‘Maximizing the chances of adoption of a product innovation’

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Master Thesis MBA Strategy & Innovation

‘Maximizing the chances of adoption of

a product innovation’

The IQ-woning case

Gydo van Rheenen (S1911325) Westerkimme 60

8316 EB Marknesse 06 – 22029722

gydovanrheenen@hotmail.com

Faculty of Economic and Business, University of Groningen

Date: 27th of September, 2011

Supervisor: Rene van der Eijk Second supervisor: Killian McCarty Supervisors Ballast Nedam:

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Abstract

The problem for most companies is that with a product innovation, even when it has obvious advantages, it is uncertain if the innovation will be a success and if it will be adopted by the market. To reduce this uncertainty, companies have to maximize the chances of adoption of their innovations. Within this maximization process five attributes of the adoption model of Rogers (2003) and an additional attribute of Moore & Benbasat (1991) can determine the rate of adoption of an innovation, which is the speed of adoption. The importance of these

attributes is determined in this research by a case study of a product innovation of Ballast Nedam; the IQ-woning. This case study aims to clarify how a company can maximize the chances of adoption for its product innovation. Within that adoption process, the case study determines the most important attributes that determine and other variables that influence the adoption of a product innovation.

This case study proves that relative advantage in terms of price, quality and convenience is the most important attribute in the process of maximizing the adoption rate of an innovation. The compability of the product is also considered to be important but not as important as the relative advantage. A low degree of complexity is in most of the cases also important, but not as important as the former two attributes. The other attributes were important for some target groups but not for others, so their importance was customer dependent. The fact that some attributes were important for some target group but were less important for other target groups proves that each target group needs to be targeted differently. When targeting these groups, the differences of importance of each variable should be taken into account. A positioning approach should emphasize on the attributes that are considered to be relevant and important for each target group.

This research also determined that the use of interpersonal communication channels instead of mass media channels can also stimulate the chances of adoption. Furthermore, the research proves that a lack of legitimacy and the absence of a branding strategy have a negative influence on the chances of adoption.

Keywords: Innovation, Building industry, Diffusion, Adoption of innovations, Legitimacy,

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Executive Summary

In times of economic depression, companies have to be innovative to survive. This depression combined with increasing domestic and international competitive pressures to deliver even greater value to the customer forces companies to be even more to be innovative. Companies can innovate through two approaches: the technology push approach and the market pull approach. In other words: supply driven or demand driven. Focusing on one of the two extremes has his disadvantages and can for example lead to ineffective research or

misinterpretation of the market. Therefore a less extreme approach, a combination of both approaches is often the best solution. After choosing the right approach, successful diffusion and adoption of the innovation is never guaranteed, even when it has obvious advantages. This is a problem for many companies. Without a proper diffusion strategy, most innovations will fail. This paper investigates how a company can maximize the chances of adoption for its product innovation. The research question in this paper is:

How can a company maximize the chances of adoption for a product innovation in the building industry?

As becomes clear from the research question, this research takes place in the building

industry. The research is conducted at a building company that recently introduced its product innovation. The company is Ballast Nedam N.V. with its innovation the woning. The IQ-woning is based on a combination of the market pull and the technology push approach. This concept is a new building process in which a complete house is fabricated up front in a factory. This means that a total house is build from scratch in a clean dry factory, thereby creating many advantages by optimizing the building process and minimizing the delivery time to six weeks. The IQ-woning serves as a case study for this research.

To answer the research question the adoption model of Rogers (2003) is used. This model is based on five attributes that determine the speed of adoption of an innovation: relative advantage, compability, complexity, trialability and observability. This model is extended with an additional attribute of Moore & Benbasat (1991); perceived voluntariness. Next to the attributes, there are some influentials that influence the adoption process of an innovation; communication channels, legitimacy, reputation and branding. Communication channels and legitimacy are important in creating (public) knowledge, awareness about and among an innovation. Legitimacy also plays a role in the acceptance of an innovation. A good reputation of a parental company (Ballast Nedam) could influence the legitimacy and the reputation of the subsidiary (IQ-woning). Furthermore, a clear branding strategy can also contribute to the adoption of an innovation.

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investors. The research was conducted through interviews with two respondents from each target group.

From the research became clear that if a company wants to maximize the chances of adoption in the building industry the focus must lie on the attributes and variables that are the most important for each potential customer group. So each potential customer group needs to be targeted differently. This means that by targeting the right attributes and variables of each group, the chances of adoption of the innovation will be maximized. The case study proved that relative advantage in terms of price, quality, convenience and profitability was considered to be the most important attribute, followed by compability. The compability was not as important as the relative advantage, but the compability in terms of corresponding with the needs of starters or other end users (customers of public housing co operations, project

developers and investors) was found to be important. Furthermore, for end users a high degree of complexity needs to be avoided to prevent it from forming a barrier to the adoption. The observability was found to be important for starters and project developers, but not for public housing co operations or investors. The other two attributes were of less importance, but some attributes were important for some potential customers but not as important as the former four. These differences of importance of the attributes support the approach of targeting each potential customer group differently by using a positioning approach.

This case study proved that interpersonal communication channels can also play a vital role in speeding up the adoption process. Furthermore, a lack of legitimacy is likely to have a

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Preface

The writing of my master thesis started off a bit slow. This slow start occurred because I had to find a good balance between the requirements for the thesis of the University and the requirements and wishes of Ballast Nedam. After finding a good balance, I made quite some progress on my thesis. Unfortunately I also had a delay of a couple of weeks, because I had to do my interviews in August, the month in which most people go on holiday. However, I still managed to finish my master thesis before October.

In this period I learned a lot about the introduction and adoption of an innovation in theory but also in practice. I am very satisfied about the combination of writing a thesis with a real business case, because I know the outcomes of my research will be used to improve the IQ-woning. Furthermore, some results can also be used for the introduction of other innovations. First, I would like to thank my friend Rene de Boer who introduced me to the company Ballast Nedam N.V. He worked there and introduced me when I was looking for an

opportunity for an internship. I want to thank Oscar Zwiers and Menno de Jonge of Ballast Nedam for providing me with that business case. Furthermore, I would like to thank them and the other colleagues for the feedback and advice.

I also want to thank my coach from the University of Groningen Dr. René van der Eijk for providing me feedback, especially regarding the academic part of this paper.

