1. INTRODUCTION
1.1 On innovation
1. INTRODUCTION
Finland has a long tradition of technological inventions. Finnish engineers are known around the world for their excellent expertise in technological advances. However, it has been acknowledged that focusing solely on the field of technological innovations means large amounts of potential will be missed. There is a wider shift of thinking underway, one that challenges traditional expertise-based thinking. The engagement economy is taking over (see for example McGonigal, 2008; 2011).
No longer is the user simply a source of feedback; now the customer is involved in the actual innovation process. Educational programmes are being forced to rethink their methods and contents, as students are facing a more uncertain and complex world (Financial Times, December 19, 2011).
Innovation is for everyone; it can even be driven by blue-collar workers (The Danish Confederation of Trade Unions, 2007; 2008).
“An innovation culture at the workplace implies that the individual employee not only focuses on performing his or her duties, but also considers whether the duties could be performed more appropriately and has the resources for changing the solution of tasks.” (The Danish Confederation of Trade Unions, 2007, p. 21)
This thesis examines absorptive capacity in the context of non-research and development innovation. Absorptive capacity has most commonly been used in and associated with research and development functions. Many absorptive capacity studies also focus on transferring knowledge.
This thesis concentrates primarily on the social interaction that facilitates the absorption of knowledge. This thesis suggests that, instead of restricting acquisition of new knowledge to certain gatekeepers, everyone is and should be entitled to take part in the social interaction that transforms signals into innovations.
1.1 On innovation
Innovation as a scientific field blurs the boundaries of traditional scientific fields (Fagerberg and Verspagen, 2009). As a concept, innovation has several meanings, and discussions on innovation sometimes occur even now in which the parties are not really talking about the same thing. The approach to innovation that is the focus of this thesis is the process of innovation and the culture of doing, of how things can be done in a way that is meaningful for stakeholders. The term novel is avoided, since things rarely are, but value is highlighted: innovation creates value and meaning.
This thesis is grounded in the growing research stream on practice-based innovation (Melkas and Harmaakorpi, 2012). In this context, “…innovation is most often considered to be a result of co-operation in normal social and economic activities” (p. 2). Thus, innovation is something that is involved in everyday activities and not a privilege of, for example, research and development departments. Innovation is a process through which organisations interact with customers, suppliers and knowledge institutions (Jensen et al., 2007; Vinding, 2002).
Even though the process aspect of innovation is highlighted here, this approach nevertheless acknowledges that innovation is something that is used and useful, an outcome. “The values for the company can be both “hard” values such as a higher turnover, better bottom-line results, etc., and
“soft” values, such as greater job satisfaction, reduced stress, etc. The concepts of implementation
11 1. INTRODUCTION
Finland has a long tradition of technological inventions. Finnish engineers are known around the world for their excellent expertise in technological advances. However, it has been acknowledged that focusing solely on the field of technological innovations means large amounts of potential will be missed. There is a wider shift of thinking underway, one that challenges traditional expertise-based thinking. The engagement economy is taking over (see for example McGonigal, 2008; 2011).
No longer is the user simply a source of feedback; now the customer is involved in the actual innovation process. Educational programmes are being forced to rethink their methods and contents, as students are facing a more uncertain and complex world (Financial Times, December 19, 2011).
Innovation is for everyone; it can even be driven by blue-collar workers (The Danish Confederation of Trade Unions, 2007; 2008).
“An innovation culture at the workplace implies that the individual employee not only focuses on performing his or her duties, but also considers whether the duties could be performed more appropriately and has the resources for changing the solution of tasks.” (The Danish Confederation of Trade Unions, 2007, p. 21)
This thesis examines absorptive capacity in the context of non-research and development innovation. Absorptive capacity has most commonly been used in and associated with research and development functions. Many absorptive capacity studies also focus on transferring knowledge.
