Master Thesis SIM
“Management” Innovation: A Review
-Conceptualization, Measurement & Performance Implications-
By
LISANNE BROUWER
University of Groningen
Faculty of Economics and Business
Commissioned by the Dutch Ministry of Economic Affairs
June 2015
Thesis Supervisor: I. Estrada
Topic Supervisor: Prof. D. Faems
Steentilkade 7a
9713 GB Groningen
l.brouwer.3@student.rug.nl
Student number S1896261
2 TABLE OF CONTENTS TABLE OF CONTENTS ... 2 ABSTRACT ... 4 Keywords: ... 4 INTRODUCTION ... 5 METHODOLOGY ... 8 Planning ... 8 Execution ... 8
Reporting & Dissemination ... 10
REVIEW RESULTS (1) How is ‘management innovation’ conceptualized and measured in existing literature? ... 11
Conceptualizing Management Innovation ... 11
(1) What does Management Innovation Entail? ... 11
(2) Newness of Management Innovation ... 12
(3) Conceptualization, Implementation, or Both? ... 12
(4) Purpose of the Management Innovation ... 13
Definition Management Innovation ... 13
Measurement of Management Innovation ... 15
Large Sample Studies ... 15
Longitudinal Case-Studies ... 16
REVIEW RESULTS (2) How does ‘management innovation’ impact performance according to existing literature? ... 17
Performance Impact of Management Innovation ... 17
Management Innovation Firm Performance ... 17
Management Innovation Innovative Performance ... 19
Management Innovation Operating Performance ... 19
Management Innovation Financial Performance ... 19
3
Management Innovation Non-Technological Innovation ... 20
Management Innovation Technological Innovation ... 21
Management Innovation (Dynamic) Capabilities ... 22
Management Innovation Employment ... 22
Management Innovation Inverted U-Shape ... 23
Management Innovation Reputation ... 24
Management Innovation Exploitation ... 24
DISCUSSION & FUTURE RESEARCH AVENUES ... 26
Future Research Avenues ... 27
CONCLUSION & IMPLICATIONS ... 28
Implications ... 29
Theoretical Implications ... 29
Managerial Implications ... 29
Public Policy Implications ... 30
Limitations ... 31
REFERENCES ... 32
4 ABSTRACT
In the existing literature, the importance of management innovation for practitioners, policy-makers and academics is gaining more and more attention. However, the same literature is characterized by a diversity of definitions, measurement, and implications on performance for this concept. This study aims to address these gaps in the existing literature by conducting a systematic literature review, which consists of 96 academic articles. In order to fill the first gap, a general definition of management innovation was created, including four main constructs of the concept and an indication of the measurement field. The second gap addressed in this study is the fuzziness in the existing literature about the relation between management innovation and firm performance. This relationship turned out to be positive in more than 83% of the reviewed empirical articles. Less than 8% of the empirical articles included in this review also found indications for a possible negative impact of management innovation on performance. These findings lead to implications stating that management innovation is just as important as technological innovation to gain a competitive advantage, and how management innovation could be stimulated.
5 INTRODUCTION
The Netherlands has one of the most advanced economies in the world. However, it is also facing some challenges; it is still overcoming a protracted recession. Innovation is key to future growth and competitiveness (OECD, 2014). The recently published 2014 OECD Review of Innovation Policy for the Netherlands identified several dimensions of the Dutch innovation system that can potentially hamper future sustainable growth of the economy. The Dutch business sector as a whole invests less in R&D and knowledge-based capital than other advanced innovation systems (OECD, 2014). This creates a risk: by not making full use of the country’s rich human capital and knowledge base, it could cause a loss of the innovative edge in the face of global competition (OECD, 2014). Policymakers seem to be aware of this issue and they are increasingly concerned if the focus of innovation policies should shift to the non-technical side of innovation namely, management innovation1.
According to Hamel (2006), management innovation may represent one of the most important and sustainable sources of competitive advantages. Other authors found that management innovation positively affects sales growth (Corbett, Montes-Sancho & Kirsch, 2005), it could (in)directly boost employment (Evangelista & Vezzani, 2011), and it could increase productivity (Yeung, Cheng & Lai, 2006).
