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Chapter Two: Defining Crimes and
Measuring Criminal Behavior
-Slides and data in this outline are from Adler, Mueller, and Laufer (2007, 2013,
2018 & 2022); Siegel (2015); and modified by Manning (2007, 2013, 2015, 2018
& 2022).
Scared Straight Program – 1978 Rahway Max Prison
-Politically motivated –fit the get tough on crime bill
-Three year post experiment study shows evidence must be evidence based
-Criminologists embrace a systematic empirical study of the nature and extent of crime.
Example of successful criminology research based policy:
-Domestic violence research between 1981-82 shows police counseling and temporary separation was
not effective.
-Now there are more mandatory arrest being made.
7 Basic Requirements for an Act to be a Crime
Defense must prove failure of a basic requirement
• 1. The act requirement – mind & Body
• Conscious act not an unconscious act or reaction
• Not a status or condition
• 2. The legality requirement – prohibited by law
• Thoughts without action – no crime
• Choosing to not fill out sex registration forms – is a crime
• Good Samaritan?
• 3. The harm requirement
• 4. The causation requirement
• Behavior in question caused the harm – not a 3rd party
• 5. The mens rea requirement (guilty mind)
• 6. The concurrence requirement
• Must be a criminal act with criminal intent (Ex: striker – rock –window)
• Exceptions – felony murder
• 7. The punishment requirement – its must already exist
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Criminal defense negates basic ingredients of
crime.
• Crime – must be known to the police
• Not all crimes reported are cleared
• DA will not always prosecute
• Defense negation of crime elements examples:
• Insanity defense; legality requirement lacking; duress, self-defense.
• State tries cases on behalf of the state
• Victims can file civil law suits for pain and suffering
Typologies of Crime
• The French created the following three categories accepted
worldwide
• Felonies - severe
• Misdemeanors – minor
• Violation - fines
• As Criminologist we will also focus on the following
• Violent crime
• Crimes against property
• White collar and corporate crime
• Drug, alcohol and sex-related crime
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Reasons for Measuring Crime
• Researchers collect and analyze data to test theories about why
people commit crime.
• Researchers and criminal justice agencies need to enhance their
knowledge of the characteristics of various types of offenses.
• Criminal justice agencies depend on certain information to facilitate
daily operations and anticipate future needs.
The Research Process
• Topic – research question
• Theory: is a set of principles that explain how 2 or more phenomena
are related
• May choose to use a hypothesis or not.
• Methodology (qualitative vs. quantitative)
• Will you use secondary data or primary data
• Analysis
• What did you do, findings, discussions and conclusions
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Exploring and defin ...
1. 12/28/2021
1
Chapter Two: Defining Crimes and
Measuring Criminal Behavior
-Slides and data in this outline are from Adler, Mueller, and
Laufer (2007, 2013,
2018 & 2022); Siegel (2015); and modified by Manning (2007,
2013, 2015, 2018
& 2022).
Scared Straight Program – 1978 Rahway Max Prison
-Politically motivated –fit the get tough on crime bill
-Three year post experiment study shows evidence must be
evidence based
-Criminologists embrace a systematic empirical study of the
nature and extent of crime.
Example of successful criminology research based policy:
-Domestic violence research between 1981-82 shows police
counseling and temporary separation was
not effective.
-Now there are more mandatory arrest being made.
2. 7 Basic Requirements for an Act to be a Crime
Defense must prove failure of a basic requirement
• 1. The act requirement – mind & Body
• Conscious act not an unconscious act or reaction
• Not a status or condition
• 2. The legality requirement – prohibited by law
• Thoughts without action – no crime
• Choosing to not fill out sex registration forms – is a crime
• Good Samaritan?
• 3. The harm requirement
• 4. The causation requirement
• Behavior in question caused the harm – not a 3rd party
• 5. The mens rea requirement (guilty mind)
• 6. The concurrence requirement
• Must be a criminal act with criminal intent (Ex: striker – rock
–window)
• Exceptions – felony murder
• 7. The punishment requirement – its must already exist
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2
Criminal defense negates basic ingredients of
crime.
• Crime – must be known to the police
3. • Not all crimes reported are cleared
• DA will not always prosecute
• Defense negation of crime elements examples:
• Insanity defense; legality requirement lacking; duress, self-
defense.
• State tries cases on behalf of the state
• Victims can file civil law suits for pain and suffering
Typologies of Crime
• The French created the following three categories accepted
worldwide
• Felonies - severe
• Misdemeanors – minor
• Violation - fines
• As Criminologist we will also focus on the following
• Violent crime
• Crimes against property
• White collar and corporate crime
• Drug, alcohol and sex-related crime
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4. Reasons for Measuring Crime
• Researchers collect and analyze data to test theories about
why
people commit crime.
• Researchers and criminal justice agencies need to enhance
their
knowledge of the characteristics of various types of offenses.
• Criminal justice agencies depend on certain information to
facilitate
daily operations and anticipate future needs.
The Research Process
• Topic – research question
• Theory: is a set of principles that explain how 2 or more
phenomena
are related
• May choose to use a hypothesis or not.
• Methodology (qualitative vs. quantitative)
• Will you use secondary data or primary data
• Analysis
• What did you do, findings, discussions and conclusions
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5. Exploring and defining the Thesis Process
• Abstract
• Introduction
• Methodology – Analysis of secondary data
• Theory
• Methodology – Exploration of primary data
• Findings
• Discussion and Conclusions
• References
Methodologies used to Collect Primary Data on Crime
• 1. Survey Research
• And interviews
• 2. Experiments
• 3. Observation
• 4. Participant Observation
• 5. Case Studies
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6. Surveys
and interviews explored
• The systematic collection of respondents’ answers to questions
asked
in questionnaires or interviews.
• Population
• Sample
• Random Sample
Experiments
• An investigator introduces a change into a process and makes
measurements or observations in order to evaluate the effects of
the
change.
• Variables:
• Independent Variable A causes Dependent Variable B to
Change
• Control Group
• Pretest and post test
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Participant and Non-Participant Observation
7. • In participant observation the researcher may join and
participate in
the activities of the group being studied.
• In observational research the researcher observes the group
being
studies but is not a participant in the activities.
• This process may be used to study criminals, prisoners,
prosecutors,
or police officers.
Case Studies
• A case study is an analysis of all pertinent aspects of one unit
of study,
such as an individual, an institution, a group or a community.
• Sources of information may be life histories, biographies,
diaries,
journals, letters, and other records.
• Edwin Sutherlands “The Professional Thief”
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Ethics and Research in Criminology
researcher responsibilities studying “vulnerable populations”
• Should the results of interviews be published?
• If the research does not disclose names could the participant
be
8. obstructing justice?
• Is there confidentiality for a criminal suspect?
• Does a researcher have to turn over his/her files if requested
by the police
or court?
• Should criminologists be immune from prosecution?
• Is it possible to develop a technique that can ensure against
identification
of the subjects in a file?
• Informed consent, avoid invasion of privacy
• Do no harm: mental, physical or financial harms
Major Sources of Crime Information
• Uniform Crime Report (UCR) - Part I and Part II offenses
• Published by the Federal Bureau of Investigation
• J. Edgar Hoover given permission in 1930 (FBI)
• Part II offenses
• 21 crimes (all non part I except traffic violations)
• Ex: fraud, embezzlement, weapons, vandalism, simple
assaults, sex crimes, drugs,
gambling, disorderly conduct and vagrancy.
