Strategic issues in managing technology innovation paradigms

Australian Journal of Commerce Study
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Australian Society for Commerce Industry & Engineering
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Strategic Issues in Managing Technology Innovation:
Paradigms for Nigerian Companies
Austin O. Oparanma, Phd
Senior Lecturer
Department Of Management
Rivers State University Of Science And Technology
P.M.B 5080
Port Harcourt, Nigeria
Email: Okachi@Yahoo.Com
Florence U. Oparanma
College Of Health Sceinces
University Of Port Harcourt
Rivers State, Nigeria
Abstract
In this article, we examined strategic issues in technology and innovation as they impact environmental
scanning, strategy formulation, and strategy implementation. It also examines issues in creating new
businesses by properly managing new technology and innovative concepts. It hopes to illuminate issues
for Nigerian businesses as to be competitive in today‘s modern world.
Key Words: Nigeria, technology, innovation and management.
Introduction
Properly managing technology and innovation is crucial in a fast-moving interconnected world. Over
the past 15 years, the top 20% of firms in an annual innovation poll conducted by Fortune magazine
achieved double the shareholder returns of their peers. Nevertheless, many large firms find it difficult
to be continually innovative. Reports indicate that business executives had revealed that a significant
majority are concerned that their companies are losing growth opportunities because they are not able
to properly manage new technology. Even innovative established companies, such as 3M, Procter &
Gamble, and Rubbermaid, have had a recent slowing in their rate of successful new product
introductions.
Role of Management
Due to increased competition and accelerated product development cycles, innovation and the
management of technology is becoming crucial to corporate success. Research conducted by Forbes,
Ernst & Young, and the Wharton School of Business found the most important driver of corporate
value for both durable and nondurable companies to be innovation. Approximately half the profits of
all U.S. companies come from products launched in the previous 10 years (Towner, 2004). What is less
obvious is how a company can generate a significant return from investment in R&D as well as an
overall sense of enthusiasm for innovative behavior and risk taking. One way is to include innovation
in the corporation's mission statement. Another way is by establishing policies that support the
innovative process. For example, 3M has set a policy of generating at least 25% of its revenue from
products introduced in the preceding three years. To support this policy, this $13 billion corporation
annually spends nearly $1 billion in R&D (Garud & Nayyar, 2004).
The importance of technology and innovation must be emphasized by people at the very top and
reinforced by people throughout the corporation. If top management and the board are not interested in
these topics, managers below them tend to echo their lack of interest. When Akio Morita, Chairman of
Sony Corporation, visited the United Kingdom a number of years ago, he expressed disbelief at the
number of accountants leading that country's companies. Uncomfortable because they lacked

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familiarity with science or technology, these top managers too often limited their role to approving next
year's budget. Constrained by what the company could afford and guided by how much the competition
was spending, they perceived R&D as a line expense item instead of as an investment in the future
(Ferland, 2010).
Management has an obligation to not only encourage new product development, but also to develop a
system to ensure that technology is being used most effectively with the consumer in mind. Between
33% and 60% of all new products that reach the markets fail to make a profit (Kelly, & Ivey, H. 2009).
A study by Chicago consultants Kuczmarski & Associates of 11,000 new products marketed by 77
manufacturing, service, and consumer-product firms revealed that only 56% of all newly introduced
products were still being sold five years later. Only 1 in 13 new product ideas ever made it into test
markets. Although some authorities argue that this percentage of successful new products needs to be
improved, others contend that too high a percentage means that a company isn't taking the risks
necessary to develop a really new product (Kuratko et al, 2003).
Environmental Scanning
1. External Scanning
Corporations need to continually scan their external societal and task environments for new
developments in technology that may have some applications to their current or potential products.
Stakeholders, especially customers, can be important participants in the new product development
process.
(A) Technological Development
Motorola, a company well known for its ability to invest in profitable new technologies and
manufacturing improvements, has a sophisticated scanning system. Its intelligence department
monitors the latest technology developments introduced at scientific conferences, in journals, and in
trade gossip. This information helps it build "technology roadmaps" that assess where breakthroughs
are likely to occur, when they can be incorporated into new products, how much money their
development will cost, and which of the developments is being worked on by the competition (Hill &
Yamada, 2012).
