THE PERFORMANCE EFFECT OF INNOVATION IN

SHIPPING COMPANIES
Chapter 1: INTRODUCTION

Background of the Study

Shipping industries and ports around the globe are currently facing

problems caused by oil price collapse, trade/GDP multiplier below one,

decrease of the emerging economies growth, supply overcapacity and some

other external factors.

One of the major problems suffered by shipping industries and ports is

the lack of innovation. Some technology advances creates an impact to the

industry resulting to decrease of need to ship goods around the world.

Shipping companies were forced to reconsider their business models, invest in

innovation, and identify new systems to reduce business cost. (Jenssen, 2007)

found in his study that innovation contributes to firm performance.

(Chesbrough,2009) Companies commercialize new ideas and technologies

through their business models. While companies may have extensive

investments and processes for exploring new ideas and technologies, they often

have little if any ability to innovate the business models through which these

inputs will pass. 

In a recent interview published in the The Economist (2017), the Chief

Operating Officer of Maersk Line said that the company is embracing

digitalization. One of the company´s projects is called Remote Container

Management (RCM), which relates to the retrofitting of its ships to collect more
data from several sensors installed on its containers, turning the refrigerated

container into a digitally connected device which aims to eliminate waste and

improve cargo care. Simultaneously, MSC has joined CMA CGM for the

deployment of smart devices across the fleets of both carriers. On the other

hand, some port authorities do not even have a port management information

system (PMIS) nor a basic port community system (PCS) that facilitates and

speeds its operations.

The Pacific International Lines, Incorporated on the 16th of March 1967,

believes in the benefits that technology resources can do on its ventures

carried by its commitment to shipping customer’s cargo in the safest and most

efficient manner. Last year, May 2017 the company implemented the use of

new Information Technology system called LMS (Liner Management System) as

technology-based innovation.

As an employee of the company, the researcher is therefore determined

to evaluate whether the innovation has been contributing to enhance the

operations and services, the performance of the company, whether it has

satisfied the clients. This study generates insights on innovation strategies that

may help firms keep up with or stay ahead of the competition.  in hopes of

inspiring managers and academics to take these challenges on.

Statement of the Problem

 Lack of innovation is one of the dilemmas of many Shipping Industries.

Believed in order to attain efficient shipping, to improve business performance,

and raise its competitiveness, the company needs to keep pace in a world

where information technologies are essential tools. It should consider

managing innovation which is the action of creating and capturing value from

new technologies, processes, methods and organization models. 

More specifically the study intends to answer the following questions:

1. What is the status of innovation in relation to the following input:

1.1 Company’s mission and vision;

1.2 Organizational goals and strategies;

1.3 Innovation objectives and functions?

2. What is the level of contribution of innovation in terms of the following

2.1 Generation of income

2.2 Reducing cost

2.3 Meeting immediate need to acquire information

2.4 Providing comparative analysis

3. What is the level of stakeholders’ satisfaction in terms of the following:

3.1 Accuracy

3.2 Reliability

3.3 Timeliness

3.4 Economic benefits?

Objectives of the Study

The purpose of the study is to explore possible relationship between

technological innovations and business performance, to identify indicators of

efficient shipping, how it is measured tangibly and to recognize the impact of

technological innovation. To provide bases for correct action and decision

making in improving technological competence, to help our organization

understand the advantage of embracing technological innovation, to encourage

them to invest in new technologies, and take action of creating and capturing

value from new technologies, processes, methods and organization models to

achieve efficient shipping how innovation contributes to company performance

Significance of the Study

Identifying the effect of innovation to business performance is important in

order for the organization to improve its technological competence which

basically will lead to the improvement of organizational performance.

Specifically, it is significant to Shipping Companies around the globe. To

executive and managerial Officers: in making decisions whether to invest or

not, to deploy or to embrace technology innovation or not. Employees: to be

able to understand and adopt technological innovation for the improvement of

their performance. Port authorities:who should take the lead and boost the
innovation process in their respective port clusters. Future

researchers:asreference for more studies.

Grade: 90
REVIEW OF RELATED LITERATURE

This chapter includes the related literature on the performance effect of

innovation in Pacific International Lines resulting to positive contribution and

stakeholder satisfaction. It also includes the synthesis of the literature

presented, theoretical and conceptual framework and research assumptions.

Related Literature

Significance of Innovation. One of the best ways to any successful business

to come up with new ideas to keep operations, products and services fresh.

(Brooks, 2018) defined innovation as the process of bringing those ideas to

reality is called innovation. (Petkovska, 2015) said that innovations are

considered to be the instruments by which the entrepreneur creates new

products and augments the current products. One of work of (Crespi and

Zuniga, 2012) proves that firms that invest in knowledge are more able to

introduce new technological advances and those that innovate have greater

labor productivity than those that do not. However, (Kline and Rosenberg,

2009) stresses in their study that Innovation is complex, uncertain, somewhat

disorderly, and subject to changes of many sorts. Innovation is also difficult to

measure and demands close coordination of adequate technical knowledge and

excellent market judgment in order to satisfy economic, technological, and

other types of constraints—all simultaneously. The process of innovation must

be viewed as a series of changes in a complete system not only of hardware,

but also of market environment, production facilities and knowledge, and the

social contexts of the innovation organization.

