Innovation Strategy Measurement

Development of an assessment tool

to measure ‘Innovation Strategy’ Fitness of companies

Thesis for the MSc. Program in

Management of Technology

TU Delft

Date: September 2007

Begüm Aydınoğlu

Committee

Dr. Ing. Marc Zegveld Chairman DUT

Dr. Erik den Hartigh First Supervisor DUT
Drs. Ronald Dekker Second Supervisor DUT
Djeevan Schiferli MSc. External Supervisor IBM
Ian Plugge MSc. External Supervisor IBM
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 EXECUTIVE SUMMARY

This research deals with designing an Innovation Strategy Measurement tool to enhance
company innovativeness. Various innovation metrics or innovation outputs (such as
patent publications, new product announcements, sales from new products) exist.
However, these metrics fail to identify the sources required to manage the innovation
processes effectively and fall short for providing guidelines in order to reach to higher
levels of company innovativeness.

The aim of this tool is to create the blueprint of a company’s innovation strategy with the
help of a tool and by doing so observe whether the innovation projects are aligned with
the innovation strategy. In other words, a strategic fit analysis is made. This analysis can
be used for gathering insight on the following aspects:

1. Insights in the Innovation Strategy of IBM Netherlands

2. Insights for resource allocation decisions of different business units for higher
management of IBM Netherlands
3. Consultancy Tool to serve to the clients of IBM Netherlands
4. Incentives to change the innovation strategy into practice

Through an elaborate review of the available strategy and innovation literature and by
means of qualitative reviews and comparison of widely excepted business strategy
typologies, a total of 18 determinants and 4 dimensions of innovation strategy have been
identified. These dimensions comprise of Innovator vs. Improver Company strategies and
Radical vs. Incremental Innovation Projects. Based on these dimensions, the Innovation
Strategy framework has been developed. After that, this framework has been translated
into a measurement tool via a questionnaire.

The questionnaire consists of a total of 27 questions and addresses every element of

innovation strategy dimensions. The constructs are already validated from previous
studies, therefore can be regarded as proven measures. However, appropriateness of the
questions is crucial; therefore, they were investigated by pre-tests via expert reviews,
pilot testing and by post-tests via result discussion with the respondents. In addition, a
robustness check has been made to further validate the calculation methods for translating
the theory into practice.

Respondents were asked to indicate on a five point Likert scale to which degree they find
each statement important while working on their innovation projects in their business
unit. Based on these responses, the tool calculates the perceived innovation strategy at
two levels (i.e. business unit and company level).

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The test can, and should, be conducted on multiple respondents within a company or unit
to get the best result. The tool makes use of a radar graph representation, and identifies
the relationship between the perceived strategy and the innovation projects in the
company. Mismatch

4 Possibilities:
1- Innovator Company
2- Improver Company
QIV Quadrant I: 3- Innovator + Improver Comp.
Innovator
Match 4- No Clear Strategy = ‘Confused’

Relation: MATCH
1- Innovator - Radical (QI)
2- Improver - Incremental (QIII)
Improver Quadrant III: 3- Both Qualities (QI & QIII )
Match
QII
Relation: MISMATCH
Incremental Radical 4- Innovator - Incremental (QIV)
4- Improver - Radical (QII)
4- Neither Qualities (QII & QIV)

The innovation/strategy matrix (see above) implies the following:

From an ‘Innovator’ strategy, radical innovation projects would be expected. From an

‘Improver’ strategy, incremental innovation projects would be expected. Any deviation
from these statements points out a mismatch and the reasons require further investigation.

In the case study, the tool has identified a potential mismatch. That is regardless of the
employee mix (i.e. professional layers, age and job experience) employee perceive that
they are Innovators, but this understanding is not reflected on radical innovation projects.

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The results suggest that when there is a strategic non-fit, the Innovation Capacity does
not positively contribute to the company’s Innovativeness. The results also suggest that
different business units may require improvements in certain areas such as Capabilities,
Network and Culture depending on their respective business focus (i.e. products/services,
operations or customer).

Sources required for executing the

Innovation Strategy

IBM nl

BC&RS
Resources
GBS Capabilities
Network
S&D
Culture
S&C

0% 20% 40% 60% 80% 100%

For instance, it has been found that the business units who work closer to the customer
and/or market require more capabilities and a change of culture. On the other hand,
business units who focus on operations require enhancements in their Network and
Capabilities.

These required sources of innovation per business unit and their relative weights
can be used as an agenda for discussion for deciding on allocation of resources
per unit under study (either at business unit level or company level).
The results can be communicated to the organization and a change in the
innovation capability of the organization can be observed by systematic
evaluations (e.g. quarterly evaluations).

In turn, this may play role in increasing the level of company innovativeness.

Although large scale testing and further study is required, the tool is almost ready be used
for the IBM and its clients. I hope that it will be an instrumental tool, which will find
widespread use.

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 PREFACE

This document represents the final report of the Master Thesis Project which concludes
my MSc. education in Management of Technology (MoT) at Delft University of
Technology. The project has been conducted for the Technology, Strategy and
Entrepreneurship (TSE) Department in the Faculty of Technology, Policy and
Management in collaboration with the Center for Advanced Studies (CAS), IBM
Netherlands. The main goal of this study is to develop a ‘Company Innovation Strategy
Measurement Tool’ to be used at various levels of the organization (i.e. employee,
business unit and company level).

I would like to express my appreciation to those who have helped me during the
development of this project. Without their support, this assignment would not have
succeeded. For his direct and decisive advice and support in critical times, I would like to
thank my chairman, Marc Zegveld, who has inspired me with his professionalism rooting
back from the earlier times I have participated his department for this specialization. I
would also like to thank to my first supervisor, Erik den Hartigh, for his patience, and
confidence on my ability to conduct this thesis and helping me in the times when
everything seemed unsolvable. I would also like to thank Ronald Dekker, as his insights
have always been a great value to me. Special thanks to my external supervisors at IBM,
Djeevan Schiferli and Ian Plugge, despite their extremely intensive schedules, they
always created an environment which facilitates trust and motivation. Without their help,
support and enthusiasm, my ideas would never find any ground to be translated into the
practice. Finally, I would like to thank all the ‘IBMers’, MoT Associate Professors and
Mot students who have participated in the study with full cooperation and helped us
review and refine the Questionnaire we, with Jun Wu and I, have developed.

Above everything, I am very grateful to my family, my friends both in the Netherlands

and abroad and to the special one, who is always there with his full support whenever I
need him. My family: for providing support at all times regardless of the physical
distances between us; my friends: for their remarks about my research but mostly for
their support and trust. Special thanks go to Ali Yaraş, Jun Wu and Adolfo Jimenez for
their invaluable help and with endless brainstorming sessions. Furthermore, I am grateful
to Berend Sollman, Luca Ercoli, Dyonesia Polimenakou, Barry Lennon, Nikoo
Delgoshaei, Edite Cruz, Andrea Candelli and Linda Donato and all my friends in Delft
for placing huge smiles on my face when the assignment seemed it would never end. To
them, I am sending all my love and gratitude.

Begüm Aydınoğlu, August 2007.

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viii
 Table of Contents

Preface .........................................................................................................................vii
List of Figures...............................................................................................................xi
List of Tables ..............................................................................................................xiii

Introduction...................................................................................................................1

1.1. Problem Statement................................................................................................1

1.2. Research Design ...................................................................................................4
1.3. Structure of the Thesis ..........................................................................................7

Chapter 2: Dimensions of Innovation Strategy............................................................8

2.1. Definition of ‘Innovation Strategy’ .......................................................................9

2.2. Defining Innovation and Innovation Typologies ...................................................9
2.3. Defining Strategy and Strategy Typologies ......................................................... 18
2.4. The Link between Innovation and Strategy ......................................................... 23
2.5. Outcome: Definition and Dimensions of ‘Innovation Strategy’ ........................... 26

Chapter 3: Development of the Innovation Strategy Measurement Framework .....28

3.1. Innovation Dimensions ....................................................................................... 29

3.2. Strategy Dimensions ........................................................................................... 36
3.3. Outcome: The Innovation Strategy Framework................................................... 41

Chapter 4: Development of the Innovation Strategy Measurement Tool .................43

4.1. Design Requirements.......................................................................................... 44

4.2. Measurement of Innovation Strategy Dimensions ............................................... 46
4.3. The Questionnaire............................................................................................... 46
4.4. Calculating and Presenting the Results................................................................ 51
4.5. Outcome: Relationship between Business Strategy and Innovation Projects....... 59

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Chapter 5: Validation and Testing .............................................................................62

5.1. Expert Review .................................................................................................... 63

5.2. Pilot Test ............................................................................................................ 63
5.3. The Assessment of the Method: Robustness Check............................................. 69
5.4. Discussion of the Results (Post Test) .................................................................. 69

Chapter 6: Feedback on Findings and Results...........................................................73

6.1. Innovation Strategy Perception at Company Level.............................................. 74

6.2. Innovation Strategy Perception at Business Unit Level ....................................... 78
6.3. Effect of Innovation Strategy on the Company………………… ……………..79

Chapter 7: Conclusions ...............................................................................................85

7.1. Achievements of the Tool ................................................................................... 85

7.2. Limitations of the Research ................................................................................ 87
7.3. Suggestions for Future Studies............................................................................ 88
7.4. Managerial Implications ..................................................................................... 88
References....................................................................................................................91
Appendices...................................................................................................................95
APPENDIX A- List of Innovation Typologies........................................................... 96
APPENDIX B- Meta-Design of Business Strategy Typologies .................................. 97
APPENDIX C- Business Strategy Typologies ........................................................... 98
APPENDIX D- Strategy Fit Analysis (SFA) Questionnaire ....................................... 99
APPENDIX E- Changed Statements........................................................................ 103
APPENDIX F- Descriptions of Business Units under study..................................... 105
APPENDIX G- Experts invited for the reviews ....................................................... 106
APPENDIX H- Response Rate of Questions............................................................ 106
APPENDIX I- Comparing Innovation Strategy perceptions at two levels ................ 107
APPENDIX J- Sources Required to execute Innovation Strategy (Business Unit).... 110
APPENDIX K- Business Strategy Perception with respect to Employee Mix .......... 112
APPENDIX L- Distribution of Innovation Projects with respect to Employee Mix .. 115
APPENDIX M- Innovation Strategy Scores at Business Unit Level........................ 115
APPENDIX N- Strategic Fit Analysis at 2 levels ..................................................... 115

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 List of Figures

Figure 1: Effect of Innovation Strategy on Innovation .....................................................3

Figure 2: Operationalizing Company Innovation Strategy...............................................3
Figure 3: The Scope of the Research ...............................................................................5
Figure 4: Ansoff’s Product/Market Matrix.....................................................................30
Figure 5: BAH Innovation Project Strategy Typology....................................................30
Figure 6: Success Measures by Project Strategy............................................................32
Figure 7: Innovation Project Typologies .......................................................................32
Figure 8: Innovation Strategy Concept..........................................................................41
Figure 9: the Research Framework………………………………………………………….....41
Figure 10: Presentation of the Results: Radar Graphs...................................................57
Figure 11: the Relationship between Business Strategy and Innovation Projects ...........59
Figure 12: Perception Difference by Professional Layers (%) .......................................76
Figure 13: Perception Difference by Age(%).................................................................77
Figure 14: Perception Difference by Job Experience(%) ...............................................77
Figure 15: Fitness at Business Unit Level......................................................................79
Figure 16: Influence of Innovation Strategy on the Firm ...............................................80
Figure 17: Innovation Capacity Gap and Innovation Strategy ......................................59
Figure 18: Business Unit Innovation Strategy focus ......................................................82
Figure 19: Company’s Innovation Strategy focus perceived by each business unit.........68

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xii
 List of Tables

Table 1: Research Methodology ......................................................................................5

Table 2: Five Generations of Innovation .......................................................................11
Table 3: Newness Factors of Innovations ......................................................................13
Table 4: Meta-dimensions of Strategy and Strategy Typologies .....................................21
Table 5: Business Strategy Dimensions at Company level..............................................22
Table 6: Link between Business Strategy and Innovations .............................................24
Table 7: Innovation Project Mix by Business Strategy ...................................................24
Table 8: Characteristics of Innovator Companies..........................................................37
Table 9: Attributes of Innovator companies ...................................................................38
Table 10: Definitions of key attributes of ‘Innovator Companies’ ..................................38
Table 11: Characteristic of Improver Companies ..........................................................39
Table 12: Attributes of Improver Companies .................................................................40
Table 13: Definitions of key attributes of ‘Improver Companies’ ...................................40
Table 14: Summary: The attributes of Innovator and Improver Companies ...................40
Table 15: Radical Innovation Items ...............................................................................46
Table 16: Incremental Innovation Items ........................................................................47
Table 17: Innovator Strategy Items................................................................................47
Table 18: Improver Strategy Items ................................................................................48
Table 19: Innovation Projects at Employee Level ..........................................................52
Table 20: Innovation Projects at Business Unit and at Company Level..........................53
Table 21: Frequency of Innovation Projects (weights)...................................................53
Table 22: Weighted Innovation Projects at Business unit and at Company level ............54
Table 23: Innovation Calculation, Summary Table s......................................................54
Table 24: Calculation of Business Strategy Dimensions at two levels ............................55
Table 25: Strategy Calculation, Summary Table s .........................................................56
Table 26: Appropriateness of the Framework ................................................................64
Table 27: Distribution of Respondents in the 4 business units........................................66
Table 28: The Employee Mix by Job Role......................................................................66
Table 29: Sample Composition ......................................................................................67
Table 30: Representation Rate of Business Units under study ........................................67
Table 31: Evaluation of the Pilot Test............................................................................68
Table 32: Simple Robustness Check: Different Weights .................................................69
Table 33: Simple Robustness Check Results...................................................................70
Table 34: Innovation Capacity, Strategic Fit and Innovativeness Comparison...............83

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xiv
 “Innovation is not the product of logical thought,
although the result is tied to logical structure."
Albert Einstein

Main Points of this Chapter

- Innovation Capacity (Inputs of Innovation ) and Innovation Metrics (Outputs of

Innovation ) of a company may not show the gap between what the company plans and
what it actually executes to be innovative .

- In addition there is a lack of a generic Innovation Strategy Framework that pinpoints

this gap or the strategic fit of the company .

- Therefore the aim of this thesis is t o design a tool to measure the ‘Innovation Strategy ’
at company level .

- For this, Innovation Strategy is defined from 2 levels: From a bottom-up approach (i.e.
Innovation Projects ) and top-down approach (i.e. Business Strategy ).

Introduction
As the creative destruction phenomenon suggests, the introduction of revolutionary
products and services by successful entrepreneurs is the fundamental force driving
sustained long-term economic growth, but destroys the power of established institutions
and organizations in the short term (Schumpeter, 1942). This, in turn, means that every
organization should innovate in one way or the other to survive and grow. Although it is
generally accepted that firms should continuously innovate in the 21st century, the
recognition for measuring innovations at company level has gained its popularity until
recently.

1.1. Problem Statement

Innovation management is a critical discipline both for the academics and practitioners
(Adams et al, 2006). It enables to organizations to assess how innovative they are in
order to foresee their future and make decisions to renew themselves. However, the
innovation capability and the innovation metrics such as patent publications do not give
insights on what is planned and what is executed. In other words, by measuring the
employees’ perception on the innovation strategy of their company could pinpoint
whether there is a match between the ideal and actual innovation targets of a company.

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Thus ‘Innovation Strategy’ is a relevant subset of innovation. It is a subset of innovation
management since the innovations are artifacts (e.g. in the form of products, services,
processes or business models), so they are not silver bullets and needs to be supported by
a clear, actionable strategy. It is relevant because before measuring how innovative a
company is, one has to take into account whether the strategy of developing such an
artifact is accepted by its employees. Without the understanding and recognition of the
innovation strategy, it may become difficult to align the activities to meet company
objectives. 1In addition, the company may gain valuable insights from their own assets by
investigating the opinions of their own employees.

In order to improve the understanding of the innovation strategy, many researches have
attempted to discover the sources of innovation (van Reijzen, 2006), types of innovations
(Garcia and Calantone, 2002; Brentani, 2001), their diffusion into the market
(Christensen, 1997; Moore, 1991) and their returns (Griffin and Page, 1996; Montoya-
Weiss and Calantone, 1994). On another literature stream, in the strategic management
literature, the researchers have attempted to classify organizations into different types
with respect to dimensions such as prospectors, product leaders, differentiators or
explorers (Miles and Snow, 1978; Treacy and Wiersema 1995; Porter; 1995; March
1991).

Attempting to integrate the activities is a complex issue and this complexity may explain
why there are so many different perspectives on the topic. Although some metrics to
measure the innovativeness have been proposed in the literature (Wu, 2007), these
metrics have failed to identify a list of basic question for the companies who are willing
to innovate. A list, though far from exhaustive may be:

How do the employees perceive and act on their company’s innovation strategy? Do they
regard their company as an innovator and they are undertaking radical projects? Do they
identify their organization as an innovator but come short of producing any
groundbreaking innovations? Do they think they are working on radical projects but
actually their organization is not an innovator at all? Or, are they conducting incremental
innovations and they are not aware of their organization’s innovative potential?

1
Although measuring the perception may have limitations on validity and or reliability and it may be
difficult to claim for the absolute truth, it may provide valuable insights to identify the degree of
similarities/ differences in innovation and strategy views of an organization in the lack of a ‘hard, objective
data’.

2
 Innovation
Strategies

Input Output
(Innovation (Company
Capacity) Innovativeness)

Figure 1: Effect of Innovation Strategy on Innovation

Overall, the inputs, processes and outputs of innovation have attracted researcher’s
attention. However, up to date, there is no published study that focuses on the influences
of innovation strategy types upon the innovation processes of a company. This may be
due to a vague division of innovations into inputs to outputs and a lack of an innovation
strategy typology in the literature. Although van Reijzen (2006) and Wu (2007) attempt
to clarify the distinction between inputs and outputs of innovations respectively, the
difficulty of creating such an innovation strategy framework remains. This difficulty
might be caused by the fact that innovation strategies may influence each stage of the
innovation process (figure 1).

In addition, although the sources of innovations may be vast, the complexity of

successfully managing the innovation process from its initial idea generation stage to its
commercialization stage is high. An example is due to the path dependencies (e.g. Nokia,
QWERTY keyboard etc). This, in turn, requires a string of intelligent decisions to drag
the organization into highly lucrative new businesses. Furthermore, formulation of
strategy is not equal to the execution of the strategy. Strategy formulation is a complex,
multidimensional process, which takes into account a variety of factors (i.e. strengths,
weaknesses, opportunities, and threats in the market and/or technology).

As mentioned above, there is a lack of an innovation strategy framework in the literature.

In order to create such a framework, the abovementioned the list of questions will be
addressed and Innovation Strategy will be operationalized at two levels (figure 2).

Business Strategy

Innovation Strategy

Innovations

Figure 2: Operationalizing Company Innovation Strategy

3
Firms comprise of many business units/departments and within them tasks are performed
in a multitude of ways. Moreover, not all firms operate under the same strategy.
Different strategies produce different levels of dependence upon new product [/service]
development (Griffin and Page, 1996).

Therefore, understanding the perceived innovation strategies of a company at different

levels of the organization (i.e. company and business units) and finding a way to measure
the Innovation Strategy with the help of a tool (i.e. with respect to company’s position in
the innovation/ strategy matrix) would provide valuable insights to the managers in
identifying similar / different views on innovations and business strategy. As a result, the
different views would pinpoint potential problems to manage the innovation (e.g. by the
empowerment of workforce for innovation and enhancing incentives to transform the
innovation strategy into practice). Such a tool may also provide guidelines to prioritize
resource allocation decisions of different business units for senior management within the
company. In addition, keeping a systematic evaluation of the strategic fitness may help
improve the innovation performance of the company.

1.2. Research Design

Goal/ Outcome of the Thesis

In order to determine how to measure the innovations for managing innovation
successfully, the research aims to design a tool to measure the Innovation Strategy at
company level. The aim of this tool is to make a stability analysis to observe whether a
firm’s innovation activities are aligned/ coherent with the company innovation strategy.
The scientific literature will be used as gathering the relevant theories and the
dimensions, which will then be converted into the design tool. Therefore the goal of the
thesis is the following:

Goal of the Thesis: To design a tool to measure the Innovation Strategy at company
level.

These insights may help the experts identify the

1. The type of innovation projects at 2 levels (Business Unit & Company Level)
2. Company’s Strategic focus for Innovation perceived by its employees
3. The potential reasons for the mismatch between the perceived company strategy
and the innovation projects the employees claim to work on.

Research Questions
As stated above, the research problem is to design a tool to measure the ‘Innovation
Strategy’ on company level.
The research questions that need to be answered are the following:
1. What is Innovation Strategy?
2. What are the dimensions of Innovation Strategy?

4
 3. What to measure on the different dimensions of the innovation strategy?
4. Is there a relationship between the strategy and the innovations?
5. Can the tool measure the relation between strategy and innovation?

Research Scope
The scope of this research in relation with the other innovation studies is indicated with
the figure below.

Figure 3: The Scope of the Research

The scope of the research is twofold. These are:

1) Design the instrument to measure innovation strategy and
2) Make the connection with the Innovation Capacity Test (Chapter 6)

The innovation capacity test is conducted by Sander van Reijzen (2006) and the
measurement of company innovativeness is conducted by Jun Wu (2007). These
researches can be regarded as the input and the output of the innovations respectively.

Research Methodology
To reach the research objective, various activities needs to be performed. These activities
make up the methodology of the research and are described with respect to each research
question in the table 1.

# Research Questions Research Method Phases

Literature Review
1 What is Innovation Strategy? Data Archiving Ia, Ib
Expert Consulting
What are the dimensions of Innovation Literature Review
2 Ia, Ib, II
Strategy? Data Archiving

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 What to measure on different dimensions Literature Review
3 Ib, II, III
of the Innovation Strategy? Questionnaire
Is there a relationship between the strategy
4 Case Study Ib, IV
and the innovations?
Can the tool measure the relation between
5 strategy and innovation according to Case Study Ib, IV
innovation strategy dimensions?
Table 1: Research Methodology

Phase I: General Information Collection

This phase consists of two sub- phases. These are:

a. Gathering information from the academic literature for Innovation
Strategy Dimensions
b. Gathering Information about company Specific Information (i.e. IBM).

a. Gathering information from the academic literature for Innovation Strategy

Dimensions

The most recent literature on Innovation Management and Strategic management were
studied with respect to the top ten ranked journals in the area of management of
technology (Linton and Thongpapanl, 2004). These journals include Harvard Business
Review, Strategic Management Journal, Journal of Product Innovation Management and
Research Policy. The articles were selected with respect to the newness of the literature
(i.e. 2000-2007). The references of these articles were further studied where necessary.
From the abovementioned journals, the Innovation Strategy and its dimensions have been
identified.

b. Gathering Information about the company (i.e. IBM)

The company specific information consists of information about the organizational
structure of IBM Corporate, IBM Netherlands and IBM Business Units. Several
documents on innovation, company activities and their strategy have been collected to
guide the research in various phases. This information has been used for making the link
between the innovation strategy and the innovation capacity at business unit level
regarding IBM as a case study. Since these documents are used in each phase, the phase
progressed iteratively.

Also, experts and employees of IBM Netherlands (i.e. IBMers) were consulted for
choosing the dimensions that were of interest in the innovation development process. The
information was used in stages including the design requirements of the questionnaire to
model formulation and from the composition of the business units to analyzing the results
of the questionnaire. The collection method of the information involves research through
the published IBM intranet documents and interviews with the IBM employees (i.e.
IBMers).

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Phase II: Model Formulation

In this phase, the dimensions of the innovation strategy models were studied and
similarities between the typologies were identified. With respect to these similarities, a
new ‘Innovation Strategy’ model was formulated. The applicability of the dimensions
was consulted to the experts in IBM, which subsequently resulted in the refinement of the
model. Through the selected models the framework was refined and got its final shape.

