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Innovation is a topic prominent in any academic or practitioner discussion, but how do you know if you really are innovative or is it language an organisation likes to use but pays 'lip service' to as a facet of its strategy. Schumpter and Porter (cited in Goffin and Mitchell, 2005) suggest innovation is the introduction of new services and products which are new to consumers or of superior quality than historical equivalents. Comprehensively they build on this developing innovation into new processes, markets, sources of supply and forms of competition highlighting that its origin can be from organisational learning not just traditional research and development divisions. Tidd and Bessant (2009) highlight innovation as crucial for organisations since it directly correlates to success, strong growth, improved market share and increased profitability.
This submission will look at innovation auditing trying to understand how best to approach the framework by critiquing 4 journal articles from small to medium enterprise perspective (SME). The European Commission Enterprise and Industry (2011) division defined SME as an enterprise with headcount falling between 50-250 staff, an annual turnover of between â‚¬10-50 million or a balance sheet total of between â‚¬10-43 million.
This critique will provide validity for innovation auditing showing its ability to diagnose potential and facilitate innovative output while making recommendations to address any audit gaps when applied to SME's. Finally it will close with key recommendations to SME top management on the key actions required to realise a successful auditing platform.
Innovation Audit literature Critique
This submission focuses on critiquing 4 innovation auditing journal articles spanning from 1996 until 2009. The earliest article by Chiesa et. al. (1996) propends a framework for auditing innovation management within a product focussed company; this article is also referenced in all subsequent articles. The second article by Cormican and O'Sullivan (2003) builds on this providing a second methodology for modelling an innovation scorecard while the third by Noke and Radnor (2004) stays focused on the scorecard framework but propends an innovation compass. Finally Hallgren (2009) the most modern article differs from the previous literature which are rooted in new product development since it advances the notion of innovation auditing in a more general perspective applicable across products, services and the underlying nature of an organisation.
Chiesa et al (1996) recognise that the task of auditing the innovation capability should be underlined with a model that views innovation specifically as a business process. More specifically Hallgren (2009) believes employee high-involvement during the innovation audit ensures organisational process embedding contrasting with the contrary view of innovation auditing being placed firmly in the new product development (NPD) environment (Cormican and O'Sullivan 2003: Noke and Radnor 2004). The establishment of a dedicated new product division may be unrealistic within most SME's with employee's performing cross functional roles. While the literature predominantly comments on the tension for resources availability and their allocation to an audit Hallgren (2009) specifically reasons that an SME would have to be advanced in terms of their capabilities to have resources capable of performing an audit. Subsequently Hallgren (2009) contends that the utilisation of external facilitators can help to address resourcing issues and can advance the internal learning cycle rapidly increasing the competence amongst staff. Though Chiesa et. al. (1996) touches on the issue recognition is given to the notion that the innovation audit process should involve as many employees as possible with at the minimum a team be placed with responsibility for the process. This pinpoints an overarching deficiency within the literature that utilise SME's within their case studies but discuss allocation of resources to the process as if it sat within a large enterprise.
The predominant message from the literature is the recognition of benchmarking an SME's innovation capability. This allows the measurement of performance and comparison of an organisation against best practices (Cormican and O'Sullivan 2003) though a shortcoming in the literature is the lack of guidance as to where to find accredited best practices. Innovation auditing and the outputted benchmarking culminates in a scorecard allowing self-inspection by trending scores or by comparing against external best practices. Careful consideration needs to be placed on what sources of benchmarking an organisation will utilise ensuring that the resultant focus of the organisation is not around only managing what was measured (Drucker 1980). Advancing this notion this grouping of literature predominantly suggests differing indicators which to measure ultimately leading to a myriad of methodologies. Chiesa et. al. (1996) partially addresses this by having the objectives of the benchmarking based in development work on auditing capabilities as outlined by the U.K. Department of Trade and Industry's (DTI), notably all other literature seems to have neglected how benchmarking indicators would be agreed and how databases would be collated and centralised. Noke and Radnor (2004) highlight benchmarking as an aid to understanding and appreciating innovation but emphasis that it is not a tool that pronounces a model solution believing that it could direct an SME down a path their capabilities may not lay. In addition Noke and Radnor (2004) highlight benchmarking as a method for interpreting where an SME needs to try and go not as a prescription to indicate where they must go, this awareness is key to ensuring an SME stays focussed strategically on its core competencies. This comparison of quantitative information may not be optimal when viewed from disruptive innovation perspectives, interpreting existing trends within scorecards doesn't align itself to disruptive breakthroughs. Particularly notable is the acknowledgement by Chiesa (1996) that the work on innovation auditing is predominantly product focussed and attempting to benchmark a service based SME would require modification of the terminology, indicators, best practice comparisons and overall focus.
