Negative Aspects of Innovative Business Networks

Organisations do not operate in isolation. They engage in relationships with the several other organisations that operate in the business environment. These relationships may involve organisations in a complementary line of business and/or a different line of business to the focal organisation. The totality of all the relationships that an organisation engages in constitutes its network. The interaction between organisations has been brought to the fore as a result of the sporadic and drastic changes that occur in the world of business. For an organisation to be able to develop its business activity and to maintain its competitive advantage, it needs to look beyond its borders and interact with other organisations operating in other areas of expertise in order to achieve its objectives.

The main reason underlying the establishment of business relationships between organisations is the acquisition of scarce and/or additional valuable resources that they need to carry out or even enhance their performance. Organisations also collaborate in order to engage in innovative activities, be it in the area of new product development, product improvement or improvement in the general business processes. This type of collaboration among organisations which is innovation based led to the concept of innovation networks.

Research on innovation networks has been concerned primarily with the positive outcomes of the business relationships that transpire through such networks. However, little is known about the negative situations that occur during an innovative collaboration between organisations, that is, the “dark side” of innovation networks. To this end, this research project aims to investigate the antecedents and consequences of negative aspects of innovative networks, in an attempt to bridge the gap that exists in current literature on business networks.

The research proposal is structured as follows:

Firstly, there is a literature review of previous research bordering on business relationships, business networks and innovation networks. For this purpose, we draw on theories from several business network approaches such as the industrial network approach that was developed by the IMP group, and the strategic network approach.

Positive and negative aspects of innovations networks that have been previously discussed in the literature are discussed. Drawing on the literature review, a series of research objectives and questions are proposed.

This section is followed by the discussion of the adopted methodology. Adopting a case-study approach, the key activities, decisions and motivations of central firms operating in the network are explored. Data will be collected through in-depth interviews with the key participants, aimed at grasping the negative issues that occurred during the collaboration.

Finally, some of the theoretical and managerial implications that will result from the project will be discussed.

LITERATURE REVIEW

The Interaction Approach

The term interaction evokes much interest in real life and theory. With respect to real life situations, interaction engenders the understanding of human behaviour and the influence that organisations exert over one another. With respect to theory, interaction is fundamental to market theory. The market environment is defined by the relationships between companies that occur within it. However, this description of interaction has faced criticism for being too limited because of the undue influence exerted by price (Swedberg 1994). However, in studies involving business-to-business markets attempts have been made to explore different ways to illustrate and portray interaction by studying the concept of business relationships (Swedberg 1994).

The Network Approach

Networking involves the totality of the activities of an organisation and/or person within a network. This encompasses every attempt made by an organisation to tackle its own difficulties or that of others. Every one of the organisations operating within a network does so by proffering suggestions, making requests, demanding requirements, managing reactions, performing and modifying activities simultaneously. An organisation’s networking approach is a function of the organisation’s network picture and the effects it expects its actions to have on it and other network actors and vice versa and its perspective of its problems and those of others.

The industrial network approach

According to Ford and Hakansson (2005), the widespread view was that the structure of the business world consisted of organisations that were more or less independent of each other, and which were each able to design and implement their own strategy. On the contrary, research has recommended that a different perspective of the economic environment world which is made up of networks of interrelated interaction between co-dependent organisations could offer valuable insights.

A great deal of the research carried out by the IMP group has focused on exploring the configuration and the nature of these relationships that exist between different organisations and how they may lead to the emergence of wider networks. This IMP research suggests that business relationships encompass a facet of the transactions between organisations that transcend the activities and features of any given organisation in the business environment. The concept of business relationships also suggests that the proper understanding of the activities that transpire in the world of business is not possible by just studying individual transactions, as if they occur in a context of mutual exclusivity. Also, the concept of business relationships goes beyond focusing the attention on the single relationship which is constituted by these dealings and also transcends the aggregation of those dealings or interactions as if they constituted a universal and unspecified collectivity that is traditionally known as “market”. As an alternative, the concept espouses the multifarious authenticity of a network that is made up of separately important mutually dependent organisations and the specific, but interrelated interactions that exist between them.

