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Institut für Produktentwicklung

Masterarbeit
Success Factors in Product Innovation

Erfolgsfaktoren in Produktinnovation

B.Sc. Alaeldin Mohamedhassan

Betreuer: Univ.-Prof. Dr.-Ing. Dr. h. c. Albert Albers


Co-Betreuer:
M.Sc. Miriam Wilmsen

Nr.: 3.729 Karlsruhe, September 2019


Institut für Produktentwicklung

Masterarbeit
Herr B.Sc. Alaeldin Mohamedhassan
(Matr.-Nr.: 1918032)

Die Masterarbeit ist im engen Kontakt mit dem Institut auszuarbeiten.


Eine Einsichtnahme Dritter darf nur nach Rücksprache mit dem Institut
erfolgen.

Ausgabetag: 01.04.2019 Abgabetag: 30.09.2019

Betreuer: Co-Betreuer: M.Sc. Miriam Wilmsen

Univ.-Prof.Dr.-Ing.Dr.h.c. Albert Albers

Bearbeiter: Anschrift:
B.Sc. Alaeldin Mohamedhassan Ort Marxzell
Straße Neuenbürger Str. 2
Telefon +4915759362050
Institut für Produktentwicklung

Masterarbeit
Aufgabenstellung
für
B.Sc. Alaeldin Mohamedhassan
(Matr.-Nr.:1918032)

Success Factors in Product Innovation


Erfolgsfaktoren in Produktinnovation

- Durchführung einer Literaturrecherche zur Produktinnovation, um


ein Verständnis für die verschiedenen Konzepte zu erlangen, die
in der Theorie enthalten sind.

- Ableiten von Schlussfolgerungen insbesondere zu


Innovationsdefinitionen, -typen, Einflussfaktoren und -ergebnissen
sowie zu dem Ideenfindungsprozess.

Betreuer: Univ.-Prof. Dr.-Ing. Dr. h. c. Albert Albers


Co-Betreuer: M.Sc. Miriam Wilmsen
Institut für Produktentwicklung

Erklärung
Hiermit versichere ich, die vorliegende Arbeit selbständig und nur mit den im
Literaturverzeichnis angegebenen Quellen und Hilfsmitteln angefertigt zu haben.

Karlsruhe, den 30. Sep 2019


Acknowledgements

I thank Almighty for the blessings to the successful completion of my research work. I thank
my supervisor, Univ.-Prof. Dr.-Ing. Dr. h. c. Albert Albers and my co-supervisor M.Sc. Miriam
Wilmsen for their continuous help and support. I also thank all lecturers and staff at Karlsruhe
Institute of Technology. I am grateful to my loving family for keeping me always motivated.

i
Abstrakt

Innovation ist notwendig, um Unternehmen im sich immer weiter verschärfenden internationalen


Wettbewerb zu halten und weiterzuentwickeln. Daher ist ein gutes Verständnis für Innovation
und ihre Anforderungen erforderlich.
Das Thema dieser Arbeit ist es, dieses Verständnis zu bestätigen. Literaturrecherche wird
durchgeführt, um den Status von Innovationsterminologie, Typologie und ihre Einflussfaktoren
zu überprüfen. Es werden verschiedene Forschungsfragen untersucht, die die Definition, die
Typen, die Lebenszyklen, die Einflussfaktoren, das Management, die Offenheit und die Ergeb-
nisse von Innovationen betreffen, sowie die Ideenfindung als wesentliche Phase des Innova-
tionsprozesses. Als wichtigster Beitrag zur Innovation wird das Gleichgewicht zwischen festen,
etablierten Routinen, Prozessen und Strukturen gegenüber Flexibilität, Veränderung und der
Erforschung neuer Ideen, Kenntnisse und Technologien herausgefunden. Kundenorientierung
wirkt sich je nach Kundentyp auf die Art der Innovation. Die Wechselwirkungen bei der Ideen-
findung werden untersucht.

Abstract

Innovation is necessary for the Continuation and growth of firms in the ever-exacerbating in-
ternational competition. Therefore, a good understanding of innovation and its requirements is
necessary.
The purpose of this thesis is to reexamine this understanding. The literature is reviewed to
recheck the status of innovation terminology, typology, and its influencing factors. Several re-
search questions are explored concerning innovation’s definition, types, lifecycles, affecting
factors, management, openness, and outcomes, as well as idea Generation as an essential
phase of the innovation process. The most important contributor to innovation is found to be
the balance between fixed, established routines, processes and structures, against flexibility, al-
teration, and exploring new ideas, knowledge, and technologies. Customer orientation is found
to affect the type of innovation, depending on the type of customer, and needs to be addressed.
The interacting factors in idea generation are explored.

ii
Contents

Acknowledgements i

Abstrakt ii

Abstract ii

1 Introduction 1

1.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.2 Purpose of the Thesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.3 Research Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.3.1 Definition and Types of Innovation . . . . . . . . . . . . . . . . . . . . . . 2

1.3.2 Prediction of Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.3.3 Factors Affecting Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1.3.4 The Role of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1.3.5 The Concept of Open Innovation . . . . . . . . . . . . . . . . . . . . . . . 3

1.3.6 Outcomes of Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1.3.7 Idea Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2 State of Research 4

2.1 Definition and Characteristics of Innovation . . . . . . . . . . . . . . . . . . . . . 4

2.2 Terminology and Types of Innovation . . . . . . . . . . . . . . . . . . . . . . . . . 5

2.3 Disruptive Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2.4 Classification of Factors Affecting Disruptive Innovation . . . . . . . . . . . . . . 7

3 Research Method 8

3.1 Literature Search: Basis and Method . . . . . . . . . . . . . . . . . . . . . . . . . 8

3.2 Selection of the Final Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

iii
iv CONTENTS

4 Research Findings 10

4.1 Predicting Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

4.1.1 Predicting Innovation in the Lifecycle . . . . . . . . . . . . . . . . . . . . . 10

4.1.2 Predicting Innovation Based on Location and Incumbency . . . . . . . . . 11

4.2 Mitigating the Negative Effect of Competitors’ Innovation . . . . . . . . . . . . . . 12

4.3 Factors Affecting Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

4.3.1 False Managers’ Perception of the Task . . . . . . . . . . . . . . . . . . . 13

4.3.2 Balancing Rigid Management Routines with Exploration . . . . . . . . . . 14

4.3.3 Having a Balanced Adaptive Organizational Structure . . . . . . . . . . . 14

4.3.4 Having a Routine for Detecting and Testing Potential Innovation . . . . . . 15

4.3.5 Training Individuals in Innovation . . . . . . . . . . . . . . . . . . . . . . . 15

4.3.6 Managing Key Individuals Efficiently . . . . . . . . . . . . . . . . . . . . . 16

4.3.7 Customer Needs Drive Innovation . . . . . . . . . . . . . . . . . . . . . . 16

4.3.8 Spotting and Benefiting from Lead Users . . . . . . . . . . . . . . . . . . 17

4.4 Firm Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

4.4.1 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

4.4.2 Market Influence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

4.4.3 Negative Effect of Core Values . . . . . . . . . . . . . . . . . . . . . . . . 19

4.5 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

4.5.1 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

4.5.2 Cultural Effect on Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . 20

4.5.3 Barriers to Internal Knowledge Transfer . . . . . . . . . . . . . . . . . . . 20

4.6 Open Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

4.6.1 Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

4.6.2 Open Innovation Processes . . . . . . . . . . . . . . . . . . . . . . . . . . 21

4.6.3 Recent Trends and Characteristics . . . . . . . . . . . . . . . . . . . . . . 22

4.6.4 Balancing External Exploration and Internal Exploitation . . . . . . . . . . 23

4.6.5 Flexibility of Business Model . . . . . . . . . . . . . . . . . . . . . . . . . 24

4.6.6 Rigidity of The Business Model in Established Firms . . . . . . . . . . . . 24

4.6.7 Cross-disciplinary Solutions and Integrating Suppliers and Customers . . 24

4.6.8 Flexible Management of Intellectual Property . . . . . . . . . . . . . . . . 25

4.6.9 Challenges and Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . 25


4.6.10 Example of Technology Influence on Open Innovation . . . . . . . . . . . 26

4.6.11 Financial Performance of Open Innovation . . . . . . . . . . . . . . . . . . 26

4.7 Innovation Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

4.7.1 Components of Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

4.7.2 Alliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

4.7.3 Model for Large Established Firms . . . . . . . . . . . . . . . . . . . . . . 28

5 Idea Generation 30

5.1 State of Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

5.2 Crowdsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

5.3 Problems with Crowdsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

5.4 Solutions from Other Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

5.5 Knowledge Creation Modes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

5.6 Quality of Ideas and Connectedness . . . . . . . . . . . . . . . . . . . . . . . . . 34

5.7 Market for Ideas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5.8 Factors Affecting the Relation between Market Information and the Number of

Generated Ideas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5.9 Champions Effect on Idea Generation . . . . . . . . . . . . . . . . . . . . . . . . 36

5.10 Effect of Hierarchy on Idea Generation . . . . . . . . . . . . . . . . . . . . . . . . 38

5.11 Effect of Leaders Behaviour on Idea Generation . . . . . . . . . . . . . . . . . . 38

5.12 Types of Motives for Idea Generation . . . . . . . . . . . . . . . . . . . . . . . . 40

5.13 Different Group Structures and Measures of Idea Performance . . . . . . . . . . 41

5.14 Effect of Training Method on Innovativeness . . . . . . . . . . . . . . . . . . . . . 42

5.15 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

6 Discussion 46

6.1 Customer Orientation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

6.2 Balance Between Rigidity and Change . . . . . . . . . . . . . . . . . . . . . . . . 47

6.3 Capabilities, Knowledge and Networks . . . . . . . . . . . . . . . . . . . . . . . . 49

6.4 Summary and Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

6.5 Future research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Bibliography 51

v
List of Figures

4.1 Lifecycle of Technological Evolution . . . . . . . . . . . . . . . . . . . . . . . . . 11

4.2 Market Value of Xerox’s Spin-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

5.1 Factors Directly Proportional to the Performance of Ideas and Idea Generation . 45

vi
Chapter 1

Introduction

1.1 Motivation

S. J. Kline and N. Rosenberg (2010) believe that Innovation is physical changes in the product,

as well as changes in the market, knowledge, production systems, and the social conditions in

the organization [46].

