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INNOVATION: *FINAL ISSUE OF THIS VOLUME*

management, policy & practice CONTENTS 3

VOLUME 4

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ISSUE 1–3

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DECEMBER 2001/JUNE 2002/DECEMBER 2002

EDITORIAL: Transition to Innovation: Management, Policy & Practice from r&D Enterprise: Asia Pacific — Mark Dodgson FEATURE ARTICLES

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E-government: Transformations in modes of rule? — Paul Henman and Mitchell Dean

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Innovation in small and medium sized enterprises: The case of e-commerce adoption in the UK — Elizabeth Daniel, Hugh Wilson and Andrew Myers

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Innovativeness in small firms: An exploratory study of the perspectives of growth oriented owner-managers — Tim Mazzarol

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Biotech branding: Victoria’s plan to cash in on the ‘Biotechnology Revolution’ — Helen Ratcliffe

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Clusters policy: A future strategy for Australia — Lisa McPherson BOOK LIST — Contributed by Peter Cebon EAST ASIAN MANAGEMENT RESEARCH IN INDUSTRY, INNOVATION AND TECHNOLOGY

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The determinants of foreign pharmaceutical firms’ FDI entry mode choices between joint venture and sole venture into China — Fuming Jiang, Chris Christodoulou and Ho-Ching Wei

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National culture and organizational behavior of Malaysian and Japanese firms — Lrong Lim

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Team diversity and creativity — Masaharu Yano The influence of Chinese American cultural values on workplace communication, innovation, and teamwork — André M. Everett, Yim-Yu Wong, Lan Tuyet Hong and Neil Evans Contents continues /...

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Registered with the Copyright Agency Ltd: www.copyright.com.au 6/64 Kippax Street, Surry Hills, New South Wales, 2010, Australia Fax: +61-2-9394-7601; Tel.: +61-2-9394-7600; Email: [email protected]

Volume 4, Issue 1–3, December 2002

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INNOVATION: management, policy & practice CONTENTS 129

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DECEMBER 2001/JUNE 2002/DECEMBER 2002

Challenging the Chinese Managerial Paradigm: Global relations over-ride the traditional market model — Georgina Murray and Kate Hutchings TECHNOLOGY TRANSFER TACTICS Competing in the innovation pentathlon — Keith Goffin and Rolf Pfeiffer Sources of ideas and knowledge for innovatory small companies: Disaggregation of Australian and Eurostat CIS2 innovation survey data: Public research sources analysed by industry sector and enterprise size — John Yencken and Murray Gillin

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Bridging the gap between knowledge generation and technology development — Ian Lawrence and Ivor Bryan

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The nexus of value chain integration and e-business applications on public sector agriculture R&D management — Judy Matthews, Art Shulman, Arnold Wissemann, Paul Steffens and Andrew Wollin

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Diffusion of Internet technologies among high technology small firms (HTSFs) in Australia — Girija Krishnaswamy

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Managing intellectual property in the public sector — Paul Steffens, Art Shulman, Drew Wollin and Michael Waterhouse

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INNOVATION EDUCATION Software creativity: Why and how? — Winnie Wong and John Paynter The relationship between firm survival and innovation: An introduction to the literature (review) — Carol Dalglish and Caroline Newton

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The Fifth Discipline in a highly disciplined Singapore: Innovative Learning Organisations and national culture — Kala S. Retna

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NOTICEBOARD: Conference calendar 2003

FINAL ISSUE OF THIS VOLUME Innovation: Management, Policy & Practice (ISSN 1447-9338) was previously titled r&D Enterprise: Asia Pacific (ISSN 1440-1266) Abstracts and tables of contents of all issues are available on www.innovation-enterprise.com 2

INNOVATION: management, policy & practice

Volume 4, Issue 1–3, December 2002

Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2002) 4: 3–4.

EDITORIAL MARK DODGSON Editor in Chief Director Technology and Innovation Management Centre University of Queensland Brisbane, QLD 4072, Australia Email: [email protected] Tel: 07 3365 1615 Fax: 07 3365 4222 Internet: http://www.techman.uq.edu.au/dodgson.html University Provider Number: 00025B

TRANSITION TO INNOVATION: MANAGEMENT, POLICY & PRACTICE FROM R&D ENTERPRISE: ASIA PACIFIC

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elcome to Innovation: Management, Policy and Practice (ISSN 1447-9338), the new manifestation of r&D Enterprise: Asia Pacific (ISSN 1440-1266). With this triple issue volume (volume 4/1-3), spanning 2002, we complete the transition to the new journal format. A new title, new web site (www.innovation-enterprise.com, launching March 2003), expanded Aims & Scope, revised Editorial Board, new article categories, detailed Author Guidelines and revised subscription pricing structure are all introduced with this volume. However, we remain in transition, with incremental expansions of the editorial board, free web content (full text of abstracts, book reviews, book lists, guest editorials, calendar items, Innovation Education articles, news, new product information) and delivery platform planned for volume 5 in 2003. r&D Enterprise: Asia Pacific has expanded its title and scope beyond R&D to all aspects of the innovation processes in local and global Volume 4, Issue 1–3, December 2002

organizations. Under the editorship of Professor Mark Dodgson, Director of the Technology and Innovation Management Centre at the University of Queensland, Innovation: Management, Policy & Practice is an international, peer reviewed journal for the prompt publication of original research, literature and book reviews, methodological advances, policy analyses, case studies, education & training approaches, practice reports, conference reports, strategy, tactical, finance and compliance tips, booklists, news, product and calendar items across all fields of innovation, such as: • research management and commercialization • process and product innovation and diffusion • technology strategy, collaboration and competition • cross-cultural management and innovation • technology transfer and innovation support organizations • team building and team management • managing creativity and creative teams • government innovation policy and regulation for innovation • managing intellectual property • managing virtual teams and environments for innovation • managing organizational learning, knowledge and change Submissions are invited from you, your staff and students as well as from the following sources:

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Editorial • Recent literature reviews and methods papers from PhD, Masters or Honors Theses • Conference papers or presentations prepared or in preparation in 2002 and 2003 • Research articles and reviews which would merit rapid publication in 2003 and 2004. Submissions should be sent electronically in the first instance to: [email protected] with a copy to the Publisher: [email protected] In addition to academic merit, novelty and integrity, criteria for selection are that articles

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are relevant, concise, practical, informative and useful to readers of the respective sections of Innovation: Management, Policy & Practice. These sections include: Feature Articles; East Asian Management Research in Industry, Innovation & Technology; Technology Transfer Tactics; Innovation Education; Policy Debate; Book Reviews & Booklists; Conference Reports & Calendar; News & New Products; Institutional Profiles. Thank you for your patience during this major transition to the new journal and web format. We look forward to sharing the rewards with you through 2003.

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Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2002) 4: 5–11.

E-government: Transformations in modes of rule? SUMMARY

KEY WORDS electronic government; information technologies; citizenship

Recent developments in information technology have been accompanied by concerns involving public policy and government service delivery. Calls are made for social policy to address an apparent digital divide, for public policy to encourage technological innovation in the new information society, and for government service delivery which uses new technology to support improved individualised service. At the same time, concerns are raised about increased surveillance and invasions of privacy. The rhetoric of New Public Management also sees new technologies as a means to improve government service delivery through the use of performance indicators and market-like forms of operation. In what ways do these changes involve new forms of governing and the configuration of social relations? This paper outlines these issues being investigated in a three-year study of egovernment. Received December 2001

Accepted April 2002

PAUL HENMAN

MITCHELL DEAN

Research Fellow Department of Sociology Macquarie University Sydney, Australia

Professor Department of Sociology Macquarie University Sydney, Australia

INTRODUCTION

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ike businesses, national governments have been keen to adopt electronic forms of operation, that is e-government, with the promise of improvements in efficiency, cost savings and service delivery. But technologies do not simply represent a new form of administration. They contribute to transformations in the nature of government itself, as evidenced in its operation, public policies, and the relationship between national government, individuals and other institutions and organisations (Dean 1996; Henman 1997; Rose & Miller 1992). Volume 4, Issue 1–3, December 2002

This paper presents basic concepts and themes of the research framework for a threeyear, ARC-funded project on e-government being undertaken by the authors. That project will examine the use of electronic client records and electronic communication technologies in the domains of social security, taxation and primary health care. Our study of e-government critically adopts aspects of the ‘governmentality’ framework (Dean 1999) to highlight the heterogenous and pervasive character of government and governing and the role of technologies in the configuration of modalities of government

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Paul Henman and Mitchell Dean and governmental relations. In this paper we consider three areas: governmental rationality; issues of justice; and citizenship.

E-government Before proceeding, however, it is useful to clarify the meaning of ‘e-government’. Ostensibly, ‘e-government’ – or ‘electronic government’ – is used to refer to the operation of government and the provision of government services through the internet. At a pinch, it might even be taken to encompass the use of computer technologies in government agencies, as used by British New Labour in their program of ‘modernising government’. This more literal meaning of e-government can be contrasted to another meaning. Government, as Michel Foucault and others have examined, is defined as the ‘conduct of conduct’, i.e., any more or less calculated attempt to act upon the conduct of individuals and populations for definite ends (eg Foucault 1981; 1982; Barry et al 1996; Burchell et al 1991; Dean 1999; Dean & Hindess 1998; Rose & Miller 1992). Thus e-government can be interpreted as either the ‘conduct of conduct’ through electronic means and technologies, or the ‘conduct of conduct’ in an age of new information and communication technologies. In this essay, we seek to outline how the deployment of such electronic technologies by national (and state) governments, and their use in the delivery of government services, contributes to the reconfiguration of forms of governing or modes of rule.

GOVERNMENTAL RATIONALITIES For the purposes of this paper, governmental rationalities include all the different ways of calling into question, thinking about, investigating, knowing and calculating, how we actually govern and how we should govern. Such rationalities might be found in the exhorta6

tions of politicians, in advice from experts, in the reports of committees, in media commentary, and so on. From our perspective, such rationalities help shape the way in which the domains of governability are carved out and acted upon. In this sense we would say such rationalities help ‘constitute’ specific issues (e.g. welfare dependency, inefficient public services) as problems of government, rendering them knowable in a particular way, and prescribing ways in which they can be acted upon to achieve definite ends. What follows are a number of examples of broad areas of such governmental rationalities relevant to our project.

Globalised competitiveness In the context of an ascendancy of the discourse of economic globalisation, governmental rationalities has given a new focus and importance to the goal of maintaining and increasing national competitiveness (Hindess 1998). Such discourses typically claim that we are entering an information society in which economic growth will be dominated by information and new technologies. In order for countries to be competitive, they must invest in specific kinds of knowledge for their citizens and encourage research and development. According to such a rationality, technology figures as both threat and solution (Barry 2001). Here, information technologies appear as agencies that are constructing a new globalised world, a process which we (national governments, citizens) are unable to stop. All is left is to work out the best response to this new world where production efficiency and technological ascendancy are the only means for survival. Thus, it is through the development and utilisation of knowledge in technological innovation that provides for secular salvation, that is, the health of the economy and maintenance and improvement of standards of living.

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E-government: Transformations in modes of rule?

Digital divide A similar and related governmental rationality has emerged concerning the ‘digital divide’ (Haywood 1995; Loader 1998; Siefert et al 1989). National and state governments are concerned about the lack of access of some groups to computers. Consistent with the competitive, globalisation discourse, it is argued that those without access to information technology will lack the capacity to compete in the labour market, thereby constituting and reinforcing ‘social exclusion’, that is, exclusion from the mainstream opportunities provided by access to education, the labour market and general services. The solution is to provide enhanced access to information technologies. However, these ‘technological fix’ discourses tend to see social and economic problems through technological glasses. Correlations between degree of access to information technology and socio-economic disparities tend to be regarded as causalities. It is, of course, the case that disadvantaged groups have much lower rates of access to information technologies, but, in contrast to the digital divide discourses, this does not necessarily imply that this is the reason for their socio-economic situation. A more nuanced view might argue that lack of access to information technologies may exacerbate other disadvantages, but is unlikely to be the sole or defining nature of disadvantage. The policy focus on creating a more equitable distribution of information technologies feeds into and reinforces the workfare/activation policy framework. This framework focuses governmental, analytical and policy attention on welfare recipients, their behaviour and capacities. Are they trying hard enough to look for jobs? Do they have the right attitude? How are they to regain a work ethic? Are their lifestyles preventing them from moving into or returning to the labour market? Are they appropriately skilled? The Volume 4, Issue 1–3, December 2002

provision of information technologies is seen as addressing a lack that is crucial in excluding these people from the labour market. In constituting the situation of joblessness in this manner, questions to do with structural issues such as the existence of job vacancies and the provision of public transport and childcare may be displaced and disregarded. Furthermore, the focus on technology tends to reduce the question of barriers to participating in mainstream social life or entering the labour market to the problem of access to information technology. In short, this governmental mentality displaces otherwise central concerns about the conditions of existence of poverty and disadvantage, and the nature of justice in today’s world.

ISSUES OF JUSTICE What forms or conceptions of justice do electronic forms of governmental administration and operation embody? Some scholars have argued that new information technologies have given new impetus and reinforced the visions of New Public Management (Adler & Henman 2001; Bellamy & Taylor 1998; Frissen 1999; Heeks 1999). The ‘informatisation’ of organisational processes made possible by computers has both enabled the proliferation of the production and use of performance statistics and supported the construction of more complex organisational structures to meet the desire for services formerly provided by the public sector to act as competitive markets. It is possible to consider both distributive (or substantive) justice and procedural justice. The overriding focus of the New Public Management has been on efficiency, performance and calculability. It has thus, quite simply, largely ignored or downplayed concerns about the distribution of material and social resources, such as property, capital and income. Indeed, computers are rarely used to address these concerns (Adler & Henman 2002).

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Paul Henman and Mitchell Dean What of procedural justice? One might suspect that with more efficient and responsive service delivery, it would be possible to improve procedural justice. Certainly the use of computers is aligned with the shift to welldefined legal rights by reducing administrative discretion (Adler & Henman 2001). This in turn can be linked to enhanced impartiality and consistency of decision-making. However, in so far as computerisation has also tended to encourage increased complexity in public policy and organisational arrangements, it can be aruged that individuals are less likely to understand formal policy and administrative processes, thereby undermining their intuitive sense of what to expect and when they might appeal government decisions. These developments are also reinforced by the perception that computers are objective and free from errors. Consequently, people may be less likely to question government decisions that are perceived to be made by computers. According to such argument, all these developments have in effect reduced levels of procedural justice (c.f. Scheepers 1994). The move to more complex service delivery such as outsourcing, purchaser/provider arrangements and marketisation facilitated by information technology might also destabilise procedural justice. The creation of long chains of accountability in these complex networks can operate to divert accountability away from government policy-making and their responsibility to ensure good quality public service, to questions concerning whether providers are meeting their contractual requirements. Also, the increasingly complex inter-organisational chains might mean that complaints rarely flow to the central agency and central government, and that the scope for lost or misunderstood information is amplified. This is particularly evident in the operation of the Job Network and its implementation of the government’s breaching policy (Alford & Gullo 2000). 8

CITIZENSHIP Citizens as rational agents The increasing complexity of public policy and forms of service delivery should be viewed in relation to a shift in the ethos of welfare. This ethos entails a shift in emphasis from the state as guarantor and having a duty of care for the welfare of citizens, to that in which citizens are to act as rational, autonomous beings, responsible for maximising their welfare through active attainment of their rights and entitlements which the state defines (Dean 1999: 149–175; Petersen et al 1999). The linked transformations of complexity and ethos raises questions for contemporary citizenship concerning the breadth and difficulty of the calculations that self-governing individuals are obliged to make. The self-governing individual is expected to rationally assess options and make decisions in relation to his or her lifestyle, health, insurance, investments, superannuation, reproductive activities, job, community associations, education, and also to do on behalf of members of his or her family or community, particularly the young and the frail. The ‘solution’ or coping mechanism to the difficulty of such decision-making is the engagement of experts, by largely contractual means, to enhance individuals’ capacities as rational and prudential actors by the provision of advice and the tutoring in risk. Expertise (e.g. in therapeutic and counselling practices) often takes a negotiated form with final responsibility falling with the self-governing individual. Even when experts (such as lawyers and investment brokers) make decisions on behalf of the autonomous citizen, or act on his or her behalf, they do so under his or her direction and delegation. Expertise only takes a full authoritative and directive form when it acts upon individuals who fall outside those who are regarded as rational and autonomous, for one reason or another (Dean, 2002). ‘Active citizens’ are also expected to use

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E-government: Transformations in modes of rule? various information and communication technologies, from specialised calculators, computers and the internet, to lifestyle and ‘talkshow’ television programs, and the telephone, to manage their personal finances, discover appropriate models of conduct in ethically ambiguous situations, to procure information to make all kinds of decisions, to access markets and expertise, and more generally to enhance their capacity to act. Within this mode of citizenship, national (and state) governments have defined or adopted increasingly finely graded calculative grids of incentives and disincentives to construct the conditions under which actors are expected to negotiate their preferred forms of life. Electronic technologies have contributed to this development.

Targeted/niche government National governments have also sought to adopt governmental practices that are focused on particular sub-populations, particularly in regard to those who are not yet (e.g. children) or no longer (the chronically mentally or physically ill, the frail elderly, those with certain disabilities, the criminal or the addicted) capable of active citizenship, or those who or temporarily unable to do so (the short-term unemployed, the sick). Such ‘targeted government’ is evident in Australia’s social security system where the intensity of targeting to ‘those most in need’ and the ‘deserving poor’ has greatly increased and become more finely graded. In the health system, governmental action has increasingly targeted ‘at risk’ groups. Although not new, computer technologies have given renewed impetus to targeted government. Computers have supported the ‘informatisation’ of government. This explosion of recorded data and analysis has given rise to knowledge about the dynamics of individuals, groups of individuals and the entire population. Thus, just as the growth of (national) staVolume 4, Issue 1–3, December 2002

tistics led to the conceptualisation and government of the social body (Hacking 1982), their continued growth and increasingly penetrating analyses have given rise to the conceptualisation and government of sub-populations. There is an increased capability for governments and other bodies for knowing which characteristics are associated with what problematic behaviours or conditions. In response, governmental actions seek to target such problematic individuals and populations. In doing so, complex policies are devised to address and shape the particular circumstances and behaviours of those targeted. Computers assist in their development, implementation and ongoing refinement of such complex policies (Henman 1997; 1999). The effect of such increasingly targeted government is the ‘fragmentation of the social’, that is, the move from the central government of a unified national population to the tailoring of specific policies and programs for what might be called targeted populations.

Surveillance society The use of information technology has raised concerns about privacy and surveillance (Lyon 1994; 2001). Since the decline of the small village in which everyone knew what each other person did, the new information and communication technologies have provided an unprecedented ability to monitor the activities of others. Closed Circuit Television (CCTV) is installed in almost every public and private place thinkable (Norris & Armstrong 1999). Data unexpectedly gathered and voluntarily offered is collected to document our actions, moves and thoughts. Speed and traffic cameras record traffic infringements. These developments have reconfigured the relationship between citizens and nation states, but perhaps in more complex ways than is first appreciated. Unlike earlier forms of surveillance, much electronic surveillance is not visual, but informational. Such ‘dataveillance’

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Paul Henman and Mitchell Dean relies on information which citizens (readily) provide through application forms, personal identifiers (such as Tax File Numbers) and other recorded transactions with both the public and private sectors. When data in one government database is linked with data in another, the knowledge of the activities of individuals is greatly increased. Such datamatching has become commonplace in the detection of welfare fraud (Cahill 1994), for example, and provides the means for more coercive and intrusive forms of government. Unlike earlier forms of surveillance where only suspects are watched, electronic surveillance treats everyone as suspicious. We are all not to be trusted. Surveillance has a disciplinary effect. It is through the gaze, through being watched – either visually or through our data traces – that individuals come to keep their behaviour in check (Foucault 1977). The rapid extension of electronic forms of surveillance, made possible by technological developments, is expected to generate a heightened self-awareness of their behaviour and the decisions they make. One must be constantly alert to ensure that they are maintaining the right moral code, that they are making the best decisions. In short, these developments complement and reinforce the rational actor form of citizenship discussed earlier. On the whole, citizens have not been strongly opposed to the accelerating use of electronic surveillance by governments. Rather than seeing potential problems, citizens either are unaware of the developments or see them as sensible initiatives to increase personal safety and law enforcement.

CONCLUSION The foregoing analysis has highlighted some important transformations in the nature and practice of government. In particular, electronic technologies appear to have become aligned with ‘neo-liberal’ forms of government in 10

which citizens are expected to be active, rational subjects maximising their economic well-being and independence. They are, also, aligned with more authoritarian and coercive measures emphasised by ‘neo-conservative’ discourses, aimed at high risk and dangerous populations, for example, in the area of border security and the control of population movements by passport, visas, customs checks and so on, or in the increased surveillance of welfare recipients. Clearly, the technology should not be accorded a causal primacy over the discourses of ‘neo-liberalism’ and ‘neo-conservatism’. They have been moulded, shaped and enrolled to support various and changing political objectives. But technologies are not simply a materialisation of political dreams and schemes. Their use can often destabilise such intentions and even provoke the emergence of new ways of operating and conceptualising governmental activities and objectives. This means that the question of the relationship and ‘fit’ between the new technologies and different forms of governmental rationality is an open-ended one requiring detailed empirical investigation.

References Adler, M. and Henman, P. (2001) ‘e-justice: A comparative study of computerization and procedural justice in social security’ International Review of Law Computers and Technology 15(2): 195–212. Adler, M. and Henman, P. (2002) ‘Computerising the Welfare State’, unpublished mimeo, Department of Sociology, Macquarie University. Alford, K. & Gullo, N. (2000) ‘The Privatisation of Employment Services: Has it worked for the most disadvantaged?’ Economic Papers, 19(1): 65–79. Barry, A. (2001) Political Machines: Governing a Technological Society, London, Athlone Press.

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E-government: Transformations in modes of rule? Barry, A., Osborne, T. & Rose, N. (ed.) (1996) Foucault and Political Reason, London, University of Chicago Press. Bellamy, C. and Taylor, J.A. (1998) Governing in the Information Age, Buckingham: Open University Press. Burchell, G, Gordon, C. & Miller, P. (ed.) (1991) The Foucault Effect, London, Harvester Wheatsheaf. Cahill, L. (1994) ‘Data-Matching in the Social Security System’, Social Security Journal, June: 98–108. Dean, M. (1996) ‘Putting the technological into government’, History of the Human Sciences, 9(3): 47–68. Dean, M. (1999) Governmentality: power and rule in modern society, London, Sage. Dean, M. (2002) ‘Liberal government and authoritarianism’, Economy and Society 31, (1): 37–61. Dean, M. & Hindess, B. (ed.) (1998) Governing Australia, Cambridge, Cambridge University Press. Frissen, P. (1999) Politics, Governance and Technology: A postmodern narrative on the virtual state, Cheltenham, Edward Elgar. Foucault, M. (1977) Discipline and Punish: The birth of the prison, New York, Vintage Books. Foucault, M. (1981) ‘Omnes et Singulatim: Towards a Criticism of “Political Reason”’, The Tanner Lectures on Human Values, II: 223–254. Foucault, M. (1982) ‘The Subject and Power’, Afterword in H.L. Dreyfus and P. Rabinow, Michel Foucault: Beyond Structuralism and Hermeneutics, Sussex, Harvester Press, 208–226. Hacking, I. (1982) ‘Biopower and the avalanche of printed numbers’, Humanities in Society, 5: 279–295. Haywood, T. (1995) Info-rich/info-poor: access and exchange in the global information society, London, Bowker-Saur. Heeks, R. (ed.) (1999) Reinventing Volume 4, Issue 1–3, December 2002

Government in the Information Age: International practice in IT-enabled public sector reform, London, Routledge. Henman, P (1997) ‘Computer technology – a political player in social policy processes’, Journal of Social Policy, 26(3): 323–340. Henman, P. (1999) ‘The bane and benefits of computers in Australia’s Department of Social Security’, International Journal of Sociology and Social Policy, 19(1/2): 101–129. Hindess, B. (1998) ‘Neo-liberalism and the National Economy’ in M. Dean and B. Hindess (ed.) Governing Australia: Studies in contemporary rationalities of government, Melbourne, Cambridge University Press, 210–226. Lyon, D. (1994) The Electronic Eye: the rise of surveillance society, Minneapolis, University of Minnesota Press. Lyon, D. (2001) Surveillance Society: monitoring everyday life, Buckingham, Open University Press. Loader, B.D. (ed.) (1998) Cyberspace divide, New York, Routledge. Rose, N. & Miller, P. (1992) ‘Political power beyond the State’, British Journal of Sociology, 43(2): 173–205. Norris, C. & Armstrong, G. (1999) The Maximum Surveillance Society: the rise of CCTV, Oxford, Berg. Petersen, A., Barns, I., Dudley, J. & Harris, P. (ed.) (1999) Poststructualism, Citizenship and Social Policy, London, Routledge. Scheepers, A.W.A. (1994) ‘Informatization in Street-level Bureaucracies: Bureaucratic Competence and Discretion in Dutch Municipal Social Services Departments’, Informatization and the Public Sector 3: 47–61. Siefert, M, Gerbner, G. & Fisher, J. (ed.) (1989) The Information Gap, New York, Oxford University Press.

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Innovation in small and medium sized enterprises: The case of e-commerce adoption in the UK SUMMARY

KEY WORDS e-commerce; small and medium enterprises; innovation; adoption

Successful small and medium sized enterprises (SMEs) are recognised as being an important component in the industrial development, and its consequent social benefits, of all economies. However, e-commerce has been described as altering the structure of whole industries, dampening profitability and levelling business practices. SMEs will not be immune to these effects and must therefore find a way of successfully adopting this new technology. Many SMEs are currently developing e-commerce services, however there is little systematic research into how they are doing this and what the organisational and environmental factors associated with adoption are. This study addresses this gap through an exploration of the level and sequence of adoption and the factors associated with this adoption. The research, which focuses on the particular case of the UK and was carried out by means of a mailed questionnaire, found four distinct clusters of adoption. The four clusters appeared to form a set of sequential steps or stages, through which firms passed during the adoption of e-commerce. Seven factors were found to be associated with their adoption of e-commerce. Six of these factors were consistent with factors previously identified as associated with the adoption of traditional IT systems by SMEs, whilst one new factor was identified which would appear to be unique to, or at least more significant in, the domain of e-commerce adoption. A more detailed analysis of the adoption factors over the four adoption stages demonstrated that SMEs adopting e-commerce are likely encounter the acculturation effect. Adoption of innovation studies invariably assume that the factors associated with adoption are linear in nature. This study highlights that these factors may well be more complex than currently assumed and hence forms a useful starting point for future innovation studies. Received January 2002 Accepted August 2002

Contact: Dr Elizabeth Daniel, Information Systems Research Centre, Cranfield School of Management, Cranfield, Bedford, MK43 0AL, UK; tel. +44 1234 751122; fax +44 1234 752641; e-mail: [email protected]

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Innovation in small and medium sized enterprises: The case of e-commerce adoption in the UK

ELIZABETH DANIEL

HUGH WILSON

ANDREW MYERS

Senior Research Fellow Information Systems Research Centre School of Management Cranfield University, UK

Visiting Fellow and Director, Centre for e-Marketing Information Systems Research Centre School of Management Cranfield University, UK

Visiting Fellow Information Systems Research Centre School of Management Cranfield University, UK

INTRODUCTION

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lectronic commerce is one of the most discussed topics in business today. It is already leading to the reshaping of customer and supplier relationships, the streamlining of business processes and, in some cases, even the restructuring of whole industries (Porter, 2001). Forecasts have estimated that the total value of e-commerce in the US alone will exceed $1.4 trillion by 2003 (Forrester Research, 2002). Much of the media coverage of e-commerce concentrates on ‘born to the web’ companies such as Amazon.com or eBay.com, or its adoption by large companies. However, SMEs are a major business sector in all economies. In the UK, small and medium sized businesses are responsible for 56.3% of employment and 51.8% of turnover (DTI, 1999). In Australia, over 90% of all businesses are described as small or medium sized (Australian Bureau of Statistics, 2000). This sector is traditionally characterised by high failure, with failure rates being six times higher for smaller than large businesses (Storey, 1994). With the significant impact that e-commerce is forecast to have, it may be expected that these failure rates will increase if SMEs do not themselves adopt this Volume 4, Issue 1–3, December 2002

new way of working. Such firms are starting to make use of the internet within their business. In the UK, research by Oftel (2000) has found that 49% of SMEs in the UK are connected to the internet and a further 20% intend to be connected in the near future. In Australia, 83% of medium sized businesses are on-line, this figure falling to 65% and 50% for small and very small businesses respectively. However, beyond these raw statistics on connectivity there is little systematic research into the adoption of this important new technology by such companies. This study addresses this gap in current research by seeking to understand how SMEs are adopting e-commerce through an exploration of their level and sequence of adoption and the factors that are associated with adoption. It is proposed that SMEs are likely to adopt e-commerce in a set of sequential steps or stages and that the factors associated with adoption are similar to those associated with the adoption of traditional IT systems by SMEs. It is also proposed that these factors may vary at each adoption stage. Many studies of the factors that determine the adoption of traditional IT systems have been undertaken but we are unaware of any previous studies in

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Elizabeth Daniel, Hugh Wilson and Andrew Myers the e-commerce domain or studies that have examined how these factors vary at different stages of adoption. This study is also of interest to those that study the adoption of innovation in general. Such studies assume that the factors associated with adoption are constant over the course of that adoption. This study highlights that these factors may well be more complex than currently assumed and hence forms a useful starting point for future innovation studies. The paper commences with a description of existing literature in this domain and the theoretical framework used as a basis for this study. The methodology adopted to undertake the study is described and the findings are presented and discussed.

E-COMMERCE ADOPTION BY SMES It has been forecast that e-commerce will have a major impact on all industries, allowing companies to establish distinctive strategic positioning but also dampening overall profitability and reducing the ability to establish sustained operational advantage (Porter, 2001). It is important to the future success of SMEs that they participate in this new technology and way of doing business, if they are not to be left behind (Keeling, 2000). In particular, it has been suggested that e-commerce will allow smaller businesses to ‘level the playing field’ and improve their competitive position with regard to their larger competitors (Lynn et al, 1999; Clayton, 2000). Due to the relative youth of e-commerce, there are not yet widely agreed definitions of what is meant by this term. Kalakota and Whinston (1998) define e-commerce as “the buying and selling of information, products and services via computer networks”, the computer networks primarily being the internet. Others (The Cabinet Office, 1999) use the term to encompass both the buying and selling described above and also the use of 14

internet technologies, such as email and intranets, to exchange or share information either within the firm itself or with external stakeholders. It is this latter, wider definition of e-commerce that is used in this study. Although there are now many studies on the adoption and use of e-commerce by large companies, fewer studies have been undertaken on the adoption and use of electronic commerce in the specific context of small and medium sized enterprises. Examples of SME based studies include: Hamill and Gregory (1997), Webb and Sayer (1998), Dutta and Evrard (1999), Poon and Swatman (1999), Jacobs and Dowsland (2000) and Keeling et al (2000). These studies indicate that there is a range of business activities for which SMEs are making use of e-commerce. For example, in Jacobs and Dowsland’s study of the use of ecommerce use by SMEs in South West Wales they measure the use of the internet for; finding business information, selling products and services, advertising and purchasing. In their study of European small enterprises, Dutta and Evrard (1999) identify the following five uses: communication, researching information, marketing, business with suppliers and business with customers. Table 1, which has been derived from this literature, shows a list of potential e-commerce applications. It has been observed that e-commerce is not a simple innovation, rather it is a cluster of separate innovations (White et al, 1998; Prescott and Conger, 1995; Van Slyke, 1996). Companies can choose which of these innovations they make use of and in what sequence. The wide range of activities for which e-commerce is being used identified in the current literature, listed in Table 1, confirms this view. In considering the adoption of e-commerce by SMEs, we are guided by the views of authors such as Frank (1988), Dosi (1988) and Reid (2000). Their view of the small firm is one of organisations that gain experience and knowledge in a sequence of steps or

INNOVATION: management, policy & practice

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Innovation in small and medium sized enterprises: The case of e-commerce adoption in the UK TABLE 1: E-COMMERCE ACTIVITIES Variable Name in Current Study

Activity

Previous Study

Providing information on company Providing information on goods or services

Hamill & Gregory (1997), Keeling et al (2000)

Taking orders Receiving payment Delivery (of digital goods or services) After sales service or contact Identifying new inventory suppliers Ordering and payment of inventory purchasing Non inventory purchasing (such as travel, stationery) Communication (email) with customers or suppliers Internal communication between employees Document & design exchange with customers or suppliers External information search e.g. competitors, regulations Communication with shareholders and investors Advertising Recruitment

COINFO

Webb & Sayer (1998); Dutta & Evrard(1999); Poon & Swatman (1999), Keeling et al (2000), Jacobs and Dowsland (2000) Webb & Sayer (1998); Dutta & Evrard(1999); Poon & Swatman (1999), Jacobs and Dowsland (2000) Webb & Sayer (1998); Dutta & Evrard(1999) Webb & Sayer (1998)

GOODSINFO

Webb & Sayer (1998) Dutta & Evrard (1999), Jacobs and Dowsland (2000)

AFTERSALES INVSUPPLIERS

Dutta & Evrard (1999), Jacobs and Dowsland (2000)

ORDERINVENT

Dutta & Evrard (1999), Jacobs and Dowsland (2000)

NONINVENT

Hamill & Gregory (1997); Dutta & Evrard (1999); Poon & Swatman (1999), Keeling et al (2000) Hamill & Gregory (1997); Dutta & Evrard (1999); Poon & Swatman (1999) Hamill & Gregory (1997); Dutta & Evrard (1999); Poon & Swatman (1999), Keeling et al (2000) Hamill & Gregory (1997); Dutta & Evrard (1999), Keeling et al (2000), Jacobs and Dowsland (2000) Webb & Sayer (1998)

CUSTCOMM

Hamill & Gregory (1997); Dutta & Evrard (1999); Poon & Swatman (1999), Jacobs and Dowsland (2000) Webb & Sayer (1998)

stages. Achievement of the first stage of a project or development allows the organisation to gain experience, which it can then use to its benefit to move on to the next stage of development, at which point they will gain further experience. Staged models have been developed and applied in the fields of growth of technology based new ventures (Drazin and Kazanjian, 1990 and 1993) and are particularly well accepted in the field of internationalisation. The staged model proposed by Cavusgil (1980) in this domain, states that firms progress through five stages of internationalisation. This has been tested and found Volume 4, Issue 1–3, December 2002

ORDERS PAYMENT DELIVERY

INTCOMM DOCEXCH INFOSEARCH SHARECOMM ADVERT RECRUIT

to be valid in small businesses by a number of authors, such as Bell (1995); Reuber and Fischer (1997) and the longitudinal study by Gankema et al, (2000). The observations that e-commerce is a cluster of innovations and the staged approach to the adoption of new knowledge and experience, leads us to expect that SMEs will adopt e-commerce in a sequence of steps or stages. We were unable to find any rigorous studies of factors associated with the adoption of ecommerce by SMEs, however a number of reports and studies (IBM, 1999; Daniel et al, 1999; Dutta, 1999) address this issue in larger

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Elizabeth Daniel, Hugh Wilson and Andrew Myers companies and hence give some guidance. It was therefore decided to draw upon the literature that addresses adoption of traditional IT systems in SMEs and augment these where necessary from e-commerce based studies. Caldeira (1999) provides an excellent summary of studies of IT/IS adoption by SMEs. He observes that the adoption of IT systems is often dependent on a complex array of factors, many of which are unrelated to the functionality of the technology itself, such as the support of senior management, the support by a high level champion and the adoption of new business processes. Caldeira (1999) lists 20 factors relevant to SMEs adopting IT systems. This number of factors was too long for our present study. Only those most relevant to this study were included and are listed in Table 2, together with a number of distinct factors drawn from Daniel et al (1999). In this study we seek to identify which of these factors are relevant to the adoption of e-commerce by SMEs and if these factors vary with the stage of adoption.

It should be noted that in this study we were not seeking to identify if the e-commerce services adopted were successful. It was felt that it was too early to establish measures of success, since many companies have little experience with e-commerce and even those with longer term experience have not yet established appropriate measures of success.

CONCEPTUAL FRAMEWORK AND RESEARCH PROPOSITIONS The conceptual framework for this study is shown in Figure 1 and is similar to that suggested by Wierenga and Ophuis (1997). The framework postulates that certain factors or drivers result in a firm considering the adoption of e-commerce. Such firms may then develop and launch such services, that is adopt e-commerce. This adoption is likely to be associated with a number of organisational and contextual factors. Firms that have adopted e-commerce are expected to reap benefits from these services. The adoption of e-com-

TABLE 2: SUGGESTED ADOPTION FACTORS Variable in Current Study

Adoption Factors Financial resources* Business pressure to adopt IS/IT* Quality of software available in the market* Quality of IS/IT external expertise and services available* IS/IT vendors support* IS/IT training and skills* Stages followed in IS/IT adoption* User training/attitudes* IS/IT people and knowledge available* Senior management perspectives and attitudes towards IS/IT adoption and use* Understanding the benefit to the business** Keeping pace with the rate of change of IT** E-commerce is highly risky** Other more pressing projects** Requires a change to how we currently work**

FINRESOURCES BUSPRESS QUALSOFTWARE EXTNLEXPERTISE VENDORSUPPORT IS/ITSKILLS STAGED USERTRAINING IS/ITAVAILABILE MGMNTSUPPORT UNDERSTANDING RATEOFCHANGE RISKY OTHERPROJECTS CHANGE

Previous Studies: * Caldeira (1999) ** Daniel et al (1999)

16

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Innovation in small and medium sized enterprises: The case of e-commerce adoption in the UK

FIGURE 1: CONCEPTUAL FRAMEWORK

merce and the factors associated with this adoption are addressed in this study. In accordance with the approach adopted by Bailey and Johnson (1996), the empirical component of this paper, which is inductive in nature, is structured around a an exploration of deductively derived research propositions. The stepwise or staged view of the development of capabilities and experience within smaller firms, taken together with the observation that the internet is a cluster of innovations, suggests that such firms would adopt a staged approach when faced with the complex and uncertain issue of e-commerce. We therefore suggest the following proposition to be tested in this study: P1: SMEs adopt e-commerce in a set of sequential steps or stages.

FOR

ADOPTION

OF

E-COMMERCE

domain of e-commerce. This leads to our second proposition: P2: The factors associated with the adoption of e-commerce by SMEs will be similar to those for traditional IT/IS but in addition there will be factors unique to this new domain. As firms progress through the stages of e-commerce adoption, they will gain experience but also face new challenges. We therefore expect that the factors associated with adoption will vary according to the stage of adoption. This leads us to our third proposition: P3: The factors associated with e-commerce adoption will vary by adoption stage.

METHOD We expect that the factors relevant to traditional IT adoption in smaller businesses will be relevant to e-commerce adoption but, in addition, there may be factors unique to the Volume 4, Issue 1–3, December 2002

Survey instrument The research was carried out by means of a mailed questionnaire which commenced with

INNOVATION: management, policy & practice

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Elizabeth Daniel, Hugh Wilson and Andrew Myers the definition of e-commerce for respondents to adopt when completing the survey. The questionnaire contained five sections. Sections 2 and 4 are relevant to the findings discussed in this paper. Sections 1 and 3 explore other areas of e-commerce and will be analysed in future publications. Section 5 requested background information on the company, such as its market sector, company turnover, employee numbers and location. Section 2 measured the extent of e-commerce adoption. In accordance with White et al (1998) in their study of web adoption by the publishing industry, adoption is measured according to business activities undertaken online, rather than based upon technology features or platforms utilised. A list of business activities for which the internet is currently being used was complied from current literature, as shown in Table 1. These activities were presented to respondents who were asked to indicate if they currently did or did not use ecommerce for each activity, or if they had such a service under development. Section 4 measured the adoption factor variables drawn from Caldeira (1999) and Daniel et al (1999) and shown in Table 2. Due to the exploratory nature of this research and also with regard to questionnaire length (see for example, Chaston, 2000), single statements were used to measure each variable. Respondents were asked to indicate their level of agreement with each statement. A four point scale, (strongly disagree; disagree; agree; strongly agree) was used with the additional option to indicate if a statement was not relevant to their company. For example, a consultancy or law firm may feel that questions relating to suppliers of production materials were not relevant to themselves. A number of the adoption factors statements were worded negatively to encourage careful completion by respondents. The survey instrument was piloted with 21 SMEs. This highlighted a number of issues 18

which were addressed in the final survey design.

Population definition The population of interest for this study is SMEs who are using or developing e-commerce services, where SMEs are defined in accordance with the UK Department of Trade and Industry (DTI, 1999), as firms with 250 employees or less. No other constraints were placed on the population, such as industry sector or geographic location. Indeed it was preferred that that a wide spread in other variables was achieved in order to ensure that results obtained have the widest applicability amongst SMEs.

Sample selection Two samples of SMEs were used in this study. Firstly, a database of SMEs that is held within Cranfield School of Management was used. This contains companies that have attended an executive education programme aimed at SMEs or who have made enquiries about such a programme. The database held 1,500 names and company addresses, all of which were believed to have 250 or less employees. The companies covered a wide range of industry sectors and were distributed throughout the UK. Secondly, 5,000 names and company addresses were bought from a commercial database company. Companies were chosen from their records on the basis that they had 250 employees or less. It was ensured that the sample selected covered a range of industry sectors and was distributed throughout the UK. The mailings of questionnaires to the two samples were both undertaken in March 2000 and all responses were received by the end of April 2000. It was not known from the database if the companies were using or considering e-commerce. However, since there is such a high degree of interest in this subject, it was expect-

INNOVATION: management, policy & practice

Volume 4, Issue 1–3, December 2002

Innovation in small and medium sized enterprises: The case of e-commerce adoption in the UK ed that many of the companies would be. It was decided to allow companies not considering or using e-commerce to ‘de-select’ themselves from the sample. They could do this in two ways. Firstly, and it was expected that this would be the most frequent approach, companies not interested in this subject would not complete and return the survey. Secondly, if they wished to return the survey they could indicate on it that they are not considering ecommerce services and give reasons for this. Responses from the two samples were analysed separately and the results compared. No significant differences were found between the two samples and so this paper presents results based upon the combination of these two samples.

Response rate The total number of responses received was 766 (total response rate 11.8%). Of these, 46 were rejected as representing companies with more than 250 employees and a further 42 were not included since the respondents reported that their organisations were neither using e-commerce nor considering its use. Hence 678 useable responses (effective response rate 10.4%) were used as a basis for the findings of this study.

Non response bias The method of determining non-response bias adopted in studies such as Goode and Stevens (2000) was adopted for this study. In this method the earliest responses to be received are compared with the responses received later. The usable responses were split into two equal sets of 339 response according to the dates on which they were received. No significant differences were found for any of the five sections contained in the survey instrument for these two groups. It is therefore concluded that the responses received are unlikely to contain a non response bias. Volume 4, Issue 1–3, December 2002

FINDINGS OF THE STUDY Staged adoption The questionnaire presented a list of activities for which e-commerce could be used. Respondents were asked to indicate for each activity if they currently used e-commerce, had a service under development or did not use e-commerce. Cluster analysis was carried out on the responses using the complete set of activity variables according to the K-means method (SPSS, 1999) due to the large number of cases (in this case the number of respondent firms). Cluster analysis is a technique for grouping such cases into groups that are coherent according the attributes of interest (here that is activities being undertaken by e-commerce) whilst also distinguishing each group from others that differ according to these attributes. Clustering was carried out with three, four and five clusters and the cubic cluster criteria generated for each. A large increase in this measure at the four cluster level suggested the suitability of a four cluster solution. The four cluster solution also met a secondary criterion that there is a sufficient number of cases in each cluster to allow statistical analysis. In order to identify the adoption characteristics of the four clusters a cross tabulation of the responses by cluster for each activity was generated and is presented in Table 3. A chisquared analysis of the responses for each activity (each row of Table 3) was undertaken and was found to be significant for all of the activities proposed (significance <0.01). This demonstrates that the clustering technique adopted was able to produce clusters that are significantly distinct according to all of the sixteen variables. A description of each of the clusters, drawn from Table 3, is given below: • Cluster 1 (Developers): These companies had the lowest levels of operational e-commerce services, compared to the other three clusters, but had very high levels of services under development.

INNOVATION: management, policy & practice

19

20

INNOVATION: management, policy & practice INVSUPPLIERS ORDERINVENT NONINVENT DELIVERY

Ordering and payment of inventory purchasing

Non inventory purchasing

Delivery (of digital goods or services)

PAYMENT

Receiving payment

Identifying new inventory suppliers

RECRUITMENT

Recruitment

ORDERS

DOCEXCH

Document exchange with customers or suppliers

Taking orders

ADVERT

Advertising

AFTERSALES

GOODSINFO

Providing information on goods or services

After sales service or contact

INFOSEARCH

External information search

SHARECOMM

CUSTCOMM

Communications with customers or suppliers

Communications with shareholders and investors

COINFO

Providing information on company

Variable

CLUSTER (RESPONSES

INTCOMM

BY

Internal communication between employees

Activities

TABLE 3: E-COMMERCE ACTIVITIES

12 30.8% 11 28.2% 20 51.3% 20 51.3% 13 33.3% 12 30.8% 11 28.2% 11 28.2%

2.6% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0%

59.0% 13 33.3%

Under development 21 53.8% 30 76.9% 34 87.2% 29 74.4% 33 84.6% 30 76.9% 23

1 2.6% 1

2.6% 1 2.6%

5 12.8% 4 10.3% 3 7.7% 3 7.7% 2 5.1% 2 5.1% 1

Operational

(N=39)

Cluster 1

9.6%

20.0% 19 14.1% 50 37.0% 13

11.9% 27

8.1% 27 20.0% 16

12 8.9% 11

56.3% 18 13.3%

77 57.0% 3 2.2% 121 89.6% 105 77.8% 8 5.9% 19 14.1% 76

Operational

6.7%

4.4% 5 3.7% 10 7.4% 9

21.5% 6

3.0% 23 17.0% 29

14 10.4% 4

11.1% 8 5.9%

Under development 8 5.9% 99 73.3% 0 0.0% 4 3.0% 80 59.3% 42 31.1% 15

(N=135)

Cluster 2

5.4%

15.3% 13 6.4% 38 18.7% 11

7.9% 31

9.9% 29 14.3% 16

9 4.4% 20

56.2% 28 13.8%

128 63.1% 198 97.5% 193 95.1% 164 80.8% 181 89.2% 113 55.7% 114

Operational

12.3%

4.4% 15 7.4% 17 8.4% 25

30.5% 9

3.9% 33 16.3% 62

49 24.1% 8

5.9% 26 12.8%

Under development 10 4.9% 0 0.0% 7 3.4% 4 2.0% 7 3.4% 15 7.4% 12

(N=203)

Cluster 3

26.9%

29.3% 34 16.3% 87 41.8% 56

61.5% 61

15.9% 128 61.5% 128

57 27.4% 33

78.8% 92 44.2%

169 81.3% 199 95.7% 207 99.5% 188 90.4% 201 96.6% 167 80.3% 164

Operational

6.3%

3.4% 14 6.7% 4 1.9% 13

1.9% 7

2.4% 1 0.5% 4

14 6.7% 5

1.9% 2 1.0%

Under development 2 1.0% 3 1.4% 0 0.0% 1 0.5% 3 1.4% 4 1.9% 4

(N=208)

Cluster 4

INDICATING NO OPERATIONAL OR DEVELOPMENTAL SERVICE HAVE BEEN OMITTED )

Elizabeth Daniel, Hugh Wilson and Andrew Myers

Volume 4, Issue 1–3, December 2002

Innovation in small and medium sized enterprises: The case of e-commerce adoption in the UK They are therefore referred to here as developers, that is companies who are at the very start of their e-commerce adoption and are currently developing services. The most common areas of development activity were: developing e-mail communication with customers and suppliers (87%), providing information about the company’s products and services (85%) and the company itself (77%), for example via a web site, and using the web for advertising and brand building (77%). • Cluster 2 (Communicators): The companies in cluster 2 were making extensive use of e-mail to communicate with customers and suppliers (90%) and the web to find business information (78%). They were also frequently using email for communication between employees (57%) and electronically exchanging documents and designs with customers and suppliers (56%). In this group the most common development activity is focused on the development of web sites to provide company or product and service information (73% and 59% respectively). • Cluster 3 (Web Presence): Companies in cluster 3 were undertaking all of the activities currently being undertaken by companies in cluster 2. That is they were using e-mail to communicate with customers and suppliers (95%), using the web to find external information (81%), using e-mail between employees (63%) and electronically exchanging documents and designs (56%). They were also operating the services that cluster 2 companies were developing. That is they have web sites that provide information about their company (98%) and its products and services (89%). The most common areas of development in cluster 3 companies were the Volume 4, Issue 1–3, December 2002

taking of orders (31%) and receiving orders on-line (24%). It would therefore seem that cluster 3 contains companies that are operating an informational web site and are looking to develop transactional capabilities. • Cluster 4 (Transactors): Companies in cluster 4 were found to be undertaking all of the activities cluster 3 companies were undertaking, but in addition they were found to be taking orders on-line (62%), providing after sales service or contact (62%) and undertaking recruitment on-line (44%). There was much less development in this group, since they have most of the suggested services in operation. Areas where development was being undertaken is receiving payment on-line (7%), the ordering and payment of inventory purchasing (7%) and the delivery of digital goods online (6%). The findings also indicate that the four clusters identified represent a set of sequential stages through which SMEs pass when adopting e-commerce. Firstly, it is shown that the activities are cumulative, that is each cluster is undertaking all of the activities of the previous cluster, plus additional ones. For example, companies in cluster 3 were undertaking the same activities as cluster 2, that is communicating with customers and suppliers via email, exchanging documents and using the web to find business information, but were in addition providing information about their companies products and services on-line. This interpretation of the four clusters being sequential stages is also in agreement with the observation that; the areas of development for one cluster are the additional activities currently being undertaken by the subsequent cluster. For example, the majority of companies in cluster 2 are developing web sites to provide company and product information. In

INNOVATION: management, policy & practice

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Elizabeth Daniel, Hugh Wilson and Andrew Myers TABLE 4: ADOPTION SCALE

ADOPTSCALE Mean Std Dev

BY

CLUSTER

Cluster 1 (N=39)

Cluster 2 (N=135)

Cluster 3 (N=203)

Cluster 4 (N=208)

F statistic (p value)

0.59 0.88

4.46 2.33

6.33 1.78

9.48 1.98

329.608 0.000

the next cluster, cluster 3, these services are found to be in operation. Further support of the stage model is provided if the set of e-commerce activities is used to create a numerical scale of adoption (ADOPTSCALE). In accordance with Smith (1999), a sum of the responses was taken for the sixteen activities listed in Table 1, where an affirmative response to use was coded as unity and zero otherwise. The maximum value of this measure is therefore 16 and the minimum zero and higher values indicate a higher level of e-commerce adoption. The findings of the analysis for each adoption stage are presented in Table 4. An analysis of variance (ANOVA) shown in the table (F statistic) shows that mean values are significantly different between the stages. It can be seen that firms in each consecutive cluster have a progressively higher level of e-commerce adoption, lending further support to the stage model of adoption. These observations taken together would indeed suggest that our first proposition, P1: that is SMEs are adopting e-commerce in a set of sequential stages is confirmed.

Factors associated with adoption In order to determine which of the hypothesised factors are associated with the adoption of e-commerce by SMEs a Pearson linear correlation analysis (Mendenhall et al, 1989) was undertaken between each of the factors and the adoption stage (1-4). Table 5, which shows the Pearson product moment coefficient, shows that seven factors are significant and 22

hence are associated with the adoption of ecommerce. The importance of senior management support is in agreement with studies of the adoption of traditional IT systems by SMEs. Indeed, Caldeira and Ward (2001) found that the support of senior management was one of just two factors that determined both the level of adoption of IT by SMEs and their level of success. An understanding of the benefit to their business was also significantly associated with adoption. This factor has not, to our knowledge, been identified in studies of the adoption of IT by SMEs, but was introduced into this study following its identification during work on the adoption of e-commerce by larger companies (Daniel et al, 1999). As with the larger companies, it would appear that smaller companies are all too aware that ecommerce is a relatively new development and its benefits to different types of business are not yet fully understood. Unlike more well established IT systems, such as accountancy packages, where adoption has occurred over many years and the resulting benefits are well understood, managers have little direct or even indirect understanding of the benefits of ecommerce. Training staff to use systems effectively and having staff with relevant IT skills were found to be important in the adoption of e-commerce and are in agreement with studies of the adoption of traditional IT (Leverick et al,1998, Nandhakumar, 1996). In particular, the IT/IS competencies of the staff in the organisation was found by Caldeira and Ward

INNOVATION: management, policy & practice

Volume 4, Issue 1–3, December 2002

Innovation in small and medium sized enterprises: The case of e-commerce adoption in the UK TABLE 5: CORRELATION

OF

ADOPTION FACTORS

AND

Statements relating to Adoption Factors

ADOPTION STAGE

Variable

Senior management backs our e-commerce activities MGMNTSUPPORT We understand the benefit to our business UNDERSTANDING Keeping pace with the rate of change in IT RATEOFCHANGE We can adopt e-commerce in stages STAGED We train staff to use systems effectively USERTRAINING Our staff have the relevant IT skills IS/ITSKILLS Customers and/or suppliers are encouraging us to adopt e-commerce BUSPRESS We can find quality and affordable outside expert help EXTNLEXPERTISE Support from IT/IS vendors VENDORSUPPORT We have other more pressing projects OTHERPROJECTS We have insufficient financial resources for e-commerce FINANCIALRESOURCES There is little affordable e-commerce software suitable for my business QUALSOFTWARE It requires a complete change to how we currently work CHANGE We can easily hire necessary IS/IT staff IS/ITAVAILABLE E-commerce is highly risky for us and our customers RISKY

Pearson Correlation Coefficient

Sig.

0.185 0.165 0.012 –0.052 0.057 0.160

** ** – – * **

0.071

*

0.047 –0.030 –0.159

– – **

–0.101

*

–0.069

–

–0.038 0.021 –0.058

– – –

** – Correlation is significant at the 0.01 level (2-tailed). * – Correlation is significant at the 0.05 level (2-tailed).

(2001) to be the second of the two factors that alone determined the level and success of IT/IS adoption in SMEs. Customer and supplier encouragement was found to be associated with e-commerce adoption. Once again, business pressure has been recognised as a factor influencing adoption of traditional IT systems. However it may be expected that this factor will be particularly important for e-commerce developments, since the focus of many of these developments lies outside the organisation rather than that of many traditional IT systems, which are internal to the organisation (Poon and Swatman, 1999). Having more pressing projects and insufficient financial resources were found to be negatively correlated with adoption stage, indicating that these two factors are not Volume 4, Issue 1–3, December 2002

impeding the adoption of e-commerce by SMEs. Although anecdotal evidence often suggests that lack of finances or other resource constraints stop SMEs from adopting new information systems, more systematic studies do not find this is a major impediment (Caldeira and Ward, 2000), a finding that is confirmed by the negative correlation coefficients for these factors found in this study. It would therefore seem that is the factors associated with the adoption of e-commerce by SMEs are similar to those for traditional IT/IS but there is at least one factor that is unique or of particular relevance to this new domain. It would therefore appear that our second proposition, P2, is confirmed.

Variation with adoption stage The Pearson Correlation analysis, shown in

INNOVATION: management, policy & practice

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Elizabeth Daniel, Hugh Wilson and Andrew Myers Table 5, simply identifies a linear association between the adoption variables and the adoption stage. In order to examine the relationship between these variables and the adoption stage in more detail, the mean score for each of the variables for each adoption stage is shown in Table 6. An analysis of variance (ANOVA) between the mean scores for each stage was undertaken for each variable (each row of Table 6). A significant difference in the scores was found for five of the fifteen variables (p<0.01). The mean score for the variable senior management support rises at each adoption stage in agreement with the significant linear correlation coefficient of this variable. However, an interesting pattern is shown by the mean scores of the four other variables that is; understanding of the benefit to the business, staff with the relevant IT skills, external expertise and more pressing projects. For the first three of these variables, after stage 1, the scores for these factors decline in stage 2 and then rise again in the later stages of adoption. For the ‘negative’ variable, more pressing projects, the same pattern is seen, but in reverse. That is the mean score rises in stage 2 and then decreases through stage 3 to stage 4. When it is remembered that stage 1 firms are those that are currently developing systems, these results can be interpreted as firms being inexperienced and hence over optimistic. At this early stage they believe they understand e-commerce, their staff have the relevant skills, they can find outside help and they do not have more pressing projects. However, as they gain experience in the subsequent adoption stages ‘reality bites’ and they realise that e-commerce is more complex than they first thought and that its benefits to their business may not be fully understood. They realise that their staff require a greater range of skills than originally envisaged and that they may be in greater need of outside help than they had first expected. As they realise e-commerce is 24

not going to be as straight forward as they originally expected they begin to wonder if they should concentrate their resources on other projects, and hence these other projects begin to appear more pressing. The phenomenon of high expectation before commencing a new activity, followed by a lowering of expectations when real experience is gained is well known in a number of areas of management, and is often termed the acculturation effect (see for example Kealey, 1990). The rising mean scores for these factors in stage 3 and 4, indicates that companies that persevere with their e-commerce developments through this difficult early stage will benefit. It appears that they gain an increased understanding of how e-commerce can benefit their business and either train existing or hire new staff so that they have access to the relevant skill base. They appear to be more confident about accessing quality and affordable outside help and e-commerce developments seem, once again, to be high on their list of priorities. This indicates that certain adoption factors do indeed show variation across the stages of adoption. Our third proposition, P3, therefore holds for this limited sub-set of the suggested adoption factors.

DISCUSSION AND CONCLUSIONS This study sought to explore how small and medium sized companies are adopting e-commerce. Previous studies have suggested that smaller firms ‘dissipate uncertainty’ by gaining experience and knowledge in a sequence of steps. This study has shown that an approach consistent with this is being taken with the adoption of e-commerce. Four distinct clusters of adoption were found which suggest a set of sequential steps or stages, through which firms pass during the adoption of e-commerce. The first cluster of firms are currently developing their first ecommerce services, those at the second stage

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TABLE 6: ADOPTION FACTORS

BY

STAGE

OF

ADOPTION

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Elizabeth Daniel, Hugh Wilson and Andrew Myers of adoption were using e-mail to communicate with customers, suppliers and employees. Those at the third level of adoption had information based web sites operating and were developing on-line ordering facilities. The most advanced adopters had on-line ordering in operation and were developing on-line payment capabilities. Seven variables were found to be associated with the adoption of e-commerce. Six of these seven variables are consistent with the factors associated with the adoption of traditional IT systems by SMEs identified by in other studies. The seventh variable, understanding the benefit to the business, has not been identified by earlier studies. It would therefore appear that this factor is either unique or at least, particularly pertinent to the domain of e-commerce adoption. This importance of this variable can be understood when it is considered that e-commerce is less mature than other IT systems, such as accountancy systems, and hence its benefits are less well understood. Managers who are unclear on the benefits that they can expect for their business can be expected to proceed cautiously with adoption. The significance of this variable on adoption reinforces the earlier findings of a staged approach when faced with areas of high uncertainty. Interestingly, a number of factors that are often cited as limitations to the adoption of ecommerce, and have been identified in studies of larger companies (Daniel et al, 1999; Dutta, 1999), were found to be not significant. Factors such as being risky, requiring a complete change to how an organisation works and requiring an organisation to keep pace with rapidly technology were found to be not significantly associated with the adoption or lack of adoption (i.e. a significant negative correlation coefficient) of e-commerce. A more detailed analysis of the adoption variables over the four stages of adoption found that five of the fifteen suggested vari26

ables showed a significant difference across the four stages of adoption. Four of these factors show an effect that accords with the acculturation effect. Firms at the earlier stages of adoption have little real experience and are over optimistic. As they gain experience in the latter stages adoption they understand more about the benefits and challenges that e-commerce presents to them and become more realistic. These changing views agree with the observation about smaller businesses made by Frank (1988 p.336) ‘the difficulty facing the entrepreneur is that he does not know his own talent for running the firm’. The implication of this over optimism is that firms may commence e-commerce developments and then become disillusioned that they are more challenging and the benefits are not as great as expected. They may therefore halt further adoption. This study has shown that such firms should persevere with their adoption, as firms in the latter stages of adoption are more positive about these same factors. The finding that firms adopting e-commerce may experience the acculturation effect is of particular importance both to practising managers and those studying the adoption of innovation. It highlights that managers in firms at the early stages of adoption, and those that advise such firms, must be vigilant to this effect. They must be aware that early disappointment with e-commerce should not necessarily lead to such developments being put aside and other projects given greater priority. Rather, additional emphasis should be given to the factors shown in this research to be associated with the greater adoption of e-commerce, such as senior management support, gaining an understanding of the benefits e-commerce can provide to the business and training staff to use systems effectively. For those that study the adoption of innovation, studies invariably assume that the factors associated with adoption are linear in nature. This study highlights that these factors may well be more complex

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Innovation in small and medium sized enterprises: The case of e-commerce adoption in the UK than currently assumed and this should be recognised in future studies.

Acknowledgement

LIMITATIONS AND FUTURE

References

RESEARCH This study is the first attempt to demonstrate that there is a sequence of stages by which SMEs adopt e-commerce. It is therefore exploratory in its nature and has a number of limitations. For example, due to the lack of earlier studies in this domain from which to drawn upon, it was necessary to include a relatively large number of variables, some of which were found to be unimportant. This large number of variables necessitated the use of single scale measures for each variable. Future studies could be limited to the variables that have been shown by this study to be associated with adoption or to vary across the across the adoption stages, and thus allow the use of two or more measures for each variable. The current study focussed on the experience of e-commerce adoption in the UK. Whilst it is expected that the findings of this study will be generally applicable in other countries, a parallel study in one or more other countries would indicate if this is indeed the case or if national differences occur. In terms of future research, it has been noted that e-commerce is in fact a cluster of innovations. New e-commerce innovations are continuing to occur, such as interactive TV, WAP services and e-marketplaces. It is therefore expected that in the near future additional clusters of adopters will be seen that have moved on from the current stage 4 identified in this study and are making use of these new services. The study described here could be extended to a longitudinal study of a panel of small businesses to determine the time taken for firms to move from one stage to the next. This would mirror the study undertaken on the staged approach to internationalisation of SMEs undertaken by Gankema et al (2000).

Australian Bureau of Statistics (2000), “Business Use of Information Technology, Australia”, available at www.abs.gov.au Bailey, A and Johnson, G (1996), “Patterns of Strategy Development” Cranfield School of Management Working Paper Series SWP1/96, Cranfield, UK. Bell, J (1995), “The Internationalization of Small Computer Software Firms: A Further Challenge to Stage Theories”, European Journal of Marketing, Vol 29, No 8, p.60–75. Braganza, A (1993), “EDI Developments around Europe” in Walden, I and Braganza, A (Eds) EDI Audit Control, NCC Blackwell, Manchester. The Cabinet Office (1999), “[email protected]”, The Performance and Innovation Unit Report, London, UK. Caldeira M M (1999), “Understanding the Successful Adoption and Use of IS/IT in SMEs”, PhD Thesis, Cranfield School of Management. Caldeira, M. M. and Ward, J. M (2001), “Understanding the Successful Adoption and Use of IS/IT in SMEs. An Explanation from Portuguese Manufacturing Industries.” (forthcoming). Cavusgil, S. T (1980), “On the Internationalization Process of Firms”, European Research, Vol 8, No 6, p.273–281. Chaston, I (2000), “Relationship Marketing and the Orientation Customers Require of Suppliers”, The Service Industries Journal, Vol 20, No 3, p.147–166. Clayton, K. (2000), “Microscope on Micro Businesses”, Australian CPA, Vol 70, No.2, p.46–47. Daniel, E. M.; Wilson, H. N., Ward, J. M. and McDonald, M (1999), “Effective

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The work reported in this paper was funded by the ESRC (grant number: R022250168).

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Elizabeth Daniel, Hugh Wilson and Andrew Myers Strategies for E-Commerce. Project Proposal Document”, Information Systems Research Centre, Cranfield School of Management, UK. Daniel E M, Wilson H N and Sutherland F (2000), “Factors Determining the Successful Development of IT Systems for Marketing”, Proceedings of the 5th UKAIS Conference, Cardiff, p.92–98. Dosi, G (1988),”Sources, Procedures and Microeconomic Effects of Innovation”, Journal of Economic Literature, Vol 16, p.1120–1171. Drazin, R and Kazanjian, R. K. (1990), “Research Note and Communications. A Re-analysis of Miller and Friesen’s Life Cycle Data”, Strategic Management Journal, Vol 11, p.319–325. Drazin, R and Kazanjian, R. K. (1993), “Applying the DEL Technique to the Analysis of Cross Classification Data: A Test of CEO Succession and Top Management Team Development”, Academy of Management Journal, Vol 36, No 6, p.1374–1399. Dutta S and Evrard P (1999), “Information Technology and Organisation within European Small Enterprises”, European Management Journal, Vol 17, No 3, p.239–251. Dutta, S (1999), “Lessons from the Internet Leaders”, Financial Times: Mastering Information Technology, Part 10, p.7. DTI (1999), “Small and Medium Enterprise Statistics for the UK 1998”, SME Statistics Unit, UK Forrester Research (2002), “US E-Commerce 1998–2003”, available at www.nua.ie/ surveys. Frank, M.Z. (1988), “An Intertemporal Model of Industrial Exit”, Quarterly Journal of Economics, Vol 103, p.333–344. Goode S and Stevens K (2000), “An Analysis of the Business Characteristics of Adopters and Non-Adopters of WWW”, Technology 28

Information and Management, Vol 1, No 1, p.129–154. Gankema, H. G. J.; Snuif, H. R. and Zwart, P. S (2000), “The Internationalization Process of Small and Medium Sized Enterprises: An Evaluation of Stage Theory”, Journal of Small Business Management, Vol 38, No 4, p.15–27. Hamill J and Gregory K (1997), “Internet Marketing in the Internationalisation of UK SMEs”, Journal of Marketing Management, Vol 13, p.9–28. IBM (1999), “Ten Success Factors for Ebusiness”, www.ibm.com Jacobs, G. and Dowsland, W. (2000), “The Dot-com Economy in Wales: The Long Road Ahead”, UK Academy of Information Systems Conference, Swansea, Chapter 65, p.590–596. Kalakota, R and Whinston, A (1997), “Electronic Commerce; A Manager’s Guide”, Addison Wesley, USA. Kealey, D ( 1990), “Cross-Cultural Effectiveness: A study of Canadian technical advisors overseas”, Canadian International Development Agency (CIDA): Montreal. Keeling, K; Vassilopoulou, K; McGoldrick and Macaulay, L (2000), “Market Realities and Innovation in Small to Medium Sized Enterprises: Facilitators and Barriers to the Use of E-Commerce”, New Product Development & Innovation Management, March/April, p.57–70. Leverick, F; Littler, D, Bruce, M and Wilson, D (1998), “Using Information Technology Effectively: A Study of Marketing Installations”, Journal of Marketing Management, Vol 14, p.927–962. Lynn, G. Maltz, A. Jurkat, P. and Hammer, M. (1999), “New Media in Marketing Redefine Competitive Advantage: A Comparison of Small and Large Firms”, The Journal of Services Marketing, Vol 13, No. 1, p.9–18. Mendenhall, W; Reinmuth, J.E. and Beaver, R

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Innovation in small and medium sized enterprises: The case of e-commerce adoption in the UK (1989), Statistics for Management and Economics, PWS-Kent Publishing, USA. Nandhakumar J (1996), “Design for Success?: Critical Success Factors in Executive Information Systems Development”, European Journal of Information Systems, Vol 5, No. 1, p.123–152. Oftel (2000), “Internet Use among Small and Medium Enterprises (SMEs)”, Q2 August/September, available at www.oftel.gov.uk Poon S and Swatman P. M. C (1999), “An Exploratory Study of Small Business Internet Commerce Issues”, Information and Management, Vol 35, p.9–18. Porter, M (2001), “Strategy and the Internet”, Harvard Business Review, March 2001, p.63–78. Prescott, M and Conger, S (1995), “Information Technology Innovations: A classification by IT locus of impact research approach”, The Database for Advances in Information Systems, Vol 26, p.20–41. Reid, G.C and Smith, J.A (2000), “What Makes a New Business Start Up Successful?”, Small Business Economics, Vol 14, p.165–182. Reuber, A. R. and Fischer, E (1997), “The Influence of the Management Team’s International Experience on the Internationalization Behaviours of SMEs”,

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Journal of International Business Studies, Vol 4, p.807–825. Smith, J.A (1999),”The Behaviour and Performance of Young Micro Firms: Evidence from Businesses in Scotland”, Small Business Economics, Vol 13, p.185–200. SPSS (1999), “SPSS Base 9.0. Applications Guide”, SPSS Inc., USA Storey, D.J (1994), “Understanding the Small Business Sector”, Routledge, London. Van Slyke, C (1996), “The Diffusion of Technology Cluster Innovation: The Case of the Internet”, http://hsb.baylor.edu/ ramsower/als.ac.97/papers/vslyke.htm Webb B and Sayer R (1998), “Benchmarking Small Companies on the Internet”, Long Range Planning, Vol 31, No 6, p.815–827. White, M. D., Abels, E. G. and GordonMurnane, L (1998), “What Constitutes Adoption of the Web: A Methodological Problem in Assessing Adoption of the World Wide Web for Electronic Commerce”, Journal of the American Society for Information Science, Vol 35, p.217–226. Wierenga, B and Oude Ophuis P.A.M (1997), “Marketing Decision Support Systems: Adoption, Use and Satisfaction”, International Journal of Research in Marketing, Vol 14, p.275–290.

