What are the main causes for innovations to get a low return?

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What are the main causes for innovations to get a low return?

A research towards the success and fail factors in innovation processes of professional service

firms in the Information Technology branch

Research Thesis

Bo van Wijngaarden

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What are the main causes for innovations to get a low return?

A research towards the success and fail factors in innovation processes of professional service

firms in the Information Technology branch

“When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not

about money. It's about the people you have, how you're led, and how much you get it.”

- Steve jobs -

Research Thesis

University of Groningen

Master Business Administration

Specialization Business development

February 21, 2013

Main author

Bo van Wijngaarden

bovanwijngaarden@gmail.com

Student Number 1831909

The company supervisor University of Groningen

Eric T. K. Lim

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Preface

This thesis is written as a graduation project for the Master of sciences Business Administration,

specialization Business Development. Yours truly made a switch from its bachelor in real estate

to the Master Business Administration. Therefore, it concludes the end of a long and intensive

study period of about seven years.

Several persons have contributed academically, first dr. J.D. (Hans) van der Bij helped me

initially with finding a research gap and providing me with the thesis supervisor E.T.K. (Eric)

Lim. Eric therefore contributed to great extend to this paper. He gave extensive guidelines to the

research, but also gave me my freedom to provide input for the thesis. I always found the

meetings with him a rich source of information and therefore I would like to thank him

extensively for his proper responses and input.

Furthermore, I would like to thank some colleagues at the case company: First, my thanks go out

to the vice president, who gave me the change to use the case company for this study, and

providing me with a the company supervisors at the case company: The division secretary for

the process, and the company supervisor for the content of the thesis, who I like to thank as

well. The company supervisor, whom I owe many thanks, is greatly appreciated for making time

in his busy schedule to help me out from time to time, but also for his flexibility in the research

subject and patience with the process. The division secretary provided me with all my

secondary needs and together with the other secretaries, provided me with the necessarily

laughs and sociability, far most at the beginning of my thesis.

Last, I would like to thank my parents, girlfriend and other family and friends who endured me

during the, sometimes, stressful times. Also for giving me feedback and moreover; helped me

with my motivation to work on my thesis, which I found difficult from time to time.

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Management summary

Steve jobs ones quoted that innovation has nothing to do with the amount of dollars you spend:

“When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not

about money. It's about the people you have, how you're led, and how much you get it.” This about

summarizes the essence of this Thesis: merely money, merely an amount of ideas or more

complicated: merely a formal and complex innovation process, will not lead to innovation

success. For every branch, every company even, different factors influence the success of an

innovation. Even how success is measured will differ from company to company and branch to

branch. However, measurements of success and factors leading towards it are, to a large extend,

alike for every branch. This thesis will give an overview on the success and fail factors which

determine the success of innovations for professional service firms in the Information

Technology branch. This is done by an extensive literature study, which is compared to several

cases within a similar company: The case company.

Seven successful innovations, and five failed innovations were analyzed by 21 semi-structured

interviews. Summarizing the following conclusions can be drawn from the study, main factors

influencing the innovations to succeed were:



Good top management support - Proper support from the organization in terms of

resources;



Well defined NSD process - Effective, formal process of the development;



Highly Innovative - The innovativeness of the innovation, from the customer point of

view;



Good customer support - Communication strategy effectiveness / Front-line

effectiveness, clear benefits, customer participation in delivery;



Multiple market targeting - Whether the innovation was launched at a specific targeted

group or at a diverse group.

Main factors influencing the innovations to fail were the opposite of the above. With an

exception for sufficient formal and effective launch. Which is defined by a full scale launch, clear

launch strategy, well targeted and coordinated launch. An insufficient formal and effective launch

appeared to influence the outcome of the innovation negatively. While having one, did not show

clear results on having a positive effect on the outcome.

Within the successful innovations, the results were clearest for good top management support.

Leading towards failure, the results appear strongest for bad top management support and a

bad defined NSD process.

Managerial implications are aimed at the top management support and creating a formal NSD

process. A structural way to improve the top management support is to create KPI’s aimed at

innovation. KPI’s should be created along the line of new business objectives per innovation. To

create alike objectives, a long term vision will be needed, and clearly communicated.

Second, best effort is putted into creating a formal innovation process. One that emphasizes

up-front homework, tough go/kill decision points, sharp early definitions, and flexibility.

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List of abbreviations

BP - integrated business processes

CEO - chief executive officer

CRM - customer relationship management

DUET - jointly developed program of SAP and Microsoft to quickly collaborate on and compose

solutions that meet changing business needs

e.g. - for example

EHS - environment health and safety

SME - small and medium enterprises

ERP - enterprise resource planning

Et. Al. - and others

FTEs – full time employees

GRC - government risk and compliance

HRM - human resource management

IBX - an innovation to streamline secondary costs, named after the company who came with the

solution

IBP - integrated business processes

IT - information technology

KPI - key performance indicators

NPD - new product development

NSD - new service development

PSFs - professional service firms

SEPA - single European payments

TM - transportation management

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C

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1. I

NTRODUCTION

It has been widely acknowledged that developing new services and products is of increasing

importance for companies to profitability and competiveness. Innovations provide new

services, new processes or new products. Some innovations are small (incremental

innovations), some innovation are big and change the rules of the game (radical innovations).