Phase III: Development of the Innovation Strategy Tool

Following the expert reviews on the refinement of the framework, the dimensions of the
innovation strategy were converted into questionnaire items. An additional check with 10
experts from various (i.e. practitioners, academics, and MSc. MoT students) was made
and depending on their feedback, the questions were modified accordingly. The
questionnaire items were already validated from the previous literature. However, the
methodology to evaluate the results were limited due to the relatively small sample size
(n=19). This brought a need to develop an assessment method to the models under study.
The assessment method of the two main sub-dimensions of innovation strategy could be
the same for simplicity. However, considering the different properties of each construct,
the assessment slightly differs per dimension. These assessment methods are described in
detail in chapter 5.

Phase IV: Results and Feedback

This phase involves answering the last two research questions. Through the assessment
methods, the sub-dimensions of innovation strategy received certain scores and the scores
were compared both at the business unit level and the company level. Interviews with
IBMers were held to assure the results reflect the real situations and conclusions were
made in connection with the innovative capacity by regarding the relationship between
the innovation and the strategy.

1.3. Structure of the Thesis

The following chapter is devoted to defining and depicting the dimensions of innovation
strategy via innovations and business strategies with the most common typologies
accepted by academics and practitioners.

Next, Chapter 3 will deal with the development of the ‘Innovation Strategy’ Framework.
Chapter 4 will translate the framework into the ‘Innovation Strategy tool’. Subsequently,
Chapter 5 will deal with the validation and testing. Chapter 6 gives the feedback on the
findings and makes the link between the company innovation capacity and innovation
strategy of the organization at two levels (i.e. business unit, company level). Finally,
chapter 7 will present the conclusions, limitations and recommendations for the future
research.

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Chapter 2: Dimensions of Innovation Strategy

Main Points of Chapter 2:

This chapter answers the first two research questions. These questions are:

* Q1. What is ‘Innovation Strategy’?

* Q2. What are the dimensions of ‘Innovation Strategy’?

Q1: Innovation Strategy Definition

Innovation Strategy is the decision of an organization determining to what degree and in what way t
use innovation to execute its business strategy with the attempt to reach tocertain levels of
performance.

Definitions:
Innovation : “An innovation is the implementation of a new or significantly improved product (good or service ), or
process, a new marketing method, or a new organizational method in business practices, workplace organization or
external relations.” (OSLO Manual, 2005)
Business Strategy : Consistent execution of broad plans of an organization to achieve certain levels of performance

Q2: Dimensions of Innovation Strategy

- Dimension I: Innovation Projects - Dimension II: Business Strategy towards Innovation

* Radical Innovations * Innovator Company
* Incremental Innovations * Improver Company

Definitions of Subdimensions of Innovation Strategy

* Radical Innovation: Innovations that are discontinuous, disruptive and new in its market and new in its technology.
* Incremental Innovation: Innovations that provide new features, benefits, improvements to existing technology and/or
existing market.
* Innovator Company : Prospector companies who focus on exploration , differentiation, product leadership and customer
intimacy
* Improver Company : Defender companies who focus on exploitation, cost and operational excellence.

The management of innovation and offering useful strategies that brings success to the
companies is in the interest of both academicians and practitioners for more than four
decades (Griffin and Page, 1996). Innovation Strategy is a relevant subset for managing
the innovation because it provides a direction for the future and may help organizations to
create their future. First, a clear definition of innovation strategy needs to be made to
elucidate its meaning. ‘Innovation’ and ‘strategy’ are often used interchangeably both in
academia and in practice and a clear definition of ‘innovation strategy’ would provide an
understanding to avoid its use as a buzzword and offer logical next steps to organizations
who wish to get a quick overview of their organization’s innovativeness with concrete
foundations.

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2.1. Definition of ‘Innovation Strategy’

Innovation strategy is a broad concept which can be divided and studied at different
levels such as individual-level, firm-level, and regional-level and so on. The concept of
“innovations strategy” in this research is at an organizational level, at which a firm is
viewed as a study unit.

Various innovation strategies exist both in theory and in practice up do date. Several
studies (e.g. New Product Development, Strategic Management and in Organizational
Science) concentrate on understanding, interpreting and giving insights with the quest of
finding remedies to measure innovation strategies. However, the definition of innovation
strategy remains to be limited due to a lack of consistent definition. There can be several
possible reasons for this limitation. These are summarized as follows:

1. The studies often concentrate on only one part of the problem in the organizations
and ignore the big picture. The consequence is a lack of ‘innovation strategy
typology’ framework2 due to its narrow definition.
2. It is difficult to find empirical studies because usually the conceptualizations are
normative in nature. The normative statements suggest a potential bias with
respect to the researcher’s perceptions, values, beliefs, attitudes etc. This makes
the research ‘soft’ in nature3
3. The limited empirical findings are usually inconsistent with each other. The
inconsistent findings may be due to the ways different studies are designed, the
constructs operationalized, and the hypothesis framed and tested. 4

Thus, we need an objective new model/design tool to clarify the vagueness of Innovation
Strategy definitions in the literature. One can think of many ways to overcome this
problem. As a starting point, this chapter will define the ‘Innovation Strategy’ by
decomposing and analyzing the term from two domains. These domains are innovations
(e.g. New Product Development domain) and strategy (e.g. Strategic Management and
Organizational Science literature).

2.2. Defining Innovation and Innovation Typologies

In order to identify the innovation types, it is first important to broadly define and
conceptualize what ‘innovation’ is. Several disciplines such as engineering, marketing,
management and economics have attempted to define innovations (Garcia and Calantone,
2002). Each perspective can be said to provide unique features and considerations which
will be explained shortly.

To give an overview, the path of logic is as follows: First, the innovation management
literature has been investigated and 24 types of innovations have been identified. Next,

2
Web of Science (Citation and Journal Database), Keyword: ‘Innovation Strategy’, typology
3
Reference: Garcia and Calantone, 2002; Thornhill and White, 2007
4
Reference: Thornhill and White, 2007

9
the innovation types which are similar to each other in concept has been aggregated and 6
different types of innovations has been obtained. These types are further categorized into
two dimensions for simplicity (i.e. 4 types in one dimension, 2 types in the other). Based
on the dimensions 1 type per dimension has been selected due to its best-fit for
developing the innovation strategy framework.

2.2.1. Broad Definition of Innovation

As a starting point, one should take a broader definition of innovations to integrate and
capture the essence of innovations from an overall perspective.

OECD (Organization for Economic Cooperation and Development) offers such a

perspective. They assess how science, technology, innovation and education policies can
efficiently contribute to sustainable economic growth and employment creation in Europe
(OECD, 2005). Among others, the OECD conducts research on innovation through the
Community Innovation Survey (CIS), which attempts to create an understanding of
innovation processes on a national level. They define innovation as follows:

“An innovation is the implementation of a new or significantly

improved product (good or service), or process, a new marketing
method, or a new organizational method in business practices,
workplace organization or external relations.”

The technological innovation puts an emphasis on research and development (R&D). It is

interesting that the Oslo Manual has dropped the term “technological” from its definition
of innovation from its earlier editions.

This definition stresses on three important points to conceptualize innovation. First, the
‘innovation’ process is not only made up of technological development (i.e. from an
invention) but also implies the market introduction of the invention (i.e. through adoption
and diffusion to the market). Thus, it embraces the organizational and marketing
innovations together with technological innovations. Second, the burden to make
innovations is not necessarily placed on only a single company; also the linkages with
other firms and institutions in the innovation process are emphasized. Third, the
definition recognizes the importance of innovation in less R&D-intensive industries such
as services and low-technology manufacturing. Each point will be explored further
below.

1. Technology and/or market make up the innovation

In order to thoroughly explain the dimensions of innovation, OECD’s definition refrains

from limiting the innovations into sole products or processes (i.e. technology) but also
considers the ‘marketing methods’ and external relations with the organizations (i.e.

10
market). Thus, it can be said that innovations comprise of both technological and
marketing side activities.

To shed further light onto the existing literature on this matter, a quick overview on the
generations of innovations may be useful for the conceptualization of innovation.
Rothwell (1994) provides such an overview of industrial innovation management in the
Western world between the 1950’s and 1990. Focused on technological innovations, five
generations (5G) of innovation are identified with having different and distinct business
environments. The generations include ‘technology push’, ‘market pull’, ‘coupling of
R&D and marketing’, ‘integrated business processes’ and ‘system integration &
networking’. Rothwell observes that more effective innovation processes lead to a
decrease in market time and a reduction in product development cost. The generations of
innovation show that as technological innovations diffuse into the market (i.e. technology
push), the market shows a reaction (i.e. market pull). With the target of benefiting from
the advantages from both and minimizing the disadvantages of both perspectives, the
coupling model is said to integrate and combine the R&D and marketing efforts within
the company.

Strategic
Market G Operational Characteristics
Focus

Black hole demand - R&D seen as overhead ivory tower, isolated/ company
Economic Growth 1G Technology Push -- , give them the best facilities that
- strategy of hope: “Hire good people
Industrial Expansion can be afforded, then leave them”

- Cost-benefit analyses of individual projects

Market Share Battles
Fierce Competition 2G Demand Pull - Systematic allocation and management
-- of resources
- Stronger connections between R&D and operating units

Rationalization Efforts - integrated marketing and R&D

Inflation 3G Coupling Model - structured
-- processes away from individual projects
Stagnation - cost control and cost reduction

- parallel and integrated nature of development processes

Time based struggle
Economic Recovery 4G Integrated Process - strong supplier linkages
- close coupling with leading customers

- strategic partnerships with suppliers and customers

System Integration
Systems Integration - using expert systems
Unemployment 5G and Networking
--
Resource Constraints - collaborative marketing and research arrangements
- emphasis on flexibility and speed of development
- focus on quality and other non- price factors
Source: Adopted from Rothwell (1994)
Table 2: Five Generations of Innovation

2. Network approach takes the burden of innovating alone.

In the definition of OECD (2006), the external relations to the firm are explicitly
considered. This implies a network approach to bring the innovations to the market.
Similarly, in Rothwell’s (1994) fourth generation of innovation (i.e. 4G) considers the
products as a ‘total concept’ rather than sub-dimensions of it. Stronger supplier and
customer relations is said to dominate this generation and the nature of process
development is parallel and integrated in nature. In addition, Rothwell (1994)’s fifth

11
generation of innovations takes a look at the ways to create synergies from internal
company competencies (i.e. company ecosystems) with its network (i.e. business
ecosystems). The basic idea is to integrate systems by focusing on collaborations and
strategic partnerships with the suppliers and the customers. With this the burden of
producing or offering the innovations are shared among the parties. There are four key
aspects of this generation: integration, flexibility, networking, and parallel information
processing (Rothwell, 1994). This way, the burden of innovating alone has been taken
from the shoulders of individual companies. It should be noted that the choice of
developing new products or services is deliberate in which the actor (i.e. the company)
usually decides given its position with respect to its network.

3. Not only the manufacturing companies make innovations, the service companies
can also innovate as much.

OECD (2005)’ s definition of innovation as products, processes and methods in business

practices can be extended that from an industrial / manufacturing organizations to service
provider companies.
In business and engineering, new product development (NPD) is the term used to
describe the complete process of bringing a new product or service to market. The
importance of new product development and the reasons why new introductions fail has
been a hot topic among the academics and the practitioners since 1964 (Griffin and Page,
1996). Over time, many critical success factors have been identified by many authors.
However, development of the products is experiencing a fundamental shift from a
manufacturing- to a service-based economy especially in the industrialized nations. The
service sector is clearly growing at an explosive rate, particularly in comparison with
manufacturing (Atuahene-Gima, 1996). With this in mind, one needs to better understand
how the successful development of new services (i.e. NSD) differs from that of new
products. Yet, in his research on different keys for successful new B2B service projects,
Brentani (2001) indicates that there are a small number of “global” success factors which
appeared to govern the outcome of new service ventures regardless of the degree of
newness although several other factors were found to play a more distinctive role
depending on how innovative the new service was. Although the NSD success factors are
still under investigation, it is generally accepted that the service companies can innovate
as much as the manufacturing companies.

The abovementioned three points will be implicitly considered where the concept of
‘innovation’ is mentioned.

2.2.2. Conceptualizing Innovation

In summarizing the literature on innovation, authors have criticized the lack of a theory
or model of innovation that would enable a predictive understanding of its nature (Garcia
and Calantone, 2002; Adams et. al., 2006; Utterback 1986). Therefore, in order to study
the innovation typologies, one has to look at the ‘perspective of whom’ and the newness
of what. The reason for identifying whose perspective is crucial because one study can
regard as a specific innovation as new while another study does not consider that
particular innovation as not new at all. Garcia and Calantone (2002) identify 23 different

12
factors of newness from 21 previous studies in the domain of new product development
literature. These factors are depicted in the table 3.

Table 3: Newness Factors of Innovations

Source: Garcia and Calantone (2002)
Because new product researchers have not found consistency in labeling and identifying
innovations in more than fifty years of research, practitioners are still left with choosing
the most ‘relevant’ factor for their company based on their own interest.

A review of the literature depicts differences in categorization of the innovations at three

levels (Garcia and Calantone, 2002). These are;
1. Modeling from an external versus internal perspective to the firm.
2. Modeling with respect to marketing and/or technological aspects
3. Modeling with respect to single versus multifactor constructs

1. Modeling from an external versus internal perspective to the firm.

There is no question that not all innovations are the same. For that reason, in the previous
studies of product/service development, innovations are classified as typologies in order
to identify their innovative characteristics or their degree of innovativeness. The different
classifications of innovations exist due to taking different perspectives as described in the
table of newness factors (table 3). In his meta- analysis of innovation and innovativeness
terminology, Garcia and Calantone (2002) summarize these newness perspectives as
newness to the customer, newness to the industry and newness to the firm. Newness to
the customer and industry can be treated as external to the company and newness to the
company, as its name suggests, can be considered as internal to the company.

13
 2. Modeling with respect to marketing and/or technological changes and different
newness perspective.

When one talks about the type of innovation, the degree of innovation has to be defined/
known as well. The reason is straightforward: in order to refer to an idea/invention/
method as an innovation, it should be perceived as ‘new’ by the user, producer or the
industry. Therefore the newness of innovations has to be depicted to study the innovation
typologies.

OECD’s definition considers the ‘significantly improved product or service’, which

implies the innovation process is iterative in nature. That is, an innovation can be
introduced to the market and with additions they can be reintroduced later on and can still
be called as an innovation. This iteration requires the identification of newness (i.e. the
newness in the perspective of whom from, and the newness in the perspective of whom to
and newness of what) of innovations and thus demands a typology to describe these
different types of innovations.

3. Modeling with respect to single versus multifactor constructs

From these perspectives, 24 different types of classification have been identified based on
the literature of new product and service development. Some authors use a dichotomous
categorization (Anderson & Tushman, 1990; Utterback, 1996; Christensen, 1997; Song &
Montoya-Weiss, 1998) while others use multidimensional classification (Henderson &
Clark, 1990; Abernathy & Clark, 1985; Tidd, 1995; Kleinschmidt & Cooper, 1991).
More recently comprehensive definitions of innovations have been proposed. For
instance in their study, Cooper & Kleinschmidt (1995) defines innovation in terms of
Product Advantage, Technological Synergy, Marketing Synergy, Company Resources,
Strategy of Product. Another definition comes from Garcia and Calantone (2002) that
stresses on micro and macro level measures of marketing and technology. Similarly,
Griffin and Page (1996) defines innovations in terms of the degree of newness to the
market and newness to the firm and classifies six types of innovation projects proposed
by Booz, Allen and Hamilton (BAH) in the early 80s (1982). All of the mentioned 24
types of innovations can be found in the APPENDIX A.

Since the aim is to develop an innovations strategy tool at company level, the innovation
categorization with respect to the internal perspective to the firm seems to be appropriate.
As described in chapter 2, the OECD's (2005) broad innovation definition is adopted for
this study and since this is a broad definition, both marketing and technology sides will
be considered. For simplicity, the sub-dimensions of innovation will be classified as
dichotomous variables from the selection of innovations types that best fits to the
purposes of the study. Since innovations have been conceptualized it would now be
suitable to describe them.

14
2.2.3. Types of Innovations
As their sheer number suggests (there are twenty-four types of innovations presented in
the APPENDIX A, the wealth of innovation typologies has resulted in the same name
being used for different types of innovations and the same innovation being classified
under different strategies.

Based on the literature reviews, what one can observe is the wide use of 6 types of
innovations. These are innovations that are radical, disruptive, discontinuous, really new,
imitative and incremental. The abovementioned classifications are also commonly used
in the business jargon. However, one needs to make choice of the definitions to proceed
further.

Overall, based on their simplicity, common use and its acceptance in both academia and
in business, the different perspectives can be condensed into 2 groups of innovations.
Both groups have broad similarities between them. For instance the first group can be
considered to make a leap in its technology and/or its market, while the second group
does not necessarily lead to such an immediate jump.

Thus, the elements that can fit into these two dimensions as follows:

• Dimension I: Disruptive Innovations, Radical Innovations, Really New

Innovations, Discontinuous Innovations
• Dimension II: Incremental innovations, Imitative innovations.

To justify the similarities between the types of innovations, each element has been
described below.

Elements of Dimension I
Radical Innovations
Radical innovation involves considerable change in basic technologies and methods,
created by those working outside mainstream industry and outside existing paradigms
(Brentani, 2001). It involves both technology and the market sides of newness (Song,
Montoya-Weiss, 1998). Radical innovations often do not address a recognized demand
but instead create a demand previously unrecognized by the consumer (Garcia and
Calantone, 2002). For instance, one could not imagine using a computer at home in the
70s, but the pc market now makes up a multibillion computer market.

Disruptive Innovations
In Christensen’s perspective (1997) the innovations are disruptive if they create
discontinuities in the market. That is, the innovations should overturn the status quo of
their market by certain attributes. These attributes are regarded as different set of
features, performance, price attributes relative to existing products and technologies.
Examples include digital photography to replace film photography; personal computers
(i.e. the pc) to make the mini computers and workstations extinct; mini computers to

15
make the mainframes extinct or to lock into small niche markets and so on. It should be
noted that the disruptive innovations do not occur frequently.

Really New Innovations

Really new innovations generally stand for the ‘moderate’ innovative class of innovations
recognized in the literature (Garcia and Calantone, 2002). Kleinschmidt and Cooper
(1991) define moderately innovative products as “consisting of lines to the firm, but
where the products were not as innovative without being new to market and new items in
existing product lines for the firm”. Song and Montoya-Weiss (1998) classify really new
innovations as “an entirely new product category and/or production and delivery system”.
For an innovation to be considered as really new, the authors give three conditions. These
conditions are
1. The innovations should rely on technology that is never used in the industry
before
2. The innovation has an impact on or causes significant changes in the whole
industry
3. The innovation is the first of its kind and totally new to the market.

Discontinuous Innovations
Discontinuous innovation may be either a radical innovation or a really new innovation
dependent upon at which level (macro/micro) and which S-curve (marketing/technology/
both) is affected by the introduction of the invention to the marketplace (Garcia and
Calantone, 2002). Discontinuous innovations entail a higher degree of risk, require
greater company effort and resource commitment, but usually the only types of new
product ventures by which a firm can gain outstanding profits or achieve a major
competitive advantage (Brentani, 2001; Crawford, 1994; Griffin 1997; Lynn et at, 1996).
For instance, for an electronics manufacturer such as IBM to begin to manufacture and
market wind turbines with their state-of-art modeling and monitoring systems would be a
discontinuous attempt. Yet a utility company to design and market the same wind turbine
would not be considered discontinuous.

Based on their simplicity of implementation, their acceptance in both academia and in

business and achieved best-fit for developing the innovation strategy framework, the
abovementioned innovation categories are represented with ‘radical innovation’ concept
for dimension I. With this in mind, the radical innovations can now be defined as follows:

Radical Innovation: Innovations those are discontinuous, disruptive

and new in its market and new in its technology.

16
Elements of Dimension II
Incremental Innovations
Incremental innovations are defined as products that provide new features, benefits, or
improvements to existing technology and/or existing market. Song and Montoya-Weiss
(1998) demonstrate the features of incremental innovation as adaptation, refinement and
enhancement of existing products and/or production and delivery systems. One might
ask; since there is no new technology or market involved, why would an incremental
development still be named as an innovation? And more importantly, why should
companies bother with incremental innovation? Johne and Snelson (1988) answer these
questions with two good reasons:
1. Incremental innovations can be used as a competitive weapon in a technologically
mature market
2. Streamlined procedures based on the existing technology can help alert a business
in good times to threats and opportunities associated with the shift to a new
technological area.

Imitative Innovations
Innovation occurs only in the first company to complete industrial R&D which
culminates in the launch of the first product on the markets (Grupp, 1998). This definition
suggests that the competitors can select and use the innovation. However imitative
innovations are also important because they can create changes in the market direction
(Garcia and Calantone, 2002). This change might be caused by actual innovators inability
to exploit the maximum potential of their innovation and a competitor or a company
working in an entirely different sector moves in and generates, what is referred to as an
imitative innovation, and gains the market returns.

Based on their simplicity of implementation, their acceptance in both academia and in

business and achieved best-fit for developing the innovation strategy framework, the
abovementioned innovation categories are represented with ‘incremental innovation’
concept for dimension II. With this in mind, the incremental innovations can now be
defined as follows:

Incremental Innovation: Innovations that provide new features,

benefits, improvements to existing technology and/or existing market.

17
2. 3. Defining Strategy and the Strategy Models
2.3.1. Broad Definition of Business Strategy

Business strategy as a field of study is concerned with how a company competes in its
chosen business. It deals with the analysis of a firm's strengths and weaknesses and the
opportunities and threats presented by the firm's environment to determine the strategic
fit between an organization’s internal, distinctive capabilities and external possibilities
and to prioritize their actions (Christensen et al., 1969).

Business strategy comprises of two parts: formulation and execution (Hutzschenreuter,

Kleindienst, 2006). For the purpose of the study, the process of formulating a business
strategy is not of interest since the basic question is whether different units in the
organization understands and acts on the executed company strategy. For this purpose, I
define business strategy as follows:

Business Strategy Definition: Consistent execution of broad plans of an

organization to achieve certain levels of performance

2.3.2. Strategy Typologies

In “the Structure of Scientific Revolutions” (1962) Kuhn argues that science does not
progress via a linear accumulation of new knowledge, but undergoes periodic revolutions
that he calls as "paradigm shifts". According to Kuhn, "A paradigm is what members of a
scientific community, and they alone, share. As a result of the delay between paradigm
and empirical investigations, strategy research has progressed very little since its
introduction in the 80s (Campbell-Hunt, 2000). In their empirical study generic strategies
in manufacturing industries, Kotha and Vadlamani (1995) also address this issue and
state that many researchers have criticized generic strategies for their conceptual
limitations.

Therefore it is anticipated that instead of studying different dimensions of strategies or

choosing one strategy typology, finding similarities in the commonly accepted strategy
typologies would provide a better understanding to derive the strategy dimensions. As a
matter of fact, the strategic management literature is dominated with multiple business
strategy typologies. Among them, different, even conflicting views may exist and these
may be reflected in their practices. In addition, the perspectives and the backgrounds of
the strategies differ (i.e. organizational theory, strategic management, managerial
economics and so on) Thus, an attempt to bring the different views and providing a
general perspective on the strategy typologies is believed to benefit both for academicians
and practitioners.

18
For the purpose of the study, four major business strategy typologies selected based on
their acceptance in both academia and business.5 These typologies are as follows:

1. Porter’s Generic Strategies (1980)

2. Miles and Snow Typology (1978)
3. March’s Exploration vs. Exploitation Strategy (1991)
4. Treacy and Wiersema’s Value Disciplines Model (1995)

The full list of business strategies can be found in APPENDIX C.

