Rijksuniversiteit Groningen
Faculty of Management and Organization
Master Thesis for MSc in Strategy & Innovation The Relationships between
Entrepreneurship Orientation, Network Management Capability and Service Innovation
Fei Zhang
First Supervisor: Dr. Gerda Gemser
Second Supervisor: Dr. Thijs Broekhuizen Student Number: s1752413
Submit Date: 10th August 2008
E-mail: lester_velocity@hotmail.com
Acknowledgement
Hereby, I would like to dedicate my profound gratitude to two of my thesis supervisors Dr. Gerda Gemser and Dr. Thijs Broekhuizen. Dr. Gerda Gemser had greatly enhanced my capability to independently conduct researches, in particular, enriched my experiences in designing a qualified questionnaire. I want to thanks for her concern with my thesis during her holiday. Dr. Thijs Broekhuizen rendered me a lot of useful suggestions on improving the thesis, especially in how to precisely analysis and elaborate the statistic results. Thanks for his instruction, I can understand the statistic models much better than before. I want to take this opportunity to thanks for all teaching staff in the faculty of Strategy & Innovation too, their high quality teaching laid a solid foundation for me to continually explore in the fields of strategic management and innovation in the future.
I also want to give a special thanks to one of my friends Liming Zhao, a pre-master students of MSc in Supply Chain Management, as she gave me a lot of encouragements during my difficult period of collecting primary data.
Thanks Very Much!
Fei Zhang
10th of August, 2008
Abstract
This study attempts to understand the relationship between network management capability and service innovation and to examine the mediating role of network management capability in the relationship between entrepreneurship orientation and service innovation. Moreover, the linkages between entrepreneurship orientation, network management capability and service innovation quantity and extent are also established in this research. Both quantitative and qualitative methods are utilized to gather primary data and analysis the results. The research reveals that both network management capability and entrepreneurship orientation have positive linear relationship with service innovation quantity and extent. Network management capability can directly increase the innovation quantity by facilitating the new knowledge creation, optimizing alliance cost of cooperation and control, improving innovation legitimacy and diffusion, and supporting new service development. Network management capability can underpin the capacity to create higher degree of innovation since the interplay between cross- relational and relationship-specific activities create an interface mechanism for nurturing radical innovation. The results and analysis also suggest that entrepreneurship orientation in terms of autonomy, proactiveness and risk taking can effectively support the innovation process and underpin an organization’s flexibility and the ability to cope with uncertainness. Although competitive aggressiveness mainly leads to incremental innovations, it is a good alternative for protecting radical innovation at the new entry. With these findings, this research can mainly contribute to clarify the relationships and establish the linkages between entrepreneurship orientation, network management capability and service innovation.
Content List
Chapter 1 Introduction
1.1 Network and Innovation --- 5
1.2 Problem Statement --- 6
1.3 The significance of the Study --- 7
Chapter 2 Literature Review 2.1 Service Innovations in the Hotel Industry --- 8
2.1.1 The Service Concept --- 8
2.1.2 The Client Interface --- 9
2.1.3 The Delivery System --- 10
2.1.4 The Technical Options --- 10
2.2 Network Management Capabilities and Innovation --- 11
2.2.1 Inter-firm Network: Definition --- 11
2.2.2 Network Management Capabilities --- 12
2.2.2.1 Network Management Qualifications --- 12
2.2.2.2 Network Management Tasks --- 13
2.2.2.2.1 Relationship-specific Tasks --- 14
2.2.2.2.2 Cross-Relational Tasks --- 15
2.2.2.3 Network Management Capability and Service Innovation --- 16
2.3 Corporate Entrepreneurship --- 17
2.3.1 Autonomy --- 18
2.3.2 Proactiveness --- 19
2.3.3 Competitive Aggressiveness --- 20
2.3.4 Risk Taking --- 20
2.3.5 EO and Network Management Capabilities --- 20
Chapter 3 Methodology 3.1 Questionnaire Structure --- 23
3.2 Data Collection --- 25
3.3 Data Analysis Methods --- 25
Chapter 4 Results and Discussion 4.1 Sample Characteristics --- 26
4.1.1 Quantity Results --- 26
4.1.2 Service Innovations --- 28
4.1.3 Intergroup Differences --- 29
4.2 Correlations --- 31
4.3 The Regression Results --- 33
4.4 Network Management Capability and Service Innovation --- 34
4.4.1 NMC and Service Innovation Quantity --- 34
4.4.1.1 Knowledge Transmission --- 34
4.4.1.2 Cost of Cooperation and Control --- 35
4.4.1.3 Legitimacy --- 36
4.4.1.4 New Service Development (NSD) --- 37
4.4.2 NMC and Service Innovation Extent --- 38
4.5 Entrepreneurship Orientation and Service Innovation --- 39
4.5.1 EO and Service Innovation Quantity --- 39
4.5.2 EO and Service Innovation Extent --- 40
Chapter 5 Conclusion and Implication---- 41
Reference --- 47
Appendix 1 --- 51
Appendix 2 --- 57
Appendix 3 --- 62
Appendix 4 --- 70
Figure List Figure 1.1 Fulfilling the service offer through network of specialists --- 6
Figure 2.1 Den Hertog’s 4 Dimensions Model of Service Innovation --- 9
Figure 2.2 Elements of a Company’s Network Competence --- 13
Figure 2.3 Cross-relational (CR) and relationship-specific (RS) network tasks --- 15
Figure 2.4 Dimensions of Entrepreneurship Orientation --- 18
Figure 4.1 Descriptive Statistics for Questionnaire Survey --- 27
Figure 4.2 Service Innovations Introduced in Netherlands Hotel --- 29
Figure 4.3 One-Way ANOVA Test for Hotels in Different Class --- 31
Figure 4.4 Linear Correlation For the main variables --- 33
Figure 4.5 Regression Results for Service Innovation Quantity --- 33
Figure 4.7 Regression Results for Service Innovation Extent --- 34
Figure 5.1 Relationships between EO, Network Management and Service Innovation --- 43
Chapter 1 Introduction
1.1 Network and Innovation
In knowledge-based economy, it is difficult for an individual company to develop all competencies for innovation by itself as the depth of specialized knowledge and the domain of knowledge have increased. Confronted with a rapidly changing market, blurring boundaries of firms, and increasing customer demands, more and more service organizations seek to cooperate with other firms in order to overcome limited resources and capabilities. These relationships with customers, suppliers and actual/potential competitor create a new network organizational form. Empirical findings of different studies have suggested those interfirms relationships are important factors affecting innovation performance and productivity (see e.g Pittaway et al 2004;
Porter and Ketels 2003; Powell et al 1996). The assessment to needed external knowledge and complementary resources allows firms to identify and commercialize innovations quickly.
