ENCOURAGING IDEA GENERATION IN PRACTICE: ACTIVITY CHARACTERIZATION OF ORGANIZATIONS INNOVATING WITH EITHER LOW OR HIGH IMPACT

ENCOURAGING

IDEA

GENERATION

IN

PRACTICE:

ACTIVITY

CHARACTERIZATION

OF

ORGANIZATIONS

INNOVATING

WITH

EITHER LOW OR HIGH IMPACT

University of Groningen

J.G. Ritsema

ENCOURAGING IDEA GENERATION IN PRACTICE: ACTIVITY CHARACTERIZATION OF ORGANIZATIONS INNOVATING WITH EITHER LOW OR HIGH IMPACT

University of Groningen J.G. Ritsema August 2006 1st _{Supervisor: G. Gemser}

2nd _{Supervisor: D. Jacobs}

ACKNOWLEDGEMENTS

This research would not have been possible without the help and support of several people.

A thank you should go to Mrs. Boerema, without whose contacts I would still have been

trying to interest people in my research. Thank you for finding people that were interested

and for arranging three interviews. My gratitude also goes to Mr. Hennephof for offering his

support and time and not only arranging an interview with him, but also one with Mrs.

Admiraal, who I would also like to thank for her time. I would furthermore like to tank Mrs.

Keizer at A.S. Watson for her time and interesting conversation and Mr. Loof at

Pharmachemie for a short but most interesting discourse.

Last but not least, I would like to offer my thanks to Mrs. Gemser, who has assisted me with

finding my focus and seeing my research in a different light and from different perspectives

and Mr. Jacobs for being my second supervisor and for offering greater theoretical insight.

EXECUTIVE SUMMARY

Over the previous decade, the concept of innovation has become increasingly important. Due

to, for example, the fact that information has become widely available through the internet

and the increasing mobility of people through the use of mobile telephones and wireless

internet, markets have become more global. For organizations, this has resulted in a larger

variety of options, but also in a continuously changing environment in which innovation

plays a major role.

Although there is a large amount of theory available on the concept of innovation and the

innovation process, the individual phases of the process, and especially the idea generation

phase, are underexposed. Though attention is drawn to activities that can encourage idea

generation, this is only considered in the light of innovation in general, while there are

different gradations of innovation. In most theories on innovation, a distinction is made

between radical and incremental innovation and while this distinction is valuable for

understanding what innovation can encompass, this is not the only distinction that can be

made.

For this research, interviews were conducted with top managers at four organizations

operating in different industries. The organizations also differ in the industry in which they

are operating and the innovations they produce. The questionnaires used, contained

questions about five main activities that can be carried out to encourage idea generation.

Each organization has a different position on the incremental innovation continuum ranging

from low impact to high impact. The position of each organization on the continuum is

combined with the activities that, according to the top managers, are executed within each

organization.

The results show that it is difficult to form propositions based on the information available

for the organization positioned on the low impact side of the continuum, because of the

confidential nature of some of the organization’s operations. For the organizations positioned

on the upper high impact side of the continuum it is clear that these are characterized by the

activities ‘hire innovative people’ and ‘encourage cross-pollination of ideas’. It is,

furthermore, apparent that these organizations show a higher degree of activities carried out,

for the encouragement of idea generation. Moreover, both organizations on the upper right

side of the incremental innovation continuum showed the exact same ranking on the degree

of activities executed and the impact of innovation.

These results have led to the following propositions, namely:

Proposition 2:

Organizations operating on the radical side of the innovation continuum are in

a larger degree characterized by the activities ‘hire innovative people’ and

‘encourage cross-pollination of ideas’ with the object of encouraging idea

generation in comparison to organizations operating on the low impact side of

the incremental innovation continuum.

INDEX

INTRODUCTION

1

1

THEORETICAL FRAMEWORK

5

1.1 Introduction 5

1.2 The concept of Innovation 6

1.3 Idea Generation 13

1.4 Activities for encouraging idea generation 15

1.4.1 Rewards 18

1.4.2 A climate of innovation 21

1.4.3 Hire innovative people 22

1.4.4 Encourage cross-pollination of ideas 22

1.4.5 Support for innovators 24

2

METHODOLOGY

28

2.1 Introduction 28

2.2 Case selection 28

2.3 Data collection 30

2.4 Data analysis 31

2.5 Introduction of cases selected 32

2.5.1 Department of Social Affairs and Employment 32

2.5.2 CZ Group 33

2.5.3 Pharmachemie 35

2.5.4 A.S. Watson 36

3

ANALYSIS OF RESULTS

39

3.1 Introduction 39

3.2 Continuum low impact-high impact innovation 39

3.2.1 Department of Social Affairs and Employment 39

3.2.2 CZ Group 42

3.2.3 Pharmachemie 45

3.2.4 A.S. Watson 48

3.3 Analysis of activities carried out 50

3.3.1 Department of Social Affairs and Employment 51

3.3.2 CZ Group 53

3.3.3 Pharmachemie 55

3.3.4 A.S. Watson 57

3.4 Integrated overview of activity characteristics per organization on 60 the continuum of low impact-high impact incremental innovation

3.5 Integrated views of the variables 65

4

CONCLUSION

66

5

DISCUSSION AND IMPLICATIONS

70

REFERENCES

75

APPENDIX 1

Questionnaire

I

APPENDIX 2

Input for interviews

II

APPENDIX 3

Interview Department of Social Affairs and Employment

IV

APPENDIX 4

Interview A.S. Watson

VII

APPENDIX 5

Interview CZ Group

XII

INTRODUCTION

In an ever changing environment, which has become more global, due to, for example

increased mobility and information availability, organizations are continuously challenged to

produce goods and services that appeal to and create value for customers (Govindarajan &

Trimble, 2005: 60).

