Innovation key success factors for sme acting on niche markets

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INNOVATION KEY SUCCESS FACTORS

FOR SMEs ACTING ON NICHE MARKETS

Magnus Penker, July 2011

[email protected]

White Paper

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INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS

TABLE OF CONTENTS

1. INTRODUCTION TO BEARING 3

2. EXECUTIVE SUMMARY 4

3. RESEARCH OBJECTIVES, PROBLEMS AND SCOPE 5

4. REVIEW OF CURRENT THINKING 6

4.1. Type of innovations 6

4.2. Strategic innovations 8

4.3. Open innovation 9

4.4. Leadership and culture 11

4.5. Strategy, capabilities and key success factors 12

4.6. The innovation process 15

4.7. Market structure and competition 18

4.8. Conclusions 20

5. INVESTIGATION 22

5.1. Objectives, research questions and hypothesis 22

5.2. Investigation design and methodology 22

5.2.1. Research methodology 22

5.2.2. Questionnaire design 23

5.2.3. Sampling strategy 23

5.2.4. Data analysis techniques 23

5.3. Findings and analysis 23

5.3.1. Can innovation lead to competitive advantages? 28

5.3.2. Is there any difference if acting on an oligopolistic market compared with other market structures? 28

5.3.3. Which type of innovations has the most impact on competitive advantages? 29

5.3.4. What are the perceived key success factors when establishing an innovation process in order to gain competitive advantages on an oligopolistic market? 29

5.3.5. Linking innovation personas to KSFs 37

6. CONCLUSIONS AND RECOMMENDATIONS 39

6.1.1. Competitive advantages 39

6.1.2. Differences on oligopolistic markets 40

6.1.3. KSF 40

6.1.4. Organisational aspects 41

6.1.5. Recommendations 41

7. REFERENCE LIST 45

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1. INTRODUCTION TO BEARING

Bearing Consulting Ltd. (“Bearing”) is a United Kingdom based management consulting company. We

have offices in London, Stockholm, Barcelona, Geneva and Johannesburg and we work with projects

world-wide. Bearing Consulting is a partnership, owned by senior consultants. The business was

established in 2001 and has operated under the Bearing brand name since 2004.

We work in close cooperation with academic research institutions and many international and

regional Innovation Systems. Some of our consultants have an academic career in parallel with their

consulting practice.

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2. EXECUTIVE SUMMARY

In a world of hyper competition, innovation is imperative to gain competitive advantage. However,

the coin has a flip side, as innovations are often expensive and can be easily imitated by competitors.

In this study, the nature of small and midsize enterprises (SMEs) acting on niche markets with few

players have been investigated and explored, resulting in a set of Key Success Factors (KSF). The four

key research questions answered in this study are: Can innovation lead to competitive advantages?

Which type of innovations has the most impact? Are there any differences acting on a niche market

(with oligopolistic characteristics) compared with other market structures? What are the key success

factors when establishing an innovation process?

The investigated sample of respondents are employed, or work for firms, up to the size of 250

employees distributed all over the world within the verticals of professional services, merchandising,

retail and Technology-Media-Telecommunications (TMT).

One of the key findings is that management system innovation, sales and marketing innovations, and

product innovation confer the strongest competitive advantage. There is also trade aspect to be

taken into consideration, e.g. merchandising and retail generally rank product innovation highest

while professional services and the TMT sector rank process innovation as most important.

Moreover, data analysis confirms that technology driven innovations and management innovations

have the most positive impact on competitive advantage. Sustainability of the competitive advantage

is, however, not possible to judge according to the investigation or the literature review, as previous

research says that innovation can lead to sustainable competitive advantages, while more recent

research indicates that it might be problematic to gain sustainable competitive advantages. It is likely

that static KSF need to be replaced with a more dynamic approach, but this is out of the scope of

this study and part of Bearing Research Program.

It is also surprising that, among respondents, using innovation to keep competitors out was strongly

correlated with being a technology driver but only weakly correlated with the capability of

understanding emerging technologies and trends. This calls for a recommendation to develop

capabilities for exploring and understanding emerging technologies and trends.

Generally speaking, SMEs are strong in the ideation phase and weak in the commercialisation phase,

following the pattern observed in larger corporations. However, the investigated SMEs do not use

outsourcing to strengthen their capabilities, which is also a bit surprising, as this could potentially

increase their ability to move into new areas. This is also one of the recommendations made to SMEs

going forward with radical and technology driven innovations.

The conclusion of the study is that SMEs acting on niche markets benefit from increased profit and/or

keeping their competitors out. Perceived KSFs are partly dependent upon the purpose of innovation;

whether the firm is trying to keep competitors out or if the firm is trying to increase its profit. In

total, there are 21 KSFs, which are all important but different ranked according to the purpose, the

type innovation work, the market structure as well as the trade in which the firms operates. At the

end of the study, five comprehensive recommendations are made together with conclusions and

discussions about the findings.

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3. RESEARCH OBJECTIVES, PROBLEMS AND SCOPE

The research problem is investigating how innovations can be used to gain competitive advantage,

and the level of analysis is set to analyse on a company level (which is also the entity). The scope

of the investigation is niche market with oligopolistic market structure and SME companies, while the

objective of the investigation is to identify perceived KSFs when establishing an innovation process

to gain competitive advantages through innovations.

The research questions are: Can innovation lead to competitive advantages? If yes, which type of

innovations has most impact on competitive advantages? Moreover, are there any differences if acting

on a niche markets with oligopolistic market structure compared with other market structures?

Finally, what are the KSFs when establishing an innovation process to gain competitive advantages on

a niche market?

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4. REVIEW OF CURRENT THINKING

According to (Encyclopedia Britannica, Inc., 1974) an innovation is „the introduction of new

technologies, held by some writers to be a primary factor in economic growth which is the core of

my research problem‟. Innovations are driven by opportunities and capabilities. Drucker (1998)

pointed out four areas of opportunities which exist within a company: unexpected occurrences,

incongruities, process needs and industry and market changes. Outside the company, there are three

additional sources of opportunities: demographic changes, changes in perception and new knowledge.

It is also possible to consider the linkage to other organisations as an asset in itself. Tovstiga and

Birchall (2005) argue that firms are nodes in lager networks which create value by transforming

opportunities into businesses by strategic deployment of capabilities. Moreover, they argue that firms

are continuously looking for opportunities within the environment, turning them into a competitive

advantage through transformation innovation, and ultimately gaining profitable growth. To

summarise, innovation can be seen from two perspectives; from the internal perspective of a firm‟s

capabilities, and from the external market perspective where the performance can be measured and

success judged (Tovstiga & Birchall, 2005).

There are three kinds of innovation strategies that most companies apply to; there are need seekers,

market readers and technology drivers. The need seekers look for potential opportunities by

applying superior understanding of the market and rapid go-to-markets, market readers capitalise on

existing trends and understanding of markets, while technology drivers drive for breakthrough

innovations based on new technology (Jaruzelski & Dehoff, 2010).

In current thinking, there are several types of innovations that are discussed, as well as what is called

strategic innovation and innovation of business models. Another trend, known as open innovations,

is where innovations are driven in symbiosis with external parties. Many practitioners, as well as

academics, point out the importance of building the right capabilities, adopting the leadership style as

well as understanding and developing corporate culture to maximise the value of innovation work.

The literature review is divided into sections reflecting these different aspects of innovation

management.

4.1. Type of innovations

„Innovation can be categorised by level of aggregation, from the first level which is improvements on

an individual level, to the second level which is functional level like processes, to the third level which

is the company level and typically concerning the value chain and radical product and service

innovations to the last and the fourth level which is the industry level typically concerning

breakthrough innovations changing the playing field. Another way of categorise innovations is

whether it is aiming at a new market or not as well as the level of aggregation, or scope, which can

be combined as illustrated in Figure 1 (Assink, 2006).‟

„The nature of innovations can be described by the scope of innovations in combination with either a

quantifiable outcome or a non-quantifiable outcome (Tovstiga & Birchall, 2005)‟. Both Tovstiga and

Birchall (2005) and Assink (2006) point out scope, or aggregation level, as one of two characteristics

and the market or the outcome as the other characteristic. Tovstiga and Birchall (2005) point out

quantifiable and operational scope as institutional innovations while Assink (2006) points out

technology, concept or product innovations with existing means on an existing market as incremental

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innovations. Moreover, Tovstiga and Birchall (2005) call non-quantifiable and strategic scope radical

innovations, while Assink (2006) points out new technology, concept or product innovations on a

new existing market as breakthrough innovations. Also see Figure 1.

Figure 1 Innovation Framework (Source: Assink, 2006)

Kim and Mauborgne (1997, 2005) argue that the conventional approach to staying ahead of

competitors is less successful than making the competitors irrelevant by applying what they call „value

innovation‟, which is also the cornerstone of „blue ocean strategy‟. Kim and Mauborgne (1997) define

conventional logic as the current industry logic companies applying getting competitive advantages as

well as to keep existing customers and expand the customer base through line expansions. Later,

Kim and Mauborgne (2005) renamed conventional logic as „red ocean strategy‟ (Amabile, 1998;

Hamel, 2006).

