1
Subject overview
In this chapter theoretical background of the subject will be discussed.
1.1
Exploring innovation process
Due to continuously increased competition in the modern global market, innovativeness
has become a critical factor for companies' sustainability (Keskin, Diehl, & Molenaar,
2013; Jongbae Kim & Wilemon, 2002b; Verworn, 2009; A. Zhang, Zhang, & Zhao, 2003).
13
Furthermore, innovation process has to be considered as a critical factor for companies'
and even countries' growth (Porter, 1990, 1996). Innovation has to be seen as an essential
condition for firm's long-term survival on the market (Anja Cotic & Prodan, 2008; Boer et
al., 2001; Boer & Gertsen, 2003). To innovate continually, to develop and improve not
only products, but also services became a critical issue to enterprises sustainable
economic growth. The simple attitude, that innovation essentially relates merely to new
product or idea creation, the approach of innovation process became a concept of
establishing new "business value", namely discovering, learning, improving ideas which
could be realized in new products and services and would have a positive impact on
companies' efficiency, profitability and competitiveness (Morris, 2006). The simplified
innovation process could be categorized into three main phases (see Fig.1). Very often
these phases play an important role in the innovation process and could overlap with
each other (Tiwari & Buse, 2007). At the same time, these phases could be defined as
different projects within the innovation process, what makes it possible to manage those
(Tiwari & Buse, 2007). For this reason, there is growing interest in contemporary
innovation process theory for the possibility to find solution to govern and manage
innovation process. Moreover, academics and practitioners concern the main issues in
managing innovation process, namely how to manage the innovation process with the
most efficiency and effectiveness (Edison et al., 2013; Ho & Tsai, 2011; Koen et al., 2002;
Rogbeer, Almahendra, & Ambos, 2014; Verworn, 2009).
14
Figure 1 Three phases of simplified innovation process. Adopted from R. Tiwari (2007)
1.1.1
Development of the innovation process approach
Austrian economist Schumpeter (1934) made a first attempt to conceptualize innovation
process. He also proposed that the term „innovation" has to signify not only with the
process of developing of revolutionary new products, but more complex meaning.
Opening broad horizons of innovation approach, Schumpeter draws attention, that
innovation process also includes all transformational processes, concerning
organizations, services and already existing products (Schumpeter, 1939). He clarified
innovation process from the managerial point of view and underlined corporation's
strategic issues as critical factors for companies' capability to react to rapid market
changes.
Contemporary innovation theory confirms, that innovation process reflects the
market conditions and distinguishes among five generations in formation of the
innovation process (Caraça, Lundvall, & Mendonça, 2009; Freeman, 1996; Ortt & van der
Duin, 2008; Rothwell, 1994) Moreover, academics point out, that innovation process
approach are steel moving towards the new level of its development, namely the fifth
generation. This concept was proposed by R. Rothwell (1994) and widely recognized by
many other scientists (Dodgson & Hinze, 2000). Rothwell (1994) differentiates influencing
factors, historical and environmental conditions that affected the innovation process
15
creation and development. He points out that each level of innovation process
development was caused by changes in the business and legal environment. Thus, each
new level or generation in innovation process development became a response to market
and development pressure. Analysing more than forty years of history in the business
environment and more precise innovation process development, Rothwell (1994)
suggested following innovation process generations.
The first generation of the innovation process
This period (1950-middle 1960's) was characterized by rapid industry economic
development. The primary aim of the R&D strategy was to create revolutionary advanced
products and enhance productivity. The objectives of the marketing were to "create" the
customer demand on the market (see Fig.2). This generation is also called technology
push. Fast growing R&D sector in turn had a positive effect on general society well-being,
consumer market, unemployment rates (Freeman, 1996; Rothwell, 1994). Overlapping
Schumpeter's theory where the ability to innovation becomes an essential factor for a
market advantage (Hübner & Jahnes, 1998), this phase nevertherless underestimates a
significant role of the innovation process for existing products.
The second generation of the innovation process
The second generation of the innovation process is also known as a market pull (need
pull). The period end of 1960th to early 70th, common organizational goals were steeled
to enhance company productivity. But the market demands became the focus of the
corporate strategy. These shifts also affected the diversification of corporate activities.
Increasing market competition, a struggle for a market share forced companies to pay
more attention to resource allocation (both time and financial) and market needs
(Rothwell, 1994). Shortened time between research and development projects, focus on
customer satisfaction, made organizations search for ideas on the market. In other
words, compared to technology push, R&D of the market pull strategy was a response to
a market need stimulus (see Fig. 2).
16
Figure 2 Technlogy push versus Market pull. Adopted from M.Martin (1994)
Academics and practitioners are still discussing both pros and cons of both market-pull
and technology-push strategies for the new product and service development. What
strategy to implement depends primarily on the relative newness of the product (Martin,
1994; Ortt & van der Duin, 2008; Rothwell, 1994). From one hand, it is less risky to offer
the renewed product because customers are already familiar with the product or
concept. From on the other hand, completely new or revolutionary product could be
unexpected because of "demands' unawareness" but well received on the market
(Freeman, 1996; Hübner & Jahnes, 1998)
.
Market and customer researches and analysis
could help organizations to find the right strategy depending on their capabilities and
resources.
The third generation (coupling model)
Some significant changes on the market established necessary conditions for the
Innovation strategy development. From one hand, the market of the early 70th- middle
80th was characterized by demand saturation (Galanakis, 2006; Rothwell, 1994). From
another hand, relatively high inflation rate led to unemployment enhancement. These
objectives had an impact on companies' strategy rethinking. Costs reduction issues, the
17
same as ability to consolidate, utilize and control resources became the focus of many
organizations. Achieving success in the innovations became the foundation for
companies' leading position on the market. This necessity to success in innovations
forced the rising interest to the innovation process research. Market and economic
pressure forced marketing and R&D to work closely and in correlation to each other (see
Fig.3). This linking or coupling tendency was by caused mostly by necessity in costs
reduction. It was still a structured process, characterized by a regular sequence. However,
because of a new feedback stage, innovation process became more project- oriented.