Porter, Michael E (1993) argues that this change as well as taking advantage of the conditions

in the country are key to success in the international industrial competition.

He notes that many managers and companies view the conditions of the competition wrongly

and make false actions accordingly.

They look for keeping stability and low risk and for a better financial performance. For that they

seek alliances and assistance from the government. This could achieve survival, but aiming at

survival only is risky, based on the nature of competition today.

The situation of competition today requires aiming at international leadership. Leadership is

built on continuous change and acknowledging the competitive advantage presented by the

country in which the organization operates. This competitive advantage should be used, and

improved [52].

Because of the mistaking managerial practices and beliefs, it is necessary to reinspect innova-

1
2 Chapter 1. Introduction

tion literature, to identify the obstacles and false practices, so they become easy to avoid.

1.2 Purpose of the Thesis

This thesis aims at rechecking the status of innovation theory. It summarizes directions and

focus areas in the theoretical works. It serves the following purposes:

1. Building and demonstrating an updated understanding of the concepts of innovation.

2. Rechecking the direction of the literature and Providing a summary and reflections on the

topic to enable more accurate orientation of future research.

It is mainly concerned with the factors affecting innovation. It mostly focuses on established

firms and on the innovation types with strong impact on the market and technology. Innovation

types are presented in the upcoming sections. Additionally, different aspects in Idea generation

are investigated in detail.

1.3 Research Questions

There are many questions raised in the recent innovation theory. The following are the ones

examined in this thesis:

1.3.1 Definition and Types of Innovation

What are the types of innovations found in the literature? How do they differ from one another?

What are their features?

1.3.2 Prediction of Innovation

Could a path in time or a lifecycle be found, that predicts great shifts in technology, and accord-

ingly market conditions? How could this prediction be advantageous for innovative firms?

1.3.3 Factors Affecting Innovation

Which circumstances or factors, contribute to or hinder innovation? Which of those are more

influencing?
1.3. Research Questions 3

1.3.4 The Role of Management

How can managers be trained, and management routines be tuned to maximize innovation

potential? What are the management practices that facilitate innovation?

1.3.5 The Concept of Open Innovation

What is open innovation? What are its key processes and strategies? Where does it fit in

innovation research?

1.3.6 Outcomes of Innovation

how does innovation benefit an organization financially and strategically?

1.3.7 Idea Generation

What are the measures and indicators of the performance of idea generation? What are the

conditions and factors that influence these variables?


Chapter 2

State of Research

The following sections present definitions and types of innovation, as well as a classification of

the affecting factors.

2.1 Definition and Characteristics of Innovation

S. J. Kline and N. Rosenberg (2010) believe that Innovation is physical changes in the product,

as well as changes in the market, knowledge, production systems, and the social conditions

in the organization. Therefore, it is not a single process. Further, they find there is great un-

certainty in innovation, it can hardly be measured, and it requires technical knowledge to be

coordinated closely and the market to be judged accurately, to fulfill all constraints, whether

technological, economic or other kinds of constraints.

They observe that most innovations begin from design, not from research. It could be a new

design or a reconfiguration of an existing one. Research is used throughout the product lifecy-

cle, to solve system and process issues, especially towards the end of the lifecycle [46].

Veryzer Jr, Robert W (1998) agrees as he notes that firms start the process by seeking an ap-

plication for new technology, and they develop a product prototype much earlier in the process,

compared with the process for incremental innovation. He also finds that projects are driven

by a visionary individual or a champion, environmental constraints or connecting technologies

[63].

4
2.2. Terminology and Types of Innovation 5

2.2 Terminology and Types of Innovation

From reviewing the literature on product innovation, Garcia, Rosanna and Calantone, Roger

(2002) identify several types of innovation: Really new, radical, discontinuous, incremental, and

imitative.

They find so many and inconsistent definitions for these types, which makes it unclear how

they are used in the literature. They attempt to clarify the classifications through comparison

between the different definitions and reach certain features for each type:

1. Radical innovation creates both new technology and a new market. It usually also changes

the business of the firm.

2. Really new innovation creates either a new market or new technology but not both. It is

the most occurring type of innovation.

3. Discontinuous innovation mostly means really new innovation that introduces new tech-

nology, but the term is also used to indicate radical innovation.

4. Incremental innovation delivers new customer benefits, but within the current market and

technology.

5. Imitative innovation introduces neither new technology nor a new market. It is similar to

incremental innovation, but the difference is that it is new to the company [34].

There is some similarity in the work of Abernathy, William J, and Clark, Kim B (1985) as they

divide innovation into four types, based on the history of the American automotive industry:

1. Architectural innovation that strongly influences both marketing and production systems.

Here, Management needs to continuously search for a technology breakthrough and un-

satisfied needs in the market.

2. Innovation with high influence on marketing (termed niche creation). It requires speed in

getting to the market. It calls for responsive quick production and delivery.

3. Regular mode, with low influence on the market and technology, calls for strategic plan-

ning and iterative improvement.


6 Chapter 2. State of Research

4. Revolutionary type that influences technology, demands accurate technical insights and

focusing on specific markets [5].

2.3 Disruptive Innovation

Of noticeable popularity in the literature is the term “disruptive innovation”, nevertheless, it is

still used inaccurately.

Danneels, Erwin (2004) notes that there has become an inaccuracy in using the term disruptive

technology in the literature. He sees a classification for technologies important for understand-

ing how they affect the growth of a firm.

He believes that for the theoretical work to be of value, it must reach tested predictions of how

disruptive technologies affect incumbents, and whether spin-offs and customer orientation are

effective in taking advantage of such technologies [25].

Incumbents and spin-offs are explained in the fourth chapter.

Christensen, Clayton M and Anthony, Scott D and Roth, Erik A (2004) approach disruptive

innovation based on conceptual reasoning instead of driving conclusions from data about past

experiences. They reached some observations:

1. Disruptive innovations also happen outside of high-tech industries.

2. Disruption is not a single occurrence but takes time.

3. Technological discontinuity does not necessarily make a disruptive innovation.

4. An innovation that is disruptive to one company may be incremental to another [21].

In summary, inconsistency and inaccuracy are found in the literature regarding the terminology

and types of innovation, yet the characteristics of some innovation types, especially those with

high impact, show similarity. For example: really new versus discontinuous and really new

versus radical. Mostly these three types are the focus of the thesis.
2.4. Classification of Factors Affecting Disruptive Innovation 7

2.4 Classification of Factors Affecting Disruptive Innovation

There exist some classifications of the factors enabling or inhibiting this type of innovation.

Yu, Dan and Hang, Chang Chieh (2010) reviewed the past literature on disruptive innovation

and classified the factors affecting it in four categories:

1. Organizational and business model factors

2. External environment

3. Customer and marketing

4. Technological strategy.

They divided the organizational class to:

1. Organizational structure

2. Culture

3. Human resource

4. Resource allocation.

They note that the technology category is the least researched [68].
Chapter 3

Research Method

The following sections explain the method [4] used to identify the relevant literature sources

and to construct the thesis.

3.1 Literature Search: Basis and Method

The computer program ”Harzing’s Publish or Perish, Version: 6.49.6406.7079” [3] was used to

sort literature search results based on the number of citations. The program enables searching

on several databases and limiting the search by the year of publication. Several searches were

carried out on the database” Google Scholar” [2] , using different terms, such as Innovation,

capability, factors, and technology. On this database, the program has a one thousand search

results. The year of publication was set up to be after 1998.

The first type of search inquiries was set up to return results with all the search terms in their

titles. The titles of the results were very relevant, but in almost every inquiry, the results had

citation counts in hundreds.

The second type of search inquiries was set up to deliver sources with all the search terms

anywhere in the document. It returned results with high citation frequencies, many of which in

thousands.

A selection of sources obtained from both inquiry types were reviewed. Both publications with

low and high citation frequencies contained rich information; however, the primary goal of this

8
3.2. Selection of the Final Sources 9

review is to check the status of the literature. Sources with high citation frequencies probably

have the highest impact on the direction of theory in the field; therefore, they are the focus of

this thesis.

Have these very frequently cited sources been indeed steering the focus in the innovation

theory, it doesn’t mean they are free of errors, or that they don’t need testing or validation, but

that is beyond the scope of this work.

3.2 Selection of the Final Sources

Five sources were selected from the results of the second search type. Their relevance was

judged by their titles. The abstracts of the selected sources were then read to verify their focus.

The related articles function of Google Scholar was used to find documents related to the se-

lected sources. For each selected source, around 20 related articles were chosen based on

the title. The total number of documents was 105 at this point. Most of the related articles had

citation counts in thousands, and many of them had more citations than the source they were

related to.

The abstracts of these documents were read, and a final smaller group of sources was ex-

tracted based on both relevance and citations. The final group of sources were studied and

summarized. Some of them contained lengthy material, such as book chapters. In such cases,

points that are relevant to the thesis were identified and extracted.

An annotated bibliography was made from the summaries. It presented a database of findings

and their sources. This database was revised along with the sources and modified.

The thesis was then structured and written using information from the bibliography. During and

after the writing, the structure and content were revised and modified. The final document was

reviewed and proofread.


Chapter 4

Research Findings

The literature review revealed some focus areas in innovation theory:

1. Predicting when and where innovation occurs.

2. Factors that mitigate the negative effect of competitors’ innovation.

3. Factors that contribute to or inhibit innovation.

These are presented in the next sections.

