How to build the Innovation Culture for a Company

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Frame of Reference

This chapter will present the previous research and studies in the areas of Innovation, and how innovation cultures are built; how innovation has been know to contribute to profit and growth.

Innovation in organization

In an organizational environment, examples of innovation are implementation of ideas for restructuring, or saving of costs, improved communication, new technology for pro-duction processes, new organization structures and new personnel plans (West,M.A and Farr,J.L, 1990). By knowing this, the top management and employee could be goal oriented for innovation during the regular work, especially when they need to change the current condition. In this case, we can also say that Al-Elm could consider the inno-vation in these aspects.
An innovation strategy is a strategy that promotes the development and implementation of new products and services (Robbins, 1996). AL-ELM hence should regards the prod-uct innovation as one of most important perspectives once it decides to develop innova-tion strategy. Furthermore, the vision and mission of a creative and innovative organiza-tion are also customer- and market-oriented, focusing on solving customer’s problems among other things (CIMA Study Text, 1996). As can be seen, implementing the inno-vation strategy should not lack marketing innovation because the new marketing strate-gy is able to bring more opportunities.

How to build the Innovation Culture for a Company

Before we plan to make the company innovate and grow in the future, we have to build the innovation culture in the organization, which is the fundamentals for innovation in every aspects of the company. After all, the innovation culture is the basic source to change and innovate. Consequently, we found a model that has three dimensions to de-scribe to their influence in promoting and hindering creativity and innovation (E.C. Martins, F. Terblanche, 2003).
First, strategy: the employee in the company must understand which support creativity and innovation, as their work dominant the productivity and performance of the compa-ny. Normally, the top management is the producer of the strategy with employee act in-novatively during the work. Hence, allowing great freedom within the context of the goals as well as strategy encourages the innovation culture (E.C. Martins, F. Ter-blanche, 2003). From the leader perspective, to design the innovative strategy and to be clear inside what mission is more innovative is beneficial to build innovation culture for the company.
Second, from structure perspective, it is found that flat structure, autonomy and team work will promote innovation (CIMA Study Text, 1996). Once a company decides to re organize and make a change, adopting flat structure without much hierarchy or bureau-cracy stimulates innovation and builds a much better atmosphere for company. In order to build innovation culture, we also think about how employee cooperative with each other. Empirical evidence suggests that cross-functional team that allow for diversity and individual talents who complement one another promote innovation and creativity (Arad S and Schneider, 1997). Following this rule, social and technical members should interact so that employee can open their mind and be more innovative during the proce-dure of work.
Third, what is the behavior which encourages innovation. It is common that employee make mistake in the regular work, but tolerance of mistakes is an essential element in the development of an organizational culture that promotes innovation (E.C. Martins, F. Terblanche, 2003). The innovation behaviour should be supported from top manage-ment to subordinate. The most creative and innovative departments in an organization regard competitiveness as an important aspects of their culture (Nystrom, H, 1990). For example, managers consider to make more access to external information that is benefi-cial for company’s growth. After all, the more information we get, the more we can learn from others, which is another kind of source to innovate.

