System Innovation Approach for Improvement of Innovation Development in Creative Industries

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System Innovation Approach for Improvement of Innovation Development in Creative Industries Rolandas Strazdas, Jurate Cerneviciute Vilnius Gediminas Technical University, Vilnius, Lithuania [email protected] [email protected] Abstract: The increasing significance of innovation has resulted in the focusing of a considerable amount of attention and resources on innovation development. As with any other activity, the development of innovation can have diverse consequences for effectiveness and efficiency. Certain companies with fewer resources perform more effectively than others. It is therefore important to innovate the process of innovation so that better effectiveness can be achieved with fewer resources. The process of innovation development is becoming much more sophisticated. Many new concepts and types of innovation have appeared, ranging from technological innovation to marketing innovation, and from closed to open innovation. A broader understanding is being gained of the concept of innovation, not only of R&D-based innovations but also creativity-based innovations such as “design-driven innovation”. In particular, the concept of innovation has changed in the context of the creative industry’s development. The development of the creative industry sector has shifted the understanding of innovation and increased the importance of the creator and creativity. The development of companies within the creative industry sector has been affected by creative solutions – one of the most critical aspects of this is to rearrange things that are already known for constructing new and original solutions/creations. This article examines how the innovation development process can be improved in order to increase efficiency and ensure the economic success of innovations developed in the creative industries. The article analyses different process improvement methods such as PDCA, DMAIC, DMADV and TOC. The strengths and weaknesses of these methods for improvement of the innovation development process are identified. Based on the analysis of existing improvement methods and the identified features of system innovation development, an innovation development improvement model was developed. An important feature of the model is the system approach, which requires a broader view of innovation development. Usually, it requires multiple skills and knowledge and can be accomplished only by a team of experts or even by multiple teams. The innovation development improvement model is presented in the article. Keywords: innovation development improvement, system innovation approach, innovation efficiency, economic sustainability of innovation, open innovation, creative industries. 1. Introduction

Transcript of System Innovation Approach for Improvement of Innovation Development in Creative Industries

System Innovation Approach for Improvement of Innovation Development in Creative Industries

Rolandas Strazdas, Jurate CerneviciuteVilnius Gediminas Technical University, Vilnius, [email protected]@vgtu.lt

Abstract:The increasing significance of innovation has resulted in the focusing of aconsiderable amount of attention and resources on innovation development. Aswith any other activity, the development of innovation can have diverseconsequences for effectiveness and efficiency. Certain companies with fewerresources perform more effectively than others. It is therefore important toinnovate the process of innovation so that better effectiveness can beachieved with fewer resources. The process of innovation development isbecoming much more sophisticated. Many new concepts and types of innovationhave appeared, ranging from technological innovation to marketing innovation,and from closed to open innovation. A broader understanding is being gained ofthe concept of innovation, not only of R&D-based innovations but alsocreativity-based innovations such as “design-driven innovation”. Inparticular, the concept of innovation has changed in the context of thecreative industry’s development. The development of the creative industrysector has shifted the understanding of innovation and increased theimportance of the creator and creativity. The development of companies withinthe creative industry sector has been affected by creative solutions – one ofthe most critical aspects of this is to rearrange things that are alreadyknown for constructing new and original solutions/creations. This articleexamines how the innovation development process can be improved in order toincrease efficiency and ensure the economic success of innovations developedin the creative industries. The article analyses different process improvementmethods such as PDCA, DMAIC, DMADV and TOC. The strengths and weaknesses ofthese methods for improvement of the innovation development process areidentified. Based on the analysis of existing improvement methods and theidentified features of system innovation development, an innovationdevelopment improvement model was developed. An important feature of the modelis the system approach, which requires a broader view of innovationdevelopment. Usually, it requires multiple skills and knowledge and can beaccomplished only by a team of experts or even by multiple teams. Theinnovation development improvement model is presented in the article.

Keywords: innovation development improvement, system innovation approach,innovation efficiency, economic sustainability of innovation, open innovation,creative industries.