Focusing one's scanning efforts too closely on one's own industry is dangerous. Most new
developments that threaten existing business practices and technologies do not come from existing
competitors or even from within traditional industries (Towner, 2004). A new technology that can
substitute for an existing technology at a lower cost and provide higher quality can change the very
basis for competition in an industry. Consider, for example, the impact of Internet technology on the
personal computer software industry. Microsoft Corporation had ignored the developing Internet
technology while the company battled successfully with IBM, Lotus, and WordPerfect to dominate
operating system software via Windows 95 as well as word processing and spreadsheet programs via
Microsoft Office. Ironically, just as Microsoft introduced its new Windows 95 operating system,
newcomer Netscape used Java applets in its user-friendly, graphically oriented browser program with
the potential to make operating systems unnecessary. By the time Microsoft realized this threat to its
business, Netscape had already established itself as the industry standard for browsers. Microsoft was
forced to spend huge amounts of time and resources trying to catch up to Netscape's dominant market
share with its own Internet Explorer browser.
One way to learn about new technological developments in an industry is to locate part of a company's
R&D or manufacturing in those locations making a strong impact on product development. Large
multinational corporations undertake between 5% and 25% of their R&D outside their home country
(Ferland, 2010). For example, automobile companies like to have design centers in Southern California
and in Italy, key areas for automotive styling. Software companies throughout the world know that they
must have a programming presence in Silicon Valley if they are to compete on the leading edge of
technology. The same is true of the semiconductor industry in terms of manufacturing (Malone, 2008).
(B) Impact of Stakeholders on Innovation
A company should look to its stakeholders, especially its customers, suppliers, and distributors, for
sources of product and service improvements. These groups of people have the most to gain from
innovative new products or services. Under certain circumstances, they may propose new directions for
product development. Some of the methods of gathering information from key stakeholders are using
lead users, market research, and new product experimentation.

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(C) Lead Users
Research by Von Hippel indicates customers are a key source of innovation in many industries. For
example, 77% of the innovations developed in the scientific instruments industry came from the users
of the products. Suppliers are often important sources as well. Suppliers accounted for 36% of
innovations in the thermoplastics industry, according to (Freeman, 2006). One way to commercialize a
new technology is through early and in-depth involvement with a firm's customer in a process called
co-development (Hill & Yamada, 2012). This type of customer can be called a "lead user."
Von Hippel proposes that companies should look to lead users for help in product development,
especially in high technology industries where things move so quickly that a product is becoming
obsolete by the time it arrives on the market. These lead users are "companies, organizations, or
individuals that are well ahead of market trends and have needs that go far beyond those of the average
user" (Malone, 2008). They are the first to adopt a product because they benefit significantly from its
use-even if it is not fully developed.
At 3M, for example, a product development team in 3M's Medical Surgical Markets Division was
charged with creating a breakthrough in the area of surgical drapes-the material that prevents infections
from spreading during surgery. At the time, 3M dominated the market but had not developed a new
product improvement in almost a decade. After spending six weeks learning about the cause and
prevention of infections, the project team spent six more weeks investigating trends in infection
control. The team then worked to identify lead users-doctors in developing nations and veterinarians
who couldn't afford the current expensive drapes. The team invited several lead users to a 2½-day
workshop focused on "Can we find a revolutionary, low-cost approach to infection control?" The
workshop generated concepts for six new product lines and a radical new approach to infection control.
The team chose the three strongest concepts for presentation to senior management. 3M has
successfully applied the lead user method in 8 of its 55 divisions.
Lead user teams are typically composed of four to six people from marketing and technical
departments with one person serving as project leader. Team members usually spend 12 to 15 hours per
week on the project for its duration. For planning purposes, a team should allow 4 to 6 weeks for each
phase and four to six months for the entire project.
(D) Market Research
A more traditional method of obtaining new product ideas is to use market research to survey current
users regarding what they would like in a new product. This method has been successfully used by
companies such as Procter & Gamble to identify consumer preferences. It is especially useful in
directing incremental improvements to existing products. For example, the auto maker BMW solicits
suggestions from BMW owners to improve its current offerings and to obtain ideas for new products.
Market research may not, however, necessarily provide the information needed for truly innovative
products or services (radical innovation). According to Sony executive Kozo Ohsone, "When you
introduce products that have never been invented before, what good is market research? For example,
Hal Sperlich took the concept of the minivan from Ford to Chrysler when Ford refused to develop the
concept. According to Sperlich, ―Ford lacked confidence that a market existed because the product did
not exist. The auto industry places great value on historical studies of market segments. Well, we
couldn't prove there was a market for the minivan because there was no historical segment to cite. In
Detroit most product-development dollars are spent on modest improvements to existing products, and
most market research money is spent on studying what customers like among available products. In 10
years of developing the minivan we never once got a letter from a housewife asking us to invent one.
To the skeptics, that proved there wasn't a market out there‖ (Hamel & Prahalad, 2005).
