Are publishers ready for tomorrow?

Publishers’ capabilities and online innovations

Vera Valanto (vera.valanto@lut.fi)

Miia Kosonen (miia.kosonen@lut.fi)

Hanna-Kaisa Ellonen (hanna-kaisa.ellonen@lut.fi)

Lappeenranta University of Technology

Technology Business Research Center (TBRC)

P.O.Box 20

53851 Lappeenranta, Finland

Tel +358 5 621 7244

Fax +358 5 621 6699

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Abstract

In order to cope with technological change publishing companies need to effectively combine their

capabilities and use them to support the development of new and existing products. In this paper,

we explore the relationship between the market and technology capabilities of publishing

companies and their online innovations. Our aim is to find out what kind of online-related capability

portfolios they have, and how they are related to online innovation. Our comparative case study

focused on four cases representing the newspaper and magazine industries. There appear to be vast

differences in publishers’ capability portfolios - in general they tend to reflect stronger market than

technology capability. There is also an apparent tendency to build on the strongest capability area

and to focus on leveraging those capabilities rather than taking a risk and experimenting in an area

in which they are weak. Thirdly, we found that publishers have been able to leverage their market

capability through online experimentation, but it seems that they have not been able to develop their

technology capability in the same manner. The study provides an empirical contribution to the

emerging work on innovation-related capabilities in this in-depth investigation of the capability

portfolios of the case firms. Furthermore, in enhancing understanding of the online-related

capabilities required in publishing companies and how they develop them also contributes to the

literature on media management.

Keywords: capabilities, innovation, online innovations, market capability, technology capability,

publishing industry

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1 INTRODUCTION

Online environments have changed the mode of operation within the publishing industry. With the

increasing prevalence of the Internet the media industry is faced with the challenge of offering

entirely new types of products online (Küng, 2004, Chan-Olmsted, 2006). Companies have to meet

new customer expectations in this environment. In order to cope with such change publishing

companies need to effectively combine their capabilities in terms of supporting new-product

development and the continuous improvement of existing products.

The processes and structures of innovation have been extensively studied. For instance, Ellonen et

al. (2009) investigated the relationship between dynamic capabilities and online innovations within

the publishing industry. However, they point out how further research is needed in order to clarify

the linkage between capabilities and innovations.

In this study we explore the relationship between publishing companies’ market and technology

capabilities and online innovations. Specifically, we focus on two research questions: 1) What kinds

of online-related capability portfolios do publishing companies have? 2) What is the relationship

between their capability portfolios and their online innovations?

The choice of research design was based on the two objectives of the study. Rouse & Daellenbach

(1999) have called for detailed, fieldwork-based comparative investigation in studies of firms’

resources. Given our objective to explore the relationship between the firm’s capabilities and its

online innovations we conducted a comparative case study (Eisenhardt & Graebner, 2007, Patton,

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2002), allowing us to investigate each case thoroughly and then to find themes and patterns by

means of cross-case analysis.

This paper is organized as follows. We first review the relevant literature on operational first-order

(market and technology) capabilities. Then we formulate the innovation types used in the study,

describe our empirical setting, research methods and data, and report the results of the empirical

analysis. Finally, we discuss our findings, offer some concluding remarks and suggest potential

future research directions.

2 THEORETICAL BACKGROUND

Research on capabilities is grounded in the theory of the resource-based view of the firm (RBV),

the central claim of which is that in order to gain competitive advantage through its value-creating

strategies a firm has to use its heterogeneous capabilities effectively in successful product creation

(Barney, 1991, Peteraf, 1993, Teece et al., 1997, Brown & Eisenhardt, 1997, Jacobides & Winter,

2005). Capability is defined here as the ability to do certain things on the organizational level, and

it is used synonymously with the concept of competence. Capabilities are usually divided into two

main groups depending on the tasks concerned – doing everyday core business or gaining new and

combining existing capabilities. The focus here is on the first group, which we label first-order

capabilities. These constitute a source of competitive advantage when they are built on resources,

routines, skills, relevant knowledge and relationships (Teece et al., 1997, 524, Clark, 1987, 61). It is

question of productive capabilities, or in other words “knowledge of how to do things” (Jacobides

& Winter, 2005, 397), which comprise both tangible and intangible elements (Danneels, 2002,

1112).