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Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2002) 4: 30–40.

Innovativeness in small firms: An exploratory study of the perspectives of growth oriented owner-managers SUMMARY KEY WORDS innovation; small firms; owner-manager; employee behaviour; organisational culture; leadership; role model

The present paper is an exploratory study that examines the findings of a sample of 137 growth-oriented owner-managers of Australian small to medium enterprises in terms of their attitudes toward innovativeness among their employees. It considers the possible relationship that may lie between a set of factors identified as having relevance to the successful development of small businesses. The paper suggests that enhanced innovative behaviour among employees is likely to take place in conjunction with other variables that influence overall organisational culture within the firm and highlights the importance of the owner-manager as a leader and role model. Received January 2002

TIM MAZZAROL Senior Lecturer The Graduate School of Management The University of Western Australia

INTRODUCTION

I

nnovation has been closely studied in recent years, with strong interest shown by policy makers and practicing managers due to its promise of providing enhanced competitiveness. However, like ‘entrepreneurship,’ the term ‘innovation’ has been given numerous meanings and has been viewed both as a social process and as a set of technological outcomes (Chaharbaghi and Newman, 1996). Further, there has been some criticism of the methodological approaches taken in the investigation of innovation, which have been viewed as either too narrow, or overly reliant on indirect observation through statistically analysed

30

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Accepted June 2002

surveys, rather than through more grounded, direct observational approaches (Lowe 1995). Definitions of innovation vary. Porter (1990 p. 45) defined it as an attempt “to create competitive advantage by perceiving or discovering new and better ways of competing in an industry, and bringing them to market.” VanDenVen (1986 p. 590) viewed its as “the development and implementation of new ideas by people who over time engage in transactions with others within an institutional order.” It has also been defined as the development of significant technical advances within a given industrial context (Thwaites and Wynarczyk 1996). Innovation is frequently seen as involving the generation and the implementation of new processes and products in order to develop competitive advantage (McIntyre 1982). At least three distinct forms of innovation have been identified, namely: Volume 4, Issue 1–3, December 2002

Innovativeness in small firms: Study of the perspectives of growth oriented owner-managers 1) Incremental – gradual changes to products or processes; 2) Synthetic – combining existing ideas in new ways, and; 3) Discontinuous – the creation of radically new ideas (Tushman and Nadler, 1986). According to Stein and Pinchot (1998), innovation involves the “creation and implementation of new products, services, processes, relationships, and methods of organisation”, and “conceptual creativity”. Innovation cannot be purchased; it must be developed from within an organisation’s culture. It requires careful nurturing and that attention to be given to the development of structures that are likely to promote creativity and initiative, leadership by project champions who are willing to take risks and can motivate the group and the ‘cross-fertilisation’ of ideas through multi-disciplinary (Perry 1995).

THE ANTECEDENTS OF INNOVATION The complexity of innovation creates difficulty in identifying its causes. An organisation’s propensity to innovate appears to be influenced by its cultural context, particularly the creativity inherent in the people (Drazin and Shoonhoven, 1996). More recently, there has been a call to ensure that innovation is examined from the perspective of people within biological or human systems, rather than technological or industrial ones (Senge, Carstedt, and Porter, 2001). Culture has been stressed as a critical factor in the innovation process (Baran, Zandan and Vanston 1986; Lorsch 1986). Gresov (1984) has suggested that culture and organisational structure are linked and that there is an inverse relationship between an organisation’s homogeneity and its innovation. There is a critical need to balance chaos and control when seeking to encourage innovation (Quinn, 1985). Volume 4, Issue 1–3, December 2002

Planning processes (strategy formulation) need to be ‘non-linear’ or ‘holistic’ if innovation is to occur (Van denVen, 1986; Ansoff, 1987). Innovation seems to involve not only new ideas and their development, but also change and risk (Norris, 1981). It is a positive force for any enterprise seeking to develop competitive advantage. According to Quinn (1980; 1985), successful innovation has three essential elements: 1) A market orientation; 2) A management style (structure and culture) that fosters innovation; and 3) A ‘non-linear’ planning process. This last point suggests the need for a flexible planning process that allows all of the functional areas of an enterprise to contribute (Takeuchi and Nonaka, 1986; VanDenVen, 1986). Creativity is also an important element in innovation (Raudsepp, 1987). This involves developing organisations with “the ability to process information such that the result is new, original and meaningful” (Badaway, 1985 p.29). According to Takeuchi and Nonaka (1986, p.138), successful enterprises generate creative work environments through a “self-organizing capability.” In new product development, this frequently involves project teams that: 1) Have a high degree of autonomy 2) Have a capacity to set challenging goals for themselves and 3) Benefit from the “cross-fertilisation” of skills, ideas and behaviours. In attempting to promote innovation through creativity, it has been suggested that an enterprise should seek to develop a process of “internal corporate venturing” (Burgelman, 1984). This has been seen as achievable through the empowerment of middle management (Kanter, 1989) or by the formation of “innovation management task forces” that can

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Tim Mazzarol motivate employees and implement strategies (Foster and Pryor, 1986). Creative organisations frequently possess a climate in which the line between work and play is blurred (Sonnenberg, 1991). Senior management within such enterprises are supportive of subordinate staff and encourage autonomy and risk taking (Pearson, 1988). Such approaches are likely to be increasingly important in industries where product and process technologies have reached the limit of further development. Under such conditions, an investment in human resources through training and skill development can a source of competitive advantage (Pfeffer, 1994). Another likely influence on organisational innovation is the role leaders, particularly the CEO, play. Leaders need to be vision setters and motivators who can direct a team toward new innovations (Hart and Quinn, 1993). In a study of 97 manufacturing firms, Papadakis and Bourantas (1998) examined the relationship between technological innovation and the role the personalities and roles played by CEOs. While there was a relationship between the CEOs’ characteristics and technological innovation, organisational culture and structure were more important factors. In the new product development process, an emphasis has been placed on staying close to the needs of the market place through identifying customer needs and using superior technology to deliver added value. Within this framework, an organisation needs to develop an internal culture that is supportive of innovation. However, an organisation’s culture is dependent on the CEO and his/her capacity to provide leadership and encourage innovation (Brunner, 2001). In a study of 172 technical or scientific employees, Scott and Bruce (1994) examined the influence of leadership, work group relations and individual attributes on the employee innovativeness. There was a significant relationship between the level of employees’ 32

innovative behaviour and such variables as leadership and the level of support for innovation, managerial role expectations, the career stage of employee and management’s problem solving style. They suggested that innovative behaviour is determined by the strength of the relationship between employees and supervisors or leader-managers. In addition to leadership, innovation has been linked to the development of performance benchmark, particularly quality assurance and human resource management strategies that encourage creative thinking and learning, as well as knowledge transfer (Appleby and Mavin, 2000). A commitment to quality assurance and benchmarking enables customers to be reassured about a firm’s product or service integrity, while focusing attention on what constitutes ‘best practice’ within the industry. Innovation is more likely to follow when a firm has control over its production process (through quality assurance), can meet or exceed customer expectations, and is clear about the activities of its competitors (benchmarking) (Riddle, 2000). Uncertainty about the direction to move, what to change and the difficulties involved in implementing changes frequently challenge innovativeness in large firms. These forces combine to create inertia that only strong leadership can overcome and the creation of a culture that questions the status quo and is willing to experiment (Markides 1998). Large firms, with substantial track records in product innovations have been studies to try to understand their innovativeness. For example, 3M Corporation has been identified as having a strong tradition of innovative behaviour based on a clear sense of vision or direction, as well as strong leadership that focuses on adaptability, and good collaborative teamwork. Further, 3M monitor their customers closely, even thinking ahead to find solutions for problems customers may not have recognised (Coyne, 2001).

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INNOVATION IN SMALL FIRMS Small firms (e.g. those with less than 200 employees that are independently owned and managed) are often thought to have a greater potential to innovate than do their larger counterparts. In the United States, small firms produce twice as many “innovations” as large firms and significantly greater numbers of patents (Stringer, 2000). However, some who caution that innovation in small firms is typically more pronounced than in larger firms, as many small firms constantly adapt to changing environments have tempered this view. As small firms grow, they must introduce new products, processes, and management changes and acquire new systems, all of which can be viewed as innovative (Gibb, 2000). Nevertheless, the need for adaptation and change, the lack of bureaucracy, the multi-disciplinary nature of the work environment and the closeness of entrepreneurial leaders to employees, all serve to increase the likelihood of innovation in smaller firms, a view supported by empirical research (Vossen, 1998). Autio and Lumme, (1998), in a study of 392 small new technology-based firms in Finland, identified four types of innovators: 1) Application innovators (apply existing technology into established markets); 2) Market innovators (develop new products through existing technologies); 3) Technology innovators (introduce new generic technologies into existing markets); and 4) Paradigm innovators (produce products with new technology). They found that the greatest potential for growth was among market and paradigm innovators. North and Smallbone (2000), in a study of 330 small British rural firms identified five types of innovative behaviour, from which they developed a multi-dimensional index for measuring innovation, namely: Volume 4, Issue 1–3, December 2002

1) Product-service innovation (new product development and R&D); 2) Market development innovation (penetration into new markets, or exporting); 3) Marketing innovation (branding strategies, use of information technology or database marketing); 4) Process technology and innovation (the use of new tools, application of computerised control systems); and 5) Information systems innovators. According to Byron (1994 p.39) small firms are lower in marketing diversification but equal in technological diversification than are large firms. This was attributed to the roles played by the entrepreneur or owner-manager of the small firm who, “apparently is likely to be as reluctant as a bureaucracy to deviate from the firm’s core technology.” Chandler, Keller and Lyon (2000) found a positive relationship between innovativeness and the level of supervisory support and reward systems but a negative relationship between innovativeness and work overload. Firms with innovative cultures were smaller and had informal human resource management systems. Freel (2000) found there were several factors that might impede innovation, namely: 1) Access to finance, 2) Access to skilled labour and information, and 3) The capacity of the management and marketing team. While access to finance was not found to be a major barrier to innovation, access to information (through networking) was. More innovative firms were more likely to employ professionally educated managers or were attempting to train existing managers. Clearly, innovation is a complex phenomenon that is important to all organisations but may be of critical importance to small businesses. Despite this, relatively little is known about innovation in such firms. The present study, which is discussed in subsequent sections, attempted to improve our knowledge by

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Tim Mazzarol examining a number of factors that might be related to small business innovation.

THE PRESENT STUDY The present study was based on a survey of 137 owner-managers who were participating in a university-based enterprise development program that was designed to assist growth oriented small firms. The sample was selfselected in that participants had made a conscious decision to undertake the enterprise development program. While all of the firms had less than 200 employees, the average number of employees in each firm was 23. All industry sectors were represented, with a balance between services and non-service businesses. The average time for which the owner-managers had operated their business prior to completing the survey was 12 years. Average sales turnover among the firms over the four years prior to the administration of the survey ranged from AUD$2.8 million to AUD$4.3 million. Few firms had management staff, with an average of 1.5 qualified managers reported. The majority of respondents were males (89.8%). The majority of respondents (79.6%) said that they were planning to launch new products or services in the next 12 months, and 87 per cent said that they planned to substantially increase production levels over the same time period. Only 31 per cent had a formal written business plan. The sample reflects a group of growth-oriented owner-managers with relatively high levels of new product or service development intentions. As with most small business owner-managers, their planning tends to be intuitive rather than formal. The purpose of the present study was to examine the business performance questionnaire originally developed by Hall (1992). The questionnaire contained 183 items measuring a range of business activities across six broad dimensions, namely: 34

1) Focus/direction – the overall vision and mission of the owner-manager, 2) ‘Customerising’ – the firm’s orientation toward the market, 3) Partnering – the owner-manager’s ability to work closely with staff, customers, suppliers and others; 4) Personality – the culture of the firm; 5) Quality – the firm’s commitment to quality and customer service; and 6) Systems – the presence of systems to assist the management of the firm. The study also sought to explore the nature and context of these dimensions from an owner-manager perspective, with a particular focus on their strategic thinking and its relationship to their employees’ innovative behaviour. Data were collected over a four year period from 1997 to 2001 and the questionnaire was sent to the respondents three weeks prior to their joining the year long program designed to assist owner-managers improve their management and strategic planning skills. Each item was assessed on a 5-point Likert disagree–agree scale. Two weeks after the completion of the questionnaire, the results were presented to respondents and discussed in depth during a half-day session on the program. Groups of up to 16 owner-managers discussed the results with the researcher and among themselves. There were a total of 12 such workshop sessions during this period, usually with between 12 and 16 ownermanagers.

DATA ANALYSIS For present purposes, the data were examined through factor analysis to identify potential underlying dimensions. Factor analysis examines interdependences among variables and an examination of the way in which different variables depend on each other makes it possi-

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Innovativeness in small firms: Study of the perspectives of growth oriented owner-managers ble to determine which variables are measuring the same thing and which measure something else (Holbert and Speece, 1993). As the questionnaire was organised into the Hall’s (1992) six dimensions, six factor analyses were undertaken. Kaiser’s (1974) measure of sampling adequacy (MSA) was computed in each case to see whether a factor analysis was likely to be useful. Principal components analysis with varimax rotation was used in each case to obtain a “simple structure” to assist in interpretation. In keeping with the convention, factors with eigenvalues greater than one were returned (Hair 1992). Cronbach’s (1951) alpha coefficient was then used to assess the factors’ internal reliability. The six MSAs ranged from 0.77 to 0.88, suggesting there were likely to be underlying factors (Stewart, 1981). The factors obtained related well to Hall’s (1992) structure, although some (17) items had low communalities and were excluded from the analysis. After these exclusions, the 35 factors shown in the Appendix were found. As will be seen in the statistics shown in the Appendix, the means scores were reasonably close to the midpoint of the scale and there was reasonable dispersion around the means, suggesting there was some information in the data. Further, the alpha coefficients ranged from 0.49 to 0.95, suggesting that the factors were all sufficiently reliable to be used in subsequent analysis. Eleven factors seemed to be relevant to the level of innovation within the firms operated by the owner-managers participating in the study. Of these, “Innovativeness” measured owner-managers’ perceptions of employees’ innovativeness through the generation of new ideas that added value to the business. “Key indicators” measured owners’ perceptions as to whether their business had systems for monitoring and reporting key performance measures (e.g. break-even, cash flows, and customer satisfaction), and whether these systems were used to track performance that was Volume 4, Issue 1–3, December 2002

communicated to staff. “Business values” measured owner-managers’ personal values (e.g. my business is a ‘good’ business) and how these were used to guide decision-making. “Role modelling” measured owner-managers’ perceptions of how well they served as a role model for staff, through symbols, action and values. “Leadership” measured ownermanagers’ abilities to communicate their personal vision for the business to employees and to use this vision to motive employees. “ASA/ISO 9000” measured owner-managers’ views as to the relevance of formal quality assurance and whether their firm used formal quality management procedures. “Staff partnerships” measured owner-managers’ views about employees’ commitment to the firm and whether they were a source of competitive advantage. “Business Change Readiness” measured the owner’s perceptions of how well their employees accommodate individual differences, and whether staff were responsive to change. “Organisational Culture” measured the perceived level of ‘fit’ between the social and political environment within the firm and its business aims. “Changing Beliefs and Attitudes” measured the owner-manager’s role in encouraging change within the firm through communicating their vision and facilitating change. “Defining Quality” measured the owner’s perception of both their own and their employee’s understanding of quality and what it means for their customers. To investigate potential relationships between these factors a linear regression analysis was undertaken. The factor “Innovativeness” was selected as the dependent variable because it provided a measure (albeit through the owner-manager’s eyes) of the level of innovative behaviour among employees within the firm. The remaining factors were used as independent variables in the analysis. The linear regression modelling was undertaken using the SPSS statistical program. A step-wise method was used.

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Tim Mazzarol TABLE 1: FACTORS RELEVANT

TO I NNOVATION

MODELLED

REGRESSION ANALYSIS

Mean

Std. Dev.

Alpha

Beta

t-value

Sig.

Changing Beliefs and Attitudes Defining Quality Business Values ASA/ISO 9000 Staff Partnerships

3.13 3.74 3.77 3.13 3.12

0.65 0.67 0.67 0.99 0.76

0.81 0.85 0.86 0.79 0.86

0.35 0.30 –0.30 0.20 0.19

3.85 3.32 –3.41 2.86 2.07

0.000 0.001 0.001 0.005 0.040

Dependent variable: Innovativeness

2.95

0.91

0.81

Factor

THE RESULTS OBTAINED Of the ten independent variables selected for the analysis, five were found to be significant within the final model. Table 1 shows the mean scores, standard deviations and coefficient alphas obtained by summing the underlying items that loaded highly onto each factor, as well as the standardised beta coefficients, t-scores and significance levels for each item. The R Squared statistic for this model was 0.40 and the adjusted R Squared statistic was 0.37.

DISCUSSION The original even factors identified as having a possible association with innovativeness measure the owner-managers’ perceptions of their own behaviour and that of their firm. In the subsequent discussions, the owner-managers felt that employees’ ability to innovate would be influenced by the strength of the ‘leadership’ and ‘role modelling’ they (the ownermanagers) displayed. They also felt there was a need for partnering between employees and the owner-manager to develop a team that could achieve positive outcomes. The importance of monitoring the firm’s ‘key indicators’ was seen as desirable to ensure employees were aware of how the firm was performing, as this was likely to improve problem solving and troubleshooting. There was more contention over the relevance of formal quality assurance as an 36

IN

antecedent to innovation. While many of the owner-managers used quality assurance management systems and viewed them as beneficial, many others disagreed. The primary opposition to formal quality assurance systems was that they were expensive and did not provide a direct competitive advantage. There was also an equivocal view as to the role played by owner-managers’ ‘personal values.’ While owner-managers may have a strong sense of their values (and most felt they did), the role they play in encouraging innovativeness was difficult to determine. Strong owner-manager values may be an impediment to innovativeness if these views are imposed on staff, stifling creativity. The regression analysis suggests that possible antecedents of innovativeness among the firm’s employees is the role of the owner-manager in facilitating a readiness for change within the firm through communication of their vision. A further antecedent may be the development within the firm of a collective understanding of the nature of ‘quality’ and common agreement as to how to define this. Formal quality assurance benchmarking would seem a logical additional antecedent to accompany this. The level of commitment or ‘partnering’ that exists between owner-manager and the employees may also be important. By contrast, the personal business values of the owner-manager appear to have a negative influence.

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Innovativeness in small firms: Study of the perspectives of growth oriented owner-managers In the post-survey discussions, a respondent who owns a computer software development company employing 32 people admitted that, while he saw his employees as an important source of competitive advantage and valued them as an asset, he would like them to be more proactive in generation of new ideas. He confessed that, while he was clear in his own mind about where his company should head (e.g. his personal vision was clear), he needed to do more to communicate this vision to staff by devoting more time talking to employees and sharing his vision. The other owner-managers in the discussion group agreed that they also needed to spend more time talking to employees and sharing their personal visions to provide a sense of direction for their companies.

CONCLUSIONS AND FUTURE RESEARCH The sample was made up of owner-managers from small firms that have a strong growth orientation and a high level of commitment to launching new products or services. While the sample is not representative of the small business community, it is representative of those owner-managers who are focused on growth and are, therefore, seeking to launch new products or services and expand production. In this sense they are likely to be the more innovative small businesses. The present study found that Hall’s (1992) survey contained a number of factors relevant to innovation and suggests that it might provide a framework for a future investigation of small business innovation. The preliminary modelling and subsequent discussions with the respondents suggests that the antecedents of innovativeness within the small firm may be the owner-manager’s ability to encourage an understanding of quality (particularly in terms of what it means to the customer), a commitment to the firm and a willingness to change and adapt when required. In developing this Volume 4, Issue 1–3, December 2002

environment the owner-manager may need to avoid imposing their own values too rigidly on their employees. Although such findings are of interest the study remains exploratory. The relationship between the factors could be examined using structural equation modelling procedures, probably Partial Least Squares because of sample size issues and a desire to predict innovation (Chin and Newsted, 1999). In addition to this quantitative approach, there needs to be a qualitative investigation of the behaviour and perceptions of owner-managers using multiple case studies. Access to the original sample of respondents is available and the factor structure identified in this study provides a useful protocol for guiding future case investigations. The objective of future research will be to produce new theory on the nature of innovation within small firms, and hopefully contribute to a richer understanding of the way in which small, entrepreneurial firms behave that is grounded in the direct experiences of the owner-managers themselves.

References Ansoff, H. I. (1987). “Strategic Management of Technology.” The Journal of Business Strategy 7(3): 28–39. Appleby, A., and Mavin, Sharon. (2000). “Innovation not imitation: Human resource strategy and the impact on world-class status.” Total Quality Management 11(4–6): S554–S561. Autio, E., and Lumme, Annareetta. (1998). “Does the innovator role affect the perceived potential for growth? Analysis of four types of new, technology-based firms.” Technology Analysis & Strategic Management 10(1): 41–45. Badaway, M. K. (1985). “How To Prevent Creativity Mismanagement.” Research Management: 28–35. Baran, S., Zandan, P. and Vanston, J.H. (1986). “How Effectively are we Managing

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APPENDIX: FACTORS IDENTIFIED IN THE STUDY Factor

Focus/Direction Dimension: Mission – clear sense of mission Core Skills – understands distinctive competencies Key resources – possesses key resources Environmental Scanning – environmental monitoring Personal Vision – owner’s sense of future direction Leadership Vision – communicating vision to staff Customerising Dimension: Customer Delight – customer commitment/delight Networking – owner’s networking ability Partnering Dimension: Supplier Partnerships – firm’s relationship with suppliers Staff Partnerships – firm’s relationship with staff Customer Partnership – firm’s relationship with customers Support Network Partnership – relations with bank etc. Partnership Orientation – owner’s propensity to partner Structure=Strategy – fit between firm strategy and structure Personality Dimension: Image – firm’s image in the market Business Values – owner’s personal values for business Role Modelling – owner’s role modelling to staff Personal Change Readiness – owner’s change readiness Business Change Readiness – firm’s change readiness The “Shadow Side” – unwritten ground rules Psychometric Testing – use of formal tests for staff selection Organisational Culture – fit between firm culture and aims Quality Dimension: Right Product/Services – delivery of right products to market ASA/ISO 9000 – level of formal quality assurance Changing Beliefs and Attitudes – owner’s role in change Defining Quality – firm’s understanding of quality Premium Pricing – value adding that leads to premium prices Innovativeness – staff levels of innovative behaviour Not Price Sensitive – firm’s ability to avoid price competition Systems Dimension: Key indicators – firm’s monitoring of key performance data Taking action – owner/firm’s willingness to act on KPI’s Critical Information – firm’s analysis of cost/control Information Systems – firm’s use of computer/IT systems Market Research Data – firm’s use of market research data Financial Control – firm’s financial resources and control systems

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Mean

Std. Dev.

Alpha

2.90 3.65 3.21 3.22 3.59 3.13

1.07 0.66 0.71 0.67 0.78 0.92

0.95 0.85 0.81 0.80 0.78 0.82

3.70 3.00

0.54 0.74

0.90 0.68

3.49 3.31 3.67 3.00 3.63 3.20

0.84 0.76 0.64 0.76 0.84 0.80

0.85 0.86 0.82 0.78 0.86 0.67

3.70 3.77 3.15 3.70 3.12 3.05 1.95 3.20

0.68 0.67 0.70 0.64 0.67 0.75 1.08 0.63

0.90 0.86 0.75 0.66 0.69 0.57 0.57 0.58

3.75 3.13 3.13 3.74 3.22 2.95 2.56

0.57 0.99 0.65 0.67 0.86 0.91 0.92

0.81 0.79 0.81 0.85 0.83 0.81 0.78

2.58 3.36 3.28 3.16 2.87 3.01

0.86 0.77 0.84 0.80 0.76 0.84

0.91 0.86 0.87 0.85 0.72 0.49

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Innovativeness in small firms: Study of the perspectives of growth oriented owner-managers Innovation ?” Research Management (January–February): 23–25. Brunner, G. F. (2001). “The Tao of innovation.” Research Technology Management 44(1): 45–51. Burgelman, R. A. (1984). “Managing the Internal Corporate Venturing Process.” Sloan Management Review (Winter): 33–48. Byron, D. L. (1994). “How internal venture groups innovate.” Research Technology Management 37(2): 38–42. Chaharbaghi, K., and Newman, V. (1996). “Innovating: Towards an integrated learning model.” Management Decision 34(4): 5–13. Chandler, G. N., Keller, C., and Lyon, D.W. (2000). “Unraveling the Determinants and Consequences of an Innovation-Supportive Organizational Culture.” Entrepreneurship Theory and Practice (Fall): 59–76. Chin, W. W., and Newsted, P.R. (1999). Structural Equation Modeling Analysis with Small Samples Using Partial Least Squares. Statistical Strategies for Small Sample Research. R. H. Hoyle. Thousand Oaks, Sage Publications: 307–322. Coyne, W. E. (2001). “How 3M innovates for long-term growth.” Research Technology Management 44(2): 21–24. Cronbach, L. J. (1951). “Coefficient Alpha and the Internal Structure of Tests.” Psychometrica (16): 297–334. Drazin, R., and Shoonhoven, Claudia Bird. (1996). “Community, population, and organization effects on innovation: A multilevel perspective.” Academy of Management Journal 39(5): 1065–1083. Foster, W. K., and Pryor, A.K. (1986). “The Strategic Management of Innovation.” The Journal of Business Strategy 7(1): 38–42. Freel, M. (2000). “Barriers to product innovation in small manufacturing firms.” International Small Business Journal 18(2): 60–80. Gibb, A. A. (2000). “SME policy, academic research and the growth of ignorance, Volume 4, Issue 1–3, December 2002

mythical concepts, myths, assumptions, rituals and confusions.” International Small Business Journal 18(3): 13–35. Gresov, C. (1984). “Designing Organizations to Innovate and Implement: Using Two Dilemmas to Create a Solution.” Columbia Journal of World Business 3(Spring): 63–67. Hair, J. F., Anderson, R.E., Tatham, R.L., and Black, W.C. (1992). Multivariate Data Analysis With Readings. New York, Macmillan. Hall, D. (1992). The Hallmarks for Successful Business: Survival-Change-Growth. Oxfordshire, Mercury Books. Hart, S. L., and Quinn, R. E. (1993). “Roles executives play: CEOs, behavioral complexity, and firm performance.” Human Relations 46(5): 543. Holbert, N. B., and Speece, M.W. (1993). Practical Marketing Research: An Integrated Global Perspective. New York, Prentice-Hall. Kaiser, H. F. (1974). “An Index of Factorial Simplicity.” Psychometrika 39: 31–36. Kanter, R. M. (1989). When Giants Learn to Dance. New York, Touchstone. Lorsch, J. W. (1986). “Managing Culture: The Invisible Barrier to Strategic Change.” California Management Review 28(2): 95–109. Lowe, A. (1995). “The basic social process of entrepreneurial innovation.” International Journal of Entrepreneurial Behaviour & Research 1(2): 54–76. Markides, C. (1998). “Strategic innovation in established companies.” Sloan Management Review 39(3): 31–42. McIntyre, S. H. (1982). “Obstacles to Corporate Innovation.” Business Horizons (January–February): 23–28. Norris, W. C. (1981). “Developing Corporate Policies for Innovation: A Program of Action.” Long Range Planning 14(4): 34–42. North, D., and Smallbone, D. (2000). “The innovativeness and growth of rural SMEs

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Tim Mazzarol during the 1990s.” Regional Studies 34(2): 145–157. Papadakis, V., and Bourantas, D. (1998). “The chief executive officer as corporate champion of technological innovation: An empirical investigation.” Technology Analysis & Strategic Management 10(1): 89–109. Pearson, A. E. (1988). “Tough-Minded Ways to Get Innovative.” Harvard Business Review (May–June): 99–106. Perry, T. S. (1995). “How small firms innovate: Designing a culture for creativity.” Research Technology Management 38(2): 14–20. Pfeffer, J. (1994). “Competitive Advantage Through People.” California Management Review (Winter): 9–28. Porter, M. E. (1990). The Competitive Advantage of Nations. New York, MacMillan Press. Quinn, J. B. (1980). “Managing Strategic Change.” Sloan Management Review (Summer): 3–2. Quinn, J. B. (1985). “Managing Innovation: Controlled Chaos.” Harvard Business Review (May–June): 73–84. Raudsepp, E. (1987). “Establishing A Creative Climate.” Training and Development Journal: 50–53. Riddle, D. (2000). “Competitive strategies set the stage for successful innovation.” International Trade Forum 2: 22–23. Scott, S. G., and Bruce, R. A. (1994). “Determinants of innovative behavior: A path model of individual innovation in the workplace.” Academy of Management Journal 37(3): 580.

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Senge, P. M., Carstedt, G., and Porter, P.L. (2001). “Innovating our way to the next industrial revolution.” Mit Sloan Management Review 42(2): 24–38. Sonnenberg, F. K. (1991). “Strategies for Creativity.” The Journal of Business Strategy (January–February): 50–53. Stein, R., and Pinchot, Gifford (1998). “Are you innovative?” Association Management 50(2): 74–77. Stewart, D. W. (1981). “The Application and Misapplication of Factor Analysis in Marketing Research.” Journal of Marketing Research 18: 51–62. Stringer, R. (2000). “How to Manage Radical Innovation.” California Management Review 42(4): 70–88. Takeuchi, H., and Nonaka, I. (1986). “The New Product Development Game.” Harvard Business Review (January–February): 137–146. Thwaites, A., and Wynarczyk, P. (1996). “The economic performance of innovative small firms in the South East region and elsewhere in the UK.” Regional Studies 30(2): 135–49. Tushman, M., and Nadler, D. (1986). “Organizing for Innovation.” California Management Review 28(3): 74–92. Van DenVen, A. (1986). “Central Problems in the Management of Innovation.” Management Science 32(5): 590–607. Vossen, R. W. (1998). “Relative strengths and weaknesses of small firms in innovation.” International Small Business Journal 16(3): 88–94.

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Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2002) 4: 41–53.

Biotech branding: Victoria’s plan to cash in on the ‘Biotechnology Revolution’ SUMMARY

Industry policy for the development of knowledge and new-technology based industries increasingly builds on international investment as its cornerstone. This paper examines the Victorian state government’s biotechnology strategic development plan, using a state-driven branding exercise, as an example of this policy. Policy suggestions are developed to fill major strategic gaps in the state plan.

KEY WORDS industry innovation policy; local and national government; biotechnology branding; international investment; marketing and branding strategy; knowledge industries; public-private partnerships

HELEN RATCLIFFE* Senior Policy Adviser Commonwealth Department of Industry, Tourism and Resources Canberra

Received April 2002

Accepted September 2002

PURPOSE

T

he paper examines the growing trend for governments to utilise international investment as a cornerstone for the development of new knowledge industries. It uses the Victorian State government’s biotechnology strategic development plan and the accompanying government driven branding exercise as

an example of this new focus of industry policy aimed at promoting the growth of technology-based industries. The strengths and weaknesses of the Victorian government approach to growing the State’s biotechnology capability will then be discussed in the context of developing policy suggestions to fill major strategic gaps.

* The views expressed in this paper are those of the author only and should not be interpreted as those of Biotechnology Australia or the Commonwealth Department of Industry, Tourism and Resources.

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SETTING THE BIOTECH SCENE The biotechnology sector in Australia has been receiving a significant amount of government attention over the past 2–3 years. A strategic framework for the development of the industry nationally was announced by the Commonwealth Minister for Industry Science and Resources in July 2000 which highlighted the complexity of issues associated with the biotechnology sector, yet nonetheless conveyed the government’s commitment to ‘capturing the benefits….for the Australian community, industry and the environment” (Biotechnology Australia 2000b; p7). The national strategy has since been followed up by the commitment of $40 million over five years for seed proof-of-concept funding for the industry and an additional $46 million to establish a national centre of excellence in biotechnology (Commonwealth of Australia 2001). The size of the Australian biotechnology sector is relatively small by world standards. The 2001 industry survey, conducted by Ernst & Young and Freehills for the Commonwealth government, identified 190 core biotechnology companies of which only 35 were publicly listed on the Australian Stock Exchange. The number of biotechnology related firms was approximately 460. Since the first industry survey in 1999 the total number of core biotechnology firms had increased by 70 and employed over 5700 staff. Industry revenue generation by the core biotechnology firms over 2000–01 was estimated at around AUD 1 billion and AUD 900 million of capital investment had been raised (principally by the publicly listed firms) since the 1999 survey. The three sectors with the greatest number of

products under development were human health; equipment and services; and agriculture (Ernst &Young et al 2001; p7). Appendix A shows Australia’s relative competitive position in biotechnology in terms of the global industry. Despite its size, the biotechnology industry is viewed as a vital target sector due to its growth potential over the next 10–20 years. The increased use of information technologies in the biotechnology sector has considerably contracted the time taken to move from discovery to a product commercialisation stage1 and the completion of the human genome sequence has opened up enormous potential for the development of new medicines and therapeutics. Moreover, like information technology, biotechnology is viewed as an important platform technology which will revolutionalise a broad range of sectors extending from health and agriculture through to forestry, mining, environmental technologies, food production, aquaculture and marine biology (Biotechnology Australia 2000a; pp1–5). The activity at the Commonwealth government level has been accompanied by considerable sectoral focus by a number of State governments. To date, Queensland and Victoria have been the most ambitious and competitive in seeking to be the leaders in biotechnology R&D and product development in Australia. Premiers from both States co-led a joint delegation to the BIO2001 conference in San Diego, however, this level of cooperation has since been tempered by the Victorian government’s decision to establish a synchrotron facility in south-eastern Melbourne in advance of the Commonwealth

1 Although biotechnology-based pharmaceutical products still face a 10–15 year leadtime before they become available commercially due to the nature of the product and the animal and clinical testing required by the Therapeutic Goods Administration.

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Biotech branding: Victoria’s plan to cash in on the ‘Biotechnology Revolution’ government’s decision on funding through the Major National Research Facility (Office of the Premier 2001). Victoria’s aggressive political stance to develop its biotechnology industry ahead of key rival States culminated with the unveiling of its strategic development plan for the sector which incorporated an ambitious investment branding vision for Melbourne. “Melbourne, Victoria aims to be recognised as one of the world’s top five biotechnology locations by 2010. Through promoting new investment, fostering innovation and developing strategic public–private partnerships, the Victorian government is committed to boosting our capability in this rapidly developing economic sector” (DSRD 2001e; p1). The Victorian government aims to build on Victoria’s existing biotechnology base, its support services sector and infrastructure as a basis to promote inward investment in Melbourne. Section 5 sets out in greater detail the key components of the strategic plan and complementary activities by other key organisations that aim to build and enhance Melbourne’s image as the place to do biotech business in Australia.

THE ROLE OF INWARD INVESTMENT IN INDUSTRY DEVELOPMENT Neoclassical economic theories based on a nation’s natural resource endowments and the construction of economic comparative advantage have traditionally driven government policies for promoting new and emerging industry sectors. During the 1990s policy focus has shifted fundamentally to acknowl-

edge the importance of new sources of competitive advantage through the creation of a range of other assets, most notably knowledge and other ‘soft’ factors such as human resource capability, reputation and ‘image’. The advent of a range of new economic theories that emphasise the important role of institutions and knowledge creation and accumulation in economic growth pathways are particularly applicable when considering policy decisions to encourage the growth of new knowledge intensive sectors. Globalisation of business and trade flows have encouraged the movement of massive amounts of foreign investment which are available to governments worldwide to harness as drivers of economic growth. These trends create a window of opportunity for relatively capital-poor nations to put in place policy frameworks designed to encourage and promote the growth of capital intensive knowledge based industries. As a result, governments are increasingly cognisant of the need to target and promote mobile capital flows to effectively leverage with the aim of domestic industry development. Typically multinational corporations are the focus of these government-led investment promotion and location based asset marketing approaches. Government policy frameworks have a significant and growing influence on the location decisions of multinational corporations, extending through to how domestic governments perceive inward investment contributing to their place in the international economy. Recent efforts by a number of smaller countries to entice foreign investment to its shores, (for example Ireland, Scotland and Singapore) have been particularly successful in growing each of these economies and substantially lifting their levels of GDP by concentrating on technology based manufacturing and services sectors2. Such successful investment

2 For example, in 1997 Ireland’s GDP per capita was 67 per cent of the United Kingdom and in the space of 10 years (1996) grew to outstrip that of the UK. Likewise Singapore’s GDP has grown substantially to the

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Helen Ratcliffe strategies have also had valuable spillover and multiplier effects for local firms3. In addition to re-location of their production and manufacturing facilities, multinational corporations are increasingly looking to cost-effective overseas destinations as places to undertake their R&D effort. Another objective is to decrease transaction costs through locating in closer proximity to growing regional markets, and to capitalise on their respective firm-specific assets in different geographic locations by obtaining benefits greater than those which may be captured through more traditional approaches such as licensing and leasing their technology and intellectual property (Marsh 2000; p69). Features that attract investment flows include low cost R&D and production, certainty of the political environment, skilled workforces, high quality infrastructure and communications and market access. In addition, international investors require access to target technologies and unique resources as well as the existence of complementary firms for cluster development and particular classes of customers that suit their products (Marsh 2000; p71). Generic policies play a vital role in encouraging inward investment flows and will in most circumstances be considered as, if not more important, than sector specific government policies. For example, the biotechnology focus of the Victorian state government under discussion in this paper cannot be divorced from the underlying generic policies relating to taxation, R&D, education, protection of intellectual property and regulatory regimes. Investment incentives will not prove effective unless these fundamental policies are correct –

particularly important for capital and research intensive knowledge industries such as biotechnology.

MARKETING AND BRANDING AS INVESTMENT ATTRACTION TOOLS Marketing techniques and branding are no longer the preserve of corporate boardrooms. The success of targeted and comprehensive marketing approaches promoting individual products and companies has brought these techniques to the attention of public policy makers. As a result, branding and marketing are crossing over to public sector industry policy, most notably in the area of investment attraction and the development of knowledge based industries. Active and sophisticated marketing strategies are a pre-requisite to signal the commitment of government to growing and supporting the development of new industries. A proactive marketing approach serves to highlight a particular country’s or location’s created competitive advantages to foreign investors, and to convey their commitment to working collaboratively with these important international economic players (Marsh 2000; p67). Such branding and marketing exercises build on existing policies of improving economic climates and regulatory regimes to be more conducive for investors. They extend to information provision, marketing through trade and investment missions, seminars and other types of direct marketing (West et al 1993; p168). In a survey of investment representatives from ten countries, West and Wint found that marketing policies used to attract international

extent that it can no longer be considered a developing country. In 1997 Singapore was rated as the most preferred site for companies to establish regional headquarters in the Asia-Pacific region. (Marsh 2000; p67) 3 In the case of Scotland, it has developed from an almost nil position in electronics in the early 1980s to produce 32 per cent of EU branded PCs, 65 per cent of its automatic teller machines, 79 per cent of its workstations and 51 per cent of its notebook computers (Marsh 2000; p67)

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Biotech branding: Victoria’s plan to cash in on the ‘Biotechnology Revolution’ TABLE 1: MARKETING TECHNIQUES

FOR I NVESTMENT

PROMOTION

Marketing Objective

Technique Used

Image building or enhancement

Advertising in general financial media; Participating in investment exhibitions; Advertising in industry or sector specific media; Conducting general investment missions from source country to host country or from host country to source country; Conducting general information seminars on investment opportunities; Production and distribution of brochures; Engaging in direct mailing or telemarketing campaigns; Conducting industry or sector specific investment missions from source country to host country or vice versa; Conducting industry or sector specific information seminars; Engaging in firm specific research followed by ‘sales’ presentation; Providing investment counselling services; Expediting the processing of applications and permits; Providing post-investment services.

Investment generation

Provision of investment services

Source: Wells et al 1993, p171

investment can be differentiated by their underlying objectives. Some policies seek to improve a country’s image in the eyes of international investors as a favourable destination for investment, while other approaches aim to assist prospective and existing investors by providing them with additional value-adding services such as project facilitation and postinvestment services. Another category is aimed squarely at generating investment through activities such as direct targeting of sectors or firms (West et al 1993; p171). The range of promotional techniques is set out in Table 1. The degree of success attained by the respective promotion agencies surveyed depended to a large extent on the mix of techniques employed and the underlying expectations of the effect of the marketing approaches on investment outcomes. Those countries which anticipated an investment generation

effect through employing a mix of predominantly image building or branding techniques were disappointed that results did not meet their expectations. Without the effective use of investment generation activities focused on personal relationship building and targeted marketing, in tandem with image building approaches and the provision of important complementary investment services, it is uncertain whether the investment promotion policy will be ultimately successful4. West et al also noted that, in a majority of cases, image building approaches were followed in the initial stages reflecting the learning process of policymakers, that is, a natural move to investment generation approaches as policy makers discover image building and branding do not deliver anticipated outcomes (West et al 1993; pp172–9). The experiences of the countries discussed

4 West and Wint note that these services are generally aimed more towards retaining existing investors and to promote re-investment rather than playing an extensive role in attracting new investment. Nonetheless, the role played through providing these services is important in the context of the overall investment life cycle.

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Helen Ratcliffe tive both in terms of its infrastructure and its star scientific researchers; • Attract investors and partners to support [its] research effort and fund [its] startup companies as they move into global markets; • Attract the corporate R&D centres of multinational companies in biotechnology related sectors and, where possible, related manufacturing plants, to provide centres of focus for biotechnology activity, high quality skilled jobs and to build Victoria’s reputation overseas as a location for biotechnology related activities; and • Create networks between Victorian biotechnology based companies as well as international networks and linkages to grow exports and foster commercially beneficial partnerships. (DSRD 2001d, pp2–3)

in Section 35 demonstrate a considerable degree of success has been attained through the utilisation of foreign investment as a basis to grow their domestic ICT and electronics sectors in the medium term. It is worth noting, however, that the jury may still be out on whether these growth levels can be sustained in the long term and in the face of other economies seeking to emulate similar levels of success.

MELBOURNE – THE AUSTRALIAN BIOTECH CAPITAL Victoria’s biotechnology branding initiative is just one component of the government’s overall science, technology and innovation policy agenda. The biotechnology sector is regarded as a flagship sector ripe for development. Key features of the Victorian government’s focus on growing its innovative sector include: • Building world class infrastructure; • Developing the skills base; • Fostering a culture of innovation; and • Positioning Victoria as the national and world leader in science (DSRD 2001d; p1). The branding vision aiming to establish Melbourne as a key global city in the biotechnology sector sets out an additional set of goals the government sees as essential in effectively positioning and advertising Victoria’s capabilities: • Raise international awareness of [Victoria’s] presence in biotechnology, building on [its] competitive strengths in the R&D base, and particularly focusing on potential investors, partners and manufacturers; • Ensure that Victoria’s life sciences R&D sector remains internationally competi-

The State’s strategic development plan released at BIO2001 in San Diego provides the foundation from which the government can work to promote its capabilities to international investors. The framework established by the Victorian government is an important communication tool in promoting the government’s commitment to developing its biotechnology base, and provides a signal to investors that biotechnology is regarded as a vital industry sector enjoying the government’s full support. The plan focuses on the enhancement and further development of Victoria’s main biotechnology ‘precincts’ or clusters – the majority of which exist in or around Melbourne. The plan factors in the need to work closely with the Commonwealth Government

5 These countries are Ireland, Singapore and Scotland. A wide range of other countries including Canada, Taiwan, Thailand and even Jamaica are also involved in concerted investment promotion programs but have not been considered in the context of this paper.

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Biotech branding: Victoria’s plan to cash in on the ‘Biotechnology Revolution’ through Biotechnology Australia to ensure not only consistency with the national biotechnology strategy, but also to ensure Victoria’s actions can be best leveraged to take advantage of Commonwealth funding sources for biotechnology6. In addition, the Victorian government has its own Technology Commercialisation Program (TCP) to help achieve its broader objectives to encourage commercial applications of science, technology and innovation (STI). The government has committed $310 million over five years to ‘catalyse the development of world class science and technology capabilities and infrastructure to stimulate the commercialisation of Victoria’s STI knowledge base’. The program is implemented on a whole-ofgovernment basis with funding allocated to a mix of programs delivered by State government agencies, and on a contestable basis to non-government organisations for projects and activities of strategic importance. (DSRD 2001f; p5). The majority of the initiatives and projects covered by the TCP are highly relevant for the growth of the biotechnology sector7. Table 2 summarises the five strategic planks of the plan and includes examples of the types of activities important to each facet of the strategic framework. The Victorian government is not working

in isolation in attempting to market biotechnology as a key sector for the State’s economic development. It has entered into partnership with a number of biomedical R&D institutes in the Melbourne CBD to establish the Bio21 health and medical precinct. Bio21 is a collaborative project in conjunction with the University of Melbourne, the Royal Melbourne Hospital and the Walter and Eliza Hall Institute of Medical Research in Parkville and involves a total of $400 million of infrastructure and capability building funding. A commercial arm – Bio21 Commercial – aims to ensure local researchers and smaller biotechnology firms will be able to access financial expertise and international markets and ensure new discoveries will reach commercial potential and the accompanying economic rewards. Bio21 also has established links with other major biomedical facilities throughout the city. (DSRD 2001c). Two other organisations are also closely involved in the State government’s industry development activities, and play important roles in reinforcing the current biotechnology branding activities. The City of Melbourne has been an important partner with the State government in marketing Melbourne’s biotechnology capabilities and potential by participating actively in the facilitation of business and R&D delegations at major

6 Examples of Commonwealth funding programs that Victoria is aiming to take advantage of include: • The Biotechnology Innovation Fund (BIF) which provides $40 million over five years for proof-ofconcept (ie: pre-seed funding). To date, successful applicants for the first and second rounds have been announced. There have been 55 recipients with the average grant in the range of $200,000–250,000; • The Biotechnology Centre of Excellence announced in Backing Australia’s Ability involving $46 million to establish a national centre of excellence. The successful recipient is the National Stem Cell Centre in Melbourne; • R&D START and COMET grants through Ausindustry; and • R&D infrastructure funding available through the Major National Reseracg Facilities grants. 7 These initiatives include technology incubators, technology transfer through network development and spinoffs from R&D institutions, technology parks, assistance with intellectual property and commercialisation funding and education program.

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Helen Ratcliffe TABLE 2: SUMMARY

OF

VICTORIA’S STRATEGIC DEVELOPMENT PLAN

1. Development of the biotechnology skill base Objective: Building a pool of skilled Identification of required skills people in science, product development Career information and commercialisation Import research and commercialisation expertise Fellowship for Victorian scientists 2. Developing Victoria’s biotechnology research base Objective: Providing opportunities for • Ensure access to cutting edge platform technologies by growth in science and research industry infrastructure • Support for establishment of proteomics facility • Support for establishment of national synchrotron • Establish bioinformatics and microarray technology consortia • Support for biomedical and agricultural biotech clusters and facilities 3. Commercialising Victoria’s biotechnology • Best practice IP management systems Objective: developing a culture of innovations and entrepreneurship where • Stimulate access to finance for research commercialisation clever research can be successfully taken • Target biotechnology commercialisation projects through to market the TCP • Encourage and promote network development and entrepreneurship 4. Building Victoria’s corporate base and marketing Victoria’s biotechnology Objective: encouraging growth of existing • Investment attraction/promotion and facilitation biotechnology companies and investment • Targeting of clinical trial opportunities for investment by local and international firms • Strategies for cross-industry uptake of biotechnologies • Support trade and export development • International relationships building with academia, industry including through Biotechnology Ambassador, trade fairs and conference hosting 5. Government leadership and support Objective: providing leadership to the Victorian community, and research and industry sectors to develop biotechnology for the benefit of Victoria in a framework where safety and ethical considerations are intrinsic to that development

• Support national gene technology regulatory framework • Focus on R&D ethics for biomedical and agricultural applications • Promote public awareness raising of issues relating to biotech and gene technology • Pivotal role of key science and medical advisory bodies in guiding government policies

Source: DSRD 2001d

biotechnology conferences and congresses internationally. In addition, the City of Melbourne is working through its linkages with city councils in its global network which have similar strong capabilities in this particular 48

knowledge based sector to build and deepen cooperative relationships internationally (City of Melbourne 2001a). The Committee for Melbourne8 is also providing proactive assistance in promoting Mel-

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Biotech branding: Victoria’s plan to cash in on the ‘Biotechnology Revolution’ bourne’s strengths both directly in the biotechnology sector and also in supporting services sectors, most notably financial and legal services (Committee for Melbourne 2001a and 2001b).

ASSESSMENT OF THE POLICY APPROACH The policy initiative to brand Melbourne as a major player in the global biotechnology community is undoubtedly an ambitious one. The scale of the entire Australia biotechnology sector is small when compared to just the operating R&D budgets of the major US and European pharmaceutical firms thereby highlighting the immensity of the task facing the State government. To give just one example, the Wellcome Trust in the UK has an annual R&D budget in excess of the UK government’s entire funding of public research9. The lack of business expenditure on R&D by Australian firms has been well documented with the majority of biotechnology basic R&D funded through government institutions or Australian Research Council grants10. Moreover, structural constraints to the commercialisation of biotechnology such as the size of the domestic market, distance to major customers and sources of investment, and a paucity of sufficiently experienced managers to grow biotechnology start-up companies, present major obstacles to be overcome (Biotechnology Australia 200a; p13). The initial focus by the Victorian government of attracting investment primarily to develop domestic R&D and clinical trial capabilities is a logical first step. Australian

innovation is reasonably well recognised internationally and presents a good foundation to enhance the R&D and technology commercialisation stages of the product development chain. Australia has relative strengths in human health biotechnology products and production of equipment and services with around 260 health related products and 150 equipment and service products in the development pipeline (Ernst &Young et al 2001; p14). Expertise in the biotechnology sector is dominated by R&D (22 per cent) and manufacturing (24 per cent). Expertise in clinical and regulatory affairs accounts for 8 per cent of the sector. (Ernst & Young et al; p16). The government commitment and involvement in network building, encouragement of technology development and transfer, and provision of key infrastructure for the biotechnology sector will also be extremely important in reinforcing marketing messages to overseas investors at a high level. The weaknesses of the branding approach will probably lie more at the level of implementation, that is, whether the government decides to go down a passive promotion path as opposed to a clearly targeted and proactive path which is overwhelmingly necessary in the global competition for investment funds. On the surface, however, the policy appears to take a relatively passive approach that largely correlates with West and Wint’s categorisation of ‘image building’ techniques. This could be symptomatic of the investment promotion learning process, however, this raises the question of whether Victoria can afford to get behind the eight ball at this stage if it is to

8 The Committee for Melbourne is a not-for-profit industry driven organisation connecting Melbourne’s business and community leaders. The Committee works closely with the Victorian government to promote Melbourne as a leading international business centre (Committee for Melbourne 2001b). 9 Anecdotal information based on discussions with the Wellcome Trust, London, February 2001. 10 Ernst & Young estimate that investment in R&D by Australian biotechnology companies in 1999–2000 was around AUD 150 million, compared with anticipated public expenditure of approximately AUD 307 million in 2000–01. (Ernst & Young et al 2001; pp10–11)

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Helen Ratcliffe realise its ambition to be in the top five of biotechnology locations by 2010. The Victorian government could well learn from the experiences of other countries that have demonstrated tremendous success in leveraging inward investment flows to develop indigenous capabilities in the ICT sector. These governments have followed highly proactive, and even interventionist, approaches to target specific firms and ultimately persuading them to part with their investment dollar. Strategies such as the preparation of business case analyses and investment proposals, coupled with face-to-face selling of Melbourne as a destination for biotechnology investment would be a minimum pre-requisite if competing directly with the likes of Singapore and Scotland. The scenario is even more complicated if credence is given to West’s view that governments must ‘take the lead’ in the absence of adequate levels of private venture capital in the life sciences sector if the returns to ownership are to be captured within Australia. He makes the point that Taiwan’s semiconductor industry was kickstarted by the Taiwanese government and that a similar model may be required to develop Australian life sciences to a commercial level due to the problems in the capital allocation and risk management systems. (West J 2001; pp41–2) In a proactive approach to Melbourne’s biotech branding, the Biotechnology Ambassador has a key role to play. The current ambassador, Professor Adrienne Clarke AO, is a pre-eminent scientist with a strong international reputation who can actively leverage on her connections in the international science and biotechnology community to promote Melbourne’s capabilities. The establishment of the Bio21 precinct and the biotechnology international alumni comprising Victorian scientists across the globe represents another important entrée to the international biotechnology community that the government should capitalise on to roll out the message 50

that Melbourne is the stand-out location for Australia-based biotechnology operations. The Committee for Melbourne should also play a key role in encouraging linkages through its prominent business leaders with key international biotechnology businesses and sources of finance. Likewise, the global network of city councils that can be accessed by the City of Melbourne is another mechanism for the promotion of the benefits of doing business in Melbourne. The role of the State government should then lie in providing coordination to the different arms of the marketing machinery established by the government’s branding objectives, pursuing strategically focussed investment attraction activities at individual firm levels in tandem with the other important initiatives associated with its strategic development plan. A shortcoming of the approach also appears to be the absence of measurable policy outcomes to enable the government to chart progress in implementing its policies. In terms of investment attraction and generation, obvious performance indicators would include the rate of success in attracting new investment from those companies that had been the subject of concerted marketing approaches.

CONCLUSION Inward investment is the new powerhouse of economic growth and development. As such, governments worldwide are seeking to leverage mobile capital flows to complement existing public and private investment in the development of emerging knowledge based industries domestically. Biotechnology is the new investment battleground facing Australian governments if our domestic capabilities are to be further enhanced or even maintained. It is certainly a sector which has been receiving a significant degree of policy attention, not only by the Commonwealth government, but also at the State and Territory government level.

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Biotech branding: Victoria’s plan to cash in on the ‘Biotechnology Revolution’ The Victorian government is in the vanguard of Australian State governments pursuing the biotechnology investment buck. Its ambitious objective to position Melbourne a major biotech force to be reckoned with by 2010 will require a concerted and coordinated marketing effort from a range of influential organisations within the State. However, marketing alone is insufficient. Branding will serve to raise the recognition of Melbourne as a location with strong and specific biotechnology capabilities. A strong brand image will help Victorian biotechnology researchers and companies get a foot in the door of the boardrooms of international investors. If the brand is not supported by fundamentally sound business conditions, access to competitively priced and skilled human resources, and the requisite infrastructure and scientific facilities it may ultimately fail.

References American Australian Business (2001a), Great Sights Great Life – a Great Place to Invest!, downloaded from the internet at <www.stroudgate.net/aab/articles>, 7 November 2001 American Australian Business (2001b), Melbourne – The Australian Biotechnology Capital, downloaded from the internet at <www.stroudgate.net/aab/articles>, 7 November 2001 BioAccent, Victorian Biotechnology and Bioscience Based Industry, Report prepared for the Victorian Biotechnology Strategic Plan, June 2001 Biotechnology Australia, Developing Australia’s Biotechnology Future – Discussion Paper, Commonwealth Department of Industry Science & Resources, Canberra 1999 Biotechnology Australia (2000a), Biotechnology and Innovation in Australia, Commonwealth Department of Industry Science & Resources, Canberra, January 2000 Volume 4, Issue 1–3, December 2002

Biotechnology Australia (2000b), Australian Biotechnology – A National Strategy 2000, Commonwealth Department of Industry Science & Resources, Canberra, July 2000 Biotechnology Australia (2000c), Australian Biotechnology – Progress and Achievements 2000, Commonwealth Department of Industry Science & Resources, Canberra, July 2000 City of Melbourne (2001a), Melbourne’s Biotechnology Capability, downloaded from the internet at <www.melbourne.vic.gov.au/ index.cfm>, 7 November 2001 City of Melbourne (2001b), Boston Biotechnology Report, downloaded from the internet at <www.melbourne.vic.gov.au/ index.cfm>, 7 November 2001 Committee for Melbourne (2001a), The Melbourne Experience for Smart Business and a Cosmopolitan Lifestyle, downloaded from the internet at <www.melbourne.org.au>, 9 November 2001 Committee for Melbourne (2001b), The Melbourne Advantage – Financial expertise Asia-Pacific access, Melbourne, November 2001 Commonwealth of Australia, Backing Australia’s Ability, National Innovation Policy Statement released by the Honorable John Howard MP, Prime Minister of Australia, January 2001 Department of Industry Science & Resources, Shaping Australia’s Future Innovation – Framework Paper, Commonwealth of Australia, Canberra, October 1999 Department of State & Regional Development (2001a), Risk and Reward – Encouraging Innovation in Victoria, Issue Number 5, 2001 Department of State & Regional Development (2001b), Biotechnology – Strategic Development Plan for Victoria Discussion Paper, Victorian State Government, Melbourne, April 2001 Department of State & Regional

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Helen Ratcliffe Development (2001c), Capture the Opportunity – Bio21 Melbourne, Victoria, Australia, Victorian State Government. Melbourne, June 2001 Department of State & Regional Development (2001d), Biotechnology – Strategic Development Plan for Victoria, Victorian State Government, Melbourne, August 2001 Department of State & Regional Development (2001e), Bio2001 – Melbourne the Australian Biotechnology Capital, Victorian State Government, Melbourne, August 2001 Department of State & Regional Development (2001f ), Technology Commercialisation Program, downloaded from the internet at <www.dsrd.vic.gov .au/sti/publications>, 14 November 2001 Desmet D, Finskud L, Glucksman M, Marshall N, Reyner M & Warren K, The End of Voodoo Brand Management, The McKinsey Quarterly, Number 3, 1998, pp106–117 Ernst & Young, The Australian Biotechnology Report 1999, Commonwealth Department

of Industry Science & Resources, Canberra 1999 Ernst & Young, Freehills, The Australian Biotechnology Report 2001, Commonwealth Department of Industry Science & Resources, Canberra 2001 Leonard M, BritainTM, Demos, London 1997 Marsh I, Multinational Corporation Investment as an Object of State Economic Strategy, Australian Journal of Political Science, Vol 35, No 1, pp63-84 Nelson R, National Innovation Systems – A Comparative Analysis, Oxford University Press, New York 1993 Office of the Premier, Victoria to Establish Australia’s First Synchrotron, Media Release 21 June 2001 Wells L, Wint A, Marketing Strategies to Attract Foreign Investment, Multinationals in the Global Economy, St Martin’s Press, London, 1993, pp168–187 West J, The Mystery of Innovation: Aligning the Triangle of Technology, Institutions and Organisation, Australian Journal of Management, Vol 26 Special Issue, August 2001, pp21–43

INNOVATION: MANAGEMENT, POLICY & PRACTICE – VOLUME 4 is available as ‘Readings in Innovation’ at discounted rates for course adoptions. For a quote, contact the publisher at: [email protected] (fax +61-7-5439 2911)

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Biotech branding: Victoria’s plan to cash in on the ‘Biotechnology Revolution’

APPENDIX A Australia’s Current Competitive Position in Biotechnology STRENGTHS • Globally competitive industry when measured relative to available labour force and resources – although small in comparison with the USA and EU • Business cost advantage in running R&D facilities compared with other nations • Supply of graduates and excellent training/skills providing a quality and readily available labour pool • Strong international reputation for quality of science and source of intellectual capital • Excellence in quality and cheap communications infrastructureHigh expenditure, relative to GDP, on public sector R&D • Improving links between public sector R&D providers and industry • Consistently high rating on comparative basis with other nations an the quality of life and cost of living indices • High level support for the Australian bio-industry through establishment of national agency (Biotechnology Australia) to drive new national bio-innovation initiatives • Australian State governments have raised level of support for bio-industries including significant funding levels and infrastructure provision • Identification by Commonwealth, State and Territory governments of biotechnology as a national priority for investment attraction efforts

OPPORTUNITIES • Longer retention and development of Australian IP prior to seeking international alliances/partners • Greater cooperation and collaboration at all levels with the USA and EU • Greater emphasis on international marketing benefits arising from recent taxation reforms • Streamlining and direct alignment of Australian regulatory systems and manufacturing standards with US and EU systems • Emphasis on high value Australian-based R&D platform technologies that have wide application • Improved targeting of industry incentives • Development of a coherent Australian biotechnology marketing strategy that is national and takes into account differences in target nations • Develop local cohort of experienced investment analysts knowledgeable in life science and biotechnology markets • Support for solutions to local problems with global applications (eg: salinity and land management) • Major opportunities in national/state integration of facilities to develop preclinical, structure based design and genomics/proteomics capabilities

WEAKNESSES AND THREATS • Moderately unattractive corporate taxes despite offset by recent capital gains tax changes. Tax regime changes have not yet led to significant new inbound investment targeting bio-business • Distance from major world markets, especially USA/EU, and travel time • Limited size of local markets to trial/sell or launch new products • Generally low business expenditure on R&D by the corporate sector and continued low investment by Australian business in biotechnology R&D • Lack of awareness by international analysts on the capability of the Australian biotechnology industry • Lack of industry-credible CEOs who have international commercial experience in the biotechnology industry • Limited but improving entrepreneurial culture and ethos in academic and graduate community • Moderate to low public and private R&D expenditure in all biotechnology segments compared with competitor nations (in absolute terms) • Generally less competitive high technology manufacturing costs compared with regional neighbours • Overall lack of scale – inadequate value for time spent maturing biotechnology business models in a domestic market leading To Australian companies seeking US/EU exposure as soon as models gain momentum • Weakness in experience in cross border/jurisdictional transitions of businesses • Consumer confusion or rejection of some biotechnology-based products based on ecological and/or safety concerns • Low salary and limited tenure has the potential to accelerate loss of human resources to other nations and/or away from biotechnology science based careers • Australia companies obliged in most instances to form alliances with multinationals for global marketing of product • Early seed-capital hard to assemble given long-term return on investment. This is marginally offset by Commonwealth Government Biotechnology Innovation Fund and other Commonwealth sources of pre-seed funding • Moderately small industry limits the mobility of people and knowledge/experience sharing, and requires larger companies to help seed smaller start-up entities • Public sector medical research with very high quality R&D is still slow to adopt an effective business culture and model Source: Ernst & Young et al 2001; pp24-5

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Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2002) 4: 54–69.

Clusters policy: A future strategy for Australia SUMMARY

The globalization of economic activity and the localization of industries have created innovation policy challenges for national and local governments. As a result, development policies based on clusters of firms and industries, drawing on economic principles which demonstrate the productivity benefits of clusters, have proliferated in developing and developed countries. This paper analyses those trends, their applications and benefits, and outlines a policy framework for implementing a national clusters policy in Australia. It concludes that a new generation of policy makers is required to move away from Australia’s current laissez faire approach, to provide innovation policies which are strategic, proactive, flexible and enabling. KEY WORDS development policy; cluster strategy; cluster economics; national innovation systems; knowledge industries; public-private sector cooperation Received April 2002

Accepted September 2002

LISA MCPHERSON* Commonwealth Department of Industry, Tourism and Resources Canberra

INTRODUCTION

H

istory indicates that clusters have existed in one form or other since man invented

trade (indeed historians point to the clustering of wool industries in medieval England and the cotton industry in the industrial revolution). As economies have become more complex and competitive, evolving business practices have also recognised the advantages of locating firms, sectors or industries near each other or near supply sources. Clustering as a policy tool however is a more modern

* The views expressed in this paper are those of the author only and should not be interpreted as those of Biotechnology Australia or the Commonwealth Department of Industry, Tourism and Resources.

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Clusters policy: A future strategy for Australia concept and is largely attributed to Michael Porter from the Harvard Business School. In his classic work The Competitive Advantage of Nations (1990), Porter argued that in advanced economies today, regional clusters of related industries are the source of jobs, income, and export growth. Porter defines a cluster as ‘a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities’ where, the ‘value of the system … as a whole is greater than the sum of its parts. He points out that relying on natural comparative advantages is no longer sustainable and the source of ‘competitive advantage often lies outside a given company or even outside its industry, residing instead in the locations of its business units’.1 Increasingly therefore, it is regions rather than nations that are the major competing forces in world markets. The nature of competition and competitiveness now emphasises ‘think global, act local’ as a way of doing business and succeeding in the international marketplace. The two seemingly competing tendencies, of the globalisation of economic activity and the localisation of industries have created policy challenges for national and local governments around the world. As a result in the last decade we have seen a proliferation of development policies based on clusters of firms and industries.2 Such policies have focused on various aspects of growth such as regional development, SME development, overall economic development, domestic capability building,

national innovation systems, and growth of ‘knowledge’ industries. In Australia the government has taken a laissez faire approach. Although there are some instances of local and state support for clustering initiatives there is no nationally accepted policy. This paper discusses Australia’s current position and the need to move to a proactive policy in order to stimulate and sustain high levels of economic growth. It recommends that to increase productivity we should consider following the lead of other prosperous countries and implement a national clusters policy. The paper touches on the wealth of theoretical economics that supports the principle of clusters and provides a brief history of cluster initiatives to date in Australia. It also outlines the benefits that can be obtained from industry clusters and provides a framework for implementing a national clusters policy in Australia. The paper concludes that initiating a national clusters strategy will require a new generation of policy makers, as it requires a move away from generic ‘hands off ’ policies to one that provides strategic enabling policies that must inherently be flexible in their nature and application.

AUSTRALIA’S CURRENT POSITION At the crossroads – should we now move to a more proactive strategic policy? Australia’s economic policies have undergone a period of rapid change (from the late 1980s

1 Porter (1997) 2 In the USA the states of Arizona, Florida, Massachusetts, Illinois, California, Texas, Kansas, New York, Rhode Island, Colorado, Connecticut, and Minnesota have all adopted industry cluster development policies. In Europe, Austria, Belgium, Spain, Finland, Greece, Germany, France, Ireland, Italy, Netherlands, Portugal, Sweden and the UK have adopted clusters strategies. Other countries as diverse as Canada, Mexico, Argentina, Brazil, Chile, South Africa, Morocco, Malaysia, Singapore and New Zealand have adopted cluster initiatives. In addition, multilateral organisations, such as the OECD, UNIDO, UNCTAD, The World Bank and the European Commission have taken up cluster strategies as tools for regional and local development.

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Lisa McPherson and through the 1990s). These changes resulted in major structural adjustments to the way Australians conduct business. A series of microeconomic reforms have been implemented to increase efficiency, and reduce costs to users, for what were predominantly public sector services including water supply, roads, rail, ports, airports, telecommunication services, electricity and gas generation and distribution. Reforms have encompassed labour market improvements, national competition policy,3 and a new taxation regime. This period of reform has provided us with a strong economic foundation that has enabled Australia to weather the ‘Asian crisis’ without any major damage. The government can for a moment congratulate itself on having stable macroeconomic policies – low inflation, low interest rates and responsible government finances. However, the question is ‘what now?’ Should government be complacent that it has got the ‘fundamentals right’ and therefore has ‘done its bit’, or should it be striving for greater growth by providing a new vision for Australia? Many would contend that Australia has well and truly been through the ‘Reform Agenda’ of dismantling and restructuring, and what is now needed is a move to an affirmative stage, or a ‘Positive Agenda’, where we build-on our strong foundation and increase the capability of Australian businesses.

Building productivity A major goal of any national government is to raise the living standard of its inhabitants and improve the quality of life. It is well accepted amongst western governments that ‘productivity determines prosperity’. The only way to have a prosperous economy is to create a high level of productivity throughout the economy, as a productive economy can pay high wages and increase general living standards. Improv-

ing productivity in today’s climate basically means improving Australia’s global competitiveness. Michael Porter (1998) puts this notion very succinctly as follows:

Competitiveness in a global economy •

•

A nation’s standard of living (wealth) is determined by the productivity with which it uses its human, capital, and natural resources – Productivity depends both on the value of products and services (eg better quality / service / brand, or uniqueness) as well as the efficiency with which they are produced. – It is not what industries a nation, state, or city competes in that matter, but how firms compete in those industries. – Productivity in a nation is a reflection of what both domestic and foreign firms choose to do in that location. The public and private sectors must each play different but interrelated roles in creating a competitive economy.

