How does the innovation process of MNCs evolve in different industries considering past and present generations of innovation processes?

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How does the innovation process of MNCs evolve in different

industries considering past and present generations of innovation

processes?

Master’s Thesis IB&M University of Groningen Faculty of Economics and Business

Date of Submission: Monday, June 18th, 2018 Word Count: 22,356

Author: Supervisor:

Luisa Hingst Dr. R. W. de Vries

Student Number: S3151743 Co-Assessor:

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ABSTRACT

Innovation is becoming more important than ever before. Advances in technology, such as digital transformation, industry 4.0 or breakthroughs in areas such as communications technology, Big Data and analytics, are the real changes that cause a revolution of the business world. This impact is noticed in all levels of an organisation, and across all industries. These impacts have not only ushered an entirely new set of innovation tools, but also a change in internal innovation processes themselves. For an innovative idea to be useful, it has to be developed accordingly. Due to the influences of the business transformation, it is not only interesting to see what the final innovation looks like, but what the corresponding innovation process behind it looks like, how that process has evolved over the years and whether it adapts to certain contextual factors or the latest innovative trends. Thus, this paper investigates how the innovation processes of MNCs evolve in different industries considering past and present generations of innovation models. Using a multiple case study design, this qualitative research compares archival data findings with interviews that are conducted with four executives from four German companies, each representing a different industry. Results show that today’s innovation processes are a combination of top-down, open innovation models that are based on the classic stage-gate model.

Keywords: Innovation, innovation process, business transformation, evolution of innovation processes

Acknowledgements

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List of Figures

Figure 1: First-Generation Innovation Process (Rothwell, 1994) ... 8

Figure 2: Second-Generation Innovation Process (Rothwell, 1994) ... 9

Figure 3: Third-Generation Innovation Process (Rothwell, 1994) ... 10

Figure 4: Fourth-Generation Innovation Process (Rothwell, 1994) ... 10

Figure 5: Stage-Gate Model (Cooper, 1990) ... 13

Figure 6: Preliminary Conceptual Model (Own Model) ... 17

Figure 7: Final Conceptual Model (Own Model) ... 57

List of Tables

Table 1: Overview of Selected Cases (Orbis) ... 24

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1. Introduction

Apple’s CEO Steve Jobs once said that “the cure for Apple is not cost-cutting - the cure for Apple is to innovate its way out of its current predicament” (Farfan, 2017). Due to globalisation, the competitive environment has experienced a revolutionary transformation, which means that firms have intensified their search for strategies that provide them a sustainable competitive advantage (Popadiuk & Choo, 2006). Such strategies demand that a company continuously differentiates its services and products; in other words, organisations must constantly innovate. This continuous demand for innovation requires well-planned innovation processes, that, speaking of globalization, enable multinational corporations (MNCs) to excel in market, technological and administrative knowledge creation.

However, innovation management has changed in recent decades and every era seems to have its own ideas of what successful processes or best practices look like (Ortt & Van der Duin, 2008). Different innovation methodologies and frameworks, such as Cooper’s (2008) stage-gate model, have been popular among MNCs in managing innovation processes. Nevertheless, a recently introduced model of innovation management is based on companies’ need to combine internally and externally developed technologies and to open up their innovation processes to create business value (Fredberg et al., 2008). Chesbrough (2003) has coined this approach “open innovation”. In the past, firms relied on internal research and development (R&D) to drive growth. While in the old model of closed innovation, organisations assumed that innovation processes needed to be developed internally by the firm, the open innovation model instead emphasises that companies should look beyond the internal boundaries of the organization and search for external ideas, technologies, and paths to market (Huston & Sakkab, 2006).

Roy Rothwell (1994) has discussed the evolution of innovation processes in more detail, as he developed a framework of five generations of innovation models, which will be further discussed in Chapter 2.2. Are these models still current, and if so, how are they implemented in today’s firms, and why is it that some MNCs use different innovation processes? Do different industries play an important role regarding the development of such processes? In order to investigate these questions, the following central research question is the main focus of this paper:

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This research contributes to the development of innovation processes, as a contingency approach to innovation models remains an important gap in the literature (Salerno, de Vasconcelos Gomes, da Silva, Bagno & Freitas, 2015). Many companies focus on a one-size-fits-all approach that ignores crucial eventualities of real innovation projects. Moreover, practitioners do not take into account a number of important factors shaping an innovation process. Due to the growing importance and popularity of innovation, successful innovation processes have become an integral component of today’s companies. Every innovation process should align with the individual strategic orientation of its organisation and it is therefore interesting to determine, whether different industries stimulate different innovation processes, especially with regard to the increasing importance of digitalisation and technology.

The research paper is structured as follows: First, a literature review is presented, and sub-questions are derived from its findings. This part concludes with a preliminary conceptual model based on the outcomes of the literature review. Next, a methodological approach is proposed, and it presents the research design of the paper. The fourth chapter presents the findings of the interviews and the archival data research in the form of a within-case analysis and a cross-case comparison. The fifth chapter discusses the results and states the hypotheses. Finally, the last chapter presents the final conceptual model, as well as limitations and suggestions for future research.

2. Literature Review

In this chapter, the literature is being reviewed on the basis of the central research question. It provides an overview of the theory and insights into the importance of innovation, organisational learning theory that guides the study of the evolution of innovation processes, and an overview of the evolution of such processes, and it concludes with current trends in innovation processes in MNCs. Additional sub-questions are derived from the literature, and these are addressed in the course of the paper. This chapter ends with a draft of a preliminary conceptual model.

2.1 The Importance of Innovation

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will be the foundation for tomorrow’s competitive advantages” (Ireland & Webb, 2007: 50). A firm should balance advantage-seeking (i.e., exploitation) and opportunity-seeking (i.e., exploration) behaviours. Furthermore, one should also distinguish between radical and incremental innovations (Popadiuk & Choo, 2006). While the former are fundamental changes, the latter represent minor or insignificant changes. Companies should combine these two types of innovation in order to create a competitive advantage that contributes more than what each type of innovation can contribute individually (He & Wong, 2004; Raisch & Birkinshaw, 2008). This phenomenon is referred to as organisational ambidexterity – the ability to simultaneously pursue both radical and incremental innovations (Gurtner & Reinhardt, 2016). To return to exploitation and exploration, organisational ambidexterity also describes a firm’s ability to balance the two. Exploration is associated with discovery, experimentation and risk-taking, while exploitation is related to execution, efficiency and refinement, which explains why a company’s survival and long-term success depends on its ability to “engage in enough exploitation to ensure the organisation’s current viability and to engage in enough exploration to ensure future viability” (Gurtner & Reinhardt, 2016: 36), but also to balance incremental and radical innovations in order to create breakthrough ideas for the future.

