MANAGING INNOVATION WITHIN FIRMS

MANAGING INNOVATION WITHIN FIRMS

Introduction

    Virtually all innovations, certainly major technological innovations such as pharmaceutical and automobile products, occur within organizations. The management of innovation within organizations forms the focus for this chapter. The study of organizations and their management is a very broad subject and no single approach provides all the answers. The identification of those factors and issues that affect the management of innovation within organizations are addressed in this chapter.

Learning objectives

When you have completed this chapter, you will be able to:

·         Identify the main trends in the development of the management of organizations

·         Explain the dilemma facing all organizations concerning the need for creativity and stability

·         Recognize the difficulties of managing uncertainty

·         Identify the activities performed by key individuals in the management of innovation

·         Recognize the relationship between the activities performed and the organizational environment in promoting innovation.

Theories about Organizations and Innovations

The previous chapter outlined some of the difficulties in studying the field of innovation. In particular, it emphasized the need to view innovation as a management process within the context of the organization. This was shown to be the case especially in a modern industrialized society where innovation is increasingly viewed as an organizational activity. This chapter tackles the difficult issue of managing innovation within organizations. To do this, it is necessary to understand the patterns of interaction and behaviour which represent the organization.

The theory of organizations is a set of ideas drawn from many disciplines and lies beneath much of the study of innovation. In many ways organization theory bridges pure social and behavioural sciences and management practices at the level of the organization. As an applied science it examines the behaviour of organizations and provides useful information about how organizations respond to different management techniques and practices, hence its importance in understanding how the process of innovation is managed.

 
Given the diversity of the literature in this field, there are few clear prescriptions on what organizations need to do in order to manage innovation successfully. Nonetheless, there are numerous analytical frameworks and organization-specific models of innovation. The literature can be classified into four dominant strands (Perrow, 1970).

Classical or Scientific Management Perspective

          The classical view of organizations took hold after the industrial revolution and the huge increase in world trade at the beginning of the twentieth century. It is built around traditional management concepts, bureaucratic theory (Weber, 1964) and scientific management (Taylor, 1947). This school of thought tends to view the organization as an instrument for achieving established goals, in which members of the organization can be made to serve these goals by management’s use of reward and motivation techniques. It assumes that all tasks confronting the organization can be rationalized. Hence, organizations should be designed to ensure a predictable flow of work. Specialization of tasks is employed to maximize efficiency and there is emphasis on rules to achieve co-ordination between units. This view assumes that people can he combined with machines to produce an orderly output. Within this framework innovation is a series of rational decisions leading to a clearly defined outcome. Indeed, this school of thought contributed to the dominance of the ‘technology-push’ model of innovation.

Human Relations Approach

          It was following extensive questioning of the classical view in the 1930 that the human relations school evolved. Much of the original impetus was provided y the Hawthorn Studies at Western Electric (Roethlisberger and Dickinson, 1939). These new approaches identified informal and non-legitimized group processes within the organization. Informal communications and activities were unearthed by social scientists and found to influence organizational behaviour. This school of thought also led to the development of the contingency theory.

 
          A slightly different perspective views the organization as a political system and suggests that change will result in some conflict between different units in the organization when a unit perceives that the innovation or change might reduce its influence (Harvey and Mills, 1970). This also introduces the notion of routine and innovative solutions. It is argued that problem situations and problem solutions are arranged along a routine innovative dimension. A routine solution is defined as ‘a solution that has been used before while an innovative solution is defined as a solution that has not been used before and for which there are no precedents in the organization’ (189-90). Harvey and Mills (1970) argue that an organization will tend to impose routine solutions unless there is pressure on the organization’s structural arrangements. These arrangements reinforce the continuation of routine patterns around which interests have formed. Innovative solutions will only be imposed when the organization is in a higher stress-threat situation, which is more likely to demand innovative behaviour if the organization is to adapt. This model builds on the work of Burns and Stalker (see below), who indicate that there are different types of solutions, mechanistic routine and organic innovative, that are appropriate for different situations.

Contingency Approach

          The third main strand of literature is represented by organization contingency theories. These posit the view that there is not necessarily a single best organizational structure, but rather that the structure should be adapted to the activities being performed. Organizational activities or tasks arc the things that individuals do as part of groups in order for the organization to achieve its purposes. This emphasis on internal activities rather than structure is an important factor with regard to innovation. This book takes the view that the process of innovation is made up of a series of linked activities within an organization. This book takes the view that the process of innovation is made up of a series of linked activities within an organization.

          Research in this field (Thompson, 1967; Perrow, 1970; Hull and Haige, 1981) has identified a range of different characteristics that organizations have exhibited that, it is argued, more accurately describe the range of different organizational environments. The following list represents a typology of characteristics that have been identified within certain organizations:

Certainty vs uncertainty

Stability vs instability

Uniform vs non-uniform

Few exceptions vs many exceptions

Many repetitive events vs few repetitive events

          In general, contingency theory argues that tasks that are certain, stable, uniform, have few exceptions and many repetitive events are compatible with bureaucratic organizational forms, which stress formality. At the other end of the task continuum, tasks have many exceptions and few repetitive events are compatible with organic flexible organizational forms .