With innovations, there is always a certain process leading to the innovation. Whether this is

structured or not, does not derive from the fact that some kind of process took place. These

processes are subject towards different strategic-, market environment-, development process-

and organizational factors (Cooper, R. G. & Kleinschmidt, E.J. 2007). This study is designed to

uncover the drivers of performance in the professional service firms (PSFs) in the Information

Technology sector (IT).

1.1 F

OCUS OF THE STUDY

This study focuses on the professional services branch in the IT. For academic reasons, the

study is limited to the PSFs. The market of PSFs in the IT is getting tighter and competition is

rising. Companies are in a struggle to survive today and keep business going for tomorrow.

Companies need to innovate, but the risk of new projects are under pressure due to lower

margins in the industry. Because of the squeezed margins, innovation projects require a better

strategy. Aiming at a higher success rate by providing knowledge of the success and fail factors.

1.2 T

HEORETICAL MOTIVE

Consulting firms must continually create new knowledge-based structures to remain

innovative. They accomplish this task by developing new practice areas. These practice areas

are identifiable subunits within a firm, and consultants are attached to these units according to

some common facet of their expertise, such as background, clientele served, or area of

intervention (Anand, N., Gardner, H.K. and Morris T., 2007).

Within the consulting industry a theoretical distinction can be made for the information

technology services. This is due to the hype cycle, which is explained in the literature review. In

the sections below, this difference will be further elaborated.

The research will then contribute towards a better understanding of what the critical success

and fail factors are in the service development process for the information technology sector.

Literature has provided success factors for the new service development (NSD) and new

product development (NPD) processes. Also literature provides the difference between NSD in

general and NSD in the IT sector. But not the combination of the two characteristics.

1.3 N

EW SERVICE DEVELOPMENT VERSUS NEW PRODUCT DEVELOPMENT

To decompose this problem, the difference in NSD and NPD must be addressed, with specific

attention to professional services in the information technology industry. To a great extend,

NSD and NPD have much in common. Still, the development of new services is rather different

than the development of new products. The different development processes finds their

existence in the different characteristics of products and services. One of the largest differences

is due to the difference intangibility and the need for closer customer involvement with the NSD

process. Because the interaction process with the customer is typically an integral part of a

service, the development of a new service is usually far more complex, conceptually, than the

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development of a new tangible product (Johne and Storey, 1998). In NSD the relative focus and

differences are in the front end steps rather than the later stages (Shekar, 2007). This is also

seen in Figure 1, which gives an overview in the general differences between NPD and NSD.

Literature also shows that internal organizational factors seem to be more important in NSD

than NPD context. For example: A company's willingness to cannibalize organizational routines

and prior investments is more important in the case of new service than new product

development (Nijssen, Hillebrand, Vermeulen & Kemp, 2006). There has already been research

to create a steady flow of new innovations and selecting them. However, there is not a best

practice answer to structure for innovation, rather it is company specific. (Anthony, Johnson

and Sinfield, 2008; Day, 2007). Bitner and Brown (2008) notice that there is a lack of research

towards NSD and are suggesting more research on this matter.

FIGURE 1:

DEVELOPMENT PROCESS FOR PRODUCTS AND SERVICES (SHEKAR, 2006)

1.4 P

ROFESSIONAL SERVICES

For the last decades, professional services in general are becoming more and more important to

the case company home countries economy. This is due to the shrinking industrial activities in

the Country of the case company and growing education level of its inhabitants.

In addition to its growing importance, the professional service sector is distinct from other

services because it encompasses unique characteristics and confronts unique challenges. For

instance, PSFs generally face short deadlines and constant demands, have limited marketing

knowledge and often view time spent marketing as time deducted from billable hours. PSFs

have been slow to adopt formal marketing strategies, and reveal mixed attitudes towards

marketing (Kotler, Hayes and Bloom, 2002). Similarities and differences in the success factors

for PSFs and other industrial sectors are also distinct NSD in general and NSD for PSFs.

Professional services are one of the least tangible services. innovations in professional services

differ from other services (e.g. Transport, catering, domestic services) because a lot of these

services involve physical transformation (Miles, 2005).

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Another difference is that professional services are harder to profile, where professional

services are often offered to broad in the portfolio. Further, differences in the NSD process of

professional firms are that these are often made in an haphazard development process. Less

structured then normal NSD. Similarities can be found in some of the success or fail factors like

inferior value to clients, lack of necessary facilities and resources to provide a quality new

service offering (Brentani and Ragot, 1996). Professional service companies differentiate

themselves from service companies due to high expertise, qualifications and playing an assisting

role in making decisions and solving problems. Also the professional service industry is one of

high competition and transparency. Making a service, once launched, quickly copied. Further,

the training of employees requires time; there will always be a delayed reaction to the market.

Employees need to be trained and training programs need to be set up (Interview, Senior

consultant, 2012).

The Professional services development is distinguished from normal NPD and NSD by higher

intangibility, higher needed expertise and closer needed interaction with the customer.

Therefore, we expect the development of Professional service to be different from services and

products in general.

1.4 I

NFORMATION

T

ECHNOLOGY SECTOR

Within the Information Technology branch, the hype cycle has its influence on the innovation

process. From interviewing employees (Division manager, cluster manager, senior consultant,

2012), it was acknowledges that the hype cycles influence on the innovation process is

threefold. First, a better understanding of the market is needed. In the professional services

industry, the first mover advantage can pump up the margins, making a tremendous impact on

the hype cycle (Interview cluster manager, 2012). This is due to the high margins which an

innovation can receive at the beginning of the hype cycle.