Ford and Hakansson (2005) and Chiu (2009) suggest that the importance of business relationships is now generally acknowledged by a lot of managers and business scholars. However, this acknowledgement has usually resulted in relationships being construed as a type of management system or procedure that is presently accessible to managers, which they may opt to activate or not, depending on their whims and caprices. This differs from the view in the IMP research where business relationships are construed as constituting an inherent aspect of the practical realities of doing business and are not controlled by one organisation.

The strategic network approach

Gulati et al. (2000) and Johnston et al. (1999) posit that the recent attention afforded to business relationships and networks in certain organisation research, strategic management and marketing literatures can be adduced to the shift in the view of organisations, from independent entities competing for profits with one another, to being engaged in networks of social, professional, and exchange relationships.

Fundamentally, a network consists of a group of actors that are connected by a set of social relationships whose contents vary in scope and depth (De Nooy et al., 2005; Hakansson and Ford, 2002). Emerson (1981) defines a business network as, “a set of two or more connected business in which each exchange relation is between business firms that are conceptualised as collective actors” while Johnston et al. (1999) define industrial networks as comprising independent organisations that coordinate their activities and resources and work together in order to accomplish common objectives.

In addition, Gulati et al. (2000) categorise industrial relationships into horizontal and vertical relationships which connect the focal organisation to its suppliers, customers, competitors, or other actors. According to Thorelli (1986) a business network comprises “nodes” or positions which are held by business organisations, households, trade associations, and other types of organisations and the connections created by the interface that occurs between the positions. These connections that arise due to the between-position interface usually results in the emergence of relationships. Håkansson and Snehota (1995) argue that any network can be analysed according to the activities that occur within it, the resources that can be obtained therein and the actors (organisations) that operate within it. Within a network, the activities undertaken and the resources deployed in diverse interactions may lead to complementary and/or competitive relationships between the network actors.

Additionally, the complementary or competitive relationships that exist within a network can be exploited by organisations in numerous ways in their dealings with one another. This is corroborated by (Ojasalo, 2002a) who opines that networks are in a constant state of flux due to the frequent and often drastic changes that affect the organisations within them, resources and the relationships that occur therein.

Innovation networks

Research (Hakansson and Snehota, 1995; Biemans, 1999; IMP Group, 1999) has shown that relationships involving product innovations emerge as a result of interactions that occur between organisations within a network which according to Bower (1993) provides such organisations with requisite resources. Based on this submission, it can be surmised that the relationships that occur when organisations collaborate for innovative purposes are interwoven and will be understood better when they are considered as a whole. Innovation networks have proved useful in many industries through knowledge-sharing between organisations, leading to the creation and development of better products and services (Baldwin and Clark, 2000).

What is innovation?

The term innovation, most importantly, implies newness (Johannessen et al., 2001). Innovative activity may involve the creation of new products, new services, new techniques of production, discovering new markets, new sources of supply, and new ways of organizing. Innovation has been characterized as a process of commercialization of a newly developed product or practice (Freeman, 1982; Dickson and Hadjimanolis, 1998). Johne (1999) distinguishes three types of innovations: product innovation, process innovation, and market innovation. Product innovation provides the most evident means for generating revenues. Process innovation provides the means for safeguarding and improving quality and for saving costs. Market innovation is concerned with improving the mix of target markets and how chosen markets are best served. Its purpose is to identify new or better potential markets; and new or better ways to serve target markets. The role of effective use of market information is emphasized particularly in the case of product and market innovation (Ojasalo, 2003a), including the generation, internal dissemination, and the firm’s responsiveness to market information (Biemans and Harmsen, 1995).

Why organisations adopt a network approach to innovation

In many industries, the source and enactment of innovation has shifted from the single firm to a group of networked firms. Increasingly firms seek beyond their organisational boundaries to integrate resources and capabilities core to their ability to develop innovative products and services. Critical innovation resources frequently reside in a network and not in the firm alone (Afuah, 2000). Consequently, many industries now display features of high levels of innovation inter-dependency, where development activities by single firms have repercussions across the extended industry network. Depending on an organisation’s innovation target, internal resources and external context, different external resources are required. Different types of actors in the network would be appropriately equipped to provide specific types of resources and technical know-how. The distinctive capabilities of an organisation are developed through its interactions in the relationships that it maintains with other parties. Hence, the identity of the organization is created through relations with others (Hakansson and Snehota, 1989). Additional, since the other parties to the interface also operate under similar conditions, an organisation’s performance is influenced by the sum of the network as a context, i.e. even by interdependencies among third parties (Hakansson and Snehota, 1989).