• National Crime Victimization Survey
• Self-Report Studies
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FBI Part I Index Offenses
• Strengths
• Most consistent source of homicides and arrests
• Weakness
• Many crimes not reported, there are reporting errors, most
drug crimes omitted, white collar crimes omitted.
• Does not differentiate between attempted and completed.
• Cleared only means an arrest was made.
Crimes against the person
-Murder
-Rape
-Assault
-Robbery
Crimes against property
-Burglary
-Larceny
-Motor Vehicle Theft
-Arson
Victimization Surveys
• National Crime Victimization Survey (NCVS)
• Measure the extent of crime by interviewing individuals about
their
experiences as victims.
• Published by the Bureau of Justice Statistics
10. • 90,000 households, 160,000 people
• Cycle reports every three years.
• Covers time, place, offenders, weapons etc.
• Strengths:
• includes crimes not reported, careful sampling of gen. pop.
• Weakness: relies on victims memory and honesty
(telescoping).
• One index crime not included- which one?
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Self-Report Surveys
• A self-report study ask people to report their own criminal
acts in a
confidential interview or, more commonly, on an anonymous
questionnaire.
• These reports have demonstrated very high rates of l aw-
violating behavior
by seemingly law-abiding people.
• Most violate some laws.
• Strengths:
• includes non reported crimes, substance abuse and personal
information.
• Weakness:
11. • focus on petty crimes
• Honesty of self-reporting participants.
Crime Trends
• Crimes rose slowly between 1930-60.
• Rose fast from 1960-1980 and then dropped till 1984.
• Peeked: rose until 1991.
• Crimes have been decreasing since 1991.
• Between 2014 and 2018 there was a 4.7% increase in violent
crimes with a 14.6%
decrease in property crimes (Adler, Mueller, & Laufer, 2022, p.
44).
• More crime happens in the Southern states.
• More crime in urban areas
• More victimization within five miles of home and in your own
home
• 50% violent crimes happen between 6 a.m. – 6 p.m.
• 67% of sexual assaults, household larcenies, and 75% of motor
vehicle theft happens
at night.
• While most juvenile crimes occur after school 3 p.m. – 7 p.m.
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Age and Crime
• Peek Crimes years 16-24
• Siegel (2015) says 16 for property crime and
12. • 18 for violent crime
• Half of all arrest are of individual under age 25
• Juveniles account for 15% of all index crimes in 2006 at 8% of
pop.
• 25% of larceny theft and 50% of all arson arrests.
• Arrest rates decline after age 30
Aging Out Vs. Life Course Perspectives
• Aging out phenomenon
• Too old for crime – employment and relationships.
• Life Course: environmental factors
• Class, poverty, unemployment, peers and opportunity
• Chronic Offenders – a study of Philadelphia youth born in
1945
• 1972 publication on the males (9,945)
• 35% contact with police by age 18, 46% of the offenders were
one time offenders, 18% five or
more which was 6% of the total group studied know as the
Chronic 6%.
• The females (14,000
• 14% police contact by age 18, of those 60% one time
offenders, 33% repeat and 7% of total
group were chronic offenders
• Less violent crimes.
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Sex and Crime
• Males commit more crimes than females at all ages
• Arrest ratio: 3:1 however, the gap is closing
• 1960s females accounted for only 11% of total arrests.
• 2013 textbook stated 23% and now its 35% (Adler, Mueller &
Laufer, 2022).
• Female crimes are rising faster then the rate of boys.
• What Three offences do women commit more than men?
• Prostitution, shoplifting, and welfare fraud.
• Explanation: as women's social, economic and political power
increases so
has their criminal activity (movies: wonder women and star war
Jedi).
• While more poor and more patriarchal families tend to restrict
girls roles.
Race and Crime
• Blacks constitute 12.1% of USA pop. Yet 27% of all arrest for
index
crimes (Adler, Mueller, & Laufer, 2022).
• 50% of black urban males are arrested for an index crime once
in their
14. lifetime compared to 14% of white males.
• 18% of blacks serve some time in prison but only 3% of white
males.
• Blacks have a higher risk of death do to violence.
• Debating the explanations:
• Does it represent a bias CJ system? Or do Blacks commit
more crimes?
• While debates over class and crime remains controversial
there is no debate
over the class of those in prison? Most made less then $5,600
before prison.
• Lower class commit more serious crimes (burglary, robbery,
assaults and
sexual assaults).
Disruptive Innovation . . . in Reverse:
Adding a Geographical Dimension to
Disruptive Innovation Theory
Simone Corsi and Alberto Di Minin
Based on a literature review on disruptive innovation and
innovation from emerging econo-
mies, we offer an interpretation of a subset of reverse
innovation within the disruptive
innovation theory. We argue that the combination of these two
theories provides a useful
framework to look at emerging economies as sources of new
products and technological
solutions. Finally, we provide a new categorization of
15. disruptive innovation considering a
geographical dimension and future research directions.
Introduction
In a fast-changing world, where emergingeconomies are
constantly increasing their
importance in the global economy and where
innovation assumes an international dimen-
sion, an increasing number of scholars have
looked at the phenomenon of innovation in
emerging economies. Several authors are
investigating in what way these countries are
not only recipients (Vernon, 1966) but also
sources of innovation (Hart & Christensen,
2002; Immelt, Govindarajan & Trimble,
2009; Kenney, Massini & Murtha, 2009;
Govindarajan & Trimble, 2012).
Scholars refer to this trend in different ways,
depending on the aspect they focus on, such as
‘disruptive innovation from emerging econo-
mies’ (Hart & Christensen, 2002), ‘innovation
at the bottom of the pyramid’ (Prahalad, 2004),
‘cost-innovation’ (Zeng & Williamson, 2007) or
‘reverse innovation’ (Immelt, Govindarajan &
Trimble, 2009). However, the managerial lit-
erature is still lacking both a clear and solid
theoretical position and a strong theoretical
framework within which a new innovation
trend from emerging economies can be read
and interpreted (Govindarajan & Ramamurti,
2011). Hence, the aim of this paper is firstly to
critically review the literature concerning
innovation from emerging economies, and sec-
ondly to contribute a rationalization of the
16. related concepts, attempting a reinterpretation
of the concept of ‘reverse innovation’ (Immelt,
Govindarajan & Trimble, 2009; Govindarajan
& Trimble, 2012), defined as a type of ‘disrup-
tive innovation’ (Christensen, 1997).
Building on our review of the existing work
(see Appendix A and Table 1), we suggest that
the combination of these two frameworks pro-
vides a useful scheme to look at emerging
economies as sources of new products and
technological solutions.
