IMPROVING INNOVATIVENESS TO SURVIVE IN
CHANGING ENVIRONMENT
Maarten Kooij September 2010
University of Groningen Faculty of Economics and Business
MSc Business Administration Specialization Business Development
First supervisor: Dr. J.D. van der Bij Second supervisor: Drs. H.P. van Peet
IMPROVING INNOVATIVENESS TO SURVIVE IN
CHANGING ENVIRONMENT
Author Maarten Kooij Student number: 1503677 Albert Cuypstraat 90-3 1072 CX Amsterdam Tel: +31 (0)6 50420712 E-mail: maartenkooij1@hotmail.com Organization KPN NV Zakelijke Markt Maanplein 55 2516 CK Den Haag Supervisor KPN: S.B.L. Scherer EducationFaculty of Economics and Business Specialization Business Development University of Groningen
Landleven 5
9747 AD Groningen
First supervisor: Dr. J.D. van der Bij Second supervisor: Drs. H.P. van Peet
Executive summary
This research project aims to improve the competitive positions of KPN Business Market (BM) through increasing its innovativeness. In this research project ambidexterity plays a significant role, since this project will look at ways to improve the balance between exploitative and explorative activities of KPN BM. The theory-based business problem solving methodology is used in this project. This methodology starts with a problem statement, followed by an empirical analysis and solution design with recommendations.
Problem statement
KPN is in the center of changing circumstances; the Dutch telecommunication market is declining and the ICT service market is growing. Besides that, all kinds of new competitors are rising and the customer is becoming more and more intelligent. (pers. com., J, 02/04/2010) All these factors require an organization which is able to adapt quickly and is able to see the future. For this, firms need a long term focus and the ability to be innovative to acquire a competitive advantage.
From this perspective, KPN BM is executing projects which should incorporate change in their internal processes and products/services they offer. These projects are for KPN BM executed by a subdivision called Programs. Recently the Marketing Strategy & Innovation (MS&I) department indicated that the executed projects were often not in line with the longer term innovation potential of KPN BM. In other words, KPN BM has a weak balance between exploitative and explorative
activities since: the exploitative activities are overrepresented and the explorative activities are underrepresented in the project portfolio. This unsatisfactory situation requires both an exploration to the causes of this problem as well as targeted solutions which can be implemented by KPN BM. For this reason the practical aim of this research project is: “Providing a solution to increase the
innovativeness of KPN BM”.
Empirical analysis
The empirical analysis aims for the validation of the business problem and its causes. In order to come to a validation of the business problem an evaluation of the projects which are and will be executed in 2010 is made. The evaluation of these projects is done based on an interview with the four program managers of KPN BM. These interviews were highly structured and had a clear goal, namely
categorizing the projects on five characteristics: project source, project output, relation with strategy, term of project goals and type of change realized with the project.
The evaluation of the projects evidently confirmed some of the conclusions drawn from the
preliminary assessment. Especially the short term focus and the high number of incremental projects are clearly noticed at this evaluation. Moreover, emphasize on internal processes is noticed, although KPN wants to be externally focused and customer oriented. In the end, the evaluation showed that the
innovativeness (the explorative side of ambidexterity) of KPN BM is lacking and must be increased in order to survive in the changing environments and increasing competition.
In order to come to a validation of the causes of the business problem an online self-completion questionnaire was sent out to 614 members of KPN BM. This questionnaire aimed to distinguish potential barriers - on vision & strategy, culture, processes & systems and persons & teams - which could prohibit innovation.
After analyzing the results on the questionnaire the lack of innovativeness within KPN BM was clearly reconfirmed. Moreover, some clear causes for this problem were found. Not only these causes remained after processing the questionnaire responses in SPSS, also the frequency graphs and the remarks in the open questions showed significant causes for the lack of innovativeness. Overall the focus on short term results was noticed. More specific, the lack of a well known innovation strategy and subsequently the lack of innovation resources (human and capital) and the lack of collaboration are causes which play an important role in the current situation of limited innovativeness. These causes gave a strong direction to the solution design.
Solution design
The designed solution for the, in the empirical analysis discovered, main causes is threefold. First, the vision and strategy on innovation have to be clear. Business leaders are often skeptical about the notion of defining strategic goals and boundaries. They generally believe that their strategy is already well defined and broadly known, but in a lot of cases – also within KPN BM - this seems to be untrue. Many authors mention that companies that are in the middle of changing circumstances and changing strategies need a proper communication plan, this does also count for KPN BM.
Besides communicating the importance of innovation, the management of KPN BM also has to prove they stimulate innovation. This can be done by business case criteria’s which stimulate innovation. Instead of mainly using short term financial criteria, like KPN BM is doing at the moment, the project proposals should be judged based on a hybrid approach of financial and non-financial decision tools.
Furthermore, collaboration and communication between departments should be stimulated. In order to keep control, large organizations like KPN BM divide main tasks into separate subtasks, in order to give employees a clear role to play and a set of requirements to meet. This may result in different thought worlds and interests. Within KPN BM this seems to hurt the innovativeness of the
organization, since there is such a pressure on short term results and making sure that departmental targets are being reached. A part of the solution to this problem is covered by a clear vision and strategy, and innovation stimulating business case criteria. Moreover, within KPN BM there is a lack
of persons who support an open culture and who stimulate doing something with new (innovative) ideas. KPN BM should assign such persons.
Recommendations
In line with the preceding analysis, the solution design leads to recommendation of the following concrete implementations or changes:
• Adding innovation to the Objectives Goals Strategies Measurements and Tactics (OGSMT): at this moment the OGSMT does not include specific objectives, strategies, measurements or tactics on innovation. KPN BM should ad an innovation strategy (including innovation supporting KPI’s) to this tool, in order to increase their innovativeness. Since the OGSMT is about general strategy, adding innovation to it would underline the importance of becoming more innovative.
• Implementing a communication plan: large companies that want to implement change need a well composed communication plan. If KPN BM wants to become more innovative then it needs to properly communicate this wish, the possibilities and the requirements to the rest of the organization. Implementing a communication plan will contribute in achieving this. • Adding financial and non financial tools to project decisions: KPN BM should, in order
to increase the number of real innovative projects within the innovation portfolio, implement the Strategic Buckets Methods, in which the projects are ranked based on their current scoring model. The scoring model should be expanded with at least one alternative financial tool (Option Approach and Economic Value Added). Moreover, a Bubble Diagram and/or a Risk Matrix should be implemented as a supporting tool to keep an overview on the balance in the entire innovation portfolio.