Positive aspects of innovations networks

Scholars (Biemans, 1995; Tidd et al., 1997) have argued that inter-firm collaboration provides a means of managing some of the more complex aspects of product innovation. While the short-term collaborative benefit of risk and cost-cutting and increased speed to market is well-recognised (Lorange and Roos, 1991; Rice, 1991; Gugler, 1992; Bruce et al., 1995), the longer term and more strategic contribution of collaboration to the innovation process has recently been articulated. This includes greater intellectual depth, opportunity scanning, competence enhancement, value-added solutions or worldwide reach (Powell et al., 1999).

Other authors (Hamel et al., 1989; Perks, 2000) have highlighted the benefits of sharing not only technological developments but also other resources, such as skills, knowledge and information about competitors, customers, suppliers and markets. Companies that are able to bring together complementary competencies are likely to be in a better position to take advantage of developments and achieve competitive advantage (Shan et al., 1994).

In particular, the value of the dyadic relationship between manufacturer and customer has received most attention in collaborative product innovation research. Integrating customers in the innovation process can provide considerable value through their input into the generation of product ideas, information about user requirements, comments on new product concepts, assistance on development and testing of prototypes, and assistance in diffusion (Johnsen and Ford, 2000).

Negative aspects of innovations networks

Despite the recent focus on collaboration as a means of improving the innovation process, there has been limited questioning of these apparent benefits and little analysis of the disadvantages of collaboration (Perks and Jeffery, 2006). Bruce et al. (1995) noted that, for many firms, the collaborative process made product development more costly, complex and difficult to control and manage. Also, Prahalad and Hamel, (1990), Khanna et al., (1998) and Kale et al., (2000) draw attention to the danger of giving away core skills, knowledge and capabilities to partnering firms.

RESEARCH AIMS AND RESEARCH QUESTIONS

For the purpose of this dissertation, the following research aims and questions were formulated:

2.1 RESEARCH OBJECTIVES

• To investigate how and why problems emerge in innovation networks.
• To investigate the effects of these problems on
  • Network actors
  • Actors’ relationships
  • The wider network
• To attempt to bridge the gap that exists in the current literature on business networks.
• To make recommendations based on findings

2.2 RESEARCH QUESTIONS

How and why do problems emerge in innovation networks?

How do negative aspects of innovation networks affect

Network actors?

Actors’ relationships?

The wider network?

RESEARCH METHODOLOGY

Taking into consideration that the negative aspects of innovation networks have been insufficiently studied, a research design that is mainly exploratory and partly descriptive (Ghauri et al. 1995) will be adopted towards exploring this research area. In addition, the research is also qualitative in nature because it is based on an unstructured and mainly exploratory research design which is intended to provide insight and understanding (Malhotra and Birks, 2006). This is because the research seeks out the “why”, and the “how” of the topic through the analysis of unstructured information e.g. interview transcripts.

For the purpose of the dissertation, the case study approach will be adopted. A case-study methodology enables the researcher to preserve the complexities and contextual contingencies in which the organisations and the phenomena being studied are embedded (Yin, 2003). This is mostly relevant for network research where it is not easy to separate organisations from the chaotic and intricate realities in which they operate (Das and Teng, 2000). A case-study approach also allows exploration of the evolutionary processes by which the networks develop. The case study approach possesses the following characteristics:

3.1 CHARACTERISTICS OF CASE STUDY APPROACH

Holistic and detailed understanding:

Abercrombie et al (1984) define the case study approach as an approach which describes the thorough examination of a single example of a class of phenomena. A case study enables an investigation to retain the holistic and meaningful characteristics of real-life events, such as organizational and managerial processes (Yin, 1984). This is corroborated by Gummesson (2000, p. 86), who states that, “An important advantage with the case study research is the opportunity for holistic view. …case research seeks to obtain a holistic view of a specific phenomenon or series of events”.

