Role of Innovation in the Organization

Role of Innovation in the Organization

Innovation is a significant factor for the organization to achieve the competitive advantage. The organization which brings innovation in its processes is able to stay alive in the long run. Elements of innovation such as resources and skills, motivation and empowerment of employees, and proper training help to bring out innovative and quality products. In the present environment, innovation is one of the fundamental aspects of the organizational policy for its development and growth. The ability to innovate is considered as one key success factor for the survival and performance of the organization. In fact, it is recognized as one of the main pillars and an important driving force of the competitiveness of the organization. The implementation of innovation positively affects the financial performance of the organization.

Present day environment is characterized by high volatility, uncertainty and risk, and to make the organization survive in such an environment, it is necessary to continually invest in research and development (R&D) and innovation activities. The innovative organization aims to combine its existing resources and capabilities and use them in new and best possible ways. Innovation is something which is related to the concept of the management which seeks always to observe changes, respond to them and accept a high level of risk, and use that as an option in the operations. Innovative organization is precisely the one which has the ability and the necessary financial resources to implement innovations.

Innovation refers to the commercial implementation of the best ideas, work methods and even operation models for the organization, thus becoming the most important component of the long-term economic growth engine. It is a process, which is like any other process necessary to manage it the right way. This is where the role of managers at all levels and their ability to create and optimize the balance between all the innovative activities with other activities of the organization. However, the effects of innovation are difficult to quantify due to the long period of time to convert knowledge in economic value, due to the substantial costs, and the uncertainty which characterizes each stage of the innovation process.

Innovation is the leading force of competitiveness, of growth, of profitability and of the creation of durable values in the organization. Although it can easily be included in the product or technology development category, it refers to a fundamental challenge for the entire organization. It is a continuous process. It is one of the greatest opportunities for the employees to leave their mark on the organization, to take fundamental endeavours based on the deep understanding of the opportunities presented by the market and the customers’ needs, to overcome the functional role and to collaborate, so that to be close to the strategic challenges and opportunities, with a long-lasting effect.

A series of fundamental sources for innovation have been identified. Putting to good value of these sources supports the organization in overcoming the traditional conceptions and exploring new approaches to quickly and efficiently transform favourable opportunities into reality. These fundamental sources are (i) surprise which is generated by an unexpected success or failure, (ii) discrepancies which occur when things do not fit under generally accepted opinion, (iii) despondency  when a better solution is imperatively necessary, (iv) obsolete facilities or activities awaiting a change, (v) process and structural changes, (vi) changes in attitude such as changes in customer expectations and perceptions, and (vii) discoveries which take place when new knowledge and capacities offer favourable opportunities.

Innovation helps the organization to shape the market, renewing the customer needs, the channels of communication and the rules by which they act. Also, market renewing cannot take place only at strategic level but also at tactic level, creating the adequate context, attitudes, infrastructure and appetite in order to ensure the competitive and commercial success of the best ideas.

Innovation can be defined as a set of activities undertaken by the organization, which is the source for new products or production processes. Organizational development is mainly related to the existence of innovation. Innovation is the commercialization of new ideas and converting it into a specific product, process or service. Innovation is considered as the exploration of new ideas successfully. It comprises new technologies or technological applications, better products and services, new production processes or even more efficient and cleaner processes and new operating models.

The management of innovation is complex, shows strong interdisciplinary characteristics, and permeates several functional activities. The organization which implements innovations in order to improve its processes and differentiate its products / services is considerably ahead of its competition in terms of market share, profitability, organizational growth, and net income. A typical model for the innovation implementation is shown in Fig 1.

Fig 1 Model for innovative management

Innovation has evolved over a period of time to become a new organizational function. The role of innovation is pivotal for organizational performance as it can provide the organization with a sustainable competitive advantage and contribute to its long-term success. Managing both successfully and resourcefully innovation activities constitutes a difficult task in the sense that a number of intra- organizational parameters are to be taken into account in order to ensure innovation success along with organizational effectiveness. As a result, the need to view innovation as a management process within the context of the organization arises.

For tackling the difficult issue of managing innovation within the organization, it is necessary to understand the strategies as well as the patterns of interactions and behaviours which represent the organization. A number of internal parameters critical for innovation success are (i) role of organizational structure for innovation success, (ii) impact of intra-organizational relationships on innovation, (iii) use of various knowledge management strategies, (iv) integration of customer knowledge to innovation efforts, (v) role of management in product innovation success, (vi) how inter organization collaboration and networks can contribute to innovation success, and (vii) various benefits which can be reaped from innovation activities. A systematic approach to innovation is shown in Fig 2.

Fig 2 Systematic approach to innovation

Some classic innovation process models are available for practicing of innovation management. One of them is the DNA model which deals specifically with the challenge of organizing and managing radical innovation. The model consists of three macro phases namely (i) discovery, (ii) incubation (to isolate the discoveries from daily pressures until they gain enough potential), and (iii) acceleration (when the discovery acquires the status of a new product or process). Each one is associated with a specific capability to be built into the organization. The DNA model is established under a set of organizational elements, necessary for a sustainable innovation management namely (i) mandate and responsibilities, (ii) structure and processes, (iii) resources and skills, (iv) leadership and governance, and (v) metrics and rewards.

Contingency theory for innovation

Contingency theory of innovation revolves around organizational structures and strategic actions. The principal framework of this theory relates to the task environment to organizational characteristics or to the strategic management. Contingency theory states that there is not any best way to act, and that any one way of acting is not equally effective under all circumstances. This theory suggests that there is not any universally optimal approach to management. On this basis, the appropriate organizational structure, strategies, and management style depend on a set of contingent and dynamic factors.

The ‘fit-as-mediation’ view which is being put forward says that management chooses organizational structures, processes, and strategies which reflect the dynamic circumstances of the organization. Since the organization is essentially an ‘information-processing network’, the objective of the organizational design is to ‘achieve an efficient correspondence between the information-processing requirements of its strategic contingencies and the information-processing capabilities of its integration mechanisms’. For example, the need for inter-functional collaboration during innovation needs higher resource inter-dependency and enhanced information-processing capability to manage the acquired knowledge. Thus, increased collaboration represents a critical contingent factor of innovation and the organization is required to provide structural mechanisms to put such willingness into action.

