The
Creation And Operation Of Knowledge-Based Innovation
Networks In High-Tech SME’s
Te Fu Chen, Ching
Yun University , Taiwan
ABSTRACT:
The hierarchical structure of the conventional organisation form was inadequate for the shift towards the customisation of product development and global linkages of product markets. In particular, high-tech industry characteristics are short product cycles and rapid market changes. Therefore, network systems defined by long-term relationships are essential to innovation and networks offer a competitive advantage, in terms of innovations. In the era of knowledge economy, high-tech firms are facing dynamic competitive and rapid changes in global marketplaces. They have to emphasise the creation, accumulation, diffusion, transferring and application of knowledge to accelerate product, service and process innovation and value creation to meeting the needs of customers. Therefore, the main research problem for the study is “why should, and how can, companies create and operate knowledge-based innovation networks for value creation and to meeting the needs of customers?”
This research adopts the case study method to assess actual sources of innovation and determinants of 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. The completed questionnaire, company reports/industry-specific newsletters and an in-depth interview created an established chain of evidence for the company. In summary, under the knowledge economy, high-tech industry, in order to create value to reach a sustainable competitive advantage, must leverage sources of innovation, and external supporting processes of innovation. The external supporting processes of innovation include open-source innovation, co-operation innovation and innovation networks.
The integrated model can be an easy-to-follow innovation model for high-tech SMEs to address when adopting knowledge-based innovation network. This helps to ensure that the essential determinants and approaches for innovation processes. In other words, from sources of innovation, open innovation, cooperation innovation to innovation network for implementation/commercialisation. For industries, this provides a practical and complete business model for them to use as a reference and study the innovation approaches (the advantage and disadvantage), which are crucial for the success of knowledge-based innovation network in high-tech SMEs.
Keywords: Knowledge-based innovation networks, High-tech, SMEs
1. Introduction
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 globalisation operation such as high-tech industry
are frequently made due to the strategic benefits that they can bring.
In the field of New Industrial Economics, since the early 1980s, co-operation in innovation moved in the centre of interest, for two reasons: 1. New industrial economics by its very nature moved away from the idea of perfect competition by invoking the structure-conduct-performance-approach, wherein, besides prices, other means of competition, that is, marketing, R&D etc., play a role in determining firm behaviour; and with the arrival of game-theory as a formal tool of analysis, additionally the explicit investigation of firm interactions becomes possible. 2. The discussion was inspired by new decisions and policies concerning the possible outcomes of allowing firms to collaborate in so-called pre-competitive R&D, despite strong anti-trust regulations. (Pyka, 2002)
In the era of knowledge economy, high-tech firms are facing dynamic competitive and rapid changes in global marketplaces. They have to emphasise the creation, accumulation, diffusion, transferring and application of knowledge to accelerate product, service and process innovation and value creation to meeting the needs of customers. In high-tech manufacturing firms, there is an increasing importance of innovation, in which knowledge turns into the main source of competitive advantage (Miles, 1993; Miles, 1994).
Szeto (2000) assumed, in long-term development, innovation sources solely relying on internal resources will limit the capacity of the firm and may also slow down the performance of the corporation. If drawing innovation resources from collaborations with network members, the sources of the resources will be amplified to enrich the innovation capacity of firms, to accelerate the transfer of innovation knowledge and to diffuse it to the hierarchy of firms as if a chain of innovation were pulled into the core of firms and pushed back to network members outside. From a network perspective, innovation emerges from collaborations or alliances for new developments (Szeto, 2000).
According to above backgrounds and motivations for the
research, the main research problems for the study are:
¨
How can
cross-organizational integration be effectively achieved to create seamless
innovation?
¨
What “outside”
environment is suitable for the development of innovation capacity of firms?
¨
Why
should, and how can, companies create and operate innovation networks and
alliances for
value creation and to meeting the needs of customers?
According to the backgrounds, motivations and problems of the research, the study aims to:
¨ Integrate inter-firm’s innovation resource to create relevant new insights in the field of knowledge, innovation and networks through the theories of research into practices.
¨ Accumulate innovation capacity by leveraging sources of innovation, open innovation, cooperation innovation and innovation network.
