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Innovation Processes: Which One for Which Project? (presented at 4th POM World Congress - Amsterdam, June 2012)

Mario Sergio Salerno (msalerno@usp.br)

University of São Paulo, Polytechnic School, Production Engineering Department, Innovation Management Laboratory

Leonardo Augusto de Vasconcelos Gomes

University of São Paulo, Polytechnic School, Production Engineering Department, Innovation Management Laboratory

Simone Lara Teixeira Uchôa Freitas

University of São Paulo, Polytechnic School, Production Engineering Department, Innovation Management Laboratory

Débora Oliveira da Silva

University of São Paulo, Polytechnic School, Production Engineering Department, Innovation Management Laboratory

Raoni Barros Bagno

University of São Paulo, Polytechnic School, Production Engineering Department, Innovation Management Laboratory

Abstract This paper proposes taxonomy in innovation processes, according to some contingencies. It advances from previous literature that proposes a sequential process: idea generation, selection, development and sales/diffusion/market. Based on a large research - 131 projects analyzed in 74 companies, we perceived a much more complex situation: according to some contingencies the innovation process can follow different paths, either in the sequence of activities or in their flow. There is a clear theoretical and managerial question: how to organize and plan resources allocation to innovation processes that do not fit in traditional models? It leads to our research question: which configuration of innovation process and resources allocation for which situation, for which contingencies? We propose a typology on innovation processes according to their contingencies. Keywords: innovation management, innovation processes, innovation organization Introduction Innovation management is deeply influenced by some reference models. These models act simultaneously in different ways: as an objective to be achieved; as mind setters, influencing decisions even if implicitly; as an indicator of good management practices. Cooper's stage-gates (1993, 2008) - see also Cooper, Edgett and Kleinschmidt (1997,

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2002); Clark and Wheelwright's (1992) development funnel; Clark and Fujimoto’s (1991) organizational framework based on the auto industry (heavyweight manager and other contributions); and several improvements and considerations based on these “mainstream” approach are among the main references.

These models were originally proposed for new product development (NPD). Generally speaking, they consider innovation process as a linear sequential one with predefined phases: idea generation, idea selection (screening), development, and launch to the market. For instance, titles of Cooper's papers have explicitly the words "from idea-to-launch" (1993, 2008). Our previous research experience has indicated that many companies successfully utilize different processes for innovation: it could start by sales (on demand projects), it could be temporarily interrupt in order to wait for an increase in sales that justifies scale up or the build of a new facility, and so on. These previous look at companies inspired us to set a specific research focusing on the following question: which innovation process for which project? More specifically, which would be a typology of innovation processes and which rationale for each type of process?

The traditional models focus on large companies with R&D departments as well as projects that take long periods of time for development (months or years), typically durable goods, with many resources allocated; such conditions would justify the proposed decision-making and managerial structure they require. These models show few adherences to radical innovative product development, in which there is much uncertainty and complexity; such situations call for new models, tools and management techniques (Pich, Loch and Meyer, 2002; Rice, O'Connor and Pierantozzi, 2008).

Cooper (2008) tries to answer to a set of criticisms on the stage-gate model, such as linearity, rigidity, bureaucracy. He also proposes some simplification in the model according to the risk of the project. His answers are a bit impressionistic, based mainly on the good sense than in sustainable empirical evidence.

Our research questions lead us to incorporate the contingency theory, as proposed by Lawrence and Lorsch (1967) and by Thompson (1967), with roots in Woodward (1965), as the basis for sustain our analysis and propositions. It states that the way to organize a business depends on the nature of the environment to which the organization must relate. Adapting it for the innovation process, we will propose that organization and management of the innovation value network (network, not chain) has distinct features according to certain contingencies (parameters): 1) cycle time and product development; 2) design based on technological principles and scientific discoveries or on tacit knowledge and experience; 3) market - mature, in expansion, being shaped; not existent (projects that opens a new market, such as Walkman or Post It); 4) technological trajectory (mature techs, adaptation of familiar techs, integration of existent techs, not existent in the beginning of the project; 5) total expenditures; 6) product - improvements, new family, new platform; 7) relation with clients (whether they buy from a shelf or they order a tailor made product); 8) product concept (new concept for a known product, new concept with a new product, concept improvement).

