INTRODUCTION
1
Introduction: Pacific Paradigms Thomas Clarke
Rethinking Asia
A
nticipation of the arrival of an AsiaPacific Century with Asia acting as the manufacturing workplace of the world economy, and new, distinctively Asian Pacific paradigms of economy and society predominating, has suddenly subsided. The ink was barely dry on a series of high-profile reports by the World Bank (1993; 1996) celebrating the unique combination of high investment and sustained high growth rates of the Tiger economies of East Asia as an inspiration to the other developing economies, when the Asian financial crisis broke. Erupting in June 1997 in Thailand, it quickly swept through the Philippines, Indonesia, Malaysia, Singapore and South Korea, impacting upon Taiwan and Hong Kong. Meanwhile Japan was experiencing a deepening crisis in its financial institutions. As Asian currencies, equity and property markets crashed to less than half their former value, just as suddenly the flow of books on Asia Rising (Rohwer 1996) ended, and was replaced by a stream of Asia Falling (Henderson 1998) studies. Lingle (1997:11) suggests, ``The idea of an `Asian Century' is a seductive myth based upon simplistic reasoning and misleading extrapolations of past performance. Unfortunately, the inherent conservatism and inflexibility of East Asia's economic and political institutions will interfere with processes necessary for sustaining the high growth rates that might have led to the region's global dominance.'' Whatever the economic achievements of the countries of the Asia Pacific, what is now very clear is that further progress will depend upon the degree to which institutional innovation and development can occur. Critical to this endeavour will be the freedom to develop and manage processes of innovation and creativity.
# Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.
The Miracle Economies of East Asia ``From 1965 to 1990 the twenty-three economies of East Asia grew faster than all other regions of the world. Most of this achievement is attributable to seemingly miraculous growth in just eight economies.'' (World Bank 1993:1) The World Bank research report The East Asian Miracle characterised the High Performing Asian Economies (HPAEs) led by Japan, into the four Tiger economies of Hong Kong, Republic of Korea, Singapore and Taiwan, joined later by the newly industrialising economies (NIEs) of Indonesia, Malaysia, and Thailand. What caused East Asia's success? The World Bank (1993:5) offered the following explanation: ``In large measure the HPAEs achieved high growth by getting the basics right. Private domestic investment and rapidly growing human capital were the principal engines of growth. High levels of domestic financial savings sustained the HPAEs' high investment levels. Agriculture, while declining in relative importance, experienced a rapid growth and productivity improvements. Population growth rates declined more rapidly in the HPAEs than in other parts of the developing world. And some of these economies also got a head start because they had a better educated labour force and a more effective system of public administration. In this sense there is little that is `miraculous' about the HPAEs' superior record of growth; it is largely due to superior accumulation of physical and human capital.'' This sustained economic growth ranked with the `economic miracles' of post-war Germany and the period of fastest growth in the 1960s of the Japanese economy as
Volume 8
Number 1
March 1999
2
CREATIVITY AND INNOVATION MANAGEMENT
indicated in Figure 1. The IMF in its annual reports endorsed this path to rapid economic expansion, and other commentators added their approval (Gereffi and Wyman 1992; Kim 1995; Overholt 1993) Of course as the World Bank argued in its 1996 Report From Plan to Market, high investment alone does not guarantee fast growth. It is the composition and quality of investment, as well as human capital and technological know-how that is critical (it is worth remembering that the Soviet economy sustained an average rate of growth in excess of 5% per annum from 1928 to 1960). A further difficulty the World Bank and the IMF did have with these economies was the extent of policy intervention by the state (in fact the 1993 World Bank research on the East Asian economies was funded by the Government of Japan). Policy intervention took many forms (World Bank 1993:6): a) targeting and subsidising credit to selected industries; b) protecting domestic import substitutes; c) subsidising declining industries; e) establishing and financially supporting government banks; f) making public investments in applied research; g) establishing firm and industry specific export targets;
h) developing export marketing institutions; i) sharing information widely between public and private sectors.