• Assigning Innovation Champions: within KPN BM Innovation Champions may be able to be the ‘glue’ between the departments/teams when it comes to evolvement, collaboration and communication of ideas; Champions can promote innovation throughout the entire
organization and mobilize teams/departments to work together and think about innovation. In other words, assigning (an) Innovation Champion(s) is highly recommendable in KPN BM’s situation.
Preface
This thesis is the result of my graduation project for the Master of Science degree in Business Development. The project was performed at the Marketing, Strategy and Innovation (MS&I) department of KPN Business Markets (BM). The supervision of the project was done by this department and the University of Groningen.
The performed research project provides a clear description of the situation within KPN BM and hopefully suggests useful solutions. The process was sometimes characterised by uncertain situations and complex trajectories, which is obvious in such a large company as KPN. Moreover, the process was characterised by collaboration. I found advice, motivation and support with several people, who I want to thank for this. First, it would like to express my gratitude to the colleagues at KPN BM. With their input, willingness to participate and constructive comments they made a large contribution to the end result.
My specific gratitude goes out to my supervisor at KPN, Susanne Scherer. The weekly ‘Bila’s’ with her were very valuable; with all her experience and clear explanations she made a significant contribution to my understanding about complex situation within KPN BM and she directed me to other people within KPN who also contributed to this master thesis.
Furthermore, I would like to thank dr. Hans van der Bij, my first supervisor at the University of Groningen. His knowledge and experience regarding business problem solving projects and the field of Business Development resulted in useful feedback and brought this thesis to a higher level. My gratitude also goes out to my second supervisor, drs. Heleen van Peet, her critical and detailed review completed this thesis.
Last but not least, I would like to thank my close family and friends. With their support I was able to manage the sometimes tough situations in the process. Specifically I would like to express my
gratitude to my parents, brother, sisters, friends and of course to Sanne, for her unconditional support.
Maarten Kooij September 2010
List of abbreviations
A
ARPU Average Revenue Per User
All-IP Internet Protocol as the basis for all communication B
BM Business Market
C
CM Consumer Market
CapEx Capital Expenditures D
DCF Discounted Cash Flow DJ Decision to Justify DF Decision to Fund DP Decision to go Public DH Decision to Handover E
EBITDA Earnings Before Interests, Taxes, Depreciation & Amortization EVVICA Estimated Value Via Intellectual Capital Analysis
EVA Economic Value Added I
ICT Information & Communication Technology IO Idea of Opportunity
M
MS&I Marketing, Strategy & Innovation N
NPV Net Present Value O
OGSMT Objectives Goals Strategies Measurements and Tactics OpEx Operational expenditures
OPTA Independent Post and Telecommunication Authority R
Content
1. Introduction ... 10 1.1 Theoretical motive ... 10 1.2 Business motive ... 11 1.3 Research design ... 12 2. Research problem ... 132.1 The problem context ... 13
2.1.1 Profile KPN ... 13
2.1.2 Structure ... 14
2.1.3 Targets and economic situation ... 14
2.2 The problem statement ... 15
2.2.1 Problem statement according to KPN BM ... 15
2.2.2 Preliminary analysis ... 16
2.2.3 Research questions ... 16
2.2.4 Project approach ... 17
3 Research Methodology ... 17
3.1 Research quality criteria... 18
3.2 Research techniques ... 18
3.2.1 Qualitative research methods ... 19
3.2.2 Quantitative research methods ... 20
4. Theoretical Framework ... 22
4.1 Project categorization ... 22
4.1.1 Project source ... 23
4.1.2 Project type ... 23
4.1.3 Strategy key points ... 24
4.1.4 Period/term ... 24
4.1.5 Type of change ... 25
4.3 Barriers to innovation ... 25
4.3.1 Lack of vision and strategy ... 26
4.3.2 Stifling culture ... 27
4.3.3 Unsupportive processes, practices and systems ... 28
4.4.4 Ineffective persons and teams ... 30
5. Empirical analysis ... 31
5.1 Unbalanced project portfolio ... 32
5.1.2 Conclusion ... 34
5.2 Causes lacking innovativeness ... 34
5.2.1 Questionnaire ... 34
5.2.2 SPSS analysis ... 36
5.2.3 Frequencies... 38
5.2.4 Conclusion ... 41
6. Solution design ... 41
6.1 Vision & strategy ... 41
6.1.1 Vision & strategy tools ... 42
6.1.2 Communication of vision & strategy ... 43
6.2 Resources ... 45
6.2.1 Financial tools ... 45
6.2.2 Non-financial tools ... 48
6.2.3 Conclusion ... 51
6.3 Collaboration ... 51
7. Conclusion & Recommendations ... 53
7.1 Conclusion ... 53
7.2 Recommendations ... 54
8. Discussion ... 55
8.1 Reflection and limitations ... 55
8.2 Further research ... 56
References ... 58
Appendix A: KPN company information ... 65
Appendix B: Preliminary analysis ... 69
Appendix C: Categorization projects ... 76
Appendix D: Online questionnaire ... 78
Appendix E: SPSS analysis ... 97
Appendix F: Strategy & vision tools ... 107
1.
Introduction
Instead of solely learning from the past and being the present, firms should also create the future. Firms should identify and commercialize new growth options that go beyond the conventional ways of product development (O’Connor & DeMartino, 2006). In order to achieve this, innovation plays an important role. Nowadays, the word innovation is used everywhere. Because of this, it is important to have a clear definition of what innovation is. In the last decades there are many definitions of
innovation formulated. However, a clear and generally accepted formulation seems to be missing (Zairi, 1994; Garcia & Calantone, 2002). In this research project the definition of innovation of West & Farr (1990) will be used: "An innovation is the intended or preconceived release or application within a role, group or organization of ideas, processes, products or procedures that are new to the relevant unit of adoption, with the intention of clear benefit to the individual, group, organization or society as a whole.”. This research project describes the lack of innovativeness in the portfolio of KPN Business Market (BM) and provides several solutions to this problem.
