Sanchez Blandine and Fanise Nathan
Impact of Managerial Innovation on Corporate Social
Responsibility
IKEA Case Study Analysis
Business Administration Master’s Thesis
30 ECTS
Term: Spring 2013
Supervisor: Inger Roos
ACKNOWLEDGEMENTS
This Master thesis was written in spring 2013 as a final project for a Master in Service Management at Karlstad University. Many people supported us in the successful completion of our thesis. We would like to thank them for their contributions to this academic paper. Foremost, we would like to take the opportunity to acknowledge the assistance of Magnus Engstrand – Local IT and Sustainability coordinator at IKEA Karlstad, who provided us with all the necessary information to develop our thesis. We also wish to express our sincere thanks to the employees and managers of the IKEA Karlstad store for their cooperation. Finally, we wish to express our deep sense of gratitude to Associate Professor Dr. Inger Roos who guided us with many valuable suggestions during the writing of our thesis.
Blandine Sanchez Nathan Fanise
Abstract
The purpose of this master thesis is to provide a deeper understanding of managerial innovation impact on companies through Corporate Social Responsibility (CSR). For this objective, IKEA Karlstad was chosen for the empirical part in order to apply the theoretical framework to practical relevance. The method used for this thesis was a case study design including data collection from literature in different databases: Emerald, Business Source Premier, Scopus as well as Google Scholar. Regarding data collection for the case study, three qualitative questionnaires were also distributed to IKEA: two designed for the local IT and sustainability coordinator Magnus Engstrand and one targeting employees. A quantitative questionnaire was distributed to IKEA employees too. An interview was set up with Magnus Engstrand according to the unstructured interview guidelines. The theoretical framework focuses not only on understanding the links between managerial innovation and CSR, managerial and technological innovations but also on the companies’
motivation to implement these actions and their impact on employees, organizations and community. From our analysis of the literature it can be stated that managerial innovation is stimulated by an internal element of the company. Managerial innovation helps partly or entirely to develop CSR actions resulting in the creation of positive value: tangible or intangible; or negative value according to value resonance or value dissonance. The case study analysis brought examples of how managerial innovation brings value without involvement of any technological innovation contradicting certain theories exposed in the theoretical framework. At IKEA, the three different types of managerial innovations are management, administrative and organizational innovations which are used to develop CSR actions and constitute a minor or major part of their implementation. The impact of managerial innovation on CSR is translated at IKEA Karlstad as an intangible value for the company and its stakeholders. This thesis contributes to a better comprehension of managerial innovation concepts in general as well as its application in a CSR strategy through concrete examples. It can also be used as a demonstration of how managerial innovation can be used to improve the internal and external images as well as employees’ welfare and perceptions.
Further qualitative research is needed to measure the manner of managerial innovations as well as quantitative studies to generalize its impact on a larger scale.
Keywords: Managerial innovation, technological innovation, innovation, corporate social responsibility, value, values, intangible value, tangible value, values resonance, values dissonance.
Table of Contents
1. INTRODUCTION ... 1
1.1. BACKGROUND ... 1
1.2. PROBLEM IDENTIFICATION ... 2
1.3. MOTIVATION OF THE STUDY... 3
1.4. PRESENTATION OF THE CASE STUDY... 4
1.4.1. General Presentation ... 4
1.4.2. Vision and Values of IKEA Group ... 5
1.4.3. Corporate Social Responsibility at IKEA... 6
1.5. THESIS OBJECTIVES ... 6
1.6. THESIS PURPOSE... 7
1.7. THESIS STRUCTURE ... 7
1.7.1. Chapter 2: Theoretical Framework ... 7
1.7.2. Chapter 3: Methodology ... 8
1.7.3. Chapter 4: Presentation of the results ... 8
1.7.4. Chapter 5: Analysis and discussion of the case study results ... 8
1.7.5. Chapter 6: Conclusion ... 8
2. THEORETICAL FRAMEWORK ... 9
2.1. CONCEPT OF MANAGERIAL INNOVATION ... 10
2.1.1. Definition of Management Innovation ... 10
2.1.2. Definition of Managerial Innovation ... 10
2.1.3. Links between Managerial Innovation and Management Innovation . 11 2.2. CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY (CSR) ... 12
2.2.1. Definition of CSR ... 12
2.2.2. Links between CSR and Managerial Innovation ... 13
2.2.3. Indicators to measure the value created by CSR ... 13
2.3. DETERMINATION OF TECHNOLOGICAL INNOVATION AS A TRIGGER ELEMENT FOR MANAGERIAL INNOVATION ... 14
2.3.1. Technological Innovation is a key component of Managerial Innovation ... 15
2.3.2. Technological Innovation requires Managerial Innovation to create value 15 2.3.3. Reflection on the positioning of Technological Innovation and Managerial Innovation ... 16
2.3.4. Technological Innovation as a trigger element of Managerial Innovation ... 16
2.3.5. Reflection from Service Innovation literature ... 17
2.3.6. Hypothesis 1: selection of the model... 18
2.4. THE VALUE CONCEPT: RESULT OF MANAGERIAL INNOVATION ON CSR ... 18
2.4.1. Hypothesis 2: Tangible Value and Intangible Value ... 18
2.4.2. Hypothesis 3: Values may drive value ... 19
2.5. COMPOSITION OF CORPORATE SOCIAL RESPONSIBILITY ... 20
2.5.1. Corporate Philanthropy ... 20
2.5.2. Risk Management ... 20
2.5.3. Creating Shared Value (CSV) ... 21
3. RESEARCH METHODOLOGY ... 22
3.1. GENERAL KNOWLEDGE ABOUT RESEARCH METHODS ... 22
3.2. DATA COLLECTION ... 23
3.2.1. Literature review ... 23