A heavy emphasis on being customer-driven could actually prevent companies from developing
innovative new products. A study of the impact of technological discontinuity in various industries
revealed that the leading firms failed to switch to the new technology not because management was
ignorant of the new development, but rather because they listened too closely to their current
customers. In all of these firms, a key task of management was to decide which of the many product
and development programs continually being proposed to them should receive financial resources. The
criterion used for the decision was the total return perceived in each project, adjusted by the perceived
risk of the project. Projects targeted at the known needs of key customers in established markets
consistently won the most resources. Sophisticated systems for planning and compensation favored this
type of project every time. As a result, the leading companies continued to use the established

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technology to make the products its current customers demanded, allowing smaller entrepreneurial
competitors to develop the new, more risky technology (Christensen, 2010).
Because the market for the innovative products based on the new technology was fairly small at first,
new ventures had time to fine-tune product design, build sufficient manufacturing capacity, and
establish the product as the industry standard (as Netscape did with its Internet browser). As the
marketplace began to embrace the new standard, the customers of the leading companies began to ask
for products based on the new technology. Although some established manufacturers were able to
defend their market share positions through aggressive product development and marketing activity (as
Microsoft did against Netscape), many firms, finding that the new entrants had developed
insurmountable advantages in manufacturing cost and design experience, were forced out of the
market. Even the established manufacturers that converted to the new technology were unable to win a
significant share of the new market (Christenten, 2010).
(E) New Product Experimentation
Instead of using lead users or market research to test the potential of innovative products, some
successful companies are using speed and flexibility to gain market information. These companies
developed their products by "probing" potential markets with early versions of the products, learning
from the probes, and probing again (Lynn et al, 2006). For example, Seiko's only market research is
surprisingly simple. The company introduces hundreds of new models of watches into the marketplace.
It makes more of the models that sell; it drops those that don't.
The consulting firm Arthur D. Little found that the use of standard market research techniques has only
resulted in a success rate of 8% for new cereals-92% of all new cereals fail. As a result, innovative
firms, such as Keebler and the leading cereal makers, are reducing their expenditures for market
research and working to reduce the cost of launching new products by making their manufacturing
processes more flexible (Hamal & Prahalad, 2005).
From its beginning as a software company, Microsoft has successfully followed a strategy of
monitoring the competition for new developments. It follows an embrace and extends strategy of
imitating new products developed by pioneers, refining them, and out marketing the competition. (This
approach is nothing new. Procter & Gamble did this to Lestoil when P&G introduced Mr. Clean.
Microsoft's distinctive competency is its ability to change directions and adjust priorities when the
market changes (Baker, 1998). The company purchased the rights to a program that formed the basis
for PC DOS, which it sold to IBM for its personal computers. It then imitated the "look and feel" of
Apple's graphical user interface (which Steve Jobs had first seen at Xerox's Palo Alto Research Center)
with its Windows operating system. Once the company realized the importance of the Internet browser,
it developed its own Internet Explorer and has successfully battled Netscape for market share.
(2) Internal Scanning
Strategists should assess how well company resources are internally allocated and evaluate the
organization's ability to develop and transfer new technology in a timely manner into the generation of
innovative products and services. These issues are important given that it takes on average seven ideas
to generate a new commercial product, according to the Product and Development and Management
Association.
(A) Resource Allocation Issues
The company must make available the resources necessary for effective research and development.
Research indicates that a company's R&D intensity (its spending on R&D as a percentage of sales
revenue) is a principal means of gaining market share in global competition (Franko, 2005). The
amount of money spent on R&D often varies by industry. For example, the computer software and drug
industries spend an average of 11 % to 13% of their sales dollar for R&D. Others, such as the food and
the containers and packaging industries, spend less than 1 %. A good rule of thumb for R&D spending
is that a corporation should spend at a "normal" rate for that particular industry, unless its competitive
strategy dictates otherwise (Chussil, 2012). Research indicates that consistency in R&D strategy and
resource allocation across lines of business improves corporate performance by enabling the firm to
better develop synergies among product lines and business units (Harrison et al, 2003).
Simply spending money on R&D or new projects does not, however, guarantee useful results. One
study found that although large firms spent almost twice as much per R&D patent than did smaller
firms, the smaller firms used more of their patents. The innovation rate of small businesses was 322

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innovations per million employees versus 225 per million for large companies (Garud & nayor, 2004).
