Innovation in Organizations, Competitiveness and Performance: A Review and Research Agenda
Parul Singh1*, A. K .Saini2
1Assistant Professor, Indian Institute of Foreign Trade, IIFT Bhawan, B-21, Qutab Institutional Area, New Delhi, 2Professor, University School of Management Studies, Guru Gobind Singh Indraprastha University, Sector -16C, Dwarka, New Delhi
*Corresponding Author E-mail: parul.singh1510@gmail.com, aksaini1960@gmail.com
ABSTRACT:
Liberalization, Privatization and Globalization (LPG) have provided variety of opportunities to both manufacturing and service sectors to grow. This has led to the further entry of MNCs in India which poses additional challenges in both these sectors. Realizing this, organizations in India have started closely monitoring and measuring their business processes, so that they can become competitive. The pressure of these factors and rapidly changing economy is forcing organizations to innovate in some way so as to increase their chances of survival in the times of tough competition. This has made organizations more considerate about innovation. Innovation when adopted brings in competitiveness and improved organizational performance. The paper is an effort to study innovation and how it brings in competitiveness and improves performance. On the basis of the wide review of the literature, the paper is an attempt to find knowledge and research gaps, and also provides research directions to further explore the subject.
KEYWORDS: innovation, competitiveness, performance, and competitive advantage
INTRODUCTION:
Survival and sustenance of organizations depend not only on the innovative and differential practices they adopt to manufacture products and deliver services, but also to manage their entire customer portfolio. They have realised that the innovative strategies in the entire value chain will create differential advantage for them and ultimately lead to competitiveness and hence improved performance. It can be well established from the literature that an ability of an organizationto innovate will result in its competitiveness, and accordinglyorganizations constantly endeavour to achieve it.
Innovation is considered as a fundamental source of value creation in organizations and is also considered as a provenance of competitive advantage that an organization gains over their counterparts. Innovation in the present era, is not only vital at the organizational level, but is also important at the industry and the national level. Accordingly, innovation can be studied at three levels – firm level, industry level and national level. The focus of thepaper is to study innovation at the organizational (firm) level.
The field of innovation is wide. It has been characterized as complex, multidimensional and interdisciplinary term. Because of its importance, innovation has been studied widely by various scholars and researchers. It has always been used as a broad term. The term ‘Innovation’ has found its varied definitions from authors and researchers. It has been defined as the creation of new offering, modifying or improving an existing offering, new ways to produce those offering and so on. Earlier, the research on innovation was dominated only in the manufacturing firm. But, these days the concept can no longer be limited to the manufacturing sector only. Innovation has been widely witnessed in other sectors as well such as service sector. Service sector has started been considered as a pillar of social and economic development of not only a particular region but for the whole nation. This is in contrast to earlier times where manufacturing sector was considered the main engine of growth in developing countries. Recently, service sector has also been emerging as one of the stronglydeveloping segments in the world-economy and is contributing highly to the world economy and output. And it also one of the rapidly growing sectors in India and can be categorised into Information Technology,IT enabled services (IT/ITES), telecommunications, financial, hospitality, retailing, education, among others. Globalization, apart from other factors is posing a tough competition among organizations within an industry. The pressure of these factors and rapidly changing economy is forcing organizations to innovate in way or the other so as to increase their chances of survival in the times of tough competition.
In this light, the present research is an attempt to understand innovation and its practices in organizations with a view to categorise them and bring out research issues. Based on comprehensive study of literature, this paper attempts to identify the gaps in innovative practices. The paper is organized to study importance of innovative practices in organizations and subsequently its impact on competitiveness and performance of the firm is studied. This is followed by detailed examination and discussion on various streams of researcher’s view and thoughts on the subject. Finally the research gaps on the subject are identified. This paper is an attempt to give research directions to additionally investigate the subject.
LITERATURE REVIEW:
There are numerous innovation studies available in the literature. It a broad concept has been studied and researched in the literature from various perspectives. For this paper, the literaturehas been studied from the perspective of Innovation in organizations. The literature has been classified as represented in Figure 1.