Organizations can outperform competitors by differentiating their products through

innovation (Tidd et al, 2005: xiii). The result of this can be, for example, an increase in market

share, profitability and/or growth. Although there are different degrees of innovation, which

can be considered at different levels, innovation can have positive effects on an organization.

It is namely through innovation, through the introduction of something new or an adapted

and improved version of something else, that organizations can distinguish themselves from

competitors (Shipton et al., 2005: 118).

There are numerous examples of how innovation has contributed to great performance at

different companies. The development, introduction and refinement of the iPod are a good

example of how innovation can contribute to organizational success. In only 5 years, Apple

has brought at least five new generations of the iPod to the market. And while the

underlying technology has not changed much, the design has and is foremost what appeals

to customers (Pandya & Shell, 2005: 111 a.f.).

Organizations are, according to Luecke (2003) even able to consciously encourage idea

generation.

While there are numerous theories on the different degrees of novelty concerning innovation,

this research will only explore incremental innovation in depth. While radical innovation is

often considered as involving the highest amount of risk on the technical, market,

organizational and resource level, occasional radical changes, over time, do ‘often not result

in cumulative gains in efficiency’ (Tidd et al., 2005: 14). It is incremental innovation that is

focused on continuous organizational improvement and competitiveness within current

markets or industries

_{. Moreover, Morgan}

_{states that radical change often occurs through}

incremental change. Cumulative incremental change can reduce the risk that is involved with

radical innovation and can result in the same impact as a radical innovation (Manimala et al.,

2005: 414). This implies that radical innovation often comes about through several

incremental innovations that push an organization in a certain direction. It is for these

reasons that this research focuses on incremental innovation.

While incremental innovation is often perceived as involving low impact, radical innovation

is considered to involve high impact for both the organization as the economy in general.

Moreover, radical innovation is regarded as involving the highest amount of risk on the

technological, market, organizational and research level, because the criterion for radical

innovation to be called as such is that it must be new to the world in the sense that it should

be breakthrough (Tidd et al., 2005: 12). In most research, the distinction between radical and

incremental innovation is merely discussed, while in some research more degrees of

innovation are touched upon in greater detail. Manimala et al. (2005: 413) emphasize that it is

http://www.1000ventures.com/business_guide/innovation_radical_vs_incr.html

2

incorrect to assume that all incremental innovations are the same in regard to the impact they

have. It is for this reason that they have made a distinction between high impact and low

impact incremental innovation. High impact innovation is then perceived as involving the

greater gains in revenues, cost reductions, diffusion possibilities, extent of commercialization

and of course the novelty of the innovation. In this research, this distinction between low

impact and high impact innovation is pursued.

The goal of this research is finding out which activities for the encouragement of idea

generation are characteristic for organizations that produce either low or high impact

incremental innovation with the objective of creating more value for customers and greater

wealth for the company. The aim of this is to eventually form propositions on how

organizations that innovate incrementally can manage the idea generation phase in the

innovation process by conducting specific activities that contribute to the generation of ideas.

Furthermore, this research aims to identify the activities that specifically benefit high impact

incremental innovation. High impact incremental innovation is favoured over low impact

incremental innovation because it is more novel and results in greater organizational gains

than low impact incremental innovation, either through high increases of revenues, greater

cost reductions, greater possibilities for diffusion (within and/or outside the organization) or

a greater extent of commercialization

.

In short, this research links the theory on incremental innovation to the theory on idea

generation. It is the object to form a synthesis from two theses. This synthesis will be the

result of not only the already available literature, but also form case study research at four

different organizations, operating in different industries.

The research question reads as follows:

Which activities for encouraging idea generation are characteristic for organizations operating on the

continuum of low impact and high impact incremental innovation and which activities are best carried

out to benefit high impact incremental innovation?

For this research, interviews were conducted at four divergent organizations, all operating in

a different industry and producing different innovations, which also varied in their degree of

impact. This to obtain varying views on which activities actually encourage idea generation

in organizations producing either low impact or high impact incremental innovations and

which activities contribute to high impact incremental innovation.

1

THEORETICAL FRAMEWORK

1.1

Introduction

Over the past years the issue of innovation has become increasingly important. Companies

are becoming more and more aware of the fact that the source of their competitive advantage

is changing. While competitive advantage nowadays originates from the utilization of new

technologies, new production methods and globalization, it traditionally only depended on

economies of scale and production efficiency (Mumford & Lieuanan, 2003: 385). All of this is

aimed at surviving. And the best way to survive in a continuously changing environment is

to adapt to these changes and even better, to signal these changes in advance and anticipate

on them even before the majority of the industry takes them on.

Van der Heijden (1996) emphasizes that companies must regularly update on which forces

are behind current and future success. In other words, they must be constantly aware of what

creates value for stakeholders either now or in the future. When a company introduces a

value creating new or improved product or service to a current or new market, this can result

in a competitive advantage when other companies do not simultaneously introduce

something similar in that market (Barney, 1991).

It appears that it is very difficult to guarantee an organization’s competitive advantage. It is

either not possible to obtain a patent or competitors find ways to work around the

intellectual property rights, by developing a slightly different product or design. At some

point in time, competitors will find ways to imitate innovations of other organizations (Van

der Heijden, 1996: 65). This implies that most organizations need to change continuously in

order to be able to hold on to customers and their market share, by, for example, extending

the life cycle of a product by developing new features that create value. In addition, it is also

possible to develop a new product and there is always the possibility of making

organizational processes more efficient to reduce costs.