Despite the importance of management innovation, research mainly focusses on the stimulation of and implications for technological innovation (Crossan & Apaydin, 2010). Management innovation is a type of innovation that has neither conceptually nor empirically been examined widely (Damanpour & Aravind, 2011). Not only are there distinctions in how management innovation is defined, also the measurement field is scattered (Adams, Bessant, Phelps, 2006). A reason for these differences could be the different perspectives on management innovation. In the existing literature, four main research perspectives on management innovation are apparent. The institutional perspective focuses on the socio-economic conditions in which new management ideas and practices take shape (e.g. Paraskevopoulou, 2012). The fashion perspective focuses on the dynamic interplay between users and providers of management ideas (e.g. Ercek, 2014; Staw & Epstein, 2000). This perspective is mostly used in the literature about the diffusion of management ideas and
1 The proposed definition for management innovation in this study is:
6 practices. Next, the cultural perspective focuses on how organizations react to the introduction of a new management practice (e.g. Cerne, Jaklic & Skerlavaj, 2013; McCabe, 2002; Milic, 2013). Finally, the rational perspective focuses on how management innovations - and the individuals who drive them - deliver improvements in organizational effectiveness (e.g. Carassus, Favoreu & Gardey, 2014; Evangelista & Vezzani, 2010; Mol & Birkinshaw, 2009). This perspective assumes that new practices, processes, or structures are deliberately introduced by key individuals within organizations in order to improve the organization's performance (Vaccaro, Jansen, Van Den Bosch & Volberda, 2012).
The breadth of the research, the different perspectives, the various definitions and the lacking measurements of management innovation, make even a cursory understanding of the phenomenon increasingly challenging. To address this gap in the existing literature the first research question was constructed: How is ‘management innovation’ conceptualized and
measured in existing literature? (RQ1). Answering this question could provide a more equal
starting point for not only academics but also for managers, and this hopefully will help stimulating future academic research and provide guiding for firm management.
Because there are various definitions and perspectives of management innovation, the direct and indirect effects on performance of this kind of innovation is also a fuzzy field. Damanpour, Walker & Avellaneda (2009) found that management innovation influences performance indirectly through its influence on technical innovations. Management innovation could lead to technological innovation since it can enhance efficiency and effectivity of internal processes (Walker, Damanpour & Devece, 2011). Some even state that management innovation is key for the existence of technical innovation (Feigenbaum & Feigenbaum, 2005). Some authors even identified management innovation as the bottleneck in the progress of the performance process (Birkinshaw & Mol, 2006). However, likewise there are authors who expect negative effects from management innovation on firm performance (e.g. Burgess, Shaw & de Mattos, 2005). A clear overview or framework of management innovation and its impact on performance seems to be missing. This overview could be a valuable step in creating more understanding of the concept and its importance for firm performance. To address this gap, the second research questions was constructed: How
does ‘management innovation’ impact performance according to existing literature? (RQ2).
7 To address the above-stated gaps and to be able to answer the two research questions, a systematic literature review was conducted. This review was based on 96 academic articles in order to create a general definition for the concept of management innovation, to provide an overview of the measurement field and to indicate the different performance implications for management innovation. The systematic literature review laid the base for a general definition of management innovation, based on four main constructs. Next, the lack of clear and sufficient ways to measure management innovation and its impact on performance, led to several avenues for future research. The proposed impact of management innovation on performance in the existing literature was thoroughly reiterated, which resulted in a visualized framework and theoretical, management and policy implications. Concluding from the review, management innovation is found to be just as important as technological innovation. Over 83% of the empirical papers found a positive relation between management innovation and firm performance.
8 METHODOLOGY
This study was conducted with a systematic literature review methodology. It has followed, to a large extent, the methodology provided by Tranfield, Denyer & Smart (2003), complemented and inspired by work of Crossan & Apaydin (2010) and Newbert (2007). To be able to answer the two research questions, several steps have been taken. This structured literature review process followed the three-stages procedure proposed by Tranfield et al. (2003) namely, planning, execution and lastly, the reporting and dissemination of the findings, which are used for the structuring of this methodology chapter.
Planning
The planning stage entailed defining the objectives of the research, a realistic view on time and information restrictions and based on this, identifying the leading data source. In order to try to locate the most relevant articles, this review was performed under certain restrictions. A decision was made to limit the search to articles published in academic peer-reviewed journals. The reason for this is that peer-reviewed journals are considered to contain validated knowledge and therefore are likely to have the highest impact in the field of interest (Podsakoff, MacKenzie, Bacharach & Podsakoff, 2005). With regard to this focus, Business Source Premier was used as the primary data source. The scope of the search was limited to the period from January 2000 till March 2015.
Table 1. Selection Criteria
Peer-Reviewed Academic Journals Articles Only
Published between January 2000 till March 2015 Specific Keyword(s) in Title and/or Abstract
English Language Only
Execution
9 selection criteria (Table 1) the initial search was conducted. The initial search with the main-keyword string resulted in 413 findings (see Table 2). After removing articles in foreign languages, 357 articles remained. One of the challenges that this literature study faced, is the fact that innovation literature is often focusing on technological innovations (e.g. Den Hertog, Van der Aa & de Jong, 2010). Therefore, searches for the term innovation, or searches that include the word innovation, located a lot of irrelevant articles.