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2.1 Market and technology capabilities

The general understanding is that product innovations require a simultaneous view of markets and

technologies (Dougherty, 1992, Danneels, 2002), and both market and technology capabilities

therefore affect success with new innovations (Cooper & Kleinschmidt, 1995, Ritter & Gemünden,

2004, Nerkar & Roberts, 2004, Renko et al., 2009). Understanding customer needs and going on to

selling new products need good market capability (Danneels, 2002, 1102, Abernathy & Clark, 1985,

5). Product manufacturing and building, in turn, requires technology capability (Danneels, 2002,

1102, Abernathy & Clark, 1985, 5).

Different terms are applied in the context of market capability. Danneels (2002, 2008) uses

customer competence, Abernathy and Clark (1985) refer to market/customer capabilities, Renko et

al. (2009) to market orientation, and Borges et al. (2009) to customer and market orientation. With

market capability it is question of the ability to serve certain customers (Danneels, 2002) and to

“react or respond to conditions in the market” (Renko et al., 2009, 336).

We have divided market capability into four components. Firstly, in order to understand customer

needs and actions it is important to be able to collect and process customer knowledge from both

new and existing customers. This means that the firm has to have data-collection tools on the one

hand and necessary processes and skills to use the information it holds on the other. Secondly, the

customer-needs component incorporates being able to satisfy customer expectations by offering

suitable product features and operations, and relevant product-development capability. Thirdly, we

focus on the customer relationship, meaning the ability to identify and serve customer groups, build

customer loyalty and use customer registers. Finally, customer communication implies the ability to

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communicate to and with customers through appropriate channels, reacting to feedback and offering

suitable products.

Technology capability means, the “ability of a firm to make certain physical products” (Danneels,

2008, 520) on the one hand, and production and operational competence on the other (Abernathy &

Clark, 1985, 6). We have divided this into three components. The first is the ability to design and

manufacture, referring here to online products with certain features, and to understand the potential

and limitations of product development. The second refers to production systems and know-how,

which here means the ability to carry out everyday processes related to updating and maintaining

the functionality of online products. Finally, managerial skills refer to the capability to set up

processes related to everyday work and product development, which also includes the knowledge

base.

2.2 Different types of innovations

An innovation always has a novelty aspect, such as being new to the individuals involved, to the

marketplace, to the industry or even to the world (Van de Ven, 1986, Garcia & Calantone, 2002).

As a concept innovation could refer to processes, administration or products, for example.

However, innovation is seen as an outcome in this paper (Van de Ven, 1986, Gatignon et al., 2002).

We follow Abernathy and Clark’s (1985) work and categorise innovations as regular,

niche-creation, architectural or revolutionary depending on their impact on the firm’s capabilities.

The question is therefore whether the innovation builds on existing market capability (regular,

revolutionary) or requires new capabilities (niche creation, architectural), and similarly whether it

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builds on existing technology capability (niche creation, regular) or requires new capabilities

(architectural, revolutionary). Figure 1 illustrates this innovation typology.

Figure 1. The impact of innovations on the firm’s capabilities (Abernathy & Clark, 1985, 8)

2.3 The relationship between capabilities and innovation

Building on March’s (1991) seminal work, Danneels’ (2002) study provides evidence that the

relationship between customer and technological capabilities and innovations is reciprocal: in other

words the firm’s existing capabilities have an effect on the innovations it produces, and the

innovations affect the development of its capabilities.

New innovations serve to build new competences through exploration (new competences needed)

and exploitation (building on existing competences) processes. March (1991) described the

balancing act in which firms engage in terms of the exploration of new and the exploitation of

existing knowledge and competences. Both exploration and exploitation are forms of organizational

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learning, but their mechanisms and outcomes are different. Exploitation gives predictable results

through the refinement and extension of existing competences, whereas exploration could lead to

uncertain results from experimentation. When firms fail to maintain a balance between the two they

may be “trapped” in the self-destructive dynamics of excessive exploration or exploitation

(Levinthal & March, 1993). On the other hand, Danneels (2002, 2007) introduced the concept of

competence leveraging to describe how new competences can be built by exploiting existing ones.