In the last ten years, scholars have started to
look at companies that serve those markets in a
different way. Glocalization – adapting to
emerging markets products developed for
advanced ones – is in fact assumed to be par-
tially ‘blind’ or ineffective for the purpose of
serving emerging market needs, given its
ability to reach only the wealthier part of the
population. The new challenge of the twenty-
first century has been identified in the profit-
able development and sale of new products for
the mass markets of less affluent populations
of emerging economies that are currently not,
or only partially, served by multinational cor-
porations (MNCs). The innovation manage-
ment literature has produced a limited
number of studies (Hart & Christensen, 2002;
Prahalad, 2004; Immelt, Govindarajan &
Trimble, 2009; Hang, Chen & Subramanian,
2010; Govindarajan & Trimble, 2012), largely
based on anecdotal evidence, trying to identify
new ways of pursuing innovation in emerging
21. developed entirely in emerging markets for
emerging markets are likely to disrupt devel-
oped markets and open new business oppor-
tunities, as shown, for example, by Zeng and
Williamson (2007). This phenomenon thus
configures a process of innovation that no
longer sees developed economies as the locus
where new products are conceived, designed
and commercialized, but instead takes on the
role of the last recipient of innovations devel-
oped in and for emerging economies.
This paper builds on the disruptive innova-
tion literature and contrasts its analysis with
the concept of reverse innovation. We believe
we bring two theoretical contributions:
1. Adding a geographical dimension to disruptive
innovation. The original specification of
disruptive innovation is a theory that seeks
to explain dynamics within established
markets. However, a geographical dimen-
sion needs to be considered to make disrup-
tive innovation useful for interpreting
situations where the disruptors originate
from emerging markets.
2. A new look at disruptive and reverse innovation
side by side. Consistent with Govindarajan
and Trimble (2012), we emphasize that the
concepts of disruptive and reverse innova-
tion have an overlapping, though not a one-
to-one, relationship. By looking at these two
theories side by side, we are able to better
clarify similarities and differences. We dis-
tance ourselves from the claim that disrup-
22. tive innovation in reverse stems only from
an income gap. On the contrary, disruptive
in reverse rests not only on cost advantage
in the market segment but also on new
characteristics and features of the disrup-
tive product originated and tested in a
developing country and appreciated in
advanced countries.
This paper is organized as follows. In the
next section, we lay the foundations of our
analysis by reviewing disruptive innovation
theory. This will be used as our framework to
interpret the other sections that take into
account disruptive innovation as considered in
the different streams of literature related to
innovation in emerging economies. The third
section explores the dynamics of innovation at
the Bottom of the Pyramid (BOP), while the
fourth section investigates the conceptuali-
zation of disruptive innovation from emerging
economies. The concept of reverse innovation
is introduced in the fifth section and inter-
preted within the Disruptive Innovation
framework in the sixth section. The seventh
section provides a new categorization of Dis-
ruptive Innovation, considering a geographi-
cal dimension. Finally, conclusions and future
research directions are presented together
with selected research propositions.
Disruptive Innovation
Introduced in 1995 by Bower and Christensen,
the concept of disruptive innovation was
24. hard disk drive industry between 1976 and
1992. In this market, mainstream customers
constantly required improvements in two
attributes, total capacity and recording density.
The industry and incumbent firms were led by
this trend until an emerging segment asked for
improvements on different attributes, in par-
ticular, the size of drivers. At the beginning,
this segment remained marginal and was
mainly covered by small entrant firms that
could afford to do so by virtue of their rela-
tively limited cost structure, but while the
products offered gained improved perfor-
mance, including the mainstream segment
attributes, the market based on sustaining
technologies was progressively displaced,
causing the failure of incumbents.
In earlier works, Christensen (Bower &
Christensen, 1995; Christensen, 1997) refers to
disruptive technology only as an ‘innovation
that results in worse product performance in
mainstream markets’. It is also described as a
‘typically cheaper, simpler, smaller and fre-
quently more convenient to use’ version of an
existing product.
In an updated version of the concept,
Christensen and Raynor (2003) distinguish
between ‘low-end disruptions’ and ‘(new-
market) high-end disruptions’. The former are
those offering lower performance at a cheaper
price but no other performance improve-
ments, while the latter are described as prod-
ucts and services that offer better performance
on attributes that differ from those valued by
25. mainstream customers (e.g., the mobile phone,
initially low performing in reception, which
disrupted the market for home phones).
Christensen also asserts that disruptive
technologies should be framed as a marke-
ting, and not a technological, challenge
(Christensen, 2006; Glazer, 2007). Firms suc-
ceeding in disruptive innovations have a
strong attitude in interpreting and addressing
needs expressed by a market niche or a new
market segment. Thus, the challenge that
incumbent firms should overcome in develop-
ing and responding to disruptive innovatio ns
relates to the development of capabilities to
forecast market trends and attitudes as well as
‘riding’ new technological trajectories (Rafii &
Kampas, 2002; Charitou & Markides, 2003;
Suzuki & Kodama, 2004; Corso & Pellegrini,
2007).
Disruptive innovation has been used from
the very beginning to discuss innovation
dynamics taking place with the entry of new
companies in established and developed
markets (Chesbrough, 2002). One of the most
convincing responses provided by research-
ers, albeit widely discussed and doubted
(Danneels, 2004), is that these companies
should promote the creation of spin-off enter-
prises in order to better serve and interpret
emerging markets (O’Reilly & Tushman, 2004;
Kanter, 2010; Johnson, 2012). The creation of a
separate organization of a smaller dimension
with large autonomy allows the problem of
26. resource allocation that is too mainstream cus-
tomer oriented to be overcome. Matching the
initially small market size to the size of
the investment potentially enables the new
company to be profitable (Kassicieh et al.,
2002; Anthony, Eyring & Gibson, 2006; Cefis &
Marsili, 2006; Sandström, Magnusson &
Jörnmark, 2009).
Since its coinage, the concept of disruptive
innovation has been widely discussed from
different perspectives (Christensen, Bohmer &
Kenagy, 2000; Christensen, Johnson & Rigby,
2002; Gilbert & Bower, 2002; Gilbert, 2003;
Danneels, 2004; Christensen et al., 2006;
Henderson, 2006; Johnson, Christensen &
Kagermann, 2008; Schmidt & Druehl, 2008;
Yu & Hang, 2010, 2011). In particular,
Govindarajan and Kopalle (2006a, 2006b)
make a clear distinction between low-end and
high-end disruptions based on the level of
radicalness of disruptive innovations (techno-
logically more radical in high-end disruptions,
technologically less radical in low-end disrup-
tions). The authors also make a clear distinc-
tion between innovations that are radical and
disruptive and merely radical, stating that
radicalness is a technology-based concept
while disruptiveness is a market-based
concept. Analogously, Markides (2006) draws a
clear distinction between different kinds of
disruptive innovations: technological, business
model and new-to-the-world product innova-
tions. From this distinction and from the work
of Utterback (2004), Acee (2001) and Utterback
and Acee (2005), who recognized the impor-
28. solution belongs to the same market where
incumbent companies operate. The emergence
of new technologies triggers interest within
the mainstream segment where these incum-
bents operate, hence rendering access to the
disruptive offering (initially not desired)
also possible to mainstream customers
(Govindarajan, Kopalle & Danneels, 2011).
In conclusion, we can argue that disruptive
innovation is a theory that seeks to explain
changes and new entries into established
markets. The result of disruptive innovation is
visible when mainstream customers switch to
the new disruptive product that is gaining
market share on established markets.
