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ScienceDirect Procedia - Social and Behavioral Sciences 235 (2016) 709 – 718

12th International Strategic Management Conference, ISMC 2016, 28-30 October 2016, Antalya, Turkey

How Well Do Companies Manage Innovation? An Analysis on Low-Tech Industries Murat BAYa , Umut ÇİLb, b a,b

Karamanoğlu Mehmetbey University, Karaman, 70100, Turkey

Abstract

This study has examined the topic of innovation management in lower technological industries with the example of confectionery industry. This examination was conducted by a questionnaire to 42 companies (represents 42,4% of the industry) in the industry in Turkey. The findings have been mainly examined by Tidd and Bessant’s scale and its cobweb model to identify the average score of the industry and compare it with ideal score and among companies in the industry. Also, a frequency distribution and correlation analysis were used to specify some noteworthy points. The results show us the level of innovation management in the industry in Turkey and it has found some significant points. ©©2016 The Authors. Published by Elsevier Ltd. This 2016 The Authors. Published by Elsevier Ltd. is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the organizing of ISMC 2016. Peer-review under responsibility of the organizing committeecommittee of ISMC 2016. Keywords: Innovation, Innovation Management, Low-Tech Industries Introduction

One of the most significant symbols of the modern economic development is the rapid technological change leading to knowledge generation that highly intensifies the competition between companies (Castells, 2010). Everything such as products, processes and technologies is in a rapid and constant change process. Because of these changes, innovation and innovation management become vitally important. Therefore, these issues have important consideration among academics, business world and politicians. There is a big debate on whether innovation is only an issue of high-tech and big companies or not. As Hoveskog (2011) stated “high-tech industries are seen as the main drivers of growth processes, employment and productivity” (p. 55). Chesbrough and Crowther (2006) noted that innovation was accepted often a matter of high-tech or high value-added sectors and only completely new products or processes have seen as innovative activities. However, many studies showed that more than 60% of total employment in the manufacturing sector has been provided by low-tech

Corresponding author. Tel. + 90-338-226-2000 Internal: 3520

Email address: [email protected] **The data collection part of this work has been supported by the Scientific Research Project Office (BAP) of Karamanoğlu Mehmetbey University.

1877-0428 © 2016 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Peer-review under responsibility of the organizing committee of ISMC 2016. doi:10.1016/j.sbspro.2016.11.072

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industries (e.g. Kaloudis, Sandven and Smith, 2005; Hirsch-Kreinsen et al., 2006; Hoveskog, 2011). It is also known innovation is the most important way to achieve competitive advantage, realize and sustain economic growth at the micro level; and to increase employment opportunities at the macro level (Hirsch-Kreinsen and Jacobson, 2008). When the situation is like that, how can innovation be considered to be an issue only for certain types of organizations or industries? Therefore, these concerns should be seen important for small organizations or low-tech sectors as much as relatively bigger ones and high-tech industries. In other words, it is clear enough that innovation is an important matter of high-tech and high value-added industries but the ignorance of its importance for lower-tech industries has been demonstrated by several studies (e.g. Tödtling, Lehner and Trippl, 2006; Hirsch-Kreinsen and Jacobson, 2008; Hoveskog, 2011). These discussions have led us to question the state of innovation management in low-tech sectors: how well do low-tech companies manage innovation? Thus, the aim of this study is to determine the ruling status of the innovation in low-tech companies. For this purpose, the study focused on the confectionery industry as a representative of lowtech industries to apply an innovation audit and identify the industrial understanding. The industry classification of OECD classifying industries according to their R&D intensity was used in the classification of industries based on their technology level (OECD, 2005). In this paper, the literature on innovation and innovation management, the classification and dimensions of innovation and innovation in low-tech industries will firstly be examined. Then the empirical findings will be presented and lastly the study will finish with the discussion section. 1. Literature Review 1.1. Innovation and Innovation Management Innovation is a whole process which starts from a new idea, novelty or invention, and finishes at the end user through marketing and commercialization activities (Bessant and Tidd, 2009). Innovation is related to explanation of how to add value to consumers in a systematic way and requires the generation of new ideas for success and a different way of thinking (Adair, 2007; O'Sullivan and Dooley, 2009). Damanpour (2009) states that innovation usually stems from pressures such as competition from the external environment, liberalization, isomorphism, resource scarcity and customer demand, and it is an adjustable behavior changes the organization to maintain or improve their performance. Nevertheless, Tidd and Bessant (2014) define innovation in a more basic form as “the process of creating value from ideas” (p. 3). Regardless of company size or industry, innovation is a complex and difficult process and hence lots of valuable ideas cannot be commercialized. The main problem or challenge here is not to produce a new idea but transform the new ideas to practical usage (Tidd and Bessant, 2014) because the diversity of understanding and practice of innovation makes the process more confusing and unclear (Nada et al., 2012). Therefore, it can be easily claimed that innovation management is a more critical issue than innovation itself in order to be successful and to maintain it (Hamel, 2006). Innovation management is a very complex process as it is significantly necessary. Therefore, we need such an innovation audit tool that should focus on all of the five key dimensions of innovation which are strategy, organization (structure and culture), processes, linkages and learning, and it must be easy to understand and implement. Thus, our research on the literature leads us to Tidd and Bessant's (2009, 2014) innovation audit scale that emerges as the most appropriate one for the study. The five key dimensions of innovation should be touched before moving away: Strategy: Morris (2011) stated that observed significant environmental changes have made innovation a "must" for all organizations. An organization's innovation strategy is not only one of the most important factors to survive for any type of organization but also one of the most significant indicators of the level of success for the management of the organization. Innovation is also a significant and fundamental ways to achieve competitive advantage. Therefore, as Nada et al. (2012) noted, innovation is one of the elements required to give a priority in the mission, vision, organization values and corporate plans of organizations and requires a careful innovation master plan. During the establishment process of a master plan for innovation, corporate leadership often works with the senior management team on the innovation strategy that can guide to the organization's innovation efforts. Innovation strategy is a master plan which sets goals and direction for innovation, allocates resources and investments, defines the criteria for success

