Organizational Innovation and Performance

free essayNowadays, numerous companies adopt the innovative culture in their corporate structure. Some of them directly aim at the modernization of offered production while others try to improve the working process. However, the major aim of these changes is gaining of the competitive advantage. Gaining of these advantages can be connected with several issues and challenges. Much attention will be paid to the description of the process of building capabilities for the innovative solutions and creating manageable innovation strategies for holding an ability to stand against these issues and rivals. The assessment of a portfolio of possible innovations should be conducted in the precise manner for the avoidance of the considerable financial losses in the future and loss of the market share (Schemmel & Saskia 2011). In addition, various approaches to the evaluation of new ideas and their strong and weak sides will be discussed below. They should be used by both small and big companies before the formation of corporate venturing for the creation and development of innovative solutions.

Innovations represent valuable organizational capabilities, which enable a company to deliver the superior value of its products and services, make strategic investments for supporting infrastructure, and improve the overall organizational performance (Ulrich 2010). Innovations are considered to be company’s capabilities because they represent specific resources, which allow the company to add value to its production, processes, position and paradigm by using financial, physical, technological, human and reputational resources. It is notable that modernization enables companies to improve the quality of their work by using both new and current resources. The authors of the work Innovative capacity and advantage: A case study of Brazilian firms (2008) noted that innovations should be considered as combinations of technological, sociological, and economic processes with complicated connections and interactions. These links should be established inside the company and between the organization and its technical, economic and social surroundings and rivals. At the same time, authors highlighted that “no element can be effective by itself” (Marotti de Mello, Demonel de Lima, & Sbragia, 2008, p.57). This means that the above stated factors should work in the integrated manner for the creation and reinforcement of an environment that will facilitate the success of technological innovation in the company (Marotti de Mello, Demonel de Lima, & Sbragia 2008).

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Introduction of innovations into one or several elements of organizational performance is considered to be the unique resource because it is difficult to imitate and help to gain better position among its rivals. Consistent and continual modernization enables to create competitive advantage faster than competitors’ “mimicking” the company’s current advantages (He 2012). Thus, the company could save its position on the market and even improve it through exceeding average indicators for its industry (Lewis n.d).

However, the competitive advantages can be achieved only if innovators perform constant research of new technologies and approaches. As it is noted in the study Innovative capacity and advantage: A case study of Brazilian firms (2008), modernizations can be “unsuccessful despite successful development” because the companies did not pay attention to the improvement of interactions between individuals, partners, and knowledge-producing institutions. The authors emphasized that development of innovations can be advantageous to the company if it is realized as the wide-ranging and complex process based on interrelations with “organizational culture, resources, competencies, and relationships with other organizations” (Marotti de Mello, Demonel de Lima, & Sbragia 2008, p.57). The establishment of these relationships is impossible without the appropriate set of managerial knowledge and skills. This set is necessary for the establishment of innovative behaviour and practices into the company’s day-to-day activities. It forms the background for the innovative capacity of the organization because it builds “the internal potential” to perform actions for constant improvement of the quality of products and services, generation of new ideas, searching and identification of new market opportunities, and implementation of “marketable innovations through exploration of the company’s existing resources and capabilities” (Marotti de Mello, Demonel de Lima, & Sbragia 2008, p.57). The innovative capacity is considered to be one of the key elements of the organizational competitiveness in the world full of changes and vulnerabilities.

This capacity can be implemented by the continuous design and redesign of complex business systems through strategic and social innovation (Chew & Gottschalk, 2013). Strategies used for the continuous search and implementation of innovations provide long-term positive effect of the organizational performance because they are directed on the constant improvement of various dimensions of the company’s performance. Both business and customer intelligence innovations are considered to be the core parts of sustainable leadership and beneficial competitive position (Chew & Gottschalk, 2013). They enable “selecting and developing technologies and business models that build competitive advantage through assembling and orchestrating difficult – to – replicate assets, thereby shaping competition itself” (Teece 2007, p. 1319).

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The above stated ideas were supported by special survey of interrelations of achievement of competitive advantage through innovation and knowledge. In her work, Hana Urbancora (2013) provided the proof that organizations of different sizes, which are involved in various economic activities, can save and improve their position on the market through placing the emphasis on the establishment of suitable innovative culture (Geller 2011). These changes should be supported by top management for improvement of the performance of all units of the company (Urbancova 2013).

It should be noted that the company can implement innovative solutions, which will be advantageous both to manufacturing and services. The example of the accomplishment of the successful innovative approach in manufacturing is Toyota’s relentless improvement. The company gave employees the tools, the skills and the permission on solving problems because it “harnesses the intellect of ordinary workers” (Hamel 2006). Toyota believed that the first-line workers can not only manufacture details but also solve problems and develop innovative solutions. The used principle of the underlying management of orthodoxy was some kind of innovation hardly understood and copied by others (Scholl 2014). The examples of the introduction of unusual approaches in services are the following: using the baggage carousel in sushi restaurant and application of Formula 1 principle of pit stop in Mc Donald’s (Cross Industry Innovation n.d.). These solutions made the companies more competitive because they attracted attention of current and possible customers and improved the organizational performance through shortening the time of rendering services.