In sum, in order to remain competitive in the online environment media companies need effectively

to combine their market-related and technology capabilities and to use them for new-product

development. The importance of market and technology capabilities in innovation is recognized in

the literature. Likewise, it has been suggested that innovations not only require certain types of

capabilities, but may also help in developing existing or new ones.

3 RESEARCH DESIGN AND METHODS

Rouse & Daellenbach (1999) called for detailed, fieldwork-based comparative studies of company

resources. Given our objective to explore the relationship between a firm’s capabilities and its

online innovations we applied a comparative-case-study approach (Eisenhardt & Graebner, 2007,

Patton, 2002). Our cases comprise four publishers, two newspaper publishers and two magazine

publishers.

We collected the data through theme interviews, which were open and narrative in type: the themes

and questions were presented in random order in order to allow more natural conversation,

following the lead of the interviewees. The questions covered issues such as the current online

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customer offerings, recent developments in online offerings, customer groups and communication,

modes of production, know-how and the search for new ideas and solutions. We interviewed top

management and people responsible for the development of online services in different functions in

the case organizations. We held between nine and 11 interviews in each case firm, 38 in total, which

produced 430 pages of transcribed text. Table 1 summarizes the data-collection process.

Table 1. Data collection

Case publisher Number of interviews Total textual datasetMagazine publisher Pine 9 105Magazine publisher Cypress 9 102Newspaper publisher Oak 11 128Newspaper publisher Maple 9 95

In order to categorize the publishers’ online innovations we triangulated the interview material with

other types of data: we analyzed the current online services on the publishers’ websites and built a

dataset of diverse forms of secondary data (such as press releases, press articles and annual reports).

We used Atlas TI software as a coding tool. First we analyzed the individual cases thoroughly and

then conducted a cross-case analysis in order to identify recurrent themes and patterns. We analyzed

the data deductively to enable comparison between the cases, using the different components of

market and technology capability identified in the literature as the basis of our coding frame.

Accordingly, we defined the publishers’ market and technology capability as either “Strong”,

“Moderate” or “Weak”.

We categorized the generated online innovations as Regular, Niche-creating, Architectural or

Revolutionary in accordance with Abernathy & Clark’s (1985) transilience map. The data also

allowed us to assess capability development over time. We only focused on the recent development

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of online offerings, starting from 2005, and therefore evaluated the related capabilities on two

different timescales: earlier (2005-2008) and currently (2008-2009).

The quality of qualitative research is not unambiguously evaluated (Denzin & Lincoln, 2000, Kirk

& Miller, 1986). Reliability in this context refers to accuracy in research methods and efforts

(Shank, 2006). In order to maximize the reliability of the study we aimed at providing detailed

enough description of the research process, allowing the reader to follow the researchers’ reasoning

(Yin, 2003). Validity, in turn, refers to the degree to which the findings are interpreted in the correct

way (Kirk & Miller, 1986). In building a chain of evidence (Yin, 2003) we used the Atlas TI

program to support the coding and analysis. In addition, two of the authors double-checked the

analysis and the interpretation of the results.

4 RESULTS

We present and summarize the findings from the multiple-case analysis in this section, reporting the

four publishers’ operational capability portfolios as well as the types of generated online

innovations. First we briefly describe the capabilities and online innovations related to the

individual cases, then give a summary linking the two and identifying common patterns.

4.1 Pine

A couple of years ago the magazine publisher Pine served its online customers in much the same

way as it served its print customers: there was little interaction and feedback was not systematically

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collected or used. Its online services relied on relatively weak technology capability, lacking both

flexible solutions to develop applications and systematic processes for development and

maintenance.

“Before, our online publishing system was a variation of our own print publishing system. We were

able to publish online but every modification to the web pages was difficult and it required hours of

coding work.”

Pine has now improved its knowledge about its online customers by following website usage, for

example. It also provides a wider variety of content and services, and has launched new

advertisement solutions. However, online interaction with customers is not common.

After struggling with out-of-date and rigid systems Pine has now been able to acquire more

technical knowledge. It also has an in-house development organization and has centralized the

maintenance of online services. The new publishing platform has eased the workload and the basic

production systems are highly workable. However, the development processes remain unorganized.

