Managing management innovation The effects of a lean-based management innovation on organizational innovativeness; the case of the Simply Philips operating system

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Managing management innovation

The effects of a lean-based management innovation on organizational

innovativeness; the case of the Simply Philips operating system

Master’s Thesis

R.P.A. van Tartwijk

By:

Roel van Tartwijk – s1613936 September 28, 2011

University of Groningen, Faculty of Economics and Business

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University of Groningen; Faculty of Economics & Business | Master’s Thesis Roel van Tartwijk

Abstract

In this research, it is investigated whether the implementation of a lean-based management innovation has an effect on organizational innovativeness. A lean-based management innovation consists of five elements: lean leadership, continuous improvement, 5S, waste reduction and visual management. Literature shows that traditionally the goal of lean-based management innovations is efficiency-oriented, and can therefore be associated with exploitative activities. On the other hand there is exploration, which is more innovation-oriented. A single case study was conducted at Philips Drachten, where the effects of the Simply Philips innovation were investigated. The data gathered in 11 interviews confirmed existing literature in its notion that a lean-based management innovation enhances efficiency. In addition, it showed that this innovation type contributes to innovativeness as well, though the effect is only significant if all five elements are part of the implemented system. Specifically, the established effect was that a lean-based management innovation influences new idea generation, new knowledge and innovation creation, a successful implementation of innovations, and the improvement of existing operations.

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Acknowledgements

This research paper was written as the Master’s thesis for the program MScBA Strategy & Innovation at the University of Groningen, in which the domain of strategic innovation management is studied. Since the Master’s thesis is the final project to complete before finishing the Master program, I wanted to challenge myself one last time (within my study, that is). I wanted to incorporate both the academic and the business perspective in this thesis. Therefore, I applied for an internship at Philips Drachten. This internship allowed me to gather the data for my research within the company, thereby successfully including the business perspective. In addition, conducting a literature study accounted for the academic perspective.

Although the Master’s thesis is an individual project, I have received some very valuable help in the process of doing the research and writing the thesis. As such, there are a few people I would like to thank.

First, I wish to thank Philips Drachten for providing me with the opportunity to conduct my research at the company. Especially, I would like to thank Rob Karsmakers and Nynke Kootstra for helping to set up the internship. Additionally, I also want to thank Nynke for her guidance and help throughout my internship and particularly for her feedback concerning the way of conducting the interviews and the choice of the interviewees. Furthermore, I owe a big thank you to all the interviewees for taking the time to speak to me and answer my questions.

Next, I want to thank Pedro de Faria, my thesis supervisor, for his professional and very valuable feedback. His very quick responses and concise answers to the questions I had during the process of writing this thesis helped me to always find the best way of taking the next step in the research and also to further improve on the work I had already done. In addition, I wish to thank Florian Noseleit, my second supervisor, for his assistance and help in the completion of my thesis.

Finally, I would like to thank my parents, my brother and all my closest friends for their continuous support and confidence. I would not have been able to write this thesis and attain the Master’s degree without them.

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1. Introduction

1.1 Topic

While some people may relate innovation only to a company’s R&D function, there is more to the concept of innovation than just the link to new product development. There are different kinds of innovation, some of which are not necessarily involved with the creation of new products. One of these types of innovation is management innovation. Unlike product innovation, management innovation is about developing and implementing new organization procedures, management practices and ways of working.

Even though management innovation does not directly relate to individual products, it can be of vital importance to companies. Indeed, management innovation is said to represent one of the most important and sustainable sources of competitive advantage for firms (Feigenbaum & Feigenbaum, 2005). And yet, “[s]trangely enough, few companies have a well-honed process for continuous management innovation” (Hamel, 2006, p. 72) and many lack well-established and specialized expertise in the area of management innovation (Birkinshaw et al., 2008). This makes the subject of management innovation a very interesting and important research topic. Its relevance is further highlighted by Mol and Birkinshaw (2009, p. 1269), who state:

“(…) in today’s age management innovation may represent one of the most important and sustainable sources of competitive advantage for firms because of its context specific nature among others. That makes any study into this topic particularly relevant for practice but also important from the perspective of the study of sustainable competitive advantage, a key domain of strategic management and other academic areas.”

Although management innovation is only one type of innovation, it can be specified even further. In this research, management innovations that are based on the principles of lean production – i.e. lean-based management innovations – are studied. These innovations aim to change organizational practices by embedding the lean philosophy of waste reduction, error elimination and continuous improvement into the company (Bhasin & Burcher, 2006). In other words, it is tried to improve efficiency by implementing and maintaining a new, ‘lean’ way of operating.

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Much academic research has been done with regard to the difference between technological innovation on the one hand and management innovation on the other (e.g. Mol & Birkinshaw, 2009), and also concerning the determinants of management innovation (Damanpour, 1991). However, few studies have investigated the effects of management innovations on other constructs. By examining the relationship between lean-based management innovation and a company’s innovativeness, this study tries to close that gap.

Organizational innovativeness is a measure of a company’s capacity to generate and implement new ideas, knowledge and innovations. In today’s business environment, many companies seek to be innovative and beat the competition at innovation development and management. In some industries, having a reputation for being innovative is becoming more and more important.

1.2 Philips

One of the most well-known and successful innovating companies in the Netherlands is Philips. Founded in 1891 as a light bulb manufacturer, Philips has evolved into a modern electronics, healthcare and lifestyle company over the last 120 years. During all these years, one of the main drivers of this evolution has been innovation. For consumers, the most evocative examples of Philips’s innovation include the Senseo coffee machine, the Blu-ray disc and of course the electric shavers, the latest of which is the Senso Touch 3D.

However, not all innovation at Philips is product innovation. The company engages in management innovation as well. Currently, a process is under way to implement a lean production-based operating system for Philips’s production sites for shaving heads and shavers. This system is called Simply Philips and is aimed at efficiency improvement and cost saving by involving every employee in the new, lean way of organizing and executing operations. Waste elimination, continuous improvement and visual management are some of the core elements of this system.