4.1 Predicting Innovation

Research investigated phases of technological evolution as well as the geographical location,

size, and market position of the firm delivering it.

4.1.1 Predicting Innovation in the Lifecycle

Through studying the history of cement, glass, and minicomputer industries, Anderson, Philip

and Tushman, Michael L (1990) present a cyclic model of technological evolution. In this model,

after a technological discontinuity or a breakthrough comes a period of rapid technical variations

that ends with a single dominant design, after which product sales always reach their maximum.

The technological breakthrough never is the dominant design. After the dominant design,

comes a period of incremental technological progress. During the period of incremental tech-

nological progress, a company should learn how to develop both incremental technological

10
4.1. Predicting Innovation 11

improvements and technological breakthroughs. For this, it needs to be able to develop multi-

ple technical capabilities and the adjacent organizational competencies [7].

Figure 4.1 shows the described technology lifecycle:

Figure 4.1: Lifecycle of Technological Evolution [7]

Similarly, Christensen, Clayton and Raynor, Michael (2013) recommend that a firm starts plan-

ning disruptive innovation early before it matures. This gives new ideas more time to become

viable and launch [19].

These recommendations specify a phase in the lifecycle of the company as well as of the in-

dustry for learning or planning innovation. When the company is the industry leader, the two

phases could overlap.

4.1.2 Predicting Innovation Based on Location and Incumbency

Chandy, Rajesh K and Tellis, Gerard J (2000) explain a phenomenon they notice in the litera-

ture, which they describe as” incumbent curse”:

Leading firms usually enter the industry by introducing rather radical innovations. They then

become incumbents, that is, a holder of a market position that tends to make only incremental

innovations. That means, radical innovations come only from new entrants. Through studying

150 years of history of radical innovations in the consumer products, they found that the incum-

bent curse applied more before world war two than after it. That means, recently, more radical
12 Chapter 4. Research Findings

innovations have been coming from large incumbent firms than new entrants. Furthermore,

newcomers innovate radically in the US much more than in Japan and Western Europe, where

the incumbent curse seems not to apply [14].

This is a connection between:

a) firms’ position in the industry, b) geographical location, and c) a historical era.

Christensen, Clayton M (2013) disagrees regarding the hard disk drive industry particularly. He

explains that in this industry, leading innovative firms may turn away technological innovations

that could be strategically important. The leader throughout history remained a new entrant for

all new technologies. His analysis shows that leading firms that get surpassed by new entrants

were focusing on sustaining the performance of existing innovations. They seem to lose the

ability to find new markets once they enter the industry; they focus on current customers and

become vulnerable to new technologies [20].

4.2 Mitigating the Negative Effect of Competitors’ Innovation

Through analyzing data of about 100 years of history of the typesetter industry, Tripsas, Mary

(1997) finds three interactive factors affecting the competition of incumbents against new en-

trants that introduce radical innovation to the market:

1. High technological capabilities that enable the firm to develop the new technology itself.

2. Investing and allocating resources to the new technology, such as RD.

3. Complementary assets:

complementary assets are other assets owned by an incumbent that support the commercial-

ization of new technology, such as access to distribution channels specialized manufacturing

capability, and complementary technologies.

Having highly specialized complementary assets can lessen the negative effects on the com-

pany, caused by a competitor’s innovation, in case of the company’s technological disadvantage

[58].
4.3. Factors Affecting Innovation 13

4.3 Factors Affecting Innovation

Some factors that influence innovation received attention in the literature, such as those related

to management, knowledge, firm’s capabilities, openness and innovation networks.

In the upcoming sections, contributors and inhibitors to innovation within these areas are pre-

sented, they are:

1. False Managers’ Perception of the Task.

2. Balancing Management Routines With Exploration.

3. Having a Routine for Detecting and Testing Potential Innovation.

4. Training Individuals in Innovation.

5. Managing Key Individuals

6. Having a Balanced Adaptive Organizational Structure.

7. Customer Needs Drive Innovation.

8. Spotting and Benefiting from Lead Users.

In addition, the following broad factors are also explored:

9. Open Innovation.

10. Knowledge.

11. Firm Capabilities.

12. Innovation Networks

4.3.1 False Managers’ Perception of the Task

Based on a case study of Polaroid Corporation, regarding how it dealt with the change from

instant photography to digital imaging business, Mary Tripsas and Giovanni Gavetti (2000) pro-

pose that the beliefs of the managers and their perception of the new problem, on which they
14 Chapter 4. Research Findings

base their plan of action, is the reason behind the failure of established firms when they face

technological discontinuity. This is because managers can control the allocation of resources

to a certain line of research, based on their belief [58].

4.3.2 Balancing Rigid Management Routines with Exploration

Benner, Mary J and Tushman, Michael L (2003) argue that established process management

routines are useful in steady environments; they help incremental innovation. But in dynamic

environment, they cause inertia and hinder the dynamic capabilities of a firm. They should

be balanced with exploratory activities. Therefore, organizations should seek an ambidextrous

model, that is, to simultaneously manage rigid routines and exploration ones [9].

Similarly, Enkel, Ellen and Gassmann, Oliver and Chesbrough, Henry (2009) note that a bal-

ance between investing in open and closed innovation is still to be found [31].

Open innovation is discussed later in this chapter.

4.3.3 Having a Balanced Adaptive Organizational Structure

From studying firms in the computer industry, Brown, Shona L and Eisenhardt, Kathleen M

(1997) find characteristics for successful innovation:

1. Combining fixed structures regarding priorities and responsibilities with freedom of design

and communication.

2. Relying on low-cost futuristic tests, such as strategic alliances and experimental products.

3. achieving organizational and structural evolution through gradual, sequential change pro-

cesses [13][6].

This means that the organizational structure needs to be balanced between rigidity and flexibil-

ity at a given point in time, and simultaneously, changing and adapting gradually.

Tushman, Michael L and O’Reilly III, Charles A (1996) suggest that firms must be able to dis-

mantle their own business when a significant shift in the industry happens. This could be
4.3. Factors Affecting Innovation 15

difficult because successful, established firms are characterized by resistance to changing old

processes.

They note that only a few companies start changing their business radically while the perfor-

mance of its products is still rising. This is because a change at this time seems unattractive

and risky, although it would be the right time to do so and missing the chance to initiate at this

time could cause the company to fall [61].

4.3.4 Having a Routine for Detecting and Testing Potential Innovation

Bower, Joseph L and Christensen, Clayton M (1995) Propose a method for spotting disruptive

technology:

1. Detecting disagreement between technical staff and mid-level managers, about the mar-

ket potential of a new technology. This could indicate a real potential in the risk of being

overlooked.

2. To get informed about the strategic promise of the technology from the right sources,

these are not the customers of the current technology.

3. Managers must experiment with the technology and the customers to locate the new

market. Managers should also watch for arising new technologies of competitors, through

keeping contact with the technological and business community [11].

Christensen, Clayton and Raynor, Michael (2013) recommend moving innovative ideas forward

away from the core business so that they don’t lose their growth potential because the growth

potential of innovative ideas is unpredictable at the beginning [19].

4.3.5 Training Individuals in Innovation

Christensen, Clayton and Raynor, Michael (2013) give recommendations for achieving disrup-

tive innovation:

1. Training a suitable manager for the job. The manager should be capable of making critical

decisions regarding whether the new business should stick with the processes of the
16 Chapter 4. Research Findings

mainstream organization and should also be good at judging the potential of new ideas.

2. Engineers, sales, and marketing employees are in direct contact with the market and

technology, and thus have a high chance of coming up with the next successful idea.

Therefore, they should be trained to distinguish between ideas that are promising for

disruptive innovation and those that are good for sustaining the main business [19].

4.3.6 Managing Key Individuals Efficiently

C. K. Prahalad and G. Hamel (1997) believe individuals with key competencies are the critical

resource of organizations, and they are crucial for new businesses. Senior management should

ensure that these people are employed where they bring the highest payoff.

This could be achieved by avoiding limiting these individuals to their current business units.

They should be attached only to their core competencies. BUs managers are to be encouraged

to participate in this vision. Of course, some managers would benefit from a certain reallocation

of an individual and another manger’s unit could be negatively affected. Therefore, this could

only function with a highly cooperative culture throughout the whole organization [55].

4.3.7 Customer Needs Drive Innovation

Utterback, James M and Abernathy, William J (1975) argue that in the early stages of product

development, identifying the customer needs is the source of innovation. But later when they

are well defined, the innovator will be the one with the most suitable technological solution [62].

Adner, Ron (2002) notes the importance of studying the demand conditions in the market for

understanding how competitors emerge. The nature of demand forms the available opportu-

nities for the companies and affects their motivation to innovate. At the same time, innovation

ventures of the firms affect the expectations of customers, and therefore, the demand that the

competing firms must address.

A firm’s position in the market will begin to move up drastically when its technology begins to

fulfill customer needs in multiple segments in that market, and these segments will become

somewhat indistinguishable from one another [6].


4.3. Factors Affecting Innovation 17

Christensen, Clayton M and Bower, Joseph L (1996) note that in the disk drive industry, lead-

ing firms struggle with technological change, not because of the lack of technical competence,

but because there would be no customer needs that can be satisfied by the new technology.

Strategic change is required to create a new market for the technology, and the process seems

unprofitable in the beginning, which demotivates managers from allocating resources to this

change.

Conversely, when there is a customer need that is unsatisfied with the current product, the firms

have no difficulty developing the technical competency required for the new technology [22].

Christensen, Clayton M and Rosenbloom, Richard S (1995) argue that the environment or con-

text, in which firms address customer’s needs, have a significant effect on whether new entrants

or incumbents will be more successful in innovation.

They find that in the disk drive industry, incumbents were leading in both incremental and rad-

ical technological advances when customer needs were met within the current context, but

when those needs were addressed in new emerging contexts, meaning, when customers had

new emerging needs, new entrants took over the lead [23].

