Understanding the Innovative Capacity of Organisations

Dr Rachel Hilliard

Innovation & Structural Change clusterWhitaker Institute

Our PeopleAssociate membersProf James Cunningham, NBSProf Paul Ryan, TCDProf Maura Sheehan, NapierDr Adele Smyth, GBSDr Caren Clancy, KU LeuvenDr Will Geoghegan, SyracuseDr Damian Organ, UCCDr Kevin Heanue, Teagasc

Academic StaffDr Rachel HilliardDr Majella GiblinDr Johanna ClancyDr Pat CollinsDr Natasha EversMr Mike MoroneyProf Seamus Grimes

Research studentsRosita Kouwnenaar Margaret Tallott Brian

Molloy Orlagh Reynolds Anthony Cawley

Innovation & Structural Change

Knowledge Transfer

EntrepreneurshipRegional competitiveness

Sustainability Innovation

Whitaker Institute Key themes

• Business, Innovation & Economic Development

• Sustainable and Inclusive Societies • Public-Sector Innovation and Reform

Understanding the Innovative Capacity of Organisations

Nelson and Winter, 1982, p. 134

‘It is quite inappropriate to conceive of firm behaviour in terms of deliberate choice from a broad menu of alternatives that some external observer considers to be “available” opportunities for the organisation. The menu is not broad, but narrow and idiosyncratic; it is built into the firm’s routines …’

Teece, Pisano and Schuen (1997)

‘a firm’s past experience conditions the alternatives management is able to perceive.’

Penrose’s concept of image

• Management has an image of paths open to the company - reflection of the plant’s current capability set and past history.

• ‘the “subjective” productive opportunity of the firm’ (Penrose, 1959: 42)

Image and growth

• Past experience shapes current growth path; experience of growth shapes capacity to grow.

• This capacity is not just ability to act but also perception of risk and future opportunity is shaped by past experience.

• The capacity to grow/innovate includes image as well as competences.

Dynamic capability field

‘one of the most influential theoretical lenses in the study of strategic management over the past decade’

(Schilke, 2014: 179)

1000+ articles on ISI Web of Science (Peteraf et al, 2013)

2000-20052006-2010 2011-2013papers 32/pa 137/pa 201/pacites 386/pa 3236/pa 6860/pa

(Di Stefano et al, 2013)

2 intellectuals roots

• Evolutionary economics:How can we explain heterogeneity in the population of firms?

• Strategic management:How can firms achieve sustainable

competitive advantage?

Dynamic Capabilities• higher order capabilities• ‘capacity of an organisation to purposefully create,

extend or modify its resource base’

• systematic methods for modifying operating routines - ‘search’

• deliberative processes of ‘collective learning’

• DCV: Explain firm competitiveness and success through examining dynamic capabilities

Research Context

• Change in environmental regulation of industry.

• Mandating technical change and introduction of environmental management processes.

• Natural experiment

Capability requirements

• New technical capabilities for cleaner technology adoption.

• New managerial capabilities for environmental management.

• Capability to develop/acquire new technical and managerial capability.

Pharmaceutical Sector

• 16 MNC bulk manufacturing plants– analysis of data reported to the EPA– correlation between presence of capability and

successful adjustment to regulations

Conclusions of Full Sector Analysis• Firms are differentially successful in meeting new

regulations ability to adopt technical changes ability to implement managerial changes

• Success in adapting to new regulations: associated with the possession of strong, routinised and integrated processes for problem-solving and strategic development.

Reasons why this shouldn’t be

• global MNC pharma companies• access to financial resources• in possession of extensive technical capability re

manufacturing, process development, management.

• similar age; similar early environmental projects• industry willing to share good practice; EMS not

seen as commercially sensitive

Measuring dynamic capability

High Dynamic Capability = • Routines for data collection and problem identification• Programmes for generating cleaner technology • Cross-functional continuous improvement teams

Low Dynamic Capability = • Absence of pollution prevention projects• Explicit abatement only focus• Significant delays in application process due to lack of

information

Unpacking Firm-Specific Capabilities

STRONG DC FIRMS

• learning retained and leveraged from early, one-off projects

• good relationships for learning

– cross functional– plant / HQ – external advice

WEAKER DC FIRMS

• early experiences only one-off projects

• adverse relationships – regulator

– community

• In response to the same external regulatory demands:

firms had a different interpretation and perception of what was required to develop their environmental performance

Image held by Pharma P (very strong DC)

• Cleaner technology = way to ‘lift the intellectual capacity of the organisation’.

• Plant benefits from pursuing opportunities to maximise learning.

• Environmental excellence benefits overall plant strategic aims.

Image held by Pharma G (absent DC)

• Environmental excellence = investment in treatment technology

• Cleaner technology does not represent an opportunity. External advice has nothing to offer.

• Role of EM is as a support function. Success = avoiding disruption to core activities

Conclusion

• Performance explained by dynamic capability.

• Presence/absence of reflexive routinesfor learning and problem solving are influenced by the firm’s perception.

• Dynamic capability is a function of both- deliberative problem solving processes- the tacit image held by the firm