Moreover, as inter-firm interactions encompass micro- and macro-cultural dimensions of communications about innovation (Rogers & Agarwala-Rogers 1976), the well managed network relationships may significantly facilitate the diffusion of innovation. The traditional linear model from research and development as a basis of innovation is thus shifting to a model with a wide network of sources and partners integrating complementary competencies (Gomeringer et al 2004).
Quinn (1992) characterizes interfirm networks as “intelligent enterprises”, outlining various structural concepts such as infinitely flat, spider’s web, starburst and inverted organizations.
Relationships among the firms can be formed to establish joint ventures, strategic alliances, supplier-producer collaborations, franchises, research consortia and channel-of distribution linkages (Cravens and Piercy 1994). The network organizations may have one or more of these kinds of relationships, in which the motivation for networking can be to: (1) gain flexibility to cope with the rapidly changing and intensely competitive marketplace; (2) develop the skills and resources needed to identify and move innovations quickly to commercial success, and (3) achieve the operating efficiencies essential to offer value to customers, stockholders, and other stakeholders (Cravens and Piercy 1994). Due to the more complex nature of innovation in the case of collaboration, creating and managing innovation in the network paradigm becomes become a major challenge to both researchers and managers.
2. Problems Statement
In the case of the service industry, such as telecommunication, hotel, and air transportation, a common feature of the network organization is the performance of marketing and other business functions by different independent organizations and individuals (Cravens, Shipp and Cravens, 1994). In the hotel industry for instance, an effective strategy to alter capability according to customer needs while simultaneously not compromising on service quality is to alter the service offer by gaining expertise and competency from a network partner (Kandampully 2006). Through such networks, a hospitality firm is able to mix and match a range of products and services from within its own resources and those of its partners – thus creating flexible service bundles (Figure 1.1) that are able to meet the specific needs of customers (Kandampully 2006). According to capability-based theory, firms can transfer inputs to innovative processes if firms possess the capabilities to activate and manage these network relationships in a dynamic way. These external capabilities create relations with the other firms and absorb new knowledge from outside. Although a lot of scholars have emphasized the importance of absorptive capabilities in developing new products, there is a need for clarifying the impact of the ability of managing network relationships on the degree of service innovations.
This research therefore mainly attempts to fill this gap by examining whether the ability to manage network relationships leads to more effective service innovations in the sense of being more profitable.
Figure 1.1 Fulfilling the service offer through network of specialists
Source: Kandampully J. (2006), “The new customer-centered business nodel for the hospitality industry”, International Journal of Contemporary Hospitality Management, Vol. 18 No. 3, p. 177
Dubini and Aldrich (1991) point out that entrepreneurship is inherently a net-working activity since mobilizing resources to pursue opportunities requires entrepreneurial contracts, knowledge and confidence. Entrepreneurship as a firm’s behavior may thus plays an important role in shaping innovative external relationships. In this thesis, I will try to explore entrepreneurship effects upon network management capability. Consequently, this paper mainly attempts to achieve two main objectives:
A. To establish whether the network management capability leads to effective service innovations
B. To establish whether the entrepreneurship will enhance innovativeness of network management capability in service innovation.
3. The Significance of the Research
The empirical data will be gathered in hotel industry of Netherlands. The hotel industry is a typical service industry and industry insiders have many relationships with the other firms/industries, such as tourism agents, government officials, diversified suppliers and consumers. The conclusions of this research may enrich the dynamic capability-based theory in the field of service innovation at a network level. For researchers, it can offer an empirical investigation on whether and how corporate entrepreneurship influences the capability of managing network relationships and the impact of network relationships on service innovations.
A common feature of the network organization is the performance of marketing and other business functions by different independent organizations and individuals (Cravens et al 1994).
This research thus also stretches the role of marketing functions in creating innovations and managing networks.
Chapter 2 Literature Review
This section will lay the theoretical fundaments for proposing propositions. The discussion attempts to link entrepreneurship, marketing relationships, and service innovations as presented in a conceptual model. The emphasis of the discussion is placed on each construct’s innovation aspect instead of a universal review.
2.1 Service Innovations in the Hotel Industry
As a result of increasing competition, it is more difficult to acquire competitive advantage from product differentiation in hotel industry because distinctive physical differentiations usually require intensive investment in fix assets. Consequently, hotel industry competition increasingly relies on service dimensions instead of product features. From a customers’’ perspective, the hospitality market is perpetually inundated by many similar, often easily substitutable service offerings (Victorino et al 2005). This can cause difficulties for hotel managers as they attempt to differentiate an individual hotel from its competitors (Reid and Sandler, 1992).
