Innovation Management and its Critical Success Factors - Research Paper Example

Innovation Management and its Critical Success Factors Introduction Innovation is defined as the “process of creative definition, development, and commercialization of substantially new products, services or businesses” (Davila, Epstein, & Matusik, 2004, p.27). Innovation enables the development of new sources of competitive advantage; it is an essential organisational function, helping to achieve greater profits and business success. In contemporary firms, innovation is a highly managed process relying on formal systems to manage the process “from the resources required to innovate through the management of the process itself to the outputs” (Davila et al, 2004, p.28). According to Chin and Wong (2007, p.1291), organisational innovation is “the development or adoption of an idea or behaviour into business operations that is new to the whole organisation”. It includes the use of new technology, new administrative practices, or the development of new products or processes. New products encompass tangible products as well as intangible services, while new processes include direct processes and support-operations. Innovation is important in the contemporary markets, for improving a company’s competitive position. It drives corporate success and is a strategic initiative promoting a company’s “differentiating capacity, growth, and sustainable competitive advantage” (Trienekens, Van Uffelen, Debaire, et al, 2008, p.108). Recent studies have examined the key success factors for achieving competitive advantage through innovation. Management practices give rise to new concepts and approaches on innovation management. Critical success factors (CSFs) offer solutions to managers confronted with new problems needing quick resolution. Critical success factors are the criteria crucial to the success of the organisation (Trienekens, et al, 2008). Thesis Statement: The purpose of this paper is to examine the requirement for organisational innovation for enhancing performance and profits, and to investigate critical success factors that contribute to effective innovation management. The Requirement for Innovation in Introducing New Products and Processes Across the world, competition is intensified due to increasing globalisation. Hence, businesses today are facing numerous challenges besides issues of cost or quality of their products and services. Gaining customer loyalty and satisfying their expectations are at the forefront in business operations; hence companies have to products and services that are considered as valuable. By becoming innovative organisations, it is possible for companies to compete in this dynamic and changing business environment. Evidence from research reveals that innovation is one of the paths to maintaining increasingly progressive organisational performance. It is also the key element “for sustaining competitiveness and ensuring an organization’s future potential” (Wong & Chin, 2007, p.1290). The critical role played by organisational innovation management in organisational performance and progress, makes it necessary for organisations to manage and sustain organisational innovation well. The inadequate involvement of several companies in innovation management is because of inconclusive and inconsistent research on the subject. This results in organisations failing to capture comprehensive concepts of innovation, and are unable to translate these into practical organisational innovation procedures (Wong & Chin, 2007). Research conducted by Wong and Chin (2007) investigated organisational innovation management as one of the critical means to sustain competitiveness in the long term. The purpose of the study was to develop and validate an organisation-wide innovation management framework. An extensive literature review helped to develop core values and concepts of an organisational innovation management system. Wong and Chin (2007) identified organisational innovation management critical factors, which they validated with the help of survey questionnaires and interviews in the Hong Kong/ Pearl River Delta manufacturing industry. The researchers formulated an organisation-wide innovation management hierarchical framework based on the critical success factors in the industry (Wong & Chin, 2007). Most businesses and firms have used new knowledge or exploited other firms’ innovations, to offer customers products and services that they require (Afuah, 2003). Some examples of successful organisational innovations that are but the tip of the iceberg include the following: Intel company’s prosperity in the 1990s was due to its invention of the microprocessor in 1972, while Cisco’s prosperity in the late 1990s could be attributed to its ability to offer routers for the Internet. Similarly, Pfizer’s financial health in the late 1990s and early 2000s occurred because of its invention of the cholestrol eliminating drug Lipitor invented by Parke Davis, a division of Warner Lambert. Walmart’s move to establish its supermarkets in small towns and completely fill adjoining towns with its stores, the company’s “integration of information technology and operations, its logistics, and its smart utilization of its human resources” (Afuah, 2003, p.1) allowed the small-town firm which originated in Arkansas to become the world’s largest retailer. Critical Success Factors in Innovation Management “Effective product launch is a key driver of top performance, and launch is often the single costliest step in new product development” (Di Benedetto, 1999, p.530). Product launches or product introduction into the market are highly important, costly, and risky to undertake. With the help of a mail survey and review of extant literature on product launch, the author identified the most critical, strategic, planned, and information-gathering processes to achieve success with the product launch. The researchers then used a retrospective methodology to collect managerial perceptions on launch processes with regard to a recent product launch, and gathered data on the product’s profitability, market share, and comparative sales. A mail survey of Product Development and Management Association (PDMA) practitioners helped to obtain data on nearly 200 recent product launches (Di Benedetto, 1999). “Successful launches were found to be related to perceived superior skills in marketing research, sales force, distribution, promotion, research and development, and engineering” (Di Benedetto, 1999, p.530). Other