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and helps to coordinate all innovation initiatives. The basic elements of a good innovation strategy are to identifying strategic areas for innovation, identifying the expectations and objectives of the innovation effort, managing the expected degree of innovation, risk and reward and finally, the allocation of human and financial resources. It is not enough anymore to see innovation as a linear process in which the resources directed to a certain end with the emergence of a new product or process because this can cause massive destruction in the organization. The management should develop necessary capital, infrastructure and human resources to support the implementation of protection and evolution activities. Moreover, the expectations on the allocation of funds and the outcomes of the innovation process must be identified to the support of spontaneous innovation. The application of innovation for advancement should become a requirement within the organization. Organization: The main issues affecting the willingness of organizations to be innovative are organizational structure and organizational culture (McLuaghlin, Bessant and Smart, 2005). Both can support organizational innovation and can also obstruct it. Therefore, organizational structure and culture must be built in a way to encourage individuals on independent and creative thinking to adapt their personal knowledge to institutional challenges. Organizational innovation is essential in the formation of the innovation process and innovation constitutes a part of the system that produces it. A flexible and comprehensive innovation institution system that can help them is required to achieve organizational innovation strategy and in this system: (1) establishment of a cross-functional team, (2) independent and creative thinking, (3) a matrix organization approach and (4) open innovation are essential (Lam, 2006, Tidd and Bessant, 2014). The value and importance of knowledge and learning is significant in corporate innovation. If innovation is related to looking outside the organization to understand the change, new ideas and inside - outside of the organization, then continuous learning is a necessity for the success of any corporate innovation. Process: Some certain factors such as company size, variations on a theme, the company's geographical coverage and the connections of the companies can affect the behavior of organizational innovation process (Tidd ve Bessant, 2009). Pisano (1997) stated that process development could be "a vital weapon" for firms to obtain the competitive advantage because if the process development is embedded, this helps them to get the ideal position for an innovative company, to develop the dynamic capabilities and use these capabilities in an effective way, and gain the status of a learning organization. In addition, processes are the backbone of other innovation activities, in other words, is the skeleton of the innovation system. Therefore, when a company's processes are weak, becoming an innovative or learning organization may be more difficult for it (Pisano, 1997; Garratt, 1987). Linkages: As Machikita and Ueki (2011) highlighted, both internal and external links are seen as vital mechanisms of development in organizations in terms of producing innovative output. For example, the development of employees by interacting with each other is one of the important internal links that increases innovation efficiency. On the other hand, the external connections with other institutions may significantly reduce spent time and money for innovation. Therefore, companies have worked with independent research organizations, universities and other research and development institutions. Links contribute to companies in the following key issues: the development of staff and products, and development, production and sales partners (Bruno, Reinhilde and Pluvia, 2008; Machikita and Ueki, 2011). Learning: The road leading to organizational innovation depends on the ability of the organization to provide new information for its employees and the ability in implementation of this information (Calantone et al., 2002). Information or knowledge should be used to bring new ways of thinking and as a milestone for creativity, a solid route to change and innovation (Nada et al., 2012). For this, it is necessary for the organization to become a learning organization. According to Nomura (2002) and Bessant (2003), organizations must provide a learning platform that allows an effective information sharing system within the organization and then allows the emergence of creativity and opportunities for innovation in order to be a learning organization and to sustain its competitive advantage over its competitors. Since, the value of learning and information can only be realized when they are put into practice. If the new corporate information could not result in any change or improvement in one of the processes, business results, increased customer satisfaction or income, it means that its value was not reviewed for success (Kustoff, 2008).

