SECOND CYCLE, 30 CREDITS STOCKHOLM SWEDEN 2018,
Overcoming Future Technological Challenges Through Innovation
A study of how a manufacturing company can manage process innovation
IDA PALMGREN
EMMA SOC DESCHAECK
Overcoming Future Technological Challenges Through Innovation
A study of how a manufacturing company can manage process innovation
by
Ida Palmgren
Emma Soc Deschaeck
Overcoming Future Technological Challenges Through Innovation
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Master of Science Thesis TRITA-ITM-EX 2018:202 KTH Industrial Engineering and Management
Industrial Management
Master of Science Thesis INDEK 201X:x KTH Industrial Engineering and Management
Industrial Management
Att övervinna framtida teknologiska utmaningar genom innovation
En studie av hur ett tillverkningsföretag kan hantera processinnovation
av
Ida Palmgren
Emma Soc Deschaeck
Examensarbete TRITA-ITM-EX 2018:202 KTH Industriell teknik och management
Overcoming Future Technological Challenges Through Innovation
Ida Palmgren Emma Soc Deschaeck
Approved Examiner
Lars Uppvall
Supervisor
Caroline Ingvarsson
Commissioner
Scania CV AB
Contact person
Olivia Löwhagen
Abstract
New technology, which has emerged as a part of the new industrial revolution, Industry 4.0, is changing the reality of manufacturing companies. Manufacturing companies are perplexed on which technologies to adopt in their production processes, and when is the right time. This can be defined as a company’s ability to prepare for the future, and especially, for these future technological challenges. A large part of being able to adopt these technologies into the production processes is related to the company’s ability to be innovative in their production processes. This is known as process innovation. Therefore, this thesis investigates how a production unit within a manufacturing company can manage process innovation to prepare for future technological challenges.
This purpose has been achieved by conducting a single case study, where the case company’s process innovation abilities were assessed, and combined with necessary tools to prepare the case company for the future. The case company chosen for this thesis was Scania. They are a world-leading manufacturer of heavy trucks, buses, and engines. The case study focused on one of their productions units, which produce gearboxes and axles. The data for the study was collected through qualitative interviews with members of the case company. The results indicate that the case company needs to improve their process innovation abilities in order for them to be able to adopt new technologies in their production process. They need a definition of innovation, and a strategy that includes innovation so that it is prioritized and viewed as important. Furthermore, management needs to encourage innovation, and increase their level of risk-taking so that the culture of the case company is compatible with innovation. Finally, the results show that the case company may need to redefine or reconsider their fundamental management principle “continuous improvement” to further give priority to innovation in their production process. Furthermore, an overview of the necessary tools for preparing for the future are also covered. These are trend analysis, scenario planning, benchmarking, and technological roadmap. Using these four tools can help the company when making strategic decisions about the implementation of new technologies.
Finally, this thesis contributes to science by providing empirical research on the topic of process innovation and gives an interesting perspective on how it can be used to prepare for the future.
Key-words: Innovation, Process Innovation, Incremental Innovation, Radical Innovation, Future Technological Challenges, Production Process, Industry 4.0
Att övervinna framtida teknologiska utmaningar genom innovation
Ida Palmgren Emma Soc Deschaeck
Godkänt Examinator
Lars Uppvall
Handledare
Caroline Ingvarsson
Uppdragsgivare
Scania CV AB
Kontaktperson
Olivia Löwhagen
Sammanfattning
Ny teknologi, som har uppkommit som en del av den nya industriella revolutionen, Industri 4.0, påverkar och förändrar många tillverkningsföretags verksamheter. Många av dessa företag känner sig förvirrade kring vilka teknologier de ska anamma i sin produktion, och när de ska anamma dem. Denna problematik kan definieras som ett företags förmåga att hantera framtida teknologiska utmaningar. En stor del av att kunna anamma dessa nya teknologier inom ett företags produktionsprocess är relaterad till ett företags förmåga att kunna vara innovativa inom denna. Detta är även känt som processinnovation. Denna avhandling ämnar således undersöka hur en produktionsenhet inom ett tillverkningsföretag kan lyckas med processinnovation för att kunna hantera framtida teknologiska utmaningar.
Detta har åstadkommits genom att anföra en fallstudie, där ett företags förmåga att hantera processinnovation har utvärderats, och nödvändiga verktyg har presenterats, för att hjälpa företaget att förbereda sig för framtiden. Företaget som har valts för anförandet av fallstudien är Scania, en världsledande tillverkare av lastbilar, bussar och motorer.
Fallstudien är fokuserad kring en av deras produktionsenheter som tillverkar växellådor och axlar. Datan för studien har ansamlats genom kvalitativa intervjuer med anställda inom företaget. Resultaten som har genererats av studien
indikerar att företaget behöver fokusera mer på processinnovation för att kunna anamma ny teknologi i sin produktionsprocess. Mer specifikt, behöver företaget en definition på innovation och en strategi som inkluderar innovation. Detta skulle bidra till att innovation prioriteras mer och anses som viktigt. Vidare, behöver
företagsledningen och chefer på företaget uppmuntra till innovation och öka risktagandet inom företaget. Slutligen visar resultaten på att företaget kan behöva omdefiniera och se över sin företagsprincip “ständig förbättring” för att vidare prioritera innovation i sin produktionsprocess. Dessutom, ges en överblick av nödvändiga verktyg som behövs för att förbereda sig för framtiden. Dessa är trendanalys, scenarioanalys, benchmarking och en teknologisk roadmap.
Användandet av dessa fyra verktyg kan hjälpa företaget vid strategiskt beslutsfattande när det kommer till implementering av nya teknologier.
Slutligen, bidrar denna avhandling till forskning genom att förse med empiriskt resultat inom ämnet processinnovation, samt ett intressant perspektiv på hur processinnovation kan användas för att förbereda för framtiden.