Sustainable Growth? An important question is whether this rate of growth is sustainable ± in both senses? Alwyn Young (1994) and Paul Krugman (1994) have both dismissed East Asia's economic growth as the inevitable result of a dramatic rise in the quantity of inputs in the economic system at an early stage of industrialisation. Gains from input-driven growth cannot continue indefinitely unless there are accompanying increases in efficiency. East Asian growth can be attributed to a great mobilisation of resources, combined with a self-sacrificing level of personal savings. Lingle (1997:79) contends: ``Dynamic, and thus sustainable economic growth relies upon gains in total productivity. Increased labour participation rates, employment expansion, as well as increased investments in education, health, and physical capital are blunt, one-shot methods for generating economic growth. The perpetuation of high growth rates demands that qualitative improvements must coincide with quantitative increases in outputs.''
10
GDP growth (percent per year)
9
8
7
6
0
15
20
25
30
35
40
Gross national saving (percent of GDP)
Figure 1. GDP growth and gross national saving in fast growth economies
Source: World Development Report 1996, From Plan to Market, World Bank, Oxford University Press, 1996, p. 42, Fig. 2.8.
Volume 8
Number 1
March 1999
# Blackwell Publishers Ltd 1999
INTRODUCTION
But even if rapid growth could continue, where is all this leading? There are now hundreds of sprawling modern skyscraper Asian cities that are a testament to the untrammelled pursuit of wealth. The breathtaking spectacle of the Shanghai skyline, with over a third of the heavy construction cranes in the world fully engaged in the earth's biggest building site is quite awe inspiring. Rohwer (1996:12, 243) contends: ``It is the gradual but relentless lifting of 2 billion rural Asians out of poverty over the years 1980±2020 that will make possible the extraordinary boom in consumption and urbanisation that has already begun radically to reshape the world economy . . . the rise of the Asian consuming classes will transform world markets for almost every product and service.'' Two thirds of the worldwide growth in car sales in the period 1993±2000 were predicted to be in Asia, and Boeing believes that of the tripling of world air travel it anticipates between 1995±2005, 60% of growth will be accounted for by travel involving Asia. (A young General Motors executive told me the story of how he arrived in Beijing 8 years ago, and as he looked out of his apartment building to the road junction below, all he could see were a dense throng of bicyclists. Now he looked out of the same window and there was a permanent traffic jam. This was before the new US$2 billion GM Buick plant comes on stream in Shanghai.) The worrying thing is that East Asia is emulating the process of Western industrialisation, with all of its mistakes, rather than finding a more appropriate path to economic-well being.
Leading or Following? This is part of an apparent lack of innovativeness and creativity in the East Asian economies. ``East Asian economies have been following rather than leading the rest of the developed world, by relying upon ready access to Western technology and open markets. As the `age of mass industrialisation' passes, the competitive advantage of many East Asian economies will be challenged. Without producing their own domestic entrepreneurial talent and self-generated technological advance, these countries will continue to lag the developed economies in what could prove a perpetually dependent relationship.'' (Lingle 1997:85) Enduring economic problems of East Asia identified by Lingle (1997:87) include:
# Blackwell Publishers Ltd 1999
3
i) ii) iii)
iv) v) vi)
Infrastructural weaknesses (away from the mainly coastal metropolises); Narrow product lines (largely in consumer electronics and automobiles); The need to develop export services and other value added products, to widen the economic base and increase the participation in the information technology revolution; Exports heavily dependent upon sales to advanced industrial economies, particularly the United States; A heavy dependence upon the import of raw materials including energy; Traditional institutional arrangements which inhibit original research.
For example Asian countries have specialised in the production of semi-conductors, South Korea is a world leader in the production of memory chips, with silicon wafer production concentrated in Taiwan and Singapore. Malaysia has had great success in developing assembly plants servicing major computer hardware corporations such as Motorola, Intel and Texas. But what is the future in this business? ``Prices are plummeting as the glut hits the market, but there is no sign of a slackening of the pace. Malaysia and Singapore are building a large number of new silicon wafer plants, while major companies in Taiwan, such as Formosa Plastic, are eager to get into the industry ± the island nation is building 12 silicon wafer factories at an estimated average cost of US$1 billion each.'' (Gough 1998:107) These production strategies could not have helped, but deeper social and structural flaws in the East Asian economies were soon to be revealed.
