Factors which facilitate and inhibit innovation in a mature industry [PhD thesis]

Much of innovation research focuses on the innovating individual or the environment in which the innovation takes place. Moreover, empirical work has predominantly been concentrated on apparently innovative sectors such as those engaged in new technologies or in the early growth phase of development. This research is concerned with organisational characteristics which affect innovativeness in a mature industry setting.

This research is based on a subsector if the UK textile industry. The first phase of research sought to identify a ranking among firms in the sector in terms of their innovativeness. The second phase focused on a small sample of these firms and identified which organisational characteristics appeared to be most associated with innovativeness. In the sample of firms investigated it appeared that innovativeness was very closely associated with a group of characteristics related to the firm’s business strategy and how we4ll that strategy was known and understood by members of the firm. Another group of characteristics which also appeared to be associated with innovativeness, though less closely, was related to the way the firm was managed and the degree to which individual members of the firm experienced freedom to use their own initiative.

The implications of the study are discussed and some lines for future research are suggested.

My interest in this research stemmed originally from my practical experience in industry. For almost fifteen years I had various responsibilities within strategic planning and management and got to know several companies, operating in mature markets, which appeared to be highly successful. One parent company operated a system of strategic planning based directly on the Boston portfolio concept and it was my experience that businesses formally categorised as ‘dogs’ (ie low relative share of a low growth market) and whose performance might as a consequence be expected to be marginal and worthy of divestment or closure, regularly performed well, achieved good profitability and healthy cash surpluses. Because of their good performance they were permitted to exceed the level of investment, particularly in up to date production plant., normally granted a ‘dog’. As a consequence, such businesses were enabled to establish a quite undoglike virtuous cycle.

Other similarly placed businesses performed exactly as the stereotype ‘dog’ is expected to perform, at best scratching a bare living, just above the level of survival.

It was not clear what the essential differences were between these two such businesses. One factor which seemed to be at least contributory was innovation. The successful ‘dogs’ maintained investment in modern plant and equipment, and a lively interest in new products, apparently always ready to be innovative whenever the opportunity arose. The stereotypical ‘dogs’, on the other hand, appeared to be primarily interested in cutting costs and meeting budget, and were consequently at risk of heading down what Hayes and Garvin called the ‘disinvestment spiral’. The ‘dog’ classification for these businesses might therefore simply be a self-fulfilling prophecy.

The UK foundry and aggregates industries, both of which I experienced, appeared to accommodate innovative and non-innovative firms. Both foundries and aggregates are mature industries and in both there were a lot of bare survivors running out of date plant on a shoe-string. Also in both there were successful businesses which achieved adequate profitability and growth, maintained modern plant and appeared to be aware of the state of the art in their industry.

Within the UK iron foundry industry some firms were highly innovative. Though not necessarily initiating fundamentally new products, some were involved in producing products in ‘new’ materials (eg high alloy irons for heat and wear applications), by new methods (eg continuous casting) which permitted entry to new markets with new products. These firms may not contribute much that is completely original either to their technology or to their product market, but they certainly appeared to be early adopters of new techniques and technologies, or incremental innovators of products. They appeared to be distinguishable from their less innovative competitors, both in their apparent ability to do new things and cope with change, and, superficially at least, in their financial and competitive performance.

However, it was not at all clear what it was that contributed critically to the innovativeness of the innovative firms and to the non-innovativeness of the laggards. If being innovative resulted in improved financial performance, why were all firms not innovative? On the face of it, innovation might be simply a matter of taking the appropriate investment decisions, and the key to successful innovation might therefore lie in understanding the decision taking process.

However, as was already clear to me, not all management decisions are taken on clinically rational grounds. All sorts of ‘soft’ information, possibly related to the culture of an organisation, may intrude to pervert the taking of purely objective decisions. ‘Hard’, quantitative, financial ‘facts’ are not always the only criteria which in practice determine investment or divestment decisions. This may be particularly so with investments in innovation. Innovation and change involve elements of uncertainty and risk which are not so apparent in more straightforward replacement expenditure.

The replacement of a sales representative’s car, for example, is likely to arise simply as a result of calendar age or mileage and the decision process is likely to be similarly arbitrary in most organisations. However, investment in a new and different product line, or production process, is a much more complex and problematic issue. Such decisions may be complicated by all manner of psychologically loaded factors.

One such example, from my own experience, was referred to in the original proposal for this research. In that instance, an overwhelmingly strong financial case had been made for the disposal of substantial non-productive assets including a large office building. Not only was the financial case strong, but it was also the option which preserved the greatest number of jobs and promised the most optimistic future. However, the decision was rejected. Apparently the critical issue had been stated by the Chief Executive concerned that ‘closing the Head Office would be like tearing the company’s heart out’. The Head Office in question was an elegant art deco building in which labyrinthine distinctions of rank and status had long been institutionalised.

In other companies, the opportunity might have been grasped and the business progress to better times. This seemed to suggest that there might be something in the culture of an organisation which critically affects the way important decisions are taken, particularly decisions involving a high degree of uncertainty, such as decisions on innovation and change.

This was the background to my interest in the project. The aim of the research was to determine what it is that makes some mature industry firms innovative and others less so. It was hoped that it might be possible to develop a means of analysis capable of suggesting the management action necessary to enable a firm to become a more effective innovator. The intention was that the research would not only make some new contribution to our understanding of this problematic area, but would also, it was hoped, be of some practical use and interest to industrial managers.

Remaking the Real Economy

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