Veryzer Jr, Robert W (1998) disagrees regarding radical innovation. He finds that firms use

a logical, exploratory process for radical innovation, that is not very structured and not as

customer-oriented as the process used for incremental innovation [63].

4.3.8 Spotting and Benefiting from Lead Users

Von Hippel, Eric (1986) defines lead users as those users who have current unsatisfied intense

needs that soon (months or years) will turn into general market trends. He notes that with

high technology products, marketing research is only accurate when it is based on information

drawn from those users, because only they have the experience required to analyze their needs

accurately.
18 Chapter 4. Research Findings

He proposes a method for identifying and utilizing lead users that entails the following steps:

1. Spot a significant trend in the market of technology.

2. Spot the users who have a) the most experience in that trend, b) most intense needs in

it, and c) highest expectations of the new solution in satisfying those needs.

3. Analyze the data regarding their needs.

4. Project this data on the corresponding market [64].

Once again after 19 years, Von Hippel, Eric (2005) reassures that product users frequently

participate in developing and modifying them in many industries, whether they are innovative

products or not. Users who innovate (organizations or individuals) are lead users, which means

they are leading most of the other users regarding important trends in the market. Lead Users

also look for a great benefit behind these innovations, to meet their unsatisfied needs [65].

4.4 Firm Capabilities

P. Anderson and M. L. Tushman (1990) note technical capabilities and organizational compe-

tences are necessary for incremental and breakthrough innovations [7].

Therefore, it is necessary to examine firms’ capabilities. Points regarding capabilities are pre-

sented.

4.4.1 Definition

Dororthy Leonard-Barton (1992) notes that the core capabilities of a firm are the applicable

technical and managerial knowledge that it possesses [48].

Eisenhardt, Kathleen M and Martin, Jeffrey A (2000) define dynamic capabilities as clearly

defined processes of an organization, such as developing products or creating alliances. They

serve using resources to create value [30].


4.5. Knowledge 19

4.4.2 Market Influence

Eisenhardt, Kathleen M and Martin, Jeffrey A (2000) argue that the nature of these capabilities

depends on market conditions. In rather stable markets, these are robust routines with pre-

dictable outcomes, in highly dynamic markets, they are experimental and breakable, and their

outcomes are uncertain [30].

4.4.3 Negative Effect of Core Values

Dororthy Leonard-Barton (1992) explains that the core capabilities of a firm are the applicable

technical and managerial knowledge that it possesses. This knowledge can help innovation but

can also hinder it.

When the knowledge is deeply rooted, it becomes values for the organization. This rigidity in

the dynamic environment, in which technology-based companies operate presents an obstacle

to innovation. Therefore, it is inevitable for established firms with core values to question their

paradigms [48].

Mary Tripsas and Giovanni Gavetti (2000) agree as They suggest that a dynamic environment

requires the continuous questioning of the firm’s core beliefs, and the ability to differentiate

between the need for changing the business model and the need for a change in technological

capabilities [59].

4.5 Knowledge

Dororthy Leonard-Barton (1992) notes that the core capabilities of a firm are the applicable

technical and managerial knowledge that it possesses [48].

Gassmann, Oliver (2006) identifies characteristics of industries suitable for open innovations,

one of which is using Knowledge as a valuable resource [35].

Points regarding knowledge are presented.


20 Chapter 4. Research Findings

4.5.1 Definition

Davenport, Thomas H and Prusak, Laurence and others (1998) believe that knowledge is differ-

ent from information and data, although it has a relationship with them. They define knowledge

as a collection of insights, contextual information, and experiences that constitutes a framework

for assessing and integrating new experiences. It exists in the minds of individuals, and in an

organization, it is implanted in practices, processes, and documents [26].

4.5.2 Cultural Effect on Knowledge

De Long, David W and Fahey, Liam (2000) explain how culture affects the use, creation, and

sharing of knowledge in the following points:

1. It creates propositions that define knowledge and determine which knowledge should a

firm manage.

2. It regulates the connection between the knowledge of individuals and that of the organi-

zation, and how knowledge should be shared, collected, and controlled.

3. It regulates the connection between the knowledge of individuals and that of the organi-

zation, and how knowledge should be shared, collected, and controlled.

4. It forms the processes that lead to knowledge creation, validation, and diffusion [28].

4.5.3 Barriers to Internal Knowledge Transfer

Szulanski, Gabriel (1996) analyzed observations about the best practices in eight companies

and reached some suggestions. Contrary to conventional wisdom that holds motivational fac-

tors accountable for difficulties in internal knowledge transfer, the analysis proposes that inter-

nal stickiness is due to issues concerning knowledge, such as:

1. lack of capacity to absorb information by the receiver

2. ambiguity in the information and a difficult relationship between the source and receiver

[57].
4.6. Open Innovation 21

4.6 Open Innovation

The concept of open innovation is popular in the literature. In the upcoming sections, the

following related points are discussed:

1. Terminology

2. Open Innovation Processes

3. Recent Trends and Characteristics

4. Balancing External Exploration and Internal Exploitation

5. Flexibility of Business Model

6. Rigidity of The Business Model in Established Firms

7. Cross-disciplinary Solutions and Integrating Suppliers and Customers

8. Flexible Management of Intellectual Property

9. Challenges and Strategies

10. Example of Technology Influence on Open Innovation

11. Financial Performance of Open Innovation

4.6.1 Terminology

Huizingh, Eelko KRE (2011) finds that the concept of open innovation has been valuable in

many contexts, and predicts that in the future, the concept will be integrated into the practices

of innovation management, and the term open innovation will no longer be significant [43].

4.6.2 Open Innovation Processes

Gassmann, Oliver and Enkel, Ellen (2004) identify three primary practices in open innovation:

1. Expanding the knowledge base of the company by integrating knowledge sources from

the outside, such as suppliers and customers.


22 Chapter 4. Research Findings

2. Using internal knowledge, ideas and technology in the external environment, e.g., selling

Intellectual property.

3. Working in alliances with partners that complement the company’s business. In this pro-

cess, the two previous approaches could be combined [36].

L. Dahlander and D. M. Gann (2010) find two inbound (importing) processes and two outbound

(exporting) processes of open innovation in the literature:

1. Outbound processes:

(a) Selling: firms sell or license their technologies and inventions.

(b) Revealing: firms reveal their resources to the external environment for nonimmediate

benefits.

2. Inbound processes:

(a) Sourcing: firms use external sources of ideas and technologies in internal innovation

processes.

(b) Acquiring: acquiring or licensing expertise or technology from outside the firm and

using it in internal innovations [24][17].

4.6.3 Recent Trends and Characteristics

Gassmann, Oliver and Enkel, Ellen and Chesbrough, Henry (2010) notice recent trends in open

innovation:

1. Open innovation is becoming conventional in more and more industries, such as software

and biotechnology.

2. Open innovation is getting to nonhigh technology industries such as food and logistics.

3. increasingly small and medium-sized firms are adopting the concept.

4. The processes are moving towards the learn by doing approach.

5. Organizations are building more alliances.

6. Universities are becoming more like knowledge dealers.


4.6. Open Innovation 23

7. Open innovation is being managed more and more professionally.

8. Although there has been not so much innovation in services generally, there is a high

potential for this sector.

9. Intellectual property is becoming a tradable good [37].

Gassmann, Oliver (2006) identifies characteristics of industries suitable for open innovations:

1. Being open to globalization

2. High tech industries

3. Cross-disciplinary

4. Flexible business models

5. Using Knowledge as a valuable resource [35]

Disagreeing with the high technology characteristic are Chesbrough, Henry and Crowther, Adri-

enne Kardon (2006), who examined innovation activities in nonhigh-tech companies and found

that the same concepts of open innovation have been employed in many industries. They found

few instances of outbound innovations (transferring knowledge and technology outwards), prob-

ably because they have not investigated much organizations that are specialized in exporting

technologies such as universities [16].

4.6.4 Balancing External Exploration and Internal Exploitation

Based on data analysis of UK manufacturers, Laursen, Keld and Salter, Ammon (2006) find

that innovative performance increases with external search for ideas to a certain point where

it begins to decrease, which means it follows an inverted U curve. They also note that in the

early stages of innovation, searching deeply from few rich sources, such as universities leads

to radical innovation, while searching widely from many sources in the following stages is as-

sociated with incremental improvements [47].

Wernerfelt, Birger (1984) views the organization based on its resources. He proposes finding

a balance between exploiting available resources and attaining new ones to achieve strategic

growth. He notes the need for researching the obstacles to identifying new resources [66].
24 Chapter 4. Research Findings

Veryzer Jr, Robert W (1998) finds that firms use a logical, exploratory process for radical in-

novation, that is not very structured and not as customer-oriented as the process used for

incremental innovation [63].

4.6.5 Flexibility of Business Model

Chesbrough, Henry (2006) notes that a business model that fits open innovation aims at seek-

ing internal or external innovation endeavors. Firms must be open for letting their business

model get advanced by these innovations [15].

4.6.6 Rigidity of The Business Model in Established Firms

H. Chesbrough and R. S. Rosenbloom (2002) Explain that a business model for a new technol-

ogy or product is produced not directly but after an adaptation and refinement of an initial one.

This is because the market and technical aspects are highly unpredictable. Established enter-

prises tend to produce a model that is rather constrained by the company’s working model, and

so these firms have a limited chance of creating customer value for new technologies.

Startups conversely seem to be less limited in adapting a new business, possibly because they

are highly motivated or because there are not as many obstacles on the way of the new busi-

ness.

They also find that through the process of reforming a business model, several potential com-

mercial value alternatives for the technology are discovered. In a dynamic and unpredictable

environment, there are many such choices, and they provide a learning path that could be a

crucial success factor in product value creation [17].