1. Introduction

The increasing significance of innovation has resulted in the focusing of aconsiderable amount of attention and resources on innovation development. Aswith any other activity, the development of innovation can have diverseconsequences for effectiveness and efficiency. Certain companies with fewerresources perform more effectively than others. It is therefore important toinnovate the process of innovation so that better effectiveness can beachieved with fewer resources (Chesbrough 2003).The process of innovation development is becoming much more sophisticated.Many new concepts and types of innovation have appeared, ranging fromtechnological innovation to marketing innovation, and from closed to openinnovation (OECD, 2005; Chesbrough 2003). A broader understanding is beinggained of the concept of innovation, not only of R&D-based innovations butalso of creativity-based innovations such as “design-driven innovation” (Cookeand De Propris 2011). In particular, the concept of innovation has changed inthe context of the creative industry’s development. The development of the creative industry sector has shifted the understandingof innovation and increased the importance of the creator and creativity. Thedevelopment of companies within the creative industry sector has been affectedby creative solutions – one of the most critical aspects of this is torearrange things that are already known by constructing new and originalsolutions/creations. If the traditional R&D based innovations are being widely studied, creativity-based innovations have received little attention from scholars. The openinnovation concept allows the efficiency of the innovation development processto be significantly increased, but it often requires more management effortand skills in working with internal and external team members, or even with anumber of teams. Open innovation development is becoming increasingly “team”based. The research shows that in some cases the groups are less effectivethan their individual members ( Baruah and Paulus 2002; Rietzschel et al.2010). The loss of productivity of an innovation development team can be dueto lack of motivation (Amabile and Kramer 2011), social loa ng (Diehl andfiStroebe 1987), social inhibition (Camacho and Paulus 1995) and other factors.Working in teams and collective creativity skills are becoming more importantthan job-related knowledge (Goncalo et al. 2009). This article examines how the innovation development process can be improvedin order to increase efficiency and ensure the economic success of innovationdeveloped in the creative industries. The article analyses different processimprovement methods such as PDCA (Moen and Norman 2013), DMAIC, DMADV (Albeanuet al. 2010) and TOC (Goldratt 2004). The strengths and weaknesses of thesemethods for improvement of the innovation development process are identified.The system innovation approach for improving innovation development in thecreative industries is presented in this article. 2. From the functional approach towards the process and system improvement

approach

Many organizations have redesigned and improved their businesses in order toadapt to a rapidly changing management environment and enhance theireffectiveness and efficiency in achieving their defined objectives. Anenterprise can be understood as a system, which consists of a set of tasks,functions and processes (see Figure 1). Historically, a functional approachhas dominated business management and improvement; in other words, anenterprise’s activities have been divided into a set of functions (Tang et al.2013; Curtice 2014). Improvement activities were focused on the achievement offunctional effectiveness and efficiency. With this mindset, employees cannotvisualize the overall impact of their work, and they are likely to stay withintheir own functional silos (Curtice 2014).

Figure 1: View of a company as a system (a set of tasks, functions and processes) A “process” can be defined as a “set of interrelated or interactingactivities, which transforms inputs into outputs” (ISO 9000, 2013). In Figure1 three processes (A, B, C) are shown, each consisting of two functions Theprocess approach refers to the extent to which an organization understands abusiness process across the organization from the beginning to end. Itinvolves de ning and modelling business processes in process terms (e.g.fiinput, output, process, process owner) to facilitate communication amongemployees within an organization as well as exchanges with customers (Curtice2014). The process approach introduces horizontal management, which crossesthe barriers between different functional units and unifies their focus on themain goals of the organization (ISO 9000 2013). The goal of processimprovement is to improve the performance of the overall process rather thanthe performance of an individual function. Having a clear process view hasbeen shown to increase the success of innovation activities such as businessprocess redesign (Zaheer el al. 2010; Tang et al. 2013).The process approach requires a broader view of an organization than thefunctional approach. Critical to the success of business process management is