Literature review The conceptual delimitation and especially the analytical or prescriptive models for the management of innovation in the company focus on the activities of product development. Developing products would be the conduct of a universe of activities, managing and transforming resources, information and expertise on specifications and products that

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would meet (or create) a market need (Clark and Wheelwright, 1992). Cooper, Edgett and Kleinschmidt (2002) consider that the most successful companies in

NPD utilize formal processes, with well-defined criteria, with emphasis on preparing the team and on the quality of the execution of activities. In this sense, several models of the process of product development (PDP) are proposed in the literature. Cooper (1993) proposed the idea of well-defined stages and decision points for the conduct of development projects (stage-gates), improved by Cooper, Edgett and Kleinschmidt (2002) and by Cooper (2008). Clark and Wheelwright (1993) proposed the model of development funnel.

Clark and Fujimoto (1991) categorize product developed in partnership (co-development) and discuss types of management (heavyweight manager, for instance). Gomes and Salerno (2010) discuss initial planning for technology-based companies in which uncertainty is very high, integrating TRM - technology roadmap. Cookie-Davis (2007), among others, discusses critical success factors for projects. Rozenfeld et al. (2006) propose a model for the process of product development, highlighting some points less explored in other models, such the informational aspects. Hong, Pearson and Carr (2009) discuss coordination in multi-organizational product development emphasizing information-processing structure and locus of control.

Notwithstanding the differences in approach, the focus of all these authors (and of many others) is the process of product development (PDP). The literature is vast: a search in the Scopus database in June 2009 showed 11,053 records for "product development" AND “management” and 193 for "product development management". However, Hansen and Birkinshaw (2007) proposed the idea of innovation value chain of, in which the PDP is an important activity, but there are other equally important before and after it. The chain would be composed of three links - generation of ideas (intra-unity / department, inter-unity and inter-institutional), conversion (selection - screening and funding; development) and diffusion. This representation enables systems view, encompassing the strategic and operational dimensions. According to the authors, priority managerial action should be given to the weakest link in the chain (or bottleneck).

Brown and Eisenhardt (1995) made a broad review of the literature on organizational issues related to project development, and there is good literature on concurrent engineering and project management. Nevertheless, as noted by Krishnan and Ulrich (2001), the various approaches to product development management focus on a single theme or area (mainly marketing, organization, engineering project and operations management) and do not discuss the relationship among these themes or areas; they also do not treat product design in which there is much uncertainty, complexity or ambiguity (Pitch, Loch, and Meyer, 2002; Sommer and Loch, 2009). The review by Brown and Eisenhardt (1995) is no exception to the rule. Kim and Wilemon (2003) reviewed definitions of complexity (which by them involve the number of components, their interaction, degree of product innovation, number of disciplines and areas involved in the project etc.). And suggest that the sources of complexity are technology, market, development, marketing, organization – we will use these sources as a starting point for our field investigation.

Hansen and Birkinshaw (2007) seek some integration between traditionally isolated angles, proposing a number of issues and management indicators, going beyond gates without ignoring them. For example, they discuss the organizational forms that enable teams and middle managers to develop ideas, even building prototypes without prior authorization by a board or committee; without that possibility, there would not be products

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like Post It, previously rejected by 3M’s Marketing (IN SEARCH, nd). The approach breaks with linear models / chain of decision by which ideas need to be approved to be later (preliminary) developed, as suggest funnel and stage-gates models. However, one important limitation of their paper is that it focuses and takes as paradigmatic the large divisionalized multinational company, which explains the need to set a phase of spread across the organization, which does not make much sense in smaller or single units companies. This creates the need to expand the type of companies to be studied, not restricted to established large firms. Figure 1. Traditional linear process from idea to launch.

Two points in the literature will be highlighted for field investigation: 1) the contingencies or parameters for innovation management, as suggested by the authors on uncertainty (Pitch, Loch, and Meyer, 2002; Sommer and Loch, 2009), complexity (Kim and Wilemon, 2003), and also by Davila et al (2006) and Hansen and Birkinshaw (2007) when they compare different types of experiences; 2) the topology of the innovation value chain, from the development funnel to Hansen & Birkinshaw’s model, but expanding it as a network. Our field study will search for contingencies and for different topologies of the innovation value chain/network.

