Development process of technological process innovation in

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Development process of technological process innovation in

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Development process of technological process innovation in the manufacturing industry
A mixed methods study
Marijn Bouvy Student 1014032 Nijmegen School of Management Radboud University Nijmegen Supervisor: dr. P.E.M. Ligthart Second examiner: dr. A.U. Saka-Helmhout

Development process of technological process innovation in the manufacturing industry
Marijn Bouvy
Student number: 1014032

Master program: Institution:

Strategic Management, Business Administration Radboud University, Nijmegen

Supervisors Supervisor: Second examiner:

Dr. P.E.M. Ligthart Dr. A.U. Saka-Helmhout

Date:

August 20, 2019

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Acknowledgements
Throughout the writing of this thesis I received the support of many. I would like to offer my special thanks to my supervisor, dr. P.E.M. Ligthart, for giving advice and guidance during the entire process of writing, whereby he supported me via suggestions and his enthusiasm. In addition, I would like to thank the respondents for their cooperation and their hospitality to receive me at their company, whereby the conversations led to interesting findings and insights. Finally, I would like to thank my dear family and friends for encouraging me and giving me priceless advice.
After two years at the Radboud University, where I followed the pre-master Business Administration and the master Strategic Management, my career as a student has come to an end. I hereby present my final piece of work as a master student Strategic Management. Marijn Bouvy Nijmegen, August 20, 2019
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Abstract
Companies must innovate to remain competitive in an increasingly changing environment. They can innovate their processes, whereby the implementation of technologies in the production process leads to technological process innovation (hereinafter referred to as process innovations). Compared to product innovation, little research has been done regarding the development and implementation of process innovations. In addition, many success stories of open innovation can be found in the literature, however, open innovation focusing on process innovation remains relatively neglected. This has led this study to focus on how process innovation is developed and which innovation approach -open versus closed- is most effective for this, whereby the innovation approaches distinguishes themselves in the way in which internal and external R&D are utilized. This study focuses on SMEs in the manufacturing industry. In this study it was theorized that internal R&D and open innovation have a positive influence on the realization of process innovation, due to the use of tacit knowledge of regular employees and the use of external expertise. To obtain results, a mixed method study has been applied. First, use has been made from the European Manufacturing Survey (2015). A multiple regression analysis examined the effect of internal R&D on process innovation and the moderating effect of external R&D on this relationship. It turns out that these relationships were not significant and therefore could not be confirmed. Second, semi-structured interviews were conducted to investigate these relationships and to get more insight into the development process of process innovation. One finding based on the qualitative analysis in this study was that open innovation is the key in innovating processes by SMEs. Another finding based on the qualitative analysis is that a modified version of the StageGate model of Cooper is applicable to the development process of process innovation, wherein other activities play a role in comparison to product innovation. The results of this study have theoretical implications but are also useful for SMEs that want to realize process innovations. It describes ways how SMEs can realize process innovations in an effective way. The findings together with the recommendations for future research will help to understand and extend the existing literature on the development process of process innovation and the role of open innovation in it.
Keywords: external R&D, internal R&D, manufacturing industry, open innovation, SME, technological process innovation
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Table of contents

1. Introduction

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1.1 Problem statement

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1.2 Objectives, Research Question & Relevance

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1.3 Outline of the master thesis

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2. Theoretical framework

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2.1 Defining technological process innovations

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2.2 Innovation approaches

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2.3 Capabilities to innovate

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2.4 R&D in the manufacturing industry

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2.5 Summary

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3 Hypothesis development: the relation between open innovation and process innovation

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3.1 The effect of open innovation on process innovation

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3.2 Conceptual model

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4 Development process of process innovation

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4.1 Development process of process innovations through the lens of the Stage-Gate model

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4.2 Learning strategies

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4.3 Summary

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5 Research Methodology

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5.1 Research design/strategy

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5.2 Research process/data collection

