Journal of Knowledge Management Practice, Vol. 8, No. 2, June 2007
The
Synergy Of Knowledge-Based Innovation Capacity And
Innovation Supply Chain:
A
Case Study Of Taiwanese High-Tech SMEs
Te Fu Chen, University
of Western Sydney
ABSTRACT:
To date, the extant literature is very limited to provide linking knowledge
management or intellectual capital with innovation, existing studies have
derived their innovation processes from large companies' perspectives rather
than SMEs. Different types of innovation will require
different resources and, therefore, will need to be managed differently.
Limited research has been aimed at identifying sources of innovation and the
integration of innovation processes from a knowledge-based perspective (Grant, 1996).
Although a fascinating array of innovation research has been carried out in the
context of R&D issues and economic factors, it only looks innovation inside
out but not outside in. The gaps between knowledge/innovation, larger/smaller
firm’s perspectives and inside/outside innovation processes should be
filled in to map a more comprehensive picture of the proposition. Therefore,
this research is aimed to bridge these gaps through the identifying sources of
innovation and the integration of internal and external supporting processes of
innovation to accumulate innovation capacity and then to support innovation
supply chain (Desbarats, 1999) from a knowledge-based
perspective for SMEs.
Existing studies on innovation processes were reviewed and their limitations
were identified. By integrating insights drawn from these studies as well as
adding some new approaches, the author proposed an integrated KBI
(knowledge-based innovation) model, which is believed to be more complete and
practical for high-tech SMEs. The importance of the
proposed model was theoretically discussed and justified through the case study
in four high-tech SMEs from Taiwan. In addition, nine research
propositions were proposed to link theories and practices for practitioners and
future researchers. The modified integrated KBI model and propositions can act
as a list of items for high-tech SMEs to address when
adopting knowledge-based innovation. This helps to ensure that the essential
issues and approaches are covered during implementation. For academics, it
provides a common language for them to discuss and study the approaches crucial
for the success of knowledge-based innovation in high-tech SMEs.
This study is probably the first to provide an integrated innovation model
for implementing innovation in the high-tech SMEs
under knowledge-based perspective. It gives valuable information, which
hopefully will help high-tech SMEs to accomplish
knowledge-based innovation for achieving sustaining innovation and value
creation and then to achieve sustainable competitive advantage. The results of
the study will benefit not only the construction of knowledge-based innovation
framework, but also the business model transformation of competitive advantage.
Keywords: Knowledge
management, knowledge-based innovation, high-tech, SMEs, innovation supply chain
1. Introduction
1.1. Background Of The Study
In response to the intensification of global competition, many firms
throughout the world have developed international operation strategies to
establish a worldwide production, distribution, and marketing network (such as
Intel and Microsoft). Investments in globalization operation such as high-tech
industry are frequently made due to the strategic benefits that they can bring
(Markusen et al, 1986).
In the past ten more years, USA
converges global outstanding talents to create and accumulate uncounted
knowledge and then successfully transfer these knowledge into commodity. The
success KM (Knowledge Management) strategy of USA undoubtedly declares twenty one
century formally step into the era of knowledge economy. This thinking largely
impacts on Taiwan high-tech
firms, as they are long-term cooperating with USA high-tech industries.
Therefore, Taiwanese high-tech firms all have seen knowledge as a maintainable
and sustainable competitive advantage (Porter, 1990) and start to implement
correct and effective development strategies, through knowledge management (KM)
to bring sustaining innovation and value creation into organizational
structure. During past twenty years, the most successful two high tech
industries are ICT industries and semiconductor industries. These two
industries represent Taiwan’s
successful transformation from SME’s labor
intensity to high-tech industrial capital intensity, technology intensity and
knowledge intensity.
However, though the success of high-tech industry brings the growth of
economy for Taiwan but it
cannot resolve the real economic problems of Taiwan. Traditional industries to
be withered, the raising of unemployed rate and the large shifting of
industries to China, these
problems maybe cause from Taiwan
government too emphasis on high-tech industries, i.e. ICT (Information and
Communication technology) industries, and ignore traditional industries
especially is the SMEs, under this wrong concept,
Taiwanese firms believe only ICT industries are just high-tech industries.
