Summary Innovation Management and New Product Development - part 1

Deze samenvatting is gebaseerd op het studiejaar 2013-2014.

Chapter A: What is innovation?

Innovation is a way to create new business. Employees, customers and suppliers are principal actors in the process of innovation. Innovation is a process that requires change. Change in the way of thinking and acting. In this book innovation is viewed as a management process.

In the competitive environment of today it is essential for businesses to be able to adapt and to change if they wish to survive. Therefore, innovation is widely accepted. In virtually every industry the dominant companies have demonstrated that they are able to innovate. Economic historians argued that the acceleration of economic growth is the result of technological process. So that innovation is the engine of growth.

Neo-classical economics is a theory of economic growth that explains how savings, investments, and growth respond to pupolaiton growth and technological change. It also tends to concentrate on industry or economywide perfomance and ignore differences among firms in the same line of business. The rate of technological change respond to influences the rate of economic growth, nbut economic growth does not influence technological change.

The Schumpetarian view sees firms as different. It is the way a firm manages its resources over time and develops capabilities that influences its innovation performance.

Following Christensen there are two forms of innovation, namely disruptive innovations and sustaining innovations (or radical and incremental innovations).

- Sustaining/incremental innovations are innovations appealed to existing customers, since they provided improvements to established products.

- Disruptive innovations are providing improvements greater than demanded.

Innovation has to be viewed as a process, not as a single event. The innovation process is that inventions are new discoveries, new ways of doing things and new products are the eventual outputs from inventions. So, it is the process from new discovery to eventual product.

Game of sementics: What is new to one company may be old to another and succes is not always judged in terms of commercial gain or scientific achievement.

In the USA the term innovation management is covered with the term entrepreneurship, stands for the process of planning, organizing, operating and assuming the risk of a business venture. But in entrepreneurship the focus is on the role of the individual entrepreneur. And the focus is on small business growing into a large one due to good entrepreneurship. This focus distinguishes the study of entrepreneurship from the study of innovation management in this book.

There is also a design definition issue. In most cases it seems that design and development are the same. But the view in this book is that design is an applied activity within research and development. With the recognition that in some industries design is the main component of product development. While in other industries, for example pharmasuiticals,  design forms only a small part of the product development activity.

Innovation versus invention

Also the difference between innovation and invention has to be understood. Innovation itself is a very broad concept and can be understood in different ways. Here the definition of Myers and Marquis is used:

Innovation is not a single action but a total process of interrelated sub processes. It is not just the conception of a new idea, nor the invention of a new device, nor the development of a new market. The process is all these things acting in an integrated fashion.

If the idea seems new and different to  the individual, it is innovation.

In the literature innovation is distinguished from invention with the argument that innovation is the commercial and practical application of ideas or inventions.

Therefore, innovation = theoretical concept + technical invention + commercial exploitation.

The conception of new ideas/(collection of) thoughts is the starting point for innovation. Invention is the process of converting a concept into a tangible new artifact.

And then the exploitation is the stage where inventions combined with hard work are converted into products that will improve company performance.

The complete process of conception, invention and exploitation is innovation.

Therefore, innovation depends on inventions, but inventions need to be harnessed to commercial activities before they can contribute to the growth of an organisation.

The working definition of innovation in this book is innovation as a management process (see also figure 1.7 on page 24):

Innovation is the management of all the activities involved in the process of idea generation, technology development, manufacturing and marketing of a new or improved product or manufacturing process or equipment.

The fact that the product proressed from the drawing board into the marketplace makes it an innovation – albeit an unsuccesful one.

Technology innovation can be accompanied by additional managerial and organisational changes. This book concentrates on the management of product innovation.

Science and technology also play a significant role in innovation. Where science is defined as systematic and formulated knowledge, is technology the knowledge applied to product or production processes. So, technology can be seen as the application of science. Technology comes from employing and manipulating science into concepts, processes and devices. Hence it is technology as an outgrowth of sciences that fuels the industrial engine. It is engineers and not scientists who make technology happen. Technology is embedded in knowledge and skills. Science and technology can help turn vivid imaginings into a possibility.

Traditional arguments about innovation have centred on two schools of thought.

1. The social deterministic school: Innovations were the result of a combination of external social factors and influences, such as demographic changes, economic influesnces and cultural changes. The argument that when the considiotns were ‘righ’ innovations would occur.
2. The individualistic school: Innovations were the result of unique individual talents and such innovators are born. Closely linked to the individualistic theory is the important role played by serendipity (=luck).

What drives innovation is thought twofold. On the one hand, the market-based view and on the other hand the resource-based view. The market-based view is the view that market conditions provide the context which facilitate or constrain the extent of firm innovation activity. Within this view, the firms have to recognize opportunities in the marketplace. The resource-based view of innovation is the view that a firm’s own resources provide a much more stable context in which to develop its innovation activity and shape its markets in accordance to its own view. So, these view focuses on the firm and its resources, capabilities and skills. It argues that when firms have resources that are caluable, rare and not easily copied they can achieve a sustainable competitive advantage.

The models of innovation today are based on the recognition that innovation occurs through the interaction of the science base, technological development and the needs of the market, see figure 1.4 page 22. Two models of innovation are the well known technology push model and the market pull model. The technology push model starts with scientists make unexpected discoveries, technologists apply them to develop product ideas and engineers and designers turn them into prototypes for testing. Then the manufacturing of the products is preformed, followed by the marketing and sales promoting the product to the potential consumer. So, in this model, the marketplace is a passive recipient. In the second model, the market pull model is the emphasis on the role of marketing as an initiator of new ideas resulting from close interactions with customers. Then these new ideas are conveyed to research and development, engineering and manufacturing for production, figure 1.3 page 22.

Not only linear models are evolved, also simultaneous coupling models and interactive models are developed. The linear model only offers an explanation of where the initial stimulus for innovation was come from. But the simultaneous coupling model suggests that innovation is the result of the simultaneous coupling of the knowledge within all three functions (marketing, R&D, manufacturing) that will foster innovation. And the interactive model expand this idea and also links the technology push model and the market pull model.

Technological knowledge can be divided in knowledge of the compnents, and architectural knowledge. These two result in four possible types of innovation: incremental, modular, radical, and architectural innovation.

Product architecture: Innovations that change the architecture of a product without changing its componens.

The interactive model’s view is that innovations occur as the result of the interaction of the marketplace, the science base and the organisation’s capabilities. As in the coupling model there is no explicit starting point in the interactive model. The explanation for this is because of the use of information flows.

The overall innovation process can be thought of a complex set of communication paths over which knowledge is transferred.

The interactive model, figure 1.7 page 24, links together the technology-push and market-pull models. It empasises that innovation occur as the result of the interaction of the marketplace, the science base and the organisatinos’s capabilities. Seems linear, but is not due to the feedback it has.

Open innovation: The use of cheap and instant information flows which places even more emphasis on the linkages and relationships of firms. 

Discontinuous changes: The change is very significant, see figure 1.8 on page 27. Discontinuous changes are sometimes referred to disruptive innovation: it creates a new market by applying a different set of values, which take over the existing market. This is an opposite of a sustaining innovating, which does not affect existing markets.

Innovation is a series of activities that are linked in some way to the others. This process may be described as follows:

- A response to either a need or an opportunity that is context dependent.

- A creative effort that is successful results in the introduction of novelty

- The need for further changes.

So, innovation is complex and involves the effective management of a variety of different activities. Innovation is a creative process. Therefore formal and informal interaction are important for innovation. These interactions provide the opportunity for thoughts, potential ideas and views to be shared and exchanged. However, someone can be competent without being able to offer a theoretical account of the actions. This is referred to as tacit knowledge. Such knowledge can only be learned through practice and experience.

It is the purpose of the book to illustrate the interconnections of the subjects of innovation management and new product development. Indeed, some may argue that these are the same. But by directly linking together these two significant areas of management the clear connections and overlaps between the subjects can be more fully explored and understood. Very often product innovation is viewed from a purely marketing perspective with little consideration of the R&D function and the difficulties of managing science and technology. Likewise, many manufacturing and technology approaches to product innovation have previously not taken sufficient notice of the needs of the customer.

The cyclic innovation model as shown in figure 1.9 on page 30 is a cross-disciplinary view of change processes as they take place in an open innovation area. Innovation builds on innovation.

Chapter B: Innovation in a wider context

Schumpeterian theory: The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forces of industrial organisation that capitalist enterprices creates.

In this chapter the wider context of innovation is given. For example the way in which national governments can help firms is considered. Marshall recognized a number of characteristics that influenced innovation.

- Institutional set up

- The relationship between entrepreneur and financiers

- The society’s perception of new developments

- The openness to science and technology and the networks between scientific and academic communities and business circles

- The productive forces and financial institutions

- The growing liberal-individualist economic paradigm

- The role played by the state in accommodating and promoting capitalistic changes and preparing the framework for the development of capitalism

So far, the process of innovation is treated as an organisational issue. But the capability of organisations to initiating and sustaining innovation is to a great extent determined by the wider local and national context within which they operate. Economic and social conditions will play a major role in whether the organisations or corporate actors will take the risk and establish the longer-term vision that innovation is key to competitiveness, survival and sustained growth. Therefore a wider vies of the economic environment is required. This is called integral economics, where the economic processes are viewed in their social and political entirety. Innovation cannot be separated from its local and national contexts and from political and social processes. But also main economic trends are important.

Late industrialisers: Countries with no or limited indigenous technology development capacity.

Integral economics: The economic processes are viewed in their social and political entirety.

Short-termism is the term for the risk that entrepreneurs and businesses may only focus on high-return opportunities in the short term, marginalize strategic and innovative perspective and ignore the long-term implications of such behavior. The Turkish economy is an example of this.

The role of the state is mentioned, but there has to be a basic understanding of the way the economy interrelates with global and regional economies on local and national levels. Because the economic organisation form of the national economies differ and their relationship with businesses differs also. There are different contexts in which the role for the state in the process of innovation has been addressed.

First in the public nature of knowledge that underpins innovation. Here the role of the government can be played in the form of subsidization and distribution of idea generation. So, government can stimulate the idea generation and converting such ideas in marketable goods or services.

Second, the uncertainty that often hinders the process of innovation.

Here the government can help through subsidizing, providing tax advantages and supporting firms to join R&D projects. This stimulates the firms to investing funds in innovation projects. So, the government can contribute to a stabile economic environment.

Third, the need for certain kinds of complementary assets. Industrial development is historically enhanced through the provision of electricity, roads and water. Recently, the establishment of communication systems, legal infrastructure and the formation of industrial districts have been issues where state action has led to good conditions for firms to be innovative.

Fourth, the need for corporation and governance, resulting from the nature of certain technologies. Possible networks will enhance and promote the diffusion of new technologies and innovations.

The state can enhance the possibilities for better communication and joint decision making. Actions from the government can help countries or societies to upgrade from one old established technology to a newer improved technology.

And the fifth is politics. National states play a key role in international and regional standards of business making. Such standards are increasingly becoming environmental, safety and human rights standards in industrial or business activities.

The concept of development states is used to show the way in which some states achieved a major transformation of the economy and society.

The ways in which the state can facilitate innovation;

1. The state can be a financier of R&D and major purchaser. Then the state has a significant impact on strategic direction towards critical industries and encouraging entrepreneurial spirit.

2. The state can impact upon the way the society perceives discoveries and adapts new technologies and creating cohesion in the society and making strategic interventions to promote innovation, through education, information dissemination, governance and other societal actions.

3. Through regulation of competition the state can promote the system by preventing monopolies that can result in under-innovation and by protecting the society against possible abuse by companies.

The business environment (organisational characteristics) is also an influence of innovation. Some business environments are not right to get innovation. To invest in technology there has to be spare resources and long-term horizons. Therefore the availability of quick returns and opportunistic trends needs to be suppressed so that the money can flow into basic research and R&D.

Kondratieff has identified the major stages of the history of capitalist development. These Kondratieff waves are shown in the figure 2.2 on page 55. This figure highlights that technological developments and innovations have a strong spatial dimension. There are shifts in the geography of innovation through time. In the Kondratieff waves the capitalist economy grew on the basis of major innovations in product, process and organisation with accompanying shifts in the social arena.

Each wave comes to an end due to its major shortcomings and the successive wave fundamentally restructures and improves those weaknesses.

The Kondratieff waves are: early mechanization, steam power and railway, electrical and heavy engineering, fordism and information and communication.

This last wave is the information revolution. Capitalism has always found a way of reproducing itself with changes in the way factors of production were organized. The organisational characteristics have changed from the first through the fifth wave, and also the focus early on the individual entrepreneurs has given way to small firms, monopolies, oligopolists and cartels of the third wave, centralized transnational corporations of the fourth wave and network/flexible organisations of the information age.

