Weinstein, Art, Jin, Yan, and Barrett, Hilton Strategic Innovation in B2B Technology Markets: A Need for a Process Perspective
Strategic Innovation in B2B Technology Markets: A Need for a Process Perspective Art Weinstein Huizenga School of Business and Entrepreneurship, Nova Southeastern University, Florida, USA
Yan Jin* Davis School of Business and Economics, Elizabeth City State University, North Carolina, USA
Hilton Barrett Davis School of Business and Economics, Elizabeth City State University, North Carolina, USA
This paper examines innovation for B2B technology companies from a process perspective and how these innovations impact corporate performance. Using snowball sampling, a national survey was conducted among experienced marketing managers from several industry sectors. Research findings show that high-tech companies master most of the technological aspects of their businesses. However, an understanding of process technology was the one weak link. Overall, medium and large companies were more successful in technology usage than smaller firms. Building on the literature and research findings, a five-step model for innovation was developed. This paper combines academic and practical insights to shed new light on how successful managers are incorporating innovative activities and processes in B2B technology companies. As an exploratory study, the focus of the research was solely on the participating organizations. Potential innovation partners such as customers, suppliers, and other strategic alliance partners were not evaluated. Key Words: innovation, process orientation, B2B, industrial marketing, value chains * Corresponding Author. E-mail address:
[email protected] I. INTRODUCTION CREATES VALUE
-
INNOVATION
Today’s new hybrid economy consists of three major components: 1) a traditional economy (agriculture, construction, manufacturing, wholesale and retail trade), 2) a dominant services sector led by business, professional, and healthcare services, and 3) a technology-based economy consisting of hightech firms, information-based businesses, and web-based companies. This third area is the focus of our investigation. Technology markets are vitally important today because of our transformation to an entrepreneurial, global, and knowledge-based economy. Knowledge workers now account for
more than 60% of workers in the U.S with Information Technology (IT) being the fastest growing economic sector (U.S. Bureau of Labor Statistics, 2012). Business (B2B) technology markets include -- but are not limited to -communications, computers, consulting, energy, media/publishing, medical devices, pharmaceuticals, and research/ information firms. Realize that dramatic shifts have occurred in technologies which have transformed how firms do business and connect with their customers. Innovation through technology is increasingly enabling firms to reorganize to facilitate a more creative climate, design better processes and products, and manage supply chains and value chains (both horizontal and vertical). Winners in today’s economy will be
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Weinstein, Art, Jin, Yan, and Barrett, Hilton Strategic Innovation in B2B Technology Markets: A Need for a Process Perspective
those companies which can clearly define their processes, organize around those key processes, and work closely with their business partners. This paper examines how marketing executives employ innovation as a best practice tool to effectively create maximum value for customers in B2B technology markets. Kotler (2003) explains that, “all markets consist of segments and niches.” Building on Darwin’s (1859) theory, parallels between biological competition and business competition have been drawn. Just as no two species can coexist if they make their living in the identical way, firms that offer the same products, in the same territory, under the same conditions, with the same clientele cannot survive (Henderson, 1989). Innovation in designing excellent products and processes is vital to differentiate a company from other competitors and lead to continued customer satisfaction and, in turn, increased market share. Consider several companies whose success is tied to their technology and business relationships. The overwhelming success of Hyundai Motor America can be traced to building very good cars (with lots of standard equipment) at very good prices. Their ten-year, 100,000 mile powertrain warranty made a loud statement to the market that they manufacture high quality vehicles; clearly, these are no Yugos. In contrast, Microsoft and 3M have lost their lustre as leaders in innovation. Microsoft has spent billions of dollars in research and development over the past decade, yet has little to show for their investment. In the case of 3M, this creative titan’s entrepreneurial edge has faded as it is no longer cited as a top company in Business Week’s rankings of the world’s most innovative companies (Kenney, Khanfar, and Mutjaba, 2010). Our study queries marketing executives about their perceptions of innovation in B2B technology-based companies. Specifically, the objective of this article is to assess how innovation helps managers enhance business performance. The paper is organized as follows: The next section is the literature review, which