Hallgren (2009) recognises that innovation auditing takes time and the benefits may not be noticeably in the short term. Chiesa (1996) recognises this and recommends a beta testing period as a means to ensuring a comprehensive audit. Beta testing could be interpreted to be the luxury of large enterprises that have slack and resources sufficient to trial methodologies. Noke and Radnor (2004) illustrate linkage between auditing and its impact on outputs by embedding innovation, knowledge and productivity indicators into their audit methodologies. Performing an audit requires investment of resources, finances and could be seen as opportunity cost; illustrating output when trended over time provides feedback on progress and may influence strategic direction. Chiesa et. al. (1996) differs in approach focusing on competitive performance and financial indicators as outputs to be measured over time while limited in number may be more appropriate for SME's due to their targeted nature. Significantly Chiesa et. al. (1996) alone believes in the value of measuring unsuccessful innovation and innovative efforts portraying their influential impact on the organisational learning process and the benefits of potentially exploiting these in subsequent innovation products, services or processes. Though not aligned to lean thinking of 'get it right first time' it may be appropriate within an SME environment where success can be predicated by not 'making the same mistake twice'.
Innovation auditing seems a plausible endeavour but has two key questions that require answering to illustrate its value within an SME; Who will use the information? And what benefit will the information provide? The literature focuses traditional auditing within the remit of new product and R&D departments, ultimately finding its place with strategic decision making by top management teams. Hallgren (2009) though in agreement with traditional auditing adds the need for expanding the involvement of employees to the SME as a whole. This allows the SME to draw upon the explicit and tacit intellectual horsepower of all of its employees and widens the scope of the innovation audit to all elements of the organisation. This 'high-involvement innovation (HII)' (Hallgren, 2009, p.48) has the resultant benefit of increasing employee involvement and creates changed behaviour from within due to ownership coming cross organisational and functional. This HII can provide significant motivational benefits providing validity for employees to challenge and change underlying values, routines and norms and question 'the way we do things here'. This double-loop learning if developed could accelerate resource bound SME's by providing a socialised culture of innovation and legitimising a climate that strives to continually push forward. Further evidence to the importance of the innovation audit is the potential virtuous cycle impact on the product/service portfolio; this emphasis could impact the screening of the most crucial activities which without benchmarking is often poorly performed. Influentially all of the literature emphasises the reuse of this output through a myriad of indicators. Cormican and O'Sullivan (2004) advance this notion by hypothesising the overlaying of voice of the customer outputs providing a clear understanding and leading to a more market orientated SME.
As a combined set of articles the information could be understood to lack a precise solution that would ensure the successfull implementation of an innovation auditing methodology. Acknowledgement of the need for further concentrated research in published literature and clarification of subsets of work will ensure a continual incremental understanding of this topic. Interestingly Yuan and Woodman (2010) acknowledge this by reasoning that 'the symbolic function of innovative behaviour is relatively underaddressed in the exisitng literature' (Yuan and Woodman, 2010, p.338).
This paper wasn't written to recommend any one particular auditing methodology over another but to emphasise the advantage for an SME to establish innovation auditing capabilities. Hallgren (2009) clarifies this by recognising that most SME's don't need an audit report informing them of required improvement, crucially they need employees and managers motivated to make innovative changes while ensuring they have the with the requisite power to implement innovation.
Understanding this can benefit key drivers behind an SME's strategy culminating to strategic plans which accommodate innovation as the heartbeat of its employees. Salient is the need for competitive advantage and within the cut throat world of SME's it is apparent that the surviving organisations will be those that follow a course of innovation and innovative practices ensuring they cater for customers through effective and efficient products and services. This will culminate in an environment appropriate to developing innovation. Overall the process should be cross functional and cross organisational never sitting in one division such as R&D. Information should be filtered across all layers ensuring bottom-up participation and the fostering of an innovative culture which if managed correctly should have the unexpected outcome of providing motivational benefits. Significant time and effort needs to be placed in understanding whom the SME will benchmark itself against, looking at industries, markets and specific product lines. External facilitators should be sought to fast track the process especially during the first and potential a number of subsequent attempts. Knowledge transfer between external facilitator and internal staff is a crucial element to ensure the SME can take on the audit process going forward. Expectations need to be clearly set around whom and for what length of time the outputs will be socialised too since like all auditing it is not an immediate process.