4.6.7 Cross-disciplinary Solutions and Integrating Suppliers and Customers

Enkel, Ellen and Gassmann, Oliver and Chesbrough, Henry (2009) predict that firms will involve

their customers and suppliers in product development, and that working solutions from other

industries will present a source of innovation since they include lower uncertainty and risk [31].
4.6. Open Innovation 25

4.6.8 Flexible Management of Intellectual Property

Enkel, Ellen and Gassmann, Oliver and Chesbrough, Henry (2009) note that open innovation

requires managing Intellectual property differently compared to closed innovation [31].

While Chesbrough, Henry (2006) notes that an open innovation model also calls for considering

selling or licensing internal Intellectual property that are useful for the business model and pur-

chasing external ones that support it. This management of Intellectual Property require creating

an internal network of innovation and connecting it with the external innovation community. [15].

4.6.9 Challenges and Strategies

West, Joel and Gallagher, Scott (2006) identify difficulties facing open innovation after examin-

ing the open source software industry:

How can firms translate internal or external inventions into product development?

And how can they encourage investors to support ongoing innovation that potential rivals will

benefit from? For tackling these problems, they provide several strategies:

1. Pooled RD: to benefit from shared RD, firms must have an open culture and no conser-

vations against external inventions.

2. Spin-outs: transforming internal development projects into external independent corpora-

tions. These are most beneficial for large companies to free these projects from bureau-

cracy.

3. Selling complements: companies will have to develop architectural innovations to offer dif-

ferentiated products based on commodity components, in segments of the market where

they have sold differentiated products based on innovation before. That or accepting to

sell commodities.

4. Donated complements: Selling general technologies to users with technical proficiency,

who can customize them to fit their needs [67][48].


26 Chapter 4. Research Findings

4.6.10 Example of Technology Influence on Open Innovation

Dodgson, Mark and Gann, David and Salter, Ammon (2006) analyze the ’connect develop’

strategy of Procter and Gamble to examine the technological and organizational changes that

come with open innovation. They argue that the role of the advances in information and commu-

nication technology in making open innovation possible is under-researched. They show how

new visual representation, simulation, data mining, and prototyping technologies help open in-

novation in Procter and Gamble [29].

Huston, Larry and Sakkab, Nabil (2006) describe the connect and develop strategy they apply

in Procter and Gamble. They collaborate with individuals and organizations worldwide and find

proven technologies and innovative ideas that they can improve and take to the market, either

alone or with a partner company [44].

4.6.11 Financial Performance of Open Innovation

An external individual company created depending on the resources of a parent company is

known as a “spin-off”.

Chesbrough, Henry William (2003) compares the market value of the company Xerox, with the

sum of values of the spin-offs it produced in the past decades. He finds that both experienced

growth in the 1990s but that of the spin-offs was greater until their total market value exceeded

that of Xerox in 1995 and again in 1999. This is evidence that creating spin-offs is a successful

strategy for open innovation [18].

Figure 4.2 shows the described financial performance:

4.7 Innovation Networks

Powell, Walter W and Koput, Kenneth W and Smith-Doerr, Laurel (1996) argue that when the

base of knowledge in an industry is sophisticated and expanding, and the expertise is widely

distributed, innovation will come not from individual organizations, but networks of collaborating

firms. They test their theory on a sample of biotechnology firms from over four years, and the
4.7. Innovation Networks 27

Figure 4.2: Market Value of Xerox’s Spin-offs [18]

results confirm their finding [54].

Chesbrough, Henry (2006) notes that the management of Intellectual Property requires creat-

ing an internal network of innovation and connecting it with the external innovation community

[15].

Points regarding networks and affecting factors are presented.

4.7.1 Components of Networks

Powell, Walter (2003) highlights three important components of networks:

1. Know-how: the knowledge and skills in the minds of individuals. It is mobile, tangible, and

transferable.

2. Speed: accessing information quickly, being flexible and reacting to change on time are

all advantages of organizations working in networks.

3. Trust: it is affected by the reputation, and it is higher in networks containing members

of the same discipline, country and culture, and also when a long-term partnership is

intended.
28 Chapter 4. Research Findings

[53]

An example of successful networks is described by Huston, Larry and Sakkab, Nabil (2006)

in the connect and develop strategy they apply in Procter and Gamble. They collaborate with

individuals and organizations worldwide and find proven technologies and innovative ideas that

they can improve and take to the market, either alone or with a partner company [44].

4.7.2 Alliances

Gulati, Ranjay (1998) notes that passed research has neglected that the social networks to

which firms belong can define important outcomes and processes related to strategic alliances

between those firms.

He finds variables to be considered in organizational alliances:

1. Creation of alliances.

2. Type of structure that governs alliances.

3. Evolution of alliances.

4. Performance of alliances.

5. Consequent performance of the companies forming alliances [40].

4.7.3 Model for Large Established Firms

In the innovation literature, C. Markides (2006) notices an uncommon model for established

firms to accomplish radical innovation.

It proposes that established firms should focus on creating networks of small entrepreneurial

companies, serving small markets, and when a technological breakthrough arises, they should

work as a venture capitalist. They provide resources to the inventor firm in exchange for an

equity stake, and so they create the new market.

The small inventor firm would not be able to revolutionize the market on its own since it lacks

the amount of necessary resources. He sees This model more suitable for established firms,
4.7. Innovation Networks 29

instead of investing in technological innovation inside the firm, or abandoning the working busi-

ness model for a new one [49].


Chapter 5

Idea Generation

5.1 State of Research

Rodney McAdam, John McClelland (2002) attempt to examine and review the role of individ-

uals and groups in idea generation as part of the complete organizational innovation process.

They aim to determine organizational development requirements and research plans in this

area. Organizations continue to emphasize the necessity of increased creativity and innovation

of their employees and markets. However, the organizational theory and practice related to

these areas remain somewhat deficient in regard to the pre-phase of creativity and innovation,

specifically idea generation. They briefly review the creativity theory from individual and group

perspectives, identifying the need for more research in idea generation as part of creativity.

They review the idea generation literature and recognize agendas for further research.

The literature review reveals that the topic of “creativity” has been studied using various ap-

proaches at different levels (individual and group). Although some of the basic research records

back to the 1960s, the amount of creativity related research has surely increased dramatically

in the 1990s. Maybe this is due to “creativity” being connected with competitive advantage, and

consequently popularized by management experts.

Although the literature on the factors that affect creativity is extensive, it is often comprised of

consultants’ lists, with little hint of hard research-based evidence. It is seldom specific to a dis-

tinct industry sector. Furthermore, creativity is frequently equated only with idea generation as

a individual entity, without any effort to look at the constructs of idea generation. Thus research

30
5.2. Crowdsourcing 31

agendas in this area have remained limited.

The research on the sources of ideas for new products is restricted. There is a large variation

of idea source classes, which has the potential to confuse following research. The small num-

ber of studies that examine idea sources tend not to question why these sources have been

chosen by the organizations concerned, or to examine how these firms exploit these sources.

Moreover, there is a shortage of sector-specific studies explaining the variation in sources of

ideas over industrial sectors.

Overall, there is a demand for methodical, integrated research to study how organizations de-

velop theories of knowledge, create knowledge, and produce ideas, thus improving creativity

and innovation. It is difficult to separate these issues. The continuum and recursive character-

istics of such studies must be emphasized. Organizations have a lotto gain by utilizing a more

systematic approach to idea generation and by incorporating policies for knowledge creation

as a key impetus for idea generation [50].

This chapter outlines the different aspects of the idea generation process.

5.2 Crowdsourcing

Poetz, Marion K and Schreier, Martin (2012) note generating ideas for innovative products used

to be the specialty of only marketers, engineers, and designers. Users have only recently been

acknowledged as an alternative source of new product ideas. Although some have attributed

great potential to outsourcing idea generation to the “crowd” of users (“crowdsourcing”), others

have been more doubtful. The authors join this debate by exhibiting a real-world comparison

of ideas generated by a firm’s professionals with those generated by users within an idea gen-

eration competition. Both professionals and users provided ideas for solving an important and

relevant problem in the consumer goods market for baby products. Executives from the under-

lying company assessed all ideas in terms of key quality dimensions, including innovativeness,

customer benefit, and feasibility without knowing their source.


32 Chapter 5. Idea Generation

The study shows that the crowdsourcing process generated user ideas that score much higher

in terms of novelty and customer benefit and relatively lower in terms of feasibility. However,

the average values for feasibility (opposite to novelty and customer benefit) were relatively high

overall, meaning that feasibility did not make a narrow bottleneck in this study. More interest-

ingly, user ideas are ranked more frequently than expected among the very best in regarding

novelty and customer benefit. These findings are quite counterintuitive from the point of view of

classic innovation literature and suggest that at least under certain conditions, crowdsourcing

could constitute a promising method to gather user ideas, that can aid those of a firm’s profes-

sionals at the idea generation stage. [51].

5.3 Problems with Crowdsourcing

Bayus, Barry L (2013) notes that Many organizations have developed continuous crowdsourc-

ing communities that constantly collect ideas for innovative products and services out of a

large, distributed ”crowd” of nonexperts (consumers). Despite its promises, not much is known

about the nature of an individual’s ideation efforts in such online communities. Studying Dell’s

IdeaStorm community, continuing ideators are found to be more likely than customers with only

oneidea to generate an idea the firm finds valuable enough to implement, but they are improb-

able to repeat their success once their ideas are adopted. As ideators with past success try

to again come up with ideas that will draw the organization’s attention, they instead end up

suggesting ideas similar to their previous ideas that were already implemented. The negative

effects of previous success are somewhat avoided for ideators with varied commenting activity

on others’ ideas. The findings highlight some of the challenges in maintaining an ongoing sup-

ply of quality ideas from the crowd over time [8].

