Time to innovate? : an explorative study on the role of innovation within MEE and the decentralization of the Dutch Social Support Act

Time to innovate?

An explorative study on the role of innovation within MEE and the decentralization of the

Dutch Social Support Act

Master thesis Bente Bonefaas 5736463

University of Amsterdam / Faculty of Economics and Business Business Studies: Innovation Management

Time to innovate?

ABSTRACT

This study explores the meaning of innovation according to MEE and Dutch municipalities in the context of the decentralization of the Social Support Act and how this can affect the innovation capabilities within the MEE organizations. Although all participants acknowledge the urgency of innovation, there’s not one definition of innovation used. Moreover, municipalities have a different vision on innovation compared to MEE participants. Among MEE participants, different phases related to the implantation of innovation are revealed which can have an influence on the innovation capabilities. Within these phases, there is a distinction between MEE organizations having an active or passive attitude towards municipalities when negotiating about client support. There are MEE organizations that incorporated innovation as an important theme in their mission and strategy; others relate innovation to new projects on the executive level. Projects, according to municipalities, are seen as temporary and valuable on the short-term. They prefer organizations having a concrete business plan, using voluntary organizations, digital solutions and informal care providers to achieve an innovative service method, while MEE organizations view innovative projects in a more sustainable and innovative way. Within MEE organizations, an important capability is to build upon an innovative climate. There are MEE organizations that have a concrete plan to create this climate; others directly focus on innovative projects. MEE Netherlands can play an important role fostering the innovative climate, together with the management teams of all MEE organizations.

Other important capabilities to innovate are the retention and improvement of content knowledge and clarifying the main service activities to municipalities as new stakeholders. Clarification can be achieved by being able to concretize productivity and elucidate the added value of services compared to other welfare organizations. This is especially the case with the so called ‘collective tasks’ MEE performed when providing client support.

Taking the external environment into account, the most efficient way for innovation is to take small steps towards new services and methods, internally prepare and change the organizations towards responsible, independent and flexible employees and avoid radical innovation due to political interests and the current content knowledge of stakeholders within the field of welfare. Out of the box thinking is difficult due to the established framework related to the principles of the Social Support Act in which innovation takes place. The governmental arrangements have a threatening effect on innovation, because it lessens the possibility to anticipate on the local demand.

Define innovation with the management team and build upon a business plan to foster the innovative climate in the organization, finding new business partners, orchestrating current services, coproduce, sharing content knowledge with stakeholders and finding new solutions for service deliveries are capabilities MEE can further develop next to the fact that they are, and should be, ahead of performing the new principles of the Social Support Act in 2015.

Acknowledgements

Ton Gruijters, Philippe Sprenger, Matthijs Veldt, Simon Heesbeen, colleagues from Berenschot, MEE Netherlands and all participants: thank you. Thank you for supporting me finishing this thesis

TABLE OF CONTENTS

1. INTRODUCTION ... 1

1.1 Decentralization and the focus on innovation

1.2 Problem definition and Central Question

1.3 Main objective and relevance of this study

2. LITERATURE REVIEW ... 5

2.1 Definition of innovation

2.1.1 Public innovation ... 6

2.1.2 Service innovation dimensions ... 8

2.2 Service innovation capabilities

2.2.1 Organizational environment ... 10

2.2.1.1 Organizational structure and culture ... 11

2.2.1.2 Organizational knowledge ... 12

2.2.2.3 Managing innovation ... 13

2.2.2 Dynamic service innovation capabilities ... 14

2.3 Innovation capabilities in the public sector

2.4 Conclusion

3. RESEARCH QUESTIONS AND METHODS ... 18

3.1 Research Questions and Conceptual model

3.2 Research Method

3.2 Research setting

3.2 1 Internship ... 20

3.2.2 MEE Netherlands and MEE Organizations ... 21

3.3 Data Collection

3.3.1 Data analysis

3.4 Trustworthiness

4. RESULTS ... 25

4.1 Definition of innovation

4.1.1 Added value ... 28

4.1.2 Innovation dimensions ... 30

4.1.3 Service innovation and organizational innovation ... 34

4.2 Innovation capabilities

4.2.1 Organizational environment ... 36

4.2.1.1 Organizational resources and organizational structure ... 38

4.2.1.2 Organizational knowledge ... 40

4.2.1.3 Managing innovation ... 42

4.2.2 Dynamic service innovation capabilities within MEE ... 43

4.3 The influence of the innovation meaning on innovation capabilities

4.4 The external effect: opportunities and threats

4.5. Conclusion

5. DISCUSSION ... 56

6. MANAGERIAL IMPLICATIONS ... 61

7. LIMITATIONS AND DIRECTIONS FOR FURTHER RESEARCH ... 62

8. CONCLUSION ... 63

REFERENCE LIST ... 64

Websites ... 68

APPENDIX... 69

Topic list MEE

Topic list Municipality

List of families and codes

1

1. Introduction

The purpose of this study is to explore how the vision of MEE directors and managers on innovation affects the organization’s innovation capabilities in the context of the decentralization of the Dutch Social Support Act. This chapter gives an introduction in the current changes toMEE related to the Social Support act and how innovation can play a role in these changes. Section one contains a description of the current situation, the second the problem definition and central question in this thesis, followed by the justification of this study in section 1.3.

1.1 Decentralization and the focus on innovation

The care and welfare sector in the Netherlands is changing. From January 1st 2015, municipalities are

responsible for youth care, supporting people to find a job or providing a social payment and taking care of elderly and chronically ill people, now performed by the national government. This transformation is called ‘the decentralization of the social domain’ (Rijksoverheid.nl, 2014). The main goal of this transformation is to provide ‘custom-made care’ in a more efficient, less bureaucratic and affordable way compared to the current situation.