Nyckelord: Innovation, Processinnovation, Inkrementell Innovation, Radikal Innovation, Framtida Teknologiska Utmaningar, Produktionsprocess, Industri 4.0
Contents
1 Introduction 1
1.1 Background . . . 1
1.2 Problem Formulation . . . 2
1.3 Purpose and Aim . . . 3
1.4 Research Questions . . . 3
1.5 Delimitations . . . 4
1.6 Expected Contribution to Research . . . 4
1.7 Disposition . . . 4
2 Literature Review 5 2.1 Innovation . . . 5
2.2 Process Innovation . . . 8
2.3 Incremental and Radical Process Innovation . . . 12
2.4 Company Traits for Innovation . . . 14
2.5 Innovation and the Future . . . 21
3 Methodology 28 3.1 Research Approach . . . 28
3.2 Research Design . . . 29
3.3 Reliability and Validity . . . 37
3.4 Ethics . . . 39
4 The Case Company and its Production Process 41 4.1 Background Information on the Company . . . 41
4.2 DT . . . 42
4.3 Scania Production System . . . 43
5 Results and Analysis 46 5.1 Future Challenges . . . 46
5.2 Perception of Case Company’s Traits for Innovation . . . 51
6 Discussion 65 6.1 Current Status of the Case Company’s Process Innovation . . . 65
6.2 Future-Oriented Tools to Add to Their Abilities to Prepare for the Future . . . 69
7 Conclusion 73
7.1 Sub-Research Question 1 . . . 74
7.2 Sub-Research Question 2 . . . 75
7.3 Sub-Research Question 3 . . . 76
7.4 Main Research Question . . . 78
7.5 Implications for the Case Company . . . 79
7.6 The Aspect of Sustainability . . . 81
7.7 Limitations and Further Research . . . 83
7.8 Concluding Remarks . . . 83
Appendices 94
A Appendix - Interview Guide for the Employees 94
B Appendix - Interview Guide for the Managers 96
List of Figures
1 Utterback and Abernathy’s Model (1978) . . . 9
2 Classification of Innovation Goals . . . 17
3 Classification of Radical Innovation Goals and Incremental Innova- tion Goals . . . 18
4 Research Design . . . 30
5 Flowchart of Research Questions . . . 36
6 Scania CV AB’s Business Areas . . . 41
7 DT’s Organizational Chart Part I . . . 42
8 DT’s Organizational Chart Part II . . . 43
9 The Scania Production System House . . . 44
10 The Two Categories of the Results . . . 46
11 Themes in Category 1 . . . 47
12 Summary of Category 1 . . . 49
13 Themes in Category 2 . . . 51
14 Summary of Results in Category 2 . . . 58
15 The Case Company’s Innovation Goals . . . 67
16 Flowchart of Research Questions . . . 73
17 How the Different Future-Oriented Tools are Connected . . . 78
18 Combining Process Innovation with Future-Oriented Tools . . . 79
19 Combining Process Innovation with Future-Oriented Tools . . . 80
20 Necessary Actions within Innovation . . . 81
21 Necessary Future-Oriented Tools . . . 81
List of Tables
1 Description of Product and Process Innovation (OECD and Euro- stat, 2009) . . . 8 2 Pre-Study Interview Overview . . . 32 3 Empirical Interview Overview . . . 35
this thesis could not have been finished. We would like to thank them and hope you enjoyed this time as much as we did.
First of all, we would like to thank our supervisor Caroline Ingvarsson at KTH for her deep interest in the thesis, and for pushing us to learn more and to see things from a different perspective. We would also like to thank our seminar group and our seminar leader, Lars Uppvall, for their feedback and support during this journey.
Second of all, we would like to thank Scania for allowing us to conduct our thesis at their company and giving us access to an abundance of material and competent people. Thank you for welcoming us and taking such good care of us. But, most of all, we would like to thank our supervisors at Scania, Olivia Löwhagen and Carl Lindquist. Olivia, you have been our biggest supporter, and we are so grateful for your encouragement, dedication, and optimism. Thank you for making this experience so memorable. And Carl, thank you for allowing us to be a part of your group, and for always being dedicated to our thesis. Your input and thoughts have been invaluable for the completion of this thesis. We could not have asked for better supervisors.
Finally, we would also like to thank all of those who contributed to this thesis, and participated in it. We would like thank the interviewees, who graciously participated and contributed with the data for this thesis. This thesis would not have been possible without you.
Thank you for all your help!
Stockholm, June 2018
Ida Palmgren and Emma Soc Deschaeck
P - Production & Logistics M - Chassis & Cab Production D - Powertrain Production O - Logistics
DE - Engine Production Assembly DT - Transmission Assembly DX - Transmission Machining
DM - Engine Production, Machining & Foundry DL - Machining Chassis Components
DTO - Axle & Gearbox Assembly DTL - Logistics
DTM - Industrial Engineering Axle DTT - Industrial Engineering Gearbox DTQ - Quality, Environment & SPS Office DTMA - Advanced Industrial Engineering DTMB - Project Development
DTMD - Preparation DTMI - IT
DTMT - Industrial Engineering SPS - Scania Production System
Other:
TPS - Toyota Production System IOT - Internet of Things
1 Introduction
The introduction includes the background of the thesis and states the problem for- mulation. Furthermore, the purpose and aim of the thesis, along with the research questions, are defined.
Keywords: Innovation, Process Innovation, Incremental Innovation, Radical Inno- vation, Future Technological Challenges, Production Process, Industry 4.0
1.1 Background
A company’s ability to be innovative has been regarded by many researchers as a key source of sustained competitive advantage (Tidd, 2001; Chesbrough, 2003;
Schilling, 2013). Zahra (1999) argued that innovation will need to be present in all parts of the company, from its culture to its strategy, and that efficiently manag- ing innovation is a major managerial challenge of the 21st century. Traditionally, several researchers have argued that the level of innovativeness of a company is a direct result of the amount of R&D activities performed at the company (Solow, 1956; Romer, 1986; Lucas, 1988). This view is supported in empirical studies per- formed by Fagerberg (1987), who demonstrated that R&D intensive companies tend to have higher levels of innovation and as a result, produce more new prod- ucts. This is true when a company’s innovativeness is measured in its output of new products but, there are several others parts of a company, where it is impor- tant to be innovative. Zahra (1999) suggests that process innovation will become increasingly important.
The increasing importance of process innovation is especially evident in indus- trial manufacturing companies because of the ongoing industrial revolution, which is predicted to fundamentally change the way these industries work (World Eco- nomic Forum and A.T. Kearney, 2017). Schwab (2017) argues that this new industrial revolution will influence manufacturing industries immeasurably. To date, there have been three industrial revolutions. The First Industrial Revolution mechanized production using water and steam power. The second created mass production using electric power, and the third automated production using elec- tronics and information technology (Morrar, Arman and Mousa, 2017). The new
one is the Fourth Industrial Revolution, known as Industry 4.0, and it manifests itself in the way data is used, the way technologies are automated and digitized, and the Internet of Things (Ustundag and Cevikcan, 2018). Enabled through the communication between people, machines, and resources, Industry 4.0 is charac- terized by a paradigm shift from centrally controlled to decentralized production processes (Marr, 2016).
The potential transformation of Industry 4.0 on production processes is based on the many technological advances it includes, such as adaptive robotics, artificial in- telligence, cloud systems, and data analytics (Ustundag and Cevikcan, 2018). This technological development poses a major, radical challenge for traditional indus- trial manufacturing companies. The manufacturing companies need to innovate their production processes through the acquiring of new technological capabili- ties to match the technological advancements in the industry. (Vanhaverbeke and Peeters, 2005) This process innovation needs to be focused on the understanding of these new technologies and what value they can bring to the organization to achieve long-lasting transformation. Along with this, the manufacturing compa- nies need to create a culture, strategy, and use the right tools to accomplish this innovative change. The major challenge for companies is understanding which technologies are a necessity in their production processes for the future, and when the right time is to implement them. (World Economic Forum and A.T. Kearney, 2017)
1.2 Problem Formulation
The issue of understanding which technologies to implement and when in the pro- duction process, is the future technological challenge for manufacturing companies.