Figure1. Literature study on Innovation
Exploring the definition of Innovation:
Innovation is a well-studied and researched topic by scholars. What differs in the studies and researches made by the scholars is the purview from which the innovation has been studied. The term ‘Innovation’ has been defined in quite a few ways and has also been termed as an interdisciplinary term.It is a complex notion (Walker, Jeanes and Rowlands, 2002).It is a concept that has been explored by various researchers and scholars and the result is varying definitions and concepts coming in this field. Innovation has been defined as development of a new product or service or market or processes, etc. (Daft, 1978; Walker, 2006; Zaltman, Duncan, and Holbek, 1973).It is a way by which new ideas or practices are created, developed or reinvented (Rogers 1995; Kimberly 1981). Damanpour and Evan (1984) considered innovation in their study as the response to the change in the environment or a way to bring some change in an organization. Damanpour, Walker and Avellaneda (2009) mentioned in the research that organizations are open systems as they interact with their environment and hence have to adapt to the environmental changes. The external environment’s demands such as competition, changing customer demands, deregulation and other factors forces an organization to innovate so as to deal and combat the pressure.Innovation in public organizations is a complex and heterogeneous management strategy (Walker, 2006). It is followed by an outcome which could be a new product, service or practice (Walker, Damanpour and Devece, 2010). Organization for Economic Co-operation and Development (OECD) definesthe term as something which is far beyond R and D – ‘It goes far beyond the confines of research labs to users, suppliers and consumers everywhere – in government, business and non-profit organizations, across borders, across sectors, and across institutions’.Table 1 presents various definitions of Innovation.
Table1. Definitions of innovation from select literature studies
|
S. No. |
Author (year) |
Definition |
|
1 |
Damanpour and Evan (1984) |
an organizational innovation was defined as the implementation of an internally generated or a borrowed Idea — whether pertaining to a product, device, system, process, policy, program, or service— that was new to the organization at the time of adoption |
|
2 |
Damanpour and Evan (1984) |
Technical innovations are defined as innovations that occur in the technical system of an organization and are directly related to the primary work activity of the organization |
|
3 |
Damanpour and Evan (1984) |
Administrative innovations are defined as those that occur in the social system of an organization |
|
4 |
Rogers (1998) |
Innovation is the process of introducing new ideas to firm which result in increased performance |
|
5 |
Drucker (1998) |
Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by lone individual in a family kitchen. It is the means by which entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth |
|
6 |
Walker (2007) |
innovation is a process through which new ideas, objects, and practices are created, developed or reinvented, and which are new for the unit of adoption |
|
7 |
Damanpour et al (2009) |
An innovation can be considered new to the individual adopter, to an organizational subunit, to the organization as a whole, or to the entire sector, industry, or organizational population …… define innovation as new to the adopting organization |
Select Studies on Innovation Types:
The literature presents innovation, its types, patterns and configuration of innovation that are identified in organizations along with the factors that are behind these innovations. Walker et al (2010) summarized the three typologies of innovation studied frequently in the literature as: (1) product/service versus process innovations (Abernathy and Utterback, 1978; Walker and Damanpour, 2008), (2) technological versus administrative/ managerial innovations (Damanpour et al 2009; Kimberly and Evanisko 1981), and (3) radical versus incremental innovations (Cardinal 2001; Germain 1996).The OSLO manual for measuring innovation has categorised it into following four types:productinnovation, process innovation, marketing innovation and organizational innovation. Schiffman and Kanuk (1994) categorised innovation as: Product-Oriented, Consumer-Oriented, Market-Oriented and Firm-Oriented. Henderson and Clark (1990) gave a framework for defining innovation – incremental innovation, modular innovation, architectural innovation and radical innovation.Summary of innovation types from study of select literature is presented in Table 2. Table 3 also provides various innovation types
Table2. Innovation Types
|
S. No. |
Author (Year) |
Innovation Types |
|
1 |
Kimberly and Evanisko (1981) |
technological and administrative |
|
2 |
Damanpour and Evan (1984) |
administrativeand technical |
|
3 |
Schiffman and Kanuk (1994) |
product-oriented, consumer-oriented, market-oriented and firm-oriented |
|
4 |
Uchupalanan (2000) |
IT based product and process innovations |
|
5 |
Walker et al (2002) |
total, expansionary, evolutionary, developmental |
|
6 |
Walker (2006) |