One organization that is confronted with these changes is MEE. MEE is a foundation consisting of 22 independent MEE organizations, shortly called MEE, represented by their national branch organization called MEE Netherlands. MEE offers support to more than 101.650 clients having mental disabilities and their networks in all areas and stages of life (MEE.nl, 2013). Nowadays, MEE gets financed by the Exceptional Medical Expenses Act (AWBZ) (MEE.nl, 2013). However, from January 2015, the AWBZ, provided by the Ministry of Health, Welfare and Sport, only covers complex long-term healthcare. People with psychological or physical disabilities, elderly and people with psychological complications are covered by the new Support Social Act (Wmo), performed by Dutch municipalities: they decide which support is needed in their municipality. The revision of the AWBZ requires municipalities to finance independent client support in general but no longer the client support specifically carried out by MEE (Zorgvisie.nl , 2014; Skipr.nl; 2014). This transition is meant to improve the service quality, avoid a ‘one size fits all’ service and causes a greater individual and collective engagement (Albury, 2010). 75% of the current budget the central government spends on the AWBZ will be transferred to the municipalities (Rijksoverheid.nl, 2014; Movisie.nl, 2014). Customized facilities are needed in order to maintain and improve the quality of care and social services (movisie.nl, 2014).

Within this decentralization, innovation is becoming ever more important in the field of care and

welfare. According to the transition committee which is responsible for the implementation of the New Social Support act, innovation should be a way to achieve the main goals of the decentralization: transforming the Dutch welfare state in a participation society (invoeringmo.nl; 2014; movisie.nl, 2014).

Next to this, a growing number of municipalities reserve a part of their budget for innovation.

Organizations such as MEE are able to claim a part of this budget when they can convince

municipalities having enough innovation capabilities (Langenacker, 2014). According to personal

conversations with MEE Netherlands, MEE organizations are aware of the fact that being an innovative organization could be a way to distinguish themselves from other organizations in order to maintain their position in the field.

2

1.2 Problem definition and Central Question

Although innovation in the welfare sector is an important topic, Windrum and Koch (2008) state that innovation studies from the past were mostly focused on private sector manufacturing and private sector service firms. The political science covers topics such as change and reforms within the public sector, but public innovation remained an undiscovered field of research (Windrum & Koch, 2008; Osbourne & Brown, 2005; Miles, 2004). Van de Ven (1986), concludes that the organizational context and sector to which an organization belongs, have an influence on the degree of innovativeness. Differences between the public and private sector are clearly visible. For example, a high external control within the public sector causes a higher level of bureaucracy, which can be seen as a threat for innovation and makes innovation more complex. Moreover, a lack of competiveness has discouraged the motivation to innovate, due to the fact public organizations are non-profit.

Next to this, the public sector asks for a broader view than only the ability to renew products, processes, technologies and procedures (Aiken and Hage, 1971; Engel, 2008). Welfare services in the Netherlands can be subdivided into care related and social supporting services (Jalonen & Juntunen, 2011: 402). The welfare system is complex because public, as well as private organizations, non-profit associations and foundations are involved. It is also complex because the outcome of the welfare system cannot simply be understood by the sum of these organizations (Jalonen and Juntunen, 2011).

To conclude, the public sector is not as stable as written in the articles of Aiken and Hage (1971). Especially in the field of care and welfare, the decentralization asks for efficiency, a market-oriented view, a more responsive welfare system, a clear measurement of productivity and a focus on results (Jalonen & Junen, 2011; Albury, 2010; Windrum & Koch, 2008). An organization with enough innovation capabilities should be able to better adapt these changes and successfully implement them in their organization (Gosselink et al., 1991; Armstrong & Ford, 2000; Jaskyte & Dressler, 2005).

Previous studies are mainly focused on innovation in the Dutch care sector. Currentresearch mainly

focuses on the impact of the decentralization in the welfare sector, but to a lesser extent on the possibilities for innovation within this decentralization. Apart from the fact that little has been written on innovation within the welfare sector, innovation as such is defined and measured in many different ways (Adams et al. 2006). Innovation in the welfare sector is seen as a ‘silver bullet’. It should be the solution for ineffectiveness and inflexibility, although many welfare organizations struggle with deficiencies when it comes to innovating services (Jalonen & Juntunen, 2011). This thesis consists of a further exploration on the definition of innovation in the decentralization and transformation process.

To foster innovation, MEE can make use of or create new innovation capabilities (Den Hertog et al, 2010). However, MEE organizations should act according to the uniform MEE Code (MEE Code, 2012). The MEE Code describes which services MEE provides and what quality standards MEE needs

to uphold. Moreover, it statesthat MEE organizations are allowed to innovate when participating in

experiments together with municipalities in order to improve collaboration (MEE code, 2012). These experiments are focused on providing new services, new partnerships and new customers. These dimensions can be related to the dimension and capabilities framework of den Hertog et al (2010).

3 In the first place, the main purpose of this thesis was to explore the influence of the organization’s capabilities on the negotiation process with municipalities concerning the client support provided by MEE. However, most of the MEE organizations missed the deadline of these negotiations on May 1th. Moreover, during the interviews, it became clear that MEE uses innovation as a ‘silver bullet’ while there was not one clear meaning and definition of innovation used. This might explain the differences on the innovation capabilities of the organizations which, in the end, could be used for the negotiation process with municipalities. As founded in the first interviews, there was no direct link between the innovation capabilities and the status of the negotiation process, due to the fact the innovation capabilities of organizations were affected by the different meanings of innovations participants indicate. Therefore, during this study, the focus on the relation between the innovation capabilities and negotiation process changed towards a focus on the meaning of innovation and innovation capabilities when implementing the new Social Support Act. MEE is used as an example of an organization where change is needed to remain their position in the field of social welfare. To create a better understanding of what innovation in the public sector includes, a literature study on innovation and innovation capabilities will be done. The main quest ion therefore is as follows: What is the meaning of innovation according to MEE and Dutch municipalities in the context of the decentralization of the Social Support Act and how could this affect the innovation capabilities within the MEE organization?

To answer this question, first a literature study will be done to understand the main constructs applicable to the MEE Case. In this literature study, the following questions will be used:

- What is innovation?

- What are innovation capabilities?

- Which capabilities described in the previous literature are relevant for the MEE’s current

situation and why?