How Global companies use Innovation for driving growth

Before company decides to change, it is good to reference from what previous leader did about innovation for company’s growth.
George Buckley, CEO of 3M, gives us some sharing of how he operated company in innovation perspective. Buckly mentions that creativity is more about controlling uncer-tainty, meaning that risk management and the acceptance of risk is an incredibly impor-tant element of growth and faster innovation (Castellion, George, 2010). By doing so, the rate of failure decreases considerably if the leader is professional to controling it, otherwise, loss occurs at any time. As can be seen, no matter before the innovation or in the process of doing it, we had better firstly find methods to manage risk very well as an emergency. The risk control is mainly reflected in financial aspects, hence, formulating detail financial plan and making investment decision for innovation projects before it starts really helps.
Except Buckley, all nine executives‘ stress that innovation culture must start at the top if a company wants to be innovative (Castellion, George, 2010). Senior management must display innovation values in everyday business practice (Castellion, George, 2010), so every level of company can perform innovation consistently. After all, we all know the leadership style dominant the atmosphere of whole company.
In order to drive innovation for growth, SAP‘s CEO says he has a direct influence on the culture of innovation at SAP by sending signal to customers in terms of quality, re-liability, engagement (Castellion, George, 2010). This kind of stimulation almost plays a role of emphasizing, making most of them think about how to find the priorities in quality and customer satisfaction. Once these aspects are done well, the company will definitely gain more profit by selling more products and get grow.
Nokia’s CEO highlights that external orientation is so important when it comes to inno-vation because once get internally focused, company lacks the diversity as well (Castel-lion, George, 2010). Learning from other company’s experience and skill can help gene-rating new ideas, and confining the range of thinking inside the company gives limita-tion in innovation, which decreases the possibility of growth and speed to grow. There-fore, external influence has positive effort on innovation.

Marketing Innovation

A necessary component of profitability is revenue, and revenue depends on satisfying customer needs. Research in marketing is intrinsically customer and competitor fo-cused, and thus well situated to study how a firm might better guide innovation to meet its profitability goals successfully (Hauser, John; Tellis, Gerard J.; Griffin, Abbie,2006). Therefore, marketing department plays a significant role in company’s business transac-tion and performance.

Testing Innovative Marketing Ideas

Once come up with new ideas regarding marketing, these ideas should be tested in care-fully selected markets as representative and controlled conditions as possible (Levitt, Theodore, 1960). The limitation of capital that will be invested in new market and the feasibility of market confine the practical marketing innovation range, consequently we just choose the sample ones as our marketing innovation start. Then we invite the adver-tising agency to design as well as run the marketing innovation strategy as a separate business (Levitt, Theodore, 1960). Why we do this is because the new strategy more or less has risk, which need the agency to do it by isolating them from our current market-ing to reduce the risk. Until these tests are proved to be feasible, we can deliver them to sales department for further implementation (Levitt, Theodore, 1960). At that time, sa-lesman of company will do the marketing innovation in person by selling in new place or new channel.
One thing deserved mention about marketing innovation is that the bigger they are, the greater is their capacity to change the ingrained consumer habits to which they address themselves (Levitt, Theodore, 1960). It means the more new market we tried and the more we changed about it, the more transaction and consumer we can exploit. Mean-while, these innovation strategy will open the previous habit that consumer have used in the past. Therefore, the innovation strategy really makes an effort.

Consumer responses to Innovation

The success of innovations depends ultimately on consumers accepting them. Success-ful innovation rests on first understanding customer needs and then developing products that meet those needs (Hauser, John; Tellis, Gerard J.; Griffin, Abbie,2006). So we had better study the consumer‘s habit in the new market so that our marketing innovation strategy fit, say, what kind of reaction the local consumer will have by being imple-menting our innovation strategy.