changing employees’ existing attitudes and assumptions, which are based onhierarchies and functions, to build a new frame of reference and perspectivebased on delivering value to customers. There has been an increasing focus onthe concept of business process orientation.The main improvement methods such as plan–do–check–act (PDCA), plan–do–study–act (PDSA), define-measure-analyse-improve-control (DMAIC) and define-measure-analyse-design-verify (DMADV) use a process approach to business organizationimprovement (Albeanu et al., 2010; Moen and Norman 2013). These methods are acore element of widely used improvement systems such as the Toyota ProductionSystem (TPS; Tozava and Bodek, 2001), Lean (Womack and Jones, 2003), Six Sigma(Albeanu et al. 2010) and the theory of constraints (TOC; Goldratt 2004).Analysis of the improvement methods are presented in Table 1.

Table 1: Comparison stages in Lean, Six Sigma and TOC improvement systems

IMPROVEMENTSTAGES

IMPROVEMENTMETHODS

I. Analysis

stage

II.Solutionsgeneration

stage

III.Situation

“unfreezing”and solutionsimplementation

stage

V.Solutions

verificationand situation“refreezing”

stage

LEAN (PDCA) “Plan” stage inPDCA

“Plan” stage inPDCA

“Do” stage in PDCA “Check” and “Act”stages in PDCA

SIX SIGMA(DMAIC, DMADV)

“Define“,“Measure” and

“Analyse” stages inDMAIC

“Analyse” stage inDMAIC

“Improve” stage inDMAIC

“Design” stage inDMADV

“Control” stage inDMAIC

“Verify” stage inDMADV

TOC (Theory ofConstraints)

“Identify” stage inTOC

“Exploit”,“Subordinate”,

“Elevate” stages inTOC

“Exploit”,“Subordinate”,

“Elevate” stages inTOC

“Prevent inertia”stage in TOC

From the analysis it is clear that all the analysed methods are processapproach-based scientific methods. The DMAIC and DMADV methods are morefocused on the analytical stage than the PDCA and TOC methods. TOC is morefocused on the solutions generation and implementation stages. It can also beobserved that the TOC method has some elements of a systems approach. In some cases, business process improvement and innovation efforts haveprovided relatively little reliable return, despite huge investments of timeand money (Hearn and Choi 2013). One of the main reasons for this is that theimprovement is focused on a process but not on the whole businessorganization; that is, on a business system which consists of a set ofprocesses and its interrelations. If only the business processes are improvedwithout taken into consideration whole organizational system, then confusionand con ict will ensue, undermining performance (Chen and Tsai, 2008; Hearnfland Choi 2013). Thus, improvement of the processes must take into account not

only increasing the effectiveness and efficiency of the individual process,but whole system of a business organization. Individual process improvementwhich takes place without considering the interrelated processes can lead toan imbalance of the whole system. Figure 2 shows the example of a boat as asystem and paddlers as the processes.

Figure 2: Balanced and unbalanced system caused by single process improvementIf we improve one process (one paddle) without consideration of otherprocesses (other paddlers in a boat) it can cause an imbalance in the system(a boat) and our “improvement” will decrease the effectiveness and efficiencyof the system (see Figure 2). This analysis demonstrates the trend to movefrom a functional approach towards a process-based approach, and finally to asystem approach to the improvement of a business organization.3. System approach for innovation development The increasing significance of innovation has focused a considerable amount ofattention and resources on innovation development. It has been noted abovethat, as with any other activity, the development of innovation can havediverse consequences for effectiveness and efficiency. Certain companies withfewer resources perform more effectively than others. It is thereforeimportant to innovate the process of innovation so that better effectivenesscan be achieved with fewer resources (Chesbrough 2003). Over the last decade,innovation development has been treated as a linear process starting from ideageneration to idea implementation (an example could be the “stage-gate”product innovation development model; Cooper 1990, 2014). During the period of the growth of creative industries, the process of innovationdevelopment has become much more sophisticated and revealed a new paradigm ininnovation development. Traditionally, it was expected that R&D activitieswould lead to R&D-based innovations, which would in turn lead to greatercompetitiveness and economic growth. As a result of the traditional paradigm,big investments were made in R&D activities. This caused a new knowledgediscovery boom, including new technical inventions, patents and prototypes of

