Innovation Capacities

Innovation and Value Chains

Abstract

Innovation is frequently obtained through exogenous means by companies inserting themselves within a value chain. Placement within a value chains indicates that businesses are receiving materials to one firm and then handing their products they’ve serviced to another firm. Two examples of this include chip manufacture and metallurgy – the former assemblies parts to be handed to technology firms which insert them into finished hardware components that are then put to market while the later processes raw metals in order to develop products such as steel that is machine lathed into household goods or for use in construction. Firms competitive positionsarepositivelytransformed and capabilities for innovation emerge in these situations as a result of changes in exogenous and endogenous factors. Cooperation and the acquisition of technologyrepresent the former whereas budgetary expenditure on research and developmentis an examples of the latter. Oftentimes government or business sector interests assist in the development of such activities as it provides net benefits to the country and the local capabilities of the industry. This is accomplished through maintaining a balance between these external and internal factors and properly exploiting them.

Keywords: innovation capacities, technological innovation capabilities, organizational congruence, triple helix

Body

Managing Technological Development: Lessons from the Newly Industrializing Countries

When firms decide to invest in a particular technology it represents both a set of engineering norms associated with it, expected costs, benefits and methods as well as capabilities that can be acquired by those gaining experience with that technology. This consideration is important to examine when considering which technologies to upgrade to or abandon. The identification of local needs are important when establishing such a framework, however, to think with an eye to future innovations also requires to think in a less constrained manner. This requires the collection of information on a large number of indicators and openness to looking far outside the domestic borders to determine what is valued by companies within various supply chains.

In this article by Dahlman, Ross-Larson and Westphal, the authors open with a description of how the Brazilian steel company Usiminas first came into being. Prior to its innovation activities, the Brazilian steel industry was not engaged in any of the high-value-added services that firms in more advanced countries did. It was only after agreeing to a period of apprenticeship under those who had already learned the mechanically technical and physically dangerous processes involved in using blast furnaces, basic oxygen converters and rolling mills through experience in Japan and could demonstrate the capability to do it unaided they the keys, to use an American idiomatic expression, were given to them. Due to an unplanned-for economic recession, the company had to readjust its planned operations. Demonstrating how technological development functions in such settings, they managed to improve their operations by stretching their capacities and applying new methods of developing desired goods by setting up an internal research department. This allowed them not only to profit sufficiently as to be able to expand but to spin off its engineering department so as to provide technical assistance to other companies. Usiminas thus showed a capacity to not only exploit its core mission, producing steel according to international industry standards, but to develop a core competence that allowed it to expand and thrive.

Because of the high technical nature of complex industries, it is typical for new industries to be founded in underdeveloped countries with the assistance of foreign companies and domestic governments. To attract foreign companies to already engaged in such activities to, industry associations will pressure governments to adopt technological policies that create incentives for technology transfer and alterations of regulatory environments and penalties for firms that are considered chronic laggards. With this activity, specialized technological agents come into being to either facilitate such activities or to form their own firm related to their specialization. Through their help, more efficient and productive use of the resources occurs and the government can pull back from the role of guaranteeing returns on investments and instead of assisting research institutes. One of the common features of successful technological development policy is a market-positive environment wherein government intervention is limited only to providing assistance during periods of market failure. In such circumstances, the “right” capabilities will emerge on their own as a result of sector-specific needs.

While the Resources to Capabilities to Competencies video is far more simplistic than the examples described in Managing Technological Development: Lessons from the Newly Industrializing Countries, I’ve included the below screenshot from the video as it does show a version of the steps involved in their innovation development activities described therein. Conscientious measurement and strategic planning based on that allows for resources to grow into capabilities and competencies that can create competitive advantages for firms.

Innovative Capability Audits of University Research Centers

Whilst the above provides a number of case studies and theoretical reflections, the findings of this article in the literature on technology audits and other assessment tools which are sourced from a technology management development program for a university research center. It then describes an innovative method developed specifically for that center, communicates that that design’s motivating factors, and analyzes the results acquired from the research process. It is, in short, a granular exemplum of a methodology for how to develop innovation.