Moreover, innovation was recognized as an essential factor in an organizational strategy
(Rothwell, 1994).
Figure 3 The “Coupling” model of innovation process. Adopted from Rothwell (1994)
The fourth generation (integration and parallel development)
Considering economic recovery at the beginning of 80th-90th, organizations focused on
corporation strategy issues. Technological competence and capability, integrated with a
customer orientation led to the growth of a number networks alliances. An influence of
the shortened product life cycle forced both big and small organizations to look for
network advantages. Strong linkages between R&D and customers were established
(Freeman, 1996). Conceptual understanding of the innovation process became a primary
18
factor of competitive advantage. In order to reach the greater performance in R&D
project, the parallel and integrated approach was applied rather than the sequential one.
The R&D project orientation became not only costs-reduction, but also time and
customer oriented (Hübner & Jahnes, 1998; Rothwell, 1994). The tendencies, to focus on
time and costs resources, market orientation, and integrated strategy founded theirs
origin in early 80th, continued its development in the late 90th. Interconnections
between marketing (customer and market orientation) and R&D resulted in development
of the open innovation approach. Knowledge absorptive capability, flexibility, and ability
not just to be the first on the market, but also addictiveness to market changes had to
affect positively both new product development time and costs (Hübner & Jahnes, 1998;
Rothwell, 1994)
1.2
Towards the fifth generation. The modern concept of the innovation
process
The modern innovation process concept involves both issues: creating and developing
entirely new products and services, and transformations (renewing) of the existing
products (Bygstad & Lanestedt, 2009; Parjanen, Hennala, & Konsti-Laakso, 2012).
Michael. E. Porter in his work "Competitive advantage" (1990) gave a variety of
innovation forms: "Innovation can be manifested in a new product design, a new
production process, a new marketing approach, or a new way of conducting training".
Respectively, based on accessibility to internal and external knowledge and information
sources (Óskarsson, 2005), managing of the innovation process comprise such problems
as fostering and supporting innovative idea generation, improvement of the new
products or concepts development, and commercialization of new products' on the
market. Solving these problems could help organizations to achieve higher performance
in the innovation process and in turn in the market advantage (Carayannis & Grigoroudis,
2014; Castellacci, 2008; Fratesi, 2010; Junmo Kim, 2011; Kleinschmidt et al., 2007; Porter,
1990, 1996). In contemporary science innovation process has recognized as a set of
organizational components and factors (Langerak, Hultink, & Robben, 2004; Purcarea,
Maria del Mar Benavides, & Apetrei, 2013; Robertson, Casali, & Jacobson, 2012).
Managing of the innovation process has become a complex issue for many organizations.
Moreover, in order to become a successful corporative strategy for a long-term market
19
advantage, today's innovation process is seemed to be open and continuous (H.
Chesbrough, 2004; Huizingh, 2011). In compare to close innovation process (idea
generation and development process are implemented within the organization), open
innovation process approach sees courses for new ideas not only inside, but also outside
their organizations (H. W. Chesbrough, 2003; Enkel, Gassmann, & Chesbrough, 2009).
Customers, suppliers are recognized as valuable information sources. But to be able to
recognize opportunities and realize them, organizations have striven to possess a
knowledge absorptive ability and capability to manage it (Óskarsson, 2005). The
continuous innovation approach encompasses an organizational ability to adapt and
rapidly react to changes on the market (Boer & Gertsen, 2003; Davenport, 2013; Morris,
2006). Both approaches are closely interconnected. Thus, only effective utilizing of
internal and external courses of knowledge could ensure the organizational ability to
continuous innovation (Anja Cotic & Prodan, 2008; Óskarsson, 2005).
1.3
Managing the front end of innovation
The front end of innovation (FEI) refers to early stages and called pre-project phase
(Nobelius & Trygg, 2002). Contemporary scholar literature distinguishes between
different, but in some way similar definitions of this stage. Thus some scholars use the
term fuzzy front end, that was spread by Smith and Reinertsen (Reinertsen, 1999) and
includes all activities in the first stage of NPD (Alam, 2006; Brentani & Reid, 2012;
Herstatt, Verworn, & Nagahira, 2004; Reid & de Brentani, 2004). Others prefer another
term, namely front end of innovation (Elmquist & Segrestin, 2007; Khurana & Rosenthal,
1998; Jongbae Kim & Wilemon, 2002b). Identifying, that the fuzzy front end is rather
uncertain and unpredictable process, which is difficult to manage (Koen et al., 2001),
contemporary innovation management theory also, that, if it is possible to determine
organizational components of the innovation process, it is also possible to manage it
(Bessant & Tidd, 2007). Thereby, we prefer using in this research the term the front end
of innovation (FEI).
One of the significant attempts to analyse existing academic literature was proposed
by R. G. Cooper (1983). Cooper's investigation raised an issue that is still urgent both for
scholars and practitioners: how to achieve success in the new product development
(Robert G Cooper, 1983)? Furthermore, Cooper (1983) underlined the need in recognition
20
R&D as conceptualized process, which includes different activities and players. Thus, he
proposed the seven components model of the Innovation process: Idea generation,
Preliminary Assessment, Concept, Development, Testing, Trial, Launch (Robert G Cooper,
1983). Suggesting that all these phases in their interaction could also be seen as unique
sub groups Cooper put forward an idea that to reach the greater performance in the
innovation process each stage has to be studied separately. The first three stages include:
1) Idea generation, where the primary concept is generalized and synthesized,
2) Preliminary assessment stage, where such factors as products advantages,
differentiation are emphasized and
3) Concept, where future performance has to be valued) was integrated into so-called
pre-project phase (Robert G. Cooper, 1983) (See Fig. 4)
Figure 4 Front end model. Adopted from R.G Cooper (1983)
In his study „Predevelopment activities determine new product success" (1988)
Cooper presented more conceptually four phases NPD stage model. Arguing, that NPD
could be a source of success for a market, it is also associated with high risks. Challenging
the issue to minimize risks concerning for example with the return on investment,
executive managers can apply to the managerial side of the innovation process.