“One might say that before we had the desire but not the ability. Now we’ve reached the level that

we can do renovations if we want to. I’m not claiming that the development process was

technologically led, but coding and technological tools are needed for publishing processes, they

are requirements for renovating and publishing new content such as blogs.”

Pine only used to produce common and regular types of online innovations, relying on existing

capabilities and applying to existing customers. Now it is also producing revolutionary innovations,

which are clearly technically new to its existing customers and to the company itself.

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In sum, Pine currently has weak market capability and strong technology capability. It produces

mainly regular and revolutionary innovations for its current customers, relying on both existing and

new technologies, whereas weak market capability limits the opportunities for producing

innovations aimed at new customers.

4.2 Cypress

A couple of years ago the magazine publisher Cypress did not have much knowledge about online

customers, although it did have some basic features such as a feedback system. Now, on the other

hand, it relies on systematic analysis and also uses customer groups for testing applications. It also

uses online discussions as a source of insight and ideas for development.

“We have meters indicating visitor numbers, sales and that kind of thing. We calculate content

costs against visitor numbers. We’re planning to have more meters and we have some ideas on how

to measure more and set up goals.”

“When we have larger development projects we ask customers to take part in face-to-face

development forums such as workshops. Another way is to use a test group, which we are doing in

one site. Customers participate over a certain time period and we ask what they think and what

kind of features they would like to have.”

In terms of market capability, Cypress was and remains ready to try out new applications for

advertisers and readers, but the services are not sufficiently targeted.

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Earlier its moderate technology capability manifested as an ability to design and launch online

services based on rapid and flexible development. The development work was rather independent

and organized under specific brands. The level of technical knowledge varied significantly between

the brands, but knowledge was shared rather openly and informally across the organization.

Interestingly, the level of technology capability has deteriorated following the reorganization of a

couple of years ago. In other words, Cypress currently lacks in-house coding resources and

technical know-how. The development work is systematically organized, but at the same time large

projects require lots of resources and time. It seems that bureaucracy hinders small incremental

development.

“We suffer even more from rigidity because of our new cooperation partner – in this case an

internal unit – where those who control and take care of projects are shared resources. And then

this new organization, there were unclear job descriptions, and they remain unclear... It also

brought one new interface. And Lord knows, it is not intended to work at all.”

“I often discuss my vision of a centre where we would have implementation know-how. This house

does not need any more idea generators or journalists. What we need is a horde of coders, and

project management for them.”

Cypress had earlier success in producing revolutionary innovations relying on new technology.

Most of them were produced for existing customers with moderate technology capability. Currently

it offers “a little bit of everything”, but it is not focused in a precise direction. All in all, it now has

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relatively weak market capability and weak technology capability, and as a result mainly produces

regular types of innovation.

4.3 Oak

The newspaper publisher Oak used to be on a moderate level in terms of both market and

technology capabilities. It incorporated web-analysis tools rather early in order to gain customer

knowledge, but did not fully use them for service development. The development of online services

was based on intuition rather than systematic work. However, it was among the first publishers to

apply interactive features in order to collect and process feedback from customers and also to

engage in open discussion with readers.

“Before we had an online application where we ideated with our customers and informed them

about the upcoming changes. But then it was closed. The group of readers was rather small, but I’d

like to think that they were still quite important. They are digital-media active and are the people

who spread the message, so it was a key target group.”

In terms of technology capability Oak had rather professional in-house technical knowledge, and

the necessary resources for developing the services. The development work was not yet organized

in the form of projects, which could rather be seen as the learning phase of systematically planning

and implementing online services.

Currently Oak has strong market capability related to customer knowledge and meeting customer

needs. For instance, new customer-analysis tools are widely applied, and a range of novel types of

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online services for different target groups has been launched. What distinguishes Oak from the first

two cases is that the readers can produce content for the online services, such as in

community-types of applications, and can engage in a wider variety of interaction.

“I would like to say that the way readers participate has changed a lot. They send pictures, write

comments on the news, take part in the discussions on our web pages, and even produce entire

services. This community thinking is a strong theme nowadays.”