3.2.2. Qualitative data ... 23
3.2.3. Quantitative data ... 24
3.3. MOTIVATION OF THE CASE STUDY DESIGN ... 24
3.4. WHY IKEA? ... 25
3.5. RESEARCH QUESTIONS AND LIMITATIONS ... 25
3.6. DISCUSSION OF VALIDITY AND RELIABILITY IN OUR THESIS ... 26
4. PRESENTATION OF THE RESULTS ... 27
4.1. CURRENT INDICATORS TO MEASURE CSR AT IKEA... 27
4.2. INNOVATION AT IKEA ... 27
4.3. FOCUS ON THE IKEA STORE IN KARLSTAD,SWEDEN ... 27
4.4. PRESENTATION OF CSR ACTIONS INCLUDING MANAGERIAL INNOVATIONS AT IKEA 28 4.4.1. Nomination of Steve Howard as Chief Sustainability Officer and People & Planet Positive Project (PPP) ... 28
4.4.2. Universal Code of Conduct ... 29
4.4.3. IWAY ... 30
4.4.4. Shopkeepers ... 31
4.4.5. Samhall ... 32
4.5. INTERPRETATION OF THE ANSWERS FROM THE QUALITATIVE QUESTIONNAIRE ... 32
4.6. ANSWERS FROM THE QUANTITATIVE QUESTIONNAIRE ... 34
5. ANALYSIS AND DISCUSSION OF THE RESULTS ... 38
5.1. ANALYSIS OF STEVE HOWARD’ EMPLOYMENT ... 38
5.1.1. A CSR strategy stimulus ... 38
5.1.2. Organizational Innovation is the only component of Steve Howard’ employment ... 38
5.1.3. An impact represented by intangible value through values resonance. 39 5.2. ANALYSIS OF THE PEOPLE &PLANET POSITIVE PROJECT ... 39
5.2.1. A CSR strategy stimulus ... 39
5.2.2. People & Planet Positive project involves both managerial innovation and technology ... 40
5.2.3. Values resonance impacting IKEA employees’ behaviour ... 40
5.3. ANALYSIS OF THE CODE OF CONDUCT AND TRUST LINE ... 41
5.3.1. A Corporate Culture stimulus ... 41
5.3.2. A combination of administrative and organizational innovations... 41
5.3.3. A value resonance resulting in a neutral impact on IKEA... 42
5.4. ANALYSIS OF THE IWAY ... 42
5.4.1. A CSR strategy stimulus ... 42
5.4.2. An administrative and organizational innovation ... 43
5.4.3. A values resonance resulting in a decrease of the corruption ... 43
5.5. ANALYSIS OF SHOPKEEPERS’ IMPLEMENTATION ... 44
5.5.1. Unified Leadership as a stimulus ... 44
5.5.2. Organizational and management innovations as a central element of shopkeepers ... 44
5.5.3. A positive impact reflected by an increase of trust among workings teams 44 5.6. ANALYSIS OF SAMHALL COLLABORATION ... 45
5.6.1. A CSR strategy stimulus ... 45
5.6.2. An important contribution of management Innovation and organizational Innovation to improve CSR ... 45
5.6.3. Positive impact on IKEA employees and the community due to values
resonance 46
5.7. DISCUSSION OF THE CASE STUDY RESULTS ... 46
5.7.1. Discussion of Hypothesis 1: Involvement of technological innovation in value creation process ... 46
5.7.2. Discussion of Hypothesis 2: Different types of value are brought by managerial innovation ... 47
5.7.3. Discussion of Hypothesis 3: Values resonance and Values dissonance . 47 5.7.4. Discussion of managerial innovation involvement in CSR ... 48
5.8. LIMITATIONS OF THE STUDY ... 48
6. CONCLUSION ... 50
6.1. FINAL CONCLUSION ... 50
6.2. SUGGESTIONS FOR FURTHER RESEARCH ... 50
7. REFERENCES ... 52
8. APPENDIX ... 56
List of figures
Figure 1: IKEA Organization Chart (IKEA 2013e). ... 5
Figure 2: Creation and Measurement of Value generated by Managerial Innovation through Corporate Social Responsibility. ... 9
Figure 3: Managerial Innovation inspired by Damanpour and Aravind (2011) as well as Evan (1966). ... 11
Figure 4: CSR inspired from Tilcsik and Marquis (2013), Kytle and Ruggie, (2005) as well as Porter and Kramer (2006). ... 12
Figure 5: Process from Managerial Innovation to measure created value inspired from Balabanis et al. (1998). ... 13
Figure 6: Managerial and Technological Innovations inspired from Kraus et al. (2012). ... 15
Figure 7: Managerial and Technological Innovations inspired from Chesbrough (2010). ... 15
Figure 8: Managerial and Technological Innovations inspired from Damanpour & Aravind (2011). ... 16
Figure 9: Managerial and Technological Innovations inspired from Birkinshaw et al. (2008). ... 17
Figure 10: Managerial and Technological Innovations inspired from Den Hertog (2010). ... 17
Figure 11: Hypothesis 2 on Managerial Innovation process including the notion of value. ... 19
Figure 12: Hypothesis 3 on Managerial Innovation process including the notion of values and value. ... 20
Figure 13: Definition of Risk (Kytle & Ruggie 2005). ... 21
Figure 14: Organization chart of Karlstad IKEA store ... 31
Figure 15: Bar chart representing the impact of CSR actions on the IKEA employees. ... 34
Figure 16: Bar chart representing the impact of CSR actions on the environment. ... 35
Figure 17: Bar chart representing the impact of CSR actions on the community. 35 Figure 18: Bar chart representing the values shared by the IKEA employees... 36
Figure 19: Bar chart representing the impact of CSR actions on the employees working life. ... 36
Figure 20: Bar chart representing the impact of CSR actions on the employees’ life outside IKEA. ... 37
Figure 21: Bar chart representing the impact of CSR actions on the productivity and well-being of IKEA employees. ... 37
Figure 22: Analysis of Steve Howard’ employment ... 38
Figure 23: Analysis of the People & Planet Positive Project ... 39
Figure 24: Analysis of the Code of Conduct and Trust Line ... 41
Figure 25: Analysis of the Iway. ... 42
Figure 26: Analysis of Shopkeepers’ implementation. ... 44
Figure 27: Analysis of Samhall collaboration. ... 45
1
1. INTRODUCTION
1.1. Background
In recent years, a heightened awareness of many companies regarding environmental issues and the welfare of employees has contributed to their development as major concerns on a global scale. This evolution indirectly shows that the production-focused strategies, where costs and prices are prioritised, are now out of date. Stakeholders recognized that production- focused strategies do not consider the customers’ values, or social and environmental aspects (Dawkins & Lewis 2003). Thus, Corporate Social Responsibility (CSR) strategies have increasingly emerged as a manner to deal with these concerns.