Systems Theory

          The fourth set of ideas developed concurrently with contingency theory during the 1960s and 1970s. However, systems theory emphasizes processes and dynamic analysis rather than characteristic and structural analysis. (Checkland, 1989; Thompson, 1967; Katz and Khan, 1966). The origins of the theory can be traced back to the 1950s when Ludvig von Bertalanffy, a biologist, first used the term ‘systems theory’ (Bertalanffy, 1951). Systems theorists analyze the commercial organization from the perspective of complex organic systems).

          A system is defined as any set of elements linked in a pattern which carries information ordered according to some pre-determined rule. Organizations are seen as goal-directed systems. All systems have both structures arid process. Structures are the relatively stable elements, whereas processes are the dynamic relationships among system elements over time.

Table

Issues identified by systems theory that need to be managed

Issue	Characteristics
Adaptation	The ability to alter ways of working to meet the changing environment.
Co-ordination	Enabling the different parts of the organization to function as one
Integration	The ability to harmonise a diverse range of activities and people
Stability	Coping with friction between organizational parts
Output	Achieving purposes and goals
Maintenance	Keeping elements in the system active

Table

Organizational characteristics that facilitate the innovation process

Organizational requirement	Characteristics
Growth orientation	A commitment to long term growth rather than short term profit.
Vigilance	The ability of the organization to be aware of its threats and opportunities
Commitment to technology	The willingness to invest in the long term development of technology
Acceptance of risks	The willingness to include risky opportunities in a balanced portfolio
Cross functional co-operation	Mutual respect among individuals and a willingness to work together across functions
Receptivity	The ability to be aware of, to identify and to take effective advantage of externally developed technology
Slack	An ability to manage the innovation dilemma and provide room for creativity to accept change
Adaptability	A readiness to accept change
Diverse range of skills	A combination of specialization and diversity of knowledge and skills

          This school of thought has led to a richer and better understanding of organizational activities. For example, the issues in Table 2.2 are said to be continually addressed by organizations. They should be viewed as issues that need to be managed rather than problems that can be solved (Georgopoulos, 1972).

          In addition, systems theory has also highlighted the importance of the organization’s interaction with the external world. Indeed, this interaction is identified as an important element of the innovation process. It is precisely the way in which organizations manage and capture the benefits from the knowledge flows, which are the product of these interactions, that will affect their ability to innovate.

          Together these four schools of thought have contributed enormously to the understanding of the management of innovation. Some of the more significant issues will be addressed in more detail.

The Dilemma of Innovation Management

Within organizations there is a fundamental tension between the need for stability and the need for creativity. On the one hand, companies require stability and static routines to accomplish daily tasks efficiently and quickly. This enables the organization to compete today. For example, the processing of millions of cheques by a hank every day, or the delivery of food by multiples to their retail outlets all over the country, demands high levels of efficiency and control. On the other hand, companies also need to develop new ideas and new products to be competitive in the future. Hence they need to nurture a creative environment where ideas can be tested and developed. This poses one of the most fundamental problems for management today.

          Take any medium to large company and examine its operations and activities. From Mars to Ford, and from P & G to Sony, these companies have to ensure that their products are carefully manufactured to precise specifications and that they are delivered for customers on time day after day.

Managing Uncertainty

It is becoming clear that product innovation is a complex process. Figure 1.6 highlighted the main areas of attention, but each of these represents a complex area in itself. Innovation involves numerous factors acting separately but often influencing one another. Organizations have to respond to internal and external events, some of which are beyond their control. While management in general involves coping with uncertainty, sometimes trying to reduce uncertainty, the purpose why involved in innovation is to develop something different, maybe something new. The management of the innovation process involves trying to develop the creative potential of the organization. It involves trying to foster new ideas and generate creativity. Managing uncertainty is a central feature of managing the innovation process.

Pearson’s Uncertainty Map

Pearson’s uncertainty map (Pearson, 1991) provides a framework for analyzing and understanding uncertainty and the innovation process. The map was developed following extensive analysis of case studies of major technological innovations, including Pilkington’s float glass process, 3M’s Post-It notes and Sony’s Walkman (Henry and Walker, 1991). In these and other case studies a great deal of uncertainty surrounded the project. If it involves newly developed technology this may be uncertainty about the type of product envisaged. For example, Spencer Silver’s unusual adhesive remained unexploited within 3M for five years before an application was found. Similarly, if a market opportunity has been identified the final product idea may be fairly well established, but much uncertainty may remain about how exactly the company is to develop such a product. For example, the case study at the end of Chapter 1 discussed the development of a new range of aqueous based cleaning products. Here the market was identified but at the time there was uncertainty about how to develop a product for this market.

          So Pearson’s framework divides uncertainty into two separate dimensions:

·         Uncertainty about ends (what is the eventual target of the activity or project)

·         Uncertainty about means (how to achieve this target).