One explanation for this phenomenon is that large (especially older) firms tend to spend development
money on extensions of their current products (incremental innovation) or to increase the efficiency of
existing performance (Christensen, 2010). In contrast, small firms tend to apply technology to
improving effectiveness through developing completely new products radical innovation (Freeman,
2006). Other studies reveal that the maximum innovator in various industries often was the middle-
sized firm. These firms were generally more effective and efficient in technology transfer. Very small
firms often do not have sufficient resources to exploit new concepts (unless supported by venture
capitalists with deep pockets), whereas the bureaucracy present in large firms rewards consistency over
creativity (Towner, 2004). From these studies, Bitt, Hoskisson, and Harrison propose the existence of
an inverted U-shaped relationship between size and innovation. According to Hitt et aI (2011) "This
suggests that organizations are flexible and responsive up to some threshold size but encounter inertia
after that point".
Sometimes most of the firms in an industry can waste their R&D spending. For example, between 1950
and 1979, the U.S. steel industry spent 20% more on plant maintenance and upgrading for each ton of
production capacity added or replaced than did the Japanese steel industry. Nevertheless the top
management of U.S. steel firms failed to recognize and adopt two breakthroughs in steelmaking-the
basic oxygen furnace and continuous casting. Their hesitancy to adopt new technology caused them to
lose the world steel market (Ferland, 2010).
(B) Time to Market Issues
In addition to money, another important consideration in the effective management of research and
development is time to market. A decade ago, the time from inception to profitability of a specific R&D
program was generally accepted to be 7 to 11 years. According to Karlheinz Kaske, CEO of Siemens
AG, however, the time available to complete the cycle is getting shorter. Companies no longer can
assume that competitors will allow them the number of years needed to recoup their investment. In the
past, Kaske says, "10 to 15 years went by before old products were replaced by new ones now; it takes
only 4 or 5 years"(Hill & Yamada, 2012). Time to market is an important issue because 60% of
patented innovations are generally imitated within 4 years at 65% of the cost of innovation (Mansfied
et al, 2013). In the 1980s, Japanese auto manufacturers gained incredible competitive advantage over
U.S. manufacturers by reducing new products' time to market to only 3 years and U.S. auto companies
needed 5 years (Malone, 2008).
(C) Strategy Formulation
Research and development strategy deals not only with the decision to be a leader or a follower in
terms of technology and market entry, but also with the source of the technology. Should a company
develop its own technology or purchase it from others? The strategy also takes into account a
company's particular mix of basic versus applied and product versus process R&D. The particular mix
should suit the level of industry development and the firm's particular corporate and business strategies.
The Global Issue feature illustrates how a company's competence in different aspects of R&D can
affect its competitive strategy and its ability to successfully enter new markets. It shows not only how
distinctive competencies in R&D can affect a company's competitive strategy, but also how emerging
markets, such as China, are crucial to corporate growth strategies. Toto Ltd. is able to get from design
to market quickly, but American Standard is able to design a product to better suit the needs of a new
market. In addition, R&D strategy in a large corporation deals with the proper balance of its product
portfolio based on the life cycle of the products.
(D) Product Versus Process R&D
The proportion of product and process R&D tends to vary as a product moves along its life cycle. In
the early stages, product innovations are most important because the product's physical attributes and
capabilities most affect financial performance. Later, process innovations such as improved
manufacturing facilities, increasing product quality, and faster distribution become important to
maintaining the product's economic returns. Generally product R&D has been a key to achieving
differentiation strategies, whereas process R&D has been at the core of successful cost leadership
strategies.
Summary and Conclusion
The importance of technology, creativity, and innovation to overall future corporate success cannot be

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overemphasized in this modern world. We believe that innovation is the engine that will keep business
organizations vital and growing. Business culture embraces creativity, seeks different perspectives and
risks pursing new opportunities. They create and rapidly convert technology into products and
services, constantly searching for new ways to make technology more useful to customers. Innovation
is the principle driver of growth. To be first competitors, companies in Nigeria must constantly
challenge the status quo and be willing to experiment. The motivation will strongly reward successful
risk taking, while not penalizing an innovative idea that did not work. To succeed companies must
maintain their innovative environment. They must strive to embrace change, challenge the status quo,
listen to all ideas and viewpoints, encourage and reward informal risk taking, and learn from their
success and mistakes. It is hoped that with this in mind companies in Nigeria could compete globally
and otherwise.
References
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leading Firms,‖ Strategic Management Journal .March, pp. 197- 218.
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Community-Level Analysis of Sources and Rates of Technological Variation in the Microprocessor
Market,‖ Academy of Management Journal October, pp. 1218-1244.
Chussil, M. (2012), ―How Much to Spend on R&D?‖ The PIMS-letter of Business Strategy, No. 13
Cambridge, Mass.; The Strategic Planning Institute, p. 5.
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