Lastly I would like to thank Jeanine Voulon, Janou van Rheenen, Benno Hoefsloot and my parents for giving me feedback on the paper, motivation when I needed it and fresh

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1 Introduction

1.1 Industries have to be innovative to survive

Looking at the economic depression from a historical perspective teaches us that in times of recession, companies in all industries have to be innovative to survive. Furthermore, domestic and international competitive pressures are increasing in all sectors of the economy to deliver ever greater value to the customer, through innovation (Meyers, 2009; Seaden & Manseau, 2001). This means that in times like these it is extremely important for companies to innovate. Companies can innovate among two approaches; the ‘market pull’ approach and the

‘technology push’ approach. The first approach is modeled as a process of generation and integration of knowledge flowing from customer needs, while the second approach deals with the availability of new technologies (Burgelman & Sayles, 1986). In short, there are

innovations driven by the market and innovations driven by the company. These two approaches are two extremes and large literature proves that many innovations are a combination of both approaches, like for example the design-push approach (Dell’era & Bellini, 2009; Brem & Voigt, 2009). This approach demonstrates that market pull and technology push are not divorced but bundled and complement each other. The best of both approaches is combined, and the key competency lies in the management of

interdependencies between technological choices regarding functional improvements and marketing choices regarding improvements in the messages delivered by the product. A nice statement that support this balanced approach is a statement made by Dell’era and Bellini: ‘in any case, the firm seems to be in front of a trade-off between a coherent R&D strategy, supported by powerful marketing tests and aimed at developing new successful technologies, and a coherent marketing strategy, supported by the availability of useful technological solutions and aimed at developing higher abilities in satisfying the evolution of customers’ needs’.

1.2 Innovation in the building industry

One of the industries that is often considered to lag behind other industries or sectors

concerning innovation is the building industry. The building industry lags behind in terms of its inherent abilities to innovate and develop better ways of working, and in its seeming inability to adopt innovations from other areas (Harty, 2008). Construction work shows seemingly indelible and intractable patterns such as the partial exchange of information leading to reworking, recourse to litigation and inflexible sequences in which different actors are mobilized on a project. Construction is almost everywhere perceived as being ‘in trouble’ (Seaden & Manseau), with low margins of profit, high costs of production and lack of concern for the end-user. It is seen as relatively slow in adoption of new knowledge.

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solely at the R&D department. Nevertheless, the R&D department has been positively related with the relative innovativeness of various industrial sectors and is considered a valid

indicator. Expenditures on R&D in construction (statistically limited to contractors and sub-trades) range between .01 and .04 percent of construction value-added for OECD countries, compared to 3 or 5 percent in manufacturing or 2 to 3 percent for all industries (Seaden & Manseau). There have been offered many reasons that should explain this low percentage: improper reporting of R&D expenditures, small size of firms, lack of risk capital,

conservative behavior of clients, unsuitable government policies and many other reasons. A general observation by Seaden & Manseau shows that very few firms in construction take advantage of R&D or innovation programs offered by governments. Innovation related activities include R&D as well as many others that are difficult to assess, such as developing new organizational structures, upgrading labor skills, introducing new processes or products and new marketing approaches. These activities are difficult to isolate and evaluate, due to their embeddedness throughout the on-going activities and interactions with key partners.

1.3 Types of innovations

According to Jacobs (2007) an innovation is something ‘new with an added value’. Jacobs distinguishes three main types of innovations; a product innovation, a process innovation and a transaction innovation. A product innovation can be restricted to only a style or design change, but it may also entail a new concept of an existing product or a totally new product. A process innovation is a change in the production processes of a product, which should lead to more efficient production. A transaction innovation refers to new ways of both bringing products to the attention of consumers and selling them.

1.4 Innovation at Ballast Nedam

One of the companies in the Dutch building industry, that recently introduced an innovation, is Ballast Nedam N.V. The company Ballast Nedam is one of the top five largest building companies in the Netherlands. Ballast Nedam is currently working on the IQ-woning concept. This concept is a new building process in which a complete house is fabricated up front in a factory. This means that a total house is build from scratch in a factory, thereby creating many advantages by optimizing the building process. In this building process each house is divided into six parts that are each build in a dry, clean factory. Furthermore, the placement of stairs, interior walls, frames, tiles and even sanitary facilities happens in that same factory. This process takes far less time than the building process on the construction site. The IQ-woning can be delivered within two weeks. After the delivery, constructions are limited to finishing off the walls and hanging down the inside doors. This means that three or four weeks after the assembly the key transfer can take place. Ballast Nedam is the first company that delivers such a house and the company strives towards a yearly delivery of 400 to 500 houses (Profnews, 2011). Three important advantages are getting around changing weather

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labels (A++). Next to that, the IQ-woning is equipped with sustainable materials. Looking at the terminology of Jacobs (2007), the IQ-woning can be considered to be a product and process innovation. It is a product innovation, because it entails a new concept of an existing product. At the same time, the IQ-woning can also be considered as a process innovation, because the production process is optimized and should lead to more efficient production. For this research the IQ-woning will be characterized as a product innovation, because the

concept of building a house that fast is new to the customer and the process innovation is a more supportive factor that facilitates this new concept.

1.5 Research objective

The above tells us that innovation is off the essence for companies, especially in the building industry and especially in times of an economic depression. Ballast Nedam has recently introduced its product innovation; the IQ-woning. This innovation is based on a combination of a market pull and a technology push approach, but the actual demand for the innovation is still quite unknown. For most innovations it is important to maximize the adoption rate of the innovation to be successful. One of the first steps is determining and understanding the most important factors that influence the adoption of an innovation (Chigona & Licker, 2008). This research aims to clarify how companies can maximize the chances of adoption and what determinants and influentials play an important role in that process. The primary goal of this research is to give an interesting perspective on the adoption of an innovation. This

perspective will also be interesting for Ballast Nedam and the building industry or related industry, because it can support the introduction and adoption of the IQ-woning and future innovations. Furthermore, most factors will also come in helpful for other types of

innovations.

1.6 Research question

The problem for most companies is that with a product innovation, like the IQ-woning, the innovation on itself is a great idea, but it is uncertain if the innovation will be a success and if it will be adopted by the market. So the main problem is that companies have demand

uncertainties for their innovations and companies have to maximize the chances of adoption. The research question for this paper is:

How can a company maximize the chances of adoption for a product innovation in the building industry?

This question will be answered by the following sub questions:

Sub question 1: What are the factors that determine and influence the adoption rate of a product innovation in the building industry?