¨ Promote, foster and support collaboration between practitioners, researchers and experts in the innovation network to create new knowledge and practice, create business value and 'supply' knowledge and innovation to meeting customer’s needs.
2. Literature Review
For discussing the developments of the field of knowledge, innovation and networks, this chapter will review sources of innovation, innovation capacity and innovation network, open-source innovation, cooperation innovation and innovation network.
2.1. Sources Of Innovation
John Stark Associates (2005), in its innovation management articles, assumed innovation sources in the future as follows:
¨ Customers’ customers
¨ The company’s customers
¨ In-house and external marketers
¨ In-house and external R&D
¨ The company’s suppliers
¨ The company’s management
¨ Engineering staff
¨ Production workers
¨ The company’s competitors
2.2. Innovation Capacity And
Innovation Network
Innovation capacity can be incrementally or radically increased through the participation of activities that trigger the supply of innovation resources and conversion of the resources as the knowledge base of the firm in an interactive environment (Szeto, 2000). The interaction is a process that provides stimulation to the firm from external sources that may be convertible into innovation resources.
Internally, a firm can further develop the innovation impulse as resources and apply it to new product development that will be turned into the knowledge base of a firm if appropriate codification is systematically implemented. Externally, inter-organisational network is an environment for the interaction and activities such as joint projects, collaborations or alliances for a specific R&D item and may benefit the participants to various degrees (Szeto, 2000).
Researchers of different perspectives still debate whether innovation can be generated from within a firm’s hierarchy or from within a networked environment. Some scholars’ different viewpoints are expressed in Table 1.
Table
1: The Debate For Innovation Can Be Generated From Within A
Firm’s Hierarchy Or From Within A Networked Environment
|
From within a networked environment |
From within a firm’s hierarchy |
|
Studies from a network
perspective, inter-organisational network, becoming
a new organisation form, provides different
stimulation through the collaborative activities with network members (Biemans, 1992; Forsgren and Johanson, 1992; Alter and Hage,
1993). |
A systemic analysis of the
possible sources to maintain “purposeful innovation” when
entrepreneurs start their innovation processes within their resources (Drucker, 1994). |
|
The hierarchical structure
of the conventional organisation form was inadequate
for the shift towards customisation of product
development and global linkages of product markets (Nohria
and Ghoshal, 1997). |
Looking for the governance
systems that affect firm capabilities in performing various activities
(Whitley 1998). |
|
Innovation in firms
consists of continuous interactive learning that occurs in the context of
formal and informal relationships between firms (Freeman, 1994); Stiglitz,
1987); Lundvall, 1992). |
|
|
Interfirm collaboration is an important
source of knowledge; Consequently, the degree to which firms learn and
increase their stock of knowledge is a function of the extent of their
participation in network activities (Levinthal and
March, 1994); Brown and Duguid, 1991); Von Hippel, 1988). |
|
Nonaka and Takeuchi (1995) assumed, “What is unique about the way Japanese companies bring about continuous innovation is the linkage between the outside and the inside. Knowledge that is accumulated from the outside is shared widely within the organization, stored as part of company’s knowledge base, and utilized by those engaged in developing new technologies and products”. Since the inside and outside resources of knowledge and innovation are of such importance to accumulating innovation capacity, then what “inside and outside” environment is suitable for the development of the innovation capacity of firms? The fundamental issue is how these organisational environments increase the firm’s capacity for innovation for the continuous improvement of competitiveness.
The hierarchical structure of the conventional organisation form was inadequate for the shift towards the customisation of product development and global linkages of product markets. In particular, high-tech industry characteristics are short product cycles and rapid market changes. Therefore, network systems defined by long-term relationships are essential to innovation and networks offer a competitive advantage, in terms of innovations. Consequently, it is too difficult for short-term exchange partners to transfer across organisational boundaries. Thus firms need to establish collaborative arrangements to facilitate the transfer of tacit (experiential) knowledge, of the sort frequently involved in the innovation process. In short, short-term relationships limit the transfer of technical knowledge between two related industries and cause the ability of gaining the essential knowledge to be seriously eroded, because industries cannot quickly create the next generation of products (Teece, 1981; Von Hippel, 1988; Bolton et al., 1994).
