Innovation Capacities

Development Country Innovation Management: Meeting International Standards & Building on Them 

Abstract

Companies develop a portfolio of core competencies that allow them to gain competitive advantages through brand recognition, superior pricing, the invention of new markets and exploitation of emerging ones, as well as developing innovations in processes that lead to greater capabilities and innovation in products that fit customer’s needs in new ways. This requires effective organizational learning, which requires a high absorptive capacity. High absorptive capacity has two major elements, prior knowledge base and intensity of effort, and are especially difficult in an international context as developing countries need to catch up to those that are more technologically advanced. By transferring technology and operational norms from advanced firms to those with lower levels, less developed countries are able to “catch up”.

Keywords: Organizational learning, core competence, crisis, knowledge development, innovation management

Body

Developing innovative technological activities from knowledge bases outside the country can be an exceptionally difficult task  As tacit knowledge resides in the people involved in firms, it often requires foreign assistance both in financing and in oversight and management. The collection of reflections in the writing below explores the issues faced by developing countries. In it we learn the importance of absorptive capacity of firms on the receiving end of technological transfer and the qualities of managerial insights and strategy needed in order to successfully raise technological capacities.

Technological Capacities and Industrialization

Sanjaya Lall begins with a popular refrain described throughout the literature, e.g. neoclassical literature fails to address the granular problems actually found in projects designed to develop technological activities within non-core countries. Specifically, literature within this particular school tends to downplay the need for government policies to support, protect and induce activities and they “disregard the peculiar nature and costs of technological learning in specific activities, the externalities it generates and the complementarities it enjoys, which may lead to market failures and may call for a more selective approach to policy than conventional theory admits.” Because of the existence of asymmetries that work to inhibit technological development localized progress in an international setting must be fostered by a group of stakeholders that do more than assist only at the point that there is a market failure.

Research on increasing the firm-level technological capabilities in developing countries has been highly influenced by the writings of Nelson and Winter and other authors who similarly describe the growth of capabilities as a process within a feedback loop that includes many individuals developing their own tacit knowledge as well as company stakeholders that are coordinating with individuals outside the company that vary (i.e. foreign company manager working in-house during execution pre-investment or a purchased for a foreign company interested in a new supplier) which depends upon the phase they are in. Each phase in the above matrix related to specific capabilities required by the work at hand and all are affected first by the options made in the investment phase. The path laid out there will create a large number of dependencies which will impact all future aspects of the business operations and in what ways capabilities are able to be developed. Because workers are only able to gain mastery over the tools that they have at hand, determining the correct ones – as we shall see in the examples that follow – becomes incredibly important.

While there is inherently a need for the development of new capabilities, skills, and information to reign in the power of technology, it does not happen in a vacuum. Strongly influencing the process capability building and technological selection are issues related to the nature of the technology (is it small or large scale? Is it simple or complex? Does it require many or just a few workers) as well as external factors – such as degree of market protection. Having supply and demand-side protections helps ensure the firm’s continuation – but doesn’t necessarily mean that it is able to produce desired goods at competitive costs. Developing countries’ efforts at developing national technological capabilities, indeed even technologically advanced countries like the United States, are replete with examples of well-intentioned efforts that fail. It’s not enough to know that products produced via a public-private partnership will be purchased (incentives) isn’t a sufficient spur to the development of capabilities, neither is having strong institutions developed to help make it happen. As will be described in Lall’s case studies and the following reports – finding the optimal path requires strategic choices by many actors.

Crisis Construction and Organizational Learning: Capability Building in Catching-up at Hyundai Motor

Korean technology firms, from consumer electronics to automobiles, have demonstrated rapid internalization and application of capitalist methods of production and management. According to Statista, as of 2018 they now compose 26.8% of the global market in semiconductors. Their success in this field is testament to their capacity to build up their performance capabilities achieve through research and development efforts and a business environment – more on this later – that was highly conducive to rapid industrialization. This article demonstrates this by showing Hyundai’s rise as a car assembly-company engaging in duplicative imitation to creative innovation to full innovation. Using their story to chart the company’s dynamics of absorptive capacity, an impressive company story provides the basis to delineate growing knowledge dimensions and impressive organizational learning.

Learning systems require entrepreneurial actors to outline the vision and engineers to actually get it done. Hyundai imported talent in order to make up for tacit knowledge it lacked to start developing, producing and marketing cars. As their goal was to be not just an assembly firm but one capable of competing in every way with automobile manufacturing companies such as Ford and Mitsubishi, during the operations they constructed internal crises to present management with performance gaps and thus intensify the effort in organizational learning that they were engaged in.