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1.7 The structure of the paper

The research will start with a literature review to address the most important issues and to determine possible attributes that determine and factors that influence the adoption rate. The factors adapted from the literature review are then translated into propositions. These

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2. Literature Review

This chapter presents the results performed on the diffusion and adoption of an innovation. The first five paragraphs discuss the two approaches through which companies can innovate, pitfalls of both approaches and the strength of combining both approaches. After choosing the right approach, an innovation needs to be diffused, which is discussed in the sixth paragraph. In this paragraph the diffusion model of Rogers (2003) is also enlightened. The seventh paragraph discusses the attributes of Rogers and Moore & Benbasat (1991) that influence the adoption rate of innovations. This chapter ends with other variables that influence the

adoption of an innovation, which are discussed in the last three paragraphs.

2.1 Two principal sources and approaches

In the process of innovation the R&D functions play an important role. A formalized

‘business research function’ was added to the R&D function to help shape new ventures and increase the odds that new products would be successfully commercialized. Some senior managers expected that the market specialists would take the lead in strategy formulation by seeking to define research objectives while others assumed that scientists and business researchers would work together (Burgelman & Sayles, 1986; Seaden & Manseau, 2001). In other words: the development of new products has been modeled as a process of generation and integration of knowledge flowing from two principal sources: knowledge about the availability of new technologies and knowledge about customer needs.

2.2 The market pull approach

The market pull approach is primarily characterized by the dominant role of the comprehension of market needs over the introduction of new technologies. So the

innovations’ source is a currently inadequate satisfaction of customers needs, which results in new demands for problem-solving. The impulse comes from individuals or groups who articulate their subjective demands. This market pull approach is by far the most used approach in the building industry, an industry which is characterized as largely reactive in terms of innovation. The market pull approach is one of the two reasons why the industry is reactive, because construction firms often innovate as a response to external needs. The second reason is that construction firms often implement innovations originating from elsewhere, rather than developing their own solutions (Harty, 2008).

2.3 The technology push approach

In the technology push approach, the stimulus for new products and processes comes from internal or external research: The goal is to make use of and commercialize new know-how (Dell’era & Bellini, 2009). Broadly speaking, in the technology push approach, the

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see some synthesis or synergy between ideas and fields of knowledge that competitors might have missed.

2.4 Pitfalls of focusing too much on one approach

There are strong interdependencies between market pull and technology push models; no simple black and white determinations enable or disable a certain approach. Sustainable strategic procedures are required to efficiently manage the product and process innovation management (Brem & Voigt, 2009). Focusing on one of the two extremes has its

disadvantages. If a company focuses too much on the technology push approach, the R&D department can become undocked and isolated from the rest of the organization. As a result of that, the department may lose its fit with the company and that can result in reinventions of the wheel and ineffective research (Brem & Voigt). Another pitfall of the technology push approach is that there is a tendency to address the needs of atypical users and to invoke their acceptance of the new product, system or process as evidence for the existence of a new business opportunity. The scientist-entrepreneur will often come up with convincing evidence demonstrate the ‘interest’ of prospective users, a somewhat biased positive perspective with respect to the innovation (Burgelman & Sayles; Brem & Voigt). By all means, one has to avoid that the technology push is developing a solution for which there turns out to be no problem. There has to be a market; there has to be a demand for the innovation. Without demand no adoption will take place.

A strong concentration on market pull may result in ‘face lifting’ of products and services so that there is a high probability of competitive threats based on new or improved technologies. Another pitfall of that focus is a potential misinterpretation of the market or administrative problems such as requirements of new technological solutions (Brem & Voigt). Furthermore, there exist the risk of looking only at the needs that are easily identified but with minor potential and the lack of being a champion or a true believer.

2.5 Best of both worlds

Many of these disadvantages can easily be avoided or reduced by using a less extreme approach which combines the best of both worlds. Demand side factors and technology side factors jointly determine a company’s research success (Chang-Yang, 2003). Therefore, successful products and services rely on the targeted combination of market pull and technology push activities. Even if the best combination is found, there is still uncertainty about the adoption, so successful adoption of a product is never guaranteed.

2.6 Diffusion of innovations 2.6.1 The adoption model

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of sustainable innovations like ski hotels and resorts, Alkhateb, Khanfar & Loudon (2010) use it for the diffusion of electronic detailing in the pharmacy, Yong & Jing (2009) use it for the diffusion of wifi-networks, Makse & Volden (2011) use it for the diffusion of policy, Cheng, Kao & Ying-Chao (2004) use it for the diffusion of online games. Gunaris & Koritos (2008) use it for the diffusion of internet banking and Kale & Arditi (2010) use it for the diffusion of innovations in the construction industry. From those studies, the innovations used in the studies of Smerecnik & Andersen and Kale & Arditi are very similar to the innovation or the industry of the innovation of Ballast Nedam.

This model explains the adoption an innovation based on perceived attributes of an

innovation, the social system in which the innovation is diffusing, communication channels and the length of time the innovation has been around. A problem with many product innovations is to get the new idea adopted, even when it has obvious advantages. Many innovations require a lengthy period, often of many years, from the time they become available to till time they are widely adopted. Therefore, a common problem for many individuals and organizations is how to speed up the rate of diffusion of an innovation (Rogers, 2003). Diffusion is ‘the process by which an innovation is communicated through certain channels over time among the members of a social system’. Research to this diffusion process can be valuable in predicting the reactions of people to an innovation and provides information about the way an innovation needs to be positioned.

2.6.2 Adopter categories

Rogers defines innovativeness as ‘the degree to which an individual is relatively earlier in adopting new ideas than other members of a system; than about any other concept in diffusion research’. The members of such a system can be classified among certain adopter categories. In these adopter categories each member is classified by its innovativeness (figure 1).

Figure 1: Adoption categorization by Rogers (2003)

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separated in five categories; Innovators (Venturesome), Early Adopters (Respect), Early Majority (Deliberate), Late Majority (Skeptical) and Laggards (Traditional).

The figure also shows the approximate percentage per category of individuals that adopt the innovation. When using this model, the user has to take in account that these adopter

categories are ideal types and are based on abstractions from empirical investigations. These categories appear on the basis of differences in socioeconomic status, personality variables and communication behavior. The distinctive characteristics of the five adoption categories make the categories very useful as a tool to target the right adopters through audience segmentation.