Porter contends that a nation can be prosperous and productive in virtually any field. He advises that governments should stop thinking that traditional industries are bad and that all nations must move into all things hi-tech. Instead the focus of government should be on boosting productivity capacity of the nation’s economy through improving skills and technology. As an advanced nation however, we cannot rely simply on imitating others products (and try and produce them at a lower cost), rather we must develop innovative capacity to produce unique or better products and services. Therefore we need to first assimilate, attain and extend best practice from around the world, then we must take it one

3 Hilmer (1993)

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FIGURE 1: THE MICROECONOMIC BUSINESS ENVIRONMENT – PORTER DIAMOND

step further to gain higher productivity by developing our own best practice (by creating a unique and sustainable competitive position). Porter asserts that there are two fundamental aspects of building a productive economy. The first is to create a sound and stable macroeconomic, political, and legal environment. No one can deny that the Australian government has achieved this aspect. However, Porter claims that ‘from studying economic development around the world we know that having good macroeconomic policies is not enough. Macroeconomic policies do not create wealth. They make it possible or easier for firms to create wealth, but prosperity will not rise unless the microeconomic foundations of the economy are sound and improving.’ Consequently the second aspect of building a productive economy relies on getting the microeconomic business environment correct. Porter suggests there are four dimensions that are important. These four dimensions can be graphically represented by the ‘Porter Diamond’ (Fig. 1). The systemic nature of the diamond promotes clusters of competitive industries. These industries can be linked vertically, through buyer-seller relationships, or horizontally Volume 4, Issue 1–3, December 2002

through common customers, technologies or distribution channels. Clusters generate synergies as benefits flow backwards, forwards and horizontally. The interconnections in the cluster, often unanticipated, lead to perceptions of new ways of competing and accessing new opportunities. The competition in the cluster and the threat of new entry, from either direct competitors or through vertical integration of suppliers or customer companies, provides an incentive to overcome firms inertia and stimulates an atmosphere of continuous upgrading. Porter contends that clusters are the building blocks of a productive, innovative economy. A cluster is more than a single industry making a single product. Successful clusters involve a variety of related industries, suppliers and institutions all located in a geographical proximity. He purports that facilitating cluster development is a major role for government. In assessing Australia’s current position one could conclude that government has only focused on three of the dimensions of the diamond so far. Namely: • opening up the economy to global competition (through tariff reductions and introducing national competition policy); • microeconomic reform and restructuring

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Lisa McPherson of major inputs (such as gas, electricity, transport, telecommunications, finance, and the regulatory framework); • supporting public sector research infrastructure and providing a strong education system (as a result both the government, and the Australian consumer, could be considered to be discerning customers with a high take up of innovative products). However the final dimension of actually bringing the elements all together to facilitate strong industry clusters is still largely missing in Australia’s current policy framework.

THEORETICAL SUPPORT FOR CLUSTERS POLICY The relatively recent work of Porter (1990) and Krugman (1991) has done much to revive interest in the economics of industrial clusters and remind economists that geography does matter. However, it is important to note that this is no ‘flash in the pan theory’, as this theme in fact has a long and distinguished history of economic analysis. The phenomenon of clustering is also well recognised by historians of the industrial revolution such as Mathias (1983). Alfred Marshall was one of the first economists to write about clusters. He developed the concept of external economies from observing various industrial districts. In 1920 Marshall wrote ‘when an industry has chosen a locality for itself it is likely to stay there long: so great are the advantages which people following the same skilled trade get from near neighbourhood to one another…and presently subsidiary trade grows up in the neighbourhood.’ The advantages of locating in a cluster, referred to by Marshall, are related to the

availability of skilled labour and intermediate goods suppliers, and also to the easy transmission and discussion of new ideas or improvements. It is this last concept, ‘transmission of new ideas’, that ensures that geography, and therefore clustering, may continue to be relevant even today in the electronic communication age. Pavitt (1987) noted that some economic analysis made the assumption that technological knowledge can be completely codified in the form of patents, blueprints, operating manuals, and so on. If this were true, then all such codified information could be transmitted worldwide at very low cost, and geography would not matter. However, Pavitt correctly observed that in reality ‘most technology is specific, complex, often tacit, and cumulative in its development’. Such tacit knowledge is much harder, or even impossible, to transfer via electronic communications. It requires geographical proximity and face-to-face contact to maximise knowledge transfer of such sort. Swann4 et al (1998) contend that subsequent studies of cluster phenomena emanate from five distinct traditions: • The first is the subdiscipline of Urban and Regional Economics. This stems from the pioneering work on location theory by Weber (1928) and Losch (1954), and the related theory of ‘growth poles’ by Perroux (1950). The tradition of locational models within industrial economics is derived from Hotelling’s (1929) study of ice-cream sellers on a beach. • The second tradition is that of Economic Geography. Economic geographers have long been concerned with clustering, both at a theoretical and empirical level. The literature in this area is vast, however there are two reviews that summarise

4 For a comprehensive review of the literature on clusters please see Rui Baptista’s Chapter 2 – Clusters, Innovation and Growth: A Survey of the Literature in the book edited by Swann et al The Dynamics of Industrial Clustering – International Comparisons in Computing and Biotechnology, Oxford University Press 1998

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Clusters policy: A future strategy for Australia some of the most important issues from the economic geography perspective (Amin & Goddard (1986) and Conti et al. (1995)). • The third tradition is history. Both historians and economic historians such as Mumford (1961), Jacobs (1961 and 1969), Briggs (1968), Bairoch (1988) and others have studied clusters. • The fourth tradition is an analytical styled development of the history approach in that it emphasises why ‘history matters’. It could be considered the ‘path dependent approach to economics’. It includes the work of Arthur (1989 and 1990), David and Rosenbloom (1990), Krugman (1991), Brezis and Krugman (1993). • The fifth tradition is mainstream economics New Growth Theory, by economists such as Romer (1986 and 1990), Grossman and Helpman (1992). There are also empirical studies of regional spillovers by Jaffe (1986) and others. There are also many empirical industry and technology studies that have made a substantial contribution to our understanding of clustering as a phenomenon. Recently various OECD work groups have conducted a substantial body of work. In contrast, very little research has been published on industry clustering in Australia.5 Many European countries have adopted clusters policies. The European experience has found that the differences in patterns of agglomeration can be related to differences in local environment. The characteristics of clusters are highly dependent on the social, political, and economic environment of the region. However, from case study comparisons, there appears to be three properties that are common to all successful innovative clusters. These properties are:

• Formal and informal networking, allowing for effective transfer of technology and other organisational capabilities; • Close user-producer collaboration allowing for production flexibility and joint development; • Mobility and flexibility in the local labour market, allowing for low redundancy costs and easy adaptation to changes in products and processes. Such flexibility in production and knowledge structures of firms and workers reflects Piore and Sabel’s (1984) concept of ‘flexible specialisation’, which has much in common with Marshall’s (1927) original concept of an ‘industrial district’. However it is important to note that there is no single model that is pertinent to all clusters. Ultimately survival will depend on the ability to evolve and adapt to the forever changing global landscape.

CLUSTERS POLICY IN AUSTRALIA TO DATE Over the past century Australia has facilitated numerous clusters, many relied heavily upon rural and extractive industries (such as meat, wool, wheat, sugar, raw materials, steel, aluminium), but others stemmed from manufacturing industries (such as motor vehicles, whitegoods, printing and publishing, and textiles). However, Australian industry clusters reached their peak by 1970. The initial impacts of globalisation and other events in the early 1970s marked the beginning of a period of rapid decline in both Australian manufacturing and primary production. The change in Australian economic policies in the 80s and early 90s accelerated the decline. The deregulation of the financial sector and the introduction of national competition policy exposed domestic industries for the first time to national competition. This was

5 There has been some work by Morkel (1993), Brown (1996), Marceau (1997, 1999), Blandy (2001)

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Lisa McPherson seen to have a major impact on regional industry employment, investment and development. The combined effects of globalisation and national reforms has produced a gradual hollowing out of core elements of many older clusters.6 Australia has seen many of its domestic firms that were integrated in the steel, textile and automobile industry clusters move offshore or close down. By the mid 90s many of the old industry clusters had been replaced by globally integrated business networks run by major multinationals. Networking and innovation have since emerged as important platforms of public policy,7 in an effort to integrate Australian industries more into global business structures. The Australian Manufacturing Report8 essentially introduced the concept of clustering, if not the exact terminology, by proposing regional industry partnerships involving core local industries working with other regional industries to strengthen networks, encourage innovation and development, and technology transfer. This was followed by the McKinsey Report Lead Local, Compete Global 9 that was the first report to actually suggest clustering as a basis of industry and economic development. Subsequently, Paul Keating’s Working Nation10 policy and several other initiatives led to commonwealth and state governments investigating and recommending a range of policies to facilitate the development of clustering as a means of stimulating regional industry development in Australia. The federal Labour government introduced the ‘regional development program’ which adopted clustering as a means of fostering economic development. The program was run through regional development organisations in 6 7 8 9 10

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most states. However, following the change of government in 1996, commonwealth funding for the program ceased in 1999. Essentially, respective state governments are driving any current processes of facilitating industry clusters at much lower funding levels. Enright and Roberts (2001) have prepared a useful breakdown of the various state and territory government initiatives to encourage clustering. This six page summary has been reproduced at Attachment A, to give the reader a more comprehensive understanding of the scope of activity currently taking place in Australia. The paper highlights that there are significant differences in public policy support for clustering at all levels of government within and between the States – (South Australia and Queensland are the only two states that have strongly embraced the clusters framework, whereas NSW, Victoria and Western Australia have chosen to pursue attraction of MNCs to stimulate industry development). The paper also indicates that while there is some strong interest and activity in regional areas the concept of clustering has been basically ignored for the major metropolitan areas of Sydney and Melbourne. Enright points out that ‘It is in the metropolitan regions where some of the most difficult problems resulting from structural adjustment, and the greatest potential to develop clusters, are to be found.’ Although the current Coalition Government does not have an overarching industry ‘clusters policy’, there is some latent interest in the concept, with partial support already occurring for regional industry clusters. The Regional Summit 2000 produced several initiatives to support the development of regional

Marceau (1997) Hawke, Keating & Button (1991), Bureau of Industry Economics (1991) Pappas et al (1990) McKinsey & Co (1994) Keating (1994) INNOVATION: management, policy & practice

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Clusters policy: A future strategy for Australia Australia. The Regional Solutions Program11 and the Regional Assistance Program12 have supported clustering initiatives in regional Australia. The National Innovation Summit 2000 gave tacit support to the value of industry clustering, but choose to continue support for the more generic programs to stimulate industry productivity through innovation support, such as the R&D Tax Concession and Start Grants Program. The Government has also focused on industry linkages with public sector research agencies and universities through the Cooperative Research Centres Program. Such programs are essentially market driven with funds provided on a competitive basis. Such programs are less holistic than a clusters strategy as they are more likely to add value to a particular firm or research area, rather than stimulate an entire industry cluster. One of the main reasons this government has not fully embraced a national clusters policy is because there is still the fundamental philosophical debate between policy makers. The debate is ‘whether clustering should be left to industries to drive, or whether governments should support initiatives to facilitate the development of local and regional industry networks and clusters?’ ‘[in the past] the accepted norm has been to argue that there is no role for government to play other than ensuring that necessary infrastructure is provided effectively at low cost and that markets are distortion free. Extreme proponents of this view argue that any form of government assistance creates distortions and is therefore to be avoided at all cost. Unfortunately, this view ignores the reality that the world’s competitive markets are full of distortions. Successful players

– companies and countries – are those who exploit them most quickly and skilfully.’ ‘If there is a role for public policy then it must focus on tailored solutions rather than blanket paradigms. Success is achieved in different industries in different ways. Neither the pure level playing field nor the protection for infant industry approach is adequate in a world of increasing complexity. [Australian government needs to] help equip Australian firms to compete internationally.’ George Pappas, Boston Consulting Group However, numerous studies now indicate that successful economies need both. Industry needs to be the main driver of clustering for the concept to be successful, but OECD studies would support that government has a role as a catalyst for action, a network facilitator, an honest broker, and an institution builder.

WHY SHOULD WE ADOPT A CLUSTERS POLICY? With Australia’s small population it is obvious that for firms to be successful they cannot simply cater for the domestic market but must strive to compete in the large global market. As John Stuckey, from McKinsey and Company, said (1998) ‘Even a small share of a global sliver can be worth billions. However, the only way to win a global sliver is to have strong intangible assets, such as knowledge, brand, reputation and special relationships. They increase your ability to identify and exploit attractive slivers.’13 Clusters policies enables local regions to build those special relationships and gain those intangible assets of knowledge, brand and reputation, which enable them to compete in the world market.

11 administered by the Department of Transport and Regional Services 12 administered by the Department of Workplace Relations and Small Business 13 In 1999 Australian wine exports were 2.4 % of the world wine market, which equated to $1.02 billion. (Marsh & Shaw 2000).

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Lisa McPherson The benefits to be found in industry clusters can include: • The availability of specific natural resources – many clusters have traditionally formed around natural resources. Australia is well placed to also exploit such resources as oil, gas, and minerals, but also ocean resources such as fish, and micro-organisms etc. • Proximity to markets – despite the reduced cost of international transport today there are still benefits associated with being close to markets. Close interaction with customers is one advantage, enabling firms to have a better understanding of changing tastes and needs. Australia is well placed to take advantage of the growing Asian market. Australia is also well placed to take advantage of ‘time zone’ activities. • The presence of input and equipment suppliers – close interaction and a high frequency of exchanges between co-located producers and users not only underpins competition but also stimulates innovation. It also enables specialisation to take place. Clusters may also provide a lower risk environment for new firms entering the cluster, as there is access to pre-existing customer bases and supplier chains. Savings can also be found through lower inventory costs, fewer delays, and predictable pricing arrangement. • Supplies of specialised labour – specialised labour pools develop around clusters, often stemming from the proximity of universities. A shared labour pool provides flexibility and efficiencies for firms seeking specialist skills in the market and facilitates technology transfer. • The availability of infrastructure – industries may benefit from the supply of both specific and generic infrastructure such as roads, ports, airports, R&D laboratories, education and training facilities et. • The economies of scale in production – there are some industries that can only sup62

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port a small number of efficient-scale plants in a given market eg commercial airframes or jet engines. Low transaction costs – Localisation can reduce the costs of transactions, including the costs of negotiating and monitoring of contracts and the costs associated with the potential for opportunistic behaviour. When firms operate near to each other, and the frequency of interaction is high, familiarity, trust and social norms may reduce the costs of contract negotiation and enforcement. Some industry clusters may develop standardised contracts and transaction mechanisms as well as a common language that lower the cost of negotiation. Superior access to information – the literature on innovation suggests that informal, unplanned, face-to-face, oral communication is critical to the innovation process. Clusters facilitate this type of communication. The geographic concentration of firms, suppliers, and buyers in the cluster provides short feedback loops for ideas and innovations. Clusters provide the opportunity to access the specialised information embedded in personal, community and business relationships, about markets, technology and competitive strategies. Institutional support – clusters often have mutually supportive relationships with local universities, standards agencies, think tanks, research laboratories, training providers, trade association, and venture capital institutions. Obtaining critical mass – the clustering of firms can reduce the unit costs of technical services provided to members of the cluster. By operating in close proximity firms can also more easily subcontract to competitors those orders that exceed their own capacities, as proximity allows greater knowledge of the capabilities of contractors. Firms in a Volume 4, Issue 1–3, December 2002

Clusters policy: A future strategy for Australia cluster are able to form a consortium to tender for large projects or access export markets. Australian industry is largely made up of SMEs (the majority of which do not currently export) that could benefit from the advantages of clustering.14 • Attracting foreign direct investment –

regional clusters often provide a focal point for investments as they have the concentration of labour, skills and infrastructure that attract foreign investors. Clusters can also create a favourable environment for innovative spinoffs.

One of the criticisms of Australia’s policy approach is the short-term focus of its previous policies, which react to problems in the economy as they emerge rather than being proactive in preventing the problems. A clusters policy would involve indicative planning to clarify longer-term strategic objectives. Such planning would help to lengthen the policy horizon and would provide an increased certainty for the industrial community, which would assist it to co-ordinate industrial investment in the future.

STEPS TO IMPLEMENTING A NATIONAL CLUSTERS POLICY Initiating a ‘national’ clusters strategy in Australia is not going to be an easy task due to our tri-level system of government and the coordination problems that it engenders. However, the economic benefits15 that could accrue to the nation, by having strong industry clusters, should be the focal point for triggering collaborative behaviour by all parties. Any serious clusters strategy must be considered a long-term initiative as substantial

14 According to the ABS A Portrait of Australia’s Exporters: A report based on the longitudinal Survey 2000, in 1997 /98 only 4% of all businesses exported. The ABS estimated that there were 21,800 exporting businesses in Australia. This was made up of 16,600 small businesses (less than 20 employees), 4,500 medium businesses (20 to 200 employees), and 700 large businesses (over 200 employees). Whilst small businesses made up 77% of total exporters they only accounted for 13% of the total export revenue. The majority of revenue 49% went to large exporting businesses, with 38% going to medium businesses. The benefit of clustering is highlighted by the wine industry (see Marsh & Shaw 2000). The wine industry is made up of a small number of larger players and a large number of small players (there are over 1000 wine producers and an additional 4000 winegrape growers) in Australia. However, using a cluster strategy to focus innovation and marketing, the wine industry has been able to achieve a rate of 40% of all producers exporting. Indeed the growth in this industry has been remarkable. In the mid 80s it was exporting 2% of total production, by 1999 it was exporting 32% of total production. Australia now produces only 2% of world wine, but now holds 2.4% of the world wine market by volume and 3.5% by value. 15 Blandy’s cost benefit analysis of SABV 2010’s industry clusters program determined that the cumulative financial benefit cost ratio was in the order of 30:1. There would also be other benefits such as growth in employment. However, an analysis of the recent world literature on clustering still indicates that there is a lack of consensus as to the existence of clear causative links between clustering ‘policies’ and economic development. Most countries have adopted cluster policies on the basis of the strong evidence of growth of specific industry clusters around the globe (such as the high technology agglomerations of Silicon Valley and Route 128, the fashion capitals of Paris and Milan, the industrial districts of Northern Italy and Spain etc). However, these successful clusters have often occurred naturally rather than through any specific government policy. The argument is that lessons can be taken from these successful clusters and applied through policy to build up the capability of less dynamic industries.

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Lisa McPherson benefits from clustering typically takes 5-10 years to accrue. Consequently any government truly committed to establishing sustained economic growth and improved social well being for Australia should seek bipartisan support. In addition, a successful clusters strategy would not simply be an industry department policy, as it also includes activities that relate to the majority of other government departments (ie education, training, research and development, regional develop-

ment, small business, industrial relations, regulations, finance and taxes, agriculture, defence, health etc). Therefore a successful policy would need ‘whole of government’ endorsement. Such a policy would probably need to originate as a recommendation from the Prime Minister’s Science, Engineering and Innovation (PMSEIC) which has broad ministerial membership. That said, an ‘idealised’ clusters process may include the following steps:

• Determine the overall goals and the scope of the policy initiative. • Initiate discussion on the cluster development process (this may involve national forums or workshops with leaders from the public and private sectors to explain the benefits of clustering and to get key players on board).16 • Identify17 and map existing clusters and location-specific attributes in the economy.18 A break out session at the 2000 National Innovation Summit, facilitated by Professor Peter Hoj, recommended that ‘a compilation of past and present cluster activity in various sectors of the Australian economy, and wide dissemination of its lessons is urgently needed.

The analysis of practical Australian examples should include identification of impediments and consideration of the regulatory environment. Opportunities flowing from the range of Australian infrastructure, whether it be natural resources, transport, communications, or the research base, need to be identified. Such a case studies would be used as an awareness raising tool, a resource guide for cluster formers, a focussed forward action agenda for government, businesses, and research providers, and as the basis for the establishment of a framework for an action agenda type approach. This will also engender a much needed culture shift’. • Strategic prioritisation19 of efforts by clus-

16 The Commonwealth and State Joint Advisory Group on Science, Technology and Innovation would be a useful body to drive the process, but will need to work closely with industry. 17 It is generally accepted that policy makers should refrain from seeking to build entirely new sector-specific clusters. 18 Roeland et al distinguishes two empirical methods for identifying clusters, the monographic method and the input-output method. The monographic method generally uses a cluster chart based on Porter’s diamond to identify the most important clusters in an economic system. It can be used to identify innovative clusters as well as value-added chains. This method generally involves interviews, surveys, and case studies, the techniques used are more qualitative than quantitative. The input-output method is the most quantitative method. Based on the linkages in an input-output table, the sectors that use each other’s products are identified and grouped into clusters. This method can be applied for several years or countries, which adds to the objective character of the method. These methods are useful for determining meso clusters. However, any policy aimed at stimulating innovative clusters should also include detailed studies of micro clusters in the economic system. 19 Enright suggests ensuring that a portfolio of different types of industry clusters be addressed as not all cluster initiatives will take off promptly. He stresses that the selection process should not become politicised. The goal is to enable working clusters to extend their positions, to help latent clusters develop linkages necessary for their development, to help generate potential members of potential clusters, and to avoid supporting spurious clusters. The Japanese and UK governments have used foresighting techniques to

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Clusters policy: A future strategy for Australia ters (finite resource will require some strategic decisions to be taken as to which clusters are going to provide the most benefits to Australia. Also not all clusters identified are going to necessarily want or need assistance. Various clusters are going to be in different stages of their life cycle). • Clarify the roles of the relevant public, private, and support entities with respect to the individual clusters (in the majority of cases the appropriate level for active government will be at the local or regional level, the national government however may play a supportive and supervisory role). • Collect detailed information on each cluster20 (their markets, competitors, suppliers, customers, vertical and horizontal linkages, technologies, the local economy in

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terms of its capabilities, governance structures and institutional infrastructure, what stage of the life cycle the cluster is in ie latent, embryonic, expanding, mature). Engage key groups and individuals to lead and drive the process21 Assess and plan direction and targets (what are the issues, problems, challenges, market failures22 that need to be addressed? What can be achieved quickly what will require a longer-term strategy?23 Who will action it and how?). Co-ordinate the public and private activities including investment24/co-investment in public goods (such as specialised infrastructure, training, research and development activity, communications and transport). Establish an appropriate cluster organisation25 to oversee the process.

involve industry, university and governments in identifying future strategic directions and priorities. Such activities have also been valuable tools at initiating interactions, trust and collaborative effort needed for clusters development. Participants in cluster initiatives are unlikely to overcome reluctance to co-operate in the absence of some clear benefit for doing so. A commissioned piece of analysis containing where they stand against competitors and how their position could be improved is useful to present to participants. Ideally private sector should lead cluster development initiatives with the public sector playing a catalytic role (for example through promoting inter-firm networking, ensuring access to infrastructure and communications, disseminating information, supporting educational and training services, making appropriate changes to regulations that retard or restrict growth etc). If the private sector cannot or will not participate in a cluster then the government should not engage in it. Initiatives that target specific market failures are most likely to bring benefits to the cluster. The actual process of identifying and understanding how, for example, the under provision of public goods and coordination failure constrains a particular cluster can point toward fruitful areas of public/private or private/private cooperation and investment. Markets may under supply some essential business services and certain types of information, especially to SMEs. It is appropriate for public policies to address such market failures. An emphasis on targeting market failures will ensure that political or specific interest group interests do not capture initiatives, or that public initiatives will stray into areas that are best served by the market. Initially adopt a low risk/early return focus. It is useful to generate small but evident gains through collaborative effort at the outset to build up trust in the cluster. As success develops, higher risk/longer term activities can be introduced. Investment promotion can be focused on important linkages needed in the cluster (ie can fill in gaps in the value chain) Many types of cluster organisations exist. Some are public agencies, such as regional development agencies, others are private organisations such as industry associations or chambers of commerce (generally industry associations cover too broad a geographic area and represent too narrow an industry constituent. There is also often inertia to change within the associations, they see their role as traditionally providing lobbying or social networking functions for members.) Other alternatives are specifically developed public-private partnerships or stand alone autonomous organisations. Whatever the form, such organisations have key

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Lisa McPherson • Market and disseminate information about the cluster and the locational advantages it offers. • Continuous evaluation26 of both the individual cluster and the national policy.27 (initial progress, the outputs, the outcomes,

effectiveness has it met its goals, cost-benefit analysis, benchmarking) • Decide whether to terminate28 or institutionalise mechanisms that have been successful. Adapted from LEEDs workshop paper

It is also essential to understand that each cluster will have unique attributes and development requirements. Therefore it is not a simple case of directing the same policies at the various industries, or even copying the same policies other countries have adopted for their respective industries. What is needed to support clusters is a well developed set of generic public policies based on addressing market failure, that are flexible enough to adapt to the individual needs of specific clusters. Action Agendas would provide an appropriate avenue for identifying the necessary adjustments to programs and policies that could promote industry clustering.

standing of the innovation dynamics and innovation style of a particular cluster and the flexibility to decide on their most appropriate role (including the decision that there might not be a role to play!) to foster innovation and economic growth. This mostly requires a trajectory of experimentation and constant policy learning as policy making related to clusters involves a great deal of “trial and error”. Clusters policy makers need to be able to mix and switch between various roles and need a certain persuasiveness and perseverance.’ Clusters policies could be considered extremely demanding for policy practitioners, as they have to be able to: • Straddle the gap between cluster analysis and policy implementation, ie to be able to combine a fairly pragmatic action-orientated approach, but also to be able to reflect on policy making as well; • Understand the whole set of policy tools available, and know which tools to use and when;

A NEW GENERATION OF POLICY MAKERS The OECD clusters focus group reported in June 2001 that ‘for clusters policies to be successful, a “new breed” of policy makers is needed. They need to combine the analytical skills required to obtain an in-depth under-

functions. They provide a forum for interaction and collaboration among firms, firms/government, firms/supporting institutions such as universities, research centres, or financial institutions. The appropriate governance structure will be dependent on the nature of the organisation. 26 Existing national collections of statistics by Standard Industrial Classifications has limitations as clusters usually involve inter-linkages among firms belonging to different branches of manufacturing and services. 27 There is always difficulty in evaluating policies or programs that are not narrowly defined with easy to measure performance indicators. Likewise it is difficult to measure policies and programs where the impact is expected to be long-term rather than immediate. It is also acknowledged that determining ‘causation’ in something as interwoven as a cluster policy would also be a major challenge. However, as such policies become more commonplace, bodies such as the OECD and academics throughout the world are turning their attention to finding suitable evaluation mechanisms and practices that could be used. 28 As not all initiatives will be successful it is important to create a mechanism for terminating an initiative if it fails to produce results. Termination as such should not be viewed as a failure of the policy, but rather a sign that the policy is stringent about ensuring targets are met.

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Clusters policy: A future strategy for Australia • Handle various complex clusters programs and projects, ie switch between various clusters which might have very different needs in terms of support and steering; • Act in various capacities, ranging from secretariat, program managers, dialogue facilitators, change agents, institution builders, regulation reformers, etc; • Withstand the pressure to use clusters policies for traditional interventionist industrial policy purposes.

CONCLUSION Clearly a clusters approach cannot be put into practice overnight. Not only is the clusters approach demanding in terms of the time and skills it requires of individual policy makers, it is also demanding as it has to fit into the framework of existing government policies and budgets. The clusters approach is an organising framework in which the various types of policy that affect clusters come together. This implies a need to maintain coordination between various government jurisdictions, whilst not necessarily offering an immediate policy fix or standardised set of policy programs. Consequently, clusters-based policy making has been described as a ‘multidimensional balancing act between analysis and policy actions allowing for bottom-up initiatives and top-down steering.’ The burning question is, are we ready for the challenge? ‘Policy development is a continuous process. We cannot afford to be complacent in addressing challenges generated by ongoing changes in the world. We must meet the challenges and make the best of the emerging opportunities.’ Russell Higgins, Secretary of the Department of Industry, Science and Resources (1998) Volume 4, Issue 1–3, December 2002

References Australian Bureau of Statistics, 2000, A Portrait of Australia’s Exporters: A report based on the longitudinal Survey. Amin, A., and Goddard, J., 1986, Technological Change, Industrial Restructuring and Regional Development, London: Allen and Unwin Arthur, W.B., 1989, Competing Technologies, increasing returns, and lock-in by historical events, Economic Journal, Vol 99 (394) Arthur, W.B., 1990, Silicon Valley Locational Clusters: do increasing returns imply monopoly?, Mathematical Social Sciences, Vol 19 Bairoch, P., 1988, Cities and economic development from the dawn of history to the present, Chicago University Press Blandy, R., Industry clusters program: a review, report prepared for South Australian Business Vision 2010, www.clusters.com.au Brezis, E.S., and Krugman, P., 1993, Technology and the life-cycle of cities, NBER Working Paper Briggs, A., 1968, Victorian cities, London: Pelican Books Brown, R., 1996, Industry clusters: a new approach to economic development in regional Australia, Occasional Paper No 2 Dec 1996 AGPS Canberra Chapman, P., 2000, Assisting cluster development and networking in regional economies of South Australia, University of Adelaide, Centre for Labour Research Conti, S., Malecki, E., and Oinas, P., 1995, The industrial enterprise and its environment: Spatial Perspectives, Aldershot: Avebury David, P.A. and Rosenbloom, J.L., 1990, Marshallian factor market externalities and the dynamics of industrial localisation, Journal of Urban Economics, Vol 28 Enright, M. and Ffowcs-Williams, I., Local partnership, clusters and SME globalisation, Workshop paper Enright, M. and Roberts, H., 2001, Regional

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Lisa McPherson clustering in Australia, Australia’s Choice – Economic strategies for a prosperous and fair society, Vol 26 Special issue Australian Journal of Management Aug 2001. Ffowcs-Williams, I., 2000, Policy for inter-firm networking and clustering: a practitioner’s perspective, Paper presented at the OECD conference Bologna June 2000 Green, R., 1999, What makes global regions – the roe and significance of regional innovation systems, Background paper for innovation summit, ISR Grossman, G., and Helpman, E., 1992, Innovation and growth in the global economy, Cambridge, Mass: MIT Press Hawke, R., Keating, P., and Button, J., 1991, Building a competitive Australia, Canberra, AGPS Hilmer, F., 1993, National Competition Policy, report by the Independent Committee of Inquiry, Canberra, AGPS Hoen, A., Three variations on identifying clusters, Netherlands Bureau for Economic Policy Analysis. Hotelling, H., 1929, The stability of competition, Economic Journal, vol 39 Jacobs, J., 1961, The death and life of great American Cities, New York: Random House Jacobs, J., 1969 The economy of cities, London: Penguin Books Jaffe, A.B., 1986, Technological opportunity and spillovers of R&D: Evidence from firms’ patents, profits and market value, American Economic Review, Vol 76(5) Keating, P., 1994, Working Nation: Policies and Programs, AGPS Krugman, P., 1991 Increasing Returns and Economic Geography, Journal of Political Economy Vo 99 Krugman, P., 1991, Geography and Trade, Cambridge, Mass: MIT Press LEED Clusters Focus Group, 2001, Main results fro the NIS focus groups, clusters, mobility, and the innovative firm, OECD Paper 68

LEED Secretariat, 2001, Local networks of enterprises in the world economy, Issues paper prepared for the World Congress on Local Clusters, Paris Jan 2001. Losch, A., 1954, The economics of Location, New Haven: Yale University Press Lowe, J., and Miller, P., Business clustering: panacea or placebo for regional Australia?, Paper prepared for first national conference on the future of Australia’s country towns Marceau, J., 1997, The disappearing trick: clusters in the Australian economy, Paper prepared for the OECD conference Amsterdam Oct 1997 Marceau, J., Siclen, D. and Manley, K., 1997, The high road or the low road?, Sydney: Australian Business Foundation Marsh, I., and Shaw, B., 2000, Australia’s Wine Industry: collaboration and learning as cause of competitive success, Australian Business Foundation, www.abfoundation .com.au Marshall, A., 1920 Principles of Economics, 8th ed, London: Macmillan Mathias, P., 1983, The first Industrial Nation: An Economic History of Britain 1700-1914, London McKinsey & Company 1994, Lead local, Compete Global: Unlocking the growth potential of Australia’s regions, Sydney: McKinsey & Co Mumford, L., 1961, The city in history, London: Penguin Books Nolan, A., 2000, Regional dimensions of enterprise development, Presentation to the manufacturing prosperity conference Adelaide July 2000. OECD Working Group on Innovation and Technology Policy, 2001, Main messages of the NIS synthesis report, Working paper June 2001. Pappas, Carter, Evans, Koop & Telesis, 1990, The global challenge – Australian manufacturing in the 1990s, Australian Manufacturing Council

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Clusters policy: A future strategy for Australia Pavitt, K., 1987, On the Nature of Technology, Brighton: University of Sussex Science Policy Research Unit Perroux, F, 1950, Economic Space: Theory and Applications, Qtrly Journal of Economics, 64(1) Porter, M., 1990, The Competitive Advantage of Nations, London: Macmillan Porter, M., 1997, ‘Clusters and Competition’ in On Competition, Harvard Business School Press Porter, M., 1998, Address at the Wellington Town Hall November 1998, www.cluster navigators.com Roelandt, T. and den Hertog, P., Summary report of the focus group on clusters. Roelandt, T., 1998, Cluster analysis and the system of innovation approach – Research strategies and policy implications, Paper presented at OECD conference Sydney Nov 1998. Roelandt, T., den Hertog, P., Van Sinderen, J., Ven den Hove, N., 1999, Cluster Analysis and Cluster Policy in the Netherlands, in:

OECD, Boosting Innovation: the Cluster Approach, Paris Romer, P., 1986, Increasing returns and long run growth, Journal of Political Economy, Vol 94 Romer, P., 1990, Endogenous Technological Change, Journal of Political Economy, Vol 98 Schibany, A., Hamalainen, T., Schienstock, G., 2000, Interfirm co-operation and networking: concepts, evidence and policy, Paper for OECD project on National Systems of Innovation. Swann, P., Prevezer, M., Stout, D., 1998, The dynamics of industrial clustering – International comparisons in computing and biotechnology, Oxford University Press. Weber, A., 1928, Theory of the Location of Industries, Chicago: Chicago University Press Whalley, J. and den Hertog, P., 2000, Clusters, innovation and RTOs – A synthesis of the findings form the RISE cluster studies, Final report of RISE, http://centrim.bus .brighton.ac.uk/go/rise

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The determinants of foreign pharmaceutical firms’ FDI entry mode choices between joint venture and sole venture into China SUMMARY

KEY WORDS foreign pharmaceutical firm; FDI; entry mode; sole venture; joint venture; China

The popularity of foreign direct investment (FDI) activities in China also applies to the pharmaceutical industry. Foreign pharmaceutical firms invest their capital and technology in what is likely to be developed as the world’s largest pharmaceutical market in the future with the expectation they will earn an excellent return in a longer term. This study aims to investigate the determinant factors that affected foreign pharmaceutical firms’ decisions in choosing either a joint venture or sole venture entry mode into the Chinese pharmaceutical manufacturing industry. This research shows that the probability for establishing a joint venture in China is positively related to the importance of China’s investment environmental and market factors. A marginal significant positive relationship between sole venture entry mode and the importance of parent firm’s decision task related factors is found. Received March 2002

Accepted September 2002

CHRIS CHRISTODOULOU Australian Graduate School of Entrepreneurship Swinburne University of Technology Hawthorn, Victoria

FUMING JIANG* Lecturer International Marketing Strategic Management School of Business Charles Sturt University Albury, New South Wales

*

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HO-CHING WEI Department of Banking & Risk Management Overseas Chinese Institute of Technology, Taiwan Taichung, Taiwan

This paper was originally prepared for the Australian and New Zealand Academy of Management Conference 2001, UNITEC, Auckland, New Zealand, 5–9 December 2001. INNOVATION: management, policy & practice

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Foreign direct investment entry mode choices between joint venture and sole venture into China

INTRODUCTION

ENTRY MODE LITERATURE

I

Most past studies on foreign market entry modes have emphasized “ownership advantage theory” (Hymer, 1960, 1976; Kindleberger, 1969), “location specific advantage theory” (Franko, 1971; Stopford & Wells, 1972), “internalization theory” (McManus, 1972; Buckley & Casson, 1976), “transaction cost theory” (Williamson, 1975; Buckley & Casson, 1976; Casson, 1982; Caves, 1982; Anderson & Gatignon, 1986; Kogut & Singh, 1988; Erramilli & Rao, 1993), “strategic behaviour approach” (Harrigan, 1985; Kogut, 1988) and “resource based theory” (Wernerfelt, 1984; Barney, 1986; Collis, 1991; Peteraf, 1993). Some recent studies have been trying to combine a number of theories into oneeclectic framework to explain the entry mode choice decision. Dunning’s (1980, 1988) “eclectic paradigm” denoted that the choice of entry mode decision is influenced by three types of factors: ownership-specific factors of a firm, location-specific factors of a market and internalization advantages of integrating transactions within the firm. Hill, Hwang and Kim (1990) developed their “eclectic theory of the foreign entry mode choice” by combining transaction cost theory, internalization theory and strategic behaviour approach. Bell (1996) created a new eclectic framework to exam Dutch firms’ entry mode decision by adding resource based theory into Hill, Hwang and Kim’s eclectic mode. Following Stopford and Wells’s (1972) pioneering study on entry mode choice decision between SV and JV using the Harvard Multinational Enterprise Database, a number of important empirical studies have been conducted. These empirical studies revealed that the probability of setting up SVs is positively related to the level of parent firms’ international experience (Gatigon & Anderson, 1988; Erramilli, 1991; Agarwal & Ramaswami, 1992; Madhok, 1994; Benito, 1996; Mutinelli & Piscitello, 1998), host country experience

n servicing a foreign market, a manufacturer may choose between three main entry modes: exporting, contractual (e.g. licensing) and investment (e.g. establishing an overseas operation) (Root, 1994). Where firms choose to establish an overseas operation, they must decide whether to pursue the venture alone or with a joint venture partner. This paper seeks to analyze these decision processes for foreign pharmaceutical firms’ (FPFs) ventures located in China. Foreign pharmaceutical firms started direct investments into the Chinese pharmaceutical manufacturing industry as early as 1980. There are now over 1,500 foreign invested pharmaceutical firms (FIPCs) distributed in almost every part of China. FPFs who entered into China during the period from 1980 to 1998 basically chose either a joint venture (JV) or a sole venture (SV) entry mode, and over 84% of FPFs chose a JV rather than a SV, even though foreign investors have been allowed to set up 100% foreign owned SV operations since the passage of “Law of the people’s Republic of China on Enterprises Operated Exclusively with Foreign Capital” by the Chinese central government in April 1986. “For most manufacturers that want to invest abroad, the firstbest entry strategy remains the SV, and JV would be a second-best invest entry strategy” (Root, 1994: 148–149), because JV is inferior to SV which allows investing firms to maximise the returns on ownership-specific advantages (Caves, 1982) and to have full control over the business operations. This study attempts to answer why the majority of FPFs selected a JV rather than SV as their entry mode for entering into the Chinese market. The research focuses on the comparison between SV and JV as alternative modes of entry and examines the determinant factors that affected FPFs’ choice between the two entry modes. Volume 4, Issue 1–3, December 2002

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Fuming Jiang, Chris Christodoulou and Ho-Ching Wei (Stopford & Wells’s 1972; Gomes-Casseres, 1989 & 1990; Padmanabhan & Cho, 1996; Mutinelli & Piscitello, 1998), parent firm size (Gomes-Casseres, 1990; Agarwal & Ramaswami, 1992; Erramilli & Rao, 1993; Benito, 1996), marketing intensity of parent firm (Stopford and Wells, 1972; Gatigon & Anderson, 1988; Gomes-Casseres, 1989), research and development intensity of parent firm (Stopford & Wells, 1972), asset specificity of parent firm (Gatigon & Anderson, 1988; Erramilli & Rao, 1993; Padmanabhan & Cho, 1996), and perceived market potential of the host country (Agarwal & Ramaswami, 1992). JV entry mode would be preferred when cultural distance is large between the host and the home countries (Erramilli & Rao, 1993; Agarwal, 1994; Benito, 1996; Barkema, Bell & Pennings, 1996). The probability for forming JVs is positively related with the level of host country welfare (Gomes-Casseres, 1989 & 1990; Shane, 1993), the level of host government restrictions (Fagre & Wells, 1982; Lecraw, 1984; Gatigon & Anderson, 1988; Gomes-Casseres, 1989 & 1990; Shane, 1993; Padmanabhan & Cho, 1996) and level of competition in the host country (GomesCasseres, 1990). Firms would be more likely to establish JVs when the firm enter into a research and development intensive industry (Kogut & Singh, 1988b; Mutinelli & Piscitello, 1998), and a growth industry (Hennart, 1991). Bell’s (1996) study of 114 Dutch firms revealed some distinctive findings. It suggested that firms with host country experience has a positive effect on the likelihood of JVs. The level of competition and the size of the foreign subsidiary turned out to have a negative effect on the likelihood of JVs. Bell also suggests that host country policy did not have an effect on the choice between JV and SV in the case of Dutch firms’ direct investment in over 20 countries. 76

Firms’ entry mode decisions may be heavily influenced by a host country’s investment policies. Joint ventures, for instance, are popular in China because there are direct or indirect government rules requiring them in a certain circumstance (Davidson, 1987; Eiteman, 1990). Tse, Pan and Au (1997) suggested that longer diplomatic ties between China and investing firm’s home country assume more equity-based operations including JV and SV rather than non-equity-based entry modes like exporting or licensing agreements, and firms chosen equity-based entry modes are more likely to work with Chinese municipal governments. The success of each foreign market entry is affected by many factors. Firms that want to invest in a foreign market need to consider possible impacts of these factors (Bell, 1996). Root (1994), Mockler and Dologite (1997) have given a set of more clear and complete elaboration of factors affecting the decision choice of entry mode. They suggest that an initial concept of an entry mode can be determined by studying host country environmental, market, production, parent firm’s home country, parent firm’s product and resource commitment factors. However, Kumar and Subramaniam (1997) deemed that the existing literature on the choice of entry modes into international markets is based on the assumption that the mode of entry choice is a function of various exogenous factors, but an alternate view could be that certain factors endogenous to the decision task affect the choice of mode of entry. This view holds that a decision made by a manager depends not only on the relevant external factors but also on characteristics of the decision task, characteristics of the manager, and the manager’s expectations about the quality of the information available to reach the decision as managers of multinational corporations may face time and resource constraints when making the decision.

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Foreign direct investment entry mode choices between joint venture and sole venture into China

CONCEPTUAL FRAMEWORK AND HYPOTHESES This study focuses on FDI entry mode choice between either the JV or SV mode option only. The main reason for this is because JV and SV were the only two entry modes adopted by FPFs in the population where the sample was drawn. Theories revealed from previous studies are inappropriate for this study. The important reasons are as following: Firstly, most previous studies on entry mode choice decision with wide range of mode options including exporting, licensing, equitybased investment (e.g. joint venture and sole venture), etc., whereas the present study focuses on SV and JV entry modes only. Secondly, as stated earlier, most studies were based on US and European firms and some Japanese firms’ FDI. The present study includes FDI from Non-Japanese Asian countries/regions. Finally, the direction of FDI flows in previous studies were “one-to-one” or “one-to-many”; i.e. from one country to one or many destination countries. The present study looks at a “many-to-one” situation. Bell’s (1996) study is an important contribution to the theoretical framework on entry mode choice decision with only two options either JV or SV. However, Bell’s study was based upon Dutch firms’ FDI into many different countries (one-to-many). Although Tse, Pan & Au’s study revealed some research findings on foreign firms’ entry mode choice into China based on “many-to-one” FDI direction, the study concerned the entry modes choice among exporting, licensing and equity-based investment (SV or/and JV). More importantly, a critical shortcoming of their study is that the study selected invest firms’ external factors only with a total of seven variables included in their conceptual framework for the testing, and ignored investing firms’ internal factors. How an investing firm responds to external factors in choosing an entry mode depends on internal factors such as investing firms’ prodVolume 4, Issue 1–3, December 2002

uct, firms’ financial, management resource and commitment factors (Root, 1994). The archival data were used for their study, an important shortage of archival data is that it ignores the managers’ perceptions on the entry mode decision. Entry mode decision into China is a complex process. As Bell (1996) noted that the real world is so complex, and no single approach can adequately encapsulate and elucidate all the factors that affect the choice of entry mode decision. In this study, the relevance of Kumar and Subramaniam’s (1997) contingency approach is acknowledged. As a result, this approach will be incorporated in Root (1994) and Mockler & Dologite’s (1997) conventional framework, which serves as a basis for the conceptual framework of this study. Root’s (1994) foreign market entry mode framework combined with Mockler & Dologite’s (1997) model of decision making on the selection on international market entry mode does not narrow itself into any specific entry mode approach, but emphasises both a firm’s internal and external factors, which include host country’s (China’s) environmental, market and production factors, parent firm’s home country/region, parent firm’s product and resource factors. It recognises the complexity of the international business environment with multinational cross-cultural management considerations. As a consequence, a more complete framework that incorporates China’s environmental factors, China’s market factors, China’s production factors, a firm’s product factors, a firm’s resource and commitment factors, and a firm’s decision task related factors will be used as the conceptual framework for this study. Most independent variables were identified and selected based on Root’s (1994), Mockler & Dologite’s (1997), Kumar & Subramaniam’s (1997) frameworks, and other previous empirical studies and the researchers’ observations. A couple of variables that were found significant in Tse, Pan & Au’s study

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Fuming Jiang, Chris Christodoulou and Ho-Ching Wei political relationships between China and parent firm’s home country/region, and length of diplomatic ties between China and parent firm’s home country/region. Economic condition variables include role of the Chinese government in the economy, size of the economy, size of population, growth rate of population, growth rate of gross national product, growth rate of per capita income, distribution of personal income, changes in employment, relative importance of the pharmaceutical industry in the economy, and the status of economic co-operation between China and parent firm’s country/region. Social-cultural variables consist of employees’ loyalty to company, hardworking characteristics of employees, language, social society structure, Chinese people’s way of life, and way of doing business in China. Technology condition variables concern about availability of infrastructure, quality of infrastructure, availability of qualified

were also added into the framework for the present study. Figure 1 is an elaboration of the conceptual framework which explains the hypotheses relationships and the key groups of factors in the decision making process of FDI entry mode choice into China.

Hypothesis 1 (H1) China’s environmental factors would have significant impacts on a firm’s FDI entry mode decision. China’s environmental factors are measured by a number of sub-groups of factors including political and economic conditions, social-cultural differences, technology conditions, geographic distance between parent firms’ home country/region and China, and business operation location in China. Political condition variables comprise of political stability in China, government policies and regulations, import restrictions, level of the Chinese government to deal with, the status of

Kumar & Subramaniam’s (1997) contingency entry mode theory

Parent Firm’s Decision Task Factors

China Environmental Factors

H7

Political Conditions

H1 H2

Parent Firm’s Commitment Factors

FDI Entry Mode Choice

H6

H4

FIGURE 1: CONCEPTUAL

78

Social - cultural Differences Technology Conditions

H3

H5

Parent Firm’s Product Factors

Economic Conditions

China Market Factors

Parent Firm’s Home Country/ Region Factors

China Production Factors

Root (1994), Mockler & Dologite’s (1997) conventional entry mode theory

FRAMEWORK AND HYPOTHESES RELATIONSHIP ON

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Geographic Distance

FDI

ENTRY MODE

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Foreign direct investment entry mode choices between joint venture and sole venture into China scientific and technical personnel, and research and development intensity. H1: The probability for a firm to choose a JV is positively related to the importance of China’s environmental factors.

in choosing an FDI entry mode for the Chinese market. These factors include the market size and competitive situation in the home market, production costs in the home country/region, government policies on foreign investment and export, and cultural dimension in the home country/region.

Hypothesis 2 (H2) China’s market factors would have significant impacts on firms’ decisions in choosing an FDI entry mode for entering into the Chinese market. These factors include market size and growth (sales potential) for investment project’s product line, competitive situation in the Chinese market, availability and quality of marketing infrastructure, availability and quality of distribution infrastructure, required cost of marketing effort, and export sales potential of investment project’s product line. H2: The probability for a firm to choose a JV is positively related to the importance of China’s market factors.

H4: The probability for a firm to choose a SV is positively related to the importance of the firm’s home country/region factors.

Hypothesis 5 (H5) A firm’s product factors including the ability of the firm to differentiate and adapt products, and research and development capacity for new products would have significant impacts on its decision in choosing an FDI entry mode for the Chinese market. H5: The probability for a firm to choose a SV is positively related to the importance of the firm’s product factors.

Hypothesis 3 (H3)

Hypothesis 6 (H6)

Production factors in China would have significant impacts on firms’ decisions in choosing an FDI entry mode for entering into the Chinese market. The production factors consist of availability and cost of plant site, availability and cost of local raw materials, effectiveness of energy supply, labour cost, quantity and quality of products of the Chinese domestic producers, quality and cost of transportation facilities, quality and cost of communication facilities, and quality and cost of port facilities.

A firm’s resource commitment factors would have significant impacts on a firm’s decision in choosing an FDI entry mode for the Chinese market. The resource commitment factors are the size of foreign parent firm, availability and cost of working capital, availability and cost of long-term investment capital, availability and value of the Chinese government’s financial incentives, technology availability of foreign parent firms, research and development intensity of foreign parent firms, production skills, management capacity, sales & marketing skills, and foreign parent firm’s international business experience. The incentives provided by the Chinese government could be regarded as indirect resources for an investing firm.

H3: The probability for a firm to choose a JV is positively related to the importance of China’s production factors.

Hypothesis 4 (H4) A firm’s home country/region factors would have significant impacts on the firm’s decision Volume 4, Issue 1–3, December 2002

H6: The probability for a firm’s to choose a SV is positively related to the importance of the firm’s resource commitment factors.

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Fuming Jiang, Chris Christodoulou and Ho-Ching Wei

Hypothesis 7 (H7) A firm’s decision task related factors including characteristics of the decision task, characteristics of the decision-maker, the decisionmaker’s expectations about the quality of the information available to reach the decision, attitude of the decision-maker and decisionmaker’s previous FDI experience would have significant impacts on the firm’s FDI entry mode choice for the Chinese market. H7: The probability for a firm’s to choose a SV is positively related to the importance of the firm’s decision task related factors.

DATA AND METHOD The population definition A total of 117 foreign pharmaceutical firm invested pharmaceutical companies (FPFIPCs) in Mainland China were defined as the population for the research based on the following four sources: 1) Catalogue of Chinese Pharmaceutical Enterprises with Foreign Investment which was published by the China Centre for Pharmaceutical International Exchange, an agency of State Pharmaceutical Administration of China. 2) Market Reports of National Trade Data Bank of the United States of America (1996). 3) MIMS Asia (1998) and the report of Shanghai Pharmaceutical (Group) Corporation (1999). Pharmaceutical companies that had capital investment by non-pharmaceutical firms such as business trading companies, investment development firms, etc. Medical devices or machinery producers were not defined as part of the population for this research.

The sample size Over 84% of FPFIPCs were located in the east China’s 13 provinces and municipalities including Hainan, Guangdong, Fujian, Zhejiang, Shanghai, Jiangsu, Anhui, Shangdong, Hebei, Tianjin, Beijing, Liaoning and Hel80

longjiang. Less than 16% of FPFICs were distributed in China’s middle and west areas. A total of 98 FPFICs distributed in the three major regions in east China and which accounted for 83.76% of the population were defined as the sample size for this research. These FPFICs in the sample include 29 in South East Region (SER), 38 in Middle East Region (MER) and 31 in North East Region (NER). The SER comprises of Guangdong and Fujian provinces. The MER covers Shanghai municipality, Jiangsu, Anhui and Zhejiang provinces. The NER consists of Beijing and Tianjin municipalities, Liaoning, Shandong and Hebei provinces.

Data collection A questionnaire was designed in both English and Chinese versions and was pretested with six pretest respondents for the data collection. The research fieldwork was mainly conducted in China between early April and late June in 1999. The data was collected through both personal interviews, and a mail questionnaire survey. Personal interviews were conducted with senior executives of foreign business partners in FPFICs in China, and the posted questionnaires were addressed to foreign general managers/representatives in FPFICs in China. In total 44 companies participated in this research, and 82% of answered questionnaires were obtained through personal interviews. Of the responding FPFICs, 21 FPFICs had investment by eastern pharmaceutical firms including 4 Japanese and 17 Non-Japanese Asian pharmaceutical firms. The rest had western firms’ investment including 14 from USA and 9 from European countries or regions. 3 companies including 2 in Guangdong and 1 in Jiangsu were found to have ceased operations during the fieldwork. Also 1 company in Guangdong had the foreign partner’s share sold to its Chinese partner before this survey conducted. Therefore the real sample size was reduced from an estimated 98 to

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Foreign direct investment entry mode choices between joint venture and sole venture into China of exploratory variables are 0.80 for ‘China environmental factors’ (28 items), 0.78 for ‘China market factors’ (9 items), 0.76 for ‘China production factors’ (14 items), 0.87 for ‘Parent firm’s home country/region factors’ (6 items), 0.66 for ‘Parent firm’s product factors’ (3 items), 0.70 for ‘Parent firm’s resource commitment factors’ (13 items) and 0.60 for ‘Parent firm’s decision task related factors” (5 items). The demographic statistics of SVs and JVs are presented in Table 1. Two levels of analysis were performed. Logistical regression with SPSS (version 10) was used to detect which group (s) of variables that most contributed to the FDI entry mode choice decision. Total scores for each one of seven groups of factors that were used for the logistic regression were calculated respectively by adding up all the original scores for each single factor in each one of respective seven groups of factors. Descriptive statistics and correlation between dependent variables and independent variables are shown in Table 2. The results of Logistic Regression analysis are presented in Table 3 and discussed below against each one of the hypotheses.

94 FPFICs, which means that a 46.74% response rate was achieved.

DATA ANALYSIS RESULTS AND DISCUSSION The dependent variable is FDI entry mode choice (SV or JV) which is measured at nominal level. SV was coded as “0”, and ‘1’ for JV. Seven independent variables are China’s environmental factors, China’s market factors, China’s production factors, Parent firm’s home country/region factors, Parent firm’s product factors, Parent firm’s resource commitment factors and Parent firm’s decision task related factors. Independent variables are measured at ordinal level. The questions were designed with a six-point Likert scale for each one of seven group of factors from “1” not important to “6” very important. Respondents were requested to indicate their perceptions to the degree of importance of these seven groups of factors to their parent firms’ decisions in choosing an FDI entry mode for entering into the Chinese market. The reliability of the scales is tested, and Cronbach’s alpha is used as the indicator. The internal consistency of the scale values for each one of the seven groups of factors (variables) is found to be at an acceptable level. The reliability coefficients (Alpha) for the seven groups TABLE 1: DEMOGRAPHIC AND W ESTERN

STATISTICS OF FIRMS

Investment Amount (US$ Million) <1 1 ~ 9.99 10 ~ 19.99 20 ~ 29.99 30 ~ 39.99 =, > 40 Total

SVS

AND

H1 and H2 The β coefficients on ‘China environmental JVS

AND SCALE OF INVESTMENT BY

SV

EASTERN

JV

Eastern Firm

Western Firm

Eastern Firm

Western Firm

Total

1 2 1 0 0 0 4

0 0 0 0 0 1 1

0 11 2 2 2 0 17

1 4 5 5 3 4 22

2 17 8 7 5 5 44

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Fuming Jiang, Chris Christodoulou and Ho-Ching Wei TABLE 2: DESCRIPTIVE

STATISTICS AND CORRELATION MATRIX

1

2

3

0 98 Minimum 1 135 Maximum Mean 0.886 116.818 Standard Deviation 0.321 10.260 1 FDI entry mode 1.000 2 China environmental factors 0.375 * 1.000 3 China market factors 0.403 ** 0.240 4 China production factors 0.028 0.109 5 Parent firm’s home country/region factors -0.034 0.077 -0.262 -0.216 6 Parent firm’s product factors -0.127 7 Parent firm’s resource commitment factors -0.169 -0.178 8 Parent firm’s decision task related factors -0.235

4

29 50 41.659 4.549

45 65 53.227 5.615

1.000 0.074 -0.133 -0.262 -0.096 -0.139

1.000 0.046 0.225 0.302 * 0.216

5

6

7 27 15.318 5.075

1.000 0.314 * -0.034 0.017

7

8

10 16 12.909 1.507

40 56 49.318 3.594

18 27 23.000 2.468

1.000 0.250 0.156

1.000 0.212

1.000

*: p < .05; **: p < .01; ***: p < .001 (2 - tailed)

TABLE 3: LOGISTIC

REGRESSION RESULTS

(DEPENDENT

VARIABLE :

β

Factors Constant China environmental factors * China market factors * China production factors Parent firm’s home country/region factors Parent firm’s product factors Parent firm’s resource commitment factors Parent firm’s decision task related factors †

FDI

ENTRY MODE )

S.E.

Wald

Sig .

-9.500 .268 .653

19.157 .128 .294

.246 4.363 4.925

.620 .037 .026

.012 -.020 -.187 -.284 -1.091

.212 .270 .730 .349 .591

.003 .006 .065 .660 3.406

.957 .940 .798 .416 .065

†: p < . 10; *: p < . 05; **: p < . 01; ***: p < . 001.

factors’ and ‘China market factors’ variables have Wald statistics equal to 4.636 and 4.925 respectively, both of which were significant at the .05 level (p=.037 and p=.026 respectively). The positive β coefficients on these two groups factors mean that increasing value of ‘China environmental factors’ and ‘China market factors’ tend to occur with increasing probabilities for JVs; i.e. the probability of a firm choosing a JV was positively related to the importance of China’s environmental and market factors, supporting H1 and H2.

on ‘China production factors’ means the probability of a firm choosing a JV was positively related with the importance of China production factors. However, the β coefficient on ‘China production factors’ variable has a Wald statistic equal to .003 with p=.957, which was not significant. Statistically, there was no significant relationship between FDI entry mode choice and the degree of importance of China’s production factors. Therefore, there was not sufficient evidence to support H3.

H4, H5 and H6 H3

The positive sign of β coefficient, as expected, 82

As expected, the negative sign of β coefficients on ‘Parent firm’s home country/region factors’,

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Foreign direct investment entry mode choices between joint venture and sole venture into China TABLE 4: CLASSIFICATION

TABLE OF THE BINOMINAL LOGISTIC ANALYSIS

Predicted SV JV

Percentage Correct

SV

4

1

80.0%

JV

1

38

97.4%

Overall

95.5%

Observed

‘Parent firm’s product factors’ and ‘Parent firm’s resource commitment factors’ means the probability of a firm choosing a SV was positively related with the importance of these three groups of factors. However, the coefficients β on these three factors have Wald statistics equal to .006 with p=.940, .006 with p=.789 and .065 with p=.416, respectively, which were not significant. Statistically, there are no significant relationships between FDI entry mode choice and the degree of importance of parent firm’s home country/region, product and resource commitment factors. Therefore, there were not sufficient evidences to support H4, H5 and H6.

H7

The β coefficient on ‘Parent firm’s decision task related factors’ has a Wald statistic equal to 3.406 which was marginal significant (p=.065). The negative β coefficient means that increasing value of ‘Parent firm’s decision task related factors’ tends to occur with increasing probabilities for SVs; i.e. the probability of a firm choosing a SV was positively related to the importance of the firm’s decision task related factors, supporting H7. The overall logistic model appears to be a very good model, as it classifies 95.5% of observations correctly (refer to Table 4). The Volume 4, Issue 1–3, December 2002

–2 log was 10.808 and the model chi-square is 20.349 (with df=7) and was significant at .01 level (p=.005), which indicates a good fit of the model. The Hosmer and Lemeshow Goodness-of-fit Test also indicated that the logistic model was a good fit (df=8, p=.997). The second level of analysis was performed by means of independent sample t-test (parametric test) to explore the significant individual variables that differentiated firms chose a JV or a SV entry mode, the independent sample t-test (parametric test) was performed by comparing the mean scores for the two independent groups. The variables that significantly differentiated firms chose a SV or a JV entry mode are shown in Table 5. The results suggested that 14 variables significantly affected foreign pharmaceutical firms’ decisions in choosing either a SV or a JV entry mode. The Chinese government policies and regulations, the different level of the Chinese government to deal with, role of the Chinese government played in the economy, the Chinese social society structure, availability of infrastructure and quality of infrastructure in China had significant impacts on foreign pharmaceutical firms’ entry mode choice towards a JV entry mode. Although a relatively complete legal system for foreign investment has been developed and

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Fuming Jiang, Chris Christodoulou and Ho-Ching Wei TABLE 5: T-TEST

RESULTS FOR THE VARIABLES SIGNIFICANTLY DIFFERENTIATED

SV

AND

JV

Mean Variables

FIRMS

T-test

SV

JV

t-value

Sig. (2-tailed)

(Chinese) Government policies and regulations

4.00

5.08

-2.9522

.0051 **

Level of the Chinese government to deal with

2.60

4.85

-6.4927

.0000 ***

Role of the Chinese government in the economy

4.00

5.26

-3.2726

.0021 **

Social society struc ture (in China)

3.60

4.49

-2.1759

.0352 *

Availability of infrastructure (in China)

2.60

4.33

-3.7454

.0005 ***

Quality of infrastructure (in China)

2.80

4.49

-3.7077

.0006 ***

Availability of marketing infrastructure (in China)

4.00

5.05

-2.7155

.0096 **

Quality of marketing infrastructure (in China)

4.00

4.79

-2.1123

.0407 *

Availability of distribution infrastructure (in China)

4.20

5.00

-2.1917

.0340 *

Quality of distribution infrastructure (in China)

3.40

4.67

-2.8856

.0061 **

Required cost of marketing effort (in China)

3.00

4.50

-4.2184

.0001 ***

Production skills (of parent firm)

4.05

4.80

2.2453

.0301 *

Attitude of the decision -maker

4.72

5.60

2.2309

.0311 *

Decision-maker’s previous FDI experien ce

4.67

5.40

1.8953

.0650 †

†: p < .10; *: p < .05; **: p < .01; ***: p < .001 .

foreign investors have been allowed to establish solely foreign owned ventures in China, the enforcement and the way of interpretation of the laws and regulations may differ significantly depending on the interests of different levels of Chinse governments in different regions. Chinese governments may directly and/or indirectly require foreign firms to joint venture with Chinese local business partner(s) in order to more effectively absorb advanced technology and management skills from foreign investors into local Chinese companies. The importance of the availability of marketing infrastructure and quality of marketing infrastructure, availability of distribution infrastructure, quality of distribution infra84

structure and required cost of marketing efforts in China also played significant roles in foreign pharmaceutical firms’ entry mode choice towards a SV. The market infrastructure and distribution channels in China could play a crucial role in marketing pharmaceutical products in China’s domestic market, and the primary purpose of foreign pharmaceutical firms FDI in China is to access the Chinese domestics market. Historically, foreign pharmaceutical firms’ FDI had been limited to the manufacturing industry, and Chinese local producers had a monopoly role in the pharmaceutical wholesale and retail businesses. Foreign pharmaceutical firms did not have direct control over the distribution channels in

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Foreign direct investment entry mode choices between joint venture and sole venture into China China, which made foreign investors heavily dependent on Chinese partners to market their products in China’s domestic market. The decision-maker’s attitude was a significant factor to firms who chose SV entry mode. Decision makers with previous FDI experience seem to be more likely to choose a SV entry mode.

CONCLUSION AND IMPLICATIONS The majority of foreign pharmaceutical firms who invested into the pharmaceutical manufacturing industry in China chose to enter via a joint venture with a Chinese partner (s), even though sole venture, at least on a theoretical basis, appears preferable. In the case of the firms who chose a joint venture, two external factors appeared to be the major determinants of this choice, namely China environmental factors and the market factors. Whereas, in the case of the firms who chose a sole venture, an internal factor appeared to be the major determinant, namely parent firm’s decision task related factors. China’s investment environmental factors including political conditions, stage of economic development, social-cultural and technology conditions may still have significant influences on foreign firms’ future FDI activities in China. The overall investment environment should continue to improve, and the Chinese government is likely to gradually remove restrictions on local market access. However, Chinese governments might also use market mechanisms rather than policies and regulations to back up its local enterprises while continuing to encourage foreign direct investment into China. The Chinese market is likely to remain attractive to foreign investors. Foreign firms who wish to invest in China need to consider their ability to market their products in the Chinese market when they make their decision on entry mode choice. If their primary Volume 4, Issue 1–3, December 2002

purpose for investing in China is to access China’s domestic market, a JV should be a better choice for foreign firms at an early stage of their FDI in China. For foreign firms that have already invested and have gained substantial FDI and marketing experience in China, it may then be appropriate for them to consider SV entry mode for their further investment and development.

References Agarwal, S. (1994). Social-cultural distance and the choice of joint ventures: a contingency perspective. Journal of International Marketing, 2(2):63–80. Agarwal, S., & Ramaswami, S.N. (1992). Choice of foreign market entry Mode: impact of ownership, location, and internalization factors. Journal of International Business Studies, 23(First Quarter): 1–27. Anderson, E., & Gatignon, H. (1986). Modes of foreign entry: A transaction cost analysis and propositions. Journal of International Business Studies, 17(Fall): 1–26. Barkema, H.G., Bell, J.H.J., & Pennings, J.M. (1996). Foreign entry, cultural barriers, and learning. Strategic Management Journal, 17:151–166. Barney, J.B. (1986). Strategic factor markets: expectations, luck, and business strategy. Management Science, (October): 1231–1241. Bell, J.H.J. (1996). Single or joint venturing?: a comprehensive approach to foreign entry mode choice. Aldershot: Avebury. Benito, G.R.G. (1996). Ownership structures of Norwegian foreign subsidiaries in manufacturing. International Trade Journal, Summer, 10(2):157–98. Buckley, P.J., & Casson, M. (1976). The future of the multinational enterprise. London: Macmillan. Caves, R.E. (1982). Multinational enterprises

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Fuming Jiang, Chris Christodoulou and Ho-Ching Wei and economic analysis. New York: Cambridge University Press. CCPIE (China Centre for Pharmaceutical International Exchange). (1995). Catalogue of Chinese enterprises with foreign investment. Beijing: CCPIE. Collis, D.J. (1991). A resource-based analysis of global competition: the case of the bearings industry. Strategic Management Journal, 12:49–68. Davidson, W.H. (1987). Creating and managing joint ventures in China. California Management Review, 29(4th Quarter): 77–94. Dunning, J.H. (1980). Towards an eclectic theory of international production: some empirical tests. Journal of International Business Studies, 11(Spring): 9–31. Dunning, J.H. (1988). The eclectic paradigm of international production: a restatement and some possible extensions. Journal of International Business Studies, 19(1st Quarter): 1–31. Eiteman, K.D. (1990). American executives’ perceptions of negotiating joint ventures with the People’s Republic of China: lessons learned. Columbia Journal of World Business, (Winter): 59–67. Erramilli, M.K. (1991). The experience factor in foreign market entry behaviour of service firms. Journal of International Business Studies, 22 (3): 479–502. Erramilli, M.K., & Rao, P.C. (1993). Service firms’ international entry-mode choice: a modified transaction-cost analysis approach. Journal of Marketing, 57(July): 19–38. Fagre, N., & Wells, L.T.,Jr. (1982). Bargaining power of multinationals and host governments. Journal of International Business Studies, 13(First Quarter): 1–22. Franko, L.G. (1971). Joint venture survival in multinational corporations. New York: Praeger Publisher. Gatignon, H., & Anderson, E. (1988). The 86

multinational corporation’s degree of control over foreign subsidiaries: an empirical test of a transaction cost explanation. Journal of Law, Economics, and Organization, 4(2): 305–36. Gomes-Casseres, B. (1989). Ownership structures of foreign subsidiaries: theory and evidence. Journal of Economic Behaviour and Organization, 11:1–25. Gomes-Casseres, B. (1990). Firm ownership preferences and host government restrictions: An integrated approach. Journal of International Business Studies, 21(First Quarter): 1–22. Harrigan, K.R. (1985). Strategic flexibility: a management guide for changing times. Lexington, MA: Lexington Books. Hill, C.W.L., Hwang, P., & Kim, W.C. (1990). An eclectic theory of the choice of international entry mode. Strategic Management Journal, February, (11): 117–128. Hymer, S. (1960). The international operations of national firms: a study of direct foreign investment. PhD Dissertation, Massachusetts: Massachusetts Institute of Technology Press (1976). Kindleberger, C.P. (1969). American business abroad: six lectures on direct investment. New Haven and London: Yale University Press. Kogut, B. (1988). Joint ventures’ theory and empirical perspectives. Strategic Management Journal, 9:319–332. Kumar, V., & Subramaniam, V. (1997). A contingency framework for the mode of entry decision. Journal of World Business, 32 (Spring): 53–72. Lecraw, D.J. (1984). Bargaining power, ownership and profitability of transnational corporations in developing countries. Journal of International Business Studies, 15 (Spring–Summer): 27–43. McManus, J. (1972). The theory of international firm. In G. Paquet (ed). The

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Foreign direct investment entry mode choices between joint venture and sole venture into China Multinational Firm and the Nation State, 66–93. Toronto: Collier, Macmillan. MIMS Asia. (1998). China medicines and chemical reagents booklet: manufacturers, distributors, representative offices. Hong Kong: MIMS Asia. Mockler, R.J., & Dologite, D.G. (1997). Multinational cross-cultural management: an integrative context-specific process. Westport: Quorum Books. Mutinelli, M., & Piscitello, L. (1998). The entry mode choice of MNEs: an evolutionary approach. Research Policy, 27:491–506. NTDB (National Trade Date Bank). (1996). Market report. National Trade Data Bank of United States of America. Padmanabhan, P., & Cho, R.K. (1996). Ownership strategy for a foreign affiliate: an empirical investigation of Japanese firms. Management International Review, 36(1): 45–65. Peteraf, M.A. (1993). The cornerstones of competitive advantage: a resource-based view. Strategic Management Journal, 14:179–191.