And, since projects can be defined as temporary organizations with specific goals (Shenhar, 2001), it is reasonably to suppose, based on the contingency theory, that organization can assume specific configurations to deal with specific situations or contingencies. In that sense, we will look for different configurations of the innovation process in the field research.

We will now shall discuss the research methodology and field study. In the analysis of the field investigation will be further developed some aspects of literature, in order to make the text more fluent.

Field research: procedures and results The method employed is the traditional in studies of this kind, similar to that applied by Clark and Wheelwright (1993), Cooper, Edgett and Kleinschmidt (1997 and 2002), Clark and Fujimoto (1991) and numerous other studies of organization and management. That is, multiple case studies, which is highly adherent to our purposes according to Eisenhardt (1989) and to Voss, Tsikriktsis and Frohlich (2002).

We conducted field research in 171 innovation projects in 74 companies, basically in Brazil but one in France and two in The Netherlands. The basic unit of analysis was innovation projects, not the company itself because different processes can be found in a same company, as one for incremental and other for radical innovation (Bessant et al, 2005) – further on we will enrich the typology. Firms of different sectors (including hospitals, engineering and R&D services), sizes (TNCs and start ups), ages, with or without R&D sector, are included in an intentional sample but they must have innovated in product.

All interviews were presential, performed by the authors in the companies. Responsible for innovation management (whether a director/manager of R&D, engineering, new

Idea generation

Screening / idea selection Development

Diffusion / market / sales /

launch

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business, marketing, CEO, owner or other) and their staff (if applicable) where the targets. Some companies were accompanied with several interviews in a period of four years. In order to control biases and distortions, and following Eisenhardt’s (1989), Voss et al (2002) and Yin’s (1994) recommendations, a formal protocol was established, including an interview manual (to improve methodological discussion in the research team), a guide to write and analyze the case, and triagulation tips (as to interview more than one people in a company, to further check issues with other people by phone or e-mail etc.) ; we studied companies’ materials before and after the interviews; and all cases were written and analyzed by the whole team, based on the same framework. We stopped interviews when a robust convergence was achieved (Eisenhardt, 1989). By robust we mean a conservative approach, that is, we preferred to be redundant and sure by having more cases than to economize cases. Actually, hardly a multiple case study involves the number of cases we did, but it is not a survey. In fact, discussing more cases was also important to refine and test assumptions, typologies and conclusions during the research itself.

After the formal closures of the research we tested the typology we developed another eight companies we went to discuss other questions of innovation management.

Table 1 – Characteristics of the firms where the projects had been researched

Firm's size Characteristics Com-panies

(%)

Projects analyzed (% from total)

Knowledge-based small new companies

New emerging firms. Managerial main processes in definition. 27% 17 %

Medium size Established strategies and processes 22% 30%

Large size Well established business strategies and organizational processes, although they may change

41% 44 %

Research institutes (large)

Performing R&D (public institutes), technological assistance 10% 9%

Which process for which innovation project? Innovation system in a company can be divided in three main subsystems, or in three different kinds of processes: conceptual definition; R&D; product development (PD). Obviously, they interconnect with several others, as marketing, sales, finance, etc. We decide to clarify these subsystems after the investigation of Natura, a Brazilian leading and very innovative cosmetic company. The output of the first subsystem is a concept for a product, a family, platform or new business; the output of R&D is a technology, a prototype etc.); the output of PD is a final product. R&D outputs can be inputs for PD. Many models presented in previous sections mix these subsystems - we prefer to declare their functions one by one because they have different characteristics and organization. Although in most companies there is only one (sub)system of PD, it is important to have in mind that it can be split in three each one having its own rationale. Traditional process: from idea to launch The most common process is the traditional one (figure 1). It is more common in large companies mass-producing to inventories; sales happen after production. It is typical for frequent incremental innovations that consume reasonable time and resources - by frequent

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and reasonable we mean a number of projects, and an amount of time and money that justifies a managerial system dedicated to it. That means companies with a well structure innovation process: by one hand it makes incremental innovations easier; by the other hand, it inhibits radical innovations, mainly those related to an in-formation, not mature or inexistent market. The first formal move is idea registration in a formal tool and the process come to an end with product (or service) availability for sale. Actually, there is no convergence in the literature on what closes this kind of processes, if launch, sales, availability etc. For simplification purposes, we are not considering here product life cycle, we are considering that PLC management is led by another team. The issue deserves a specific research.