Porter’s Generic Strategies

A leading Harvard strategic management guru, Michael Porter’s, generic competitive
strategy is one of the most influential contributions made to the strategic behavior in
organizations (Porter, 1980, 1985). Porter’s views are famous for two arguments.

First, it is claimed that although a firm can have a multitude of strengths and weaknesses
in relation to its competitors, there are two sources of competitive advantage a firm can
possess with respected to its market scope (i.e. focused or broad). These are low cost and
differentiation. The source of cost advantage may include pursuit of economies of scale,
proprietary technology, preferential access to raw materials etc. He explains that the low
cost producers typically sell a standard with emphasis on obtaining scale or absolute cost
advantages from all sources. On the other hand, differentiation stands for firms seeking
for positioning themselves in the marketplace with a distinct identity that satisfies the
desires of its customers (e.g. Superior quality and service, innovative features etc). The
aim for the firm is to be unique in its industry with dimensions that to be widely valued
by buyers.

Second claim is the ‘stuck-in- the-middle’ hypothesis. According to Porter, generic

strategies- when the organization chooses only one- provides the organization with the
ability to achieve competitive advantage and outperform their competitors. However, if
an organization pursues more than one generic strategy, it is stated that the firm would
perform below its capability. Porter refers this type as “stuck-in-the-middle”.

Miles and Snow Typology

In their book Organization Strategy, Structure, and Process, Raymond E. Miles and
Charles C. Snow (1978) argued that different company strategies arise from the way
companies decide to address three fundamental problems: entrepreneurial, engineering
(or operational), and administrative problems. The entrepreneurial problem is how a
company should manage its market share. The engineering problem involves how a
company should implement its solution to the entrepreneurial problem. The
administrative problem considers how a company should structure itself to manage the
implementation of the solutions to the first two problems. Although businesses choose
different solutions to these problems, Miles and Snow suggested that many companies

5
To confirm the best-fit to the study and acceptance of the selected business strategy typologies, two
sessions have been organized at IBM. The abovementioned four typologies have been selected as a result.
The full list of business strategy typologies can be found in APPENDIX C.

19
develop similar solutions. As a result, they postulated that there are four general strategic
types of organizations: prospectors, defenders, analyzers, and reactors.
Prospectors are technologically innovative and seek out new markets. Analyzers tend to
prefer a ‘second-but-better’ strategy, Defenders are engineering-oriented and focus on
maintaining a secure niche in relatively stable market segments and Reactors lack a
stable strategy and are highly responsive to short-term environmental pressures.

March’s Exploration vs. Exploitation Strategy

In the organizational learning domain March (1991) defines two different approaches as
exploration and exploitation. While the former suggests investigating new choices about
a situation incorporating adaptive processes, the latter focuses on the existing
processes/knowledge.

March states that organizations tend to exploit over time which drives the organizations
into status quo. Although exploration is unpredictable and takes more time to benefit the
returns, but is essential for the organization to remain competitive in a changing
environment. March measures the rapidness for a simulated organization to achieve
equilibrium given some percentage of slow learners and fast learners. Results suggest that
there might be an advantage to having a mix of fast and slow learners in an organization.
Slow learners are a significant fact in organizational learning, since the organization only
learns when someone deviates from practice in a meaningful way. Yet becoming more
reliable may not make the organization more competitive, but requires the organization to
be better in a significant way. The conceptual distinction between exploration and
exploitation has been used as an analytical construct, explicitly or implicitly, in a wide
range of management research areas including strategic management, organization theory
and managerial studies (He and Wong, 2004).

Treacy and Wiersema’s Value Disciplines Model

In their strategy model, Treacy and Wiersema state that there are three disciplines in
which a firm can create value from. These are product leadership, operational excellence
or the customer intimacy.

Product leadership requires the organization to have a very strong innovation focus and
brand marketing and to operate in dynamic markets. The focus is on development,
innovation, design, time-to market, high margins in short time. The operational
excellence asks for providing reasonable quality at a very low price. The focus is on
efficiency, streamlining operations, scale gains. The customer intimacy requires being
notable in customer attention and customer service. The products/ services are tailor-
made and mass-customization is the main feature. Reliability and being close to the
customer are the key features of successful customer relations. It is stated that the
companies should make a choice on which value discipline is more suitable and act upon
it consistently and vigorously. However, this does not mean the other two dimensions
should be completely neglected, but rather the company should aim to be satisfactory.6

6
The abovementioned dimensions of Treacy and Wiersema (1993, 1995) are not mutually exclusive and
can have overlaps with each other. In addition, a firm might choose to be the best in one of the two
disciplines in order to be the leader in its industry.

20
 2.3.3. Comparing the Strategy Typologies

Meta-analysis is the term used to describe a structured, quantified analysis of a body of

empirical literature on a theorized relationship (Campbell-Hunt, 2000). In their meta-
analysis, Campbell-Hunt (2000) makes a hierarchical categorization (see APPENDIX B)
with respect to Porter’s strategy typology and finds that Porter’s descriptive typology is
not sufficient to describe the range of strategy designs. Instead, it is suggested to focus
attention on each one of six independent meta-dimensions. Although these meta-
dimensions have not been used in this study per se, they demonstrate an interesting point.
The domains of abovementioned studies differ. However they contain common properties
which would allow an analyst to make a dichotomous categorization. These properties
will be further explored in chapter three. According to the overall properties of strategy
typologies in section 2.2.2 and the meta-analysis of competitive strategy of Campbell &
Hunt (2000), the following table (table 4) can be obtained.

Campbell and Hunt's Independent Miles and Porter’s March’s

Value Disciplines
Meta-dimensions of Competitive Snow Generic Exploration vs.
Model
Strategy Typology Strategies Exploitation
Cost Economy Defender Operational
Cost Exploitation
Focused quality economy Excellence
Prospector, Cost, Exploration,
Sales Leadership Customer Intimacy
Defender Differentiation Exploitation
Broad Quality and Sales Leadership
Innovations and Operational Prospector Differentiation Exploration Product Leadership
Leadership
Operational
Focus Quality Leadership Defender Cost Exploitation
Excellence

Prospector Product Leadership

Differentiation Exploration
Analyzer Customer Intimacy
Elements of each Strategy Defender Operational
Cost Exploitation
Excellence
Reactor
Table 4: Meta-dimensions of Strategy and Strategy Typologies

Moving on from the differences, there are broad similarities between the abovementioned
strategy typologies. These similarities can be listed as follows:
1. The elements available for each typology offer good coverage of strategy in the
domain of marketing, operations, products and market scope (Campbell-Hunt,
2000).
2. Each typology accepts explicitly or implicitly that organizational arrangements
mediate and enhance the relationship between strategy and performance
(Campbell-Hunt, 2000, Thornhill and White, 2007, He and Wong 2004, White
1986)
3. Although the domains of each strategy typology are different, their sub-
dimensions are quite similar to each other. These dimensions will be explained
further in section 3.2.

21
 Based on these similarities between the strategy types, the elements of each strategy can
be categorized. This category has been described in the following table (table 5). The
features of these two dimensions will be explored further and each dimension will be
described in detail in section 3.2.1 and section 3.2.2.

Category No: I II III IV

No Strategy Mixed Strategy
Strategy Dimensions
Strategy Dimension I Strategy Dimension II
Miles and Snow’s Typology Reactor Defender Analyzer Prospector
Focus
Porter’s Generic Strategies Cost (Broad vs. Differentiation
Narrow)
March’s Exploration vs.
Exploitation Exploration
Exploitation Strategy
Product
Treacy and Wiersema’s Operational Leadership/
Value Disciplines Model Excellence Customer
Intimacy
Table 5: Business Strategy Dimensions at Company Level

• Strategy Dimension I: Prospectors, Product Leadership/ Customer Intimacy,

Differentiation, Exploration
• Strategy Dimension II: Defenders, Operational Excellence, Cost, Exploitation

Category I lacks a clear strategy. In order to analyze the executed strategy, it is assumed
that the organization has already formulated a business strategy. Therefore category I will
not be included in the analysis.

For ease of understanding and simplicity Categories II & IV (i.e. Strategy Dimension I
and II) will be named as ‘Innovator Strategy’ and ‘Improver Strategy’ respectively. With
this in mind the innovator and improver companies can be defined as follows:

* Innovator Company: Prospector companies who focus on exploration,

differentiation, product leadership and customer intimacy

* Improver Company: Defender companies who focus on exploitation,

cost and operational excellence.

The companies that belong to category III (i.e. mixed strategy) will be said to be
companies with hybrid strategies as they possess the qualities of both Categories II & IV.
The hybrid strategies are also included in the analysis (section 4.4).

22
2.4. The Link between Innovation Projects and Business
Strategy

In order to analyze the link between innovation and strategy, at least two explanations are
possible. The first is the historical link and the evolution of strategies with the evolution
of innovations. The second is the empirical finding from the literature (Griffin and Page,
1996).

First, the strategy and innovations can be said to evolve hand in hand (Hutzschenreuter,
Kleindienst, 2006; Hamel & Prahalad, 1989; Rothwell, 1994). As it was covered in the
broad definition of innovations (section 2.1.1), the generations of innovations (5G)
played a part in shaping the strategies or vice versa.

Table 6 gives an overview of the evolution of strategies and innovations based on 5

innovation generations theory of Rothwell (1994). In 1G, The business strategies of the
1950s involved ‘planning’ due to the technological advancements by the heavy
investments in R&D. As opposed to ‘Technology Push’, ‘Demand Pull’ claims that the
reason of having innovations is due to the (changes in) demand, therefore the source of
innovations became dominated by the market.

In 2G, focusing on satisfying the market led to price wars and fierce competition. In order
to cope with this competition, the strategies of the 1960s were emergent in nature.
However, due to the external factors of the 1970s (e.g. rationalization efforts, inflations,
stagnation), technology and the market were ‘coupled’ as a result of 3G. The strategies
therefore moved away from the individual projects and product portfolio approach was
adopted for ‘Positioning’.

In 4G, as the structured product portfolios developed in the 1980s, the processes began to
run in parallel with the suppliers and customers. The network of companies brought the
need to focus on core competences. Porter’s “stuck-in-the-middle” theory became
popular and moved the organizations to focus on their core competencies.
Although the fourth and fifth generation of innovations are still under debate among
academics (Campbell-Hunt, 2000), the definitions of business strategy of the 21st century
focus on how to deal with the competition by means of creating sustainable competitive
advantages.

A recent IBM CEO study (2006)7 among 765 CEOs, business executives and public
sector leaders worldwide points out that two thirds of every three CEOs interviewed
intend to drive fundamental change within their organizations over the next two years and
that they understand the need to innovate in order to achieve this change. Thus, by
comparing the mostly accepted strategy typologies, and being able to identify the firms as
“Innovators” and/ or “Improvers” could bring a business value for companies who have a
priority on innovation.

7
www.ibm.com

23
 Generations: Strategy Innovation

1G (1950-1960) Planning Technology Push

2G (1960-1970) Emerging Market Pull

3G (1970-1980) Positioning Coupled systems

4G (1980-1990) Core Competence Network

Sustainable
5G (1990-2000) competitive advantage
System Approach
Table 6: Link between Business Strategy and Innovations

The second link suggests a relation between the innovation and strategy. In particular, the
innovation projects and the business strategy are supported by an empirical finding in the
New Product Development (NPD) literature. In their study, Griffin and Page (1996)
hypothesize that the mix of innovation projects (i.e. project strategy in table 7), would
differ depending on the business strategy of a company. This hypothesis is partially
supported by the data gathered from 78 product development practitioners with
significant (i.e. at least 5 years) product development experience from PDMA and IBCH8
to reflect desired practice.

Source: Griffin and Page (1996)

Table 7: Innovation Project Mix by Business Strategy

8
PDMA stands for the Product Development and Management Association and IBCH stands for the
American Productivity and Quality Center International Benchmarking Clearinghouse New Product
Development Common Interest Group. PDMA is the pioneer to start the new product development (NPD)
research in the 1960s. Both groups focus on measuring the success and failure of product development
efforts.

24
The authors have two relevant findings:

1. The project mix for prospectors differs statistically from analyzers and defenders,
but there are no statistical differences between the project mix for analyzers and
defenders (Griffin and Page, 1996).
2. The project portfolios of prospectors contain a more innovative mix of projects,
with much more emphasis on new-to-the world projects and less emphasis on
additions to existing lines (Griffin and Page, 1996).

Since the typology of Miles and Snow (1978) is a subset of the Innovator and Improver
companies, one can derive two possible hypotheses from these findings:

1. The project mix for Innovator Companies would also differ from Improver
Companies and
2. The project mix for Innovator Companies would also differ from companies with
hybrid strategies (i.e. both Innovator and Improver).

25
2.5. Outcome: Definition and Dimensions of ‘Innovation
Strategy’

The first research question that one needs to answer is what an Innovation Strategy is.
From the comparison of the innovation and strategy typologies and their subsequent
definitions in the section 2.2.1 and section 2.3.1, the Innovation Strategy can be derived
as follows:

Innovation Strategy Definition

Innovation Strategy is the decision of an organization determining to what
degree and in what way to use innovation to execute its business strategy
with the attempt to reach to certain levels of performance.

The second research question deals with what the dimensions of the Innovation Strategy
are. Since the business strategy (of a company) is defined as the consistent execution of
broad plans of an organization to achieve certain levels of performance and these broad
plans are determined by the senior management, it constitutes of a top-down approach.
On the other hand, the innovations that cover both the market and the technology sides,
occurs by innovation projects that the employees carry out. This constitutes a bottom-up
approach. Thus, by defining the ‘Innovation Strategy’ from two levels (i.e. top-down and
bottom-up approach), potentially different perspectives of Innovation Strategy can now
be clustered around two dimensions as follows:

Dimensions of ‘Innovation Strategy’

• Dimension I: Innovation Projects
• Dimension II: Business Strategy towards Innovation

Dimension I: Innovation Projects

• Radical Innovations
• Incremental Innovations

In section 2.2, ‘Innovation’ has been broadly defined and conceptualized. A selection for
modeling the innovations has been made with respect to its best fit for the purpose of the
study. These are as follows:
1. Modeling with respect to the internal perspective to the firm,
2. Modeling with respect to market and technological aspects,
3. Modeling with respect to single constructs.

Next, a literature review has been made and 24 types of innovation types are identified.
The similar concepts have been aggregated and 6 different types of innovations have

26
been obtained. These types are further categorized into two dimensions for simplicity (i.e.
4 types in one dimension, 2 types in the other).

Based on their simplicity of implementation, their acceptance in both academia and in

business and achieved best-fit for developing the innovation strategy framework, the
following two perspectives were selected for innovation types. These dimensions are as
follows:

* Radical Innovation: Innovations those are discontinuous, disruptive and new in its
market and new in its technology.

* Incremental Innovation: Innovations that provide new features, benefits, improvements

to existing technology and/or existing market.

Dimension II: Business Strategy towards Innovation

• Innovator Company Strategy
• Improver Company Strategy

In section 2.3.1, Business Strategy has been defined broadly and four strategy typologies
have been described. These typologies are:
1. Miles and Snow’s prospector, analyzer, defender and reactor strategy
2. Porter’s cost versus differentiation strategy
3. March’s ‘exploration versus exploitation’ strategy
4. Treacy and Wiersema’s ‘Value Disciplines’ model for strategy

These strategy typologies are selected based on its simplicity; common use and its
acceptance in both academia and in business. The commonalities between the strategies
have been depicted, which lead to an identification of two dimensions of business
strategies. These dimensions are as follows:

* Innovator Company: Prospector companies who focus on exploration, differentiation,

product leadership and customer intimacy

* Improver Company: Defender companies who focus on exploitation, cost and

operational excellence.

Connection with Chapter 3

Chapter three will describe the types of innovation projects (i.e. radical, incremental) and
the key attributes of companies with Innovator and Improver Strategies. Next, the third
research question which inquires what to measure on the different dimensions of the
innovation strategy will be answered with the proposed innovation strategy framework.

27
Chapter3: Development of the Innovation Strategy
Measurement Framework

Main Points of Chapter 3

- In this chapter , an elaborate literature review of innovation strategy is performed

based on a comparison of quantitative / qualitative studies and qualitative meta -studies
to conceptualize innovation and strategy .

- The review identifies a total of 12 determinants of Business Strategy towards

Innovation and 6 innovation project scenarios .

- Next, the third research question (Q3) has been answered and the determinants have
been translated into the research framewor k.

Q3: What to measure on Innovation Strategy dimensions?

* Radical Innovation Projects: *Incremental Innovation Projects:

New to the World Projects (NTW) Additions to Existing Product Lines (AEL)
New to the Company Projects (NTC) Improvements in/Revisions to Existing Products (IM)
Repositioning s (RP)
Cost Reductions (CR)

*Innovator Company Strategy: *Improver Company:

Discovery Cost
Flexibility Efficiency
Differentiation Reliability
Focus on Customers/Buyers Refinement
Responsiveness

Definitions from the Literature Review 9

NTW: New products/services that create a completely new market

NTC: New products that, for the first time, allow a company to enter an established market

AEL: New products that supplement a company to enter into an established market
IM: New products that provide improved performance or greater perceived value and replace the existing products
RP: Existing products targeted to new markets or new market segments.
CR: New products/ services that provide similar performance at lower cost

Discovery: Undertaking or leveraging R&D extensively and developing new operating techniques
Customers/buyers: Active marketing and sales department geared to relationship selling and having state of the art information
systems and extensive sharing for customer data
Differentiation: Developing or leveraging new products & services
Responsiveness: Customization of products or services and having responsive customer service department
Flexibility: Decision-making power and authority to project teams

Cost: Reducing operating costs

Efficiency: Improving coordination with customers and suppliers
Reliability: Improving measures of performance
Refinement: Reorganizing the work process

9
Visit section 3.1.1, section 3.1.2, section 3.2.1 and section 3.2.2. for references per sub-dimension
definition

28
The chapter will describe the development of Innovation Strategy Measurement
framework with respect to defining the innovation strategy of an organization from a
bottom-up (i.e. innovations of the company at project level) and top-down approach (i.e.
business strategy perceived by the organization at business unit and company).

In the bottom-up approach, innovation is conceptualized and a selection has been made as
described in section 2.2.3. With respect to this, two popular and best-fit models in
practice will be described that relates and explains the roots of Griffin and Page’s work
on measuring the success of innovative projects. These models are Ansoff’s
product/market matrix, Booz, Allen and Hamilton’s (BAH) Product Strategy. Next, an
innovation typology at project level will be suggested by combining the first two models.
From the six project types a selection will be made so that the project types will be
assigned into the dichotomous category of radical versus incremental innovations.

In the top-down approach, two company strategy related dimensions (i.e. Improvers and
Innovator Companies) will be derived from the similarities between the related
dimensions of the four strategy typologies. These four typologies (by Porter (1980,
1985), Miles& Snow (1978), March (1991) and Treacy & Wiersema (1995)) have been
compared in the previous chapter (section 2.3.3). Next, the key attributes of both
Innovator and Improver companies will be compared and each sub-dimension per
company type will be described in detail.

Finally, chapter 3 ends with an answer to the third research question, which inquires
about what to measure on the different dimensions of the innovation strategy.

3.1. Innovation Dimensions

The project level innovation strategies may differ with respect to company’s position and
perspective. For instance, in competitive markets, the innovation strategy might be
focused on retaining the customers or preventing losses of profit margins to the
competitors. On the other hand, new products/ services might be used as a driving force
to boost revenues of the company by entering into new markets. Thus, different
innovation strategies, regardless of their degree of newness, may assist the companies to
meet their company and business unit objectives (Griffin and Page, 1996).

Newness Factors: Company versus Market

Since the research focuses on measuring innovation strategies of companies, the broad
definition of innovation is selected as described in section 2.2.1. This is due to the fact
that the various business units/ departments in the company function with respect to how
the tasks are divided among them. For instance, some in-house units such as excellence
centers, research centers or partners outside the boundaries of the company may develop
the technological products/ services (inventions and innovations), while the other units
may focus on commercializing them and enabling its acceptance into the market place
(innovations and diffusion). Both perspectives may play a major part at innovating as can
be seen from the generations of innovations. However, since the technological aspects of
innovations involve complex processes and interactions with their environment, their
characteristics are to be integrated to the framework implicitly. On the other side, for an

29
invention to become an innovation, its diffusion into the market is generally considered
as a must (Rogers, 2005; Moore 1991, Schumpeter, 1942). This focus on the
‘marketability’ aspect of innovation is critical as this is the source of revenue and income,
and as such, should be treated explicitly. These assumptions will be revisited during the
measurement of radical innovations in section 4.2.

Ansoff (1957, 1987) has produced such a matrix that illustrates the role of product
development in business development activities. The matrix considers both market
newness and product newness as its two main dimensions (figure 4) and presents four
opportunity elements for product development.

Newness to Market
Low High

High Product
Diversification
Development
Newness to
Company
Low Market Market
Penetration Development
Source: Adapted from Ansoff, 1957
Figure 4: Ansoff’s Product/Market Matrix

Following Ansoff’s product/market matrix, a leading strategy/management consulting

firm, Booz, Allen and Hamilton (1982) made a further step and suggested six main types
of product development efforts based on newness to the firm and newness to the market
(figure 5).

Low Newness to Market High

High
New to the Company New to the World
(NTC) (NTW)

Newness to Product Additions to

Company Improvements (IM) Existing Lines (AEL)

Cost Reductions Repositioning

Low (CR) (RP)

Source: Adapted from BAH, 1982

Figure 5: BAH Innovation Project Strategy Typology

BAH has conducted its first best practice research for understanding the product
development in 1968 survey by introducing six stage sequential process model and idea
mortality curve. Then in 1982, NPD strategy integration stage was launched where the
six sequential processes were integrated and the project strategy typology model was

30
introduced. In product development research domain, this scheme remains to be of
interest to both in practitioners and in the academics for investigating the factors that lead
to project success or failure and to the measurement of these two (Brentani, 2001;
Cooper, 1993; Cooper, 1984; Cooper, Kleinschmidt, 1987; Cooper, Kleinschmidt; 1995;
Garcia, Calantone, 2002; Griffin 1997; Griffin and Page, 1996; Montoya-Weiss and
Calantone, 1994; Kuczmarski & Associates, 1994; Yoon et al, 1985).

Innovation Success Measures per product/service development strategy

As mentioned in chapter two, different dimensions of innovation (i.e. with respect to
creating new technologies and/or new markets) can be investigated at individual project
and/or at program level for assessing the degree of newness of innovative projects. For
the purpose of the study, the innovation project strategy terminology is adapted from two
well-known authors, namely Griffin and Page (1996), who are both specialists in (new)
product development, business-to-business marketing and marketing management.

The reason why these authors have been adapted is explained as follows:

1. It considers the firm as a starting point

2. It considers both market and technology related factors relevant to companies
3. The model’s sub-dimensions are of the best interest to the issuer of this
assignment (i.e. IBM Netherlands)
4. It is one of the few empirical studies that offers different measures to assess
the innovativeness of the projects
5. The dimensions can easily be grouped into radical versus incremental
innovations.
6. Griffin and Page (1996) offer performance indicators per innovation project
type, which may be of interest for the successor researchers on this stream of
research.

The authors use BAH’s project strategy typology model to measure the most useful
success measures per strategy for innovations (figure 6). Although these success
measures are not the focus of this study, they provide the reader with a good starting
point on structuring different product development practices. In addition, the framework
of BAH would be a useful scheme to classify innovations due to its popularity in both the
academia 10 and business world11.