There are three platforms for value innovations and they are product, service and delivery

platforms.According to Kim and Mauborgne (2005), when applying blue ocean strategy based on

value innovation, there are six principles to follow;

Reconstruct market boundaries

Focus on the big picture

Reach beyond existing demand

Get the strategic sequences right

Overcome key organisational hurdles

Build in execution into strategy

Except for the dimensions of scope and market innovation, these might be categorised within a

typology defined by Trott (2008) and illustrated within Table 1.

Disruptive Technologies

Breakthrough innovations

Incremental innovations

Disruptive business concepts

Existing market New market

New technology/process/concept

Existing technology/process/concept

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Type of Innovation Example

Product Innovation The development of a new or improved product.

Process Innovation The development of a new manufacturing process.

Organisational Innovation A new venture division; a new internal communication system;

introduction of a new accounting procedure

Management Innovation TQM (total quality management) systems; BPR (business

processes re-engineering).

Production Innovation Quality circles; just-in-time (JIT) manufacturing systems; new

production planning software.

Commercial/Marketing

Innovation

New financing arrangements; new sales, Delivery innovations in

sales, market approaches, e.g. direct marketing.

Service Innovation Internet-based financial services.

Table 1 Typology of innovations adopted with explanations and examples (Source: Trott, 2008)

Understanding the typology of innovations will contribute to the investigation when structuring the

data collection and analysing the collected data.

4.2. Strategic innovations

Strategic moves, as Kim and Mauborgne (2005) named it, are managerial actions and decisions that

fundamentally change the business, opening new markets resulting in large leaps in demand.

Moreover, Kim and Mauborgne (2005) argue that strategic moves give the possibility of profitable

growth instead of head-to-head earlier in this section referred as red ocean strategy. Govindarajan

and Trimble (2005) point out that strategic innovations and entrepreneurship are imperative to

success in a globalised world where the economic environment is rapidly changing. Moreover, it is in

the process of strategic innovations that potential customers are explored, delivery of value is

conceptualised and analysed, and the end-to-end value chain explored and redesigned. Strategic

innovations are like experiments, characterised by the fact that they leverage on an organisation

existing capabilities but are not line extensions, are launched before competitors, require at least

some new capability and knowledge, are unprofitable the first period of time and are initially hard to

judge where successful or not. Strategic innovations are driven as projects and use existing business

as a platform, while management innovations are about changing the platform, the principle of the

business. „A management innovation creates long-lasting advantage when it meets one or more of

three conditions: the innovation is based on a novel principle that challenges management orthodoxy;

it is systemic, encompassing a range of processes and methods; and it is a part of an ongoing program

of invention, where progress compounds over time‟ (Hamel, 2006:74).

Management innovation is about management process innovation while other innovation is about

business processes like the supply chain and customer support. Typically managerial work is setting

goals, coordinating the use of resources and activities, acquiring knowledge, identifying and

developing talents, as well as building and nurturing relationship. According to Hamel (2006), the

elements of management innovation are:

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Commitment to a big management problem

Novel principles that illuminate new approaches

A deconstruction of management orthodoxies

Analogies from atypical organizations that redefine what‟s possible

A business model „consists of four interlocking elements that, taken together, create and deliver

value‟ (Johnson et al., 2008 : 52), and is one of several possible management innovations. According

to Teece (2010), new product development should be complemented with a new business model

which defines the go-to-market strategy and the capture-value strategy in order to secure

profitability. Teece (2010) point out two extremes of business models; an integrated business model

in one end and outsourced business model in the other end. The integrated business model suggests

that all activities are done in-house, from design, manufacturing to sales and distributions. The

outsourced model suggest focusing on the core capabilities and outsourcing the rest, one example

mentioned is Dolby (high fidelity noise reduction) which is a pure licensing model where everything is

outsourced.

One of the major reasons why new business models do not generate new growth is that the current

business model is not understood by the management which also make it hard to judge whether to

use existing business model or to reinvent it. Johnson et al (2008) explain that the elements of a

business model are composed of a profit formula, key resources and key processes. The profit

formula is defined to be a revenue model, cost structure, a margin model and resource velocity,

which refers to the inventory turnover and other aspects of how to utilise resources. The key

resources are about what‟s needed to operate while the key processes are about how to operate

and measure.

Strategic innovations leading competitive advantages and profitable growth is one of the aspects to be

considered when investigating the current research questions.

4.3. Open innovation

Open-market innovation is about the free trade of innovations involving external parties within the

innovation process. Innovation exchange, innovation databases, access to venture capital and

innovation agents are driving the open-market innovations that has a positive impact on the own

organisation such as insights what‟s the core business actually is, improved employee retention and

potential better revenues through licensing fees (Rigby & Zook, 2002). Henry Chesbrough, a well-

known champion of open innovation, argues that open innovation can be seen as inside-out or

outside-in. „Outside-in is where companies are using external ideas in its business, and inside-out is

where the companies offer open platforms and technologies to the market. Amazon is an example

where the internal web based systems is offered to be used by customers driving revenue, and LEGO

where they opened up to external parties to develop their new concept of programmable toy robots

called MindStorm™. The key to competitive advantage is to understand the service value web where

the company and the market interact creating value‟ (Chesbrough, 2011). Figure 2 shows the new

service value web as Chesbrough (2011) argues „focus on what is primary value creating and

complement Michel Porter‟s Value Chain‟s week spot, namely the customer interaction part of the

value chain‟.

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Figure 2 A Service Value Web (Source: Chesbrough 2011)

Huston and Sakkab (2006) point out that external parties, or „networks‟, are not guarantees for

earning money. It is more like a system; dependent on how you use it you can bring ideas and

capabilities together – Connect and Develop, which also is the basis and name of Proctor & Gamble‟s

model for innovations‟. Nambisan and Sawhney (2007), on the other hand, argue that ideas and/or

market-ready concepts can very well be bought, which is a kind of outsourcing in itself. When

shopping ideas or market-ready both concept industry factors as well as company factors have to be

taken into consideration. Industry factors that typically need to be taken into consideration are pace

of technological and market change, innovation potential, and costs. Typically, company factors to be

considered are the purpose of the innovation, product capabilities, company size and risk appetite.

One example of outside innovations, where external parties are driving innovations, is Nintendo, a

manufacturer of hardware game consoles which encourages third party businesses to develop and

sell games on their platform (Boudreau & Lakhani, 2009). „From our research, we have identified

three critical issues that managers should take into account when they make the decision [starting

with open innovations]. Specifically, the discussion must look at: (1) the type of innovation, (2) the

motivation of the individual innovating and (3) the nature of the platform business model‟ (Boudreau

and Lakhani, 2009:70).

The motivation of external innovators can be divided into extrinsic and intrinsic motivators, as

explained by Boudreau and Lakhani (2009), where open markets are driven by extrinsic motivators

such as money and need for development while communities are driven by intrinsic motivations such

as identity, fun and intellectual challenges. An example of a community is Linux and an example of

open market is iTunes. There are three kinds of platforms, integrator platforms, product platforms

and two-sided platforms. The integrator platforms are platforms such as iTunes and iPhone where

customers get in contact with innovators through the platform, while product platforms such as

Gore-Tex offer external innovators the possibilities of innovation and selling to customers, and the

two-sided platform is typically affiliate programs where external innovators directly interact with

customers.

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However, there are also concerns such as intellectual properties might be tricky to handle when

people outside the organisation is generating ideas, as well as many companies have difficulties using

the results (Brinkinshaw, Bouquet, & Barsoux, 2011).

Within the investigation, the open innovation market was one of the possibilities to investigate in

order to gain competitive advantages on an oligopolistic market. Moreover, the linkage to the

business model was of interest to the investigation.

4.4. Leadership and culture

Rigby et al. (2009) argue that creative fashion businesses are virtually always lead by a right-brain

individual with imagination in partnership with a left-brain individual with analytical skills. Another

possibility of getting the dynamics is to „assemble small incubation teams to help directors refine their

own ideas‟ (Catmull, 2008). According to Leonard and Straus (1997), the mix of the teams is

important, and ‟if you want an innovative organisation, you need to hire, work with, and promote

people who make you uncomfortable… [y]ou need to understand your own preferences so that you

can complement your weaknesses and exploit your strengths‟ (Leonard & Straus, 1997). According

to Kelly & Littman (2005), there are ten typical personas needed to drive creativity through an

organisation. „The Devil´s Advocate may never go away, but on a good day, the ten personas can

keep him in place‟ (Kelly & Littman, 2005).