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Root, F.R. (1987). Foreign market entry strategies. New York: Amacom. Root, F.R. (1994). Entry strategies for international markets. San Francisco: Lexington Books. Shane, S. (1993). The effect of culture difference in perceptions of transactions costs on national differences in the preference for international joint ventures. Asia Pacific Journal of Management, 10(1): 57–69. SPGC (Shanghai Pharmaceutical Group Corporation), 1999. Stopford, J.M., & Wells, L.T.Jr. (1972). Managing the MNE: organization of the firm and ownership of the subsidiaries. New York: Basic Books. Terpstra, V. (1987). International marketing. Chicago: The Dryden Press. Tse, D.K., Pan, Y., & Au, K.Y. (1997). How MNCs choose entry modes and form alliance: the China experience. Journal of International Business Studies. 28(4): 779–806. Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5: 171–180.

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National culture and organizational behavior of Malaysian and Japanese firms SUMMARY

KEY WORDS national culture; organizational behavior; Malaysia; Japan; cross-cultural management

This paper has two goals. It first explores the extent to which national culture “influences” organizational behavior among Japanese and Malaysian enterprises. Secondly, the paper tests the degree to which Japanese and Malaysian organizations can be “correctly” classified into their respective cultural groups based on analyzing a set of behavioral items. Results show that organizational behavior is consistent with national culture on aspects relating to power relationships and monitoring systems but not with aspects relating to social relationships and motivation systems. Results also show that power and social relationship items were most contributive to the process of correctly classifying Japanese and Malaysian enterprises into their respective cultural groups. Possible explanations for the mixed results were offered. Received February 2002

LRONG LIM Associate Professor Department of Business Administration Kagawa University Takamatsu, Japan

INTRODUCTION

I

n a new journal, Jackson and Aycan (2001) commented that there is no longer a necessity to ask if culture plays a role in management. The issue is that researchers should pursue theoretical and empirical studies to understand the “extent and ways to which” culture plays a role in management. Along this thought, this paper investigates the extent

88

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Accepted October 2002

to which national culture “influences” organizational behavior in Malaysian and Japanese enterprises. This paper also tests the degree to which Japanese and Malaysian organizations can be “correctly” classified into their respective cultural groups based on analyzing a set of behavioral items. This paper relies on Hofstede’s framework. Hofstede’s model is superior in several aspects when compared to rival frameworks (Schwartz 1994; Trompenaars & Hampden-Turner 1998). Firstly, his framework, including the definitions of “culture” and the four dimensions are simple to understand and interpret. Secondly, his model is the most widely used framework in cross-cultural studies. Thirdly, other models are found to support and amplify, rather than to offer an alternative to his model. The pairing of Malaysia with Japan is quite Volume 4, Issue 1–3, December 2002

National culture and organizational behavior of Malaysian and Japanese firms natural. As the most successful Asian country in economic terms, Japan is a huge investor in Asia. Malaysia looks at Japan as a role model for economic development. This was declared in the “Look East Policy” of 1981. The objective of the policy is to learn the Japanese work values and ethics that are purportedly responsible for Japan’s economic success (Jomo 1985). Malaysia has a multi-cultural population of approximately 22 million people. Malays make up about 60%, Chinese about 25% and Indians about 10% of the population. Presently, although Malaysians tend to identify themselves ethnically, they are generally believed to share similar values. This is because they co-exist within the same “geopolitical, economic and social space,” thus influencing one another’s values (Westwood & Everett 1995). The next section reviews the literature. The paper then lays out the research propositions, after which, the research methodology is described. Sections on data analyses and discussions follow. The paper concludes with the implications of results and future research.

LITERATURE REVIEW Hofstede defined culture as “the collective programming of the mind which distinguishes the members of one group or category of people from another.” This definition offers simplicity and clarity, and is especially useful for cross-cultural research (Shackleton & Ali 1990). Hofstede’s national culture model consists of four dimensions: power distance, uncertainty avoidance, individualism and masculinity (time orientation was added later). Power distance defines the degree to which the less powerful person accepts inequality in power. Uncertainty avoidance defines the extent to which people are made nervous by unpredictable situations. Individualism assumes that individuals primarily look after their own interests and the interests of their immediate family. Masculinity suggests that Volume 4, Issue 1–3, December 2002

individuals are assertive, competitive, and they strive for material success. Combining the works of Child (1981) and Hofstede (1984), Sekaran and Snodgrass (1986) developed a framework to illustrate how “organizational members behave functionally by adhering to their preferred modes of behavior within the organizational system.” Lachman et al. (1994) similarly echoed through their framework the effects of cultural values on organizational choices. Both these studies suggested that societies with high power distance tend to have “power relationships” that are centralized and rigid in hierarchy. Societies with low power distance have a decentralized and fluid hierarchy, with behaviors that are interdependent. They also noted that individualistic societies have “social relationships” that evaluate achievement at the individual level in a calculative manner. Meanwhile, collectivistic societies evaluate performance at the organizational level in a moralistic way. Societies with weak uncertainty avoidance tend to have simplistic “monitoring systems”. Members in such societies usually have low levels of anxiety and stress. Societies with high uncertainty avoidance favor complex, comprehensive monitoring systems and are usually affected by high anxiety and stress levels. Finally, masculine societies have “motivation systems” that emphasize money, power, and recognition while feminine societies favor reward systems that focus on security, cooperation, and quality of life at the workplace.

RESEARCH PROPOSITIONS Compared to Malaysia, the national culture of Japan is characterized by lower power distance, higher uncertainty avoidance, higher individualism, and higher masculinity. The four subsequent types of behavior are thus believed to vary. Proposition 1a: Power relationships in Japanese organizations are less hierarchical and less centralized than those in Malaysian

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Lrong Lim organizations. In societies with moderate power distance such as Japan, the organizational hierarchy is merely a convenience to demarcate different work roles. The hierarchy by itself is not accompanied by a notion of “power”. Decentralization is supposedly popular and widely practiced. In societies with a high power distance such as Malaysia, decision-making is the prerogative of superiors while subordinates are expected to execute the orders without question. Communication process is usually a top-down process. Managers adopt a rather autocratic approach while privileges and status symbols are both expected and popular. Proposition 1b: Social relationships in Japanese organizations tend to be more individualistic than those in Malaysian organizations. In moderately individualistic societies like Japan, there is more emphasis on individual rewards and incentives backed up by a strong commitment toward individualist goals. The work environment is generally competitive. In a collectivistic society such as Malaysia, rewards and goals are tuned to meet the needs of the collective. Job specialization among employees is low and the work environment is generally termed as cooperative. Proposition 1c: The motivation system in Japanese organizations is “work” oriented while in Malaysian organizations, it is “non-work” oriented. In Japan where masculinity is the norm, managers are supposedly decisive and assertive. The principle of equity and competition prevails, and conflicts are resolved by “fighting” them out. In Malaysia where masculinity is moderate, managers prefer to use intuition and to strive for consensus while conflicts are resolved through compromise and negotiation. Proposition 1d: The monitoring system in Japanese organizations is more “complex” than that in Malaysian organizations. Japan’s high uncertainty avoidance suggests the preference of high formalization of rules whereby deviant 90

behaviors are suppressed. There is a tendency to emphasize precision and punctuality. Malaysia with low uncertainty avoidance is characterized by a low formalization of rules. Employees do not perceive time to be of much value and there is a tolerance of deviant behavior and innovative ideas. Proposition 2 states that Japanese and Malaysian organizations can be categorized under their respective national culture groups on the basis of the four types of organizational behaviors. This tests the extent to which Japanese and Malaysian organizations can be correctly classified into their respective cultural groups based on analyzing the behavioral items. Literature generally assumes that cultures are monolithic and consist of members that are essentially homogeneous. This is an “old” issue where researchers choose to ignore intra-cultural differences in a sample. This proposition also tests to see which among the four types of behavioral variables contribute to the classification of cultures of the samples.

RESEARCH METHODOLOGY Forty-four questions are theoretically derived from the literature (see Table I). Twelve questions are devoted to measure power relationships. These twelve items are two “mirror” sets of six items each: one set is designed to measure behaviors related to low power distance while the other measures behaviors related to high power distance. For example, “Hierarchy as a convenience” is argued to be a behavior characteristic of Japan, which has a low power distance. The “mirror” item is “Hierarchy shows inequality” which is theorized to be reflective of behavior in a society like Malaysia with a large power distance. Twelve items measure social relationships in a similar manner. The number of items measuring motivation systems and monitoring system is ten for each case. The questions are structured to facilitate ease of response. The responses are anchored in five Likert-styled points that

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National culture and organizational behavior of Malaysian and Japanese firms range from “1” (strongly agree) to “5” (strongly disagree). The English version was sent to Malaysian respondents and the Japanese version to Japanese respondents. The addresses of one hundred Malaysian firms were taken from a list obtained from the Kuala Lumpur Stock Exchange web site. Similarly, the addresses of two hundred Japanese firms were taken from a list obtained from Toyo Keizai English web site. The questionnaires were mailed in summer 2000 to top management such as President, Chairman, or Director. There were ninety-four Japanese respondents and thirtythree Malaysian respondents. This represents a return rate of 47% and 33% respectively.

DATA ANALYSIS Both samples share some characteristics while differing in others. The similarities include the high proportion of respondents working in the manufacturing sector. Senior male personnel aged over thirty-five years who are universityeducated dominated both samples. Meanwhile, only half of the Japanese firms in the sample are established after the Second World War as compared to almost all of the Malaysian firms. A majority of Japanese firms employ more than one thousand workers while a majority of Malaysian firms employ less than five hundred workers. Over half of the Japanese respondents have an employment record of more than ten years while over half of the Malaysian respondents have a record of less than ten years. Prior to testing the research propositions, preliminary analyses are conducted. Table I shows the descriptive statistics of the variables. There appears to be no major normality problem with the data. The data is next screened for reliability. Items are sequentially removed to maximize the reliability coefficients. The resultant alpha coefficients range from moderate to high; 0.81 for power relationships, 0.74 for social relationships, 0.41 for motivation system, and 0.57 for monitoring system. This Volume 4, Issue 1–3, December 2002

process results in retaining twenty-two questionnaire items.

t-Tests analysis A series of t-tests is executed to verify if organizational behavior of Japanese and Malaysian firms follows the predictions. Table II shows the results. Most of the significant differences occur along the “Nation” column while much less significant differences occur along other demographic factors such as sex, the year the company was established, age, number of years worked in the company, and education level. More precisely, there are significant differences occurring in thirteen items when tested on “Nation.” When tested on sex, the year the company was established, age, number of years worked in the company, and education level, the respective number of significant differences found are six, eight, zero, ten, and one. Although these results appear interesting (particularly those relating to number of years worked in the company), discussions on them are better handled as a separate topic. In power relationships, Japanese managers are found to score higher on the question that managers operate under the consultative or democratic principle. On the other hand, Malaysian managers score higher with respect to hierarchy reflecting an inequality of authority among employees, superior–subordinate communication being a top-down process, and that managers are rather autocratic or paternalistic in approach. The results on power relationships are consistent with predictions that Malaysian organizations tend to behave in a hierarchical way. For social relationships, Japanese managers indicate a preference for narrow salary range between superiors and subordinates. Meanwhile, Malaysian managers prefer a wider salary range between superiors and subordinates while emphasizing individual rewards and a commitment on individual goals. This is contrary to expectations as Japanese organizations are predicted to

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Lrong Lim TABLE I: DESCRIPTIVE STATISTICS Skewness N

Power relationships Hierarchy as convenience Decentralization popular Subordinates consulted Two-way communication Consultative principle Privileges frowned upon Hierarchy shows inequality Centralization popular Subordinates not consulted Top-down communication Autocratic approach Privileges popular

127 127 127 127 127 126 127 127 127 127 127 127

2.2126 2.4724 2.4252 2.2441 2.4252 2.7143 3.2441 2.9921 3.0315 3.5039 3.7323 3.0157

.9397 .9243 .9303 .9898 1.0120 1.0797 1.1319 .9041 .9167 1.0681 1.1016 1.0464

1.019 .204 .492 .638 .604 .167 –.228 –.050 –.063 –.328 –.572 .095

.215 .215 .215 .215 .215 .216 .215 .215 .215 .215 .215 .215

.871 –.796 –.161 –.371 .037 –.669 –.847 –1.044 –.690 –1.073 –.596 –.706

.427 .427 .427 .427 .427 .428 .427 .427 .427 .427 .427 .427

Social relationships Low job specialization Narrow salary range Group rewards emphasized Commitment on group goals Moralistic relationship Cooperative climate High job specialization Wide salary range Individual rewards Individual goals Contractual relationship Competitive climate

123 123 127 127 127 127 123 123 127 127 127 127

3.3659 3.1220 3.5354 2.5827 2.8740 2.4331 2.5935 2.9350 2.7874 2.8583 2.8661 3.2520

1.0809 1.0210 1.0823 .9713 .9999 .8222 .9987 .9386 .9397 .9655 .9625 .9169

–.379 .127 –.245 .502 .354 .958 .491 –.111 .031 .343 .002 –.210

.218 .218 .215 .215 .215 .215 .218 .218 .215 .215 .215 .215

–.764 –.875 –.948 –.266 –.524 .685 –.432 –.874 –.711 –.817 –.759 –.984

.433 .433 .427 .427 .427 .427 .433 .433 .427 .427 .427 .427

Motivation systems Intrinsic rewards Joy of living Consensus strived for Equality, quality of work life Compromise & negotiation Extrinsic rewards Joy of working Assertive managers Equity and competition Conflict resolved by fighting

123 127 124 127 127 123 127 127 127 127

2.6992 2.6378 3.2097 2.8661 2.5276 1.9756 3.7795 2.1969 3.1339 3.9370

.8678 .9484 .8485 .9707 .8982 .7941 .9251 .8361 .8941 .8975

.399 .219 –.093 .432 .684 .843 –.401 .773 .138 –.745

.218 .215 .217 .215 .215 .218 .215 .215 .215 .215

–.437 –.602 –.634 –.575 –.212 .772 –.350 .678 –.708 .298

.433 .427 .431 .427 .427 .433 .427 .427 .427 .427

Monitoring systems Low rule formalization Time not valuable resource No inner urge to work hard Precision unnatural Tolerance of ideas High rule formalization Time means money Inherent urge to be busy Precision natural Deviant ideas suppressed

127 127 127 127 127 127 127 127 127 127

3.2913 3.8031 3.1890 2.2756 2.8189 2.9291 1.9921 2.7165 3.2677 3.0787

1.0474 1.1754 1.0818 .9651 .9793 .8835 .8591 .9076 .9956 .9645

–.273 –.711 .035 .981 .321 .210 .931 .142 –.513 .056

.215 .215 .215 .215 .215 .215 .215 .215 .215 .215

–.893 –.711 –1.128 .730 –.501 –.872 .950 –.791 –.711 –.614

.427 .427 .427 .427 .427 .427 .427 .427 .427 .427

Items

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Standard Deviation

Kurtosis

Mean Statistic

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Std. Error

Statistic

Std Error

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National culture and organizational behavior of Malaysian and Japanese firms TABLE II: SUMMARY

OF

T-TEST

RESULTS ( T- VALUES AND SIGNIFICANT LEVELS )

Variables

Nation

Sex

Yr_est

Age

Yrs_wrk

Edu

Power relationships Decentralization popular Two-way communication Consultative principle Hierarchy shows inequality Top–down communication Autocratic approach

–1.86 –1.85 –3.16** 3.98*** 6.75*** 7.54***

–1.01 –3.51** –1.19 0.96 2.61* 1.76

–1.52 –1.08 –1.05 1.51 3.83*** 4.13***

–0.79 –0.12 –0.45 0.07 –0.46 0.13

1.65 2.72** 2.55* –1.60 –3.53** –3.82***

–0.15 1.49 0.98 –0.67 –1.11 –2.99**

Social relationships Low job specialization Narrow salary range High job specialization Wide salary range Individual rewards emphasized Commitment on individual goals

–0.47 –3.83*** 0.05 3.58*** 1.96* 2.87**

–0.63 –3.57** 0.05 2.96** –1.01 1.23

–0.50 –2.65* 0.46 3.24* 2.20 1.81

0.33 1.04 0.01 –1.25 –0.53 –0.82

0.93 4.46*** –0.04 –4.61*** –0.81 –3.05**

0.28 1.16 0.55 –0.48 0.24 0.18

Motivation system Intrinsic rewards Equality and quality of life Conflict resolved by compromise Conflict resolved by fighting

–1.91* –1.37 0.32 3.17**

–2.83** –2.34* 0.22 0.84

–0.51 –2.30* –1.84 2.65**

0.37 0.96 –2.05 –0.61

1.39 2.16* 0.98 –2.19*

0.42 0.51 0.29 –1.35

Monitoring system Time not a valuable resource No inner urge to work hard Precision not natural Time means money Inherent urge to be busy Precision and punctuality natural

4.41*** 1.94* 0.44 0.64 –0.52 –2.53*

1.45 0.33 1.06 –1.56 –0.29 –0.93

2.51* 1.31 –0.66 0.63 –0.23 –2.47*

–0.98 –2.04 –0.56 0.29 0.94 0.17

–1.79 –1.11 –0.70 1.95* 0.87 1.13

–1.78 –1.13 0.63 0.59 0.58 –0.03

Note: * significant to 0.05 level; ** significant to 0.01 level, *** significant to 0.001 level.

exhibit more individualistic orientations than Malaysian organizations. In motivation systems, Japanese managers favor rewards and incentives that tend to be intrinsic (e.g., feelings of accomplishment). Compared to Malaysian managers, they reject more strongly the resolutions of conflicts by “fighting” them out. The results for motivation systems are also found to be inconsistent with expectations in that Japanese managers are predicted to exhibit more masculine behavior. Finally for monitoring systems, Malaysian managers appear to agree more than Japanese managers with the impressions that employees do not perceive “time” as a valuable resource and that employees have no inner urge to work hard (i.e., “external” push is needed). At the same time, Japanese manVolume 4, Issue 1–3, December 2002

agers believe more strongly than Malaysian managers that precision and punctuality comes naturally to the employees. The findings for monitoring systems were consistent with the speculation that behavior is congruent with low uncertainty avoidance in Malaysia and the high uncertainty avoidance in Japan.

Discriminant analysis The items are next aggregated under four groups of behaviors to facilitate discriminant analysis. Discriminant analysis combines information from the organizational variables in a function to see how well the two groups of nations can be discriminated. The four groups of independent variables are power relationships, social relationships, motivation

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Lrong Lim systems, and monitoring systems while the dependent variable is nation. A necessary assumption [Green et al. (2000) listed data independence and normality as the two other assumptions] for discriminant analysis is equality of group covariance matrices (SPSS 1999). Box’s multivariate M statistic tests the hypothesis that the covariance matrices are equal. The value of Box’s M statistic is 17.91 and its significance probability, based on an F transformation, is insignificant at .074. The null hypothesis of equal group covariance matrices is not rejected, thus permitting the use of discriminant analysis on this data. The discriminant function has an eigen value of .439 and a canonical correlation of 0.55. The squaring of the canonical correlation reveals that 30% of the variability of the scores for the discriminant function is accounted for by differences in the dependent variables. Accordingly, Wilk’s lambda is .70 and Chi Square is 44.75 with a .001 significant level. These results indicate a significant TABLE III: STANDARDIZED

difference between the two group centroids. This is reflected by results from the tests of equality of group means on the individual factors: F(1, 125) = 36.32, p = .001 for power relationships, F(1, 125) = 7.76, p = .01 for social relationships, F(1, 125) = 7.30, p = .01 for motivation systems, and F(1, 125) = 9.38, p = .01 for monitoring systems. Table III shows the standardized canonical coefficients and structure coefficients of the independent variables. Both sets of coefficients show that power relationships have the greatest impact, followed by social relationships and motivation systems. These findings are consistent with results from the regression analysis test: r2 = .31, F(4, 122) = 13.38, p = .001. Among the four groups of behaviors, power relationships is found to be most significant at t(122) = –5.07, p = .001 followed by social relationships at t(122) = –3.01, p = .01. Motivation and monitoring systems are found to have insignificant impact. Finally, Table IV shows the classification

CANONICAL COEFFICIENTS AND STRUCTURE COEFFICIENTS

Standardized coefficients Power relationships Social relationships Motivation systems Monitoring systems

TABLE IV: CLASSIFICATION RESULTS

.796 .485 .191 –.242

OF

Structure coefficients .814 .376 .65 –.413

DISCRIMINANT ANALYSIS Predicted group membership

Original

Japan Malaysia

Cross-validated

Japan Malaysia

Japan

Malaysia

88 93.6% 16 48.5% 88 93.6% 17 51.5%

6 6.4% 17 51.5% 6 6.4% 16 48.5%

Note: 82.7% of original grouped cases correctly classified; 81.9% of cross-validated grouped cases correctly classified.

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National culture and organizational behavior of Malaysian and Japanese firms results of the discriminant analysis. The model correctly classifies Japanese organizations at 93.6% but can only marginally do likewise for Malaysian organizations at 51.5%. The classification remains unchanged after cross-validation on the Japanese sample. But the classification for the Malaysian sample becomes worse off after cross-validation. The results show that the model is more successful in classifying Japanese organizations than Malaysian organizations. The classification however, may have been affected by chance. As kappa corrects for chance classification, its statistic is computed to further assess the accuracy of the group memberships. A kappa value of .43 (p = .001) is found, generally indicating a moderately accurate classification.

DISCUSSIONS The aim of the first research proposition is to verify if Japanese and Malaysian organizations “follow” different sets of behaviors as “dictated” by their respective cultures. The results are consistent for behaviors on power relationships and monitoring systems but are inconsistent for behaviors centering on social relationships and motivation systems. Thus, propositions 1a and 1d are supported while

TABLE V: SUMMARY

Proposition 1a

Proposition 1b

Proposition 1c

Proposition 1d

Proposition 2

propositions 1b and 1c are not. These results are summarized in Table V. The second proposition sets out to verify the degree to which Japanese and Malaysian organizations can be accurately classified into their respective cultural groups based on analyzing the behavioral items. The results show that the model is more capable in correctly classifying Japanese organizations than Malaysian organizations. The results also reveal that the behavioral items playing a significant role in the classification are those of power relationships and social relationships. Motivation and monitoring systems have insignificant roles in the classifications. These results partially support proposition 2. A caveat for this study is the reliance on Hofstede’s findings for Japan and Malaysia. Some researchers cautioned that his findings are outdated (Nicholson & Stepina 1998). Yet, a review of literature confirms that present day researchers still conduct research that relies on his findings decades ago (Sivakumar & Nakata 2001). Thus, assuming that Hofstede’s contentions still hold true, the results from this study suggest that organizational behavior does not necessarily “follow” the dictates of national culture. Only half of the predictions

RESULTS OF ORGANIZATIONAL BEHAVIOR OF

JAPANESE

AND

MALAYSIAN

MANAGERS

Organizational behavior

Results

Japanese more consultative Malaysians more autocratic

Supported

Japanese less individualistic Malaysians more individualistic

Not supported

Japanese exhibit less masculine behavior than expected Malaysians exhibit more masculine behavior than expected

Not supported

Japanese more risk averse while Malaysians more relaxed with status quo

Supported

Japanese organizations are better predicted than Malaysian organizations by power relationships and social relationships items

Partially supported

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Lrong Lim come through while the other half do not. Malaysian organizational behavior appears to be still deeply entrenched in the concept of power among its employees while Japanese organizational behavior still appears to operate under the risk aversion principle. A possible explanation for the “non-compliance” of organizational behavior to national culture may be that, national culture today is different from that observed thirty years ago. This may be due to “generational changes” (Johnson & Lenartowicz 1998). For example, Chew and Putti (1995) revealed that Japanese organizations were feminine instead of masculine. This may explain the behavioral preference of Japanese organizations for intrinsic rewards and their rejection of conflict resolution by “fighting” them out. Meanwhile, researchers have highlighted the increase in individualism in Malaysia (Ross-Larson 1978). This may logically account for the behavioral preference of Malaysian organizations for wider salary range between superiors and subordinates, and an emphasis on individual rewards and individual goals. In fact, Tamam et al. (1996) discovered that a substantial number of Malaysian public and private firms have begun to foster independence in thought and action. The higher accuracy classification of Japanese organizations suggests that they are relatively homogeneous. Malaysian organizations appear to be more diverse. They resist easy classification. This could be due to the possibility that the respondents come from different ethnic backgrounds (there were eighteen Chinese Malaysians, seven Malay Malaysians, three Indian Malaysians, and five anonymous respondents in the sample). Equally interesting is the finding that only power relationships and social relationships contribute to the classifications. This result appears to suggest that the power distance and individualism dimensions and their subsequent consequences are more stable that the 96

other two dimensions and their consequences (Smith 1996). Behavior related to the motivation and monitoring systems were not found to be contributive to the classification. A possible reason is that the two original dimensions had “interpretive” problems. The labels, masculinity and femininity, are perceived as too sexist. There is confusion as to whether they referred to sexual roles or to the orientation towards career or humanity. Elenkov (1998) has alternatively suggested “competitive orientation” while Kennedy and Mansor (2000) preferred to split them into “gender egalitarianism and assertiveness”. Meanwhile, Newman and Nollen (1996) noted that uncertainty avoidance is probably the most criticized dimension among the four dimensions. One criticism is that, the dimension could be an artifact of the particular time period when Hofstede obtained his data. A second criticism suggested that the dimension may not be relevant for Asians based on the finding by Hofstede and Bond (1988) that uncertainty avoidance failed to emerge as a dimension in a study conducted on Asian countries using an instrument based on a Chinese values study. This led Newman and Nollen (1996) to suggest that uncertainty avoidance may not a useful dimension for cross cultural research.

CONCLUSIONS This paper attempted to explore the extent to which national culture influences organizational behavior among Japanese and Malaysian enterprises. The paper also tested the degree to which Japanese and Malaysian organizations can be “correctly” classified into their respective cultural groups. The research has resulted in mixed findings in that organizational behavior may only be partially “influenced” by national culture. The findings from this study should be treated as tentative. This

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National culture and organizational behavior of Malaysian and Japanese firms is partly due to the small sample size and to the likelihood that such a sample is not representative of the two cultures. The tentative findings also acknowledge the many criticisms against Hofstede’s model that this study relies on. As such, findings should be concurrently interpreted with findings from research based on other frameworks. An implication from the mixed results is that, national culture need not necessarily “dictate” organizational behavior. This is consistent with Pizam et al. (1997) who suggested that national values do not necessarily affect behavior. Other factors may be at play. As illustrated by Milkovich and Bloom (1998), factors relating to the “logic of the global marketplace” such as strategic flexibility and corporate culture may provide a more relevant foundation than national culture for managing rewards and compensations. Future research may be conducted to further verify the changes in culture, particularly those of individualism and femininity. Research has shown that there is a relationship between national wealth and individualism (Yang 1998). Malaysia has been developing rapidly over the last few decades. Her society may have become more individualistic as a result of marked economic development. On the other hand, a developed country such as Japan may be turning more feminine. Having achieved material affluence, her citizens may now be yearning for a more caring society.

References Chew, I. & Putti, J. 1995, “Relationship on work-related values of Singaporean and Japanese managers in Singapore”, Human Relations, vol. 48, no. 10, pp. 1149–1170. Child, J. 1981, “Culture, contingency and capitalism in the cross-national study of organizations”, Research in Organizational Behavior, vol. 3, pp. 303–356. Elenkov, D.S. 1998, “Can American management concepts work in Russia?”, Volume 4, Issue 1–3, December 2002

California Management Review, vol. 40, no. 4, pp. 133–156. Green S.B., Salkind, N.J. & Akey, T.M. 2000, Using SPSS for Windows, Prentice hall, New Jersey. Hofstede, G. 1984, Culture’s Consequences, Sage, London. Hofstede, G. & Bond, M.H. 1988, “The Confucius Connection”, Organizational Dynamics, vol. 16, no. 4, pp. 5–21. Jackson, T. & Aycan, Z. 2001, “Towards the future”, International Journal of Cross Cultural Management, vol. 1, no. 1, pp. 5–9. Johnson, J. & Lenartowicz, T. 1998, “Culture, freedom and economic growth”, Journal of World Business, vol. 33, no. 4, pp. 332–356. Jomo, K. 1985, The Sun Also Sets, Insan, Kuala Lumpur. Kennedy, J. & Mansor, N. 2000, “Malaysian culture and the leadership of organizations”, Malaysian Management Review, vol. 35, no. 2, pp. 44–53. Lachman, R., Nedd, A. & Hinings, B. 1994, “Analyzing cross-national management and organizations”, Management Science, vol. 40, no. 1, pp. 40–55. Milkovich, G.T. & Bloom, M. 1998, “Rethinking international compensation”, Compensation And Benefits Review, vol. 30, no. 1, pp. 15–23. Newman, K.L. & Nollen, S.D. 1996, “Culture and congruence”, Journal of International Business Studies, vol. 27, no. 4, pp. 753–780. Nicholson, J.D. & Stepina, L.P. 1998, “Cultural values: a cross-national study”, Cross Cultural Management, vol. 5, no. 1/2, pp. 33–47. Pizam, A., Pine, R., Mok, C. & Shin, J.Y. 1997, “Nationality vs industry cultures”, International Journal of Hospitality Management, vol. 16, no. 2, pp. 127–145. Ross-Larson, B. ed. 1978, Malaysia 2001, Kuala Lumpur: Syed Kechik Foundation.

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Lrong Lim Schwartz, S. 1994, ‘Beyond individualism/ collectivism’, in Individualism and Collectivism, eds. U. Kim, et al., Newbury Park, CA: Sage, pp. 85–119. Sekaran, U. & Snodgrass, C.R. 1986, “A model for examining organizational effectiveness cross-culturally”, Advances in International Comparative Management, vol. 2, pp. 211–232. Shackleton, V. & Ali, A. 1990, “Work-related values of managers”, Journal of CrossCultural Psychology, vol. 21, pp. 109–118. Sivakumar, K. & Nakata, C. 2001, “The stampede toward Hofstede’s framework”, Journal of International Business Studies, vol. 32, no. 3, pp. 555–574. Smith, P.B. 1996, ‘National cultures and the values of organizational employees’, in Managing Across Cultures, eds. P. Joynt and M. Warner, International Thomson Business Press, London, pp. 92–102.

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SPSS. 1999, SPSS Base 10.0 Applications Guide. Tamam, E., Hassan, M.S. & Said, M.Y. 1996, “Are Malay middle-level executives more collectivistic than individualistic?”, Malaysian Management Review, vol. 31, no. 4, pp. 50–56. Trompenaars, F. & Hampden-Turner, C. 1998, Riding the Waves of Culture, McGrawHill, New York. Westwood, R. & Everett, J. 1995, “Comparative managerial values: Malaysia and the West”, Journal of Asia-Pacific Business, vol. 1, no. 3, pp. 3–37. Yang, K.S. 1988, ‘Will societal modernization eventually eliminate cross-cultural psychological differences?’, in The CrossCultural Challenge to Social Psychology, ed. M.H. Bond, Sage, Newbury Park, CA.

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Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2002) 4: 99–112.

Team diversity and creativity SUMMARY

KEY WORDS R&D teams; managing creativity; heterogeneity; diversity; votes; factor analysis

1. “Which R&D teams if any in this company’s research laboratories do you think exhibit creativity?” 2. “Which individual researchers if any working in this company’s research laboratories do you think exhibit creativity?” In 1996 these two questions were asked of all researchers (excluding managers not working directly with research teams) working in the research laboratories of Japanese manufacturing Company A in the form of an open ballot-type questionnaire distributed through regular office channels. One thousand and twenty-two people returned the questionnaire for a response rate of 85.2%. It was found that (1) there is a low correlation between creativity assessed this way and the number of patents or research papers. It was also found that (2) creativity exists as an attribute of R&D teams that is distinct from creativity as an attribute of individuals. It was also apparent that (3) there was a connection between some heterogeneous feature – that is, diversity in the team – and team creativity. Received November 2001

Accepted June 2002

MASAHARU YANO Associate Professor of Research Information Research National Institute of Informatics Chiyoda-ku, Tokyo

INTRODUCTION

W

hile focusing on individual researchers and not on research teams, Pelz and Andrews (1966) investigated the relationship between the research laboratory environment and research productivity. They found that the factors affecting a scientist’s productivity were diversity and dissimilarity. Productivity was measured in terms of four criteria: Volume 4, Issue 1–3, December 2002

1. The contribution to general technical or scientific knowledge in the field. 2. The overall usefulness in helping the organization carry out its responsibilities. 3. The number of papers published in professional journals, or the number of patent applications. 4. The number of unpublished technical reports or manuscripts. Regarding diversity, Pelz and Andrews found that maximum productivity is generally achieved (a) when one-half to three-quarters of working time is devoted to the researcher’s area of expertise, (b) when the researcher works in two to three different areas of

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Masaharu Yano specialization, and (c) when the researcher’s work involves both basic and applied research issues. For dissimilarity, the authors found that scientists who were dissimilar to their colleagues with respect to strategies, style, and orientations tended to perform at higher levels than those who were similar. Although diversity in the hands of these authors is more of an individual attribute and cannot simply be extended to explain team diversity, dissimilarity describes differences among researchers and is therefore diversity as a team attribute. Sakakibara (1995) studied six Japanese and American companies in the computer industry, and reaffirmed the high degree of heterogeneity characterizing U.S. technology-related groups, and the high degree of homogeneity characterizing Japanese technical organizations. One can see from this comparison that a basic challenge for Japanese industry is how to overcome the pressure of conformity and create organizations that are characterized by pluralism (i.e., a compound of heterogeneous elements), individuality, and openness. Although these earlier reports do address the relationship between R&D team creativity and diversity, there have been virtually no studies in which the investigators have actually gone into the R&D labs and conducted specific analyses based on questionnaires and interviews. This paper examines if there really is a connection between the diversity and heterogeneity of R&D teams in Japanese companies and creativity, and, if there is, what kinds of diversity or heterogeneity are most effective at fostering creativity.

MEASURING CREATIVITY Can creativity be measured by such conventional criteria as counting patents or research papers? What does creativity mean in the context of corporate R&D creativity? Granted that corporate creativity and university creativity are likely to differ in some respects, is the number of patents or research papers an accu100

rate reflection of creativity? Not only is researcher compensation in many Japanese manufacturing companies directly tied to submitting and obtaining patents, but many R&D departments assign patent quotas that each section is expected to meet (Aoki & Dore, 1994). The number of patent submissions or acquisitions as a criterion of creativity can partly be transformed by this practice of assigning patent quotas. Using the number of research papers as a criterion of creativity is also problematic. First of all, the research conducted by manufacturing firms is broadly split between the exploratory phase and the development phase. Teams doing research on the development phase of products that will soon reach the competitive marketplace are frequently in a position of not being able to disclose their achievements in the form of a research paper, even when the team’s output exhibits a high degree of creativity. There are also some fields that lend themselves more to the production of research papers than others. This suggests that the assumed connection between creativity and sheer volume of patents and research papers may be overrated, which led the present work to adopt the different approach of measuring creativity based on the assessment of the researchers themselves by asking them to vote via a questionnaire. More specifically, the respondents were first asked “Which R&D teams in this company’s research laboratories do you think exhibit creativity?” and “Which individual researchers working in the company’s research laboratories do you think exhibit creativity?” and then the relationship between these findings and the number of patents and research papers was analyzed. The survey was conducted at the research laboratories of a large and well-known Japanese manufacturing company in the hightech sector, which has a workforce (not counting administrative staff ) of 1,200 full-time researchers.

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Team diversity and creativity teams and individuals showing marked creativity, the questionnaire also inquired about the number of papers accepted to academic journals and patent applications submitted within the last three years. Figure 1 is a scatter diagram showing the relationship between votes received and the number of research papers for the teams. The analysis was confined to only those teams receiving at least one vote or having published at least one paper, a criterion that excluded a majority of the teams that had neither a paper nor received any votes. Note too that when more than one team had the same results, they occupy the same square of the grid thus increasing the height of the bar. Interestingly, Team T1, the team receiving the most votes and the highest ranking, had not a single research paper for publication. Team T2 had two papers published, while Team T3 has had one paper published. Team T5 had the most published papers at eight, while Teams T6 and T7 had somewhat fewer published papers at five and six, respectively. None of the top ten teams or so in terms of the number of published papers received more than four votes for creativity. There was an extremely low correlation coefficient of only 0.017, and a significance level of 5% (the same below), which is statistically insignificant. The relationship between the number of team creativity votes and the number of patent applications is shown in Figure 2. Again, the

The respondents were asked to identify up to three teams exhibiting creativity, if they could think of that many teams, and one individual researcher, if they knew of someone exhibiting creativity. There were 158 respondents indicating that there were teams demonstrating creativity. After eliminating votes cast for teams that had already been disbanded and teams that the respondent could only identify by the name of the technology, that left a total of 203 valid votes. In addition, 96 researchers were nominated as “individual researchers exhibiting creativity.” A total of 81 teams received one or more votes as teams exhibiting creativity, but the most votes received by a single team was 15 (hereafter referred to as Team T1). The next six runner-up teams in terms of number of votes shall be designated Teams T2 through to T7 as shown in Table 1 (note that the data for Team 4 were not obtained). Turning to the individuals, the most votes received by a single person for exhibiting creativity (hereafter referred to as K1) were six. A total of 72 individuals received at least one vote, with 49 votes cast for team leaders (31 individuals) and 47 votes for rank-and-file team members (41 individuals). Note that K1 was not a member of any R&D team, but one of a small number of researchers at the company that was pursuing work on his own. While asking the respondents to vote for TABLE 1 RANKING Ranking 1st 2nd 3rd 3rd 5th 6th 6th

OF

“TEAMS

SHOWING CREATIVITY ”

No. of votes

Team name

Location

Members (including leader)

Research stage

15 13 9 9 8 6 6

T1 T2 T3 T4 T5 T6 T7

Zone a Zone a Zone a Zone a Zone b Zone c Zone c

11 7 12 6 3 7 7

Development Development Development Development Exploratory Development Exploratory

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Masaharu Yano

20

Number of teams

18 16 14 12 10 8 6 0

4 3

2

Number of team votes

FIG. 1: NUMBER

24

Number of papers published in journals

22

20

18

12 16

14

12

10

8

9 6

2

4

6 0

0

15

OF TEAM VOTES AND NUMBER OF RESEARCH PAPERS

Number of teams

35 30 25 20 15 10

0 5

5

66~10 11~15 16~20 21~25 26~30 31~35 36~40 41~45 46~50 51~55 56~60 61~65 66~70 71~75 76~80 81~85 86~90 91~95 96~100 101~105 106~110 111~115 116~120

10 00 11~5

0

15

Number of team votes

Number of patent applications FIG. 2: NUMBER

OF TEAM VOTES AND NUMBER OF PATENT APPLICATIONS

teams receiving zero votes and submitting no patents were disregarded, so the analysis was confined to just those teams receiving at least one vote or submitting at least one patent application. Team T3, which received three votes, had submitted 56 to 60 patent applica102

tions, but the teams which ranked high in team voting had all submitted fewer than 40 patent applications each. With the exception of Team T3, none of the other eleven teams that submitted many patent applications was represented among the seven teams receiving

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Team diversity and creativity the most votes for creativity from their peers. The correlation coefficient was quite low at 0.152, which is insignificant. Similar results were obtained for the individual vote team totals – that is, the total number of votes for individuals exhibiting creativity on a team including the leader and other members of the team. The correlation coefficient with the number of published papers was –0.081 and with the number of patent applications was 0.064. Both correlations are close to zero and statistically insignificant. Thinking that the exploratory R&D teams might produce more technical papers while the development teams generate more patent applications, the correlation between votes and the number of papers for just the exploratory teams and the correlation between votes and the number of patent applications for just the development teams were analyzed. The exploratory teams obtained a correlation coefficient of 0.156, and the development teams 0.173. Again, both correlations are quite low and statistically insignificant.

These findings reveal that there is a low correlation between the peer review of creativity made by researchers themselves in an R&D laboratory of a major manufacturing company (i.e., the voting results obtained with the questionnaire) and such conventional techniques for gauging creativity as counting the number of research papers and patent applications. Fact 1: There is little correlation between the number of patent applications and research papers published and the results of researcher peer review as to which teams and individuals show creativity.

TEAM ATTRIBUTES Using the above voting results, checks were made to see which individual researchers thought to exhibit creativity belonged to which teams. Figures 3 and 4 show scatter diagrams for (1) the relationship between the number of votes received for individual leaders of the team, and for (2) the relation between the number of votes received for all individual members (a leader and members combined)

30

Number of teams

25 20 15 10 5 0 0 1 2 3 4 5 6 7 8 9 10 11 Number of team votes 12

FIG. 3: NUMBER

0 2 4 13

14

6

Number of leader's votes

15

OF TEAM VOTES AND NUMBER OF LEADER ’ S VOTES

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Masaharu Yano 25

Number of teams

20

15

10

5 0 2 Number of individual votes 4

0 0 1 2 3

4

5

6

7

8

9 10 11 12 6 13 14 15 Number of team votes

FIG. 4: NUMBER

OF TEAM VOTES AND NUMBER OF INDIVIDUAL VOTES ( LEADER – MEMBERS )

and their teams. Many teams received zero votes for the team and also received zero votes for the total number of individual votes for a leader and members. So the analysis was confined to teams that had at least one team vote or an individual vote. The correlation coefficients were 0.064 for (1) and 0.102 for (2), results that are close to zero and statistically insignificant. These results show: 1. There is little correlation between team creativity and the number of votes received for creativity of the team leader. 2. There is little correlation between team creativity and the number of votes received for creativity of the individuals making up the team (both a leader and members). These findings suggest that something else is at work besides the creativity of individual team members in the manifestation of team creativity. Team creativity, in other words, is not just the sum total of each individual member’s creativity; there are some additional factors at work – attributes of the team – that are 104

somehow conducive to creativity at the team level. Among these factors, clearly one of the most important is diversity or heterogeneity, concepts considered in greater detail below. Fact 2: Creativity exists as an attribute of R&D teams that is separate and distinct from creativity as an attribute of individuals. The leaders and members of five out of the seven teams that were ranked high in creativity based on peer voting were interviewed. In the interviews it came out that most of the team leaders placed tremendous importance not merely on the development of technologies, but on practical implementation (turning technologies into products), seeing the products reach the market and getting into the hands of users to boost the sales and profitability of the company. The leaders were also keenly aware that they were working on innovative technologies and products that no other company anywhere in the world had developed or had taken to the same level of development that they were working on. The end

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Team diversity and creativity objective is not the technology itself or securing a patent on the technology, but rather a saleable product that is supported by the technology. The technologies being investigated, in other words, were only those having the potential for practical implementation. While all the leaders are researchers, they are also members of the company, and as such, it is only natural that they should place a high priority on maximizing the sales and performance of the company.

STATISTICAL ANALYSES The questionnaire voting covered much more than just which teams and which individuals demonstrated creativity. Respondents were also asked to vote on some 68 items (the same questions were asked separately for team leaders and regular team members) regarding experience studying abroad, communication, character, and other relevant factors. In addition, 35 items were addressed just to the team leaders covering cooperation with entities outside the company, team management, organizational style, number of papers published by the team, the number of new technologies developed, and so on. Employee data maintained by the company – including college backgrounds, which departments the employee worked for in the company, etc. – was also collected from the personnel database. By analyzing all this data using the method outlined below, it was found that the teams demonstrating creativity were also characterized by diversity.

1. Chi-square test First, the questionnaire votes on the common items regarding both leaders and members plus the data obtained from the personnel director were combined for each team, and team averages were calculated. Then, the second half of questionnaire votes for leaders and team data including the parts regarding the team as a whole were divided into two groups Volume 4, Issue 1–3, December 2002

for each question: a high group and a low group. In addition, since the average number of votes received by the teams thought to exhibit creativity was 1.08, the teams were again divided into two groups: teams receiving more than average or two or more votes (33 teams), and teams receiving less than average or one or less votes (155 teams). The former group consisted of teams exhibiting creativity, while the latter group consisted of teams exhibiting little creativity. Considering that a single vote might just be a fluke, teams that received two or more votes for creativity were regarded to ensure a higher degree of objectivity. Note that teams receiving two or more votes also received more votes than the average, since the average number of votes for all teams was 1.08. The above two sets of two groups were organized into a cross-matrix and each cell of the matrix was subjected to chi-square testing. Taking 10% as the low-level probability of significance p picked up by the chi-square testing, 15 variables were obtained. The data is presented in Table 2. For reference purposes, the Cramer’s V coefficients from the crossmatrix table are added to this table. These variables are good indices of creativity and should show a strong correlation with team votes, as will be ascertained in the following analysis. After the questionnaire had been returned it was found that the question regarding “use of PC-based communications” (No. 12 in Table 2) had been poorly expressed, so this item was excluded and the remaining 14 variables in the subsequent analysis were used.

2. Factor analysis Next, by performing a factor analysis on the combined 14 variables found by the chisquare testing, the six factors shown in Table 3 that had eigenvalues of 1 or greater were derived. Note that these results were based on factor loading after verimax rotation.

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Masaharu Yano TABLE 2 CHI-SQUARE

TEST RESULTS FOR TEAM VOTES

(2

(2

SETS )

Criteria for division into 2 groups (No. of teams in each group)

Item 1 Studying abroad (university, research institute) 2 Team scale 3 Business trips abroad (within 3 years) 4 Transferred employee on team 5 Living abroad (before joining company, except for study) 6 Cooperation with other group(s) in Company group A 7 Master’s degree in a different university 8 Diverse academic backgrounds 9 Character (type who dislikes doing the same as others) 10 Cooperative work with university researchers 11 Cooperation with other group(s) outside company A group 12 Use of PC-based communications 13 Leader’s supports input of information 14 Use of databases 15 Leaders encourages members to express opinions

p

Cramer’s V

Presence/absence of individual with such experience (present:absent = 35:153, same as below). Size of team (leader + members) larger/smaller than average of 4.81 (88:100). More/less trips than average for all teams (74:114).

0.001

0.318

0.001

0.296

0.001

0.287

Presence/absence of transferee from other departments (7:181). Presence/absence of individual with such experience (24:164). Has/hasn’t cooperated (94:84).

0.001

0.279

0.001

0.242

0.005

0.208

Presence/absence of individual with such experience (49:139). Standard deviation of graduating department larger/smaller than average for all teams (68:120). More/fewer this type individual than average (81:107). Has/hasn’t cooperated (91:88).

0.005

0.204

0.016

0.176

0.016

0.176

0.025

0.167

Has/hasn’t cooperated (61:117).

0.038

0.155

More/less use than average for all teams (103:85).

0.050

0.143

5 grading responses higher/lower than average for all teams (88:100). More/less use than average for all teams (88:100). 5 grading higher/lower than average for all teams (106:82).

0.080

0.128

0.080 0.089

0.127 0.214

Most of the loading of factor 1 was contributed by three variables: team scale, experience living overseas, and diversity of academic backgrounds of the team members. Larger teams were more likely to include a greater diversity of knowledge, ways of thinking, and different personalities, and have more communication channels available. Considering the other variables that figure prominently in the loading of factor 1, greater diversity of knowledge and ways of thinking were also correlated with larger team scales. 106

GROUPS ) FOR EACH ITEM

“Experience living abroad” means a period of residency in another country besides Japan before the employee joined the company and does not include studying abroad. For example, an employee may have lived overseas and been exposed to different ways of thinking while growing up, and this is a very different factor from the experience of going overseas on business trips or study at a foreign university. This factor is called “diverse knowledge and ways of thinking.” Factor 2 received most of its factor loading

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Team diversity and creativity

TABLE 3 FACTOR

ANALYSIS RESULTS AND FACTOR LOADING ( AFTER VERIMAX ROTATION )

Factor 1

1. Studying abroad 2. Team scale 3. Business trips abroad 4. Transferred employee on team 5. Lived abroad 6. Cooperation with other group(s) in Company group A 7. Master’s degree in a different university 8. Diverse academic backgrounds 9. Character (type who dislikes doing the same as others) 10. Cooperative work with university researchers 11. Cooperation with other group(s) outside Company A group 12. Supports input of information 13. Use of databases 14. Encourages members to express opinions

Factor 2

Factor 3

Factor 4

Factor 5

Factor 6

Team Diverse management knowledge introducing and ways and mixing of thinking heterogeneity

Overseas and academic contacts

0.39717 0.72866 –0.13881

–0.07191 –0.11974 0.08202

0.61331 –0.02374 0.75145

–0.02448 0.21251 –0.00254

0.29790 0.05234 0.16123

–0.17228 0.19909 0.05710

0.33069 0.48802

0.20546 0.12381

0.07419 0.06817

0.13227 –0.05669

0.43898 0.36540

–0.01314 0.05889

–0.01678

–0.02842

0.03399

0.78402

0.34385

–0.15050

0.31770

–0.12828

0.11076

–0.01043

–0.08066

0.73754

0.62035

0.16268

–0.07033

–0.11105

–0.17082

–0.09870

–0.20063

0.16729

0.04706

–0.04537

0.29195

0.67560

–0.00832

0.08907

0.71857

0.06723

–0.27237

0–19843

0.05979

–0.00949

0.01137

0.78694

–0.32417

0.08584

0.05907 –0.06529

0.82165 –0.09344

0.09590 0.01315

0.02594 –0.04386

0.02537 0.67200

–0.16418 0.11963

0.06448

0.82173

0.02016

–0.06394

–0.01924

0.18666

Cooperation with Experience other in other organisations fields

Diverse personality and individuality

Note: Shaded figures represent loading factors of 0.4 or greater. Variables 12 and 14 (supports input of information and encourages members to express opinions) relate to team management and were covered in questionnaire items addressed to the team leaders.

from two variables: support by the team leader encouraging members to input information, and the leader encouraging members to express their opinions in deciding what R&D themes will be investigated. Both variables were covered by items on the questionnaire relating to team management of the team leader, and the factor was called “team management of introducing and mixing heterogeneity.” Volume 4, Issue 1–3, December 2002

Most of the loading of factor 3 comes from three variables – study abroad, overseas business trips, and cooperative research with university scientists – and the variable is called “foreign and academic contacts.” Factor 4 received most of its factor loading from two variables: cooperative work with other companies within the Company A group and with companies outside the Company A group. This factor is referred to as

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Masaharu Yano TABLE 4 FACTOR

Team

T1 T2 T3 T5 T6 T7

SCORE CHARACTERISTICS OF TEAMS RECEIVING THE MOST VOTES

Factor 1

Factor 2

Factor 3

Factor 4

Factor 5

Factor 6

Diverse knowledge and ways of thinking

Team management introducing and mixing heterogeneity

Overseas and academic contacts

Cooperation with other organisations

Experience in other fields

Diverse personality and individuality

❑

❍

❍

●

×

❑

❍

❑

● ❍ ❍ ❍

×

❍

❍

❍

●

❍

❑

❍ ❑

❍

●

❑

❍

Note: ● = Within 5% of top rank; ❑ = Within 10% of top rank; ❍ = Within 30% of top rank; × = Within 10% of bottom rank.

“cooperation with other organizations.” Considered from the standpoint of diversity and heterogeneity, the decision on the part of a team leader to engage in cooperative research with another company in or outside the Company A group signifies an attempt to bring greater heterogeneity to the team where this quality is either lacking or doesn’t exist. Most of the loading for factor 5 was contributed by two variables: the presence of a researcher with experience in another field who transferred into the team, and the frequency with which a team makes use of databases. The use of databases indicates an effort to make up for the inevitable fact that few if any researchers on a given team will have any experience in other fields. This factor is called “experience in other fields.” Turning to factor 6, most of the loading factor was contributed by two variables: going to a different graduate school after completing undergraduate work, and temperamentally whether one likes or dislikes doing the same as others. In light of the fact that most graduate students in Japan remain at the same school where they did their undergraduate study (in the sample represented by this study, 570 people stayed at the same school while 71 people attended a different graduate school), this 108

factor is called “diverse personality and individuality.” If these six factors are classified with reference to previous studies (Nonaka [1992] and Takeuchi and Ishikura [1994]), they can be grouped into two categories: the four factors 1, 3, 5, and 6 pertain to the diversity/heterogeneity of the members making up the team, while the two factors 2 and 4 relate to management efforts on the part of the team leader to introduce greater heterogeneity into the team. In other words, team diversity is clearly related to creativity. It is apparent that diversity or heterogeneity as an attribute of teams is an important factor contributing to the team’s creativity.

3. Factor scores features of teams receiving the most votes The factor scores of factors 1 through to 6 for the six teams receiving the most votes were then calculated. One can see from the results presented in Table 4 that the teams receiving the most votes also have the first or second highest factor scores (Team T1 has the thirdhighest score); that is, they are within the top 5% or 10% of the 188 teams. It is apparent that diversity is closely related

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Team diversity and creativity to a team’s creativity. The nature of diversity can be more specifically represented as follows: Fact 3: The diversity of the team members (diverse knowledge and ways of thinking, overseas and academic contacts, experience in other fields, diverse personality and individuality) and the team’s management (fostering, introducing and mixing heterogeneity and cooperating with other organizations) are closely connected to the team’s creativity.

CASE STUDY – DIGITAL COMMUNITY The Digital Community case study was a development stage project in the area of software research that was undertaken by Team T1, the team that was ranked first in creativity with a total of 15 votes. In terms of individual votes, one member of the team received one vote and the leader of the team did not receive any votes. The chief factors distinguishing this team are (1) the team’s depth of experience in other fields, and (2) the team’s management introducing and mixing heterogeneity. In software research the researchers are faced with two critical issues: “What to develop” and “How to implement it.” Of these two, the first question – what to develop – often takes much longer to resolve. Team Leader C emphasized “we expend a lot of thought and time in coming up with a concept of what to make in the first place. In fact, once we have a clear notion of the product, that’s really half the research battle.” He also stressed that “heterogeneity is valuable in all phases of research, but especially at the beginning when discussing what to make: the more diverse and heterogeneous the experience of your team, the more likely you are going to get a novel and innovative product concept.” It had already been decided that the team had to come up with a new primary research theme in 1993, and that year they began work Volume 4, Issue 1–3, December 2002

on “developing a platform that would support multimedia.” So long as the buzzword multimedia was included in the concept, any sort of project would have been acceptable. The real competition, it was realized, was not other Japanese companies, but venture capitalfinanced companies in California. Five or six members of the team, including two younger recent arrivals who were put in charge of coming up with an idea, had many discussions trying to decide exactly what to develop within the confines of the stated theme. The members of the team came from diverse backgrounds and areas within the company, including one member who had worked on a video-editing tool, another with a background in image recognition, and a third who had worked with computer graphics. This team was in the Information Research Department and thus had a couple of members with backgrounds in other fields that came out of the Communication Research Department (i.e., experience in other fields). Before joining the company, most of the members had worked with computers, so there was no heterogeneity originating from this source. Nor was there anyone on the team with a liberal arts background or anyone who is notably unconventional. Initially all the team members belonged to other groups and they got together for discussions when they worked on the multimedia project. Nobody led the discussions, and there was a sense of equality with no deference to newer and older members as the talks unfolded. The team leader played a major role ensuring that the discussions were conducted in an uninhibited and open fashion (i.e., team management introducing and mixing heterogeneity). First, all members agreed that the most fundamental guiding principle of the project was that it should be needs driven. Next, the members were assigned to “come up with technologies that they themselves as potential

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Masaharu Yano consumers would like to see implemented.” They brought their ideas in, and each member had an equal opportunity to present and defend his idea. In evaluating each idea, the discussions touched on technical feasibility, marketability, estimated time to develop the idea, and even the “inherent interest of the research itself.” In the course of this process, the ideas that were too vague or stood little chance of being implemented were set aside, while ideas that were similar or had things in common gradually merged together. Finally, the team converged on the concept of “an intuitive and user-friendly virtual reality capable of combining video images and computer graphics.” Team Leader C added, “When experience is confined to one particular technical field, research tends to lack depth; that is, it may have a high degree of immediate practicality, yet lack vision and long-term viability.” After determining the general direction that the research would take through this process, team members went back to their respective areas of expertise and did a careful analysis of what common-knowledge technologies were available, what kind of approach would be most appropriate, and so on. The team then convened again to discuss how best to implement the “user-friendly virtual reality” that everyone now agreed was the primary objective. Finally, the concept was presented to Team Leader C with management authority for final approval, and work began on the Digital Community. The concept saw fruition in the form of two products marketed under the names Sketchvision and Cyberspace. Both products were completed in 1996, and met with widespread success and approval inside and outside the company. This case study in the area of software research illustrates the importance and effectiveness of diversity in preliminary discussions at the initial stage of research. Although this team worked within the Information Research 110

Department, it had some representation from other fields in the form of two members who had come from the Communication Research Department. The leader also fostered an atmosphere of open and uninhibited discussion among the members. These two sources of diversity or heterogeneity were very effective in promoting the creativity of the team. The two attributes of the team featured in this case study closely parallel two of the factors discussed earlier: participation of two members from a different department exemplifies factor 5 “experience in other fields,” while the leader’s encouragement of openness parallels factor 2 “team management introducing and mixing heterogeneity.” It is apparent from the case study described here that team creativity definitely does exist and that there is a close connection between the diversity of a team and the likelihood that the team will exhibit creativity.

CONCLUSIONS This work was a questionnaire-based survey asking all researchers working in the research laboratories of manufacturing Company A “Which R&D teams if any in this company’s research laboratories do you think exhibit special creativity?” and “Which individual researchers if any working in this company’s research laboratories do you think exhibit special creativity?”. Based on a team-centered statistical analysis of the survey results and a case study, there are three key findings:

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Fact 1: There is little correlation between the number of patent applications and research papers and the result of researcher peer review as to which teams and individuals show creativity. Fact 2: Creativity exists as an attribute of R&D teams that is separate and distinct from creativity as an attribute of individuals. Volume 4, Issue 1–3, December 2002

Team diversity and creativity Fact 3: The diversity of the team members (diverse knowledge and ways of thinking, overseas and academic contacts, experience in other fields, diverse personality and individuality) and the team’s management (fostering, introducing and mixing heterogeneity and cooperating with other organizations) are closely connected to the team’s creativity. While there is no contention that creativity derives solely from diversity, considering there are probably other factors that also contribute to creativity, clearly diversity is effective in promoting creativity. The B Transistor case study was not discussed here because of space. In that case, the fabrication of various kinds of circuits could not be attributed to just the initiative and efforts of one team member (B1). Rather, it was only the convergence of three different areas – materials, devices, and electronics – that made it possible to assert that diversity is clearly effective in promoting creativity at the team level. In the Digital Community case study, the leader deliberately encouraged free and open discussion among the team members who had experience in different fields. In addition to these two case studies, a number of other team leaders and members were interviewed and there was a pervasive recognition that the presence of heterogeneity and diversity on a team is a primary driving force in the production of research, which shows that diversity is clearly effective in promoting creativity. The research showed that diversity cannot just be superficially grafted onto a team. The factor analysis revealed that team management on the part of the leader fostering heterogeneity is critically important. If diversity clearly effective in promoting creativity grows out of the mutual respect for diversity and interaction among heterogeneous elements, as these findings suggest, then it would behoove Volume 4, Issue 1–3, December 2002

the leaders of R&D teams to combat the ingrained tendency of Japanese to feel secure in the imitation of others and promote greater heterogeneity among team members.

References Allen, Thomas J. (1979) Managing the Flow of Technology. MIT Press, Cambridge, Mass. Aoki, Masahiko & Ronald P. Dore (1994) The Japanese Firm: Sources of Competitive Strength. Oxford University Press, New York. Hull, Frank M. & Koya Azumi (1989) “Teamwork in Japanese and U.S. labs,” Research Technology Management, 2(6), 21–26. Kodama, Fumio (1995), Emerging Patterns of Innovation: Sources of Japan’s Technological Edge, Harvard Business School Press, Boston, Mass. Nonaka, Ikujiro (1992) Management of Knowledge Creation: Sources of Japan’s Technological Edge, Harvard Business School Press, Boston, Mass. Ohashi, Iwao (1991) Behavioral science of R&D management, Dobunkan Shuppan Press, Tokyo. Pelz, Donald C. & Frank M. Andrews (1966), Scientists in Organizations: Productive Climates for Research and Development, John Wiley & Sons, New York. Sakakibara, Kiyonori (1995) “R&D Management in Japanese Companies: Homogenization within Organizations and Conquering It, Chikura Shobo , Tokyo. Sakakura, Shogo & Masakazu Kobayashi (1991) “R&D Management in Japanese research institutes,” Research Policy, 20, 531–558. Singleton, Royce A., Jr., Bruce C. Straits, & Margaret M. Straits (1993), Approaches to Social Research, Oxford University Press, New York. Takahashi Nobuo (1992), Introduction to Management Statistics: SAS User’s Guide for

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Masaharu Yano Organizational Analysis, University of Tokyo Press. Takahashi Nobuo (1993) “Organizational research methods using statistical surveys: effectiveness of the post-study interview,” Social Science Bulletin, 43, University of Tokyo Liberal Arts Department, 135–151. Takeuchi, Hirotaka & Ishikura Yoko (1994), Management of heterogeneity: Overcoming the Japanese Homogenous Management:

Proposal from a Manager of a 431 Personnel Workplace, Diamond, Tokyo. Woodman, Richard W., John E. Sawyer, & Ricky W. Griffin (1993) “Toward a theory of organizational creativity,” Academy of Management Review, 18, 293–321. Yano, Masaharu (1992), “Organizational Originality and Activation,” Organizational Science, 26(3), 56–69.

Innovation: Management, Policy & Practice accepts F E AT U R E

ARTICLES

If you have an article that would suit, please see the inside back cover of this issue for details of how to submit your work.

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Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2002) 4: 113–128.

The influence of Chinese American cultural values on workplace communication, innovation, and teamwork SUMMARY

KEY WORDS cultural differences, communication, innovation, competitive advantage, Chinese Americans; cross-cultural management

Most intercultural research examines the impacts of cultural differences on interactions between organizations nurtured in different cultures (e.g. between a British firm and a Japanese firm) or of expatriate situations (e.g. a US manager in a French subsidiary). Our focus is instead on the impacts of mingling people from different (national) cultures within a given organization. The Chinese diaspora provides a significant population interacting to various degrees with diverse host communities. Chinese Americans represent a major multigenerational concentration of overseas Chinese, offering researchers a range of potential degrees of adaptation. To what degree, and in what way, do American values alter traditional Chinese behavior patterns, particularly in trust building, communication, teamwork, and innovation? Conversely, how do indigenous Chinese values affect Chinese American perceptions, attitudes, and actions in these situations? Finally, how can these dynamics contribute to innovative climates and organizational advantage for firms employing Chinese Americans, or (by extension) members of other intercultural groups? Our paper examines prior research into cultural values among various populations of Chinese people. We draw five propositions about the nature of Chinese American culture using Hofstede’s original dimensions and the Chinese Value Survey, and examine their managerial implications. Received January 2002

Accepted October 2002

Authors overleaf ... Volume 4, Issue 1–3, December 2002

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André M. Everett et al.

YIM-YU WONG Department Chair and Professor Department of International Business San Francisco State University

ANDRÉ M. EVERETT Senior Lecturer Department of Management University of Otago Dunedin, New Zealand

LAN TUYET HONG Graduate Department of International Business San Francisco State University

NEIL EVANS Associate Professor Department of International Business San Francisco State University

INTRODUCTION

W

orkplace values are popularly known to vary between ethnic Chinese groups in different locations. For example, Huo and Randall (1991) found subcultural value differences among managers sharing Chinese culture but living in Taiwan, Beijing, Hong Kong, and Wuhan. Akoorie and Leung (1994) noted differences in Chinese managerial style in New Zealand. This phenomenon inspired us to inquire whether insights could be gained by examining differences within one specific group of ethnic Chinese who have been subject to alternative cultural influences, i.e. the United States residents who have inherited Chinese culture. The ties overseas Chinese and Chinese American have with China have played a role in shaping the unique racial and cultural identity of the Chinese Americans and overseas Chinese in the United States. This began with the first wave of Chinese immigration, from 1852 after the discovery of gold in California until the 1882 Chinese Exclusion Act. Approximately 200,000 labor114

ers, predominantly young males from rural counties around Guangzhou in Guangdong province, came to the United States and Canada to meet the demand for cheap labor in the West. These immigrants faced strong anti-Chinese sentiment despite the fact that their presence in the West was eagerly sought by expansionists in the national government as well as employers and developers in the West. Between 1882 and the 1920s many Chinese were forced to return to their homeland or chose to go in the face of continued violence. Those who stayed were confined to congested ghettos in large cities through legal and social segregation, and were forced to work in menial jobs and small businesses. During the 1920s there was a new wave of immigrants different from the first group in class background and attitudes. The new immigrants, while loyal to China, strongly believed that the only way to overcome China’s backwardness and vulnerability was in modernizing China. The trend in the decline

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The influence of Chinese American cultural values in the workplace of the Chinese population in North America was reversed through their arrival in conjunction with an American-born generation of Chinese living in the ghettos. Many chose to renounce their Chinese heritage in the hopes of being accepted in American society. Despite their decision to assimilate or become Americanized, anti-Chinese sentiment remained strong. In 1943, after China became an ally of the USA in World War II, a new relationship between the two governments commenced. Major changes to US immigration laws in 1965 marked the beginning of the latest wave of Chinese immigration. The Chinese American population rose sharply for primarily two reasons: family reunification and the recruitment of skilled professionals. Most of the new ethnic Chinese immigrants were graduate students from Taiwan, Hong Kong, China, and Malaysia. Approximately 68,000 Chinese stu-

dents from these four places were enrolled in American Universities and colleges at the peak in 1987. Five types of Chinese American identity have resulted from distinct historical settings, according to Wang (1994), who named them sojourner, total assimilation, accommodation, ethic pride and conscientiousness, and uprooted (see Exhibit 1). While all five identities exist to a certain extent, their importance and numbers have changed significantly over time – with only the ethnic pride and conscientiousness identity growing in numbers, and all others decreasing, in recent decades. However, the types are constantly changing and interacting with each other. A person’s identity can change from one to another, with such changes engendered by changes in China, in the United States, and in US–China relations. American Chinese have a long history in

EXHIBIT 1: CHINESE AMERICAN IDENTITIES Sojouner. Since the mid-nineteenth century, many people regarded the overseas Chinese as foreigners, outcasts, and ‘nonassimilable’ – people who would hold on to their ‘peculiar’ culture. Many countries adopted policies that made it difficult for Chinese immigrants to earn a living, let alone to integrate into their society, encouraging them to retain their Chinese culture. Most of the early immigrants intended to return to their native villages in China. In the meantime, they set up parallel social institutions as a way to protect themselves while maintaining their original lifestyle. While most of the discriminatory policies no longer exist, the sojourner mentality continues to survive for several reasons – most importantly that Chinese society values loyalty and pride in culture, specifically, loyalty to one’s ancestral home. A second reason for the continuing sojourner mentality is racism and discrimination. Lastly, the Chinese government has provided many incentives for emigrants to return. Total Assimilation. The total assimilation mentality is the opposite of the sojourner mentality. It is usually associated with the first generation of Chinese born in America. Originally few in numbers, they slowly gained in status as a recognizable group within the Chinese population. Although they were raised by traditional Chinese parents in segre-

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gated Chinatowns, they nevertheless became Americanized. Exposure to American public schools and Christian missions made them aware of the racial, cultural, social, and legal differences between themselves and their American peers. Consequently, these comparisons persuaded them to assimilate into the American culture. Many perceived the Chinese culture as repressed and backward, and dissociated themselves from their relatives and Chinese friends. This ultimately resulted in completely rejecting Chinese culture and values while adopting the American culture in hopes of being accepted into American society. Accommodation. Compared to assimilation, accommodation meant renouncing Chinese citizenship while accommodating the American lifestyle in public without abandoning Chinese culture and heritage in private. This group included 5,000 government sponsored Chinese students in American universities, as well as other recent immigrants. They originally intended to return to China in their old age or to help modernize the country. When China’s status changed from US ally to enemy during the Cold War, these Chinese were prohibited from making contact with China. Forced to abandon their dream of ever returning home, these Chinese Americans for the first time began to plant their roots permanently in the United States. Ethnic Pride and Conscientiousness. This group neither blindly accepts nor rejects its Chinese culture. These individuals are proud of their Chinese as well as their American heritage. They fought for equality and acceptance of Chinese American culture by establishing Asian American studies programs in many universities as well as civil rights and social service organizations in Chinatowns all over the country. They created local and national organizations, such as the National Association of Chinese Americans (NACA) and San Francisco’s Chinese for Affirmative Action (CAA), to redefine and rebuild Chinese American self-esteem. Many also reconstructed their family histories in the hopes of identifying their ancestral heritage. Uprooted. This fifth group represents the scholars and intellectuals who have left China to seek knowledge in the United States. Originally, they came to the US with the intention of returning one day to help modernize China. A significant majority of this group failed to return to China, having lost faith in the Chinese government as well as in their own ability to make a difference in modernizing China. The influx of intellectuals into the US was spurred by the opportunities available in research, teaching abroad, and pursuing advanced degrees.

the United States. It is understandable that US immigrants from China, despite their age and time since arrival in the USA, would inherit more Confucian traits than those born and raised within the USA. Generational differ116

ences among Chinese Americans will be an important issue for future research. Variance among the origins of Chinese immigrants to the US, differentiating among Taiwanese, Hong Kong, Singaporean, other overseas, and

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The influence of Chinese American cultural values in the workplace Mainland Chinese sources, could also prove interesting and worthwhile. This in turn suggests the potential for subdividing Mainland Chinese cultures into regional variants following traditional boundaries or based on more contemporary political and economic factors such as differentiation between special economic zones, major cities, rural areas, and recent migrants from rural to urban areas. Most of the almost three million (Census, 2002) Chinese Americans have adopted certain aspects of both the Chinese and American cultures. Chinese Americans share a culture quite distinct from that of their ancestors and have chosen to make a life for themselves in the United States. At the same time, Chinese Americans also adhere to some traditional Chinese cultural patterns, and exhibit a variety of forms of Chineseness and Americanness, as expressed in the five identity types identified by Wang (1994). Consequently, Chinese Americans should score between Chinese and American values on cultural measures. Given the Chinese Americans’ history and complex relationship with the United States, Chinese Americans will have lost some of their basic Chinese culture – but given their Chinese heritage, would retain some of the basic Confucian values. The strength of their cultural and environmental ties with the United States leads us to conclude that Chinese Americans’ scores should more closely resemble those of the United States than those of mainland China. Numerous studies have examined culture in the workplace. Many, if not most, have been modeled on Hofstede’s (1980) massive pioneering study; it is increasingly popular as a base for research (Sivakumar, 2001), despite its widely acknowledged shortcomings (e.g., Yeh, 1988). They have tended to produce broadly similar results. The Chinese Value Survey, introduced by the Chinese Culture Connection research group (1987), modified and expanded on Hofstede’s original fourVolume 4, Issue 1–3, December 2002

dimensional Value Survey Module, resulting in five generally acknowledged dimensions of culture. Additional studies employing other methodologies (e.g., Hofstede and Bond, 1988, 1989, and Ralston et al., 1992, 1997) generally support Hofstede’s results, albeit with frequent caveats that culture is not as simplistic as four or five dimensions would indicate (for example, Fan (2000) enumerates 71 “core values” of Chinese culture) and some quite stringent disagreements (e.g., Lowe, 2001). However, it is not our intention to further this particular debate in this article, but to examine some of the implications of the differences that have been noted in various prior studies. In the following five sections, we briefly review Hofstede’s dimensions, introduce Chinese and American perspectives, and comment on a few of the managerial implications of the dimensions in both a general sense and specifically within the Chinese and American contexts. In keeping with emerging tradition, and in line with the conclusions of Hofstede and Bond (1988), we have combined the overlapping values from Hofstede’s two studies into five dimensions.