The path of industrialization of late industrializing countries are nearly the same. Initially, all were exporters of raw materials and importers of higher-technology products. Then, they made a transformation through the combination of import-substituting industrialization (ISI) and outward-looking export (EOI) economic policies. The transformation mentioned here is the move from simple products towards higher-value-added and heavy industries.

The innovation in late industrializing countries started when the focus of entrepreneurs and businesses was initially on imitative production or reverse engineering in relatively unsophisticated industries. And also the policy of copy and develop has brought Asian firms to the technological frontier of some industries (auto-industry and telecommunications).

The commercialization in the process of innovation is extremely difficult for many firms. Commercializing technology and new products in particular is one of the key challenges within innovation. Scoreboard cards may be helpful to governmental policymakers in deciding when to invest substantial sums of money.

Everybody respond differently to different types of innovations and in different ways. Therefore the marketing is so valuable to firms developing new products and services. In the context of disruptive innovations which require a greater change in existing patterns of behaviour and thinking, consumers would perceive a higher level of risk and uncertainty in their adoption decisions and perceptions. Highly innovative products have an inherent high degree of uncertainty about exactly how an emerging technology may be formulated into a usable product an what the final product application will be. Therefore, market vision is a fundamental requirement for those firms wishing to engage in innovation. Market vision is the ability to look into the future and picture products and services that will be successful. It can be done by assessing ones own technological capability and present or future market needs and envisioning a market offering that people will want to buy. So, the focus of innovation should not only be on the need to examine the market but also the way the new product offering will be used or consumed.

About the consuming, the consumption pattern is important. This is the degree of change required in the thinking and behaviour of the consumer in using the product. Some products can require the altering of thinking and habits of consumers and this may affect the willingness to embrace a new product. The way a new product requires users to interact with it can be familiar or novel. So, in considering highly innovative products it is crucial to take into account the customer’s view and experience of the product.

Otherwise the innovation results in a product that is at odds with the market’s perception of the product. New products are more than simply bundles of technology. Innovative new products must deliver benefits and be used by people who can enjoy them and the advantages that they can bring about.

There are three key variables firms must consider with the development of new intensive products: the technology capability, the product capability and the pattern of consumption.

As mentioned before, marketing is important in product innovation. Because marketing can provide the necessary information and knowledge required by the firm to ensure the successful development of innovative new products and the successful acceptance and diffusion of new products. Marketing offers the insights to understand potential customers. But, research on marketing shows that gaining valuable insight from consumers about innovative new market offerings is extremely difficult and can sometimes lead to misleading information. Especially when discontinuous new products are involved. Consumers have difficulty in understanding and articulating their needs and has described this phenomenon as sticky information. It is comparable to tacit knowledge in that it is difficult to transfer. Appreciating and understanding the potential new technology and uncovering what the market will and will not embrace is a key challenge for marketing. But bridging the technology uncertainty and the market need is critical for a commercially viable new product.

Highly discontinuous or innovative new products are particularly demanding in terms of early timely information if they are to avoid being harshly judged later by the market. The input of this information and knowledge is essential in the process of new product development. The required information and knowledge is:

- What the potential applications of a technology as a product are

- Which applications should be pursued first

- What benefits the proposed product can offer to potential customers

- What the potential market size is and if this is sufficient.

Also more macro influences that can affect adoption has to be considered, because new technological innovations often modify or complement existing products that may still be diffusing throughout a given market. This has significant implications for market planning decisions for both products since their diffusion processes are interlinked. Therefore the consideration of the potential existence of a positive interdependence between a new product and existing products is necessary. But also the consideration whether the old technology will be fully replaced by a newer product. And how the size of the old technology’s installed base will affect the speed of diffusion of the new product or product generation.

Lead users can help with the diffusion process of technology intensive products and they form the basis for much insight into products. Lead users are the users that demand requirements ahead of the market and indeed are often involved themselves in developing product ideas because there is nothing on the market present that meet their needs. Such lead-users can help to co-develop innovations and are therefore often adopters of such innovations of the first range. Lead users recognize requirements early, expect high level of benefits from the product, develop their own innovations and applications, perceived to be pioneering and innovative. And therefore lead users are significant for products that are using technology at the frontiers of development and those within technology-intensive industries such as software, engineering and science.

Theories for innovation diffusion

These theories try to explain how an innovation is diffused in a social system over time. Adoption theories are therefore only a part of the innovation diffusion.

Examples of innovation diffusion theories are perceived characteristics theory, theory of reasoned action, theory of planned behaviour and the technology acceptance model. These theories include the individual level. Innovation diffusion theories includes in general many factors such as the influences of psychological or personal features, technology perceptions, communication behaviour and socio demographic attributes on diffusion or adoption process.

The introducer of diffusion theory to the business community is Everett Rogers. He illustrate different consumer categories on the basis of its relative time of adoption. The adopter categorization in relation to adoption time requires the determination of the number of adopter categories, the percentage of adopters in each category and a method to define these categories. This adopter categorization is based on a normal distribution curve that shows the adoption of innovation over time on a frequency basis which takes the form of an ‘S’ when plotted on cumulative basis. This diffusion curve is much related to the concept of product life cycle, which shows the level of total sales over time. This close relationship between the two concepts would be expected to the extent that sales are proportional to cumulative adoption.

Rogers classifies five adoption categories, namely innovators (2,5%), early adopters (13,5%), early majority (34%), late majority (34%), laggards (16%). This is in the sequence of adoption. Innovators are the first adopters.

In terms of demographical characteristics, earlier adopters such as innovators and early adopters are presumed to be younger, wealthier and better educated people. The early adopters are more eager to take risks and they hold more positive perceptions towards technology in general.

This is the diffusion on individual level. Also with innovation diffusion it is important to also examine the more macroperspective and global diffusion of innovation. There is a two stage nature of the global diffusion process defined. The first stage is the irregularity of a diffusion pattern due to network externalities and/or central decision makers. The second stage is the role of the installed base of older-generation technologies that an innovation replaces.

Diffusion refers to the consumer willingness to embrace change. These change can be simple or complex. These range from a change in perception to a significant change in required behaviour in order to use the product. Consumer willingness is also driven by the benefit they expect to derive from the products. For discontinuous innovations such products, which often involve new technologies, frequently require changes in thinking and behaviour and hence require more from the consumer. Therefore the risk of market failure for such products is high.

Another aspect of new product offering that should be considered in the design stage as well as the later product launch stage is that consumers develop their own ways of coping with innovations and these can impact diffusion as well.

Also in evaluating discontinuous new products, there are certain factors that are likely to come into play more than they do for less innovative products. Lack of familiarity, irrationality, user-product interaction problems, uncertainty and risks, and accordance or compatibility issues may play a decisive role in customers’ evaluations of products in either the development and testing stages or once the product is introduced to the market.

Diffusion concerns the communication over time within a wider social system.

The adoption research is derived mainly from social psychology and focuses on the individual. The diffusion of innovations theory combines both adoption and the wider societal issues derived from sociology.

Chapter C: The right organisation for innovation

Innovation occurs within organisations. The management of innovation is important to address. But the study of organisations and their management is a very broad subject and no single approach provides all the answers.

Within almost all organisations there is a fundamental tension between the need for stability and the need for creativity. Companies require stability and routines to accomplish daily tasks efficiently and quickly. This is necessary for the organisation to compete today. But to be competitive in the future, companies also need to develop new ideas and new products. And therefore a creative environment where ideas can be tested and developed is preferable. Companies have to ensure, day after day, that their products are manufactured according to precise specifications and that they are delivered on time. Any inefficiencies or slack has to be eliminated, to ensure a firm’s costs are lower than the costs of competitors. Thus, it is important for a firm to focus on cost reductions to stay competitive. But how do firms try to reduce costs and slack to improve competitiveness on the one hand and then try to provide slack for innovation on the other hand? There has to be a constant pressure in the firm to drive down costs and improve efficiency in its operations. And at the same time providing room for new product development and improvements to be made is important. While separation of production and R&D seems to be the solution here, the result is that many improvements and innovations arise out of the operations of the firm. It is not possible to create a new product in isolation of the required operations for manufacturing it.

Innovation involves many factors acting separately but often influencing each other. Creativity in organisations is important to stimulate innovation. The management of the innovation process involves trying to develop the creative potential of the organisation. And managing uncertainty is a central feature in managing the innovation process. Analyzing and understanding uncertainty and the innovation process is possible with the framework of Pearson, published in 1991. The framework of Pearson is in the book on page 86. Pearson divides uncertainty into two separate dimensions, namely uncertainty about ends/output and uncertainty about means/process. Another element to be considered is time, because with the passage of time further information and knowledge are usually available. This can reduce the uncertainty. In the framework of Pearson there are four quadrants, (1) exploratory research, (2), development engineering, (3) applications engineering, and (4) combining market opportunities with technical capabilities.

Exploratory research is the quadrant with high output uncertainty and high process uncertainty. Thus, the ultimate target is not clearly defined and it is also not clear how to achieve this target. These activities often involve working with not fully understand technology and also the potential products or markets have not been identified. This quadrant fits in the domain of university research laboratories and in large organisations that have the necessary resources to fund such exploratory studies.

Development engineering is the quadrant with low output uncertainty, but high process uncertainty. So, the target is clear. Companies do not know how to achieve the target, so try different technologies and approaches. Development engineering is an ongoing activity within manufacturing companies which are continually examining their production processes, looking for inefficiencies and ways to reduce costs.

Applications engineering is the third quadrant, in which the process uncertainty is low and the output uncertainty is high. So the target is not clear, but the way to achieving the target is clear. This usually means that the business is working with technology it has used before. The activity in this quadrant is the discovering of how the technology can be most effectively used.

Combining market opportunities with technical capabilities is the fourth quadrant. In this quadrant both the process uncertainty and the output uncertainty are low. Here activities may be dominated by improving existing products or creating new product through the combination of a market opportunity and technical capability. Due to the much certainty, the speed of development is often the key to success here. Examples here are new product designs that use minimal new technology but improve the appearance or performance of an existing product.

The message of this framework of Pearson is that the management of product and process innovations is very different. The differing environments in the quadrants demand very different management skills and organisational environments. The framework also helps managers to consider how ideas are transformed into innovations and which management skills are required. For example, the first quadrant shows an area of innovation activity where ideas and developments may not be immediately recognizable as commercial products. In this quadrant technical and commercial managers are needed. But in quadrant four, there is minimal technical newness, therefore this quadrant needs the commercial manager more. In all the quadrants, particular organisational environments and specialist management skills are required depending on the type of activity being undertaken.

Architectural/component knowledge; See chapter 1 and figure 3.3 on page 90.An matrix of the level of impact on the knowledge component and the level of impact on the architectual component.

Studies on the relationship between innovation stimulus and innovation performance found that if firms wish to improve innovation performance they first need to put in place and then develop factors that stimulate innovation, such as appropriate leadership, R&D and creativity. In such an environment the nurturing and building of innovation capacity can occur. Arguing that innovation capacity is the combination of technological and human factors. The challenge is huge, putting in place the necessary stimulus and the n nurturing capacity may sound straightforward, but is not so clear. Following the literature of van der Panne (2003) there are factors that contribute to the success and failure of innovative projects within firms. This wide range of factors are classified in four major groups. Namely (1) firm-related factors, (2) project-related factors, (3) product related factors and (4) market-related factors. In this chapter only the firm-related factors are considered. The other factor groups are discussed in other chapters.

Adams (2006) developed a framework to measure the innovation process. This framework enables managers to explore the extent to which innovation is embedded within their organisation and identify areas for improvement. The framework is on page 83 of the book. This framework, table 3.1 on page 93,  shows the wide variety of elements that need to be in place and can be measured.

Also results of other studies list organisational requirements for innovation. The top ten most important characteristics are listed in the book:

- Growth orientation

- Organisational heritage and innovation experience

- Vigilance and external links

- Commitment to technology and R&D intensity

- Acceptance of risks

- Cross-functional cooperation and coordination within organisational structure

- Receptivity

- Space for creativity

- Strategy towards innovation

- Coordination of a diverse range of skills

- These organisational requirements are explained now.

Growth orientation of companies is the commitment to long-term growth rather than short-term profit. Companies that are seeking growth are more likely to be interested in innovation that those that are not. An example of a company that not always seeking growth is a family-run company. They want to keep the current size, because the family then is able to manage it. Innovation is a mean to achieving growth. These companies plan for the long run.

Organisational heritage and innovation experience are contribute to the capabilities of the organisation. The groups and departments have to be willing to cooperate, to work together and to share ideas. Otherwise it slows down communication or it leads to projects being abandoned due to lack of progress. Important is the ability to convert technology into products that sets it apart from its competitors. Previous experience with innovative projects is clearly conducive to the firm’s technology and R&D management capabilities as these enhance the skills that are necessary to turn technology into marketable products. And also the learning by doing is applicable here.

Vigilance and external links are also requirements for innovation. Vigilance requires continual external scanning by all the members of the organisation. Collecting valuable information is one thing, but relaying it to the necessary individuals and acting on it are two necessary associated requirements. Here also the open communication system is mentioned to facilitate this. Extensive external linkages with the market, competitors, customers, suppliers and others will all contribute to the flow of information into the firm.