Actually, high-tech could be applied in every industry. This policy causes SMEs increasingly decrease competitiveness and the
situation of shifting out to Mainland China is very seriously.
According to past ten years of successful experiences for high-tech
industries in Taiwan, the study believes "universalization
of technology and knowledge", especially the totally raise the technology
level of SMEs and upgrade and transform to knowledge
enterprises is the unique way to make SMEs remain in
Taiwan.
Currently, there are 98 per cent of industries are SMEs
in Taiwan
(SMEA, 2005), though SMEs have the advantage of
management flexibility but they also have the dilemmas to raise capitals and
lack of management talents to implement KM and innovation. Particularly, past SMEs are traditional industry, their management model are
totally different to high-tech industry. Currently, more and more SMEs trend to high-tech industry, therefore, how to
integrate SMEs and innovation management of high-tech
industry is the future development directions and key points for Taiwanese SMEs in the study. Additionally, the study has also further
explored the possibility for creating a knowledge-based innovation integrated
model for high-tech SMEs to link theories and
practices for achieving sustainable competitive advantage.
1.2. Needs For
The Study
In the era of dynamic competitive knowledge economy which emphasis on
knowledge accumulation, diffusion and application, how to speed up industrial
intellect capital to utilize for innovation and value-added, facilitate
industrial knowledge transformation and knowledge industrialization, it has
been the important issues and missions of whole industrial for worldwide
countries.
According to the survey from IDC Taiwan, Taiwan industries all are highly
emphasis on KM, there are 96% of industries, which
interviewed by IDC view KM as important or very important management tool. Most
of firms identify “knowledge” in the all value chain which
constitute from R&D, design, manufacturing, marketing to after sale, its
value contribution about 50%, but only 15% of firms identify them to reach the
level of good or very good on developing knowledge for the effectiveness of
innovation-value production. This shows Taiwan industries have already
understood the importance of knowledge management but they are still not grope
about how to propose concretive action to implement KM for innovation, the
current situation is more clearly to Taiwanese
firms--they are still learning how to impel KM to innovate.
In today’s highly competitive global business scenario, it is
generally accepted that the sustainability of a firm’s competitive
advantage will depend on its innovative capacity based on knowledge
acquisition, integration and application (Pyka, 2002;
Sveiby, 2001; Lang, 2001). The pressure to keep
innovating is felt more by firms in high-tech sectors due to rapid
technological change and shortening product and process life cycles. High-tech
organizations are beginning to accept the inevitable challenge of coping with,
and excelling in, knowledge-based innovation (KBI) as a means of remaining
competitive. Many authors have pointed out that firms,
especially those in high-tech sectors, need to respond quickly by adopting more
innovative business models, innovation processes and a culture that fosters
innovative behavior (Mosey et al., 2002).
While the importance of knowledge-based innovation is well established,
there is still a need to develop an integrated perspective of various factors
associated with knowledge-based innovation activities. Existing studies have
derived their innovation processes from large company perspectives rather than
the SMEs. Limited research has been aimed at
identifying sources of innovation and integrating supporting processes of
innovation from a knowledge-based perspective for SMEs
(Sveiby, 1997). The major aim of this research is to identify sources of
innovation and integrating supporting processes of innovation to accumulate
innovation capacity from a knowledge-based perspective for high-tech SMEs.
In this context, high-tech firms, especially the high-tech SMEs, face a major dilemma as to the type of strategic
orientation that should be adopted in order to promote innovative capacity.
Policy makers at the national level would also like to see whether specific
knowledge-based innovation patterns exist so that appropriate support policies
could be developed to foster the emergence of desired patterns. Thus, it
appears that there is a need for pursuing research in identifying the key
issues that influence knowledge-based innovation, with emphasis on high-tech SMEs.