2.1.1 Organisational Learning Theory

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innovate” (Hurley & Hult, 1998: 45), and the ability of organisational learning is related to innovation (Gomes & Wojahn, 2017). According to Alegre and Chiva (2008), and Calantone, Cavusgil, and Zhao (2002), organisational learning precedes innovation. Jiménez-Jiménez and Sanz-Valle (2011), meanwhile, have pointed out that performance, innovation and organisational learning are interrelated factors.

2.2 Evolution of Innovation Processes

In his research about the evolution of innovation processes, Rothwell (1994) has focused on manufacturing companies, which are faced with an ever-changing economic environment and intensifying competition. In his view, technology is seen as an instrument that enables firms to adapt to the requirements of such a turbulent environment. The growing pace and complexity of industrial technological change demands that companies form new horizontal and vertical alliances and to strive for greater efficiency and flexibility in responding to market changes. This adaptation process has led some organisationsto the adoption of a sophisticated electronic toolkit in their development and design activities to improve developmental speed, flexibility, and efficiency and move towards more strategically directed networking and integration with external agencies. According to Rothwell (1994), this shift began with the first-generation innovation process (1950s — mid-1960s). Twenty years after the Second World War, market economies enjoyed economic growth due to rapid industrial expansion. During this time frame, attitudes in society revealed preferences towards industrial innovation and scientific advancement, and technology and science were seen as the solution to society’s largest problems. The industrial innovation process “was generally perceived as a linear progression from scientific discovery, through technological development in firms, to the marketplace” (Rothwell, 1994: 8). This first-generation model, also referred to as technology push concept of innovation, presumed “that “more R&D in” resulted in “more successful new products out” (Rothwell, 1994: 8) and almost no attention was paid to the role of the marketplace (Cook and Morrison, 1961).

Figure 1: First-Generation Innovation Process (Rothwell, 1994)

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Competition began to intensify, and marketing gained more importance as large and highly competent firms strived for market share. Perceptions of the innovation process began to change with a clear shift towards highlighting demand-side factors, such as the market place. For this reason, the second-generation or market-pull model of innovation emerged. It is a simple and sequential model in which the market is the source of ideas for guiding R&D, which only has a reactive role in the whole process. Nevertheless, organisations could “become locked in to a regime of technological incrementalism as they adapted existing product groups to meet changing user requirements along maturing performance trajectories” (Hayes & Abernathy, 1980; Rothwell, 1994: 9). These companies had difficulty adapting to contemporary radical technological or market changes.

Figure 2: Second-Generation Innovation Process (Rothwell, 1994)

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Figure 3: Third-Generation Innovation Process (Rothwell, 1994)

The period of the fourth-generation innovation process (early 1980s - early 1990s) began with an era of economic recovery, with firms focussing on core technologies and businesses. Furthermore, the concept of global strategy arose (Hood & Vahlne, 1988), and the number of strategic alliances increased rapidly (Dodgson, 1993). Development speed became a more important factor in competition leading companies due to shortening product life cycles (Rothwell, 1994). Furthermore, Japanese companies played a major role, because they were powerful innovators. Features in the Japanese new product development system made it possible for them, compared to their Western counterparts, to innovate more efficiently and rapidly. The two features that are the basis of this model are parallel development and integration. Japanese firms “integrate suppliers into the new product development process at an early stage while at the same time integrating the activities of the different in-house departments involved, who work on the project simultaneously (in parallel) rather than sequentially (in series)” (Rothwell, 1994: 12). Currently, many leading Western firms attempt to master the essential features of this process.

Figure 4: Fourth-Generation Innovation Process (Rothwell, 1994)

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better integrated manufacturing and product strategies, speed to market, greater adaptability and flexibility. Nevertheless, there has been a shift towards an even more favourable cost/time curve, towards greater efficiency and even faster development. The reasons for this are external horizontal linkages, strong inter-firm vertical linkages and the use of an electronic toolkit. Factors that increase development speed and efficiency include a top management commitment and support, empowered project leaders, high quality initial product specifications (resulting in fewer unexpected changes), accessing external know-how, the use of fast prototyping techniques and the use of integrated (cross-functional) teams during development and prototyping. Nevertheless, these factors do not apply equally to all firms within a sector, nor do they apply equally across industry sectors. The fifth-generation process is one of lean innovation (Rothwell, 1994), in which the principles of “lean thinking” are translated into the innovation process (Blaeser-Benfer, 2016). The goal is a sustainable rationalisation of the whole innovation process and the mastering of complex product and project programmes. It also concerns minimising non-value-added activities and eliminating waste, which is also caused by shorter product life cycles. Lean innovation therefore aims to make the innovation process as waste-free and customer-oriented as possible. To conclude, “the process 5G is essentially a development of the 4G (parallel, integrated) process in which the technology of technological change is itself changing” (Rothwell, 1994: 15); here, 4G stands for the fourth-generation process, whereas 5G stands for the fifth-fourth-generation process. In the fifth-fourth-generation process, the main focus is on a “process of systems integration and networking”, and innovation “has increasingly involved horizontal linkages such as collaborative pre-competitive research, joint R&D ventures and R&D-based strategic alliances” (Rothwell, 1994: 22). Since, according to Rothwell (1994), the evolution of innovation processes involves different departments in different generations, the question emerges as to whether the main participants of today’s innovation processes remain the typical three main departments, namely marketing, R&D and sales. Therefore:

Sub-Question 1: Are innovation processes developed in an interdisciplinary team of marketing, R&D and sales?

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their innovation process different than the ones stated above. Therefore, the questions are:

Sub-Question 2: Are the five generations of innovation processes also applicable to service industries?

Sub-Question 3: Do the innovation processes of MNCs differ with regard to product- and service-oriented industries?