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1.2. Innovation at Low-tech Industries Industries can be classified into different subfields in terms of the level of innovation, geography, size and so on. One of these classifications attempt is OECD (2005)’s technology level classification of industries. According to the R&D intensity of industries, OECD (2005) divided the industrial sectors into four different classes which are: a) Hightechnology industries (high-tech), b) Medium-high-technology industries, c) Medium-low-technology industries and d) Low-technology industries (low-tech). On the one hand, while high-tech industries (e.g. aircraft and spacecraft or pharmaceutical industries) have more than 5 percent R&D intensity, on the other hand low-tech industries (e.g. food and textile industries) have less than 1 percent R&D intensity. Although innovation and its management are mainly accepted an important issue for high-tech industries or just larger companies, it should also be matter of lower technological industries and relatively smaller companies because they have respectable growth in productivity, attract high technological industries, create significant innovation and are a regionally and internationally important element in the innovativeness and effectiveness (Hirsch-Kreinsen, 2008; Hirsch-Kreinsen and Jacobson, 2008). Moreover, SMEs, especially the small-sized ones, are responsible for most of the innovative and creative products or services (Nuray, 2009). Tunzelmann and Acha (2004) highlighted that although high-tech industries seem to have natural skills for innovation, it may be much more important necessity for low or medium technological industries. They claim that there is a strong societal and governmental pressure on some industries such as food and energy generation to produce safer and more environmentally friendly products and these pressures make innovation more important for them than all other sectors. In the past, innovation could be accepted a matter of just high tech or large organizations but the reason of this was not being unnecessary for lower technological industries or smaller businesses; it was due to being expensive and not easy to access for them (Malerba, 2004). However, the technological improvements and high level accumulated knowledge on innovation has made it easy and cheaper for any kind of organization or industries. Moreover, innovation has become a mandatory requirement to all sectors, but especially for sensitive sectors such as food and textile, because of social, legal and health expectations (Tunzelmann and Acha, 2004). As a member of food industry, confectionery industry is seen different from other food industry representatives because contrary to other member of food industries confectionery is the most luxurious one in all food sectors, it is not a staple food and it probably seems the unhealthiest one (Declerck and Ottowıtz, 1997). Therefore, it needs more innovation activities than others in terms of health, packaging, preservation and so on (Declerck and Ottowıtz, 1997; Traill and Grunert, 1997). 2. Methodology The purpose of this study is to determine how well companies in low-tech industry manage their innovation activities and understand possible relation between issues such as between the size of the company and innovation, or between R&D intensity and the success of innovation management. For this purpose confectionery industry is chosen as sample because food industry has a need of more innovation than other low-tech industries due to the social pressure (Tunzelmann and Acha, 2004) and especially confectionery in food industry due to the health concerns and increasing awareness of healthy living and obesity (Thompson and Moughan, 2008). In accordance with the data of Trade and Industry Chambers and the Organized Industrial Zone Managements, it has been found that there are 116 firms which seem appropriate for our sample in Turkey. We tried to reach all of these 116 firms and saw that 17 out of them have ceased operations or put an end to their legal entity via merged with another company. Therefore, it has been contacted with the remaining 99 firms at management level and an appointment has been requested to conduct the work. As a result, a survey was conducted with 42 companies who agreed to participate in the study (42.4% of the entire sector) and 106 participants. A summary of the demographic information of participants can be seen at Table 1.

