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2.3 Factors Affecting Search and Select Strategies

2.3.1 Search and Select Practices

2.3.3) Role of Idea Sourcing Tools

This section concludes by summarising the emergent issues within the above explored themes regarding factors affecting search and select strategies (see Section 2.3.4).

2.3.1 Search and Select Practices

In order to find and incorporate external knowledge and ideas into an internal innovation process, practitioners must search for this knowledge and select or prioritise which data and information is most relevant to answering a need or problem. These capabilities are described as dynamic capabilities since they are continually changing and adapting to the environment. Two processes have been argued to be critical to the operation of dynamic capabilities: search and selection processes and asset orchestration processes (Sharma and Shanks, 2011). Search processes involve the identification of a need or an opportunity, while selection processes involve processes for formulating actions and allocating resources (Helfat et al., 2007).

Search Strategies

The significance of idea search and idea generation in triggering the innovation process is well acknowledged in the literature, as it is the original idea that ultimately leads to an innovative market offering (Cooper 1986; Rothberg, 1981). Firms that rely too heavily on their internal expertise might be blocked from finding alternative and potentially more successful solutions (March, 1991; Martin and Mitchell, 1998). Katila and Ahuja (2002) also found that the extent to which a firm explores external knowledge is positively related to successful new product innovation. So what are the sources of external innovation available to organisations? Figure 16 illustrates formal and informal methods and sources of finding innovative ideas internally and externally.

Figure 16 Sources of Innovation Source: Tidd et al., (2013): 234

Customers represent the most preferred external source for NPD (Knudsen, 2007). The results indicated that competitors are used more often at the ideation stage and only rarely at the stage of completion alone, due to the competitive nature of the relationship. External relationships with universities or private

research institutes only exist to a very limited degree. External relationships need to be coordinated internally to be successful (Hillebrand and Biemans, 2004). This supports the argument of idea management needing to become more integrated to improve effectiveness, something which can be termed as merging, both internal and external capabilities.

Another external source discussed in the literature on innovation search processes are suppliers as their involvement has been found to have a positive effect on innovative performance. Design involvement by suppliers can help in identifying potential problems and solutions earlier, reducing both time and cost of the design effort (Handfield, 2000). Frishammar and Hörte’s (2005) study of 206 medium-sized firms found that innovation performance was positively associated with scanning the technological environment, while scanning customers, suppliers, and competitors proved to be negatively correlated with innovation performance. These findings illustrate that certain innovation sources are used at particular stages of the idea development process and their effects on innovation performance.

Some argued that the searching process is more important than the actual finding (Lawson, 2006). For example, IDEO described three spaces of: inspiration, ideation and implementation. Inspiration is the problem / opportunity that motivates the search for solutions, ideation is the process of generating, developing, and testing ideas, and implementation is the path that leads from

project stage into people’s lives (IDEO, 2015).

Long et al., (2010) proposed internal and external sources of product innovation as shown in Table 7.

Table 7 Internal and External Sources of Product Innovation Source: Long et al., (2010): 3

Bonner and Walker (2004) argued that lead users will resist new technology and products and will insist on incremental improvements to existing products. Suppliers and universities are important external sources of knowledge for innovative performance (Escribano et al., 2009). Supplementary knowledge is positively associated with innovative performance and calls for managers to include knowledge compatibility as a decision criteria.

A study on how expert entrepreneurs conceptualise the creation of new markets identified two types of search processes in their contextualisation. They discussed rational search and selection (formal decision theory) and heuristic search and selection (behavioural theories) (Dew et al., 2011). Rational search has a key idea that search is optimising, based on the goals of the search agent. This type of search is described as unconstrained and includes a vast number of possibilities (Dew et al., 2011).

Heuristic search, on the other hand, suggests that agents search locally for innovation (among possibilities close to their starting point) within a firm’s behaviour (e.g. Nelson and Winter, 1982). In other words, they search based on

their local knowledge (Shane, 2001). These different types of searches directly impact innovation sources used, suggesting these strategies exhibit different priorities and search breadth to the same problem, potentially yielding different results.