Second, the hype cycle means that, even though innovations lose some interest of customers

over time, this does not necessarily mean that these innovations are dead. The hype cycle often

shows a second wave of interest of the customer, where the product enters the plateau. If all

employees, which are schooled for this innovation, are employed with different customers for

different services, this means the company will lose options towards creating revenue.

The third distinction is found in the fact that innovations are sometimes quite similar. A new

innovation can have minor differences, but it is still possible that it can be hyped all over.

Employees that acquired knowledge which was quite similar to the new service should be

schooled for the new service first. For the innovation process this means that service portfolio

knowledge becomes more important than with normal service development.

A fifth distinction is that this industry is involved in highly specialized development trajectories

where it is much more difficult to include end-users, simply because they do not possess the

knowledge. Which means, seemingly contradictory to previous statements, that

user-involvement might not be so important.

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1.5 M

ANAGERIAL INTEREST

The case company wants to improve their return on their innovations. By interviewing several

employees

1

_{, it was discovered that there is disagreement of which problems cause the}

innovations to fail. The preliminary cause and effect tree can be seen in the appendix

2

_.

The breakdown of the preliminary interviews can be be found below.

Position held in

Organization of People Number

Number of Times Interviewed Total Number of

Personal

Interviews Purpose for Interview Interviewed

Once Interviewed Twice

Cluster Manager / Sales

Director 1 1 0 1 To uncover the initial problem at the company Consultant Technology

Services 1 0 2 2 To uncover the initial problem at the company SAP Solution architect 1 0 2 2 To uncover the initial problem at _{the company}

Senior consultant 1 1 0 1

To check statements, and get background information of the structure and process of the company

Vice president 1 1 0 1 To provide an overview of underlaying cause of the problem at Capgemini

Table 1: Breakdown of preliminary interviews

This research will provide Professional service companies in the IT better insights in their

innovation process. The case company will be provided with insights of the strengths and

weaknesses of the innovation process. This will provide the company with better insights to

improve their innovation process. Further, by providing The case company with these insights,

this research will assist executives and NSD managers in improving their processes to reduce

the costs by optimizing their innovation process, and thereby lowering their failure rate of

innovations. Also, the study will provide better knowledge of what factors cause success or

failure to help innovation portfolio decision making: More aware of their inner strengths and

weaknesses, the company will be able to create better innovation portfolio management

decisions.

1.6 P

APER OUTLINE

This research is done with the help of The case company, an outline of the problem environment

will be given in the next chapter. Afterwards, the problem statement will be discussed. Giving

the research goal and expected outcome that belong to the central question: What are the

critical fail and success factors that underlie the rate of return on innovations in the Information

Technology sector? A theoretical framework, with a total of around 220 found variables, gave

basis to a in depth case analyses. The case analysis was created from five failed cases, and seven

successful cases. A total of 21 interviews was held. From the case analysis a cross case analyses

was done and it was found that the main factors influencing the innovations to succeed were:



Good top management support - Proper support from the organization in terms of

resources;

1 _{See appendix I: Preliminary interviews & notes} 2 _{See appendix II: Conceptual cause and effect diagram}

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

Well defined NSD process - Effective, formal process of the development;



Highly Innovative - The innovativeness of the innovation, from the customer point of

view;



Good customer support - Communication strategy effectiveness / Front-line

effectiveness, clear benefits, customer participation in delivery;



Multiple market targeting - Whether the innovation was launched at a specific targeted

group or at a diverse group.

Main factors influencing the innovations to fail were the opposite of the above. With an

exception for sufficient formal and effective launch. Which is defined by a full scale launch, clear

launch strategy, well targeted and coordinated launch. An insufficient formal and effective launch

appeared to influence the outcome of the innovation negatively. While having one, did not show

clear results on having a positive effect on the outcome.

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C

HAPTER

2. P

ROBLEM ENVIRONMENT

This chapter will give a perspective on the problem environment. Where the company of The

case company is described. First, the company in general is described, then the structure and

the circumstances the company is operating in.

2.1 P

ROFILE

T

HE CASE COMPANY

The case company is on the stock exchange and operates worldwide. Revenues are within the

hundreds of millions: The company is one of the world’s largest providers of system integration

and consulting services. The case company is providing a range of business process outsourcing

services in areas as customer relationship management, finance, human resources, and supply

chain management. To deliver these services the company operates in different disciplines. The

companies headquarters is located in Europe. To provide business process outsourcing, The

case company uses, amongst others, the software capabilities of two major ERP software

brands: SAP and Oracle. This research is limited towards the SAP division of The case company.

This division has approximately 500 employees.

2.2 M

ISSION

The case company wants to improve performance of their customers and transform

organizations. The company wants to achieve this by empowering their clients to respond more

quickly and respond more intuitively to changing market dynamics. Their tool to do this is

bolstering of the right technology, to help their clients become more agile and competitive. In

their approach towards the customer they emphasize collaboration in a human centered

approach to technology. Where the business value of technology comes from and through

people.