Commitment to technology and R&D intensity are need to provide good innovations. Patience is important, because good innovations are a combination of science, technology and engineering. Without a long-term approach it would be extremely difficult for the company to attract good scientists. Innovation needs investments. The commitment to technology in the company has to be strong to keep the creative people in the company. And the second thing of this requirement is R&D intensity. A firm that invests more in R&D will increase its total innovative output.

Acceptance of risks is the willingness to consider carefully risky opportunities. So, the ability to make risk assessment decisions, take calculated risks and include the risks in a balanced portfolio of projects. Balanced with low risks and high risks.

Cross-functional cooperation and coordination within organisational structure is also another important requirement for innovation. The relationship between departments has to be good for being innovative. It is necessary not to lose the business objective.

It is difficult to keep the departments in the same direction, because they all have their own objectives and knowledge. It is sometimes hard for marketing to understand the technology involved in an idea. Even sometimes a interdepartmental conflict is desirable, because it works like a motivator for innovation.

Receptivity is the capability of the organisation to be aware of, identify and take effective advantage of externally developed technology. Innovations are often a combination of technologies. If a company is not able to develop all the technologies in house, joint ventures are an option.

Space for creativity is a requirement mentioned before in this summary. To be innovative, there has to be room for inefficiency, for creativity.

Strategy towards innovation is required for innovation. There has to be a long-term planning for the future regarding selection of markets to enter and which technologies may be appropriate for the firm. A long-term planning and the establishment of a range of projects distinguishes these firms from their counterparts that are short-termism.

Diverse range of skills is necessary to get the right information, skills and knowledge in house for innovation. The diversity of skills and knowledge in the organisation has to be managed effectively to be successful in the innovation process. The difficulty is that individual skills and knowledge is required, but the individuals must play as a part of the team. This has to be managed.

In terms of innovation and product development some firms are users of technology and others are providers of technology. Pavitt made a classification of firms. His first category is the supplier-dominated firms. These are firms small in size, with little R&D or manufacturing capability of their own. Firms in these category are often offering a product with a reliable service. They purchase technologies in the form or products and match these to customer needs, because the firms have limited technology capabilities on their own.

The next category are the science-based or technology-intensive firms. These firms are in the high-growth industries of the twentieth century. The firms’ growth and success is the result of manipulating science and technology and own R&D departments.

The third category of firms is the scale-intensive firms. Mostly found in the manufacturing sector. The strength of firms in this classification is the production of high volumes at low cost. It is possible for firms to belong to more than one category. For example science-based firms could be scale-intensive firms also.

The last category from Pavitt is the specialist equipment suppliers. These firms are important sources for the second and third category.

Structure of an organisation: The sum total of the ways in which it devides its labour into distinct tasks and then achieves coordination among them.

- Organic flexible; Characterised by the absence of formailty and hierarchy, support innovation more effectively than mechanistic structures

- Mechanistic structures; Characterised by long chains of command, rigid work methods, strict task differentiation, extensive procedures and a welldefined hierarchy.

Also the relationship between organisational structure and innovation is studied by researchers. It suggests that organic, flexible structures with the absence of formality and hierarchy support innovation more effectively than mechanistic structures do.

Mechanistic structures are characterized by long chains of command, rigid work methods, strict task differentiation, extensive procedures and a well defined hierarchy. An organic organisation is more adaptable, more openly communicating, more consensual and more loosely controlled. Instead of the mechanistic structure that offers a less suitable environment for managing creativity and the innovation process.

The result of studies concerning the relationship between formalization and innovation is that an increase in formalization of procedures will result in a decrease in innovation activity. Thus, more formalization is less innovation. But the opposite of this relationship is not proven yet.

Another organisation structure aspect is the complexity of the organisation. Which refers here to the number of professional groups or diversity of specialists within the organisation.

Also the centralization is an organisation structure aspect. It refers to the decision-making activity and the location of power within an organisation. More centralization is less hierarchy levels.

Size is a proxy variable for more meaningful dimensions in an organisation such as economic and organisational resources.

The role of the individual in the innovation process is studied also. There are key individual roles formulated. Namely, technical innovator, technical/commercial scanner, gatekeeper, product champion, project leader and sponsor. A gatekeeper keeps informed of related developments that occur outside the organisation and passes information on to others. A product Champion sells new ideas to others in the organisation.

Another thing that can have influence on innovation is the information technology systems. Which impact these systems have on a firm’s innovative capability is now under scrutiny. You can imagine that in creative working environments, people are not longer free to explore, but they are now restricted to what’s on information technology systems.

This chapter has highlighted the role of the organisational environment in the innovation process. And the many factors influencing this environment. Porter formulated his model about competitive advantage. The concept of a virtuous circle of innovation is a specific example of this model. In this circle there is the reputation of the organisation for innovation, the attraction of creative people, the organisational encouragement of creativity and innovation, the development of innovative products, the willingness within the organisation to accept new ideas, the motivation of people within the organisation and reducing frustration and the high moral and retention of creative people.

Chapter D: the importance of operations for innovation

Operations is the part of the organisation that produces the product or service. Effective R&D require close links with operations. Therefore the role of operations and the management of operations is important when studying innovation. Operations management is the term for the skills and techniques developed in the manufacturing and service sectors in order to help encourage the transfer of the best practices. It is often the service element of a purchase that gives the supplying operation its crucial competitive advantage. Therefore innovation in all the operations in an organisation are important to be competitive and achieve the strategic objectives. Operations management is about the control of a conversion process from an input to an output. In this chapter the design and the management of the conversion process are central issues.

To the conversion process there are three important dimensions. First, the customer who becomes part of the process in some organisations. Second, the information from customers, market research or government agencies. And third, the physical and business environment in which the organisation operates is a dimension of the conversion process.

Innovations can be leading edge, based on R&D laboratories work, but innovations can also be a new application of an existing technique to a different situation. So, innovations can be incremental or radical/disruptive. Also designing and inventing are different in kind. Design often is the process of applying scientific principles and inventions. Therefore, design is a compromise between the different elements that constitute the design. Design has to meet the needs and expectations of customers, but customer expectations vary per customer. Therefore the design is a product specification based on input from marketing. Because marketing focuses on customers. Recognizing that all products and services consist of three aspects simplifies the product specification process. These three aspects are a concept (customers’ expected benefits), a package (of the design) and the process (combination in product and services to fulfil the concept). Some products or service elements are very essential for the core of the package and cannot be removed, while other elements supports the core. By changing the core, organisations can provide different packages and therefore design different products and services. The difficulty of designing is that the designer has its own competence, but also needs an appreciation of the problems of other element of the design spectrum. Managing this design spectrum is complex. A designer can come up with an idea, but if it is impossible for the manufacturer to build this idea to a product, the design is not valuable.

Making decisions is unavoidable in the operations management functions. For example the decision which production volume is required. It is critical to the continued success of the organisation to choose the most appropriate and cost effective method of manufacture. Therefore the production volume decision is important.

In the innovation process, designers are producing usually a model or prototype. This is not necessary anymore, because of the modern technology available for drawing. The real models can refine the design or help gauge customer interest in the product. The manufacturing process of this model is called the project method of manufacture as a part of the product life cycle. When the design is well received and minor modifications are done, it is time to have a sample batch made to help evaluate the market. After this sample batch the required production volume can be determined. When the required volume increases, the most appropriate method of manufacture also changes. With increasing volume, the direct labour involved reduces.

Some products are only made in small volumes, namely craft-based products. These are unique products and are usually a good candidate for copying. These copies may look the same, but are usually made from different materials and with different techniques. Therefore they are less costly to manufacture. Craft-based products are often fashion dependent, so it is essential to have responsive and flexible operations to be able to respond quickly when fashion changes.

Designers have to design things that satisfy customer needs and expectations. But the operation functions prefer a design that is easy to produce to consistently deliver a product that meets needs and expectations. Besides the quality management procedures are easier and therefore more effective. Because an easy to make design will have fewer rejects during the manufacturing process and less chance that a product differ from the standard. The manufacturing function is part of the operations management, therefore innovation is required in this function. Innovation within this function involves searching for new ways of saving costs. This is a continual process which is more successful when designers work close with operations and marketing personnel.

In the design activity of manufacturing and service applications there are four Vs important. It’s comparable with the four Ps in marketing.

The four Vs are volume of output required, visibility of the product to customers, variation of products and the variability of products.

In the process of design and innovation the creativity and involvement of people is required. In all organisations it is the intellect of the employees that is the source of innovation and it is the role of senior management to create an atmosphere to encourage appropriate intellectual activity if the organisation is to prosper. Further the design process is linked with the technology involved in the process and is fundamentally linked both to the organisation and the job design. In the figure on page 129 the elements of process design are graphically presented. It is the network design, the layout and flow, the process technology and the job design. These elements are applicable for both the service and the manufacture sector. But in the service sector the process design parameters of minimizing the flow of information are even more critical as the customer is often within the organisation itself. In the service sector customers may be made part of the process. Keeping things simple then is the key to be successful in information flow reduction.

Managers have to improve their operation to not be a supervisor only. But how to trigger off this improvement? Possible triggers will be discussed here. As mentioned before, a good starting point for all analysis is the customer and thus quality performance.

Innovation triggers:

- Gap analysis

- Quality circles and process improvement teams

- Total quality management

- Quality function deployment

- The ISO 9000 approach

- The EFQM excellence model

Gap analysis is a technique used extensively to aid understanding of the differences (gaps) between the customer and producer view or experience of a product or service.

So, it is a technique to design quality products and services while fully understanding the customer and their expectations.

The identification of the gaps between the customer and producer view of experience help identify those corrective actions required in the design of the lecture of its delivery process.

Quality circles and process improvement teams are small groups of voluntary workers who meet regularly to discuss problems and determine possible solutions. These problems are not restricted to quality problems only. This concept of quality circle is developed from the ideas of Deming, Juran and Ishikawa in the 1960s. An idea coming from a member of the quality circle is far more likely to be adopted than an idea imposed from above is the underlying idea of this concept. Therefore the quality circles reflect and exploit the advantages of the HRM theories embedded in employee participation and empowerment approaches.

Total quality management (TQM) is an effective system for integrating the quality development, quality maintenance and quality improvement efforts of the various groups in an organisation so to enable production and service at the most economical levels which allows for full customer satisfaction. Part of the TQM philosophy are meeting the needs and expectations of customers, covering all the parts of the organisation, including everyone in the organisation, investigating all costs related to quality and getting things right by designing in quality. But also developing systems and procedures which support quality improvements and the developing of a continuous process of improvement are part of the TQM philosophy. As mentioned before, it is difficult to meet the expectations of the customers, because these expectations differ among customers and differ among time. Because of different standards, now the customer expect something because it is the norm now. Meeting the customers’ needs is so important, because it is one of the ways to gain sustainable competitive advantage.

Important for successfully perform the TQM approach is that all the staff in all departments are involved. Quality is the responsibility of everyone in the organisation.

TQM is shown to be an effective policy in managing organisations, but TQM is not a substitute for real leadership.

Quality function deployment (QFD) is a structured approach to provide the superior coordination among the parties involved in making design decisions concurrently rather than sequentially. With QFD the voice of the customer is related to every stage of the design and the delivering process. So, QFD promotes better understanding of customer demands and design interactions. Second QFD involves operations in the process at the earliest possible moment. Third, QFD removes the traditional barriers between the departments and focuses on the design effort. This QFD technique is sometimes regarded as a highly complex technique only suitable for projects in large organisations.

The ISO (International Standards Organisation) 9000 approach is a set of standards governing documentation of a quality programme. Then a qualified external examiner checks that the company complies with all the requirements specified and certifies the company. Many large organisation insist all their suppliers having the ISO quality standards, but much time and effort was spent in new, innovative ways of controlling and developing processes to maintain the agreed and certificated standards. ISO 9000 was developed in 1994. In 2000 four additional principles are added: quality management should be customer focused and improvement driven, quality performance should be measured, and top management must demonstrate their commitment to maintaining and continually improving management systems.

The EFQM (European Foundation for Quality Management) excellence model is a model with the underlying idea that results (people, customer, society and key performance) are achieved through a number of enablers in managing and controlling the input/output transformation processes involved. This model (figure) is on page 124 of the book. EFQM is defined as a comprehensive, systematic, and regular review of an organisation’s activities and results referenced against a model of business excellence. Maybe this model is easier to implement in an organisation than some concepts of TQM.

Supply chain management is the system of managing all activities across company boundaries in order to drive the whole chain network towards the shared objective of satisfying the customers. The network of design processes could be expanded by including the suppliers and the customers in it. Then supply chain management becomes important. Besides, organisations concentrate on their core activities increasingly and therefore subcontract more of their support activities to their suppliers. These suppliers usually are global and supply chain management has become a key strategic issue for organisations. Another factor why supply chain management is important for quality is that a company must consider the quality of the product from its suppliers and the suppliers quality control procedures to achieve its own quality goals. Successful supply chain management is therefore very dependent on good network coordination mechanisms, business relationships and information technology.