1.1
Theoretical motive
As mentioned above, innovation has become of more and more significance in today’s business society. The world of business is characterized by an increased competition in the markets. This globalization based on and facilitated by the upcoming IT since the early 90’s has lead to international competition for customers between companies worldwide. Besides that, firms are facing times of high uncertainty, shortened product life cycles and rapid change, all in a business environment where knowledge becomes more and more important for creating a competitive advantage. Thus innovations play a critical role, both to sustain the business and to be able to grow. (Audretsch & Thurik, 2001) Several authors are linking the performance of a company to the level of innovativeness. Deshpandé et al. (1993) prove that there is a significant positive relation between these two variables; the more innovative a company is, the better it performs. Also Subramanian & Nilakanta (1996) mention “The adoption of innovations galvanizes an organization and leads to better organizational performance.”. According to Uotila et al. (2009), companies could improve their financial performances if they put more emphasis on the explorative side (where real innovation comes from) of business development. The researchers state that the majority of companies is still lacking to do this, this is demonstrated in the following figure (1.1):
Figure 1.1: Relation between exploration and financial performance (source: Uotila et al., 2009)
The findings of the researchers fit in a trend in the academic literature towards balancing explorative and exploitative renewal of activities, processes and structures. The last years a focus on
simultaneously pursuing incremental and radical change is clearly noticed in academic literature, for instance in the research of Gilsing & Nooteboom (2006). Tushman & O’Reilly (1996) used the term ‘ambidextrous’ for this phenomenon, they linked it to success and continuity on the long run: “To remain successful over long periods, managers and organizations must be ambidextrous- able to implement both incremental and revolutionary change.”. In this research project ambidexterity plays an important role, since this project will look at ways to increase the explorative activities and by that the innovativeness of KPN BM. This is also the scientific aim of this paper: “Contributing to literature in terms of how organizations are able to increase the innovativeness of the organization.”
1.2
Business motive
KPN is in the center of changing circumstances; the Dutch telecommunication market is declining and the ICT service market is growing. Besides that, all kinds of new competitors are rising and the customer is becoming more and more intelligent. (pers. com., J, 02/04/2010) All these factors require an organization which is able to adapt quickly and is able to see the future. For this, firms need a long term focus and the ability to be innovative to acquire a competitive advantage.
From this perspective, KPN BM is executing projects which should incorporate change in their internal processes and products/services they offer. These KPN BM projects are executed by a subdivision called Programs. Recently the Marketing Strategy & Innovation (MS&I) department indicated that the executed projects which are often not in line with the longer term innovation potential of KPN BM. This unsatisfactory situation requires both an exploration to the causes of this problem as well as targeted solutions which can be implemented by KPN BM. For this reason the practical aim of this research project is: “Providing a solution to increase the innovativeness of KPN BM”.
1.3
Research design
This research project will be build around the knowledge of Van Strien (1997) and Van Aken et al. (2007). Van Aken et al. developed the reflective cycle and implemented it into the regulative cycle of Van Strien, as presented in figure 1.2
Figure 1.2: Reflective-regulative cycle (adapted from Van Aken et al., 2007)
The basis of the reflective cycle is a business problem solving activity, which follows the regulative cycle. In the reflective cycle first the type of business problem is chosen. After that, this problem will be solved through the regulative cycle and the results will be reflected with the aim of learning from this project for similar projects, by establishing preliminary technological rules (the design).
Within the reflective cycle the problem solving activities are gathered from the regulative cycle of Van Strien (1997). This regulative cycle entails six steps which have to be taken:
1. Set of problems: there is a given problem;
2. Problem definition: this drives the whole research project. The final problem definition is not necessary the same as the one stated by the company. Analysis of the problem may show that the initial problem is for instance a perception problem or a target problem;
3. Analysis and diagnosis: in this stage the problem is analyzed, traditional methods of business research will be used for the analysis. This analysis and diagnosis step produces specific knowledge on the context and nature of the problem;
4. Plan of action: during this step the design of the solution for the problem and the associated change plan will be made;
5. Intervention: during this step roles and work processes are changed on the basis of the solution design and change plan;
6. Evaluation: it is useful to have a formal evaluation at a point in time, to see what still has to be done to realize the full potential of the new system.
Outline
In this research project the following structure, based on the reflective-regulative cycle, is used: first, the research problem is being declared. This section includes the problem context and the problem statement. Second, a theoretical framework is presented, which focuses on both the categorization of projects on project source, type, strategy, term and level of change as well as on barriers to innovation. Third, the methodology is outlined including the method of data collection and data analysis. Fourth, the empirical analysis is discussed; in this section the results of the analysis methods are presented. Fifth, the solution design is illustrated, in which solutions towards the main problems from the empirical analysis are depicted. Finally, the conclusions are drawn, followed by some
recommendations. Moreover, the solution is put in perspective, because of the limitations of the used methodology. Besides that, contributions to literature are included and discussed.
2.
Research problem
In this section the first two steps in the regulative cycle of Van Strien (1997) are discussed. First, the problem context is described. After this, the problem statement, which includes both the preliminary analysis as the final problem definition, is discussed. The problem statement forms the basis for this research project.
2.1
The problem context
In this section a small description of KPN is made, beginning with some information about its products and services, size, number of employees and strategy. After this, the structure is discussed and finally the antecedents of the environment in which KPN BM acts are described.
2.1.1 Profile KPN
“KPN is a telecommunications and IT service provider in the Netherlands, offering wireline and wireless telephony, internet and TV to consumers and end-to-end telecommunications and ICT services to business customers. KPN’s subsidiary Getronics operates a global ICT services company offering end-to-end solutions in infrastructure and network-related IT” (KPN, 2010b). With 20.755 FTEs in the Netherlands (33.148 FTEs for the total KPN group) KPN achieved a turnover of 13.5 billion Euro and an EBITDA of 5.2 billion in 2009. An overview of the history of KPN and additional figures are provided in appendix A.
Transformation
In the past few years KPN transformed from an incumbent technology and product-orientated
of multi-media services for customers and managed ICT and network services for business (KPN, 2008). There are some large changes which caused this transformation. In this statement three major changes within KPN can be distinguished. At first, KPN developed from a solely telecommunications provider to a multimedia and ICT service provider. Second, KPN now distinguishes the Consumer Market from the Business Market and third, KPN has changed its focus from technology to service. These major changes are translated into the ‘Back to Growth’ strategy of KPN. For the Business market, KPN has set the following ambitions for 2010: first, KPN BM wants to be the leading managed ICT service provider. Second, KPN BM wants to be the preferred BM supplier and third, KPN BM wants to achieve revenue growth with ‘best-in-class’ margins. To achieve this ambition, several strategic building blocks are formulated which are provided in appendix A. (KPN, 2010e)
2.1.2 Structure
In January 2007 a new organisational structure was established, which is presented in figure 2.1. KPN’s former Fixed division and KPN Customer Market Mobile were reorganized into Consumer, Business and Wholesale & Operations segments. The reason for this change was to build the
organization around customer segments rather than products, creating a customer centric organization. The organizational integration is a further evolution of KPN’s strategy to increase customer focus in a telecommunications world in which distinctions between technologies are fading rapidly and in which customers increasingly are looking for integrated propositions. Integrated services are offered as a multimedia company in the Consumer Market (fixed, mobile, TV and internet) and as a managed ICT company in the BM. In appendix A, more information on the structure of KPN is provided, as well as visual representation of the organizational structure of the total KPN group, KPN BM, and MS&I.