Innovation processes might differ not only in service- and product-oriented industries, but they may also differ with regard to B2B and B2C companies. It is assumed that the processes in B2C companies might be more open-minded in comparison with B2B ones, as such firms work directly with consumers and end-users and foster a more experimental approach when it comes to launching products and services. Additionally, tools such as crowdsourcing and the involvement of lead users may be more closely linked with B2C organisations than B2B firms due to the more open mind-set. Crowdsourcing describes a new, web-based business model that takes into account the solutions of a network of individuals in the form of an open call (Brabham, 2008). Lead users, meanwhile, are people who are ahead of a market trend and therefore design a creative innovation themselves in order to meet their leading-edge needs, which are currently not satisfied with the available products (Von Hippel, 1986). Due to today’s versatile company contexts and formats, it makes sense to not only ask about product and service companies, but also about B2C and B2B firms in order to establish a broader picture of the current innovation processes. Therefore:

Sub-Question 4: Do B2C companies apply a more open-minded innovation process in their operations than B2B companies?

2.3 Stage-Gate Model

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Figure 5: Stage-Gate Model (Cooper, 1990)

While the process of the figure above is meant for larger development projects, there are also shorter versions that describe lower-risk projects. Product innovation is a process, which the stage-gate system recognises (Cooper, 1990). It also stipulates that innovation can be managed, similar to other processes; process management methodologies are thus applied to the stage-gate systems. For instance, the production process to manufacture a physical product is an apt analogy: one must focus on the process itself in order to improve the quality of output from the process.

The stages involve clear goals and are well mapped and defined (Cooper, 2008). In order to reduce key project uncertainties and risks, each stage is designed to collect information. The uncertainties and unknowns are reduced with each stage, even though each stage costs more than the preceding one. Tasks within the stages are conducted simultaneously, which means that a team of people from different functional areas within a firm undertake activities in parallel. Furthermore, each stage is cross-functional, and the stages are not dominated by a single functional area. No certain department is assigned to a stage. Thus, there is no marketing stage or R&D stage, but in every stage, marketing, R&D, production and engineering play a role.

This model is built for speed, and it is not a rigid, lock-step process (Cooper, 2008), its goal is to move from an idea to a successful new product. Detours can be taken, which means that many organisations build ample flexibility into the process and tailor it according to their own circumstances. The stage-gate model is also not a linear system, even though the stages are drawn in a sequential stepwise way. Within the stages, there is much iteration, looping and back-and-forth movement, some activities overlap, for example, while others are undertaken in parallel and others sequentially.

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born at this stage, and it symbolises a preliminary, but tentative commitment to the project. The first stage is the preliminary assessment, which determines the technical and marketplace merits. It is an inexpensive stage as it includes activities such as focus groups, contact with key users and a possible concept test with a few potential users. The objective is to determine market potential, size and acceptance. The second gate re-evaluates the project with the help of the newly obtained information from the previous stage. The next stage, definition, is the last stage prior to the actual product development; it estimates the attractiveness of the project before heavy spending. In order to determine the consumer’s needs and wants, market research studies are undertaken, as well as a competitive analysis, a concept test and a financial analysis as inputs for the third gate. The third gate also consists of a review of the activities undertaken in the second stage. Furthermore, the project must be clearly defined, and participants must agree on the key items before the project proceeds to the next stage. These key items include, for instance, a product positioning strategy and a target market definition, such as desired and essential product features. The next stage is development, which consists of marketing, operation plans and an updated financial analysis. The fourth gate is called post-development review and considers the continued attractiveness and progress of the project and product. The fourth stage is validation, which checks the entire viability of the project and assesses the product itself, the customer acceptance, and the production process. In-house product tests are undertaken, as well as pilot production, field trials of the product, a revised financial analysis, and a trial sell or pre-test of the market. The following gate, the pre-commercialisation decision, is the final gate before the full commercialisation, and it concerns the quality of the activities of the validation stage. The fifth stage is the actual commercialisation of the product and includes the implementation of the operations plan and the marketing launch plan. The last and final step is the post-implementation review. This review consists of a critical assessment of strengths and weaknesses, what can be done better in the next project and what can be learned from it. Furthermore, data about expenditures, profits, costs and revenues are compared with projections.

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2.4 Current Trends of Innovation Processes in MNCs

According to Ortt and van der Duin, “the idea of a single set of dominant best practices of innovation management within a specific historical period no longer holds” (2008: 527). For instance, even though the concept of open innovation is currently popular, Henry Chesbrough, who invented this concept, thinks that open innovation is not an option for every company (Ortt & Van der Duin, 2008). Most product development processes are represented as classic stage-gates sequence, which “consider the innovation process to be a linear sequential flow of predefined phases” (Salerno et al., 2015: 59). These predefined phases include everything from idea generation to launch. However, primarily from the project development field, many authors have expressed their dissatisfaction with this one-size-fits-all approach (Salerno et al., 2015). According to Shenhar (2001), there is no single process for project management that is appropriate for all situations. Other studies have confirmed that many companies use different types of innovation processes (Gomes & Salerno, 2010). This means that stages other than “idea generation – selection/ development – launch” (Salerno et al., 2015: 59) are not only desirable but also possible. On the one hand, many practitioners have built their mind-set on this universal approach, which ignores important contingencies of real innovation projects; on the other hand, practitioners have ignored a number of crucial factors that shape an innovation process (Salerno et al., 2015). A contingency approach to innovation models thus remains an important gap to be filled.

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important question is whether innovation processes are mainly determined by managerial decisions. Therefore:

Sub-Question 5: Are innovation processes designed according to the strategic orientation of a company?

The first two contextual factors belong to the internal environment and the last two belong to the external environment. Context also refers to managerial decisions, such as whether the innovation process should be organised externally or in an alliance (Ortt & Van der Duin, 2008). Contextual innovation offers innovation managers the chance to break away from normative approaches, which is one of the advantages of this concept, since a one-size-fits-all approach is much too rigid for a changing field like innovation. To conclude, the first generation model is appropriate when demand exceeds supply, but is less appropriate when supply exceeds demand. If the company must adapt to the ever-changing business world and societal environment, a contextual approach to innovation is suggested.