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5.3 Operationalization

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5.4 Reliability/Validity

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6 Results

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6.1 Quantitative analysis

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6.1.1 Descriptive statistics

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6.1.2 The model

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6.1.3 Linear regression analysis

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6.1.4 Hypotheses

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6.1.5 Summary

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6.2 Qualitative analyses

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6.2.1 Main concepts

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6.2.2 Development process of process innovation

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6.2.3 Learning strategies

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6.2.4 Further findings

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6.2.5 Summary

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6.3 Concluding words

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7 Summary, implications and limitations

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7.1 Summary

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7.2 Implications

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7.2.1 Theoretical implications

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7.2.2 Practical implications

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7.3 Limitations and recommendations for future research

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References

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Appendices

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Appendix I

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Appendix II

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Appendix III

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Appendix IV

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Appendix V

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Appendix VI

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1. Introduction
Companies must innovate to remain competitive in an increasingly changing environment (Crossan & Apaydin, 2010). Companies can innovate products or processes, and these are interlinked as product innovation leads to process innovation (Kraft, 1990) (referring to a renewal of production processes and technologies). Implementing these technologies in production processes results in Technological Process Innovation (hereinafter referred to as process innovation). Currently scholars mostly describe innovation as an outcome (Crossan & Apaydin, 2010) instead of innovation as a process, the latter therefore remains understudied (Frishammar, Kurkkio, Abrahamsson & Lichtenthaler., 2012; Lager, 2010; Piening & Salge, 2015). Although it is important to consider product and process innovations separately, in the literature concerning the development and implementation of process innovations there is no distinction made (Tidd, Bessant & Pavitt, 2005). Furthermore, it is still a challenge for companies to acquire knowledge to innovate their processes. Some companies rely for their R&D entirely on closed innovation, whereas others have fully open approaches to innovation (Hung & Chou, 2013) and work closely together with external parties (Van de Vrande, De Jong, Vanhaverbeke & De Rochemont., 2009). The effectiveness of these innovation approaches -open versus closed- to innovate processes is however challenged (West & Gallagher, 2006) and therefore of interest to be studied in more detail. The focus of this thesis is how process innovation is developed and which innovation approach is most effective for this.
1.1 Problem statement Innovation can be distinguished in two types: product innovation and process innovation (OECD, 2018; Utterback & Abernathy, 1975; Damanpour & Aravind, 2006). Product innovation refers to a new end product or a new service itself (OECD, 2018). While process innovation refers to an innovation in the production process or the delivery process of products or services (Damanpour & Gopalakrishnan, 2001). Another difference is that product innovation is aimed at external customers, while process innovations focuses on activities within the company such as logistics and production. In addition, they differ from each other in the following aspects, such as the objective to innovate, competitive impact, rareness, imitability and substitutability (Un & Asakawa, 2015). Hence, it cannot always be assumed that the insights gained through research focused on product innovations also apply to process innovation. (Damanpour, 2010; Pisano & Shih, 2012).
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Each type of innovation can have its own development process by which an innovative idea is developed towards an actual final outcome being the innovation. As indicated earlier, this thesis focusses on process innovation. Compared to product innovation, little research has been done regarding the development and implementation of process innovations (Frishammar et al., 2012; Lager, 2010). According to Frishammar et al. (2012), process developments, similarly to product developments, are made possible through "planned, structured and formalized work processes" (p. 526). Although it is important to separate product from process innovations (Tidd et al., 2005), this is not done in the literature concerning the development and implementation of process innovations. As a result, the same principles are applied to both types of innovation (e.g., Utterback, 1971). Nonetheless, the existing literature recognizes various stages in the development and implementation of process innovations. In these various stages relevant activities take place and the necessary objectives are formulated (e.g., Kurkkio, Frishammer & Lichtenthaler, 2011; Voss , 1992). These stages are also recognized by Hollen, Van Den Bosch and Volberda (2013), whereby the development of process innovation is cut into several pieces. Ultimately, all of these phases can be found in the Stage-Gate model from Cooper (2008).