Szeto (2000) used SoftCo as a case study. In his paper he demonstrates how the sustaining empowerment of innovation capacity within a symbiotic network (Alter and Hage, 1993), differentiated network (Nohria and Ghoshal, 1997) or relational concept (Forsgren and Johanson, 1992) can accelerate the interaction of the factor of innovation resources and the formation of a knowledge base.
2.3. Open-source Innovation
According to Chesbrough (2003) successful innovators are finding they must complement their in-house R&D with external technologies and offer up their own technologies to outsiders. R&D at large companies is shifting from its traditional inward focus to more outward-looking management – open innovation – that draws on technologies from networks of universities, startups, suppliers, and competitors.
Open-source innovation is an attractive alternative for micro-firms and SMEs, which have no or very limited funds for internal R&D. Moreover, it is a cost-effective way of “marketing” innovations (Ulhøi, 2004).
More and more firms are exploring “open-market innovation”. This thinking is due to the tools of franchising, joint venture and strategic alliance etc. to absorb free trading strength, to increase the flow of new ideas. According to “open-market innovation”, firms focus on suppliers, customers and even competitors can systematically open innovation boundaries to increase the input and output of new ideas. Thus, firms can improve the speed, quality and cost of innovation. Moreover, “open-market innovation” can lead firms to evaluate the real market value of internal ideas. Thus, firms can identify their self-core business more effectively (Rigby and Zook, 2002).
Recently, Bain & Company surveyed more than two hundred top global executives. The results express that the ideal of chasing for “open-market innovation” is a kind of aspiration which should be constrained. 57% of respondents assumed that their firms placed too much emphasis too much on internal innovation. In addition, the executives of global firms all know that the best creative ideas are not really derived from the R&D laboratories of firms. The case studies found that for some of the fastest growing and most profitable industries, “open-market innovation” will be an important source of competitive advantage (Rigby and Zook, 2002).
The creativeness of “open-market innovation” produces the corporate trend and technological trend of some businesses co-operation and provides four items of advantage (Rigby and Zook, 2002):
¨ Input of new ideas is the best way to expand innovation base.
¨ Output of new ideas is a good way for collecting cash and maintaining creative employees.
¨ Input of ideas can help firms to clarify their strength.
¨ Output of ideas can help firms to clarify their strength.
2.4. Co-operative Innovation
2.4.1. Horizontal And Vertical Co-Operation Innovation
The recent surge in interfirm co-operative agreements can be seen as expressing a way for firms to respond to and organise market failure, especially in technology markets. The incentives for firms to internalise activities are to avoid the disadvantages, or capitalise on the advantages of imperfections or disequilibria in the external mechanisms of resource allocation.
Harabi (1999) assumed that a great deal of intellectual and political energy has been expended on the issue of horizontal R&D co-operation between firms. The main benefits to be expected of such policies are:
¨ Overcoming the R&D financial constraints in individual firms (that is, expensive research projects can be realised as a result of cost-saving)
¨ Exploitation of economies of scale and scope in R&D)
¨ Reduction of wasteful duplication in R&D
¨ Internalisation of technological spillovers and other forms of externality.
¨ Better use of synergies, because each firm can contribute distinct capabilities to a common research project
¨ Reduction of investment risks due to demand uncertainties.
In short, horizontal R&D co-operation has been seen as a panacea for solving important aspects of market failure and other deficiencies in technology markets.
What are the factors that induce innovating firms to seek to co-operate with input suppliers and product users? In order to answer this question, the study will be looking at the literature concerning the technological innovation in industrial organisation. In the most general terms, there are three reasons why private profit-seeking agents will plausibly allocate resources to the exploration and development of new products and new techniques of production (Harabi, 1999):
¨ They may know of, or believe in, the existence of some sort of, as yet unexploited, scientific and technological opportunities.
¨ They may expect that there will be a market for their new products and processes.
¨ They may expect some economic benefits, net of the incurred costs that derive from the innovations.