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1.3 Research aim and research question

The research objective of this study is twofold. First, it aims to find out whether the implementation of a management innovation that is based on lean production methods affects the innovativeness of organizations, and if so, in which way. Secondly, as this study is undertaken as a single case study at Philips Drachten, it seeks to provide Philips with advice and recommendations on the way its Simply Philips operating system is used as a management innovation and on how it can be deployed to improve organizational innovativeness at Philips Drachten.

The research question that needs to be answered in order to achieve this research objective is: “How can companies utilize lean-based management innovation in order to enhance organizational innovativeness?”

1.4 Organization of the paper

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2. Literature review

This chapter is divided into five sections, the first four of which each deal with one of the main concepts that are part of this study. The first section introduces the concept of management innovation, which will be defined and discussed. Section 2.2 will present lean manufacturing and explain how the lean production philosophy can be used as a basis for management innovation. Next, since the goal of the study is to find out whether lean-based management innovation can enhance organizational innovativeness, the third section will present a literature overview on the latter concept. The fourth section will discuss the exploration – exploitation tradeoff and connect it with the concepts of management innovation and innovativeness. Finally, in section 2.5 all the concepts and the theorized relationships between them will be depicted in a conceptual model.

2.1 Management innovation

Scholars have been studying the subject of innovation for many decades, especially since Schumpeter’s (1934) work on economic development in which he first introduced innovation as an important element in economic theory. Historically, scholars have made a distinction between technical (Damanpour, 1988) or technological innovation (e.g. Henderson & Clark, 1990) on the one hand and managerial (Roggenkamp et al., 2005) or administrative innovation (Teece, 1980) on the other hand. Overall, technological innovation has received more extensive attention (e.g. Burgelman et al., 2009). Within both technological and managerial innovation, other types of innovation have been studied, with most academic attention having been paid to product innovation (e.g. Utterback & Abernathy, 1975; Cooper & Kleinschmidt, 1987; Danneels, 2002), process innovation (e.g. Utterback & Abernathy, 1975; Ettlie & Reza, 1992; Pisano, 1996) and radical innovation (e.g. O’Connor, 1998; McDermott & O’Connor, 2002). In recent years, more and more research in the field of strategic innovation management has focused on management innovation (Wu, 2010), which is broadly similar to managerial/administrative innovation, but does not necessarily exclude the incorporation of technological aspects of innovation.

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innovation. Moreover, management innovation has also been acknowledged to be important for maintaining a flexible and durable organization (Heunks, 1998).

2.1.1 Defining management innovation

The concept of management innovation has been defined in different ways by different authors and sometimes this type of innovation has been discussed using a different terminology. The terms managerial innovation (Roggenkamp et al., 2005), administrative innovation (e.g. Teece, 1980; Damanpour, 1987; Leseure et al., 2004), organizational-structure innovation (Knight, 1967), social innovation (Heunks, 1998), institutional innovation (Hargrave & Van de Ven, 2006), paradigm innovation (Tidd et al., 2005), organizational innovation (Lam, 2005) and administrative process innovation (Zmud, 1984) have all been used to describe largely the same concept. In this study, the term management innovation is used to refer to this concept, because this term best reflects the fact that this type of innovation “embraces a very wide range of phenomena” (Lam, 2005, p. 32). Table 1 presents an overview of several of the definitions for this type of innovation as constructed by different scholars.

Author(s) Definition of management innovation

Knight (1967) “The introduction of altered work assignments, authority relations, communication systems, or formal rewards systems into the organization.” (p. 482)

Teece (1980) “Innovations based on superior methods of organization and management.” (p. 464)

Kimberly & Evanisko (1981) “[Innovation] which in this study involve[s] the adoption of electronic data processing for a variety of internal information storage, retrieval, and analytical purposes, [and is] only indirectly related to the basic work activity of the hospital and more immediately related to its management.” (p. 692)

Damanpour (1987) “Administrative innovations are those that change an organization’s structure or its administrative processes.” (p. 677)

Georgantzas & Shapiro (1993)

“Administrative innovations embody the adoption of internally generated or purchased administrative programs, processes and techniques new to the adopting organization.” (p. 161-162)

Abrahamson (1996) “I define a management innovation as ‘a significant departure from the state of the art at the time it first appears’.” (p. 262)

Alänge et al. (1998) “Innovations in management practices, innovations in the administrative processes or innovations in the formal organizational structure [whose adoption] represents investment in knowledge, procedures, behaviour and relations rather than in artifacts.” (p. 7)

Ravichandran (2000) “Administrative innovations embody the adoption of administrative programs, processes, or techniques new to the adopting organization.” (p. 694)

Leseure et al. (2004) “A collection of procedures, ideas, values and tools which, together, form a [promising] management practice (…) which has been developed and tested outside a focal firm which is considering adoption (…) [and is] new to the focal firm.” (p. 170)

OECD (2005) “An organisational innovation is the implementation of a new organizational method in the firm’s business practices, workplace organisation or external relations.” (p. 51)

Roggenkamp et al. (2005) “Managerial innovations are [innovations which are] intended to realign structures and change technical processes that result in prolonged improvements in efficiency (cost) and effectiveness (quality and outcomes).” (p. 2489)

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University of Groningen; Faculty of Economics & Business | Master’s Thesis Roel van Tartwijk 6 Tidd et al. (2005) “Changes in the underlying mental models which frame what the organization

does.” (p. 10)

Birkinshaw & Mol (2006) “The implementation of new management practices, processes and structures that represent a significant departure from current norms.” (p. 81)

Hamel (2006) “A management innovation can be defined as a marked departure from traditional management principles, processes, and practices or a departure from customary organizational forms that significantly alters the way the work of management is performed.” (p.75)

Hargrave & Van de Ven (2006)

“We define institutional change as a difference in form, quality, or state over time in an institution. (…) If the change is a novel or unprecedented departure from the past, then it represents an institutional innovation.” (p. 866)

