The ability to develop innovations and new ideas is currently among the top priorities in numerous organizations’ management. The emergence of economic knowledge, considerable technological advancement, and intense global competition have made innovation a vital aspect of productivity. Creativity is the mechanism by which companies manufacture new processes, products, and systems needed for adapting to the changing modes of competition, market, and technologies (Cusumano, Gawer, and Yoffie, 2019).
Therefore, as organizations become increasingly focused on development, their success has increased productivity. Increased commitment to innovation is essential to help improve a firm’s income. However, managing innovation is challenging since it is a risky and complicated process. This paper aims to demonstrate how the invention process can be systematized, replicated, and achieved within companies. It will further present a better understanding of innovation regarding functional capabilities.
Definition of Key Terms
Innovation is vital in sustaining a company’s competitive advantage in both its target market and the international business industry. Despite having numerous theories, only a few have investigated the relationship between business capabilities and innovation. The majority of studies have focused on the impacts of competencies on firm productivity. According to Cusumano, Gawer, and Yoffie (2019), the two critical factors affecting product innovations are product value to the consumer and the new commodity’s synergy with the company’s existing capabilities. However, some theorists like Danneels encourage the adoption of power leveraging. Thus, a company’s current faculty can be employed in the implementation of new capabilities.
Leveraging capabilities are usually less risky and a fast way for a company to develop and reinvent itself. Managers should, therefore, abandon the product-centric view of their organization and focus on examining the capabilities on which their goods are based. Moreover, while defining competencies, the administrators should emphasize replacing particular commodity configurations. Their company’s capabilities are currently embedded and establish new methods that can be applied in the creation of new products (Herrera, 2016).
Since abilities are not product-specific and products embody powers, core capabilities transcend any specific commodity. Therefore, one product can manifest several capabilities, but one capacity can be the foundation of numerous products (Herrera, 2016). Thus, despite this useful and potential interchange, competencies are not entirely implemented by organizations.
Impact of Core Capabilities, Path Dependencies, and Relationship to Resources
Production capabilities on innovation are vital aspects of an organization’s competitiveness. Marketing and production skills are the main factors that impact a product’s outcome (Stezano and Espinoza, 2019). Therefore, companies should have technical and invention collaboration and further concentrate on investing in research development, market expertise, and production competencies. Moreover, researchers discovered that production and marketing capabilities and coordination are linked to successful results and negatively linked to failures. Companies entering a new market or employing innovations should ensure that they create new capabilities despite being time-consuming and riskier than the initial base (De Silva, Al-Tabbaa, and Khan, 2019). Further, organizations should select projects that improve the firm’s existing marketing, organizational, and technological capabilities.
Marketing capabilities are an integrative process developed to apply the company’s resources and knowledge to the business’s market demands, hence helping it add value to its products and services and stay competitive. Researchers argue that marketing skills in new product development are composed of various processes, such as the marketing research and development interface, customer knowledge, and competitor knowledge improvement (Ju, Park, and Kim, 2016).
Customer knowledge is significant since it tries to predict the consumers’ behavior regarding the current and potential demand for new commodities and services. Conversely, competitor knowledge involves activities that create knowledge about competitors’ strategies and products (Ju, Park, and Kim, 2016). The marketing research and development interface is how marketing and R&D functions communicate and operate alongside each other.
Marketing competencies play a significant role in creating and success of a new product since there is no need for a commodity unless customers are aware of the products’ existence. Furthermore, the clients should be notified through promotion and salespersons of the innovative technologies that the company processes and the R&D ideas adopted (Behnam, Cagliano, and Grijalvo, 2018). Therefore, an organization’s role is to understand that there is a need to serve consumers and make the clients perceive that opportunity. However, when the customers are unaware of the offer, the firm managers should invest in R&D and commercialization processes.
Path dependencies are a significant issue when it comes to innovation. Typically, this phenomenon stipulates that businesses tend to follow what has occurred in the past because of resistance to change. In other words, this idea suggests that innovation is only implemented by firms that invested in this strategy from the beginning. Simultaneously, businesses that did not deal with innovative decisions in the past are considered incapable of implementing them now. However, Asheim (2019) denies the claim above and admits that firms can and should invest in new path development by utilizing knowledge combinations. Consequently, it is impossible to mention that path dependence is an obstacle to innovation.