JIT, just in time aims to meet demand instantaneously with perfect quality and no waste. But waste is a by-product of many operation processes. Waste costs money and can take many forms. JIT is therefore a management principle for waste avoidance and process efficiency. JIT is, together with working in teams, continuous improvement, simplifying operations, keeping things simple, doing them well and eliminating waste extended to the well known ‘lean’ philosophy.

So, some triggers to improve processes and quality are explained above. Quality circles, process improvement teams, QFD and quality assurance systems were all used as triggers for small incremental innovative improvements.

Innovation is important. Because of the supplying network expands across the world, the competition becomes essentially the efficiency of one supply chain versus another. Working together and innovation within the supply chain are the manner to survive.

Incremental ideas of process improvement could be the one extreme, while the radical breakthrough approach is the other. Business process re-engineering is term for this radical approach of process improvement. Business process re-engineering (BPR) is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as costs, quality, service and speed. Peters (1997) argues that a radical approach for process improvement is the only way organisations can be sufficiently innovative to survive in the twenty-first century. Also Christensen (1999) argued that the radical approach or disruptive innovation in his terms is important to be competitive. He argued that leading companies failed to maintain their position at the top of their sector when the technology or markets changes because they ignored the emerging disruptive technology.

It may be possible or even necessary to follow both the radical breakthrough approach and the diametrically opposite incremental methodologies at different times.

Large and significant improvements can be followed by incremental and less spectacular innovations and improvements. Managers and company directors must be aware of the strengths and weaknesses of both.

Technology phases that had impact on operations

The application of computers is the first phase that had much impact on operations. The technology and the innovative techniques they made possible were an integral part of the drive to generate business value across the supply chains. Also electronic commerce or e-commerce was a booming term to bring together a range of activities involved in the different industries and business sectors. E-commerce is a transaction by which the order is placed.

The second phase was the very rapid publication of product information on the web. The effect on some organisations was enormous, because their products decreased in value through this development. There also are organisations with a positive effect of the publication of product information on the web. For example Dell. For Dell now it is possible to involve the customer in the supply chain and let the customer design and monitor the progress of their own product through the producing operating system. Also, companies are now able to decouple back-office operations from front-office activities so that common services can be centralized while front-office activities can be moved closer to clients.

The impact of Internet is observable in all business areas. In business to consumer, but also in business to business (e-commerce) markets there are substantial savings in purchase and administration costs. The internet also enables purchases that would not otherwise have happened. With the impact of technology on the supply chains and the creation of trading exchanges, the re-design of business sectors is taking place. For example e-Bay, the internet auction house.

The innovation itself is also an operations process and has therefore be effective and efficient. But to be effective and efficient all management activities must include some form of measurement. The appropriate and relevant performance measures for the innovation process differs per organisation and business environment. A business analyst has to be aware of that.

Chapter E: the importance of IP for innovation

Intellectual property (IP) can affect the management of innovation and the development of new products in a variety of ways. Managers has to be aware of this fact. Intellectual property is the legal rights associated with creative effort or commercial reputation.

When having a novel idea the simplest and cheapest course of action is to do nothing about legal protection, just keep it a secret. This keep-it-secret approach prevents anyone else seeing it or finding it. But the danger of keeping it secret is that someone else might develop a similar idea to yours and apply for legal protection and seek commercial exploitation. There are different forms of legal protection. First, the patents that deliver a twenty year monopoly. A patent is a contract between an individual or organisation and the state. The state is offering patents because of the encouraging of creativity and innovation within the economy. But the state is with the patent not able to prevent others benefiting from it. This is the risk of the patent. Another disadvantage of patent is the high annual fees the patentee must pay to keep the patent in force. The criteria for a patent are novelty, inventive step and industrial application. There are also things that are not patentable, namely discoveries, scientific theory and mathematical processes.

Before getting a patent, its content need to be made public so others can be given the opportunity to challenge the granting of a monopoly. Therefore patents follow a very formal specification. The patent specification and the patent abstract are very important parts of this formal specification. The specification is a detailed description of the invention and must therefore disclose enough information to enable someone else to repeat the invention. Also the breath and the scope for the invention are mentioned here. The patent abstract is a short statement on the front page of the patent specification which identifies the technical subject of the invention and the advance that it represents.

A patent is not always worldwide. Some countries have adequate protection, but others do not. The European and US patent systems have many similarities, like the twenty year monopoly. But there also is a key difference. In the US the patent goes to the researcher who can prove they were the first to invent. While in Europe the patent goes to the researcher who is the first to file for a patents.

Due to the high costs, small business have little faith in the patent system. Because the annual fee for the patent and the legal expenses to protect the intellectual property involved when a company is suspect for infringing a patent. Therefore some have argued that reforming of the intellectual property law may help to stimulate more innovation and that a growing part of the economy is only weakly protected under current intellectual property law. For example a shorter and broader protection for new product ideas.

Another danger of the patent is the expire of the patent after twenty years. For any firm operation in the science-intensive industry the whole process of developing a product is based around the ability to protect the eventual product through the use of patents. Otherwise it is not worth it to spend years of research and millions of dollar to it. On expiry of a patent competitors are able to use the technology to develop their own product. This can have dramatic effects on the branded/patented product. It is very easy for new products to enter the market, because of there is no extensive research and development costs incurred. The principal forms of defense are brand development and further research. In the time of the patent the firm is able to build up a good brand and brand loyalty.

Second, the copyright provides exclusive rights to creative individuals for the protection of their literary or artistic productions. Also the registered designs provides exclusive rights for up to 15 years. And the registered trademarks. This is a name, mark or symbol that is identified with a company’s products.

Business activities that are not patented, copyrighted or trademarked are trade secrets.

A patent is a right for twenty years, but it is possible to get a patent extension. In Europe these patent extensions are known as Supplementary Protection Certificates. This extension is available because the approvals for patents sometimes took so long that the patent had reached the end of its 20-year life before the inventor had had much chance to commercialize it. So, the SPC was designed for patent owners that had suffered regulatory delay exceeding five years, to restore to them an effective 15-year term of protection. Thus the SPC takes effect at the instant of patent expiry, and then lasts for the length of time by which regulatory approval exceeded five years. Therefore each SPC has its own fixed duration, but the maximum duration is five years. In the United States and in Japan are similar results.

Using patents in innovation

To obtain a patent, the publication of the details of the patent is required. Therefore this is a valuable source of technological knowledge. Patents can provide a valuable source for inspiration also. Further, many firms use the patent publication register to find out what their competitors are doing. All this industrial intelligence can help research teams and companies to develop and modify their own strategy or to pursue a different approach to a problem. Patents require the publication of important information. Therefore the question rises if patents are encouraging or hinder innovation. Following professor Haseltine (2000) there may be 1000 patents filed by now, while each one is building on the other. Brown (2007) called argues that these are submarine patents. Submarine patents are those that surface only after the technologies they protect have come into wide use. According to Brown these are dangerous, but even ordinary, open, honest patents now function as a brake on innovation.

Cohen (2002) studied the reasons why firms patent. These reasons are prevent copying, patent blocking, prevent suits, use in negotiations, enhance reputation, licensing revenue and measure of performance. The most firms use the patent system to prevent other firms copying their technology and blocking. Blocking here refers to owner of a patent preventing others from using the technology. For the aim of the patents system is to encourage innovation and yet there is increasing evidence that it is now being used to prevent other firms developing technology. Patents can indeed impair competition, innovation and the economy. For several years (from 2006) there was an increasing use of patent thickets in software and Internet related industries. A patent thicket is a form of defensive patenting where firms unnecessarily increase the number of patents to increase complexity. Patent thickets make it more difficult to commercialize new products and raise uncertainty and investment risks for follow-on firms.

Patents deter innovation by denying follow-on innovators access to necessary technologies, increasing entry barriers, the expense required to avoid patent infringement and the issuance of questionable patents.

Trademarks are another protection mechanism of particular importance to the world of business. In less technology intensive industries the use of patents is limited, then trademarks offer one of the few methods of differentiating a company’s product. Trademarks are associated with business image, goodwill and reputation. A trademark is defined as being any sign of being represented graphically which is capable of distinguishing goods or services of one undertaking from those of other undertakings. However, there are certain restrictions and principles with the use of trademarks. A trademark should satisfy the requirements of the first section of the Trade Mark Act. It also has to be distinctive, not be deceptive and not cause confusion with previous trademarks. Distinctive means that the trademark should not describe in any way the product or service to which it relates. And it should not use non-distinctive expressions which other traders might reasonably wish to use in the course of a trade. Laudatory terms are not allowed. Further a trademark should also not attempt to deceive the customer. And finally, a trade or service mark will not be confused with the trademark of a similar product that has already been registered.

The link between trade mark and brand name is increasingly becoming closer. Brands are in the sphere of marketing and trademarks are in the sphere of law. But they both serve to facilitate identity and origin. A brand can considered as an asset. Brand equity is the term used to describe the value of a brand name. This creates value for both customers and the firm. Because the customers can clearly use brand names as simplifying heuristics for processing large amounts of information. Further the brand can give customers confidence in the purchasing situation. For the firm a high brand equity allows higher prices to be charged and it is a significant competitive advantage.

Sometimes the success of a product can be dependent on the brand. Customers can identify specific products that they like thanks to the brand and they are able to reduce the time required to purchase the product. Without brands product selection would be random and maybe more rational, based on price, value and content of the product. Without brands it would certainly force consumers to select more carefully. There is a certain level of quality symbolized by brands and this can be transferred to other product items. A booming activity is the licensing of trademarks. Using a licensing agreement, a company may permit approved manufacturers to use its trademark on other products for a licensing fee. Licensing trademarks is offering increased revenues for firms, but also raises opportunities for diversification. The disadvantages of licensing are a lack of control over the products, with the possibility to harm the brand image.

With continually monitoring changes in the competitive market it is possible to reveal new development opportunities for the brand. For example there are possibilities in new technology, new positioning or new distribution. Rival firms will frequently develop generic products and services to rival the brand. One of the key issues for brand managers is whether the brand can sustain its strong market position in the face of such competition. It is rarely enough to defend a brand through effective marketing. Usually the brand will need to innovate in one or more of the areas listed above.

The domain names on the internet can act as electronic brand names.

Trademarks could be registered for a period of 10 years from the date of registration which may be renewed indefinitely for further 10 year periods. Trademarks are considered to be an item of personal property once accepted and registered. Also with trademarks infringement is possible. This will occurred when a business uses a trademark that is similar to another or takes unfair advantage of or is detrimental to another trademark.

Another possibility to protect an idea by law is the use of registered designs. If a new product may be created which is not sufficiently novel or contain an inventive step so as to satisfy the exacting requirements for the granting of a patent, the registered design is an option. Designs that are applied to articles may be protected by the design law. The United Kingdom has two systems of design law. The first system is similar to that used for patent laws and requires registration. The second system is design right and is provided along copyright lines. The registered designs system is intended for those designs intended to have some form of aesthetic appeal. However, a design protected by registration is the outward appearance of an article. Only the appearance can be protected, not any underlying idea. And the protection is given for a maximum of 15 years. The proprietor is initially granted the exclusive right to a design for a fixed term of five years. A design only will be registered if the design is new at the date an application for its registration is filed.

Copyright is a protection mechanism which is recently changed because of the inclusion of computer software. Because computer software manufacturers are particularly concerned about illegal copying of their programs. To obtain copyright protection the creative material must be in a tangible form so that it can be communicated or reproduced. Another criterion to obtain a copyright is that it must be the author’s own work and thus the product of his/her skill or judgement. Copyright is well known through the symbol ©. It gives legal rights to creators of certain kinds of material, so that they can control the various ways in which their work may be exploited. Copyright protection is automatic, there is no registration or other formality. There are three groups of work that may be copyrighted. First: original literary, dramatic, musical and artistic works. Second: sound recordings, films, broadcasts and cable programmes. Third: the typographical arrangement or layout of a published edition. The duration of copyright protection varies according these three categories. For the first category the protection in the United Kingdom expires 70 years after the dead of the author, in other cases 50 year after the first publication.

Remedies against infringement are a compensation for the actual loss suffered, or an injunction (an order of the court), or accounts that enables access to the profits made from the infringement.

Organisations that seek production opportunities in developing countries are faced with increased counterfeiting goods and intellectual property. Production opportunities in developing countries may be given the short-term gains of lower production costs, but firms may be either lacking in risk management or even willing to risk the loss of intellectual property with its potential long-term damage of loss of competitive advantage.

The area of intellectual property and the different firms of protection available in the firm are explored in this chapter. The dynamism of this business area is clear.