new R&D-based products. The utilization and commercialization of thediscovered knowledge was poor. As the supply of new knowledge exceeded demand,the “price” of R&D knowledge went down. Research into the impact of open andclosed innovation has revealed that it is more efficient to buy existingknowledge than to invest in knowledge development (Chesbrough 2003; Bae andChang 2012). It is obvious that a focus solely on only R&D-based innovationhas not ensured economic growth. The ability to use existing knowledge and tointegrate this knowledge into new products and processes is getting moreimportant than the ability to discover new knowledge. This phenomenon becomes more evident when looking at the developmentof creative industries. As has already been mentioned, the products ofthe creative industries are not R&D intensive and are attributed to“low-tech“ industry, yet their rate of growth and profitability ratiosmay exceed the indicators of “high-tech“ industry (European Commission2010; Cooke and De Propris 2011). The companies of the creativeindustries are using a new paradigm in innovation development. Theyare more likely to invest in the development of a new system based onexisting knowledge, rather than in the development of R&D-basedinnovation. We have named this paradigm “system innovation”. New skillsand approaches should be used for system innovation development.

The concept of system innovation complements and supports the “structuredcreativity” concept (Bilton 2010: 262). A turn towards the social context andthe relationship networks of the creative industries’ theory is visible from1990. Individual creativity was replaced by a network of relationships ratherthan reliance on individual intuition (Sawyer 2006: 4). A socio-cultural modelof creativity is a model of post-industrial labour in which clusters andflexible networks are much more important than centralized companies. Thesocio-cultural network model is based on informal relationships that connectentrepreneurs, artists and micro-enterprises. A turn from the individualtowards collective creativity in the creative industries is becoming obvious,placing greater emphasis on the coordination of creativity and managementsystems that create a favourable environment for a creative talent (Bilton2010: 263).

The system innovation approach can be described as a newly developed system;the individual elements are not new but the novelty appears in the compositionand integration, and in the new relations between these elements (see Figure3). In developing the system innovation approach we do not focus on R&D or newknowledge development, but on finding an elegant solution based on existing

knowledge. An elegant solution could be defined as a solution that solves theproblem in the simplest and most effective manner. The fundamental differencebetween system innovation development is that we do not need to go deep(discover new knowledge) but should go wide (search for existing knowledge indifferent areas). In order to select the right elements of the system and todevelop new relations between these elements, broad knowledge of variousfields is required as well as teamwork and collective creativity efforts. Acertain amount of R&D might be necessary for the development of new relationsbetween the existing diverse elements, but usually it is not essential.

The novelty of system innovation is difficult to identify, due to the factthat we usually tend to look at separate elements of the system rather than atthe composition and relations between the elements. A new business model couldserve as an example of system innovation. The business model consists ofvarious elements such as product, production process, financing, marketing mixand so on. Each element of the business model taken separately may appear tobe well known already, but the particular composition and relations betweenthe elements could be unique and provide a huge competitive advantage for acompany. If there is no obvious marketing, organizational, product or processinnovation in the newly developed business model, it will not be treated asinnovation (OECD, 2005).

Innovation can be defined as something new and useful, such as a new film,advertisement and so on; however, the novelty of these products is not alwaysobvious. While elements of a new film can be same (the same actors, sound,costumes, genre, etc.), the composition and relations between these elementsmay cause totally new emotional reactions and experiences among the audience.The filmmakers who are used to it as an everyday reality (i.e. routinecreativity) do not consider it to be innovation either. They would treatsomething substantially new introduced into making a film as an innovation,for example, the application of a new technology, development of a new genredeveloped and so on, which in the creative industry is treated as radicalinnovation. As a rule, radical innovation requires more adoption time by theconsumers, so in most cases filmmakers are not able to introduce radicalinnovation as the time available for adoption is very limited. The audiencehas to identify and adapt innovation in real time while watching a movie. Itmeans that consumers have to be prepared to undertake radical innovations stepby step (Caves 2000). As a result, it is only possible to identify someradical innovations in the creative industries after due time.