By definition, a CSR strategy integrates economic, environmental and social aspects. Therefore, philanthropic actions involved in CSR strategies have proliferated in order to establish a relation between organizations and their environment (Garriga & Mele 2004). In addition to bringing value to the community, the CSR strategies include, for example, recycling, employment of local people and infrastructural improvements; in which these actions also enhance both the external and internal image of corporations (Tilcsik &
Marquis 2013).
In parallel to this philanthropy, Human Resources’ role has become more important in companies’ strategies because the productivity depends on the motivation and the wellbeing of the employees in the workplace. Moreover, CSR strategies that include internal social aspects normally involve the HR department in projects such as the improvement of working conditions or the integration of people in difficulty in the workplace. Hence Human Resource managers need to implement some actions in order to increase the motivation of the workers (Danna & Griffin 1999).
Since the importance of CSR and Human Resources has been rising, new theories and concepts have also emerged to develop the science of human resources as well as management practices (Porter & Kramer 2006). New management practices that constitute a part of innovations in the area of management are called managerial innovations which aim to develop productivity through employees’ welfare as well as enhance the internal image of firms
2 (Damanpour & Aravind 2011). Furthermore, these innovations regarding human resources bring a competitive advantage by implementing new processes which do not exist in other corporations and are difficult to copy for the competition. Accordingly, managerial innovations help to increase the profitability of companies (Damanpour & Aravind 2011).
1.2. Problem identification
In the background, we presented the notion that managerial innovation and human resources can be connected. Porter and Kramer (2006) actually specify a link between managerial innovations and Corporate Social Responsibility but the relation is not well defined. Thus, we identify two problems in relation with managerial innovation that we discuss throughout this paper.
Damanpour and Aravind (2011) consider the impact of managerial innovation on the company as hard to measure theoretically since they are qualitative data.
So these results are more difficult to measure than financial benefits for companies. On the contrary, existing tools are available and used by firms to measure the impact of CSR on communities and their corporations. However, we think that the effects of managerial innovations could also be observed in practice within organizations through employees’ welfare, motivation, behaviour and other attitudes regarding companies. Thus, this is the first problem of the research that will be studied by investigating the link between managerial innovation and CSR to see if it could reveal the impact of managerial innovation.
Another problem that will be discussed in this thesis is the relation between managerial innovation and technological innovation. Kraus et al. (2012) thinks that managerial innovation has to deal with technological innovations.
Technological innovations refer to innovations including a new technology.
These two categories of innovation are related because they bring values to organizations. However, the nature of this relation is not well established by scholars. For instance, Kraus et al. (2012) stipulate that managerial innovation is dependent on technological innovation, while Birkinshaw et al. (2008) support that technological innovation is not mandatory in order to create value in the managerial innovation processes. These controversies highlight the lack of studies focused on the managerial innovation area (Damanpour and Aravind 2011). Thus, to study the impact of managerial innovation on
3 CSR, its relation with technological innovations will be clarified in the theoretical framework.
According to the problems stated above, we set up three research questions as follows:
1. What motivates managerial innovations in CSR actions?
2. In what way does managerial innovation affect CSR actions?
3. What is the impact of managerial innovation on the company and its stakeholders?
1.3. Motivation of the study
This part will highlight why this thesis is important not only to the business world, including both companies and employees, but also to students and researchers.
First of all, as emphasized in the problem discussion, managerial innovation is an area that has a shortage of studies. For example, Damanpour and Aravind (2011) only focus on theory, method and process without any application to practical problems. Other research papers use quantitative analysis trying to establish general truths about managerial innovations. Hence, it is difficult to find any paper that gives a concrete illustration of how managerial innovation works in a company, or articles that deeply study managerial innovation with CSR. This lack of research constitutes the first reason for our motivation because, as students in Entrepreneurship and Human Resources, we find this topic current and valuable for our future careers. Thus we want to deepen the research in this area with a case study in order to complete the lack of articles regarding the subject.
As mentioned in the introduction, environmental and social concerns in companies have recently been of great interest to a large number of people.
Professionals can learn from this paper what benefits they can reap from managerial innovation and CSR. Being students with several internships experiences, we know that companies prefer to improve business based on concrete examples rather than on theories. Managerial innovation linked with CSR can bring a huge competitive advantage because a company’s internal and external perceptions, structures and management practices are hard to copy.
4 Therefore, this thesis can be studied in order to understand the importance of management within an organization with a practical relevance.
In conclusion, management students or those who are interested in managerial innovation should find this thesis useful since managerial innovation practice is very important both for a firm's point of view and for employee hindsight.
In addition, managerial innovation is especially crucial for students who will become employees or managers one day. Broadening knowledge on topics, which are not presently popular, can illuminate a better vision of internal changes happening in firms.
1.4. Presentation of the case study
According to the research questions, we would like to focus on four subjects:
managerial innovation, Corporate Social Responsibility, technological innovation and value. We chose the IKEA group to be the case for our study.
IKEA is specialized in furniture retailing, and has developed a strategy focused on corporate social responsibility. Thus, IKEA regularly needs to innovate in this area, with the aim of remaining competitive and keeping a good internal and external image among stakeholders. By analysing this company, we shall get a concrete example of managerial innovation implementation in CSR actions.
1.4.1. General Presentation
The IKEA Group is famous for making interior design and furnishing accessible to as many people as possible. The company also has established its popularity with flat-pack furniture by launching the trend of “Do It Yourself”.