What if the new disruptive solution has
been brought to maturity and has triggered
interest in markets that are geographically
distant and disconnected from established
markets? Disruptive innovation theory was
not developed, and is as yet too unrefined, to
explain this phenomenon.
Innovation at the Bottom of the
Pyramid (BOP)
While the disruptive innovation paradigm
explores the dynamics originating within the
hub of an industry, a new approach was devel-
oped to understand what was taking place in
emerging economies and their markets
(Karnani, 2007; Akula, 2008; Gino & Staats,
2012). This orientation brought scholars to
thinking of emerging economies as focal
29. markets to which companies should pay
increasing attention and develop a new R&D
orientation (Prahalad & Hart, 2002).
Traditionally, MNCs delocalized their R&D-
oriented foreign direct investment (FDI) in
emerging economies for two main reasons
(Gassmann & Han, 2004; Von Zedtwitz, 2004):
• access to local markets,
• access to high-skilled research personnel at
a lower cost.
Following these two drivers, most R&D
carried out by foreign MNCs in emerging
countries consisted in the adaptation of global
products to the specific needs of the local
market. R&D, crucial for the development of
new products, has traditionally been undis-
closed by headquarters (Patel & Pavitt, 1991; Di
Minin & Bianchi, 2011), and this is particularly
true of R&D internationalization in emerging
economies.
The new perspective in the early 2000s was
that emerging market potential was not
exploited with the previous approach and that
a new type of innovation management had to
be developed. Companies noted that respond-
ing to local market needs with a simple local
adaptation of global products developed in
their (mainly) western headquarters (glocali-
zation) was ineffective in exploiting the entire
potential of these growing markets (London &
30. Hart, 2004; Rangan, Chu & Petkoski, 2011).
Prahalad and Hart (2002), and later on
Prahalad (2004), introduced the new approach
to emerging economies as a source of signifi-
cant profit generation through the develop-
ment and commercialization of ad hoc products
and services for the markets of the poor
(Garrette & Karnani, 2010; Simanis, 2012).
Prahalad’s approach is expressed in the title of
his 2004 book The Fortune at the Bottom of the
Pyramid: Eradicating Poverty through Profits. The
author identifies a large opportunity both for
local and MNCs operating in emerging econo-
mies and provides examples such as ICICI
Bank, which provides Indian rural populations
with bank credit for small projects (which in
turn become profitable and make them able to
return the loan with low interest), or Voxiva,
which developed a text message-based plat-
form for favouring communication between
urban and health centres in Peru. Both projects,
based on low cost and pricing strategies, faced
an experimental stage for the purpose of vali-
dating their economic feasibility and soon
moved forward, replicating their model in
other emerging countries and contexts.
According to Prahalad’s perspective, MNCs
serving only the top of the pyramid (the
wealthier part of the population) in emerging
economies suffer from business myopia in a
way that closely recalls the marketing chal-
lenge that Christensen’s incumbent firms
faced in developing disruptive innovation for
new or emerging market niches.
32. the Pyramid’, a further wave of exploration
was initiated by scholars linking the disruptive
innovation theory and Prahalad’s non-served
markets of the poorest in emerging economies
(Hart & Christensen, 2002; London & Hart,
2004).
The argument of scholars applying disrup-
tive innovation to explain the success of new
products originating from emerging econo-
mies is as follows: foreign MNCs develop
products for emerging markets and later use
them to penetrate the low-end segment of
developed markets in the US and Europe, and
domestic firms leverage on their cost structure
and knowledge of the domestic context to
serve local, and later developed, markets (Ray
& Ray, 2011; Schanz et al., 2011; Markides,
2012).
To the best of our knowledge, Hart and
Christensen (2002) for the first time introduced
the link between disruptive innovation theory
and emerging economies. Their argument is
clearly in line with Prahalad’s work referring
to ‘innovation from the base of the pyramid’.
The authors propose examples of Asian com-
panies that succeeded in introducing disrup-
tive innovations in low-income countries,
enabling poor people to afford certain types of
technological products and generating profits
for themselves.
Recently, Hang, Chen and Subramanian
(2010) demonstrated four cases of Asian com-
panies that, starting from their low-income
33. markets (China and India), developed disrup-
tive products. Galanz and Haier, for example,
developed ad hoc products for penetrating the
Chinese domestic market and responding to
specific local needs (a microwave for Galanz
and a washing machine for Haier). Once they
succeeded in China, they were able to export
their product to developed countries serving a
market segment that was ignored by incum-
bents due to its size, a market segment that
was eager for low-cost products with strong
energy and room-saving attributes and that
did not care about traditional attributes for
those items such as capacity. After a few years
of internal and external R&D investment, both
companies were able to penetrate also the
high-end of advanced economies’ markets,
disrupting local incumbents. The success
pursued in these markets brought them per-
formance improvements on attributes that had
at first been neglected and valued by main-
stream customers in developed economies.
This pushed them to invest globally and to
steadily grow in developed economies.
We believe that in both works cited above,
the disruptive innovation concept is used in a
way that differs from the traditional applica-
tion of the concept within established markets
in developed economies. The traditionally
defined disruptive innovation paradigm
(Bower & Christensen, 1995; Christensen,
1997) claims that new products (or services)
are considered disruptive when they respond
to an ignored and new market segment that is
34. usually small, unprofitable for incumbents and
has differentiated needs in terms of product
attributes. Could we say that the idea of inno-
vation originating in emerging markets pre-
sented by Hart and Christensen (2002) is
indeed a disruptive innovation? We think this
is true only in part, and that three limitations
need to be considered in relation to the char-
acteristics of disruptiveness mentioned above.
In particular, we need to consider (1) the
categorization of mainstream and non-
mainstream customers, (2) market size, and (3)
disruptive innovators (see Table 2):
1. Companies operating in emerging econo-
mies have traditionally served those
markets adopting a glocalization approach
to market segmentation, thus serving cus-
tomers that correspond and share similar
characteristics to those segments served
back in their country of origin or in devel-
oped markets. These are their mainstream
customers, who might represent the great
majority at home but in emerging econo-
mies represent only the top of the pyramid.
Adopting a marketing perspective instead,
as the disruptive challenge requires us to
(Christensen, 1997; Danneels, 2004), main-
stream customers in emerging markets
should be defined as the large part of the
population (be it individuals or companies)
that cannot afford expensive state-of-the-art
technology and that are partly served by
local companies that can interpret their
needs and respond to them thanks to their
cost structure.
36. 1995; Christensen, 1997; Walsh, Kirchhoff &
Newbert, 2002; Christensen & Raynor,
2003). The generation of disruptive innova-
tions in emerging economies could be
developed by domestic companies that
naturally have a cost structure and a market
orientation that fits the local environment
and by subsidiaries of MNCs that have
evolved and gained enough autonomy to
develop new products. The case of compa-
nies from emerging markets is well
described by Zeng and Williamson (2007)
who report on how innovations developed
by Chinese companies are disrupting global
markets by primarily leveraging on new,
low cost based, business models. The inno-
vative approach of these companies is
defined by the authors as ‘cost innovation’.
Reverse Innovation
In the previous sections, we showed how dis-
ruptive innovation theory does not adequately
fit the description of innovations developed
for emerging economies and afterwards
‘exported’ back to developed economies.