Furthermore, Harabi (1999) summarised these three major determinants of technological innovation in the literature under the headings “technological opportunities”, “appropriability conditions” and “market demand”. In other words, technological innovations, like many other economic phenomena, are determined both by supply factors (the first two determinants above) and by demand factors. These three factors vary across industries and explain to a certain degree the empirically observable inter-industry differences in innovative activity. He explained the details as follows:
The problem of appropriateness, imperfect price discrimination, imperfect information and the related problems of demand valuation and resale – may cause market failure in technology markets. Since innovation firms cannot always rely on market forces to solve their problems, they seek ad hoc non-market solutions such as co-operative agreements with other firms, especially those that, in the supply chain, are between them and suppliers and customers. Since co-operative agreements between innovating firms on one hand and suppliers and users on the other affect the supply and demand facing them, they thus influence major forces behind the innovation process.
One of these major forces is the issue of how innovators solve the “appropriability problem”. Consequently, a major motivation for innovating firms to seek R&D co-operation with input suppliers and users is their expectation that they will solve this problem. The problem of appropriability affects both the amount of R&D that firms undertake and the location of innovation. Vertical co-operation between innovating firms, suppliers and users plays an important role.
Finally, establishing vertical relationships with either buyers or suppliers may also solve problems arising from uncertainly in R&D or from indivisibilities in R&D (or other) production processes to the extent that doing so creates a market in circumstances wherein one would otherwise have been poorly defined. Furthermore, a captive market can have the advantage of creating a pocket of demand for a product with certain well-defined characteristics, and this may serve to focus R&D efforts and stimulate innovation.
In summary, Harabi (1999) suggests a
statistically significant impact of vertical R&D co-operation (informal
exchange of technological knowledge) seems to be more important for their
innovative behaviour than formal ones (joint
ventures, joint development teams etc.). The details are shown in Figure 1:
Figure 1: Percentage Of Innovating Firms Assessing The Co-Operation With Their Customers/Suppliers
As Important Or Very Important (Harabi, 1999)
Facing the twenty-first century globalisation and the information era, the cost of creativity and adoption of new technology continues to rise. Uncertainty and high risk are important factors in the research process of science and technology. Promoting pre-competition technology co-operation becomes a necessary way in which various companies can reduce their R&D costs and risks. As Debra Amidon described in the Core Strategy of 5th R&D Generation in Collaborative Innovation, “Knowledge is the asset through the process of cross-boundary learning and knowledge flow” (Amidon, 1997).
Alongside the increase in complexity of modern science and technology, integration becomes the main feature of the high-tech development. No important invention or creation is an exception. All must rely on the integration of different technologies and inter-organisational co-operation. However, technological or knowledge integration is the integration of minds, and the integration depends on innovation networks.
2.5. Innovation Networks
2.5.1. Innovation And Interfirm Collaboration
Innovation in firms is one of continuous interactive learning that occurs in the context of formal and informal relationships between firms (Freeman, 1994; Stiglitz, 1987; Lundvall, 1992). Interfirm collaboration is an important source of knowledge; consequently, the degree to which firms learn and increase their stock of knowledge is a function of the extent of their participation in network activities (Levinthal and March, 1994; Brown and Duguid, 1991; Von Hippel, 1988).
Von Stamm (2004) assumed: “To increase the odds of success, leaders need to understand why they should collaborate with outsiders and how to do it effectively.” There are two major benefits of engaging “outsiders”:
¨ They challenge company-internal assumptions.
¨ They bring a new body of knowledge to the party. Innovation most often happens when some previously unconnected bodies of knowledge converge. So for companies that want to stretch the business boundaries and innovate around markets and business models, external collaboration with other firms and customers is critical.
For example, Echeverri-Carroll (1999) stated in
her study that Japanese firms are not unique in terms of the benefits
associated with network organisations, but it is
important to recognise that all firms (including US
firms) organise their relationships with other firms
based on the same principles: long-term tenure and a continuous exchange of
information, allowing for the development of relation-specific (or
network-specific) expertise. The Japanese firm and the
“traditional”
2.5.2. Innovation And Inter-Organisational Network
Flows of knowledge on customers’ needs increase the firm’s degree of innovation. The needs and experiences of customer are one of the most important sources of innovation. Externally, the inter-organisational network is an environment for interaction and activities such as joint projects, collaborations or alliances for a specific R&D item and may benefit the participants to various degrees. When thinking of marketing knowledge, one should think of issues such as competition, suppliers, customers, markets, target groups, consumers, clients, users, interested parties, sales, after sales, trade and distribution and relation management (Daniel, 2002).