Moreover, the transfer and flow of knowledge among inter-dependent departments is frequently vague and uncertain because of the diversity of functional information, backgrounds, and thought worlds of the innovation personnel. As a result, increasing knowledge exchange during innovation within the organization is dependent on strategic collaboration among functions which dictates the type and degree of integration mechanisms adopted to disseminate knowledge across the organization. In fact, the higher the fit between existing organizational structure and processes and innovation strategy, the higher is the odds for innovation success. For these reasons, it is obvious why intra-organizational environment is to be thoroughly examined before selecting and implementing any innovation management strategies.

Important aspects of innovation management

Innovation management is a key parameter of success for the organization, since it deals with several issues raised during any development process in the organization. While management in general involves coping with uncertainty, sometimes trying to reduce uncertainty, the most important reason of managers involved in innovation is to lead with the aim of developing something different and innovative. Hence, the management of the innovation processes needs the effective collaboration between different functions.

Management of the innovation projects involves a series of inter-actions among different functional departments as well as the use of different management strategies. When it comes to manage innovation initiatives, three important issues are primarily to be taken into account. The first one is related to the high amount of uncertainty which is inherently present with the innovation efforts. Hence, management of the uncertainty is a central aspect of the new development activity since it affects the innovation outcomes. Second, maintaining a sustainable competitive advantage not only needs the achievement of higher organizational effectiveness but also the enhancement of organizational learning. As a result, promoting resource allocation efficiency and improving employees’ knowledge, skills, and abilities are two interdependent objectives of the development process. Third, creating value for the customers is to be a key objective of any innovation initiative and, hence, capturing customer needs and emerging market trends during the development activity enables innovation success

Managing of uncertainty during innovation

Innovation activities have built in higher levels of uncertainty and complexity, since the development of new ideas and solution is frequently an unstructured and unclear process which needs creativity and out-of-the box thinking. Uncertainty results from the fact that, on the one hand, all the necessary informations are rarely available, and, on the other hand, knowing about the future is always incomplete. Various types of uncertainties (Fig 3) can exist during the innovation process such as technological uncertainty, managerial uncertainty, organizational uncertainty, market uncertainty, and regulatory uncertainty. Dealing with these types of uncertainties remains a key issue in innovation management in order to improve the chances for success.

Fig 3 Types of uncertainties during innovation

Technological uncertainty personnel involved on innovation encounter technological uncertainty, both in product specifications and production processes. The uncertainty related to product specification is dependent on the newness of the technology while production process uncertainty refers to a diverse collection of processes, techniques, and knowledge which are used to produce products and services. Technology also produces uncertainty associated with the skills and knowledge needed to succeed in using new technology.

Managerial uncertainty – Managing innovations differs from managing routine activities. Routine activities normally imply high level of standardization and stability whereas innovation needs autonomy, unstructured activities, and creative thinking. In practice, there can be managerial uncertainties around the composition of the team for innovation, the needed resources and competencies, the management of relationships with the rest of the organization and co-operation with other team members. Hence, it can be said that managing innovations challenges the traditional way of thinking and needs effective leadership on behalf of the team leader.

Organizational uncertainty – The innovation process does not occur in a vacuum, but instead social interactions among different stakeholders and innovation personnel with different background, various viewpoints, and frequently conflicting priorities take place. These interactions are a significant source of uncertainty, as the diversity of interests amongst members of the organization comes into open. Equally important, most decisions relating to the development of innovation take place under high levels of uncertainty and complexity. Although decisions can be improved with more effective information exchange and use, they are frequently influenced by political struggling, battles for resources, and subjective value judgements between different functions or departmental representatives who promote their own agenda. Hence, managing innovation projects is frequently beholden to political struggling and can prove a hard task to achieve.

Market uncertainty – The idea of innovation implies that it serves the needs of a specific target market. The market environment for innovation includes the needs of customers, the actions of the competitors, and the prices of substitutive products. The uncertainty regarding the demand for the innovation, the unknown behaviour the consumer and the hidden customer needs are recognized as the main sources of uncertainty caused by the market.

Regulatory uncertainty – Regulatory provisions play an important role in innovations. An unclear regulatory environment creates fields of opportunity in which the innovators can create their own rules. On the contrary, a highly regulated environment for innovation consists of laws and regulations which have been developed in order to constrain and / or enable innovation activities. Constraining regulations are typical in settings like environment, safety, or health. Enabling regulations refer to legislation which supports the innovation processes and can relate to intellectual property rights that promote the fair sharing of benefits which arise from the development of a given innovation. One type of uncertainty in the innovation process relates to the issue of whether the developed concept qualifies for intellectual property protection, such as a patent or trade mark. On the other hand, regulatory provisions can have detrimental side effects on the innovation process, as changes in the regulatory provisions are seen as factors that increase environmental complexity and turbulence, which, in turn, increases innovation uncertainty.

Achievement of both organizational effectiveness and organizational learning

Within the organizations, there is normally a fundamental tension between the need for stability and the need for creativity. On the one hand, the organization is required to maintain some level of stability as well as to develop standardized processes with the aim of accomplishing daily tasks in a more efficient manner. On the other hand, the organization also requires to innovate and to develop new ideas and service offerings in order to remain competitive within an increasingly turbulent present day environment. The success and survival of the organization is driven from its capability to innovate, as several short-term (e.g. market success) and long-term benefits (e.g. sustainable competitive advantage) can be achieved through developing new and innovative products. However, to identify and achieve concurrently multiple objectives is frequently not easy.

For example, due to resource constraints or other intra-organizational contingencies, serving incompatible priorities such as aiming at both cost efficiency as well as enhancing the organizational knowledge base is hard to be achieved. The concurrent achievement of these complementary objectives poses one of the most fundamental issues for innovation management today. Without this emphasis on cost reductions, the organizational costs simply spiral upwards and the products and services of the organization become uncompetitive. On the other hand, organizational learning is a basis for gaining a sustainable competitive advantage and a key variable in the improvement of the performance of the organization.