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Table 2. Construction Final Review Sample2
Reporting & Dissemination
The last phase of the structured literature study process is the reporting and dissemination phase. A systematic review stresses the importance of an audit trail in the review process to ensure clarity and replicability (Tranfield et al., 2003). This has been addressed by providing the selection criteria, keeping track of search terms used, the actual keyword-strings used, explanation of the buildup of the final sample, an overview of the type of articles in the review (Table 4) and obviously a reference list with indication of which articles are included in the review. Throughout this study and especially in the discussion section, a critical view of the existing literature is provided.
Table 4. Article Content Overview
Number of Articles
Empirical Articles 74
Empirical Articles including Performance Implications 54
Non-Empirical Articles 22
Total Number of Articles in Review 96
2 For trial and error keyword(s) examples see Appendix, Table 3.
Used Methods Articles Found Articles in Review
Main Keyword-String
TI (manage* innovation or administrative innovation or non-technological innovation) and AB (manage* innovation or administrative innovation or non-technological innovation)
413
+36
Combination Performance & Empirical Keyword-String
TI (manage* innovation or administrative innovation or non-technological innovation) and AB (manage* innovation or administrative innovation or non-technological innovation) and AB (evid* or find* or stat* or test* or empir* or data* or sample*) and AB (efficien* or succe* or grow* or techn* innovation or sales or effect* or
influence* or impact* or consequence* or output* or outcome* or return* or result* or perform* or goal* or fulfil* or objective* or
implicat* or assess*)
217
+59
Prior knowledge +5
Snowballing +9
Inaccessible/removed due to irrelevancy -13
11 REVIEW RESULTS (1)
How is ‘management innovation’ conceptualized and measured in existing literature?
In this first part of the review results, the first research question will be addressed, to begin with the conceptualization of the concept of management innovation, based on four constructs. This will be followed by the creation of a general definition of management innovation. After this, in order to be able to answer the second part of the first research question, the used measurements of the concept of management innovation will be discussed. Conceptualizing Management Innovation
Existing literature highlights that management innovation is a challenging concept to define, for several reasons. First, innovation in itself is often still a debatable concept on what the (unified) definition should be (Adams et al., 2006). Second, for management practices, knowledge is an important factor, and also for knowledge numerous definitions and insights are available (Gloet & Terziovski, 2004). Third, management innovation is a relatively new term in the management literature, however, the concept has been discussed for decades through terms such as 'organizational', 'managerial' or ' administrative' innovation (Khanagha, Volberda, Sidhu & Oshri, 2013). These ‘somewhat interchangeable terms’ are seen by some authors as indeed synonyms (e.g. Meuer, 2014; Hecker & Ganter, 2013), by some as more distinct terms (e.g. Huergo, 2006), and by others as constructs of one another (e.g. Damanpour, 2014; Walker et al., 2011).
In order to introduce a general definition of management innovation, the focus will be on four identifiable core elements of this concept, namely: (1) what management innovation entails, (2) newness of management innovation, (3) conceptualization, implementation or both, and (4) the purpose of implementing management innovation. The findings in the existing literature will be elaborated on in this order below.
(1) What does Management Innovation Entail?
12 systems. Volberda, Van den Bosch & Mihalache (2014) and Hamel (2006) point out the importance of the change to be a significant departure from the traditional management principles, processes, and practices. Management innovation constitutes a break with past practice (Carassus et al., 2014) or even an evolution (Perello-Marin, Marin-Garcia & Marcos-Cuevas, 2013), with new approaches in knowledge for performing the work of management and new processes that produce changes in the organization's strategy, structure, administrative processes, and systems (Damanpour & Aravind, 2012; Cerne, Jaklic & Skerlavaj, 2013). Management innovations are those that pertain to the social structure of an organization (Kim, Kumar & Kumar, 2012), and they influence the working conditions and skills of the workforce (Burgess et al., 2005). Hecker & Ganter (2013) and Mothe & Nguyen-Thi (2012), emphasize that these innovations must be the result of strategic decisions taken by the firm’s management, to classify as a management innovation.
(2) Newness of Management Innovation
In the existing literature, three types of newness are mentioned. Management innovations can be new to the state of the art (i.e. new to the world), new to the industry, or new to the adopting organization. If the innovation is an imitation of a successful implementation from another firm, it is called an adoptive management innovation (Lin & Su, 2014). The majority of the existing literature does not exclude a management innovation when it is not new to the state of the art (Type 1, see next section). This because popular (and proven successful) management innovation practices such as lean principles (Lean Production System, introduced by Toyota) or brand management (Brand Management Model by Procter & Gamble) could not be named management innovations again after the first introduction, when only new to the world counts. For example, Motorola invented Six Sigma, however GE was far more successful than Motorola in implementing the practices (Ansari, Fiss & Zajac, 2010). New to the firm, (i.e. when the conceptualizing of the specific management innovation was done by a pioneering organization), therefore is most often the focus of the existing literature.
(3) Conceptualization, Implementation, or Both?