Knowledge that is accumulated from the outside is shared widely within the organisation, stored as part of the company’s knowledge-base, and utilised by those engaged in developing new technologies and products” (Nonaka and Takeuchi, 1995, p. 6). What “outside” environment is suitable for the development of innovation capacity of firms? Studies from a network perspective (Biemans, 1992; Forsgren and Johanson, 1992; Alter and Hage, 1993) show that an inter-organisational network, becoming a new organisational form, provides different stimulations through collaborative activities with network members.
2.5.3. Sustainability And Network Collaboration
In long-term development, innovation sources solely relying on internal resources will limit the capacity of the firm and may also slow down the performance of the corporation. If drawing innovation resources from collaborations with network members, the sources of the resources will be amplified to enrich the innovation capacity of firms, to accelerate the transfer of innovation knowledge and to diffuse it to the hierarchy of firms as if a chain of innovation were pulled into the core of firms and pushed back to network members outside (Szeto, 2000).
In network collaboration, sustainability is crucial to the development of innovation capacity. Innovation is hardly a one-time effort due to the incremental nature of innovation; even if the nature is radical, the capacity of the innovation required is sustainable development. If sustainability is absent in the collaboration, continuous improvement of the capacity will be impossible (Szeto, 2000).
Nohria and Ghoshal (1997) mention that reactions of network organisations to new opportunities will start from collective actions. Then, codification, accumulation and application of the data will shape the knowledge platform for increasing the innovation capacities that may be exclusive for the network organisations. In practice, the cycle of improvement in which new concepts, experiences and experiments will improve the innovation resources, becomes a mechanism to increase innovation capacity. The above theories within networks generate an MIIC, as shown in Figure 2.
Figure 2: MIIC (Szeto, 2000)
The grounding of the MIIC is the types of networks that determine the generation of new innovation, sharing and renewal of the firm’s knowledge through repeated collaboration. Meanwhile, network members may also acquire financial information, the latest technology and marketing intelligence, which supplement the collective innovation activities within networks (Szeto, 2000).
As a whole, the inter-organisational network facilitates the improvement of innovation capacity that comprises the resource and knowledge factors for the network members. With different network types, innovation capacity will be improved with various impacts on product development. For example, the types of network activities activated by SoftCo indicate an MIIC is emerging (Szeto, 2000).
2.5.4. National And Regional Systems Of Innovation
As a common basis, however, a national system of innovation can be understood as a system of structured interactions between agents who are involved in the process of generating technological progress. Their interaction is structured in the sense that relations are often repeated, and thus institutionalised, and in the sense that formal and informal institutions exert an important influence on innovative performance (see McKelvey, 1996).
Some of the most famous examples of outstanding innovative regions are
Silicon Valley, Route 128, Wissenschaftsstadt Ulm and
Emilia-Romangna, to name but a few. Also, there is a
famous outstanding innovative region in
2.5.5. Formal And
Informal Networks
The design of a specific innovation network can vary on a spectrum between formal contractual agreements and loosely coupled informal networks. Freeman (1991, p. 500), from surveying the empirical literature states, “Although rarely measured systematically, informal networks appeared to be most important. Multiple sources of information and pluralistic patterns of collaboration were the rule rather the exception”. In this respect, following Hakanson (1989), a dynamic component also exerts influence “with an increasing duration of formal R&D co-operative relationships, they mutate to informal relationships as mutual trust and confidence between the partners is built up”. Formal contracts get increasingly displaced by more flexible informal relationships in the course of time. Accordingly, although the formal arrangements end, for example, after the successful development of a new product, the relationship between the firms or the employed engineers and scientists remains, offering an efficient channel for knowledge flows in the future.
2.6. Innovation Networks In The Knowledge-Based Approach
Innovation networks need to be understood not only in terms of transaction cost considerations, but also in terms of learning, path dependencies, technological opportunities, and complementary assets. Networks do not only influence the co-ordination of resources but also assert a significant impact on their creation (Pyka, 2002). This has to be seen in a twofold perspective:
¨ The pooling of different competencies in the network of firms of course enhances this process of resource creation by exploiting complementary effects.