The organization, which is able to learn, stands a better chance of sensing events and trends in the marketplace. As a result, the learning organization is normally more flexible and faster to respond to new challenges than competitors which enable it to maintain long-term competitive advantage. In addition, if the organization does not make room for creativity and innovation it is more likely that its competitors outperform it. Hence, there is the dilemma. On one hand the organization is to maximize resource efficiency, while on the other hand, it is also to expand the organizational knowledge base. As normal with dilemmas, the answer is difficult and has to do with balancing activities and strategic orientations. The organization requires ensuring a constant pressure to improve effectiveness in its operations while at the same time it requires to provide room for new development and nurture a learning orientation. The organization which has the capabilities to achieve an optimized mix between these two orientations has more chances to remain successful.

Creating value for customers

Earlier, organizations have been mostly concerned with productivity gains through passing on tasks from the organization to the consumer and focus on developing innovative products / services using their own capabilities. Traditionally, innovation was a job exclusively for the R&D department of the organization. The R&D employees were triggered by technology without frequently having adequate knowledge of the external market. The need for monitoring customer preferences and emerging market trends as well as the introduction of online platforms has led to a wider range of interaction possibilities between consumers and manufacturers. Around 1990s, a shift to a more active participation of the customers to the innovation process has begun with the customers being considered as key contributors to innovation success and with the organizations realizing that the customers’ participation in various innovation stages improves the odds of success and promotes the innovativeness of the new offerings.

Contemporary consumers are involved in the product development process of the organizations with the aim of creating products with higher value which can better satisfy their individual needs. The current innovation process acknowledges the importance of integrating customer knowledge during new product development and relies increasingly on the contribution of costumers’ ideas, insights and knowledge particularly during the earlier innovation stages. Customers are seen as an important and valuable source of product innovation. The inclusion of customers in new product development is becoming a trend in the present environment and is frequently referred to as ‘customer co-creation’.

Organizations normally aim to discover customers’ ideas, comments and knowledge which can help them to develop and commercialize new product concepts. Co-creating new products with customers’ participation can provide the organization with a competitive advantage since not only it is able to meet customer needs more successfully but also can improve customers’ perceived value by setting as co-creators of new products and services.

Success in innovation and the organizational characteristics

The existing structure of the organization can clearly influence the way new products are developed. Since the success in innovation needs high cooperation among different functions, the extent to which the inter-functional development teams are used, is positively associated with innovation success. Also, given the dominant role of Information Technology (IT) for monitoring customer needs and ensuring effective information exchanges, integrating IT systems during development efforts can significantly contribute to the innovation success. Further, the organizational structure also affects innovation activities, as different structural characteristics can improve or restrain innovation.

Management of Inter-functional development teams

The innovation process is a multi-disciplinary process which needs interaction and close collaboration of different organizational functions. For example, employees from the operation, marketing, and finance departments can be the part of an inter-functional development team for a new development. Inter-functional integration refers to the degree to which employees between different functions cooperate in conducting specific innovation tasks and reflects the recognition by functional units of their interdependence and their need to cooperate for the benefit of the organization. The need for inter-functional cooperation originates from the complex inter-dependencies amongst the members of functional groups working together in the development teams and greater inter-dependence needs a greater cooperation effort. Indeed, the organizations with best practices in innovation tend to employ inter-functional integration more extensively.

Successful management of the integration of employees from different functions during innovation efforts becomes substantial as innovation activities create high task inter-dependencies and need intense information exchanges. Inter-functional teams tend to be more effective when they have a shared or common objective and show greater integration, since without it, each function develops its own perceptions and ‘thought processes’, which lead to interpretive barriers among them during the innovation process. Their use also facilitates the dissemination of new market and customer information among different functions, thus offering significant advantage for the innovation process e.g. increasing communication frequency and information flow in the organization. Also, information exchange within inter-functional teams helps employees to achieve a shared understanding about the new development and enhances consistency among decision-making throughout the process. Further, the use of inter-functional development teams can lead to a more effective and more efficient use of resources, as it can reduce coordination problems between different organizational units in the innovation pipeline. On the contrary, the lack of inter-functional collaboration hinders the diffusion of new knowledge produced during innovation processes, undermining the extension of the organizational knowledge base and the effective use of organizational resources.

Use of IT for innovation success

The adoption of organization-wide IT in the organization is normally done with the aim of improving the organizational effectiveness as well as enhancing the innovation capabilities. This offers some significant advantages to the organization. The principal benefits which arise due to the integration of IT to innovation initiatives are linked to gains in the efficiency and effectiveness of the process coupled with more accurate and timely information. Some of the benefits of using IT during innovation are (i) more efficient innovation sharing and use as well as reduction of costs to several procedures, (ii) better monitoring and cooperation between functions and different departments, (iii) modification and adaptation abilities accordingly to the requirements, (iv) more competitive and efficient capabilities, (v) better decision support, and (vi) active technology support and friendly environment.

However, there are negative impacts also of IT on the innovative capability of the organization. For example, in some highly creative working environments, where previously autonomous and creative minds have been free to explore, employees are now being restricted to what’s on offer via ‘pull-down’ menus. In fact, the use of highly formalized IT infrastructure can reduce the richness of information content and increase information overload when informal communication processes get increasingly replaced by the standardized data exchanges. In addition, integrating IT to innovation activities does not easily fit in the organization and frequently needs a reconfiguration of the existing processes and routines.

Structural characteristics

The question as to which organizational structures are more supportive to innovation has been under debate for several years. Some people argue that the environment in which the organization operates determines the optimal structure of the organization. These people consider two types of structure at the opposite ends of a spectrum which ranges from organic to mechanistic and suggest that the organic form work best when the external environment is dynamic, turbulent or hostile. Within more turbulent, complex and uncertain environments, static organizational structural framework with rigid division and specialization of the workforce cannot provide the flexibility and agility needed to maintain competitiveness. Organization and communication structures which encourage and make use of experience based learning, open knowledge sharing, and interpersonal interactions (such as project teams, problem solving groups, and informal chats) can contribute positively to the performance of innovative activities.