INDIVIDUALISM/COLLECTIVISM AND MORAL DISCIPLINE Individualism refers to how loosely or tightly individuals are tied to each other. Similarly, moral discipline focuses on personal control, especially in relation to whether one sees oneself as part of a group. Current usage has favored “independent” and “interdependent” as nomenclature for these two polar conceptions; we have chosen to retain Hofstede’s original terminology, while acknowledging its imperfections. Note that in our propositions we have also followed the country-based terminology of the original study, rather than the cultural or ethnic groups it implied; Chinese Americans are seen as a subpopulation of the USA, with an expected values-based overlap

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André M. Everett et al. with the original study’s China sample. Hofstede’s findings indicate that the USA (91) is significantly more individualistic than China (20). Chinese Americans’ decision to work and live in the United States requires them to accept the dominance of the environmentally pervasive American culture, even if they do not personally adopt its characteristics. Further, it is logical for Chinese Americans to expect to be rewarded for their individual efforts when everyone around them is being evaluated and rewarded under the same criteria. We would expect Chinese Americans to share those values commonly associated with individualist societies such as achievement and freedom. Proposition 1: Chinese Americans are significantly higher than China on individualism, mirroring Americans in general. In examining Hofstede’s results, as well as those of subsequent emulators, it is evident that the United States is highly individualistic. In general, individualism was preferred in economically developed countries, while less economically developed countries valued a collectivist culture (Japan is a notable exception; a further caveat is that Hofstede’s data is now rather dated, with substantial economic development occurring in the intervening years.) Consequently, management practices should vary from culture to culture in several respects.

Self-interest and managerial psychology Adam Smith (1723–1790) argued that each individual is motivated by self-interest. While this is certainly true for the United States, which ranked highest on individualism in Hofstede’s original study, this assumption does not take into account the cultures of non-capitalist countries such as China, which favors a collectivist culture. People in a collectivist cul118

ture are motivated by group interest, identifying themselves through their extended families, villages/regions, tribes, or other grouping. For them, behaviors based primarily on selfinterest are unacceptable, going against their culture’s teachings (e.g., those of Confucius), including the necessity of personal self-sacrifice for the good of the group. However, Confucianism is not the opposite of capitalism, nor are they incompatible; indeed, Nuyen (1999) points out that Smith’s direct predecessor François Quesnay, the founder of modern capitalism, was nicknamed “The Confucius of Europe” by his followers. Managerial psychology has contributed to the understanding of cultural differences. According to Maslow, individual needs follow a hierarchy with physiological needs at the bottom followed by safety needs, belonging needs, esteem needs, and at the top self-actualization. In economically developed countries the availability of resources is such that the basic needs are easily satisfied, allowing individuals to focus on higher needs. However, people in less economically developed countries have more difficulty satisfying their basic needs and cannot be expected to address higher needs before satisfying lower ones. In the United States, the use of machines and technology allows many people to take those basic needs for granted, while many people in China still rely heavily on human and animal labor. While the majority of people work in businesses in the United States, most people in China still work on farms raising crops and animals in order to survive. This state influences workplace values in both countries; in this respect, value convergence might be expected only as individual economic conditions converge. Managerial psychology is motivated not only by economics but also by culture. In individualistic cultures, personal benefit is the choice motivator. Alternately, group actualization and the sense of belonging through self

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The influence of Chinese American cultural values in the workplace sacrifice, filial piety, and keeping harmony with others is viewed as the supreme need in collectivist cultures (such as Chinese). One recent study found Chinese and US managers at opposite ends of beliefs about managerial performance motivators; Indian and Filipino managers were closer to US values (Mathur, Zhang, and Neelankavil, 2001). In deciding which management technique to adopt, managers need to know what motivates their employees through an understanding of their culture.

Employer–employee relationships In individualist cultures, the employer to employee relationship is constructed as a business relationship, where both parties expect to profit. There is no expectation of obligation or loyalty from either side, and either side can terminate this relationship or exchange it for something better. The emphasis is more on getting the job done. In other words, business takes precedence over personal friendships and preferences. In collective cultures, however, the employer–employee relationship is more consistent with Confucian beliefs. In this type of relationship, there is a mutual obligation: Employers are expected to protect their employees in exchange for their loyalty. Personal relationships and trust have priority over business considerations. These practices and beliefs are carried over to the hiring of family and other “in-group” members.

Viability of open communication In individualist cultures, openness and directness in work relationships are encouraged. These traits are so desirable that training courses are available to promote such behaviors, and companies pay for their employees to attend. In collectivist cultures, saving face and preserving harmony take precedence over openness and direct confrontation. Third Volume 4, Issue 1–3, December 2002

party intervention is preferred over direct communication.

Managerial implications The distinctions between individualist and collectivist cultures bear implications in terms of management style and approach. With regard to the issue of self-interest versus group interest, managers need to tailor their compensation systems appropriately to motivate employees to perform at their highest level. In an individualist culture (e.g., in the United States) individuals would not be motivated to perform without individual rewards for their time and effort. By contrast, group members in a collectivist culture would not want to be publicly singled out and would function at their best when the group is acknowledged as a whole. This does not mean that individual recognition and reward are not appreciated – only that they should be given in private, without causing the individual to become differentiated from the group. Other issues to consider include knowing when to invest in building a relationship. In individualist cultures, such effort and investments are considered a waste of time unless they can be directly linked to future personal benefits. In a collectivist setting, building and establishing a trusting long-term relationship is seen as a group investment, crucial to the business operation. In many collectivist cultures, business operations do not take place until a relationship has been formed. These relationships many times involve the giving of presents and services, which could be construed as bribes in individualist cultures but constitute investments in collectivist settings. While the hiring of family members is frowned upon as nepotism in individualist cultures, it is practiced extensively in collectivist cultures. However, changes in the acceptability of this practice in China are leading to new tensions and work–family conflicts (Ling and Powell, 2001). It remains more

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André M. Everett et al. common in rural areas (notably in small entrepreneurial firms, such as town–village enterprises) than in urban situations. Finally, in a collectivist culture, it is to the manager’s advantage to adopt the art of indirect communication as a means of resolving conflicts without disrupting harmony and preserving dignity, whereas in an individualist culture, direct and open communication fosters the same results.

POWER DISTANCE AND INTEGRATION Power distance refers to the extent to which members of a society accept and expect that power is distributed unequally among people within the society, its institutions, and its organizations. Integration focuses on social stability. In Hofstede’s study, the United States scored significantly lower (40) on this dimension than did China. However, Chinese Americans’ assimilation into the American workplace would require them to accept, adopt, and even expect the relative equalities prevalent in the USA. Proposition 2: Chinese Americans are significantly lower than China on power distance, mirroring Americans in general.

Importance of subordinate consultation In low power distance societies, the nature of the superior to subordinate relationship is such that the need for subordinate consultation is encouraged, common, and accepted to the extent that meetings between superiors and subordinates are held on a weekly basis. The values placed on employee inputs and feedback help to reduce power distance in these cultures. On the other hand, in high power distance cultures, the superior to subordinate relationship is modeled after the same parent-to-child relationship in which filial piety, loyalty, respect, and devotion to parents 120

are considered virtuous. It is therefore not surprising that individuals in the Chinese culture expect and accept large relationship inequalities. Superiors in China are expected to behave like a “good father or mother” toward their subordinates. This type of relationship implies a respect for old age in both work and personal environments. However, in low power distance societies, old age is not considered advantageous as it may lower individual productivity or currency.

Approach to employee evaluations In low power distance societies, the process of evaluating employee performance usually involves an interview at least once a year with openness, directness, and two-way communication between superior and subordinate. This situation is unlikely to occur in societies with a high power distance, especially in conjunction with a collectivist culture (such as China), limiting the extent and usefulness of open communication. Such an approach does not encourage harmony or ‘saving face.’ Consequently, managers in high power distance societies have to adopt an indirect approach when evaluating employee performance. The source of power also affects promotions, as in low power distance / high individualism cultures employees are promoted based on their performance, abilities, and gifts, whereas in high power distance / low individualism cultures promotions occur for reasons of equity, collective attitude, and benefit to the group, with the individual expected to grow into the role.

Managerial implications While the idea of empowering employees to promote an environment of creativity and initiative is favored in low power distance cultures, such a structure would be inappropriate in China and other high power distance cultures. Employees in these societies accept, expect, and are accustomed to a more pater-

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The influence of Chinese American cultural values in the workplace nalistic management style. Such a top-down management style is incompatible with decentralization and its implication of empowering employees. Supervision acceptance is directly affected by this cultural trait as well; in a recent empirical test, employees in China were more likely than those in the USA to accept a supervisor’s direction, with Taiwanese employees in between (Bu, Craig, and Peng, 2001). Mainland Chinese employees also paid greater heed to their own perceptions of consistency between the supervisory instructions and company policies, whereas in the USA more emphasis was placed on peer consensus and personal evaluation of the merit of the instructions. In low power distance societies, a decentralized organization would be more effective, while organizations in large power distance societies should be more centralized. A centralized structure implies that top management is responsible for making all decisions while employees are expected to comply (an approach to management that was applied to entire economies, including China’s, during the recent era of central-planning). This lack of checks and balances would be construed as an abuse of power in a low power distance society such as the United States, where various forms of power separation are enshrined in the federal constitution. In high power distance societies, it would be advantageous for managers to learn the art of indirect communication when dealing with employee evaluations and grievances. This reflects not only the issue of power distance but also the dimension of collectivism / individualism, as described earlier.

UNCERTAINTY AVOIDANCE Uncertainty avoidance refers to the extent to which members of a society are comfortable with uncertain and ambiguous situations. Hofstede’s results showed that the US scored lower (46) than China (60), but the difference is less marked than on the other dimensions. Volume 4, Issue 1–3, December 2002

We believe that Chinese Americans’ assimilation of the American culture in the workplace has affected their tolerance and ability to deal with risk and uncertainty. However, the size of such an effect would not be great as the difference between the cultures is minimal. Proposition 3: Chinese Americans are between the USA and China on uncertainty avoidance.

Need for formalization, standardization, and ritualization The common perception is that in the United States (with its low uncertainty avoidance culture) people tend to be more pragmatic, with their behavior not rigidly prescribed either by written rules or by unwritten social codes. Although this perception of personal freedom is a popular notion, the society is highly codified, with numerous strict legal codes formally guiding individual and corporate behavior (although not always with success). In China (with its high uncertainty avoidance culture), rules and regulations are perhaps even more omnipresent, but are known to be enforced with less vigor; the primary guide for individual behavior remains the cultural base of Confucian values. Pragmatism is highly valued there as well. The interaction of uncertainty avoidance with individualism results in Americans tending to be more willing to challenge the status quo (including management) than Chinese, whereas Chinese take comfort in tradition and formalized structures with concrete expectations, ritualized behavior, and standardized procedures. However, the actual situation is not one of polar opposites; as the two countries are relatively close in scores, one would expect differences among individuals within each culture to overlap, resulting in some people in each country more closely resembling those of the other. For example, standardization of procedures is the driver of

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André M. Everett et al. the ISO 9000 quality management systems standards that are increasingly common in the USA as well as in China, although they originated in Europe.

Planning and implementation of changes The level of uncertainty avoidance of a society affects the choice of type of planning and the way changes are best implemented. Individuals more tolerant of ambiguity tend to look towards the distant future; they are quite comfortable with making decisions and planning for the unknown. On the other hand, individuals less tolerant of ambiguity tend to have short-term plans. Their inability to deal with changes often means rejecting new ideas and behaviors in the hope of maintaining the status quo. Changes occur only in response to obvious problems, and behaviors and ideas deemed different from the norm are viewed as a threat. By contrast, people who are less concerned with avoiding uncertainty are more accepting of different behaviors and ideas.

Managerial implications Differences in tolerance of and ability to deal with uncertainties among different cultures have significant implications for management. The extent to which employees and business associates feel that behavior should follow fixed rules can significantly affect an organization. Likewise, the absence of a formalized structure with matching standards and procedures can lead to deep misunderstandings as well as major inefficiency in a culture with high uncertainty avoidance. Consequently, transferring unadulterated management skills developed in the United States to China would be inappropriate given that China has a somewhat stronger uncertainty avoidance culture. Individual differences and preferences for rules and risk can also affect business negotiation outcomes. This is especially true for those who come from a risk averse culture, as the 122

unpredictability of a negotiation can cause these individuals to be poor negotiators. In contrast, individuals from risk taking cultures thrive and are quite efficient when the outcomes are unclear. Individuals in high uncertainty avoidance organizations are uncomfortable with change and prefer to retain the status quo. Not surprisingly, such a system discourages behaviors and ideas different from the norm. China’s culture is such that people place a high priority on the group and maintaining harmony. This means not doing or saying anything that will cause an individual to stand out or appear different. Such a culture does not encourage experimentation or innovation by individuals – but, when properly channeled, it can be a powerful vector for group innovation. Creativity arises through differences in ideas. Because differences in ideas and behavior are rarely seen, they draw attention and are not quickly dismissed. Consequently, new ideas are taken more seriously and receive more attention in high uncertainty avoidance cultures than in low uncertainty avoidance cultures, where new ideas are welcomed but may be discounted due to their relative frequency. As a result, managers in high uncertainty avoidance cultures should structure their organization to encourage innovation and creativity through group rewards, including an emphasis on the long-term security and prosperity for all in the organization rather than focusing on individual recognition.

MASCULINITY AND HUMAN HEARTEDNESS Masculinity refers to the extent to which assertiveness, success, and competition are valued by a society. Human heartedness deals with a person’s social awareness and can be characterized by a felt need to be kind and courteous to others. Hofstede’s study found that the US culture (62) is more masculine than that in China (50) – but this is the small-

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The influence of Chinese American cultural values in the workplace est difference among the four original measures. An alternative perception is that China’s culture is neither feminine nor masculine, “but emphasises the unity of both” (Fan, 2000, p.6). Ralston et al. (1992, 1997) determined that the USA is significantly more task oriented than people oriented, the opposite of China. American culture is thus deemed more ambitious and competitively oriented, while that in China is correspondingly less ambitious and more cooperatively oriented. American environmental and cultural influences have required Chinese Americans to accept similar values in order to compete successfully in the USA.

employee desirable is the type of organizational commitment sought by management. The American concept of organizational commitment targets the prevention of turnover, whereas the Chinese concept emphasizes longterm development of the organization through a closer relationship with the employee. “From this perspective, we would expect that the affective commitment would have a closer relationship with performance while either normative commitment or continuous commitment would have a weaker relationship with performance” (Charles-Pauvers and Wang, 1999).

Managerial implications Proposition 4: Chinese Americans are similar to the USA, and higher than China on masculinity but lower on human heartedness.

Preferences for specific traits In more masculine cultures, assertiveness, achievement, and material success are preferred over caring for the weak, relationships, and quality of life. In the United States, competition among individuals is seen as a good thing; people should be rewarded according to their individual performance, and success is measured through one’s achievements. On the other hand, people in feminine societies (including China) believe in equality, solidarity among people, and having strong sympathy for the weak. One consequence is a belief in rewards according to need, which in turn results in lower individual ambition and greater emphasis on building good relationships. This links with the oft-mentioned concept of guanxi or “relationships,” a characteristic of Chinese culture that mingles collectivism, femininity, and Confucian dynamism.

Organizational commitment Closely linked with the traits that make an Volume 4, Issue 1–3, December 2002

In more masculine cultures (such as in the United States), managers may try to make individual jobs more interesting by making them more challenging or associating higher performance with higher individual rewards. In a more feminine culture such as in China, management instead tries to make group work more rewarding, which involves encouraging cooperation among group members and allowing groups to function as self-contained social units. The appeal and importance of a career differs from one culture to another, as does the attractiveness of particular jobs. It is important that an organization’s structure takes this into account. In the United States (individual achievement motivated culture), great emphasis is placed on career development, so the establishment of a clear and rewarding career path could make the difference in attracting and retaining skilled workers. In China, although individual rewards are deemed attractive, preference is given to the long-term benefits of associating with an organization, including the relationships and security it can provide. The leadership style of management should coincide with that of the culture in which the organization operates. A non-aggressive manager who is not achievement oriented may not

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André M. Everett et al. have the respect of his or her employees in a masculine culture. By contrast, individual career- and achievement-oriented behavior in a culture that is relationship oriented could be viewed as conceitedness and a personal desire to be difficult.

CONFUCIAN DYNAMISM Robertson (2000) and Robertson and Hoffman (2000) highlighted the increasing attention paid to the fifth dimension, Confucian dynamism, identified and added to the original four by Hofstede and Bond (1988). Confucian dynamism reflects the wide-ranging social teachings of Confucius, and is a core constituent of traditional Chinese culture. The Robertson study, conducted in three countries (Chile, Australia, and the United States), made no particular reference to Chinese Americans – although it did provide evidence supporting the existence of Confucian traits in the US. Robertson and Hoffman (2000), in a separate study in the USA, determined that Confucian dynamism can occur as an individual characteristic anywhere in the world, e.g. not just within a Confucian culture. They suggested investigating people who are most likely influenced by Confucian thought but are currently residing in non-Confucian nations. Redding (1993) proposed that overseas Chinese are actually more Confucian in their orientation than those who have remained in China, particularly due to changes within China over the past half-century. One implication is that Confucian dynamism is perhaps the most resilient trait of “Chineseness.” It would therefore seem logical that Chinese Americans, given their cultural ties to China, would have preserved more of the basic Confucian values than of the other cultural traits. Proposition 5: Chinese Americans and China are significantly higher than the USA on Confucian dynamism. 124

Confucian dynamism arose from the first major study involving a scale developed in China by Chinese researchers (Chinese Culture Connection, 1987), in conjunction with the original values survey module developed in the Netherlands by Hofstede (Hofstede and Bond, 1988). This dimension links time and traditional Confucian values, with strong impacts on the work environment as well as the society at large. The scale was set up such that a high value denotes future orientation, and a low score a past-and-present orientation. China, as well as Hong Kong, scored high, while the United States scored low, in studies reported by Hofstede and Bond (1988) and Hofstede (1996). Confucian dynamism’s endpoints each indicate a set of related cultural values, with the sets designated as consisting of (at the high end) future orientation, high importance for persistence or perseverance, relationships ranked by status, thriftiness, and possession of a sense of shame, versus (at the low end) past/present orientation, low importance for persistence, emphasis on personal stability, importance of face or mianzi, respect for tradition, and mutual exchange of relationshipbuilding indicators such as gifts and favors. The cultural values connoted by Confucian dynamism were studied at the societal level by the concept’s originators, but they can also be interpreted as personal (individual) beliefs (per Robertson and Hoffman, 2000). Robertson and Hoffman’s (2000) study clearly linked uncertainty avoidance and Confucian dynamism. One of their key premises was that the presence of diverse values in workplaces will increase, requiring managerial adaptation to multicultural situations.

Managerial implications Overseas Chinese are more conservative than their foreign counterparts in the same countries, reflecting their high level of Confucian dynamism. The high power distance, high

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The influence of Chinese American cultural values in the workplace femininity, high uncertainty avoidance, and low individualism combination among the Chinese produce behaviors different from non-Chinese. On one hand, high power distance and low individualism promote an emphasis on hierarchy and respect for authority, even if the authority is wrong. Chinese subordinates will only rarely challenge supervisors openly, as this is considered socially unacceptable (going against collectivism and Confucian respect for authority). Hence, Chinese have to learn to exercise strong diplomatic skills. Chinese will display great respect for the leader of a group to allow this person to look good on the outside and to show group harmony to outsiders. In reality, this harmony does not always exist. On the other hand, to share the burden from uncertainty and to assure group harmony to some extent, group leaders will solicit inputs from team members, particularly those comparable to their own status or age. Such harmony also protects group leaders in case something goes wrong due to a group decision. The rest of the group will have to share the results to some extent. American Chinese in general behave in similar ways. They tend to be agreeable, low key, and noncommittal. They will rarely challenge their supervisors and do not discuss the problems of other ethnic groups. Innovativeness was not encouraged in China for many years. However, modern Chinese understand that the hierarchy structure only allows those who have demonstrated competencies to earn respect from others. One of the consequences of blindly challenging the social structure is to be condemned by one’s peers; the alternative is to prepare carefully and analyze possibilities, potential, and likely resistance. Consequently, to demonstrate that they are comparable to people higher up in the hierarchy, Chinese are motivated to earn praise through authority, which comes from being outstanding in some way. To keep it subtle, to avoid disturbing social harmony, Volume 4, Issue 1–3, December 2002

and to avoid the shame from failure, Chinese tend to keep their pursuits in low profile but are actually very competitive internally.

SUMMARY OF PROPOSITIONS Chinese Americans want to be viewed as individuals, and simultaneously are increasingly proud of their Chinese heritage. They prefer to be distinguished among their peers and rewarded for their efforts. Autonomy, individual responsibility for results, and individual rewards are just some of the things valued by Chinese Americans. Their scores on all of the other four original dimensions (power distance, uncertainty avoidance, and masculinity) would also be similar to that of the United States. Therefore, it can be argued that Chinese Americans have assimilated much of the American culture. With regards to the Chinese Values Survey, we believe Chinese Americans would score closer to the United States than to the China value on integration, human heartedness, and moral discipline – but retain much of their Confucian work dynamism. Chinese Americans are task oriented, competitive, and hard working. Despite these similarities, the Chinese American culture is unique in that it is long term oriented and believes in saving for the future, perseverance, and courtesy. In many aspects of their lives, however, Chinese Americans share a culture very similar if not identical to that of Americans in general. Our five propositions can be briefly summarized as “Chinese Americans have been fairly well assimilated into American culture, at least in the workplace.” Is such a claim reasonable? Prior research provides support for our perspective, with Huo and Randall (1991) attributing differences between China and Taiwan in part to a process of assimilation. They further argued that convergence of managerial values between managers in China and Hong Kong was the result of industrialization. Find-

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André M. Everett et al. ings from Birnbaum and Wong (1985) support these conclusions. History has also intervened in cultural continuity. Chang and Ding (1995) and Ralston et al. (1992) remind us of the influence of the Cultural Revolution on the diminution of Confucian values in China, as opposed to their retention in Taiwan. The reunification of Hong Kong with China in 1997, the accelerating economic reforms in China since the early 1980s, and the democratization of Taiwanese policy since the mid 1980s have also impacted on workplace cultures, behaviors, and beliefs.

CONCLUSION As the world becomes smaller through globalization, managers need to understand the relationship between culture and organizational concepts such as commitment, teamwork, interdependence, and motivation. This understanding will provide more information for making decisions about issues such as training and development, change and restructuring, compensation systems, and team building. Multinational organizations need to adjust their management practices to fit the national culture in which they operate in order to achieve greater business performance. When management practices are inconsistent with deeply held values, beliefs, and assumptions, employees are more likely to be uncomfortable, uncommitted, and dissatisfied. Consequently, organizations that are managed by methods consistent with the regional culture should perform better than those organizations whose management practices do not fit the culture. In addition to basic cultural differences between the home country and the host country, effective managers of multinational corporations should also pay attention to the differing values of people within different subcultures within the host country. Leadership, 126

organization, control, and planning strategies should vary across different subcultures. Awareness of the similarities and differences between cultures also helps managers to better understand and appreciate their international business associates, partners, and employees. Our paper introduces research into one particular subculture, Chinese Americans, as a starting point. We presented five propositions about Chinese American culture based on Hofstede’s original dimensions and the Chinese Values Survey. Our propositions indicate that, due principally to the strength of American environmental and cultural influences on Chinese Americans, there should be no significant differences between Americans’ and Chinese Americans’ scores with relation to four of the five combined dimensions (individualism/collectivism and moral discipline, power distance and integration, uncertainty avoidance, and masculinity and human heartedness), with the exception of the fifth dimension, Confucian dynamism, which was added to the original four specifically to accommodate perceived differences between Chinese and other cultures. There are nonetheless numerous managerial implications arising from these cultural differences; they apply to varying degrees, depending on the identity type or level of Americanization of the Chinese person as an individual and the organization in which they participate.

References Akoorie, M. E. M. and Leung, L. C., 1994. The Consequences of Culture: An Investigation into Differences in Management Style: The Case of New Zealand and Chinese Firms in New Zealand. AIBSEAR ‘94, Proceedings of the 10th Academy of International Business Southeast Asia Regional Conference on AsiaPacific Business Year 2000, 23–25 June 1994, Beijing, China. Feng, Y. and Wee,

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The influence of Chinese American cultural values in the workplace C., eds. Beijing, China: China Aviation Industry Press, 1994, pp. 630–636. Birnbaum, P. H. and Wong, G. Y. Y., 1985. Organizational Structure of Multinational Banks in Hong Kong from a Culture-Free Perspective, Administrative Science Quarterly, 30(2): 262–178. Bond, M. H. and Hofstede, G., 1989. The Cash Value of Confucian Values, Systems Management, 8(3): 195–200. Bu, N., Craig, T. J. and Peng, T.K., 2001. Acceptance of Supervisory Direction in Typical Workplace Situations: A Comparison of US, Taiwanese and PRC Employees, International Journal of Cross Cultural Management, 1(2): 131–152. Census, 2002. The Asian Population: 2000. Washington DC: US Census Bureau, US Department of Commerce. Chang, K. and Ding, C., 1995. The Influence of Culture on Industrial Buying Selection Criteria in Taiwan and Mainland China, Industrial Marketing Management, 24(4): 277–284. Charles-Pauvers, B. and Wang, Z., 1999. Organizational Commitment: Examining the Case of China. Working paper 5, l’Institut d’Administration des Entreprises, Université de Nantes. http://iae.univnantes.fr/recherch/travaux/cahiers99/pub5. html Chinese Culture Connection, 1987. Chinese Values and the Search for Culture-Free Dimensions of Culture, Journal of CrossCultural Psychology, 18(2): 143–164. Fan, Y., 2000,. A Classification of Chinese Culture, Cross Cultural Management, 7(2):3–10. Hofstede, G., 1980. Culture’s Consequences: International Differences in Work-Related Values, Newbury Park, CA: Sage Publications. Hofstede, G., 1994. Management Scientists are Human, Management Science, 41(4): 41–50. Volume 4, Issue 1–3, December 2002

Hofstede, G., 1996. Culture and Organizations: Software of the Mind, revised ed. New York: McGraw-Hill Professional. Hofstede, G., and Bond, M. H., 1988. The Confucius Connection: From Cultural Roots to Economic Growth, Organizational Dynamics 16(4): 5–21. House, R. J., Hanges, P. J., Ruiz-Quintanilla, S. A. et al., 1999. Cultural Influences on Leadership and Organizations: Project GLOBE, in W. H. Mobley, M. J. Gessner, and V. Arnold (eds.), Advances in Global Leadership, Stamford, CT: JAI Press, 171–233. Huo, Y. P. and Randall, D. M., 1991. Exploring Subcultural Differences in Hofstede’s Value Survey: The Case of the Chinese, Asia-Pacific Journal of Management, 8(2): 159–164. Ling, Y., and Powell, G. N., 2001. Work–Family Conflict in Contemporary China: Beyond an American-based Model, International Journal of Cross Cultural Management, 1(3): 357–375. Lowe, S., 2001. In the Kingdom of the Blind, the One-eyed Man is King, International Journal of Cross Cultural Management, 1(3): 313–332. Mathur, A., Zhang, Y. and Neelankavil, J. P., 2001. Critical Managerial Motivational Factors: A Cross Cultural Analysis of Four Culturally Divergent Countries, International Journal of Cross Cultural Management, 1(3): 251–268. Newman, K. L. and Nollen, S. D., 1996. Culture and Congruence: The Fit Between Management Practices and National Culture, Journal of International Business Studies, 27(4): 753–780. Nuyen, A. T., 1999. Chinese Philosophy and Western Capitalism, Asian Philosophy, 9(1): 71–80. Ralston, D., Elsass, P., Gustafson, D. and Terpstra, R., 1992. Eastern Values: A Comparison of Managers in the United

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André M. Everett et al. States, Hong Kong, and the People’s Republic of China, Journal of Applied Psychology, 77(5): 664–671. Ralston, D. A., Holt, D. H., Terpstra, R. H. and Yu, K-C., 1997. The Impact of National Culture and Economic Ideology on Managerial Work Values: A Study of the United States, Russia, Japan, and China. Journal of International Business Studies, 28(1), pp. 177–207. Redding, S. G., 1993. The Spirit of Chinese Capitalism. Berlin: Walter de Gruyter. Robertson, C. J., 2000. The Global Dispersion of Chinese Values: A ThreeCountry Study of Confucian Dynamism, Management International Review, 40(3): 253–268. Robertson, C. J. and Hoffman, J. J., 2000. How Different Are We? An Investigation of

Confucian Values in the United States, Journal of Managerial Issues, 12(1): 34–47. Ross, D., 1999. Culture as a Context for Multinational Business: A Framework for Assessing the Strategy–Culture ‘Fit’, Multinational Business Review, 7(1): 13–20. Sivakumar, K. and Nakata, C., 2001. The Stampede Toward Hofstede’s Framework: Avoiding the Sample Design Pit in CrossCultural Research, Journal of International Business Studies, 32(3): 555–574. Wang, L. L., 1994. Roots and the Changing Identity of the Chinese in the United States. In Tu, Wei-ming (ed.), The Living Tree: The Changing Meaning of Being Chinese Today, Stanford, CA: Stanford University Press, pp. 185–212. Yeh, R., 1988. On Hofstede’s Treatment of Chinese and Japanese Values, Asia Pacific Journal of Management, 6(1), pp. 149–160.

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Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2002) 4: 129–142.

Challenging the Chinese Managerial Paradigm: Global relations over-ride the traditional market model SUMMARY KEY WORDS business networks; family networks; cultural ties; Chinese managerial paradigm; Confucian ethics; ownership patterns; networking power; networking theory

This paper questions what is distinct about the formation of business networks in the Chinese capitalist leap forward at the turn of the twenty-first century? Existing literature suggests that it is a business culture based on strong family networks, or cultural ties secured in quanxi connections that are underpinned by strong Confucian ethics. Agreeing with the identification of these distinctive cultural attributes, we argue that Chinese business, like business elsewhere, may have cultural attributes that are distinctly national (and foreigners looking to succeed there ignore them at their peril) but we suggest that networking power still resides in underlying patterns of ownership. We use empirical data from Australian registered companies operating in Shanghai and Chinese companies operating in Shanghai to test this theory and to draw conclusions about the difference and similarity of corporate organisations in different regions. Received March 2002

Accepted November 2002

KATE HUTCHINGS GEORGINA MURRAY School of Humanities Griffith University Nathan, Brisbane

INTRODUCTION

T

his paper questions what is distinct about the formation of business networks in China in the capitalist leap forward at the turn of the twenty-first century? Existent literature suggests that it is a business culture based on strong family networks (the traditional perspective), or cultural ties secured in quanxi Volume 4, Issue 1–3, December 2002

School of Management Queensland University of Technology Brisbane

connections (the institutional perspective) that are underpinned by strong Confucian ethics. Agreeing with the identification of these distinctive cultural attributes, we suggest that Chinese businesses, like business elsewhere, has distinct national attributes but, we argue that networking power still resides in underlying patterns of ownership. We use empirical

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Georgina Murray and Kate Hutchings data from Australian registered companies operating in Shanghai and Chinese companies operating in Shanghai to test this theory and to draw conclusions about the difference and similarity of corporate organisations in different regions. The paper includes a literature review that examines network theory and Chinese business networks, and a brief methods section that describes the calculation of interlocks. The results section analyses and evaluates interlocking directorates of Australian-Chinese companies and some consideration is given to the implications of the findings for globalisation research. The paper ends with some conclusions about levels of power and the role of traditional and institutional aspects of networks in China.

NETWORK THEORY LITERATURE REVIEW In the network analysis literature, there is a well established academic interest in the social and economic processes of business networks (Beamish, 1988; Chan, 2000; Firth, 1996; Hamilton, 1996; Nowark and Dong, 1997; Richter, 1999; Schak, 2000, Murray 2001a, 2001b, 2001c) and what specifically constitutes business success and failure (MAC, 1992). However, although network analysis has a rich history in business writing outside China, (see Carroll and Alexander, 1999; Mizurchi, 1996; Scott, 1997, 1991, 1985; Stockman et al., 1985) it is relatively scarce in the Chinese literature (see exceptions Crawford, 2000; EEAU, 1996; Peng, 2000, Rees et. al., 1985; Tan et. al., 2000; Tong et. al., 1998). What these recent network theorists argue is the importance of the family (the traditional perspective) or guanxi (the institutional perspective) connections as the basis of Chinese business. For example, the enduring existence of the powerful Chinese diaspora (Peng, 2000) or landowning classes and merchants found throughout Asia and the Pacific area, the 130

influence of social organisations, and government institutions (Tan et. al., 2000). Others emphasise personalism, that is, personal control, personal guanxi relations and interpersonal trust or xinyong, as solidifying and becoming institutionalised in networks over time (Tong et. al., 2000). In China there is scant data as most networking is associated with lobbying local government, customs, customers and transport operators (Schak, 2000). Little has been done to ascertain the importance of establishing close political, personal and peer, formal and informal ties (to which Granovetter, 1982 refers) with each other or with locals or local bureaux. Yet, studies of networks in Australia and New Zealand (Murray, 1990, 2001b; 2001c) suggest that although top company boards of directors make crucial strategy decisions effecting not just the company but also the sector and/or the national economy, the most important decisions are still made by or in consultation with the owners of companies. These owners are the major shareholders. We hypothesised, then tested, whether this was also true amongst Chinese companies, that is, that directionally interlocked boards may be nodes of strategic informational power but ultimate power rests upon linked patterns of ownership.

INTERLOCK THEORY An interlocking directorate refers to a director of one company sitting on the board of another company, thereby being in a position to provide feedback information from a wide corporate environmental scan. This information can keep a board aware and strategically poised as to other company’s likely actions. Studies of interlocks need to examine two levels – the corporate politics of interlocking directorate clusters and their radiating networks and the economic power that derives from having a dominant share ownership in the company. Those levels need be examined

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The Chinese Managerial Paradigm: Global relations over-ride the traditional market model simultaneously to provide a coherent picture of business relationships. Three excellent summaries of the interlocking data literature (Glasberg, 1987; Mizurchi, 1996, Scott,1985) illustrate why the study of interlocks is important. These theorists classify perspectives on interlocks into four groups according to the emphasis on a) control, b) collusion, c) discretion, and d) social embeddedness. Two traceable threads underlie these perspectives. The first, emphasising control is Weberian and it aims to provide independent motives for the actions of interlocking directors. The second thread is Marxist and includes the majority of theorists that write ingroups a, b and c. (for further information on the collusive model, see Hilferding, 1910: 368; the discretionary model, see, Mintz and Schwartz, 1985; Mizurchi, 1996; Stockman et. al., 1985; Useem, 1984; the embeddeddness perspective, see, Ratcliffe, 1980; Mizurchi, 1982; Scott, 1985; Granovetter, 1985, and for interlocks as an information conduit, see Mizurchi, 1996; Scott and Griff, 1983; Useem, 1984; Davis, 1991). How are these different from the existing literature on Chinese networks?

CHINESE NETWORKS The major western perspectives on networks or interpretations of relationships include transaction cost analysis, social exchange and interaction dimensions (Dwyer et. al., 1987; Klein et. al., 1978; Ouchi, 1980; Williamson, 1971; 1979). Yet, other than economic and social dimensions that have been used to explain relationships in the eastern perspective; here there has been a synthesis of culturalist and institutionalist explanations “constituted by combinations of models from formal market and hierarchy perspectives and informal network perspectives” (Lowe, 1998:321). Where western research on intercorporate directorship examines the impact of interlocking directorates, political connecVolume 4, Issue 1–3, December 2002

tions, and other interpersonal relations in market activities (Useem, 1979; Pennings, 1980; Mintz and Schwartz, 1981; Mizruchi, 1982; Granovetter, 1985; Palmer, et al., 1986; Zeitlin, 1989; Scott, 1991), studies of Asia have also focused on family networks, friendship, and other particularistic ties to gain an understanding of Chinese businesses (Redding, 1990; Hamilton, 1991; Whitley, 1992, 1993; Blackman, 1995; Blackman, 2000; Lever-Tracy, et al., 1996) (see also Zang, 1999:861). The majority of studies have focused on cultural explanations. Bian and Ang (1997:3) argue that “unlike Christianity, which puts individuals in reference to God, Confucianism relates individuals to their significant others…..this lays both the abstract and the concrete foundations for guanxi to operate in Chinese societies, both in and outside China.” (Bian and Ang, 1997: 3). At the core of understanding networks in China has been the focus on guanxi (literally relations, but refers a wider set of interpersonal connections that facilitate favour between people on a dyadic basis) (Hwang, 1987). Chinese society has long been known for its emphasis on guanxi as a guiding principle of economic and social organisation (Cheng and Rosett, 1991; Fei, 1992; Fried, 1953; Hwang, 1987; Hu, 1944). guanxi is seen as a relationship of achieving status and moving towards insider status (Buttery and Wong, 1999). An individual is not limited to his or her own guanxi wang (relationship network), but may tap into the networks of those with whom he or she has guanxi (Seligman, 1999:34–35; see also Hutchings et.al. 2000). As Buttery and Wong (1999:152) note, in the Chinese culture quanxi adds tremendous flexibility to doing business in a society where the alternative is excessive bureaucracy or formal hierarchies. Several other characteristics reinforce the concept of guanxi and status, including mianzi (face), reciprocity, xinyong (trust), and ren-

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Georgina Murray and Kate Hutchings quing (favours). For a complete discussion of these Chinese characteristics and their importance, see Barton, 1983; Bian and Ang, 1997:4; Buttery and Wong, 1999:152; Cheng, 1985; Hwang, 1987; Landa, 1983; Seligman, 1999:36; and Wong and Tam, 2000:58). However, in considering the capital effectiveness of organisations in China, we need to look at suggestions going beyond the family and guanxi to consider the issue of corporate market capitalisation. This is a structural understanding that organisations may depend as much upon available monetary and nonmonetary resources as their ability to build quanxi wang. The variable economic infrastructure maybe, as Cui and Liu (2000:71) note “the key to economic growth, [as] one factor that has influenced the differential growth rates in Chinese regions is the poverty of much of the country’s infrastructure”. Related to this national/corporate poverty are poor transport networks, disparate education and skill levels of the workforce, and erratic communication linkages across the country. The need to meet infra structural demands may transcend the previously overarching importance of guanxi. What follows is a description of the methods used to test these competing suggestions of what may lie behind Chinese networks.

two primary interlocks (e.g. X is a chief executive officer on board A but is a non-executive on boards C and B). The most common interlock is where no primary relations occur. The basis of these calculations is as follows: Breadth measures the immediate span of the interlocks. The following example would be 4.

Depth equals the number of vertical interlocks. In the following way. The following example would be 2.

Centrality is a total of these two indices. The following example (a combination of the above two, would be 5.)

METHODS The directional method used here shows that the value of interlocks is dependent upon the strength of the tie (e.g. between an executive or a chair or deputy chairperson). Although interlocks between two directors bind two enterprises through one agent, not every interlock has the same density. The most intense interlock is a tight interlock, usually where a relationship exists between a parent company and its subsidiary. A primary interlock is one in which an executive director operates on another board as a non-executive director. An induced interlock is the serendipitous result of 132

This method has been tested on two samples used here. The first is a sample of 118 ‘True Blue Chip’ companies listed by Wright’s Investment Service in April 2001. These companies were from all across China and stretched across market capitalisation of 34,803,011 (Shanghai Yangzhang Co.) to a high 63,226,853,633 (Petro China Ltd). The other list of company data was from the Jobson’s Yearbook of Public Companies 1998 and this included a section on all the Australian listed companies operating

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The Chinese Managerial Paradigm: Global relations over-ride the traditional market model in China. These two samples were combined as the basis of this study.

RESULTS Figure 1 shows the interlocks between the Australian companies listed in Jobson’s Year Book of Public Companies 1997–98 (Bevan, 1998). These are companies identified as operating in China and specifically united by

directional interlocks (that is, through an executive or a chairperson or deputy chairperson). Jobson’s Yearbook details all companies listed on the Australian stock exchange and highlights all those companies that have operations in China. It should be noted that some of these organisations are Australian-established organisations and some are non-Australian headquartered organisations.

FIGURE 1: INTERLOCKING DIRECTORS AUSTRALIAN-CHINESE COMPANIES 1998

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Georgina Murray and Kate Hutchings Figure 1 shows that there is not an extensive network of integrated Australian companies. This is also iterated in the data that looks at all companies listed on the Chinese stock exchange (see, http://profiles.wisi.com). The data demonstrates very little formal, directional, director interlocking though these may come with greater capitalist longevity. Now, it can be surmised that the more traditional informal quanxi networks are the existing Chinese networks. What the Australian companies show is a reflection of the power structure of the top thirty Australian companies with an emphasis on productive companies and an absence of banks (Murray, 2001b). The key director figure in regard to the centrality count (see Figure 1) is John Ralph. John Ralph (Figure 2) is a former BCA President who ‘worked as a link man between the Federal government and the Alliance of business groups, the Business Coalition for Tax Reforms’ (Gluyas, 1999). Ralph was also the person who helped put the concept of ‘enterprise bargaining’ into the lexicon, and into practice, as the Managing Director at CRA. Ralph, acts as both an innovator and a key connector to government. The key sector identified by the companies

FIGURE 2: JOHN RALPH –

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in the network are those involved in manufacturing (Pacific Dunlop), mining and industry (BHP), food and beverages (Southcorp, Coca Cola Amatil, Goodman Fielders), and pharmaceuticals (Faulding). There is one tobacco company represented (Philp Morris), one media transnational (News Corp) and one investment company (AXA). These are primarily productive companies. Companies that organise around the day to day needs of the economy. This ownership data is limited to companies listed on the Australian stock exchange operating in China. We have no data (yet) on the Chinese ownership. What the Australian based data shows is that the productive-sector dominated interlocks (Table 1) are correlated with more information related to the top five shareholder’s ownership (Table 2), the importance of banks and a few nominee capital becomes obvious. These 1998 figures show concentration particularly in relation to Chase Manhattan (13% ownership), Westpac Nominees (8% average ownership) and National Nominee (9.5% average ownership co-ownership). The strategic importance of as little as a five per cent ownership of a company has been noted (O’Lincoln, 1996: 6).

BIOGRAPHICAL DETAILS

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The Chinese Managerial Paradigm: Global relations over-ride the traditional market model TABLE 1: INTERLOCKING DIRECTORATES 1998 Company AXA Asia Pacific Southcorp BHP FH Faulding News Corp Pacific Dunlop Burns Philp Philp Morris Coc Cola Amatil Sino Securities Ltd Goodman Fielder Lemarne Group Lemvest Ltd. Crane Ltd. Nufarm Canada Ltd

Total number of all interlocks l

Breadth h

Depth

Centrality

3 2 2 2 2 1 1 2 1 1 1 1 ! 1 1 1

2 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0

3 4 4 1 1 5 1 1 1 1 1 1 1 1 0 0

4 4 4 1 1 5 1 1 1 1 1 1 1 1 0 0

Source: Bevan, 1998, 1998 Annual company reports, Connect4 online http://www.connect4.com.au, Wrights Investor Service http:/profiles.wisi.com

RESULTS OF THE CHINESEAUSTRALIAN CASE STUDY The data does not show a pattern of directional interlocks or clusters from finance capital, or specifically from banks to productive capital. So little support is provided for either the collusive or the discretionary models of the general character of interlocks. These models would imply respectively that, if bank ownership in these companies operating in China is high (and these models believe it will be) this will be reflected in dense patterns of interlocks between banks and industrials; and if directional clusters of bank directors occur (i.e. that centrality occurs) then the dominant position of financial institutions in capital-flow decision making, can be assumed. Dense finance capital ownership has not resulted in dense patterns of interlocking directorates, as the collusive model suggests, because finance capital (ie money capital immediately outside of production) ownership is so ubiquitous it needs to Volume 4, Issue 1–3, December 2002

be seen as acting neutrally between the companies it holds so many shares in. Collusive cartels cannot therefore be surmised from this data. Finance capitalists’ control of credit decisions is similarly removed from the direct control of the board because non-finance capitalist directors dominate these boards. The political role of the clustered interlocked individuals could be seen to act as a vanguard of the corporate elite and as its most likely innovators (cf Davis 1991). These key directors are held to integrate the class and reassure them as to the value of the innovations that they propose. As Higley et al’s (1979) work suggests the interlocks run parallel to positions of power held in the lobby groups; specifically in the 1990s the BCA was fronted by Ralph who was President from 1992 to 1994. Do these findings have any significance for the degree of integration of China into the global economy or Australian penetration into Chinese capital?

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Georgina Murray and Kate Hutchings TABLE 2: TOP FIVE

OF

SHAREHOLDERS

IN I NTERLOCKED

AUSTRALIAN COMPANIES

IN

CHINA (1998)

Company

Westpac Nominees

Chase National Manhattan Nominee

ANZ Nominee

Permanent

Other

Burns Philp

9.2

4.2

3.9

8.0

0.0

FH Faulding

9.6

27.1

16.6

3.0

0.0

Millstreet Invest. 17 Citicorp 17 CSFB Third Nominess 12 National Mutual 12

Canada Ltd. Sino Securities Southcorp Ltd.

N/A 6.95 8.0

N/A 0.0 27.2

N/A 1.7 24.6

N/A 10.0 3.9

N/A 0.0 0.0

Goodman Fielder

12.1

13.5

15.1

7.9

0.0

Nufarm Ltd. Lemvest Ltd.

14.4 0.0

1.4 2.1

1.8 2.0

0.0 0.0

0.0 0.0

Lermane Ltd.

0.0

3.0

3.3

0.0

0.0

Crane group Lendlease Ltd.

2.2 7.7

22.6 22.8

13.7 15.5

0.0 3.7

0.0 1.9

News Corp

7.3

10.5

7.6

4.6

0.6

Philp Morris AXA Coca Cola Amatil

N/A 1.8 3.8

N/A 3.7 5.7

N/A 3.2 4.3

N/A 1.4 2.0

N/A 0.0 0.6

BHP Pacific Dunlop Average

17.6 9.2 8.5

25.2 13.4 13.0

16.8 12.0 9.5

5.0 4.8 4.9

3.8 0.0 1.7

BT Custodial 3.2 Southcorp employees 1.7 Perpetual Trust (ANZ) 5.7 Perpetual Trust (ANZ) 6 E. Noxon 5.8 Perpetual Trust (ANZ) 7 Lendlease Holdings Custodial Ltd 12.9 Cruden 30 Citicorp 19 Coca Cola (Overseas) 28.7 San Miguel Beverages 21.4 CRI Pacific Holdings 14 Beswick – 16

Source: 1. 1998 Annual company reports, Connect4 online http://www.connect4.com.au 2. Wrights Investor Service http:/profiles.wisi.com Notes: Information was not available on the shareholdings of Philp Morris, Canada Ltd or Chinese companies. Explanatory note ‘By way of background, Westpac Nominees is a wholly owned subsidiary of Westpac Banking Corporation. Westpac nominees holds shareholdings on behalf of other parties, and as such does not own shares in its own right. By the very nature of it being a ‘holding’ company, the names of its customers (and the shares being held) are not publicly available.’ Hugh Devine, Westpac, 16.6.2000.

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WHAT DOES THIS MEAN FOR GLOBALISATION? First a limitation of these findings must be stipulated. Fennema et. al. (1987) argue correctly, in relation to this data, that there ‘exists a cohesive international network of interlocking directorates [but at the same time it] should be considered primarily a communication network rather than a network of domination and control’. We argue that ownership figures are pivotal and that, by just looking at the largest stakeholders in the top companies as is done here, it can be shown that there is some penetration of ‘new’ finance capital in to positions of prominence in China e.g. by the US based institutions Chase Manhatten and Citicorp – which replicates findings in Australia (see Murray, 2001b). The further penetration of large overseas capital into China is not without risk to them however. Olds and Yeung (1999:542) suggest that with “the desire to access large-scale flows of capital to fund development projects, many of the largest Chinese businesses (in Asia) are faced with new challenges”. China’s winning the right to host the 2008 Olympics and its likely acceptance into the WTO means that it is more amenable to international economic integration and Chinese business networks are increasingly embedded in an array of international business actor-networks, and these actor-networks are re-shaping the so-called bamboo networks (Weidenbaum and Hughes, 1996). To explore these changes more fully we intend to work toward a much wider sample from all of the current companies listed on the Chinese stock exchange to more fully assess the degree of corporate globalisation occurring in China at the present time.

CONCLUSIONS These findings about corporate organisations in China are of political and economic significance because they differentiate two levels of power – economic and political. On the first Volume 4, Issue 1–3, December 2002

level, of economic ownership, overseas finance capital remains dominant in its stake holding of the top companies in China. From these findings, it can be surmised that the paucity of direct interlocks provides evidence to suggest that informal quanxi networks are at play in ways that are not reflected in more formal board membership-channels. However, it also seems probable that in the context of globalisation and rapid organisational expansion goes beyond this to reflect also China’s newness in the international marketplace and the paucity of their infrastructural needs. These demands may mean that there is begnning to be a transcending of the previously overarching importance of family (traditional) and guanxi (institutional) linkages. For as Kienzle and Shadur (1997:23) argue “there are limits to the size to which Chinese family business networks can extend….and that this becomes more of a problem because of the lack of willingness of Chinese business to seek outside assistance required to transform the businesses in the business network into a larger enterprises”. Thus, it could be argued that for larger organisations, family and extended guanxi is not as significant as it is for the smaller, localised family business. In terms of what constitutes business networks in China then, the question is raised as to whether guanxi is still relevant in times of globalisation and indeed whether it ever was, or is now, relevant at the highest levels of organisations. That is, while guanxi may still be of considerable importance at lower level decision making and business associations, but is it still possible to refer to it at the highest levels of global corporate business and are Confucian principles now at the highest order of financial capital? Indeed, below a façade of guanxi institutionalist and culturalist explanations of connections, in top companies there may well be big investors operating at levels that transcend the guanxi occurring as the face of business in China.

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Networks: State, Economy and Culture, Singapore, Prentice-Hall. Cheng, L., & Rosett, A., (1991). Contract with a Chinese Face: Socially Embedded Factors in the Transformation from Hierarchy to market 1978–1989 in Journal of Chinese Law, Vol. 5, No. 2, pp.143–244. Cheng, L-K., (1985). Social Change and the Chinese in Singapore: A Socio-economic Geography With Special Reference To Bang Structure, Singapore: Singapore University Press. Crawford, D. (2000). Chinese capitalism: cultures, the Southeast Asian region and economic globalisation, Third World Quarterly, February, v21, i1, p 69–87. Cui, G., & Liu, Q., (2000). Regional market segments of China: opportunities and barriers in a big emerging market in Journal of consumer Marketing, Vol. 17, No. 1, pp.55–72. Davis, G. (1991). Agents without Principles? The Spread of the Poison Pill through the Intercorporate Network, Administrative Science Quarterly, no 36, pp. 583–613. Dooley, P., (1969). The interlocking directorate in American Economic Review, Vol. 59, No. 3, pp.314–323. Dwyer, F.R., Schurr, P.H., and Oh, S., (1987). Developing buyer–seller relationships in Journal of Marketing, Vol. 3, No. 2, pp.7–23. East Asia Analytic Unit, (1992). Australian and North-East Asia in the 1990s: Accelerating Change, Department of Foreign Affairs and Trade, Canberra. Fei, X., [1949] (1992). From the Soil, the Foundations of Chinese Society: A Translation of Fei Xiatong’s Xiangtu Zhongguo (with an Introduction and Epilogue by Gary G. Hamilton and Wang Zheng). University of California Press. Fennema, M. & K. Van der Pijl (1987). International Bank Capital and the New Liberalism (Eds.) M. Mizruchi & M.

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The Chinese Managerial Paradigm: Global relations over-ride the traditional market model Schwartz, Inter-corporate Relations, The Structural Adjustment of Business, Cambridge, Cambridge University Press, pp. 298–320. Firth, M. (1996). The Diffusion of Managerial Accounting Procedures in the People’s Republic of China and the Influence of Foreign Partnered Joint Ventures, Accounting, Organizations and Society, vol. 21, Issue 7–8, pp1–8. Fligstein, N. & P. Brantley (1992). Bank Control, Owner Control or Organizational Dynamics: Who Controls the Large Modern Corporation?, American Journal of Sociology, n. 98, pp. 280–307. Fried, M.H., [1953] (1969). Fabric of Chinese Society: A Study of the Social Life in a Chinese Country Seat. Octagon Books. Glasberg, D. (1987). The Ties that Bind? Case Studies in the Significance of Corporate Board Interlocks with Financial Institutions, Sociological Perspectives, vol. 30, n.1, pp. 19–48. Gluyas, R. (1999). Utopian Agenda, The Australian, January 22, p. 32. Granovetter, M. (1982). The Strength of Weak Ties, a Network Theory Revisited, in P. Marsden and N. Lin, Social Structure and Network Analysis, Beverly Hills, Sage. Hamilton, G. (1996). Competition and organization: a re-examination of Chinese business practices in Journal of Asian Business, Vol. 12, No. 1, pp. 7–20. Hamilton, G., (1991). Business networks and economic development in East and Southeast Asia. Hong Kong: University of Hong Kong Press. Higley, J. & D. Deacon, D. Smart (1979). Elites in Australia, Cumbernauld, Routledge Keagan and Paul. Hilferding, R. (1910). Finance Capital, London Routledge, Keagan and Paul, reprinted 1981 Hu, H.C., (1944). The Chinese Concepts of Volume 4, Issue 1–3, December 2002

‘Face’ in American Anthropologist, Vol. 1, pp.45–64. Hutchings, K., Shadur, M., and McEllister, R. (2000). “Geographical Contingencies”. Academy of Management Conference Proceedings Publication. Paper presented in Symposia titled “Low Context Assumptions, High Context Solutions: Contingencies for Predicting Expatriate Adjustment in Asia,” August 2000, Toronto, Canada. Hwang, K.K., (1987). Place and Favor: The Chinese Power Game, American Journal of Sociology, Vol. 92, pp. 944–74. Kienzle, R., & Shadur, M., (1997). Developments in business networks in East Asia, Management Decision, Vol. 35, No. 1, pp.23–32. Kiong, T.C., & Kee, Y.P., (1998). guanxi bases, Xinyong and Chinese business networks, British Journal of Sociology, March, Vol. 49, No. 1, pp.75–96. Klein, Craford and Alchain, (1978). Vertical integration, appropriable rents and the competition contracting process, Journal of Law and Economics, Vol. 21, pp. 291–326. Landa, J.T., (1983). The Political Economy of the Ethnically Homogeneous Chinese Middleman Group in Southeast Asia: Ethnicity and Entrepreneurship in a Plural Society in Linda Y. C. Lim, and Peter Gosling (eds) The Chinese in Southeast Asia, Vol. 1, Singapore: Maruzen Asia. Larner, R., (1970). Management control and the large corporation. Cambridge: Dunellen. Lever-Tracy, C., Tracy, N., and Yi, D., (1996). The Chinese Diaspora and Mainland China. London: Macmillan. Li, & P.C. Wright (2000). guanxi and the realities of career development: a Chinese perspective, Career Development International, v. 5, n.7, pp.369–378. Lowe, S (1998). Culture and Network Institutions in Hong Kong: A Hierarchy of Perspectives. A Response to Wilkinson:

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Georgina Murray and Kate Hutchings “Culture, Institutions and Business in East Asia, Organization Studies, v.19, n.2, pp.321–343. MAC (Mainland Affairs Committee) (1992). Taishang Fu Dalu Touzi Shibai Anli zhi Yanjiu (Research into Cases of Failed Taiwanese Investments in Mainland China) Taiwan, Executive Yuan. Mintz, B & M. Schwartz (1985). The Power Structure of American Business, Chicago, University of Chicago Press. Mintz, B., and Schwartz, M., (1981). Interlocking directorates and interest group formation, American Journal of Sociology, Vol, 46, No. 6, pp. 851–868. Mizruchi, M. (1996). What Do Interlocks Do? An Analysis, Critique and Assessment of Research on Interlocking Directorates, Annual Review of Sociology, v.22, pp. 271–302. Mizruchi, M. (1996). What Do Interlocks Do? An analysis, Critique and Assessment of Research on Interlocking Directorates, Annual Review of Sociology, v.22, pp. 271–302. Mizruchi, M., (1987). Why do corporations stick together in Power elites and organizations, G. William Domhoff and Thomas R. Dye (eds.), pp.204–218. Newsbury Park: Sage. Murray, G. (1990). Corporate capitalism in New Zealand, Auckland, Auckland University PHD. Murray, G. (2001a). Black Empowerment in South Africa – a Corporate Black Wash, Critical Sociology, (Refereed US, in press). Murray, G. (2001b). Interlocking Directorates: What do they tell us about Corporate Power in Australia? Journal of Australian Political Economy, November (Refereed Australia, in press). Murray, G. (2001c). Interlocks or Ownership: New Zealand Boardroom Power, New Zealand Sociology, (Refereed NZ, in press). Nowark, L. & D. Dong (1997). Intercultural 140

Differences between Chinese and Americans in Business, Business Communication Quarterly, March, v.60, n.1, pp. 115–124. Olds, K & H. W-C Yeung (1999). (Re)shaping ‘Chinese’ Business Networks in a Globalising Era, Environment and Planning, v.17, pp.535–555. Ouchi, W., (1980). Markets, bureaucracies and clans, Administrative Science Quarterly, Vol. 25, pp.129–62. Palmer, D., Friedland, R., and Singh, J., (1986). The ties that bind, American Sociological Review, Vol. 51, No. 6, pp.781–796. Peng, D. (2000). Ethnic Chinese Business Networks and the Asia Pacific Economic Integration, Asian and African Studies, May, v 35, i2, p.229. Pennings, J.M., (1980). Interlocking directorates. San Francisco:Jossey-Bass. Pfeffer, J., and Salancik, G., (1978). The external control of organizations. New York: Harper and Row. Ratcliffe, R. (1980). Banks and Corporate Lending: An Analysis of the Impact of the Capitalist Class Lending Behavour of Banks, American Sociological Review, v. 45, pp. 553–570. Redding, S.G., (1990). The Spirit of Chinese Capitalism, DeGruyter, New York, NY. Redding, S.G., (1980). Cognition as an Aspect of Culture and its Relation to Manage Processes: An Exploratory view of the Chinese case, Journal of Management Studies, No. 17, pp.127–48. Redding, S.G., and Wong, G., (1986). The Psychology of Chinese Organizational Behaviour in M.H. Bond (ed.) The Psychology of Chinese People, Hong Kong: Oxford University Press. Rees, J & M. Sullivan (1995). Work hard, make money: Australians ponder the success of overseas Chinese, Far Eastern Economic Review, v158 n35, pp 61–63.

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The Chinese Managerial Paradigm: Global relations over-ride the traditional market model Richter, F. ed. (1999). Business Networks in Asia: Promises, Doubts and Perspectives, Westport, CT, Quorum. Ridding, J., and Kynge, J., (1997). Empires can strike back, Financial Times, 5 November, page 13. Schak, D. (2000). Networks and their Uses in Taiwanese Society, in K. Chan, ed., Chinese Business Networks: State, Economy and Culture, Singapore, Prentice-Hall, pp. 112–128. Scott, J. & C. Griff (1985). Directors of Industry: The British Corporate Network, 1904–1976, Cambridge, Polity Press. Scott, J. (1991). Networks of Corporate Power: A Comparative Assessment, Annual Review of Sociology, Vol. 17, pp. 181–203. Scott, J. (1997). Corporate Business and Capitalist Classes, Oxford, Oxford University Press. Seligman, S (1999). guanxi: Grease for the Wheels of China, The China Business Review, September–October, pp.34–38. Stokman, F. & F. Wasseur (1985). National Networks a Structural Comparison, (ed.), J. Scott, F. Stokman and R. Zeigler Networks of Corporate Power, Cambridge, Polity Press. Tan, C & H. Yeung (2000). The regionalisation of Chinese business networks: a study of Singaporean companies in Hainan, China, The Professional Georgraher, August v52 i3 pp 437–455. Tong, C.K. & P.K. Yong (1998). guanxi bases, Xinyong and Chinese business networks, British Journal of Sociology, v.49, n.1, pp.75–96. Useem, M. (1984). The Inner Circle, Oxford Press, Oxford. Useem, M., (1979). The Social organization of the American business elite and

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participation of corporate directors in the governance of American institutions, American Sociological Review, Vol. 44, No. 4, pp.553–572. Van Fossen, A. (1993). Pacific Islands Tax Havens, Pacific Basin Studies Review, vol.4, no.2, pp.2–3. Whitley, R., (1992). Business systems in East Asia, London and Newbury Park: Sage. Whitley, R., (1993). East Asian enterprise structures and the comparative analysis of forms of business organization in Readings in management, organization and culture in East and South-East Asia. Pater Blunt and David Richards (eds.), pp. 46–72, Darwin: NTU Press. Williamson, O.E. (1971). The vertical integration of production: market failure consideration in American Economic Review, Vol. 61, pp.112–27. Williamson, O.E. (1979). Transaction-cost economics: the governance of contractual relations, Journal of Law and Economics, Vol. 22, October, pp. 3–61. Williams, P. and Ellis, S. (1994). Dawkins Kisses and Tells all on the BCA”, Australian Financial Review, July 15, Friday, pp 1/18. Wong, S-L., (1990). Shanghai Industrialists in Hong Kong. Cambridge University Press. Wong, Y.H., & Tam, J.L-M. (2000). Mapping relationships in China: quanxi dynamic approach, Journal of Business & Industrial Marketing, Vol. 15, No. 1, pp. 57–70. Zang, X (1999). Research Note; Personalism and Corporate Networks in Singapore, Organization Studies, v.20, n.5, pp.861–877. Zeitlin, M. (1989). The large corporation and contemporary classes. New Burnswick: Rutgers University Press.

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APPENDIX 1 Interlocking Directorates of Shanghai Chinese-Australian Companies Company

Number of interlocks N B D C

Burns Philp FH Faulding

1 2

1 1

1 1

1 1

Canada Ltd Sino Securities Int. BHP

1 1 2

0 1 1

0 1 4

0 1 4

Southcorp Ltd

3

2

2

3

Goodman Fielder Nufarm Ltd. Lemvest ltd Lemarne Corp Crane Group Lend Lease News Corp

1 1 1 1 1 1 2

1 0 1 1 1 1 1

1 0 1 1 1 1 1

1 0 1 1 1 1 1

Philip Morris

2

1

1

1

Pacific Dunlop AXA Asia Pacific Holdings

1

1

5

5

3

2

3

41

Coca Amatil

1

1

1

0

1

Director’s name and Company of origin

Shares of director

Status of Director

Sector of company

Alan McGregor Alan McGregor Richard Allert Bruce Mathesion (ne) Bruce Mathesion Don Argus John Ralph Don Argus Richard Allert Thomas Finn Dryden Spring Dryden Spring Edward Noxon Edward Noxon Evan Cameron Evan Cameron Geoffrey Bible Rupert Murdoch Geoffrey Bible Rupert Murdoch John Ralph

C C NE NE C C NE NE C DC DC NE C C C NE NE C C NE C

Food & Beverage Pharmaceutical

NE C NE E

Investment/Insurance

1

Melvyn Ward Richard Allert Thomas Finn Melvyn Ward

0

0

Fu Yuning

NE

Minerals and Industry

1

1

Fu Yuning

MD

Minerals and Industry

PropertyInvestment Mining & Industrial Food & Beverage

Food & Beverage Chemicals Electronics Investment Manufacturing Construction Media Drug & Alcohol Manufacturing

Food & Beverage

Chinese Companies Shenzhen Chiwan Wharf Holding Co. 1 Shenzhen Chiwan Petroleum Supply Base 1

Sources: 1. Bevan, 1998 Jobson’s on line http://jobsons.dnb.com.au 2. Wrights Investor Services Corporate Information online http:/profiles.wisi.com Key: 1. Status of director – NE = Non Executive, MD= Chief Executive Officer, C=Chairperson; 2. Directional interlock – P= primary, I= induced, t=tight, HS= high shareholding, N=Non-directional; 3. Type of interlock – N=total number, B=breadth, D=depth, C=centrality.

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✹ T TT I C S

TA

C

SUMMARY KEY WORDS

innovation performance management; innovation strategy; creativity and ideas management; portfolio management; project management; human resource management

Competing in the innovation pentathlon Innovation management requires performance in five areas: innovation strategy; creativity and ideas management; portfolio management; project management; and human resource management. In a study by the Cranfield School of Management and the Export-Akademie Baden Wurttemberg, data on innovation performance were collected from about 200 companies in the electronics and engineering sectors in the UK and Germany. Three key issues in managing innovation were identified: misunderstanding the role of innovation; too many development projects; perceiving innovation as a single discipline. This overview of the study concludes that both service sector and manufacturing sector companies can benefit by measuring performance critically in each of the above five areas of innovation management. Received January 2002

Accepted March 2002

KEITH GOFFIN Professor of Innovation Management Stuttgart Institute of Management and Technology (SIMT) Stuttgart, Germany

M

anufacturing companies and service providers alike need to become more innovative, but first of all they need to understand what innovation is, as well as how to manage and nurture it. Research has shown innovation management requires performance in five areas – just like a pentathlon: • innovation strategy; • creativity and ideas management; • portfolio management; • project management; and • human resource management. Increasing international competition is forcing many manufacturing companies to look for ways to become more innovative. However, Volume 4, Issue 1–3, December 2002

ROLF PFEIFFER Export-Akademie Baden-Wurttemberg Germany

improving the performance of a company in this area is a real challenge. For example, UK companies are often criticised for having good ideas but not bringing them successfully to market. Whereas in Germany, there has been extensive public debate on whether high labour costs are reducing competitiveness, and innovation is seen as the most effective way to counter this. However, a major new study has found that managers in both countries are facing remarkably similar issues. In the study by Cranfield School of Management and the Export-Akademie BadenWurttemberg in Germany, data on innovation performance were collected from nearly 200 companies in the electronics and engineering

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Keith Goffin and Rolf Pfeiffer sectors in Germany and the UK. Detailed case studies were conducted at 16 companies and over 80 managers were interviewed. The study revealed some of the key issues in managing innovation.