The Asian Financial Collapse Collapsing currencies, equity and property markets in East Asia in 1997±98 have exposed underlying vulnerabilities both in governance structures and values. Financial liberalisation and large current account deficits financed by short term foreign loans, left these economies open to large international movements of capital. However an international confidence crisis was fuelled by a growing realisation of the structural weaknesses of economies often governed by crony capitalism, opaque accounting and auditing systems, and too close relations between business and the state. Unprecedented growth over three decades brought over-confidence with savings not always applied to productive investments, currency appreciation, mismanaged firms and misaligned strategies. ``Speculative bubbles
Volume 8
Number 1
March 1999
4
CREATIVITY AND INNOVATION MANAGEMENT
involve the mass delusion that asset prices will rise relentlessly.'' (Lingle 1997:88) In many senses the Tiger economies are victims of their own success, with burgeoning prosperity encouraging excessive borrowing and the wasteful use of resources, inadequate supervisions of the financial sector and lack of transparency in business. Complacency during the time of seemingly endless economic growth has been replaced by inability to act decisively at a time of crisis. The recovery process will require attention to regulatory systems and compliance, together with reforms of corporate governance and disclosure standards. As Rohwer (1996:18) presciently argued, ``The biggest flaw in the success stories of modern Asia ± including Japan ± has been their failure to develop the transparent and objective public institutions needed to run the more sophisticated societies and economies that their fabulous economic growth is producing.'' The critical element in restructuring, refinancing and acquisition of distressed companies is that of the reliability and accuracy of financial statements. However to assume what is necessary is directly an adoption of Anglo-Saxon inspired international governance and regulatory systems underestimates the distinctive cultural foundations of governance systems.
The Sources of Industrial Recovery As Asia endures the shock therapy imposed by world financial markets there is a great incentive to find durable solutions to these difficulties. Firstly to arrive at a more suportive role for the state, as James Wolfensohn President of the World Bank has accepted, ``Development requires an effective state, one that plays a catalytic, facilitating role, encouraging and complimenting the activities of private businesses and individuals.'' (World Bank 1997:iv) Facilitating processes of institution building will be an important role of East Asian governments in the future. However this does not mean an authoritarian intrusion into the workings of the economy and the lives of those who manage and work in it. The official proponents of `Asian values' have often abused the values they claim to uphold. The deeply held commitment to hard work, sense of thriftiness, concern for the family, belief in education, desire for consensus and respect for political authority is the bedrock of the value system that has served Asia in the early decades of its industrialisation. However these values have too often been translated into nepotism,
Volume 8
Number 1
March 1999
croneyism and corruption by dynastic rulers. Such a system of patronage crowds out initiative and independent entrepreneurship. Even in the educational system of East Asia rote learning is preferred to original thinking. ``Many Asian economies are uniquely distinguished by an institutional bias against individualism. Asian cultures that inculcate conformity at the expense of initiative restrain the enterprising spirit that underpins the innovative process necessary for sustained economic growth . . . Perhaps the most damaging result of government policies that restrain free thinking is the glaring absence of innovative design and technological research in much of Asia. While it is true that some of the Tigers have begun to export some technology to neighbouring countries and have registered an increased number of patents, much of this activity reflects the efforts of multinational corporations that operate in the region.''(Lingle 1997:19,74) There is a growing awareness of these problems in East Asia, and efforts are being made to overcome them. A recent edition of the Far Eastern Economic Review (22 October 1998) carried the award winners of the first annual Asian Innovation Awards. Interestingly environmental and agricultural innovations were well represented (including the prize winner, Toyota's research on trees that absorb gases from car emissions!) Recent studies add confidence that the economies of the region are capable of breaking out of subcontracted manufacturing into the knowledge based economy and innovative services. The Hong Kong Advantage (1997) by Enright, Scott and Dodwell and Made by Hong Kong (1997) by Berger and Lester, are both convincing studies of the latent commercial promise of the Special Administrative Region of China. The immense potential of China itself is interesting to contemplate. (De Trenck et al. 1998; Goodman and Segal (1997); Clarke and Duxing (1998). Political reform, institutional reform, and economic restructuring, however necessary, will not succeed in putting East Asia back on a sustained path to prosperity unless accompanied by a greater emphasis upon education than construction, upon originality than just output, and upon enterprise than obedience.