This research focuses on organizations developing new or adapted/improved products,

service and/or processes. These organizations are innovating in an incremental way, yet in

different degrees. In the following, the concept of (incremental) innovation is explored

further as well as the concept of idea generation, the first phase in the innovation process.

1.2

The concept of Innovation

This case clarifies that the underlying paradigm of the computer market changed drastically.

It was now possible for people to buy and set up a personal computer at home.

Consequently, organizations that are able to follow the trend of shifting consumer demands

and paradigms might be able to hold on to their strategic position and maybe even to their

strategic advantage.

Although it is now clear that innovation can apply to more than only products and services,

the question of what innovation precisely is, has not fully been addressed yet. According to

Wijnberg (2004: 7) innovation differs from invention in the sense that inventions do not

necessarily lead to an introduction in a market. An invention can only become an innovation

when an idea is developed further and is actually introduced in a market. Invention and

innovation can thus be considered as being complementary. The fact that an innovation is

something new which is introduced in a market, makes it possible for the relevant selectors,

for example the target group of a new product, to determine the value of that particular

innovation.

This value determination makes it possible for the relevant selectors to actually attribute

value to a certain innovation. This may lead to an economic success; nevertheless, this does

not necessarily have to be the case. Wijnberg (2004: 7) phrases his definition of innovation as

such that commercial success is not a defining characteristic for something to be termed an

innovation. This means that something can still be considered an innovation even when it is

not successful from a commercial point of view. It is hard to imagine though that

organizations bring innovations that are forecasted to fail, to the market.

about positive change. This can mean an increase in the relative net profit of an organization

or a growth in market share. It can also signify an improvement in internal processes, which

leads to more efficiency or a higher motivation of personnel.

The difference between the statements presented by Wijnberg and Dess et al. is that,

according to the latter, for an innovation to be accepted as such it should be commercially

viable, which means that an innovation must bring about positive change for an

organization. Wijnberg, however, states that something constitutes an innovation when the

value of it can be determined by the relevant selectors. We can assume that an organization

will only bring something new to a market (either external or internal) when it is perceived

as being able to gain positive results. But for something new that has been introduced to a

market it does not mean that it will not receive the hallmark of innovation when it turns out

to be something but a positive result. In this research the line of thinking of Wijnberg will be

followed, which means that an innovation does not have to be successful in order to be called

as such.

But what defines ‘something new’? And what is the level of analysis? According to March

(2001: 71) there is a difference between exploration and exploitation. It is stated that

exploration is about investigating and discovering new possibilities and experimenting with

these possibilities, what might result in innovations. Exploitation is about refinement and

efficiency.

exploration and falling under the header of the discontinuous state. In the steady state,

organizations must manage innovation as ‘doing what they do better’. This is a form of

refinement and can thus be defined as exploitation and incremental innovation. Burgelman

et al. (1988) also view incremental innovations as involving adapting, refining and enhancing

existing goods or services and production or delivery systems. Radical innovation is in the

view of Burgelman et al. (1988) a totally new concept, a new product or service or a new

production or delivery system that is new to the world.

In this research only incremental innovation is taken into account. In the Introduction this

particular form of innovation was already addressed, albeit briefly. In most literature about

innovation a difference is simply made between radical and incremental innovation.

Sometimes an extra novelty level, like substantial innovation is included. This form of

innovation is defined as an innovation that provides more opportunities for added value for

an organization because it explores new business opportunities that might lead an industry

_.

In other literature, the concepts of incremental and radical innovation are reflected on in

more depth, like in the article from Manimala et al. (2005: 413). In this article incremental

innovations are not categorized in a uniform way. Incremental innovations are said to have

different degrees of impact ranging from low to high. Just as Morgan, Manimala et al. (2005:

414) state that incremental innovations can result in further innovation. The article also

assumes that through the accumulation of different incremental innovations a creative and

innovative culture can develop, which might, in the end, lead to radical innovation.

In this research incremental innovation is defined as a form of continuous improvements in

products, services and processes with the object of survival. Incremental innovation is also

perceived to include relatively low risks in the technical, organizational, market and resource

level

_.

The research of Manimala et al. is focused on assessing the impact of incremental innovations

by classifying the innovations on elements as the novelty of an idea, costs saved, revenues

generated and the extent of commercialization and diffusion in the market. These elements

are used to categorize organizations developing either low impact incremental innovation or

high impact incremental innovation. The research was conducted in the developing economy

of India.

High impact incremental innovation is assumed to be based on ideas that are more novel,

higher revenues generated and more costs being saved. These innovations also led to higher

diffusion within and outside the organization and are characterized by having a higher

extent of commercialization (Manimala et al., 2005: 413) in comparison to low impact

innovation. In this research, low impact incremental innovation is regarded as being

especially apparent on the level of the organization. This implies that these innovations are

implemented on the level of the organization and that the diffusion of these innovations

takes place on the organizational level. The term high impact incremental innovation applies

to innovations that are diffused in wider area, like for example the industry.

High impact incremental innovation is different from radical innovation in the sense that a

radical innovation often results from new insights in technology, which turn an industry

upside down. These innovations are the result of long explorative efforts in R&D and bring

about revolutionary change in the world

_{. High impact incremental innovation does also}

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5

bring about change, but less revolutionary and not on a world level. Moreover, high impact

incremental innovations involve changes in current technology. Incremental innovations are

more driven by customers and the high impact form of this type of innovation is especially

driven by customers (Manimala et al., 2005: 414).