Compared with products, services are primarily intangible and simultaneously produced and consumed (Reeves (1994). It is necessary to distinguish service innovations from technological product innovations. According to Van Ark et al (2003), service innovation can be defined as “a new or considerably changed service concept, client interaction channel, service delivery system or technological concept that individually, but most likely in combination, leads to one or more (re)new(ed) service functions that are new to the firm and do change the services or goods offered on the market and do require structurally new technological, human or organizational capabilities of the service (p. 746)”. This definition is adopted in this research because apart from technological capabilities, human and organizational capabilities are also emphasized as innovation features. As for service innovations, Korscing et al (2003) argued that a service product is typically a service function or set of functions marketed as commodity or public service. Based on service innovation functions, Den Hertog (2000) proposed a comprehensive model for understanding innovation in services, which can be universally applied for different service industries. This model makes a distinction between technological service innovation and non-technological service innovation dimensions. The technological service innovation dimensions can be online sales, marketing databases, and software solutions. New technologies may lead to new services, but sometimes it works as a support process for service operation. Non-technological service dimensions include introducing
a new service concept, launching a new client interface, and building a new service delivery system. Every dimension requires different capabilities to carry out respective innovations
Figure 2.1 Den Hertog’s 4 Dimensions Model of Service Innovation
Source: Den Hertog P. (2000), “Knowledge-intensive business services as co-producers of innovation”, International Journal of Innovation Management, Vol. 4. No. 4, p. 495.
2.1.1 The Service Concept
The service concept refers to a set of new ways to organize a solution to a problem. In the case of hotel service innovations, because delivery of the services usually involves physical facilities, service innovations in hotel industry can be more visible than in other service industries.
The emergence of high and mid-priced “boutique” hotels can be an example of new service concept. The boutique hotel typically features a contemporary minimalist décor while also offering many additional lifestyle amenities (Victorino et al 2005). Amenities being offered will include platform beds with no box springs, wire storage racks rather than dressers, plasma television screens, and complimentary wireless DSL access (Binkley, 2003). Hotel guests tend to perceive boutique hotels as a stylish location for which they are willing to pay premium room rates for (Binkley, 1999). Confronted with travelers’ tendency is increasing to choose hotels that offer the best value proposition under budgetary constraints, French hotel chain Accor launched its new Formule 1 budgetary hotel. Instead of matching or beating its rivals from no-star to two- star hotels, Formule 1 focuses on satisfying a core service value: a good night’s sleep for a low price, but eliminates such standard hotel features as costly restaurants and appealing lounges.
The company has not only captured the mass of French budget hotel customers but also expanded the market into truck drivers who previously slept in their vehicles to businesspeople
needing a few hours of rest (Mauborgne and Kim, 2004). Mauborgne and Kim (1999) call the innovations like Formule 1 hotels as ‘value innovation’, which makes competition irrelevant by offering fundamentally new and superior buyer value in existing markets and by enabling a quantum leap in buyer value to create new markets.
2.1.2 The Service Interface
A service interface refers to the linkage between the service provider and its client. The business service is generally produced and consumed simultaneously, so that clients are also part of production of the service during the interaction process. The way the service provider interacts with the client can itself be a source of innovation (Den Hertog 2000, p. 496). In the case of hotel services, some examples of interface innovation can be: allowing guests to have flexible check in/out times, personalizing room décor, having a child care option available, online booking and reservation services, binding hotel services with traveling packages, and facilities lease service for travelling. These customized options adapt the hotel’s service to individual guest’s preferences.
2.1.3 The Delivery System
Different from the client interface, the delivery system refers to the internal organizational arrangements that have to be managed to allow service workers to perform their job properly, and to develop and offer innovative services (Den Hertog 2000). It is the operation and technique supports for the interaction between the provider and customer. Den Hertog (2000) also argues that “on one hand, new services may require new organizational forms;
(inter)personal capabilities and skills. On the other hand, an organization can be designed and employees can be trained so as to leave room for innovation and non-conventional solutions to practical problems (p. 496)”. For instance, if a hotel adopts a flexible check in/out times policy, it has to solve labor scheduling issues; when hotel services bind with some travel packages, the way of financial transactions need to be changed; the introduction of e-commerce requires business process reengineering so as to deal with client orders and coordinate partners’
complementary supply.
2.1.4. Technological Options
Technology is not always the main driver behind a relevant in a product/service innovation, such value innovations as is shown in the above-described Formule 1 hotel case. However, new
technologies especially in the field of ICT can be great enablers of service innovation. There are numerous information processing tasks to which IT may be applied including many that are intrinsic to almost all economic activities (Den Hertog 2000). According to Reid and Sandler (1992), the technological innovations that were found to be beneficial for hotel services includes:
a wake up system, electronic door locks, personal computers, voice mail, computer modem connection, video check out, electronic in-room safes, and a software library. The adoption of technological innovations requires fix asset investments, hotel management thus ought to determine which technologies can most benefit the service differentiation according to the segment it belongs to or the concept of hotel service.
Apart from the importance of these four dimensions as separate innovation vectors of change, the linkages between the vectors may be of even more significance (Broersma et al 2003). To introduce a new service concept, such as Dell’s direct sales model, may require a new client interface using websites to enable buyers to directly select and pay for the computer online. In order to deliver computer/components to customer on time, a new delivery system throughout the supply chain has to be developed. This requires adequate knowledgeable manpower to operate with such a intensive information based system, as well as organizational capabilities to efficiently coordinate and interact with suppliers and distributors. The point here is that a particular service innovation may be characterized by one dominant feature related to one of the above-mentioned dimensions (Den Hertog and Bilderbeek, 1999).
