inequality in the opportunities for
physical, technical and social access to new media, especially the Internet. As a term of scientific
knowledge, it appears in the 1990s, describing information inequality through economic, political
and socio-cultural restrictions on access to the Internet. Digital inequality is a problem not only for
individuals, but also for whole countries and regions. It should be noted that not only the availability
of technological resources, updated information, but also the difference in these technologies and
the ability to use them plays an important role in the formation of the information society and the
solution of the issue of digital inequality. Digital divide leads to the fact that the information poor
are excluded from the modern information economy, which further increases the gap between the
rich and the poor at different levels. According to many researchers, the main thing in eliminating
the digital divide is not so much in providing access to information and communication technologies
as in the ability to derive social benefits from their use.
1
This work was supported by a grant of Russian Foundation for Basic Research №18-010-00564 Modern Tendencies and Social
and Economic Consequences of Digital Technologies Development in Russia
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Modelling of the Digital Inequality in Russia
2. Literature review
Digital inequality can be viewed from the point of view of different approaches. The first approach
is global; there are big differences between developed and developing countries in terms of access
to a number of ICT services and technologies, such as Internet access or the use of mobile phones.
The second approach is local, at the level of households in a particular country. Accordingly, various
factors of influence are distinguished on different approaches.
The initial use of the term “Digital divide” as physical access to the Internet assumes a binary
approach, but often ignores the multi-layered approach. Multilevel models are based on technical and
social access to the Internet. “First-Level Digital Divide” and “Second-Level Digital Divide” were
identified in this approach (DiMaggio, Hargitai, 2001). In the case of second-level digital divide,
factors such as age, formal education and experience of working on the Internet have the greatest
impact on the problem. Moreover, there is a positive effect of formal education on digital inequality.
In addition to physical access and use, multilevel models also include the level of acceptance: the
ability to correctly evaluate and select information.
According to Dijk (2005), both personal and positional factors play a significant role in the uneven
distribution of access to digital resources. In this case, personal factors include age, gender, ethnicity
or health; position factors include formal education, profession and place of residence.
The impact on the use of ICT income and education, which can be indicative of socioeconomic
status, has also been proved in the work of Hsieh, Rai and Keil (2011). These variables were used
for further analysis. The authors conducted a survey on the use of the Internet within a single
municipality and conducted 784 surveys, the results of which were used in further analysis.
Two groups were identified with the help of cluster analysis: the socially-economically advantaged
and the socially-economically disadvantaged. To extract these clusters, Ward’s hierarchical method
was used. However, most of the observations fell into a socially-economically advantaged group.
Nevertheless, at the same time, demographic factors together with the results of non-parametric tests
showed a large gap between the groups obtained. Households that fell into a socio-economically
disadvantaged group were characterized by low incomes and education, comprised of older
individuals and resident women.
However, differences in the use of the Internet can be due not only to socio-economic status, cost
factors and accessibility. Guillen and Suárez (2005) tested the hypothesis that political, regulatory
and social aspects can affect the digital divide. In addition to the variables that are already familiar
in all studies and that reflect the socio-economic status, variables reflecting the country’s policy
in the field of communications (the type of privatization of telephone companies, competition in
the telephone services market) were added to the sample. These variables were introduced into
the model as dummy variables. In addition, the model included variables reflecting the level of
democracy in the country, which was measured on a ten-point scale. The main analysis was carried
out using linear regression from panel data, regression model by the least-squares method and model
with dummy variables.
As for Russian authors, Volchenko (2016) made the contribution to the study of digital inequality.
Based on the survey data on the use of the Internet in Russia, a multinomial binary logistic regression
was built. The finding obtained in the course of the study confirm the results of the studies of foreign
authors. The greatest influence on the use of the Internet in Russia was provided by such factors as
age and education of respondents, as well as their income and place of residence.
3. Dynamics of Digital Inequality in Russia

Russia is showing a positive trend and continues to improve its performance in terms of digitisation.
So, in 2010, the share of the digital economy in GDP was 2.6%, when by 2015 this figure reached
3.9%. For five years, this proportion has not increased significantly. However, by 2025, the state set
a task to triple this indicator. At the same time, experts believe that it is possible to achieve such a
value, despite the ambition of the goal.
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It is also possible to note the growth in access not only to the ordinary Internet in the country, but to
broadband access (figure 1). Improving access in Russian reality is a clear indicator of the quality
of the population digitization policy, since with such a geography it is not an easy task to access
broadband networks in all hard-to-reach locations. It is also worth noting the high growth in access
to broadband networks in recent years.
Figure 1: Internet Access in Households, %
Source: Federal State Statisitcs Service

Despite the positive dynamics in development, Russia is in the group of countries with developing
information and communication technologies. This means that at the moment there are weaknesses
in the current state policy aimed at bridging the digital divide both at the global level and within the
country between regions.
International ratings confirm that the digitisation policy works successfully in providing free access
to the Internet to households and the access factor is not the main deterrent to indicators. In recent
years, other constraints on the use of the Internet, as well as other information and communication
technologies, have come to the fore.
According to a study by the Federal State Statistics Service, in 2016, the main factors protecting the
population from using the Internet were lack of necessity, motivated reluctance to use and lack of
skills to work. These results indicate that the level of information literacy at the moment in Russia
is not at a high level. it is not enough to increase people’s use of technology by simply providing it.
Education and literacy are also key to bridging the digital divide.
As for the tariffs for connection and use, they are not the main stopping factors, but at the same
time give reason for reflection. According to the Federal State Statistics Service, about 17% of
households currently refuse to use the Internet and other ICT, citing the high cost. Currently, not all
households can afford to make full use of information and communication technology. Despite the
fact that the state is doing everything possible, the incomes of some families do not allow paying for
additional Internet services and using its resources in full.
Net neutrality can be an important factor affecting digital inequality. In Russia, the principle of net
neutrality is currently not enshrined at the level of legislation. Despite this, most providers adhere
to the principles of neutrality, as the strong segmentation of the Russian market in this area gives
users a wide choice. Therefore, it can be said that this factor does not affect the interregional digital
divide in Russia.
One of the policies to increase the digitisation of the population is the provision of e-government
services. The state encourages e-government users by giving them various discounts or privileges
when paying for a number of services through the portal. This policy encourages people to use
IAMOT 2019 | 726

the network, while at the same time developing their skills and information literacy. Over the past
two years, the number of users who received government services in electronic form has increased
almost one and a half times and reached 51.3% (most users in the age group from 15 to 44 years).
The older population, even with the discounts and privileges provided, prefers to use the old ways
of obtaining these services.
A person’s place of residence also has a huge impact on the digital divide in Russia. There is a
division into urban and rural populations. The agricultural industry is the main activity for a number
of regions. In such regions, the level of informatization of the population is lower. This directly
affects the interregional digital divide as a whole.
Thus, the current trends show the success of the state in providing access to ICT, but at the same time
there is a lack of skills among the population, as well as a lack of desire to use the provided ICT,
especially in rural areas and in older age groups.
4. Digitisation Index for Russia

Research indicators largely depend on the variable use of the Internet as the main determining
criteria. This is probably a reasonable indicator, as it reflects both a measure of access and technical
knowledge. However, this criterion cannot fully reflect all complicating factors. It is possible to
solve this problem by using a latent category that includes various characteristics of digitisation,
which allows, on the one hand, to reduce the feature space and on the other hand, to take into
account a wide range of various factors without loss of information content.
Thus, it was decided to calculate a special index for the Russian regions, reflecting the level of
their digitisation. The calculation of the new index is based on examples of existing indices, but the
variables are selected individually for Russia. The advantage of the created aggregated variable over
the existing indicators is that it includes indicators calculated individually for the Russian regions.
The selected indicators reflect not only access to basic information and communication technologies
and wired network services, but also their use.
The core index will be composed of variables reflecting access to ICT and the use of ICT. These two
groups of factors were highlighted in connection with the statement that it is not enough just to have
access to ICT in order to be able to fully utilize them.
The set of variables for calculating the index is presented in Table 1. Using the principal component
analysis and the selected groups of factors, a methodology will be formed for calculating the
digitisation index in Russia.
There is a correlation between the selected variables. The highest correlation is in the indicators
reflecting the share of households with access to a computer and the share of households with
access to the Internet. Also, a high correlation coefficient turned out to be between the number of
subscribers of high-speed Internet and the number of users of wireless phones with Internet access.
Table 1: The System of Indicators for Calculating the Index of Digitization of the Population of Russia
Variables
X1 Proportion of households with computer access
X2 Proportion of households with Internet access
X3 Proportion of households with broadband Internet access
X4 Availability of public network telephones per 1000 population
X5 Population using the Internet every day or almost every day
X6 Number of connected mobile radiotelephone subscriber devices per 1000 population
X7 Number of active subscribers of fixed broadband Internet access
X8 Number of active mobile radiotelephone subscribers using Internet access services
X9 Number of collective access points with access to the Internet
X10 Number of active mobile radiotelephone subscribers using broadband Internet access
IAMOT 2019 | 727

Using the Kaiser criterion and analyzing the graph of the scree criterion, the number of components
was determined. For a more accurate analysis, we also analyzed the variance and the total contribution
of the component data. As a result of the analysis, three main components were identified.
With the help of the matrix of factor loadings, previously rotated by the Varimax method, the source
characteristics associated with the components obtained were determined. The first component
displays access to ICT (Internet, computer, telephone), the second component displays the level of
use of the Internet, the third component displays the level of use of the broadband network and the
level of access to it.
Figure 2: Graph of the Accumulated Contribution of the Principal Components to the total Variance
Source: Author’s calculations

The information capacity is at a sufficient level to convert the main component into an integral
indicator. Standardized values of indicators were calculated for the calculation of the integral
indicator. The indicator reflecting the level of access to modern information and communication
technologies has the highest weight in the calculated index
Table 2: Factor Load Matrix
Component
1 2 3
X1 ,787 ,353 ,032
X2 ,891 ,007 ,036
X3 ,529 ,343 ,123
X4 ,088 ,591 ,283
X5 ,694 -,188 ,204
X6 ,118 ,774 -,077
X7 ,046 ,006 ,931
X8 ,195 ,183 ,860
X9 -,089 ,782 ,161
X10 ,154 ,281 ,863
Table 3: The Coefficients Interpretation
Component 1 2 3
K 95,88 79,96 93,22
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Thus, for further research, a unique index of digitisation in Russia was calculated. This index displays
the country’s characteristics in the ICT access level and their use and can be used for further analysis
as the main variable. The calculations also showed that the gap in access and use of wired networks
is wider than the gap in access to basic information and communication technologies. The calculated
index also indicates the heterogeneity of digital development that needs to be analyzed. A positive
factor is that there is an annual decrease in digital inequality in the absolute values of the index.
5. Modelling Digital Inequality in Russia

One of the main task of the study is to determine the factors that influence the use of information and
communication technologies in Russia and affect the interregional digital divide. In order to trace the
influence of different determinants on the dependent variable a regression model was built.
For modeling digital inequality in Russia, data for 81 regions of Russia for 2016 were used.
At the moment, there is no possibility to use more relevant data, as the Federal State Statistics
Service publishes reports with a strong backlog. Selected factors can be divided into the following
semantic groups:
5.1. Demographic Factors

a. The proportion of the urban population (X1);
b. The proportion of the rural population (X2);
c. Population, above working age (X3);
d. The ratio of men and women (X4).
5.2. Social Status Factors

a. Working population with higher education (X5);
b. The number of unemployed (X6).
5.3. Economic Factors

a. Per capita income (X7);
b. The average consumer consumption per capita (X8).
The indicator of the digitization level of the population calculated in the previous paragraph will be
used as the dependent variable.
The calculated regression model is presented in table 4. Regression analysis showed a significant
impact of the population above working age on the dependent variable, which indicates a low
information literacy among this segment of the population and a refusal to accept and use ICT.
The working population with a higher education also has a significant positive effect on the
development indicator of the region. Per capita incomes have a direct impact on the digitization of
the population.
To test the adequacy of the model Jarque-Bera test was carried out. The hypothesis that the residues
belong to the normal distribution law was not confirmed. The hypothesis about the absence of
heteroscedasticity of errors for the constructed linear regression is rejected. These results indicate
the heterogeneity of digital development between regions, so it will be logical to conduct a cluster
analysis to identify the relevant groups of regions. Cluster analysis will allow to divide countries
into groups on access to information and communication technologies and analyze the structure of
the interregional digital gap.
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Table 4: Regression Analysis Coefficients
Variables Coefficients Standard deviation P-value
C 1.634 2.396 0.03419
X1 0.066 0.090 0.0239
X2 -0.057 0.038 0.1416
X3 -0.296 0.314 0.0233
X4 -0.073 0.068 0.1679
X5 0.090 0.060 0.0214
X6 0.004 0.012 0.5346
X7 0.181 0.093 0.0116
X8 -0.091 0.082 0.0125
R-squared = 0.59
S.E. of regression = 0,067
Prob(F-statistic) = 0.003775
The results of the calculated aggregate variable and regression model showed heterogeneity of
digital development in Russia. Since the regions of Russia differ significantly in the level of access
and use of information and communication technologies, the purpose of the cluster analysis is to
identify homogeneous groups in terms of digitisation.
To determine regional differences, a multidimensional classification of regions was carried out using
the Ward method of cluster analysis. The cluster analysis was performed for variables reflecting
access to ICT, use of ICT and access and use of broadband Internet (figure 3). Ward’s method
showed the possibility of dividing the sample into three clusters, which reflect regional differences
in the level of digitisation. It is worth noting that the samples are heterogeneous. There is a negative
trend for regions with agricultural focus, as they were mainly in the group of lagging regions.
Developed regions are primarily characterized by high per capita incomes and consumer spending,
as well as a high proportion of the urban population. Some regions of the developed group are in
close proximity with developed European countries that can also affect the development of ICT.
The largest regions are in a group of developing regions, despite the fact that their geographical
conditions and infrastructure are not ideal for the dissemination and development of some ICTs,
especially the Internet.
Figure 3: Results of Cluster Analysis
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In order to determine how significant the differences in the clusters are, the equality of the mean
values in them was checked. The hypothesis about the equality of the average values in the cluster
was rejected for all variables entered. There are significant differences between the clusters in the
level of accessibility and use of information and communication technologies and the government
should continue to work on reducing the digital divide, not only on the world stage, but also at the
local level.
Figure 4: Average Values in Clusters

As a result of the analysis, the heterogeneity of the sample was identified and a cluster analysis was
conducted to identify groups of regions by the level of ICT development in Russia. It should be
noted that although the hypothesis about the equality of the average values in the clusters was not
confirmed, the difference itself is significant (figure 4). However, the considered indicators make it
possible to see the reduction of this inequality (improvement of a number of key characteristics) over
time, which is a positive factor and indicates that, with the right policies, this gap can be significantly
reduced and then leveled.
6. Conclusion
The state policy in Russia regarding the provision of access to ICT in recent years has been working
quite successfully. Analysis of the features and factors affecting inter-regional differences was
conducted with the help of the calculated index of digitisation of the population of Russia. Groups of
regions differing in the level of ICT development were identified, but differences in average values
of clusters turned out to be low. There is a significant interregional digital divide between in Russia
and in order to prevent its increase, firstly, it is necessary to at least follow to the current policy of
increasing the digitisation of the population and also pay attention to the increase in information
literacy of the population.
The main inhibition of development is also the level of information literacy. Complex and extensive
geography also greatly hinders the bridging of the digital divide between the regions, but since
development does not stand still, these differences can be remedied.
Russia belongs to the group of countries with developing information and communication technologies
in the international arena. However, in this group it takes not the last place. This means that together
with the ambitious tasks of the government to increase the level of digitisation in the country, in
the near future Russia has a chance to be in the group of countries with developed information and
communication technologies, as well as reduce digital inequality at the interregional level.
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References
Büchi, M., Just, N., Latzer, M., (2016), Modeling the second-level digital divide: A five country study of social
differencesin Internet use, New Media & Society, 18 (11), 2703-2722.
Dijk, J.A., (2005), The Deepening Divide: Inequality in the Information Society, Thousand Oaks. CA: SAGE
Publications, Inc.
DiMaggio, P., Hargittai, E., (2001), From the «digital divide» to «digital inequality»: Studying Internet use as penetration
increases. Princeton: Center for Arts and Cultural Policy Studies, Princeton University, WP No 15.
Guillen, M.F., Suárez, S.L., (2005), “Explaining the Global Digital Divide: Economic, Political and Sociological Drivers
of Cross-National Internet Use”, Social Forces, Vol. 84, No. 2, 681-708.
Hsieh, J.J.P.A., Rai A. and Keil M., (2011) Addressing Digital Inequality for the Socioeconomically Disadvantaged
Through Government Initiatives: Forms of Capital That Affect ICT Utilization, Information Systems
Research, Vol. 22, No. 2, 233-253.
Volchenko, O.V., (2016), Dynamics of Digital Inequality in Russia, Monitoring of Public Opinion: Economic and Social
Changes, 5, 163-182.
IAMOT 2019 | 732

Success Factor of Multinational Business
Transformation Change Management
Eyad Buhulaiga
E-mail: eyad.buhulaiga@gmail.com
Arnesh Telukdarie
Adeeb Albukhari
University of Queensland, Faculty of Engineering, Architecture and
Information Technology, Australia
E-mail: a.albukhari@uq.net.au
Abstract
Achieving operational excellence and producing the perfect product (right quality, right quantity, right time for
right customer) is a common objective of all major manufacturers. This is done via introducing corporate programs,
disrupting technologies, projects and initiatives that introduce changes to the way a business is conducted.
The changes can be with respect to business process improvement, change in the roles and responsibilities, and
re-organization . This impacts the employees of the organization who implement the change and requires to be
managed properly to improve the adaptability and increase the effectiveness of the change. The change becomes
significantly challenging in multinational organizations which are located across the globe. Multinationals
needs to consider, not only the changes imposed by the new tools, but also the changes involved with dealing
with organizational and international cultures. In this paper, the key success factors of multinational business
optimization change management are discussed in detail. The paper focuses on the impact of the human factor
on the success of user performance improvement and adoption rate based on a successful change management
program. The paper also provides the results of a qualitative research study that emphases the effective of change
management. The paper highlights the three level of change management (system initiative, organization and most
importantly individuals). Despite the fact that senior management direction is a key success factor, the research
results indicates that middle management plays a major role. Significantly impacting the success of the change.
Depending on the size, speed and number of simultaneous changes, the change management program needs to be
carefully designed to increase the level of adoption. The fair practices involved from the very beginning is another
factor that gives the user the feeling of ownership. The paper helps organization in deploying complex systems
while addressing cultural, social and human Issues. It provides a guideline that helps organization transferring
technology while highlighting the importance of management role and partnership in deploying disruptive
technology.
Keywords: Change Management, Multinational Businesses, Manufacturing Industry, Business Transformation,
Transforming Change
1. Introduction
Achieving operational excellence and producing the perfect product (right quality, right quantity,
right time for right customer) is a common objective of all major manufacturers. The disruptive
technologies introduced by the fourth industrial revolution (IR4.0) has left manufacturers with
no other choice but to adapt and introduce corporate programs, disrupting technologies, projects
and initiatives that introduce changes in the way of conducting business, to remain competitive
(Rowlands et al., 2015). The change resulted from adopting IR4.0 impacts not only the workers’ jobs
but includes business process improvement, change of roles and responsibilities and reorganization
to change the organization structure and functions. This impacts the employees of the organization
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implementing the change which requires proper management to improve the adaptability, reduce
the stress level and increase the effectiveness of the change. The change becomes more challenging
when it comes to multinational organizations that spread across the globe that needs to consider not
only the changes imposed by the new tools but also the changes involved in dealing with different
organizational and international cultures (Rowlands et al., 2015). In this paper, the key success
factors of multinational business optimization change management are discussed in detail.
Most of the current jobs, skill-sets and education systems are not tailored to suit IR4.0. The move
from rigid and static business process and systems into dynamic and adaptive systems requires a
transformational paradigm shift in the way of thinking, training and skills. The World Economic
Forum (2016) estimated that 30% of the skills needed for jobs in 2020 are not receiving the required
attention. The focus of the future workers will be on the complex problem solving, cognitive abilities,
system, information and communication technology skills. These skills are required to manage
different components of complex Cyber-Physical Systems (CPS) including managing systems,
databases, coding of robotics and Artificial Intelligence (AI) algorithms, and developing advanced
applications (Hiatt, 2006). Digital transformation, integration and automation of work processes
opens new innovative environment that allows workers, regardless of experience and skill-set level,
to think outside the box and operate outside the normal working activities (Scholz, 2015). This
mandates the workers to adopt continues multidisciplinary and multicultural learning, combining
hard-skills of specific job know-how with soft-skills associated with the use of the new digital
tools and technologies (e.g. complex problem solving, collaboration, coordination, communication,
critical thinking, service orientation, creativity, decentralization, autonomy, etc.). This is a joint
effort that needs to be done by both workers to stay fit for the job and manufactures deploying IR
4.0 technologies. These skills are usually referred to as STEM (Science, Technology, Engineering
and Mathematics) (Guynamant , 2015). In order to be IR4.0-ready and as part of talent preparation
and development, both manufactures, and workers must adopt a new dynamic training paradigm that
allows for rapid learning and development. This moves workers from being just doers of tasks into
being digital workers and innovators. Despite the current unemployment rates worldwide, recent
CEO survey revealed that market lacks knowledgeable and IR4.0-ready workforce. This forces
manufacturers to develop special programs for change management and digital talent development
with a focus on the current and future required skill-sets (Hansell , 2018).
2.1. Challenges Associated with Change Management

Manufacturers are faced with several challenges that include the training of the workforce on the
new disruptive technologies as well as attracting and retaining digital workers. Career advancement,
globalization, company culture, diversity (not only based on gender but also on cultures), global
knowledge sharing, and management are among the main fields that organizations need to consider
in order to harvest the benefit of CPS implementation in multinational operations (Lipiński and
Jamro, 2017). The different skill-sets, capabilities, business norms, standards and local solutions,
level of training and minimum wages set by each country, could be a multinational manufacturer’s
biggest asset or liability. Manufacturers must focus on managing the change imposed by the digital
transformation following a planned and structured model (Lipiński and Jamro, 2017). There are
different models defined by Information Technology Infrastructure Library (ITIL), The Open
Group Architecture Framework (TOGAF), Situational Leadership II and Project Management
Body of Knowledge (PMBOK) that could be used in all types of changes (planned/unplanned
and revolutionary/evolutionary). The change management shall consider the Information Flow
Management (IFM) that consists of (Lipiński and Jamro, 2017):
a. Stakeholders impacted by the change
b. Team members responsible for implementing the change
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Success Factor of Multinational Business Transformation Change Management
c. Organizational culture (formal and informal business process)

d. Information management, exchange, workflows, visualization, communication,
information systems and ways of conducting business
e. Roles & responsibilities that foster continuous improvement to achieve operational
excellence
f. Human Resources and stakeholder behavioral analysis to identify (Lipiński and Jamro,
2017):
●● Parties that are pro/against change
●● Personnel attitude & motivation
●● Organizational culture
●● Areas where change take place
This helps in designing a plan to help in easing the process of change.
2.2. Best Practices for Effective Change Management in Multinational Organization

In order to have an effective change management within some multinational manufacturers, the
change management program must focus on (Andersen, 2015):
a. Setting CPS as a Corporate Strategy: Where CPS implementation and associated change
management are run by manufacturer’s leaders and decision makers.
b. Declaring CPS as an Operational Excellence Enabler: Where CPS implementation
plays a key role in fostering change management activities between organization
and individuals to enhance organizational performance while improving individual
capabilities and performance.
c. Conducting Continues Change Management benchmarking analysis that includes
(Lipiński and Jamro, 2017):
●● Assigning success factor for each change management phase
●● Verifying the planned versus actual change management phase result
●● Define alternative plan to bridge the change management gap in case of deviation
or subsequent goal
d. Establishing Change Management Historian: This includes the documentation of all
information generated during the course of change management.
e. Establishing Change Management Repository: To store all the tools, systems,
communication, events and information shared during the course of change management.
Manufacturers have to consider and accept multidisciplinary teams that resides in different
geographical locations with different level of training. This mandates that manufacturers clarify
the roles, responsibilities, communication systems and methodology, data sharing and management
that must be used to facilitate the multinational team communication and innovative culture.
Manufactures must also institutionalize a systematic approach to facilitate sharing leadership across
teams around the globe with strategic policies that are aligned with local policies and legalizations.
This helps manufactures to capitalize on existing organizational strength, look for synergy and take
the most out of the local solutions, improve business processes of how work is performed and create
a common work practices and policies (Mcintosh et al., 2018).
2.3. Change Management, Talent Management or Risk Management?

Manufacturers have also to accept that the majority of knowledge of the manufacturing are available
in the workers’ minds, which is referred to as “Wisdom of the Crowd”. Studies indicates that over
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80% of companies’ knowledge are in its personnel heads or in a format that are not accessible, which
cause the employees to spend tremendous amount of time (up to 50% of time) in allocating data. It
also increases the vulnerability and risk of losing manufacturers knowledge and wisdom due to the
loss of the minds holding this knowledge. Bases on this, manufacturers need to mitigate the risk of
knowledge loss by (Guynamant, 2015):
a. Identify important and crucial knowledge elements and resources
b. Identify the process owners and experts of the aforementioned knowledge elements and
resources to evaluate the risk of loss and rate of retention
c. Quantify the risk and identify the potential of knowledge loss due to retirement,
resignation, etc.
d. Develop change management plans to:
●● Document the manufacturer’s knowledge and crowd’s wisdom from the global
offices
●● Bridge the knowledge/expertise gap via detailed learning and development plans
for process owners’ successors
●● Increase the level of automation to reduce the reliance on human
e. Measure the effectiveness of knowledge transfer and documentation
2.4. The Role of Middle Managers in Change Management and Business Transformation
Despite the fact that senior management direction is a key success factor in implementing IR4.0,
CPS and digital transformation, previous research results indicates that middle management plays
a major role, significantly impacting the success of the change. Depending on the size, speed and
number of simultaneous changes, the change management program needs to be carefully designed to
increase the level of adoption. The fair practices (i.e. involving people impacted by the change) and
engagement from the very beginning is another factor that gives the user the feeling of ownership.
Middle managers need to pay special attention to the experts and address expectations to ensure that
knowledge and expertise are retained (Lunts, 2012).
The following describes the key success factors that need to be followed by middle managers with
the support of senior management to improve the acceptance of a multinational business optimization
change management program. It focuses on the impact of the human factor on the success of user
performance improvement and adoption rate based on a successful change management program
and highlights the three level of change management (system initiative, organization and most
importantly individuals).
3.1. Managing Changes Caused by System Initiative

The changes imposed by the introduction of new systems that integrates the cyber-physical words
(CPS) introduce changes to the way a business is conducted. In order to manage the change
introduced by CPS on the system level, it is imperative to consider the whole lifecycle of designing,
implementing and supporting the CPS. Researchers recommend that CPS as some complex
systems, to follow a phased approach with close coordination between the complex system, human
involvement and organizational changes that includes (Scholz, 2015):
a. Basic Harmonization Rules and minimum specifications that eliminate the restrictions of
individual involved in the change
b. Internal Change benchmarking that gauges the internal organizational dynamics, size,
number of proposed changes, impact of change, level of resistance, etc.
IAMOT 2019 | 736

c. Emergence that consists of the forces influencing the change (top-down or bottom-up
directions), level of adaptability, means of change communication and control.
d. Adaptation that focuses on measuring the level of tension caused by the change and the
ability of organization to adapt with the newly introduced business process and tools
Previous research recommends using the Engineering Change Management (ECM) process that helps
manufacturers to cover the end-to-end manufacturing lifecycle. It helps in achieving operational
excellence and producing the perfect product with an input from all stakeholders within the value
chain. This is done by integrating the manufacturing and plant floor information along with the
control and ERP systems to help manufacturers in (Wu et al., 2014):
a. Increasing efficiency by providing real-time access of data to all stakeholders while
ensuring the whole enterprise is using a consistent data (single-version of truth).
b. Improving profitability by producing the products with the right specification to avoid
off-specs product quality while maintaining the least production cost.
c. Improve Human Resources effectiveness by ensuring the use of common standard
processes and terminology across the enterprise, despite the different geographical
location or business lines.
ECM recommends using a systematic approach to implement the change that covers all manufacturing
phases as follows (Wu et al., 2014):
Figure 1: A Systematic Approach to Change
3.2. Managing Changes Caused by Organizational Restructures

Organizational change can take several forms including changes in roles, responsibilities, business
process, procedures, up to a complete hierarchical restructuring. The hierarchical restructuring
usually causes the most resistance. This could be mitigated by (Antonellis,2016; Butt et al., 2018):
a. Ensuring a clear understanding of the rationale behind the change and expected outcome
among all personnel impacted by the change
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b. Continues senior management commitment that includes:

●● Consistent communication of the imposed changes
●● Stressing the impact and expected improvement by the change
●● Ensuring organizational buy-in
c. Heavy involvement of all impacted personnel in all changes process
d. Organizational communication programs that includes:
●● Communication of the new organizational roles and responsibilities
●● Communication of the objectives and impact on the individual level
●● Open communication channels between top management and all levels of workers
to allow for addressing concerns and increasing the level of confidence
e. Development and career advancement plans that gives the workers the level of comfort
that the change is an opportunity for advancement rather than a threat
3.3. Managing Changes Caused by Organizational Restructures

Human involved in the change are the cornerstone of any change management initiative as they
play a critical success role that can make or break the whole change management process. Previous
research suggests that more than 60% of the change management projects fails due to the involved
personnel, with individual’s behavior as a common cause of the failure. This mandate conducting
organizational change and human resources readiness assessment to gauge the level of readiness the
organization has and plan for it accordingly (Scholz, 2015).
Senior management support is vital for the success of change management and it has to be consistent
throughout the change lifecycle. Discontinued or curtailed senior management support negatively
impacts the effectiveness of the change management process and the role middle managers play in
institutionalizing the course of change. The following are the success factor of human resources
changes with a focus on the role played by the middle management (Hansell, 2018):
a. Clear Roles and Responsibilities: in order to secure full commitment, dedication and
influence from middle management, senior management has to provide a clear guidance
and expectations from middle managers. This can be done by forming a change
management committee with champions from middle management members that are
considered change management agents and are:
●● Accountable for the overall implementation of the change
●● Empowered for taking major design and implementation decision
●● Responsible for providing periodic progress reports of the effectiveness of the
change process
●● Trained and coached on the effective change management aspects as part of middle
management leadership development
b. Continues follow up and monitoring: senior management has to display firm commitment
to the change and added value that introduces. This can be done by establishing a steering
committee that is:
●● Responsible for making major decisions that couldn’t be resolved at the Change
Management Committee.
●● Communicate periodically with all personnel to re-emphasize the importance and
the commitment of the change for all involved parties.
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In addition, senior management members have to consider the strategic talent management and
human capital management best practices that include (Guynamant, 2015):
●● Allocating time and resources dedicated to the change management activities
●● Developing middle managers to:
oo Have the ability to hire, train, encourage and retain personnel that make the
maximum use of the CPS implementation
oo Understand what motivate the manufacturers experts (e.g. challenging tasks,
understanding the link between this task and overall strategic objective and
appreciation) to be able to increase the level of productivity
oo Avoid the user of power to eliminate the threat of disqualification which
negatively impact the performance, create tension and demotivation
oo Avoid focusing on some experts and underutilizing others which creates stressful
situation for some employees and apathy on the remaining underutilized ones
c. Manage the pace of change: the changes imposed specially the revolutionary ones can be
overwhelming to the involved parties. This can be challenging in teams that are separated
by geographical boundaries and are not co-located in the same location where there is a
possibility of having some disengaged organization. This mandate:
●● Paying special attention to the continues involvement of all concerned parties
●● Having a massive and periodic communication plans
●● Providing incentives to the most impactful change advocates with appreciation for
peer support and effective networking
4.1. Dealing with Resistance to Change

Unlike developmental change (i.e. improve existing processes, methodologies and skills) or
transitional change (i.e. periodic change), CPS imposes transformational change which is a major
change that might be unknown to the majority of personnel, specially workers who are not involved
in the design and implementation of CPS. No matter how beneficial the change is imposed by CPS,
it is not be effective if it is not institutionalized and accepted by the manufacturer’s workers (Alas,
2015).
Workers do not usually resist the change but rather effect imposed by the change that includes, but
not limited to (Alas, 2015):
a. Changes in roles and responsibilities
b. Changes in ways of conducting business (automated vs. manual steps)
c. Increased transparency, visibility, accountability and responsibility
d. The need to unlearn the old way of conducting business and learn new ones
e. Fear caused from uncertainty and large number of changes
f. Merging different organizational culture in a rapid manner
g. The change from task-oriented jobs value-adding-oriented jobs
Researchers recommend conducting the changes into waves as follows (Alas, 2015):
a. The first wave has to be designed with extra care, in a pilot format, to gauge the level
of resistance, analyze and document the reason of resistance with lessons learnt to be
avoided in next change waves
IAMOT 2019 | 739

b. Next waves have to be designed in a gradual format to minimize the impact of change
and increase the level of adaptability.
4.2. Change Management Phased Approach

The execution of a corporate-wide change management project is a complex journey and it requires
detailed and tailored change management strategy. Such strategy must provide a holistic coverage
to the end-to-end change management processes. The researcher experience suggests dividing the
change management journey into different phases that are aligned with the business transformation
the organization is undertaking. The following are the proposed phases for conducting a typical
change management project that is based on a use case implemented in an Oil & Gas Company:
Change Foundation Phase: This phase is the first phase and it must start with the initiation of the
business transformation activities to achieve the maximum possible outcome. This phase is crucial
for the success of the change management program. According to Kotter (2018) “When you plan
carefully and build the proper foundation, implementing change can be much easier, and you’ll
improve the chances of success. If you’re too impatient, and if you expect too many results too
soon, your plans for change are more likely to fail”. During this phase, the focus is on planning
the change in the right way by analyzing the organization and most importantly the stakeholders
involved. This analysis is used to develop the right set of relevant interventions needed to achieve
the desired outcomes of CPS and business transformation project. It is important during this phase
that the frontline staff know what the change is all about and how this change affects the business.
Keeping the frontline staff and stakeholders in the dark while conducting the change fosters rumors
and create the perfect environment for resistance by the stakeholders who don’t understand why and
how the change is going to happen.
Figure 2: Change Management Lifecycle
To visualize the above phases, the above diagram illustrates the overlap between these phases
Change Deployment Phase: This phase is the heart of the change management program. It focuses
on deploying the change management interventions that were planned during the Change Foundation
phase. It ensures that the organization and the stakeholders are committed toward the change.
Change Sustainability Phase: The objective of this phase is to ensure that the change management
program is running effectively and efficiently. It also ensures that the change is always aligned
with the business transformation objective. In this phase, it is essential to assess the organizational
awareness and maturity level in the context of business transformation. Based on the results of
IAMOT 2019 | 740

the assessment, the change management sustainability plan is developed with concentration on the
planned interventions in the Change Deployment phase. To maximize the positive outcomes of
the change management program, the phase considers running change deployment in parallel or in
sequence.
4.3. Importance of Change Management

To achieve the desired outcome of business transformation, people must be managed effectively
throughout the lifecycle of the change management process. This requires involving the stakeholders
from day one of the business transformation plan and work closely and hand-in-hand with involved
parties, throughout the lifecycle of the business transformation.
It worth mentioning that the change management program cannot be copied and pasted from one
circumstance to another. Every change management program is unique, and it should be tailored to
the organization that is deploying the change. This is because the resistance level is different, and
the maturity of the stakeholders differs from one case to another. Having a state of the art business
transformation project without having the buy-in of the stakeholders generates a huge resistance
that eventually impacts the successfulness of the project. Change management must address the
human dimension of the change more than anything else. According to previous experiences with
implementing effective and corporate-wide change management programs, Figure 3 illustrates the
importance of conducting an effective change management program compared to having a weak
change management program or not having one from the first place.
The diagram highlights that engaging the stakeholder from the Change Foundation phase through an
effective change management program can help the organization to sustain its current performance
compared to not or ineffectively doing so.
During the Change Deployment phase and specially after the change due date, it is normal and
common to see a “performance dip” (denoted by A in figure 3). The performance dip is one of the
issues that usually persist during the deployment of any change management program and it can be
looked at positively during an effective change management program. This is because it illustrates that
the organization is starting to adopt to the new business transformation project. It can also illustrate
that the organization is trying to learn and acquire the skill sets needed to successfully implement the
new business transformation system. It is usually expected that the organization takes shorter time
to recover from this performance dip because of the effective organizational readiness that is carried
out during the Change Foundation phase. Congruently ineffective change management program is
more likely to result in a steeper and a deeper performance dip. In such case, it is expected that the
organization generally takes a longer time to recover from this performance dip.
Figure 3: Change Management Performance
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Business transformation is a long journey. It is not expected to harvest its desired benefits from
the day one. During the Change Sustainability phase, significant outcomes is realized by effective
business transformation program. This results in the positive outcome of the performance of the
organization carrying the business transformation. With an effective change management program,
the positive outcome is maximized, immediately after recovering from the performance dip.
However, the absence of a good change management program, the outcome after the performance
dip is unpredictable. Such absence of an effective change management program might result in a
costly and disappointing result.
5. Conclusion
The successfulness of the change management program is not achieved by completing the checklist
of the change strategy. It must measure the success at the individual level by measuring the
human dimension of the change. It is important to realize that “organizations don’t change, people
within organizations change”. Importantly, managing the people side of change eventually yields
disappointing results.
References
Alas, R. (2015). Resistance to institutional and organizational change: an individual perspective. In Change Management
and the Human Factor (pp. 153-165). Springer, Cham.
Andersen, T. (2015). Organizational development in an international context: A story of planned change and attempt to
induce high involvement. In Change Management and the Human Factor (pp. 179-189). Springer, Cham.
Antonellis Jr, P. J. (2016). Change Management: Recommendations for Prechange Success. Fire Engineering, 369(8), 49
Butt, F. S., Nawab, S., & Zahid, M. (2018). Organizational Factors and Individual Effectiveness: Moderating Role of
Change Management. Pakistan Journal of Psychological Research, 33(1).
Guynamant, B. (2015). The Role of Management Development in Change Management: The Example of Financial
Markets. In Change Management and the Human Factor (pp. 59-76). Springer, Cham.
Hansell, V. (2018). Identifying the prevalence of influential factors on middle managers’ abilities to lead organizational
change within the context of community nursing and therapy services. International Journal of Healthcare
Management, 11(3), 225-232.
Hiatt, J. M. (2006). ADKAR: A model for change in business, government and our community. Loveland, CO: Prosci
Learning Center.
Kotter, J., Dr. (n.d.). Kotter’s 8-Step Change Model. Retrieved November 11, 2018, from http://www.strategies-for-
managing-change.com/support-files/kotterchangemodel.pdf
Lipiński, R., & Jamro, K. (2017, December). Information Flow Model: a Versatile and Effective Change Management
Model. In ECMLG2017 13th European Conference on Management, Leadership and Governance: ECMLG
2017 (p. 253). Academic Conferences and publishing limited.
Lunts, P. (2012). Change management in integrated care: what helps and hinders middle managers–a case study. Journal
of Integrated Care, 20(4), 246-256.
Mcintosh, J., Alonso, A., Maclure, K., Stewart, D., Kempen, T., Mair, A., Wiese, B. (2018). A case study of polypharmacy
management in nine European countries: Implications for change management and implementation. Plos
One,13(4). doi:10.1371/journal.pone.0195232
Rowlands, K. E., & Rees, C. J. (2015). Organizational Change and Workplace Stress in Teaching and Learning Settings:
Case Study Evidence from a Public Sector University in the UK. In Change management and the human
factor (pp. 167-178). Springer, Cham.
Scholz, T. M. (2015). The human role within organizational change: A complex system perspective. In Change
Management and the Human Factor (pp. 19-31). Springer, Cham.
Wu, W. H., Fang, L. C., Wang, W. Y., Yu, M. C., & Kao, H. Y. (2014). An advanced CMII-based engineering change
management framework: the integration of PLM and ERP perspectives. International Journal of Production
Research, 52(20), 6092-6109.
IAMOT 2019 | 742

Modelling the Impact of Transport Mode on
Small Enteprises and Employment Growth
George Maluleke
E-mail: george.maluleke@angloamerican.com
Leon Pretorius
Abstract
Introduction and Purpose: The South African economy has continued to struggle in the past decade with slow
growth in Gross Domestic Product (GDP) and the inability of the economy to create jobs. The cost of business has
been raised as one of the obstacles to investment in the economy whereas on the other hand, workers continue to
complain about low wages through various platforms. In their demand for higher wages, workers often raise the
cost of living, accommodation and transport to get to work amongst the key contributors. The cost of logistics has
increased substantially as a percentage of GDP in the past two decades, led mainly by the cost of transport logistics
and technology. The cost of transport is common to the break-even equations for both employment and business
dynamics for low income bracket employees and small business enterprise respectively.
The purpose of the research paper was to establish the impact of non-investment in rail freight logistics and
passenger infrastructure technology in the break-even cost equation for, 1: small businesses and 2: working people
living in the South African metro areas. We assume, based on a linear principle of superposition that the efficiency
of such transport mode will either erode or create sufficient capital to enable entrepreneurship and individual
development. We also analyze the impact of changes in the mode of freight movement between the metros/ business
centers and the key ports of shipping of goods via the ocean to bring to attention the impact of rail capacity on
logistics cost efficiency.
The research into this paper followed a simulation approach which is a method recognized as an alternative to
empirical analysis of data. A system dynamic model was developed using data collated from various statistical
reports published in South Africa and abroad. The model analyses the dynamic impact of cost on potential
development of individual employees and small business using a principle of superposition.
The paper concludes that: lack of investment and poor management of current rail transport system has a negative
impact on the smaller enterprises and lower end employees and by implication negatively impacts the ability of
the economy to generate the necessary employment growth. The findings of this research can be used by policy
makers to determine the priority of investment in infrastructure and related technology to assist the economic
and employment growth. We acknowledge that there may be other factors that affect the ability of South African
economy such as skills, technology and other macro-economic factors that are not directly addressed in this paper.
The study is conducted in part as a contribution to a raging debate in South Africa about the minimum wage as well
as the inability of the economy to create employment.
Keywords: System Dynamics; Entrepreneurship Capital; Cost Differential; Potential Economic Growth;
Superposition
1. Introduction and Problem Statement

The South African economy has been centred around major metros which host most of the economic
activities and connected by a rail and toll road networks. The historical rail network was useful in
aiding movement of freight from inland mining and manufacturing centres in Johannesburg and the
surrounding centres to the port connecting the South African industry to global trade partners via the
oceans. As depicted in Figure 1, the logistics map (PWC:2017) shows how the inland manufacturing
and mining centre of the economy are connected to the ports through rail networks. The map shows
how mining freight is connected to the Atlantic Ocean freight through Saldanha and the Indian Ocean
IAMOT 2019 | 743

through Richards bay and lately Port Elizabeth. Equally the trade ports of Durban, Cape Town and
Port Elizabeth are linked to the inland manufacturing and trade centres in Johannesburg and Pretoria.
The rail network equally serves the passenger rail services between the major cities of Cape Town,
Durban, Johannesburg and Port Elizabeth. Transnet Freight Rail (TFR) and Passenger Rail Agency
of South Africa (PRASA) are the dominant rail service providers for goods and passenger transport
respectively.
The paper aims to analyse the rail freight and passenger trends between major metros and equally
so the passenger trains service trends within the metros themselves. In analysing the impact of train
service impact, we compare the cost of commuting to work for an average worker using both road
and rail services within the metros selected. The cost of living in the metros for working individuals
is impacted by the cost of transport to and from work. In this paper we argue that the mode of
transport determines the cost of getting to and from work and by extension movement within the
metro. Equally we also argue that the transport of freight and passenger has double impact on the
ability of individual to work and create jobs for others. We contrast this view with the assumption
as part of the problem statement that a saving in this cost element would create sufficient capital for
further development of companies and human capital alike.
Figure 1: Transport Logistics Map of South Africa
Source: PwC, 2017:67

Transnet Freight Rail (TFR, 2017), the South African freight utility owns 80% of rail infrastructure
in the African continent and was responsible to connect the country to all the southern African
neighbours through rail. The logistics map in Figure 1 highlights the rail connection to South
Africa’s neighbouring countries including Namibia, Botswana, Zimbabwe, Mozambique, Swaziland
and Lesotho on the inland. In 2014 the department of transport (DoT, 2014) estimated that road
freight was steadily increasing from 2012 to 2014 whereas the share of rail freight was in stagnation
IAMOT 2019 | 744

Modelling the Impact of Transport Mode on Small Enteprises and Employment Growth
as depicted in Figure 2. This distribution has more bias towards a network of road infrastructure
which is already constrained and shows continuing trend.
In their report Transnet Freight Rail (TFR, 2017) highlighted that, despite having rail infrastructure
spanning 30 000km across South Africa, more rail fit goods were still being transported by road.
A study by Price Waterhouse Coopers (PwC, 2017: 72) found that, the impact of decades of
underinvestment in rail transport technology for both freight and passengers has resulted in 89% of
freight depending on road transport.
Figure 2: Freight Payload Estimates in ‘000 between 2011 and 2014
Source: DoT, 2014

A similar pattern has been noted in passenger transport according the Passenger Rail Agency of
South Africa (PRASA, 2016). In its 2015/2016 annual report (PRASA,2016:9), the Passenger Rail
Agency of South Africa (PRASA) affirm its mandate as being to deliver commuter rail services in
the Metropolitan areas of South Africa, long-distance (inter-city) rail and bus services within, to and
from the borders of the Republic of South Africa. As depicted Figure 3, the report (PRASA, 2016:22)
indicates that the usage of passenger rail system which represent the only mass train service in South
Africa apart from the (Gautrain rapid rail) has declined between 2011 and 2015.
Figure 3: Passenger Trips by Metrorail and Mainline over a Five-Year Period (Source: PRASA,2016:22)
IAMOT 2019 | 745

The trend in South African public transport industry is in direct contrasts with global trends highlighted
in the report by the International Association of Public Transport (UITP,2017: 7) conducted in 39
countries including a combination of developing countries such as China, Brazil and Turkey and
developed country such as Germany, US and UK. According to the report (UITP,2017:7), public
transport usage has seen a steady increase between the year 2000 and 2015. According to the report
(UITP,2017), the increase was also propelled by a rather more aggressive move into public transport
by large economies such as China, Brazil and Turkey between 2005 and 2015.
The South African decline in the usage of rail as a mode of public transport started in the late 1990s
as depicted in the DBSA report (DBSA, 2007) which depicts the split between rail, bus and taxi
transport usage in Figure 4. The report highlights an overall increase in usage of Mini-bus Taxis
between 1996 and 2003 across all provinces of South Africa. Mini-bus taxis have passenger capacity
ranging between 12 and 15 persons compared to bus capacities ranging 50-65 persons on Buses.
Figure 4: Preferred Mode of Transport for Working Household Trips Per Province (DBSA, 2007:35)
Even though it is beyond the scope of this paper, we note that the increase in usage of mini-bus taxis
as a mode of transport has a direct impact on the maintenance requirements on the road network
due to the increase number of vehicles required. Ittmann and King (2010) also found that the cost of
logistics in general can increase by up to 10% due to bad road conditions. To highlight the impact of
a shift towards the usage of mini-bus taxis we look at the at human development dynamics and the
prevailing environment in SA Metro areas.
2. The South African Metro Environment and Human Dynamics

The South African population is fast becoming more urbanised as seen in the trend of urban vs
rural population shifts from 48.4% in 1980 to 65.3% by 2016. The shift towards urban settlement
means that the cost of living in the metro’s and the ability of the working individual in these areas
has become more representative of the general standard of living for the South African population.
As Negota (2001) also highlighted, the accessibility between sources of production and sources of
IAMOT 2019 | 746

consumption relies on functioning transport infrastructure. Negota (2001) further assets that the
improvement of or implementation of new infrastructure is crucial in the improvement of cost of
living for workers and employers alike. A view from Europe shows that, the extent to which an area
of the metro is affordable and attractive is determined by the distance between the residential area
and the places of work and leisure. In their study based on real estate in the Netherlands, Debrezion
et al. (2011:16) found that there is a significant impact on prices of real estate due to accessibility of
train stations with high service level quality.
In the work of Maluleke and Pretorius (2016), a causality was drawn between infrastructure capacity
development and skills development where they argued that as the mineral resource development
value chain transits into more beneficiation and downstream activities, the number of people
employed at skilled level increases. The research methodology used to address the problem context
posed in the section is presented in the following discussion.
To analyse the dynamics of the various elements playing in an investment on rail logistics technology
and its impact on the economy, a system dynamics approach is taken. This approach recognises three
critical elements of a system that were described by Senge (1994) and Sterman (1989) before him
as those that reinforce, balance or limit the behaviour and feedback elements of a system due to
the environment. In describing the three elements of system dynamics Sterman (1989) contends
that human beings are likely to make errors in analysing system dynamics and in doing so, similar
to Repenning (2003) recognises human limitations in as a far as dealing with complexity. The
interaction of the three elements are best described in simulation and used as method of theory
building as described by Davis, Eisenhardt and Bingham (2007:480). Davis, Eisenhardt and
Bingham (2007:480) contend that simulation can be used as an alternative to empirical research to
enable theory building.
3.1. Research Method

A body of good work was created by Statistics South Africa to generate data about the differences
in usage of different modes of transport technology by both business and travellers in and across
the metro areas of South Africa. Logistics companies and other players in the transport industry,
working with the Council for Scientific and Industrial Research (CSIR) have also contributed to a
database on the South African logistics industry performance. The simulation conducted leading
to the construction of the arguments in this paper relied on the databases described and more data
from Statistics SA as a basis for comparison to global benchmarks published by the International
Association of Public Transport (UITP,2017 and 2018).
3.1.1. Dynamic Hypothesis

The Dynamic Hypothesis (DH) is developed from the analysis of travel and freight cost patterns in
the South African environment and proposes that there is correlation between the dominant mode
of transport and the capacity of the economy to create sufficient entrepreneurial capital. Equally the
DH proposes that sufficient entrepreneurial capital will further assist in human capital development.
The Dynamic hypothesis is therefore described as follows:
“The impact of underinvestment in rail infrastructure and the subsequent shift towards road trucks
for freight and minibus taxis for commuters has a combined negative effect on the availability
of entrepreneurial capital required to boost the economy and livelihood of small business and
commuting residents in the South African metro areas.”
In describing the dynamic hypothesis, data from the international study conducted by the
International Association of Public Transport (UITP, 2017:1) as well as the report by the South
African Department of Transport (DoT, 2014) which highlighted contrasting evidence on public
transport in urban environment was used.
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3.2. Research Approach

The research into this paper relied on statistical data generated through the work of the Logistics
industry in South Africa in collaboration with the CSIR (2014) to establish patterns of causalities
over a 20-year period. This data was used to provide input into a system dynamic based simulation
model to experiment and describe the developing theories, like the findings by Davis, Eisenhardt
and Bingham (2007:482), we believe that the simulation approach provides the experimentation
precision that humans cannot achieve. To develop the system dynamics model, the 4Cs system
dynamics process described by Roos (2000) was followed. The Roos (2000) process emphasises
linkages between Comparison (of the cost to global market), understanding the Consequences (for
business efficiencies), Connections (to the livelihood and structure of business and metro living) and
initiation of Conversations on what the policy priorities should be for the South African transport
environment
4. The Modelling Environment and Causal Relationships

To analyse the impact of transport mode selection, we consider the trends in the contributions to the
cost of logistics over time. According to the CSIR analysis (2014:40) of 9 components of transport
cost analysed between 2009 and 2014, fuel increased threefold from ~ZAR40bn to ~ZAR110bn,
followed by driver wages which almost doubled from ~ZAR22bn to ~ZAR40bn. The two components
together accounted for ~60% of the total cost in 2014 compared to ~42% in 2009. This data indicates
the sensitivity of the logistics cost to the two components and the upward trend described between
2009 and 2014. For commuters, the availability and efficiency of the transport system has a direct
effect on the cost of work as depicted in Figure 5. Venter & Behrens (2005:626) finds that 43% of
the black South African pollution, who constitute ~80% of the country’s total population spend
more than 10% of their income on transport. This population constitute the majority of blue collar
workforce in all industries in South Africa. Critical elements of cost to work are highlighted in
Figure 5 and include time to get to work for passengers.
Figure 5: Factors Contributing to the Cost of Work for Commuters using Public Transport
The number of connections a commuter needs to get to their place of work and back contributes
to the time they spend travelling. Bogetic and Fedderke (2006:13) find that South African workers
take at least 35 minutes for a single work trip and underperforms its counterparts in the middle and
upper class by more than 6 minutes. Bogetic and Fedderke (2006:13) further highlight that South
Africa, with only 21% paved roads versus 57% and 50% for their counterparts middle and upper-
class countries and Europe respectively compares very poorly. According to the same benchmark
(Bogetic and Fedderke,2006:16), South Africa’s rail density is 16% versus 31% and 33% by middle
and upper-class counterparts and Europe. The comparison done by Bogetic and Fedderke (2006)
highlights the availability of rail and paved roads as a potential constraint to achieving transport
technology efficiencies in South Africa.
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Alternatively, the cost of secondary and often rental accommodation to mitigate impact of time and
distance to work is also considered as a contributor to the cost of work. Often, an option to rent
accommodation away from primary home requires that parental assistance is sought for children
while the parents are away for work. Where parents choose to stay at home but travel longer distance
and times to get to work, other forms of secondary parenting such as after-care for children are still
required. For the bottom quintile commuters, part of the journey to work may involve walking. Venter
and Behrens (2005:626) find that 30% of bottom quintile earners in Johannesburg walked to work.
Venter and Behrens, (2005:626) also finds that 50% of the bottom quintile group of Johannesburg
residents had affordability problems. Elements of these literature discussions are included in the
following system dynamics model.
4.1. The Systems Dynamics Model

The system dynamics model indicates the scenario of investment and contrast it with the opposite
scenario where lack of investment in rail infrastructure diverts economic activity towards road
transport and logistics technologies. The key question highlighted through the system dynamics
model is whether an investment in rail infrastructure could contribute to the reduction in the unit cost
of transportation for freight and passengers alike. We assume that the difference in cost efficiency
has a direct influence on the availability and subsequent circulation of cash in each metro which is
what Audretsch and Keilbach (2002:1) describe as entrepreneurship capital. We adopt Audretsch
and Keilbach (2002:1)’s definition of entrepreneurship capital in the model which implies that the
availability of excess cash in a town or an area create the source for funding of entrepreneurial
activity which may lead to creation of new firms. We affirm our assumption of the causality on the
findings of Esfahani and Ramı́rez (2003:470) that a country’s GDP is substantially impacted by the
availability and functioning of economic infrastructure.
The model is designed to monitor specific variables, known as “flows” and integrate their impact
through accumulation variables called “stocks”. As Sterman (2010:19) explained, stocks increase
when the net inflow between flow on the left of the stock variable and the right increase and vice
versa.
<Time>
<Disposable
Income>
Freight Unit Cost
Economic
<Entrepreneuriship Growth Individual
Capital> Potential <Freight Unit Commuter Trips
Benchmark
Cost> Passanger Cost
Rail Unit Cost
<Passenger
Unit Cost>
Discretionary Essential Freight <Passenger Unit Road Unit Cost
Trips Cost>
<Valuation <Valuation
Period> Period>
<Road Trips> Passenger Unit
Cost
Valuation Period
Passenger Portential
Cost Margins Freight Transport
SA Journey Service Contribution Rail Capacity
Cost Differential Efficiency Disposable Income Freight
<Valuation
<Rail Trips> <Valuation
Period>
Period> Rail Capacity
Total Comuter Passagener
Business <Rail Freight>
Rail Trips Freight Cost

<Rail Capacity Margins
Passagener> SA Freight Cost Passanger
<Road Freight> Differential Service
Road Trips Efficiency
<Benchmark
Total Freight Passanger Cost>
<Freight Unit <Passenger Unit <Valuation
Business <Rail Capacity Cost> Cost> Period>
Freight>
<Individual
Benchmark Freight Entrepreneuriship Commuter Trips>
Rail Freight
Unit Cost Capital
<Essential
Road Freight Freight>
Figure 6: Model Indicating the Impact of Transport Cost on Growth Potential of the Economy
IAMOT 2019 | 749

Like what Barlas (1996:185) described as casually-descriptive model, the model is created to
simulate the relationship between “Disposable Income, entrepreneurship capital”, discretionary
trips” as reinforcing variables and balancing variable that include: “freight unit cost, passenger unit
cost” to explain the internal structure. This approach which was described by Repenning (2003), is
used to create an empowered social system out of the non-linearity of the economic system for small
enterprises and ordinary people using the transportation system.
The model uses the “Benchmark Freight Cost “and “Benchmark Passenger Cost” to determine the
“SA Journey Cost differential” and “SA freight Cost Differential” respectively. This difference
becomes crucial in highlighting the extent of the potential wastage for both individual commuters
and freight transporting businesses over time. The annual values accumulate in the stocks denoted as
“Passenger Cost Margins and Freight Cost Margins” respectively. From the potential contribution
denoted by the variable “Disposable Income”, an “Entrepreneurship Capital” value is determined
which is fed back into the “Economic Growth Potential “variable.
The model simulates the cost of transportation using an aggregate of rail and road transport for both
passenger unit cost and freight handling cost. We did this in the model to demonstrate the impact of
the non-investment in rail technology infrastructure since the limitation on rail capacity causes shift
towards road transport as a direct substitution.
5. Results Presentation and Analysis

The system dynamic simulation results broadly highlight some significant losses in potential revenue
to the local economy due to inefficiency in the cost of transport. The impact of transport for commuters
depicted in Figure 8 specifically highlights that commuters in South Africa pay significantly more
for their work journeys compared to their counterparts in other parts of the world and therefore
erode what could be disposable income for their families and a source of entrepreneurial capital for
the areas where they live. Similarly, as depicted in Figure 7, the cost of freight highlights that there
is an over expenditure on inland freight cost by international benchmarking standards resulting in
+R100bn inefficiencies on an annual basis. Like the finding on bulk handing of manganese product
by Maluleke and Pretorius (2016), the cost of land transportation increases the cost of production.
This in turn hurts the margins of small and medium enterprises (SME) and therefore has the potential
of eroding the ability of business to retain capital in their areas of operation. We expand on the
analysis of these results in the sections that follow.
5.1. Impact on Cost of Moving Goods in South Africa

According to Havenga (2010) in 2008, at 14% of GDP, South Africa’s cost of logistics was well
above global average of both industrialized and developing nations at 11.7% and 13.8% of GDP
respectively. In 2012 the SA cost of logistics reduced to 12.5% of GDP according to the 10th state of
logistics report (CSIR,2014:41) however remains high compared to international benchmarks. The
results in Figure 7 shows the split between road and rail mode of freight handling and highlights
the impact of freight mode on cost of South African freight handling compared to international
benchmark. The graph also lays bare the imbalance in freight tons between road and rail with the
former representing almost 89% of on land goods moved. The graph on the right-hand side of Figure
7 shows that in South Africa, the unit cost of freight handling is ~20% above international benchmark
(R171/Ton vs R140/Ton). Although the cost exposure is the same for all users of transport, the
impact of this difference in cost has more effect on the overall profitability of SMEs as well as start-
up businesses.
IAMOT 2019 | 750

Selected Variables
4B
3B 2 2 2 2
2 2 2 2 2 2
2
Ton
2B 2
2 2
2
1B
1 1 1
0 1 1 1 1 1 1 1 1 1 1 1 1
1 2 3 4 5 6 7 8 9 10
Time (Year)
Rail Freight : Current 1 1 1 Road Freight : Current 2 2 2
Selected Variables
200 Rand/Ton
0 Rand 2 2 2 2
2 2 2 2 2
2 2
2 3
2
150 Rand/Ton 3 3 3
3 3 3
-100 B Rand 3 3 3
1 1 1 1 1 1 1 1 1 1 1 31 1
100 Rand/Ton
-200 B Rand
1 2 3 4 5 6 7 8 9 10
Time (Year)
Benchmark Freight Unit Cost : Current 1 1 1 1 1 1 Rand/Ton
Freight Unit Cost : Current 2 2 2 2 2 2 2 2 2 Rand/Ton
SA Freight Cost Differential : Current 3 3 3 3 3 3 3 Rand
Figure 7: Comparing the South African Freight Cost to International Benchmark
On the right-hand side of Figure 7, the graph highlights the impact of the difference in aggregate cost
of moving South African freight compared to international benchmark. This highlights that there is
a negative impact which translates to annual loss of ~R100bn. The significance of the difference in
cost translates into potential capital that could be retained by owners of freight moving businesses.
Whilst it may be argued that the higher cost associated with larger component of the freight being
handled by road, translates to higher revenue for the fright handling business, according to the
logistics survey released by CSIR (2014:80), ~40% of the road transport cost was fuel. This cost
represented ~R110bn in 2014 having risen from R40bn from the previous five years according to the
report (CSIR,2014:80). The significance of the impact of fuel is that historically fuel has risen from
$17/barrel to $147/barrel in 2008 according to Havenga et al. (2010:716). Havenga et al. (2014:6),
further laments the sensitivity of the current logistics to oil prices and concludes that a modal shift
towards rail transportation would yield better efficiencies. Since South Africa imports oil for its
fuel, it can be assumed that a significant cash component of the fuel cost is flighted out of the local
economy every year without necessarily benefiting the local economy.
5.2. Impact of Cost on Commuters

A comparison of South African cost per trip for people living in Metro areas to international
publication by Silverdore (2018), indicates that South Africans pay 200% (i.e. R20/trip) more
IAMOT 2019 | 751

compared to international average at R10/trip. According to the Statssa statistical release P7162
(Statssa, 2017) the journey cost by road is R30 compared to a rail journey cost of R7.4. The aggregate
Passenger Unit Cost is therefore ~R20 per trip. Figure 8 depicts the difference between the South
African Passenger Unit Cost and Benchmark Unit Cost on the left hand-side graph and highlights the
impact this split has on the aggregate cost of commuter journeys by south Africans when compared
to international benchmarks.
Selected Variables
40
4 4 4 4 4 4 4 4 4 4 4
30
Rand/Trip
20 2 2 2 2
2 2 2 2 2
2 2
10 1 1 1 1 1 1 1 1 1 1 1 1
3 3 3 3 3 3 3 3 3 3 3
0
1 2 3 4 5 6 7 8 9 10
Time (Year)
Benchmark Passanger Cost : Current 1 1 1 1 1 1 1
Passenger Unit Cost : Current 2 2 2 2 2 2 2 2
Rail Unit Cost : Current 3 3 3 3 3 3 3 3
Road Unit Cost : Current 4 4 4 4 4 4 4 4
Selected Variables
30 Rand/Trip
3 3 3
0 Rand
3
3
3
2 2 3 2 2
2 2 3 2 2 2
2 2 2 2
15 Rand/Trip
3
-30 B Rand
3
1 1 1 1 1 1 1 1 1 1 1 1 1
3
0 Rand/Trip 3
-60 B Rand
1 2 3 4 5 6 7 8 9 10
Time (Year)
Benchmark Passanger Cost : Current 1 1 1 1 1 1 1 Rand/Trip
Passenger Unit Cost : Current 2 2 2 2 2 2 2 2 Rand/Trip
SA Journey Cost Differential : Current 3 3 3 3 3 3 3 Rand
Figure 8: Comparing the Difference in SA Cost of Passenger Journey Against International Benchmark
The graph on the right hand-side in Figure 8 highlights that the impact of the South African journey
cost in terms of potential revenue lost per year is ~ R60bn in year 10 of the simulation. The difference
is also indicative of the potential entrepreneurial capital lost to the metro areas due to excessive
transportation cost, the bulk of which is linked to the cost of fuel and driver wages.
5.3. Contribution to the Metro’s Economy

Esfahani and Ramı́rez (2003:470) argue that economic infrastructure has substantial impact on the
GDP of a country or a region. The results in Figure 7 and 8 highlight a lost opportunity in what
Mair and Marti (2006:38) describe as value contributed to the local economy as critical element of
entrepreneurship. Mair and Marti (2006:38) argue that when more spending in cost or revenue is
retained in a local town, an economic opportunity is created due to availability of capital for creation
of services etc.
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Selected Variables
12 3 1 23 1 2 2 2 2 2 2 2
100 3 1
31 1
2 2 2 2 2
3 1 1 1 1
3 1 1
3 1 1
-1.25 T 3
3
Rand*Year
3
-2.5 T 3
-3.75 T 3
3
-5 T
1 2 3 4 5 6 7 8 9 10
Time (Year)
Freight Cost Margins : Current 1 1 1 1 1 1 1 1 1 1
Passenger Cost Margins : Current 2 2 2 2 2 2 2 2 2 2
Portential Transport Contribution : Current 3 3 3 3 3 3 3
Selected Variables
7 B Trip
300 B Rand
4
700 M Ton 2
4
3
1
3.5 B Trip 2
150 B Rand 2 4
1
3
350 M Ton 2 41 3
2 1 3
0 Trip 4
2
4 1 3
0 Rand 2
2
1 3
0 Ton 2 2 3 4
34 1
1 341 341
1 2 3 4 5 6 7 8 9 10
Time (Year)
Discretionary Trips : Current 1 1 1 1 1 1 1 Trip
Total Comuter Business : Current 2 2 2 2 2 2 Trip
Economic Growth Potential : Current 3 3 3 3 3 3 Rand
Essential Freight : Current 4 4 4 4 4 4 4 Ton
Figure 9: The Impact of Passenger and Freight Inefficiency to the Economy over 10 Years
The two graphs in Figure 9 highilight the extent to which additional cash could be retained in the
local economy in a competitive scenario for the cost of freight and commuter services relative to
international prices. The graph on the left hand side of Figure 9 shows that up to R800bn could be
potentially saved from freight handling at current payloads. The graph equally shows that almost R4
trillion is lost to the economy due to transport inefficiencies over a 10 year period.
On the right hand side of Figure 9, the graph shows that by asuming that the additional saving
would enable more people to work and travel because they have additional money in their pockect
than they do now, this would translate into additional or discretinary trips, further increasing the
transport business and impact on the overall economy. This view is also reinforced by Chen et al.
(2010:100)’s argument that early success in venture capital is reinforced when new entrepreneurs
seek funding from the same region based on previously success in investment.
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Selected Variables
30 Rand/Trip 3
-8000 Rand 3 3
3 3 3
3 3 3 3 3
3
2 2 2 2
2 2 2
2 2 2 2 2
15 Rand/Trip
-14,000 Rand
1 1 1 1 1 1 1 1 1 1 1 1 1
0 Rand/Trip
-20,000 Rand
1 2 3 4 5 6 7 8 9 10
Time (Year)
Benchmark Passanger Cost : Current 1 1 1 1 1 1 1 Rand/Trip
Passenger Unit Cost : Current 2 2 2 2 2 2 2 2 Rand/Trip
Entrepreneuriship Capital : Current 3 3 3 3 3 3 3 3 Rand
Figure 10: Impact of Journey Cost Difference on Individual Commuter Annually
The graph in Figure 10 shows that on an annual basis, a single commuter traveling to work using
a mix of trains, taxis and buses in South African loses ~R10 000 per annum. This is a significant
amount for many South Africans who earn below R72 000 per annum. This is the closest to individual
impact that the lack of investment in rail infrastructure and the occupation of the public transport
space by taxis and buses can be highlighted.
6. Conclusion
The results of the simulation conducted for this paper highlight that South Africa, compared to other
economies in the world seems to have an inefficient technology usage in the commuter transport
system in aggregate terms. The analysis of the cost flow points to a significant additional annual cost
of travelling for an increasing commuter population. The limited availability of the rail technology-
based transport has gradually increased the shift towards road transport technology and this is
attributed to the lack of investment in rail network over some decades. The analysis in Figures 7
and 8 points to the excessive bias towards road transportation technology use and the latter’s high
cost per journey as the key driver of the cost inefficiencies. Internationally, the study conducted by
the International Association of Public Transport (UITP, 2017:1) highlighted that global usage of
public transport has either increased or remained steady between the year 2000 and 2015. The study
(UITP,2017:2) further highlights the correlation between urban population size and the number of
journeys per capita and we find similar patterns in South Africa. The International Association of
Public Transport (UITP,2018) conclude that, with the ever-growing urban population and challenges
of carbon emission, a modal shift to rail-based transport technology is required as the mode of the
future.
When analysing the extend of potential capital lost due to excessive cost of transportation, we conclude
that an opportunity is lost for a creation of entrepreneurial capital needed for entrepreneurship in
the metro areas where many South Africans live. To support our conclusion, we also relied on
several research outcomes that support modal shift towards rail transport technology and its impact
on entrepreneurship capital and employment growth. Acs (2006:100) finds that global trends in
developed economies have shifted to economic activities dominated by small entrepreneurs. The
emphasis is on some form of entrepreneurship and there is no bias towards is either opportunity
entrepreneurship as described in Glaeser et al. (2015) or social entrepreneurship described in Peredo
and McLean (2006). The objectives of both forms of entrepreneurship serves the purpose of creating
IAMOT 2019 | 754

value to human life and jobs. Glaeser et al. (2015:26) adds that that there is a causal link between
growth in entrepreneurship and urban employment. The study on impact of rail transport access in
the Netherlands (Ghebreegziabiher et al., 2016:16) concluded that accessibility to a quality railway
station for commuters has a significant effect on real estate prices. Ittmann and King (2010) also
conclude that an intermodal solution that incorporate rail is necessary for metro areas. Ittmann and
King (2010) further asset that small enterprises are critical in creating employment and that this
sector needs a freight handling solution that is efficient and affordable.
This paper however considers that successful entrepreneurship is not automatically created
by availability of entrepreneurial capital and agree with Teece (2007:1347) who concluded that
the development and success of enterprises over time is dependent upon the enterprise ability to
sense changes, seize the opportunity and reconfigure itself to adapt to changing environment and
opportunities. We caution as Olawale and Garwe (2010:730) and in the case of Germany Block and
Wagner (2010) did that opportunity or social entrepreneurship described by Peredo and McLean
(2006) and not necessity entrepreneurship would create an economic growth in the metro areas.
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IAMOT 2019 | 756

Elderly Consumers’ Behavior in Business-to-
Consumer E-Commerce in Japan
Yoko Ishino
Yamaguchi University, Graduate School of Innovation
& Technology Management, Japan
E-mail: Ishino.y@yamaguchi-u.ac.jp
Hideyuki Aoki
E-mail: hemy.aoki@384.jp
Ken Kaminishi
E-mail: kaminisi@yamaguchi-u.ac.jp
Abstract
Japan’s e-commerce market is one of the largest and fastest growing in the world. There, it is said that elderly
people less use the Internet than younger people, when viewing the utilization rate by age groups. However,
the current Internet utilization rate of the elderly increased considerably compared with ten years ago. We
investigated the e-commerce behavior of the elderly in Japan, since aging has been a major issue in developed
countries including Japan in recent years. In this paper, we report the insight gained about trends of business-to-
consumer (B2C) e-commerce market for the elderly. In order to find characteristics of the B2C e-commerce sites
which the elderly visited more frequently than other age groups, we analyzed the web log data including one-year
behavioural records of over 200,000 panels in their 20’s to 60’s or older. After that, we identified the product
category that the elderly seemed to be notably interested in compared to other ages. Eventually, we revealed that
the elderly frequently visit several B2C e-commerce sites which sell so-called health foods. After examining
typical e-commerce websites of such health foods from the MOT perspective, we discovered that both the product
innovation and the process innovation would exist in developing health food products. Our contributions are that we
clarified what kinds of health food products should be targeted for elderly people in the B2C e-commerce. Aging
is a serious issue not limited to Japan, but a common issue in developed countries all over the world. Although
seniors consistently have lower rates of technology adoption than the general public, this group is more digitally
connected than ever. Investigating the e-commerce behavior of the elderly would be helpful to take the lead in an
aging society. Additionally, health food has attracted increasing attention for more than two decades and the health
food market share has continued to increase. Therefore, our findings should be very beneficial for people in not only
Japan but also other countries.
Keywords: Elderly People, B2C E-commerce, Health Food, Web Log Analysis, Innovation
1. Introduction
Japan’s e-commerce market is one of the largest and fastest growing in the world. The Ministry
of Economy, Trade and Industry reported that Japan’s business-to-consumer (B2C) e-commerce
market in 2017 was US$ 148.2 billion, with 9.1% annual growth. This occurred in the context
of a high 83.5% household penetration rate of the Internet. Japan is an Internet-driven society
where consumers “use diverse Internet retail shops and Internet auction sites, creating a variety
of purchasing channels available to them” (Takahashi et al., 2009). Japanese consumers can use
a variety of different retail channels (e.g., brick-and-mortar shops, mail orders, TV shopping, and
the Internet). Many consumers share their word-of-mouth reviews of the e-commerce experiences
through the platform websites.
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In most countries including Japan, it has been said that senior people lag behind the younger
generations in the use of information technology (IT). This phenomenon has been called the “grey
divide” by various researchers (McMurtrey et al., 2008). However, the current Internet utilization
rate of the elderly increased considerably compared with 10 years ago in Japan. According to the
statistics of the Japanese Ministry of Internal Affairs and Communications, the use of online shopping
by elderly households has increased 2.9 times over the 10 years. The elderly’s EC site utilization rate
is now comparable to that of other age groups, although this is true in the case of personal computer
(PC), but not that of smartphone. This study focuses on the behavior of e-commerce by PCs of
elderly people in Japan, not smartphones.
Discovering consumers’ e-commerce behavior and the reasons that guide their buying process is
a very complex task (Kohavi, 2001). The user activities can be recorded in the web server logs
as a sequence of websites visited (Kohavi, 2001; Kosala et al., 2000). The very valuable users’
behavior is hidden in these logs, which must be discovered and analyzed (Facca et al., 2005). To
date, many studies have been reported using web server logs: for improving the website contents and
structure (Carmona et al., 2012), for personalizing contents (Song et al., 2006; Arbelaitz et al., 2013;
Gerrikagoitia et al., 2015), for recommending products (Cho et al., 2004; Kim et al., 2008), or for
understanding the interest of users in specific products (Su et al., 2015). Web server logs are often
called one of “big data.” So-called “big data” is not only characterised by extremely large volume,
but also by significance in its variety, velocity, veracity, variability and value (Gandomi et al., 2015;
Jin et al., 2015; Katal et al., 2013). Although web server logs we used were not unstructured data,
the original amount of them was more than hundreds of terabytes.
In this paper, we investigated the e-commerce behavior of the elderly in Japan, using web server logs.
Concretely, we analyzed the web log data in which the following fact had been recorded in order to
find characteristics of the B2C e-commerce sites which the elderly more frequently visited than other
age groups. The logs are the data where over 200,000 panels’ actions were recorded on a monthly basis
regarding many B2C e-commerce sites. Based on the data, we identified the product category that the
elderly seemed to be notably interested in, compared with other ages. By examining typical websites,
we finally obtained the insight about trends of B2C e-commerce market for the elderly. Aging has been
a major issue in many countries including Japan in recent years. Investigating the e-commerce behavior
of the elderly would be helpful to take the lead in an aging society.
2. Web Mining
“Web data mining” or “web mining” is an application of data mining techniques to discover
and extract information from web documents and services, such as the texts on the web page,
hyperlinks, and the web server logs. Web mining is widely used by companies or organizations
to find useful business information about consumers. Web mining is commonly categorized into
three types, namely, web content mining, web structure mining, and web usage mining (Kaur et al., 2017).
i. Web content mining (Kumar et al., 2017): This is used to investigate the information
gathered via web crawlers. The purpose is to explore the proper and relevant
information from the contents in the web documents, which consist of unstructured
documents (e.g. text, images, audio and video), semi-structured documents (e.g.
HTML documents), and structured documents (e.g. tables and lists).
ii. Web structure mining (Kumar et al., 2017): The purpose of this category is
to discover the model of link structure of web pages. This category focuses on
the document structure using data of hyperlinks which contain intra-document
hyperlinks and inter-document hyperlinks.
iii. Web usage mining (Ladekar et al., 2014): This is also called web log mining. The
purpose of this category is to study users’ web navigation behavior, that is, to discover
interesting usage patterns from the log records which are able to contain web server
logs, program logs, client profiles, bookmarks, mouse clicks and so forth.
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Elderly Consumers’ Behavior in Business-to-Consumer E-Commerce in Japan
This research is included in the category of web usage mining. Web usage mining is studied in many
fields such as marketing, accident-prevention program, web design, etc. The web usages, clearly,
represent one of the most important sources describing the user behavior and preferences. Web
usage mining takes advantage of server log files of computers. Server log file is a text file which
automatically created when a user requests a page from the web site, and which the web server
writes information in when a user requests a resource from the particular site. When a user sends a
query to the server, the requested database is retrieved and the user session data including the URL,
client’s IP address, access date and time, and so forth are recorded in the server log. Pre-processing
and mining the data in the log file is needed to obtain the insight about users’ behavior (Shrivastava
et al., 2012). Although log data resides at different places in computer system (Suneetha et al.,
2009), this research uses the web server log, which is stored in the web server.
4. Research Scheme
In this research, we mainly conduct web server log analysis and secondarily perform qualitative
analysis of websites favored by seniors. The methods and data used in this research are mentioned
below in sequence.
4.1. Method of Web Server Log Analysis

User’s behavior via a PC over the Internet is usually recorded on simple server page as logs. When
a person visits some websites, it is possible to track where he/she goes from one site to another.
However, when these people switch from one shop site to another shop site, or when they close
their browser and later return to a site, these visits are separate sessions. Therefore, in this study, the
session is used as the unit of the user (visitor) visits.
The log data provided by Values Inc., a Japanese market research company, are used in this research.
In these logs, the Internet behavior of more than 200,000 panel members has been recorded all the
time, where one session is determined to be within 30 minutes. We focus on the monthly session
counts per B2C e-commerce site, so that the trend is explored according to the panel’s age-group.
Monthly data in and after September 2017 are used. Eventually we find the B2C e-commerce sites
which the elderly more frequently visit than other age-groups.
4.2. Method of Qualitatively Analyzing Websites Favored by Seniors

We examine typical EC websites of aforementioned products from the point of view of MOT that
both the product innovation and the process innovation are critical. As the number of such websites
is not large, this is a qualitative analysis. By comparing the structure and elements between websites
where some are popular among the elderly and others are popular among the young, we attempt to
reveal important features of B2C e-commerce that encourage the elderly to purchase the products.
5. Results of Web Server Log Analysis

First, the records on B2C e-commerce sites in September 2017 were extracted from all log records.
Then, these e-commerce sites were sorted in descending order according to the number of sessions
of each site. The blue bar graph on the left in Figure 1 represents the top 5 ranking sites of the panels
in their 60s or older: the top is “Amazon.co.jp,” the second top is “Rakuten.co.jp,” the third is
“Yahoo! Shopping,” the fourth is “Suntory Wellness,” and the fifth is “Yodobashi.com.” In Figure
1, the session magnitude of “Amazon.co.jp” is set to 1.0, since “Amazon.co.jp” was the top site that
gathered the most sessions. The session magnitudes of other sites are expressed in a relative value
to the site of “Amazon.co.jp.” On the other hand, the orange bar chart on the right side of Figure 1
shows the session magnitude of each site by the panels under the age of 60. The sites ranked the first
to the third were the same regardless of the age-groups. However, “Suntory Wellness” in the fourth
place was a site visited much more frequently by panels in their 60s or older than other panels. The
main products sold in “Suntory Wellness” are health foods.
IAMOT 2019 | 759

Figure 1: Top 5 Sites Visited by the Elderly
When ranking all the sites in descending order of the number of sessions acquired and then breaking
down the sessions of each site by age-group, out of the top 30 sites there were only four sites in
which the sessions of the age-group over the age of 60 account for more than 40% of all sessions.
Three sites out of these four were health food sales sites.
Then as shown in Figure 2, we examined the transition of the monthly session ratio of the age-
group over the age of 60 at the main health food sales sites, “Suntory Wellness,” “Nissui: Umi no
Genki,” “Kyowa Hakko Bio,” and “Euglena Online.” Figure 2 indicates that the session ratio of the
age-group over the age of 60 exceeds 40% at most major health food sales sites, while in the case of
“Amazon.co.jp” it stays around 22%. This means that the health food might be a category to which
the elderly are strongly attracted.
Figure 2: Session Ratio of the Elderly at E-Commerce Sites
Figure 3 shows the actual number of monthly sessions derived from all panels at each site. According
to Figure 3, there are fluctuations in the number of sessions per month depending on the site.
However, it was found that there is not the particular seasonality.
IAMOT 2019 | 760

Figure 3: Session Ratio of the Elderly at E-commerce Sites
Figure 4 indicates the monthly trend of the new user ratio at each website. From Figure 4, it was
found that the new user ratio is low on the sites ranging from the first place “Amazon.co.jp” to
the third place “Yahoo! Shopping,” while these sites keep many repeaters. On the other hand, the
fourth place “Suntory wellness” and the fifth place “Yodobashi.com” are about the same degree
(around 15%). Nevertheless, it turned out that there was a great difference in the average staying
time between these two sites, which is shown in Figure 5. The average staying time of “Suntory
Wellness” and “Yodobashi.com” was 60 seconds and 309 seconds, respectively. “Yodobashi.com”
is not a health food sales site but a home electronics sales site.
The average staying time at other health food sales sites, which is shown in Figure 5, is within
about 150 seconds. This time is very short in comparison with other sites on which other kinds of
products are mainly sold. Therefore, it is considered that health foods might be products that lead to
nomination buying. In other words, major health food sales sites are the place where elderly people
visit more frequently than the young and buy what they had decided to purchase in advance.
Figure 4: Ratio of New Users
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Figure 5: Average Staying Time at Each Website
6. RESULTS OF a Qualitative Analysis of Websites

The website of “Suntory Wellness,” which recorded the fourth largest number of sessions in the
age- group of over 60s, was examined as a case. Suntory Wellness’s portal site as of November 25,
2018 is as shown in Figure 6. At Suntory Wellness’s e-commerce site, 44 health foods and sold in
total at that time.
Figure 6: The Portal Site of “Suntory Wellness”
IAMOT 2019 | 762

The product on which the maker, Suntory Wellness Ltd., has been putting the most emphasis
is “Sesamin EX.” Its product concept is as follows. “Sesamin EX” is a supplement made for
the body of people in their 40’s or over in which the power to maintain youthfulness is usually
decreasing. “Sesamin EX” contains four ingredients: sesamin, which is contained in a sesame seed
in a concentration of only less than 1%, Oryza Plus for adjusting physical condition, and natural
vitamin E and tocotrienol that are useful for beauty against aging. The synergy power of these four
substances leads you to youthful everyday life.
Sesamin is a kind of lignan (a plant-derived chemical substance) contained in sesame. It is said
that sesamin can be expected to have the following effects: lowering cholesterol, lowering blood
pressure, ameliorating lipid metabolism, promoting alcohol metabolism, regulating autonomic
nerve, improving fatigue feeling, etc.
Researchers in Suntory had studied for more than 30 years to elucidate the functions of
sesamin, and finally developed a technology to efficiently extract sesamin which is a rare
health ingredient contained in a concentration of only less than 1% in sesame seeds, so that
the technology was patented.
Suntory successfully achieved both product innovation and process innovation, which built a barrier
to entry against other companies. Based on these successes Suntory Wellness became a leading
company in the field of healthy foods. This success story might provide people, especially the
elderly, with a sense of trust in the company and products, and Suntory Wellness has kept higher
reputation and sales among health food sales firms.
7. Discussion
Health foods have attracted attention for over 20 years, so that the market of health foods has been
consistently expanding. However, there are few global studies on the statistical relationships between
the health food market and the economic or social situations. This is because it is difficult to compare
various countries’ markets at once, as the definitions and regulations about health food differ among
those countries. However, using statistical data of Asian countries, our previous research clarified
that the per-capita health food expenditure is able to be estimated with considerable accuracy by
using only the per-capita GDP and the rate of people aged 65 or older (Aoki et al., 2017). This is well
consistent with the results of this research that the elderly visit e-commerce sites of healthy foods
more frequently than the young.
On the other hand, not all health food sales sites can increase sales as the aging progresses. In order to
become an excellent online store that gathers much more users among many health food sales sites, an
organization should succeed in innovation of a product that meets the needs of users and concurrently
succeed in process innovation for reducing production costs. Success in both innovations leads the
organization to a position as an innovator in a market and also a popular B2C e-commerce shop.
8. Conclusion
By analyzing huge web log data including one-year behavioural records of over 200,000 panels,
we identified that the product category that the elderly are evidently interested in compared to other
ages is the health food. The analysis of average staying time at e-commerce sites revealed that the
elderly might buy health foods that they had decided to purchase in advance. Then, when examining
typical e-commerce websites of health foods, we discovered that both the product innovation and
the process innovation would be needed in developing health food products attractive for consumers.
Aging is a serious issue not limited to Japan, but a common issue in many countries all over the
world. The elderly have become more digitally connected than ever, with not smartphones but PCs.
Investigating the e-commerce behavior of the elderly would be helpful to take the lead in an aging
society. Additionally, health food has attracted increasing attention for more than two decades and
the health food market share has continued to increase. Therefore, our findings should be very
beneficial for people in not only Japan but also other countries.
IAMOT 2019 | 763
However, with web log data alone, we cannot accurately understand people’s consciousness and
the reason behind people’s behavior. Therefore, in the future, we plan to integrate analysis of a
questionnaire survey and analysis of the web log data. In addition, regarding the structure and
elements of B2C e-commerce site of health foods, we also plan to advance qualitative analysis on
cases other than Suntory Wellness.
9. Acknowledgements
This work was partly supported by JSPS KAKENHI Grant Number JP18K18654.
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IAMOT 2019 | 764

Catching up Process in Iran’s Oil Industry and
Evaluating Related Policies
Naser Bagheri Moghaddam

National Research Institute for Science Policy (NRISP), Iran
E-mail: bagheri@nrisp.ac.ir
Aida Mohajeri
Tarbiat Modares University, Iran
E-mail: a.mohajeri7000@yahoo.com
Abstract
Introduction and Purpose: Technological Catch up is a concept that plays a strategic role in economic growth of
countries, especially developing countries which focus on it to achieve higher economic positions. Governments
in these countries try to facilitate catching up trajectory through effective interventions. On the other hand,
regarding the more important role of one or several sectors in each country rather than other sectors, it is necessary
that strategic sectors be prioritized by policy makers. Iran, also as a developing country, is not an exception to
this rule. One of the sectors which has been having an important role in Iran’s economic development, and can be
considered as the engine of Iran’s economy, is its oil industry which has experienced many ups and downs since
its establishment. Therefore, the aim of this research is investigating catching up process in Iran’s oil industry and
government’s role in this process. For doing this, catching up process in this industry has been investigated based
on two prominent patterns of this field (i.e. Lee & Lim (2001) and Kim (1997)), and it has been scrutinized that
catching up process in the mentioned sector, corresponds most with which one of the stages of technological catch
up patterns studied in this paper.
Methodology: To do this research, first by using library method and surveying different existing resources such as
papers, books and related reports, technological progress in Iran’s oil industry and also government’s interventions
in this process has been investigated. For doing this, two catch up patterns (patters introduced by Lee & Lim (2001)
and Kim (1997)) were chosen. In the next step, open interviews with 5 experts of this field has been used as the data
gathering tool. This sample were chosen based on purposive method. By calculating the average number of expert’s
opinions about correspondence between current stage of catching up process in Iran’s oil sector and different stages
of chosen patterns, Iran’s oil sector’s catching up stage was determined. Accordingly, this is an applied research
with a qualitative method as the research strategy.
Findings: Findings of this research revealed that catching up process in Iran’s oil industry’s upstream corresponds
with first stage of Lee & Lim’s catch up pattern and also first stage of Kim’s pattern. On the other hand, catching up
process in the mentioned sector’ downstream, in some fields and technologies corresponds with first stage of Lee &
Lim’s pattern and for other fields and technologies is in transition from first stage to second stage, and based on Kim’s
patter, in some technologies is similar to the first stage, and in other technologies corresponds with the second one.
Contributions: Among the researches done so far, we couldn’t find any one investigating technological catch up
in Iran’s oil industry based on existing patterns, and therefore, considering two dominant patterns of technological
catch up for analyzing catching up process in this sector is one of the contributions of this research.
Keywords: Technological Catch up, Iran, Oil industry, government’s role
1. Introduction
The attempt to achieve further economic growth has always been one of the main concerns of the
countries. However, the sustainable and quick development is a modern phenomenon, emerging
after the industrial revolution in 18th century. Prior to that, there was a small gap between countries.
However, the industrial revolution accelerated growth in some western countries, whereas other
countries were left lagging behind. As a result, a huge divergence was created among income levels
of both developing and developed countries, as well as among developing countries with dynamic
growth and developing countries with low and medium income level (Chandra, Lin & Wang, 2012).
Nevertheless, all these countries have continued in their efforts towards development and growth.
For this purpose, advanced economies focus their efforts on R&D activities; whereas this is not the
IAMOT 2019 | 765
case with developing economies (Awate, Ajith, & Ajwani-Ramchandi, 2017). In order to reduce
their gap with developed economies, countries try to succeed in technological catch up with pioneers
through technology transfer (J.J. Lee & Yoon, 2005).
Governments, on the other hand, stimulate economic growth by accelerating development in
some specific industries having priority. These industries are referred to as key industries or
strategic industries (Yang, 1993). In fact, complex processes of technology development and
product commercialization are not viable without formulating appropriate government policies
(Pietuszkiewicz, 1999). The oil industry in Iran also is considered a significant industry and, since
its emergence, i.e., early twentieth century, it has remarkably formed the development trajectory
of Iran (Kareshenas & Malik, 2011). This sector, Along with gas sector, is considered as one of
the vital sectors for Iranian economic growth (Stevens, 2015); it is also an important sector in the
world and is considered as a major source of energy in world markets. This reveals the significance
of development in this industry. As a country with rich oil reserves, Iran also is among the major
oil suppliers in the world (Mirimoghadam & Ghazinoory, 2017). Thus, it is necessary to reinforce
the potentials for gas and oil related technology absorption and development in Iran (Hoshdar &
Fassihi, 2017).
Despite of its importance, however, it seems that little technological learning has happened in this
sector (Mirimoghadam & Ghazinoory, 2017), where there is gap between Iranian oil industry and
those of developed countries, as illustrated by their income gap. This research also was conducted
with the aim of investigating technological catch up in Iran’s oil industry, as well as to study the role
of government in this context. Thus, having elaborated the research method in section 2, we introduce
the concept of catch up in section 3, and after referring to some of its well-known patterns, two of
them receive more detailed exploration. In section 4, a history of Iran’s oil industry is introduced and
the developments occurred during its lifetime are investigated. In section 5, findings of the research
are discussed and finally in section 6, the readers are provided with conclusions.
Research method is defined as a set of dynamic techniques for research performance. Researches are
divided into two categories in terms of the nature of study subject: Basic research and experimental
or applied research. Also, in terms of nature of information, they are divided into two categories:
qualitative and quantitative (Pandey & Pandey, 2015). This research is an applied one done with a
qualitative method.
Data gathering process was performed in two phases. First, by using library method and surveying
different existing resources such as papers, books, organizational reports and national documents,
the catch up literature was reviewed and two models of this field were studied. The history of oil
industry and the role of government in line with development of this sector were also studied in
different periods, aiming to identify, as much as possible, the technological developments as occurred
in Iranian oil industry and also governmental actions influencing it during the industry’s lifetime.
After this phase, using the interview method, experts’ opinions in this field were collected regarding
the technological catch up and developments in Iranian oil industry and the relevant government’s
role. They were also asked to give their opinions on correspondence between developments in this
industry and t existing steps in catching up patterns as considered in this research. To this end,
open interviews with 5 experts of this field were used as the data gathering tool. This sample was
chosen based on convenient sampling method, of which 1 expert was related to oil industry and 4
of them were considered as active members in both fields of policymaking and oil-related activities.
The results from this interview were counted based on the number of existing opinions about
correspondence between the catch up phase in Iranian oil industry and that of existing steps in given
patterns and then accordingly the catch up stage in which this sector is located was determined. In
the meantime, based on the information gained from interviews, the governmental actions affecting
this industry were also identified.
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Catching up Process in Iran’s Oil Industry and Evaluating Related Policies
3. Technological Catch-up: Concept and Dominant Patterns