2.1.3 Targets and economic situation
KPN has till the end of 2010 to accomplish the ambitions on the Back to Growth strategy and to fulfil the promises made to their customers, employees and especially shareholders. For this last group it is important that the EBITDA promises are being reached. When this does not happen the stakeholders will lose their confidence in KPN, what will result in a lower price per share and a higher risk on an unfriendly take over. The challenge of fulfilling the promises is growing every day, because the economic conditions put pressure on KPN and because the changes (within the firm) - despite
everyone's efforts – are not going fast enough. (KPN, 2010c) This is also stated in the vision KPN BM developed on the markets they are facing, from which these are the most notable:
• Economic crisis seems to be over its nadir, small recovery is expected in 2010; • Total ICT market is growing, but telecommunication within that market is shrinking; • Pressure of competition from cable is rising. Besides that, competitors on mobile and hold
• The market is becoming more dynamic, many parties are becoming active in (for them) new ICT domains;
• Market parties are working with different business models. KPN BM will also be open to new earning models and partnerships.
These developments are creating a double challenge to KPN BM. On the one hand KPN BM has to win tough competition battles, on the other hand KPN BM needs to broaden to new sales domains in order to secure the continuity by sustainable growth. (KPN, 2010d)
An example of the increasing competition which KPN is facing, is the recent development in the auction of the fourth generation mobile internet. The auction of these frequencies was surprisingly won by new players in the market of mobile internet: Tele 2 and Ziggo/UPC. In reaction on this Günther Vogelpoel, director of Tele 2 Consumer Market, recently said: “KPN, Vodafone and T-Mobile can be considered as fat cats, lazy and laying on their back. Prices for consumers are high, innovation is scarce.”. Although this statement seems a bit over exaggerated, it perfectly describes the situation KPN is facing: new competitors are taken over the market with innovation. KPN seems to fit ‘The Success Syndrome’, which was developed by Tushman & O’Reilly (1996) for companies that became large and successful in stable markets but have problems when markets shift (figure 2.2).
Figure 2.2: The Success Syndrome (source: Tushman & O’Reilly, 1996)
2.2
The problem statement
According to van Aken et al. (2007) a problem statement can be defined as “a state of affairs in the real world with which important stakeholders are dissatisfied, while they believe that things can be improved.”. In this section the dissatisfaction is discussed, after which the preliminary analysis - a check on the dissatisfaction - is discussed. Finally, the research questions of this research project is presented, as well as the project approach.
2.2.1 Problem statement according to KPN BM
Recently a new department is added to MS&I: Programs. Within this department approximately 85 projects aimed at the creation of innovations for the business customers are being executed, in order to support the strategic competition position of KPN BM. The expenditures for these projects are € 100 million on yearly basis. Despite this large amount of money it is suggested within KPN BM that the projects are often not in line with the longer term innovation potential of KPN BM. Some projects
targets are not being achieved and there seems to be a weak relation between the projects and KPN BM’s strategy, customer knowledge and innovation ambition. This may lead to disappointing results in the future and with that a deteriorated competition position. This problem stands contrary to the wish of KPN BM’s management to match innovation with the most important points of its strategy and with their knowledge of customers, especially in this time with changes in the environment in which KPN BM acts. In order to improve the potential of the innovation portfolio the management of KPN BM reported this problem to MS&I. (pers. com., A, 10/03/2010)
2.2.2 Preliminary analysis
The initial problem statement does not provide sufficient ground for a reliable analysis (Van Aken et al., 2006). To prevent making mistakes about the business problem KPN BM employees are
interviewed. The questionnaire and the elaboration of these interviews are provided in appendix B. Out of the interviews the following main problems occurred:
• Not innovating for tomorrow, but trying to compensate what missed yesterday; • Making too less use of in house knowledge about the customer;
• No radical innovations but mainly small innovations;
• Ideas for projects often come bottom up in stead of top down. Consequently, projects are closely related to specific demands of customers nowadays; these projects do often not cover the longer term. Employees at lower levels know about the strategy, but work very ad hoc; • There always is pressure on short term result within KPN BM;
• Decisions being made by the PAC (committee which decide about innovation proposals) are too much financially oriented;
• There is only a formal relation between MS&I and Programs, in real life they are rarely meeting/speaking each other.
The most noticed overall problem is the pressure on the short term within the company and with that the limited innovativeness of KPN. Based upon the intake meeting and interviews with members of KPN BM a preliminary cause and effect diagram has been developed, which is provided in appendix B. The analysis has resulted in the following problem statement:
The weakness of the innovation project portfolio (relation long term/short term, incremental/radical projects, the relation with the strategy key points, the relation with the customer, and the final output of the projects) may lead to a deteriorated competition position of KPN BM.
2.2.3 Research questions
How could KPN BM improve their innovation project portfolio? In other words: how could KPN BM find a better balance in their innovation project portfolio (in relation with strategy, marketing and especially (real) innovation)?
• Is the project portfolio indeed unbalanced or is it just a perception problem? What figures do prove this?
• What are the causes behind the problem? Is there an interrelationship between these causes? • What is recent scientific literature saying about these causes? How can these causes being
attacked?
• What should KPN do to improve the project portfolio based on the specific situation they are in? How should they do it?
2.2.4 Project approach
In this subparagraph the conceptual project design for the problem at KPN BM is presented. This design explicates both the research subject and the theoretical perspectives that will be developed for the redesign phase. For the construction of the conceptual design (figure 2.3), the ideas of Verschuren & Doorewaard (1999) were used.
Figure 2.3: Conceptual design of research project
The following elements are addressed in the conceptual design: the subject of the analysis, theoretical perspectives applied in the analysis, a confrontation between the subject and the theoretical
perspectives of the analysis, and the deliverables of the project.
3
Research Methodology
In this section the choices made on methodology are explained and discussed. The choices affect the validity and reliability, so it is crucial to acknowledge the advantages and disadvantages of the different research methods. In this research project the logics on methodology of different researchers on business research methodology were used to come to clear and solid methodology choices. The research strategy followed is, as mentioned before, build around the knowledge of Van Strien (1997) and Van Aken et al. (2007) on their reflective-regulative cycle and includes both qualitative and quantitative research techniques. In this section first the research quality criteria are discussed, after that the research techniques and tools used in this research project are outlined.
• Innovation • Strategy alignement • Customer focus • Portfolio management
• Weak Innovation Portfolio KPN BM
• Empirical analysis
3.1
Research quality criteria
According to Van Aken et al. (2007), conducting research can be seen as a production process in which the deliverables have to meet certain quality criteria. A research project can be evaluated on several criteria. In this section the research-oriented criteria - in succession controllability, reliability and validity (construct, internal and external) - are being discussed.
