Giant leaps or small steps

Prepared for: MMA033, Dr. Bas Hillebrand
Prepared by: Andreea Dicu | Jaap de Groot | Rob Kuit ...
1. Introduction
The typology of innovations has received great interested in the academic literature, as researches attemp...
Internal factors influencing incremental vs. radical innovation
Internal factors such as existing knowledge structures or r...
References

Anderson, P., & Tushman, M.L. (1990). Technological Discontinuities and Dominant Designs: A Cyclical Model of ...
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Giant leaps or small steps

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First part of a larger paper on the topic of incremental vs. radical innovation. The paper is based on extant research and tries to answer a very simple question: how to innovate? Marketing literature is used in order to provide a deeper understanding of the topic.

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Transcript of "Giant leaps or small steps"

  1. 1. Giant leaps or small steps Prepared for: MMA033, Dr. Bas Hillebrand Prepared by: Andreea Dicu | Jaap de Groot | Rob Kuit | Raquel Gonzalez Martin | Carmen Neghina December 1, 2009 Assignment 1: Paper Outline
  2. 2. 1. Introduction The typology of innovations has received great interested in the academic literature, as researches attempted to unveil the strategies that can lead to sustainable competitive advantage through product innovation. Arguably, radical innovations should pave the managerial road to success. However, some organizations, through their structure, capabilities, market or industry position might be more equipped to “leap” than others. The purpose of this paper is to offer an overview of the extant literature while trying to investigate under what conditions a radical or incremental innovation strategy is more suitable. In the quest to answer some of the most intriguing questions in the field of product management, we will compare the either/or view with a more flexible perspective on innovation, the what? and when?. The literature chosen for review comprises of both conceptual and empirical papers that bring different perspectives on innovation classification. First, the paper by Garcia and Calantone (2002) offers a good overview of the many studies that deal with this topic and addresses the issue of the lack of consistency in current literature by proposing an alternative method of classifying innovation and innovativeness. Secondly, we selected articles that address solely incremental innovations (Brown & Eisenhardt, 1997; Banbury & Mitchell,1995) as well as radical innovations (Chandy & Tellis,1998, 2000; Veryzer, 1998). Lastly, we wanted to identify key articles that offer a parallel between these types of innovations and connect them to their impact on performance (Kleinschmidt, & Cooper, 1991), managerial and organizational characteristics, as well as the external environment in order to gain a complete overview. 2. Research perspective: timid steps or radical leaps? Extant literature provides a wide variety of categorization possibilities for various types of innovation ranging from a dichotomous to an eight-categorical classification. In their overview, Garcia and Calantone (2001) noticed that the most popular classification is the dichotomous differentiation between discontinuous (radical) and continuous (incremental) innovation. This dual perspective stems from the punctuated equilibrium model of change, which “assumes that long periods of small, incremental change are interrupted by brief periods of discontinuous, radical change” (Brown & Eisenhardt, 1997, p. 1). 2.1. A dichotomous perspective on innovation Incremental innovation pertains to an advance stage in the product lifecycle, when a product design becomes widely accepted in a market and constitutes of “products that provide new features, benefits, or improvements to the existing technology in the existing market.” (Garcia & Calantone, 2001, p. 123). The resulting innovations can refine an existing design in terms of either marketing or technological performances. They can prove to be a source of competitive advantage especially in mature markets, as suggested by Garcia and Calantone (2001) who also see the strategy as a means of identifying possible “threats and opportunities associated with the shift to a new technological plateau” (p. 123). Similarly, Brown and Eisenhardt (1997) also believe that multiple- product innovations can be transformed into core firm capabilities, contributing to the overall organizational success. When looking at the internal characteristics that might influence the success for firms that focus on continuous improvements, Brown and Eisenhardt (1997) identified limited structures, communication and experimentation into the future, low-cost probes and a rhythmically choreographed transition between the present and the future to be the key success factors for incrementally innovating firms. In their study of the effect of incremental innovation on market share, Banbury and Mitchell (1995) indicated that such products are designed to satisfy changing consumer needs, and are thus very customer focused. They also observed that if incumbents are the first in their market to introduce an important incremental product improvement, this will translate into a stronger market position. Moreover, the study showed that these results hold even when competitors try to imitate the incumbent’s products. Causing discontinuities at macro and micro levels alike, “discontinuous innovation refers to radically new products that involve dramatic leaps in terms of customer familiarity and use” (Veryzon, 1998, p. 305), combining marketing and technological changes. Such innovators are believed to take the game to the next level, and are presumed to offer “5-10 times improvement in performance compared to existing products, to create the basis for a 30-50% reduction in costs, or to have new-to-the-world performance features” (Garcia & Calantone, 2001, p. 123). Although radical innovation can have long-lasting, large and positive effects on a firm’s financial fitness, they can also be dangerous due to the inherent high risk. Similarly to incremental innovation, radical innovation can also become a valuable competitive advantage contributing to a firm’s growth and profitability (Veryzer, 1998). Unlike the customer-led view of incremental innovation, radical innovation adopts a future-market orientation, with firms focusing on future rather than existing customers needs. Product Management | Giant leaps or small steps | 1