The emergence of the concept “catch up” can be traced back to the works of Gerschenkron in 1962 and
Abramovitz in 1986. (J.-Y. Kim, Park, & Lee, 2013; Shin, 2017) which were related to comparisons
between performances of western economies (J.-Y. Kim et al., 2013). In the macroeconomic level,
catch up is related to analysis of capital income of the countries (particularly those far from the
growth boundaries) (Malerba & Nelson, 2011). In other words, in national level, catch up means to
reduced income and productivity gap between a latecomer country and a leading one (Fagerberg &
Godinho, 2004). In order to reduce this gap, the latecomers go towards technology transfer processes
from other more developed and advanced countries, and with their foreign aids try to minimize
this income gap (J. J. Lee & Yoon, 2015). Some of researchers believe that the development of
late industrialized countries has happened based on endogenous technologies (Ahmadvand, Salami,
Soofi, & Tabatabaeian, 2018).
As suggested by Abramovitz (1986), lagging behind engenders quick growth potential in terms of
productivity level. In other words, the more the distance between latecomers and pioneers, the higher
motivation is created in followers for reducing gap and catching up with pioneers (Abramovitz,
1986). However, it should be noted that catching up of countries happens within their economic
sectors. In some of sectors, they succeed in catching up and in some others, they don’t. Catching
up in any sector also consists of growth and catching up of the firms inside that sector (Malerba &
Nelson, 2011).
Of course, in contrast to what may appears, catch up doesn’t mean copying; rather, in catch up, the
activity of pioneers is often considered as a model, and what is realized by latecomers and followers,
is inevitably different from the original model. The origin of these differences is attributed to the
local and domestic conditions of the followers (Mazzoleni & Nelson, 2007). Also it should be noted
that there are different catch up patterns in every country and in every sector or firm as well. Some
of these patterns will be investigated in the next section.
4. Technological Catch up Patterns

Among the researches performed in the field of catch up, various patterns have been presented, so
far; For instance, the patterns provided by Hobday (1995), Kim (1999), Lee & Lim (2001), and Kao
(2006) are just some of them. In the following part, two of them, means patterns introduced by Kim
(1999) and Lee & Lim (2001), are investigated.
4.1. Kim’s Technological Catch up Pattern

After identifying three technological development patterns in the Korean electronic industries, Kim
(1997) generalizes them to the developing countries. Their general pattern includes three internal
patterns: duplicative imitation, creative imitation, and innovation. Kim suggests that in the initial
phase of development, firms in developing countries go towards duplicative imitation from existing
foreign mature products through reverse engineering mechanism. Then by further progress in
industrialization process, they gradually shift their focus from duplicative imitation towards creative
imitation, in turn producing imitative products with some new features. Gradually and once the
developing country, while its moving along the technological path, succeeds in catching up with
pioneers and reaching to knowledge and technology boundaries, it inevitably shifts its orientation
from imitation (though creative imitation) towards innovative activities in order to be able to
maintain and enhance its status in competition (L. Kim, 2001).
4.2. Lee & Lim’s Technological Catch up Pattern

The research conducted by Lee & Lim (2001) is considered as one of well-known researches in
this field. They have introduced three distinct patterns, including path-following catching-up, stage-
skipping catching-up and path-creating catching-up. In the path-following catching-up pattern,
latecomer firms traverse the same path traversed by forerunners, but in a shorter time period than
IAMOT 2019 | 767

they did. The second pattern means that latecomers traverse almost the same route passed by
forerunners, but they skip some of the stages, and thus save time in this way. Finally, according to
the path-creation pattern, latecomer firms discover and follow their own technological development
path. This is usually the case when latecomers create their own path after they have been following
the path of forerunner for some time. The second and third patterns are referred to as two modes of
leapfrogging. Of course, these patterns can also happen in a combined way. These three patterns are
visible in Figure 1.
The research done by Lee & Lim (2001) is one of the first studies to show that latecomers’ catch-up
does not necessarily take place through traversing the path passed by advanced countries; rather,
they may achieve it without passing some stages, and in fact, by skipping them, or even by creating
their own path, which is different from the forerunners’’ trajectory, and thus succeed in catching up
with advanced countries (K. Lee et al., 2014).
Figure 1: Three Technological Catch-up Patterns Provided by Lee & Lim (2001)
5. Introduction of Iran’s Oil Industry

Iran holds the fourth largest oil reserves and the second largest natural gas reserves in the world
(Abbaszadeh, Maleki, Alipour & Maman, 2013). Iran’s oil industry, as the main motivating force
for the country’s economic engine, has a high potential to promote its economic status in the region
as well as internationally (Amirghodsi et al., 2015); but by comparing Iran’s oil industry and oil
industries in countries such as France (Total Company), United States (Exxon Mobile), Norway
(Statoil), and Malaysia (Petronas), it can be seen that despite the fact that Iran’s oil production is far
higher than those countries, its income is less than them (Tavakol & Mehdizadeh, 2007). To find
the reason, we should look at the evolution of this industry in Iran. To this end, this section provides an
overview of the path taken by the Iranian oil industry and its technological achievements over the decades.
5.1. First Period: 1909 to 1954

In 1901, by concluding the D’Arcy Contract, Iran gave William Knox D’Arcy the concession to
explore, extract and sell oil, gas and bitumen throughout Iran, except for neighboring areas with the
former Soviet Union for 60 years (Dokhan0, 2008); and (Tavakol & Mehdizadeh, 2007), as well as
the exclusive right to lay pipe into the Persian Gulf and conduct operations in the concession area
(Tavakol & Mehdizadeh, 2007). At that time, the Burmah Oil Company, under the encouragement
of the British government, established a company under the name of the concessions syndicate to
help D’Arcy, and the oil industry in the Middle East was born with the exploration of oil in Masjed
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Soleyman. A year after this (the discovery of oil), the concessions syndicate became the Anglo-
Iranian oil company (Dokhani, 2008).
This company can be mentioned as the main actor of this era in the oil industry (Tavakol &
Mehdizadeh, 2007), but with the nationalization of Iran’s oil industry in 1950, the company has
replaced itself with the National Iranian Oil Company. This happened when more than 90 percent
of the world’s oil production, refining and distribution activities, and 85 percent of the free world
tanker fleet capacity were at the disposal of eight international oil companies. These conditions made
it difficult to carry out oil operations, including exploitation and sale, independently and it took
about three years, from 1951 to 1954, to resolve the dispute with the Anglo-Iranian oil company.
With the coup d’état of 1953 and the collapse of the Mossadeq government, and as a result of
the new government, Iran’s oil policies also changed, and a new foreign consortium took over the
administration of this industry (Amirghodsi et al., 2015).
5.2. Second Period: 1954 to 1973

There were other changes in the Iranian oil industry between 1954 and 1973. A consortium took over
the administration of Iranian oil operations in 1954. The duration of the contract with the consortium
declined compared to the previous one, reaching 25 years. During this period, the only thing that
was done by the National Iranian Oil Company was administration of non-industrial affairs, and
in DA’rcy’s field of operations, a foreign company was replaced by a consortium of them, and
by 1973, Iran confined to having two representatives in the board of directors of these companies
and administration of non-industrial affairs and 50-50 income (Tavakol & Mehdizadeh, 2007). Of
course, the learning and teaching environment was also partially provided. The Abadan Technical
College as well as National Oil Company’s educational institution played a major role in providing
trainings (Amirghodsi et al., 2015). These trainings provided the growth of operational capabilities
that were provided by on-the-job training for the employees of the exploration and exploitation
sector (Tavakol & Mehdizadeh, 2007).
The most important technological achievements of this period include the construction of Tehran
and Shiraz refineries, the construction of Abadan, Khark and Bandar-e-Shahpour petrochemicals,
participation in the creation of joint refineries in India and South Africa, the construction of gas
trunk-line for exporting and submarine pipelines of the Genaveh-Khark, the conclusion of the
AIPAC contract with Pan-American, the development of the Kharq and Lavan region, the AARP
exploration service contract (Amirghodsi et al., 2015), and the conclusion of the Sirip partnership
agreement with the Italian A.G.I.P. Mineraria (ENI) (Tavakol & Mehdizadeh, 2007).
One of the important events of this era was the emergence of the OPEC exporting countries and oil crisis.
During this period, Iran joined the OPEC member countries and persuaded the consortium companies to
sell them oil in exchange for conducting exploratory activity for Iran (Amirqhodsi et al., 2015).
5.3. Third Period: 1973 to 1978

In 1973, the consortium contract was terminated, and in the new contract, the control of the areas, as
well as activities such as administration of Abadan refinery, and exploration and refining activities
were given to the National Iranian Oil Company, which had previously dealt with only non-industrial
affairs and domestic distribution operations. Also, with the adoption of the second oil law in 1947,
the recognition of the right to own the oil of foreign companies from wells was prohibited, and, in
order to cooperate with foreign companies, only contracting contracts were used and gradually this
industry moved towards internationalization.
The most important technological developments of this period were the construction of Tehran
(North), Tabriz, Lavan and Isfahan refineries, the construction of Iran-Nipon petrochemicals,
the Ahwaz soot and starting the construction of Iran-Japan petrochemical, the participation in
the creation of joined refineries in Korea and Senegal, the construction of Ahwaz pipe industrial
company and the second gas main contract, 6 contracts for exploration and production in Shiraz, Lar
IAMOT 2019 | 769

and Abadan, purchase of 5% shares of 700 gasoline sales locations of the US Shell Oil Company,
and an agreement to create a refinery with a capacity of 500 thousand barrels per day in the Persian
Gulf (Amirghodsi et al., 2015); (Tavakol & Mehdizadeh, 2007).
One of the major problems of this period was the dominance of commercial approach, which led attentions
to be focused on oil trade, not on its development and entrepreneurship. Therefore despite the fact that
several projects were carried out, development in the field of technological capabilities did not take place
and only the exploitation of oil reservoirs was put on the agenda of the authorities (Amirghodsi et al., 2015).
5.4. Fourth Period: 1978 until now (the Post-revolution Era)

After the victory of the revolution, activities of most foreign companies in Iran were shut down,
and most of new managers had been trained in engineering disciplines, and thus lacked managerial
approaches. One of the important events of this period was the onset of the war between Iran
and Iraq (Amirghodsi et al., 2015). There was no technological development during this eight-
year war (1980 to 1988), and even several years later, due to heavy damage to the oil industry’s
infrastructures. However, with the start of the 1990s, the industry entered a new era of technological
development. The most important factors affecting the endogenous development of technology
through R&D activities and technological learning through technology transfer from abroad in the
post-revolutionary period can be the separation of operational activities and governance activities of
NIOC1 after the establishment of the Oil Ministry, the broad acceptance of technology’s importance
in economic growth, and development and growth of petrochemicals and refineries (Hoshdar &
Fassihi, 2017).
With the change of government in 1997, the restructuring of the Ministry of Oil became a priority
for the government. Another priority for the Ministry was the development of oil and gas fields and
the development and provision of necessary structures for managing them, as well as studying and
obtaining more information on national reservoirs. During this period, more attention was paid to
the transfer of technological power and foreign capitals, and for this purpose, buyback contracts
were used, which, after pre-revolutionary service contracts, are regarded as the second generation of
contracting contracts in Iran (Amirghodsi et al, 2015).
Over time, the authorities have come to the conclusion that the cause of oil industry’s competitiveness
is not the existence of reserves and oil reservoirs inside the country, but rather the use of modern
technologies and technological development. But for further learning and development, there was
a need for the development of inter-organizational programs. In recent years, we have witnessed
changes in the Iranian oil industry, some of the most important of which are economic sanctions,
paradigm shift in managerial approach, extraction of reservoirs by neighbouring countries having
oil and natural gas fields in common with Iran, reduction in production from oil fields and increase
in the extraction coefficient (Hoshdar & Fassihi, 2017).
What can be seen from the review of the development of the Iranian oil industry during the
aforementioned periods is that during the life of this industry, there have been many attempts to
establish refineries and develop them in different regions, but not much effort has been made to
technological development in the form of hard (development of technological equipment) and soft
(development of human resources, institutions, etc.) dimensions. Meanwhile, dependence on the
foreign party was observed in the aforementioned periods. Of course, in recent years and in the post-
revolutionary period, relative changes in managerial approaches have provided better conditions for
progress in this industry.
6. Findings and Discussion

After the reviews done through library studies, interviews were conducted with five oil experts and
policy makers to reach more comprehensive results. These interviews were open interviews, in which
all the opinions of the relevant experts were asked about four main questions. These questions were:
1
National Iranian Oil Company
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i. Has the Iranian oil industry traversed the catching-up process during its life cycle?
ii. Catching up trend in Iran’s oil industry corresponds more with which stages of
patterns introduced by Lee & Lim (2001) and Kim (1997)?
iii. What government policies and practices have influenced Iran’s oil industry and its
development process?
Attempts were made to select experts for the interview who were familiar with processes of the oil
industry and managerial and policy-making activities in this field. Table 1 contains information about
these experts. Table 2 also shows the summary of the information obtained through the interview.
Table 1: Information about the Experts Selected for the Interview
Experts Field of Expertise Activity Experience

Expert 1 Oil and policy-making 4 years
Expert 3 Oil 15 years
Table 2: The Experts’ Opinions Obtained through the Interview
Experts Opinions
Catch-up and Development in Iran’s Oil Industry and Comparison With Catch-up Patterns
Government’s Actions
Lee & Lim (2001) Kim (1997)
Expert 1 In general, it should be said that oil industry in Iran has failed to In this regard, it According to the
catch up with advanced oil industries, but has experienced some should be said that we explanations, the
(field of developments in some sectors. To make it clear whether there are still at the path- Iranian oil industry
oil and has been a lot of developments or not, the level of analysis has following stage at the is at the copying and
policy- to be determined. If we consider Iran’s oil industry in terms of upstream of oil, and at imitation stage at the
making) two sectors, including upstream and downstream sectors, then this stage we still have upstream of oil, but
we can say that these developments in the downstream sector problems. We have at the downstream,
and about the E&P, EPC and OSC companies have taken place not yet succeeded to the situation is
well. We have made progresses in manufacturing components create the four basic somewhat different.
and equipment. But technological development at the upstream capabilities expressing Domestic companies
of oil is defined in the form of four capabilities, including project development at in the E&P, EPC,
management, financing, asset portfolios and risk management. In the upstream of oil and OSC sectors
the field of domestic human resource training, not much attention well, so we are at have succeeded in
has been paid to training them in these dimensions. Of course, the path-following developing some
various managers have greatly emphasized on training human stage, and we are technologies, so
resources and shown it in the context of the human resources faced with problems in general, it can
departments within organizations and firms. But for development, in this following. be said that at the
there is a need to develop the four capabilities in manpower. downstream, we are in
But there is a better the creative imitation
Over the years, the government has taken steps to develop this situation at the phase regrading some
industry, but these actions have not led to tangible results. The downstream of oil. A of the technologies
government’s approach has always been based on oil sales and large number of our and still in the
monetization of this industry. Since this industry has always domestic component- imitation and copying
been considered as the country’s revenue-generating industry manufacturing phase for some
and, on the other hand, it also meets the needs to provide companies have other technologies.
nationwide gas, it has never had the opportunity to work on developed some
improving its capabilities and catching up with forerunners. capabilities, but these
Meanwhile, despite the development of policy documents for developments have
technology transfer from the foreign party by the government, not been enough to
required long-term policies and plans for improvement of reach the path creating
this industry have not been organized in practice during these stage. In most sectors,
years, and most plans become less effective or ineffective we are at the path-
due to the change of governments. Of course, some policies following stage, and
have been developed, including policies to support domestic at the stage skipping
producers, which has been faced with operational constraints. in some sectors.
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Expert 2 Iran’s oil industry is far from the leading and world class According to this According to the
industries, and therefore is at the stage of trying to reduce its pattern, it can be said Kim’s pattern, it can
(field of gap with them but has not yet succeeded in catching up. In that in general and be said that in the
oil and recent years, many companies have been established in the altogether we are at upstream we are at the
policy- fields of exploration, excavation, production of components and the path-following duplicative imitation
making) equipment, and the provision of services, which have achieved stage at the upstream stage and, in the case
some developments in some of the technologies, but in many and downstream. of some downstream
cases of technologies, we are still dependent on the foreign party. technologies, we have
entered the creative
It cannot be said that we have achieved catch-up, and that imitation phase (but
the government has not taken any appropriate action in this not to the extent that
regard. Supporting domestic producers and grounding for their according to the Lee
development have not been well done and the progress has not and Lim’s model it
been in a way to strengthen domestic companies to meet the can be considered
needs of oil technologies enough. The change of government as equivalent to
in the multi-year intervals that in Iran is in a way that changes stage skipping);
the structures completely has hindered the development of this and in the case of
industry. But besides these, the progresses made cannot be other technologies,
denied, which are often in the field of hard technologies and the it is more consistent
production of some components. The ability to perform repairing with the first stage,
and maintenance activities has been created partly and in the imitation and copying.
case of some technologies inside, but there is still dependency
on the foreign party regarding some other technologies.
Expert 3 Component-manufacturing companies have had some advances Overall, in the case The dominant mode
in some components and technologies, but the knowledge of of most technologies, seems to be the
(field of upstream technologies is exclusively available to advanced and we are in the path- imitation and copying
oil) especial companies and has not been transported to Iran. Iran following stage stage, although
has taken steps in the field of hardware, and some companies and, in the case of attempts have been
such as Fateh Sanat Kimia, MAPNA and some other companies some others, we made for creative
in different areas are working on hardware and manufacturing are approaching the imitation concerning
equipment and components. In the field of chemicals, we have stage of innovation or few technologies.
also acquired some technologies from China. Investments have stage-skipping.
also been made in the field of the establishment of knowledge-
based companies active in this field and several domestic
producers have upgraded their capabilities so that they can
now build and repair some equipment. But in spite of all these
improvements, there has not been much success in total, and we
can say that there has not been much learning or progress in areas
such as high-tech technologies, systems and instrumentation.
Government has also provided some supports in the form of

investment in research or policy formulation, such as the policy
of supporting domestic producers, and has contributed somewhat
to advancement of the industry. But changing governments is
the most important factor that leads to the failure of effective
programs. Meanwhile, reduction of international interactions and
sanctions have also affected the development of this industry.
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Expert 4 Oil industry should be considered in terms of two sectors According to this
of upstream and downstream. In the downstream sector, pattern, it can be said
(field of some technological developments have taken place, which, that in a large number
oil and of course, are not in the category of technological catch-up, of technologies in the
policy- but can somehow be considered as progressing and moving downstream part, we
making) forward. This has many reasons. One of the reasons is that are in the duplicative
idea-to-product cycle for upstream oil technologies is about 16 imitation phase, but
years, and since the government in Iran changes every 4 years, we are also in the
and in the longest circumstance, it changes every 8 years, and creative imitation
after these changes, numerous consequent changes take place phase for some of
in most layers and sectors, so there is not enough time to fit them. In addition, for
certain policies and achieve a desirable outcome, and most of a more limited number
policies are abandoned in halfway. We are not at an advanced of technologies, we
level in terms of manpower and financial capability. There are are now somewhere
some good advances in the component-manufacturing sector, between stages 2 and
but there are problems in the basic design sector. We do not 3 and are trying to
have the ability of domestic design. There is no standard in the achieve innovation
field of upstream technologies, and no attempt has been made through research
to compile standards. Another reason for the problems of the and development
Iranian oil industry is the lack of international interactions. activities. We are in
Language, political, social and environmental problems have the copying stage
also made it worse. Project management is one of the most at the upstream.
important issues at the upstream level of oil. Unfortunately,
despite the efforts made, there is still a great gap between us
and industry leaders at the international level in this regard.
In the field of government policies and measures for technological
development in the oil industry, we can mention the law
prohibiting the purchase of foreign goods with similar domestic
production. However, this law is not actually implemented
in practice, and in other words, the purchase of foreign goods
which have domestic similar ones is carried still out in some
ways. There are also paragraphs related to technology transfer
in the field of oil contracts, but the details of this transfer are
unclear. There are a number of manufacturers and a number of
research centres in the country, and government has made good
investments in the field of this industry’s researches, but there are
no technology developers. In addition, government, by exerting
the policy of applying scholarships to employ top students of the
10 top universities in the country, has caused elites of engineering
and technical disciplines to be placed in managerial positions.
Expert 5 Iran’s oil industry is a very complicated industry. This industry At the upstream of oil, At the upstream of
has its own culture, which has dominated the entire industry. it can be said that the oil, it can be said that
(field of Given the multiplicity of sectors and technologies involved current trend is more the developments
oil and in this industry, one cannot give a general answer to its catch- consistent with the are somewhere
policy- up. For example, in the field of gas turbines, this industry has path-following stage, between the stages of
making) succeeded to catch up well and have successful experiences. although actions done duplicative imitation
in some areas and and creative imitation.
The government of Iran, in other words, sovereignty did not technologies have led At the downstream
accept the risk of using new technologies in the oil industry to reaching the stage- sector of oil, some
(whereas, e.g., it accepted the risk in the electric power industry skipping phase. This innovations have been
and led to the development of MAPNA), and this caused trend also exists at achieved in some
the difficulty for catch-up of this industry. Of course, at the the downstream, but areas, so in those
downstream of oil, there is less technological risk. Most of the the difference is that cases we can say that
technologies at the downstream are transferred using licensing, at the downstream, we are in the creative
and domestic companies can perform reverse engineering of them. the developments are duplication phase, and
The government has tried to focus on technology transfer with the closer to the stage- even trying to reach
policy of developing more complete contracts, but the details and skipping phase than the innovation stage
steps needed for complete transfer have not been properly considered at the upstream. (of course, about some
operationally. It has also tried to help research and development limited technologies),
of this sector by establishing research centres. But generally, but in the case of
successive changes of governments and their entire subcategories some other areas and
will lead to ineffectiveness of long-term plans in the industry. technologies, we are
at the duplicative
imitation stage.
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According to the results (Table 1), four experts in their responses suggested Iran’s oil industry to
be considered at two upstream and downstream levels, and they believed to answer the question of
occurrence or non-occurrence of catch-up in Iran’s oil industry or to determine its amount, these
two levels should be separated. Experts’ opinions indicate that all of them agree that according to
the technological catch-up pattern of Lee & Lim, Iran’s oil industry at the upstream level is at the
first stage. Of course, expert 2 expressed his opinion in general and regardless of its level, and in
general has recognized the development stage of this sector at upstream and downstream to be in
the first phase of the Lee & Lim’s pattern, and in some areas transiting from stage 1 to stage 2, i.e.
stage-skipping. Concerning the downstream of oil industry, expert 1 believed that advancements in
some areas and technologies are consistent with the stage-skipping phase of Lee & Lim’s pattern,
and the path-following stage is true about other areas and technologies. Expert 2 has identified the
developments and improvements made in the downstream sector to be equivalent to the path-following
stage, whereas the other three experts believed that the development of this sector has been as such that
in some technologies and fields in which more advancements have gained, the downstream sector is
located somewhere between the first and second stages of the Lee & Lim’s catch-up pattern, and in the
case of other technologies it is located at the first stage, i.e. path following stage.
Experts’ opinions about comparison of developments in Iran’s oil industry with Kim’s pattern,
are dividable on downstream and upstream levels. Opinions of three experts are similar to each
other indicating consistency of upstream sector developments with the first stage of Kim’s pattern,
i.e. duplicative imitation. Opinion of expert 2 is that regardless of different levels, developments
of this industry has been in a way that in some areas, it is located at the second stage of Kim’s
pattern, i.e. creative imitation and at the first stage about other technologies. One of the experts,
means Expert 5, has identified the advancements at this level of analysis (upstream level) to
be somewhere between the first and second stages. Regarding the downstream sector, all of the
experts believed that about some technologies, the advancements are consistent with the second
stage of Kim’s pattern (creative imitation) and about some other technologies they are consistent
with its first stage (duplicative imitation). Also, two of them identified developments of this
sector to be somewhere between the second and third stages (as mentioned before, third stage
is innovation). Table 3 shows the results of comparison between development stage of Iran’s oil
industry with the aforementioned catch-up patterns schematically. Tables 4 and 5 show the results
in this regard based on frequency of the answers.
Table 3: Results Obtained through Interview about Catch-up in Iranian Oil Industry
Lee & Lim’s Catch up Pattern Kim’s Catch up Pattern

Level of
Experts
Analysis Path Stage Path Duplicative Creative
Innovation
Following Skipping Creation Imitation Imitation
Upstream
1
Downstream
Upstream
2
Downstream
3 Total
Upstream
4
Downstream
Upstream
5
Downstream
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Table 4: Frequency and Result of the Answers about Catch-up in Iranian Oil
Industry Based on Catch-up Pattern of Lee & Lim (2001)
Lee & Lim’s Catch up pattern

Level of Transition Transition Stage
Stage 1 (path Stage 2 (stage Total result
Analysis from stage 1 to from stage 2 to 3 (path
following) skipping)
stage 2 stage 3 creation)
Upstream 5 1 Stage 1
Stage 1+
transition
Downstream 5 3 1
from stage 1
to stage 2
Given that the experts interviewed were 5, therefore, the criterion to confirm the consistency of
developments in Iran’s oil industry with each stage of the mentioned pattern is the presence of
consensus among at least 3 of them. This is also true about the results listed in Table 5.
According to results shown in Table 4, it can be said that the result of experts’ opinions is that Iranian
oil industry in the upstream area is at the first stage of technological catch-up pattern of Lee & Lim
(2001), i.e. path-following stage. The developments in Iran’s oil industry in the downstream sector
have been in a way that for some technologies it is at the first stage, i.e. path-following stage; and
about some other technologies, it is in transition from first stage to second stage, i.e. stage-skipping.
Table 5: Frequency and Result of the Answers about Catch-up in Iran’s
Oil Industry Based on Kim’s Catch-up Pattern (1997)
Kim’s catch up pattern

Level of Stage 1 Transition Stage 2 Transition Total
Analysis Stage 3 result
(duplicative from stage 1 (creative from stage 2 to
(innovation)
imitation) to stage 2 imitation) stage 3
Upstream 4 1 Stage 1
Stage 1 +
Downstream 5 5 2
stage 2
Table 5 shows that if the basis of evaluation is on Kim’s technological catch-up pattern (1997), then
Iran’s oil industry in the upstream sector is at the first stage of this pattern, i.e., duplicative imitation
stage and in the downstream sector about some technologies is at the first stage and about some
technologies at the creative imitation stage.
Besides that, the experts have mentioned some governmental policies and roles affecting this
industry which are inserted in table 6.
Table 6: Effective Governmental Measures on Iranian Oil Industry
Experts Government’s Role in Iran’s Oil Industry’s Advancement Trend
Policy of monetization from the oil sector and inattention to its technological development (-)
Lack of long-term plans for the development of this industry (-)
Low effectiveness or ineffectiveness of plans and policies over time due to successive
Expert 1
changes of governments (-)
The policy of supporting domestic producers (which, of course, has been carried out limitedly
in practice) (+)
Supporting domestic producers (+)

Expert 2
Restructuring of the oil industry due to successive changes of governments (-)
Investment in research activities (+)

Approval of domestic producers support law (+)
Expert 3
Changes of governments and, consequently, halfway effective supporting programs (-)
Low international interactions (-)
IAMOT 2019 | 775

The findings indicate that the Iran’s oil industry generally has technological gap with forerunners
and has thus not succeeded in catching up with them, but at the same time, in the downstream sector,
it has achieved more technological developments than in the upstream sector, and is on the catching
up stage and reducing its technological gap with forerunners. Efforts have been made in this regard,
and about some technologies (although limitedly) it is approaching advanced oil companies. But at
the upstream of oil, Iran is still in the position of a follower.
The government of Iran also contributes to these conditions. Some government policies and measures
have had a positive effect on the development of the industry, and on the contrary, some others have
prevented developments in this industry. Some policies and measures that have a positive effect
on development and catching up of the oil industry include efforts to establish research institutes
and investment in the field of research to contribute to research and development activities in the
oil industry, approval of laws, including the law prohibiting the purchase of foreign goods having
similar domestic production, in order to support domestic producers, and efforts to develop contracts
supporting technology transfer, which could be seen in the formulation of technology attachment for
contracts with a higher rate than the amount determined by the government.
But, on the other hand, not considering precise steps to completely transfer technology into the
country has caused government’s policy and approach for technology transfer to have incomplete
results in practice. Government’s monetarizing view on the oil industry over various periods have
been hampering profound development of this industry. Changing this view and investing in a number
of other industries in which national capabilities exist can be fruitful in removing this disadvantage.
The successive change of governments and subsequent restructures in the related organizations
cause long-term plans in this industry to either not be implemented, or if they are implemented,
they will be abandoned in halfway. Limitation of international interactions as a result of sanctions
imposed by the United States and some other countries is another factor that has been an obstacle
to further developments and catching up of Iran’s oil industry. Also, lack of policies for compiling
technological standards related to this industry and fostering technology developers has made the
efforts to develop some technologies ineffective in practice. In addition, one of the important points
in the oil industry is paying attention to capability development in project management’s field,
especially in the upstream sector. Despite the fact that many efforts have been made to develop
skilled manpower in the country, government has not developed effective policies to upgrade this
capability. Government’s efforts to address these barriers can facilitate and accelerate process of
catching up in Iran’s oil industry.
4. Conclusion
In this research, it was attempted to investigate the process of technological catching up in Iran’s
oil industry as one of the key industries in this country’s economy. For this purpose, after reviewing
the history of this industry during different eras, by interviewing the experts, the consistency of the
developments in the industry with the various stages of the two patterns in this area, namely Lee
& Lim (2001) and Kim (1997), was evaluated. The results of the research indicated that Iran’s oil
industry at the upstream, according to Lee & Lim’s pattern, is at the path-following stage and at
the duplicative imitation stage according to Kim’s. The downstream development was also such
that according to Lee & Lim’s model about some technologies it is at the path-following stage and
about other technologies it is transiting from this stage to the second stage, i.e. stage skipping. Also,
according to the Kim’s pattern, in some of technologies, it is at the duplicative imitation stage, and
about other ones, it is at the creative imitation stage. It was also attempted to mention government
policies affecting the industry as much as possible.
Inevitably, this research has been confronted with limitations. One of them was that Iran’s oil
industry was studied in general and in the form of two upstream and downstream levels, and studies
on more detailed and micro levels, including firms and many active companies locating in this sector
were not conducted. In addition, due to lack of access to some of the more detailed information,
including texts of the contracts and some of oil documents, the study was confined to the general
IAMOT 2019 | 776

information obtained from the experts’ opinions. On the other hand, because of existing limitations,
among various types of existing catch-up patterns, two of the most important ones were considered
in this study and evaluation of other patterns and models was neglected. As the fourth limitation,
excluding indicators for measurement of catch-up in the industry, according to Lee & Lim (2001)
and Kim (1997), should be mentioned. Including such indicators in future researches can increase t
richness of the results. In addition, consideration of other catch-up models and patterns can also be
taken into account in future researches. Also, attempts to access oil texts and documents and using
them for broader analyses on the catch-up and development of capabilities in this industry is one
of the options ahead for future researches. In addition, breaking down the level of analysis into the
more detailed levels forming Iran’s oil industry and even evaluating companies active in this area
individually can be considered for deepening explorations of this industry further.
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IAMOT 2019 | 778

Environmental and Economic
Model of Charcoal Production
Sueli De Fátima De Oliveira Miranda Santos

UTFPR/Ponta Grossa, Parana, Brazil,
E-mail: suelifom@hotmail.com
Kazuo Hatakeyama
Enterprise Consulting Office/ Salvador, Bahia, Brazil,
E-mail: khatakeyama875@gmail.com
Abstract
Charcoal will remain important in the lives of billions of people around the world, as well as in the efforts towards
finding energy sources that are capable of meeting energy demands while having the lowest environmental impact,
greater economic returns and better appreciation of work. The national production process of charcoal still remains
performed in the handcraft manner and spread among thousands producers in the masonry kilns of small capacity
and basic technology without recovering the carbonization gases. The production of this type of kilns represents
more than 70% of the charcoal production process in Brazil. The reference on producer of small scale relates to
the use of kilns of small production capacity. These types of kilns presents low gravimetric yield obtaining
approximately ¼ of conversion of woods in charcoal. The question is towards new approach to produce charcoal
using alternative methods with incorporation of advanced technology. This research proposes an environmental
and economic model of charcoal production and, to achieve that, it has mapped the productive processes of three
technological production routes, employing reforestation wood, in three different production units located in three
distinct Brazilian states in the southern region. Analyses of environmental and economic value conducted in the
process of charcoal production in cylindrical kilns with direct release of the combustion gases generated during
carbonization to the atmosphere (Process 1); in the process with combustion of the gases in furnaces (Process 2);
and in the process with condensation of the gases (Process 3). In the analysis of environmental value, employing
the Life Cycle Assessment (LCA) methodology, found that Process 1 was highly impactful in 94% of the impact
categories assessed. In comparison with Process 1, regarding damages to human health, Process 2 presented
significant impact reductions in the categories of human toxicity (42 pp), and photochemical oxidant formation
(61 pp). Regarding damages to the ecosystem reductions found in the categories of terrestrial ecotoxicity (67 pp),
drinking water ecotoxicity (47 pp), and marine ecotoxicity (53 pp). Concerning damages to resources, Process 2
contributed with a reduction in metal depletion (10 pp) and fossil depletion (10 pp). Process 3 presented impact
reductions in all of the categories in comparison with Process 1 and, in the category of formation of particulate
matter presented itself as the best process among the three with a reduction of (14 pp) in relation to Process 1 and
a significant reduction (45 pp) in comparison with Process 2. The analysis of economic value highlights that the
economic viability of charcoal production in low technology and low investment processes has been increasingly
more dependent on the reduction of operational costs and, therefore, on the efficiency of the operation. The
suggestions of the model bring contributions to the operational efficiency and environmental performance.
Keywords: Charcoal Production; Wood Carbonization; Sustainable Process; Life Cycle Assessment
1. Introduction
Charcoal will remain important in the lives of billions of people around the world, as well as in the
efforts towards finding energy sources that are capable of meeting energy demands while having
the lowest environmental impact, greater economic returns and better appreciation of work. The
national production process of charcoal still remains performed in the handcraft manner and spread
among thousands producers in the masonry kilns of small capacity and basic technology without
recovering the carbonization gases. The production of this type of kilns represents more than 70% of
the charcoal production process in Brazil. The reference on producer of small scale relates to the use
of kilns of small production capacity. These types of kilns presents low gravimetric yield obtaining
IAMOT 2019 | 779

approximately ¼ of conversion of woods in charcoal. The question is towards new approach to

produce charcoal using alternative methods with incorporation of advanced technology.
2. Purpose
This research proposes an environmental and economic model of charcoal production and, to achieve
that, it has mapped the productive processes of three technological production routes, employing
reforestation wood, in three different production units located in three distinct Brazilian states in the
southern region.
3. Methodology
Analysis of environmental and economic value conducted in the process of charcoal production in
cylindrical kilns with direct release of the combustion gases generated during carbonization to the
atmosphere (Process 1); in the process with combustion of the gases in furnaces (Process 2); and
in the process with condensation of the gases (Process 3). To analyze the environmental values
of the mapped production flow utilized the methodology of the evaluation of the lifecycle (ELC).
The analysis of economic value of the processes relied with tools recommended by engineering
economics, from the elaboration of the cash flow of conventional type.
3.1. Literature Review
Within the productive chain of the woods, the charcoal highlights as the renewable source of energy.
In 2016, the total demand of energy, the sources of renewable energy participated with 43.5%% of
the Brazilian energy matrix, superior to the year 2015 (41.3%), partially justified by the decrease in
the consumption of the woods used in the production of wrought iron with charcoal (EPE, 2017).
The plantation of forests occupied around 7.84 million of hectares. Of these, approximately 29% by
the independent small and medium fostered producers and 14% by the steelworks sector charcoal
(IBA, 2017). The eucalyptus occupied 72.7% of the total area of forest planted being the most used
wood for charcoal.
The carbonization is the process that the wood is submitted to the action of heat, in closed
environment with the oxygen in controlled condition, resulting its distillation and degradation
of its constituted compounds in condensable gases (tar and pyroligneous acid), non-condensable
gases (carbon monoxide, carbon dioxide, hydrogen and others) and solids (charcoal) (Santos and
Hatakeyama, 2012).
In the production of charcoal, the technology route defined by the type of carbonization furnace
utilized and by the destination of the gases of the process. Production models that utilize furnaces of
mount of earth, considered primitives, still used in the African continent to produce 60% of the total
volume of charcoal of the world and, in the Asian continent, to produce other 17%, expelling gases
directly to the atmosphere (FAO, 2017).
Meanwhile in Brazil, world’s largest producer of charcoal with 14% of the total in 2014 (FAO,
2017), the models that utilize are cylindrical masonry kiln, of the “hot ass” type, still prevail in
charge of thousands of producers, mentioned by Vital and Pinto, (2009), expelling the gases of the
process to the atmosphere.
Spotlight for the differences between the technologies utilized in other studies and for emerging
technologies is in use of gases of the pyrolysis in the own cycle, for drying of wood and cogeneration
of electricity, in industrial scale, as shown in the studies of Bailis et al., (2013) and of Vilela et al.,
(2014). Considering the historical annual amount of production of charcoal in Brazil, between 6-9
Mt, there is the potential of generation of electric energy of 3–5 TWh as stated by De Miranda, Bailis
and Vilela (2013).
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Pereira et al. (2017), in the literature review, regarding to the state of the art of the technologies used
to burn gases of carbonization, mention studies that prove the reduction in the emissions of carbon
monoxide (CO), and methane (CH4), as manner of mitigation of the GEE and improvement of the
work conditions in the production unities.
Another technology route able to reduce the amount of emissions of carbon monoxide is by the
condensation of the gases of the pyrolysis. Considering the gravimetric yield in charcoal (GYC) of
33%, this condensable portion is the pyroligneous liquor that represents 42% of the balance of mass
of the process composed by 35.5% of pyroligneous acid and 6.5% of insoluble tar (Gomes; Oliveira,
1980), depending on final temperature.
Authors as Chiamenti et al., (2016) in recent studies regarding the use of the pyroligneous acid, also
known as pyroligneous extract, reveals antibacterial action in coliforms. Schnitzer et al., (2015) the
influence in the developments of plants as the orchids. Sander et al. (2014) the use as electrolyte in
the anodization of titanium. Almeida (2012) as the preservative agent of cosmetics and sanitizing,
and Silva et al., (2012) as substitute of the chromium in anti-corrosive treatments in aluminum
alloys.
Regarding economic aspect, the handcraft model, low cost and simple construction has been the
main reason of its prevalence, even the low productivity. The dissemination of the industrial models
with more advanced technologies run into high investment required and in the lack of technological
consolidation that have unfeasible its implantation even for bigger producers.
The way to check the production of charcoal being conducted in the sustainable manner, in the
environmental evaluation of its impact over the climate change (FAO, 2017), as seen in the study by
Santos et al., (2017). On economic analysis of feasibility of the activity and on social the evaluation
of the work environment.
3.2. Research Plan

To state of art of the sector of charcoal production in Brazil utilized the matrix SWOT (Strengths,
Weaknesses, Opportunities and Threats), from the data available, as the means to check negative
or positive impacts of the factors and which manner strong points and the opportunities assist to
achieve objectives this study regarding to productive flow mapped.
To the analysis of environmental value of the productive flow mapped utilized the methodology of
the evaluation of the lifecycle (ELC). Piekarski et al., (2017) consider that among the broad scope of
methodologies utilized to analyze the environmental profile of products, the ELC is more embracing
and extensive. Khoo et al., (2008) consider yet, the application of the ELC to evaluate technology of
interest in economic and social terms.
In this ELC, analyzed several environmental impacts regarding to the handcraft production in small
scale, in cylindrical masonry kiln, considering the charcoal produced by means of technologies
utilized in the Processes 1, 2 and 3.
The unity of analysis (UA) defined as the unit 1 kg of charcoal, established as reference flow.
Authors as Khoo, Tan and Sagisaka (2008), Bailis et al., (2013) and Ekeh, Fangmeier and Müller
(2014) utilized the mass of charcoal as UA by the facility of comparison.
The limit of the system refers to stages of the lifecycle and this research analyzed the frontier cradle-
to-gate (C2G), scope that includes the extraction of the inputs and the production, excluding the
subsequent phases stated by Campos (2012), as shown in Figure 1.
IAMOT 2019 | 781

Figure 1: System of production, Source: Santos, et al. (2017)
The data of technological processes utilized as scenery were data ecoinvent. For the consumption of
clay utilized in the muddling and enclosure of the ovens utilized the dataset: “Clay {GLO}| market
for | AllocDef, U”. To the wood, the dataset utilized: “Roundwood {GLO}| harvest, secondary forest
| AllocDef, U”. The data of the productive processes obtained by means of experiments.
The charcoal considered as the main flow, and all impact allocated to it. The allocation is necessary
in the process of carbonization, because besides of charcoal also are produced the fines. Normally,
the large pieces are commercially valued and the fines are disregarded (Kammen and Lew, 2005).
The fines have potential for use as energetic input as stated by Pereira et al., (2017) and Rousset et
al., (2011) contribute the reduction of the emissions of GEE (FAO, 2017). However, this research
analyzed the worst of the scenarios (all impact allocated in charcoal), that particularly harms the
Process 3, since the allocation does not divided with the pyroligneous liquor.
The method of evaluation of impact of the lifecycle, performed analysis about which method
contemplated the categories of impact: climate changes, particulate material, depletion of the ozone
layer, photochemical oxidation, acidification, eutrophication and water consumption. Besides these,
were included: fossil energy, abiotic resource and the land used, in view of that usually evaluated
when compare sources fossil energy with renewable energy, although this study have not realized
this comparison. Identified that the ReCiPe Endpoint contemplated all these categories of impact.
Was considered the version (H/A) V.1.12 and the calculations performed with the aid of the software
SimaPro 8.2.3.0.
For the inventory of the lifecycle (ILC) utilized the data of the technologies and processes utilized,
as well as the region and the period of execution of the experiments. None of all data of emissions
obtained in laboratory, having been necessary to perform calculations. Thus, the chemical
composition of different substances estimated according the percentiles presented in the Table 1.
Table 1: Carbonization products: per ton of wood as a dry weight %, Source:
Adapted from Alves, 2003; Ferreira, 2000; Gomes and Oliveira, 1980
Carbonization products % Dry weight
Charcoal (80% fixed carbon) 33.00
Condensable gases 42.00
Pyroligneous acid 35.50
IAMOT 2019 | 782

(Acetic acid) (5.00)
(Methanol) (2.00)
(Soluble tar) (5.00)
(Phenol – 0.2%) (0.01)
(Guaiacol – 0.1%) (0.005)
(Cresol – 0.1%) (0.005)
(o-Cresol – 1.1%) (0.055)
(4-Ethyl-guaiacol – 0.2%) (0.01)

(Syringol – 1%) (0.05)
(4-Methol-syringol – 1%) (0.05)
(4-Ethyll-syringol – 0.6%) (0.03)
(Others – 15.7%) (0.785)
(Water – 80%) (4.0)
Water and others (23.50)

Insoluble tar 6.50
(Phenol – 6.00%) (0.39)
(Guaiacol – 6.00%) (0.39)
(2,6-Xylenol – 1.00%) (0.065)
(Cresol – 1.00%) (0.065)
(o-Cresol – 6.00%) (0.39)
(p,m-Cresol – 7.00%) (0.45)
(4-Ethyl-guaiacol – 1.00%) (0.065)
(4-Propyl-guaiacol – 0.10%) (0.0065)
(3,5-Xylenol – 5.00%) (0.325)
(Syringol – 35.00%) (2.275)
(4-Methol-syringol – 11.00%) (0.715)

(4-Ethyll-syringol – 5.00%) (0.325)
(Water (16~20%) – 15.90%) (1.0335)

Non-condensable gases 25.00
(H2 – 0.63%) (0.16)
(CO – 34%) (8.50)
(CO2 – 62%) (15.50)
(CH4 – 2.43%) (0.61)
(C2H6 – 0.13%) (0.03)
(Others – 0.81%) (0.20)
Total 100.00
Table 1 identify products of the carbonization, separated in parts, being 33% of charcoal (solid),
42% of condensable part (liquid) and 25% of non-condensable part (gaseous).
However, other compositions can found in other authors, depending of the wood utilized and of
variables of the reactions, such as: rate of heating, temperature, time of residence of gases and the
IAMOT 2019 | 783

type of atmosphere of the kiln (oxidant, reductive or neutral), according Alves (2003). The phenolic
compounds of the tars identified and calculated according Alves (2003). The data found considered
as Process Line of Base for the calculation of the emissions of the three Processes evaluated.
For the validation of data was elaborated the balance of mass and energy. The elaboration of the
balances relied on the technical data of the three Processes and with the data from the studies of
Alves (2003), Gomes and Oliveira (1980), Ferreira (2000), and Soares et al., (2014).
Taking as the base line the studies of Gomes and Oliveira (1980) and Ferreira (2000), developed
the balances of mass and energy of the Processes 1, 2 and 3. For effect of calculation of the masses
utilized, for each Process, ratio between the total gas of each Process mapped and the total of gas of
the Process of base, denominated relation gas-gas.
This way, were obtained the three multiplicative factors that made possible the transference of data
of the line base to the data of the field experiments in the Processes 1, 2 and 3, by the Equation 1.
Total mass of gas of the process mapped (kg)
Total mass of gas total of the process base (kg)
(1)
where:
Total mass of gas of the process mapped = Mass of the wood in dried base (WooddB) – (Mass of the
Charcoalproduced + Mass of the Hoopsgenerated + Mass of the Finesgenerated)
Total mass of gas of the process base = Mass of the condensable gases (CG) + Mass of the non-
condensable gases (NCG).
Equation 1 portrays the assumption that the carbon content in the wood goes by to the charcoal or to
the gases and, therefore, does not pops up in CF present in the gases. Therefore, in the relation to the
Equation 1, the volume of gases is directly proportional to the mass of batch charged and inversely
proportional to the CF and RGCV.
Additionally to the Process Line of Base (see Table 2), the masses of NO2 and SO2 estimated as
realized in Soares et al., (2014). The percentiles were 0.03% to N and, 0.27% for S, generating 1.0
kg of NO2 and 5.4 kg of SO2 for the Process Line of Base. The values referring of nitrogen dioxide
(NO2) and sulfur dioxide (SO2) they obtained considering the transformation these oxides due of
the difference between the sulfur and the nitrogen present in the wood with six years old and in the
charcoal obtained. The values of N (0.205%) and S (0.325%) for the wood and N (0.170%) and S
(0.030%) for the charcoal, obtained by Soares et al., (2014), were calculated by the average of its
values in woods of five to seven years old.
In the Process 2, with the burn of gases, the balance of mass had alterations. Assumed that all gases
reduced in proportion of the reduction of the CH4 (66.5%), any less for the CO (70%) and for H2
(100%).
Regarding to the emissions of particulate material (PM), one those most shocking to the human
health (respiratory tract), the estimation calculated taking as base the concept of Lora (2002) that
consider any substance in atmosphere, in the liquid or solid form, except fresh water, with dimensions
superiors to molecules and of origin primary or secondary. The particulates of secondary origin
that formed by the chemical reactions (gaseous phase) in the atmosphere generating condensable
compounds. Were evaluated the particles classified as fines, with diameter dp < 2.5 µ. Among
previous studies appointed, the validation of data specified only by Ekeh, Fangmeier and Müller
(2014).
The criteria for the analysis of the quality of the data utilized in this research based in the Matrix
Pedigree of Weidema and Wesnaes (1996) shown in the Table 2.
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Table 2: Analysis of the Quality of the Data via Matrix Pedigree, Source:
Based in Weidema and Wesnaes (1996)
Information obtained
Information
Criteria
desired
Process 1 Process 2 Process 3
Circular masonry Circular masonry kiln

Circular masonry
oven system without system, combustion
Technology In use kiln system and
use of gases of the chamber of gases and
condensers
pyrolysis chimney in masonry.
Data of 2015: two years of

Temporal 2017 Data of 2017 difference in relation of the Data of 2017
year of this study.
Data of the place Data of the place

representative of Data of similar place, in representative
Regional MG, PR and RS
the sector, by unity prototype scale. of the sector, by
(kiln). unity (kiln).
If considered the
condensation of
gases, data with
If considered the representative
combustion of the gases, known and
the data represent some localized. If
The data represent
Completeness 100% of the cases locals. If considered without considered
70% of the sector
combustion of the gases, the without
data represent around 70% condensation of
of the sector. gases, the data
represent around
70% of the
sector.
Thermocouples type K
to measure temperatures;
copper tubes to collect gases
in the duct of conduction
and in the chimney; Cylindrical tubes
Weighing machine gas board 9030 Wuhan and reader of
Collect of data
to weigh of wood CUBIC Optoeletronics Co. temperature in
and method to
Consistency and products. Ltd, filters of precision - the interior of
calculation of the
System without FIT1 e FIT2; gas board the kiln; tubes of
emissions
instrumentation. 3100 Wuhan CUBIC PVC for cooling
Optoeletronics Co. Ltd. for gases.
collecting procedures and
reading of the percentile
composition volume base
of gases.
4. Field Survey
The productive flow mapped for technical visits to unities of charcoal production (UCP) located in
the states of Parana, Minas Gerais and Rio Grande do Sul. Minas Gerais being the largest Brazilian
producer and consumer of charcoal, also housing institutions and academics researches of reference,
notably in the development of research in combustion of gases of the carbonization of the wood.
Parana by the significant number of small producers of charcoal for domestic consumption. Rio
Grande do Sul for housing the biggest community of producers that practice the carbonization of
wood with condensation of gases. The technical visits in field performed during the period covered
between years 2013 and 2017.
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The mapping of the productive flow without the use of gases (Process 1) performed in the UCP in
the region of the Campos Gerais in the State of Parana. The property had 200 ha, in which, 169 ha
occupied with planted forest of eucalyptus of the species Dunnii Maiden (70%) and Saligna (30%).
The charcoal delivered for packing to sale in retail market for domestic use.
Technical visits to the laboratory of panels and energy of the wood of the Federal University of
Vicosa – LAPEM/UFV, in the State of Minas Gerais, during October and November 2015, made
possible the attendance and collection of the data for mapping the productive flow with burn of gases
in (Process 2). The experiments carried out by the researchers of the Institution, in prototype of the
system kiln-furnace. Results of the carbonization shared the study of Donato (2017).
To map the productive flow with condensation of gases (Process 3), two visits occurred in the months
of December 2015 and May 2016. Visited three UCPs located, each one, in small properties of rural
agricultures that grow grains, fruits and vegetables; rise poultry and pigs in consortium system with
big enterprises and produce charcoal with collection of the pyroligneous liquor, for consumption
or sale. The installations of the UCP allow that the owner decide to produce the charcoal with
condensation of gases or not.
The proprieties are located in the region of the Cai Valley, in the State of Rio Grande do Sul. The
production and collection system of the pyroligneous liquor made in the Brochier’s System. This
denomination, according Gomes and Encarnacao (2012) is the allusion to the main producer city
of charcoal of the region, whose production is destined to the packing market for the domestic
consumption. The carbonizations performed in March 2017.
5. RESULTS
5.1. Analysis of the Flow of Environmental Value

The inventory of the lifecycle (ILC) of the three processes evaluated, identifying inputs, outputs
and the emissions to the atmosphere of remaining gases, after each intervention as presented in the
Table 3.
Table 3: Inventory of the Lifecycle (ILC), by Process Mapped, Source: Authors
Input (kg) Output products (kg) Output to atmosphere (kg)

Description Process Process Process Process Process Process Process Process Process
1 2 3 1 2 3 1 2 3
Humid mass of wood 6.240 5.283 4.060 - - - - - -
Dried mass of wood 5.453 3.204 2.339 - - - - - -
Charcoal - - - 1.589 1.023 590 - - -
Hoops - - - 435 9 260
Fines - - - 20 60 30 - - -
Liquor - - - - - 110 - - -
Total water - - - - - - 2.432 3.163 2.268
Condensable gases
Methanol - - - - - - 101.80 21.10 38.30
Acetic acid - - - - - - 254.40 52.80 95.80
Tars
Phenol - - - - - - 20.30 4.20 7.70
Guaiacol - - - - - - 20.10 4.20 7.60
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2.6 Xylenol - - - - - - 3.30 0.70 1.20
Cresol - - - - - - 3.60 0.80 1.30
o-Cresol - - - - - - 2.60 4.70 8.60
p,m-Cresol - - - - - - 23.10 4.80 8.70
4-Etil-guaiacol - - - - - - 3.80 0.80 1.40
4-Propil-guaiacol - - - - - - 0.30 0.10 0.10
3.5-Xylenol - - - - - - 16.50 3.40 6.20
Syringol - - - - - - 118.20 24.50 5.60
4-Metil-syringol - - - - - - 38.90 8.00 14.70
4-Etil-syringol - - - - - - 18.00 3.70 6.80
Non condensable gases
CO2 - - - - - - 788.60 1,596.10 337.40
CO - - - - - - 432.40 80.40 185.00
CH4 - - - - - - 31.00 6.40 13.30
C2H6 - - - - - - 1.50 0.30 0.70
H2 - - - - - - 8.10 0.00 3.50
Others GNC - - - - - - 10.20 nd. 4.40
NO2 - - - - - - 5.00 3.10 2.10
SO2 - - - - - - 27.50 17.00 11.80
In the Table 3, the values of output to atmosphere in the Process 1 refer all gaseous or solid materials
in suspension from the carbonization of the wood. The values of output to the atmosphere of the
Process 2 refer those that did not burn during the combustion in the furnace and in the Process 3
those that did not condensed. The values obtained, after processed in the software, generated results
of the ELC of charcoal by process evaluated, using as unity of analysis 1 kg of charcoal.
5.2. Analysis of the Lifecycle of the Charcoal by Process Evaluated

In this work evaluated the environmental impacts regarding to three technologies referred in the
scope for the production of charcoal, considering allocation and particulate material classified as
fines (diameter dp < 2.5 µ). When considering the frontiers of the study and connect the technology
flows of production of wood based on data ecoinvent, have the results of the impacts C2G. Results
presented, by category of impact, in the Table 4.
Table 4: Characterization of the impact (%) by category and by Process, Source: authors
Category of impact Process 1 Process 2 Process 3
Climate changes – Human health 100% 89% 84%
Depletion of the ozone 100% 90% 84%
Human toxicity 100% 58% 78%
Formation of photochemical oxidants 100% 39% 77%
Formation of particulate material (dp < 2.5 µ) 69% 100% 55%
Ionizing radiation 100% 90% 84%
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Climate changes – Ecosystems 100% 87% 84%
Terrestrial acidification 100% 95% 84%
Eutrophication of the fresh water 100% 90% 84%
Terrestrial ecotoxicity 100% 33% 74%
Fresh water ecotoxicity 100% 53% 78%
Marine ecotoxicity 100% 47% 76%
Occupation of agriculture land 100% 90% 84%
Occupation of urban land 100% 90% 84%
Transformation of natural lands 100% 90% 84%
Depletion of the metal 100% 90% 84%
Depletion of fossils 100% 90% 84%
The first confirmation is that the Process 1 was the most shocking in 16 off 17 categories analyzed.
Decided, therefore, take the Process 1 as the base process for the effect of comparisons with the
Processes 2 and 3. Analyzing the contributions of the Process 2, in comparison to the Process 1,
noticed the reduction of impact in all categories (except particulate material).
Regarding the categories of impact related to the damage to human health, categories 1 to 6, the
Process 2 presented significant reductions of shock in the categories human toxicity (42 pp),
formation of photochemical oxidant (61 pp), besides the reduction in the categories of depletion
of ozone and ionizing radiation (10 pp) and, climate changes (11 pp). In the case of the particulate
material in the Process 2 became in this category the equivalent to 100% of impact.
Analyzing the contributions of the Process 2 regarding the categories of impact related to the
damages to the ecosystem (categories 7 to 15), significant reductions of impact were noticed in the
categories terrestrial ecotoxicity (67 pp), ecotoxicity of fresh water (47 pp) and marine ecotoxicity
(53 pp). Other categories presented some reduction of impact, varying between, as in the terrestrial
acidification (5 pp) and climate changes ecosystem (13 pp).
Regarding categories of impact related to the damages to the resources (categories 16 and 17), the
Process 2 contributed with the reduction in the depletion of metal (10 pp) and fossil depletion (10
pp). The Process 3 presented reductions of impact in all categories compared with the Process 1 and
in the category formation of particulate de material presented as best of the three with reduction of
(14 pp) about to the Process 1, if compared with the Process 2 the reduction was more significant
(45 pp).
Analyzing the contributions of the Process 3 about the categories of impact related to the damages
to the ecosystem (categories 7 to 15), were noticed reductions of impact varying between terrestrial
acidification (16 pp) and terrestrial ecotoxicity (26 pp).
Regarding categories of impact related to the damages to the resources (categories 16 and 17), the
Process 3 contributed with reduction in the depletion of metal (16 pp) and fossil depletion (16 pp).
In the case of the Process 2, more significant results could be expected, if reductions noticed of the
CO (66.5%) and CH4 (70.0%) during the combustion of gases in the furnace, were larger. Reductions
Have been found more reductions by Lana (2014), with 86.2% to the CO and 88.0% to the CH4; by
Coelho (2013) with 74.1% to the CO and 99.8% to the CH4 and by Cardoso et al., (2010) with 93.8%
to the CO and 96.9% to the CH4, in similar systems. The minor reduction of these emissions could
attributed to the dimensioning of the furnace (Donato, 2017). Santos et al. (2017) compared the life
cycle of the process of carbonization with the burn of gases in different technologies and state that
to consider it in the frontiers C2G, notice that the environmental impacts have the main dependence
over the efficiency of each type of technological process of production of the charcoal.
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In the case of the Process 3, significant result expected, if the condenser was more efficient, in the
experiment, the result showed that 12% of the total of condensable gases available were effectively
condensed, represents 4.7% of RG in pyroligneous liquor. Froehlich (2011) performed two
experiments of condensation of the specie Acacia Mearnsii of Wild (black acacia): the experiment
of laboratory resulted in 38% of RG in condensed liquid and, the field experiment, in similar system
to this research, resulted in approximately 6.5% of RG, showing that has opportunity of important
improvements in the condenser.
However, present the contribution of the processes of carbonization and of the use of wood within
the total impacts proceedings of the activity.
The process of carbonization in the Process 1 contributes significantly for the following categories
of impacts:
(a) Regarding potential damages to human health, formed by categories: human toxicity
(55%), formation of the photochemical oxidants (94%) and formation of particulate
material (100%);
(b) Regarding to the damages to quality of the ecosystem in the categories of impacts
terrestrial acidification (95%), terrestrial ecotoxicity (98%), fresh water ecotoxicity
(63%) and marine ecotoxicity (75%);
Regarding to the consumption of wood, the Process 1 consumed 9% more than the Process 2 and
13% less than the Process 3 by the tone of charcoal produced. The results show:
(a) potential damages to human health in the categories climate changes (94%), depletion of
the ozone (100%), human toxicity (45%) and ionizing radiation (100%);
(b) contribution to the damages of quality of the ecosystem in the categories of impacts
climate changes (94%), eutrophication of fresh water (100%), fresh water ecotoxicity
(37%), marine ecotoxicity (25%), occupation of agriculture lands, occupation of urban
lands and natural transformation of the earth (100% each);
(c) that the potential environmental impact in the category of damages to the resources was
100% for the categories depletion of the metal and depletion fossil.
Contributions of the Process 2 shows that the carbonization of the process significantly in the
categories of impacts:
(a) Regarding potential damage to the human health, formed by the categories human
toxicity (31%), formation of the photochemical oxidants (87%) and formation of
particulate material(100%);
(b) Regarding the damage to the quality of the Ecosystem in the categories of impacts
terrestrial acidification (95%), terrestrial ecotoxicity (95%), fresh water ecotoxicity
(38%) and marine ecotoxicity (52%);
Regarding the utilization of the wood, the Process 2 consumed 9% less that the Process 1 and 21%
less that the Process 3 for each ton of charcoal produced. Results show:
(a) potential damage to the human health in the categories climate changes (98%), depletion
of the ozone (100%), human toxicity (69%) and ionizing radiation (100%);
(b) contribution for the damage of the quality of the Ecosystem in the categories of impacts
climate changes (98%), fresh water eutrophication (100%), fresh water ecotoxicity
(62%), marine ecotoxicity (48%), occupation of the agriculture land, occupation of the
urban land and natural transformation of the earth (100% each);
100% for the categories depletion of the metal and fossil depletion.
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The contributions of the Process 3, presented in the Figure 3, shows that the process of carbonization
of the Process 3 shocks significantly in the categories impacts:
(a) Regarding potential damages to the human health, formed by the categories human
toxicity (52%), formation of the photochemical oxidants (94%) and formation of
particulate material (100%);
(b) Regarding the damages to the quality of Ecosystem in the categories of impacts terrestrial
acidification (95%), terrestrial ecotoxicity (98%), fresh water ecotoxicity (60%) and
marine ecotoxicity (73%);
Regarding the wood consumption, the Process 3 consumed 16% more than the Process 1 and 27%
more than the Process 2 per ton of charcoal produced. Results show:
(a) potential harm to the human health in the categories climate changes (94%), depletion of
the ozone (100%), human toxicity (48%) and ionizing radiation (100%);
(b) contribution for the damages to the quality of the Ecosystem in the categories of impacts
climate changes (94%), eutrophication of fresh water (100%), fresh water ecotoxicity
(40%), marine ecotoxicity (27%), occupation of agriculture land, occupation of urban
land and natural transformation of the earth (100% each);
100% to the categories depletion of the metal and fossil depletion.
5.3. Analysis of the Flow of Economic Value

From the premises that guided the analysis of flow of economic value of the process mapped resulted
in the Table 5.
Table 5: Base premises to economic analysis, by Process, Source: Authors
Data / Type of UCP Process 1 Process 2 Process 3
1. Production capacity considered in t. 163 163 163
2. Initial investment ($) 938.356 999.389 1.043.770
Technical-operational data
9. Quantity of kilns in the system 29 42 77
10. Ø of the kiln m 4.00 3.00 2.75
11. Height of the kiln m 1.30 1.50 1.80
12. Capacity of the kiln in st of wood 16 11 11
13. Amount of humid wood loaded in st 11 7 6
14. Time of carbonization in hours 204 192 200
15. Average quantity of batch/month by kiln 3.50 3.80 3.60
16. Daily production (carbonization/kiln) 0.118 0.125 0,120
17. Substance of humidity of the wood loaded 15.70% 39.4% 42.4%
18. Mass of humid wood loaded (kg) 6.240 5.283 4.060
19. Mass of dried wood loaded (kg) 5.453 3.204 2.339
20. Mass of charcoal produced 1.589 1.023 590
21. Volume of bulk mdc charcoal/load 6.800 6.5 2,9
22. Gravimetric revenue in CV (BS) 28.10% 31.9% 25.2%
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23. Fix carbon % 72.80% 79.1% 60.0%
24. Apparently density 3

t charcoal/m of charcoal (lab.)
0.381 0.355 0.321
25. Bulk density 3

t charcoal/m of charcoal (bulk)
0.233 0.156 0.204
26. Basic density of wood t/m BS 3

0.488 0.470 0.410
27. Volumetric ratio of conversion (wood/charcoal) 1.640 1.04 1.970
28. Fines of charcoal (kg) 20.000 59.70 30.00
29. Pyroligneous liquor (kg) 0.000 0.0 110.00
30. Productive days in the month (kilns) 30 30 30
31. Regime de produção in hours/day (kilns) 24 24 24
32. Hours worked/employee x month 180 180 180
33. Number of employees 7 11 19
34. Average labor time/kiln 43.400 46.70 44.60
35. Monthly production of charcoal (t) 163 163 163
36. Monthly commercial production of fines 0 0 0
37. Monthly production of pyroligneous liquor (kg) 0 0 8.442
Operational costs
38. Labor in $/hour 13.66 13.66 13.66
39. Price of the wood $/st CIF 45.00 45.00 45.00
40. Average monthly cost estimated of maintenance of kilns 400.00 820.91 1,582.53
41. Average monthly cost of other maintenance 4,25000 4,250.00 4,250.00
42. Packing (monthly stipend) 4.00 45.00 45.00
43. Fuels (monthly stipend) 5,890.00 5,890.00 5,890.00
44. Unit Cost of charcoal $/t 732.97 996.20 1,588.61
45. Wood/fornada (CIF) 502.81 306.76 256.67
46. Labor/charge 657.97 707.45 674.88
47. Maintenance/charge 3.91 5.16 5.73
Sales price of charcoal, fines and pyroligneous liquor
48. $/t of charcoal CIF 750.00 750.00 750.00
49. $/t of Fines CIF 80.00 80.00 80.00
50. $/l of Liquor CIF Xxx Xxx 1.50
Note: Origin of the data:

(a) Collected Data of the Process 1: 1–14;18; 20; 28–33; 36–43; 48–50;
(b) Collected Data of the Process 2: 3;10–14; 18; 20; 28; 29; 36; 37; 49; 50;
(c) Collected Data of the Process 3: 3;10–14; 18; 20; 28; 29; 36; 37; 49; 50;
(d) Data adopted for the Process 1 for the Processes 2 and 3: 1; 2; 4–9;30–32; 38; 39;
41–43; 48;
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(e) Data calculated for the Process 2:

9: calculated for the capacity equated for all Processes;
33: proportional to the number of ovens regarding to the Process 1;
40: (proportional to the cost of construction of the kiln);
(f) Data calculated for the Processes 3: 9; 33; 40 (proportional);
(g) Data calculated for all Processes: 15; 16;19; 21; 22; 27; 34; 35; 44–47;
(h) Data obtained in Laboratory: 17; 23–26
Regarding to the fines generated after the unloading the kilns, not evidenced the practice of
commercialization in none of the Processes mapped. This explain, partially, by the difficulty of
separation of contaminant materials and by the small quantity generated. The producers of the
Processes 1 and 3 utilize the fines in the substrates used in plantations in the farms.
Table 5 made possible the elaboration of annual cash flows, Table 6.
Table 6: Annual Cash flow (in $1,000), by Process, Source: Authors
Processes Process 1 Process 2 Process 3
Items/Year 0 1 [..10] 0 1 [..10] 0 1 [..10]
A) Initial investment -938 -999 -1.044
B) Inputs
Revenues of Sales
Charcoal 1.464 1.464 1.467
Fines 0 0 0
Pyroligneous liquor 0 0 13
C) Total of Inputs 1.464 1.464 1.480
D) Outputs
Wood 618 585 851
Labor 207 325 561
Other operational costs 127 132 141
E) Total of Outputs 951 1.042 1.553
F) Balance (C-E) 513 422 -73
G) Annual cash flow -938 513 -999 422 -1.044 -73

The cash flow deals with the projection. Therefore, can be treated as flow of input and output
constant in each period (after year zero), resulting, to practical effects, on one analysis of the cash
flow of equivalent mean value, considering the experiments for 10 years.
From the data contained in the cash flows was possible to explicit the economic indicators, resulting
in the Table 7.
Table 7: Economic Indicators, by Process, Source: Authors
Economic indicators Process 1 Process 2 Process 3
Profitability (%) 35 29 -5
Revenue (%) 546 422 -70
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Payback (years) 1.8 2.3 ND
NPV (Net Present Value in $) 1,604,147 1,329,609 -1,301,378
IRR (Internal Rate of Return %) 54 41 ND
With the sale price of the charcoal for the domestic market, of the region of the State of Parana and
the cost of the wood practiced in the region, adopted in the premises, the analysis of the Table 7
indicates economic feasibility in the Processes 1 and 2, with predominance of the Process 1 in all
indicators.
The predominance of the Process 1 over the Process 2, in economic terms, can be explained by the
fact the former have not been optimized as to operational expenses, since some data were adapted
from the Process 1 to allow the comparison among them.
Other explanation of the better economic performance of the Process 1 related that the fact of
that the Processes 2 and 3 have kilns of smaller volumetric capacity, requiring more number of
carbonizations, among other factors.
Factors such as the low density, high content of humidity and the low volume of wood loaded, lead
to low performance of the Process 3, showing the economic unviability, when compared with the
Processes 1 and 2.
In an analysis of sensitivity, considering the variable the sale price and all more constant, that the
Processes 1, 2 and 3 be economically feasible the sale price per ton of charcoal not be lower than $
572.50; $ 624.50 and $ 882.20, respectively.
Considering all as the constant, less the price of wood, to that the Processes 1, 2 and 3 are economically
viable, the maximum price to stereo acquisition of the wood ought to be $ 70.20; $ 63.80 and $ 31.30,
respectively. Thus, in need of the price of sale 17.6% bigger and of the price of purchase of the wood
30.4% smaller than the values adopted as the basis in the analysis, the unviability explained.
The study of Dallastra (2010) compared technologies based in metallic kilns and in masonry kilns
of the type rectangular and cylindrical. The author emphasized that, in the view point of the return
of investment, the lower the investment, bigger the percentile of return (rudimentary technology)
and that the margin of net profit is directly proportional to the efficiency of the process (advanced
technology). Further stated that the cylindrical kiln technology of the “hot ass” type presented the
bigger return over the capital invested, however presented more sensibility to the variations in the
prices of the wood and the charcoal.
Silva and Farias (2015) analyzed the economic viability of the production of charcoal in three
cylindrical masonry kilns of the “hot ass” type. Considered kilns with and without chimney and kiln
of the Brochier’s system with condensation of gases; own wood from consortium plantation of black
acacia with corn and wood acquired from contractors. Authors found bigger attractiveness in the
production by the Brochier’s system justified by using own wood and by the income obtained with
the sale of the pyroligneous liquor.
Oliveira et al., (2017) analyzed the viability and the economic risk of kiln-furnace system and oven
“hot ass”. They found that the system kiln-furnace presented bigger economic viability, explain
mainly, by getting bigger RGCV and that the probability of the system be economically inviable was
0.9% while that for the kiln “hot ass” this probability was 27.3%.
5.4. Proposal for environmental and economic model

Considering any proposal for small scale must take into account the few financial availability for
the producers, as the difficulty of access to more elaborated technical information. The conjunction
of these two factors determine that the solutions should be simple, practical, inexpensive and take
advantage of what already exist good and consolidated.
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The sustainability of the process based in the guarantee of the permanence of the activity according:
i. The capacity of the no commitment of the natural resources by the utilization of
renewable origin and that the handling be adequate in order to do not attack the
environment;
ii. The capacity of to enable the greater use of the available resources by means
technologies and the best practices of fabrication;
iii. The guarantee that the human being will be respected in its elementary needs, both
those involved in the activity, as well as those around it;
iv. The respect to the environment by not emitting pollutants and the compliance with
relevant legislation; and,
v. The economic viability of the activity in the generation of enough gains for the
maintenance of the activity and without aggression to the environment.
6. ANALYSIS AND DISCUSSIONS

Analysis of environmental and economic value conducted in the process in circular kilns with direct
release of the combustion gases generated during carbonization to the atmosphere (Process 1); in the
process with combustion of the gases in furnaces (Process 2); and, in the process with condensation
of the gases (Process 3).
In the analysis of environmental value, employing the life cycle assessment (LCA) methodology,
found that Process 1 was highly impactful in 94% of the impact categories assessed. In comparison
with Process 1, regarding damages to human health, Process 2 presented significant impact
reductions in the categories of human toxicity (42 pp), and photochemical oxidant formation (61pp).
Regarding damages to the ecosystem reductions found in the categories of terrestrial ecotoxicity
(67 pp), fresh water ecotoxicity (47 pp), and marine ecotoxicity (53 pp). Concerning damages to
resources, Process 2 contributed with a reduction in metal depletion (10 pp) and fossil depletion (10
pp). Process 3 presented impact reductions in all of the categories in comparison with Process 1 and,
in the category of formation of particulate matter presented itself as the best process among the three
with a reduction of (14 pp) in relation to Process 1 and a significant reduction (45 pp) in comparison
with Process 2.
7. Conclusion
The analysis of economic value highlights that the economic viability in low technology and low
investment processes has been increasingly more dependent on the reduction of operational costs
and, therefore, on the efficiency of the operation. The suggestions of the model bring contributions
to the operational efficiency and environmental performance.
8. Acknowledgements
This work had the financial support of coordination of improvement of higher education personnel
(CAPES) to which dully acknowledge. Many thanks to the academic and technical staff of the
graduate program in production engineering of the UTFPR. Thanks also to charcoal producers of
several regions and research institutes for the valuable contribution to the completion of present
research work.
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A Multi-Dimensional Information Technology
Service Quality Framework
Chelma Sliep
University of Johannesburg, Department of Applied
Information Systems, South Africa
E-mail: chelmap@uj.ac.za
Carl Marnewick
University of Johannesburg, Department of Applied
Information Systems, South Africa
E-mail: cmarnewick@uj.ac.za
Abstract
Information technology (IT) leaders in HEIs face a challenge to incorporate and provision for the continuous
transformation of technology and the way it is applied in HEIs to improve the quality of IT service delivery to
satisfy their stakeholders’ expectations. It is inevitable that managing IT has become much more than just managing
of IT systems with a fixed set of knowledge and skills. Simply implementing new technologies and innovations
does not necessarily give an organisation the competitive edge, and technology does not have a significant influence
when it comes to improving business processes. Various best practices, methodologies, standards and frameworks
exist today which all address some feature of the IT value stream. Organisations, achieving stability and agility,
recognise, agree, change and effortlessly integrate more than one framework. IT, although not the core business of
an organisation, is an important part of the organisation and IT should dynamically change its philosophy, standards
and its way of thinking to meet the rapidly changing, everyday organisational necessities. In recent years, IT is
managed as a value stream and not as a localised domain and should be looked at through the lean and systems
thinking viewpoint to identify any obstacles and interruptions as these are the cause of limitations in the value
stream. A multi-dimensional framework is designed for the integration of continuous transformation of technology
and its application in HEIs to improve the quality of service delivery to satisfy their stakeholders’ expectations.
The framework provides strategies to minimise complexity through recognition, standardisation, automation and
optimisation of the IT value stream. The framework aims to use existing documented processes and standards to
rapidly advance management processes and flow. The benefits of this article include contribution to the body of
knowledge of quality service delivery and IT leaders can use the framework to apply lean and agile principles to
overcome the silo approach and keep up with the perseverance to deliver quality IT services to enable them to
become high performance organisations.
Keywords: IT Service Quality, ITIL, ITSM, Lean IT, DevOps, Services and Operations
1. Introduction
Higher Education Institutions (HEIs) are under enormous pressure as employee and student
expectations increase. Added to this pressure is the rapid changes of technology and
globalisation which affects the demands from jobs that do not exist yet and this constantly
increases the costs (Casares, J. et al., 2013, Goldstein,, 2006, Shark, 2015). IT leaders within
HEIs face the challenge to incorporate and provision for this ongoing change in technology
and find the right places and times to deploy or not to deploy these technologies in order to
provide quality services to various stakeholders. To be able to provide one single solution or
approach to address the variety of IT service requirements across the various types of HEIs is
a scary thought (Chester, 2010). As teaching in person becomes less significant, there will be a
larger expectation to increase the quality of education with less resources to do so (Goldstein,
2006). It is technology that will allow the system to reorganise and deliver what the world
needs (Koester, 2011, Shark, 2015). HEIs IT leaders are under growing pressure to add value
to the core of education and research processes to guarantee competitive advantage (Gartner,
2015). It is critical to make the right decisions regarding IT investments as it has a substantial
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effect on economic prospects, which in turn could have significant detrimental consequences
on an organisation’s performance (Adomavicius et al., 2008). HEIs must understand technology
and the extend of technology change to determine their competitive advantage. IT services
and systems management are vital in support and satisfaction of business needs (Cronholm,
et al., 2014). IT is far more strategic and universal as IT offers unbelievable prospects and
requests unanticipated answers, which integrate into numerous business requirements and is
vital to the core university purposes of teaching and learning (Koester, 2011). IT within HEI’s
is multifunctional as it assists the business of the institution, provide new developments and
innovations to teaching and learning, and safeguards new capabilities to research (Andriola,
et al., 2015). The IT requirements from HEIs stakeholders need to be well-defined and well
understood to deliver reliable accessible and well-designed IT services (Koester, 2011). Severe
and strong-minded changes in people, process and technology are needed if the complete
benefits of technology implementations want to be met (Lowendahl, 2015). IT requires tools
to successfully enable leadership collaboration and a shared goal to drive change and will not
be able to produce a perfect fit solution for education on its own. The key to sustainable IT
solutions lies in the use of active and reputable processes and methodologies which offers
important strengths and agility as required by HEIs and this caused the development of multiple
best practice frameworks providing several landscapes of the value chain driven by IT (De
Waal, 2012, Fiampolis, et al., 2016). IT, as an essential part of the institution, determines
organisational stability and agility through the adoption of various best practice frameworks.
A conceptual framework, which takes into consideration the key value-added components is
proposed for quality IT service delivery. The multi-dimensional framework integrates DevOps and
LEAN IT principles and VisibleOps processes to ensure all aspects of delivering quality IT services
are considered.
This article is organised into three sections: the first section provides an overview of frameworks and
models used in the industry to improve and manage quality IT services. The conceptual framework
for ensuring continued IT service delivery is proposed in the second section. The third section
concludes the article.
The literature review investigates the concept of service quality as this is ultimately what IT
departments or IT organisations want to achieve even though various stakeholders have various
expectations on when the service fulfilled their expectations. ITIL, DevOps, Lean IT and VisibleOps
are industry known frameworks which were explored in the literature review and the integration of
key components of these frameworks were identified, and resulted in the proposed multi-dimensional
2.1. Service Quality

The role of IT changed over the years from being the back-bone of an organisation to being totally
integrated in delivering IT as a service (Dumitriu, D., 2008). In our world today, services guide the
governing of our economies as well as our personal and professional lives (Schwarz, et al., 2012).
According to Huang et al., (2013) any IT-related service is key to strategic management. To fully
understand delivery of IT as a service it is essential to define a service within the context of IT. A
service is described as being “intangible, inseparable, consumable, heterogeneous and has lack
of ownership” (Fisk, et al., 1993, Grönroos, 1984, Lovelock, 2007, Zeng, 2007). Zeithmal, et al.,
(1985) states that “…services are deeds, processes, and performances provided or co-produced
by one entity or person for another entity or person”. The most shared features of a service are
summarised in Table 1.
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A Multi-Dimensional Information Technology Service Quality Framework
Table 1: Features of a Service (Chingang, et al., 2010)

Feature Description Example
It is not a good that can be tasted, touched, Customer requesting a new user at the helpdesk, but not
Intangible
seen or heard receiving a physical good.
Perishable/ A ticket booked for a specific show cannot be used for a
As a service is created, it is being used.
Consumable different show.
One customer can be assisted over the phone to solve a
Services are offered on different levels to
Heterogeneous problem whilst another customer will need a technician’ s
fit different customers
personal assistance solving the same problem.
Consume the service at the same time it Customer connects to the internet while paying for the data
Inseparable
is procured at the same time.
The features of a service make it challenging to measure service quality (Fiampolis, et al., 2016,
Prasad, et al., 2013). Grönroos, (1984) and Zeithmal, et al., (1985), agrees that service quality is
normally defined as the extent of the difference between the customer’s expectations and their
perceptions. According to Grönroos, (2007), the gap between the customer expectations and
perceptions should be kept to a minimum and the end goal is to satisfy the customer to establish
a long-term relationship (Prasad, et al., 2013). Usually researchers find it difficult to define and
measure good quality services and in general good quality services are delivered when customers
seem satisfied, profitability increase, customers keep on coming back and when customers give
positive feedback (Wienberg, 2001). Therefore, delivering quality services depend on a combination
of product reliability, a quality setting, delivery of reliable systems, excellent personal service
(including employee attitude, knowledge and skills) and the measurement should permit valuation
before and after changes in the process and implement defined standards for service delivery
(Johnston, 1995, Zeithaml, et al., 1985). Various frameworks like ITIL, ITSM, DevOps, Lean and
Agile are available to assist IT organisations in delivering quality IT services.
2.2. Information Technology Infrastructure Library (ITIL) and ITSM (Information

Technology Service Management)
ITSM is the collection of processes and roles that ensure the continuous and dynamic functioning of
an IT system (Addy, 2007). ITIL exists since the 1980’s and is recognised as the best practice standard
for ITSM and offers the baseline for the development of other IT best practice frameworks (Galup, et
al., 2009). Zeng, (2007), agrees with Meziani et al., (2010) that ITIL forms the foundation of quality
IT service management and assists organisations to provide cost-effective and state of the art customer
services that depends on “accessibility, reliability, security and performance” and provides IT with the
ability to dynamically contribute to organisational goals. The basic concept of ITIL is the lifecycle of a
service and consists of five service lifecycles, twenty-four processes and four functions.
Best practice standards like ITIL are in some cases seen as archaic and inflexible which is being
used to manage modern and advanced technology solutions. In cases where ITIL is still valuable,
consultants over apply the standards (Betz, 2016). According to Betz (2016), other standards or
frameworks like Agile software development, Lean IT and DevOps are being applied more often
as the IT industry is becoming more careful to apply old-fashioned standards like ITIL. As most of
IT problems have been around for just as long as ITIL, it is clear that to manage IT effectively and
efficiently one has to extend the ITIL approach to deliver hands-on quality IT services (Addy, 2007).
2.3. Lean IT
Lean started in the manufacturing industry where the Toyota Production System optimised the
production line with methodologies with an end goal to reduce waste and optimise workflow (Sedge,
2014). Forms of waste may include incorrect services being delivered, waiting time and ‘busywork’
(Reinertsen, 2009). The focus of a lean organisation is to enhance customer value, decrease waste
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and optimise operations (University of California, 2013). Sayer, et al., (2007) describe Lean as
“a philosophy and a proven long-term approach that aligns everything in the business to deliver
increasing customer value”. Therefore, the main objective is to enable people and systems to
provide a non-stop flow of important services to the customer, but at the same time decrease excess
and scarcities in a complete process to ensure continuous performance enhancement (Sayer, et al.,
2007, Sedge, 2014). DuMoulin (2015), supports this viewpoint and defines Lean as “a strategy for
operational excellence based on clearly defined values to engage people in continuously improving
safety, morale, quality, cost and productivity”. Modig et al., (2015) describes Lean Thinking as an
equilibrium between the requirement of flow efficiency (delivery of customer value) and resource
efficiency (use of people’s time and other resources)”.
The key principles of Lean can be applied to various industries, even IT and has been applied to software
development where the main emphasis is to deliver a solution anywhere, anytime and as soon as possible
(Akins, 2016). The Lean IT Association (LITA) expands on the definition of Lean to apply it to IT and
defines Lean IT as “the extension of lean manufacturing and lean services principles to the development
and management of information technology products and services. Its goal is to continuously improve
the value delivered by IT organisations to their customers and the professionalism of IT people” (Lean IT
Association, 2015). Lean IT mainly emphasise on how value is created for customers through application
of systems thinking through creating consistent perseverance, accepting methodological thinking,
producing flow and push, assuring quality, being modest and respect each person (Kim, et al., 2016).
According to Modig et al., (2015) an organisation’s “flow efficiency” is determined by processes and
therefore it is critical to understand the organisation’s processes before Lean principles can be applied. The
following Lean principles can be applied to IT: eliminate waste, enhance learning and create knowledge,
be committed to each process and task, include quality throughout the build process, include integrity,
deliver as quickly as possible, respect and trust people (Akins, 2016).
2.4. DevOps (IT Development and IT Operations)

DevOps is an acronym which is derived from the integration of development and operations and is
a new approach aiming to decrease IT operational costs, but at the same time increase the quality of
software and reduce delivery time to the customer (Atos., 2014). According to Kim, et al., (2016).
DevOps “is a way for the business to regain trust in the entire IT organization as a whole”. The
DevOps approach has its origin from Lean and Agile software developments where the continuous
reiteration of best practices resulted in shorter lifecycles of development and allowed teams to be
more insightful and innovative. As a result, this led to improved customer value-add (Sharma, et al.,
2015). Sharma, et al., (2015), defines DevOps as “an approach based on Lean and Agile principles
in which business owners and the development, operations, and quality assurance departments
collaborate to deliver software in a continuous manner that enables the business to more quickly
seize the market opportunities and reduce the time to include customer feedback”. There is more
to DevOps than defined by Sharma, et al., (2015), Spafford, et al., (2015), Wurster, et al., and
Zeithaml, et al., (2009), agrees that a cultural change, focused on fast IT service delivery need to be
established in the IT department as well. DevOps requires the smooth collaboration between people,
process and technology between diverse, dynamic users which requires not just technology but also
a cultural change (Zeithaml, et al., 2009). DevOps focuses on development and IT operations as
this is seen as the value stream between the business where requirements logically originate and the
customers where the required services are delivered (Hodges, 2016, Kim, 2014). The results of the
2016 State of DevOps Report highlights the huge effect DevOps approaches have on organisational
and team performance:
i. High performance organisations deploy 200 times faster than low performers
ii. These organisations have 24 times faster recovery times and 3 times lower change failures
iii. 50 percent less time is used to resolve security problems by high performance IT teams
iv. High performing IT teams spend 22 percent less on unplanned work and adjustments.
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DevOps is made possible by culture, automation, Lean, measurement and sharing (CALMS model
of DevOps) and all work together to produce quicker and improved quality releases (Atos., 2014).
The CALMS model is depicted in Table 2.
Table 2: CALMS Model of DevOps
Components Description
Culture Forms the foundation of any development team
Automation Automation of processes and eliminate manual tasks to focus on quality outputs. It is the “enabler” of
continuous delivery
Lean Lean reduces waste and focus on the goal, people and processes
Measurement To be able to improve it, you need to measure it. Measure everything it can as frequently as possible to
successfully apply DevOps
Sharing To break down silos, you need to share, collaborate and sharing forms part of the feedback loop
Organisations are looking for more agile ways to deal with IT complications and research shows
that there is a large adoption of DevOps, 6% in 2014 and 66% in 2015, but it is also forecast that
90% of organisations adopting DevOps will fail if they do not commit to a culture change (Diana,
2015, RightScale, 2015). It is important to note that the culture of communication and collaboration
is critical to structure efficient DevOps teams and processes (Kim, et al., 2016).
3. Research Problem Statement

When mainframes were replaced by microcomputers in the 1980’s and organisations realised
that computing and the way we use IT will inevitably change as computing attracted more than
scientists and accountants (Grajek, 2014). Six trends were identified which will fast-track the
embracing of technology in HEIs: (1) explosion of ubiquity of social media, (2) incorporation
of online learning, (3) escalation of data-driven education and valuation, (4) students as patrons
became students as initiators, (5) agile responses to change and (6) “evolution of online learning”
(Reinertsen, 2009). Obstructions and delays in the IT value stream should be identified as it
restricts the organisation to become a high-performance organisation. IT moved from managing
IT as a localised entity to visualising IT as an optimised value stream in its totality (De Waal,
2012, DuMoulin, 2016).
The research problem statement is: IT leaders in HEIs face a challenge to incorporate and provision
for the continuous transformation of technology and the way it is applied in HEIs to improve the
quality of IT service delivery to satisfy their stakeholders expectations.
The next section concentrates on the proposed multi-dimensional conceptual framework to deliver
quality IT services in the ever-changing technology world in HEIs.
4. Multi-Dimensional Conceptual Framework for Delivering Quality It Services

An extensive literature review was used to develop the conceptual framework and the results of the review
were analysed. Saunders, et al., (2009) explains the inductive content approach as the development of a
concept due to observation and analysis of data. The deductive approach is used by researchers to validate
a theory or model by investigating hypotheses or questions derived from it (Creswell, 2014).
Inductive content analysis was used for this research to develop the conceptual framework. The
theories identified in the literature review were used as the main mechanisms of the proposed
framework. The following research process was followed:
i. Frameworks and theories used in the IT industry were identified e.g. ITSM, ITIL,
Lean, DevOps and service quality.
ii. The reliability of the frameworks and theories were authenticated by relating it to
the research problem statement.
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iii. The most relevant frameworks were identified to form the foundation of the
The interactive mechanisms of the conceptual framework are discussed in the following sections.
4.1. Visible Ops

Visible Ops was established after Behr, et al., (2014) studied high performance IT organisations
since 2000 and determined what distinguishes high performers from lower performers. Visible Ops
has four key phases, taking an organisation from where they are today to continually improving its
processes (Behr, et al., 2014). Figure 1 illustrates the Visible Ops and relevant ITIL processes.
Figure 1: Visible Ops and relevant ITIL processes (adjusted Behr et al., 2016)
4.1.1. Phase 1: “Stabilise the Patient”

The key objective of this phase is to stabalise the environment by moving from a reactive state to a
pro-active state and eliminate crisis management. It is important to get to the root cause of a problem,
identify maintenance outside of scheduled times and limit outages. Phase one relates to the resolution
process of ITIL which include incident and problem management. Incident management controls the
lifecycle of all incidents (disruptions in IT service supply to user). The main objective of incident
management is to restore the service as quickly as possible. This is done by reducing the incident
lifecycle through carefully planned maintenance and provisioning of alternate service resources.
4.1.2. Phase 2: “Catch & Release” and Find “Fragile Artifacts”

In this phase assets, services and configurations are recorded to identify assets with the lowest change
rate, the highest mean time to recover (MTTR) and have the highest cost during service outage. Weak
systems that cause uncertain changes and huge amounts of unplanned work are identified before they
can be ‘fixed’. An updated and well-maintained Configuration and Management Database (CMDB)
is key to this phase. Phase two relates to the control processes of ITIL and includes configuration and
change management. Configuration management is the upkeep of all information related to important
IT services in a database. Change management is responsible for the lifecycle of system and service
changes. Changes should be well planned and made with the least interference of IT services.
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4.1.3. Phase 3: “Establish a Repeatable Build Library”

The most critical assets and services should have repeatable builds as it is less costly to rebuild
an asset or service than to repair it. Behr, et al., (2016) found that effective release management
processes have the maximum return on investment and suggest that stable builds should be
implemented to ensure confidence about changes being made and enables quicker and higher quality
releases. Phase three relates to the release process of ITIL which includes release management.
Release management regulates a collection of hardware, software, documentation, processes and
services used to implement approved changes to IT services. This collection is kept up to date and
provides IT operations management with high quality options for implementation in current or new
IT services.
4.1.4. Phase 4: “Enable Continuous Improvement”

Phase four pulls the first three phases, which progressively built a closed loop between release,
control and resolution processes, together by implementing required metrics to sustain and support
continuous improvement. Visible Ops was selected as an important part of the conceptual framework
as it provides a clear roadmap to organisations to improve their processes. The goal of Visible Ops
is to produce the least amount of processes required to ensure substantial development. Although
ITIL provides comprehensive best practices, it lacks inflexible guidance and the books are expensive
to distribute. The research done by Behr, et al., (2016), pin pointed the steps high performance
organisations took to improve their processes and become successful. A quicker, more dynamic way
of improving processes is critical for any organisation to gain competitive advantage. There are only
three key ITIL processes common in high performance organisations and they are release, control
and resolution processes.
4.2. Lean Principles

Figure 2 depicts the Lean principles pyramid which was designed to assist IT organisations to
implement Lean principles (Betz, 2016, Von Bertalanffy, 1968).
Figure 2: Lean Enterprise Principles Pyramid (Bell, et al., 2011)
The pyramid has five levels and are described as follow:

Foundation: The foundation consists of three sub elements supporting the social structure of
Lean namely constancy of purpose, respect for people and pursuit of perfection. The Foundation
is strategically part of Lean. To ensure focus on a clear vision of long-term business objectives,
requires strong leadership that continuously drive the purpose and motivate certain behaviour.
Respect for people focus on all-inclusiveness of employees that have a strong impact on others to
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achieve the business goals. A pursuit of perfection encourages the transfer from reactive behaviour
to pro-active identification and problem solving.
Behaviour: This principle focuses on an operational level and permits employees to take personal
responsibility for their initiatives. This results in initiatives that add value to customers and produces
quality work. This behaviour becomes part of the employee’s daily work routine and creates self-
worth and pride within employees.
Perspective: On a tactical level, perspective is about awareness and talks to three viewpoints in the
Lean enterprise. Firstly, the voice of the customer speaks awareness of the customer’s requirements.
This enables the employees to know what to focus on if they understand the requirements. Secondly,
no product should get delivered to the customer if it is not 100% correct and quality of source
guarantees that everything gets done right from the beginning. Thirdly, an overview of all the joined
processes that concludes the value stream are ensured through systems thinking.
Flow: The flow principle ensures that whatever service, product or information that could possibly
cause disruptions, be removed. Service outages must be kept to the minimum.
Capstone: On a strategic level of the Lean enterprise the focus is on culture. Culture implies the
organisation’s shared principles, opinions and morals. The capstone of the Lean IT culture pursues
continuous improvement and includes the enablement of employees to pro-actively add value to and
solve problems with high performance being the end goal (Senn, 2015).
4.2.1. DevOps Principles