1.3. Research Problems Of The Study
Based on the above research backgrounds and needs, the most important issue
will be which sources of innovation and supportive processes of innovation are
necessary to integrate for leveraging innovation capacity in high-tech SMEs in order to achieve sustainable competitive advantage?
The study aims to explore nine research problems as follows:
1.
Which sources of innovation can be
used to leverage innovation capacity for high-tech SMEs?
2.
What is the most important source of
innovation in high-tech SMEs?
3.
Which enablers of internal supporting
processes of innovation are necessary to enhance innovation in high-tech SMEs?
4.
Which enablers of external supporting
processes of innovation are necessary to enhance innovation in high-tech SMEs?
5.
How can sources of innovation, and
the internal and external supporting processes of innovation, be integrated to facilitate continuous innovation in
high-tech SMEs?
6.
How can this understanding be
extended to include the entire innovation supply chain to maintain sustainable
competitive advantage for high-tech SMEs?
7.
How SMEs
integrate sources of innovation, internal and external supporting processes of
innovation, and innovation supply chain to create a business model for
maintaining sustainable competitive advantage for high-tech SMEs?
8.
What is the advantage of KBI model of
large SMEs can be used to assist small SMEs to implement knowledge based innovation initiative?
9.
What is the advantage of KBI capacity
of small SMEs can be used to assist large SMEs to improve their KBI model?
1.4. Research Objectives Of The Study
Based on the above research problems, this research would explore mainly on
the core innovation capacity (IC) of high-tech SMEs
in Taiwan
and to identify processes that can support their innovation. The objective is
to find the ways on how the Taiwanese high-tech SMEs
could accumulate core IC, and integrates sources of innovation and supporting
processes of innovation for future competitive advantage. Therefore, the main
aims of this research are:
Ø
Identify sources of innovation,
and internal and external supporting processes of innovation for high-tech SMEs.
Ø
Explore how innovation capacity
can be successfully accumulated in high-tech SMEs,
through leveraging innovation sources and processes to foster a culture of
continuous innovation with a view towards achieving sustainable competitive
advantage.
Ø
Based on the findings of items
1-2, develop an integrated knowledge-based innovation model for high-tech SMEs.
Ø
Based on the model, investigate
the supporting processes of innovation management in Taiwan, through the
conduct of case studies, and put forward exploratory ideas that could assist in
creating a blueprint for deepening Taiwan’s innovation reforms and for
supporting sustaining innovation in high-tech SMEs.
Ø
Develop an innovation supply chain
model for high-tech SMEs to link core innovation
system and to support sustaining innovation with their overseas branches and
partners.
Ø
Integrate sources of innovation,
internal and external supporting processes of innovation, and innovation supply
chain into an integrated innovation model for high-tech SMEs.
Ø
Adopt the knowledge already
available on KBI management in both large and small high-tech SMEs to examine how to integrate sources and supporting
processes of innovation under knowledge-based perspectives.
Ø
Identify the advantage of KBI
theories and practices of large SMEs to assist small SMEs to implement knowledge based innovation initiatives.
Ø
Identify the advantage of KBI
theories and practices of small SMEs to assist large SMEs to implement knowledge based innovation initiatives.
Ø
Compare advantage and disadvantage
of KBI model for both large and small high-tech SMEs
to assist each other to improve and create an optimal KBI model for them to
maintain sustainable competitive advantage.
2. Literature Review
This chapter provides a comprehensive review of the literature. The initial
part examines the corporate values, visions and missions (Scott et al., 1993;
Stone, 1996), basic definition of innovation, various perspectives of
innovation, key elements of effective innovation management, sources of
innovation (Leonard-Barton, 1995; Drucker, 1985;
Miles, 1994; Von Hippel, 1988). This is followed by
an examination of the literature on innovation capacity (Szeto,
2000), knowledge-based innovation, and knowledge and innovation in high-tech
industries (Sveiby, 1994). The third part of the
literature review then presents a summary of literature related to the link
between KM and innovation (Nonaka & Takeuchi,
1995). The last part then looks at supportive processes of innovation and
introduces the concept of the innovation supply chain (Desbarats,
1999; Sciquest, 2004; Taiwan Economic Daily, 2003).