  3. 3. Internal factors influencing incremental vs. radical innovation Internal factors such as existing knowledge structures or resources within a company can influence the choice of one of these two types of strategy. While considering both an organizational structural and strategic focus, Ettlie, Bridges and O’Keefe (1984) discovered that centralization and informal structures are more likely to result in radical innovation, whereas incremental innovation is characterized by a decentralized structure and high degrees of formalization. Brown and Eisenhardt (1997) propose semi-structures as means of promoting continuous innovation, an architecture that combines both order and chaos. Because radical innovations require high levels of centralization, more power is given to the top management of the firm, who needs to initiate and sustain these radical departures. On the other hand, managers can successfully implement incremental innovation “by combining clear responsibilities and priorities with extensive communication and freedom” (Brown & Eisenhardt, 1997, p. 25). An intensively researched dimension has been that of organizational size, although Chandi and Tellis (1998) observed that organizations of various sizes are able to either radically or continuously innovate. Their paper suggests that a cultural trait, namely the company’s willingness to cannibalize, may be more relevant given that incremental innovators are usually refusing to sacrifice previous investments. This inclination is defined as “the extent to which a firm is prepared to reduce the actual or potential value of its investments” (p. 475). External factors influencing incremental vs. radical innovation Agreement on whether incumbents or new market entries are more capable of radical innovation has not yet been reached, with researchers identifying other factors, such as market stability, technological development, or market structure more relevant for understanding the adoption of innovation techniques. Stable markets require firms to engage in continuous innovation, an area where industry incumbents have a better chance of adapting (Banbury & Mitchell, 1995). For competing in technically sophisticated industries, introducing incremental innovations before competitors can result in significant market share advantages, which in turn can protect incumbents from new entries (Banbury & Mitchell, 1995). 2.2. Alternative multi-dimensional perspectives An argument can be made that innovation typology is not best described by the previously discussed two dimensions. One of the main sources of disagreement in extant studies is the conceptualization of what constitutes radically new, really new, or continuous innovations, as different researchers use different terminologies and definitions. Kleinschmidt and Cooper (1991) utilized a three dimensional perspective, by reducing a previous six item scale developed by Booz-Allen and Hamilton to include highly innovative products (30.2% of the cases), moderately innovative products (47,2%) and low innovativeness products (22.6%). This three dimensional classification revealed an interesting aspect: highly innovative products did have a significant impact on different performance measures, and this effect was in all instances U-shaped, with moderately innovative products unexpectedly having the worst performance. Other researchers have adopted an even more complex classification, as in the case of Veryzer (1998), who used a matrix approach based on two dimensions (product capability and technological capability) that resulted in four degrees of innovation, one continuous (similar to the incremental definition) and three discontinuous that varied on the two above-mentioned dimensions. The product capability dimension was defined from the end user’s perspective, thus incorporating a customer-orientated approach. As the examples provided by Garcia and Calantone (2002) suggest, these different perspectives can provide mixed results, as a certain product innovation can fall under different categories due to different interpretations. To address this ambiguity, the authors present an alternative that distinguishes between radical, rather new and incremental innovations, based on the interaction between micro- and macro- level changes and marketing and technological discontinuity. 3. Conclusion After we will identify the aspects that benefit from consensus and will carefully consider the points of dissimilarities between different studies, we will be more equipped to provide our personal perspective on the topic at hand. One could argue, based on theories such as the punctuated equilibrium model of change, that organizations could and probably should engage in both radical and incremental product innovations in order to succeed throughout the innovation cycle that according to Anderson and Tushman (1990) starts with an “era of ferment” and continues with a longer “era of incremental change”. This suggestion will however have to stand the test of a more careful consideration from our side. Product Management | Giant leaps or small steps | 2
  4. 4. References Anderson, P., & Tushman, M.L. (1990). Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change. Administrative Science Quarterly, 35(4), 604; Banbury, C.M., & Mitchell, W. (1995). The effect of introducing important incremental innovations on market share and business survival. . Strategic Management Journal (1986-1998), 16(SPECIAL ISSUE), 161; Brown, S.L. & Eisenhardt, K.M. (1997). The art of continuous change: Linking complexity theory and time-paced evolution in relentlessly shifting organizations. Administrative Science Quarterly, 42(1), 1-34; Chandy, R.K. & Tellis, G.J. (1998). Organizing for radical product innovation: The overlooked role of willingness to cannibalize.  Journal of Marketing Research, 35(4), 474-487; Chandy, R.K. & Tellis, G.J.. (2000). The incumbent's curse? Incumbency, size, and radical product innovation. Journal of Marketing, 64(3), 1-17; Ettlie, J.E., Bridges, W.P., & O’Keefe, R.D. (1984). Organization strategy and structural differences for radical versus incremental innovation. Management Science (pre-1986), 30(6), 682; Garcia, R. & Calantone, R. (2002). A critical look at technological innovation typology and innovativeness terminology: A literature review. The Journal of Product Innovation Management, 19(2), 110-132; Kessler, E.H., & Chakrabarti, A.K. (1999). Speeding up the pace of new product development. The Journal of Product Innovation Management, 16(3), 231-247; Kleinschmidt, E.J., & Cooper, R. G.. (1991). The Impact of Product Innovativeness on Performance. The Journal of Product Innovation Management, 8(4), 240; Veryzer, R.W.  (1998). Discontinuous innovation and the new product development process. The Journal of Product Innovation Management, 15(4), 304-321. Product Management | Giant leaps or small steps | 3

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