Exploration and exploitation strategies are not just internal to the firm. Alliance networks are often used to support these strategies. Exploration strategies have a focus on learning new ideas from new partners (Dittrich and Duysters, 2007). Companies that follow an exploration strategy will look for partners with distinctly different capabilities. On the other hand companies pursuing an exploitation strategy will search for companies with similar technological capabilities.

Phillips et al., (2006) argued for the need for a new type of supply chain relationship, termed strategic dalliances. In contrast to the traditional strategic alliances, these relationships are short-lived, non-committal and foster discontinuous innovation capability. Their study confirmed that discontinuous innovation firms embark on short-term relationships, or dalliances with new, unfamiliar suppliers. The value of these relationships is the exploration of a new sector and knowledge with little or no resource commitment. This indicates that the level of familiarity with partners affects the success of certain types of innovation.

A number of search strategies have been proposed for finding external innovation (see Table 8). These activities are typically explorative in nature. The challenge in managing innovation is how to seek out and find relevant triggers early and well enough to do something about them (Tidd et al., 2013). This implies that innovation practitioners must be actively searching for potential innovation leads not only within their field of interest, but in other sectors that may bring about breakthrough innovation solutions.

Dittrich and Duysters (2007) investigated innovation networks and collaboration strategies of large firms and argued that in exploration networks, partner turnover will be higher than in exploitation networks. Interfirm networks offer flexibility, speed, innovation and the ability to adjust to changing market conditions and strategic opportunities (Dittrich and Duysters, 2007).

Table 8 Extending Search Strategies for Innovation Source: Tidd et al., (2013): 278

Un et al., (2010) argued that firms benefit from external collaboration, however, not all collaborations have the same impact on product innovation. Their study of 781 manufacturing firms between 1998 and 2002 found that R&D collaborations with suppliers have the largest positive influence on product innovation, followed by collaboration with universities. R&D collaborations with universities or suppliers have long-lasting influences. Customer collaborations appeared to have no influence and collaboration with competitors had a short-lived negative impact on product innovation. This is because competitors tend to actively block the transfer of useful knowledge as well as lack the breadth of knowledge useful for product innovation for the focal firm.

Aguiler (1967) defined the way an organisation may scan the environment as: surveillance mode, conditioned viewing, informal search and formal search. Environmental scanning methods, when treated as innovative scanning processes, are tools not only for idea generation and opportunity identification, but also for uncertainty reduction (Börjesson et al., 2006).

Activation triggers such as change in a dominant design may also influence the determined locus of search for external sources of knowledge (Tidd et al., 2013). Approaches to increase the likelihood of finding suitable innovation partners include: placing multiple technology scouts in global regions of high start-up activity, using third-party technology scouts through venture partnerships, co- funding technology incubators, allowing first rights on new developments, and creating Internet portals to your company that will direct technology firms seeking partnership for commercialisation (Fetterhoff and Voelkel, 2006).

These findings have proven that the nature of external collaborations is important in shaping certain innovation outputs. Organisations should therefore employ a mixture of relationships dependent on the innovation sought. The findings show no lack of innovation sources available, however, how to best utilise and nuture external relationships is a factor that adds to complexity.

Opportunity Identification

Opportunity identification is the initial stage in the new product development process where ideas for new products are generated and screened. It is one of the key activities of front-end innovation. The focus of the front-end is mainly on opportunity identification and analysis (Belliveau et al., 2004; Khurana and Rosenthal, 2002). Khurana and Rosenthal (1998) built on the definition set by previous authors and define the front-end as including product strategy formulation and communication, opportunity identification and assessment, idea generation, product definition, project planning, and executive reviews.

The front-end mainly focuses on opportunity identification and analysis prior to actual IM (Belliveau et al., 2004, Khurana and Rosenthal, 2002). Opportunity

identification is practiced in higher-innovation-level companies and includes identifying business and technological goals consistent with the environment (Koen et al., 2001). Opportunity identification and analysis are core front-end activities (Achiche et al., 2013).

Idea generation was included in ten FE models used in this research (see Research Methodology), making it the most commonly integrated front-end activity. Opportunity identification was the next most common activity, present in seven models. Interestingly, technology development and product definition are only included in one model each. This may be because their importance is more established in the later stages of innovation rather than at the early stages. It may also be the case that these areas are included within other stages and not explicitly stated as separate stages.