In this research, the line of thinking of Manimala et al. will be followed. However, this

research will only focus on the idea generation phase, whereas the article of Manimala et al.

is focused on the innovation process in general. Furthermore, the research of Manimala et al.

was conducted in India, while this research is conducted in the Netherlands.

To conclude, the term innovation applies to the introduction of something new, either an

incremental or a radical improvement, with the object of creating value for the relevant

selectors, that is introduced to a market in order for relevant selectors to be able to determine

the value of it (Wijnberg, 2004: 7). Furthermore, by turning good ideas into innovation and

putting this innovation to practice, organizations have the object to not only create value for

customers, but also to create greater wealth for the organization itself

_{. For this research}

innovation is defined as the implementation of something new in a market (either a real

market or the organization), in order for the relevant selectors to determine the value of the

innovation, with the object of creating value for customers and greater wealth for the

organization.

In this research, the focus will primarily be on innovations that are ‘new’ to the organization.

Flikkema et al. (2003: 69) state that research has shown that it is perceived by managers that a

distinct condition for innovations is, that it must be ‘new for the organization’. The authors

also state that innovations, which are either new for an industry or for the world, are sparse.

This implies that most innovations are a result of (a new combination of) ideas, products,

services or improvements that build on already existing principles. Manimala et al. (2005:

415) also characterize innovation as occurring on the organizational level. An innovation is

first and foremost perceived as being new (either really new or an improvement of

something that already exists) on the level of the organization by the people involved in

developing this innovation. It is after the innovation has been brought to the market that it

becomes clear whether or not the innovation is also new for the industry or the world.

However, not all innovations are brought to a ‘real’ market. Some innovations are process

oriented and can result in products and services being brought to the market at lower costs

or higher speed. It is for this reason that it is difficult to only look at the industry or world

level, while innovation can also have a huge impact on the organization’s wealth.

In theory it seems easy to analyze when and how organizations must innovate. Moreover,

even when organizations have decided that changes are needed, it will not always lead to

these changes in practice, because managers are sometimes unable to ensure that creative

ideas are generated, evaluated on their potential success and worked out into an actual

‘product’.

1.3

Idea Generation

Different authors all have different views on the process of innovation. Luecke (2003) offers a

simple representation of the innovation process, while Smith (2006:107) offers a more

extensive model. The difference between the two models is that Smith includes production

engineering and pilot testing after the development stage and ends with a market launch.

Smith does not take an opportunity recognition phase into account and states that the

commercialization of the innovation already starts after the development phase, whilst

engineering and testing are conducted.

Luecke offers a more simplified model and takes opportunity recognition and idea

evaluation into account. In Luecke’s model, the commercialization takes place after the

development phase. However, although the models are different in their magnitude and

extensiveness, both start with a phase in which ideas are generated. This idea generation

phase is the focus of this research and will be discussed further in the following.

Smith (2006: 106) and Luecke (2003) show that the first step in the innovation process is

formed by idea generation. Ideas can arise from intensive research and from individuals. An

idea in itself is not an innovation. However, it is possible for an idea to develop into one.

Without an idea generation phase there would never be an innovation and as stated before,

an organization that is not able to innovate will have trouble adapting to a continuously

changing environment. The generation of ideas, therefore, is vitally important for an

innovation to even occur.

and resources in order to dedicate a creative contribution to the organization as a whole and

to ‘improve the quality of creative problem solving’ (McAdam, 2004: 701). This last statement

implies that idea generation is more than just offering some ideas. Although the idea

generation phase does not include idea evaluation, it does include a first screening with the

objective of making ideas more concrete (McAdam, 2004: 702).

Ideas are generated by insight (Smith, 2006: 108). Ideas arise in all sorts of ways. Smith (2006:

88) outlines different sources of innovation. Sources that provide the organization with new

ideas, that in turn, if deemed viable, can be developed into an innovation. For example,

individuals, corporate undertakings, users, outsiders and process needs can, according to

Smith, be sources of ideas. An example of ideas generated by users is provided by Schrage

(2004). In this case, the users were readers of the Dilbert cartoon. The cartoonist attached his

e-mail address to the strip. The result was a continuous flow of ideas for the cartoon,

provided by readers.

Luecke (2003: 28) also draws attention to the sources of innovation. In contrast with Smith,

Luecke is more specific in his sources. While Smith uses individuals and corporate

undertakings as sources of innovation, Luecke (2003: 34) states that new knowledge, lead

users and invention factories, development units that generate and develop innovative ideas,

can be sources of innovation. Invention factories can operate on the corporate level but also

at the level of business units. Luecke (2003: 38) also states that there is something as open

market innovation, ideas that can be acquired or sold in the open market.

organization. The life cycle perspective on products, as offered by Porter, shows that

products have a limited span of life, because of ‘the increased pace and complexity of global

business competition’ and it is thus vital that organizations innovate (Halbesleben et al, 2003,

433).

For innovation to occur it is necessary that ideas are generated. And because innovation has

become such an important function of organizations, management has, according to Luecke

(2003: 40), the responsibility to encourage the generation of ideas. But what exactly can

organizations do to stimulate the generation of ideas?

