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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
COMPETITIVENESS AND
INNOVATIVENESS IN
MANUFACTURING:
AN EMPIRICAL STUDY
Gündüz Ulusoy
Faculty of Engineering and Natural Sciences
SABANCI UNIVERSITY, ISTANBUL, TURKEY
19.02.2010
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Gündüz Ulusoy
SABANCI UNIVERSITY
• Interdisciplinary Design –
Absence of Departments
• Practice relevance
• Comprehensive Two Year Program before
Major Declaration
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Faculty of Engineering and
Natural Sciences
• Faculty of Arts and Social
Sciences
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Faculty of Management
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Gündüz Ulusoy
SABANCI UNIVERSITY
• 222 FTE Faculty
• 2715 Undergraduates
• 630 Graduates (235 PhD)
Faculty of Engineering and Natural Sciences
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Computer Science and Engineering
Biological Sciences and Bioengineering
Electronics Engineering
Materials Science and Engineering
Manufacturing Systems / Industrial Engineering
Mechatronics
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
PREVIEW
• Motivation for innovation and basic definitions.
• Based on an empirical study, we will
o present a comprehensive and integrated model of innovation at
the
firm level;
o discuss the effects of firm characteristics on the innovativeness
capabilities of companies;
o discuss the effects of innovativeness on firm performance;
o
analyze the interaction of business strategies and innovativeness;
o
present evidence for the cumulative capability model;
o present a cluster study on how innovative capabilities are related
with the manufacturing firm’s operations priorities (cost efficiency,
flexibility, delivery and quality) and firm performance.
• Managerial implications
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
MOTIVATION
• Innovativeness and innovation have attracted extreme attention
particularly in the last decades. Innovation is considered a major driver of
growth for firms as well as countries. This is also valid in Turkey.
• A large number of studies in innovation literature have been carried out
in order to find out which factors enhance innovative efforts of firms. But,
so far, an integrated model of innovativeness was hardly ever tested by
researchers.
• Companies cannot rely on their existing products and processes for long;
to secure sustainability they have to improve (incremental innovation) or
replace their existing stock (radical innovation).
• Industrial engineers and operations management people have a large
say in competitiveness and innovation issues.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
INNOVATION
• Innovation is not something new. It has been with us for ages. But with
the increasing interconnectedness of communities in every sense and
increasing competition, the need for new, better, improved increases as
well. Currently it is indicated to be one of the major drivers of growth for
firms as well countries.
• Historians of economics investigating the relatively higher growth rates
of Britain and Holland over Germany, Austria, Italy, France, Spain, and
Poland in the 1300-1800 period have discovered that among the large
number of parameters they have taken into account, the following three
were the statistically significant ones: (i) Relatively early urbanization, (ii)
trade, (iii) innovation and productivity in manufacturing.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
INNOVATION
• For decades now almost every few years a new wave of innovation
comes as a prime actor in growth strategies of firms. For example, late
1970s, early 1980s the coming of information era and the rise of Silicon
Valley; beyond good design, innovations in manufacturing processes such
as TQM and others; restructuring wave of late 1980s and financial
innovations; the digital mania of 1990s – World Wide Web leading to new
business models.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
INNOVATION DEFINITION
• Implementation of a new or significantly improved product (good
or service), or process, a new marketing method, or a new
organizational method in business practices, workplace
organization or external relations.
• According to OECD there are 4 innovation types: Product,
Process, Marketing and Organizational innovations.
• Product and process innovation are grouped under technological
innovations; whereas marketing and organizational innovations
are grouped under non-technological innovations.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
INNOVATION DEFINITION
Innovation is not invention.
But commercialization is not
enough; we need profitable
innovation.
The last link on the path to
innovation is commercialization.
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We want to get the payback
through transformation of
knowledge to added value.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
IMPORT AND EXPORT VALUES IN USD/KG FOR SOME ITEMS
PRODUCT DESCRIPTION
Machinery for tobacco preparation for processing and processing
IMPORT
USD/kg
6,70
63,42
Accessories for metal casting
11,85
21,61
Machinery and equipment for welding and soldering
11,53
19,77
3,56
10,20
10,46
29,88
Binding machinery
7,73
14,43
Weaving machinery
2,23
11,93
Washing, drying, and pressing machinery for woven material
3,31
14,11
Presses and accessories for wine making and fruit juice
4,39
22,40
Spare parts for heavy machinery and equipment
1,18
7,57
Material handling machinery and equipment
4,26
8,22
Centrifuge based drying, filtering, purification machinery equipment
3,69
14,95
Machinery for processing animal skins
Sewing machines, cabinets, needles, and other accessories
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EXPORT
USD/kg
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
INTEGRATED MODEL OF INNOVATION
RESEARCH QUESTIONS
• What are the determinants of innovation at the firm
level? (i.e., what are the significant firm characteristics
for innovations?)
• What are the benefits of innovation to the firms in
terms of performance?