Its originality lies in the service offered to its customers. Stores are designed in a way that allows customers to follow an in-store itinerary leading them to experience the showrooms inside. Those rooms show them all the IKEA product lines in everyday life situations. The aim of this concept is to keep customers as long as possible in the store in order to help them discover all the solutions that the company offers to make their lives easier. The group has 154 000 employees in 338 stores located in 44 countries through the franchise system, Inter IKEA Systems B.V. The turnover of the group was 27.5 billion Euros for the year 2012 (IKEA 2012a).
5
Figure 1: IKEA Organization Chart (IKEA 2013e).
The organization chart presented above introduces the structure of the IKEA group whose the CEO is Michael Ohlsson (IKEA 2013a). At the top of the diagram, the Interogo Foundation is the foundation developed by IKEA in order to help people in the developping world ( IKEA 2013a). This fundation owns the Inter IKEA holding S.A, which is the parent company of the Inter IKEA group (IKEA 2013a). The IKEA group is composed of several divisions, including franchise division, retail centre division, property division and finance division. The production of IKEA furniture is subcontracted by Swedwood group to ensure the production capacity of the company (Swedwoos group 2013). Furthermore, the range department is managed by another subsidiary, IKEA of Sweden AB. The main objective is to develop and make the IKEA range available in all IKEA stores (IKEA 2013a). The division Inter IKEA systems B.V is in charge of managing all the franchises and auditing all the stores in accordance with the IKEA code of conduct and values (IKEA 2013b). Vastint Holding BV and Inter IKEA Investment AB offer management advice to all the franchisees of the brand IKEA (IKEA 2013a).
1.4.2. Vision and Values of IKEA Group
The spirit of IKEA is transmitted through these words: “create a better everyday life for the many people” (IKEA 2012a). To achieve its vision, the group orients its sales strategy to offer wide ranges of functional furniture at accessible prices.
The corporate culture is based on the Swedish culture, where IKEA was founded in 1943 (IKEA 2013c). Thus, IKEA group has developed values
6 relying on simplicity, enthusiasm, humility, sense of challenge, responsibility, teamwork, coaching and awareness of cost. Each employee forms an important part of the company’s success. The golden organization values are trust, integrity and honesty, which go along with the IKEA vision. In order to ensure that these values are respected, the firm implements different control means and charts for the protection of its business ethics, environment, and employees’ well being (IKEA 2012a, 2013d).
1.4.3. Corporate Social Responsibility at IKEA
The CSR is an important aspect in the strategy of IKEA. All the products and the communication are based on CSR and more particularly on the protection of the environment. Currently, the IKEA group is working on a new CSR strategy called People & Planet Positive, which will be explained and analyzed later on. This new policy in development will help customers have better life conditions while preserving the environment. It will also ensure that IKEA will become independent in terms of energy and raw materials. Corporate Social Responsibility will be extended intensively in the analysis part.
1.5. Thesis objectives
Based on our theoretical framework and the IKEA case analysis, the main objective is to get more knowledge on CSR and managerial innovations links.
In collaboration with the sustainability coordinator and the Human Resources department of IKEA Karlstad, we want to verify if technology-based innovation is always required in order to create value for the firm, or it could be considered as optional instead. In other words, we would like to see if we can find examples of managerial innovations without technological involvement that create value for IKEA.
Moreover, this thesis aims to explore the impacts of managerial innovation whether it can be applied not only for economic goals, but also for social and environmental issues, namely Corporate Social Responsibility. Managerial innovation could bring two different types of values: intangible value, which could be positive attitudes and trust, towards the company; and tangible value, such as financial benefits.
When a company implements new managerial innovations in a CSR context, it should result in an increase of positive external and internal images, and have a
7 repercussion on its economic performance. Several existing indicators to measure CSR can help evaluating the value created by managerial innovations.
This thesis has the objectives to attest the possibility to measure managerial innovation indirectly by including another element in its value creation process.
To conclude, we would like to show that a well-known company has already been implementing managerial innovation which has an impact on its financial performance and image.
1.6. Thesis purpose
The purpose of this thesis is to show examples of managerial innovations’
impact on Corporate Social Responsibility. In other terms, it shows how managerial innovation can be combined with social and environmental actions to create value for the company in practical relevance. Additionally, this paper tries to give examples of value that can be brought by the combination of managerial innovation and CSR.
1.7. Thesis Structure
This thesis is divided into five main chapters beyond this introduction. First, the theoretical framework will be developed. Second, the methodology used for the empirical part will be described. Then, the results of the case study will be presented followed by an analysis of IKEA’ innovations in terms of CSR and management.
1.7.1. Chapter 2: Theoretical Framework
In the theoretical part, we introduce all the main concepts through Figure 2 to explain how managerial innovation impacts CSR theoretically as well as how companies can measure the value brought by these innovations. In the same chapter, we give definitions about all the concepts involved in the elaboration of our theoretical framework. Thus, these definitions allow the readers to acquire a better understanding of the subject. A deeper presentation of managerial innovation and CSR will conclude this chapter to obtain a better comprehension about these concepts.
8 1.7.2. Chapter 3: Methodology
In the methodology chapter, we will introduce general theories about research methods as well as our motivation regarding the choice of a case study design.
Thereafter, the selection of IKEA for this analysis will be developed.
Following the research questions and the limitations of our empirical part, the method used for the data collection will be described as well as the structure of the analysis.
1.7.3. Chapter 4: Presentation of the results
In the fourth chapter, we will further develop the CSR and management aspects of IKEA. We will also provide more information on the IKEA store of Karlstad. CSR actions including managerial innovations will be explained in details.
1.7.4. Chapter 5: Analysis and discussion of the case study results In this chapter, we will analyse the results in order to point out the relation between managerial innovation and CSR as well as its impact on the company.
Then we will discuss the results of the study in comparison with our hypotheses from the theoretical framework, and explain the limitations of the study.
1.7.5. Chapter 6: Conclusion
We will draw a general conclusion of our analysis, and directions for further research will be suggested.