13 innovation implies at least the adoption of a new idea or behavior (e.g. Hollen, Van den Bosch & Volberda, 2013; Jiménez-Jiménez & Sanz-Valle, 2011). It seems possible to group the existing literature in three groups. This was also done by Volberda and colleagues (2014), who distinguished three different types. Type 1 organizations conceptualize and implement their own new management practices; Type 2 organizations adopt practices which they adapt to fit with the adopting firm; and Type 3 organizations adopt and implement without significant adaption to the organizational context.
(4) Purpose of the Management Innovation
If there is one aspect of management innovation that authors do fully agree on, it is the purpose of why to implement in the first place: it is intended to further a firm’s performance. Popular notations of this common goal of implementing management innovations are, to produce positive effects on organizational goals and performance (e.g. Birkinshaw, Hamel & Mol, 2008), contribute to the strengthening of a firm's competitive position (e.g. Vaccaro et al., 2012), increase company flexibility and adaptability to changing environment (e.g. Skuza & Woldu, 2012), enable organizations to reach their goals (Shieh, 2011), and drive or enable organizational change, facilitating the organization's renewal, adaptation, and effectiveness (Damanpour & Aravind, 2011). The purposes mentioned in the existing literature are often somewhat vague. As will be discussed later, absolute measures of management innovations (and its performance outcomes) are rare and sometimes not even desirable. Concluding, management innovation is introduced to further a firm’s performance, what this performance should entail can be very firm specific.
Definition Management Innovation
Combining the four constructs; the following definition of management innovation was created: “Management innovation is the implementation of an invented or adopted
management practice, process, structure, technique, system, procedure, or principle, that is the result of strategic decisions of a firm’s management, with the intent to directly or indirectly further the firm’s performance.”
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15 Measurement of Management Innovation
Measuring a management innovation and its outcomes seems to be one of the reasons why authors on several occasions found conflicting results, no significant findings at all or just do not dare to take up such a defiant task.
Management innovations are likely to be specific to the system in which they were created, which is usually a highly complex social system with various actors and relationships in or outside the firm. Management practices often cannot be adopted by user organizations as "off the shelf" solutions (Ansari et al., 2010). “One size does not fit all” (Poister & van Slyke, 2002). Due to this, management innovations have different versions in practice because of deliberate or unconscious modifications (Mamman, 2009). They tend to be very context and firm specific. Next to this, management innovations are relatively tacit in nature, hard to observe and difficult to indicate system borders for (Birkinshaw & Mol, 2006).
There are (large) distinctions between the various management innovations. For example, ISO 9000 and TQM are not the same. Whereas TQM is a loosely defined, holistic set of principles and tools aimed at, among others, encouraging continuous improvement and prevention of defects, the premise of ISO 9000 is that well defined and documented procedures improve consistency of output (e.g. Benner & Tushman, 2002; Corbett et al., 2005; Ravichandran, 2000).
Large Sample Studies
16 Measuring management innovation seems to be a challenging task, not only for academic, but also for a firm’s management.
On the one hand, the existence of a management innovation in the organization is often measured dichotomously (Damanpour, 2014; Naveh, Meilich & Marcus, 2006, e.g. Kim & Lee, 2009; Pippel, 2014). These measures do not measure quality, or how well or how far an new practice is implemented (Adams et al., 2006).
Next to dichotomous measures, 5- or 7-point Likert scales are a commonly used method in the empirical existing literature on management innovation (e.g. Basterretxea & Martinez, 2012; Chenhall, Kallunki & Silvola, 2011; Jaskyte, 2011; Martinsuo, Hensman, Artto, Kujala & Jaafari, 2006; Skuza & Woldu, 2012; Vaccaro et al., 2012). Likert scales can measure the extent to which an action is taken, however, the answers given are usually very subjective, especially when it is not clear what the optimal state of the item in question should be. Some authors state that subjective measures are not optimal, however, subjective or a combination of subjective and objective are clearly the most used. This is often simply because objective measures can be hard, if not impossible, to obtain (Camison & Villar-Lopez, 2014). However, other authors also state that what matters is not the absolute value of the figures, but their value in comparison with the average of the industry (Sanchez, Lago, Ferras & Ribera, 2011), which requires some level of subjectivity to begin with.
Longitudinal Case-Studies
Besides questionnaires based on dichotomous and 5- or 7-point Likert scale answered questions, in the empirical existing literature the main body of research methods is the (longitudinal) case-study (e.g. Arnaboldi, Azzone & Palermo, 2010; Benner & Tushman, 2002; Birkinshaw & Mol, 2006; Muzzi & Albertini, 2014; O'Mahoney, 2007). The generation and adoption of management innovation in organizations is a continuous process, and they do not age as fast as for example product innovations do (Armbruster et al., 2008). To make an assessment of the true impact of innovation on performance it requires longitudinal research on the introduction of innovations (Damanpour & Aravind, 2011).