10
Kleinschmidt, Elko J. and Cooper, Robert G. The impact of product innovativeness on performance.
Journal @Product Innovation Management 8(4):2&251 (December 1991)

31
 Newness to Market High
Low

High NTC NTW

Market Share Customer Acceptance
Revenue or Satisfaction Customer Satisfaction
Met profit goal Met profit goal or IRR/ROI
Competitive Advantage Competitive Advantage

IM AEL
Market Share Market Share
Newness to Revenue or Satisfaction
Revenue, Revenue Growth,
Satisfaction, Acceptance
Company Met profit goal Met profit goal
Competitive Advantage LEGEND
Competitive Advantage

CR RP Project Strategy
Customer Satisfaction Customer Acceptance
Acceptance or Revenue Satisfaction or Share Customer Measure 1&2
Met margin goal Met Profit Goal Financial Measure
Low Performance or Quality Competitive Advantage Performance Measure

Source: Adapted from Griffin and Page, 1996

Figure 6: Success Measures by Project Strategy

It should be noted that Griffin and Page consider development of only technological
products in the project typology for measuring innovation success. However, since the
definition of innovation is adopted from OECD as a starting point, the project types in
this study will include both products and services. Therefore it seems to be more relevant
to use a new matrix combining the Ansoff’s product/market mix with BAH Project
Strategy Typologies for defining the ‘Innovation Project Typologies’ (figure 7) for a
holistic view.
Newness to Market
Low High
Product
Diversification
Development
High
NTC NTW
Newness to
Company Market Market
Low Penetration Development

CR RP AEL IM

Figure 7: Innovation Project Typologies

32
With this in mind, the innovation projects of an organization can be summarized as
follows:

• NTW: New to the World projects

• NTC: New to the Company projects
• AEL: Additions to Existing Product Lines
• IM: Improvements in/Revisions to Existing Products
• RP: Repositioning
• CR: Cost Reductions

New to the World (NTW) projects

Definition: New products/services that create a completely new market are defined as
NTW projects.
For a project to be new to the world, it has to be new to the company and new to its
market. This implies the technology should also be new, therefore the R&D focus can be
expected to be high. NTW projects are the least frequent projects among other project
strategies because they include relatively the higher levels of uncertainty and complexity.
Therefore NTW projects involve higher risk compared to other innovation project types.
Besides, at company level, the marketing and the engineering domains (by developing
either in-house or by outsourcing to external parties) are required to have a relatively well
developed coordination, communication and cooperation amongst each other. NTW
projects can lead to first mover advantages) which imply that the first entrant to the
market with the new product can gain control of resources that follower may not be able
to match.

New to the Company (NTC) projects

Definition: New products that, for the first time, allow a company to enter an established
market are called ‘New to the Company’ (NTC) projects.
These types of projects are usually called as ‘me-too’ products/services. For a project to
be new to the company, the technology does not necessarily need to be new. Usually the
technology already exists in the marketplace and the company adopts this existing
product/service. The adoption may be in the form of imitating the competitor’s
products/services to weaken or cannibalize the competitor’s position. Although NTC
projects may not usually benefit from first mover advantages, second-mover advantage
may emerge. This implies if the first mover (i.e. competitor) is not able to capitalize on
its advantage; the opportunity is up for grabs. Thus, the strength of NTC projects is seen
when successfully utilizing these advantages.

Additions to Existing Product Lines (AEL)

Definition: New products that supplement a company to enter into an established market
are called as additions to existing product lines.
This type of projects may involve combining and using existing value sources (i.e.
products/services) to create a higher perceived value on its customers. The market and
company newness are at moderate levels. The strength of AEL projects is that the firms

33
can create competitive advantage by offering complementary products/services and
increase the position of the product/service in the marketplace.

Improvements in/Revisions to Existing Products (IM)

Definition: New products that provide improved performance or greater perceived value
and replace the existing products are called as improvements in existing products.
These types of project are not new to the market but present challenges to the firms

Repositioning (RP)
Definition: Repositioning is defined as existing products targeted to new markets or new
market segments.
The definition implies making changes in the way the core product/service features of
existing products are promoted and made available to the customers. Levitt (1981)
explains the strength of this project type as “The new competition is not between what
companies produce… but between what they add… in the form of packaging, customer
service, delivery arrangements, and other things that people value”.

Cost Reductions (CR)

Definition: New products/ services that provide similar performance at lower cost are
defined as cost reduction.
All product/service developments can benefit from cost reductions in the form of process
improvements, or as widely referred as ‘re-engineering’ efforts. An efficient company,
which prioritizes productivity, can expect producing products/services that offer the same
or better performance at a lower cost. In economical terms, there are two advantages of
cost reduction efforts. First, the company can decrease its cost and invest in new products
or improve its existing products. Second, the company may charge lower prices to its
customers, who usually demand low prices. In order to succeed in cost reductions, the
way that the projects are being conducted in the company may need to involve a
fundamental rethink and redesign of business processes.

Whether the elements in the matrix belong to a radical or incremental innovation

classification due to the newness factors will be explained in below.

3.1.1. Innovation Dimension I: Radical Innovations

In chapter 2, ‘radical innovation’ is defined as innovations that are discontinuous,

disruptive, new in its market and new in its technology. Out of the 6 abovementioned
innovation project types that 2 project types satisfy this criteria. These project types are
as follows:

• NTW Projects: New to the World Projects

• NTC Projects: New to the Company Projects

Remember that NTW projects include new products/services that create a completely
new market and NTC projects include new products that, for the first time, allow a

34
company to enter an established market. Therefore, based on the literature review
described above (Figure7) and following the discussions with academics and IBM
experts, two dimensions can be concluded as possible constructs in this research.

3.1.2. Innovation Dimension II: Incremental Innovations

In chapter 2, ‘incremental innovation’ is defined as innovations that provide new features,

benefits, improvements to existing technology and/or existing market. Out of the
abovementioned 6 innovation project types that 4 project types satisfy this criteria. These
project types are as follows:

• AEL projects: Additions to Existing Product Lines

• IM projects: Improvements in/Revisions to Existing Products/ Services
• RP projects: Repositioning
• CR projects: Cost Reductions

Remember that for these projects, the technology or the market does not necessarily be
new. Therefore, based on the literature review described above (Figure7) and following
the discussions with academics and IBM experts, two dimensions can be concluded as
possible constructs in this research.

35
3.2. Strategy Dimensions
In the previous chapter (section 2.3.3) the four strategy typologies were described briefly
and the different dimensions of these typologies have been depicted with respect to the
meta-analysis of Campbell and Hunt (2000). From these, two strategy related dimensions
of Innovation Strategy were derived and were named as Improvers and Innovators. In this
chapter, each innovation strategy sub-dimension will be defined and described in detail
and the common features of the dimensions will be depicted.

3.2.1. Innovation Strategy Dimension III: Innovator Companies

Comparing the Key Attributes of Innovator Companies
There is little convergence on the key attributes of an innovator company’s strategy
dimensions in the literature. In general, though, this type of strategy is outwardly focused
on innovation, discovery, customers/buyers, product differences, responsiveness,
flexibility and expansion (Thornhill and White, 2007).

With the selected four strategy models, the innovator companies are investigated with
respect to the similarities in their dimensions. Thus, the innovative companies in this
study comprise from a set of companies that pursue Porter’s differentiation focus (1980),
companies that belong to Miles and Snows Prospectors (1978), companies with a value
focus of Treacy and Wiersema’s product leaders who are customer intimate (1995) and
companies that March’s focus on exploration (1991).

First, Porter’s definition of differentiation stands for firms seeking to position themselves
in the marketplace with a distinct identity and meet the demands of its customers (Porter,
1980). Meeting the customer demands can be in the form of offering superior quality and
service and features that are perceived as innovative by the customers (Campbell and
Hunt, 2000). The aim for a differentiator firm is to be unique in its industry with
dimensions that are widely valued by its buyers. Second, Prospectors are considered as
technologically innovative and seek out new markets (Desarbo et al., 2005). According to
Miles and Snow (1978) a Prospector perceives a dynamic, uncertain environment,
maintains flexibility to combat environmental change and seeks to identify and exploit
new product and market opportunities. According to Miles and Snow (1978), a
prospector company has the following characteristics: A diverse product line, multiple
technologies, product-based or geographical divisional structure, skills in product
research and development, market research and development engineering. Third, Treacy
and Wiersema’s product leadership is said to require the organization to have a strong
innovation focus and brand marketing and to operate in dynamic markets. The focus is on
development, innovation, design, time-to market, high margins in short time (Treacy and
Wiersema, 1995). The customer intimacy requires being notable in customer attention
and customer service. The products/ services are tailor-made and mass-customization is
the main feature. Being close to the customer are the key features of customer intimacy.
Fourth, in general, exploration is associated with organic structures, loosely coupled
systems, path breaking, improvisation, autonomy and chaos, and emerging markets and
technologies (He and Wong, 2004; Ancona et al., 2001; Brown and Eisenhardt, 1998;
Lewin et al. 1999).

36
 The properties of each innovator strategy dimension are summarized with table 8.

Treacy & Wiersema’s

Miles and Snow’s Porter’s March’s
Product Leadership/
Prospectors Differentiation Exploration
Customer Intimacy
-Strong innovation
- Dynamic
focus
- Flexible
-Brand marketing
- Diverse product line -Organic structures
-Dynamic markets
-Multiple -Loosely coupled
Characteristics technologies -Design &
systems
of - Uniqueness in development
-Product-based or -Path breaking
Innovator services and features -Time-to market
Companies geographical -Improvisation
offered to customers -High margins in
divisional structure -Autonomy & chaos
- Superior quality short time
-Skills in: -Emerging markets
- Customer focus -Significant customer
-R&D (for products) & emerging
attention
- market research technologies
-Responsive
-development
customer service
engineering
-Mass-customization

Table 8: Characteristics of Innovator Companies

Based on the similarities depicted in table 8 and support by Thornhill and White (2007),
we can define the Innovator Companies as follows:

Innovator Company Definition: Innovators are the companies such that its
employees/ business units perceive their organization’s strategic focus as
making discoveries, differentiating their products, placing a strong focus on
their company’s customers in a responsive and flexible manner for the purpose
of developing and commercializing their new products and services.

For a company to be an innovator, a clear consensus among its employees at various

levels should be present. This implies instead of emphasizing only on the high level
managers who formulate the strategy, the acceptance by the company’s
employees/business units would be equally important for the implementation of the
strategy for innovation.

Key attributes of Innovator Companies

From the definition of an innovator company, its key attributes are summarized in table 9.
These attributes include, flexibility, discovery, responsiveness, differentiation, focus on
customers/buyers.

37
 Attributes of
Innovator Companies

flexibility
discovery
responsiveness
differentiation
customers/buyers
Table 9: Attributes of Innovator Companies

To give clear definitions of these attributes, literature on strategic management and

journal of innovation product management has been reviewed. With respect to previous
studies, each variable is defined as in the table 10.

Innovator Companies
Attributes Definitions
Undertaking or leveraging R&D extensively and developing new operating
Discovery techniques (Thornhill and White, 2007; Dess and Davis, 1984; Narver and
Slater, 1990; Kotha and Vadlamani, 1995)
Active marketing and sales department geared to relationship selling (Treacy
and Wiersema 1993)
Customers/buyers
State of the art information systems and extensive sharing for customer data
(Treacy and Wiersema 1993)
Developing or leveraging new products & services (Thornhill and White, 2007
Differentiation
Kotha and Vadlamani, 1995)
Customization of products or services (Treacy and Wiersema 1993)
Responsiveness
Responsive customer service department (Treacy and Wiersema 1993)
Decision-making power and authority to project teams (Treacy and Wiersema
Flexibility
1993)
Table 10: Definitions of key attributes of ‘Innovator Companies’

3.2.2. Innovation Strategy Dimension IV: Improver Companies

Comparing the Key Attributes of Innovator Companies
The central elements of an operational excellence, exploitation, defender or cost strategy
are cost, efficiency, reliability, refinement and execution (Thornhill and White, 2007).

Therefore it can easily be stated that the ‘Improver companies’ comprise from a set of
companies that pursue Porter’s cost focus, companies that belong to Miles and Snows
defenders, companies with a value focus of Treacy and Wiersema’s operational
excellence and companies that March’s focus on exploitation.

First, Porter’s definition of cost stands for firms seeking for economies of scale,
proprietary technology, preferential access to raw materials. Porter explains that the low
cost producers typically sell a standard with emphasis on obtaining scale or absolute cost
advantages from all potential sources. Second, defenders are considered as engineering-
oriented with the focus on maintaining a secure niche in relatively stable market
segments (Desarbo et al., 2005). According to Miles and Snow (1978) a defender

38
 perceives the environment to be stable and certain, and thus seek stability and control in
their operations to achieve maximum efficiency. According to Miles and Snow, a
defender company has the following characteristics: narrow and relatively stable product-
market domain; single capital-intensive technology; a functional structure; skills in
production efficiency and process engineering and cost control (1978). Third, Treacy and
Wiersema’s operational excellence asks for providing reasonable quality at a very low
price (Treacy and Wiersema, 1995). The focus is on efficiency, streamlining operations,
scale gains (ref). Fourth, exploitation is associated with mechanistic structures, tightly
coupled systems, path dependence, routinization, control and bureaucracy, and stable
markets and technologies (He and Wong, 2004; Ancona et al., 2001; Brown and
Eisenhardt, 1998; Lewin et al. 1993).

The properties of each improver company dimensions are summarized in table 11.

Treacy & Wiersema’s

Miles and Snow Porter’s March’s
Operational
Defenders Cost Strategy Exploitation
Excellence
-Engineering-oriented
-Stable market segments -Mechanistic
-Narrow and relatively structures
Characteristics stable
product-market -Tightly coupled -Reasonable quality
-Economies of scale
of domain systems at a very low price
-Proprietary
Improver -Single capital-intensive -Path dependence -Efficiency
Companies technology
technology -Routine processes -Streamlining
-Preferential access
-A functional structure -Control operations
to raw materials
-Skills in production -Bureaucracy -Scale gains
efficiency -Stable markets and
-Process engineering technologies
-Cost control

Table 11: Characteristic of Improver companies

Based on the similarities depicted in table 9 and support by Thornhill and White (2007),
we can define the Improver Companies as follows:

Improver Company Definition: Improvers are the companies whose employees/ business
units perceive their organization’s strategic focus as being reliable and efficient through
refinements and cost reductions for developing new products and services.

As in the case of the innovators, for a company to be an improver, a clear consensus

among its employees at various levels should be present. This implies instead of
including only the managers who formulate the strategy, the acceptance by the
company’s employees/business units would be equally important for the implementation
of the strategy.

39
Key attributes of Innovator Companies
From the definition of an improver company, its key attributes are summarized in table
12. These attributes include cost, efficiency, reliability, refinement.

Attributes of
Improver Companies

cost
efficiency
reliability
refinement
Table 12: Attributes of Improver Companies

To give clear definitions of these attributes, literature on strategic management and

journal of innovation product management has been reviewed. With respect to previous
studies, each variable is defined as in the table below.

Improver Companies
Attributes Definitions
Reducing operating costs (Thornhill and White, 2007;
Dess and Davis, 1984; Kotha and Vadlamani, 1995;
Cost
Narver and Slater, 1990; Spulber, 2004; White,1986;
Zahra and Covin 1993)
Improving coordination with customers and suppliers
(Thornhill and White, 2007; Miller and Friesen 1986a,
Efficiency
1986b; Narver and Slater, 1990; Spulber, 2004;
White,1986; Zahra and Covin 1993)
Improving measures of performance (Thornhill and
Reliability White, 2007; Kotha and Vadlamani, 1995; Narver and
Slater, 1990)
Reorganizing the work process (Thornhill and White,
2007; Dess and Davis, 1984; Kotha and Vadlamani,
Refinement
1995; Miller and Friesen 1986a, 1986b; Narver and
Slater, 1990)
Table 13: Defining the key attributes of ‘Improver Companies’

Summary:
Attributes of Attributes of
Innovator Companies Improver Companies
Discovery Cost
Customers/buyers Efficiency
Flexibility Reliability
Differentiation Refinement
Responsiveness
Table 14: Summary: The attributes of Innovator and Improver Companies

40
3.3. Outcome: The Innovation Strategy Framework
Based on the selection and description of the attributes of innovation strategy from a top-
down and bottom-up approach, a two-dimensional framework of the concept has been
built for a holistic and integrative perspective. Thus, the two dimensions of innovation
strategy comprise of innovations that the company works on at project level and the
business strategy of the firm towards innovation.

Business Strategy

Innovation Strategy

Innovation
Projects

Figure 8: Innovation Strategy Concept

The ‘Innovation Strategy’ framework and its sub-dimensions that were described in the
previous chapters (i.e. chapter 2 and chapter 3) can now be translated in the framework as
follows:
NTW

Radical
NTC

AEL Innovation s

IM

RP Incremental

CR
Innovation
Strategy
Discovery

Differentiation

Responsiveness Innovator

Flexibility

Focus on
Customers/ Buyers
Business
Strategy
Cost

Efficiency

Improver
Reliability

Refinement

Figure 9: the Research Framework

41
With respect to the framework, the ‘Innovation Strategy’ can thus be studied from four
sub-dimensions which are as follows:

Innovation Strategy Dimension I: Innovation

• Innovation Sub-dimension I: Radical Innovation Projects
• Innovation Sub-dimension II: Incremental Innovation Projects

Innovation Strategy Dimension II: Strategy

• Strategy Sub-dimension I: Improver Companies
• Strategy Sub-dimension II: Innovator Companies

42
Chapter 4: Development of the Innovation Strategy
Measurement Tool

Main Points of Chapter 4

- Based on the research framework for Innovation Strategy and a number of user
requirements , a measurement tool has been developed with the help of a
questionnaire .

- For the assessment of Innovator vs . Improver Company Strategy , respondents

are asked the degree of importance of strategy items on a 5 point Likert Scale .
Next, the respondents are asked the frequency of undertaking certain innovation
projects . The results are compared and a strategic fit analysis is made .

- Next, the calculation steps and results are presented at two levels via radar
graphs (at company and business unit level ).

- Finally , the relationship between the perceived business strategy and the
innovation projects is identified . This way, the fourth research question (Q4) is
answered.

Q4. Is there a relationship between the strategy and the innovation

s?

Q4: Is there a relationship between the strategy and innovation?

Yes, In order to create sustainable competitive advantages, the innovator companies are expected
to emphasize on radical innovation projects while improver companies are expected to emphasize
incremental innovation projects. Any deviation from this logical relation points out to a potential
mismatch and the reasons needs to be further researched.

This chapter is dedicated to developing the Innovation Strategy Measurement tool. First
the design requirements are described in section 4.1. Second, the measurement of the
Innovation Strategy dimensions is portrayed in section 4.2. Third, the development of the
questionnaire is described via sample selection, data collection procedure and the scales
used for innovation strategy dimensions in section 4.3. Fourth, these dimensions are
calculated and the interpretation of the results is described via the presentation method in
section 4.4. Finally, the relationship between the innovations and the strategy is identified
and the fourth research question is answered in section 4.5

43
4.1. Design Requirements

In relation with the academic requirements one also has to take into account the practical
design requirements in conjunction with the issuer of the assignment (IBM). The design
requirements for developing the tool are mentioned as follows:

1. The tool will be mainly developed as a ‘do-it-yourself’ tool kit.

2. IBM is a pilot to test the tool/ design.
3. The tool should be flexible so that it can be adjusted for the clients of IBM.
4. The results of the tool must lead to a discussion/ understanding by senior managers.
5. The results of the tool should point to the focus areas to improve the company’s
perceived innovation strategy by its employees to the senior managers.

1. The tool will be mainly developed as a ‘do-it-yourself’ tool kit.

As explained in the previous chapters, the Innovation Strategy Measurement Tool is

being designed by drawing a body of literature from strategic management and new
product development (NPD), New Service Development (NSD) and Innovation
Management literature. This means the constructs are prepared with the scientific
terminology and background. For a practitioner, interpreting the results may be difficult.
However the tool has to be user-friendly. This means that the academic terms should be
translated into easy-to-understand terms for the person undergoing the test. Also the
respondent should not require much knowledge on the subject (innovation strategy) and
can easily understand what (s)he has to do. Ideally, respondents should intuitively, or
with a short introduction, understand what is required from them and there should be no
ambiguity in the test. In addition the duration to answer the questions should not exceed
more than 30 minutes.

2. IBM is a pilot to test the tool/ design.

In the IT service domain, IBM aims to operate in a way that to become the ‘innovator of
the innovators’. The company values ‘Innovation that Matters’ implying that they desire
to make innovations both for their company and for the world. In the IBM Benelux
domain, in which IBM Netherlands belongs to, the innovation strategy consists of five
key plays (i.e. our health, keeping track, our digitized world, sensing for knowledge and
our environment). This diverse innovation portfolio brings vast set of clients, so the tool
must be applicable to a wide array of industries IBM Netherlands is working on. In
addition, the measures of the tool should consider the specific service sector properties
which are different than those of the manufacturing companies. Further, the results
should be flexible enough to explain the innovation strategy of IBM Netherlands but
specific enough to draw meaningful conclusions on its business unit level. Therefore a
balance has to be taken into account, and it may be the case that some elements are not
applicable.

44
3. The tool should be flexible so that it can be adjusted for the clients of IBM.

The measurement tool also aims to be applied to the clients of IBM. Therefore the
assessment method should be flexible enough to allow appropriate adjustments for the
companies in different business sectors such as manufacturing companies. Originally the
strategy questions were drawn for the manufacturing companies and these statements can
be found in APPENDIX E.

4. The results of the tool must lead to a discussion/ understanding by senior managers.

The inputs of the tool can and will be obtained from people from every layer in the
company. However, the goal of IBM is to discuss the results with a higher level
management. Therefore the tool should give a clear overview of the match/ mismatch of
the (i.e. top-down approach) strategy with (i.e. bottom-up approach) the innovation
activities that the company is working on with a clear and simple overview.

5. The results of the tool should point to the focus areas to improve the company’s
perceived innovation strategy towards radical innovations to the senior managers.

The outputs of the tool can and will offer suggestions and point of attention for further
development of the perceived innovation strategy of the company. This is crucial for
monitoring the implementation success of the company’s innovation strategy for the
usefulness of the tool. These suggestions will be offered by means of the innovation
capacity test developed by Sander van Reijzen in 2006. For instance, in the case of a
mismatch between the company’s strategy and the types of activities pursued, the reasons
can be further investigated from the sources of innovations (i.e. resources, capabilities,
culture and network).

45
 4.2. Measurement of Innovation Strategy Dimensions
4.2.1. Innovation Strategy Dimension I: Innovation Projects
As the reasons have been described in section 3.1, the innovation project types and the
related items of Griffin and Page (1996) have been adapted for the study. The authors
consider six types of innovation projects to measure the success of innovations. These
are:

1. New to the World Projects (NTW)

2. New to the Company Projects (NTC)
3. Additions to Existing Product Lines (AEL) projects
4. Improvements in/Revisions to Existing Products (IM) projects
5. Repositioning (RP) projects
6. Cost Reductions (CR) projects

Innovation Strategy Sub-dimension I: Radical Innovations

Based on the criteria (i.e. newness to the market and newness to the company), the radical
innovations will be measured by the following innovation project types:

• NTW Projects: New to the World Projects

• NTC Projects: New to the Company Projects

Innovation
Radical Innovation Projects Item Previously operationalized by
Project Type
New products/services that create an entirely
NTW
new market.
Griffin and Page (1996)
New products/services that, for the first time,
NTC allow our company to enter an established
market.
Table 15: Radical Innovation Items

Innovation Strategy Sub-dimension II: Incremental Innovations

Based on the criteria (i.e. existing market and/ or existing technology of the company),
the incremental innovations will be measured by the following innovation project types:

• AEL projects: Additions to Existing Product Lines

• IM projects: Improvements in/Revisions to Existing Products/ Services
• RP projects: Repositioning
• CR projects: Cost Reductions

Note that each type of project stands for the projects that the employees of an
organization that claim to actually work on.