Debate while there exists considerable literature on
innovation management and KM, the literature that examines the link between the
two is somewhat limited (Daniel, 2002; Carneiro,
2000; McNaughton, 2002).
Today, one of the challenges facing high-tech SMEs
is on finding ways and means to achieve sustainable competitive advantage
through sustaining innovation. Thus, knowledge-based innovation (KBI) that
links innovation management and KM is an area of great importance to high-tech SMEs since it can help to foster competitive advantage (Salavou et al, 2004). Firstly, the study will identify
“what does a knowledge-based innovation constitute?” Given the
universal role of the Internet, electronic commerce/ e-business and
communication technologies as the main drivers of innovation and knowledge
strategies, it seems a good chance to connect the two strands of thinking
behind KM and innovation.
To establish possible integration of framework, this study explores the
linkages between KM and innovation to shed light on how they can be drawn
closer. The actions associated with managing the flow and use of knowledge in
an innovation process is another core component (Amidon,
1997), it means KBI covers a diverse range of management issues (e.g. knowledge
management and innovation, technology innovation (Teece,
1986; 1996; Twiss, 1992), managing and organizing
innovation, and cultivating innovation culture (Martins, 2003); open source
innovation (Ulhøi, 2004; Rigby & Zook, 2002), cooperation innovation (Von Stamm, 2004), innovation networks and e-knowledge networks
(Warkentin et al, 2001)).
A definition needs to be specified to put in perspective of its impact on
firm itself and its suppliers, customers, partners and competitors. Besides,
the study want to identify the key elements that underscore the critical
importance of knowledge and the associated management actions required for
innovation. Due to these objectives, this study aims to contribute a more
profound understanding and more comprehensive picture on the management of KBI.
3. The Development Of Integrated Innovation Model And Research Methodology
This chapter describes the construction of the integrated innovation model
(Figure 1) and the research design of the study including two-phased design and
each is with distinct methodology. According to literature review, the study
develops a conceptual integrated innovation model for high-tech SMEs to fit the research objectives of the study The
integrated innovation model includes corporate values, visions and missions,
sources of innovation, innovation capacity, internal and external supporting
processes of innovation and ISC (Innovation Supply Chain).
First, initial questionnaire guide of interview was sent to 50 high-tech SMEs (Hecker, 1999) in Taiwan to select four companies to
be case study for this research. Second, in-depth interviews with senior
managers/ directors from four selected high-tech companies were used to collect
data. This research adopts case study (Yin, 1994) to assess actual sources of
innovation and determinants of internal and external supporting processes of
innovation and how they can be leveraged to accumulate innovation capacity to
the decision to implement an innovation management in the context of the
high-tech SMEs for achieving sustaining innovation
and value creation and then to reach SCA (sustainable competitive advantage).
The completed questionnaire, company reports/industry-specific newsletters and
an in-depth interview created an established chain of evidence.
Figure 1: An Integrated Model Of Knowledge-Based Innovation For
High-Tech SMEs
4. Data Analysis For Case Studies
This chapter implements the data analysis for case studies in four high-tech
firms in Taiwan, all interviews undertaken are recorded and transcribed.
The transcripts are then coded with concepts and transformed and simplified in
order to facilitate display, analysis and comparison. The coding is revised and
developed as the research progressed. Displays are developed for the different
concepts, summarizing the response of each respondent and allowing cross-case
analysis.
The study summarized the finding of case studies as follows:
Ø
The sources of innovation
identified in the case studies are customers, suppliers, partners and employees
for smaller high-tech SMEs, and to increase competitors,
research institute and academics for larger high-tech SMEs.
Customer needs is the most important innovation source for high-tech SMEs to accumulate innovation capacity.
Ø
The innovation determinants
identified in the case studies include knowledge innovation, technology
innovation, managing and organizing innovation (Johannessen
et al, 1999), and the cultivating innovation culture for the internal
supporting processes of innovation, and the open/sources innovation,
cooperation innovation, innovation network and e-knowledge network for the
external supporting processes of innovation.
