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COMPETITIVENESS AND INNOVATIVENESS IN MANUFACTURING: AN EMPIRICAL STUDY

IEOM 2012 Istanbul July 3-6, 2012. COMPETITIVENESS AND INNOVATIVENESS IN MANUFACTURING: AN EMPIRICAL STUDY. Gündüz Ulusoy Faculty of Engineering and Natural Sciences SABANCI UNIVERSITY, ISTANBUL, TURKEY. SABANCI UNIVERSITY. Interdisciplinary Design – Absence of Departments

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COMPETITIVENESS AND INNOVATIVENESS IN MANUFACTURING: AN EMPIRICAL STUDY

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  1. IEOM 2012 Istanbul July 3-6, 2012 COMPETITIVENESS AND INNOVATIVENESS IN MANUFACTURING: AN EMPIRICAL STUDY Gündüz Ulusoy Faculty of Engineering and Natural Sciences SABANCI UNIVERSITY, ISTANBUL, TURKEY

  2. SABANCI UNIVERSITY • Interdisciplinary Design – Absence of Departments • Practice relevance • Comprehensive Two Year Program before Major Declaration • Faculty of Engineering and Natural Sciences • Faculty of Arts and Social Sciences • Faculty of Management

  3. SABANCI UNIVERSITY • 222 FTE Faculty • 2715 Undergraduates • 630 Graduates (235 PhD) Faculty of Engineering and Natural Sciences • Computer Science and Engineering • Biological Sciences and Bioengineering • Electronics Engineering • Materials Science and Engineering • Manufacturing Systems / Industrial Engineering • Mechatronics

  4. IEOM 2012 Istanbul July 3-6, 2012 PREVIEW • Motivation for innovation and basic definitions. • Based on an empirical study, we will • present a comprehensive and integrated model of innovation at the firm level; • discuss the effects of firm characteristics on the innovativeness capabilities of companies; • discuss the effects of innovativeness on firm performance; • analyze the interaction of business strategies and innovativeness; • present evidence for the cumulative capability model; • present a cluster study on how innovative capabilities are related with the manufacturing firm’s operations priorities (cost efficiency, flexibility, delivery and quality)and firm performance. • Managerial implications

  5. IEOM 2012 Istanbul July 3-6, 2012 MOTIVATION • Innovativeness and innovation have attracted extreme attention particularly in the last decades. Innovation is considered a major driver of growth for firms as well as countries. This is also valid in Turkey. • A large number of studies in innovation literature have been carried out in order to find out which factors enhance innovative efforts of firms.But, so far, an integrated model of innovativeness was hardly ever tested by researchers. • Companies cannot rely on their existing products and processes for long; to secure sustainability they have to improve (incremental innovation) or replace their existing stock (radical innovation). • Industrial engineers and operations management people have a large say in competitiveness and innovation issues.

  6. IEOM 2012 Istanbul July 3-6, 2012 INNOVATION • Innovation is not something new. It has been with us for ages. But with the increasing interconnectedness of communities in every sense and increasing competition, the need for new, better, improved increases as well. Currently it is indicated to be one of the major drivers of growth for firms as well countries. • Historians of economics investigating the relatively higher growth rates of Britain and Holland over Germany, Austria, Italy, France, Spain, and Poland in the 1300-1800 period have discovered that among the large number of parameters they have taken into account, the following three were the statistically significant ones: (i) Relatively early urbanization, (ii) trade, (iii) innovation and productivity in manufacturing.

  7. IEOM 2012 Istanbul July 3-6, 2012 INNOVATION • For decades now almost every few years a new wave of innovation comes as a prime actor in growth strategies of firms. For example, late 1970s, early 1980s the coming of information era and the rise of Silicon Valley; beyond good design, innovations in manufacturing processes such as TQM and others; restructuring wave of late 1980s and financial innovations; the digital mania of 1990s – World Wide Web leading to new business models.

  8. IEOM 2012 Istanbul July 3-6, 2012 INNOVATION DEFINITION • 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. • According to OECD there are 4 innovation types: Product, Process, Marketing and Organizational innovations. • Product and process innovation are grouped under technological innovations; whereas marketing and organizational innovations are grouped under non-technological innovations.

  9. IEOM 2012 Istanbul July 3-6, 2012 INNOVATION DEFINITION Innovation is not invention. But commercialization is not enough; we need profitable innovation. We want to get the paybackthroughtransformation of knowledge to added value. The last link on the path to innovation is commercialization.

  10. IEOM 2012 Istanbul July 3-6, 2012 IMPORT AND EXPORT VALUES IN USD/KG FOR SOME ITEMS

  11. IEOM 2012 Istanbul July 3-6, 2012 INTEGRATED MODELOF INNOVATION RESEARCH QUESTIONS • What are the determinants of innovation at the firm level? (i.e., what are the significant firm characteristics for innovations?) • What are the benefits of innovation to the firms in terms of performance?