Huang, Yan and Vir Singh, Param and Srinivasan, Kannan (2014) find that, on IdeaStorm,

participants underrate the costs on the company for implementing their ideas but overrate the

promise of their ideas in the initial phases of the crowdsourcing process. Therefore, the “idea

market” is at first packed with ideas that are less prone to be implemented. However, peo-

ple learn about both their abilities to produce high-potential ideas as well as the cost require-

ments of the firm from peer voting on their ideas and the company’s response to contributed
5.4. Solutions from Other Markets 33

ideas. They find that individuals learn rather fast about their abilities to generate high-potential

ideas, but the learning with regard to the firm’s cost structure is quite slow. Individuals with

low-potential ideas eventually become inactive, while the high-potential idea generators remain

active.

As a result, with time, the average potential of produced ideas increases while the amount of

ideas contributed decreases. Hence, the decrease in the amount of ideas generated represents

market efficiency through self-selection and not its failure. Through counterfactuals, They show

that providing more accurate cost signals to individuals can increase the speed of the filtering

process. Increasing the total amount of ideas to respond to and improving the response time

will result in more idea contributions. However, failure to separate high- from low-potential ideas

and high- from low-ability idea generators results in the total potential of the ideas generated to

decrease significantly. [42].

5.4 Solutions from Other Markets

Franke, Nikolaus and Poetz, Marion K and Schreier, Martin (2013) examine whether problem

solvers with expertise in the field for which new products are to be developed or those profes-

sionals from “analogous” markets that are distant but share an analogous problem or need,

provide better inputs to new product ideation tasks. Conventional wisdom appears to propose

that target market expertise is indispensable. This is why most managers searching for new

ideas tend to stay in their own market context, even when they do search outside the firms’

domain. However, in a special symmetric experiment that isolates the effect of market origin,

it is found evidence for the opposite: Although ideas provided by problem-solvers from analo-

gous markets show lower potential for direct use, they demonstrate substantially higher levels

of novelty. This suggests that it might be useful to systematically search across firm-foreign

sources of innovation that are formerly out of scope for most managers [32].
34 Chapter 5. Idea Generation

5.5 Knowledge Creation Modes

Schulze, Anja and Hoegl, Martin (2008) address the pre-project stage of idea generation in the

product innovation process, in which the effective generation of new product ideas remains an

issue of high relevance for both scholars and practitioners. They link Nonaka and colleagues’

four knowledge creation methods of socialization, externalization, combination, and internaliza-

tion to the innovativeness of product ideas generated. Taking a behavioral point of view on the

four modes, they propose positive relationships between socialization as well as internalization

and the innovativeness of product ideas, while they posit negative association with externaliza-

tion as well as combination. Based on data from multiple respondents in 33 companies, their

results confirm the proposed linkages [56].

5.6 Quality of Ideas and Connectedness

Jennie Bjork and Mats Magnusson (2009) explore the interrelationship between the quality of

innovation ideas and idea providers’ network connectedness, using social network analysis.

They use a database from a company that has a long, systematic working history with idea

management and today has a well-established information technology platform that collects

ideas from a big number of employees. In addition to the database, several interviews with key

individuals in the company were made to create rich contextual knowledge and explain more

in detail how ideas are treated in the company. The analysis indicated that there is an obvious

interrelationship between the network connectedness and the quality of the innovation ideas

generated. The analysis was done for all the ideas and then for ideas created by individuals

and by groups, respectively. In all analyses, the proportion of high-quality ideas increased, as

a step function, between the least connected group and the next group. There is clearly a need

for a certain amount of relationships to raise the proportion of high-quality innovation ideas pro-

duced.

With regard to only ideas provided by single individuals, more connectivity in the network pro-

duced a higher proportion of high-quality ideas. A different path was observed for ideas pro-

vided by groups as the ration of high-quality innovation ideas grew with some increase in the

connectedness of groups but decreased with a further increase in connectedness. The findings
5.7. Market for Ideas 35

suggest some implications for ideation management. In order to increase the number of high-

quality innovation ideas generated by individuals, the possibility to interact with other people

should be enhanced and facilitated. However, in these settings, where people work with others

in different groups, the most linked groups perform worst in terms of the ratio of high-quality

ideas generated, which points to the importance of considering a multitude of factors when

managing ideation [10].

5.7 Market for Ideas

Gans, Joshua S and Stern, Scott (2003) Consider the role of intellectual property rights. Whereas

intellectual property protection provides a significant asset, it also serves to enhance the cre-

ation of markets for ideas. Consequently, it promotes the cooperation between start-ups and

established firms who might otherwise see new innovators purely as a competitive threat.

This provides an opportunity for big firms to access the high powered motives, creativity, and

openness traditionally related to small firms. Relative to a market with a high rate of innovative

destruction (and few stable returns), this pattern may allow a total increase in resources to be

allocated to innovation, with gains for incumbents and entrepreneurs [33].

5.8 Factors Affecting the Relation between Market Information and

the Number of Generated Ideas

Troy, Lisa C and Szymanski, David M and Varadarajan, P Rajan (2001) suggest that open-

mindedness and openness of communication, two aspects of an organization’s atmosphere,

strengthen the influence of the amount of market information on the number of new product

ideas produced by the workgroup.

The relation between the amount of market learning and the number of new product ideas

produced is also suspected to be stronger when centralization of market knowledge and spe-

cialization of group members’ are higher.


36 Chapter 5. Idea Generation

They note that research on knowledge processing outlines the importance of market learn-

ing for organizational and product performance. The findings their analysis reveal, however,

that the amount of market knowledge alone may not be able to fully determine differences in

the number of product ideas produced by a workgroup. Rather, higher amounts of market

knowledge in the face of fundamental organizational structure and atmosphere characteristics

contribute more toward improving product idea creation by those groups.

One meaning of the findings is that managers seeking to raise levels of innovation introduction

should be conscious that efforts expended on external information collection may not be all

that is needed. Primary structure and atmosphere changes in the organization may also be

Required. For example, managers may need to recognize barriers to information stream stem-

ming from organizational Structure and atmosphere. Such difficulties could take the form of

physical obstacles hindering the accessibility of knowledge to group members (e.g., restricted

access to libraries or databases) or less obvious obstacles such as the level to which informa-

tion is shared with all group members (e.g., a ”need to know” climate in the organization).

In addition, managers may want to examine new organizational forms that support interaction

between members from diverse functional backgrounds (i.e., completely new organizational

structures) or investment in communications technology that aid this type of Cooperation.

Start-ups may not yet have visible or cultural obstacles to information flow and open-mindedness.

Entrepreneurs trying to expand operations should examine the importance of establishing

mechanisms for gathering information as well as building a structure and atmosphere favorable

to the open exchange of ideas and knowledge. Treating these issues early in the development

of the organization can help avoid the necessity for reorganization as the business grows [60].

5.9 Champions Effect on Idea Generation

Howell, Jane M and Boies, Kathleen (2004) studied the role that champions play in the for-

mation and progression of ideas in the innovation process, and considered the impact of flex-
5.9. Champions Effect on Idea Generation 37

ible role orientation and contextual knowledge on this process. Content analysis of interview

transcripts of 19 paired partners of champions and nonchampions showed that flexible role ori-

entation is positively linked to idea generation, and contextual knowledge is positively related

to packing ideas for advancement. Idea generation is positively related to progressing ideas

through informal and formal channels. Lastly, in comparison with nonchampions, champions

showed more passionate support for new ideas, joined the innovation to a wider variety of pos-

itive organizational results, and used unofficial selling processes more frequently during idea

progression.

The results confirmed many of the proposed relationships. They found that providing pas-

sionate support for new ideas, joining the innovation to a variety of positive organizational

consequences, and using informal selling processes to support the innovation were related

to champion appearance. Furthermore, the predecessors of idea generation and promotion

were investigated. The results showed that individuals who defined their role more broadly

were more likely to get involved in activities associated with idea generation and that a thor-

ough understanding of the organizational setting was related to valid idea promotion. Lastly,

the study’s findings showed that engaging in idea generation was associated with using both

formal and informal selling processes. Certain results are remarkable. First, champion ap-

pearance was related to some idea-generation activities but not to others. While champions

provided passionate support for new ideas more often than ordinary individuals, they did not

engage with people in developing ideas, nor did they present intellectual stimulation more often

than their counterparts.

Champions are usually portrayed as being particularly active in the promotional stage of innova-

tion. The results of the current study approved this assertion. Champions linked the innovation

to a wider variety of positive organizational consequences than did nonchampions. Champions

decided to frame the innovation in strategic terms by joining it to multiple organizational con-

sequences including profitability, strategy or vision, corporate image or reputation, and other

ideas or innovations [41].


38 Chapter 5. Idea Generation

5.10 Effect of Hierarchy on Idea Generation

Based on the theory of firm’s behavior, Keum, Dongil D and See, Kelly E (2017) take a pro-

cess view and consider how hierarchy of authority (a central element of organizational structure

indicating degree of managerial supervision)differentially affects behavior and performance in

the idea generation as opposed to idea selection phases of the innovation process. Utilizing a

multimethod approach that involves a field study and a lab experiment, they find that hierarchy

of authority is harmful to the idea generation phase of innovation, but that it can be benefi-

cial during the screening or selection stage of innovation. They also recognize a behavioral

mechanism underlying the influence of hierarchy of authority on selection performance and

suggest that selection is a crucial organizational capability that can be strategically improved

and managed through organizational design. Their investigation supports clarifying the theoret-

ical connection between structure and innovation performance and shows the behavioral and

economic consequences of the choice organizational design.

Using natural differences across four product classes that differ in their relative stress on idea

generation as opposed to idea selection, the field study presents broad support for their pre-

dictions that hierarchy of authority is damaging to idea generation performance but is useful to

idea selection performance. Their hypotheses were supported in three different fashionability-

planning categories. Their sales data across the four different product classes reflect what cus-

tomers believe about the quality of products, which is comparable to the role of external raters

in their experiment, but with the added advantage of having real economic consequences [45].