The idea behind Kelly and Littman‟s (2005) ten personas is to create a climate and culture stimulating

innovative working, from idea to results. One person might have one or several personas and the

important thing is to make sure all profiles are present within an organisational context to stimulate

and support the innovation processes. The ten personas are divided into learning personas,

organisational personas and building personas. The learning personas are individuals digging for new

sources and knowledge, while the organisational personas are the ones structuring, challenging and

orchestrating the work. The building personas are typically the intellectual architects, the storyteller

and the caregiver as well as the one setting up a proper environment.

People, team composition and leadership are all important components as well as the process of

running the creative work. Breakthrough thinking is about orchestrating the brainstorming process

asking the right questions and not just let people brainstorm without any guidance. Generally

speaking, people are not very efficient when running unstructured and abstract discussions without

clear goals or at slicing data in all kinds of ways. Instead exploring unexpected success, looking at

other trades with similar challenges and boundaries as well as examine binding constraints are more

effective ways of orchestrating the creative processes (Coyne, Clifford, & Dye, 2007).

Moreover, people need to be motivated and encouraged. The motivation is both intrinsic and

extrinsic, however just extrinsic motivation is not enough, and if not complemented with intrinsic

motivation, it can actually destroy the creativity as people might feel controlled. The intrinsic

motivation is the strongest mean and gives the work meaning. It can be achieved by assigning the

proper assignments to the right people, give freedom, allocate resources and encouraging work

(Amabile, 1998).

A well-known innovative practitioner, Steve Jobs, has developed seven principles for breakthrough

thinking and success. Gallo (2011) has documented Steve Job‟s seven principles in his book;

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‟Principle 1: Do What You Love‟ (Gallo, 2011:13)

‟Principle 2: Put a Dent in the Universe‟ (Gallo, 2011:43)

‟Principle 3: Kick-Start Your Brain‟ (Gallo, 2011:79)

‟Principle 4: Sell Dreams, Not Products‟(Gallo, 2011:103)

‟Principle 5: Say No to 1,000 things‟ (Gallo, 2011:135)

‟Principle 6: Create Insanely Great Experience‟ (Gallo, 2011:173)

‟Principle 7: Master the Message‟ (Gallo, 2011:197)

A key part of the problem is that different kind of innovation problems call for different kind of

solutions. Just a few different styles of strategy innovation seem to solve innovation problems in the

most successful firms (Loewe, Williamson, & Wood, 2001). The five styles are given metaphoric

names and are:

The Cauldron: An entrepreneurial style where the business model is frequently challenged.

The Spiral Staircase: A style where you climb upwards without losing the over-all goal.

The Fertile Field: A style where the organisation tries to use existing capabilities and resources in

a new way.

The PacMan: A style where you invent, outsource and finance start-ups.

The Explorer: A style where you explore possibilities and invest time and money in them without

demanding short-term profit.

Govindarajan & Trimble (2005) have pointed out the importance of letting strategic innovations

become new ventures where they borrow resources from the corporation (mother company) but

are not influenced by past success or ideas about do and don‟ts. Ventures might be spin-offs,

strategic experiments or innovations with business models and all have in common that they are

strategic innovations driven as separate ventures founded, financed and deployed with resources

(staff, systems, structures, culture) by the corporation but are autonomic and eventually lead by

external hired management. (Govindarajan & Trimble, 2005).

According to Day (2007), innovations can be structured and managed within a portfolio to handle

risk and revenue. „By managing potential revenue and risk within a portfolio of innovation projects,

better return can be reached over time‟ (Day, 2007).

According to reviewed literature, it seems as though leadership, culture, how to put together teams

in combination with risk and portfolio management of innovation process as well as potential and

controlled spin-off of strategic innovation projects are fundamental to success. Insights gained in this

part of the literature review can be used to structure the data collection within the investigation in

order to understand and explore how innovation work can be, and is, structured in terms of

leadership style, culture, team composition, portfolio and risk management as well as how creativity

is stimulated.

4.5. Strategy, capabilities and key success factors

According to Jaruzelski and Dehoff (2010), most of the world‟s 1000 innovation top spenders follow

one of following three innovation strategies:

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Need seekers, companies actively working with their end-customers understanding how to develop

and offer superior value to the market.

Market readers, watching and analyzing market trends and capitalise on proven trends.

Technology drivers, using new technologies to solve problems, sometimes not articulated. Can be

both disruptive as well as improvements.

Organisations need to renew themselves and today‟s business environment is especially demanding

and is characterised by rapid changes in demand, technology and competition. Innovation is driven by

technology competence as well as customer competence such as customer insights, distribution

channels, communication and brand as well as reputation management (Danneels, 2002). The ability

to learn about customers and new technology is a critical capability in today‟s competitive landscape.

A capability „represents a distinctive and superior way of allocating, coordinating, and deploying

resources‟ (Amit and Schoemaker, 1993; Schreyogg and Kliesch-Eberl, 2007, cited by Flynn, Wu, and

Melnyk, 2010:247). Moreover, capabilities are firm-specific, emerge step-by-step, are tacit, dependent

upon the decision maker and are empirically validated over time (Flynn, Wu, & Melnyk, 2010).

Tovstiga and Birchall (2005) argue that successful innovation is strongly linked to capabilities to gain

knowledge, learn and change. According to Tovstiga & Birchall (2005:266), „the firm‟s capabilities are

the internal competitive activities with which the firm intend to fulfil and deliver on the key success

factors [which are related to the industry]‟. However, smaller firms tend to outsource their core

organizational competencies, while medium-sized firms tend to outsource non-core activities (Haq &

Sen, 2011).

Driving for disruptive innovation is related to external factors as well as internal factors and certain

capabilities. Assink (2006:219) states that disruptive innovation capabilities are ‟the internal driving

energy to generate and explore radical new ideas and concepts, to experiment with solutions for

potential opportunity patterns detected in the market´s white space and to develop them into

marketable and effective innovations, leveraging internal and external resources and competencies‟.

Moreover, Assink (2006) has identified five clusters of key inhibitors of those disruption capabilities:

Adoption barriers, meaning many successful enterprises losing their innovation edge only

working with improvements and not disruptive innovations and out-of-the-box thinking.

Mindset barriers, meaning many firms have problems to unlearn.

Risk barriers, typical not-invented-here syndrome and focus on old experience and

knowledge that were relevant and true in the past.

Nascent barriers, lack of motivating people being innovative and creative when the

company grows.

Infrastructural barriers, at first there is challenges with standards and after launch

challenges with conservatisms on the market.

As earlier stated, Jaruzelski & Dehoff (2010) pointed out three kinds of innovation strategies, of

which the technology drivers were the disruptive one. All three strategies are shown in Figure 3,

which also show how Jaruzelski & Dehoff (2010) link critical categories of capability to the three

different strategies where disruptive technology driver‟s success is especially linked to the capability

of understanding emerging technologies and trends as well as product life-cycle management.

According to this literature review, it seems that different strategies call for different capabilities and

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that these capabilities are linked to the fulfilment of key success factors in the trade. Technology

driven strategies call for a culture of motivation, unlearning, challenging, opportunism, high focus on

product-life cycle and infrastructural issues as well as being able to allocate, coordinate and deploying

resources (Tovstiga and Birchall, 2005; Assink, 2006; Flynn et al., 2010; Jaruzelski and Dehoff, 2010).

Figure 3 Critical and Specific Capabilities by Strategy (Source: Jaruzelski & Dehoff, 2010)

The concept of KSFs can be used in several ways and one of these ways is „as a description of the

major skills and resources required to be successful in a given market‟ (Grunert & Ellegaard,

1992:Executive Summary). KSFs can be divided into perceived and actual key success factors. The

perceived KSFs are measured with interviews and actual KSFs by collecting objective or semi-

objective data that shows correlation between cost and perceived value. There are several sources

of KSFs, which can be identified within the industry, the competitive strategy and the company‟s

position. If a KSF matches a firm‟s strength, i.e. one of its capabilities, this will cause a positive impact

on the performance of the firm within the market place. However, to be successful the company

must be able to be used within a cost effective way, otherwise it will just be a slack (Grunert &

Ellegaard, 1992).

Tovstiga and Birchall (2005) state that „examples of key success factors include the ability to:

Deliver superior value through products and services

Carry out competitive manufacturing and commercial process reviews

Attract superior talents, employees with critical expertise and skills

Grow the business through competitive pricing and marketing image

Establish and maintain a long-term relationship with satisfied customers…‟

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Moreover, Tovstiga and Birchall (2005) also point out that not all capabilities are always fully

exploited and might have a strong or a week impact on the performance of the firm.

Jaruzelski and Dehoff (2010) point out that innovative companies are coherent with the capabilities

shown in Table 2 are in general more differentiated and have higher margin (EBITDA) as well as

higher market capitalisation relative to their competitors.