1.4

Activities for encouraging idea generation

Previously, the question what organizations can do to stimulate idea generation has been

addressed. In the following the activities the organization can undertake in order to stimulate

the generation of ideas will be presented and discussed. There are numerous books and

articles that draw attention to how organizations can enhance employees’ creativity. In the

article of Flynn et al. (2003: 421) creativity is said to be dependent on education, skills,

imagination and working environment. These factors determine whether or not employees

will provide the organization in general with logical and imaginative ideas. Creativity is in

this article a synonym for ‘the birth of initial ideas’ (Flynn et al., 2003: 424). This is also

recognized by Lawson & Samson (2001: 392), who state that ‘creativity may be viewed as the

process of generating ideas’.

for creativity (Flynn et al, 2003: 424). These factors are a culture that is creative, an effective

communication system and support from top management. A creative culture has an

outward focus and is flexible towards new ideas. An effective communication system

ensures that everyone in the organization is briefed about the organization’s vision an goals.

This system can also ensure that people feel empowered. If top management supports

creative behaviour, people in the organization might feel more inclined to share creative

thoughts.

In the articles about unleashing creativity in organizations, the most attention is drawn to

creating a creative climate in which employees feel empowered to take responsibility for

innovation. This taking responsibility can result in ideas for improvements in current

systems, but it can also result in ideas for new products, services or processes. According to

Flynn et al. (2003: 424), an organizational structure that facilitates teamwork and in which a

positive attitude towards creative thinking prevails, stimulates employees to be creative.

Lawson & Samson (2001) also identify several factors that can encourage idea generation

within organizations. This after extensive literary review and a case study at Cisco Systems,

with the object of finding out what makes an organization innovative (Lawson & Samson

2001: 377). The authors state that organizations, and especially leadership, should provide

employees with a clear direction. Organizations should provide clarity about the

organization’s vision and goals.

The authors also emphasize that an organization can obtain important information from

observing competitors and customers. An organization must try to understand these.

Learning from a competitor can result in an organization applying its strengths against a

weakness of a competitor. An example of learning from customers is understanding which

problems customers have with a particular ‘product’ and transforming this understanding in

actions to improve this particular product (Lawson & Samson, 2001: 392).

Finally, Lawson & Samson (2001: 393) also sum up the factors systems and culture. They

state that rewards are a very powerful motivator of innovative activity. Angle (1989) found

that individual rewards stimulate idea generation for radical innovation. Rewards given to

teams are a stimulator of idea generation for incremental innovation. Organizational cultures

should tolerate ambiguity and should empower employees. Moreover, they should

encourage communication and collaboration.

While Flynn et al. (2003) and Lawson & Samson (2001) are quite extensive in the factors and

initiatives that can stimulate idea generation, the most extensive, in his explanation of

activities that can be executed to stimulate idea generation, is Luecke (2003: 40). Although

Lawson & Samson (2001: 380) recognize an organization’s imperative to innovate, because of

increased efficiency and quality needs, consumer responsiveness and speed, the authors do

not dare to make management responsible for encouraging idea generation.

responsibility to encourage idea generation, in order for organizations to be able to respond

to the changes in an organization’s environment.

When looking at all the factors/activities, offered by Flynn et al., Lawson & Samson and

Luecke, they are almost similar. The distinction between them is their extensiveness. Luecke

(2003) is more thorough in his description and examples. Therefore, the activities that

management can undertake to stimulate idea generation as proposed by Luecke will be used

as a guiding line for this research. However, this does not mean that the activities and

assumptions made by the other authors will not be used to clarify things.

Luecke (2003: 40) sums up five tools that can stimulate idea generation. These are rewards, a

climate of innovation, hiring innovative people, encouraging cross-pollination of ideas and

providing support for innovators. In the following all five will be discussed.

1.4.1 Rewards

Luecke (2003: 40) states that is possible for organizations to reward those who

generate ideas in different ways. First and foremost there is a monetary or

promotional reward. Although it is stated that these rewards ensure that employees

do not feel taken advantage of, they do not drive the free thinking of employees.

Freedom is a reward that drives free thinking. An example is the freedom to explore

the wishes of lead users and customers. Another example is the freedom to explore

and pursue ideas (Flynn et al., 2003: 424). An alternative reward is access to greater

resources.

incremental innovation (Angle, 1989). Hellström & Hellström (2002: 110) have

conducted a research with 34 members of a large Swedish telecom company. These

people were all central to the creative and innovation process of the organization. In

depth interviews were carried out to find out how stimulation of new ideas comes

about and which paths these ideas travel within the organization (2002: 107). The

results of that research show that employees feel stimulated to be creative through

recognition. These employees also indicated that some ideas might lead to new ideas,

while the original ideas not always result in an actual innovation. And although these

ideas only lead to new ones, the employees of this particular Swedish company felt

that they should also be rewarded for these initial ideas.

Both articles discussed state that monetary rewards are not highly valued.

Recognition is the most important for employees. This is also stated by Boeddrich,

who carried out research on how German and European organizations manage ideas

and decision-making. The author also differentiated between general requirements

and organization-specific requirements these organizations should meet in order to

be able to structure idea generation and idea evaluation (2004: 274). For his research,

Boeddrich made use of questionnaires that were focused on daily behaviour in the

workplace. The questions were based on different archetypes, in this case

introversion/extraversion and creative/linear analytical thinking (2004: 284). The

results show that general financial rewards are not valued highly, only exclusive

individual rewards for good ideas show the employees, who have provided the

organization with these ideas, that they are valuable for the organization (2004: 278).

incremental innovation. Luecke (2003: 40) states that monetary rewards and

promotion do not always lead to creative behaviour. Rewards that encompass greater

freedom and autonomy are the drivers of free thinking and creative behaviour.

The above implies that recognition is regarded as being important in the stimulation

of idea generation. If an idea is not taken seriously by a manager, an employee will

most likely not provide the company with new ideas, because he does not feel

motivated to do so (Boeddrich, 2004: 276). From the findings of Boeddrich, it might

also be expected that organizations that innovate incrementally will probably be

characterized by financial rewards offered to teams.