Controllability is according to Van Aken et al. (2007) a prerequisite for the evaluation of reliability and validity. Controllability is build around one main question: “How was the research executed?”. In other words, it describes the process of the data gathering, respondent selection, questionnaire
development and so on.
A research method is reliable when it supplies consistent results. According to Cooper & Schindler (2006) reliability is concerned with estimates of the degree to which a method is free of random or unstable error.
Research methods are valid when it gives a good view of the entire situation you are researching. Validity can be subdivided into construct validity, internal validity and external validity. Construct validity is the extent to which a measuring instrument measures what it is intended to measure (De Groot, 1969). Thus, construct validity refers to the quality of the operationalization of a concept. According to Van Aken et al. (2007) construct validity has two sides:
• The concept should be covered completely;
• The measurement should have no components that do not fit the meaning of a concept. Where construct validity concerns the measurement of phenomena, internal validity concerns conclusions about the relation between these phenomena. Finally, external validity is about to what extend the results of this study can be generalized beyond the current research.
Data gathering and analysis
The way data is gathered is crucial. Triangulation, what refers to conducting multiple means of data-gathering, increases the validity of a research project (Baarda et al., 1996). In this research project data was gathered through interviews, archival records and documentation, and online self-completion questionnaires. These methods are analysed in paragraph 3.2.1 (qualitative research methods) and 3.2.2 (quantitative research methods) on research quality criteria (reliability and validity) and data analysis and interpretation method. According to Thomas (2004) data analysis and interpretation involves “reducing the ‘raw’ data by means of statistical and/or linguistic summarization to a more concise form, relating the results to the research questions”.
3.2
Research techniques
As mentioned above, in this research project both quantitative and qualitative research techniques are being used. According to Van Aken et al. (2007) the phrase ‘qualitative’ does not refer to the quality
of methods. Qualitative methods are those that are oriented at discovering the qualities of things. Examples of these are objects, situations, phenomena, meanings and events. In contradiction to this, quantitative methods are oriented at the number or amount of these qualities. In this chapter we will look at both the qualitative research methods as well as at the quantitative research methods.
3.2.1 Qualitative research methods
A significant part of this research project is done by qualitative methods. According to Golafshini (2003) this method is useful when studying problems in context-specific settings, like in this research project. The context-specific approach is important, because KPN is such a large and complex company that it is very important to get a complete understanding of the specific situation and processes, and its deeper causes and effects.
Semi-structured interview
In the preliminary analysis 11 employees were interviewed about the suggested problem in the preliminary analysis. These interviews followed the structure of open-ended semi-structured interviews; although there was some kind of structure set up in front of the interviews, many
interviews evolved in a two way discussions were there was room for additional insights and answers of the respondent yielded as input for subsequent questions. According to Van Aken et al. (2007) semi-structured interviews help to gain a deeper understanding of relations since qualitative research enables the researcher to discover reasons for anomalies. Because of this, these interviews were mainly being used in the first stages of this research project.
According to Yin (1994), semi-structured interviews have great advantages on getting insight in a problem and in potential causal relations. Unfortunately, this research technique also has some disadvantages, of which bias (from respondent’s or researcher’s side) is one of the biggest threats on the reliability. In order to control this, opinions were tested with several people. By this, opinions were ‘filtered’ on reliability. Besides that, the interviews have been analysed several times to decrease bias to the minimum. Since the interviews were semi-structured, uniform outcomes were not guaranteed, which could harm the validity, this can be seen as both positive and negative. It is positive, because the respondents represent the general population within KPN BM, and negative because people from different subdivisions in the organization do have different opinions and point of views. The
interviews were captured through recording and selective transcription: only a selection of the most important phrases is transcribed. These transcriptions were, if asked by the respondent, sent back in order to let the respondent control the transcription of the interview. Obviously this enhances the controllability of this research method. The questionnaire used for this interviews and the transcriptions of the interviews are provided in appendix B.
3.2.2 Quantitative research methods
According to Van Aken et al. (2007) quantitative research methods are oriented at the amount or number of qualities which are discovered in the qualitative research. In this section these methods are described.
Archival records and documentation
Since KPN is a large company with complicated internal and external processes, understanding these processes was crucial in this research project. In this research project this was mainly done by taking archival records and documentation. According to Yin (1994), one of the advantages of archival records is that the information is exact; it contains exact names, references and details of an event. Using documentation has the advantage that it may provide information that organization members have forgotten and is a more reliable source of information (Van Aken et al., 2007). Because of these advantages, archival records and documentations were very useful in the first stage of this research. In this stage the focus was still on orientation; many documents like organizational structures, strategy documents, mission statements and objective translations were analyzed. Besides that, some
documents were highly related to the theme of this project: innovation in the project portfolio of KPN BM, and because of that had a higher level of relevance. Since internal documents within KPN usually are highly tested and discussed by several people, the reliability and validity seems to be high; the reporting bias, which reflects the (unknown) bias of an author (Yin, 1994), is hereby brought to a minimum. Besides internal control, KPN BM also frequently collaborates with external consultancy companies, that improve the outside control on internal documents. In this research project the accessibility to archival records was high, although the most documents were called confidential.
Structured interview
Another kind of interview is also used in a later stage in this research project. In order to test the validity of the -in the preliminary analysis- suggested research problem for this research project, the projects within the portfolio were categorized. The categorization of these projects is done based on interviews with the four program managers of Programs. These interviews were highly structured and had a clear goal: categorizing the projects on five characteristics - project source, project output, relation with strategy, term of project goals and type of change of project -, which will be further discussed in the theoretical framework. All the program managers were asked exactly the same questions, in order to prevent inaccuracies due to poor recall (Yin, 2003). Getting understanding about causal relations or deeper insights was clearly not a goal of these interviews, due to time restriction. Such a targeted approach includes, according to Ying (2003), a major advantage: it focuses directly on the case study topics, in this case the 85 projects. In order to improve the reliability and validity of the categorization by the individual program mangers, their results were discussed with other stakeholders
in this process, in order to see if they agreed with the categorization. When necessary, the categorization was adjusted to other opinions. To improve the controllability, the results of the categorization were also made available to the respondents. The respondents and questionnaire used for this categorization as well as the results of this categorization are provided in appendix C.