Its technology capability remains more of a concern for Oak. There is less in-house technical

knowledge than before, and learning to operate with new sub-contractors takes time. Moreover,

some of the platforms seem out-of-date. Due to both reorganization and the variety of online

services provided, development and maintenance have slowed down. However, the company now

has strong professional project-management capability, and different units share knowledge more

than before.

“We do these projects in and with our shared unit. We have a close relationship with our project

workers, and try to be as efficient as possible with them, and to keep the projects on schedule.”

Earlier most of Oak’s innovations relied on new technology and were aimed at both existing and

new customers (revolutionary, architectural), although the two other types of innovations were also

in evidence. It currently mainly produces architectural innovations targeted on new customers, as it

has moderate market capability giving direction to the development of online services. Architectural

innovations include innovative tests and games for customers. It provides locally produced

advertisement solutions for its media clients.

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In sum, Oak now has moderate market and technology capability. There is some variation, but on

average it remains on the same moderate level.

4.4 Maple

Like Oak, the newspaper publisher Maple previously had moderate market capability. Web analysis

was not used efficiently and customer knowledge was collected on a random basis rather than

systematically. It did not engage in interaction with its readers either, except for occasional

feedback. However, it did incorporate some novel applications to attract customers to the

newspaper website.

“We have had some measured [customer] data before, but if we speak about analysis, that’s

another question...”

“The reader relationship was distant and we had technical difficulties in allowing customers to

send us content, for example. There were also concerns about the quality: we thought we couldn’t

publish such material. Now we’ve accepted that it’s more about uniqueness than technology.”

Maple was previously severely deficient in its technical platforms and systems. The platform was

“stitched up” to match the increased volume and use, and it required much maintenance. There was

no coordination of development processes either, and the work was conducted in strict silos. In

particular, the company did not have enough technical know-how. On the positive side the

development work could be conducted rapidly and flexibly given the lack of project organization.

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Now, on the other hand, Maple has strong market capability and weak technology capability. On the

customer side it has launched a variety of different types of online services for readers, and new

solutions are offered to media clients. It has also been able to target and differentiate content based

on customer profiles, which enables it to better serve its audience and to reach an even wider mass.

Web analysis is used to produce more detailed customer knowledge. Finally, customers participate

in testing and developing Maple’s services, and different types of customer interaction are

incorporated into the online applications.

“Our strength is that we are really much closer to our customers than the average broadsheets. We

have put a lot of effort into coming down from our ivory tower and getting closer to our readers’

lives and souls: that’s where we get their experiences. We’ve always done that, even before the

Web, listened to our customers.’

“Let’s take the videos, for example. There we can see the developments in technology and in

people’s cell phones and that kind of thing. Now we can use videos taken by readers and that’s one

reason why our site is interesting.”

The level of technological knowledge has increased slightly within Maple, but there is still not

enough know-how about technical solutions, and it is unevenly spread. In particular, there is no

systematic vision about online service development. Attempts have been made to organise the

development work as a process. The new platform should ease the maintenance workload, but it

also brings learning challenges. The company has good subcontractors who are easy to work with,

and there have been attempts to share knowledge more openly in-house regarding the development

work.

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Maple has mainly produced niche-creation and architectural types of online innovations. The

former include web pages targeted to certain customer groups based on their interests, whereas

architectural innovations include more advanced tests and games. Like Oak, Maple also provides

local advertisement solutions to its media clients. In sum, it has strong market capability and weak

technology capability.

5 DISCUSSION

Figure 2 summarizes our findings with regard to the case publishers’ market and technology

capability profiles and the characteristics of their online innovations.

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Figure 2. The publishers’ market and technology capability profiles and types of online innovations

On the basis of the above discussion we are now able to link the capabilities with the types of online

innovations produced. It seems that publishers with relatively weak market capability (Pine and

Cypress) produce regular innovations. This is understandable because regular innovations are built

on existing capabilities and offered to existing customers using existing technological solutions.