Determining the innovation process as the stage based, Cooper mainly pointed out the
importance of the first phase (idea stage) in the NPD process (See Fig. 5) and determined
21
technical (production) activities and market activities. Furthermore, in this work he
claimed, that precisely activities on this stage affect the whole NPD process and its
performance (Cooper, 1988). In order to reach an efficiency in implementing innovations,
the innovation process has to be an integrated and permanent part of the organizational
strategy (Cooper, 1988).
Figure 5 Predevelopment activities determine new product success. Adopted from R.G Cooper (1988)
The term "fuzzy front end" came into the light in 1985 and was widely used by scholars
in later 1990ths (Reinertsen, 1999). This term fuzziness was applied to underline a high
degree of „uncertainty and opportunity" that defining the FEI as a process (Reinertsen,
1999). Koen et al., (2001) argues, that the front end of innovation and new product and
process development have completely different characteristics, and for this reason they
have to be managed dissimilar (see Fig.6). Based on such classifications as the essence of
the work, dates of commercialization, financial resources, revenues and project activities
Koen et al.,(2001) underlines the specific nature of the pre-development stage.
22
Figure 6 Front end of innovation vs. new product and process development. Adopted from Koen et al.
(2001)
In their study Reinertsen and Smith (1991) argued, that especially FEI stage is much
underestimated in the NPD process and has to become more project oriented. Project
orientation has to focus on both resource and execution time issues. In addition, authors
underlined the essential role of the top management in supporting fuzzy front end
activities (Preston G Smith & Reinertsen, 1991). The significant findings of early 90ths are
still emergent for the theory and practice. First, both scholars and practitioners have to
recognize the important role of FEI stage. Second, the fuzzy front end has to be
conceptualized as a project process. Defining the FEI activities as a project process, would
help to determine objects that could have a positive effect on it performance (Reinertsen,
1999). Thus, Moenaret et al. (1995) made analyse the impact of intercorporate
communication. Researchers found out that cooperation work inside of the FEI teams
and open information flow in general had positive influence on FEI project performance.
At the beginning of the 2000s, the NPD theorists drew attention to the interdependence
between FEI activities and NPD processes (Herstatt et al., 2004; Langerak et al., 2004;
Verworn, 2009). Moreover, scholars made the first attempts to find out the most
significant for the FEI activities organizational components (Verworn, 2009). These
studies also assess the high level of unpredictability and uncertainty, which differentiate
23
the front end of innovation from all other stages of NPD process. New ideas or concepts
creation process is very often chaotic, and not harmonious (Poskela & Martinsuo, 2009;
Van Wulfen, 2014). Contemporary researchers tend to find out, what organization
objectives and managerial tools could affect the FEI performance and minimize
uncertainty in it. Thus, FEI became a subject for more precise and proper study.
Simultaneously, the FEI is known as indispensable stage; that could force the
effectiveness of the late new product or service project involvement (Jongbae Kim &
Wilemon, 2002a). To achieve an effectual result in strengthening their innovation
advantage, organizations and executive managers have to strive to improve the FEI
performance (Khurana & Rosenthal, 1998; Jongbae Kim & Wilemon, 2002b; Verworn,
2009; Wagner & Ehrenmann, 2010; Q. Zhang & Doll, 2001). In the study conducted by
Khurana and Rosenthal (1998) survey's results demonstrated, that all-embracing
organizational approach is required in order to enhance the FEI performance. Innovations
have to become an integrated part of the organizational culture (Reinertsen, 1999).
Other important statements, concerning the FEI are discussed among modern
academics. Thus, formation of organizational managing activities with the focus on both
organizational attributes, and innovative product development aimed to enhance the FEI
effectiveness and efficiency, and accordingly NPD process performance (Edison et al.,
2013; Ho & Tsai, 2011; Jongbae Kim & Wilemon, 2002a; L. Sanders Jones & Linderman,
2014). In other words, theorists and practitioners looking for the right managerial tools
and organization objects, in order to solve such urgent problem as enhancing of the front
end of innovation efficiency and effectiveness. For instance, P. A. Koen et al., (2014)
detected, that such organizational attributes and factors, as senior management
commitment, vision, strategy, resources and culture clarify 53% effective results of the
front end performance. Some scholars argue that effective utilization of the human
resources could also contribute to a positive outcome (Ho & Tsai, 2011; Jongbae Kim &
Wilemon, 2002b; Poskela & Martinsuo, 2009; Reid & de Brentani, 2004). Proper selected
and organized team work in an edition affect the executive time of the FEI projects.
Shorter procedure time in conditions of the rapidly changing especially on the software
market could play a crucial role (Hoegl, Ernst, & Proserpio, 2007). Therefore, determine
the FEI as one of the critical factors for an improved innovation process, academics and
practitioners challenge the problems in managing the front end of innovation. Taking into
24
consideration uncertainty and unpredictability of the FEI, managers and scholar facing
some crucial dilemmas: how more efficiently to organize the managerial process of the
front end of innovation activities, and what tools could improve its outcome with the
most efficiency?