includes three foci: the process orientation, product and process innovation, and innovation drivers and models. After that, research questions are developed, methodology, including the measurement development and sampling, is introduced and then the research findings are presented. The managerial implications for successful innovation are then discussed. II. LITERATURE REVIEW 2.1. A Process Orientation Perspective Conceptually, a process has inputs which are transformed into an output(s). On an enormous scale, we can state that all of nature is a complex series of inter-related processes. Outputs of one process become inputs to other processes. An organization, like a biological organism, is simply a management of processes within which there are additional processes within additional processes, etc. The final outputs are products (goods/services/ideas) that have value as defined by customers. The focal point of the organization should be its processes and outputs, not departments. The goal of process management is to maximize the value to the target market with a minimization of costs. Organizations that view themselves as a collection of processes (including innovation) that must be understood, managed, and improved are most likely to succeed. Business process design (Lee and Dale, 1998) involves the identification and sequencing of work activities, tasks, resources, decisions, and responsibilities across time and place, with a beginning and an end, along with clearly identified inputs, transformations, and outputs. Businesses need to continually monitor, review, alter, and streamline to reengineer processes in order to remain competitive. The process needs not only to increase the output/input ratio (increasing efficiency) but also the output needs to meet the needs of the target market better than the competition (increasing effectiveness). Processes create value in the make,
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Weinstein, Art, Jin, Yan, and Barrett, Hilton Strategic Innovation in B2B Technology Markets: A Need for a Process Perspective
design, and market stages (Heard, 1993). One model to show how the value is created in a process is Porter’s (1985) horizontal value chain. The model requires a manager (whether it is a supervisor or CEO) to become aware of the processes that provide inputs into his/her managed processes (transformations) and the processes that use the outputs of the managed process. While this orientation widens the scope of the manager’s responsibilities, it generally does so only within the manager’s organization. In contrast, the vertical value chain (Figure 1) forces the consideration of horizontal value chains both backwards and forwards in the supply chain (Weinstein, 2012). Although Porter’s horizontal value chain has received the lion’s share of attention, the vertical value chain is a much more useful model in the 21st organization because it recognizes the myriad of organizations that are in a strategic alliance and the amount of outsourcing that occurs. For example, a manager in a B2B technology organization frequently utilized the vertical value chain model to better understand at what level greater value could be generated and at what level could costs be decreased. 2.2. Innovation, Process, and Product Design One classic example to show the importance of innovation in process and product design is Apple, the world’s most valuable company. The distinctive competency of Apple is the merging of technology with product design and process orientation, which enabled intuitive use of their products (Isaacson, 2011; Satariano and Burrows, 2011). First, the focus of product design was on an ergonomic, technology-based product that facilitated the activity whether it was using a computer (iMac), listening to music (iPod), buying the music (iTunes), reading a book (iPad) or using a smart phone (iPhone). Second, design innovations are supported by process innovations. For example, Apple wanted to add a tiny hole above the screen on some electronic devices to let a green light shine
through to indicate when its camera is on. The uniqueness of this design is that the green light looks like it is shining through the device casting but not through a hole. To achieve this design innovation in production, Apple needs a laser to poke the tiny hole that is nearly invisible to the human eyes at very high volumes. A supplier was found for this purpose to customize the laser exclusively for Apple, and Apple is the only company with this capability to produce that tiny hole on the electronic devices (Business Week, 2011). What’s even more amazing in that the process orientation innovative culture is now merging the computer, music, book, phone, and even an ever-helpful guide (SIRI) into the latest generation iPhones. All can be purchased at the innovative retailer, The Apple Store. The Apple example illustrates that processes and products (goods and services) are inseparable – i.e., the process is the augmented product. Nevertheless, many companies trace their success to process innovations. FedEx was a pioneer in installing computers in delivery vehicles, designing sophisticated automation for corporate shipping services, and developing package tracking capabilities. Southwest Airlines is known for their 25-minute turnaround (SWA benchmarked NASCAR pit crews), and WalMart is renowned for its innovative supply chain management practices (Weinstein, 2012). SWA knew that airlines only made money when the airline was in the air, not on the tarmac… more flying time, more revenue. Wal-Mart invested in and developed an information technology that provided information to lower their logistics costs, provide the optimal inventory levels with fast replenishment and lower their costs. This allowed them to develop their Every Day Low Prices (EDLP) strategy. Realize that creativity spawns innovation, leading to the creation of customer value and enhanced market performance. Whirlpool is another example of a company that believes in innovation. They invested $45 million to embed creativity into their business culture and commit to new offerings. The results were most impressive --