2.2 Network Management Capabilities
Innovation requires wide commitment and efforts within an across the firm(s). It is rare for any one group or department to attain all required new sets of knowledge and skills from conceptualization to commercialization. When resources and capabilities beyond an organization’s boundaries are needed, the firm may seek collaboration with outside partners that can offer complementary assets and abilities. Dess et al (2005) argued that partners can come from several sources: 1) other personnel within the department; 2) personnel within the firm but from another department; 3) partners outside the firm. Innovation and industry evolution are highly affected by the interaction of heterogeneous actors with different knowledge, competences and specialization, with relationships that may range from competitive to cooperative, from formal to informal, from market to non-market (Malerba 2005). Innovation involves a wide commitment because the results of innovation affect every part of the
organization. So that the capabilities of managing network relationships may influence an organization’s innovation capability.
2.2.1 Inter-firm Network: Definition
In his classic article on the network form of organization, Powell (1990) distinguished a network form of organization from market and hierarchy by complementary strengths, relational means of communication, reputational methods of conflict resolution, mutual benefits climate, and interdependent actors. Relationships among network firms are typically complex, reciprocal, and stable (Sydow 1992), so that network relationship can endure during a specific time rather than being episodic such as in market relations. Compared with hierarchical relations, network relationships are more loosely coupled and stay market sensitive (MacMillan and Farmer 1979), and the method for dealing with conflicts in network relies on social process instead of administrative fiat. Sydow and Windeler (1998) further argued that the logic of exchange is the most distinctive feature that differs from that of market and hierarchies. Granovetter (1985) refers to this logic as social embeddedness which implies that stable relationships among social actors shape their expectation and behaviors. According to Podolny and Pape (1998), from a structural perspective, every form of organization is a network, and market and hierarchy are simply two manifestations of a broader type. Since some firms may keep several different kinds of network relationships during a specific time, this research thus may take their governance view of the network organization which can be distinctly characterized. A network form of organization can be defined as any collection of actors (N≥ 2) that pursue repeated, enduring exchange relations with one another and, at the same time, lack a legitimate organizational authority to arbitrate and resolve disputes that may arise during the exchange (Podolny and Page 1998, p. 59).
Another reason for choosing this definition is that it includes a wide array of joint ventures, strategic alliances, business groups, franchises, research consortia, relation contracts, and outsourcing agreements (Podolny and Page 1998).
2.2.2 Network Management Capabilities
Networking has become the one of four major sections that frequently appears in the literature of dynamic capabilities (Ho and Tsai 2006). With network relationships, the focal firm achieves new resource configurations by integrating and reconfiguring both internal and external resources. This competence includes both having the necessary knowledge, skills, and qualifications as well as using them effectively (Ritter and GemÜnden, 2003). For measuring
such a competence in a network context, Ritter (1999) distinguishes between qualifications that allow a person to develop, to maintain, and to use relationships and tasks that need to be performed to manage networks. Qualifications and tasks are interdependent with each other.
Qualifications are resources and knowledge for effective task execution, whilst task execution can develop qualifications and qualifications can be accessed by task execution. According Ritter (1999), to understand a company’s ability to manage network, it is important to analyze network management qualifications on a personal level (how qualified are those people who are involved) and the aligned actions of those who are involved in coping with a company’s network on a company level (what are those people doing together). Therefore, network management capability can be measured by two dimensions as shown in the figure 2.2. For the purpose of this research, the discussion about effects of network management will focus on service innovations.
Figure 2.2 Elements of a Company’s Network Competence
Ritter T. (1999), “The networking company: antecedents for coping with relationships and networks effectively”, Industrial Marketing Management, Vol. 28, p. 471.
2.2.2.1 Network Management Qualifications
For identifying qualifications needed for managing relationships, Helfert (cited 1998) classifies them as specialist and social qualifications. Specialist qualifications are concerned with managers and employees’ knowledge and skills in systematically understanding partners’ capacities, available resources, strategies and cultures, and technical requirements. Managerial skills are required to understand network structure, processes, and evolution, such as the strategic group analysis is necessary for understanding the network competition. Economic skills are required to optimize resource allocation according to suppliers’ traits /market demands and set
product/service prices. Legal skills are compulsory for framing contracts with partners. In the case of service industry, sophisticated legal skills are crucial for value appropriation since a new service format or concept cannot be protected by patent or copyright. Knowledge about other actors’ operation, managers’ traits, core competence, and marketing orientations are also important since this information are helpful for understanding network evolution. This kind of knowledge are not transparent but must be learned through enactment (Möller and Halinen 1999). The experiences acquired by interaction with partners are crucial for success, which can be used for anticipating the other actors’ behavior and evaluate network positions and relationships.
Social qualifications are the extent to which a person is able to exhibit independent, prudent, and useful behavior in social settings (cited Helfert 1998, p. 29). It contains communication ability, conflict management skills, empathy, emotional stability, self-reflectiveness, sense of justice, and cooperativeness (Ritter 1999, p. 469). According to Ritter (1999), both specialist and social qualifications are needed because interorganizational relationships are built around interpersonal exchanges (social qualifications) but are also based on economic and technological objectives.
2.2.2.2 Network Management Tasks
A distinction may be made between tasks which are relevant to managing a single relationship and tasks which are necessary to manage a portfolio of relationships or a network as a whole (cited Mattson 1985). According to Möller and Halinen (1999), the execution of former tasks (relationship-specific tasks) reflects a firm’s competence in handling individual exchange relationships, while the execution of the latter tasks (cross-relational tasks) reveals a firm’s competence in managing internal and outsourcing activities as well as supplier and customer portfolios.
2.2.2.2.1 Relationship-specific Tasks
The literature on relationship management suggests three different relationship-specific tasks.
Firstly, initiation can be seen as seeking and creating activities of relationships. Typical initial activities can be visiting travel fairs, interviewing with online travel service companies, evaluating food manufacturers, and exploring new services with existing partners. Secondly, the resources and knowledge in a network cannot be activated without exchange between the two companies.