‘Reverse innovation’ (Govindarajan, 2009;
Immelt, Govindarajan & Trimble, 2009;
Govindarajan & Trimble, 2012) is a more suit-
able framework that helps us understand this
trend. This new line of research emphasizes
the role of emerging economies as the new
laboratory in the global economy and argues
that innovation is less likely to come from, and
is adopted in, developed countries first, but is
conceived and adopted in emerging econo-
37. mies first to then be introduced to developed
markets. It is then ‘exported’ to the developed
economies. These dynamics reverse the inno-
vation process as intended in the prior litera-
ture and managerial practice. The reasons that
support such an inverted process lie in the
market growth of the developing countries
that are supporting and leading the global
economy.
In their 2009 article ‘How GE is Disrupting
Itself’, Immelt, Govindarajan and Trimble
show how GE is benefiting from its presence
in the markets of emerging economies, specifi-
cally China and India, to develop break-
through innovations that are introduced and
successfully commercialized first in develop-
ing countries and later, when performance
improvements are acceptable, in developed
countries. They provide clear examples for GE
Healthcare developing and perfecting prod-
ucts in both China (Immelt, Govindarajan &
Trimble, 2009) and India (Govindarajan &
Trimble, 2012) before selling them in those
markets first and in advanced ones later on,
disrupting existing products in some markets
as a result of performance improvements
on the attributes most valued by mainstream
customers.
The authors stress the importance of local
growth teams (LGTs) as new units, independ-
ent from their MNC headquarters (HQ), built
from scratch in emerging economies. They are
responsible for the complete development and
39. from emerging economies. As we showed in
the above sections, scholars have already iden-
tified this opportunity, but we think it needs to
be refined and integrated with reverse innova-
tion to effectively frame a reversed cycle of
innovation. The characteristics that Immelt,
Govindarajan and Trimble (2009) and
Govindarajan and Trimble (2012) list and illus-
trate to describe reverse innovation partly
match those described in the previous sections
of this paper recalling disruptive innova-
tion theory as illustrated by Bower and
Christensen (1995), Christensen (1997), Acee
(2001), Christensen and Raynor (2003),
Utterback and Acee (2005) and Govindarajan
and Kopalle (2006a, 2006b). In particular,
under specific circumstances reverse innova-
tion shares great similarities with the idea of
disruptive innovation from emerging econo-
mies as illustrated by Hart and Christensen
(2002), Zeng and Williamson (2007) and Hang,
Chen and Subramanian (2010).
Govindarajan and Trimble (2009) responded
to this parallelism themselves following the
requests of some readers of their paper who
asked for clarification between disruptive
innovation and reverse innovation. In one of
Govindarajan’s blog posts (30 September
20091), they list a set of conditions that reverse
innovation can originate from, stating that the
one concerning a lower price offer is the only
one configuring it also as a disruptive innova-
tion. The same issue is addressed by
40. Govindarajan and Trimble (2012). They thus
consider disruptive innovation only from a
price/performance point of view, and not as a
market widener or as a provider of new
functionalities, implicitly stating that disrup-
tive innovation can only have a lower price.
We do not believe this is completely true.
Referring back to Govindarajan’s works
on disruptive innovation, we note that
Govindarajan and Kopalle (2006b) define dis-
ruptive innovation as ‘a powerful means for
broadening and developing new markets and
providing new functionality, which, in turn,
disrupt existing market linkages’.
Therefore, the focus now lies in the alterna-
tive attributes that are offered by the innova-
tion in relation to an existing product. These
new products are able to penetrate the market
starting from early adopters and improve per-
formance in the ‘mainstream’ thanks to the
experience accumulated in serving the new
segment. In line with Christensen and Raynor
(2003) and Utterback and Acee (2005),
Govindarajan and Kopalle (2006a) define dis-
ruptive innovation in the way presented in the
second section of this paper and include both
new, low-end and high-end attributes to exist-
ing products that initially are tempting only to
new customers (thus not necessarily price-
focused) or the most price-sensitive main-
stream customers, but in developing over time
they also gain the attention of mainstream cus-
tomers and the market.
41. In summary, Govindarajan and Trimble
(2012) state that reverse innovation has five
drivers, named ‘gaps’ (performance, infra-
structure, sustainability, regulatory, prefer-
ences), but the examples they provide in
their work (Immelt, Govindarajan & Trimble,
2009; Govindarajan & Ramamurti, 2011;
Govindarajan & Trimble, 2012) stress funda-
mentally the income (or performance) gap
(Logitech Mouse in China, P&G feminine
hygiene product in Mexico, Deere Tractor in
India, Harman infotainment system in India
and China), and indirectly lead us to under-
stand that reverse innovation takes the direc-
tion of a potential disruptive effect only when
an equivalent income gap can be found isolat-
ing a segment of the market in an advanced
economy. While we acknowledge that indeed
the income gap is a key driver, the emphasis of
Christensen’s low-end disruptive innovation is
on new markets being created, and new value
networks displacing the old ones. Such dyna-
mics in reverse-disruptive innovation happen
not only when a company from emerging coun-
tries enters advanced ones to serve the needs of
a less affluent market segment, but indeed dis-
ruption occurs when the technological evolu-
tion and market experience lead this offering to
go from the niche to the main market. In these
situations of reverse-disruptive innovations,
we indeed identify the following common
elements between reverse innovation and dis-
ruptive innovation: the same risks of
cannibalizations for companies that have previ-
ously invested in the same industries for main-
43. We therefore believe that disruptive innova-
tion theory can be a rich tool for interpreting a
subset of reverse innovation as defined by
Immelt, Govindarajan and Trimble (2009) and
Govindarajan and Trimble (2012). Adopting
this perspective, we believe we can enrich the
disruptive innovation theory from an emerg-
ing country perspective.
Geographic Dimension of
Disruptive Innovation
As discussed in the previous section, it is pos-
sible to interpret a subset of reverse innova-
tion, and the considerations that follow are
limited to this subset, as a particular manifes-
tation of disruptive innovation. In fact,
Govindarajan and Trimble seem to suggest the
same by proposing an uphill flow of reverse
innovation to marginalized first and, often,
mainstream markets in advanced economies
(2012: 22). Can we thus simply generalize the
findings and implications of disruptive inno-
vation originating from developed countries to
situations of reverse innovation?
The answer is no. Such a generalization does
not work, since success stories of disruptive
innovation originating from developed
markets differ substantially from success
stories that export successful products back to
developed markets that were first introduced
in emerging economies. Table 2 summarizes
the main differences discussed below:
• Early market: in disruptive innovation
44. theory, the market segment served by the
new technology is characterized by early
adopters. In reverse innovation, the early
market is instead represented by the large
part of the population, or BOP, that has no
access to the established technology because
it is either too expensive or too complex.
This is hardly the case with early adopters
and developed markets. These differences
should lead to completely different market-
ing strategies.
• Actors: the small size of the early market in
disruptive innovation theory makes spin-off
companies or small new entrants the only
actors able to serve this market profitably.