Asia Pacific Research on Organisation Studies (APROS) The papers that are included in this special edition of Creativity and Innovation Manage-
# Blackwell Publishers Ltd 1999
INTRODUCTION
ment on Pacific Paradigms, were originally presented at a colloquium of the Asia Pacific Researchers on Organisation Studies (APROS) held in Shanghai in July 1998. APROS is a virtual network of researchers interested in the analysis of the distinctiveness of the emerging industrial and organisational forms of the Pacific Rim economies. The founders of APROS were Australian and East Asian members of the European Group on Organisation Studies (EGOS), who established the network in the early 1980s to focus on the Pacific. A programme of illuminating colloquia followed at first held in East Asia and Australia, but then embracing, (as does the revitalised Asia-Pacific Economic Co-operation (APEC)) the western Pacific of the Americas, with a seminal colloquia in Cuernavaca, Mexico in 1995. A series of publications have resulted from the colloquia, that have continued an informed commentary and analysis of developments in the enterprise structure and operation, management strategies and innovation of the Pacific Rim economies (Clegg and Redding 1992; Marceau 1992; Clegg, Colado and Bueno 1998). The next colloquia will be held in Sydney in the year 2000 in co-operation with the Research Committee on Economy and Society of the International Sociological Association.1 Turning to the papers on Pacific paradigms offered in this special issue.
The Interpenetration of Core and Periphery Stephen Little suggests how the Asian financial crisis, was really the first true crisis of contemporary globalisation. Though there have been a succession of economic and financial crises throughout the 20th century, what was distinctive about the Asian crisis of 1997 and 1998 was firstly the instantaneous electronic way global capital withdrew in response to the first hint of doubt concerning the soundness of these economies, and secondly how immediately the impact of this withdrawal of confidence was experienced in the remotest emerging markets of the world with profound effects. In the new global economy, Little highlights how in manufacturing the orderly transfer of functions from core to periphery across the product life-cycle is replaced by an interpenetration of core and periphery in which market and raw materials source, production and consumption are increasingly co-located. ``Information and communication technologies have enabled the disaggregation
# Blackwell Publishers Ltd 1999
5
of the production chain into a network by locating each activity specifically at its point of greatest comparative advantage.'' The colloquium was organised by the China Europe International Business School (CEIBS), a joint venture of the European Foundation for Management Education (EFMD) and the Shanghai Municipal Government. However the idea of an unproblematic process of globalisation driven by the ``miracle economies'' of East Asia is now undermined. The foundations of a Pacific Century were laid by the successful application of externally developed technology in Japan. Similar strategies have brought other East Asian emerging economies ``to the point where a paradigm shift from catch-up to sustained production of new technologies is required.''
The Learning Economy Jane Marceau draws attention to the importance of the network structural environment in which small firms have to develop knowledge of products, markets and technologies. ``Networks are a newly prominent and empirically visible element of the emerging productive system.'' Three dimensions of networks contribute to an innovation milieux ± social re±lationships based on trust, production relationships based on transactions, and exchange relationships based on linkages related to innovation. Distinguishing networks based on innovation, production and marketing, Marceau examines the effectiveness of business networks in the biomedical and toolmaking industries of Australia. The ways in which networks develop tend to vary according to the trajectories of technologies and the demands of clients rather than any internal characteristics of the networks themselves. SME's established in periods of stable technologies and markets are ill-equipped for major shifts in products and processes. It is important to make connections between systems of innovation and systems of production.
Heterogeneous Innovation In contrast to most of the literature on innovation processes which concentrate on the advanced industrial economies of the USA, Europe and Japan, Paul Couchman and his colleagues examine the appropriateness of concurrent engineering (CE) around the Pacific Rim. They examine the proposition that CE may not be appropriate in all
Volume 8
Number 1
March 1999
6
CREATIVITY AND INNOVATION MANAGEMENT
situations and with all technologies. The hidden problems of CE such as driving out the potential for originality, and an unsustainable pressure on support resources, are similar to the acknowledged problems with mainstream business process engineering. ``It is becoming increasingly clear that, while a CE approach is eminently suitable for incremental innovations, it may not be so appropriate for more radical breakthrough products and in environments characterised by high levels of technical uncertainty.'' Couchman et al. claim the CE literature presents a homogeneous view of new product projects focusing upon complex products. However in different economies and industries there will be very different kinds of products and different levels of innovativeness. ``Product variability negates the notion of a universally-applicable set of CE principles and practices.'' The appropriateness of concurrent engineering is associated with the complexity of new products, and for simpler products simpler systems of innovation will be more effective.
