Management Of Innovation Strategy In Japanese Companies

Kazuki Hamada, Shufuku Hiraoka

• Publisher: WSPC
• Year: 2016
• ISBN:
  9789813100299
• Topic: Biological Sciences
• Subtopic: Science General
• Index: Biological Sciences

Traditionally, innovation has been considered difficult to manage, as it occurs through contingent discoveries and inventions. For effective innovation management, it is necessary to determine what provides new value to customers and achieve this new value efficiently, while solving the technical problems. This book explores how innovation management for industrial revitalization and activation are conducted in Japanese companies. "Innovation" has diverse definitions, but the editors of this book have adopted the one proposed by J A Schumpeter. The features of innovation management in Japanese companies are considered systematically in the book. Positive analyses using questionnaires and innovation management strategy in individual industries and companies is also explored in detail.

Part 1
Management of Innovation
Strategy and Management
Control

Strategic Management and Profit Creation in the Context of Innovation: The Management of Innovation Value Chains

Kazuki Hamada

Professor, School of Business Administration,
Kwansei Gakuin University, Japan

1.Introduction: The Present Conditions of the Innovation in Japan

Recently, Japanese companies have been compelled to improve competitive advantage strategically through innovation by developing new products and businesses. Schumpeter (1934) mentions that the purpose of innovation is “to produce new things or to produce existing things by new methods”; in other words, “to combine things and power in the forms that are different from before”. Further, innovation must realize profitable results in markets. Schumpeter (1934) goes on to explain five types of the new combination: (1) new products and services, and the introduction of new qualities in them; (2) the introduction of new production methods; (3) the development of new markets; (4) the acquisition of new sources of raw materials and half-finished goods; and (5) the realization of new organizations. (1) is related to product innovation and (2)–(5) are related to process innovation.

Some investigations of innovation in Japan focus only on product innovation and some consider both types of innovation. A report of the National Institute of Science and Technology Policy, Ministry of Education, Culture, Sports and Technology (2014) investigates Web- and mail-based research conducted among 20,405 companies. Of these companies, 7,034 provided useful answers. In the investigation, innovation refers to the introduction of something new for a company; further, innovation does not limit anything new to the market (in other words, a perfect new product or service). According to the findings, the realization ratio of product innovation and process innovation in Japan is low in comparison with America and European countries. Among the factors responsible are the lack of certain abilities among employees, the lack of information about technologies and markets, the uncertainty of demand for new products and services, and the high costs of innovation.

A report of Deloitte Tohmatsu Consulting Co. Ltd. and Deloitte Tohmatsu Financial Advisory Co. Ltd. (2013) examines innovation by using Web- and mail-based research conducted among 2,309 listed companies and 726 nonpublic companies. Of these companies, 335 provided useful answers. According to the findings, the ratio (by consolidation) of the sales of new businesses, products, and services that Japanese companies introduced into the markets within the most recent three years to the total sales is half that of American companies. In addition, the findings show that the ratio of the sales volume of products/services that are new for the companies to those that are not new to the markets is high; and the ratio of the sales volume of products/services that are new for the companies to those that are new to the markets is low. Further, the following problems in the enforcement of innovation are highlighted.

(1)There are few innovative top and middle managers.

(2)Activities to create new ideas are an “extension of existing strategies”.

(3)The method of investment judgment and organizational continuous processes of knowledge are weak.

(4)There are no mechanisms that repeatedly produce new business.

(5)Actions regarding intellectual property utilization are weak.

The investigation that the Japanese Ministry of Economy, Trade and Industry assigned to the Techno Research Institute (2012) considered 2,093 listed companies and 2,543 non-public companies. Of these, 996 provided useful answers. The investigation’s highlights are as follows.

(1)Innovations that occur because of needs are 64%; those that occur because of seeds are 36%.

(2)If we divide innovations into those produced strategically and those produced accidentally, the former amounts to more than 75% of all cases of technology, products/services, and related businesses.

(3)Consecutive innovations (innovations whose performance and sales are continually and progressively improved by technologies on conventional production lines) are more numerous than non-consecutive innovations (innovations developed from just a few areas of the production line) with a ratio of almost 3:1.

(4)With regard to (3), many companies want to increase the ratios of nonconsecutive innovations because the impact of such innovations on superior performance and competitiveness is significant.

These investigations show that the realization ratio of innovation, especially non-consecutive (radical) innovation is low. In addition, they show that strategic management is necessary for innovation. Managers must collect information about intellectual assets, technologies, and demand. They must also build learning and administration systems in order to generate new business and encourage employees to become innovative. Further, the research shows that appropriate investment judgment and cost management (profit management) are necessary because innovation costs are high.