Hence, it seems that publishers with a relatively weak level of market capability tend to stick with

exploitation (March, 1991) and “safe” types of online products and do not take any risks in terms of

stretching their current market capability too far. The only moves towards more radical innovation

tend to fall within the revolutionary category, thus still building on existing market capabilities and

trying something new on the technology side. It is worth noting that both publishers with relatively

weak market capability (Pine and Cypress) are magazine companies, and that their market

capability did not significantly develop over the time frame in question.

On the other hand, the firms with a stronger market capability tended to explore (March, 1991,

Danneels, 2002) more on the market dimension and produced both niche and architectural

innovations. Only one of our cases (Maple) produced niche-creation innovations. It therefore seems

that approaching new markets with new forms of customer communication requires very strong

market capability. What is clear from the case summary is that the overall level of market capability

of the firms (Oak and Maple) producing niche-creation and architectural innovations increased over

time. Therefore, after forcing themselves out of the comfort zone to acquire new types of market

capabilities these firms were able to utilize architectural innovations to leverage both new market

and, to a lesser extent also technology, capabilities (Danneels, 2002, 2007). It is also interesting that

both Oak and Maple are newspaper publishers.

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Whereas capability leveraging (Danneels, 2002, 2007) through innovation was visible in market

capability, we did not find strong evidence of it on the technological dimension: when the

publishers did experiment their technology capability did not accumulate over time (Cypress), or

only developed a little (Oak and Maple). This finding is in line with Danneels’s (2007) notion that

market capability might constrain the leveraging of technology capability.

The only exception to this was Pine, which clearly developed its technology capability at the same

time as exploring new technological solutions: the various resource and organizational changes it

has made seem to have catalyzed the process. We therefore assume that the development of its

technology capability is linked to its dynamic capabilities (Teece, 2007, Newey & Zahra, 2009)

more than to its innovations.

From the other perspective, in every case company in which revolutionary innovations were

produced technology capability was moderate or strong. This, in combination with the notion of

producing niche-creation innovations, suggests that publishers tend to leverage what they feel is

their strongest point, and to avoid situations requiring the acquisition of totally new capabilities in

areas in which their current capability is rather weak. They therefore avoid what Danneels (2007)

describes as a capability gap, but face the risk of being trapped in that their existing capabilities

influence the allocation of resources, and hence the development of new capabilities.

6 CONCLUSIONS

The objective of this paper was to explore the linkage between publishers’ first-order capabilities

and their online innovations. We investigated four publishers that have been leaders in the online

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environment in their respective markets, and noted vast differences in their capability portfolios.

Magazine publishers currently seem to have moderate market capability and either very strong or

very weak technology capability, whereas newspaper publishers appear to have stronger market

capability and relatively weak technology capability. It seems from our four cases that publishers

tend to have stronger market than technology capability: three of them support this conclusion. We

therefore suggest that the core of publishers’ work is in understanding and being able to meet the

needs of their customers, as they have to attract their attention over and over again.

Secondly, we also noted a link between the capability portfolio and the innovations. It seems that

publishers tend to build on their strongest area in terms of capabilities, and focus on leveraging

those rather than risk experimenting in an area in which they are weak. Thirdly, we found that the

case companies were able to leverage their market capability through experimenting online.

However, it seems that they have not been able to develop their technology capability in the same

manner.

Therefore, from the scientific perspective this study makes two main contributions. First, the

empirical in-depth investigation of the capability portfolios of the case firms complements the

emerging work on innovation-related capabilities. Secondly, the study adds to the literature on

media management in enhancing understanding of the online-related capabilities that are required in

publishing companies and of the related developmental patterns.

From a managerial viewpoint we emphasize that customer-relationship management online differs

from traditional relationship management. Online customers are typically anonymous and therefore

the relationship is more strongly tied to customer communication and interaction. On the

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technology side it seems that even with weak technology capability it is possible to put effort into

capability development and raise it to a higher level.

Our study has certain limitations, which also give directions for future research. Firstly, our data is

from cases representing the publishing industry, and we must be cautious in generalizing the

findings to other industries. Future studies could thus explore the linkages between first-order

capabilities and different types of innovations in other product contexts. Secondly, the cases may

have idiosyncratic characteristics, and the suggested patterns need to be validated against other

cases and methods. We also suggest that it would be interesting to examine market and technology

capabilities more deeply in order to refine and modify their components across different types of

industries.

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