Citing David Klein’s 1995 book The Strategic Management of Intellectual Capital, Nystrom shares the general framework within which the subsequent research and development program was structured:

• understanding the relevant strategic and operational roles in the organization, what is needed today and tomorrow
• creating an infrastructure for cultivating and sharing it
• creating the culture that encourages it
• monitoring, valuing and reporting it

And then go on to Burgelman and Maidique’s 1988 the Innovative Capabilities Audit Framework which describes five categories of variables that influence innovation strategies for a business unit:

1. Resources available for innovative activities.
2. Capacity to understand competitor innovative strategies.
3. Capacity to understand technological developments.
4. Structural and cultural context of the organization affecting entrepreneurial behavior.
5. Management capacity to deal with entrepreneurial activities.

In order to develop their assessment tools which comprised of nine criteria which addressed the center’s resource, strategy, and method of implementation through a series of surveys throughout the 5 phases of the innovation process. Since I’ve already quoted extensively from the article in the above description of the framework and categories of influence I’ll skip over what they developed specifically and turn instead to how they used it.

The questions from the audit framework they developed were directed to the stakeholders involved in order to measure the groups capacity to engage in teamwork, their level of technical knowledge and where they believed growth was most appropriate, enthusiasm for the process and final project, barriers to effective actions, perceived resources, most effective communicational protocols, and organizational structure, etc. This provided learning and team-building opportunities for those involved with the development and administration of the Research Center by forcing stakeholders to assess and reflect on what worked well or what did not. Having the capability to compare personal views with other members and then consider those differences during structured discussion sessions meant that external experts were not needed to provide the assessment.

While the context of this is very different from the Professional Learning Communities that I participated in as a History professor at Broward College – we were not trying to build a new center but to merely unify the direction of lesson planning so that there were clear overlaps in instructional material between Parts I – IV of the required History and Political Science curriculum – there are some overlaps as well. Results from our structured surveys and meetings allowed for rapid availability and easy explanations as to how we could all “get on the same page” to improve the learning capabilities and gains of our students.

Methodology for Evaluating Innovation Capabilities at University Institutions Using a Fuzzy System

I love data science and so found the methods described in this article, to use non-engineering terminology, to be really cool. As knowledge is what allows for the transformation of new technologies for industries the authors look to identify Technological Innovation Capacities through quantification and examination of the Triple Helix. This Triple Helix model generates an quantified infrastructure for the articulation of knowledge within the participating institutional entities (firms, educational institutions, and government) and provides the basis for the formulation of strategies for innovation development via surveys which substitute for quantitative market indicators.

The authors use the Model of Organizational Congruence developed by Nadler and Tushman in 1980 to structured to identify inputs, outputs, and the transformation process in line with four congruent components: “the tasks (the work that has to be done;) the individuals (the members of the organization;) the formal organization (the formal agreements at the interior of the organization, the structure and the processes adopted so the individuals execute the tasks;) and the informal organization (that which has not been directly formalized and is related to the culture that surges spontaneously and naturally between people that hold positions in the formal organization.)”

Because of the difficulty in being able to measure technological innovation capabilities – which are after all not operational unto themselves nor directly identifiable, judgments from all of those who’ve been surveyed are placed into a fuzzy logic framework in order to provide a more appropriate form to all of these subjective impressions.

A fuzzy logic system: “allows easy use of the knowledge of subject experts, as a starting point for automatic optimization when formalizing the occasionally ambiguous knowledge of an expert (or of common sense) in an attainable form. Additionally, thanks to the simplicity of the necessary calculations (sums and comparisons), they can usually be performed in comfortable, fast systems” (Martin and Sanz 2002, p. 248). The scorecards allow for the presentation of ranges on a variety of issues that provides the capacity to determine the weight for each set of questions on a high, medium to low scale.

While not directly related to the methodology described above, it’s perhaps worth mentioning here the Theoretical Framework video provides a more simplified example for mapping the relationships amongst a variety of concepts like the one described above.

According to it by writing the general problem, writing a research question, identifying the key concepts, defining these concepts with literature support, identifying the existing or potential relationships between these concepts, and identifying what indicators will be studied one can construct academically and practical studies. Based on this and the above fuzzy logic model, it becomes possible to determine areas in which Serrano and Robeldo’s work could potentially be combined with other data to find meaningful relationships.