Normally the innovation is enhanced by organic structures rather than mechanistic ones. Innovation is increased by the use of highly participative structures and empowered cultures. For example, the employees with ideas are made to feel part of the total innovation or at the very least they are to be allowed to follow the progress of the innovation. This builds involvement through ownership and improves attachment and commitment at the organizational level. There is also a strong case here to let the individual lead the innovation project in a total sense from beginning to end. Despite these two different orientations of an organizational structure, a number of other structural characteristics can affect innovation performance.

Formalization – It is the extent to which the organizational policies, job descriptions and rules are explicitly expressed. High levels of formalized innovation activities are associated with decreased creativity and innovativeness. A high degree of formalization can actually lead to reduced innovativeness since the employees are used to behaving in a certain manner. A formalized structure is associated with reduced motivation and job satisfaction as well as a slower pace of decision making. The organization with high level of formalization is mainly susceptible to the issues associated with it, since the employees cannot deviate from the designated process, but the answer to a problem is normally not specified in any procedural guidelines or rulebook. On the other hand, some amount of formalization is needed, as formal planning facilitates the clear sense of direction which is necessary for the competitive success of the organization.

Centralization – It refers to the decision-making activity and the location of power within the organization. The more decentralized is the organization, the fewer are the levels of hierarchy which are normally needed. This tends to lead to more responsive decision making closer to the action. Decentralized structures are more responsive to a changing marketplace, given that they remain more flexible. A decentralized approach is more efficient during innovation since not everything has to be reported to the senior levels the organization which results in saving of time and money.

A decentralized approach inevitably produces more conflicts than centrally managed innovations do and as a result partners are unable to align strategically and coordinated development activity falters. On the other hand, a centralized approach can resolve conflicts in the network and coordinate all the activities which are necessary for successful innovation. All partners are tied to top management which controls the innovation. The control leads to a more common understanding and shared principles about the various tasks of an innovation project. A centralized organization has the structural capacity to facilitate interactions between the partners in the innovation network.

Organizational size – it 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 organization with fewer than 20 employees differs significantly in terms of resource needs from an organization with thousands of employees. Large organizations are more inclined to innovate since they are better able to finance R&D internally and to reap the rewards from innovation. Also, the scale of economies in R&D can be easier achieved, in that it can take the organization of a certain size to be able to finance a particular R&D project, or since returns from R&D are higher if the innovator has a large volume of sales over which to spread the fixed cost of an innovation. Larger organizations can diversify the risks of performing R&D by maintaining a diversified portfolio of innovation projects. Further, large organization can be in a better position to exploit the results of its innovative efforts.

Some counter arguments to those in favour of large organizations being the most efficient innovators are also there. The organization already in possession of high market share can be less motivated to innovate since it feels less threatened by rivals, or since the sale of new products can be at the expense of the sale of existing products. Given that in large organization, there are more employees involved in decisions and there is a longer chain of command, there can be a managerial coordination inefficiency and loss of flexibility. Also, organization can become bureaucratic as it grows large and employees can be less motivated in innovating as they do not have as much personal benefit from their efforts as do innovators in smaller organization and frequently their ideas get lost in the shuffle in a large organization than in a small organization.

Organizational peculiarities

Apart from the critical role of organizational structure, IT, and the use of inter-functional teams, organizational peculiarities constitute another important parameter of success during innovation. Organizational peculiarities capture organizational processes and routines, conditions and contingencies which characterize the internal environment of the organization and influence its performance. In the case of innovation, two aspects of the internal environment are considered as key determinants of success namely (i) the extent which a market orientation is nurtured within the organization, and (ii) the existence of a culture supportive for innovation.

Promoting a market orientation philosophy – Customer needs and expectations evolve over time and responsiveness to changing market needs frequently calls for the introduction of new products and services. Delivering consistently high quality products and services and responsiveness to changing marketplace needs become important for the success of the organization. Market orientation has been described as the implementation of marketing activities designed to satisfy customer needs better than competitors do and is a cultural orientation which sets customer satisfaction at the centre of the organizational operations with the aim of producing superior value for customers and exceptional performance for the organization. Despite some variability in conceptualizations of market orientation, it typically focuses on three components namely (i) customer focus, (ii) competitor focus, and (iii) inter-functional coordination.

Market orientation is defined in terms of three dimensions namely (i) generation of market information about needs of customers and external environmental factors, (ii) dissemination of the generated information among organizational functions, and (iii) development and implementation of strategies in response to this information. These elements include continuous and systematic information gathering regarding customers and competitors, cross-functional sharing of information and coordination of activities, and responsiveness to changing market needs. Adopting a market orientation is associated with higher organizational performance and profitability, innovation success, and higher organizational learning.

It normally suggested that the importance of market orientation for organizational performance depends on the environmental conditions. Organizations in more competitive and dynamic environments are expected to be more market oriented in order to act proactively to constantly changing environmental conditions. On the other hand, the organization with high levels of customer focus has been associated with the creation of me-too products and less radical innovations.

Building a culture supportive for innovation – In the present day environment, the organization is under constant pressure to remain competitive in an increasingly demanding market environment. To meet this challenge, organizational management is to motivate the organization to new levels of innovativeness in everything. A lot can be done by the organizational management to boost the overall innovation. It starts with learning to tap into the creative potential of all the employees and their knowledge about customers, competitors, and processes, and the key is to adopt the right climate in the organization. The formation and development of a culture supportive for innovation also remains a key issue in the organization. As innovation activities cover the entire range of activities necessary to provide value to the customers and a satisfactory return to the organization, a culture or a shared climate is to be shaped and developed within the organization in order to constantly drive the creation of value for customers and innovative service offerings.