¨ The co-operation in networks also creates a real surplus or synergy in this process (Brousseau, 1993).
In this light, networks represent a mechanism for innovation diffusion through collaboration, and the interactive relationship becomes not only a co-ordination device to create resources, but an essential enabling factor of technical progress (Zuscovitch and Justman, 1995). Pyka (2002) argues that it is not enough just to know what others are doing, but the firms also need to know how the respective technologies function and work together and to support this inter-firm learning of often long-range cumulative, tacit and local know-how, a stable and long-lasting collaborative environment is necessary.
According to the above discussion, innovation networks offer a possibility to overcome the restrictions of the irreversibilities and instead build on different specific knowledge bases. With the fusion of different technological capabilities the exploration of new opportunities becomes possible – the cross-fertilisation effects. In this respect, the essential dynamic properties of innovation networks become obvious.
Besides this creation of new so-called extensive opportunities (Coombs, 1988), which constitutes the synergetic or surplus effect of innovation networks, the complementary effects were also mentioned above. In this respect, it is helpful to recall that the variety of assets and competencies which a firm needs access to in order to successfully commercialise a new technology is likely to be quite large, even for only modest complex technologies (Teece, 1986). Here, innovation networks demonstrate themselves to be a promising alternative co-ordination mechanism which allows a firm to have access to the complementary assets, which otherwise have to be built up alone – an extremely expansive and time-consuming endeavor, confronting at least SMEs with often insurmountable difficulties.
Successful innovation requires complex forms of business organisation. Innovating organisations must form linkages to others, upstream and downstream, lateral and horizontal. Advanced technological systems do not, and cannot, get created in splendid isolation. The communication and co-ordination requirements are often stupendous, and in practice the price system alone does not suffice to achieve the necessary co-ordination (Teece, 1986, p. 416). Innovation networks represent such a flexible organisational device.
To summarise, within the knowledge-based approach, innovation networks are thus considered to have three major implications:
¨ They are seen as an important co-ordination device enabling and supporting inter-firm learning by accelerating and supporting the diffusion of new technological know-how.
¨ Within innovation networks the exploitation of complementarities becomes possible, which is a crucial prerequisite to master modern technological solutions characterised by complexity and a multitude of involved knowledge fields.
¨ Innovation networks comprise an organisational setting, which opens the possibility of the exploration of synergies by the amalgamation of different technological competencies. By this, innovation processes are fed with new extensive technological opportunities, which otherwise would not exist, or whose existence would at least be delayed (Pyka, 2002).
3. Methodology
The theoretical framework developed in this research needs to be compared to practitioners’ perspectives. Based on the comprehensive literature review, the study will adopt the methodology below to examine the theories and construct a complete and practical model to link the theories and practices and to fulfill the objectives of the study.
3.1. The Study Design
This study involves a
two-phased design, and each phase with its distinct methodology. First, an
initial questionnaire guide to the interview was sent to 50 high-tech SMEs in
This research adopts the
case study method to assess actual sources of innovation and determinants of
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. The
completed questionnaire, company reports/industry-specific newsletters and an
in-depth interview created an established chain of evidence for the company.
4. The Development Of An Integrated Knowledge-Based Innovation Network Model
For High-Tech SME’s
Based on the comprehensive literature review on sources of innovation, innovation capacity and innovation network, and the examination of 8 case study companies, an integrated knowledge-based innovation network model for high-tech SMEs will be developed as Figure 3.
In practice, in integrating external sources of innovation, high-tech SMEs should link open-source innovation, co-operative innovation and innovation network. These are a step-by-step innovation process for the external supporting processes of innovation. A good linkage will form a synergy to enhance innovation capacity. In acquiring sustainable competitive advantage (SCA), high-tech SMEs should leverage innovation capacity to further create value for the firm itself, customers, partners, and suppliers and diffuse knowledge. In summary, high-tech SMEs through sources of innovation and innovation network to accumulate innovation capacity and to create values and diffuse knowledge and then to achieve SCA.
