CHAPTER 2 LITERATURE REVIEW
2.5 Innovation Management Theory
2.5.5 Innovation Capabilities
Hult (2004) stated that innovation capability is the ability of an organization
to create new processes, new products, or creativity for the organization. Innovation capability is the increased ability of a new product, process, or idea in an organization.
In order to measure innovation capability, thought leadership, organizational structure, and individual organizational activities should be seen to affect external knowledge and knowledge development. Bessant (2003) has emphasized the importance of being able to establish stability between innovation values and behaviors, and the organizational context. Organizational structure has a positive effect on organizational performance.
M. Saunila, & Ukko, J. (2012) have stated that innovation competence consists of three components: innovation potential, the innovation process, and innovation outcomes.
Innovation processes are systems and activities that are in place in an organization to enable innovation to be effective. Innovative capability is based on the principle of absorbing knowledge; that is, the ability to accept the value of new information, assimilate it, and apply it for commercial use. Cohen (1990) stated that competence is the dynamic of competence in knowledge generation and the use of knowledge to support organizational competence and to create a competitive advantage. Garner also explained that continuity and innovation depend on the integration of strategy, human capital, knowledge, innovation, and the intellectual cycle among organizations. An integrated system is an innovation chain with an I model of innovation assessment, which can be considered as follows: 1) strategic goals that support innovation, such as strategies, management, and organizational aspirations; 2) setting goals and evaluating outcomes such as organization, time, and innovation; 3) organizational culture and atmosphere such as creativity in relation to relationships and measurement systems; 4) human resource management such as knowledge and skills used for innovation management, management concepts, problem solving and review management techniques, evaluation systems, manager roles, innovation cooperation, and innovation costs, including research and development of innovation results. Kumar (2012) presented the following organizational innovation capabilities: 1) product innovation is the development or introduction of a new product to the market or improvement of an
existing product; 2) process innovation involves creating or improving methods of manufacturing a product or using new components such as new raw materials and adjusting the flow of new information; 3) management innovation is a change in organizational structure or a new management process; 4) marketing innovation involves market research, market segmentation, product pricing strategy, promotion, and retail distribution channels; 5) service innovation involves creating activities of manufacturers to increase customer satisfaction, after-sales service, and product warranty policy. In addition, Saisut (2011) described an organization as being capable of considering the following characteristics: 1) the ability to learn through systematic technology development, the ability to seek new knowledge, the ability to adapt innovations to the environment, the ability to learn from past experiences, and the ability to apply knowledge from both outside and within the organization as a guideline for research and development; 2) research and development capabilities that the organization has with knowledge and ability to do research and development, including having a clear research and development project plan; 3) the ability to use resources to benefit, focus on human resources, have human resource planning and development, invest in research and development, and have cooperation with other agencies in research and development; 4) production capability, production process improvement through research and development, technology adoption, and efficient management; 5) marketing ability to have good relationships with customers, introducing new products to the market, following up on customers’ needs, and aiming to compete with customers; 6) organizational competence, flexible organizational restructuring according to new innovation plans, integration of resources and research and development, a reward system for motivating employees, communication and exchange among organizations, organizational indicators being established, and corporate liabilities being controlled; 7) strategic ability, top management support, understanding of technology goals, and linking business strategy with technology strategy. In addition, Lawson (2001) described composition organizational innovation capability as follows:
1) the vision and strategy must be clear in terms of the vision and direction of the strategy implementation; 2) the utilization of basic capabilities is the ability to manage resources appropriately and with efficiency, which includes resource management, funding, advocating for innovation, and using technology information in business; 3)
organizational learning from both customers and competitors; 4) thinking and creativity management, as creativity requires a different way of thinking because it is something new; and 5) organizational structure and systems—a high-performing organization drives and motivates employees to innovate, and rewards innovation; 6) the atmosphere and culture in the organization that dares to take risks and tries to create new things—
because innovation is something that has never been done before, there is always a risk of failure, including empowering talent via promotion and communicating both internally and externally to exchange and learn new ideas that will be beneficial to creating innovation and improving operations; and 7) technology management—
technology facilitates faster operations and can reduce the cost of operating activities.
2.5.5.1 Innovation capability dimension
The innovation competency dimension can be divided into knowledge transfer, learning, thought management, and process. Innovation competence refers to competence, talent, potential, and the ability to achieve future innovations Cristina (2004), M. Saunila, & Ukko, J. (2012) ,M. Saunila (2014), Aryanto (2015). Innovation capability is set of skills ,innovation strategy, the creation of development and resource fitting in innovation. Innovation competences include learning ability, research and development capability, marketing capability, resource capability, and organizational strategy Teece (2009) , Kindstrom (2013). Innovation capability can be divided into different dimensions as follows.
Table 2.1 Innovation Capability Dimensions Innovation Capability
Dimensions
Sub-Dimensions
Knowledge Management Gold (2001)
1. Using technology to create, share, store, and use knowledge
2. Management of new knowledge from previous knowledge
3. Acquiring knowledge from suppliers
4. Using project feedback to improve ongoing projects
Innovation Capability Dimensions
Sub-Dimensions
5. The process of distributing knowledge in the organization
6. Knowledge sharing with business partners 7. Knowledge preservation process
Organizational Culture Martins (2003);Lawson (2001) 1. Employee Power
2. Free time to create creativity 3. Good communication channels 4. Support changes in the organization
5. Freedom of employees and the middle class at the middle level
6. Freedom to take risks and experiments 7. Tolerance of employees' mistakes Organizational learning Aggeri (2009);March (1991)
1. Training and development activities 2. Organization search
3. Trial
4. Relevant customer and user experience 5. Accumulating lessons and experiences 6. Partners
7. Participating in decision-making 8. Opportunity to take risks
Leadership Arago´ n-Correa (2007);Lawson (2001) 1. Use motivation instead of control
2. Coordination at a lower level; intermediate and advanced levels
3. Encourage employees to try new ideas without fear 4. Support participation in innovation activities
Innovation Capability Dimensions
Sub-Dimensions
5. Provide a frame to create and support innovation activities
Cooperation Soosay (2008); Vega-Jurado (2008)
1. Share processes and knowledge across departments 2. Share information with customers
3. Share information with suppliers
4. Support the acquisition of knowledge from outside 5. Participate in cross-department planning
6. Coordinate with universities and research agencies in innovation activities
7. Cooperate with consultants regarding innovative activities
Creativity Amabile (1996)
1. Awards and recognition of Ideas 2. Personal values
3. Achieving objectives 4. Support group
5. Availability of adequate resources, including materials, funds, facilities and information
6. Allow employees to perform challenging tasks.
7. Have trial and error.
8. Have free time to create exercises.
9. Flexible work schedule
10. Freedom to innovation activities Concept Management Boeddrich (2004); Brem (2007)
1. Determining strategies for innovative approaches 2. Broad concept collection installation
3. Decision-making across job duties 4. Providing ideas
Innovation Capability Dimensions
Sub-Dimensions
5. Management of thoughts from the bottom up 6. Feedback and rewards for innovative ideas
7. Incorporating concept management into a collective strategy
Innovation Strategy Alegre (2011); Lawson (2001)
1. Develop a clear innovation strategy 2. Setting innovation goals
3. Distribute resources.
4. Policy risk determination
5. Initiating new products and services 6. Instant Innovation