Ø
Efficient innovation management
for high-tech SMEs involves a successful integration
of both internal and external supporting processes of innovation that
facilitates the innovative processes of products and services to the consumers
at the right time and right place in accordance with consumer needs.
Ø
Two smaller SMEs
(Case A and Case B) have implemented part of integration of supporting
processes of innovation (one-sidedly emphasize to internal supporting
processes). Two larger SMEs (Case C and Case D) have
implemented full of integration of supporting processes of innovation
(two-sidedly emphasize to internal and external supporting processes).
Ø
Two larger SMEs
(Case C and Case D) have recognized the ISC could guarantee reliability,
flexibility, and scalability for SMEs. ISC also can
help SMEs to get inter-connected with all relevant
parties in the commerce process and extend the reach of business to the global
market.
Ø
All of these case study companies
have constructed a core innovation system through integrating both internal and
external supporting processes of innovation. It fills the gaps of
knowledge/innovation and internal/external supporting processes of innovation
and to map a more comprehensive picture of the propositions.
Ø
All of these case study companies
have recognized SMEs can accumulate innovation
capacity through leveraging innovation sources, internal and external
supporting processes of innovation.
Ø
Two larger SMEs
(Case C and Case D) have recognized the synergies for inter-link between the
determinants of both internal and external supporting processes of innovation
and this can synergize the innovation capacity.
Two larger SMEs have constructed complete ISC
systems to assist in the forming and improving of sustaining innovation.
However two smaller SMEs have only constructed
partial ISC.
All of these case study companies have recognized the link between core
innovation system and ISC can form a cyclic sustaining innovation and achieve
sustaining innovation and value creation and then to reach sustainable
competitive advantage.
5. The Modified Models And Propositions
5.1. The Modified Models
This chapter presents two modified models (Figure 2 and 3) for smaller SMEs and larger SMEs and some
useful and valuable propositions for academics and practitioners. They are due
to the analysis and results of the case studies which deriving from company
information (such as profiles and company websites), interview questionnaires,
in-depth interviews, cross case analysis and the
comparison of fours case studies, and interpret the results from qualitative
data.
Figure 2: The Modified Integrated Innovation
Model For Smaller SMEs
Figure 3: The Modified Integrated Innovation
Model For Larger SMEs
Note: KI= Knowledge Innovation, TI= Technological Innovation, M&O I=
Managing& Organizing Innovation, CCI= Cultivating Culture Innovation, OI=
Open source/ market Innovation, CI= Cooperation Innovation, IN= Innovation
Network, EKN= E-Knowledge Network
The integrated model can be an easy-to-follow innovation model for high-tech
SMEs to address when adopting knowledge-based
innovation. This helps to ensure that the essential determinants and approaches
for innovation process are covered during sources of innovation, internal and
external innovation processes to innovation supply chain. For industries, it
provides a practical and complete business model for them to be reference and
study the innovation approaches (the advantage and disadvantage), which are
crucial for the success of knowledge-based innovation in high-tech SMEs.
5.2. Research
Propositions Of The Study
According to the findings of case studies and above comparisons between
smaller and larger SMEs and two modified integrated
innovation models, the study proposed one main research proposition (RP) and
ten sub research propositions for future researchers and practitioners as
follows:
RP: High-tech SMEs
through leveraging innovation sources and internal and external supporting
processes of innovation to accumulate innovation capacity and construct a core
innovation system, and through the linkage and support between core innovation
system and ISC to achieve sustaining innovation and value creation and then
reach sustainable competitive advantage.
RP1: Customer needs is the most important
innovation source for high-tech SMEs to accumulate
innovation capacity and support both internal and external supporting processes
of innovation.
RP2: Smaller high-tech SMEs
could implement partial integration for internal supporting processes of
innovation (the integration of knowledge innovation and technology innovation;
the integration of managing & organizing and cultivating innovation
culture) to reach partial synergy and enhance innovation capacity.