However, Boeddrich does categorize all incremental innovations in a uniform way,

while Manimala et al. make a distinction between low impact and high impact

incremental innovation. To be more specific in the expectation of the results this

research will generate, this distinction must be taken into account. It was found by

Manimala et al. (2005: 415) that a team approach facilitates high impact incremental

innovation. Most innovations in the low impact group were a result of ideas

generated by a single individual. In the research of Manimala et al. (2005: 417) it

becomes clear that a team approach increases the difficulty of attributing recognition

to the real contributors to a high impact innovation. This implies that although

organizations should encourage idea generation in teams, these organizations should

also pay extra attention to the recognition of the employees in a particular team who

contributed most to impact of the innovation.

were intangible, like acceptance by peers, were associated with high impact

incremental innovation.

1.4.2 A climate of innovation

According to Luecke (2003: 41), innovative organizations are characterized by a

management that sends a clear message that the company’s well-being is more

important than an individual’s well-being. Employees in these organizations are not

afraid to suggest new things and people are conscious about the fact that the current

success of the organization may not last. A creative climate in an organization is also

brought about when employees are outward looking. In addition, this is

acknowledged by Lawson & Samson (2001:392), who emphasize that organizations

must try to learn from customers and competitors.

It is expected that in organizations that innovate incrementally with low impact the

activities for creating a creative climate for innovation are less pronounced. Low

impact innovation was earlier characterized as involving less diffusion and most

apparent in one particular aspect of the organization. Being outward looking can

result in a better comprehension of consumers’ needs. In turn, this might lead to new

ideas for product or service improvements. For low impact incremental innovation a

high diffusion of the innovation is not necessary. For high impact innovation the

adoption of an incremental innovation is more important and for an innovation to

achieve high adoption a greater amount of diffusion is necessary.

or a distinct increase in revenues. Organizations that set goals that cost reductions

and/or a revenue increase are vitally important for the organization to survive,

explicitly communicate that the organization’s current success may not last. This can

act as a stimulus for employees. Communicating that if the organization benefits and

employee will benefit might increase an employee’s motivation to contribute to

improving products, services and/or processes by offering ideas.

1.4.3 Hire innovative people

Organizations can choose to hire people that are an expert in a particular field in

order to gain more knowledge about this field, to, in turn, get a different view on the

current situation of an organization or a certain part of this organization.

Characteristics of innovative people are that they enjoy doing innovative work and

that they are mostly contributing individually. These innovative people often have

the ability to think outside the rules.

From Manimala et al. (2005: 415) it becomes clear that team action is of greater

consequence in achieving high impact incremental innovation than individual action.

This implies that hiring innovative people, who contribute individually, may not

result in high impact innovation. Therefore, it is expected that organizations that

innovate with high impact might not hire innovative people with the purpose of

letting these people contribute individually. It is likely that innovative people are

hired to contribute in teams.

1.4.4 Encourage cross-pollination of ideas

that ideas and/or knowledge become isolated. Encouraging cross-pollination within

organizations is possible through periodically reassigning specialists to different

work. Organizations can also set up an intra company knowledge system. In this

system, knowledge can be captured and shared. Moreover, it ensures that knowledge

is accessible for everyone in the organization.

An example of the above is the situation at Wella AG. In the late nineties, this

company developed a database for ideas and projects. The employee who has come

up with an idea can put it in the database and specify which team, within the

company, should examine it further. Other people within the organization can also

offer input, which makes the process more interactive. The database offers structure

to the whole innovation process and its effect is that employees feel more motivated

to generate ideas (Boeddrich, 2004: 278).

Cross-pollination of ideas can also occur by encouraging employees to look beyond

the boundaries of the organization. Employees can visit customer sites occasionally,

with the object of finding out what the effect of an organization’s product, service or

policy is. Organizations can also stimulate employees to participate in professional

workshops or conferences. This can help in obtaining information about trends or

competitors and this might result in an intra company policy to change.

organizations that follow the path of high impact incremental innovation, because

this degree of incremental innovation is perceived to benefit from team action.

Periodically reassigning people to other positions in an organization is expected to be

a characteristic of low impact incremental innovation. The different viewpoints

gained and offered in a different department or level in the organization can lead to

changes within this department or on this organizational level. These changes are

perceived to be low-impact because they do only bring about changes in a certain

department or organizational level. Manimala et al. (2005: 419) found that low impact

innovations consist of management innovations and innovations in non-core areas,

like marketing and sales.

1.4.5 Support for innovators

Hellström & Hellström (2002, 108) in addition pose, just as Luecke (2003: 44) does,

that for ideas to be generated, and have a chance in the organization, it is important

that calculated risk-taking and experimenting are stimulated.

This is acknowledged by Manimala et al. (2005: 421), who state that risk taking is a

characteristic of organizations that try to ‘produce’ high impact incremental

innovations. It is therefore expected that the results of this research will show that a

higher degree of risk taking encourages idea generation for high impact incremental

innovation. Organizations that ‘produce’ low impact incremental innovation are

likely to be characterized by risk adversity and fear of failure.

In this chapter, the concepts (incremental) innovation and idea generation were explored.

Incremental innovation was characterized as involving relatively low risk on the technical,

organizational, market and resource level. Incremental innovation was assumed to generate

greater wealth for the organization itself and create greater value for the relevant selectors.

When seen in the context of a continuous process, these innovations are also considered to

set the path towards radical innovation.