5.11 Effect of Leaders Behaviour on Idea Generation

investigate leadership behaviors that excite employees’ idea generation and application perfor-

mance. The study was conducted in knowledge-intensive service companies (e.g., specialists,

researchers, engineers). It was observed that there were 13 appropriate leadership behaviors.

Although innovative behavior is essential in such firms, it has received very little care from re-

searchers. Leaders affect employees’ innovative behavior both through their intended actions

aiming to excite idea generation and application as well as by their more common, daily be-

haviour.
5.11. Effect of Leaders Behaviour on Idea Generation 39

One way for organizations to improve innovativeness is to benefit from their employees’ ability

to be innovative. The authors aimed to add to the literature on individual innovation by present-

ing an inventory of leader behaviors that affect employees’ innovative behavior. They focused

on behaviors that particularly impact employees’ individual innovative efforts (instead of perfor-

mance or effectiveness as many previous works did).

In developing the inventory, they paid clear attention to both the generation of ideas and individ-

uals’ application behavior, i.e., behaviors pointed towards the implementation of creative ideas

as the latter has got far less regard to date. The variety of recognized leader behaviors is wide:

as a leader, it seems unlikely not to affect employees’ innovative behaviour.

They revealed some leader behaviors that can work as a direct trigger to motivate individuals’

idea generation and application efforts, but they also highlighted the influence of some gen-

eral leader behaviors that are observed as part of any leading profession. The latter are more

common in the sense that they do not particularly aim to stimulate innovation. In other words,

managers in knowledge-intensive services also affect innovative behavior by their day to day

ways of doing things. Managers are different in the degree to which they typically perform con-

sulting, delegating and monitoring behaviour.

Based on the findings, leaders who seek to improve individual innovation among their employ-

ees could try to consult them more frequently, assure that employees have enough autonomy in

deciding how to perform their tasks, and support and recognize people’s actions and innovative

efforts. Creating a positive and secure environment that promotes openness and risk-taking

appears to encourage idea generation and application.

Although extreme monitoring is likely to produce a negative effect, some level of monitoring

may be necessary to ensure the effectiveness and productivity of the firm’s current operations.

Reaching a balance between stimulating innovative behavior and securing short-term effective-

ness and efficiency presents a challenge.

The Authors also identify behaviors shown by leaders with the explicit goal of affecting indi-
40 Chapter 5. Idea Generation

vidual innovation. For instance, communicating an attractive vision that clearly includes the

role and preferred types of innovation could guide idea generation and application behavior.

Chances of idea generation and opportunity search also seem to be improved by directly ex-

citing and probing employees to generate ideas (intellectual stimulation), sustaining open and

transparent communication processes, building avenues for knowledge sharing and diffusion,

and appointing challenging tasks to employees. When individuals have frequent outside con-

tacts (with customers, suppliers, etc.), this also appears to trigger ideas. As some employees

have better chances of idea generation than others (for example, salespeople who regularly

meet external parties), managers cannot reasonably demand a similar contribution to innova-

tion from every one of their employees. As soon as the decision to implement an attractive

idea has been made, further risks may be involved. It takes time and funds to implement useful

novelty. However, returns are never guaranteed. Also, when ideas are never executed, peo-

ple become de-motivated. Resources such as organized feedback are required to enhance

employees’ motivation and ability to achieve successful implementation. Occasionally, it could

also help to provide financial rewards to encourage the desired behaviour [27].

5.12 Types of Motives for Idea Generation

Bretschneider, Ulrich and Rajagopalan, Balaji and Leimeister, Jan Marco (2012) note that vir-

tual Communities for Innovations (VCI) are getting increasingly popular as platforms for compa-

nies to involve customers in generating new ideas. Whereas several studies have explored the

different motivations of user participation in VCI, the connection between the motives and the

outcome of interest (the quality of the ideas) is not explored yet. Academics and practitioners

have a keen interest in understanding the impact of motivation on the quality of ideas. These

as important insights will aid firms who run VCI and are interested in collecting ideas of good

quality from it, in creating effective motivation strategies for producing good ideas.

In their research, they hypothesize that certain motives influence idea quality, whereas oth-

ers do not. They find empirical backing for the following motivations impacting idea quality:

(1) Show personal capabilities and experiences by their ideas (capability signaling-motive); (2)

Receive recognition from third parties for their ideas (credit-motive); and (3) Have fun in gen-
5.13. Different Group Structures and Measures of Idea Performance 41

erating ideas (fun-motive). However, they find no support for the impact of customers’ altruism

(altruism-motive), nor for customers’ wish for advancing and enhancing existing firms’ products

by offering ideas (Product Improvement and Enhancement-motive).

Findings of their study are the following: (1) Participants of VCI who are driven by sending out

skill signals through their ideas offer ideas of higher quality. (2) Participants of VCI who have

fun in producing ideas offer ideas of higher quality. (3) Participants who are driven by earning

recognition on the basis of their ideas offer ideas of higher quality. (4) Intrinsic motivation (doing

what a person is passionate about), as well as extrinsic motivation (evaluation or feedback that

distinguishes creative achievement), impacts idea quality, which can be seen as a product of

creativity [12].

5.13 Different Group Structures and Measures of Idea Performance

In many different settings, organizations generate several possible solutions for a problem

(ideas) and then choose a few for further improvement. Girotra, Karan and Terwiesch, Christian

and Ulrich, Karl T (2010) Study the effectiveness of two group structures for these tasks, the

team structure, where the group members exist and work together in time and space, and the

hybrid structure, where members first work separately and then work together. They determine

the performance of a group based on the quality of the best ideas generated. Previous re-

search has determined performance based on the average quality of ideas, or the quantity of

ideas generated, ignoring what most companies seek, a few great ideas. They build a theory

that links organizational aspects to four different variables that dictate the quality of the best

ideas generated: (1) the average quality of ideas produced, (2) the number of ideas produced,

(3) the variance in the quality of ideas produced, and (4) the ability of the group to judge the

quality of the ideas. They test the theory with an experiment. They find that groups that are

organized in the hybrid structure can generate more ideas, produce better ideas, and better

judge the quality of the ideas they make. Furthermore, they find that the frequently prescribed

brainstorming method of building on others’ ideas is counterproductive; groups exhibiting such

buildup neither produce more ideas nor are the ideas that build on previous ideas better.
42 Chapter 5. Idea Generation

The authors find strong support that the best ideas produced by the hybrid structure are better

than the top ideas created by a team structure. This result is based on the experience that

the hybrid structure produces about three times as many ideas per unit time unit and that these

ideas are of notably higher quality on average. The hybrid structure is also better at recognizing

the best ideas; however, they find that both structures do poorly in absolute terms in choosing

the best ideas.

Their findings also highlight one of the longstanding arguments for groups, the usefulness of

interactive buildup. They show that the proposed advantage of team-based brainstorming is

not backed by experimental evidence. Averagely, ideas that build on other ideas are not sta-

tistically higher in quality than any ordinary idea. This has important managerial meanings: if

the interactive buildup is not producing better ideas, a firm might be better off depending on

asynchronous idea creation by individuals using, for instance, Web-based idea management

systems, because this would facilitate other organizational restraints such as conflicting sched-

ules of group members and travel requirements [38].

5.14 Effect of Training Method on Innovativeness

Gist, Marilyn E (1989) made a field experiment that examined the effect of two training meth-

ods on efficacy and performance during training for creative problem-solving. A training method

comprised of cognitive modeling with practice and reinforcement produced much higher partic-

ipant self-efficacy than a method including lecture and practice alone. Participants in modeling

training clearly outperformed those in the lecture method on measures of the quantity and di-

vergence of ideas created.

She recognizes that it is oftentimes challenging to separate social influence factors from cog-

nitive ones because the cognitive processes stem from social interaction and the social impact

processes are at least in great part cognitively mediated.

She explored several fundamental issues concerning the design of training programs for inno-

vative problem-solving. The advantage of the training method based on cognitive modeling was
5.15. Summary 43

impressive. Whereas both training conditions contained identical lecture content and gave very

similar practice opportunities with the associative methods of brainstorming and brainwriting,

the cognitive modeling approach significantly enhanced performance [39].

5.15 Summary

The findings regarding idea Generation are summarized in the following points:

• Crowdsourcing ideas has much higher novelty customer benefit and a little lower feasibil-

ity than professionals’ ideas [51].

• Serial ideators (who have several ideas) have higher potential of an implemented idea

than single idea individuals, but they probably get only one idea implemented and then

keep generating similar ideas [8].

• Ideas from professionals in other markets with the similar problems or tasks have high

novelty but lower practicality, the novelty increases with the distance of the market [32].

• Socialization and internalization increase novelty of product idea while externalization and

combination decrease it [56].

• Ideators in Dell Ideastorm learn quickly threw peer voting on their ideas about their ability

to generate successful ideas but learn slowly about the cost requirements for the company

to implement them. More accurate cost signals are required [42].

• Ideas from individuals increase in quality as a step function with more connnectedness in

the network. But ideas by groups follow an inverted U curve with increasing connected-

ness [10].

• Strong IP laws enable market of ideas which promotes cooperation between incumbents

and start ups and not competition, because it secures the rights of innovators [33].

• Openmindedness and openness of communication as well as higher centralization of

market information and higher specialization of members of the working group ,strengthen

the influence of the amount of market information on the number of new product ideas

produced by the work group [60].


44 Chapter 5. Idea Generation

• Individuals who defined their role more broadly are more likely to get involved in activities

associated with idea generation. Moreover, a thorough understanding of the organiza-

tional setting is related to valid idea promotion Champion appearance is related to some

idea generation activities but not to others. Whereas champions provide passionate sup-

port for new ideas more often than ordinary individuals, they do not engage with people

in developing ideas, nor do they present intellectual stimulation more often than their

counterparts [41].

• The hierarchy of authority is damaging to the idea generation phase of innovation, but it

can be useful during the screening or selection phase of innovation [45].