In the introduction phase of an innovation, it is useful to study the first two adoption

categories to stimulate the rate of adoption. The first group, the innovators are very important to get a good start of the adoption. Innovators are characterized by a desire for the rash, the daring and the risky. Therefore innovators are willing to cope with a high degree of

uncertainty about an innovation at the time they adopt it. Innovators play an important role in the diffusion process: Innovators launch the new idea in the system by importing the

innovation from outside of the system’s boundaries. This means that the innovators play a gate keeping role in the flow of new ideas into a system (Rogers). The early adopters are also important to get a good start at the adoption, because early adopters have the highest degree of opinion leadership in most systems. Rogers emphasizes their importance by stating: ‘Potential adopters look at early adopters for advice and information about an innovation’. Early

adopters serve as a role model and for potential adopters.

2.7 Attributes of innovations

As stated before, it is off the essence for organizations to maximize the adoption rate of their innovations. This rate of adoption is generally measured as the number of individuals that adopt a new idea in a specific period. This rate of adoption is a numerical indicator of the steepness of the adoption curve of an innovation. It is important to study multiple attributes that influence the rate of adoption of an innovation at the same time, to determine the relative power of each attribute (Tornatzky & Klein, 1982). If an individual has insufficient

knowledge about the idea, an inability to predict the innovation’s consequences, and/or the status conferring aspect of the idea ‘overadoption’ may occur. In other words; individuals adopt an innovation when they should not. Overadoption happens when some attribute is perceived as so attractive to an individual that it overrules all other considerations.

Rogers (2003) emphasizes that when studying the diffusion of innovations, perceptions of an individual of the attributes are more important than the attributes as classified objectively by experts. He furthermore emphasizes that the specific ways in which these attributes are expressed differ in each study and the measures of these attributes should be uniquely created afresh in each investigation, for fresh perspectives on the adoption model and for not

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2.7.1 Relative advantage

Relative advantage is the degree to which an innovation is perceived better than the idea it supersedes by a particular group of users, measured in terms that matter to those users. The degree of relative advantage can be measured in economic terms, but also in terms of social prestige, convenience and satisfaction. So all kinds of measurements, as long as the

innovation is perceived as advantageous. For example, as the price of a product decreases so dramatically during its diffusion process, a rapid rate of adoption is encouraged. This example proves that if a characteristic of the (attribute of the) innovation is changed; the rate of

adoption will also change. The price of an innovation could also be influenced by incentives. Incentives are rewards that are given to an individual or a system in order to encourage behavioral change. This change often entails the adoption of a new idea or innovation. These incentives are given to speed up the diffusion of an innovation. Offering incentives is one diffusion strategy that affects the perceived attributes of innovations, especially the relative advantage, and thus the adoption of innovations. Incentives can also be used to convince other individuals that otherwise would not have adopted the innovation.

The relative advantage is considered to be one of the strongest predictors of the adoption of an innovation and can act as a facilitator for the diffusion (Kale & Arditi, 2010). Examples of factors that lead to a relative advantage are economic profitability, low initial costs, and a decrease in discomfort, social prestige, a saving of time and effort, and immediacy of reward. The latter factor explains why so called ‘preventive innovations’ (innovations that are adopted to lower the probability of some unwanted future event like stopping smoking or using seat belts) have a slow rate of adoption. The status motivations for adopting innovations have been understudied in diffusion research for two reasons. Firstly, status motivations do not always form a motivation for the adoption of an innovation. Secondly, respondents may be reluctant to admit that status was the motivation to adopt an innovation which makes status hard to investigate. Furthermore, a factor proposed by Moore & Benbasad (1991); usefulness, can also be included in this attribute (Gounaris & Koritos, 2008).

Relative advantage is expected to have a positive influence on the rate of adoption of an innovation (Tornatzky & Klein; Smerecknik & Andersen, 2011; Chigona & Licker, 2008).

2.7.2 Compability

Compatibility is the degree to which an innovation is perceived as being consistent with existing values, past experiences, and needs of potential adopters. An innovation that is incompatible with the values and norms of potential adopters will not be adopted as rapidly as an innovation that is compatible. An adoption of an incompatible innovation often requires the prior adoption of a new value system which is a relative slow process. Rogers

distinguishes three factors with whom an innovation can be compatible with: (1) sociocultural values and beliefs, (2) previously introduced ideas and (3) a client’s needs for the innovation. An innovation’s incompability with cultural values can block its adoption while an

innovation’s incompability with previously adopted idea’s can result in a decrease of the adoption. A mismatch of the perceived compability of the innovation and the previous

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adopters may also not recognize the need for an innovation until they become aware of the innovation or the consequences of it. Innovators may also have such a strong believe in their own innovation that they assume that existing practices are so inferior that they can

completely be dismissed. In this process they overlook the fact that potential adopters evaluate each innovation in terms of their prior experience with something similar. This incompability of the innovation can be avoided by understanding the prior experiences of potential customers with the practice that the innovation will replace.

Furthermore, a name given to an innovation could also be of importance in the adoption process, especially if the name leads to commotion when it is translated. Positioning is also of influence on the adoption as positioning research can help identify the ideal niche for an innovation. The positioning approach views an innovation’s perceived characteristics as changeable and it puts the diffusion researcher in the role of designer. This approach is suitable when targeting different groups and can be used to emphasize different aspects that are more compatible with the needs of each group.

Compatibility is also expected to have a positive influence on the rate of adoption of an innovation (Tornatzky & Klein; Chigona & Licker), but its influence is not expected to be as great as the influence of the relative advantage attribute (Rogers).

2.7.3 Complexity

Complexity is the degree to which an innovation is difficult to understand and use. Logically, new ideas that are simpler to understand are adopted more rapidly than innovations that require the adopter to develop new skills and understandings. Complexity may not be as important as relative advantage or compatibility, but it can certainly form a barrier for the adoption of an innovation. Ease of use is also included in this attribute (Gounaris & Koritos). Complexity is expected to have a negative influence on the rate of adoption of an innovation; the more complex an innovation is the less possible adopters will decide to adopt an

innovation (Tornatzky & Klein). In the study of Smerecknik & Andersen (2011) a low degree of complexity was translated into simplicity. Their study confirmed the influence of simplicity on the adoption of sustainable innovations, especially because implementing environmentally sustainable innovations can be a challenging task for companies. Therefore it is important to avoid letting a high degree of complexity become a barrier for the adoption of an innovation. The more an innovation is perceived as easy to implement or to use, the more it will promote the adoption.

