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Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
Publisher capabilities and online innovations
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Publisher capabilities and online innovations

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EMMA Conference, London, February 2009

EMMA Conference, London, February 2009

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  • 1. Are publishers ready for tomorrow? Publishers’ capabilities and online innovations Vera Valanto (vera.valanto@lut.fi) Miia Kosonen (miia.kosonen@lut.fi) Hanna-Kaisa Ellonen (hanna-kaisa.ellonen@lut.fi) Lappeenranta University of Technology Technology Business Research Center (TBRC) P.O.Box 20 53851 Lappeenranta, Finland Tel +358 5 621 7244 Fax +358 5 621 6699 1
  • 2. Abstract In order to cope with technological change publishing companies need to effectively combine their capabilities and use them to support the development of new and existing products. In this paper, we explore the relationship between the market and technology capabilities of publishing companies and their online innovations. Our aim is to find out what kind of online-related capability portfolios they have, and how they are related to online innovation. Our comparative case study focused on four cases representing the newspaper and magazine industries. There appear to be vast differences in publishers’ capability portfolios - in general they tend to reflect stronger market than technology capability. There is also an apparent tendency to build on the strongest capability area and to focus on leveraging those capabilities rather than taking a risk and experimenting in an area in which they are weak. Thirdly, we found that publishers have been able to leverage their market capability through online experimentation, but it seems that they have not been able to develop their technology capability in the same manner. The study provides an empirical contribution to the emerging work on innovation-related capabilities in this in-depth investigation of the capability portfolios of the case firms. Furthermore, in enhancing understanding of the online-related capabilities required in publishing companies and how they develop them also contributes to the literature on media management. Keywords: capabilities, innovation, online innovations, market capability, technology capability, publishing industry 2
  • 3. 1 INTRODUCTION Online environments have changed the mode of operation within the publishing industry. With the increasing prevalence of the Internet the media industry is faced with the challenge of offering entirely new types of products online (Küng, 2004, Chan-Olmsted, 2006). Companies have to meet new customer expectations in this environment. In order to cope with such change publishing companies need to effectively combine their capabilities in terms of supporting new-product development and the continuous improvement of existing products. The processes and structures of innovation have been extensively studied. For instance, Ellonen et al. (2009) investigated the relationship between dynamic capabilities and online innovations within the publishing industry. However, they point out how further research is needed in order to clarify the linkage between capabilities and innovations. In this study we explore the relationship between publishing companies’ market and technology capabilities and online innovations. Specifically, we focus on two research questions: 1) What kinds of online-related capability portfolios do publishing companies have? 2) What is the relationship between their capability portfolios and their online innovations? The choice of research design was based on the two objectives of the study. Rouse & Daellenbach (1999) have called for detailed, fieldwork-based comparative investigation in studies of firms’ resources. Given our objective to explore the relationship between the firm’s capabilities and its online innovations we conducted a comparative case study (Eisenhardt & Graebner, 2007, Patton, 3
  • 4. 2002), allowing us to investigate each case thoroughly and then to find themes and patterns by means of cross-case analysis. This paper is organized as follows. We first review the relevant literature on operational first-order (market and technology) capabilities. Then we formulate the innovation types used in the study, describe our empirical setting, research methods and data, and report the results of the empirical analysis. Finally, we discuss our findings, offer some concluding remarks and suggest potential future research directions. 2 THEORETICAL BACKGROUND Research on capabilities is grounded in the theory of the resource-based view of the firm (RBV), the central claim of which is that in order to gain competitive advantage through its value-creating strategies a firm has to use its heterogeneous capabilities effectively in successful product creation (Barney, 1991, Peteraf, 1993, Teece et al., 1997, Brown & Eisenhardt, 1997, Jacobides & Winter, 2005). Capability is defined here as the ability to do certain things on the organizational level, and it is used synonymously with the concept of competence. Capabilities are usually divided into two main groups depending on the tasks concerned – doing everyday core business or gaining new and combining existing capabilities. The focus here is on the first group, which we label first-order capabilities. These constitute a source of competitive advantage when they are built on resources, routines, skills, relevant knowledge and relationships (Teece et al., 1997, 524, Clark, 1987, 61). It is question of productive capabilities, or in other words “knowledge of how to do things” (Jacobides & Winter, 2005, 397), which comprise both tangible and intangible elements (Danneels, 2002, 1112). 4