As for services firm’s competence development, Awuah (2006) identifies product/service, information, financial and social exchange as four elements of exchange in interaction process.
Through the regular and effective transfer of such elements of exchange to and from a counterpart, an actor's knowledge about the characteristics and expectations of its counterpart(s) will be enhanced, and the interacting parties will learn about how to utilize each other's capabilities (Awuah 2001). Thirdly, coordination activities are needed to integrate activities between two partners. When a hotel adopts JIT inventory for food management, a high degree of coordination is the key to realize precise time management. If a tourism firm plans to offer promotion packages, the room prices also need to adjust according to the duration and size of travel group. Thereby coordination includes the establishment and use of formal roles and procedures and utilization of constructive conflict resolution mechanisms (Ruekert and Walker 1987).
2.2.2.2.2 Cross-Relational Tasks
Figure 2.3 Cross-relational (CR) and relationship-specific (RS) network tasks
Ritter T. & GemÜnden H.G. (2003), “Network competence: its impact on innovation success and its antecedents”, Journal of Business Research, Vol. 56, p. 748
Drawing on literature about general management, Ritter (1999) identified four different cross- relational tasks. For realizing strategic goals, planning activities are needed to develop valid views of relevant networks and determine relationship
portfolios. An analysis of internal resources and skills (SWOT, BCG Matrix, and available resources within the firm) is required to determine which activities are carried out internally, while network analysis (strategic group analysis, fit between external and internal resources, quality and accessibility of external resources and knowledge) is necessary to decide which activities are outsourced through different types of exchange relationships. An industry analysis (PEST, Porter’s Five forces and competitor analysis framework) also contributes to identify what factors will significantly influence the competition and evolution of network. Secondly, organizing activities enable the realization of the plans developed. When legal disputes arise, relevant terms can protect
acquired merits and alliance reputation. In order to assure accessibility of (complementary)
resources and skills and protect value appropriation, different responsibilities and contributions must be assigned to and agreed on partners. Compulsory resources also need to allocate for developing specific relationships, such as reward bonuses for alliance mangers or employees.
More important, perhaps, the degree to which the focal company is able and willing to meet an individual partner’s needs also need to be addressed since adaptation to one partner’s requirements may mean not being able to adapt to the other partner’s requirements in network context (Ritter and Gemünden 2003). Thirdly, staffing activities deal with the allocation of personnel to specific relationships and allocate responsibilities to those persons (Ritter 1999, p.
470). This includes guidance and coordination from the people involved to prevent or solve conflicts between different individuals. For example, some firms may appoint an alliance manager who is responsible for managing one or more alliances on a daily basis or employ an experienced alliance expert to help in creating and implementing alliance policies and best practices as well as engage a mediator for conflict resolution. If necessary, an alliance department can be set up for in charging of network relationships which cross several divisions and building alliance capability. Finally, controlling activities contribute to manage the quality of networking outputs. For instance, a structured approach for the selection of new network partners, to keep features of product/service of the focal firm fit with the partners’ outputs, and the extent of focal firm contributions for networking. The Figure 2.3 shows that network management requires both network qualifications and execution of network management tasks since they interplay with each other.
2.2.2.3 Network Management Capability and Service Innovation
With necessary qualifications, the execution of network tasks is likely to result in internal innovations or co-operational service innovations. Due to the increasing importance of relationship marketing, networking activities may serve as a basis for selling innovative services (Ritter and Gemünden, 2003). Except offering traditional hospitality services, a hotel may render press conference services by cooperating with governmental and other business organizations; a hotel is also a good place for conducting such exhibitions as education or electronic products fair, which need to work with exhibition intermediaries; collaboration with travel service firms like Hotel.nl extends hotels’ distribution channel and makes travelers more easily to find them; it is also possible to build relationships with some training firms because a hotel is suitable for some short-term training programs (1-4 days duration), in particular, for managerial training lectures;
similarly, to establish relationship with professional costume design institutions may attract
fashion designers to hold their fashion show in the hotel. The creation of new service interfaces thereby can benefit from network management activities. That’s why Hakansson (1987) argues that innovation should be considered as a product of networking of actors. Obviously, to introduce these new service interfaces requires knowledge of how services are distributed, which includes both interactions with partners and internal arrangements. Take the fashion show for example, hotel managers need to understand very well in designers’ style so as to identify appropriate stage design, music genre, and marketing means. While these services are normally outsourced to relevant firms since they are not core hotel services. The intensive formal and social interactions require managers possess relevant knowledge and skills (qualifications) to execute both relationship-specific and cross-relational tasks. Biemans (1990) thus suggests that cooperation, coordination, and communication reduce the level of chaos in an innovation process, and thus increase the probability of developing successful innovations. The knowledge acquired in networking will directly contribute to the development of new concepts since this knowledge is market-or customer-oriented and makes partners’ capability be understood better.
After launching new service concepts like the boutique hotel, the network collaboration may speed up diffusion speed and increase legitimacy. Therefore, I suppose following proposition:
Proposition 1: Network management capability is positively related with service innovation quantity and extent.
2.3 Entrepreneurship Orientation
The literature suggests a positive association between ‘entrepreneurship’ and growth-oriented efforts of the firm (Khandwalla, 1977). The entrepreneurial firm is generally distinguished in its ability to innovate, initiate change and rapidly react to change flexibly and adroitly (Namen and Slevin, 1993). A firm’s extent of corporate entrepreneurship thus may affect innovativeness of network activities. In the case of a network, firm-level corporate entrepreneurship should replace individual-level behavior since organizational-level behavior becomes the main predictor of entrepreneurial effectiveness. It uses the fundamentals of management, while adopting a behavioral style that challenges bureaucracy and encourages innovation (Barringer and Bluedorn, 1999). By conceptualizing entrepreneurship as firm behavior, Covin and Slevin (1991) reveal how corporate entrepreneurship relates to make innovative and risk-taking strategic decisions.