9
2. THEORETICAL FRAMEWORK
Managerial Innovations, including management, organizational and administrative innovations, are challenging to evaluate since the value created is not always measurable in financial terms. Additionally, no tool exists to measure the value brought by these innovations and no direct economic results can be seen (Damanpour & Aravind 2011). Thus, the purpose of this theoretical framework is to establish a system where the impact of managerial innovation could be assessed. In order to confirm or refute the different hypothesises stated in the thesis’ objectives, an intermediary had to be introduced to facilitate the measurement of the value created for the company.
Corporate Social Responsibility, known as CSR, comports most of the time indicators, which enable an evaluation of CSR actions (McGuire et al. 1986) and consequently managerial innovations. For this reason, links between managerial innovations and CSR have also been studied in this part. Figure 2 represents our contribution to the literature on CSR as well as managerial innovation and the basis for comparison with our analysis from the empirical part. In this system, managerial innovations are motivated by one or several stimuli that can be either a CSR strategy or the implementation of a new technological innovation or other trigger elements. These managerial innovations can improve CSR which involves human resources and social concerns. CSR creates different types of values for the firm that can be evaluated with several indicators. All the elements of Figure 2 are described in the following parts as well as the construction of the figure.
Figure 2: Creation and Measurement of Value generated by Managerial Innovation through Corporate Social Responsibility.
10 First of all, definitions will be given to provide the keys to understanding this diagram. As it is constructed, the schema comports two central elements:
managerial innovation and Corporate Social Responsibility, which will be defined first. Two other elements also occur upstream and downstream of managerial innovation and CSR in Figure 2. The first one, on the left, constitutes the trigger element of managerial innovation and will be explained right after the definitions of the concepts. The second one, on the right, represents the impact of managerial innovation on CSR. In others words, it represents what is created during the process. Last, the different types of value will be developed.
2.1. Concept of Managerial Innovation
In order to fully understand CSR, managerial innovation is central in our theoretical framework of the thesis. Consequently, definitions, processes and examples will be detailed in the following part. The term of managerial innovation was mainly used in the previous theories; however the literature specifies two types of innovation in term of management: management innovation and managerial innovation. The first step is to find out to what these two concepts refer, and if there are any similarities or differences in their effects and processes.
2.1.1. Definition of Management Innovation
According to Birkinshaw et al. (2008, p.825), “management innovation is the generation and implementation of a management practice, process, structure, or technique that is new to the state of the art and is intended to further organizational goals”. In other words, this definition states the implementation of new processes, which represent an organizational change for the corporation. Thus, innovation will focus on systems and procedures rooted in the company and dealing with production and employees (Birkinshaw et al. 2008). New procedures can be implemented to improve not only supply-chain and production quality but also quality of employee training. Through organizational innovations, the company searches to remain competitive in the market. As explained earlier, management innovation is motivated by a stimulus that can be of a technological, social, environmental, organizational and financial nature. It constitutes the starting point of the implementation process.
2.1.2. Definition of Managerial Innovation
In regard to managerial innovation, the definition given by Damanpour and
11 Aravind (2011, p.424) appears to be the most relevant. According to them, managerial innovation is “the implementation of new organizational structures, administrative systems, management practices, processes, and techniques that could create value for the organization”. In fact, the term “managerial innovation” gathers three types of innovation. As presented before, management innovation constitutes one of them. In addition to the change in practices, processes and structure management, Damanpour and Aravind (2011) add another element by defining management innovation as the change of how managers operate.
In other words, these innovations focus primarily on the way managers take their decisions. The second type of innovation is composed of organizational innovations, which were shaped by scholars to separate innovation in terms of management and organizational structures from technological innovations.
The last category represents administrative innovations. They have to be differentiated from product innovations and technological innovations.
Administrative innovations are completely oriented towards the development of business efficiency through processes and administrative systems of the company. For example, administrative innovations include changes in information systems or human resources. Evan (1966, p.51) explains administrative innovation as “an idea for a new policy pertaining to the recruitment of personnel, the allocation of resources, the structuring of tasks, of authority, of rewards”. The definition of managerial innovation can be summed up as follows:
Figure 3: Managerial Innovation inspired by Damanpour and Aravind (2011) as well as Evan (1966).
2.1.3. Links between Managerial Innovation and Management Innovation
The literature enables a link to be created between management and managerial innovation processes. In their article, Damanpour and Aravind
12 (2011) also incorporate the process of Birkinshaw et al. (2008) for the generation phase of managerial innovation process but with the addition of one diffusion stage. Thus through these articles, it was concluded that managerial innovation and management innovation have the same objective:
to answer an organizational, administrative and managerial need. Furthermore, the article of Damanpour and Aravind (2011) establishes that management innovation is in fact a part of managerial innovation alongside organizational and administrative innovation.
2.2. Concept of Corporate Social Responsibility (CSR)
Like managerial innovation, the concept of CSR is central in our thesis. We have dealt with the impacting concept before presenting the literature and view on CSR. To demonstrate that managerial innovation can increase the human and financial capitals of an organization, CSR can be used as an intermediary, which can serve as both stimulus and results for managerial innovation actions.
2.2.1. Definition of CSR
Corporate Social Responsibility (CSR) is a recent concept where companies integrate the triple bottom line: social, environmental and economic concerns, in their strategy (Enquist 2012). The aim of this model is to establish stability for the long term and at the same time to lower the impact on the environment as well as to answer the needs of society. By the means of CSR actions, companies increase their institutional and internal image as well as their profitability. Through different articles, three types of CSR’ approaches have been identified by scholars represented in the following diagram.
Figure 4: CSR inspired from Tilcsik and Marquis (2013), Kytle and Ruggie, (2005) as well as Porter and Kramer (2006).