Consumer Innovativeness

Research on consumer innovativeness focuses on the characteristics that differentiate how fast or eagerly the local consumers adopt our products (Hauser, John; Tellis, Ge-rard J.; Griffin, Abbie,2006), in which condition we will have different sales scale. It is necessary that we analyze target market’s customer as well as potential position in this market in order to provide marketing strategy for Al-Elm.
Consumer innovativeness is one of elements of marketing innovation strategy, from this point of view; we must pay attention on consumer behavior of new market. To explore a new market, we firstly should know the local consumer’s habit and culture as well as what kind of group of consumers would be the first adopters, which is the premise of adaptation of the possible marketing solution. The adoption of products of new entrants by consumers is crucial to new market success (Hauser, John; Tellis, Gerard J.; Griffin, Abbie, 2006). From the research we get to know those consumers who tend not to seek out new entrants’ information or assistance from others are postulated to be predisposed toward early adoption of product of new entrants (Midgley, David F.; Dowling, Gra-hame R, 1978). Hence, these group of people are also our first target marketing objec-tive when we explore the new market. These early adopters are willing to take the risk of accept the new entrants without gaining information from their social system tend to purchase the product of new entrants earlier than others (Midgley, David F.; Dowling, Grahame R, 1978). All buyers who try the product in the first period are willing to pay a higher price for it in the second and all subsequent periods (Mueller, Dennis C, 1997).
Except the consumers who will be the early purchasers, we can also identify the poten-tial consumers who most likely to adopt our products by measuring two scale: life innovativeness scales and adoptive innovativeness scales (Hauser, John; Tellis, Gerard J.; Griffin, Abbie,2006). The purchasing decision of consumers are not only determined by the customers’ attraction to any kind of newness and but also by the adoption of specific products new entrants introduced, meaning that consumers will be more or less have the extent of being attracted due to the curiosity sometimes as well as the possibility they like new entrants. Therefore, we can make the questionnaire to the customers in our new target market and collect the data to investigate which certain group of people are interested in our product. And we sort out the characteristic of these consumers’ such as age range, the gender, the occupation, opinion and so on. By doing all these, it is easier for us to make marketing innovation strategy.

Network Externalities

Network externalities refer to an increase in the value of a product to a user based on ei-ther the number of users of the same product or the availability of related products (Hauser, John; Tellis, Gerard J.; Griffin, Abbie,2006). For example, if one group accept the new entrants, the related people of them will follow such as the customers’ customer and customers’ supplier. Consumer acceptance of products of new entrants and their subsequent growth can be affected greatly by network externalities (Hauser, John; Tel-lis, Gerard J.; Griffin, Abbie,2006). It is easily to be explained that the network func-tions as an media advertisement to consumer since most of them really believe others’ taste before they try. Once a first-mover has established a large network for a product with positive network externalities, the potential demand for a second mover’s product lies far below that of the first-mover (Mueller, Dennis C, 1997). In most cases, the net-work not only helps the sales promotion but also improve the reliability of exploring new market for the local consumers, even saving cost because if we have the trusty net-work, we don’t have to spend the amount of money on advertisement by TV, newspaper.

Consumer Resistance to Innovations and the Solution

There is possibility that innovation we made could be rejected by the new market for some reasons. Because an innovation may create a high degree of change in consumers’ day-to-day existence and disrupt their established routines (Ram, S.; Sheth, Jagdish N, 1989). They consequently may feel dislike or worry about the marketing change, fearing maladjustment of the innovation. It is also perhaps the innovation may conflict with consumers’ prior believe structure (Ram, S.; Sheth, Jagdish N, 1989). Obviously, we need to transfer their value of the change and convince them our marketing innovation is reasonable, which could bring more benefit.
Since any kind of barrier is quite normal for the marketing innovation and introduction to new consumers, we have to deal with these difficulties to overcome the sales prob-lem.
The first probable marketing innovation strategy is to develop a system in which the in-novating system can estimate how its new offering can fit into the existing system (Ram, S.; Sheth, Jagdish N, 1989). Because the product of new entrants must interact with the ones in current market and to some degree we compare ours with the existing ones, meanwhile analyzing the competitors. From quality, price, function perspective, we could even make an metric for the product of new entrants, the current marketing and the competitors to know what position we are in. Furthermore, to overcome the re-sistance the innovation could be integrated to the preceding activity or product to end-users as part of package (Ram, S.; Sheth, Jagdish N, 1989). It is more easy for the new consumers to accept the part innovation than whole innovation by doing so, which is like package the innovation under a well-known brand name.
The second marketing innovation strategy to deal with customer‘s resistance is making the innovation mandatory through government legislation (Ram, S.; Sheth, Jagdish N, 1989). From this marketing development aspect, what we should do is to convince the government that our innovation can benefit the customers. So before we decide to enter a new market, it is necessary to think about our product’s unique feature as well as the function it can perform comparing with the current ones.
The third marketing innovation strategy to overcome the customer problem is to reduce the manufacturing costs of the innovation and pass on the savings to the customers (Ram, S.; Sheth, Jagdish N, 1989). It means before we explore the new market, we have already reduced the cost when we make the production. Anyway, this strategy is based on effective pricing. Saving cost is not only for the success of marketing innovation, but also reduce the rate of failure or loss, which could happen in the new market.