Chapter F:  the importance of knowledge in innovation

Technology has an important role in competition. Firms with superior technology have delivered spectacular financial rewards to their owners. However, technology alone cannot deliver victory. Technology coupled with market opportunity and the necessary organisational skills to deliver the product to the market may help significantly. Large and small firms have much opportunities to exploit technology, especially when having products operating in many markets across many industries. The leaders of an organisation could decide in which direction to grow, but the technological capability of the firm dictates what is possible and what can be achieved in a given time frame. Thus, a firm’s opportunities are constrained by its current position and current knowledge base. But acquiring technological knowledge takes time and, requires learning and people are involved. As mentioned yet, the firm’s available directions are constrained by its own capabilities. The firm’s capabilities are the level of technology, developed skills, intellectual property, managerial processes and the firm’s routines. But the dynamic capabilities even are important, because of the changing environment today.

A firm has to acquire specific knowledge to sustain their core competencies. What firm specific knowledge to acquire is dependent on the firm’s prior knowledge. To acquire knowledge the absorptive capacity is important. This is the firm’s ability to acquire and utilize new knowledge.

The resource-based perspective is the approach to consider strategic decision making from an external analysis of the environment and aligning the firm to it, to an internal analysis and aligning the firm’s resources to the external environment. This perspective is based on two insights. First there are differences between firms based upon the way they manage resources and how they exploit them. And second these differences are relatively stable. The differences meant here are strengths. The firm’s strengths consist of resources, capabilities and competencies. A core competence is a very specific type of resource. Core competencies can be identified by customer value, competitor differentiation and extendibility. Maximizing returns can be achieved with resources that are VRIN: valuable, rare, imperfectly imitable and non-substitutable.

Resources are not only the tangible assets of an organisation, the intangible resources like relationships and trust are also included. Resources include information, knowledge and skills.

Another perspective is the dynamic competence-based theory of the firm. This theory sees both the external and internal environments as dynamic. The dynamism of the external environment is through the constantly changing when different players manoeuvre themselves. Further, in this theory firms are seen as different and firms compete on the basis of their competencies and capabilities. These capabilities may be dependent on the organisation’s historical activities. So, the ability to compete in the future is based on the activities in the past. R&D expenditure then can be seen as an investment in the absorptive capacity of the firm. It is an investment in the ability to acquire and utilize new knowledge. But this ability is related to the prior knowledge of the firm and the expertise in the firm. These two things are driven by the prior R&D investment.

The firm’s ability to acquire knowledge is also dependent on the innovative routines. The practiced routines that are built into the organisation define a set of competencies that the organisation is capable of doing confidently.

These are the core capabilities of the organisation. It is possible to make a distinction between static routines and dynamic routines. Static routines refer to the capability to replicate previously performed tasks, while dynamic routines  enable the firm developing new capabilities.

Thus over long periods organisations build up a body of knowledge and skills through experience and learning by doing. But also the external linkages developed over time by a company form a distinctive competitive capability.

To be successful a firm has to be able to identify technological opportunities and exploit them. Firms position themselves in the competitive environment by exploring what capabilities are required for survival and change. Competitive advantage comes from the competencies of the organisation instead of its products. Competencies are defined as knowledge, skills, management processes and routines acquired over time by the firm and are difficult to replicate. The relation between core products and core competencies could be explained by the comparison with a tree, see figure 6.2 on page 201. A firm’s core competencies are comparable to the roots of a tree, with the core products are the trunk and business units are smaller branches and final end products are flowers, leaves and fruit. Technology in itself does not mean success. Technology can contribute to success if the firm is able to convert intellect, knowledge and technology into things the customer want.

The relation between competencies and profits could be represented by a matrix consisting of four quadrants. The two dimensions of the matrix are imitability and extent of coreness. The four quadrants are no profits (non-core, high imitability), negligible profits (non-core, low imitability), short-term profits (core, high imitability), and long-term profits (core, low imitability).

As mentioned before R&D investment is important for the absorptive capacity of a firm. Also the rate of technological advance is dependent of the effort put in the development of technology. The S-curve is a method to show the technological process under normal circumstances. Technology progress starts off slowly, then increases rapidly and finally diminishes as the physical limits of the technology are approached. This last phase is usually the phase that a new technology replaces the existing one.

The acquiring of firm specific knowledge and competencies is essential, but it take time to develop them and they are costly to initiate. Key features of these firm specific competencies are the ability to convert technical competencies into effective innovation and the generation of effective organisational learning. With the term organisational learning is highlighted that an organisation itself can seem to have knowledge. Therefore no individual fully understands how all the internal activities and processes come together and function collectively. So it is important to recognize that the knowledge base of an organisation is not simply the sum of individuals’ knowledge bases. Otherwise, the organisation’s expertise and acquired abilities would change simply by employee turnover. Unfortunately, the employment of new workers and the retirement of old workers does not equate to changing the skills of a firm. Imagine a venn diagram for the individual knowledge base. Every circle in the venn diagram is a individuals’ knowledge. Combining these individual knowledge bases in an organisation (venn diagram) results in overlap in the circles. These overlaps are the extra knowledge of the organisation. Therefore the organisation knowledge base is more than the sum of the individual knowledge bases.

The organisational knowledge is distinctive to a firm. So it is not widely available to other firms. This is called organisational heritage. Technical knowledge could be available for other firms, but even then it is possible the other firm is unable to manufacture the product. Because the accumulation of skills and competencies will be unique to an organisation. It is the individual ways in which the technology is applied that lead to organisation specific knowledge. Over time this knowledge skills and processes will form part of the organisation’s routines, which is able to perform repeatedly. When individuals leaving the organisation, the understanding will have been shared with others in the organisation and it will have been recorded in designs or production planning records for use by others. Many industrial organisations have been able to generate exceptional long-term success from relatively ordinary workers. This is the result of the organisation’s architecture. With all this argument, it seems clear that a firm’s organisational knowledge plays a significant role in its firm’s ability to innovate and survive in the long term.

Organisational knowledge refers to internal systems, routines, shared understanding and practices.

However, the role of organisational knowledge is different in the way the organisation is viewed. Western companies see the organisation as a machine to process information. With this view the only useful knowledge is formal and systematic. But the Japanese view of organisations is different and therefore the useful knowledge also differ. The knowledge base in the Japanese view is the accumulation of the individual knowledge bases in the organisation and the social knowledge embedded in relationships between those individuals. These relationships and the interactions between individuals may be said to represent a form of ‘organisational cement’. This cement combines individual knowledge bases into a larger body of knowledge and it enables individual knowledge bases to be accessed by the organisation effectively.

The expansion of the knowledge base of an organisation is not only concerned with the R&D activities and other technical activities. This view is to narrow. An organisation’s knowledge base is made up of several dimensions.

First, the individual assets. These are the skills and knowledge of individuals that form the organisation.

Second, the technological assets. These are the most visible elements of the technological base, the set of reproducible capabilities in product, process and support areas.

Third, the administration assets. These are the resources that enable the business to develop and deploy individual and technological assets. So, the skill profile of employees, the routines, procedures and systems, the organisational structure and the strategies.

Fourth, the external assets. These are the relations the firm establishes with external parties.

Fifth, the projects. This are the means by which technological, organisational and external assets are both deployed and transformed.

Another characteristic of the knowledge base is time dependency. The acquisition of knowledge takes place over many years.

The previous activities and what is learned in the organisation strongly influence the organisation’s future activities. Here the concept of organisational learning is mentioned again. So it is the simply notion that successful companies have an ability to acquire knowledge and skills and apply these effectively, in much the same way as human beings learn. The emphasis has to be on double-loop learning rather than single-loop learning. Single-loop learning is the adoption of a new set of rules to improve quality, productivity etcetera. While double-loop learning occurs when those sets of rules are continually questioned and updated in line with experience gained and the changing environment.

There are three phases in an innovation’s life cyle: Fluid, transitional and specific.

- Fluid: Technological and market uncertainties prevail, and a large experimental game occrs in the marketplace
- Transitional phase: When the acceptance of the innovation starts to increase and the maket starts growing.

- Specific phase: contraction of competitors in the era of incremental innovations.

The dominant design  is desirable for organisations because it will enable the firm to collect monopoly rents providing imitation can be limted.

Innovative firms are able to distinguish themselves from their less successful counterparts if they could effectively assimilate and apply the accumulation of knowledge. This is organisational learning. Companies that develop competencies have to uncover and understand their dynamic routines, which will be built on tacit knowledge. Trott developed an internal knowledge accumulation model to explain this. In this model there is informal internal consultancy. Which refers to the informal testing of ideas on people in their functional capacity. The process has two roles. First it serves as an informal testing device whereby ideas can be presented to a variety of in-house specialists who are then able to assess the idea. Second it is a support gathering device.

To generate new opportunities it is not enough if the focus of a firm is only on its internal knowledge. Also the application of external knowledge is important. The knowledge base of a company has to be viewed as a dynamic entity made up of skills, know-how and expertise. Much of this knowledge is tacit. Tacit knowledge is difficult to articulate and capture. There is made a conceptual framework of the importance of the external knowledge in generating new business opportunities. A key activity is the continual external scanning undertaken by the organisation’s commercial and technical arms. The process of assimilating internal knowledge form the organisation’s knowledge base is at the centre of the framework. The assimilation of external knowledge via the external linkages with its internal capabilities leads to new business opportunities. So the combination of these activities will lead to the generation of genuine business opportunities. However, this comprises a commercial opportunity, with a technical opportunity where this is aligned with existing commercial and technical competencies to ensure that the company genuinely has the ability to turn the opportunity into a product. But the process of turning these opportunities into commercial success is one of the most longstanding and fundamental issues facing businesses.

It is discussed before, the firm’s ability to survive is dependent on its capability to adapt to this changing environment. The future of an organisation is unknown. The development of new products and processes has enabled many firms to continue to grow. However, there is a wide range of strategies which they may follow. In this strategy, technology is usually missing. While technology is embedded in products and processes in the manufacturing sector. There are four innovation strategies that are commonly found in technology-intensive firms. These strategies are:

- Leader/offensive

- Fast follower/defensive

- Cost minimisation/imitative

- Market segmentation specialist/traditional

Leader/offensive is a strategy that centres on the advantages to be gained from a monopoly. A monopoly of the technology.

Fast follower/defensive is the technology that also requires a substantial technology base in order that the company may develop improved versions of the original, improved in terms of lower cost, different design, additional features or something like this.

The company with this strategy has to be agile in manufacturing, design, development and marketing. It has to be able to respond quickly to the companies that are first into the market.

Cost minimisation/imitative is a strategy based on being a low-cost producer and success is dependent on achieving economies of scale in manufacturing. For this strategy the firm requires exceptional skills and capabilities in production and process engineering. Technology is often licensed from other companies. This strategy has been employed very effectively by the rapidly developing economies (like Asian).

The last strategy discussed in the book is the market segmentation specialist/traditional strategy. This strategy is based on meeting the precise requirements of a particular market segment or niche. The products with this strategy are often called traditional products, because they only had a few changes.

The management of technology is important for the implementation of an innovation strategy. The choice of the innovation strategy will depend on the technology position of the firm and on its competitors. It differs per strategy where the money is spent. In the leader strategy there will be more internal R&D expenditure, while in the follower strategy there is more emphasis on design and manufacturing.

Chapter G: working together on innovation

Strategic alliances could be helpful in innovation. Strategic alliance is a term used to cover a wide range of cooperative arrangements. The characteristics of a strategic alliance are that resources and expertise are shared among organisations to develop new products, achieve economies of scale and gain success to new technology and markets. Some argue that strategic alliances are the competitive weapon of the future. Firms are usually unable to achieve their technical objectives due to a lack of resources. The insufficient resources are usually capital and technical critical mass. And the cost of building and sustaining the necessary technical expertise and specialised equipment is rising dramatically. Strategic alliances are not only feasible for the large international companies. Strategic alliances provide an opportunity for large and small companies to expand into new markets by sharing skills and resources. But sharing ideas and technology requires trust. This element of trust is highlighted through the use of the prisoner’s dilemma.

Traditionally firms had the go-it-alone perspective to compete against each other. But now business are slowly beginning to broaden their view. Strategic alliances mean acting sets of firms together, therefore the strategic power is greater. Organisations begin strategic alliances with lots of other firms. Therefore it is called the octopus strategy. Entering strategic alliances enable firms to offer their existing skills, knowledge and technology and together they are able to create hybrid technologies. Firms are increasingly finding they need an array of complementary assets. With strategic alliances this is possible.

Organisations that see technology as the main determinant of competitive success need access to new technology. Acquiring technology from outside using technology transfer and forming strategic alliances is now the trend to sustain competitiveness. Especially large established firms having developed global brands are realising that a constant stream of new products and new technologies is necessary to survive. Therefore these firms have developed extensive linkages or networks around the world. Given the global spread of expertise firms have consequently developed linkages with a wide variety of firms. Alliances are not only for the exchange of technology, they are also for the exchange of competencies (skills and know-how). However, the embedded nature of new technologies has forced firms to view technologies as competencies too.