This thesis concentrates primarily on the social interaction that facilitates the absorption of knowledge. This thesis suggests that, instead of restricting acquisition of new knowledge to certain gatekeepers, everyone is and should be entitled to take part in the social interaction that transforms signals into innovations.
1.1 On innovation
Innovation as a scientific field blurs the boundaries of traditional scientific fields (Fagerberg and Verspagen, 2009). As a concept, innovation has several meanings, and discussions on innovation sometimes occur even now in which the parties are not really talking about the same thing. The approach to innovation that is the focus of this thesis is the process of innovation and the culture of doing, of how things can be done in a way that is meaningful for stakeholders. The term novel is avoided, since things rarely are, but value is highlighted: innovation creates value and meaning.
This thesis is grounded in the growing research stream on practice-based innovation (Melkas and Harmaakorpi, 2012). In this context, “…innovation is most often considered to be a result of co-operation in normal social and economic activities” (p. 2). Thus, innovation is something that is involved in everyday activities and not a privilege of, for example, research and development departments. Innovation is a process through which organisations interact with customers, suppliers and knowledge institutions (Jensen et al., 2007; Vinding, 2002).
Even though the process aspect of innovation is highlighted here, this approach nevertheless acknowledges that innovation is something that is used and useful, an outcome. “The values for the company can be both “hard” values such as a higher turnover, better bottom-line results, etc., and
“soft” values, such as greater job satisfaction, reduced stress, etc. The concepts of implementation
12 and value creation thus play a very central part and are exactly what distinguishes innovative thinking or inventions from innovation.” (The Danish Confederation of Trade Unions, 2007, p. 9) Research on innovation has expanded from closed research and development innovation to open innovation environments (Chesbrough, 2003). According to Chesbrough et al. (2006), the antecedents of open innovation date from Schumpeter’s 1934 research, in which he studied entrepreneurs in 42 research and development processes. At that time, it was believed that value was created in benefits of scale and scope for internal research and development. Nelson (1959) raised the issue of knowledge spillover. He claimed that benefits can be achieved through ideas that originate outside research and development departments. The use of external knowledge aroused strong objections in the form of the “not invented here” phenomenon (Katz and Allen, 1982).
Cohen and Levinthal (1990) presented the two faces of research and development; the concept of absorptive capacity deals with acquiring knowledge from different sources and assimilating this knowledge into the organisation’s existing stock of knowledge. As Cohen and Levinthal (1989) point out, absorptive capacity can offer an explanation for why certain firms invest in basic research even though the outcomes spill over from the firm into the public domain. It is not only basic research in which they are investing; it is also the capabilities of employees to exploit externally available information. Von Hippel (1988) investigated different sources for acquiring useful knowledge; customers were seen as one such significant source. Langlois (2003) noticed that innovations develop in a less hierarchical fashion. If a company does not possess sufficient absorptive capacity of its own, strategic alliances may be used to acquire knowledge.
Open innovation as such has set new kinds of demands for innovators, for example in the forms of collective knowledge production, innovation networks and expertise, as well as in skills needed (Pihkala and Harmaakorpi, 2011). Open innovation continues to seek its shape today. Pihkala and Harmaakorpi (2011, p. 2) conclude that organisations can be divided into four categories with respect to corporate culture and entrepreneurship: 1. Closed inside and outside, 2. Closed inside but open outside, 3. Open inside but closed outside and 4. Open inside and open outside. The focus in this thesis is on the open inside perspective.
Table 1 presents several modes of knowledge generation. Mode 1 comprises Science–Technology–
Innovation knowledge generation (Jensen et al., 2007). Harmaakorpi (Harmaakorpi and Melkas, 2012) has classified the Doing–Using–Interacting mode of knowledge generation into two subcategories: Mode 2a and Mode 2b. Mode 2 knowledge generation focuses on practice-based innovation. In the literature on practice-based innovation (Melkas and Harmaakorpi, 2012; Ellström, 2010), employees, customers and networks are seen as important sources of innovations. Whereas Mode 1 stresses research and development as a context for innovation creation, Mode 2 also recognises the value of non-research and development innovations. And whereas Mode 1 focuses mainly on explicit knowledge, Mode 2 seeks out tacit and self-transcending types of knowledge.