RP3: Smaller high-tech SMEs
could implement partial integration for external supporting processes of
innovation (the integration of open-source innovation and cooperative
innovation; the integration of innovation network and e-knowledge network) to
reach partial synergy and enhance innovation capacity.
RP4: Larger high-tech SMEs
have a good linkage (cross and inter-linkage) between knowledge innovation,
technology innovation, managing & organizing and cultivating innovation
culture for internal supporting processes of innovation to reach cyclic synergy
and enhance innovation capacity.
RP5: Larger high-tech SMEs
have a good linkage (cross and inter-linkage) between open-source innovation,
cooperative innovation, innovation network and e-knowledge network for external
supporting processes of innovation to reach cyclic synergy and enhance
innovation capacity.
RP6: High-tech SMEs
through leveraging innovation sources and both internal and external supporting
processes of innovation can accumulate innovation capacity and construct a core
innovation system to link and support ISC.
RP7: Smaller high-tech SMEs
through integrating research, development, design/ engineering, marketing and
distribution to construct a partial integration of ISC.
RP8: Larger high-tech SMEs
through integrating research, development, design, manufacturing (outsourcing),
marketing and distribution to construct a complete integration of ISC.
RP9: High-tech SMEs
through the linkage and support between core innovation system and ISC to
construct an integrated KBI model to reach sustaining innovation and value
creation and form a cyclic synergy and then achieve sustainable competitive
advantage.
RP10: High-tech SMEs
through KBI model to create four relationships assets for value creation, both
internal and external. Having a good product or service at a competitive price
is not enough. Outstanding employees, efficient suppliers and supply chains,
and trusted partners are critical to create competitive differentiation and
long-term survival. Satisfying customers is the source of sustainable value
creation. Strategy requires a clear articulation of targeted customer segments
and value proposition required to please them. These assets are the most
valuable and goals should be established to leverage and manage them most
effectively.
The propositions can act as a list of items for high-tech SMEs to address when adopting knowledge-based innovation.
This helps to ensure that the essential issues and approaches are covered
during ideas, concepts, implementation and commercialization. For academics, it
provides a common language for them to discuss and study the approaches, which
are crucial for the success of knowledge-based innovation in high-tech SMEs for future research.
6. Conclusions
And Recommendations
The study contributions an integrated innovation model and some useful
propositions for high-tech SMEs under knowledge-based
innovation theory lens, also, it provides valuable insights and recommendations
for the owners/ managers in SMEs, academics and
practitioners for future research. The integrated innovation model is to assist
high-tech SMEs to leverage sources of innovation,
internal supporting innovation processes and external supporting innovation
processes to accumulate innovation capacity and link to innovation supply chain
to form a cyclic sustaining innovation to be the main impellers of high
technology industrial innovation for achieving sustainable competitive
advantage. According this integrated innovation model, the study proposed one
main research proposition and ten sub research propositions for practitioners
in high-tech industries and future researchers.
The study suggests high-tech SMEs to utilize the
knowledge-based innovation then the company has about itself and its customers,
partners and suppliers, and applying it to the marketplace. Then, these companies,
even if very small, have the opportunity to outmaneuver all bigger players and
come in ahead of last year's champions. For the limited resources, personnel
and monetary, high-tech SMEs especially need to
construct their knowledge-based innovation framework step by step and to
integrate innovation sources and supporting processes to accumulate innovation
capacity and therefore to form corporate core competence to maintain
sustainable competitive advantage. Furthermore, due to the integrated innovation
model and propositions, the study suggests the future researchers are able to
do the empirical study for more high-tech SMEs to
obtain a generalization results in specific high-tech industries. Also, the
integrated innovation models and propositions can be used to do case study or
empirical study for the other SMEs.
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Contact the Author:
Dr Te Fu Chen, Assistant Professor, Department of International Business, Ching Yun University, Taiwan; PhD,
School of Management, University of Western Sydney, Australia; Email: phd2003@gmail.com