Critical Innovation. The word critical is defined by Merriam-Webster as

“indispensable, vital, crucial and decisive” The significance of Innovation is

determined by the following guidelines:

a) Economic benefits - this should be in terms of its contribution to the

generalization of income or cost reduction resulting from the innovation.

If it helps build high-growth companies, creates new sectors and ways of

doing business. (Atkinson and Stewart, 2013)

b) Importance of the innovation in relation to the objectives and functions

of the PIL. According to (Montgomery and Perry, 2011), a strategic theme

is a major “pillar” of the strategy that directly supports achievement of

the vision and mission of the organization. Innovation becomes strategic

when it is fully integrated into the fabric of the organizational planning

and management process.

Balance Score Card. (Montgomery and Perry, 2011) introduced the Balance

Score Card which is a strategy-based balanced scorecard system involves

the collaborative development of a firm’s “Story of the Strategy” and

identifies the connection between creative capacity, efficient product

development processes, improved customer and stakeholder value, and

financial outcomes.
The balanced scorecard uses four strategic perspectives, shown in Figure 1,

below – complementary but distinct lenses for looking at organizational

strategy and performance. The use of perspectives allows the organization to

build a model of how the “intangible” factors – creativity, talent, new ideas,

collaborative interaction with customers – interact with the more “tangible”

factors – well defined processes, dollars invested, sales results - to create an

innovative, sustainable organization that can adapt resiliently to change.

 FINANCE: In a business, owners, investors and analysts view the

organization as a financial system that provides return on investment. In

a non-profit, donors see the benefit to others from their support of the

organization’s mission. In government, taxpayers and their

representatives see value for money spent on the public good.

 CUSTOMER/STAKEHOLDER: In a business, customers see the business’

products and services as a way to satisfy needs and desires at an

appropriate price, and stakeholders may act as advocates for other

issues, such as the environment and the community. Non-profit and

government agencies work within a complex network of impacted clients

and stakeholders, any or all of whom may exercise influence on the

organization’s funding or license to operate.

 INTERNAL PROCESS: The activities at which the organization must excel

in order to provide value for customers, stakeholders, and ultimately,

those who foot the bill. Internal management and staff (including

contractors, volunteers and others) work to improve business processes

 to efficiently turn resources into outputs (products and services) that will

satisfy customer and client needs. In the case of innovation, effective

processes include the procedures for evaluating new ideas, testing them,

funding them for further development, or discarding them – the

“perspiration”.

 ORGANIZATIONAL CAPACITY: The foundation of the other perspectives –

the physical infrastructure, culture, tools and technology, knowledge and

skills, and information systems required to create, plan, design, and

deliver products and services to customers and stakeholders.

Organizational capacity is a mix of tangible (people, tools, systems,

structures) and intangible assets (ideas, culture) that allow the

“inspiration” to bloom.
Impact of Innovation. Innovation may imply different meaning to people.
Experts define two main categories of innovation namely, Breakthrough and
Sustaining Innovation. (Day, 2017) defined Breakthrough Innovation as an
innovation from inside a company that pushes something to the next level. It is
innovation that opens the company to new markets or changes the way
customers interact with the market or the industry while (Noronha, 2016)
defined Sustaining Innovation as an incremental innovation that enables or
sustains an existing product. (Jenssen, 2010) stresses in his early study that
Shipping industry has to build its competitiveness in innovation in order to
prosper. One work by (Yang, 2010), proves that innovation had significant
positive effects on firm performance. Another study by (Jenssen, 2007)
maintains that innovation contributes to firm performance. On the other hand,

Jenssen, J. I. (n.d.). [Abstract]. Retrieved November 11, 2018, from The

performance effect of innovation in shipping companies.

Brooks, C. (2013, September 24). Entrepreneurs Answer the Question: 'Why Is

Innovation Important'. Retrieved November 11, 2018, from
https://www.businessnewsdaily.com/5167-innovation.html
Chesbrough, H. (2009). Business Model Innovation: Opportunities and Barriers
[Abstract]. Business Model Innovation: Opportunities and Barriers. Retrieved
November 11, 2018, from
https://www.sciencedirect.com/science/article/abs/pii/S0024630109000569.

Petkovska, T. (2015). [Abstract]. Role and Importance of Innovation in Business

of Small and Medium Enterprises. Retrieved November 11, 2018.

Kline, S. J., & Rosenberg, N. (2009). An Overview of Innovation. Studies on

Science and the Innovation Process,173-203.
doi:10.1142/9789814273596_0009

Atkinson, R. D., & Stewart, L. A. (2013, May). The Economic Benefits of

Information and Communications Technology[PDF]. Information Technology &

Innovation Foundation.

Montgomery, D., & Perry, G. S. (2011). Build Innovation into Your Strategy[PDF]. Cary, North Carolina

27518 USA: Balanced Scorecard Institute.

Day, J. (2018, August 20). Breakthrough Innovation or Disruptive Innovation. Retrieved November 14,

2018, from https://ideascale.com/breakthrough-innovation/

https://www.tandfonline.com/doi/abs/10.1080/0308883032000084841

https://www.tandfonline.com/doi/abs/10.1080/13675567.2012.669469

https://www.quora.com/What-is-the-difference-between-a-sustaining-
innovation-and-a-disruptive-innovation

https://www.sciencedirect.com/science/article/abs/pii/S0305750X11001859