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The discontinuous innovation process at established SMEs : an exploration of the discontinuous innovation process as experienced by established SMEs

Lenferink, D.J.H.H. (2009) The discontinuous innovation process at established SMEs : an exploration of the discontinuous innovation process as experienced by established SMEs.

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Abstract:Management Summary The world is moving at a fast pace, requiring firms to respond to short product life cycles and frequently changing customer demand by innovating. Innovations can either be of continuous or discontinuous nature. Continuous, or incremental innovations are concerned with ‘doing something better’ as described by Tidd et al. (2005b). Discontinuous innovation goes a step further and refers to doing something different, which requires high levels of creativity and out-of-the-box thinking to achieve. Discontinuous innovations are triggered or caused by a wide of variety sources, such as the emergence of new markets, new technology, new political rules, a change in market sentiment, market behaviour and unthinkable events (Bessant & Tidd, 2007). Discontinuous innovations are a powerful tool to secure competitive advantage, a strategic position, retain market shares and increase profitability, but the drawback is that it does not guarantee success (Tidd et al., 2005b). The discontinuous innovation process is far from easy; it is complex, messy, takes long and is above all unpredictable in nature, due to many uncertainties. Examples of these uncertainties are ambiguity about market acceptance and initial uncertainty about the viability of the technology. Current research on the discontinuous innovation process has mainly focused on large established firms and start-ups, but a knowledge gap remains on established small and medium sized enterprises (hereafter SMEs). In the Netherlands 99,7% of all firms are SMEs and a large part of this figure must represents established SMEs (mkbservicedesk, 2009). Firm age and size influence the firm’s ability to innovate, thus the ability to innovate varies per firm type. Many large established firms have difficulty developing discontinuous innovations, due to established routines causing structural rigidity and they are often constraint by the influence of shareholders and end-consumer preferences. Startups often lack resources compared to large established firms, but do not have an existing consumer base and are free in their choice to pursue new markets. Start-ups are often seen as the driving force behind disruptive technologies (Kassicieh & Walsh, 2002).The agility and entrepreneurial capabilities of start-ups enable them to cope with a greater extent of uncertainty and provides space for creativity. Given the importance and difficulty of innovating, the objective of this thesis was to decrease the knowledge gap on the ability of established SMEs to develop discontinuous innovations, more specifically to analyze how established SMEs experience the discontinuous innovation process. This thesis was written for the Discontinuous Innovation Lab (hereafter DILab). DIlab is an international and interdisciplinary group of innovation researchers, who aim to generate knowledge on the discontinuous innovation process at organizations. In order to do so DILab applies a discontinuous innovation process model, which start with the search for a discontinuous idea, the selection of the idea and the implementation (development and commercialization) in which the idea is turned into a discontinuous innovation by the firm. To explore how established SMEs (existing for at least 10 years) experienced the discontinuous innovation process the following central question was applied; How do established SMEs manage the discontinuous innovation process, in terms of search, select and implement? Desie Lenferink Management Summary page III The Discontinuous Innovation Process at Established SMEs The focus of the thesis was not on the technical aspects of the innovation, but rather the management perspective in terms of the problems and challenges experienced by the established SMEs and the mechanisms applied during the process. To explore this subject case study, research was performed on five established SMEs that experienced the discontinuous innovation process. The data was gathered in three stages to allow for a structured data gathering process; first unstructured interviews were conducted, followed by semi-structured interviews and last but not least the respondents were given the opportunity to provide feedback on the case study reports. The findings retrieved from the case studies provide interesting insight into the ability of established SMEs to develop discontinuous innovations. The findings are presented underneath per stage of the discontinuous innovation process. The Search Stage The discontinuous innovation process starts with the search stage, which is usually structured by large established firms that apply several mechanisms, such as innovation hubs and sending out scouts to find innovative ideas. The established SMEs studied did not structure the search stage, instead ideas were triggered by potential legislative changes, dissatisfaction about existing systems or by problems of others. Those established SMEs that were approached with innovative ideas, may have benefited from social legitimacy in the region or industry