On the other hand, the vast size of the new
market segment to be served in emerging
economies allows both local start-ups,
foreign MNC subsidiaries and large local
companies to make profit from it by exploit-
ing economies of scale. The key question is
whether local start-ups will find the com-
plementary assets to reach international
markets. Conversely, there are examples
(see the case of Aravind Eye Care in
Prahalad, 2004) of successful disruptors in
emerging economies which were not able to
expand internationally.
• Expansion: the evolution of disruptive prod-
ucts conceived in and for developed
markets brings innovative technologies to
commercialization in the same markets as
the established ones, while disruptive prod-
45. ucts introduced in and for developing
economies allow foreign MNCs and domes-
tic companies to export their evolved
disruptions to mainstream markets in
developed countries, configuring a process
of reverse innovation.
• Maturation of technology: the technological
evolution of disruptive innovations is the
same in both cases, but while in disruptive
innovation theory this occurs in the same
country market, in reverse innovation we
see it happening in developing economies
and brought to developed economies once
the technology has evolved.
• Challenges: the development of a technology
on a new trajectory puts new entrants in
established markets in competition to reach
new technological standards. In emerging
economies, the main challenge is the diffi-
culty of reaching a vast market that often
lacks adequate complementary assets (such
as distribution and logistics infrastruc-
tures). Furthermore, cultural and institu-
tional differences make it difficult for
foreign firms to understand and properly
respond to market needs.
• Basis of competition/success: in traditional dis-
ruptive innovation theory, the ‘battle’ is won
by the company that develops the new tech-
nology better and faster, satisfying at first
the request for new attributes and, along
within technological evolution, catching up
on the mainstream attributes. In reverse
80. ings of disruptive innovation to emerging
economies, future studies should take into
consideration innovations that originate for
those markets. We have thus added a geo-
graphical dimension to the disruptive innova-
tion paradigm, explaining the variables that
should be taken into account when consider-
ing such an innovation emerging in develop-
ing economies.
Given the above considerations we develop
four research propositions that we believe may
be of inspiration for innovation management
scholars and thus fuel future research.
Christensen and Raynor (2003) have illus-
trated the importance of spin-out companies as
a way to overcome the innovator’s dilemma.
Incumbents are often disrupted by new
entrants because they are not able to see
emerging technologies entering the market
and to address new needs while improving
also on attributes of the technologies adopted
by the mainstream market. The establishment
of a new autonomous company that rises from
an incumbent firm has the potential to
respond to the marketing challenge posed by
disruptive technologies and to address a new
emerging market. Market myopia can also be
found in the case of advanced MNCs that
operate in emerging markets, often trying
to commercialize only small adaptations of
their products previously developed for the
advanced markets. Hence, the ordination of a
subsidiary operating in emerging markets
with autonomy regarding product develop-
81. ment can be an important source of reverse
innovation with disruptive potential also in
advanced markets.
RP1: Subsidiaries of ‘advanced’ MNCs in
emerging economies can act as the spin-off com-
panies theorized by Christensen as a way to
overcome the innovator’s dilemma.
Scholars should thus focus on organiza-
tional and host country factors that may affect
subsidiary autonomy as well as its ability to
trigger processes of reverse knowledge trans-
fer (Ambos, Ambos & Schlegelmilch, 2006). Of
particular importance is the role of people
appointed to manage the subsidiary. These
managers are in fact vectors of innovation
stimuli coming from emerging markets. They
thus need to know well both the company
culture and its technological endowment in
order to optimally interpret the best means for
product development. At the same time, they
need to have enough authority with their
headquarters for the ideas they propose that
may diverge from the traditional technological
path their company follows to be taken into
appropriate consideration.
In order for companies to be able to trigger
reverse innovation processes, two essential
conditions need to be present: a strong knowl-
edge of emerging market needs and business
environment and a good technological base.
This is not always the case for a single
company. Very often an ‘advanced’ MNC has a
82. strong technological base (given by its experi-
ence and the quality of its R&D engineers), but
lacks a deep knowledge of emerging markets.
On the other hand, ‘emerging’ companies
know very well their home market but often
lack an appropriate technological base given
their relatively short history.
RP2: Despite a liberalization trend of emerging
economies which allows foreign companies to
operate more freely, we will see a new
technology-focused generation of joint ventures
between ‘advanced’ and ‘emerging’ MNCs.
As in the past, the creation of joint ventures
and other forms of interaction between foreign
and local firms seem to be relevant. But while
in the past foreign companies were legally
obligated by host country FDI policies to
engage in joint ventures in order to get access
to the emerging economies’ markets (see, for
example, the case of China described by Long,
2005), this need for cooperation may increas-
ingly emerge with the aim of merging comple-
mentary competences for developing products
that are globally marketable. This potential
trend suggests a focus on new drivers of
cooperation between foreign MNCs and local
firms in emerging economies, as they may
diverge from previous ones. In particular, we
believe it would be interesting to see how
R&D teams of such joint ventures are com-
posed and what the dynamics occurring
between foreign and local engineers are.
This intensification of interaction between
84. RP4: As emerging economies will strengthen
their intellectual property regimes, we will see
more reverse innovation processes.
Despite the fact that foreign MNCs are
worried about their IP protection in emerging
economies, recent contributions show how this
problem can be overcome in developing econo-
mies such as China (Keupp, Beckenbauer &
Gassmann, 2009; Quan & Chesbrough, 2010),
presenting successful cases of foreign compa-
nies that implement R&D activities in China,
providing useful tools for overcoming the risk
of IP violation. Future research has the oppor-
tunity to study how IP strategies of companies
operating in emerging markets will evolve
along with the evolution of these countries and
how these will probably change, passing from
having a local perspective to a more interna-
tional or global breadth. An evolved patent
system would help researchers to investigate
even further the reverse innovation processes
by using patents to identify innovations origi-
nating from emerging economies which are
potentially disruptive, as has already been
done for disruptive technologies (Pilkington,
Dyerson & Tissier, 2002).
In terms of managerial implications, this
paper provides companies with a set of basic
attributes of reverse innovation with disrup-
tive potential. Managers of ‘advanced’ MNCs
can thus use these insights to both trigger
innovation processes for their own companies,
leveraging on their technological basis, or
interpret actions underpinned by competitors
85. from emerging economies who are trying to
enter foreign advanced markets. Managers of
‘emerging’ MNCs can identify patterns of
technology and market development which
occurred from an emerging to an advanced
market.
As reverse innovation dynamics unfold, we
expect to see new business models evolve,
new forms of interaction between MNCs and
local partners, as well as new opportunities for
entrepreneurs trying to adapt technologies
across distant markets and to explore the role
of emerging markets as the new laboratory of
the global economy.
Note
1. We are aware that an author’s blog is not a strong
source but, given the novelty of the topic, the
explanation provided in this post is crucial for
understanding the concept.
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102. R&D Management at Tongji University,
Shanghai. His research interests also
include open innovation and disruptive
innovation.
