Innovation and Innovation Behavior - Research Paper Example

[Type the company Innovative behavior is dependent on firm size Introduction It is now well accepted that innovation is one of the key determinants of success of firms irrespective of its size. Today there is no company, big or small that does not profess or claim that it is or strives to be innovative in order to be successful. Firms claim to have innovation strategy. Schumpeter's writings, in the mid thirties of the last century points out that innovation as a key driver of economic growth. Companies try to outdo other company's in claims of being innovative. They reassure their investors, shareholders by saying that because they advocate this innovation mantra, their success in the market place is assured. There will however be a gap between organizations intention or desire to be innovative and their actual behavior in being so. There may be difference in the extent and content of innovative behavior. This will be true of organizations big or small, but the question arises whether size of an organization has a correlation with innovative behavior of organizations. What are the circumstances in which forms of different sizes may differ in their innovative behaviour This paper attempts to answer these questions. Innovation and Innovation behavior The word innovation means a combination of two activities in an organisation, the process of generation of ideas through a creative process and the manner in which the successful commercialization of a selected idea as a successful product or service. In case of a process innovation it will mean the offering of a differentiated product in the market through successful use of the new innovative process innovation. Innovations are generally of two types, the radical innovation and incremental innovation, which basically are used to denote the degree of novelty. Schumpeter describes two types of innovations that occur in a capital economy. One is in which the major source of innovation is in small industries which are operating in a highly competitive market. The innovative behavior is driven by the visionary entrepreneur. The second is that occurs in large industries which operate under oligopolistic market. The innovative behavior here is driven by research and development. Keklik (2003, p 3) suggests that both are likely to occur in the economy at the same time in different industries, depending on the level of maturity of the industry. In an industry that is new, innovation driven by entrepreneurs in small firms will be more predominant. Later as the industry matures the innovation behavior of large firms will be predominant. Trott ( 2002, p 18) describes 5 different types of innovation models to explain how innovation in firms occur. Broadly they are classified as linear and interactive models. In the linear model typically innovation is technology lead. Innovation occurs because of new opportunities thrown up by new technologies (technology pull). The second occurs based on the demands from the market. (market pull). The third described is one where innovation occurs because of both, a market pull and technology pull. The fourth recognizes the importance of linkages between technology, market, and customer needs. The final model described, the network model, is the one which fully takes into account the complete eco system under which innovation occurs. It takes into account external inputs like new technology development, competitors, research from academic institutions and research organizations, supply chain partners and customers, as well as the internal organizational functions and their behavior. These are the main factors to be considered if innovation is to be successfully managed. Interactions of functions within organization like marketing, R&D and finance, is important, but interaction of these functions and organizations with external environment is also important. At the management level company may be discussing strategic alliance with another company for developing innovative products; marketing will have to be engaged in continuous dialogue with channel partners, purchase with supply chain partners; R&D will have to reach out to others in the environment like research institution, academic institutions for technology; and organization as a whole with customers, stake holders. This will generate information flow that will be crucial for an organization to develop an innovative strategy. The fifth model is the one that is shown as most applicable for a firm to be innovative in the present age. While the ultimate verification of whether a company is innovative or not will be through actually comparing the innovative products and processes it brings to the market, only if it has an innovative behavior pattern it will be possible for it to remain innovative in the long run, and only then it will be able to consistently innovate and offer innovative products and services and be able to create a competitive advantage An organization that behaves innovatively is one that through its ability to interact and network dynamically with the ecosystem in which it exists, develops the ability to spot opportunities for new products and services, screen and select winner ideas, incubate the idea and successfully launch it as a new offering to the market. In short these models follow the fifth model of innovation development mentioned above. These organizations will have a culture of encouraging creative behavior, motivate and reward creativity. Organizational culture plays a critical role in motivating innovative behaviour. This will be able to create a high morale among creative people and be able to retain them. These organizations will have an innovation development process in place which consists of scanning of environment, to spot opportunities, generation of creative ideas, selection of appropriate idea and efficient product development skills and commercializing ability. They will be receptive to new ideas and adaptive to change. Trotz (2002, p 77) describes it as a propagation of virtuous cycle (appendix A) He also lists the organizational characteristics that describe innovative behavior. (p70) All innovative companies have growth as their primary objective. They have formal and non formal way of scanning of environment to understand customer needs, technology changes, competition etc. They have a structure that facilitates open and more informal communication across all functions. It is less hierarchical. It has a more decentralized decision making structure and encourages decision making through consensus and group process. These organizations have a commitment to technology and invest time and money in acquiring technology and skills. These organizations also commit other resources like funds for