However, development of new and viable business solutions can represent a serious challenge to both small and big companies irrespective of their resources, technologies and know-how. Hence, this can lead to loss of the competitive advantage. The development and realization of these solutions requires top-down approach reflected in the support of top management (Stampfl 2015). Heads of departments and managers may face difficulties in strategic fore sighting and correct determination of long-term perspectives. Even after the creation of the innovation and obtaining the understanding that it can be successful, proper management of the organizational changes and development of new organizational units and structure can be also challenging (Hogg 2011). Modernization can cause the necessity to change the corporate culture as well as amend the existing codes and regulations. In addition, new business approaches should be promoted both internally (to employees) and externally (to business partners, stakeholders, clients, etc.) (Ahari 2007). additional attention should be paid to the fact that managers should provide overwhelming explanations to company’s workers concerning the reasons of establishment of new strategy, goals, and related risks.

Managers and workers should be able to “handle the ambidextrous operation of the existing and the new model in parallel” for enabling smooth operational performance and elimination of any crises thus helping the company to remain competitive on the market (Stampfl 2015). They should also take necessary steps for securing sufficient investments and funding necessary for the creation and realization of the established and new business models (Tuney n.d.).

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Additional attention should be paid to the monitoring of business model environments for the identification of modernisations of rivals and providing fast and proper reactions on the innovations introduced by other companies. This strategy will help to eliminate such business issue as arrearage of the company’s strategy from the industry’s trends.

Possible challenges can be connected with the high degree of various uncertainties, which accompany the processes of development and implementation of innovative solutions. These uncertainties may relate to customers’ needs and wishes, emerging markets and technologies. Managers should be ready to face failures because “even for an experienced business model innovator, failure during a business model innovation process is the rule, not the exception” (Stampfl 2015). Thus, they should include into company’s budget additional funds for coverage of these failures, which may occur during a long time in the development, realization and constant adjustment of innovative solutions. This is necessary for the elimination of the closure of the new business projects because of increased financial pressure.

The competitive advantage that can be obtained from the development and implementation of innovative solutions and their constant improvement is shown on the example of 3M. It is one of the largest technology companies in the United States that was established in 1902 (Hill & Jones 2013). The annual sales was $ 26 million (63 % of all sales were overseas) in 2010 (Hill & Jones 2013). In the similar year, the technical employment staff reached 80,000 scientists and the annual R&D budget was $ 1.4 billion (Hill & Jones 2013).

The company faced its first considerable challenge when the mineral that was used for manufacturing of sandpaper became unsuitable for this purpose. For this reason, managers decided to change the company’s directions and make this mineral from another source after hiring scientists who invented the new type of paper in 1921 (Hill & Jones 2013). The further innovation, which brought company to success, was the new masking tape. Invention of this product in 1925 represented the first significant product diversification in the company (Hill & Jones 2013). In addition, after this invention, the company “established a norm that technical people could spend up to 15% of their own workweek on the projects that might benefit the consumer” without providing justification to their managers (Hill & Jones 2013). It should be noted that the invention of new masking tape formed the background for the further development of scotch that made the real revolution.

In 1993, the company established the strategy called “patient money” that was reflected in the financial support of small group of researchers who worked on some particular project for a long time. This strategy was based on the understanding that sometimes, new products require long-term investments. 3M voids punished its employees for zero results because the company realized that 60 % of its innovations were unsuccessful (Hill & Jones 2013).

The company started to sale its products overseas in 1920s and even created aits joining to Durex Corporation that sold abrasive products in different locations all over the world (Hill & Jones 2013). The dissolution of the Corporation forced 3M to build its own international operations in 1951 (Hill & Jones 2013). This strategy formed the competitive advantage for the company because it became independent from other institutions.

3M’s experience shows that the constant development of innovations, funding of new solutions and grouping of the scientists can be rather beneficial to the company. This company is the example of the organization that is searching for new solutions for improvement of its effectiveness and productivity from the times of the problems with the production of sandpaper. It uses the approach of product and innovation diversification and long-term investing for gaining greater results in different spheres. In addition, technicians feel free in the reflection of their creativity and development new technological solutions because they are enabled to spend some working time on their own projects. The success of the company is the real life example of how new innovations can be created on the background of leveraging of the existing technologies and previous innovations making a proposition all over the world without the reliance on other companies.

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One more example of successful implementation of unique approach into the manufacturing is the operational performance of Toyota. The company gave employees the tools, the skills and the permission to solve problems because it “harnesses the intellect of ordinary workers” (Hamel 2006). Toyota believed that the first-line workers cannot only manufacture details but also solve problems and develop innovative solutions. The used principle of the underlying management of orthodoxy was some kind of innovation hardly understood and copied by others (Business and Industry Portal 2015).