Alberto Di Minin is an assistant professor
at Scuola Superiore Sant’Anna, Pisa, Italy,
and Research Fellow at the Berkeley
Roundtable on the International Economy
(BRIE). He has a PhD from University of
California Berkeley. Alberto works with the
Istituto di Management at Sant’Anna, and
he is an instructor at the Executive School,
International School of Advanced Educa-
tion (SIAF). His research deals with the
appropriability of innovation. He focuses
on open innovation, business models, tech-
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Appendix A
103. For our literature review, we used the following procedure.
Relying on the Academic Journal
Quality Guide (Version 4, 2010) of the Association of Business
Schools (Morris, Harvey & Kelly,
2009), we selected Grade Four and Three journals from the
following management fields: General
Management, International Business, and Innovation (see below
for a list of the selected journals).
We searched over these journals for papers whose abstracts
contained at least one of the following
keywords: disruptive innovation, reverse innovation, cost
innovation, bottom of the pyramid. We
excluded from the resulting articles book reviews and articles
whose abstracts contained words
composing the keywords put in a different order (hence meaning
a different thing).
General Management International Business Innovation
Academy of Management Review, Academy
of Management Journal, Administrative
Science Quarterly, Journal of
Management, Journal of Management
Studies, Harvard Business Review,
104. British Journal of Management,
California Management Review, MIT
Sloan Management Review,
International Journal of Management
Reviews, Academy of Management
Perspectives, Journal of Management
Inquiry
Journal of International
Business Studies,
International Business
Review, Management
International Review
Journal of Product
Innovation Management,
R&D Management,
Technovation
The search resulted in 44 total papers.
Given the novelty of the topic of innovation from emerging
economies, such a low number and
concentration of papers in a very limited number of journals is
not a surprise. (The papers
107. Research Online is the open access institutional repository for
the University of Wollongong. For further information contact
the UOW Library:
[email protected]
Recommended Citation
Baard, V. and Watts, T., Breaking the Paradox of Innovation in
Small Businesses through Sustaining
and Disruptive Reinvention, Australasian Accounting , Business
and Finance Journal, 1(2), 2007.
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109. pursue strategies that build the operational
capabilities necessary for innovation that will provide both
profitability and growth. The report claims that
this is due to the rapidly increasing complexity of global
markets and the lack of synchronising innovation
efforts across their value chain, thus positioning the problem as
an important contemporary issue. While the
research did not specifically target small and medium
enterprises, the implications for this business sector are
considerable given their substantial contribution to global
economies and their high failure rates in the first
three to five years of operation. While not questioning the data
in the Deloitte research, this paper does
question the assumption that the phenomenon is irreversible and
the apparent underlying self-fulfilling
prophecy with respect to small to medium enterprises. To
demonstrate this the authors draw on a case study
of a small manufacturing company in rural New South Wales,
Australia, which operated between 1889 and
1983, to show that the breaking of the innovation paradox was
successfully achieved by this firm in the late
nineteenth and early twentieth century. Applying the case study
to the Deloitte model the study demonstrates
contemporary similarities by overlaying the Laycock history on
the successes / failures identified by Deloitte.
110. This article is available in Australasian Accounting, Business
and Finance Journal: http://ro.uow.edu.au/aabfj/vol1/iss2/3
http://ro.uow.edu.au/aabfj/vol1/iss2/3?utm_source=ro.uow.edu.a
u%2Faabfj%2Fvol1%2Fiss2%2F3&utm_medium=PDF&utm_ca
mpaign=PDFCoverPages
The Australasian Accounting Business & Finance Journal, May,
2007
Baard and Watts: Breaking the Paradox. Vol. 1, No.2.
25
Breaking the Paradox of Innovation in Small Businesses through
Sustaining and Disruptive Reinvention
Dr Vicki Baard
Discipline of Accounting and Finance, School of Business and
Informatics, Australian Catholic University
Dr Ted Watts†
Discipline of Accounting, School of Accounting and Finance,
111. University of Wollongong
ABSTRACT
In 2005 Deloitte Research released a paper examining the
phenomenon they refer to as
the ‘innovation paradox’: the inability or reluctance of
manufacturing firms to pursue
strategies that build the operational capabilities necessary for
innovation that will
provide both profitability and growth. The report claims that
this is due to the rapidly
increasing complexity of global markets and the lack of
synchronising innovation efforts
across their value chain, thus positioning the problem as an
important contemporary
issue. While the research did not specifically target small and
medium enterprises, the
implications for this business sector are considerable given their
substantial contribution
to global economies and their high failure rates in the first three
to five years of
operation. While not questioning the data in the Deloitte
research, this paper does
question the assumption that the phenomenon is irreversible and
112. the apparent
underlying self-fulfilling prophecy with respect to small to
medium enterprises. To
demonstrate this the authors draw on a case study of a small
manufacturing company in
rural New South Wales, Australia, which operated between 1889
and 1983, to show that
the breaking of the innovation paradox was successfully
achieved by this firm in the late
nineteenth and early twentieth century. Applying the case study
to the Deloitte model
the study demonstrates contemporary similarities by overlaying
the Laycock history on
the successes / failures identified by Deloitte.
Key words: Small business innovation, reinvention, innovation
paradox
† Corresponding author. Mail: Building 40. School of
Accounting & Finance, University of Wollongong. E-mail:
[email protected]
* The authors would like to thank the participants of the
Emerging Issues in International Accounting
Conference for their helpful comments in the development of
this paper. The authors retain all responsibility for
113. the arguments presented and their potential errors.
INTRODUCTION
Deloitte (2005) describes the innovation paradox as the inability
or reluctance of
manufacturing firms to pursue strategies that build the
operational capabilities necessary for
innovation to provide both profitability and growth. Their
research shows that innovation was
the top factor with respect to growth, but the bottom factor with
respect to supply chain
management. They claim that this is due to the rapidly
increasing complexity of global
markets and value chains, thus positioning the problem as a
contemporary phenomenon.
Relating this specifically to small business renowned for
innovation, this paper questions the
assumptions that this is a contemporary phenomenon and is a
self- fulfilling prophecy. To
demonstrate this the authors draw on a case study of a small
manufacturing company in rural
114. The Australasian Accounting Business & Finance Journal, May,
2007
Baard and Watts: Breaking the Paradox. Vol. 1, No.2.
26
New South Wales, Australia, which operated between 1889 and
1983, to show that the
breaking of the innovation paradox was successfully achieved
by this firm in the late
nineteenth and early twentieth centuries. Applying the case
study of Joseph Laycock and Son
(Gibson, 1988) to the Deloitte model the study demonstrates
contemporary similarities by
overlaying the Laycock history on the successes / failures
identified by Deloitte. In this way
the study demonstrates that by continually reinventing itsel f,
this firm successfully avoided
the paradox of innovation.
THE DELOITTE MODEL
The Deloitte model is premised on four critical outcomes of
their research. First, that
manufacturers must master the complexity of innovation in
order to grow; second, that such
115. innovation is driven by changing customer demands and
competitive offerings; third, the need
to develop a value chain that builds effectively on the market
complexities; and finally, the
effective management of the entire product lifecycle. From
these outcomes Deloitte identified
three decisive steps that can be used to generate profitable
growth through innovation.
The first is the task of creating innovation, the act of generating
and evaluating ideas. This
involves generating ideas or sourcing concepts from outside the
organisation, developing
business strategies on which to base investment decisions,
recognising and understanding the
gap between the performance of existing products that satisfy
customer demands and
proposed new products, and determining the most appropriate
organisational model to put the
innovation into practice.