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
DETERMINANTS of INNOVATION
FOUR PILLARS
•General firm characteristics: Firm size, firm age, share of
foreign capital and ownership status.
• Firm structure: Intellectual capital and organization
culture.
• Firm strategies: Business strategies, innovation outlay,
monitoring and collaborations.
• Sectoral conditions: Market dynamism & competition
intensity, public regulations, and barriers to innovation.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
INTEGRATED INNOVATION MODEL
• The integrated innovation model is composed of two submodels in line with the two research questions.
o The first sub-model is built to investigate how certain
factors called innovativeness determinants indeed
determine the innovativeness of a firm.
The determinants of innovativeness model.
o The second sub-model aims to assess the impact of
innovativeness on firm performance
The performance model of innovation
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
INTEGRATED INNOVATION MODEL
The Determinants of
Innovativeness Model
Performance
Model
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
SAMPLE PROFILE
The firms are selected
randomly from the
database of the Union of
Chambers and Commodity
Exchange (TOBB), and from
the chambers of industry
located in the cities of
Istanbul, Kocaeli, Sakarya,
Tekirdağ, and Çerkezköy.
Out of a sample of 1674 firms we have received 184 complete
responses corresponding a rate of return of 11%.
For each sector, number of firms in the sample turned out to be
representative of the population, since no significant difference
(p≤0.05) has been detected between the population and sample
percentages.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
SAMPLE PROFILE
Domestic
Appliances; 15;
8%
Machinery; 28;
15%
Automotive; 37;
20%
Textile; 36; 20%
Metal Products;
35; 19%
Chemical; 33;
18%
small
25%
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medium
large
49%
26%
young
moderate
35%
36%
<1M€
[1M,5M[
[5M,20M[
9%
36%
28%
old
29%
[20M,50M[ ≥50M€
16%
11%
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
SEM OF
INNOVATIVENESS MODEL
Each arrow in the model is statistically significant
(p<0.5). As a result, the proposed paths of
relations matching innovation determinants to
innovative ness are analyzed and validated
regarding their significant path (regression)
estimates.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
FINDINGS: INNOVATIVENESS MODEL
• Market dynamism, public incentives, firm size, and innovation
outlay all have significant positive effects on innovative capability
of a firm.
FINDINGS: INTELLECTUAL CAPITAL
•Intellectual capital, which covers the skills, creativity and
experience of individuals, is the most important determinant
of innovativeness and as such, the most valuable resource for
innovation.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
FINDINGS: ORGANIZATIONAL CULTURE
• In organizational culture, communication & collaboration among
employees and reward system also have a relatively high
correlation with innovativeness.
•Path analysis leading to innovativeness indicates that within
organizational culture we observe formalism at the root, which
covers documentation of processes and procedures, rules and
regulations, company handbooks, work descriptions, etc.
•High correlation of management support (leadership) to
innovativeness capability emphasizes the importance of
managerial encouragement for idea generation and for new
projects.
•Centralization (i.e., a hierarchical management model) is
negatively correlated to innovative capability.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
FINDINGS: COLLABORATION
• Firms do not widely prefer to collaborate.
o R&D collaboration with universities and public R&D centers
(34%)
o R&D collaboration with other firms (21%)
o Collaboration for training with other firms and training
institutions (56%)
o Collaboration with customers (67%)
o Collaboration with suppliers (70%)
• The real positive impact for innovativeness comes from R&D
collaboration that firms mostly fail to realize.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
FINDINGS: BARRIERS TO INNOVATION
• Regarding the barriers to innovation, firms affirm that external
difficulties (such as difficulties of finding necessary components,
materials, technological services etc.) constitute the least
important barrier to innovation.
• They complain mostly about: (i) internal limitations (such as time
and financial limitations, higher risk and cost of innovation), and (ii)
internal deficiency (lack of technical information and experience,
lack of qualified employee,R&D manager, etc.).
•However, path analysis shows that internal resistance is indeed the
most important barrier directly impacting innovativeness.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
FINDINGS: FIRM SIZE
• Among firm characteristics, only firm size is significantly
correlated to innovativeness.
FINDINGS: THRESHOLD VALUE ON R&D ACTIVITIES
•The analysis about R&D employees indicate that
o Firms having at least five R&D employees have better
innovative, marketing and financial performance (p<0.05),
o They are more innovative (p<0.01).
5
<5
59% ;87
≥5
41% ;60
4
3
2
≥5
<5
3,09
2,68
≥5
3,47
<5
3,04
1
Innovativeness
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Financial Performance
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
FINDINGS: INNOVATION OUTLAY
• Average annual innovation outlay (R&D, equipment, patent,
•
•
•
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knowhow and consultancy (excluding management) costs) is
1,3M€, and median is 238K€.
Innovation outlay/Revenue:
Median= 3.4%
Mean= 2.8%
Innovation outlay has high correlation with innovativeness.