The competitive advantages can be reached only by the constant development, and realization of innovative solutions can be managed. Some of companies have R&D groups, which “exposure the frontiers of science” (Hamel 2006). Linux uses approaches of open source development based on collaboration and general public license (Hamel 2006).

The above mentioned stories of success have common principles of innovation management: setting goals and development of plans, motivation, coordination and control, accumulation and allocation of resources, acquisition and application of knowledge, building and development of relationships, determination and nurturing of talents of all employees, and understanding the demands of outside environment (clients, partners, investors, rivals) (Hamel 2006). The management of innovations is the systematic process that involves the following elements: commitment to a big organizational problem, novel principles in new approaches, making analogies from atypical companies for the determination of the possibility of new actions and “a deconstruction of management orthodoxies” (Hamel 2006).

The very process of development and implementation of innovation advantages can involve the following steps: making innovations the major direction for the company’s development programs, application of certain standards to innovativeness, requirement of  the development plan for each product or service that will contain some modernization strategies, training innovative mentors and development of employees’ creativity, involvement of every worker in the innovative process and providing special grants, and creation of a set of metrics for tracking innovation inputs, throughputs and outputs (Zhou 2015).

As it was noted above, companies should perform assessment of new ideas before commencement of its development and realization for the avoidance of financial losses and weakening of competitive position on the market. The new ideas can be assessed by using various methods. The first method is checking whether the innovation aligns with the current organizational culture and address short-term and long-term goals of the company (Ulrich 20100). Additional attention should be paid to the commitment of senior managers towards the new strategy. Employees should understand the changes and the necessity of its application and development (Greenhalgh et al. 2004). Managers should “deliver innovation results and outcomes so that senior management believes that innovation matters on their watch” (Innovation Tools n.d. ). In his work, Burt Perrin (2001) described the following principles of the assessment of innovations: legitimacy, potential application and relevance, identification of potential implications, determination of the necessary extent of partnership and collaboration, the extent, to which the idea is truly innovative, possible negative consequences and unexpected findings (Perrin 2001).

Along with that, the company should assess whether it has enough funds for the development of innovation for the long period of time, and whether failure will lead to the considerable loses of the company. Special financial metrics such as ROI can be used for the assessment of the portfolio of innovation. Special attention should be paid to the development of the financial proof based on the reliable template and engineering concepts with tested uncertainties and assumptions. Developers should determine the complexity of coping with innovations by the rivals and consequences of such event.

Evaluation based only on possible benefits has both strong and weak sides (Experimental Continuum 2010). Such methodology enables to create the understanding of strong and weak sides of the project, identify possible issues and determine possible actions for their rectification. At the same time, developers may face difficulties during the estimation of advantages and disadvantages of the innovation. One more concern is the interconnection between time and content: “the more content of performance-based assessment attempts to cover, the more time it will take” (Experimental Continuum 2010).

It is notable that development and supporting of innovations can be beneficial both to small start-ups and big companies, which finance these start-ups (Fullagar 2015). Both small and big companies have their own motives for the formation of corporate ventures. The majority of such ventures are made in the form of “purely a financial investment with a larger company taking an equity stake in a smaller company” (The Startups Team 2001). Usually, separate funds are created for such investments (Chesbrough 2002). Big companies can also make indirect investments through trusts or other venture capitals (Phelps 2011). Sometimes, companies may form strategic alliances for helping small companies to develop their production and services, and for generating the income and cost savings of all parties involved (The Startups Team 2001).

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Resource-rich companies have several reasons for the formation of corporate ventures with small firms. Usually, they have “an unprecedented amount of capital setting on their balance sheet”, which they intend to invest with the possibility to increase their capital in the future (Pozin 2013). They use such benefits of start-ups as the ability to sell production faster than companies, which already existed on the market, by the application of unique approaches and providing innovative solutions (Quittner 2014). In addition, big companies can speed up experimentation of new ideas through formation of corporate ventures and provide quick response to changeable market conditions (Lerner 2013). All these activities form the competitive advantages of big companies.

The major reason why small companies participate in corporate ventures is that they have insufficient resources and power for the successful development and presentation of their innovations, which can revolutionise the marketplace (The Startups Team 2001). They can benefit from the following resources, which can be obtained from big companies: funds, infrastructure, relationships and institutional knowledge (Pozin 2013). Thus, corporate ventures may be beneficial for start-ups in standing within competition on the market.

Thus, the current work provides the understanding of advantages, which can be obtained through the development and realization of innovations. It is notable that these advantages can be gained by both small start-up companies and big enterprises that invest into these companies. The major advantage is reflected in the innovative competitiveness. This means that the company performs constant search of new solutions for the improvement of the current products and services. Such activities enable to hold competitive position on the market among other companies – rivals. However, inception of the innovative behaviour into the organizational performance may be rather challenging for managers. They should provide explanations to all the employees about the necessity of constant searching of new ways of their organizational performance for holding the competitive position on the market.  In addition, searching of innovations should be a steam up process for enabling the company to stand against competition by the constant improvement of the organizational performance. Hence, managers should develop special plans of actions and perform reliable assessment of new ideas.