critical success factors related to successful launches included cross-functional teams making key marketing and manufacturing decisions, and involving logistics early in the planning. Various tactical activities related to successful launches included “high quality of selling effort, advertising, and technical support; good launch management and good management of support programmes” (Di Beneditto, 1999, p.530) besides perfect launch timing in relation to the company, the customers and the competitors. Additionally, all kinds of information gathering activities such as market testing, customer feedback, advertising testing, etc. were found to be essential for successful launches. The author asserts that logistics play a central role in successful strategy development, and should be provided with the required amount of managerial attention and focus. Further, Di Benedetto (1999) observes that specific activities involving logistics personnel in strategy development required a great deal of improvement. Additionally, greater managerial attention was required for timing product launches in a manner optimising the chances of success. Introducing new products remains a critical challenge for business managers. New product success depends on consumer acceptance of new products, and requires the effective execution of market launch activities. A study conducted by Kuester, Homburg and Hess (2012, p.38) investigates “the relationship between different types of market launch activities and market-related, time-related, and financial market launch success”. In relation to the overall impact of internally directed activities, the findings reinforce the concept of organisational factors and antecedents playing a crucial part in the successful launch of new products. Further, the effectiveness of the organisational factors with internally directed activities was found to have an even stronger impact on time-related and financial success, than outwardly directed methods. Rapid penetration of the market requires coordination among the various internal players, together with the top management’s support. Moreover, “the financial objectives of the market launch can be met only if employees and executives both receive the necessary incentives and support” (Kuester et al, 2012, p.38), to effectively introduce the new product. Incorporating the industry’s dynamism into competitive organisational progress involves the adoption of an evolutionary approach. According to this perspective, “an innovation evolves as the firms exploiting it interact with the environments” (Afuah, 2003, p.135). Along with the evolution of the innovation, there is concurrent evolution in the industry structure, its appeal, and in its critical success factors. The evolution determines the products that can be offered at each phase of the evolution, and the requirement for providing specific products, based on their cost, their position in the market, whether mass or niche, and whether differentiated from others of their type. Consequently, to offer any of these products, and therefore to survive, a firm requires certain types of strategies and capabilities. Those organisations that lack these capabilities, and are unable to offer the particular products of a specific stage, are compelled to exit. “Thus, an industry’s attractiveness and the kinds of capabilities that a firm needs to succeed also vary from one stage of the evolution to the other” (Afuah, 2003, p.135). In the latter part of the evolution, a firm’s heterogeneous capability is based on its strategies, capabilities, and market positioning early in the development of the innovation. It is critically important for businesses to assess the factors that forecast and promote new product success (NPS). Evanschitzky, Eisend, Calantone, et al (2012) state that research evidence indicates that despite companies’ considerable investments in new products, their market success rates are usually less than 25%. In the past few decades, meta-analytical attempts have been made to consolidate the findings from experimental research on new product success (NPS) factors. Market environmental changes such as rising global competition, along with methodological advancements in meta-analytic research, provide a timely opportunity to enhance the earlier results. Therefore, a key purpose of the research conducted by Evanschitzky et al (2012) is to conduct an updated and detailed meta-analytical investigation of the factors impacting new product success (NPS). The scope of the study is widened by including significant additional variables earlier not taken into account, such as ‘country culture’, and the authors discuss extensive differences between the updated meta-analysis and its predecessor. They also argue that the evidence indicating general decline in the importance of success factors over time “calls for new theoretical approaches to better capture the nature of new product development success factors” (Evanschitzky et al, 2012, p.21). However, it is possible that there is a decline in the potential to create competitive advantage through an understanding of new product development (NPD) success factors, due to the increasing spread of the knowledge of these factors among managers. The study conducted by Evanschitzky et al (2012) analyzing articles published from 1999 to 2011 updates the findings of Szymanski and Henard’s (2001) meta-analysis, as the most comprehensive recent summary of empirical findings. Evanschitzky et al (2012) base their study on 233 empirical studies from 204 manuscripts on new product success (NPS). Using a total of 2618 effect sizes, this research study also employs recent methodological advancements by recalculating effects of the meta-analysis with the help of a random effects model. The results indicate overall weaker impacts of common success factors, as compared to those reported by Szymanski and Henard (2001). These results confirm that due to evolution of the innovation alongside evolution in the industry structure, the critical success factors decline in their influence, over time. Additionally, culture forms a significant moderating factor, “weakening effect sizes for individualistic countries and strengthening effects for risk-averse countries” (Evanschitzky et al, 2012, p.29). The authors emphasize on the importance of investigating culture’s role in product innovation studies, and of following the transitions in success factors of new product development and innovation. The factor of national culture has a strong moderating