Figure 3: System innovation conceptual diagram

In order to identify and distinguish system innovation from other types ofinnovation, we have to clearly define the features of system innovation:

Low R&D. Existing knowledge is used for developing system innovation,and R&D is used only for the integration of elements. Therefore,there is no need to invest in large-scale R&D activities for thesystem innovation development.

Wide scope and integrative thinking skills. The development of systeminnovation requires broad systemic thinking as well as the ability toembrace and understand the whole system and relationships among thedifferent elements of the system. The ability to integrate thedifferent elements into a homogeneous system is necessary.

Collective creativity. Since the development of the innovation system isconducted through integrating various fields of knowledge, thedevelopment process requires individual as well as the collectivecreativity. The ability to work in a diversified team/group is veryimportant to system innovation development. Diversified teammanagement skills and coordination abilities are crucial for a teamleader.

Knowledge retrieval skills. The development of R&D-based innovationrequires scientific research skills. As system innovation isprimarily based on existing knowledge integration, knowledge searchand management skills are more important than R&D skills.

Shorter life cycle. As system innovation is not R&D-based, it is usuallynot patentable. While in some cases it can be copyright protected, itis in any event more easily imitated than R&D-based innovations. Thepeak revenue period is relatively short, so the creative industrycompanies are forced to regularly develop new products using systeminnovation. Most mass-market music, movies and books have standardprices and a relatively short product cycle, thus requiring constant

product innovation and a race to supply cultural products with newstories, designs or functionality.

Adaptive novelty and usage of templates/patterns. As mentioned earlier, dueto a short period of time available for adapting innovation, creativeindustries such as companies involved in advertising, fashion, film,music and so on are more oriented towards incremental than radicalinnovation. In order to maintain their popularity, the creativeindustries have to produce innovations with adaptive novelty (Caves2000). The elements of system innovation should be recognised andunderstood by the customer; that is, system innovation has to fitinto the genre. To ensure the success of the system innovation,templates and patterns are developed and used by the creativeindustries, for example, Hollywood firms. Also, it has been proventhat templates and patterns accelerate the process of systeminnovation development.

Efficiency and effectiveness. New knowledge development and R&D activitiesrequire more time and resources than the application and exploitationof existing knowledge (Chesbrough 2003; Cooke and De Propris 2011;Bae and Chang 2012). The adaptive novelty and successful templatesand patterns used for the system innovation development increase thepossibility of achieving great commercial success. System innovationalso results in greater efficiency and effectiveness.

The system innovation approach focuses on the novelty of the context of theentire system instead of on an individual element of the system (Strazdas etal. 2013). System innovation development can be divided into to two main partsor subsystems: the innovation production part and the innovation sales andcommercialization part (see Figure 4).

Figure 4: Elements of system innovation approach

In order for the system innovation to achieve economic sustainability, allelements of the system innovation should be balanced. In particular, it isimportant to achieve a balance between the production subsystem andsales/commercialization subsystem (see Figure 4.). The economic sustainabilityof system innovation can be calculated by using the following formula:

where “IS” is the economic sustainability of a system innovation, “P” is theprofit generated from a system innovation and “In” is the investment neededfor the development of the new system innovation. A higher value of “IS”corresponds to a higher level of economic sustainability for a systeminnovation.

However, often innovation development improvement efforts within the creativeindustries are typically episodic in nature. Existing improvement methods forinnovation development such as Lean, Six Sigma and TOC are in many cases notsuitable as they are not based not on a system approach, but on a processapproach. Just as the development of innovation in the creative industries ismuch too complex to be described simply as a process, so a process-basedapproach is too narrow to cover all the complexity of the innovationdevelopment system.