Category Capability

Ideation

Supplier and distributor engagement in ideation process

Independent competitive insights from the marketplace

Open innovation/capturing ideas at any point in the process

Detailed understanding of emerging technologies and trends

Deep consumer and customer insights and analytics

Project selection

Strategic disruption decision making and transition plan

Technical risk assessment/management

Rigorous decision making around portfolio trade-offs

Project resource requirement forecasting and planning

Ongoing assessment of market potential

Product

development

Reverse engineering

Supplier–partner engagement in product development

Design for specific goals

Product platform management

Engagement with customers to prove real-world feasibility

Commercialisation

Diverse user group management

Production ramp-up

Regulatory/government relationship management

Global, enterprise-wide product launch

Product life-cycle management

Pilot-user selection/controlled rollouts

Table 2 The Most Important Innovation Capabilities (Source: Jaruzelski & Dehoff, 2010)

Within the investigation the concept of KSFs, capabilities and strategies, Jaruzelski and Dehoff‟s

(2010) framework of the most important capabilities for innovation can be used to structure data

collections as well as serving as a tool for analysing the collected data.

4.6. The innovation process

Managing innovation work is related to uncertainty and, according to Trott (2008), there can be

uncertainty within the process or the outcome or a combination, which is illustrated in Figure 4.

Application engineering is a typical innovative product development managed by a well-defined

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process, while development engineering is more unstructured but with a well-defined goal. The

exploratory research are also referred to as blue sky as it is up in the clouds working with new

technologies not fully understood with a fuzzy goal or idea what to achieve (Trott, 2008).

Figure 4 Pearson's uncertainty map (source: Pearson, 1991 cited by Trott, 2008)

There is a lack of a general innovation process, covering all aspects of innovation management.

However, New-Product-Development Processes are most common and the general steps are:

Idea generation; initial screening and preliminary assessment

Definition; market analysis and preliminary financial analysis, decision on business case

Development

Post-review

Validation; including in-house-tests and pre-commercialisation decision

Commercialisation

Post-implementation review

Projects typically have a sponsor and en executive team that make decisions about each tollgate.

Often projects are organised in portfolios, which are managed to create maximum impact at a

defined level of risk (Tovstiga & Birchall, 2005).

Another view on innovation management, rather than a traditional process approach, is Sawhney,

Wolcott and Arroniz‟s (2006) innovation radar, shown in Figure 5, which is a 360-degree tool to map

and benchmark innovation work. The innovation radar is a way of analysing, in a holistic way, the

outcome of innovation work in terms of customer value as well as a benchmark against other actors

on the market. Moreover, it is way of getting the whole picture not missing any relevant aspect of

what to innovate gaining customer value (Sawhney, Wolcott, & Arroniz, 2006).

Applicationsengineering

Exploratoryresearch

Combining market opportunities with

technical capabilities

Developmentengineering

Uncertainty about process

Uncertainty about output

HighLow

High

Low

17


Figure 5 The Innovation Radar (Source: Sawhney, Wolcott, & Arroniz, 2006)

The value of innovation, generated within an innovation process, can be measured by applying Key

Performance Indicators (KPI) as shown in Table 3. The KPIs are divided into three groups, idea

generation, conversion and diffusion of the innovation (Hansen & Birkinshaw, 2007).

01234567

Offerings (What)

Platform

Solutions

Customers (Who)

Customer Experiance

Value Capture

Process (How)

Organization

Supply Chain

Presence (Where)

Networking

Brand Case 1

Case 2

18


Idea Generation Conversion Diffusion

In-House Cross-

Pollination

External Selection Development Speed

Key

Quest

ions

Do

people in

our unit

create

good

ideas on

their

own?

Do we

create

good ideas

by working

across the

company?

Do we

secure

enough

good ideas

from

outside the

firm?

Are we

good at

screening

and

funding

new

ideas?

Are we good

at turning

ideas into

viable

products,

businesses,

and best

practices?

Are we good at

diffusing

development

ideas across the

company?

Key

Perf

orm

ance

Indic

ator

Number

of high-

quality

ideas

generated

within a

unit.

Number of

high-quality

ideas

generated

across

units.

Number of

high-quality

ideas

generated

from

outside the

firm.

Percentag

e of ideas

generated

that end

up being

selected

and

funded.

Percentage of

funded ideas

that lead to

revenues;

number of

months to first

sale.

Percentage of

penetration in

desired

markets,

channels,

customer

groups; number

of month to full

diffusion.

Table 3 Innovation Management KPI (Source: Hansen & Birkinshaw, 2007)

The generic process steps „The stage gate process at Agilent‟ (Tovstiga & Birchall, 2005), the

„Innovation Radar‟ (Sawhney, Wolcott, & Arroniz, 2006) as well as Hansen & Birkinshaw‟s (2007)

KPIs are all usable tools when discussing KSF and looking at how to measure and manage them.

4.7. Market structure and competition

Thirty years ago, Michael Porter introduced his framework „Five Forces‟ (Porter, Competetive

Strategy: Techniques for Analyzing Industries and Competision, 1980) and the concept that

competition is made up of five forces. The five forces are entry of new competitors, threats of

substitutes, barging power of buyers, barging power of suppliers and rivalry among the existing

competitors (Porter, Competetive Strategy: Techniques for Analyzing Industries and Competision,

1980). According to Porter (1990, 1996), competitive advantage is gained by pressure and challenge

and sustainable competitive advantage is gained based on something distinctive and different within a

company, and not just excellence in operation and cost-cutting, which will always converge within the

industry.

The market today is global and hypercompetitive, no competitive advantages is sustainable and all

competitive advantage erodes. Companies must actively aim to disrupt their own as well as their

19


competitors competitive advantages in order to cope with the hyper competitive market, and for

that a new 7S model has been developed; to be used to identify own strengths and weaknesses as

well as analysing the industry and the competitors (D'Aveni, 1995). Figure 6 shows D'Aveni‟s (1995)

7S‟s model.

Figure 6 The new 7S’s model (Source: D'Aveni, 1995)

However oligopolistic market structure has an inherited dualistic nature, it provides you with a

competitive advantage but competitors will imitate and you need to innovate over and over again;

leading to less growth than in a market with more competition and/or larger population (Shrieves,

1978; Le, 2008).

When it comes to innovation of business models, they are possible to imitate as they become known

to the market when launched. When launching a new business model one should always calculate

what competitors‟ moves will be; which can be either reduced price or new business models

(Casadesus-Masanell & Zhu, 2010).

In the work of D‟Aveni et al. (2010), they point out that in a world of hyper competition sustainable

competitive advantages might not exist anymore or at least not over time and as one single

competitive advantage. They comment that temporary competitive advantages are increasing in

importance and perceived sustainable competitive advantages are decreasing in importance as the

market becomes more complex and it gets increasingly easier to imitate and/or disrupt earlier

previous competitive advantages. They suggest using chaos theory models, as well as the theory of

complex systems, to deal with the new situation at the same time as they open for the possibility that

temporary competitive advantages might just be a special case of Porter‟s five forces, where low

barriers and low entries are combined with high power of suppliers and buyers leading to an hyper

20


competitive industry rivalry with many and short competitive advantages. Their conclusion is that

firms must build their ability to search for and adopt temporary competitive advantages being able to

handle multi-strategies to gain and keep market share.

When answering the research questions and designing the data collection method, it is of relevance

to take the market structure and its complications into consideration.

4.8. Conclusions

According to Tovstiga and Birchall (2005), innovation is used to differentiate firms based on its

capabilities to gain a competitive advantage on the market, and the perspective of innovation can

either be internal factors as the capabilities or external factors as whether an innovation, based on

the supply and the demand, will succeed or not. In the literature review, it is clear that innovations

can be incremental and disruptive, and that there are several kind of possible innovation strategies

such as need seekers who look for potential opportunities by applying superior understanding of the

market and rapid go-to-markets, market readers who capitalise on existing trends and understanding

of markets, and technology drivers who drive for breakthrough innovations based on new technology

(Jaruzelski & Dehoff, 2010). Internally, possible capitalisation of capabilities, according to, for example,

Kelly and Littman (2005), Coyne (2007), and Loewe et al. (2001), seems to be dependent upon

leadership style as well as personalities of the people and the organisation. Moreover, each strategy,

according to Jaruzelski and Dehoff (2010) call different capabilities to success. The capabilities for

success, or KSFs, can also be divided into actual and perceived key success factors (Grunert and

Ellegaard, 1992). Actual KSFs are the ones that by certainty lead to expected results, while the

perceived ones are expected to lead to certain results There are also, according to the literature

review, several kinds of innovation possibilities - according to Trott (2008), there are eight kinds of

innovations.

According to the literature review, it seems clear that innovation might provide competitive

advantages but, according to researchers such as Le (2008) and Shrieves (1978), it is a dualistic

relationship between innovation and oligopolistic market structures, it provides you with a

competitive advantage but competitors will imitate and you need to innovate over and over again;

leading to less growth than in a market with more competition and/or larger population.

In the investigation, the literature review will provide the foundation for designing the data collection,

as well as academic and practitioners thinking, to compare and contrast the key finds against.

