Managing the front end of innovation
The positive impact of the organizational attributes to the
front end of innovation performance
Alesya Alexandersdóttir
Master of Science Thesis in Marketing and International Business
Supervisor: Dr. Gunnar Óskarsson
University of Iceland
School of Business
Mai 2015
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Managing the front end of innovation.
Ritgerð þessi er 30 eininga lokaverkefni til MS prófs við Viðskiptafræðideild,
Félagsvísindasvið Háskóla Íslands.
© 2015 Alesya Alexandersdóttir
Ritgerðina má ekki afrita nema með leyfi höfundar.
Prentun: Prentsmiðja Oddi
Reykjavík, 2015
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Acknowledgements
I would like to use this opportunity to express my deep gratitude to my master
thesis supervisor, lector Dr. Gunnar Óskarsson for his aspiring guidance, assistance,
patience, constructive criticism and helpful advises.
I wish to express my sincere thanks to my family, especially to my kids and my husband
Maxim for their encouragement, emotional and mental support. Thanks for all your
patience, love and attention.
Finally, I would like to convey my warmest gratitude to all my friends and colleagues
for their moral support through all this long process.
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Abstract
Managing the front and of innovation (FEI) activities have become a critical issue in the
new product development process. Previous researchers have found out, that effectively
managed FEI process could have a positive effect both on FEI and new product
development process performance. This research paper focuses on issues related to
organizational attributes and their impact on FEI performance. More precisely, the aim
of the study was to find out if four organizational attributes: innovation strategy,
innovation culture, senior management commitment and proper organized team have a
positive impact on front end of innovation performance, as one of the most significant,
but highly unpredictable phases of innovation processes.
A quantitative research methodology was applied to answer the research questions.
Thirty-five software development and IT service providing companies were randomly
chosen to participate in the research.
The finding results confirmed, that organizational attributes applied in this research:
innovation strategy, innovation culture, senior management commitment and properly
organized team are positively correlated with the front end of innovation performance
and explain approximately 45% of FEI performance. Furthermore, the research
demonstrated a strong positive correlation between innovation strategy and FEI
performance. It was also found out a moderate positive correlation between FEI
performance and another organizational attributes: innovation culture, senior
management commitment and team organization. The research findings indicate a strong
necessity in improving the efficiency of the FEI process and need more focus on time and
financial resources utilization. Current results also demonstrate a relatively high level of
effectiveness of the FEI process within the Icelandic IT organizations.
This research contributes to understanding and decision-making for the choosing right
modus operandi for implementing and improving the FEI activities, what in turn could
have a positive effect on FEI performance and innovation process in whole
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Ágrip
Við þróun nýrrar vöru skiptir forstig nýsköpunar (e. front end of innovation) gríðarmiklu
máli. Rannsóknir hafa sýnt að sé ferli forstigs nýsköpunar stýrt á skilvirkan hátt hefur það
jákvæð áhrif á bæði forstig nýsköpunar og árangur vöruþróunar. Í þessari
rannsóknarritgerð er fengist við áhrif eiginleika fyrirtækja á forstig nýsköpunar. Nánar
tiltekið var markmið rannsóknarinnar að finna út hvort nýsköpunarstefna,
nýsköpunarmenning, stuðningur yfirstjórnenda og skipulag hópa, hafa jákvæð áhrif á
árangur forstigs nýsköpunar, sem er einn mikilvægasti en ófyrirsjáanlegasti þáttur í
nýsköpunarferlum.
Megindlegum rannsóknaraðferðum var beitt til þess að svara þessum spurningum.
Þrjátíu og fimm fyrirtæki sem starfa á sviði hugbúnaðarþróunar og upplýsingatækni voru
valin af handahófi til að taka þátt í rannsókninni.