As crisis is by nature evocative and galvanizing, Hyundai’s construction of these events had the effect of increasing the organizational factors connected to learning:  “intention, autonomy, fluctuation and creative chaos, redundancy, requisite variety, and leadership”. Using company records, interviews, and observations – the author share how different teams within the organization were tasked with becoming masters of topics through training with foreign firms – both by going abroad and having them come work in oversight positions, intra-firm knowledge development programs, etc. Their goal was learning by doing and learning by using. Given Hyundai’s international success and quality products, it’s clear that they were successful.

Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation

I chose to include Tim Brown’s book in this section as his position of CEO at IDEO has given him extensive experience working on innovation projects with many different companies to develop their capacities for innovation. As I too aspire to work as a consultant for firms, as IDEO is one of the world’s most renowned innovation consultancy firms and thus is widely read by other business executives I thought this to be an appropriate supplement for the assigned readings for this chapter.

While Brown does describe the necessity of having a quantitative approach to developing innovation capacities in businesses, he shares that his employees are also masterful storytellers who use design thinking to get obtain the commitment of those that work with his company. This is important as, according to his assessment – while surveys and data analysis allows for the determination of what’s needed – but using a design thinking framework to apply them the process of getting there is more effective.

Design thinking is a method that uses the information and data pulled from various tools found throughout the chapters in this reading to create a visual and narrative arc that facilitates organizational learning. Per Kim’s article Crisis Construction and Organizational Learning sociocultural factors play a large role in absorptive capacities for organizations, but crafting a compelling, consistent, and believable narrative from all of that it becomes easier to “script success” by those involved in their innovation capacity development. Brown relates this to the rise of the virtual world and increasing participation in what he calls the “experience economy” – a world view that has been disseminated in the West through self-empowerment literature, online chat groups, MMORPGs, and other spaces designed for character development.

After reviewing a number of case studies on innovation consultations that IDEO has been contracted for, Tim Brown then shares what he calls The 6 Rules for the Best Design Approach. Repeating many of the findings within this chapter about organizational learning processes, they are as follows:

1. The best ideas emerge when the whole organizational ecosystem – not just its designers and engineers and certainly not just management – has room to experiment.
2. Those most exposed to changing externalities (new technology, shifting customer base, strategic threats or opportunities) are the ones best placed to respond and most motivated to do so.
3. Ideas should not be favored based on who creates them.
4. Ideas that create a buzz should be favored. Indeed, ideas should gain a vocal following, however small, before being given organizational support.
5. The “gardening” skills of senior leadership should be used to tend, prune, and harvest ideas. MBA’s call this “risk tolerance”.
6. An overarching purpose should be articulated so that the organization has a sense of direction and innovators don’t feel the need for constant supervision.

In addition to such learning processes, Brown states that one of the ways that innovative markets or products are developed is by identifying the divergent users, i.e. those who are slightly modifying the products or using them for different ends than that for which they were intended.

Rather than focusing on this, however, I want to provide a demonstration on the value of Brown’s design-thinking approach to innovation development by contrasting this model with that described by Rush, Bessant and Hobdayin Assessing the Technological Capabilities of Firms.

Assessing the Technological Capabilities of Firms

The scientific tools used to capture and interpret data covered to help determine what policies should be adopted in order to increase absorptive capacity and implement technological innovations processes by firms and government is truly amazing. External policy agents can be forces that radically improve the production of goods and provision of services in the private and public sectors by helping manage and deepen innovative practices. Weaknesses and strengths, after measurement as to where they sit on the “punctuated equilibrium” of daily operations, can be corrected leading to  And yet reading this article reminded me of the documents that technology consulting companies would produce when I worked as a teacher to justify the transition to a new software platform by which to register grades and attendance. I’ll first cover this article by Rush, Hobday, and Bessant and then this issue.

Policymakers need assistance in tailoring support as to how to implement organizational learning programs in their firm or government agency. Various tools exist by which to position firms and also help educate the person from taking them as to what concepts are important to a firm’s successful operation. The authors of this article show an example of the Technological Capabilities Audit in operation alongside that gathering of historical case material such as key milestones, basic information on the company’s history, number of employees, turnover, product markets, and technologies used. Examining qualities such as risk management frameworks and project management guidelines through surveys allow them to interpret the maturity level of operations and spaces for growth.

Recognizing that there are different factors involved in a public-sector enterprise than a school, it’s nevertheless worth pointing out that some innovation capacity development projects could have unforeseen negative consequences. Twice I had to deal with software platform transitions while working and twice I – and several other more technologically savvy employees – became the “resident experts” and go to people to assist those educators that couldn’t rapidly apprehend the software and refused to refer to the user guide as “it was just faster to ask someone.”