          The case study at the end of Chapter 7 deals with the development of ‘Guinness’s can system’. This clearly highlights the problems of managing uncertainty about means. Several projects were unsuccessful and there were probably several occasions where decisions had to be taken regarding future funding. Decisions had to be made such as whether to cancel, continue or increase funding. In these situations, because the degree of uncertainty is high, senior managers responsible for million-dollar budgets have to listen carefully to those most closely involved and those with the most information and knowledge. Further information and knowledge are usually available with the passage of time, so time is another element that needs to be considered. Indeed, it is because time is limited that decisions are required. It is clear, however, that many decisions are made with imperfect knowledge, thus there is usually an clement of judgment involved in most decisions.

          Pearson’s framework, shown in Figure 2.3, addresses the nature of the uncertainty and the way it changes over time. The framework is based on the two dimensions discussed above, with uncertainty about ends on the vertical axis and uncertainty about means on the horizontal axis. These axes are then divided, giving four quadrants.

Quadrant 1

          Quadrant 1 represents activities involving a high degree of uncertainty about means and ends. The ultimate target is not clearly defined and how to achieve this target is also not clear. This has been labeled ‘exploratory research’ or ‘blue sky’ research, because the work sometimes seems so far removed from reality that people liken it to working in the clouds! These activities often involve working with technology that is not fully understood and where potential products or markets have also not been identified. This is largely the domain of university research laboratories, which are usually removed from the financial and time pressures associated with industry. Some science-based organizations also support these activities, but increasingly it is only large organizations who have the necessary resources to fund such exploratory studies.

Quadrant 2

          In this area the end or target is clear. For example, a commercial opportunity may have been identified but as yet the means of fulfilling this has yet to be established. Companies may initiate several different projects centered around different technologies or different approaches to try to achieve the desired product. Also additional approaches may be uncovered along the way. Hence, there is considerable uncertainty about precisely how the company will achieve its target. This type of activity is often referred to as development engineering and is an on-going activity within manufacturing companies which are continually examining their production processes, looking for efficiencies and ways to reduce costs. A good example of a successful development in this area is the Guinness ‘in-can system’. The company was clear about its target — trying to make the taste of Guinnes from a can taste the same as draught Guinness. Precisely how it was to achieve this was very uncertain and many different research projects were established.

          Quadrants 3 and 4 deal with situations where there is more certainty associated with how the business will achieve the target. This usually means that the business is working with technology it has used before.

Quadrant 3

          In this area there is uncertainty regarding ends. This is usually associated with attempting to discover how the technology can be most effectively used. Applications engineering is the title given to this area of activity. Arguably many new materials fall into this area. For example, the material kevlar (used in the manufacture of bulletproof clothing> is currently being applied to a wide range of different possible product areas. Many of these may prove to be in effective due to costs or performance, hut some. new and improved products will emerge from this effort.

Quadrant 4

          This area covers innovative activities where there is most certainty. In these situations activities may be dominated by improving existing products or creating new products through. the combination of a market opportunity and technical capability. With so much certainty similar activities are likely to be being undertaken by the competition. Hence, speed of development is often the key to success here. New product designs that use minimal new technology hut improve, sometimes with dramatic effect, the appearance or performance of an existing are examples of product innovations in this area.

Applying the Uncertainty Map to avoid Promising Success and Delivering Failure

          The uncertainty map s value is partly the simplicity with which t is able to communicate a complex message, that of dealing with uncertainty and partly its ability to identify the wide range of organizational characteristics that are associated with managing uncertainty with respect to innovation. The map conveys the important message that the management of product and process-innovations is very different. Sometimes one is clear about the nature of the target market and the type of product required. In contrast, there are occasions when little, if anything, is known about the technology being developed and how it could possibly be used. Most organizations have activities that lie between these two extremes, but such differing environments demand very different management skills and organizational environments. This leads the argument towards the vexed question of the organizational structure and culture necessary for innovation, which will be addressed in the following section. First, it is necessary to explore the innovation process through the uncertainty map.

          The map helps managers to consider how ideas are transformed into innovations; a very simplistic view of the innovation process. Moreover, it provides a way of identifying the different management skills required. Quadrant 1 highlights an area of innovative activity where ideas and developments may not be immediately recognizable as possible commercial products. There are many examples of technological developments that occurred within organizations that were not recognized. En Xerox’s Palo Alto laboratories, the early computer software technology was developed for computer graphical interface as far back as the early 1970s. Xerox did not recognize the possible future benefits of this research and decided not to develop the technology further. It was later exploited by Apple Computer and Microsoft in the 1980s. This raises the question of how to evaluate research in this area. Technical managers may be better able to understand the technology, but a commercial manager may be able to see a wide range of commercial opportunities. Continual informal and formal discussions are usually the best way to explore all possibilities fully, in the hope that the company will make the correct decision regarding which projects to support and which to drop. This is a problem that will be returned to in Chapter 8.

          At the other extreme is Quadrant 4, where scientists often view this type of activity as merely tinkering with existing technology. However, commercial managers often get very excited because the project is in a ‘close-to-market’ form with minimal technical newness.