17 REVIEW RESULTS (2)
How does ‘management innovation’ impact performance according to existing literature?
In this section, the results of the review for the second research question are elaborated on. As was stated in the first part of the review results, management innovation is a challenging concept to measure, as is its impact on performance. Of the reviewed sample (i.e. 96 articles), 54 articles had empirical findings for implications on the relationship between management innovation and its impact on performance. These relations will be discussed in the upcoming paragraphs. This result section will end with a visual representation of the association between management innovation, performance and the related constructs.
Performance Impact of Management Innovation
Organization and management lie at the heart of the performance of both individual enterprises and of national economies (Augier & Teece, 2009). Unfortunately, the performance significance of a management innovation is hard to assess (as mentioned earlier). Performance measurements related to (management) innovation are therefore seen as increasingly important (Chapman & Magnusson, 2006). As with the measures of management innovation itself, the measurement of its impact on performance is frequently with dichotomous or Likert-Scales, subjective measures often compared with competitors, and less regularly based on absolute numbers like productivity or sales growth. These subjective measures and also the objective ones could suffer from the performance gap. This performance gap embodies the difference between what an organization is actually accomplishing and what it can potentially accomplish (Damanpour et al., 2009). Management innovation is in general a response to some form of challenge facing the firm or dissatisfaction with the status quo. They tend to emerge through necessity (Birkinshaw & Mol, 2006), but what the desired outcome should be is often no fixed number or state, and the best possible outcome is unknown (i.e. the performance gap).
Management Innovation Firm Performance
18 measures (Pippel, 2014). Others even state that management innovation leads to superior performance, in comparison with firms that do not make use of management innovations (Yeung, et al., 2006). There are also researchers who did not find an increase (or decrease) in organizational performance with the adoption of popular management techniques (e.g. Staw & Epstein, 2000; Wong, 2013). Besides insignificant and positive findings, there are also authors that found or expect a negative relation between management innovation and firm performance, this will be further elaborated on in the following paragraphs.
In order to create a framework of how management innovation impacts performance, the performance metrics (26) used in the reviewed existing literature on management innovation are grouped into 4 main performance categories plus an extra column for the other constructs discussed in this chapter (see Table 5 below). The found relations between management innovation, the main performance dimensions and the other constructs in the existing literature will be elaborated on in the next section. The percentages named in this chapter for the different dimensions and the found relations refer to the content of Table 6, which is located at the end of this chapter.
Table 5. Firm Performance Dimensions
Innovative Performance Operating Performance Financial Performance Market Performance Other ↑ Number of
Innovations ↓ Unit Labor Costs ↑ Return on Sales
↑ Range of Products
↑ Non-Technological Innovation ↑Innovativeness ↓ Materials & Energy Tobin’s Q ↑ Entering New
Markets
↑ Technological Innovation ↑ Speed of
innovations ↑ On Time Delivery ↑ Profitability ↑ Market Share ↑ Capabilities ↑ Speed of
Introduction ↑ Capacity ↑ Sales Growth ↑ Quality ↑Employment↓
↑ First in the Market ↑ Flexibility ↑ Trade Margins ↑ Product
Success ↑ Reputation ↓ Quality Costs ↑ Return on Assets ↑ Customer
Satisfaction Exploitation ↑ Productivity
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Management Innovation Innovative Performance
The majority of the reviewed empirical articles found a positive relation between management innovation and innovative performance (82%) (e.g. Cerne et al., 2013; Jiménez-Jiménez & Sanz-Valle, 2011; Urhahn & Spieth, 2014; Yu-Yuan Hung, Ya-Hui Lien, Fang & McLean, 2010). Zeng, Phan & Matsui (2015) found that management innovations do not only influence impact innovative performance directly, they conjointly influence the impact on performance of other non-technological innovations. Authors who are less positive (8%) about management innovation stress that commitment to a specific management innovation could implicate a negative effect on innovative performance (Benner & Tushman, 2002; Burgess et al., 2005). The explanation given for these findings is that management innovations like TQM or ISO certifications, for example, require standards. Standards are based on systematization and formalization, which could hinder the effect of management innovations and other sorts of innovation because of their tendency to increase bureaucracy (e.g. Castillo-Rojas, Casadesus, Karapetrovic, Coromina, Heras & Martin, 2012; Henriques & Sadorsky, 2007). Too much focus on management innovation could lead to too much routinization, which could lead to stagnation of the (radical) innovation process (Benner & Tushman, 2002).
Management Innovation Operating Performance
Of the empirical articles focusing on management innovation and operating performance, 82% of them found a positive relation. The introduction of new management practices is positively associated with productivity growth (e.g. Mol & Birkinshaw, 2009; Volberda et al., 2013). Management innovation is also positively related to time-based and cost-related operational performance (Yeung et al., 2006). Improving operating performance could also influence the other performance dimensions. For example, lowering defect rates and increasing on-time delivery, could influence customer satisfaction (i.e. market performance), which in turn could cause sales growth, thus improve financial performance, and lead to a better reputation, which again could influence all the performance dimensions.