13 2.2.2. Links between CSR and Managerial Innovation
CSR can be considered as a stimulus for managerial innovation but more importantly as a result. All the actions that have to be put in place to increase CSR have a direct link with managerial innovation. Indeed, firms have to change their organization; their administrative system or their management process related to the CSR actions they want to develop. As mentioned previously with Damanpour and Aravind (2011), these three changes compose managerial innovation in its entirety. Even if a managerial innovation will occur with a stimulus other than CSR, these changes will impact CSR as managerial innovation is related to social concerns. For example, when a company takes the decision to change its human resources policy through administrative innovation, it will influence not only employees but also CSR as it aims to improve the well being of its workers or its stakeholders. Social management indicators such as absenteeism, job rotation and productivity rate are used to measure welfare at the workplace. Following these actions, the company can develop its human capital and its economic performance (Edvinsson & Malone 1997). As a conclusion, Balabanis et al. (1998) show that different social and financial indicators can help to measure CSR. For companies, knowing the impact of their actions is crucial because generally a lot of funds are invested: therefore, creation of value is required.
Figure 5: Process from Managerial Innovation to measure created value inspired from Balabanis et al. (1998).
2.2.3. Indicators to measure the value created by CSR
CSR actions can be evaluated with several indicators, which create awareness among companies about their real impacts on the community and about their economy (McGuire et al. 1986). The most current indicators are: expert evaluation, annual rapport and other business documents as well as air and water pollution. Nevertheless, to evaluate their actions, companies most often use business documents such as sales rate, results and evolution from the accounting balance compared to previous years. These indicators permit companies to recognize and to measure the value brought by CSR actions
14 (Balabanis et al. 1998). Thus, new strategies can be oriented according to the results of the new actions. For example, when a company has an environmentally friendly production process and elaborate environmental charts, the firm can communicate these assets to improve its image. This action can then be measured not only by conducting surveys on customers but also by analysing sales. By communicating their environmental values, companies will attract new customers sharing the same values and thereby increase consumption.
2.3. Determination of Technological Innovation as a trigger element for Managerial Innovation
As established in the first part, the perspectives of scholars and the data of Figure 3 fix the definition of managerial innovations as being new organizational structures, administrative systems, management practices, processes, and techniques that could create value for the organization (Damanpour & Aravind 2011). Managerial innovation or management innovation can be represented by the following concepts well known to professionals: just-in-time production, quality circles, and cost accounting as well as 360 degree feedback or total quality management.
This explanation provides an outline of business techniques that can be considered as managerial innovation. However, when it comes to innovation in a corporate environment, the literature stipulates an important issue omitted in the previous definition. As a matter of fact, different categories of innovation involved in the creation of value have to be distinguished:
innovations based on technological progress, which are designated as technological innovations and innovations related to pure management, called managerial innovations. Even if these two classifications are different, Kraus et al.
(2012), Chesbrough (2010), Teece (2010), and Damanpour and Aravind (2011) are unanimous on the fact that technological and managerial innovations are connected even if they disagree on the nature of this link. These contradictions clearly show a lack of studies in the managerial innovation area. Therefore, as a key element to understanding the process and methods of managerial innovation, it was essential to study the relation between technological and managerial innovations. Within this context, numerous points of view from scholars have been analysed and represented in the following diagrams to make them more meaningful for readers.
15 2.3.1. Technological Innovation is a key component of
Managerial Innovation
In order to create value for the company, some researchers such as Kraus et al.
(2012) support the necessity of technological innovations in the management innovation processes. Without any technical progress, managerial innovations may not lead to value. According to these authors, the combination of the two is indispensable to obtain a maximum outcome for the firm. Their theory is based on authors like Chesbrough (2010) and Teece (2010), which have also been studied in this theoretical framework.
Figure 6: Managerial and Technological Innovations inspired from Kraus et al. (2012).
2.3.2. Technological Innovation requires Managerial Innovation to create value
Contradictions appear in the comparison between the analysis made by Kraus et al. (2012) and other papers quoted as references. For Chesbrough (2010), technological innovations motivate managerial innovation but they do not constitute a relationship of reciprocity. In other words, when companies innovate in terms of product or services, they need new structures, management or processes to obtain an optimal profit from the technological innovation. Conversely, it does not mean that a new structure requires technology to create value. Teece (2010) reinforces this idea by affirming that technological progress is lionized in most of present societies explaining why the value of management innovation could be underrated. Thus, the value perceived by technological innovations is higher than those by managerial innovations, but the author considers these are of equal, if not greater importance. These theories do not claim directly that managerial innovation can bring value independently from technology, but at least offer different lines of thinking to reflect on the relation between the two categories.
Figure 7: Managerial and Technological Innovations inspired from Chesbrough (2010).
16 2.3.3. Reflection on the positioning of Technological Innovation
and Managerial Innovation
This opposition of thought between authors’ leads us to question the real link of the two concepts. The conclusion after reading articles was that, perhaps, the model applied may differ in function of the situation. In certain companies or cases, Kraus et al.’ (2012) thoughts would be applicable, while in others Chesbrough (2010) would be more relevant. However, one dimension is not envisaged in the previous theories. A new point of view raising questions is brought by Damanpour and Aravind (2011). After studying managerial innovation, these two researchers cannot affirm in which order the elements occur. Nonetheless, they reflect on the dynamics of managerial and technological innovation by proposing three options: whether managerial innovations lag, are complementary to, or lead to technological innovations (Damanpour & Aravind 2011).
Figure 8: Managerial and Technological Innovations inspired from Damanpour & Aravind (2011).
2.3.4. Technological Innovation as a trigger element of Managerial Innovation
The unclear link between the concepts has helped create another hypothesis in the literature, which completely changes from the points of view exposed above. In all the previous theories, even if they do not agree on the process to create value, authors have one element in common: both technological innovations and managerial innovations are included in the process. However, a different way of thinking is introduced by scholars in the managerial innovation area. They consider that technological innovation is foremost a trigger element before other stimuli. Thus, the first stage of managerial innovation is a motivation inside the firm, which can be not only technological as seen in the previous theories but also factorial or conditional within the company (Birkinshaw et al. 2008). For instance, the willingness of top management to orient its organization to a CSR strategy can constitute a stimulus that will motivate managerial innovation within the firm. Accordingly,
17 the supply chain could be modified to integrate recycling in the process.