influence, thus working with varied cultures provide different antecedents or previous experiences of successful new product ventures. Critical success factors (CSFs) are noticeably absent in most companies’ new product projects, observes Cooper (2000). Success factors are of two types: the first is related to doing the right projects, and the second is about doing the projects right. Type 1 or doing the right projects involves several external, environmental success factors, over which the project team has little control. These include characteristics of the new product’s market, technologies and competitive situation, and the potential to leverage internal competencies (Cooper 2000). These should be taken into consideration when selecting and prioritizing projects. Further, Type 2 success factors focus on doing the projects right, and on process factors or action procedures. Critical success factors are invisible, but the actions are controllable and discretionary, hence they can indeed be seen from time to time. An example is the Transitions Optical company in the eyeglasses market. Market research revealed consumers’ unhappiness with the traditional product. After intensive surveys, research and identification of customers’ needs in this lucrative market, and several concept tests with the proposed product, the newly developed innovative product quickly achieved the leading market share, with annual sales still increasing by 25-30%, states Cooper (2000). Conclusion From the research studies examined, it is evident that there are eight common denominators for successful new product projects. First, up-front homework is helpful. Instead of directly launching into the development stage from the idea stage, this approach of undertaking solid up-front homework helps to raise new product success rates significantly, and improves financial performance. Homework is a crucial element in high quality new product processes, and it increases profitability and the impact of the entire new product efforts of the business. Second, the voice of the consumer has to be incorporated. According to Cooper (2000), new product projects featuring high quality marketing actions such as market studies, customer tests, field trials, and test markets, besides launch, are blessed with more than double the success rates, and 70% higher market shares, than projects with poor marketing procedures. Third, it is necessary to seek differentiated, superior products. One of the top critical success factors is delivering a differentiated product with unique customer benefits, and superior value for the user. Such superior products have five times the success rate, over four times the market share, and four times the profitability as products lacking this ingredient” (Cooper & Kleinschmidt). Thus, some products emerge winners due to product superiority. Hence, favoring simple, inexpensive projects may penalize projects that lead to product superiority. Fourth, it is necessary to demand a sharp, stable and early product definition. Firms perform poorly, there is new product failure, and serious delays in time to market, when they “do not define the product, its target market, the concept, benefits and positioning, and its requirements, features, and specifics” (Cooper, 2000, p.6). Fifth, the market launch should be planned and resourced in the initial stages. A strong market launch forms the basis for successful products. Sixth, it is essential to build tough, incisive decision points into the innovation process. 88% of the projects investigated had not screened their ideas and decisions, 37% had not undergone a pre-development business or financial analysis; and “65% do not include a pre-commercialization business analysis (Cooper, 2000, p.6). The seventh critical success factor is to organise around true cross-functional project teams. Good organisational design and projects having a cross-functional team, with an accountable, dedicated and focused team leader support innovation success. The eighth critical factor is to build an international orientation into the new product process or innovation, which fare better through cross-functional teams and transnational new product processes and innovative techniques (Cooper, 2000). Research evidence indicates the differences between organisational winners and losers among the various industries and corporations. It is apparent that many of the factors are controllable, as outlined above. These common denominators for success in new product projects and processes are controllable critical success factors. According to Cooper (2000), they can be operated in the form of levers to increase organisational chances for optimizing performance, progress, and success in relation to innovative projects. References Afuah, A. (2003). Innovation Management: Strategies, implementation and profits. New York: Oxford University Press. Cooper, R.G., & Kleinschmidt, E.J. (1990). New products: The key factors in success. Chicago: American Marketing Association. Cooper, Dr. R.G. (2000). From experience: The invisible success factors in Product Innovation. Reference Paper # 19. Product Innovation Best Practice Series. Retrieved from: http://www.stage-gate.net/downloads/working_papers/wp_19.pdf Davila, T., Epstein, M.J., & Matusik, S.F. (2004). Innovation strategies and the use of performance measures. Advances in Management Accounting, 13, 27-58. Di Benedetto, C.A. (1999). Identifying the key success factors in new product launch. Journal of Product Innovation Management, 16, pp.530-544. Evanschitzky, H., Eisend, M., Calantone, R.J., & Jiang, Y. (2012 December). Success factors of product innovation: An updated meta-analysis. Journal of Product Innovation Management, 29(S1), pp.21-37. Kuester, S., Homburg, C. & Hess, S.C. (2012 December). Externally directed and internally directed market launch management: The role of organizational factors in influencing new product success. Journal of Product Innovation Management, 29(S1), pp.38-52. Szymansky, D.M., & Henard, D.H. (2001 Winter). Customer satisfaction: A meta-analysis of the empirical evidence. Journal of the Academy of Marketing Science, 29(1), pp.16-35. Trienekens, J., Van Uffelen, R., Debaire, J., & Omta, O. (2008). Assessment of innovation and performance in the fruit chain: The innovation-performance matrix. British Food Journal, 110(1), pp.98-127. Wong, S-Y, & Chin, K-S. (2007). Organisational innovation management: An organisation-wide perspective. Industrial Management and Data Systems, 107(9), pp.1290-1315. Read More