1.3 Main objective and relevance of this study

This research is mainly focused on the social justification: Gaining a deeper understanding of the consequences the transition AWBZ-Wmo, is important for organizations that get affected by it. For MEE, this thesis can contribute to a better understanding and can be used as an example for other organizations that are situated in the same position. In general, the growing demand on care while cutting costs together with improving quality asks for an efficient way to deliver care or care supporting services. The main concern for innovation researchers has focused on the question how organizations should innovate (Fonseca, 2002). The way innovation contributes to a higher efficiency within the welfare sector is an important social value and this thesis will elaborate on possibilities how to actually do so. By using different models of innovation, innovation capabilities and focusing on the applicability in practice of these models, MEE organizations should be better able to position themselves in the context of innovation, which is the main social justification of this research. Next to the social justification, a lot has been written on innovation within the field of technology and the improvement and creation of (new) products. However, less research has been done on the understanding of the innovation process especially in the field of welfare. This research tackles the question how innovation can be important in the public sector and how, in this case, actors can

4 contribute to foster innovation. Moreover, the service innovation capabilities model is a theoretical model which needs to be empirically explored. Using the theory, such as the service innovation capabilities can be used as a framework for strategically managing service innovation (Den Hertog et al, 2010). This research can contribute in a scientific way when further exploring these capabilities specifically for a welfare organization.

5

2. Literature review

This chapter describes and discusses two main constructs of this research: the definition of innovation and the innovation capabilities. The first is described in section 2.1, with a special focus on the definition of public innovation and the different dimensions of innovation to better understand the complexity and diversity of the innovation definition. The second construct is discussed in section 2.2. The innovation capabilities are divided into two main types of organizational capabilities: capabilities related to the organizational environment and capabilities specifically focused on dynamic service innovations. The last section focuses on innovation capabilities in the public sector, with a special focus on the social welfare sector, to understand the definition in a broader context. This chapter ends with a brief summary and a critical review on the applicability of the literature on the empirical study of this thesis.

2.1 Definition of innovation

The concept innovation is used in various forms, contains different definitions and is often representative for creativity, knowledge or change (Crossan & Apaydin, 2010). The first definition of innovation was introduced by economist Joseph Schumpeter. This definition focuses on novel outcomes. Albury (2010: 51) adds three more elements to his definition. According to him, innovation is the creation and implementation of new processes, products, services and methods of delivery which result in significant improvement in outcome, efficiency, effectiveness or quality’. According to Crossan and Apaydin (2010), innovation can be seen as both the process and the outcome of a product or service. In general, a difference is made between product and process innovation. A product innovation is a new product or service, process innovation affects management and organization (Walker, 2006). Looking at the outcome, innovation can be related to the newness within a certain dimension, divided into new types, forms, markets, industries and firms. In this thesis, the form of the innovation outcome will be service innovation and focuses on innovation within the social structure instead of technical innovation (Crossan & Apaydin, 2010). How these innovations take place, can be described as innovation as a process.

Next to the innovation process, the innovation process has been discussed in many articles since innovation is on the agenda of organizations. Most of these articles describe the process from idea to implementation and evaluation which lead to new ideas, such as the stage-gate model of Cooper (2008). Deciding to continue the process depends on the criteria against which the product is judged (Cooper, 2008). Important in this decision is whether the innovation is internally accepted and externally adopted (Crossan & Apaydin, 2010).

The difference between the focus on the process, having a set of means, and on the outcome of innovation is further described in the work of Sarasvathy (2001). Having an entrepreneurial and innovative spirit contains a focus on the so called ‘effectuation process’. The effectuation process takes a set of means as given and focus on selecting possible effects that can be created with that set of means (Sarasvathy, 2001).

Apart from new outcomes, innovation should create new value for the customer, and therefore for the firm (Sawhney, 2011). A new outcome without value is not sufficient for innovation, according to these authors. Besides that, innovation takes place in the business domain as a whole. Looking at the outcome and innovation process, answering the ‘what’ and ‘how’ question is important (Crossan and

6 Apaydin, 2010). However, Sawhney et al. (2011) develop the innovation radar by answering also the ‘who’ and ‘where’ question. The 12 dimensional scale created by Sawhney et al (2010) include the offerings, customer process and presence. Measuring firm’s position on business innovation, the innovation could be useful to globally illustrate in what way firms are able to innovate.

Next to this, Amabile (1996) concludes creativity is the production of novel and useful ideas in any domain, whereas innovation is the successful implementation of creative ideas within an organization. Similar to Sawhney et al. (2011) useful ideas, innovation should create new value (Amabile, 1996).

In the definitions described above, there’s no clear distinction between innovation in the public and private sector. However, Engel (2008) states that innovation in the public sector differs from the

private sector. Not making profit butcreating value for the customer is one of the main objectives

for a public organization that could explain innovation in the public sector used in a different way than in the private domain. Osborne and Brown (2005:4) describe public innovation as: ‘the introduction of new elements into a public service in form of new knowledge, a new organization, and/or new management or processual skills which represents a discontinuity with the past. This definition however, lacks the component of the added value innovation should have.

Innovation, according to various authors, must not be confused with change (Jalonen & Juntunen, 2011, Osborne and Brown, 2004). Jalonen and Juntunen (2011) state that innovation and change are not the same, but explain innovation is a specific form of change. Schumpeter’s definition of innovation implies ‘doing things differently’. Innovation always causes change but is more than change alone. It is about change because of the fact that it is a discontinuity or a break with the past. It is also the translation of new ideas into new forms of action and hereby creates an improvement (Jalonen & Junen, 2011). Crossan and Apaydin in their definition call this ‘renewal’; new management systems, new methods of productions, new products causing a value added novelty. In this thesis, according to the previous information, the following definition of innovation will be used:

‘Innovation is the process and outcome of new practices in the Dutch social domain to create new value for MEE and its stakeholders’

2.1.1 Public innovation

As described in the introduction, thepublic sector is generally conceived to be bureaucratic, inactive,

inefficient and too stable. Therefore, up until the 1980’s, there was limited interest in public sector innovation. Although public innovation wasn’t something new, the economic crisis in 2008 brought public innovation on top of the policy agendas in welfare states such as the Netherlands (Sørensen, 2012). The first reforms of the welfare sector were focused on working harder. The recent reforms associated with the decentralization of the AWBZ to the Wmo, however, focuses on how to do things smarter and make it possible to provide the same services on a lower budget. Innovation, according to public authorities, could be a way to make this happen (Sørensen, 2012).