The Collaborative Paradigm If managing collaboration within organisations is difficult to accomplish, Thekla RuraPolley and Stewart Clegg address the even more difficult problem of managing collaboration between organisations, a question of increasing importance in the SME sector where companies need to pool resources and expertise in order to compete in the global market. When firms come together to make a product or deliver a service ``collaboration depends on permeating individual organisation boundaries and developing a joint vantage-point that combines the interests of the participants.'' Sustaining quality in collaborative relationships between firms is critical for the success of joint ventures, strategic alliances, and business networks, though most quality definitions and techniques concentrate upon managing intra-organisational quality. The extensive and diverse literature on both collaboration and quality is reviewed by the authors. The fragmentation of the literature according to different theoretical perspectives and audiences is addressed, and for example there are distinctive theories of quality developed within general management, marketing, operations research and engineering. The range of dimensions of the definitions of quality are considered focused upon aspects of corporate culture, customer expectations, continuous improvement and
Volume 8
Number 1
March 1999
stakeholder relationships. The significance of professionalisation, governance processes and technology is assessed in sustaining the quality of collaborative relationships. If quality is essentially an attempt to systematically deal with variation, we are left with the paradox that an unintended consequence of quality initiatives may be to diminish the capacity for adaptability.
Compression and Coordination A combination of chronological compression (the rapid progression from industrial origins to maturity and then decline) and coordination (matching supply and demand along a domestic line of production for export) are the distinctive characteristics that explain the extraordinary success of the Korean textile industry according to Dennis McNamara. Intra-firm coordination occurs through textile chaebol, inter-firm coordination by the industry federation, and industry level supervision through state control of quotas and trade relations and prices. Such intensive coordination was critical in resolving the market imperfections of a rapidly growing industry. Though the Asian financial crisis has brought severe dislocation to the wider economy, the strength of this productive system is revealed in that Korean exports of textiles and fabrics continued to grow during 1997 and 1998. However McNamara argues continued growth does depend upon painful adjustments. ``Few industries better represent the rapid, compressed character of Korea's development path in global markets than the multisector textile industry which pioneered both import substitution and export-oriented phases of industrialization, only to confront the challenges of industrial adjustment well before steel, shipbuilding, autos or electronics.'' Textiles was the proving ground for Korea's export strategy of targeting industries and then ``coordinating multiple subsectors into a diverse, integrated production line for export.'' Localising the manufacture of everything apart from raw materials, the Koreans effectively captured more extensive areas of value added production, a lesson they have applied well to a succession of higher technology industries.
Moving Up the Value Chain The historical trajectory of innovation in Hong Kong, the first Tiger economy, is assessed by Judith Hollows. Hong Kong
# Blackwell Publishers Ltd 1999
INTRODUCTION
experienced an historical progression in its productive system from the early efforts at post-war manufacturing by entrepreneurs attracted from the PRC, to the period of the 1980s and 1990s when Hong Kong capital and managers began to open up the mainland economy and shift manufacturing into Guangdong. Finally there is the present stage of re-unification of Hong Kong with the mainland, with the emphasis upon Hong Kong providing commercial services and technological talent for the vast industrial hinterland. The dilemma Hong Kong manufacturers now face, highlighted by Hollows, ``is whether to continue to pursue low cost/technology strategies which will require relocation of production to lower cost labour markets . . . Or should they move up the value chain in broadly the same product areas or break into new technology intensive industries?'' Most Hong Kong firms are engaged in original equipment manufacturing or original design manufacturing (OEM/ODM), and in technological capability have lagged behind the other Tiger economies of South Korea, Taiwan and Singapore that have developed own brand manufacturing (OBM). The vision of Hong Kong as an ``innovation-led, technology intensive city'' offered in an official 1998 report is an indication of the approved direction the city is heading in. Yet in the past development of Hong Kong, as indeed in the economic progress of each of the miracle economies of East Asia, the unpredictability of the ``interesting times'' lived through has been paramount.