Market Entry Strategies

The market entry concerns how to exploit innovation given company’s own resources and portfolio of products, the resources and strategies of its rivals, and the dynamics of consumer demand (Hauser, John; Tellis, Gerard J.; Griffin, Abbie,2006). We can figure out the amount of production for entering new market as well as the strategy by know-ing how many resources we have and the detail of competitors. For example, in most cases, we should avoid the similarity of product with the ones of local rivals.
But entering a new market company definitely faces market entry barriers and great fi-nancial risk, which decrease the likelihood, scope, or speed with which potential com-petitors can come into the markets (Shepherd, W. , 1979). Therefore, we should get a clear understanding of possible barriers to overcome the difficulties to enter into new market and make the innovation successfully. The cost advantages of incumbents bar-rier is perceived as the most critical for all market entry decisions (Karakaya, Fahri; Stahl, Michael J, 1989). So reducing whole cost as much as possible without decreasing quality of product must come first, which forms a symmetry with cost of incumbents. Meanwhile, the price will be set up reasonably according to the cost.
The product differentiation of incumbent‘s barrier is perceived as the third most impor-tant (Karakaya, Fahri; Stahl, Michael J, 1989). If our products and service are similar to the incumbents’, this marketing innovation is meaningless since the local consumers ob-viously trust the original ones more. No matter the function or design, we have to make our product innovative and has its own features. Firms try to differentiate their products to deter other firms from entering markets and to increase market share (Karakaya, Fa-hri; Stahl, Michael J, 1989). As can be seen, by doing this our company can successfully enter the new market.
Except for the above two factors, capital requirement is another possible barrier to entry since entering a new market is also a kind of new investment, requiring a amount of funds. Of course, it can be collected in many ways such as venture capital, corporate venturing, and trade credit. But we don’t have too much pressure on this, after all, the initial investment is low in order to reduce risk.
Usually firm has three major entry strategies (Porter, Michael, 1980b) :
1. Entry through internal development, which involves the creation of a new busi-ness entity in an industry.
2. Entry through acquisition.
3. Sequenced entry, which entails initial entry into one group and subsequent mo-bility from group to group.
In markets where barriers to entry are strong, many firms attempt to enter by way of ac-quisition (Karakaya, Fahri; Stahl, Michael J, 1989). But persuading the local firm to merge is not easy, as long as we have confidence, we can exploit a new market tenta-tively.

Successful Market Innovation

Market innovation is concerned with improving the mix of target markets and how cho-sen markets are best served (Axel Johne, 1999). As they are the new targets, opportuni-ties exist as long as the innovators are good at grasping them and would like to be the first mover or the imitators. But how to choose the new target market is also the prefe-rence and personal tendency of the manager or group within the company, meaning that there is not standard answer for choosing them. We deal first with the identification of potential markets, which is achieved through skilful market segmentation (Axel Johne, 1999).
One criterion to choose target market is based on demographic data, which means it is based on life style interpretations of consumer and business buying behavior (Axel Johne, 1999). Hence, analyzing the local consumer as well as their buying behavior can help us to promote the sales, although the conception of consumer could change due to the advertising or propaganda.
Other criteria to choose target market is « benefit segmentation » that has become more widely used (Hooley et al., 1998). In this process, we consider what benefit our product and service will give the local market, namely how buyers seek to gain benefits in par-ticular buying situations (Axel Johne, 1999). But as long as we can determine the cer-tain benefit our innovation giving consumers, we can surely release our innovation in the new marketplace.
To compete effectively in new market, company should takes into account three para-meters to analyze it: buyer preferences; the likely reaction of competitors; and core in-ternal competences in product and process innovation, that is to say, the ability to ready the needed offers (Axel Johne, 1999). These are the key roles to entering a new market, no matter what way like questionnaire; we need to gather as much information as possi-ble of them.
Furthermore, we can consider integrate some technology when we implement the mar-keting innovation strategy. For example, IT in product and process innovation is emerg-ing as a powerful facilitator of market innovation in both personal and business markets (Axel Johne, 1999). So many industries have raised their working effectiveness by us-ing IT.