DevOps principles should be followed as an entity with network of co-dependent processes
with the same goal and with a mutual set of operational measurements (Montgomery, 2016).
The three key principles and standards of DevOps used in the proposed framework are systems
thinking, intensify feedback loops and a culture of continuous improvement (Kim, 2014, Kim,
et al., 2016).
The First Way: Systems Thinking
The aim of systems thinking is to look at the performance of the system as an entity and to
eliminate any silo activities within the IT department, for example the developers and system
administrators each working on their own. The First Way is based on the Systems Thinking Theory
where the emphasis moves from the individual parts to the entire process, keeping in mind that
the authenticity is an exclusive phenomenon where the interdependent unique properties of parts
becomes fuzzy (Jackson, 2003, Wilsenach, 2015). To understand the complete functioning of a
phenomenon, we need to analyse it from an overall, inclusive standpoint and not as the separate
parts it consists of (Voss, et al., 2007). Systems thinking applied to IT, includes the complete
“value stream” of the organisation from the IT business requirements, through development to
IT operations until the final service is delivered to the customer. Improved work flow, in depth
understanding of the system and not passing on of bugs to the next process are some of the benefits
obtained when applying systems thinking.
The Second Way: Intensify Feedback Loops
When feedback loops are shortened and at the same time intensified, this causes that work does not
need to be redone as there is focus on the continuous flow of feedback from right to left throughout
the whole process. This ensures that the required changes and adjustments are done continiously as
the problems are being identified from feedback received. It also ensures that all activities around
building IT services evolves around the customer.
The Third Way: Culture of Continual Experimentation and Learning
The focus of The Third Way is to create a culture of continuous investigation, lessons learned
and improve from it and the ongoing replication of tasks to reach an end result of perfection.
DevOps cannot be successful by implementing tools only, but the teams need to fully understand
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and comply with the proposed culture whilst the focus between the development and operation
teams must be improved collaboration (Wurster, et al., 2013). The outcomes as described by Kim
(2014) are as follow:
i. Time should be scheduled each day to review and improve work done for the day
ii. Formalize procedures to reward teams for taking risks
iii. Build accountabilities into the system to enable flexibility.
The team should be accountable from the product concept until end-of-life. This greatly enhances the
level of responsibility felt and the quality of the services or products developed. Continuous improvement
requires teams to continuously adapt to the changing environments for example legislation changes
and customer needs and as new technology becomes available, a focus to continuously improve the
products or services offered while reducing waste and cost and optimise speed is key.
In addition to the DevOps principles, it is important to engage in the seven habits of DevOps if
significant improvements are wanted to be seen (DeMartine, et al., 2014).
The Seven Habits of DevOps applied to the entire IT department
i. Establish trust between developers and operations: Continuous communication and
collaboration between various IT divisions are important to understand each other’s
worlds. This will improve interrelationships and build trust between colleagues.
ii. See everything through the eyes of the customer: It is important to fully understand
what the customer requires and then apply technology. Not the other way around.
Conversations between the customer and IT on numerous levels are inevitable to ensure
direction and alignment and promises transformation with considerable benefits.
iii. Streamline your application delivery pipeline: Automation seems to be the
answer to manual challenges and should be done gradually throughout the
environments. All deployment processes should be done in conjunction with test
processes to ensure alignment and exclude disruptions. Automate whatever you
can, not only the software development process but also the whole infrastructure
landscape. Automation supports the motivation for teams to adapt to the new way
of delivering services.
iv. Adopt a loosely coupled service-orientated architecture: To allow development of
new production services as quickly and flawlessly as possible, it is important to
start standardisation of key services.
v. Reward solution simplicity and reliability: Standard components make the
development of new services easier as it enables you to package them into new
services, which then can become a standard component to be used in other services.
The complexities of each service design are hidden within the package when
modular design is used. The teams should be rewarded when they find simplistic
ways of developing services and provisioning hardware.
vi. Adopt and improve how you use customer experience data: Complex systems
like technology and business requires feedback, and continuous feedback as such.
DevOps provide for two feedback lifecycle forms: They ensure that Ops is part of
the process as early as possible within the lifecycle process and secondly the testers
should also be included as early as possible. A complete lifecycle should include
feedback and feed-forward and to accomplish this the specialist knowledge from
Ops and the testers are vital from the early stages of development.
vii. Dev and Ops need to walk in each other’s shoes: The teams need to walk in each
other’s shoes if they want to fully understand each other’s environments and skills
requirements. Teams are required to be cross-functional and therefore require a
IAMOT 2019 | 805

balanced set of skills with team members having all round skills instead of the ‘old-
school’ IT specialists who are only skilled in one specific role. If developers are
included in the end-user support, it will give them a good idea of what the support
staff need to deal with and what feedback is received from the end-user regarding the
development. Ops members can be exposed to the development process from an early
stage to better understand the complexities required of building a service system.
The seven habits of DevOps integrate well with the DevOps principles and can also be applied
throughout the IT environment. It also forms part of the proposed multi-dimensional conceptual
framework.
5. The Proposed Multi-Dimensional Conceptual Framework

The aim of the proposed conceptual framework is to ensure continuous integration between various
parts of IT to, without exceptions, be inclusive when delivering services to the customer that will
ensure quality. As the complexity and dynamics of IT increase in combination with the continuous
pressure to perform better and deliver faster each day, implementing only one framework is simply
not good enough. Therefore, the proposed conceptual framework consists of a complex integration
of various frameworks. VisibleOps is selected as it focuses on the key processes of ITIL, the base of
all frameworks and if service quality is to be achieved, this is a critical component of the proposed
framework. LEAN IT and DevOps are the other two frameworks used in the proposed framework as
they both aim to optimise IT operations. The seven habits of DevOps form an integrated part of the
DevOps framework. The processes and principles should be adopted within the IT organisation and
can be used in multiple combinations and integrations to assist IT leaders in making the decisions that
will ensure delivery of quality services. The multi-dimensional conceptual framework can be applied
to any IT process, application, infrastructure, information and/or people within the IT organisation
to renew the way of thinking on how quality of IT services delivered should be obtained. Figure 3
depicts the multi-dimensional conceptual framework with VisibleOps, Lean IT and DevOps as the
main frameworks applied to improve the quality of IT services.
Figure 3: Multi-Dimensional Conceptual Framework for Delivering Quality IT Services (Source: Author)
6. Conclusions
This article focused on presenting a multi-dimensional conceptual framework that can be applied
in IT organisations to improve the quality of service delivery to their customers. The most popular
ITSM standards framework, ITL was presented to provide the background of the recently formed
VisibleOps framework, being used in the proposed framework. Due to the rapid rate at which IT
and its requirements are changing, the Lean methodology was presented and specifically the Lean
enterprise pyramid was identified to be used in the proposed framework as the literature review
highlighted that Lean assist organisations to improve customer value, decrease waste and optimise
IT operations. The DevOps approach was presented to stress the importance of integration and
continuous improvement.
IAMOT 2019 | 806
The proposed conceptual framework will assist IT leaders to apply key concepts to IT processes,
applications, information, infrastructure and people to ensure delivery of quality IT services to
their customers.
Further research will be done to validate the framework in a Higher Education Institution
environment. The framework will be re-evaluated and adapted once feedback from the interviews
are received. Future research will focus on validating the framework in other HEIs in South Africa
with the aim of integration in all types of organisations.
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IAMOT 2019 | 809

Factors of Investments Via Initial
Coin Offering
Marina Arkhipova
National Research University Higher School of Economics,
Department of Statistics and Data Analysis, Russia
E-mail: archipova@yandex.ru
Viacheslav Sirotin
National Research University Higher School of Economics,
Department of Statistics and Data Analysis, Russia
E-mail: vpsirotin@yandex.ru
Yan Buzhinsky
Katholieke Universitet Leuven, Faculty of Business and Econimics
E-mail: ybuzhinskiy@gmail.com
Abstract
The paper is focused on the problem of investments in young high-tech companies. The tools for financing of
high-tech projects are changing along with the progress in technological development, and new source of such
investments is Initial Coin Offering (ICO) which claims universality, but is most in demand in the field of high
technology. To be more specific about the issue we need additional research aimed at the finding of the particular
determinants making ICO attractive for investors. In this paper we introduce a model for estimation of the success
for funding via ICO and analyze the results of its specification and identification.
We consider the amount of funds raised and achievement of the fundraising goal as the most important metrics
for the success of ICO and create models to find their determinants. The methodology of the research is based on
regression and discriminant analyses and Blinder–Oaxaca decomposition. Using this method allows us to estimate
the influence of different factors on the success of ICO. The dataset for the model identification was taken on the
Internet by parsing sites of the companies and aggregators paying attention to the problem of representativeness.
Modelling results for the amount of funds and for the success of ICO have shown the importance of the company
popularity on the thematic forum while popularity on the general platforms like Twitter turned out to be non
significant. The significant effect on the dependent variable was shown by the particular algorithm of consensus
which is using by company and the education level of its CEO. It is also interesting that real estate and trading
companies obtain lower value of investments via ICO than others.
The results of the research show that ICO is one of new instrument for funding innovation development. It is quite
competitive with venture funding and can provide additional support to creating and using innovations.
Keywords: Funding of Innovation Development; Determinants of Funding Success; Regression Models;
Discriminant Analysis; Virtual Currency
1. INTRODUCTION
The industry of innovation and high technology in business has changed dramatically in the last two
decades. Emerged in 1995 along with the “dotcom boom” for the industry development, aiming at
the centralized digitalization and the Internet, have lost their relevance in late 2010. To replace the
above mentioned concepts came robotics and decentralized systems. Classical work (Nakomoto,
2008) offers the use of computing power of network computers to confirm the correctness of the
algorithm of actions on the computer of the contractor. This method can significantly reduce the
cost of third-party expertise to achieve consensus. Now this technology is known as “blockchain”.
Blockchain is the most widely used in those industries where users need security and speed of
operations. In the financial sector, the technology is also used to collect funds from investors.
Basically, young high-tech companies attract investments in this way, this process is called “initial
coin offering” (ICO).
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Factors of Investments Via Initial Coin Offering
In lots of papers such as (Conley, 2017), (Cerezo, 2017), authors analyze the phenomenon of this
new investment tool operating with virtual currency. Some authors discuss the influence of some
factors on the success of ICO, e.g. (Kaal et al., 2017) present two groups of such factors - media and
innovativeness.
Interest in ICO is growing at a tremendous pace: from 2015 to 2017, the number of companies that
carried out the initial placement of coins increased from 15 to 1266 (Coindesk: Stats). The increase
in the number of ICO projects has a negative impact on the quality of attracted investments.
The relevance of this study is justified by the high interest in ICO both among companies and among
investors in recent years, while in the academic environment the phenomenon is less studied. The
study helps to Orient themselves in the information field ICO. The main idea behind this research is
to define factors supported improvement the quality of investment via new financial tools based on
new digital technologies. To do this we have to answer the questions. What should we consider as
a success of the ICO? What fields are most applicable for such kind of investments? Does the kind
of block chain technology application matter? Is the educational level of top manager significant in
the success of the investments?
The main sources of information for this study was the websites-the aggregators of data about the
ICO: icorating.com, tokendata.io icobench.com, icodrops.com and others. Data on the variables
used in the analysis were collected using parsing scripts in the Python programming language using
the request and BeautifulSoup libraries or manually.
2. Initial coin offering as a way of investing in high tech companies

Despite the fact that the public offering of coins is a relatively new tool – the first ICO was held in
2015, the mechanism of its work can be called truly conservative. Any company that aims to raise
funds by selling coins to a wide range of investors starts its ICO campaign with the publication on
the website bitcointalk.org, the largest forum for crypto investors. This publication contains links to
the company’s pages on social networks, the company’s website and basic information about what
the company is at the moment and how it plans to develop. Potential investors receive more detailed
information from the company’s Whitepaper – a document which describes in detail how the sale
of coins will be organized, what role the token plays in the company and what it is planned to spend
the funds raised during the ICO.
After the first mention of the company’s intentions to hold an ICO, usually 2-3 months pass before
the placement of coins. During this time the company is trying to attract more attention to yourself,
to talk about its technology in the popular media: medium.com, coindesk.com and smithandcrown.
com.
Nowadays, the vast majority of companies resort to the help of an intermediary company to ensure
the security and speed of transactions during the ICO. Starting with modest share of investment in
block chain projects in 2015, the ICO helped to gain more investment than venture funds in 2017.
In the process of the ICO, investors do not just transfer money to the company’s accounts, as during
the crowdfunding company, and do not buy a share in the company, as during the IPO. Instead, it is
not an ordinary asset called a token or coin that is bought.
From the point of view of investors who make informed decisions about participation in a particular
ICO, many more factors are important:
i. are there any restrictions on the number of tokens in the entire economy of the
system;
ii. what proportion of tokens are sold publicly during the ICO;
iii. how many tokens does the development team keep;
iv. what the token will be used for in the system.
IAMOT 2019 | 811

In (Wilmoth J., 2017) three main roles of tokens are highlighted: tokens-shares (equity token),
investment tokens (security token) and utilitarian tokens (utility token). The ICO of the company
selling tokens is the closest to the public offering of shares (IPO), since the rights to claim part of
the profits from the company’s activities are on sale. Such tokens are sold during ICO of financial
companies and cryptocurrency funds (Crypto20, Kick).
Investment tokens are most close to the definition of a market valuable asset – a tradable good that
has real security under it. It is this kind of token that is often implied when it comes to coins. This is
due to the fact that, like any currency, investment tokens act as an internal settlement equivalent of
the system. Utilitarian tokens are also used as a payment for the use of the tool of the company that
issued the tokens e.g. for storing large amounts of data decentralized using the computing power of
the company.
In (Mougayar, 2016) the author divide tokens at categories according to their role and corresponding
mission: suffrage (involvement of a user), mean of exchange (market creation), toll (mean of payment),
share of stock (distribution of benefits), and others. But the classification of most frequently used
tokens seems to be more compact and include equity tokens, security tokens and utility tokens. Most
often, companies issue utilitarian tokens, since many high-tech companies participate in the ICO,
which offer the use of new technology. On average, all ICO roles are distributed in approximately
70% of utilitarian tokens , and about 30% equity tokens and security tokens in approximately equal
shares (Wilmoth, 2017).
There are various indicators of the success of the investment campaign. The amount of funds raised
can hardly be used as the only one, and the achievement of the established result of fundraising is
often no less important. The decline in the proportion of successful ICO from the perspective of
achieving targets is unfortunately the trend in recent months. While the share of successful ICO in
their total number was 13/15 in 2015, 190/220 in 2016, 848/1266 in 2017, and, finally, 212/380
in the first quarter of 2018 year. It provides the increasing interest in finding determinants of the
success of investment campaigns.
5. Possible factors influencing on the crypto currencies investments

The price of the token is an important indicator, and researchers pay attention to its modelling (see,
for example, Conley J.P. 2017; Burniske, 2017). But its impact on the total volume of investments
is not obvious. In (Kaal& Dell’Erba, 2017) present the results of correlation analysis which aims
to detect the relationship between the price of the token and the volume of investments. The final
correlation was weak and insignificant, but it was found that there are significant differences in
investments in the company with the token price of more than one dollar and less.
Correct auction model for the ICO can affect the success of the initial coin placement, and the
modifications of such models are also analyzed (Dannen, 2017), but it was shown that the most
influence on the success of ICO can provide two main groups of factors: media and technology
(Kaal& Dell’Erba, 2017). So for modelling we firstly need indicators that measure how much the
company is discussed in a professional environment and whether the technology offered by the
company is really innovative. In our research we propose a set of such variables:
ln(Bit) - logarithm of the number of views of the company’s page on the largest forum dedicated to
crypto assets;
ln(Twt) - logarithm of the number of subscribers of the official Twitter of the company.
Another important variable presenting the specific of ICO is
Dst - a share of tokens issued during the campaign from the total number of tokens.
The factor that assesses the role of the token in the company, like the DST variable, depends solely
on the way of its development, monetization and positioning. That is, it is unlikely to significantly
affect the success of the placement of coins.
IAMOT 2019 | 812

To test the working hypothesis about the substantial influence of education level of the head of the
company we introduce dummy variable
Mba = (1, if CEO has PhD or MBA degree, and 0, o/w).
Using dummy variables we also can include factors of the block chain technology used:
P1-P3 (binary variable is equal to a unit, if corresponding technology is used by the company: proof-
of-work for P1, proof-of-stake for P2, own consensus-method for P3, and zero, o/w).
About 60% of companies use their own method of checking the user’s work to determine the reward,
about 24% use a universal algorithm proof-of-work and 18% have implemented an improved
version of it – proof-of-stake. We can expect that only the use of the algorithm of consensus by
proof-of-stake (P2) makes significant differences in the volume of attracted investments and the
implementation of the goals.
R1-R3 - dummy variable presenting the role of token in the system (1, in the case of equity token for
R1, security token for R2, and utility token for R3, and 0, o/w).
Ind - a family of cross-dummy binary variables, presenting the category of the company in five
groups (see table 1).
Table 1: Number of Companies in the Sample for Each Group and Category
Group (Industry) Category Number of cases
Blockchain 15
Blockchain Blockchain services 47
Blockchain contracts 6
Banks 13
Currency 11
Finance
Finance 16
Trading 17
PR 7
Marketing Trading platform 13
Media 6
Business 5
Crowdfunding 7
Healthcare 4
Real estate 8
Business and Society Social networks 10
Data processing 5
Computer games 13
Technologies
High technologies 11
Security 8
All this variables can potentially influence on the depended variables, presented the result of the
investment process:
i. ln (Inv) - logarithm of the investments collected in the process of ICO;
ii. Goal - meeting the fundraising goal (1-goal met, 0-less investment raised than
planned).
To define the significance of the influence on each of them the particular model was created.
IAMOT 2019 | 813

3. Methodology and results of modelling

The sample of 221 companies was built on the basis of a sample of the largest site-aggregator of ICO
data (Icodrops) according to 2016-2017. The initial sample consisted of 389 observations, and it can
be assumed that these observations combined a common property. Companies that were taken into
the sample after the ICO continue to develop their product, have a working website and contact the
press. That is, only existing companies get into the sample, although a large part of ICO projects was
closed after the ICO. Since the initial sample could be selective, the resulting sample can be selective
as well. The problem of selective sampling is the bias of regression estimates (Heckman, 1979). To
solve this problem, the Heckman lambda is added to the regression equation.
To estimate the significance and influence of explanatory factors on the volume of attracted
investments, a regression model was created:
where X is a vector of dummy variables including variables Mba, Demo, Ind, P, R. The results of the
model identification are presented in table 2.
Table 2: Estimates of the Regression Model Coefficients for the Amount of Investments
Variables Coefficients (st. deviations)
9,725***
c
(1,339)
0,546
λ
(0,156)
0,691***
Ln(Bit)
(0,136)
0,542
Ln(Twt)
(0,146)
-0,196
Dst
(0,653)
-0,097
Demo
(0,613)
0,600**
P1 (proof-of-work)
(0,414)
0,030
P2 (proof-of-stake)
(0,371)
0,486
R1 (equity token)
(0,433)
0,275
R3 (utility token)
(0,326)
0,608**
Mba
(0,499)
0,673*
Ind6 (Finance)
(0,725)
-1,095*
Ind7 (Trading)
(0,818)
-1,115
Ind14 (Real estate)
(0,971)
***p-value<0,01; ** p-value <0,05;* p-value <0,1.
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Determination coefficients for this model are as follows: R2 = 0,571 ; R2adj = 0,470.
The greatest contribution to the explanation of the variance of the logarithm of the volume of
attracted investments is the popularity of the company’s page on the thematic forum bitcointalk.
org. At the same time, the popularity of Twitter was insignificant in the model. It is worth noting the
importance of the coefficient in the variable Mba. For a company whose head has an MBA or PhD
degree, the volume of investments attracted during the ICO is higher on average, which confirms the
hypothesis of the impact of the managerial qualities of the head of the company. Also important was
the belonging of the company to three categories: Finance, trading and real estate market.
The objective of the next regression model is to assess the probability of achieving the stated goal
of raising capital. Since the dependent variable in this case is binary the logit model was chosen for
regression analysis. Modelling results are presented in Table 3.
Table 3: Estimates of the Logit-regression Model Coefficients for Achievement the Fundraising Goal
Coefficient
Variable
(st. deviation)
11,115***
c
(2,354)
0,478***
Ln(Bit)
(0,212)
0,437
Ln(Twt)
(0,149)
0,746
Dst
(0,862)
-0,119
Demo
(0,414)
0,592**
P1 (proof-of-work)
(0,371)
0,477
P2 (proof-of-stake)
(0,470)
0,926
R1 (equity token)
(0,673)
-0,167
R3 (utility token)
(0,429)
0,704**
Mba
(0,511)
-1,086*
Ind3 (Smart contracts)
(1,070)
-1,012*
Ind10 (Media)
(1,124)
-0,885
Ind12 (Crowdfunding)
(1,131)
R2 = 0,751 ; R2adj = 0,421, AIC=32,06
***p-value<0,01; ** p-value <0,05;* p-value <0,1
The increase in page views on the forum bitcointalk.org, high CEO degree level, and using of proof-
of-work algorithm make the probability of the investment success higher. According to both models,
the companies of some categories have on average lower level of investment or less probability to
gain the planned sum via ICO.
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After further dividing the companies in a sample by two groups using discriminant analysis
technique, we decomposed the difference in the mean of the investment Ln(Inv). To do this we used
the Blinder-Oaxaca decomposition (Wooldridge, 2002). It shows that the difference in the number
of page views on the crypto assets forum explains the difference between the volume of investments
in companies from the first and second groups by more than 17%. Two times less contribution to the
explanation of the difference is made by the fact of the presence of a scientific or business degree
of the company CEO.
4. Conclusions
The media factor along with the quality of the company’s management is the key to the success of
the initial coin offering, while the technical features of the product are inferior to the contribution to
the success of the ICO. These factors define the success of ICO in terms of probability theory: their
favorable values doesn’t obviously provide the success, but they foster it more efficient then other
considered factors.
The hypothesis of significant differences in the categorical affiliation was confirmed only partially:
it was possible to identify those ICO categories where the placement of coins is likely to be
unsuccessful.
5. Acknowledgements
This work was supported by a grant of Russian Foundation for Basic Research №18-010-00564
Modern Tendencies and Social and Economic Consequences of Digital Technologies Development
in Russia.
References
Adhami, S., Giudici, G., and Martinazzi, S. (2018). Why Do Businesses Go Crypto? An Empirical Analysis of Initial
Coin Offerings. Journal of Economics and Business, Forthcoming, pp. 1–36.
Buterin, V. (2017) Analyzing Token Sale Models. Vitalik Buterin’s website.
Burniske C. (2017). Cryptoasset Valuations. Medium.
Cerezo Sánchez, D. (2017) An Optimal ICO Mechanism. MPRA Paper 81285, University Library of Munich, Germany,
pp. 1–17.
Conley J.P. (2017). Blockchain and the Economics of Crypto-tokens and Initial Coin Offerings. Medium.
Dannen, C. (2017) Introducing Ethereum and Solidity. Professional and Applied Computing
Elender, H. (2017) The cross-section of crypto-currencies as financial assets: An overview // Collaborative Research
Center 649: Economic Risk, Humboldt University Berlin, 2017
Hall, J. and Hofer, C. (1993). Venture capitalists’ decision criteria in new venture evaluation. Journal of Business
Venturing 8(1). pp.25–42
Hegadekatti, K. (2017) Brand Tokenization and Monetization Through Cryptocurrencies MPRA Paper 82833,
University Library of Munich, Germany.
Kaal, W., Dell’Erba, M. (2017) Initial coin offerings: emerging practices, risk factors, and red flags. Medium.
Kuo Chuen, David Lee and Guo, Li and Wang, Yu, Cryptocurrency: A New Investment Opportunity? (October 24,
2017)
Mougayar, W. (2016). The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology.
Wiley.
Rohr, J., Wright, A. (2017). Blockchain-Based Token Sales, Initial Coin Offerings, and the Democratization of Public
Capital Markets. Medium
Wilmoth, J. (2017). 3 Types of ICO Tokens. StrategicCoin
Wooldridge, J. (2002). Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press.
Venegas, P. (2017). Initial Coin Offering (ICO) Risk, Value and Cost in Blockchain Trustless Crypto Markets. Journal
of Economics and Business. pp.1–34
Zetzsche, D. (2017) The ICO Gold Rush: It’s a scam, it’s a bubble, it’s a super challenge for regulators. Smithandcrown
Research.
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Industrial Competitiveness of Solar Firms
from India: Exploring Role of Technology
Management and Policy
Sanjeev Chachondia
Parivartan Advisors LLP, India
E-mail: parivartanlab@gmail.com
Pranusha Manthri
Group on Competitiveness Shailesh J.,
Mehta School of Management, IIT Bombay, India
E-mail: pranushamanthri@gmail.com
Dr. Kirankumar Momaya

Technology Management and Competitiveness Shailesh,
J. Mehta School of Management, IIT Bombay, India
E-mail: momaya@som.iitb.ac.in
Abstract
India has remarkable achievements in innovation through revolutions such as green, white, mobile and solar. With
India leading international partnerships like the International Solar Alliance and targeting an installation of 100 GW
of solar power by 2022 under the National Solar Mission, it has set itself on a mission to attain global leadership
position in solar energy. However, the mission is compounding the vexing problems such as ‘less sustainable trade
deficits’ and ‘slow break-out for competitiveness’. At this juncture, the external competition and slow break-out in
internal capabilities (including MoT capabilities) across its solar value chain have added to the burgeoning trade
deficit of India.
The Economic Survey 2018 identified the renewable energy sector as Champion Sector in Make in India 2.0 which
has brought a renewed focus on the manufacturing capabilities of firms of Indian origin (FIOs) in the renewable
sector. In this light, this paper explores the twin impact of the policy and technology management to improve the
competitiveness of solar FIOs. The study begins with identification of drivers of competitive advantage in the
Solar Photovoltaic (SPV) industry and an assessment of the gaps in the government policies. In the next stage,
the study focuses on identification of constraints across the solar value chain, especially gaps in Management of
Technology (MoT), which have led to decrease in competitiveness of FIOs. Based on the findings, a MoT strategy
is devised with an objective to build capabilities and scale-up domestic SPV manufacturers. For this we adopted a
mixed-method approach as a research methodology, focusing both on quantitative and qualitative analysis. This is
followed by a systematic ‘problem structuring’ method to identify the root cause of low industrial competitiveness
among Solar FIOs. The study also explores, which FIOs have resources to sustain competitiveness in solar, as China
has done with firms such as Yingli, Jinko Solar, Trina Solar through benchmarking analysis.
Our study is verified and supported by experiential insights derived through primary research and personal interviews
of private and public policy experts in the solar domain. The paper contributes towards building practical knowledge
about gaps in ‘strategy of firms’ and ‘policies of governments’ that hinder the ‘rapid turnaround’ of capable solar FIOs
to start competing internationally on relevant parts of ‘solar industry value system’. This is also an exercise of learning
lessons from the leaders, to propel India into envisioned leadership position in solar manufacturing.
Keywords: MoT Strategy, Solar Value Chain, Policies for Renewables, Solar FIOs, Trade Competitiveness, Venture
Competitiveness, Technology Innovation
1. Introduction
1.1. Growing Renewables Share in India’s Energy Mix

India has emerged as the world’s third largest energy consumer after the USA and China.
It has a tremendous potential for growth in energy demand, indicated by India’s per capita energy
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consumption which is currently at 1/15th of USA and 1/5th of China’s total energy consumption.
According to report by NITI Aayog, a policy think tank of Government of India (GoI), the energy
demand in India is likely to go up by 2.7-3.2 times between 2012 and 2040, to cater to the population
which is likely to rise to 1.6 billion by 2040. The report further highlights, that during this period
the import demand could increase from 31% in 2012 to 36-55% in 2040 which will have an adverse
impact on India’s economy and energy security.
The current energy mix of India (Figure–1) is dominated by Thermal energy generated from
Coal, Gas and Oil. Renewable energy sources (RES) and technologies have potential to provide
solutions to the longstanding energy problems being faced by the developing countries such as India.
Along with the aim to address the energy security, India is looking to use renewable energy to meet
multiple objectives like energy efficiency, decarbonization and sustainability, among others.
Figure 1: Energy Mix of India, as on 31st March 2018
Source: Ministry of New and Renewable Energy (MNRE), Government of India
Solar power, one of the potential energy sources, is a fast developing industry in India. In the
country’s renewables mix, contribution of wind power is at 49% (34 GW) and solar power is at 31%
(21.7 GW) as on March 2018 (MNRE Database).
1.2. An Overview of Solar Power in India

A capacity addition of over 35.1 GW of grid connected renewable power has been achieved during the
last four years (between FY’15 to FY’18), taking the cumulative renewable energy installed capacity
in India to 70 GW. In the total addition to the RES installed capacity, solar is leading the renewables
drive for India, with a significant contribution of 19.5 GW installed capacity over the past four years.
The favourable policy changes towards this accelerate deployment, coupled with open bidding and
industry facilitation led to historic reduction in solar tariffs (₹2.43 per unit in Q4’17, Figure-4), making
the prices competitive with the fossil-fuel based energy sources.
The Solar industry has tremendous potential for a tropical country like India, which is blessed with
300-330 sunny days in a year in most parts of the country, making it “among the best conditions in
the world to capture and use solar energy” (World Bank). MNRE has pegged the country’s total
solar power potential at nearly 750 GW (65% of the RES potential), with 142 GW of solar resource
available in the state of Rajasthan alone.
To tap on this potential, India launched the National Solar Mission (NSM) on 11th January 2010 as
an action agenda under the National Action Plan on Climate Change. In 2015, the GoI revised the
cumulative targets under the NSM from 20 GW to 100 GW by 2022 and to achieve a total installed
capacity from renewable energy sources of 175 GW. This is with a vision to support the transition to
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Industrial Competitiveness of Solar Firms from India: Exploring Role of Technology
a low carbon future and achieve India’s emission targets as pledged in its INDCs at United Nations
Framework Convention on Climate Change (UNFCCC), Paris Agreement 2015. The NSM, is also a
step towards achieving the mission to reduce oil imports by 10% from (2014-15 levels) by 2022 as
targeted by the Ministry of Petroleum, GoI.
A recent example of the plan in action is the massive 2GW Pavagada Solar Park in the state of
Karnataka, which inaugurated its 600MW first phase in March 2018 and the launch of programmes
such as SRISTI, KUSUM to accelerate the solar power generation in India which can help India
attain the Sustainable Development Goals 2030 on ‘Clean Energy’. The formation of International
Solar Alliance (ISA) after the Paris Agreement 2015 also indicate that India is aiming for a global
leadership position in driving renewable energy markets.
2. Research Questions
The overview of the solar power sector suggests that the government has set ambitious targets
for deployment. However, it is dependent on the private sector to drive these initiatives. India has
massive trade deficit in Solar PV Industry (Figure-2), indicating the lack of competitiveness of
Indian manufacturers.
Figure 2: Trends in Export and Import Data of SPV Cell in India (in USD million)
and Country-Wise Imports Data for 2017-18
Source: Export-Import Data Bank, Dept. of Commerce, Ministry of Commerce and Industry, 2018
Trend analysis of EXIM data of Solar PV segment over the past five years indicate that the imports
have risen in line with growth in capacity addition but exports have seen a significant downward
trend. The imports have increased at CAGR of 40.1%, while the exports have declined simultaneously
at CAGR of -12.9% leading to a huge trade deficit, cumulative of 2.3% of India’s total trade deficit
in FY 2017-18.
India imports more than 90% of the Solar PV Cells from China. The burgeoning trade deficit is
indicative of low trade competitiveness (Manthri et al., 2015) of the domestic solar manufacturers
when compared to the international players. China currently holds 53% global market share in
the PV module production (pv-magazine, 2018) and hence poses as an interesting case study to
benchmark the competitiveness of Indian PV manufacturers.
3. Methodology
The paper has a dual objective–of recommending modifications to MNRE’s Solar Policies and
provide Technology Management strategies to Solar FIOs in renewable energy to regain & scale-up
trade competitiveness. Based on the analysis key implications are drawn for the policy makers, as
well as the senior executives in the renewable industries.
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We adopted a ‘mixed-method approach’ as research methodology, analysing both the Quantitative

and Qualitative trends in Solar PV manufacturing. Based on the literature review, we identified
and benchmarked the industrial competitiveness of Solar FIOs on key drivers such as cost
competitiveness, efficiencies across the value chain, role of technology and innovation and assessed
the impact of government policies on the domestic Solar PV manufacturers.
At the next level, a systematic ‘problem structuring’ (Momaya et al., 2016) methodology is adopted
to identify the root causes of low industrial competitiveness. The selected drivers and the listed
root causes, are verified and supported by experiential insights derived from personal interviews of
private and public policy experts in this domain to draw the final implications.
3.1. Analysis of Quantitative Trends
3.1.1. Significance of Cost Effectiveness of Solar Modules

Today SPV is one of the fastest growing renewable energy technologies. The cumulative Solar PV
capacity installed globally has grown at 39% CAGR (Figure-3) between the period 2010-2017,
with the global Solar PV capacity installed reaching 384.62 GW in 2017. The top 5 markets in
solar power generation (China, Japan, Germany, USA, Italy respectively) hold nearly three-fourth
of the installed capacity. India despite having a high solar potential has only 4.6% of the total share.
In this regards, India has certain learnings to take from China, which showcased the highest growth
in capacity addition during this period (from 2010-17).
Figure 3: Cumulative Solar PV Capacity in Leading International Markets and Decreasing Global
Weighted Average Total Installed Costs for Solar PV (USD/ KW) for Period 2010-17
Source: IRENA Database, 2017

Also to be noted from the trends is that as the capacity installed has increased, the cost of installation
has drastically reduced. During the period 2010-2017, the global capacity weighted average total
installed cost of newly commissioned utility-scale PV projects decreased by 68%. In India, the
installation cost decreased by 75%, which is in line with the international markets.
The three main global drivers for cost reduction has been: 1) Competitive procurement; 2) Technology
improvements and 3) a large base of experienced project developers and internationally active solar
value chain (IRENA Power Costs Report, 2017). A quick assessment of India’s performance on
these drivers, enables us to understand the competitiveness position of Solar FIOs. This will help as
a foundation to later build on the Root Cause Analysis (RCA) and provide policy recommendations.
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Competitive procurement is a function of manufacturer-sale price (MSP) of PV modules. While

performance and reliability contribute towards differentiation in procurement of PV modules, price
is the current key competitive differentiator in this segment (Goodrich et al., 2013). Hence MSP of
PV modules, become important determinant of the cost of installation.
Globally, the module costs declined at 81% between 2010-2017, a period over which 90% of the
cumulative global PV capacity installation occurred. In India, the MSP of PV modules have also
declined, but Indian modules are still priced higher when compared to its Chinese counterparts
(Figure-4). This has a dual effect. The FIOs are at a disadvantage in the domestic sphere and also
lose advantage in trade competitiveness in the international trade arena.
Under these circumstances, the falling renewable power tariffs creates an additional competitive
burden to lower the procurement costs signalling a real paradigm shift in the strategies for deployment
of solar power.
3.1.2. Impact of Reducing Solar Tariffs on Indian Manufacturers

Competitive bidding is gaining universal acceptance to allocate solar capacity and the
number of countries using auctions for allocation has increased from 14 in 2014 to 22 in 2016
(New Energy Outlook, BNEF). The GoI, under NSM scheme selected solar photovoltaic (SPV)
projects in two phases (Phase-1 during 2010-11 and Phase-2 during 2011-12) through a process
of tariff-based reverse bidding. Since the first phase of tendering in 2010, the average solar
tariffs have reduced by 73% in India (Mercom Research, 2017).
The fall in average tariffs, has a higher correlation with Chinese modules prices (Figure-4). This can
be explained by understanding the effect of lower tariffs, on the backward linkages of the solar value
chain. The SPV project developers focus on lowering costs of installation and consequently procure
lower priced modules from China vis-à-vis India. As a result, 88% of all module requirement in
India is met through imports (84% from China), raising a question on the sustainability of Indian
module manufacturers.
Figure 4: Dip in the Solar Tariffs (₹/Wp) and Plummeting Solar Module Prices in India and China ($/Wp),
Indian Manufacturers at Price Disadvantage when Compared to Chinese Competitors
Source: India Solar Handbook 2017, Bridge to India Report

The government’s L1 matching criteria (matching the lowest price) and frequent bidding left little
scope for Indian SPV developers to focus on technology management. The GoI, in its Phase-1 of
NSM limited the bidding of SPV developers upto 5 MW in order to accelerate the deployment.
The Phase-2 increased the limit to 150 MW, but the Indian manufacturers are yet unable to achieve
economies of scale when compared to the global leaders (Figure–5).
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Figure 5: Comparison of Capacity of Indian Module Manufacturers with International Leaders, in MW
Source: MNRE 2016, pv-magazine 2016 Database

The inability of Indian manufacturers from attaining economies of scale also points towards certain
policy gaps. Favourable regulatory and institutional frameworks are required to set stage for Indian
manufacturers to attain scale and gain equal footing in an open competitive procurement process.
There are concerns among the Indian manufacturers, that high capital costs and corporate taxes in the
SPV segment is creating a barrier for making products that are globally competitive (NREL, 2018).
In this regards, the Centre together with state governments has taken initiative to provide Indian
module manufacturers several financial incentives–including capital subsidy, operating cost subsidy
and export incentives–under different policies. But a sector specific manufacturing policy has not
been finalized yet and there no clarity to the SPV developers on the final GST rates applicable to
various solar components, causing delay in projects.
The GoI has also faced certain setbacks in protecting the domestic manufacturers. The prescribed
40% domestic content requirement (DCR) for SPV developers has been challenged by USA at the
WTO, which gave a ruling against India. The proposed 70% safeguard duty based on anti-dumping
investigation regarding modules manufactured in China, Malaysia, Singapore and Taiwan in early
2018 was put on hold after concerns of SPV developers over shoot up in project costs.
Measures like DCR, safeguard duties and anti-dumping duties are protectionist in nature and may
not help domestic manufacturers in the long run and lead to unsustainable markets. In this scenario,
there is a pressing need for policy modifications by MNRE which favours FIOs to build on their own
capacities and sparsely rely on foreign markets.
The “Golden Sun” solar stimulus plan initiated by Chinese government in 2009, to wean SPV
companies off dependence on overseas markets has provided an early impetus to the solar PV
manufacturing capacity making China reach 53% of the total global manufacturing capacity today.
China supported the SPV manufacturers through favourable policies-including low-cost land-use
rights, free factory space, lower cost of capital and assured demand through local markets-which
provided a significant MSP advantage.
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Thus the expansion of the cumulative capacity of the solar power sector in India, is a top-down
decision made by the GoI, whereas in China the policy decision was pressured by the manufacturing
sector in need of support. As a consequence of this, India SPV sector suffers from technical barriers,
policy barriers and socio-economic barriers in the development of the solar sector (Kok, S., 2015).
The barriers can be highlighted further by benchmarking Solar FIOs with the international leaders.
This will help us understand the current competitive position of Indian manufacturers and assess
their strengths and weaknesses to overcome challenges and become sustainable in the long-run.
3.1.3. Benchmarking Indian Manufacturers Against International Players

We select the top domestic module manufacturers in terms of market share, MW (Appendix-1)
and compare their performance with the global leaders in SPV manufacturing. The two metrics
selected for benchmarking are–1) Revenue generated per year, since year of incorporation of the
company (Revenue/ Year). This will offset the early leverage gained by the Chinese and the US
manufacturers and focus on the revenue generation capacity of the firms. 2) Revenue generated per
employee (Revenue/ Employee). This metric is a determinant of the efficacy of the human capital,
as human resources forms a major component in the cost breakdown in SPV industry. And as ‘cost
effectiveness’ is a crucial driver of competitiveness in this sector, it becomes an important metric.
Figure 6: Comparison of Domestic Manufacturers with Global Leaders with Respect to Revenue/ Year
(Since Incorporation, in USD mn) and Revenue/ Employee (in USD mn), Bubble Size
Indicates the Revenues of Companies in FY’2017
Source: Company Filings
Trends indicate that Indian players need to jump much higher to compete with the Chinese giants.
However higher efficiency of human capital for Indian firms vis-à-vis Chinese firms can be the
driver of growth as seen in the case of First Solar. The big domestic module manufacturers like
Adani Solar, Vikram Solar, TATA Solar Power and Waaree can focus on scale-up and supply-chain
development to develop a competitive edge over the Chinese manufacturers. Other uncompetitive
sub-scale domestic players such as MB Solar, EPPPL can initially focus on attaining sustainability,
or go for consolidation as we have observed that many players have already started to downsize
its employees and almost reached the verge of bankruptcy. For achieving scale and supply-chain
development, addressing the gaps in technology levels and conversion efficiencies is crucial.
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3.2. Qualitative Analysis
3.2.1. Understanding Challenges Across Solar Value Chain for FIOs

Today’s PV industry and supply chains are global. Of firms with U.S. operations or headquarters,
more than 90% of manufacturing capacity resides outside the U.S., thus creating global value chains.
Internationally active Value chains, are key drivers in reduction of installation costs of Solar energy,
as seen earlier.
Figure 7: Illustration of Solar Value Chain
The raw materials costs for modules (which includes Solar Cell, glass, Aluminium frame, Interconnect
Ribbon, etc) comprise 70-80% and the working capital comprises 12-15% of the majority of
manufacturing costs (Verma, B. et al., 2017). The incentives given on capital investment
by Central and State government are not very helpful in lowering the cost of manufacturing.
The key requirements of the Solar developers is access to funding, lower Capex, lower cost of
energy (higher efficiency and performance) and ease of installation, operation & maintenance
(Chachondia, S., 2014).
The key requirements of the Solar developers need to be addressed, along with technology
improvements, which is the third most important key driver for cost competitiveness. Factories in the
U.S, China and India do not have access to the same manufacturing technology leading to problems
in uneven product quality. Hence, there is a need to analyse the role of Technology management and
innovation to scale-up Solar FIOs.
3.2.2. Role of Technology Management and Innovation

To understand the role of technology management, we adopt mixed method approach. On the
quantitative side, we studied the PV-related patents data to analyse cross-country innovation and
technology transfers in different segments of PV industry (Figure-7). The analysis is supplemented
by qualitative review of literature and supported by personal interviews of PV actors in India.
Figure 8: Patent Evolution of Solar Energies Technology
Source: IRENA Database, 2017
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The patent evolution data suggests at low technology development and innovation in India. Global
PV leaders invest heavily in research and development (R&D), with R&D expenses of some
key players like LONGi Group investing 7% of total revenue as R&D, while Sun Power and
GCL-Poly both invested 4% in R&D during FY’2017. On the contrary, vast majority of the
Indian SPV manufacturers resort to the use “off-the-shelf” technology (De La Tour, et al., 2011).
Investments of major Indian manufacturers R&D and equipment enhancements were non-existent
which further made the domestic PV industry less competitive (Johnson, 2013).
When Government focus on diffusion led policy and firms respond with faster deployment but with
low focus on technology development, it often results in even the leading Indian firms choosing
opportunistic growth rather than capability building path through technology management and
innovation. We have seen this same trend in Telecom earlier (Momaya and Chachondia, 2014)
which is getting repeated in Solar now. There needs to be a policy focus in promoting sustainable
innovation in Solar fields whilst providing financial incentives. The Indian solar industry is required
to be building strong linkages with academic institutions and making collaborative research efforts
with the government and that only can build sustainable innovations (Momaya, et al., 2013).
With the intense competitive pressures and a rapidly evolving PV module market, technology
innovations are crucial to module manufacturers ability to remain profitable. Based on the above
analysis, our study identifies and prioritizes the root causes of low technology management of Indian
manufacturers which affects their industrial competitiveness.
4. Research Findings
A systematic ‘problem structuring’ approach, helps us to arrive at Root Cause Analysis (RCA)
of vexing problems such as lack of significant Management of Technology (MoT) and improving
capabilities and trade balances for firms of Indian origin, particularly in emerging segments of
renewable industries. It helps us to identify the major gaps in government policies, in order to
enhance technology management and innovation.
The fish-bone illustration below, thus identifies the factors external to the industry (on the top half)
and the factors internal to the industry (on the bottom half) which are the root cause of low technology
management in Solar FIOs.
Figure 9: Root Cause Diagram (RCD) for Low Focus of Solar FIOs on MoT
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5. Recommendations for Policy Modifications and Enhancing

Industrial Competitiveness of Solar FIOs
The findings of this paper will help the legislators with responsibility to build policies to facilitate the
growth of Solar FIOs. In addition, it also helps the senior executives in Solar FIOs to gain competitive
advantage in technology management and foster responsible innovation to build sustainable firms.
5.1. Policy Implications

The government should start by finalizing a sector-specific policy for solar manufacturers and
removing ambiguities over the tax rates. Provision of cheaper capital can be accelerated through
promotion of nascent green bonds as India requires $160 billion to reach its renewable targets.
The capital provision should be supplemented by fixing certain technology development criteria,
which will enhance the quality standards of domestically manufactured equipment and make them
globally competitive.
The Chinese manufacturers witnessed an early success with strong policy support at the
provincial-levels. Similarly in India, the state-level governments should cater support to domestic
SPV manufacturers in the form of subsidized infrastructure towards development of Solar Parks,
subsidized electricity rates, loan guarantees to incentivize exports and provide workforce training.
At present only 4 states have mandatory notification and uniform regulation policies for Solar
auctioning. Increasing transparency in the bidding process and providing strict penalities for delays
in project deployments, can provide a level playing field to the SPV developers and thus contribute
towards focus on building industrial competitiveness of Solar FIOs.
5.2. Implications for Solar FIOs

The Solar FIOs need to understand dynamics of the entire value chain and need to enhance their
development capabilities along with deployment capabilities in order to remain sustainable and more
resistant to external factors. The Solar FIOs are currently facing the threat of technology obsolescence.
The technology gaps can be addressed through acquisition and management of technology, in order
to remain profitable. While Indian module manufacturing has focussed on deployment rather than
development, there are major learnings that can be derived from other industries like automotive
(e.g. Bajaj), pharmaceuticals (e.g. Cipla, Lupin) and ICT (Eg.TCS, Wipro) in which the firms have
sustained competitiveness through MoT against giant international players from East Asia, EU, USA.
This is reflected in their exports to tens of countries and sustained forex earnings-to-spend ratio of
more than 2 (TCI 0.33) on forex earning base of more than ₹15 billion consistently over 5 years.
6. Research Limitations and Future Direction

This practitioner paper has certain limitations, yet it can provide new perspectives and topics for
future research. Gaps in theory base is a key limitation, due to limited literature review. Still the
patterns that emerge in findings provide some high-potential topics for further studies; only select
examples are given here. Ventures (can be startups or internal ventures such as Reliance Jio) can
facilitate major ‘catch-up’ and ‘break-out’ to higher level capabilities in emerging industries.
What can be role of venture competitiveness (Salian, et al., 2018) for the break-out for FIOs in
this rapidly changing industry can be an exciting topic, as firms like Jinko Solar, Trina Solar were
ventures that scaled-up.
The paper has dual perspectives from the practitioner and policy front. There are limitations
in paper having high value for the intended policy makers due to its academic presentation.
Policy changes have a long gestation period. Given the year 2019, being the election year in
India, there will be changes in focus and priorities of the government, which may lead to certain
dissonances from findings.
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Quite useful patterns emerge to characterise the opportunities and problems related to solar industry
in India. Massive and widening trade deficits threaten technological and capability building and
ultimately competitiveness of FIOs. While some root causes can be attributed to policy and other
factors external to FIOs, good number of root causes can be attributed to FIOs.
Our study highlights that for India to emerge as leader in the renewable energies, the competitiveness
of the FIOs needs to be enhanced through a three-fold focus on the cost reductions, policy support
and technology management. This will have practical implications on the trade competitiveness of
Indian FIOs vis-à-vis Chinese manufacturers and contribute towards their sustainable growth.
8. Acknowledgements
We are thankful to IIT Bombay and the Wadhwani Foundation and Industrial Research and
Consultancy Centre (IRCC) for providing financial support. Inputs and suggestions provided
by associates of Group on Competitiveness (GoC), SJMSOM, IIT Bombay, Sneha Bhat are
acknowledged.
Appendix A: Market Share of Domestic Module Manufacturers based on Q4’17 capacity, MW
Source: Solar Compass Q4’17, Bridge to India Report

NOTE: Adani Power incorporated Mundra Solar PV Ltd. In 2015
References
De la Tour, A., Glachant M., Y. Ménière, (2011) Innovation and international technology transfer: The case of the
Chinese photovoltaic industry. Energy Policy, Elsevier, 2011, 39 (2), pp.761-770
Goodrich, A.C., Powell, D.P., James, T.L., Woodhousea, M. and Buonassisi, M, (2013), Assessing the drivers of
regional trends in solar photovoltaic manufacturing. Energy Environ. Sci., 2013, 6, 2811
INDIA Solar Handbook, 2017, BRIDGE TO INDIA, 2017 https://www.bridgetoindia.com/wp-content/uploads/2017/05/
BRIDGE-TO-INDIA_India-Solar-Handbook_2017-1.pdf
IRENA Power Costs 2017, IRENA Database– https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2018/
Jan/IRENA_2017_Power_Costs_2018.pdf
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Johnson, O., (2013), Exploring the effectiveness of local content requirements in promoting solar pv manufacturing in
India. 2013
Kok, S., (2015), Examining Solar Energy Policy in China and India: A Comparative Study of the Potential for Energy
Security and Sustainable Development, Uppsala University, Department of Earth Sciences
Manthri, P., Bhokray, K. & Momaya, K.S. (2015). Export competitiveness of select firms from India: Glimpse of trends
and implications. Indian Journal of Marketing, 45(5), 7-13
Mercom India Research, March 2017, Mercom Exclusive: Solar Tariffs in India Have Fallen by 73 Percent Since 2010,
Mercom Capital Group https://mercomindia.com/mercom-exclusive-solar-tariffs-india-fallen-73-percent-
since-2010/
MNRE Ministry of New and Renewable Energy, Government of India., 2017
Momaya, K. & Chachondia, S. (2014, July). Review of industrial competitiveness and growth of solar firms in India:
Exploring role of technology management and policy. In Management of Engineering & Technology
(PICMET), 2014 Portland International Conference on (pp. 370-385). IEEE.
Momaya K. and Chachondia S., “Disaggregation of infrastructure and service: Learning from Indian telecom sector,”
Proceedings of PICMET ‘14 Conference: Portland International Center for Management of Engineering
and Technology; Infrastructure and Service Integration, Kanazawa, 2014, pp. 1981-1997. IEEE.
Momaya, K., Bhat, S., Lalwani, L., (2016), Institutional Growth and Industrial Competitiveness: Exploring the Role
of Strategic Flexibility Taking the Case of Select Institutes in India. Global Institute of Flexible Systems
Management, October 2016 Issue
Momaya, K.S., Manthri, P., Reddy, P.M., (2013), Organizational Innovation for Institutional Growth: Findings from a
Sustained Initiative at IIT Bombay, IEEE-ITMC Conference 2013, IEEE Explorer
New Energy Outlook 2018, Bloomberg New Energy Finance (BNEF), https://about.bnef.com/new-energy-outlook/
NREL Solar Industry Update, 2018-https://www.nrel.gov/docs/fy18osti/71493.pdf
PIB, Press Information Bureau, Government of India. 2017
Pv magazine (July, 2018), Top 10 Crystalline PV Module Manufacturer ranking, No.07-2018
Salian, S., Bali, A., Yugandhar, V., Momaya, K.S., (2018), Analysing role of Management of Technology in the Growth
of Technology Ventures, Flexible Systems Management
Verma, B., Pavaskar, G., Oluwatola, T., Curtright, A., (2017), State-level Policy Analysis for PV Module Manufacturing
in India, Center for Study of Science, Technology and Policy (CSTEP)
IAMOT 2019 | 828

Firm’s Response to Government’s EV Policy:
A Case of Indian Automobile Sector
Chandrashekhar Chaudhari
National Institute of Industrial Engineering, Industrial Engineering,
and Manufacturing Systems (IEMS), India
E-mail: Chandrashekhar.Chaudhari.2017@nitie.ac.in
Vishwas Dohale
E-mail: dohale.vishwas@gmail.com
Priya Ambilkar
E-mail: priyaambilkar@gmail.com
R. Mukundan
National Institute of Industrial Engineering, Engineering Technology,
and Project Management (ETPM), India
E-mail: mukundan@nitie.ac.in
Abstract
Policy formation is one of the critical steps for developing countries. The prime goal of the policy formation is to
transform the country’s economy and or improve the quality of life of individual citizens of the country or society
as a whole. For every proposed policy, there is always a negative and positive impact on the industries/ companies
that are operating in the domain of policy deployment. In such situation, the industries/companies that realize the
business opportunities in proposed policy take the lead in helping the government either by shaping or supporting
the policy. At the same time, the companies finding a negative impact on them due to proposed new policy, choose
to resist or delay the deployment of the proposed new policy.
This article presents a case of an Indian Government’s proposed ‘Electric Vehicle (EV) Policy’ and how the various
relevant industries, companies and associations reacted to it. The government of India proposed a mandatory policy
for ‘Electric Vehicle’ in 2013. As per the policy, vehicles operating on conventional fuel will not be allowed by
2030. However, there were mixed reactions from the stakeholders (companies, industries etc.) who would be
impacted positively or negatively by the policy deployment.
This article attempts to examine the reaction of various stake holders using Text Mining approach and how the
proposed new policy underwent a transition. The analysis consists of:
●● Originally proposed policy
●● Reactions of the industry to the proposed policy: Shaping, supporting, opposing and slowdown to the
proposed new policy
●● Government’s reaction to the industry’s reaction and change in its stand.
Keywords: Electric Vehicle, Policy Formation, Stakeholder’s Reactions, Text Mining, Automobile Sector
1. Introduction
The conventional problems such as rise in pollution, degradation of air quality, increase in carbon
emission and an increase in conventional petroleum fuel prices becomes a trigger for the introduction
of an Electric Vehicles (Digalwar & Giridhar, 2015; Goel & Guttikunda, 2015; Grieshop et al.,
2012; Guttikunda, Goel, & Pant, 2014). India imports nearly 80% amount Rs. 43,580 crores as
per the Union Budget and Economics, 2012–2013, Ministry of Finance, Government of India) of
IAMOT 2019 | 829

crude oil for automobile usage (Kumar, Anmol, & Akhil, 2015; Majumdar & Kumar, 2014). These
problems make the Government of India (GOI) decide and come up with a mandatory policy for
‘Electric Vehicle (EV)’ in 2014 (“Adoption of Electric Vehicles,” 2014). This policy stated that
“vehicles operating on conventional fuel will not be allowed by 2030.” As for every proposed policy,
there is always a negative and positive impact on the industries/companies that are operating in the
domain of policy deployment, this policy also got a set of mixed reactions from the stake-holders
(companies, industries, etc.) who are working in the policy deployment domain and would be
impacted positively or negatively by the policy deployment. The industries/ companies that realize
the business opportunities in proposed policy take the lead in helping the government either by
shaping or supporting the policy. At the same time, the companies finding a negative impact on them
due to the proposed new policy, choose to resist or delay the deployment of the proposed new policy.
In 2018, after the reaction of the different stakeholder’s Government of India took back
the mandatory clause of the policy. This paper examines the reaction of various stakeholders
using Text Mining approach and how the proposed new policy underwent a transition
from mandatory to optional. The text mining is carried out manually on the news articles
(taken as evidence for the policy progression) related to EV policy. Further, the paper is organized
as: Section 2 details out the literature review so for done on the topic viz. electric vehicle
penetration in India and pollution in India. Section 3 gives the detailed text mining of the news
from different stakeholders. Section 4 gives the conclusion and discussion of the results.
Increased pollution levels in urban areas have forced automobile companies to do innovative
thinking and found a new way of manufacturing vehicles to manage pollution. As a result, the
development of electric vehicles has gained acceptance worldwide (Maini, 2005). Further Maini
(2005), examines the case of REVA car which is the first electric car in India developed at RECC
(REVA Electric Car Company). Biswas & Biswas (1999), conducted a study to determine the
market potential of electric vehicle (EV) technologies In India. The study revealed that EV might
be a more natural option right now In developing countries like India than In developed countries
like the USA. Sabapathy (2008), analyses the trend of air quality index of 10-years in Bangalore
city. Bakker (2010), discusses the hydrogen hype in the automotive industry and how the industry,
governments and the public have now turned their eyes to the electric car for achieving a cleaner
environment by finding the clean car for the future. Wesseling et al. (2014), discusses the role of
car manufacturers and their political coalitions which changed their political strategy with respect to
the Californian zero-emission vehicle mandate over the period 2000–2013 using a longitudinal case
studies. Findings from their study shows that find that the car manufacturers became less defensive
and more proactive over a period of time and compliant in their political strategies towards the
zero-emission vehicle mandate.
Saxena, Gopal, & Phadke (2014), determines the power consumption requirement for a two-wheeler,
three-wheeler and four-wheeler light-duty electric vehicles in India. The study generates the results
in city driving conditions which entail the average electrical consumption for: two-wheeler is 33 Wh/
km for the scooter, 61 Wh/km for the 3-wheeler, 84 Wh/km for the low power 4-wheeler and 123
Wh/ km for the high power 4-wheeler. Wesseling et al. (2015), determined the relation between large
car manufacturers’ incentive and opportunity to innovate in the electric vehicle (EV) for achieving
the business strategies. Authors analyze how environmental regulation and the firm’s incentive
(measured by net income) and opportunity to innovate (measured by EV asset position, determined
from a combination of patent, partnership and prototype data) affected EV sales over the period
1990–2011. Digalwar & Giridhar (2015), using Interpretive Structural modeling (ISM) determined
the most critical factors for the promotion and development of the EV market in India. Awareness,
Government Commitment, Supplier Management, Customer Service, Financial Constraints, R&D,
Battery Technology, Industry Growth, Training are the nine factors identified in the study by authors
to conduct an ISM. The result shows that Along with commitment from the GOI, it is necessary to
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Firm’s Response to Government’s EV Policy: A Case of Indian Automobile Sector
create awareness among the citizens of India and the financial constraints should also be resolved
for initiating the market sales. Wesseling, Farla & Hekkert (2015), determines the variation in the
responses to the Californian ZEV mandate. Authors clustered the manufacturer’s responses in 4
categories Oppose, Slowdown, Shape and Support. Dhar, Pathak, & Shukla (2017), analyses the
role of EV in India using an energy system model ANSWER-MARKAL. The finding shows that
“ i) the 2-wheelers EV will achieve a significant share by 2050 while Electric 4-wheelers though
would have a small share even in 2050; ii) EV push policies though lead to significant diffusion of
electric 2- wheelers in India by 2030. These policies enhance diffusion of electric 4-wheelers only if
financial incentives are sustained in the long-term, iii) the application of global carbon price on the
Indian economy in the 20C stabilization scenario increases the competitiveness of EVs and results in
a near total share of electric 2-wheelers by 2030 and a sizable share of electric 4-wheelers by 2050.”
3. Methodology
This study uses the responses of the different stakeholders viz. OEM, i.e. car manufacturers’
(original equipment manufacturers), Automobile components Manufacturers, Government and the
vehicle end users, i.e. the consumers shown in Figure 1.
Figure 1: Different Stakeholders
The responses are taken from the news articles collected from the sources viz.- livemint, Press
Information Bureau Government of India and Times of India, etc. to perform a manual text mining
to categorize the responses by these stakeholders in the four categories as Oppose, Slowdown, Shape
and Support given by Wesseling, Farla, & Hekkert (2015). Authors convert those four in two classes
as Defensive (oppose and slowdown) and Proactive (shape and support). Further authors defined
these four terms as:
3.1. Oppose
firms prevent themselves to be a part of innovation. (least innovative firms)
3.2. Slowdown
slowdown and/ or relax regulatory change, allowing the firm to maintain value for as long as possible
while buying time for their innovation strategies to create new value (prevent regulatory change).
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3.3. Shape
shape the regulation in ways that benefit their technology-specific innovation strategies (innovative
firms already betting on certain technologies).
3.4. Support
support the successful implementation of the regulation (innovative firms that have no trouble
complying with the technology-forcing regulation).
In this study, news articles from 2014-2017 (4 years) have been taken for analysis purpose.
News from each year by different stakeholder is taken for the study as shown in Table 1. The
numbers in the cells shows the number of news falling under the particular category stated by
different stakeholder.
4. Conclusion and Discussion

●● Only 21 responses out of 44 (48%) are found proactive which consist of 9 of shaping
and 12 of supporting in nature. 52% i.e., 23 out of 44 responses found to be in defensive
with 12 of oppose and 11 of a slowdown in nature which clearly depicts the disagreement
with the policy of stakeholders.
●● Automobile Component Manufacturers’ are found to give defensive responses to the
policy. 10 out of 11 response are found to be defensive in nature out of which 3 are
opposing and 7 are 7 are a slowdown in nature.
●● This, in turn, led GOI to take back the step from compulsory policy in 2017
(“India has no plans to have an all electric car fleet by 2030: Govt,” 2017).
●● Surprisingly no news (response) has been found which determines the feedback reaction
of end consumer over the policy which specifies the lack of awareness in consumer
about the policy deployment.
Table 1: Responses to Policy by Different Stakeholder
Type of Response
Stake-Holder Year Total
Shape Support Oppose Slowdown
2014 2 2
2015 1 1
Government of India
2016 2 2
2017 1 1 2
2014 2 1 1 4
2015 1 3 1 5
OEM (Car Manufacturers’)
2016 1 2 2 1 6
2017 1 1 2 2 6
2014 2 1 3
2015 1 1
Automobile components Manufacturers
2016 1 3 4
2017 3 3
2014 1 1
2015 1 1
(OMC) Oil Marketing Companies
2016 2 2
2017 1 1
Total 9 10 12 13 44
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Firm’s Response to Government’s EV Policy: A Case of Indian Automobile Sector
This paper tried to examine the firms’ responses to the Government of India’s EV policy using
manual text mining approach. The result shows that the major stakeholders who are getting impacted
due to mandatory EV policy show the defensive reactions which led GOI to take back their stand
on mandatory clause. This paper finally details out how the major stakeholder can impact the policy
deployment.
References
Adoption of Electric Vehicles. (2014). Press Information Bureau, Government of India, Ministry of Heavy Industries
& Public Enterprises.
Bakker, S. (2010). The car industry and the blow-out of the hydrogen hype. Energy Policy, 38(11), 6540–6544.
Biswas, T.K. and Biswas, N.M. (1999). Electric Vehicle: A Natural Option.for India? JETE Technical Review, 16(3&4),
367–373.
Dhar, S., Pathak, M. and Shukla, P.R. (2017). Electric vehicles and India’s low carbon passenger transport : a long-term
co-benefits assessment. Journal of Cleaner Production, 146, 139–148.
Digalwar, A.K. and Giridhar, G. (2015). Interpretive Structural Modeling Approach for Development of Electric Vehicle
Market in India. Procedia CIRP, 26, 40–45.
Goel, R. and Guttikunda, S.K. (2015). Evolution of on-road vehicle exhaust emissions in Delhi. Atmospheric
Environment, 105, 78–90.
Grieshop, A.P., Boland, D., Reynolds, C.C.O., Gouge, B., Apte, J.S., Rogak, S.N. and Kandlikar, M. (2012). Modeling
air pollutant emissions from Indian auto-rickshaws : Model development and implications for fleet emission
rate estimates. Atmospheric Environment, 50, 148–156.
Guttikunda, S.K., Goel, R. and Pant, P. (2014). Nature of air pollution , emission sources and management in the Indian
cities. Atmospheric Environment, 95, 501–510.
India has no plans to have an all electric car fleet by 2030: Govt. (2017, December 22). Livemint.
Kumar, A.G., Anmol, M. and Akhil, V.S. (2015). A strategy to Enhance Electric Vehicle Penetration Level in India.
Procedia Technology, 21, 552–559.
livemint. Retrieved from https://www.livemint.com/
Maini, C.K. (2005). REVA Electric car : a case study of innovation at RECC. International Journal of Technology
Management, 32(1/2), 199–212.
Majumdar, D. and Kumar, B. (2014). Study on possible economic and environmental impacts of electric vehicle
infrastructure in public road transport in Kolkata. Clean Technologies and Environmental Policy, 17(4),
1093–1101.
Press Information Bureau Government of India. Retrieved from http://pib.nic.in/index.aspx
Sabapathy, A. (2008). Air quality outcomes of fuel quality and vehicular technology improvements in Bangalore city ,
India. Transportation Research Part D, 13(7), 449–454.
Saxena, S., Gopal, A. and Phadke, A. (2014). Electrical consumption of two- , three- and four-wheel light-duty electric
vehicles in India. Applied Energy, 115, 582–590.
Times of India. Retrieved from https://timesofindia.indiatimes.com/
Wesseling, J.H., Farla, J.C.M. and Hekkert, M.P. (2015). Exploring car manufacturers ’ responses to technology-forcing
regulation: The case of California ’ s ZEV mandate. Environmental Innovation and Societal Transitions, 16,
87–105.
Wesseling, J.H., Farla, J.C.M., Sperling, D. and Hekkert, M.P. (2014). Car manufacturers’ changing political strategies
on the ZEV mandate. Transportation Research Part D, 33, 196–209.
Wesseling, J.H., Niesten, E.M.M.I., Faber, J. and Hekkert, M.P. (2015). Business Strategies of Incumbents in the Market
for Electric Vehicles: Opportunities and Incentives for Sustainable Innovation. Business Strategy and the
Environment, 24, 518–531.
IAMOT 2019 | 833

A Review of Best Practices for Enterprise
Enablement
Kegomoditswe Ntwagae
the Built Environment, South Africa
E-mail: kegofreda.ntwagae@gmail.com
Arnesh Telukdarie
Pavitra Dhamija
E-mail:dhamijaresearch@gmail.com
Abstract
Enterprise resource planning (ERP) system is defined as a set of integrated software modules and a central database
that enable businesses to manage the efficient and effective use of resources such as materials, human resources,
and finances. ERP systems achieve this by automating and incorporating business processes and data sharing
through the organisation and enabling access of information in a real-time environment. These systems mitigate
the complexity and the scale of the system implementation process which can result in failures and implementation
difficulties. An Information System (IS) is included as a component of an ERP system designed to provide useful
information that supports business strategy, business operations, business management analysis and decision
making functions. The main purpose of this study focuses on the challenges that occur prior to and post the ERP
implementation process in manufacturing organizations over a period of time. The present study adopts a Systematic
Literature Review (SLR) approach to gain a comprehensive view of the various research methods and finding,
evaluating and synthesizing research. The findings for the present study reveals the lack of various elements that
includes top management support, clear vision and goals, organizational culture and user training, departmental
collaboration, re-alignment of strategy, project management. It also confirms the high customization of ERP system,
incorrect selection of ERP vendor, and poor planning. This paper provides an in depth understanding with respect
to ERP systems. It improves business processes including marketing plans and product development decisions.
The ERP system proves coordination in the organization, reduced inventory costs, improved customer satisfaction,
planning and inventory management and improved efficiency.
Keywords: Enterprise Resource Planning, Information System, Information Technology, Enterprise Information
System, Research and Development
1. Introduction
Enterprise Resource Planning (ERP) form an integral part of a company’s Information Systems (IS)
because it improves the functions of business processes through integration (Matende and Ogao,
2013). These include the handling of large volumes of data, solving complex problems and offering
high quality products. ERP systems are designed to provide useful information that supports the
strategy, operations and decision making functions of an entire organisation (Matende and Ogao,
2013). An IS consists of a set of interconnected components that collect, disseminate information
and provide feedback on objectives (Mushavhanamadi and Mbohwa, 2013). It is the link between
technology, people and processes. A typical ERP project is made up of three phases namely:
the pre-implementation phase, the implementation phase and the post implementation phase.
According to Ahmadi et al., (2015) the pre-implementation phase includes planning the project
and selecting an ERP system. The implementation phase refers to the deployment and use of the
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A Review of Best Practices for Enterprise Enablement
system and the post implementation phase refers to the enhancement and maintenance of the ERP
system. The implementation phase comprises the deployment and use of the system, whereas post-
implementation ascertains the enhancement and maintenance of the ERP system. An ERP software
package offers customers a variety of modules that enable organisational learning; improve supply
chain performance; reduce production and financial costs; increase revenue; improve information
response time; as well as, ensure improvement in the planning and forecasting of production.
1.1. Manufacturing Industry

The lack of core planning and scheduling in the manufacturing industry results in unpredicted
distribution costs, staffing issues, replacement issues, excessive waste, and unnecessary downtime
(Mushavhanamadi and Mbohwa, 2013). By implementing the ERP system and its ability to optimise
advanced planning and scheduling, organisations can pre-plan and schedule day-to-day operations
such as Bill of Materials (BOM), production, traceability, quality control and increased customer
satisfaction. As demonstrated in Figure 1, the manufacturing operations life cycle helps to improve
human and machinery performance on the shop floor, resulting in faster delivery and reduction of
production costs.
Figure 1: Manufacturing Operations Management Lifecycle
1.2. ERP Implementation

The ERP implementation procedure is a lengthy process with a greater risk of things going wrong
especially if the various stages of the ERP implementation process are not followed appropriately.
Ahmadi et al. (2015) categorise 16 percent of ERP implementations as being successful; 31 percent
of the projects being abandoned while in progress; and 53 percent of the projects completed at a
higher cost. Further, 70 percent of ERP implementation projects fail to deliver the organisations
anticipated outcome because of project schedule and budget overruns.
1.3. Paper Goals and Contributions

This study presents a review of global best practices in ERP by identifying challenges that occur
prior to, and post, the implementation phase in manufacturing organisations. The first step is to
understand what these organisations intend to achieve with an ERP system. The key constraints of
an ERP implementation and enables the researcher to identify and present the ERP implementation
challenges in a comprehensive manner. The information presented in this paper contributes
to existing knowledge of ERP, provides insight and a better understanding of enterprise system
implementation challenges which should, in turn, assist managers to set strategies in place to avoid
unnecessary mistakes that can be costly to the project in monetary value and in terms of time.
This study presents a review of global best practices in ERP by identifying challenges that occur
prior to and post the implementation phase in manufacturing organisations.
2. Review of literature
ERP systems were developed as material resource planning (MRP) systems that metamorphosed
into an advanced system over the years (Unterkalmsteiner et al., 2012). ERP advanced enormously
because it is used to efficiently and effectively improve the functions and operations of organisations
in today’s market (De Loo et al., 2013). Boland (2017) traced the history of ERP which dated
back from the 1960s, and confirmed that the ERP software was used to assist organisations with
the production process, which resulted in the product of MRP. Nofal and Yusof (2013) mentioned
IAMOT 2019 | 835

.important considerations before implementing ERP system i.e. (i) that the organisation in
question understands system quality, (ii) Full preparation of the ERP deployment process. To
minimise complications during the post implementation process in the organisation, the client
and ERP vendor must have a clear understanding of set strategic goals. ERP was derived from
MRP since the 1970s and MRP II since the 1980s (Acar et al., 2017). With various business
processes MRP and MRP II assist many organisations with linking different forms of information
in specific business contexts such as manufacturing. The design of an ERP system supports both
the functional and operational processes of the business’s value chain (Ahmadi et al., 2015). The
functional modules of an ERP system include accounting and finance and HR which support
practical processes of a business’s value. The operational modules of an ERP system include
supply chain, customer and sales modules which support operational processes of a business’s
value chain. ERP implementation goals differ from one business to another. Many organisations
implement ERP systems because of its integration and standardisation capabilities, flexible
server architecture and its ability to drive effective business re-engineering and management of
core and support processes. An ERP system mitigates the complexity and scale of the system
implementation process, which causes failure, and implementation challenges (Acar et al., 2017).
Poor project planning can result in an increase in in the cost of the implementation of an ERP
system depending on the size of the organisation and the volume of data that needs to be migrated
from the legacy system to a new system.
2.1. Change Management

Change is an unforeseen event that impacts a project plan and the success rate of implementation
depends mainly on the organisation’s openness to change. According to Acar et al., 2017 the adoption
of an ERP system is a perplexing and complex change management process. They recommend that
the first step to introducing change is to ensure management supports the team’s vision, vendor
selection and the implementation of the project from start to finish. The study reveals that users’ lack
of commitment, acceptance and readiness to deploy an ERP system, triggers or can result in, ERP
implementation challenges.
2.2. User Resistance and Readiness

User resistance is a user’s behavioural expression to a system implementation during the
implementation process. User readiness is supported through the development of skills, resources
and other factors in order to reach project success. Lack of readiness may result in an ERP
implementation failing at a later stage. Ahmadi et al., (2015) confirms that because readiness
is an important part of the pre-implementation phase it sets the atmosphere for the rest of the
implementation phases.
2.3. Implementation Strategies
2.3.1. Waterfall Methodology

The Waterfall Methodology is a sequential model used in software development processes.
According to Ahmadi et al. (2015), the model is the earliest method developed for structured systems
used extensively in manufacturing and distribution industries. It is considered easy to implement
due to its suitability for short projects and the prolonged risk that accompanies most of the phases.
These are analysis of the requirements, system design, implementation, testing, deployment of
the system and maintenance. The first phase, requirements analysis encompasses the customers’
objectives and goals. The system design phase converts customer requirements to different modules
for the design process; implementation facilitates coding and programming of the design; whereas
the testing phase determines whether the final product produces satisfactory results. The deployment
phase includes the installation (Go-Live) of the software on the customer’s site and the final stage is
maintenance, customer support and training.
IAMOT 2019 | 836

2.3.2. IDEAL Methodology

The Initiate Design Engineer Actualize Leverage (IDEAL) methodology is a scalable and structured
approach. The IDEAL methodology consists of pre-defined input and output activities that provide
a solution to customer goals and objectives. The purpose of the methodology aims to accomplish
standardisation and manage customer expectations. IDEAL consists of five stages, namely: initiation,
design, engineering, actualisation and leverage. The initiation stage comprises customer start-up
meetings and scope. The sales team markets the ERP software solution to the customer, at this stage.
During the design stage, the design model is signed off by both the customer and the ERP vendor,
affirming the model design. The product is designed to ensure that the business process is adapted to
the ERP solution, during the engineer stage. End-user training, system readiness testing and support
documentation are provided during the leverage stage to finalise the implementation of the project.
2.4. Project management

The biggest challenge of managing projects is achieving all the project goals within set project
constraints such as time, scope and cost. The scope refers to what is done to produce the project
results; time -the duration of the project from start to finish; and, the cost refers to the budget incurred
during the project. Depending on the complexity of the project the cost and the time increases
resulting in a broader scope of the project. According to Ahmadi et al. (2015), project complexity
is a factor that influences the time, cost and scope of a project therefore affecting the overall quality
of the project. Changing customer requirements, demanding financial reporting requirements and
competitive cost pressures delay the ERP implementation project because the ERP vendor needs to
rapidly re-design and adapt the business processes and capabilities to meet customer satisfaction.
This study approach includes a bibliographic research review, specifically utilising internet based
search engines. Bibliographic research investigates historical and scientific text by studying textual
content of any volume (Garratt et al., 2002). A Systematic Literature Review (SLR) was adopted to
obtain data from multiple sources with the aim to producing consistent conclusions. The SLR was
conducted to identify various fields of knowledge in ERP. The area of ERP is a multidisciplinary
field of study as it consists of functional and technical knowledge. The SLR is conducted by using
Unterkalmsteiner (2012) guidelines. An SLR is a literature review intended to find, evaluate and
synthesize secondary data available to a specific research question (Boland et al., 2017). The purpose
of an SLR is to provide a full overview of research conducted in a specific field.
3.1. Review of Papers

The first criteria include the identification of the following keywords from the title, abstract or
purpose of the papers: ERP, implementation, systems, failure, challenge and manufacturing. Papers
that were included contained at least 2 keywords and papers that were excluded contained at most
1 keyword. The second criteria for classifying pre-implementation and post implementation for a
thorough in-depth analysis included the keywords: prior, before, after or post. Papers that included
these keywords or explicitly dealing with ERP system challenges were selected. As a result, a total
of 34 papers were identified for a final review from the 42 papers. The 42 papers were considered
to meet the first criteria and the 34 papers were considered to meet the second criteria. The study
utilised scientific directories to access peer-reviewed journals, these include Science Direct and
Elsevier, Taylor & Francis, Business Source Complete, Emerald Insight, SpringerLink, Wiley
Online and Management Information System (MIS) Quarterly. The selected studies provide recent
scientific literature in technology, management, engineering, computing and information systems.
Three extensive literature searches are conducted to test the reliability and validity of the search
shown in Table 1. According to Nofal and Yusof (2013), the reliability of the search depends on
following a repeatable search process and producing consistent results.
IAMOT 2019 | 837

Table 1: Search Strategy
Search No Search Terms Type of Search No of Results
Enterprise Resource Planning

S1 Basic search 404
implementation
ERP systems AND ERP Advanced Boolean search (no

S2 721
implementation search limits
ERP systems AND ERP Advanced Boolean search

S3 42
implementation (with search limits)
3.2. Search Strategy

The search terms are created from the research questions for the sole purpose of obtaining relevant
journal papers. An extensive literature search is initiated by conducting a basic search using the
search terms Enterprise Resource Planning implementation. A second trial search is conducted by
applying the Boolean advanced search in the subject matter area. Search terms for this study have
been refined to ERP systems and ERP implementation specified over a period of five years (2013 to
2018) without the use of search limits. Three extensive literature searches are conducted to test the
reliability and validity of the search.
Table 2: Total Number of Papers Included Per Year
2013 2014 2015 2016 2017 2018 Total
11 9 6 4 4 0 34
The inclusion criteria include the primary studies related to ERP systems and ERP implementation;
papers that contain at least two keywords; primary studies related to the developed themes of the
paper; studies conducted in the relevant industry and research papers in English and available in full
text. The exclusion criteria exclude the papers that contain at most one keyword; duplicate paper
of similar research study; research papers not related to the research questions and are not written
in English and primary studies that do not adhere to the themes of the paper. The search process
obtained 42 publications. After applying the exclusion criteria, a total of 34 papers are included as
shown in Table 2 and Figure 2. Figure 2 demonstrates the percentage rate of included journal paper publications.
Statistics and Distribution of Papers
WILEY Online 9%
Taylor & Francis 18%
SpringerLink 3%
MIS Quarterly 9%
Emerald Insight 18%
Elsevier and ScienceDirect 35%
Business Source Complete 9%
0% 10% 20% 30% 40%
Figure 2: Statistics and Publication of Papers
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3.3. Data Extraction

The papers are collected and analysed for admissibility using the inclusion and exclusion criteria.
The final 34 papers are thoroughly analysed to obtain pre- and post-implementation ERP challenges;
determine what manufacturing organisations intended to achieve with an ERP system; and
determine key constraints of an ERP implementation. Data from the papers are extracted using the
data extraction form, which allowed for the removal of researcher bias and the reduction of error.
In addition, the data extraction themes are used as a guide to provide an in-depth review of the data
extracted. A quality assessment is performed on the 34 papers based on the title of the study, design
methodology, relevance to the research questions, and clarity in the data collection procedure, clear
and concise findings. A few papers did not meet the quality assessment criteria. The information
provided by 81% of the papers is considered acceptable and relevant for the research study.
3.4. Data Analysis

The data analysis and screening process is performed through a rigorous review and categorized
accordingly. The rigorous review required the researcher to evaluate and examine the final selection
of journal papers by identifying ERP challenges prior to and post the implementation phase. A total
of 144 challenges were identified from the review of the included journal papers. The challenges that
were identified were classified into 19 categories based on the unit and themes of analysis.
RQ 1: What are the global best practices in ERP implementation (Implementation challenges
prior to and post ERP implementation phase)?
Top management need to be aware of ERP characteristics to identify the organisations real need
for an ERP system. If management is not aware of this, the ERP system implementation may not
be aligned with the organisations business process, resulting in major challenges before the ERP
implementation project starts. These can compromise the entire project causing major financial
implications.
Project management techniques help organisations to develop work plans, identify scope, project
objectives and time frames of a project. It specifies the outcome, major deliverables, methods for
tracking and reporting of the project. ERP systems are expensive and complex to implement; this
is why the success of the ERP system implementation relies heavily on proper project planning,
resource allocation and dedicated work to execute the plan.
A common concern employees have in an organisation is user training and involvement that how
new technology such as an ERP system will have an impact on the work performance of employees.
It is important that top management help employees understand the benefits of the new system in
order to involve them in major changes that occur in the organisation. Involving end-users at early
stages of the project implementation can result in improved productivity, improved quality of work
and performance. Sufficient end-user training is necessary in order for the business to cope with
changes, maintenance capabilities of the user, improvements and technology advancements.
The selection of the ERP vendor has a direct influence on the success or the failure of the
implementation project. ERP vendors are experts who increase end-user knowledge, competence
and performance. Selecting the wrong ERP vendor could cause the ERP implementation project to
spiral out of control, resulting in challenges post the implementation phase.
Lack of interdepartmental collaboration and communication causes conflict, confusion,
unnecessary delays and wastage of resources during a project implementation. This discourages
team work, shared responsibility outcomes and information sharing, decreases employee morale,
creates a hostile work environment and decreases work performance.
Lack of skills and training of the ERP system elicits user resistance behaviour. User resistance
behaviour is associated with user cognitive and behavioural characteristics of the system. User
resistance is a result of the lack of awareness of system benefits, the lack of user involvement, the
lack of user training, a mismatch between organisational processes and the system. User resistance
IAMOT 2019 | 839
behaviour towards change management, new information system, and technological advancements
makes the ERP implementation process difficult. This result in financial losses project schedule
overruns and user dissatisfaction of the new ERP system.
Challenges related to information technology infrastructure during and post the ERP
implementation phase occur because of poor ERP system implementation. Major complications
can occur if the ERP system is not implemented correctly into proper hardware, telecommunication
equipment and a functioning operating system. IT competence in an organisation affects the financial
performance of the organisation.
Replacing a legacy system with a new ERP system is a challenging task for any organisation. In-
house IT competence is required to provide support to the end-user and to maintain the new system.
The organisation and IT should work together to solve end-user problems with the system and to
encourage user involvement on the system. Poor in-house competence has a negative influence on
the system, and the overall performance and productivity of the organisation as a whole.
Management of change in an organisation is expensive and inevitable however taking necessary
steps to prepare for the change is important. Preparing for the change creates a positive impact in the
organisation for the long run. A great amount of effort must be made by the organisation to prepare
employees for change well in advance. This requires consistent communication with employees and
providing training where necessary.
Continuous improvement involves system maintenance on a regular, which involves the process of
adding and removing certain functions on the system. ERP systems continue to evolve and change
after the ERP system go-live. It is important for the organisation to ensure that ERP goes through
operational, tactical and strategic optimization to avoid system failure.
Organisational support affects end-user structure, roles and responsibility in an organisation.
Lack of continuous improvement on the ERP system post the implementation phase prohibits
organizational support. Poor Organisational support results in a decrease in employee commitment
and job satisfaction in the organisation.
The misuse of new management (ERP Integration) control functionality creates wrong and
misguiding decisions. This promotes a distressing level of complexity which can cause challenges
during and post the ERP implementation phase.
Poor strategic objectives and lack of shared vision from top management causes challenges before
the implementation project is initiated. This creates uncertainty in the organisation because employees
are not sure of roles and responsibilities. This results in a demotivated and unproductive workforce.
It is important for top management to prepare employees for a major change in an organisation by
ensuring that goals and objective are clearly defined and understood. Clear objectives and shared
vision circumvents misunderstandings, unnecessary conflict, mistrust, confusion, demotivation and
poor performance.
Organisational readiness involves aligning ERP implementation goals with organisational goals,
conducting an ERP implementation feasibility study and preparing well defined project plans. The
level of an organisations understanding of system quality within its organisation determines the level
of organisational readiness to handle the system and the changes it brings.
Technical and system quality is compromised when the system is not well designed. Poor system quality
perceived strategic value, information quality, technical quality and organisational implementation of the
ERP system. Poor system quality reduces user interaction and reduces user satisfaction.
The ERP system and effectiveness must fit the requirements of the business and its existing
processes. Administrative processes of the organisation need to be accurately integrated with the
new ERP system to maximize performance, growth and development. Failure to effectively align
system and business processes to the new ERP system will result in the incorrect construct of an
ERP system.
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Online support consists of the availability of end-user training manuals, tutorials and system
guidelines on ERP that provides added learning support, providing users with the opportunity to
acquire knowledge at a comfortable pace. This increases user involvement and user satisfaction.
User satisfaction provides a negative or positive feedback on the ERP system, which enables
organisations to identify necessary opportunities for improvement. A lower level of user satisfaction
reduces system interaction, growth, knowledge and organisational learning.
High customization of the ERP system can result in post implementation challenges because the
greater the scope of the project the greater the risk to failure. Customizations are difficult to manage
and can cause major project budget and schedule overruns. Customization causes more problems
post the ERP implementation phase because of the upgrades that need to be done on the system and
maintenance costs.
RQ 2: What do manufacturing organisations intend to achieve with an ERP system?
Improved Information Flow: ERP implementation is aimed at organizing and allowing better information
access across all departments. An ERP system is implemented across manufacturing organisations because
it provides sophisticated workflow functionality; manages documentation and content.
Improved Communication: ERP systems help with managing shared goals by making it possible
for the ERP modules to integrate with inventory control, accounting and finance, manufacturing and
distribution. The ERP system enables manufacturing organisations to streamline business processes
in aim to have a unified set of software applications across all departments.
Competitive Advantage: Manufacturing organisations implement ERP to reduce costs, and ensure
productivity in order to remain competitive within the marketplace. ERP assists in strengthening
supplier and customer relationships because the system allows for efficient and effective processing
of payment, inventory forecasts, inventory optimization, warehousing and tracking of final products.
Financial Gain: ERP improves the financial performance or profitability of the manufacturing
organisation by improving stock returns, organizational control over budget costs and improves
return on investment and return on assets.
Efficiency: ERP automates processes, improves efficiency in factories, measures the productivity
and performance of machinery, stabilizes processes and reduces process cycle time. ERP enables
manufacturing organisations to address complex problems, offers product variety, improves the
reliability of decision-making, progresses and monitors inventory management.
Supplier Relationship: ERP increases collaboration between suppliers, customers and partners.
It provides opportunity for growth in relevant industry markets. ERP encourages organizational
learning, increases the competencies of users and ensures improved supply chain performance.
RQ3: What are the key constrains in ERP implementation?
An ERP system provides a united IT architecture to enhance data consistency and integration in
modular applications that support business processes. Manufacturing organisations use ERP systems
to achieve cost performance in areas of marketing, manufacturing, purchasing, inventory and customer
service through improved process efficiencies and waste reductions. An ERP system helps identify
product defects and service failure, enabling organisations to provide good and quality executions.
It improves business processes including marketing plans and product development decisions. The
ERP system proves coordination in the organisation, reduced inventory costs, improved customer
satisfaction, planning and inventory management and improved efficiency.
4. Conclusion
In conducting the bibliographic review, various ERP challenges were identified. These challenges
were identified as: inadequate top management support and involvement, high customization, poor
strategic objectives, user resistance behaviour, low user satisfaction, improper ERP vendor selection,
IAMOT 2019 | 841

inadequate user training and involvement, project management, poor interdepartmental collaboration
and communication, poor system and business effectiveness, lack of continuous improvement,
insufficient organisational support, low organisational readiness, poor in-house competence,
information technology infrastructure, ERP integration, lack of online support, destitute system and
technical quality, and change management.
References
Acar, M.F., Tarim, M., Zaim, H., Zaim, S. and Delen, D., (2017). Knowledge management and ERP: Complementary or
contradictory, International Journal of Information Management, 37(6), 703-712.
Ahmadi, S., Papageorgiou, E., Yeh, C.H. and Martin, R., (2015), Managing readiness-relevant activities for the
organizational dimension of ERP implementation, Computers in Industry, 68, 89-104.
Boland, A., Cherry, G. and Dickson, R. eds., (2017), Doing a systematic review: A student’s guide. Sage.
De Loo, I., Bots, J., Louwrink, E., Meeuwsen, D., van Moorsel, P. and Rozel, C., (2013), The effects of ERP-
implementations on the non-financial performance of small and medium-sized enterprises in the Netherlands,
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patient assessed health outcome measures. Bmj, 324(7351), 1417.
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participation. Procedia Technology, 9, 518-526.
Mushavhanamadi, K. and Mbohwa, C., (2013), The impact of enterprise resource planning system (ERP) in a South
African company.
Nofal, M.I. and Yusof, Z.M., (2013), Integration of business intelligence and enterprise resource planning within
organizations, Procedia Technology, 11, 658-665.
Unterkalmsteiner, M., Gorschek, T., Islam, A.M., Cheng, C.K., Permadi, R.B. and Feldt, R., (2012), Evaluation and
measurement of software process improvement—a systematic literature review, IEEE Transactions on
Software Engineering, 38(2), 398-424.
IAMOT 2019 | 842

Future of Public Organizations in the Digital
Transformation Era
Mohamed Azzam
Federation of Egyptian Chambers of Commerce
Digital Economy and Technology General Division
4 El Falaki Square, Cairo, Egypt
E-mail: mo.azzam@nu.edu.eg
Nezar Sami
Nile University
Sheikh Zayed City, Giza, Egypt
E-mail: nsami@nu.edu.eg
Tarek Khalil
Nile University
Sheikh Zayed, Giza, Egypt
E-mail: tkhalil@nu.edu.eg
Abstract
Introduction and Purpose: Digital transformation has been a “buzz” word over the last few years. Government
of Egypt has initiated various ambitious initiatives and projects for transforming the economy into digital
economy. Since the outlook of the future organizations would be different from what we know today, therefore,
such transformation mandates radical change in the way public leaders manage their organizations, operations and
workforce. Consequently, there is a necessity for foreseeing the drivers of change, as well as the technological
evolution, which are shaping the future. Foreseeing and understanding the drivers of change would be the path for
survival and thrift. Based on that, the paper outlines the major trends shaping the future of public organizations
in the digital transformation era, as well as establishes a roadmap for such organizations for having a smooth
restructuring and transformation, in order to be ready for the future.
Methodology: The approach used in the paper is based on thorough analysis of the reports issued by international
institutions, organization development (OD), and literature in the areas of future governments and digital
transformation, desk research, and interviews with key personnel in the government and Business Representative
Organizations (BROs).
Findings: The paper identifies the drivers and trends shaping the future of public organizations, and outlines
framework and system model for the productive future public organizations, as well as summarizes the
characteristics of such organizations.
Contributions: The proposed framework will act as a guiding instrument for policymakers and public leaders
for planning and executing effective and efficient transformation of the public organizations in the digital
transformation era. Also, the paper can be used as a base for future research in specific issues related to the digital
transformation of the nation.
Keywords: Management of Technology, Digital Transformation, Future Organization, Future Workforce,
Innovation, Future Leaders
1. Introduction
Forever, future starts now! There is an unprecedented pace of technological advancement, coupled
with disruptive use models of technology in every aspect of life and business (Mohamed Azzam
et al., 2018). This reshapes or even disrupt our present and future.
We are living in the era of “Uncertainty”. Therefore, there is a necessity for governments and
businesses to foresee the drivers of change shaping the future, as this becomes the route for survival
and thrift (Gould-Davies, 2017).
IAMOT 2019 | 843

Consequently, understanding the effect of the emerging technologies is principle in this regards, as
they will unquestionably rewrite the outlook of the future. Emerging technologies will revolutionize
the way we live and conduct business in the future.
A recent survey by The Brookings Institution indicated that around 30% of adult internet users
believe the U.S. government should establish a federal commission for regulating the development
and use of robots. The survey also showed that 52% of these internet users see robots will progress,
over the coming 30 years, to the level that they will execute most of the activities conducted by
humans today (Wes, 2018).
Furthermore, on the organizational level, and as a result of this technological progression, there is
an increasing divide between the sophistication of technology and its innovative use models, and
the efficiency and effectiveness of business outcome. Consequently, this leads to income inequity
and stagnation, and social instability (J. Bersin, B. Pelster, J. Schwartz and B. van der Vyver, 2017).
Therefore, organizations, especially public organizations, are challenged to make a major
transformation on different levels related to workforce, working environment and the nature of work.
Based on that, the paper outlines the major drivers and trends shaping the future of public organizations
in the digital transformation era, as well as establishes a roadmap for such organizations for having
a smooth restructuring and transformation, in order to be ready for the future.
2. Drivers and Trends Shaping the Future of Public Organizations