Birkinshaw et al. (2008) “We define management innovation as the invention and implementation of a management practice, process, structure, or technique that is new to the state of the art and is intended to further organizational goals.” (p. 829)

Klippel et al. (2008) “Making changes in the industrial organization through a new form of management.” (p. 332)

Madriad-Guijarro et al. (2009)

“[Innovation in the area of] management or administration, purchasing, and commerce/sales.” (p. 471)

Mol & Birkinshaw (2009) “Management innovation is the introduction of management practices new to the firm and intended to enhance firm performance.” (p. 1269)

Wu (2010) “Innovation [which] comes about through interaction with internal and external knowledge sources, more specifically from market participants such as consultants from internal and professional areas.” (p. 321)

Walker et al. (2011) “The [adoption] of a management practice, process, structure, or technique that is new to the [adopting organization] and is intended to further organizational goals.” (p. 369)

Table 1. Overview of definitions of management innovation (continued)

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‘new to the firm’ of Georgantzas & Shapiro’s (1993), Ravichandran’s (2000), Leseure et al.’s (2004) and Mol and Birkinshaw’s (2009) definitions in my definition of management innovation. Next, since the goal of this research is to investigate whether a lean-based management innovation which is aimed at improving efficiency can also improve innovativeness, another element must be part of the definition of management innovation. This element is that management innovation is ‘intended to further organizational goals or efficiency’, which is extracted from Roggenkamp et al.’s (2005), Birkinshaw et al.’s (2008) and Walker et al.’s (2011) definitions.

Consequently, in this study, management innovation is “the introduction to an organization of a management practice, process, structure, technique, organization method or change to the work of management which is based on the lean production philosophy, which is new to that organization and which is intended to further organizational goals or efficiency”. An assumption underlying this definition is that management innovation is intended to increase efficiency and effectiveness of the organization that implements it (Walker et al., 2011).

2.1.2 Management innovation vs. technological innovation

Scholars have found management innovation to differ from technological innovation in two significant ways (Birkinshaw & Mol, 2006; Business Strategy Review, 2007). First, external change agents have a larger role in inspiring and legitimizing management innovation. Wu (2010) used in this respect the broader term ‘external knowledge sources’. “These individuals [are] a mix of academics, consultants, gurus and ex-employees” (Business Strategy Review, 2007, p. 63) on whom companies sometimes heavily rely with regard to management innovation (Golightly, 1967). Inspiration can sometimes come from persons at the edge of one’s network or from parties outside the focal firm’s industry. This phenomenon is called ‘the strength of weak ties’ (Liu & Duff, 1972; Baer, 2010). Studying the airline industry, Golightly (1967) found that when it came to management innovation, companies also used examples of effective management from other industries. Birkinshaw and Mol (2006) confirm this notion by concluding that inspiration for management innovation often comes from outside the sector a firm operates in. It is important to note that this ‘influence from outside’ is not a prerequisite for management innovation; management innovation can and does also occur without the help of external knowledge sources.

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Birkinshaw et al., 2008). Being relatively tacit makes these innovations hard to demarcate (Alänge et al., 1998) and difficult to protect by intellectual property, e.g. patents (Teece, 1980).

Despite these differences – or maybe because of them – management innovation “is probably as important to economic and social progress as technological innovation” (Birkinshaw & Mol, 2006, p. 82). Clearly, technological and management innovation are not the same, nor are they opposites or extremes. In fact, management innovation, like other kinds of innovation, depends on new technology (Stata, 1989).

2.1.3 The stages of management innovation

Now that management innovation has been demarcated and its distinction from technological innovation has been made, the focus of the remainder of this paper is on management innovation only. Since the current research is about a management innovation, the technological innovation type is left out of discussion from this point onward.

As Mintzberg’s (1979) organization theory stresses, the structuring of an organization determines the way in which it functions. An organization which is not structured properly will not work properly. The same holds true for innovations. Thus, for a management innovation to be created and implemented successfully, it must be structured in some way.

According to Abrahamson (1996), management innovations are generally created by managers and practitioners and not by theorists. Other research (Birkinshaw & Mol, 2006; Business Strategy Review, 2007) supports this claim, but nuances that theorists can help inspire and legitimize management innovation as external experts. Birkinshaw & Mol (2006) developed a management innovation model (see Figure 1) which can help structure the creation and implementation of management innovations. Their model has four main stages: (1) dissatisfaction with the status quo, (2) inspiration from other sources, (3) invention, and (4) internal and external validation.

Figure 1. The stages of the management innovation model (source: Birkinshaw & Mol, 2006)

In the first stage, a situation develops in which a motivation to innovate is developed (Birkinshaw et al., 2008). This situation can be crisis-driven, or it is characterized by either a nagging operational problem or a “strategic threat that has started to take shape through changes in the business environment or the emergence of new competitors” (Birkinshaw & Mol, 2006, p. 84). The latter is the most common source of dissatisfaction, leading to a wish for a change in the status quo and hence to innovation. It is advisable to commit to big problems, for these will present bigger opportunities for innovation (Hamel, 2006).

2. Inspiration (usually from outside) 1. Dissatisfaction with

the status quo

Diffusion to other organizations 4. Internal and

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Inspiration for innovation is searched for in the next phase and is often found through broad thinking and consulting external sources. These can include management thinkers and gurus, but also business people from other functional areas or countries. Still, organizational learning may also function as the principal process by which management innovation occurs (Stata, 1989).

The boundaries of the third stage are somewhat blurred, because the exact moment a management innovation is invented from experimental activities can be hard to define (Birkinshaw & Mol, 2006; Birkinshaw et al., 2008).