As written in the previous section, the development of public innovation differs from private innovation. However, as reported by Albury (2010), the public sector is far from lacking innovation. Most innovations are incremental. These can be described as minor changes or adaptions to existing

7 services or process (Henderson and Clarke, 1990; Albury, 2010). Despite this, the diffusion of innovation across the public sector is slower and the transformation of service and service delivery innovation takes longer. A reason for this can be found in the fact that market pressure and competition in the private sector stimulates the diffusion of innovation (Hartley, 2005). According to Hartley (2005), innovation in the public sector is justifiable only when it increases the public value because it lacks a competitive spirit. Innovation and improvement therefore aren’t always two concepts that are clearly distinctive in the public sector, a thing which should be important to justificate the added value of an innovation. Hartley (2005) creates a figure to distinguish different relationships between innovation and improvement, which could be relevant for studying innovation in a public organization like MEE.

Figure 1: Innovation and Improvement by Hartley (2005)

Interesting in this figure is box 2 and 3, where there’s improvement but no innovation and innovation but no improvement. The first can be the case when improvement methodologies are continuous and no different than before. When users or clients aren’t content with the innovation, or when there’s no added value, innovation happens without any improvement of the situation or product (Hartley, 2005).

When explaining the degree of innovation adaption in the public sector, the external context, characteristics of the organization and the diffusion drivers are relevant fields of study. The latter, however, is a topic less frequently studied (Walker, 2006). Next to the political environments, organizational size, organizational structure, the role of leaders and the stability of management, diffusion determinants could explain why some organizations or regions are more innovative than others. To understand the influence of innovation, innovation should first be divided into different types. Next, it should be seen in a broader perspective. Political pressures, public officials,

8 competition and vertical influence should be examined in order to understand the adaption of a certain type of innovation (Walker, 2008).

The difference with public innovation capabilities in comparence with private innovation capabilities can be better explained by the way how the public and private sector perceive risk-taking and failure. The fact that private organizations accept that most things fail and take high risks, these organizations evolve by failure and experimentation while public sector organizations are managed by avoiding risks and failures. Therefore, successful innovations are not rewarded, while unsuccessful innovations have can have major consequences (Jalonen & Junen, 2011). Because of the fact that there was a need for an efficiency improvement, the need for innovation increased and became more attractive.

Windrum and Koch (2008) mention six types of public innovation. The first type, service innovation, is further explained by den Hertog (2005), by distinguishing service innovation into six dimensions. Service delivery innovation and organizational innovation are the second and third types of public innovation and together with service innovation mostly examined in studies about private sector innovation. The fourth, conceptual innovation is about developing a new view which enables the introduction of new missions and strategies that underpin existing service products and processes. An example could be the introduction of New Public Management in the public sector (Windrum & Koch, 2008; Diefenbach, 2009). Fifth, policy innovation is about improving policy instruments in order to achieve goals, actions and new ideas about social interaction and government. This is considered to be innovation on a national or global level. The last type of innovation, systemic innovation, is about new ways of interaction with other organizations and knowledge bases. Having new relations with private organizations could be a systemic innovation affecting the welfare sector in the Netherlands (Windrum and Koch, 2008). Within the context of public innovation, service innovation will be further described in order to explain its role in the current situation of MEE and the decentralization of the Social Support Act.

Although Windrum and Koch (2008) distinguish six types of public innovation, service innovation in the work of den Hertog et al (2005) is defined in a different way. This should be taken into account when we take a closer look at the possibilities for innovation within MEE. Den Hertog et al. (2005) distinguish service innovation from technological innovation. This means, there is no clear distinction between service, organizational and conceptual innovation within their conceptual model and therefore is broader defined. This definition service innovation will be further described in the following sections, looking at the dimensions and capabilities of service innovation.

2.1.2 Service innovation dimensions

The vision towards the service sector as being non-innovative has slowly been replaced and since the 1990 has been seen as a serious potential for innovation (Miles, 2004). Service innovation differs from product innovation in three important ways. First, interaction is part of the customer experience and therefore part of the innovation. Second, in order to let a certain service take place, a physical presence of the customer is required. However, according to new technologies, this component might become less important. At last, service innovation usually does not have a tangible product to carry a brand name (Berry et al, 2006).

9 In this thesis, it is of importance to understand the type of service MEE includes in order to understand which part of the service can be innovated. Two dimensions could be used to understand innovation within the service sector. First, the type of benefit must be clear: this can be a new core benefit or a new delivery benefit. The latter is the way in which a core benefit is received (Berry et al, 2006). The second dimension is called the seperability, or whether the service must be produced and consumed simultaneously (see figure 1). Creating innovations that offer a new core benefit at time and place of production are described as comfortable gains (Berry et al, 2006). Speaking about respectful access, the production and delivery of the service is still inseparable, but there’s a new delivery benefit.

When a service type is not time and place bound and the production and consumption can be seen as separable, the new offering is called controllable convenience (Berry et al, 2006). The last type of service innovation is creating a flexible solution. This means an organization is able to create a new core benefit that can be produced apart from where it was consumed.

Figure 2: The four types of market creating service innovation – Based on Berry et al (2006)

Berry et al (2006) clearly define the position of a service innovation. However, this position neglects the possible influence a client can have, for example in the interaction with their service providers. Oliveira and Von Hippel (2011) mainly focus on the role of the users within innovation, seeing users as innovators themselves. To successfully innovate, users should be committed to the changes from the beginning of the innovation process. Lead users input in particular can help developing service innovation. This article mainly focuses on product innovation within the service sector. Engaging clients within the process of innovation can also be called co-creation, as mentioned in the article of Prahalad & Ramaswamy (2004). MEE is focusing on self-reliance and quality of life by first looking at clients’ possibilities instead of disabilities. Co-creation therefore can be a relevant tool for innovation (Cottom & Leadheater, 2004).

According to Den Hertog et al (2010), service innovation is defined differently, not only looking at the type of benefit or the seperability of the service. A service innovation, from their point of view, is a new service experience or solution for a customer in one or several dimensions. These dimensions are: service concept, customer interaction, value system/business partners, revenue model and organization or technology (Den Hertog et al, 2010).