Few years ago, there has been an argument in many organizations regarding the possibility of
allowing employees to access their social media in work or not. Today, this argument is not valid
anymore! Social media platforms attract billions of users every month. Facebook alone has almost
2.3 billion monthly active users in August 2018, and YouTube has 1.9 billion users, while Instagram,
Twitter and LinkedIn have 1.0 billion users, 336 million users, and 106 million users respectively
(Dreamgrow, 2018).
Therefore, many organizations, even public organizations, have established their own channels on
such top social media platforms. Moreover, organizations have hired social media specialists and
influencers for promoting their services, publicizing news and activities, monitoring and dealing
with external media and public opinion, and headhunting talents (A. Church and W. Burke, 2017).
Digital media has changed the way of communication between citizens and governments, and
increased the social relationship between the various parties and stakeholders, including individuals
and businesses, involved in local and national, and even international affairs (C. Granda Tandazo, F.
Paladines Galarza and A. Velásquez Benavides, 2016).
This is a simple example of how organizations are evolving due to the technology advancement and
its innovative and unpredictable use models.
Nowadays, the evolution of the organizations is following more or less Moore’s Law (C. Rawlings
and R. Bencini, 2014). The pace and complications of change, along with the effects of these changes
are speeding up at an equally exponential rate (A. Church and W. Burke, 2017).
Therefore, it is important to shed more light on the major drivers of change and the trends shaping
the future of organizations, as the organization of the future starts now!
2.1. Drivers of Change

The shifting nature of work, data and workforce are representing the three major drivers of change
that we face today (A. Church and W. Burke, 2017) (Cheung-Judge, 2017). Organizations are
experiencing a major shift in the manners related to: setting frontiers around themselves, their
function units and their teams, as well as, the manners related to identifying how individuals conduct
their day-to-day tasks, in view of their continuous contact with different social platforms and systems
(J. Boudreau, R. Jesuthasan and D. Creelman, 2015).
IAMOT 2019 | 844

Future of Public Organizations in the Digital Transformation Era
Furthermore, the size of data and its diversity, due to the human practices and the operated systems,
forms another major change driver (A. Church and S. Dutta, 2013).
Another driver stems from changing generational structures and demographics, along with the
shifting expectancies that are forming the outlook of the future workforce (J. Deal and A. Levenson,
2016).
These major drivers are affecting or even forming the base of the trends shaping the future of
organizations, as it is illustrated in the following figure (Figure 1) and will be elaborated in the next
section.
Figure 1: Drivers and Trends Shaping the Future
Source: Adapted from Four Trends Shaping the Future of Organizations and Organization Development, 2017
2.2. Megatrends Shaping the Future

There are megatrends that are shaping the future. This includes shifting towards platforms, shifting
towards digital mindset, shifting to insights not data, and shifting from employees to talents (A.
Church and W. Burke, 2017). More highlights will be given on these four megatrends in the
following sections.
2.2.1. Shifting towards Platform Organizations

Currently many governments, both in developed and developing countries, are transforming into
digital governments, for availing their services online for citizens and businesses. This is for assuring
efficiency, transparency and accountability, while building a trust ecosystem between them and
citizens and businesses.
In other words, governments are shifting rapidly towards platforms, following the business and
operational model of prominent platform organizations, such as eBay, Facebook, LinkedIn and
Twitter, rather than brick and mortar model (face-to-face model).
This will force public organizations to become more agile, adaptive and “citizen centric”.
Additionally, more focus will be on the design thinking concept, while many other concepts, such
as Total Quality Management (TQM) will be outdated eventually (Gulati, 2009) (Brown, 2008).
Thus, top-down management will not be applicable in the near future, due to more involvement from
citizens and businesses in the decision-making process.
The cyberspace altered the way organizations, including public organizations, are conducting
business and providing services to their customers; citizens and businesses in the case of public
organizations.
Therefore, private-sector platform organizations, such as Airbnb, Uber, Google and Netflix,
are experimenting different structures, as well as processes. This is for supporting and fostering
innovative mechanisms that better deliver their services to their customers.
IAMOT 2019 | 845

The objective of such platform organizations are to make sure that their employees are utilizing the
collaboration tools to the maximum magnitude, having better understanding of the new nature of
work and business dynamics, making faster decisions away from rigid hierarchy, using information
and data intelligently, and involving their customers massively (A. Church and W. Burke, 2017).
Public organizations will have to follow the same path in the near future too! They need to be
responsive to the future! Public leaders should promote more utilization of technology and advanced
analytic tools, across all functions within the public organizations. This is for discovering new
venues that would help achieving economic value, while improving the productivity, agility and
transparency climate within the public organizations (DigitalBCG, 2018).
2.2.2. Shifting towards Digital Mindset

Technological evolution mandates faster pace and more agility in the way public organizations
perform internally and respond to the growing demands of businesses and citizens.
Therefore, public organizations should adopt not only a digital set of process, but also a digital
mindset. This requires various challenging restructures on the people, culture and processes levels
(A. Church and W. Burke, 2017) (Cheung-Judge, 2017).
This transformation would need building advanced capabilities and infrastructure within the
organization, as well as implanting them within novel business models.
Of course, this sort of transformation is not an easy task for public leaders. A report by MIT indicated
that 90% of executives believe that their economic sectors will be disrupted by emerging digital
trends to a great or moderate extent; yet, 56% of them see that their organizations are not ready for
such transformation (G. Kane et al., 2016).
Moreover, the digital (platform) organizations will have to deal with data generated from the
processes themselves and feedback loops that happen at every single point, within the organizations’
functions and sub functions.
Therefore, digital organizations should be agile and flexible enough to produce, gather, combine
and manage data and information in real time. Based on that, leaders of public organizations should
consider having a “mass customization” (L. Golay and A. Church, 2013).
Public leaders need to realize the nature of such transformation and its influence on their
organizations. Leaders should reconsider the mechanisms of decision-making, towards establishing
speedy and agile structure; and they should know how to benefit from information and data from the
different functions and sub functions within the organizations.
This may require evaluating the maturity of the digital mindset of these leaders themselves. This is to
retain only the adaptable and proficient leaders, or pave the way for more advanced and progressive
potential leaders (A. Church and W. Burke, 2017).
Accordingly, public leaders should revisit the vision and mission of their organizations, as well as
they should reconsider the procedures, and develop new culture and working environment within the
organizations. Likewise, leaders should redefine the concept of leadership and management manners
and practices, along with staff members’ value proposition, within this new context. In other words,
all elements should be perfectly aligned for having an efficient transformation (W. Burke and G.
Litwin, 1992). Public leaders on all levels have to develop a strong digital culture and environment
across their organizations (Reichert, 2018).
2.2.3. Shifting towards Insights

The usage and utilization of data within organizations is not new! However, the new organizations
“Platform Organizations” are generating unprecedented volume of data. Today, the issue is not how
to use and process the data, as it is not enough anymore! But, how to create insights from the data
IAMOT 2019 | 846

(A. Church and W. Burke, 2017). Insights from such massive data are becoming more significant for
decision-making process within the platform organizations.
Big data analytics should give insights to decision makers across the different functions of the
organization. Such insights should meet the business and corporate strategies of the organization.
Consequently, the role of data scientists along with chief technology officer (CTO) is becoming
fundamental within the new organizations (Richard Guzzo et al., 2015). They need to integrate and
organize the fragmented data from all over the organization, to develop innovative solutions and
frameworks based on insights for the top management.
This is for making a rapid and progressive transformation to the future. They also need to inaugurate
such culture and philosophy across the organization’s management and employees, for lessening the
resistance of change. Yet, this is not a stress-free task, as there is scarcity of talents in the analysis
and insight area of expertise (A. Shull et al., 2014).
Forever, human factor and competency is a fundamental component for any organization that
requires to continue to exist and then flourish (Kaufman, 2015).
2.2.4. Shifting towards Talents

The digital transformation eventually would lead organizations to launch an intensive global “war
for talent”. The global economy has been transformed radically over the last decade, therefore,
public and business leaders became more concerned about the rising global competition on all levels,
including the competition for talent (E. Michaels, H. Handfield-Jones and B. Axelrod, 2001) (S.
Beechler and I. C. Woodward, 2009).
Currently, with the unprecedented pace of change and use models of technology, it becomes
crucial for leaders to hire and retain talents and achievers. The concept of “just filling positions” by
average individuals would not be valid anymore, as this act would seriously harm the organization’s
performance and competitiveness, as well as its internal moral and external reputation in the job
market (M. Guthridge and A. Komm, 2008).
Therefore, the “war for talent management” needs different strategies and tactics (A. Church and
W. Burke, 2017).
Creating development culture across the organization would not be enough. This should be coupled
with helping leaders and HR managers employing techniques that would lead to talent segmentation,
as well as differentiation (A. Church, C. Rotolo, N. Ginther and R. Levine, 2015).
Based on that, the allocated financial and non-financial resources should be guided to recognize
and categorize employees into high potential and non-high potential leaders and decision-makers.
This is for ensuring that the resources are well utilized for creating a leadership pipeline. Leaders
who would lead the design and implementation of the desired transformation for the organization to
thrive (R. Silzer et al., 2010). Leaders who would be able to fill the gap that machines cannot manage
(M. Wilkesmann and U. Wilkesmann, 2018).
This would definitely disrupt the concepts of Organization Development (OD) and its practices now
and in the future, in order to meet the current and future challenges due to the digital transformation.
Based on the four megatrends shaping the future of the organizations that are shifting towards:
platforms and virtuality rather than brick-and-motor format, end-to-end digital business procedures
rather than mechanical procedures, dependence on insights rather data in decision-making process,
and the last but not least, hiring and retaining talents to design and lead the change, the role of public
leaders and OD practitioners becomes significant.
This mandates having a framework that would act as a guide and roadmap for public leaders and
policymakers to establish a smooth and efficient transformation to the future, as it will be discussed
in the following section.
IAMOT 2019 | 847

3. The Framework for Future Public Organizations

The deviance between the speed of change and the current practices of the organizations, especially
the public organizations, is clear to the public leaders and policymakers (H. Bakhshi, J. M. Downing,
M. A. Osborne and P. Schneider, 2017). Moreover, technological progress is dictating the path they
would follow in the future.
Therefore, a framework should be developed for assisting such public leaders and policymakers to
transform the public organizations and make them competitive, and ready for the future.
Organizational innovation, in a broader sense, is becoming a mandate, as innovation is not just a
straightforward isolated act of organizations (M. Alves, S. Galina and S. Dobeli, 2018), as will be
discussed in the following sections.
3.1. Principle Domains of the Organizational Innovation

Oslo Manual developed by Organization for Economic Co-operation and Development (OECD)
introduced an uncomplicated and broad definition of organizational innovation. OCED defined
the organizational innovation as “the implementation of a new organizational method in a firm’s
business practices, workplace organization or external relations.” (OECD/Eurostat, 2018). This
definition has three principle domains, as illustrated below (Figure 2):
Figure 2: Principle Domains of the Organizational Innovation
Source: Adapted from Oslo Manual, OCED, 2018

The principle domains include: (1) innovating new mechanisms for establishing and conducting
business practices and procedures (Business Routines); (2) having new methods for responsibilities’
allocation and employees’ involvement (Workplace Configuration); and (3) reshaping the
relationship between the organization and the external bodies, including other private and public
organizations (External Relationships) (OECD/Eurostat, 2018) (M. Alves, S. Galina and S. Dobeli,
2018).
Therefore, it is important to transform the public organizations from the classical hierarchical
organizations to what is called “wirearchy organizations” (Cheung-Judge, 2017).
3.2. Moving towards Wirearchy Organizations

For organizations to be future-ready, the concept of “Wirearchy” organization should be clear to the
policymakers and public leaders.
Wirearchy is simply an evolving organizing concept, rather than an inflexible structure. It is a
concept that shapes the relationship between the three principle domains stated earlier (business
routines, workplace configuration and external relationships). In his book, Sketches for the Future
of Work, Jon Husband defined “Wirearchy” as “a dynamic two-way flow of power and authority,
based on knowledge, trust, credibility and a focus on results, enabled by interconnected people and
technology” (Husband, 2018).
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In other words, Wirearchy is a combination of hierarchies, networks and communities of practice

(Cheung-Judge, 2017).
The concept of “Wirearchy” organization could be the instrument for overcoming the challenges
related to the growing complicatedness in the work environment, the scarceness of talents and
resources, and the evolution of technology and its use models (PWC, 2014) (Husband, 2018).
Therefore, in the future organization, the concept of “job description” will be obsolete, as employees
will act within circles and not according to the traditional hierarchy. These circles characterize the
various facets of the organization. Each employee will have a different role within the different
circles. This could help minimizing the risk of implementing radical organizational restructuring
(PWC, 2014) (Cheung-Judge, 2017).
Employees in the future have to master certain skills that are: adaptability, problem solving,
collaboration skills, emotional intelligence, creativity and innovation, leadership skills, digital skills,
risk management skills, STEM skills, and entrepreneurial and intrapreneurial skills (KMPG, 2018)
(PWC, 2014).
Based on that the future organizations have to be a “Learning Organizations” as well. The organization
has to act as a facilitator of the ongoing learning for its workforce, operate as a learning unit by itself,
and depend on learning to operate and on continual learning to thrive (Örtenblad, 2018).
Thus, a framework for the future organization should be developed, as will be discussed in the
following section.
3.3. Pillars of the Framework

The proposed framework is based on developing digital business strategy for the public organizations.
Public leaders should be aligned with the pace of the technology and define a starting point for the
transformation.
Public leaders should identify the strengths and weaknesses with respect to their organizations’ level
of digitization. They should benchmark their organizations against the best-in-class peers.
Then, this should be followed by developing an integrated pathway for starting and implementing
the digital transformation to the future.
The strategy has two main pillars (M. Grebe, M. Rüßmann, M. Leyh and M. Franke, 2018); the
first pillar is having a “Digitized Core”. This includes digitizing the offerings and services of the
organization provided to citizens and businesses, and the operation and the support functions.
The second pillar is the “Enablers” that is focused on having organizational innovation with respect
to developing new working models, better utilization of the power of technology and its use models,
as well as taking advantage of the power of data. This pillar also includes having an outlook for
building an integrated ecosystem with the different stakeholders, such as citizens, businesses, other
public organizations and authorities.
The following figures shows the pillars of the proposed framework (Figure 3).
Figure 3: Digital Business Strategy for Public Organization
Source: Adapted from Digital Maturity Is Paying Off, BCG, 2018
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3.4. System Model for Future Productive Public Organization

For implementing the above mentioned strategy, we need to have the essences of the productive
organization in mind (Betz, 2008), as illustrated in the following figure (Figure 4):
Figure 4: System Model of a Productive Organization
Source: Adapted from Road to Competitive Strategy, Fred Betz, 2008

If we map this system model for the future productive public organization, as illustrated in the
following figure (Figure 5), the support plane will include tracks related to the skills development
of the workforce to meet the requirement of the transformation to the future, establishing innovative
new working and business models, more empowerment of employees in the decision-making
process, and building future digital leaders whom will lead the change and sustain the momentum
towards growth of the organization.
The transformation plane will include digitizing the core activities of the organization to meet with
the citizens and businesses requirements, reengineering the procedures to match the transformation’s
necessities and implementing massive process innovation practices, restructuring the organization
towards “Platform Organization”, as discussed earlier in this document, and providing the
organization’s services and business offering to citizens and businesses in an automated manner,
and according to well-defined Service Level Agreement (SLA).
Figure 5: System Model of a Future Productive Public Organization
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Last but not least, the control plane will contain the analysis of the data produced from every
single point within the system to help decision-makers to have the big picture in mind and take
corrective and/or progressive actions, when necessary. This plate also include monitoring the level
of adherence of the delivery of the services and offerings as per their predefined SLA, while taking
into consideration the feedback of the different stakeholders that include citizens, businesses, other
governmental authorities, and Business Representative Organizations (BROs) and NGOs, as well
as the collective intelligence data gathered internally and externally. This is for keeping the system
agile, and be able to keep abreast of the change in the internal and external environment of the
organization, as well as to be always ready for the future.
This leads us to define the main characteristics of the future public organization, as will be elaborated
in the following section.
4. Characteristics of Future Public Organization

The public organization in the future would have its own characteristics. Policymakers and public
leaders should be acquainted with these characteristics, in order to have effective and smooth
transformation of their organizations.
The mission of the future organization is to create value for people it serves, while developing value
also for people they work for, as well as for other stakeholders within the ecosystem (Cheung-Judge,
2017).
People are at the core of the future organizations. The success of organizations would be dependent
on human capabilities. For that reason, human capacity building is the cornerstone for organizations
to thrive and create value to its stakeholders (Kaufman, 2015).
Skills development is vital for accomplishing the organization’s mission. Workforce has to master
skills mentioned earlier such as: adaptability, problem solving, collaboration skills, emotional
intelligence, creativity and innovation, leadership skills, digital skills, risk management skills,
STEM skills, and entrepreneurial and intrapreneurial skills (KMPG, 2018) (PWC, 2014).
Meanwhile workforce and even the beneficiaries at large have to play a principle role in articulating
the policies and procedures, as well as services and business offering, as partners of the future
organization. The top-down approach would not be effective in the future; it would be more of
bottom-up approach (Betz, 2008).
The relationship between the organization and its workforce would be more individualized rather
than standardized. This would open new horizons for innovating new working and business models,
and service delivery mechanisms and channels. Innovation should be encouraged and appreciated.
This is a main role of the leadership in future public organizations (Domnica, 2012).
New public leadership would act as mentors and facilitators to the middle management and front
line officers rather than playing a directive role (KMPG, 2018) (Cheung-Judge, 2017). This could be
achieved through flat “Platform Organization” as discussed earlier.
Delivery of services and business offerings through efficient and effective processes, in an electronic
format, would be more imperative than structure. Collaboration and integration, along with agility
and collective intelligence, would be the key of success (Cheung-Judge, 2017).
Cultivating the culture and mindset of entrepreneurship and intrapreneurship among the workforce
would stimulate future innovation within the organization (U. Plesner, L. Justesen and C. Glerup,
2018).
5. Conclusion
Bringing our public organizations to the future would need both agile and digital public leaders.
They are the building block for transforming their organizations. However, this is not an easy task
as it sounds.
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Such leaders should be capable of listening more than giving directive orders. They should be
capable of establishing an ecosystem based on trust and openness. They should be believers in
transparency and accountability, as well as in collaborative efforts rather than individualism.
They should know that job description is a history and the concept of “just filling positions” by
average individuals would not be valid anymore. They should hire and retain talents, while developing
their skills towards building a pipeline of future leaders. They should revamp their operations and
transform their classical hierarchical organizations to wirearchy organizations.
Innovations should be appreciated on all levels. Leaders of organizations should build the culture
and mindset of entrepreneurship and intrapreneurship across the organization.
Such leaders should strive to make their organizations’ functions and subunits digitally competent.
They do not have to know how technology works, but they should know how technology and its use
models provide business value to their beneficiaries and stakeholders. It is all about building digital
culture within the organization. That is why having principles of management of technology in the
mind of the public leaders is vital.
It behooves future public organizations and their leaders to learn the lessons from Uber and Airbnb
and quickly adopt to provide the services needed and deserved to its stakeholders.
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IAMOT 2019 | 853

PART V
SUSTAINABILITY
National Innovation Systems, Sustainability and
Inclusive Growth
Gita Surie
Adelphi University, US
E-mail: surie@adelphi.edu
Abstract
Purpose of the Paper
This paper examines the role of national innovation systems (NISs) in developing countries in stimulating inclusive
growth, a key need of the 21st century, as large segments of the population in these countries do not have access to
basic services and resources and do not participate in markets.
Related Work
This paper draws on key research on national innovation systems (Lundvall, 2016; 2010; 2007; Nelson, 1993),
institutions and entrepreneurship (North, 1991; Baumol, 2007), sustainability (UN, 2015) and inclusive growth
(Calton et al., 2013; London and Anupindi, 2012; Hahn, 2009; London and Hart, 2004).
Design/ Methodology/ Approach
The paper studies how NISs can achieve inclusive growth in emerging economies. It applies relevant theoretical
research and literature in the areas noted above to develop a framework for sustainability and inclusive growth. A
case study approach is used; the framework is used to examine the case of India and case examples from renewable
energy are provided to support the framework.
Findings
Findings suggest that introducing and implementing new policies, and institutional collaboration, are required
for inclusive growth. Cases from the renewable energy sector in India suggest that inclusive growth requires the
involvement of various actors in the national innovation system. It also suggests that entrepreneurial efforts must be
nurtured.
Research Limitations/ Implications
A limitation is that the paper focuses on cases from one developing economy: India. However, similar conditions in
other developing economies suggest that findings are applicable in other settings.
Practical Implications
The findings can be used to modify policies to forge new ways to collaborate across different actors, and modify
institutions to support collaboration. Learning how to adapt institutions is critical for solving endemic socio-
economic problems at the bottom of the pyramid and promoting inclusive growth. Lessons learned can be applied to
other developing countries or to nurture new markets in industrialized countries.
Originality/ Value of the Paper
The paper contributes to theory by combining several theoretical approaches to answer the understudied question of
how national innovation systems can promote inclusive growth. It also considers inclusive growth as an important
factor in enhancing the competitiveness of NISs.
Keywords: National Innovation Systems, Inclusive Growth, Institutions, Sustainability, India
1. Introduction
Increasing concern about the environment, and challenges such as rapid depletion of natural
resources, air pollution, greenhouse gas emissions, extreme events, insufficient access to energy and
water in developing economies, have led to a focus on sustainability (Markard, Raven and Truffer,
2012). The UN’s (2015) Sustainable Development Goals (SDGs) include providing affordable clean
energy, promoting sustainable consumption and production, conserving terrestrial ecosystems and
ensuring work and growth. However, globally, 1.06 billion people lack electricity and 3 billion
people do not have access to clean cooking fuel (United Nations, 2017). Total domestic material
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National Innovation Systems, Sustainability and Inclusive Growth
consumption increased from 48.7 billion tons to 71.0 billion tons over 2000-2010. However, GDP
growth rates did not meet targets in developed and developing countries over the period 2010-2015.
Additionally, land productivity decline and biodiversity loss continue (United Nations, 2017).
Increasing integration of global markets due to the digital revolution has reduced poverty in some
developing economies but those lacking skills to participate in the global economy have been left
behind. Also, although growth reduced poverty in East Asia, the Pacific and South Asia, inequality
worsened (Aoyagi and Ganelli, 2015). Consequently, governments in emerging economies must
strengthen policies to achieve growth together with greater shared prosperity.
National innovation systems (NISs) are increasingly important as innovation is viewed as critical
to competitiveness. Moreover, heightened global competition has highlighted different national
strategies in both developing and industrialized countries to enhance competitiveness (Lundvall,
2007; Nelson, 1993). To this end, governments in emerging economies (such as India and
China) seek to upgrade technological and organizational capabilities (Fan, 2011; 2014), promote
competitiveness (Baumol, 2002) and ensure inclusion. Hence, directing attention to NISs is critical.
Over the past decade, China, India and Brazil have increased investments in renewable energy to
improve energy self-reliance, reduce environmental degradation and contribute to sustainability
through new capability development with the hope of attaining leadership in the renewable energy
sector (REN21, 2017). Moreover, increases in per capita consumption of energy in emerging
economies have made renewable energy particularly relevant. Also, innovation to convert waste
and residues into energy and upcycle products to increase profitability is appealing (Scheel, 2016;
MITSloan & BCG, 2013; McDonough and Braungart, 2010).
This paper examines the role of National Innovation Systems (NISs) in developing countries in
stimulating sustainability and inclusive growth. It draws on key research on NISs (Lundvall, 2016;
2010; 2007; Nelson, 1993), ecological theories (Chertow, 2001; Holling, 1996), institutional theories
(North, 1991), literature on sustainability (UN, 2015) and bottom of the pyramid (Calton et al., 2013;
London and Anupindi, 2012; Hahn, 2009; London and Hart, 2004) to provide a framework for
sustainability and inclusive growth in developing countries. The framework is applied to the case of
India and case examples from renewable energy are provided to support the framework.
2.1. National Innovation Systems, Institutions and Entrepreneurship

The concept of national innovation systems (NISs) (Freeman, 1982, Lundvall, 2016; 2010; 1985,
Nelson, 1993) highlights that innovation patterns differ systematically across countries. It refers
to macro phenomena (Freeman, 1982) and institutions, policies and practices to promote national
industrial development and scientific innovations (Nelson, 1993; Freeman, 2010). It also includes
micro phenomena that shape innovation (Lundvall, 2010; 1985). Variations of NISs include regional
innovation systems, sectoral innovation systems (Hekkart et al., 2007), technological innovation
systems (Miyazaki and Islam, 2007) and industrial ecosystems (Iansiti and Richards, 2006). NISs
can be viewed as complex ecosystems, like ecosystems in the natural environment (which require
interactions across species and diversity of species to remain resilient and robust: Ruhl, Kraft and
Lant, 2007). This view focuses attention on the embeddedness of organizations within their niche,
and emphasizes the importance of interactions across organizations and diversity of organizations
within the ecosystem to facilitate adaptation. Others research has focused on and understanding the
impact of institutional arrangements in the NIS on industrial competitiveness (Kwon and Motohashi,
2017).
NISs follow a path-dependent trajectory depending on regulatory frameworks and previous
investments. Similarly, differences across countries stem from differing levels of investment in
developing human capital, manufacturing capabilities or intellectual property. Variation across
countries arises from the ability to set the global rules of the game (Freeman, 1982; North, 1991) and
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differences in competence and economic resources (Lundvall, 1985). Additionally, loss of national
leadership can result from reduced innovation due to lack of institutional innovation and institutional
linkages (Lundvall, 2016; Freeman, 2010). Research on institutions (North, 1991, Acemoglu and
Robinson; 2008; Acemoglu and Johnson, 2005) highlights the importance of informal constraints
and formal rules (such as property rights institutions and contracting institutions) in explaining
variations in economic performance across countries as corroborated by Watts and Woodruff (2017)
in their comparison of agricultural performance in the USA and India. Additionally, Greif and
Mokyr (2017) suggest that cognitive rules are important for changing institutions.
Although the internationalization of NISs lags multinational internationalization (Carlsson, 2006),
government policies are a channel through which NISs interact mutually. Governments often
emulate each other’s innovation policies (Mowery, 2011); an example is the creation of “science
parks”, and “business incubators” near universities, and other such links between academia and
industry. Additionally, laws such as the Bayh-Dohl Act of 1980 aimed at improving university-
industry relations and technology transfer in the US NIS (Mowery, 2011) have also been emulated
by other countries. Other strategies include focusing on how developing country firms’ activities can
be upgraded, how value is distributed along the value chain and national differences in organizing
work across different NISs (Lundvall, 2016).
It is well known that the proper allocation of resources to entrepreneurship which brings new
ideas and combinations is critical for innovation, competitiveness and economic development
(Schumpeter, 1934; Kirzner, 1973; Baumol, 1990; Boettke and Piano, 2016). In the absence of
appropriate incentives, entrepreneurial activity by individuals may not be forthcoming. Indeed,
entrepreneurship is required for commercializing inventions as invention alone is insufficient.
Even in industrialized economies, it is acknowledged that government plays an important role in
facilitating the establishment of entrepreneurial firms. Hence, institutional support is necessary for
promoting entrepreneurship. Klein et al. (2010) note that productive public entrepreneurship includes
alteration to the rules of the game, creation of new public organizations, innovative management of
public resources and spillovers from private actors to the public domain. Additionally, privately
undertaken entrepreneurship in pursuit of private interests may have beneficial spillover effects on
the public domain. Thus, a public entrepreneur may be either a private or a public actor. Baumol
et al. (2007) suggest that a combination of big firm capitalism and entrepreneurial capitalism is
the most beneficial for economic performance. A substantial body of research on entrepreneurship
increasingly recognizes that venture creation and small business development are ways to improve
economic growth via the creation of new product markets, jobs and wealth (Ahlstrom and Ding,
2014; Audretsch et al., 2006).
The primary beneficiaries of globalization are globally competitive and digitally connected firms
and industries with requisite skills to participate. Additionally, high levels of inequality within
nations can effectively create mobility barriers for individuals who are unable to participate in the
market economy for a variety of reasons including lack of capabilities, access to resources, social
capital and networks (Sachs, 2008). Hence, a key concern of developing country governments is
to ensure social inclusion, particularly via promotion of new industries aimed at the bottom of
the pyramid (Prahalad, 2012). Most developing economy governments therefore view supporting
entrepreneurship and innovation as critical to enhancing competitiveness.
Additionally, social entrepreneurship, a type of entrepreneurship that focuses on solving socio-
economic problems at the bottom of the pyramid is an important mechanism for linking bottom of
the pyramid populations with more advanced sectors of the economy. Such linkages enable the flow
of resources, ideas, capital and talent to facilitate the development of new markets, a key function
of NISs (Surie, 2017).
Most studies of NISs have focused on industrialized countries, with a few exceptions (Godinho and
Ferreira, 2012), while developing countries are under-represented. Although differences between
industrialized and developing economies (particularly China), have eroded over the past three
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decades, the latter having caught up in terms of conventional economic measures of development,
there are still a large number of people in developing economies without access to resources. This
indicates that further research on NIS adaptation is necessary to ensure inclusive growth. Therefore,
it is imperative to study institutions relevant for accelerating innovation, especially at the bottom of
the pyramid (BOP; Prahalad, 2012).
2.2. Inclusive Growth

Inequality has been rising in both advanced and developing economies, inter-alia, due to globalization
and technological change. Inclusive growth refers to both the pace and distribution of economic
growth and can be accounted for by capturing both changes in growth and income distribution
(Aoyagi and Ganelli, 2015). Past research has argued that high inequality dampens growth through
various mechanisms, including by decreasing the purchasing power of a large part of the population,
demotivating the average worker leading to decreased performance and commitment, and due to
diminished access to health and education (Aoyagi and Ganelli, 2015). Recent research (OECD,
2014) suggests that that long term trend increase in income inequality has impeded economic
growth in member countries. One reason is that by hindering human capital accumulation, income
inequality undermines educational opportunities for the disadvantaged, lowers social mobility and
hampers skill development. Moreover, while past research suggests that there is a trade-off between
economic and income inequality (Okun, 1975), new perspectives (Berg and Ostry, 2011) suggest that
ensuring equality is critical for sustainable growth (Aoyagi and Ganelli, 2015) because it heightens
the poverty-reducing effect of growth (Son and Kakwani, 2003). Recent research also suggests that
redistribution is not inherently detrimental for growth and, in some cases, public spending to reduce
inequality (such as health, education and infrastructure spending) does not have an adverse impact
on growth (Ostry et al., 2014).
Aoyagi and Ganelli (2015) note that although poverty reduction in Asia over the past two decades
has happened faster than in anywhere else in the world, the bulk of the population still lives in
countries with rising inequality. Their cross-country empirical analysis suggests that fiscal
redistribution, monetary policy aimed at macro stability and structural reforms to stimulate trade,
reduce unemployment and increase productivity are important for inclusive growth. Moreover, they
find that the effect of expanding fiscal redistribution on inclusive growth could be sizable in Asia
with the estimated improvement in inclusive growth ranging from 1% to about 8% points.
Sen (2014) examines episodes of growth in developing countries and argues that inclusive growth is
influenced by institutions (such as the rule of law, changes in corruption, democratic accountability).
He classifies economic growth regimes into four categories: (1) a growth regime called “miracle
growth” (average increase in per capita of 5% per annum or more); (2) a growth regime called
“stable growth” where average increase in per capita income is between 0% and 5% per annum; (3) a
growth regime with “stagnant growth” where average increase in per capita income is around 0% per
annum; (4) a growth regime which is called “growth crisis” where the average change in per capita
income is negative (Sen, 2014). Sen’s (2014) analysis of 24 developing countries reveals that during
the accelerated growth phase, the average country experienced a worsening of inclusive growth.
In contrast, during the stable growth phase many more countries experienced both a reduction in
poverty and in inequality. His analysis indicates that inclusive growth is more likely to be witnessed
when economic growth has accelerated and the country is in growth maintenance phase and when
inclusive institutions have emerged. It is important to get growth started and inclusive growth may
have to come later. Once growth has accelerated, facilitating the emergence of inclusive institutions
is important so ensure that economic growth will be inclusive (Sen, 2014).
Thorat and Dubey’s (2012) study of inclusive growth in India during the period 1993-94 – 2009-10
finds that rural poverty declined during 1993-2010 by 2.5% annually with a major acceleration in
the second period, from 2.2% during 1993-2005 to 4.4% during 2005-2010, the second period being
more poverty reducing. However, during 2005-10 some segments of the population benefited more
IAMOT 2019 | 859

than others (for example, the higher castes, Muslims, other religious minorities and the scheduled
tribes) whereas for the scheduled castes poverty declined at lower rates. Additionally, self-employed
non-farm workers saw a reduction in poverty at a much higher rate than self-employed farmers,
non-farm and farm wage labour. In the urban areas, poverty declined fastest for regular salaried
households. They conclude that broad-based pro-poor policies need to be supplemented with policies
for specific groups to ensure inclusive growth.
Supporting the idea that equality is not detrimental to growth at the micro level is the literature on
Bottom of the Pyramid markets (BOP) and pro-poor innovation (Prahalad, 2012). BOP markets
consist of over four billion people who live on less than $2/day and represent multiple cultures,
ethnicity, literacy, capabilities and needs and can be segmented in various ways. Prahalad (2012)
argues that converting these fragmented markets to an organized private sector market (worth about
$5 trillion in purchasing power parity) is an important challenge and opportunity to create new
markets. These markets exist in rural and urban settings and access to the market is a major problem
in places like India and Brazil. Commitment to building awareness of products and services, ensuring
affordability, access, and availability are critical for innovation at the bottom of the pyramid.
Products and services must be designed for local markets with deep immersion into consumers’
lives to obtain insights (Prahalad, 2012). Additionally, to scale innovations, global standards must
be met. Solutions are likely to be specific to different locations and industries and new ecosystems
specific to markets can be created to economize on capital requirements. Profitability depends
on large volume, low capital intensity, low margin per unit and high return on capital employed.
Consequently, Prahalad (2012) argues that business model innovation is critical.
2.3. Sustainability
Discussion of the concept of sustainability dates back to Malthus and was addressed extensively
in the 1970s literature on exhaustible resources. The Brundtland report (1987) defined sustainable
development as “…development that meets the needs of the present without compromising
the ability of future generations to meet their own needs” (WCED 1987). Thus, sustainable
development is economic development that lasts (Pearce and Atkinson, 1993b), narrowly defined as
real Gross Domestic Product per capita or broadened to include indicators of development such as
education, health, “quality of life” including human freedom (e.g. the United Nations Development
Programme’s Human Development Index (HDI); (UNDP, 1992)). It is continuously rising, or non-
declining consumption per capita or whatever indicator is used to measure development (Pearce
and Atkinson, 1993b). Pearce and Atkinson’s (1993a; 1993b) measure of sustainability includes (a)
strong sustainability, which requires conservation of all exhaustible and renewable resources and
does not accept substitutability among different assets; (b) weak sustainability, which requires that
the overall stock of capital must not decline. Weak sustainability includes substitution of natural
capital with man-made capital so that the constant capital rule is satisfied (Pearce and Atkinson,
1993b).
While the early literature on sustainability focused on analysing the specific environmental innovation
processes (Van Den Bergh et al., 2011) the technological innovation systems approach considers the
whole range of relevant actors including governments, non-governmental organizations (NGOS),
research institutes as well as institutions relevant for innovation success (Edquist, 2005) and has also
included entire production and consumption systems (Tukker et al., 2008) which must be reorganized
to yield more sustainable economic structures (Truffer and Coenen, 2012). More recently, attention
has been focused on how to transition from a historically predominant socio-technical regime to a
new socio-technical regime by nurturing and developing niches which allow the new socio-technical
regime to mature (Markard et al., 2012; Geels and Schot, 2007). The niche is a critical concept due
to its role in the emergence of novel technologies; niches are protected spaces, i.e. specific markets
or application domains in which radical innovations can develop without being selected out by
the pressures of the prevailing regime (Markard et al., 2012). The transition can be deliberate and
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intended and achieved through a broad range of actors. Thus analytical interest has shifted from
technological innovation contributing to economic growth of countries to new technologies as nuclei
for enabling socio-technical transitions (Markard et al., 2012).
Additionally, the industrial ecosystems literature emphasizes technology and suggests that wastes
and effluents from one process serve as the input material for processes as in natural ecological
systems (Dunn and Steinemann, 1998). Thus, by increasing business competitiveness, reducing
waste and pollution, creating jobs and improving working conditions, such industrial ecosystems
can stimulate regional development (Gibbs et al., 2008). In this vein, Koh et al. (2017) propose a
circular framework for supply chain resource sustainability (SCRS) that takes into account the triple
bottom line (Besiou and Van Wassenhove, 2015). Koh et al. (2017) view SCRS in terms of streams
of resources including carbon and other emission related resources, energy resources, material, and
social resources. They suggest various strategies for ensuring sustainability including life-cycle
mapping and utilization of resources, capture and quantification of environmental, economic and
social capital, and identification and management of interconnectedness and overlaps in resources
cycles.
2.3.1. Renewable Energy and Sustainability

The use of renewable energy promises sustainability through reduced impact on the environment
(Pierie et al., 2016). However, renewable resources are not always sustainable as processes related
to the extraction and refining of the resource may not be sustainable (Pierie et al., 2016). Deriving
energy from renewable resources may require fossil input which can have a negative impact on
the environment and, therefore, on sustainability. Pierie et al. (2016) note that to achieve a more
sustainable energy system, the efficiency, carbon footprint and environmental impacts of renewable
resources must be taken into consideration. Various techniques are used to measure sustainability
including Life Cycle Analysis (LCA) and energy analysis. Energy analyses include quantification
of energy and material inputs and outputs in a product’s life cycle. Problems with LCA include
difficulties related to the availability of data as well as resource and time intensity.
Terrapon-Pfaff et al. (2014) examined 23 local development projects supporting renewable energy
technologies in over 17 different developing countries in Sub-Saharan Africa, Latin America,
Asia and the Middle East. Their study indicates that access to sustainable and affordable energy
services is crucial for reducing poverty in developing countries and small-scale projects did improve
access to energy besides reducing deforestation, preserving diversity and reducing smoke and GHG
emissions. Success factors included effective functioning of the technical system, financial viability
of the service, effective project management, institutional and policy developments (Terrapon-Pfaff
et al., 2014).
Solar energy projects have faced regulatory and financing difficulties in addition to the challenges
of educating the public and diffusing technologies in markets like India. Nevertheless, government
has encouraged renewable energy projects through policies to facilitate and attract entrepreneurial
entry into this sector with the aim of replacing petroleum imports with lower cost renewable energy.
In addition, the government has emphasized outreach to areas lacking grid connectivity or electricity
despite availability of the grid. Investments in renewable energy have increased and the cost of solar
has achieved grid parity.
However, research on sustainability has not been linked with the research on industrial ecosystems
and renewable energy in developing economies despite the need for establishing renewable energy
ecosystems to ensure environmental and socio-economic sustainability.
In this paper we focus on institutional change in the Indian national innovation system to promote
innovation for sustainability and inclusive growth. Specifically we focus on institutions that facilitate
social entrepreneurship and the adoption of renewable energy technologies and, thereby, promote
sustainability and inclusive growth.
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3. Methods
Case study methodology is used to examine the research question: How can rural renewable energy
systems promote environmental and socio-economic sustainability? Case study methodology
is useful and appropriate when asking how or why questions and when the phenomenon is rare,
unique or critical for theory creation (Yin, 2009 [2003]). New theory is developed by extending
existing theory (Lee, 1999) by linking the literatures on sustainability with industrial ecosystems and
renewable energy. Inductive case analysis is used to provide rich context and helps to understand
how a renewable energy ecosystem can be designed for sustainability. Finally, the methodology
helps to make concepts and processes concrete (Eisenhardt and Graebner, 2007).
The case findings reported in this paper were drawn from interviews conducted as part of my Fulbright
research study on the commercialization and adoption of renewable energy by base of the pyramid
consumers (2013-2014). The paper also draws from a larger on-going study from 2009-2011 on
commercialization processes for emerging “green technologies” in India. Interviews were conducted
in public and private sector organizations and interviewees included government officials, scientists,
university researchers, CEOs of firms and non-governmental organizations (NGOs) serving Bottom
of the Pyramid (BOP) consumers in the renewable energy sector (Yin, 2009 [2003]). These data
were supplemented by site visits, presentations, annual reports and other published material.
The Indian context is an appropriate setting to study renewable energy industrial ecosystem
creation in rural India for sustainability. New policies on renewables were enacted with a focus
on new energy technologies to alleviate poverty and facilitate social inclusion of the rural poor,
a central element in renewable energy programs. These included the Jawaharlal Nehru National
Solar Mission (2010) focused on accelerating the adoption and diffusion of solar energy and which
facilitated the development of one of the largest generation based markets in the world (Yenneti,
2016). Additionally, the government also focused on off-grid solar energy projects and introduced
various schemes to provide electricity and other energy services to rural areas lacking these services.
Similarly, the National Policy on Biofuels (GOI, 2009) aimed at biofuel production in India, focused
on using non-food feed-stocks raised on degraded land for biofuel production. The government also
made use of rural employment schemes to facilitate feedstock production and processing for the
nascent biofuels sector (GOI, 2009).
Interviews were transcribed and the data were analyzed by using categorization and pattern-matching
techniques as indicated by Yin (2009 [2003]), Miles and Huberman (1994), Eisenhardt (1989). First
the literature on NISs and institutions, sustainability, industrial ecosystems and renewable energy
was studied. Propositions were developed by iterating from theory to data and vice versa and pattern
matching was used in conjunction with theories noted above as recommended by Yin (2009 [2003]).
These analyses and propositions yielded a conceptual model for niche creation at the bottom of the
pyramid that takes into account environmental and socio-economic sustainability. The conceptual
framework is outlined in the next section.
4. A Framework for NIS Institutional Change to Enable

Niche Creation at the Bottom of the Pyramid
This section outlines a framework for catalyzing transformation at the base of the pyramid to ensure
sustainable and inclusive growth. The framework encompasses both the macro and micro levels.
Thus, both national level policy changes by the government and changes at the micro level by
organizations are considered. As the framework is developed from research and insights from cases,
it can be applied to design systems across developing countries to enable transformation, sustainable
and inclusive growth.
As noted earlier in the paper, the literature on sustainability discusses niche creation as an important
stepping stone to changing national innovation system trajectories. As niches are protected spaces,
they can be nurtured until they are stable and can withstand strong competition. Additionally, the
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literature on sustainability transitions explicitly notes that technological and other innovation is
increasingly being viewed as a way to catalyze socio-technical change (Markard et al., 2012). The
lack of products and services targeted at base of the pyramid populations presents an opportunity to
establish new markets (a function of NISs) and to scale them eventually to address needs in other,
similar global markets. Moreover, research also notes the importance of promoting entrepreneurship
to enable the adoption and diffusion of innovations (Surie, 2017). Entrepreneurship diffusion at the
base of the pyramid allows greater participation of the target population in rural and semi-urban
areas where cash and the means to earn it are in short supply. Thus, at the national level, NISs must
facilitate the emergence of entrepreneurship, especially entrepreneurship focused at the bottom of
the pyramid (BOP) to enable the emergence of new niches.
At the macro level, government policies can address the challenge of promoting BOP innovation.
These include an explicit policy focus on inclusion and sustainability through various missions and
different agencies. New policies targeted at BOP populations can alter the trajectory of the innovation
system over time. Additionally, the government can use agencies such as public academic institutions
to implement policies to obtain first-hand knowledge of the needs of the target population and ensure
that they are being addressed. For example, academia can focus on demonstration projects for new
technologies. Also, specific national agencies can sponsor innovation projects and provide grants to
reduce the risk of investing in technologies for BOP populations. Special benefits to entrepreneurs
and small business owners can facilitate entrepreneurship. Such efforts will foster the emergence
and diffusion of entrepreneurship.
At the micro level, entrepreneurs must focus on building awareness, and making their products
and services affordable, accessible and available when addressing BOP markets (Prahalad, 2012).
Moreover, environmental sustainability can be built into the system to ensure that products and
services are sustainable, particularly as reducing waste and re-using waste outputs as inputs over the
life cycle can help to reduce cost (Pierie et al., 2016).
Developing low-cost business models is critical as affordability is of utmost importance for BOP
markets. Often new infrastructure to reach the target population must be built, so relationships with
new constituencies must be created. For example, many low cost innovations in the new digital
economy include users as part of the process, as for example, in the hospitality industry (Sigala,
2014) or include sharing resources (e.g. Uber, Lyft, AirBnb). Thus, strategies such as sharing
resources, reducing waste and reusing outputs as inputs can be used to develop frugal innovations
that provide value to BOP populations. Scaling them will require embedding quality standards and
processes to ensure reliability and continuous availability of the product/service.
Figure 1: A Framework for NIS Institutional Change to Enable Niche Creation at the Bottom of the Pyramid
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5. Findings
The framework presented is applied to provide insights on the creation of niches for innovative,
technology-based sustainable products and services in India.
5.1. National Policies snd Practices

The 12th Five Year Plan (2012-2017) of the Government of India focused attention on social
inclusion. The Government of India’s National Institution for Transforming India or NITI Aayog,
which replaced the Planning Commission, continues the focus on eliminating poverty and addressing
the United Nation’s Sustainable Development Goals (SDGs). In addition, various programs address
poverty alleviation including the Mahatma Gandhi National Rural Employment Guarantee Act
(MGNREGA) and Sarva Shiksha Abhiyan (SSA).
Besides making anti-poverty programs more effective, the government’s strategy for combating
poverty depends on facilitating sustained rapid growth that is also employment intensive. Sustained
rapid growth works by creating jobs that pay wages and reduce poverty and by leading to growth
in government revenues which, in turn, allow the expansion of social expenditures at a faster pace
(Government of India, 2018). The poor predominantly reside in rural areas and incomes are dependent
on agricultural growth. Thus, strategies to increase agricultural productivity are important but, in
addition, as industry has seen the fastest growth in the past decades, employment growth in industry
is necessary to share the benefits of growth. This includes the creation of Coastal Economic Zones
(CEZs) that provide a focal point for the location of employment intensive industries (Government
of India, 2018).
Besides enacting policies for renewable energy such as National Solar Mission (2010), National
Wind Solar Hybrid Policy and National Policy on Biofuels, the Government of India, through the
Ministry of New and Renewable Energy (MNRE), established various institutions to facilitate
research, development and commercialization of renewable energy technologies. These include the
National Institute for Solar Energy, National Institute for Wind Energy and Sardar Swaran Singh
National Institute of Bio-Energy. Additionally, the Indian Renewable Energy Development Agency
(IREDA), a non-banking financial institution, was established to provide term loans for renewable
energy projects.
The Department of Science and Technology (DST) also made use of leading technical institutions
to develop and disseminate innovative technologies. Researchers were funded by the government
to conduct demonstration projects to design products and services to suit the needs of the target
population, test technologies and develop standards. For example, researchers at IIT-Delhi worked on
converting manure into biogas and designed cook-stoves using biogas as fuel and helped demonstrate
their use in the field; both technologies were relevant for rural populations. Additionally, DST is
using open innovation tools to meet national needs in the area of clean energy under the Clean
Energy Research Initiative. For example, Mission Innovation (MI), a global initiative to accelerate
clean energy innovation was started between 22 countries and the European Union. A key Mission
Innovation Challenge is to facilitate off-grid access to electricity. The first workshop on “Off Grid
Access to Electricity Innovation Challenge” was held at IIT Delhi in 2017 (DST, 2018) and funding
opportunities were announced, earmarking $5 million for collaborative projects with MI countries.
More than 80 proposals were received and are being evaluated (DST, 2018).
The Science and Technology (S&T) Programme for Socio-Economic Development of the Department
of Science and Technology focuses on innovation for BOP populations through the Technological
Advancement for Rural Areas (TARA) scheme. TARA aims to develop S&T packages for rural
and remote areas. Core Support Groups (CSGs) have been designated to identify location-specific
problems, convert them into S&T research challenges, and develop and demonstrate S&T packages
for transfer. DST supported 22 CSGs in 14 states during 2017-2018. Achievements include cost
effective solar space and water heaters developed by the Himalayan Research Group in Shimla. The
devices reduced female drudgery by halving the number of trips for fuelwood collection/annum and
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saving about 40% of fuelwood, mitigating 2.5 tons of CO2 emission/annum/panel. The technology
was demonstrated successfully in Himachal Pradesh and extended to the cold desert area in Zanskar
Valley, Ladakh region of Jammu and Kashmir (DST, 2018).
NB Institute of Rural Technology (NBIRT), a Core Support Group working in the state of West
Tripura made innovative S&T interventions for lighting using a photo voltaic (PV) integrated
Micro Solar Dome to provide lighting where conventional power is not available or unreliable. The
integrated PV module charges a battery during daytime and provides light at night for about 4 hours.
NBIRT also developed a solar power operated micro pump and water purification system to provide
water for drinking and sanitation. A CSG in Hyderabad developed an improved Solar Cabinet Dryer
integrating solar energy to dry and process locally grown and easily available ingredients.
Besides supporting technology development for rural areas, DST also inspires young S&T
professionals to identify social challenges and provide S&T solutions via its Scheme for Young
Scientists and Technologists. In 2017-2018 around 45 projects were recommended for support. DST
also supports technology development in the areas of agriculture, health and nutrition for the non-
farm sector. These S&T interventions target natural resources, skills and traditional crafts to generate
livelihoods in 60 villages in the state of Uttarakhand through support provided to the Uttarakhand
State Council of Science and Technology. DST also supports capacity building at the local level by
building and strengthening local institutions in most project sites and by disseminating new skills.
Program interventions have led to livelihood diversification in many areas (DST 2018).
5.2. Entrepreneurship/ Social Entrepreneurship

DST also supports Technology Business Incubators in and around academic, technical and
management institutions to tap technologies for venture creation using existing infrastructure and
expertise. Under this program than 120 Technology Business Incubators (TBI) and Science and
Technology Entrepreneur Parks (STEP) have developed competence to become state-of-the-art
incubators. New TBIs were established at Pune, Bangalore, Lucknow, Hyderabad, Bhopal, Jammu,
Surat among other locations (DST, 2018).
Start-ups at various TBIs have developed innovative products. For example, AirOK Technologies, a
company incubated by IIT Madras, developed the Air OK Smart Purifier to remove environmental
pollutants like particulates in hospitals, industry and waste management facilities. Similarly, a
Smart Farming Collective was incubated by an alumnus at IIT Madras, the founder of Aibono. The
company focuses on providing precision farming input and end-to-end management advice for fruit
and vegetable farmers using sensors, cloud applications, data analytics, social and ambient sensors,
and drone imaging to assess crop stress (DST, 2018).
DST also established a national award for Technology Business Incubators and provides seed
funding at an early stage to deserving start-ups, thus facilitating entrepreneurial entry. In 2017-2018,
11 TBIs were recommended for seed funding support. An accelerator program was also initiated in
TBIs to facilitate the acceleration of innovation related ideas to the next level through mentoring and
investment preparedness. Centres of Excellence were also established to provide expertise and help
establish linkages with national and international partners. The NIDHI PRAYAS program, a pre-
incubation grant initiative, addresses the gap in funding in taking an idea to the prototype stage, and
supports about 100 innovators. Finally, an Entrepreneurs-in-Residence programme supports talented
entrepreneurs through a fellowship of up to Rs. 30,000 for one year to minimize the risk of pursuing
entrepreneurship. Other programs focused on encouraging entrepreneurship include the New
Generation Innovation and Entrepreneurship Development Centre to stimulate entrepreneurship and
innovation in young S&T students and support start-up creation, and the India Innovation Growth
Program, a public-private partnership between DST, Lockheed-Martin Corporation and Tata Trusts,
which has organized boot-camps for innovation (including for the social sector) at the Indian
Institute of Management, Ahmedabad and IIT-Bombay (DST, 2018). Women’s entrepreneurship is
supported via an accelerator program and mentorship (DST, 2018).
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Other examples include Mini Wind*1, a wind energy company catering to the underserved in rural
areas. The company meets the power needs in villages by training, supplying and supporting rural
mechanics to build, install and maintain low-cost wind turbines. Mini Wind produces turbines
designed to operate efficiently at lower wind-speeds common in most regions.
Another enterprise serving the rural poor, Solar Lighting India2, provided solar lighting systems
for BOP customers in villages that lack or have limited access to the grid. Realizing that obtaining
financing is hard for the poor because they have no credit history, despite their willingness to pay
for products, the founder CEO built small-scale solar lighting systems. He also worked with rural
banks to create affordable “lease-to-own” schemes to make capital-intensive PV systems affordable,
thereby facilitating financial inclusion of the rural poor.
A third start-up, Flora Green3, collects flower waste from temples and mosques for processing into
natural products such as incense, bio-fertilizer and bio-degradable Styrofoam to reduce pollution
and pesticide discharge. The company has pioneered flower-cycling to process waste flowers and
applied for five patents.
5.3. Low-Cost Business Model Innovation

Catering to the rural population and other BOP segments requires developing low-cost business
models. As BOP consumers are extremely cost-sensitive, innovations must be frugal. Moreover,
making the product/service accessible is a challenge as channels for after-sales service and
maintenance are often lacking. In many cases large multinationals do not provide sufficient service
and maintenance to meet the requirements of this population. Thus, both business-model innovation
and product/service innovation are required to meet their needs.
In the case of Mini Wind, the founder and his team created turbines that are small and low cost
and, therefore, suitable for use in villages. The typical turbine consists of a turbine, a tower to
raise it above trees and other obstacles, a battery bank to store power and electronics. The product
uses an adapted open-source design that renders it suitable for rural conditions in India. To keep
costs low, the company mobilizes pro-bono engineering talent provided by volunteers who have
engineering expertise in 3-D modelling, structural analysis, aerodynamics or fluid dynamics and
power electronics. To ensure service and maintenance needs were met in villages, the company
trained village mechanics and entrepreneurs to become certified Village Partners who can design,
install and maintain wind systems and serve others in the villages. Village Partners could even
become certified regional trainers. The model also included certifying selected entrepreneurs to
manufacture components and assemble turbines.
Mini Wind’s turbines are expected to cost Village Mechanics about Rs 23,000 (350 USD) to build a
350 Watt machine. With economies of scale these costs could be lowered to reduce sale price of the
turbine, enabling small wind to be roughly equivalent to current solar PV costs (about 1USD/watt).
The smallest turbine at 100W in size has a manufacturing cost of Rs 8,000 while the largest turbine is
2.5kW in size with a sale price of Rs. 130,000. Even in northern Tamil Nadu, which has poor wind
and lots of sun, Mini Wind’s turbines are competitive to solar photovoltaic (PV) panels. In many
cases PV and wind are complementary as, for example, some seasons are windy, and others sunny.
Besides diffusing renewable wind energy, the business model developed by Mini Wind helped to
diffuse entrepreneurship and skills.
In the case of Solar Lighting India in Southern India, the founder and entrepreneur developed
financing for the rural poor to enable them to have access to solar lighting. Partnerships with Tata
BP, SWEA bank, IFC and others facilitated the company’s growth and by 2014, the company
was serving over 180,000 households. Rural customers noted that besides significant savings in
energy costs, using Solar Lighting’s products also benefited their children’s education. As banks
1
The name of the company has been disguised for confidentiality.
2
3
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were reluctant to finance the BOP population without collateral or credit history, Solar Lighting,
together with its NGO partner, provided a loan guaranty on behalf of borrowers, thus enabling
BOP consumers to obtain financing. As a result of these loans, rural customers were included in the
financial system which would not have happened had they been connected to the grid, leading the
CEO to claim that solar energy should be looked upon as an engine of development.
Additionally, the CEO of Solar Lighting noted that, just like consumers in urban markets, the rural
poor also deserve servicing and maintenance for systems they purchase. Therefore, energy service
centres are an important part of the organizational structure. The company also included sales of fuel-
efficient cook stoves using biomass as fuel and charcoal briquettes to its product portfolio to leverage
its distribution network. In 2014, the company had 36 offices, 278 employees and been profitable
for the past 10 years. Moreover, the CEO emphasized that besides solar energy technologies, the
customers needed complementary innovations. For example, the sewing machine used by a poor
tailor must be re-invented to meet the needs of this population because the current machine assumes
the existence of power supply from the grid. However, power supplied by the grid is often non-
existent or limited. Thus, lack of innovation for BOP populations creates inefficiencies that can be
mitigated by distributed energy systems. He also noted that he was developing management from
the bottom-up, and had trained and developed people who could reach the rural poor even if they
were not highly educated.
Livelihood generation is a key goal of Flora Green. The company converts flower waste from
temples into incense and other product including bio-degradable packaging and bio-leathers.
Besides preventing pollution of the Ganges, the organization provides opportunities for women’s
employment and empowerment. Women who previously worked as janitors instead process flowers
into incense sticks and other natural products. Innovations includes using creating a value chain
based on flower waste that employs poor women in urban and semi-urban areas to process the
flowers and create high quality organic products. Products are marketed online and via dealers
to consumers in urban areas. The business model is an example of a company creating a circular
economy in which waste is converted into new products.
6. Discussion and Conclusion

The paper aimed to examine the role of NISs in stimulating inclusive growth, and to provide a
framework for inclusive growth and sustainability in developing countries. The paper contributes
to the research on NISs by combining several theoretical approaches to answer the relatively
understudied question of how national innovation systems can promote inclusive growth. It also
provides a framework that emphasizes that NISs can encourage niche creation to stimulate inclusive
growth and facilitate a shift to a new national innovation system trajectory.
Additionally, findings from applying the framework to India suggest that nurturing niches that
address the needs of target BOP markets is critical for socio-economic inclusion. This involves
encouraging entrepreneurship at the national level, enabling the rise of entrepreneurs that cater
to the BOP population and developing innovative business models to reach the target population.
At the national level, DST has put in place several initiatives to stimulate BOP innovation. It has
partnered with academic and technical institutions across India to increase innovation targeting the
needs of BOP populations in rural and remote areas. Goals include increasing access to energy,
providing clean water and sanitation as well as providing livelihood generation opportunities
and enabling social inclusion. Additionally, DST has placed increased emphasis on encouraging
entrepreneurial activity by providing stipends, linkages, training, skills and expertise to reduce
the risks of entrepreneurship and encourage entrepreneurial entry necessary for the diffusion of
technological innovations. Finally, three cases of entrepreneurial innovation for BOP populations
suggest that renewable energy can boost social inclusion and even include business models that
promote sustainability by upcycling waste into new products. While a beginning has been made in
attempting to nurture new niches, continued investment in entrepreneurial start-up organizations is
necessary to enable large-scale economic and social inclusion.
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6.1. Limitations
A limitation of this paper is that it focuses only on one developing economy, India. However, similar
conditions exist in other countries, suggesting it is applicable to other settings. Other developing
countries have attempted to create niches to achieve sustainability and social inclusion. For example,
ITAIPU in Brazil has created an ecosystem for various technologies based on renewable energy to
initiate new industries such as solar battery powered automobiles, bio-gas production from waste,
and create livelihood generation opportunities for artisanal organizations.
6.2. Practical Implications

Findings from this study can be used to aid socio-economic inclusion in other developing countries
and entrepreneurial ventures aimed at BOP populations. Lessons learned from DST’s initiatives and
entrepreneurial organizations can be used to enhance the success of entrepreneurial ventures and,
thereby, stimulate entrepreneurial entry.
6.3. Future Research:

Future research could include large surveys to test the framework in other countries. Additionally,
future research could examine other mechanisms for stimulating inclusive growth and conduct
scenario analyses to investigate differences in niche creation in different contexts and geographies.
Studies could also examine how to scale up niches to transform them into conventional markets.
Other ways to enhance sustainability could also be examined to improve our understanding of how
niche creation for sustainability can be accelerated.
In conclusion, enabling inclusive growth and sustainability is imperative for developing countries
given the large number of people at the bottom-of-the-pyramid currently excluded from the market
economy. Additionally, building sustainability into business models via use of renewable energy
or by transforming waste into new products is critical to reduce environmental pollution and
degradation as well as lower the cost of energy while increasing consumption by BOP consumers.
Innovations aimed at the BOP segment would lead to the creation of innovative business models to
reach target markets and create new markets that might serve as engines of future growth.
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Entrepreneurial Communities:
A Living Systems Perspective
Bernd P. Platzek
FOM University of Applied Sciences, Study Centre Munich, Germany
E-mail: bernd.platzek@fom.de
Leon Pretorius
Abstract
In this research we investigate the role of innovation and entrepreneurship as well as entrepreneurial communities in
the process of economic growth and development. Current research on development issues strongly focus either on
the micro level or the macro level of national economies disregarding the holistic nature of economic development.
Entrepreneurial communities represent a conceptual link between the macro perspective on economic development
and the micro perspective on entrepreneurial initiatives as a tipping point for economic development. In this paper
we present a theoretical construct of entrepreneurial communities. Additionally, we introduce a qualitative model
of vital entrepreneurial economies following a holistic perspective on development issues. The theoretical analysis
is based on systems thinking and systems approaches to management. Structures of entrepreneurial communities
and networking between regional communities will be explored and reflected in a theoretical exploration. The
introduced theoretical construct of an entrepreneurial community is based on living systems theory. The qualitative
systems model of the vital entrepreneurial economy is deduced from a word model.
Keywords: Entrepreneurship, Entrepreneurial Community, Systems Perspective, Economic Development, Vital
Entrepreneurial Economy
1. Introduction and Research Approach: Economic Development and

Entrepreneurship—A Holistic View
The basic purpose of the research presented in this paper is to explore the role of innovation and
entrepreneurship as part of the economic development process. The research approach followed
is exploratory in nature (Cooper and Schindler, 2014) and makes use of an appropriate literature
review to uncover and interpret innovation, entrepreneurship and economic development aspects
from a macro and micro perspective. In this approach a research method grounded in systems
thinking (Haines, 1998; Meadows, 2008; Ramage and Shipp, 2009) is also followed and the nature
of entrepreneurial communities is explored.
To achieve this research aim the research in this paper is organised as follows: 1) the rest of this section
presents a holistic view of economic development and entrepreneurship; 2) the next section explores
development stages in an entrepreneurial economy; 3) thereafter entrepreneurial communities
in a dynamic economy are discussed; 4) in a further section the cooperation in entrepreneurial
communities is addressed; 5) lastly as a culmination of the current research a qualitative conceptual
model developed for the system of entrepreneurial communities is presented based on a systems
thinking and design science approach (Wessels, 2013; Oosthuizen and Pretorius, 2016).
Firstly, theories on development issues list non-economic (e.g. history, geography, culture, politics)
and economic variables (e.g. market systems and processes, innovation and entrepreneurship,
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Entrepreneurial Communities: A Living Systems Perspective
financial systems) as relevant for economic development (Wagner et al., 1989; Davids, 2014).
The many theoretical concepts establish that the development process of an economy should be
recognized as a multi-level phenomenon. Consequently, problems in economic development can
have various possible causes.
Schumpeter (1912: 463-548) differentiates between processes of development and adaptation. In
traditional economic theory the central point is the quest for an equilibrium (focus: efficiency) and
the recovery of the equilibrium after economic crises (focus: adaptation). In a dynamic economic
theory, innovation is the issue at stake (focus: process of creative destruction). In the process of
adaptation, the driving forces lie outside the economic system (e.g. new technology, growth of
population, cultural changes). Economic development from inside the economic system is triggered
by entrepreneurship (Schumpeter, 1912: 469-492).
According to Schumpeter (1912: 464-466) the two perspectives in economic development (adaptation
and development) are intertwined. Events in the economic cycle (improving efficiency, adaptation
processes) and events in economic development (innovation processes) shape a macroeconomic
duality. Therefore, entrepreneurial initiatives to identify and pursue business opportunities are of
key importance in the endogenous triggered process of economic development (Witt, 1987: 41).
Entrepreneurial experiments, learning, and adaptation shape an evolutionary process of economic
development (Nelson and Winter, 1982). In this process entrepreneurship is continuously generating
further entrepreneurship. Thus, a dynamic economic development occurs (Metcalfe, 2005: 48-
49). Coordination and transformation are connecting impulse on the demand side and decentral
interaction with innovation processes and change at the macro level (Dosi et al., 2017; Robert
et al., 2017). Consistent with Davids (2014), interactions at the personal level, local knowledge,
and social learning are important drivers for economic development. At the organizational level
the management function with focus on efficiency and adaptation should be complemented by an
entrepreneurial function with focus on innovation (Baumol, 1968; Platzek et al., 2014).
Consequently, for a holistic understanding of economic development, it is useful to consider
entrepreneurial interactions at different levels of the system (Miller, 1995; Haines, 1998) to align
personal, organizational, and social goals (see Figure 1).
The relationship between the market system and the political system play cpmplimentary roles
in the development process. As stated by Baumol et al. (2007), there are four basic archetypal
designs for national system: (1) state directed market economy, (2) oligarchic dominated market
economy, (3) market economy dominated by big firms, and (4) innovative market economy. The
different archetypes require different development strategies and face different challenges. In all
four archetypes entrepreneurship is the driving force behind economic development.
Figure 1: Hierarchy, Levels and Interrelationships of Living Systems
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As stated by Mazzucato (2015) the symbiotic relationship between companies and the state
is an important source for innovation-driven economic development. The state has to act in an
entrepreneurial way and should take risks the private sector could not take over. The government
should develop and shape new markets via public investments, innovation policy, and public
venture capital. With entrepreneurial strategies at the macroeconomic level the state can induce
technological and economic progress. Further, economic policy has to direct demand and industrial
development.
Myrdal (1974) describes economic development as an upwards or downwards directed process in the
various regions of the economy. Some regions have advantages as a result of natural characteristics
and historic chances. These advantages can be strengthened by trade and industrialization processes,
qualified workers, modern infrastructure, and entrepreneurship (Myrdal, 1974: 37-40). Consequently,
the movement of production factors, labour and capital, as well as the trade in goods and services
bring unequal development to different regions of the economy. Regions with substantial economic
growth attracts motivated workforce from stagnating or backwards developing regions. As stated
by Myrdal (1974), economic policy can moderate these effects to achieve a balanced economic
development of the whole economy: upcoming regions can benefit from upwards directed processes,
and in declining regions upwards directed processes can be stimulated by economic policy.
The starting point for endogenous impulses for economic development in regions and economies is
entrepreneurial initiative at the micro level. Entrepreneurial actors collect and exploit information
from both isolated and regional networks. Companies use new knowledge from local interaction and
collective learning processes for innovation. Therefore, the local networks are important components
of economic development as well as offering the companies in the entrepreneurial community
agglomeration advantages from local division of labour, information sharing, knowledge creation
and technology transfer. Each reactive or proactive company adaptation effects on the one hand
the regional economic development, and on the other hand the regional milieu that represents the
context for entrepreneurial activities (Baldegger and Julien, 2011).
So far, this discussion has identified entrepreneurial actors as a focal point for development processes
starting at the micro level. The coordination in market systems is directed by the price mechanism,
networks, and market-oriented discovery processes. Different economic systems require different
varieties of entrepreneurship to trigger the development process. The impulse to make adaptations
in the economic cycle and entrepreneurial initiatives renew the economic system (we could call it
“Schumpeterian dynamics”).
The entrepreneurial state offers appropriate infrastructure, takes care of the necessary public goods to
serve the collective needs, and is a risk-taker, initiating social and technological developments. Public
authority directed processes (e.g. to develop new markets), as well as self-organized market-driven
processes in entrepreneurial communities, create agglomeration advantages and synergistic effects.
As a result, dynamic development processes occur at the organizational, community, and national
levels. To achieve a sustainable economic development in the whole economy, the entrepreneurial
state moderates and promotes appropriate cumulative processes in and between entrepreneurial
communities (we could call it “Myrdal-Moderation”). In that process the entrepreneurial state uses
upwards directed forces and positive diffusion effects and has to moderate the downwards directed
forces and negative effects of networks (Munshi, 2014).
Against this background the following section considers historic development processes as part
of the exploratory research approach. This allows a better understanding of the imperative role
of entrepreneurship and regional entrepreneurial communities in the dynamic development of the
economy and its regions.
2. Stages and Processes of Development in a Vital Entrepreneurial Economy

According to Rostow (1967: 18-32), economic enhancement takes place in stages. Therefore, a
society needs a group of innovators (Rostow, 1967: 68-70). Consequently, entrepreneurship is an
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important driver for development processes in the several development stages. However, in today’s
business arena, countries and regions have to compete with other mature and dynamic economies
and communities to achieve economic development (Knox and Marston, 2007: 271-273).
Ehrlich (1990) describes three aspects to explain the different development stages of national
economies and regions. The central influences on the endogenous growth and development process
are (1) uneven number and quality of human resources, (2) differences in entrepreneurship and
market dynamics triggering technological change, (3) various political concepts to encorage
development initiative. As a result, different levels of economic development occur, and information
and knowledge can be seen as important lever to stimulate economic progress.
The success of knowledge based entrepreneurial activities depends on firm-specific competences
and country-specific advantages (e.g. level of education, state-of-the-art of science and technology,
quality of institutions, political and social conditions). Therefore, the locational choice of
companies depends on the local conditions as determinants of agglomeration advantages and firm-
specific competitive advantages (Porter, 1990). Entrepreneurial organizations identify and pursue
opportunities in interaction with specific regional networks. Consequently, entrepreneurship,
competitiveness, and adaptability determine the viability of the vital entrepreneurial learning
organization (Platzek et al., 2014).
However, entrepreneurial organizations use regional networks and collective learning in the
process of entrepreneurial gathering of information and knowledge. Further, valuable impulse from
interaction and co-evolution in the entrepreneurial community direct decisions in the entrepreneurial
shaping of the future. To pursue entrepreneurial initiatives, entrepreneurial organizations employ
synergies in the local networks in the entrepreneurial shaping of the organization.
New jobs in fast-growing small and medium sized organizations support economic development
(Drucker, 1985: 21-44; Carree and Thurik, 2013). Therefore, Drucker (1985) claims for the
development of an entrepreneurial society. Entrepreneurial economies cultivate flexibility, life-
long learning and the ability to change at all levels of the national economy. As stated by Drucker
(1985: 355-372), market-driven actors in the vital entrepreneurial economy have to develop
an entrepreneurial orientation as well as the entrepreneurial state has to create non-bureaucratic
framework conditions and appropriate taxation and financial systems.
Inside the organization and inside the entrepreneurial community it is possible to activate creative
collective processes and to develop common mental models about the markets and opportunities
by balancing inquiry and advocacy (Senge, 2003). Scharmer (2009) describes a mental process to
use on individual and collective sensing to identify future-oriented opportunities (Scharmer, 2009).
The cooperation in entrepreneurial communities permits a dynamic sharing of information and
knowledge as well as the realisation of individual and common entrepreneurial initiatives.
According to Kirzner (1997), economic development is driven by an entrepreneurial discovery process.
Specific knowledge of entrepreneurial actors can stimulate a dynamic economic development. As
stated by Hayek (1945), every entrepreneurial actor holds valuable specific information which
can be used in entrepreneurial initiatives. Entrepreneurial actors collect and interpret information
together and derive entrepreneurial activities in a specific context. In that process, the individual,
specific, and unique knowledge of the entrepreneurial actors is not accessible to everyone. Creative
entrepreneurs pursue uncertain entrepreneurial activities, and generate dynamic markets and
spontaneous order (Huerta de Soto, 2008).
The entrepreneurial activities create information, entrepreneurial knowledge and new opportunities.
Therefore, dynamic markets have two functions: coordination at present and initiation of future-
directed creative activities (Huerta de Soto, 2009). Hence, entrepreneurship leads to effective
coordination in imperfect markets (Kirzner, 1997), the execution of risky entrepreneurial initiatives
(Knight, 1921), and a dynamic economic development (Schumpeter, 1912) in the entrepreneurial
community as well as in other linked communities of the economy. Economic development and
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an improved standard of living is, therefore, the result of an evolutionary process in complex and
adaptable networks with ongoing entrepreneurial activities and interactions to share information and
knowledge (Beinhocker, 2007; Huerta de Soto, 2008).
As stated by Krugman (1996), the decentral impulse to the development process are superior to
central directed regulation at the macro level. The decentral entrepreneurial actors possess specific
knowledge about the markets and the local circumstances. Political agents can hardly have such deep
insights. However, at the macroeconomic level it is necessary to moderate the local developments.
Therefore, there is a need for complex regulation at the macro level to direct the development impulse
from entrepreneurship and entrepreneurial communities in favour of the economy as a whole.
The national and regional innovation system has to thus focus on the accumulation of knowledge
and the integration of industry with research and educational institutions (Freeman, 1995).
Complementary public and private efforts in research, as well as interconnected research-based
companies in exchange with a local market base, allow interactive learning processes and economic
development in the entrepreneurial community. So, local development processes and market-driven
discovery processes create a vital entrepreneurial economy. At the same time, an entrepreneurial
state moderates the economic development via political regulation at the macro level.
The development of the local communities and the innovation systems follow a historic process,
based on the systemic interaction of technology, institutions, and companies (Groenewegen and
Steen, 2006). Entrepreneurial actors are integrated in institutional arrangements (e.g. contracts,
organizations, networks), formal institutions (e.g. state and political system, public administration,
legal system) and informal institutions (culture, values, norms, technology). A holistic configuration
of the national and regional institutions in line with the stages of development can be the result of
experimentation and learning in the process of development. The focus of the following exploratory
section is on the entrepreneurial organizations and the entrepreneurial communities as initiators of
development processes in the vital entrepreneurial economy.
3. Entrepreneurial Communities and Economic Development

As stated by Hoselitz (1952) to identify and support entrepreneurial individuals is a central lever to
achieve economic development. Therefore, an important goal for economic policy is to support an
entrepreneurial climate throughout the economy. As a result, the potential entrepreneurial individuals
see acting like an entrepreneur as a desirable career. Leibenstein (1968) describes entrepreneurship
as driving force behind development processes: entrepreneurial actors take chances offered by
imperfect markets and realize entrepreneurial initiatives. Thus, entrepreneurship education and
knowledge sharing can strengthen regional and national economic development.
Entrepreneurial organizations and their supporters create a specific structure of the entrepreneurial
community. New and established companies evolve in parallel and drive the development processes
(Drucker, 1985; Feld, 2012). In line with Mack and Meyer (2016) entrepreneurial communities
evolve in four phases: In Phase 1 more new companies arise than weak companies disappear from
the market arena. In Phase 2 entrepreneurial orientation as well as networking throughout the local
community grows. In Phase 3 the dynamic development weakens. In Phase 4 important relationships
disappear and the entrepreneurial orientation gets lost – if no new impulse arises. Consequently,
initiating and maintaining entrepreneurial dynamic inside the local network is a central task in the
development process of the region and the economy.
According to Brekke (2015), the development of entrepreneurial communities is based on regional
structures and history. Impulse from outside the local community and collective action inside the
local network foster a thriving regional development. The foundation of economic and technological
enhancement are entrepreneurial thinking, motivation, and action throughout the local community
(Zahra and Wright, 2011). New and established organizations realize a symbiotic relationship with
local political and social systems (Schramm, 2004). As a result, positive externalities from connected
entrepreneurial initiatives and cumulative location decisions occur (Knox and Marston, 2007: 274).
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Cluster dynamics produce a self-energizing development process (see Figure 2): (1) New companies
(Start-up Entrepreneurship) use products and services from established companies; (2) Established
companies (Corporate Entrepreneurship) use products and services of new companies; (3) New
companies arise out of established companies (Spin-off Entrepreneurship); (4) New infrastructure
and demand-effects triggered by additional actors in the region go along with a sequence of new
entrepreneurial activities (Profit & Social Entrepreneurship); (5) Dynamic organizations and
industries generate a spiral of regional development (Myrdal, 1974; Cusmano et al., 2015).
Creativity is a key driver for deploying knowledge in producing goods and services (Florida, 2002:
44-56). At the same time, entrepreneurship as a concept for creating and implementing new ideas
based on knowledge and other production factors (e. g. capital, natural resources, labour) needs a
social structure: networks of research and development, venture capital, modular production systems,
openness for technological, economic, cultural, and artificial creativity. However, creative clusters
offer organizations a vital environment and attract creative and entrepreneurial talent (Florida, 2002:
283-297).
A successful regional development can be achieved with different structural archetypes (He and
Chen, 2016). Thus, the cluster focus can be on foreign direct investments versus cluster focus
on technology-based start-up organizations versus cluster focus on spin-off organizations versus
cluster focus on non-technology start-up organizations. Consequently, successful clusters have
specific configurations and success factors to create a local innovation system. Also, entrepreneurial
communities foster dynamic development in parallel with individual and social objectives (Lundvall,
1999: 61-68).
Along with Knox and Marston (2007), the challenges in vital entrepreneurial economies are (see
Figure 3): (1) Fostering the emergence of new dynamic cluster; (2) Using positive spiral effects in
dynamic cluster and at the same time controlling expanding effects; (3) Revitalisation of mature
cluster; (4) Creating spiral effects in weak cluster in the outskirts; (5) Linking the cluster with other
national and global clusters with a holistic perspective.
Figure 2: Cluster as a Starting Point for Regional Economic Development
Figure 3: Strategies for a Holistic Development of the Entrepreneurial Community
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The analysis so far outlines the relevance of entrepreneurship and cross-linked entrepreneurial
communities for economic development. Creativity and entrepreneurship deploy information and
knowledge in a specific cluster structure, linked to other regional communities. The following
exploration describes aspects of coordination and cooperation in entrepreneurial communities.
4. Interaction and Cooperation in Entrepreneurial Communities

Entrepreneurial communities evolve in specific geographical, cultural and structural settings as a
dynamic, self-regulating networks (Isenberg, 2014). Entrepreneurial role models strengthen the
development of an entrepreneurial culture. Entrepreneurial actors align their economic strategies
with the objectives of other actors in the entrepreneurial community as well as with social and
ecological objectives (Kaplan et al., 2018). According to Isenberg (2010) political leaders shape
supporting conditions for ongoing entrepreneurial experiments. Geographical proximity and cultural
affinity of the actors in local communities support the build-up of trust as foundation for sharing
information and knowledge (Carlsson and Stankiewicz, 1991). Thus, a critical mass of actors, ideas,
and resources can be accumulated in a dynamic process. As a result, entrepreneurial initiatives can be
derived by individual exploitation of the common generated and shared knowledge. For this reason,
microeconomic aspects of development processes come to the fore: Entrepreneurial communities
create and distribute information and knowledge, and entrepreneurial actors and organizations
adopt and deploy insights from the knowledge network. Inside the entrepreneurial communities
the actors can build strong trustful relationships over a long period. As a consequence, a strong
entrepreneurial culture emerges inside the local community (Baldegger and Julien, 2011). Proactive
entrepreneurial networks allow collective experiences and the diffusion of entrepreneurial initiatives.
Entrepreneurial cultures can support entrepreneurial communities. Successful entrepreneurial
initiatives can strengthen entrepreneurial cultures (Krueger et al., 2013).
A strong entrepreneurial orientation at the individual-level and a strong social legitimation for
an entrepreneurial career can be mutually supportive and beneficial to economic development.
Equally, appropriate general regulation fosters a proactive cultural orientation in regions and
economies (Hayton and Cacciotti, 2013; Mack and Mayer, 2016). Social and cultural cohesion in
the entrepreneurial community help to mobilize resources (e.g. crowdfunding) for entrepreneurial
initiatives (Josefy et al., 2017). Thus, cultures with strong individualism should offer personal career
perspectives for entrepreneurs and entrepreneurial managers to support development processes in
entrepreneurial communities (Burton et al., 2016). Many entrepreneurial actors alternate between
the entrepreneurial and managerial functions.
A strong cooperation culture and trust has a strong impact on the collaboration between start-up
companies, established companies, universities, national and local politics, investors, and mentors.
Hence, multilateral close cooperation in entrepreneurial communities facilitates economic viability
of the economy and region (Feld, 2012: 31-46). Synergies and networking in the process of
building and employing infrastructure, resources, knowledge, consulting, etc. create productive
entrepreneurial communities. Inside the cluster, public and private organizations exchange market
information, entrepreneurial strategies, and operations to create positive externalities (Acs and
Virgill, 2013).
According to Kollmann (2014), entrepreneurial communities are often formed around start-up
companies. Regional technology- and entrepreneurship-centres as well as local knowledge-based
services offer consulting and support. Investors and advisory boards provide capital, contacts, and
knowledge. Employment agencies, chamber of commerce, unions, and scientific institutions support
integration efforts of Start-up companies and collaboration with established organisations. Start-
up companies as well as established companies have positive impacts on the dynamic economic
development. Consequently, the design of entrepreneurial communities should focus on both
different perspectives and requirements (Grichnik et al., 2010).
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The founding of a new company out of an established company is an important driving force in
entrepreneurial communities (Cusmano et al., 2015). Though, networking and synergies between
spin-off companies and established companies are based on local institutions, cultural relatedness,
common values, and cooperative relations. Spin-off companies stay in the entrepreneurial
community and get cost-efficient entry to specialised markets and services. So, informal knowledge
transfer, common learning, and the local technology base can be used for entrepreneurial initiatives.
Local relations facilitate a network-based organization of production (Foster, 2005). Start-up and
spin-off companies stay in the entrepreneurial community to employ the agglomeration advantages
and trustful relations. They occupy niches established companies cannot or won’t take.
According to Feld (2012), entrepreneurial actors and organizations should design the entrepreneurial
communities with a long-term perspective. Universities, public authorities, investors, and
mentors can support this development process. The companies in the cluster adopt different roles:
organizations with a central role, organisations interacting with other cluster, and organisations as
participant in the local network (Corsten et al., 2016). Universities complement the entrepreneurial
community with its students, professors, research institutions and laboratories, technology transfer
activities, and entrepreneurship programs. Companies in the entrepreneurial community need
expertise and social capabilities to work in network structures. Thus, innovations can be realized
at the interface of several organizations and in collaboration with customers, suppliers, research
institutions, consultants, and merchants (Ritter et al., 2014).
The geographical proximity allows various agglomeration advantages, permanent exchange of
information and knowledge with universities, and the fast recognising of local customer preferences
(Beise-Zee, 2014). Successful entrepreneurial communities attract more companies and strengthen
the network effects however unintended knowledge transfer, scarcity of resources, and an overload
of local infrastructure may also follow (Corsten et al., 2016).
According to Fritsch (2016), competitive effects of productive entrepreneurial initiatives may lead
to dynamic economic development. The quality of Start-up companies and responding activities
of established companies may lead to enhanced productivity and growth of the entrepreneurial
community. Therefore, failed start-up activities have direct learning effects for entrepreneurs as well
as indirect effects to economic development via stimulating established companies. Following such
a macroeconomic perspective, Start-up companies can be seen as an instrument for revitalisation of
established organizations and an encoder in the early stage of new industries.
Baumol (2004) describes how entrepreneurial actors identify and pursue opportunities, and
how the distribution of knowledge follows in the process. Small and new organizations realize
entrepreneurial experiments and radical innovation. Big and established organizations realize
incremental innovation, especially with high technological complexity. As a consequence, high-
growth start-up companies and small entrepreneurial organizations are key drivers for economic
development in the entrepreneurial community (Nieuwenhuizen, 2008).
Against this background, development processes in the vital entrepreneurial economy can be
navigated with a systemic perspective: Various central and decentral steering concepts as well
as planned and emergent development strategies can be directed in an integrated combination of
macroeconomic policy, cluster policy and activities, and micro level activities. Cooperation and
networking in entrepreneurial communities bring positive effects for local organizations as well as
for the vital entrepreneurial economy. Cluster configuration, steering mechanisms, and moderating
strategies for collaboration can be developed holistically in the specific local context.
The following theoretical research exploration presents two complementary theoretical constructs to
describe entrepreneurial communities in a vital entrepreneurial economy. Firstly, the living system
of an entrepreneurial community defines the basic components (systems structure, see figure 4) of
entrepreneurial communities from a living systems perspective also deduced from and related to
previous research such Miller (1995).
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Secondly, based on the considered theoretical concepts of economic development and relevant
aspects of entrepreneurship discussed and presented from appropriate literature reviews shown in the
previous sections a word model with components and relationships in the system of entrepreneurial
communities is derived to design a qualitative model (systems model, see figure 5) via logical
deduction (Bossel, 2004: 64-74), pattern recognition (Vester, 2002), and elements of design science
(Oosthuizen and Pretorius, 2016).
By recognition of patterns (e.g. Malik, 1989: 298-299; Ulrich and Probst, 1991: 66-77) and reduction
of complexity, dynamic aspects (systems dynamic) and basic interrelations (e.g. Jackson, 2000: 138-
155; Senge, 2003: 75-167; Bala et al., 2017) of entrepreneurial communities in vital entrepreneurial
economies can be explored in the next section.
5. The System of an Entrepreneurial Community: Elements and Qualitative Model

Entrepreneurial communities are built with a specific configuration of cultural, social, and material
conditions (Spigel, 2017). Beneficial conditions are: entrepreneurial culture, entrepreneurial
role models, qualified and motivated workers, capital and modern infrastructure, mentors and
supporting organizations, appropriate public regulation and promotion, entrepreneurial universities
and entrepreneurship education, and admission to local and global markets. The configuration of
entrepreneurial communities as a living system (see Figure 4) considers exchange processes at
the level of material-energy as well as at the level of information (Miller, 1995). Cooperation in
entrepreneurial communities is based on common interests. Formalized relations can strengthen the
cooperation. Integrated economic exchange processes can be well-grounded by common values and
objectives (Miller, 1995: 765).
In line with the living systems theory (Miller, 1995) various subsystems for vital entrepreneurial
communities can be defined using in essence a systems thinking as well as to some extent a design
science research approach: For the material-energy process and the information exchange process
a regional boundary system (1) operates. A reproducing impulse system (2) initiates permanently
cooperative exchange processes in the local entrepreneurial community. A decision system (3) for
defining the network activities reflect on the information system (4) that gives information about time-
related conditions of the entrepreneurial community and its environment. For the exchange with other
regional and global communities a receiving system (5) and a distribution system (6) are responsible.
Figure 4: Entrepreneurial Communities and Living Systems Perspective (Consistent with Miller, 1995)
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Public policy, regional promoters of economic development, chambers of commerce and other
federations as well as modern infrastructure and technology can support the cooperative exchange
processes between (7) supplier, producer (8), logistics companies (9), service companies (10),
waste management companies (11), and support companies (12). For the information process
and knowledge transfer between the organizations of the entrepreneurial community, a regional
information system for innovation (13), a regional information system for efficiency (14), and a
regional expert system (15) for interpretation of trends, patterns of future developments, and
common information and knowledge is at work. Furthermore, the entrepreneurial communities have
an internal communication system (16), a learning system for common knowledge management (17)
to collect information for entrepreneurial initiatives, and a learning system for experienced-based
learning (18) to improve processes and outcomes. For information and knowledge exchange with
other entrepreneurial communities an external information system (19) and contact management
system (20) complete the local living system.
The subsystems for material-energy exchange represent together with the subsystems for information
and knowledge exchange the internal exchange processes. Companies within the entrepreneurial
community generate agglomeration advantages via specialization and division of labour as well
as via common information, knowledge, and learning processes for efficiency, adaptation, and
innovation. The subsystems of the self-regulating navigation of the entrepreneurial community
initiate, control, and coordinate cooperation and network activities. The external exchange processes
are realized via the other complementary subsystems. Constitutional components of the external
environment are the national and supranational system, the entrepreneurial state, and the other
entrepreneurial communities in the economy.
The following qualitative systems model of an entrepreneurial community considers the basic
systems dynamics (Bala et al., 2017) and describes the material and information interaction and
networking of entrepreneurial organizations inside a regional entrepreneurial community. The
theoretical construct of the entrepreneurial community offers a conceptional connection between the
micro and macro perspective in development issues: Entrepreneurial and market processes as well
as economic policy and public moderating inside and between regional clusters facilitate viability of
interconnected organizations, regions, and economies.
5.1. Word Model

Economic development can be seen as a multidimensional phenomenon. Involved are numerous
actors in local, national, and global politics, economy, and society. Conductive cultural, social,
and structural conditions and future-oriented macroeconomic policy are important imperatives for
development processes inside of regions and economies. A key driver of economic development is
individual and collective entrepreneurship. For entrepreneurial initiatives generating and sharing
of information and knowledge as well as the functioning of market structures are fundamental.
Therefore, markets in vital entrepreneurial economies have a coordination and initiation function.
Politics and the scientific community can foster information processes, strengthening the knowledge
base for entrepreneurial initiatives, and trigger socially desirable developments in the economy. A
symbiotic collaboration of established and new entrepreneurial organizations inside entrepreneurial
communities strengthens the organizational viability, and brings dynamic impulses for the
development of regions and economies.
Entrepreneurial Organizations have different material and strategic roles inside the entrepreneurial
community. They are supplier, producer, service organizations, logistics organizations or support
organizations. In a leadership role for the local network, entrepreneurial organizations initiate
strategic cooperation, take decisions about network activities, make inventory about the effectiveness
of the entrepreneurial community, and coordinate the exchange in information and experience. In
the role of an external networker, entrepreneurial organizations drive exchange of material and
information with other local communities. New organizations, supported by investors and mentors,
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vitalize regions and economies. Central actors in the entrepreneurial communities are start-up, spin-
off, corporate, academic, and social entrepreneurs, and entrepreneurial teams. Entrepreneurs and
entrepreneurial organizations identify and pursue entrepreneurial initiatives in established and new
business in interaction with its business environment.
Entrepreneurial organizations realize synergy effects and agglomeration advantages inside
entrepreneurial communities in initiating and realizing entrepreneurial activities. The strategic goal
of entrepreneurial organizations is viability and development in symbiosis with other members of
the entrepreneurial community. Entrepreneurial organizations and entrepreneurial communities are
sources of power in the process of economic development: They generate impulses for adaptation
activities, economic development, and entrepreneurial momentum in the economic system.
Inside and between entrepreneurial communities, economic policy moderates the development
processes for a holistic and future-oriented development of the national system and to integrate
the growth of the economy and the progress in the society. In summary words the entrepreneurial
system operates as follows with system elements and relations between the elements:
5.2. Levels and Elements of the System

Macro-Perspective: Vital Entrepreneurial Economy
1. Integrated subsystems of the vital entrepreneurial economy: Politics, economy, society
2. Entrepreneurial state
Meso-Perspective: Moderated Cluster of the Vital Entrepreneurial Economy
3. Cluster policy: Public moderation of the entrepreneurial communities
4. Self-organized networking between entrepreneurial communities
Micro-Perspective: Entrepreneurial Community
5. Cluster moderation
6. Cluster navigation
7. Structure of the entrepreneurial community
8. Entrepreneurial momentum of the entrepreneurial community
5.3. Active Relations in Entrepreneurial Communities

1. If politics, economy, and society represent a state-directed market economy, economic
policy has to identify and support globally competitive industries which are able to
satisfy customer expectations.
2. If politics, economy, and society represent an oligarchic dominated market economy,
economic policy has to solve distribution conflicts and mobilize growth dynamics.
3. If politics, economy, and society represent a market economy which is dominated by
big and powerful companies, economic policy has to restrict market power and the big
companies have to strengthen entrepreneurial orientation throughout the organization.
4. If politics, economy, and society represent an innovative market economy, economic
policy has to create an entrepreneurial climate and support various entrepreneurial
initiatives as well as radical innovations.
5. If the entrepreneurial orientation of the state increases, entrepreneurial opportunities and
agglomeration advantages in the entrepreneurial communities increase as well.
6. If entrepreneurial actors deploy opportunities and agglomeration advantages in
entrepreneurial communities, development effects in organizations, regions, and the
economy occur.
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7. The development effects in local communities could be upwards directed (this may lead
to overheating effects) or downwards directed (this may lead to stagnation or setback).
8. Overheating, stagnation and setback in regional communities as well as the development
of new entrepreneurial communities require an active public policy to moderate the
development.
9. Entrepreneurial communities organize exchange with other local and global communities
in material and information processes.
10. Entrepreneurial communities organize exchange inside the local community in material
and information processes.
11. Leading network companies initiate and direct cooperation inside the entrepreneurial
communities.
12. Public institutions moderate cooperation inside the entrepreneurial communities.
13. Entrepreneurial communities develop an entrepreneurial momentum for adaptation and
development processes.
14. Established entrepreneurial organizations, start-up organizations, and spin-off
organizations use synergy effects and agglomeration advantages inside entrepreneurial
communities in material and information processes.
15. Established entrepreneurial organizations realize entrepreneurial initiatives in established
business via entrepreneurial actors and teams.
16. Established entrepreneurial organizations realize entrepreneurial initiatives in new
business via entrepreneurial actors and teams.
17. Start-up organizations pursue new entrepreneurial initiatives.
18. Spin-off organizations pursue new entrepreneurial initiatives.
The total system (see Figure 5) with the political, economic, and social subsystem defines the
framework for the economic cycle and the economic development. Basic decision systems of the
society (e.g. elections, negotiations, price mechanism) coordinate economy, state, citizens, and
interest groups.
Figure 5: Entrepreneurial Community and Vital Entrepreneurial Economy: A Qualitative Model
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History, geography, culture, and infrastructure are important factors in the development process of
nations. An entrepreneurial state takes risk to allow future-oriented development processes. The
entrepreneurial state moderates between local communities to support a holistic development of the
vital entrepreneurial economy and moderates local communities to avoid overheating or to stimulate
dynamic development processes. Although, the entrepreneurial state promotes the coordination
and initiation function of markets. Entrepreneurial communities create and deploy agglomeration
advantages and synergy effects inside the local community, link the local network to other regional
cluster, and use the entrepreneurial momentum of entrepreneurial communities.
Within the entrepreneurial communities established and new organizations use symbiotic relations.
Entrepreneurship is the driving force for personal, organizational, local, national, and global
development. Impulse for development processes are coming from a holistic combination of the
entrepreneurial dynamic of the “invisible hand” (that is the market mechanism) and the moderating
effort of the “public hand” (that is the economic policy of the entrepreneurial state).
6. Conclusion and Future Research

The paper explores the role of entrepreneurial communities for a dynamic economic development
using a literature review and systems thinking research approach complemented by design science.
It argues that development issues should be analyzed from a systemic perspective. Thus, appropriate
political, economic, and social conditions and proper macroeconomic policy should be shaped in an
integrative way. At the micro level entrepreneurial agents all over the economy serve as an engine
for a dynamic economic development. Entrepreneurial communities offer the organizations in the
local community significant agglomeration advantages.
A systemic view on the intertwined micro level (individual activities in the economic system leads to
economic development), with the macro level (politics for economic development and appropriate
policy frameworks), and the cluster level (cooperation in and between regions) offers a holistic
perspective on the development process. At the micro level existing vital entrepreneurial learning
organizations (Platzek et al., 2014), start-up and spin-off organizations pursue business opportunities
separate, together in symbiotic partnership or within the network structures. At the macro level
economies shape national innovation systems as well as future-oriented economic policy.
Reflecting the dynamics in and between the several cluster of an economy, economic policy can
moderate upwards and downwards directed development processes in the local systems (Myrdal,
1974). In doing so, according to Krugman (1996) the economic policy should not focus on single
industries because the public managers cannot have the necessary specific knowledge. Stabilizing
negative feedback effects operate inside the national economic system. Successful organizations and
industries attract workforce from other, less successful organizations and industries. Therefore, at
the organizational level and inside a local cluster, amplifying effects from entrepreneurial initiatives
can occur and stimulate growth processes and structural change.
The holistic moderation inside entrepreneurial communities, and a development-oriented integration
of the several local communities of a national economy facilitate sustainable development processes
at the local and national level. For prosperity and profitability of the organizations inside an
entrepreneurial community individual and collective creating and deploying of knowledge and
technology transfer are important lever for ongoing entrepreneurial initiatives. For a sustainable
and vital development of the entrepreneurial community, trust, fairness, and balanced partnership
are important success factors. Start-up companies as industry or university spin-offs can stimulate
established companies and thereby the development of entrepreneurial communities (Burg et al.,
2008). A founder-subsystem at universities (O’Shea et al., 2004) can foster the entrepreneurial spirit
and the development of fresh business ideas. Universities can realize entrepreneurship education
(Platzek and Pretorius, 2015). Further, they can support entrepreneurial initiatives on campus.
University researchers can use specific resources in commercialization processes. Consequently,
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entrepreneurial universities can have a deep impact in entrepreneurial communities through

cooperation with industry and building an entrepreneurial culture on campus.
Implications of the offered examination are, that a balanced combination of (1) appropriate
macroeconomic policies, (2) entrepreneurial initiatives at the micro level, and (3) moderating
processes in and between regional entrepreneurial communities can foster the dynamic economic
development of the vital entrepreneurial economy. Thus, the presented theoretical concept of an
entrepreneurial community in a vital entrepreneurial economy offer a holistic understanding on the
role of entrepreneurship for economic development in regions and economies. In this research and
theoretical analysis, the high potential of decentralized entrepreneurial initiatives as a starting point
and lever for a dynamic economic development in developed, emerging, and developing countries
is presented. Further research studies based on the qualitative systems model of the entrepreneurial
community in a vital entrepreneurial economy can focus on more detailed modelling of the system
dynamics and the integration of specific contexts of national innovation systems such as for example
the entrepreneurship dynamics work of Pretorius and Davidavičienė (2018).
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München: Deutscher Taschenbuch Verlag.
Wagner, N., Kaiser, M., and Beimdiek, F., (1989), Ökonomie der Entwicklungsländer. Stuttgart: Gustav Fischer Verlag.
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IAMOT 2019 | 887

Social Impact of Technology: A Systemetic Review
and Analysis
Pavitra Dhamija
E-mail: dhamijaresearch@gmail.com
Arnesh Telukdarie
Nickey Janse Van Rensburg

University of Johannesburg, Faculty of Mechanical Engineering Science,
South Africa
E-mail: nickeyjvr@uj.ac.za
Abstract
Technology plays a crucial role in the developmental activities of every nation, in general and even more important
for the developing economies. Essential for government, as well as the society, to understand the importance of
maximizing existing technology. The aim is to have technological enhancements for sustainable growth in today’s
competitive environment. The innovative activities related to technology not only impacts the economic status of a
nation, but also its social status. Technological knowledge is identified as a crucial engine for a nation to develop
and outperform its competitors. Another irrefutable fact is that the major source of development for every economy
is its people or citizens especially the category of youth. The major perspective of this paper is to study the aspect
of technology and the manner it empowers the youth specifically in the African continent. Youth act as catalyst of
change, (i.e. social, technological, economical) to endeavor growth and developmental activities. The data for the
same is extracted from Scopus Database. Considering 180 published papers chosen from the last ten years starting
from 2009 to 2018 (September 27, 2018) covering different keywords i.e. Social Impact; Technology; South Africa;
South African Youth. The findings are drawn out by a systematic review and bibliometric analysis to identify the
authors, keywords, and countries who have contributed the most in this area. The results reveal the awareness of
this concept among authors to a greater extent. The keywords like technology, social impact, has been a part of the
explanation but the aspect of youth and its development is genuinely a gap. This study has identified the different
clusters that explain the existing literature and future prospects of the research in this area. The implications are
discussed in detail in the subsequent sections of the paper.
Keywords: Social Impact, Technology, South Africa, South African Youth, Systematic Review And Analysis
1. Introduction
Stimulating the growth and expansion of existing as well as emerging technologies is worthwhile to
obtain competitive edge, especially with respect to technological innovations (Hung and Chu, 2006).
Such initiatives not only uplift the country at large in terms of economic, political, and societal
benefits, but also delivers such benefits to the other economies of the world (Köhler and Som,
2014). Due to the conservative approach, most of the time, only the benefits and the advantages
of technology from the perspective of economy take the fore front leaving aside its societal impact.
Rather, the innovative activities related to technology not only impacts the economic status of
a nation, but also its social status. The major perspective of this paper is to study the aspect of
technology and the manner it empowers the youth. The present study is a systematic analysis of the
existing literature with a specific reference given to the societal aspect of technology in South Africa.
The consulted literature also confirms the non-implementation of advance tools like bibliometric
and network analysis (Misra et al., 2012). If applied, such tools can enable results in the form of
cluster analysis. The above gap is thus addressed by reviewing technology and its social impact with
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Social Impact of Technology: A Systemetic Review and Analysis
specific reference to South Africa (2009-2018); applying bibliometric and network analysis on 180
papers and discussing clusters for future recommendations.
The technological advancements have taken a hype in the recent decades. A lot of change has
been witnessed with respect to the data and its usage. The need for data gathering platform have
witnessed a great rise. The technological trends not only provide new hopes but also put across certain
unintentional impacts which in turn raises concerns for an established society (Abolfazli et al., 2014).
Although, the existing technologies are created by taking a lot of aspects into consideration but still
at times the developer fails to gauge its detrimental effects on the society at large. For instance, to
understand the dark aspect of the technology, consider the digitalization that has happened in the
labor market globally, which has amplified the unemployment rate (Halaweh, 2013). Ma et al. (2014)
Expressed that the extensive use of gadgets (mobile phones and tablets) has almost brought in a
revolution in the economy globally. For youth, mobile phones are the best mode of communication
in comparison to the in person meetings Misra et al. (2016).
3. Research Methodology and Data Statistics

The section of research methodology acknowledges a sequence of steps followed to reach a logical
conclusion and analysis. It starts with presentation of search results via keywords (initial and
refined), initial data statistics, and data analysis.
3.1. Search Results with Selected Keywords

The initial search criteria include articles from the last 10 years (2009 to 2018- till 27 Sep 2018),
following which a total sum of 1379 documents have been received. The second search (refined) with
180 documents denotes a refined search with the mentioned filters i.e. Journal papers (articles and
articles in press); Language: English; Subject: Business, Management and Accounting, Engineering.
3.2. Initial Data Statistics and Data Analysis

The publication trend of the articles in last 10 years are captured in the future below (see Figure
1). These papers solely belong to the genre of social impact of technology from the perspective of
South Africa. The figure indicates an increasing trend in 2014 followed by a dip in 2014-15 with a
steep rise in 2017 confirming the interest of academician and researchers towards this area. The data
analysis has been carried out by two ways i.e. ‘bibliometric analysis’ and ‘network analysis’. The
software’s used for the same include BibExcel and Gephi. The shared software’s facilitate results
in the form of author, affiliation, and keyword statistics, citation and co-citation analysis (Van Eck
and Waltman, 2013).
4. Bibliometric Analysis
Figure 1: Distribution Trend of Published Articles (Documents)
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The existing research has selected BibExcel for analysis. This is due to the versatility of the software
and secondly the file generated by this software is readily accepted by the next selected software i.e.
Gephi for the final analysis. It accepts the file in RIS format which is very much required to make
it suitable for Gephi. The forthcoming sections shall discuss about author influence, and keyword
statistics.
4.1. Author Influence and Keyword Frequency

This section discusses the author influence, affiliation statistics and keyword frequency with respect
to social impact of technology by using BibExcel. The information based on top 10 authors has been
summarised below (see Table 1). As per the analysis, Schulenkorf has been the most contributing
author in the last 10 years, followed by Coetzee, Geldenhuys, Thapa, and Walker. The keyword
frequency not only explains the current areas of research but also paves the way for future researches.
Amongst all keywords, the top 10 have been shared below (see Table 2). The most commonly used
keywords are sustainable growth, economic and social effects, sustainability, developing countries,
and social impact. This shows that the chosen topic is very much popular among academicians.
Table 1: Top 10 Authors: Social Impact and Technology
Author Published Articles (No.)