          Between these two extremes lie Quadrants 2 and 3. In the applications engineering quadrant where the business is exploring the potential uses of known technology, management efforts centre on which markets to enter; whereas in the development engineering quadrant special project-management skills are required to ensure that projects either deliver or are cancelled before costs escalate.

          In all of the above particular organisational environments and specialist management skills are required depending on the type of activity being undertaken. These will be determined by the extent of uncertainty involved.

Organizational Characteristics that facilitate the Innovation Process

          The innovation process, outlined at the end of Chapter 1, identified the complex nature of innovation. It also emphasizes the need to view innovation within the context of the organization. Table 2.3 represents a classification of the main organizational characteristics that are continually identified in the literature as necessary for successful innovation.

Growth Orientation

          It is sometimes surprising to learn that not all companies’ first and foremost objective is growth. some companies are established merely to exploit a short-term opportunity. Other companies, particularly family run ones, would like to maintain the company at its existing size. At that size the family can manage the operation without having to employ outside help. Companies that are innovative are those companies whose objective is to grow the business. This does not imply that they make large profits one year then huge losses the next, but they actively plan for the long term. There are many companies who make this explicit in their annual reports, companies such as J. Sainsbury, ICE, BMW, Renault and Mercedes-Benz.

Vigilance

          Vigilance requires continual external scanning, not just by senior management but also by all other members of the organization. Part of this activity may be formalized. For example, within the marketing function the activity would form part of market research and competitor analysis. Within the research and development department scientists and engineers will spend a large amount of their time reading the scientific literature in order to keep up to date with the latest developments in their field. In other functions it may not be as formalized but it still needs to occur. Collecting valuable information is one thing, but relaying it to the necessary individuals and acting on it are two necessary associated requirements. An open communication system will help to facilitate this.

Commitment to Technology

          Most innovative firms exhibit patients in permitting ideas to germinate and develop over time. This also needs to be accomplished by a commitment to resources in terms of intellectual input from science, technology and engineering. Those ideas that look most promising will require further investment. Without this long-term approach it would be extremely difficult for the company to attract good scientist. Similarly, a climate that invests in technology development one year then decides to cut investment the next will alienate the same people in which the company encourages creativity. Such a disruptive environment does not foster creativity and will probably cause many creative people to search for a more suitable company with a stronger commitment to technology.

Acceptance of Risks

          Accepting risks does not mean willingness to gamble. It means the willingness to consider carefully risky opportunities. It also includes the ability to make risk assessment decisions, to take calculated risks and to include them in a balanced portfolio of projects, some of which will have a low element of risk and some a high degree of risk.

Cross-functional Co-operation

          Inter-departmental conflict is a well-documented barrier to innovation. The relationship between the marketing and R&D functions has received a great deal of attention in the research literature. This will be explored further in Chapter 6, but generally this is because the two groups often have very different interests. Scientists and technologists can be fascinated b new technology and may sometimes lose sight of the business objective. Similar y, the marketing function often fails to understand the technology involved in the development of a new product. Research has shown that the presence of some conflict is desirable, probably acting as a motivational force (Souder, 1981). It is the ability to confront and resolve frustration and conflict that is required.

Receptivity

          The capability of the organization to be aware of, identify and take effective advantage of externally developed technology is key. Most technology-based innovations involve a combination of several different technologies. It would be unusual for all the technology to be developed in house. Indeed, business are witnessing an increasing number of joint ventures and alliances (Hinton and Trott, 1996), often with former competitors. For example, IBM and Apple have formed a joint venture to work on mutually beneficial technology. Previously these two companies fought ferociously in the battle for market share in the personal computer market.

Slack
          While organizations place great emphasis on the need for efficiency, there is also a need for a certain amount of ‘slack’ to allow individuals room to
think, experiment, discuss ideas and be creative (Cordey-Hayes et a!., 1997). In many R&D functions this issue is directly addressed by allowing scientists 10—15 percent of their time to spend on the projects they choose. This is not always supported in other functional areas.

Adaptability
          The development of new product innovations will invariably lead to disruptions to established organisational activities. Major or radical innovations may result in significant changes, although the two are not necessarily inked The organization must be ready to accept change in the way it manages its internal activities. Otherwise opposed innovations would be stifled due to a reluctance to alter existing ways f working or to learn new techniques. In short, organizations need the ability to adapt to the changing environment.

Diverse Range of Skills

          Organizations require a combination of specialist skills and knowledge in the form of experts in, say, science, advertising or accountancy and general skills that facilitate cross fertilization of the specialist knowledge. In addition they require individuals of a hybrid who are able to understand a variety of technical subjects and facilitate the transfer of knowledge within the company. Similarly, hybrid managers who have technical and commercial training are particularly useful in the area of product development (Trott, 1993). It is the ability to manage this diversity of knowledge and skills effectively that lies at the heart of the innovation process.

