Innovation for Competitive Advantage in International Market

INTRODUCTION

Organizations must run fast to keep up with changes taking place all around them. They must modify themselves all the time. Change, rather than stability, is the norm today. Every business is affected by a number of powerful environmental forces such as; technological advances, environmental changes, evolving society and customer desires, and maturation of market, which drive the need to change in today’s globalized economy. All of these enviromental forces have created opportunities and threats. Every organization strives to take advantage of opportunities and manage the threats which have arisen during the change process (Daft, 2001).

Organizations, to be considered innovative, need to implement technologically new products and processes, or need to make significant technological improvements in existing products and processes. Organizations generate and apply the appropriate knowledge required for producing something new and improving the existing product or process, simply known as “knowledge creation” (Atmaca, 2006). The rate of innovation and technical change is important to an economy’s rate of growth. Differences in knowledge creation, diffusion, and use have implications for international competiveness, standards of living, and quality of life (Feldman and Massard, 2002).

To remain competitive, established firms must continually seek out opportunities for growth and new methods for strategically renewing their performance. Changes in customer needs, new technologies, and shifts in the competitive landscape require that companies continually innovate and initiate corporate ventures in order to compete effectively (Dess, Lumpkin and Eisner, 2008).

The discussion begins with defining the innovation concept focusing on different literatures from professional writers. Innovations can take many forms, including radical breakthrough innovations as well as incremantal innovative improvements, and today’s researchers are strongly emphasizing that innovation is one of the most valuable differentiator for sustainable competitive advantage. The concept of innovation is compared to the concept of invention and creativity as they are confused and interchangeably used. Later, the discussion concentrates on the importance of innovation in identifying opportunities and threats coming with change; which are followed by suggestions how to become successful innovators to overcome these threats.

The discussion continues by identifying the four types of changes an organization undergoes to achieve advantage in the international environment. These changes can be used to update the products or the services, the technology, the existing strategy and structure, and culture in the organization. Then, focus will be on how organizations can build innovation by applying key elements that create a truly innovative and entrepreneurial one. The next chapter identifies some successful global innovators that have delivered novel benefits to their customers.

This thesis reviews the innovation concept and the forms it takes to achieve competitive edge in the market. It identifies the benefits driving from innovation, explains why people and organizations resist change and identifies the appropriate steps to overcome barriers resisting it. It explains the role management has during innovation and the key elements to create an innovative organization. It concludes by explaining why healthcare sector is different and identifies the best practiced innovations in healthcare sector.

The later chapter concentrates on how innovation evolves in the service sector. The biggest industries for R&D spending for 2009 are identified. The important features of services sector; the concept of service innovation and its four dimensions are compared to the service product concept. To conclude, some suggestions how management in service companies can achieve effective innovation are given.

The last chapter concentrates on the healthcare sector. It focuses on the main and best practised innovations in the healthare sector, as healthcare is a part of the service sector. The reasons that make the healthcare sector different from others are underlined. Big structure, complex size, and different government policies are some of the reasons. To sum up, best practised processes and services which are applied by present healthcare service providers are identified.

CHAPTER I

LITERATURE REVIEW IN INNOVATION

1.1 Defining Innovation

According to King (2009) innovation is doing things in new ways in order to achieve significant results and make a huge difference in performance compared to others. Innovation’s goal is to have a positive change, to make someone or something better. Testing and evaluation of ideas is critical in achieving this goal. The ideas that do not work are identified through testing. Failure is an integral part of the innovation process. Failing means collecting data and evidence about the changes that organizations want to undergo. This view is supported by Mulgan and Albury (2003) who define innovation as new ideas that work and a successful innovation can be achieved through the creation and implementation of new processes, products, services and methods of delivery which will result in significant improvements in the profitability and enhance the growth of an enterprise.

Innovation is a special case of planned change and learning that either transforms current products, services, and markets, or creates an entirely new market by introducing a radically new product or service. An organization is considered innovative if it stirs up the marketplace, by creating competitive pressures and new opportunities. It has been recognized that innovation success in an established organization requires balancing the stabilized efficiency of the current market offerings and building new capabilities to create and develop offerings for unknown markets (Bloisi, Cook and Hunsaker, 2003).

The changes used to adapt the environment can be evaluated according to the scope and to the extent to which changes are incremental or radical for the organization. Incremental changes maintain the general equilibrium of the organization through a series of continual progressions and affect only one part in organization. On the contrast, radical changes, transform the entire organization. Incremental changes include technology improvements, such as the introduction of computer-integrated manufacturing or product improvements in the established structure and management processes. In radical changes, the technology is likely to be breakthrough, and new products created will establish new markets (Daft, 2001).