This is a significant challenge since technology is advancing quickly, and compa- nies can easily fall behind. Therefore, companies need to be able to evaluate these technologies and implement them when appropriate. Since the challenge lies in implementing something completely new to the company, it is also an issue of being more innovative within their production process. Scania, an industrial man- ufacturing company, is one of the companies currently facing this issue. One of the subunits at Scania, the group Advanced Engineering (DTMA), has been given the task of preparing Scania for these future technological challenges. As such,
they are looking for guidance on how they can better manage process innovation to ensure that their production process does not fall behind.
1.3 Purpose and Aim
The purpose of this thesis is to investigate how process innovation and a manu- facturing company’s ability to prepare for future technological challenges can be combined. More specifically, it will look into innovation efforts such as strategy, organizational culture and tools that can be used to achieve this combination.
The aim of this research is to support the subdivision Advanced Engineering, DTMA, at Scania to reach the goal of preparing the production process for future technological challenges.
1.4 Research Questions
The purpose of this thesis will be achieved by answering the following research questions. The research questions have been set up as one main research question, from which three sub-research questions have been deduced to answer the main research question.
Main Research Question:
How can a production unit within a manufacturing company manage process innovation in their production process to prepare for future technological
challenges?
Sub-Research Question 1: To what extent does the members of the case com- pany’s perceptions of their innovation abilities coincide with the traits needed to be successful within process innovation?
Sub-Research Question 2: What is the current status of process innovation at the case company, and what are the potential areas of improvement?
Sub-Research Question 3: What future-oriented tools can be used to add to the case company’s abilities to prepare for the future?
1.5 Delimitations
This thesis is conducted together with the Transmission assembly, DT, at Scania Södertälje. Therefore the results that will be delivered will be tailored to Scania and its internal processes. Furthermore, this thesis is focused on a production unit and their production process. For this reason, process innovation within production processes will be the focus of this thesis. Writing the thesis together with Scania gives access to an abundance of material, employee competence and expertise in this area. However, since some of the information used is confidential, certain aspects of the thesis may be altered or redacted.
1.6 Expected Contribution to Research
This thesis intends to contribute with further empirical research on the manage- ment of process innovation. By combining past research from the literature review with the empirical research done at the case company, this thesis will contribute with insight into a production unit in a manufacturing company. More specifi- cally, how process innovation can help a manufacturing company to best meet the future technological challenges they are facing and by doing so, have a sustainable competitive advantage.
1.7 Disposition
The introduction has covered the background, purpose and research questions of this thesis. The following chapter will present the literature review where relevant concepts will be covered. Thereafter, the chapter on methodology is covered. This chapter will demonstrate how the study was conducted. This is followed by a description of the case company and the division where the thesis was conducted.
Then, the empirical results will be presented and analyzed. Thereafter, the results will be discussed and compared with the literature review. Finally, a conclusion will
be given.
2 Literature Review
The literature review is based around the main theme, innovation, and more specifi- cally process innovation in production processes. The other topics are complements to the main theme and are addressed in relation to this theme. First, a background to the concept of innovation is presented. This is followed by a more in-depth view on process innovation, with examples, as well as the difference between incremen- tal and radical process innovation. Thereafter, the necessary company traits for successful process innovation. This is followed by the literature review covers the necessary aspects for process innovation and the future.
2.1 Innovation
In this section, the concept of innovation is defined by looking at different defi- nitions that have emerged within previous research. These definitions are broken down and analyzed.
2.1.1 Definition of Innovation
There are many different definitions of innovation in research. Below, some of the most common ones are presented.
“. . . the search for, and the discovery, experimentation, development, imitation, and adoption of new products, new production processes and new organisational
set-ups.” (Dosi, 1988, p. 222)
“. . . innovation is the process that turns an idea into value for the customer and results in sustainable profit for the enterprise.” (Carlson and Wilmot, 2006, p. 4)
“. . . the development and intentional introduction of new and useful ideas by individuals, teams, and organizations. . . ” (Bledow et al., 2009, p. 305)
“Innovation is the process of making changes, large and small, radical and incremental, to products, processes, and services that results in the introduction of
something new for the organization that adds value to customers and contributes to the knowledge store of the organization.” (O’Sullivan and Dooley, 2009, p. 5)
“. . . production or adoption, assimilation, and exploitation of a value-added novelty in economic and social spheres; renewal and enlargement of products,
services, and markets; development of new methods of production; and establishment of new management systems. It is both a process and an outcome.”
(Crossan and Apaydin, 2010, p. 1155)
“A new idea, method, or device. The act of creating a new product or process, which includes invention and the work required to bring an idea or concept to
final form.” (Kahn, 2012, p. 454)
As can be seen from these definitions, there is a large variety and spread on how to express the concept of innovation. It is therefore vital to dissect the definitions above to be able to understand how to work with innovation. Therefore, the most frequently occurring parts of the definitions are highlighted to facilitate the understanding of them.
Firstly, when looking at the different definitions, the common denominator is that innovation is not viewed as a singular event but as an ongoing activity that con- stitutes of different stages. This activity is mentioned in some definitions as a process. Oxford University Press (2018) defines a process as “a series of actions or steps taken in order to achieve a particular end”. Like all activities that constitute of different parts, there is a need of coordination and management of the different steps to make them all work and cohere (Trott, 2005). These different innovation process steps may look differently depending on which company’s innovation pro- cess it is. Desai (2013) defines three steps to describe this process, and these are the idea generation step, the managing step and the implementation step. The first step involves exploring current and future needs to generate ideas. After ideas have been generated, the second step involves choosing the right innovative ideas, building a business case, and getting them accepted by management. Finally, the implementation step involves taking the selected ideas and realizing them to create value for the company. (Desai, 2013)
Furthermore, within the different definitions the word process also occurs in an additional context and therefore needs to be distinguished. This is when the definitions mention both product and process innovation. The definitions show that innovation is not restricted to the creation of a product, but can also be
about innovating in the processes, i.e. the creation of new methods, approaches and structures. This can be seen in the first definition by Dosi (1988), where process innovation is used more specifically to describe improvements within a production process. Utterback and Abernathy (1975, p. 641) define a production process as a “system of process equipment, work-force, task specifications, material inputs, work and information flows, that are employed to produce a product or service”.
Common to all definitions is that innovation is defined as something new, and more specifically, as something new to the company. Furthermore, some of the defini- tions mention that innovation is something that creates value for the company.
The first thing that might come to mind is economic value. Economic value is defined by Cambridge University Press (2018) as “the value of an asset calculated according to its ability to produce income in the future”. As such, economic value refers to the amount of monetary benefits it brings to the company. However, value does not only encompass economics, it can also be more intangible. This type of value can relate to something that is seen as important or useful to the company, despite it not giving direct economic value. This could be for exam- ple implementing innovations which are beneficial to the environment, in terms of sustainability. Therefore, an innovation might not explicitly result in a direct monetary reward, but it can result in other types of value, including sustainability, and should therefore still be considered an innovation which brings value.