Management Innovation Financial Performance
20 certification leads to an increase in return on assets, return on sales, Tobin’s Q and it lowers of the cost of goods sold / sales ratios. Other authors also found a positive connection with sales growth (e.g. Basterretxea & Martinez, 2012; Evangelista & Vezzani, 2010).
Management Innovation Market Performance
The dimension market performance seems to be the dimension about which the research field is most divided. Although the percentual distribution (Table 6) is still in favor of the positive relation, namely 72%, results for this dimension are more often insignificant (20% for market performance) than for the other dimensions. In general, authors subscribe this findings to the used samples and measurements (e.g. Taghizadeh, Jayaraman, Ismail & Rahman, 2014; Wong, 2013). The specific positive relations found are as widespread as the specific market performance constructs (Table 5). Since one important aspect of management innovation is it focus on further organizational performance, increased quality is often an intended outcome (Prajogo & Sohal, 2004). This, in combination with a focus on innovative products or services could increase customer satisfaction. Several authors indeed found that the implementation of management innovations can lead to an increase in customer satisfaction (e.g. Damanpour et al., 2009; Lin & Su, 2014; Naveh et al., 2006; Yeung et al., 2006).Organizational efforts to establish and improve management practices are also positively related to innovative products or processes in both existing markets and in emerging markets (Kim et al., 2012).
Management Innovation Non-Technological Innovation
21
Management Innovation Technological Innovation
Management innovations are often perceived to be less impactful than technological innovations, however, management innovations are key for creating a culture or climate of creativity, learning, and change (Damanpour, 2014), which is crucial for technological innovation to thrive. This influence could lead to both business and employee benefits (McAdam, 2000).
Some academics state that management innovation is more important than technological innovation as management innovation creates the right environment and culture to nurture and stimulate technical innovations (e.g. Huang & Lin, 2006; Wong, 2013). Reliance on routines, as opposed to searching for novel solutions is seen as the main obstacle for the adoption of new technologies. Management innovations can be seen as managerial interventions in those existing routines to overcome ineffectiveness (Khanagha et al., 2013). An efficient use of technical, product and process innovations is influenced and facilitated by management innovations, as their success depends on the degree to which the organizational structures and processes respond to the use of these new technologies (Armbruster et al., 2008). Moreover, they can facilitate the decision for and the development of technological innovations (Cerne et al., 2013).
Multiple authors state that technological and management innovations are complements and not substitutes for each other (e.g. Battisti & Stoneman, 2010); they have a complementary effect on firm performance (Sapprasert & Clausen, 2012). Damanpour et al. (2009) found that when the focus is on adopting one specific type of innovation, over time it will negatively affect firm performance. Firms that jointly introduce different innovations types were found to have a competitive advantage relatively to firms that had a more narrow approach to innovation (Evangelista & Vezzani, 2010).
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Management Innovation (Dynamic) Capabilities
The relation between management innovations and (dynamic) capabilities seems to be a two-way street. Organizationally flexible and agile firms are those able to efficiently adapt and reinvent their business practices, that is, to continuously introduce organizational and management innovation (Hecker & Ganter, 2013). Management innovations can create and support the process of (dynamic) capabilities, and those created and performed capabilities can stimulate the use and effectiveness of the new management practices. Capabilities can be valuable, rare, inimitable and non-substitutable resources, which lay at the base to create a sustainable competitive advantage (Augier & Teece, 2009). Management innovations are arguably such resources (e.g. Hecker & Ganter, 2013; Sicotte, Drouin & Delerue, 2014; Urhahn, & Spieth, 2014). This can be the case because the success of management innovations can be very firm-characteristic dependent (e.g. Smith, Busi, Ball & Van der Meer, 2008), and therefore difficult to imitate or substitute. Gebauer (2011) states that management innovations can contribute to creating and leveraging dynamic capabilities. This relation was also found by Camison & Villar-Lopez (2012) who’s research confirmed the positive influence of the introduction of new management practices and its development of process innovation capabilities. Firms with superior management capabilities show superior innovation capabilities, which leads to superior performance (Basterretxea & Martinez, 2012). All, 100%, of the reviewed empirical articles about management innovation which are connected with dynamic capabilities found positive significant relations.
Management Innovation Employment
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Management Innovation Inverted U-Shape
In its ideal form, innovation has the capacity to improve performance, solve problems, add value and create competitive advantage for organizations (Gloet & Terziovski, 2004). Complementing this statement is the study of Naveh et al., (2006). These authors found that the effects of implementation of management innovation (specific ISO 9000) on performance are curvilinear. The results indicate that both too little and too much implementation have a negative effect on operating and financial performance. What this could mean is that an optimal level of implementing management innovations exists. These findings could explain the negative relations found between management innovation and the performance dimensions. This will be elaborated on later, in the discussion and future research chapter.