2.3 S

TRUCTURE

T

HE CASE COMPANY

All the managers of the various business units in the Country of the case company ultimately

report to the CEO of the case company in the Country of the case company. The organizational

structure adopted by The case company is a functional structure. This should reduce the risk

and vulnerability of a company to market changes and competition by expanding its business

operations. For example, underneath each discipline, there’s a chief executive. These

sub-corporations are each subdivided onto its functional basis (e.g. Sales, HRM, Finance, Production

etc.) enabling specialization and economies of scale. This is due to the fact that each discipline is

treated as an individual business as explained earlier.

The case company is constantly expanding, both by growth within its current operations and

divisions as well as external expansion. Mapping the above onto an example of The case

company; three ways for external expansion are available:

1. Horizontal Expansion – ensured by new mergers & acquisitions

2. Vertical Expansion – taking over companies in a company’s supply chain

3. Diversified growth – the mergers/acquisitions in new business segments/markets

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The case company is listed on the stock exchange market. The case company has a wide range of

offerings. The case company has troubles in maintaining their competitive advantage. Of all the

subsidiaries, The case company Country of the case company is making the worst return.

Recently, even redundancies had to take place, to increase the company’s profit. Within the

department of SAP revenues are also dropping. The amount of people who are waiting to get

enlisted at clients is growing. The division is still running a small profit. The drawback on

revenues is mainly due to the economic crisis, which has its effects on the demand and margins

(Division meeting, 2012).

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3. T

HE PROBLEM STATEMENT

This chapter will provide the problem statement, together with a preliminary analysis and

expected outcome. The overview of the research methodology is normally part of the problem

statement, however we decided to provide the methodology in the next chapter, to overcome

redundant information.

3.1 P

ROBLEM STATEMENT ACCORDING THE COMPANY

The case company is noticing a setback in return due to a fall back in the economy. The demand

in general lowers while the competition rises. For the branch this puts huge pressure on the

margins. Still the company recognizes the need to innovate for tomorrow’s cash flow. At the

time, it is harder to afford any mistakes. Due to the diversity in involved businesses, this

especially goes for the public sector, where the enterprise is mainly losing profits.

At the time, there are is a wide diversity of ERP solutions for customers to look at, and for PSFs

to offer. However, investing in such solutions (or innovations) means training employees.

Training employees cost both time and money. The time has a disadvantage, where there is a

delayed reaction to the customers demand. Money, as mentioned, puts further pressure on the

margins.

Therefore The case company wishes to get insights on what causes innovations to fail. With this

knowledge, the company hopes to address the next question: Where can we best improve our

innovation process?

3.2 P

RELIMINARY ANALYSIS

The case company’s SAP division programs software which is custom developed for each

customer. An example of this is Transportation Management. This is a piece of software which

streamlines al the logistics within a company. Now their only client is Company A. With the

software, they will be able to streamline their logistics better, and respond better to emergency

situations. Another example of an innovation is Invoice management. This software is created to

simplify and create, manage, monitor, and routing purchase orders and invoices. In this way

process costs for a company can be safed, and it is clearer for employees with whom they have

to report which costs. Although a lot of these software is created at SAP, the integration is done

by The case company’s consultants. Every company for example, has different structures, and

therefore different needs on different departments. Further, when SAP creates alike software,

often it is not finished, and The case company needs to develop it further. The adoption, creation

and further development of new software within the case company, is what is seen as an

innovation process.

The problem at The case company is that the company lacks insights in their innovation

process. The whole process goes rather unstructured. People often start innovating out of their

own interest. Often employees do a lot of work in their own time, out of hobbyism. This is why it

is hard for the manager, to create strict go/no go decisions in the beginning. A disadvantage is

that, people who have invested all this time, and late in the process finds out the manager does

not approve, loses interest for The case company and gets demotivated, or even leaves the

company. Another example, as has been with Transportation Management, is that the manager

lacks clear decision making, where innovations are in the development phase for eight years.

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When the innovation finally is done, the managers, whom supposed to sell the innovation, lost

interest in the innovation. This is because of the long development time, they considered it as

failed.

The management therefore feels that the main problem lies with the portfolio management

process. Most of the portfolio management, is done by some managers, whom get together, and

decide on their basic feelings whether the innovation might be worth investing. Often, this

selection process starts with an employee (or manager) giving a presentation. After the

presentation, mainly a discussion starts on whether or not to start the innovation.

The preparation of an alike presentation could be well based, or just grabbed from thin air.

Mainly, choices of the management are depending on the persuation power, and the wind of the

day: If they just heart some bad news, they are less willing to spend on innovation, then when

they just heard good news. All in all, this process is unstructured, determined by the subjectivity

of the management, and the individual presentation power. However, the managers of the

division still base their feelings on criteria like: Expected demand, expected problems, product

superiority etcetera.

There is a formal innovation board, however the use of this board is not widely acknowledged.

For the innovation board, employees can acknowledge innovations for the company. Whether

this are innovations that are process improvements, new services or the merge of services into a

new offering, does not matter. To create bottom-up innovations, the employee is able to present

a minor business case to the innovation board. Where mainly a rough sketch of their idea is

given and the expected customers are predicted.

Along the whole innovation process, alike unstructured examples are found. Often innovations

have to be initiated by the employees themselves. Further, when they have the approval of the

managent, it is still not guarentueed they are able to spend working hours on the project. Often

the innovations have to be developed in the employees spare time. A big problem with this is

that, you can never held the employee responsible for their actions.

