Approaches to Innovation Analysis

Describe the ‘traditional’ and ‘transnational’ approaches to innovation used by Bartlett and Ghoshal

For any enterprise, changing conditions brought on by changing competition, markets, and technology confront executives with a major and continuing challenge to decide on what specific new business interests to pursue. Unless a company constantly looks ahead, it may as well consider closing its doors altogether. Because the assessment of opportunity is so crucial to the survival of an enterprise, it is one of the most difficult and demanding tasks for marketing executives to cope with. In their book, Managing the Global Firm Bartlett and Ghoshal identify different approaches to innovation analysing and evaluating their benefits and limitations for a global company. Innovation denotes “the act of implementing a novel idea into a product or a process.” Innovations may be thought of as successful inventions and vary in significance, breadth of application, and degree of newness or change.

Bartlett and Ghoshal single out fours stages of an innovation process at the global level. Two ‘traditional’ approaches involve centre-for-global and local-for-local innovations and adaptations. Bartlett and Ghoshal underline that along with planning, it is the activity most directly concerned with matching corporate resources, present and future, with opportunity. Innovation is the act of introducing newness into a process or product. It involves an idea, its implementation, the actual production of the innovation, and its acceptance by the market. Essentially, consumer reaction determines the success of an innovation. Without acceptance, an invention does not become an innovation. The core factors of the center-for-local approach are tight coordination, economies of scale, core competencies and standardization.

At this level, the product or service remains essentially the same, but the method of performing the function is new. Such innovations may require considerable adjustment on the part of consumers. A center-for-local approach represents a break with the past and fulfills a need that was not previously met. Air conditioners and television sets are examples of innovations — both meet previously unfulfilled needs. Their introduction requires considerable change in consumer purchase-and-use habits. Local-for-local innovations “are essential for responsiveness to the unique attributes of each of the different national environments in which the MNEs operates” (Bartlett and Ghoshal 1990, p. 220). Usually, these innovations are the least complex and refer to such minor alterations in an existing product as package, color, design, shape, trim, and size variations. An innovation requires some change in consumer habits but meets a need previously fulfilled. However, it meets the need in a superior manner. In local-fro-local innovations, no new skills are required by the consumer to use the product, and no new functions are performed. It is the least complex of all changes in the innovation spectrum.

Bartlett and Ghoshal identify two ‘transnational approaches to innovation which help MNEs to compete on the global scale and sustain strong market position: locally leveraged and globally linked approaches. In contrast to traditional approaches, transnational approaches are more complex and require huge investment and resources. The locally leveraged approach implies that each division does own R&D, but a company attempts to leverage most creative ideas across company. To become an innovation, an invention or new idea must gain consumer acceptance. Innovation is inextricably intertwined with, and governed by, buyer behavior. Innovation focuses on such behavioral problems as acceptance of new products, brands, services, and processes, the diffusion of marketing information, resistance to change, informal leadership, and acceptance of risk. Bartlett and Ghoshal underline that “like locally leveraged innovations, the globally linked process captures the MNE’s potential scope economies and harnesses the benefits of world-wide learning” (p. 222).

The result is an important challenge for marketing — to gain acceptance of change. The difficulty decreases as we move from fundamental to functional to adaptive classes. As a business strategy, innovation greatly affects corporate growth, survival, and profitability. It reflects the changing market wants and needs of customers. Innovation is stimulated by competition and in turn generates counternnovations. Whenever new products or services are launched, business becomes concerned as to whether customers will accept them, and if they do, how long it will take for innovations to be profitable. In contrasts to tradional approaches to innovations, transnational approaches create totally new products that have much greater impact than adaptive innovations. Where totally new products are developed, new industries are created. As a result, these innovations may create a monopoly position within an industry for a period of time. For such new products, the creation of primary demand is more important than for products that are adaptations (Berkun, 2007).

The main similarity between the four approaches is that they allow MNEs to create a competitive advantage and respond effectively to market changes. “innovations linked to market needs does not stop at the input stage” (Bartlett and Ghoshal 1990, p. 223). The management of innovations implies the management of new market situations, the solution of new problems on a continuous basis. Yet change is often viewed as a threat to existing profitable markets and products. In reality, it is just the opposite. By recognizing profitable opportunities in continuing change, companies overcome threats and achieve growth.