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Table 1: Frequency distributions of the demographic variables F Number of employees 1-9 10-49 50-249 250 and over Position Owner General Manager Department Manager Chief of Department Assistant General Manager Food Engineer Project Assistant Expert Human Recourses Quality Engineer Engineer R&D Engineer Sales - Accounting Tenure Less than 1 year 1 – 3 years 4 – 6 years 7 – 10 years More than 10 years

3 26 24 47

12 8 56 19 1 2 1 1 1 1 1 1 1 5 33 19 17 32

% 2,8 24,5 22,6 44,3

11,3 7,5 52,8 17,9 ,9 1,9 ,9 ,9 ,9 ,9 ,9 ,9 ,9 4,7 31,1 17,9 16,0 30,2

F Gender Women Men Age group 25 or younger 26 – 35 36 – 45 46- 55 56 and older Education Level Primary or Secondary School High School vocational /Bachelor Master PhD Department Management Production Marketing Accounting R&D Quality control Human Recourses Foreign Trade IT

% 23 81

21,7 76,4

6 45 45 8 2

5,7 42,5 42,5 7,5 1,9

3 21 19 50 13

2,8 19,8 17,9 47,2 12,3

31 24 14 12 8 4 8 2 1

29,2 22,6 13,2 11,3 7,5 3,8 7,5 1,8 ,9

The data will be collected by in-person (in groups) questionnaire which has three sections: The first section deals with the information of companies’ innovation characteristic, Tidd and Bessant’s scale is conducted in the second section and last one get participants’ demographical information. Pilot testing is important to understand the process of the study and it also help to increase validity of the research (Bryman, 1988; 1989; Bryman and Bell, 2007; Neuman, 2006) and hence a pilot test was conducted to five different companies in food industry and three experts of the field. In the literature there are various scales for the measurement of innovation (e.g. Cooper and Kleinschmidt, 1995; Chiesa et al., 1996; Burgelman et al., 2004; Adams et al., 2006) but as Nada et al, (2010) specified, most of them focus on some parts of innovation and this is not enough for a successful measure. There are five significant dimensions of innovation and all of them should be evaluated during the measurement process. Thus, Tidd and Bessant’s scale (2005, 2009 and 2014) was chosen to evaluate all these dimensions at the same time. The scale consists of 40 questions and each sub-dimensions are measured with 8 questions; 1st, 6th, 11th, 16th,... 36th questions for strategy; 2nd, 7th, ..., 37th questions for processes; 3rd, 8th,..., 13th questions for organization (structure); 4th, 9th,.., 39th questions for linkages and 5th, 10th, ..., 40th questions for learning dimensions. All scales used a 7-point Likert-type response with anchors ranging from (1) not true at all to (7) completely true. The scale is originally in English and hence the translation of the scales was a need to apply in Turkey. For the translation, three bilingual academics work together: the first one translated the questionnaire into Turkish and the Turkish version was subsequently back-translated to English by another bilingual academic. The third academic compare both translation and then three translators met to finalize the Turkish version of the instrument. In addition to these, face and content validity analysis were conducted by two expert professors in the field. Cronbach's alpha was used to assess the internal consistency and as a result, alpha value was found as 0.952. Although an alpha coefficient

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value which is equal or bigger than .70 is accepted reliable, the literature shows that if the alpha score is bigger than .80, it is reliable and if equal or bigger than .90, it is highly reliable (Franke et al, 2006). 3. Findings The average of all participating companies in the study was first compared with the ideal score in terms of each sub-dimensions of innovation. The purpose of this comparison is to demonstrate the industry's situation in terms of all the dimensions of innovation by learning about the industry average. As it can be seen at Figure 1, only a few companies can take values close to the ideal score which is seven and they remain limited to only a few dimensions.

Figure 1: The comparison of all participant firms with each other and ideal values Table 2: Statistics of the sub-dimensions Dimension

Lowest

Highest

Mean

SD

Strategy

2,375

6,875

5,32

0,848

Process

1,625

7,000

5,34

0,855

Organization

2,125

7,000

5,46

0,862

Linkages

1,875

6,875

5,23

0,854

Learning

1,750

6,875

5,30

0,833

According to results, it can say that the confectionery sector which is regarded as low-tech sector is below the average in terms of innovation. Whilst, the dimension of organization (5,46) has been found relatively better than other dimensions and the linkages (5,235) was found as the worst one among five dimensions. These results may be

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accepted as parallel to literature under the level of technology but it should be also emphasized that there are highly effective low-tech companies for the innovativeness. Table 3: Multiple Regression analysis Model (ANOVA)