To ensure effective exchange of competencies knowledge sharing routines are required. Especially the tacit knowledge is difficult to transfer. Here personal interaction could facilitate this.

There are many different forms of strategic alliances. First there has to be made a distinction between intra-industry strategic alliances and inter-industry strategic alliances. Intra industry strategic alliances are agreements between firms in the same industry, while inter industry strategic alliances are agreements between firms in different industries. Further, there are eight generic types of strategic alliance:

- Licensing

- Supplier relations

- Outsourcing

- Joint venture

- Collaboration

- R&D consortia

- Industry clusters

- Innovation networks

Licensing is a method of acquiring technology that is relatively common and well-established. With licensing there is usually an element of learning required, whereby the licensor will perform the teaching role. The advantages of licensing are speed of entry to different technologies and reduced costs of technology development. The disadvantage is the neglect of internal technology development.

Supplier relations usually lead to cost-benefits to a supplier and therefore the close working relations with suppliers is a kind of informal alliance. Possible cost benefits are lower production costs, reduced R&D expenses, reduced inventories and reduced administration costs. In the relationship there are different levels of intensiveness.

Outsourcing is the delegation of non-core operations from internal provision or production to an external entity specialising in the management of that operation and it is popular since the 1980s. Outsourcing involves a two-way information exchange, trust and coordination between the two parties, because the management control and decision making of a business function is going to an outside supplier.

Joint ventures are usually established for a specific project. With this form of strategic alliance there is a legal entity and the costs and possible benefits from an R&D research project would be shared. The intention for a joint venture is generally to enable the organisation to stand alone.

Collaboration is the more flexible form of a joint venture. Therefore it is possible to extend the cooperation over time if desired. The cooperation between the parties may produce benefits for both because of the research projects with common interest.

R&D consortia is a number of firms coming together and it is often concerned with a large-scale activity.  The cost and the risk of the research are shared. With an R&D consortia the scarce expertise and equipment are pooled, there is pre-competitive research performed and there are standards set.

Industry clusters are geographic concentrations of interconnected companies, specialised suppliers, service providers and associated institutions in a particular field that are present in a nation or region. The development of initiatives of clusters are important for economic policy, building on earlier efforts in macroeconomic stabilisation, privatisation, market opening and reducing costs of doing business. According to Porter clusters affect competition in three ways. First the increasing of productivity of companies based in the cluster area. Second, by driving the pace and direction of innovation and third, by stimulating the formation of new businesses within the cluster. So, competitive advantage lies increasingly in local things that distant rivals cannot replicate. For example knowledge, relationships and motivation.

Innovation networks is a term for a sort of virtual organisation. This virtual organisation is based on a network of relationships. This network is more than a series of supplier and customer relationships. What innovation networks precisely are is difficult to say, because of the little consensus in the literature about this subject.

The virtual company may be a new form of strategic alliance. A virtual company refers to a situation in which every aspect of the business is outsourced and run by unknown suppliers. The disadvantages are the possible loss of control aspects and intellectual property, skills and know how.

There are several motives for entering a strategic alliance. For example improved access to capital and new business, greater technical critical mass, shared risk and liability, better relationships with strategic partners, technology transfer benefits, reduce R&D costs, use of distribution skills, access to marketing strengths, access to technology, standardisation, by-product utilisation and management skills. However, strategic alliances only success in achieving competitive advantage if they involve learning and knowledge transfer.

Successful strategic alliances are formed through a three step process. The first step is the selection of the right partner, depending on the motivation and the requirements for the strategic alliance. Second is the negotiations based on each partner’s needs. The third step is the management towards collaboration. The success of a strategic alliance depends on the existence of mutual need and the ability to work together despite differences in organisational culture.

Negotating a licensing deal

Licensing deals are just that – a deal struck between two parties. Not a correct deal or an incorrect one, simply an agreement where two parties agree to do business that will result in benefits for both. The following needs to be taken into account.

- Terms for agreement: clear definitions

- Right granted: which intellectual property rights the licence is given under

- Licence restrictions

- Improvements

- Consideration: monetary value

- Reports and auditing of accounts

- Representations/warranties

- Infrigement

- Confidentiality

- Arbitration

- Termination

The downside of strategic alliances

Strategic alliances can lead to the loss of competitive knowledge. Then the alliance can lead to competition instead of cooperation. Another risk is conflicts resulting from incompatible cultures and objectives and reduced management control. There is also evidence that a firm’s ability to innovate can be harmed by a strategic alliance. These problems could be avoided when management anticipate business risks related to partnering, conduct comprehensive resource planning and allocation of resources, carefully assess their partners and foster social networks. The strategic alliance failures are studied. The following reasons are most common:

- Fail to understand and adapt to the required new style of management

- Fail to understand the cultural differences between the partners and learn these.

- Not enough commitment to succeed.

- Deviate of the strategic goal.

- Not enough trust.

- Overlaps in operation and geographic overlaps.

- Expectations that are unrealistic.

However, the literature is optimistic about the gains from strategic alliances. The collaborative technology development is good. And firms are increasingly dependent on collaborative technology development, because they need to become more outward looking and therefore they need to be more receptive in their technology development strategy. The risk of openness and free exchange of information – these are the conditions of organisational learning – is the risk of information leakage. Here the issue of trust rises. Because this leakage of sensitive information is the biggest concern to firms. Trust in a partner is usually the result of prior professional and social knowledge. Trust is important in every form of collaboration. If the initial collaboration is a success, the scale of collaboration can be increased and higher levels of trust will be reached. Trust and confidence are different concepts. They both are based on expectations about the future, but trust is the exposure of the risk of opportunistic behaviour by others. Trust is a personal judgment and carries two dimensions, an emotional and a cognitive dimension. Trust is personal, also in an institution or organisation the trust is based on personal experience with individuals representing the organisation at its contact points.

The base of trust in strategic alliances is process trust, personal trust, institutional trust, competence trust, contractual trust and goodwill trust. Process trust is based on the past (reputation). Personal trust is tied to a person. Institutional trust is trust of formal structures. Competence trust is the confidence in the ability of the other to perform properly. Contractual trust is tied to the accepted rules. Goodwill trust is mutual expectations of open commitment to each other beyond contractual obligations. Personal trust is not enough to sustain trust over time. When there is personal or institutional trust the methods of limiting the damage from potential betrayal can also be used. For collaborative R&D there is need for goodwill trust because institutional based trust and legal safeguards for protection of intangible, pre-competitive knowledge against misuse is not possible without goodwill trust. Goodwill trust is the trust that the other companies exercise the highest level of discretion, take beneficial initiatives and refrain from taking unfair advantage even if such opportunities arise.

Originally, outsourcing was limited to peripheral business functions. There was a long-term contract with usually one service provider. This traditional form of outsourcing moved into strategic outsourcing. With this form of outsourcing not only the peripheral functions are affected, also the competitive core of organisations is affected. Strategic outsourcing is concerned with multiple partners and short-term contracts. The risks of strategic outsourcing are dependence on the supplier, hidden costs, loss of competencies, service provider’s lack of necessary capabilities, social risk, inefficient management and information leakage. This last risk is maybe the one most concerned.

There is a trade-off between access to cutting-edge knowledge via collaborative research and technology development in knowledge intensive industries and the risk of losing commercially sensitive knowledge to competitors. Controlling this risk requires social control and the development of trust. In strategic outsourcing all business functions are opened up, including the core competencies which should provide competitive advantage.

In strategic outsourcing there are no protective boundaries around the core competencies and activities because the organisations hope to maximise their innovative capacity by being an active part of a networked economy. So, strategic outsourcing will be with multiple partners over short periods of time and with very little protection of core competencies against outsiders. Therefore a high level of trust is required. But this could be difficult in the short term orientation of the contract.

The risk of information leakage is higher in strategic outsourcing than in traditional outsourcing, because firms cooperate with multiple partners and the very core of the competitive advantage in terms of knowledge, expertise and capabilities made firms dependent on outsiders. Another risk is concerned here, it is the risk of losing the absorptive capacity to recognise and exploit new opportunities. Therefore the firm’s innovativeness decreases. Here, detailed legal contracts may offer short-term solutions because of the effective protection of tangible outcomes. However, not every innovative related project outcome is tangible and can be clearly defined in legal contracts. The inability to retain a company’s competitive core is dangerous for the future competitiveness, but also for the risk of dependency on outside providers. This is the problem of levelling out of leading edge expertise.

So, with strategic outsourcing the individual buyer firm will have less certainty than before in traditional outsourcing, but it would also have the chance to benefit from the more widely shared industry best practice.

Strategic outsourcing is concerned with a significant dilemma. Individual firms have a reasoned case against competitors gaining the fruits of their investment and innovation efforts, while at the same time the majority of companies choose outsourcing not least in the hope of gaining such advantages from other firms.

Game theory

It is clear that trust is a significant issue in strategic alliances. An alliance is meant to achieve a total outcome that is greater than any one party can achieve on its own. Therefore working together of all the parties is required. The issue of trust is the underlying theme of the prisoner’s dilemma. Also the game theory is important here. The prisoner’s dilemma illustrates that cooperation is the mutually advantageous strategy but that non-cooperation provides high-risk opportunities to both parties. While two prisoners are arrested, but there is not enough evidence to gain a conviction, the police chief offers a deal to both criminals. If either confesses, he will receive a minimal sentence for becoming an informer and helping the police. If neither confesses they will both receive a sentence based upon some other lesser charge for which the police does have evidence. It they both confess, the court will take this cooperation into account and will probably pass a lighter sentence on both. So, both criminals are better off is they confess. The prisoner’s dilemma has a close relative, which is the repeated game.

To explore new applications or new technologies, strategic alliances are often pursued to achieve this. The collaboration and learning often evolves over time as the parties begin to understand one another better. The benefits can be great, but the costs are often not fully visible. The organisation has to be aware of that.

Chapter H: R&D management

R&D is the well known abbreviation for research and development. But the definition of these concepts is less well known. Research can involve both new science and the use of old science to produce a new product. But it is difficult to determine when research ends and development begins. Therefore it is more realistic to view R&D as a continuum with scientific knowledge and concepts at one and end and physical products at the other end. Traditionally, R&D has been viewed as a linear process, from research to engineering to manufacturing.

After the second world war the traditional view of R&D was overcoming technological problems which subsequently leads to business opportunities and a competitive advantage. They believed everything was possible through technology. Also technology is a commonly used word, while not fully understood by all the users. An example of a technology definition is technology as the application of knowledge to achieve a practical result.

Research and development is traditionally viewed as the management of scientific research and the development of new products. The widely accepted definition is: R&D is the purposeful and systematic use of scientific knowledge to improve man’s love even though some of its manifestations do not meet with universal approval.

However, it is extremely difficult for one company to remain abreast of all the technologies that it needs for its products.

The management of R&D is an important issue. There is no single best way to manage R&D. But certain factors that are common to all aspects of R&D management are almost irrespective of the industry.

As mentioned before the most fundamental dilemma in a company is the need to provide an environment that fosters creativity, while at the same time providing a stable environment that enables the business to be managed in an efficient and systematic way. This is very apparent in the management of R&D. Research is unpredictable, but it can be managed. Large organisations invest more in R&D because of their more resources than the smaller players. The R&D expenditure is frequently expressed as:
R&D as percentage of sales = (R&D expenditure divided by the total sales income * 100%).

This formula gives a more realistic view on the R&D intensity within the organisation. R&D expenditures now consumes a significant proportion of a firm’s funds across all industry sectors. This is because companies are realising that developing new products can provide a huge competitive advantage. And competitive advantage is important in a world where competition can appear from virtually anywhere in the world. Globalisation brings increased competition, but it also provides opportunities for companies.

Firms stopping product innovation (and R&D) would have declined profits very slowly for the first eight years and then it is falling very sharply. So, this shows that R&D is a worthy investment. But the difficulty of this investment is the choice where to invest in. The relationship between R&D expenditure and economic growth and productivity is studied. The conclusion is that R&D has a significant effect on the rate of productivity increase in the industries. Furthermore, R&D is a major investment contributing to company success along with other factors like excellent operations and good strategic choices.

There are well established links between R&D growth and intensity and sales growth, wealth creation efficiency and market value. So, R&D investment should be viewed as a long-term investment.

Traditionally, the purpose of research was to grow and make profits and this was to be achieved through the development of new products and new businesses. But over the years industrial research and development has increasingly been guided by the aims of its financiers via its business strategy. So, the pursuit of knowledge is playing a less important role. Industrial R&D included the following activities: discover and develop new technologies, improve understanding of the technology in existing products, improve and strengthen understanding of technologies used in manufacturing, understand research results from universities and other research institutions. The research could be categorised in three areas, the area of fundamental and basic research, the area of applied research and the area of product development.