Single and multiple case studies:

According to Yin (1984) and Eisenrahardt (1989) the case study approach can involve both single and multiple cases. There has been extensive use of single case studies and advocates of this approach (Dyer and Wilkins, 1991) suggest that a single case study approach would offer better theoretical insights than multiple-case research based on creating good constructs.

Qualitative and/or quantitative data:

Eisenrahardt (1989) opines that the empirical data of a case study may be qualitative, quantitative, or both. Also, Yin (1984) proposes that the sources of data in the data collection for case studies include interviews, direct observation, participant-observation, documentation, archival resources, and physical artefacts. Each form of empirical data requires a different technique for their collection and analysis.

Purpose to provide description, develop theory, or test theory:

Yin (1984) also divides the case study approach into three categories namely, descriptive, exploratory, and explanatory case studies. This categorisation implies that case studies can be used to achieve various aims which, according to (Eisenrahardt, 1989), include offering description, developing a theory, and testing a theory.

3.2 DATA SOURCE AND COLLECTION

This dissertation is based on the analysis of an innovation network comprising five to seven companies. The companies selected for this dissertation would be Small and Medium-scale Enterprises (SMEs) in any sector who will be contacted and asked to participate in the research. Empirical data will be obtained from the case companies through the use of semi-structured and in-depth interviews of key personnel involved in the innovation process. The occurrence of critical episodes in the relationships between the network actors which have proved critical for the development of relationships within the network will be one of the central themes discussed in the interviews. The interviews will be conducted between June and July 2010. The interviews will be recorded and transcribed for analysis.

Data analysis will focus on capturing broad themes within the data and emphasis will be placed upon extrapolating extensive verbatim quotations from interviewees. This allows interviewees to describe and explain their experiences of negative aspects of innovation networks using their own language and jargon (Jones 1991) and will help in the development of a clearer understanding of the critical episodes that precipitate the occurrence of negative aspects of the innovation network.

The analysis will be conducted in two phases: open and selective coding of the data (Glaser, 1978).Firstly, in the open coding or initial coding phase, the emphasis will be on identifying and grouping qualitative data related to the negative aspects of innovation networks. Critical episodes in the relationships that have critically affected the relationships will be examined in particular. This coding phase would result in an initial categorisation of the qualitative data. Next, selective coding or focused coding will be used to carry out an in-depth analysis of each initial category developed in the open coding phase. In this phase, all the qualitative data related to certain initial category will be examined and analysed together.

4 EXPECTED THEORETICAL AND MANAGERIAL IMPLICATIONS

This research will attempt to bridge the gap that exists in the current literature on business network in general and innovation networks in particular. This bridge is necessary because it would be a platform from which any future research on this interesting topic would build on. The research will alert organisations to the key factors that cause problems in innovation networks which will be vital towards the design and implementation of appropriate strategies to combat such problems.

5 LIMITATIONS

The results and findings presented in this dissertation will be based on data collected from one case study. As such, it will be difficult to generalise the results and findings to other organisations. Also, considering that the dissertation will be investigating the negative aspects of innovation networks, participants may be unwilling to divulge information with regard to the critical episodes that have occurred within the focal network.

6 ETHICAL ISSUES

Qualitative research usually entails an in-depth questioning and probing of participants in order to gather information. Bearing this in mind, great care will be taken to ensure that participants will not be upset or disturbed during the interview sessions. Also, since the interview sessions will be recorded, the participants’ express permission will be sought by asking them to sign a written declaration granting permission to use the recording. Finally, the participants’ comfort level will be taken into consideration. Should they feel uncomfortable and wish to discontinue at any time during the interview, undue pressure will not be used. They will also be allowed to reflect on all they have said at the end of the interview and will be given the opportunity to ask questions.

7 CONCLUSION

The importance of innovation networks in the successful operations of any organisation cannot be over-emphasized. Just as human beings cannot live in seclusion, so also can organisations not operate in isolation in the business environment. In order to adequately harness its internal resources and gain access to certain external resources, every organisation needs to collaborate in one way or the other with other organisations in or outside its sphere of operations.

However, just as human beings encounter conflicts in their relationships with one another, so also do organisations face similar problems when they collaborate for business purposes. Based on this, this dissertation hopes to uncover those critical episodes that precipitate these problems which invariably result in the negative aspects of innovation networks.