The second step is to exploit the innovations created in step
one. This involves maximising
the innovations growth and profit throughout the product’s
entire lifecycle. In particular,
116. ensuring profitability of the product through flexibility of
design, thus allowing speedy and
inexpensive modifications, together with cost-effective service
and other downstream
activities. In other words, the business must recognise the enti re
value chain.
Building innovation capabilities for success is the third step.
This involves identification and
utilisation of four key factors:
• better visibility, both upstream and downstream in the value
chain
• flexibility in product designs and platforms that allow for
quick modifications of
product offerings to meet market demands
• more extensive collaboration with customers to define product
requirements, and
with suppliers to design components and new materials
• the use of advanced technologies for product lifecycle
management, product data
management, customer relations management, and advanced
117. planning and
scheduling.
LITERATURE REVIEW
INTRODUCTION
Innovation is defined as an application of ideas and knowledge
to meet current or future
market needs or, more specifically, as the ability of a firm to
develop a product to satisfy the
future needs of customers (Fitzgerald and Moon, 1996). The
difference, while subtle, shifts
the focus from market needs to customer needs, and
simultaneously from business in general
to small business specifically. This is significant because small
business innovations in the
nineteenth and twentieth centuries have outnumbered big
business by two to one (Siropolis,
1997). This is mainly due to the ability of small business to
concentrate on new products,
The Australasian Accounting Business & Finance Journal, May,
2007
118. Baard and Watts: Breaking the Paradox. Vol. 1, No.2.
27
rather than improving existing products, as is generally the case
with big business (Hatten,
2006). While the high failure rate of small businesses is well
documented small business have
often survived, and indeed flourished, through the process of
‘creative destruction’ or
‘disruptive reinvention’, which constitutes the replacement of
existing products, processes
and ideas, and of businesses with new and better ones (Hatten,
2006).
SUSTAINING AND DISRUPTIVE REINVENTION
Fasenfest and Jacobs (2003) document the case of the
automotive industry in southeast
Michigan, where a rapidly declining manufacturing sector,
overly dependent on one sector of
industrial production, transformed itself into a revitalised and
restructured high-technology
business centre. This transformation of a small business sector
represented a shift away from
manufacturing centres to technical centres that design and build
119. prototypes, make dies,
fixtures and machine tools, and assemble automobiles.
Similarly, the small businesses of
Richmond, Virginia reinvented themselves from support
businesses for the traditional
banking, tobacco and manufacturing industries to dynamic
players in the information
technology, semiconductor and biotech industries (Mosher,
2000).
The two examples cited above are examples of the changing
small business landscape during
the Twentieth century, and demonstrate the need for sustainable
competitive advantage
through reinvention based on disruptive innovation. According
to Voelpel, Leibold and Tekie
(2004), the focus is on the development of new bases of
building strategic competitive
advantage in order to outperform competitors and leapfrog into
new areas of competitive
advantage. However, the strategy of reinvention for small
businesses predates the Twentieth
century. For example Morgenthaler (1989) reports the case of
the Warren Feathbone Co.
between 1883 and 1989 and its strategic reinvention. The
120. company, established in 1883,
manufactured an elastic boning material from finely split turkey
quills, which was used to
stiffen and shape corsets, collars and bustles in the ladies
clothing industry. However, the
company fell victim to changing fashions and the development
of plastics and, in 1938,
reinvented itself, in collaboration with the B.F. Goodrich Co.,
into a manufacturer of plastic
baby pants. Its second reinvention occurred in the late 1960s
and early 1970s, when the era of
disposable nappies arrived, reducing the use of cloth nappies,
upon which the company relied.
This reinvention saw the emergence of a manufacturer of baby
clothes, a small thriving
business that still exists.
The impetus for reinvention is driven by factors within the firm
or from the industry of which
the firm is part of (Burns, 2001). Such factors include new
knowledge (both scientific and
non-scientific), the unexpected (unexpected success or failure,
or an unexpected event), and
changes in perception which might be caused by economic
changes, together with societal,
121. cultural and fashion changes. All of these are evident in the
cases reviewed above.
STRUCTURE OF THE FIRM
The above review of reinvention shows that innovative
behaviour is influenced by a variety of
forces, including the business activity, the industry and the type
and structure of the company.
Baard (2002) argues that in small businesses the focus of the
organising activity is the
achievement of an effective and efficient blend of the essential
ingredients for organisational
success, specifically: people, physical resources and structure.
In this respect small businesses
have a characteristically flat, flexible structure (Hudson, Smart
and Bourne, 2001) comprised
of one hierarchical level (Hankinson, Bartlett and Ducheneaut,
1997).
The other aspect of structure that appears in both the
automobile industry study (Fasenfest and
Jacobs, 2003) and the Warren Featherbone study (Morgenthaler,
1989) is the strong
122. The Australasian Accounting Business & Finance Journal, May,
2007
Baard and Watts: Breaking the Paradox. Vol. 1, No.2.
28
relationship between changes in structure and the timing of
reinvention. The reinventions of
the automobile industry between the 1970s and the 1990s
corresponded with important shifts
in the development of human capital strategies, including the
flattening of the organisation,
the transformation from unionised to non-unionised firms, and
the replacement of existing
management with a more highly educated management team.
Likewise, with the Warren
Featherbone case, the major innovation reinventions within the
company corresponded with
generational changes in management. The move into plastic
nappies in 1923 occurred with
the retirement of the 86 year old founder. This was followed, in
1956, by the firm’s move
from Michigan to Georgia, and into general clothing
manufacturing, with the founder’s
123. grandson taking control of the business. This was followed in
1976 with the decision by the
new vice-president, the founder’s great-grandson, to discontinue
the manufacture of general
clothing and the move into the manufacture of medium-priced
specialist baby clothes.
This review, while brief, suggests that small business can adopt
competitive strategies that
build on its operational capabilities. This is displayed through
the firms ability to reinvent
itself, and by so doing avoid the paradox of innovation.
OVERLAYING THE LAYCOCK STORY
BACKGROUND
The Laycock story is documented by Gibson (1988) in his thesis
Joseph Laycock and Son –
Blacksmiths, Engineers and Manufactures 1889-1983, and much
of the information is drawn
from this work. Joseph Laycock and Son commenced operations
in Bathurst, a rural
community in Western New South Wales, Australia, in 1889 as
a blacksmith’s shop,
progressively diversifying into engineering, founding, welding
124. and, in 1918, the manufacture
of bagged goods elevators and conveyors for the agricultural
industry. With the success of the
Laycock Elevator, the company turned to the manufacture of
fruit pickers and other small
farm equipment, including the patenting and manufacture of a
combined cutting and threshing
machine in 1922.
Following the abolition of bag stacks in favour of bulk grain
storage in the 1960s, the viability
of chain-type elevators declined, and the Laycock Company
ceased elevator production in
1969. However, the other components, such as the light
engineering section, expanded, and
with the garage, continued until the death of Joe Laycock in
1986 and the closure of the
company.
CREATING INNOVATION
According to the Deloitte (2005, p 9) paper,
…manufacturers that are superior at product innovation make it
a formal,
centralised, step-by-step business process, not a haphazardly