Niðurstöðurnar staðfesta jákvæða fylgni á milli eiginleikanna sem teknir voru fyrir í
þessari rannsókn: nýsköpunarstefnu, nýsköpunarmenningar, stuðnings yfirstjórnenda og
skipulags hópa, og forstigs nýsköpunar. Þessir eiginleikar skýra um það bil 45% af árangri
forstigs nýsköpunar. Ennfremur sýnir rannsóknin sterka jákvæða fylgni á milli
nýsköpunarstefnu og forstigs nýsköpunar. Einnig kom í ljós hófleg jákvæð fylgni á milli
árangurs forstigs nýsköpunar og hinna eiginleikanna. Niðurstöður rannsóknarinnar gefa
skýrt til kynna þörf á því annars vegar að bæta skilvirkni ferlis forstigs nýsköpunar og hins
vegar að beina sjónum að nýtingu á tíma og fjármagni. Niðurstöðurnar sýna einnig að
skilvirkni forstigs nýsköpunar innan íslenskra fyrirtækja í upplýsingatæknigeiranum er
tiltölulega há.
Þessi rannsókn leggur sitt af mörkum til að auka skilning og auðvelda ákvarðanatöku
þegar velja á vinnuferli við innleiðingu og umbætur á verkefnum á sviði forstigs
nýsköpunar, en það ætti að hafa jákvæð áhrif á árangur forstigs nýsköpunar og
nýsköpunarferlið í heild.
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Table of contents
Table of figures ................................................................................................................ 8
List of Tables .................................................................................................................... 8
1
Introduction ............................................................................................................... 9
2
Subject overview ...................................................................................................... 12
2.1
Exploring innovation process ............................................................................ 12
2.1.1
Development of the innovation process approach .............................. 14
2.2
Towards the fifth generation. The modern concept of the innovation process
.......................................................................................................................... 18
2.3
Managing the front end of innovation ............................................................. 19
2.3.1
Managing innovation softenware development .................................. 24
2.4
Measurement of FEI ......................................................................................... 27
2.4.1
Evaluation of the FEI performance: efficiency and effectiveness ........ 27
2.4.2
Innovation strategy ............................................................................... 28
2.4.3
Innovation culture ................................................................................. 30
2.4.4
Senior management commitment ........................................................ 32
2.4.5
Team issues ........................................................................................... 33
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The research............................................................................................................. 35
3.1
Research method .............................................................................................. 36
3.1.1
Research design and measurement ...................................................... 36
3.1.2
Procedure .............................................................................................. 39
3.1.3
Participants ........................................................................................... 40
3.2
Data analysis ..................................................................................................... 42
3.2.1
Testing of assumptions ......................................................................... 42
3.3
Results ............................................................................................................... 43
3.3.1
Cumulative analysis ............................................................................... 43
3.3.2
Testing hypotheses ............................................................................... 46
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Discussion and conclusions ...................................................................................... 47
4.1
Contributions and limitations. .......................................................................... 54
Appendix 1: The Durbin-Watson statistic ................................................................ 55
Appendix 2: Histogram ............................................................................................. 55
Appendix 3: Normal P-P Plot .................................................................................... 56
4.2
Appendix 4: The final questionnaire ................................................................. 56
4.3
Background information ................................................................................... 59
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List of figures
Figure 1 Three phases of simplified innovation process. Adopted from R. Tiwari
(2007) ................................................................................................................... 14
Figure 2 Technlogy push versus Market pull. Adopted from M.Martin (1994) ............... 16
Figure 3 The “Coupling” model of innovation process. Adopted from Rothwell
(1994) ................................................................................................................... 17
Figure 4 Front end model. Adopted from R.G Cooper (1983) .......................................... 20
Figure 5 Predevelopment activities determine new product success. Adopted
from R.G Cooper (1988) ....................................................................................... 21
Figure 6 Front end of innovation vs. new product and process development.