They argue that an organization’s actions make it entrepreneurial and thus behavior is the central and essential element in the entrepreneurial process.
An organization’s entrepreneurship orientation (EO) reflects these behaviors. EO refers to the strategy-making practices that businesses use in identifying and launching corporate ventures (Dess et al 2005). It represents a frame of mind and a perspective toward entrepreneurship that is reflected in a firm’s ongoing processes and corporate culture. Based on three studies, Dess et all (2005) put forward five dimensions that permeate the decision-making styles and practices of the firm’s members: autonomy, innovativeness, proactiveness, competitive aggressiveness, and risk taking. The intensity of these EO aspects may influence a firm’s entrepreneurial performance. Dubini and Aldrich (1991) point out that entrepreneurship is inherently a net- working activity since mobilizing resources to pursue opportunities requires entrepreneurial contracts, knowledge and confidence. Out of five orientations as shown in Figure 2.4, however, innovativeness will be considered as a primary dependent variable in this research. The main aim of this research is to explore aspects related to service innovation, so that the innovativeness can be perceived as a focal point of corporate entrepreneurship. Otherwise, innovativeness will be a circular reason leading to innovation. Below I will explore the possible ways how the other four EO dimensions contribute to enhance the innovativeness of network management capability.
Figure 2.4 Dimensions of Entrepreneurship Orientation
Source: Dess G.G.and Lumpkin G.T. (2005), “The role of entrepreneurship orientation in stimulating effective corporation entrepreneurship”, Academy of Management Executive, Vol. 19, No. 1, p. 148
2.3.1 Autonomy
Autonomy refers to the independent action of an individual or team in bringing forth and idea or a vision and carrying it through to completion (Lumpkin and Dess 1996, p. 148). It reflects
the willingness and ability to act independently in order to carry forward an entrepreneurial vision or opportunity. Autonomy allows an individual or team to operate outside an organization’s existing norms and strategies. In the network context, autonomous work units are often used to leverage existing strengths in seeking new collaboration areas in existing partnerships or identifying new partnerships that allow firms to extend core competences.
Hart (1991) and Bourgeois and Brodwin (1984)’s suggest entrepreneurial behavior is characterized by centralized vision and strong leadership. When the top manager is powerful and competent enough to impose his/her own vision on organization, this “top-down” autonomy fosters an entrepreneurship climate to stimulate corporate ventures. It is very interesting that Hart’s (1992) another generative mode and Bourgeoies and Brodwin (1984)’s Crescive model advocate the impetus for new ventures comes from the lower level of the organization. This
“bottom-up” approach is common when strategy making is initiated through individual entrepreneurship. In both cases, the freedom to act independently is a crucial dimension of EO (Lumpkin and Dess, 1996). However, new ideas from the lower level are not always welcomed by leader(s), while top leader’s entrepreneurship vision is also not always supported by subordinates. So both leader and individual employee’s autonomy seems to be important for entrepreneurship. Individual employees need an entrepreneurship culture and delegation from top management to generate new ideas, whilst top management’s entrepreneurship vision requires employees’ supports for execution and amendment.
2.3.2 Proactiveness
Proactiveness is a forward-looking perspective that involves not only recognizing potential changes in the future but also the willingness to become an industry leader. Miller (1983) describes proactive firms as the quickest to innovate and the first to introduce products or services. It intends to acquire first mover advantages and put competitors at the position of responding to successful initiatives passively. However, a firm can be novel, forward thinking, and fast without always being first. Miller and Camp (1985) found that the second firm to enter a new market was as pioneering as the first entrant and just as likely to achieve success via proactiveness. So proactiveness refers a firm’s efforts to seize new opportunities aiming at becoming the industry leader. Bateman and Grant (1993) characterize proactiveness by acting on information to make change not merely anticipating it. Therefore, regardless of whether a firm is
the first mover or not, the intention to be industry leader and acting on seizing opportunities are two key traits of proactiveness.
2.3.3 Competitive Aggressiveness
Competitive aggressiveness refers to a firm's propensity to directly and intensely challenge its competitors to achieve entry or improve position, that is, to outperform industry rivals in the marketplace (Lumpkin and Dess, 1996). Dislike proactiveness which relate to market opportunities in the process of new entry, competitive aggressiveness reflects the forceful response to competitive trends and demands. It is the continuance of the proactiveness actions and thus concerns capturing value from innovations. The aggressive firm relies on offense as opposed to defense in its approach to competition (Hughes and Morgan 2005). The firms with aggressiveness orientation are willing to attack competitors directly such as slash prices and massive advertising. The other forms of these energetic ST (SWOT) reactions to protect new entrants include adopting unconventional tactics to challenge industry leaders (Cooper et al.
1986) and focusing on high value-added products while carefully monitoring discretionary expenses (Woo and Cooper 1981).
2.3.4 Risk Taking
Risk-taking represents a willingness to commit resources to implement projects, activities, and solutions that contain inherently a high level of uncertainty regarding the likely outcomes (Lumpkin and Dess, 1996). According to Dess et al (2005), there are three types of risk that organizations and their executives face: 1) business risk taking involves venturing without knowing the probability of success. In this article, it is the risk associated with entering untested networks; 2) Financial risk taking requires that a company borrow heavily or commit a large portion of its resources in order to grow. In networks, it is the risk associated with engaging in equity alliance; 3) Personal risk taking refers to the risks that an executive assures in taking a stand in favor of a strategic course of action. Key decision makers’ willingness to shape network relationships with the risk of reduced dependence and uncertain careers.