Table 6. Impact of Management Innovation: Percentages of Relationship Findings in Empirical Articles
Notes Table 6: The total amount of found relationships for the constructs in this table is 161. The percentages in the second, third and fourth column are calculated by dividing the number of specific findings by the number of total findings (i.e. 161). The numbers between brackets refer to the nominal amount of empirical articles, which investigate the particular relation. The fifth column provides the percentual distribution of positive, negative and insignificant findings per individual construct (i.e. 82% positive percentage refers to 31 articles in the first row).
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Management Innovation Reputation
Several authors state that management innovation positively influences the reputation of a firm, which could in turn impact the performance dimensions. Even if an management innovation does not look promising in the way of performance improvement, adopting it may have an indirect positive effect. The improved reputation and the signaling of innovativeness could improve the motivation of workers and the evaluation of customers (Mikle-Horke, 2004), which could in turn lead to increased market and financial performance. Staw & Epstein (2000) found that firms will gain in external reputation when they have adopted popular management techniques or are informationally linked with those techniques, regardless of actual implementation, or whether there is an improvement in the firm’s economic performance. For example, TQM adopters are often regarded as superior organizations with a higher level of management skills, even if it does not actually enhance a firm’s performance (Yeung et al., 2006). Due to the preliminary nature of the articles about the relation of management innovation and reputation and the impact of reputation on firm performance, this construct is not featured in Table 6.
Management Innovation Exploitation
The results of the research of Benner & Tushman (2002) suggest that when management activities increase, exploitation increases at the expense of exploratory innovation efforts, due to routinization. Whether this has to be considered as a negative or a positive consequence of management innovation is debatable, however it seems to be worth mentioning since it contributes to the understanding of the effect of management innovation. The debate about exploitation vs exploration exceeds the scope of this thesis and therefore this current study does not attaches specific conclusions to this finding and exploitation is therefore not incorporated in Table 6 or in the visualization on the next page.
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26 DISCUSSION & FUTURE RESEARCH AVENUES
The present review was conducted firstly to identify the constructs of the concept of management innovation, in order to generate a general definition. Combining the four constructs; the following definition of a management innovation was created: “Management
innovation is the implementation of an invented or adopted management practice, process, structure, technique, system, procedure, or principle, that is the result of strategic decisions of a firm’s management with the intent to directly or indirectly further the firm’s performance.”
The empirical research done on the topic of management innovation and especially its impact on performance seems to be dampened by the scarce ‘good’ measurements for the concept. The challenge that researchers face arises not only from the characteristics of management innovation (e.g. tacit, complex, unclear boundaries) but also from firm characteristics (e.g. size, age, industry). In the mapping of management innovation and its performance outcomes, there seems to be the problem of an omission gap; the importance of management innovation is supported in the literature, however, measures for this aspect are lacking (Adams et al., 2006). A major limitation of most existing research is the problem with causality and endogeneity. Examining the influence of managerial innovations on firm performance without accounting for the influence of other types of innovation that are concurrently introduced may not accurately reflect the consequences of the actual management innovations (Damanpour & Aravind, 2011). It is extremely difficult to create any measure that will show an absolute one-to-one correlation between a (knowledge-based) action and a business result (Hidalgo & Albors, 2008), with exceptions in the field of environmental (i.e. climate control) management practices, of which the process and their impact on performance could be measured for example by pollution measures and materials and energy savings (Theyel, 2000).
27 innovation and performance dimensions could hopefully become more defendable with it being more based on hard facts rather than on assumptions. The findings from small scale surveys or even single firm case studies tend to have a low generalizability (e.g. Guimaraes, Odelius, Medeiros & Santana, 2011; Igartua, Garrigos & Hervas-Oliver, 2010; Leavengood, Anderson & Daim 2014; Nauwelaerts & Hollaender, 2012; Sharma et al., 2010), which leaves some types of firms and industries unexplored.
With regard to the impact of management innovation on a firm’s performance, most authors seem to agree that that influence is a positive one (more than 83%), with some critical remarks; some authors also found that too much or too little implementation of management innovation can create negative effects (less than 8%). Leavengood and colleagues (2014) stress the importance of a balanced innovation agenda, since ‘quality is doing this better; innovation is doing things differently’. With the focus too much on quality practices or just on innovation, it could cause less desirable outcomes. The challenge for this implication for performance is to identify the optimal level to which the implementation of management innovation should reach. However, this would logically require metrics to measure the effect or the level of management innovation which is still a field under and in need of construction. Future Research Avenues
While conducting the review and interpreting the existing literature and findings, several future research options were identified. The most evident avenue for future research is the creation of reliable measurement scales which was already elaborated on in the discussion section. With the information field of management innovation growing larger, other methods for measurement could arise. An interesting topic for future research could be discovering if the various management innovations and their outcomes could be mapped with computer-based scenario planning. With the constructs of management innovation becoming more clear, possibilities could arise for (experiments with) fictional research methods.