For this research incremental innovation and idea generation are assumed to be related. A

strategy and structure, in which idea generation is encouraged, by carrying out several

specific identified activities, should contribute to incremental innovation. In this research a

difference is made between incremental innovation with a low impact and incremental

innovation that has a high impact. The aim of this research is twofold. First, to find out which

activities, for encouraging idea generation, are more characteristic for organizations with low

impact incremental innovations and organizations with high impact innovations. And

second, to form propositions on which activities, that encourage idea generation,

organizations should carry out to produce high impact incremental innovations.

Low impact incremental innovation

High impact incremental innovation

Rewards

pay/promotions individual team

access to greater resources +

Creating creative climate

nagging sense that current success may not last +

employees are outward looking +

it is clear that company is most important +

Hire innovative people, that are

are expert in one or more fields + +

enjoy doing innovative work + +

usually contribute individually +

find new ways of doing and seeing things + +

Encourage cross-pollination of ideas

periodically reassign specialists to different work + send people to professional conferences + set up an intra company knowledge management system +

Provide support

think outside the rules +

intelligent risk taking +

ability to accept failure +

2

METHODOLOGY

2.1

Introduction

This research is focused on finding out by which activities for encouraging idea generation

organizations, that either produce low impact incremental innovations or high impact

incremental innovations, can be characterized. In the literature on innovation, idea

generation plays an important role. As has been brought to the surface in the previous

chapter, there are several activities that organizations can carry out to stimulate idea

generation. In this research, the theories on incremental innovation and idea generation are

combined to form a theory on how organizations can manage the generation of ideas to

produce either low or high impact incremental innovation.

According to Eisenhardt (1989: 532) it is possible to develop a theory by combining

observations from existing theory with empirical reality. The author poses that it is indeed

only the intimate connection of existing theory with the empirical reality that permits the

development of a testable and relevant theory.

2.2

Case selection

low impact or high impact incremental innovation, can be characterized. Furthermore,

propositions will be made about which activities are most beneficial for high impact

incremental innovation.

Selection of cases in theory building research is based on theoretical sampling (Eisenhardt,

1989: 537). In this case, the selection is based on providing opposites. This to ensure

variations in environment and industry. This method of sampling was conducted in order to

enhance the possibilities for generalization of the theory to be developed. The cases were

selected on their industry differences and their differences in types of innovation.

For this research, it was assumed that service organizations do not necessarily innovate

differently than manufacturing organizations. Tether (2005: 180) states that there are a

variety of innovation modes of which some are found more often in service organizations

than in manufacturing organizations and vice versa. This is however not enough for a

statement that there is something as a service mode or a manufacturing mode of innovation.

Both service and manufacturing organizations make use of a wide variety of activities, and

although they have a different orientation towards innovation, it is possible for both to

innovate in these different activities. While in many theories on innovation, technology

advances are considered most important to innovation, it has become clear that innovation is

momentarily more driven by understanding consumers (Tether, 2005: 181). If we take this

assumption as a starting point for innovation, service organizations and manufacturing

organizations innovate from the same perspective, understanding buyers, signalling trends

and translating these outcomes into new or improved ways of doing business.

to form an expectation of the degree of innovativeness of each organization by comparing the

information that was already available on, for example, company websites, with the aspects

of low impact and high impact incremental innovation. Whether or not this expectation per

organization is justified, will become clear in the next chapter, when the results will be

analyzed. Forming an expectation of each organization’s degree of impact from innovation

was necessary to increase the chance of including organizations on both sides of the

continuum.

2.3

Data collection

For this research, interviews were conducted with top managers in all four organizations. In

three organizations, an interview was conducted with one top manager, while in one

organization two top managers were available for questioning. The data collected from these

interviews are of qualitative nature. For all interviews the same questionnaire was used,

which can be found in Appendix 1. The questions were oriented on current opportunities

and threats for the individual organizations. This to get an overview of the market(s) in

which the organizations operate and the possibilities and needs for innovation and thus for

idea generation. Furthermore, questions were asked about the specific activities that

organizations undertake to stimulate idea generation. An overview of possible activities for

stimulation of idea generation can be found in Appendix 2.

2.4

Data analysis

The data obtained from the four cases was not analyzed in total directly. For each case, an

individual analysis was made. This in order to be able to cope with the amount of data

acquired. Furthermore, this particular method of analysis ensures that it is possible to

identify whether or not enough information is obtained. In one case, this led to another

round of questioning via e-mail in order to gain clarification about which level of the

organization was responsible for a particular idea. In the end, the four cases were analyzed

by identifying the similarities and differences between the cases.

In the following chapter, the information obtained from the four cases will be analyzed. First,

it will be determined what the place of each organization is on the continuum of low

impact-high impact incremental innovation. This is analyzed from the perspective of the

organization were the criteria revenues, costs are concerned. For the criteria diffusion,

novelty of the innovation and extent of commercialization the industry must also be taken

into account.

2.5

Introduction of cases selected

In the following, each case will be introduced, as well as the reason for their selection.

2.5.1 Department of Social Affairs and Employment

The Dutch Department of Social Affairs and Employment is a governmental

organization. The tasks of the department are fostering employment, by ensuring

participation of people in the labour market and by trying to reduce the dependence

on social benefits, fostering a balanced development of income and a balanced

distribution of this income. Furthermore, the Department of Social Affairs and

Employment tries to support people, who are unemployed, to find new employment

possibilities by, for example offering, language training and refresher courses. The

department is also responsible for the emancipation and safety policy.