2.3.5 EO and Network Management Capabilities
Managers and employee’s autonomy may enhance the network management capabilities.
Managers always need a certain extent of autonomy to utilize their expert skills for capturing new trends of network development and new solutions. To develop valid views of network
evaluation requires employees to translate partners’ tacit knowledge to comprehensible forms.
Employees have to do this autonomously to analysis documents and partners’ behaviors for generating new knowledge. When the firm desires to enter new networks, managers and employees need great autonomy and self-direction to determine who rational partners are and what kind of partnership is most suitable. Since inter-firm relationships are built around interpersonal exchanges, autonomy orientation encourages managers to bring customized communication means and conflict solutions according to different individual partners. Through allowing individuals to operate outside existing norms and strategies, autonomy may maximize the effectiveness of initial actives to exploring new relationships or new collaborative programs with current partners.
Proactiveness may improve relationship management capability by seeking future value of relationships with customer/suppliers and acting changes on creating and managing important relationships. The pursuit of industry leaders may stimulate mangers to take insights on its position in the network and motive firms to play a central role the network, which is an essential net management capability.
The decisions on when and how to launch different aggressive offenses heavily rely on the competitive analysis. These competitive analyses like strategic group of firms can improve planning and organizing capacity by offering insights in network evolution; and network structures analysis can be useful for managing network positions and optimizing exchange relationships with other partners.
Risk taking firms seeks to take advantage of evolving situations by capitalizing on the fact that markets rarely stabilize for any length of time (Hughes and Morgan 2007). Risk taking orientation thus contributes to ameliorate network planning activities via capturing network dynamics and the evolution process. Activities and tacit knowledge in network are highly nontransparent (Möller and Halinen 1999), which require firms to appoint proper staff (staffing activities) who are competent with extensive learning activities. Risk taking firms are more prone to collaborate with other firms for speeding up innovation commercialization. They are as well as more willing to outsource weak abilities for consolidating core competence, which will improve firms’ barging power in network. Moreover, when innovative ideas and concepts are still emerging, risk taking firms can timely create new relationship with customer/suppliers.
Proposition 2: A strong entrepreneurship orientation positively influences network management activity and thus an increase in service innovation quantity and extent
In addition, since socialization processes make employees build interaction to freely exchange highly personal or professional knowledge, employees in new ventures need greater autonomy and self-regulation to determine what actions are required and how best to execute them (Li et al 2008). This social interaction obviously will benefit the translation of tacit knowledge into understandable forms. Employees generate new applications by screening and integrating autonomously. Entrepreneurial firms are likely to take proactive or aggressive actions to obtain intelligence on customers or competitors (Li et al 2008). These actions may underpin their abilities to utilize knowledge resource to seize market opportunities. Therefore, autonomy and proactive/aggressive actions make the firm focus more on the knowledge creation process.
Managers can fully use all potential knowledge, which facilitates the development of new service concept and client interface. For capitalizing new ventures need to deal with risk and uncertainties, the risk-taking actions motivate employees to bear the responsibilities of challenge and promote creative activities. The empowered human resource can offer support for executing both new service concepts and client interfaces. Hence, I expect a positive relationship between entrepreneurship orientation and service innovation.
Proposition 3: Strong entrepreneurship orientation is directly related with service innovation quantity and extent.
Judging from what I have discussed above, the conceptual model thus can be summarized as follow:
Network Management Capability
Specialist Qualifications
Social Qualifications
Relationship- Specific Tasks
Cross-Relational Tasks
Service Innovation
New Service Concept
New Client-Interface
New Delivery System
Technological Options Entrepreneurship Orientations
Autonomy
Proactiveness
Aggressiveness
Risk Taking
Chapter 3 Methodology
This chapter will depict the methodology used to conduct this research. The intended target response group are hotel managers who is working in the field of hotel marketing/business development or have positions in which require management of external relationships. Hotel managers are asked to fill in a questionnaire designed for this research. According to Kerlinger and Lee (2000), a survey research is useful in studying interrelations of sociological variables.
3.1 Questionnaire Structure
As can be seen in Appendix 1, the questionnaire comprises three parts. It used a five-point scale, and most of the items in the questionnaire about entrepreneurship and network capabilities are adapted from Li et al (2008) and Ritter (1999) respectively. I modified some of them according to above described literature review so as to make the questionnaire fit the purposes of this research better. These tested question statements may benefit this research from attaining more reliable answers from respondents.
Drawing upon the literature review presented in Chapter 2, entrepreneurial orientation was estimated with four dimensions. For measuring autonomy, two variables are deployed: the ability and will to be self-directed and free actions of stifling constraints. Previous researchers have operationalized firm-level proactiveness by asking managers about the firm’s tendency to lead (e.g., Covin & Slevin 1989; Miller 1983) and suggested an emphasis on initiating activities (Lumpkin and Dess 1996), so initiating activities and firstly introducing novel ideas and services represent the proactiveness dimension. Since competitive aggressiveness is mainly characterized by responsiveness, Covin and Covin (1990) asked managers if they adopted a “very competitive
‘undo-the competitors’ posture. Competitive aggressiveness also reflects a willingness to be unconventional rather than relying on traditional methods. Hence, managers here were also asked to assess “aggressive posture to maximize potential opportunities”. Dess et al (2005) classified risks that organizations and their executives have to face into three types: business risk, financial risk, and personal risk. Accordingly, the proclivity for high-risk projects, financing from external sources, and top mangers’ actions to achieve objectives are measured in the questionnaire.