Relationship to Resources
In the research field, there is no consensus as to how resources impact innovation. Some scholars state that sufficient resources lead to creativity, while others argue that constrained opportunities lead to innovative decisions. In this case, it is reasonable to draw attention to a meta-analysis by Weiss, Hoegl, and Gibbert (2017). The researchers find significant evidence to claim that resource adequacy promotes innovation. Thus, it is possible to suppose that businesses with sufficient opportunities are more subject to creative decisions in the modern world.
Impacts of Interplay between Tangible and Intangible Resources
The research-based view (RBV) scholars have argued that intangible resources (IR) cannot be readily acquired in the factor markets and imitated quickly by a company’s competitors. The latter concludes that inimitability sources can be elaborated using three distinct mechanisms: social complexity, uniqueness, and casual ambiguity (Kamasak, 2017). The exclusive historical circumstances and development course significantly endowed organizations with resources that cannot be controlled and imitated by their competitors.
Casual ambiguity refers to the uncertainty surrounding the relationship between a company’s resource portfolio and its productivity. Scholars suggest that casual improbability exists when its opponents do not understand the connection between a company’s resources and sustained competitive advantage (Cirera and Maloney, 2017).
Therefore, it becomes impossible for an imitating organization to duplicate a successful company’s strategies since they cannot understand what makes it successful. Social complexity can be found where the resources are based on compound social occurrences, and it significantly restricts the ability of other companies to imitate such resources (Cirera and Maloney, 2017). Furthermore, socially involved resources, such as interpersonal connections between the managers, the organization’s reputation among suppliers and consumers, and organizational culture are difficult to imitate because socially complex resources are not subject to standard management.
Similarly, intellectual property components, such as copyrights, patents, trademarks, and registered designs that provide legal protection to companies, preserve their economic benefits, and restrict duplication by its competitors are also IR. For example, the possession of complex and inimitable organizational culture supported by employees has enabled Apple and Sony to become the most innovative firms globally (Kamasak, Yozgat, and Yavuz, 2017). For example, the shift from IR to tangible resources (TR) happened when “Apple has changed its business from selling hardware to selling design and emotions with its aesthetically pleasing products such as candy-colored iMac” (Kamasak, Yozgat, and Yavuz, 2017, p. 255).
Therefore, a unique organizational culture can become the foundation of competitive advantage since it is based on creativity and innovation.
Finally, time compression diseconomies refer to the time required to develop resources through experience, professional proficiency in a skill, and firm-specific knowledge. The inimitability of a resource is connected to the characteristics of the resource accumulation process (Mikalef et al., 2018). For example, organizational culture is a distinct intangible resource that competitors cannot replicate since it entails conditions of asset specificity and time compression diseconomies (Rua et al., 2019).
Moreover, corporate reputation as an intangible resource involving an overall external assessment of firms’ actions and past performance in the shareholders’ value can be accrued in the stakeholders’ minds over time (Ying, Hassan, and Ahmad, 2019). The company’s reputation is usually connected to its productivity as it helped the firm gain a competitive advantage in the marketplaces (Rua et al., 2019). Similarly, a manufacturing firm’s complicated internal technological secrets can become an ambiguous resource over a specific period.
Physical objects such as inventory, cash, land or buildings, and machinery are TRs. According to Echtler and Kaltenbrunner (2016), TRs can be fixed and current. Fixed resources are properties, such as machinery and buildings owned by a company for a significant period and cannot be converted to cash. Conversely, the current resources refer to marketable securities and inventory that can be easily changed into money. The current tangible properties are usually in the firm for a short period.
The TRs can be easily liquidated to change them into a set value and are vital in accounting since they help an organization understand its financial standing entered on financial statements and balance sheets. Tangible assets are essential to a firm’s financial security since they can be used as collateral security to obtain loans. For example, companies with more TRs tend to borrow more from creditors (Jawed and Siddiqui, 2019). The lenders understand that the assets are more comfortable to claim when the corporation faces financial distress.
Furthermore, the fact that existing resources can be changed into money moderates risks within the industry by guaranteeing that it can pay its bills and stay solvent. Despite focusing on intangible assets, firms should ensure that they also concentrate on acquiring current resources. It will enable them to have more value in money risked or owed; thus, the corporation will be steady and safe in their marketplaces (Mikalef et al., 2020). The depreciation of TRs also makes the resources vital for a company’s performance as it will allow the company to gain tax benefits annually without spending additional cash flow.