Industrial Firms are Different: a classification

          A brief look at companies operating in your town or area will soon inform you that industrial firms are very different. You may say that this is axiomatic. The point is, however, that in terms of innovation and product development it is possible to argue that some firms are users of technology and others are providers. For example, at the simplest level most towns will have a range of house building firms, agricultural firms, retail firms and many others offering services to local people. Such firms tend to be small in size, with little R&D or manufacturing capability of their own. They are classified by Pavitt (1984) as supplier-dominated firms. Many of them are very successful because they offer a product with a reliable service. Indeed, their strength is that they purchase technologies in the form of products and match these to customer needs. Such firms usually have limited, if any, product or process technology capabilities. Pavitt offers a useful classification of the different types of firms with regard to technology usage; this is shown in Figure 2.4.

          At the other end of the scale are science-based firms or technology-intensive firms. These are found in the high-growth industries of the twentieth century: chemicals, pharmaceuticals, electronics, computing etc. It is the manipulation of science and technology usually by their own R&D departments that has provided the foundation for the firms’ growth and success. Unlike the previous classification, these firms tend to be large and would include corporations such as Bayer, Hoechst, ICI, Glaxo Welcome, Siemens, Rhone-Poulenc and 3M.

          The third classification Pavitt refers to as scale-intensive firms, which dominate the manufacturing sector. At the heart of these firms are process technologies. It is their ability to produce high volumes at low cost that is usually their strength. They tend to have capabilities in engineering, design and manufacturing. Many science-based firms are also scale-intensive firms, so it is possible for firms to belong to more than one category. Indeed, the big chemical companies in Europe are a case in point.

          The final classification is specialist equipment suppliers. This group of firms is an important source of technology for scale-intensive and science-based firms. For example, instrumentation manufacturers supply specialist measuring instruments to the chemical industry and the aerospace industry to enable these firms to measure their products and manufacturing activities accurately.

          This useful classification highlights the flows of technology between the various firms. This is an important concept and is referred to in later chapters to help explain the industry life cycle in Chapter 5, the acquisition of technology in Chapter 8, the transfer of technology in Chapter 9 and strategic alliances in Chapter 10.

Organizational Structures and Innovation

          The structure of an organization is defined by Mintzberg (1978) as the sum total of the ways in which it divides its labour into distinct tasks and then achieves co-ordination among them. One of the problems when analyzing organizational structure is recognizing that different groups within an organization behave differently and inter act with different parts of the wider external environment. Hence, there is a tendency to label structure at the level of the organization with little recognition of differences at group or department level. Nonetheless, there have been numerous useful studies exploring the link, between organisational structure and innovative performance.)

          The seminal work by Burns and Stalker (1961) on Scottish electronic organizations looked at the impact of technical change on organisational structures and on systems of social relationships. It suggests that ‘organic’, flexible structures, characterized by the absence of formality and hierarchy, support innovation more effectively than do ‘mechanistic’ structures. The latter are characterized by long chains of command rigid work methods, strict task differentiation, extensive procedures and a well defined hierarchy. Many objections have been raised against this argument, most notably by Child (1973). Nevertheless, flexible rather than mechanistic organisational structures are still seen, especially within the business management literature, as necessary for successful industrial innovation. In general, an organic organization is more adaptable, more openly communicating, more consensual more loosely controlled. As Table 2.4 indicates, the mechanistic organization tends to offer a less suitable environment for managing creativity and the innovation process. The subject of organization structures is also discussed in Chapter 6 in the context of managing new product development teams.

Table: Organizing versus mechanistic organizational structures

Organic	Mechanistic
Channels of communication open with free information flow throughout the organization	Channels of communication  Highly structured, restricted information flow
Open styles allowed to vary freely	Operating styles must be uniform and restricted
Authority for decisions based on the expertise of the individual	Authority for decisions based on formal line management position
Free adaptation by the organization to changing circumstances	Reluctant adaptation with insistence on holding fast to tried and true management principles despite changes in business conditions
Emphasis on getting things done unconstrained by formally laid out procedures	Emphasis on formally laid down procedures. Reliance on tried and true management principles
Loose, informal control with emphasis on norm of co-operation	Tight control  through sophisticated control system
Flexible on job behaviour. Permitted	Constrained on job behaviour required to confirm to job description
Flexible on job behaviour Permitted to be shaped by the requirements of the situation and personality of the individual doing the job	Constrained on job behaviour required to conform to job description
Participation and group consensus used  frequently	Superiors make decisions with minimum consultants and involvement of subordinates

Formalization

          Following Burns and Stalker, there have been a variety of studies examining the relationship between formalization and innovation. There is some evidence of an inverse relationship between formalization and innovation. That is, an increase in formulization procedures will result in a decrease in innovative activity. It is unclear, however, whether a decrease in procedures and rules would lead to an increase in innovation.) Moreover, as was argued above, organizational planning and routines are necessary for achieving efficiencies.