R&D activity 1: basic research

This is usually referred to as fundamental science. Universities and large organisations usually are the performers of this type of research. The output from this activity will result in scientific papers for journals. Some of the findings are developed further to produce new technologies.

R&D activity 2: applied research

With this activity a particular problem will be solved with the use of existing scientific principles. This may lead to the development of new technologies and/or patents. Many new products emerge through this activity. Also this activity is performed through university departments and large organisations.

R&D activity 3: development

The activities in this phase centre on the products. Usually a technical problem with a new product will be solved here with the use of known scientific principles. Also the studies trying to improve the product’s performance are central here.

R&D activity 4: technical service

This activity provides a service to existing products and processes. Cost and performance improvements are involved in this activity.

R&D management has to make some assessment of the future in order to perform effectively. In these future assessment has to be environmental forecasts, comparative technological cost effectiveness, risk and capability analysis.

Environmental forecasts are concerned with changes in technology that possibly would occur in the future. Comparative technological cost-effectiveness is the decision which resources are important to invest in. Because technologies have life cycles, so further research can produce negligible benefit. Risk cannot be avoided, but the planning and the portfolio of projects can minimize the damage of a risk. Capability analysis is the consideration of the strengths and weaknesses of a company. With doing this analysis it is possible to acquire the necessary capabilities for the future.

It is important that the management of R&D is fully integrated with the strategic management process of the organisation. This integration enhances and supports the products that marketing and sales offer and provide the company with a technical body of knowledge that can be used for future development.

R&D has three distinct areas: R&D for existing products, R&D for new businesses and R&D for exploratory research.

R&D for existing products is the defence of existing businesses to sustain competitive and ensure that products will not become outdated. So, existing products have to be able to compete.

R&D for new businesses is the identification of new market opportunities or new technology developments. With this identification it is possible that the company decide to start a new business.

R&D for exploratory research refers to the continual accumulation of knowledge in all areas of the company. This R&D area is concerned with the medium or long-term strategy.

In the organisation there usually is a tension between concentrating resources in the pursuit of a strategic knowledge competence and spreading them over a wider area to allow the building of a general knowledge base. So, there is often the difficult choice between building knowledge for the entire business or gaining depth of knowledge for particular businesses.

The technology base of an organisation can be categorised. The categories are core technologies, complementary technologies, peripheral technologies, and emerging technologies.

Core technologies are central to the most/all products of a company. Complementary technologies are additional technologies that are essential in product development. Peripheral technologies are these technologies that are contributing to the business, but which are not necessarily incorporated into the products. The emerging technologies are new technologies for the company that may have a long-term significance for its products.

An organisation must possess the capability to understand and use the technological developments to its own advantage. Here some form of anticipation of future technological developments is required, together with strategic business planning. The organisation needs to choose between different R&D projects, because the funds for research are not unlimited. Funds are restricted and therefore R&D projects compete with each other.

Further it is important to consider the technology leverage of a firm. This is the extent of influence from technology and the technology base of the organisation on the competitive position of the business. Technology may influence the competitive performance of a business, but in some businesses the competitive advantage is more influenced with other things. Like costs of raw materials.

The state of the business is also of influence on the R&D strategy. There may be two forms of R&D, namely growth and maintenance. The types of research in the maintenance form of R&D are survival (reactive problem-solving role) and competitiveness (making improvement in product and process to maintain competitiveness).

The types of research in the  growth form of R&D are technology mastery (keeping abreast of all technological developments that may affect the business’s products or processes) and break the mould (develop new patentable technology).

Within the R&D department projects are competing for funds, but also the whole R&D department competes with other organisation’s departments to get money and other resources. Here is also tension. The amount money that is spent in an organisation on R&D is dependent on the culture of the organisation and the industry in which it is operating.

For the allocation of a budget there are different methods in organisations. In this chapter there are six approaches discussed for the allocation of funds to R&D.

First, the inter-firm comparisons. By analysing the research expenditure of the competitors, a business is able to establish an appropriate figure for its own research effort. Also the formula earlier in this chapter which says that 10-25 percent of sales has to be spend on  R&D.

The second approach is a fixed relationship to turnover. Here R&D expenditure is based on a constant percentage of its turnover. The disadvantage of this model is the usage of past figures for the decision of future investments.

The third approach is a fixed relationship to profits. The disadvantage of this profit is that it is highly undesirable. R&D is seen here as a luxury that is only possible when the organisation is generating profits. In this method R&D is not seen as an investment for the future.

The fourth method is the reference to previous levels of expenditure. With this method the R&D expenditure is based on the previous year’s expenditure plus an allowance for inflation. This is usually used in combination with other methods for the allocation of funds to R&D. 

Costing of an agreed programme is the fifth method. With this method the total needed requirements are given in a figure. This total will exceed what the department is likely to receive and negotiations are then likely to ensue to choose which projects would receive support.

The last method discussed here is the internal customer-contractor  relationship. Here the individual business units may pay for research carried out on their behalf by the R&D function.

R&D managers are responsible for a portfolio of projects. It is important to try to select those projects that will be successful and drop those projects which will not.

Chapter I: Allocation of funds for R&D

Organisations that have build on a strong R&D are constantly looking for opportunities to diversify horizontally and vertically into new products. The horizontally diversification could be achieved with new product that are related to the organisation’s products. Vertical diversification could be achieved with a wider range of inputs in the products, for example new technologies. For these diversifications technology management is needed. But companies do not have a completely free choice about the way they manage their technologies. Because in many areas before an innovation event it is not clear who are in the race, where the starting and finishing lines are and what the race is all about.

The two technology risks involved with the management of technologies are the appropriability risks and the competence destruction. The appropriability risk is the risk that competitors can easily imitate innovations. The competence destruction risk is the volatility and uncertainty of technical development that vary greatly between technologies. Both the way technological trajectories are followed and market acceptance are involved in this risk. If technological uncertainty is high, it is uncertain which investments and skills are needed. Therefore an organisation has to posses the ability to change direction rapidly. The two technology risks mentioned here are probably inversely related. Because an organisation is more likely to invest in uncertain technologies if the risk of appropriability is low. In organisations where the appropriability risk is high, it is more likely to focus on more predictable technologies. Also if companies strive to produce highly radical and discontinuous innovations they have to be more flexible in their use of resources and in changing direction. For an organisation to exploit a technology successful there are complementary assets needed, like marketing and distribution. These complementary assets are usually more important than the strategy the company is following.

Successful technology management is dependent on the complementary assets, but also to:

- The capacity to orchestrate and integrate functional and specialist groups for the implementation of innovations

- Question continuous the appropriateness of existing divisional markets, missions and skills for the exploitation of technological opportunities

- Willingness to have a long-term view of technology accumulation within the firm.

Since 1950 the R&D activities changed dramatically through technology explosion, the shortening of the technology cycle and the globalisation of technology. Also the external acquiring of technology became more important. The management of this external acquiring of technology is more difficult than intern developing of technology. While internal R&D was the only option to acquire technology, now this internal R&D is only one of the options. The technology base of a company is viewed as an asset, it represents the technological capability of that company. The different acquisition strategies available involve varying degrees of organisational and managerial integration. The acquisition of external technology is for example possible through the purchase of existing products or manufacturing process, the purchase of know-how embodied within people and processes, the exploration of external R&D contract possibilities. Other options are to seek possible R&D strategic alliances, the purchase of a licence or patent and to conduct internal R&D.

There is been much research on these different acquisition strategies, but only the formal ones are studied. While there are many informal linkages that are known to exist and result in the transfer of technology, for example strategic alliances. Therefore the ability to network is now a valuable skill for R&D departments.

There are areas that require involvement from the R&D department. For example the fact that industries now usually supported by university research and also have contacts with universities. Further the industry has an increased number of technological collaborations. Another area of R&D involvement is sales. R&D workers are increasingly accompanying sales staff on visits to customers and component suppliers to discuss technical problems and possible product developments. Also there are more technology based businesses nowadays, these require a strong role of R&D. Also the increased use of project management is an area where R&D is involved. And the expansion of industrial agreements has resulted in a new area of work for R&D. The number of technology-based businesses increased, but also the number of knowledge intensive service firms increased. In that area of business R&D is even important.

A general shift is seen in the way firms acquire technology. Traditionally the internal development of technology was used, but today the external acquisition is more popular. Through this shift the firm required to change their management of R&D.

There are different forms to organise the industrial R&D. They will be discussed here.

Centralised laboratories could be chosen because of the advantage of critical mass and the idea that far more can be achieved when scientists work together. This is an usually chosen method by firms which try to achieve technological leadership. Another reason is to strive to synergy in different unrelated businesses.

Decentralised laboratories could be chosen because they can reinforce the link with the business, its products and its markets. Further it should foster improved communication and product development. The possible disadvantage of this method is the risk of emphasis on short-term development only.

Internal R&D market involves establishing a functional cost centre which raises the issue of whether a business is able to use external acquisition. The drawbacks of these method are similar to that of decentralised laboratories.

As mentioned before, internal R&D is not the only possibility to acquire technology. It is possible to contract out the R&D function. But there is a significant difference between the acquisition of external developed technology and external R&D. This difference lies in the prior knowledge. The level of prior knowledge influences therefore the choice of the method to acquire the technology. The methods to acquire technology externally are explained earlier in the summary of this chapter. These methods could be presented in a matrix. Like every matrix also this matrix consist of two axis. The first one is the level of understanding of the technology by the acquiring business. This is the one concerned with the prior knowledge. The second dimension is the level of understanding of the technology by external third parties. This axis refers to the level of prior knowledge of external third parties.

With the acquisition of external technologies there will be technology transfer between two parties. The definition of technology transfer is the process of technical innovation through the transfer of ideas, knowledge, devices and artefacts from leading edge companies, R&D organisations and academic research to more general and effective application in industry and commerce.

Further, in acquiring technology that is developed externally, a business must also consider the extent of control over the technology that it requires. If the firm prefer much control over the technology, it better could hold the development intern. The degree of integration with the organisation is also involved here. Further the level of control required is influenced by the stage of development of the research and its position in the technology life cycle. The figure on page 295 shows the level of organisation control related to the technology acquisition method.

There are different forms of external R&D. First the R&D contract, this is the contracting out of R&D to a third party. This method would be appropriate if the understanding of technology in the organisation is not enough or when there is an urgent situation. Then the setting up of an internal research would take too long.

Second method is the R&D strategic alliances and joint ventures. These methods are fully explained in chapter G. In chapter G the R&D consortia is explained.

Another method for external R&D is the open source R&D. Distributed or open source innovation in which customers are the co-producers of the products and services they consume. The execution of this open source principle could for example by a suggestion box on a website. When an idea is posted anyone can contribute to the solution, varying from industry expert to members of the public. Transparency is the keyword here. Everything is transparent in the sense that all ideas are shared and discussed in the public. Open source can involve thousands of people and still turn things around faster than more traditional approaches. Further open source asks people for solutions and allows ideas to build cumulatively. And open source relies on people who are articulate, passionate and enthusiastic.

Most outsiders think that R&D is a random procedure. But the process is much less random than it appears. However, it is true that R&D is a high-risky activity. Research on the successful R&D projects and the presence of certain factors showed that some factors are present in successful R&D projects. These factors are growth orientation, organisational heritage and innovation experience, vigilance and external links, commitment to technology and R&D intensity, acceptance of risks and cross-functional cooperation and coordination within organisational structure. But also factors like receptivity, space for creativity, strategy towards innovation, coordination of diverse range of skills, project management and market orientation are present.

It is through that planning in an R&D process is difficult. Because it would surely stifle creativity and innovation. But how to encourage creativity and improve efficiency at the same time? There are many formal management techniques that are employed to help to improve the effectiveness and productivity of R&D without destroying the possibility of serendipity. A company has to realise that a certain amount of time should be made available for scientific enquiry. R&D projects could by divided in two separate groups. First, the group established in response to requests from the various businesses and supports and maintains the corporate objectives.

The second group of projects are those generated by the scientists themselves, usually as a result of personal interest in the technology. In these projects the generating of technology of a commercial value is central, but these technologies are free from the constraints of corporate objectives. The proportion of these two groups of projects are usually 90% projects of the first group, and 10% projects in the second group. Therefore about 10% of a scientist’s time will be spent on autonomous research projects. A logical next step is to think that R&D managers also manage two sorts of activities. The primary activity supports the various businesses and the corporate objectives while the other supports a technology business, involved in generating technology of a commercial value that is unrelated to the corporate objectives.

The R&D process and the developing of new products are often viewed as two separate subjects, but they are interrelated. The extended product life cycle makes clear this interrelation. The traditional product life cycle in the form in which it is usually showed can be extended. This extension would be at the beginning of the product life cycle. Before the introduction stage. In the stages before the introduction the R&D activities are visible. The possible introduction of a new product starts with a basic research, followed by an applied research and then the development takes place. After that development phase the first phase of the ‘normal’ product life cycle introduction starts. This time of R&D sometimes could take 10 till 15 years, before the product is launched.

