Thesis Proposal
Stakeholder Integration into the Innovation Process
University of Amsterdam
2013/2014
Rodrigo de Deus
10603158
Introduction
In the decision making process, managers are often confronted with multiple demands simultaneously, which force them to choose among multiple tradeoffs (Freeman, 2010). They seek one crucial question: what is the best tradeoff so that, at least, the expected returns are met, and the firm successfully survives for a long period?
Over the last years, the importance of innovation has been seen as a critical issue to guarantee a firm’s survival over the long term. It is a means to introduce new products and services in the market to meet unspotted needs (Vowles, Thirkell, & Sinha, 2011), to gain above normal profits and monopoly rents (Schumpeter, 1950), achieve market position (Callois, 2008), or to ensure that business is not lagging behind competitors (Raisch & Birkinshaw, 2008). Overall, innovation serves to ensure the prosperity of a firm in the future.
Innovation is a complex, uncertain, ambiguous and risky process. It involves acquiring knowledge and information, before interpreting and applying it in the most efficient way possible. To do this, managers have to decide on how to allocate their current and limited resources in each phase of the process. As multiple demands need to be met in any process, managers need to decide which the best tradeoff in their resource allocation decisions is.
A firm’s success depends on these choices. Differences amongst firms might rely on a manager’s capability to efficiently and effectively apply these tradeoffs, according to their firm’s needs, goals and expectations. Resource allocation requires knowledge and experience, so that outcomes are better predicted to face the uncertainty of the market. The deployment of knowledge is a source of competitive advantage (Eisenhardt & Martin, 2000; Grant, 1996) and resource allocation is a human process in which the knowledge concept is embedded. An improvement in this knowledge to better predict outcomes would enhance a manager’s capability to achieve competitive advantage through the innovation process.
This study propose a supply chain integration approach towards the innovation process and how a manager’s attention, directed to one stakeholder group at the expense of not focusing in one other, affects the outcome, based on firm’s expectations.
Although research regarding supply chain integration is broad, few studies have focused on how customer and supplier integration, together, affect the overall expected outcome. In this paper it is assumed that, depending on a firm’s structure, culture, environment, or even the manager itself, firms tend to deposit more attention towards one stakeholder group rather than another, thus choosing tradeoffs between, for instance, customers and suppliers.
Therefore, the question that guides this study is: “To what extent does the integration of one stakeholder into the innovation process at the expense of not integrating one other affects the accuracy of expected predictions?”
It is proposed, in this paper, to observe how this tradeoff affects the final outcome of the innovation process based on what was initially expected (above expectation, according to expectation or below expectation). By doing this it is expected not to measure innovation performance, but accuracy in expectations and if there is a positive or negative tendency, based on the power of information brought by either customers or suppliers.
The following section will address the concept of ambidexterity and it’s implications that lead us to the main assumption of the research question. The importance of stakeholders to the firm will be explained, followed by the importance of the integration of customers and suppliers into the innovation process.
Literature Review
Ambidexterity
According to the Oxford English Dictionary, ambidexterity has the root “ambi” (meaning both) and dexter, meaning “right” or favorable. Thus, “ambidextrous” is to be “right on both sides”. It is the capacity to perform activities with both hands rather than being either “right-handed” or “left handed” (Oxford English Dictionary, 2008).
Within the strategy and management field, ambidexterity has been the target of several studies and definitions. The most accepted definition of ambidexterity in current literature highlights a balance between exploration and exploitation, where a firm exploits their existing competencies, whilst at the same time, explores new opportunities (March, J. G., 1991; O'Reilly & Tushman, 2007). As a result, maintaining an appropriate balance between exploration and exploitation is a primary factor in system survival and prosperity. (March, 1991).
Similar to this idea is the work of Birkinshaw and Gibson (2004). They shift the perspective to the tradeoffs between alignment and adaptability. They describe ambidexterity as the capacity to simultaneously achieve alignment (excellence in daily operations) and adaptability (ability to innovate and change in response to changing demands in the environment). To ensure long-term success, an organization needs to master both adaptability and alignment (Birkinshaw & Gibson, 2004).
Other scholars have used the concept of ambidexterity, under different terminology, to attribute the oppositional meaning of the concept. Thompson (1967) has used it to study the paradox between searches for certainty and flexibility (Thompson, 1967). Adler et al. (1999) to denote the equilibrium between efficiency and flexibility (Adler, Goldoftas, & Levine, 1999); Vinekar et al. (2006) to discuss the balance between agility and stability (Vinekar, Slinkman, & Nerur, 2006), and Nadler & Tushman (1999) to study the ability to maintain superior performance in established business, while managing innovation in targeted areas (Nadler & Tushman, 1999), amongst others.