ISSUE 1: MISUNDERSTANDING THE ROLE OF INNOVATION Many organisations perceive innovation as being synonymous with inventions and breakthroughs. The danger is that R&D is then

seen as the only department directly responsible for innovation with the focus solely on product innovation. However, companies need to drive all forms of innovation (Diagram 1). For example, the key role of process innovation as a source of competitive advantage is often overlooked (see box – Process Innovation). Similarly, manufacturing companies can also benefit from services that differentiate their products (see box – The VW Golf ).

DIAGRAM 1: THERE

IS MORE TO INNOVATION THAN NEW PRODUCTS – LEADING COMPANIES LOOK FOR CONTRIBUTIONS FROM OTHER AREAS

Innovation in After-Sales Service – The VW Golf

Process Innovation – Tetley Teabags When Tetley developed the round teabag, it knew that this new product could capture significant market share. However, it also knew that competitors would be able to copy this innovation fairly quickly. Consequently, the company decided not to talk to its normal supplier of manufacturing equipment about the new requirements. Instead it hired PA Consulting to develop a new manufacturing line for round teabags. When the new product was introduced, the competition was unable to obtain similar manufacturing equipment quickly and Tetley kept its lead longer.

144

During product design, Volkswagen evaluates the probability of each part of a car being damaged in an accident and the associated repair costs. This is important because car insurance companies closely monitor the costs of repairing accident damage and use this information in the calculation of which insurance category applies to a particular model of car. Hence, repair costs have a direct influence on the cost of insurance, which itself has a major impact on product sales. The cost of insuring the latest model of the Golf has been reduced through bolt-on instead of welded panels, and bumpers moulded in three separate parts (to allow partial replacement). The lower insurance costs have given VW a competitive edge and forced competitors to make expensive changes in the design of their products and production lines.

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Competing in the innovation pentathlon

ISSUE 2: TOO MANY DEVELOPMENT PROJECTS New products play a major role in revenue generation and market leaders use measures such as revenues from new products as key performance indicators. The study found that, on average, 26% of revenue at engineering companies is earned from products less than three years old. However, many companies are slow at replacing old products. In attempting to accelerate product innovation there is a trap into which many companies fall. Faster new product development requires companies to become adept at setting priorities and improving the development process from one project to the next. One electronics manufacturer studied, where 90% of revenue is earned from products less than three years old, reviews how well each project was accomplished (using set criteria) and uses this knowledge to accelerate new product development. Simply pushing more projects into R&D does not increase output – usually the opposite occurs.

ISSUE 3: PERCEIVING INNOVATION AS A SINGLE DISCIPLINE Some years ago a book was published entitled The Innovation Marathon. Innovation needs constant and long-term attention from managers and in this sense the metaphor was appropriate. However, the implication that

DIAGRAM 2: KEY

innovation management is high performance in a single discipline is wrong. The research showed that innovation management requires good performance in five different areas – so a better analogy is a pentathlon (Diagram 2). The five areas of innovation management are: • Innovation strategy. This includes communication of the role of innovation within a company, deciding how to use technology and driving performance improvements through appropriate performance indicators. • Creativity and ideas management. Stimulating good ideas, which address customer requirements, is crucial. Since innovation includes new products, services and processes, the scope for ideas is wide and therefore all employees should be involved. • Portfolio management. Once ideas have been generated, an efficient process is needed to choose the best ones for implementation. Resources are always limited, so they should be focused on the priorities. Leading companies ensure that their innovation portfolio contains a good balance of new products, processes, and business and service innovations. • Project management. The capability to quickly turn ideas into new products, services and processes is fundamental. Fast time-to-market, high product quality and acceptable development costs are all typical goals for companies. The most common

AREAS OF INNOVATION MANAGEMENT

Volume 4, Issue 1–3, December 2002

–

THE

‘INNOVATION PENTATHLON’.

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Keith Goffin and Rolf Pfeiffer

Motivating Employees to Contribute to Innovation – Fischer GmbH Many companies want to become more innovative but do not pass this message on to their employees. Fischer, a manufacturer of industrial fixing devices based in southern Germany, takes a different approach. MD Klaus Fischer has extended the generation of ideas across all functions. Every employee’s contribution to innovation is assessed during annual appraisals. R&D engineers are measured on patents and the speed and effectiveness with which these are converted into products. Other employees are

way of achieving these goals is to use cross-functional teams, but problems often occur. However, post-project reviews are seldom used to identify areas for improvement. • Human resource management. Underlying all efforts of innovation management is the need to create a culture in which employees are motivated to contribute to innovation (see box – Motivating Employees).

LESSONS FOR SERVICE AND MANUFACTURING COMPANIES Can the service sector learn from manufacturing? Yes – and leading service companies are

146

assessed on contributions to process innovation – cost reductions in both manufacturing and business processes. In all appraisals a rating on a 1–5 scale is used to ‘score’ an employee’s overall contribution to innovation. Although the ratings are subjective, they are derived from discussions between employees and their managers. Fischer has found that these discussions, backed by reward and recognition, have acted as a catalyst in increasing overall innovation performance.

now focusing on innovation and applying ideas from manufacturing. Whether you are in the manufacturing or service sector, the first step towards improvement is to determine current performance. Competing in the innovation pentathlon requires your company to look critically at performance in each of the five areas of innovation management – so don’t get left behind! The full report, Innovation Management in UK and German Manufacturing Companies by Goffin and Pfeiffer, Anglo-German Foundation Report Series, ISBN 1-900834-17-0, costs £12 from York Publishing Services, tel: 01904-430033; fax: 01904-430868.

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Sources of ideas and knowledge for innovatory small companies: Disaggregation of Australian and Eurostat CIS2 innovation survey data Public research sources analysed by industry sector and enterprise size SUMMARY KEY WORDS R&D effectiveness; public sector R & D; private sector R & D; public-private sector linkages; SMEs; mining sector; IT sector; firm size

This study explores the use and importance of university and other public sector research by business enterprises reporting product, process and (in some countries) service innovations, from OECD Innovation Surveys, the European Union, Canada and Australia. The paper tests the Eurostat CIS2 innovation survey conclusion that firms saw public sector research as important according to: whether innovations are world-first; firm size; whether the research could be used by the firm. Analyzing company responses from Eurostat, ABS and Yellow Pages innovation surveys, the paper indicates variations in importance of public sector research by manufacturing sector and firm size. The study concludes that to be effective, increased public sector research expenditure should be linked to increased private sector R&D expenditure, particularly by SMEs. Received November 2001

Accepted April 2002

JOHN YENCKEN*

MURRAY GILLIN

Australian Graduate School of Entrepreneurship Swinburne University of Technology Melbourne, Australia

Australian Graduate School of Entrepreneurship Swinburne University of Technology Melbourne, Australia

* Poster session presentation 2001, Babson College, Kauffman Center for Entrepreneurial Leadership, Entrepreneurship Research Conference, Lynköping, Sweden, 13–17 June 2001.

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PRINCIPAL TOPIC

• An interactive model of innovation that replaces the earlier linear model and recognises that innovation is not built only on R&D but on training, prototype development, engineering skills, design activities and so on (Smith op.cit.) • Evolutionary theories of innovation, stressing the importance of variety and diversity in populations of firms – in contrast to most economic data reporting, CIS gather data at this level of disaggregation. • Learning models of innovation, where innovation is seen as embedded in a web of relationships that advance the capabilities of firms to learn and to absorb developments made outside the traditional boundaries of the firm (Smith op.cit.). • The concept of a national system of innovation (Lundvall 1992), which stresses interactions in national, regional or even transnational systems, knowledge flows and the importance of infrastructure (Smith op. cit.).

T

he research explores the use and importance of universities and other public sector research agencies reported in OECD Innovation Surveys as sources of ideas and innovations by business enterprises reporting product, process and (in some countries) service innovations.

PREVIOUS WORK REPORTED IN THE LITERATURE Smith in his paper to the European Union Conference on Innovation Measurement and Policies in 1996 (European Commission 1997) discusses the process that led to the first OECD Innovation Surveys. The origin of these surveys within the OECD, such as the Community Innovation Surveys (CIS) in European Union countries and the Australian Bureau of Statistics Innovation Surveys in manufacturing and mining sectors, go back twenty years. Over that period three main methods of measuring technological change and innovation have been used (Smith 1997): 1. An object based approach that looks at specific technological innovations (Townsend at al 1981, US Small Business Administration data analysed by Achs and Andretsch 1990, Kleinknecht 1991). 2. A subject based approach that looks at the innovator, which ...is usually a private firm, but could be a publicly financed university or research institute (Smith 1997). 3. Technometrics that focusses on the performance characteristics of narrowly defined technologies. This present study draws on data derived in subject based innovation surveys in a number of OECD countries. The four underlying innovation models that are the theoretical bases for the development of OECD innovation surveys are described by Smith (op.cit.) and in more detail in the Oslo Manual (OECD 1997): 148

In summing up the achievements of CIS, Smith (op.cit.) commented: We know that innovation is prevalent across all sectors of the European economy. It is not only concentrated in a few high technology sectors or on a few activities. It has important asymmetric distributions within industries. It is often linked with activities that are very far from the ideal of R&D. Some preliminary results suggest that firms which engage in collaboration and which interact with their environment, including the public sector, do better than firms that do not. The initial CIS surveys were limited to collecting data relating to product and process innovations (OECD 1997). More recent surveys have been designed to include service innova-

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Sources of ideas and knowledge for innovatory small companies tions. The recent Australian Yellow Pages® Special Innovation Report – Small and Medium Enterprises 2001 for the first time included innovations in business concepts and core strategies (Yencken et al 2001). This follows Hamel’s (2000) analysis of their importance to an enterprise’s survival. This paper is focussed on data about universities and other public sector research agencies as sources of ideas and information used by respondents reporting innovations in innovation surveys.

Sources of ideas and information for innovations Responses to questions on sources in CIS2 were reported as easy to complete by experi-

TABLE 1 QUESTIONS

ON

SOURCES

enced mangers (Archibugi et al 1997). However comparisons between EU and other countries need to consider the effect of the differing questions asked in the various country surveys. These questions are summarised in Table 1. The interesting difference is that the ABS surveys asked for information about sources for three categories of information, while the other surveys asked whether a given source was Very important, Important or Not important at all. There are also differences in the list of sources included. Our analysis will show the significance of these differences in the questions and lists of sources used. Innovation survey data analysis reported shows considerable variation in the proportion or relative frequency of enterprises reporting

OF IDEAS AND INFORMATION IN RECENT INNOVATION SURVEYS

Country

Title

Date

European Union

Community Innovation Survey (CIS2)

1996

Canada

Statistics Canada

2001

Australia

ABS Innovation Survey Manufacturing

1997

ABS Innovation Survey – Mining

1997

Yellow Pages® Special Innovation Report

2001

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The main sources of information needed for suggesting new innovation projects or contributing to completion of existing projects are asked in this question. Please indicate the degree of importance attached to various alternatives by ticking 0=not used 1=slightly important 2=moderately important 3=very important Sources of information that contributed to innovation during the period, 1997-1999. Which of the following were important sources of ideas and information in the innovation projects undertaken by the business during the period 1 July 1994 to 30 June 1997? • Initial Idea • Throughout the project • Technical information and advice Which of the following were important sources of ideas and information in the innovation projects undertaken by the business during the period 1 July 1994 to 30 June 1997? • Initial idea • Ideas at other stages of the project • Technical information and advice Which are important sources of ideas in your business’s development of new or improved products, processes or services? (NOT IMPORTANT, IMPORTANT, VERY IMPORTANT, NOT APPLICABLE)

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John Yencken and Murray Gillin universities and other government research organisations as important sources of ideas and information. Baldwin (1997) analysed Canadian data and reported a difference in use of external sources between the employment weighted 8.5 per cent in their sample who reported world first innovations and other innovators. The differences between world-first and other innovators in the use of many external sources could be linked to differences in the emphasis that they place on internal sources of R&D (Baldwin op.cit. p.51). For enterprises that conducted R&D, the reported per cent of innovators stating that university laboratories were important sources was 3 per cent for other innovators, but increased to 26 percent for world-first innovators. There were similar but smaller increases for industrial research firms and government laboratories (Baldwin op.cit. p. 51) Analyses of sources of innovation based on the European Union CIS data reported in the literature are summarised in Table 2.

Summary of findings in the literature The analyses reported suggest that for firms reporting innovations the key variables that have associations with firms’ views reported in CIS on public research organisations as important sources of ideas and information for innovations are: • the nature of their innovations, particularly whether they were world-first. • size of firm, and • perhaps most importantly, whether they were able to use these sources, ie had the absorptive capacity through their own level of R&D activity. These findings will be tested further in the new analyses reported here. 150

RESEARCH METHODOLOGY The sources for the research have been data extracted from innovation survey datasets from Australia, Canada and the European Union (EU) countries, based on the Oslo Manual. In the published reports there is inadequate disaggregation of data on sources of ideas and information by industry sector and enterprise size. Limited response cell numbers have made this difficult without breaching privacy conditions. New tables, designed to avoid privacy constraints, have been provided by the Australian Bureau of Statistics (ABS) giving crosstabulations of the use of university and other government research agencies by industry sector and firm size (in terms of number of employees). The ABS data contains information separately on sources for the initial ideas, throughout the project and for technical information and advice. The data show distinctly different patterns of use of such sources across industry sectors and enterprise size. Additional tables and small business and other datasets have been obtained from the Eurostat New Cronos database and from Statistics Canada. These use different questions to the ABS, asking about the relative importance of the source of innovation rather than the nature of the use of that source. The questions used by Eurostat have however also been used in a recent Australian small and medium enterprise survey, allowing more direct comparison with the EU and Canadian data. This final dataset comes from a recent innovation survey sponsored by Yellow Pages® in Australia (Yencken et al 2001). These data are based on a telephone survey of 1200 small and 600 medium enterprises the latter defined as businesses employing between 20 and 199 people. Quotas were based on geographical locations and type of business. Results were weighted by selected ANZIC divisions (Australia New Zealand Standard Industry Classification) within the metropolitan and non-metropolitan region of each State

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Volume 4, Issue 1–3, December 2002 62.7%

75.8%

2678

1637

182

Christensen, Rama and von Tunzelman 1997

Albach et al 1997

Malerba, Lissoni and Torrisi 1997

Food products and beverage industry

Chemical industry

Computer and office machinery

43%

NA

NA

Arundel, Steinmuller and Hawkins 1997

Telecom equipment

NA

NA

Sharp and Patel 1997

Pharmaceuticals

Per cent Innovative firms

Data source

Total in Sector

CIS Sample: No. Firms

CIS SURVEYS

Less than 11 per cent of firms rate consultants, patent disclosures and the three public research sources as important. However the probability that each of these sources was of importance to the firm increases significantly for R&D performing firms. This suggests that ability to use these sources requires some form of absorptive capacity, as shown by R&D activities.

Percentage of firms that innovate increases with firm size. No data were given on sources, but 65.5 per cent of innovative firms had R&D cooperation agreements with public sector research providers (government laboratories, universities, and technical institutes).

There was little difference in sources seen as important between laggards and leaders. Universities were seen as important sources by 29 and 19 per cent respectively of leaders and laggards in Germany and 6 and 8 per cent respectively in the Netherlands, but less so in Italy, 8 and 5 per cent, and not at all in Denmark. However technical institutes were important sources in Denmark (20 per cent for both groups) and also in Germany (11 and 4 per cent).

Successful firms (with more than 25 per cent of their sales from incrementally or significantly changed products) were larger and more likely to find public research (universities or government laboratories) to be an important information source. Both firm size and public research were positively associated with the share of changed products.More generally, the most important public research source for telecom firms is government laboratories, while the type of research conducted at universities and technical institutes is considerably less important for telecom firms than for component and other similar high technology firms.

High R&D intensity but no analysis reported of importance of external sources, other than small biotechnology companies.

Importance of sources

RESEARCH SOURCES OF IDEAS AND INFORMATION BY SECTOR FROM

Sector

TABLE 2 PUBLIC

Sources of ideas and knowledge for innovatory small companies

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John Yencken and Murray Gillin facturing industry sector. It was not possible to obtain frequency tables showing both numbers of employees and industry sector as variables. Further, data were only available for two types of responses: source very important (or crucial) and source not relevant. No tables were available for the intermediate response important. This has made comparisons with some of the Australian data of somewhat limited value. Summaries of the New Cronos data extracts are shown in Tables 3 and 4.

and Territory to reflect the actual SME population distribution.

European Union data from Eurostat New Cronos database The Eurostat New Cronos database contains data from innovation surveys for all European Union countries. However the survey data in this on the importance of public research sources were only available disaggregated separately by number of employees and by manuTABLE 3 UNIVERSITIES

AS VERY IMPORTANT SOURCES OF IDEAS AND INFORMATION BY SECTOR

Per cent of innovators / Industry sector

Range Low High

All EU Countries

Median

Average

4 3

5 3

4.6 3.4

1 0

7 4

1.89 2.80

2

2

2.7

0

7

1.86

3

3

4.0

0

6

2.57

9

8.5

9.4

0

20

5.21

4

4

6.0

0

18

5.30

5 5 7 5 0

5 5 6 5 1

5.5 5.2 6.8 5.8 3.6

0 0 0 0 0

18 14 16 12 15

4.69 3.81 4.21 4.17 5.16

All Manufacturing Food products; beverages and tobacco Textiles and textile products; manufacture of leather and leather products Wood and wood products, manufacture of pulp, paper and paper products; publishing and printing Coke, refined petroleum products and nuclear fuel, manufacture of chemicals, chemical products and manmade fibres Rubber and plastic products, manufacture of other non-metallic mineral products Basic metals and fabricated metal products Machinery and equipment n.e.c. Electrical and optical equipment Transport equipment Manufacturing n.e.c.

Standard deviation

Source: Data extract from Eurostat New Cronos database.

TABLE 4 UNIVERSITIES

AS VERY IMPORTANT SOURCES OF IDEAS AND INFORMATION BY SIZE

Per cent of innovators European Union countries Median Average Range Standard deviation

Number of employees Total manufacturing 5 4.63 1-7 1.89

20-49 3 3.67 0-7 2.35

50-249 4 4.87 0-12 2.64

250 or more 6.5 7.19 3-12 2.95

Source: Data extract from Eurostat New Cronos database.

152

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ABS Innovation Survey data Extracts from the Australian Bureau of Statistics Innovation Survey database were obtained to produce tables to show how use of public sector research varied with industry sector and enterprise size as measured by number of employees. The cell sizes were too small to overcome privacy constraints. The data could only be used to show how use of universities as sources varied by type of information and by industry sector (Figure 1). There were however some interesting differences: • the expected high level of perception of universities as sources of original ideas for innovations in the electrical/ electronic machinery and instruments and in the office, accounting and computing machinery sectors • in the machinery sector, the high level of importance of universities as sources of Total Manufacturing

information throughout an innovation project, but much less evidence of their use in this sector as sources of the original ideas – this finding was later confirmed anecdotally with several leading innovative companies in this sector. To achieve permissible cell sizes, further data tables were obtained from ABS with a consolidation of manufacturing industry sectors into only four groups and similar reduction in number of breaks for number of employees. These data are shown in Figures 2, 3 and 4. There were no data obtainable to explore the association of R&D expenditure per employee and importance of universities as sources of ideas and information for innovations, as indicated in the Eurostat data discussed earlier. Analysis of variance showed the effects of both sector and increasing size Technical advice Information throughout innovation project

Furniture & other manufacturing

Original ideas

S-T Motor vehicles & transport equipment S-T Electrical/electronic machinery & instruments Office, accounting & computing machinery Machinery nec Basic metals

Non-metallic mineral products Rubber & plastics S-T Chemicals S-T Wood, paper & publishing

Textiles etc Food, beverages & tobacco 0.0%

FIG. 1 UNIVERSITIES

2.0% 4.0% 6.0% 8.0% 10.0% Per cent of innovators

AS SOURCES OF INFORMATION FOR INNOVATIONS

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20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

No.employ ees

< 20 2 0 -4 9 5 0 -2 4 9 2 5 0 o r m o re

Total M ining

Total M anufacturing

Other m anufacturing

Chem icals, pharm aceuticals, paper and m inerals

FIG.2 USE

Com puting and electrical / electronic equipm ent

To ta l

M etals and engineering

Per cent of Innovators

John Yencken and Murray Gillin

OF UNIVERSITIES AS SOURCE OF INITIAL IDEAS

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

< 20 20-49 50-249 250 or more

FIG.3 UNIVERSITIES

Total M ining

Total M anufacturing

AS SOURCE OF INFORMATION THROUGHOUT THE PROJECT

(number of employees) to be significant at the 0.001 per cent level for all three categories of information. The limited amount of data and the small cell sizes precluded statistical analysis of the interaction between sector and size. However there were interesting patterns evident. Mining enterprises reported universities as sources in all three categories (original ideas, throughout the project and for technical advice) 154

Other m anufacturing

Com puting and electrical / electronic equipm ent

Chem icals, pharm aceuticals, paper and m inerals

M etals and engineering

Total

much more frequently than manufacturing enterprises. The proportion of mining industry respondents reporting use of universities in any one of these categories increased from 21 per cent for small enterprises (1–19 employees) to 47 per cent for large enterprises (250 or more employees). The comparable figures for manufacturing industry enterprises were an increase from 4 to 16 per cent. For mining industry enterprises, there was

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Sources of ideas and knowledge for innovatory small companies 40.00% 35.00% 30.00% 25.00% 20.00% < 20

15.00%

20-49 50-249

10.00%

250 or more Total

FIG.4 UNIVERSITIES

Total Miningg

Total Manufacturinging

Other manufacturingng

Computing and electrical/electronicic equipment

Chemicals, pharmaceuticals, paperper and minerals

0.00%

Metals and engineering ring

5.00%

AS SOURCE OF TECHNICAL ADVICE

only a small increase in response rate with increasing firm size, except for technical advice, where the frequency increased from the range of 8 to 15 per cent for other categories to 38% for large enterprises (250 or more employees). The responses for small and medium companies (11 to 14 per cent) were comparable. For manufacturing enterprises, the sector combining computing, electrical and electronic equipment showed considerably greater importance of universities as sources in all three categories varying much less with firm size except in the technical advice category, where large firms reported 81 per cent seeing universities as important against the average for this sector of 65 per cent. Perceptions of the importance of universities in this sector of manufacturing were comparable to those of mining industry enterprises.

Yellow Pages® Special Innovation Report data The data from this Australian survey (Yencken et al 2001) were re-analysed to produce crosstabulations of frequency of reporting of Volume 4, Issue 1–3, December 2002

public research agencies as important or very important sources of ideas for innovations by industry sector and enterprise size as measured by number of employees. The data was filtered to include only respondents who reported product, process or service innovations in the 1999/2000 financial year. The results of these analyses are shown in Table 5. The cell sizes were very small and often zero. For this reason, Table 6 has been added to provide responses on universities reporting sources as either important or very important. The data were further analysed using SPSS Logistic Regression software (SPSS Version 10, Agresti 1991) to explore associations with firm size, sector and expenditure on innovation (not just R&D). This analysis (Appendix A) showed that there was a positive association significant at the 0.001 per cent level between perceptions of universities as important or very important and firm size as measured by number of employees and industry sector and with some sectors at 0.05 per cent. The association with expenditure on innovation was not significant at the 0.05 per cent level. There was no similarly significant association for the

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John Yencken and Murray Gillin TABLE 5 PER

CENT RESPONDENTS REPORTING UNIVERSITIES AS VERY IMPORTANT SOURCES

TABLE 6 PER

CENT RESPONDENTS REPORTING UNIVERSITIES AS IMPORTANT OR VERY IMPORTANT SOURCES

p Sector / No. employees

p

Metals & engineering Chemicals, pharmaceuticals, plastics, rubber minerals & paper Computing, office, electrical & electronic equipment Other manufacturing Construction Wholesale Retail Transport. Storage Communications, property, business Finance, insurance Health, community services Cultural, recreational Hospitality Total

156

g

1-19 25.0%

p 20 - 49 36.4%

y 50 - 99 33.3%

50.0%

30.0%

50.0% 16.8% 22.4% 13.6% 17.2% 16.4% 20.5% 13.0% 40.9% 17.1% 18.8% 19.3%

p

100 - 200 0.0%

Total 29.2%

25.0%

33.3%

31.6%

66.7% 30.8% 6.9% 25.8% 20.3% 6.7%

No data 30.0% 15.8% 66.7% 51.7% 12.5%

66.7% 25.0% 50.0% 22.2% 14.3% 0.0%

62.5% 19.9% 19.4% 19.7% 23.3% 13.4%

33.3% 0.0% 25.0% 12.5% 25.0% 23.3%

28.6% 37.5% 40.0% 14.3% 0.0% 31.5%

46.7% 0.0% 50.0% 66.7% 0.0% 33.3%

26.4% 16.2% 40.4% 17.6% 16.3% 22.3%

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Sources of ideas and knowledge for innovatory small companies TABLE 7 PER

CENT RESPONDENTS REPORTING GOVERNMENT RESOURCES AGENCIES AS IMPORTANT OR VERY IMPORTANT SOURCES OF IDEAS FOR INNOVATION

Sector / No. employees Metals & engineering Chemicals, pharmaceuticals, plastics, minerals & paper Computing, office, electrical and electronic equipment Other manufacturing Construction Wholesale Retail Transport / Storage Communications, property, business Finance & insurance Health, community services Cultural, recreational Hospitality Total

1-19 25.0%

20 - 49 18.2%

50 - 99 50.0%

100 - 200 0.0%

Total 25.0%

50.0%

20.0%

25.0%

0.0%

21.1%

50.0% 19.8% 42.4% 29.6% 33.3% 18.2%

66.7% 42.3% 37.9% 32.3% 32.8% 26.7%

No data 50.0% 21.1% 50.0% 48.3% 25.0%

0.0% 0.0% 50.0% 22.2% 0.0% 0.0%

37.5% 24.6% 38.8% 30.7% 34.2% 19.5%

33.3% 17.4% 31.8% 20.7% 21.9% 28.2%

19.3% 20.0% 25.0% 37.5% 25.0% 30.2%

8.6% 12.5% 20.0% 0.0% 0.0% 25.9%

13.3% 0.0% 0.0% 33.3% 0.0% 12.7%

25.1% 16.2% 28.1% 22.2% 18.6% 27.6%

importance of government research agencies (Table 7).

RESULT AND IMPLICATIONS The analysis reported in the literature showed for particular sectors of manufacturing that perceptions of the importance of public research agencies (universities and government research laboratories) varied with both enterprise size and manufacturing industry sector, but there was little analysis reported on any interaction between sector and enterprise size. New dataset extracts have allowed analysis of perceptions of the importance of universities as sources of innovations disaggregated by industry sector and enterprise size, but small cell sizes and privacy constraints have limited the scope for more detailed statistical analysis. For all the surveys reviewed, perceptions of the importance of universities were positively associated with enterprise size as measured by number of employees. For the Australian survey data, the two sectors showing the most frequent perceptions of the importance of Volume 4, Issue 1–3, December 2002

universities were mining and the aggregated group of computers, office electrical, electronic equipment and appliances. There were no similar associations between enterprise size and perceptions of the importance of government research agencies. However these appeared in the Australian data to be relatively more important than universities for small and medium enterprises. The use of different questions in the ABS Innovation Surveys has allowed analysis of how perceptions of the importance of public research agencies varied between initial ideas, throughout the innovation project and for technical advice, not just their importance. The available data suggest a sector such as machinery that rates relatively low the importance of universities as sources of original ideas is a much more frequent reporter of their importance throughout an innovation project. Other sectors such as non-metallic mineral products rated them as most important for technical advice. These findings strongly support the use of questions such as used in the ABS Surveys

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John Yencken and Murray Gillin rather than the simpler question in the Oslo Manual (OECD 1997). These data are potentially important material for research into opportunity recognition by spin-off and smaller firms. The earlier work discussed has suggested that for some sectors the perceptions of the importance of universities is associated with the level of expenditure on R&D per employee by the respondent enterprise, suggesting that an enterprise had to have or to develop the absorptive capacity to make effective use of public research. This leads to the tentative conclusion that increasing expenditure on university and other public research to be effective needs to be linked to increasing the levels of private sector R&D expenditure, particularly by small and medium enterprises, to improve their ability to see the opportunity, absorb new knowledge and take it to commer-

cial market success. Unfortunately no Australian data could be obtained to further test this conclusion.

Acknowledgements The writers would like to acknowledge the assistance of Susan Schaan of Statistics Canada, Frank Foyn of Eurostat and Belinda Parsons of the Australian Bureau of Statistics in obtaining data extracts from the various innovation surveys and the permission of Pacific Access Pty. Ltd. to make use of extracts from the survey data file for the Yellow Pages® Special Innovation Report – Small and medium Enterprises. They would also like to acknowledge the advice of Dr. John Taffe of the Swinburne University School of Technology School of Mathematical Sciences on statistical analysis options.

TABLE 8 COMPARISON BETWEEN RESPONSES FROM EUROSTAT, ABS SURVEYS : “U NIVERSITIES VERY IMPORTANT SOURCES ” Survey source Sector Canada Eurostat ABS Initial ideas ABS Any category Yellow Pages® Very important Yellow Pages® Very important & important No. employees Eurostat ABS Ideas ABS Any category Yellow Pages® Very important. All sectors Yellow Pages® Very important & important. All sectors

158

Metals, engineering

Chemicals etc.

AND

Computing etc.

YELLOW PAGES®

INNOVATION

Other manufacturing

All manufacturing

1% 6%

2% 5%

6% 6%

1% 3%

8.5% 1-7% 3% 6%

4.2%

10.5%

12.5%

5.8%

6.7%

25.0%

21.1%

37.5%

24.6%

22.3%

1-19

20-49

50-249

250 or more

NA 1% 4%

NA 4% 6%

NA 15% 11%

NA 15% 26%

5.7%

6.2%

9.8-12.7%

NA

19.3%

23.3%

32.4%

NA

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NA

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Sources of ideas and knowledge for innovatory small companies

APPENDIX A RESULTS OF LOGISTIC REGRESSION ANALYSIS – Yellow Pages® Special Innovation Report Data Statistical measure Variables in the Equation

Significance Significance Significance Significance

SE 0.08 12.202 0.000

0.118 264.564 0.000

0.118 264.564 0

0.000 0.000 0.000

0.400 0.400 0.400

0.456 0.456 0.456

825.142 0.084 0.113

481.562 0.021 0.039

481.285 0.021 0.04

Q293

0.018

0.810

0.793

0.55

Q293(1)

0.147

0.471

0.464

0.682

Q293(2)

0.117

0.813

0.838

0.668

Q293 (3) Q293(4) Q293(5) Q293 (6) Q293(7) Q293(8)

0.039 0.048 0.22 0.193 0.151 0.898

0.972 0.964 0.965 0.334 0.850 0.367

0.970 0.955 0.974 0.339 0.840 0.356

0.193 0.443 0.179 0.127 0.080 0.521

Q293(9)

0.058

0.588

0.564

0.471

Q293(10)

0.574

0.361

0.363

0.473

Q293(11) Q293(12)

0.001 0.519

0.523 0.592

0.511 0.573

0.423 0.947

Q14

0.001

0.021

0.076

0.742

Q73

0.078

0.6

0.983

Wald Sig. Omnibus tests Step of model coefficients Block Model Model -2 Log likelihood summary Cox & Snell R square Nagelkerke R Square Variables in the equation

0.068 328.642 0

Sector (Hospitality) Metals and engineering Chemicals, pharmaceuticals, plastics minerals and paper Computing, office, electrical, electronic equipment Other manufacturing Construction Wholesale Retail Transport/storage Communications/propert y/business Finance and insurance Health/community services Cultural/recreation Hospitality No. employees Expenditure on innovation 1999/2000

References Acs, Z. and Andretsch. D. (1990) Innovation and Small Firms, edn. Cambridge Mass.: Agresti, A. (1990) Categorical Data Analysis, Canada: John Wiley and Sons. Inc. Volume 4, Issue 1–3, December 2002

Albach H. (1997) Innovation in the European Chemical Industry. edn. Luxembourg: European Commission. (1997) Arundel, A. and Garrelfs, R., (1997) Evaluation of the European Community INNOVATION: management, policy & practice

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John Yencken and Murray Gillin Innovation Survey. edn. Luxembourg: European Commission. (1997) Arundel, A. and Garrelfs, Rick, (1997) The European Telecommunications Industry. edn. Luxembourg: European Commission. (1997) Arundel, A. and Garrelfs, R., (1997) Characteristics of Innovation Regimes by Type of Innovation. edn. Luxembourg: European Commission. Australian Bureau of Statistics (1998) Innovation in Manufacturing 1996/97 Catalogue No. 8116.0. Canberra, Australia: Australian Bureau of Statistics. Australian Bureau of Statistics Australian Bureau of Statistics, (Ed.) (1998) Innovation in Mining 1997 Catalogue No. 8121. Canberra, Australia.: Australian Bureau of Statistics. Australian Bureau of Statistics (1997) Questionnaire – Innovation in Industry MAN2. Australian Bureau of Statistics. Christensen et al. (1997) The European Food Products and Beverages Industry. edn. Luxembourg: European Commission. (1997) Hamel, G. (2000) Leading the Revolution, Boston. Massachusetts: Harvard University Press.

160

Kleinkrecht A. (1991) Towards Literature Based Innovation Indicators. Amsterdam. Lundvall B.-A. (1992) National Systems of Innovation – Introduction. In: Lundvall, B.-A., (Ed.) National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning, London: Pinter Publishers] Malerba F. et al. (1997) Industry Studies of Innovation Using CIS Data: Computer and Office Machinery. Luxembourg. European Commission: (1996) OECD (1997) Oslo Manual: Proposed Guidelines for Collecting and Interpreting Technological Innovation Data, edn. Paris: OECD/Eurostat. Statistics Canada (2000) Sources of Information that Contributed to Innovation During the Period 1997/98: Innovation in Manufacturing. Townsend F., et al, (1991) Innovation in Britain Since 1945. SPRU: Yencken, J., Hindle K., Shepherd, S. and Guarneri, I. (2001) Yellow Pages® Special Innovation Report – Small and Medium Enterprises. Melbourne, Australia: Pacific Access Pty. Ltd.

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Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2002) 4: 161–164.

✹ T TT I C S

T

AC

SUMMARY KEY WORDS

value creation; innovation model; knowledge generation; technology development; managerial style; process linkages; cultural linkages

Bridging the gap between knowledge generation and technology development

The link between scientific discovery and the development of new technology is poorly understood. This overview explores the process and cultural gaps in this understanding and proposes a process and innovation model that enables science and technology development to be managed in a value-creating way. The model identifies 7 key process features of knowledge generation and 9 key features of technology development and indicates appropriate management styles to facilitate value creation.

Received July 2002

Accepted November 2002

IAN LAWRENCE

IVOR BRYAN

Partner/Managing Director The STEM Partnership Pty Ltd Melbourne, Victoria, Australia

Partner/Technical Director The STEM Partnership Pty Ltd Melbourne, Victoria, Australia

INTRODUCTION

T

he links between scientific discovery and the delivery of practical results – what we call technology – is vital to the wealth of individuals, businesses and the nation. Yet the link between scientific discovery and the

development of new technology is poorly understood.1 The lack of linkage or gap has a process dimension and a cultural dimension. This article will explore the gaps in understanding and present a new approach that provides the link

1 F. Peter Boer. (1999) The Valuation of Technology – Business and Financial issues in R&D. Wiley, New York, N.Y. USA.

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Ian Lawrence and Ivor Bryan and bridges the gap with a language that enables science and technology development to be identified and managed in a valuecreating way.

PROCESS GAP There is a fundamental difference between the process of scientific discovery (knowledge generation) and the process of technology development. If we accept that science is first and foremost a process of discovery and that technology development is about the application of knowledge to useful objectives we can see that philosophically we have very different value expectations from science and technology development activities.

CULTURAL GAP The gap increases when the cultural differences between stakeholders are considered. The lack of understanding of the process of transforming science into technology is shaped by technical understanding, community needs and business forces and brings together scientific, business and government people whose outlooks, specialised knowledge, and professional languages are very different.

INNOVATION MODEL The process and cultural issues can be further explored by referencing the following generic “Innovation Model”, Figure 1.

Process issues This model highlights the process differences between projects in Knowledge Generation and those in Technology Development and Innovation. The key process features of Knowledge Generation are: • Quality of research is a key management issue. • The primary focus is on developing new information and learning. • The identification of quantifiable commercial benefits may be difficult. • The knowledge generation process can be a cyclical process. • The elements in the cycle are driven by the research need. • The technical merit of the project is regularly reviewed and decisions made whether to continue in the cycle. • Reviews of progress are required nodal

Knowledge Generation

Technology Development

Commercialisation FIGURE 1: INNOVATION MODEL2

2 Providing Clarity and a Common Language to the Fuzzy Front End. Koen et al. Industrial Research Institute, Inc. 2001. Washington DC. USA.

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Bridging the gap between knowledge generation and technology development points to allow commercialisable opportunities to be harvested. The key process features of Technology Development are: • The fundamental science is generally proven. • The project is staged with identified outcomes. • The primary focus is on delivery of the outcomes relative to the stages. • The drivers of the projects are the commercialisation benefits delivered at implementation. • Projects can be more easily stopped if outcomes are not delivered. • Commercial outcomes can be valued and readily adjusted to take account of risk. • Commercial outcomes are typically the key for advancement to the next stage. • New knowledge may be created at each stage but this on its own will not necessarily drive the project to the next stage. • Valuations are typically based around Benefit Assessment, Decision Tree Analysis, Monte Carlo Simulation and risk and uncertainty assessment.

Cultural issues From the previous discussion it is clear that different management approaches are required for projects in either phase. These different management responses will develop quite different organisational cultures. For the Knowledge Generation Projects the key drivers of the management response are: • The option value of the concept or idea. • The reputation of the researcher or inventor. • The quality of the research program. – Clarity of technical objectives. – The experimental program. – The quality of the infrastructure. – The quality of the support services. • Knowledge growth and peer review. Volume 4, Issue 1–3, December 2002

In the case of the Technology Development Projects the key drivers of the management response are: • The potential commercial value of the project. • The potential market for the technology. – The size of the market. – Entry barriers. – The need for commercialisation partners. – Potential for competing technologies. • The value growth in technology development. • The risk and uncertainties in commercialisation. • Risk minimisation and value optimisation. • The critical success factors relative to project stages. • The deliverables at each stage.

THE CONSEQUENCE OF MISMATCH Given the very different management responses needed for the two types of project and the very different management plans that emerge, what are the consequence of a mismatch? Let us consider the consequence of a knowledge growth project managed as if it were a technology development project: 1. It would be difficult to identify clear technical and commercial outcomes and the project would consume a lot of resources in trying to find its way. 2. The project could be stopped before all learnings were identified. 3. The project could block or starve resources from other projects that have clearly defined outcomes and commercialisable opportunities. Conversely a technology development project managed as a knowledge growth project would have the following consequences:

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Ian Lawrence and Ivor Bryan 1. The project would be managed to create new knowledge rather than to deliver a commercial outcome. 2. It would consume a lot of resources seeking answers to technical questions that have little or no commercial relevance. 3. The project would be difficult to stop. In our experience a large number of technology developments can be described by these consequences. Clearly the gap is real and requires a bridge.

BRIDGING THE GAP The STEM Partnership has developed a unique capability that enables technology development to be classified as a knowledge growth or a technology development. The STEM process allows key qualitative information to be collected, collated and analysed relative to a structured set of technical and commercial dimensions. The dimensions focus on the benefits that the project will deliver to the stakeholders upon successful implementation. For a technology development project it is possible to calculate the current and future value of the project. Decision points identify the critical technical and commercial factors that the project must overcome. This coupled with the ability to compare the value added at each gate to the cost of each stage allows the development of a powerful three-dimensional management plan. In the case of a knowledge-growth project the option value can be calculated or is intuitively understood.

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In order to strike the option there is a need to recognise that the knowledge generating activity does have the potential to move into the commercial technology development. The opportunity for a commercial outcome will be identified in the option to engage in knowledge generating activity. Additional opportunity may be recognised as the new information emerges (an embedded option). Regular reviews of the project by people who are not directly involved in the test work but rather have an interest in the commercial outcome is critical to moving to a technology development phase The cost of the option is the cost to progress to the next stage of knowledge generation. Provided that the new knowledge generated does not waive or extinguish the option then as knew knowledge emerges there is sufficient drive in the option to progress to the next stage. In this way there is a decision process established that identifies any commercial outcomes and either extinguishes, exercises or defers the option. This approach allows for the development of a management plan that targets the quality of the research process and calls for the external review of new knowledge at relevant points of the cycle. The process we have described allows a project to be described relative to powerful value metrics that all stakeholders can understand. These metrics coupled with a regular project review provides the language to bridge the gap in the technology development process.

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Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2002) 4: 165–175.

The nexus of value chain integration and e-business applications on public sector agriculture R&D management We examine the potential impact of interconnectivity of value chain partnerships through electronic means (e-business practices) on the management of Public Sector Agriculture R&D in Australia. We review the changing forms of managing research and development, the forces driving these changes, and R&D processes that are theoretically consistent with the move towards value chain involvement and the increase in active constituents in Public Sector Agriculture R&D. We then explore the potential of emerging ebusiness models to change the patterns of inter-connectivity, speed and omnipresence of partners in the value chain. Three e-business R&D management practices are identified that provide the prerequisite flexibility necessary to take advantage of opportunistic markets. These R&D business practices are: compressing R&D to reduce time to market, fostering codevelopment to enter a market at the last moment and building flexible products that allow adjustment at the last possible moment. Some fundamental reallocation of existing resources will be required to meet these markets. Implications of these e-business practices for R&D management are discussed.

SUMMARY

KEY WORDS value chain partnerships; e-business models; public sector R&D; R&D management; flexible market entry; agricultural R&D

Received February 2002

*

Accepted October 2002

JUDY MATTHEWS

ART SHULMAN

ARNOLD WISSEMANN

Lecturer National Graduate School of Management Australian National University Canberra, ACT, Australia

Associate Professor Reader UQ School of Business University of Queensland Brisbane, Queensland, Australia

Principal Policy Analyst Office of the Chief Scientist Queensland Department of Primary Industries Brisbane, Queensland, Australia

PAUL STEFFENS

ANDREW WOLLIN

Associate Professor Associate Director (Teaching Programs) Technology and Innovation Management Centre University of Queensland Brisbane, Queensland, Australia

Senior Lecturer UQ Business Centre University of Queensland Brisbane, Queensland, Australia

This research is funded under an Australian Research Council Grant in partnership with the Queensland Department of Primary Industries, titled “Institutionalisation of purchaser-provider models in agricultural R, D &E: Gateways or shackles?” (1998–2000), awarded to A. D. Shulman, A. Wollin, B. Duffield, P, Steffens and A. Wissemann. The views expressed here are those of the authors and not necessarily those of the Queensland Department of Primary Industries.

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INTRODUCTION

G

lobally, businesses are exploring how to survive and prosper in a knowledge-based economy. Public research and development agencies are no exception. This paper examines the movement towards value chain partnerships and the potential impact of interconnectivity of these partnerships through electronic means (e-business practices) on the management of Public Sector Agriculture R&D in Australia. By value chain partnerships, we refer to both partnerships along the production supply chain (e.g. farm inputs, farming, processing, transport and distribution and retail) as well as partnerships within the broader agricultural value chain, including all service providers to agricultural industries, research agencies and industry organisations. One of the oldest and enduring Australian government involvements have been in Agriculture R &D. From OECD figures, half of all the productivity gains in Australian agriculture in the 20 years to 1998 were directly attributable to R&D. Funds for this R&D are provided by the Commonwealth government and state governments and augmented by funds provided through voluntary levies administered through commodity based Research and Development Corporations. The major research funded through these sources is done through State Departments of Agriculture, Universities and the Commonwealth Science and Industry Research Organisation (CSIRO). The Commonwealth Government contributed $150.5 million to rural R&D corporations in 1998–9 while the industry financial contributions for the same period were $135.5 million (Minister Truss, 2000). Though a substantial amount of moneys, in reality the proportion of Government funds for Agricultural Research has significantly decreased (Whittemore, 1998) and programs that are funded are shifting in focus. These trends are not limited to Australia (Alston, Pardey & Roseboom, 1998).

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Historically, much of this involvement had been in research and development aimed at improved farming methods, implementing crop protection and regulatory standards. Prior to the 1980’s, most agricultural R&D projects in the public sector were done without much formal involvement with persons other than those within the research unit. This researcherdriven focus has been looked upon as one reason for poor rates of uptake of the outputs of these research efforts (Scoones & Thompson, 1993). Combined with the political reality that a significantly smaller proportion of the electorate is involved in farming, governments are raising serious questions about their involvement as funders of research and as providers of research. In order to spread risk of failure to a wider audience and to adopt potentially better procedures for extension, public sector research organisations are seeking commercial partners and joint funding alliances. These partnerships are encouraging the adoption of marketing and end-user involvement strategies to minimise market failure (Papageorgiou, 1993; Eisenberg, 1996; Massaro, 1996). Many of these R&D practices are consistent with the third, fourth and fifth generation R&D models that have been developed in the private sector (Liyanage, Greenwood & Don, 1997; MacLeod & Shulman, 1997; Rothwell, 1994). The current fifth generation model acknowledges that R&D exists within a multi-layered network of relationships, where the value adding performance of R&D depends to a large extent on the performance of other actors to which it is directly and indirectly connected.. The arena model highlights that projects are not isolated occurrences, but are part of a larger context of action. The knowledge generation capacity and the political nature of constituents are to be conjointly managed. Hence, choice and timing of involvement of stakeholders is critical for optimising innovation and delivering on its potential. (MacLeod & Shulman, 1997; Shulman et al, 2000).

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Value chain integration and e-business applications on public sector agriculture R&D One result of involving more stakeholders in the R&D process has been an increase in the identification of value chain factors beyond the paddock where potentially greater returns on R&D investment can be secured. For the public sector R&D enterprise as a business, at least from a Resource-Based Theory of the Firm, the entrance into new value chain strategic alliances is likely to be facilitated by the factors listed in Table 1 (adapted from Barney and Hesterly, 1996: 138). As argued in this paper, the unique market niches are made possible because of engaging in time sensitive R&D practices associated with adoption of e-business practices. But the opportunities arising though the increased interconnectivity and increased range of stakeholders also raises the visibility of potential public good demands for transparency of resource allocation and questioning of the public good. In this paper, we first examine developments in Agricultural R&D management as it moves to incorporate supply chain alliances. We then examine how the entrance of e-business models are overtaking the supply chain approaches and presenting new challenges for Government Agricultural R&D Agencies both in their role as funder and as provider of R&D. We investigate e-business solutions where interconnectivity and speed deliver comparative advantage. We find that increased TABLE 1 MOTIVATIONS

competition and lowering of switching costs are leading to adjustments through amalgamation, with mergers and alliances in value chains. We suggest that the current supply chain R&D focus is likely to be modified as the advantages of value adding alliances are realised. R&D management will need to recognise the possibilities and threats associated with the changing information technology infrastructure on R&D process and governance.

EMERGENCE OF SUPPLY CHAIN MANAGEMENT AND E-BUSINESSES IN AGRICULTURE In recent years, agricultural industries, like many others, have been radically transformed by the emergence of strong supply / value chain management initiatives. These trends have been both strengthened and accelerated by B2B information sharing enabled by various types of e-business applications. The future path of this changing industry landscape is by no means certain. Examples of these industry changes are numerous. Private sector agricultural organisations such as Chiquita, are creating larger vertical supply chain trading groups through amalgamation of existing organisations. Retails have established strongly co-ordinated supply chains from grower to supermarket / customer. Major Australian food retailers are

FOR ENTERING STRATEGIC ALLIANCES

1. Exploit economies of scale 2. Low-cost entry into new markets 3. Low cost entry into new industry segments and new industries 4. Learning from competition 5. Managing strategic uncertainty 6. Managing costs and sharing risks 7. Facilitate tacit collusion 8. Time sensitive entry into new markets 9. Time sensitive development of new Source: Modified from Barney & Hesterley (1996)

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Judy Matthews et al. on the verge of following US initiatives to implement powerful e-business supply chain management systems for produce, such as Agribuys. These moves to integrated supply chains are designed to generate efficiencies through reduced transaction costs, but more importantly to utilize real time information to respond to fluctuations in both supply and demand. The development of niche markets, speed to market and quality of product within windows of seasonal variation are all enhanced with improved information access and dissemination. The advantage of e-business for agriculture is amplified by the geographic disaggregation of the industry. For example, the agricultural internet portal Farmshed, established by Westfarmers, McKinsey and Rural Press, has been popular with farmers both as an information source, and for transactions such as land and stock sales.

DEVELOPMENTS IN R&D MANAGEMENT Historically, much of the Agricultural R&D carried out was related to concerns of production of a commodity, such as increased yield. The primary focus has been on “before the farm gate”. However, in part due to opportunities to develop new markets within the global economy, the focus has been shifting to issues beyond the farm gate. These include value chain issues such as improving storage systems, distribution systems and packaging for serving new markets. The view that there is only marginal value to be gained in the efficiency of production, compared to the value that can be gained by developing new markets and improving supply chains, is reflected in recent changes in the research priorities of the industry/ commodity funded research and development corporations in Australia (Baker, 1999). Under conditions of decreasing financial resources, this shift presents major challenges to the established Australian Gov168

ernment Research Agencies in their role as a provider of agricultural research. Among these challenges is divesting some of their investments in physical capital (i.e. experimental plot field stations), human capital (i.e. scientific staff mainly trained in pre-farm gate science) and social/organisational capital (i.e. much of their political support has come from the disproportionately powerful rural lobby and the overlapping directorships of the commodity funding bodies and the research providers), whilst shifting to investment intensive challenges in biotechnology and post harvest supply chain opportunities, where their comparative advantage is yet to be established. As in other industries, information technology has reduced the coordination costs and has also changed the nature of R&D alliances and their management, of which government R&D agencies are a part. Global R&D through consortia provides different opportunities, which lead to different ways of research. Alliances in R&D are not new, but what is new is how they operate, and the rather fluid nature of their relationships. The advantage of new alliances is that they “are more strategic than traditional joint ventures, create value in many different ways and their ultimate consequences cannot be measured with precision” (Doz & Hamel, 1998: 11). These new alliances being formed have a strategic approach. For example, the Australian Commonwealth Scientific Industry and Research Organisation (CSIRO) has developed a strategic alliance in food science with Singapore based F&N foods (the largest food research organisation in the Asia Pacific region) and is building alliances with major international firms operating in strategically important markets. The initial focus is on dairy products and juices and will be extended into functional foods such as those with special health benefits. The alliance establishes a framework for co-operation between the two organisations in research, training and the exchange of person-

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Value chain integration and e-business applications on public sector agriculture R&D nel (CSIRO Media Release, 2000). “Our growing involvement in international markets should enable us to develop more relevant and competitive research programs and the overseas collaborations that follow from them enhance our ability to deliver world-class results” (CSIRO Media release, 2000). Much of their work is performed by scientists at different locations who have been heavy and early users of the internet, albeit mainly for the exchange of information. Such distributive collaborations are not viable without the internet. However with the increased connectivity and ubiquities of e-business links amongst most members of the supply chain, new R&D approaches to fulfilling value chain opportunities are emerging. These e-business models eliminate problems related to time and distance and increase the possibility of collaboration among partners. But, e-business models are much more than technology. They are the application of communication and information-sharing tools among trading partners in the pursuit of their business objectives. E-business practices can coordinate markets, coordinate input from research players and input from constituents’ access to laboratories for better information and distribution.

FLEXIBLE R&D PRACTICES With increased competition and changes in information technology, many research organisations are moving from a long term R&D product approach to R&D product planning and implementation with radically faster realtime strategies for response variation. The changes in R&D management are paralleling the changes in mass customization. “Rather than competing by forecasting customers’ needs and then planning the year’s production using inventories to match supply and demand, firms are relying on real-time sensors to continuously discover what each customer needs, sometimes even anticipating unspeciVolume 4, Issue 1–3, December 2002

fied needs, and then quickly fulfilling those needs with customized products and services delivered with hitherto unavailable capabilities and speed. The result is an almost immediate responses to customer’s demand through dynamic resource allocation and execution” (Bradley & Nolan, 1998: 4). That is, these changes in mass customization are reflected in models of flexible development emerging in R&D. Traditional R&D models tend to emphasise the need to avoid unnecessary change and uncertainty during development. There is a clear concept development phase, producing a stable product concept that leads into a distinct development phase. In this traditional model, extensive efforts are first made to identify customer needs and assess the feasibility of new technologies. In contrast, recent research in fastmoving technology-driven industries shows that “leading firms embrace change rather than fight it and the new approach is characterised by its emphasis on flexibility” (Iansiti & MacCormack, 1998; Thomke, 1996). In this flexibility research model, the concept development stage continues as long as the specification is evolving. Systemic changes in a project’s definition and basic direction are managed proactively in a process without a precise idea of how the effort will end. “The key to the new approach is the ability to gather and rapidly respond to new knowledge about a technology and its application context on an ongoing basis even after implementation has begun” (Iansiti & MacCormack, 1998:178). This approach moves the concept freeze as close to the market introduction of a product as possible. That is, concept development and implementation became tightly linked rather than separated. This “designbuild-test” sequence repeats continuously as long as the concept development and implementation phases overlap. The need to respond rapidly to unpredictable changes in technology or market conditions makes itera-

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Judy Matthews et al. tion essential (Iansiti & MacCormack, 1998: 178). Agricultural R&D can learn from the flexibility initiatives developed in other industries, which have developed different research processes of “research at the last minute” (Laigle, 1998). For example, within the automotive industry, co-development research teams have enabled more speed of development for new models, and better ways to work with more sharing of ideas. Co-development is similar to parallel development, with a multiple focus on problems, but it is based on ongoing bilateral flows on complete information with negotiation about risks and costs. Through a process of co-development, “Suppliers have acquired full responsibility over the design and engineering of components, suppliers tend to apply simultaneous engineering of product and process suppliers manage the technical interfaces between components and suppliers create prototype testing, modelling, simulation and design data bases” (Laigle, 1998: 211). These high connectivity processes have been used in distributive systems where members of the teams are working in different locations on similar or dissimilar processes.

AGRICULTURAL R&D – EMBRACING E-BUSINESS AND INTEGRATED VALUE CHAINS Public sector agricultural R&D must respond

TABLE 2: IMPLICATIONS

FOR

R&D POLICY

to the new opportunities and challenges provided by e-business and the changing character of the value chain. Table 2 provides an overview of some implications of this new and emerging environment at both a strategic level (policies and priorities) and operational level (R&D practices). These implications are discussed below.

Implications for public sector agricultural R&D strategy – policy and priorities The trend towards greater integration and coordination of the agricultural value chain is inescapable. The potential benefits of co-ordination enabled by e-business applications has, in part, lead to consolidation and greater concentration throughout the value chain. As a consequence, industry structure and power relationships have shifted. For example, the majority of domestic produce is no longer sold through the traditional produce markets. Rather, retailers largely control a coordinated supply chain, often including contract growers. Hence, the large retailers now have a direct interest in farm practices and transportation. This shift in industry structure has three direct implications for public sector agricultural R&D agencies: 1. New funding opportunities 2. Public sector’s role as an R&D provider 3. Opportunity / need for strategic alliances

AND PRACTICE

Strategic Implications – Public Sector R&D Policies and Priorities •· New funding opportunities enabled my emerging market structures •· Re-examining public sector’s role as an R&D provider •· Formation of new strategic alliances •· Emerging R&D priorities – new R&D “products” enabled by information technology

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Operational Implications – R&D Management Practices •· Fostering co-development with other R&D agencies and industry •· Reduced R&D cycle times •· Improved response through flexible development practices and improved market knowledge •· Increased communication with industry and other stakeholders

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Value chain integration and e-business applications on public sector agriculture R&D New funding opportunities for R&D emerge when single entities effectively control large vertical or horizontal portions of the industry. Indeed, the places in which public funding of R&D is directed needs to be fundamentally re-examined. Public sector funding of R&D is justified on the grounds of market failure in three ways. First, governments globally invest substantially in agricultural R&D. This remains largely unchanged, justifying continued public sector funding in Australia to enable our agricultural industries to compete on a equal footing. Second, some industry does not value societial objectives for the environment and sustainability. Again, this remains largely unchanged. Third, low concentration, particularly at the production stage of the supply chain level, has historically justified the bulk of public funded R&D to be directed pre-farm-gate. It is this characteristic of industry which is changing significantly, prompting a re-examination of public R&D priorities. Clearly, new opportunities for private sector funding of R&D are emerging with industry consolidation. The economic reality is that exports of primary industry products are a part of the welfare of the nation. All players recognize that a case needs to be made that the population at large will receive some public benefit (i.e. better quality food, sustainable rural communities, and long term sustainability of the environment through research). It should be noted that the political and economic priority setting is not solely done by the Australian Government. Research and Development corporations who distribute commodity levies are often looked upon by R&D Agency managers as ‘marginal funders’ injecting a disproportional influence on priorities. While both the political and economic reality suggest how R&D priorities are determined, neither directly addresses the question of whether the agency takes a R&D provider’s role (or only a purchaser/funder role). A deciVolume 4, Issue 1–3, December 2002

sion to remain and R&D provider, as well as a purchaser, can perhaps be best evaluated by examining an agency’s history and its capabilities. From a Resource Based theory of the firm perspective, in order for the resources and capabilities of a firm to provide superior performance, they must be (1) valuable in the sense of enabling a firm to exploit its environmental opportunities (and/or neutralise its threats), (2) rare among its current or potential competitors, (3) costly to imitate, and (4) without close strategic substitutes (Barney, 1991). Against these three Resource Based theory of the firm criteria, Public sector R&D agencies in Australia clearly possess substantial R&D capacity, that is difficult to imitate, and the relative absence of other competitors, we suggest that the public sector will continue to provide intellectual property as part of its contribution to supply chain partnerships. How it does so is changing because of the pressures being exerted by the value chain partners. Indeed, Public sector R&D scientists engaged in high risk long-term projects have recognized the costs of not implementing speedy processes and the need to speed up their research. Their response has been, to some extent, to abandon long term, programs that are unlikely to add significant value per return on investment. Hence, research programs that require costly physical infrastructures (as field stations and field experiments) have been replaced with by combining simulation models that once developed can be easily adjusted to incorporate new variables with private sector provided trials. The need for the Australian Public sector R&D to engage in strategic alliances is clear. From a resource perspective, developing the capacity to meet the demands of serving the supply chain from end to end, with existing structures and staff is likely to be impossible. In addition, the shared learning from close R&D alliances between agencies and industry partners has enormous potential benefits for

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Judy Matthews et al. all parties. This is well recognized by Public and Private sector stakeholders in Australian Agriculture (Steffens et. al, 1998; Wong, Shulman and Wollin, 2001). The closer integration and information exchange facilitated by e-business throughout the agricultural value chain have made a number of different R&D “products” viable – all suggesting that the R&D priorities of public sector agencies need to be re-evaluated as they endeavor to achieve the best outcomes from the resources at their disposal. For instance: As new varieties are developed it may be possible to simultaneously explore potential markets and delivery channels before the product is fully developed. Production researchers can work with market researchers to find opportunities to sell projected products into new markets. One example is the marketing of Australian apples to the lucrative Hong Kong market at a time when markets in the northern hemisphere are not supplying. What Australian enterprises were able to do, was to package large red apples for the Chinese New Year, complete with greetings for this new niche market. Second, flexible production requires quick responses or funds to research new ways of working and new technology to enable quick response to changed markets and changed conditions or alternative distribution systems. The need for speed leads to new systems for ordering and delivery for products. Following the emerging intermediary role that small to medium size organisations are creating for themselves in the value chain, the Governmentsponsored or operated research infrastructures needed by industry to deliver information and to coordinate the information and lessons, may become much smaller than the large infrastructures that now exist. An example of this can be seen in the effective downsizing of the Department of Agriculture in New Zealand and their creation of the much smaller and agile Crown Research Institutes. 172

Third, flexible production has implications for research on the nature of the end product itself. Variation of agricultural product has been used in the selection and breeding of market specific products (including animals and germplasm) and recently effort has been directed at developing new markets for these existing products. However, the notion of flexible production in agricultural products suggests that selection or enhancement of characteristics or traits that can be modified by changed environmental treatments or conditions closer to the market. In this way a number of variations in the products themselves can be extended and enhanced at the development rather than the concept phase with last minute changes. For example variations in colour, in texture, or in resistance may be introduced closer to the market with multiple possible outcomes from a basic product. R&D previously directed at enhanced production could be refocused to speed up or to slow down biological processes such as ripening, or faster growth. “Flexible products” create possibilities of an increased variety of end products for a variety of niches and ensures further customisation.

Implications for R&D management practices E-business has a direct effect on both the way agricultural R&D is conducted – allowing greater collaboration between research agencies and reducing cycle times. Indirectly, the potential applications of e-business within the agricultural value chain, and the stronger integration of supply chains, influences the types of research agencies conduct. This in turn influences the relationships between R&D agencies and their various stakeholders. The internet has made it possible for researchers to actively collaborate on projects from different locations. Anecdotal evidence suggests that e-business practices are already

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Value chain integration and e-business applications on public sector agriculture R&D influencing project management in public sector R&D at the project implementation level and at project monitoring (King, 2000). Project leaders have increased their online real time international collaboration including the online sharing of research facilities in other parts of the world. In agriculture, indeed evidence suggests that the speed with which experiments can be undertaken has been accelerated (CSIRO, 2000). E-business has strongly affected the agricultural supply chain, by acting as a conduit by collecting, coordinating and disseminating information about markets and the supply chain. To date investment in utilizing e-business process in R&D has been mainly in business to business (B2B) relationships, supply chain integration, and the benefits are the reduced development cycles. But R&D via ebusiness also offers opportunities to develop novel approaches and adaptable products through the application of knowledge and information technologies. Increase competitiveness through mass customisation has been witnessed in other industries. Mass customization creates the possibility for a range of products, the exact specifications of which can be altered at the last stages of production. Emerging technologies in agriculture are providing the platform to enable these “flexible products” to serve a variety of niche markets and variety of distribution are new elements in agricultural R&D. In this area public sector R&D is likely to continue to take a lead role to develop capacity in the variability of products for different markets, due to the large investment required. Private sector partners are likely to provide the mechanisms serving the specific market. The emerging picture is of a value net, which reflects the multiple roles that an R&D firm plays as complementor, supplier, substitutor, competitor, and customer. These multiple roles require the rethinking the relationships of those roles for Public Sector R&D organisaVolume 4, Issue 1–3, December 2002

tions. In this environment, e-solutions fulfill the need for new coordination and dispute resolution mechanisms – allowing for dynamic adjustments through accelerated discovery and implementation of research.

CONCLUDING COMMENTS Demonstrations of supply chain e-business processes that affect the role and scope of Australian Public Sector Agriculture R&D organisations are emerging. While much of the evidence is anecdotal, it is clear that new stakeholder demands are being placed on the limited resource base of these organisations. The flexible development processes described can provide new ways of meeting the opportunistic markets. But to meet these markets will require some fundamental reallocation of existing resources within the whole of government or internally within Departments of Agriculture. The decisions about reallocations are first political. However, as more value chain players enter the arena, the continuing need for Government agencies to play provider roles within R&D are being challenged. And there is likely to be greater pressure on Government to be transparent in its choice of roles. R&D agencies are increasingly becoming more sophisticated in the alliances they form, not to protect existing ones, but to enter new ones. This increased flexibility needs to occur if Australian Agriculture is to survive in the international arena.

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management model-research networks in knowledge management. International Journal of Technology Management, 18, 3, 372–393. King, M (2000) Submission of milestone and final reports, LWRRDC R&D Management News (2000) 4.4. MacLeod, N.D. and Shulman, A.D. (1997) Bridging the outcome gap in sustainability R&D-A Fifth Generation R&D “Punctuated Arena’ Model in Stowell, F.A., Ison, R. L., Armson, R, Holloway, J, Jackson, & McRobb, S. (Eds). Systems for sustainability: people, organisations and environment. London: Plenum Press. 251–256. Massaro, T. (1996) Innovation, technology transfer, and patent policy: the University contribution – Commentary. Virginia Law Review, 82: 1729 –1737. OECD (1996) The Knowledge-Based Economy. Excerpted from OECD Science, Technology and Industry Outlook. Paris. Papageorgiou, J C. (1993) Issues on the future of R&D and Innovation in the USA. International Journal of Technology Management, 8[6/7/8]: 500–512. Rothwell, R. (1994) Towards the FifthGeneration Innovation Process, International Marketing Review, 11, 1:7–31. Scoones, I. and Thompson, J. (1993) Beyond Farmer First: Rural people’s knowledge, agricultural research and extension practice. London: Intermediate Technology Publications. Shulman, A.D., McLeod, N. and Penman, R.(2000) “Emerging models for improving sustainable resource development”, In Shulman, A.D. and Price, R. (eds) Increasing the adoption of sustainable agriculture R&D processes. Canberra LWRRDC press 247 –256. Steffens, P., J. Matthews, D. Wollin, A. Shulman, B. Duffield and A. Wissemann (1998) Purchaser–Provider Partnerships In

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Value chain integration and e-business applications on public sector agriculture R&D The Public Service: Oh No, Not a New 4Ps for Business Networks!, ANZMAC 98, 29 Nov–3 Dec, 1998 Thomke, S. Von Hippel. E.A. & Franke, R.R. (1997) Modes of experimentation: An Innovation Process Variable. Working Paper, Boston Harvard Business School. (97-052). Truss, W. (2000) Revitalising Rural Australia through Revitalising Rural Industries Outlook 2000 conference March.

Whittemore, C. T. (1998) Structures and processes required for research, higher education and technology transfer in the agricultural sciences: a policy appraisal. Agricultural Economics 19, 269–282. Wong, R., Shulman, A.D. and Wollin, A. (2001) “Commercialising Public-Good Research: Managing the Paradox” International R&D conference proceedings: Wellington, NZ.

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Diffusion of Internet technologies among high technology small firms (HTSFs) in Australia SUMMARY

KEY WORDS high technology small firms; Internet technologies; e-commerce; technology update; technology diffusion

Australia is different in three distinct and interrelated factors from every developed nation with which it has trade and commerce links – the low density of population, geographic isolation from its international markets and the distances between domestic population. It is generally accepted that Internet by redefining space and time provides hitherto unavailable opportunities to the small businesses in Australia to overcome the tyranny of distance. It is believed that high GDP per capita, high adult literacy, positive attitude towards technology uptake, mail order culture etc. are some of the factors favourable for adoption of electronic commerce in Australia. This paper attempts to find out the extent and intensity of adoption of Internet technologies by high technology small firms in Australia. The analysis would be primarily based on the websites of Australian small and medium enterprises (SMEs). Received November 2001

GIRIJA KRISHNASWAMY School of Management Information Systems Edith Cowan University

INTRODUCTION

A

ustralia is different in three distinct and interrelated factors from every developed nation with which it has trade and commerce links – the low density of population, geographic isolation from its international markets and the distances between domestic population. Australia with its tyranny of distances is ‘almost designed for the internet’

Accepted August 2002

(Donnan, 1999). While Internet would overcome the demographic and geographic limitations of this continent, earlier studies reveal that the uptake of electronic commerce (ecommerce) among Small and Medium Enterprises (SMEs) is low. So far there has not been any systematic study on the diffusion of Internet technologies among High Technology Small Firms (HTSFs) in Australia. The series of studies conducted by Australian government and academic organizations mostly concentrate on a classification, which does not categorize industries on the basis of the technologies being dealt with by them.1 Furthermore, the existing studies adopt survey

1 Small businesses can be classified as involved in low/medium/high technology. Different patterns of Internet adoption could be observed among this classification of businesses.

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Diffusion of Internet technologies among high technology small firms in Australia methodology, and wherever web sites are mentioned, they are primarily based on the responses to the surveys. This paper, on the other hand, looks into the adoption of Internet and the level of adoption of web technologies by Australian HTSFs by searching for them on the web. This paper attempts to find out the extent and intensity of adoption of ecommerce technologies by HTSFs in Australia; differences in levels of adoption, and the facilitating and hindrance factors for adoption of Internet technologies.