2.7.4 Trialability

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Trialability is also expected to have a positive influence on the rate of adoption of an

innovation according to Tornatzky & Klein, Chicona & Licker and Makse & Volden (2011). In the study of Smerecknik & Andersen the trialability was not found to be important in the adoption process. The unimportance of trialability was a result of the absence of possibilities to try out sustainable innovations like ski resorts or ski hotels.

2.7.5 Observability

Observability is the degree to which the results of an innovation are visible to others. The easier it is for individuals to see the results of an innovation, the more likely they are to adopt it. Such visibility stimulates peer discussion of new ideas, as friends and neighbors of an adaptor often request information and evaluation of the innovation. A nice example of a product that has profited a lot from the observability attribute is the use of cellular phones. The observability by hearing and seeing other individuals make use of the product helped emphasizing the status to potential adopters of using such a product and therefore supported the adoption of the innovation.

Most innovations in diffusion research are technological ideas. These ideas consist out of two components; a hardware component and a software component. The hardware component is the tool that embodies the technology in the form of a material or physical object and the software tool is the information base for the tool. The software component is less visible, so innovations in which the software is a dominant factor posses less observability. As a consequence of that, those innovations usually have a slower rate of adoption. Based on the results of the studies of Chigona & Licker and Makse & Volden observability is also expected to have a positive influence on the rate of adoption of an innovation.

2.7.6 Perceived voluntariness

Moore & Benbasat (1991) added a sixth attribute: Perceived voluntariness, which is ‘the degree to which use of the innovation is perceived as being voluntary, or free will’. Use of the voluntariness scale should help to clarify assumptions about the freedom of choice in adopting innovations. This attribute deals with whether individuals are free to implement personal adoption or rejection decisions. The adoption of an innovation may be mandated or

discouraged by governmental or corporate policy. Furthermore, even if the adoption seems voluntary, some adopters may still feel a degree of compulsion. This factor is also expected to have a positive influence on the rate of adoption of an innovation (Moore & Benbasat).

2.8 Communication channels

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effective in persuading an individual to accept a new idea. To maximize the probability of adoption of an innovation, communication channels must be used in an ideal time sequence, progressing from mass media to interpersonal communication channels. If the wrong channel is used at a certain time sequence, the process of adoption could get delayed. For example, mass media channels are relatively more important than interpersonal channels for earlier adopters than for later adopters. Finally, the importance of each channel is also based the degree to which media is used to promote the new product or innovation.

2.9 Legitimacy

A variable which is interconnected with all the five attributes but mostly with the

compatibility attribute is legitimacy. Legitimacy is essential for organizations and innovations to overcome the liability of newness when introducing a new product or service. Suchman (1995) defines legitimacy as a ‘generalized perception or assumption that actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs and definitions’. This definition looks a lot like Rogers’ definition of compatibility but this definition is more comprehensive. For that reason legitimacy is

mentioned as a distinctive factor. Compatibility could be included in the term legitimacy, but this would unbalance the adoption model of Rogers because of the comprehensive character of the term legitimacy. So in this paper legitimacy is used as a distinctive influencer of the adoption of an innovation.

According to Aldrich & Fiol (1994) there are two types of legitimacy: Cognitive and socio-political. Cognitive holds the spread of knowledge about a new venture and socio-political is the process in which key stakeholders accept a venture as appropriate and right, given existing norms and laws. In short, cognitive legitimacy is the awareness and socio-political legitimacy is the acceptance of an innovation or venture.

Cognitive legitimacy can be measured by the level of public knowledge about a new activity. Socio-political legitimacy can be measured by assessing public acceptance of an industry, government subsidies to the industry or public prestige of its leaders. Rao et al. (2008) identify two means through which new venture can gain legitimacy in the eyes of

stakeholders. Internal means can be gained through historical (past performance), scientific (leadership by academics and scientists), market (experienced management) and locational (forming part of a cluster like Silicon Valley) actions. External means can be obtained by forming partnerships with reputable companies and thereby accessing the internal means the other company already possesses.

2.10 Appropriability regime, the reputation meganism and branding

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The appropriability regime refers to the environmental factors, excluding firm and market structure, that govern an innovator’s ability to capture the profits generated by an innovation. Important dimensions in that regime are the nature of technology and the efficacy of legal meganisms of protection. These appropriability regimes can be classified into tight

(technology is easy to protect) or weak (technology is almost impossible to protect). Formal and informal meganisms play a crucial role in the protection of innovations (to increase chances of capturing value from that innovation). Informal meganisms are mechanisms like causal ambiguity, isolating mechanisms, loss of reputation and economies of scale. Formal meganisms are meganisms like copyrights, patents and trademarks, or so called intellectual property rights. These meganisms are linked and form an interrelated web. The formal and informal meganisms should be adapted to the tight or weak appropriability regime.

Appropriability mechanisms provide protection independently, but they may also enhance or enable the utilization of other mechanisms. The dynamic nature of the appropriability regime is also reflected in the strategy of the company. The strategy needs to bend according to the emerging opportunities and threats. A proper appropriability strategy increases the readiness to use suitable mechanisms in exploiting new possibilities and securing existing ones.

Wijnberg & Gemser (2001) enlighten the importance of an informal mechanism derived from the furniture industry; the reputation meganism. This meganism acts as a barrier to imitation. It is not enforceable, so informal, but is rooted in reputational sanctions imposed by the market. Wijnberg & Gemser argue that the effectiveness of the reputation meganisms is fostered by close linkages and networks between rivals; as such linkages and networks make it easy to detect imitative behavior and impose reputational sanctions. Furthermore, the reputation mechanism is likely to be stronger for companies that consider design to be an important factor in their competitive success. Wijnberg & Gemser (2001) come up with a good example that describes possible reputational sanctions:

‘Let us suppose that a particular firm has developed an individual reputation for innovation and, in addition, is part of a group of firms that as a whole has developed a similar reputation. Whenever this firm engages in imitative behavior, it risks damaging its individual reputation capital which, in turn, can lead to loss of status in the eyes of customers as well as being blocked from privileged access to information. At the same time, imitative behavior can result in the firm’s formal or informal exclusion from the group which, if communicated to the outside world, can also have an adverse effect on customers’ opinion of the firm. Thus, in such a case as described here, it would clearly be in the rational self-interest of the firm to comply with social pressures, since failure to do so could in the end have serious economic repercussions’.