Although perspectives differ, the main point in scholarly research towards the subject is the same: how should managers develop the ability to allocate their limited resources, whether they are human, capital, time, tangible, intangible, hard, soft or any other type, in the most efficient way, so that the relation between the “two sides of the same coin” will maximize the value of “that specific coin”.
The ambidexterity point is one where such equilibrium between opposite variables in an equation is reached and therefore, it is possible to maximize present value and, at the same time, survive over an infinite period of time.
Therefore, there are two possible outcomes from a manager’s decision making process. The first is an outcome that will benefit all variables equally, and consequently, lead to an equilibrium. At this point, the most efficient use of resources is achieved. But decision makers are biased, by external or internal factors, and the concept of bounded rationality. Therefore, this point is utopian and its practicality serves only as a reference point.
Because there is no perfect allocation of resources and because resources are limited, in a more realistic and practical point of view, there is only one possible outcome from a decision making process, an assumption that will guide the development of the proposed research: The outcome of one decision making process will always benefit a certain variable at the expense of another (defined as the opportunity cost).
Thus, the question that managers should ask, and the question that will guide this investigation is: To what extend can we benefit from one variable at the expense of another?
Although O'Reilly & Tushman (2007) refer to the innovation process as a consequence of exploration activities regarding the tradeoff between exploration and exploitation (O'Reilly & Tushman, 2007), it is not meant to apply as a concept in this research. Ambidexterity is used to refer to the tradeoff within the innovation process, a tradeoff between supplier integration and customer integration, and how deviations from this equilibrium will affect real outcomes and predictions ‘accuracy.
Supply Chain Integration and The Innovation Process
Knowledge is one of the principal inputs into the innovation process (Miller et al., 2007). Miller et al. (2007) define three types of knowledge: Extradivisional knowledge (knowledge outside firm’s boundaries), interdivisional knowledge (knowledge acquired between different departments, but inside firm’s boundaries) and intradivisional knowledge (knowledge acquired in the same department and within firm’s boundaries) (Miller et al., 2007). Extradivisional knowledge is the hardest to achieve, however once successfully interpreted it can be expected to have a higher impact on the innovation process. To overtake this problem, firms should take advantage from their external constituents and from the relationship between firm and environment. Stakeholders are important to achieve better performance (Freeman, 1994). The relationship between firm and stakeholders is a two arrow connection (Donaldson, T. & Preston, L. 1995) and firms should take into consideration this relation when defining strategies towards innovation.
One way of efficaciously acquiring extradivisional knowledge is by looking to the supply chain and developing strategies of integration and synergies amongst stakeholders.
The importance of Supply Chain Integration (SCI) has been recognized in several articles over the last years. Although several definitions can be found in the vast available literature, this paper will use the one presented by Alfalla-Luque et al. (2013) which is based in a literature review regarding the subject: “SCI implies collaborative inter and intra organizational management on the strategic, tactical and operational levels of activities (and their corresponding materials, funds and information flows) that, starting with raw material suppliers, add value to the product to satisfy the needs of the final customer at the lowest cost and the greatest speed” (Alfalla-Luque et al., 2013)
In order to face the increasing demand of the market, brought about by globalization and increasing growth in market dynamisms, firms seek new ways to follow innovation initiatives. Tuominen et al.(2004) states that the capability to innovate requires not only internal learning, but also a different perspective towards external collaborations and partnerships (Tuominen et al., 2004). The integration of firms’ value added chains, to increase the probability of innovation success,
has been recently seen as an alternative path. Studies suggest that supply chain integration affects operational performance, productivity, and capacity, and the degree of integration also influences cost and efficiency improvements (Ettlie et al., 1992; Bagchi et al., 2005).
One of the main problems embedded within the innovation process concerns the appropriation of knowledge, which translates to an accurate understanding user’s needs. This understanding is crucial for the success of new products/services (Rothwell et al. 1974). Supply chain relationships have recently been seen a source of the required knowledge. Firms can learn with other organizations with which they are involved, and innovation incentives firms can gain through their supply chain, and have been recently emphasized in the field of business literature (Berghman et al., 2012).
Although several types of integration have been defined in the literature, this paper will only focus on customer and supplier integration, and the tradeoff manager’s face between allocating their resources towards one or another.