• To improve individual innovation efforts, leaders could try to consult them more frequently,

assure that employees have enough autonomy in deciding how to perform their tasks, and

support and recognize their actions and innovative efforts. [27].

• The following motivations influencing idea quality: (1) demonstrate personal capabilities

and skills through their ideas (capability signaling-motive); (2) get recognition of third

parties through their ideas (recognition-motive); and (3) have fun in developing ideas

(fun-motive) [12].

• Groups organized in the hybrid structure are able to generate more ideas, to generate

better ideas, and to better judge the quality of the ideas they generate [38].

• Participants in modeling training clearly outperformed those in the lecture condition on

measures of the quantity and divergence of ideas generated [39].

The following diagram (figure: 5.1) summarizes the factors that improve the performance of

idea generation. Variables and measures of the performance are colored in yellow. Arrows

point at them from factors and other variables that have a direct proportional relation with them.

Only the factor: Group’s Connectedness has an inverted U relation with the novelty/quality

of ideas. That means the novelty increases with Group’s connectedness to a certain point

where it begins to decrease with further increase in Connectedness. It is notable that the most

influenced variable is Idea quality/novelty.


5.15. Summary 45

Figure 5.1: Factors Directly Proportional to the Performance of Ideas and Idea Generation [1]
Chapter 6

Discussion

6.1 Customer Orientation

Christensen, Clayton M, and Rosenbloom, Richard S (1995) find that in the disk drive industry,

incumbents were leading in both incremental and radical technological advances when cus-

tomer needs were met within the current context, but when those needs were addressed in

new emerging contexts, meaning, when customers had new emerging needs, new entrants

took over the lead [23].

However, Veryzer Jr, Robert W (1998) finds that firms use a process for radical innovation, that

is not as customer-oriented as the process used for incremental innovation [63].

This implies that whether the innovation is radical or incremental depends on the type of needs.

Radical innovation requires completely new unsatisfied needs in new contexts. However, it

could also be not very customer-oriented.

Another factor driving innovation is the type of customer or user. It is argued that only experi-

enced users can identify the type of needs that drive radical innovation Von Hippel, Eric (1986)

argues that only lead users have the experience required to analyze their needs accurately [64].

Again, Von Hippel, Eric (2005) notes that users who innovate (organizations or individuals) are

lead users, which means they are leading most of the other users regarding important trends

in the market. Lead Users also look for a great benefit behind these innovations to meet their

46
6.2. Balance Between Rigidity and Change 47

unsatisfied needs[65].

Furthermore, there is an interactive relationship between market demand, customer expecta-

tions, and innovation.Adner, Ron (2002) notes that the nature of demand forms the available

opportunities for the companies and affects their motivation to innovate. At the same time, in-

novation ventures of the firms affect the expectations of customers, and therefore, the demand

that the competing firms must address [6].

This relationship supports the lead user phenomenon, as some innovations would have been

imaginable only by specialized users, who would have been active in the corresponding in-

dustries. An example thereof is the invention of the airplane, the automobile, or the personal

computer. Today, customers don’t expect to use old transports or old means of data process-

ing. These innovations raised customers’ expectations and created new needs. To sum up,

customer orientation is not a definitive contributor to radical innovation; only customers who

provide new needs are useful for this innovation type.

6.2 Balance Between Rigidity and Change

Flexibility and balance between rigidity and change in structures, routines, processes, and

business models are the most emphasized factor for enhancing innovation potential.

Mary J and Tushman, Michael L (2003) argue that established routines and processes should

be balanced with exploratory activities. Therefore, organizations should seek an ambidextrous

model, that is, to simultaneously manage rigid routines and exploration [9].

Enkel, Ellen and Gassmann, Oliver and Chesbrough, Henry (2009) note that a balance be-

tween investing in open and closed innovation is still to be found [31].

Shona L and Eisenhardt, Kathleen M (1997) find that for successful innovation, it is advisable

to combine fixed structures regarding priorities and responsibilities with freedom of design and

communication [13].
48 Chapter 6. Discussion

Wernerfelt, Birger (1984) views the organization based on its resources. He proposes finding

a balance between exploiting available resources and attaining new ones to achieve strategic

growth [66].

Chesbrough, Henry (2006) notes that a business model that fits open innovation aims at seek-

ing internal or external innovation endeavors. Firms must be open to letting their business

model gets advanced by these innovations [15].

But why a balance is needed? Why can’t a more aggressive than balanced change and alter-

ation in ideas, knowledge, and technologies be adopted?

The reason is that the relationship between exploration and innovation is not linear:

from data analysis of UK manufacturers, Laursen, Keld, and Salter, Ammon (2006) find that in-

novative performance increases with external search for ideas to a certain point where it begins

to decrease, which means it follows an inverted U curve.

also note that in the early stages of innovation, searching deeply from few rich sources, such

as universities leads to radical innovation, while searching widely from many sources in the

following stages is associated with incremental improvements [47].

This observation explains the dependency between innovation type, search type, and stage of

innovation. It can be combined with the dependency between innovation type and type of need

and user as follows:

• Early phase of technology – accurate new needs by lead users – deep idea search in few

rich sources - Radical innovation

• Late phase of technology – customer orientation – wide idea search in many sources –

incremental innovation

Another important point is that the balance criteria are found in disruptive innovation theory as

well as in the literature of open innovation. This supports the premise that the separating line

between the two types of innovation is vague, and it weakens the term “open innovation.” So,

it is in favor of the prediction of Huizingh, Eelko KRE (2011) that in the future, the concept of

open innovation will be integrated into the practices of innovation management, and the term
6.3. Capabilities, Knowledge and Networks 49

open innovation will no longer be significant [43].

This doesn’t mean there is no open and closed innovation at all. Some industries, like those

related to military equipment, require that innovation comes from closed labs.

It means that most of the time when either open innovation or disruptive, discontinuous, or

incremental innovation are mentioned in the literature, it would be discussing a similar concept

if it is not regarding special applications of closed innovation.

6.3 Capabilities, Knowledge and Networks

In the theory of firm capabilities, the emphasis is on avoiding stickiness of processes,

Leonard-Barton (1992) explains that the core capabilities of a firm are the applicable technical

and managerial knowledge that it possesses. This knowledge can help innovation but can also

hinder it. When the knowledge is deeply rooted; it becomes values for the organization. This

rigidity in the dynamic environment, in which technology-based companies operate presents

an obstacle to innovation. Therefore, it is inevitable for established firms with core values to

question their paradigms [48].

And in knowledge management, a focus on knowledge transfer was observed. Transferring

knowledge is a kind of change because it changes the status of knowledge from being concen-

trated to being distributed.

Networks and alliances are mechanisms for enabling the exchange and use of knowledge, ex-

pertise and technology, and mutually benefiting from them. They facilitate a type of change, so

in that sense, they enhance innovation.

6.4 Summary and Conclusion

The purpose of this thesis is to review innovation literature to identify terminologies, defini-

tions, types of innovation, as well as positively and negatively affecting factors. By avoiding

the inhibitors and applying the contributors, innovation potential increases. The thesis focuses

mostly on established firms and on the innovation types with a strong impact on the market and
50 Chapter 6. Discussion

technology, as well as the different interacting factors in idea generation. The findings explored

several research questions:

1. Inconsistency and inaccuracy exist in the literature regarding the terminology of innova-

tion, yet the characteristics of some innovation types with different terminologies show

similarity.

2. Research investigated phases of technological evolution as well as the geographical loca-

tion, size, and market position of the firm delivering it. It recommends planning innovation

and obtaining knowledge early in both the firm’s and technology’s lifecycle.

3. Several inhibitors and contributors to innovation are identified; the most influencing one

is the balance between fixed, rigid, or established routines, processes, practices and

business models and change, freedom, exploration or hunt for new ideas, expertise or

technologies, or between open and closed innovation.

4. Recommendations for innovation training for management, engineering, and sales em-

ployees are found. Strategies for managing key individuals and routines for detecting

potential innovation are identified.

5. The criteria and contributors to open innovation are found to be not very different from

those of other types of innovation in the literature. Open innovation is more an essential

factor of innovation (openness) than a type. Some processes in open innovation are

identified.

6. An instance of a very rewarding outcome of open innovation is found in the financial

performance of Xerox’s spin-offs.

7. A summary and consolidation of several factors influencing the potential and quality of

ideas as well as the performance of idea generation process is established. it is presented

in chapter five.

S. J. Kline and N. Rosenberg (2010) believe that innovation is physical changes in the product,

as well as changes in the market, knowledge, production systems, and the social conditions

in the organization [46]. Gaining innovation capability can be achieved by getting used to

changing ways, in other words, adopting a routine that automatically insure eternal change, in

processes, routines, organizational structures, resources, and business models. This alteration
6.5. Future research 51

should be balanced with fixed routines and processes. This change also requires a balanced

search for new ideas, knowledge, and technologies. Customer needs are not an absolute driver

of industry-changing innovation. They must be accurately defined and futuristic. Such well-

defined needs are often provided by expert professional users, who have close relationships

with the industry. Theory of Idea generation explores different variables of performance and

several affecting factors, though the greatest focus is on contributors to the quality or novelty of

ideas.

6.5 Future research

There are some options for future research:

1. The accuracy and applicability of the recommendations and observations found in the

literature are presumed. These could be validated via more recent performance data,

expert interviews, or other methods.

2. Next investigations could narrow the search by focusing on a specific industry, country,

region, or culture. They could try to find other important factors and recommendations

that are not mentioned in this work.

3. Isolating one affecting factor or one aspect of management, looking into it deeply and

rechecking the reached conclusions, or experimenting with openness in one factor.

4. Gassmann, Oliver (2006) notices areas where challenges are encountered and where

future research could be employed:

• Trust Issues in Globalizing Innovation

• Barriers to outsource RD

• Integrating suppliers early

• User innovation

• Commercializing Know-how, IPs and technology externally [35].


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