2.4 Conceptual Model

By relating the previously reviewed literature to the propositions, a conceptual model is created that serves as a preliminary conclusion to the literature review. It is compared with a final conceptual model after the data are analysed. The second model is presented in the conclusion, after the qualitative research is conducted. The arrows of the model show how the concepts are related to each other, and these identified relationships are further investigated in the rest of the thesis.

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of these departments, as they have their own requirements and ideas or collaborate with them. The innovation, which is the outcome of the process, is transformed into a prototype, which is produced by manufacturing and later marketed by sales until it reaches the customer.

Figure 6: Preliminary Conceptual Model (Own Model)

3. Methodology

3.1 Research Objective

This study, supported by Rothwell’s (1994) theory of the five generations of innovation processes, explores whether MNCs from different industries use different innovation processes in their organisations. By investigating how innovation processes evolve in companies operating in different sectors, one can determine the contingencies of these processes, which departments are involved, whether the process adapts to each new product launch individually and, finally, whether firms use processes similar to the ones Rothwell (1994) has suggested, which are adjusted to different time generations.

This research uses an exploratory qualitative research approach. Qualitative research offers the possibility of apprehending an abstract phenomenon that is researched (Miles & Hubermann, 1994). In addition, due to the application of an inductive method, theoretical ideas are generated on a higher level of abstraction and can then be translated into a conceptual model (Eisenhardt, 1989). The objective is to continue, extend and update Rothwell’s (1994) theory of the five generations of innovation processes, add new knowledge to the existing theory, and provide an answer to the central research question stated in Chapter 1.

Internal Environment Management External Environment Contextual Factors Innovation Process Generation

INNOVATION Prototype Manufacturing Sales Customer Supplier

Service Provider Sales

Marketing

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3.2 Research Design

There are two different versions of case studies: single-case studies and multiple-case studies (Blumberg, Cooper & Schindler, 2014). The suitable method for this research is a qualitative multiple case study, because “case studies are the preferred strategy when “how” or “why” questions are being posed” (Yin, 1994: 1). The observation of several MNCs regarding each of their innovation strategies offers precise, concrete and reliable insights into the different innovation strategies. In particular, as mentioned above, “given the fact that innovation management has changed over the last four decades” and the fact “that every time frame has its own notions of what successful or best practices are” (Ortt & Van der Duin, 2008: 522), it is necessary to interview multinational corporations from different industries in order to see how managers develop the innovation process based on the specific context and with regard to past and present models. Innovation processes are not static and may change over time (Ortt & Van der Duin, 2008). Furthermore, multiple-case studies enable the understanding of differences and similarities between cases. The researcher can further analyse the data across situations and within situations, and multiple case studies can be applied to suggest similar results in the studies or to predict contrasting results for expected reasons (Yin, 2003). A major advantage of multiple-case studies is that the resulting evidence is measured reliable and strong (Baxter & Jack, 2008); it enables the development of a more convincing theory because the findings are based on a variety of empirical evidence, and such studies also allow for more generalisable and robust theory than single-case studies (Eisenhardt & Graebner, 2007).

The sampling method for this study is the so-called theoretical sampling, as the MNCs are chosen based on whether they contribute to the theory development (Eisenhardt & Graebner, 2007). This sampling method is often used with an inductive approach. Furthermore, theoretical sampling makes it possible to select cases that are likely to extend the emergent theory (Eisenhardt, 1989). As mentioned above, a multiple-case study is applied to investigate the similarities and differences in the innovation processes of the MNCs and to expand the current knowledge about the latest generations of innovation processes, such as Rothwell’s (1994) fourth- and fifth-generation models. This way, one can deepen the explanation and understanding of the researched phenomenon, which then leads to an in-depth understanding of the outcomes (Eisenhardt, 1989).

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field research (Morse & Field, 1995), whereas the theory is generated during the actual research (Strauss & Corbin, 1994). The theory generation is built upon comparative analyses among or between groups of persons within a particular area of interest (Morse & Field, 1995). Due to its technique of constant comparison, grounded theory allows the researcher to identify relationships and patterns (Glaser, 1992). This method is ideal for the exploration of innovation processes in MNCs, as only a little exploration has been done to date. Finally, this technique allows for an extension of the current research on the evolution of innovation processes. In order to enable a thorough study, the time frame for this thesis consists of changes that took place in recent decades, as this frame also incorporates Rothwell’s (1994) generations of innovation processes.

The setting for this study is the following four German companies: Allianz, Lidl, Isringhausen and Unity Consulting & Innovation. Each of these firms originates from a different industry: the insurance industry and financial services, the retail industry, the automotive industry and consulting services. An investigation of different industries is a necessary criterion for this research to enable a comparison and exploration of the diverse constructions of innovation processes across dissimilar sectors. The financial and consulting services might design a process that differs from the retail and automotive industries, for example. Moreover, the researcher can additionally detect, whether these processes differ with regard to companies’ size and age. For instance, a larger organisation might include more departments in its process and address issues simultaneously, while a smaller company might take much longer until one product is launched. Further, an older company might handle its processes differently from a younger company and apply traditional systems in its operation, while younger ones might use modern tools such as the involvement of lead users or crowdsourcing. Finally, as mentioned above, the comparison of multiple cases allows for a more generalisable and robust theory (Eisenhardt & Graebner, 2007).

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3.3 Data Collection

As mentioned in the previous paragraph, regarding data collection, data sources such as semi-structured interviews and archival data, including internal policies, are used. The primary data source is semi-structured interviews, as this method is open and allows the researcher to collect more in-depth data and raise new ideas as a result of interviewee’s responses, and also to clarify questions (Keller, 2011). In total, four interviews were conducted with one executive from each firm, each of which originated from a different industry, which is why additional archival data was needed. Since innovation is a broad concept in an MNC, it also involves several departments. These interviews were thus not restricted to the R&D department, but also include participants from other departments who contribute creatively to the firm’s innovation process. The interviewees are innovation executives with key responsibilities in product design and innovation strategy. Each of the interviews was designed to take approximately 35 to 50 minutes. The interviews were taped and transcribed, and the interviewees were informed that their data would be treated confidentially. A pilot test was conducted before the interviews are carried out.