1.3.1
Managing innovation software development
Rapid technological and communication changes hardly influence contemporary world
and economic market. The software branch has become of the vast importance for
economic growth of many countries (Lippoldt & Stryszowski, 2009). Working conditions
has modified and caused growing need of software development. The process of
globalization in business shifted software development demands into high-priority issue
for every company. Software development and utilization is an urgent element of
corporative environment. It serves business organizations as an urgent element of their
competitiveness (Humphrey, 1995; Stellman & Greene, 2005). The primary goal of
software developing companies is to satisfy their customers with in-time delivered high-
quality product (Stellman & Greene, 2005). Because of the fast changing market and
customer demands software developing companies has respond to all particular
requirements that occur during development processes in a rush way. It is not enough to
come on the market with a new product. Permanent customer support, caused by
changing customer and market demands probably play more significant role that ever
before (Herbsleb & Moitra, 2001). Organizations, involved in the high technological
business, such as software development IT service providing face to response particular
R&D process management issues (Brem & Voigt, 2009). G. Specht (2002) argued, that all
stages in the R&D process could be systematically planned and controlled. Moreover, he
distinguishes between technology management (involve predevelopment activities and
technology development) and R&D management as two different sub activities of the
innovation managerial process (see Fig. 7). An improvement of the management process
on the different stages would have a positive effect on the whole process (Klein & Specht,
2002; Specht, Beckmann, & Amelingmeyer, 2002).
25
Figure 7 Classification of technology, R&D and innovation management. Adapted from Klein & Specht
(2002)
Both academics and experienced practitioners are looking for new methods to
enhance a corporative performance. Thus, so-called Agile Software development process
has to facilitate software teams to accomplish value creation goal both in software
development and service facilitation (Beck et al., 2001; Cockburn & Highsmith, 2001;
Highsmith, 2002). In it full sense "Agility" means how rapidly software development team
can react to changes. Short time of FEI projects execution indicates the high level of
flexibility that increase corporate competitiveness and delivered value (Chow & Cao,
2008; Dingsøyr et al., 2012). Shortened product life-cycle, growing competition pressure
force software development and service companies to make rush decisions. Accurately
potential to respond and adapt needful changes, and customers' requirements could
provide software development and service delivering with the most efficiency and
effectiveness (Chow & Cao, 2008). The Agile method, is widely used in small and medium
sized (SMEs) companies (Beck et al., 2001; Karlström & Runeson, 2006) and is aimed to
improve the process of software development. This method focuses on all process
participants, such as customers and software developers (Dybå & Dingsøyr, 2008;
Highsmith, 2002). Relevant implemented Cooper's Stage-Gate model (Cooper, 2008)
proposes typical managerial process, which distinguish between pre-project phase,
decision-making, implementation and outcome phases, see Fig.8
26
Figure 8 Stage-Gate model. Adopted from R. G. Cooper (2008)
Similar to the front end activities, today's software developing process characterized
by the high level of unpredictability and uncertainty. Modification, problem-solving needs
could occur practically in all stages of the process. All these factors make the typical
management approaches mostly insufficiently. As opposite to the traditional software
managerial methods, Agile approach points out the necessity of permanent re-evaluation
of the new products. From one hand, this applies to the necessary time to consider a new
product or concept. From another hand, proper recognized the new product concept will
have a positive effect on the NPD. Under such condition new idea generation process
becomes an integrated path of the whole process. Software developing teams have to
become possibility of examine if the product really fit the market and customer demands.
It has a positive impact on organizational competitiveness because it helps to solve the
problems caused by uncontrollable factors. In fact, it allows persistent enhancement of
the front end of innovation performance (Dybå & Dingsøyr, 2008; Highsmith & Cockburn,
2001; Lippoldt, 2009). In spite of this, implementation of such methods, as the Agile way
is hard to achieve without organizational components and factors like shared vision,
managerial support in decision making, ability to solve fuzzy problems (Beck et al., 2001).
Moreover, software developing teams have to possess such characteristics as creativity,
ability to communicate well and cross-functional specialization (Highsmith, 2002).
27
1.4
Measurement of FEI
Even after many studies, that focused on the positive relationship between the FEI and
R&D process outcome (Khurana & Rosenthal, 1998; Jongbae Kim & Wilemon, 2002a;
Ozer, 2007; Q. Zhang & Doll, 2001), both academics and practitioners still discuss such
essential issues as measuring of the FEI performance (Adams, Bessant, & Phelps, 2006;
L. Sanders Jones & Linderman, 2014). To evaluate the influence of different organizational
components is essential issue first because it could help to optimize the managerial tools
in order to enhance innovation process and more specifically the FEI performance (Adams
et al., 2006; J. Guan & Chen, 2012). Unfortunately, even recognized the significant
influence of FEI on the innovation process, the contemporary methodology gives us not
comprehensive answer how to measure FEI outcomes. Scholars still have not reached
unanimity how to provide measurement and what metrics to use (Edison et al., 2013).
Many academics mostly assess the impact of FEI on shortening NPD cycle (Flint, 2002;
Kumar & Phrommathed, 2005). Others emphasize such questions as FEI costs and
outcomes (Poskela & Martinsuo, 2009; Verworn, 2009). H. Edison (Edison et al., 2013)
highlights that the reason for such differences in FEI measurement determinations could
be caused by diversity in innovation process definitions. Thus, various definitions propose
different points of view and stress on dissimilar factors having an impact on the
innovation process and more precise on the FEI performance (Mathiassen &
Pourkomeylian, 2003). Respectively significantly different factors and components are
measured with different metrics (Edison et al., 2013). Much more discussions arise
concerning FEI measurement. From one hand FEI has exploratory nature with a high level
of uncertainty, and hardly predictable (Jongbae Kim & Wilemon, 2002b; Petala, Wever,
Dutilh, & Brezet, 2010; Van Wulfen, 2012, 2014; Verworn, 2009). From on the other hand,
measuring the FEI outcomes will help to improve management of FEI.
1.4.1
Evaluation of the FEI performance: efficiency and effectiveness
Evaluating the FEI performance is a rather puzzling task (Poskela & Martinsuo, 2009).
Birgit Verworn (2009) examined the FEI influence on the later NPD project performance.