Before a management innovation can be implemented, the benefits of the innovation must be communicated to the company’s employees. This can be achieved through a social process of sense making and generating internal and external validation and legitimacy (Aldrich & Fiol, 1994; Birkinshaw et al., 2008; Singh Rao et al., 2008) for the new idea or practice (stage 4). There are different approaches to building legitimacy. One is to emphasize validation by independent external sources, whereas another can be to focus on organizations with prior experience in management innovation (Birkinshaw et al., 2008). A third approach focuses on internal validation and recommends using a champion or respected senior executive to promote the innovation and to help give it credibility (Birkinshaw & Mol, 2006). As mentioned earlier, external validation is important given the generally uncertain and ambiguous nature of management innovations. Yet internal acceptance is most critical, especially in the period immediately after the innovation is introduced to the organization (Birkinshaw & Mol, 2006). Although depicted in Figure 1 as a process of distinct, separate stages, “the process of management innovation does not always proceed as a linear sequence of activities” (Birkinshaw et al., 2008, p. 839); it is an iterative process. When a management innovation has been successfully implemented, it might be diffused to other organizations. However, management innovations are usually hard to replicate, because they are specific to the company in which they were created and require an understanding of the complex system of actors and relationships underlying the company culture (Birkinshaw & Mol, 2006; Klippel et al., 2008). In the next chapter, the Simply Philips system will be discussed. One part of this discussion will describe the Simply Philips system in light of this model.

2.1.4 Management innovation and organizational efficiency

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2.2 Lean production

Management innovation can occur in all industries and within different types of business practice. One specific type of business practice is based on the so-called ‘lean philosophy’ and is focused on the organization’s efficiency. Lean production methods are an example of management systems for general production or supply operations, which – when introduced to an organization – are considered as management innovations (OECD, 2005). In this respect, the example of Toyota applies not only to management innovation, but also to the subject of lean production.

Lean production is a particular type of production used by many world class manufacturers. It is based on a traditionally Japanese philosophy and makes uses of a number of tools to improve company operations. This set of tools enables a certain way of operating, which a company’s management can opt to utilize. The use of such tools, combined with the vision of the firm’s management, forms a lean-based management practice. When such a practice is first implemented by a company, or when significant changes are made to it, this can be considered a management innovation. Consequently, although management innovation does not necessarily have to be concerned with lean production, it can be narrowed down to an even more specific type of innovation. This type is called lean-based management innovation and it is the focus of this research.

In order to further explain what is characteristic of this type of innovation, the next few sections will describe the lean philosophy and the different elements of lean production.

2.2.1 The lean philosophy and lean leadership

Several authors have commented that in order for lean operations management to work, companies should view it as a philosophy or a way of life (Harris, 2004; Bateman, 2002; Roth, 2006; Slack et al., 2007). It is neither sufficient to regard it merely as a set of tools or a useful business process, nor to think that implementing lean production is a one-time event; instead it is a never-ending, long term journey (Parks, 2002; Flinchbaugh, 2005; Bhasin & Burcher, 2006). In the same vein, the lean management philosophy can form the basis on which a(n) (management) innovation is built (Byrne et al., 2007).

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‘lean-way’ of operating (McNabb & Sepic, 1995; Utley et al., 1997; Henderson et al., 1999). An important part of this culture that is required is lean leadership. Lean leadership differs from traditional leadership in several ways, for example having a focus on the longer term, a mindset to find the cause of problems and the idea that everyone can solve problems and continuously improve. Such leadership should be extended to all organizational levels (Roth, 2006), so that the entire organization embraces it. Leadership should be especially strong at the management level and can be expressed through involvement, commitment, enthusiasm and support (Tidd et al., 2005). In short, leaders are needed, and not managers (Flinchbaugh, 2005).

The Toyota Production System is widely regarded as the example of a lean manufacturing system (e.g. Becker, 2001) and is by some even called the foundation of lean thinking (Liker & Morgan, 2006). The Simply Philips system, which will be discussed later on, is largely derived from TPS.

2.2.2 Continuous improvement

Continuous improvement involves “the process of actively encouraging employees to participate in the continuing incremental improvement of products and processes” (Kerrin, 1999, p. 1154), working towards an ideal state of operations (Slack et al., 2007). It is a process of focused and continuous incremental innovation and is aimed at continually meeting customer expectations regarding quality, cost, delivery and service (Carpinetti & Martins, 2001). Bessant et al. (2001) identify six levels of continuous improvement that may be present in an organization:

1) No continuous improvement activity;

2) Trying out ideas;

3) Structured and systematic continuous improvement;

4) Strategic continuous improvement;

5) Autonomous innovation; and

6) The learning organization.

A similar classification exists for a firm’s continuous improvement capability (Caffyn, 1997). It ranges from ‘background continuous improvement’ where none of the required core abilities and key behaviors is present, to ‘full continuous improvement capability’ where the necessary abilities and behaviors are part of daily routines and the firm resembles the ‘learning organization’.

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2.2.3 Waste reduction

Together with continuously improving efficiency, waste reduction is at the core of the lean philosophy. Generally, waste is defined as all activities that cost time and resources, but are not directly involved with what the customer values (e.g. Liker & Morgan, 2006). In other words, waste originates in non-valued added activities (e.g. Harris, 2004). The objective behind waste elimination is to make an operation faster and more dependable and to ensure high quality and low operation costs (Slack et al., 2007). One of the first companies to actively and consciously focus on eliminating waste as a part of its production system was Toyota (Ohno, 1988). Derived from the Toyota Production System, and later used by many scholars and companies alike, are seven types of waste that can be identified. These seven wastes are overproduction, (unnecessary) transportation, inventory, motion, defects, over-processing and waiting (e.g. Ohno, 1988; Wood, 2004; Bhasin & Burcher, 2006; Slack et al., 2007). Since in any production organization some level of these waste types will inevitably be present, there simply always is waste (Harris, 2004). However, reducing this waste as much as possible will contribute to becoming more efficient.