supporting and incubating creative and innovative ideas. These organizations encourage and accepts risk taking. At the same time they also strive and manage risks successfully. Cross functional cooperation is another characteristic of these organisations. Receptivity to new ideas and technology and adapting organization in their usage is another characteristic. This may be a very useful skill while collaborating with other companies, in joint venture, technology transfer. These organizations also look for diverse range of skills within and without for successful innovation development. Innovation environment for large and small firms Both small and large firms have the same kind of compulsion to create competitive advantage for their firm through innovation. Commonly small firms operate more under competition and are often at a dilemma. Because they are in a competitive market, their margins will be low and they will have little surplus to invest on innovation. At the same time they will have to innovate if they are to survive. Small firms have the advantage of being smaller, having flatter hierarchy, having more informal communication and ability to respond quickly whenever required. However it is argued that many large firms also empower creative and innovative groups within organization to work in an environment similar to that of small firms. Small firms have organizational strengths like ease of communication, speed of decision making, degree of employee commitment, receptiveness and adaptability. Innovative behavior induced by formal strategies needed for large firms is therefore not required for small firms as they occur naturally. Small firms have a disadvantage of not having the depth of knowledge a large firm will have. Many times the knowledge will be limited to that of the promoter entrepreneur. Small firms also will lack the financial resources that large firms have. This allows large firms not only to undertake huge investment in R&D and new product development, but also take risks which a small firm will ill afford to take. Innovation in a small firm is entrepreneur driven. For a small firm to successfully be able to exploit a specific technology advantage, the technical skills and organizational skills of the entrepreneur will determine its success. Whereas for large firms it will have to be organizational process involving integration of R&D, production, marketing, finance and resource allocation. (Tidd 2001, p 156). Large and established firms are also under threat sometimes from small firms who emerge following the path of radical innovation making use of high technology opportunities. Microsoft itself is one. Growth of Amazon is another example. However in many cases, large firms have responded to these challenges and have emerged stronger (IBM for example). Large firms can better afford to create linkages and network with R&D firms, academic institutions to expand their search for new technologies, ideas and products. However many countries realize the potential of small firms to provide jobs and help the economy. Small and medium sized firms (SMEs) and entrepreneurship are recognised to be a central source of dynamism in modern developed and developing economies. Many countries have developed policies for SMEs by using size as an important differentiating characteristic. Facilities are available now for small industries to overcome some of the disadvantages of size as they have underwriters in the form of institutions to help them in incubation, R&D networking and angel funding. The nature of industry also determines the dominant player. For instance in pharmaceutical companies it will be large companies that will have the wherewithal to do new product development. Small players can innovate only at the service level. Innovative behaviour and size of firms Given the characteristics of innovative behaviour and the environment and conditions under which large and small firms operate, there is no reason to believe that innovative behaviour is size dependent. Small and large firms have enough opportunities and reasons to behave innovatively. Many of the characteristics described of innovative behaviour occur naturally in small enterprises, whereas in large firms it will have to be practised conscientiously. Small firms have easy communications, are less bureaucratic and being small work more cohesiveness and understanding. Organization process, decision making is most likely to be shared by all. Small business has as much compulsion as large firms to behave innovatively. There is wide belief that more innovations occur in small firms than big, even though this is contested. Tidd (2002, p 82) informs that there is not much research to point out that small firms do more or less innovations compared to large firms. He points out that from evidence available, small industries produce more innovations in some sectors like machinery, instruments and software, than in chemicals electronics and, transport. If we assume innovations are directly linked to innovative behaviour, then this is proof that firm size does not make any difference. "Small companies actually account for a share of total innovations that is far larger than their share of employees, and record a higher number of innovations per unit of R&D expenditures". (Corsino et al 2007). However the above author also says that this does not mean that the impact of these innovations will be larger than that of larger firms. Yin (1998) says that the "large firm remains dominant for the original product in the post-innovation market, but the small firm is more likely to be a leader in the new product market". This is in line with the statement of Schumpeter on innovation. Conclusion Both small and large firms need innovation strategy for survival. Therefore unless they exhibit and behave in a manner that nurtures innovation development they will not be able to survive. Going by the fact that in today's economy both large and small firms are thriving in equal magnitude, it seems that there is no reason to believe that any one of them show less innovative behavior. Appendix A Propagating a virtuous circle of innovation (Trott, 2002, p 77) References Corsino M, Espay G, Miccioliz R (2007), R&D, Firm Size, and Product Innovation Dynamics , http://rock.cs.unitn.it/file/R&D_Size_Innovation.pdf, accessed 25 March 2009 Keklik M (2003), Schumpeter, Innovation and growth, , Ashgate Publishing, Ltd. Tidd J, Bessant J, Pavitt K (2001), Managing innovation, John Wiley and sons, Trott P (2002), Innovation Management and New Product development, FT Prentice Hall Yin X, Zuscovitch E (1998) , Is firm size conducive to R&D choice A strategic analysis of product and process innovations, Journal of Economic Behavior & Organization, 1 April 1998, Pages 243-262 Read More