The reason that this new software platform was eventually changed to another was that the gains to productivity that were projected were never met. Looking back now I’d say that this was largely a failure to recognize accurately assess the average degree of computer competency by those using it – younger teachers with a higher degree of technological competence, statistically the smallest group – were the only people on the core test team. The strategy for implementing and learning it was not well executed – two four hour training sessions and a non-searchable PDF file on how to use it. Awareness of its importance and it’s linkage to other stakeholders was high – but it could never overcome the basic core competence issue. And because of this, another software platform was purchased, and the same problem repeated itself the following year.

Locked in Place: State-building and Late Industrialization in India

While Locked in Placeis not one of the texts listed as assigned readings for this course, it seemed appropriate to cite it given that South Korea is presented as the primary comparative study to the analysis of India. The book is analyzes the economic and social evolution stemming from a development strategy that required significant influence over firms: export-led industrialization (ELI). South Korea, as a military dictatorship, was able to use its consolidated power to enact significant influence over the firm’s executives as well as the leadership of the employees unions. This capacity to have nearly complete control over the economy allowed them to have high level exchanges with the leaders of the Japanese industry such that they felt comfortable transferring their low-value added industries to Korea at a time when they were seeking to develop their more profitable technology production and assembly industries.

ELI combined with Import Substitution Industrialization (ISI) allowed Korea to rapidly grow their innovative capacity and diversify their economy. ISI was a common strategy in the 1950s that is quickly summarized as a “doctrine of infant industry protection”. Adherents to this school argued that it was necessary to protect new industries in developing country so that firms could eventually build up sufficient capacity to build products to international standards and accumulate capital by requiring certain companies connected within value-add chains to prioritize buying and selling to the internal market. This combination of ELI and ISI imposed a strict discipline regimen wherein in exchange for subsidies that were designed and monitored by state and nonstate actors international standards became the internal standards. As has been repeatedly discussed in all of the readings – it’s this transmogrification of exogenous standards and capabilities to the endogenous that creates innovation capacities that are able to be exploited in markets. 

Conclusions

Developing innovation capacities requires a mix of hard (technical) and soft (interpersonal) capabilities. Snapshots developed of the internal operations along with market assessments when combined with design-thinking principles to ensure a culture combining elements of standardization and innovation lead to evolutionary practices. IDEO excels at this, incorporating what they call “narrative technicians” to help translate data into embodied action by management and staff. A crisis too, manufactured or natural, can be another means of accelerating such changes as when faced with the possibility that those involved may lose their likelihood as they are unable to compete in their usual fashion it forces the rapid adoption of a new worldview and behaviors.

In developing countries, it is especially important for international standards to be adopted and practices that are innovative to domestic industries to be internalized. Steady support by government and policy agents, as in the case of Korea, allows for investments to be guaranteed in such that they are attractive to other industries, like Japan, to want to include them in their supply chain. With such commercial environments that meet the risk standards for investors and cultures devoted to achieving technical excellence – countries are able to expand their division of labor, encourage innovation, and improve their economic conditions. 

Recommendations

Innovation management required the inverse mentality often associated with the genius inventor – pure newness – and instead the incremental adoption of what’s already been established. Knowing who to partner with and what benefits are associated in the long term with the adoption of certain technologies and standards enables firms to grow. By operating as if in a state of crisis skills can be improved and a cadre of knowledge workers strengthened in their problem-solving capabilities and thus improved in their normal efforts. 

Bibliography

Brown, Tim.  Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation (2012)

Chen, C. F., & Sewell, G. (1996). Strategies for technological development in South Korea and Taiwan: The case of semiconductors. Research Policy, 25, 759-783.

Chibber, Vivek. 2003. Locked in Place: State-building and Late Industrialization in India. Princeton, N.J.: Princeton University Press.

Cohen, W. M., & Levinthal, D. A. (1990). Absorptive Capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128-152.

Kim, L. (1997). Imitation to Innovation: The Dynamics of Korea’s Technological Learning. Harvard Business School Press.

Kim, L. (1998). Crisis Construction and Organizational Learning: Capability Building in Catching-up at Hyundai Motor. Organization Science, 9, 506-521.

Kim, L. (2001). The Dynamics of Technological Learning in Industrialisation. Revue Internationale des Sciences Sociales, 2(168), 327-339.

Lall, S. (1998). Technology and human capital in maturing Asian countries. Science and Technology & Society, 3(1), 11-48.

Ndiege, J. R., Herselman, M. E., & Flowerday, S. V. (2014). Absorptive Capacity and ICT adoption strategies for SMEs: A case study in Kenya. The African Journal of Information Systems, 6(4), 140-155.

Roberts, N., Galluch, P. S., & Dinger, M. (2012). Absorptive Capacity and information systems research: Review, synthesis, and directions for future research. Management Information Systems Research Center, 36(2), 625-648.