10 Thus far, we examined the change within the service itself. According to Jalonen and Juntunen (2011), an understanding of the service within the context of the situation is important to understand the capabilities to innovate. Two contextual elements are important. The first one is the degree of uncertainty in the field. This uncertainty can be divided into different categories: consumer, technological, competitive end resource uncertainly. Decisions made in the beginning of the innovation process are based on a high level of uncertainty. A lack of information can cause this uncertainty and might have a negative effect on innovation. However, an uncertain environment can also have a positive effect on innovation: it can help to achieve agreement because organizations are more flexible to discuss options and alternatives (Jalonen and Juntunen, 2011). The second contextual element is the complexity of the environment. Complexity in the welfare system can occur in three different ways. First, complexity can refer to the feature of the system. Within the public sector, the system itself is complex because organizations are interdependent, resulting in a complex network. Second, complexity exists because of the nature of issues in the welfare domain. There’s not one solution for a problem in this sector, which makes it rather complex. Third, the objectives and values in the public sector are complex. This because service efficiency cannot be described as cost reduction only and efficiency doesn’t foster innovation per se (Jalonen and Jutunen, 2011).

Taking all together, there are different dimensions on which innovation can take place. These dimensions need to be seen in the context of the organization’s uncertainty and complexity in order to understand it’s capabilities to innovate. A dimension of Innovation involves specific sources of creativity and knowledge. Many service innovations involve some combination of the dimensions described above (Den Hertog et al., 2010)

2.2 Service innovation capabilities

Central in this thesis is the meaning of innovation and how this can affect the innovation capabilities. The previous section focused on the previous literature on the meaning of innovation. Next, it is of importance to clearly define the definition of innovation capabilities. The definition of innovation capabilities which will be used in this thesis is as follows: ‘The degree to which people in the organization are able to be internally or externally innovatory (Caluwé & Vermaak, 2006: 110). Innovatory means being able to (re-)shape, (dis-)integrate and (re-) configure existing and new resources, but also being able to renew the operational process if needed (Gosselink et al., 1991; Den Hertog et al. 2010). Den Hertog et al (2010: 498) in their definition include the fact that these capabilities are hard to transfer and imitate. The following sections further explain the innovation capabilities. The sections are divided into two main types of innovation capabilities. First, capabilities related to the organizational environment are discussed. These include the organizational structure, culture, the organizational knowledge and the management practices related to innovation. Secondly, the dynamic service innovation capabilities are discussed. Although these capabilities have a special focus on the service industry, these aren’t specifically related to the public sector. Therefore, section 2.3 briefly discusses the innovation capabilities in the public sector.

2.2.1 Organizational environment

The organizational environment as a capability to innovate depends on three components according to Amabile (1996): the organizational motivation, resources and management practices.

11 Organizations should have an organizational motivation based on a basic attitude towards innovation. This attitude consists of a value based on creativity and innovation in general, a risk-orientation and a sense of pride and enthusiasm among the members of the organization. Creativity is enhanced when employees have the motivation for the tasks they have to perform. Moreover, having the right expertise to solve a given problem or doing a given task is a foundation for creative work. Creative thinking is an element for creativity, which is stimulated when job motivation is high. Creative thinking is not specifically related to a job, but refers to personal characteristics, such as independence, risk-taking and self-discipline (Amabile, 1996).

Second, the organization should have enough resources to successfully implement creative ideas. Having the right people, time, expertise, information and funds could be used as examples for these recourses (Amabile, 1996). Section 2.2.1.2 contains a description of one specific organizational resource: the organizational knowledge.

The management practices are described in paragraph 2.2.1.3. Next to these two components, the organizational structure and culture are an important innovation capability. This is explained in the following section.

2.2.1.1 Organizational structure and culture

Borins (2001) state, one of the most important innovation capabilities is to create an innovative

climate: innovation should come from all levels within the organization. The structure of the

organization can be a relevant capability for innovation (Damanpour, 1991). According to Ekvall, centrality and formalization are two elements showing a negative relation with creative climate dimensions. Factors that increase centralization are: top management control, one-way communications and narrow delegation (Ekvall, 2008). Formalization could be described as a strict, comprehensive, and imperative system of written rules. These written rules are used for the decision making process within the organization. Communication is tied to the channels mapped out by the organization chart. There are also several elements of the organizational climate which can foster innovation, such as the support of and debates and the ability to take risk and time for innovation show a connection with innovation. Moreover, Jaskyte and Dressler (2005) in their study found a positive relation between the organizational size and innovativeness of a company. Size, according to them, can facilitate innovation adaption and larger organizations are better able to afford innovation.

The organizational structure and climate show a close connection to the organizational culture, although these elements should not be seen as identical (Damanpour, 1991; Ekvall, 2008). According to Jaskyte and Dressler (2005), innovation models should be more focused on the role of the human factor in the process instead of the structural and environmental explanations of innovation. Organizational values can be essential towards becoming an innovative company. However, having a strong culture could be problematic for innovation when implementing new ideas which respond to the changes in the external environment (Jaskyte & Dressler).

Creativity in the first place, is an important aspect of the organizational culture. It can be defined as the production of new and useful ideas in any domain (Amabile, 1996). According to Amabile (1996) organizational resources affect creativity. Trust, which is part of the organizational climate, is an important aspect of the organizational culture (Ekvall, 2008; Walker, 2007, Clegg et al, 2012). Other

12 values and norms which are identified as characteristics of innovative organizations are the freedom to make changes, challenging the status quo, teamwork, loyalty, sharing common goals, good relationships, flexibility, sharing information openly, autonomy, results-orientation, future orientation, commitment, taking risks and accepting failure (Jaskyte & Dressler, 2005).

Jaskyte and Dressler (2005) also examined the relation between organizational culture and innovation, specifically in the nonprofit human service organization sector. They found a significant relationship between the cultural consensus of a company and organizational innovativeness. A high cultural consensus is characterized by an emphasis on stability and teamwork that inhibits innovation (Jaskyte & Dressler, 2005: 33). This means, a strong culture with a low level of conflicts, predictability, rule orientation, team orientation, stability and security within the organization can be a threat for innovation and the capabilities to innovate.