46
 Innovation
Incremental Innovation Projects Item Previously operationalized by
Project Type

New products/services that supplement our

AEL
company’s established product lines.
New products/services that provide improved
IM performance or enhanced value and replace
existing products. Griffin and Page (1996)
Existing products/services targeted to new
RP
markets or market segments.
New products/services that provide similar
CR
performance at lower cost.
Table 16: Incremental Innovation Items

4.2.2. Innovation Strategy Dimension II: Business Strategy

Innovation Strategy Sub-dimension III: Innovator Companies
This key attributes of companies whose strategy is to be innovator were depicted in the
section 3.2.1. These attributes have also been supported by the previous literature
(Thornhill and White, 2007; Campbell-Hunt, 2000; He and Wong, 2004; Brentani, 2001).
For instance, in a very recent strategic management journal article, the key attributes of
innovator companies are supported by two Canadian Associate Professors of Strategic
Management and Entrepreneurship and General Management. The authors investigate
whether pure or hybrid business strategies contribute to better performance of
organizations in multiple industries and find that the pure strategies never did less well
than any hybrid strategies (Thornhill, White, 2007). Likewise, the definitions of the
attributes have been operationalized by several authors up to date. The sources and
selection of Innovator Strategy metrics are shown in Table 17. Since all the constructs
have been applied or studied in previous researches, they can be said to be proven
measures.

Key Attributes Constructs Previously operationalized by

Innovator
Thornhill and White, 2007
Dess and Davis, 1984
Undertaking or leveraging R&D extensively
Narver and Slater, 1990
discovery
White,1986
Thornhill and White, 2007
Developing new operating techniques
Kotha and Vadlamani, 1995
Active marketing and sales department geared to
Treacy and Wiersema 1993
relationship selling
customers/buyers
State of the art information systems and extensive
Treacy and Wiersema 1993
sharing for customer data
Thornhill and White, 2007
differentiation Developing or leveraging new products & services
Kotha and Vadlamani, 1995
Customization of products or services Treacy and Wiersema 1993
responsiveness
Responsive customer service department Treacy and Wiersema 1993
Decision-making power and authority to project
flexibility Treacy and Wiersema 1993
teams
Table 17: Innovator Strategy Items

47
Innovation Strategy Sub-dimension IV: Improver Companies

This key attributes of companies whose strategy is to be improver were depicted section
3.2.2. These attributes have also been supported by the previous literature (Thornhill and
White, 2007). In addition, the definitions of the attributes have been used as constructs by
several authors up to date. Since all the constructs have been applied or studied in
previous researches, they can be said to be proven measures. The sources and selection of
product innovativeness metrics are shown in Table 18.

Key
Constructs Previously operationalized by
Attributes
Improver
Thornhill and White, 2007
Dess and Davis, 1984
Kotha and Vadlamani, 1995
cost Reducing operating costs Narver and Slater, 1990
Spulber, 2004
White,1986
Zahra and Covin 1993
Thornhill and White, 2007
Miller and Friesen 1986a, 1986b
Improving coordination with customers Narver and Slater, 1990
efficiency
and suppliers Spulber, 2004
White,1986
Zahra and Covin 1993
Thornhill and White, 2007
reliability Improving measures of performance Kotha and Vadlamani, 1995
Narver and Slater, 1990
Thornhill and White, 2007
Dess and Davis, 1984
refinement Reorganizing the work process Kotha and Vadlamani, 1995
Miller and Friesen 1986a, 1986b
Narver and Slater, 1990
Table 18: Improver Strategy Items

Note that as stated in chapter three, for a company to be an innovator, the understanding
and the acceptance by the company’s employees/business units may be equally important
to ‘execute’ the company’s innovation strategy.

48
4.3. The Questionnaire
The data of the innovation strategy measurement tool are collected through a
questionnaire (APPENDIX D). The questionnaire survey is a common method of
collecting data in social sciences because not all strategy and innovation measures have
objective data. Using perceptual or subjective data has also been supported in the
strategic management literature (Cho and Pucik, 2005; Dess and Robinson, 1984; Powell,
1996). Therefore, one may inevitably depend on psychometric (subjective or soft) data
such as opinion or perception. In addition, questionnaire is an adequate way to reach to
wider audience.

As described in the previous chapters, the tool first target is to measure the innovations
and the perceived strategy from a holistic perspective. That is, understanding the top-
down business strategy by the employees and employees working on related innovation
projects will be compared (i.e. bottom-up approach) to examine whether there is a
relation exists. In the case of a relation, this comparison would provide an assessment of
fitness of the innovation strategy. Therefore, the name of the questionnaire has been
labeled as ‘Strategy Fitness Analysis’.

The Strategy Fitness Analysis (SFA) questionnaire is combined with Company

Innovativeness Measurement (CIM) questionnaire in application. The survey is initially
developed in the form of a MS Word file, which provides an easy way of distribution to
the respondents. That is, it can be answered either digitally or be printed out to fill in.

Development of the Questionnaire

Overall, there are 26 questions in the SFA questionnaire by which 5 are control questions,
6 are innovation project related questions and 15 are strategy related questions. The
questions asked from the respondents are multiple choice questions with one exception.
The last one is an open question regarding the opinions of employees for gathering the
information on what sources of the innovation strategy is required to pursue their
business unit’s innovation strategy. These answers are to be used to link the innovation
strategy with the innovation capacity of the company qualitatively. Therefore, they will
not be involved in results calculation.

In the general information part of the questionnaire, respondents are asked to give the
information of their business unit, job responsibilities, age, whether they are managers
(e.g. executives) or employees (e.g. consultants) and their job experience within their
current company. These questions will be used as control variables to categorize the
results from different respondents in the analysis.

Sample Selection
Given the time constraints, there was a need to pick a sample which represents the whole
population (i.e. IBM Netherlands). The first intention was to conduct the study in the
same four business units (ITS, BC&RS, S&D and Distribution) as of the previous study
of van Reijzen. However, two of these four business units could not be reached because
the composition of the business units had been changed due to the dynamic and flexible

49
organization structure of IBM. The other two business units under study (BC&RS and
S&D) could be reached with individual efforts. The remaining two business units (S&C,
GBS) were contacted under the assistance of the external supervisors. It is also important
that the selected business units are representative of the whole organization (i.e. IBM
NL). For assuring the representation, several internal IBM documents explaining the
organizational structure of IBM have been studied. In addition, the external advisors
provided information on the composition of the organization together with the complex
organizational chart in the meetings during the study. For the description of these
business units, see the APPENDIX F.

Data Collection Procedure

The interviews were scheduled by appointments in one month frame. The respondents
were contacted first through e-mail with the supervision of the external supervisors. Once
the potential respondents showed their will to cooperate, they were reached by the
internal IBM phone. Then the face to face meetings were scheduled. The accessible
population, in other words, the total numbers of employees in IBM Netherlands is
approximately 2200. However, the study could be conducted in four business units and
with 19 respondents in total due to practical limitations.

Scales used
The innovation project questions were asked with respect to the frequency of usage of the
employees in the organization from a 3-point scale. An alternative measurement would
be a five point Likert scale. However, in order to assign weights, this method is
considered as appropriate. The calculation and its method will be provided in section 4.4.

Most of the strategy questions are applied at ordinal scale level. At this level there is a
distinction between the degrees of importance with respect to their understanding of the
strategy. However, the intervals of the categories do not allow an expression in numbers
mathematically. Therefore, a 5-point Likert scale is applied to these questions ranging
from not important at all to very important. For every statement, the respondent can only
choose one answer out of the five options. In addition to these structured questions, other
two questions were asked to check the consistency of the answers and to gather insights
on the focus of work; either on products, operations and or customers both at the
organizational level and business unit level. Finally an open ended question is asked to
understand what sources are needed to execute the innovation strategy of the business
unit successfully. The depending on the qualitative responses, the link between the
innovation capacity and the innovation strategy is made. For more detailed information
visit Chapter 6

In addition, respondents are requested to explain their understanding on innovation,

strategy and innovation strategy both at company and business level with open ended
questions. However, this was found too much time consuming both for the respondents
and for the analysis. Therefore these questions were either deleted or changed into close-
ended questions. The details on the changed statements can be found in APPENDIX E.

50
4.4. Calculating and Presenting the Results
4.4.1. Calculation of Innovation Strategy Dimensions
The results have been calculated with respect to two dimensions of the Innovation
Strategy. These are

1. Innovation Projects
2. Perceived Business Strategy towards Innovation.

In the first part, the respondents are asked to rank each type of project according to the
frequency they perform them. For this, three- point scale is used which indicates a project
is either never, sometimes or always performed. This scale is an ordinal scale. Weights
have been assigned with respect to the frequency of the project (2, 1, and 0 for ‘always’,
‘sometimes and never ’respectively). Depending on the frequency per business unit, the
weights were multiplied and the scores were summed. Then these scores are converted to
percentages for meaningful comparisons at two levels (i.e. business unit and company
level).

In the second part, 5 point Likert scale is used with a value ranging from 1 (‘not
important at all) to 5 (‘very important). Previously validated constructs are used per
attribute of innovator and Improver Company. In order to reach the sub-dimension score,
averages of the related attributes per strategy dimension were taken. Next, the results are
converted into percentages for ease of understanding.

Innovation Strategy Dimension I: Innovation Projects

In this part of the research, information on innovation projects was obtained at two levels
(i.e. business unit and company level). This information consists of which type of
innovation project is being executed in the business unit together with the frequency of
the projects conducted.

The responses have been recoded in order to change the unit of analysis from project
level into individual level. This would enable the individual projects to be aggregated at
business unit and company level. These recoded innovation projects at individual,
business unit and company level are presented by the table 19 and table 20.

51
 Innovation Type
Radical
Incremental Innovation
Individual Level Frequency Innovations

NTW NTC AEL IM RP CR

always A1a1 … … … … A1a6

Respondent 1 sometimes A1b1 … … … … A1b6
never A1c1 … … … … A1c6
…

…
always Ana1 … … … … Ana6

Respondent n
sometimes Anb1 … … … … Anb6

never Anc1 … … … … Anc6

number of Respondents n … … … … n
Table 19: Innovation Projects at Employee Level

Next, the recoded data have been counted with respect to the frequency of individuals
undertaking certain type of innovation projects. Thus the items in table 19 can be
described as follows:

Afa1;6 : Innovation projects that the respondent always undertakes

Afb1;6 : Innovation projects that the respondent sometimes undertakes
Afc1;6: Innovation projects that the respondent never undertakes
n: Number of Respondents

The results of the business units could have been aggregated to obtain a company level
comparison. However, this would cause loss of information due to taking averages at two
levels (i.e. individual, business unit). Therefore the company level average is based on
taking the averages from the individual responses of the business units under study.

52
 Innovation Type

Radical Innovations Incremental Innovation

Business Unit Level (BU1; BU4)
Company Level +

Frequency NTW NTC AEL IM RP CR

Afa1= Count Afa6= Count

always … … … …
(A1a1; Ana1) (A1a6; Ana6)

Afb1 = Count Afb6= Count

sometimes … … … …
(A1b1; Anb1) (A1b6; Anb6)
Afc1= Count Afc6= Count
never … … … …
(A1c1; Anc1) (A1c6; Anc6)
Table 20: Innovation Projects at Business Unit and at Company Level

The innovation project types were further analyzed by assigning weights to the projects
to calculate how frequent the employees work on the stated innovation. The reason is to
track whether certain type(s) of innovation projects are clustered around one business
unit. These weights are shown in the table below (table 21);

Assigned Weights
Always 2
Sometimes 1
Never 0
Table 21: Frequency of Innovation Projects (weights)

Subsequently, these weights were used to calculate the distribution of the projects via the
weighted sum of the innovation projects. The calculation of the weighted sums (i.e.
WSInnovation Project Type) are presented in the table below at two levels (i.e. business unit and
company level)

53
Business Unit Level (BU1; BU4) Innovation Type

Radical Innovations Incremental Innovation

Frequency Weights NTW NTC AEL IM RP CR

Company Level +

always 2 Afa1 … … … … Afa6

sometimes 1 Afb1 … … … … Afb6

never 0 Afc1 … … … … Afc6

WSNTW =2* Afa1+ WSCR =2* Afa1+

Weighted Sum … … … …
1* Afb1+0* Afc1 1* Afb1+ 0* Afc1

Table 22: Weighted Innovation Projects at Business unit and at Company level

Next, the sub-dimension score is calculated by taking the averages with respect total (e.g.
SdNTW =WS NTW / WS Innovation Project Type *100). The final outlook which is transposed into
radical incremental innovations is shown in table 23 below.

Sub-
Company and Sub-
Weighted Sum dimension Dimension Score (%)
BU Level dimensions
Score (%)

Radical NTW WSNTW SdNTW DRadical= SdNTW+ SdNTC

NTC WSNTC SdNTC

Incremental AEL WSAEL SdAEL
IM WSIM SdIM DIncremental = Sum
RP WSRP SdRP (SdAEL; SdCR)
CR WSCR SdCR

Total Score
WSInnovation Project Type
=Sum (WSNTW ; WSCR)
Table 23: Innovation Calculation, Summary Table

WSInnovation Project Type = Weighted Sum per Innovation Project Type

Sd Innovation Project Type = Sub-dimension Score per Innovation Project Type
D = Dimension Score per Innovation Project (i.e. Radical, Incremental)

Innovation Strategy Dimension II: Business Strategy

The scale of the business strategy dimensions applies the Likert scale because these
statements describe the best possible perception of strategy for the respondents. A value
from 1 (‘not important at all) to 5 (‘very important) is given to the items using the
validated constructs as described in section 4.2.

54
 The steps for calculations and results are presented in the following table (table 24)

Dimensions Business Strategy Dimension I Business Strategy

Dimension 2
Sub-dimensions Sub-dimension 1.1 Sub-dimension 1.m … Sub-dimension 2.k

Question Q1 … Qm Qm+1 … Qr … Q12

Respondent 1 A11 … A1m A1m+1 … A1r … A112

…
…

…
Respondent n An1 … Anm Anm+1 … Anr … An12
A1= Am= Am+1= Ar=
A12= Average
Averages Average … Average Average … Average …
(A112,An12)
(A11, An1) (A1m, Anm) (A1m+1; Anm+1) (A1r; Anr)
Sub-dimension
Sd1.1= Average (A1; Am ) Sd1.m= Average (Am+1; Ar) … …
Score
Dimension
D1=Average (S1; S1m ) … …
Score
Table 24: Calculation of Business Strategy Dimensions at two levels

Q1:r = Questionnaire items

Anr = Answers of respondents per Question
A1:r = Average Scores per Question
Sd1.1:2.k= Sub-dimension Score per Business Strategy Dimension (e.g. discovery, cost etc)
D1:2 = Dimension Score per Dimension (i.e. Innovator and Improver Company)

The Sub-dimension score takes the averages of the related questions while the dimension
score takes the average of the sub-dimensions. The results for each Strategy Dimensions
are shown with the ‘Dimension Scores’ in the table 24. Next, the results are transposed
into percentages for ease of understanding. The summary table is presented with the table
25 below.

55
 Company/ Business Unit Level Strategy Comparison
Sub-dimension Dimension Sub-dimension Dimension
Dimension Sub-dimension
score (scale:5) score (%) (%)
Discovery Sd1 S1/D1*100
D1= SUM D1= SUM

… … …
Customers/Buyers (S1;S6) (S1/D1*100;

… … …
S6/D1*100)
Innovator Differentiation
Responsiveness
Flexibility Sd5 S5/D1*100
Cost Sd6 D2= SUM S6/D2*100 D2= SUM
(S6;S9) (S6/D2*100;

… …
Efficiency

… …
S9/D2*100)
Improver
Reliability
Refinement Sd9 S9/D2*100
Table 25: Strategy Calculation Summary Table

The weights of the sub-dimensions and the metrics are the same in calculations. An
alternative would be to assign weights. However, since the importance of different sub-
dimensions and attributes will not be the same for all business units or companies who
have their respective strategies, goals, and market environments, having same weight is
ok to track these differences.

In the research, information about particular business strategy of every business unit was
obtained and aggregated to company level. The results of the business units could have
been aggregated to obtain a company level comparison. However, this would cause too
much loss of information due to taking advantages at three levels (i.e. sub-dimension,
dimension, business unit). Therefore the company level average is based on taking the
averages from the individual responses of the business units under study.

4.4.2. Presenting and Interpreting the Results

One of the design requirements is to design the tool user-friendly. This includes being
consistent and assist the user to the interpret he results in an easy way. Thus, the radar
graph will be used for presenting the mathematical results at different levels such as
business unit and company level. Further, this representation has also been used in the
Innovation Capacity Test last year. In addition to the radar graph, pie charts are also
incorporated to give a detailed view of innovation project distributions.

The radar graph presentation is an easy way of presenting the information because it is
possible to incorporate the scores of all dimensions and sub-dimensions, as well as their
relative value to the best practice. An example of graphic presentation is shown in Figure
10 below. The detailed presentation of the results at two levels (i.e. company and
business unit level) can be found in APPENDIX N.

56
In order the tool to be operational, the relation between innovation and strategy by takes
the snapshot of the company in a particular time (i.e. time=t). By making use of the radar
graph representation, it is possible to track this relationship via combining the two axes,
namely x-axis (i.e. innovation projects) and y-axis (i.e. business strategy), that divides the
area into four quadrants.

Figure 10: Presenting and Interpreting the Results: Radar Graphs

• Quadrant I: Innovator Company with Radical Innovation Projects

• Quadrant II: Improver Company with Radical Innovation Projects
• Quadrant III: Improver Company with Incremental Innovation Projects
• Quadrant VI: Innovator Company with Incremental Innovation Projects

As described in the section 4.4.1, the final scores (i.e. dimension scores) are transformed
into percentages for comparisons. These scores were placed into the innovation/ strategy
matrix. In the matrix, the x axis represents the distribution of innovation projects while
the y axis represents the extreme poles of a company’s business strategy towards
innovation recognized by the feedback of employees all levels of the organization (360
degree appraisal).

The red lines around the shaded areas in all radar graphs represent the score of the sub-
dimensions, therefore, the position of the company. This red line makes it possible to
treat the company level results as a norm both for as a reference point to the other
business units of the organization and when using the tool for the IBM’s clients. In this
sense, the red line represents the best practice.

An absolute threshold does not exist as this is not necessary in this study. The reason is
that the firm (e.g. IBM) -either at a country level or a higher level such as geographical or

57
corporate level- can be a reference point for its smaller units and /or its competitors,
clients etc.

There are 4 possible interpretations of the results at two levels (i.e. business unit and
company level):

1. You are an innovator company/business unit who focuses on radical innovation

projects
2. You are an improver company/business unit who focuses on incremental
innovation projects
3. You have both qualities of ‘Innovator’ and ‘Improver’ Company/business unit.
4. You do not have a clear understanding of the innovation strategy of the
company/business unit.

The first two interpretations represent ‘pure’ business strategies to pursue innovation
either in terms of creating new products, services or business models or improving the
existing products, services or business models. In order to claim whether a company is an
innovator or an improver, the blue area (i.e. the position of the company) in the radar
graph needs to concentrate on Quadrant I or Quadrant III respectively.

The third type of interpretation represents a ‘hybrid’ business strategy. That is, the
organization works on both radical and incremental innovations and possesses the both
qualities of innovator and improver companies. In order to claim whether this type of
interpretation holds, the blue area (i.e. the position of the company) needs to concentrate
on Quadrant I and Quadrant III respectively.

The fourth type of interpretation shows that a clear understanding of the innovation
strategy is not present in the organization as a whole. That is, there may be a mismatch
between the strategy and the innovations that take place (e.g. Improver
Company/business unit with radical innovations or vice versa). A company/business unit
can be said to ‘confused’ in terms of the strategy and the practice if the blue area (i.e. the
position of the company) concentrates on Quadrant II or Quadrant IV. In this case further
attention should be paid in order to depict the reasons of the mismatch. A way for dealing
with the mismatch can be through the innovation capacity analysis of the firm. Chapter 6
will elaborate on this subject.

The particular strategy of a business unit and the type of its major innovation projects can
provide directions to judge which dimensions and sub-dimensions of innovative strategy
are more essential with respect to its strategy and therefore deserves a point of attention.
Therefore, each interpretation is also accompanied with the sub-dimensions of both the
perceived strategy and innovations that take place in the business unit/company.
Depending on the number of sub-dimensions (APPENDIX N), the radar graph takes the
shape of a triangle, diamond, and pentagon and so on. Regardless of what shape is being
presented, the main point is that the black lines in the outer layer of each graph represents
the maximum value in which the variable can take its value from.

58
The sub-dimension scores can be ranked as relatively higher or lower compared to the
other sub-dimensions. For instance at company level, it can be observed that the company
possesses both qualities of innovator and improver company although being an innovator
is ranked higher than being improver (APPENDIX N). This is because the strategy sub-
dimensions such as discovery, differentiation and flexibility is perceived as more
important than focusing on the cost of the innovation projects. In addition, as a property
of an improver company, efficiency and reliability is ranked as more important than the
other qualities. Further interpretations will be provided in chapter 6.

4.5. Outcome: Relationship between perceived Business

Strategies and Innovation Projects

A point that deserves a point of attention is the tool’s ability to track a relationship
between the innovation and the perceived strategy at different levels. This is crucial for a
measurement tool to be operational. This relationship has been investigated via the blue
area in the radar graph (figure 10).

The distribution of the blue area shows the position of the company with respect to its
innovation strategy. The type of the projects and the strategy of the organization are
shown in a continuum to avoid simplistic interpretations such as ‘we always innovate’ or
‘we always work on radical projects’ (figure 10). Therefore, they represent the ideal
situations (APPENDIX N; p124) Thus, by observing the area in the radar graph, it is
possible to see the relationship between the innovations and the strategy. Furthermore,
whether the organization operates under pure or hybrid strategies can also be observed
(section 4.4).

4 Possibilities:
1- Innovator Company
2- Improver Company
QIV Quadrant I: 3- Innovator + Improver Comp.
Innovator
Match 4- No Clear Strategy = ‘Confused’

Relation: MATCH
1- Innovator - Radical (QI)
2- Improver - Incremental (QIII)
Improver Quadrant III: 3- Both Qualities (QI & QIII)
Match
QII
Relation: MISMATCH
Incremental Radical 4- Innovator - Incremental (QIV)
4- Improver - Radical (QII )
4- Neither Qualities (QII & QIV)
Figure 11: the Relationship between Business Strategy and Innovation Projects

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What is interesting is that the radar graph shows more than a relation. It also shows a
match or mismatch between the perceived strategy and the executed innovation projects.
For instance Quadrant I and Quadrant III show a potential match between the perceived
innovation strategy and the innovation projects the employees are working on. That is, if
an organization is said to be an innovator, their emphasis would logically expected to be
on radical projects. Similarly, if the organization emphasizes improvements and this
would be expected to reflect in their work as incremental innovation projects.

On the other hand Quadrant II and Quadrant IV show a potential mismatch between the
perceived innovation strategy and the innovation projects the employees are working on.
That is, if an organization is said to be an innovator, emphasizing on incremental
innovation projects over radical innovations would not make sense by the very definition
of innovator strategy and incremental innovation projects (section 2.5). The same case
holds for the organization that emphasizes on small improvements while working on
radical innovation projects. Although this type would attract the companies, it is simply
not more than a legend given that the sources of innovations (i.e. resources, capabilities,
network and culture) are not infinite. As a logical next step, this result enables one to
connect a company’s innovation capacity (van Reijzen, 2006) with the innovation
strategy to investigate this relationship.

Thus, by observing the relative size of the areas in different quadrants, it can be seen that
the tool not only the tracks the relationship between innovation and strategy, but it also
identifies a potential match or the mismatch between the innovations and the strategies.
This way the fourth research question, whether there is a relationship between the
strategy and the innovations, has been answered.