Next to reputational sanctions, a strong branded innovation can affect the reputation of the parent organizational brand (Aaker, 2007). Branding has the potential to own an innovation over time, to add credibility and legitimacy to the innovation, to enhance it visibility. This means that branding also contributes to the legitimacy (see §2.9) of an innovation. Having a brand strategy can be critical to the success of an innovation, especially in the long-term. Without a proper branding strategy, the innovation can be short-lived ‘and therefore diffused into a confused marketplace with its impact dissipated’ (Aaker). According to Aaker,

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coherent strategy. This strategy should be supported by actively managed and adequately funded brand-building programs.

2.11 Summary

This chapter discusses the two approaches through which companies can innovate; the technology push (§2.2) and the market pull approach (§2.3). In other words: supply driven and demand driven. This chapter proves that focusing too much on one of the two approaches may lead to some disadvantages (§2.4). An extreme focus on technology push can for

example lead to isolation of the R&D department, ineffective research or developing a solution for which there turns out to be no problem. An extreme focus on market pull can for example lead to misinterpretation of the market or customer needs with minor potential. To avoid these pitfalls, using a less extreme approach in which both approaches are combined is often the best option (§2.5).

After choosing the right approach, successful diffusion and adoption of a product is never guaranteed. To stimulate the adoption and speed up the rate of adoption, the model of Rogers (2003) is a fruitful method. This model (§2.6 and §2.7) is based on five attributes that

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3. The Case

This chapter starts with some characteristics of the industry in which the innovation will be launched; the building industry. The overall building industry is discussed in the first paragraph and in the second part of the first paragraph the Dutch building industry is

discussed. In the third part of this chapter the innovation that serves as a case for this research is discussed; the IQ-woning. The third part of this chapter exists out of propositions that are derived from the previous chapter (§2.7 - §2.10). The propositions will be investigated in the case study.

3.1 The building industry

3.1.1 The worldwide building industry

Construction and related sectors form one of the major economic activities in every nation (Seaden & Manseau, 2001), accounting for about 14-15% of national GDP. The industry also has a significant impact on the living standards and the capability of a society to produce other goods and services and to trade efficiently. As a well-established sector, construction has been strongly determined by local tradition and culture, and geographical factors such as availability of material and climate. However, official statistics limit the construction sector to ‘the value added activity of firms that construct buildings and infrastructure as well as

installers of construction sub-systems, such as electrical works, plumbing, air systems, finishing, structuring etc’. Calculating from this perspective would result in an average GDP that has slowly decreased to 4 to 6 percent for almost all countries, except Japan in which the GDP is around 10 percent. Seadon & Manseau state that ‘the economic space of construction is much larger than that defined by traditional statistical records because it comprises the design of buildings and infrastructure (engineering and architectural services), the

manufacture of buildings products and of machinery and equipment for construction, and operation and maintenance of facilities’.

Construction has often been seen as a local industry, but is increasingly becoming national by sharing similar professional standards, building codes and partnering at a national level. The structure of the homebuilding industry has recently shifted towards greater concentration of production in larger regional and national firms. These firms have the capital and human resources to promote innovation and are trying to establish regional and national brand identity that transcend local markets. This is in contrast with the numbers of the CBS (2011), but this could be due to the rise of new smaller companies that carry out local or regional activities. As fewer firms control a larger share of housing production, the larger firms

become increasingly important in the successful diffusion of innovations (Seaden & Manseau, 2001; Koebel, 2008). However, construction often presents a terrain with no single or

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innovating construction firms often implement their innovations across an inter-organizational landscape (Harty, 2008).

Some other major changes are the demand that is shifting towards more functional buildings, more sophisticated equipment, improved working/living conditions and more respect for environmental constrains. Furthermore, national quality standards and building costs are increasingly facing international comparisons which lead to a more international scope (Seaden & Manseau, 2001; Koebel, 2008).

3.1.2 The Dutch building industry

The organization of production in the social housing industry differences a lot in UK,

Germany and in the Netherlands (Clark & Wall, 1999). These differences are associated with a particular use of technology, including the number of subcontractors, range of skills, employment status, complexity of work processes and the type of site management involved. The study of Clark & Wall confirms differences observed in the quality and division of labor in the different European countries. These differences in housing production methods arise from qualitatively distinct labor processes, replicated in turn through their respective skill structures and training systems. Clark & Wall describe the industry as craft-based in the UK and as industry-wide in Germany and the Netherlands. The craft-based system is based on controlling the output of the labor and the industry-wide is based on the quality of the labor input. In the UK, with the craft-based system, low levels of mechanization and prefabrication, narrow skills and low training provisions were found. Furthermore, in the UK labor is

employed through subcontractors. In the industry-wide system of Germany and the

Netherlands labor is employed directly. The training provisions are extensive and working processes are more complex. This means that interfaces in the work process that are more complex are not defined by trade, but are being undertaken by a number of specialist contractors (Harty, 2008).

The Dutch building industry is characterized by Seaden and Manseau as a government-led system, in which the government plays a central role in the market place with its large purchasing force and social responsibility. Publicly sponsored projects are often used to initiate and demonstrate new technologies that are then disseminated to other practioners and there is significant level of regulation of all aspects of construction. Labor arrangements tend to be inflexible with little money. Public policy instruments are seen as essential elements of innovation, with government being perceived as a valuable partner. Commercial negotiations tend to emphasize existing linkages and the government may intervene to achieve the

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number of companies did even slightly increase, despite the economic depression and the resulting turnover drawback. This means that companies in the building industry have to be even more creative to survive and to make their company and the homebuilding industry more innovative.

3.2 The IQ-woning

The IQ-woning stands for Intelligent Quality woning. The key objective of the IQ-woning for the customer is the fast time of delivery and the opportunity to make upfront decisions about ordering and furnishing. This all happens while the house still exists out of the ‘usual

material’. With the IQ-woning, Ballast Nedam wants to create those advantages without losing the ‘experience’ of living in a real house (Ommen, 2011). For Ballast Nedam it has the advantage of optimizing the building process. With the new product, the IQ-woning, Ballast Nedam reacts on the demands for enhanced product quality, lower product and production costs and reduction of defects, which all contribute to enhanced product quality (Johnsson & Meiling, 2009). The material is of vital importance for the Dutch residents. This resulted from a project of de Meeuw and Oorschot, another Dutch building company that used the same technology but made wooden houses instead of the using the usual materials of stones and bricks. That concept was a good idea, but not for the Dutch residents, because many of them still wanted to live in houses made of bricks and wanted the experience of living in a ‘real house’.