new product, technological (ITC and market orientation), organizational and ancillary (partnership) |
|
7 |
Walker (2007) |
service, organization, marketization, ancillary |
|
8 |
Tseng et al (2008) |
technological,organizational and human capital (combination of innovation) |
|
9 |
Damanpour et al (2009) |
service, technological process and administrative process |
|
10 |
Damanpour et al (2010) |
management innovations |
|
11 |
OSLO Manual |
product, process, marketing and organizational |
Innovation in Service and Manufacturing Organizations: Similarities and Differences:
As stated above, earlier the research, knowledge and concepts on innovation and its processes were dominated by manufacturing based prototypes (Gallouj and Weinstein, 1997). Because of the contribution made by service sector to the nation’s economy, it has started receiving some considerable attention in the studies. There lies a difference between manufacturing industry output and service industry output. American Marketing Association (AMA) in its glossary defines services as intangible. They are exchanged from producer to user, and cannot be transported or stored. Service means that the task performed was for someone else (Juran, 1974). According to Kotler, service is an activity which can be offered by a party for another party. He (1994) defined services into the following four forms – intangible, inseparable, variable and perishable. Hertog et al (2010) defined service innovation as a new service experience or service solution that comprises of one or a few of the following: new service idea, new customer interaction, new value system/business partners, new revenue model, new organizational or technological service delivery system.
The literature on innovation in service sector and manufacturing sector has two views. One view stating that innovation in the two sectors is similar whereas other view states that innovation in these two sectors are different from each other. Damanpour et al (2009) discussed that literature on innovation do not differentiate between product and service innovation. As products in the manufacturing sector, similarly services in the service sector customers (Miles, 2001; Sirilli and Evangelista, 1998). As demand of the service sector is to meet the needs of the customers, Damanpour et al (2009) defined service innovation from its relationship to the service consumer. Hence, they defined service innovation as the launching new service to the existing or new customers and offer existing services to new customers.
Manufacturing sector is considered as key source of technological innovation and the main driver for the growth of productivity. Manufacturing firms are different than service firms in various aspects of innovation (Prajogo, 2006). According to Daniel, service outputs are intangible, which makes it difficult to identify the existence of innovation. Innovation in services differs from that in manufacturing in terms of lower levels of R and D and the major role played by non-technological factors in some segments of the service sector (Hollenstein, 2003). Lu and Tseng (2010) studied service innovation in tourist hotels and defined it as a process consisting of new concepts and production, development and implementation of behaviours. It is also a way to changed respond to external environment. Sundbo (1997) in his study tried to identify whether service organizations innovate, and the way they organize their innovation activities. He concluded from his research that service firms do innovate, and the level and pattern of innovation activities varies. This depends upon organizational size and projects.
Competitiveness, Organizational Performance and Innovation:
Competitiveness is a capability of a business firm, and the term can be defined as an ability of an organization to sustainably fulfil its purpose of meeting customer requirements at profit (Chikán, 2008). Gandotra (2010) considered competitiveness as a multidimensional concept. It requires superiority in multiple aspects. It is characteristic that makes a firm capable to compete proficiently, and is continued through persistent improvement and upgrading. He also defined competitiveness or competitive advantage as the ability to earn ROI constantly above the average for the industry. Gandotra also gave three indicators of competitiveness – (1)Basic Competitiveness: product or service with internationally competitive cost, quality, and after sale service (2)Revealed Competitiveness: market share (3) Sustainable Competitive Advantage: maintenance and improvement of the enterprise's competitive position in the market. Liargovas and Skandalis (2010) also considered competitiveness as a multidimensional construct and ‘multi-faceted’ in nature as number of variables are simultaneously adopted to measure it. As per economic literature it can be examined at macroeconomic level (competitiveness of national economies) and at microeconomic level (competitiveness of firms/ industries). Three measures, Return on sales, Return on assets, and Return on Equity were used to evaluate the financial performance and, therefore, the competitiveness of Greek firms by Liargovas and Skandalis (2010).