2.2.4 The 5S framework

Just like continuous improvement, 5S has its roots in Japan (Kobayashi et al., 2008). Again, Toyota is a popular example of a firm that uses this method (Ablanedo-Rosas et al., 2010). The 5S framework is made up of five sets of activities which when combined define “a process and method for creating and maintaining an organized, clean, safe and high performance work place” (Morrissette, 2009, p. 37). The 5S methodology is a system to reduce waste and optimize productivity by maintaining order and keeping a production site clean, and it is typically the first lean technique which organizations implement (Hough, 2008). Just like the overall lean philosophy, the 5S framework itself should not be regarded as a mere tool, but as a way of life (Kobayashi et al., 2008). Only then will it yield the best results.

It is remarkable that there seem to be different versions of the 5S framework being utilized by companies. For example, Ho (1998) discusses the five S’s as Structurize, Systematize, Santitize, Standardize and Self-discipline. These are quite literal translations of the original Japanese acronyms. The most common five S’s, however, are Sort, Shine, Set in order (or Straighten [Richardson, 2005; Slack et al., 2007]), Standardize and Sustain (e.g. Chapman, 2005; Kumar & Addie, 2006).

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2.2.5 Visual management

Visual management entails the use of visual information aids – including signs, charts, pictures illustrating processes, color coding, scoreboards, and others – in order to make an operation more transparent (Slack et al., 2007) and thereby streamline production processes and improve efficiency (Ranky, 2007). The examples of visual management given by Murata and Katayama (2010) are mirrors for checking workers’ manners, electrical signing for problem identification, color signaling, transparent tools rather than opaque ones and dust detection systems. Such visual tools are especially important for communication within a company’s production function (Parry & Turner, 2006).

The link between 5S, visual management and continuous improvement is made clear by Hough (2008) by stressing that the use of visual reminders in 5S implementation helps to achieve consistent improvements. Also, the close link between the described lean techniques is established as Parry and Turner (2006) discuss the 5S framework as being a visual management tool.

2.3 Organizational innovativeness

The aforementioned elements of lean production are usually described in terms of their effect on organizational efficiency (e.g. Bhasin & Burcher, 2006) and effectiveness (e.g. Roth, 2006). In this research, however, the link between lean-based management innovation and a company’s innovativeness is studied. Since part of the research aim of this study is to find out whether lean-based management innovation affects organizational innovativeness (and if so, in which way), it is first necessary to obtain better insight into the concept of innovativeness. In order to achieve this, the current section will discuss this concept and provide the definition of organizational innovativeness which will be used in this study. Furthermore, the innovation management literature is used to stress the importance of investigating innovativeness rather than the more common construct of firm performance.

2.3.1 Defining organizational innovativeness

Organizational innovativeness can be split up into two components: administrative innovativeness and product-related innovativeness (Luk et al., 2008). Although it is possible to measure these two elements separately, most researchers investigate the overall concept of organizational innovativeness. Following this most commonly used approach, in this research I also will investigate the overall concept.

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characteristics of individual and group idea generation, learning, creativity and change” (Orosa-Paleo and Wijnberg, 2008, p. 4). Thus, organizational-level innovativeness comes from innovation-related activities of employees (Gebert et al., 2003). Finally, innovativeness is closely connected to the creation of new knowledge (Hsu, 2007) and the recombination, translation and exploitation of existing knowledge (Hsu, 2007; Yeung et al., 2007).

In my view, these three points are all a required part of the definition of innovativeness. I therefore recombine all three observations to construct a new definition. In sum, this definition then includes the capacity to innovate, the introduction of new ideas and the role of knowledge in innovation.

As such, drawing from the three aforementioned observations, in this study organizational innovativeness is defined as “the capacity of an organization to generate, introduce and accept new ideas, to create new knowledge and exploit existing knowledge, to adopt, create and implement innovations, and to improve products and processes”.

2.3.2 The importance of innovativeness

Ultimately, all businesses seek to achieve the greatest possible organizational gain and performance. Hence, it might seem most important to investigate ways to achieve the greatest performance. This is why the innovation management literature includes many studies on the manner in which innovation can influence performance (e.g. Calantone et al., 2002; Rhee et al., 2010). As such, researching the effects of a particular innovation on organizational innovativeness may appear to be of less relevance. However, this relationship is important to study, since the impact of innovation on the final organizational performance may not always be straightforward or easy to discern, due to the high complexity that is involved in the relationship between the two (Subramanian & Nilakanta, 1996). Moreover, innovativeness has been found to be a prerequisite for a firm’s success and survival (Rhee et al., 2010). Thus, the importance of innovativeness must not be underestimated (Drucker, 1954), as the innovativeness of a company can be a predictor of that company’s financial performance (Yeung et al, 2007).

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recognize that one can view the innovative performance of an organization as “how innovative its processes and (…) organizational structure is” (p. 3).

Although in the current research the effect of innovativeness on performance is not studied, the above does clarify the importance of investigating the concept of organizational innovativeness. This is why innovativeness was chosen as one of the main concepts in this study.

2.4 The exploration – exploitation tradeoff

Organizations engage in two broad kinds of activities: exploration and exploitation. It is interesting to note that efficiency – which lean-based innovation is generally focused on, as explained earlier – is associated with exploitation, whereas innovativeness is more often connected to exploration (March, 1991). This study investigates whether and how a management innovation that is originally aimed at exploitation may also have an effect on the typically explorative concept of innovativeness. As such, an elaboration on exploration and exploitation and the tradeoff that exists between these two is in order. In the same vein, this section also focuses on the traps of exploration and exploitation which one might fall into if either one is too heavily emphasized.

2.4.1 Exploration and exploitation

A company’s operations can generally be divided into exploration and exploitation activities. Exploration entails the search for new opportunities and ideas and the invention of new technologies. Exploitation refers to the development and refinement of existing practices and technologies and of the opportunities and ideas found by means of exploration. In terms of evolutionary organization theory, exploration is associated with the generation of new alternative practices and exploitation is the effective selection of practices (March, 1991). From a knowledge perspective, exploration is the pursuit of new knowledge, whereas exploitation is the use and development of things already known (Levinthal & March, 1993). All in all, exploration can be characterized by terms such as search, variation, risk taking, experimentation, flexibility, invention, discovery and innovativeness. Conversely, exploitation is associated with refinement, choice, selection, implementation, execution, diffusion and efficiency. Derived from this dichotomy of exploration and exploitation is the distinction between exploratory and exploitative innovation (Jansen et al., 2006). Exploratory innovations generally are radical innovations offering new creations and require new knowledge or a departure from existing knowledge. In contrast, exploitative innovations are incremental innovations which broaden and build on existing knowledge, improve established designs and increase efficiency.

