Innovation in businesses

Networking and innovation results are presented in this section, and there are eight constructs that measure networking and innovation under product/service innovation, process innovation, marketing innovation and organisational innovation. The conceptual framework guiding this study shows that innovation is made up of three

constructs, namely, product, service and process innovation while the channels through which innovation can be carried out are external and internal networking. This section reports on innovation through these two channels.

6.2.1.5.1 Innovation through external networks

PRODUCT/SERVICE INNOVATION

A product/service innovation refers to the introduction of a good/service that is new or significantly improved regarding its characteristics or intended uses (OECD, 2006).

Product/service innovation is a difficult process, driven by advanced technologies, changing customer needs, shortening product life cycles and increased global competition.

As shown in Table 6.5 below, the majority of the participants appreciate the importance of external networking for product/service innovation, with 74% (agree/strongly agree) asserting that new products are developed by businesses through collaborating with other industry players. This finding supports Damayanti’s (2012) study into the role of informal actor networks (especially those of pedicab drivers in Yogyakarta) on promoting innovation in the tourism sector, in which the formation, close engagement and sustainability of informal sector networks was found to foster service innovation through improving physical infrastructure and the capacity of pedicab drivers to serve the tourists. Through external networks created via unionization, the pedicab drivers have optimized their performance capacity by sharing information about tourism issues and urban transport’s rules and discussing strategies to improve their physical appearance to tourists.

The findings on the importance of external networks in shaping product/service innovation are also supported by Braam and Borghans’ (2009) study, which examined the influence of the social networks of the board of directors on innovative use of the Balanced Scorecard (BSC) practices of their firms. Drawing on data from 149

Their study reports that social capital, especially active collaborative connections between family members, had a positive relationship with product innovation and enabled companies to generate new innovations. Similarly, the study’s finding corroborates Houghton, Smith and Hood’s (2009) claim that there is a direct link between a single firm’s social resources (in particular the firm’s collaborative involvement in external networks) and the firm’s strategic complexity, such as its innovative capabilities. The current study’s finding also mirrors previous findings on the distinct connection between the volume of collaborative relationships of a firm and its entrepreneurial processes, especially innovation capabilities (Shan, Walker &

Kogut, 1994; Elfring & Hulsink, 2007).

Figure 6.8 below, shows that collaboration to create new products (question 30) is the most important external networking practice geared towards innovation, as agreed by most respondents (90.3%). It can be deduced from this that collaborative knowledge sharing, team building and task-focused engagement are critical to the development of new products and services. This view solidifies Clark and Smith’s (2002) study into the influence of top management team (TMT) group process and collaborative network methods on 72 TMT’s value creation. The TMT served as an important boundary- spanning mechanism that facilitated organisation-level innovation by accessing, processing, and distributing information.

Clark and Smith’s (2002) findings illustrated that the social integration of these teams and their external and internal networks were associated with increased organisation- level innovation. Although the findings were more at organisational innovation level than product innovation level, it can be argued that the filtering through and saturation of system level innovation within the organisation is associated with innovations at the product level as it is systems and processes within organisations that make product and service innovations possible. In a study that examined how forming social capital based collaborations might create an innovative environment within a regional strategic network (RSN), Eklinder-Frick, Eriksson and Lars Hallén (2012) established that the centrality and collaboration of actors in a social network not only created

make decisions on their own, rather than referring them up the managerial hierarchy or using purely formal coordination techniques (Ofori & Sackey, 2010).

About 74.6% of the participants in Figure 6.9 above think that collaborating with others is critical to business success. This view supports the view that collaboration in task accomplishment or in engagements with external stakeholders breed organisational success. In an explanatory case study, based on semi-structured interviews with two Norwegian companies with an innovation reputation Egeland and Birkeland (2012) demonstrated how heavily networked founders’ trustful collaboration toward each other and toward external actors influenced their organisational culture, which became an important asset for successful expansion of their business. The same study found these companies’ collaborated with a closely linked community of operators, service providers and suppliers to develop new innovative solutions. The current study’s finding is supported by Liang, Huang, Lu and Wang’s (2015) finding on effects of social capital on members’ participation in collective activities and on the economic performance of farmer cooperatives. Their study reported a positive relationship between collective, collaborative orientation (dimensions of social capital) and members’ participation in training and general meetings.

The overall measure of external networking and process innovation is calculated using the latent factor in Table 6.6 above as:

ENPRI = 0.839*Q34+ 0.864*Q35 + 0.846*Q36

MARKETING INNOVATION

In order to market products and build capacity for growth, a business needs to understand the trends in the marketing environment and this calls for marketing innovation, which can come through networking.

newness/novelty of such marketing intentions, and the collaborative element could only be implied or assumed in the persistence of business-customer relations and the sustained loyalty of customers to the clothing business. It can be inferred from this finding that even through there was no hard evidence of intense collaboration in the conduct of relationship marketing with customers, relationship marketing can serve as a useful yardstick for gauging small firms’ relationship intentions with their customers.