Role Played by Dynamic Capabilities
Dynamic capabilities (DC) are considered essential organizational and managerial procedures. Their function is to analyze a corporation’s current supply base and convert it to develop a new alignment of capitals that can withstand a competitive advantage (Finch et al., 2016). It further stipulates that organizations should restructure and integrate their resources and competencies to manage environmental variations. Compared to IR and TR, skills have remained complicated and amorphous to describe the components that institute RBV (Albort-Morant et al., 2018). However, scholars argue that human capital, business processes, and networking abilities are most influential in the developing performance through coordination, integration, building, and reconfiguration of a business’s competencies.
First, labor capital is a unit that comes from developing a persons’ understanding, capabilities, and skills. It consists of aspects such as originality, inventive thinking, expertise, skills, pro-activity, shared knowledge, and managers’ and staff’s know-how, which are important determinants of a company’s success (Ju, Park, and Kim, 2016). The employees’ skills are usually considered the key drivers of their productivity since all the choices on how, where, and when the organization will position its assets are decided by the staff (Finch et al., 2016).
Furthermore, the function of talented workers and managers’ strategic decisions with innovative and creative capabilities has enabled firms such as Facebook and Google to achieve success in the technological industry (Dentoni, Bitzer, and Pascucci, 2016). Therefore, human capital is a dynamic capability that should be considered an essential factor in an organization’s productivity.
Second, network capabilities refer to creating and maintaining the firm’s relationships with other corporations. The network links such as dealer-consumer fairness, industry clusters, and system structure as capabilities in invention performance have also helped build a company’s relationship with its competitors (Teece, 2016). Organizations that have adopted public networking associations and company-particular administrative understanding have successfully helped them achieve improved operation paralleled to other companies within their marketplace (Mikalef et al., 2020). Moreover, networking skills present significant advantages, such as transfer of specialized knowledge, brand loyalty and promotion of consumers, and boosting learning abilities in the corporation.
In developing marketplaces where state, local, and bureaucracy establishments are directly engaged, it is challenging for companies to influence the suppliers’ limited raw materials and gain entree to supply and interaction networks. It further becomes difficult for companies to access state administration licenses without creating a constructive relationship with politicians (Lopez-Cabrales, Bornay-Barrachina, and Diaz-Fernandez, 2017). Furthermore, in emerging markets, trust-based relations and longstanding connections positively impact the social and business environment due to the dominant collectivist culture in these economies.
Well-developed relationships with distributors, consumers, and suppliers can present substantial advantages to the companies. For example, the long-term associations between Ülker, United Biscuits, Godiva, and the indigenous suppliers enabled the confectionery manufacturer to infiltrate the European, Middle East, and African marketplaces ahead of its competitors Nestlé (Kattel and Mazzucato, 2018). Associations represent the capabilities created through historic and path-dependent trajectories; therefore, it restricts duplication and makes interacting abilities vital to a company’s success.
Finally, business practices are termed as the activities that organizations are involved in to understand business objectives. They present essential infrastructural support for function incorporation and maintain useful information flows directly linked to a firm’s overall performance. Examples include automated information exchange and intranet facilitated the banking industry in making effective decisions, increasing customer service quality (Jurksiene and Pundziene, 2016). Moreover, business procedures can benefit organizations in sharing, revealing, and transferring rooted data through IT-based information organization enterprises.
Various corporations such as Lilly and Estée Lauder created the “I have an idea” online website. The platform conveyed all in-house and outside members globally together via a simple online website to communicate ideas regarding different products and services and suggestions for the firms’ operational effectiveness (Jawed and Siddiqui, 2019). Consequently, innovative and helpful ideas developed from the digital application.
Additionally, another commercial practice, such as the operational logistics system, allows a corporation to spread its raw materials, completed products, and facilities in a continuous procedure. As a result, the company realizes significant improvements in fulfillment cycling times and production costs, directly linked to its productivity. For example, Estée Lauder’s international distribution structure, LEAN, has enabled the organization to achieve operational excellence and continuous development in the firm’s distinct processes (Hermano and Martín-Cruz, 2016).
Similarly, an application that merges all task procedures and a structure for handling the development, certification, supply, and storing of complex requirements has been adopted to track buyer-packed products by P&G company (Hermano and Martín-Cruz, 2016). Therefore, given their comprehensive roles, business processes play a significant role in an organization’s performance.
The ability to develop intangible, tangible, and dynamic capabilities can be used to determine a company’s ability to achieve sufficient productivity in its market. The perspective of capacity is useful to apply to innovation as it can innovate, creating the potential for company-wide behaviors leading to systematic invention activities in the organization. Therefore, the topic of a corporation’s design and strategy should be investigated further to enable firm managers to make appropriate decisions to boost their market share.
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