The annual report of Ballast Nedam (2010) shows us that six percent of the total turnover is achieved directly through consumers. Based on that, it can be concluded that Ballast Nedam is mainly active on the Business to Business market. For that reason and due to a lack of

expertise the IQ-woning is not directly sold to the consumer (van Ommen, 2011), but the customer is reached through certain target groups. Ballast Nedam distinguishes four target groups: (1) Public housing co operations, (2) Investors, (3) CPO’s (Collectief Particulier Opdrachtgeversschap, which means that a group of individuals acquire a plot with residential purposes) and (4) Developers. The IQ-woning can be of interest for all the four groups but due to its relative cheap price and fast delivery it can also be of future interest for temporary housing for students or migrant workers.

3.3 Propositions

The six attributes that influence the adoption rate of innovations are generally very important for the diffusion of an innovation and it is expected that this will also hold for the adoption of the IQ-woning.

Relative advantage seems to be the most important factor and is considered to be one of the strongest predictors of the adoption (Rogers, 2003; Kale & Arditi, 2010). In the case of the IQ-woning, relative advantage is measured in financial terms, convenience and quality vis-à-vis other houses. That results in the first proposition:

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To determine the compatibility if the IQ-woning, three variables need to be addressed; (1) socio cultural values and beliefs; (2) previously introduced ideas and (3) client needs for the innovation. The wooden house of Meeuwen and van Oorschot is a good example of a product that was not compatible because it stroked with socio cultural values and beliefs and because Dutch residents did not want to live in wooden houses. The fact that Dutch residents did not want to live in wooden houses also proves that there were no client needs for that particular innovation. So, it is important that an innovation is compatible.

Proposition 2: Compatibility is an important attribute in the determining the adoption rate of the IQ-woning.

A barrier that needs to be avoided by Ballast Nedam, when introducing its IQ-woning, is the complexity. Complexity may act as a barrier when an innovation is considered to be hard to understand. The easier to use an innovation is, the more rapidly an innovation will be adopted. This factor is not as important as relative advantage and compatibility, but it can certainly play a crucial role, especially when it becomes an unwanted barrier. If the IQ-woning is too complex to understand the adoption rate will definitely be lower. Therefore, the IQ-woning has to have a low degree of complexity to stimulate its adoption.

Proposition 3: A low degree of complexity is important in determining the adoption rate of the IQ-woning.

To decrease the uncertainty factor of the adoption of an innovation, a company can let users experiment with the innovation; trialability. New ideas that can be tried on the installment plan are generally adopted more rapidly than innovations that are not divisible (Rogers, 2003). For earlier adopters, trialability is more important than for later adopters. This means that when the adoption process of an innovation is in an early stage, trialability is very important. In the building industry, this could be done by for example open days or try outs.

Proposition 4: Trialability is an important attribute in determining the adoption rate of the IQ-woning.

The easier it is for individuals to see the innovation, the more likely they are to adopt it; observability. Some ideas are easily observed and communicated to other people, whereas other ideas are difficult to observe or to describe to others. For example abstract or ambiguous innovations are generally difficult to describe and therefore diffuse slowly (Chigona & Licker, 2008).

Proposition 5: Observability is an important attribute in determining the adoption rate of the IQ-woning.

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Proposition 6: Perceived voluntariness is an important attribute in determining of the adoption rate of the IQ-woning.

The use of the right communication channels at the right time in the right order is of vital importance for the adoption of an innovation. As said before, the mass media channels are very important at the beginning of the innovation to create awareness. The interpersonal communication channels are more important in a later stage to persuade potential adopters. Assuming that the adoption of the IQ woning is in an early stage, proposition 7 can be drawn:

Proposition 7: The use of the mass media channel(s) is positively related to the adoption process of the IQ-woning.

Legitimacy is also considered to be of vital importance for the IQ-woning. For the case study the two distinguished forms of legitimacy of Rao et al (2008) will be used to determine the (need for) legitimacy; gaining legitimacy through internal and external means. Furthermore, the cognitive and social political legitimacy will be addressed. The research should determine whether the IQ-woning possesses legitimacy.

Proposition 8: The IQ-woning is sufficiently legitimated to stimulate further adoption of the product.

An important part in the process of achieving and maintaining legitimacy is the reputation meganism. As stated in paragraph 2.10, the reputation meganism is likely to be stronger for companies that consider design to be an important factor in their competitive success. This holds for the IQ-woning, but also for Ballast Nedam because the design of houses and other building plays a vital role in the building industry. Next to the reputation of the IQ-woning, the reputation of Ballast Nedam could also enhance the legitimacy of the subsidiary. Due to the newness of the IQ-woning the reputation and legitimacy needs to be gained. The

reputation of Ballast Nedam could therefore positively influence the reputation and legitimacy of the IQ-woning.

Proposition 9: The reputation of Ballast Nedam positively contributes to the legitimacy of the IQ-woning.

Another factor that can contribute to the legitimacy of an innovation is branding. A proper branding strategy tailored to the IQ-woning could affect the reputation of the parent organizational brand and can add credibility and legitimacy to the innovation.

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3.4 Summary

The chapter started with some characteristics of the building industry, followed by

characteristics of the Dutch building industry. From the first paragraph becomes clear that construction and related sectors form one of the major economic activities in every nation. This industry is increasingly becoming national with large companies that control larger share of housing production and have the capital and human resources to promote innovation. From the part regarding the Dutch building industry (§3.1.2) becomes clear that the industry is characterized by an industry wide system, which holds that the industry is based on controlling the quality of labor input. Furthermore, the Dutch building industry is a government-led system. This system holds that the government plays a central role in the market place. An example of this role at the market place is the initiation of publicly sponsored projects.

The third paragraph discusses the IQ-woning and enlightens the advantages of it, like fast time of delivery and the opportunity to make upfront decisions about ordering and furnishing. The IQ-woning is not directly sold to the end user, but through four target groups; public housing co operations, investors, CPO’s and developers.

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4. Methodology

This chapter starts with an introduction of the research design where the design of the case study is explained. Next to an explanation of the cases, the establishment of the reliability of the case study is enlightened in the first paragraph. The second paragraph gives an overview of the way the data is collected in this case study and which respondents are involved in this case study. The chapter ends with a global overview of the structure of the interview.