  12. IEOM 2012 Istanbul July 3-6, 2012 DETERMINANTS of INNOVATION • FOUR PILLARS • General firm characteristics:Firm size, firm age, share of foreign capital and ownership status. • Firm structure: Intellectual capital and organization culture. • Firm strategies: Business strategies, innovation outlay, monitoring and collaborations. • Sectoral conditions: Market dynamism & competition intensity, public regulations, and barriers to innovation.

  13. IEOM 2012 Istanbul July 3-6, 2012 INTEGRATEDINNOVATION MODEL • The integrated innovation model is composed of two sub-models in line with the two research questions. • The first sub-model is built to investigate how certain factors called innovativeness determinants indeed determine the innovativeness of a firm. • The determinants of innovativeness model. • The second sub-model aims to assess the impact of innovativeness on firm performance • The performance model of innovation

  14. IEOM 2012 Istanbul July 3-6, 2012 INTEGRATEDINNOVATION MODEL The Determinants of Innovativeness Model Performance Model

  15. IEOM 2012 Istanbul July 3-6, 2012 SAMPLE PROFILE The firms are selected randomly from the database of the Union of Chambers and Commodity Exchange (TOBB), and from the chambers of industry located in the cities of Istanbul, Kocaeli, Sakarya, Tekirdağ, and Çerkezköy. Out of a sample of 1674 firms we have received 184 complete responses corresponding a rate of return of 11%. For each sector, number of firms in the sample turned out to be representativeof the population, since no significant difference (p≤0.05) has been detected between the population and sample percentages.

  16. IEOM 2012 Istanbul July 3-6, 2012 SAMPLE PROFILE

  17. IEOM 2012 Istanbul July 3-6, 2012 SEM OF INNOVATIVENESS MODEL Each arrow in the model is statistically significant (p<0.5). As a result, the proposed paths of relations matching innovation determinants to innovative ness are analyzed and validated regarding their significant path (regression) estimates.

  18. IEOM 2012 Istanbul July 3-6, 2012 FINDINGS:INNOVATIVENESSMODEL • Market dynamism, public incentives, firm size, and innovation outlay allhave significant positive effects on innovative capability of a firm. • Intellectual capital, which covers the skills, creativity and experience of individuals, is the most important determinant of innovativeness and as such, the most valuable resource for innovation. FINDINGS:INTELLECTUAL CAPITAL

  19. IEOM 2012 Istanbul July 3-6, 2012 FINDINGS:ORGANIZATIONAL CULTURE • In organizational culture, communication & collaborationamong employees and reward system also have a relatively high correlation with innovativeness. • Path analysis leading to innovativeness indicates that within organizational culture we observe formalism at the root, which covers documentation of processes and procedures, rules and regulations, company handbooks, work descriptions, etc. • High correlation of management support (leadership) to innovativeness capability emphasizes the importance of managerial encouragement for idea generation and for new projects. • Centralization (i.e., a hierarchical management model) is negatively correlated to innovative capability.

  20. IEOM 2012 Istanbul July 3-6, 2012 FINDINGS: COLLABORATION • Firms do not widely prefer to collaborate. • R&D collaboration with universities and public R&D centers (34%) • R&D collaboration with other firms (21%) • Collaboration for training with other firms and training institutions (56%) • Collaboration with customers (67%) • Collaboration with suppliers (70%) • The real positive impact for innovativeness comes from R&D collaboration that firms mostly fail to realize.

  21. IEOM 2012 Istanbul July 3-6, 2012 FINDINGS:BARRIERS TO INNOVATION • Regarding the barriers to innovation, firms affirm that external difficulties (such as difficulties of finding necessary components, materials, technological services etc.)constitute the least important barrier toinnovation. • They complain mostly about: (i) internal limitations (such as time and financial limitations, higher risk and cost of innovation), and (ii) internal deficiency (lack of technical information and experience, lack of qualified employee,R&D manager, etc.). • However, path analysis shows that internal resistance is indeed the most important barrier directly impacting innovativeness.

  22. IEOM 2012 Istanbul July 3-6, 2012 FINDINGS:FIRMSIZE • Among firm characteristics, only firm size is significantly correlated to innovativeness. • FINDINGS: THRESHOLD VALUE ON R&D ACTIVITIES • The analysis about R&D employees indicate that • Firms having at least five R&D employees have better innovative, marketing and financial performance (p<0.05), • They are more innovative (p<0.01).

  23. IEOM 2012 Istanbul July 3-6, 2012 FINDINGS: INNOVATION OUTLAY • Average annual innovation outlay (R&D, equipment, patent, knowhow and consultancy (excluding management) costs) is 1,3M€, and median is 238K€. • Innovation outlay/Revenue: Median= 3.4% Mean= 2.8% • Innovation outlay has high correlation with innovativeness. • Threshold Value: Firms with at least 1M€ are significantly more successful in terms of innovativeness and firm performance.

