Monday, September 04, 2006

How would one know whether an organization is innovative?

Innovations rarely happen by chance, sustained innovation even less so. Drucker (1993) contends that he knows of no “flash of genius” that turned into innovation. Innovativeness requires systematic, disciplined approach. Organizational characteristics of innovative organizations are therefore different and distinguishable from non innovative companies (Subramanian, 1996). They out-compete their rivals by making them irrelevant through new products and new value (Dobni, 2006).

Davila et al. (2006) described a model of innovation with four elements of organizational innovation management: inputs, process, outputs, and outcomes. Inputs management is about finding suitable resources to drive innovation. Four broad categories of inputs are finance (R&D), human resource, physical resource, and ideation (Adams et al., 2006). Processes combine the inputs and transform them. Several factors go into the process of innovation management: strategy, organizational culture and structure, portfolio management, and project management (Adams et al., 2006). Outputs are results of innovation effort. A number of measures have been proposed to operationalize outputs: number of innovations adopted (Wolfe, 1994; Subramanian, 1996), mean time of innovation adoption (Subramanian, 1996), consistency of the time of adoption (Subramanian, 1996). Finally, outcomes describe the value creation, measure how the outputs of innovation management created value for the company.

For the purpose of Blog entry, which is to assess organizations’ innovativeness and not innovativeness management, we choose just the last element of innovation management (outcomes) to propose measures of innovativeness. Our job here is to appraise how well outputs of organizations’ innovativeness created value and not to understand the determinants or the process of attaining innovativeness. In doing so we may know if an organization is innovative or not.

Innovativeness is not a unidimensional construct, and therefore identifying an innovative firm may require assessment on more than one measure (Subramanian, 1996). However, based on past research, at present we propose following two related measures to identify whether an organization is innovative or not.

• What is the percentage of sales coming from products new within the past four years (Coyne, 1997)? This measure of innovativeness is adopted by 3M and in year 1996, 27% of their sales came from products innovated within previous four years (Coyne, 1997).

• Second, is the pattern of revenue increasing or decreasing throughout the range of product innovation orders (Prusa and Schmitz, 1994)? The authors found two major patterns in the PC software industry: (1) a firm’s initial product tended to be the most successful and (2) a declining trend in sales throughout the range of product introduction orders.

An innovative enterprise will have increasing percentage of sales coming from new products and also it will build on its initial success by launching products more successful than the previous ones.

[Posting by: Sanjeev]

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