Importance of innovation seems to be the most talked management issue these days. Knowledge plays a crucial role in the economic processes because within the knowledge-based economy, innovation plays a central role and stands at the heart of economic change. Firms innovate to defend their competitive position as well as to achieve competitive advantage. Organizations possessing more knowledge outperform those with less. It was believed that an enterprise can maintain competitive advantage through quality and price. While today’s different researches have revealed that innovation is one of the most valuable differentiator for sustainable competitive advantage (Tyagi, 2008).

1.1.1 Invention

Tyagi (2008) has made a distinction between invention and innovation. Invention is discovering of things never existed before while innovation is discovering how to introduce and commercialize new products, processes and new ways of adding customer value through innovative business models and management systems. This point of view is supported by King (2009) who defines invention as the generation of new ideas which have the potential to make someone or something better. New ideas can drawn from scanning other industries, by having conversations and meetings, or accessing information which is not usual in your business. All innovation’s starting point is invention of creative ideas. The distinction between them is; invention is having an idea about a service, product, technology or device, while innovation is the successfull application of those ideas.

Another author who has discussed about the difference existing among invention and creativity is Sloane (2010). Invention is the creation of a product, device or method that has never been made and existed before. So, every invention is an innovation. But every innovation is not an invention. When a company first publishes its website this is a major innovation for the company even though many other websites may already exist.

1.1.2 Creativity

Creativity is defined as the process of thinking and generating new things, new concepts, and new ideas. Converting these thoughts into tangible things, bringing these ideas to life is innovation. Creativity is like dreaming up new things and innovation is making those dreams come true. Expressed in other words, creativity is the capability of conceiving something unusual or original while innovation is the implementation of those unusual or original things (Difference Between, n.d.).

1.2 Benefits and Barriers of Innovation

In the last years change has occured incrementally and infrequently. A globalized economy is creating both opportunities and hazards to everyone. Firms are forced to make dramatic improvements not only to compete and prosper but also to survive. People who have been through difficult, and not successful change efforts end up drawing pesimistic and angry conclusions. They become suspicious of the motives of those pushing for transformation (Kotter, 1996).

This section will focus on the discussion of benefits and barriers that come with innovation. The advantages supporting a strong leadership and the factors causing resistance toward change will be identified. In addition, this section will also explain some methods that managers can use to implement change successfully within the organization.

1.2.1 Benefits of Innovation

Bhatt (2007) states the reasons that make companies innovate, those are listed below:

• To advance in technology.
• To change the environment.
• The evolving of the society.
• The evolving of the customer desires.
• Competitors improve their products and services.
• Customers stop buying your old products so you need to replace them and add new products.

Innovation opportunities can arise due to environmental changes in technology, science, and data analysis. Environmental changes may result in creation of new customer needs or may enable the organization to develop better solutions to current customer needs. Service or product innovations have to fulfill four benefit aspects listed below:

• Unique. The target group should perceive the new benefits generated from the new service or product as unique.
• Important. The customers should perceive the new benefits as important.
• Sustainable. The new benefits should be protected against followers by measures such as patents, time to market and brand management.
• Marketable. The organization should have the resources, capabilities and competencies to market the product which also includes an effective and ready to market version of the product (Anon., 2008).

Stark (n.d.) has identified the benefits of good innovation, those are listed below:

• First to market.
• Premium prices.
• Best customers.
• Large market share.
• Increased shareholder return.
• Increased employee motivation and morale.

1.2.2 Barriers to Innovation

Beer and Nohria (2000) state that one research team concluded that ‘The brutal fact is that about 70 per cent of all change initiatives fail’. These researchers conclude that there are two primary reasons why organizations undergo change: one is based on ‘hard’ economic value (e.g. financial return to shareholders); the other is based ‘soft’ organizational capabilities. The organizational approach develops corporate culture, human capabilities, feedback, measurements and reflections on evolutionary progress.