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Weinstein, Art, Jin, Yan, and Barrett, Hilton Strategic Innovation in B2B Technology Markets: A Need for a Process Perspective
FIGURE 1. VERTICAL VALUE CHAIN TIERED VALUE CHAIN ANALYSIS OPPORTUNITY TO INCREASE BENEFITS TO THE CUSTOMER
DEVELOP PRODUCT
SOURCE
PRODUCE
SELL
Supplier
-CUSTOMIZATION TO REQUIREMENTS -VOLUME COMMITMENTS
SERVICE SUPPORT
DELIVER
-LEAD TIME & COORDINATED SCHEDULES
LOOK FOR ACTIVITIES THAT YOUR SUPPLIER CAN DO TO REDUCE YOUR COSTS AND IMPROVE QUALITY - SAME FOR LEVELS DOWNSTREAM
DEVELOP OFFERING
SOURCE
OPERATIONS
SELL
-REDUCE FINISHING COSTS -LINKAGE WITH SUPPLIER -EDI ORDERING
-GATHER INFORMATION -UNDERSTAND REQUIREMENTS -DESIGN PRODUCTSERVICE
RECOGNIZE NEED
DELIVER
-INCREASE AVAILABILITY -REDUCE COSTS
Your Firm -PROVIDE BETTER INFORMATION -UNDERSTAND CUSTOMER REQUIREMENTS
SOURCE
PURCHASE
SERVICE
OPERATIONS
SELL
-IMPROVE RESPONSE -IMPROVE MAINTENANCE OR UPGRADE SYSTEM TO IMPROVE QUALITY
DELIVER
CYCLE
SERVICE
Customer -FLEXIBLE CONTRACT -MAKE SERVICE EASY TO PURCHASE -TOTAL COSTS ANALYSIS
YOU MAY ALSO NEED TO EXAMINE NEXT LEVEL IN SUPPLY CHAIN YOUR CUSTOMER'S CUSTOMER
LOOK FOR LINKAGES BETWEEN VALUE CHAINS - OFTEN WHAT COSTS LITTLE TO ONE MEMBER OF SUPPLY CHAIN IS WORTH MUCH TO ANOTHER MEMBER-
OPPORTUNITY TO DECREASE COST TO THE CUSTOMER
going from $10 million in new product revenue the first year to $760 million by the end of the fifth year of this innovation process (Jain, 2008). In light of these process innovations, processes are not simply obscure, back room operations of the service concern, but instead an integral part of delivering the value proposition. An effective process is results driven, deriving its form from customer requirements -- how and when customers want to do business with you. Process design needs to follow a simple litmus test: does the process create superior customer value? Moreover, value should drive process
design. Note that the goal of the organization is to maintain a fit between developed value and processes. Successful organizations recognize that value and process are “seamless” in the eyes of their customers. Economic pressures such as the increased costs of materials, higher fuel prices, paying competitive wages, and investment in new technology must be carefully managed to maintain and upgrade business processes. Responding to the needs of their large global clients, IBM invested in and developed standardized worldwide processes for order
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Weinstein, Art, Jin, Yan, and Barrett, Hilton Strategic Innovation in B2B Technology Markets: A Need for a Process Perspective
fulfillment and product development which reduced speed-to-market, improved on-time delivery, increased customer satisfaction, and saved the company billions of dollars. 2.3. Innovation – Factors and Frameworks According to IBM’s (2010) white paper, Capitalizing on Complexity, based on interviews of 1,541 senior executives, creativity is now the most important leadership quality. At the organizational level, creativity is a multidimensional construct and involves the interaction of individuals, groups and the organization itself. At times, it resembles an experience in chaos theory. The development on an innovating-supporting organizational culture can be considered from a more individual focus (Waychal, Mohanty, and Verma, 2011) or from an organizational focus (Abro, Memon, and Kashdi, 2009). Isaksen (1984) developed a visual model in which person, process, and product was integrated within the context of creative climate, operations, and outcomes. As a management-controlled factor, the better managers understand how creative climate influences decisions, the better they can develop and influence performance within organizations. In addition, research by Barrett, Balloun, and Weinstein (2012) found that five critical success factors (creative culture, learning orientation, entrepreneurial orientation, market orientation, and organizational flexibility) account for more than 30% of organizational performance. Process management is a concept more directed to manufacturing operations but can be extended to virtually any process within an organization and among organizations. The results of process management would then be a continual improvement of the organization’s performance. Consider Apple’s phenomenal success over the past decade. Jobs set the tone and the culture at Apple. His innovative ideas and business practices have become part of the corporate Apple DNA (Timm, 2011). The design of the iPad2 illustrates how Apple uses an