4. Innovation development improvement model based on system innovationapproach

Based on the analysis of existing improvement methods and the identifiedfeatures of system innovation development, the innovation developmentimprovement model has been developed (see Figure 5.). An important feature ofthe model is the system approach, which requires a broad view of theinnovation development. Usually, it requires multiple skills and knowledge andcan only be accomplished by a team of experts or even multiple teams. Theinnovation development improvement model consists of six steps:

Step 1 – Measure the economic sustainability of the developed innovation. This step iscrucial in starting to understand the whole innovation developmentsystem of a company and setting goals for improvement. The economicsustainability of developed innovation can be calculated by using theabove formula: profit generated from a system innovation divided byinvestment needed for new system innovation development.

Step 2 – Mapping of innovation development system. An innovation development systemcan be unique to a company or even a product, but someelements/processes are usually similar. It is recommended to use thevisual format presented in Figure 4 for mapping the innovationdevelopment system. The mapping of the innovation development system canbe done by interviewing participants in the system, asking them toidentify the main parts, elements and processes. It is important toidentify two main elements or subsystems: an innovation productionelement and an innovation sales/commercialization element (see Figure4).

Figure 5: Innovation development improvement model based on system innovationapproach

Step 3 – Identification of weakest part/element/process in innovation development system. Theidentification of the weakest part/element/process can be done by askingparticipants in the system to evaluate the strengths or level ofdevelopment of each element/process. In this step, preliminary goals forimprovement should be identified. In order to avoid imbalances in theinnovation development system (see Figure 2), other elements/processesshould be taken into consideration. Step 4 – Analysis of weakest element/process in innovation development system. Processanalysis tools such as the flow chart, value stream mapping (VSM) and soon can be applied to the analysis.Step 5 – Improve weakest element/process in the innovation development system. An actionplan should be developed to improve weakest element/process in theinnovation development system.Step 6 – Control of improvement of weakest element/process in innovation development system.The control of the improvement process should be performed on the basisof the goals and developed action plan for improvement.

The proposed innovation development improvement model is targeted at improvinginnovation development at the micro (i.e. company) level, but it can also beused at the macro (i.e. industry) level. The mapping and identification of theweakest elements and processes in the innovation development system on a macrolevel was tested by the authors of the article. The system innovation approachwas used to analyse the Lithuanian film industry. The analysis was based oninterviews with 16 Lithuanian film experts (6 directors, 5 producer/directors,2 film distributors, 1 film critic, 1 composer and 1 financial expert in thefilm industry). These experts represented both parts of Lithuanian filmindustry (i.e. production and sales/commercialization). The data werecollected based on a prepared questionnaire, and the experts were asked toevaluate the level of development of each element of the Lithuanian filmindustry, with the evaluation being based on a 5-point scale ranging from 1 –very low level, to 5 – very high level of development. The results of the survey have revealed that Lithuanian film industry, fromthe system innovation point of view, is unbalanced; that is to say, thesales/commercialization part of the film industry is much weaker (score of 2.4points) than production part (score of 2.8 points; Cerneviciute et al. 2014).In order to achieve a balance in the Lithuanian film industry, the main effortshould focused on the improving the sales/commercialization part and,especially, on increasing the producers’ professional qualifications. Effortsallocated to improving the production part will increase the imbalance betweenthe sales/commercialization and production parts and will not increase theefficiency of the whole system of the Lithuanian film industry.

5. ConclusionsThe main weakness of existing improvement methods (such as PDCA, DMAIC, DMADV,TOC) for improving the innovation development system is that they are based ona process approach; that is, the innovation development is understood as a“set of interrelated or interacting activities, which transforms inputs intooutputs” (ISO 9000 2008). Innovation development is very complex and difficultto fit into a linear process. Usually, innovation development consists of manyinterrelated processes, so a system innovation approach is more suitable forthe improvement of innovation development than a process approach.Based on this analysis, the innovation development improvement model wasdeveloped, which can be used for the improvement of innovation development inthe creative industries. For further development of the model, in-depth testsat the micro level of individual companies and organizations are needed.

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