Online questionnaire
The main research tool in this research project is an online self-completion questionnaire among members of KPN BM, to distinguish potential barriers which could prohibit innovation. This research method can be classified as a survey, which according to Thomas (2004) aims to test explanatory theories by using correlation analyses; the online questionnaire clearly aims to test explanatory propositions, since this tool focuses on the presence of causes to a phenomenon. In order to be able to draw reliable and valid conclusions from the results of the questionnaire, a large group of participants was selected from various departments and levels within KPN BM. These participants were selected from departments which have influence on or are affected by the innovation project portfolio. Table 3.1 shows the total population of the participating departments, the number of participants within that department and the response (both in numbers as well as percentages).
Population Participants Respondents Response in %
KS&O 786 180 81 45 IS 469 222 81 36 BPO 54 12 2 17 MS&I 57 27 16 59 MKB 69 28 14 59 Large 475 150 61 41 Total 1901 614 263 43
Table 3.1: representation of population and respondents
As the table makes clear, a sample size of 614 was conducted from a total population of 1901, which equals a percentage of 32%. The 614 participants were selected on a method called judgment
sampling. According to Cooper & Schindler (2006) this type of sampling occurs when a researcher selects sample members to conform to some criterion. This type of sampling is used in this research, because a certain knowledge and involvement into the subject of the questionnaire was necessary to get reliable and valid results. Within the participating departments, groups of people (e.g. a certain sub department or function level) were chosen or excluded because of these criteria. The selection of the groups of participants was done together with two specialists in this area of KPN BM, which improves the validity of this research tool.
The questionnaire used, which is provided in total in appendix D, exists of one opening question in which the dependent variable is processed. This question, “How innovative is KPN BM in your opinion?”, was answered on a five point Likert Scale (from totally not innovative to very innovative). Cooper & Schindler (2006) recommend the use of Likert Scales when opinions are tested. After this question, 25 propositions were presented on which the respondents were asked to what extend they agreed with the proposition, again on a five point Likert Scale (from totally disagree to totally agree). In these propositions stimulators to innovation were processed.
Of the 614 approached KPN BM employees 263 responded, which equals a response rate of 43%. This percentage is, according to Thomas (2004), high enough to recall conclusions that cover the whole population. The received data from the responded questionnaires was processed in SPSS. In this statistical processing program first some frequency tables and bar charts were rotated, to get a first insight in the ‘raw’ data. After this, successively a factor, scale reliability and regression analysis were processed. These tools were chosen for several reasons. The factor analysis tool can be used to identify an underlying structure within a set of variables. By this, a large set of variables can be reduced to a smaller number of so-called ‘factors’ by exploring the inter-correlations among them. (Thomas, 1994) Although the variables within the questionnaire were subdivided based on academic literature (see chapter 4) it was useful to test if this was also empirically supported. After this analysis a reliability test was done to test the variables within each factor on their reliability by looking at the Cronbach’s Alpha and the correlation between the variables. Besides the reliability analysis, another factor analysis was processed without the in the reliability analysis eliminated variables, to reduce the number of factors. After this second factor analysis, the distinguished factors were put in a multiple regression analysis. This analysis tool shows how influential each independent cluster of variables (factor) is; it shows which factors are most important in accounting for the variance of the dependent variable. (Thomas, 1994)
4.
Theoretical Framework
In this section the underlying theory to this research project is described. As mentioned in the methodology part, two main empirical analyses are executed in this research project. At first, an evaluation of the innovation projects and second a research to potential barriers to innovation. The theory which underlies these topics is successively discussed in paragraph 4.1 and 4.2.
4.1
Project categorization
In order to test the validity of the in the preliminary analysis suggested problem definition, the projects within the portfolio all are categorized. The categorization of these projects is done based on five
characteristics: project source, project type, relating strategy key point, term of project goals and type of change.
4.1.1 Project source
In literature a clear distinction is being made in the source of an innovation initiative: several sources are distinguished as ‘initiators’ for an innovation project. A familiar distinction is made between projects which are initiated due to customer needs and projects which are initiated because of the availability of a certain technology. In figure 4.1 the contradiction between these two sources is presented. This figure also presents how market driven employees and technology driven employees think about their ‘competing’ source. (Hillen, 2010)
Figure 4.1: Market pull vs. technology push (source: Hillen, 2010)
As the figure also shows in the rates of successful products (60-80% vs. 40-20%), literature suggest market orientation as the best orientation to become successful in new product development.
According to Narver & Slater (1990) and Ernst (2002) a systematic market orientation can
substantially add to (sustained) company performance.Besides market pull and technology push, two other sources can be distinguished in the context of KPN BM: ‘maintenance’ and ‘legislation’. The term maintenance is in this research project used for the maintenance of internal systems. This plays an important role in a large organization like KPN, that has to keep their internal systems up to date and running. In the industry in which KPN acts also legislation plays an important role. Especially adaption to the legislation on the mobile telecommunication activities is something in which KPN has to make significant investments (e.g. changing data roaming laws). (pers. com., A, 10/03/2010)
4.1.2 Project type
Tidd et al. (2005) distinguish four types of innovations that may apply to an organization, these are: • Product innovation: changes in the things (products or services) which an organization offers; • Process innovation: changes in the ways in which they are created an delivered;
• Paradigm innovation: changes in the underlying mental modes which frame what an organization does.
In this research project the focus will be on the first two types. According to Tidd et al., product innovation refers to the new or improved products and services an organization offers. Since KPN BM offers a lot of services, service innovation will be seen as a distinctive kind of innovation in this research project. According to Biemans (2010), there are some differences between products and services (innovation). Services are, in contradiction to products, largely intangible, heterogeneous (quality largely dependent on employees), simultaneously produced and consumed, perishable (unused capacity is lost) and involved with customers (co-operation and self-service). Besides product and service innovation, a lot of process innovation occurs within KPN BM. Where product and service innovation mainly leads to new output, process innovation is more internally oriented. At KPN BM lots of internal processes are adapted from time to time. (pers. com., J, 02/04/2010)
4.1.3 Strategy key points
Since alignment with the strategy of the company has been proven to be a successful aspect in managing new product development (Cooper et al., 2001), this research project also tests the
alignment of the projects with the strategy of KPN BM. In order to test the relation of the innovation projects with the strategy, the individual projects are linked to one of the strategic directives of KPN BM. In other words: the area of the strategy that is covered by the project. KPN BM presented four strategic directives within the Back to Growth strategy:
• Excellent service company: enhancing loyalty with excellent customer interaction is the basis for ARPU retention. Besides that, loyalty is crucial for share of wallet extension;
• Excellent operations: an efficient organization with effective processes is crucial for retention of margins and for reliably serving customers;
• Het nieuwe werken: this theme (place and time independent working) fits KPN very well and offers the opportunity to acquire position in new ICT domains;
• Smart packaged propositions: increasing product density through smart, branche pointed, service bundling is crucial to strengthen KPN BM’s customer loyalty;
Since not every innovation project will have clear alignment with the strategy, ‘no connection with one of the strategic directives’ is also a possible answer.