Organizations are facing competitive challenges because of rapid change in the macro and micro environmental factors. Worldwide, innovation is considered as the strategic mainstay for organizational competitiveness (Pellicer et al 2010). Denton (1999) mentioned that innovation has been considered as the centrepiece of competitiveness. The present states of affairs in which organizations are competing these days are quite different from the previous ones. Innovation is not only an important factor for an organizational competitiveness but also for a nation’s growth as mentioned by researchers in their work. Innovation and competitive advantage are connected together (Lu and Tseng, 2010). According to Rosenberg (2000), innovation is important for a national economic growth (Rosenberg, 2000) whereas Porter (1990) mentioned that innovation is important for national competitiveness. For organization development, innovation has become the top priority. Services, competition, technological changes are the factors on which the changes depend. Hence, innovation is the principal factor for acquiring competitive advantage in service industry. In order to maintain its competitive advantage an organization must strive to innovate continuously (Lu and Tseng 2010). Damanpour et al (2009) concluded in their study that combinative adoption of different innovation types helps an organization develop its capabilities which in turn influence not only its outcome but also the way an organizationconduct itself. They also concluded that over a period of time certain configuration of innovation type’s result in peculiar competencies which have a positive impact on the performance of an organization.They analysed that when service, technological process, and administrative process innovations are co-adopted, they influence organizational performance. Public organizations adopt innovation to improve their services they deliver to consumers and citizens. The broad aim to do so is to improve quality of life and to build improved communities (Walker et al 2010).To witness improvements and organizational performance it is important that innovation is implemented in an organization (Walker et al 2010).Damanpour and Evan (1984) explored the rate of adoption of types of innovation and their impact on organizational performance. They further mentioned that innovation in an organization in terms of implementing a new idea (technical or administrative) brings some change in the organization. This change may impact the organizational performance.Organizational performance when seen from systems perspective, it is nothing but ability of an organization to manage its systematic processes with its goal seeking behaviour (Evan, 1976). Organizations make every effort to maintain their performance by introducing changes in their processes or structures. Innovations are a way to creating these changes in an organization to certify its adaptive behaviour (Damanpour and Evan, 1984). Further they concluded that any uncertainty or change in the environment trigger changes in structure and strategy of an organization. These forces lead to innovation implementation. Innovation implementation (administrative and technical innovations in their study) will maintain balance in the systems, which in turn lead to improved performance.
An organization’s capability to innovate prompts its competitiveness and organizations continuously strive to achieve competitiveness (Braganza et al 1999). Innovation configurations impact performance of an organization. Organizations which use innovation as a source to make a distinction in their products and service from their counterparts perform better than the other firms. In the present competitive environment, service organizations innovate and contribute to economic growth. Presently, business organizations are gaining competency through innovations (Tseng et al 2007). Organizations achieve competitive advantage by innovation (Porter, 1990). As and Pedersen (2010) studied service innovation effects on a firm. Based on the literature study, they divided competitiveness effects of innovation into following four sub-types: effects on the competitive position, effects on the ability to survive, creation of new markets effects, and strategic performance effects.From the discussion above it can be easily concluded that organizational competitiveness influences firm performance. Figure 2 summarizes the discussion on Innovation, Competitiveness and Performance. Table 3 presents select studies on innovation and performance measures in an organization.