Customer integration has been seen as one of the most important ways to get the required knowledge for a new product’s success. Cohen et al. (2002) showed that 90% of the firms had used knowledge from the customers as an initiator for new innovation projects.
The integration should begin with recognition of a firm’s strengths and weaknesses related to the requirements of its top customers (Stank et al., 2001). Successful integration depends on the capabilities to meet customers’ requirements and expectations, and involves shaping internal activities to meet these requirements (Koufteros et al., 2005). As a firm gets to know its customers better, customer integration ensures that their demands are actually being met (Koufteros et al., 2005).
Alternatively, firms may seek for this knowledge in their suppliers. Suppliers, through their relations with other entities in the same industry, are a source of information regarding the tendencies of such industry. According to Stank et al. (2001), supplier integration is “the competency linking externally performed work into a unified coherency with internal work
processes” (Stank et al., 2001). The degree to which suppliers are integrated in new product development, is defined by Koufteros et al. (2007) as gray-box integration, where suppliers and customers work alongside each other, providing direct exchanges of different knowledge between them, and black-box integration, where each part develops separately certain tasks and components (Koufteros et al., 2005).
Customer and supplier integration are not mutually exclusive. However, firms tend to prefer one approach over the other, as a consequence of their structure, history, culture and managers preferences. Although several studies have been exploring how each approach individually affects innovation and performance, few have explored how different levels of both approaches, together, impact the overall outcome. Managers should take into consideration both customer needs and suppliers information and try to find the right balance between allocating their firm’s resources to the different approaches. Focusing too much on customer integration might lead to a failure in the implementation of the dominant design of a particular industry. Focusing too much in supplier integration might lead to innovation efforts that do not meet customer needs. Ambidexterity is therefore applied as the right balance between customer integration and supplier integration.
The research question is, therefore: “To what extent does the integration of one stakeholder into the innovation process at the expense of not integrating one other affects the accuracy of expected predictions?”
This research question seeks to test two hypotheses.
As stated before, managers should take into consideration both the developments and tendencies within an industry and customer needs. A deviation from the right level of resource allocation towards one group at the expense of not allocating to another is expected to lead to a high degree of innovation failures. Therefore the following hypothesis is intended to be tested:
H1: The more the discrepancy between levels of supplier integration and customer integration, the
One of the main questions that managers seek to answer is “which innovative initiatives should we push forward?” Burgelman (1984), this addresses this problem and defines two key dimensions: Strategic importance (how does the initiative help the organization) and operational relatedness (does the firm have the resources and capabilities to implement such innovation?) (Burgelman, 1984). This means that based on the gathered information, firms develop reports to predict the returns of the investments in new products. Because there is a high level of uncertainty in any innovation process, and it is expected that more reliable information leads to better predictions, it is proposed to test how different levels of different types of information affect the accuracy of this predictions. It is hypothesized that both supplier and customers have important knowledge, and to have a better prediction, both levels should be in balance. Therefore:
H2: The bigger the deviation from the equilibrium between supplier and customer integration, the
Research Design
A quantitative study based on a survey will be used to test the hypothesis.
The sample is yet to be defined (size and type of sample). It is expected to gather the data from companies within the same industry and similar in size (number of employees), so that the results are not biased by differences in industries and complexity inside the firm.
A total of twenty questions (still to define) will try to measure the level in which the company is embedded towards the levels of integration between suppliers and customers into their innovation process. With these questions, it is meant to observe to what extent a company benefits one stakeholder group more than the other in their innovative activities.
More questions (still to define) will measure the degree of success of their last innovative initiatives and will measure what is the relation between the real outcome and the expected outcome of each initiative.
An average of successful initiatives will be determined for each company, and will compare the level of stakeholder integration.
Each individual outcome innovative initiative will be compared to their initial expectations. The accuracy of the predictions will be compared to level of stakeholder integration in their innovative initiatives in order to explore if there is any relation between accuracy and the source of information (either customer or supplier).
Work plan
• February: Improving literature review and improving the research question (Both tasks should be interlinked with each other; it is expected to take the whole February).
• March: Definition of methods and research design (2/3 weeks); create surveys (1 week) • April: Adjusting the research design (1 week). Start with data collection (3 weeks)
• May: Data analysis and results (3 weeks); Improving result section (1 week)
• June: Discussion and conclusions (2 weeks); Review and adjusting details of the whole thesis (1 week); Final thesis (last week of June)
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