There is a tension between the Science–Technology–Innovation and Doing–Using–Interacting modes that generates a need to pay attention not only to research and development processes but also to learning from informal interaction and competence-building through tacit elements (Jensen et al., 2007). In order to gain a deep understanding of the differences in innovative performance, there is a need to develop indicators that are grounded in Doing–Using–Interacting (Jensen et al., 2007).
12 and value creation thus play a very central part and are exactly what distinguishes innovative thinking or inventions from innovation.” (The Danish Confederation of Trade Unions, 2007, p. 9) Research on innovation has expanded from closed research and development innovation to open innovation environments (Chesbrough, 2003). According to Chesbrough et al. (2006), the antecedents of open innovation date from Schumpeter’s 1934 research, in which he studied entrepreneurs in 42 research and development processes. At that time, it was believed that value was created in benefits of scale and scope for internal research and development. Nelson (1959) raised the issue of knowledge spillover. He claimed that benefits can be achieved through ideas that originate outside research and development departments. The use of external knowledge aroused strong objections in the form of the “not invented here” phenomenon (Katz and Allen, 1982).
Cohen and Levinthal (1990) presented the two faces of research and development; the concept of absorptive capacity deals with acquiring knowledge from different sources and assimilating this knowledge into the organisation’s existing stock of knowledge. As Cohen and Levinthal (1989) point out, absorptive capacity can offer an explanation for why certain firms invest in basic research even though the outcomes spill over from the firm into the public domain. It is not only basic research in which they are investing; it is also the capabilities of employees to exploit externally available information. Von Hippel (1988) investigated different sources for acquiring useful knowledge; customers were seen as one such significant source. Langlois (2003) noticed that innovations develop in a less hierarchical fashion. If a company does not possess sufficient absorptive capacity of its own, strategic alliances may be used to acquire knowledge.
Open innovation as such has set new kinds of demands for innovators, for example in the forms of collective knowledge production, innovation networks and expertise, as well as in skills needed (Pihkala and Harmaakorpi, 2011). Open innovation continues to seek its shape today. Pihkala and Harmaakorpi (2011, p. 2) conclude that organisations can be divided into four categories with respect to corporate culture and entrepreneurship: 1. Closed inside and outside, 2. Closed inside but open outside, 3. Open inside but closed outside and 4. Open inside and open outside. The focus in this thesis is on the open inside perspective.
Table 1 presents several modes of knowledge generation. Mode 1 comprises Science–Technology–
Innovation knowledge generation (Jensen et al., 2007). Harmaakorpi (Harmaakorpi and Melkas, 2012) has classified the Doing–Using–Interacting mode of knowledge generation into two subcategories: Mode 2a and Mode 2b. Mode 2 knowledge generation focuses on practice-based innovation. In the literature on practice-based innovation (Melkas and Harmaakorpi, 2012; Ellström, 2010), employees, customers and networks are seen as important sources of innovations. Whereas Mode 1 stresses research and development as a context for innovation creation, Mode 2 also recognises the value of non-research and development innovations. And whereas Mode 1 focuses mainly on explicit knowledge, Mode 2 seeks out tacit and self-transcending types of knowledge.
There is a tension between the Science–Technology–Innovation and Doing–Using–Interacting modes that generates a need to pay attention not only to research and development processes but also to learning from informal interaction and competence-building through tacit elements (Jensen et al., 2007). In order to gain a deep understanding of the differences in innovative performance, there is a need to develop indicators that are grounded in Doing–Using–Interacting (Jensen et al., 2007).
