New Technologies and the Firm

Innovation and Competition

Peter Swann

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351120562
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Originally published in 1993 this book presents the findings of 14 teams involved in a research initiative to examine the initiation and resonse to innovation in firms. It draws together the many strands which were discovered to influence the successful generation and adoption of new technologies. The core issues in technology management are looked at, including skills and expertise, markets and marketing, finance and the issue of technology collaboration both on a domestic and international basis. Technology is shown to be at the very heart of corporate strategy and policy formation.

Part I

The ‘core’ – management of new technology

1 Managing technological innovation

Architecture, trust and organizational relationships in the firm

John Kay and Paul Willman

1.1 INTRODUCTION

Discussions between sociologists and economists about matters of practical concern to business are often conspicuous by their absence. Where they do occur, they are often dialogues of the deaf. This is not only a matter for regret but also for concern, since the substantive concerns of both disciplines have tended to converge around issues which have clear commercial relevance. Economists have turned their attention to the analysis of organizations as well as that of markets; sociologists, in something of a return to their roots, have become concerned with rational choice models in the explanation of human activity.

These developments are important for the analysis of technological change. As Elster has noted, there have been two main approaches to the analysis of such change. The first, naturally favoured by economists, conceives technological change as involving rational goal-directed activity, seeking the best option within a given innovation set. The second emphasizes the incremental, cumulative and historically influenced nature of change in discussing evolutionary trajectories (Elster 1983: 9–11). Sociologists have been drawn to it, as have economists of the evolutionary school, such as Nelson and Winter (1982). The former approach has tended to sustain certain generalizations about change, perhaps at the expense of operating with rather rigid, counter-intuitive assumptions about the processes involved. Sociologists following the latter have tended to an idiographic approach, in some cases going so far as to argue that generalizations about either the process of technological change or its outcomes are impossible for theoretical reasons and that indeterminacy in outcomes is a consequence of the variable, socially created nature of the process itself (e.g. Barley 1986). Few predictive statements are possible. The middle ground between these two approaches is largely uninhabited.

Our knowledge of the process of change, particularly at the level of the firm, has been hampered by this lack of dialogue. As Tushman and Nelson note, the literature on both the selection of technology and the shaping of it by organizations is lamentably thin (Tushman and Nelson 1990:9). Questions about the factors underpinning successful technological innovation at the level of the firm, whether involving process, product or both, are difficult to answer. We lack a precise understanding not only of the organizational influences over the rate and direction of technical change, but also of the processes of deployment of any innovation – more specifically, of the ways in which organizations use innovation to attain competitive advantage.

The research discussed here has sought to fill part of this gap by developing a set of hypotheses about the process of innovation and its relationship to specific outcomes, notably competitive success defined as the generation of rents. These hypotheses, described more fully in Grindley (1989), initially concern the incentive to innovate and, subsequently, the organizational attributes of innovative success. At first, the spur to innovation is seen to lie in the perception of competitive pressure. Thereafter success is hypothesized to rely on organizational features such as cross-functional integration, flexibility, the accumulation of firm-specific skills and capabilities and on the ability to break down change into incremental attainable steps. These organizational features, which are described more fully below, together constitute the organizational capability of the firm to sustain long-term innovation. They concern not only the structure of the organization but also its knowledge base and its ability to deploy knowledge in pursuit of competitive success.

Our argument, based on the empirical data collected from over twenty case studies, is that firms are differentially capable of locating and appropriating their own knowledge bases, and that this differential capability relates to their innovative capacity. These case-study data, which will be referred to in an illustrative manner below, were collected between 1989 and 1992 in three sectors, namely, financial services (including public sector cases) instruments/electronics and manufacturing, particularly motor vehicles.

The purpose of this chapter is to articulate the theoretical basis for this argument. Put briefly, we argue that the organizational capacity to implement new technology is the key to success, that an examination of the organization’s knowledge base is the basis for understanding this capacity and that an understanding of the dynamics of changing organizational knowledge bases can be generated by conceiving of the organization or firm as a network of implicit contracts.

The structure of the chapter is as follows. Section 1.2 indicates how a concern with organizational knowledge and capacity for change arose from our empirical work. Section 1.3 spells out a model of the firm as a network of contracts. Section 1.4 discusses the implications of this view. Section 1.5 concludes.

1.2 ORGANIZATION AND INNOVATION

We have been concerned with the relatively stable and long-term features of organization which sustain innovation streams. The debate here is primarily about the importance of bureaucracy or of its avoidance. In the seminal work, that of Burns and Stalker (1961), ‘organic’ structures, characterized by the absence of formality and hierarchy, ambiguity in reporting relationships and the absence of clear job definitions, are seen to support innovation more effectively than do ‘mechanistic’ structures with obverse characteristics. ‘Bureaucracy’, as commonly understood, is inimical to innovation. Subsequent popular literature tends to stress the need to avoid bureaucracy and to put considerable effort into the management of an innovative environment (e.g. Kanter 1983)

Our casework reveals the inadequacies of this approach. Our financial-services and public-sector cases relate, without exception, to bureaucratic organizations. They are, moreover, bureaucratic organizations for good reason. The processing of very large volumes of transactions to common criteria and standards and (in the case of the public-sector organizations) with a high degree of central accountability for all activities of the organization, demands hierarchic structure and an extensive body of organizational routine. In these cases, to advocate the breakdown of bureaucracy in the interests of an innovative culture is to misunderstand the primary purposes of the organization. The relevant issue is not how to dispense with, or circumvent, hierarchy or organizational routine but how to integrate technology in the context of hierarchy and organizational routine.