As a summary the steps for tracking the relation is provided below.

1. Check the Business Strategy of the Company towards Innovation
a. Pure Strategy? (i.e. Innovator or Improver)
b. Hybrid Strategy? (i.e. Innovator and Improver)
2. Check the Innovation Projects
a. Emphasis on Radical Innovations?
b. Emphasis on Incremental Innovations?
3. Identify the mismatch
4. Investigate the potential reasons.

Note that regardless of the firm perceiving a pure or hybrid strategy, a mismatch between
the perceived strategy and the innovation projects of the organization/unit may still exist
(APPENDIX N, p 123).

In this case, the innovation capacity test (van Reijzen, 2006) can provide further insights.
In that study, the best practices that make up the sources of innovation has been analyzed
extensively through four major domains (i.e. resources, capabilities, culture and
network). Therefore, by depicting the potential problems of the sources of innovation at
the company/ business unit, not only a better understanding/acceptance of the perceived
innovation strategy by the company would be obtained, but also the focus areas that are

60
needed to increase the innovation capacity of the organization could be depicted. The link
between the test results and the innovation capacity test are provided in chapter 6.

61
Chapter 5: Validation and Testing

Main Points of Chapter 5

- With regards to the measurement tool , there are two main questions that needs to be answered :
whether the tool works as intended (i.e. Validity ) and whether the results reflect the reality (i.e.
Reliability ).

For this , 4 points require attention . These are:

1. Appropriateness of the framework ,

2. Translation of framework into the measurement tool,
3. Obtaining meaningful results ,
4 Appropriateness of the assessment method.

- As the framework is based on an extensive review of literature and theory , it does not need
further validation . In addition t he independent variables used in the framework are based on
various empirical studies . Therefore they can be regarded as proven measures .

- The translation of the framework into the measurement tool is made via a questionnaire .

- The questionnaire is qualitatively validated based on the design requirements , expert reviews
and a pilot test . Further quantitative validation requires a large - scale study.

- The questionnaire is pre -tested on a number of innovation experts both at the issuer of the study
and in TU Delft. During the pre-test , it has been verified that the questions are clear , unambiguous
and relevant . Further, it was confirmed that the questionnaire can yield to meaningful results .

- During the pre-test, the weakest point was found to be answering the questions with the
company in mind . A number of changes has been made; the most important being the addition of
definitions (i.e. business unit, innovator & improver strategy , radical & incremental innovations ).
This point has been slightly improved in the pilot test .

- The test on the four business units yielded interesting results . For instance , the company is found
to focus on rather incremental projects although they acknowledge they are an Innovator . Further,
the robustness of the tool is supported with one exception . In one business unit , the degree of
radical innovation projects were mixed . To understand the causes, a number of steps have been
undertaken.

- In a reflection on the test and its outcome , several insights were obtained . The most important
two insights for further studies are :
1. One unit may not be the most desired sample for the current study . This may be because
the unit do not work on innovative projects . Rather, they have a coordinating role . Thus, further
controls (e.g. Business focus of units ) may be needed.
2. Incorporating examples of innovation projects in the questionnaire would make the results
more reliable .

62
The purpose of the validation is to confirm the correctness of the research framework and
the transformation of the theory in practice.

Mainly the number of things that need to be validated can be summarized as follows:

1. Appropriateness of the framework (section 5.1)

2. Translation of framework into the tool (section 5.2)
3. The assessment method (section 5.3)
4. The functional measurement tool (section 5.4)

5.1. Expert Review

A fine way of assessing the appropriateness of the framework is to let the experts review
and comment on the framework of the tool. This part of the research was an iterative
process, in which continuous refinements are made and the appropriateness of the
framework was approved following the advices and comments from academics then
practitioners, then back to academics and so on. The expertise of the reviewers is
enclosed in APPENDIX G.

In the earlier stage of the research, two sessions were conducted at IBM. In these rounds,
several innovation and strategy models and their sub-dimensions were presented and a
selection was being made with respect to the company’s best interest. In the first expert
consulting, the experts mentioned their interest to see the distribution of ‘New to the
World’ and ‘New to Company’ projects that are being performed in their company. The
next question they were interested in is the frequency of these projects. The opinion of
the company is crucial because one of the design requirements is that the reference point
of the tool is the issuer (i.e. IBM). However academic approval is also important in order
to base the arguments in a scientific way. For this reason, management of technology
experts was presented with the selected dimensions that stems from previous literature
and these (sub-) dimensions were approved.

5.2. Pilot Test

The second stage of the validation includes the translation of the framework into a
measurement tool. This conversion is made via the Strategic Fit Analysis (SFA)
questionnaire. In this phase, there are two main aspects for validation the appropriateness
of the questionnaire. First aspect includes he development of the questionnaire and the
second part includes the pilot testing.

5.2.1. Pre-test of the SFA Questionnaire

As stated in section 4.2, both the key attributes of innovation strategy (i.e. business
strategy and innovation dimensions) and the constructs used are already validated
measures from previous studies.

63
However, an additional check with 12 experts from various disciplines (i.e. practitioners,
academics, and MSc. MoT students) was made to observe whether the questionnaire is
error free in terms of ease of understanding, grammatical and logical errors, and
exclusivity of options. The questionnaires were given to the respondents in the form of
hard copy and the feedback was obtained via face-to-face discussion following
immediately after they were finished with answering the questions. 4 respondents from
IBM were not in any business units which were involved in the formal data collection
stage. They chose to answer the questions digitally and sent back the answers and
opinions by email.

The following aspects were investigated during the initial testing:

1. Is the introduction provided enough to understand what was expected from the
respondents?
2. Are all questions clear and unambiguous?
3. Are the respondents able to answer every question with their business unit or
company in mind?
4. Do the respondents perceive the questions as relevant for their business unit or
company?
5. Do the respondents think the questionnaire can yield meaningful/interesting
results?
6. Is the format and setup of the questionnaire good?

The average ratings on these items together with their subsequent standard deviation are
presented in table 26.

Rating Standard
Feedback Questions 0 2 4 6 8 10 Deviation
Was the introduction provided
enough understanding of what 0, 67
was expected from you ?

Were all questions clear and

unambiguous? 0, 52

Were you able to answer

every question with your 0, 82
company in mind ?

Do you think the questions

were relevant for your 1, 17
company?

Do you think the questionnaire

can yield to meaningful / 0, 57
interesting results ?

Was the format and setup of

the test good? 0, 74

Table 26: Appropriateness of the Framework

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All the questions were rated with 6 or higher. However, the feedback showed that the
weakest point of the questionnaire is the third aspect, where the questions could be
answered with the company in mind. There are several things done to improve the aspect.
These include:

1. Refining the introduction,

2. Adding definitions such as the definition of a ‘business unit’,
3. Highlighting the instructions and
4. Rephrasing the statements and the questions.

In the formal data collection, the evaluation question “Were you able to answer every
question with your business unit in Netherlands in mind” was kept as feedback question.
The average rating of this evaluation question was 7, just slightly better than the results of
initial testing. Actually, this rating makes sense since IBM has a complex and flexible
organization structure that includes a wide range of businesses. The major responsibilities
and businesses of different business unit vary substantially. Therefore, it is
understandable that some questions are not applicable to all the business units under
study.

Refinements were made based on both the comments from expert reviews and feedback
from pilot tests. The changes mainly focus as follows:

1. Stressing the scope: which tells the reader that he/she should answer the
question with the business unit has been working for a period of time in mind by
stressing IBM Netherlands, in the introduction and instruction contents;
2. Rephrasing statements and questions in simpler sentences in order to facilitate
easy understanding;
3. Multiple choice questions instead of open questions to increase respondent rate;
4. Clearer layout for easy reading and avoiding of misunderstanding
5. Including definitions of Innovation Strategy dimension definitions: including the
definition of Innovation Strategy, Innovator & Improver company strategy, and
Radical & Incremental innovations.

The questionnaire and the refined questions and detailed changes are recorded in
APPENDIX D and APPENDIX E respectively.

5.2.2. Pilot Test

Following the initial check, a pilot test has been conducted with IBM employees for
translating the framework into the measurement tool. The sample selection, data
collection procedure and the scales used in the SFA Questionnaire are described in detail
in section 4.3.

The appointments were made one month in advance while the questionnaire was sent
digitally one week in advance. During the phase of reaching the respondents, it was
assured that they were also invited to have a face-to-face discussion to obtain their
feedback on the questionnaire and its results.

65
In total, 19 people from 4 business units participated for the pilot test. 6 out of 19
respondents are managers. The distribution of respondents in the 4 business units is
shown in table 27.
# of Non-
Business Unit Managers
Respondents Managers
BU1 6 0 6

BU2 5 2 3

BU3 4 2 2

BU4 4 2 2
Table 27: Distribution of Respondents in the 4 business units

All respondents were given a questionnaire in MS Word form. 14 of them completed the
questionnaire without oral guidance. 5 of them filled in the questionnaire during a face-
to-face meeting or a conference call, which allowed them to ask for immediate oral
questions when they had difficulty on understanding the questions and/or the context. It
was found out that face-to-face meetings or conference call made it easier to receive the
answers in a shorter time.

The sample composition is provided in the table below. As can be seen in the table 28
below, the job titles are not sufficient enough to judge whether the respondent is a
manager or an executive or a regular employee (Client Executive or Client manager who
are not managers). Therefore, further decomposition was made in terms of being a
manager, age and job experience. The results are shown in table 29.

Not Manager Manager

Managing Consultant Business Development Manager
Offering Manager Benelux Cluster Unit Executive
Client Executive Cluster Unit Executive
Client Executive Manager
Client Manager Managing Consultant
Consultant Managing Consultant
Consultant
Consultant
Consultant
Consultant
Consultant Technology Strategy
Managing Consultant
Senior Managing Consultant
Table 28: The Employee Mix by Job Role

66
 Management Layer Age Job Experience
below 30 3 0~6 9
manager 6
Sample 31 ~ 40 6 6 ~ 12 5
Composition 41 ~ 50 9 12 ~ 18 0
not
13 51 ~ 60 1 18 ~ 24 4
manager
above 61 0 24 + 1
Total 19
Table 29: Sample Composition

The representation rate is given with the table 30 below. This number is not a satisfactory
scientifically since the minimum number of participants is required to be 30 or higher for
statistical calculations. However the sample size (n=19) can be treated as a big success
compared to the number of respondents in the previous research with the innovation
capacity test (n=8) given the limitation of time and resources.

# of Representation
Business Unit # of Respondents
Employees Rate
BU1 6 80 7.5%
BU2 5 16 31.25%
BU3 4 273 1.47%
BU4 4 228 1.75%
Table 30: Representation Rate of Business Units under study

After the pretest of the questionnaire, two relevant evaluation questions that scored
lowest were kept for the pilot testing. These questions were answered by 11 respondents
out of 19 (table 31). According to the feedback, the degree of clarity of the questions is
slightly increased from medium to slightly above medium level. Due to the limitation of
time, in this research it was not possible to arrange face-to-face meetings for every
respondent. However it was made sure that at least one respondent per business unit were
given the questionnaire and explanations on the questions were provided when needed.

The maximum rating on the first question was 10, while the minimum was just 4. For the
evaluation on relevance to the business unit, the ratings also differ, ranging from 4 to 9.
Notably, respondents who could ask for oral explanation during the pilot test gave higher
ratings. This suggests that instant clarification through face-to-face meeting or telephone
call helps the understanding of respondents. There may be two possible explanations for
this. First, the respondents are practitioners in which their task is defined as giving
consultancy services, doing market analysis, focus on distribution and identifying
business opportunities and develop the market. However, each task is distributed in a
somewhat predefined form, therefore the terminology of the innovation studies was
different from the tasks they are assigned to do within the company. Secondly, the
respondent’s schedules are very busy and each hour devoted to a task, which is different

67
from their domain costs them points from their performance and reflects as negative in
their payment structure.

Rating
Feedback Questions 0 2 4 6 8 10

Were all questions clear and

unambiguous ? 1,58

Were you able to answer

every question with your 2,00
company in mind ?
Table 31: Evaluation of the Pilot Test

The response rates of the questions in the questionnaire per sub-dimension and per
dimension of innovation strategy are presented in APPENDIX H. Overall; more than
95% of all the questions were answered. This suggests a high response rate.

For the questions, which were not answered in the questionnaire, the respondents were
reached by phone and asked for the reasons of the non-response rate as the small sample
size and few non-responses could be easily tracked. The respondents stated that the
question, whether strategy related or innovation project related was not applicable for
their individual task. However, the high response rate among the other respondents within
the related business unit suggests that the non applicability of responses from individual
task differences and may not be aggregated to business unit level. Thus, it can be
concluded as the respondents could answer the questions at ease. Furthermore, the
questions that are asked do not create sensitivity towards their own performance because
the respondents are aware that it is the innovation strategy profile of the business unit/
company is being investigated rather than the individual profiles.

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5.3. The Assessment of the Method: Robustness Check
The assessment of the innovation strategy has been conducted from two perspectives: a
top-down approach (i.e. understanding of the business strategy) and bottom-up approach
(i.e. innovation projects the employees work on).

1. Top-down approach (Business Strategy Dimensions)

The weights of the sub-dimensions and the metrics are treated equally in calculations. An
alternative would be to assign weights. However, since the importance of different sub-
dimensions and attributes varies among the business units or companies having same
weight is reasonable to track these differences. Business strategy of every business unit
was obtained and aggregated to company level based on the individual responses.

Alternatively, it could have been obtained via the aggregation of business units if the
study was conducted at a large population. However, in this research, aggregating the
business units into company level would cause too much loss of information due to
taking advantages at three levels. Therefore the company level average is based on taking
the averages from sub-dimensions to get the dimension score from the individual
responses. This claim was supported with the representation of the results with radar
graphs.

2. Bottom-up Approach (Innovation Projects)

For assessing the frequency of innovation projects, a simple robustness check was made.
The aim of the robustness check is to assess whether the frequency on working on a
certain type of innovation project has a different effect on the radicalness of the
innovations. That is, the aim is to understand the reliability of the innovation projects
weights.

Since the frequency of the innovation projects are measured with an ordinal scale, the
difference between ‘always’ working one a project, ‘sometimes’ working on a project
and ‘never’ working on a project cannot be mathematically calculated.

For this, different weights have been assigned to each type of innovation projects. These
weights are presented in the table below (table 32).

Assigned Weights
Always 2 10 50
Sometimes 1 1 1
Never 0 0 0
Table 32: Simple Robustness Check: Different Weights

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The results of the simple robustness check at two levels (i.e. business unit and company
level) are presented in the table below (table 33).

Simple Robustness Check (Company and Business Unit Level)

Innovation W1= Weight W2= Weight W3= Weight Standard Deviation of

Projects 0,1,2 0,1,10 0,1,50 different weights
Company Level SDW1,W2 SDW2,W3 SDW1,W3
Radical 28.23 28.76 28.97
0.38 0.15 0.53
Incremental 71.77 71.24 71.03
BU1
Radical 27.50 27.34 27.29
0.11 0.04 0.15
Incremental 72.50 72.66 72.71
BU2
Radical 34.78 51.06 62.28
11.51 7.93 19.44
Incremental 65.22 48.94 37.72
BU3
Radical 29.41 27.87 27.40
1.09 0.33 1.42
Incremental 70.59 72.13 72.60
BU4
Radical 22.22 18.67 17.14
2.51 1.08 3.59
Incremental 77.78 81.33 82.86
Table 33: Simple Robustness Check Results

Overall the robustness was supported via assigning different scales through standard
deviations. By making the weights extreme (e.g. working on a certain type of project is
50 times more important than working on the same project sometimes), it was possible to
test the assessment method and the sample that is selected.

The robustness check is partially supported with one exception. The weights were
generally supported given with one exception (i.e. BU2). The case of the second business
unit requires special attention. Because they are the forefront of IBM and they don’t have
connection with R&D. The five respondents either did not answer the innovation related
questions or gave equal answers eliminating the discrimination of frequency.
Further interviews were conducted for understanding the causes which are described in
the next section and in chapter 6.

In addition Business Unit 3 and 4 do not represent very strong arguments in favor of the
scale because of its small sample size. To make the results significant statistically, each
cell should contain 5 responses. Business unit 3 and 4 does not satisfy this criteria as only
4 respondents could be reached due to time and resource limitations. Yet, the results of
the units give a clear insight on the innovation projects they claim to work on.

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5.4. Discussion of the Results (post-test)

Following the analysis of the questionnaire and results of the strategic fitness, interviews
with four business units were held to make sure the results reflect the real situations. The
respondents were shown the scores represented with tables and the radar graphs during
these interviews for their opinions on them. In general, the results were understood and
confirmed by the IBM respondents. However, their feedbacks focus on two aspects:

1. Difference of opinions on innovative projects (i.e. radical innovations)

2. Special case of second business unit under study.

First of these aspects is the definition of what innovation projects mean. For instance, an
anonymous respondent stated that although the results of the radical innovations are low
(i.e. 27,5%) compared to the other innovation projects, this score is still too high as they
are mainly working on additions to existing product lines. He mentioned that to assure
that people are working on radical innovations; requiring the respondent to give examples
of projects could make the results more solid. The following two quotes from other
respondents support this claim:

“Employees understand that we are an innovator company but when it comes to who
makes the innovations everyone points out one another except himself. One example is
the ‘low farm’. We sell supercomputers as business but no one really knows who is
actually making the innovation”

“We know how to make innovations in the lab but when it comes to the corporate level it
becomes fuzzy”

The second aspect focuses on the special case of the second business unit under study.
The sample was selected with the aim of selecting the same sample to make the results
inline with the innovation capacity test. Van Reijzen undertook the mentioned study last
year.

The second business unit was selected on the basis of this emphasis. In this business unit,
the robustness check results were mixed. To understand the causes of the mixed results,
the responses of the questionnaire were analyzed and a discussion with unit’s manager
was held.

It was found that the respondents either did not answer the innovation project questions
or marked ‘sometimes’ to all innovation project types. This eliminates discrimination
between different types of projects that are claimed to be undertaken. Given the small
number of respondents (n=5), the question of whether this business unit works on every
type of project remains as a crucial question. Therefore further discussions were held
with the manager of the unit.

The questionnaire includes two questions that can be used as further controls. In these
questions the respondents are asked their company’s and their related business unit’s

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strategic focus. The items include focusing on a combination of products/ services,
operations and/or the customer. According to the test results, this business unit has no
focus on products or services and mainly concentrates on customer and/ or to the
operations (APPENDIX I). This result is confirmed by the discussion with the manager
whose unit’s innovation project results are mixed. The manager stated the following:

“Our business unit is just the forefront of IBM. We do not invent or own the products;
they are being invented in the US. The other business units in IBM NL can also define
what product/service to produce. However, our task is to identify and see the market
opportunities and connect the parties but not to invent the products.”

The quote suggests that depending on the business unit’s focus of activities (e.g. no
product/ service focus), the test may not be suitable for the study.

“We make marginal changes to the existing innovations” and “Innovation always starts
small”.

This statement implies that in the short term, if the innovation creates a big change in the
way people work but do not generate as much revenues, then the customers may become
conservative to accept the radical innovation.

The quotes of the manager suggest that the unit may not be the most desired sample for
the study. This is because the unit does not work on innovative projects. Rather, they
have coordination and a cooperation role. The following quote from the manager also
supports this point.

“We focus on our clients and their business model more than our own business model.
However, although we see the market opportunities, it is quite difficult to translate them
into innovations because we have to work really hard to convince the other business units
when we see the opportunities. Therefore, cooperation is very important for our business
unit. We are hindered by the rest of our company.”

The abovementioned statement of the manager points out the necessity of strong
cooperation. From the statement, the reason for lack of coordination might be caused by:
1. The different targets and time focus of business units,
2. The use of different performance measurement systems in different business
units.
The reviewers mentioned that the different targets and time focus and performance
measurement systems vary among the business units, which may make it difficult to
motivate and help each other.

In addition it was also stated that extracting the resources are problematic. Although the
effort reserved for a potential innovation is high, it was stated by a manager of a business
unit under study that the innovations always start in a small scale. However, especially
the financial returns or revenues arrive average 1-2 years later. That means innovation
takes time. However some business units are driven on quarterly bases. The different

72
targets and time considerations (i.e. quarterly results versus annual results or expecting
immediate results) may make it difficult to cooperate and make innovations. If the other
business unit is not interested to cooperate, convincing the other business units may
become problematic and may result in the loss of the identified opportunities easily.

The respondents of this business unit under study stated that to realize their innovation
strategy, they need the following elements:

• Integrated team play, trust,

• Less pressure from internal processes, knowledge of IBM's capabilities, skilled
resources
• Focus on customer success, time with the customer at a strategic level, innovation
that matters for the customers.

The full list of required sources for translating the innovation strategy into innovative
projects can be found in APPENDIX I and APPENDIX J. The points that require special
attention for further studies can be summarized below:

• Selection of the sample (i.e. individuals) with respect to different employee mix
(i.e. professional layer, job role, age, job experience).

• Selection of sample (i.e. business unit) with respect to its proximity to the market
and to the technology. This implies eliminating business units that have only a
coordination role between the technology and the market and concentrating more
on the units that are actually involved in making of innovations.

• Analyzing the companies with more controls. Examples include the focus of
activities (e.g. product/service, operations or the customer), difference of
Innovation Strategy difference on business unit and at company level
(APPENDIX G).

• Asking at least 1 real case (as an example) to the respondents that claim to work
on a certain type of innovation project in a pre-determined time (e.g. past 6
months). This can either be included in the questionnaire via an open end question
or through meetings.

73
Chapter 6 Feedback on the Case Study
Main Points of Chapter 6

The effect of the Innovation Strategy on the company can be analyzed in 3 ways:
1. via the Innovation Capacity of the company
2. via the relationship between the Innovation Capacity with the company Innovativeness
3. via the direct effect on company Innovativeness

This chapter answers the fifth research question (Q5) and provides feedback via these 3points.

Q5: Can the tool measure the relation between strategy and innovation ?

Yes, in the case study of IBM Netherlands, the results of the business unit and of the company
point out a potential mismatch between the intended strategy and the actual innovation projects .
The results suggests that when there is a strategic non -fit, the Innovation Capacity does not reflect
on company’s Innovativeness . The results also suggest that different business units require
improvements in certain areas such as Capabilities , Network and Culture.

- The tool shows the perceived Innovation Strategy (i.e. Top-down Strategy, Bottom-Up
Innovation Projects ).

- At company level, there is a clear trend that regardless of the employee mix (i.e. professional
layers , age and job experience ) employee opinions do not differ .

- The tool shows that the employees understand and executes its business strategy on the basis of
both ‘Innovator’ and ‘Improver’ company properties (i.e. hybrid strategies ). Further , the employees
see their company as an ‘Innovator’ (79%) over being an ‘Improver’ (74%).

- The tool shows also that the company involves both radical and incremental projects . For a
company with hybrid strategies , the expected ratio would be 50%. However, radical project ratio
(radical/ all projects ) is 28% while innovation projects ratio (incremental / all projects ) is 72 %.

-The mismach may be caused by 4 points :

1. lack of sources required for undertaking / increasing the level of the radical projects .
2. the general business focus of the company under study
3. representativeness of the sample (i.e. business units selection )
4. reliability on employees perceptions for projects

- The following are sources that particular business units require for further improvement :

- S&C and S&D requires more ‘Capabilities’ for being more innovative
- GBS D requires a better ‘Network’ for being more innovative
- BC & RS requires a change of ‘Culture’ for being more innovative .

74
6.1. Innovation Strategy Perception & the Fit (Company)

At company level, there is a clear trend that regardless of the employee mix, that is,
regardless of the professional layers (i.e. manager or not a manager), age (i.e. below 40
years or 40 years and above) and job experience (i.e. below 6 years, between 7-12 years
and above 12 years of experience within the company), the difference of perception of
business strategy sub-dimensions is not significant (figure 12, figure 13 and figure 14).
That is, there is no opinion gap in the employee mix.