During the interviews, questions were asked regarding the specific innovation process of the company, how it was developed, the components of the process and whether it had to be adjusted according to certain contextual factors. The original texts of the interviews can be found in the Appendix. Once all the data were collected, transcripts of every interview were made and used for data analysis. Before the transcripts were made, permission to record the interview was requested, and transcripts were then sent back to the companies so that interviewees could verify them and make final changes. For each MNC, an individual case report was written and based on these, cross-case conclusions can be established and lead to a modified theory and policy implications (Yin, 1994). In summary, the interview transcripts from the MNCs are compared with each other, and this comparison serves as the basis for initial conclusions.

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3.4 Data Analysis

As mentioned above, the grounded theory was used for the data analysis (Glaser & Strauss, 1967). Within the process of grounded theory research, the sensitive coding method plays a significant role in analysing the transcribed interviews. In order to develop an explanatory and integrated grounded theory, the identification of theoretical codes is essential. According to Hernandez, “the theoretical code that emerges to integrate the substantive theory is not, itself, the core category; rather it is the conceptual model of the relationship of the core category to its properties and to the other (non-core) categories” (2009: 58). The conceptual model incorporates the substantive categories into a theory, and the relational model is the theoretical code through which all substantive codes are connected to the core category (Hernandez, 2009). In this paper, the researcher created a first conceptual model that integrates the preliminary findings of the literature review, which is compared with a final conceptual model that originates from the results of the data analysis. It is presented in the conclusion of this paper.

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cases and to name the differences and similarities between each, which leads investigators to search for subtle differences and similarities between cases. For instance, with regard to the four participating companies in this study, Isringhausen can be paired with Lidl, as they are both product-oriented companies, and the Allianz can be paired with Unity Consulting and Innovation, as they are both service-oriented companies. New concepts or categories can result from these forced comparisons that the researchers might not have anticipated. The last tactic is to consider each data source separately, which means that archival data is reviewed first, which is then followed by a thorough investigation of the interviews. If a pattern from one data source is confirmed by the evidence from the other data source, the results are perceived as stronger. If the evidence of the two data sources conflicts, the investigator can reconcile it through deeper inspection of the interpretation of the differences. The third tactic was applied to this paper, and thus the summary of the archival data is followed by a proper data analysis of the interviews.

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the results of the archival data and the interviews in the within-case analysis and structuring them according to Pettigrew’s (1987) three categories.

3.5 Transparency and Ethics

In order to preclude any ethical issues in this research and keep the data collection and analysis as transparent as possible, the following points were taken into consideration. All participants verbally agreed to an interview and were contacted beforehand to request their participation. The reason for this was to clarify that the interviewees understood the aim of the research and agreed to their involvement by sharing content (Brinkmann & Kvale, 2015). Before the start of the interview, the four selected companies were informed about the structure of the interview, which was then repeated during the actual interview. The researcher also asked whether potential follow-up questions would be permitted.

Another important point is confidentiality. The interviewees were informed that their data would be treated anonymously and that their names would remain unknown within the scope of the research. However, these companies were also informed, that the supervisor’s version of this thesis includes the names in order to assess the thesis and determine whether the interviews were executed or not. In addition, permission was requested beforehand concerning whether the researcher could record the interviews and return the transcripts for approval and further questions.

4. Case Overview

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Table 1: Overview of Selected Cases (Orbis)

4.1 Findings of the Archival Data Research

In this chapter, the findings from the secondary data research are presented, and documents such as newspaper articles, websites, reports and other online journals were thoroughly reviewed for each of the four firms. All of the findings of the archival data research deal with innovation in some way in order to better understand how innovation management is carried out at the different organisations. Furthermore, a short company profile about each firm is also provided.

4.1.1 Allianz

4.1.1.1 Company Overview

With services predominantly in the asset management and insurance business, the Allianz Group is a global financial services provider (Allianz, 2018). The company has 88 million corporate and retail customers in more than 70 countries, and around 140,000 employees worldwide who accomplished total revenues of €126.1 billion and an operating profit of €11.1 billion in the fiscal year 2017. With its 4,552 subsidiaries, it is represented Companies Founding Year Industry Company Format Turnover Number of Employees Number of Subsidiaries Main Innovation Function of Interviewee Allianz 1890 Financial services B2C $92,759,826 140,553 4,552 Apps, digitalized services, insurances Part of the Board of Directors

Lidl 1930 Retail B2C $40,776,186 375,000 50-60 Baking

concept, store concept, products, process enhancements Sales Manager

Isringhausen 1919 Automotive B2B $3,014,622,000.001₆₀₀₀ ₂₇ _Seating

systems, production methods Head of Advanced Engineering

Unity 1995 Consultancy B2B $41,740,920.00 230 14 Innovation

strategies

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around the world. The parent company is currently based in Berlin and headquartered in Munich, Germany, where it was also founded in 1890 as a transport and accident insurer. One of its five strategic initiatives includes technological excellence, which stresses the creation of superior innovations, margins and growth through state-of-the-art skills and best talents. In 1956, modern IT was introduced to the company for the first time, and the age of electronic data processing began with Europe’s first magnetic drum data processing machine that is delivered from America. As this historic milestone is one of its first innovative initiatives, the Allianz continuously strives to become a trusted innovator (Allianz, 2007).

4.1.1.2 Innovation

The organisation concentrates on establishing a culture of innovation across the whole company, which makes innovation a natural part of the daily business life (Allianz, 2007). Every employee is encouraged to involve innovation in his or her daily work, regardless of their location, level or business unit. Employees can submit ideas, which are reviewed within 15 working days. Furthermore, Allianz’s group-wide innovation initiative “ideas to success” was launched in 2006 with a team of innovation experts at the headquarters in Munich. It is a decentralised project with a team of 72 local innovation managers operating in 37 countries who decide how to best implement ideas in local markets.

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X, the broader mandate of bringing innovation into the core business allows the German insurer to become digital by default.

As written in its sustainable development report from 2016, Allianz has been cooperating with Seinergy Lab in France, a collaborative innovation centre for experimentation and training on territories and energy (Allianz, 2017). This partnership enables Allianz to stimulate innovative projects in new energy technologies, explore new crowd-funding solutions for local communities, and helps employees pay attention to these new challenges.