Network management capabilities are measured in section 2 of the questionnaire. Item 1 to 12 measured four cross-relational tasks: planning, organizing, staffing, and controlling activities. The three kinds of relationship-specific tasks were measured by 9 questions: initiation, coordination, and exchange activities. Item 22 and 23 measure specialist qualifications: staff’s technical expertise and alliance experiences. The last 3 items measure social qualifications: the frequency of meeting, staff’s behavior, and the quality of dealing with relationships. What is worth to notice is that the scale of question 9 and 19 in section 2 has reverse effects, compared with the other questions. Consequently, I had to recode them when creating the database, so that 1 becomes 5 and 2 becomes 4 in order to keep the consistency of the results. In addition, item 12 and 18 will not be included when combining controlling activities and coordination activities because they are Yes or No questions. Their value may cause the lower means for each new variable.
The questions in the service innovations section are based on Den Hertog’s (2000) four- dimension model. Because it may be difficult for hotel managers to understand the concept of the four-dimension model, managers were asked to give examples of service innovations introduced in last five years. The dimensions of service innovation, including new service concepts, new client interface, new service delivery system, and technological options, will be evaluated and classified by researcher himself according to the traits of the given examples.
3.2 Data Collection
Both primary and secondary data were used to conduct this research. I designed a questionnaire comprising of three sections to collect primary data, whilst the literatures used for research positions are attained by four main online journal databases, namely JSTOR, EBSCO HOST, Emerald, and Elsevier ScienceDirect.
The data was collected by two phases. The first phase was from 19th to 25th of June. Data was collected during this period by visiting hotels and asking in a face-to-face manner for cooperation into the research. Initially, I emailed to 57 hotels in Netherlands to ask for cooperation but the response rate was very low. I then switched strategy and decided to phone hotels, but the response rate was still very low. The response rate substantially increased when I visited the hotels in Groningen (6 hotels) and Amsterdam (27 hotels) by myself. Although many hotel managers could not fill in the questionnaire immediately, the questionnaires could be put in these managers’ mail box. The researcher collected these questionnaires about a week later. For
those who did not yet fill in the questionnaire, I reminded them and would visit those managers again. Till 30th of June, I received 1 respondent from Zuidlaren, 3 respondents from Groningen and 10 respondents from Amsterdam. The second phase was from 27th of June to 15th of July. In order to collect enough respondents, I visited hotels in Rotterdam (14 hotels) and Den Haag (17 hotels) from 26th to 27th of June. I prepared an envelope together with stamps for those managers who couldn’t fill in the questionnaire immediately. Since there is no item about the number of stars a hotel has in the questionnaire, I marked it behind the questionnaire before entering the hotel. Meanwhile, the managers were reminded to cite above all service innovation examples that involve external partners in order to attain more relevant answers. Till the 15th of July, I received 10 questionnaires from Rotterdam and Den Haag. 8 of them were received by post and another 2 were filled in immediately. Thus, the response rate was about 37%. Appendix 4 lists all of hotel respondents. The sample comprises of 4 five -star hotels, 12 four-star hotels, and 8 three-star hotels.
3.3 Data Analysis Methods
On the base of the above conceptual model (see Chapter 2), the linear relationship between constructs will be tested by SPSS 15. Most of the questions in the questionnaire are adapted from Li et al (2008) and Ritter (1999)’s research, so the reliability of the survey results are qualified for conducting statistic tests. The results will be transferred to new variables that can reflect the constructs better. The new variables take the mean of the corresponding results.
Firstly, descriptive analysis is used for summarizing the respondent characteristics. The results will be evaluated by means, standard deviation, Skewness, and Kurtosis. ANOVA is employed to test which the differences between groups. If the sig. value is less than .05, that variable is meaningful different among groups. Because the ANOVA test can’t tell which group differs from the others, a Dunan test will be used too for obtaining more detailed information. Finally, the correlation between three main constructs will be firstly test by Pearson Correlation. Linear regression is adopted to estimate whether there are significant relationships between network management capability/entrepreneurship orientation and service innovation.
Chapter 4 Results and Discussion
This chapter will analyze the findings obtained from the questionnaire survey in detail. The sample characteristics are evaluated by the degree of results variances and distribution. The further analysis on intergroup differences in terms of entrepreneurship orientation, network capabilities, service innovation quantity, and the extent of service innovation provides a deeper view in respondents’ traits. All service innovations mentioned in questionnaire are summarized and categorized according to Den Hertog’s (2000) four-dimension model. Correlation and linear regression models are employed to estimate interactions between network activities and entrepreneurship orientations/service innovation as well as relationships between entrepreneurship orientations and service innovations.
4.1 Sample Characteristics 4.1.1 Quantity Results
Figure 4.1 provides an overview of the 24 hotel managers’ responses to questions with regarding to entrepreneurship orientation, network capability aspects, and service innovation.
The means of four items measuring entrepreneurship orientation (EO) show that EO among hotel managers is slightly higher than 3-moderate level (on a scale from 1-5). Entrepreneurship is thus not very strong among hotel managers. This may due to the fact that hospitality organization is an open system and open systems create much uncertainty (Bowen and Ford, 2004). These uncertainties may lessen hotel managers’ propensity to act aggressively upon their main competitors and launch highly risky new services. In order to deal with uncertainty, hospitality organizations have to develop formal policies and procedures for handling uncertainty and build a strong culture or service climate to guide employees in handling the problems customers can create (Bowen and Ford, 2004). These bureaucratic processes may more or less influence the managers or teams’ abilities and chances to act independently. Compared with adopting offensive strategies or launching risky projects, hotel managers seem to prefer to initiate new services with moderate risks. The standard deviation (.60775 and .61384 respectively) and Kurtosis value (-.539 and -.725 respectively) display managers’ or team’s degree of autonomy and proactiveness varies apparently and these two orientations in a few hotels are much higher than the others.