Hamel and Tennant (2015) claim that a company cannot know how well their innovation efforts are if the company does not have a common definition of in- novation. The company needs to have an extensively comprehended definition so that the company agrees on what innovation has been done at the company (Hamel and Tennant, 2015). Hamel and Tennant (2015) argue that coming up with a definition for innovation can take a long period of time, and to do so well, the company must look at its past projects and classify them according to their innovation merit. With a practical definition, it is easier for companies to measure innovation performance, allocate the correct resources according to each projects’
merits, and set more specific goals for innovation (Hamel and Tennant, 2015).
2.2 Process Innovation
This thesis chooses to focus on one type of innovation, namely process innovation since this is the type of innovation that is needed to answer the research questions.
A distinction is however made between product and process innovation to give the reader a background to why both are necessary within a company.
In literature, several types of innovation have been described and proposed. This thesis will present two types, product and process innovation. Tidd (2001) sug- gests that these two are the most basic types of innovation. Below, a table is presented with the two types of innovation and their definitions.
Table 1: Description of Product and Process Innovation (OECD and Eurostat, 2009)
From these definitions, it is clear that product innovation concerns the output of
a company, while process innovation concerns how this output is produced. Utter- back and Abernathy (1975) describe product innovation as being customer-driven and with a clearer market focus, while process innovation as being focused on the company’s internal performance and effectiveness. Ettlie, Bridges and O’Keefe (1984) distinguish between product and process innovations by the company’s skills needed for each. In product innovation, the company must know how to understand the customer’s needs and what designs will be successful. In process innovation, a company’s ability to leverage technology to improve the production systems is more important. (Ettlie, Bridges and O’Keefe, 1984)
Even though process innovation is the focus of this thesis, it is important to first understand how product and process innovations interact to demonstrate why both types are of importance in a company. Utterback and Abernathy (1975, 1978) ar- gue that these two types of innovation share a significant relationship during a technology cycle on an industry level. A technology cycle can be defined as the finite life of a technology, from its first introduction to when it is replaced by a new technology (Utterback and Abernathy, 1978). This relationship is described in relation to what phase the technology is in, as can be seen in the graph below.
Figure 1: Utterback and Abernathy’s Model (1978)
A technology cycle will go through three phases. These are the fluid phase, tran- sitional phase, and the specific phase. Across these three phases, the amount of
product and process innovation fluctuates. During the fluid phase, product in- novation occurs at a higher rate than process innovation. This phase includes a lot of experimentation with products and their design. During the next phase, the transitional phase, the rate of product innovation decreases while the rate of process innovation increases. It is during this phase that the product design has been decided on, and, so, how it will be produced becomes increasingly important.
The last phase, the specific phase, is one where both types of innovation are low.
Instead, the industry focuses on cost minimization, and volume- and capacity opti- mization. (Utterback and Abernathy, 1975, 1978) Anderson and Tushman (1991) suggest that after entering the specific phase, the industry may return to the fluid phase again and begin a new technology cycle.
The importance of this model by Utterback and Abernathy (1978) is that it sug- gests some type of pattern between which innovation will occur first in a company.
It suggests that the adoption of product innovation will lead process innovation.
Tidd and Bessant (2009) argue that this could in turn mean that process inno- vation is only done as a response to the product innovation that has been made.
As such, the choices made in how a product should be constructed will directly impact the types of process innovation needed to accommodate the production of this new product (Tidd and Bessant, 2009). This type of innovation life-cycle on an industry level highlights the way in which organizations approach innovation, where product innovation tends to be the primary focus, and process innovation is done as a response to this product innovation (Schilling, 2013).
Product innovation is also seen as more significant than process innovation in a company because of its inherit characteristics (Gopalakrishnan and Damanpour, 2001; Pisano and Wheelwright, 1995; Frost and Egri, 1988). Gopalakrishnan and Damanpour (2001) argue that product innovation tends to occur more often than process innovation because product innovation is more noticeable to the customer.
Pisano and Wheelwright (1995) suggest a similar notion by arguing that product innovation is seen as more monetary valuable to the company and is therefore more focused on. This is because new, successful products have a higher monetary value to a company than process innovation which reduce the cost of producing that product (Pisano and Wheelwright, 1995). Frost and Egri (1988) also suggest that product innovation is often easier to promote within the company, and there-
fore has more internal organizational attention.
Although product innovation has been enjoying a larger focus in companies, it is important for companies to also promote more process innovation. Process innovation may be seen as a response to product innovation (Utterback and Aber- nathy, 1975, 1978) but if process innovation is not successful, the product will not be produced adequately (Tidd and Bessant, 2009). Pisano (1996) argues that the unsuccessful introduction of product innovation can be directly linked to process innovation being underprioritized and being considered too late during the prod- uct innovation in a company. Instead, Pisano (1996) recommends that process innovation should occur simultaneously to product innovation because of aspects beyond cost efficiency. Successful process innovation as a complement to prod- uct innovation will improve the time to market for the new product, quality and volume capacity of the production. As such, the potential magnitude of product innovation at a company is limited by their own processes to construct that prod- uct. (Pisano, 1996) Schilling (2013) argues that process innovation is essential to a company’s ability to stay competitive, and that a combination of both types is imperative to be successful with innovation.
2.2.1 Process Innovation in Production Methods and Delivery Meth- ods
This section focuses on process innovation, and the two areas of focus that exist.
Along with presenting these two areas, examples are given.
Within process innovation, OECD and Eurostat (2009) propose two different ar- eas of focus. These are process innovations which concern production methods and process innovations which concern delivery methods. The first area encom- passes methods which are used in producing a good. This includes the production techniques, equipment, technology and software employed at the company (OECD and Eurostat, 2009). An example of this is digital screens which guide an operator on how to assemble a product. In comparison, the second area involves methods related to the company’s logistics. This includes the equipment, technology, tech- niques and software used to deliver products and allocate supplies. (OECD and Eurostat, 2009) An example of this is the implementation of an automated guided
vehicle to deliver supplies.
2.3 Incremental and Radical Process Innovation
This section introduces another dimension to distinguishing between process inno- vations, which is by its degree of novelty. The concept of incremental and radical process innovations is described along with informative examples. The concepts can be applied to other types of innovation as well, including product innovation, but for the purpose of this thesis it will only be explained in terms of process inno- vation.
Process innovation can be further distinguished by its degree of novelty, categorized as either an incremental process innovation or a radical process innovation. Tidd, Bessant and Pavitt (2005) stress the importance of remembering that novelty is subjective, and as such, this degree of novelty will depend on the company.