The development of a process innovation, thus the steps and procedures that are taken prior to the outcome of process innovation can either be realized through an open or closed approach in which a company either works together with other parties or innovates on their own (e.g. Chesbrough, 2003; Hung & Chou, 2013). Both in closed innovation and in open innovation, internal R&D is of great importance when the value of new ideas must be assessed and applied in the company’s own products and processes. With open innovation, external R&D complements internal R&D (Chesbrough, 2003).
Many success stories of open innovation can be found in the literature but focus mainly on product innovation (Huizingh, 2011). Open innovation focusing on process innovation remains relatively neglected (Huizingh, 2011; Un & Asakawa, 2015; West & Gallagher, 2006). Therefore, it is important to investigate whether open innovation has an influence on process innovation. Although this phenomenon appears throughout many industries, the focus of this thesis is manufacturing industry. This industry is facing new challenges regarding digitalization of their production processes (Baur and Wee, 2015) to maintain competitiveness. Companies must prepare for changes that this new way of producing entails (Baur and Wee, 2015).
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1.2 Objectives, Research Question & Relevance The main objective of this thesis is to study how an open innovation approach affects process innovation, and the particular role of internal and external R&D activities. This thesis describes the degree of internal R&D and open innovation activities, that in turn determine the extent to which a company is capable to independently develop its own process innovations. The process innovations intensity indicates to what extent a company incorporates new technologies into their processes.
The realization of process innovations depends on a development process, influenced by open innovation. Companies that gain insight in the development of process innovations are likely to be more capable to identify any problems at an early stage when designing new process innovations.
The following research question is formulated, with regard to the research objective:
What is the influence of internal R&D and open innovation on the technological process innovation and its development process in the manufacturing industry?
To answer this research question both a quantitative and an qualitative research method is applied. This mixed approach is important to be able to look at how many (time and human) resources are invested in R&D activities to realize process innovations, this is done by quantitative analysis. But also to be able to look a level deeper to see which particular activities really matter for process innovation and what the interaction is between internal and external R&D capabilities, this is done by qualitative analysis.
This thesis contributes to the literature because it is among the first to focus on analysing the development of process innovations. The literature has primarily focused on the development process of product innovation. This thesis argues that companies can benefit from R&D partnerships when they develop process innovations, even though process innovations are primarily internal and tacit. In addition, this thesis shows the sequence of activities (steps) that play an important role in the development of process innovations, helping managers to better understand and manage the development of process innovations.
The practical contribution lies in that Dutch manufacturing companies are still at the beginning in the application of advanced new technologies in their production processes (Van Helmond, Kok, Ligthart & Vaessen, 2018). However, many companies themselves do not have the knowledge about how to implement technology in their processes. This study explains how these companies still can innovate effectively by using an open innovation approach.
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1.3 Outline of the master thesis In the next chapter the relevant literature is discussed, starting with the meaning of process innovations. Then two innovation approaches -open versus closed- are described. Moreover, the role of internal and external R&D in the two approaches are described. The third chapter describes the different relationships between the concepts from which hypotheses arise and leads to a conceptual model. The fourth chapter describes theory that is used for the development process of process innovation, including the development process of process innovations through the lens of the Stage-Gate model and learning strategies. The fifth chapter describes that a mixed method is used in this study. A quantitative analysis was used to investigate the hypotheses and a qualitative analysis was used to gain more understanding of the concepts and their relationships. Chapter six first present the results of the quantitative analysis based on data from the European Manufacturing Survey (2015). Subsequently, the results of the qualitative analysis are presented, which are based on data from the six semi-structured interviews conducted. The final chapter provides conclusions. Furthermore, the limitations of the study are indicated and recommendations for further research are presented.
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Process InnovationProcess InnovationsInnovationDevelopment ProcessDevelopment