Furthermore, the Allianz tries to concentrate even more on its customers’ needs (Allianz, 2016). In order to achieve this goal, the company established the job position of the Chief Customer Officer, whose role is to provide consistent customer perspective into the redesign of processes, products and services, as people do not think about insurance structures in their daily life. For this reason, the company wants to remain faithful to its existing business model while exploring possibilities in the digital world. Every year, the insurer invests around €400 million in this restructuring progress. In addition, Allianz Germany has established an agile training centre in Munich and Stuttgart, where the firm develops digital products and services in innovative forms of collaboration and with early customer feedback. Currently new practical apps, such as an overarching Allianz app that gives their clients an overview of their contracts and services, as well as a performance app for the health insured ones, are planned and prepared. Since the end of June 2016, customers can easily and directly report car accident damage on their smartphones, which only takes a couple of hours to process before the receipt of a full calculation of the loss expenses. They can then decide between an immediate credit transfer and a repair of the vehicle. According to the Allianz, the handling of insurances must be easy and function on a mobile device nowadays.

4.1.2 Lidl

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groceries and also computers. Six years later, in 2003, Lidl has 80,000 employees throughout Europe and offers fresh meat and poultry in its stores. It continues to expand its services with an online photography shop, a fresh baking concept in-store and products for the living room; the supermarket is also the first discounter to offer its own fair trade brand, it has joined Facebook, as well as it has introduced health management to its employees. In 2017, Lidl opened its first store in the U.S. Today, Lidl operates in 27 countries with 10,000 stores, 375,000 employees worldwide and revolutionises grocery shopping with a less complicated process which enables the discounter to deliver high quality, low prices and a positive shopping experience (Lidl, 2018). The positive shopping experience is created through carefully selected products that replace the myriad of brands in every category, efficient stores with the same layout, and a partnership with local and regional farms and suppliers. Furthermore, the majority of products, 90%, come from its own private label, which undergoes a strict testing regimen and a diversified product assortment changing twice a week.

The British market describes the business model of Lidl as a disruptive innovation strategy (Creative Huddle, 2014). Some disruptive innovation principles are that the discounter began to re-think the concept of a convenience store and make changes to old-fashioned structures. Furthermore, Lidl does not spend heavily on display and does not present branded products, rather, they focus on the defining aspects of essentials at very cheap prices, including dairy and fresh products or meat goods. The premise of Lidl was that once customers realised the quality of their invincible prices, they would abandon old brand loyalties. Moreover, the supermarket chain understands the psychology of the market; they claim that once consumers are in their shops, they immediately know where to find products, and they are readily familiar with the combination of pallets, which suggests warehouse bargain prices, waist-high displays, similar to street-market displays and, finally, the discounter’s typical aisles. Additionally, Lidl does not stagnate; they constantly change with interesting displays, product changes and a weekly brochure highlighting new seasonal offers, using slogans such as “get it now or it’s gone”. Finally, by establishing themselves rapidly in second-tier sites, the supermarket chain can overcome barriers to entry. This means that they are trying to be successful right in the beginning and build from basic foundations.

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million-large customer base offers an immense potential source of information concerning customer needs and demands. The aim of this initiative was to convert a passive community into an active one and to set a milestone for future crowdsourcing projects. The Lidl fan-yogurt stands for a perfectly exemplifies a short-term development period and a strong focus on the target group.

Additionally, before exporting store innovations to other locations, Lidl uses Ireland as a test market (Jacobsen et. al, 2017). Some examples of the major innovative improvements are an upgrade of the feel and look of the stores, digital signs, improved lighting, wider aisles, extended opening hours, and faster checkout services. Over the next five years, Lidl will invest $3 billion to upgrade its stores in Germany, and over the next three years, the discounter will invest $1.5 billion in its British stores. A new Lidl store in Belgium has also tested some innovative store features. Powered by nearly 1,000 solar panels on the shop’s roof, charging stations allow consumers to charge their electric bikes and cars for free.

Lidl is so successful because it has a strategic alignment between its commercial and supply chain strategies, which allows the supermarket chain to balance demand and supply much better than it otherwise could (Future Learn, n.d). Costly buffers against uncertainty across the supply chain can thus be avoided. Due to the close cooperation with suppliers, supply chain costs are minimised, and this way, lower prices can be offered to consumers. Finally, Lidl has extended its category of management operations, which is a concept where the product range is divided into groups of similar products (Berentzen & Lindinger-Pesendorfer, 2017). This is also why private label manufacturers such as Lidl employ a category captain who builds a relationship between supplier and retailer in order to preserve respond with improved category management competencies and a professional innovation process.

4.1.3 Isringhausen

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Fiat and Renault, are among their customers, which means that Isringhausen is following a B2B strategy.

With regard to the innovative behaviour of the company, Isringhausen supplied the world’s first commercial vehicle seat with an integrated, three-point safety belt in 1987, and in 1993, it developed another disruptive innovation, namely, the world’s first electrically-adjustable commercial vehicle seat (Isri, 2018). In 2005, the innovative and successful journey continued with the supply of the world’s first seat with an integrated, height-adjustable, three-point safety belt. Isringhausen focuses on product innovations, such as the vehicle or truck seat itself. Furthermore, since there is an intense competition in the vehicle seat market, Isringhausen stresses that it is essential to serve country-specific needs (Roller, 2016). The American clients, for example, prefer the seats to be somewhat wider and softer. The product development manager also emphasises that it is important to have direct contact with the truck drivers and that Isringhausen always has about 20 prototypes in circulation, for which truck drivers can provide feedback. At the same time, the company runs a test truck, which developers and researchers use themselves and then connect their experiences to the feedback of the truck drivers. Moreover, the designers of the company are attending furniture fairs in order to collect some more ideas and discern current trends related to the development of their seats (Roller, 2016). Furthermore, Isringhausen conducts open innovation, as they cooperate with universities and institutions, such as the Fraunhofer society, which is a German research organisation. According to the company, how a seat is ultimately produced, is determined by the customer; Isringhausen only makes possible suggestions. Additional or future trends include autonomous driving and service apps (Brand, 2016).