  • 5. 2.1 Market and technology capabilities The general understanding is that product innovations require a simultaneous view of markets and technologies (Dougherty, 1992, Danneels, 2002), and both market and technology capabilities therefore affect success with new innovations (Cooper & Kleinschmidt, 1995, Ritter & Gemünden, 2004, Nerkar & Roberts, 2004, Renko et al., 2009). Understanding customer needs and going on to selling new products need good market capability (Danneels, 2002, 1102, Abernathy & Clark, 1985, 5). Product manufacturing and building, in turn, requires technology capability (Danneels, 2002, 1102, Abernathy & Clark, 1985, 5). Different terms are applied in the context of market capability. Danneels (2002, 2008) uses customer competence, Abernathy and Clark (1985) refer to market/customer capabilities, Renko et al. (2009) to market orientation, and Borges et al. (2009) to customer and market orientation. With market capability it is question of the ability to serve certain customers (Danneels, 2002) and to “react or respond to conditions in the market” (Renko et al., 2009, 336). We have divided market capability into four components. Firstly, in order to understand customer needs and actions it is important to be able to collect and process customer knowledge from both new and existing customers. This means that the firm has to have data-collection tools on the one hand and necessary processes and skills to use the information it holds on the other. Secondly, the customer-needs component incorporates being able to satisfy customer expectations by offering suitable product features and operations, and relevant product-development capability. Thirdly, we focus on the customer relationship, meaning the ability to identify and serve customer groups, build customer loyalty and use customer registers. Finally, customer communication implies the ability to 5
  • 6. communicate to and with customers through appropriate channels, reacting to feedback and offering suitable products. Technology capability means, the “ability of a firm to make certain physical products” (Danneels, 2008, 520) on the one hand, and production and operational competence on the other (Abernathy & Clark, 1985, 6). We have divided this into three components. The first is the ability to design and manufacture, referring here to online products with certain features, and to understand the potential and limitations of product development. The second refers to production systems and know-how, which here means the ability to carry out everyday processes related to updating and maintaining the functionality of online products. Finally, managerial skills refer to the capability to set up processes related to everyday work and product development, which also includes the knowledge base. 2.2 Different types of innovations An innovation always has a novelty aspect, such as being new to the individuals involved, to the marketplace, to the industry or even to the world (Van de Ven, 1986, Garcia & Calantone, 2002). As a concept innovation could refer to processes, administration or products, for example. However, innovation is seen as an outcome in this paper (Van de Ven, 1986, Gatignon et al., 2002). We follow Abernathy and Clark’s (1985) work and categorise innovations as regular, niche-creation, architectural or revolutionary depending on their impact on the firm’s capabilities. The question is therefore whether the innovation builds on existing market capability (regular, revolutionary) or requires new capabilities (niche creation, architectural), and similarly whether it 6
  • 7. builds on existing technology capability (niche creation, regular) or requires new capabilities (architectural, revolutionary). Figure 1 illustrates this innovation typology. Figure 1. The impact of innovations on the firm’s capabilities (Abernathy & Clark, 1985, 8) 2.3 The relationship between capabilities and innovation Building on March’s (1991) seminal work, Danneels’ (2002) study provides evidence that the relationship between customer and technological capabilities and innovations is reciprocal: in other words the firm’s existing capabilities have an effect on the innovations it produces, and the innovations affect the development of its capabilities. New innovations serve to build new competences through exploration (new competences needed) and exploitation (building on existing competences) processes. March (1991) described the balancing act in which firms engage in terms of the exploration of new and the exploitation of existing knowledge and competences. Both exploration and exploitation are forms of organizational 7