Our cases show that information technology projects tended to be more successful where relatively unambitious, focused applications were tried, as in the Inland Revenue, DVLC in the later stages and Halifax, than where the technology was seen as the basis for affecting major organizational change, as for example in Midland Bank.¹ This incrementalism is a feature of organization rather than a feature of technology (Pavitt 1990). Several firms were first-time users of this generic technology; their success in adopting it seemed to relate less to the precise technology chosen and more to the grafting of technological decision-making on to existing organizational routines. Organizational change through the use of technology did not work, but radical technological changes could be accommodated by use of existing procedures.

Other research on innovation patterns, such as that by Nelson and Winter (1980) and by Daft (1982), has tended to stress the importance of formality and routine in the process of innovation. Nelson and Winter speak of innovative routines’, rooted in combinations of known, tried, sub-routines (Nelson and Winter 1980: 127–34). Daft emphasizes the importance of stable knowledge bases enhanced through stable communications channels (Daft 1982). In a slightly different vein, Van de Ven emphasizes the importance of structural integration and formal mechanisms for achieving it in the pursuit of success in innovation (Van de Ven 1986).

These routines are partly dictated by a perception that organizational success, even innovative success, depends on stable routine. Consider the following: ‘Despite frequent, repeated structural change, endemic changes in products, processes and technology, people do need some sense of stability … internal stability in these firms derives from strong, carefully nurtured organizational culture (Jelinek and Schoonhaven 1990: 36). They speak of a ‘dynamic tension’ between stability and change, and stress the permanence of a strategy for change rather than a particular structural context. Their sample is of high-technology firms and their results may not be generalizable, but their work, populist but in the Burns and Stalker tradition, raises several interesting questions for the management of innovation, in particular the balance between of ‘entrepreneurial’ behaviour and bureaucratic structure in sustaining innovative activity.

These questions may be further considered by examining the often quoted cliché that ‘change is normal’. This might be taken to imply that certain organizations exist which are capable of assimilating almost any kind of change, technological or otherwise. However, a more reasonable inference to be drawn is that organizations exist which have the capacity to operate with a relatively stable rate of change. Their forte is the routinization and bureaucratization of change itself. Procedures for incremental adaption to changed circumstances become part of the organization’s rule structure. The appropriate empirical questions concern, first, the necessary conditions for the establishment of such innovative routines and, second, their durability over time.

1.3 INNOVATION AND THE KNOWLEDGE BASE OF THE FIRM

The development of an effectively innovative culture is not therefore a matter of finding alternatives to organizational routines for monitoring and control, but of establishing routines which stimulate appropriate innovation and achieve the integration of technology into the core activities of the business.²

In appraising these routines the test we apply is the contribution of technology to the competitive advantage, or rent-creating capacity, of the business. Thus the criteria used in measuring success in the management of technology are not technological ones. It follows that technological sophistication is distinct from our measurement of success. We believe, for example, that Halifax Building Society – who have made a relatively idiosyncratic and low-level technology meet the specific needs of their business very effectively – display better management of technology than Midland Bank where more advanced technology has been implemented with little evident benefit to the cost structure or competitive position of the firm. We therefore emphasize, first, the relevance of technology – in high-technology firms, in particular, there is a danger of emphasizing technological solutions at the expense of commercial application, second, the integration of technology, that is, the ability to match it effectively to user needs, and, third, the appropriability of technology, that is, the capacity of the firm to capture the benefits of technology for itself, and to defend them, both against employees and against competitors.

Each of these turns on the contribution of innovation and technology to the knowledge base of the organization. Incremental adaptation to change implies an existing knowledge base upon which to built. In the first instance, this knowledge base might not relate to the technology in question. At DSS, for example, knowledge of information technology remained in the hands of external consultants for some time during the early stages of the project; as internal expertise grew, the existing non-technical knowledge base of prospective users, relating to the administration of benefit provision, became a considerable influence on system design (Dyerson and Roper 1991). The knowledge base of an organization may not be explicitly acknowledged and articulated; it may be both tacit and diffuse, so that it is difficult to see in the first instance how new technological applications relate to it. It may be in the hands of a particular strategic group, whose relationship to new technology may be problematic; they may, for example, suffer status or pecuniary losses fol...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• List of contributors
• Foreword
• Acknowledgements
• Introduction
• Part I The ‘core’ – management of new technology
• 1 Managing technological innovation: architecture, trust and organizational relationships in the firm
• 2 Managing technology: organizing for competitive advantage
• 3 The performance of innovative small firms: a regional issue
• 4 Paradigms, strategies and the evolutionary basis of technological competition
• 5 Supplier-user relationships and the management of expertise in computer systems development
• Part II Skills and expertise in the workforce
• 6 New technologies, skills shortages and training strategies
• 7 Qualified scientists and engineers and economic performance
• Part III Markets and Consumers
• 8 The diffusion of new technology: extensions to theory and evidence
• 9 Product marketing and sales in high-technology small firms
• 10 The speed of technology change and development of market structure: semiconductors, PC software and biotechnology
• 11 The heart of where the home is: the innovation process in consumer IT products
• Part IV Financing new technology
• 12 Internal and external financial constraints on investment in innovative technology
• 13 Accounting for R & D Costs: does it matter? Perceptions of analysts and company management
• 14 R & D intensity and firm finance: a US-UK comparison
• Part V Collaboration in new technology
• 15 Management of international collaboration
• Summary and conclusions
• Bibliography of work arising from the Initiative
• Index