28 Next to new empirical research paths, there also seems to be an intriguing option for a literature review, next to this current study. Management innovations exist in many forms and these various forms could hold different implications for, for example, their relation with firm performance. This could be a step too far though, since much of the existing literature keeps a general view on management innovation and only elaborates on a handful of more specific innovations. Also, mapping the sort of firms and industries where management innovations might be more or less efficient, could be a useful addition to the academic literature, since it could identify very specific gaps to be filled by future research.
CONCLUSION & IMPLICATIONS
The purpose of this structured literature review was firstly to provide a general definition of the concept of management innovation and to map the measurement field, and secondly, of great importance, the impact of management innovation on firm performance.
To answer the first part of the first research question, a general definition of management innovation was provided, namely: “Management innovation is the implementation of an
invented or adopted management practice, process, structure, technique, system, procedure, or principle, that is the result of strategic decisions of a firm’s management with the intent to directly or indirectly further the firm’s performance.” This definition could provide a general
starting point for future research. For the second part of the first research question, the way management innovation is measured in the existing literature was mapped. A comprehensive overview of different measurements of management innovation was given. This led to the conclusion that the measurement field is still not developed to the preferable (mature) state, if this state is even possible to accomplish due to the inherent difficulties with measuring management innovation as described earlier.
29 be. Therefore, several authors stressed the importance of the joint adoption of the two types of innovation, which should lead to the best firm performance possible. In other words, simultaneous adoption of management- and technological innovation would yield to better results than the singular implementation of either type of innovation.
Implications
The results and the discussion of these results give rise to several theoretical, managerial, and public policy implications, which will be elaborated on below.
Theoretical Implications
This research contributes to the literature on management innovation in several ways. First, it creates a base for future research by proving a general definition of the concept of management innovation. It also identified the four constructs that this type of innovation consist of, which could help academics to improve their understanding of the phenomenon. Second, this literature review helps to consolidate the previous research to, again, help improve the understanding of management innovation, which could lead to more attention to this important field. And lastly, several important avenues for future research are mentioned, which could, if carried out correctly, greatly enhance the credibility of the research on management innovations, especially their relation with firm performance.
Managerial Implications
30 renew those practices (Gebauer, 2011), and trying to renew could cause resistance or even requires replacement of the entire higher management (Bassett-Jones, 2005; McCabe, 2002).
Managers have to keep in mind that not every management innovation creates a competitive advantage or increases firm performance. Innovation in whatever form follows a power law: For every truly radical idea that delivers a competitive advantage, there will be dozens of ideas that prove to be less valuable (Hamel, 2006), management innovation is no exception.
Public Policy Implications
As became apparent in this literature review, and was visualized in the impact framework, management innovations in most cases (over 83%), have a positive influence on various (performance) dimensions.
An especially interesting aspect of this current study is the stated and supported relationship between management innovation and technological innovation and also their combined influence on firm performance. As some authors state that technological innovations need to be complemented by new management practices and structures, and some even say that technological innovation is pointless without management innovation, important policy implications arise. The majority of policies currently is focused on encouraging technological innovation. These efforts could be more effective when the focus shifts more toward management innovations, or a combination of both types of innovation. Shifting this focus seems to be a win-win situation according to the existing academic literature; not only do management innovations have merit in themselves, it also strengthens technological innovation, it can replace the lack of technological innovations skills to some extent, and moreover it can boost (firm and economic) performance and subsequently lower unemployment rates. Therefore it might be a wise decision to stimulate further research on management innovation, with if possible, more large survey’s and databases. This could not only stimulate further research, it could also be beneficial for policymakers to have more extensive and suitable information (Pirog, 2014). This is because more clear measurements and therefore more straightforward results could contribute to the creation of more specific innovation policy directions, in turn leading to a better understanding of how to stimulate the different types of innovation.
31 firms cooperating with universities are more likely to introduce a management innovation than firms who do not cooperate with universities. This is explained by the assumption that universities often possess a wide range of knowledge. Academics and students can create new management innovations, support the implementation process and measure the progress or the impact the innovation. A policy stimulating firms to cooperate with universities could lead to more management innovations in practice, which in turn leads to improved firm performance, which may increase economic returns.
Critical to mention is that for the best innovation policy possible – at least from the findings of this academic literature review - pursuing technological and management innovation together seems to be the most fruitful path. This holds the indication that not one innovation direction in particular should be stimulated, but preferably both simultaneously. Policies stimulating both technological and management innovation hold a tremendous potential for the future of the Dutch innovation economy.
Limitations
32
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