This result suggests that the Innovation Strategy of the company is well-understood and
accepted by its employees. In other words, the employees perceive their business unit and
their company as having a hybrid strategy: with being both Innovators and Improvers.
Although the difference between the two innovation strategy types is not significant, the
employees rank being an ‘Innovator’ higher over being an ‘Improver’ (i.e. 79% and 74%
respectively).

Having the qualities of both strategies is confirmed by IBM related documents found in
its intranet and confidential reports provided within IBM Netherlands. IBM’s strategy
involves 4 focus areas that include both strategy characteristics. Although having both
qualities of the Innovators and the Improvers, one would expect a higher emphasis on
being an Innovator by observing IBM’s business strategy because 3 out of 4 focus areas
point out to Innovator Company characteristics.13

The sub-dimensions of the innovation strategies provide interesting results. By

investigating the results of these sub-dimensions (APPENDIX K), it can be seen that
there is few opinion gap between the employee-mix. Overall, the gap between the
employees at different groups points out 4 points: Discovery, Responsiveness,
Differentiation and Efficiency.

For Innovator Company sub-dimensions (i.e. discovery, responsiveness and

differentiation); managers and employees with more than 12 years of experience and
employees who are older than 40 years old is observed to have a more positive perception
than the other groups (APPENDIX K). This suggests that the more the experience, the
more employees rank the three dimensions higher. On the contrary, for efficiency, the
more the experience, the fewer focus on efficiency is observed.

For the innovation projects undertaken by the business units, similar findings are
available at company level (figure 12, figure 13, and figure 14). That is, regardless of the
employee mix, employees conduct more incremental projects and fewer radical

13
1. ‘Service Excellence’ (operational excellence, Improver),
2. ‘Growing the Base’ (e.g. Discovery, Exploration; Innovator),
3. ‘Differentiating the Portfolio’ (e.g. Differentiation; Innovator) and
4. ‘Empowerment the Workforce for Innovation’ (e.g. Responsiveness, Customers/buyers;
Innovator).

75
innovation projects. In addition, the employees from different groups (age, experience,
management layer) agree on the aggregated results.

As the incremental innovation projects analyzed further, it can be seen that the highest
frequency of innovations are on the AEL and IM projects (additions/ improvements of
current innovations) (APPENDIX L). The result suggests moderate levels of innovative
projects. The lowest frequency of projects is found to be NTC and CR. This result
implies, in general, the company does not focus on the lowest innovative projects.
However, the employees do not propose or work on new to the company projects either.
As mentioned in the results discussion in section 5.4, this may be due to coordination
problems and conflicts of interest between units to bring the parties together.

Another interesting result is that there is a large difference between the projects between
the younger and older employees. As the experience increases, the innovation project
trend tends to be flatter (APPENDIX L). A possible explanation of flatness or the
variability might be due to the fact that as the employees get older and more experienced,
they may not perceive the innovations as new anymore. Similarly, the younger and less
experienced employees may come up with innovation projects by combining new kinds
of software, hardware, service, clients and so on. And this combination may explain the
relatively higher differences in the distribution of the projects. However, to confirm these
insights, a large scale study is needed.

Manager vs. not Manager

90.00
80.00
70.00
60.00
50.00 Manager
40.00 Not Manager
30.00
20.00
10.00
0.00
Innovators Improvers Radical Innovation Incremental
Projects Innovation Projects

Figure 12: Perception Difference by Professional Layers (%)

76
 Age

90.00
80.00
70.00
60.00
50.00 below 40
40.00 40 and above

30.00
20.00
10.00
0.00
Innovators Improvers Radical Innovation Incremental
Projects Innovation Projects

Figure 13: Perception Difference by Age (%)

Job Experience

90.00
80.00
70.00
60.00
below 6 years
50.00
7-12 years
40.00
above 12 years
30.00
20.00
10.00
0.00
Innovators Improvers Radical Innovation Incremental
Projects Innovation
Projects

Figure 14: Perception Difference by Job Experience (%)

the Fitness

APPENDIX N shows the fitness analysis at two levels (i.e. business unit and company
level). The blue area in the innovation / strategy matrix provides an overall fitness of the
innovation strategy of the business unit or the company. As an observation from the
innovation/strategy matrix, the fitness of the perceived innovation strategy is not
supported with the innovation activities at the company level.

The amount of radical innovations is not equal to the incremental innovations that are
undertaken as one would expect in relation to both qualities of business strategy (e.g.
50%). Instead, radical project ratio (radical projects/ all projects undertaken) is 28%
while innovation projects ratio (incremental projects/ all projects undertaken) is 72 %.

77
Therefore, although the results suggest the innovation strategy as an Innovator is
generally accepted, the employees do not claim to work on relatively very innovative
projects (i.e. NTW, NTC). 34% of respondents claim to work on AEL and IM projects
and only 3% of the respondents claim they never work on RP and CR projects (e.g. low
innovative projects). Thus, the results at two levels (i.e. company and business unit level)
suggest a potential mismatch between the intended strategy and the actual progress in
relation to innovation strategy.

There might be four explanations for the mismatch:

lack of sources required for undertaking/ increasing the level of the radical
projects.
representativeness of the sample (i.e. business units selection)
the general business focus of the company under study
reliability on employees’ perceptions.

1. lack of sources required for undertaking/ increasing the level of the radical
projects.

A possible explanation may be due to a lack of sources required for undertaking/

increasing the level of the radical projects. For this, potential reasons of the mismatch are
investigated in relation with the innovation capacity of the company. It has been found
that different business units require different set of sources (resources, capabilities,
network and a change in culture) to increase their awareness of their innovative potential
(section 6.3).

2. representativeness of the sample (i.e. business units selection)

The business units’ descriptions are provided in APPENDIX F. The composition of the
business units differ from each other (figure 18 and figure 19). However, they also have a
common focus: the customer. These results suggest that with respect to different business
focus of business units do not represent IBM Corporate. A more diverse business unit
sample at a higher level (i.e. IBM Benelux or IBM research centers at European level or
IBM worldwide) could shed more lights into the mismatch with a more balanced sample.

3. the general business focus of the company under study

The reason of a product/service non-focus can be explained from the fact that IBM
Netherlands is not a research center, where products/services are designed and produced
but instead the aim is to standardize the available services, which may be developed
elsewhere (through collaborations or other IBM companies around the world). Another
explanation might be a lack of awareness of the employees about their organization.
Since the size of the organization is relatively low (0.7%) (i.e. 2200 at IBM Netherlands,
5000 at IBM Benelux and 330.000 at IBM Corporate), IBM Netherlands may not
represent the whole corporate company.

78
 4. reliability on employees’ perceptions.

Employees perceive their organization from their own perspective of conducting

activities (chapter 5). A lack of (or access to) factual data on innovation projects may
limit the reliability of the actual innovation projects as the results are based on employee
perceptions. A lack of an ‘innovation’ and ‘strategy’ understanding may bias the study.
Therefore, the results can only be used to gather insights on the strategic fit. This also has
another implication. For the tool a threshold cannot be identified in the study. Instead,
IBM Netherlands was assumed to be a reference point. In order to determine absolute
thresholds, further validation and further controls are needed with a large scale study.

6.2. Innovation Strategy Perception & the Fit at Business Unit

Level

The fitness of the perceived innovation strategy is not supported with the innovation
activities at the business unit level (figure 15). That is, although the results suggest the
innovation strategy as an Innovator is generally accepted, the employees do not claim to
work on relatively very innovative projects.

Figure 15: Fitness at Business Unit Level

The reason might be explained from the fact that IBM Netherlands is not a research
center, where products/services are designed and produced but instead the aim is to
standardize the available services, which may be developed elsewhere (through
collaborations or other IBM companies around the world). The figures on the business
focus are presented in figure 18 and figure 19.

However, the analysis of the business units provides interesting results. APPENDIX M
shows the fitness analysis and the relative importance of business strategy sub-
dimensions per business unit. The tool provides the areas in which the business units
places relatively more emphasis on certain sub-dimensions over the than the others. Thus,
in the case of the management decision to change these emphasis (i.e. due to changing

79
market conditions, new technologies), the new dimensions and the innovation progress of
the business units can be tracked easily.

6.3. Effect of the Innovation Strategy on the Company

The blue area in the innovation / strategy matrix can provide managers an overall fitness
of the innovation strategy of the business unit or the company. Besides, when being
combined with the Innovation Capacity Test (van Reijzen, 2006) or Company
Innovativeness measures (Wu, 2007), the results will be able to give more insights

There may be three potential effects of Innovation Strategy on the innovativeness of the
company as shown in figure 16. One can hypothesize on these effects as follows:

Innovation
Strategy
1. 3.

2.

Innovation Company
Capacity Innovativeness

Figure 16: Influence of Innovation Strategy on the Firm

First hypothesis: the Innovation Strategy of the company has a positive influence
on the Innovation Capacity of the company.

Second hypothesis: the Innovation Strategy of the company moderates the

relationship between the innovation capacity and the company innovativeness.

Third hypothesis: the Innovation Strategy of the company has a positive affect on
the actual innovativeness of the company.

80
 1. First effect: the innovation strategy of the company might affect the resources
required to make the company innovative.

As explained earlier (e.g. section 4.5), the sources of company are not infinite (i.e.
money, people, and knowledge). With the purpose of in making radical innovations, large
investments in R&D can be made but this doesn’t imply the efforts are translated to
visible results (e.g. engineering or organization related). Therefore, it is in the best
interest of companies to decide where they should put their energy to get the best effects.
A mismatch between innovation / strategy matrix may pinpoint which sources are
required more than the others by the business units and therefore within these limited
sources, it may enable managers to make decisions. Therefore the innovation strategy
fitness may provide guidelines for areas of improvement both at business unit level and at
company level.

Following the changed statements in the pretest, the respondents were asked what sources
they were in need in order to pursue their innovation strategy in the questionnaire by an
open question. It is observed that the answers include elements, which was developed in
the innovation capacity test (van Reijzen, 2006). The answers were recorded per business
unit can be found in APPENDIX J.

The innovation capacity test investigates the dimensions of resources, capabilities, culture
and network. These sub-dimensions qualitatively match with the respondents’ results and
by counting how many times each dimension has been mentioned, figure 17 has been
obtained.

Sources required for executing the

Innovation Strategy

IBM nl

BC&RS
Resources
GBS Capabilities
Network
S&D
Culture
S&C

0% 20% 40% 60% 80% 100%

Times mentioned (%) IBM NL S&C S&D GBS BC&RS

Resources 25 25 21 23 29
Capabilities 29 34 36 23 14
Network 16 9 21 38 7
Culture 30 31 21 15 50
Figure 17: Innovation Capacity Gap and Innovation Strategy

81
The emphasis of innovation sources varies among the business units. For instance, as a
sales department, BC&RS feels the lack of strong culture and needs creativity. GBS who
focuses on distribution needs further improvements in its network while S&C and S&D
require higher levels of capabilities. The dissimilar needs may be due to differences of
business unit focus in relation to its company.

This was further controlled by Innovation Strategy focus per business unit. The business
focus components comprise of products/ services, operations and customers (Treacy and
Wiersema, 1993, 1995). According to the results, one can observe that the company has a
strong focus on the customer and almost none at producing products/ services at both
business unit and company levels (figure 18 and figure 19).

Innovation Strategy Focus perception per

Business Unit

BC&RS

GBS Distribution
Product/ Services
S&D Operations

S&C Customer

0% 20% 40% 60% 80% 100%

Figure 18: Business Unit Innovation Strategy focus

Innovation Strategy Focus perception of IBM NL

by business units

BC&RS

GBS Distribution
Product/ Services
S&D Operations
S&C Customer

0% 20% 40% 60% 80% 100%

Figure 19: Company’s Innovation Strategy focus perceived by each business unit

The graphs also suggest that the employees perceive that instead of actual production or
service creation, their company focuses on the customer. This result is an interesting

82
result as IBM is known as a traditional innovator. Therefore, the results further suggest
that the analysis cannot be generalized over the corporate company but on the national
level (i.e. Netherlands).

2. Second effect: the innovation strategy might moderate the relationship between
the innovation capacity of the company and its innovativeness.

A moderating variable is defined as the variable that has a strong potential effect on the
independent variable-dependent variable relationship (Sekaran, 2003). In the case study,
it was found that the sources that make up the innovation capacity are not effectively
deployed. Further, the innovation capacity results are not reflected in the innovativeness
measures of the company (Wu, 2007). That is, for 1unit of innovation input, the
innovation output was found to be less than 1unit. These two results suggest a moderating
effect of the innovation strategy fitness (i.e. to the mismatch between the intended and the
perceived innovation strategy of the company). Since the moderating effect of the
strategy on company performance has been confirmed in the literature (Thornhill, White,
2007; He and Wong, 2004; Desarbo et al., 2005), further studies can investigate this
relationship. However, the previous studies focus on the financial performance measures,
which is out of the scope.

However, the results of the innovation capacity test (van Reijzen, 2006) and company
innovativeness measurement (Wu, 2007) provides further insights. The following table
(table 34) shows the results of the three tests based on the common business units:

Common Business
Test: Dimensions
Units
S&D BC&RS
Resources 65% 59%
Capabilities 72% 64%
Innovation Network
Capacity 77% 61%
Culture 78% 61%
Average Score 73% 61%
product innovativeness 29% 52%
process innovativeness 60% 66%
Innovativeness
business model innovativeness 66% 78%
Average Score 52% 65%
Innovator Strategy 75% 82%
Fitness of Improver Strategy 68% 69%
‘Innovation
Strategy’ Radical Innovations 35% 22%
Incremental Innovations 65% 78%
75 > 68 82 > 69
Strategic Fit Result: Non- Fit!
35 !> 65 22 !> 78
Table 34: Innovation Capacity, Strategic Fit and Innovativeness Comparison

83
According to the table; there is a strategic non-fit between the planned and the executed
strategy. In addition, although the innovation capacity of the business units is high (73%,
61% respectively), the innovativeness is relatively lower (52%, 65% respectively). In
addition, there is a strategic non-fit. Although being an Innovator company ranks higher
than being an Improver Company for both units, the score of the incremental projects
higher. Thus, one can hypothesize the following relation:

In the case of a strategic fit, the innovation capacity leads to higher company
innovativeness and in the case of a strategic non-fit, the innovation capacity leads to
lower company innovativeness.

3. Third effect: the innovation strategy of the company may have an affect on the
actual innovativeness of the company.

As defined in chapter 2, innovations consist of products / services, processes and business

models. A decision of the management, (e.g. a decision of becoming either an Innovator
and/or an Improver company) may have a direct relationship on where the company is
actually heading into (e.g. due to path dependencies). A typical example is Nokia, a well
known communication provider who started its journey in 1865 as a paper manufacturer
and later on became a rubber producer until the discoveries and opportunities led it to the
in telecommunication services and semiconductor production sector.

The path dependencies are out of the scope and due to the limitations of the study (i.e.
small sample size; n=19), it is not possible to make an inference for a direct relationship
in the study. However a longitudinal study with respect to time (i.e. time=t and t+1) may
provide further insights on the topic.

84
Chapter 7: Conclusions
At the end of this thesis the moment has come for conclusions and closing remarks. The
section starts with the achievements of the research and the tool followed by the
managerial implications. Finally, the limitations of the research are presented and are
accompanied with the recommendations for the further research.

7.1. Achievements of the Tool

Sub Research Question Answer

Innovation Strategy is the decision of an organization

What is an appropriate definition of
determining to what degree and in what way to use
the Innovation Strategy at company
innovation to execute its business strategy with the attempt
level?
to reach to better performance

Innovation Strategy Dimensions:

What are the dimensions of
• Business Strategy (Innovator vs. Improver)
Innovation Strategy?
• Innovations projects (Radical vs. incremental)

• Radical innovations: NTW, NTC projects

• Incremental innovations: AEL, IM, RP, CR
What are the appropriate sub- projects
dimensions to measure a firm’s • Innovator Strategy: Discovery, Flexibility,
Innovation Strategy? Differentiation, Customers/buyers, Responsiveness
• Improver Strategy: Cost, Efficiency, Reliability,
Refinement

Yes, in order to create sustainable competitive advantage,

the innovator companies are expected to emphasize radical
innovation projects and improver companies are expected
Is there a relationship between the
to emphasize incremental innovations.
strategy and innovation?

Any deviation from the theory points out a mismatch and

the reasons needs to be further researched.

85
 - Yes, in the case study of IBM Netherlands, the results
point out a potential mismatch between the intended
strategy and the actual innovation projects.

- The results suggest that when there is a strategic non-fit,

the Innovation Capacity does not reflect on company’s
Innovativeness. The results also suggest that different
business units require improvements in certain areas such
as Capabilities, Network and Culture.

- At company level, there is a clear trend that regardless of

the employee mix (i.e. professional layers, age and job
experience) employee opinions do not differ.

- The tool shows that the employees understand and

execute its business strategy on the basis of both
‘Innovator’ and ‘Improver’ company properties (i.e. hybrid
strategies). Further, the employees see their company as an
‘Innovator’ (79%) over being an ‘Improver’ (74%).

Can the tool measure the relation

- The tool shows also that the company involves both
between strategy and innovation?
radical and incremental projects. For a company with
hybrid strategies, the expected ratio would be 50%.
(If so, what is the relation and how
However, radical project ratio (radical/ all projects) is 28%
can the relation be explained?)
while innovation projects ratio (incremental / all projects)
is 72 %.

-The mismatch may be caused by 4 points:

1. lack of sources required for undertaking/ increasing the
level of the radical projects.
2. the general business focus of the company under study
3. representativeness of the sample (i.e. business units
selection)
4. unreliability on employees perceptions for projects

86
 This result points out a potential mismatch in relation to its
innovation strategy. In order to increase the level of radical
innovations, potential reasons of the mismatch are
investigated in relation with the innovation capacity of the
company.

It has been found that the business units require different

set of sources to increase their awareness of their
innovative potential. These sources comprise of resources,
capabilities, network and a change in culture per business
unit in depending on the business focus (i.e.
products/services, operations or customer).

7.2. Limitations of the Research

• Further validation is needed n=19. Although the sample can be considered as a
big success in relation to the previous study (n=8), and due to the time and
resource limitations (i.e. difficulties in approaching to respondents, intensive
schedules, negative performance evaluations of employees for the times they
reserve to activities apart from their tasks etc), the sample of the study remains to
be too small and narrow in scope. Therefore a more balanced composition of
business units is needed to validate the tool further. A large scale is study with at
least n=30 is needed.

• With the limitation of the sample size, the 4 domains of innovation capacity (i.e.
resources, capabilities, culture and network) was investigated but 17 sub-
dimensions that make up the innovation capacity best practice had to be omitted.
With a larger sample, it can be possible to give suggestions which 17 dimensions
to emphasize.

• The sample size per business unit was also limited (i.e. 6,5,4,4 per business unit).
Therefore a qualitative analysis could be made. The cells should contain at least
have 5 responses.

• A lack of (or access to) factual data on innovation projects is a limiting factor for
the reliability of the actual innovation projects as the results are based on
employee perceptions.

• The study teaches an important lesson: The corporate strategy of IBM and the
local implementation of the Netherlands are not the same. The tool can be useful
for IBM Netherlands and its subsequent business units. Generalizing the results at

87
 IBM Corporate is not realistic as many more control variables are needed to track
the composition.

• Another lesson learnt: One of the business units (S&D) may not have answered
the questions with the company in mind because they don’t have any influence on
R&D; they are the forefront of IBM, identifying business opportunities and then
connecting actors. The selection of business units should take into account the
business focus of the business unit for being able to generalize the results in a
meaningful way.

• The relationship between the innovation strategy and company innovativeness

may not be linear. It can also be influenced by the inputs and the output of
innovations.

• The relation with the innovation strategy could have been investigated in relation
to the financial performance indicators. However, this data could not be reached.
There are two reasons. The financial data is calculated with respect to IBM
Benelux level, which makes it impossible to judge the performance of IBM
Netherlands due to different unit of analysis. Second, the financial data is
confidential, therefore it s difficult to reach.

7.3. Suggestions for future studies

• In order to have a valid, reliable and scientific quantitative analysis, large scale
study is needed.

• The business units need to comprise of at least 5 responses to make quantitative

analysis. The non-response rate may jeopardize quantitative analysis. Therefore,
the response rate can be assumed as 80%, which implies at least 7 respondents are
required per business unit.

• Incorporating examples of innovation projects in the questionnaire could make the

results more reliable and decrease the bias with respect to employee perceptions.

• As mentioned in 5.2, it is better for the researcher to provide instant explanation

and elaboration to the respondents when they are filling in the questionnaire.
Respondents can be invited to a face-to-face meeting or a conference phone call,
so that they can ask the research for help as soon as needed. This may be a way of
eliminating the respondent bias.

• The questionnaire and the way to use it can be improved. In this research, a
combined questionnaire was used for both SFA and CIM, which made the
questionnaire too long. In future applications, the SFA questionnaire had better be
used separately. This way the time required for the interviews would be halved.

88
 • It is further recommended to keep track of name and number of business units per
country for ease of selection because time pressure is a limiting factor for making
the research.

• Financial data should be made available, because the innovativeness is crucial to

the companies only if they only know their financial returns.

• Since the financial data is available only at IBM Benelux level, larger scale study
with IBM Benelux is recommended. For this, equal number of respondents from 3
countries is suggested.

• For assessing the company Innovativeness, the performance of radical and

incremental innovations can be measured in the form of product, process and
business model innovativeness (Wu, 2007).

• The innovation project types that are selected for the purposes of the study enable
a comparison with the performance indicators. Griffin and Page (1996) offers
performance indicators per project type. This would enable depicting the financial
performance of finished radical and incremental innovation projects.

• Strategic Capabilities may be another point of research to validate the innovation

strategy of the companies. Desarbo et al (2005) offers a framework to derive the
strategic capabilities from 5 domains of strategy capabilities (i.e. network,
marketing, technological, IT and management capabilities). The innovator and
improver company attributes can be derived and confirmed via these strategic
capabilities.

7.4. Managerial Implications

There are a number of managerial implications of the tool. These implications can be
summarized as follows:

1. Insights in the innovation strategy of IBM Netherlands

2. Insights for resource allocation decisions of different business units for higher
management of IBM Netherlands
3. Consultancy tool to serve clients of IBM Netherlands
4. Incentives to change the innovation strategy into practice

1. Insights in the Innovation strategy of IBM NL

The blue area in the innovation / strategy matrix provides managers an overall fitness of
the innovation strategy of the business unit or the company. If the results show relatively
high innovation capacity and low Innovativeness, this may be due to the strategic non-fit.
Thus, the tool can be useful as an agenda for discussion from two points. These are:
Innovation Strategy Planning and Innovation Strategy Execution.

89
For the case of IBM Netherlands, the tool shows the employees perceive the both
qualities of Innovator and Improver organizations. However, they do not significantly
point that they are true Innovators. In addition, based on the results of the tool, they are
hardly working on radical innovation projects and come short of producing
groundbreaking innovations. More focus seems to be on incremental innovations and this
suggests that they are not aware of their organization’s innovative potential. Thus
employee programs for innovation can be used to increase this awareness may influence
positively their perceptions.

2. Insights for resource allocation decisions of different business units for higher
management

Empowerment of the workforce for innovation is an essential area because employees are
a crucial asset and may have a significant contribution on the innovativeness of their own
organization. Thus, by observing the opinions and gathering insights to improve the focus
areas, the management can base their resource allocation decisions regarding the
innovativeness of their company with the help of this tool.

The following are sources that particular business units require for further improvement:

- S&C and S&D requires more ‘Capabilities’ for being more innovative
- GBS D requires a better ‘Network’ for being more innovative
- BC & RS requires a change of ‘Culture’ for being more innovative.