To manage innovations MNEs must forecast developments, predict logical consequences, translate them into potential opportunities, and plan to capitalize on profitable alternatives. Marketing management must, therefore, create an atmosphere in which market change is expected, anticipated, and sought. To survive, business systems must adjust to environmental changes, and be flexible enough to adjust to their consequences. New products and services must be planned and developed on a programmed basis. The opportunities inherent in change must become a major focus of executives. People do not adapt readily to radical innovations, since they require departure from traditional ways of doing and thinking. The introduction of absolutely new products, variations of products, extension of new services, new packages, new advertising campaigns, and different pricing arrangements are all innovations (Berkun, 2007).

In order to adapt and introduce transnational approaches to innovation companies should permit interdependence among divisions, have strong integrating mechanisms (personnel rotation, division-spanning teams, et), and balance organizational identity between national brands and global image (Behrman and Fischer 1980). A continuum of innovation exists, ranging from very slight modification to radically new, important developments that give rise to new industries. Viewed from the consumer’s perspective, three types of product innovations may be delineated: fundamental, functional, and adaptive. The main problem is that “local innovations are not always so easily transferred. The main impediments include attempts to transfer new products or processes that are unsuited to the new environment” (Bartlett and Ghoshal 1990, p. 222). In this case, transnational innovations become the only possible and cost-effective way for companies to compete on the global scale and obtain a leadership position (Carlson and Wilmot 2006).

How do you think the roles of decentralised R&D in MNEs (Multinational Enterprises) may assist these various innovation approaches?

In general, decentralized structure of R&D permits greater autonomy and independence between divisions and laboratories. In many cases, the competitive features diffuse the benefits of past innovations into the public domain. This puts the innovator under pressure to make further innovations if he is to maintain his competitive advantage and the better-than-minimum profits that go with it. Decentralized structure of R&D stresses the competitive aspect of R&D process. Innovation is, then, one of the competitive tools of the business firm. It is a major means of creating a differential advantage, albeit sometimes short-lived. In adjusting to change, and in attempting to meet the demands of the marketplace, it must be managed, and programmed innovation is becoming one of the foundations of business strategy.

Truncated miniature replicas (TMRs), rationalised product subsidiaries (RPSs), and product mandates (PMs) increase opportunities for MNEs to penetrate new markets and innovate. Programmed innovation is an extremely important process that involves great amounts of resources and effort in promoting and accelerating economic change. The result of R&D is newness and change, and hence market opportunity.

Decentralized structure proposes greater opportunities for transnational approaches based on the monopolistic forces, or the delayed action of competition, offer the innovator incentives to innovate. “Now labs seek to assert their own position (and where appropriate that of their associated production subsidiary) in the globalised strategic evolution of their MNE group” (Pearce, 1999). Thus, decentralized structure proposes limited opportunities and benefits for traditional innovative approaches limited by central authority and product adaptation strategies (Panpanastassiou and Pearce 1999).

To some extent, decentralization can benefit companies adopted traditional approaches to innovations. The early stages of the innovation process require people able to perceive areas of human dissatisfaction as market opportunities. One of the major problems confronting corporate management committed to the generation of innovation is to identify, stimulate, and encourage the people in the system who are perceivers of dysfunctioning. Innovation and creativity do not flourish in overstructured situations. Perceivers can exist among customers and salesmen as well as executives and researchers (Berkun, 2007). Management must plan to broaden the base of perceivers of dysfunctioning by stimulating and rewarding such people wherever they are found in the organization. Perception of market needs does not mean that an opportunity exists for any particular company.

Available opportunities must be related to the particular company’s resources, including its personnel, financial, and physical resources. Profitable courses of action vary with individual corporate postures and goals. The overwhelming majority of innovative opportunities will be rejected. the problem is that “often the development of ultimately very distinctive subsidiary-level products derives from the application of the work of in-house labs to research output that originally emerges elsewhere in the group (perhaps centrally)” (Pearce, 1999). But it is necessary to screen the many to find the few that do relate to the resources and the mission of the company. This function of innovation relates to specifying the company’s innovative opportunity by identifying the various practical alternatives that exist (Pearce and Papanastassiou 1997).