Recycling could bring value to the company by improving its image among customers and employees. This example can be taken as a possibility that technological innovations are not necessarily involved in management innovation processes.
Figure 9: Managerial and Technological Innovations inspired from Birkinshaw et al. (2008).
2.3.5. Reflection from Service Innovation literature
Another clue that confirms this hypothesis can be found in the literature from other types of innovation. The four-dimensional model of service innovation, designed by Den Hertog (2010), which is shown in the Appendix 1, allows us to make certain affirmations. The first three dimensions quoted in the model new service concept, new client interface and new service delivery systems are similar to managerial innovation. Furthermore, technological innovation, called technological options in Hertogs diagram, is considered as entirely optional as a way to bring value to both customers and employees.
Accordingly, if methods and techniques from managerial innovation in other areas are used to bring value without technology, it means that new organizational structures, management practises, processes and techniques can bring value independently.
Figure 10: Managerial and Technological Innovations inspired from Den Hertog (2010).
18 2.3.6. Hypothesis 1: selection of the model
After evaluating different perspectives on the relation between managerial and technological innovation, the model from Birkinshaw et al. (2008), Figure 9 will be used as a basis for the following hypotheses. The motivation for this choice comes from the fact that their point of view gathers most of the theories mentioned. Indeed, Chesbrough’ (2010) theory presented in Figure 7, can be found in the selected model, Figure 9. If technological motivation constitutes the stimuli, it will generate managerial innovations inside the company. The questioning from Figure 8 can be interpreted as follows: if they do not know where managerial innovation is situated compared to technological innovation, it is perhaps because managerial innovation can operate alone. Finally, figure 10 is reflected in the optional nature of technological innovation in Figure 9.
2.4. The value concept: result of managerial innovation on CSR Previously several diagrams were introduced in order to understand the creation of value depending on managerial innovation. However value is a broad concept, which has to be incorporated in this theoretical framework in order to define the term’s value and explain its functioning. The next part will focus more on the value generated for the company than for its customers.
2.4.1. Hypothesis 2: Tangible Value and Intangible Value
The literature mainly stipulates definitions regarding value for customers but provides little on what value really is for an organization. “The value of a resource enables to answer customer needs in the aim to be better satisfying or enables a firm to satisfy needs at lower costs than competitors.” (Bowman & Ambrosini 2000, p.2) The resources quoted in the definition are methods or techniques of managerial innovation which on the one hand will certainly better satisfy the customers and which on the other hand, will not necessarily satisfy the company’s needs at a lower cost. In fact one element omitted in this definition is the non- financial aspect of the value for the company. This missing element is covered by Grönroos (2012, p.303): “Sometimes the value that has been created can be measured in financial terms, for example through effects on revenues or wealth gained or through cost saving, but value always has an attitudinal component, such as trust, affection, comfort and easiness of use”. If this attitudinal component increases the trust or affection of customers for a brand or a company, then it can also improve the
19 corporation’s image among other things. In this thesis, two types of value will be differentiated: value measured in financial terms will be called financial, value as a tangible value, and value related to attitudinal components will be referenced to as intangible value. The first hypothesis then becomes as presented in Figure 11 below: managerial innovation is encouraged by various stimuli resulting in intangible and/or tangible value.
Figure 11: Hypothesis 2 on Managerial Innovation process including the notion of value.
2.4.2. Hypothesis 3: Values may drive value
The notion of value is however slightly more complex as it also involves the concept of values. Value can be interpreted as a benefit in its general meaning whereas values refer to standards, ideals, principles and ethics by which companies live (Waddock & Bodwell 2007). For example, company values could be: no waste, simplicity, responsibility, cost consciousness etc.
According to Enquist (2012) values drive value, which means that customers and organizations perceive value not only from economic perspectives but also from values. Thus, one concept envelops these theories: values resonance/dissonance. Values resonance transpires when corporations share the same values with all its stakeholders and the community, including:
employees, customers, local community, suppliers and global society. In an opposing manner, values dissonance occurs when there are contradictions between corporate values and stakeholders or community values. For instance, if a company has “no waste” as one of its values and is implemented in a country where the ecological aspect is truly important for the citizens, it can be said that there is a value resonance. On the contrary, if a company in the same country does not have any ecological values as corporate values, then the concept of values dissonance can be seen. This concept brings another element to the second hypothesis.
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Figure 12: Hypothesis 3 on Managerial Innovation process including the notion of values and value.
2.5. Composition of Corporate Social Responsibility
Even if corporate philanthropy, risk management and creating shared value are three categories of CSR, they are actually very different in their purpose, impact, benefits and value brought to the company.
2.5.1. Corporate Philanthropy
Corporate philanthropy towards non-profit organizations and the society (Tilcsik & Marquis 2013) aims to provide funds and diverse skills through the community’s activities. These actions are considered as a short-term strategy and have an operational impact on companies. Benefits obtainable through corporate philanthropy are limited because most of the time, the budget allocated is small. Furthermore, these short-term operations have a limited financial or institutional impact.
2.5.2. Risk Management
Risk management is directed toward social, political, technical and economical risks (Kytle & Ruggie 2005). Objectives in managing the risks are obviously to restrict risks and operational impacts on organizations while simultaneously managing external relations that may pose a threat. Risk is defined as a lack of controlling and measuring in comparison to environmental threats and company weaknesses, Figure 12.
21
Figure 13: Definition of Risk (Kytle & Ruggie 2005).
The company should implement a detection system, which controls and measures damages, loses and disruptions on the business market. Moreover, this system allows the reduction of the impacts of external elements on the firm’s economy and image. According to the think tank of the Kennedy School of Government (Kytle & Ruggie 2005), CSR actions relative to risks are varied and do not only influence philanthropy. They also affect relations with stakeholders at the workplace, production, supply chain and the community.