Complexity

          The term complexity here refers to the complexity of the organization. In particular, it refers to the number of professional groups or diversity of specialists within the organization. For example, a university, hospital or science based manufacturing company would represent a complex organization. This is because within these organizations there are several professional groups. In the case of a hospital, nurses, doctors and a wide range of specialists represent the different areas of medicine. This contrasts sharply with an equally large organization that is, for example, in the distribution industry. The management of supplying goods all over the country will be complex indeed; but it will not involve the management of a wide range of highly qualified professional groups.

Centralization

          Centralization refers to the decision-making activity and the location of power within an organization. The more decentralized an organization the fewer levels of hierarchy usually required. This tends to lead to more responsive decision making closer to the action.

Organizational size

          Size is a proxy variable for more meaningful dimensions such as economic and organizational resources, including number of employees and scale of operation. Below a certain size, however, there is a major qualitative difference. A small business with fewer than 20 employees differs significantly in terms of resources from an organization on with 200 or 2000 employees.

The Role of the individual in the innovation process

          The innovation literature has consistently acknowledged the importance of the role of the individual within the industrial technological innovation process. (Rothwell et al., 1974; Szakastis et al., 1974; Langrish et a!,, 1972; Schock, 1974; Utterback, 1975; Rothwell, 1976). Furthermore, a variety of key roles have developed from the literature stressing particular qualities (see Table 2.4). Rubenstien et al. (1976) went further, arguing that the innovation process is essentially a people process and that organizational structure, formal decision-making processes, delegation of authority and other formal aspects of a so-called well-run company are not necessary conditions for successful technological innovation. Their studies revealed that certain individuals had fulfilled a variety of roles (often informal) that had contributed to successful technological innovation.
In a study of biotechnology firms, Sheene (1991) explains that it is part of a scientist’s professional obligation to keep up to date with the literature. This is achieved by extensive scanning of the literature. However, she identified feelings of guilt associated with browsing in the library by some scientists. This was apparently due to a fear that some senior managers might not see this as a constructive use of their time. Many other studies have also shown that the role of the individual is critical in the innovation process (Allen and Cohen, 1969; Allen, 1977; Tushman, 1977; Burgelman, 1983).

Table: Key individual roles within the innovation process

Key individual	Role
Technical Innovator	Expert in one or two fields. Generates new ideas and sees new and different ways of doing things. Also referred to as the mad scientist.
Technical / Commercial Scanner	Acquires vast accounts of information from outside the organization, often through networking. This may include market and technical information.
Gate keeper	Keeps informed of related developments that occur outside the organization through journals, conferences, colleagues and other companies. Passes information on to others, finds it easy to talk to colleagues. Serves as an information resource for others in the organization
Product Champion	Sells new ideas to others in the organization. Acquires resources. Aggressive in championing his or her causes.  Takes risk
Project leader	Provides the team with leadership and motivation. Plans and organizes the project. Ensures that administrative requirements are met. Provides necessary co-ordination among team members. Sees that the project moves forward effectively. Balances project goals with organizational needs.
Sponsor	Provides access to a power base within the organization: a senior person. Buffers the project team from unnecessary organizational constraints. Helps the project team to get what it needs from other parts of the organization. Provides legitimacy and organizational confidence in the project.

Establishing an innovative environment and propagating this virtuous circle

          This chapter has highlighted the role of the organizational environment in the innovation process. It has also shown how many different factors influence this environment. Given the importance of innovation, many businesses have spent enormous sums of money trying to develop an environment that fosters innovation. Each year Fortune produces a list of the most innovative companies in the US. For the past few years the following companies have finished at or near the top: 3M, Rubbermaid, Merck and Motorola (Fortune, 1994) Developing a xepust1on for innovation helps propagate a virtuous circle that reinforces a cotpaiijt&abi1iucs (see Figure 2 5)

          The concept of a virtuous circle of innovation can be viewed as a pacific example of Michael Porter’s (1985) notion of competitive advantage, Porter argued that those companies who are aiming to achieve competitive advantage that is, above-average performance in an industry sector are able to reinvest additional profit into the activities that spawned the advantage in the first place , thus creating a virtuous  circle of improvement, or so-called competitive advantage.

Reputation of the organization

          The reputation of a company for innovation cakes many years to develop. ft is also strongly linked to overall performance. However, within a election of successful companies there will inevitably be some that are regarded as more innovative than others. This may be due to factors, including recent product launches; recent successful programmes of research; high levels of expenditure on R&D. Depending on topical media events at the time, some companies al to achieve wide exposure of new products or new research. Such exposure is often dependent on effective publicity but also serendipity.

reputation for innovation

Promoting VW’s reputation for innovation

          In 1993 fo4kwing several environmental disasters, the Volkswagen Audi Group benefited from an enormous amount of publicity concerning the new engine gearbox system that it had recently developed. This Ecomatic system was of particular interest to the media because of its reduced system switched the engine off never the driver took his I or her foot off the accelerator. For example, in a queue of traffic or when going down hill the engine would switch off. The engine restarted when the accelerator was The Ecomatic promised to slash fuel bills by a quartet: Clear to this new technology was interesting, in its own right and would have switch off. The engine restarted when the accelerated was depressed. The ecomatic promised to slash fuel bills by a quarter. Clearly this new technology was interesting in its own right and would have gained coverage in the motoring pages. However, it gained additional coverage all over Europe due to the environmental debates at the time.