Product Innovation Strategy

Having an open and highly innovative new product culture within the firm is a primary route to success, particularly when developing discontinuous or ―really new‖ services (de Berntani, Ulrike, 2001). New product culture is also a kind of innovation culture; embed in the innovation system of company and driving it to good performance. Re-leasing new product and service consolidates the innovation culture of the company, which is why we positively come up with appropriate product innovation strategy.

Success Factors in Product Innovation

Product innovation is second only to corporate strategy in the way it involves all aspects and all functions of management (Crawford. C. M, 1980), meaning that it associates with performance of many department of companies. Basically, the product innovation experiences several steps: new product planning, idea generation, screening and evalua-tion, technical development, market appraisal and launch (Crawford. C. M, 1980). Most company can consider this sequence when developing new product and we add some specific strategy if necessary.

Strategy

A business that wants to grow and whose products are based on technology that is still not obsolescent can choose any one of the four strategies (Johne, F. Axel; Snelson, Pa-tricia A, 1988):
This strategy is really proper for our thesis since we mainly concern how the innovation drives the company to grow. Product modification primarily focused on the function and design perspective, and technology almost determines the quality and function of the new product. Hence, technological analysis should be the fundamental drive behind product innovation strategy formulation (Johne, F. Axel; Snelson, Patricia A, 1988). Al-though most company invest a large amount of money in R&D to improve technology, making the product innovation is not easy because solely technology-led does not al-ways guarantee success.
It has been found that success business assign specific strategic roles for individual new product developments (Booz. AlIen and Hamilton, 1982). Because the innovation must correspond to the market needs so that we can have competitive advantage to profit. For example, it is possible to develop a new function to absorb the customers or give them more curiosity. Making product and service innovation can drive company grow as companies can look for a high percentage of sales generated by new products.

Table of Contents
1 Introduction
1.1 Background
1.2 Problem Statement
1.3 Purpose
1.4 Delimitation
1.5 Disposition
2 Al-Elm – Profile
2.1 Al-Elm – An Introduction
2.2 Progressive timeline
2.3 Flagship Products
2.4 The Innovation System
2.5 Al-Elm – an interesting case study in the region
3 Frame of Reference
3.1 Innovation in organization
3.2 How to build the Innovation Culture for a Company
3.3 How Global companies use Innovation for driving growth
3.4 Marketing Innovation
3.5 Product Innovation Strategy
3.6 Technology Innovation Strategy
3.7 Human Resource Management Innovation Strategy
4 Methodology
4.1 The Research Approach
4.2 Case Study as a Research Method
4.3 The Sample Selection
4.4 Research Process
4.5 The Test Research Project – Pilot Study
4.6 Interviewing Activities
4.7 Data Collection
4.8 Validity and Reliability of the Research
4.9 Criticism of the case study research as a research method
5 Empirical Findings
5.1 The interviewees
5.2 The Innovation Culture and the Innovation System at Al-Elm
5.3 The Innovation Process
5.4 Innovation Culture Initiatives
5.5 Innovation – a Strategic Imperative for Al-Elm
5.6 Innovation System – Problems and Issues
5.7 Innovation Culture – Ways for Improvement
6 Analysis
6.1 Al-Elm’s innovation culture and innovation system
6.2 Possible business innovation strategy for Al-Elm
7 Conclusion
References
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