When we consider the situation of Japanese companies, there are not only products whose product performance has a significant influence on customer satisfaction, but there are also many products that reach a level at which their performance provides sufficient customer satisfaction. If customers are satisfied with product performance, technological improvements do not lead to competitive advantages. Thus, although innovation has so far focused on improvements in technological performance, innovation must be considered from the viewpoint of customer value. However, it is important to think about technological aspects because these affect the durability of competitive advantages. In addition, the development of new business structures (business models) is important for the profitability of products.

I only consider product innovation in this paper, because the focus becomes blurred if I examine innovation too widely. However, I consider process innovation in its widest sense, because the sales process of products must be given due consideration in terms of profit acquisition.

2.Relations Between Corporate Strategies and Innovation Strategies

Innovation is an issue related to all sections of a company because it is important for innovation to encompass all processes from research and development to sales. Thus, innovation must be managed alongside corporate strategies and considered as one of the key activities in a company’s operations.

Corporate strategies have intentional and emerging strategies. Intentional strategy is a strategy formulated on purpose and is based on data analysis about market growth rates, market sizes, customer needs, and the situations of competing companies and technologies. Emerging strategy wells up within an organization and is a strategy that comes from the accumulation of daily job-related decisions. The appropriate management of such intentional and emerging strategic processes is important. However, these two processes complement each other. Further, managers and on-site employees must deal with problems and opportunities that emerge, and that were not foreseen in the intentional strategic process. They must then adapt their intentional strategy and pursue it if the process of emergence is to be strategically effective.

With regard to innovation strategy, there are cases where it is first conducted intentionally with a clear design, and cases where it is first conducted emergently because it has no clear design. Managers need to use these strategies properly. However, even if innovation is conducted intentionally, it must correspond flexibly to environmental changes in terms of emergence because of the uncertainties that accompany innovation. In contrast, even if innovation is conducted for reasons of emergence, managers must not wait for emergence to occur but must create a system to bring about emergence intentionally.

3.Innovation Strategies and Management Control

3.1.Types of innovation and innovation strategy

Types of innovation can be classified in various ways. For example, innovation can be divided into gradual innovation (continuous innovation) and radical innovation (discontinuous innovation). The former is innovation based on abilities that can be developed and learned relatively easily in an organization and often has a low-risk low return. The latter is innovation that may change an industrial structure dramatically and often has a high-risk high return.

Gradual innovation can often anticipate a future situation to some extent although it is accompanied by uncertainty. In this case, an intentional process occurs. Managers hypothesize on the basis of market and technical information, and it is important how they formulate achievable aims and implement them. However, even with gradual innovation, the environment is uncertain, and if there is environmental change, it is necessary to change hypotheses, revise aims, and cope with emergence flexibly. In contrast, radical innovation that is not realized on the production line has rarely a development design. Thus, market needs and technological possibilities must be considered in order to produce a development design and sufficiently utilize the emergence processes. In addition, it is rare for a development design to be put into practice as it was originally formulated; indeed, it is usually revised many times if market and technological requirements change.

With regard to both gradual and radical innovation, using feedback to check on progress is an effective means of management as is feedforward. Feedforward management is a method whereby managers predict outputs using input information that is available in a system. Such managers recognize the differences between predicted outputs and goals and manage on the basis of predictions so that goals are accomplished through information. The practice of this approach is difficult because comparisons developed from predictions play a key role in feedforward management. Timeliness is also significant because managers can find problems by themselves immediately and introduce measures to resolve such problems.

Feedforward management is important for product innovation because managers change hypotheses on the basis of information about environmental change and adjust predicted results. They also change the development of products if there is a difference between goals and forecasts. In addition, the number of hypotheses increases in terms of predictions because product innovation is conducted in an environment where the degree of uncertainty is extremely high. Such hypotheses change depending on environmental changes; consequently modified actions are often necessary. Information must be acquired quickly to change hypotheses, predict results, and engage promptly in modified actions in order to conduct feedforward management effectively. Such a cycle becomes faster as organizational learning accumulate, because the discovery of areas in which management must be careful becomes faster as does the consequent standardization of predictive work. In this regard, a system can easily cause an overreaction if managers strengthen feedforward; thus, attention must be paid because the system can become significantly unstable.

After a development design is provided in one way or another, managers progress through organizational learning while coordinating intentional and emergence processes based on the design. Thus, the management of innovation in order to give a more concrete form to a development design becomes particularly important. Development designs change many times through the processes of realization and hypotheses. At this stage, feedforward management is effective and conducted using concrete accounting values for profit...

Table of contents

• Cover
• Halftitle
• Series Editors
• Title
• Copyright
• Japan Society of Organization and Accounting (JSOA)
• Japanese Management and International Studies (JMIS)
• Contents
• Preface
• About the Volume Editors
• List of Contributors
• Part 1. Management of Innovation Strategy and Management Control
• Part 2. Considerations of Innovation Management From the Perspective of Individual Industries and Companies
• Part 3. Related Topics in Business Administration and Management Accounting
• Index