2.4.2 The tradeoff

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viability” (Levinthal & March, 1993, p. 105). Focusing on exploration reduces the speed with which existing practices and routines can be improved, but emphasizing exploitation makes exploration and experimentation with new practices less attractive (Levitt & March, 1988). Another aspect that plays a role in the tradeoff is a firm’s environment. “Established firms in stable environments can routinize day-to-day activities, and so can be expected to have more attention available to allocate to exploration” (Barnett, 2005, p. 69). Conversely, organizations in competitive environments usually devote much attention to exploration and thus for them being able to make more time for exploitation is found to be more beneficial (Jansen et al., 2006). Clearly, companies face a choice as to how best to balance exploration and exploitation. However, the optimal balance is different for each organization and is usually hard to determine precisely (Levinthal & March, 1993).

2.4.3 The exploration and exploitation traps

Levinthal and March (1993) were among the first to discuss exploration and exploitation, as well as the pitfalls involved with focusing too much on either of them. Although they have been called “champions of exploration” (De Treville et al., 2005, p. 231), Levinthal and March do emphasize that companies must pay sufficient attention to exploitation as well. They stress that allocating too much attention to only one of the two (exploration or exploitation) will lead companies to fall into one of two possible ‘traps’. Should firms focus too much on exploration, they may fall into the ‘exploration trap’. In this situation, the opportunities created by exploration are not exploited (Barnett, 2005) and the firm ends up with too many undeveloped ideas and too little distinctive competence. It will not be able to reap the benefits of its knowledge (Levinthal & March, 1993). On the other hand, if companies engage too much in exploitation, the ‘exploitation trap’ may present itself. Here, companies face a failure to adjust to changing markets (Barnett, 2005) and develop enough new ideas. This is a phenomenon that has been labeled the ‘structural inertia’ of organizations (Hannan & Freeman, 1984). Should this happen, then the company risks becoming ‘out-dated’ and it can come to suffer from obsolescence (Levinthal & March, 1993).

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2.5 Conceptual model and hypotheses

The concepts and relationships between them as discussed in the previous four sections are now presented graphically in a conceptual model (see Figure 2).

Figure 2. Conceptual model

This conceptual model shows the different concepts that form the core of this study. On the left-hand side, the lean-based management innovation is presented. It is divided into the five elements of which it is made up and which are investigated in this research. The lines that connect the five elements to the box of the innovation are dotted to indicate that they are not all separate, stand-alone concepts, but rather they are interconnected and part of the lean-based management innovation. The dotted arrow between the management innovation and the level of organizational efficiency shows that implementing such an innovation improves efficiency. The arrow is dotted, however, because it is not the goal of this research to test this relationship. Rather, it aims to find out whether a lean-based management innovation (which is aimed at improving efficiency) can also improve the level of innovativeness within a company. Hence, the arrows between the elements which make up the lean-based management innovation – lean leadership, continuous improvement, waste reduction, 5S and visual management – and the level of organizational innovativeness are solid. These arrows represent the presumed effects which this study will test. The right-hand side of the model shows the two concepts exploration and exploitation. By positioning exploitation horizontally along organizational efficiency and exploration along innovativeness, it clearly indicates that exploitation is generally associated with efficiency, while exploration is more often related to innovativeness.

In order to determine whether the conceptual model presented here holds true in business practice, a number of hypotheses are now formulated, which will be tested later on.

First, the presumed effect of lean leadership on innovativeness is studied. Previous research mostly regarded lean leadership as a means to achieve waste reduction, identification of value streams, the creation of a smooth product flow and a pursuit of perfection, whilst supplying products at the pull of

+

Implementation of a lean-based management innovation

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the customer (Wood, 2004). However, it was also found that the lean management philosophy can form a basis for innovation (Byrne et al., 2007). This study continues on the path taken by Byrne et al. and will seek to find out if lean leadership contributes to innovativeness. Therefore, the first hypothesis to be tested is “H1. The use of lean leadership as a part of the implementation of a lean-based management innovation positively impacts organizational innovativeness”.

The second element of a lean-based management innovation is continuous improvement, which is a process of focused and continuous incremental innovation (Carpinetti & Martins, 2001). According to Bhuiyan and Baghel (2005), however, continuous improvement is not necessarily limited to incremental improvements, but can also involve radical changes, indicating that it may have an effect on innovativeness as well. Additionally, continuous improvement can lead to continuous innovation (Cole, 2002). In accordance with these studies, the second hypothesis of this research is “H2. The use of continuous improvement as a part of the implementation of a lean-based management innovation positively impacts organizational innovativeness”.

Authors such as Harris (2004), Liker and Morgan (2006) and Slack et al. (2007) have investigated the effect of waste reduction on efficiency, quality and operation costs. Others, for example Hough (2008) studied the effects of 5S and found that its general aim is to reduce waste and optimize productivity. Moreover, Ranky (2007) established that visual management – the fifth lean element – streamlines production processes and improves efficiency. Unlike lean leadership and continuous improvement, however, these preceding studies have not connected waste reduction, 5S and visual management individually to innovativeness. Research (e.g. De Koning et al., 2006) does show that the lean management technique as a whole is a process for systematically scheduling and executing innovation projects. Therefore some indication exists that lean-based practices may improve innovation. In order to better specify this under-researched area of interest, and to draw some conclusions about the relation between each of these elements separately and innovativeness, this research will test the following hypotheses:

“H3. The use of waste reduction as a part of the implementation of a lean-based management innovation positively impacts organizational innovativeness”.