The data collection will be based on the findings in the literature review and structured around three

key questions; Why, What and How as shown in Figure 7, based upon the work of Jaruzelski and

Dehoff (2010), Trott (2008), Kelly and Littman (2005) and Loewe et al (2001).

21


Figure 7 Why, What and How to innovate, based upon the work of Jaruzelski and Dehoff (2010), Trott (2008), Kelly and Littman (2005) and Loewe et al (2001).

Wh

y Company Strategy

•Incremental/ Disruptive

•Need seekers

•Market readers

•Technology drivers

Wh

at Product Innovation

Process Innovation

Organisational Innovation

Management Innovation

Production Innovation

Commercial/Marketing Innovation

Service Innovation

Ho

w Style

•Cauldron

•Spirale

•Fertile

•PacMan

•Explorer

People

•10 Faces of Innovation

Capability

•Ideation

•Project selection

•Product development

•Commercialisation

22


5. INVESTIGATION

5.1. Objectives, research questions and hypothesis

In order to fulfil the objective of the investigation, the following research questions shall be

answered:

Can innovation lead to competitive advantages?

Which type of innovations has the most impact on competitive advantages?

What are the perceived KSFs when establishing an innovation process in order to gain

competitive advantages on an oligopolistic market?

Are there any differences when acting on a niche market with oligopolistic characteristics

compared with other market structures?

Based on the literature review, the hypothesis is that innovation can lead to competitive advantages if

the leadership, strategy, culture, processes and capabilities are in place (Quelin, 2000; Loewe et al.,

2001; Danneels, 2002; Govindarajan andTrimble, 2005; Kelly and Littman, 2005; Tovstiga and Birchall,

2005; Day, 2007; Rigby et al., 2009; Flynn et al., 2010). However, there are different reasons to

innovate, which can be need seekers, market readers and technology drivers (Jaruzelski & Dehoff,

2010).

Regarding the second research question, about what type of innovations that have most impact on

competitive advantage, the literature review supports the hypothesis that strategic innovations, such

as disruptive technologies, management innovations or new business models, are most likely to

provide sustainable competitive advantages (Kim and Mauborgne, 1997; Govindarajan and Trimble,

2005; Hamel, 2006), which will be explored within the investigation.

Based on the literature review, the hypothesis is that the capabilities for success, stated within

Jaruzelski and Dehoff (2010) and shown in Table 2, is general KSFs also valid for oligopolistic markets

as several of the top performances, acting on an oligopolistic market (e.g. Google, Apple, Toyota and

Intel).

5.2. Investigation design and methodology

5.2.1. Research methodology

The research is deductive where the hypothesis, gained from the literature review, is tested and then

linked back to research questions. The research objective is descriptive; it is about understanding and

discussing the impact of the perceived KSFs when establishing an innovation process in order to gain

competitive advantages on niche markets with oligopolistic market structure. The research design is

fixed and quantitative, based on primary data. Primary data collection methods are divided into

surveys as well as observations, whereas surveys can be self-completion surveys or interview-based

surveys (Hair, Money, Page, & Samouel, 2007). The data collection method that will be used is self-

completion via an internet-based questionnaire.

In the investigation, secondary data also will be used for compare and contrast. The source of the

secondary data will the listed capabilities from Jaruzelski and Dehoff (2010), shown in Table 2.

23


5.2.2. Questionnaire design

In order to be able to answer the research questions fulfilling the research objective, the

questionnaire has been divided into five sections covering company data, why innovate, what to

innovate, how to innovate and results.

5.2.3. Sampling strategy

In this study, purposive sampling, also called judgmental sampling, is used as sampling method as a

very specific kind of organisations, the unit of interest, will be analysed, i.e. niche SMEs acting on an

oligopolistic market where innovation is used as a part of their corporate strategy.

5.2.4. Data analysis techniques

The data was collected in a database where all data is coded. No editing is required as all questions

are mandatory and no questionnaires will be closed without being complete. Moreover, the

questionnaires was tested on a sample before final data collection.

The secondary data from the study with Jaruzelski and Dehoff (2010) is used to discuss and enrich

the generalisability of the collected data in the survey.

A limitation with the research design is that actual KSFs are not investigated, and another limitation is

that the survey does not measure how the firms perceive their actual KSFs. Instead, the survey is

focused on perceived important KSFs within the organisations investigated.

5.3. Findings and analysis

The investigated sample of respondent is employed or work for firms up to the size of 250

employees. The distribution of employees is shown in Figure 8, and as

Figure 10 shows, 83% are operating on the European market. The three major trade segments

among the respondents are professional services (37%), merchandising and retail (34%) and

Technology-Media-Telecommunications (TMT).

Africa3%

Asia3%

Europe83%

North America9%

South America2%

Geographical market

24


Figure 8 Number of Employees of the respondents

Figure 9 Trade of respondents

1 - 10 Empl.31%

11 - 50 Empl.40%

51 - 250 Empl.29%

Number of Employees

Venture Capital2%

TMT (Technology-Media-

Telecommunications )21%

Professional Services, e.g. education,

training, consulting

37%

Merchandising and retail

34%

Helthcare2%

Industry, e.g. manufacturing

and raw material4%

Trade

25


Figure 10 Geographical market of the respondents

The reason for innovating is mostly linked to perceived needs and possible improvements, as can be

seen in Figure 11, however as also shown, radical changes is an important reason to innovate. The

respondents, in general, seem to seek needs and market opportunities prior being driven by new

technologies. There is no significant difference between the different trades in which the respondents

operate.

Figure 11 Why innovate

Africa3%

Asia3%

Europe83%

North America9%

South America2%

Geographical market

-

1,00

2,00

3,00

4,00

5,00

6,00

7,00

All respondents, average

TMT, average

Professional Services average

Merchandising and retail, average

26


On average, the respondents innovate their processes, sales and marketing at most and their product

systems at least. However, as Figure 12 shows, the spread of product innovation is rather high.

Merchandising and retail innovate products prior to other innovations while professional servise

score lowest on this category.

Figure 12 What to innovate

The innovation style of the respondents is, according to Loewe et al.‟s (2001) typology, The

Cauldron, The Spiral Staircase and The Fertile Field, while no respondent‟s organisation is a PacMan

or Explorer (shown inFigure 13). The major innovation style is The Cauldron, which is an

entrepreneurial style where the business model is frequently challenged (Loewe, Williamson, &

Wood, 2001).

In Figure 14, innovation style is distributed upon the questions about whether the competitor is

imitating or whether the respondent‟s organisation is imitating, as well as whether the respondents

believe innovation leads to better profit and/or keeping the competitors out of their market. The

entrepreneurial innovators, the Cauldrons, are most convinced that they keep the competitors out

by innovations, while The Spiral Staircase innovators,a style where you climb upwards without losing

the over-all goal (Loewe, Williamson, & Wood, 2001), are most convinced that they get better profit

from applying from innovation and that they are imitated by their competitors. The Fertile Field

innovators, a style where the organisation tries to use existing capabilities and resources in a new

way (Loewe, Williamson, & Wood, 2001), are imitating their competitors most among the

respondents. The Fertile Field respondents are also convinced that innovation leads to higher profit

and helps slightly to keep the competitors out. However, The PacMan style, a style where you invent

and outsource and finance start-ups. (Loewe, Williamson, & Wood, 2001), is not represented by any

of the respondents which is contra indicatory to Haq and Sen‟s (2011) belief that smaller firms tend

to outsource their core organizational competencies, as 71% is of the respondent‟s organisations are

small firms with less than 51 employees. No conclusions can be made, and further research is

needed. Neither is the The Explorer, a style where you explore possibilities and invest time and

money in them without demanding short-term profit, represented. One possible explanation for this

-

1,00

2,00

3,00

4,00

5,00

6,00


TMT, average



27


could be the fact that the sample is SME companies, which normally have smaller budgets than larger

companies.

Also interesting to notice is that, in Figure 14, more respondents state that they are imitated than

imitating, which might be the perceived reality but questionable.

Figure 13 Innovation style, based on Loewe et al. (2001) typology, from left to right; The Cauldron, The Spiral Staircase, The Fertile Field , The PacMan, and The Explorer.

Figure 14 Innovation style distributed on competition aspects

0

5

10

15

20

25

30

Entrepreneurial where the

business model is frequently challenged

You clime upwards without losing the over-all

goal, always innovate to do things better

Tries to use existing

capabilities and resources in a

new way

We invent and outsource it

We explore possibilities

investing time and money

without demanding short-

term profit

Innovation Style

0

1

2

3

4

5

6

7

Our competitors are imitating

our innovations

We are imitating our competitors innovations

We keep our competitors out by our innovation

work

We believe we do get

better profit from driving innovation

work

Entrepreneurial where the business model is frequently challenged

You clime upwards without losing the over-all goal, always innovate to do things better

Tries to use existing capabilities and resources in a new way

28


5.3.1. Can innovation lead to competitive advantages?

Based on the literature review, the hypothesis is that innovation can lead to competitive advantages.