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similar to physical prototypes. Furthermore, Isringhausen’s clients all have very different and individual demands, which they expect to be met without an increase in price. Some seats must be stiff, while others have to be lighter and should not be more expensive than previous seat models. In order to meet these customer requirements, engineers must compare several design variations without having to establish a lot of physical prototypes. The achievements of this simulation process are time and cost savings in the development process with maximum software flexibility. Products are developed much faster with less physical prototypes and lab tests, and, compared to a physical prototype and test-based development process, a virtual development process saves time, is more efficient, costs less and, finally, indicates where the product might have too much material and can be weight optimised.

4.1.4 Unity Consulting & Innovation

Unity is a management consultancy for digital transformation and innovation (Unity Consulting & Innovation, 2018). In contrast to the other three companies, innovation is Unity’s primary concern and therefore main focus, and the consultancy gives advice on other businesses’ innovation strategies. Unity incorporates the competencies that are required for successful digital transformation, namely innovation, integration, and transformation, and an in-depth understanding of technology. The company has 20 years of digitalisation experience and works for companies from the following industries: aviation and aerospace, automotive, energy, machinery and plant engineering, as well as chemicals, pharmaceuticals and medical technology. The organisation currently operates in 14 different locations and leads projects worldwide with its 230 employees. Moreover, Unity profits from an increasing uncertainty in an unstable world, a combined favourable economic environment, and the need for industry and business to modernise that is driven by digitalisation. Many organisations have adjusted their products, business models, organisational structures and processes to meet digital requirements, which is the reason many such companies need consulting support. Some areas of the consultants’ responsibility include the design and implementation of excellent business processes and new business models. Throughout its operations, Unity applies the classic stage-gate model.

4.1.4.2 Innovative Advice of Unity

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Consulting & Innovation, 2018). Moreover, the core business is supposed to focus on a steady growth, while disruptive innovations should be developed simultaneously. That is why a decisive factor to be successful is the cross functional cooperation of different domains. On the other hand, companies today need to cope with the pace of change on all different levels. It is difficult for big multinational corporations to harmonize functions and business areas for cross-cutting innovation projects, or to survive in a world with boundless markets. Lastly, two more challenges include the creation of disruptive innovations and the expansion of the current business, as well as mastering the prototype phase of the innovation process and achieve commercial success.

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to not separate market-pull and technology-push. Technology activities include prototyping or R&D portfolio management, whereas market activities include product management or market research for example. The fifth success pattern is customer-oriented and asset-based innovation. Innovations must be created from both customer demands and corporate competences, the latter of which describes the firm’s abilities. These abilities include, for example, employees, technologies, brands, processes or infrastructure. Finally, the sixth success factor emphasises digitalisation; in short, companies should digitalise before competitors do. Currently, many manufacturing companies focus on products that match with digital components to achieve value-added solutions for the customer. That is how many product-oriented firms view digitalised innovations: they simply add digital technology to an existing product. Products, however no longer compete with other products anymore, but also with business models or digital services; for example, organisations without a product background are assessing digital tools, such as platforms. Since platforms can augment products, they are complementary to them, and products even have to compete with them. Nevertheless, services can also be substituted by digital products, as not only products are replaced by digital services.

4.2 Within-Case Analysis

In this chapter, the primary and secondary sources are brought together. The primary sources are the four interviews with one executive from each firm and the secondary sources are the findings of the archival data research, including different written documents from each company. This within-case analysis enables the researcher to address possible gaps in the secondary sources with the help of the conducted interviews. Furthermore, in order to make the findings more precise and enable a clearer structure, this within-case analysis is based on Pettigrew’s (1987) analysis of strategic change.

4.2.1 Case 1

The interviewee is responsible for the corporate client business in Germany, which covers turnovers from €1 small, industrial companies through large numbers of €500, 000, 000 from single enterprises. Moreover, he focuses on product innovation, rather than on process innovation.

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digital innovations, such as InsureTech, data analytics and blockchain technology (Allianz, 2015). Currently, smart devices are the primary source of communication with the customers, replacing the face-to-face interaction between insurers and their clients. The Allianz X contributes to the era of digitalisation by investing in the best digital leaders that are strategically relevant for the Allianz itself: “When it comes to the Allianz X, digitalization is a

big key word”2 (Interviewee A, Allianz). The Allianz X is part of the innovative change at the Allianz, and it is designed to enhance digital and core technology. According to the interviewee, the Allianz X used to develop itself more intensively in its early years, but today it invests only into start-ups. The interviewee mentioned that it is impossible for the Allianz for example to recreate the start-up atmosphere of the Allianz X, as the Allianz is such a large enterprise with rigid organisational structures, and it is difficult to divide them. This is especially the case, when it comes to radical thinking, which would require a different system of remuneration. For these reasons, the Allianz X was established. With regard to the parent company, it would be wiser to work with different methods, different processes and a design thinking, while maintaining the standard innovation process. This new ideology of digital transformation requires a major MNC like the Allianz to sharpen its market focus, especially due to the numerous competitors; it further requires a greater entrepreneurial spirit, a lessening of bureaucracy and central control, and a change in the mode and style of the main board’s operation (Pettigrew, 1987). This is already translated into practice through the agile training centres in Munich and Stuttgart, where digital products and services are developed in innovative forms of collaboration, including new practical apps such as the overarching Allianz app or the simple car damage report using consumers’ smartphones (Allianz, 2016).

The key features of the context of the Allianz are that it is a B2C-oriented service company. It was voted as 21st of the 25biggest insurance companies in 2017 by Forbes (2018) magazine, which means that, with its 4,552 subsidiaries, it is quite an intertwined company. Founded in 1890, the firm has extensive history and has therefore also established deeply-rooted, traditional organisational structures. The interviewee stated that, in recent years, the Allianz has more strongly emphasised being customer-oriented and delivering services that are specifically tailored to their clients’ needs. That is also why “our innovation process has

become much more customer-oriented” (Interviewee A, Allianz). Additionally, the insurer has

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this was actually not true. Now, methods to listen to the voice of the customer have changed and still must be carefully taken into account: “What comes out of a customer enquiry, is not

always the truth. Focus group enquiries do not always expose the truth” (Interviewee A,