2.2.1.2 Organizational knowledge

As stated in the previous section about innovation dimensions, specific knowledge is needed to let innovation take place. Organizational knowledge enables a firm adapting to constantly changing environments. Apart from the organizational structure, culture and resources mentioned above, gaining new knowledge remains of influence to foster the innovation capabilities (Merrit & Merrit, 1985; Amabile, 1996; Osborne & Brown, 2004). According to Miles (2008), service industries such as the welfare sector, are processors of information and therefore, they should make use of skilled social workers in order to adequately adapt to changes within the field. Moreover, Engel (2008) and Den Hertog (2005) state that the degree of learning and adapting has an influence on the organizations innovativeness. Knowledge should be integrated among different levels of the organization. First, innovation asks for individual knowledge, capabilities and an intrinsic motivation to learn. Next, a research and development department could foster the capabilities to innovate. Also, the management team should possess knowledge about the position of the organization and the environment.

Organizational learning and sharing knowledge are important elements to foster innovation (Caluwé & Vermaak, 2006; Lin, 2007). Knowledge sharing is a social interaction: it involves the exchange of employee knowledge, experiences and skills through the whole department or organization. On the individual level, knowledge sharing is about helping colleagues to do things better and more efficient. On the organizational level, knowledge sharing is about ‘capturing, organizing, reusing and transferring experience-based knowledge within the organizations and making this available for others (Lin, 2007: 316). According to Lin (2007) the enjoyment in helping others, self-efficacy and the top management support are three important factors improving the innovation capability by sharing knowledge.

Apart from sharing knowledge within the organization, today’s question raise about how organizations such as MEE should share their knowledge with other organizations in the field. Chesbrough (2010) describes the benefits of open innovation, wherein information and knowledge is widely available. Interestingly, business models of organizations sharing knowledge promise that they can achieve a greater return on their innovative activities, although they should loosen up their control over both the process and the returns (Chesbrough, 2003). The open business model can help a business saving time and costs, by not putting energy into innovations which could better be outsourced, because others have more specific knowledge. According to Chesbrough (2010),

13 knowledge is no longer proprietary to one company because the world is getting more global and people are able to get access to a greater amount of digital information.

2.2.2.3 Managing innovation

Management practices within the organization as a whole and at the level of individual departments and projects is an important component for the organizational capability to innovate (Amabile, 1996). Matching the right people on the right assignments, supervising characteristics such as autonomy, goal creation and fostering creativity within an effective work group are aspects of these management practices (Amabile 1996).

According to Bowen and Ford (2002) there is a difference between managing organizations that produce something intangible and managing an organization that produces something that can be perceived, sensed and experienced. This study is about a service organization which produces something intangible: it provides support in various kinds of ways (MEE.nl, 2014). Bowen and Ford (2002) state that the difference between proving a service or providing a good could have an effect on a managerial style or strategy. The intangibility and the outcomes of intangibility should create this difference. The intangibility of the service is explained by the fact that production often goes hand in hand with consumption (Bowen and Ford, 2002). Looking at efficiency, managers should be able to keep in mind that measuring efficiency within a service organization is difficult, due to the fact that customers’ perception of quality and value differs and can create different outputs. According to Engel, innovation is a mean to foster efficiency within the process of care or welfare activities (Engel, 2008).

Creating pe-conditions to lessen complexity and uncertainty and enabling innovation is part of the service innovation management. This can be done in five different ways. First, creating trust is an important condition. This allows creativity and encourages people to think differently. Personal and system trust supports coping with the uncertainty about the outcome of an innovation. Second, increasing communication responsiveness is one of the pre-innovation conditions a management team should create. This can be achieved by not controlling employees but when facilitating responsive self-organizing processes. Third, utilizing connectivity and interdependencies can foster innovation within the welfare system. In the context of innovation management, strong and weak ties can be used in the transmission of knowledge in innovation processes. Weak ties enable a varied knowledge base; strong ties are useful when knowledge is complex and context bound. Next to that, information redundancy can decrease the fear of failure. Another pre-condition a management team can create is pursuing diversity. Greater diversity in the welfare system can bring new perspectives and relieve pressures towards conformity and encourage participation from different actors. The latter can foster innovation in the longer term. Diversification of services can distinguish organizations from others. When customers have more freedom of choice and responsibility in pursuing welfare services, this might lead to competitiveness and innovative ideas (Jalonen & Juntunen, 2011). The last way of enabling innovation is adapting the leadership style in such a way that it strengthens the innovation capability. Because leadership is measured with different criteria, some articles do and some do not find a relationship between leadership and organizational innovativeness (Jaskyte and Dressler, 2005). Encouraging bottom up innovation, providing clear

information and moralleadershipare important elements to describe how innovation is managed. A

14 trustworthy, interested in the development of others, carries responsibility, provides clear information and is able to listen to other visions and ideas.

2.2.2 Dynamic service innovation capabilities

Den Hertog et al. (2010) identify six different dynamic innovation capabilities. Capabilities aren’t only the unique set of recourses a firm has, as described in the previous section, but also ‘the ability to constantly adapt, reconfigure and innovate’, and therefore have a dynamic character (Den Hertog et al, 2010: 497).

Signaling user needs and technological options is the first capability. The stronger the capability to

signal, the better firms are connected to (potential) clients, new ideas and the more they are able to filter useful information or dominant trends (Den Hertog et al, 2010). Understanding users emphatically and interacting intensively is a way to create a new service concept or new customer interaction. Signaling technological options earlier than competitors can lead to a better connection with (potential) technological partners and technological information and the creation of a new service concept or delivery system (Den Hertog, 2005; Den Hertog et al. 2010).

The second capability is conceptualizing, which differs from testing physical good because they are less tangible and codified. It therefore can be seen as the fuzzy front end of innovation. To foster this capability, visualizing the service is not enough. When conceptualizing, aspects such as how the new service offer relates to the other service activities, revenues, and customers interaction. Having clients operating as co-innovators, service organizations are able to test the new service.