Adopted from Koen et al. (2001) ......................................................................... 22
Figure 7 Classification of technology, R&D and innovation management. Adapted
from Klein & Specht (2002) .................................................................................. 25
Figure 8 Stage-Gate model. Adopted from R. G. Cooper (2008) ...................................... 26
Figure 9 Efficiency of the FEI ............................................................................................ 49
Figure 10 Effectiveness of the FEI ..................................................................................... 50
Figure 11 Innovation culture ............................................................................................ 52
Figure 12 Results of the regression analysis for organizational attributes constructs ...... 53
List of Tables
Table 1 The size and number of employees in participating companies. ......................... 41
Table 2 Age of respondents .............................................................................................. 41
Table 3 Correlations .......................................................................................................... 44
Table 4 Descriptive statistics ............................................................................................ 45
Table 5 Model summary ................................................................................................... 46
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Introduction
In order to achieve and build up the ability to be competitive considering rapidly growing
global market and enormously changing in technology, contemporary enterprises are
looking for up-to-date modes to respond to all these transformations in business life.
Academics have long recognized the essential role of innovation for organizational
competitiveness and its market advantage (Boer & Gertsen, 2003; Khurana & Rosenthal,
1998; Rothwell, 1994; Van Wulfen, 2014). Thus, P. Ducker (1985) distinguishes innovation
as a chance for organizations to achieve sustainable market competence. If an
organization can discern an opportunity to recognize and realize changes in a market in
order to improve its products or services, it can significantly enhance its profit and market
position (P. Drucker, 2014; P. F. Drucker & Noel, 1986). Therefore, innovation had become
one of the most significant pillars of successful corporate strategies.
According to Organization for Economic Co-operation and Development (OECD, 2013),
Iceland takes a position among the leading countries, which are investing in innovations
and start-ups. In 2007 Icelandic government enacted a law, aimed to provide and support
both legal and business information for entrepreneurs and organizations in order to
encourage innovations and entrepreneurs’ growth in Icelandic market (Innovation Centre
Iceland, 2015). Innovation Centre Iceland aims to establish a linkage between innovation
idea birth and its realization. It supports and guides through all idea realization stages and
focuses on innovation support. In other words, a favourable environment should force
and encourage innovation idea generation for innovations and establish sustainable
economic advantage on the market. Thereby, innovation has been seen and recognized
both on business and government level as a key factor for economic and social welfare.
Another tendency on both Icelandic and global markets is growing importance of
service and its improvement (Dingsøyr, Nerur, Balijepally, & Moe, 2012; Herbsleb &
Moitra, 2001; Lippoldt, 2009). The contemporary conceptual view of a new product
includes both products-and supportive services. Especially high-technological products,
which are very sensible to market environment changes, have to be offered to customers
with high service and support. In order to build up long-term relationships, an
organization in IT solutions market foremost have to offer their customers both
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innovative product and service. Furthermore, this organizations have to be able to
response quickly to market changes and customers' demands.
All these factors have a direct impact in domestic and global market environments. For
this reason, it has become a crucial issue for many companies to transform their
structures into contemporary innovation organizations. That is not so easy. Many
scholars and practitioners emphasize, that endeavouring to grow into an innovative
company could be a real challenge (Florén & Frishammar, 2012; Jongbae Kim & Wilemon,
2002b; Koen et al., 2002; Nobelius & Trygg, 2002). Thus, A. H. Cheng and Ven (1996)
describe the process of creating, developing, and implementing new services or products
as "the innovation journey", mostly because it has such features as obscurity,
exchangeability and unexpectedness. A broad modern concept of innovation process
includes the company's ability to determine and manage new effective business forms
for continuous competitiveness. Moreover, in the core of innovation process is first and
foremost absolute necessity for constant improvement in all spheres and levels of
business: service, production and organizational (Gibson & Naquin, 2011; Koen et al.,
2002; Lafley & Charan, 2010; Verworn, 2009).
The front end of innovation is known as a first stage of the innovation process.
Duration and dynamism of such innovation "journey" very frequently depend on many
factors that have an impact particularly on this stage. Such organizational factors and
attributes, including corporative strategy, leadership support, corporative culture, team,
resources, power to risk and a clear vision and scope of the innovation process, could be
essential for the performance in the front end of innovation, and in turn in the outcome
of the innovation (Castellacci, 2008; Porter, 1990; Salomo, Weise, & Gemünden, 2007).