Table 6.7 above also indicates that 94.6 % of the participants are of the opinion that their businesses use external collaboration for marketing innovation. In view of the demands for collaboration between multiple stakeholders in the construction industry in procurement processes, in marketing of construction and engineering services, regulation of erection of buildings and structures and enforcement of specifications, the expectation for external collaboration is perfectly reasonable. This finding closely mirrors Gloor, Paasivaara, Schoder and Willems’ (2008) finding on determining collaborative innovation networks (COINs) through correlating performance with a social network structure. COINs, which are virtual teams with a collective vision to achieve innovation, relied on collaboratively sharing ideas, information, and work enabled by technology. In its development and marketing of an innovative new product offering for a global consulting company, COIN relied on recruiting new members from its surrounding learning communities (i.e., external collaboration) while using its global interest community as its innovative marketing networks (Gloor 2006;

Gloor, Paasivaara, Schoder & Willems, 2008).

Figure 6.10 below indicates that 60% of participants believe that the business regularly develops new promotional activities to boost sales value. The modest marketing orientation of ECFs as far as promotions are concerned derives from their survivalist orientation and their limited financial, human and social capital resource bases that constrain their investing heavily in marketing activities. In comparison to larger companies, SMEs are constrained in financial, managerial, market resources as well as administrative and control systems, which are important for venturing into marketing activities (Gilmore & Carson 1999; Global Partnership for Financial Inclusion (GPFI), 2011; April & Reddy, 2015). Like other small, medium and micro enterprises (SMMEs),

Figure 6.11 shows that seeking information about supply chain management from customers is not an important part of organisational innovation (only 52.1% agreed).

However, the respondents were affirmative that there is need for attending workshops and benchmarking best practices in the industry.

The overall measure of external networking and organisational innovation is calculated using the latent factor in Table 6.8 as:

ENOI = 0.669*Q48 + 0.867*Q49 + 0.749*Q50

6.2.1.5.2 Innovation through internal networks

PRODUCT/SERVICE INNOVATION

A product/service innovation refers to the introduction of a good/service that is new or significantly improved regarding its characteristics or intended uses (OECD, 2006).

Product/service innovation is a difficult process, driven by advanced technologies, changing customer needs, shortening product life cycles and increased global competition.

As shown in Table 6.9 below most of the participants (86.9%) believed that a culture of developing new engineering technologies existed in their businesses. Given the centrality of engineering designs, engineering processes and activities in most of the ECFs’ work and the close similarity of the work that they engaged in, developing new engineering technologies might have been an internal drive that enhanced the competitive capacity of these firms. As Dato-on, Banerjee and Saha (2015) observe, in this contemporary age of global competition and rapid technological change, a firm’s capacity to introduce new processes, products, or ideas may impact business performance such as its competitiveness over its rivals. The centrality of new technological processes in business performance is affirmed by Kane (2015), who observes that a firm’s fundamental capability to use engineering and social network

If developing a firm’s networks and strategically locating its network position can be conceived as key internal capabilities that can drive product innovation, then the current finding corroborates findings from the Canadian study. Ouimet, Landry and Amara’s (2004) explored the relationship between the network positions (degree- number of ties an actor has within a network, betweenness- the extent to which an actor is in a position to play a broker role within a network and effective size-the diversity of an actors’ network) of firms within a Canadian industrial cluster and radical innovation, which potentially triggers their competitive advantage.

The results showed that the degree and effective size are positively correlated with radical innovation, while there was no significant correlation between radicalness of innovation and betweenness. This implies that the degree of connectivity (network location and density), including the size of the business in relation to its rivals, has a significant relationship with the depth of product/service innovation of the firm. Where such innovation could be a source of customer loyalty was not their focus of investigation.

The overall measure of internal networking and product/service innovation is calculated using the latent factor in Table 6.9 above as:

INPSI = 0.754*Q31+ 0.879*Q32 + 0.557*Q33

PROCESS INNOVATION

Every process needs to be continually updated, improved or replaced altogether in order to keep pace with current trends and standards. This, the current study contends, must come through networking and innovation. This section looks at process innovation and internal networking

Table 6.10 below shows that 90.9% (% agree /strongly agree) of the participants think that their businesses develop in-house solutions to improve business operating processes in order to add value. The study also established that employees discuss business matters during breaks (71.7%). Most of the participants (93.6%) are of the

that their business regularly conducts new sales/ marketing skills training. Since sales, production, marketing and sales, and research and development are all critical components of the firms’ internal operations and processes that guarantee the success of firms, new sales/marketing skills training are the critical drivers of such activities. Consistent with the Resource Based View (see Barney 1991, Grant, 1991), small firms such as ECFs are constantly creating new combinations of capabilities (in particular through sales and marketing skills training) on the one hand, while market competitors such as rival ECFs are continually improving their competencies or imitating the most qualified competencies from these firms, on the other (Ferreira, Azevedo & Ortiz, 2010).

About 90.1% of ECFs’ owner/managers in Figure 6.14 below confirmed that their businesses were introducing new methods of customer care management. Since ECFs are in constant competition with medium sized and large established businesses, there is scope to maximize their economic value through, for example, introducing cost saving customer management services, exploiting technological advances and responding to customer needs through e-marketplaces.

As Tallon et al. (2000) and Acosta, Colomo-Palacios and Loukis (2011) observe, just like IT supported firm value, ECFs’ value emerges from downstream dimensions such as customer care services, product sales/service support and market expansions, internal dimensions (internal process, internal operation, and staff productivity), in addition to upstream dimensions (coordination with suppliers and business partners).

The overall measure of internal networking and organisational innovation is calculated using the latent factor in Table 6.12 as:

INOI = 0.518*Q51 + 0.687*Q52 + 0.659*Q53 + 0.807*Q54 + 0.838*Q55