During the first interviews it has been discovered that more than just one manager struggles

with the problem. The problem is recognized at the whole department of SAP, and even outside

the department of SAP.

The case as is, is that The case company has no grounded insights in where their innovation

process is going wrong. Therefore, this research will be aimed to finding out what causes their

innovations to fail or succeed.

3.3 R

ESEARCH QUESTIONS

The company’s SAP division is looking for ways to gain a competitive advantage by improving

their innovation process. In the next section the research goal and question are formulated to

help achieve this advantage.

3.3.1 R

ESEARCH GOAL

The research goal is to give The case company SAP division new insights to help them to

improve their innovation process.

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3.3.2 R

ESEARCH QUESTION

To investigate the problem of what causes success or failure in service development in this

context, the appropriate question becomes:

What are the critical fail and success factors that underlie the rate of return on innovations

3

_{in the}

Information Technology sector?

This main question also has a sub-question:



What are the main causes behind the problem of the low return on investments in

practice?

3.4 Expected outcome

We expect there to be less of a relationship between involvement of customers and innovation

success in IT then NPD and NSD in general: Due to the high expertise in the professional service

companies better judgment can be made on the interest of clients.

Further, we expect there to be a bigger relationship between portfolio management decisions

and innovation success then in NPD and NSD in general. In their interview, the Cluster manager

and the Senior consultant told that management often early recognize the success of an

innovation. The early recognition is needed due to the hype cycle

4

_{, which will create larger}

margins in the early stages of the products life cycle. Further expectations about which factors

will drive success and failure are given on the basis of the literature review, and therefore can

be found in chapter 5: Theoretical framework.

3_{Return on innovation is deliberately chosen, not to be mistaken with return on investment} 4 _{See chapter 5.3 for an explanation of the hype cycle.}

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C

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4. T

HEORETICAL

F

RAMEWORK

The literature review will revise a theoretical framework on the success factors for innovations.

First, some definitions will be provided, to base further research upon. Then, the success factors

in new services development processes are identified and established. Recent literature will be

analyzed to find out at which point science is within the subject. This will provide a theoretical

framework to reflect the status quo of The case company upon.

4.1 D

EFINING INNOVATION

When looking at the IT service innovation process, there are mainly two kinds of innovations:

First there is innovation in their portfolio by adding new services to the portfolio. Second, there

is innovation, by creating a new offering, which is a combination of services integrated into one

solution (or package) to meet the specific customer demands, this package is called an

“offering”. With this offering The case company provides a better solution towards specific

branches, like retail and oil & gas. These offerings require new expertise about the specific

market, to optimize their processes.

For IT services, a good definition of innovation seems to be what Phelps (2009) calls

exploratory innovation: “Innovation embodying knowledge that is novel relative to the firm’s

extant knowledge”. Exploitative innovations fit the IT services less, because there are very little

routine tasks: Every implementation and innovation is custom for a company. Therefore the

implementation does not have much routine tasks. So repeats and refinement of the innovation

makes less sence. However, the process will take a natural development in an increase in

efficiency.

4.2 D

EFINING INNOVATION SUCCESS

Because success will be measured along several innovations, involving different people, there is

a need for a uniform set of criteria. Looking at literature, a wide diversity of definitions of

innovation success is given. Success is often measured by the number of patents a company

creates within a given amount of time, (Srivastava, M.K. and Gnyawali, D.R. 2011, Fleming, L.,

King III, C. and Juda, A.I. 2007 Et. Al.) however within services patents are harder to capture due

to the intangibility of a service. Within services, the amount of ideas generated are also a

construct for measuring innovation success (Lau, A.K.W., Yam, R.C.M. and Tang, E. 2011, Yuan, F.

and Woodman, R.W. 2010). However, merely a measurement of new ideas, or product launches

does not always equal innovations success (Song, M., Subin, I., Bij, van der, H., and Song, L.Z.,

2011).

Another way of determining success, is among several dimensions. Blindenbach-Driessen

(2010) did extensive research among the determination of project performance, and defined

project performance as a combination of two distinct dimensions: an objective performance

dimension and a product performance dimension. The two dimensions also apply for services in

the IT, as all dimensions can also be applied on the servies. The two dimensions are distinct, but

operational performance will influence product performance (Montoya-Weiss, 2001). The two

dimensions have several attributes to determine its performance

5

_.

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FIGURE 2: DETERMINANTS TO PRODUCT SUCCESS (BLINDENBACH-DRIESSEN, F. VAN DALEN, J., VAN DEN ENDE, J. 2010)

However, these dimensions include several determinants, which are hardly definable by

management. Often modularity of offerings causes ineffective measurements of budget

satisfaction etcetera. Further, due to less structured processes in the services industry,

assessments about budget, schedule, revenue goals etcetera are more difficult.

Cooper (2007) found that the strongest dimension to measure success was profitability.

Further, measurements of success within The case company are done by specifically looking at

which innovations are profitable (see chapter 3). Therefore the new service performance is

measured by profitability.