3. Consultancy tool to serve clients of IBM NL

When the results of innovation strategy are analyzed together with the Innovation
Capacity and company Innovativeness, it enables the experts to check whether there is a
relation or inconsistency between the inputs and the outputs of innovation. To minimize
the differences between the inputs and the outputs, the insights of the tool can be
beneficial.

For organizations with hybrid strategies, more care is needed. The results of the tool
suggest that coordination and communicational problems may effect the execution of
radical innovation projects.

4. Incentives to change the innovation strategy into practice

The tool can be used to track the change in culture of the company by observing the
position of the company in different times at equal time intervals (e.g. quarterly). The
results can be communicated with the employees. Further the results can be used in
innovation performance evaluations in the company.

90
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Appendices
APPENDIX A-: List of Innovation Typologies

APPENDIX B- Meta Design of Business Strategy Typologies

APPENDIX C- Business Strategy Typologies

APPENDIX D- Strategy Fit Analysis (SFA) Questionnaire

APPENDIX E- Changed Statements

APPENDIX F- Descriptions of Business Units under Study

APPENDIX G- Experts invited for Reviews

APPENDIX H- Response Rate of Questions

APPENDIX I- Comparing Innovation Strategy perceptions at two levels

APPENDIX J- Sources Required to Execute Innovation Strategy (Business Units)

APPENDIX K- Strategy Perception with respect to Employee Mix

APPENDIX L- Distribution of Innovation Projects with respect to Employee Mix

APPENDIX M- Innovation Strategy Scores at Business Unit Level

APPENDIX N- Strategic Fit Analysis at 2 levels

96
 APPENDIX A- List of Innovation Typologies
# Author Year Classification
1 Anderson & Tushman 1990 Discontinuous Continuous
2 Grossman 1970 Instrumental Ultimate
Dichotomous Categorization

3 Normann 1971 Variations Reorientations

4 Maidique 1984 True Adoptions
5 Yoon & Lilien 1985 Original Reformulated
6 Rotwell & Gardiner 1988 Innovations Reinnovations
7 Meyers & Tucker 1989 Radical Routine
8 Utterback 1996 Evolutionary Revolutionary
9 Christensen 1997 Sustaining Disruptive
10 Song & Montoya-Weiss 1998 Really New Incremental
11 Rice Et Al 1998 Breakthrough Incremental
12 Balachandra & Friar 1997 Radical Incremental
13 Johnson & Jones 1957 Reformulated New Parts Remerchandising New Improvements
Multidimensional Classification

New Products New User New Market New Customers

14 Freeman 1994 Systematic Major Minor Incremental Unrecorded
15 Henderson & Clark 1990 Incremental Modular Architectural Radical
16 Abernathy & Clark 1985 Niche Creation Architectural Regular Revolutionary
17 Moriarty & Kosnik 1990 Incremental Evolutionary Market Evolutionary Technical Radical
18 Chandy & Tellis 2000 Incremental Market Breakthrough Technological Breakthrough Radical
19 Tidd 1995 Incremental Architectural Fusion Breakthrough
20 Kleinschmidt & Cooper 1991 Low Innovativeness Moderate Innovativeness High Innovativeness
21 Wheelwright & Clark 1992 Incremental New Generation Radically New
22 Cooper & Kleinschmidt 1995 Product Advantage Technological Synergy Marketing Synergy Company Resources Strategy Of Product
Comprehensive
Classification

Micro-Level / Marketing Micro-Level / Technology Macro-Level/ Marketing Macro-Level/

23 Garcia, Calantone 2002
Measures Measures Measures Technology Measures
Additions To Existing Improvements/Revisions Repositioning,
24 Griffin And Page 1996 New To The World, New To The Company
Product Lines To Existing Products Cost Reductions

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 APPENDIX B- Business Strategy Typologies
Business Strategy Typologies Variables/ Categories

# Theory Author/Year 1 2 3 4 5 6

Generic Strategy
Cost Leadership/
1 Typology/ Competitive Porter 1980- 1985 Focus Differentiation
Volume
Advantage Model

2 Business Strategy Miles and Snow 1978 Prospector Analyzer Defender Reactor

Organizational
3 March 1991 Exploration Exploitation
Learning

The Value Disciplines Operational Product Customer

4 Treacy & Wiersema 1993/1995
Model Excellence Leadership intimacy

Innovative
Organizational Machine Professional Entrepreneurial Operating Administrative
5 Minzberg Organization
Learning Bureaucracy Organization Organization Adhocracy Adhocracy
(Adhocracy)
Structural Dimension
Product Organizational Market
7 of Competitive Kaniovski and Peneder 2002 Cost-Efficiency
Differentiation Integration Penetration
Strategy

Blue/Red Ocean Blue Ocean Red Ocean

8 Kim & Mauborgne 2005
Strategy Strategy Strategy

Innovation Systems Innovative

9 Merle Crawford 1980 Inventive Adaptive Economic
Typologies Applications

Meta- Analysis of
Campbell & Hunt 2000 Visit Appendix C
Competitive Strategy

98
APPENDIX C- Meta-Design of Business Strategy Typologies

Source: Campbell-Hunt (2000)

99
APPENDIX D: Strategy Fit Analysis (SFA) Questionnaire
Last year an Innovation Capacity Assessment (ICA) test was developed as a part of
the master thesis of Sander van Reijzen for TU Delft. The aim of this tool is to give
managerial insights into the internal innovation processes of a firm. This year, Jun
Wu and Begum Aydinoglu have extended this study with two objectives:

1) To depict the perceived innovation strategy of different business units of IBM in

the Netherlands.
2) To measure the actual innovation performance of IBM Netherlands.

Our study aims at developing a tool which can be applied on the clients of IBM for
consultancy services on innovation management.

We would like to invite you to answer our questionnaire which will last around 30
minutes. The results will be made anonymous and the personal details will not be
shared with other parties. The scope of the research is within IBM Netherlands,
therefore please fill in the questionnaire with your business unit in the Netherlands in
mind.

Your support is very important and will be highly appreciated, so please try to
answer as many questions as possible. We would like to thank you for allocating your
valuable time and providing support in advance.

Begüm Aydınoğlu, Jun Wu

MSc. in Management of Technology, TU Delft

Part I. General Information

1. Business Unit: _______________________________________

2. Job Responsibilities: _______________________________________

3. Are you a Manager? Yes No

4. Age:
Below 30
Between 31–40
Between 41–50
Between 51–60
Above 61

5. How long have you been working in IBM?

Between 0 -6 years
Between 6-12 years
Between 12-18 years
Between 18- 24 years
More than 24 years

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 Part II. Business Strategy Dimensions
Business Unit Definition: A Business Unit serves to a defined external market
where management can conduct strategic planning in relation to products and
markets. A Strategic Business Unit (SBU) has its own business strategy and
objectives, and these will often be different from those of the parent company.
Below is a set of elements that describes your business unit’s strategy. The
responses should be concerned with YOUR DUTCH business unit’s strategy and not
the company’s. Please mark the items in order of importance. Please do your best
guess if you are not sure
Business Not Somehow
Business Strategy For conducting our work, Somehow Very
Strategy Important Not Neutral
Sub-dimensions our business unit: at all Important
Important Important
Dimensions
6. Undertakes or leverages R&D
Discovery 1
extensively
7. Develops new operating
Discovery 2
techniques
8. focus on active marketing and
Customers/buyers 1 sales department geared to relationship
selling
9. has state of the art information
Innovator Customers/Buyers 2 systems and shares customer data
Company extensively
10. Develops or leverages new
Differentiation
products & services
Responsiveness 1 11. Customizes products or services
12. has a responsive customer service
Responsiveness 2
department
13. has decision-making power and
Flexibility
authority in project teams
Cost 14. focus on reducing operating costs
15. improves coordination with
Efficiency
Improver customers and suppliers
Company 16. Improves measures of
Reliability
performance
Refinement 17. Reorganizes the work process

18. In your perspective, what is IBM NL’s strategy? Select the most
appropriate option(s) from below.

□ We focus most on knowing the customer well to provide his/her needs

instantly. (Customer)
□ We focus on continuous improvement of how we provide product/
services to our customers. (Operation)
□ We deliver value through offering leading edge products and services.
(Products)

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 19. What is your Dutch business unit’s (innovation) strategy? Select the most
appropriate option(s) from below.

□ We focus most on knowing the customer well to provide his/her needs

instantly. (Customer)
□ We focus on continuous improvement of how we provide product/
services to our customers. (Operations)
□ We deliver value through offering leading edge products and services.
(Products)

Part III. Business Unit Innovation Project Dimensions

Please select the types of innovation project(s) that YOUR Business Unit in
Netherlands conduct(s) by marking the related type with an X. Please do your
best guess if you are not sure

Innovation Innovation
In our business unit, we mainly focus on
Project Project Sub- Never Sometimes Always
producing/leveraging:
Dimensions dimensions

NTW 20. New products/services that create an entirely

Radical new market.
Innovation
21. New products/services that, for the first time,
Projects
NTC allow our company to enter an established
market.

AEL 22. New products/services that supplement our

company’s established product lines.
23. New products/services that provide improved
Incremental IM performance or enhanced value and replace
Innovation existing products.
Projects
RP 24. Existing products/services targeted to new
markets or market segments.
25. New products/services that provide similar
CR
performance at lower cost.

26. What do you think are the most critical 3 factors needed to execute your
business unit’s innovation strategy?
1. __________________________
2. __________________________
3. __________________________
Definitions:

Innovation Strategy is the decision of an organization determining to what degree and in what way to use
innovation to execute its business strategy with the attempt to reach to certain levels of performance.

* Innovator Company: Prospector companies who focus on exploration, differentiation, product leadership and customer intimacy
* Improver Company: Defender companies who focus on exploitation, cost and operational excellence.

* Radical Innovation: Innovations those are discontinuous, disruptive and new in its market and new in its technology.
* Incremental Innovation: Innovations that provide new features, benefits, improvements to existing technology and/or existing
market.
Part IV-VII (Jun Wu’s Company Innovativeness Measures)

102
APPENDIX E: Changed Statements
Introduction Text

Changed
Additions Deletion
Statements
Name of the previous researcher Names of the new modules
(Sander van Reijzen) for avoiding confusion
Duration of the study
Scope of research SFA: Strategy Fit Analysis
(IBM Netherlands, CIM: Company Innovativeness Old New
Business Unit level) Measurement Duration: Duration:
Aim of the test for IBMers 20 min 30 min
(tool for IBM clients)
Request for answer the questions as Font Change of the
many as possible research aim
(to minimize the non response rate) for visibility

Part I: General Information

# Control Variable Change Reason
1 Business Unit More space To include multiple
business units if any
5 Job Experience Scale (From 5yrs to 6 yrs) To include a wider range
6 Nationality Deleted Found not relevant

103
Part II: Business Strategy

Introductory Text
Additions Reason
Business Unit Definition For clarity
Scope (Company Level, and For clarity
including only the Netherlands)
Mandatory to answer To minimize non-response rate

# Initial Statement Rephrased Statement Reason

To make the test
Developing new products and Developing or leveraging
5 suitable for service
services new products and services
companies
To make the test
Undertaking or leveraging
6 Undertaking R&D extensively suitable for service
R&D extensively
companies
State of art Information State of the art Information
Systems and extensive Systems and extensive
12 Incorrect Grammar
information sharing for information sharing for
customer information customer information
Addition of Strategy Types (Customer Intimacy, Operational
14 For Clarity
Excellence, Product Leadership)
Addition of Strategy Types (Customer Intimacy, Operational
15 For Clarity
Excellence, Product Leadership)
Does your company have an
Open Questions
16 innovation strategy? If so how Deleted
consume time
would you define it?
Does your business unit have
Open Questions
17 an innovation strategy? If so Deleted
consume time
how would you define it?

Part III & IV: Business Unit Strategic Capabilities, Innovation Project Types

Introductory Text (Part III)

Additions Reason
Competitor comparison, if applicable For validity and fewer non response rate
Request to answer all questions To minimize non-response rate

# Initial Statement Rephrased Statement Reason

51 IM: New Products/ Services that
provide improved performance
or perceived value and replace
existing products
IM: New Products/ Services Not very clear
that provide improved
performance or enhanced
value and replace existing
products

104
APPENDIX F- Descriptions of Business Units under study

Business Unit1: S&C

IBM Strategy and Change (S&C) consultants help their clients transform their enterprise
and operations by framing industry opportunities and challenges into specific strategic
options, formulating viable strategies that intersect business and technology, and
accelerating implementation through tailored operations and change programs. In
conjunction with the Institute for Business Value and supported by IBM's global research
and development community, S&C craft world-class industry thought leadership and
implement winning strategies leveraging 3,200 strategy consultants worldwide.

Business Unit2: S&D

IBM Sales and Distribution (S&D) develops, integrates, sells and distributes IBM’s wide
array of products and services via face to face sales teams, Business Partners and
ibm.com, their combined Web and call centre operation. This organization allows IBM to
deliver specialized solutions by industry, including Banking, Insurance, Public Sector,
Industrial and Distribution. It also allows IBM to serve the fast-growing market for small
and medium sized businesses.

Business Unit3: GBS D

IBM Global Business Services, Distribution (GBS D) was created following the
acquisition of PwC Consulting which merged with IBM Business Innovation Services in
2002. IBM and PwC Consulting were already market leaders in many areas before the
merger and now IBM Global Business Services is building on this leading position.

Business Unit4: BCRS

IBM Business Continuity & Recovery Services (BC&RS) provide a secure off-site copy
of critical data from the production site to an IBM recovery or alternative location. If, for
any reason, the production systems become unavailable, end users can quickly access
critical application services and data with minimum interruption.

105
APPENDIX G- Experts Invited For the Reviews

Dr. Erik den Hartigh Assistant Professor

Department of Technology, Strategy, and Entrepreneurship
Faculty of Technology, Policy, and Management
Delft University of Technology
Research Focuses: increasing returns, mass individualism,
emergence
Dr. Marc A. Zegveld Associate Professor
Department of Technology, Strategy, and Entrepreneurship
Faculty of Technology, Policy, and Management
Delft University of Technology
Research Focuses: the firm level relationship between
business strategy, innovation, and productivity
Dr. J. R. Ortt Associate Professor
Department of Technology, Strategy, and Entrepreneurship
Faculty of Technology, Policy, and Management
Delft University of Technology
Research Focuses: innovation management
Dr. Ronald Dekker Assistant Professor
Department of Economics of Innovation
Faculty of Technology, Policy, and Management
Delft University of Technology
Research Focuses: microeconomics, economics of innovation
Djeevan Schiferli Business Development Executive Climate & Energy
(MSc.) IBM Netherlands

Ian Plugge (MSc.) Business Advisor Strategy &Change, IOT SW

Operations Manager IBV EMEA
IBM Netherlands

106
APPENDIX H: Response Rate of Questions

Standard
Response Rate (%)
Deviation
Discovery 97.37 0.01

Innovator Customers/Buyers 94.74 0.15

Company Differentiation 100.00 0.02
Responsiveness 97.37 0.01
Flexibility 100.00 0.02
Cost 100.00 0.02
Improver Efficiency 100.00 0.02
Company Reliability 97.37 0.01
Refinement 100.00 0.02

Radical NTW 94.74 0.03

Innovation
Projects NTC 89.47 0.13
AEL 94.74 0.03
Incremental
IM 94.74 0.03
Innovation
Projects RP 94.74 0.03
CR 89.47 0.13
Response rate per Innovation Strategy Dimension

(%) Standard
Response Rate 90 92 94 96 98 100 Deviation

Overall --

Innovators 0.03

Improvers 0.09

Incremental 0.18
Innovation Proj.
Radical
0.09
Innovation Proj.

Response Rate (%) SD

All Questions 96.32 -
Innovators 97.89 0.03
Improvers 99.34 0.09
Radical Innovation Projects 92.11 0.18
Incremental Innovation Projects 93.42 0.09
Response rate per Innovation Strategy sub-dimension

107
 Response Rates Difference (Manager vs. not Manager)

Innovation
Questions

Strategy not Manager

Questions Manager

All Questions

80.00% 85.00% 90.00% 95.00% 100.00%

All Questions Strategy Questions Innovation Questions

not Manager 94.87% 96.79% 91.03%
Manager 99.07% 100.00% 97.22%

Response Rates Difference (Age)

Innovation Questions

above 40
Strategy Questions
below 40

All Questions

80.00% 85.00% 90.00% 95.00% 100.00%

All Questions Strategy Questions Innovation Questions

above 40 96.11% 100.00% 88.33%
below 40 96.30% 95.37% 98.15%

Response Rate Difference (Job Experience)

more than 12
years

Innovation Questions
between 7-12
Strategy Questions
years
All Questions
less than 6
years

80.00% 85.00% 90.00% 95.00% 100.00%

less than 6 between 7-12 more than 12

years years years
Innovation Questions 87.04% 100.00% 96.67%
Strategy Questions 99.07% 93.33% 100.00%
All Questions 95.06% 95.56% 98.89%

108
APPENDIX I: Comparing Innovation Strategy perceptions at two
levels

Innovation Strategy Focus of Innovation Strategy Focus of

Business Unit IBM NL
Product/ Product/
Operations Customer Operations Customer
Services Services
x x

x x
x x
BU1= S&C x x

x x

x x
x x
x x
x x
BU2= S&D
x x

x x
x x x x
BU3= GBS x x
Distribution x x x
x x
x x
x x
BU4=
BC&RS x x

x x

109
APPENDIX J- Sources Required to execute Innovation Strategy
(per Business Unit)

BU1= S&C ICA Dimension

Thought Leadership Capabilities

Dedicated Resources Resources
Passion for Innovation Culture
Capabilities,
Willingness to share knowledge
Network
sufficient time to commit to innovation Resources
focus of innovation capacity all

freedom to risk Culture

attracting best talents Resources
partnerships with innovators Network
Capabilities,
Open and accessible information
Network
Capabilities,
open communication
Network
customer focused incentives Network
time Resources
Money for creative thinking Resources
service development all
learning Capabilities
executing leading edge projects Capabilities
actual client focus Network
focus on emerging markets/clients Network
Good and shared understanding of our Resources,
Innovation offerings Capabilities
Good working relationships with other IBM
Capabilities
BU’s
Commercial ability to recognize client
issues that can be addressed with Capabilities
innovative approaches

110
 ICA ICA
BU2= S&D BU3= GBS Distribution
Dimension Dimension

integrated team play Capabilities Good program Resources

trust Culture continuous attention Capabilities

focus on customer success Network objectives Culture

innovation that matters all Knowing customers Network

smart people Resource flexibility Capabilities
less pressure from internal Capabilities,
Capabilities knowledge sharing
processes Network
Resources,
Skilled resources Resource R&D alignment
Capabilities
ownership in brands Culture innovators network Network
relationship with the
integrated team play Capabilities Network
customer
knowledge of IBM's
Capabilities network Network
capabilities
time with the customer at a support from the
Network Culture
strategic level organization

BU4= BC&RS ICA Dimension

high quality sales force

(including channels that are not Resources
in place
excellence in delivery Capabilities
marketing strategy focused on
Capabilities
the unit(not in place)
Knowing customers Network
creativity Culture
culture Culture

Trust Culture
climate Culture
money/time Resources
out-of the box thinking Culture
creative people Culture
Resources,
freedom to research and try
Culture
budget for commitment Resources

111
APPENDIX K- Business Strategy Perception with respect to
Employee Mix
(Company with Innovator Strategy

Innovator Company: Perception Difference

btw Manager vs. not Manager

90.00
85.00
80.00
75.00
Manager
70.00
Not Manager
65.00
60.00
55.00
50.00
n

s
y

rs

y
es
t io
er

ilit
ye
ov

en
tia

ib
Bu

ex
sc

siv
re
s/
Di

Fl
on
ffe
er
om

sp
Di

Re
st
Cu

Innovator Company: Perception Difference wrt Age

90.00
85.00
80.00
75.00
below 40
70.00
40 and above
65.00
60.00
55.00
50.00
n

s
ry

lit y
es
t io
er
ve

i
en
tia
y

ib
co

Bu

ex
n

siv
s

re
s/

Fl
Di

on
ffe
er
m

sp
Di
o

Re
st
Cu

112
 Innovator Company: Perception difference wrt Job Experience

90.00
85.00
80.00
75.00 below 6 years
70.00 7-12 years
65.00 above 12 years
60.00
55.00
50.00

s
ry

rs

lity
es
t io
ve

ye

i
en
tia

ib
co

Bu

ex
en

iv
s

s/

ns

Fl
Di

er
er

po
ff
m

Di

es
to
us

R
C

Improver Strategy:

Improver Company: Perception Difference

btw Manager vs. not Manager

95.00
90.00
85.00
80.00
75.00 Manager
70.00 Not Manager
65.00
60.00
55.00
50.00
Cost Efficiency Reliability Refinement

113
 Improver Company: Perception Difference wrt Age

95.00

90.00
85.00

80.00

75.00 below 40
70.00 40 and above

65.00

60.00

55.00

50.00
Cost Efficiency Reliability Refinement

Improver Company: Perception Difference wrt. Job Experience

95.00
90.00

85.00
80.00
below 6 years
75.00
7-12 years
70.00
above 12 years
65.00
60.00

55.00
50.00
Cost Efficiency Reliability Refinement

114
Appendix L- Distribution of Innovation Projects with respect to
Employee Mix

Innovation Projects: Manager vs. not Manager

25.00

20.00

15.00
Manager
Not Manager
10.00

5.00

0.00
NTW NTC AEL IM RP CR

Innovation Projects: Difference wrt Age

25.00

20.00

15.00
below 40
40 and above
10.00

5.00

0.00
NTW NTC AEL IM RP CR

Innovation Projects: Difference wrt Job Experience

25.00

20.00

15.00 below 6 years

7-12 years
10.00 above 12 years

5.00

0.00
NTW NTC AEL IM RP CR

115
APPENDIX M- Innovation Strategy Scores at Business Unit Level

Company
Dimensions (%) BU1 BU2 BU3 BU4
Level
Innovator 79.11 80.60 75.10 79.00 81.50
Improver 73.58 76.67 67.50 81.25 68.75
Radical 28.23 27.50 34.78 29.41 22.22
Incremental 71.77 72.50 65.22 70.59 77.78

Sub-dimensions Company
Dimensions BU1 BU2 BU3 BU4
(%) Level
Discovery 74.30 76.67 66.50 80.00 72.50
Innovator
Customers/Buyers 77.52 79.67 84.00 70.00 75.00
Differentiation 87.37 86.67 84.00 85.00 95.00
Responsiveness 80.58 80.00 73.00 85.00 85.00
Flexibility 75.79 80.00 68.00 75.00 80.00
Cost 62.11 76.67 44.00 70.00 55.00
Efficiency 86.32 86.67 92.00 90.00 75.00
Improver
Reliability 72.22 73.33 70.00 85.00 60.00
Refinement 73.68 70.00 64.00 80.00 85.00

Radical NTW 16.13 17.50 13.04 14.71 18.52

NTC 12.10 10.00 21.74 14.71 3.70
Incremental AEL 20.97 22.50 17.39 17.65 25.93
IM 20.16 22.50 17.39 17.65 22.22
RP 16.13 17.50 13.04 17.65 14.81
CR 14.52 10.00 17.39 17.65 14.81

116
Appendix N- Strategic Fit Analysis at 2 levels
(Company Level) IBM Netherlands

Mismatch!

117
Business Unit I (S&C)

118
Business Unit II (S&D)

119
Business Unit III (GBS D)

120
Business Unit IV (BC&RS)

121
122
 Hybrid Strategy (Improver & Innovator Company)

Mismatch Acceptable Ideal

123
 Pure Strategy (Innovator Company)
Mismatch Match

Pure Strategy (Improver Company)

Mismatch Match

124