The main contingencies associated to this process are: medium-long product life cycle (no less than one year); mature market; mature technologies; medium-high expenditures in R,D&E, product improvement, position in the chain: product development and production to inventories; no new concept of product or platform. Anticipating sales: tailor made development and production (open) The best image to illustrate this process is tailor-made costumes. Sale happens prior to development and production. The relation with consumer is the main contingency, sometimes with large service content.

Figure 2. Anticipating sales: development to order (open).

Some critical activities of sales happen in the initial phases (during contract negotiation). The idea of the innovation is constructed with the client and after formalization occurs (order, contract etc.): there is a period of maturation and definitions of product specifications, sometimes even before formal contacts to build an order. One example is the military cargo Brazilian Air Force asked Embraer to develop: although some resources allocation during initial discussions, only after the formalization an important amount of human and financial resources is allocated to product development. The deliverance of the product ends the process. Risks are mitigated since income is practically guaranteed: it will not occur only if company fails in develop the product. Such process is linked to some capital goods or system suppliers, software, high fashion, research institutes contracted for R&D development. Firm size and technological base do not explain the process.

Anticipating sales from a given specification (closed) and order from the client Differently from the previous process, here the client has a predefined specification (e.g., functional requisites, form etc.) and the order must follow then. There is neither predevelopment nor maturation period for the specifications. For the firm, there is a selection phase when it decides whether or not to develop the product. Sale precedes development. Even if specifications came closed from the client, the company can and must innovate by suggesting new functionalities or specifications, or by taking advantage of the opportunity to generate a platform that can be utilized in projects with other clients.

We found such a process in companies like Cordoaria São Leopoldo (special hopes for

Development

Initial ideas proposed and worked with clients - they

"bought" it pre-developed

Sales / order

Delivery

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deep water oil extraction), CTI (software), Digitro (software), KTY (engineering services), Linea Laura (fashion), Fiat Powertrain (automotive). Figure 3. Anticipating sales: development to order (closed). Process started by a public or private call Typical from public calls and projects with resources coming from official agencies. The call usually defines functional requisites of the product to be developed. Win the call means get the order; the flow is sales - development -production (if any) - delivery. But in the cases, a decision to consider disputing a call means a pre-allocation of resources to prepare viability analysis and documentation for inscription. Many times, as in this process and in the anticipating sales ones, activities happen and resources are consumed prior to the formal process, sometimes even if there is no process before.

We found such process in companies like CNEC, Engevix, Genpro, KTY, Promom (engineering services - Petrobras calls), Epagri (R&D), Inovax (telecommunications), Iveco (automotive - Army calls), KNBS (energy), and many others. Figure 4. Process started by a call Process with a stop: waiting for market There process suffers a change in its structure and scope. Cooper (1993) already pointed out that some rejected ideas could go to a shelf and eventually be utilized further on, but in that case the process restart with the previous selected idea. In the type we are proposing here, the stop happens after selection and initial development of the idea. It is more common in companies with physical-chemical processes, economy of scale and the need of scaling up. The flow of the innovation process can be divided in two parts. The first one concerns idea generation; idea selection; development; and diffusion. In this first moment product development is done until low production scales - sometimes, until pilot plant scale. Diffusion (sales) is done for a specific market niche - leader users. To expand scale the company allocates resources to expand or even to create the market: prospection of new clients, trying to enlarge the infrastructure and the institutions of the market, aiming at the creation of a cognitive model regarding the patterns of needs and product specifications. With the perception of market expansion, by sales contracts or others, the company continues the development to achieve industrial and commercial scale of the product, ending with greater sales. So, it is an active position: development process is interrupted but the project is not abandoned since the company directs its efforts to "create" market. The situation is conceptually and practically different from register a rejected idea ("in a shelf") for an eventual future use - a passive position. We found such a process in Braskem's development of polyethylene from sugar cane ethanol and in other chemical

Development Sales / order

Ideas / specifications by the client

Predevelopment / elaboration of a project

to dispute the call

Win the call:

diffusion Development Delivery

Delivery

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companies investigated, bus also in other companies like Coester and Smar (industrial automation systems).