In an ascending level of novelty, incremental innovation is first. Munson and Pelz (1979) define incremental innovation as a smaller improvement to already existing practices and processes within a company. Schilling (2013) argues that incremental innovation does not include new technology but rather improving already exist- ing technology. An example of an incremental process innovation is the efficiency upgrade of a production equipment to improve quality. Robertson et al. (2012) suggest that incremental process innovation is more likely to emanate from daily activities. They use maintenance as an example of opportunity to do incremen- tal innovation by, for example, implementing small changes to a machinery in a production line. During maintenance, smaller changes to the machinery can be done that lead to significant improvement in productivity. (Robertson et al., 2012) Adams et al. (2006) explain how this type of innovation requires a larger commit- ment from all employees within a firm as this type of process innovation stems from daily operations. They suggest that incremental innovation can sustain a company over a long period of time as smaller changes results in greater efficiency over time (Adams et al., 2006).
In contrast, a radical innovation involves fundamental modifications to a process or technology (Dewar and Dutton, 1986). Schilling (2013) describes radical inno- vation as not taking its basis in already existing practices, but rather representing
a clear departure from them. An example of a radical process innovation is the introduction of virtual reality glasses to test a production method before actually implementing it in the production line. Henderson (1993) argues that large firms tend to be more reluctant to engage in radical innovations. This may either be because of lack of economic motivation or because they simply do not know how to do it. Dewar and Dutton (1986) suggest that the adoption of radical innova- tions are seen as larger obstacles mainly because of the amount of new knowledge they imply for the company. They take longer to implement and are much more difficult to do successfully because of this (Dewar and Dutton, 1986).
A significant difference between radical and incremental innovation is the perceived risk of its implementation (Kaluzny, Veney and Gentry, 1972; Dewar and Dutton, 1986; Katila, 2007). Kaluzny, Veney and Gentry (1972) define radical innovation in terms of risk. A radical innovation is perceived as more risky as it involves technology which is completely different from what the company is familiar with.
(Kaluzny, Veney and Gentry, 1972) Dewar and Dutton (1986) argue that this in- herent riskiness makes organizations more reluctant to pursue radical innovation compared to incremental innovation. This, however, depends on how far it de- parts from prior experience (Dewar and Dutton, 1986). Katila (2007) recognizes, however, that this riskiness is subjective to the company. An innovation that is considered radical for one organization, and hence very risky, may be less radical, and hence less risky, for another (Katila, 2007). Dewar and Dutton (1986) bring another dimension to this subjectivity by explaining how the degree of novelty of an innovation alters over time. Innovations which were once considered radical, such as lean manufacturing, is now neither novel nor considered particularly risky.
As such, the degree of change of an innovation and hence its classification is fluid over time (Hage, 1980).
Because of this fluidity, the challenge of implementing both radical and incremental innovation within the same organization is something that has perplexed practi- tioners for decades (Crossan and Apaydin, 2010; Stetler and Magnusson, 2015).
Crossan and Apaydin (2010) argue that the management of the two at the same time in a company often results in conflict. Stetler and Magnusson (2015) agree with this opinion and suggest that this conflict stems from a lack of experience, and that a incremental innovation tend to be chosen over a radical one as it is less risky and the knowledge to pursue radical innovation does not exist. Activ-
ities which directly impact today’s organization and have a fast impact will be prioritized over those that are more uncertain, if there is a conflict (Stetler and Magnusson, 2015). Tushman and O’Reilly (1996) coined the term ambidextrous as a company’s ability to work with both incremental and radical innovation simulta- neously. The authors mention the necessity of working ambidextrous throughout the whole organization, including all levels, to be able to be successful and com- petitive. This since both incremental and radical innovations are important for the survival of a company. (Tushman and O’Reilly, 1996) March (1991) argues that an ambidextrous company will be able to both sustain its current competencies and explore new technologies, and by doing so, shape a sustainable future for the company.
Another issue with implementing both incremental and radical innovations is how to find the right balance between the two. Davila, Epstein and Shelton (2013) discuss how some organizations put too much focus on radical innovation, which is both financially exhaustive and can cause bewilderment in the company. Radical innovations may have a greater potential economic return, but it is also a riskier investment. As such, too much radical innovation will not be sustainable in the long-term. On the other hand, the authors also argue that focusing too much on incremental innovation will hinder a company’s ability to stay competitive. The nature of today’s business environment, with rapid changes in technology, means that companies need to stay current with these trends as to not fall behind, and incremental innovation will then not be enough. (Davila, Epstein and Shelton, 2013)
2.4 Company Traits for Innovation
This section describes important traits within a company that makes innovation more successful. These traits have been divided into two sections, a strategy section and a culture section.
2.4.1 Strategy
This section explores the relationship between strategy and innovation. It highlights the importance of having a strategy for innovation so that innovation can have its
full effect in a company. Also, the potential issues with not having a clear strategy for innovation will be shown. Again, this is general to all types of innovation, not only process innovation but specific examples will be related to process innovation due to the focus of this thesis.
Process innovation, like any other organizational process or tool, needs to be man- aged correctly. It needs to be included in the strategy and goals of the company.
(Tidd, Bessant and Pavitt, 2005) Covey (1993) claims that innovation with a focus on the future can only be a successful part of a company if it is included in the strategy and vision of the company. Büschgen, Bausch and Balkin (2013) suggest that a company which has an innovation strategy and actively encourages inno- vation will also be more successful with innovation. Robbins (1996) defines an innovation strategy as one that promotes the advancement and implementation of new processes. For an innovation strategy to be successful, it must be strategically aligned with the rest of the corporate strategy (Gobble, 2012). This describes how well the innovation efforts are encouraged by and materialize from the company’s strategy and culture (Gobble, 2012). Deshpande and Webster (1989) argue that if the strategic alignment is clear in all levels of the company, the company is more likely to share the same values and can more easily make sure they are working toward the same goal. Tidd, Bessant and Pavitt (2005) argue along a similar line claiming that strategic alignment will ensure that innovation efforts are in line with the path of the company, and not made only because they are trendy.
Morris (2011) suggests that innovation is the tool which creates the future that the strategy visualizes, i.e. innovation is what will bring the company forward to its desired state. It is therefore crucial that the strategy shows how innovation should be implemented in the company, and that the managers convey this to their employees (Morris, 2011). March (1991) stresses the importance of having a strategy that focuses not only on the current goals of the company, but also clearly defines the future strategic path of the company. Without this, there will be tension between activities focused on today’s goals and those which focus on the future (March, 1991). Ghoshal and Bartlett (1997) claim that a strategy which also focuses on the future will give the company direction, and by doing so, demonstrate what competencies need to be built for the future. Therefore, a clear innovation strategy will not only promote innovation within the company, but also ensure that the innovation efforts are put on the right things (Ghoshal and
Bartlett, 1997). Without this, Vanhaverbeke and Peeters (2005) claim that there will be no clear path for the companies, and companies, especially those focused on daily operations, will remain focused on incremental innovations with lesser potential profits. Members of a company do what is prioritized by management and if innovation is not valued, it will not gain a prominent place in the company (Vanhaverbeke and Peeters, 2005).
Another dimension to the innovation strategy is the incorporation of technology.