On a 7 point Likert scale, the respondents state that they somewhat (5.85 in mean and 6.0 in

median) agree that they get better profit by driving innovation work and slightly agree (5.02 in mean

and 5.0 in median) that they keep the competitors out by working with innovation. The results are

shown in Table 4, and the standard deviation is small (1.45 and 1.35) with a mean and median which

are close to each other, meaning that this is the general opinion without large deviations. Based on

the literature study as well as the data analysis, the conclusion can be drawn that SMEs‟ action on an

oligopolistic market can gain competitive advantages by applying innovation thinking and acting

resulting in better profit or keeping the competitors out.

We keep our competitors

out by our innovation

work

1-7

(7=Strongly

Agree)

We believe we do get

better profit from driving

innovation work

1-7 (7=Strongly

Agree)

Mean 5,02 Mean 5,85

Median 5,00 Median 6,00

Standard Deviation 1,45 Standard Deviation 1,34

Table 4 Competitive advantage of innovation

5.3.2. Is there any difference if acting on an oligopolistic market compared with other market

structures?

Based on the literature review, the hypothesis is that innovation not necessarily will provide higher

growth on an oligopolistic marker rather keeping the competitor in place (Shrieves, 1978; Le, 2008).

By studying the correlation between whether the respondents believed they kept the competitors

out and the kind of innovation they applied (improvements or radical) and the reason for that (need,

market, new technology) the hypothesis can be tested. Table 5 show the results and, as seen, there is

a fairly strong correlation between keeping competitors out and radical innovations as well as

whether the respondents were need seekers or technology drivers, but not market readers. It also

seems logical that market readers do not keep competitors out rather imitating them. The

conclusion, based on the literature study as well as the data analysis, is that SMEs acting on

oligopolistic markets apply for radical innovations and are need seekers or technology drivers,

keeping their competitors out through their innovation work.

Improvements Radical

Need

seekers

Market

readers

Technology

drivers

We keep our competitors out

by our innovation work 0,26 0,37 0,39 0,05 0,39

Table 5 Oligopolistic characteristics

29


5.3.3. Which type of innovations has the most impact on competitive advantages?

The hypothesis is that strategic innovations, such as disruptive technologies, management innovations

or new business models are most likely to provide sustainable competitive advantages (Kim and

Mauborgne, 1997; Govindarajan and Trimble, 2005; Hamel, 2006). In Table 6, the correlation is

shown between the type of innovation and the results of it (keeping competitors out and/or getting

better profit). The strongest correlations are between product innovation and keeping the

competitors out, and between process innovations and getting better profit. In Table 5, it is also

shown a rather strong correlation between radical and technology driven innovations and keeping

competitors out. Management systems and sell and marketing innovations also have a correlation

with keeping competitors out, even if the correlation is strongest to the product innovations. The

data analysis confirm the hypothesis that technology driven innovations and management innovations

has a positive impact on the competitive advantage, however it is not possible to verify whether it is

temporarily or sustainable.

Pro

ducts

Pro

cesse

s

Organ

isation

Man

agem

ent

system

s

Pro

ductio

n

Sell an

d

mark

etin

g

Custo

mer

Service

We keep our competitors

out by our innovation work 0,26 0,10 0,03 0,21 0,04 0,19 0,11

We believe we do get better

profit from driving

innovation work 0,17 0,28 0,12 0,12 0,08 0,13 0,15

Table 6 Different type of innovation

5.3.4. What are the perceived key success factors when establishing an innovation process in order

to gain competitive advantages on an oligopolistic market?

Based on the literature review the hypothesis is that capabilities for success, stated within Jaruzelski

and Dehoff (2010) and shown in Table 2, is general KSFs also valid within oligopolistic markets. The

data collected is compared and contrasted with the secondary data from the study of Jaruzelski and

Dehoff (2010). The secondary data is based upon a survey with large corporations while this study is

concerned with SMEs, which must be taken into consideration.

The data is collected through the questions 5.1 to 5.21, and are all on a 5 point Likert scale (same

scale as used in the secondary data. The standard deviation is low, no question has more than 1.18 in

standard deviation. The data is categorised as in the study of Jaruzelski and Dehoff (2010); Ideation,

Project Selection, Product Development and Commercialization, which also fits the innovation

process of Tovstiga and Birchall (2005).

30


Figure 15 Importance of KFS within the Ideation Phase of The Innovation process.

The ideation phase is the highest ranked phase among the respondents, with an average of 3.98

compared with the other phases with an average between 3.22 and 3.65. In the secondary data, the

average in all four phases is more or less equal (between 2,02 and 2,04) meaning that each phase is

considered as to be of equal importance, while among the studied SMEs the ideation phase is

considered as the most important phase. As can be seen within Figure 15, the largest deviation

between SMEs‟ and the secondary data is that SMEs consider it to be much more important with

supplier and distributor engagement within the ideation process. A possible explanation might be lack

of internal resources, compared with the large corporations, leading to an external engagement with

suppliers and distributors. The conclusion is that all five KSFs, shown in Figure 15, are important and

considered as KSFs to SMEs and the ideation phase in itself is considered most important of all

phases to the SMEs. The involvement of suppliers and distributors are more important to the SMEs

than to larger corporations, which are named G1000 after Global 1000 within the study of Jaruzelski

and Dehoff (2010).

The most important KSF within the project selection is, according to both to primary and secondary

data, the ongoing assessment of the market potential while rigorous decision making around portfolio trade-

offs are not considered as important or unimportant among the SMEs. Noteworthy is also that the

strategic disruptive decision-making and transition plan is considered remarkably less important to the

larger corporations than to the SMEs. The project selection data is shown in Figure 16. The

conclusion is that ongoing assessment of the market potential, project resource requirement forecasting and

planning, technical and risk assessment/management and strategic disruptive decision-making and transition

plan are the KSFs for the SMEs in this study.

- 1,00 2,00 3,00 4,00 5,00

Supplier and distributor engagement in the ideation

creation process

Independent competitive insights from the

marketplace

Open innovation/capturing ideas at any point in the

process

Detailed understanding of emerging technologies and

trends

Deep consumer and customer insights and

analytics

Ideation



TMT, average


G1000, average

31


Figure 16 Importance of KFS within the Project Selection Phase of The Innovation process.

Regarding product development, both SME respondents as well as the large corporations investigated

within the study by Jaruzelski and Dehoff (2010), point out reverse engineering as the least important

capability. The most important, in regards to both SMEs and large corporations, is the engagement

with customers to prove real-world feasibility. Product platform management, design for specific goals and

supplier-partner engagement in product development. Moreover, there is a difference between

merchandising and retail compared with professional services regarding design for specific goals where

the merchandising and retail considering it somewhat important while professional services regarding

it neither important nor unimportant. The data is shown in Figure 17. The conclusion is that KSFs for

product development is engagement with customers to prove real-world feasibility to both SMEs and large

corporations while Product platform management, design for specific goals and supplier-partner engagement

in product development are all considered as slightly important to SMEs and not KSFs.

- 1,00 2,00 3,00 4,00 5,00

Strategic disruption decision making and

transition plan

Technical risk assessment/management


Project resource requirement forecasting

and planning


Project Selection



TMT, average


G1000, average

32


Figure 17 Importance of KFS within the Product Development Phase of The Innovation process.

The commercialisation phase has most variation among the trade investigated as can be seen in

Figure 18. Four capabilities out of six are considered as important and they are pilot-user

selection/controlled rollouts, product life-cycle management, product ramp-up and diverse user group

management. Both SMEs and the large corporations consider pilot-user selection/controlled rollouts as

the most important capability within the commercialisation phase. Noteworthy is that there is a large

gap between the studied respondents and the secondary data regarding the capability of the product

ramp-up and diverse user group management. The data is shown in Figure 18. The conclusion is that

pilot-user selection/controlled rollouts, product life-cycle management, product ramp-up and diverse user

group management are KSFs for the SMEs. Moreover, the SMEs have a significant higher perceived

importunateness regarding the product ramp-up and diverse user group management than the

corporations within the secondary data, which might be explained by the characteristics of an

oligopolistic market, where user group management and production ramp-up might be a way of dealing

with the risks of being copied by the competitors.

- 1,00 2,00 3,00 4,00 5,00

Reverse engineering

Supplier–partner engagement in product …

Design for specific goals

Product platform management

Engagement with customers to prove real-…

Product Development



TMT, average


G1000, average

33


Figure 18 Importance of KFS within the Commercialization Phase of The Innovation process.

Comparing the top five KSFs within the study of Jaruzelski and Dehoff (2010) and the respondents of

this study give the result shown in Table 7. Interestingly, three out of five are the same and the other

two differ. Product platform management and pilot-user selection/controlled rollouts are not on the top

five within the investigated respondent, but among the corporations investigated within the global

study of large corporations by Jaruzelski and Dehoff (2010). It might be explained by the focus of

each group; where the large companies might be more systematic while the SMEs might be more

opportunistic, having detailed understanding of emerging technologies and trends and open

innovation/capturing ideas at any point in the process on their top list. It has already been discussed that

companies acting on oligopolistic markets are more likely to apply innovations to keep their

competitors out, which is also in line with a more opportunistic approach rather than systematic and

planned way of working.