Allianz). According to the interviewee, participants in the innovation process at the Allianz are product management, portfolio management, market management, sales, substantial stakeholders and IT. Market management not only does simple marketing, but also organises the questioning of focus groups and commercializes its own ideas. Part of the stakeholder group is the legal department, which the company tries to involve in the process as early as possible in order to avoid any violations of rights. Moreover, IT plays a significant role, as new innovation ideas always have an influence on processes or IT systems as well. With respect to the insurance industry itself and innovation processes, the interviewee thinks that particularly in that industry the innovation process is handled differently: “My impression is that the

innovation process in the insurance industry is heavily driven by product units themselves, while in other industries, it is more marketing-driven. Marketing has a completely different influence in the insurance industry than in other industries. I think the insurance industry is comparable with the automotive industry – a lot is happening with the engineers” (Interviewee

A, Allianz). Lastly, it is generally important for innovation management to know your customers’ expectations, have excellent knowledge about R&D, stay updated on technical innovations, take into account the future and to establish a long-term thinking according to the experience of the interviewee. Furthermore, the interviewee said that what has changed the most throughout recent years and how the insurer should adapt to the fast-changing environment, is to “focus on digitalisation, become even more client-oriented, try not to act and

function as a huge corporation, but work and think in many smaller units to change traditional organisational structures and to increase the overall speed, as speed is one of the biggest challenges today” (Interviewee A, Allianz).

Pettigrew’s (1987) last category is the process, which is in this case more thoroughly analysed with the innovation process of the insurer. At the Allianz, there is only one fixed innovation process, which was predefined years ago and normally does not change either. However, in practice, the process might vary. There is a possibility that ideas are generated apart from the initial idea phase, and it thus always depends on the quality of the potential idea. Allianz follows a so-called “hop-on concept”, which also allows ideas to be added to the innovation process in later phases of the process. The innovation process itself, though, begins with the typical idea generation of the stage-gate model: “Different ideas come together from

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also from operations. There is a team that meets regularly and detects changes of the market and new social trends. If an idea is perceived as good, it is passed on through the next stage and gate of the innovation process” (Interviewee A, Allianz). Furthermore, management

influences the innovation process, but not as much as the employees themselves. Operations mainly influences the innovation process, as they are the ones who must work with the process in the company: “Our employees are the internal customers of the organization” (Interviewee

A, Allianz). Management is more or less merely an active participant who aims to keep the

speed of change high. With regard to other insurance companies, the interviewee claimed that the Allianz does not really orientate itself towards competitors when it comes to the construction of the internal innovation process: “Us managers, we do exchange some rough

information, but not really any details” (Interviewee A, Allianz). Additionally, the interviewee

stressed that open innovation has also become a major part of the innovation process at the Allianz. The insurer has conducted open innovation with the Seinergy Lab in France, in order to stimulate innovative projects in new energy technologies (Allianz, 2017). The company is always in touch with science when it comes to product development. Especially with regard to artificial intelligence, the firm exchanges ample information with external organisations. To return to the era of digital transformation, the interviewee concluded that, due to the more digitalised services, such as the involvement of smart phones in everyday operations with the customer, the innovation process is much more simplified and faster than ever before.

4.2.2 Case 2

Responsible for 48 stores in Augsburg and its surroundings in Germany, the interviewee is a sales manager and authorised signatory of Lidl since 2014.

With regard to the content, the particular area of transformation is the business model of Lidl. The business model of the discounter is described as a disruptive innovation strategy by the British market (Creative Huddel, 2014). The supermarket chain does emphasise display and does not sell branded products, but mainly its own private label products. Over the years, Lidl began to restructure the customary convenience store, upsetting the old-fashioned format. Its disruptive innovation principles can be found in a combination of pallets, warehouse bargain prices, street-market waist-high displays and discounter-typical aisles. Another aspect of Lidl’s business model is the fact that the supermarket chain does not stagnate. Due to consumers’ unpredictable buying behaviour, the discounter offers interesting display and product changes according to the needs and wants of the market: “Customers change their buying behaviour

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Lidl). Lidl does not have three years of development time after which one final product comes out of the innovation process; “we are talking about fast moving consumer goods, which are

produced in such high quantities that we have to react quickly” (Interviewee B, Lidl). Lidl has

to innovate heavily and on a continuous basis in order to keep up with its competitors and maintain its strong market position. The interviewee states that the main innovations at Lidl are product and process innovations, with a strong focus on process enhancement, which, to return to the retail industry, again stresses the importance of making things easier and faster.

The context of Lidl is that it is a product-oriented company following a B2C strategy. It was founded in Germany in the 1930s and opened its first supermarket in the 1970s (Lidl, 2018). Over the years, the discounter has grown into a large organisation, operating 10,000 stores in 27 countries (Lidl, 2013). Currently, 375,000 employees work at the supermarket chain. Since the 1930s, Lidl has revolutionised the grocery shopping experience. It has expanded its services with the establishment of an online shop, an in-store baking concept, and it has expanded its product variety, ranging from living-room products, to gardening supplies, up to toys for children and so on (Lidl, 2018). In total, 90% of its products are its own private label, and it has a diversified product assortment that changes twice a week. Another strategic change in Lidl’s history is the fact that the discounter built its own factories for chocolate, ice cream and baking stuff for example, “as we have always had difficulties with the delivery” (Interviewee B, Lidl). The interviewee said that the company wants to become more independent from its manufacturers. The interviewee also explained that most of the products come from brand manufacturers that specialise in the discounter brands, which means that they simply put different labels on the products that come from the same brand manufacturer. For example, a yogurt from the brand “Activia” and Lidl’s own yogurt are both produced in the same factory. Furthermore, regarding the inner context of the firm, ideas for change come from logistics, sales and movables, according to the interviewee. They are the main three departments participating in the innovation process; “however, I have to say that the responsible department

is the one currently dealing with the innovation, for instance the cleaning products department”

(Interviewee B, Lidl). The superior of the corresponding department passes an idea on to his superior, and so on: “Lidl does not have an R&D department, and not one single product, but

5,000 different ones, which is why innovative ideas are passed on through the responsible superiors of our company” (Interviewee B, Lidl). IT also plays an important role at Lidl, as the

supermarket orders a significant quantity of fresh meat every day. The regional headquarter receives the orders and sends them to suppliers. Some time ago, “the branch manager still had

How does the innovation process of MNCs evolve in different industries considering past and present generations of innovation processes?