  • 8. learning, but their mechanisms and outcomes are different. Exploitation gives predictable results through the refinement and extension of existing competences, whereas exploration could lead to uncertain results from experimentation. When firms fail to maintain a balance between the two they may be “trapped” in the self-destructive dynamics of excessive exploration or exploitation (Levinthal & March, 1993). On the other hand, Danneels (2002, 2007) introduced the concept of competence leveraging to describe how new competences can be built by exploiting existing ones. In sum, in order to remain competitive in the online environment media companies need effectively to combine their market-related and technology capabilities and to use them for new-product development. The importance of market and technology capabilities in innovation is recognized in the literature. Likewise, it has been suggested that innovations not only require certain types of capabilities, but may also help in developing existing or new ones. 3 RESEARCH DESIGN AND METHODS Rouse & Daellenbach (1999) called for detailed, fieldwork-based comparative studies of company resources. Given our objective to explore the relationship between a firm’s capabilities and its online innovations we applied a comparative-case-study approach (Eisenhardt & Graebner, 2007, Patton, 2002). Our cases comprise four publishers, two newspaper publishers and two magazine publishers. We collected the data through theme interviews, which were open and narrative in type: the themes and questions were presented in random order in order to allow more natural conversation, following the lead of the interviewees. The questions covered issues such as the current online 8
  • 9. customer offerings, recent developments in online offerings, customer groups and communication, modes of production, know-how and the search for new ideas and solutions. We interviewed top management and people responsible for the development of online services in different functions in the case organizations. We held between nine and 11 interviews in each case firm, 38 in total, which produced 430 pages of transcribed text. Table 1 summarizes the data-collection process. Table 1. Data collection Case publisher Number of interviews Total textual dataset Magazine publisher Pine 9 105 Magazine publisher Cypress 9 102 Newspaper publisher Oak 11 128 Newspaper publisher Maple 9 95 In order to categorize the publishers’ online innovations we triangulated the interview material with other types of data: we analyzed the current online services on the publishers’ websites and built a dataset of diverse forms of secondary data (such as press releases, press articles and annual reports). We used Atlas TI software as a coding tool. First we analyzed the individual cases thoroughly and then conducted a cross-case analysis in order to identify recurrent themes and patterns. We analyzed the data deductively to enable comparison between the cases, using the different components of market and technology capability identified in the literature as the basis of our coding frame. Accordingly, we defined the publishers’ market and technology capability as either “Strong”, “Moderate” or “Weak”. We categorized the generated online innovations as Regular, Niche-creating, Architectural or Revolutionary in accordance with Abernathy & Clark’s (1985) transilience map. The data also allowed us to assess capability development over time. We only focused on the recent development 9
  • 10. of online offerings, starting from 2005, and therefore evaluated the related capabilities on two different timescales: earlier (2005-2008) and currently (2008-2009). The quality of qualitative research is not unambiguously evaluated (Denzin & Lincoln, 2000, Kirk & Miller, 1986). Reliability in this context refers to accuracy in research methods and efforts (Shank, 2006). In order to maximize the reliability of the study we aimed at providing detailed enough description of the research process, allowing the reader to follow the researchers’ reasoning (Yin, 2003). Validity, in turn, refers to the degree to which the findings are interpreted in the correct way (Kirk & Miller, 1986). In building a chain of evidence (Yin, 2003) we used the Atlas TI program to support the coding and analysis. In addition, two of the authors double-checked the analysis and the interpretation of the results. 4 RESULTS We present and summarize the findings from the multiple-case analysis in this section, reporting the four publishers’ operational capability portfolios as well as the types of generated online innovations. First we briefly describe the capabilities and online innovations related to the individual cases, then give a summary linking the two and identifying common patterns. 4.1 Pine A couple of years ago the magazine publisher Pine served its online customers in much the same way as it served its print customers: there was little interaction and feedback was not systematically 10
  • 11. collected or used. Its online services relied on relatively weak technology capability, lacking both flexible solutions to develop applications and systematic processes for development and maintenance. “Before, our online publishing system was a variation of our own print publishing system. We were able to publish online but every modification to the web pages was difficult and it required hours of coding work.” Pine has now improved its knowledge about its online customers by following website usage, for example. It also provides a wider variety of content and services, and has launched new advertisement solutions. However, online interaction with customers is not common. After struggling with out-of-date and rigid systems Pine has now been able to acquire more technical knowledge. It also has an in-house development organization and has centralized the maintenance of online services. The new publishing platform has eased the workload and the basic production systems are highly workable. However, the development processes remain unorganized. “One might say that before we had the desire but not the ability. Now we’ve reached the level that we can do renovations if we want to. I’m not claiming that the development process was technologically led, but coding and technological tools are needed for publishing processes, they are requirements for renovating and publishing new content such as blogs.” Pine only used to produce common and regular types of online innovations, relying on existing capabilities and applying to existing customers. Now it is also producing revolutionary innovations, which are clearly technically new to its existing customers and to the company itself. 11