4.1.4 Period/term
Besides the difference in the time span of the execution of a project, projects also differ in the time span of the project goals. In this research project a categorization is made on short term, middle-long term and long term goals, with the following time spans (based on Reezigt, 2010): short term: 0-1 year, middle-long term: 1-2 years, long term: 2+ years.
4.1.5 Type of change
Innovation projects differ in the type of change; the change can be incremental, radical or in between these two. Incremental change leads to change on micro level and to discontinuity in technology and/or marketing. In contradiction, radical change leads to change at both macro and micro level and to discontinuity in technology and marketing. (Hillen, 2010) Reezigt (2010) also distinguishes
incremental, in between and radical innovation. The figure below (figure 4.2) shows some examples of these types of change, related to the type of project.
Radical
Launch of Ebay
New manufacturing technique
In between
Incremental New improved detergent
Product Service Process
Figure 4.2: innovation project subdivision (adapted from Reezigt, 2010)
4.3
Barriers to innovation
As mentioned above, innovation plays an important role in today’s business society, especially in fast changing markets and technologies. Some companies keep up more successful in such a dynamic environment than others. According to Bower & Christensen (1995) and Tushman & O’Reilly (1996) especially leading companies have problems to stay at the top of their industries when technologies or markets change. It seems to be that being innovative is one of the hardest things to achieve for these companies, despite significant investments (in terms of capital and human resources) in research and development (O’Regan et al., 2006). This is a problem which KPN BM, as discussed before, is also facing. In the problem statement and the preliminary analysis it is made clear that KPN BM mainly undertakes exploiting activities, although a combination of exploiting and exploring activities is desirable in a fast changing environment with increasing competition. According to the literature on ambidexterity exploiting and exploring activities could simultaneously being performed by separating them in time and space. (Gilsing & Nooteboom, 2006; Tushman & O’Reilly, 1996) Before this can be done a certain 0-level needs to be reached where there are no barriers towards innovation. Biemans (2009) describes these barriers as follows: “Barriers are both factors that inhibit innovation and innovation success factors that you do not possess”.
In literature these barriers are divided in several types and categories. According to Pulman & Gouy (1999) there are five main areas of barriers: culture, strategy, processes, methods, and tools. Shavinina (2003) on the other hand, categorizes barriers into external and internal barriers. According to the
researcher internal barriers are people, structure and strategy related. External barriers can be found in the environment, like legislation or competition. In this section, the categorization of barriers from Biemans (2009) will be used and discussed in the following sub paragraphs: lack of vision and strategy (4.3.1), stifling culture (4.3.2), unsupportive processes, practices and sytems (4.3.3.) and ineffective persons and teams (4.3.4).
4.3.1 Lack of vision and strategy
As many actions in (large) organizations, innovation also requires vision and strategy from top management. According to Puhlmann & Gouy (1999) top management needs to develop a vision of the future and translate this vision into a viable strategy, so that employees understand why changes are necessary. In this section successively inhibitors on vision and inhibitors on strategy will pass be discussed.
Vision
Developing a vision is difficult; some managers are clearly more visionary than others, but in the fast moving industries in which KPN BM is acting it is a necessary skill for top managers (Biemans, 2010). History showed that a vision of what the telecom market will do is hard to predict. This goes back to the very first start of the telecom industry, looking at the reaction of Western Union in 1875 after Alexander Graham Belled introduced the first telephone:
“After careful consideration of your invention, which is a very interesting novelty, we have come to the conclusion that it has no commercial possibilities ... we see no future for an electrical toy”
Strategy
Besides the creation, top management needs to translate the vision in a clear and feasible strategy. In their study, Puhlman & Gouy (1999) discovered that 87% of the successfully innovating companies formulated a clear innovation strategy. According to Kanter (2006), there are some classical strategy mistakes. One of the biggest strategy mistakes is the lack of stimulating and feasible objectives; the wish to be innovative is in lots of organizations not translated to clear goals and when these goals arise they are not sufficiently communicated to the organization members. Puhlman & Gouy (1999)
mention: “Companies that lack or fail to communicate internally a clear strategy often have difficulties in setting priorities within their innovation portfolios”.
Kanter (2006) mentions that many top managers use an innovation scope (within the strategy) which is too narrow. Companies tend to focus on product innovation alone (and forget for example process innovation) or limit the areas in which the organization may innovate. When companies limit the scope in which ideas may arise, they turn down the creativity of their employees.
4.3.2 Stifling culture
The culture within an organization plays an important role when it comes to innovation. Successful innovation requires an open, innovative culture (Biemans, 2010). Tushman & O’Reilly (1997) argue that organizational culture lies at the heart of innovation. For this reason it is interesting to look at the role that organizational culture plays in the innovativeness of an organization. Poskiene (2006)
describes organizational culture as a complex set of ideologies, commitments, tradition and values that are shared throughout the entire organization, which influences the organization’s potential
innovativeness. Research has shown that lots of companies are limited in their innovativeness because of a stifling culture. In this section the following innovation inhibitors on culture are discussed: internal focus, risk avoidance and internal politics.
Internal focus
In today’s globalized economy it is important for companies to have an open - externally focussed - view to make sure they can compete in fast changing markets. Especially large companies are subject to an over focus on internal knowledge, since these companies are more or less self-sustaining and think they possess all the necessary knowledge. Wycoff (2003) warns for this tendency, in which breakthrough ideas will never arise. The researcher states that for breakthrough ideas companies require an attitude and process of looking both inside and outside; at suppliers, competitors and customers, and at changes in economics, trends, demographics, regulations and political environments. Baum, Cowan and Jonard (2009) also argue that new (disruptive) ideas can arise from collaboration between organizations; they describe collaboration as an efficient way of acquiring knowledge in their technological environment beyond their boundaries. Also Todeva and Knoke (2005) acknowledge the importance of collaboration: "Collaboration is widely recognized as a mechanism for leveraging competitiveness and thus increasing survivability in turbulent market conditions".
Risk avoidance
Risk avoidance is one of the biggest barriers to innovation within an organizational culture. According to Kelley (2000), not promoting aspects such as taking risks, experimenting and uncovering new boundaries is killing for the innovativeness of an organization. Hamel (1999) and Uotila et al. (2009) agree to this, especially for larger organizations. The researchers state that larger companies rely too much on exploitation of business development; they are trying to optimize the existing business by incremental innovations, but ignore risky (but mostly high potential) disruptive innovations. Wycoff (2003) puts a risk-averse culture on the first place in her innovation killer top ten: “Unless the culture honours ideas and supports risk-taking, innovation will be stifled before it begins”.