Intra-organizational parameters for success of innovation

Because of the present day highly competitive and dynamic environment, the organization is to become more flexible and adaptive. The use of multi-disciplinary inter-functional structures has become an important asset for innovation success and the effective collaboration between employees from different functions remains a key determinant for the success of innovation. In this regards, the importance of interactions and relationships between functions and team members during innovation initiatives need to be further looked into such as (i) role of internal team dynamics is to be addressed, as the amount and the type of conflicts and the climate among team members can affect the performance of the team, (ii) existence of political activity and trust between different departments and functions also remains critical, as innovation employees frequently promote the agenda and the interests of their own department, ignoring the other department needs, (iii) contribution of management for the success of  innovation success is important since their knowledgeability and leadership pattern affect team performance.

Internal group dynamics

Innovation success is highly dependent on relationships between participants from different functional units. This emphasis is understandable since sharing and using information can be more easily achieved when there is a positive internal climate and harmonic interpersonal relationships. Managing successfully innovation teams remains a key priority for the team leaders as high levels of conflicts and mistrust within the development team are considered as the main causes for the poor results in innovation efforts. Conflict constitutes an inevitable and common element in team dynamics during innovation activities, as it is widespread amongst employees when they work together under conditions of high task inter-dependence and uncertainty. In fact, most of the innovation projects have some form of disharmony and thus, dealing with different types of conflict during innovation initiatives is critical.

Relationship conflict involves disagreements based on personal issues which are not related to work and is related to interpersonal incompatibilities amongst the team members including tension, animosity and annoyance among members within a team. Innovation employees experiencing high relationship conflict tend to become preoccupied with activities such as reducing threat and coalition building and feel decreased satisfaction. In general, due to interpersonal tensions and annoyance within innovation teams, trust in exchange relationships is reduced and team members’ comfort in sharing ideas, challenging each other, accepting others’ opinions or offering alternatives are negatively influenced.

Further, task conflict describes disagreement about the work which is being done in the group and exists when there are disagreements among team members about the content of the tasks being performed including differences in viewpoints, ideas and opinions. Task conflict at a moderate level can enhance performance through discussions and debates which improve decision making and the quality of the results and promote learning as well as the development of new and highly creative insights. Moreover, task conflict can prove beneficial for innovation performance in the sense that cognitive disagreements amongst the participants can enhance their understanding of other functions’ needs as well as their willingness to contribute to a more rationalized allocation of resources.

Also, an important aspect of the team performance is the team climate. Performance in innovation teams is not straightforward and teamwork involves social and psychological processes which can influence the generation, evaluation, acceptance and implementation of new ideas. For instance, team members are unlikely to generate and communicate new and unusual ideas if they expect these to be criticized. Rather, a team and organizational environment is needed which allows creative ideas to be openly communicated, fairly evaluated and properly implemented.

Innovation can be encouraged in a team climate where creative ideas are supported, can be presented without fear of reprisal and where team members are focused on achieving both organizational and task objectives. A satisfactory climate supports team members in their search for new strategies by facilitating access to necessary information and by encouraging team members to think creatively and to develop new approaches to known problems. Also, a positive team climate incorporates the provision of sufficient opportunity for team members to experiment with new ideas, thus allowing for phases of individual thought and work which are necessary to better leverage individual creative ability. Hence, creating a harmonic internal team climate can allow the team to be more innovative as a unit or can promote the innovativeness of participants within the team.

 Inter-functional relationships

Since the organization is required to ensure cross-functional cooperation and integration during innovation activities for achieving higher effectiveness and creating more innovative products, considerable attention is to be devoted to the importance of inter-departmental relationships during innovation interactions. Creating and sustaining harmonic relationships between various organizational functions involved in innovation activities help the organization better dealing with political struggling, conflicts, and battles for resources which arise within innovation.

Innovation activities depend to a large extent, on whether the relationships between functions are built on a basis of mutual trust. Very often, performing basic development activities (i.e. information exchange) is highly dependent on the existence of trust, as inter-functional employees who take part in innovation projects which contain trust are more willing to share ideas and relevant information or clarify problems. The importance of the trust during innovation is high since it inherently entails high levels of uncertainty and relies heavily on the integration of employees from different functions. Team members’ perceived trustworthiness can positively influence innovation performance, as it makes it possible that the team members do not mistrust the information or decisions brought forward by the employees of another functional unit. Trust can be a mechanism which reduces conflict levels during innovation whereas the lack of trust causes team members to withhold information and this hinders the processes of knowledge expression, internalization and reflection.

Political activity is also a reality of organizational life and constitutes one of the options for those who wish to influence decision-making. Political activity is fuelled by conditions such as uncertainty about decisions, vagueness about expectations, role stressors and competition for scarce resources, conditions which appear quite frequently in case of an innovation. Intense political struggles can ultimately delay the success of innovation strategies and politicking among departments, aimed at acquiring resources for the own department rather than a fair sharing of resources across departments, can decrease the effectiveness of an innovation strategy. When team participants act as representatives of their own department and promote its interests at the expense of other functions, they can affect the effectiveness of the decision making process due to the lack of effective information exchange between competing functions or due to the distortion of related information.

High levels of political activity can make employees more suspicious of the motives, intentions and prospective actions of their colleagues. Not surprising, though, employees’ willingness to engage in various forms of spontaneous sociability such as sharing useful information during group discussions diminishes and personal agendas are put forward ahead of organizational objectives. In such situation, organizational learning is anticipated to be affected and employees become less motivated to exercise responsible restraint in the use of organizational resources.

Role of management for innovation success

It is well recognized that the organizational management is responsible for the key strategic decisions in the organization. Involvement of management in innovation of represents an important form of organizational commitment for the strategic effort towards innovation. It is positively linked to the performance during innovation initiatives. Engagement of senior employees for innovation is a key organizational resource as their knowhow and understanding are normally of a tacit nature and result from their past engagement in innovation project experiences. There is high value of senior employees particularly in high uncertainty projects, including visioning to guide the innovation program and championing innovation efforts during critical development stages and participating in daily activities directly or indirectly as project reviewers.