Both people and organizations frequently resist change, even if it is in their best interests, especially in large and established organizations. Bloisi, Cook and Hunsaker (2003) suggest five main reasons why individuals resist change:

1. Selective perception. People sometimes perceive the same thing differently. When changes are initiated, individuals tend to focus on how they will be personally affected rather than seeing the big picture for the entire organization.
2. Lack of information.People will resist change if they are not informed about what is expected from them or what benefits change will bring. If the reasons for change are not clearly presented, people tend to fill in the missing pieces with speculation, which often assumes the worst in terms of initiator intentions and personal impact. In addition, if people do not have enough information about how to change, they may fear making mistakes, so they will not try.
3. Fear of the unknown. Individuals resist change when they are uncertain about how it will affect their well-being. They fear downsizing, uncertainties about not knowing how to change, not being able to perform as well as before the change, losing position, income, and status or power.
4. Habit. Many people prefer familiar actions and events, even if they are not optimal. Breaking a habit is difficult because it takes hard work and involves giving up perceived benefits from the habit, even if the new behavior has more desirable consequences.
5. Resentment toward the initiator.If a change seems arbitrary or unreasonable, resentment and anger are directed towards those initiating the change. People resent being controlled and losing autonomy over their works and lives, when their thoughts and feelings are not considered by change initiators. Finally, without trust in the initiator’s inventions, people may resist the change out of resentment or fear of possible unknown consequences.

Bloisi, Cook and Hunsaker (2003) state that organizations resist change for many of the same reasons individuals do. There are also many forces inside an organization that create resistance to changes initiated by environmental conditions. Some of the main ones are summarized below:

1. Power Maintenance. Changes in decision-making authority and control of resource allocations threaten the balance of power in organizations. Units benefiting from the change will welcome it, but those losing power will resist it.
2. Structural stability. Organizations create hierarchies, subgroups, rules and procedures to promote order, consistent and predicable behaviors. People who ‘fit’ these desired behavioral criteria are hired and shaped to confirm further through the socialization process and organizational conditioning.
3. Functional sub-optimization.Differences in functional orientation, goals and resource dependencies can cause changes that are seen as beneficial to one functional unit and as threatening to another. Functional units usually think of themselves first when evaluating potential changes and support those that enhance their own welfare, but resist the one that reduce it.
4. Organizational culture. Organizational culture promotes predicable ways of thinking and behaving. Organizational members will resist changes that force them to abandon established assumptions and approved ways of doing things.
5. Group norms. Groups develop their own norms to promote desirable behaviors. Many members conform these norms. Consequently, any change that disrupts group norms, tasks or role relationships will probably be resisted.

Strategos conducted a survey of innovation practices of more than 550 large companies, where majority of respondents in every industry rated innovation as critical and said that the importance of innovation would grow in the future. According to Loewe and Dominiquini (2006) the top six obstacles to innovation identified by respondents across industries are:

• Short-term focus.
• Lack of time, resources or staff.
• Leadership expects payoff sooner than is realistic.
• Management incentives do not reward innovation.
• Lack of a systematic innovation process.
• Belief that innovation is inherently risky.

Below is a list of suggestions how to become successful innovators about overcoming the barriers to innovation:

1. Have a vision for change. Innovation has to have a purpose, a statement which defines the direction for the business and which people will readily understand and remember. Your team needs to know the direction they are headed in order to be innovative. Illustrate the goals and explain to people how their role is decisive in meeting the goals to fulfill the organizational vision.
2. Fight the fear of change. Innovative leaders constantly explain the need for change. They must paint a picture that shows an attractive future that is worth taking risks to achieve.
3. Have a dynamic suggestions scheme. Great suggestion schemes are focused and open to all. Leaders do not need to offer huge rewards. Sometimes, recognition and response are generally more important.
4. Break the rules. To achieve radical innovation leaders need to challenge all the assumptions related to how things should look in your environment. Business is like Art, with no well-defined rules and referees. Innovation is filled with opportunities for people who can take advantage in creating new ways to provide the goods and services that customers want.
5. Give everyone two jobs. Ask your people to run their current jobs in the most effective way possible and at the same time to find completely new ways to do the job. Encourage them to identify the purpose of their role, the outcomes delivered through this role and if there is a better way to deliver that purpose.
6. Collaborate. CEOs must see collaboration as key to their success during innovation. Success can not only be achieved by using internal resources, but also by looking outside of the organization for people to partner with.
7. Welcome failure. The innovative leader encourages a culture where people feel free to innovate and experiment. Innovative leaders tell people that each unsuccessful attempt is a step along the road to success. When innovative leaders welcome innovation and create a culture of experimentation, means that they except failure and welcome it.
8. Build prototypes. Innovative leaders are suggested to try the new ideas at low cost by building prototypes and see what the customer reaction is. You will learn more in the real world than you will in the test laboratories.
9. Be passionate. Leaders must concentrate on the things they want to change, on the challenges they want to face and be passionate about overcoming them. Organizations need passionate supporters, who are inspired to innovate and change the way they do things to come up with extraordinary results. Be passionate about what you believe, communicate that passion every time you speak and explain why reaching the destination is really worthwhile (ArticleSnatch, n.d.).