Further for R&D it is important to be continually consulted on virtually all aspects of a product. These knowledge is accumulated over time as an idea for a product is transformed into a research project. The aspects of a product that has to be considered are inter alia design, effects of transportation, manufacturing, packaging, product safety and intellectual property rights.

Different products of a company differ in the contribution to the overall profit. R&D activities can influence this profit contribution in several ways.

One of these ways is the development of existing products. There are some products that seem to have an eternal life cycle, but other product’s life cycle lasts for several years. The role of R&D here is to extend the life of the product by continually searching for product improvements. Two improvements are well known, gaining a larger market share and improving profit margins through lowering the production costs.

Another manner in which R&D can influence the profit contribution is the early introduction of a new product. If a company strives to be a technological leader, it has to introduce innovative products into the market before the competition gain a competitive advantage.

The late introduction of a new product is also an option. This deliberately postponing entry into a new market until it has been shown by competitors to be valid reduces the risk and costs.

The last way discussed in this chapter is the long-term projects. With these strategy R&D will be developing products that do the public not yet realise they require. Here starting new areas of research and new initiatives are involved.

The well-known problem of R&D departments is that they have more ideas than funds for it. Limited resources is usually the problem. This problem requires to choose which ideas to support and which to drop. This evaluating of projects will inevitably lead to the drop of others. When an idea gain support in the form of funds, this idea not necessarily reaches the design and development phase. An estimation is that from every 60 ideas approximately 12 will receive support, 6 will reach the design and development, 3 will be prototyped and market testing.

The evaluation knows some criteria which differs per industry. Some example criteria are technical, research direction and balance, competitive rationale, patentability, stability of the market, integration and synergy, market, channel fit, manufacturing, financial and strategic fit.

The risk of wrong evaluation of projects is that a rejected project will be turn into a successful product by a competitor. There are methods for the evaluation of projects, like quantitative weighted scoring models or specially adopted software. However, with so much decisions there always is an element of judgement. These decisions are made by managers which continue to rely on rules of thumb and heuristics for the evaluation of research projects. Methods that are helping managers with the evaluation recently developed are benefit measurement models, economic models and portfolio selection models.

Benefit measurement models are models derived from a group managers with experience in identifying variables, followed by making subjective assessments of projects. Bringing together these variables in a quantitative or qualitative model will provide the organisation a value with which to make comparisons of projects.

Financial/economic models seems to be the most attractive to firms. However, these type of model have considerable limitations. Inter alia the short term bias and the emphasis on financial formulas. Another disadvantage is the limited accurate future financial data with the risk of inaccurate estimates.

Portfolio selection models consider a business’s entire set of projects rather than viewing new research projects in isolation. There has to be a balance in newness, time of introduction and markets.

So, it is clear that R&D plays a significant role in the product innovation process. However, it is difficult to decide in which way funding the R&D activity. Also the selection of projects is an issue.

Chapter J: Development of technology transfer

Information plays a significant role in organisations’ operations. This role increased with the shift from labour- and capital-intensive industries to knowledge- and technology-based economies. With the increased completion technology is more important. For technology is knowledge needed to be transformed into know-how or technology. With technology a firm can remain competitive.

As mentioned in the previous chapter, traditionally the technology was developed intern. However, with the increasing technology content of many products, many firms think intern development is too uncertain, too expensive and too slow for the rapid technology changes. Therefore usually the choice is made to acquire extern technologies. While the internal R&D is increasingly focused on core competencies, R&D in all other business activities is progressively covered by collaborations, partnerships and strategic alliances. Another drawback of internal R&D is that many large firms multi-technology corporations, they are operating in several technology fields. To be technological leaders in all these technologies is difficult and expensive. With the acquiring of external (basic) technologies it is possible to shorten the development process. 

Further the economic perspective changed in the 1980s. Government and organisations were realising that technology which has already been produced and hence paid for by someone else, could be used and exploited by other companies to generate revenue and thereby economic growth for the economy. The transfer of technology became a booming business. Even the realisation that successful collaboration and joint ventures could be achieved with competitors was ‘born’ in this period.

The shift of the process of innovation from traditionally intern to more extern is also a result from the increasing use of networks. There is a stronger link in the innovation process between the internal and external environment of the firm nowadays. Open innovation is introduced which confirms that accessing and utilising flows of knowledge is a fundamental part of the innovation process.

Technology transfer is the application of technology to a new use or user. It is the process by which technology developed for one purpose is employed either in a different application or by a new user. The activity principally involves the increased utilisation of the existing science/technology base in new areas of application as opposed to its expansion by means of further research and development.

However, the term technology transfer is used for almost every movement of technology from the one party to the second. Therefore another definition of technology transfer is the process of promoting technical innovation through the transfer of ideas, knowledge, devices and artefacts from leading edge companies, R&D organisations and academic research to more general and effective application in industry and commerce.

There are different models of technology transfer. Eleven models are discussed in this chapter.

- Licensing

- Science park model

- Intermediary agency model

- Directory model

- Knowledge transfer partnership model

- Ferret model

- Hiring skilled employees

- Technology transfer units

- Research clubs

- European Space Agency

- Consultancy

Licensing refers to the access of a technology through a license. Here the technology owner receives a licence fee from the technology user. There are licenses on different levels. With licensing the technology owner is granting another business permission to use your intellectual property. This helps businesses and universities generate income from their intellectual property through the licensing of technology to third parties. With licensing it is important for the technology user to evaluate the need and the benefits for the business from the technology before making the commitment to pay. Because of license fees are usually very high. Reasons of a business to license are avoiding patent infringement issues, the diversify and grow through the addition of new products, the improvement of the design and quality of the existing products. Obtain improved production or processing technology is another reason for licensing. Also the freedom of action in the company’s own R&D programme may be achieved with licensing, together with the save of R&D expenses and delay. Another reason is the elimination of the uncertainty and risk involved in developing alternative processes and technology, the accommodation of customer needs and wishes or to qualify for government and other desirable contracts.

The science park model is based on the idea to develop an industrial area close to an established centre of excellence, for example an university. The aim of this model is bringing together the theoretical and practical world.

The intermediary agency model is self-explaining. Here the role of the agency is to act as the intermediary between companies seeking and companies offering technology. These agents come in a variety of forms.

In the directory model the organisations are meant that sprang up in an attempt to transfer technologies when this was booming in the 1980s. The firms for example develop technologies that are available for license.

Another method for technology transfer is the knowledge transfer partnership model. In this model master students are linked to research project in a (small) company. They are working on the project and are following master courses and therefore technology is transferred between universities and small companies. The university is offering support to the student and expertise to the company.

The ferret model is based on the defence technology enterprises, together with the ministry of defence. Ferrets are qualified scientists and engineers who would ferret around for interesting defence technology that could have wider commercial opportunities.

Further hiring of skilled employees is a method for technology transfer. These methods is one of the oldest, but one of the most effective ones. Companies are hiring people with the necessary skills and knowledge. For companies it is a fast method to gain the necessary technology where the company has limited knowledge or experience.

People are even recruited from competitors, university research departments or other organisations. Some of their experience may be replicable, others may not. Here the significance of organisational learning is visible again. 

Technology transfer units are used to bring in technology from outside and/or find partners to help exploit in-house developments. These technology transfer units use elements of the intermediary and the licensing models.

Research clubs tries to bring companies together with common interests in particular research areas. Some of these companies conduct research collaboratively, others only exchange information, knowledge and/or experience.

A method limited to the space industry is the European Space Industry (ESA). With the combination of the intermediary agency, the directory and the ferret model the ESA offers access to space research in virtually all fields of science and technology.

The last method to transfer technology discussed in this chapter is consultancy. The technology consultants are used in many science-based organisations. These method is very popular and essentially adopts the hiring skilled employees model. Technology consultants which have developed knowledge and skills in a particular area of science offer their unique skills to the wider industry. Consultants are able to offer help, advice and useful contacts to get a research project off to a flying start. They are usually remain part of the research group during the first years of the research project.

Pros and cons of technology transfer

Technology transfer is a complex process. The models of technology transfer are often emphasised on providing information about the access to technology. However, the provision of technical ideas is a necessary part of technology transfer, but it is only a part of the process.

A conceptual framework is developed to develop understanding of the complex nature of inward technology transfer and knowledge accumulation. This conceptual framework (on page 357) views technology transfer as a series of complex interactive processes as opposed to a simple decision process. Therefore the technology transfer process is broken down in sub processes: accessibility, mobility, receptivity. Receptivity is the organisation’s overall ability to be aware of, to identify and to take effective advantage of technology. This receptivity process can be divided in four sub processes: awareness, association, assimilation, application. This conceptual framework highlights the importance of viewing technology development as a combination knowledge, skills and organisations, while the economists view is technology as an artefact to be bought and sold.

The NIH syndrome could hinder the technology transfer. NIH is not invented here. This syndrome is the tendency of a development group to believe that it possesses the monopoly of knowledge in its field, leading to reject new ideas from outsiders to the likely detriment of its performance. When the whole R&D function is injected with this syndrome, the effect is a refusal to accept any new ideas from outside.

According to a study of Danhof (1949) there are four different types of a company.

Innovators (firms that first adopt a new idea)

Initiators (followers of the innovators)

Fabians (firms only adopt a widely acknowledged idea)

Drones (firms that adopt new ideas the latest)

This categorisation results in different responsiveness and take up of externally developed technology.

Further the factors fostering technology transfer are studied. These factors are:

- Incoming communication of high quality

- Willingness to share knowledge

- Readiness to look outside the firm

- Willingness to take on new knowledge

- Effective coordination mechanisms and internal communication

- Potential ideas are deliberately surveyed

- Management techniques are used

- Awareness of costs and profits in R&D departments

- The outcomes of investment decisions are identified

- Intermediate management is of good quality

- The board of directors possess high status of science and technology

- Chief executives of high quality

- High rate expansion

In the research of technology transfer there has been little research aimed at the difficulties of exploiting externally developed technology. The notion of receptivity suggests that there are certain characteristics whose presence is necessary for inward technology transfer to occur. If technology transfer is viewed as a process, creating or raising the capability for innovation is important. This capability is searching and scanning for information which is new to the organisation, recognising the potential benefit of this information by associating it with internal organisational needs and capabilities. But also the communication of business opportunities to the organisation and assimilation of them and the application of these business opportunities for competitive advantage.

These are the capabilities in the stages awareness, association, assimilation and application, the four sub processes of receptivity in the conceptual framework.

However, much organisations are not aware of the value of technology scanning. Effectively scanning the technological environment may result in acquiring technical information in order to maintain the knowledge base of the organisation. Innovation is a process of knowledge accumulation based on a combination of in-house R&D and external performed R&D obtained via the process of technology scanning. So, organisations must ensure that their personal is aware of the technology developed elsewhere. Otherwise they are usually surprised by external developed technology. One of the most effective ways to capture this external technology is through networking.

Here, the importance of external information, technological scanning and networking is made clear. The sub process awareness is seen as the necessary first stage of the technology transfer process. To be effective in the external scanning of technologies it is important to fully understand the intern capabilities. When an interesting technology is identified, it is necessary to match this technology with a market need in order to produce a potential opportunity for the business.

When an organisation is aware of technological opportunities and the market needs, the probability of being able to develop and create associations on behalf of the organisation between internal and external opportunity is increased. This process of association is the therefore the second stage in the technology transfer.

The importance of learning by doing is mentioned earlier in this summary. Assimilation is the third process of the framework and here the internal activities undertaken for learning by doing are captured.

The application is the fourth and final process of the framework. In this stage the firm brings about commercial benefit from the launch of a new product or an improved product or manufacturing process. The focus has to be on the business aspirations of the firm and the future markets of the firm.

The one who put up the money to try out the new technology usually dominate the assimilation phase. Further the assimilation process is influenced by the external operating climate. Because in capital-intensive industries there exists a window of opportunity for bringing in new, proven-process technology, while in less capital-intensive industries these windows of opportunity are not so apparent and opportunities may be more consistent.

There are a number of stages identified which must occur if the process of knowledge transfer and thus organisational learning is to be complete. First, there has to be an awareness and a receptivity towards knowledge acquisition. Then the relevant information can used to develop associations whit internal knowledge which can lead to the creation of genuine business opportunities. Then the knowledge is assimilated. However, the organisation is learning if the knowledge is assimilated into the core routines of the organisation. So, the knowledge becomes embedded in skills and know-how. Before this can be achieved, there needs to be explicit acceptance by the organisation. It is possible that technological and organisational change is achieved at the acceptance stage, but if the organisation has not gone through the full learning cycle the knowledge is not completely transferred into the core routines. When a technology is assimilated in the core routines, behavioural change is achieved within the organisation.

Technology transfer has an important influence on the management of innovation. But technology transfer is not only the access to the technology. It is also concerned with receptivity  issues of the receiving organisation.