The influence of innovation activities and organization structure on the technological and commercial performance of large established companies in the medical device industry

Janssen, Kirsten (2012) The influence of innovation activities and organization structure on the technological and commercial performance of large established companies in the medical device industry.

Abstract:Introduction The market of medical devices is increasingly challenging to operate in. Increasing competition and decreasing healthcare budgets for providers of health care, lead to more pressure on the costeffectiveness of medical device companies. Also, stricter regulations are making it harder to bring new products to the market and to obtain reasonable prices once proven valuable. In these times it is of more importance that high-risk developments actually result in reimbursement and the technological- and financial performance of medical device companies are key to survival. To improve their technological- and financial performance, companies employ strategies to stay innovative and competitive. The choice in strategy is often reflected in the organization structure and innovation activities of the company. Research on these topics is rarely conducted on medical device companies. Research goal The goal of this research is to provide insights in how the organization structure and innovation activities of a company in the field of medical devices affect their technological and commercial performance. These insights will help medical device companies to determine which strategies are most effective given the financial and dynamic challenges that they are faced with. Theory The commercial performance of a company provides insights in how well the company is performing on the financial aspect. Past research provides evidence that an increasing technological performance has a positive influence on the market value of a company. How companies enact the innovations activities is partly reflected in whether companies apply for patents that are explorative or exploitative. Explorative activities are seen as new developments of ideas that are situated in a technological domain in which the company has not patented technology during the past five years. Exploitative activities are seen as further development in technological domains where the company has patented technology in the previous five years. Research indicates that companies are often performing at their best ability when they have a balance between exploration and exploitation, also called ambidexterity. The organization structure of companies is often seen in structures such as matrix, vertical or horizontal. Those structures define the relationships between different units of company. The units of a company can also be divided by the subsidiaries a company has. The company can organize its innovation activities between several subsidiaries or concentrate it at one location. Subsidiaries are often seen as more flexible and better able to pursue exploration as they do not always rely on the basic experiences, values and capabilities. Logical reasoning suggests that the degree of differentiation of explorative activities influences the relationship of innovations activities has on technological performance. v This study investigates what influence the different innovation activities have on technological performance. Besides that, it will measure the effect of the organization structure as a moderating variable between the relation of innovation activities and technological performance. In consideration of those relationships the research indicates which different technological performances are leading to different outcomes in commercial performance. (theoretical framework) Methodology 27 Large medical device companies are selected of which the suggested relations are examined. The innovation activities are measured through the balance of exploration and exploitation (ambidexterity), in the patent applications by the company. Organization structure is measured by the degree of concentration of explorative patents in subsidiaries of the company. The technological performance is measured by the number of patent applications by each company and the commercial performance by sales with a lag of one and two years. The patent data on the innovation activities, organization structure and technological performance is extracted from the dataset EPO. Data on the commercial performance, measured through the annual sales, was obtained from financial year reports. To be able to do the statistical analyses and make a benchmark of the best practices, a longitudinal database is created over the years 2002-2008. Results The results of the statistical analysis suggest that the large medical device companies who want to increase their performance on sales, in short term and number of patent applications should not invest in exploration. It suggests that it is better to invest in improving existing technologies and apply for new exploitative patents. Contrasting to these previous results is that the best performing company, Johnson & Johnson, does do some exploration. This seems to suggest that it is necessary to have some degree of exploration to be able to stay competitive. Further results on organization structure indicate that if companies do invest in explorative activities it is better to differentiate. Innovation activities Technological performance Commercial performance Organization structure vi Discussion It could be that sales is not a good dependent variable as it often takes much longer than one or two years before a patent is transformed to a product and the item is allowed on the market. A value of like the Tobin’s Q, which includes stock values, would be more sufficient. However this was not possible for this research as only the data of the segment of medical devices is used. Also the negative impact of exploration on the technological performance could imply that this group of the largest medical device companies has already passed the top of the inverted u-shape. Meaning that the more medium and small sized companies should explore more and the larger should invest more in exploitation. Conclusion Within the scope of this research the explorative innovation activities have negative effect on the number of patent applications of the medical device companies. It does not provide support for the moderating effect on the relation of the exploration share and number of patent applications; instead it indicates a negative main effect to the number of patent applications. A significant positive influence is found on the relation between the number of patent applications and the sales. The study also suggests a different theoretical framework for companies who produce medical devices. Further research into why these results are different than expected is necessary. For example by taking a larger group of medical device companies with also small and medium sized companies and/or taking the performances of sales with a much bigger lag.
Item Type:Essay (Bachelor)
Catholic University Leuven
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Health Sciences BSc (56553)
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