The innovation network aims to enhance the competitiveness of its members by inspiring innovation. It brings together a diverse range of businesses and facilitates the exchange of practical experiences associated with managing innovation. By joining the innovation network, the members will have the opportunity to:
¨ Learn from 'best practice' examples across industry sectors
¨ Keep updated with latest thinking on innovation management practices
¨ Evaluate your practices against similar organisations
¨ Identify opportunities for collaboration and partnership
¨ Engage in peer-to-peer networking with other managers
Figure
3: An Integrated Model Of Innovation Network In
High-Tech Smes
5. Conclusions
5.1. What
Does Innovation Network Focus On?
Innovation involves converting creative inputs into value added outputs, through management foresight and strategic planning. It requires a holistic approach, covering products, processes, technologies, service offerings and business models. The innovation network addresses innovation as a management process, encompassing business practices associated with:
¨ Fostering a culture of innovation
¨ Exploiting innovation assets
¨ Developing innovation management processes
¨ Evaluating innovation performance
Firms do not exist in isolation. Strategies are first created to identify attractive market segments to enter, customers to target and products or services that need to be developed and sold to generate revenue and profit. Suppliers are a necessary component of the value chain to build a product or service. Employees are needed to tackle a whole host of issues including: managing organisational efficiency; deploying and maintaining all types of information technology; providing research and development expertise; acting as marketing and selling agents; providing customer service and even providing general and administrative support. Partners are needed to distribute and sell, or are leveraged to outsource and manage components of a firm’s business. And, of course, customers are needed to purchase (initially and repeatedly) the product or service – either directly or indirectly – that the firm offers. It easily becomes apparent that the firm’s success is ultimately derived from relationships, both internal and external. To manage the turbulent waters effectively as we enter a new century on a note of uncertainty, we must understand that relationship assets are the most valuable store of any firm’s capital.
5.2. Four
Strategies To Create Value
The core issue of the integrated innovation network model is to create value for customers. It provides a language that executive teams can use to discuss the direction priorities of their enterprises. They can view their strategic value measures, not as performance indicators in four independent perspectives, but as a serious of cause-and-effect linkages among objectives in the four balanced perspectives. The integrated innovation network model is based on four strategies to create value, as follows:
Value
creation starts with valuing your customers
Strategy is based on a differentiated customer value proposition: Satisfying customers is the source of sustainable value creation. Strategy requires a clear articulation of targeted customer segments and the value proposition required to please them. Clarity of this value proposition is the single most important dimension of strategy. This includes low total cost (offer products and services that are consistent, timely and low-cost), product leadership (products and services that expand existing performance boundaries into the highly desirable), complete customer solutions (provide the best total solution to customers) and system lock-in (high switching costs to end-use customers and add value to complementers).
Treat your employees as value-creating
assets; manage them with this in mind
The key asset to competitive advantage is outstanding people. Managing people in a modern way will be most important – stimulating and empowering them to act on their own. Given the multitude of assets necessary to drive a firm’s economic value, one key asset remains the same: people. A firm’s employees will continue to remain fundamental to economic growth. Employees do have a significant impact on a firm’s outcomes, especially the firm’s market value. How a business finds, develops and retains them is a fundamental management challenge for competing in an era in which intangible assets, such as employees, constitute the majority of a firm’s value. Firms must pay closer attention to the economic value of their employees within the context of their relationship assets. While the associated economic value of customers is becoming refined through newer economic models and analysis tools, employee value, outside that of pure sales professionals, is proving more elusive to measure.
¨ To capture new knowledge (measure and control data with guidance from a “select few” staff and supported possibly by information technology)
¨ To codify knowledge (promulgation of new product information, policy and procedures, etc.)
¨ To generate new knowledge (cross-functional project groups, creative approaches, innovation centres, quality improvement teams, etc.)
¨ To circulate knowledge (team-based learning programs, skills development workshops, feedback loops, etc.)
Treat your suppliers as critical assets.