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Table 1. Modes of knowledge generation (Harmaakorpi and Melkas, 2012, p. 447-448) Point of view;
Proximity Distance “Near distance”
… logics Agglomeration –
… capital Intellectual capital – financial capital
Analytical Interpretative Interpretative
… innovation methods
Scientific methods Methods of intellectual cross-fertilisation
Problem-based learning (e.g., cultural methods)
… origins of
innovations Science and related
expertise Networks – serendipity –
customers “Normal” staff – customers
… fields of
Brokering – general ability to build possible worlds for the firms of cluster
Scanning and absorbing technology and market signals
Organisational learning
Whereas Mode 1 respects traditions and rewards those who have long-term experience in a certain field of science, in Mode 2 knowledge generation and innovations stem from an “ability to build possible worlds”; that is, divergent thinking (Robinson, 2010) is a good starting point for recognising opportunities. In this case, world experience and education can even be hindrances to spotting good signals, as they create path-dependencies and lock-ins (Saxenian, 1994; Robinson, 2010). Whereas Cohen and Levinthal (1994) state, referring to absorptive capacity, that “the capacity to exploit outside knowledge is comprised of the set of closely related abilities to evaluate the technological and commercial potential in a particular field…” (p. 227), in practice-based innovation and Mode 2 knowledge generation, the focus is on making connections between two or more fields.
The thesis is positioned in a non-research and development context. Table 2 presents key concepts from a research and development viewpoint versus a non-research and development approach. In the latter context, there are no official structures and assigned roles for scanning the environment in order to produce innovations, meaning a different kind of organising is needed.
13
Table 1. Modes of knowledge generation (Harmaakorpi and Melkas, 2012, p. 447-448) Point of view;
Proximity Distance “Near distance”
… logics Agglomeration –
… capital Intellectual capital – financial capital
Analytical Interpretative Interpretative
… innovation methods
Scientific methods Methods of intellectual cross-fertilisation
Problem-based learning (e.g., cultural methods)
… origins of
innovations Science and related
expertise Networks – serendipity –
customers “Normal” staff – customers
… fields of
Brokering – general ability to build possible worlds for the firms of cluster
Scanning and absorbing technology and market signals
Organisational learning
Whereas Mode 1 respects traditions and rewards those who have long-term experience in a certain field of science, in Mode 2 knowledge generation and innovations stem from an “ability to build possible worlds”; that is, divergent thinking (Robinson, 2010) is a good starting point for recognising opportunities. In this case, world experience and education can even be hindrances to spotting good signals, as they create path-dependencies and lock-ins (Saxenian, 1994; Robinson, 2010). Whereas Cohen and Levinthal (1994) state, referring to absorptive capacity, that “the capacity to exploit outside knowledge is comprised of the set of closely related abilities to evaluate the technological and commercial potential in a particular field…” (p. 227), in practice-based innovation and Mode 2 knowledge generation, the focus is on making connections between two or more fields.
The thesis is positioned in a non-research and development context. Table 2 presents key concepts from a research and development viewpoint versus a non-research and development approach. In the latter context, there are no official structures and assigned roles for scanning the environment in order to produce innovations, meaning a different kind of organising is needed.
14 Table 2. Key concepts and non-research and development innovation
Research and development focused innovation
Non-research and development innovation
Knowledge generation Science–Technology–Innovation Doing–Using–Interacting Knowledge absorption Expert knowledge through research
and development functions
Observations through anyone in an organisation
Open Innovation Open outside Open inside Absorptive capacity “By-product” of the research and
development department
Ability of individuals facilitated by organisational elements. Realised through the actions of individuals
Social capital in the absorptive capacity context
Social structures that ensure access to knowledge
Social dynamics that facilitate the absorption of knowledge
From the perspective of practice-based innovation, this thesis aims at increasing understanding of the concept of absorptive capacity and ways of enhancing it in practice. The following sections present the reasoning behind identifying the proper questions that need to be asked in order to fill in the theoretical gap. This Introduction closes with the presentation of the research questions.