Attraction of creative people

          Creative people will be attracted to those companies that themselves are viewed as creative much the same way as undergraduates apply for positions of em1öiknt with those companies view successful top will seek employment from those companies which have a reputation for innovation and scientific excellence (Jones, 1992).

Organization encourages creativity

          Many organizations pay lip service to creativity without putting in place any structures or plans to encourage innovation. It has to be supported with actions and resources. The organization has to provide people the
can be in a formalized way, as used in much of the chemical industry. For example, 15 percent scientist’s time may be dedicated to projects of personal interest. Alternatively, organizations can try to build sufficient slack into the system to allow for creative thinking (see above).

          In addition, the organization should try to build an environment that tolerates errors and mistakes. This will encourage people to try new ideas and put mistakes. This will encourage new ideas need to be rewarded in terms of publicity for the people involved. This is usually most easily achieved through internal newsletters or company magazine. In addition, financial rewards - promotions, gifts or holidays-may be offered.

         

          Some organization also use creativity-stimulation techniques such as a weekend away at a country retreat to discuss new ways of working, new ideas, etc. These activities collectively will help send a clear message that the organization is serious about innovation.

Development of innovative products

          This does not mean the ability to develop products incorporating the latest technology, although this may be an output. It means developing new products that are genuine improvements compared to products currently available. Moreover, it is success in the marketplace that  very often leads to further success.

A willingness to accept new ideas

          Many organizations suffer from an inability to implement changes and new ideas, even after rewarding the people involved in developing the new idea. Once a new product idea has been accepted it is important that it is carried through to completion.

Increased motivation and reduced frustration

          If individuals within the organization can see their ideas and efforts contribute to the performance of the business, they will he encouraged still further. On the other hand, if seemingly good ideas are constantly overlooked, this will lead to increased frustration.

High morale and retention of creative people

          All of the proceeding activities will help contribute to increased morale within the organization. A rewarding and enjoyable working environment will help to retain creative people. This in turn should reinforce the company’s innovative capabilities.

The birth of a new business from within ICI

          This case study describes how a new business was formed from within an old established business. It highlights the important role of senior managers in the innovation process and how a business proposal was accepted not least because it matched the company’s longer- term strategy.

Introduction
          This case study tells part of the story of ICI’s overall strategy to move away from the bulk chemicals business into new specialty, lower-volume businesses that offer greater opportunity to add value. The sale of its fertilizers business to Terra Industries, Iowa, represented a complete transformation for the company that was founded in 1926 with fertilizers as one of its core businesses (Financial Times, 1997). ICl’s decision to purchase Unilever’s specialist chemicals business for £4.9-billion was the final piece in the jigsaw (Financial Times, 1997).

          At the same time as the results of the European elections were announced, a group of senior managers were looking at a new business proposal that had been delivered from a group of managers from the Chlor-Chemicals business. This proposal had taken almost a year to produce and the managers had invested many hours rechecking their figures and adding flesh to the bones of the original concept. As they walked away from the conference room, where they had just delivered their presentation, the three of them smiled nervously at one another. No one uttered a sound but they were content that the presentation had gone well. They hoped the directors and senior managers they had just left would agree with them and invest the £50 million required for this new venture.

Gathering support for a business idea

          In 1988 a study group within ICI was looking at the public health market. It was considering opportunities in water treatment and was interested in the possibility of offering solutions to problems rather than simply chemical treatments. This study group identified a latent market need for water treatment, especially in the area of sewerage treatment prior to discharge and the much wider area of treating water for domestic and industrial use. The concept of a business developed from a combine is report and the realization that ICI had a number of related areas of technical competence within its group of businesses.

          Indeed, over the previous year much of the efforts of the three strong new business group had been directed towards identifying areas of CI that sell their separate wares to the water industry. This group had identified 17 separate parts (lCl, 1993). Thus, the concept of a new business was born by combining this market opportunity with internal technical capabilities.

          The thrust of the idea was to establish a new business focused on the needs of the water treatment market, in particular all those businesses that use water within their manufacturing operations. The concept was developed further through discussions with business managers and scientists within a range of 101 businesses. These discussions led to the uncovering of a collection of research projects that were being undertaken throughout the ICI group on a variety of water treatment type products. Hence, the new business group was beginning to build support within the company for a business based on in-house technology and products to serve the growing market of waste treatment. Further discussions revealed that within this area of science, technology existed in other external companies and universities. The combination of internal know how and external technology would provide the technological uniqueness that ICI sought in order to compete and build a business that offered the potential for high added-value products and services.

Long-term corporate strategy

          in order to compete in today’s highly competitive markets, companies do not only have to be efficient and competent in what they do. They have to offer uniqueness, whether this is in the form of service benefits or technical attributes or more usually a combination of these.