The term technology is defined as the “ability to create a reproducible way for generating improved [...] processes” (Friar and Horwitch, 1986, p.51). This aspect is becoming increasingly important for manufacturing companies to consider due to the technological advancements that are being made in the field of manufacturing processes (World Economic Forum and A.T. Kearney, 2017). Research shows that management wants and understands the need to implement more technologies, but they find it hard to motivate those investments due to a lack of long-term strategic focus on this (Deloitte, 2018).
Foster (1985) argues that the role of technology in the strategy of a company de- pends highly on the technological potential for the business at that moment. If the technological potential, that is the gap between the current state of the tech- nology and the technological limit, is high, the role of technology in the strategy needs to be larger. He claims that many companies do not comprehend the limit of their technologies, which also means that they miss the importance of including technology as an important aspect of their strategy. As such, companies tend to continue with incremental improvements of their technologies, without realizing that this technology is nearing its technological limit and better payoff could be found adopting new technologies. (Foster, 1985)
A company which has a clear innovation strategy, must also have clear innova- tion goals (Martins and Terblanche, 2003; Davila, Epstein and Shelton, 2013).
Martins and Terblanche (2003) claim that creating clear goals for the company within innovation will also increase the company’s successfulness with innovation.
These goals should reflect the company’s innovation strategy and operationalize this vision (Martins and Terblanche, 2003). Davila, Epstein and Shelton (2013) categorize goals according to four different aspects. These are specific versus broad, quantitative versus qualitative, stretch versus realistic, and success-driven versus
loss-avoidance (Davila, Epstein and Shelton, 2013).
Figure 2: Classification of Innovation Goals
In the first category, Davila, Epstein and Shelton (2013) discuss the specificity of the goals. Specific goals are often easier to employ when specifying incremental innovations. For radical innovations, broader goals are both easier and to be preferred because it gives the employees more freedom to explore new ideas. A goal can also start out broad, but through discussion between employees boil down to something specific. They suggest that this is an important process for employees to transform broad strategies from management to actionable projects.
Furthermore, in the second category, the measurement of the goal is discussed.
Incremental innovations are easier to quantify, while radical innovations tend be more qualitative. They argue that this is because quantitative goals limit the ambition of the innovation effort, which hinders a radical innovation more so than an incremental one. (Davila, Epstein and Shelton, 2013)
In the third category, Davila, Epstein and Shelton (2013) aim to specify how time consuming an innovation will be. Radical innovations tend to be stretch goals because they demand above and beyond people’s normal effort, and may even be unrealistic. They argue that radical innovation goals must be inspirational, and invoke each employee’s commitment to achieve it. On the other hand, incremental innovations should be realistic, meaning that they are feasible and realistic. Fi- nally, each innovation should include both success-driven and loss-avoidance goals.
Success-driven goals define the success of a project with measures such as process performance and cost reductions. Loss-avoidance goals include measures such as budget, and are when exceeded, a danger to the innovation project. They say that incremental innovations are more loss-avoidance oriented as the margins are
smaller, while radical innovations, which tend to have a higher payoff, are more success-driven.(Davila, Epstein and Shelton, 2013)
Figure 3: Classification of Radical Innovation Goals and Incremental Innovation Goals
2.4.2 Culture
This section presents culture as an important aspect for innovation success. The factors brought up below are common to all types of innovation, not only process innovation. But, in this context, the cultural aspect will be related to process inno- vation when making examples. The managerial implications of creating a culture for innovation will also be presented.
The effectiveness of process innovation on a company’s performance has been de- bated by researchers. Some have found that process innovation, despite being implemented well, have achieved little results in companies (Waterson et al., 1999;
Ho et al., 1999). Several researchers argue that this lack of results from process innovation is caused by the company’s organizational culture (Baer and Frese, 2003; Detert, Schroeder and Mauriel, 2000; Douglas and Judge, 2001). Martins and Terblanche (2003) define organizational culture as the values, beliefs and un- derlying assumptions that the employees of a company share. Hartman (2014) asserts that for innovation to be considered a fundamental value of the company, an organizational culture which encourages innovation is essential since it heavily influences the behavior of employees. Büschgen, Bausch and Balkin (2013) argue that the culture of a company is especially important during the first phases of an innovation, and is a larger factor when trying to implement radical innovations as opposed to incremental ones. The organizational culture must comprise of certain aspects for process innovation to be successful (Baer and Frese, 2003).
For process innovation to be successful, it is important that the employees of a company feel that they can come with ideas and are allowed to test them. To test implies that the employee is allowed to test something that is not related to the daily operations, even if the risk is that it will not generate a positive outcome.
(Büschgen et al., 2013) Burgelman and Sayles (1986) assert that managers in a company must allow for initiatives that are not part of current operations, as long as there is an alignment with where the company wants to be in the future. This aspect of culture encourages the employees to come with initiatives since they know that they are allowed to pursue their own ideas (Burgelman, 1983; Burgelman and Sayles, 1986).
Baer and Frese (2003) further argue that a climate for initiative is especially im- portant during the implementation phase of a process innovation. If the employees are encouraged to act proactively and are familiar with taking their own initiatives, it is more likely that they can handle potential obstacles during the implementa- tion. This will make the innovation implementation run more smoothly, and seem less threatening to the employees. If the employees do not perceive that they are allowed to come with initiatives and actually test them, they are not likely to be as involved with the implementation of a process innovation. This, in turn, results in a lower realization of effect of the process innovation, which also negatively impacts the company’s innovation performance. (Baer and Frese, 2003)
Another crucial part of the organizational culture for innovation is the company’s appetite for risk. It is not necessarily about taking higher risks when evaluating a new process innovation, but instead about managing the risk differently (Adi Alon and Culp, 2013). Keizer and Halman (2007) argue that risk management is an integral part of innovation, and the more radical the innovation is, also the more risky it tends to be. This since radical innovations tend to include a larger part of unpredictability (Keizer and Halman, 2007). Arad, Hanson and Schneider (1997) discuss how managers can encourage innovation by rewarding that particular be- havior. Companies tend to want employees to pursue more risky innovations, but reward their employees for producing risk-free work, which includes minimum faults. Arad, Hanson and Schneider (1997) argue that managers must instead reward risk-taking and the experimentation of its employees. Shattow (1996) say that these rewards can be in the form of increased personal decision-making or professional growth to support innovation at the company. Davila, Epstein and
Shelton (2013) agree with this issue and suggest that when managers praise those who are able to minimize the risk and stay within budget, they also directly remove any incentive for employees to explore ideas with potentially higher rewards and higher risk. This results in a culture where risk is not tolerated, where only the safe ideas are explored, and where there is an abundance of incremental innovation (Davila, Epstein and Shelton, 2013). As such, the innovativeness of the company is hindered, especially the radical ones. To instead promote an innovative culture where risk is tolerated, the company must allow for riskier ideas to be pursued and by doing so, also accept the potential of failure and use that to learn instead (Adi Alon and Culp, 2013).