adjacent innovation process, which combines the best innovations of others (including earlier successful Apple concepts), to create a completely new, singular, and better user experience (McQuivey, 2011). Many hypergrowth companies such as Groupon, Zappas, and Zynga also flourish from a culture of innovation (Linkner, 2011). Linkner adds, “As most of the tangible advantages of the past have been commoditized, creativity has become the currency of success.” Easingwood and Koustelos (2000) state that innovators may be techies (users excited about the new technology) or visionaries (managers who can see a product’s potential for improving processes, enhancing operations, or delivering value to gain a competitive edge). According to Gupta (2007), there are six major types of innovations. Process-based innovations include continuous process improvement (lean sigma), process revolutions (RFID), product or service innovations (iPhone), and strategic innovations (new business models). Other types of innovations are: outcome-based (incremental vs. radical), operations-based (e.g., finance or delivery), pathway-based (positioning and paradigm such as tablet computers), hierarchybased (reengineering), and thought-based (fundamental innovations such as electricity, penicillin, or the Internet; platforms such as PCs, Windows, or Facebook; and derivatives/variations such as Android cell phones). Typically, authors present various multistep approaches -- often referred to as the stagegate approach -- to illustrate the innovation and new product management process (Cooper, 1994). For example, Lafley and Charan’s (2008) seven-step framework includes: 1) select the strategy, 2) connect to customers, 3) generate ideas, 4) select an idea, 5) prototype and test, 6) go to market, and 7) adjust for growth. An eightstep innovation cycle is presented by Baumgarten (2009a), beginning with the challenge and ending with new needs and inspiration (intermediary steps 2-7 are collaboration, combination,
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Weinstein, Art, Jin, Yan, and Barrett, Hilton Strategic Innovation in B2B Technology Markets: A Need for a Process Perspective
scientific peer review evaluation, testing and development, implementation and, review). Baumgarten (2009b) tweaked this model with a seven-step problem to profit cycle. He added that there are three key qualities found in a successful innovation process; specifically, it is: scalable, repeatable, and effective. III. RESEARCH QUESTIONS Besides the innovative culture and R & D expertise, technology “know-how” is equally important. Capon and Glazer (1987) discuss the role of technology and its potential impact on marketing success. Three sources of technological “know-how” include product technology (the set of ideas embodied in the product), process technology (the set of ideas embodied in the manufacture of the product), and management technology (the set of procedures associated with selling the product and administering the business unit). Innovations through product design and process were discussed in the previous section. Innovations based on the management know-how are about the process management. R & D expertise is another important factor for an organization’s innovation performance. The importance of the creative process is through the disciplines involved in research and development. The greater the expertise in the affected disciplines (e.g., information technology, biology, physics) and the greater the capability of the creative process employed, the greater the value will be of the R&D outputs. Consider R&D as a defined process. B2B marketing executives and their perceptions of innovation in technology-based companies should be explored based on common demographic and firmographic factors (Weinstein, 2011). And, since innovation is so critical for the company’s success, there are many ideas on investigating how to best innovate. Given the rationale in this section, our study queries three research questions (RQs)
which guided this investigation. RQ1a: How successful are companies in product, process, and management technology? RQ1b: How successful are companies in creating an innovative culture and R & D expertise? RQ2: Is there a significant relationship between demographic variables (age, gender, experience in marketing, industry sector, and size of company) and innovativeness? RQ3: Is there a sound model for innovation success? IV. METHODOLOGY 4.1 Survey, Measures, and Validity An email survey was used to collect data from marketing managers in business technology markets in California, Florida, and throughout the United States. The questionnaire was distributed via SurveyMonkeyTM and data analyzed through SPSS 17.0. B2B technology firms were represented in this innovation study from many industry sectors including computer hardware, software, electronics, semiconductors, pharmaceuticals, medical devices, communications, biotech, energy, manufacturing, media, information and research, and professional services. Three measures of technology success (product technology, management know-how and process technology) were developed from the research of Capon and Glazer (1987). The “innovative culture” measure was developed based on Barrett, Balloun, and Weinstein (2012). “R & D expertise” is an adaptation of the commonly used innovation productivity metric -research and development as a percent of sales. This measure is used by more than two-thirds of companies (68%) according to research sponsored by the American Productivity & Quality Center (Goldense, 2004). Content validity was assessed by having two marketing professors with expertise in innovation and segmentation research (major
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Weinstein, Art, Jin, Yan, and Barrett, Hilton Strategic Innovation in B2B Technology Markets: A Need for a Process Perspective