Schulenkorf, N. 6
Coetzee, W. 4
Geldenhuys,S. 4
Thapa, B. 4
Walker, M. 4
Gibson, H. 3
Heere, B. 3
Othman, A. A. E. 3
Biggiero, L. 2
Cohen, A. 2
Source: Scopus Database; 2009 to 2018 (27th Sep)
Table 2: Top 10 Keywords: Social Impact and Technology
Word Frequency
Sustainable Development 29
Economic and Social Effects 14
Sustainability 14
Developing Countries 12
Social Impact 12
South Africa 12
Corporate Social Responsibility 9
Environment Impact 9
Economics 8
India 8
5. Network Analysis
The network analysis is the next step after bibliometric analysis. The Gephi software has been used
in this study for the same as it provides powerful visualisations (Oloruntoba and Kovács, 2015). The
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file received from BibExcel with the .NET extension is transferred to Gephi for to produce results in
the form of citation and co-citation analysis, and results are presented in the form of nodes and edges.
5.1. Co-Citation Analysis

The co-citation analysis reveals the association of authors, topics, journals, and keywords with each
other (Pilkington and Liston-Heyes, 1999). This analysis is implemented on the scholarly work of
authors and unveils the societal association amongst each other (Chen et al., 2010). It involves the
series of steps starting with; (1) the .NET file of 180 papers was entered into Gephi. It created an
image with almost no value attached to it. (2) in the second step, it was converted into a recognisable
algorithm called force atlas, post which the researcher received a network of co-cited papers as
nodes and edges (see Figure 2). The edges reflect the association between papers; whereas nodes
repel each other. The existence of outliers as unrelated papers is also observed in this algorithm.
After the removal of outliers’, a total of 18 nodes (balls) and 106 edges (arrows) have been received.
Figure 2: Force Atlas Layout of Connected Nodes
5.1.1. Data Clustering
Figure 3: Structure of Two Clusters
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The process of clustering denotes putting together of elements with identical characteristics (Radicchi
et al., 2004). In bibliometric analysis, it conveys the collection of papers of the similar viewpoints.
The dense linked nodes are more connected to each other as compared to the nodes which are less
closely associated (Clauset et al., 2004). The software measures this aspect by applying modularity
concept whose value ranges between −1 and +1.
The figure above indicates the structure of clusters (see Figure 3). The different colors in the figure
represent two different clusters. This also conveys that different papers of a same cluster share a
strong co-citation association (Clauset et al., 2004).
The cluster analysis results in sharing the importance of each cluster. The present study has identified
two clusters (see Table 4). The top 10 authors of each cluster have been listed in the table below (see
Table 3). The significance of each cluster has been discussed subsequently.
Table 3: Co-Citation: Top 10 Papers in 2 Clusters: Social Impact and Technology
Cluster 1 Cluster 2
Fifka (2013) Kucukvar (2014)
Prayag et al. (2013) Heere et al. (2013)
Schulenkorf (2010) Mena et al. (2010)
Cobbinah et al. (2015) McNie et al. (2016)
Stephan (2016) Ahmadi (2012)
De Luca (2015) Kannan (2018)
Othman (2009) Rodrigo (2016)
Viebahn (2014) Stephan (2016)
Gholami (2016) Knott (2013)
Yu (2016) De Luca (2015)

Table 4: Proposed Cluster Classification: Social Impact and Technology
Cluster Number and Current Research Future Research Suggestions
Label
Cluster 1:
Technology and Societal -Conceptual context of technology Advance research related to impact of technology both
Sustainability and sustainability positive and negative specifically with reference to
South Africa and sustainability
-Relationship between technology
and society
Cluster 2:
Economic and Social -Importance of social effects of The economic aspect can be researched while
Effects of Technology technology combining it with youth in the society
Source: Scopus Database; 2009 to 2018 (27th Sep) and Self Research
With respect to cluster 1, the authors have contributed and discussed about the conceptualization
of technology and the social impact of the same. The association between the two have also been
considered and discussed. The contribution by authors also reveals the negative impact of technology
say unemployment. The cluster 2 includes the studies related to economic and social impact of
technology. It elaborates about the different aspects of technology and its societal impacts. It also
discusses that how technology can be used for the upliftment of the society. The authors opined that
economic development is highly dependent on the technological development of any economy. The
conducted studies reveal that technology puts a heavy impact on the settlement of youth in every
nation. The cluster-wise table elaborates about the current research and also the future suggestions/
recommendations that can be considered by the future researchers.
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The present study effectively contributes towards existing body of literature. Given the above
results, it can be inferred that social impact of technology has been studied earlier but this type of
systematic analysis has not been considered earlier. The analysis by using two different tools has
in turn provided the in-depth analysis of the concept. It has presented a whole new approach for
systematic review of literature. It presents to understand the current context of research while giving
different keywords and their future prospects. The author(s) also received some meaningful insights
for the managers to understand and implement. It provides them the essence of last 10 years related
to this area of research and practice more about it. The shared clusters have given some concrete
directions for future research.
6.1. Limitation of the Study

The selected keywords are based on the discretion of the researcher. Some other method might yield
different results with respect to clusters.
7. Conclusion
The present paper has studied the aspect of social impact of technology with reference to South
African perspective. The received results evidence that this is one of the immediate choices of
researchers and academicians who possess interest in this area. It is expected that this paper will act
as good source of knowledge for the upcoming researches in this field of research.
References
Abolfazli, S., Sanaei, Z., Ahmed, E., Gani, A., & Buyya, R. (2014), Cloud-based augmentation for mobile devices:
motivation, taxonomies, and open challenges, IEEE Communications Surveys & Tutorials, 16(1), 337-368.
Chen, C., Ibekwe-SanJuan, F. and Hou, J. (2010), ‘The structure and dynamics of co-citation clusters: a multiple
perspective co-citation analysis’, Journal of the American Society for Information Science, 61 (7), 1386–
1409.
Clauset, A., Newman, M.E.J. and Moore, C. (2004), ‘Finding community structure in very large networks’, Physical
Review E, 70 (6), 1–6.
Halaweh, M. (2013), Emerging technology: What is it. Journal of technology management & innovation, 8(3), 108-115.
Hung, S. C., & Chu, Y. Y. (2006), Stimulating new industries from emerging technologies: challenges for the public
sector, Technovation, 26(1), 104-110.
Köhler, A. R., & Som, C. (2014, Risk preventative innovation strategies for emerging technologies the cases of nano-
textiles and smart textiles, Technovation, 34(8), 420-430.
Ma, H., Zhao, D., & Yuan, P. (2014), Opportunities in mobile crowd sensing, IEEE Communications Magazine, 52(8),
29-35.
Misra, S., Cheng, L., Genevie, J., & Yuan, M. (2016), The iPhone effect: the quality of in-person social interactions in
the presence of mobile devices, Environment and Behavior, 48(2), 275-298.
Oloruntoba, R. and Kovács, G. (2015), ‘A commentary on agility in humanitarian aid supply chains’, Supply Chain
Management: An International Journal, 20 (6), 708–716.
Pilkington, A. and Liston-Heyes, C. (1999), ‘Is production and operations management a discipline? A citation/co-
citation study’, International Journal of Operations and Production Management, 19 (1), 7–20
Radicchi, F., Castellano, C., Cecconi, F., Loreto, V. and Parisi, D. (2004) ‘Defining and identifying communities in
networks’, Proceedings of the National Academy of Sciences of the United States of America, 101 (9),
2658–2663.
Van Eck, N.J. and Waltman, L. (2013) Manual for VOSviewer Version 1.5, Universiteit Leiden and Erasmus Universiteit
Rotterdam, p.4.
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Sustainable Resource Recovery through Waste
Collection Systems: Households Perspective
Bupe Getrude Mwanza

Cavendish University Zambia, Quality Assurance, Zambia
E-mail: bupe.mwanza@gmail.com
Charles Mbohwa
University of Johannesburg, Quality and Operations Management, South Africa
E-mail: cmbohwa@uj.ac.za
Abstract
Sustainable value chains are a drive towards minimising non-renewable resource consumption. Globally, the goal
is to achieve sustainability in resource consumption from the point of production to the end-of-life (EoL) of the
product. To achieve sustainability in the recovery chains of wastes, a number of aspects contribute. Waste collection
systems are important aspects to value chains in waste recovery systems. This research aimed to assess the types
of waste collection systems that influence sustainable plastic solid wastes (PSWs) recovery from households in a
developing country of Zambia, Africa. The specific objectives of the research were to; identify the types of waste
service providers; determine the different kinds of waste collection systems used and preferred by the households;
and make a comparative analysis.
A non-experimental survey was conducted in Ndola city. 345 structured questionnaires were distributed to
households in the different locations of Ndola city. Stratified sampling was used to determine the number of
questionnaires for distribution in each location. Further, simple random sampling was used to distribute the
questionnaires to the households. 299 questionnaires were analysed using Software Package for Social Sciences (SPSS).
The results revealed that, waste is collected for disposal and recovery purposes. The private waste companies,
municipality, informal waste collectors (IWCs) and plastic waste manufacturing and recycling companies collect
PSWs. However, unsustainable ways of disposing wastes are performed by households such as burning and burying.
The majority of wastes is collected by the private waste collectors 34%. A number of waste collection systems are
used and majority of the households use Kerbside waste collection systems 68%. Nevertheless, Buy-Back Centres,
Deposit Refund Systems, Drop-off Systems and Extended Producer Responsibility (EPR) are other waste collection
systems used. For waste collection systems preferred by the households, majority prefer Kerbside waste collection
systems (89.7%. However, 83.7% prefer Buy-Back Centres
Design of sustainable value chains for waste recovery is an important aspect of achieving sustainable resource
utilization. Therefore, understanding the importance of waste collection systems in the value chain is an important
innovation component. For waste collection providers and recoveries, the study contributes by highlighting the types
of waste collection systems preferred by households. These systems are cardinal for implementation when designing
waste recovery systems. Further, integration of households in the value chains of waste recovery systems is cardinal
for achieving success. To policy makers the results provide insights for consideration when developing waste
recovery and management policies. Inclusion of sustainable waste collection systems based on the households’
perspective in policies is an effective drive for achieving sustainability in recovery systems
Keywords: Value Chains, Systems, Waste Recovery, Innovation, Plastic Solid Wastes, Sustainability
1. Introduction
Sustainable recovery of PSWs is a pressing challenge for developing economies. The production of
plastic products was estimated at 7.3% of the world production in Middle East and Africa (World
Watch Institute, 2015). By 2025 the generation of PSWs is estimated to increase from 8% to 13%
in Africa (Hoornweg and Bhada-Tata; 2012). For developing economies, majority of the projected
PSWs increases has no planned solutions and recovery is mainly performed by the IWCs (Gutberlet,
2010, Scheinberg et al., 2011; Ezeah et al., 2013). Hoornweg and Bhada-Tat (2012) indicates that,
only 41% of waste collection is performed in lower income economies compared to 85% in higher
income economies. To achieve sustainable recovery rates in developing economies, identification
and understanding of the different types of waste collection systems is necessary.
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Sustainable Resource Recovery through Waste Collection Systems: Households Perspective
Several have focused on sustainable ways of managing and recovering PSWs. Studies on waste
collection systems have focused on a number of aspects in the waste management arena. Economic
and environmental assessment of waste collection systems has been studied (Andrews et al., 2013;
Pires et al.,2017; D’Onza et al., 2016; Greco et al., 2015; Miller et al., 2014). Technical assessment
of waste collection systems has been conducted (Rodrigues et al., 2016a; Teixeira et al., 2014a).
The impact of waste collection systems on the environment has been examined using life cycle
assessment (LCA), participation, recycling and separation rates (Iriarte et al., 2009; Punkkinen et al.,
2012; Rives et al., 2010; Usón et al., 2013; Yıldız-Geyhana et al., 2016).
The information provided by the above assessed studies provides clarity on a number of issues
surrounding waste collection systems. However, different waste collection systems present different
attributes based on the differences in the amount of waste recovered for the same waste type in different
contexts. Practically, application of a specific waste collection systems is influenced by location,
operation costs, road network and aesthetic aspects. In Zambia application of different waste collection
systems has been in existence since the 1990s. The use of Kerbside and Drop-off collection systems
is widely used by the municipality and private waste collectors. Buy-Back Centres and Bring systems
for recyclable wastes are used by waste recoveries. Different types of wastes are recovered including
plastics, metal, glass and papers. Despite the existence of waste collection systems, the recovery rates
for recyclable or reusable wastes is still low. 3% of Municipal Solid Wastes (MSWs) are recovered by
the IWCs while 6% is recovered by the formal waste service providers (World Bank, 2012).
The paper is aimed at assessing the existing waste collection systems in Zambia in order to provide
decision support to PSWs recoveries and recyclers. The specific research questions include;
i. What are the existing waste collection service providers?
ii. What are the types of waste collection systems existing in Zambia?
iii. What are the types of waste collection systems used by households?
iv. What are the preferred waste collection systems by the households to influence
PSWs recovery?
v. Is there a linkage between waste collection systems and waste recovery?
Globally, in several developing economies, Solid Waste Management (SWM) is a huge challenge
to environmental management and this is critical in cities of developing economies (Idris et al,
2004; Zhang et al., 2010; Diaz and Otoma, 2014). A number of policies and strategies on solid
waste management (SWM) in developed and developing economies have been put in place. Policies
focusing on source-separation, pay as you throw (PAYT), EPR and many others. In developed
economies, studies on waste collection systems have focused on different aspects while other have
made comparative analysis on waste recovery rates. For example, Kerbside waste collection of
organic wastes has become a dominant waste collection system in European Nations (Bernstad and
La Cour Jansen, 2012).
6. Waste Collection Service Providers

In most developed and developing economies, the responsibility of waste collection falls on the
municipalities. With the establishment of Public-Private-Partnerships, the private and public
authorities conduct waste collection services (Linzer and Salhofer, 2014). In essence, the
municipalities have the alternate responsibility of driving change (Storey et al., 2015).
In developing economies, majority of waste recovery is performed by the IWCs. In a number of
sustainable resource recovery initiatives, the IWCs are actively involved in developing economies
(Wilson et al., 2013c; Taiwo, 2011). The IWCs recover wastes from landfills, residential areas and a
number of other places (Scheinberg et al., 2010a). EPR has provided a platform for the manufacturing
companies to be actively involved. Fehr (2014) adds that, the plastic manufacturing and recycling
companies are cardinal to integrate in recovery programmes.
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7. Waste Collection Systems

Several waste collection systems are in existence. Dahlen and Lagerkvist (2010) categorise waste
collection systems into Drop-off and Property-close. These two types of systems are classified
further. Property-close systems consist of Door to Door and Kerbside while Drop-off systems
consist of Drop-off centres and Drop-off sites. Other types include Returnable Container Legislation
and Buy-Back Centres (Xevgenos et al, 2015; Zhang and Wen, 2014). Studies reveal that, waste
collection systems influence the rate of waste recovery. According to a study that was conducted by
TEMA NORD (2014), Kerbside waste collection systems increased the recovery of PSWs compared
to Drop-off systems. Made et al (2003) indicates that, the context of application can distinguish
waste collection systems from each other. In another study conducted by Rodrigues et al (2016a), it
was concluded that, the amount and quality of waste recovered can be impacted by the type of waste
collection system.
A number of other studies have shown that, the type of waste collection system can impact the
amount of wastes recovered. Mwanza et al (2018) revealed that, the amount of waste recovered
is influenced by the type of waste collection system. A study conducted by Dahlen et al (2007)
indicated that, more recyclables were recovered using Kerbside waste collection system than other
selective waste collection systems.
Other studies indicate that, the motivating factor in Drop-off systems is the easy of access to the
containers (Domina and Koch, 2002; PCAESG, 1999). Buy-Back Centres provide a platform
for citizens to resell their wastes thus providing an incentive (Rhyner et al, 1995). In the case of
Deposit Refund Systems, they have been used to recapture reusable and recyclable packaging wastes
(Astrup, 2010).
8. Methodology

A descriptive research was conducted with households in the City of Ndola. A non-experimental
survey was used to collect data from the households. Structured questionnaires were designed and
distributed. Descriptive research design was employed as it describes characteristics of the population
that is being studied and provides quantifiable information that can be statistically analysed without
the manipulation of the variables.
8.2. Sample Size

A non-experimental survey was conducted in the city of Ndola, Zambia. A sample size of 345
households was determined using the sampling guidelines of Stoker (2011). Eight (8) urban areas
in the City of Ndola were selected to participate in the study. Stratified sampling was conducted to
determine the sample size of each area. A total of 299 questionnaires were received back for analysis.
8.3. Questionnaire Design

A structured questionnaire was designed for the households. The constructs were designed using
list and scale type. Likert scale type consisting of a five-point was used. (1 = strongly disagree, 2 =
disagree, 3 = neutral, 4 = agree, 5 = strongly agree). The questionnaire was developed with three (3)
sections. Section one (1) focused on the waste collection service providers. Section two (2) assessed
the types of waste collection systems and finally, section three (3) assessed the waste collection
systems preferred by the households.
8.4. Questionnaire Validation

The questionnaire was validated using face, content and construct validity. In order to apply content
validity, the questionnaire was presented to the experts in the field (study supervisors). Construct
validation was applied by the Statistical Consultation Services of the University. To determine face
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validity, questionnaires were presented to the experts in the field. A pilot study was conducted with
10 household respondents to ensure the questionnaire did not present any problems during the survey.
9. Results and Discussions
9.1. Urban Areas Distribution

Figure 1 depicts the sample distribution of the urban areas that were surveyed in Ndola City. The
distribution resulted in a total of 299 responses from the eight (8) urban areas. Based on the total
number of questionnaires that were distributed (345) and the responses that were received (299),
a response rate of 86.7% was obtained. For questionnaire surveys, a response rate of 86.7% is
acceptable. Willmack et al (2002) recommends response rates between 50% to 65%.
Figure 1: Sample Distribution of the Urban Areas in Ndola City
9.2. Types of Waste Collection Service Providers
Figure 2: Waste Service Providers
Figure 2 depicts the types of waste collection service providers. The results indicate that, the
majority of wastes is collected by the private waste collectors (34%). In terms of PSWs recovery
for recycling purposes, the plastic manufacturing companies, are the least recoveries (0%). Further,
the respondents have indicated that, ‘other’ options of disposing of wastes are used. 32% of the
respondents dispose of their wastes by ‘burying or burning’ it. According to Hoornweg and Bhada-
Tata (2012), only 41% of the waste generated in developing economies is collected for disposal.
This affirms the results that, only 11% of the waste generated by the households is collected by the
municipalities and 34% by the private waste collectors.
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The assessment of the households on the types of waste collection service providers also indicates
that the IWCs perform waste collection. Only 7% of the IWCs collect recyclable PSWs from the
households. In developing economies, different types waste collection service providers exist despite
the low collection rates (Hoornweg and Bhada-Tata, 2012).
9.3. Waste Collection Systems used by Households

Figure 3 depicts the types of waste collection systems used by the households. Majority (68%) of
the households use Kerbside waste collection systems. This implies that, waste collection service
providers collect wastes from the majority of the households using the Kerbside collection system.
Only 14% of the households use the Drop-off waste collection systems. Further, EPR is only used by
2% of the households. In figure 2, less than 1% of the Plastic Manufacturing Companies recover and
collect wastes (PSWs) from the households. This justifies the low utilization (2%) of EPR in waste
recovery and collection by the households.
Figure 3: Waste Collection Systems Used by Households
Despite the low utilization by the households on the other waste collection systems, it can be affirmed
that, these systems exist in Zambia. For instance, the Deposit Refund system (5%) represents a high
utilization compared to the EPR system.
9.4. Waste Collection Systems Preferred by the Households

Households were assessed on the waste collection systems that would influence their particiation
in PSWs recovery. Figure 4 depicts the results and it indicates that, majority of the households
perfer the Kerbside waste collection system (89.7%). Buy-Back Recycling Centers (83.7%) were
the second most preferred waste collection systems. In Figure 3, only 8% of the households utilize
the Buy-Back Recycling Centres.
Figure 4: Preferred Waste Collection Systems by Households
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ERP is the third preferred waste collection system by the households. 79.3% of the households
would be influenced to particpate in PSWs recovery programs with the implementation of ERP by
the companies. The fact that, less than 1% of the Plastic Manufacturing and Recycling Companies
collect and recover PSWs from households, is an indication that, EPR is not compiled to by the
producers. This justifies the low representation by the households in Figure 3. To this regard,
households are willing to particpate in PSWs recovery programs if more companies comply to EPR.
9.5. Waste Recovery and Waste Collection Systems

To achieve sustainable resource recovery from using waste collection systems, understanding the
different types of waste collection systems is required. The study has assessed the types of waste
collection systems from the households’ perspective. In figure 3, majority of households have their
wastes collected using Kerbside waste collection systems 68.2%. At the same, more than 32% of the
households dispose off their wastes through burying and burning. These options of waste disposal
(burying and burning) are unsustainable as they do not represent any of the sustainable options of
waste management (reduce, reuse, recycle, recover).
As the economies strive to achieve a circular economy, the study provides a platform to investigate
the types of waste collection systems that would influence the households to participate in PSWs
recovery programs. Despite the households outlining the types of waste collection systems in use,
majority of the households will be influenced to take part in waste recovery programs if Kerbside,
Buy-Back Centres and ERP waste collection systems are utilised by the waste collection service
providers. Further, a study conducted by Made (2002) indicates that, the context of application
distinguishes waste collection systems from each other. Rodrigues et al (2016) affirms that, the
quality and amount of waste recovered is impacted by the type of waste collection systems. This
implies that, a correlation between the amount of waste recoverable and the system of collection
exists. In this study, households can be influenced to take part in PSWs recovery programs with
the implementation of Kerbside, Buy-Back Centres and ERP waste collection systems. A study
conducted by Dahlen et al (2007) concluded that, more recyclable wastes were recovered from
Kerbside collection system than other waste collection systems. Finally, there exists a connection
between resource recovery and waste collection systems. A review conducted by Mwanza et al
(2018) concluded that, waste collection systems influence the amount of recoverable wastes.
10. Conclusion
based on the analysis of the study, it has been found that, in Ndola urban areas, five different types of
waste collection systems are used by waste collection service providers to recover and collect PSWs
from households. In order to establish the most sustainable waste collection systems for optimal
recovery of PSWs, existing waste collection systems are assessed and majority of the households use
kerbside wastes collection system while ERP is the least used. Households are further investigated
on the waste collection systems that would influence their participation in PSWs recovery. The
results have indicated that Kerbside, Buy-Back Centres and ERP are the sustainable waste collection
systems from the households’ perspective.
With regard to the different types of waste collection service providers, it was found that, the
private waste collectors are the major collectors of wastes. In addition, the IWCs are involved in
the collection and recovery of PSWs. The study has shown that, the IWCs recover more PSWs from
households than the plastic recycling and manufacturing companies. This indicator is important for
incorporating the IWCs into formalised systems.
The information from this study is important to policy makers, waste managers and stakeholders
in the waste management sector. A platform to understand the different types of waste collection
systems from the perspective of households in a developing economy has been provided. This
information is key when developing polices and systems for resource recovery and utilization. As
the developed and developing economies strive to achieve a circular economy, information on the
drivers for sustainable resource recovery from different contexts is useful.
IAMOT 2019 | 899

First and foremost, we thank all the households that took part in the study by way of responding to
the questionnaires. Without the invaluable support of the households, this study would not have been
possible. We are grateful for the financial support from the University of Johannesburg. Without
your financial support, this study would not have been presented and published.
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An Analysis of the Sustainability of an Emerging
New Technology-building Houses using 3D
Printers with Robot Technology
Janne Leinonen
Aalto University, Department of
Industrial Engineering and Management, Finland
E-mail: janne.leinonen@aalto.fi
Jürgen Poesche
Aalto University, Department of
Industrial Engineering and Management, Finland
E-mail: jurgen.poesche@aalto.fi
Ilkka Kauranen
Aalto University, Department of Industrial Engineering
and Management, Finland
E-mail: ilkka.kauranen@aalto.fi
Abstract
In the extant literature, sustainability is typically seen as a dichotomic issue. Any new technology is seen either
as sustainable or as unsustainable. In contrast to this widespread view, sustainability should be understood as a
continuum. A technology should be analysed in-depth and relevant characteristics of the technology should be
identified so that the sustainability effect of each characteristics can be assessed. The sustainability of a technology
is the net-effect of the sustainability of its various characteristics. Thus, sustainability is a continuum of different
shades of grey between black or white. The implication is that sustainability is dependent on the context. The
relative contribution of various characteristics of a technology is different in different contexts.
In this study, an emerging new technology - building houses using 3D printers with robot technology - was analysed
from the sustainability point of view. Relevant characteristics of this technology were identified and analysed in-
depth.
Keywords: 3D Printing; Robots; Construction Industry; Sustainability; Regulation
1. Introduction And Background

The construction industry will face ground-breaking changes (Zavadskas, 2010). Sustainability
requirements are becoming stricter and stricter. New revolutionary technologies are emerging. One
of the emerging new technologies is building houses by utilizing 3D printing with robot technology.
Although this technology is new within the construction industry it is soon expected to become
commonplace to print houses. As sustainability is a pressing issue in the construction industry, the
sustainability of the emerging new technology of 3D printers with robot technology that build houses
has to be researched. The objective of this study is to analyse the sustainability of an emerging new
technology of building houses using 3D printers with robot technology.
The Sustainable Development Goals Report 2018 by the United Nations highlights the importance
of general sustainable development in several ways (United Nations, 2018). In parallel, the Paris
Agreement 2015, guides society, governments and companies to work together against the global
climate change by keeping the temperature rise below 2 degrees Celsius measured against the pre-
industrial levels (United Nations, 2015).
The building sector and the construction industry have a significant role in addressing sustainable
development. The total energy consumed by the building and the construction sectors was reported
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to be approximately 151 exajoules (EJ) in 2015 that equals to 36% of the total final energy use. The
construction industry as part of total, including the manufacturing of materials for the buildings
themselves, was reported to consume 26 exajoules that represent nearly 6% of the total energy end
use. Similarly, buildings represent approximately 28% and the construction industry 11% of global
CO2 emissions. (UN Environment and International Energy Agency, 2017)
2. THEORETICAL framework
Sustainability consists of the environment, the economy and the social component. Sustainability
targets discussed often have a political aspiration. Business ethics (Ferrell & Gresham, 1985;
Trevino, 1986; Bommer, et al., 1987; Vee & Skitmore, 2003), values and regulation (Stead, et al.,
1990; Bommer, et al., 1987) create foundations for sustainable development in the construction
industry. The importance of the managerial role is noted as a driver for the company’s culture,
values and conduct (Stead, et al., 1990; Tow & Loosemore, 2009; Toor & Ofori, 2009; Man-Fong
Ho, 2011). Sustainability-related innovation in construction has been found to establish successful
competitive strategies (Bryson & Lombardi, 2009), and increase the market value of companies
(Kajander et al, 2012).
Sustainability is a value judgement that incorporates individual moral principles. The approach on
ethics and sustainability in the extant literature is often dichotomic (Abela & Shea, 2015; Wempe &
Frooman, 2018). Either something is sustainable, or it is not sustainable.
Construction is a capital-intensive industry in which capital expenditures play a significant role in the
company’s success. Improving sustainability requires capital investments in production technologies
and in sustainable material development. Directives and regulation can help in addressing important
issues by encouraging companies towards sustainability.
For example, in Europe, a Directive 2010/31/EU on the energy performance of buildings guides
European legislation towards sustainability (The European Parliament and the Council of the
European Union, 2010). Further, on a regional level, The European Commission has demonstrated
their will, commitment and skills to tackle global sustainability issues on their behalf, utilizing
Circular Economy Action Plan, and energy and climate targets for 2030 and 2050 (European
Commission, 2017). The European Commission has developed a European Union wide tool called
Level(s), a voluntary assessment and reporting framework, that improves the sustainability of
buildings.
3. 3D printers with robot technology in the construction industry

Robotization is a global megatrend. International Federation of Robotics (2018) reported a new
record in 2017 with approximately 380,000 delivered industrial robots. The cumulative average
growth between 2012 and 2017 has been 19%. The main industries for industrial robots are
electronics, automotive and metals, but other unspecified industries are also growing suggesting
rising interest towards industrial robots. This chapter introduces existing 3D printers with robot
technologies in the construction industry.
The construction industry has traditionally been a labour-oriented industry. Lately some pioneering
companies have started utilizing 3D concrete printing machines and even print up the very first houses
(Ngo, et al., 2018). In the construction industry, robots enable novel and complex structures that can
be printed fast on-site with low amounts of construction waste. The benefits of using industrial
robots arise from the fact that industrial robots are reprogrammable, moveable and applicable to
precise jobs (Leinonen, et al., 2018). 3D printing frontiers are expanding, available technological
solutions are increasing in number and new sustainable and printable materials are being developed.
The construction industry is soon heading to a technological revolution.
Most of the existing 3D concrete printing machines are either gantry-type, or industrial robots
equipped with a printing head, or kind of hybrid machines utilizing both technologies. With the
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existing technology, concrete is printed layer by layer. Picture 1 illustrates the gantry-type concrete
printer. The printer looks mechanically a bit like a conventional overhead crane, allowing x, y, and
z movements for the printing head. The printing nozzle of the machine moves following a pre-
programmed path creating the wanted structure. The mechanical size of the gantry-type printer limits
the size of the printable object. The 3D printers having industrial robots equipped with a printing
head are either stationary or mobile. A stationary robot limits the working area of the 3D printer to
the robot’s working envelope, but recent research has showed that a large-scale 3D structure can
potentially be printed utilizing multiple mobile robots (Zhang, et al., 2018). The gantry-type 3D
printer can also be equipped with an industrial robot enabling several additional functions as shown
in Picture 2. A 3D concrete printer developed by a Finnish company called Fimatec Oy is able to
make the surface finishing of the printed wall, add strengthening iron structures into the printed
concrete and even add electricity joint-boxes (Tekniikka&talous, 2017).
Picture 1. Example of a gantry-type 3D concrete printing machine. The frame moves horizontally on tracks. Horizontal
and vertical movements are controlled by servo drives. An integrated robot is making assistance tasks. Courtesy of
Fimatec Oy
Picture 2. Example of a hybrid 3D concrete printing machine making an isolated wall. A rebar grid is installed prior to
concrete and isolation printing. A robot is installing additional reinforcements to the printed wall. Courtesy of Fimatec Oy.
4. 3D PRINTERS WITH ROBOT TECHNOLOGY AND SUSTAINABILITY

In the following, building houses using 3D printers with robot technology is analysed from the
sustainability point of view. Relevant characteristics of this technology are identified and analysed
IAMOT 2019 | 904

in-depth. Advantages and disadvantages from the sustainability point of view are grouped into the
categories. Advantages and disadvantages from the sustainability point of view are identified.
In 3D printing technology, digital models are used to create a printable object, and the model
is compiled for a 3D printer that can reproduce, layer by layer, the wanted outcome. This gives
architects the freedom to create innovative shapes and structures without moulds (Ford & Despeisse,
2016; Flores Ituarte, et al., 2016), and with an efficient and optimized structural design dispensing
only the necessary amount of material (Wangler, et al., 2016; Flores Ituarte, et al., 2016). Nowadays
concrete is the most common printable construction material, but the number of available materials is
expanding. Architects can design printable objects from sustainable materials, such as green concrete
that includes recycled waste material as a component (Suhendro, 2014), and earth-based materials
(Perrot, et al., 2018), or recently emerged bio composite materials (UPM, 2018). Depending on the
printable material, or the shape, the strength of the printable material can be improved for example
by fibre-reinforcement (Ngo, et al., 2018) or by external steel structures to a certain extend (Asprone,
et al., 2018). Hence, the sustainability potential of 3D printing with robots in the design phase rises
from the material savings (no moulds needed, optimized structured design, no waste), and favouring
printable sustainable materials in the building architecture.
Depending on the type of the 3D printer, the manufacturing technology allows production on-site,
or at a factory. The sustainability potential in the manufacturing phase rises from a small amount
of construction waste material in the erection process (Sakin & Kiroglu, 2017), reduced number
of supportive constructs or moulds, and reduced on-site construction material surplus as just right
amount of material can be printed (Ngo, et al., 2018; Ford & Despeisse, 2016). The 3D printing with
robots also offers lower total energy consumption and less pollution on-site as the waste material
traffic is reduced. The 3D printing with robot technology can improve resource and energy efficiency
because the same machine can print isolated walls and even integrate other work stages, such as
surface finishing or joint-box installation (Tekniikka&talous, 2017) by utilizing tool exchangers
and dedicated tools. Also, the 3D printing with robot technology offers homogenous quality due
to controlled concrete dispensing, and the possibility to use local raw materials. Generally, the
3D printing as a production technology allows production based on individual needs with lower
investment costs.
Building houses with a 3D printer with robot technology improves safety on site and has potential to
improve the construction industry’s reputation. Occupational diseases and accidents can be reduced
due to the fact that the 3D printer can take care of dangerous operations in construction and perform
repetitive jobs. 3D printing can also can improve the attractiveness of the construction industry as
a working place because the safety aspect is improved, and the job descriptions of a blue-collar
employees are closer to those of a robot programmer than those of a construction worker. Table 1
categorises sustainability advantages of using 3D printers with robot technology in the construction
industry.
Table 1: Sustainability advantages of using 3D printers with robot technology in the construction industry
Advantage Category Notes
Possibility for innovative shapes Architecture More freedom to design
Structure optimization Architecture/Material management Digital structure optimization
Less waste in erection process Waste management No construction mould needed
Less construction waste Waste management Possible to print only what is needed
Construction material surplus Material management Appropriate amount of material on
site, no surplus waste
Less material usage Material management Precise printing with no excessive
material usage
Possibility to use recycled concrete Material management Printing of recycled concrete
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Possibility to use bio composites Material management Increases recycling and the use of
natural materials
Printing on-site or in the factory Operations management Depends on the printer design
Stronger buildings Material management Reinforcing
Customization of printed objects Business management Low cost of individualized products
Less accidents on site Human safety Less occupational accidents
Less repetitive jobs Human safety Less occupational diseases
Better industry reputation Business/Human safety Due to increased safety on site
More attractive job descriptions Social Construction workers become more
like robot programmers
Reduced traffic to and from site Energy/Pollution management Less transportation of waste
Possibility to use several sustainable Material management 3D printing is suitable as technique
material types
Consistent quality Energy/Material management Less air holes in wall structure
Energy savings Energy management Isolated wall in life cycle
Integrated work stages Operations management Tool exchangers, tools, surface covers,
pipes, joint-boxes
The 3D printing with robot technology also has some disadvantages are regards to sustainability.
The 3D printing is still a nascent technology. There is only little experience of its reliability. An
investment for a single 3D printer is typically between 50,000 to 500,000 euros depending on the
technology used. The size of an investment makes the technology available only for large companies.
Typically, a construction site is dirty, dusty and the environment temperature and humidity may
vary. These factors will affect the 3D printer reliability as the operational temperature range of an
industrial robot is typically between +5 and +50 Celsius, and relative humidity of the environment
should be less than 95 percent. General industrial robots are designed for Ingress protection class 67
(ABB Robotics, 2018), meaning they are partly dust-proof but not designed for continuous water
contact.
The 3D printers with robot technology have a certain work envelope determined by the gantry’s
mechanical structure and the physical size of the manipulators. This sets limits for the building or
module that is printed and it can limit the possible designs. Similarly, the printing design might be
limited by the weight of the printing nozzle. The heavier the nozzle together with extruded concrete
is, the larger the robot is. The larger the robot and the load are, the more the robot consumes energy.
The technology integrated into the 3D printer requires different skills on site to support continuous
construction work. Skilled robot programming and maintenance people are needed to support not
only in operations, but also in the machine designing phase in order to create reliable tool designs
and for the total production machine with respect to regional machinery safety standards.
The material quality is an important factor in 3D printing. Consistent concrete quality including a
specified size range of stones enables fluent material flow through the nozzle and the high quality of
the print. One major challenge in 3D printing with robots is interlayer contamination, that is, a result
of a good concrete mixture, the speed of printing and humidity. Different kind of machine vision
systems could improve the quality control of interlayer contamination, but these technologies are
sensitive to dust and natural light. Addressing interest in material origin, especially in case of green
concrete and in other recycled materials, is important. The general issue regarding the 3D printer
technology is fulfilling the required machine safety related standards that aim to secure human safety
during machine operations. Table 2 categorises sustainability disadvantages of using 3D printers
with robot technology in the construction industry.
Table 2: Sustainability Disadvantages of using 3D Printers with Robot Technology in the Construction Industry
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Disadvantage Category Notes

Nascent technology Printer technology Reliability not known yet
Large investment Printer technology Long payback time
Problems with reliability Printer technology Due to dusty environment
Machine vision Printer technology Usability in quality control
Limited operation temperature range Printer technology Reliability
Limited physical size of printed objects Printer technology Limited by work envelope of the printer
Limited maximum load of the printer Printer technology / Energy Limited by the nozzle or tool weight
management with load
High requirements as regards to skills of Engineering Programming, maintenance, use, gripper
operation personnel design
High requirements for material quality Operations management Material must be of consistent quality and
grain size range is strict
Interlayer contamination Operations management Speed, humidity
Recycled material can be contaminated Material management Material origin
Human and machine safety issues Engineering Fulfilling safety requirements onsite.
5. SUMMARY AND Conclusion

In the extant literature, sustainability is typically seen as a dichotomic issue. Any new technology is
seen either as sustainable or as unsustainable. In contrast to this widespread view, sustainability should
be understood as a continuum. A technology should be analysed in-depth and relevant characteristics
of the technology should be identified so that the sustainability effect of each characteristic can
be assessed. The sustainability of a technology is the net-effect of the sustainability of its various
characteristics. Thus, sustainability is a continuum of different shades of grey between black or
white. An implication is that sustainability is dependent on the context. The relative contribution of
various characteristics of a technology is different in different contexts.
In this study, an emerging new technology - building houses using 3D printers with robot technology
- was analysed from the sustainability point of view. Relevant characteristics of this technology were
identified and analysed in-depth.
Advantages from the sustainability point of view were grouped into the following categories:
architecture, waste management, material management, operations management, business
management, energy management, and pollution management. The following advantages from the
sustainability point of view were identified in the study: possibility for innovative shapes, structure
optimization, less waste in the erection process, less construction waste, construction material
surplus, less material usage, possibility to use recycled concrete, possibility to use bio composites,
printing on-site or in the factory, stronger buildings, customization of printed objects, less accidents
on site, less repetitive jobs, better industry reputation, more attractive job descriptions, reduced
traffic to and from site, possibility to use several material types, consistent quality, energy savings,
integrated work stages.
Disadvantages from the sustainability point of view were grouped into the following categories:
printer technology, engineering, operations management and material management. The following
disadvantages from the sustainability point of view were identified in the study: nascent technology,
large investment, problems with reliability, machine vision, limited operation temperature range,
limited physical size of printed objects, limited maximum load of the printer, high requirements
IAMOT 2019 | 907

as regards to skills of operation personnel, high requirements for material quality, interlayer
contamination, recycled material can be contaminated, human and machine safety issues.
Further research is needed to quantify the findings explained in this paper. Further research is also
needed to assess the reliability of the findings.
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IAMOT 2019 | 909

Natural Method to Regenerate Air and
Water Quality
Manoj Kumar Jha

Prism Johnson Limited
E-mail: manoj.jha@prismjohnson.in
Abstract
A large number of manufacturing processes require water and air for various application. In certain processes like
close circuit cooling of compressors and the overflow of drinking water can be prevented to reach the drain. This
water does not contain any toxic waste or effluent. This water can be treated with a natural, low cost method and
can be reused for gardening. In case treated water is not required for gardening than the treated water can find way
to STP to reduce the load on STP. The naturally treated water by this natural process under study may increase the
STP capacity without any additional cost, since the impurity gets reduced.
A pilot project to improve the water Quality was designed. The test results indicate that a traditional method
of settling tank, various filter bed of charcoal, sand, pozzolana and reed bed improve the Quality of water for
horticulture of oxygen rich plants. The pH of treated water also remains within prescribed norms. The TDS, chloride
and hardness content of treated water was found lower by 7.5%.12.5% and 12.1% respectively when compared to
input was in the range of 7- 12 %. With these test results this facility was scaled up for treating 20 KL water.
Lotus (Nelumbo nucifera Gaertner) plants can tolerate acidic and alkaline water in a pond Investigations have
also revealed that lotus can absorb heavy metals and may be recommended for plantation in the ponds used for
discharging the industrial effluents for water purification in a most natural manner. With this idea, the treated water
was kept in a lotus pond to examine whether plants can grow in the treated water. Further the treated water was used
to irrigate saplings of the plants who consume CO2 even in dark hours. This mitigate CO2 imbalance. The plantation
needs can be calculated on the basis of such plants which release oxygen continuously and can be grown in such
land which is not suitable for agriculture. To achieve zero discharge of water in industry a combination of treating
water in a natural manner and growing Neem, Peepal, and Tulsi can be implemented in manufacturing units where
air and water both are used as an input. This application can also be an answer to sanitation near hand pumps where
the excess and unused water flows without any significant treatment cost.
Keywords: Air and Water Regeneration, Natural Method, Low Cost
1. Introduction
Water is an input to manufacturing industry. Literature review that the natural herbs (1,2) facilitate
purification of water. In this paper the application of natural herbs and plant species in purification
of Industrial nontoxic water has been taken up as a pilot project. For this purpose, the overflow of
the drinking water, hand was facilities and cooling water were collected separately, which otherwise
would get into waste water stream. Flow of this water was channelized into the pilot project through
concrete drain. The quantity of such water could amount to 7-10 KL per day in continuous process
plant operating with a large work force. As is basis this water not suitable for horticulture or even
any non domestic use. This water can be treated and regenerated with natural, low cost and simple
process. The purpose of this study was to establish the uses of plant species in water purification. A
scheme was designed to experiment with the waste water quality to make it suitable for horticulture
only and not for potable domestic use.
2. Methodology
The quantity of waste water was estimated and found to be about 20 KL/day. Accordingly, the
facility was designed for treatment of 20 KLD of waste water with a potential l to hold up to 32 KLD
of water. The collected and channelled into a series of pits called settling chamber, charcoal filer
bed, stone filter bed, pozzolana filter bed and Lotus pond. The dimensions of particular chambers
are given in drawing no. 1.
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Natural Method to Regenerate Air and Water Quality
Volumes of different chambers are as follows

Settling Chamber : 10.5 KL
Charcoal Filter Bed : 2.4 KL
Stone Filter Bed : 2.1 KL
Pozolana Filter Bed : 2.8 KL
Lotus Pond : 14.4 KL
Total Volume of Chambers : 32.2 KL
Using natural species with easy process can help us in finding solution in a sustainable manner. The
water containing impurities have been treated with such a method. This treatment system does not
require any artificial element.
3. Components of Treatment Unit

Six numbers of tanks with suitable material or plant inside was designed as described below.
1. Settling tank
2. Charcoal bed filter
3. Sand/ Gravel bed filter
4. Calcined clay Pozzolana bed filter
5. Reed bed filer
6. Lotus Pond
Settling tank of dimension 3.5X3X1 Meter was made. Incidentally the Floor of the tank was a hard
rock. Provision of dosing of potash alum is also made for settling of dissolved solids by making
flock.
Charcoal filter Bed is of dimension 1.7X1.4X2 Meter was made and filled with charcoal. Charcoal is
helpful in absorbing chlorine, VOC, Sediments, Taste and Odour. Because of increased surface area
and inter cellular spaces it works as excellent adsorbent.
Sand FilterBed of dimension 1.5X1.4X2 Meter was made and filled with stones of 6-10 mm size.
Floating and suspended solids are filtered in this tank.
Calcined clay Pozzolana FilterBed of dimension 2.0X1.4X2 Meter was made and filled with pieces
of red bricks. Having uneven pores and capillaries in the bricks, it also works as a filer medium
Floating and suspended solids are filtered in this tank.
Reed bed trench of size 6X0.3X0.5 Meter has been made and vegetation like reeds (Elephant Grass)
is cultivated in the trench. Proximal end of the trench is obstructed with stones of size 40 mm which
again filers the flowing water before entering the reed bed (3).
4. Process of Water Flow

The input water i.e. wastewater flows into a sump and filter bed for primary treatment to remove
large solids. The partially clarified effluent from the collection tank passes through the Phytoridal
bed. Once inside the Phytoridal bed, the wastewater undergoes a complex series of natural treatment
processes as it moves laterally through the root zone from one end of the bed to the other. The
wetland plants leak small amounts of oxygen out through their roots, creating small oxygenated
sites within an otherwise anaerobic environment. This mix of aerobic and anaerobic conditions
creates an ideal environment for the growth of micro-organisms on the surface of the gravel and
plant roots. These micro-organisms are largely responsible for the pollutant removal that occurs in
a Phytoridal bed, as they feed on and breakdown organic matter and nutrients, and compete against
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pathogenic organisms. Earthworms have also been found to inhabit Phytoridal beds, and assist with
the breakdown of organic matter and solids. Thus the waste water was directed to enter and flow
through settling tank, charcoal filter bed, sand filter bed, calcined clay pozzolana filter bed and then
into reed bed trench. Finally, the treated water gets into Lotus pond. Lotus (3) (Nelumbo nucifera
Gaertner) plants can tolerate acidic and alkaline water in a pond (4)Investigations have also revealed
that lotus can absorb heavy metals and may be recommended for plantation in the ponds used for
discharging the industrial effluents for water purification in a most natural manner. In this pond
with a size of 4x4X1 Meter the locally available lotus with white flower and purple flower varieties
(Nymphet&Nymphaea nouchali) are planted. These are the floating plant species. The arrangement
of water flow is regulated by organising a balance through overflow and horticulture requirement.
5. Finding
The experimental results are shown in the Graph 1,2,3 and 4 and the average, minimum and
maximum has been tabulated in Table 1.
Table 1: Minimum, Maximum and Average Value of Inlet and Outlet Water of Lotus Pond
Parameters Norms as per IS – 10500 Minimum Maximum Average
Inlet Outlet Inlet Outlet Inlet Outlet
pH 6.5-8.5 8.24 8.24 8.42 8.44 8.33 8.35
Hardness 600 (Mg/Lit) 304 220 652 560 476 419
Chloride 1000 (Mg/Lit) 34 24 74 65 56 49
Total Dissolve Solid (TDS) 2000 (mg/Lit) 491 441 910 844 693 644
Suspended Solid -- 32 25 80 56 56 41
The improvement in water quality treated by this method for Hardness, chloride and TDS has been
calculated and is as given below.
(a) Hardness – 12.1%
(b) Chloride – 12.5%
(c) TDS – 07.3%
The test result of inlet and outlet water samples were drawn and sent for testing to M/s ECOMEN
LABORATORIES PVT LTD.
The results are shown in Table No.2 and as per general standard rules (G.S.R)
Before
Drawing 1: Schematic Repesentation of Pilot Project of Natural STP
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Table 2: Test Report of Waste Water (Treated through Lotus Pond)
Sampling Method APHA/ IS: 3025

Sample Quantity As per requirement.
Date of Sampling 24.11.2018
Date of Analysis 25.11.2018 to 30.11.2018
Source of Sample Lotus Pond water results untreated and treated
Range of Testing/ G.S.R. 422
Sl. No. TESTS Limits of (E)/Desirable Untreated Treated
Detection Limit
1. Colour (Hazen unit) 5-100 - Agreeable Agreeable
2. Conductivity at 25 °C (µs/cm) 10-20000 - 1269 1135
3. Temperature 0C Oct-80 - 27.8 27.5
4. Odour Agreeable Agreeable Agreeable Agreeable
5. pH 2-Dec 5.5-9.0 7.28 6.97
6. Total Dissolved Solids as TDS (mg/l) 5-10,000 - 787.34 703.7
7. Total Suspended Solids as TSS (mg/l) 5-1000 100 18 7
Biochemical Oxygen Demand
8. 5-10000 30 16 BDL
as BOD (mg/l) 3days at 270C
Chemical Oxygen Demand
9. 5-50000 250 55.12 8.48
as COD (mg/l)
10. Oil & Grease as O & G (mg/l) 5-600 10 BDL BDL
11. Manganeseas Mn (mg/l) 5-1500 - BDL BDL
12. Fluoride as F (mg/l) 0.02-10 2 0.28 0.23
13. Sulphide as S2- (mg/l) 0.01-20 - BDL BDL
14. Nitrate Nitrogen as NO3(mg/l) 5-200 10 47.25 36.8
15. Iron as Fe (mg/l) 0.02-100 3 0.2 0.15
16. Phosphate as PO4 (mg/l) 0.5-100 5 0.634 0.52
17. Copper as Cu (mg/l) 0.05-5 2 BDL BDL
18. Mercury as Hg (mg/l) 0.001-2 0.01 BDL BDL
19. Cadmium as Cd (mg/l) 0.02-5 2 BDL BDL
20. Arsenic as As (mg/l) 0.01-2 0.2 BDL BDL
21. Total Chromium as T.Cr (mg/l) 0.05-20 0.1 BDL BDL
22. Hexa Chromium as Cr+6 (mg/l) 0.05-20 0.1 BDL BDL
23. Lead as Pb (mg/l) 0.01-5 0.1 BDL BDL
24. Zinc as Zn (mg/l) 0.02-20 5 0.12 0.1
25. Nickel as Ni (mg/l) 0.02-5 - BDL BDL
26. Phenolic Compounds as C6H5OH (mg/l) 1-May 1 BDL BDL
27. Free Residual Chlorine (mg/l) 1-5.0 1 BDL BDL
BDL = Below Detection Limit
Except Nitrate Nitrogen all parameters were within limit. To reduce the nitrate content additional
plantation in 24Mx1M has been done before settling tank at the entry as shown in the drawing No.2.
In this 24 square meter 108 number of Elephant Grass has been planted. Along the periphery Tulsi
sapling also are planted. The seed of Tulsi are known for improving water quality.
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After
Drawing 2: Schematic Repesentation of Pilot Project of Natural STP to Reduce Nitrate Content
6. Contribution
The outlet water quality confirms the suitability for horticulture. As per IS 10500 for these 4
parameters namely pH, suspended solid, TDS & Hardness and can be used for plantation. To achieve
zero discharge of water in industry a combination of treating water in a natural manner and growing
Neem, Peepal, and Tulsi can be implemented in manufacturing units where air and water both are
used as an input. This application can also be an answer to sanitation worries near hand pumps
where the excess and unused water flows unused. This treatment method could be upgraded and
adopted as there is no significant treatment cost involved in this. To sustain this effort the treated
water would be subjected to continuous testing. Based on first cycle the design has been improved
by additional tank at the inlet point. A provision of submersible or mono block pump has been done
for horticulture need. From time to time the silt and sludge will be removed, dried and will be burn
in Cement Kiln.
Graph 1: Inlet/ Outlet Water Quality (pH)
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Graph 2: Inlet/ Outlet Water Quality (HARDNESS)
Graph 3: Inlet/ Outlet Water Quality (CHLORIDE)
Graph 4: Inlet/ Outlet Water Quality (TDS)
IAMOT 2019 | 915

References
Wankhade, R.R , Role of some Natural Herbs in Water Purification , IOSR Journal of applied Chemistry, Volume 9,
PP 38-39 (March – 2016)
Chauhan, Shweta, Gupta K.C and Singh Jyoti (2015), Purification of Drinking Water with the application of Natural
Extracts, Journal of Global Biosciences, Volume 4, P.P 1861 – 1866 (2015)
Goel, A, Sharma,S.C. and Sharga,A.N. , (2001) The conservation of the diversity of Nelumbo (Lotus)at the National
botanical research institute, Luckhnow, India, BCG News Volume 3 Number 6.
The use of reed beds for the treatment of sewage and waste water from domestic households, Lismore city council –
(May 2005)
IAMOT 2019 | 916

A Study on the Feasibility of Producing Polylactic
Acid from Cotton and Coffee Waste in Egypt
Irene Samy Fahim

Management, Egypt
E-mail: isamy@nu.edu.eg
Hani Chbib
E-mail: m.effat@nu.edu.eg
Asmahan Mohamed Farid

E-mail: a.farid@nu.edu.eg
Abstract
The amount of solid waste is growing In Egypt. It is estimated to be 20 million tons annually according to the
Ministry of environment forecasts. The typical competence of collection in urban areas signifies 40 – 80%, although
the middling proficiency of assortment processes and transport in rustic areas signifies 40 % which is considered
hazardous for communal health and environment deprived of handling solid waste in integrated framework for
solid waste management system. The reprocessing and treatment procedures in Egypt represent about 9.5 % of
the entire urban solid waste, which is considered a low proportion of waste. The final disposal of waste in most
cases are uncontrolled and administered arbitrary landfills making them self – ignition which is so harmful to the
environment. Only 5 % of the waste is predisposed in hygienic and safe landfill that preserves underground water
at present time, almost all human industries comprise the usage of polymeric materials. Nevertheless, polymers
and their residuum are confined for a long time in the environment, prompting a substantial quantity of ecological
harm. Throughout previous years a figure of solid waste management technologies has been executed in numerous
developing nations around the world, not only to implement new forms of economic and social development for
the product but also consider their environmental impact. The project proposes a green value chain innovative
waste management system to produce biodegradable plastics. The waste management system starts from collection
of coffee and cotton waste, their transportation to treatment, segregation, storage and finally manufacturing PLA
polylactic acid based on sustainable environment and technology involvement initiative. Thereby, this paper
pursues to progress contemporary, biodegradable polymeric resources with the usage of renewable raw materials
such as agriculture waste in Egypt. As technology started to impact in all life sciences and industries, it is not
astonishing that Internet of things is in progress in the field of waste management and recycling industries, toward
sustainability. The advanced mechanical segregation process established in this study uses agriculture waste with
superior cost and production efficiency, with no harmful environmental influence. In order to get the appropriate
data about waste and the feasibility of producing PLA from it, the methodology for this research is mainly based
on Desktop research from Egypt Knowledge bank search engine using the following searching keywords ( waste
management globally, suitable development and waste, Egyptian cotton production), and structured interviews
that consists of specific questions to collect the required data from targeted interviewees in the field of waste
management. There are promising results that revealed that PLA can be produced from agricultural cotton waste,
coffee waste and food waste. It is then used to produce plastic utensils (plates- forks -boxes) using additive
manufacturing and injection molding manufacturing techniques. The rising attention in sustainability and climate
crisis concerns initiates the market demand for environmentally friendly plastics.
Keywords: Bioplastic, Polylactic Acid (PLA), Economic Feasibility, Waste Management, Technology, Sustainable
Development
1. Introduction
Currently, Plastics are an essential part of many industries. They play an important role in providing,
defending, and distributing high-quality products in every market segment to consumers around
IAMOT 2019 | 917

the world. Today, there is a bioplastic alternative for almost every conventional plastic material
and corresponding applications. Bioplastics–plastics that are bio-based, biodegradable, or both –
have the same or similar properties as conventional plastics but offer additional benefits, such as
reduced carbon footprints, better functionalities, or additional waste management options, such as
organic recycling. Bio-based plastics have the unique advantage over conventional plastics, which
is reducing the dependency on limited fossil resources and reducing greenhouse gas emissions.
Currently, bioplastics represent 1% of 320 million tons of plastic produced annually. But as demand
is rising and with more sophisticated materials, applications, and products emerging, the market is
growing dynamically. The European Commission has recognised the essential role of bioplastics
in the bio economy and their potential to accelerate the transition to a circular economy. PLA is
considered one of thermoplastics for general packaging applications and has been introduced into
the market. However, PLA is more difficult to degrade than other biodegradable plastics (Europian
bioplastics, 2017).
Lactic acid, or 2-hydroxypropionic acid (CAS 50-21-5), is the most widely occurring
hydroxycarboxylic acid. It is a weak organic acid with a hydroxyl group and a carboxylic group
present on adjacent carbon atoms in the carbon chain. It is the monomer of PLA. Its duality in
structure allows it to react either as an acid or as an alcohol (Anil Mahapatro, 2011). There are two
optical isomers of lactic acid: L (+)-lactic acid and D (–)-lactic acid. Although racemic DL-lactic
acid is always produced by chemical synthesis from petrochemical resources, an optically pure L
(+)- or D (–)-lactic acid can be obtained by microbial fermentation of renewable resources when
the appropriate microorganism that can produce only one of the isomers is selected. The selected
microorganisms can convert glucose and other sugars into organic chemicals. Pre-treatment and
hydrolysis are often carried out at high temperatures in presence of acids and mostly followed by an
enzymatic treatment to improve the release of mono sugars, such as glucose and xylose (Bhowmik &
Patil, 2018) In recent years, the demand for lactic acid has increased considerably because of its use
as a monomer in the preparation of poly lactic acid (PLA) (Wee, 2006). Global lactic acid demand
was estimated to be 714.2 kilo tons in 2013, and it is expected to grow annually by 15.5% to reach
1,960.1 kilo tons by 2020 (Brigit Kamm,2016).
The main objective of the project is to replace the harmful petroleum plastic with PLA by creating
a collection model for cotton waste fibers and coffee waste from the waste sources and landfills,
followed by simulating a transportation model for the waste from waste sources to the Lactic Acid
Production Facility, followed by a study of the production process of Lactic Acid through three main
phases which include collection and segregation of solid wastes, treatment of wastes to produce
lactic acid followed by manufacturing of poly lactic acid.
Cotton fibres are the purest form of cellulose, nature’s most abundant polymer. Nearly 90% of
the cotton fibers are cellulose. Cotton fibers are composed of mostly a-cellulose (88.0–96.5%).
Moreover, spent coffee grounds (SCG), discarded after brewing, contain a high proportion of
carbohydrates of 45% (polysaccharides and monosaccharides) plus lignin and polyphenolics ( Hsieh,
2007). On an average, about 650 kg of SCG is produced by manufacturing from one tone of green
coffee. Instant coffee is gaining popularity, especially in Asia and the Middle East, so the production
of instant coffee is likely increase. Hence, there is a necessity to find fermentation technologies to
convert these two organic wastes into chemical building blocks, such as lactic acid (LA). (Solange
I. Mussatto, 2011)
2. Methodology
2.1. Cost Estimation of the Collection and Transportation of Cotton and Coffee Waste
The first phase of PLA production is collection of cotton and coffee waste. Cotton waste collection
is mainly depending on two main sources which are the wastes from agriculture and textile industry.
Cotton planting in Egypt is divided demographically into three main areas: cotton in Lower Egypt
IAMOT 2019 | 918

A Study on the Feasibility of Producing Polylactic Acid from Cotton and Coffee Waste in Egypt
named (Giza 86, Giza 88, Giza 87, Giza 93, Giza 94 and Giza 96), and cotton in Upper Egypt named
(Giza 90, Giza 95). According to this deviation of cotton planting cotton found in Lower Egypt (Giza
86) is ranked the first in planted area season 2016/2017 as it reached about 35671 hectares (65.80%)
of the whole production of cotton. Moreover, textile industry represents 25 % of Egypt economy,
consequently it generates tremendous amount of waste annually, this waste is either terminated to
public waste stations with other types of waste of collected by textile waste agencies such as EMCO,
Atlas for trading, Tabouk for trade, Walid co for trade. A transportation model for the transportation
of cotton waste has been made in order to determine the quantities as well as the costs of transporting
cotton waste from both agricultural and textile industries.
As per table 1 shown below, El-Behyra, Kafr El-shiekh and El-gharbya governorates rank first in the
amount of Giza 86 cotton harvested annually with 303484, 107159, and 21837 Tons respectively.
These governorates are, thus, expected to generate the highest amounts of waste annually and
the intension is to depend on these three governorates as the main sources of cotton waste from
agriculture. The waste generated annually is expected to be 1% of the harvested amounts shown
above.
Table 1: Cotton 86 Production in Lower Egypt
Governorates Amount of Cotton 86 Harvested Annually in Tons
El-Behyra 303484
Kafr El-Shiekh 107159
El-gharbya 21837
El-Monofya 12676
El-Noubaria 10228
Alexandria 9002
Qalyub 379.5
Source: Cotton Arbitration & Testing General Organization (CATGO) Information & Documentation Center
The second source of cotton waste is generated from the textile industry. After a thorough market
research, it was found that there are four main textile waste collection companies which are (EMCO
group, Atlas for trading, Tabouk for trade, Walid co for trade). EMCO group was very helpful in
the data collection phase and they provided us with many data about the collection process in their
facility through interviews. The informal agreement was to collect 2 Tons of cotton waste every
two-months period.
The second waste stream is coffee waste which is going to be collected from the biggest coffee
chains in Cairo (Starbucks, costa and cilantro). A transportation model was made for the coffee
waste collection from these coffee chains to the facility location. Daily collection process has been
chosen as coffee is an organic element that loses its value relatively quickly. On-spot treatment is
needed in order to avoid any inconvenience risks. Shipping cost in this model is calculated based on
the number of kilometres between the source (coffee shops) and the location facility.
A waste conveyor system is used in the facility together with forklifts that aid the collection and
separation of waste in the production facility. Coffee waste is being received on daily basis, which
puts a priority for the utilization of coffee waste in the operations. Cotton waste, on the other hands,
is more seasonal in terms of collection, and can be stored for a much longer period of time.
2.2. Cost Estimation of the Fabrication of Lactic Acid

In order to determine the cost of fabrication of lactic acid, the experimental procedures were
performed and thoroughly studied. There are several steps that includes; extraction of cellulose fibres
from cotton cellulose fibres. Cotton waste was milled with a milling device to obtain fine particulate
substance. Cotton waste fibers were soaked in aqueous NaOH solution at room temperature under
IAMOT 2019 | 919

mechanical stirring to remove grease and wax. Coffee pulp pre-treatment was also performed to
calculate the correct cost for the process, the material was grounded using a cutting mill then roasted
ground coffee were infused in distilled water. This step was followed by obtaining microorganisms
for the fermentation process needed to transfer waste into lactic acid. Chemical hydrolysis was
done to convert the carbohydrate components into their constituent sugars or breaking down
cellulose into smaller polysaccharides or completely into glucose units. This step was followed
by fermentation and the optimum time for producing the highest concentration of lactic acid was
determined via HPLC (High Performance Liquid Chromatography). The final step of Lactic acid
extraction was done by separating it from water by adding calcium hydroxide and left to dry in the
oven. Finally, Statistical analysis was implemented to find the optimum conditions to produce lactic
acid including temperature, pH, incubation period, rpm using analysis of variance and Taguchi.
HPLC characterization was also performed several times to determine the effect of the predominant
microorganism with the parameters mentioned to produce the highest concentration of lactic acid.
The cost of treatment of waste and extraction of lactic acid includes specific machines (refrigerator,
pH Meter, fermenter, autoclave, centrifuge, and an incubator), personnel, and chemicals for the
treatment of waste. It is a lengthy process that requires several testing techniques in each step. The
lactic acid produced is tested for purity and quality in order to insure the required quality of our
products using chemical elemental analysis.
2.3. Cost Estimation of Fabrication of Polylactic Acid (PLA), Fibers, Pellets, and Filaments
Figure 1 illustrates the production phases of poly lactic acid. Polymerization (chemical step) of
lactic acid is required for the production of PLA pellets (which are used a raw material for injection
molding machines). The cost estimation of the different forms of PLA is calculated based on the
estimation that 20 % of the produced pellets are transformed to fibers (used as a raw material for
composite manufacturing), 20 % are transformed to filaments (used as a raw material for solid 3D
printing), 20% are transformed to liquid PLA (used as a raw material for liquid 3D printing). 40%
will be left as solid PLA pellets, and transferred directly to the final products manufacturing phase.
The final plastic products such as plastic utensils, packages are produced using either injection
moulding or 3D printing technologies.
Figure 1: Production of Poly Lactic Acid and Plastic Products
The first process in this step is the transformation of lactic acid, by polymerization, into polylactic
acid (PLA). In order to complete the polymerization, the chemical catalyst “Stannous Octate” is used
in order to support the chemical reaction. This process requires an oven as the chemical reaction
requires heating, chemicals, glassware, and a heat transfer fluid. At the end of the polymerization
process, it was assumed that the wastes resulting from this phase of the process are minimal. 40% of
the PLA pellets is moved directly to the production of final products, 20% is transferred into plastic
IAMOT 2019 | 920

filaments using an Injection moulding machine, 20% is transferred into PLA fibres using an electro-
spinner, and 20% is dissolved to produce liquid PLA. The injection molding machine is also used
in another phase for the production of final plastic products from PLA pellets. A mixer, and a twin-
extruder is used to produce PLA products with different sets of properties according to the market
needs, and the additives that needs to be added in this process.
2.4. Cost Estimation of Manufacturing of PLA Final Products

Different 3D printers are used for the production of final plastic alternative products using PLA
pellets, filaments, fibers, and liquid solution. The aim of having different raw materials and
different technologies applied is to have the flexibility to produce plastic alternatives with various
specifications according to market needs. Stereolithographic 3D printers are used to manufacture
final products from the liquid PLA solution. Selective laser sintering and fused deposition modeling
3D printer are used to produce final products using PLA fibers and filaments. Another Gigabot X
Beta 3D printer is to be used to manufacture final products using PLA pellets.
3. RESULTS
3.1. Cost of Collection and Transportation

As Giza 86 cotton is the most planted cotton across Egypt with around 65.8% of the planted area,
it generates the highest amount of cotton waste annually. The highest amount of Giza 86 cotton is
produced in El-Behyra, Kafr El-Sheikh governorates. On the other hand, cotton textile waste will
be collected from EMCO group. There are 4 types of textile cotton waste (Garf-Toub, Macaroni,
kata, kasakes) that are collected. An average amount of waste collected is 2 Tones in two months’
time period. For coffee waste, a collection model is constructed to collect the coffee waste from the
sources to the production and storage facility directly on a daily basis as coffee is an organic element
that should be treated and refrigerated within 24 hours to avoid losing the valuable properties of the
organic material. The total amount of waste collected for treatment is 360 Tons/month.
The table 2.a below shows the obtainable quantities of Giza 86 cotton waste from providers (Kafr
El Sheikh, Gharbia and Beheira) to the facility located in Abo-Rawash (the reason for selecting this
facility location is shown in table 3). Each one of the three governorates produce cotton waste in
the harvest season which lasts around 4 months only of the year. The cost of shipping is counted by
number of tons shipped as it cost 150 L.E per ton. The capacity of the shipment trucks chosen is 60
Tons, and therefore the costs of shipment have been calculated based on the capacity of the trucks.
Each vehicle used for agricultural waste collection is expected to cost 9000 L.E. Also, table 2.b
shows the estimated cost of shipment of waste from textile industry, which is around 1000 L.E. for 1
Ton monthly. The detailed costs are shown in the tables below (Table 2.a and Table 2.b).
Table 2.a: Estimated Cost of Shipment for Cotton Waste
Estimated Amount of Cotton Shipments Cost of Shipments Cost of Shipment
Governorate
Waste Supplied in Tons /Month Per Month Per Month in L.E. Per Year (4 Months)
El-Behyra 759 15 135000 540000
Kafr El-Shiekh 267.9 6 54000 216000
El-Gharbya 54.57 3 27000 108000
Total 361.49 Tons 24 Shipments 216000 864000
Table 2.b: Estimated Cost of Shipment for Cotton Waste

Source Cotton Waste in Tons Number of Shipments Monthly Cost in L.E. Yearly Cost in L.E.
EMCO Textile Waste 1 1 1000 12000
Total 1 1 1000 12000
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The location has been chosen to be Abo-Rawash for various reasons, but most importantly for the
relative cost per square meter of land purchased, which is more economic than choosing the facilities
in Noubaria and Sadat Industrial zones. Furthermore, Abo Rawash Industrial area is in the suburbs
of Giza governorate, which means that the facility is be close to the coffee shops in Cairo, as well as
cotton waste from agriculture in Lower Egypt. In the table below (table 3), the detailed costs of land
in each of the three industrial zones is shown. It is estimated that building costs is equal 1000000 L.E.
Table 3: Facility Price and Location
Location Area in M2 Price in Egyptian Pound Estimated Price Per Meter
New Noubaria industrial zone 575 3000000 5217 L.E
Sadat industrial zone 648 2500000 3858
Abo Rawaash industrial zone 2180 6000000 2752
Finally, for coffee waste shipping, the intention is to ship from 69 branches in Cairo, each branch
generating around 100 kg of coffee waste per day as per an interview with one of the branch
managers working for Clintro. As shown in (table 4), the amount of waste generated on monthly
basis is estimated to be 207 Tons of coffee waste, costing 2700 L.E. in the shipping process.
Table 4: Coffee Waste Amounts and Respective Transportation Cost
Estimated Monthly Cost of Shipping
Shop Name Branches in Cairo Dailyamount Collected
Amount Collected Per Month
Starbucks 24 2400 KG 72000 KG 900 LE
Costa 22 2200 KG 66000 KG 900 LE
Cilantro 23 2300 KG 69000 KG 900 LE
Total 69 6900 KG 207000 KG 2700LE
The total amount of cotton and coffee waste collected is expected to equal 568.5 Tons per month
(after averaging the amounts of cotton waste on 12 month for convenience in future calculations).
The total transportation cost is expected to equal 65700 L.E. for both waste materials. The estimated
price of collection of each Ton is estimated to equal 100 L.E. per Ton, which equals 56850 L.E.
Therefore, the estimated total cost of the collection and transportation of waste is 122,550 L.E. for
568.5 Tons of waste.
Below are all the assumptions that have been taken into account in this process:
●● Cotton production is be equal to the historical numbers mentioned above
●● All waste materials purchased cost 100 L.E. per Ton of waste
●● Cotton harvest season is between November and February of every year
●● Cotton waste from agriculture is collected simultaneously with the harvest season
●● The amounts of coffee waste collected is not be affected by any seasonality
●● The 60 Ton transportation trucks are based on the number of shipments used.
3.2. Cost of Lactic Acid Extraction

60% lactic acid is extracted from the waste collected (568.5 Tons per month) due to losses in the
treatment process. Therefore, the amount of lactic acid extracted is around 360 Tons per month.
The investment cost needed for the production of this step, including facility, storage machines,
and Lactic Acid extraction machines are shown in (table 5). The numbers in the tables beside the
machines highlight the number of the repeated machines to achieve the mass production process.
The total investment cost related to the lactic acid production is 10,596,400 L.E.
IAMOT 2019 | 922

Table 5: Detailed Investment Cost of Lactic Acid Extraction
Item Price L.E
Facility related Items
Land (1) 6000000
Building Cost (1) 1000000
Generator (1) 50000
Total facility related cost 7050000
Collection and storage costs
Waste Conveyor Belt (2) 21600
Forklifts (2) 118000
Pellets Racks (100) 180000
Chemical Storage Cabinet 10800
Packaging Machines 20000
Total collection and storage 350400
LA Extraction Machines
Vacuum Pump (4) 80000
Magnetic Stirrers (4) 80000
Shakers (4) 40000
Spectroscope (4) 112000
Refrigerators (4) 80000
Ph Meters (4) 8000
Fermenters (4) 600000
Autoclaves (4) 200000
Centrifuges (4) 200000
Incubators (4) 200000
Evaporators (4) 120000
HPLC Apparatus (4) 1200000
Computers (4) 100000
Glassware 160000
Deionized Water Apparatus (4) 16000
Total Lactic Extraction Machines Costs 3196000
Investment Cost of Lactic Acid Extraction 10596400
The Depreciation cost is calculated as 60000 L.E. per month. Meanwhile, the operations costs have
been counted in details in (table 6). The total operations costs are 94000 L.E.
Table 6: Detailed Operations Costs of Lactic Acid Extraction
Step 2: Extraction of Lactic Acid Total Monthly Cost in L.E.
Chemicals 32000
Plastic bags for packaging 2000
Testing Technique 60000
Total Extraction Monthly Cost 94000
IAMOT 2019 | 923

With the depreciation monthly cost at 60000 L.E. and the operations costs at 94000 L.E. in addition
to 122550 L.E. accumulated from the previous step of waste collection and transportation, the total
cost by the end of the Lactic Acid extraction phase equals 276,550 L.E., which means that 1 ton of
lactic acid powder costs the total of 768.19 L.E, that is without including the costs of labour directly
and indirectly taking part in the production of lactic acid.
Below are all the assumptions that have been taken into account in this process:
●● The amount of lactic acid extracted from waste materials has a yield of 60%
●● The costs of the machines are estimated based on the market price
●● The machines included in the project is be sufficient for the production on an industrial scale
●● The monthly depreciation cost of the machines is estimated to equal 60000 L.E.
3.3. Estimated Cost of Fabrication of Polylactic Acid (PLA), Fibres, Filaments, and Pellets
This step is relatively lengthy; it starts by polymerization of the 360 Tons of Lactic Acid transformed
to 360 Tons of PLA pellets. This step requires an additional investment in machines shown in
(table7). The total investment cost related to the fabrication of PLA Pellets is 184,000 L.E.
Table 7: Investment Cost of PLA Polymerization
Polymerization Equipment Price L.E.
Glassware 160000
Oven LG MC 8048WR (4) 24000
Total Cost 184000
The operations costs have been estimated to equal 56000 L.E. per month, including 3000 depreciation.
The detailed operations costs are shown clearly in (table 8):
Table 8: Operations Cost of Lactic Acid Polymerization
Items Needed for Polymerization Total Monthly Cost in L.E.
Chemicals 32000
Catalyst: Stannous Octate 16000
Heat Transfer Fluid 8000
Depreciation 3000
Total Operations Cost of Polymerization 59000
With the operations costs at 59000, the total added costs of polymerization are 59000 L.E. In other
words, the polymerization of 360 Tons of lactic acid into PLA costs 163.89 L.E. per Ton, which
means that the total cost of producing plastic pellets is 932.08 L.E. per Ton.
For the next steps in this phase, there are additional investment costs for the production of PLA
filaments and PLA fibers, as well as additional depreciation costs, but no additional operations costs
as same raw material will be used.
The machines needed for the transformation of pellets into filaments as well as the respective
investment cost needed to purchase them is shown in (table 9). The additional investment costs
related to the production of PLA Filaments are 268000 L.E.
Table 9: Investment Cost of PLA Filament Fabrication
Machines for PLA Filaments Fabrication Investment Cost in L.E.
Injection Moulding Machine (2) 48000
Mixer (2) 200000
Wellzoom Filament extruder (2) 20000
Total Investment Cost 268000
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These machines are used to produce only 72 Tons of PLA filaments. The depreciation cost is 2500
L.E., which is divided on 72 tons, thus the added cost of producing PLA filaments is 34.72 L.E.
per Ton. In other words, PLA filaments are expected to cost 966.80 L.E. per Ton. Similarly, other
machines are needed to transform PLA pellets into fibers. The details of the machines needed as well
as their respective investment cost needed to purchase them are shown in (table 10). The additional
Investment costs related to the production of PLA Fibers are 600,000 L.E.
Table 10: Investment Cost of PLA Fibers Fabrication
Machines for PLA Fibers Fabrication Investment Cost in L.E.
Electro spinner MSK-NFES-3 (4) 600000
The monthly depreciation has been calculated as 5000 L.E. per month. This is the total operating
cost of producing 72 Tons of PLA fibers; therefore, the added cost of producing PLA fibers is 69.44
L.E. per Ton, which means that the total cost of 1 ton of PLA fibers is 1001.52 L.E. At the end of
this process, there is 144 Tons of PLA pellets fabricated for 932.08 L.E. per ton, 72 tons of liquid
PLA for almost the same price, 72 tons of PLA filaments for 966.80 L.E. and 72 tons of PLA fibers
for 1001.52 L.E.
3.4. Estimated Cost of Manufacturing PLA Products

Table 11 provides an overview of the production machines and their respective raw materials.
Having this variety of machines will provide a flexibility of production as we intend to enter the
market with a wide variety of products and applications.
Table 11: Raw Materials and Production Machines
Raw Materials Production Machines
Injection Moulding Machine, Mixer, and Wellzoom filament extruder (2 of
PLA Pellets (72 Tons)
each)
PLA Pellets (72 Tons) FDM Gigabot X Beta 3D Printer (4)
PLA Filaments (72 Tons) FDM Markforged 3D Printer (4)
PLA Fibers (72 Tons) SLS Sintratec 3D Printer (4)
Liquid PLA (72 Tons Solved material) SLA Form labs Form 2 3D Printer (4) and DLP FlyingBear Shine 3D Printer (4)
3D printing technologies are used heavily in the production of final plastic products, except for 72
Tons of PLA pellets that will be used in producing final plastic products using injection moulding
machines. The detailed investment costs for all the machines are shown in (table 12). However,
their depreciation is be accounted separately in order to calculate the final costs for final products
produced from each of our raw material streams. The total investment cost related to final products
manufacturing is 2,268,000 L.E.
Table 12: Investment Cost for Final Products Manufacturing Machines
Investment Cost for Final Products Manufacturing Machines Investment Cost in L.E.
Injection Moulding Machine (2) 48000
Mixer (2) 200000
Wellzoom Filament extruder (2) 20000
SLA Formlabs Form 2 (4) 240000
DLP: FlyingBear Shine (4) 60000
FDM Markforged (4) 500000
SLS Sintratec (4) 400000
Gigabot X beta 3D Printer (4) 800000
IAMOT 2019 | 925

With the Injection Moulding Machine, the mixer, and wellzoom filament extruder, final plastic
alternative products are produced from 72 Tons of PLA pellets. The depreciation is also estimated
to be 2500 L.E. per month. The added cost of producing final PLA products using this technology
is also be 34.72 L.E. per ton and the cost of final products using this technology is also be 966.80
L.E per ton. The remaining 72 Tons of PLA pellets are feeding the FDM Gigabot X beta 3D printer,
which is the first 3D printer to be offered in the market with an ability to produce products from
PLA pellets. The depreciation cost is estimated to equal 6750 L.E. per month. Therefore, in addition
to 932.08 L.E. the added cost from using the Gigabot 3D printer is 93.75 L.E. The cost of PLA
products depending on PLA pellets is (932.08 + 93.75) which equals 1025.83 L.E. per Ton.The
same process is applied on both PLA filaments and PLA fibers and liquid PLA. For PLA filaments,
FDM markforged 3D Printer will be depreciated at 4500 L.E. per month. Therefore, beside the
original cost of 966.80 L.E., an additional cost of 62.5 L.E. is added. Therefore, the final cost of final
products manufactured from PLA filaments is (966.80 + 62.5) 1029.30 L.E.
For PLA fibers, the SLS Sintratec 3D Printer will be depreciated at 3500 L.E. per month. Therefore,
beside the original cost of 1001.52 L.E. per ton of PLA fibers, the depreciation cost equals 48.61
L.E. per ton. Therefore, the final cost of final products manufactured from PLA fibers is (1001.52 +
48.61) which equals 1050.13 L.E. Finally, for liquid PLA, the SLA Formlabs and DLP Flying Bear
will be depreciated for 2500 L.E. per month. Therefore, beside the original cost of 932.08 L.E., the
depreciation cost per ton is 34.72, which means that the total cost of final products produced using
liquid PLA is (932.08 + 34.72) which equals 966.80 L.E.
In the case of the final products manufacturing, the labour cost has been divided on each ton of final
products produced. The details of the labour cost are shown in appendix (1) below. But the total
labour cost was estimated to equal 275000 L.E. per month, divided on 360 tons of PLA products
equals 763.89 L.E. per Ton. In the table below, (table 13), the details of the final costs of our
products before and after adding the labor costs is shown.
Table 13: Final Products Cost
Cost in L.E. without Labor Cost in L.E. Total Cost in L.E.
Product
Labor Per Ton per Ton per Ton
PLA Pellets – Injection Moulding 966.80 763.89 1730.69
PLA Pellets – FDM 1025.83 763.89 1789.72
PLA Filaments - FDM 1029.30 763.89 1793.19
PLA Fibers – SLS 1050.13 763.89 1814.02
Liquid PLA – SLA 966.80 763.89 1730.69
3.5. Market Analysis