Innovative capability and Export Performance of Chinese firms

A broader example of measuring and forecasting innovation than the above two examples is found in Guan and Ma’s article Innovative Capability and Export Performance of Chinese firms. Based on the data provided them from a sample of 213 Chinese industrial firms the authors examine seven innovation capability dimensions (learning, research and development (R&D), manufacturing, marketing, organizational, resource allocating and strategy planning) and three firm characteristics (domestic market share, size, and productivity growth rate) in evaluating their export performances.

After providing a brief literature review of innovation capabilities the authors, per the Theoretical Framework model, then describe what they developed based on that study which would be used in their own research. They produced a very complex modeling formula which divided innovation capabilities into seven dimensions based on a number of specific indexes of measurement:

(1) learning capability (including nine indexes)

(2) R&D capability (including 13 indexes)

(3) manufacturing capability (including eight indexes)

(4) marketing capability (including nine indexes)

(5) organizational capability (including 12 indexes)

(6) resources exploiting capability (including eight indexes)

(7) strategic capability (including 12 indexes).

One of the limits of the analysis which follows based on this model is the lack of cooperation from the companies under study. Guan and Ma state that they were able only to obtain labor productivity growth rates and not the real labor productivity data. This isn’t to say that their research project becomes valueless, just that some of the findings are intuitive to existent literature – such as how firm’s size and its export ratio shows that the competitive advantage of larger firms in exporting and that smaller firms prefer to focus on filling the needs in the domestic market because of the high cost of operation associated with high entry barriers. Other areas of investigation, where more meaningful research emerges, is in the relationship between specific sectors and how if greater process capabilities were matched they’d be able to achieve market requirements in a more timely fashion. This finding is one repeated from the Dahlman, Ross-Larson and Westphal article. In other words when market indicators can more clearly be described and shared with those involved – capacities for innovation amongst firms increase as they have some degree of assurance that their investments will lead to profits. By testing their data they are able both to verify certain relationships, and to determine which are most significant, which is important for determining how to proceed with policy changes necessary to ensure investment in innovation capacity will leads to beneficial results.

Conclusions

Improving innovative capacity requires measurement of numerous variables and the strategic development of them in relation to indicators that are found in the marketplace. By being able to produce goods and services that are valuable, rare, difficult to imitate, and difficult to substitute they develop competitive advantages. Quantitative, qualitative, and multi-dimensional research tools combined with market research provide the methods by which these niches are found, and internal and external knowledge acquisition lead to their development.

Recommendation

Innovation and invention are not possible without a strong base in the knowledge of the work being done. As the above shows, it’s only through extensive training in fields of knowledge does innovation becomes possible. Exogenous and endogenous cooperation and the acquisition of new technology is the precursor for being able to apply capabilities to develop marketable goods and services. Being able to manipulate symbols or materials, organize in a more effective manner, more rapidly and at a better cost market the fruits of labor, etc. are all part of the preconditions which lead to innovation and invention.

Bibliography

Guan, J. M. (2003). Innovative capability and export performance of Chinese firms. Technovation, 23, 737-747.

Nystrom, H. “Innovative Capability Audits of University Research Centers,” Proceedings – 9th International Conference on Management of Technology, Miami, FL, Feb. 2 2000, CD-ROM.

Serrano G., J., y Robledo V., J. (2013). Methodology for Evaluating Innovation Capabilities at University Institutions Using a Fuzzy System. Journal of Technology Management and Innovation. Vol 8.

Sher, P. J., y Yang, P. Y. (2005). The effects of innovative capabilities and R&D clustering on firm performance: The evidence of Taiwan’s semiconductor industry. Technovation, 25, 33-43.

Wang, C., Lu, I. Y., y Chen, C. B. (2008). Evaluating firm technological innovation capability under uncertainty. Technovation, 1-15.

Yam, R. C., Pun, J. C., Guan, J. C., y Tang, E. P. (2004). An audit of technological innovation capabilities in Chinese firms: Some empirical findings in Beijing, China. Research Policy, 33, 1123-1140.