Third, firms having a strong bundling or unbundling capability can offer a new service by either bundling or unbundling elements of the service. Creating smart combinations or stripping services down can create a new revenue model or a new service concept. By only offering client support, MEE unbundles it service, but offering new types of client support which first belonged to another type of service can be described as unbundling and can be useful if a certain service is successful or needs improvement.

Firms having a strong capability in co-producing and orchestrating are able to find new business partners and create new revenue models (Den Hertog et al. 2010). This can be achieved by co-producing and co-designing with relevant and trusted stakeholders, such as customers and suppliers. Service innovators should co-produce to commit stakeholders to the process which can create new insights as well as managing the process in order to have access to valuable networks within the field.

Fifth, to scale and/or to stretch is about the diffusion and branding of a certain service capability. Having a strong scaling capability, firms are able to increase efficiency of the innovation process through the channels within the firm. This affects the brand image of value which can be improved by stretching capabilities. Stretching service activities requires a strong brand name while designing new service concepts and new customer interactions using this name (Den Hertog, 2010, Den Hertog et al, 2010)

The last capability hasn’t much to do with developing and implementing a new service offering.

Learning and adapting can improve the quality of the previous five capabilities. Evaluating and

15 Figure 3: Dynamic service innovation capabilities for managing service innovation by Den Hertog et al (2010)

2.3 Innovation capabilities in the public sector

The capabilities described by den Hertog et al. (2010) do not specifically focus on the public sector. Albury (2010) describes several public sector approaches which can be seen as capabilities fostering innovation. First, generating possibilities is a capability created by internal stimulation and learning from others, for example from the private sector (Borins, 2001). Diversity should be a way to catch up new possibilities (Borins, 2001; Albury, 2010). Secondly, public organization selection criteria sometimes are too complex. Therefore, innovators are discouraged to implement radical innovation. Creating a budgeting process that support R&D and support individuals and teams to create and implement valuable innovations should contribute to accept radical innovation. Third, innovation carries risk (Albuy, 2010; Osborne and Brown, 2011). Risk increases in the public sector, due to a higher level of public scrutiny and the effect on the quality of life (Albury, 2010). Also, it is often presented as a negative phenomenon, something which should better be avoided (Osborne & Brown, 2011). Due to the fact that successful innovation carriers risk, public organizations such as MEE should have the right approach towards risk management. Creating new policy initiatives to mitigate risks is a way to encourage the incubating and prototyping capability. Monitoring and fostering the development or networks can stimulate the diffusion of innovation (Albuy, 2010; Walker, 2006). Next to this, creating rewards and awards for innovation should be a way to support innovation and innovation capabilities. Especially in the welfare sector, this is a rather undeveloped phenomenon (Borins, 2001).

Looking at the model of Den Hertog et al. (2010), this model is based on the capabilities from within the organization. Jalonen and Juntunen (2011) state that not solely the organization but the entire welfare system should be understood in order to foster innovation. This is especially the case because the welfare system exists of a mixed-sector co-operation. Co-producing, according to Den Hertog et al. (2011) should be an innovation capability which creates new business partners or a new revenue model. However, co-producing also creates complicated organizational interlacing, which can lead to an unrealized innovation (Jalonen & Juntunen, 2011).

16

2.4 Conclusion

This chapter described and discussed the main constructs of this research. Previous literature on innovation and public innovation are examined. Innovation can be seen as a new process, a new outcome but should also contain new value for the organization and customers. The innovation radar could be helpful to describe on what scale innovation takes place. A definition of public innovation and the final definition used in this thesis is outlined. Next, a brief description of public innovation is given, whether a distinction between improvement and innovation is made in order to find justification for public innovation. Different types of public innovation are mentioned, one of them is service innovation. There are different dimensions on which service innovation can take place. These dimensions need to be seen in the context of the organization’s uncertainty and complexity in order to understand it’s capabilities to innovate. A brief description of service innovation is outlined in paragraph 2.1.2. The innovation capabilities are divided into two main types of organizational capabilities: capabilities related to the organizational environment and capabilities specifically focused on dynamic service innovations. A strong culture could negatively influence the capabilities to innovate. Also, formalization, centralization and communication are important aspects when studying the influence of the organizational structure on innovation capabilities. Moreover, size could affect the innovativeness of an organization, as well as knowledge and the way knowledge is shared within and outside the organization. Next to the organizational capabilities, dynamic service innovation capabilities are discussed. These aren’t specifically focused on public sector innovation. Therefore, the last paragraph is focused on innovation capabilities in the public sector, with a special focus on the social welfare sector.

Although many has been written on innovation and the definition of innovation, previous literature lacks a specific explanation for innovation within the welfare sector. The dimensions on which innovation can take place are broadly described but not specifically examined in the welfare sector. For example, the innovation radar is broadly applicable and useful for a general description of the meaning of innovation but not when specifically indicating the differences of innovation meanings participants give. Moreover, there are no specific studies on the role innovation can play in the current changes related to the Social Support Act. Although public innovation is described into six types including concept, organizational and service innovation, these types are included in the six dimensions of service innovation. Therefore there’s no consistent way of using the term ‘service innovation’ in the previous literature.

This thesis will further explain what is meant by the definition of innovation in welfare and therefore service organization such as MEE and will use the general models described above to refine them

and make them applicable for MEE.

As we can conclude from the previous literature, the organizational knowledge, structure and culture and management practices are important capabilities for innovation. Due to the fact there is no specific research on innovation capabilities in the Dutch welfare sector where MEE belongs to, the general findings of these literature described above will be used to explore what type of innovation capabilities are important for MEE. Although there are literature studies on the external factors which can have an influence on the innovation capabilities and studies on the capabilities within the organization itself, there’s not one specific model which combines these to elements and

17 which is focused on the welfare domain. An exploration of these external factors influencing MEE’s capabilities will be further discussed in chapter 4.

18

3. Research Questions and Methods

This study aims to make a contribution to the understanding of the relation between the meaning of innovation and the innovation capabilities among the different MEE organizations and Dutch municipalities in context of the decentralization. To make this contribution, section 3.1 describes the main concepts in a conceptual model, based on the previous literature study, and the research question of this thesis. Section 3.2 describes and explains the chosen research method. Next, an overview of the current research setting is given, followed by a section about how the data collection and analysis. Here after, the validity of this research will be discussed.