Companies that strive to be innovative need to adopt a culture which is long term focussed. Since innovation brings some risks, many companies will, as mentioned above, choose the ‘safe option’
when ideas have to be developed and investments have to be made because these options will result in success in the short run. Companies in which a culture of always choosing the safe side is dominant, will generally not be very innovative (Christensen, 2008).
Jamrog et al. (2006) researched the characteristics to be innovative, including a setting for innovation. The researchers mention that creative people are an important element when it comes to being
innovative. The avoidance of risks can also be seen in the support (both morally as financially) of these creative people. Organizations in which the culture is not supportive towards creativity (including risk taking) will not be innovative (Sorensen, 2009).
Internal politics
In large companies like KPN, internal politics may play an important role in decisions that have to be made. The most organization members have besides the ‘company agenda’, also their ‘own agenda’ of things from which they think are important. Besides that, relationships between people differ; some people are more closely/friendly related to each other than others.
4.3.3 Unsupportive processes, practices and systems
According to Biemans (2009), the idea of an ‘innovative genius’ is a myth; innovation requires an organization that provides employees with the right environment and tools for innovation. In this section the following innovation inhibitors on processes, practices and systems will be discussed: inappropriate organization structure, incorrect measures, ineffective reward systems, inadequate time commitments, inadequate funding and a lack of external business relations.
Inappropriate organization structure
An important characteristic of an organization striving to be innovative is the organization design, that should enable creativity. Innovation involves many departments, so the organization structure should facilitate communication and interaction. In practice this seems to be harsh, especially for large firms. In general, firms that become successful grow and become inflexible. These companies embed a hierarchical system to be able to govern such a large company and exploit economies of scale and scope. Although such a system seems necessary, the individual can not use its whole potential because of the upper management centralised responsibility. This will limit the creativity of organization members. (Besanko, 2006)
Within larger organizations poor internal communication can be a large barrier to innovation. When an organization has several departments or business units, a silo mentality may develop so that
departments guard information and ideas rather than share them (Sloane, 2010). Adams et al. (1998) also describe this problem in their research to the dissemination of market information. According to the researchers ‘compartmentalized thinking’ causes the appearance that different parts of the organization (departments, business units) have their own identity; people focus on their own
information and issues and find it hard to look across boundaries and share their information. This silo mentality is killing for the innovativeness of companies because innovations tend to cross boundaries. Innovations emerge from ensuring that all relevant knowledge is shared. This can be done by for example cross-functional teams and projects as well as intensive use of multiple media like video, newsletters and email. (Biemans, 2010)
Incorrect measures
Most organizations focus on revenues, profit and market share, but how about reputation, leadership, attractiveness to talent? Real innovations are difficult to justify only in terms of Return on Investment (ROI). In their article, Christensen et al. (2008) are discussing three financial analysis tools, namely: earnings per share (for the evaluation of investments fixed and sunk costs), Discounted Cash Flow (DCF) and Net Present Value (NPV). Although these financial tools are world widely used by managers in their investment decision process, the authors argue that these tools create a systematic bias against innovation. This is also recognised by other authors who say that companies can not simply rely on only ROI or NPV. Disruptive innovations can not be measured by these tools because assumption about them are hard to make, and these innovations will most of the time not be earned back on the short run. (Colarelli et al., 2001; Sehsradi & Tripathy, 2006)
Ineffective reward systems
In many organizations managers do not reward the kind of behaviour they want to stimulate. If
companies want employees to be creative, flexible and innovative, it should both stimulate and reward that kind of behaviour (Biemans, 2010). In their article, Balkin et al. (2000) state that executives in highly technological industries should be rewarded for R&D projects and filled patents rather than for financial outcomes, since these outcomes are not stimulators for innovation.
Time commitments
In every organization time of organization members is limited and needs to be accounted for. Since time invested in innovation has an uncertain pay-off (both in terms of the amount of pay-off and when they will occur), lots of organizations ignore innovation. Wycoff (2009) mentions in her article about innovation killers that CEO’s often stand up at annual meeting and say that the company needs to be more innovative and then go to the next topic, year after year without becoming more innovative. The researcher state that innovation takes time and energy, because people need some freedom and time to think and tinker around with new possibilities.
Inadequate funding
According to Garcia et al. (2009), who researched how strong internal and external barriers are limiting the innovativeness of a company, cost is one of the most significant barriers to innovation.
Organizations do not have infinite levels of resources and thus must make allocation decisions. To invest in innovation companies must divert money from established products and programs to uncertain, new initiatives and managers usually do not like to do that. (Bond & Houston, 2003) Getting budget for innovation is in most companies hard, because of the high risk of innovations as well as the high monitoring costs and the difficult assessment of the viability of innovation (Freel, 2000). Obviously this is also closely related to the type of measures that are used to decide about investments. As mentioned before, only using short term financial tools will not stimulate uncertain and risky investments. Besides the shortage of financial resources for innovation, companies often spend their money in a budgetary cycle that does not support innovation. Biemans (2009) states that money must be spent when it is needed, rather then when the annual budgetary cycle allows it because innovation often needs some acute investments when certain opportunities arise.
Lack of external business relations
Nowadays, many companies are involved in collaboration. Todeva & Knoke (2005) argue that
collaboration implies the sharing of resources, responsibilities, risks and rewards among organizations that are acting as a joint entity in order to achieve a common goal. Several researchers have proven the effect of collaboration on (innovative) performance. According to Kickul and Gundry (2001)
development of innovation relationships with suppliers, customers and competitors will facilitate the construction of new models to predict success factors for managing organizations. Baum et al. (2009) mention that collaboration between partners can be an efficient way of acquiring knowledge in evolving technological environments beyond their boundaries. When companies lack to collaborate with these potential partners they will limit their innovativeness, because they are not able to go beyond their own boundaries and learn to see the world from other perspectives.
4.4.4 Ineffective persons and teams
Since innovation can not spontaneously be made by a machine or computer but needs human
involvement, the effectiveness of persons and teams play an important role in the innovativeness of a company. Innovation needs both effective and inspiring leaders as well as motivated employees.
Lack of inspiring leadership
Innovation requires leaders with an open mind and positive attitude who treat anything as an
opportunity, who are able to quickly take decisive action and who lead by example (Biemans, 2010). According to Sorenson (2009), many companies assign the best technical managers to steer innovation but ‘forget’ that exploring and implementing innovations require much more interpersonal skills, that may lead to “missed opportunities to enhance chemistry and diversity in the innovation teams”. Leaders can also encourage innovativeness by letting employees practice lateral thinking, which is