4.3 T

HE

H

YPE CYCLE

Gartner Inc. introduced the idea of the Hype Cycle in 1995 to explain the common pattern of

human response to technology. Since then, the use of Hype Cycle has expanded as a way to track

multiple technologies within an IT domain or technology portfolio. Gartner's Hype Cycle

characterizes the typical progression of an emerging technology, from over enthusiasm through

a period of disillusionment to an eventual understanding of the technology's relevance and role

in a market or domain. Each phase is characterized by distinct indicators of market, investment

and adoption activities (Fann, J. Raskino, M. and Gammage, B. 2009). The hype cycle therefore

has several managerial implications and can be added to be of importance with the resource

allocation.

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FIGURE 3: THE HYPE CYCLE (FANN, J. RASKINO, M. AND GAMMAGE, B. 2009)

4.4 S

UCCESS AND FAIL FACTORS FOR INNOVATIONS

Many studies have detected factors that contribute to success or failure in NPD or NSD activities.

Criteria are (for example): Familiarity with the market, task complexity, complexity of the final

product, project’s initial technical novelty, alternatives in other information systems, and lots

more. To find the specific criteria an extensive literature review was done. The literature review

was done by looking at variables which influenced the outcome of innovation. We looked into

the top four innovation management journals for relevant matter. The journals chosen were:

Academy of management review, Academy of management journal, Organization science (was

available with a 35 month delay: From year 2008 volume 19 issue 3) and Journal of product

innovation management (was available with a 24 month delay: From year 2011 volume 28 issue

5). For every paper there is a short summary in the table below. A total of 64 papers were used.

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Source Premise for Study Independent Variables Dependent Variables Findings

Almirall, E., Casadesus-Masanell, R. (2010) Open versus closed innovation: A model of discovery and divergence, Academy of management review (1) 27-47 An important unresolved question in technology strategy is whether a firm should take a closed approach to innovation, making all choices regarding product development, or whether, to the contrary, it should open its technology and adopt elements or subsystems developed by other players. Scholars have approached this question by pointing to a fundamental trade-off between adoption and value appropriation

The comparison of when open

innovation is superior to closed

an open approach to innovation allows the firm to discover combinations of product features that would be hard to envision under integration. However, when partners have divergent goals, open innovation restricts the firm‘s ability to establish the product‘s technological trajectory. The resolution of the tradeoff between benefits of discovery and costs of divergence determines the best approach to innovation

Anand, N., Gardner, H.K. and Morris T. (2007) Knowledge-based innovation: emergence and embedding of newpractice areas in management consulting firms. Academy of management journal 50 (2) 406-428

consulting firms must continually create new knowledge-based structures to remain innovative. They accomplish this task by developing new practice areas. These practice areas are identifiable subunits within a firm, and consultants are attached to these units according to some common facet of their expertise, such as background, clientele served, or area of intervention. To investigate the problem of the emergence and embedding of knowledge-based structures in this context, the appropriate question thus becomes: How are new practice areas created in management consulting firms?

Socialized agency: Consultants typically undergo strong professional socialization as their careers progress, and this process dictates how they can and should express initiative within a firm (2) differentiated expertise: As consultants encounter novel or divergent client

demands, they improvise by extending existing tools and frameworks + the appliance of this improvisation. (3) defensible turf: "creating defensible turf for a new practice area that indicates its utility in the client marketplace." and (4) organizational support: in the form of resources such as the trained personnel and political sponsorship that are necessary for a new practice area to take shape These were found, not hypothesized

emergence of knowledge based innovation

analysis identified four critical generative elements: socialized agency, differentiated expertise, defensible turf, and

organizational support. they demonstrate that these elements must be combined in specific pathways for knowledge-based innovative structures to emerge and embed. These pathways emerge from practitioner networks, markets for knowledgebased services, and professional firms‘ hierarchies

Barczak, G. Griffin, A. and Kahn, B. (2009) PERSPECTIVE: Trends and Drivers of Success in NPD Practices: Results of the 2003 PDMA Best Practices Study. Journal of product innovation managament. 26 (1) 3-23

This paper presents results,

recommendations, and implications for NPD practice stemming from Product Development & Management

Association's third best practices study, which was conducted in 2003

None, see premise. It is a summary of ealier literature

Former research condluded: no one practice was found to be either necessary or sufﬁcient to guarantee that a ﬁrm was one of the best in developing new products. On the other hand, practices statistically more highly associated with the best included the following:

The use of formal NPD processes. Having a speciﬁc NPD strategy. Measuring NPD outcomes and expecting more

out of NPD efforts.

Using cross-functional development teams.

Using multiple different types of

qualitative market research, including voice of the customer, customer visit, and beta-testing techniques.

Using engineering design tools such as computeraided design (CAD) and computer simulations.

Closing NPD projects with completion dinners.