Opportunity identification is a stage where organisational resources interact with stimuli to further develop the resources. During this stage, synthesis and incubation within the creative process occurs (Kao, 1989). The use of certain facilitation tools such as mind-mapping, data-mining and cross functional teams can act as an enabler to this activity.

Collaboration with External Organisations

Collaboration has been considered to be a ‘meta-capability,’ that is, something so important that it transcends a simple skill set (Liedtka, 1996). Ohly et al., (2010) argued that creativity requires collaboration. Although an idea may originate with an individual, through sharing the idea, the individual receives input from others and may build on the ideas suggested by others to develop the ideas. The sharing of ideas, for example in brainstorming sessions, should stimulate additional associations or ideas.

Sharing and teaching among and across business units and alliances can be an effective way of promoting collaborative innovation, if a business culture already emphasises learning (DeLong and Fahey, 2000). Learning requires common codes of communication and coordinated search procedures (Teece et al., 1997).

A study of SMEs in Australia conducted by Sawang and Matthews (2010) found that firms with external collaboration were three times more likely to introduce new products than firms that did not collaborate externally. They found that firms that sought ideas or solutions from an external network such as suppliers, or business partners reported higher levels of new product introduction than firms that did not have any external collaboration.

Gathering external information allows a project team to gain a clearer understanding of current customer need as well as potential ones (Chandy and Tellis, 1998), market size and growth rates, marketing strategy ideas, regulation trends, and the market responsiveness indicators. External groups are sources of valuable information and innovative ideas.

Individuals can act as gatekeepers by deciding on the value of externally derived information to their organisation, as well as whether that information will be shared (Reid and De Brentani, 2004). Gatekeepers direct information along one path in the organisation rather than another and decide whether or not to share information gained from the environment with others (Reid and De Brentani, 2004).

Strong ties to suppliers can be valuable as the relationships may reduce development costs, promote higher quality with fewer defects, reduce time to market, and help incorporate supplier-originated innovation (Bonaccorsi and Lipparini, 1994). Decisions to co-operate with external groups should be made based on what sources of fuzziness are most critical in managing the FFE i.e. markets, technologies, or regulatory issues (Kim and Wilemon, 2002).

A past study found that companies use potential external partners in different ways. Of the 144 companies used in this study, 83% mainly link with non- competing market and technology leaders, 79% partner with world-class universities and 61% with local universities (Enkel et al., 2009). This is because innovation can be stimulated through learning processes and companies that cooperate within a network are more successful than those that do not (Mohannak, 2007).

Dynamic Capabilities

The key role of innovation in managing the uncertainty facing organisations and creating added value is becoming recognised as increasingly important as are the dynamic knowledge capabilities underpinning it (Tidd et al., 2013). Innovation capabilities are key dynamic capabilities accumulated over time (López-Mielgo et

al., 2009). Dynamic capabilities are also described as a firm’s “…ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece et al., 1997: 516). An alternate definition

states that it is the capacity of an organisation to purposely create, extend or modify its resource base (Helfat et al., 2007).

Innovative firms manage their innovation through managing knowledge and information flows as sources of innovation and market knowledge, which together may be components of broader dynamic capabilities of firms (Jensen et al., 2007). Innovative capabilities rely on interactions among individuals, groups, organisations, and subsystems (Teece, 1996) because such interactions magnify knowledge and learning (Nonaka, 1994). Enhanced innovative capabilities depend on the frequency, density, and quality of interactions both within and outside the MNC group (Persaud, 2005).

Empirical data from a survey involving over 2,300 Spanish companies from 1991 to 1999, found that more companies innovate in their processes than in their products (López-Mielgo et al., 2009). Their results strongly confirm a positive link between innovation capabilities and quality management.

Absorptive Capacity

Since there is such a rich environment which is full of potential innovation, it’s

easy to assume that every organisation will find and make use of them. The reality is that they differ widely in their ability to make use of such trigger signals (Tidd

et al., 2013). The measure of the ability of an organisation to find and use new

(1990). Absorptive capacity is a critical part of an organisation’s innovation capability (Tang, 1998) in order to internally implement external ideas.