3.1 Research Questions and Conceptual model

The main objective of this study is to explore the meaning of innovation according to MEE and Dutch municipalities in the context of the decentralization of the Social Support Act and the way this meaning affects the innovation capabilities within the MEE organization. According to Miles and Huberman (1994, as cited in Maxwell (2005), a conceptual model explains the main things being studied. In this thesis, the meaning of innovation and innovation capabilities by participants of MEE organizations and municipalities are the main objects being studied. The literature study examined relevant theories of innovation definitions and innovation capabilities used in the public and service sector. As concluded from the literature study, the organizational environment can have an effect on the innovation capabilities. Especially the organizational structure, culture, knowledge and managing practices are relevant environmental aspects which can be an innovation capability. These specific capabilities are chosen on behalf of several interviews that were held during the beginning of this research with MEE Netherlands managers, asking them about the current, relevant capabilities for MEE organizations. This empirical study focuses on the meaning of innovation and innovation capabilities within MEE and how these theoretical models in the literature study can be used to understand the influence of the meaning of innovation on the innovation capabilities. In order to answer the main question of this research, the following research questions will be used:

 What is the meaning of innovation within the MEE organizations?

 What is the meaning of innovation capabilities within MEE?

As discussed in the literature study, the meaning of innovation by the participants and the capabilities should be seen in a broader context: especially in the public sector, external factors might create opportunities or threats towards the capabilities for innovation. This might add an explanation to the relationship between the meaning of innovation and the innovation capabilities. Therefore, the third research question is as follows:

 Which external factors affect the innovation process?

Having an understanding of the meaning of innovation by the participants and the innovation capabilities, added with the external factor, the following question is needed to understand how the meaning of innovation can affect the innovation capabilities:

19 These four research questions, together with the main outcomes of the literature, can bring as closer to reveal the influence of the innovation meaning on the innovation capabilities according to MEE and Dutch municipalities, the main objective of this study.

The main concepts of this study, which are the meaning of innovation, innovation capabilities, organizational environment and external factors, can be empirically explored by the following conceptual model:

Figure 4: Conceptual model

3.2 Research Method

In this thesis the following question will be explored:

What is the meaning of innovation according to MEE and Dutch municipalities in the context of the decentralization of the Social Support Act and how could this affect the innovation capabilities within the MEE organization?

This research will be based on a qualitative research method. There are several reasons why this study is based on a qualitative research method. First, the main objective of this study is to understand the relationship between the meaning of innovation and innovation capabilities and not to test this relationship. To explore these concepts, a qualitative research better suits the main objective of this study, described in the research question above. Second, the subject of this study in the first place was not delimited. Exploring the relevant concepts was part of this study and therefore, qualitative research was needed to reveal the so called ‘sensitizing concepts’ (Patton 2002). Third, in order to refine the broad applicable concepts found and studied in the literature study, a qualitative study with open interviews could specify and clarify these concepts in the specific case of MEE. Fourth, we want to stimulate participants to actively think about what innovations means for them in their organization. Finally, as previously discussed, there’s hasn’t been done much research on the possibilities for innovation within the Dutch Welfare sector and how the definition of innovation and its capabilities are used to improve welfare services. Therefore, the main outcomes of this explorative research can give possible explanations for the current situation. These possible explanations can be used for further research.

To understand the meaning of innovation, directors and managers of MEE organizations and managers of three Dutch municipalities are interviewed through open interviews, next to the

20 collection of relevant internal documentation. There has been decided to interview directors and managers to get an understanding of what innovation will mean for a management team and how this could have an effect on the innovativeness of an organization.

To understand the meaning behind a point of view, open interviews provide in-depth data with rich descriptions (Bryman, 2004). This way of doing research suits best to answer the research question. In an open interview, only the main topics are outlined, the order of these topics may vary and the interviewer has the possibility to ask additional questions (Saunders and Lewis, 2012). This research will be mainly exploratory. Although it tries to find an explanation for the relationship between innovation and innovation capabilities it primary tries to look for new insights, since innovation in the welfare sector is a relatively undeveloped field of study. It will focus on an accurate representation of the situation within MEE organizations and will try to explain this situation according to the literature being studied and empirical findings (Saunders & Lewis, 2012). This can

be called inductive (Saunders & Lewis, 2012). There is acontinuous refinement of the data gathering

and analysis. As explained by Miles and Huberman, this is what they call the ‘flow model’: The data collected should be reduced to displayed data which are relevant for answering the main question. Drawing conclusions from reduced and selected data, new data can be collected and then the existing data could be refined (Miles and Huberman, 1984).

The main topics that will be discussed in the interviews in order to obtain relevant data will be on innovation; what innovation is according to the interviewees related to the different innovation dimensions, what are the main innovation capabilities, what were or are going to be the main opportunities and threats related to the changes within the Social support Act, if this has an influence on innovation and capabilities, how innovation can affect the innovation capabilities and how innovation can be fostered and controlled.

3.2 Research setting

From February 17th till July 31th, I got the opportunity to do an internship at Berenschot, with a research project at MEE Netherlands. MEE Netherlands, the branch organization of 22 MEE organizations, shortly called MEE, is one of Berenschot’s customers. Developing a questionnaire for MEE employers committed to the governmental arrangements to monitor these arrangements are the primary tasks of my project at MEE. This process gave me the opportunity to interview MEE directors and other persons involved in the arrangements and innovation. Also, doing an internship at MEE Netherlands provided me obtaining the right information that I used during the interviews. Next to my project at MEE I participated in several Berenschot projects, all related to the care and welfare sector. Moreover, interns at Berenschot get the opportunity to follow the internship program and are involved with an advisory trajectory from the beginning -the acquisition- until the end: writing an advisory rapport for the Amsterdam Economic Board. During trainings we work on advisory and interview skills that I could use for this thesis. Moreover, I gained some extra information on the current situation in the welfare sector and decentralization of the Social Support Act in general. In order to understand the current situation for MEE, a short overview of MEE Netherlands, its 22 MEE organizations and the current situation for the Dutch municipalities and de