In both traditional land translational approaches, support laboratory (SL), locally integrated laboratory (LIL), internationally interdependent laboratory (IIL) can help to improve and fasten the process of innovation and adaptation (Pearce and Papanastassiou 1997). Bartlett and Ghoshal (1990) cite the example of Matsushita where: “the central research laboratories” help the company to meet the needs of both local and global markets. They may be the conscious results of the research activities of marketing researchers, R&D staffs, and consultants. Many are suggested by customers such as the Government or dissatisfied users; or they may come from sales and operating personnel. The innovation time scale is collapsing. The time interval from perception of dysfunctioning to acceptance of innovation has been decreasing (Pearce 2001).

This places additional pressure on management to understand more fully the process of managing change and programming innovation through manipulation of knowledge. Innovation approaches manageability when participation in the process becomes part of the continuing responsibility of all levels of management. Management must develop the appropriate environment and set of attitudes to encourage innovation. Only then can a firm hope to deploy its resources most profitably in order to meet the challenge of change (Pearce, 1999). Following Pearce and Papanastassiou (1997): “with the generation of good communications and improved understanding of the needs of particular segments of the regional market in the manner suggested previously, it may become possible to use a limited number of high quality SLs to support the R&D needs of the whole rationalised production network”.

The innovation interval has three phases:

1. the period before the innovator’s gains are felt by his competitors;
2. the time before the competitor makes an effective response;
3. the interval before the competitive response wipes out the aftermath of the innovator’s gains (Berkun 2007).

There is a difference in each interval span for different innovation categories. Fundamental innovations tend to have substantially longer intervals than adaptive innovations. For example, a competitor’s response to a price or advertising innovation can be made directly and quickly. Innovating firms face a range of possible marketing policies. At one extreme, they can choose policies to make the maximum short-run profit and then decide to meet competition as it arises as with a pricing policy of skimming markets.

At the other extreme, they can build a solid market position by accepting modest immediate returns and taking a longer period of time to cover their outlays, thus making it more difficult for new entries, as with a pricing policy of market penetration. Between these extremes, they may choose to be reimbursed for their original outlays while still holding a competitive advantage, and then use the advantage to increase volume and build a stronger market position. From a social perspective, the benefits of various innovations are often challenged (Pearce and Papanastassiou 1997).

In sum, decentralized structure of R&D supports innovation process and permits greater autonomy between divisions. With some exceptions, the diffusion of innovations appear to trickle down from the higher-status groups to those in the lower strata. Members of the upper-status levels are imitated by those at lower levels. The impact of nonconformists on general purchase behavior seems relatively small. New products are expected to function within the current social setting and must appeal to the average, well-adjusted personality. Some innovations, however, which have originated with Bohemians have, in a modified version, been accepted on a general level.Newness is not adopted or rejected by all consumers at the same time.

The process by which customers accept new items is a complex one comprising several stages. The acceptance of new products requires that they meet at least certain minimum standards. Some of the standards are rational and even rationalized, while others are unconscious and psychologically based. Some may be specified and others hidden. Yet, when innovations are offered to the market, the differences between the innovation and competing items must be discernible to customers. Innovations should be different enough so that they elicit favorable purchase reactions.

Bibliography

Berkun, S. 2007. The Myths of Innovation. O’Reilly Media, Inc.

Bartlett, Ch. A. Ghoshal, Y. L. 1990, Managing the Global Firm, Routledge; 1st edition.

Behrman and Fischer, 1980, Transnational Corporations: Market Orientation and R&D Abroad’, Colombia Journal of World Business, Vol. XV no.3, pp. 55-60.

Carlson, C.R., Wilmot, W.W. 2006, Innovation: The Five Disciplines for Creating What Customers Want. Crown Business.

Panpanastassiou, M. Pearce. R. 1999, Multinationals, Technology and National Competitiveness. Edward Elgar Publishing Ltd.

Pearce, R.D. 1999, ‘Decentralised R&D and Strategic Competitiveness: Globalised Approaches to Generation and Use of Technology in Multinational Enterprises’, Research Policy, Vol. 28, No. 2-3, pp. 157-179.

Pearce. 2001, ‘ Multinationals and Industrialisation: The Bases of Inward Investment Policy’ International Journal of the Economics of Business, Vol. 8, No. 1, 51-73.

Pearce, R., Papanastassiou, M. 1997. “Overseas R&D and the strategic evolution of MNEs: evidence from laboratories in the UK”. Web.