  • 12. In sum, Pine currently has weak market capability and strong technology capability. It produces mainly regular and revolutionary innovations for its current customers, relying on both existing and new technologies, whereas weak market capability limits the opportunities for producing innovations aimed at new customers. 4.2 Cypress A couple of years ago the magazine publisher Cypress did not have much knowledge about online customers, although it did have some basic features such as a feedback system. Now, on the other hand, it relies on systematic analysis and also uses customer groups for testing applications. It also uses online discussions as a source of insight and ideas for development. “We have meters indicating visitor numbers, sales and that kind of thing. We calculate content costs against visitor numbers. We’re planning to have more meters and we have some ideas on how to measure more and set up goals.” “When we have larger development projects we ask customers to take part in face-to-face development forums such as workshops. Another way is to use a test group, which we are doing in one site. Customers participate over a certain time period and we ask what they think and what kind of features they would like to have.” In terms of market capability, Cypress was and remains ready to try out new applications for advertisers and readers, but the services are not sufficiently targeted. 12
  • 13. Earlier its moderate technology capability manifested as an ability to design and launch online services based on rapid and flexible development. The development work was rather independent and organized under specific brands. The level of technical knowledge varied significantly between the brands, but knowledge was shared rather openly and informally across the organization. Interestingly, the level of technology capability has deteriorated following the reorganization of a couple of years ago. In other words, Cypress currently lacks in-house coding resources and technical know-how. The development work is systematically organized, but at the same time large projects require lots of resources and time. It seems that bureaucracy hinders small incremental development. “We suffer even more from rigidity because of our new cooperation partner – in this case an internal unit – where those who control and take care of projects are shared resources. And then this new organization, there were unclear job descriptions, and they remain unclear... It also brought one new interface. And Lord knows, it is not intended to work at all.” “I often discuss my vision of a centre where we would have implementation know-how. This house does not need any more idea generators or journalists. What we need is a horde of coders, and project management for them.” Cypress had earlier success in producing revolutionary innovations relying on new technology. Most of them were produced for existing customers with moderate technology capability. Currently it offers “a little bit of everything”, but it is not focused in a precise direction. All in all, it now has 13
  • 14. relatively weak market capability and weak technology capability, and as a result mainly produces regular types of innovation. 4.3 Oak The newspaper publisher Oak used to be on a moderate level in terms of both market and technology capabilities. It incorporated web-analysis tools rather early in order to gain customer knowledge, but did not fully use them for service development. The development of online services was based on intuition rather than systematic work. However, it was among the first publishers to apply interactive features in order to collect and process feedback from customers and also to engage in open discussion with readers. “Before we had an online application where we ideated with our customers and informed them about the upcoming changes. But then it was closed. The group of readers was rather small, but I’d like to think that they were still quite important. They are digital-media active and are the people who spread the message, so it was a key target group.” In terms of technology capability Oak had rather professional in-house technical knowledge, and the necessary resources for developing the services. The development work was not yet organized in the form of projects, which could rather be seen as the learning phase of systematically planning and implementing online services. Currently Oak has strong market capability related to customer knowledge and meeting customer needs. For instance, new customer-analysis tools are widely applied, and a range of novel types of 14