Figure 5. Process with a stop - waiting for the market Process with a stop: waiting for the advance of a technology This innovation process is similar to the previous one, except for the fact that what interrupts the flow is a problem of technology in the development of the product or the process. There are several types of technological bottlenecks that could explain a stop. Evidences from cases suggest that main bottleneck is verified when current states of product or process technology are not able to scale up production. During this stop, in which the company works on improvement of technology, it might start or intensify the activities of diffusion/sales and increases its comprehension of the possible technological trajectories to pursuit. The first phase of the process flow contains idea generation, selection, initial development, and initial diffusion. When the technological bottleneck is surpassed it starts the final development of the product, and the diffusion/sales closes the process. Bottlenecks may have origin in a dependency on outside technological improvement (from public infrastructure, partner etc), and/or in dependency on its own development. In the latest case, stop may mean stop or slow down diffusion - here, the flow assumes partially the form of figure 7. We found such a process both in technological start ups and in (very) radical innovation projects of large companies (chemical, electrical engines, bio fuels etc.), like Braskem, involving the creation of a new technology inexistent in the beginning of the project. Figure 6. Process with a stop - waiting for technology improvement Process with stop: waiting for the advance of a technology and market (multiple times) It is the junction of the two previous processes with stops. There is a first stop (wait) due to technology issues and further stop to (actively) wait for market viability. Some companies launch an initial and sometimes primitive version of the product in order to be the first or to establish an initial position in the market. The first phase of the process follows until diffusion, a preliminary diffusion. Before continuing the development the company keeps on searching new clients, markets. Then development accelerates, improving the product and reinforcing sales efforts. We found it at many nano, bio or manly ICTs start ups and at Braskem. Process with parallel activities In the last type of process we propose diffusion / sales start before the end of product development. Companies develop different versions of the product as the market

Ideas Selection Develop. I Develop. II (scale up)

Diffusion I

Diffusion II

Ideas Selection Develop. I

Diffusion II

Diffusion I

Develop. II

Stop

Stop

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information improves; new sales occur for different niches or clients groups. We found it in shoes and garments (prêt-a-porter) companies such as Grendene. Salespersons starts sales activity based on prototype; development continues in parallel. Many software houses often launch a product and keep developing it, launching new versions or updates of the same product free for the clients. It is neither a recall nor simultaneous engineering (that happens in the development phase); it is a strategy to occupy the market. Other companies with this flow in some projects are Algatex (biofuels), Avantium (biofuels), Bematech (automation systems), Buscapé (internet), E-Brane (internet), Embraco (refrigerators compressors), Ice (software), iVE (internet), Nanox (nano materials).

A derivation mixing with flows with stops can be seen in software projects with the launch of "beta" versions, not end versions, aiming at the diffusion of the product (to create a need in clients and opinion former), test solutions, obtain suggestions and improve the product for a final version. The stop is symbolic to some extent, because development does not stop but can be strongly rearranged depending on the reactions to the beta version. Figure 7. Process with parallel activities Conclusions The research leads us to propose eight different flows of innovation processes according to key factors we called contingencies. One of the main contingency is linked to the position of clients in the chain: develop and produce to order is different from develop and produce to inventories. That is similar from some developments of production theory (Wild, 1977).

We observed that both companies and the literature over-homogenize the flow of innovation activities. Some companies have had troubles in managing innovation based on universal models. Our research aims to contribute both to theory and the practice of innovation management.

The identification of contingencies linked to the organization of innovation processes is another important aspect of our research. We have no space here to discuss contingencies in details, only to briefly announce them. But the point is relevant deserving a special discussion. The same applies to some services, as hospitals: innovation here has lots of particularities - for instance, instead of hiding or formally protecting an innovation the business is to make it public, to disseminate it for others, to get approval from official organisms and from medical associations. Being the first brings the first clients and the notoriety that can bring other clients in the future. But this is a point for another text. Acknowledgments The research was founded by Fapesp; grants for post-graduation students were provided by Capes and CNPq. Participation in the Congress by CNPq and USP (Polytechnic School). References

Ideas Selection Development

Diffusion

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