Independent Variables

f

Sig

Strategy Process

Process, Organization, Linkages, Learning

106,850

,00

Strategy, Organization, Linkages, Learning

113,099

,00

Organization

Process, Strategy, Linkages, Learning

55,971

,00

Linkages

Process, Strategy, Organization, Learning

66,472

,00

Learning

Process, Strategy, Organization, Linkages

106,452

,00

As seen, there are significant effects of all dimensions on other dimensions (Table 3). However, according to t-test results regarding the significance of the regression coefficients (Table 4), there are only two significant correlations between different dimensions (e.g. process and learning on strategy). Table 4: T test results Model (ANOVA) Strategy Process Organization Linkages Learning

Independent Variables Process Learning Organization Strategy Linkages Process Learning Organization Strategy Linkages

t 5,641 3,819 3,008 5,641 2,406 3,008 5,646 2,406 3,819 5,646

Sig ,00 ,00 ,003 ,00 ,018 ,003 ,000 ,018 ,000 ,000

It is also noteworthy that a two-way interaction has been detected between strategy and learning, strategy and processes, processes and organization, organization and linkages, and linkages and learning and these may be interrupted as important milestone for low-tech companies. On the other hand, correlation analysis was made to determine the relationship between research variables and it also supports the findings above. Table 5: Correlation results of sub-dimensions ẍ 5,32 5,34

SS

1

Strategy Process

0,848 0,855

,873**

Organization Linkages Learning

5,46 5,235 5,3

0,862 0,854 0,833

,774** ,743** ,840**

Dimensions

2

3

4

,800** ,770** ,829**

,740** ,754**

,834**

(**Correlation significant at the 0.01 level)

According to the correlation analysis results, there is a positive and significant correlation between strategy and process (r=,873), between strategy and organization (r=,774), between strategy and linkages (r=,743) and between strategy and learning (r=,840). Strategy has a strong correlation with process and learning. According to the correlation analysis results, there is a positive and significant correlation between process and organization (r=,800), and learning (r=,829) and both of these are correlation are strong.

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4. Discussion and Conclusion Innovation has become more and more important for the companies regardless of the characteristics such as industry, size and geographic location. Also, it becomes an issue that needs a systematic and constant effort. When the situation is like that, managing these efforts in a systematic way also becomes as important as the system itself. Therefore, the main objective of the study is to provide a systematic tool with its implementation. For this purpose, Tidd and Bessant's innovation audit scale was decided to implement all the companies constituting the confectionery sector in Turkey and the scale was applied to 42 companies (42.4% of the sector) which accepted to participate. According to the results of Tidd and Bessant’s cobweb model, it can be easily claimed that the confectionary industry, as a low-tech, needs more effort to become innovative. The necessity of innovation for such industries should be even not discussed because the participant companies that have high score on the scale showed that if a company wants to be successful, it will need to be more innovative than others. Thus, instead of focusing the discussion whether innovation is necessary for low-tech industries, we will focus on the improvement of innovation skills and capabilities of them. As stated above, we have known which sub-dimensions are directly related to each other: strategy and learning, strategy and processes, processes and organization, organization and linkages, and linkages and learning. Even though each of the five sub-dimensions should be seen as important as other ones and companies should focus on all five subdimensions, according to their result on cob-web model, companies will know their weakest sub-dimensions and the other dimensions affecting directly their weakest one. Therefore, at least as a starting point, companies may concentrate on these most problematic ones with whole effort and then on others. Tidd and Bessant have also provided some solutions to possible problems of each sub-dimension according to questions on the scale. For instance, when there is a problem on strategy, it may because of some specific issues such as the lack of clear awareness of employees about innovation, the lack of clear statement of the strategy of innovation, the lack of support and commitment of the top management for innovation, the lack of a clear link between innovation strategy and company strategy and so on. Therefore, a company facing this kind of problems should firstly solve this issues not the other ones that are less problematic. In this context, while the priority of firms 2, 17 and 24 should be strategy and the other related sub-dimensions which are learning and processes, the priority of firms 23 and 36 should be linkages and the related dimensions which are learning and organization. It should be emphasized one more time that companies should never ignore the importance of all five dimensions but they just prioritize them to use their scarce sources more effectively. If there is a chance and enough sources, all of the five dimensions should be focused on at the same time. Lastly, it has been reached the conclusion that these firms show a mediocre appearance but some of them have a significantly better position among other. This is important for the comparison with other industries; especially with the industries have different technological level because if it is compared with other industries, this will help us to understand more the differences between different level industries. It would be fruitful to pursue further research about various leveled industries in various countries in order to create a map of these different industries and countries in a strategic group maps. A sample of various countries and industries may also be useful to validate or falsify all established classification about innovation. Thus, further studies may be interested to conduct this kind of study.

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