          Furthermore, CI Chemicals and Polymers has a long-term strategy of developing and building high added-value businesses. Essentially, this means a move away from the traditional business activities of the company’s past that had focused on large-scale production of commodity chemical products such as chlorine and solvents. These were now regarded as ‘low-technolo9y’ products and competition was focused on price, with little if any room for differentiating one product from the competition. Many smaller chemical companies all over the world were able to manufacture these commodity chemicals under licence from one of the multinational chemical companies. 101’s strategy was to search for business opportunities where the company could build a business around a product that could be differentiated from the competition and would provide the opportunity to add value.

          Two of the most common ways of developing added-value businesses are through unique technology, ideally protected through patents, and branding. This is where a company attempts to differentiate its product from that of the competition through influencing perceptions and is more common in consumer than industrial markets.

The business concept - technology products and markets

          Initial discussions were positive and a further opportunity emerged. Not only were these manufacturing businesses interested in treating their waste 4iaec’prior to discharge, but during discussions with ICI scientists it became obvious that manufacturing operations that used water could be improved if the water was treated before use; ICI technologists had discovered that ICI could improve the water used prior to use and after use (see Figure 2.6).

          Additional factors were being uncovered that seemed to support the reasoning behind the new business idea. In particular, the manufacturing environment was changing and most analysts agreed that environmental legislation would probably become ever tougher. Increased participation with Europe would also probably mean a more forceful environmental lobby. There was a growing consensus in several ICI businesses that a wide range of manufacturers were concerned that legislation may force changes on their operations. Moreover, consumer companies such as Marks and Spencer and McDonald’s, which pride themselves on excellent customer relations, were demanding tougher, greener’ ways of working from their suppliers. Many small manufacturers which supplied these large organizations with packaging, foodstuffs, paper etc. were expressing concern that they would lose vital business if they failed impending inspections of their operations from these major customers.

          An opportunity was clearly emerging for a business that could offer to manufacturing businesses, not just in the UK but around the world, a complete service that focused on how they deal with the water they use during their operations. In particular, this would include technical advice and products to improve and treat the water, at both the input stage to improve operations and at the output stage prior to discharge of waste water.

          To be successful in this market any business offering products and services would need credibility and would also need to be technology literate, to be seen as knowledgeable in the field. ICI had this credibility due to its long association with the water industry built up over 60 years of providing chlorine. In addition, it is also recognized as a serious player in the field of science and technology, largely through its heritage of investing in technology, research and development in particular.

The new Watercare business

          It was unusual for a new business in ICI to start life without any assets. This s because lCl has been built on the manufacture of chemicals and businesses usually start with building a new chemical plant to manufacture a new product. The Watercare business, as it was christened, started with no assets of its own but acted as a channel to the water treatment market. It took over a sales portfolio of existing chemicals, essentially chlorine-based products for the water industry. This provided the business with a small but steady income that it would use to meet its running costs. In addition, the products provided the business - with channe’s into the marketplace where they could better understand consumer needs. Funding for the development of new products would be provided by central R&D funds. The intent was to add value to the existing offerings through formulation and packaging, providing complete treatment systems. From the outset the business maintained that, as one of the worlds major scientific groups, lCl had the resources and unrivalled expertise in the formulation, manufacture and distribution of specialist water treatment products worldwide to be successful in this market (Id, 1993).

          Within the first two years of operating several new products had been developed. One of these, called Coastguard, was developed for North West Water. This was essentially a treatment process for breaking down solids in sewerage. There were already chemical products that performed this function, but this was specifically for previously untreated sewage that was discharged away from the shore. Another product was developed for the electricity generating industry which required help with treatment of water within cooling towers.

          A product was also developed for the treatment of water at the input stage of operations of a major brewer in the UK. Following extensive research and trials with the brewer, the Watercare business was able to offer a water treatment system that improved the efficiency of the brewing process through reducing costs later in the operation.

Discussion
          This case demonstrates some of the internal processes involved in transforming an idea into a business, especially the role played by internal and external technical and commercial knowledge in developing a genuine business opportunity. It is a good example of how large companies build new businesses and highlights the role played by individuals within the organization, in particular the process of generating support for an idea. This form of gathering support and building consensus is very common in large organizations. It is extremely rare for a single person to generate the idea for a business and then become leader of that business. It usually involves many different people with a variety of skills and capabilities, who together push the idea and transform it into a business opportunity. However, many business opportunities are also rejected by senior managers at the final stages, for a wide range of reasons.

Chapter summary

          Before the Industrial Revolution many innovations were the result of lone inventors and entrepreneurs. Today the situation is very different. The over whelming majority of innovations come from organizations and this was the focus of this chapter In particular, it explored the organizational environment and the activities performed within it that are necessary for innovation to occur. These, of course, are dependent on the extent to which an organization recognizes the need for and encourages innovation.

          All organizations have to manage the dilemma of innovation. It is not something that can be removed; it will always be present. Successful companies, however, are able to manage this dilemma. It was shown that successful companies also need to be able to manage uncertainty. In addition, several roles were identified as necessary for innovation to occur and it was stressed that these are often performed by key indviduals.