She found out that activities in FEI phase could have both direct and indirect impact on
NDP (Verworn, 2009). Thus, risk and uncertainty minimizing on the FEI stage would have
a direct influence while project implementation has an indirect impact on the FEI
28
performance (Verworn, 2009). Some researchers propose to estimate the FEI
performance measuring it effectiveness and efficiency (Ho & Tsai, 2011; Verworn, 2009;
Wagner & Ehrenmann, 2010). Efficiency in this sense means utilization of time and
financial resources (Ho & Tsai, 2011; Verworn, 2009). The more efficient the team
capabilities, time planning, financial resources are utilized; the higher performance will
be achieved through the FEI activities (Beaume et al., 2009; Sundström & Zika-Viktorsson,
2009). Measurement of effectiveness in turn focuses on delivered product and value. For
software industry organizations it means that the software idea is up-to-date and meet
customer demand, new product concept is determined, clear and steadfast (Ho & Tsai,
2011; Jongbae Kim & Wilemon, 2002a). Hence, all these factors will in turn affect how
quickly new product projects will develop through NPD process (Brem & Voigt, 2009;
Elmquist & Segrestin, 2007).
1.4.2
Innovation strategy
Strategy is a complex of decisions, based on cross comparative analysing and planning,
which determine company's ability to be competitive on the market (Porter, 1996). The
issue to establish sustainable market advantage, innovation strategy should become the
core strategy in a company (Cottam, Ensor, & Band, 2001; Dodgson, Gann, & Salter, 2008;
Ettlie, Bridges, & O'Keefe, 1984). Considering a vital role of corporate innovative
capabilities, both practitioners and scholar rethink the main objectives of the corporate
strategy. They recognize, that innovation has become a core factor for a sustained market
advantage (Dodgson et al., 2008). Moreover, they underline that integration of the
innovation strategy in the overall corporate strategy makes this synergy very effective to
be competitive on the global market. Thus, some studies demonstrate interdependence
between the overall innovation corporation strategy valuable innovative organization
maintaining (Adner, 2006; Goffin & Mitchell, 2005; Terziovski, 2010). In particular
academics outline the interdependence between strategy and organizational
performance by small and medium size high-technology enterprises (Ring, Doz, & Olk,
2005; Terziovski, 2010). Another interconnection is also discussed in contemporary
literature, namely correlation between the FEI performance and the organizational
innovation strategy (Claver, Llopis, Garcia, & Molina, 1998; Ho & Tsai, 2011). Some
scholars suggest that companies with the concerted linkage between their FEI and overall
29
innovation strategy can achieve the highest performance (Clercq, Menguc, & Auh, 2009;
Cottam et al., 2001).
Contemporary innovation strategy distinguishes between two strategic approaches:
rational approach and incremental approach (Gilbert, 1994; Goffin & Mitchell, 2005). The
rational approach is based on M. Porter's competitive advantage approach, where
companies' advantage could be achieved through low costs production or diversification
(Porter, 1996). The weaknesses of the rational approach are focusing just on the senior
management ability to react to external changes in a rush and adequately way (Goffin &
Mitchell, 2005).
In the world of rapid technological changes, it is not enough to rely on just only one
unit of the organizational structure. It is necessary to build up a kind of organization
where a clear, determined strategic vision shared with all company and all organization
units recognize and support corporate responsiveness (Dodgson et al., 2008). This, in
turn, will support potential to dynamical learning, technological elements, managerial
and organizational capabilities (Cassiman & Veugelers, 2006; Dodgson et al., 2008; Ring
et al., 2005). Because of rapidly external environment changes long-term strategic
decision making is critical to predict (Cronin, 2014). In order to build up an innovative
organization is not simply enough to allocate financial resources for R&D (Jaruzelski,
Loehr, & Holman, 2011). It is necessary to create an innovative organization (Cassiman &
Veugelers, 2006). The innovation strategy is one of the most significant components of
an innovative organization, which gives direction and encompasses the main corporate
goals (Anthony, Eyring, & Gibson, 2006). The innovation strategy alignment to the overall
corporative strategy will give a company potential to react in proper way to customer
needs (Cottam et al., 2001; Dodgson et al., 2008; Goffin & Mitchell, 2005). Moreover,
clear and shared vision of organizational strategy could help in appropriate decision-
making. Primarily it is important to FEI stage, where significant decisions concerning new
products or concepts are made and evaluated. The lack of clear vision of corporative
strategy, the same as understanding of market demands and customer needs would lead
to R&D projects failure, and so forth cause lost in timing, financial and other resources
(Herstatt et al., 2004; Petala et al., 2010; Van Wulfen, 2012). Incremental strategy has to
fulfil some gaps in the rational approach. The incremental strategy also points out the
30
significant role of the corporate strategy based on external and internal objectives'
analyses. But in compare with the rational approach, the incremental strategy
emphasizes the necessity in continuous reanalysing, rethinking and adopting of occurred
changes on the market (Cassiman & Veugelers, 2006; Goffin & Mitchell, 2005). The
incremental strategy approach determines, that in condition of uncertainty and
unpredictability Innovation strategy, implemented with the support of proper chosen
managerial tools could be a fundamental for the organizational long-term advantage
(Cronin, 2014; Goffin & Mitchell, 2005). Sequentially, integrated corporate innovation
strategy could have a positive impact on FEI activities (Cronin, 2014; Ho & Tsai, 2011;
Ozer, 2007; Stellman & Greene, 2005). Thus, we make a proposition that:
H1. Innovation strategic goals have a positive impact on FEI activities performance
1.4.3
Innovation culture
To be able to support the permanent innovation process, companies are required to
create such organizational innovation climate and environment, in which corporate
atmosphere will support and force creative thinking. Academics point out that innovation
culture has to be seen as interconnection between such factors as innovation, creative
environment, and organizational culture (Martins & Terblanche, 2003). It is academically
proved, that exactly in collective creative atmosphere most people could open their
imaginative potential resources (Angel, 2006; Hafiza, Shah, Jamsheed, & Zaman, 2011;
Martins & Terblanche, 2003) and the most significant innovations were made due to
collaborative idea generation (Adner, 2006; Angel, 2006). Team leaders and managers
responsible for establishing and supporting an innovative environment, which in turn will