“H4. The use of the 5S method as a part of the implementation of a lean-based management innovation positively impacts organizational innovativeness”.

“H5. The use of visual management as a part of the implementation of a lean-based management innovation positively impacts organizational innovativeness”.

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3. The Simply Philips operating system

Building on the theory presented in chapter 2, this chapter discusses the Simply Philips operating system and describes the main ways in which it differs from theory. However, first a brief elaboration on the activities and organization structure of the Supply department of Philips Drachten is given.

3.1 Supply Drachten

The research conducted in this study was undertaken at the Supply department of Philips Drachten, which is concerned with innovation and engineering for shavers as well as the actual manufacturing of shaving heads and shavers. Because of this, the department is sometimes also called the ‘production organization’ of Philips Drachten. In 2010, Philips Drachten produced 75 million shaving heads and 6.8 million high-end shavers (Philips document “Bezoekerspresentatie Simply Philips Operating System”, 2011).

The main part of the Supply department is its production organization. It produces shaver heads and shavers for the global market. While every single Philips shaver head in the world is produced in Drachten, only the more exclusive, high-end shavers are manufactured there. Consequently, the largest part of the shaver heads produced in Drachten are shipped off to Zhuhai, China, to be put into the more basic, mid-end and low-end shavers.

Philips has been producing electric shavers since 1939 (Philips document “Bezoekerspresentatie Simply Philips Operating System”, 2011). As the product moved through the stages of the product life cycle (e.g. Tushman & Nadler, 1986), both product innovations (e.g. the invention of the triple-head shaver in 1968) and process innovations (e.g. new production technologies) furthered its development. Although in the last decades product innovation for the shaver has largely been about new product design, innovation in the production process has enabled Philips to keep its factory in Drachten and still compete with both existing and newly entering competitors.

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mostly about a new way of dealing with the production process (see section 3.2), the system may well be important for (process) innovation at Supply Drachten.

In order to best facilitate the production flow, the production site in Drachten is divided into two main parts. The Production Driven Factory (abbreviated as PDF) is in charge of the production of shaver heads, while the Order Driven Factory (ODF) handles the production and assembly of the shavers which are made in Drachten. The production facility is located in 6 large production halls, which are interconnected. The two parts of the production organization each have their own manager (the PDF and ODF operations managers) and consist of four supporting groups (OGs). Each of these OGs is responsible for a different part of the production process and every OG is headed by a production manager.

Both the PDF and the ODF operations manager are also part of the management team of Supply Drachten, which further consists of the Drachten site manager, the Industrial Cost Engineering & Simply Philips manager, the site controller, and the quality, logistics, HR, technical support and new product introduction managers.

3.2 The Simply Philips system

Simply Philips is an operating system that Philips currently implements at its production plants in order to achieve greater efficiency in its process of producing shaver heads and shavers. It also aims to reduce the amount of errors that occur in this process. “The Simply Philips operating system is an integrated business approach to organizing and managing product development, operations, [and] supplier and customer relations. It views the entire value stream, from order entry to order fulfillment, as a single entity and continuously improves the ratio of ‘value-add’ to ‘non-value-add’ by a process of rapid problem solving” (Philips document “Simplicity in leadership training”, 2010, section 1, p. 11). The Simply Philips system is implemented within all eight OGs. This implementation is largely executed by means of training programs. In conformity with Golightly’s (1967) observation, Simply Philips is a system which is based on the example of effective management from another industry, namely the automotive industry. The Toyota Production System (TPS) has been the example to Philips. However, Simply Philips is not a one-on-one copy of Toyota’s system, as some Simply Philips elements differ from both TPS and theory (see section 3.3).

3.2.1 The Simply Philips system as a lean-based innovation

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can be said to be lean-based. Furthermore, innovation is the implementation of a new idea or practice within the firm (McCosh et al., 1998). Accordingly, Simply Philips is a lean-based innovation.

3.2.2 The Simply Philips system as a management innovation

Although the concept of the operating system as such is not new and has been used by other companies in the past (Toyota being the main example), it is new to Philips. Given that this newness factor has been used to classify innovations (Garcia & Calantone, 2002), the Simply Philips system can be viewed as an innovation. However, for this study the innovation needs to be specified further. In this respect, Klippel et al. (2008, p. 333) make a valuable statement:

“The highly competitive and globalized current world economic scenario highlights the success of Japanese companies which, in turn, makes Western companies go for management innovation by copying and adapting their best practices to their reality, such as the concepts and techniques developed by Toyota Motor Company during the construction of the Toyota Production System (TPS)/Lean Production System.”

This quote indicates that a lean production system can be regarded as a management practice. In conformity with this, Leseure et al. (2004) call lean manufacturing a ‘promising management practice’. Since Simply Philips is a system like this and is derived from Toyota’s production system, it can as such be characterized as a management innovation. In combination with the argumentation provided in section 3.2.1, it is concluded that the Simply Philips system can be qualified as a lean-based management innovation.

3.2.3 Simply Philips and the stages of management innovation model

Tidd et al. (2005) explain that successful innovators often implement their innovations using a stage gate model. These companies implement innovations by means of a series of stages, each of which is closed by a gate at which review and evaluation of the completed stage takes place. At Philips, a similar approach is used. A timetable and description of the different phases of the implementation of Simply Philips is shown in Table 2. In Leseure et al.’s (2004) model of the process of adopting an administrative innovation, the implementation stage “represents the point in time when the innovation is released to the organization at large” (p. 183). This corresponds to phase 3 in the table below and indicates where Philips was at the time this research was conducted.