The team leaders for innovation projects have role and responsibilities for daily project activities. Their role includes understanding the multi-languages of different departments, dealing with engineering issues, communicating effectively inside the team as well as outside, while guarding the concept, and resolving conflicts. The team leader is to possess the required knowledge of the market and the technology involved in order to add to the success of the innovation project. Another important aspect of the work-role of the team leader is to effectively manage team members and ensure that their actions are aligned with the objectives. The management plays a pivotal role in enhancing or hindering organizational innovation. Some of the major innovation tasks of the management are described below.

Nurture a culture and shape a climate which promotes innovation at all levels – For building a culture of innovation, several employees for innovation activities are required to be identified, trained and encouraged in the organization. In order to build a successful and sustainable culture of innovation, management needs to accomplish two broad tasks. First, leaders need to be acutely aware of the impact of their role model behaviour on innovation team members. The second factor is the ability of leaders to deal with high levels of uncertainty and vagueness as well as stimulate creativity. Innovation cannot be promoted without the ‘out of the box’ thinking, exchange of ideas, and creative thinking. Tolerance of vagueness allows space for risk taking, and exploration of alternative solution spaces which do not always produce results.

Empowerment of participants for innovation – This is one of the most effective ways for the leaders to mobilize the energies of employees to be creative. Combined with leadership support and commitment, empowerment gives employees freedom to take responsibility for innovation. Empowerment in the presence of strong cultures which guide actions and behaviour to produce both motivation and enthusiasm for consistent work towards innovative objectives. Employees themselves are able to devise ways which allow them to innovate and accomplish their tasks. The only serious issue with empowerment occurs when it is provided in the organization which does not have a strong value system capable of driving activities in a unified and aligned manner for the achievement of the organizational objectives.

Defining of risk tolerance – Employees need to know the level of risks that they can take safely. This helps them to define the space within which they are allowed to act in an empowered manner. For instance, employees need to understand how much time they can spend on their favourite projects, and how much effort they need to ensure that their ‘routine’ operations are not affected. They need also to understand the penalties if inefficiencies creep into aspects of their task. In this way, understanding of risk provides clear definition of the priority and space for innovative actions. Without knowing that risk tolerance exists within the organization, employees tend not willing to try and innovate, or to engage in activities which are a departure from tradition.

Clarification of accountability – A very common problem in empowered innovation is that everyone is encouraged to participate in cross-functional process involvement, to an extent that almost everyone loses track of who is accountable for what. The result of this unrestricted and uncontrolled empowerment can be detrimental for the innovation activities. As new processes are put in place then new forms of behavioural guidance is to be provided which is to be accompanied by redefining of individual responsibility.

Provide balanced autonomy – Autonomy is defined as having control over means as well as the ends of one’s work. This concept appears to be one of central importance within innovation activities. There are two types of autonomy namely (i) strategic autonomy, and (ii) operational autonomy. Strategic autonomy is related to freedom to set one’s own agenda. Operational autonomy captures the freedom to attack a problem, once it has been set by the organization, in ways which are determined by the individual self. Operational autonomy encourages a sense of the individual and promotes entrepreneurial spirit. Strategic autonomy is more to do with the level of alignment with organizational goal and objectives. It appears that the organization which is the most innovative emphasizes operational autonomy but retain strategic autonomy for the organizational management. The management appears to specify ultimate goal and objectives to be attained but there after provide freedom to allow individuals to be creative in the ways they achieve the goal and objectives.

Personalized recognition – Rewarding individuals for their contribution to organizational performance is widely used concept. Recognition can take many forms so rewards can be either extrinsic or intrinsic. Extrinsic rewards are associated with benefits like salary increases, bonuses and shares and stock options. Intrinsic rewards are those which are based on internal feelings of accomplishment by the recipient. Innovative organization relies more on personalized intrinsic awards, both for the individuals as well as for the groups. Less innovative organization tends to place almost exclusive emphasis on extrinsic awards. It appears that when the employees are motivated more by intrinsic desires instead of extrinsic desires then there is greater creative thought and action.

However, the extrinsic rewards are to be present at some basic level in order to ensure that employees are at least comfortable with their salary. Beyond the basic salary thresholds it appears that innovation is primarily driven by self-esteem level rather than external monetary rewards. Extrinsic rewards promote competitive behaviours which disrupt workplace relationships, hamper openness and learning, discourage risk-taking, and can effectively undermine interest in work itself. When extrinsic rewards are used, individuals tend to channel their energies in trying to get the extrinsic reward rather than unleash their creative potential.

The role of knowledge management strategies

Knowledge management is crucial for fostering sustainable competitive advantage and remains an issue of high importance for the organizations, since the increasing competition and the vast amount of available information renders it one the most critical organizational strategies. The organization which is aware of its knowledge resources possesses a valuable and unique resource which is difficult to copy. Hence, knowledge management includes all the activities which utilize knowledge to accomplish the organizational objectives in order to face the environmental challenges and maintain a sustainable competitive advantage. Knowledge is normally of two different types consisting of (i) tacit knowledge, and (ii) explicit knowledge. Tacit knowledge is the personal and context-specific knowledge of a person which is bound to the individual and is thus difficult to formalize and communicate. In contrast, explicit knowledge can be codified, stored and disseminated. It is not bound to a person and has mainly the character of data. Based on this classification, there are two different knowledge management strategies for the sharing tacit and explicit knowledge which are codification strategy and personalization strategy respectively.

Codification strategy – A codification strategy has the objective to collect knowledge, store it in databases, and provide the available knowledge in an explicit and codified form. The design of databases, document management and workflow management can be considered as part of this knowledge strategy. The objective of the codification strategy is to transfer, communicate, and exchange knowledge through knowledge networks. As the success of the strategy lies in making large scale people-to-document connections, it is infeasible without the use of IT. However, a codification strategy can increase info overload in the form of large directories of unprocessed documents or unread mails. Given that explicit knowledge is easily imitable and highly mobile, the involuntary transfer of strategic know-how to competitors is also a possibility. Additionally, in fast-changing environment, explicit knowledge has a short shelf-life and rapidly becomes obsolete. More importantly, codified knowledge needs remarkable investments in IT for creating and maintaining repositories, expert systems and web pages.