publications and work experience in this area) evaluate the research instrument. From an external validity perspective, the research instrument was pretested in person with fourteen marketing executives at five leading Silicon Valley B2B technology companies -- Infoblox, National Semiconductor, Sun Power, Symantec, and Trend Micro. Two practitioners affiliated with the Business Marketing Association (BMA) of Northern California assisted the researcher by facilitating these group in-depth interviews which lasted from one to two hours. Based on these varied inputs, the questionnaire was refined. A motivating factor in conducting this study was that the senior author had a unique opportunity to spend two full days dialoging with senior level technology managers on innovation, process management, segmentation, and marketing issues. 4.2 Sampling Plan and Profile A snowball sampling technique was employed to collect the data. According to Churchill (1995), snowball sampling is a judgment approach which is useful for sampling special populations (e.g., high-tech executives); it does, however, introduce a non-probabilistic sample bias. Given the exploratory nature of this research, this tradeoff was deemed acceptable. Two-hundred and fifty (250) B2B technology marketers were contacted through personal networks, business advisory councils at the sponsoring university and members of professional organizations (BMA and American Marketing Association Marketing Strategy and LinkedIn special interest groups). Seventy (70) marketing managers responded to the survey resulting in a respectable 28% response rate. Marketers from Bayer Diagnostics, Citrix Systems, Micron Technology, National Semiconductor, Symantec, Taylor & Francis Publishing, and other similar organizations were part of the study As the sample profile in Table 1 shows, responses were grouped into four major sectors –
technology, computer-related, medical/pharmaceutical, and B2B/professional services. Fifty-seven percent of the participants worked for small companies, the rest was split between medium-sized (16%) and large organizations (27%). More than four-of-five (83%) of the respondents were male. Nearly half (49%) of the sample was 30-49 years old with the other half being 50 + (only 4% of the respondents were under 30). This reflects the experience level of the sample since two-thirds (67%) of the marketers worked ten or more years in a marketing position. V. RESEARCH FINDINGS 5.1 RQ1 – Innovation Success Factors It is no surprise that B2B high-tech companies master most technological aspects of their business. For the most part, companies were successful in innovation as evidenced by success rates of 81% for product technology, 70% for management know-how, 67% for innovative culture, and 60% for R & D expertise (see Table 2). Based on a summary measure (overall technology) which yielded a 74% agreement score, we can say that about three out of four companies in this sample were successful in their use of technology. As seen in Table 2, process technology (ideas embodied in the manufacturing/ operations) was the one weak link, practiced successfully by only 49% of the companies surveyed. Success was evaluated based on a response of “4 - agree” or “5 – strongly agree” using a standard 5-point Likert scale. This finding is similar to a study of 203 U.S. business technology firms which also found that process technology was the poorest faring measure of technological orientation (Weinstein, 1994). This singular deficiency will inhibit many companies from reaching their fullest potential. Perhaps one of the reasons that process innovation suffers in business is because creative processes typically decreases as people age (Simmonton, 1999).
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Weinstein, Art, Jin, Yan, and Barrett, Hilton Strategic Innovation in B2B Technology Markets: A Need for a Process Perspective
A. Industry Sector Technology Computer-related B2B/professional services Medical/pharmaceutical B. Company Size Small Medium Large
TABLE 1. SAMPLE PROFILE % 30 29 24 17
Number Employees < 100 100-499 500 +
of % 57 16 27
n 40 11 19
Annual Revenues < $25million $25-500 million > $500 million
n 21 20 17 12
% 60 14 26
n 42 10 18
C. Gender Male Female
% 83 17
n 57 12
D. Age < 30 30-49 50 +
% 4 49 46
n 3 34 32
E. Years in a Marketing Position 3 or less 4-9 10 or more
% 16 17 67
n 11 12 47
TABLE 2. INNOVATION SUCCESS “Our technological success is due to: _____________” Criteria Agree (%) Product Technology 81 Management Technology 70 Innovative Culture 67 R & D Expertise 60 Process Technology 49 With this small degree of original thinking, in combination with a groupthink mentality further stifling creativity and then a play-it-safe business culture, is it really surprising that great ideas are often limited in many organizations? The mean investment for research and development as a percentage of revenues was 13.9%. While this figure may be perceived as high, many pharmaceutical companies and
computer software firms such as Microsoft routinely allocate 10-15% of sales for R & D (Weinstein, 1998). These companies realize that such an investment is its lifeblood and responsible for future breakthrough products and billion dollar businesses. Removing the four outliers of 30% or more brings the R & D level down to 9.8% (consistent with the median of 10.0%). It should be noted that two of the
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Weinstein, Art, Jin, Yan, and Barrett, Hilton Strategic Innovation in B2B Technology Markets: A Need for a Process Perspective
outliers are start-ups, and as such, they reinvested all of their revenues (100%) into R &D. 5.2 RQ2 – Demographics and Technological Success RQ2 explored business demographics and the use of technology by B2B technology
companies. Company size and industry sector were the two key variables for consideration. As shown in Table 3, small companies (based on revenues) were less successful than medium/large companies in using technology (p