2.5.3. Creating Shared Value (CSV)
The creation of shared value means that value acquired by companies and social welfare is interdependent (Porter & Kramer 2006). By social welfare, Porter and Kramer (2006) take into consideration not only employees but also available resources as well as the community. To create shared value includes three divisions: reconceiving products and markets, redefining productivity in the value chain, and enabling local cluster development. By reconceiving products and markets, companies create their products with the intention of better answering social needs such as recycling, lowering pollution, and protecting rare resources. Redefining productivity in the value chain allows the evaluation of a company’s production, product quality, costs and consumed resources. Thus, control over rare resources, as well as social and economical development, increases. Enabling local cluster development helps other organizations in their economic growth and thus bring value to organizations.
In other words, a corporation needs infrastructures such as functioning roads and telecoms etc. to develop its business and acquire value. The first aim of the CSV is to allow companies to be profitable while respecting both social and, environmental objectives and creating a competitive advantage with CSR actions (Porter & Kramer 2006)
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3. RESEARCH METHODOLOGY
3.1. General knowledge about research methods
When it comes to research methods for the empirical study, Bryman and Bell (2011) suggest that different options have to be distinguished among the theories. Investigations can be quantitative, qualitative or both. Qualitative researches use techniques, such as individual interviews or questionnaires to collect data. Quantitative studies aim to find general truths about certain topic using statistics and numbers, whereas qualitative studies tend to observe and to describe a situation (Bryman & Bell 2011). Eisenhardt (1989) suggests that combining these two methods in some cases can render a better analysis about a particular situation and set of data. This combination allows researchers, firstly, to have a general knowledge of a sample with quantitative methods, and then focus on the subjects with qualitative techniques. However, this combination is not always the best method because it depends on the nature of the study’s subject and research questions (Eisenhardt 1989).
Another important differentiation is the dissimilarity between exploratory research and descriptive research. Exploratory research enables insights into formulated problems in order to generate new products ideas, establishes priorities for further researches and clarifies concepts. In other words, it aims to understand the problem itself through literature searches, experience surveys, focus groups and case study analyses. On the other hand, descriptive researches try to establish characteristics for a certain population by asking what, when and how often. Descriptive research utilizes methods such as the panel data and longitudinal and cross-sectional studies (Murthy & Bhojanna 2009). Exploratory research can be associated with qualitative methods whereas descriptive research can be connected with quantitative methods.
Our three research questions intend to address the process in which managerial innovation is impacting CSR. The process necessitates getting sufficient knowledge about CSR actions from people who are actually involved. To obtain clear explanations of the concepts, we chose to mainly conduct a qualitative research. However, we decided to combine our qualitative study with a quantitative one to establish statistics on the impact of managerial innovation on CSR within IKEA. Understanding a process in practical relevance requires insights into a company. This insight is particularly
23 provided by an exploratory design through a case study analysis that combine qualitative and quantitative methods.
3.2. Data collection
3.2.1. Literature review
Initially, it is essential to widen our knowledge about the research field with the aim of building a relevant basis for the theoretical framework. Reading pertinent articles, research papers and book chapters from online databases such as Google Scholar, Emerald, Business Source Premier and Scopus, allowed us to collect a large quantity of information. For this research, the main keywords were innovation, managerial innovation, technological innovation, value, values, CSR and retailing. Due to the large amount of articles related to our research subject, a selection of the best articles covering the topic was made. In order to be more efficient, we shared the collection and reading. Then through brainstorming, we developed a global vision on the literature related to our main topics. With an acquired knowledge of all the theories, the writing process of the theoretical framework started by linking all the concepts.
3.2.2. Qualitative data
Methods from qualitative research have been used to collect the data from IKEA. Magnus Engstrand, the Local IT and Sustainability Coordinator at IKEA Karlstad, provided us with the information presented in the following empirical part.
The first step of the primary data collection was sending a questionnaire to Magnus Engstrand via email (see Appendix 2). From this we received the first indication of the approach of managerial innovation and CSR at IKEA. Even though the results provided interesting avenues for the thesis, much information was missing. Therefore, a second questionnaire (see Appendix 3) was sent to him in order to prepare for a face-to-face interview.
The interview occurred on April 2nd 2013 at the IKEA Karlstad store. During the interview, questions regarding the process of CSR actions, the motivation and results, involvement of managerial innovation, employees and customer perception were addressed to Mr. Engstrand. The interview followed an unstructured interview guide and allowed us to deepen our knowledge of
24 concepts that were relevant for our thesis. Mr. Engstrand gave us more details on Planet & People Positive, the shopkeepers project, the Iway, Samhall and the Code of conduct. During this meeting, we also collected paper documents, such as the code of conduct, which are guidelines for the behaviour of each worker; the Iway include guidelines for providers; and a booklet on VOICE, a survey conducted among employees every semester.
This encounter also led to a connection with the Human Resources Department intermediated by Mr. Engstrand. He continued working with us by providing the documents about managerial innovations recently implemented.
Finally, the last questionnaire (Appendix 4), targeting employees with different diversities at IKEA, was distributed to generate more information about their perception and the impact of managerial innovations on them. Twenty questionnaires were returned and analysed.
3.2.3. Quantitative data
The quantitative questionnaire (Appendix 5) was built on the answers from the qualitative questionnaire and was directed to IKEA employees to get their perception of managerial innovation impact through CSR. With this quantitative aspect of our case study, we would like to verify if our results from the qualitative questionnaire could be generalized to the whole store. In order too measure the impact of the new concepts on the employees, environment and the community; scaled questions were used. The questionnaire was sent to 78 employees on June 24th and 67 answers were received on July 13th indicating a response rate of 85,90%. It was distributed through our contact Mr. Engstrand via email. Answers were analysed with Sphinx, an online software for the distribution of questionnaires and processing of statistical data.
3.3. Motivation of the case study design
The aim of this thesis is not to provide processes that can be considered as exclusive on what is happening in every company. On the contrary, our approach is more observational as an attempt to collect more information on CSR and Managerial Innovation links. A quantitative or qualitative research method conducted separately would not help to understand profoundly the