A circular economic model that favours socio-economic and environmental sustainability by closing
the loop between collecting the wastes and PLA production has been adopted. In such a model,
bioplastics fit perfectly as they are made with more eco-friendly biopolymers while still offering
the convenience we have come to expect from plastic. It will also add value to industrial textile and
coffee shop wastes, as their wastes will be used to produce functional bioplastic products. Bioplastics
are 100% biodegradable; they dissolve in a few months (compared to millennia for plastic). When
they dissolve, bioplastics, unlike plastic, don’t make the soil sterile and some types can even be
absorbed as fertilizers.
Expert voices from the global market are expecting the market for PLA products to grow rapidly in
the coming five years. A report by (Allied market research, 2012) is expecting PLA market to grow
by a CAGR of 19.5 between 2013 and 2020. Most of the growth has been expected in packaging.
The drivers for the growth has been identified as increasing environmental awareness, government
incentives, unique physical properties that PLA materials behold, and easy availability of raw
IAMOT 2019 | 926

materials. On the other hand, the restraints were identified in the need for industrial composting
units, agricultural fibre alternatives, and high cost of raw materials. Furthermore, the opportunities
were identified in three prospects which are blending of PLA with other materials, production of
PLA from second-generation biomass, and rising adoption of PLA among end user industries, while
the challenge was in PLA with hygiene properties to provide safety in packaging.
Today in 2018, (Mordor Intelligence, 2018) are sharing the positive expectations on the PLA market
with the other 6 years old report. Only this time, the CAGR between 2018 and 2023 is expected to
be 20.12%. The driving force behind this rapid growth is packaging applications in the food and
beverages industry, as well as government policies support eco-friendly products including PLA.
North America is the leading region in the consumption of PLA with 35% of the global consumption.
Meanwhile, the largest growth level has been expected to be in the Asia-pacific region at a CAGR of
22.1%. (Markets Insider, 2017) announced that Research and Markets has estimated the market size
of Lactic Acid to equal $9.8 Billion and PLA to equal $6.5 billion by 2025, at a CAGR of 16.2%.
They report that companies like Unilever, Johnson and Johnson, and P&G are expected to lead the
demand in the coming few years.
4. Conclusion
Through the proposed green model, wasted materials produce a great value for the economy, by
providing the market with a green alternative for the addictive need for replacing toxic plastic
products. The costs of the final products range between 1730 L.E. and 1814 L.E. per ton, with
around 45% of the costs being labor cost. Comparatively, the current PLA price in the market is in
the range of 36000 L.E. per ton as observed on https://www.total-corbion.com. The huge difference
in price can be due to many reasons, starting from the fact that the proposed PLA is produced
from waste materials. The model provides job opportunities into the developing economy of Egypt,
providing a critical economic value in addition to the environmental value of the project. These
products have a great ability to compete with plastic products available in the market on the basis of
cost, quality, variability of applications available, and environmental friendliness of final products.
The prices of PLA pellets worldwide start from 500 USD per ton or around 8955 L.E. as per the
USD exchange prices with the Egyptian Pound. The prices of PLA Filaments commonly used in 3D
printing applications can go as high as 3000 USD per ton, which is incomparable to our minimal
costs. This model provides a competitive advantage in terms of cost, which predicts the long-term
sustainability of the project, in terms of cost leadership strategies. In other words, the model proposed
is a blue-print for the world, for green projects that can be made a value for the economy and not a
burden, especially on developing economies with relatively scarce budgets.
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IAMOT 2019 | 928

Appendices
Appendix 1: Detailed Labor Costs
Monthly Salary Yearly Salary Total Monthly Total Yearly

Position Number
in L.E. Per 1 in L.E. Per 1 Salary Salary
Chemists 6 6500 78000 39000 468000
Workers 6 3500 42000 21000 252000
Office Manager 1 12000 144000 12000 144000
Operation and supply chain
1 10000 120000 10000 120000
engineer
Quality assurance specialist 1 8500 102000 8500 102000
Plant manager 1 22000 264000 22000 264000
Technician 3 3000 36000 9000 108000
HR and personal manager 1 9500 114000 9500 114000
Shift Supervisor 1 7000 84000 7000 84000
Maintenance Techs 1 4000 48000 4000 48000
Waste collector 1 1 4000 48000 4000 48000
Waste collector 2 1 4000 48000 4000 48000
Chemical operator 1 4000 48000 4000 48000
Chemical operator 1 4000 48000 4000 48000
Extruder Operator (full time) 1 4000 48000 4000 48000
Extruder Operator (part time) 1 4000 48000 4000 48000
Pelletizing operator 1 4000 48000 4000 48000
Injection molding operator 1 4000 48000 4000 48000
Thermoforming operator 1 4000 48000 4000 48000
Quality control operator 1 4000 48000 4000 48000
Packaging operator 1 4000 48000 4000 48000
Packaging operator 1 4000 48000 4000 48000
Assembly supervisor 1 4000 48000 4000 48000
Final assembly operator 1 4000 48000 4000 48000
Final assembly operator 1 4000 48000 4000 48000
Storage supervisor (full time) 1 4000 48000 4000 48000
Storage supervisor (Part time) 1 4000 48000 4000 48000
Sales and Marketing Personnel 1 4000 48000 4000 48000
Plant Manager 1 20000 240000 20000 240000
Plant Manager assistant 1 15000 180000 15000 180000
Accountant Manager 1 15000 180000 15000 180000
Shipping supervisor 1 4000 48000 4000 48000
Driver 1 4000 48000 4000 48000
Cleaner 1 3000 36000 3000 36000
Total 46 275000 3300000
IAMOT 2019 | 929

Technology based Monitoring of
Public Health Activities in India
Mohd. Zuber
Saudi Electronic University, Department of Public Health,
College of Health Sciences, Kingdom of Saudi Arabia
E-mail: zubermohd786@gmail.com
Mohd. Juned
National Institute of Industrial Engineering, Mumbai,
Department of Decision Sciences, India
E-mail: Mohd.juned011.2017@nitie.ac.in
Praveen G.
National Centre for Disease Control, Delhi,
Central Surveillance Unit, IDSP, India
E-mail: praveenidsp@gmail.com
Abstract
In India, the operation of public health system is hampered by quality and accessibility of the available data
collected at various sites across the country. Effective implementation of health programs like National Health
Mission (NHM) is a big challenge for the Indian government as well as public health professionals because it’s
very difficult to monitor each and every activity at ground level due to lack of skilled human resource. There are
various health programs on Disease Surveillance, Family Planning, Reproductive and Child Health, Vector Borne
Diseases, Iodine Deficiency Disorder, Leprosy, Blindness, HIV/AIDS and Tuberculosis under NHM governed by
separate divisions in the Union Health Ministry, India. Data is published separately by these divisions and made
available to officials for the response, action, planning and policy making. In this paper, we introduce a technology-
driven model of strengthening public health activities through the Internet of Things (IoT) in India by providing
data on public health activities at one place. This would help to monitor the activities at different levels of the
healthcare system and respond in a timely manner. Implementation of IoT through installation of sensors across
Primary and Community Health Centers (PHCs and CHCs), District and Specialized Hospitals and Government
Medical Colleges to maintain the routine data collected on the health activities under different national programs.
This would consequently transmit the data to the centralized server of Central Ministry of Health & Family Welfare,
India where data would be processed and provide information so that the trends of diseases across the country could
be understood in a timely, effective and clear manner. This would help the ministry officials and public health
professionals to prioritize the situation and take necessary steps.
The proposed technology framework is a large chain of smart equipments where the entered data can be stored
and processed. The devices then transmit the data for analysis to the main server of the Central Health Ministry to
provide alerts on the trends of diseases in a timely manner. After the observation of disease trends,the necessary
steps of mitigation and prevention across the nation could be taken. This would also facilitate to inform the people
during a natural disaster. IoT would help to identify few hidden factors that would be a responsible for effective
implementation or hinder the program process. Considering the present situation in India, the IoT based Smart
disease surveillance system (SDSS) would be a considerable intervention in the field of Public Health. In the current
situation, data is reported on weekly interval and the national health officials dependent on the local health units for
the reports. This type of smart device system would change the scenario of data reporting and decrease the burden
of the district and the state health officials by registering with the Central Health Ministry server for the IoT based
smart device and timely update their records and reduce the under-reporting of cases.
Keywords: SDSS, Internet of Things, Public Health Activities
1. Introduction
The Central Health Ministry, Government of India requires continuous disease case reporting
to be aware of various diseases occurring in the population which can be prevented and timely
controlled and consequences of the disease can be limited. Presently, in India data on epidemic
prone diseases is collected on weekly basis from reporting units such as sub centers (SCs), PHCs,
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Technology based Monitoring of Public Health Activities in India
CHCs, government and private sector hospitals and medical colleges. Mostly, after the verification
of an outbreak from the local sources, the health officials respond. Usually, the number of disease
cases increase in this time period from report to verification and action. The proposed framework of
Smart Disease Surveillance based on IoTs would increase the efficiency of the disease surveillance
system by identifying the trends of various diseases promptly. The large network of smart devices
can process and analyze the entered data. The devices then transmit the data to the main server
located at the Central Health Ministry where after analysis the disease patterns of all the states would
be available to the health officials and public health professionals. The State Department of Health
would have access for alerts to their respective districts from the central server. The officials would
be alerted about the occurrence and spread of disease and timely necessary actions could be taken
for prevention and control across the nation and globally. This may facilitate the common people to
be aware about the disease in it’s initial stage.
Food safety is essential to avert food borne diseases and to ensure the well being of public. The
maintenance of freshness of food and their wastage can be avoided by constant monitoring of
perishable food products and early detection of their degradation to minimise the loss. In this aspect,
supervision of fruits during transportation from field to shelf can safeguard their quality. In this
respect, a wireless sensor network (WSN) was designed to observe the fruits during transportation
and after storage. IoTs was also used for facilitating the online monitoring of fruits from any remote
location. Sensor and gateway nodes were used in the form of Raspberry pi. It was used for sensor
data processing and decision making and data from the node was transmitted using Wi-Fi (IEEE
802.11) protocol. It executed the fusion of sensor data such as temperature, humidity and moisture
to avoid unnecessary data storage and increase the efficiency of decision making. Further the
freshness of fruits was communicated to avoid loss due to transportation. (Chanthini, Manivannan,
Umamakeswari, 2017)
An IoT can accurately track people, equipments, specimens, supplies and analyze the collected
data. Patients are attached to various sensors for measurement of vital signs and other biometric
information so that rapid diagnosis and better quality of care can be provided. (Philip A laplante,
Nancy Laplante, 2016)
Internet is an essential means to recognise the secure, competent and excellence of medical
monitoring and management by the adoption of RFID and various other electromagnetic sensors
which can attain smart health monitoring and their specific geographic location. IoT delivers ease
to hospitals in patient monitoring and tracking management. (Yu Liu, Beibei Dong, Benzhen Guo,
Jhinjing Yang, Wei Peng, 2015)
3. Smart Disease Surveillance

Smart disease surveillance is an innovative proposal to boost the prevailing surveillance system in
India and increase the accuracy and timeliness at the state and national level.
3.1. Disease Surveillance

Disease surveillance is a practice to monitor the spread of disease and establish patterns of it’s
occurrence and progression. The major act of disease surveillance is to forecast, monitor, and
decrease the consequences by an outbreak, epidemic, and pandemic situations, along with increase the
knowledge about contributing factors leading to such situations. Case reporting is an important aspect
of modern day disease surveillance. Reporting incidences of disease outbreaks have transformed
from manual record keeping to instant internet communication globally. Earlier, the number of cases
were collected from hospitals, where most of the occurrences of diseases were expected, analyzed,
and made public periodically. With the approach of modern communication technology, this has
changed completely. Organizations like the World Health Organization (WHO) and the Centers for
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Disease Control and Prevention (CDC), now report cases and deaths from significant diseases within
days and sometimes within hours of the occurrence. Further, there is considerable public pressure for
the accurate and timely availability of information. Formal reporting of notifiable infectious diseases
is a requirement placed upon healthcare providers by the state and national governments, and upon
national governments by the World Health Organization.
3.2. Internet of Things (IoT)

Radio Frequency Identification (RFID) sensors are an Internet of Things (IoT) technology. By the
use of RFID inbuilt health monitoring equipments, the data on health status of patients at various
levels of the healthcare system in India would be gathered and relayed to the central server of Central
Ministry of Health for analysis and interpretation. IoT implementation would help us to get 360o
view of health information across India at one place. Such a centralized health information would
help the central ministry and state health officials to take timely action for control and prevention of
diseases and to design and implement different health programs across the country.
3.3. The Proposed Framework
Patients
RFID Inbuilt
Health
Monitoring
Equipments
Figure 1: IoT based Proposed Framework for End-To-End Access of Grass Root Level Public Health Data
4. Need in India
Disease surveillance is necessary for health system for early detection of outbreaks, to measure
disease burden, changes in morbidity and mortality patterns and well-timed implementation of
preventive and control measures. In 1990, WHO aided and supported evolvement of integration
of surveillance functions of most of the categorical disease control based on collected evidences in
Asia and Africa. Disease surveillance in India has always been practiced by the states (health being
a state subject). There are many gaps which differ in degree and quality of surveillance, different
priorities in diseases and lack of uniformity across states. Information was made available at national
level only at monthly intervals.The concept of improving disease surveillance had always been
under consideration of Government of India. National Surveillance Programme for Communicable
Disease was launched in 1997 and later expanded as Disease Surveillance Project with the support
of World Bank. Following the expansion, Integrated Disease Surveillance Programme emerged as
the disease surveillance programme throughout the country and has achieved both structurally and
functionally. Surveillance units are established in all States/Districts across the country. Disease
surveillance data on epidemic prone diseases are being collected on a weekly basis from SCs, PHCs,
CHCs, hospitals including government, private and as well as medical colleges. Weekly data are
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Technology based Monitoring of Public Health Activities in India
analyzed for disease trends and if there is a rising trend it is investigated by Rapid Response Team
to diagnose and control the outbreaks.
4.1. CASE 1. Flood Situation in Kerala (August – October 2018)

Kerala the southernmost state of India was hit by torrential rain in August 2018. Majority of the 14
districts were affected by flood. Hundreds of death occurred and thousands of people were displaced
due to flood. Central Ministry of Health and Family Welfare held meeting to review the flood relief
measures in Kerala and stated that the outbreak situation was being monitored on a daily basis and
further the Strategic Health Operation Centre (SHOC) was activated. Regular communication with
Health Ministry, Kerala was done for monitoring the situation. National Centre for Disease Control
(NCDC), Delhi issued several health advisories to support the State in meeting with post-flood
public health management when the threat of water borne, vector borne and viral hepatitis diseases
would become potent. NCDC teams were deployed to support the State. 12 public health teams
were constituted, one each for all 12 worst affected districts. Also, 10 specialist medical teams
were constituted (30 specialists and 20 General Duty Medical Officers). Besides, psycho-social
teams from National Institute of Mental Health and Neurosciences (NIMHANS), Bengaluru. Senior
officials of the Health Ministry briefed the Union Minister that Government is on day to day basis
about the close monitoring of the disease surveillance data for potential outbreak of epidemic prone
diseases for the indicated rising trend in cases of Leptospirosis, acute diarrhoeal disease and Dengue.
They coordinated with state to monitor the cases.
5. Conclusion
The present situation in India requires a well-organised disease surveillance system. The IoTs based,
SDSS would be a considerable development in the domain of Medicine and Technology. In the
current situation, data is reported on weekly interval and the national health officials dependent on
the local health units for the reports. This type of smart device system would change the scenario
of data reporting and decrease the burden of the district and the state health officials by registering
with the Central Health Ministry server for the IoT based smart device and timely update their
records and reduce the under-reporting of cases. The state units would have access to the reported
data at one place for their respective districts. This would lead to timely disease case reporting,
reducing under reporting and increase in data consistency. Analysis and trends about the diseases
would be available at one place that would help the Central Ministry of Health & Family Welfare
and State Department of Health & Family Welfare to take timely preventive measures and respond
to emergency situations, predict warning signals of disease and issue alerts to the citizens of India.
6. Acknowledgement
The fruitful culmination of this paper would be half-done without the naming of the people, whose
constant encouragement for research crowned this effort to success. Mohd Zuber, Author, thanks
Dr. Mohammed Al Mohaithef, Vice Dean, College of Health Sciences, Saudi Electronic University
for his moral support, guidance and suggestions for improvement in research. Mohd. Zuber, Mohd.
Juned and Praveen G, Authors, would convey their thanks to family members and friends for their
love and support.
References
A Cooperative Internet of Things (IoT) for Rural Healthcare Monitoring and Control,IEEE paper by Vandana Milind
Rohokale, Neeli Rashmi Prasad, RamjeePrasad,Center for TeleInFrastuktur, Aalborg University, Denmark.
Bulletin of World Health Organization-www.who.int/bulletin
Combination of Cloud Computing and Internet of Things (IoT) in Medical Monitoring Systems by Yu Liu, Beibei Dong,
Benzhen Guo, Jhinjing Yang, Wei Peng, International Journal Of Hybrid Information Technology, Vol. 8
No.12 (2015) pp. 367-376
Disease Surveillance in India-Indmedica- a ppt by Dr.Sampath Krishnan.
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Future Internet:Internet of Things ,IEEE paper by Lu Tan and Neng Wang,Computer Science & Technology Dept., East
China Normal Univ., Shanghai, China
Integrated Disease Surveillance Project (IDSP) -idsp.nic.in/
Integrated Disease Surveillance Programme – A decade of Progress (2004-2014)
Integrated Disease Surveillance in India : Way forward Global Journal of Medicine and Public Health – Deepak K Raut,
Anil K Bhola
Perishable Food Quality Monitoring – An Internet of Things (IoT) Approach byChanthini, Manivannan
,Umamakeswari,,International Journal of Pure and Applied Mathematics, Volume No. 7 2017, 63-67
Press Information Bureau, Government of India http://pib.nic.in/AllRelease.aspx?MenuId=3
The Internet of things in Healthcare by Philip A laplante, Nancy Laplante, IEEE Computer Society, 2016
IAMOT 2019 | 934

Rural Entrepreneurship: Reviewing Customer
Research through a Standard Operating Procedure
Victor Mofokeng
Department of Quality and Operations Management
South Africa
E-mail: 201046474@student.uj.ac.za
Nita Sukdeo
South Africa
E-mail: nsukdeo@uj.ac.za
Pule Kholopane
South Africa
E-mail: pulek@uj.ac.za
Abstract
The paper addresses the use of standard operating procedures as a key component to customer acquisition founded
on assessment of research papers. It illustrates the application and importance of a standard operating procedure
from different perspectives whilst emphasizing its critical relevance to customer research in small and medium
sized enterprises in rural areas. The paper depicts how standard operating procedure, if understood by rural situated
small and medium sized enterprises can be utilized as a component of a well-organized administration system,
market penetrate tool towards sceptic and sensitive customers, and a competitive strategy over market competitors.
In many small enterprises there is a basic lack of understanding as to what quality controls are necessary, let
alone how to implement them. Standard operating procedures are prescribed forms that explain how a person or
businesses perform a task. Standard operating procedures provide a step-by-step set of how-to instructions to the
person or persons performing a specific task. Each standard operating procedure should be specific enough to be
clear and understandable, but flexible enough to be useful. Standard operating procedures also define expected
practices in an industry where quality standards exist. The customer service logic perspective argues that value is
not created by the enterprise rather value is equally created by the interaction between the service or product offer
and the customer. It is for this reason, information on customer needs and on how best to serve these needs is best
obtained from customers themselves. Customers have more knowledge about the problem and service providers have
more information about the solution. This is a main prospect aimed at service providers that drift from rural areas
or semi-urban areas to urban areas. In contrast, many rural entrepreneurs are facing numerous difficulties owing to
unobtainability of principal services in rural areas of emerging republics. Absence of schooling, monetary constraints,
and inadequate practical and theoretical competence make it problematic for rural entrepreneurs to start businesses
in rural areas. This paper evaluates the national and international literature on standard operating procedures and
customer research. It identifies the different concepts that have emerged globally in standard operating procedures
and customer research. The existing literature reviewed reflects upon the development of understanding of the two
subjects and compared with the domestic literature available on the same. To build conceptual analysis various
national and international reports, articles and papers have been referred. The study indicates the importance of
standard operating procedures and brings out certain dimensions that are relevant while acquiring a new customer.
In light of these concerns, Internet influence has now transformed rural people. In rural areas adoption of internet is
in favour for firms and this influences business internet movement. In addition, as they familiarize to the commercial
approach, they must echo the honesty of the business and its commitment to excellence.
Keywords: Standard Operating Procedure, Customer Research, Rural Entrepreneurship
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1. Introduction
The incubator concept is significant in assisting the seeding of entrepreneurs. Sadly, over the years
about 85% of these entrepreneurs have been failing within the first three years of operating as
standalone entities [1]. Securing businesses also present challenges as target customers insist that
certain management systems must be in place. Having realized an opportunity for adopting various
simple technologies and employing these to create wealth through manufacturing, SA has been
establishing SME incubators since 2006. The research is based on the well-known need to improve
rural small towns in South Africa (SA) by empowering small enterprise incubators that will lead to
economic growth and sustainability in rural regions of country.
SA adopted this concept almost ten years ago with backing beginning at the Small Enterprise
Development Agency [5] [3]. The state has today recognized 40 incubators further nationwide. This
has shortened the failure frequency of small to medium enterprises (SMEs) in their initial two years
of existence after 90% towards nearby 70% [3]. The failure frequency of SMEs in their initial two
years remained above 60% in Africa and similar emerging nations. Nonetheless, these SMEs remain
very vulnerable to failure due to the absence and stagnation of their quality management systems
(QMS). Sustainable businesses are important to any society or community, as they stimulate other
related sectors of the economy [6] to be productive. More especially, in rural regions of the country
SME’s need to experience growth and be sustainable.
This study focuses on the development and implementation of Total Quality Management (TQM)
frameworks and their relationship to Standard Operating Procedure (SOPs). It highlights the
importance of TQM and SOP’s as well as their contributions to rural entrepreneurship, in the field of
TQM. The study illustrates how standard operating procedure, if understood by rural situated small
and medium sized enterprises can be utilized as a component of a well-organized administration
system, market penetrate tool towards sceptic and sensitive customers, and a competitive strategy
over market competitors. The general growth of any country is embodied by the main influence
in Internet connectivity. Notwithstanding the undefined setting in which SMEs work, internet
adoption in South Africa is mainly driven by the SMEs owner/manager [7], also counting the usage
of portable phones.
2. Research Background
In the mid-1990s, about 100 000 job openings were lost annually [9], consequently after majority
of start-ups in South Africa boarded on guidelines of cost-cutting and reshuffle to keep up with
global competition [8]. Additionally, shortly after South Africa grow into the world-wide economy
[10], numerous defensive commercial guidelines which were in support of South African businesses
were banished. The consequential outcome of the intense competitive world-wide commercial
condition, fired South Africa into sombre financial difficulties as the inhabitants of the republic
delays upsurging which results to more joblessness, projected in region of 30% and 41% beginning
in 2001 [11] [10] [12]. The undesirable financial movements amounted to millions of rands lost
as small industries in South Africa were not able to be sustainable and to create sustainable work
openings [14] [15]. Amidst the turmoil, people who completed school were projected in region
of 325 000 and 462 000 nation-wide that were incompetent to find jobs in the job market [13].
Regrettably, the current environment of free enterprise in South Africa is incapable to entice the
required probable job paths owing to the county’s climate influences. Supplementary aspects such
as absence of commercial revenue and problems in raising the required capital, justify for business
failure [16]. These influences are main related influences on start-up closings. Moreover, [17]
claims uphold that the influences of economic provision and absence of Government aid hinders
free enterprise in South Africa [17]. Yet again, the recent account by [18] stresses that management
measures influence depressingly on the commercial atmosphere - for example, it takes between 19
and 22 days to complete numerous procedures that lead to business formation in South Africa [17].
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Rural Entrepreneurship: Reviewing Customer Research through a Standard Operating Procedure
3. Research Problem
The government of SA has embarked on a drive to promote employment through various infrastructure
development initiatives. These projects need small and upcoming enterprises to offer competitive
contributions and grow through their participation. There is, however, no model available which
SMEs can adopt to ensure successful participation. Many attempts and interventions have been
made to enable SMEs to survive. Despite this, most SMEs fail within the first few years of being
established. The SA government has also worked with the Department of Trade and Industry (DTI)
financed a number of incubator support programmes as a way of ensuring that these incubators
are a success, [2]. The research problem seeks to discover the trials of rural free enterprise in the
designated parts. Importantly, to regulate and assess the serious trials that hinder the ability of
rural free enterprise and small businesses to grow fruitful and supportable. Thus, extracting from
the several Comprehensive Free Enterprise Monitor reports and research literature work will be
important.
Figure 1.1 beneath demonstrates the chart of South Africa viewing the Free State Province of South
Africa. The study will be conducted at two district municipalities in the province, the Fezile Dabi
and Lejweleputswa District Municipalities respectively.
Figure 1.1: The Chart of South Africa Viewing the Free State Province
Source: http://southafricanresearcher.blogspot.com/2010/04/maps-of-south-africa-1.html
This includes the strategies are deployed in South Africa, in particular the Free State province in
countering the challenges facing by small and medium sized companies. This situation brings forth
the research question for this study.
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3.1. Objectives of the Study

The primary objective of this study is to investigate the quality management systems utilised by
small medium businesses in rural selected areas and based on that, to develop an integrated customer
acquisition standard operating procedure outline to safeguard the sustainability of small businesses
in rural areas in South Africa.
3.1.1. Secondary Objectives

To achieve the primary objective, the following secondary objectives are formulated:
●● To gain an understanding of rural entrepreneurship by means of a literature study.
●● To gain an understanding of Total Quality Management by means of a literature study.
●● To assess the relationship between customer research and customer acquisition.
●● To assess the relationship between initial customer engagement and customer acquisition.
●● To investigate the knowledge and application of quality management systems by small
businesses.
●● To investigate industry experience relative to their company’s product or service offering
●● To investigate mentorship programmes in place to support small businesses in rural
regions
●● To propose an integrated framework to ensure the sustainability of small businesses in
rural areas in South Africa.
A literature review is significant because the researcher needs to reveal what is by now acknowledged
in the frame of knowledge preceding to beginning any investigation. Considering these deliberations,
the fundamental purpose of the research is to discuss the subject an effective literature study. This is
done by suggesting a methodical ploy which guides the researcher, as the task can become daunting.
In this literature review, the chapter starts by defining the setting where the research problem arises.
The study focuses on supporting literature which relates to the research objectives. This will assist in
guiding the study closely to the main topic and only bring attention to relevant evidence.
The literature review will assist to develop a TQM SOP framework for rural entrepreneurs and small
businesses. The literature that will be reviewed in this research will be on and rural situated small
businesses TQM, SOPs, customer research, and the adoption of mobile internet by rural situated
small businesses. The literature review will categorize the major themes of the subject and highlight
the state of knowledge and gaps in the existing body of knowledge.
4.1. The Role of SOPs

SOPs offer a detailed customary of directives to the individual or people carrying out an explicit
chore on what to do, in what way to do it, at what time to do it, and in what way to capture it.
Standard operating procedures are official forms that define in what way a person or business
completes a chore and captures the act of that chore [19]. Good SOPs are understandable to the
level of the person who practices them, not the assessors or a supervisory worker. Each SOP must be
exact and sufficient to be vivid and plain, but elastic enough to be beneficial [20]. SOPs also describe
anticipated outcomes in a business where quality values occur.
A practical structure articulates the backbone of any process small and medium sized enterprise
are engaged in, whether situated in an urban or rural business sitting [20]. Procedures tell us “how
things happen here” in all zones of operation. Irrespective how a corporation refers to them, forms
that inform in what way to do a task, fall into the class of procedures. They might comprise work
directives, approaches, coaching procedures, guidelines, work practices, and more [21]. SMEs are
IAMOT 2019 | 938

very important for the economic growth of a country. The procedures in place are common way
to keep administration up to date in most small businesses. In addition, businesses competing in
an increasingly global market, independent of size and sector, rely heavily on SMEs to provide
sub-contracting facilities. To improve service and product quality, organizations must be assured
of obtaining high quality goods and services from small and medium sized suppliers [22]. Hence
there is a need for SMEs to meet the required quality standards. There is also severe competition
among SME suppliers that exert strong pressure to reflect the use of quality management system,
specifically standard operating procedures.
4.2. Customer Research

The customer experience idea viewpoint suggest that worth is not fashioned by the business, rather
worth is similarly fashioned by the communication amid the service suggestion and the client. It is
for this reason, SMEs need to know the knowledge on client requirements and in what way finest to
give these requirements are finest gained from clients themselves [23]. Thoughtfully and satisfying
each separate client’s necessities has remained known as a persistent trial for businesses across
sectors. To one side, after presenting market-attentive goods, which agree to a usual fulfilment of
client necessities, small businesses are chasing an approach of giving customer-attentive goods with
a great grade of independence [24]. Clients have additional information around the problem, SMEs
have further knowledge around the answer. Client necessity organisation therefore turn out to be the
solitary fundamental influence for merchandise growth to prosper in the market [25]. Underprivileged
consideration of client necessities and mistaken norms made through the examination of necessity
knowledge have important undesirable insinuations on plan and engineering of the merchandise,
with regards to quality, advance notice, and charge. In the previous two decades, a growing sum
of agreements and journals has remained seen in the arena of client fulfilment and necessity
organisation, end to end with several activities in business bids [26]. Client necessity organisation
tolerates a multidisciplinary distinguishing connecting arenas as commercial education, advertising
investigation, mental educations, humanoid influences, software manufacturing, and of course,
merchandise plan. The elementary hypothesis is that client fulfilment generates profitability [27].
The hypothesis is founded on the knowledge that by refining the quality of the supplier’s service,
clients’ fulfilment is enhanced. A fulfilled client makes a durable connection with the supplier and this
translates to association permanency (or client maintenance – client faithfulness) [27]. Maintenance
again produces stable incomes and by totalling the incomes with period client connection success
is enhanced. Therefore, the business may apply possible client association financial prospects in
a constructive method [27]. After this period, there is a necessity for SMEs, to meet the required
quality standards. There is likewise intense rivalry between contractors that employ robust weight to
reflect on the use of Quality Management.
4.3. Rural Entrepreneurship

The industry of free enterprise is broadly recognized to non-existence a solitary united and
acknowledged meaning for the word “entrepreneurship” [30]. In other words, starting businesses in
rural zones symbolizes rural free enterprise as a identical with rural development [28] [29]. Rural free
enterprise suggests developing private enterprise in rural zones. Free enterprise is a measurement
of tactical stance, and, therefore, wholly way of associations might perform entrepreneurially. In
contrast, it is also a well-known statistic that the mainstream of rural businesspersons is confronted
by several difficulties owing to inaccessibility of main facilities in rural parts of emerging nations.
Deficiencies edification, monetary difficulties, inadequate practical and theoretical aptitude make it
problematic for rural businesspersons to start businesses in rural areas [31]. Rural free enterprise is
that kind of free enterprise which confirms worth accumulation to rural possessions in rural zones,
confronting mainly rural people [32]. Africa’s financial prudence currently are changing to lively,
and agronomic development is catalysing wider rural development [33] and on that foundation [34]
propose there is a better necessity to know the procedures that motivate business development. Many
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communities in rural SA are still living in poor conditions [35], through SMEs working in many
rural and slow zones, establishing an essential portion of the home-grown economy and a main basis
of job creation as reasoned [36].
This tactical bearing includes a SME’s opportunity-taking tendency, its aptitude to stand competitively
firm, energetic conduct, and merchandise invention [37]. Rural free enterprise nowadays is a main
prospect for SMEs who drift from rural zones or semi-urban zones to urban zones. Rural free
enterprise signifies the casual subdivision of the economy, categorized by small-scale industries,
connecting trivial buyers and craftsperson’s [38]. Further notably, Rural free enterprise can be well-
thought-out as the single answer to decrease scarcity, relocation, financial inequality, and joblessness
and to grow rural zones and recessive areas [39].
4.4. The Adoption of Mobile Internet

In rural areas problems of remoteness prevail for SMEs and this influences commercial internet
movement. For most SMEs, the absence of accessibility of ICT knowhow is recognized as an
additional barricade to internet usage [40]. Portable phones, however exhibit the key characteristics
of interactivity, spatial mobility, temporal mobility, contextual mobility [41]. In other words,
the perception of being contactable anywhere, anytime [42], provides the SMEs with flexibility,
connectivity, ubiquity [43]. This is however can be difficult in the African context. [44] found
that the expansion of Internet accessibility on the African continent, is primarily depended on
the capacity of available Internet bandwidth, the density of Internet servers and the intensity of
competition among network providers [45]. Nevertheless, Cellular technology has enabled mobile
telephones, and numerous researchers to explore the social and economic implications of the newer
wireless telecommunications devices [46]. Another difficulty discovered, [47], found little evidence
of government e-commerce initiatives aimed at assisting rural situated SMEs. The information of
e-commerce prospects in SMEs was through the knowledge of the owners or profitable associations
with ICT companies offering advisory services or suppliers of software or hardware. Parallel is
discovered in [48] that in business segment mediators had an additional influence on rural SME
owners’ verdict to have a website, and the quality of their internet corporate use, than public procedure
enterprises. However, there are now many more options available to a small business when setting
up their web presence [49]. Mobile telephone technologies are not the only innovative path SMEs
can exploit to provide goods and services to the large community. Nonetheless, the extremely fast
development of cellular phone makes it vital to know in what way SMEs exploit them.
4.4.1. Internet Access in Africa

Though, network prospects are mainly unable between dissimilar counties. Internet linkages
embodies a significant influence in the total growth of all countries. It allows competitive partaking
in the worldwide economy, signifies an appreciated foundation of edification and enables the
inclusion of a society [50], [51]. Underprivileged substructure, absence of financial curiosity from
wire businesses and inadequate governmental sustenance consequence in a comprehensive network
power cut in a great part of the emerging nations. Carrying dependable, functioning Internet network
to distant counties is naturally overwhelmed with difficulties. Satellite networks are sluggish,
frequently with bandwidth of solely some insufficient hundreds of kbps or 1 Mbps [52]; electricity
outlets are untrustworthy, and devices are often unattainable [53]. Most predict that there stand
additional lively users of the portable Internet in South Africa than there are old-style Internet users
[54]. With little ranges of PC usage and near-universal portable device ownership, South Africa is an
outstanding location to witness portable Internet usage between resource-limited societies.
4.4.2. The Use of Mobile Phones for Buiness in Particular

The speediness and convenience to information improved; message charges declined; travel
necessities were shortened, and customers may perhaps transact straight with providers and clients
– wholly consequential in superior effectiveness. In Nigeria a research conducted [55] discovered
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several constructive influences of the usage of portable devices for start-ups. Transacting usually
turn out to be faster, low-priced and less dangerous. [56] advises, that in place of growing the
effectiveness of commercial processes, dropping buying charges, refining communication in
cooperation providers and clients, and attaining available commercial prospects, industries with
restricted usage of ICT might miss out on commercial prospects. These advantages are particularly
expressive for the financial growth of SMEs [57].
3. Research Gap
Conducted research studies on TQM and organisational performance, in developing countries
around the world, as well as South African manufacturing and service industries, [58]. This view
is supported by an advanced search of published articles over the last 5 years in South Africa.
Therefore, this study will endeavour to demonstrate that, small businesses, within the Free State
Province, should employ the key practices of TQM with a view to improving quality of products,
processes and services which in turn will enhance organisational performance, [59]. Thus, employing
TQM elements in achieving organisational performance becomes fundamentally important for small
businesses in order to gain a competitive advantage. Furthermore, it is projected that the findings of
this study will encourage research in other small business sectors throughout South Africa. There
was no indication of any published research using the framework developed in this study.
4. Proposed Research Framework
In this section, a proposed framework to address the problem statement and underlying influences
presented. The proposed framework illustrates the interrelationships between TQM and SOPs towards
customer research and customer research in obtaining new customer acquisition. Furthermore, it
illustrates the input parameters, the supporting conditions that needs to be in place while developing
a TQM SOP Customer acquisition framework. Figure 4 shows that there are three input blocks to
new customer acquisition.
First, the Total Quality Management block shows the basis input parameters, which serve as the
starting point. It is also on this foundation, the ability to influence new customer acquisition with
TQM performance attribute, will be possible. Second, the Standard Operating Procedure block
which ensures the SOP document is in place and the sequence of the necessary steps are followed
in customer research and engagement customer. It is also on this step, the ability to influence new
customer acquisition with SOP performance attribute, will be possible. Third, Customer Research
and Customer Engagement block considers the due-diligence and preparation done beforehand in
customer research and customer engagement. It is also on this foundation, the ability to influence
new customer acquisition with customer research and customer engagement performance attribute,
IAMOT 2019 | 941

will be possible. Fourth, the Supporting Conditions upright adjacent block shares enabling elements
to the three blocks (TQM, SOPs and Customer Research & Customer Engagement) to yield new
customer acquisition. The end process of new customer acquisition will result is profitability and
customer increase.
5. Conclusion
There is much to be explored and studied concerning the implementation of TQM and SOPs focusing
on customer research and engagement in SMEs that are situated rural areas. The implementation of
TQM and SOPs focusing on customer research and engagement, depends on various factors that need
to be analysed. This research will provide a thorough aspect on the implementations of TQM and
SOPs, in both small-and-medium sized enterprises and larger enterprises studied and experienced by
research academics and practitioners. The implementation of TQM constructs will be the stepping-
stone towards the later findings. The development of the SOP instrument for administration of the two
customer acquisition factors. First customer research, second customer engagement, respectively,
will construct the empirical validating the instrument for assisting SMEs in rural situated areas. The
TQM and SOPs constructs, focusing on customer research and engagement, will link to the critical
supporting conditions factors, which include the adoption and use of mobile internet by SMEs and
will be used in the proposed framework for rural situated areas SMEs. The proposed framework will
be presented to the responsible government bodies and research recommendations will come from
the findings. The data collection is still in progress.
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IAMOT 2019 | 944

Lean as a Tool for Business Sustainability
in the Manufacturing Sector
Joseph Ndikumana
University of Johannesburg, Faculty of Engineering
and the Built Environment, South Africa
E-mail: ndikujoseph2006@yahoo.fr
Arnesh Telukdarie
Hannelie Nel
E-mail: hannelien@uj.ac.za
Abstract
Businesses in the manufacturing sector are faced with sustainability challenges. This is mainly due to changes in
resource availability, changes in environmental regulations and increase in social demands. As new methods
of production are introduced by changes in technology or changes in resource availability, businesses in the
manufacturing sector are affected and have to review operational strategies in order to stay in business. This does
not only require financial fitness but meeting environmental and social requirements as well. There is no single,
internationally recognized tool that organizations in the manufacturing sector can use to achieve sustainability.
This paper explores the results from the implementation of Lean Manufacturing in a South African Clamps and
Worm Drives manufacturing company and proposes the use of Lean Manufacturing as a tool for achieving business
sustainability in the manufacturing sector. The authors employ the Company records to evaluate the impact of Lean
Manufacturing on the organization’s financial, environmental and social status. The results show an improvement
on the company turnover by 15.62% year on year from when a reduction in carbon emission by 74.14 tonnes of
CO2 emission per year and job security for all employees.
Keywords: Business Sustainability, Lean Manufacturing, Financial Fitness, Environmental Responsibility, Social
Responsibility
1. Introduction
Businesses in the manufacturing sector face the challenge of meeting the three pillars of sustainability
(Souza and Alves, 2018). This is mainly due to changes in resources availability, changes in
environmental regulations and increase in social demands (Kandachar and Halme, 2017). As new
methods of production are introduced by changes in technology or changes in resources availability,
businesses in the manufacturing sector are affected and have to review their operational strategies
in order to stay in the business (Kandachar and Halme, 2017). The concept of sustainability was
adopted by the World Commission on Environment and Development (WCED) in 1987. Sustainable
development is defined in the Brundtland Report as “A development that meets the needs of the
present without compromising the ability of future generations to meet their own needs” (Lots and
Brent, 2017). Viederman (1994) defined sustainability as “a community’s control and prudent use
of capital—All form of capitals: Nature’s capital, human capital, human created capital, social
capital and cultural capital-- to ensure, to the degree possible, that present and future generations can
attain a high degree of economic security and achieve democracy while maintaining the integrity
of the ecological systems upon which all life and all production depends”. Svensson and Wagner
(2015) defined business sustainability as “a company’s economic, social and environmental efforts
to implement and manage its own and its business network’s impact on Earth’s life and ecosystem”.
IAMOT 2019 | 945

It is clear that, from all the definitions above, the emphasis is on the economy, the environment and
the society. Manufacturing organizations have to be profitable, fulfil environmental responsibilities
and bring positive impacts to the society, starting with company stakeholders. The sustainability of
a business, therefore, depends on how well an organization tackles financial challenges, fulfils the
environmental requirements and meets the society needs (Svensson et al., 2016).
Figure 1: Interaction of the three Pillars of Business Sustainability: Adapted to (Svensson et al., 2016)
The task of meeting these requirements at the same time can be challenging. This is because most
of the problems to be solved are not of a singular nature. The three pillars of business sustainability
interact with one another, creating new aspects of challenges: socio-environmental aspects, socio-
economic aspects and environmental- economy aspects (Svensson et al., 2016). It is therefore
important that organizations in the manufacturing sector develop strategies and tools that can be
utilised to simultaneously cater for its financial, environmental and social needs. Researchers
highlight the challenges of meeting business sustainability, but they do not recommend any specific
tool that can be used to attain sustainability in the manufacturing sector (Souza, J.P.E. and Alves,
2018). Lean manufacturing is acclaimed to be a powerful tool that reduces wastes and improves
efficiency in manufacturing environment (Yang et al., 2011). But, can lean manufacturing be used
as a tool for attaining business sustainability in the manufacturing sector? In this paper, the authors
test the implementation of Lean Manufacturing in a South African Manufacturing Company and
examine the role it plays in meeting financial, environmental and social needs. Figure 1 presents the
interaction between the three pillars of sustainability.
Organizations in the manufacturing sector are becoming more aware of sustainability and the impact
it has on the economy, society and environment (Epstein and Rejc, 2014). Morioka et al. (2016)
highlight that the incorporation of sustainability into businesses requires improving organisations’
Social, Environmental and Economic status. It is in this regard that Roca and Searcy (2012) and
Helleno et al. (2016) classify the indicators of business sustainability in three categories: economic
indicators (cost reduction and growth), environmental indicators (management of pollution) and
Social indicators (training and development). While business executives understand the benefits
of business sustainability as related to fulfilling company financial, environmental and social
responsibilities, not all have managed to implement sustainability in their businesses (Vinodh et al.,
IAMOT 2019 | 946

Lean as a Tool for Business Sustainability in the Manufacturing Sector
2011)). A number of challenges prevent businesses from successfully implementing sustainability.

Souza and Alves (2018) argue that meeting financial, environmental and social needs at the same
time is the main challenge faced by businesses in the manufacturing sector. A number of authors
agree that there is a relationship between business sustainability and lean manufacturing. Yang
et al. (2011) present lean manufacturing as a powerful tool to improve and sustain the financial
performance of businesses by simply improving processes and eliminating all non- value adding
activities. Lean manufacturing can be implemented in all economic sectors, mainly manufacturing,
service and healthcare industries (Cudney et al., 2013). Financial benefits from the implementation
of lean manufacturing include reduced cost of product/service, increased market share, increased
revenue, increased profits and reduced operational costs (Martínez León and Calvo-Amodio,
2017). A study conducted by Santos, Vieira and Balbinotti (2015) provided a correlation between
lean manufacturing and ergonomics. Lean manufacturing focuses on the elimination of waste and
improves the wellbeing of workers by eliminating safety hazards. It reduces workers’ fatigue by
elimination of motion and transportation wastes (Santos et al., 2015). Ergonomics has a prime task
of developing easy techniques that a worker can use to perform his/her tasks in simple ways, that reduce
fatigue, safety hazards and in general, techniques that promote employees’ wellbeing (Santos et al., 2015).
Lean manufacturing plays a role as well in sustaining the environment. Jabbour et al., (2013)
conducted a study in Brazil automotive industry and finds that Lean Manufacturing has a positive
impact on environmental management. A similar study conducted in five European motorcycle
parts manufacturers revealed that the use of Value Stream Mapping (VSM), Kaizen, 5Ss, Cellular
Manufacturing and Total Productive Maintenance (TPM) reduced the organizations’ impact on the
environment (Chiarini, 2014). From the literature above, it can be seen that the implementation of
Lean in the manufacturing sector has financial, environmental and social benefits. Although the use
of lean manufacturing tools such as VSM, 5Ss, TPM, Kaizen and cellular manufacturing resulted in
positive impacts on the business sustainability indicators; it is not clear if lean manufacturing can be
used as a tool for achieving business sustainability in the manufacturing sector.
The purpose of this research is to determine if the implementation of Lean Manufacturing can help
to achieve Business Sustainability in the manufacturing sector. For this purpose, a literature review
is conducted to discover the internationally recognized indicators of business sustainability and the
role that lean manufacturing can play to achieve them. Subsequently a case study is conducted to
validate the impact of Lean Manufacturing on Business Sustainability in the manufacturing sector.
Based on guidelines by Saunders et al. (2009), the researchers selected the organization for the case
study on the basis on the following criteria:
●● A private manufacturing company with existence of more than 15 years to ensure that
only data from a stable company is used.
●● A private company that is certified to ISO standards (ISO 9001:2015) to ensure that the
company has at least a globally referenced best practice.
●● A manufacturing company that ran the implementation of lean manufacturing for at least
3 years to ensure sufficient data.
●● Access to the company’s data/ records to ensure that the research is not abandoned due
to lack of desired type of data.
The researchers selected a manufacturing company based in Industrial North, Roodepoort (South
Africa) that manufactures various metal horse clamps and clips. The organization is privately owned
and has 66 permanent and 6 seasonal employees. The company is in existence for more than 50
years. It is certified to ISO 9001 and ISO/TS 16949 (Specific to automotive industry). It officially
started the implementation of Lean Manufacturing in January 2015. The implementation of the lean
manufacturing philosophy is currently still running.
IAMOT 2019 | 947

In order to understand the impact that the implementation of Lean manufacturing has on the
organization’s indicators of sustainability, the researchers gather records of data for 6 years: From
January 2012 to December 2017. These records are divided in two sets: Records from January
2012 to December 2014 and records from January 2015- to December 2017. The first set of data
is for three years prior and the second set of data is for three years post the implementation of
Lean Manufacturing. Based on various tools and techniques for enabling sustainability using lean as
presented by Vinodh et al. (2011), the following records are used:
●● Electricity bills: These records are for checking if changes in the usage of electricity
between the two periods exist. A reduction in power consumption has two benefits:
reduction of operational cost and reduction of air pollution
●● Records of monthly sales against targets: These records are for checking if the sales
levels against targets improved since the implementation of lean manufacturing. Note
that, the company has a policy: Whenever a monthly sales target is met, the workforce
gets a profit share in the forms of bonuses.
●● Records of training: These records are for checking if the workforce gained skills from
the implementation of Lean Manufacturing
●● Records of the company turnover for 6 years (2012-2017): These records are for checking
if the implementation of lean manufacturing improved the organization turnover
●● Records of completed improvement projects
4. Data Analysis and Findings

In this section, the researchers present and discuss the results from literature review and the results
from the implementation of Lean Manufacturing at the company under consideration. The results are
presented in the following categories:
4.1. Literature Review

The purpose of conducting the literature review has two objectives: To find the globally accepted
indicators of business sustainability and the role played by lean manufacturing. Table 1 presents the
results from the literature review:
Table 1: Indicators of Business Sustainability and the Role
Played by Lean Manufacturing
Role played by Lean manufacturing to meet the indicators of

Indicators of Business Sustainability
business sustainability
Economic indicators: Consistent growth, Risk Reduces operational costs, increases market share, improves
Management, Maximum return, Cost reduction, resources revenue, reduces all types wastes and improves efficiency
efficiency (Martínez León and Calvo-Amodio, 2017) (Yang et al., 2011)
Environmental indicators: Compliance to regulations,

Biodiversity management, Pollution management, climate Manages pollution by material reuse and recycling, reduction
change, global warming, Resource efficiency, energy in carbon foot print and improvement on resources efficiency
efficiency, Waste reuse or recycling (Roca and Searcy, (Jabbour et al., 2013); (Chiarini, 2014).
2012)
Social indicators: Sponsorship, Employment, training, Reduces safety hazards, reduces workers’ fatigue, improves
development and empowerment, Health and safety, workers’ skills, and improves jobs’ satisfaction (Santo et al.,
financial compensation (Helleno et al., 2016) 2015).
IAMOT 2019 | 948

4.2. Case Study
4.2.1. Impact of Lean Manufacturing on Financial Indicators

The implementation of Lean Manufacturing at the organization impacted positively the organizations’
financial indicators in the following ways:
●● Savings of R136 935.28 per year from electricity usage and maximum demand.
●● The elimination of screws heat treatment process resulted in savings of R312 769 per
year.
●● Savings of R292 572 per year resulting from created space (freed space due to reduction
in work in progress inventory.
●● The reduction of work in progress improved cash flow by R166 257.
●● The organization turnover improved by 15.62%/ year on average.
Figure 2 compares the organization’s monthly power usage for the period of 2012 to 2014 and 2015
to 2018. As it can be seen, the monthly power usage for 2012 to 2014 has an upwards trend. That
means that the monthly usage increased month after month. The monthly power usage for 2015 to
2017 has a downward trend. It means that the monthly power usage decreased month after month.
KWhs
115000
Monthly Power Usage For 2012-2014 and 2015-2017
105000
95000
85000
75000
65000
55000
45000
35000
25000 Usage 2012-2014 (Kwh) Usage 2015-2017 (Kwh)

Linear (Usage 2012-2014 (Kwh)) Linear (Usage 2015-2017 (Kwh))
15000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36
Months
Figure 2: Comparison of Monthly Power Usage for 2012 to 2014 and 2015 to 2017
Figure 3 compares the monthly power maximum demand for the period of 2012 to 2014 and 2015
to 2017. It can be seen that, the monthly maximum demand has an upwards trend. It means that the
power maximum demand for the 2012 to 2014 increased month after month. The monthly maximum
power demand for 2015 to 2017 has a downwards trend. It means that, the monthly maximum
demand for 2015 to 2017 decreased month after month.
290
Monthly Maximum Power Demand for 2012-2014 and 2015-2017
270
250
230
210
190
Demand 2012-2014 (KVA) Demand 2015-2017( KVA)
KVAs Linear (Demand 2012-2014 (KVA)) Linear (Demand 2015-2017( KVA))
170
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36
Months
Figure 3: Comparison of Monthly Maximum Power Demand for 2012 to 2014 and 2015 to 2017
IAMOT 2019 | 949

Figure 4 presents the organization turnover amounts for the period of 2012 to 2017. It can be realized
that, the turnover was not improving for the period of 2012 to 2014. It was before the implementation
of Lean Manufacturing. For the period of 2015 to 2017, the period when the implementation of Lean
Manufacturing started, the turnover improved year after year.
Turnover
50 000 000
45 000 000
Amount in RANDs
40 000 000
35 000 000
30 000 000
25 000 000
20 000 000
15 000 000 Turnover
10 000 000 Poly. (Turnover)
5 000 000
0
Year Year Year Year Year Year
2012 2013 2014 2015 2016 2017
Figure 4: Organization’s Turnover for the Period of 2012 to 2017 (in RAND)
4.3. Impact of Lean Manufacturing on Environmental Indicators

The implementation of Lean Manufacturing resulted in reduction of electricity usage by 215 896.10
Kilowatt- hours in a period of three years. According to Lots and Brent (2017), the emission factor
for Eskom electricity is 1.03 Tonnes of CO2 equivalent per 1 megawatt hours. That equates to a
reduction in greenhouse gas emission by 222.37 tonnes of CO2 equivalent [(215 896.1*1.03)/1000]
or 74.14 tonnes of CO2/year.
Figure 5 presents the amount of C02 emission saved in tonnages. As it can be seen, the trend line
for reduced carbon emission is in an upwards direction. This means that the reduction in carbon
emission improved with the progress of the implementation of lean manufacturing.
4.4. Impact of Lean Manufacturing on Social Indicators

On the side of social indicators, the implementation of lean manufacturing resulted in the following
benefits: Bonuses related to meeting monthly sales targets improved by 5.5% and the workforce
gained skills from various training sessions on Lean Manufacturing Tools. Although the increase
in bonuses related to meeting monthly sales target seems to be low, it was a great achievement
considering the financial situation in the South African manufacturing sector for the period of 2015
to 2017. All the jobs were secured and no employee lost his/ her job. Figure 6 compares the number
of times employees received bonuses due to meeting sales targets for the period of 2012 to 2014 and
2015 to 2017.
80,00
Tonnes of CO2 Reduction in C02 emission (Tonnes)
70,00
Reduction in C02 emission (Tonnes)

60,00
Linear (Reduction in C02 emission (Tonnes))
50,00
40,00
30,00
20,00
10,00
0,00
Jul-15
Aug-15
Sep-15
Nov-15
Dec-15
Jul-16
Aug-16
Sep-16
Nov-16
Dec-16
Jul-17
Aug-17
Sep-17
Nov-17
Dec-17
Mar-15
Mar-16
Mar-17
Feb-15
Feb-16
Feb-17
Jan-15
Jun-15
Jan-16
Jun-16
Jan-17
Jun-17
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
May-15
May-16
May-17
Figure 5: Trend of Reduction of Carbon Dioxide Emission
IAMOT 2019 | 950

20
19
18
17
16
15
14
13
12
11
10
9
8
No of Times
7
6
5
4
3
2
1
2012-2014 2015-2017
Period
Figure 6: Number of Times Employees Received Bonuses Due to Meeting Monthly Sales Targets
In summary, Table 1 compares the results from the implementation of lean manufacturing from the
literature review and the case study’
Table 2: Summarized Results from the Implementation of Lean
Contribution of LM from Contribution of LM from the case

Indicators of Business Sustainability
literature study
•Savings of R136 935.28/year from

electricity usage and maximum
demand
•The elimination of screws heat
Economic indicators: Consistent growth, Reduces operational costs, treatment process resulted in savings
Risk Management, Maximum return on increases market share, improves of R312 769/ year
investment, Cost reduction, resources revenue, reduces all types wastes •Savings of R292 572/year from freed
efficiency and improves efficiency space
•The reduction of work in progress
improved the cash flow by R166 257
•The organization turnover improved
by 15.62%/ year
Environmental indicators: Compliance

with regulations, Biodiversity Manages pollution by material
management, Pollution management, reuse and recycling, reduction in •A reduction in CO2 emission by
climate change management, global carbon foot print and improvement 74.14 tones / year
warming mitigation, Resource efficiency, on resources efficiency
energy efficiency and waste reuse
•Bonuses related to reaching monthly

Social indicators: Sponsorship, Reduces safety hazards, reduces
sales targets improved by 5.5%
Employment, training, development workers’ fatigue, improves
•All jobs for employees were secured
and empowerment, Health and safety, workers’ skills, improves jobs’
•Training of all employees on a
financial compensation satisfaction
number of Lean Manufacturing tools
5. Conclusion
In this paper the impact of Lean Manufacturing on business sustainability in the manufacturing
sector was explored. The literature review showed that the trio factors involved in business
sustainability are financial, environmental and social indicators. The case study provided evidence
that the implementation of lean manufacturing improved financial, environmental and social
indicators of business sustainability. The article therefore brings an understanding of the importance
of implementing lean manufacturing in the manufacturing sector businesses. It is recommended that
future studies focus on evaluating the impact of lean manufacturing on the indicators of business
sustainability in other sectors.
IAMOT 2019 | 951
References
Chiarini, A. (2014), “Sustainable manufacturing-greening processes using specific Lean Production tools: an empirical
observation from European motorcycle component manufacturers”, Journal of Cleaner Production, 85, 226-233.
Cudney, E.A., Dietrich, D. and Furterer, S. (2013), Lean Systems, CRC Press, Baton Rouge.
Epstein, M.J. and Rejc, A. (2014), Making sustainability work: best practices in managing and measuring corporate
social, environmental, and economic impacts, Second completely revised and updated edn, Greenleaf
Publishing/Berrett-Koehler Publishers, Inc., San Francisco.
Helleno, A.L., de Moraes, A.J.I. and Simon, A.T. (2017), Integrating sustainability indicators and Lean Manufacturing
to assess manufacturing processes: Application case studies in Brazilian industry. Journal of cleaner
production, 153, 405-416.
Jabbour, C.J.C., de Sousa Jabbour, A.B.L., Govindan, K., Teixeira, A.A. and de Souza Freitas, W.R. 2013, “Environmental
management and operational performance in automotive companies in Brazil: the role of human resource
management and lean manufacturing”. Journal of Cleaner Production, 47, 129-140.
Souza, J.P.E. and Alves, J.M., 2018, Lean-integrated management system: A model for sustainability improvement.
Journal of Cleaner Production, 172, 2667-2682.
Kandachar, P. and Halme, M. (2017), “Sustainability challenges and solutions at the base of the pyramid: Business,
technology and the poor”. Routledge
Lots, M. and Brent A. (2017), Carbon Footprinting Guide: A practical footprinting calculation guide focusing on
measuring, monitoring, reporting and verification, Sandton: Nedbank
Martínez León, H.C. and Calvo-Amodio, J. (2017), “Towards lean for sustainability: Understanding the interrelationships
between lean and sustainability from a systems thinking perspective”, Journal of Cleaner Production, 142,
4384-4402.
Morioka, S.N., Evans, S. and Carvalho, M.M.D. (2016), “Sustainable Business Model Innovation: Exploring Evidences
in Sustainability Reporting”, Procedia CIRP, 40, 659-667.
Roca, L.C. and Searcy, C. (2012), “An analysis of indicators disclosed in corporate sustainability reports”, Journal of
Cleaner Production, 20 (1), 103-118.
Santos, Z.G.d., Vieira, L. and Balbinotti, G. (2015), “Lean Manufacturing and Ergonomic Working Conditions in the
Automotive Industry”, Procedia Manufacturing, 3, 5947-5954.
Saunders, M., Lewis,P. and Thornhill, A. (2009). Research methods for business students. Pearson education
Svensson, G., Høgevold, N., Ferro, C., Varela, J.C.S., Padin, C. and Wagner, B. (2016), “A Triple Bottom Line
Dominant Logic for Business Sustainability: Framework and Empirical Findings”, Journal of Business-to-
Business Marketing, 23 (2),153-188.
Svensson, G. and Wagner, B. (2015), “Implementing and managing economic, social and environmental efforts of
business sustainability: Propositions for measurement and structural models”, Management of Environmental
Quality, 26 (2), 195-213.
Viederman, S. (1994), Five Capitals and Three Pillars of Sustainability, The Newsletter of PEGS, 4(1), 5-12
Vinodh, S., Arvind, K. & Somanaathan, M. (2011), “Tools and techniques for enabling sustainability through lean
initiatives”, Clean Technologies and Environmental Policy, 13 (3), 469-479.
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business performance: An empirical study of manufacturing firms”, International Journal of Production
Economics, 129 (2), 251-26.
IAMOT 2019 | 952

Drivers and Barriers for Energy Management in
Process Industries: Critical Review of Literature
Nishita D. Parekh
MPSTME, NMIMS, Chemical Engineering Department, India
Email: nishita.parekh@nmims.edu
Jinu Kurian
MPSTME, NMIMS, Technology Management Department, India
Email: jinu.kurian@nmims.edu
Rajesh Patil
MPSTME, NMIMS, Mechanical Engineering Department, India
Email: rajesh.patil@nmims.edu
Richa Gautam
The TATA Power Co. Ltd., Corporate Sustainability Department, India
Email: richagautam07@gmail.com
Abstract
Energy Management influences energy demand, cost, environment and social impact that affect, a company’s
position in carbon market, customers’ willingness to pay and shareholders’ willingness to invest. To utilize
the available energy effectively and make the industrial systems sustainable, there is need for Industries to
work towards energy management and energy efficient solutions as they are the major consumers of energy
(oil, gas and coal) and emitters of greenhouse gases and carbon. Process industries are considered to be energy
intensive industries; many of these industries are heavily dependent on external supply of energy, whereas others are
less dependent as they are able to generate energy in-situ.
This paper explores the driving forces for incorporating energy management practices as continuous process, as well
as the obstacles for the same. This paper is based on a comprehensive literature review on recent studies on energy
management and energy efficiency from peer reviewed journal articles, conference proceedings, white papers, web
materials, reports and books.
The paper highlights the importance of treating energy management as strategic factor at par with production for
process industries to be effective and profitable. The importance of generating revenue by application of energy
management practices is the key take away from this paper. Also the findings relate to fact that both the driving
forces and the barriers coexists in society but the most optimal solution needs to be worked upon for betterment of
the environment, society and industry itself. The findings of the paper will be useful for future research on energy
management.
Keywords: Energy Management, Energy Efficiency, Process Industries, Drivers, Barriers
1. Introduction
We are moving towards an era of circular economy, the value and opportunity it provides is
being recognised and realised by Companies and their stakeholders. Geissdoerfer (2016) defines
circular economy as a regenerative system in which resource input and waste, emission and energy
leakage are minimised by slowing, closing and narrowing material and energy loops. Research also
identifies circular economy to be more sustainable compared to linear economy of use and dispose.
This concept is gaining momentum in the field of energy Management which is the important
contributor to mitigate climate change and saving environment by reducing carbon footprint
and reduction of greenhouse gases. United Nations development program (UNDP) has stressed
“affordable and Clean Energy” as one of their seventeen sustainable development goals, built on the
success of millennium development goals in January 2016, to protect the planet and ensure access
to affordable, reliable, sustainable and modern energy to all. Adding to it was the historic Paris
IAMOT 2019 | 953

agreement held in 2015 in Paris, France, signed by 195 countries called as Conference of Parties
21 or COP 21, “to set goal of limiting global warming to “well below 2 degree Celsius” compared
to pre-industrial levels”. The stage is already set for concentrating on Energy management as key
factor.
1.1. Energy Management and Energy Efficiency

Energy management was considered as a support function in industry, with no to low priority in
terms of conservation as the main focus was on productivity. This situation is changing rapidly
due to rising energy prices, increasing awareness about environmental effects and concern to
alleviate climate change. Chavan and Jain (2014), in their study states that Energy management
and Energy Efficiency are separate, but interrelated concepts. Energy efficiency is integral part of
energy management and is achieved when energy intensity (energy required per unit of product) in a
specific product, process or area of production or consumption is reduced without affecting output,
consumption or comfort levels. Backlund et al. (2012) pens that in spite of the increasing activity
in regard to energy management in business practice, so far there is no consistent understanding of
energy management in academic literature.
In this paper the authors would prefer to extensively use the definition of ‘Energy Management’
defined by Murphy and Mckay (1982); Thumann (1998), that Energy management is the judicious
and effective use of energy to maximise profits and to enhance competitive positions through
organisational measures and optimisation of energy efficiency in the process combining the skills of
engineering, management and housekeeping.
ISO 50001 or DIN EN 16001 defines Energy efficiency as the ratio between achieved performance
or the profits from services, goods or energy and the energy used to achieve this.
Energy Management influences energy demand, cost of product, environment and social
impact that affect, a company’s position in carbon market, customers’ willingness to pay and
shareholders’ willingness to invest. To utilize the available energy, effectively and make the
industrial systems sustainable, there is need for Industries to work towards energy management
and energy efficient solutions.
According to Schulze et al. (2016) industries have to realize that energy management can be an
effective lever for enhancing their production systems and operations towards improved energy
efficiency and thereby reducing energy use and related energy costs. This is true for Process industry
as they are major consumers of energy (electricity, oil, gas and coal) and emitters of greenhouse
gases and carbon.
Mahajani and Mokakshi (2015) in their book, describes Process industry or Chemical industry as
an industry that converts raw materials into processed goods, using different physical or chemical
processes which permanently change the properties of the basic materials in order to obtain a desired
form, in large quantity. This industry encompasses manufacturing of basic chemical raw materials,
fertilizers, pesticides, paints, synthetic chemicals, fine chemicals, specialized chemicals, textiles,
petroleum, pharmaceuticals, coal, metal, minerals, ceramics, paper and consumables such as food,
beverages, cosmetics and tobacco and others.
In process industry, Utilities (Energy) constitute about 5-20 % of cost of production, second after
raw materials cost, still it is considered as free issue to larger extent. Thus energy management and
energy efficiency in process industry would give double benefit of conserving environment and
climate and increase in profitability and competitiveness.
The primary source of energy in process industry, as shown in Fig. 1, is electricity, fuel and
In-situ generation of energy. For electricity and fuel the consumption can be direct or indirect. In
direct consumption the source is directly used as utility, for example, electricity for running pumps,
compressors and fuel for generating steam in boilers, furnace operations and others. In indirect
consumption the source is used to generate utility which is then used for consumption, for example,
IAMOT 2019 | 954

Drivers and Barriers for Energy Management in Process Industries: Critical Review of Literature
burning fuel producing steam for heating or power generation, using electricity for operating cooling
tower used for producing cooling water as utility. The in-situ generation of energy is related to
utilising energy which is produced as by product of process or waste from process. This includes
utilising exothermic heat of reaction to generate power, extracting energy from flue gases to be
vented, cogeneration and integration using pinch technology.
Figure 1: Energy Source for Process Industry
Ammar et al. (2012) points that significant amount of energy fed is lost either in leakages from process
units or wasted, thermal energy loss is unavoidable for process industry known for number of process
units. Process Industry being more energy intensive, with the high energy cost and the increased
importance of rationalising energy, the gains from energy management would be significant.
As pointed by Cagno and Trianni (2012); Schulze et al. (2016) a large body of literature exists,
from 1970s, by researchers from several discipline like engineering, behavioural and organizational
studies, economics, finance and others has been involved in studying or identifying Drivers and
Barriers to energy management in general or energy efficiency. Brunke et al. (2014); Trianni
et al. (2016) have tabulated the barriers and driver to energy management in manufacturing industry,
as observed from previous studies and added contribution to those studies by building on them.
The recent activities on the global scale has encouraged the authors to critically and systematically
review the available literature in light of advances in technology, technology exchange between
countries, increasing awareness for sustainable businesses, intense competition and global business.
1.2. Methodology Adopted for Literature Review

Number of studies has been carried out so far on the challenges and drivers to energy management
practices, Energy management and energy efficient methods, building on these base provided by
previous studies, this research tries to critically review the literature covering published articles
in last ten years. The authors found that the period from 2008 till 2018, has seen large number
of publications in terms of articles, reports and case studies on energy management practices,
energy efficiency, energy management systems, energy efficient technologies, energy performance
indicators and energy performance measurement. The selection criterion for literature review
excludes previous studies assuming the impact of technological diffusion across the regions,
awareness related to controlling climate change and decreasing carbon footprint. While selecting
the articles, the focus was on time of publication; type of publication; availability of full text articles;
sectors considered; type of studies undertaken like case study, survey, only literature review; content
of article including energy management practices and/ or energy efficient methods or technology.
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Table 1: Criteria for Selection of Literature Review
Criteria What’s Included in Selection of Literature
Period of studies 2008–2018 (10 years considering the advances in technology)
Type of Publication Peer reviewed journal articles, conference proceedings, white papers, thesis
(MS and Ph.D), web materials, reports and books.
Sector Chemical/ Process as well as manufacturing industry; Large or small and medium
enterprise.
Contents Study addresses energy management in general, energy management practices or
energy efficiency measures in organization
2. Analysis
2.1. Analysis of External Factors

Based on the literature review, an exhaustive list of identified challenges (barriers) and drivers
(enablers); were classified into internal and external factors. The barrier classification as shown in
Table 2 and driver classification is shown in Table 3.
In this analysis, the authors have considered chemical process Industry as a single entity or
organization; the factors that are not within the control of organization; contributing to favouring or
opposing of energy management practices and efficient methods, were considered as External factors
whereas the factors within the control of organization responsible for challenging or promoting the
energy management practices or energy efficient methods were listed as internal factors.
Figure 2: PESTLE Analysis
The external factors were further categorised into Political, Economic, Social, Technological, Legal
and Environment related factors and their impact analysed using PESTLE analysis (Fig 2) and the
internal factors were analysed using SWOT (Strength, Weakness, Opportunities and Threats) analysis.
IAMOT 2019 | 956

Table 2: Classification of Barriers to Energy Management: As Internal or External Factor
Barriers Internal/ External Source (Reference Number)
Higher investment for energy efficient technologies E 10; 13; 53; 28; 50; 12; 4; 18; 46; 65; 66
Irregular supply of Energy E 4; 38; 46; 25; 47; 34; 2
Limited access to capital by company I 18; 65; 66; 34; 10; 53
Limited availability of public information E 53; 38; 44; 4; 46; 65; 3; 34
Limited clarity of energy consumption in the company I 18; 50; 12; 3; 47
Limited knowledge of energy efficiency measures I 18; 10; 53; 38; 44; 28; 12; 4; 46; 25; 47; 34
Lack of resource (personnel and time) and skills for
I 18; 10; 13; 53; 38; 44; 12; 25; 66; 47; 34
energy efficiency measures
Apprehension about potential negative influence on
I 65; 34; 10; 13; 53; 38; 50; 12; 4
production performance
Tough competition to perform E 47; 39; 12; 23
Lack of awareness/ motivation amongst staff I 18; 5; 53; 38; 3
Lack of support from financial institutions E 56; 18
Other Priorities I 18; 5; 53; 38; 44; 50
Lack of incentives E 4; 46; 66; 49; 10; 38
Lack of Access to energy efficient technology E
Lower Price of Energy E 4; 2; 38
Failure to realise non energy benefits I 38; 4; 2; 18
Lack of country wise database/ success stories E 2; 62
Lack of trust on consultants/ ESCO I 53; 3; 2
Table 3: Classification of Drivers to Energy Management: As Internal or External Factor

Drivers Internal/ External Source
Decreases in price of energy efficient technologies E 2; 4
Increases in energy prices E 10; 13; 53; 4
Consumer demand E 10; 13; 4
Emerging market opportunities E 13; 53; 23
Environmental regulations E 10; 53;
Government regulations E 10; 53
Favourable Government policies E 53; 53; 2
Incentives (Tax exemptions, subsidy, audit subsidy) E 10; 56
Awareness (Availability of Information, success stories) E 10; 13; 53; 62; 2
Non-energy benefits (Revenue generation, Stakeholders willingness to invest,
I 18; 53; 39
carbon credits, trading of certificates, green behaviour)
Organizational policy, Long term strategy I 10; 13; 53; 23
Commitment from Top Management I 10; 13; 53;
Cost reduction due to low energy use I 10; 53; 23; 4; 2;
Available financial support/ loans E 10; 13; 53; 56; 18
International Competition E 10
ESCOs E 10; 13
External Pressure E 13; 4
Lower cost of consultancies and access to experts E 13; 18
Concern for Environment E 23; 4; 18
Strategic Issue I 39; 23; 9
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2.2. Analysis of External Factors

The external stakeholders play important role in promoting or hindering the activities related to energy
management practices or energy efficient technologies/ methods. The authors have opted for PESTLE
analysis of External factors to review their (barriers and drivers) impact on decision making process
and understanding the changes occurring within the given market and demographics. as in Table 4.
Table 4: PESTLE Analysis of Drivers and Barriers to Energy Management Based on Literature Review
Political Economic Social Technological Legal Environmental
Barriers
Irregular supply Lower Price of Limited Higher
of Energy Energy availability investment for
of public energy efficient
information technologies
Lack of incentives Lack of support Tough Lack of Access to
from financial competition to energy efficient
institutions perform technology
Lack of country
wise database/
success stories
Drivers
Favourable Increases in Consumer Decreases in price Government Environmental
Government energy prices demand of energy efficient regulations regulations
policies technologies
Incentives (Tax Available Emerging market ESCOs Concern for
exemptions, financial support/ opportunities Environment
subsidy, audit loans
subsidy)
Awareness Lower cost of International
(Availability consultancies and Competition
of Information, access to experts
success stories)
External Pressure
2.2.1. Political
The political will is very important to drive the energy management practices. The favourable
policies framed would help diffuse the energy management practices and energy efficient methods to
percolate well within process industry. As mentioned by Soni (2017); Mittal (2016), the provision of
uninterrupted supply of energy, incentives in terms of tax benefits, subsidies for energy audits, energy
efficiency programs and schemes, financial help or financial support platform would encourage
the companies to ensure energy management practices. The availability of information related to
energy audits, energy consultants/ experts, the success stories of energy management practices
in form of case studies on public domain would encourage even small and medium enterprises
to do their part. (Brunke et al., 2014); (Cagno and Trianni 2012); Bureau of Energy Efficiency
2008. In many developing countries the database related to energy consumption by companies,
best available technology and benchmarking techniques are not available or partially available,
this becomes challenge for policy makers to develop effective policy on energy conservation
(Banerjee et al., 2012) where as in developed countries the bench marking database help small and
medium companies to compare their energy performance and technology. (Ammar et al., 2012)
2.2.2. Economic
The price of energy varies from country to country; in some country availability of energy at low
cost does not provide incentive for companies to ensure energy management practices. At times the
IAMOT 2019 | 958

annual package of Energy manager could be more than the savings obtained from energy conservation
(Alcorta et al., 2014). On contrary the increase price of energy would force the companies to conserve
energy or reduce the usage of energy as in case of developed countries. The willingness and awareness of
financial institutions and banks are important to sanction the loan or financially help the companies for
reducing energy usage. (Cagno and Trianni 2012; Minciuc et al., 2017) The outsourcing compensation
to energy consultants and experts may be the deterring factor for the companies willing to optimise
energy use. The size of industry also matters as large companies gain due to economies of scale but for
Small and medium enterprises payback period or return on Investment is major concern. As observed
by Worrell et al. (2009) finance institutions play a critical role in implementing energy-efficiency
policies and their role extends beyond the provision of project finance, influencing technology choice.
2.2.3. Social
In the run to face the increasing global competition, energy management often is given low priority,
by companies as they focus more on production and balancing the forces of production. Applying
energy management practices is perceived as reduction in productivity. This barrier can be tackled
by driving the competition with energy management practices in place, thereby reducing the cost of
production, image makeover as green company, reaping benefits of low energy consumption, trading
carbon credits. Energy conscious consumer’s demand is key driver for the energy management
practices in company; the consumer is willing to pay extra for product of low carbon emission.
The concept of green supply chain also ensures that the suppliers, vendors and clients follow energy
management practices.
2.2.4. Technological
Energy efficient technology or methods can become barrier if not available for use
(patented/ trademarked) or is available at high price. Price is the bargaining factor when choosing
the technology for the industry and process industry is considered as capital intensive industry along
with energy intensive industry. The energy efficient technologies are perceived to be high on capital
investment requiring sufficient research and planning. (Mulder and Hagens 2008)
The incremental approach can be used in adopting to energy efficient technology/ methods like
extracting low grade thermal energy, integrating process using pinch technology, investing in
clean energy or renewable energy, investing in variable drive pumps and others. The saving from
energy could be between 5–40 % for process industries, if they use proper process integration
(Worrell et al., 2009). Energy supplies companies (ESCOs) if properly planned can effectively drive
the industry towards energy management practices.
2.2.5. Legal
The regulations made by government and Statutory bodies’ helps companies to focus on their energy
management goals, the companies competing globally would be required to adhere to the norms of
countries they are doing business into. The energy conservation regulations would help in ease of
doing business with an edge over competition.
2.2.6. Environmental
The concern for environment is increasing amongst the companies and environment protection
by reducing energy consumption or using clean renewable energy or optimizing the energy usage
is gaining momentum. The regulations framed to protect environment, is adding to drive energy
conservation and low carbon emission. The external pressure in terms of NGos, environmentally
conscious consumer drives the process industry to consider energy conservation as part of their
strategy. (Ammar et al., 2010)
IAMOT 2019 | 959

2.3. Analysis of Internal Factors

The analysis of external factors helps in understanding of industry’s internal factors. The internal
factors are built on the technical expertise, strategic agenda, behavioural factors and economic
consideration of process industry. The authors analysis the identified internal barriers and drivers by
carrying out SWOT analysis as depicted in Table 5. The internal drivers are considered as strengths
and the internal barriers as weakness. Capturing the strength will lead to opportunities that can be
encashed. The internal barriers are considered as weakness, if not attended to can develop in to threat
having negative impact on business.
Table 5: SWOT Analysis of Internal Factors
Strength Weakness
●● Organization Policy, Long Term Strategy ●● Limited access to capital by company
●● Commitment from Top Management ●● Limited clarity of energy consumption in the company
●● Realisation of non-energy benefits ●● Limited knowledge of energy efficiency measures
●● Cost reduction due to low energy use ●● Lack of resource (personnel and time) and skills for energy
efficiency measures
●● Apprehension about potential negative influence on
production performance
●● Lack of awareness/ motivation amongst staff
●● Other Priorities
●● Failure to realise non energy benefits
●● Lack of trust on consultants/ ESCO
Opportunities Threat
●● Profitability ●● Increased Energy bills
●● Increased employee awareness ●● Energy wastage
●● Investments in R&D for energy efficient ●● Opportunity loss of alternate revenue generation
technologies/ methods
●● Stakeholders willingness to invest
2.3.1. Strength and Opportunity

Energy management practices and energy efficiency methods when features on the long term strategy
of company and organization policy means, that the energy is considered as CORE to business.
(Rudberg et al., 2013) Thus the company would use incremental techniques to ensure optimum
energy use and conservation of energy. This would help in increasing profitability of company by
reducing cost of production. The committed top management attitude helps in reducing the process
and utility wastes by continuously monitoring the energy utilization, planning of energy resources
and uninterrupted availability of energy for production operations and at optimal costs. This serves
as dual purpose of increasing profitability and increasing employee awareness. The committed
management will also secure stakeholders trust and would be able to generate more investment for
company. The realisation of non-energy benefits will aid in making energy management in company
a success, along with creating an opportunity of investing in Research and Development for more
energy efficient processes.
2.3.2. Weakness and Threat

For process industry to be sustainable, continuous monitoring of resources is essential. The analysis
throws light on barriers in term of limited clarity of energy consumption by the company and
other priorities indicates showcases that the company. It also showcases that the company is not
considering energy as core resource and there is no track of consumption of energy. This can lead to
a situation (Threat) of Energy wastage and Increase energy bills. The energy wastage may occur in
form of energy loss from equipment/s or improper insulation, improperly designed piping network,
IAMOT 2019 | 960

lack of recovery from low thermal streams. This weakness can be tackled by continuous monitoring
of energy consumption, energy losses and maintaining database. This analysis is in concurrence
with Ammar et al. (2013) in his study indicating that energy efficiency comes with cost attached but
the return on investment needs to be studied and planned on case to case basis. The perception or
apprehension about potential negative effects on production performance weakens the company’s
resolve to be energy efficient and gain competitive advantage with it.
The analysis further points to the fact that the lack of knowledge of energy efficient measures or
awareness amongst staff is dependent on the information available over the public domain and the
drive within the employees to gather the information related to energy efficient methods and energy
management practices. This is supported in the study by Worrell et al. (2009) which observes that
with training and incentive systems in place this weakness could be partly catered.
The analysis also reveals that the lack of resources and skills needs to be addressed by the company
to reap benefits of energy management practices. This is in accordance with the study by Benedetti
et al. (2015) and Rudberg et al. (2013) which states that benefits can be accrued by putting energy
management as strategic agenda and core to business. With energy management as strategic function
proper planning and resource allocation is possible.
Failure to realise non energy benefits of energy management practices can lead to threat of
opportunity loss in terms of generating alternate revenue. With energy audit and energy manager in
place, various alternative revenue generation options can be worked upon like electricity generation
from surplus energy available in process industry, generating steam from waste heat and selling it
as product to nearby companies. The non-energy benefits also includes shareholders willingness
to invest, getting carbon credits and trading them, green behaviour of company. All these could be
opportunity loss if not encashed. (Minciuc et al. 2017)
Lack of trust on ESCO and consultants is dependent on how the energy experts/ consultants and
ESCO handles and understands the problems of the company and how well trained and experienced
they are. It is a mutual relationship to be managed to lower the energy bills of the company.
Alcorta et al. (2014) observes that the some companies perceive the consultants or experts as agents
of certain process provider or equipment providers, this lack of trust cannot get definite results.
3. Conclusion
Energy Management will gain more push in near future with Government and Industry working
together to fulfil the ambitious goal of Paris agreement on climate change. The path of energy
management is filled with barriers and there is no single policy that can help overcome them
together. The barriers can be systematically tackled by utilizing drivers for energy management.
The findings of this paper relate to fact that both the driving forces and the barriers coexists in
society but the most optimal solution needs to be worked upon for betterment of the environment,
society and industry itself. It becomes imperative to evaluate the external factors and internal factors
to enable decision making process pertaining to energy management and efficiency.
Based on the literature review, it is observed that government push or mediation are required for
Energy management to be treated as Strategic factor at par with production for process industries to
harvest its full benefits of being effective and profitable. The analysis also shows that the realization
of non–energy benefits will aid in generating additional revenue generation for the company.
As evident by the recent researches this would be the step towards circular economy, a regenerative
system which will add value to entire lifecycle of energy management.
This paper would help future research on energy management practices and importance of applying
energy management as strategic factor on company’s agenda.
IAMOT 2019 | 961

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Technology and Plastic Recycling: Where are
We in Zambia, Africa
Bupe Getrude Mwanza

Cavendish University Zambia,
Quality Assurance, Zambia
E-mail: bupe.mwanza@gmail.com
Charles Mbohwa
University of Johannesburg,
Quality and Operations Management, South Africa
E-mail: cmbohwa@uj.ac.za
Abstract
Plastic waste recycling continues to contribute to sustainable management of resources. Over the past 60 years, the
manufacture of plastic packaged products has increased. Majority of plastic products manufactured for the packaging
industry have substantive short life spans. These observations indicate the current utilisation of resources (petroleum)
for the manufacture of plastic materials is unsustainable. Recycling is one element of the 3Rs (reduce, recycle,
reuse) that continues to contribute to resource utilisation in the plastic industry. Opportunities to reduce quantities
of Plastic Solid Wastes (PSWs) disposal, carbon dioxide emissions and oil usage are provided through recycling.
Despite the existence of plastic recycling for many decades, quantities that are recycled vary contextually depending
on the application and plastic type. In many developed economies, high recycling rates for PSWs can be attributed
to a number of factors such as technology, regulations and value chain systems. Advanced technologies for recycling
such mechanical, feedstock, chemical, pyrolysis and glycolysis have contributed to high recycling rates in developed
economies. However, recycling rates in developing economies are still low and a number of factors have contributed.
The purpose of this research was; to assess the current status of technology in the industry in Zambia. The objectives
of the research were to; determine the types of plastics recycled, products manufactured from recycled PSWs, the
types of technology used in recycling PSWs and the technological drivers for improving recycling.
Using the database of companies listed by the Manufacturing Sector of Zambia and the Google Search Engine, a list
of plastic manufacturing and recycling companies in Zambia were identified. A descriptive research was conducted
since the research required understanding the current status on the subject matter. A total of 30 companies were
identified in Zambia and a structured questionnaire was designed and distributed to companies using sampling
without replacement. 22 companies answered the questionnaires.
The results reveal that, plastic products are manufactured by 95.5% of the companies and only 45.5% recycle PSWs.
More than 42000 tons of Polyethylene Terephthalate (PET), Polyethylene (PE, LLDPE, HDPE) and Polypropylene
(PP) is recycled per annual. The major recycling technology used by the companies is mechanical recycling and
majority of PSWs are recycled into plastic bottles and containers. Assessment of the technological drivers for
improving recycling, majority indicated ensuring material applicability in recycling processes.
This research presents the current state on the application of different types of recycling technologies for plastic
recycling as well as providing the way forward on improving recycling from a technological perspective. To
plastic recycling companies, the research has proved insights on the different types of recycling technologies for
consideration. To policy makers and future entrepreneurs in the field of sustainability, the research presents insights
on the different forms of recyclable plastics and the technology that can be implemented. Finally, the research
shows that, there is need to improve on the application of advanced recycling technologies in plastic recycling
companies of Zambia.
Keywords: Technology, Recycling, Developing Country, Sustainability, Zambia
1. INTRODUCTION
Plastic Solid Wastes (PSWs) management continues to be a worldwide challenge and in developing
economies, the challenge is greater. In most developing economies, waste management including
PSWs presents a number of challenges to the responsible stakeholders. The challenges include;
limited financial allocation to the waste management sector, unenforced regulations and legislations,
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lack of structured recovery and recycling systems, limited knowledge on waste management, lack
of waste segregation systems, lack of receptacles and lack of scientific and engineering methods
for treating wastes (Henry et al., 2006; Hui et al., 2006; Saxena et al., 2010; Pattnaik and Reddy.,
2010; Reinhart et al., 2016; Mohsen and Aghezzaf., 2015; Arbulú et al., 2016; Gobbi et al., 2017).
Despite these challenges facing developing economies, sustainable management of PSWs is
critical for resource conservation and efficient utilization. To this regard, a number of sustainable
engineered concepts for managing wastes exist and these are not limited to reduce, reuse, recycle,
remanufacture and energy recovery. It is important to note that, in developed economies, application
of advanced technology to the management of PSWs contributes to high recycling and recovery
rates (Hopewell et al., 2009; Xevgenos et al., 2015). Sustainable recovery for efficient utilization is
critical to achieving a circular economy. In the plastic manufacturing industry, a number of products
are manufactured with a short life-cycle. Hopewell et al. (2009) points out that, appropriately 50%
of packaging plastic products are single-use disposable products. Coupled with this, appropriately
4% of the world gas and oil is used as feedstock for plastics while 3-4% is used for energy provision
during manufacturing. As a result of these two observations, it is necessary to understand the
different aspects of efficient utilization of PSWs with the intent to conserve the none-renewable
resources. Therefore, this study focuses on assessing the different types of technologies used in the
recycling and recovery of PSWs.
A number of studies have focused attention on aspects for managing PSWs. Al-Salem et al. (2009)
conducted a study on the recovery and recycling routes for PSWs. This study looked at the different
types of recycling technologies used for managing PSWs. Hopewell et al. (2009) assessed the
challenges and opportunities for PSWs recycling. A number of challenges and opportunities are
highlighted and the study indicates that, technological and economic challenges are trending. Other
studies have focused attention on PSWs recycling (Brems et al., 2009; Scheirs, 2009; Paolucci et al.,
2010; Welle et al., 2011).
This study focuses on assessing the different technologies used in the recycling of PSWs. A number
of plastic recycling and manufacturing companies are assessed in Zambia. The objectives are to;
i. Determine the different types and amount of plastics products manufactured by the
companies on a monthly basis.
ii. Identify the different types of recycling technologies existing in developed
economies
iii. Assess the types of plastic recycling technologies used in Zambia
iv. Identify the different types of products manufactured from recycled plastics
v. Assess technological drivers for improving recycling in Zambia
2. Recyclable Plastics
Different types of plastic materials are manufactured and each type possess different characteristics.
According to the heating properties, plastics are divided into thermoplastics and thermosetting. As a
result of a number of favourable properties possessed by plastics, one of the key properties is ability
to be recycled and a number of thermoplastics are recycled into other products easily. According
to Plastic Wastes (2009), recyclable plastic consists of Poly Vinyl Chloride (PVC), Polypropylene
(PP), Polyethylene Terephthalate (PET), Low Density Poly Ethylene (LDPE), Polystyrene
and High-Density Poly Ethylene (HDPE). Plastic Recycling (2009) indicates that, majority of
recyclable plastic are manufactured into plastic packs, bags, bottles and many other post-consumer
packaging products.
It is necessary to understand the different products into which different types of recycled plastics
are manufactured. For PET, different products such as roasting bags, bottles, food trays, audio/
video tapes, container and many mechanical components are manufactured from its recycled plastics
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Technology and Plastic Recycling: Where are We in Zambia, Africa
(Shen et al., 2009). PET has become of the favourable recycling plastics as result of its incredible
recycling properties (Welle et al., 2011; Ezeah et al., 2013). PS recycled material is used in
the manufacture of food containers, toys, bottles and kitchen are (Plastic Recycling, 2009).
PP recycled material is usually manufactured into ropes, netting, crates, wine barrel and many other
(Plastic Recycling, 2009). PVC recycled material is mainly used for manufacturing building panels,
irrigation pipes, thin sheeting, window frames etc. (Plastic Recycling, 2009). PE consists of HDPE
and LDPE. LDPE recycled material is mainly manufactured into bottles, hosepipes, film bags etc.
while HDPE is manufactured into toys, industrial bags, cosmetic and detergents containers etc
(Waste Plastics, 2009).
3. Recycling Technologies
To achieve sustainability in the plastic industry, several types of recycling technologies exist and the
core purpose of each technology is to transform end-of-life plastic products into new ones. Al-Salem
et al. (2009) conducted a study on different types of plastic recycling technologies and the following
were studied; mechanical, feedstock, chemical and pyrolysis.
For example, mechanical recycling is widely used for recycling single plastic materials such as
PET, PE, PS, PP and other types (Al-Salem et al., 2009). Most plastic products used for day to
day activities are recycled via mechanical recycling (i.e. bottles, stationery, bags, blinds etc).
As a result of the environmental and economical benefits, majority of the recycling industries favour
mechanical recycling (Al-Salem et al., 2009).
Chemical recycling converts plastics into smaller molecules gases or liquids for utilization as
feedstock in petrochemical production (Mastellone, 1999). Feedstock recycling focuses on
converting PSWs into valuable and quality raw materials for manufacturing petrochemicals and new
plastics (Brems et al., 2012). Pyrolysis recycling converts heterogeneous PSWs for energy recovery
purposes (Scheirs, 2009; Paolucci et al., 2010).
4. Technological Drivers
BIO Intelligence (2013) alludes that, technological advancements have enabled the reducing of
recycling costs and contributed to bridging the gap between virgin and recycled plastics. To sustain the
plastic industry, a number of technological drivers are relevant to implement. A number of studies have
highlighted different and relevant technological drivers for consideration in the plastic industry such as;
improved recycling infrastructure and technology, improved sorting and size reduction technologies,
improved design for recyclability and applicability of recycled materials into manufacturing processes
(BIO Intelligence, 2013; Scheirs, 2009, Bremes et al., 2013; Welles et al., 2011). Implementation of
technological and other drivers in the plastic industry is likely to shift the existing gap for attaining
sustainable resource utilization and value chains positively.
5. Methodology

A descriptive research design was used to conduct the study. A descriptive research was conducted
in order to describe the current state of PSWs recycling in Zambia with emphasis on the types of
technologies used. A survey of Plastic Manufacturing and Recycling companies was conducted.
The companies were selected from different towns in Zambia.
5.2. Sample Size

Using the Google Search Engine and the companies listed in the Zambia Manufacturing Sector,
30 companies were identified. Grinnell and Williams (1990) indicates that, to conduct a statistical
analysis, a sample size of 30 is acceptable. Therefore, 30 companies were considered the sample
size for the survey.
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5.3. Questionnaire Design

After an extensive review of literature, the questionnaire was designed. According to Ghauri and
Grønhaug (2005), a careful review, discussion and conceptualization of literature is necessary prior
to the design of questionnaire.
The review of literature focused on addressing the research questions and to this effect, the
questionnaire was designed with four (4) sections. Section 1 focused on the types and amount of
plastic products manufactured and recycled by the companies. Section 2 focused on the types of
technologies used to recycled PSWs. Section 3 focused on the products produced from recycled
PSWs and finally section 4 addressed the technological drivers that influence recycling and recovery
of PSWs.
5.4. Context of Application

In developed economies, several studies on PSWs recovery have been conducted
(Murakami et al., 2015; Binnemans et al., 2013). Attention has been paid to the development of
recovery strategies in developed economies while studies of this nature are still in infancy stages in
developing economies (Saski et al., 2010). A number of PSWs management challenges are faced in
developing economies. Therefore, the study focuses attention on this waste type in order to establish
the gap between technological advancement and PSWs recycling. Further, few studies have focused
attention on PSWs management (Dias and Braga Junior, 2016; Binga et al., 2012).
6. RESULTS AND DISCUSSIONS
6.1. Monthly Production Rates for Plastic Products

Figure 1 depicts the results from the assessment on the types of plastic products manufactured by
the companies. The results indicate that, majority of the companies that responded to this question
manufacture Polyethylene (PE, LLDPE, HDPE) between (0 to 500 tons) per month. However,PET
is the second most manufactured plastic between (0 to 500 tons) per month. The results also depict
that, majority of the plastics manufactured are within the 0 to 500 tons per month. The manufacture
of plastic products is as a result of the favourable properties of plastic products compared to other
products manufactured from other materials (Hopewell et al., 2009). The manufacture of PET and
PE within the range of 0 to 500 tons can be attributed to the market for the products as well as the
manufacturing capacities of the technologies. Further, Figure 1 depicts that, more than 2000 tons of
PET, PE and PP are manufactured per month.
Figure 1: Monthly Plastic Products Production Rates
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6.2. Monthly Recycling Rates of PSWs

The results in figure 2 depict that, Polyethylene Terephthalate (PET) has the highest recycling rate
of between 1501 to 2000 per month. PET has become one of the most recycled plastics as a result
of the incredible recycling properties it possesses (Welle et al, 2011, Ezeah et al, 2013). The results
also depict that, most of the companies recycle Polyethylene between (0 to 500 tons) per month.
Further, it is cardinal to indicate that, seven types of plastics are manufactured by the assessed
plastic manufacturing and recycling companies. However, only three types are recycled. Also, the
number of companies practising recycling of PSWs is less than the actual number of companies
manufacturing plastics. The comparison of the number of plastic manufacturing companies
performing recycling activities is relevant and provides a platform for investigating the drivers that
can influence sustainable recovery chains.
Figure 2: Monthly PSWs Recycling Rates
6.3. Types of Recycling Technologies used by the Companies