4.1 Research design

A reliable and valid method for building and testing theory is a case study research

(Eisenhardt, 1989, Yin, 2009). In her article, Eisenhardt provides a process for developing theory from a case study research. Ravenswood (2011) proves the importance of the article of Eisenhardt by stating that ‘the articles first citing, most frequently citing and most recently citing Eisenhardt appear in high-ranking journals’. The article had 2509 citations to the end of 2008 and continues to receive citations. Furthermore the annual number of citations increases with each year and the citations appear in a broader range of publications and business

disciplines. This shows the importance of the article. Together with a book of Yin (2009), this article should provide a solid ground for carrying out the case study research.

Most case studies typically combine data collection methods, such as archives, interviews, questionnaires and observations (Eisenhardt, 1989; Eisenhardt & Graebner, 2007;

Ravenswood, 2011). The data collection for this research will consist out of literature, interviews and a small questionnaire will be included in the interviews. A combination of qualitative (literature and interviews) and quantitative (questionnaire) data can be highly synergistic (Woodside & Wilson, 2003). Quantitative evidence can indicate relationships which may not be salient to the researcher. It can also keep researchers away from vivid, but false, impressions in qualitative data. Furthermore, it can also support and confirm the

findings of qualitative evidence. The qualitative data are useful for understanding the rationale or theory underlying relationships revealed in the quantitative data (Eisenhardt, 1989).

Eisenhardt argues that the more case studies used, the stronger the theory that emerges from the research. Yin (2009) supports this by stating that ‘your chances of doing a good case study will be better by using a multiple case-design than using a single case-design’. The evidence of multiple case studies is often considered to be more compelling and more robust. While there is no ideal number of cases, a number between four and ten cases usually works well (Eisenhardt). With fewer than four cases, it is difficult to generate theory and the empirical grounding is likely to be unconvincing and with more than ten cases, it becomes difficult to cope with the complexity and the volume of the data.

For this exploratory case study eight different cases will be used. Two respondents from four different target groups (Public housing co operations, investors, CPO’s and project

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a starter, a municipality and an architect will be involved in the process. This process is hard to trace and hard to investigate so for a CPO-group, two starters will be approached, because the starters often take the initiative for a CPO. For the determination of the target groups, an exploratory interview was held with Armand van Ommen (Appendix 2). This interview was held to determine these target groups and to collect basic information about the IQ-woning. For the research it is interesting to compare the findings of the target groups and look for similarities and differences. The format of the interviews will be enlightened in the next chapter.

According to Yin (2009) four tests have been commonly used to establish the quality of case studies; construct validity, internal validity, external validity and reliability. The four tests are explained and applied to this case study below:

- Construct validity is about identifying the correct operational measures for the concepts being studied. Tactics to fulfill these tests are the use of multiple sources of evidence, the establishment of a chain of evidence or the review of the case study report by key informants. All these three tactics will be applied in this case study; multiple sources of evidence will be used, a chain of evidence will be established and key informants will review the case study to construct its validity. - Internal validity is about seeking to establish a causal relationship. Specific tactics

are hard to identify, but internal validity can be tested by pattern matching, explanation building, addressing rival explanations or using logic models. The internal validity of this case study will be established by pattern matching. - External validity is about defining the domain to which a study’s findings can be

generalized. This can be tested by theory in single-case studies and by replication logic in multiple case studies. Considering this is a multiple case study, the latter tactic will be applied.

- Reliability is about demonstrating that the operations of a study can be repeated, with the same results. This could be tested by using a case study protocol or developing a case study database. Reliability is established in this case study by using both a case study protocol and a case study database.

4.2 Data collection

According to Yin (2009), case study evidence may come from six sources: documents,

archival records, interviews, direct observation, participant-observation, and physical artifacts. The benefits of these sources of evidence can be maximized if the three principles of Yin are followed: (1) the use of multiple sources of evidence, (2) create a case study database and (3) maintain a chain of evidence. These principles are intended to make the case study as explicit as possible, so that the data construct validity and reliability, thereby becoming worthy of further analysis (Yin).

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will be used (Eisenhardt & Gaebner, 2007). These informants can include organizational actors from different hierarchal levels, functional areas and groups but also ‘outsiders’, such as actors from other relevant organizations or observers which is the case in this case study. The interview schedule below confirms this high variance of informants. This high variance in informants is very fruitful in reducing the bias of the case study research.

Date Interviewee Role Company

12th of April 2011 (introduction to the IQ-woning)

Armand van Ommen Plan developer Ballast Nedam

26th of July Bart van Bussel Public Housing Bergopwaarts

27th of July Rob van Dam Public Housing Brabantse Waard

28th of July Paul Habers Starter Not relevant

27th of July Dirk Fransen Starter Not relevant

27th of July Gonny Doornbos Project developer Ballast Nedam

2nd of August Pieter Smeets Project developer Ballast Nedam

2nd of August Charlie Martens Investor Ballast Nedam BNO

5th of August Giel van Wijk Investor Syntrus Achmea

Vastgoed

Table 1: Interview Schedule

The interview consists out of two parts. The first part of the interview consists out of the testing of the importance of the attributes that determine the rate of the adoption of an

innovation. The six attributes derived from Rogers (2003) and Moore & Benbasat (1991) will be tested by a questionnaire. With that questionnaire will be determined which attributes are considered to be the most important in the adoption process of the acquisition of an IQ-woning. In the questionnaire the importance of each attribute will be enlightened from an ‘IQ-woning versus alternative perspective’. The questionnaire exists out of questions that are answered on a 5 point Likert scale.

The propositions regarding the influential factors legitimacy, communication channels, reputation and branding will be tested by second part of the interview and by observations. This part will exist out of open questions of which the outcome will be qualitative data.

4.3 Summary

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woning has four target groups: Public housing co operations, investors, starters and project developers). From each possible target group of the IQ-woning, two respondents will be interviewed, which leads to a total of eight case studies. To establish the quality of the case study construct validity, internal validity, external validity and reliability tests are applied to this case study.

The second paragraph explains the way the data is collected. The data collection in this case will come from six sources: documents, archival records and interviews, direct observation, participant-observation and physical artifacts. Multiple data sources are used to strengthen the case study.

‘Maximizing the chances of adoption of a product innovation’