- 1,00 2,00 3,00 4,00

Diverse user group management

Production ramp-up

Regulatory/government relationship management

Global, enterprise-wide product launch


Pilot-user selection/controlled …

Commercialisation



TMT, average


G1000, average

34


Global 1000 Respondents

Ongoing assessment of market potential Ongoing assessment of market potential


analytics


analytics

Engagement with customers to prove real-

world feasibility

Engagement with customers to prove real-

world feasibility

Product platform management Detailed understanding of emerging

technologies and trends

Pilot-user selection/controlled rollouts Open innovation/capturing ideas at any point

in the process

Table 7 Comparing the top five ranked (average) KSF within the study of Jaruzelski and Dehoff (2010) with the studied respondents.

Figure 19 shows the correlation between the respondents stating they are driving innovation to keep

their competitors out and the twenty-one capabilities, listed in the study of Jaruzelski and Dehoff

(2010). The five most correlated capabilities within Figure 19 is not equal any of the top-5 KSFs

within Table 7, just as it is not the case in Figure 20 where the capabilities are correlated with the

respondents stating they are getting better profit from innovation work. The correlation between

capabilities and the results of the innovation give that the KSF for innovations are dependent upon

whether the respondent innovates to keep their competitors out or perceive that they get better

profit. Among the respondents stating that they are using innovation to keep their competitors out

the top-3 capabilities considered as KSFs, and are

1. Pilot-user selection/controlled rollouts

2. Ongoing assessment of market potential

3. Rigorous decision making around portfolio trade-offs

Among the respondents stating that they get better profit from applying innovation the top-3

capabilities can be considered as the KSFs, and are



3. Supplier and distributor engagement in ideation process

35


Figure 19 Correlation between innovation capabilities and respondents stating they are keeping their competitors out by innovation work

-0,25-0,2-0,15-0,1-0,05 0 0,05 0,1 0,15 0,2 0,25 0,3

Global, enterprise-wide product launchIndependent competitive insights from the …

Detailed understanding of emerging …Diverse user group management

Regulatory/government relationship …Product life-cycle management

Reverse engineeringSupplier and distributor engagement in the …

Supplier–partner engagement in product …Project resource requirement forecasting …

Open innovation/capturing ideas at any …Production ramp-up

Strategic disruption decision making and …Deep consumer and customer insights and …

Design for specific goalsTechnical risk assessment/management

Engagement with customers to prove real-…Product platform management

Rigorous decision making around portfolio …Ongoing assessment of market potential


36


Figure 20 Correlation between innovation capabilities and respondents stating they getting better profit by their innovation work

The conclusion is that all capabilities within the study of Jaruzelski and Dehoff (2010) are considered

to be important to the respondents of this study, i.e. SMEs action on an oligopolistic market, and the

ideation phase is considered as the most important phase. Overall, the most important KSFs,

according to the respondents within this study, are:


2. Deep consumer and customer insights and analytics

3. Engagement with customers to prove real-world feasibility

4. Detailed understanding of emerging technologies and trends

5. Open innovation/capturing ideas at any point in the process

The first three are the same as within the global study of the top 1000 innovators by Jaruzelski and

Dehoff (2010). The respondents stating that they are using innovation to keep their competitors out

has a strong correlation to the top 5 KSFs within the study of Jaruzelski and Dehoff (2010), but a

negative correlation to detailed understanding of emerging technologies and trends which is in the

respondents general top-5 list. It is a bit surprising that respondents answering that they are using

innovation keeping competitors out having a strong correlation to being technology drivers but a

week correlation to the capability of understanding emerging technologies and trends.

The respondents stating that they get better profit from innovation has a strong correlation to all the

top 5 within the study of Jaruzelski and Dehoff (2010) but a negative correlation to open

innovation/capturing ideas at any point in the process which is in the respondents general top-5 list.

-0,2 -0,1 0 0,1 0,2 0,3 0,4 0,5 0,6

Strategic disruption decision making and …

Detailed understanding of emerging …Open innovation/capturing ideas at any …

Global, enterprise-wide product launchTechnical risk assessment/management

Deep consumer and customer insights and …

Independent competitive insights from the …

Supplier and distributor engagement in the …

Production ramp-up

Engagement with customers to prove real-…

Design for specific goalsDiverse user group management

Reverse engineering


Pilot-user selection/controlled rolloutsProduct platform management

Regulatory/government relationship …Project resource requirement forecasting …


Supplier–partner engagement in product …

Rigorous decision making around portfolio …

37


Noteworthy is that all three first phases of Jaruzelski and Dehoff (2010) study, which are ideation,

project selection, and product development, are on the respondents top 5 list but no capabilities

from the commercialisation phase. In the study of Jaruzelski and Dehoff (2010), the respondent states

that they are significantly less performing within the commercialisation phase which also might be the

same among the respondents within this study.

5.3.5. Linking innovation personas to KSFs

According to the literature review the ten personas need to be present within an organisation to

secure innovation efficiency (Kelly & Littman, 2005), however it does not correlate with the data

analysis shown within Figure 21, where it is clear that only three out of ten personas are present in

more that 50% of the cases and three personas only present within 25% of the cases. Interesting to

notice is that the four less represented personas are all what Kelly and Littman (2005) state as

building personas and important to develop and commercialise innovations. However, the

organisational personas (Hurdlers, Collaborators, Directors according to Kelly and Littman, 2005)

are all among top 4.

Figure 21 Personas within the investigated SMEs.

0%

10%

20%

30%

40%

50%

60%

70%

38


Supplier

and

distributor

engagement

in the idea

creation

process

Independent

competitive

insights from

the

marketplace

Open

innovation/

capturing ideas

at any point in

the process

Detailed

understanding

of emerging

technologies

and trends

Deep

consumer

and

customer

insights

and

analytics

Anthropologists ( 0,10 ) ( 0,10 ) 0,03 0,13 ( 0,05 )

Experimenters 0,16 0,18 0,11 0,26 0,13

Cross-

pollinators 0,25 0,28 0,21 0,04 0,12

Table 8 Correlation between learning personas and capabilities within the Ideation Process.

The learning personas are central to gain new knowledge and understandings in a world of changes

(Kelly and Littman, 2005) and it is, due to this, interesting to explore in context of the ideation phase

which is considered, according to the respondents, to be the most important phase including all five

capabilities. The correlation between the learning personas and the capabilities within the Ideation

phase is shown in Table 8, and it is clear that there is no significant positive correlation between

stating having anthropologists and stating the importance of the five KSFs within the ideation phase.

There is only one significant (=>0.25) correlation between the experimenters and the ideation KSF

and that is the detailed understanding of emerging technologies and trends, while cross pollinators are

both above 50% and only two positive correlation whereof two are =>0.25.

39


6. CONCLUSIONS AND RECOMMENDATIONS

The respondents, in general, seek needs and market opportunities prior being driven by new

technologies. There is no significant difference between the different trades in which the respondents

operate. On average, the respondents put most effort into innovating their processes and sales and

marketing while they put least effort into innovating their production systems. However,

merchandising and retail mostly focus on product innovations while the professional service firms

score lowest on product innovation.

The innovation style of the respondents is, according to Loewe et al. (2001) typology, The Cauldron,

The Spiral Staircase and The Fertile Field, while no respondent‟s organisation is a PacMan or

Explorer. The major innovation style is The Cauldron, which is an entrepreneurial style where the

business model is frequently challenged (Loewe, Williamson, & Wood, 2001). Furthermore, the

entrepreneurial innovators, the Cauldrons, is most sure that they keep the competitors out by

innovations while The Spiral Staircase, a style where you climb upwards without losing the over-all

goal (Loewe, Williamson, & Wood, 2001), is most convinced that they get better profit from applying

for innovations. The Spiral Staircase, which are systematic in their way of working, also state that

they are imitated by their competitors.

The Fertile Field, a style where the organisation tries to use existing capabilities and resources in a

new way (Loewe, Williamson, & Wood, 2001), stating that they are imitating their competitors which

is a logical conclusion, as they are reusing existing resources but in a new way. The Fertile Field

respondents are also convinced that innovation lead to higher profit and slightly keep the

competitors out.

The PacMan, a style where you invent and outsource and finance start-ups (Loewe, Williamson, &

Wood, 2001), is not represented by any of the respondents which is contra indicatory to Haq and

Sen‟s (2011) belief that smaller firms tend to outsource their core organizational competencies, as

71% of the respondents organisations are small firms with less than 51 employees. No conclusions

can be made, and further research is needed. Neither is The Explorer, a style where you explore

possibilities and invest time and money in them without demanding short-term profit (Loewe,

Williamson, & Wood, 2001), represented. One possible explanation could the fact that the sample

of respondents are SME companies, which normally have smaller budgets than large companies.