increase value and profit (Dodgson et al., 2008). Furthermore, innovative culture foster
and support innovative idea generation (Ahmed, 1998; Angel, 2006). One of the
important issues for establishing the innovative culture is utilization of the organizational
time resource (Jaruzelski et al., 2011). Taking into account rather unpredictable time of
an idea generation, organization has to create such terms, in which the FEI team will have
enough time to create and consider new ideas (Bertels, Kleinschmidt, & Koen, 2011). To
avoid financial and timing resources waste later in project development phase, FEI team
31
has to be able to analyse a new concept and align it with the corporate strategy goals and
customer needs (Angel, 2006; Bertels et al., 2011; Leavy, 2005). Moreover, innovation
culture implies senior leadership and employees’ commitment, where all participants can
acquire, discuss and make resolutions into new idea concepts (Bertels et al., 2011). Many
academics also point out; that to foster idea generation involves letting employees not
to be afraid to come out with new ideas. Innovation culture grant privileges to support
and contradict, to discuss and think over new ideas (Ahmed, 1998; Antikainen & Vaataja,
2010; Jaruzelski et al., 2011). Besides, the high level of trustworthy in the company
encourages ideas generation and information flow (Bertels et al., 2011; Martins &
Terblanche, 2003; Maurer, 2010). Undoubtedly, the human factor is one of the essential
issues for establishing innovation culture. Open-minded ideas, creativity flourish in
organizations, which advocate openness and honesty in communication. Opinions of all
process participants should be estimated and considered as valuable contributes (Angel,
2006; Bertels et al., 2011). In this way, communication process plays an important role in
establishing the innovative culture. Communication process could be distinguished
between external and internal communication process (Johannessen & Olsen, 2011).
External communicating includes an organizational ability to absorb and manage
information and knowledge from external sources: customers, suppliers and so on
(Óskarsson, 2005). Proper organized external communication process could be an
inexhaustible source of information from the external environment and lead to
knowledge creation. Knowledge creation and utilization in turn has an impact on idea
generation process, enhances employees' competencies and stimulates the innovation
process in whole (Bertels et al., 2011; H. W. Chesbrough, 2003; Huizingh, 2011)
Internal communication is a set of communicative capabilities inside of an
organization (Johannessen & Olsen, 2011). Internal communication includes knowledge
utilization and inter-organizational relationships. Both factors have a positive impact on
the FEI performance (Johannessen & Olsen, 2011; Óskarsson, 2005). Another factor,
having impact on innovation culture is reward system within an organization (Chandy,
2003). There are different types of corporative rewards: tangible (mostly financial) and
intangible (moral support, trust, advance training, professional recognition). Both types
of rewards aim to stimulate FEI process. Recent studies point out the necessity of the
implementation of both types of the reward systems. However, some studies underlay
32
the significant role of precisely intangible rewards within the organizations. (Antikainen
& Vaataja, 2010; Hafiza et al., 2011; Jaruzelski et al., 2011; Maurer, 2010).
Trustworthiness and openness in communication, inter-organizational relationships,
relationships between leaders and employees, favourable to innovation workplace
conditions are the important features of the „healthy" innovation culture and could be
called creativity motivators (Hafiza et al., 2011). Thereby, we hypothesize, that:
H2. Innovation culture has a positive influence on the FEI performance.
1.4.4
Senior management commitment
One of the most important senior management issues is establishing corporate strategic
goals. Besides typical for the top management responsibilities, such as determination of
organizational objectives, developing organizational, market and financial policies,
strategic directions, risks' and advantages' assessment and decision-making, senior
managers also keep control of an organizational structure and utilization of corporate
resources (financial, human and so on). Into the modern global market conditions, senior
management also faces new challenges. Senior leadership is required to build up
sustainable market advantage through the establishing and maintaining an innovative
organization. This complex process also includes stronger linkage between senior
management commitment and innovation process activities (De Jong & Den Hartog,
2007; Leavy, 2005; Salomo et al., 2007). It is regrettable that, many senior managers are
still underestimate the significance of their commitment precisely into FEI activities
(Bonner, Ruekert, & Walker, 2002; De Jong & Den Hartog, 2007). They argue that top
managers are responsible for the key decision-making and monitoring issues, while front
end of innovations activities are seen as a responsibility of experts (Daellenbach &
McCarthy, 1999; Salomo et al., 2007). Thus, senior management is usually involved into
selecting most perspective projects, but rarely in commitment to front end of innovation
activities. More seldom exactly senior management initiates major new front end
activities. At the same time, selections and implementations of the projects are very often
made exclusively by project managers of R&D departments (Salomo et al., 2007).
Organization structure, where decision-making carried out by different responsible, could
33
cause a disorder and conflict. Conversely, maintaining coherent connections between
senior management and innovative groups will help to provide FEI activities with
prioritization and in the line with the company's strategy (De Jong & Den Hartog, 2007).
While FEI process has to include balances between assessment of total risks and
advantages, high senior management involvement in FEI process could ensure an
effective use of organizational resources, both financial and human (Ahmed, 1998).
Senior management involvement requires flexibility and control, applying for a set of
versatile knowledge and skills to drive the company forward to its strategic goals. But no
less important issue for senior management to create such corporate basis, where
creativity and innovativeness will be fostered, motivated, moved and supported by
organization leaders (Leavy, 2005). Such a corporate basis, in other words, corporate
culture, encourages confidence, willing to risk (Leavy, 2005). Furthermore, exactly senior
managers can force FEI activities. It could be achieved through aligning the FEI activities
with the main organization strategic goals, strong motivation of the FEI teams, fostering
employees’ willing to discover and to create, to a response to customer demands (Krause,
2004). Thus, we propose, that:
H3. Senior management commitment positively affects the FEI performance.