Baer and Frese (2003) argue that it is managers who need to create a culture where the employees feel safe in taking risks, suggest ideas, and discuss failures.
Brodtrick (1996) says that how managers deal with failures is especially important for an innovative culture. Either, mistakes can be used as a learning opportunity, or they can be ignored and used as cautionary tales (Brodtrick, 1996). Tushman and O’Reilly (1997) argue that successful innovation cultures praise failures by allowing for open discussions to learn from these mistakes. Without this toler- ance for mistakes, there is less allowance for risk-taking (Tushman and O’Reilly, 1997). Davila, Epstein and Shelton (2013) also argue that it is management’s task to create a culture where employees can implement and explore change through innovation. There needs to be clearer incentives in place for employees to pursue more radical innovations, and to do this, radical innovations must be recognized as valuable to the company. By doing so, the managers can help shift focus from short-term results through incremental innovations, to a culture where innovation focusing on the long-term perspective is prioritized. (Davila, Epstein and Shel- ton, 2013) Filipczak (1997) suggests that implementing an innovative risk-taking culture is additionally important in a manufacturing company where emphasis is put on productivity and minimizing costs. This emphasis puts pressure on em- ployees to focus on things which are not necessarily compatible with more radical innovative efforts (Filipczak, 1997).
2.5 Innovation and the Future
This section describes how a company can manage the unpredictability of the fu- ture, and more specifically, how a company can use certain tools to focus their innovations efforts on the right future path. These tools are not the exhaustive list of tools that can be used to manage the future, but this thesis focused on these spe- cific tools because these were the ones most commonly mentioned when reviewing articles for the literature review.
Tidd, Bessant and Pavitt (2005) stress the importance of aligning the innovation efforts of a company to what is believed to be the future of the industry in which it operates. This means understanding where the future of the industry is going, and daring to bet on this reality (Tidd, Bessant and Pavitt, 2005). Ireland and Webb (2007) discuss the tension this creates within a business. It is a complex issue to balance the daily operations for survival with the future explorations necessary to gain future competitive advantage (Ireland and Webb, 2007). In the manufacturing industry, this tension is becoming increasingly obvious. Vyatkin et al. (2007) argue that the future survival of manufacturing companies will largely depend on their ability to deal with flexible production lines in complex environments.
Brettel et al. (2014) suggest that incremental improvements to quality can no longer sustain the future competitive advantage of established manufacturing com- panies. Instead, manufacturing companies must focus their innovation efforts on adapting to the digitalized world, and especially what the potential ramifications will be for their production processes (Brettel et al., 2014). Brettel et al. (2014) discuss this digitalized world in terms of Industry 4.0 and what technologies within that industrial revolution will actually be leveraged by companies to gain future competitive advantage. World Economic Forum and A.T. Kearney (2017) agree that the new technologies will have a transformative effect on production pro- cesses. But both Brettel et al. (2014) and World Economic Forum and A.T. Kear- ney (2017) argue that since the technology within Industry 4.0 is still not fully developed, companies do not understand what potential value it will bring to their organizations. For that reason, they still do not know which technologies they should be adopting. As such, the importance of evaluating the future and making sure that a company is putting their innovation efforts toward the right technolo- gies is crucial. It is about preparing for the future technological challenges and
making sure that when the technology is ready, the company understands what technology to adopt and the value that this will have for the company. (World Economic Forum and A.T. Kearney, 2017)
2.5.1 Trend and Market Analysis
This section treats the importance of looking forward, and analyzing trends and the evolutions of markets to be able to stay competitive.
To be able to look forward and act correctly, a company needs to keep track of potential market trends and future technologies that are re-shaping the current in- dustry. If a company ignores these trends, there is a chance that their competitors will run past them. (Christensen, 1997) Tidd, Bessant and Pavitt (2005) say that it is important to have an effective routine for researching about current technolo- gies, competitors and markets. He states that understanding the changing market dynamics is vital for survival and expansion. He also argues that the difficulty lies in not knowing which direction the market will turn. Therefore, picking up on early signs of emerging trends is of importance and requires active search. Trend analysis can be done through issuing surveys, watching customer and expert pan- els and other forms of interaction and communication with customers and experts.
(Tidd, Bessant and Pavitt, 2005)
Kruse et al. (2009) suggest that a company needs to understand the trends that it is currently being affected by, and try to use these as an indicator to where the future is heading. An issue with this type of trend analysis is, however, that it builds on the assumption that the future will be similar to today. As such, companies may miss potential radical innovations to come (Kruse et al., 2009). Therefore, Tidd, Bessant and Pavitt (2005) argue that understanding future trends may be easier if a company is cooperating with outside help, such as universities, research labs and other institutions. Research also shows that organizations that cooperate with these types of institutions are more successful with innovation (Rothwell, 1992). By doing so, Kruse et al. (2009) suggest that organizations may be more comfortable to not only look for what is expected, but also for signs of the more unexplored and unexpected.
2.5.2 Forecasting Methods
There are different methods that can help a company to try to predict the future.
These techniques are based on forecasting methods and take into account different aspects such as sustainability, technologies and law regulation. These different techniques will be brought up in the sections below.
Scenario Planning
Scenario planning has become an essential tool for companies wanting to prepare for an uncertain future and survive in such a dynamic environment (Chermack, Lynham and Ruona, 2001). Scenarios are hypothetical truths about the future and possible conceptions of the world, in which the company will be operating (Schwartz, 1996). Scenario planning means that the company defines a couple of different future scenarios that they think are possible future conceptions of the world. These scenarios are then used to inspire the company to make decisions, develop actionable plans and decide on focus areas to manage the outcomes of each possible scenario. (Coates, 2016) Creating concrete scenarios helps the company to focus on the right areas and make the right choices that are appropriate for the future (Stetler and Stoopendahl, 2016).
When defining possible scenarios, it is important that these scenarios are inter- nally consistent, have a logical connection between the past, present and future hypothetical events, and include current events which consequences have yet to unravel (van der Heijden, 1997). Coates (2016) defines three steps for conducting scenario planning. The first step in scenario planning is picking several variables which the company believes will significantly affect the future. For example, most industries would consider digitalization as one of these variables. The next step is identifying overall themes that are possible because of these variables. This step can be quite subjective, as there are an infinite number of themes possible. It is therefore crucial that the company can identify critical variables first that can cre- ate plausible futures. The next step is creating the scenarios. This should be done by taking a theme and analyzing that theme according to the identified variables.
When doing this, one should realize that some variables may have no significant impact on that theme and can be dropped. From these steps, one can write the scenarios for the future. After this, the most important part of scenario planning is performed. This is when the company identifies what each scenario will imply
for them. It is from this, that the company can identify what possible actions are needed today to prepare for the future. (Coates, 2016)
Benchmarking
Benchmarking is another popular forecasting method (Tidd, Bessant and Pavitt, 2005; Guimaraes and Langley, 1994; Davila, Epstein and Shelton, 2013). Bench- marking means looking at the competitors of a company, or even another industry with similar processes, to understand what they are doing differently, and also bet- ter (Tidd, Bessant and Pavitt, 2005). When using benchmarking as a forecasting method, it is important to use other industries to identify larger possibilities for the company (Guimaraes and Langley, 1990). Otherwise, Guimaraes and Langley (1990) argue that the company will limit their improvements by only mimicking the competition instead of looking where the future is by comparing with other industries. Benchmarking can also be used as a leverage for motivating manage- ment to adopt certain technologies or methods because they have been identified as successful in other industries or for competitors (Altany, 1991). This benefit is especially significant in companies that have enjoyed sustained past success.