The biggest challenge for the Department of Social Affairs and Employment is the

implementation of the policy as prescribed by the Dutch parliament. Recent changes,

to which the organization must adapt, are the raise of the retirement age and the

introduction of a new law on disability insurance.

in great cost reductions and an increase in revenues, not only for the Department, but

also for the government as a whole. This implies that this organization might be an

organization that innovates with high impact. However, if the general line of

thinking, that governmental organizations do not have the need to innovate, is

followed this organization might be perceived as innovating with low impact. This

case was included, because there was a possibility that this organization would end

up either on the low impact side or on the right impact side of the continuum.

2.5.2

CZ Group

CZ is one of the major providers of health care insurance in the Netherlands. CZ

offers health care to over 2 million Dutch customers. The company has approximately

2000 employees. Health care in the Netherlands is influenced by different

stakeholders. Although the health companies are privately owned, they are greatly

influenced by regulations set by the government.

For the providers of health care insurance this has led to a significant change in doing

business. First of all, the difference between public and private insurance is no longer

present. Furthermore, health insurance companies are not allowed to reject people for

the basic insurance package. Finally, the companies were ‘forced’ to restructure the

offered insurance packages.

This was all a result of new government policy dictated by the fact that every Dutch

citizen has a right for basic health insurance. Moreover, the new government policy

should, in the eyes of the parliament, lead to more competition between health

insurance companies. Many companies have made collective health insurance deals

with the insurance companies, which cheapens the payment on health insurance for

both individuals as companies.

The change in operations at the CZ Group made it interesting to find out how the

organization has dealt with these changes in the sense of restructuring current

operations and services offered. What activities has CZ undertaken (and still

undertakes) to stimulate idea generation? And not only idea generation for eventual

restructuring, but also for making developments in the medical and insurance

industry? This, because CZ emphasizes its goal to make these developments

_.

Because of CZ’s communicated wish to make developments in the organization and

industry, it might be expected that CZ operates on the high impact side of the

continuum. CZ aims to develop innovations that diffuse throughout the industry and

lead to greater benefits for the industry as a whole and thus also for CZ.

2.5.3 Pharmachemie

Pharmachemie is part of Teva Pharmaceutical Industries LTD. Teva is active in over

more than 80 countries and is one of the largest organizations that provide generic

medicine in the world. Teva is a market leader in Israel, the United States and the

Netherlands. Pharmachemie has approximately 450 employees, divided over three

divisions, namely Operations (300), Sales and Marketing (100) and Product

Development (50)

_.

Pharmachemie develops, produces and sells products and services within Teva for

specific therapeutical areas. The organization is the centre of excellence for the

production of medicine used for the treatment of cancer and asthma.

Pharmachemie develops generic medicines. Generic medicines are medicines of

which the quality, effectiveness and safety are attested. Generic medicines stem from

branded medicines. After the patents of these branded medicines have expired,

pharmaceutical companies try to develop an equivalent that will be known, on the

market, under the name of the main substance. Although the composition of

substances used in these brand medicines are clear, it is always a challenge for

producers of generic medicines, like Pharmachemie, to develop a new generic

medicine that has an optimal composition of substances and an optimal dose and

form of usage.

Pharmachemie is an internationally operating organization that is largely influenced

by national and international regulations. Not only are the pharmaceutical companies

pressured by the government and health insurance companies to offer low-cost

medicine. There are also regulations in the area of quality and safety to which the

organization must answer. The largest challenges for Pharmachemie are to cope with

the regulations, to offer low-cost medicine and to ensure some form of registration for

new products.

Pharmachemie is expected to operate on the low impact side of the incremental

innovation continuum. The organization develops generic medicines of which the

quality and safety have already been attested to. The organization has the objective to

optimize the composition and dosage. This might lead to greater cost reductions, but

the question is how Pharmachemie is able to distinguish itself with this optimization.

There are many players in this industry and the question is whether an optimization

of a medicine that is already widely known under its brand name will lead to a great

dissemination in the market. Moreover, the question is also, whether or not

optimization of a brand medicine can be considered as being a novel idea. There are

more producers of generic medicine on the market that all have the same objective.

2.5.4 A.S. Watson

It is especially important for A.S. Watson to continuously grow. Competitors of A.S.

Watson are not only other drugstores, like Etos, but also supermarkets, because who

would go to a drugstore to buy toothpaste and shampoo, while it is also possible to

buy this in the supermarket, together with your other groceries. This implies that it is

vitally important for A.S. Watson to distinguish itself from competitors in the

industry. While the competition for A.S. Watson in the Netherlands comes primarily

from competitors operating on the Dutch market, it is important to watch foreign

competitors closely, to ensure that when they do decide to enter the Dutch market,

A.S. Watson is prepared.

However, the headquarters of A.S. Watson, which is located in Renswoude, is not

only responsible for signalling and stimulating changes in the Dutch market. The

organization in Renswoude is also responsible for spotting trends around the world

and translating these into new ideas and opportunities for A.S. Watson in general.

This organization is interesting in the sense that it is a large organization that operates

internationally. Moreover, the organization has recently put a new retail formula in

the market for testing. In theory, it might be expected that this organization for a large

part depends on innovations, because it continuously has to stay on top of the market

in order to meet the requirements of continuous growth.

surprise products, may lead to extra revenues, they do not save costs. However, there

is not much information available on the operational processes of the organization,

which makes it difficult to form an expectation. For now, a position on the low impact

side is forecasted.

Three of the four organizations in this research were approached for participation by a third

party. After several weeks of continuously trying to enlist several organizations, which

proved to be very difficult, help was offered by a third party that was interested in this

research.