Nurturing Creativity and Innovation

According to Sundbo (2006:1) ―both society and the market have changed and with them the art of innovation management has changed‖. Huse et al. (2005) believe that innovation is the only way an organisation can convert change into opportunities and thus succeed. Indeed, Tushman and Nadler (1996) state that management of innovation and change is the most critical managerial task. Innovation is the outcome of management that is strategic and leadership that is visionary.

Some other authors (Normann, 2001; Carr, 2003) stress that innovation success is not necessarily linked to technological intervention since high-tech solutions cannot always guarantee superior functional performance. Therefore, Edvardsson et al. (2000) and Gustafsson and Johnson (2003) consider that innovation must be viewed in a broader technological context where social dimensions are also considered. In this context, Lusch et al. (2009:11) have observed that individual firms do not possess ―enough knowledge and sufficient human resources to create the innovations that are needed to compete globally‖. They, therefore, need to build the inter-organisational relationships of their networks to access and integrate the resources required for competitive innovation.

Service innovation has been highlighted for its unique role in fighting commoditisation. Services rapidly become commoditised because service innovations are easy to copy and possess fewer patent protections, lower front-end capital investment, and shorter product cycles (Lyons et al., 2007).

Many authors mention the differences between innovation in service and manufacturing industries (Cooper and de Brentani, 1991; de Brentani, 1993; Easingwood, 1986; Easingwood

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and Mahajan, 1989) which is related to the characteristics of service itself (see Chapter 3, section 3.3).

Parasuraman (2010:284) defines service innovation as ―any changes to an existing service in terms of the service delivery process and/or outcome, or any new service(s) being considered to augment a company‘s current offerings – on both company resources and customer perceptions of service quality‖.

He also associates service innovation with both service productivity (e.g. innovations in the service-delivery process can lower costs and enhance productivity), and customer service (e.g. innovations that address customers‘ unmet needs can enhance their assessment of service quality) Parasuraman (2010:278). Additionally, he suggests the typology presented in Figure 2.14 to systematically analyse the impact of service innovation on the company productivity and customer‘s perspectives. He points out that those service managers have to focus on the ideal service innovation ‗win-win‘ (quadrant 1) where they can balance their resources between improving their organisations‘ productivity and meeting customer expectations. However, they have to avoid the worst service innovation ‗Dumb‘ (quadrant 4) where the return (i.e. ‗output‘) of the new service is likely to be a negligible influence on organisational productivity, and does not address any customer expectations.

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Figure 2.14: Typology of Service Innovations (Parasuraman, 2010:284)

According to Feigenbaum‘s (1991) ten benchmarks of total quality, ―Quality and innovation are mutually dependent‖. (See Appendix 4). The EFQM Excellence Model also stresses that excellent organisations have to adopt continual and systematic innovation by encouraging the creativity of their stakeholders (customers, employees, suppliers and society).

Several studies explore the ability of the EFQM Excellence Model to cope with innovation (Martensen and Dahlgaard, 2000a, b, c; EFQM, 2005; Dahlgaard-Park and Dahlgaard, 2005, 2008; Martensen et al., 2007). However, the latest effort was by Dahlgaard-Park and Dahlgaard (2010), who developed a model for measuring and diagnosing innovation excellence as shown in Figure 2.15. The ‗4P‘ Excellence Model adapted for innovation consists of the following four enablers or driving factors and one result factor (Products comprising all form of innovation results):

(1) Leadership; which includes (innovativeness, customer orientation and strategies and plans)

(2) People

(3) Partnership and resources; and (4) Processes.

The empirical investigation of Dahlgaard-Park and Dahlgaard (2010), depending on the ‗4Ps‘ clearly identified that companies have to improve first the ―soft aspects of innovation‖= (leadership, people and partnership), before they try to improve the ―hard or

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logical aspects‖ = (processes, policy and strategy). This ranking is the same as suggested by Dahlgaard-Park and Dahlgaard (1999, 2001, 2005, 2006, and 2008) in their ‗4P‘ model for building organisation excellence.

Figure 2.15: The ‘4P’ Excellence Model Adapted for Innovation and New product Development (Dahlgaard-Park and Dahlgaard, 2010:154)

Practically, Karlsson and Ê hlstroÈ , 1997:481) argue that every company must build and develop its product innovation strategy by answering three main questions:

(1) What are the firms‘ capabilities where are we and what can we do? (2) What is wanted by the firms‘ customers product /market pull? (3) What is technologically possible for the firm technology push?

These must be answered to assess the current situation of the company, and where it plans to be in the future.

Related to the banking sector, an empirical study by Drew (1995) on the innovation practices in financial institutions in Canada identified that banks spend more than non-bank institutions on innovation and have longer development cycles. Banks are more likely to adopt an informal approach to strategic planning for innovation than other institutions. This means that they either do not construct a written strategic plan, especially for new products, or that planning for new products is implicit in some other plan, such as a marketing plan. In addition, banks are most likely to adopt a uniform planning style across their various

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divisions. This may be a reflection of greater bureaucracy and rigidity or of greater centralisation. Banks also reported that excessive bureaucracy was a barrier to innovation. This result was supported by Johne and Harborne (1985) who suggest that banks are organisations with high levels of standardisation, formalisation and centralisation, but with low flexibility; that is to say, they are tightly controlled and bureaucratic with power vested in senior management. This indicates that active product innovator banks have now progressed a considerable way in opening up their traditionally tight operating structures for the purpose of initiating product innovation.

Drew (1995) also mentions in his study that human resource strategy, such as the use of rewards and incentives, evaluation and promotion policy, hiring and turnover, training and developments, are good methods for supporting the innovation in the organisation. However, Page (1993) notices that there is very little information about the impact of compensation programmes and practices for promotion on the success of new product development in general.