Threshold Value: Firms with at least 1M€ are significantly more
successful in terms of innovativeness and firm performance.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
FINDINGS: PERFORMANCE MODEL OF INNOVATION
• High level of implementation of innovations results in
better innovative and production performance.
•A certain amount of time might be necessary before
observing the reflection of innovations on firm performance
measures.
• Despite the time lag, increased operational performance
by innovations has significant positive effects on financial
performance.
• Innovative firms are rewarded by:
o higher operational and financial firm performances, and
o higher total sales and exports.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
FINDINGS: FINANCIAL PERFORMANCE
Financial
Performance
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
BUSINESS STRATEGIES AND INNOVATIVENESS
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
Innovation Score
incremental product radical product
original
improvement
process
imitation
marketing
organizational
no innovation
To what extent are the related applications/practices implemented in your organization in
the last three years?
1= ‘not implemented’, 2= ‘imitation from national markets’, 3= ‘imitation from
international markets, 4= ‘current products/processes are improved’, 5= ‘original
products/processes are implemented’.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
INNOVATIVE CAPABILITIES, OPERATIONS PRIORITIES AND
CORPORATE PERFORMANCE
Research Question: How are innovative capabilities related with
the manufacturing firm’s operations priorities (cost efficiency,
flexibility, delivery and quality) and firm performance.
Proposition 1. Firms can be grouped into different clusters based
on their innovative capabilities pertaining to various
innovation types.
Proposition 2. Different innovation clusters posses different
operations priorities.
Proposition 3. Different innovation clusters demonstrate
different corporate performance levels (financial, innovative,
production, market).
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
INNOVATIVE CAPABILITIES, OPERATIONS PRIORITIES AND
CORPORATE PERFORMANCE
Leading Innovators: The Leading Innovators outclass others in
every aspect of innovative capabilities trying to nurture all
innovation types. They especially give higher importance to
radical product and process innovations.
Followers: The Followers cluster is the second most innovative
cluster except for their very low radical product innovations
capability . The Followers prefer to develop incremental
product innovations rather than radical ones. They are also
relatively strong at process and organizational innovations.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
INNOVATIVE CAPABILITIES, OPERATIONS PRIORITIES AND
CORPORATE PERFORMANCE
Inventors: The Inventors perform significantly better than the
Laggers and significantly worse than the Leading Innovators
in terms of all the innovation types. On the other hand, the
Inventors have very strong radical product innovation
capabilities. It appears that a key characteristic of the
Inventors is their focus on radical product innovations.
Laggers: The Laggers constitute the least innovative cluster. They
have the lowest scores in all innovation types among the
clusters. It can be said that the Laggers do not even
appreciate innovative capabilities as a component of firm
strategy and do not rely primarily on innovations for
competitive advantage.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
INNOVATIVE CAPABILITIES, OPERATIONS PRIORITIES AND
CORPORATE PERFORMANCE
The presence of four distinct and meaningful innovation clusters
supports P1 that firms can be grouped into different
innovation clusters based on their capabilities on the radical
product, incremental product, process, marketing, and
organizational innovations.
The significant difference in terms of quality, flexibility and
delivery with respect to the four distinct innovation clusters
supports P2 that different innovation clusters adopt different
operations priorities.
The significant difference in innovative performance and slight
differences in production, market performance, total sales
and growth on total sales of innovation clusters supports P3
that different innovation clusters achieve different operational
and financial performance levels.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
FINDINGS: INNOVATIVE CAPABILITIES, OPERATIONS
PRIORITIES AND CORPORATE PERFORMANCE
Our results reveal that innovativeness is associated with better
corporate performance.
All our findings show the vital role of innovative capabilities for
manufacturing firms and that they are closely linked with
operations priorities and corporate performance.
High performing firms compete effectively on multiple
operations priorities simultaneously.
These findings strengthen the results presented earlier in the
literature that firms may be competent in multiple operations
priorities.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
MANAGERIAL IMPLICATIONS
Having a clear understanding of the exact nature of
innovations will help firms in the global context and within their
own company.
Firms need to develop an innovation strategy in line with
business strategy with a time horizon of at least 3 years to be
followed by appropriate subsequent action plans.
Innovation needs to be managed, monitored, and measured.
The payback of innovation needs to be estimated.
Firms need to excel in multiple operations priorities and
innovations in their market rather than concentrate on a single
operations priority and/or on a single innovation type.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
MANAGERIAL IMPLICATIONS
Firms need to invest in intellectual capital by creating a
work environment which is a challenging and motivating place
to work in.
In order to become more innovative firms need to look
inside and try to solve their internal problems.
We, as IEOM people, need to play an important and decisive
role in our respective countries in her attempts to increase her
competitiveness and innovativeness.
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Gündüz Ulusoy
IEOM 2012 Istanbul
July 3-6, 2012
THANK YOU
http://people.sabanciuniv.edu/gunduz/
[email protected]
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