1.4.5
Team issues
To set a clear goal and to create an innovative culture is a part of the complex
organizational procedures. Aside from it is based first and foremost on the human
resources (Somech & Drach-Zahavy, 2013). Team leaders face the problem how to choose
and organize right people with necessary skills that could work, coordinate and
communicate well. Correctly selected team members could play a key role in FEI activities
(Mitchell, Parker, Giles, Joyce, & Chiang, 2012; Somech & Drach-Zahavy, 2013).
Managers and FEI team leaders face many challenges. First, FEI team has to be able to
create a new product or concept idea. Respectively FEI team leaders and senior managers
are responsible for supporting such an environment, where idea generation could
flourish (Anderson, Hardy, & West, 1992; Axtell, Holman, & Wall, 2006). Second, to
34
design product a new product is not enough, it should be with the line of corporation
strategy and customer demand (Adner, 2006). Proper organized FEI team has to be first
and foremost creative (Reid & de Brentani, 2004). At the same time FEI team members
should have a clear corporative vision and understanding of organizational strategy and
goals. Another very significant factor for the effective FEI team is communication
(Jongbae Kim & Wilemon, 2002a; Vera & Crossan, 2005). Communication between team
members has to be based on the foundation of trustworthy, openness, availability to risk,
willingness to discuss, capability to find and apply solutions (Anderson et al., 1992;
Buckley & Hashai, 2014). Scholars and practitioners indicate, that good communication
strongly contribute to FEI team performance (Crowne, 2008). Another very weighty
contribute to FEI team performance is an availability of cross-functional experts
(Elfvengren, Kortelainen, & Tuominen, 2009; Hoegl et al., 2007; Jongbae Kim & Wilemon,
2002a). Varieties of experts ensure respective knowledge capabilities and provide
creative idea generation (Poskela & Martinsuo, 2009; Van Wulfen, 2012; Verworn, 2009).
Multiplicity of exports in FEI teas has to support diversity in opinion and decision making
through the FEI activities (Ho & Tsai, 2011). Moreover, FEI team expert’s diversity has
positive influence also on FEI project time performance (Hoegl et al., 2007). In turn,
achieving the proper timing of the FEI projects could play a role of key factors for
competitive advantage. FEI group members, who are able to quickly share their vision
and align it with the corporative strategy, demonstrate the ability to collaborate and
communicate well. Such teams represent well organized and goal oriented units
(Moenaert, De Meyer, Souder, & Deschoolmeester, 1995). Thus, setting up and
organizing FEI teams, corporation and FEI team leaders should consider that many
organizational conditions and factors could have an impact on FEI activities and have a
positive effect on the FEI performance (Somech & Drach-Zahavy, 2013). In turn, proper
organized FEI team, working in the favourable environment would positively contribute
into the FEI performance. Therefore, we hypothesize, that:
H4. Properly organized FEI team is positively associated with the FEI performance
35
2
The research
The purpose of this research was to find the answer to the research question: "Do
following organizational factors have an impact on the front end of innovation
performance: innovation strategy, innovation culture, senior management commitment
and team?"
Taking into account the importance of the FEI performance for the whole Innovation
process, the framework of the following research was to find out if there is the
relationship between these factors and the FEI performance. Contemporary literature
suggests that different organizational factors, attributes and managerial tools have an
impact on the FEI activities, and more precise on it performance. Different combinations
of organizational factors and attributes, which could be essential to achieve high level of
the FEI performance were examined in previous studies (Hanson, Melnyk, & Calantone,
2011; Jongbae Kim & Wilemon, 2002b; L. Sanders Jones & Linderman, 2014; Vera &
Crossan, 2005). This research proposes another group combination of organizational
attributes to consider. Moreover, the research aims to find out if any relationships
between this given set of attributes and the FEI performance.
In order to answer the research question small and medium sized softenware,
development and IT service providing Icelandic companies were examined. Based on
previous studies aimed to find out interdependence between organizational factors and
attributes and the front end of innovation performance (Robert G. Cooper, 1983; Herstatt
et al., 2004; Ho & Tsai, 2011; Koen et al., 2002; Poskela & Martinsuo, 2009; Preston G.
Smith & Reinertsen, 1992; Van Wulfen, 2012; Verworn, 2009), we have hypothesized,
that:
H1 Innovation strategic goals have a positive impact on FEI activities performance.
H2 Innovation culture have a positive influence on The FEI performance.
H3 Senior management commitment positively affect the FEI performance.
H4 Properly organized FEI team is positively associated with The FEI performance.
Thirty-five software development and IT service providing companies members of the SÍ
(The Federation of Icelandic Industries) were randomly chose to participate in the
research.
36
2.1
Research method
Considering, that the purpose of this study was to examine if such organizational
attributes as innovation strategy, innovation culture, senior management commitment
and team have an impact on the FEI performance, the quantitative research method was
applied to answer the research question. Quantitative research method is good to apply
in order to compare collected data systematically and in generalized form (Bryman, 2012;
Creswell & Garrett, 2008). Quantitative methods also enable to test proposed theories
and hypotheses (Bryman, 2012). The aim of this research was to f answer the research
question, comparing generalized information. Another goal was to explore the results of
this study in generalized approach. It was decided to apply the quantitative research
method, because exactly this method could help in obtaining big data collections.
Moreover, quantitative research method make it easier to analyse and compare results
statistically (Creswell & Garrett, 2008). For this reasons, quantitative research method
was used to identify statistical relationships between the organizational attributes
(innovation strategy, innovation culture, senior management commitment and team) and
the FEI performance. 5- point Likert scale (where 1 = "strongly disagree" and 5 ="strongly
agree") was applied for the research. In the following chapter will be described and
discussed such questions as the design of questionnaire, execution of the survey,
primarily information about the research participants and the research findings.