6.1.1. Competitive advantages

The research question whether innovation can lead to competitive advantages can be answered

based on the literature study as well as the data analysis, showing that SMEs action on an oligopolistic

market can gain competitive advantages by applying for innovation thinking and acting resulting in

better profit and/or keeping the competitors out.

There are some interesting findings. Management systems, sell/marketing innovations as well as

product innovations have the strongest correlation to keeping competitors out. The trade is an

aspect to take into consideration; e.g. merchandising and retail rank product innovation as most

important while professional services and the TMT sector rank process innovation as the most

important.

40


Moreover, data analysis confirms the hypothesis that technology driven innovations and management

innovations have the most positive impact on the competitive advantage, which also answers the

research question about which innovation has the most impact on the competitive advantages. The

sustainability of the competitive advantage is, however, not possible to judge according to the

investigation and neither according to the literature review, as previous research says it can lead to

sustainable competitive advantages but more recent research indicates that it might be problematic

to gain sustainable competitive advantages and that firms must get ready for handling temporary

competitive advantages as well as multi-strategies.

However, it is a bit surprising that using innovation to keep competitors out is strongly correlated

with technology drivers and, at the same time, only weakly correlated with the capability of

understanding emerging technologies and trends.

6.1.2. Differences on oligopolistic markets

The conclusion, based on the literature study as well as the data analysis, is that SMEs acting on

oligopolistic markets, applying for radical innovations, are need seekers or technology drivers trying

keeping their competitors out through innovation work.

However, increased profit is also a reason to work with innovations on oligopolistic markets, even if

the most significant reason is keeping the competitors out by applying radical innovation.

The research question whether there is a difference acting on an oligopolistic market can be

answered with that the firms are applying for innovation mostly to keep their competitors out by

seeking needs and/or applying new technologies doing radical innovations.

It is also worth mentioning that it is a fine line between oligopolistic and monopolistic competition

and the conclusions in this study might very well apply on monopolistic markets and companies with

niche strategies.

6.1.3. KSF

Perceived KSFs when establishing an innovation process in order to gain competitive advantages

through innovations is partly dependent upon whether the firm is trying to keep competitors out or

trying to increase its profit. However, there are also a common sub set of KSFs in common for both

purposes. To answer the research question about the perceived KSFs when establishing an

innovation process in order to gain competitive advantages on an oligopolistic market, the answerer

has been divided into a general list with KSFs and two purpose-dependent lists linked to whether the

objective mainly is keeping competitors out or is it is increasing the profit.

Among the respondents stating that they are using innovation to keep their competitors out the top-

3 KSF are:

1. Pilot-user selection/controlled rollouts



41


Among the respondents stating that they get better profit from applying innovation the top-3 are;




All capabilities within the study of Jaruzelski and Dehoff (2010) are considered as important to the

respondents of this study, i.e. SMEs action on an oligopolistic market, but certain capabilities are

considered as more important than other is. The ideation phase (or category), which consists of


2. Independent competitive insights from the marketplace




is considered as the most important phase (in average).

However, the most important overall KSFs according to the respondents within this study, are:






Noteworthy is that none of the top KSFs found are within the commercialisation phase and it is likely

that the firms might lack of related competencies needed within this phase.

6.1.4. Organisational aspects

According to Kelly and Littman (2005), when establishing an innovation process in order to gain

competitive advantages through innovations, there are needs of the right personas within the firm.

Interesting to notice is that the four less represented personas in the survey are all what Kelly and

Littman (2005) state as building personas and important to develop and commercialise innovations,

which is the same pattern as within the study of Jaruzelski and Dehoff (2010). This will also be linked

to the recommendation part of this study.

Moreover, the correlation between the learning personas and the capabilities within the Ideation

phase clearly shows that there is no significant positive correlation between stating having

anthropologists and stating the importance of the five KSFs within the ideation phase.

6.1.5. Recommendations

During the study of identifying perceived KSFs when establishing an innovation process a number of

conclusions and observations has been made. These conclusions and observations form the

foundation for recommendations and are divided into five parts and structured around the purposes,

the process, the organisation, the leadership and how to measure the actions.

42


#1 Decide the purpose of your innovation work

The 21 capabilities and potential KSFs identified and described within the work of Jaruzelski and

Dehoff (2010) have differing importance dependent upon the purpose of driving innovation work. On

an oligopolistic market, it is often about keeping competitors out and/or increasing the profit, and

there is a difference on which KSFs to focus on, as well as what innovation style and model to apply.

Generally, the following KSFs are considered as most important regarding to this study of SMEs

acting on oligopolistic markets;






The recommendation is to ensure that the above KSFs are implemented in combination with the

specific and purpose-dependent KSF.

If the purpose is to keeping the competitors out, the below KSFs are recommended to implement

and secure;



And, if the purpose is to increase the profit implement and secure the below KSF;


Supplier and distributor engagement in ideation process

When driving the innovation process, keeping competitors out it is also recommended to use new

technology as well as radical innovations, preferable not just in the area of product development but

also management innovations including the business model, management systems, business and

production processes as well as sell and marketing innovations.

When driving for increased profit, improvements and well-defined market need are more preferable

and recommended too.

#2 Focus all innovation phases

Within the study of Jaruzelski and Dehoff (2010), the categories (ideation, project selection, project

development, and commercialisation) can be mapped to the processes described within the literature

study, and can be considered as the major phases of an innovation process. The last phase, the

commercialisation phase, is considered least important according to the respondents. Noteworthy is

that within the study of Jaruzelski and Dehoff (2010), the commercialisation phase was significantly

less performed compared to the other phases within the study and a conclusion is that firms

generally has a lack of commercialisation capabilities, even if considered as important.

The recommendation is to secure all phases (ideation, project selection, project development, and

commercialisation) and related capabilities in order to successfully implement innovation work,

however with a differing significance depending upon the purpose of the innovation work.

43


#3 Make sure you have the right personas

According to Kelly and Littman (2005), there are ten personas, categorised into three categories,

which need to be present in order to drive innovation work in an efficient way. The study shows that

the respondents are lacking of anthropologists as well as the personas needed to build – the building

personas (the experience architect, the set designer, the caregiver, and the storyteller). It is

recommended to secure that the organisation has covered the ten personas in order to secure

efficiency.

#4 Evaluate and adopt the leadership style

It is recommended to evaluate the innovation leadership style according to Loewe et al. (2001)

typology; The Cauldron, The Spiral Staircase. The Fertile Field, The PacMan and The Explorer as it

among the respondents were clear that only the three first styles were represented. The PacMan, a

style where you invent and outsource and finance start-ups (Loewe, Williamson, & Wood, 2001),

was not represented but is recommended to evaluate for SMEs that might not have the capabilities

to launch a new invention but still would benefit from it.

Neither was The Explorer, style where you explore possibilities and invest time and money in them

without demanding short-term profit (Loewe, Williamson, & Wood, 2001), represented and is

recommended to partly apply for those firms going for radical and technology driven inventions

where the outcome might not always be possible to predict but the impact huge when succeeded.

#5 Link your KPIs to the innovation Process

To measure, and secure, the value created within the innovation process the use of KPIs is

recommended. The recommended KPIs are based upon the work of Hansen and Birkinshaw (2007)

and the three categories of KPIs; idea generation, conversion and diffusion of innovation (see Table

3) mapped to the categories (here considered as phases of the innovation process) of capabilities

within the work of Jaruzelski and Dehoff (2010).

Table 9, based on the work of Hansen & Birkinshaw (2007) and Jaruzelski and Dehoff (2010), show

the recommended KPIs to measure and secure the value created within the innovation process.

44


Idea Generation Conversion Diffusion

Internal

Ideation

Cross-

Pollination

ideation

Open

Ideation

Project

Selection

Project

Development

Commercialisati

on

Key

Quest

ions

Do we

create

good

ideas by

our own?

Do we

create

good ideas

by working

across the

company?

Do we get

enough

good ideas

from the

outside?

Are we

good at

screening

and

funding

new

ideas?

Are we good

at turning

ideas into

viable

products,

businesses,

and best

practices?

Are we good at

launching

innovations?

Key

Perf

orm

ance

Indic

ator

Number

of high-

quality

ideas

generated

within a

unit.

Number of

high-quality

ideas

generated

across

units.

Number of

high-quality

ideas

generated

from

outside the

firm.

Percentag

e of ideas

generated

that end

up being

selected

and

funded.

a) Percentage

of funded

ideas that lead

to revenues

b) Number of

months to first

sale.

a) Percentage of

penetration in

desired

markets,

channels,

customer

groups

b) Average

profit margin

on new

innovation last

year

Table 9 Recommended KPIs adopted from Hansen & Birkinshaw (2007) mapped to the categories of Jaruzelski and Dehoff (2010)

45


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´

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