Characteristics of innovation management in the Finnish forest sector 82

The Finnish forest industry has been strongly focusing in its innovation activities on cost-effectiveness and improvement of short-term competitiveness. This has been achieved mostly through process innovations though here it’s important to notice that often a process innovation affects the manufactured items of the product line and in turn product improvements require changes in the process (Pesonen, P. 2006. pp. 58-59).

In the 2000s especially the largest companies have gained interest in business innovations and businesses outside their core business are developed for instance in venture-units (Pesonen, P. 2006. p. 59). Unfortunately despite the venture-unit activity there have been very few companies that have started in this industry since the 1990s. In the middle of the 2000s there has also been a switch from technology push to market pull which can be seen in the increase of customised products and solutions (Pesonen, P. 2006. p. 59).

The biggest obstacle in the Finnish forest industry companies’ innovation management is the so called innovation paradox, which basically means the conflict between the pursuit of cost-effectiveness and long term innovation actions. Radical innovations usually require a long development process, risk-taking, big investments and a lot of courage. But on the other hand cost reductions and efficiency improvements are the best way of improving profitability, and profitable operations are crucial to getting investments for among other things the needed long term innovation activities. This situation with two conflicting objectives and the former strong focus on one side over the other is very problematic and troublesome. (Pesonen, P. 2006. p. 62)

8.2 Innovation processes in the Finnish forest industry

The organisational structures that guide the innovation activities of a company can be either centralised or decentralised. This means that there can be either just one

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research centre with all the activities, or several R&D units and/or departments. In large companies the structure is usually decentralised. (Pesonen, P. 2006. p. 59) Only in the resent years the companies have started to outline specific innovation strategies for themselves. Pekka Pesonen reports in his publication, from 2006, called in English “Innovation Management and its Effect in Forest Industry”, that none of the nine representatives from Finnish forest industry companies that he had interviewed, had admitted that their firm had a defined innovation strategy (Pesonen, P. 2006. p. 64). The resent change shows that the management has interest in developing the innovation mechanism of their companies, but that the process requires much more than just outlining an innovation strategy. The implementation of a new and effective innovation culture, -management, -tools and -knowledge requires determination, willingness to truly change and courage to start thinking differently and from another perspective.

One comprehensive innovation process cannot be outlined for all companies of the forest industry. All organisations should have defined their processed to suit them in the best possible way. The process should be described step-by-step and should have defined functions to bring order and efficiency. (Pesonen, P. 2006. p.

60) There are defined frameworks like the Stage-gate model, which has been presented in section 2.2.6, that can be implemented to get a structured innovation proses and effective idea and innovation portfolio management system.

Obviously, one framework cannot be used in all units and functions in one form, so it must be scalable like the Stage-gate model is. The implementation must be carefully contemplated and as it’s described in the theory part this might turn out to be quite challenging. As it has been, also to the forest industry firms that have tried. One major problem in implementing any kind of companywide innovation structure is the common outlook that the innovation activities are not included in the engagements of all company members but are the responsibility of the R&D function only (Pesonen, P. 2006. p. 60).

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Many companies have initiative systems used to collect ideas from inside the company and in some those systems could even be used to get ideas from the closest partners. Unfortunately these systems have often shortcomings and are not utilised as well as they could be. The ideas are collected from the company and recorded somewhere but they are not regularly viewed. The decisions are made by a certain group of people from inside of the company and experts from outside are rarely used. Often the initiative system is not even companywide and even if it is, all employees are not actively encouraged to use it. The best ideas are usually rewarded which does act as an incentive but is certainly not enough to create an innovative atmosphere to the company. (Pesonen, P. 2006. p. 64)

After the first idea-stage the companies continue to stages of selection, concept testing, and development, as it is explained in chapter 2.1. If the management of the idea-stage is sloppy, it hinders the following process, no matter how well it is organised.

The principles of project portfolio management seem simple and self-evident:

reviewing all projects, making sure they meet business plans and are align with the strategy of the company and provide real value. Still project portfolio management is used very shallowly in so many firms that evidently would need its help. In these cases it usually is the implementation of project portfolio management that has failed. (Pennypacker, J. & Retna, S. 2009. p. 3)

When a company is shifting a portion of its resources from an old product to a new one it is facing a risk, as the old product is already selling while the success of the new one is uncertain. This problem is especially prominent in a case of a radical product innovation. When bringing new products to the market one also needs to take to account that the customers might at first resist the change.

(Pesonen, P. 2006. p. 61) In business to business operations this can be helped by including the most important customers into the R&D and letting them have their say about the product before it’s brought to the market.

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Because the product development cycles have been relatively long and the amount of innovations made has been low especially prior to the 1990s, the atmosphere in Finnish forest industry companies is not very innovative as fast changes have not been required until very recently (Oksanen, J. et al. 2010. p.40). The atmosphere is not going to change quickly and the role of the management and company leaders is very important in making this transformation happen. As it has been mentioned in the theory part of this report people often get unsettled by change (Pennypacker, J. & Retna, S. 2009. p. 13). The structural change of the forest industry has been spiralling out of control as huge amounts of people have been laid off and the atmosphere in many working environments is most probably fearful as the continuity of the operations is uncertain.

Uncertainty can lead to competition between different units or even individual employees in the company and that can hinder the co-operation between people and result in a situation where different knowledge is not transferred within the company from a department to another. This significantly hampers the innovativeness of the organisation. Of course competition is not always a bad thing and the competitiveness can be used for the advantage of the firm by conducting for example innovation competitions within the company. The importance of co-operation between different departments and units is especially important in large projects (Pesonen, P. 2006. p. 66).