2.1.1
Research design and measurement
With the support of literature review, we have specified some organizational attributes
to examine in the following research. Different combinations of the organizational factors
and attributes are essential to achieve a higher level of the FEI were proved in previous
studies (Adams et al., 2006; Adner, 2006; Bertels et al., 2011; Boeddrich, 2004; Cooper,
2008; Hafiza et al., 2011; Kleinschmidt et al., 2007; Martins & Terblanche, 2003; Wagner
& Ehrenmann, 2010). The following research proposed another combination of
organizational attributes to consider if any correlation between this set of factors and the
FEI performance.
37
The design of the questionnaire was constructed with the support of previous studies.
Since it is difficult to measure and evaluate the FEI performance because of it expectancy
and unpredictability, some academics identify two dimensions of the FEI performance:
efficiency and effectiveness. Where efficiency measured with the use of all organizational
resources, both financial and non-financial (for example time, human recourses etc.)
(Verworn, 2009; Wagner & Ehrenmann, 2010).
From on the other hand, in the centre of attention measurement of effectiveness are
outcome characteristics, namely explicitly and stability of the product. Dependent
variables for this research applied to the FEI performance were adopted from the study
Ho & Tsai (2011), and focus on two dimensions of the FEI performance: effectiveness and
efficiency. The following construct composed of four questions and showed good
reliability results between
α=0, 75 and α=0, 82 (Ho & Tsai, 2011) and therefore was
applied without any changes. Questions number 1 and 2 are efficiency variables, the
questions number 3 and 4 are effectiveness measures:
For each statement, please check whether you strongly disagree, disagree, neither degree
or disagree, agree, strongly agree.
1) Our last new product/service project was the one of the fastest projects ever
undertaken by our firm
2) In the front end of innovation stage the development costs did not exceed budget
3) The project plan was explicit and stable
4) The new product/ service concept was clear and in the line with customer needs
Independent variables were adjusted from two early studies: Ho & Tsai, 2011 and Koen
et al., 2014. Each construct, designed to measure various organizational attributes consist
of three questions. The same as in the dependent variables section, participants were
asked to mark the intensity of agree/ disagree level:
For each statement, please check whether you strongly disagree, disagree, neither degree
or disagree, agree, strongly agree
The following variables' constructions were identified:
Innovation strategy construct (adopted and partly transformed from Ho & Tsai, 2011)
1.
Our project defined clear and realistic project targets.
38
2.
Team vision and shared purpose were quickly developed during our project.
3.
Our project's goals can fit firms and meet market needs.
Innovation culture variables construct (adopted and partially changed from Ho & Tsai,
2011 and Koen et al., 2014).
1.
Our firm reward project members for their innovativeness.
2.
Employees of our firm have time to consider and test new ideas.
3.
Employees of our firm receive new ideas in an attentive and professional way.
Senior management commitment variables construct (borrowed in part from Koen et al.,
2014)
1.
Our team leadership initiates major new front-end projects.
2.
Our team leadership is strongly committed to front-end activities.
3.
Our team leadership participates in making key decisions in project reviews.
Dedicated team variables construct (taken from Ho & Tsai, 2011 without modifications;
α=0, 85 reliability test).
1.
Our team is composed of cross-functional experts.
2.
Our team has sufficient knowledge and capabilities to perform specialized roles.
3.
Our team can communicate and coordinate well.
Background information construct consists of the questions aimed to identify the
common information about the participants: sex, nationality, education, age in years,
number of years with the organization and current occupation within the organization.
Another three background questions had a purpose to provide addition information
about the organizations:
1.
How many employees does your company have?
2.
What is the extent of innovation projects in your company?
3.
Our innovation projects generally last for...
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2.1.2
Procedure
Due to the fact, that the target organizations were among the Icelandic software
developing and IT-service providing companies, the researcher decided to use English as
a survey's language. First, English language is usually an official business language for this
branch. Second, most of these companies actively cooperate with multination partners
and have international customers all over the world, have foreign employees, therefore
English is commonly used as an inter-organization language. Choosing English as a
survey's language caused in turn other challenges. As Hall (1992) pointed out,
misunderstandings in survey answering could negatively affect the validity of the content.
Not appropriately chosen phrasing and terminology could be irritating even for native
speakers (Hall, 1992). Especially wording play a significant role for the results when the
survey conducted not in the native for the target group language (Óskarsson, 2005). Pre-
testing interviews among participants with English as a native language and Icelandic
speakers were conducted to avoid this problem. Five participants (two English and 3
Icelandic speakers) were asked to answer the survey questions and make comments what
they didn't understand. Then the researcher went through the survey questions again
and asked the participants how they understand each question. Based on the interview
results, the researcher made necessary changes in phrasing survey questions. On the next
stage of the study design, corrected form was pre-tested again. Three participants (2
Icelandic and 1 English speaker) were asked to answer the survey questions in the form
of an interview with comments. After these two pre-tests, in an introduction letter the
participants were suggested to contact the researcher if any questions will arise. Because
the survey design were constructed based on previous studies, re-examining of the
content validation was not carried out. The survey was constructed on based on Google
Forms as online survey for simplicity data collecting and analysing.
The target group organizations were randomly chosen on the website of SI- the
Federation of Icelandic Industries (the list of Information Technology companies). Since
the SÍ website provides the common information about the companies, the researcher
could easy find contact emails of the organizations. The survey was conducted in the
online form. E-mails were sent to the CEOs, Human Resource Managers, Project
Managers, and Marketing Managers where they were kindly asked to answer the
questionnaire and send it forward to 3-5 employees of their company, who participates
40
in the FEI activities. In e-mails, we have briefly describe the subject and purpose of the
study. The same information was again in the introduction letter for the survey's online
form.
The online form of the following survey was open 24 October 2015. To motivate
participants to answer the questionnaire, the researcher visited some chosen
organization and talked to the managers personally. After that, the researcher was in a
constant contact with a "responsible for survey" person in each organization by
telephone and e-mail. The online form was closed 2 December 2015, when all efforts to
increase the number of participants were made.
2.1.3
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