through which inventors or problem owners approached them. Overall the most important facet in the search stage for established SMEs is the entrepreneurial mindset, which enabled the established SMEs to generate innovative ideas by linking inventions to the market. One of the established SMEs studied applied a mechanisms, named before-the-box thinking, which entails brainstorming about solutions without taking existing solutions into account. By combining this mechanisms with out-of-the box thinking established SMEs may be able to generate discontinuous solutions to problems and discontinuous ideas. The Select Stage Once ideas have been generated the established SMEs move to the selection stage. This is where established SMEs differ from start-ups. Start-ups are generally founded on an idea that emerged from a university or a parent organization, hence start-ups are not faced with the selection decision. In comparison large established firms generally have procedures for the selection of new project and long decisions lines, which negatively influence the time required to select an idea. Selection in the established SMEs is mainly based on subjective judgement. Opposed to the DILab model, selection in the established SMEs does not solely take place after the search stage, instead the unpredictable nature of discontinuous innovations creates an emergent selection environment. The established SMEs need to select an innovative idea by taking its core business into account, but none of the established SMEs applied financial selection mechanisms, instead established SMEs seem to prefer mechanisms based on subjective judgement, thus entrepreneurial instinct. Throughout the discontinuous innovation process the established SMEs applied more mechanisms to decrease the uncertainty and further prove the selection decision. These mechanisms can be referred to as further selection mechanisms, examples of these are a business case and feasibility tests. The owners of established SMEs should therefore allow for an informal selection stage gate process, which will decrease uncertainty throughout the discontinuous innovation process. Desie Lenferink Management Summary page IV The Discontinuous Innovation Process at Established SMEs The Implement Stage The implement stage has the largest scope because it entails turning the idea into a physical reality. The main problems and challenges experienced by the established SMEs during this stage are the lack of capabilities and resources (among others, financial and manpower) resulting in a competency gap to develop the discontinuous innovation. The majority of the established SMEs were granted subsidies and closed the competency gap by outsourcing activities it could not perform itself. Preferences in outsourcing for knowledge in the initial stage of implementation goes out to universities, as these are great knowledge domains and less threatening to the established SMEs compared to large established firms. In most of the established SMEs the owners had to simultaneously manage core business and the discontinuous innovation process. The established SMEs generally lacked the resources to implement mechanisms to ease these tasks. Established SMEs wanting to develop a discontinuous innovation should organize additional financial means, as bank do not prefer to support discontinuous projects. Accordingly subsidies may be required, but they also entail a lot of administrative work which should be taken into account. The established SMEs should implement a clear and structured process- and meeting- schedule (framework); to allow for clear milestones and discussion on various facets of the process. If possible they should assign a project manager. Outsourcing can be applied to close the competency gap and established SMEs could establish multidisciplinary team to streamline the varies outsourced activities. Depending on the innovation, involvement of end-consumers in the innovation process can be very valuable in terms of product experience, preferences and consumer reactions. Established SMEs should organize IP-rights (and patents) in the early stages of the process, but only solicit for patents when the innovation can be legally substantiated. When wanting to pursue global commercialization the established SMEs should anticipate that additional (financial) resources, social legitimacy and capabilities may be required. Throughout The Discontinuous Innovation Process The owners of the established SMEs can be depicted as ambidextrous and entrepreneurial individuals, thus multi-taskers. Owners of established SMEs should have the ability to make choices between daily business and the innovative activities, be alert to opportunities beyond their direct tasks and able to build internal and external linkages (Birkinshaw & Gibson, 2004). The entrepreneurial skills that are important are the ability to recognize a means-end framework for the recognition of opportunities, the courage to enter the discontinuous innovation process, the networking skills to close the competency gap and the conviction to complete the discontinuous innovation process. The owners should also network and engage on innovation platforms throughout the discontinuous innovation process, as valuable competencies or information can be extracted.
Item Type:Essay (Master)
Discontinuous Innovation Lab (DILab)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
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