In the eight years since the previous best practices study was conducted, firms have become slightly more conservative in the portfolio of projects, with lower percentages of the total number of projects in the new-to-the-world and new-to-the-firm categories. Although success rates and development efficiencies have remained

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stable, this more conservative approach to NPD seems to have negatively impacted the sales and profits impact of the new products that have been commercialized. As formal processes for NPD are now the norm, attention is moving to managing the multiple projects across the portfolio in a more rchestrated manner. Finally, firms are implementing a wide variety of software support tools for various aspects of NPD. NPD areas still seriously in need of improved management include idea management, project leadership and training, cross-functional training and team communication support, and innovation support and leadership by management. In terms of aspects of NPD management that differentiate the ‗‗best from the rest,‘‘ the findings indicate that the best firms emphasize and integrate their innovation strategy across all the levels of the firm, better support their people and team communications, conduct extensive experimentation, and use numerous kinds of new methods and techniques to support NPD. All companies appear to continue to struggle with the recording of ideas and making them readily available to others in the organization, even the best. What remains unclear is whether there is a preferable approach for organizing the NPD endeavor, as no one organizational approach distinguished top NPD performers

Belderbos, R. Faems, D., Leten, B. and van Looy, B. (2010) Technological Activities and Their Impact on the Financial Performance of the Firm: Exploitation and Exploration within and between Firms. Journal of product innovation management. 27 (6) 869-882

This study‘s analyses conﬁrm the existence of an inverted U-shape relationship between the share of explorative technological activities and ﬁnancial performance.

the impact of collaborative versus solitary

technological activities and exploitative versus explorative technological activities Firm's annual ﬁnancial performance by market value of the firm

This study‘s analyses confirm the existence of an inverted U-shape relationship between the share of explorative technological activities and financial performance. In addition, firms engaging more intensively in collaboration perform relatively stronger in explorative activities. At the same time, a negative relationship is observed between the share of

collaborative technological activities and a ﬁrm‘s market value. This negative relationship is most pronounced in collaborative activities of an exploratory nature. Overall, these ﬁndings suggest that the value appropriation complexities of collaborative technological activities may offset their valueenhancing potential.

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Brettel, M, Heineman, F, Engelen, A., Neubauer, S. (2011) Cross-functional integration of R&D, Marketing, and manufacturing in radical and incremental Product Innovation and its effects on prject effetiveness and efficiency. Journal of product innovation mangement 28 (2) 251-269 cross-functional integration is a highly complex phenomenon which does not allow general conclusions in terms of performance impacts. Therefore, the present study assesses the impact of integrating the R&D, marketing, and manufacturing functions on the effectiveness and efficiency of new product development (NPD) projects Cross-Functional Integration of R&D, Marketing, and Manufacturing in Radical and Incremental Product Innovations NPD performance: The effectiveness measure focused on the economic success of the NPD project and included the new product‘s (1) profits/ROI, (2) sales, (3) time to break even, (4) market share, and (5) unit costs. The efficiency construct included financial and temporal indicators. Project innovativeness: three dimensions of innovativeness are distinguished (1) technology-related innovativeness represents the R&D department‘s inexperience with the technologies employed in the new product; (2) market-related

innovativeness expresses the newness of the target market and potential future customers; and (3) process-related innovativeness stands for the newness of manufacturing methods and techniques

necessary to produce the new product.

t the relationships between various facets of cross-functional integration and performance measures are highly complex. The integration between R&D and marketing positively impacts efficiency, but not effectiveness across different types of projects. Further, the impact of integration between marketing and R&D depends on the process stage and the degree of nnovativeness. Findings regarding the integration between R&D and manufacturing show a strong positive impact on efficiency in the development phase. With respect to the integration between marketing and manufacturing, no significant effects on the performance dimensions can be observed for radical NPD projects. Overall, a positive impact of integration between these departments on effectiveness in the commercialization phase emerges.

Cabonell, P. Rodriguez-Escudero, A.I. Pujari, D.(2009) Customer Involvement in New Service Development: An Examination of Antecedents and Outcomes. Journal of product innovation management 26 (5) 536-550 Customer involvement has been recognized as an important factor for successful service development. Despite its acknowledged

importance, a review of the literature suggests that there is little empirical evidence about the effectiveness and outcomes of interacting with customers while developing new services.

Study is mainly about the effects of customer involvement on the service development performance study has three objectives: (1) to investigate the effects of customer involvement on operational dimensions (i.e., innovation speed and technical quality) and market dimensions (i.e., competitive superiority and sales performance) of new service performance (no real definition of new service performance, but thus measured by both operational effectiveness and marketplace competitiveness); (2) to examine the effect of technological novelty and technological turbulence on customer involvement; and (3) to explore the moderating effect of

Findings reveal that whereas customer involvement has a positive direct effect on technical quality and innovation speed, it has an indirect effect on competitive superiority and sales performance through both technical quality and innovation speed. The study also ﬁnds a positive effect of technological novelty as well as technological turbulence on customer involvement. Contrary to expectations, the study does not ﬁnd any moderating effects of the stage of the development process. This study has several theoretical and managerial implications. In terms of theoretical implications, the study supports the role of technological uncertainty (novelty and turbulence) as an antecedent to customer involvement. It also provides empirical evidence of the impact of customer involvement on operational and market dimensions of new service performance. In terms of managerial implications, the study offers critical insights on how customer involvement in new service development translates into improved new service performance. Furthermore, it reveals that the importance of customer involvement in technologically uncertain contexts and its impact on new service performance are independent of the stage of the development process, suggesting that managers should involve customers throughout the entire development process.

