Innovation Economics - Presentation 1

Economics of Innovation Organisational Innovation Instructor Presenter

Thursday, April 16, 2009

: Professor Zhao Yulin : Kumara Uluwatta

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Outline Challenges in organisational innovations – conceptual considerations  Different forms of organisational innovation  Measurement of the outcomes of organisational innovations  Barriors to organisational innovations  Some empirical studies  Conclusions 

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Challenges in organisational innovations 

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Organisational innovations are addressed by different academic disciplines from different theoretical backgrounds (organisational science, economics, work psychology, sociology etc.) No single commonly accepted definition and theory base Outcomes of organisational innovations are difficult to define and measure Specific (new) set of performance indicators necessary for the measurement of organisational innovations Thursday, April 16, 2009

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Invention or Innovation?  Invention

– an idea or model for a new product or system, not yet entered the economic system.  Innovation – accomplished with commercial transaction involving new product or system. It is a part of the economic system -Schumpeter Thursday, April 16, 2009

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Innovation- Five types New products  New methods of production  New sources of supply  Opening of new markets  New ways of organizing businesses 

- Schumpeter (1934)

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Oslo Manual (2005) 1992 (1st ed.) : measuring technological innovation  1997 (2nd ed.) : measuring technological innovation + collection of non-technological innovation data “technological change both calls for and results from institutional and organisational change”.  2005 (3rd ed.) : includes organisational and marketing innovations “organisational innovations are not only a supporting factor for product and process innovation; they can also have an important impact on firm performance on their own” 

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Innovation

“An innovation is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations” - Oslo Manual (2005) Thursday, April 16, 2009

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Organisational innovation “Implementation of a new

organisational method in the firm’s business practices, workplace organisation or external relations.” “Changes in firm structure or management methods that are intended to improve a firm’s use of knowledge, the quality of goods and services, or the efficiency of work flows.”

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A new organisational method in business practices: e.g. codifying knowledge; education and training schemes; supply chain management; business reengineering; lean production; quality management systems  In workplace organisation: new methods for distributing responsibility and decision making among employees  In external relations: with other firms or public institutions or customers 

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Organisational innovation on entreprsie level 

Organisational structure –

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Organisational procedures –

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job rotation, job enrichment, job enlargement, coaching functions, teamwork, smaller business units, netwerking, outsourcing, adapting technology and production process… quality management, environmental management, preventive maintenance, just-in-time, supply management, knowledge management…

Supporting systems: personnel policy and industrial relations –

personnel, working hours, competence management, training, labour conditions (pay systems, contracts), industrial relations, workers participation, legislation...

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Organisational innovations can be understood in different ways

Enablers for other types of innovations: implementation and use of other forms of innovations (e.g. material product, service or technical process innovations) might be linked to organisational innovations  Distinct form of innovation - direct source of competitive advantage: organisational innovations can directly improve performance  Prerequisites for knowledge development in firms: Firms' ability to acquire, create and make the best use of competencies, skills and knowledge is closely linked to organisational and managerial practices 

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Organisational innovations can be understood as the non-technical part of process innovations  Unlike product and service innovations, process innovations are not directly implemented in the market  While the effects of product and service innovations can be directly measured by monetary indicators, the effects of process innovations are not directly visible in shares of sales and are therefore more difficult to measure.  Schumpeter: success (economic, market, social etc.) distinguishes an innovation from an invention, therefore organisational innovations need to be defined and 

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Organisational innovation vs. organisational change Organisational innovation involves a certain degree of intentionality  Organisational innovation typically has a specific aim – intended outcome  Organisational innovation is mostly an organizational change, but not every organisational change is also an organisational innovation  The distinction between organisational change and organisational innovation is clearly possible ex post – after the outcome can be observed (due to time-lag) 

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Measuring different forms of organisational innovation 

Complexity and different aggregation levels of organizational innovations: Organisational innovation is not one aggregated concept, but is composed of many different aspects such as, Decentralized organizations, TQM, HRM, Lean Mgt, Innovative work systems (great variety of specific indicators)

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Different life cycle of organisational innovations: Organisational innovations do not have a 'sell-bydate' as product and service innovations tend to have (typically 3 years). Novelty does not seem to be the single main criterion defining an organisational innovation

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Interfirm vs. intrafirm diffusion of organisational innovations The extent of implementation within the firm seems to be important. Partial implementation vs. full use of organisational concepts makes a great difference

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Measuring the outcomes of organisational innovation 

Different organisational innovations can aim at the same outcome (e.g. task integration and flexible working schedules both aim at increased flexibility) Different organisational innovations can be conflicting in their effects (e.g. standardisation might increase quality but at the same time decrease flexibility) There is no "one best indicator" to measure the effect/outcome of organisational innovation, given that organisational innovation itself is a multidimensional phenomenon and however there are two categories of outcomes. Firm level outcomes Thursday, April 16, 2009 16 Employee level outcomes

Potential firm level outcomes of organisational innovations: Improved quality of goods or services  Reduced costs  Reduced time to respond to customers or suppliers  Increased flexibility (product, process flexibility)  Increased productivity  More product or service innovations 

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Potential employee level outcomes of organizational innovations:    

Improved employee satisfaction Improved work-life balance Increased autonomy at work Increased motivation

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Barriers to sustainable Organisational innovation lack of senior level vision and commitment to sustainability  Nervousness over taking a pioneering or leadership role on sustainable innovation  Sustainability is not seen as area of business opportunity  Sustainability issues are rarely included in the corporate strategy, business development and/or the ‘opportunity search’ process  Lack of awareness of sustainability/environmental awareness amongst key business functions  Organisational systems and procedures are often inflexible (Bureaucracy, Bureaucracy structure, communication and risk aversion etc.)  Product designers and design consultancies still have a poor Thursday, April 16, 2009 19 understanding of sustainability 

Some empirical studies 

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Massimo G. Colombo, Marco Delmastro and Larissa Rabbiosi, University of Pavia, Autorità Garante della Concorrenza e del Mercato and Politecnico di Milano Lean organisation, “High Performance” work practices and profitability: Evidence from panel data Davide Antonioli, Massimiliano Mazzanti, Paolo Pini and Ermanno Tortia, University of Ferrara Technological and organisational innovations, industrial relations and firm performances: An analysis of the determinants of innovation activities Michela Marchiori and Angelo Caruso, University of Urbino Pursuing success in enterprise innovation: modelling and managing its inner complexity Fabrizio Cesaroni and Andrea Piccaluga, St.Anna School of Advanced Studies and University of Lecce Technology transfer from Italian universities: is an entrepreneurial university model starting up?

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Conclusions 

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Organisational innovations can be understood both as enablers for other types of innovations and as a distinct form of innovation (direct source of competitive advantage) Measurement of organisational innovations and their effects is methodologically challenging :Complexity of organisational innovations – organisational innovation is a multidimensional phenomenon (different aggregation levels) Longer life cycles of organisational innovations than of product or service innovations (novelty less important) - Significant differences regarding the intrafirm diffusion of organisational innovations (extent of implementation) - Multidimensional relationship between organisational innovations and their outcomes (complementarity vs. conflicting effects) - Structural equation modelling Thursday, April 16, 2009 offers the possibility to consider some of these 21 aspects

THANK YOU

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