1.3 Types of Innovation

There exist four types of changes to achieve strategic edge within an organization. Managers can use these four types of changes to achieve competitive advantage in the international environment. Each company can have maximum impact upon the chosen market through its own unique configuration of technology, product and services, strategy and structure, and culture as explained below (Daft, 2001).

1.3.1 Technological Innovation

Technological innovations refer to changes in an organization’s production process to enable distinctive competence. Changes in an organization’s production process, including its knowledge and skills base, are designed to produce greater in volume or to have a more efficient production. Changes in technology involve the work methods, equipment, and work flow techniques for making products or services. For example, in a university, technology changes are about changes in methods for teaching the courses. Tyagi (2008) suggests that traditionally innovation has been associated with the use of technological knowledge, and research and development activities. A technological innovation is any innovation due to an industrial application of scientific knowledge.

Dess, Lumpkin and Eisner (2008) suggest that innovation involves the usage of new knowledge to transform organizational processes or create commercially viable products and services. The latest technology, results of experiments, creative insights, or competitive information may be the sources of new knowledge. However it comes about, innovation occurs when new combinations of ideas and information bring about positive change. Among the most important sources of new ideas is new technology. Technology creates new possibilities and provides the raw material that firms use to make innovative new products and services. But technology is not the only source of innovation. There can be innovations in human resources, firm infrastructure, marketing, service, or in many other value-adding areas that have little to do with anything “high-tech.”

1.3.2 Product and Service Innovation

Product and service innovations refer to the product or service outputs of an organization. New products may be in the form of entirely new product lines or small adaptions of existing products. New products are designed to develop new markets, or customers, or to increase the market share. Tyagi (2008) states that product innovation is about the introduction of new goods and services which have improvements in terms of design excellence, core characteristics, technical specifications etc. and are derived from customer or industry insight, or strategic alignment of the organization.

Godin (2005) suggests that the old rule was to create safe and ordinary products that were combined with great marketing. The new rule is to create remarkable products and figure out a great theory by looking at what’s working in the real world and what the various successes have in common. Identify what the successful companies have in common and do something to be remarkable.

Roberts (2002) has made a distinction when discussing if innovation is between product/service innovation and process innovation. Product/Service innovation refers to efforts to develop new products or services for end users. Product/Service innovations tend to be more radical and are more common during the earlier stages of an industry’s life cycle. As an industry matures, there are fewer opportunities for newness, so the innovations tend to be more incremental. Process innovation, by contrast, is associated with improving the efficiency of an organizational process, especially manufacturing systems and operations. Process innovations occur in the later stages of an industry’s life cycle as companies seek ways to remain viable in markets where demand has flattened out and competition is more intensive. As a result, process innovations are often associated with overall cost leader strategies because the aim of many process improvements is to lower the cost of operations.

There are several problems with seeking competitive advantage through investments in process technology. Firstly, the people who sell you robots or point-of-sale terminals, software to analyze production or service delivery will sell the robots, terminals, and software to your competitors. Your ability to obtain the benefits of this technology depends on your ability to implement it more rapidly and more effectively. Secondly, investment in specialized technology is not a substitute for skill in managing the work force. This is because more skills may be required to operate the more sophisticated and advanced equipments. Having a higher level of investment per employee will result in increasingly expensive interruptions in the process which means that the ability to operate, maintain, and repair equipment effectively becomes even more critical (Pfeffer, 1996).

1.3.3 Strategy and Structural Innovation

Strategy and structural innovation refers to the administrative section in an organization. It is related to the management and supervision in the organization, including changes in an organization’s strategic management and structure, policies, accounting and budgeting systems, reward systems, labor relations, coordination devices, management information and control systems. Strategy and structure changes in an organization are mandated by top management. They usually have a top-down structure. An example may be if the corporate goes downsizing. On the other hand, product and technology changes may come from the bottom up.

1.3.4 Cultural Innovation

Cultural innovation refers to changes that may occur in an employee’s attitudes, beliefs, values, expectations, abilities, and behavior. Culture innovation tends to change the way employees think. These are changes in mindset rather than the technology, structure, or products and services.

Culture can be a powerful force undermining or shoring up the effectiveness of a nation, a business, and a manager. Recognizing the presence and power of culture will help in better navigating through the rough seas of international business. Discovering how to harness the power of culture in an organization will help the organization gain competitive advantage (Schneider and Barsoux, 2003).