Figure 3 depicts that; four different types of recycling technologies were assessed. The assessment of
the types of recycling technologies was conducted to determine the types of recycling technologies
used by the plastic recycling companies in Zambia. The results in figure 3 depict that, majority of the
companies use mechanical recycling. Of the 22 companies that responded to this question, majority use
mechanical recycling technology to recycle Polyethylene Terephthalate (PET). Al-Salam et al (2009)
affirms that, the mostly used recycling technology for most of the products world-wide is mechanical
recycling. It presents economic and environmental advantages compared to the other forms of recycling
technologies (BIO Intelligence, 2013; Al-Salem et al., 2009, Plastic Recycling, 2009). None of the
companies use Feedstock, Chemical and Pyrolysis recycling technologies to recycle the three types of
PSWs. The gap as a result of under-utilization of other forms of recycling technologies states the need
to investigate the factors preventing application. Understanding the factors preventing application of
sustainable and advanced recycling technologies is key to resolving the gap and achieving sustainable
value chains.
Figure 3: Types of Plastic Recycling Technologies
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6.4. Products Produced From Recycled Plastics

In order to present a clear picture on resource utilization in the plastic industry, it is necessary to
understand the different aspects in which PSWs are utilized. The results in figure 4 depict the different
types of products manufactured from recycled plastics. The results indicate that, majority of the
companies recycle Polyethylene Terephthalate (PET) and Polyethylene (PE, LLDPE, HDPE). A high
representation of recycling rates in PET and PE plastic products is supposed by Plastics Recycling
(2009) and Welle et al. (2009). Majority of the post-consumer products are manufactured from
PET and PE and hence the high recycling rates. Further, PET has favourable recycling properties
(Al-Salem et al., 2009). The figure indicates that, PET recycled materials are manufactured into
bottles. Shen et al (2009) affirms that PET is recycled into bottles, trays, and many other products. PE
recycled material is mainly manufactured into plastic bottles and containers (Waste Plastics, 2009).
Figure 4: Types of Plastic Products Manufactured from Recycled PSWs
6.5. Technological Drivers to Influence Recycling in Zambia

The descriptive statistics on the technological drivers for influencing PSWs recycling in Zambia are
depicted in Table 1. The results indicate that, ‘ensuring recycled plastic applicability in manufacturing
processes’ (4.40, 0.58) has the highest rating on the Likert scale of 1 to 5. The companies have
indicated that, ensuring the applicability of recycled plastics in the current manufacturing processes
will influence the recycling of PSWs. Nevertheless, ‘improving the design for recyclability’
(4.40, 0.60) is the second in rating. BIO-Intelligence (2013) outlines a number of key technological
drivers for advancing recycling in the plastic industry and ensuring recycled plastic applicability
in manufacturing processes is outlined. Improvements in a number of technological drivers for
advancing plastic recycling is important for sustaining value supply chains among the stakeholders in
the plastic industry (Bio- Intelligence, 2013; Scheirs, 2009, Bremes et al, 2013; Welles et al, 2011).
Table 1: Descriptive Statistics on Technological Drivers for PSWs Recycling
Mean Standard Deviation
1. To improve technologies for recycling 3.60 1.50
2.To improve technologies for reducing the size of PSWs 3.30 1.20
3.To improve technologies for sorting PSWs 3.80 1.40
4. To improve design for recyclability 4.40 0.66
5. To ensure the applicability of recycled PSWs in 4.40 0.58
manufacturing processes
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7. CONCLUSION
The study has assessed a number of factors that can contribute to sustainable recycling and
recovering of PSWs. The different types of PSWs, recycling technologies and recycled products
contribute greatly to the eco-image of sustainable value chains in the plastic industry and mostly
to the stakeholders in PSWs treatment, recovery and recycling industry. Utilization of end-of-life
products will benefit the current drive for achieving a circular economy as well as bridging the
existing gap of plastic recycling in lower and medium income countries.
Different types of recycling technologies have been assessed and mechanical recycling is the mostly
used technology among the assessed companies. Both developed and developing economies use
mechanical recycling for recycling majority of end-of-life plastic products. For the practical application
of advanced recycling technologies, understanding the technological drivers is relevant and the study
has stressed major drivers for consideration as sustainable value chains are created. To ensure practical
application of a number of recycling technologies, products manufactured from recycled plastics are
outlined. This aspect to important for concerned PSWs recyclers and upcoming recyclers.
It is important to understand and consider technology as one of the driving forces to achieving
sustainability in the recycling industry. Therefore, this information is important to the plastic
industry, policy makers and waste managers. In developing economies, application of advanced
recycling technologies is key to achieving competitive recycling and energy recovery rates.
8. ACKNOWLEDGEMENTS
The authors are grateful to the Plastic recycling and manufacturing companies that took time in
responding to the questionnaires. Special thanks are extended to the University of Johannesburg for
the financial support.
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Review of Life Cycle Assessment and
Environmental Impacts from the
Oil & Gas Sector
Shilpi Shrivastava
NITIE, Environmental Engineering & Management, India
E-mail: Shilpi.shrivastava.2016@nitie.ac.in
Prof. Seema Unnikrishnan
NITIE, Environmental Engineering & Management, India
E-mail: seemaunnikrishnan@nitie.ac.in
Abstract
Introduction and Purpose: The oil and gas sector is the subject of key interest and concern because of its
increasing demand, the dependency of various sectors and high environmental impacts. Since this sector is growing
drastically over a period of time, it is their foremost responsibility to make necessary changes in its supply chain.
The Life cycle assessment of this sector will give us the idea to enumerate the various emissions, energy use, fuel
usage, raw material requirement, resource consumption, material and energy balances related to each life cycle
stages. By performing the detailed literature review, we know the various environmental impacts in each stage,
existing life cycle models, different LCA methodologies and various cleaner technologies for the oil and gas sector.
Based on the literature analysis, we have presented some discussions on recent trends in the oil and gas sector,
cleaner technologies and propose future research directions on performing LCA study.
Methodology: A detailed literature review was done by identifying the research papers focusing on the LCA
in oil and gas sector. The database referred were EBSCOhost, Science Direct, Google Scholar, Web of science.
The literature search is limited to academic search from 1990 to 2018.
Findings: There are many studies on LCA in oil and gas sector but none in Indian context focusing full cradle to
grave analysis. In India despite a regulatory lid on polluting fuels, the overall fuel demand showed a healthy trend
in 2017-18 on the back of strong growth in transportation fuels. The total consumption of petrol was increased from
10.14 percent to 26.17 MT, while diesel consumption grew by 6.63 percent to 81 MT in 2018. Various studies have
confirmed that the main environment polluting hotspot identified in the supply chain was the refining activity, the
maximum CO2e emissions is from the exploration and drilling stage i.e., 60-65% and the local pollutant emission is
maximum in the oil usage phase which is approx SOx emissions is 5.45 MT, NOx is 6.88 MT and black carbon 8.5
MT. Some of impact categories with their values are Climate change potential 3.9*10-1 kg CO2 eq, ozone depletion
potential 1.1*10-9 kg CFC-11 eq, human toxicity potential 1.1*10-3 kg1,4 DB eq and acidification potential 1.0*10-3
kg SO2 eq.
Contributions: The results can be used in the comparative assessment of different crudes, by the government
and the industry for decision making, by the various stakeholders and researchers who are conducting LCA and
proposing models for systems that are using the petrochemical products in different context. LCA can also help in
evaluating the available options and suggesting more sustainable alternatives so that the dependency on the energy
sector can be minimized. Apart from environmental sustainability, economic and social sustainability are also the
hotspots to be researched
Keywords: Life Cycle Assessment, Life Cycle Models, Emissionsm, Environmental Impacts
1. Introduction
The oil and gas sector is an important aspect of the world economy. It has the potential to cause
severe environmental degradation, not only to the physical environment, but also to the health,
culture, and economic and social structure of local and indigenous communities (Wawryk, 2002).
Since this sector is growing drastically over a period of time, it is their foremost duty to make
necessary changes in its supply chain. Oil and gas companies are representing a considerable portion
of wealth in the midst of the world’s major industries.
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According to the 2015 United Nations Climate Change Conference, India is the third largest GHG
emitter in the world. India and other developing countries are focusing more on the alternate fuels,
but the transportation sector is still dependent on conventional fuels. This is due to the reason that
alternate fuels which are assumed to be cleaner are emitting more carbon dioxide as compared to
conventional fuels per unit production of energy (Grubb, 2001) and the extraction of energy from
these renewable sources require high initial costs, lack of social acceptance and severe competition
from current fossil fuels (Chang & Yong, 2007). Therefore the existing oil and gas industry requires
a lot of attention for the implementation of sustainable and green practices (Raut et al., 2018).
Life Cycle Analysis (LCA) is a technique to assess environmental impacts associated with all the
stages of a product’s life from cradle to grave, that is, from raw material extraction through materials
processing, manufacture, distribution, use, repair and maintenance, and disposal or recycling
(US Environmental Protection Agency, 2010). But according to the recent literature
(Jacquemin et al., 2012), LCA can be used as a tool for assessment of processes and can be used to
study the supply chain and make it more sustainable.
Figure 1: Distribution of Oil and Gas Sector
The oil and gas sector is divided into three major components i.e., upstream, midstream and
downstream. The upstream is also known as Exploration and Production (E&P) and is responsible
for the searching of natural oil fields and drilling underground wells. The midstream sector is the
storage and transportation of crude oil; it links the upstream and downstream sector. The downstream
sector is of refining the crude oil, storage distribution, and marketing. Emissions through direct
combustion of fossil fuels are easily recognized as part of the fuel process chain, but the emissions
associated with other links in the supply chain is less understood.
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Review of Life Cycle Assessment and Environmental Impacts from the Oil & Gas Sector
The LCA approach was not recognized by many industries but the methodology was gradually
getting accepted. Few sectors such as soft drinks, plastics, personal care products, detergents, and
automobiles were known to be pioneers investing in LCA. This was followed by other sectors like
manufacturing industries, agriculture, mining, oil and gas extraction, construction/building material
sector, and retailing, and more recently by infrastructure industries (electricity, gas and water supply,
transport, storage, and communication) (Jacquemin et al., 2012).
3.1. Various Technologies used in the Oil and Gas Sector

Oil and gas sector is one the most important sector in the country’s economy. The main challenge
faced by this sector is to satisfy the demands for safe, abundant and affordable petroleum products
within the evolving regulatory environment (Report on Technology Vision 2020), the technology
has the potential to achieve this demands over the coming decades. The changes in prospect
are exciting and profound–such as digitization and artificial intelligence, the electrification of
transport, and the scaling up of renewable energy. The required technology transition in this sector
is discussed below-
3.1.1. From Brownfield Refinery to Greenfield Refinery

Most of the Indian refineries are the brownfield refinery; it is already constructed and is upgraded and
expanded with time. Recently, three Indian downstream sector–IOCL, HPCL and BPCL have recently
signed a Joint Venture (JV) agreement to create the world’s largest refinery-cum-petrochemicals
complex Ratnagiri district at the cost of $40 billion and a refining capacity of 60 million tonnes per
annum (MMTPA). It will be a greenfield refinery (https://energy.economictimes.indiatimes.com/
news/oil-and-gas)
3.1.2. From Conventional Refinery to Biorefinery

The Go Green initiative is now applicable in Refineries too. The conventional petroleum refinery is
now changed to a Biorefinery by implying the Ecofining technology. This pioneering idea will help
to encourage the industrial application of the Ecofining technology under green refinery project.
The Ecofining technology undergoes reaction in two stages: firstly the deoxygenation process
is completed under hydrogen partial pressure and the product is processed in next stage where
isomerization is done, which helps in improving the properties of the obtained products
((https://www.eni.com). The Ecofining process maximizes the green production which is esteemed
as biocomponents for transportation fuels such as Green Diesel, Green Naphtha, Green LPG and
Green Jet.
3.1.3. Moving From Desulphurization to Biodesulfurization (BDS)

Indian refineries have started DHDS (Diesel Hydrodesulphurization) process to bring down the
sulfur content which is a threat to public health and corrodes the engine which minimizes its life.
This technology has brought down the sulfur content from 10000 PPM to 10 PPM.
(HPCL sustainability Report, 2017)
As we are moving towards green processing of fossil fuel, the Biodesulfurization (BDS) has
drawn wide attention for removal of sulfur compounds. Various bacterial species which are able to
bio-transform DBT or grow independently a sole sulfur has been recognized (Srivastava V, 2011).
3.1.4. From Wastewater Treatment to Zero Liquid Discharge (ZLD) System

ZLD systems help in treating 100 percent wastewater (internal/process wastewater, fire/ stormwater,
utility wastewater) and effluents (Popat A, 2015). The Zero Liquid Discharge System consistently
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producing treated effluent (pH 6-8.5, sulphide < 0.5 ppm, COD < 50 ppm, oil and grease < 5 ppm,
phenol < 0.35 ppm) meeting guarantee parameters for reuse for various effluents.
3.1.5. Other Existing Clean Technologies

Tail gas treating unit: The tail gas treating unit converts the small number of sulfur compounds
(< 5%), which were not converted in the sulfur recovery unit (SRU), into hydrogen sulfide (H2S)
and recycles it back to the SRU for additional processing
Fluid Catalytic Cracking (FCC): Fluid catalytic cracking (FCC) is an essential component in the
petroleum refinery. It converts the long-chain hydrocarbons into the gasoline precursors which can
be used in different industries such as fuels, plastics, and lubricants. The FCC minimizes the energy
consumption in the processing phase and maximizes the premium gasoline production.
Flare Gas Recovery Unit: Flare Gas Recovery (FGR) is the process of recovering the waste gases
that would normally be flared, so they can be used as fuel gas elsewhere in the facility. This results
in reduced emissions and cost savings.
Vapor Recovery System (VRS): It is the process to recover the vapors of petrochemical fuels and
stop them from escaping into the atmosphere. This is generally installed at filling stations which help
in reducing pollution.
In spite of major developments in the oil industry in India, we still depend on developed countries
for oil. The main obstacle in technology transfer is firstly the major economic factors: (Eslami. S.
R. , 2001) Such as low saving rate, lack of economic growth, lack of investment in R & D, lack
of developed manufacturing, management & quality control systems, lack of necessary technical,
engineering, and science skill in industry section to improve product technology and process of
imported technology Asghari et al. (2013)
3.2. Environmental Impacts of Oil and Gas Sector

Table 1: Effect on the Environment of Different Processes of Oil and Gas Sector
Process in Oil and Gas Sector Waste Type Effect on Environment
Pipeline Explosion Air and water pollution
Oil spillage through pipelines Groundwater contamination,
Transportation underground aquifers
Oil spillage through ships Marine pollution
Oil spillage through tank trucks Pollutes surrounding area
Oily water Affected nearby lagoon
NOx Sox Acid Rain
Crude Refinery CO2 Climate Change
Source: Steigerwald(1960) Atmospheric
Spent Caustic Nearby lagoon
emission from petroleum refineries
Process Effluents Nearby lagoon
Leaked/ Spilled oil Polluted Surrounding rain
Bulk Oil Storage Waste Oil Marshy Land and Stream
Source: Atmospheric emission from
petroleum refineries Leaked/ Spilled oil Polluted Surrounding air
Unburnt hydrocarbons Photochemical smog
CO Global warming
Final Usage for Transportation
NOx Acid Rain
Lead Oxides Toxic substance
The demand for oil is growing very rapidly with the economic expansion which is increasing the
production. There are 3 main challenges faced by the oil & gas sector which is Pollution, global
climate change and impact on bio-diversity (Arscott, 2004). The increase in production cause
environmental damage in each stage of its life cycle from exploration to refining to its final
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consumption which is generally referred as Well-to-Wheels (WTW). The effect of pollution is on the
regional level as well as global level. The majority of pollution is from the oil refineries which are
consuming large amounts of energy and water, producing large quantities of wastewaters, releasing
hazardous gases into the atmosphere and generating solid waste that is difficult both to treat and
to dispose of (Mariano, Lèbre & Rovere, n.d.). Apart from environmental pollution, it also affects
human health by causing respiratory diseases. (Morsali, S. 2018)
3.3. Review of Existing Life Cycle Models for Oil and Gas Sector
The life cycle models have been proposed by various researchers working on LCA which can
be easily understood by the readers. The models prepared must be verified by both expert and
non-expert LCA users so that the proposed models can be made more perfect and user-friendly
(Vineyard & Ingwersen, 2017). These models can be used for future exploration and to establish the
relationship between methodologies which can result in more collaborative, in-depth assessments
(Vineyard & Ingwersen, 2017).
Some of the models are described below-
3.3.1. FUNNEL-GHG-CCO (Fundamental Engineering Principle

based Model for Estimation of GHG in Conventional Crude Oil)
This LCA model is based on the fundamental scientific principle to compute the GHG emission
of all the life cycle stages of differently selected crudes. It is a bottom-up data-intensive model.
(Rahman et al., 2015).
3.3.2. OPGEE (Oil Production Green House Gas Emission Estimator)

It is an open source engineering based life cycle assessment model which is used to test the
reproducibility from well to refinery inlet gate (WTR) GHG emissions. OPGEE is built with separate
modules, including drilling, production, processing, and transport of crude. All sources of direct
emissions are included in the model, including both combustion emissions and fugitive emissions
(Vafi & Brandt, 2014)
3.3.3. Sengupta
This model was proposed for US petroleum refinery operations, which helps in estimating the impacts
of refinery operations. The model describes the allocation factors, air emissions, and products and
supports the emission modeling research carried by Sengupta and others at the Environmental
Protection Agency (EPA) (Vineyard & Ingwersen, 2017).
3.3.4. GHGenius
GHGenius model can estimate the air emissions for past, present, and future (through to 2050).
It analyzes the greenhouse gas (GHG) emissions and other air emissions related to the production
and usage of conventional and alternative transportation fuels (Vernel, Fleming 2006). This is
done using the historical data and correlations that are stored in the model and changes with time.
This model is much suitable for Canadian application (Vernel, Fleming 2006)
3.4. LCA Methods
3.4.1. Eco-indicator 99
It is one of the most widely used impact assessment methods in LCA. It is the successor of
Eco-indicator 95, the first endpoint impact assessment method, which allowed an environmental
load of a product to be expressed in a single score. (Pre consultant). Garg, Vishwanathan & Avashia,
(2013) uses eco-indicator 99 method to compare the life cycle impacts on ecosystem quality, human
and resources. Nanaki & Koroneos, (2012) also used this method to compare the LCA of Diesel,
Biodiesel and gasoline and the various impact categories.
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3.4.2. Impact 2002

The IMPACT 2002+ LCIA methodology implements the combined midpoint/ damage approach,
relating all types of life cycle inventory results (elementary flows and other interventions) via 14
midpoint categories to four damage categories. (Joliet et al., 2003).
3.4.3. CML 2002

CML 2001 is an impact assessment method which restricts quantitative modeling to early stages in
the cause-effect chain to limit uncertainties. Results are grouped in midpoint categories according
to common mechanisms (e.g. climate change) or commonly accepted groupings (e.g. ecotoxicity).
(Thinkstep Gabi).
(Shi et al., 2015) has used CML2000 where 5 environmental impact categories are assessed which are
the global warming potential, acidification potential, nutrient enrichment potential, ozone formation
potential and ozone depletion potential. Furuholt (1995) also used CML to compare the impact
categories of gasoline and diesel which are Global Warming Potential, Photo-oxidant formation,
Eutrophication, acidification, consumption of fossil energy and waste generation
3.4.4. ReCiPe 2008

The ReCiPe method is used to transform the long list of life cycle inventory results, into a limited
number of indicator scores. These indicator scores express the relative severity on an environmental
impact category. (Pre sustainability)
Morales et al. (2014) and Goedkoop et al. (2009) used the ReCiPe 2008 method where the hierarchic
perspective was considered for the environmental impact assessment. The impact categories
considered were climate change, ozone depletion, human toxicity, photochemical oxidation
formation, terrestrial acidification, freshwater eutrophication, marine eutrophication, terrestrial
ecotoxicity, freshwater eco-toxicity, marine ecotoxicity, water depletion, mineral depletion, and
fossil depletion.
3.4.5. LCA in the Oil and Gas Sector

GHGs and other toxic gases are emitted in all the stages of fuel production from extraction of raw
materials to the combustion of fuels in an engine in the usage phase. Every fuel and production
process exhibits different properties, different extraction methods, and GHG emissions, therefore,
the source of crude oil should also be considered while performing LCA (Garg et. al., 2013).
Eriksson & Ahlgren (2013) discusses that fuel used in the refinery; its efficiency and heat usage
have an effect on the LCA results. For instance, high-quality insulation of pipes and equipment
reduces the need for heating. The fuel used for the heating purpose also plays an important role in
the emissions and primary energy use from the refinery. It is also important to perform a complete
life cycle assessment of conventional crude oils from a variety of sources to help in policy-making
towards sustainability and fulfilling environmental regulations (Rahman, Canter & Kumar, 2015).
The main challenges in performing LCA of transportation fuels are (i) appropriate cost accounting
and benefits of alternative fuels (ii) Lack of consistency in including economics-based marginal
effects in fuel LCAs. (iii) Inconsistent application of time trends i.e., the energy intensity of crude
oil production tends to increase with depletion (Brandt 2011) as a result of increased work of lifting
of fluids as an oil field depletes (Wallington et al., 2017). Hawkins et. al (2012) compared the
environmental life cycle assessment of conventional vehicles and electric vehicles and discussed
the various problems in shifting from conventional vehicles to electric vehicles. McKinsey &
Company (2009) suggests that electric vehicles would aggregate emissions at a few point sources
(power plants, mines, etc.) instead of millions of mobile sources, making it conceptually easier to
control and optimize societies’ transportation systems
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Table 2: Various LCA study focusing on the oil and gas sector
Assessment
Boundaries
Categories
Identified
Variables
Findings
software
Authors
/Model
Impact
(Year)
Scope
LCA
Garg Well-to Sima Emissions Human health, 1. The crude oil source should To implement
et al. -Storage Pro from acidification, be considered the differential
(2013) different eutrophication 2. Total transportation environmental taxes,
transportat emissions are higher, but not the research should
ion fuel, high enough as compared to first focus on impact
energy other stages in the complete assessment.
efficiency LCA of transportation fuels.
Bicer, Cradle- Sima human ozone layer To achieve sustainable and This study is limited
Dincer to-grave Pro toxicity depletion, Global clean transportation, the only to the
(2018) values, warming, Abiotic attention should be on the environmental
depletion, eco-friendly and cost-effective impacts, for the
acidification, production of vehicles, further research life
eutrophication, batteries and cycle costing
human toxicity, alternative fuels. of these alternative-
and terrestrial fueled vehicles can
ecotoxicity be performed.
Rahman, Well-to- FUNNEL Energy use, Global Warming GHG emissions are calculated As a future scope
M. M., Wheel -GHG- emission Potential using FUNNEL-GHG-CCO of this study, The
Canter, CCO factors model. This model considers results can be used
C. & all the life cycle stages of in the comparative
Kumar, production of crude oil from assessment of
A.(2015) extraction to the combustion different crudes and
in the engines. Amongst all by the government
the crudes considered in the and the industry for
paper, gasoline has higher decision making.
GHG emissions than both
diesel and jet fuel. This is due
to high energy consumption in
gasoline production.
Iribarren, Case Not electricity Global warming, The research paper focuses Not specified
D., study Specifie generation, photochemical on the LCA study of the
Peters, D natural gas oxidant formation, production of biofuels
J.F. & production, cumulative energy from the fast pyrolysis of
Dufour, and direct demand, biomass system. This shows
J. (2012) emissions acidification, land that the pretreatment of the
competition, ozone lignocellulosic biomass
layer depletion, feedstock (drying and
and grinding), the pyrolysis process
eutrophication and the steam reforming
of natural gas to provide
the hydrogen used in the
hydroprocessing stages were
the sources with the highest
environmental impact.
Vineyar Well-to- Review Not well-to-pump This paper has demonstrated This comparison
d, D.L.& pump and specified emissions the can be used by the
Ingwers compari differences and evaluated various stakeholders
en, W.W. son of the data quality of five LCA and researchers
(2017) various models. who are conducting
LCA LCA and making
models models for systems
that make use of
petroleum products.
IAMOT 2019 | 979 IAMOT 2019 | 979

Assessment
Boundaries
Categories
Identified
Variables
Findings
software
Authors
/Model
Impact
(Year)
Scope
LCA
Matos, Cradle- Not Risk Global warming The author argues that shift The proposed
S. & to-grave specifie Manageme potential, ozone towards the sustainable frameworkwill
Hall, J. D nt,Stakehol depletion, eco- development has increased help managers to
(2007) der theory toxicity, energy the complexities and given determine if LCA is
consumption, indefinite challenges that many appropriate or not.
nitrification and environmental management
acidification techniques cannot address. It
has also provided a framework
that addresses these issues
and discusses implications for
practitioners and management
theory.
David D. Producti Simapro Emissions Not specified In this work, LCA of the Pyrolysis of biomass
Hsu on to production of gasoline and for fuels has been
(2012) end use diesel from forest residues less well studied than
via fast pyrolysis and gasification and the
hydroprocessing is performed. greater uncertainty
Grid electricity and natural range around fuel
gas used account for 81% of yield contributes
the net GHG emissions in the to the more
base case. skewed uncertainty
distribution than for
gasification in the
previous work
Luo, L., Gate-to- CMLCA Impact Abiotic depletion, The research has focused In the future case
Van Der grave (Chain assessment, GHG emissions, on the LCA of gasoline and scenario ethanol
Voet, E., Manage fuel usage Ozone layer ethanol as fuels and results industry can be made
& -ment depletion, showed that ethanol fuels more economically
Huppes, by LCA Photochemical are better than gasoline, attractive by studying
G. oxidation, Human while gasoline is a better its cost model
(2009) and eco-toxicity, fuel where human toxicity, and technological
Acidification, ecotoxicity, acidification and development can
Eutrophication eutrophication are concerned. be studied which
helps in lowering
the environmental
impacts.
Garraín, Well-to- Not Temperat- fossil energy The research shows that HBD the matter of
D., tank specifi- ure use and GHG (Hydrobiodiesel) systems have indirect Land Use
Herrera, Ed emissions good environmental & Change (iLUC),
I., technical performance when which is leading
Lechón, its compared to FAME (Fatty to higher GHG
Y. & Acid Methyl Ester) and emissionsrelated to
Lago, C. diesel. Regarding the impact biofuel or renewable
(2014) categories analyzed, the diesel production
reductions in terms of fossil
energy use and GHG emissions
could attain 2% and 9% resp.
IAMOT 2019 | 980

Assessment
Boundaries
Categories
Identified
Variables
Findings
software
Authors
/Model
Impact
(Year)
Scope
LCA
Nanaki, well-to- Simapro Energy Ecotoxicity, The author has compared the This study can be
E.A., & wheel 5.0 Prices, Acidification, environmental impacts ofthe considered as an
Koroneo investment inorganic use opportunity for
s, C.J. and respiratory effects, of gasoline, diesel, and further research
(2012) operation fossil fuels, biodiesel and evaluate the
cost eutrophication, in Greece. From the available options
Organic respiratory environmental point of view, for a sustainable
effects, greenhouse biodiesel seems to be eco- transportation system
effect friendly because the GHG planning in Greece.
andcarcinogenic emissions are very ow as
effects. compared to gasoline and
diesel.
Methane emission is also low.
But, the use of biodiesel as the
transportation fuel increases
emissions of PM10, nitrous
oxide, nitrogen oxides (NOx)
as well as nutrients such as
nitrogen and phosphorous;
which is the main reason for
eutrophication.
Morales, well-to- Simapro Acidification, The outcomes of refining Future improvements
M., wheel v8 human toxicity, activities and use of gasoline in of
Gonzale Climate change, cars are extremely sensitive to technologies in
z-García, Ozone depletion, the allocation approach gasoline production
S., terrestrialecotoxicit considered. The maximum and transport sector
Aroca, y, water depletion, impacts were found in the can be done. It can
G., & marine economic allocation, then by be identified as the
Moreira, eutrophication, the volume allocation and key subsystems
M.T. mineral depletion lastly energetic allocation. The within the life cycle
(2015) photochemical high impacts resulting from the of gasoline.
oxidation economic allocation were due
formation, marine to the high price assigned to
ecotoxicity, the gasoline in the Chilean
terrestrial market
freshwater
eutrophication,
freshwater
ecotoxicity and
fossil depletion
Table 2: Comparison of LCA Study of Various Countries

Author Country Functio Boundary Software/ LCIA Impact Category
Findings
(Year) Studied nal Unit Selected Methods Analyzed
Cavalett Brazil 1 MJ of Cradle to Comparison of the Global warming potential Authors have compared
et al. fuel grave seven midpoint (GWP), fossil depletion different LCIA methods
(2012) LCIA methods and ozone layer depletion of ethanol and gasoline
CML 2001, Eco- potential (ODP). and found that ethanol has
indicator 99, less impact than gasoline
TRACI 2, ReCiPe, in main impact categories
EDIP 2003, Impact such as global warming,
2002+ and fossil depletion and ozone
Ecological Scarcity layer depletion. But
2006 ethanol has much higher
impacts in acidification,
eutrophication,
photochemical oxidation,
and agricultural land use
categories.
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Morales Chile distance Well to Simapro software climate change (CC), The majority of emissions
et al. of 1 km Wheel v8 ozone depletion (OD), is from refining process
(2014) driven human toxicity (HT), and combustion phase.
bya photochemical oxidation Climate change is the
middle formation (POF), main impact category
size terrestrial acidification identified which is due to
passeng (TA), freshwater these emissions from the
er car eutrophication (FE), refinery and combustion
marine eutrophication phase. The climate change
(ME), terrestrial impact category is 3.9.
ecotoxicity (TET), 10-1 kg CO2 eq which is
freshwater ecotoxicity highest among all impact
(FET), marine ecotoxicity categories studied.
(MET), water depletion
(WD), mineral depletion
(MRD) and fossil
depletion (FD).
Restianti Indon- 1 KL of Cradle to CML 2000 method Global warming potential The results showed that
and esia gasoline gate (GWP), acidification the combustion phase
Ghee- potential (AP), contribute 93%, 84%,
wala eutrophication potential 95% for the Global
(2012) (EP), abiotic resource Warming potential,
depletion potential Acidification potential
(ADP), human toxicity and eutrophication
potential (HTP) and potential respectively
ecotoxicity potential followed by oil refining
(ETP). and then by crude
extraction phase. GWP
for the combustion phase
is 3.35W+04 g CO2 eq.
and for full process chain
is 3.61E+04
Rahman North 1 MJ of Well to LCA Model GHG emissions The result showed that
et al. America fuel Wheel FUNNEL-GHG- gasoline has high GHG
(2014) CCO emissions than both
diesel and jet fuel which
is due to higher energy
consumption The well-to-
wheel GHG emissions for
the three transportation
fuels range from 97.55
g-CO2eq/MJ-gasoline
to 127.74 g-CO2eq/ MJ-
gasoline, 95.01 g- CO2eq/
MJ-diesel to 126.02
g-CO2eq/MJ- diesel, and
88.17 g-CO2eq/MJ-jet
fuel to 118.17 g-CO2eq/
MJ-jet fuel
Nguyen Thailand 1 gasoline Cradle to Not specified net energy use, fossil The results show that
and equivalent grave energy use, GWP, AP, using MoE in the form
Gheewal consumed and NP of E10 as a gasoline
a (2008) by a new substitute leads to fossil
passeng energy and petroleum
er car to savings
travela
specific
distance
4. Discussion and Findings Based on the Review

The dependency of humans on the oil and gas sector is increasing very rapidly. The LCA of this
sector has helped us to study the supply chain which will identify the various emissions, energy
IAMOT 2019 | 982

usage, fuel usage, raw material requirement, resource consumption, material and energy balances
related to each life cycle stages and the environmental impacts from these stages. It has also identified
the major impact categories like according to the study done by Rahman et al. (2014), Morales
et al. (2014), Transportation phase and combustion phase are responsible for nearly half of the
impact which is followed by the refinery. SOx and NOx are the major pollutants.
In the review of various papers, it is found that while selecting a boundary for doing LCA it is
important to consider the source and all the stages where the emissions and environmental impacts
are higher. According to one report on Global Climate Disclosure Framework in the year 2012 for
oil and gas companies, the bulk of GHG emissions generated through the oil and gas lifecycle are in
the consumption and combustion of the final product, So while doing the LCA study this stage has to
be considered. Literature also argues that the shift towards sustainable development have increased
complexities and presented indefinite challenges that many current environmental management
techniques cannot adequately address the issue (Matos & Hall, 2007).
The main impact categories studied are the Global Warming Potential (GWP), Climate Change
(CC), Ozone Depletion Potential (ODP), Acidification Potential (AP), Eutrophication Potential
(EP) and Human Toxicity Potential (HTP). Garg et al. (2013), Bicer, Dincer (2018), Iribarren et al.
(2012), Matos et al. (2007), Luo et al. (2009), cavalett et al. (2012) have identified these as impact
categories.
We have compared five LCA studies done by cavalett et al. (2012), Morales et al. (2014), Restianti
and Gheewala (2012), Rahman et al. (2014), Nguyen and Gheewala (2008) in different countries and
found that there is difference in LCA result due to factors such as geographical locations, refining
technology, fuel price supply, and demand, source of crude oil and other methodological factors
such as data quality, system boundary and databases.
In spite of so many technological innovations, we are still in the phase of conventional refineries
which needs to be upgraded. Various clean technologies are identified and used such as flare gas
recovery system, vapor recovery system, tail gas treatment which has helped in minimizing the
emissions but, Since the world has moved towards the concept of biorefinery and using the green
methods such as biodesulphurization (BDS), We also need to be more advanced in making oil and
gas supply chain a sustainable Green supply chain.
5. Conclusion
This paper gives a brief idea of the present various LCA models used in different context by authors
and various LCA methods and their impact categories. Different technologies used in this sector is
also. The Life cycle assessment of the oil and gas sector performed by various authors in different
countries has been reviewed but there is very limited study in the Indian context. The LCA studies
have given the complete insight of supply chain of oil and gas sector and helped to identify the Life
cycle stages which are more environmentally intensive. It is concluded that the LCA studies help us
in estimating the available options for more sustainable transportation.
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IAMOT 2019 | 985

A Roadmap for Development of Sustainable
End-of-Life Vehicle Management
System in India
Gajanan J. Badwe
Yeshwantrao Chavan College of Engg,
Department of Mechanical Engg Hingna, Nagpur, India
E-mail: gajananjbadwe1@gmail.com
R.R. Shrivastava
G.H.Raisoni College of Engineering, Department of
Engineering Science and Humanities, Nagpur, India
E-mail: Rashmi.shrivastava@raisoni.net
Rakesh L. Shrivastava
Yeshwantrao Chavan College of Engg, Department of
Mechanical Engg Hingna, Nagpur, India
E-mail: Rlshrivastava@gmail.com
Abstract
End-of-Life Vehicles (ELVs) are recycled by informal units in India. These recycling units use the methods that
lead to environmental pollution and low recovery of ELV. In order to improve the environmental and recovery
of ELVs authors propose a roadmap for the development of sustainable end-of-life vehicle management. The
establishment of recycling fund, information system and formalization of dismantling and recycling units will lead
to sustainable ELV recycling management.
Methodology: The study reviews the existing literature on ELV management practices, policies, legislations
in major countries in the world. Based on this authors proposes a roadmap for the sustainable ELV management
system in India.
Findings: The formal and stringent control of regulatory authority over the ELV collectors, recyclers,
manufacturers will lead to development of sustainable ELV management in India. The proposed ELV management
system will cut down the unscientific ELV recycling practices and create employment opportunities.
Contributions: Authors review the literature available on ELV recycling practices across the world. Based on this,
authors propose a roadmap for ELV recycling system suitable for India.
Keywords: ELV Management, Government, Developing Countries, Extended Producer Responsibility
1. Introduction
Automobile is made up of recyclable materials such as steel, aluminium, copper etc. as well as
toxic materials such as coolants and lubricants (Hu and Wen, 2015). Automobile industry, one of
the leading industries in India is growing exponentially (Chaturvedi et al, 2012). Country produced
13, 00,000 passenger vehicles, 4, 00,000 commercial vehicles every year (Automotive Mission
Plan, 2016). With the increase in population of new vehicles, End-of-Life Vehicles (ELVs) are
also growing. According to Go et al (2011) an end-of-life vehicle is a vehicle which is discarded
by its registered owner as a waste. End-of-Life Vehicles contain useful parts/component as well as
hazardous substances. ELV recycling is important mainly due to two reasons. 1) Dismantler can sell
useful parts/components in secondary market and can earn the profits. 2) ELV contains hazardous
substances (lead, mercury, cadmium etc.) which may have negative impact on human health and
environment. In India, unscientific recycling practices lead to environmental pollution and low ELV
recovery. Inappropriate disposal of ELV lead to damages to the environment (Zhao and Chen, 2011).
Regulated dismantling and disposal process of ELV recycling will avoid the burden on environment
and reduce the usage of natural resources (Chen et al, 2010).De-pollution, dismantling, material
recycling are the main steps in End-of-life vehicle recycling.
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A Roadmap for Development of Sustainable End-of-Life Vehicle Management System in India
2. Worldwide ELVRecycling Policies/Legislations

The ELV management has become a burning issue throughout the world. Countries like Japan,
European Union and China enacted legislations/policies for the management of ELVs.
2.1. Legislations in European Union (E.U)

E.U. generates 8 to 9 million ELVs every year., E.U. implement ELV directive (2000/53/EC) to
handle the issues like vehicle abandonment, illegal dumping and ELV waste (Kaneri et al, 2003).
The directive put the responsibility of ELV recycling on manufacturers. The directive set the 85%
ELV recycling (in terms of weight) target by year 2015. The manufacturers are required to provide
the information on recycling and recovery of components of ELV (Gerrard and Kandlikar, 2007).
2.2. Legislations in Japan

Every year 50, 00,000 Elvs are generated in Japan. Japanese government implemented Automobile
Recycling Law in 2005 to handle the issues like illegal ELV recycling and shortage of landfill (Jetro,
2006). The ELV owner in Japan has to pay recycling fee at the time of purchase of new vehicle. The
law set 70% automotive shredder residue (ASR) recycling target by 2015 (Kumar and Yamahoka,
2007). The ELV recycling law defines the responsibility of manufactures and importers. The law
requires the vehicle manufacturer and importer to collect and recycle the airbags, chlorofluorocarbons
(CFCs) from dismantler and collect and recycle ASR from shredder (Zhao and Chen, 2011).
2.3. Legislations in China

China introduced ‘Statute 307’ to regulate the ELV recycling activities and management of ELVs
(Chen, 2005). Chinese government enacted ‘Automotive Products Recycling Technology Policy’
in order to improve the resource utilization and protect the environment. The policy set the 95%
ELV recycling target from 2017. The policy requires the manufacturer to use recycled materials in
vehicle manufacturing and provide dismantling and design information to dismantlers to facilitate
the disassembly of ELV (Wang and Chen, 2013).
2.4. Legislations in United State of America (U.S.A)

ELV recycling is a very successful business in U.S.A. compare to other products (Kumar and
Sutherland). In U.S.A., the ELV recycling is governed by environmental laws such as The Clean Air
Act (CAA), The Clean Water Act (CWA) and Resource Conservation and Recycling Act (Sakai,
2014). The ELV owner sells the ELV to dismantler who recovers the parts/components which can
be reused and recycled. The remaining ELV is sent to shredder who cut the ELV into small pieces
(Bandiwadekar et al, 2004).
2.5. Legislations in India

At present, ELV recycling business is handled by informal units in India. Use of low grade technology
for ELV recycling results in environmental pollution and low product recovery (Chaturvedi et al,
2013). Country has environmental legislations such as The Hazardous Waste Rules, 2016, The
e-waste (Management and Handling), 2011 and The Batteries (Management and Handling) Rules,
2001. But ELV recycling units do not follow these environmental legislations (Mohan, 2014).
Country does not have sufficient infrastructure and advanced technology for efficient disposal of
ELVs (Garg et al, 2013).
3. Proposed Roadmap for the Sustainable

ELVManagement System In India
Based on current recycling practices, social and economic background and legislation/policies
in India, authors proposed a roadmap for the sustainable ELV management system in India. The
essential elements required for the development of sustainable ELV recycling system are as follows:
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3.1. Establish ELV Recycling Fund

In European countries, cost of vehicle recycling is paid by manufacturers whereas in Japan ELV
recycling cost is paid by vehicle owner. In India vehicle manufacturing industry is not as strong
as develop countries. Burden of ELV recycling fee on vehicle manufacturers may damage the
growth of the industry. Hence it is suggested that ELV recycling fee should be shared equally by
the manufacturers and owners. Country should establish ELV recycling fund to manage the fee paid
by manufacturers and vehicle owners (Fig.1). Fund is used for the development of dismantling/
recycling unit by providing loans and subsidies to the dismantling and recycling units.
Figure 1: Flow of ELV Recycling Fee
3.2. Formalization of Dismantling and Recycling Units

In India, ELVs are recycled by informal dismantling and recycling units. Recycling methods used by
these units lead to environmental pollution and loss of natural resources. These units do not follow
any environmental laws. In order to improve the environment and recovery of natural resources
formalization of these units is necessary. Registration of these units with government agencies
should be mandatory (figure 2). This will motivate them to use environmentally friendly recycling
methods and techniques.
Figure 2: Flow of End-of-Life Vehicles
3.3. ELV Recycling Information Cell

The establishment of information cell is very important for the development of ELV recycling
system. The information cell will allow the manufacturers, distributor, dismantlers and recyclers to
upload and update the information. Information cell will keep the record of life cycle of vehicle from
manufacturing to recycling.
3.4. Role of Vehicle Manufacturers

Vehicle manufacturer’s role is very important in the development of ELV management system.
Manufacturers should design environmentally friendly vehicles. Recyclable and non-toxic materials
should be used in vehicle manufacturing. Manufacture must provide the vehicle dismantling
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A Roadmap for Development of Sustainable End-of-Life Vehicle Management System in India
information for easy and quick dismantling of ELVs. They should provide training to the workers of
dismantling and recycling units.
3.5. Responsibilities of Indian Government

Indian government should formulate ELV specific policies/legislations to regulate and monitoring
the ELV recycling practices in country. Government should crack down the illegal ELV recycling
practices and create environmental awareness among people. It should also encourage the ELV
owner to return the vehicles to licenced operators.
3.6. Organisational Structure to Monitor and

Regulate the ELV Recycling Business
The ELV recycling system will be implemented, monitored and regulated by an organisation which
consists of ELV recycling fund management cell, ELV recycling policy cell, information cell and
ELV recycling coordinator cell. The ELV recycling coordinator cell maintains good coordination
with state pollution control board as well as other cells (refer figure 3). The functions of these cells
are given below:
Figure 3: Organisational Structure
The functions of ELV recycling fund management cell

●● To manage the ELV recycling fee collected from vehicle manufacturers and vehicle owner.
●● To provide loans/subsidies for the development of ELV dismantling and recycling units.
●● To provide incentive to ELV owner to encourage them to return the ELVs
●● To utilize the fund to create awareness about the benefits of ELV recycling
The functions of ELV recycling policy cell
●● To formulate the policies and guidelines for ELV recycling.
●● To monitor and regulate the ELV dismantling and recycling units.
●● To set the ELV recycling fee for the vehicles
The functions of information management cell
●● Maintain the data of ELV dismantler, recyclers, no of ELV recycled per year etc.
●● Facilitate and promote the registration of new ELV recycling units.
●● Maintain the data of vehicles such as materials used, parts/components, dismantling
information etc.
The function of ELV recycling coordinator cell
●● To manage good coordination with other cells.
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●● Design and implementation of ELV recycling system.

●● Coordinate with government agencies.
4. Conclusion
ELVs are recycled by small informal units in India. The recycling methods use by these units
results in environmental pollution and low product recovery. Based on the studies of ELV recycling
practices across the world, the authors proposed a roadmap for ELV recycling system in India. The
propose roadmap will lead to strict monitoring and regulating the ELV recycling business. The
proposed system will improve the rate of collection of end-of-life vehicles. The ELV recycling
business in India needs reforms for the development of environmentally friendly recycling of ELVs.
Country needs more policies/legislation to monitor and control the ELV recycling business. Proper
ELV management will create new employment opportunities in the country.
5. Acknowledgements
G.J. Badwe thanks Mr. S. Shrivastava for his support for the completion of paper.
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IAMOT 2019 | 990

Renewable Energy Normative Impacts in
the Environmental Protection, Inclusive
Development and Technological Transfer
José Carlos Alvarez Merino

Universidad Peruana de Ciencias Aplicadas, Faculty of Engineering, Peru
E-mail: pciijalv@upc.edu.pe
Kazuo Hatakeyama
Enterprise Consulting Office, Brazil
E-mail: khatakeyama@uol.com.br
Abstract
The purpose of this paper is to understand and evaluate the relation between Brazilian and Peruvian normative in
renewable energies with the following variables: i) protection of the environmental, ii) inclusive development and
iii) technological transfer of these technologies. This is contextualized inside the scarcity of hydrocarbons; the
environmental contamination, the greenhouse effect and the global warming that are world problems that require a
sum of solutions. The methodology consists in the collection and revision of the normative in renewable energies
in Brazil and Peru since the 2008-year and the international treaties on environmental matters. Applying the
methodology it`s encounter the bilateral relations between the renewable energy normative with each of three
dependent variables (environmental, inclusive development, technology transfer). The results becoming in elements
for take decisions in macro energy policy, managing technology and at the micro level at the new entrepreneurships.
Keywords: Renewable Energy, Energy Normative, Technology Transfer, Autarky Development, Sustainable Development
1. Introduction
The sector of renewable energies shows a growing interest of the governments to spread and increase
their uses. For that, the governments generate legislation in this intention. However this legislation,
generally elaborated without or few participation of technical people, has a little impact or a minor
influences that the waited.
In 2008 beginning, with emphasis, the normative and legislation about renewable energies in Peru.
Mitma (2013) highlights that, “Peru is a country hydro-thermal in the electricity generation”,
particularly hydroelectric and natural gas. This author adds, “Peru has a great electric generation
capacity with renewable energy not used”.
The object of this research is identifying the impact of the legislation in renewable energies in the
following three dimensions: environmental care, inclusive development and technological transfer.
The legislation in renewable energies that we consider is that regulate the use of the renewable
energies direct and indirectly. Renewable energies, here are considered the hydraulic of low power,
the solar both thermal and photovoltaic, the wind energy, geothermic, principally.
The care of the environment is translate in the economics of de CO2, the substitution of pollutants
sources for renewable energies, among another.
The social development linked to social technologies is linked to the participative development, the
solution of the poor energetic and the universal availability of energy.
The technological transfer is a great possibility and should be embodied with the renewable energies.
It is possible for the small capacity of these artifacts: solar collectors, solar panels, wind generators,
among another.
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2.1. Renewable Energy in Brazil

According to the report of the Ministry of Mines and Energy (2018) the data from the “Energy in
the South America-year 2015” show that among 12 South American countries, Brazil presents the
third higher percentage in the sources of renewable energy matrix, with 41% of the total. According
to the studies, the first place led by Paraguay with 67% followed by Uruguay with 54% of electric
energy produced.
Brazil also highlights in the electric generation matrix, with 50.2% of total generation of the region
in 2015. In sequence, Argentina with 12.5% and Venezuela with 11%. Seven countries of the South
America present more than 50% of participation of the hydraulic generation in energy matrix:
Paraguay, Uruguay, Venezuela, Colombia, Brazil, Suriname and Ecuador.
The generation of electric energy in the South America, in the year 2015, reached 1.157
terawatt-hours (Twh), showing growth rate of only 0.4% in comparison with the year 2014 and
representing 4.8% of the world offer of electricity. In the year 2016, the hydraulic generation
produced 58% of the total of the region, whereas the natural gas had the participation of 20%. The
derivatives of petrol were responsible by 7% of consumption.
The renewable source of the electricity matrix of the South America reached the amount of 761
Twh in 2015, corresponding 13.2% of the renewable generation of the world (17.2% in 2011).
These sources, with significant participation of 65.8% in the South America, far outweigh the 23.8%
of world renewable matrix of electricity.
Regarding to the emissions of gases of the greenhouse effect, South America computed 1.87 tCO2/
tep of energy (tep = tone equivalent of petrol) and Brazil 1.55 tCO2/tep, both showing significant
advantages over world indicator, of 2.33 tCO2/tep: 25% superior to the South America and 50%
superior to Brazil.
2.2. Brazilian Project of Solar and Wind Energy

With the aim to support projects towards sustainability, the New Bank for Development (NBD) of
the BRICS (economic bloc formed by Brazil, Russia, India, South Africa and China) announced the
subsidy of the Brazilian Project in the renewable solar and eolic energy sectors.
During the IX Convention of the group, realized in Xiamen, in China, Batista (2018) stated that
Brazil has already the loan from NBD with the National Bank for Economic and Social Development
(NBESD), of US$ 300 million, signed in August 30, to several subprojects of the Brazilian private
enterprises in the renewable energy sector.
The NBD operates almost exclusively in five member countries, mobilizing financial resources
to support initiatives of interest of the society. According vice-chairman of the NBD, “We are
identifying new projects that comply with the characteristics of sustainable projects regarding to
social, financial and environmental. This is the strategic interest to the Brazilian society”.
To Batista (2017), the strategy for next five years is towards the action to support sustainable
infrastructure, as the renewable energy, management of hydro resources, basic sanitation and urban
mobility. About two thirds of projects approved in next five years will be in this sector. The bank is
defining as the green bank, with focus on sustainable projects and finance with green bonus.
2.3. Technology of Storage to Broaden the Generation of Renewable Energy

The constant interruptions in the supply of electric energy, allied to increase of the demand,
especially in the rush hours of consumption, represent the main problems of the electric sector.
The bet of the federal government has been to utilize sources of renewable, as solar and wind, to
diversify energy matrix–mostly hydraulic–and provide more comfortable scenario to the consumers,
with more balance in the supply.
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Renewable Energy Normative Impacts in the Environmental Protection, Inclusive Development
Figure 1: Photovoltaic Panels and Air Generators Farm
Source: Divulgacao/iStok.com
Cipriano (2016) called power storage, the technology that can “store” electricity generated by the
photovoltaic panels and air generators.
This new profile of matrix will require technological solutions to assure the safety in supplying
energy. As the sources of renewable depend of climate and regional conditions to produce electricity,
become not flashing is the challenge to face. One pledge to broaden the potential is the energy
storage technology, or power storage. The system allows to “keeping” the generated electricity by
the photovoltaic panels and air generators, to be utilized in the strategic way and under control,
especially in moments without sunshine of winds.
The storage technology utilizes apparatus as batteries and super-capacitors to transform the generated
electric energy by winds and by solar radiation in chemical energy. When it is accumulated, the
chemical reactions occur in the opposite direction, liberating the energy that was there before.
This liberation can do in the controlled form in desired moment.
One of the players of the development of this technology in Brazil is the LACTEC Institute,
considered one of largest center of science and technology of the country. Research has done to
develop and manufacture batteries of energy storage with local technology. Their horizontal
evaluation, the renewable sources can duplicate the generation of energy with the product, utilizing
all potential of farms of the wind and the photovoltaic panels.
The renewable electric energy generation occurs only when the source is available, depending the
season and region, regardless the generation capacity installed. In the case of generation by the solar
or wind systems, adequately dimensioned, with the energy storage, the availability of the energy
would rise to 100% of the time.
Wind farm with the capacity of 100 megawatts (MW), offers about 10 MW to 20 MW to the supply
grid, because generate electricity only when there is the wind conditions. Explain that, without the
technology of energy storage, the increase the generation in the farms will be possible with the setup
of more new air generators and blades that will have infrastructure and environmental costs.
If there were the possibility to store energy any time when the wind rotates the blades and dispatch
them at an opportune moment, would be possible to use more this farm without increasing its space.
It will expand the quantity of generation at low cost.
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3. Methodology
The methodology consists in the following steps:
i. A collection and classification of the major Brazilian and Peruvian legislation about
renewable energies.
ii. After that, the impact of each normative is deployed in the three dependent variables
(environmental protection, inclusive development and technological transfer)
looking for the evaluation of the impacts.
iii. This is contrasted with the current energy policy and global trends.
iv. Finally, it is proposed some alternatives to improve this sector.
5. Results
5.1. Brazilian Legislation about Renewable Energies

It expected soon that, the National Agency of Electric Energy (NAEE) plan to launch the strategic
and specific bid, through its research and development program, towards the study on the power
storage. According Andrade (20018), although of the positive scenario, it is still necessary to meet
some milestones to the country could have the store of energy in its system. The electric sector
is more afraid regarding to the legislation. The sector has the interest in investment. There are
several players moving around with the interest in this issue, but nobody will do anything without
established rules.
While the rules are not clear, the LACTEC prepare case studies that include demonstration
of technical viability and benefits to the grid with the technology to subsidize NAEE and other
regulatory bodies with information on the sector. Also must assess the data on the minimization of
risks of installation and operation costs.
5.2. Peruvian Legislation about Renewable Energies

According Mitma (2013) before the 2008 year “the regulatory framework evolved towards
the development of rural electrification and the efficient use of energy” and since the 2008 year
“The regulatory framework has evolved towards the development of electricity production with
large-scale renewable energies (On-grid and Off-grid)”. In the following table 1, we show the
major Peruvian norms and legislation about renewable energies.
Table 1: Peruvian Norms and Legislation about Renewable Energies.
Number Name Objective Data

Law to ensure the efficient development of To perfect the rules established in
Law Nº 28832 23/07/2006
electricity generation. the Electricity Concessions Law.
Legislative Decree to promote investment for the
Legislative
generation of electricity with the use of renewable Promote the use of the RER. 02/05/2008
Decree Nº 1002
energies.
Emergency Decree declaring the implementation
Emergency Promote heating technology with
and application of alternative heating technology of
Decree Nº 019º solar energy for areas hit by cold 05/06/2008
“Indirect Solar Energy Collection Passive System
2008 weather.
called Wall Trombe” of national interest.
The regional governments acquire
They have to adapt the powers of the regional
decisions for authorize to centrals
Supreme Decree governments for the granting of definitive
of electric generation over the 500 11/07/2009
Nº 056-2009-EM concessions for the generation of renewable energy
kW and below the 10 MW with the
resources.
use of renewable energies.
Supreme Decree Approves the National Energy Policy of Peru
That includes nine objectives. 24/11/2010
Nº 064-2010-EM 2010-2040
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Renewable Energy Normative Impacts in the Environmental Protection, Inclusive Development
5.2.1. Deployment of the Principal Peruvian Nrms

●● The Emergence Decree Nº 019-2008, that promote heating technology with solar energy
for areas hit by cold weather, impacts in the following form:
At the environmental protection, advocate a better adaptation of the people to the climate conditions.
The major impact of this normative is in the inclusive development, because give heating to the
people-that live in the mountains over the 3 500 m-improving their life conditions. The ideal
temperature of the human comfort is 23ºC y 70% relative humidity. With the technologies that
promote this norm, the temperature inside of the rural houses growth in same Celsius degree.
For the implementation and application of the “wall Trombe”, technology was considered five millions
of American dollars. However, this norm not considers technological transfer about this technology.
●● The Supreme Decree Nº 056-2009-EM, that faculty the regional governments to give
authorization to centrals of electric generation over the 500 kW and below the 10 MW
with the use of renewable energies, impacts in the following form:
At the environmental protection, according to its contribution to the decentralization and give some
elements for thinking in an energetic autharquy.
According to Coke et al. (2000) this action give more possibilities of decision at regional level,
contributing to the regional development and consequently to the inclusive development.
The technological transfer is not considering in this norm.
●● The Supreme Decree Nº 064-2010-EM, that approves the National Energy Policy of
Peru 2010-2040, which consider as its objectives: “a) have a diversified energy matrix,
with emphasis on renewable sources and energy efficiency, b) have a competitive
energy supply, c) universal access to energy supply, d) have the highest efficiency in
the productive chain and the use of energy, e) achieve self-sufficiency in the production
of energy, f) develop an energy sector with minimal environmental impact and low
carbon emissions in a framework of sustainable development, g) develop the natural gas
industry and its use in domestic activities transport, commerce and industry as well as
efficient electric generation, y h) Integrate with the energy markets of the region, which
allow the achievement of long-term vision”.
At the environmental protection, the object 6 looks for “develop an energy sector with minimal
environmental impact”.
About the inclusive development, highlight at the first component of the objective 5: “To promote
the energy production based in energetic resources available in the regions” and in the objective 3
at its components propose: “achieve total coverage of the supply of electricity and hydrocarbons,
temporarily subsidize and reduce the cost of energy in low-income segments of the population,
involve local communities in the formulation of rural energy programs, promote the productive
use of energy in isolated, rural and urban-marginal areas, to promote the construction of transport
systems that guarantee the safety and reliability of the electric sector”.
Only in the first component of the objective four appear something linked to technological transfer,
so “form a culture of efficient use of energy through the transparency of information, dissemination
and education”. Nevertheless, this is very few and enough for the technological transfer that need to
be integrated with the new energetic projects.
5.2.2. Some Comments

Thought these findings are perceived the necessity to have financial products to apply the renewable
energies at small level and not only for great projects. This is so, because the legislation is oriented
to the great enterprises and not to the small groups and to rural families. This is contradictory with
the concepts of energetic autarky (Muller et al, 2014).
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6. Conclusion
The normative in renewable energies is in crescendo not only in Brazil and in Peru at the global level.
In the analysis of the Peruvian legislation was found that the normative is influenced by environmental
care global trends and the social impacts are very few considerers, so the autarky concepts
(Müller et al., 2011) are not mentioned.
The technological transfer is not considered nor mentioned in the norms, losing the opportunity to
encourage the technological transfer through the normative.
Consequently, it is necessary that the norms in renewable energies have a regional focus, particularly
in the social development and the technological transfer would be included in the normative.
References
Andrade, J. (2018) Division of Electric Systems–LACTEC, Curitiba, Parana, Brazil.
Batista, P.N. Jr. (2017) ABIPTI Últimas Notícias– otícias Report on September 5, 2017.
ESCRITO POR AGÊNCIA GESTÃO CT&I
Bradbrook, A. (1996), The development of a legislative framework for renewable energy and energy conservation.
Renewable Energy, Volume 8, Issues 1–4, May–August 1996, Pages 107-116
Cipriano, L. (2016) ABIPTI da Agência Gestão CT&I) Report on July 24, 2016.
(Agência Gestão CT & I, com informações do MME)
D.L. Nº 1002. Decreto Legislativo de promoción de la inversión para la generación de electricidad con el uso de energías
renovables. Lima, 2010
Mitma, R. (2015), Análisis de la Regulación de Energías Renovables en el Perú, Revista Derecho & Sociedad Nº 45,
pp. 167-176
Mitma, R. (2013), Regulación de las Energías Renovables en el Perú. Foro Regional Eficiencia Energética: Propuestas
para la región Tacna, Presentation avaible at: http://www.osinergmin.gob.pe/newweb/uploads/Publico/
OficinaComunicaciones/EventosRealizados/ForoTacna/2/6-Regulacion%20RER%20Peru-Riquel%20
Mitma.pdf
Müller, M.; Stämpfli, A.; Dold, U.; Hammer, T. (2001), Energy autarky: A conceptual framework for sustainable
regional development. Energy Policy, 39, pp. 5800-5810
Pereira, M. (2015). Las energías renovables ¿Es posible hablar de un derecho energético ambiental? Elementos para una
discusión. Jurídicas CUC, 11(1), 221-242. doi: http://dx.doi.org/10.17981/juridcuc.11.1.2015.10
IAMOT 2019 | 996

Towards Inclusive Innovation Systems:
The Role of the Excluded Groups
María Luisa Villalba Morales

Universidad Católica de Oriente, Antioquia, Colombia
E-mail: mvillalba@uco.edu.co
Walter Lugo Ruiz Castañeda
Universidad Nacional de Colombia, Antioquia, Colombia
E-mail: wlruizca@unal.edu.co
Jorge Robledo Velásquez

Universidad Nacional de Colombia, Antioquia, Colombia
E-mail: jrobledov@unal.edu.co
Abstract
The purpose of Inclusive Innovation is to develop and diffuse low-cost but high-quality innovations to improve the
social and economic well-being of those people in inequality, poverty and exclusion conditions. Innovation Systems
should generate this type of innovation to promote sustainable and inclusive growth. In order to achieve this aim,
researchers have identified the need from the excluded groups for taking an active part in its dynamics. Therefore,
the intention of this work is to contribute to the understanding of the role of the excluded groups as active agents
in an Innovation System. The methodological approach proposed to describe the agents are the stages of overview
and design concepts from Aged-Based Modeling methodology, in such a way that the excluded groups can be
represented as autonomous entities which interact with other agents and the environment they operate in. Among the
findings, it is highlighted that the excluded groups have specific capabilities and characteristics, different from those
of other agents in the system. Some of them represent favorable aspects to the development of inclusive innovations
and others require learning processes to evolve successfully. Regarding the establishment of relationships with
other agents of the system, the attribute of trust is important for the excluded groups, in order to bring innovations
to a successful conclusion. Based on the above, it is concluded that to achieve inclusive innovation systems it is
necessary to know and understand the excluded groups as autonomous and heterogeneous agents of the system.
This comprehension will be the main input to introduce adaptations to innovation systems in which ones new
characteristics, conditions and relationships are generated thanks to the inclusion is considerate.
Keywords: Inclusive Innovation System; Excluded Groups; Agents; Inclusion
1. Introduction
The intention of traditional innovation is to promote economic growth (Foster & Heeks, 2013), and
in return, to contribute to the generation of social welfare (George, McGahan, & Prabhu, 2012).
However, the observable results of this model have been heterogeneous between developed countries
and developing countries (Sampedro & Díaz, 2016), in such a way that its benefits have not been
equitably distributed in society (Moulaert, MacCallum, Mehmood, & Hamdouch, 2013; Sutz, 2010).
For this reason, it is possible to find examples supporting the positive effects of innovation; such as
the case of Finland, which has an investment in Research and Development of 2.9% of GDP (IBRD,
2018) and low levels of inequality, represented by a Gini index of 0,2711in 2015 (Banco Mundial,
2018); it is also possible to find that, for other development regimes defined by growth patterns and
innovation profiles, different welfare conditions are obtained (Dutrénit, Moreno, & Puchet, 2013).
The conditions of inequality lead to high proportions of a population being “an excluded group
from economic production, social relationships, and political activity” (Gras, Dutrénit, & Vera-Cruz,
2017, pág. 58).
This allows identifying two main groups of people, those that are part of a society and those that
are in a state of exclusion. This last group of people is those who are in conditions of inequality,
1 The value of 0 expresses the total equality, the value of 1 expresses the maximum inequality (Gini, 1912)
IAMOT 2019 | 997

poverty, deprivation of a dignified life, among other conditions. This type of problem represents a
great challenge for sustainable development (Naciones Unidas, 2015), but it certainly redirects the
gaze towards the most disadvantaged people.
An alternative, which has taken relevance, to solve these problems is the innovation. Since it can be
seen as a tool to contribute to the reduction of inequality and poverty and at the same time, it can
be an inclusion factor (Sutz, 2010; Mashelkar, 2017). In other words, to develop and disseminate
innovations aimed at creating adequate conditions that contribute to economic growth, but at the
same time, these innovations increase the levels of well-being and quality of life of the excluded
groups, which would lead achieving an inclusive development (Hernández, 2013).
The model of inclusive innovation emerges with this purpose (George, McGahan, & Prabhu, 2012).
This model corresponds to the development and diffusion of low cost and high quality innovations
that allow to improve the social and economic well-being of those who are in conditions of inequality,
poverty and exclusion (George et al, 2012; Foster & Heeks, 2013), hoping that they are not only
consumers but also participants in some stage of the innovation process (Foster & Heeks, 2013).
This implies linking the excluded group to innovation systems. This group has to interact with other
actor and generate new dynamics; thus, increasing the complexity of these systems so they become
inclusive systems of innovation, provided that the adaptations required by the new features will be
made (Van Der Merwe & Grobbelaar, 2016). Namely, it is necessary to promote a structural change
in innovation systems, where the excluded groups cease to be seen as patients of the process and are
seen as agents (Alzugaray, Mederos, & Sutz, 2013), through a greater level of participation, rather
than only beneficiaries of the results. In order to achieve this structural change, it is necessary to
understand which the role of the excluded group in the system would be.
From the premise that innovation systems are complex adaptive systems (Ruiz, Quintero, & Robledo,
2016) it is possible to make use of simulation tools to contribute to a systemic understanding of the
role of the excluded group, based on their characteristics and the relationships it establishes with
other actors of the system.
For this reason, the purpose of the current work is to describe the role of the excluded groups that
belong to innovation systems, based on their respective decision rules which determinate that they
become autonomous agents. The first two stages of Aged-Based Modeling methodology (Overview
and Design Concepts) allow to describe an agent according to its behaviors, in fact conceptual,
theoretical and empirical bases available in the literature are used to support this work.
2. INCLUSIVE INNOVATION SYSTEMS AS ADAPTABLE COMPLEX SYSTEMS

The study of innovation systems is important to policymakers because they can identify the strengths
and weaknesses of such systems (Schroeder, Dalton-Brown, Schrempf, & Kaplan, 2016; Uriona &
Grobbelaar, 2016). These strengths and weaknesses can be inputs to design more accurate policies,
taking into account that innovation systems are composed of agents that produce and transform
knowledge (Uribe, Quintero, & Giraldo, 2016).
Since the proposal of Lundvall (1985), Freeman (1982), Freeman (1987), Lundvall, Vang, Joseph,
& Chaminade (2009), innovation systems seek to contribute to the understanding of innovation from
a systemic perspective, taking into account the existence of learning processes (Rothwell, 1994)
and operative interdependence and management among agents (Mostafavi, Abraham, DeLaurentis,
& Sinfield, 2011). In addition, several authors argue that innovation systems are an appropriate
analytical framework for the study of innovation as a factor of inclusion, but they require adaptations
that contemplate the new features. So they could become a tool to contribute to the reduction of
inequality and poverty, and at the same time, be an inclusion factor (Sutz, 2010); that is, to move
from traditional innovation systems to inclusive innovation systems (Dutrénit & Sutz, 2013).
The above implies promoting the necessary adaptations that contemplate the new characteristics
of the system (Van Der Merwe & Grobbelaar, 2016). These new characteristics and relationships
IAMOT 2019 | 998

between actors are inherently originated in the purpose of inclusion in innovation systems. That is,
to talk about inclusive innovation systems it is necessary to link the system to those who are socially
excluded; according to Sen (2000), this group of people corresponds to those who do not have
interrelation with society due to different conditions of deprivation.
In consequence, if an innovation system is considered an Adaptable Complex System (Ruiz,
Quintero, & Robledo, 2016; Niosi, 2004; Niosi, 2011), a system of inclusive innovation, which
contains a greater number of elements and variables, can be more reasonably considered as an
Adaptable Complex System. According to Castañeda (2009), this type of system is characterized by
the multiplicity of agents, with differentiable capabilities and attributes that establish bidirectional
relationships between them and with the environment. These relationships lead to changes in the
capabilities and attributes of the actors, generating learning processes that allow them to adapt
and survive in the system. That is, they evolve presenting emerging properties. In addition, it is
contemplated that the decisions and actions of the actors of complex systems are based on the
assumption of limited rationality (Niosi, 2004).
However, we do not perceive a robust analytical framework that encompasses the level of complexity
described, this may be the reason why it is not possible yet to adequately explain how an innovation
system manages to generate inclusive innovations (Zhang & Wu, 2016), which gives room to the
need for contributing to the construction of an analysis framework that makes possible to reach
beyond the interpretation of the context, and to understand the behavior of the agents responsible
for the generation of inclusive innovations, not only in a static or historical analysis, but also in
an evolutionary analysis (Uriona & Grobbelaar, 2016); that is to say, to have an approach from a
systemic perspective that generates the necessary inputs to study the possible critical factors that
determine the dynamics of inclusive innovation systems, taking into account their multiple variables
and the relationships established among them.
3. METHODOLOGY
3.1. Process
The methodology used in this work corresponds to the description of agents as it is established in the
Aged-Based Modeling methodology, in such a way that the excluded groups can be represented as
autonomous entities that interact with other agents and with the environment in which they operate.
For this, two stages were developed: 1) Identification of characteristics of the excluded groups from
a literature review, 2) Application of the first two stage of “ODD protocol” (Overview, Design
Concepts and Details protocol) for the expression of the simulation model (Grimm, y otros, 2006;
Grimm, y otros, 2010), limited to the first two stages proposed because these are enough to describe
an agent.
i. The systematic literature review was carried out in the Scopus database in the first
semester of 2018. The used keywords correspond to “inclusive innovation”, which
allowed to identify not only the specific characteristics of the excluded groups but
also the types of relationship that can be established with other agents of the system.
Results are shown in the 4 numeral.
ii. The ODD protocol is a tool used to express the Agent-Based Models. This protocol
consists of three blocks: 1) Overview, 2) Design Concepts and 3) Details. Figure 1
shows its components. For the scope of this work, only 7 elements are applied. All
elements of the first block and four elements of the second block (marked with gray
color in Figure 1).
The most important part in the ODD protocol is the second block because to design a model, it is
necessary to know and describe all agents of the system, from a micro perspective. The elements
applied to the excluded groups as agents were: capabilities, attributes, and decision rules. That
information can be found in the: emergency and adaptation elements.
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3.2. Agent-Based Modeling for the Study of Innovation

Simulation techniques offer certain advantages when analyzing a complex phenomenon. Among
these advantages are: 1) the possibility of giving answers to “why” questions; 2) to include a better
specification of the environmental conditions; 3) to create a controlled environment to produce new
theorizations; 4) to make studies of longitudinal phenomena and, 5) to make studies of non-linear
phenomena (Davis, Eisenhardt, & Bingham, 2007). All these advantages are necessary to analyze
the innovation phenomenon, since it is characterized by a high level of complexity, due to the
participation of multiple and heterogeneous agents that interact in specific environmental conditions.
Figure 1: Blocks and Elements of ODD Protocol. Adapted from Grimm et al (2010)
Based on the above, the literature offers some sundry of works on innovation, in which different
simulation techniques are used. However, as the purpose of this work is to characterize the group of
excluded people as agents of an innovation system, a search was made in the Scopus database (2018),
using the keywords: simulation, innovation, and agent. From this search, it was possible to identify
232 works that contribute to the comprehension of the phenomenon of innovation, where more than
80% of said works are done through Agent-based Simulation and the remaining percentage uses
techniques such as Systems Dynamics, hybrids or techniques (see Table 1).
Table 1: Simulation Techniques for the Study of Innovation
Simulation techniques % of studies
Agent-Based Modeling 86,6%
Systems Dynamics 0,4%
hybrids ( ABM - SD) 3,9%
Statistics 3,9%
Various techniques 2,2%
Others 3,0%
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Agent-based Simulation, in addition to the general advantages of simulation, can also offer additional
information of a system that other simulation techniques do not offer, such as System Dynamics,
because the former is capable of explicitly capturing the inherent probability of the system (Macal,
2010). It also allows the autonomy, reasoning, communication, and coordination of the agents
(Dongsheng & Yongan, 2018) and from this interaction at the micro level, the macro or aggregate
level can emerge (Garcia & Jager, 2011).
Another aspect to highlight of the Agent-based Simulation for the study of the phenomenon of
innovation is that it allows to represent different existing theories about innovation, such as the
diffusion of Roger (Garcia & Jager, 2011), innovation capabilities theory (Hülsmann, Tilebein,
Cordes, & Stolarski, 2011), networks theory (Gilbert et al, 2001; Ruan & Ruan, 2012; Mahmoudzadeh
& Alborzi, 2017), innovation systems (Ruiz, Quintero, & Robledo, 2016), among others.
The literature about inclusive innovation through Agent-based Simulation is still very incipient. A
work that approaches this is the one carried out by Gras, Dutrénit, & Vera-Cruz (2017), who propose
the modeling of inclusive innovation, but from the analysis of specific projects and not from the
perspective of innovation systems.
4. Excluded Groups Role In The Innovation System
4.1. System Generalities

According to Dutrénit & Sutz (2013), many authors have used the innovation systems approach
(mainly the national innovation system) to describe their actors and the links established among
them in the generation of innovations. Among the main actors of this system are the operators
(companies), the intermediaries and the explorers (Higher Education Institutions, or research centers)
(Ruiz, Quintero, & Robledo, 2016). However, when referring to inclusive innovation systems, other
types of actors should be considered, such as beneficiaries and intermediary organizations, usually
not considered in traditional innovation schemes in the business world (Sampedro & Díaz, 2016).
The existence of these new actors also has an impact on the environment where the innovation
system operates, which is no longer focused on a market dynamic but on dynamics based on needs
(Van Der Merwe & Grobbelaar, 2016). Figure 2 illustrates the transition required by innovation
systems that seek to be inclusive.
Figure 2: From System Innovation to Inclusive Innovation Systems
Therefore, the type of innovation to be generated in innovation systems is based on the definition
proposed by George, McGahan, & Prabhu (2012): low-cost, high-quality innovations that improve
the social and economic well-being of those who are in inequality, poverty and exclusion conditions,
hoping that they are not only consumers but also participants in some stage of the innovation process
(Foster & Heeks, 2013).
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Consequently, the most relevant actor in an inclusive innovation system corresponds to people who
are in social exclusion. Following Sen (2000), social exclusion can be seen as deprivation of abilities
to develop a good life and share the opportunities others enjoy.
Based on this, papers on inclusive innovation offers a range of approaches to the people who will
benefit from innovation, among whom are those described in Table 2. Due to this wide range of
options, an identity problem is identified: which groups are historically considered marginalized,
isolated or excluded? How do they need to be included by new approaches to innovation? Although
the broad scope of inclusive innovation also includes women, young people, disabled people, ethnic
minorities, and informal sector entrepreneurs (OCDE, 2013), poor people have been the main focus.
These are people with lower incomes (less than U$ 2.50 a day). In addition, there is extreme poverty,
people who live with less than U$ 1.9. This leads to the greatest interest focused on this population.
As a result, the excluded groups correspond to those people disconnected from economic production,
social relations, and political activity.
Table 2: Beneficiaries of Inclusive Innovations
Inequality affected people

Disfranchised members of society
BoP
Very small groups of innovating firms
Excluded groups
Poor people
All classes
Poor and excluded people
Poor and disadvantaged people
Low-income populations
More people
Low-income groups of developing countries
Not specified
Marginalized groups
Communities
Women, young people, disabled people, and ethnic minorities
The needy
Source: Carrasco (2017)

From this, we will reference excluded groups from the innovation system like people living in
poverty and who will be the beneficiaries and participants of the innovations generated by the
system. Therefore, we proceed with the characterization of the agent: “the excluded group”, based
on the definitions proposed by George et al (2012) and Foster & Heeks (2013).
5. Innovation System Actors
Traditional Innovation Systems have heterogeneous actors. The relationship between these actors
is not easy, due to the existence of gaps of different dimensions among them (Parjanen, Melkas,
& Outila, 2011). The actors can be differentiated according to their characteristics, functions, and
capacities, relative to generation, diffusion, and use of knowledge. The most representative actors
are higher education institutions, firms, intermediaries (Ruiz, Quintero, & Robledo, 2016). Below,
there is a short description of them focused on social inclusion problems.
i. Higher Education Institutions: they are responsible for the generation of
knowledge about the inclusion problems and their solutions. They need to interact
with other actors to increase the effectiveness of their creations (Gras, Dutrénit, &
Vera-Cruz, 2017).
ii. Firms: they are responsible for the production of new products (solutions for social
inclusion problems). They need to take into account the needs and conditions of
excluded groups. For example the innovation cost has to be low; to use the local material
and knowledge, among other aspects (Ramani, SadreGhazi, & Duysters, 2010).
iii. Intermediaries: they are responsible for the building of the bridges between
distant agents and the generation of trust, favoring the relationship that allows the
establishment of an innovation system (Ruiz, Quintero, & Robledo, 2016).
The development of inclusive innovations requires models of innovation that involve diverse actors
that were not traditionally integrated (Sampedro & Díaz, 2016). In this work, the focus is on the
beneficiaries of innovations: the excluded groups.
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6. Characterization of the Excluded Groups

The excluded groups are characterized by low income and scarce capabilities, for example financial
capability (Randall & Sutz, 2009), voice capability in the markets (PNUD, 2008), a capability to
identify research-based solutions (Alzugaray, Mederos, & Sutz, 2011). That leads them to a high
opportunity cost and few access possibilities on their consumption choices. But, they present similar
behaviors to consumers with greater purchasing power, in terms of the objective of maximizing their
utility when they consume goods and services (Ramani, SadreGhazi, & Duysters, 2010).
The above originates, due to the high level of unemployment or informality in which it develops
(Ramani, SadreGhazi, & Duysters, 2010), levels of less education and fewer skills than groups of
people who are not excluded (PNUD, 2008). In addition to this, they are unaware of the benefits that
some innovations can offer, which generate the need that they must learn to use it and generate use
experiences (Ramani, SadreGhazi, & Duysters, 2010).
According to what has been described above, the difficulty of the excluded, as demand, is centered
on the limitations they have on agency and voice since these conditions lead their needs to not be
addressed (Alzugaray, Mederos, & Sutz, 2011).
On the other hand, the excluded groups are significantly different from the other actors in the system,
mainly because they can be non-traditional innovators and they are mostly informal (Foster & Heeks,
2013). They can also play a double role: as producers or as beneficiaries of innovations (Chataway,
Hanlin, & Kaplinsky, 2014).
It is also highlighted that the excluded groups have a better knowledge of their own situation
and needs, a greater concern to protect their interests and they can resort to empowerment in the
innovation process (Bryden, Gezelius, Refsgaard, & Sutz, 2017).
Finally, an important characteristic that can represent one of the elements that serve as the basis to
work with other actors is the capability to learn, which is characterized as central, and it can be three
types: learning by doing, learning by using and learning by interacting (Foster & Heeks, 2013).
7. Links Among the Excluded Groups and other Actors

Generating links among the excluded groups and the other actors in the system is mainly based on
the objective of innovation to achieve inclusive development, which requires people being treated
as agents of the system, rather than as patients (Alzugaray et al, 2013; Dutrénit & Sutz, 2014). This
means that relationships must be established between the producers of innovations and the users
thereof, beyond a commercial relationship. It is necessary then to establish links user-producer with
three relevant aspects: the historical evolution of the exchange of knowledge between the parts, the
development of shared activities and the alignment of interests and resources (Heiskanen, Hyysalo,
Tanja, & Repo, 2010).
For that reason, the inclusive innovation success is not limited to its creation and diffusion, it also
includes collateral benefits of participation in the process (George et al, 2012). According to Foster
and Heeks (2013), an interconnection is needed on the side of the supplier (traditionally the domain
of innovation) and on the demand side (traditionally the domain of dissemination). That is possible
if the actor can make a dialogue process (Dutrénit & Miguel, 2017).
Although there is good progress in understanding the relationships of the actors in the innovation
systems, it is still not clear what the best conditions to promote inclusive innovations are (Foster
& Heeks, 2013). However, some empirical work has contributed some characteristics in terms
of the relationship between actors. A relevant relationship is a need for intensive interaction with
intermediaries in order to understand the community (Bianchi, Bianco, Ardanche, & Schenck, 2015).
On the other hand, they have identified (when the excluded groups play the role of producers) that
it is necessary to generate alliances and trust to ensure the success of inclusive innovations (Zhang
& Wu, 2016).
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In addition, creation and diffusion of inclusive innovation have transaction costs due to market
failures. Among the factors of greatest impact are: 1) high Intellectual Property Costs when
innovations are not competitive or public goods, 2) consumers can be very poor to access some
innovations, 3) the presence of significant sunk costs, 4) spatial dispersion, and 5) the asymmetry of
information available on innovations (Rui, 2013).
8. Links between the Excluded Groups and the Environment

Regarding the environment in which innovations are developed, Bianchi et al (2015) indicate that
inclusive innovations are generated and disseminated in scarcity conditions and the prototypes are
framed in the context of a single implementation, which increases the possibility that innovations
are not useful for other contexts.
9. ODD PROTOCOL TO REPRESENT INCLUSIVE INNOVATION SYSTEMS

Next, there is a description of the ODD protocol elements of an innovation system specifically
focused on the description of the role of the excluded groups in the system.
9.1. Overview
9.1.1. Purpose
The purpose of the model is to represent the dynamics of inclusion in innovation systems and answer
the question “what is the role of the excluded groups in the innovation system to be part of it?”,
starting of a set off certain characteristics and capabilities.
9.1.2. State Variables and Scales

i. Entities: Due to the importance of the context and the other actors in an inclusive
innovation system, the model consists of two different types of entities: one
corresponds to the environment needs, where the needs of the excluded groups can
be represented as innovation opportunities, considering their categories (pending
demand, latent demand, and invisible demand); the other type of entity is formed
by the other agents of the system: excluded groups, government, higher education
institutions, intermediaries and firms. These agents differ from each other by a set
of characteristics and capabilities.
ii. State variables: formed by the attributes (characteristics and capabilities) of each
agent. Those of the excluded groups are described in Table 3.
Table 3: Excluded Groups Attributes
Variable Description
Capability to identify their own Ability to detect the privations and needs themselves, with or without help from
needs other actors
Knowledge of their conditions Ability to locate in the middle of a specific context
Ability to interact with other actors and establish dialogues where they can express
Voice Capability
their needs and knowledge
Innovations Knowledge Ability to relate possible solutions to their needs
Linking capability Ability to generate links of trust with other actors
Empowerment Ability to take a position about their own needs

Ability to react proactively to challenges and needs (development innovation
Capability to act
without other actors)
The threshold where the actor loses or gains interest in intervening in the
Opportunity cost identified
construction of solutions for its own needs
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The threshold where the actor generates or not a link with other actors to give
Cost of transaction willing to pay
solutions to its problems
The threshold where the actor decides or not to enter into dialogues that allow the
Waiting capacity
generation of interests and ties that can provide solutions to its problems
iii. Scales: The scales are defined according to the type of need that the excluded
groups have (1 - 3 pending, 4 - 6 latent, 7 - 9 invisible). The capabilities conserve
the same scale, where 0 means that the capability does not exist, from 1 to 3 it has
a low capability, between 4 and 6 it has a medium capability, and finally, from 7 to
9 the capabilities are high.
9.1.3. Process Overview and Scheduling

The development, diffusion and adoption process of inclusive innovations starts from a basic local
need identified by the excluded group or by an intermediary with the capability to improve their
relationship with other agents of the system to make them participate in it. Therefore, agents of the
system who have complementary capabilities to develop and diffuse innovations generate a search.
At this moment, the process takes two routes: one where the link between the necessary agents is
generated, and another where there are no agents with the required combinatorial capabilities, which
goes into a waiting state while the actors arrive. In the system, a new actor or the existing ones build
their capacities.
Returning to the way in which the link is generated, it is possible to establish bonds of trust and
it aims to take advantage of the innovation opportunity based on the identified need. As a result,
learning, trust, and the exclusion condition are reduced.
9.1.4. Design Concepts
9.1.5. Fundamental Principles

The fundamental principles of the present model are composed of the concepts and theories that
support the characteristics and links of the excluded group (with other agents and the environment)
described in number 4 of this work.
As well as another set of theories that underlie innovation systems, such as: Roger’s diffusion (Garcia
& Jager, 2011), the theory of innovation capabilities (Hülsmann, Tilebein, Cordes, & Stolarski,
2011), the theory of networks (Gilbert et al, 2001; Ruan & Ruan, 2012; Mahmoudzadeh & Alborzi,
2017), among others.
9.1.6. Emergency
Dynamic of Inclusive Innovation System emerges from the interaction between heterogeneous
agents that occurs in the context of an environment of scarcity and needs of the excluded group. This
emergency will be the result of the execution of the established decision rules by the different actors.
The decision rules of the excluded groups are described in Table 4.
Table 4: Excluded Groups Decision Rules
Rule Description
Accept the existence of an
A receptor that allows actors to identify their pending, latent and invisible needs
unmet need
Represent or accept being
The effect that allows the actor to take part and behave as an aggregate
represented as a group
A receptor who values the favorable conditions of trust that activate the effect that
Establish bonds of trust
promotes the bond
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Cooperate in the innovation’s

The effect that makes the actor’s abilities available to the relationship
development
The effect that allows the use of the solution built with the other actors of the connecting
Adopt innovation
link
As a result, it will be possible to generate and diffuse innovations where the excluded groups are
included and thereby evaluate their contribution to the reduction of the exclusion condition.
9.1.7. Adaptation and Learning

Every agent of the system experiences adaptation processes as a result of learning, generating trust
and interacting with other agents in the development and diffusion of inclusive innovations. Learning
(learning by doing, learning by using and learning by interacting) is reflected in an increase in
abilities if they were used or a reduction if they do not participate. Confidence increases if favorable
results are obtained from the interaction, otherwise, the excluded groups will increase the existing
gaps that hinder cooperation in future innovations. These results also influence the diffusion process.
9.1.8. The Goals of Excluded Groups

The objectives pursued by the excluded group in an innovation system are mainly two. The first
objective is related to maximizing the benefits that can be obtained by the adoption of innovations,
whose costs are affordable. This objective is measurable by comparing the costs of innovation with
opportunity costs.
The second objective is related to the improvement of their living conditions, by being able to supply
their pending, latent and invisible needs, reducing their conditions of exclusion.
10. CONCLUSIONS AND FUTURE WORKS

The transition from innovation systems to inclusive systems requires the understanding of each of
their agents, mainly of the excluded group, they are the most relevant actors with characteristics and
capabilities in favor or disfavor of the development of inclusive innovations.
The excluded ones are represented by the group of people who are in poverty and inequality
conditions; they can be part of the innovation process, but this is not an immediate action; on the
contrary, it is an action that requires time and new capabilities of each actor of the innovation system.
One of the indispensable characteristics is that the excluded groups can have a voice within the
system. The limited voice capability is one of the greatest difficulties to achieve appropriate
innovations for the excluded groups because the identification of a need and making it known to
other actors for its solution is not part of the routines of the actors yet. However, it is hypothesized
that once learning and trust can be generated among the actors, it is possible to improve the links
between all of them.
For this reason, understanding the role of the excluded group, from the micro perspective, allows
us to identify those basic elements on how they will be able to establish the links with the other
actors in search of reducing their exclusion conditions. The proposed decision rules are framed in
that the excluded groups can identify their needs, accept representation, establish bonds of trust,
contribute to their knowledge, empower themselves in the development of their innovations and try
to overcome the existing faults in the adoption process. This becomes an approximation for the study
of inclusive innovation systems, which are highly complex.
This line of research still has important gaps to be addressed. Among them, to define in detail the
role of each actor, to strengthen the conceptual model with those aspects that even literature does not
offer, and to build the computational model with which the emergence of the system can be studied.
IAMOT 2019 | 1006

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IAMOT 2019 | 1008

Innovation Capabilities Assessment: A Sectorial
View Supported by an Original Diagnostic Tool—
The Potential Innovation Index
Manon Enjolras
Université de Lorraine, ERPI, France
E-mail: manon.enjolras@univ-lorraine.fr
Alice De Casanove
E-mail: alice.decasanove@gmail.com
Laure Morel
E-mail: laure.morel@univ-lorraine.fr
Johan Claire
Innovation Way SA, France
E-mail: johan.claire@innovation-way.com
Abstract
Innovation is the key driver for organizations to create value from new products, services, processes or business
models. It is therefore not surprising to see that an international consensus is appearing concerning best practices
that are favouring innovation. In particular, the future ISO standard 50-501 called “Innovation Management
System” underlies the theoretical foundation of these, with a special focus put on the necessity of having an
“Innovation Management assessment Framework” behind all assessment approaches. Having a suitable Innovation
Framework also makes sure that the approach provides a relevant set of assessment questions that correspond to
that framework. Following the ISO recommendations, we propose to show that if there are good practices that
promote innovation, these are implemented differently according to the sectors of activity (e.g. the concept of short-,
medium-, and long-term projects is different for the nuclear industry and the agri-food industry, etc.) .
As a result, to improve a firm’s capacity to innovate, best innovation practices must be taken into account and
adapted to the specificity of the industrial sector in which the firm being evaluated operates. In this article, we will
first present the innovation assessment framework recommended by the standard. Then, we will show an original
assessment tool that is fully aligned with the future standard. The latter allows a contextualized evaluation, online
and in three languages, of an organization’s capacity to innovate or its lack thereof. Based on a benchmark of best
practices associated with a multi-criteria evaluation, it allows a flash diagnosis after filling out a 30–45 minute
form, containing the identification of brakes and engines, benchmarking with similar companies and operational and
customized recommendations. Based on 330 experiments, we will show the relevance of the tool and how it proves
to be a real help for innovation activities support.
Keywords: Innovation, Best Practices, Assessment, Framework, Business Sectors
1. Introduction
Innovation is recognized as one of the main factors driving economic growth. Companies’ capacity to
manage their innovation system is therefore a critical success factor and relies on a set of interrelated
elements.
The large amount of research related to the concept of innovation results in an abundance of
definitions. Schumpeter is one of the first authors who proposed a definition [1]; he suggests five
types of innovation. Another well-known definition is proposed by the Organisation for Economic
Co-operation and Development (OECD), which considers four types [2]. Thus we can find differences
in the definition of innovation according to the authors. The lack of consensus on the definition of
innovation makes it difficult to propose a way to evaluate the firms’ capacity to innovate [3].
IAMOT 2019 | 1009

This question gave rise to the ISO 56002 standard – Innovation Management System, which will
be published in 2019. This standard put forward the necessity to have an “Innovation Management
Assessment Framework” behind all assessment approaches and proposes recommendations on
innovation management through the identification of best practices to be deployed within companies.
This standard provides a common framework and language to develop and deploy innovation
capabilities, evaluate performance, and achieve intended outcomes. It positions itself as a standard
referential that can be deployed in all business sectors and all type of companies. However, we can
wonder about:
●● The relative importance that each practice may have in the particular context of a given
business sector (for example: Is creativity as important in the steel industry as in the
agri-food sector?)
●● The importance of the maturity of a company’s innovation management system in
different business sectors (is it necessary to be as well organized/as mature to innovate
in all sectors?)
This research work aims to define innovation management profiles of companies according to their
business sector. The objective is to identify the similarities and the specificities of each group of
companies, in order to propose operational recommendations to support them. Based on an analysis
of 330 cases, and relying on a diagnostic tool in line with ISO 56002, the Potential Innovation Index,
we put forward that different profiles can be defined. Specificities can be highlighted from one
business sector to another. However, the companies from the same business sector remain different,
with a certain variability concerning the way they manage innovation.
2. ISO 56002 – Innovation Management System: A Reference Framework

Innovation inherently has a dynamic and complex character that is changing the way it is managed
within companies. It directly impacts the innovation practices and processes, making it difficult to
define a relevant indicator of the innovation capability evaluation.
In the field of innovation metrics, Milbergs and Vonotras [4] have studied the evolution of these
indicators and propose four generations: the first one shows only the factors related to “inputs”, i.e.
mainly investments in innovation. The second adds “outputs” to measure the results of innovation.
The third shows global indicators by looking for good practices to develop innovation at the level
of a country or region. Finally, current metrics analyse the internal processes that characterize the
innovation capacity of companies. Thus, the latest research proposes multi-criteria models to assess
the innovation capacity. The definition of the list of key internal practices, the evaluation method and
the multi-criteria aggregation method are the three fundamental factors to build a relevant model of
the innovation capacity. Thus, the model of Chiesa et al. [5]but it’s only part of the story. To learn
from our past successes and failures, we need to understand how they came about. To continually
improve, we must examine not only our innovation performance, but the processes with which
we develop and exploit these innovations. Vittorio Chiesa, Paul Coughlan, and Chris Voss present
a framework for auditing technical innovation management. Their auditing methodology goes
beyond performance measurement by highlighting problems and needs, and providing information
that can be used in developing action plans for improving performance. The foundation of their
audit methodology is a process model of technical innovation. The model addresses the managerial
processes and the organizational mechanisms through which innovation is performed. Underlying
this method is the notion that success in innovation is related to good practice in the relevant
management processes. The model identifies four core processes: concept generation, product
development, process innovation, and technology acquisition. Supporting these core processes
are three enabling processes: the deployment of human and financial resources, the effective use
of appropriate systems and tools, and senior management leadership and direction. The outcome
from these core and enabling processes is performance in terms of innovation and the resulting
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Innovation Capabilities Assessment: A Sectorial View Supported by an Original Diagnostic Tool
competitiveness in the marketplace. This model provides the basis for a detailed audit of current
innovation practice and performance. The audit has two dimensions: the process audit assesses
whether the processes necessary for innovation are in place and the degree to which best practice is
used; and the performance audit focuses on the outcomes of each core and enabling process and of
the overall process of technological innovation and its effect on competitiveness. The performance
audit helps identify needs and problems, but it doesn’t explain why gaps exist between current and
required performance and it doesn’t provide an action plan for closing these gaps. The process audit
meets these needs. The audit methodology uses a two-level approach: a rapid assessment based on
innovation scorecards and an in-depth audit. These scorecards provide an overview of the company’s
strengths and weaknesses with regard to technical innovation management, highlighting those areas
that require in-depth examination. The in-depth audit identifies not only the processes, but the areas
within each requiring attention.”,”DOI”:”10.1016/0737-6782(95 proposes a method to assess a
maturity degree applied to seven internal practices. Similarly, Guan et al. [6] suggest six practices
in order to evaluate innovative companies in China. Finally, Boly et al. [7] propose the Potential
Innovation Index based on 15 internal practices that have been widely applied among French SMEs.
Innovation capability has therefore been defined as a global attitude of the company to react to
the demands of its environment (internal or external) and as its capacity to implement innovation
management best practices (ISO/DIS 50501).
ISO 56002 – Innovation Management System will be published in 2019 (Figure 1). This
recommendation standard brings together a set of good practices and was drafted by ISO TC 279,
an international technical committee composed of about 100 experts (professionals, consultants and
academics) from 53 countries. Now published at the DIS stage (Draft International Standard) under
ISO/DIS 50501, it has been disseminated for voting and comments as part of a public inquiry.
Figure 1: ISO 56002 – Innovation Management System
The guidance within this document is generic and intended to be applicable to all types of
organizations, regardless of type, sector, maturity or size.
It highlights different dimensions representing the innovation management system (Figure 1).
The upper part (Clauses 5 and 6) represents the strategic dimension of innovation: vision, policy,
strategy and objectives. This section highlights the importance of organizing responsibilities, a
IAMOT 2019 | 1011

forward-looking vision and a commitment from top management. In addition, the concepts of risks
and opportunities management are highlighted, as well as the importance of defining a strategy and
its dissemination.
The Operation part (Clause 8) presents the innovation processes that have to be put in place within
companies: Identify opportunities, create concepts, validate concepts, develop working solutions
and deploy to realize value.
The support part (Clause 7) represents in a large sense the resources that support the innovation
processes: tools, methodologies, competencies and communication. These resources have to
be managed on a long-term basis in order to establish, implement and improve the innovation
management system.
Finally, the bottom part (Clauses 9 and 10) put forward the importance of regularly assessing this
innovation system in a continuous improvement approach.
3. Methodological Background: The Potential Innovation Index (PII)

This research work is based on an assessment tool of the innovation capacity of companies:
the Potential Innovation Index (PII). This was chosen because it is in accordance with the
recommendations of ISO 56002 on several aspects.
First, the PII is based on a framework of six practices, broken down into 18 internal activities (Figure
2).[7], [8]”container-title”:”Research Policy”,”page”:”608-622”,”volume”:”43”,”issue”:”3”,”sourc
e”:”ScienceDirect”,”abstract”:”Measuring innovation processes is a major concern for academics
and firm managers. This study proposes an innovation capacity (IC
Figure 2: Potential Innovation Index (PII) Assessment Framework

Source: Innovation Way
These practices can be linked to the different dimensions proposed by the ISO standard (Figure 1).
●● Practice 1 – strategy – is directly related to Clauses 5 and 6, particularly through the
“strategic vision” and “networking” activities. It is also in line with Clause 7 for aspects
related to intellectual property and financial agility.
IAMOT 2019 | 1012

●● Practice 2 – generation of ideas – and Practice 3 – design – are related to Clause 8,

particularly the creation and validation parts. Clause 7 is also involved in terms of digital
resources and design tools.
●● Practice 4 – project management – is related to Clause 6 (roles and organization, multi-
project management) and Clause 7 (phasing and milestones).
●● Practice 5 – human resource management – refers to Clause 7 – support.
●● Practice 6 – knowledge management – includes aspects related to the dissemination of
knowledge (Clause 7) and continuous improvement (Clauses 9 and 10).
Thus, the PII appears to be a relevant tool in view of the recommendations of the standard.
3.1. Context and Background

Specialized in the study of innovation processes, the ERPI laboratory (Research Team on Innovative
Processes) of the University of Lorraine is an Industrial Engineering laboratory focusing its research
on methods, tools and skills to optimize the management of innovative projects. In the early 2000s our
research laboratory initiated work in innovation metrology. The ambition was to produce knowledge
in a field little investigated in the literature but also to meet the need of business executives to
model innovation processes, evaluate innovation actions and more generally help decision-making.
A first thesis was defended in 2005 [9] then others made it possible to propose a real metrology
integrating data collection and processing rules, aggregation algorithms and obtaining a Potential
Innovation Index (PII) [7], [8], [10]–[13]”container-title”:”Research Policy”,”page”:”608-622”,”vo
lume”:”43”,”issue”:”3”,”source”:”ScienceDirect”,”abstract”:”Measuring innovation processes
is a major concern for academics and firm managers. This study proposes an innovation capacity
(IC. Finally, a valorization work has been undertaken through the development of a commercial
diagnostic tool based on the initial models and the elicitation of an associated business model. Thus,
a spin-off of the ERPI laboratory was launched in 2017: “Innovation Way”1 proposes an online self-
assessment methodology for SMEs’ innovation capacities, based on the IIP’s multi-criteria reference
framework. Innovation Way is therefore a key player in the operational deployment of the PII in
the economic world. The relevance of the tool is now recognized by certain institutions that use it,
such as certain Chambers of Commerce at the regional level and Luxinnovation, the government
institute for the promotion of innovation in Luxembourg. A university/start-up technology transfer
process was therefore carried out, leading to a fruitful collaboration aiming on the one hand to create
economic activity but also to have access to field data in order to envisage future development for
the diagnosis of the innovation capability.
3.2. The Potential Innovation Index (PII): A Diagnostic Tool

The innovation best practices of the PII framework are assessed through a degree of maturity
resulting from the identification of a number of observable phenomena. For each activity the
maturity grids allow a progressive and gradual association of facts reflecting an increasing level of
mastery. The consideration of the superiority of a level is validated by experts according to criteria
such as required skills and necessary investments (Figure 3).
Figure 3: Progression of a Maturity Grid
1
Innovation Way: http://innovation-way.com
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The PII evaluation method can be presented in four steps.