  24. IEOM 2012 Istanbul July 3-6, 2012 FINDINGS:PERFORMANCEMODEL OFINNOVATION • High level of implementation of innovations results in better innovative and production performance. • A certain amount of time might be necessary before observing the reflection of innovations on firm performance measures. • Despite the time lag, increased operational performance by innovations has significant positive effects on financial performance. • Innovative firms are rewarded by: • higher operational and financial firm performances, and • higher total sales and exports.

  25. IEOM 2012 Istanbul July 3-6, 2012 FINDINGS:FINANCIAL PERFORMANCE Financial Performance

  26. IEOM 2012 Istanbul July 3-6, 2012 BUSINESS STRATEGIES AND INNOVATIVENESS

  27. IEOM 2012 Istanbul July 3-6, 2012 Innovation Score incremental product radical product process marketing organizational original improvement imitation no innovation To what extent are the related applications/practices implemented in your organization in the last three years? 1= ‘not implemented’, 2= ‘imitation from national markets’, 3= ‘imitation from international markets, 4= ‘current products/processes are improved’, 5= ‘original products/processes are implemented’.

  28. IEOM 2012 Istanbul July 3-6, 2012 INNOVATIVE CAPABILITIES, OPERATIONS PRIORITIES AND CORPORATE PERFORMANCE Research Question: Howare innovative capabilities related with the manufacturing firm’s operations priorities (cost efficiency, flexibility, delivery and quality)and firm performance. Proposition 1. Firms can be grouped into different clusters based on their innovative capabilities pertaining to various innovation types. Proposition 2. Different innovation clusters posses different operations priorities. Proposition 3. Different innovation clusters demonstrate different corporate performance levels (financial, innovative, production, market).

  29. IEOM 2012 Istanbul July 3-6, 2012 INNOVATIVE CAPABILITIES, OPERATIONS PRIORITIES AND CORPORATE PERFORMANCE Leading Innovators: The Leading Innovators outclass others in every aspect of innovative capabilities trying to nurture all innovation types. They especially give higher importance to radical product and process innovations. Followers: The Followers cluster is the second most innovative cluster except for their very low radical product innovations capability . The Followers prefer to develop incremental product innovations rather than radical ones. They are also relatively strong at process and organizational innovations.

  30. IEOM 2012 Istanbul July 3-6, 2012 INNOVATIVE CAPABILITIES, OPERATIONS PRIORITIES AND CORPORATE PERFORMANCE Inventors: The Inventors perform significantly better than the Laggers and significantly worse than the Leading Innovators in terms of all the innovation types. On the other hand, the Inventors have very strong radical product innovation capabilities. It appears that a key characteristic of the Inventors is their focus on radical product innovations. Laggers: The Laggers constitute the least innovative cluster. They have the lowest scores in all innovation types among the clusters. It can be said that the Laggers do not even appreciate innovative capabilities as a component of firm strategy and do not rely primarily on innovations for competitive advantage.

  31. IEOM 2012 Istanbul July 3-6, 2012 INNOVATIVE CAPABILITIES, OPERATIONS PRIORITIES AND CORPORATE PERFORMANCE The presence of four distinct and meaningful innovation clusters supports P1 that firms can be grouped into different innovation clusters based on their capabilities on the radical product, incremental product, process, marketing, and organizational innovations. The significant difference in terms of quality, flexibility and delivery with respect to the four distinct innovation clusters supports P2that different innovation clusters adopt different operations priorities. The significant difference in innovative performance and slight differences in production, market performance, total sales and growth on total sales of innovation clusters supports P3that different innovation clusters achieve different operational and financial performance levels.

  32. IEOM 2012 Istanbul July 3-6, 2012 FINDINGS: INNOVATIVE CAPABILITIES, OPERATIONS PRIORITIES AND CORPORATE PERFORMANCE Our results reveal that innovativeness is associated with better corporate performance. All our findings show the vital role of innovative capabilities for manufacturing firms and that they are closely linked with operations priorities and corporate performance. High performing firms compete effectively on multiple operations priorities simultaneously. These findings strengthen the results presentedearlier in the literature that firms may be competent in multiple operations priorities.

  33. IEOM 2012 Istanbul July 3-6, 2012 MANAGERIAL IMPLICATIONS Having a clear understanding of the exact nature of innovations will help firms in the global context and within their own company. Firms need to develop an innovation strategy in line with business strategy with a time horizon of at least 3 years to be followed by appropriate subsequent action plans. Innovation needs to be managed, monitored, and measured. The payback of innovation needs to be estimated. Firms need to excel in multiple operations priorities and innovations in their market rather than concentrate on a single operations priority and/oron a single innovation type.

  34. IEOM 2012 Istanbul July 3-6, 2012 MANAGERIAL IMPLICATIONS Firms need to invest in intellectual capital by creating a work environment which is a challenging and motivating place to work in. In order to become more innovative firms need to look inside and try to solve their internal problems. We, as IEOM people, need to play an important and decisive role in our respective countries in her attempts to increase her competitiveness and innovativeness.

  35. IEOM 2012 Istanbul July 3-6, 2012 THANK YOU http://people.sabanciuniv.edu/gunduz/ gunduz@sabanciuniv.edu

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