In the extraction of value from relationship assets, suppliers do indeed play a dynamic role in creating corporate worth and growth and are a key determinant of a firm’s performance and ultimately market valuation. Careful attention and measurement must be given to this component of the value chain. A firm’s supply chain is a network of facilities that aims to have the right products/services in the right quantities at the right moment, all at minimal cost. Today, the Internet is acting as a great “aggregator” of supply chains. With the ability to create electronic supply-chain processes and real-time delivery of information, and the ability to review and contract with suppliers from anywhere in the world – all nearly instantaneously – many firms now find themselves on equal billing with the largely closed environment of the EDI-based supply chains of the past. Additionally, information-based supply chains – largely driven by the Internet – are chiefly responsible for mass customisation, real-time demand forecasting and decreased production and inventory costs, all aspects of the supply chain that a company such as the four case-study companies have enjoyed and exploited. Supply chains must be managed not just to create efficiency or to reduce costs, but to achieve growth and maximum market value.
Manage your partners as valuable assets
Forward-thinking firms recognise that the economic ecosystem “contract” is the tie that binds their success in the marketplace. As such, value from the various partner relationships must be evaluated with the same rigour as other relationship assets. Although many firms have a variety of partnerships, we believe they can fundamentally be divided into five distinct categories:
¨
The ability to leverage alliance partners is no
longer a “nice to have” proposition, but rather a strategic
imperative today.
¨ Research institute partners
Research institute partners constitute relationships between firms and research institutes, focused on co-creating advance products, services and processes to form a breakout offering. Joint partnerships might also leverage innovation R&D capabilities as a means of transferring technology or standards and as a means of getting to market faster, better and cheaper.
¨ Government partners
Government partners constitute relationships between firms and various supporting program from government, focused on co-operative innovation programs to form an industrial upgrading and turnaround. Co-operative partnerships might also leverage innovation R&D capabilities as a means of promoting upgrading of technology or industries and as a means of maintaining sustainable competitive advantage.
¨ Academic partners
Academic partners constitute relationships between firms and various universities, focused on co-operative innovation R&D program to form a win–win situation for industrial needs of talents and supply from universities. Co-operative partnerships might also leverage innovation R&D capabilities as a means of transferring the results of technology and research and as a means of assisting SMEs to establish innovation R&D centres.
¨ Distribution/indirect channel partners
Many firms rely heavily on distribution and indirect channel partners. High-tech and drugs, sell as much as 60 to 70 per cent – even 100 per cent – of their product through indirect channels. Delivering the right product or service, at the right time, at the right place and at the right cost may require multiple sales channels, especially for firms competing in global markets.
Indeed, for firms to compete in such markets, both direct and indirect selling are necessary. Therefore, the channel partner, while in some respects under threat via the Internet, is still a viable and thriving component of a firm’s relationship assets. Managing channel partners for market value creation is tricky at best. However, partnerships, whether they are in the form of alliance partners, channel partners or both, do significantly enhance a firm’s ability to create value in the market and, thus, its financial performance. Careful partner selection, coupled with the ongoing management and the nurturing of trust throughout the life-cycle of the partnership, is critically important to ensure optimal performance. Firms seeking to generate positive value from partnerships would do well to carefully determine their full impact within the overall scope of their relationship assets, and then select, manage, measure and learn from their partnerships appropriately.
More and more businesses are chasing a finite number of customers. Where once customers had limited choice, now they have virtually unlimited choice – and access to comparative information – about the goods and services they care to purchase. This “knowledge” forces any business to create the most value-added capabilities possible and compels differentiation in order to capture, and to keep, customers. But 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 creating competitive differentiation and long-term survival. These assets are the most valuable and goals should be established to leverage and manage them most effectively.
The integrated model can be an easy-to-follow innovation model for high-tech SMEs to address when adopting knowledge-based innovation network. This helps to ensure that the essential determinants and approaches for innovation processes are covered during ICI (Ideas, Concepts, Invention), pre-project, project and project product launch/follow-up. In other words, from sources of innovation, open-source innovation, cooperation innovation to the innovation network to accumulate innovation capacity for values creation (implementation/commercialisation) and diffuse knowledge and then to achieve SCA. For industries, this provides a practical and complete business model for them to use as a reference and study the innovation approaches (the advantage and disadvantage), which are crucial for the success of knowledge-based innovation network in high-tech SMEs.
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Contact the Author:
Dr Te Fu Chen, Assistant Professor, Graduate Institute of Central Asia,