1. The PII makes it possible to construct the company’s general evaluation profile concerning
the practices and activities included in the evaluation framework. Depending on the score
assigned to each activity, it is possible to identify the characteristics of the company.
2. The PII enables a benchmark to be made by comparing, anonymously, the profile of the
company with other companies with similar characteristics (same activity sector, size,
geographical area etc.)
3. A global indicator is calculated to measure the overall innovation capacity of the firm.
This indicator classifies companies under four categories, based on those proposed by
Godet [14]: Proactive, Preactive, Reactive and Passive.
4. Finally, the PII proposes an automatic recommendation generation mechanism to
increase the company’s capacity to innovate in line with its manager’s objectives.[15]
This diagnosis is disseminated from a web platform, in the form of a self-assessment, and gives
access to a complete evaluation report, instantly compiling all the company’s results.
Figure 4: Overview of the Evaluation Outputs
4.1. Methodological Approach

The objective of this research work is to analyse the profiles of companies from different business
sectors in regard to their innovation management practices. To do this, we relied on a panel of 330
companies that have been evaluated on the basis of the PPI diagnosis. This panel of companies
IAMOT 2019 | 1014

is diversified both by the business sectors concerned and by the size of the companies. These are
mainly French companies, but not exclusively. It is interesting to note that these companies are
also diversified according to the PII category to which they belong: passive, reactive, preactive
and proactive (Table 1). A large majority of the panel are considered reactive and preactive. This
indicates a particularity of the companies studied: they are overwhelmingly aware and involved in
a process of innovation management. This also shows a certain maturity in their internal processes.
Table 1: Description of the Panel of Companies
Nb of Companies PII Category
Business Sectors Passive Reactive Preactive Proactive Total
Commercial 5 10 11 1 27
B2B Trade 1 4 4 9
B2C Trade and Distribution 4 5 7 1 17
Hotels and restaurants 1 1
Industry 14 70 71 19 174
Aeronautics 2 4 8 1 15
Agri-food industry 1 7 4 2 14
Automotive 2 3 1 6
Chemistry - Rubber - Plastic 1 7 5 13
Construction 1 10 1 12
Electrical and electronic equipment 1 7 10 2 20
Energy 11 7 2 20
Furniture-textile-manufacturing industries 3 4 1 8
Mechanics - Metallurgy 3 11 14 2 30
Other industrial sectors 3 2 6 1 12
Pharmacy - Biotechnologies 4 4
Public Works 3 1 4
Railways 1 1
Telecommunications 1 1 1 3
Transport and Logistics 3 2 3 1 9
Wood - Paper - Printing 1 2 3
Services 17 54 47 11 129
Banking and Insurance 1 3 2 1 7
Communication - Media 1 1
Consulting 4 17 11 1 33
Engineering - R&D 3 9 6 18
IT activities 3 9 11 23
Other business services 2 11 6 2 21
Other service activities 6 9 7 1 23
Personal Services 1 1 1 3
Total 36 134 129 31 330
Our data analysis consisted in representing the profile of companies from the same activity field
(industry or service) and according to the six innovation practices of the PII previously presented
(Figure 2): Strategy, Idea Generation, Design, Project Management, Human Resources and
Knowledge Management.
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An average of the evaluations of companies in the same group was carried out by practice, in order
to obtain an overall profile reflecting their maturity in terms of innovation management.
Different groups have been considered. First of all, a distinction was made between industrial
and service companies. Then, the business sectors that are well represented within the panel were
identified and defined as the groups to be tested. We have selected four business sectors for industrial
companies and three business sectors for service companies:
●● Electrical and electronic equipment
●● Energy
●● Mechanics – Metallurgy
●● Agri-food industry
●● Consulting
●● IT activities
●● Engineering - R&D
Then, Minitab2 software was used in order to draw the average profile of each group of companies,
taking into account the variability inside the group. Based on several box plots, it was possible to
compare and to analyse the particular profiles of these groups, taking into account the deviations
from the average in order to potentially identify extreme values. The choice to use a box plot is
justified by the fact that these graphics make it possible to display variation in samples of a statistical
population, By drawing a rectangle from the first to the third quartile and cut by the median [16].
This represents the main advantage of using box plots in this analysis. In addition to the rectangle
obtained representing the box plot, segments can be added leading to the extreme values.
5. Results
In general, the average profiles for the six innovation practices do not differ much between
Industries and Services (Figure 5). The main differences are related to the “design” practice. Service
companies are clearly less well evaluated on this theme. Concerning the “project management”
practice, industrial companies are less well evaluated. This highlights particularities in the innovation
management of these two groups.
Average profiles Industry / Services

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Figure 5: Average Profiles of Industry/Services
2
http://www.minitab.com
IAMOT 2019 | 1016

Service companies are less mature in terms of design, which seems consistent given their intrinsic
functioning. This practice seems less critical in the context of service companies than in that of
industrial companies. On the other hand, project management practice appears to be a strong point.
Industrial companies, on the other hand, seem to have lower maturity in terms of project management,
although the average rating is rather good (above 3).
On the other hand, there is relatively high variability both in the case of industrial companies and
in the case of service companies (the box plots are extended). The first two innovation practices
(strategy and idea generation) show the lowest values of variability but we can see that extreme
values also appear in the group of industrial companies (represented by a star on the graph). This
can explain the limited variability because the very specific cases are not taken into account in the
calculation. The last four practices show high values of variability (more than one point) and this is
the case both for industrial and service companies. Thus, the singularity of companies in the same
group in terms of innovation management seems to remain important.
Therefore the difference between industries and services does exist, particularly in project
management and design, but in view of the variability of evaluations it seems necessary to go down
to a lower level in order to identify whether these disparities are related to the business sector or
whether they represent the singularity of each company at its own level.
We therefore went into more detail, comparing the average profiles of business sectors that are well
represented in the database:
●● Agri-food industry, Energy, Electrical/electronic equipment and Mechanical/metallurgy
for industrial companies
●● Engineering and R&D, IT activities and Consulting for service companies.
First of all, there are significant differences between the business sectors of industrial companies
(Figure 6). It can be seen, for example, that the agri-food sector differs significantly from the other
three sectors represented, particularly in terms of strategy, which is weaker than for the other sectors.
Knowledge management also appears to be a significant weak point for the agri-food sector.
Figure 6: Average Profiles of Four Industrial Sectors
However, these results have to be balanced because of the high variability of this group in terms of
Design, Human Resources and Knowledge Management. It is interesting to note that the agri-food
companies seem to have a standardized profile concerning strategy, the generation of ideas and
IAMOT 2019 | 1017

project management. However, a high level of singularity appears in regard to the other innovation
practices.
The variability is not so important for the other business sectors except in certain specific cases. For
example, the design practice shows a high variability for the energy sector, as do human resources
and knowledge management for the mechanical sectors. However, some similarities can also be
identified. For all the industrial business sectors, human resources and knowledge management
practices are the weakest and strategy and design are the best. The mechanical and electronic sectors
show a good evaluation in terms of project management compared to the others two sectors. The
electronic sector is the best in terms of design and strategy.
This confirms that it is possible to identify some standardized observations specific to a particular
business sector, but a certain number of particularities have to be taken into account even for
companies from the same group.
For service companies (Figure 7), the differences between business sectors are also marked. The
engineering sector is very particular. Contrary to the global trend, this sector shows a good evaluation
in design practice. The IT sector has an average rating while the research and consulting sector shows
a rather low rating. Concerning knowledge management practice, the differences between business
sectors are also marked: an average assessment for the engineering sector and rather average for
IT and consulting. On the other hand, the strategy practice seems to be well evaluated for the three
sectors. Once again, it is possible to identify standard profiles, which must be balanced by a high
variability on specific practices: in particular design, project management and human resources.
Figure 7: Average Profiles of Three Sectors of Service Companies
6. Discussions and Conclusions

This research work represents a first step in the elicitation of innovation management profiles. This is
an explorative work that should be strengthened to increase robustness. However, using the business
sector as a differentiating factor, and based on a panel of 320 companies, we tried to identify whether
companies from the same group had similar characteristics with regard to the internal practices they
put in place within their organization. According to this analysis, the maturity of companies regarding
innovation management practices differs from one business sector to another. These differences are
visible in the six good practices evaluated by the PII, but the strong variability highlighted by the box
IAMOT 2019 | 1018

plots underlines the importance of keeping in mind the uniqueness of each company, even within a
group with similar characteristics.
6.1. These First Research Results Highlight Several Potential Implications

From a theoretical point of view, these findings could be related to the theory of contingency [17].
This school of thought considers that there is no universal good organization “in itself” and asserts
that the structure of an organization depends at the same time on its own characteristics, but also on
the nature of its environment. In line with this theoretical positioning, a deeper study is necessary to
identify the contingency factors of innovation management. These contingency factors act directly on
the companies’ structure. Therefore, these factors reveal potential specificities in the daily practices
of companies. As a research perspective, it could be envisaged to realize a deeper analysis of the
database, in order to propose a taxonomy of innovative companies, putting forward specificities
in terms of business sector, but also in terms of size, digitalization, and other potentially relevant
contingency factors. This research perspective represents an opportunity to increase the scientific
knowledge about innovative companies at the regional, national and international level. Reliance on
a single evaluation framework (PII) in accordance with the ISO standard, while taking the form of a
flash diagnosis, is a real facilitator for the realization of this taxonomy.
The findings also indicate some managerial implications. It seems that the innovation management
profiles of companies are not the same from one business sector to another. Some disparities appear
in terms of maturity regarding the practices put in place within companies. And even within a group
of companies from the same business sector, it would seem that there is still variability. Thus the
elicitation of a taxonomy would make it possible to identify the guidelines to be considered in terms
of customized support for innovative companies according to their specificities. Several trends and
orientations could be identified and then transposed into business support actions. Sectoral and/or
regional analyses could be carried out in order to provide factual data to the institutions concerned
in order to better target their support initiatives.
Finally, this research work therefore highlights the importance of having access to a suitable
innovation framework to ensure that the approach provides a relevant set of assessments to envisage
global comparative studies. As an example, this type of global comparison was already realized,
through the framework of PII, within French and Argentine companies [10]. The PII diagnosis
therefore appears to be a reliable tool because of the standardized reference framework it proposes
but also because of its pragmatism and its ease of use.
Acknowledgments
This work was supported partly by the French PIA project “Lorraine Université d’Excellence”,
reference ANR-15-IDEX-04-LUE.
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IAMOT 2019 | 1020

Sustainable Integration of Human Beings into
Industry 4.0
Johannes W. Veile
E-mail: johannes.veile@fau.de
Daniel Kiel
E-mail: daniel.kiel@fau.de
Christian Arnold
E-mail: christian.arnold@fau.de
Kai-Ingo Voigt
E-mail: kai-ingo.voigt@fau.de
Corinne Bundscherer
E-mail: corinne.bundscherer@fau.de
Abstract
“Industry 4.0” refers to digitized and connected industrial value creation. Future value creation is located in
digitized, intelligent, and connected factories and production networks. This development yields extensive and
industry-spanning opportunities, e.g., efficiency, quality, and flexibility increases, which affect human beings’ work
environment leading to new forms of human-machine collaboration. However, little is known about how to integrate
human beings into future smart factories wherefore we address this question. In this context, it is of interest (1)
what roles human beings take within the future industrial value creation processes, (2) how future workplaces are
designed, (3) which competences are required, (4) how to prepare human beings for future tasks, and (5) what actors
need to take action. The goal is to generate a deeper understanding of the complex human integration process in the
context of Industry 4.0.
In order to address the research gap, we carry out a systematic literature review. It is considered to be transparent,
replicable, and adequate to analyze the status quo of a research field. Following well-established research practice,
relevant literature is identified and analyzed along the following steps: definition of the relevant time horizon,
selection of scientific databases, selection of publication types, search and selection of relevant articles, synthesis of
results, and analysis of the findings.
Our study reveals insights about how to integrate human beings into smart factories. First, we find three scenarios–
automation, tool, and hybrid scenario – that determine future roles. Second, we find that machine-human-
interactions and technical designs are critical in terms of future workplace design. Third, our results indicate that
methodical, technical, social, and personal competences play crucial roles in the future. Fourth, learning factories,
e-learning, and trainings on-the-job are essential to sustainably integrate human beings. Last, companies, employee
representatives, research institutions, and politics need to take actions.
Our article is among the first to shed light into how to integrate human beings into smart factories and future
digitized and connected industrial value creation. We provide a comprehensive overview about the current state
of research contributing to the ongoing scientific and practical discourse on the future role and relevance of human
beings.
IAMOT 2019 | 1021

We provide managers with several implications on how to integrate humans sustainably into smart factories. Among
others, we show that from the very beginning on, humans need to be integrated into change management when
transforming industrial value creation. In addition, trainings and life-long-learning play a crucial role to ensure an
adequate integration process.
Our article develops a comprehensive overview of the latest research findings regarding integration of human
beings. Our study contributes to research concerning management of technology and innovation implementation
with special regard to the role of human beings and their interplay with modern technologies in our increasingly
dynamic, digital, and interconnected world.
Keywords: Industry 4.0, Industrial Internet of Things, Human Integration; Human Resource Management, Digital
Transformation, Systematic Literature Review
1. Introduction
Challenges such as volatile markets, shorter innovation cycles, increasing complexity of demanded
solutions, and an ongoing globalization increase the intensity and dynamics of international
competition in today’s economy (Arnold et al., 2017; Bauernhansl, 2014; Sendler, 2013).
The new industrial manufacturing paradigm “Industry 4.0“ refers to digitized and connected
industrial value creation and qualifies to address the aforementioned challenges and enhance
companies’ competitiveness (Arnold et al., 2016; Kagermann et al., 2013). It is characterized by
intelligently, horizontally, and vertically connecting people, machines, objects, and information and
communication technology (ICT) systems (Bauer et al., 2014). Technologies like cyber-physical
systems (CPS) merge the physical and the virtual worlds, creating intelligent production facilities
with digitally interconnected machines, storage systems, and facility equipment (Kagermann et al.,
2013; Siepmann, 2016). Subsequently, future value creation is located in digitized, real-time capable,
intelligent, connected, and autonomous factories (so-called “smart factories“) and production
networks (Hartmann, 2015; Kagermann et al., 2013).
However, Industry 4.0 does not only affect industrial value creation process itself, but has
consequences for the work environment of human beings and their way to work. For instance,
new types of machine collaboration emerge, which in turn has an impact on the work process, the
organization types, and required competencies and qualifications (Kagermann et al., 2013). Today,
human beings are crucial for industrial value creation, both in strategic and operative areas. Given
their current relevance along with the predicted changes, the question arises how human beings can
get integrated sustainably into future industrial value creation in the context of Industry 4.0? This
can be further divided into the following sub-questions:
1. Do human beings still play a major role in the future value creation process at all and,
if so, how will their roles look like?
2. What kind of approaches exist to design the workplaces?
3. Which are key competencies and skills that are required in future work environments?
4. How can human beings get prepared for their new tasks and working processes?
5. Who are actors and partners that enable and ensure a smooth integration process?
Answering these questions is necessary to provide corporate practice with information about how
to sustainably integrate human beings into future value creation that paves the way for long-term
corporate competitiveness and success.
Lately, research has begun to turn its focus to business and management aspects of Industry 4.0
including the integration of human beings resulting from the topic’s importance for companies’
future success. This has led to an increasing number of publications varying in content depth and
scope. The variety of research publications and findings motivated us to conduct a systematic
literature review that compiles, compares, and discusses insights concerning the integration of
human beings. In doing so, we provide an overview about the current state of research and the latest
findings on this topic, promote the on-going scientific discussion, and indicate areas for further
research. Additionally, our research study provides corporate practice with guidelines about how to
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Sustainable Integration of Human Beings into Industry 4.0
prepare their employees for future work. So far, no systematic literature has been undertaken, which
hampers and complicates building up and sharing knowledge about the integration of human beings
into future value creation.
The remainder of this paper is structured as follows. First, we lay the theoretical foundations by
explaining the concept “Industry 4.0“, its technological components, and aspects regarding human
beings’ integration. Then, we explain the methodological process of the systematic literature review.
The fourth chapter presents our findings and analyzes literature in detail. Afterwards, we discuss
the findings and answer the research questions. The last chapter summarizes our findings, discusses
limitations, provides management implications, and reveals further research areas.
2.1. Industry 4.0

There are many definitions of the term “Industry 4.0” in literature, but there is no generally accepted
definition (Kiel, 2017). For instance, Lichtblau et al. (2015) state that Industry 4.0 is a vision of
future industrial value creation. Some authors focus on technological aspects of Industry 4.0. For
instance, Ramsauer (2013) comprehends the term as the introduction of the latest ICT systems in
industrial value creation. Likewise, Spath et al. (2013a) see CPS as a core element of Industry
4.0. Further definitions go beyond and include the interconnection of human beings and machines
across value creation chains as well as the emergence of new products and services (Roth, 2016).
Kagermann et al. (2013) define “Industry 4.0“ as the technical integration of CPS into industrial
production and the use of the Internet of Things and Services (IoTS). They add that “Industry 4.0“
has consequences for value creation, business models, service offerings, and types of organizations.
In the article at hand, we adopt the definition of Kagermann et al. (2013) due to its comprehensive
perspective.
Industry 4.0 provides companies with numerous opportunities. As far as production processes are
concerned, producing in small batch sizes will become profitable, allowing to consider individual
customer demands. In addition, new systems can react flexibly to changes or unexpected situations
compensating for breakdowns and enabling quick reactions. Optimized production processes will
further increase resource efficiency. Furthermore, new business models may emerge because
intelligent interconnections and new forms of data analysis offer the potential to create innovative
solutions and business logics. In addition, employees benefit from Industry 4.0 as well. On the one
hand, their work environment can be designed ergonomically by employing technical systems that
maintain their ability to work despite demographic changes. On the other hand, work-life balance
can be improved due to highly flexible production systems (Kagermann et al., 2013; Roth, 2016).
2.2. Smart Factory

Smart factories are characterized by decentralized, highly automated production processes
representing human beings’ future work environment in the context of Industry 4.0 (Lichtblau
et al., 2015). They are regarded as a core element of Industry 4.0 and characterize a production
environment, in which manufacturing facilities and logistics systems organize themselves via real-
time communication and digital interconnection, almost completely without human interventions.
The processed intelligent products gather and analyze date, derive conclusions, and act accordingly
while actively supporting their own production process (Kagermann et al., 2013). As systems are able
to predict errors and change the production plan, production is less susceptible to faults (Kiel, 2017).
A smart factory is not self-contained, but integrated into a cross-company value-adding network, in
which communication and transactions from n-tier suppliers to end customers are realized, thereby
representing a comprehensive horizontal integration (Lichtblau et al., 2015).
Transforming an ordinary production facility into a smart factory has significant effects on the forms
of work organization. Production facilities and human beings represent a socio-technical system that
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is comprised of the interdependent subsystems “human beings”, “organization”, and “technology”.

Consequently, for maintaining efficient production, human beings’ concerns have to be considered
when it comes to the design of production systems (Hartmann, 2015).
2.3. Technological Core Elements

CPS represent the interconnection of the physical and the virtual worlds (Geisberger & Broy, 2012).
In this network comprising software and hardware, individual physical objects have their own
identity (Siepmann, 2016). Sensors capture data which can be interpreted and used for network-
based services. The systems can then intervene in processes and control the behavior of devices
(Geisberger & Broy, 2012). Using several CPS that are interconnected as a network creates a Cyber-
Physical Production System (CPPS) (Ramsauer, 2013).
The IoTS refers to the extension of the Internet by interconnecting everything (Schlick et al.,
2014; Siepmann, 2016). This leads to smart products and services in various areas, among others,
intelligent energy networks, and mobility concepts (Kagermann et al., 2013). As such, the IoTS
serves as a driver and core element of Industry 4.0 (Kagermann et al., 2013; Ramsauer, 2013).
Virtual reality revolutionizes the way information is provided for human beings. An interface, e.g.,
tablet or data glasses, smoothly transmits relevant data from CPPS to human beings (Gorecky et al.,
2014; Siepmann, 2016). Augmented Reality can support human beings in their tasks. This technology
transmits information visually on a display or through glasses extending the real situation while
adding virtual information to the employee’s perception (Mayer & Pantförder, 2014).
3. Methodology
With our article, we dedicate ourselves to the question how to sustainably integrate human beings
in the context of Industry 4.0. Therefore, we choose a systematic literature review, as it allows us
to analyze the current state of research in a comprehensible, understandable, and reproducible way
(Fink, 2014; Machi & McEvoy, 2012). It helps us to highlight previously unobserved aspects and
unsolved challenges. The systematic review is based on common research practice (inter alia Soni
& Kodali, 2011): choosing time horizon, databases, and types of publication, developing a search
string, selecting relevant literature, and categorizing and analyzing the final pool of publications.
3.1. Choosing Time Horizon

In 2011, the term “Industry 4.0“ was officially announced and the German government presented
the initiative “Industrie 4.0“ as part of its “High-Tech Strategy 2020“. Yet, around this time and
little before, researchers have already begun discussing related aspects. Thus, we include studies
from 2010 as earliest publications in our analysis. In order to consider the latest publications, we
have searched for literature that has been published until the end of 2017. The final selection of
publications includes literature from the years 2010 to 2017.
3.2. Selecting Scientific Databases

We have searched for literature in five scientific databases: ABI/Inform, Business Source
Complete, EconLit, Google Scholar, and Science Direct. These databases comprise high-quality and
international literature from the area of management research. Further, we use cross-referencing to
expand the literature sample by revealing further publications.
3.3. Choosing Publication Types

Given the relative novelty of our research topic, we do not limit the selection to specific publication
types. Therefore, relevant publication types include scientific, high quality journal articles,
conference proceedings, textbooks, reports, studies, and working papers.
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3.4. Developing a Search String

To search for literature in the selected databases, we have developed a search string formed by
several keywords related to the research subject. The search string combines the key words by
“AND“ and “OR“ operators. On the one hand, the literature is required to contain the term “Industry
4.0“ and related terms and synonyms respectively, e.g., “Industrial Internet”. On the other hand,
literature has to contain terms referring to human work, e.g., “human“, “work“ or “employee“. Using
asterisks (“*“) as truncation allows us to find terms with different endings, e.g., “to manage“ and
“management“. Figure 1 summarizes the keywords and the combination constituting the applied
search string.
Figure 1: Searchstring
In addition to the English search string, we use its German equivalent as this allows us to include
further relevant literature. It turns out that the search strings have been chosen purposefully, since it
delivers relevant publications dealing with the subject of interest.
3.5. Selecting Relevant Literature

After having searched for literature, we iteratively reduced it to a final sample of 89 publications
applying the following steps: First, the search string is entered in the presented databases whereby
filter settings included time horizon, publication types, and searching in title, abstract, and
keywords. In addition, we exclusively included publications that comprise more than five pages
and are of scientific origin. We then accessed the full texts. By reading the headings and abstracts,
we checked if the publications were relevant for our topic from a first glance. These initial steps
revealed 120 relevant publications. In a second review, these 120 publications were cross read, in
particular, abstracts and summaries, applying the criteria “relevance for the topic“ as well as “high
quality“. Later on, irrelevant publications and duplicates were removed leading to a selection of 94
publications. In a last step, we read the publications in detail and again removed irrelevant literature
from the sample. Additionally, we checked the bibliographies of the remaining literature for relevant
but yet missing publications. Doing so leads us to a final sample of 89 publications.
3.6. Categorizing Literature

We then thoroughly analyzed and categorized the final selection of publications into five categories
representing our research questions: (1) future role of the human beings, (2) approaches to design
workplaces, (3) required competencies, (4) preparation of the human being, and (5) relevant partners
and actors. In addition, the individual categories were further divided into subsections (see Figure 2).
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Figure 2: Categories and Their Subsections
These categories and subsections are presented in detail in the following chapters. Furthermore, a
detailed assignment of all publications to the categories can be found in Table 1 in the Appendix.
3.7. Analyzing Literature

The last step was an in-depth analysis of the literature. We compared, critically reflected, and
discussed the publications of the individual categories. By doing so, we display the current state of
research on human beings’ integration in the context of Industry 4.0. Further, we identify further
research gaps that require future examinations.
4. Results
4.1. Human Beings’ Future Roles

Several researchers deal with the question what role human beings will play in Industry 4.0. Their
assumptions differ and are partly vague. Nevertheless, their statements can be summarized into the
following three scenarios: automation, tool, and hybrid scenario.
4.1.1. Automation Scenario

In the automation scenario, technologies dominate the process of value creation leading to
automated work processes (Windelband & Spöttl, 2012). Human beings lose their possibilities to act
autonomously and make decisions. Automation reduces routine activities as well as simple manual
processes, and eventually fewer low-skilled employees are required. Frey and Osborne (2013) reveal
that today 47 % of US-employees perform tasks that can be substituted. A German study by Dengler
and Matthes (2015), however, indicates that only 15 % of employees could get replaced. On an
operative level, few low-skilled employees carry out simple tasks and on a dispositive level, highly
qualified employees control production processes (Hirsch-Kreinsen, 2014). Subsequently, one part
of the employees is challenged insufficiently, whereas others are highly challenged cognitively by
complex tasks (Stock-Homburg, 2013).
Automation leads to the so-called automation paradox: Employees need high levels of qualification
and experience when they have to intervene into production in order to solve problems. Due to the
high level of automation, however, they are no longer able to build up necessary qualifications or
get experiences due to a lack of training possibilities (Windelband & Spöttl, 2012). Störmer et al.
(2014) reveals a vicious circle for low-skilled employees: Automation processes do not require high
qualification levels and thus keep employees from investing in trainings. Yet and without further
training, low-skilled human beings find fewer opportunities on the global labour market. Complex
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production systems require highly qualified employees (particularly technical specialists). Hirsch-
Kreinsen (2014) names them “winner of the technology boost”.
4.1.2. Tool Scenario

In contrast to the automation scenario, human beings retain their freedom and technology serves
only as assisting system in the tool scenario (Pfeiffer, 2016; Windelband & Spöttl, 2012). A wide
research stream assumes that machines are not capable of replacing human beings in the near
future because of their associative and creative abilities (Deuse et al., 2015a; Romero et al., 2016).
Automation and smart systems support people and provide employees with relevant information
for decision-making (Deuse et al., 2015b; Stock-Homburg, 2013). Thus, tasks of medium level
employees are enriched asking for further competencies, e.g., problem solving competencies.
Since organisational departments are increasingly interlinked in the future, human beings have to
supervise processes (Windelband, 2014). Whereas skilled employees play an important role because
they control systems, the number of semi-skilled employees carrying out manual and rather simple
tasks significantly declines (Windelband, 2014).
4.1.3. Hybrid Scenario

The aforementioned scenarios represent two extremes in the division of work between human beings
and machines. In contrast, the hybrid scenario represents a mix. Stock-Homburg (2013) assumes that
in future value creation, technology and human beings are equally important. Windelband (2014)
emphasizes that it is not yet conclusively determined how the interaction between technical systems
and human beings will look like in this scenario.
4.2. Designing Workplaces

Regardless of the scenarios, future work will look like quite different compared to today.
Consequently, literature also considers on workplace design. Relevant publications can be divided
into two categories: design of human-machine interactions and technical design of workplaces.
4.2.1. Design of Human-Machine Interactions

In the discussions about the relationship between human beings and machines, the opinion prevails
that work should be human-centered to use and support human strengths (Dorst et al., 2015; Müller
& Riedel, 2014; Stocker, Brandl, Michalczuk, & Rosenberger, 2014). ICT systems provide humans
with information for decisions, making them to so-called “knowledge carriers” (Richter et al., 2015).
Results as for the design of workplaces can be further divided into technological, organizational, and
personnel aspects (Adolph et al., 2016).
Technologically speaking, the focus lies on the design of assistance systems, the use of collaborating
robots/cobots, and suitable human-machine interfaces. Romero et al. (2016) speak of a symbiosis
between humans and automation, with the machines being intelligent hybrid agents that expand the
limited capabilities and capacities of humans to solve their challenges. Future workplace design
is characterized by increasing interactions between human beings and robots. Wischmann (2015)
presents three applications of robots at the workplace. Firstly, robots may take over operative
activities whereas human beings monitor and plan their tasks. Secondly, a further possibility is using
them as ergonomic relief. The operator carries out the same activities than before but is supported
by a robot, e.g., by lifting heavy parts. Thirdly, Wischmann (2015) discusses a genuine cooperation
between robots and humans, whereby robots help human beings to perform tasks that a second
human being would actually carry out. Subsequently, a robot becomes a partner, for instance, it may
hold material so that a human being can process them. Fast-Berglund et al. (2016) describe this form
as “cobots”, briefly for “collaborative robots”. In this case, human beings do not only collaborate
with robots, but also interact socially with them (Seo et al., 2015).
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In terms of organization and personnel, working conditions are of particular importance as they
enable human beings to be flexible and promote their creativity, innovative capability, and goal-
oriented work (Dorst et al., 2015; Müller & Riedel, 2014). Spath et al. (2013b) propose the concept
of self-organized work assignment for human beings. Using mobile communication devices, they
coordinate their work independently within a decentralized organization. Instruments for enhancing
flexibility include, among others, overtime hours, flexible working time models, and home office.
It is of particular importance that human beings are provided with valuable information in order
to get jobs done. Stocker et al. (2014) and Hannola et al. (2016) define four application cases for
knowledge management in human-centered production. Firstly, they describe augmented reality to
support human beings. “Augmented operators“, e.g., data glasses, provide context-relevant data and
support human beings in solving a task. Secondly, production knowledge management should be
established to share information and make knowledge accessible. Thirdly, the authors propose self-
learning workstations based on the continuous evaluation of data. Fourthly, mobile, personalized,
and situation-adaptive learning systems enable lifelong learning.
4.2.2. Technical Design

Interfaces between humans and machines, e.g., smart phones, tablets, and data glasses, are required to
provide employees with useful information via augmented reality and virtual reality. Their operation
is designed intuitively, e.g., via touch screens as well as voice and gesture recognition (Gorecky et
al., 2014). Peissner and Hipp (2013) emphasize that human beings’ productivity highly depends on
interfaces’ user-friendliness and usability. With the help of mobile interfaces, individual assistance
systems are developed (Galaske et al., 2014). These assistance systems follow human beings’ work
and may give instructions for the next steps or even point out necessary safety measures (Gorecky
et al., 2014). By integrating employee profiles, additional analyses can be carried out, e.g., on the
workstations’ ergonomics and human beings’ strains (Galaske et al., 2014).
When used in production, lightweight robots are more suitable for cooperation with human beings
than industrial robots. Industrial robots require protective measures, e.g., fences, to ensure safety.
In contrast, lightweight robots can directly interact with human beings without endangering them.
Workstations have to include an emergency stop function and robots’ power is to be limited when
cooperating with human beings (Faber et al., 2015). Using robots requires methods to smoothly put
them into operation and easily adjust them without detailed technical knowledge. One possibility
is to equip robots with sensors and cameras that recognize and imitate human gestures. This would
enable human beings to adjust robots by demonstrating motion sequences (Naumann et al., 2014).
4.3. Required Competencies

Industry 4.0 changes individual work tasks demanding new competencies or expanded existing
competencies. A study of Schlund et al. (2014) indicates that reliability and improving process
competences are more important than anything else. Required competencies can be divided into
methodical, technical, social, and personal skills (Hecklau et al., 2016).
4.3.1. Methodical Competencies

In the discussion about Industry 4.0-related competences, methodological skills are often mentioned
(Deuse et al., 2015a; Dombrowski et al., 2014; Dombrowski & Wagner, 2014). A study by the
German Chamber of Industry and Commerce (2016) reveals that companies expect their employees to
have interdisciplinary skills, e.g., logical and analytical thinking. Systemically and interdisciplinary
thinking is important to monitor and manage the increasing complexity in a company (Pfeiffer,
2015). Deuse et al. (2015b) regard system competencies as a basic qualification that human being
need as decision-makers. Problem solution competencies are an important qualification to be able to
intervene in the system in case of errors. This requires creativity, abstraction and imagination ability,
and abilities to conduct cause-effect analyses (Kössel & Heckner, 2015; Pompa, 2015).
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4.3.2. Technical Competencies

Lichtblau et al. (2015) argue that technical skills are still insufficiently developed to meet future
requirements. They see some gaps in the development and application of assistance systems and
collaboration software. IT-skills and knowledge about electrical and mechanical engineering are also
particularly important in the context of Industry 4.0 (German Chamber of Industry and Commerce,
2016). Human beings need further programming skills and at least basic knowledge about radio and
transmission technology. In addition, knowhow with regard to process engineering and materials
science is relevant (Zeller et al., 2010). Business management competencies are relevant as well
including knowledge concerning business model development (German Chamber of Industry and
Commerce, 2016). As far as the management level is concerned, adequate management skills
become increasingly important so that companies may successfully introduce new forms of work
and deal with a growing organizational complexity (Störmer et al., 2014).
4.3.3. Social Competencies

In addition, social competencies are of great importance. Interconnection and cooperations between
functional areas leads to interdisciplinary collaborations and raises teamwork (Pfeiffer & Suphan,
2015). This does not only require skills for human-to-human communication, but also human-to-
machine communication (Dombrowski et al., 2014; Dombrowski & Wagner, 2014). In this context,
international language skills become increasingly important (Zeller et al., 2010).
4.3.4. Personal Competencies

For future work, people need distinctive personal skills. Scientific literature agrees upon that a
willingness for lifelong learning is indispensable (Bonekamp & Sure, 2015; Ludwig et al., 2016;
Schlund et al., 2014). In their role as decision-makers, human beings must be flexible and able to
work independently (Pompa, 2015; Wilkens et al., 2014). Dombrowski et al. (2014) describe the
ability to act on one’s own responsibility as essential to acquire further obligatory competences.
Dealing with stress is also regarded as a relevant competence due to increasing mental and emotional
strains following the changing scope of activities (Zeller et al., 2010).
4.4. Preparation of Human Beings

Given the new methods and competences, it is necessary to prepare human beings for their future
role in Industry 4.0. There are various approaches and possibilities which can also be combined.
Preparation activities include both training of existing and new employees. We divide them into
identification of qualification needs, learning factories, e-learning, and workplace learning.
4.4.1. Identifying Qualification Needs

At first, companies must define which competencies exist and which have to be developed or
expanded. Models like the “Capability Maturity Model Human” offer opportunities to recognize
current maturity of companies as for Industry 4.0 to define future goals and to uncover gaps. This
model is part of a procedure model for the introduction of Industry 4.0 in the corporate context
focusing on the area of “Human Resources”. It reveals a company’s competence gaps in the area of
personnel management (Pessl et al., 2017). Hecklau et al. (2016) describe a similar model that defines
competencies for individual job profiles and determines the maturity of individual employees. When
aggregating the results, critical competence gaps are revealed that companies need to address.
4.4.2. Learning Factories

Learning factories are real, small factories that model the manufacturing of physical products. Today,
they are mainly used in universities and technical training centers enabling self-oriented learning and
experimental behavior within a given concept or challenge (Ranz et al., 2015). Prinz et al. (2016)
emphasize that the use of learning factories fosters skills that are required in the context of Industry
4.0. On the one hand, participants learn how to deal with a large amount of data, and on the other
IAMOT 2019 | 1029
hand, they get into contact with new methods. Nevertheless, there are some obstacles when using
learning factories. So far, there is a lack of didactic foundations as well as pedagogical concepts
for applying this teaching method. In addition, unifying initial education and further training for
teachers proves to be difficult due to huge differences between facilities (Scheid, 2017).
4.4.3. E-learning
The term “e-learning” summarizes technology-based forms of learning, e.g., web-based trainings
and learning movies (Ring, 2017). As for Industry 4.0, using Virtual Learning Environments in
trainings and further education is the focus of scientific discussions. Using virtual reality and an
interface, e.g., data glasses, human beings can be put into fictional situations. With a virtual figure,
an avatar, they can move through a simulated environment and execute actions. When integrating
gamification elements, knowledge can be imparted in a playful manner when solving tasks (Schuster
et al., 2015). In case real elements are simulated in the virtual world, this is referred to as “virtual
reality”. In a 3D learning environment, machines and systems are authentically simulated (Guo,
2015). Virtual learning environments should provide constant feedback and encourage collaboration
to solve tasks. This procedure offers the advantage of conveying knowledge in a flexible and
resource-conserving way, while addressing several senses and thus enabling in-depth learning (Guo,
2015; Schuster et al., 2015). In addition, collaboration with robots should be practiced in trainings
(Richert et al., 2016).
4.4.4. Learning at the Workplace

Knowledge acquired in vocational trainings exists only for about ten years in professional life, and its
duration will become even shorter in the future (Stich et al., 2015). For this reason, lifelong learning
is an important competence in the context of Industry 4.0 and has to be promoted. In addition, it is
important that human beings independently learn at their workplaces. On the one hand, this form of
learning reduces transfer problems because learning directly takes place at the workplace. On the
other hand, it is efficient because working time simultaneously is learning time (Hartmann, 2015). In
order to offer trainings “on the job”, companies must design their work systems to promote learning,
e.g. using spaces for learning and social interactions. Senderek et al. (2015) distinguish between
individual and organizational learning. Individual learning is referred to as transferring knowledge
to one individual or to several human beings in groups. Forms of learning include concepts such as
work instructions and support concepts, e.g., coaching. In contrast, organizational learning focuses
on the company gaining knowledge which is primarily achieved via team-based concepts with
individual learning being a side effect.
Some framework conditions must be fulfilled to introduce work-oriented learning concepts.
First, technical-media infrastructure is required to be suitable for the forms of e-learning. Second,
learning should be communicated and promoted as a guiding principle that motivates employees
to continuously learn by themselves (Senderek et al., 2015). Hartmann (2015) names learning-
promoting systems a crucial factor for a company’s ability to innovate.
4.5. Actors
In order to prepare human beings for Industry 4.0, literature indicates companies, employee
representatives, educational institutions, and politics as relevant actors.
4.5.1. Companies
Due to an ageing workforce, companies should define measures to keep their employees healthy and
fit for work. These include setting up ergonomic workplaces and offering workout facilities (Müller
et al., 2016). In addition to physical fitness, it is important that human beings’ cognitive performance
and mental health are not only maintained but also further enhanced (Ludwig et al., 2016).
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Qualification and knowledge management are of further importance. This includes providing
trainings and further education for employees as well as establishing training methods and systems
to share and storage knowledge (Acatech, 2016b; Eichhorst & Buhlmann, 2015; Pfeiffer & Suphan,
2015). Management expertise and transparency for employees are particularly important to create
awareness for new developments and to build up Industry 4.0-related knowledge (Müller et al., 2016).
Kössel and Heckner (2015) state that managers are decisive factors for employee development.
They should be trained to successfully drive change management, e.g., by recreating organizational
structures (Acatech, 2016b). In order to recruit and sustainably retain qualified personnel, companies
must ensure their competitiveness with regard to employer attractiveness. This includes attractive
training programs and a good work-life balance (Ludwig et al., 2016; Pfeiffer, 2015). Employees’
data protection must be guaranteed at all times. Approaches include data anonymization, regular
deletion routines, and deploying dedicated data protection officers (Hornung & Hofmann, 2015).
4.5.2. Employee Representatives

Employee representatives should take action to protect employees’ health, safety, and data. This
includes adopting agreements on working hours to reconcile human beings’ work-life balance and
companies’ requirements in terms of, e.g., flexibility (Ludwig et al., 2016). Pfeiffer & Suphan (2015)
emphasizes that employees have to be involved in the design of agreements. With regard to data
protection, employee representatives should define measures to protect employees from overarching
supervision (Ludwig et al., 2016).
4.5.3. Educational Institutions

Educational institutes, like universities, education centers, and vocational schools, need to
streamline trainings and educational portfolios to match Industry 4.0 requirements. They should
offer information about state-of-the-art technology and must adequately train their staff to teach
it (Acatech, 2016b). Additionally, the number of degree programs in the areas of engineering and
computer science must be extended. At the same time, initial vocational training must be upgraded
compared to a Bachelor’s degree to increase permeability between vocational and academic paths
(Pfeiffer, 2015). Continuing education and lifelong learning should be enabled by developing offers
for flexible and situation-related learning at the workplace (Acatech, 2016b).
4.5.4. Politics
Politics has the responsibility to coordinate and manage social changes that Industry 4.0 brings up.
The goal is to establish an adequate educational system and job conditions with suitable work-life
balance. Politics should create favorable framework conditions, e.g., supporting educational institutes
(Buhr, 2015). Increasing labor market dynamics force politics to provide human beings with the
possibilities to get qualifications and to support them, e.g., via counselling centers (Weber, 2016).
It is predicted that the number of self-employed will increase, given new market opportunities, e.g.
for ITbased platform business models, and subsequently politics has to find solutions for their social
security. For instance, the German Federal Ministry of Labor and Social Affairs (2017) considers
expanding social security system as future obligation, for instance setting up the legal framework
for new working time models as well as for occupational safety and human beings’ data protection.
5. Discussion
5.1. Interpretation of Core Results

The systematic literature review at hand analyzes 89 publications regarding the integration of human
beings into industrial value creation in the context of Industry 4.0. We identify five core areas which
in turn are subdivided into two to four subsections.
Although a considerable part of the literature (19 of 89 articles) deals with human beings’ roles in
Industry 4.0, there is no consensus on which scenario will dominate. Whereas most authors discuss
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the tool scenario, some scientists consider a hybrid scenario as probable. However, there are no exact
definitions or descriptions about the scenarios why some aspects are partly overlapping while other
aspects are completely neglected. In this context, it remains unclear whether the hybrid scenario is
a combination of automation and tool scenario or whether it does represent a milestone on the way
to one of the extreme scenarios (Stock-Homburg, 2013; Windelband, 2014). In the two extreme
scenarios, there are fewer jobs for unskilled to semi-skilled employees. The demand for high-
qualified employees increases regardless of which scenario is considered. Whether Industry 4.0 will
lead to an up- or downgrading of skilled employees’ work, highly depends on the scenario and the
underlying assumptions respectively (Hirsch-Kreinsen, 2014; Windelband, 2014).
Most of the examined publications deal with workplace design (28 of 89 articles). The focus lies on
human-centred designs which allows drawing the conclusion that human beings still play a major
role in Industry 4.0 (Dorst et al., 2015). Human-machine collaboration becomes a central topic with
consequences for workplace design. Communication between human beings and intelligent systems
takes place via intuitive interfaces. Knowledge management concepts provide human beings with
important information so that they serve as active decision-makers (Deuse et al., 2015b).
19 of 89 articles make future human competences subject of discussion. In scientific literature,
methodological and technical competences are discussed to be crucial. Additionally, social and
personal competences are an essential basis for acquiring further competences (Dombrowski et
al., 2014). Our results indicate that in the future, human beings should work independently and
reflectively, and must be willing to learn throughout their lives to gain an understanding of systems
and complex interrelationships.
In the discussion about human preparation (15 of 89 articles), the focus lies on learning factories,
virtual learning environments, and work systems that promote learning. Most publications emphasize
the importance of work systems that promote learning, whereas concrete models are still missing.
There are few models that recognize qualification needs except for the described maturity models.
Literature dealing with relevant actors (17 of 89 articles) reveals that particularly companies bear
wide-ranging responsibilities. Further training measures and maintaining employer attractiveness
are frequently mentioned. Employee representatives should focus on protecting employees on
all hierarchical levels. Educational institutions should fulfil their duty to tailor learning content
to Industry 4.0-specific requirements (Acatech, 2016b). To ensure that human beings are well-
qualified, politics should further equip educational institutions with sufficient financial resources
(Buhr, 2015).
5.2. Analysis of Publication Years and Publication Types
Figure 3: Publication Timeline Differentiated by Publication Types
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Having a look at the years of publications reveals that the number of publications on the topic has
increased since 2011 reaching a peak in 2015. The increase of publications since 2011 can partly be
attributed to the Federal Government of Germany appointing Industry 4.0 as a future project the very
same year. This may also explain a comparably high proportion of German-language literature (59
out of 89 publications). The 89 publications comprise 37 articles in book compilations, 15 journal
articles, 15 articles published in conference proceedings, 13 studies, six reports, two working papers,
and one book. Figure 3 indicates the publication timeline differentiated by publication types.
5.3. Management Implications

Although scientific literature does not reach agreement upon which future scenario prevails, our
analysis shows that future industrial value creation will be human-centered. Hence, managers should
involve employees and workers’ councils into both the transformation process towards Industry 4.0
and the development of solutions, e.g., in setting up workshops and conceptualizing projects.
A second implication is that employees should participate in further trainings and learn throughout
their lives. On the one hand, their knowledge and qualifications are decisive for a company’s future
success. On the other hand, profound knowledge makes human beings irreplaceable for industrial
value creation.
Third, companies should work together with educational institutions to develop concepts and
establish training measures. When making decisions, managers should be aware of the fact that it
has an effect on their employer attractiveness. An adequate management style, flexible working time
models, and human beings’ data protection increase a company’s attractiveness for future talents.
5.4. Limitations and Recommendations for Future Research

The results of our systematic literature review face some limitations. Although literature was
carefully and comprehensibly chosen, it cannot be guaranteed that all relevant publications were
included in the analysis. We limited the search to the five most important databases in management
research and applied cross-referencing. These limitations leave space for further research studies,
for instance, by including further databases from other academic fields, e.g., engineering sciences.
Our systematic literature review could be extended by qualitative-empirical studies based on expert
interviews with managers to verify theory and to generate profound and contextual knowledge.
Within the course of the paper, a need for further research is revealed as follows: First, in the
discussions about the role of human beings in the context of Industry 4.0, there is still no agreement
upon which scenario will prevail in the future. Literature already describes the automation scenario
and the tool scenario in detail, yet, there is little information about the hybrid scenario. Particularly,
if the hybrid scenario is a medium-term solution, further research is necessary to analyze respective
work organization and role distribution.
Second, even though workplace design is considered in literature, working time models and
flexibility instruments are to be concretized. The dilemma between a company’s requirements and
human beings’ strive for work-life balance asks for deeper and more comprehensive examinations.
Third, it should be investigated how human beings can purposefully be prepared for Industry 4.0.
Although learning factories are used in universities, there is a lack of uniform didactic concepts in
corporate practice. It is necessary to define standards and pedagogical concepts to effectively train
teaching staff and to establish learning factories in a wider range of applications. Furthermore, there
are still few studies on how human beings can be prepared for the interaction with cobots.
Fourth, whereas most recommendations exclusively apply to companies, instructions for educational
institutions are rare. Since education represents the basis for a successful implementation of Industry
4.0, concrete measures have to be defined. Therefore, educational institutes need detailed concepts
to develop further trainings. Since knowledge is a crucial resource to remain competitive, the areas
of knowledge management and sharing knowledge require further research alike.
IAMOT 2019 | 1033

6. Conclusion
In our paper, we conduct a systematic literature review to answer the research question of how
human beings can be integrated into future smart factories in the context of Industry 4.0. Based on
an analysis of 89 publications from 2010 to 2017, the paper at hand provides an overview of the
state of research on the integration of human beings. We review, categorize, evaluate, and discuss
the current state of research following common research practice.
Our results show that the role of human beings in the future industrial value creation has not been
defined conclusively. However, research agrees upon that human beings will continue to be central
pillar of future industrial value creation. They will be given new tasks that require new methodical,
technological, social, and personal skills. In order to prepare them, there are approaches, e.g., learning
factories and virtual learning environments. Furthermore, workplace trainings and opportunities
for lifelong learning must be expanded. Companies and managers, employee representatives and
workers’ councils, educational institutes, and politics are major actors. Particularly companies bear
a great deal of responsibility and should take measures to successfully implement Industry 4.0 by
including human beings and considering their needs. Employee representatives have the task to
protect human beings with regard to health, data, and working hours. Politics should strengthen the
educational system and set up the juridical framework. Educational institutes are recommended to
expand their portfolio of schooling and trainings to teach future obligatory qualifications.
In our paper, we reveal further research areas to generate a deeper understanding of the social
perspective of Industry 4.0. Furthermore, analyzing existing scientific literature derives management
implications that help corporate practice to take measures for a smooth and successful integration of
employees into Industry 4.0. Our paper strives for intensifying the scientific and practical discussion
with regard to the integration of human beings into future value creation.
Acknowledgment
This publication was developed and sponsored within the project “Sustainable Smart Industry - The
Industrial Internet of Things as a Model for Sustainable Industrial Value Creation” by the Emerging
Fields Initiative (EFI) at the Friedrich-Alexander University Erlangen-Nürnberg.
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Appendix
Table 1: Detailed Analysis and Assignment of the Research Publications
Field of research
(1) (2) (3) (4) (5)
Author(s) (Year) Humans' Designing Required Preparation Actors
future roles workplaces competencies human beings
Total result 19 28 19 15 17
Acatech (2016a) X
Acatech (2016b) X
Adolph et al. (2016) X
Ahrens & Spöttl (2015) X
Bauer et al. (2015) X
Becker (2015a) X
Becker (2015b) X
Bonekamp & Sure (2015) X
Brauner & Ziefle (2012) X
Brynjolfsson & McAfee (2011) X
Buhr (2017) X
Dengler & Matthes (2015) X
Deuse et al. (2015a) X X
Deuse et al. (2015b) X X
Dombrowski & Wagner (2014) X
Dombrowski et al. (2014) X
Dorst et al. (2015) X
Eder (2015) X
Eichhorst & Buhlmann (2015) X X
Faber et al. (2015) X
Fast-Berglund et al. (2016) X
Frey & Osborne (2013) X
Galaske et al. (2014) X
Gambao et al. (2012) X
Gebhardt et al. (2015) X
Gehrke et al. (2015) X
German Chamber of Industry and Commerce (2016) x
German Federal Ministry of Labour and Social Affairs (2017)
Gorecky et al. (2014) X
Gronau et al. (2015) X
Grote (2015) X
Günthner et al. (2017) X
Guo (2015) X
Hannola et al. (2016) X
Hartmann (2015) X
Hecklau et al. (2016) X X
Hirsch-Kreinsen (2014) X
Hornung & Hofmann (2015) X
Ittermann & Niehaus (2015) X
Kärcher (2015) X
Kössel & Heckner (2015) X X
Kuhlang et al. (2014) X
Lichtblau et al. (2015) X
Lingitz et al. (2014) X
Lüder (2014) X
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Table 1: Continued
Field of research
(1) (2) (3) (4) (5)
Author(s) (Year) Humans' Designing Required Preparation Actors
future roles workplaces competencies human beings
Total result 19 28 19 15 17
Lüdtke (2015) X
Ludwig et al. (2015) X X
Matt & Rauch (2014) X
Mavrikios et al. (2013) X
Mayer & Pantförder (2014) X
Müller & Riedel (2014) X
Müller et al. (2016) X
Naumann et al. (2014) X
Ovtcharova et al. (2015) X
Peissner & Hipp (2013) X
Pessl et al. (2017) X
Pfeiffer & Suphan (2015) X
Pfeiffer (2015) X X
Pfeiffer (2016) X
Pompa (2015) X
Prinz et al. (2016) X
Pupo (2014) X
Ranz et al. (2015) X
Richert et al. (2016) X
Richter et al. (2015) X
Ring (2017) X
Romero et al. (2016) X X
Scheid (2017) X
Schließmann (2014) X
Schlund et al. (2014) X
Schuster et al. (2015) X
Senderek (2015) X
Seo et al. (2015) X
Spath et al. (2013b) X
Spath et al. (2013a) X
Spath et al. (2017) X
Stich et al. (2015) X
Stocker et al. (2014) X
Stock-Homburg (2013) X
Störmer et al. (2014) X X
Tödter et al. (2015) X
Weber (2016) X
Wilkens et al. (2014) X
Windelband & Dworschak (2015) X
Windelband & Spöttl (2012) X
Windelband (2014) X
Wischmann (2015) X
Wolter et al. (2015) X
Zeller et al. (2010) X
IAMOT 2019 | 1040

Human Development Index based in
the Forecast by Neural Networks
Yslene Rocha Kachba

Federal University of Technology of Parana,
Production Engineering Department, Brazil
E-mail: yslener@utfpr.edu.br
Carlos Eduardo Oliveira Santos
E-mail: carlos0906@hotmail.com
Gustavo Campos Morettin

E-mail: gustavo-moretto@hotmail.com
Kazuo Hatakeyama
Enterprise Consulting Office/ Salvador, Bahia, Brazil
E-mail: khatakeyama875@gmail.com
Abstract
The paper has the objective to purpose the method of the forecast of the human development index (HDI) by means
of neural networks considering five dimensions composed by variables built, from the objectives of sustainable
development (OSD). Thus, the twenty independent variables predicted individually by the methods of probabilistic
time series and the dependent variable the HDI by the neural networks Multilayer Perception. The aim of the study
was the forecast of the calculation of the Brazilian HDI from the year 2018 until 2030. The results were that the
country surveyed needs effective action in all dimensions, however, the health and gender are those that present
minor indexes of growth in the calculation of the HDI. However, the inclusion of two new dimensions of the HDI
and the utilization of the OSD as variables to calculate it is the way to assist government actions of countries that
they seek the human development index from the sustainable development.
Keywords: Human Development Index, Objectives Sustainable Development, Forecast, Neural Networks
1. Introduction
Human Development Index (HDI) published annually by the United Nations Development Program
(UNDP) considered in this study. This is an important indicator with the aim to measure the welfare
of the society, by means of calculation constituted of three dimensions: longevity; the access to
knowledge; and a decent life standard (UNDP, 2018). The longevity of the person measured by
the life expectancy, in years, being the difference from the birth to the death. The access to the
knowledge measured by the education indicator composed of two different indexes, the index of
average years of study and the index of expected years of study. Finally, a decent standard of quality
life is facing the analysis of the Gross Domestic Product (GDP) of the country [purchasing power]
per capita adjusted to the local cost of living.
The HDI broadly utilized as the reference of measure to diagnose the development of nations, as
well as to help government administrators in their decisions for the utilization of resources in public
policy in order to develop the quality of life of its inhabitants (Monteiro, Perreira, Costa, 2018).
When the three dimensions of the calculation of the HDI present low values, or at least one or two of
them this result can reveal inefficiency in the management of the public Money and, as consequence
IAMOT 2019 | 1041

lack of quality of life for the inhabitants of the country. In contrast, countries with a high index of
HDI present high development of the public service and quality of life for its inhabitants.
However, several type of research perform appointments on the fragility of the actual calculation
method of the HDI and that its three dimensions do not get the real quality of life measure of the
inhabitants of the country. Among several results found, appointments as to the HDI consider only
three variables of different dimensions, excluding social indexes as the difference of quality of life
among genders and environmental indexes as in the countries with large levels of pollution o animals
in extinction. The calculation of HDI utilizes the geometric media neglecting the relative importance
in the normalized indexes of three dimensions in the countries evaluated even using weights and these
indexes divided by the same number of the dimensions (Bilbao-Ubillos, 2013, Ramos et al., 2018).
Thus, the classification that countries receive through of the HDI presents doubts if truly reflect the
real quality of life of the inhabitants and help its managers for the development of their countries.
UNDP (2018) created in 2015 the Objectives of Sustainable Development (OSD). This has
as function deliberate one agenda in common of sustainable development of all nations from
the search of the economic growth, social inclusion and environmental protection until 2030
(Stafford-Smith et al., 2016; Cajado et al., 2018). In this agenda has the 17 objectives built after the
success of the Objectives of Development of the Millennium, these were developed in the General
Assembly of the United Nations. These objectives, accepted by 193 member countries of the United
Nations with the general intent to incentive and guide them to promote better government actions,
aiming to reduce or solve social and environmental problems.
This paper has the objective to purpose the forecast method of the HDI by means of neural networks
with five dimensions composed by variables built from the OSD. The aim of this study was to
perform the forecast of the Brazilian HDI from 2017 to 2030 by means of new way of calculation.
The research structured in five sections encompassing:
a. In section two is constituted by the theoretical reference on the HDI, the OSD, neural
networks and time series;
b. In section three presents the methods utilized for the calculation of the HDI;
c. The results and discussions were presented in section four;
d. Final considerations and suggestion for future research work in section five.
5. Theoretical Reference
5.1. Human Development Index and the Objectives of Sustainable Development

The human development index (HDI) is the indicator created by the economist Mahbub ul Haq in 1990.
It utilized by the UNDP in its annual report aiming of “Deviate the focus of the development of the
economy and accountancy of national income to a policy centered in persons” (Haq, 1995). Its values
constituted of 0 to 1. Countries with HDI between 0 and 0.550 are classified with as the low level of
development, between 0.550 and 0.699 classified as the medium level of development, between 0.700
to 0.799, high level of development and above 0.800, very high development (UNDP, 2018).
Its first formula of calculation was utilizing the arithmetic mean of three variables, method
that lasted until 2009. From 2010 changes occurred in its calculation, presently the estimation
of the HDI performed by the geometric media, keeping as its three dimensions, but altering
its variables, being dimension of health (life expectancy when born), educational dimension
(average years of study and years expected of schooling) and the economic dimension
(gross domestic product per capita). However, some research evidences the necessity to extend
these variables to more dimensions, as the social and environmental dimensions, utilizing data as
participation of gender in political posts, emissions of CO2, social inequality, utilization of energy,
among others (Bilbao-Ubillos, 2013; Ray, et al., 2016; Ramos, et al., 2018).
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Human Development Index based in the Forecast by Neural Networks
Already other researches present new formulae of calculation of the IDH, adapting the original formula
to accept these new dimensions of variables such as Composed Dynamic Human Development Index
(CDHDI) (Bilbao-Ubillos, 2013) or question the actual formula where discuss how this can be linear
and homogeny, so there is one influence enter the variables (Liu, Wu and Huang, 2017). Figure 1
presents different perspectives for the formulation of the HDI in relation to new dimensions and types
of calculations.
Authors Methods Dimensions and variables Remarks
Bilbao- CDHDI Life expectancy, average years studying, GDP, the A new methodology to estimate
Ubillos coefficient of Gini, poverty, relative participation of HDI, without intention to
(2013) men and women in the job market and political posts, substitute the present indicator
environmental footprint, number of refugees, the rate but ofer another point of view for
of homicides. analysis.
Pereira and ELECTRE Life expectancy, level of schooling and income per Formulae weights to estimate
Mota (2014) TRI-C capita HDI with the focus in income
per capita
Eren, Celik Multiple linear Years of study, schooling, the rate of adult literation, With the focus in the scale that
and Kubat regression students per professor, proportion of seats occupied measures the level of the HDI
(2014) by women in political posts, job market and GDP. and concludes that the variables
of education are those of major
influence.
Yakut, A neural The rate of infant mortality, GDP, enrolment in the The study presented one of that
Gunduz, network schools, populational increase, foreign investment, more important variables that
Dermici ordered energy consumption, inflation, exportation, internet influence the HDI are: Expenses
(2015) logistics users, unemployment, importation, cellphone lines, with health and the number of cell
regression expenses with health. phone lines.
Ray at al. Same that the Life expectancy, level of schooling, income per Point out the utilization of
(2016) HDI capita, GDP, energy utilization. renewable energy and security.
Santos et al. SMOReg and Average years of study, life expectancy, expected The utilization of the data mining
(2017) multivariate years of schooling, health, Gross National Income techniques allows the handling of
(GNI) per capita. more information.
Liu, Wu The panel of Health and education Presents the correlation scoring
and Huang the vector of the non-linearity, heterogeneity
(2017) the correlation of time.
of error
Ramos, Linear Access of the population to electric energy, to the Environmental indicators
Silva, Bolela analysis and sanitation, emissions of CO2, the risk of pollution are associated to the human
and Andrade selection of and of air, loss of trees, Measurement of excess of development and linear
(2018) the subset of nitrogen in agriculture, protected area of terrestrial multivariate analysis.
the regression biomass and access to fresh water.
Figure 1: Survey of Different Dimensions, Variables and Methods to Calculate HDI
Source: Authors
The methods utilized to calculate the HDI mostly were basic methods as simple, logistics and
multiple regressions. These methods present problems with variables of the dimensions that do not
have correlations each other. Thus, it should not be performed the calculation of the HDI, by means
of these methods or these variables that do not present strong correlation should be withdrawn.
However, these variables can be important to determine the quality of life of the inhabitants of this
country. The research also utilized differentiated method as multivariate analysis as the ELECTRE-C
to enable identify rankings of countries of HDI, through the determination of weights pointed by the
decision maker. Also utilized in some research the method of neural networks to predict possible
HDI with more quantity of variables due to the facility that this method has to learn standards of
historical series and predict from this standard.
The research presented common variables of the calculation of the HDI as the average time of the
study, GDP, the number of jobs, life expectancy when birth. However, presented the environmental
variables in several types of research as the use of renewable energy, emissions of pollutant gases,
IAMOT 2019 | 1043

environmental footprint of consumption, among others. Other variables also widely used in research
were the percentile of women that participate in political posts and the relation in percentile of
participation of women in relation to the men in the job market. These variables are among the
objectives presented in OSD.
In September 2015, the General Assembly of the United Nations adopted the Objectives of
Sustainable Development (OSD) as the target of development to all nations with the principle to
be “The way for the dignity until 2030: end up with the poverty; transform all lives end protect the
planet”. This implies that all citizens of more poor countries of the world to the more richer must
have an opportunity to appropriate of the objectives and have the power to become agents of change
to perform those same (Chin, Jacobsson, 2016). Thus, Figure 2 presents the 17 OSD.
Figure 2: Objectives of Sustainable Development
Source: UNDP (2018)

The seventeen OSD has an individual explanation as:
1. End up with the poverty in all its forms, in all places;
2. End up with the hungry, catch up food safety and betterment of the nutrition and promote
sustainable agriculture;
3. Ensure up with and promote the welfare for all, in all ages;
4. Ensure the inclusive and equitable education with quality and promote the opportunity
of learning along the life span to all;
5. Catch up the equality of gender and empower all women and girls;
6. Ensure the availability and sustainable management of water and sanitation for all;
7. Ensure reliable access, sustainable, modern and affordable energy for all;
8. Promote sustained economic growth, inclusive and sustainable, full and productive
employment and decent work to all;
9. Build infrastructures resilient, promote inclusive and sustainable industrialization and
foment the innovation;
10. Reduce the inequality within the countries and among them;
11. Make cities and human settlement inclusive, safe, resilient and sustainable;
12. Ensure production standards and of sustainable consumption;
13. Take urgent measures para combater the change of climate and its impacts;
14. Conservation and the sustainable use of oceans, of seas and marine resources for
sustainable development;
IAMOT 2019 | 1044
15. Protect, recover and promote the sustainable use of terrestrial ecosystems, manage with
the sustainable way the forests, combater the desertification, dissuade and reverse land
degradation and dissuade the loss of biodiversity;
16. Promote peaceful societies and inclusive for sustainable development, provide access to
justice to all and build efficacy institutions, responsible and inclusive in all levels;
17. Strengthen the means of implementation and revitalize the global partnership for
sustainable development.
Authors Salvia, Leal Filho, Brandli and Griebeler (2019) point out that the research on the
implementation of the OSD is of in accordance with the reality of each country. Whereas the African
countries stand out the OSD related to the combat the hungry, poverty, reduction of inequalities
and better the access of water and sanitation. European countries present more focus of the OSD
related to education, industry, innovation, infrastructure, consumption and sustainable production.
The climate change is highly researched in all geographic regions, justified by its global relevance,
as well as its transdisciplinary approach, that could involve the education and the infrastructure, to
questions of quality of the water, foods, agriculture and energy. Like this, the ODS is prime goals for
the country to reach the human development.net
5.2. Artificial Neural Networks

Artificial neural network (ANN) presents the similar structure of the human nervous system, can be
defined as one network of parallel massive processing, working with non-linear variables and each
element presents its capacity of storing information, enabling the future utilization (Haykin, 2008).
The ANN is recognized by its high capacity of adaptation, that is, even they have been trained to
work with a given type of data or probabilities, it can easily adequate to changes.
The ANN is based on a simple function, where X is the non-linear variables of input and Y is of
output, making it possible to establish a relationship between these variables. To ANN can provide
reliable data, this must be formed by at least by three layers, being divided into layers of input,
that have more quantity of the variable than the layer of output, where is found the answer for the
variable studied in the problem. Where the ANN makes possible to find the third layer that known
as the hidden layer (Gao et al., 2018). According to Roitman (2001), ANN can present two different
types of architecture, being the first characterized by the recurrence behavior or cyclic, that is, the
variables can go through the same route more than once. The second type of architecture is of
non-recurrent, of forwarding feeding (ForwardFeed), where the connections follow always forward,
being acyclic.
Multilayer Perceptron (MLP) is the type of network that works with an architecture of the
ForwardFeed, being the model known and utilized currently. Its popularity related to its high
capacity of work with non-linear data, creating the equation with the basis in a set of inputs to
predict the values of the variable of output. In the networks of the MLP the neurons are divided in
two layers. The first is the input, that contains the bigger number of variables that do not present
connections each other, following them the principle of constant feeding (acyclic process) to the
hidden layer (can be more than one) in the course of the process that will work with the data.
The second layer represented by the data of output that receives all data processed. The training
of neural networks consists in establishing the weights for each independent neuron of input, to
calculate the dependent variable of output (Haykin, 2008).
To Roitman (2001), the training of these networks MLP performed through the Algorithm of
Retroprogramming (RP) presented in Equation 1. Has as an objective to define the weights of each
variable, where x is the vector of input and y is the vector of output. The values of output compared
with the value of the answer expected and the difference these values will be the error. At the
beginning of the process are defined as small weights of random form for each variable and the tests
are initiated that they are being transformed to find the smallest error. The process repeated until the
value found be closer as possible of the value desired.
IAMOT 2019 | 1045

(1)
where:
The neural networks MLP utilized to assist in research of several applications as the work of Sun
et al., (2016) that utilize the MLP to diagnose problems in the people’s breath with cancer and the
research of Mojarad et al., (2011) that present the cross-evaluation of breast cancer utilizing MLP.
Donghoun and Hwasoo (2016) that apply MLP on a device to prevent collisions among transports
and Azimi, Ghayekhloo and Ghofrani (2016) perform the forecast of schedules that happen major
solar emission and radiation by means of MLP networks. Lastly, Cabaneiros, Calautit and Hughes
(2017) use MLP to predict urban pollution. Like this, the MLP utilized to perform various forecast
mainly with contexts that can assist in the quality of life of persons in various situations.
5.3. Time Series

The time series is defined as the set of ordered observations performed in one period of time, where
the observations achieved in parallel are dependents of the actual observation, so its end up needing
of a specific techniques for its calculation (Diggle, 1990). The time series can be classified as
continues (observations performed continuously) or discrete (observations performed in specific
time) and has as the main objective the description, explanation and prediction of data, besides also
assisting in the control of processes. To Rocha (2003), the model of moving average (MA) work
with time series that results of the linear junction of random conditions in t and in different periods.
Equation 2 describes the model of moving average.
Yt=εt–θεt-1 (2)
Where is the parameter, represents the random conditions and the average of is zero. Another model
to forecast time series to Rocha (2003) is the model of autoregressive moving average (ARMA)
utilized when the time series characterized by the function of its historical values and by the actual
random conditions and past. The method ARMA can generically be represented by Equation 3.
Zt= ∅1 Zt-1 + ∅2Zt-2 + ⋯ ∅pZt-p + εt– θ1 ϵt-1 – θ2ϵt-2 – … – θqϵt-q (3)
IAMOT 2019 | 1046

In which represents the random conditions and is the parameters of order p and q, respectively.
According to Furriel (2011), the models heteroscedastic known for enabling the work with variances
of non-constant errors. The model ARCH responsible for capturing the evolution of the variable ²,
modeling this variation as moving average in function of the history of the time series. The ARCH
method can be represented in a generalized way by Equation 4.
(4)
Where represents the random conditions N(0,) and are the parameters. According to Samanez et al.
(2014), the Model of Reversion to the Mean (MRM) is a process that work in continuous time. Can
separated in four different forms, being its more simple form and utilized is the arithmetical model
known by the process of Ornstein-Uhlenbeck, also is popularly known as MRM Arithmetic and can
describe by Equation 5.
dX = n(X̅ – X)dt + σdz (5)
where:
The average and the variance of the process of Ornstein-Uhlenbeck can supplied from the equations
6 and 7 developed by Dixit and Pindyck (1994):
E[X] = X̅ + (X0 – X̅ ) e –nT) (6)
Var [X] = (1– e–2nT)σ2 /2n (7)
In order to be able to perform the simulation of the variables worked, necessary to utilize the equation
of discrete time to realize the discretization of the MRM, that defined by Equation 8
(8)
The parameters utilized to determine the MRM can described from the equations of the average
and the variation, defined from the formulae 9, 10 and 11. (9)
(10)
(11)
Where: (12)
Thus, this research utilizes time series to perform the forecast independent series of the HDI between
the years 2018 to 2030.
IAMOT 2019 | 1047

6. Methodology
The research is structured in four phases whereby in the first define the variables for forecast the
Brazilian HDI, in the second organize mapping and classifying in five dimensions. The third phase
measure the forecast of independent variables and in the fourth reaches the target forecasted of the
HDI (dependent variable). Figure 3 presents the structure of the methodology of the research.
Figure 3: Structure of the Research Methodology
Source: Authors.
Table 2: Presentation and Classification of the Variables of the Research
Variables OSD Index
1. Gross Domestic Product (GDP): summation of all wealth generated in the country. 1, 2 ECO
2. Price to Consumer Index (PCI): created to measure the variation of the price paid by the end consumer. 1, 2 ECO
3. Number of Enterprises (NE): number of micros, small, medium and big enterprises, reflecting how is the
8,9 ECO
confidence in the population in the undertaking.
4. Economic Freedom Index (EFI): has the aim to evaluate the degree of economic freedom in the scale of
10 ECO
0 to 100 points as focus in the living standard of the citizen and wealth generation.
5. Birth (BT): quantity of births in the country. 3 HLT
6. Mortality (MT): quantity of deaths per thousand inhabitants. 3 HLT
7. Basic sanitation (BS): % of the municipality with basic sanitation. 3,6 HLT
8. Expenses with health in relation to GDP (EH): amount allocated to the public health in relation to GDP. 3 HLT
9. Total investment in education (IED): total annual investment in the public education. 4 EDU
10. Total illiterates (TI): The number of persons of 15 years old or more illiterates 4 EDU
11. Total graduates (TG): The number of students completed the higher education. 4 EDU
12. Rate teacher-student (RTS): The ratio between the number of students to the number of teachers in
4 EDU
elementary learning (daycare, primary school, high school) to the number of teachers in service.
13. Emissions of gases of greenhouse effect (EGGE). 13 EVT
14. Deforestation of the Amazon forest (DAF): quantity of m² deforested within the Amazon forest. 15,13 EVT
15. Utilization of renewable energy (URE). 7 EVT
16. The number of fauna and flora threatened of extinction (NFFTE): number of species in the fauna and
13 EVT
flora threatened of extinction.
17. Salary M-F (SMF): the rate of monthly average income between the male salary and female salary. 5,10 GEN
18. Unemployment M-F (UMF): the rate of unemployment between men and women. 5,10 GEN
19. Homicides M - F (HMF): Rate of homicides between men and women. 5 GEN
20. Political participation M – F (PPMF): the rate of occupation in the political posts between men and
5 GEN
women.
Source: Authors
The first phase was to add to the calculation of the HDI two new dimensions in order to better classify
the OSD with variables of the research. One those is the environmental dimension (AMB) with the
purpose to measure which are the impacts that the development and social welfare effect in the
fauna and flora of the country, considering that low ecological indicators, in the span of long term,
IAMOT 2019 | 1048

will compromise or provides severe rupture in future HDIs. Such importance already highlighted
in the 0SD, in which, 3 off 17 objectives act directly in the preservation of the environment.
The social dimension gender (SDG) has as the focus in mapping and promote a minor inequality
between sexes, proposing opportunities, remuneration and representativeness same in no OSD 5.
Like this, Frame 2 presents the variables utilized in the research as well as its relation with the OSD
and its classification in dimensions for the estimation of the HDI consolidating the second phase.
With these 20 variables can cover 5 dimensions with different perspectives, each one bringing 4
variables, being economic dimension (PCI, GDP, NE, EFI), health dimension (BT, MT, BS, EH),
educational dimension (IED, TI, TG, RTS), environmental dimension (EGGE, DAF, URF, NFFTE)
and gender dimension (SMF, UMF, HMF, PPMF).
Brazil was the object of this research. It is the fourth largest country in the world and in territorial
extension, with the population of 190.755.799 inhabitants, with the diversity of fauna and flora being
the developing country (IBGE, 2017). Analyzed the 20 variables, with the historical series between
2000 until 2017, with the aim of predicting these same for the year 2030 deadline to achieve the goal of
the OSD. The historical series of the twenty variables had sources in the following: Brazilian Institute
of Geography and Statistics (BIGS), found the variables of the dimension of health and equality of
gender. The National Institute of Studies and Educational Research Anisio Teixeira (NISR), fond the
variables of the dimension of education. The Institute of Applied Economic Research (IAER), for
economic dimensions. The Electoral Higher Tribunal (EHT), only for variable PPMF.
The 20 variables predicted by means of time series method, separately from the methods of MA,
ARMA, ARCH and MRM. The viable methods selected according to the criteria of the Test of
the Reason of the Criterion of Information of Akaike (AIC) (Kamel, Shaqlaih and Ibrahim, 2015).
From the forecast of the time series of the twenty variables was performed the forecast of the
calculation of the Brazilian HDI for the years 2018 until 2030 by means of neural networks MLF.
The input of the neural networks were the variables classified in five dimensions and the output was
the HDI of the time series proposed as shown in Figure 3.
Figure 3: Structure of the Neural Networks Researched
Source: Authors
Lastly, the calculation of errors of the forecast of the HDI by neural networks identified the
efficiency of the method of forecast utilized. The errors utilized were Absolute Average Percentile
Error (AAPE) and the Absolute Average Deviation (AAD), that represents the same forecast
that the AAPE, however, in the same units that of data as illustrated in Equations 12 and 13
(Ghinea et al., 2016).
IAMOT 2019 | 1049

(12)
(13)
where:
yt: true value;
ŷt: adjusted value;
n: number of forecasts.
Thus, the question is, by the means of time series method perform the forecast of independent
variables of the Brazilian HDI according to the aim of this article.
7. Results
To achieve the objective of proposal of forecast method of the HDI by means of neural networks
considering 5 dimensions composed by the variables built from the objectives of sustainable
development (OSD). Table 3 presents twenty variables that submitted to six methods of forecast of
time series selected as the best method of forecast according to smaller AIC.
Table 3: Models of Forecast Utilized in the Time Series
Variables AIC Variable methods
Gross Domestic Product (GDP) 459.3788 ARMA
Price for Consumers Index (PCI) -84.5109 MA
Number of enterprises (NE) 470.5808 MMR
Economic Freedom Index (EFI) 131.0701 ARCH
Basic Sanitation (BS) 51.0367 MA
Births (BT) 37.8343 MA
Deaths (DT) 73.2676 MA
Expenses with health in relation to the GDP (EH) 1.0360 MA
Total Investment in Education (TIE) 133.0304 MA
Total Illiterates (TI) 451.9182 MMR
Total Graduates (TG) 397.1665 MMR
Ratio teacher-student (RTS) 49.2480 MA
Number of fauna and flora threatened of extinction (NFFTE) 691.4248 MMR
Utilization of Renewable Energy (URE) 337.2866 MMR
Emissions of gases of greenhouse effect (EGGE) 338.2268 MMR
Deforestation of the Amazon forest (DAF) 287.5288 MMR
Salary M-F (SMF) -37.0967 MA
Unemployment M-F (UMF) -52.0006 MA
Homicides M– F (HMF) 9.9056 MA
Political Participation M – F (PPMF) 12.3083 MA
Source: Authors
The forecast of the independents variables of the HDI until the year 2030 presented where eleven
of the variables (PCI, BS, BT, DT, EH, EFI, RTS, SMF, UMF, HMF, PPMF) predicted by the
method of MA, because they did not present great variations in its time series. These variables were
all of the dimensions of gender and of health. Seven variables (NE, TI, TG, NFFTE, URE, EGGE
and DAF) predicted by the model MMR. All the variables of the environmental dimension were
predicted by this method because presented few variations, but, present some decreasing tendency
mainly the EGGE and the DAF indicating actions of the country regarding the improvement of the
environmental dimension, mainly in policies of incentive towards the emission of gases. Another
IAMOT 2019 | 1050

positive factor is that two educational dimensions presented positive indexes TI decrease over the
years and the TG increased.
Table 4: Forecast of the variables
Source: Authors
Economic Dimension Health Dimension
Year GDP ($) PCI NE EFI BT MT BS EH
2018 6414644 0.0680 5536309 572.62 14.5321 7.7442 72.0488 8.6131
2019 6426213 0.0877 4444709 63.155 16.1638 5.8548 70.4626 8.2610
2020 6655262 0.0980 3707422 41.295 16.6225 6.1165 68.0839 8.1164
2021 6938546 0.0453 4122818 53.198 15.7834 7.7923 69.4379 8.3138
2022 6988464 0.0593 4378470 58.989 15.7985 7.5629 72.2014 8.1579
2023 7126070 0.0774 4766694 53.494 17.6190 7.3173 72.7356 7.9057
2024 7366943 0.0820 5000790 52.776 18.2891 8.3121 73.3137 8.1279
2025 7286360 0.0667 4754761 64.320 17.6953 6.5311 69.5447 8.2487
2026 7401022 0.0484 4621819 76.110 18.3756 7.6756 65.0091 8.3233
2027 7724836 0.0706 4035657 95.737 18.0988 8.2199 67.9185 8.3578
2028 8009445 0.0619 4426283 50.604 18.0993 6.8767 71.1669 8.2572
2029 8293665 0.0789 4559574 64.136 17.4184 6.5451 70.4955 8.5827
2030 8553729 0.0615 3706800 55.886 15.2581 4.9083 71.8780 8.7851
Educational Dimension Environmental Dimension
Year IED TI TG RTS EGGE DAF URE NFFTE
2018 153.2402 13063310 906835,2 20.130 2655542696 22814.30 126223.9 5845.927
2019 168.7209 13052523 895381,3 21.377 2577648983 15455.62 137076.3 6361.389
2020 185.2608 12782017 969499 19.080 3117055640 17529.32 140700.4 4409.147
2021 186.0365 12843069 967801 18.392 3570764711 16075.82 143976.7 3165.759
2022 197.2407 12750940 1004532 19.272 3402253904 13387.20 133420.2 2758.061
2023 204.7159 12721164 1049940 18.963 3137068702 16766.79 142036.0 3649.248
2024 212.2239 12372277 1058424 20.055 3114211460 21641.32 140506.3 2947.826
2025 212.6734 12128115 1133588 20,669 3287671563 20028.15 135990.9 2716.105
2026 206.3789 11933117 1179896 19.814 3172210775 15211.17 134126.2 2722.875
2027 211.7345 11656224 1191280 20.736 2716299248 19700.15 134529.2 2233.245
2028 206.3698 11606302 1253346 19.798 2539318319 5816.485 139597.9 728.1869
2029 206.8723 11521516 1228634 20.610 1899233194 10711.19 144076.3 1768.619
2030 200.9626 11322535 1285669 21.071 1805450198 6375.089 143737.8 3109.676
Gender Dimension Forecast by Neural Networks
Year SMF UMF HMF PPMF Human Development Index (HDI)
2018 1.5809 0.7953 11.5408 7.1059 0.7342
2019 1.4959 0.7928 11.4860 7.1071 0.7417
2020 1.4586 0.8456 11.4285 7.6916 0.7422
2021 1.4918 0.8010 11.6438 7.8522 0.7420
2022 1.4949 0.7409 11.1129 7.5549 0.7420
2023 1.3940 0.7843 10.5838 7.7500 0.7493
2024 1.2617 0.7149 11.4457 7.0312 0.7479
2025 1.3563 0.7325 12.2958 6.4344 0.7416
2026 1.5342 0.7601 11.7667 6.6399 0.7330
2027 1.5387 0.7594 11.1490 7.1859 0.7330
2028 1.5955 0.7717 10.7309 7.8754 0.7258
2029 1.5516 0.7469 10.3945 7.6814 0.7336
2030 1.4205 0.7546 10.8643 7.2104 0.7258
IAMOT 2019 | 1051

Lastly, two economic variables were predicted by the methods ARMA the GDP and by the ARCH
the variable EFI. These variables that present major seasonal and are two variables of the economic
dimensions of the developing country. Table 4 illustrates the data predicted for independent series
and the forecast of the independent HDI by the neural networks MLP.
The forecast of the HDI by the neural network MFL besides Table 4, is presented in the Figure 4.
Presents the decrease of 0.02 points from the first year of the forecast. This, according to the forecast
will get the maximum HDI in the year 2023, however it will not the HDI more recent of this research
of the year 2017.
Figure 4: Forecast of the HDI
Source: Authors
The forecast of the Brazilian HDI presented the average error AAPE of 4.97 and the AAD of 0.0112.
These present the quality of the forecast even with twenty variables in the neural networks and it is
with seventeen inputs and twelve outputs. The Brazilian HDI was obtaining small increase until the
year 2017. However, with the forecast of new methodology utilizing two new dimensions of gender
and environment the independent series and the utilization of new variables predicted to the year
2030 not presented growth and as consequence the HDI also not. In reality, presented a decline in
over the years. This fact shows that besides the deficiencies in three dimensions already estimated by
the HDI normally the country also presents difficulties in the two new dimensions.
However, to have an increase of the value of the HDI the Brazilian government can execute
actions to the dimension health decreasing the MT and the BS and increasing the EH and in the
dimension gender decrease the variables SMF, UMF and HMF and increase the dimension PPMF.
These two dimensions were those that presented minors transformations over the years surveyed.
In the environmental dimension, the country needs to increase URE and decrease the NFFTE.
In the educational dimension is necessary to decrease the RTS and lastly, to perform all these
changes the economic dimension needs structuring in the increase of variables GDP and NE, mainly
present incentives for the creation of new enterprise within the country.
8. Conclusion
The research achieved its objective to predict the HDI by means of neural networks, however in
its forecast measured with more two dimensions of gender and environment. Conclude that these
are important to the quality of life of the inhabitants of the nation. The environment dimension is
indispensable to point that the economic dimension without the care with the environment in long-term
generates problems in the quality of life of the persons. The nation without equality of gender does not
present equalitarian rights to all its inhabitants and as consequence does not have human development.
These prove the importance of having as the basis of calculation of the HDI and the OSD.
With the inclusion of the two dimensions with more four variables each one, besides the three
dimensions already existed and mapped according to the OSD presented the bigger complexity to
IAMOT 2019 | 1052

perform the forecast of the HDI. Thus, the method of the forecast to be performed, by the neural
networks was ideal to try to imitate the standards found in the twenty variables and predict the HDI
with minor errors, mainly the AAD of 0.0112.
The advantage of the method proposed is that does not point only the dimension that present
problem but the variable that needs to be transformed. For example, the environmental dimension
presented actions of improvements however the variables of URE and NFFTE needs more efficient
government actions to achieve the development of this new dimension.
As limitation and suggestions for future research will be to add as dimensions to forecast the HDI the
OSD that were not considered in this research. This was the objectives: 11 become cities and more
sustainable communities; 12 responsibility of consumption and production; 14–Life under the water;
16–Peace and justice; and 17–partnerships and goals. Finally, the proposed method to forecast the
HDI was the way to help government actions of countries that search the human development index
from the sustainable development.
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PART I

1.1. Context of the Larger Study

1.2. Context of this Paper

2. Methodology Applied for the Development of a Research Approach

2.1. Research Context

2.2. Research Design

2.3. Research Design Outcomes

2.4. Summarize the Output in a Research Methodology Diagram

3. Discussion of the Literature; Research Approaches, Designs and Methodologies

3.1. Research Approach and Design for Complex Studies

3.2. Research Design with “Research Onion” Methodology

3.2.1. Research Philosophy (Research Paradigm and Philosophical Assumptions)

3.2.2. Research Paradigm

Figure 1: Research Onion

Source: (Saunders, M., 2009)

3.2.3. Philosophical Assumptions

3.4.1. The Systematic Literature Review (SLR) Method

3.4.2. The Delphi Research Method, Theory from Literature

Literature Research Research Research Delphi R1 Delphi R1 Delphi R1

Figure 2: The Typical Three Round Delphi Process

Source: (Skulmoski, G.J., 2007)

Panel Review Summarise

Figure 3: Multi Round Delphi Process

Source: (Moodley, R., 2014 cite Sadhu)

Figure 4: Block Diagram of the Delphi Process

Source: (Barry, M.L., 2009)

3.5. Extreme Cases Analysis

3.6. Research Strategy Summary

4. Discussion of the Designed Research Methodology

4.1. Research Philosophy

4.3. Research Strategy, Data Collection and Analysis Procedures

4.4. Choices and Time Horizon

5. The Proposed Research Model

Figure 5: Research Methodology for the Development of an Innovation Management Framework

2.1. Emerging Economies

2.2. Wealth and Employment Distribution in Emerging South Africa

2.3. Firm Performance and Productivity

2.4. Industry 4.0 and its Impact

2.5. Management of Technological Innovation at Firm and National Level

2.5.1. Industry 1.0

2.5.2. Industry 2.0

2.5.3. Industry 3.0

2.5.4. Industry 4.0–The Case of Amazon

3.1. Low-Cost Business Models

3.2. Proposed Conceptual Framework

iv. Firm capability;

Figure 1: Virtual R & D (IAMOT 2015)

3. Internet of things (IOT)

Figure 2: Stages of the Industrial Revolutions

Figure 3: Fourth Industrial Revolution

4. Energy Efficiency with IOT

5. IOT and Data Management in Cloud Computing

Figure 5: Innovation Path, Conventional and Reverse Approach

Source: Hang & Garnsey (2011)

Figure 8: Positioning of our Figure No. 7 in Hang & Garnsey Process

Figure 9: Our Suggestion for the Process

8. Case Study in Iran

8.1. Interactive Training Software

Liliana Dennis Mejia Sanchez

José Eduardo De Oliveira Trindade

2.1. Characterization of SMEs and Problems and

2.2. Technological Intensity Classification

2.3. Research Gap