Some scholars indicate that all stages of current innovation process encompass both
tactical and practical issues, such as reconsideration of vision, strategy, culture, and
implementation of modernizations (Kleinschmidt, De Brentani, & Salomo, 2007; Koen et
al., 2002; Verworn, 2009). These statements sequentially present both new
opportunities, and new challenges. A better understanding of how organizations could
improve performance in their innovation process could help to solve the main dilemma
of innovation process: how to reach the most effectiveness in the new product
development (NPD) process with less waste of time, financial and resource investments
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(J. C. Guan, Yam, Mok, & Ma, 2006). Respectively all these issues are essential for the
most unrespectable and complex stage of the innovation process, namely the Front end
of Innovation. Among the most important issues concern such questions as product
concept, target market, product value, and costs arising exactly during the front end of
innovation process.
Modern business environment is strongly affected by many factors. Shortening the
product life cycle is one of them. Due to technology-driven and knowledge-based
essence, especially software development organizations are strongly affected by
shortened product life cycle (Edison, Bin Ali, & Torkar, 2013). Furthermore, shorter
product life cycle in the software industry forces companies to response to it in a rapid
way. To achieve sustainable competitive advantage in the global market, to react to
technological changes, and to be able to satisfy customers, even in saturated consumer
market, organizations in the information technology (IT) sectors are looking for different
options in managing the front end of innovation in order to achieve success in the
complete innovation process, that would have a positive effect on their competitive
advantage (Kleinschmidt et al., 2007). Considering, that many scholars highlight some
distinguishing features of the front end of innovation, such as uncertainty and creativity
(P. A. Koen et al., 2014), arranging and managing the FEI in a proper way could become a
crucial role for executives' managers of these companies. Exactly these visionary and
imaginative qualities, unpredictability and complexity make the managing of the front
end of innovation such an urgent challenge (Poskela & Martinsuo, 2009; Verworn, 2009).
Some academics foresee other defiance in attempting to conceptualize the front end
of innovation approach. For example, often FEI activities are treated as the innovation
process itself, without taking into account, that it is rather sub process with their
individual characteristics and objectives, and, therefore has to be managed in a particular
way and with the help of special tools (P. A. Koen et al., 2001). Thus, both scholars and
practitioners aim to solve the problem of how to find synergy between proper chosen
managerial tools and organization objectives in order to get the highest performance in
the front end of innovation. Taking into account that challenging innovation process
refers primarily to managerial and executive issues (Beaume, Maniak, & Midler, 2009;
Sundström & Zika-Viktorsson, 2009; Tuominen, Piippo, Ichimura, & Matsumoto, 1999)
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managing the front end of innovation has become a special issue both for managers and
academics (Jongbae Kim & Wilemon, 2002b). Proper organized and managed FEI
activities could have a positive impact on both FEI efficiency and FEI effectiveness.
Besides, in order to enhance FEI performance it also could be helpful to find the
answer to another important question, namely how to establish a favourable ground for
creativity and inspiration? Both issues are interdependent, and could be significant for
choosing the right modus operandi for implementing and improving the FEI activities.
Previous researches has identified factors that might contribute to performance in the
front end of innovation process (Ho & Tsai, 2011; Koen et al., 2002), but the impact of
those factors have not yet been tested in a quantitative research to any extent. The aim
of this research has to contribute to understanding to these problems and to answer the
research question: "Do the following organizational factors have an impact on the front
end of innovation performance: innovation strategy, innovation culture, senior
management commitment and team?" In order to answer this question, Icelandic small
and medium sized companies in the information technology sector were examined.
Considering the fact, that previous researchers have found the positive relationships
between some organizational attributes (Ho & Tsai, 2011; Koen et al., 2002; Verworn,
2009), the research puts forward and tests following hypotheses:
Innovation strategic goals have a positive impact on FEI activities performance
Innovation culture has a positive influence on the FEI performance
Senior management commitment positively affects the FEI performance
Properly organized FEI team is positively associated with The FEI performance
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