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the stage of the development process on the relationships among technological novelty, technological turbulence and customer involvement, and customer involvement and new service performance

Calantone, R.J., and Chan, K. Cui, A. (2006) Decomposing product innovativeness and its effects on new product succes. The journal of product innovation management. 23 408-421

Does prodct innovativeness affect new product succes?

product advantage, product superiority relative to other products in the marketplace on dimensions suchas quality, benefit, and function

product profitability Product advantage and customer familiarity had a postive influence on new product profitability. Product innovativeness has no significant effect

customer familiarity, the measurement of customer perceoptions of

innovativeness

product profitability Product advantage and customer familiarity had a postive influence on new product profitability. Product innovativeness has no significant effect

Distribution synergy, the ability of a firm to exploit existing knowledge and resources to make a new product and is considered to be an aspect of the firm's strategy. customer familiarity, the measurement of customer perceoptions of innovativeness

Product advantage and customer familiarity had a postive influence on new product profitability. Product innovativeness has no significant effect Candi, M. and Saemundsson, R.J. (2011) Exploring the relatioship between aesthetic design as an elemant of new service development and performance. Journal of producht innovation management 28 (4) 536-557

The purpose of this research is to investigate the conditions under which the use of aesthetic design as an element of new service development (NSD) is likely to improve performance. And: The contribution of the research presented in this article is twofold. First, it extends the empirical context of previous research on the relationship between industrial design and performance in NPD to the context of NSD. The ﬁndings, which resonate with the relationships suggested by previous research, suggest that the use f aesthetic design as an element of innovation has a similar relationship with performance for both products and services. Second, it expands on existing research by empirically testing how the process of commoditization moderates this relationship.

aesthetic design: No real definition. Measuered by the rate to the weight the ﬁrms place on aesthetic design when developing new services

(1) Competitive advantage: the ability to create more economic value than the breakeven competitor, (2) resistance to imitation: how easy or difficult it would be, on a five-point scale, for their competitors to imitate their services if the competitors had similar facilities and equipment at their disposal. and (3) profitability: profitability on a five-point scale ranging from a loss of over 10% of turnover to a profit of over 10% of turnover with a zero outcome at the mid-point

practitioners should consider using aesthetic design to counteract commoditization when the markets in which they compete are characterized by ready access to services that meet customers‘ needs and expectations for features, performance, and reliability, and expectations for aesthetic design have not already become established. Furthermore, they should be aware that the use of aesthetic design may turn into a baseline customer requirement, implying that while attention to aesthetic design is necessary to compete it may cease to constitute a potential source of competitive advantage.

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Candi. M. (2010) Benefits of Aesthetic Design as an Element of New Service Development. Journal of product innovation management 27 (7) 1047-1064 here is increasing recognition that differentiation based on technology alone is not sufficient to ensure success in innovation. Instead, the use of design, or industrial design, has been suggested as a means for achieving such success: The goal is to investigate the benefits that may be gained from using aesthetic design in new service

development

The research is a knowledge question to investigate the beneﬁts that may be gained from using aesthetic design in new service development. Aesthjetic design in the service industry is defined as: The term aesthetic design can be thought of as being to functional design what industrial design is to engineering design dependent variable is innovation succes, independent variable is aesthethic design

The findings suggest that by and large the benefits expected by managers are realized. The practitioner implications of this research are that new technology-based firms that emphasize the use of aesthetic design in new service

development can expect to have a greater proportion of sales from new customers, be less dependent on a few large customers, be more successful in entering new markets, have a more favorable firm image, and enjoy higher turnover growth from existing customers and higher profits than comparable firms not using aesthetic design. The data do not provide support for the hypothesis that firms using aesthetic design in new service development will have customers that are less inclined to switch their allegiance to competitors, whereas it does support the hypothesis that firms using aesthetic design will enjoy higher turnover growth from existing customers than others. This could indicate that, although firms cannot expect to retain customer loyalty based on aesthetic design, they can expect to earn greater revenues from customers who do remain loyal if they emphasize aesthetic design.

Cardinal, L.B. (2001) Technological innovation in the pharmaceutical industry: The use of organizational control in managing research and development, Organization science 12 (1) 19-36 Technological innovation becomes importantle important Organizational control: Control can be defined as any process by which managers direct attention, motivate and encourage organizational members to act in desired ways to meet the frrms objective. There are three broad classes of control: Input control which is a form of resource allocation

Radical innovation input, behavior and outpu influence radical change. Inpiut and output influence incremental change Cardinal, L.B. (2001) Technological innovation in the pharmaceutical industry: The use of organizational control in managing research and development, Organization science 12 (1) 19-37 Technological innovation becomes importantle important behaviour control:consits of monitoring ongoing employee activities and behaviors

Radical innovation input, behavior and outpu influence radical change. Inpiut and output influence incremental change Cardinal, L.B. (2001) Technological innovation in the pharmaceutical industry: The use of organizational control in managing research and development, Organization science 12 (1) 19-38 Technological innovation becomes importantle important

outcome control: regulates outcomes and results

Radical innovation input, behavior and outpu influence radical change. Inpiut and output influence incremental change Cardinal, L.B. (2001) Technological innovation in the pharmaceutical industry: The use of organizational control in managing research and development, Organization science 12 (1) 19-39 Technological innovation becomes importantle important

Input control which is a form of resource allocation

Incremental innovation

input, behavior and outpu influence radical change. Inpiut and output influence incremental change Cardinal, L.B. (2001) Technological innovation in the pharmaceutical industry: The use of organizational control in managing research and development, Organization science 12 (1) 19-40 Technological innovation becomes importantle important

outcome control: regulates outcomes and results

Incremental innovation

input, behavior and outpu influence radical change. Inpiut and output influence incremental change