SIGNIFICANCE OF SMES TO THE AUSTRALIAN ECONOMY E-commerce activities on the Internet Though below the Scandanavian countries and North America in terms of Internet usage, Australia is second only to the United States in terms of computer usage per capita. It is estimated as at November 1999 that 25% of all Australian households (1.7 million) had some Internet access, an increase of nearly 37% from the November 1998 figures. Nearly 6% of Australian adults (803,000) used the Internet to purchase or order goods or services for their private use in the 12 months to November 1999. These Internet shoppers made an estimated 3 million purchases/orders, and nearly 74% of Internet shoppers paid for them online (ABS, 1999). The online shopping market is expected to grow to 3.8 million users (20% of the Australian population) by the end of 2000, representing a significant potential market for online retailers.

Australian SMEs and ecommerce SMEs are important to the Australian economy. Approximately one million Australian businesses can be broadly categorised as SMEs. They are a significant source of revenue and hold immense potential for employment Volume 4, Issue 1–3, December 2002

generation and are vitally important to the economic and social prosperity of Australia. Small businesses make up 96% of all enterprises in the private non-agricultural sector and account for more than 56% of private sector employment. Globalization and the resultant liberalization, along with technological convergence, are initiating fundamental changes throughout the world that distinctly favour the smaller firm. The downsizing and out-sourcing activity of large firms, as they pursue restructuring and return to their core business, create many opportunities for small firms. This is reflected in SMEs planning to add staff, underlining the importance of SMEs to the labour market. In contrast, very large organisations, presently appear to be offering minimal employment opportunities. While Australia could be considered a world leader in the take-up of electronic technology, current levels of e-commerce, both in business to business and business to consumer transactions are still low. Studies from government and non-governmental research organizations reveal that adoption of Internet for commercial use is low (Australian Bureau of Statistics, 1999; Australian Society of CPAs (2000), Australian Electronic Business Network, 1998).

RESEARCH METHODOLOGY AND DATA ANALYSIS Web presence of any firm could vary from a simple web page equivalent to a brochure to a sophisticated web site with provisions for commercial transactions. Internet technologies could be grouped as clusters of technology, facilitating increased sophistication of diffusion across different stages. See Figure 1. Our study is limited to the first two stages of Internet adoption for e-commerce. In this study, no attempt has been made to analyse the third level of adoption of Internet technologies – electronic integration of value

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Girija Krishnaswamy

FIGURE 1: SIMPLIFIED MODEL

OF

ADOPTION

chain, which could be understood only through mailed questionnaires and interviews.

Data analysis The data set used in this research is from Dunn and Bradstreet database of all Australian firms employing between 5 – 200 employees, and involved in international activities (other than importing and trading). All these firms are established since 1990. Our data set revealed that the presence of internationalized SMEs varied considerably between Australian SMEs, with a very high concentration in NSW, followed by Victoria, Queensland and WA. The other states constituted for less than 10% of the firms (Table 1). 178

OF

E-COMMERCE TECHNOLOGIES

Of the 1279 firms listed in the database, 187 High Tech Small Firms (HTSFs) were identified. These firms mostly fall under Computer Software Development, Computer and Information Technology Consultancy, Computer Software Research, Design and Integration of Computer Systems, Manufacture of Biotechnology Products, Computer Hardware, Medical and Scientific Equipment, Video Equipment etc. The second task was to identify those firms with web presence. Attempts to identify the web presence of the firms by a simple search in major search engines came out with confusing results. It was then decided that the search would be limited to two major search engines

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Diffusion of Internet technologies among high technology small firms in Australia TABLE1: REGIONAL BASE

OF THE I NTERNATIONALIZED

SMES (N=1279)

State

Number

Percentage

Rank

ACT NSW NT QLD SA TAS VIC WA

16 475 12 184 81 18 340 153

1.25 37.14 0.94 14.39 6.33 1.41 26.58 11.96

8 1 7 3 5 6 2 4

TABLE2: REGIONAL BASE

OF

HTSFS (N=187)

State

Number of HTSFs searched for web presence

ACT NSW NT QLD SA TAS VIC WA

4 98 2 16 7 1 50 9

Percentage 2.14 52.41 1.07 8.57 3.74 0.53 26.74 4.81

with capabilities to limit to Australian domains –Yahoo Australia (http://www.yahoo .com.au/) and Alta Vista Australia (http:// www.altavista.com/). We searched for the entire 187 HTSFs first in Yahoo Australia, and using the direct search link provided at the Yahoo site for ‘domain: au’ in Alta Vista. Only those firms having domain names would appear in these search engine results. This would seem to be a limitation of this study. However, exclusive domain names show significant web presence and therefore, we decided to search for those HTSFs with domain names, ignoring those firms registered with cybermalls and yellow pages. We would like to add that random checking of the firms (which did not have domain names) in Australian search engines like Anzwers (http://www .anzwers.com.au/) and Web Wombat (http:// Volume 4, Issue 1–3, December 2002

Rank 6 1 7 3 5 8 2 4

www.webwombat.com.au) did not bring in any new additions to the list of firms identified as having web presence. As in the case of internationalized SMEs, HTSFs constitute more than 90% in the four major states – following the same pattern, NSW, leading with 52.41%, followed by Victoria, 26.74% (Table 2). An unexpected finding was that we got better results from Alta Vista than from Yahoo. Of the 22 sites we were able to identify Alta Vista (alone) led to us 15 sites, both Alta Vista and Yahoo led us to the three sites, and there was only 1 site which yahoo had indexed, and Alta Vista failed to. Again more than 90% of the HTSFs with domain names come from the four states mentioned earlier, with NSW taking the lead with 50%, followed by Victoria, 22.73%.

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Girija Krishnaswamy Broadly, the findings can be summarized as: • Only 22 out of 187 (11.76%) of the HTSFs have domain names. • Majority of the sites (95.45%) falls under the first typology, wherein corporate information, product information and contact details are provided. Only 1 website has facility for secure transactions. • Adoption of Internet technologies is dependent upon the region in which the firms are located. • This study also proves that even having a domain name, and a sophisticated web site is not enough. Understanding of major search engines, and ensuring that the site is listed in the search engine does not seem to be a priority in the web site administration of the HTSFs under study. This explains why 68.2% of the web sites have not been reported and indexed in Yahoo.

DISCUSSION AND CONCLUSION The present study shows that the adoption of Internet technologies for electronic commerce by HTSFs is at its infancy. This outcome matches with earlier studies on the uptake of web technologies by Australian SMEs. At present only 3% of Australian small businesses are online (Australian Bureau of Statistics, 1999 and it is reported that Australia is lagging behind US and Europe in terms of adoption of Internet technologies2. Internet adoption by small business is important to the generation of critical mass for Internet commerce (Poon and Swatman, 1999). As the large organisations take their ordering and supply online, they will expect their suppliers to be online. Once the SMEs go online for one client, the costs of going online can be ammortised across their other accounts. In the changing 2 3

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landscape of cyber competition, there is concern that some SMEs would either be online or out of business. Historically, small businesses are the innovators in any economy. HTSFs should be on the cutting edge of this technology, utilising the efficiencies of the Internet to maximize their business opportunities. It is estimated that the cost of processing a single purchase order can be reduced from $79 to $6 with a fully integrated e-commerce program.3 E-commerce would facilitate cutting down on staff and overheads and would allow businesses to provide a wide variety of quality products in a timely manner. Poorly designed web sites, lack of traffic and exposure to the site, and a lack of functionality etc. must be rectified to succeed on the Internet. Small businesses often lack the technical skills, large capital for equipment and advertising, and the time necessary to manage their sites. However, even with a successful web site, the benefits of e-commerce is not inevitable. E-commerce must be supported with sound public policies. Some of the challenges facing small business access to ecommerce include increased federal Internet regulation, limited small business access to high speed telecommunications, lack of digital trust and security, and e-commerce taxation. Since mid-1990s, Australian government, through its various departments has been involved in the diffusion of Internet technologies, especially among SMEs. However, the dismal web presence of the HTSFs in this study and the lack of e-commerce adoption in general by SMEs as illustrated in government reports call for introspection on the effectiveness of government efforts. While fully recognizing the efforts, it seems that the interregional differences in e-commerce uptake need immediate attention and chan-

E-commerce study conducted by KPMG’s Nolan Norton Institute (NNI); cited in Australian CPA (2000). Hearing of House Committee on Small Business, Washington D.C., May 26, 1999. INNOVATION: management, policy & practice

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Diffusion of Internet technologies among high technology small firms in Australia nelling of efforts to make sure that balanced ecommerce development takes place all across Australia. The Australian ‘tyranny of distance’ from external markets, and between internal markets necessitates more web presence for Australian SMEs, irrespective of their level of technology.

References Australian Bureau of Statistics (1999), “Use of Internet by Householders, Australia”, ABS Catalogue No. 8147.0. Australian Bureau of Statistics (1999), Australia Now – A Statistical Profile, Communications and Information Technology, Special Article – The Information

Society and the Information Economy in Australia, available at http://www.abs.gov .au/Ausstats/ABS%40.nsf/94713ad445ffl42 5ca25682000192af2/834018931899bcc9ca 2568a900154aeb!OpenDocument, accessed on 17th April 2000. Australian Electronic Business Network, Department of Communications, Information Technology and the Arts (1998); Taking the Plunge. Australian Electronic Business Network, Department of Industry, Science and Tourism. (1998), World Wide Awareness. Australian Society of CPAs (2000), “Australia falling behind in e-commerce development”, Vol. 70, Issue 2.

APPENDIX Background of HTSFs included in the study 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Comp S/Ware Dev. & Ret. Computer Consultancy Computer Consultancy & Software Development Computer Consultants Computer Sales & Consultancy Computer Software Developers Computer Software Developers Des. Software Sys. Design Comp S/Ware Holding Co Development Of Electric Commerce Applications Manufacture Electronic & Electro Mech Relay Equipment Manufacture Electronic Comm Systems & Trustee Co Mfr Biotechnology Prod Mfr Mech & Electronic Quality Control Instrumentation Mfr Video Equip Microwave Network System Integration Music Prdn Exhibitions Cmptr Technology Software Development Software Manufacturers Whl & Supp Comp Software & Internet Serv Provider Telecommunications Systems Engineering Whl Of Computer Equipment & Software Development

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NSW NT NSW QLD NSW NSW NSW VIC VIC NSW VIC VIC QLD VIC NSW NSW WA NSW NSW SA NSW QLD

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Girija Krishnaswamy Commonwealth of Australia (1998), “A Portrait of Australian Business: Results of the 1996 Business Longitudinal Survey”, Canberra. Donnan, S. (1999), “Australia enjoys slow flirtation with the net”, Financial Times. House Committee on Small Business (1999), Hearing on May 26, 1999, Washington D.C., available at http://www.house.gov/smbiz /press/106th/1999/990526.htm, accessed on 17th April 2000. Information Industries and Online Taskforce; Department of Industry, Science and Tourism (1998), Getting Business Online. Monash University Centre for Electronic Commerce, Department of Industry,

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Science and Tourism (1996), Advice on Electronic Commerce Programs for Small to Medium Sized Enterprises (SMEs). NOIE (2000), “E-commerce: Beyond 2000”, available at http://www.noie.gov.au /projects/information_economy/ecommerc e_analysis/ecom_impacts/index.htm, accessed 13th April 2000. Parliament Joint Committee of Public Accounts and Audit (1998), “Internet Commerce: to buy or not to buy?”. Poon, S. and Swatman, P. (1999), “An exploratory study of small business Internet commerce issues”, Information & Management.

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Managing intellectual property in the public sector SUMMARY KEY WORDS intellectual property; innovation culture; managing intellectual property; research and development; technology transfer; innovation; public sector; commercialisation

The management of intellectual property (IP) within Australian government research and development agencies has changed dramatically over recent years. Increasing expectations have been placed on utilising public sector IP to both underpin economic development and augment taxes by generating new revenues. And public sector R&D management has come under greater scrutiny to commercialise and/or corporatise their activities. In a study of IP management issues in The Queensland Public Sector we developed a framework to facilitate a holistic audit of IP management in government agencies. In this paper we describe this framework as it pertains to one large public sector Agriculture R&D Agency, the Queensland Department of Primary Industries (QDPI). The four overlapping domains of the framework are: IP Generation; IP Rights; IP Uptake and Corporate Support. The audit within QDPI highlighted some well developed IP management practices within QDPI’s traditional focus of innovation (IP Generation) and IP ownership and licensing (IP Rights). However, further management practice developments are required to improve the domains of IP Uptake and Corporate IP Support. Received December 2001

Accepted May 2002

PAUL STEFFENS

ART SHULMAN

Associate Professor Associate Director (Teaching Programs) Technology and Innovation Management Centre University of Queensland Brisbane, Queensland, Australia

Associate Professor Reader UQ Business School University of Queensland Brisbane, Queensland, Australia

ANDREW WOLLIN

MICHAEL WATERHOUSE

Senior Lecturer UQ Business School University of Queensland Brisbane, Queensland, Australia

Research Consultant Technology and Innovation Management Centre University of Queensland Brisbane, Queensland, Australia

INTRODUCTION

T

he world is rapidly moving through the information economy to a new-knowledge creation and utilisation economy in which intellectual resources are strategically Volume 4, Issue 1–3, December 2002

managed for maximum benefit. Governments are not immune from this movement. They need to develop ways to leverage their IP assets – directly through user fees and licensing agreements and indirectly through economic

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Paul Steffens et al. development stemming from private sector uptake of IP. Public sector IP management differs significantly from that of the private sector. While the private sector is fundamentally driven by competition and the need to create competitive advantages, public sector is driven by broader societal needs and improvements. IP created or funded and owned by government is managed to: • stimulate economic growth by transfer of the IP to the private sector leading to competitive advantage for one or more firms in the government’s jurisdiction; • create societal benefits by having government created IP adopted by the wider community; and, • augment department and program budgets by having IP generated revenues offset reductions in public operating budgets. Like the private sector, governments need to do more than just reactively manage the IP assets they own. Intellectual property is the tangible outcome of creative and innovative processes or activities. Governments must harness the intellectual capital residing in their organisations by proactively generating and utilising IP in an appropriate way in the pursuit of their objectives. In a recent report of IP management issues in The Queensland Public Sector we developed a holistic framework for managing IP in government agencies (reference deleted to maintain anonymity). This paper presents the application of this framework as a tool to audit, or evaluate, the IP management practices of a government agency. The use of this audit tool is illustrated in the Queensland Department of Primary Industries (QDPI).

IP MANAGEMENT FRAMEWORK A conceptual framework is developed for public sector IP management – that is, manage184

ment of IP by public sector agencies, not government’s role in establishing regulatory and legal frameworks for private sector IP. Most work on government IP management has focused on two areas – IP rights and commercialisation of government IP, either directly by government or through technology transfer to the private sector. IP rights management deal with issues of IP ownership, user rights, confidentiality and freedom of information. This work tends to focus on two key activities of public sector organizations – developing contracts and agreements with other organizations and collecting, storing and disseminating information from and to the public (DCAT, 2000). The other stream of literature regarding commercialisation of government funded R&D arises due to the enormous expenditure of governments internationally on R&D. Literature deals with both commercialisation policies (FPTT Canada, 1997) and mechanisms (Brown, Berry and Goel, 1991). Though these two areas, IP rights and commercialisation, were identified as important in a recent study within Queensland Government (reference deleted to maintain anonymity), the scope of management issues clearly extended beyond these two areas to the broader field of innovation management. We draw on two types of normative models from this literature. The first type of model is “innovation process” models. These describe innovation as a series of “stages”, albeit acknowledging the process is not linear, usually starting with the inception of an idea, through to the end user adoption. Models provide a different focus whether concerned with R&D management (Schmidt-Tiedemann, 1982), new product development (Cooper 1983), technology commercialisation (Jolly 1997) or technology management (EC 2000). These models cover the operational activities of innovation.

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Managing intellectual property in the public sector The second relevant type of model is those concerned with the strategic management of technology and innovation. These provide a perspective for organizations to manage their strategic direction, develop internal capabilities and manage the interface with their external environment and stakeholders. Again, specific models focus on different themes. Third generation R&D models (Roussel, Saad, and Erickson, 1991) focus on providing a strategic direction for portfolios of R&D projects, managing risk and relationships with stakeholders. Third generation New Product Development models (Cooper, 1994) emphasize external relationships and flexibility while management of technology models (Tabrizi and Walleigh,1997) stress the importance of the relationship between business and technology strategy and building a firm’s technological capabilities. The framework was developed to capture the complexity of practices that need to be considered to improve Intellectual Property Management in the Public Sector. It categorises IP management activities into four (4) management domains: Creating work environment and processes for innovation and problem solving in an on-going and self managed way (IP Generation); Defining and protecting owner and user rights (IP Rights); Encouraging the uptake of the innovations by relevant end-users (IP Uptake); and underpinning these, the Establishment of supporting corporate structures, priorities, policies and reward and recognition systems to support these activities (Corporate IP Support). The Corporate IP Support Management Domain is associated with executive responsibilities. It provides an IP related perspective to all the elements normally associated with corporate or executive management. Broadly, it has two main functions – to direct and to support IP related operations and innovation. First, it provides an overall direction, or focus, for the organization’s innovation efforts. It Volume 4, Issue 1–3, December 2002

must ensure that the three IP management operational domains act in a coordinated, integrated fashion. Second, it creates an organisational environment that supports the operational IP practices to achieve this direction. This is achieved through leadership, organisational culture, structures and systems (Burgleman, Maidique and Wheelwright, 2001). In particular, as reflected in the intellectual capital literature (Bontis, 1996), it focuses attention on developing and maintaining human, organizational (strategy, structure, systems and culture) and relational resources to effectively enable operational IP management. This corporate IP support commits and mobilizes resources for the organization to achieve its IP objectives. Corporate management must (i) provide and integrative, holistic scaffolding to support the organization’s IP management, and (ii) specifically provide support for each of the three operational domains (as described below). The IP Generation Management Domain focuses on operational level management practices to enable the generation of new IP within an agency. IP generation encompasses creativity, the origin of the new ideas, invention, the initial transformation of that idea into useable technology and the development or refinement of that technology into a product, process or service. Management of these IP generation activities is concerned with stimulating creativity and invention and directing and controlling development efforts. IP creation may purposeful or incidental. Purposeful IP creation occurs as a result of planned problemsolving activities of the agency. Creativity tools may be used in this context (Rickards, 1997)). In contrast, Incidental IP emerges as a result of serendipity, a result of random creativity of individuals or groups performing their everyday activities. An important aspect of corporate support for IP generation, often lacking in public sector organizations, is creating an appropriate innovation orientated culture

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Paul Steffens et al. (Quinn, Anderson and Finkelstein, 1996). Also important is appropriate resourcing and top-level management support of development efforts (Wheelwright and Clark, 1992). IP Rights Management Domain revolves around defining, clarifying and legally protecting intellectual property Rights associated with existing or emerging IP and outlining licensing terms and conditions for how it can be used and exploited. IP Rights aim to define ownership and licensing agreements that include access rights and user restrictions, royalty conditions and administration, along with control and accountability mechanisms and infringement penalties supported by commercial law, to ensure protection and compliance. IP rights are important throughout the IP generation and IP uptake processes. The concern with ownership can predate the actual generation of IP. Many R&D contracts are written with IP rights being declared before the innovation has been developed. In the case of ‘incidental’ inventions, disclosure may be important before the value of the invention is even recognized. IP rights management continues through the uptake of the IP. For example, license agreements are often renegotiated long after initial uptake of the IP. IP Uptake Management Domain is concerned with encouraging the adoption of the IP or technology by appropriate end users, either internal or external to the organization that developed the IP. It endeavors to generate value from the IP. In a public sector context, this includes commercialization, technology transfer to the private sector or other government jurisdictions and adopting population and diffusion of the technology through the adopting population. IP Uptake is focused on minimizing the obstacles and creating incentives for the IP to be adopted by the targeted client groups. In instances where private sector uptake of government owned or funded IP is involved, governments must balance multiple objectives of the public socio-economic bene186

fit of widespread adoption and use and appropriate revenue generation where private benefit is received (e.g. through license fees) (Fuglie, Day, Klotz, Ollinger, Reilly, Vasavada and Yee, 1996). Government R&D agencies, and others generating valuable IP, must consider a number of mechanisms for effective technology transfer to the private sector. Characteristics of both the technology and adopting population influence the effectiveness of techniques to promote diffusion (Rogers, 1995). Corporate support for IP uptake needs to define IP uptake objectives, principles for balancing public and private sector benefits and the agency’s role in commercialization. Establishing appropriate relationships with both end users and channels is crucial for effective uptake to occur (Athaide, Meyers and Wilemon, 1996). The relationship of the domains to one another is depicted in Figure 1. Corporate support provides a foundation for the operational activities. Operationally, IP Generation precedes IP Uptake (albeit often cyclic in practice), with IP rights important throughout the process. While these domains are drawn as distinct, in reality there are many areas of overlap.

THE AUDIT TOOL The framework can be used as the basis of an audit / scorecard to summarise those areas where IP management is well practiced and identify areas for improvement where management attention should be focussed. The audit tool simply poses a number of questions for management to assess in each of the domains of the model. The questions are presented in Table 1. Importantly, management uses the audit framework in two ways. First, to identify areas of strengths and weakness within each of the four domains. Second, to ensure all four domains are integrated, working synergistically to achieve common objectives.

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FIGURE 1: INTELLECTUAL PROPERTY MANAGEMENT DOMAINS

QDPI – BACKGROUND The Queensland Department of Primary Industries (QDPI) is focused on supporting agricultural producers to ensure their competitive and economic viability in national and world markets. Over many years the Department has employed biological research and development and extension (RD&E) services, such as engineering, to enhance and extend Queensland’s agricultural industries capabilities and to solve problems created by Queensland’s unique economic, climatic, environmental and geographic factors. Historically the agricultural sectors have been fragmented worldwide and QDPI’s role in providing publicly funded R&D services attempts to support producers who would otherwise be uncompetitive against larger producing regions and nations. The Department’s budget of $100 million and workforce of over 1500 professional and support staff is focused on agriculture, forestry and fisheries.

RESEARCH METHOD A case study approach was used, utilising multiple sources of data to allow triangulation. The research team worked with an IP steering committee established by QDPI. This group had representation from across the department. This group purposefully selected nine mini case studies of technology commercialisation that illustrated a broad cross-section of management issues in the department. Project managers (or equivalent) either wrote short Volume 4, Issue 1–3, December 2002

case studies, or participated in an interview. A follow-up focus group was conducted with four authors to better understand some key issues. An interview with the Manager from the Contract and Compliance Section provided information on organisation-wide systems support services. This was augmented by some supporting documentation. In particular, two 1999 internal reviews were relevant, The Alignment of DPI’s R&D Effort with Government Priorities (QDPI 1999a) and An Evaluation of DPI’s Five Internal Institutes (QDPI 1999b) and a draft IP policy Draft Policy Statement on the Development and Commercialisation of Intellectual Property (QDPI 1999c). Further insight to important IP issues was gained through two further focus group meetings with the IP steering committee. Themes from these case data were organised using the framework above. We provide a very brief description of the nine case studies of technology commercialisation. Most involve a licensing arrangement with a commercial partner – their preferred mode of commercialisation. 1. Controlled Atmosphere Kit – licensed to an industry partner following an open tendering process. Technology protected through commercial secrecy, as it was judged as unsuitable for patent protection. 2. Low Cost Heat Disinfestation Project – licensed to an industry partner following an open tendering process. 3. Lucilure & Lucitrap for Sheep Blowfly

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Paul Steffens et al. TABLE 1: IP MANAGEMENT AUDIT FRAMEWORK INTEGRATED CORPORATE IP SUPPORT Are the IP management objectives and expected outcomes associated with the agency’s activities in IP generation, Rights and Uptake domains clear to staff? Are the IP objectives effectively aligned with each other and the agency’s overall objectives? Is the leadership, organisational culture, structures and systems that are required to effectively support the organisation’s IP operational domains in place? Is the organisation’s intellectual capital (human capital, relational capital and organisational capital) developed being effectively utilised to support the organisation’s IP operational domains? Are resources committed to support the organisation’s IP operational domains?

IP GENERATION Are formal tools and/or training effectively used to stimulate creativity and invention? Are effective mechanisms in place to recognise incidental IP? Is IP effectively evaluated? Do we have an effective selection process for development projects? Do we have an effective development process? Are projects effectively controlled? Are development teams effectively organised and managed? Do we effectively network with other organisations during development processes?

Corporate Support – IP Generation Are corporate guidelines sufficiently clear for units to effectively interpret them in a manner that is congruent with generating and recognising IP? Does the organisational culture value innovation? Does individual creativity attract appropriate rewards and recognition? Do systems provide adequate support for the exchange and sharing of ideas? Are development projects adequately resourced? Do they receive support from senior management?

IP RIGHTS Do we have established procedures for: IP Ownership Rights; IP User Access Rights; IP Procurement & Brokering IP Conditions of Use and Public Good Benefits Rights Confidentiality, Disclosure and Privacy Conditions of IP Employee Contracts and IP Access and Use Rights Jointly Created IP Ownership; Commissioned IP Ownership Consultant Created IP Ownership Infringement of IP Rights (created and acquired) Maintenance and Up-Grade IP Requirements and Conditions Do we have an IP Register? Do we regularly conduct IP audits? Do our IP procedures acknowledge National Competition Policy, Freedom of Information Act, Privacy and Regional Benefits Requirements? Have we established IP Rights Dispute Resolution Mechanisms?

Corporate Support – IP Rights Does the agency have suitable policy and guidelines for IP rights management? Is adequate legal expertise available for IP rights management activities? Are staff provided appropriate training in IP rights?

IP UPTAKE Are the target adopters of our technology clearly specified? Do we utilise the most effective mechanisms and/or channels (e.g. licensing, direct/extension, joint venture etc.) to deliver the technology to the target adopters? Do we utilise effective communication tools or incentives to accelerate the adoption / diffusion process? Should users pay for the technology? How should revenues be distributed?

Corporate Support – IP Uptake Are the objectives for the IP uptake domain clearly specified? Is it clear how public and private benefits are prioritised? Do our organisational and legal structures and relationships allow effective technology transfer mechanisms to occur? Does the organisational culture support the agency’s uptake objectives? Are sufficient resources provided to support uptake initiatives? Does the agency have appropriate relationships with potential target adopters to assess their requirements?

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4.

5.

6.

7.

8.

9.

Control – licensed to a commercial partner. The partner was involved in the project from an early stage when approached by QDPI to provide complementary resources. Commercialisation of Eimeria Vaccines for Chickens – licensed to a commercial partner. The partner was involved with the project from an early stage after expressing strong interest in the project when QDPI consulted industry to establish market interest and requirements. Commercialisation of Plant – an attempt to develop long-term relationship with an industry partner to license successive generations of seed varieties from a breeding program. Commercialisation of New Horticulture Plant Varieties – similar environment with Case 5. Respiratory Disease Vaccine for Chickens – The first generation of vaccine was freely given to both industry players (some 10 years ago). One of these partners now fully funds a research project to develop another generation of the vaccine. Tick Fever Research Centre – history of production of a commercially non-viable vaccine by QDPI. Partial cost recovery through sale of the vaccine, the price negotiated with industry to ensure widespread adoption. Queensland Agricultural Biotechnology Centre – the new global environment of patenting genetically modified organisms (GMOs). Gaining and maintaining access to technologies through “horse trading” of patents from the perspective a relatively small research player in a small domestic market.

IP GENERATION DOMAIN Innovation is a core QDPI activity having an established reputation for generating research and IP for over 30 years. The IP generation Volume 4, Issue 1–3, December 2002

management domain is well established and very few issues emerged from the nine case analyses. However, corporate and government priorities remain very broad and provide limited guidance for operational R&D managers how to adjust case loads or to allocate R&D resources. These is a lack of formal mechanisms to translate upper level priorities into actionable programs for the institutes. Secondly, cross-industry issues may receive insufficient attention because R&D priorities are determined primarily by these industry-based institutes (as can be seen from case studies 5 & 6). Also an industry focus can tend to favour a value chain orientation ahead of societal, community and environmental considerations.

CORPORATE SUPPORT DOMAIN Some specific aspects of support for each operational domain were discussed above. This section discusses QDPI’s integrative, overall corporate support for IP management. The mandate of QDPI and each of its research institutes is “a rural economic development agency bringing together government and industry in partnership to increase the profitability of primary industries-based enterprise on a sustainable basis”. Under this mandate, QDPI undertakes R&D and extension with the clear objective of improving the competitiveness of Queensland’s rural industries. Managing IP at QDPI routinely involves commercialisation. Like all public sector agencies this involves juggling several objectives. For QDPI this includes: • Encouraging the wide adoption of research outputs (IP) by the Queensland (and Australian) primary industries, to strengthen its economic competitiveness. This is widely acknowledged as a the primary objective; • Securing a financial return for the government’s investment in public sector

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Paul Steffens et al. research either through Licenses, royalties, improved economic development, and/or good will; • Enhancing the Department’s reputation as a cost-effective research organisation (as measured in number of patents, plant varieties developed and licensed, and research capability), so as to draw additional research funds from sponsoring industries and private organisations. • Development and acquisition of GMO patents whose licenses can be exchanged with other patent holders (especially large international corporations and research groups) to obtain access a wider gene research capability. QDPI’s has placed increasing importance on commercialisation activities over recent years, as a mechanism to enhance industry uptake. However, adjustments in corporate support have lagged in a number of ways as discussed in the IP uptake section above. In addition, QDPI’s research agenda’s themselves are shifting, albeit commitments to ongoing research need to be fulfilled. Existing structures and HR considerations act to constrain these shifts. QDPI’s organisational structure and external relationships are well developed to support its RD&E activities. These RD&E are organised around research institutes such as Horticulture, Farming Systems (broad acre crops, primarily Wheat), Sheep and Wool, Beef, and Food Technology with each institute being guided by an industry-based Advisory Board along with priority setting provided by Industry Development Councils. These bodies provide industry input into both establishing R&D priorities and effectively conducting RD&E. In addition, many of QDPI’s research and extension staff work closely with the different industry groups. A national perspective is maintained with national agricultural R&D Corporations 190

(RDCs) being a significant funder of QDPI’s RD&E activities. RDCs also establish their R&D priorities by consultation with a wide range of industry stakeholders. Strategic plans are developed in consultation with a broad range of stakeholders and these drive the selection of new projects and other allocations of resources. QDPI provides central IP support services through a Contracts and Compliance (C&C) Group. This small group of 3–4 people is responsible for protecting the department’s intellectual property. Their responsibilities include: 1. Providing assistance in contract negotiation and drafting (including research contracts and license agreements); 2. Providing advice on patents, plant variety rights, designs, copyright and trade secrets; 3. Providing advice on IP issues and their implications for QDPI; 4. Maintaining the department’s IP register and contract databases; 5. Collecting and re-distributing licensing royalties on behalf of the department and its clients, and 6. Providing staff training and education with respect to IP management. With QDPI’s range of research institutes, the (C&C) Group has designated a staff person to liase with each institute. This arrangement allows the C&C group to understand the unique business needs of each institute while ensuring standard departmental management principles and practices are followed for IP contracts, policies, administration. For example, the C&C group satisfies one institute’s IP needs by devoting one day a week to becoming familiar with their business and advising and supporting their IP needs. With the exponential interest in IP exploitation, the C&C group is showing signs of becoming overloaded, with increasing

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Managing intellectual property in the public sector delays in satisfying all IP assistance requests. Only limited levels of educational activities are supported with the current resources. QDPI must ensure it properly resources this area to ensure effective outcomes.

IP RIGHTS DOMAIN QDPI recognised the importance of establishing their own patent attorney and IP Rights group about 15 years ago which lead to the formation of a C&C group in 1991. Consequently, IP rights issues are comprehensively addressed and establishing IP ownership and user rights routinely involves negotiation with other stakeholders in the technology. Over the years the department has developed effective IP Rights management practices that includes the retention of IP ownership wherever possible and the use of licensing agreements for commercialisation along with the use of public or selected invitation to tender to identify commercial partners. Several small IP Rights issue arose from the case data. QDPI’s preferred position is to retain crown ownership of IP and provide rights of use to private sector firms through license agreements. This provides a strong deterrent against infringement. The expense of IP infringement litigation is a greater obstacle to IP protection for companies (particularly SMEs) than the state. Performance Clauses (“use it or lose it”) in license agreements are normally included requiring the commercial partner to achieve agreed sales or other market-based targets, at the risk of having the license rescinded. The majority of QDPI’s projects are jointly funded and/or jointly conducted with other organisations. In those instances sole IP ownership is not usually possible. Subject to public interest considerations, QDPI negotiates an IP ownership, licensing and revenue-share agreement between the partners that will not obstruct the industry take-up of the resulting IP. IP ownership is further protected with QDPI requiring the Volume 4, Issue 1–3, December 2002

signing of a Confidentiality Agreement before disclosing IP and discussing right-of-use agreements. This ensures negotiation of agreements does not unduly delay or compromise the development and commercialisation efforts.

IP UPTAKE DOMAIN Managing competing objectives A number of QDPI developed technologies and IP have international commercial potential. However, international commercialisation can negate the technology’s competitive advantage and economic benefit to the Australian rural sector in the short-term, but restricting access only to the Australian market may restrict financial returns and discourage private sector participation and obstruct the uptake of the IP completely. QDPI addresses this conflict by including an exclusive market clause in the licensing agreement. This clause requires the commercial partner to initially undertake market development within the local market (Queensland and/or Australia) for 6 months to 2 years, before pursuing offshore (or interstate) markets.

Mode of commercialisation The dominant mode of commercialisation is exclusive licensing of the technology to an industry partner. While the department has in the past, offered IP ‘free-of-charge’ to all industry participants, today’s competitive environment requires financial incentives (such as exclusive licenses) before companies are willing to substantially invest in new IP. In a very limited way, QDPI is willing to undertake contract R&D with the resulting IP automatically claimed by the commercial sponsor. QDPI recognises that other structures for commercialisation, while available, are not accepted practice in the public sector. For significant technologies, establishing subsidiary

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Paul Steffens et al. commercial companies that can be sold or privatised, as either solely owned or joint ventured, could be considered in the future. Although there is a growing international trend in larger producing regions towards joint R&D projects with commercial R&D partners, opportunities in Australia are very limited with its lack of private sector R&D expertise in the key fields of research at QDPI.

Managing uptake through licensing The following discussion outlines some of the implementation issues associated with this approach identified in the case studies.

Selection of commercialisation partner(s) When selecting commercial partners, QDPI is guided by government purchasing principles and the need to have sufficient ‘transparency’ to withstand examination by stakeholders. QDPI’s preferred option is to use an open tendering process that most governments employ for contracting of all services allowing equal opportunity for all interested parties. However there are few organisations in Australia that are capacity to perform the required commercialisation activities. Consequently, QDPI and other Government Agencies have recently adopted a more targeted approach of inviting companies for expressions of interest in commercialisation proposals. Selection criteria for commercialisation licenses include what the bidder is offering for the license (royalties, fees, sales targets, further development, timing of market entry) and the company’s proven capabilities (track record of commercialisation, working with government, financial stability, knowledge of industry and manufacturing, distribution and marketing capacity). In some early research projects, the open solicitation process is pre-empted by inviting a commercial partner having the research capa192

bilities that when added to QDPI’s capabilities allows the research and IP Uptake to be undertaken. Alternatively, when a “speculative”, early-stage and high risk, research project is proposed by a private business, QDPI is willing to negotiate an IP agreement without seeking alternative proposals.

Cannibalisation Product cannibalisation is a potential source of conflict of interest for a commercialisation partner. For example, QDPI develops a series of plant varieties each superseding earlier varieties. In this case the commercial interests of the industry partner (e.g. seed company) may be best served by delaying the release of the newer technology to delay cannibalisation of their existing product. To achieve rapid industry uptake QDPI includes requirements in the license agreement for the commercial partner to release the new variety.

Long-term relationships QDPI has many research programs involving long-term focused research. A new plant variety development program can take up to 15 years to develop with field testing of each plant variety taking 3–5 growing seasons. A five year program is likely to produce about three (3) varieties and require external research funds of approximately $200,000. In some of these programs QDPI has established longerterm relationships with commercial partners that have been operating successfully. However, government agencies can be called to account for such long-term agreements. In one instance a QDPI long-term agreement came ‘unstuck’ through stakeholder lobbying of an equity sponsor in the research program (a federal research development council). The primary objection was the risk of inequity in such a long-term agreement with government preventing access to competitors (even though the partner was selected in a transparent and open manner).

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Involvement in the commercialisation process Once a license agreement is signed and outside of successfully transferring the technology, traditionally QDPI has little involvement in the commercialisation process. Some managers in QDPI believe a more pro-active involvement in the commercialisation process would lead to improved outcomes. However a larger barrier to QDPI’s increased involvement throughout the commercialisation process is the reassignment of already limited resources.

Royalty payments – seed or produce In some crop industries, the preferred method of royalty collection is in dispute – whether it should be applied on the sale of seed or on the sale of the resulting produce. A particular variety of seed is usually sold only once with the farmer banking seed from the harvest (known as “brown bagging”) for sowing in the coming season. Farmers are in favour of royalty on seed on the simplistic assumption that they will pay less. However, if royalties are collected at the sale of the seed the one-off royalty fee could be large and prove an obstacle to adoption. By contrast, royalties applied to produce are not a barrier to adoption since they are paid regardless of whether the newest variety is adopted by the farmer. Similarly, product cannibalisation concerns of seed producers are reduced since they receive the royalty annually even if a farmer “skips” a generation.

Corporate support Corporate support for commercialisation at QDPI are developing. At times resources have not been provided to support QDPI’s direct involvement in commercialisation. Rather, technology has been “thrown over the fence” to a private firm. Resources are not provided to bridge the gap where the technology is not sufficiently developed The adjustment of rewards and recognition for research staff to Volume 4, Issue 1–3, December 2002

reflect this new emphasis have been limited. Traditionally, both the formal rewards (in terms of advancement) and peer recognition for research staff were heavily linked to their performance in terms of research publications. Indeed, publications and conference presentations are important for the reputation of QDPI as a whole, as well as its individual staff. Appropriate rewards for commercialisation require development. The need to protect IP for commercialisation results in the delay, dilution of quality, or possibly prevention, of some research publications. This can be seen as impeding “good science”. This conflict has naturally led to a small degree of cynicism and resentment amongst some staff of this new emphasis on commercialisation within the research cultures of QDPI.

AUDIT SCORECARD QDPI over many years has developed successful IP Rights and IP Generation practices. QDPI’s IP Uptake domain is in a development stage following a shift in emphasis towards commercialisation. By working incrementally on a ‘case-by-case’ basis QDPI has evolved their commercialisation practices using an iterative learning process. Corporate IP support for commercialisation is not well developed, leading to a lack of integration in the agency’s IP management activities. (See Table 2.)

CONCLUDING REMARKS The paper provides a description of a framework to conduct a holistic audit of an organisation’s IP management practices and capabilities. It illustrates the application of this audit framework to QDPI, a government rural R&D and extension agency. The audit provided a useful assessment of both areas of strength and areas for improvement of QDPI’s IP management practices. As such, it provided a holistic, integrated picture of IP management practices. While some of

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Paul Steffens et al. TABLE 2: SUMMARY

OF

IP MANAGEMENT AUDIT Excellent

MANAGEMENT DOMAIN

5

Poor 4

3

✔ ✔

IP RIGHTS Corporate IP Support

✔ ✔

IP UPTAKE Corporate IP Support

✔

the areas for improvement had already been identified by management (and some were being actively addressed), other issues had not been as obvious. Most importantly, however, the analysis was useful in highlighting the inter-related nature of many of the issues. Clearly the paper examined the audit tool within a single government agency, that is largely focused on agricultural RD&E. It would be interesting to investigate in future work the utility and adaptation of the audit tool in other private sector contexts, and indeed within the private sector.

References Athaide, G. A., Meyers, P. W., & Wilemon, D. L. (1996). Seller–Buyer Interactions During the Commercialisation of Technological Process Innovation. Journal of Product Innovation Management, 13: 406–421. Bontis, N. 1996. “There’s a Price on Your Head: Managing Intellectual Capital Strategically” Business-Quarterly, v60 n4, 40–47. Brown, M., Berry, L. & Goel, R. 1991. “Guidelines for Successfully Transferring Government-Sponsored Innovation”. Research Policy 20:121–143. Burgelman R. A., Maidique M.A., & Wheelwright S.C. (2001). Strategic 194

1

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2

✔ ✔

✔

Management of Technology and Innovation, 3rd Edition, Chicago: Irwin. Cooper, R.G. 1983. A process for industrial new product development. IEEE Transactions in Engineering Management, 30(1), 2–11. Cooper, R. G. 1994. “Third-Generation New Product Processes”. Journal of Product Innovation Management 11:3–14. EC. 2000. TEMAGUIDE: A Guide to Technology Management and Innovation for Companies, Research Report for Innovation Programme, European Communities. http://centrim.bus.brighton.ac.uk/ajar/club /TEMAGUID/ENGL/DEFAULT.HTML. Fuglie, K. B., Day, N., Klotz,C., Ollinger, M., Reilly, J., Vasavada, U., & Yee, J. 1996. Agricultural Research and Development: Public and Private Investments Under Alternative Markets and Institutions. United States Department of Agriculture, Washington, D.C. Jolly, V. K. 1997. Commercialisation of New Technologies. Boston, MA: Harvard Business School Press. Osborne, D. and Gaebler, T. 1992. Reinventing Government: How the Enterpreneturial Spirit is Transforming the Public Sector. New York: Plume Books. QDPI 1999b. The Alignment of DPI’s R&D Effort with Government Priorities, The

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Managing intellectual property in the public sector Queensland Department of Primary Industries. 1999. QDPI 1999b. An Evaluation of DPI’s Five Internal Institutes, The Queensland Department of Primary Industries. 1999. QDPI 1999c. Draft Policy Statement on the Development and Commercialisation of Intellectual Property, The Queensland Department of Primary Industries. Oct, 1999. Quinn, J. B., Anderson, P. & Finkelstein, S. 1996. Managing Professional Intellect: Making the Most of the Best. Harvard Business Review, March, 71–80. Rickards, T. 1997, Creativity and Problem Solving at Work, Gower, Aldershot. Rogers, E. 1995. Diffusion of Innovations. 4th Edition. New York: The Free Press.

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Roussel, P., Saad, K., & Erickson, T. 1991, Third Generation R&D. Boston, MA: Harvard Business School Press. Schmidt-Tiedemann, K. J. 1982. A New Model of the Innovation Process. Research Management, March 1982:18–21. Tabrizi, B. and Walleigh R. 1997. Defining Next Generation Products: An Inside Look. Harvard Business Review, Nov: 116 – 124. Wheelwright, C. and Clark, K (1992). Organizing and Leading Heavyweight Development Teams, California Management Review, 34(3). DCAT (2000). Intellectual Property Policy 2000. Department of Commerce and Trade, Government of Western Australia. http://www.commerce.wa.gov.au/dct/polici es/ipp/index.htm

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✹ on i t a ov ation n In uc Ed

Software creativity:

SUMMARY

Should Software Creativity be incorporated into the curriculum? Traditional Information Systems training focuses on structured methodologies. Students are being taught with standardised concepts. These concepts frame students into standardized ways of approaching problems. As a result, students are trained to believe that there are standardized ways of doing things in the software engineering field. There is nothing wrong with these structured methodologies. In fact, structured methodologies are proved to be effective for novices. As software engineering is a highly volatile field, we need to build products that are flexible. Software creativity skills could be a solution for building flexible software. This paper discusses different creativity techniques that can be incorporated into Information Systems texts and courses. The Cognitive Network Model of Creativity is being used to analyse the usefulness of different techniques.

KEY WORDS education curriculum; structured methodology; software creativity; flexible software engineering; information systems innovation; longterm needs; innovation techniques; cognitive network model

Why and how?

Received February 2002

WINNIE WONG

JOHN PAYNTER

Postgraduate Student University of Auckland, New Zealand/ Independent IT Consultant

Lecturer, Software Engineering School of Business and Economics University of Auckland, New Zealand

INTRODUCTION

A

s suggested by Wulf (Wulf 2000), “where you stand depends on where you sit”. Wulf pointed out that our views on an issue are a consequence of our past experiences and position. That means our capability of problem solving largely depends on our past expe196

Accepted September 2002

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rience; i.e. what we have done and what we have learnt in the past. There is, however, a fallacy with this statement. If everyone simply acts according to his/her own experience, where do new ideas come from? This leads us to an interesting idea. If our world is constrained by discipline, formality and positivist Volume 4, Issue 1–3, December 2002

Software creativity: Why and how? reasoning, the probability of breaking-through from what we have already found in the past is low. Computer hardware technology is advancing rapidly. Normally, hardware will be replaced after four or five years, but a piece of software is often used for an extended period of time. As suggested by Schach (Schach 1999), successful software survives well beyond the lifetime of the hardware for which it was written. In order to build software that is flexible enough to be modified when the hardware changes, we need innovative software developers. Software is a model of reality whose only constant is change. Under the dynamic and competitive environment every piece of software has a particular life cycle. The lifespan would be longer when a piece of software is highly adaptive to the fast changing environment under which it operates. A software development company would gain competitive advantage by building adaptive and flexible software. The relative value of a product will increase as the usable period is extended. Software that is innovative has an improved chance of survival under environmental change.

WHAT IS SOFTWARE CREATIVITY? It is not easy to define “creativity”. Psychologists have come up with many different definitions due to the abstract nature of the term. Although not many people could precisely explain how they perceive something as being creative, almost every software user could give a few remarks and comment on whether a piece of software is creative or not. This leads us to ask how should software creativity be judged. Creativity is an idea-generation technique. For software, the level of creativity can be measured by the degree of originality. Creative ideas usually are novel ideas. Software and other creative products can also be judged by Volume 4, Issue 1–3, December 2002

highlighting the differences between them and other similar products. A piece of software is designed to serve particular purposes. Purposes are real world problems. These can be existing problems or problems that are expected to happen. Sometimes, problems may be vague and be hard to conceptualize. When designing a piece of software, the targeted purposes to be served must be made explicit. A software engineer will need to define concrete requirement statements that can be operationalised. Software will then be designed based on those requirements. Creativity skills add value to the software at this very first stage of the software development life cycle (SDLC) by exploring latent opportunities. As suggested by Couger (Couger 1996), software creativity techniques can be used at all stages of the SDLC. The following table lists how creativity techniques may assist different stages of the SDLC. The table is by no means exhaustive: SDLC Phase Requirement

Creativity Functions • Explore opportunities • Identify hidden requirements Specification • Generate new concepts • Incorporate novel elements Design • Innovative functional, architecture, and GUI design Implementation • Flexible coding • Flexible testing techniques Integration • Reusable components • Adaptive components Maintenance • Adaptive maintenance • Uncover hidden faults Retirement • Derive new use • Extends product lifespan

THE NEED FOR SOFTWARE CREATIVITY TRAINING To compete in today’s rapidly paced environ-

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Winnie Wong and John Paynter ment, many software companies are increasingly relying on their employees to generate creative solutions. Novel ideas and lateral thinking add value to a company’s products (de Bono 2000) and are therefore essential to a company’s long-term prosperity. Being able to generate novel ideas is not enough; the long-term prosperity of a software company depends heavily on its ability to consistently generate novel ideas. This enables a company to predict market needs and produce software that is leading the market. There is a strong need for the new generation of software engineers to be even more creative compared to their counterparts when IT was in its infancy. Being creative is not only a competitive advantage for business organizations but also for individuals. Traditionally, all IS courses focus on systematic and semi-formal methodologies, such as entity relationship modeling (ERM), SDLC, normalization, etc. These concepts frame students into standardized ways of approaching problems. As a result, students are trained to believe that there are standardized ways of doing things in the software field. There is nothing wrong with such a structured approach. In fact, structured methodologies are probably effective for novices. What this means is “you have to understand the rules and how to use them before you can learn when and how to break them”. As software engineering is a highly volatile field we need to complement students’ traditional skills with creativity skills so that they are better equipped. Conventional IS education, assesses students on memorizing, understanding and comprehension. For example, Bloom’s Taxonomy of Educational classifies different levels of educational goals (Bloom 1956). These are knowledge, comprehension, analysis, evaluation and synthesis, with knowledge the lowest and synthesis the highest. Under the conventional education system, students are awarded for being good in memorizing materials. Crit198

ics may argue that IS courses also involve case studies. These case studies encourage students to tackle a particular problem using their own approach. Aren’t these case studies encouraging creativity? The answer is definitely not. Most computer-related courses are task-oriented. Student assessments are marked according to certain guidelines or model answers. Creativity does not count and may even be penalized. Case studies only test students’ knowledge in evaluation, synthesis and interpretation of course materials. These are higher levels in Blooms hierarchy. Creativity does not count. Most courses determine student grades based on their scores in various tests and exams. These exams and tests are set so that students are required to answer a certain number of questions within a certain period of time. An average student spends on average two to three days in preparing for a final exam. Information will only be stored in a person’s short-term memory under such a situation (Simon 1979). It is hard to judge how much knowledge a student retains after an exam. In contrast, creativity is an idea generation skill. Once obtained, the skill can be applied to many different contexts. By repeated use, a skill will be stored in one’s long-term memory. It is worthwhile to introduce creativity techniques into the curriculum. Students who process creativity skills may apply them in different situations and the benefit could be lifelong. Although creativity techniques are often considered to be more appropriate for broadarea activities, they are also important for daily routine activities. This is because people tend to lose insight on activities that are conducted repeatedly. This paper looks at five different creativity techniques.

Action words The action words technique generates list of

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Software creativity: Why and how? questions by asking who, what, where, when, why and how (Paynter 1997). By asking list of questions, the view to a certain problem could be expanded. Hidden opportunities may even be uncovered while going through cycles of the interrogatories. This technique provides a systematic way in gathering data that is relevant to the problem. It provides a framework for investigating opportunities exhaustively. For example, when preparing for a seminar on how to increase students’ creativity skill, we may start by asking the following questions. • Who are my audience? • What creativity techniques are available? • Where can I get more information? • When could creativity techniques be applied? • Why would I suggest it to be incorporated into the curriculum? • How am I going to present the seminar? The action words technique has several cycles of interrogatories. After going through the first cycle, a second round of questions could be generated. The new set of questions may or may not be directly related to the first round questions. For instance, the second round questions of the above example may focus on the audience, such as: • Who would be most interested at the topic? • What visual aids would best catch audience attention? • Where can I get some information about my target audience? • When should I pause or ask questions so as to draw audience attention? • Why do audience lose attention sometimes? • How can I make the seminar interactive? The action words technique can be used at all stages of the SDLC. It is particularly useful during the early stages, such as the requirement and the specification phases. Software Volume 4, Issue 1–3, December 2002

engineers can adopt the Action Words technique during interviewing project sponsors. This may assist project sponsors in thinking deeper into their problems that they may not be aware before. As suggested by Couger (Couger 1996), only three rounds of questions are enough. The next round should go into finding answers to the questions.

Mind mapping In the 1970s, Tony Buzan invented “Mind Maps”. Mind mapping is a technique for organizing thoughts onto a single piece of paper (Buzan 1995). The aim was to get users to write down ideas in tree structures. The user can put down ideas in any order without worrying about the logical flow. It has proved to be an effective tool in fostering creativity. One constraint imposed by the human mind is the tendency in following trodden paths. Particular sets of trodden paths form certain conceptual patterns. In software design, these pre-existing patterns are barriers to creative designs. Pre-existing conceptual patterns occupy an individual’s mental capacity and slow down the problem solving process. These are bottlenecks in an individual’s problem solving process that restrict the generation of creative ideas. In his book “The Goal”, Goldratt (Goldratt 1993) talked about overcoming bottlenecks. To overcome bottlenecks, Goldratt suggests that the capacity level of inventory handling has to be increased. Goldratt’s idea applies equally well to intellectual as well as physical inventories. Miller’s Law suggests that there is a limit for human’s mental capacity. Mental capacity is analogous to physical capacity. The mind mapping technique increases a problem solver’s mental capacity by transferring some mental loads onto paper. This is different from jotting notes in words. Mind mapping has the

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Winnie Wong and John Paynter ability to convey more information than mere note taking. Such a strength is discussed below. Design practice is not a linear process. The design process is a solution searching process. Since there is no single right answer to a design problem, the searching algorithm is multi-directional. The mind mapping technique enables users to illustrate ideas in a nonlinear fashion. With different ideas drawn on a single piece of paper, patterns or relationships between different ideas may emerge. Mind mapping is a simple technique. It is easy to use. A main idea is to put in the center of a piece of paper. Then related ideas will branch out from the center. Lines are drawn to link connected ideas or concepts. Relative important ideas are put closer to the center while less important ones will be near the edge. The tree structure allows for the easy addition of new information. Besides textual descriptions listed as branches of the main idea, graphics can also be used. The map supports many-to-many relationships. That means one idea may be linked to many ideas. Lines connecting different objects indicate logical linkages. Arrows indicate relationships. The structure of the map indicates layers of importance. Color can be used for highlighting key concepts or for color-coding logically

FIGURE 1: A

200

SIMPLE

MIND MAP

related ideas. A sample Mind Map is shown in figure 1. There are software programs that can be used for creating mind maps (www.inspiration.com, www.mindman.com). Freehand drawing is sufficient at the initial stage of creating a Mind Map. Mind Mapping is a creativity technique that can be used at all stages of the SDLC and is most useful during the design phase. Mind maps are good in identifying patterns. A study of award-winning designers suggests that they intuitively knew whether an idea would become a feasible design that would solve a problem (www.brainstormingdss.com 2000). Intuition here means the ability to capture a particular pattern. Pattern recognition is a skill that can be trained. A Visual aid is a useful means of pattern recognition training. It is easier for a human to see patterns than to visualize them in the head. As suggested by the Miller’s Law (Miller 1956), an individual can process no more than seven chunks of information simultaneously. Such a limit restricts humans’ ability in processing information in the head. The mind mapping technique allows a large amount of information to be presented on a single sheet of paper. Inter-related ideas can be identified easily. Patterns are more prominent. Distinct

CREATED USING

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“MINDMANAGER 3.5”

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Software creativity: Why and how? ideas may appear to be related. Mind map serves as an excellent tool for jumpstarting one’s creativity. The mind mapping technique can be used in the requirement phase as a communication tools. Visual presentation of information is an effective means of communication. It helps to bridge the gap between system sponsors and project managers. The Mind Map can serve as a tool in identifying system functions and requirements. It can be complemented by the action words technique. The Action Words Technique explores enormous amount of ideas while the Mind Map links and presents those ideas graphically. With these two techniques working in tandem, the project manager can probe into the true needs of the project sponsor and explore latent opportunities.

Analogy/metaphor technique The Analogy Technique has an historical background. Aristotle made much use of analogies and metaphors during his teaching life almost 2,300 years ago. As suggested by Aristotle, “Ordinary words convey only what we already know. It is from metaphors that we can best get hold of something fresh”. The idea of “getting hold of something fresh” is the core of “being creative”. Analogy and metaphor mean much in creativity. An analogy is a similarity between two things otherwise dissimilar (Couger 1996). Analogies are excellent tools in idea generation. Diverse cultures use analogies and parables in daily life. For example, contrary to most western thinking, Chinese use these figures of speech “A cat cries after a rat died” means false sympathy and “as fast as lightening” to mean something that happens suddenly. Polynesian cultures use analogy especially on the marae “The totara stands strong”. By using analogies, an individual can find new insights into a problem. The analogy technique is useful both when working in Volume 4, Issue 1–3, December 2002

groups and on one’s own. Good analogies bring new approaches to questions and sometimes generate innovative solutions. As an example, imagine we are asked to design a program for student grading. Under a conventional approach, one may think of a spreadsheet program immediately. However, this time we wish to use our own desktop as an analogy to add some creative insights. Here are some questions that can be asked during the design process: • I use a lot of post-it notes during grading. Should I incorporate that in the program? • I refer to the calendar a lot when doing grading, may be I need a built-in calendar. • It is a boring task. Do I need an alarm clock function in case I doze off in the middle of grading? • This program may be installed in shared machines. Perhaps password access is required. • I may need to send the result to the administration. May be it is a good idea to have built-in email function. A user is not restricted to one analogy per problem. Many different analogies may be applied to a single case. As suggested by Couger (Couger 1996), the analogy/metaphor creativity technique is powerful. Many successful innovations are triggered by analogies – wings of birds and bats have provided useful analogies for aircraft designers; camera lens are designed using human eyes as analogies. In the above examples, we know that the innovative idea is never an exact copy of the analogy. The novel idea is always being modified by the researcher’s knowledge of scientific laws and accumulated wisdom (Couger 1996). It implies that metaphor and analogies can stimulate imagination, which in turn nurtures novel ideas. Creativity is described by using novel ideas in problems

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Winnie Wong and John Paynter solving. Analogies/ metaphors facilitate creativity by accelerating the idea generation process. The analogy technique is a flexible idea generation technique. It is especially useful during the requirement phase of the SDLC. It is helpful to describe some software concepts using analogy in order to help laymen understand them. For instance, when talking about a “modal” form, one can analogize it as a set of traffic lights that turn red. It stops the user from doing anything until the user reacts to the message. The only difference between a red traffic light and a modal form is that the traffic light turns green after a certain period of time while a modal form will not. The analogy technique can also be used during a brainstorming session for diversified idea generation. So far, we have looked at creativity techniques that are used by individuals. Hereafter, this paper will look at some creativity techniques that utilize group power.

ticipants should be selected from a variety of backgrounds so as to bring a wider perspective of the subject. Traditionally, the facilitator or the scribe will write each idea on flip charts. Many brainstorming sessions are supported by Group Support Systems (GSS) applications. Santanen, Briggs and de Vreede proposed a new brainstorming technique (Santanen, Briggs et al. 2000). The facilitator throws in relevant words or expressions in order to stimulate generation of ideas. This is called directed brainstorming (Santanen, Briggs et al. 2000). The brainstorming technique is good for facilitating group dynamics and therefore is useful at all stages of the SDLC. For example, it can be used during the maintenance stage for identifying hidden faults or in adaptive or perfective maintenance. Brainstorming may bring inspiration into such maintenance processes and the lifespan of a piece of software could be extended.

Brainstorming Brainstorming is a widely used technique for generation of creative ideas on a defined subject. Osborne initially developed it for the generation of creative ideas in advertising (www.brainstormingdss.com 2000). The brainstorming technique has since undergone significant improvement. It is currently used for a wide spectrum of applications to assist idea generation in groups. The brainstorming technique is applicable wherever there is need for generation of creative ideas. It has been used successfully in problem solving, process re-engineering, product development and other processes. The main application of such a technique is in group work although it is said that the brainstorming technique may be effectively used by individuals as well (www.brainstormingdss.com 2000). The idea behind brainstorming is to introduce a diversified set of viewpoints. Participants should have a common understanding of the topic under brainstormed. Ideally, par202

The excursion technique The excursion technique was introduced by Higgins (Higgins 1994). He suggested that the excursion technique is useful when the group has not arrived at a solution to a problem even after using other creative processes such as brainstorming. It can be used for both narrowly defined and complex problems. Higgins suggested that this technique works best on a more narrowly defined problem for which a conceptual breakthrough is needed. There are four major steps in the excursion process: 1. The excursion 2. The drawing of analogies between the problem and the events in the excursion 3. The analysis of these analogies to see what creative solutions occur 4. The sharing of experiences with the group

1. The excursion The group leader instructs each member of

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Software creativity: Why and how? the group to take an imagined excursion that has nothing to do with the problem on hand. Normally the leader asks participants to close their eyes and use their imagination for a journey. A group member may travel through a museum, a jungle, a city, or any other kind of place, using their imagination. For example, one may be asked to imagine a journey through space to unknown planets. During the excursion process, it is important for group members to possess the ability to let go and create visual images. The ability to visualize imagination is critical to the success of this part of the exercise. The leader might offer some brief instruction and encourage other members to give an individual member assistance if he or she is not confident with visualization. Participants are asked to write down what they see during their excursion. The excursion last approximately five to ten minutes. Participants will record and describe what they see in the first column of a piece of paper that is divided into three columns. Group members can record as they go or after the excursion is finished.

2. Drawing analogies After the excursion period is over, the leader will ask participants to draw analogies between what they saw during the excursion and the problem. This process takes approximately ten to fifteen minutes. Participants can express the relationships between their visual images and the problem in any way they wish. Participants will be asked to write their analogies or other relationships in the second column of the same piece of paper next to the items they saw during the excursion.

3. Evaluating and understanding At this stage, the leader will ask the participants to refer their analogies to the actual problem. They will examine how those relationships can be used to solve the problem in hand. Participants will need to write their Volume 4, Issue 1–3, December 2002

solutions in the third column of the paper. This step is the most challenging part of the process.

4. Sharing experiences Participants are then asked to share their excursions, analogies, understandings, and solutions with the rest of the group. This step is similar to the brainstorming technique where group member’s individual views become each other’s stimuli. To maximize the benefits of an excursion session, there should be no criticism at individual participants’ ideas. The leader should encourage members in idea sharing. Logics and relevance are not major considerations. An example of the excursion technique is listed as follows (Higgins 2000): A member of a group of bank personnel officers who were experiencing conflicts with other departments described her excursion through a natural history museum. She saw Indians making war on another village analogous to a war with another department. Another member of the group found herself touring of the museum where rock formations were shown. The various layers of hard and soft rock meant the same thing to her, that the Indian war had meant to the other woman. When asked how to solve the problem, she said, “We have to take some dynamite (i.e., strong measures) to blow up the hard rock layers separating the departments.” Higgins asserts that the excursion technique is especially useful in difficult problems calling for unique solutions, such as for creating product differentiation features in a mature market. Such a technique could be useful during the design phase of the SDLC. It is particularly useful when deadlocks arise, such as when little progress has been made after several brainstorming sessions. The role of the

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Winnie Wong and John Paynter TABLE 1 1. Excursion 2. Drawing Analogies 3. Evaluating and Understanding 4. Sharing Experiences

Instruct participants to visualize excursions that have no relation to the problem on hand. Participants draw analogies between what they saw and the problem. The leader asks participants to determine what the analogies they drew in step 2 suggest in terms of solving the problem. Participants share their experiences and solutions.

leader is important. A good leader should encourage participants to let go and to share their experiences. The leader must take care that the discussion does not lose focus. The process must be well explained with purposes explicitly specified. Only when the process is well understood and participants properly motivated can good ideas emerge.

THE COGNITIVE NETWORK MODEL OF CREATIVITY Five creativity techniques have been discussed and some may query the efficacy of them. Creativity is usually thought of as a naturally born talent. When talking about creativity, people usually refer to something that we attribute to Mozart, Einstein or Picasso. If creativity is an attribute acquired at birth, then little can be done to increase one’s creativity level. People often think of creativity in the arts while less often referring to creativity in science or business. This section examines the usefulness of creativity techniques using the Cognitive Network Model of Creativity as a

framework. The purpose is to argue that creativity exists within all individuals and can be improved with appropriate methods. Some theories refer creativity to a wide variety of personal characteristics such as personality, eminence, biographical inventories and intelligence. As suggested by Santanen, Briggs and de Vreede (Santanen, Briggs et al. 2000), theories of this type are generally referred to as Divergent-Thinking Theories. Another view is to define creativity as a property of the problem solving technique rather than the attribute of people at birth. This is referred to as the judgment-of-products approach (Bull and Davis 1982). Santanen, Briggs and de Vreede formalized such an insight into the Cognitive Network Model of Creativity. The Model is shown in Figure 2. The Cognitive Network Model of Creativity recognizes that human memory is organized into bundles of related items. These bundles of items are determined by past experiences, therefore differ between individuals. Individual experiences are grouped together according to

FIGURE 2. CAUSAL RELATIONSHIPS POSITED BY THE COGNITIVE NETWORK MODEL (SANTANEN, BRIGGS AND DE VREEDE, 2000)

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Software creativity: Why and how? different principles. These principles include time sequence of events, semantic meaning of the stimuli, and similarity between items. Those bundles of items in human memory are called frames. These frames do not exist in isolation. Frames are interconnected and a vast network is formed in one’s memory. Over time, the size of the network in one’s memory gets larger. When information is required, a person will extract information from longterm memory and manipulate it using one’s short-term memory (Simon 1979). When frames are being processed in one’s short-term memory, they are called salient frames. Miller’s Law implies that only a limited number of frames can be activated at a certain point in time (Miller 1956). Such a limitation creates barriers to our creativity. Whenever a stimulus arises, it consistently activates the same sequence of frames. This explains why problem solvers always think within bounded and familiar areas of their knowledge network. The action words technique can increase creativity by systematically exploring one’s cognitive network. By interrogatorily asking who-what-where-when-why-how questions, each question serves as a stimulus that provides the problem solver with a fresh entry point. An individual can traverse one’s preexisting sequence of frames. Distant frames can be explored as the salient frames network spans beyond the frequently activated patterns. With multiple questions as multiple entry points, multiple solution-framing patterns will emerge. The salient frames network becomes a network of networks. Distant ideas can be related thus increasing the chance of creative outputs. Many researchers assert that the process of making new and unexpected associations between previously unrelated frames often leads to the formation of highly creative solutions. Such an assertion becomes the foundation of the Cognitive Network Model of Creativity. Humans have a fixed capacity in Volume 4, Issue 1–3, December 2002

processing simultaneous tasks. When the total amount of information load in a human’s short-term memory increases, the resources remaining for processing information decreases. Creative solutions are results of linking distant ideas. Linking distant ideas requires a large amount of salient frames. Having a large amount of salient frames puts a heavy burden on one’s cognitive load and greatly decreases one’s ability to be creative. The mind mapping technique helps release a problem solver’s cognitive load by allowing the user to draw the current cognitive structure on a piece of paper. Drawing a mind map is different from jotting down thoughts on a piece of paper. A mind map has a structure that is similar to one’s cognitive mechanism. A mind map has a network structure. The main idea is put in the center while related ideas are branching out toward the edge. This is very similar to the “knowledge network” as proposed by the Cognitive Network Model (Figure 3). The Cognitive Network Model suggested that, when searching for a solution, the activation of one frame causes activation to spread to other frames that are linked to that concept. The mind mapping technique not only lessens a problem solver’s cognitive load but also allows one to visualize one’s pattern of frame activation. Lessening one’s cognitive load frees up resources for information processing. Drawing one’s knowledge network structure on a piece of paper enables large amounts of information to be processed simultaneously. The mind mapping technique is believed to be an effective technique in improving creativity. We may use short-term memory more efficiently by creating larger and more complex chunks (Santanen, Briggs et al. 2000). A chunk is a bundle of inter-related frames that are being processed as a single unit (Figure 3). One can only process a certain number of information chunks at a time. By combining multiple simple chunks into a single more

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FIGURE 3: A

STIMULUS ALWAYS ACTIVATES THE SAME SEQUENCE OF FRAMES

complex one, short-term memory resources are freed up for other tasks. The process whereby several frames that are simultaneously and repeatedly salient become coded into a new chunk that contains a richer set of information is called “chunking” (Santanen, Briggs et al. 2000). The analogy/ metaphor technique is a technique that assists in chunking. Analogies are real life examples that are similar to the problem domain. One single analogy can be composed of a rich set of information. One chunk of information may contain a larger set of frames. Information being conveyed in a chunk using an analogy will be far richer than an ordinary chunk. Since information in each chunk is richer, fewer chunks are required. This helps lessen one’s cognitive load and leads to more available resources for processing in short-term memory and more chance for creative solutions. When talking about framing of information, both frames of possible solutions and the problem itself are represented in a problem solver’s mind. Therefore, not only the potential solution is occupying mental resources but also the complexity of the problem itself. The problem will be represented as a single or multiple frames. The more complex the problem is, the less mental resources can be allocated to creative thinking. Using analogy enables a 206

problem solver to group his/her problems into a single, more sophisticated frame thus freeing up more resources for creative thinking. Working with sophisticated frames has another advantage. Sophisticated frames provide links to many task-relevant parts of the knowledge (Santanen, Briggs et al. 2000) that may not be reachable with less sophisticated frames because an over-simplified understanding of the problem may never activate related parts of the knowledge network. A particular stimulus always activates a certain set of frames in one’s cognitive mechanism. Even when creativity techniques are deployed, an individual’s creativity ability may be limited by his/ her past experience. Creativity is being defined as linking distant ideas with current problems while generating solutions that are relevant to the current problem. Everyone has different backgrounds and different frames of reference. As a result, group collaboration is an effective means of breaking out our conventional thought patterns by bringing people with different backgrounds together. Brainstorming is a group idea generation technique that is widely accepted to be effective. The Cognitive Network Model of Creativity proves the efficacy of brainstorming. The new brainstorming technique proposed

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Software creativity: Why and how? by Santanen, Briggs and de Vreede is implemented with the help of group support system (GSS). The GSS allows group members to read the contributions made by others as soon as they are submitted. Group members interact with each other and are able to see the solutions of others. As a result, the amount of stimuli is far greater in a group, than working independently. One special thing about the directed brainstorming technique is the use of prompts. Prompts are confined to the context(s) of the problem. Each prompt addresses a certain aspect of the problem. It is said that problems solvers are lead to limit the number of salient frames at any given time and thus reduce the overall cognitive load. With a lighter cognitive load, each problem solver is left with more mental resources for idea generation. The excursion technique is a technique that utilizes several techniques. It incorporates the analogy technique and the brainstorming technique. How the analogy and the brainstorming techniques have enabled the improvement of creativity has been discussed. The purpose of including of the excursion technique in this paper is to demonstrate that several techniques can be mixed and matched and used together.