Figure2. Innovation, Competitiveness and Performance
Table3. Select studies on innovation and performance measures in an organization
|
S. No. |
Author (Year) |
Innovation Types |
Performance Measures |
|
1 |
Damanpour et al (1989) |
administrative and technical |
circulation/holdings, circulation/total expenditure, and circulation/numberof employees |
|
2 |
Subramanian and Nilakanta (1996) |
technical and administrative |
return on assets, share of deposits |
|
3 |
Yamin et al (1997) |
administrative, product and process |
liquidity, ROI, leverage, activity |
|
4 |
Cainelli et al (2004) |
innovation |
growth rate of sales and employment, sales per employee, productivity |
|
5 |
Prajogo (2006) |
product and process |
sales growth, market share and profitability |
|
6 |
Tseng et al (2007) |
technological, organizational, and human capital innovation |
market share, sales, occupancy rate, customer satisfaction |
|
7 |
Elche and Gonza´lez (2008) |
innovation |
growth and profitability (return on investment, sales growth, net profit margin, market share, and general performance) |
|
8 |
Damanpour et al (2009) |
service, technological process, and administrative process |
quantity and quality of output, efficiency, effectiveness, equity, consumer satisfaction |
|
9 |
Grawe et al (2009) |
service innovation |
sales, profit margin, market share, overall competitive position |
|
10 |
Varis and Littunen (2010) |
product, process, market, organizational |
growth and profitability |
|
11 |
Walker et al (2010) |
management innovations |
quantity of outputs, and quality of output, efficiency, effectiveness, equity, consumer satisfaction |
|
12 |
Love et al (2010) |
service, marketing, strategic, advanced management techniques, organizational |
exporter, exports as a share of sales, export growth, gross value added per employee, gross value added growth per employee |
|
13 |
McDermott and Prajogo (2011) |
exploitation, exploration |
sales, profit, market share |
Observation Gaps in Literature: Research Issues:
Literature supports a positive association between innovation adopted in an organization and its impact on organizational competitiveness thus enhancing and positively influencing its performance. Not many studies on the aspects of innovations and organizational competitiveness and performance have been studied in Indian context. The importance of innovation in India as a developing economy is very high. Many firms in India struggle to maintain economic profitability and competitiveness when considered in global market. Because of the gaps in the research in Indian context and the importance of innovation in developing country like India is of paramount importance. Considering this study as the basis, further investigation can be carried out to understand innovation practices and its types prevailing in organizations in India. The focus could be to categorize different sources of innovation in organizations, along with the practices associated with innovation. Further to identify relationship between innovation and organizational competitiveness and performance in an Indian context. Further, research can be done to suggest a suitable innovation framework for improved organizational competitiveness, which can be referred by organizations to identifying innovation factors for a specific sector which have the greatest influence in improving organizational competitiveness.
CONCLUSION:
The paper is anoutcome of comprehensive research on innovation and competitiveness. Of interest here in the study is innovation at the organizational level. The paper helps to analyse the concept of innovation in organizations. From the study of the literature it is well understood that organizations continuously adopt practices that lead to innovation in one way or the other.Innovation dimension variables exhibit positive relation with organizational competitiveness which in turn is proportional to organization’s openness to take risks, new ideas, and other dimensions of innovation. This study espouses additional indication to the literature that innovation has anencouraging impact on the performance of the organizations. This study adopts anextensive view of the innovation and identifies its various types or patterns adopted by organizations. The relativity of the two concepts that is innovation and competitiveness can be created, which would be valuable in present research and would lay down basis for impending research. Hence, this study tries to bring forth the number of innovations studied in the literature. This paper will be of help to the management to judge and decide which typology of innovation should be placed in the organization.
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Received on 09.11.2017 Modified on 06.12.2017
Accepted on 12.01.2018 ©A&V Publications All right reserved
Asian Journal of Management. 2018; 9(1):400-406.
DOI: 10.5958/2321-5763.2018.00061.6