Personalization strategy – A personalization strategy involves both formal (e.g. project meetings) and informal mechanisms (e.g. short conversations) and results in the sharing of tacit knowledge, which is hard to express, acquire, and store within individuals without direct personal experience. Direct interactions between people, important documents of the organization that provide information about which expertise resides in whom, communities-of-practice, storytelling and setting up shared physical and virtual spaces which motivate. Constructive interactions are common practices related to this strategy.

The focus of this approach is not to store knowledge, but to use IT to help people communicate their knowledge. In this case, knowledge is considered to be closely tied to its owners and conditions are created to ensure its movement between them. Personalization favours the stickiness of knowledge and causal uncertainty in the organization, situations in which knowledge does not easily flow out, and competitors cannot clearly decipher the precise reasons for one’s success or failure. As a result, the risk of imitation is lowered.

Moreover, applying a personalization approach is highly favourable to creativity and is relevant where products and services are customized and innovative solutions need to be delivered fast. However, this strategy also invokes some concerns. First, employees are reluctant to share knowledge with each other due to their fear of losing status and power. This restricts the movement of knowledge even within the organization and necessitates due attention towards social and cultural issues. Second, employee turnover implies loss of valuable and complex tacit knowledge which cannot anyway be captured by codification and this suggests that people retention strategies need to be given due importance, in conjunction with personalization.

Use of knowledge management strategies for innovation – Organizations normally favour the use of either a codification strategy or a personalization strategy. Organizations which rely on solely one strategy or another can miss some of the benefits of their joint implementation, since both the strategies are likely to reinforce each other. While a codification strategy is normally suggested to improve more innovation stage proficiency, the implementation of a personalization strategy remains a key contributor of innovation success. A personalization strategy encourages the accumulation of tacit knowledge whereas a codification strategy favours explicit knowledge, but both strategies are needed for expanding the knowledge base in the organization.

Both the knowledge management strategies have direct impact on the level of task knowledge created within innovation. Both the strategies are anticipated to directly increase organizational learning from innovation efforts because both strategies aim to acquire, capture, and filter knowledge, thereby increasing the amount of knowledge available to the organization.

Integration of customer knowledge for innovation

The present day environment, it is important to integrate customer knowledge within the new product development process. This is of importance because of a number of reasons. Unless the organization understands the hidden customer needs and wants, it is unlikely to deliver higher value to the customers. Further, the ability to proactively collect, analyze, disseminate and act on customer information is expected to provide the organizations with a competitive advantage which remains hard to imitate. Having accurate information about the market trends and customers’ future needs, the risk of a product failure is significantly reduced. Customer knowledge can primarily be incorporated within product development either directly through engaging customers to the development process or indirectly through integrating contact marketing personnel with the innovation project.

Contact marketing personnel engagement to innovation team – Contact marketing personnel are a primary resource since they are in a better position to collect and report customer information which, in turn, can be a basis of new concepts and ideas. They typically have detailed insights in how the current products of the organization satisfy customer needs and can quickly identify areas for improvement and potential pitfalls. Participation of these personnel to innovation initiatives can improve the transfer of important customer intelligence and market information to other team members. This knowledge transfer of valuable information and experiences not only adds to the extent of individual learning of the team members but also augment organizational knowledge due to the diffusion of customer-related knowledge across different organizational functions and levels. Overall, contact marketing personnel become a valuable source of new ideas and a resource in planning how to successfully deliver and implement a package of new core and augmented product.

Normally, the involvement of contact marketing personnel in the innovation process results into the benefits in the development stages when these personnel can define employee training needs, predict customer reactions to promotions, suggest ways of altering technical support processes to increase efficiency and advise on how to best sequence the introduction of the new product.

Within services, contact personnel involvement is even more essential during innovation efforts. Contact personnel integration on service innovation is associated with higher technical quality of the new service, radicalness and service marketability. These personnel frequently have in depth knowledge of how customers judge the quality of a new service and their involvement in the service innovation process has proved beneficial in terms of valuable ideas for new services and process improvements. Contact personnel accumulated knowledge from customers related to service defections can be helpful to improve on service offerings, avoiding service failures and reducing development costs. In addition, the process of delivering market and customer-related knowledge creation captured by contact personnel and connecting it to the knowledge system of the organization can considerably add to the development of new services and can extend existing organizational knowledge base.

Customer participation in product development – Since innovation is necessary for securing and expanding the position of the organization in the market, the organization is required to understand customer preferences and attitudes towards existing and new products. In the present day environment, the organization is to understand the benefits from customer participation in different stages of the innovation process. This integration of customers into the innovation process provides a better understanding of the customers’ product requirements. One of the key reasons which trigger customer integration is the high failure rate of innovative products. Customer integration can reduce this rate since customers know what they want and need and thus guarantee that new products developed accordingly can satisfy the market. At the same time, customers constitute a reliable buyer potential. In addition, a nearly customer integration minimizes the risk of a later change in the product due to customers’ wishes and so prevents an increase in costs and a reduction of profits caused by a delayed market introduction. These recognized positive effects of customer integration have led to the almost general consensus that customer knowledge is an indispensable prerequisite for a successful early innovation phase where it has the biggest impact on the R&D activities.

Equally important is the fact that the involvement of the customer know-how in the development of product innovations prompts a higher degree of product newness, reduces innovation risks, and leads to more precise resource spending. However, growing experience with customer integration has shown that the involvement of customers can entails negative side effects and risks as well, such as dependence on customers or loss of know-how among other unwelcome aspects. The organization which does not select the right customers or fails to find appropriate ways to integrate them does not develop effective product through innovations since they are not attentive to the needs of existing customers. Also, selecting customers who actually contribute to innovation is very challenging in practice, since the organization has no guarantee of finding the right partner, and the negative consequences of a poor collaboration can be significant. Further, sometimes it is seen that customer integration into new product development leads only to incremental improvement solutions of existing products instead of radically new products, since customers are notoriously lacking in foresight.