Davila, Epstein and Shelton (2013) suggest that management tends to become more aversive to change when they have been successful in the past for a long time. This reluctance to change hinder innovation efforts (Davila, Epstein and Shelton, 2013). As such, benchmarking is an important tool to show management that change is needed (Altany, 1991).
Furthermore, several researchers argue that the use of benchmarking can benefit a company when the company truly understands the factors behind the competi- tors success, and how these can be used in the company (Altany, 1991; Biesada, 1991; Enslow, 1992) Additionally, Camp (1989) suggests that benchmarking can help when trying to prepare for the future as it can aid the company in defining goals based on an informed understanding of external conditions. There are many models for benchmarking, but they all follow the same general steps (Guimaraes and Langley, 1994). The first step is the planning of the benchmarking process.
This step includes the identification of what is to be benchmarked, the compa- nies to benchmark with, determining on the method of collecting data and lastly, collecting the data (Weimer, 1992; Camp, 1989). The next step is the analysis of the collected data based on the method chosen to see if the competitors are better
and where. (Weimer, 1992; Biesada, 1991) The following step is the integration of the results. This means identifying goals based on the results from the bench- mark, and communicating them to the company. The last step in benchmarking is the action-step where plans for actions are developed and implemented. (Weimer, 1992; Camp, 1989)
2.5.3 Technological Roadmap
This section presents the concept of a technological roadmap as an additional tool for understanding the future and focusing a company’s innovation efforts.
To complement the forecasting methods, a company needs some type of a map on where the company is heading and what is needed to get there. The technological roadmap can be seen as a traditional map, that guides towards a destination, and in this case, that helps identify and choose which path to follow for future success. (Daim and Oliver, 2008) By creating and implementing the concept of a technological roadmap within a company, it enables them to create and deliver future relevant strategies (Coates et al., 2010). It further facilitates the dialogue between different divisions within the firm due to the collaborative and graphical description of the roadmap. These descriptions simplifies what moves and decisions have to be done, when it should be done and by whom, and is very useful for the visualization for the employees. (Ustundag and Cevikcan, 2018) The conduction of it can be performed in several different ways. One example is shaping the roadmap according to the following characteristics: a portrait of the current state, a desirable state in the future, and strategies to reach this state. (Phaal et al., 2004) Another example can be to use the map as a project plan where one needs to specify different stages and the consecutive work associated with those stages (Ustundag and Cevikcan, 2018).
The importance of having a technological roadmap can be expressed in several ways. Having a technological roadmap entails several benefits such as aiding in prioritizing investments, setting sound and competitive goals, and advising and leading teams. Moreover, it reveals the gap between where the future of technolo- gies are and where the processes of a company are. This is helpful when wanting to examine different future strategies and their implementation. With this, the company can align its vision with its future strategies. (Ustundag and Cevikcan,
2018)
2.5.4 Decision-Making
This section presents the way a company can choose between ideas and technology, and states some of the best-practices of this.
When a company has used the forecasting methods above and decided on some technological path, there is still the issue of the numerous amount of different ideas and technologies to choose between. This puts a company in a difficult position due to the majority of them not knowing what measures to look at, and therefore relies entirely on financial measures - even when this is not optimal for the situation.
(Tidd, Bessant and Pavitt, 2005) Cooper, Edgett and Kleinschmidt (2001) argue that there are many techniques for choosing and evaluating ideas. The issue with some of these approaches are that some tend to lack a balance between ideas which involve incremental and radical innovation. This happens because some methods favor low risk and clear profits, which are more difficult to identify in radical innovations. (Cooper, Edgett and Kleinschmidt, 2001) Tidd, Bessant and Pavitt (2005) argue that there are three different ways to choose between ideas, and these are: using a tool that measures the value received from the idea or technology, the use of economic models and lastly, a portfolio method.
The first model is based on less objective measures, such as strategic alignment.
This method can be done through using a checklist that tells if the project satisfies the conditions that are set. Or, it can be more extensive and comprise of a scoring system. This scoring system is important when projects are being compared with each other, since this approach only relies on qualitative measures and the scoring system attempts to create a more quantitative evaluation between these qualitative measures. The fact that this approach merely relies on qualitative measures is the weakness with this approach since they tend to be more subjective and harder to accurately value. It also evaluates projects separate from competing projects, which is another weakness with this approach. (Tidd, Bessant and Pavitt, 2005) The second approach looks at financial and quantitative methods, such as re- turn on investment, discounted cash flow or net present value (Tidd, Bessant and Pavitt, 2005). One example is to compare the costs of a project with its expected
returns, for example by calculating the payback time. Schilling (2013) suggests that many companies like to focus on quantitative and financial measures due to them delivering a concrete comparison and seem unambiguous. These methods are reassuring to managers and include less perceived risk (Schilling, 2013). Schilling (2013) cautions against this method as it is hard to estimate profits from more rad- ical innovations, especially those that use completely new technologies. Therefore, this method disfavors this type of radical innovation and tends to miss decisions that could have been of strategic importance for the future because it lacks clear profits right now (Cooper, Edgett and Kleinschmidt, 2001). As such, technological innovations that are essential for the future may be underprioritized with this type of approach because it undervalues its impact (Schilling, 2013).
The third approach Tidd, Bessant and Pavitt (2005) suggest is using a combi- nation of criteria to develop a more extensive overview of the projects. This portfolio method approach is a combination of the other two approaches, as it explores both qualitative aspects and quantitative aspects. In this approach, the company neither limits their evaluation to just a checklist, nor to only finan- cial measures. Instead, it involves employing both to get a more fair evalua- tion. The authors argue that this approach creates a better balance between radical and incremental innovations, as it allows the company to see both the qualitative and quantitative measures of an idea. As such, the company does not discard radical innovations as easily. Furthermore, the ideas are not consid- ered in isolation from each other, but as a whole for the company so that radi- cal innovations are balanced with incremental ones. (Tidd, Bessant and Pavitt, 2005) Cooper, Edgett and Kleinschmidt (2001) stress that this hybrid-approach for decision-making is the most successful. They mention that the companies that achieve the best-balanced, highest value portfolios of innovations are the ones that use this hybrid-approach to choose ideas that are aligned with the strat- egy of the company. Including the strategy in decision-making, as a qualitative measure, is of great importance as it allows the company to drive their deci- sions according to strategic priorities. (Cooper, Edgett and Kleinschmidt, 2001)