Successful organisations have the capacity to absorb innovation into the organisational culture and management processes (Syrett and Lammiman, 1997; Tushman and O'Reilly, 1997). To develop an effective absorptive capacity, intensity of effort is critical over and above merely exposing an individual to relevant prior knowledge (Cohen and Levinthal, 1990). Four elements of absorptive capacity have been identified: acquisition, assimilation, transformation and exploitation (Zahra and George, 2002). Mechanisms that affect absorptive capacity include:

(1) related prior knowledge, (2) communication network, (3) communication climate,

(4) and scanning mechanisms (Tu et al., 2006)

A firm must have a nominal level of absorptive capacity if they are to understand, interpret and realise the benefits of a new idea by an outside source (Cohen and Levinthal, 1990). Absorptive capacity of organisational units has been identified as a factor which can increase innovation as well as performance capabilities (Tsai, 2001; Cohen and Levinthal, 1990). Organisational units that possess relevant prior knowledge are likely to have a better understanding of new technology that can generate new ideas and develop new products. Having a high level of absorptive capacity enables organisations to harness new knowledge from other units to help their innovative activities.

A unit’s external knowledge access is characterised by its network position. The interaction between network position and absorptive capacity has been identified to be critical to intraorganisational knowledge sharing and affects innovation and performance (Tsai, 2001). Azadegan et al., (2008) argued that a manufacturer’s absorptive capacity positively moderates the impact of supplier innovativeness

Suppliers have been shown to provide a source of innovative ideas and critical technologies (Bonaccorsi and Lipparini, 1994; Nishiguchi and Ikeda, 1996). Petersen et al., (2003) proposed three critical factors form the foundation for a

successful supplier integration effort: (1) understanding the focal suppliers’

capabilities and design expertise, as well as the technical risks, (2) ensuring that technology and cost information flows between the design team and the supplier, and (3) ensuring that the supplier has an on-going active role on the design team. A study which analysed 289 papers on absorptive capacity concluded that the concept has been reified (i.e. the process by which we forget the authorship of ideas and theories, objectify them and then forget that we have done so) (Lane

et al., 2006). This suggests that the topic has received great interest in the

academic community but that this can bring greater ambiguity over the original meaning of the terminology involved.

Scholars studying inter-organisational networks argued that innovating companies may form a network of relationships with external parties to draw new ideas in developing new products (Rosenkopf and Nerkar, 2001). March (1991) identified two different forms of organisational learning: exploratory and exploitative learning. Exploratory learning refers to the pursuit of new knowledge that leads to more variations and may create new customer value, whereas exploitative learning refers to refining and deepening existing knowledge to enrich current customer value.

Organisational Learning

Key features of an innovative climate are cross-functional collaboration, proactive scanning through extensive boundary spanning, acquiring and using new technologies, and, more generally, openness to new ideas and willingness to take risks and adapt to emerging (or create new) technological and market trends (Acur et al., 2012). Learning is cumulative and performance is greatest when the object of learning is related to what is already known (Cohen and Levinthal,

1990). An organisation committed to learning can enhance its innovation capability in three ways:

1) it is more likely to be committed to innovation, have state-of-the-art technology, and use that technology in innovations. It is more likely to have the capacity to build and market a technological breakthrough.

2) the organisation is not likely to miss opportunities created by emerging market demand because it has the knowledge and ability to understand and anticipate customer needs (Cahill, 1996).

3) an organisation committed to learning is likely to have greater innovation capability than competitors (Damanpour, 1991). A characteristic is that the

organisation closely monitors competitors’ actions in the market (Gatignon and

Xuereb, 1997). It understands the strengths and weaknesses of rivals and learns not only from their successes but also from their failures (Slater and Narver, 1994).

External learning starts with the identification of new ideas by an outside source. After a new idea is identified by a boundary-spanning individual, they must transfer the knowledge throughout the organisation. They need to have a strong network of internal and external connections as well as strong technical and social skills (Tushman and Scanlan, 1981). Due to differing knowledge access and learning capacity, organisational units have differing learning capabilities which have a significant impact on their innovation and performance (Tsai, 2001). Internal learning allows the firm to develop its own core competencies and appropriate more profits and external learning is required for a firm to develop a broader knowledge base, be aware of cutting-edge technologies, and remain flexible (Grant, 1996). Their findings confirm the belief that when employees work