DISCUSSION Traditionally, all IS courses focus on systematic and semi-structured methodologies, such as ERM, SDLC and normalization. These concepts focus on discipline and formality. Students leave universities and become young IS professionals. They come to the dynamic world with pre-conceived ideas that formality is the goal where most problems in the world can be solved by quantitative reasoning. Yet the only constant is change. Creativity is the heart of organizational survival as competitive advantage can only be sustained with high creativity. There is a strong need to start training students at early stages so that they Volume 4, Issue 1–3, December 2002

are better equipped before they face the competitive world. In a university, when someone talks about a discipline, one will immediately think of a particular paradigm of knowledge. “Discipline” in this setting refers to a body of knowledge. The word discipline also implies the opposite of chaotic. It means obedience and compliance. In a dynamic commercial world, being obedient and compliant have very little value. They imply inflexibility and are counter-productive. Perhaps universities should consider “flexibility” instead of “disciplines”. In Toshiba’s Expanding Horizons 2000 educators’ conference in Auckland, Professor Ron Johnston made the following comment. “Just about everyone is becoming a knowledge worker, we have to inject more knowledge to do it smarter and better in every activity” (Gifford 2000). Professor Johnston suggests that human beings were the only reliable working models of intelligent systems because people could interpret the data in creative ways while computers cannot. Since changes in organizations and occupations happen quickly, people must develop flexibility so as to cope with ambiguity and uncertainty. Conventional IS education assesses students on memorizing, understanding and comprehension. Student grades are judged according to the similarities between students’ answers and the model answers. Creativity does not count and may even be penalized. However, how much is a model answer worth in the real world? It is time for our educators to re-think the system. We do not need software developers that always assume there is a “right answer”. Besides standard routine logic and positive reasoning, we need software developers who are able to use judgment and process strong creativity skills. It is time to look at what our society really needs and compare that to what our education system is providing.

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CONCLUSION Does creativity exist within all individuals regardless of their education level, personal attributes and intelligence level? This paper suggested that creativity exists within everybody and can be improved by employing appropriate techniques. We have looked at a few creativity techniques and examined why these techniques work. Although these techniques have been prescribed in the literature, they appear to lack theoretical and causal foundations. The writer has attempted to prove their efficacy by adopting the Cognitive Network Model of Creativity as a framework. The list of techniques discussed in this paper is by no means exhaustive. The main purpose of selecting these techniques is to demonstrate that efficacy of various existing creativity techniques can be proved using theoretical frameworks. The new generation of IS professionals faces fast changing environment. It is important for everyone in the field to process high creativity skills. Creativity is an attribute that exists within all individuals and can be improved with practice. Creativity techniques for human thinking is like engine oil, it makes the engine run smoother, quieter and last longer.

References Bloom, B. S. (1956). The Taxonomy of Educational Objectives: Classification of Educational Goals. New York, McKay Press. Bull, K. S. and G. A. Davis (1982). “Inventory for Appraising Adult Creativity.” Contemporary Educational Psychology 7: 1–8. Buzan, T. (1995). Use Your Head. London, BBC Books. Couger, J. D. (1996). Creativity & Innovation

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in Information Systems Organizations, Boyd & Fraser Publishing Company. de Bono, E. (2000). Edward de Bono’s Web, edwdebono.com. 2000. Gifford, A. (2000). Knowledge workers need flexibility. New Zealand Herald. Auckland. Goldratt, E. M. a. C., Jeff (1993). The goal: a process of ongoing improvement. Aldershot, Gower. Higgins, J. M. (1994). 101 Creative Problem Solving Techniques: The Handbook of New Ideas for Business. Winter Park, New Management Pub Co. Higgins, J. M. (2000). Excursion, jamesmhiggins.com. 2000. Miller, G. A. (1956). “The Magical Number Seven, Plus or Minus Two: Some Limits on our Capacity for Information Processing.” Psychological Review 63: 81–97. Paynter, J. (1997). An Investigation of The Use of Information Systems Creativity Techniques in a Project. Santanen, E. L., R. O. Briggs, et al. (2000). The Cognitive Network Model of Creativity: a New Causal Model of Creativity and a New Brainstorming Technique. The 33rd Hawaii International Conference on System Sciences, Hawaii, IEEE. Schach, S. R. (1999). Classical and ObjectOriented Software Engineering with UML and Java. Singapore, McGraw-Hill. Simon, H. A. (1979). “Information Processing Models of Cognition.” Psychol 30: 363–396. Wulf, W. A. (2000). How Shall We Satisfy the Long-Term Educational Needs of Engineers? Education and Careers 2000, IEEE. www.brainstormingdss.com (2000). Brainstorming, brainstormingdss.com. 2000.

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Copyright © eContent Management Pty Ltd. Innovation: management, policy & practice (2002) 4: 209–214.

✹

The relationship between firm survival and innovation: An introduction to the literature (review)

on i t a ov ation n n I uc Ed

SUMMARY KEY WORDS

innovation; firm survival; management of technology; SMEs; organizational change

The recent growth of the Internet provides new perspectives in the study of the organisation’s constant struggle with technology. Innovation literature has grown vastly since its establishment in the 1920’s. The literature now covers a broad range of disciplines (Foxall 1984) and measures a wide variety of variables (Rogers 1995). At first glance, studies that look at the relationship between innovation and firm survival appear contradictory. But the results appear compatible when additional factors such as industry type, environment, organisational age, company size or the time length of the study are taken into account. Received August 2002

Accepted November 2002

CAROL DALGLISH

CAROLINE NEWTON

Senior Lecturer Brisbane Graduate School of Business Queensland University of Technology Brisbane, Australia

Casual Instructor Brisbane Graduate School of Business Queensland University of Technology Brisbane, Australia

INTRODUCTION

T

he recent growth of dot.com and the Internet industries provides a new perspective for innovation studies. Innovation in computer related technologies allow researchers to develop new theories by measuring new variables (Van de Ven 1988 as cited in Rogers 1995, p390). Understanding of innovation is vital to Internet firm survival, competing in an environment characterised by high uncertainty and a high rate of change. Companies that Volume 4, Issue 1–3, December 2002

disregard the importance of technology will not survive or will become marginalized (Han, Kim et al. 2001). In a study “.. of the 100 leading incumbent firms in the United States at the turn of the century, all but 16 have either perished or become marginalized as the result of having compromised their technological orientation” (Han, Kim et al. 2001). Even relatively young companies struggle with technology: Microsoft nearly failed to innovate in preparation for the Internet, and Bill Gates believes that Microsoft is “…always

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Carol Dalglish and Caroline Newton • Diffusion of innovation • Organizational innovativeness • Process theory models

two years away from failure” (Hamel 1998). Discontinuous change makes it unlikely for a company to be successful in either defending an old position or successfully entering a new position (Cooper 1976 cited in Utterback 1996). The goal of this article, then, is to firstly present a broad overview of the history of innovation literature. Secondly, we will take a very narrow subsection of this topic to look at empirical studies that examine the relationship between firm survival and innovation.

Similarly, Kay (1993, p112) says the literature falls into the following broad categories: • Patterns of innovation and diffusion, • Relationship between organisational structure and technological capabilities, and • Economics of technology and innovation.

HISTORY OF INNOVATION LITERATURE At present, innovation literature is immense (Frost and Egri 1991). Rogers (1983, xv) notes growth in interest in the topic of diffusion of innovations, from 405 publications in 1962 growing to 3085 in 1980. There are three main streams in innovation literature being (Wolfe 1994):

Past research into the diffusion of innovation can be broken down into eight general categories (see Figure 1) (Rogers 1983, p 80). The foundations for present innovation research can be sourced back to the economist Josef Schumpeter. Schumpeter’s main interest in the field of innovation was economic development (e.g. Schumpeter 1939 cited in Gronhaug and Reve 1988, p332; Schumpeter 1942 Earliness of know ing about innovaitons 5% Rate of adoption of different innovaitons 1%

Consequences of innovation 0.2% Others 24%

Communication channel usage 7% Rate of adoption in different social systems 2%

Who interacts w ith w hom 1%

Innovativeness 57%

Opinion leadership 3%

FIGURE 1 TYPES

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OF I NNOVATION

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The relationship between firm survival and innovation: A review of literature cited in Hope 1988). Seminal thinking by Schumpeter includes the basic premise that technological innovation drives economic growth (Tushman and Anderson 1997). Schumpeter also developed an important theory on the process of ‘creative destruction’, whereby waves of discontinuous technological change destroy old industries, and new industries are born (Senge, Carstedt et al. 2001). Another influential theory of current innovation literature is the ‘S-curve’ (Rogers 1995; Utterback 1996; Boar 1997). The rate of adoption of a hybrid seed corn in Iowa fit an sshaped curve over time (Ryan 1943 cited in Rogers 1995). This theory, that only a small number of people adopt an innovation at first, and then the adoption rate increases sharply, followed by a slowing of the laggards adopting the innovation, has been used to explain the diffusion rate of most innovations (Rogers 1995). In the 1950’s and 1960’s innovation was studied from an invention point of view with the focus being scientific research laboratories (Kemp, Little et al. 1964, p145). In addition to innovation / invention studies, diffusion of innovation research was being developed. Diffusion of innovation studies focus on the identification of variables that determine the speed of diffusion (Nelson 1972). The study of innovation is not limited to a single discipline (Foxall 1984). Prior to the 1960’s, diffusion of innovation research was investigated by various disciplines separately e.g. communication, farming, anthropology, marketing, geography, and education in the US and Europe (Rogers 1983). Over time, diffusion of innovation studies became more cross-disciplinary and then moved towards standardisation (Rogers 1983, p39). Early diffusion studies were individual based, but by the 1970’s, several hundred studies were done of organisational innovativeness (Rogers 1995). These studies looked Volume 4, Issue 1–3, December 2002

at what variables made an organisation more or less innovative, for example organisational size or organisational structure (Rogers 1995), and were generally based on some type of computer based technological innovation (Rogers 1995). The topic of organisational innovativeness draws on organisational theory and technological change theory. Influential organisation literature can be traced back to Max Weber’s theory of bureaucracy (Blau 1972) that noted the increase in rule-based organisations (Schulz 1998) following the Industrial Revolution (Clawson 2000). Research in organisational technological change has been dominated by the technological determinism theory (Barley 1986 and Child 1987 cited in Laurila 1997) that is based on technology driving change (Hearn, Mandeville et al. 1998). And research on the growth and survival of firms has traditionally been studied from an economics view (Utterback 1996). Academic criticisms of current innovation literature include: • Research results in organizational innovation literature are inconsistent (Wolfe 1994). • Most literature has focused on incremental innovations. Radical innovations have not been studied as much as they are uncommon (Gerwin 1988) • Innovation research tends to have a proinnovation bias (Rogers 1983, p92) in that we know more “(1) about the diffusion of rapidly diffusing innovations than about the diffusion of slowly diffusing innovations, (2) about adoption than about rejection, and (3) about continued use than about discontinuance.” (Rogers 1983, p94)

FIRM SURVIVAL AND INNOVATION Studies of the competitive consequences of innovation represent a small subsection of innovation research. Past empirical studies

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Carol Dalglish and Caroline Newton have looked at the relationship between innovation and outcome variables such as profit, survival, growth and competitive advantage. Innovation has been identified as an important factor in firm survival (Starbuck 1983; Utterback 1996; Han, Kim et al. 2001). Companies in high technology industries, such as Sony, are often discussed as examples of firms that depend critically on the continued succession of new product innovations for survival (Martin 1994 p67, Dwyer 1989 & Barney 1995 cited in Roberts 1999). This continuous innovation is difficult to achieve: to survive, the firm must meet customer demands for rapid incremental improvement; yet also master infrequent revolutionary technological change (Utterback 1996, p191). Based on a study of the disk drive and other industries (Christensen 1997, p xii), “there are times when it is not right to listen to customers, right to invest in developing lowerperformance products that promise lower margins, and right to aggressively pursue small rather than substantial markets.” This is the paradox of innovation. Showing some similarities to the high technology industry is the pharmaceutical industry. Repeated introduction of innovations in the pharmaceutical industry was found to maintain profitability of the firm (Roberts 1999). Industry type may play a part in the need for a firm to innovate: a study found that innovation had a negative effect on some industries and a more positive effect on other industries (Roberts 1999; Hall and Tozer 2000). But another longitudinal study of both new and old-economy industries over a thirty-six year period indicates that industry type does not affect the need to innovate (Foster and Kaplan 2001). This study found that even the best companies in old economy industries such as the chemical or pulp and paper, are unable to sustain high levels of performance 212

for more than ten to fifteen years based on incremental improvements (Foster and Kaplan 2001). The extended time frame of research may explain the different results of these two studies. Some innovations take many years before any return is gained (Mechlin cited in Gronhaug and Kaufmann 1988). Perhaps short-term innovation studies are taking a snapshot of the environmental characteristics for that particular industry. Waves of technological change happen in all industries (Senge, Carstedt et al. 2001). Technology goes through periods of incremental change followed by radical technological breakthroughs, and thus the innovation response must vary to suit the environment (Tushman 1986 cited in Hage 1998). Some authors suggest that because we are entering a new epoch, moving from the industrial age to the information age, that all businesses are being forced to discover new ways of working (Boar 1997). The ‘new economy’ has created an environment whereby incremental innovation may lead to corporate failure, and that companies should make non-linear innovations to survive (Hamel 1998). But whatever the organisational response of existing firms, chances of success are low (Cooper 1976 cited in Utterback 1996). Longitudinal research has shown how changes in the technological environment often change the market leader as firms opportunistically reposition themselves (Tushman and Anderson 1986; Ghazanfar 1987 cited in Bogner, Thomas et al. 1994; Sorensen and Stuart 2000). Incremental innovation is known to reinforce the dominance of established firms, yet radical innovation destroys the usefulness of the established firms capabilities (Henderson and Clark 1990). This is often referred to as the ‘competency trap’, whereby existing companies do not adapt to external conditions (Levitt 1988 cited in Vermeulen and Barkema 2001).

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The relationship between firm survival and innovation: A review of literature The competency trap allows opportunities for start-up firm. Recently, with the advent of the Internet, many ‘dot-com’ start-ups took the lead on established companies. For example, new online book retailer, Amazon.com built a worldwide brand in less than 18 months, beating established book chains (Cortada 1998). Yet it has been noted that startups often do not live past the first strategy (Hamel 1998). The ability to again and again innovate is important for the long-term survival of a company. This leads us to consider the age of the organisation to predict firm survival. Organisational aging has been researched extensively with conflicting theories about the effects of aging on firm survival (Sorensen and Stuart 2000). For example a prominent theory known as the “liability of newness” positions that survival chances increase as organizations age (Stinchcombe 1965 cited in Barnett 1997). Yet a more complicated relationship has been identified: whereby mortality rates for young firms are low, and then the mortality rate rises with age (Hannan 1998). Finally the mortality rate declines over the long-term with organisational age (Hannan 1998). Despite extensive research into organisational aging and firm survival, little research has looked at the link between organisation age, innovation and survival (Sorensen and Stuart 2000). Another factor that influences the innovation gains for a particular industry is the effectiveness of the patent system. For example, the pharmaceutical industry has a good patent system that makes it more difficult for a competitor to imitate (Roberts 1999). Whereas, the information technology industry does not widely use the patent system (Basberg 1988) as it does not provide effective innovation protection. Company size may also be a factor in determining a firm’s need to innovate. A study found no general relationship between innovaVolume 4, Issue 1–3, December 2002

tion and turnover growth, unless industry type and company size were identified. For example small manufacturing firms that were innovative had high turnover growth, yet larger firms in the same industry did not (Hall and Tozer 2000). Some authors researched the likely success / failure outcome of certain innovation categories. For example, rate of innovation adoption was positively linked to relative advantage and compatibility of innovation and complexity was found to be negatively linked (Tornatzky and Klein 1982 cited in Rogers 1995, p210).

CONCLUSION Taken in isolation, studies on the relationship between innovation and firm survival appear contradictory. But the results appear compatible when additional factors such as industry type, environment, organisational age, company size and even the time length of the study are taken into account. The study of innovation is complex – multiple theories of innovation exist which depend on the circumstances in which it takes place (Wolfe 1994).

References Barnett, W. P. (1997). “The dynamics of competitive intensity.” Administrative Science Quarterly 42(1): 128–160. Basberg, B. L. (1988). Patents and the Measurement of Technological Change. Innovation: A CrossDisciplinary Perspective. K. Gronhaug and G. Kaufmann. London, Norwegian University Press. Blau, P. M. (1972). Organizations: Theory of Organizations. International Encyclopedia of the Social Sciences. D. L. Sills. New York, The Macmillan Company & The Free Press. 15. Boar, B. H. (1997). Strategic Thinking for Information Technology. Canada, John Wiley & Sons. Bogner, W. C., H. Thomas, et al. (1994). The Context and Impact of Technological Innovation: A Longitudinal Study. Coventry, CV4 7AL UK, University of Warwick, Warwick Business School Research Bureau. Christensen, C. M. (1997). The innovator’s dilemma : when new technologies cause great firms to fail. Boston, Mass., Harvard Business School Press.

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Copyright © eContent Management Pty Ltd. Innovation Enterprise (2002) 4: 215–226.

n tio n a ov io Inn ucat Ed

The Fifth Discipline in a

highly disciplined Singapore: Innovative Learning Organisations and national culture

SUMMARY

KEY WORDS innovation; Learning Organisation; cultural framework; globalisation; cultural differences

This paper argues that the Learning Organisation (LO) concept is not culturally neutral and that any assessment of its usefulness must be situated within an understanding of the national cultural framework in which organisations are embedded. Although the Learning Organisation (LO) concept is popular amongst both practitioners and academics in a wide range of countries, the theory is largely grounded in the thought of US business schools and the experience of large US corporations. National culture is invisible in the LO literature. This is primarily written from an American standpoint and the degree to which it is relevant to international practice is debatable. This paper surveys the LO concept within the context of globalisation, focusing on Singapore organisations. It draws on a critical examination of Hofstede’s national culture dimensions to create a framework for the study of the adoption and adaptation of the LO concept by Singapore organisations. Received February 2001

KALA S. RETNA* Victoria University of Wellington Wellington, New Zealand

S

ingapore, a multicultural colonial city that underwent a forced march to prosperous nationhood, is the epitome of the disciplined society. Senge’s book, The Fifth Discipline,

Accepted November 2002

which launched the concept of the Learning Organisation (LO) in 1990 embodies philosophical concepts that are antithetical to imposed organisational discipline. Is Senge’s ‘discipline’ compatible with Singapore-style discipline? Since 1990, the LO concept has gained wide popularity amongst both academics and practitioners (Garratt, 1999) around the world, including Singapore. However, the theory is largely grounded in the thought of

* An earlier version of this paper was presented at the Australia and New Zealand Academy of Management Conference, 5–7 December 2001, Auckland, New Zealand.

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Kala S. Retna US business schools and the experience of large US corporations. This paper presents a critical analysis from a Singaporean perspective, questioning the universal applicability of this concept without reference to local national culture. Management techniques or systems that are successful in a particular national culture may be inappropriate in another. The paper argues that the LO concept is not culturally-neutral and that any assessment of its usefulness must be situated within an understanding of the national cultural framework in which organisations are embedded. The paper seeks to contribute to the development of the LO concept by introducing cultural awareness and in doing so it has implications extended beyond the Singapore case itself. This paper starts by briefly describing Singapore culture and its origins. It then continues by critically examining Hofstede’s concepts of national culture. It then surveys the Learning Organisation concept within the context of the cultural environment of Singapore and from a Singaporean perspective. It then asks to what degree this can be applied to the study of the adoption and adaptation of the LO concept by innovative Singapore organisations. This is based on literature on Singapore culture supplemented by the author’s twenty years experience of working in Singapore. The LO concept is therefore approached from a critical, practitioner, perspective and the questioning of the concept both adds depth to it, and opens up new questions and avenues for future research on the interaction between management theory, innovation and national culture.

SINGAPORE CULTURAL CONTEXT Singapore culture is a product of its own specific history and, in particular, the deliberate process of nation-building since independence. Singapore has developed its own national identity from the mix of races and cultures that make it up, along with the British colo216

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nial heritage. It has a population of 4.2 million; Chinese 77%, Malay 14%, Indian 7.6%, other 1.4%. Singapore’s multiracialism is managed by promoting racial tolerance as part of official ideology and encouraging a high level of consciousness of one’s race even as it insists on tolerance (Barr, 1999). Substantial economic and social growth in the post-colonial period has given Singapore, according to some calculations, the highest per capita GDP in the region (CIA World Factbook 2001) and it was classified as an Advanced Developing Country in 1996. Its impressive progress and achievements are credited to its government for its sound policies in managing and bringing Singapore to what it is today (Cunningham & Gerrard, 2000). Singapore current economic success is attributed to its human resource development with emphasis on learning, education, training and upskilling. It is also the regional headquarters for many multinational companies for a number of reasons – excellent infrastructure and telecommunications, international transportation, clean and efficient government and high level of English. The government, which has been in power since independence, has inculcated a sense of social cohesion and confidence. Singapore is often criticised for being an authoritarian and regulated society. Its examination-oriented educational system has also come under criticism. Nevertheless, Singapore has been remarkably successful in constructing a nation state, which, though small in terms of population and markedly different in terms of ethnicity from its neighbours (it is sandwiched between the predominantly Malay and Islamic states of Malaysia and Indonesia), has survived and prospered. Singapore culture is distinct. It has in a short space of time constructed a national identity and culture which is distinctly different from its components, and is consciously differentiated from that of the major ethnic group, the Chinese. Singapore has continued

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The Fifth Discipline in a highly disciplined Singapore to use English as its main business and official language despite, or perhaps partly because, it is not the native language of any major ethnic group. On the other hand, the form of Chinese that is officially sanctioned is standard Chinese (Mandarin) and not any of the dialects native to the Chinese population.

NATIONAL CULTURE AND ORGANISATIONS In order to deconstruct cultural assumptions it is necessary to investigate the literature on national and organisational culture. The word culture has many meanings and interpretations derived from the perspectives of the anthropologists, sociologists and psychologists (Schein, 1985) and when this inquiry is extended to organisations the complexity is compounded. For reasons of brevity, this paper will focus on Hofstede’s framework of cultural analysis but this will be employed in a critical fashion with reference to the specific case of Singapore. The most influential definition of national culture from an organisational perspective is that of Hofstede who defines it as the ‘collective programming of the mind’ which distinguishes one group of people from another and influences the work-related attitudes and behaviours of members (Hofstede, 1993). His pioneering work was an attempt to compare national cultures in terms of broad value differences (Hofstede, 1980, 1983). In his extensive study of over 116,000 employees from IBM over 50 countries, Hofstede identified four cultural dimensions of work-related value differences. The four dimensions are: power distance: individualism/collectivism; uncertainty avoidance; and masculinity/femininity. A fifth, ‘Confucian dynamism’, was subsequently added (Hofstede, 1988). There are problems with the Hofstede framework. Some of the criticisms most relevant here are that the dimensions are inherently simplistic and flawed and are perhaps a

consequence of quantitative research. They are also self-referential (Roberts & Boyacigiller, 1997) and are culturally-based (Dofman, Howell & Bauitista, 1997) and therefore highly contextual. In addition, it is argued that with its emphasis on a supposedly monocultural ‘national culture’ it ignores the realities and complexities of contemporary evolving, multicultural societies; it is unlikely that there were many Maori or Pacific Islanders in his NZ sample, or Aborigines in his Australian one. Moreover, he neglects the effect of organisational culture as his main study was based on IBM, which is well known for having a distinctive organisational culture. As will become apparent in my discussion I feel that his characterisation of Singapore national culture is very superficial. Nevertheless, Hofstede is more widely cited than anyone else on this subject and his construct does make a useful starting point when conceptualising the role of national culture. Hofstede’s work and the four most appropriate dimensions in this context – power distance, individualism versus collectivism, uncertainty avoidance, Confucian dynamics – are discussed below and related to the Singapore context and the LO concept. The masculine/feminine dichotomy is not included in this paper. This is because I find the masculine/feminine dimension rather crude sexual stereotyping that would be challenged by many. Many studies have been carried out in a variety of ways using Hofstede’s framework to provide an insight for an understanding of international or cross-cultural management. The framework is discussed below to illustrate how it has been influential in studies of crosscultural management theory and practice, in spite of many concerns over the methodology.

Hofstede’s cultural framework Hofstede’s empirical results have been replicated at the national level (Elenkov, 1998,

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Kala S. Retna Camina, 2000) and his cultural framework, according to Triandis (1994) has been accepted as important and persuasive in describing differences among nations (Michael, Prooijen and Frans, 1992, Irene and Joseph, 1995, Mark, Peter, Adebowale and Sabino, 1995, Wei, Watson and Walczuch, 1998, Goodwin and Goodwin, 1999, Grant, Petrovie-Lazarevic and Berell, 2000). The four dimensions relevant to this paper are discussed in sequence.

Power distance This refers to the extent to which people of a particular country are said to accept inequality in power as an irreducible fact in organisation. This influences the amount of formal hierarchy where subordinates accept that the superiors have more power and decisions made by them are unquestioned. On this dimension, Singapore was classified as high on power distance. The expectation of Singapore employees in organisations is one that has a high preference for formal, hierarchical and respect for people in authority or power. Singaporean employees can be easily identified for their preference for ordered relationship even when they cross borders (Hackman & Kliener, 1990). This is supported by Pearson and Entrekin (1996) who studied Chinese businesses in Singapore. The findings reveal that all the companies involved in the study had strict hierarchies of command and authority for employees. High power distance is in direct contrast to the concept of the Learning Organisation. The central theme of Learning Organisation promotes an open communication environment where employees are not afraid to share their opinions and speak their minds. It encourages participation by freeing up management structure and style so as to enhance ‘experimentation’ (Pedler, Burgoyne and Boydell, 1991). A Learning Organisation also aims to reward learning and contribution and not position or 218

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status. Authoritarian managers and obsequious employees are incompatible with the Learning Organisation concept, which suggests that creating innovative learning organisations within the Singaporean cultural context may be difficult.

Individualism/collectivism Individualism means the concern for oneself as an individual as opposed to concern for the priorities and rules of the group to which one belongs. People in this culture tend to think of themselves as ‘I’ as distinct from other people. Collectivism refers to cultures where the interests of the groups take precedence over the interests of individuals. Not only did Singapore score low on Individualism in Hofstede’s study but also in a research carried out by Trompenaars (1993) it was classified as the most collectivistic country in the 23 countries he studied. This is to say that there is an emphasis on values that serves that in-group by subordinating personal goals for the sake of preserving in-group integrity, interdependence of members, and harmonious relationships (Schwartz, 1990). Even though Singapore has scored high in collectivism according to the Hofstede’s model, my opinion is that, if one looks at actual organisations there is a large degree of individualism, with individuals competing amongst themselves for promotion, in theory at least, being meritocratic rather than based on seniority. Moreover, there is a considerable gap between employees and bosses. This has implications for LO adoption. There is a far greater need for ‘voluntary’ participation among employees, easy access to superiors, open channels of communication, frequent feedback and standardised versus discretionary rewards and an atmosphere that promotes equality and fairness. These are basic requirements and only in such an environment can the concept of LO be effective. The Singaporean national culture is one in which people

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The Fifth Discipline in a highly disciplined Singapore learn how to survive in an organisation as a team member and yet be highly individualistic. At the same time Singapore organisations are very hierarchical. If employees don’t even think of questioning their bosses or processes (McGill and Slocum, 1993) then it is at odds with the concepts of Learning Organisation. If the Learning Organisation paradigm is correct then Singapore’s quest for short-term competitiveness may be dysfunctional in the long term.

Singapore may not find many difficulties in introducing new concepts, such as the Learning Organisation. However, because of other cultural propensities, such as groupism and conformism, it is likely that the emphasis will be on training rather than on real organisational learning as Senge (1990) describes it. Thus, adopting Learning Organisation concepts will be a problem if the transition is not made from ‘training’ to ‘organisational learning’.

Uncertainty avoidance

Confucian dynamism

Uncertainty avoidance refers to the need for formal rules and the lack of tolerance for ambiguity. It measures the degree to which people in a society feel uncomfortable with ambiguity and uncertainty, thus resorting to establishing more formal rules, to maintain conformity in organisation. Also, there is a high tendency for people to accept unchallengeable expertise. Countries scoring high in this dimension usually offers lifetime employment for employees, whereas, job mobility is more common in low uncertainty avoidance countries. Singapore was classified as low in uncertainty avoidance, which reflects its entrepreneurial culture and acceptance of risk taking. Employees in Singapore are constantly conditioned by survival instincts to exhibit an overall propensity to take challenges as entrepreneurs, especially because the country has no natural resources. This may be one of the reasons for employees’ willingness to take risks in innovative business ventures. According to Shane (1995), national culture influences the type of innovative activity employees undertake to achieve goals. In the same study, it also claims that countries which are low in uncertainty avoidance are more innovative and more receptive towards introducing change. Viewed from this perspective and from experience, I tend to think that innovative organisations in

This dimension is a recent addition by Hofstede and Bond (1988). It is claimed that Confucian dynamism epitomises ‘Asian values’ and also shows the importance of Confucianism to all East Asian societies (Ralston, Egri, Stewart, Terpstra & Kaicheng, 1991). Values such as societal harmony, persistence, ordering relationships by status and observing this order, having a sense of shame, respect for tradition and reciprocation and personal and interpersonal harmony are keystone of Confucianism. Singapore scored high on this dimension. Singapore’s national core values reflect the importance placed on Confucianism. Commitment to this conventional wisdom may have a potential conflict in terms of the LO concept. One main drawback will be on the interpretation of learning. In Singapore, learning means passing exams that led to well-paid jobs in both the government and private sectors. This is a major obstacle in practising LO because it obstructs creative thinking. The LO concept involves the creation of new knowledge through substantial revision or rejection of an existing framework, through nurturing an intellectual and creative learning environment. Established, collectivistic tendencies and unquestioning mindsets stifle learning and creativity among employees in organisations attempting to innovate.

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Uses and limitations of Hofstede’s framework In summary, Hofstede (1991) himself admits that people cannot help but reflect the constraints of their environment and as such, it can be argued that his cultural dimensions are merely a reflection of his particular cultural perspectives. Whatever their validity, Hofstede’s cultural dimensions are still useful and widely used (Goodwin and Goodwin, 1999). It is often argued that cultures are deeply entrenched and durable (Trompenaars, 1993) and therefore do not change easily as they are passed on to future generations (HampdenTurner and Trompenaars, 1996). This is supported by Newman and Nollen (1996) who believe that national culture is deeply embedded in the everyday life of members and is highly impervious to change or changes “very slowly if at all” (Hofstede, 1993, p. 92). However, the experience of Singapore casts doubts on these assertions. In the space of a generation or so Singapore has created a national culture that differs considerably from its original components – Chinese, Indian and Malay. It might be suggested that just as Senge overlooks the cultural dimension, Hofstede over-emphasises it and ignores the effect of organisational structure and hierarchy on attitudes. In other words, attitudes that are ascribed to a particular culture – for instance North American – may be due in part at least to the organisational life experience, and present position in the organisational hierarchy of IBM, of the respondents. If there was a fairly strong correlation in the IBM of the period between ethnicity and position in the organisation – with (white) Americans at the top, Britons below and so on through to other ethnicities further down the organisational structure – then it may be that what was seen as cultural factors was over emphasised. In other words, people’s ‘cultural behaviour’ may have been as much a product of their position in the company hierarchy as of their ethnicity. 220

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From an organisational perspective, differences between cultures along Hofstede’s dimensions have many implications for the Learning Organisation as the culture of the human environment in which an organisation operates affects the management process (Hofstede, 1993). As for the Learning Organisation it is important to understand how organisations in various cultures actually learn (Tsang, 1993) and to fit the organisation’s culture with the nature of learning (Nevis, 1995). If this is carried out, innovative learning organisations will produce the desired competitive advantage that can be realised at large. Newman and Nollen (1996) propose that there is valuable competitive advantage to be gained if an organisation is able to align their internal strategy, structure, systems and practices with the national culture in which the organisation operates. However, what should an organisation do if elements of that national culture are inimical to a US model of organisational excellence? Organisations cannot refuse to change just because traditional cultures resist and hamper change. However, for organisations effectively to innovate and manage change they must understand the cultural contexts in which they operate. If the Learning Organisation concept is to be implemented successfully in innovate Singapore organisations, it must be based on understanding and recognition of prevailing cultural tendencies.

CONCEPT OF THE LEARNING ORGANISATION In this section I will demonstrate the argument that the LO concept has cultural connotations and implications which have been overlooked in the literature. I do this by discussing its five principles from a Singaporean standpoint. Since 1990, Senge’s LO concept has attracted much academic attention. Over the

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The Fifth Discipline in a highly disciplined Singapore years, a number of publications have developed and discussed the five operational principles (Pedler, Burgoyne, Boydell, 1991, Watkins and Marsick, 1993, Ackoff, 1994, Drucker, 1994, Garratt, 1994, De Geus, 1997, Flood, 1999). These authors have further added to the understanding of the principles either in their entirety or in parts. Being conscious of the difficulty of implementing the concepts within real organisations they all tend to add various elements that limit or constrain implementation. However, none of them investigate national culture as a factor facilitating, impeding or otherwise affecting the adoption of the learning organisation concept. West (1994), for instance, cautions organisations that those who want to adopt LO concepts must understand that the process is lengthy, high in resource implications and not without risks, but he does not raise the issue of whether some cultural environments are more conducive to this process than others. Senge, revisited the Fifth Discipline in his book ‘Dance of Change’ (Senge, 1999). Despite ten years of increased globalisation, with increased cultural diversification in the United States itself, there is still little attention paid to culture. In a recent interview, the question of whether managers who lack cultural diversity are handicapped in implementing LO, he gave the following reply: Yes, I think they’re handicapped. I think that diversity is a cornerstone of global enterprises. Whether these enterprises are all under one roof or part of strategic alliances or network operations, it doesn’t matter – American managers will be dealing with all sorts of people. In North America, we are a melting pot society. We tend to dissolve cultural differences over a couple of generations, and we don’t have a deep curiosity about cultural distinctions. (Executive Excellence, 1999.)

This response implies that Senge is still approaching organisation from a mono-cultural, North American perspective. It is debatable whether the United States is still a melting pot in the sense that it was in the past; the rise of ethnic, especially Hispanic, consciousness is challenging that. On a global scale, mono-culturalism is even less acceptable. Organisations, and organisational theorists, therefore, must take account of continuing cultural diversity even within the context of American cultural hegemony.

Systems thinking According to Senge, we have to understand that regardless of the nature of the business the organisation is in, the organisation must be viewed as a system, so that everyone in it learns to see it as an interrelated whole. He emphatically claims that systems thinking is at the heart of the innovative learning organisations as it is a framework for seeing interrelationships and patterns of change. On a conceptual level, it can be argued that systems thinking is also profoundly subversive in that when stakeholders understand the system of the organisation, they are in a position to question the management of the system. Systems thinking may be empowering but it can also be interpreted as dangerous. This may not be quite such an issue in a relatively egalitarian society such as New Zealand, but in Singapore, with its embrace of Confucian hierarchy, management may instinctively resist such empowerment. Senge (1990) argued that status and hierarchy in organisations produce ‘learning disabilities’ and that systems thinking can remove this blockage. However, critics have claimed that this is confusing cause with effect (Flood, 1999). Hierarchical organisations resist systems learning because it is inimical to hierarchy and a cure to their innovation and learning disability, which thus poses such a threat to the hierarchical structure. Senge

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Kala S. Retna attempted to counter this critique in a later book titled ‘The Fifth Discipline Fieldbook (Senge, 1994). He argues that leadership in the LO is inevitably collective and this clashes with the concept of hierarchical leadership. In Singapore for instance, power in organisations is seen as evolving from seniority and status rather than the support of the led. It is debatable whether this attitude is really compatible with the LO concept. Also these observations are not particularly surprising when put in the context as a high power distance country.

Personal mastery This discipline is the ability to achieve results that matter to the person. It’s a matter of commitment to one’s own learning. Senge has emphasised that this is the discipline which will enable members to clarify their personal visions and see reality in an objective way. He considers this discipline to be a cornerstone of the learning organisation. The Learning Organisation is built upon the development of individuals in ‘a covenant’ with the organisation (Flood, 1999). Clearly this requires a convergence between the objectives of the organisation and the individual, and pre-supposes a continuing, mutually beneficial relationship and it may be questioned how often this happens in contemporary practice. Singapore, both at government and organisational level, invests a lot in organisational training and personal development. In Singapore, as elsewhere where there is labour mobility, this presents organisations with a dilemma. Encouragement of educational qualifications can make valued employees more employable elsewhere. The Singapore government counters this by giving subsidies for training. From the government perspective it is irrelevant whether people move jobs as long as there is upskilling. However, it is debatable if this sort of training and education, useful as it may be, really corresponds to what Senge means by personal mastery. This is especially true and 222

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consistent with Singapore’s score on Confucianism where the expression of dissenting views is discouraged and Singaporeans view learning in the name of getting a ‘good job’.

Mental model Mental model refers to one’s image of reality, a conceptual structure that gives meaning to what we perceive and drives our understanding of ourselves and our world. In the traditional bureaucratic organisation the mental model of the compliant members confirms and legitimates the very hierarchy that limits their development. In a Learning Organisation it refers to a person’s values and beliefs regarding learning and must be congruent with system thinking, although Flood (1999) sees this system thinking as supporting the development of mental models. In a Learning Organisation, through interaction between individuals, a common understanding and shared mental model is formed. Though, Singapore’s group-focused, team-based, collectivist society and organisations are perhaps better equipped to create shared mental models than elsewhere, in practice, status effects and regarding superiors as the ‘only thinker’ in the organisation reduce the chances of open discussion and information exchange which is important in forming new mental models. Hofstede’s dimensions on collectivism and Confucianism and Singapore’s score on these dimensions lent support to the understanding of the difficulties in practising LO concept in Singapore.

Shared vision Shared vision of the organisation provides employees with a common frame for developing shared mental models; hence there is organisational learning. This clear sense of mission and purpose also provides a ‘creative tension’ for organisation to learn. It provides a target for focusing employees ‘energy for learning’ and efforts to exploring ways to

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The Fifth Discipline in a highly disciplined Singapore improve performance, and when these ‘energies and efforts are aligned along the same direction, there is synergy towards attaining the shared vision. Shared vision is built on top of a shared mental model; it adds purpose and inspiration to a view of reality. Again it is likely that the collectivist tenor of Singapore society makes shared vision more attainable, although this would be counterbalanced by hierarchal tendency to develop ‘top-down’ visioning. Thus, Singapore’s high power distance does offer a plausible explanation for the lack of fit between LO concept and Singapore organisations. Whereas in New Zealand, whilst the more individualist tenor of organisations would make sharing a vision more difficult, if it is achieved it will be stronger for being built on diverse commitment.

Team learning This refers to learning in which the group or team learns as a single entity. Senge (1990) defines team learning as the process of aligning and developing the capacity of a team to create the results its members truly desire. It builds on the discipline of developing shared vision. It also builds on personal mastery, for talented teams are made up of talented individuals. Senge sees this as a combination of individual (personal mastery and group (shared mental model and vision) working in synergistic harmony. Singapore’s high scores on Hofstede’s power distance, collectivism and Confucianism dimensions are at odds with Senge’s prescriptions and this suggests that cultural relativism in the practice of LO concept is an important consideration. In summary, a Learning Organisation is one that is structured and managed in a way to facilitate individual learning and to collect all the learning and knowledge generated by its members in a synergistic way. It could be argued that Senge and his disciplines are automatically assuming the North American cul-

tural framework they are familiar with. The assumption is so automatic that culture is seldom mentioned. However, this makes it even more important to deconstruct the cultural assumptions. Culture does not cease to exist just because it is not mentioned.

CONCLUSION In this paper, using Hofstede’s framework, I have sought to show that it is important that organisational theorists and innovative organisations must take account of the complexities of national culture. This is especially important when studying concepts such as the learning organisation, with its focus on selfrealisation and human interaction, which have strong cultural ramifications. Recognising the significance of national culture is vital whenever management theories are being transposed from one place to another. This paper, therefore, has implications that stretch beyond the adoption of the LO concept itself to innovation and change management in organisations of non North American origin. I have demonstrated in this paper that the Learning Organisation concept is not culturefree, and any assessment of its validity must be undertaken within a recognition of the role of national culture. However, the case of Singapore makes it clear that assumption of a homogeneous national culture in the Learning Organisation has severe limitations in applications to innovation and change in organisations in multiethnic societies. It may be necessary, therefore, to introduce the concept of ‘ethnic culture’, the culture that attaches to a specific ethnic group within a national culture. In the Singaporean context the main ethnic cultures would be Chinese, Indian, and Malay. Clearly any of these terms are subject to further subdivision, refinement and contestability. This opens up new dimensions of complexity. Culture, by its very nature, is dynamic and ambiguous. It is affected by a wide variety of influences – religious, cultural,

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Kala S. Retna class, gender – as well as the specific experience of people themselves. Organisations, as we know, have their own culture, as do subdivisions within organisations which both limit and facilitate organisational innovation and change. Nevertheless, whilst culture as a concept is constantly bifurcating and transforming itself, it cannot be ignored. No study of management theory can step aside from addressing the problem of culture,particularly in the fields of organisational innovation. The Learning Organisation is no exception. This paper is a preliminary investigation of the subject, and at the time of writing, fieldwork is in progress. Some of the issues to be explored in fieldwork are: • What are the necessary conditions for innovating organisations to about LO? Does national culture affect the propensity to adopt LO? • Is LO more appropriate in some cultures than others? • Are there some cultures for which LO is quite inappropriate? • What adaptation do organisations need to make to LO concept to fit it to their cultural situation? • Does the national culture have a propensity for cultural borrowing or for cultural isolationism? • If the culture does import does it have a propensity for adaptation or nonadaptation (importing wholesale without changes)

References Ackoff, R. L. (1994) The Democratic Organisation, New York : Oxford University Press. Barr M.D (1999) Lee Kuan Yew: Race, Culture and Gene’s, Journal of Contemporary Asia, Manila, Vol 29, Iss 2. Camina, M.M (2000) Research note: Cultural 224

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gaps in cross-national cooperation: The legacy of empires in Macedonia, Organization Studies, Vol 21. Cunningham, J.B & Gerrard Philip (2000) Characteristics of Well-Performing organisations in Singapore, Singapore Management Review, Vol 22, Issue 1. Craig M. J (2001) Culture Shock – Singapore. Times Book International, Singapore De Geus, A. (1997) “The Living Company”, Harvard Business Review, March / April. Dofman, P., Howell, J. & Bauista, J. (1997) Dimensions of National Culture and Workrelated Beliefs : Hofstede revisited. In Fernandez, D., Carlson, D., Stepina, L. & Nicholson, J. (1997) Hofestede’s Country Classification 25 Years Later. The Journal of Social Psychology, 173, p 43–54 Drucker, P. F. (1994) “Knowledge-Worker Productivity: The Biggest Challenge”, California Management Review: 41(2): 79–94 Elenkov, S. D (1998) Can American management concepts work in Russia? A cross-cultural comparative study, California Management Review, Summer, Vol 40, (1) Flood, R. L. (1999) Rethinking The Fifth Discipline, Learning Within The Unknowable, London : Routledge. Garratt, B (1999) The Learning Organisation 15 years on: some personal reflections, The Learning Organisations, Vol 6, Issue 5. Goodwin, J & Goodwin D (1999) “Ethical Judgements Across Cultures: A Comparison Between Business Students From Malaysia and New Zealand”, Journal Of Business Ethics (18) 3. Grant, S.G, Petrovic-Lazarevic, S. & Berrell, M. (2000) “Significance of Recognition of Australian and Singaporean Cross Cultural Differences In The Decision-Making Process”, Working Paper 17/00, April, Monash University. Hackman, D. & Kleiner,B.H. (1990) “The Nature of Effective Management in

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The Fifth Discipline in a highly disciplined Singapore Singapore”, Leadership & Organization Development Journal, 11(4) Hampden-Turner, C.M. & Trompenaars, F. (1996) “Doing Business in Asia”, In P. Joynt & M Warner (Eds), Managing Across Cultures: Issues and Perspectives, London : International Thomson Business Press. Hoecklin, L (1995) Managing Cultural Differences –Strategies for Competitive Advantage, England, Addison-Wesley Publishing Company. Hofstede, G. (1993) “Cultural Constraints In Management Theories”, Academy of Management Executive, 7(1): 81–94 Hofstede, G. (1991) Cultures And Organizations: Software of the Mind, London : McGraw-Hill. Hofstede, G. & Bond, M.H. (1988) “The Confucius Connection: From Cultural Roots To Economic Growth”, Organizational Dynamics, 16(4) Hofstede, G. (1984) “Cultural Dimensions In Management and Planning, Asia Pacific” Journal of Management, 1: 81–90 Hofstede, G. (1983) “The Cultural Relativity Of Organisational Practices and Theories”, Journal of International Business Studies, 14. Hofestede, G. (1980). Culture’s Consequences: International Differences in Work-related Values, Beverly Hills : Sage. Irene, C. & Joseph P. (1995) “Relationship On Work-Related Values Of Singaporean And Japanese Managers in Singapore”, Human Relations, 48(10): 1149–1170. Kwang, N, A (2001) Why Asians are less creative than Westerners, Singapore, Prentice Hall Mark, F. P., Peter, S., Adebowale, A. & Sabino, A. (1995) “Role Conflict, Ambiguity And Overload: A 21-Nation Study”, Academy of Management Journal. 38 (2): 429–452. McGill, M.E. & Slocum, J.W.J. (1993) “Unlearning The Organisation”, Organizational Dynamics, 22. Michael, P., Prooijen, V., Frans, A.J. (1992),

“The Competitive Advantage of European Nations: The Impact of National Culture – A Missing Element in Porter’s Analysis?”, European Management Journal. 10(2): 173–178, Jun. Nevis, E. C. (1995) “Understanding Organizations as Learning Systems”, Sloan Management Review, Winter: 73–85. Newman, K.L. & Nollen, S.D. (1996) “Culture and Congruence: The Fit Between Management Practices and National Culture”, Journal of International Business Studies, 27(3). Pearson, C, A,L & Entrekin, L (1996) An assessment of organisational practices in Singapore Business: The Management Development Journal of Singapore. Pedler, M. J., Burgoyne, J. G. & Boydell, T. H. (1991) The Learning Company: A Strategy for Sustainable Development. Maidenhead : McGraw-Hill. Ralson, D, A, Egri, P., Stewart, S., Terpstra, R.H., Kaicheng, Y (1999) Doing business in the 21st century with the new generation of Chinese managers: a study of generalisational shifts in work values in China, Journal of International Business Studies, v30. Roberts, K. & Boyacigiller, N. (1997) “CrossNational Organisational Research Of The Blind Men”. In Fernandez, D., Carlson, D., Stepina, L. & Nicholson, J. (1997) Hofestede’s country classification 25 years later. The Journal of Social Psychology, 173, p 43–54. Schein, E.H. (1985) Organizational Culture and Leadership, California: Jossey-Bass Publishers. Schwartz S. H. (1990) “IndividualismCollectivism: Critique and Proposed Refinements”, Journal of Cross-Cultural Psychology, 21(2). Senge, P., Kleiner, A., Roberts, C., Ross, R., Roth, G. & Smith, B. (1999) The Dance of Change, New York : Doubleday.

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Kala S. Retna Senge, P. (1994) The Fifth Discipline Fieldwork, London : Century. Senge, P. (1990) The Fifth Discipline: The Art And Practice Of The Learning Organization, New York : Doubleday. Shane, S. (1995) “Uncertainty Avoidance and The Preference for Innovation Championing Roles” , Journal of International Business Studies, 26(1). Stott, K & Guat, T., L (2000) Leadership in Singapore Schools: The Impact of National Culture, Asia Pacific Journal of Education, Vol 20, No 2, pp. 99–109 Triandis, H.C. (1994) Individualism And Collectivism. Boulder, CO: Westview Press. Trompenaars, F. (1993) Riding the Waves of Culture. London : The Economist Books. Tsang, E.W.K. ( 1993) “Organizational Learning and the Learning Organisation: A Dichotomy between Descriptive and

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Prescriptive Research”, Human Relations, 50(1). Watkins, K. & Marsick, V. (1993) Sculpting the Learning Organisation: Lessons in the Art and Science of Systemic Change, San Francisco : Jossey Bass. Wei, K.K., Watson, R.T. & Walczuch, R M. (1998) “Reducing Status Effects With Computer-Mediated Communication: Evidence From Two Distinct National Cultures”, Journal of Management Information Systems, Summer. West, P. (1994) “The Learning Organisation: Losing The Luggage In Transit”, Journal of European Industrial Training, 18(11): 30–38. Westwood, R, I., Tsang, S.F, Y., & Kirkbride., P.S. (1992) Chinese Conflict Behaviour: Cultural Antecedents and Behavioural Consequences. Organisation Development Journal, 10(2): 287–301

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NOTICEBOARD CONFERENCE CALENDAR Innovation: Management, Policy & Practice Volume 4 Number 1–3 3 – 8 January 2003 The Future of E-Business – New Visions and Developments 3rd Annual Conference of the International Academy of E-Business Sheraton Towers Hotel – Melbourne Conference Coordinator/Contact John Van Beveren IAE-B Conference Co-Chair and Program Chair School of Business University of Ballarat Victoria, 3353 Australia. Telephone: +61 3 53 279415 E-Mail: [email protected] 7th – 9th January 2003 Celebrating Achievement – Developing Potential Conference 2003 Higher Education working with Business & the Community Conference 2003 Contact: Dr Faith Butt UniSdirect 5th Floor, Senate House University of Surrey Guildford, GU2 7XH Tel: +44 (0)1483 689304 Fax: +44 (0)1483 683791 E-mail: [email protected] http://www.unisdirect.com/conference/ index.html 10 – 11 January 2003 ICMARD 2003 Management of R&D in the New Millennium Department of Management Studies, IIT Delhi Conference Chairman: Prof. D. K. Banwet Dept. of Management Studies Indian Institute of Technology Delhi Hauz Khas, New Delhi – 110016 Fax: +91-11-6862620 Phone: +91-11-6591174 E-mail: [email protected] www.home.123india.com/kmomaya/ 13 – 15 January 2003 6th Annual Technology Transfer for the Pharmaceutical & Biotech Industries Hilton La Jolla Torrey Pines La Jolla, CA Contact: Aloycia Bellillie at 212 661 3500 x3702 Email: [email protected] http://www.iirusa.com/techtransfer/

15 – 17 January 2003 6th World Congress on Intellectual Capital and Innovation Hamilton, Ontario, Canada (in conjunction with the 24th McMaster Business Conference and the 4th World Congress on E-Business) Sponsored by: the Management of Innovation and New Technology (MINT) Research Centre at McMaster University Congress Chairperson: Dr. Christopher K. Bart McMaster University Tel: (905) 525-9140 x23962 Fax: (905) 521-8995 Email: [email protected] www.worldcongress.mcmaster.ca 26 – 28 January 2003 – ESOMAR Technovate – Technology and Innovation Conference European Society for Opinion and Marketing Research Hôtel Martinez,Cannes [email protected] www.esomar.nl/synopses/Technovate.htm 28 – 30 January 2003 7th Annual Drug Delivery Partnerships The Hotel Del Coronado, Coronado CA Contact Anna Geltzer: (800) 345-8016, ext. 3023 E-mail: [email protected] http://www.drugdeliverypartnerships.com/ conf.html 30 January 2003 The Local and the Global: Contexts in Science and Technology Center for Science Technology and Society Santa Clara University 500 El Camino Real Santa Clara, CA 95053-0470 Contact: [email protected] or (408) 551-1785 fax (408) 554-2346 http://sts.scu.edu/events 9 – 10 February 2003 Nanotechnology Investing Forum Investing, Commercialization and Tech Transfer Opportunities The Lodge at Rancho Mirage Palm Springs, CA

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Conference calendar 2003 IBF Conferences – NanoBusiness Alliance Contact: Timothy Martin VP Tech Transfer Initiatives Tel: (917) 755-5023 Fax: (413) 751-6596 [email protected] http://www.ibfconferences.com/ nanotech2003.htm 10 – 11 February 2003 Jump-Starting Innovation: Government, Universities and Entrepreneurs Jane S. McKimmon Center, NC State University, Raleigh, NC For information, registration, and sponsorship opportunities contact: Institute for Emerging Issues Box 7006 NCSU, Raleigh, NC 27695-7006 Tel 919-515-7741 Fax 919-515-5831 Email [email protected] www.ncsu.edu/iei/forums/2003forum 13 Feb – 15 April 2003 Marketing Scientific Results and Services Various CSIRO sites in Australia (Sydney, Melbourne, Brisbane) Presented by Judy Marcure, a joint initiative of Food Science Australia and Calibre Communications www.foodscience.afisc.csiro.au/conf/ marketing-rd.htm 21 Feb – 4 April 2003 Winning Strategies for Successfully Commercializing Intellectual Property Various locations in Australia (Brisbane, Melbourne, Sydney, Perth, Adelaide) Presented by Rob McInnes – IIR www.iir.com.au/law 3–6 March 2003 Federal Laboratory Consortium Technology Transfer Conference and Expo (TTCE) McCormick Place Complex in Chicago IL Contact: Tom Grayson FLC Management Support Office Marketing & Public Relations (856) 667-7727 [email protected] www.ttconference.com 7 – 8 March 2003 West China Development: Domestic Strategies and Global Implications An International Conference hosted by the Centre for Asia-Pacific Initiatives University of Victoria, Victoria BC www.capi.uvic.ca/west-china/synopsis.pdf

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20 – 21 March 2003 EARTO/EUROLAB International Conference: 2003 Excellence in Management in R&D and Testing Organizations Conference Centre Hotel Bel Air The Hague, Netherlands European Association of Research and Technology Organizations (www.earto.org) with European Federation of National Associations of Measurement, Testing and Analytical Laboratories In co-operation with and sponsored by: The Netherlands Organisation for Applied Scientific Research (TNO) Contact FeNeLab – EUROLAB Nederland: Telephone: +31 70 337 87 60 Telefax: +31 70 320 03;E-mail: [email protected] 3–4 April 2003 International research and development agreements Sheraton Park Tower, London Contact: Melanie Crocker tel: +44 (0) 20 7881 1886 e-mail [email protected] www.hawksmere.co.uk/auto/events/ 18303.html 7–9 April 2003 International intellectual property law Radisson SAS Portman Hotel, London Contact: Melanie Crocker tel: +44 (0) 20 7881 1886 e-mail [email protected] http://www.hawksmere.co.uk/auto/events/ 18304.html 7–9 April 2003 – ASEAT 2003 Manchester Institute of Innovation Research 2003 Conference Knowledge and Economic & Social Change: New Challenges to Innovation Studies Hosted by the Manchester Institute of Innovation Research (IoIR), which comprises PREST (University of Manchester), CROMTECH (Manchester School of Management, UMIST) and the ESRC Centre for Innovation and Competition, which bridges the two institutions. http://les.man.ac.uk/PREST/ASEAT2003/default. htm 10–11 April 2003 International technology licensing agreements Grosvenor House Hotel, London Melanie Crocker tel: +44 (0) 20 7881 1886 e-mail [email protected] www.hawksmere.co.uk/auto/events/18305 .html 23–24 April 2003 National SBIR Spring Conference 2003

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Conference calendar 2003 Destination: Success – Technology Transition Begins with SBIR Early-Stage R&D Funds Crystal Gateway Marriott, Arlington VA www.dodsbir.net/springconf03 24 – 30 April, 2003 The Local and the Global: Contexts in Science and Technology American Association for the Advancement of Science Washington DC Organized by: George Mason U., George Washington U., and Virginia Tech The Center for International Science and Technology Policy The Elliott Scholl of International Affairs 2013 George Street NW, Suite 201 Washington, DC 20052 Tel: 202 994 7292 Organisers: David Bruggeman, [email protected] Christine Pommerening, [email protected] Edith Webster, [email protected] Meighan O’Reardon, [email protected] http://www.hssonline.org/profession/ meetings/2003/1067.html 25 – 25 April 2003 Emerging Technologies Management Research Program Wharton Technology Mini-Conference for Academic Management Researchers William & Phyllis Mack Center for Managing Technological Innovation The Wharton School – University of Pennsylvania 1050 SH-DH; Philadelphia, PA 19104-6371 Phone: 215-573-7722; Fax: 215-573-2129 E-mail: [email protected] Administration: [email protected] http://emertech.wharton.upenn.edu/ TechMiniConf.html 4 – 7 May 2003 Innovation Across Boundaries – Management Conference 2003: Co-sponsored by AIChE and ACS Amelia Island Plantation Resort, Amelia Island FL Contact Information: Management Conference, American Institute of Chemical Engineers 3 Park Ave, New York, N.Y., 10016-5991, U.S.A. Tel: (212) 591-8544 Fax (212) 591-8893 E-mail: [email protected] http://www.aiche.org/conferences/management 5–9 May 2003 FLC National Meeting: Adding Value to the T2 Frontier Sheraton El Conquistador Resort & country Club, Tuscon AZ, Contact Sherry Nacci, tel 856 667 7727 www.federallabs.org

9 – 11 May 2003 Mapping Knowledge Domains – Arthur M. Sackler Colloquium Beckman Center of the National Academy of Sciences, Irvine, CA Symposium Organizer Richard M. Shiffrin Psychology Department, Indiana University, Bloomington, IN 47405 tel: 812-855-4972, fax: 812-855-1086, email: [email protected] Associate Organizer Katy Börner School of Library and Information Science, Indiana University, Bloomington, IN 47405 tel: 812-855-3256, fax: 812-855-6166, email: [email protected] http://vw.indiana.edu/sackler03/ 12–13 May 2003 International joint ventures agreements Grosvenor House Hotel, London Melanie Crocker tel: +44 (0) 20 7881 1886 e-mail [email protected] http://www.hawksmere.co.uk/auto/events/ 19464.html 13–14 May 2003 and 18 September 2003 Investing In Innovation Forum Connecting Inventive Minds And Smart Money Kalamazoo, MI Co-host: Western Michigan University Business Technology and Research Park Bob (Robert G.) Miller Western Michigan University (616) 387-2389 (phone) (616) 387-2355 (fax) [email protected] www.investinnovation.com 13 – 15 May 2003 IAMOT 2003 The 12th International Conference on Management of Technology ‘From information to knowledge to competencies: Key success factors for innovation and sustainable development’ Organized by: International Association for the Management of Technology ENSGSI, Convention Center Nancy, 54063, France Dr. Yasser Hosni Professor, University of Central Florida 4000 Central Florida Blvd. Orlando, Florida 32816-2450 USA Tel: 1 407 823 5817 Fax: 1 407 823 3413 [email protected] http://www.iamot.org/IAMOT2003/cfp1.html

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Conference calendar 2003 19–20 May 2003 Due diligence in international business transactions Grosvenor House Hotel, London Melanie Crocker tel: +44 (0) 20 7881 1886 e-mail [email protected] http://www.hawksmere.co.uk/auto/events/ 18306.html 21 May 2003 – Biotech 2003 Fusing Science, Technology, and Business Development Sheraton Imperial Hotel & Convention Center Research Triangle Park, NC Council for Entrepreneurial Development – North Caro;ina Biotechnology Center Conference Co-chairs: Helga Leftwich, Hutchison & Mason PLLC Brent Keating, RBC Centura Contact Corey Waters: [email protected] http://www.cednc.org/biotech/2003/ 29–30 May 2003 Federal Partners in Technology Transfer Conference Holiday Inn Plaza la Chaudière, Quebec Contact: Catherine Deschatelets-Cullen Senior Project Officer Federal Partners in Technology Transfer National Research Council Canada Building M-19, Montreal Road Ottawa, ON K1A 0R6 Tel: (613) 998-5244 Fax: (613) 998-8768 E-mail: catherine.deschatelets-cullen@ nrc-cnrc.gc.ca http://www.fptt-pftt.gc.ca/2003Conference/ English/2003confintro.html 4 – 6 June 2003 The 7th Conference on International HRM Limerick, Ireland Inquiries: Dr Michael J Morley Email: [email protected] www.ihrm2003.com 4 – 6 June 2003 BIS 2003 with Technology Transfer 6th International Conference on Business Information Systems Colorado Springs, Colorado, USA Hosted by: The University of Colorado,The College of Business and Administration and the Colorado Institute for Technology Transfer and Implementation Contact: The Poznan University of Economics Department of Computer Science Al. Niepodleglosci 10 60-967 Poznan, Poland phone: +48/61/ 856 93 33 fax: +48/61/ 856 93 34

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[email protected] Contact: The University of Colorado, Colorado Springs College of Business and Administration 1420 Austin Bluffs Parkway P. O. Box 7150 Colorado Springs, CO 80933-7150 Fax: 719/262-3494 [email protected] http://www.bis2003.info 9 – 22 June 2003 International Association for Chinese Management Research (IACMR) Inaugural Conference, Beijing -”Mapping the Territory for Chinese Management Research” IACMR Inaugural Conference Committee (in alphabetical order) Xiao Ping Chen, University of Washington (Program Chair) Weiying Zhang, Peking University (Program Co-Chair) Yanjie Bian, Hong Kong University of Science and Technology Joseph Cheng, University of Illinois Tailan Chi, University of Illinois at UrbanaChampaign Jian Han, Cornell University Christopher Hsee, University of Chicago Fanmin Kong, Peking University David Lamond, University of Western Sydney Mingfang Li, California State UniversityNorthridge Jar Der Luo, Yuan-Ze University James Meindl, State University of New York, Buffalo Michael Nippa, Freiberg University of Technology and Management Anne S. Tsui, Hong Kong University of Science and Technology Mary Ann Von Glinow, Florida International University Zhixing Xiao, INSEAD Ming Zeng, Chung Kung Graduate School of Business Xiangquan Zeng, Renmin University Jing Zhou, Texas A&M University Xueguang Zhou, Duke University http://www.iacmr.org/conference.htm 15 – 18 June 2003 IHEA 2003 – 4th World Congress Global Health Economics: Bridging Research and Reforms San Francisco CA Contact: iHEA Queen’s University Abramsky Hall, 3rd Floor Kingston ON K7L 3N6, Canada

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Conference calendar 2003 613-533-6675 Tel 613-533-6353 Fax [email protected] www.healtheconomics.org 23–24 June 2003 Nordic Conference in Development Economics Institute of Economics, University of Copenhagen Organized by: Development Economics Research Group (DERG) University of Copenhagen Coordinator: Finn Tarp Deputy Coordinator: Henrik Hansen University of Copenhagen Studiestræde 6 Dk-1455, Copenhagen K, Denmark Phone: (+45) 35 32 44 03 Fax: (+45) 35 32 30 00 E-mail: [email protected] http://www.econ.ku.dk/derg/ 23 – 27 June 2003 Technology Transfer and Capacity Building – UN/Norway Conference Contact: 4th Trondheim Conference on Biodiversity Tungasletta 2 NO-7485 Trondheim Norway Fax +47-73 80 14 01 http://chm.dirnat.no Email: [email protected]; [email protected] http://www.biodiv.org/doc/meetings/abs/ abswscb-01/other/abswscb-01-norway-en.pdf 25 – 29 June 2003 12th World Business Congress of International Management Development Association (IMDA) ‘’Succeeding in a Turbulent Global Marketplace: Changes, Developments, Challenges, and Creating Distinct Competencies’ Hyatt Regency Hotel Vancouver BC www.imda.cc/12worldBusinessCongress/ Vancouver20033.pdf 3–5 July 2003 – 19TH EGOS COLLOQUIUM Organization Analysis Informing Social and Global Development Copenhagen Business School, Denmark – Secretariat Marianne Risberg, Copenhagen Business School, Department of Organization and Industrial Sociology Solbjerg Plads 3 DK 2000 Frederiksberg, Denmark Phone: +45 3815 2823; Fax: +45 3815 2828 e-mail: [email protected] www.nff.cbs.dk/department/ioa/nff/ konferencer/19th_egos.htm

4 – 8 July 2003 The 7th International Conference of the Decision Sciences Institute “Decision Sciences in the Information and Knowledge Management Era” Shanghai Sponsored by CEBIS: China Europe International Business School Co-Chairs Dr. Linda G. Sprague, FDSI, FIOM, Professor of Operations Management, China Europe International Business School (CEIBS), Shanghai Dr. Kee Young Kim, FDSI, Sangnam Professor of Management, Vice President for Information Technology and Dean of The Graduate School of Information, Yonsei University, Korea Contact: [email protected] http://www.ceibs.edu/dsi2003/index.html www.decisionsciences.org/intl03.htm 5 – 8 July 2003 Academy of International Business 2003 Annual Conference The Power of Ideas and International Business Hyatt Regency Monterey, Monterey CA Host: The Monterey Institute of International Studies; http://aibworld.net/events/2003/ 7 – 9 July 2003 The R&D Management Conference: Implementing the theories of R&D Management Manchester www.radma.org; [email protected] 14 July – 1 Aug 2003 CASRIP (Center for Advanced Study and Research on Intellectual Property) Summer Institute University of Washing School of Law 1100 NE Camput Parkway Seattle, WA 98105 USA www.law.washington.edu/casrip 20 – 24 July 2003 PICMET’03 “Technology Management for Reshaping the World” International Association for the Management of Technology Portland Hilton, Portland OR Organizer: Portland International Conference on the Management of Engineering and Technology Dundar F. Kocaoglu, Professor and Chairman Department of Engineering and Technology Management Portland State University Portland, OR 972070751, USA Phone: 1-503-725-4660; Fax: 1-503-725-4667 e-mail: [email protected] http://www.picmet.org/

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Conference calendar 2003 20–24 July 2003, PICMET ‘03 Technology Management for Reshaping the World Portland International Conference on Management of Engineering and Technology Hilton Portland and Executive Tower Hotel, Portland OR USA Email: [email protected] www.picmet.org 1 – 6 August 2003 Academy of Management Annual Meeting – Technology and Innovation Management (TIM) Division; ‘Democracy in a Knowledge Economy’; Seattle http://myaom.pace.edu/AnnualMeeting/2003/ Contact: Laura B. Cardinal TIM 2003 Program Chair Kenan-Flagler Business School McColl Building, CB# 3490 The University of North Carolina Chapel Hill, NC 27599-3490 Tel: 919-962-4514 Fax: 919-962-4266 TIM Email: [email protected] 19 – 22 August 2003 Third International Convention of Asia Scholars (ICAS3) Raffles City Convention Centre Swissotel The Stamford, Singapore Organizer: Faculty of Arts and Social Sciences and the Asia Research Institute, National University of Singapore http://www.fas.nus.edu.sg/icas3/ 24 – 26 August 2003 EARIE 2003 30th Annual Conference of the European Association for Research in Industrial Economics, Helsinki Contact: Ms. Marion HEBBELYNCK at EIASM Place de Brouckère 31 1000 Brussels, Belgium Tel.: +32 2 2266660 Fax: +32 2 5121929 E-mail: [email protected] www.earie2003.net

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6–11 September 2003, FIP 2003 63rd World Congress – Pharmacy & Pharmaceutical Sciences Darling Harbour Convention Centre, Sydney FIP Congress & Conferences Andries Bickerweg 5 PO Box 84200, 2508 AE The Hague The Netherlands Tel: +31-70-302-1982/1981 Fax: +31-70-302-1998/1999 Email: [email protected] www.exist.nl/pdf/FirstAnn03.pdf 4 – 8 October 2003 – PDMA Research Conference The Business of Product Development: People, Process, and Technology Across the Life Cycle Marriott Hotel, Copley Place, Boston MA Research Conference Chair: Gloria Barczak, Ph.D. Phone: 617-373-5251 Fax: 617-373-5251 E-mail: [email protected] http://www.pdma.org/cfp_conf2003.html 27–28 October 2003 Towards Sustainable Product Design – 8th International Conference Creating Sustainable Products, Services and Product-Service Systems Nordic Sea Hotel Stockholm, Sweden Organised by: The Centre for Sustainable Design Sponsored by: The Nordic Council of Ministers Swedish Business Development Agency (NUTEK), Sweden Ministry of Environment, Sweden Supported by: World Business Council for Sustainable Development (WBCSD), Switzerland Department for Environment, Food & Rural Affairs (DEFRA), UK Contact: Professor Martin Charter, Director The Centre for Sustainable Design The Surrey Institute of Art & Design, University College Tel: + 44 (0) 1252 892772 Fax: + 44 (0) 1252 892747 Email: [email protected] Website: www.cfsd.org.uk/events/tspd8

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