  • 15. online services for different target groups has been launched. What distinguishes Oak from the first two cases is that the readers can produce content for the online services, such as in community-types of applications, and can engage in a wider variety of interaction. “I would like to say that the way readers participate has changed a lot. They send pictures, write comments on the news, take part in the discussions on our web pages, and even produce entire services. This community thinking is a strong theme nowadays.” Its technology capability remains more of a concern for Oak. There is less in-house technical knowledge than before, and learning to operate with new sub-contractors takes time. Moreover, some of the platforms seem out-of-date. Due to both reorganization and the variety of online services provided, development and maintenance have slowed down. However, the company now has strong professional project-management capability, and different units share knowledge more than before. “We do these projects in and with our shared unit. We have a close relationship with our project workers, and try to be as efficient as possible with them, and to keep the projects on schedule.” Earlier most of Oak’s innovations relied on new technology and were aimed at both existing and new customers (revolutionary, architectural), although the two other types of innovations were also in evidence. It currently mainly produces architectural innovations targeted on new customers, as it has moderate market capability giving direction to the development of online services. Architectural innovations include innovative tests and games for customers. It provides locally produced advertisement solutions for its media clients. 15
  • 16. In sum, Oak now has moderate market and technology capability. There is some variation, but on average it remains on the same moderate level. 4.4 Maple Like Oak, the newspaper publisher Maple previously had moderate market capability. Web analysis was not used efficiently and customer knowledge was collected on a random basis rather than systematically. It did not engage in interaction with its readers either, except for occasional feedback. However, it did incorporate some novel applications to attract customers to the newspaper website. “We have had some measured [customer] data before, but if we speak about analysis, that’s another question...” “The reader relationship was distant and we had technical difficulties in allowing customers to send us content, for example. There were also concerns about the quality: we thought we couldn’t publish such material. Now we’ve accepted that it’s more about uniqueness than technology.” Maple was previously severely deficient in its technical platforms and systems. The platform was “stitched up” to match the increased volume and use, and it required much maintenance. There was no coordination of development processes either, and the work was conducted in strict silos. In particular, the company did not have enough technical know-how. On the positive side the development work could be conducted rapidly and flexibly given the lack of project organization. 16
  • 17. Now, on the other hand, Maple has strong market capability and weak technology capability. On the customer side it has launched a variety of different types of online services for readers, and new solutions are offered to media clients. It has also been able to target and differentiate content based on customer profiles, which enables it to better serve its audience and to reach an even wider mass. Web analysis is used to produce more detailed customer knowledge. Finally, customers participate in testing and developing Maple’s services, and different types of customer interaction are incorporated into the online applications. “Our strength is that we are really much closer to our customers than the average broadsheets. We have put a lot of effort into coming down from our ivory tower and getting closer to our readers’ lives and souls: that’s where we get their experiences. We’ve always done that, even before the Web, listened to our customers.’ “Let’s take the videos, for example. There we can see the developments in technology and in people’s cell phones and that kind of thing. Now we can use videos taken by readers and that’s one reason why our site is interesting.” The level of technological knowledge has increased slightly within Maple, but there is still not enough know-how about technical solutions, and it is unevenly spread. In particular, there is no systematic vision about online service development. Attempts have been made to organise the development work as a process. The new platform should ease the maintenance workload, but it also brings learning challenges. The company has good subcontractors who are easy to work with, and there have been attempts to share knowledge more openly in-house regarding the development work. 17
  • 18. Maple has mainly produced niche-creation and architectural types of online innovations. The former include web pages targeted to certain customer groups based on their interests, whereas architectural innovations include more advanced tests and games. Like Oak, Maple also provides local advertisement solutions to its media clients. In sum, it has strong market capability and weak technology capability. 5 DISCUSSION Figure 2 summarizes our findings with regard to the case publishers’ market and technology capability profiles and the characteristics of their online innovations. 18