Strategic alliances and networks during innovation

In the present day environment of increased competition as well as relative lack of resources to develop new products, several organizations have started to share their resources and expertise to develop new product with the aim of achieving economies of scale and gaining access to new technology and markets. For many organizations the thought of sharing ideas and technology in particular with another organization is precisely what they have been trying to avoid doing since their conception, due to the lack of trust to other collaborative partners. However, as the cost of building and sustaining the necessary technical expertise and specialized equipment is rising dramatically, even the large organizations cannot maintain since they lack sufficient technical capabilities to adapt to fast-paced market dynamics. Intensified competition, shortening product life cycles, and soaring R&D costs render strategic alliances an attractive alternative for the organizations.

Strategic alliances provide an opportunity for both large and small high-technology organizations to expand into new markets by sharing skills and resources. Also, it allows large organizations to access the subset of expertise and resources which they desire in the smaller organization, while the smaller organization is given access to its larger partner’s massive capital and organizational resources. The formation of strategic alliances means that strategic power frequently resides insets of organizations acting together.

Types of strategic alliances during innovation – Strategic alliances occur normally intra-industry or inter-industry. Also, they can involve a customer, a supplier or even a competitor. There are six generic types of strategic alliances as given below.

Licensing – It is a relatively common and well-established method of acquiring technology. It normally does not involve extended relationships between organizations but increasingly licensing another organizational technology is frequently the beginning of a form of collaboration. There is normally an element of learning required by the licensee and frequently the licensor performs the role of  a teacher.

Supplier relations – Several organizations have established close working relations with their suppliers, and without realizing it, have formed an informal alliance. Normally these are based on cost benefits to a supplier. These benefits can include lower production costs which can be achieved if a supplier modifies a component so that it ‘fits’ more easily into the organizational product or reduced R&D expenses based on information from a supplier about the use of its product.

Joint venture – A joint venture is normally a separate legal entity with the partners of the alliance who are normally being equity shareholders. With a joint venture, the costs and possible benefits from an R&D project are shared. They are normally established for a specific project and cease on its completion.

Collaborations – The absence of a legal entity means that such arrangements tend to be more flexible. This provides for the opportunity to extend the cooperation over time if so desired. Frequently these occur in many supplier relationships, but they also take place beyond supplier relations.

R&D consortia – A consortium describes the situation where a number of organizations come together to undertake what is frequently a large-scale activity. The rationale for joining a research consortium includes sharing the cost and risk of research, pooling scarce expertise and equipment, performing pre-competitive research and setting standards.

Industry clusters – Clusters are geographic concentrations of inter-connected organizations, specialized suppliers, service providers and associated institutions in a particular field that are present in a region. It is their geographical closeness that distinguishes them from innovation networks. Clusters arise because they increase the productivity with which organizations can compete. The development and upgrading of clusters is an important task for governments, organizations, and other institutions. Cluster development initiatives are an important new direction in economic policy, building on earlier efforts in macro-economic stabilization, privatization, and market opening and reducing the costs of doing business.

Measuring innovation performance

Since it is difficult to manage what cannot be measured, assessing the extent of innovation success or failure plays a key role in translating the innovation strategy of the organization into desired behaviours and results and in achieving long-term success. There can be several dimensions of innovation performance. Some subjective measures of innovation performance include time, cost, budget, market success, ROI (return on investment), schedule, stage proficiency etc. whereas objective substitutes include team performance or relationship effectiveness between team members. Also, there are short-term (e.g. project efficiency) and long-term (e.g. competitive advantage) performance measures. The achievement of both organizational effectiveness and organizational learning is considered as key issue for innovating organizations.

Organizational learning is associated with long-term benefits in terms of expanding the organizational knowledge base and maintaining a sustainable competitive advantage and it not only adds to tacit and explicit organizational knowledge but it also improves individual experience which can be proved crucial in the long-term. Resource allocation effectiveness is also necessary since scarce resources can slow down the execution of several parallel projects.

Organizational learning – In the present day service-oriented and knowledge-based environments, organizations are quickly realizing that they cannot solely compete on past success factors but are to promote knowledge management and cultivate employee learning. Organizational learning is the process by which the organization develops new knowledge and insights from the common experiences of employees in the organization with the potential of influencing behaviours and improving the capabilities of the organization. Organizations which are able to learn stand a better chance of sensing events and trends in the market. As a result, learning organizations are normally more flexible and faster to respond to new challenges than competitors which enable them to maintain long-term competitive advantages. Learning is fundamental to the survival of the organization and critical particularly during innovation as it steers the transformation of technological and market information into new products. In fact, organizational learning drives innovation.

Organizational learning is related to direct experience, experiences of others and the existing knowledge base of the organization and involves the contributions of different individual employees and groups towards organizational problems. Organizational and individual learning and the associated transfer of production know-how, allow organizations and employees to connect their daily work experiences with opportunities for improvement and innovation. Thus, the ability of the organization to learn depends on the experience and actions of the employees and the teams within the organization. Individual employee contribution to the knowledge base produces higher efficiency and reduces development time. The knowledge which is created within inter-functional development teams is the result of a process involving the acquisition, the distribution, and the use of existing knowledge so as to reduce project uncertainty and to lead eventually to the creation of new knowledge for the organization.

Resource allocation effectiveness and efficiency – Competing in rapidly changing environments needs frequently the ability to develop and deploy quickly new products and solutions. Service organizations pursuing a strategy dependent upon innovation are under constant pressure to employ more effective methods and make more efficient use of their resources. Allocation of resources deals not only with the expenditure of funds but also with the allocation of personnel, other support services, infrastructure, and information. Given the view that the human factor is the most important and most scarce resource within innovation projects, efficient human resource allocation in innovation projects has significant implications for innovation performance. Optimizing the resource allocation process during innovation activities is crucial for a number of reasons namely (i) effective fit of employees with different educational backgrounds, expertise and often conflicting priorities can influence innovation success, (ii) effective information exchange and use between different departments reduces uncertainty and enhances innovation employees’ learning, and (iii) provision of resource slack can significantly increase innovation-related costs.

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