Phase Goal Description Timing / deadline Status 1 Choice Management believes in Simply Philips March 2009

2 Vision Make model line to show the process and prove the benefits

March 2010

3 Foundation Implement Simply Philips foundation, basic tools (e.g. standard work, 6S, kaizen)

July 2011

4 Systems Implementation of other lean tools (e.g. TPM, pull production, value stream optimization)

April 2012

5 World class “Lean-thinking” is in the employees’ genes Endless

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Figure 3. The stages of the management innovation model applied to Simply Philips

In Figure 3, the model of the stages of the management innovation that was presented in chapter 2 is applied to the situation at Philips Drachten. The first stage of this model was ‘Dissatisfaction with the status quo’. The decision within Philips to change from the previous way of working (called ‘world class manufacturing’) to Simply Philips was motivated by increased pressures from competition. In terms of Porter’s (1979) competitive forces, both internal rivalry and the threat of new entrants (especially in China) have caused these growing pressures. For Philips, the second stage – ‘Inspiration’ – did indeed have its origin outside the company, as the literature suggested is often the case. The inspiration for the Simply Philips system came from the Toyota Production System (TPS), which is a lean-based system as well and is world famous for its success in efficiency improvement and waste reduction. ‘Invention’, which is the third stage of the model, is hard to define as a single moment. For the case of Simply Philips, this stage is best characterized by the moment Philips management actively chose to support Simply Philips as the new operating system. The fourth stage of the model – ‘Internal and external validation’ – is the last stage that Philips has reached thus far. Diffusion of the Simply Philips system to other organizations has not yet occurred, because the implementation of the system at Philips is not yet fully complete (as indicated by Table 2). At the time the current research was conducted, stage 4 of Figure 3 had been reached.

3.3 Unique elements of the Simply Philips system

Clearly, theory is hardly ever completely the same as business practice. As such, even though many of the theoretical elements of lean production can be identified as parts of the Simply Philips system, there are some differences as well, though they are relatively minor ones. This section highlights the points at which the Simply Philips system differs from the theory on lean production as presented in the previous chapter.

3.3.1 The lean philosophy and lean leadership

Basically, Philips uses a top-down approach to create bottom-up support for the lean philosophy it wants to embrace. In accordance with scientific theory, Philips realizes that lean thinking must be a part of the company’s culture in order to achieve the necessary results. In order to try and create such a culture, Philips believes that managers and group leaders must change their leadership style from traditional leadership to lean leadership (see Table 3). As mentioned in section 2.2.1, lean leadership differs from traditional leadership in several ways and should be extended to all levels of the

2. Toyota’s success at efficiency improvement

through TPS 1. Competitive pressures for cheaper

and more efficient

production Diffusion to

other organizations 4. Creation of a

Simply Philips model line and the actual implementation of

the system 3. Choice of Philips

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organization. Scholars have provided a number of examples of the difference between traditional and lean leadership, yet Philips identified and uses twelve paradigms in order to indicate the relevant differences.

No Traditional leadership Lean leadership 1 Short term financial results focus Long term focus

2 Get the product out (push) Market-driven (flow & pull)

3 Local optimization (faster) Total optimization (waste reduction) 4 Standards limit creativity

(standards do not apply outside the factory)

Standards enable continuous improvement

5 Hide the problem Make problems visible 6 We cannot afford to stop the process Stop and fix the problem 7 People are a risk People are important 8 A leader is a boss A leader is a teacher

9 Go to the online dashboard Go and look at the production floor yourself 10 Who is to blame? Why? Why? Why? Why? Why?

11 Plan quickly, execute slowly Plan slowly, execute quickly 12 Experts and specialists solve problems Everyone solves problems

Table 3. Paradigms of lean leadership: the 12 paradigms

3.3.2 Continuous improvement

The element of continuous improvement is present in the Simply Philips system in the form of a system of ‘kaizen’, which is the original Japanese term for continuous improvement (Kerrin, 1999). Philips makes use of kaizen forms, kaizen boards and kaizen events in order to continuously improve its operations.

Whenever employees identify a problem or a point for improvement in the way of working or the production process, they must fill out a kaizen form. On the form they give a description of the problem, of what caused the problem to occur and what may be done to solve it. Once the appropriate action has been taken to solve the problem and improve, the form can be filed away.

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Finally, a kaizen event is a kind of training program which is used to implement bigger changes. For example, for the issue of how to get all employees to embrace the Simply Philips ‘6S’ concept a kaizen event was executed. A kaizen event is typically made up of three or four weeks of preparation and set-up, after which one week of training takes place in order to make the necessary improvement.

In terms of Bessant et al.’s (2001) levels of continuous improvement (see Table 4, and also section 2.2.2), by implementing the Simply Philips system and using the kaizen concept Philips tries to move from level 2 (structured and systematic continuous improvement) to level 5 (the learning organization). As will become clear in chapters 5 and 6, after introducing Simply Philips, the organization now has a structured problem solving process and a structured idea management system in place, which is used by the large majority of the employees. The system is part of day-to-day business and the autonomy and responsibility for continuous improvement action lie with the OGs. These points combined indicate that Simply Philips has so far helped Philips Drachten attain level 4 (autonomous innovation).

Level Description

0 No continuous improvement activity

1 Trying out continuous improvement ideas; effects are local and short-lived only

2 Structured and systemic continuous improvement; effects are local but there is a formal problem-solving process and there are formal attempts to sustain continuous improvement

3 Strategic continuous improvement; there is a formal deployment of strategic goals and policy and these are linked with continuous improvement

4 Autonomous innovation; continuous improvement effects/benefits are strategic and problem-solving units are responsible for continuous improvement mechanisms

5 The learning organization; strategic innovation and continuous improvement is the dominant way of life

Table 4. The levels of continuous improvement (adapted from Bessant et al., 2001)

3.3.3 Waste reduction

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Figure 4. The 8 wastes identified by Philips

3.3.4 The 6S framework

The framework discussed in literature and explained in section 2.2.4 incorporates five S’s. However, as Morrissette (2009) acknowledges, sometimes a sixth S is added. This is what Philips does within the Simply Philips system. By adding ‘Safety’ to the list, a 6S framework is created.

Managing management innovation The effects of a lean-based management innovation on organizational innovativeness; the case of the Simply Philips operating system