  • 19. Figure 2. The publishers’ market and technology capability profiles and types of online innovations On the basis of the above discussion we are now able to link the capabilities with the types of online innovations produced. It seems that publishers with relatively weak market capability (Pine and Cypress) produce regular innovations. This is understandable because regular innovations are built on existing capabilities and offered to existing customers using existing technological solutions. Hence, it seems that publishers with a relatively weak level of market capability tend to stick with exploitation (March, 1991) and “safe” types of online products and do not take any risks in terms of stretching their current market capability too far. The only moves towards more radical innovation tend to fall within the revolutionary category, thus still building on existing market capabilities and trying something new on the technology side. It is worth noting that both publishers with relatively weak market capability (Pine and Cypress) are magazine companies, and that their market capability did not significantly develop over the time frame in question. On the other hand, the firms with a stronger market capability tended to explore (March, 1991, Danneels, 2002) more on the market dimension and produced both niche and architectural innovations. Only one of our cases (Maple) produced niche-creation innovations. It therefore seems that approaching new markets with new forms of customer communication requires very strong market capability. What is clear from the case summary is that the overall level of market capability of the firms (Oak and Maple) producing niche-creation and architectural innovations increased over time. Therefore, after forcing themselves out of the comfort zone to acquire new types of market capabilities these firms were able to utilize architectural innovations to leverage both new market and, to a lesser extent also technology, capabilities (Danneels, 2002, 2007). It is also interesting that both Oak and Maple are newspaper publishers. 19
  • 20. Whereas capability leveraging (Danneels, 2002, 2007) through innovation was visible in market capability, we did not find strong evidence of it on the technological dimension: when the publishers did experiment their technology capability did not accumulate over time (Cypress), or only developed a little (Oak and Maple). This finding is in line with Danneels’s (2007) notion that market capability might constrain the leveraging of technology capability. The only exception to this was Pine, which clearly developed its technology capability at the same time as exploring new technological solutions: the various resource and organizational changes it has made seem to have catalyzed the process. We therefore assume that the development of its technology capability is linked to its dynamic capabilities (Teece, 2007, Newey & Zahra, 2009) more than to its innovations. From the other perspective, in every case company in which revolutionary innovations were produced technology capability was moderate or strong. This, in combination with the notion of producing niche-creation innovations, suggests that publishers tend to leverage what they feel is their strongest point, and to avoid situations requiring the acquisition of totally new capabilities in areas in which their current capability is rather weak. They therefore avoid what Danneels (2007) describes as a capability gap, but face the risk of being trapped in that their existing capabilities influence the allocation of resources, and hence the development of new capabilities. 6 CONCLUSIONS The objective of this paper was to explore the linkage between publishers’ first-order capabilities and their online innovations. We investigated four publishers that have been leaders in the online 20
  • 21. environment in their respective markets, and noted vast differences in their capability portfolios. Magazine publishers currently seem to have moderate market capability and either very strong or very weak technology capability, whereas newspaper publishers appear to have stronger market capability and relatively weak technology capability. It seems from our four cases that publishers tend to have stronger market than technology capability: three of them support this conclusion. We therefore suggest that the core of publishers’ work is in understanding and being able to meet the needs of their customers, as they have to attract their attention over and over again. Secondly, we also noted a link between the capability portfolio and the innovations. It seems that publishers tend to build on their strongest area in terms of capabilities, and focus on leveraging those rather than risk experimenting in an area in which they are weak. Thirdly, we found that the case companies were able to leverage their market capability through experimenting online. However, it seems that they have not been able to develop their technology capability in the same manner. Therefore, from the scientific perspective this study makes two main contributions. First, the empirical in-depth investigation of the capability portfolios of the case firms complements the emerging work on innovation-related capabilities. Secondly, the study adds to the literature on media management in enhancing understanding of the online-related capabilities that are required in publishing companies and of the related developmental patterns. From a managerial viewpoint we emphasize that customer-relationship management online differs from traditional relationship management. Online customers are typically anonymous and therefore the relationship is more strongly tied to customer communication and interaction. On the 21
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