To conclude, it can be said that successful innovation in an organization occurs when technological and product or process innovations in the value chain are implemented through effective strategy and structure innovation. Innovation in an organization, which includes people, leadership, creativity, process and organizational culture, is the driver to grow, to achieve high profits and to succeed in the market. Innovation in an organization should be approached in a systematic way and not a piecemeal manner and should be initiated even at the lowest levels (Tyagi, 2008).

1.4 Leadership in Practice of Innovation

Many organizations are resistant to changes and continue operating the way they had been operating in the past. To remain competitive, they work harder, improve efficiency, reduce cost and implement best practices. But, this is not enough. Instead of getting stuck in their standard mode of operations, organizations need to adopt innovative ways to change the strategies. The best way to create a competitive edge and be in the head of the competition is to innovate by drawing advantage from the creative power of your people. Turn your greatest assets into opportunistic entrepreneurs who discover new ways and improve the way they do business. Management innovation involves total transformation of existing culture to enhance organizational performance in an integrated manner involving technological innovation, product and service innovation, and strategy and structural innovation (Tyagi, 2008).

Sloane (2003) suggests that every organization needs to have a vision, a culture and a process of innovation to build a truly innovative environment. There are eight key elements that create a truly innovative and entrepreneurial organization as below:

1. Painting the vision. The first step is to paint a desirable, challenging and believable vision. Innovative leaders must be sure that people share a common goal and embarke on a journey all together. Being all together means they accept easier the changes, all the challenges and difficulties that show up during the journey. Innovative leaders should delegate more responsibility, and empower the staff with control over their work. Once staff is aware of the goal and direction headed, they contribute the best creative ways to solve challenges and obstacles that lie ahead.
2. Build an open and questioning culture. The painted picture quickly fades away from view, so great leaders should take time to meet staff and illustrate the goals to be achieved and the challenges to overcome. Leaders inspire the staff to become entrepreneurs finding innovative routes to success and constantly remind them how their role is decisive in fulfilling the vision and meeting the challenges.
3. Empowering. The purpose of empowering your people is to turn them into entrepreneurs looking for new opportunities. By empowering, leaders enable them to develop the skills for the task and achieve the change through their own efforts to come up with radical innovations. People need freedom to succeed and need to understand and agree on what management expects of them. People and management must agree on the scope of freedom and responsibility. Empowering means trusting your people, supporting and believing that they will achieve great things.
4. Set goals, deadlines and measurements for innovation. Change is uncomfortable, resulting in anxiously people fearing an embarrassing or costly failure. Leaders should spend time with people encouraging them to undertake risks and come out from their safety zones. Leaders should reassure them that risks are necessary and worth taking and no one will be punished if their initiatives do not succeed.
5. Use creativity techniques to generate a large number of ideas. Innovative leaders should build a culture where everyone can come up with creative solutions and crazy ideas through techniques, methods, and workshops. The goal is to change the people within the organization; from people who do routine jobs into highly energized entrepreneurs who constantly search for new and better ways of making the vision a reality. People need to be trained to learn the skills and to develop the confidence to try new methods, and use creative techniques to come up with new solutions.
6. Review, filter and select ideas. In the innovation process many ideas are generated in response to a given issue or challenge. At the end, the most promising idea is selected.
7. Prototype the promising proposals. After the idea is selected, then the move is to rapidly prototype it.
8. Analyze the results and the successful projects. New product is tested for its feasibility, attractiveness and payback. Those that pass these criteria are given more funding.

King (2009) suggests that the most effective, efficient and leading edge organizations are those that innovate and encourage innovation. Innovative organizations require a strong leadership team to approve the importance of innovation and create a culture for it. A development of strong capabilities for innovation leadership need to be started early in the career development process. In an innovative culture, the staff is given freedom to innovate and experiment. In an innovative culture, risks are managed and the organization understands and accepts that future success is built on a series of learning from unsuccessful attempts. Collaboration with outside parties to generate and adopt innovations is encouraged. Success will depend on strong leadership. We can take learning from market leaders to help us identify key leadership behaviors to promote innovation as explained below:

• Lead continuous innovation and improvement. Develop and communicate an encouraging story.
• Encourage partnerships and collaboration. Staff should be exposed to new viewpoints and ideas that can be adapted in the organization. To do this, the organization should create partnerships and collaboration with different parts within or outside the organization.
• Promote innovation. Organization should consider innovation as a core part of its role, and time is allocated for its employees to innovate. Different organizations have created bespoke