Note 1. APROS 2000 will be held at the University of Technology, Sydney, contact Professor Stewart Clegg, School of Mangement, Faculty of Business, UTS, PO Box 123, Broadway NSW 2007, Australia. Email
[email protected] Web site http://www.man-bus.mmu.ac.uk/confs/apros
References Berger, S. and Lester, R. (1997) Made by Hong Kong, Hong Kong: Oxford University Press. Chen, M. (1995) Asian Managment Systems, London: Routledge. Child, J. (1994) Management in China During the Age of Reform, Cambridge: Cambridge University Press. Clarke, T. and Duxing, D. (1998) Corporate Governance in China: Explosive Growth and New Patterns of Ownership, Long Range Planning, 31, 239±251.
# Blackwell Publishers Ltd 1999
7
Clegg, S.R. and Redding, S.G. (1992) Capitalism in Contrasting Cultures, Berlin: Walter de Gruyter. Clegg, S.R., Colado, E.I. and Bueno, L. (1998) Global Management ± Universal Theories and Local Realities, London: Sage. Clifford, M. (1997) Troubled Tiger: The Unauthorised Biography of Korea Inc, Singapore: Butterworth Heinemann Asia. De Trenck, C., Cartledge, S., Daswani, A., Katz, C. and Sakmar, D. (1998) Red Chips ± And the Globalisation of China's Enterprises, Hong Kong: Asia 2000 Limited. Enright, M., Scott, E. and Dodwell, D. (1997) The Hong Kong Advantage, Hong Kong: Oxford University Press. Fruin, W.M. (1992) The Japanese Enterprise System ± Competitive and Cooperative Structures, Oxford: Oxford University Press. Gereffi, G. and Wyman, D. (eds) (1992) Manufacturing Miracles: Paths of Industrialisation in Latin America and East Asia, Princeton: Princeton University Press. Goodman, D.S. and Segal, G. (1997) China Rising ± Nationalism and Interdependence, London: Routledge. Gough, L. (1998) Asia Meltdown ± The End of the Miracle? Oxford: Capstone. Henderson, C. (1998) Asia Falling? Making Sense of the Asian Currency Crisis and its Aftermath, Singapore: McGraw Hill. Kim, Y.C. (ed.) (1995) The South-East Asian Economic Miracle, New Brunswick, N.J.: Transaction Publishers. Kono, T. (1992) Long Range Planning of Japanese Corporations, Berlin: Walter de Gruyter. Krugman, P. (1994) The Myth of Asia's Miracle, Foreign Affairs, 73, 62±78. Lasserre, P. and Schutte, H. (1995) Strategies for the Asia Pacific, London: Macmillan Business. Lingle, C. (1997) The Rise and Decline of the Asian Century, Hong Kong: Asia 2000 Ltd. Marceau, J. (1992) Reworking the World: Organisations, Technologies and Cultures in Comparative Perspective, Berlin: Walter de Gruyter. Overholt, W. (1993) China: The Next Economic Superpower, London: Weidenfeld & Nicholson. Rohwer, J. (1996) Asia Rising, London: Nicholas Brealey. Young, A. (1994) Lesson's from the East Asian NIE's: A Contrarian View, European Economic Review, 38, 964±73. World Bank (1993) The East Asian Miracle ± Economic Growth and Public Policy, Oxford: Oxford University Press. World Bank (1996) From Plan to Market, World Development Report 1996, Oxford: Oxford University Press. World Bank (1997) The State in a Changing World, World Development Report 1997, Oxford: Oxford University Press.
Thomas Clarke is at Leeds Business School, Beckett Park, Leeds LS6 3QS, UK.
Volume 8
Number 1
March 1999
8
CREATIVITY AND INNOVATION MANAGEMENT
Global Production and Global Consumption: Designing Organisations and Networks for the Next Century Stephen Little Globalisation has increased the significance of intellectual capital leveraged by the information and communication technologies on which it depends. Ultimately global production, distribution and consumption forces a shift in focus towards the end of the production chain where product differentiation and customer support can be used to maintain demand for goods and services. However, development is not uniform, specific markets and specific technologies are at different points in the cycle of growth, maturity and decline, rapid growth at favoured locations also creates regional imbalances within regions and nation states. The organisations and alliances which comprise the global production system must deliver continuous innovation at the cutting edge while ensuring effective diffusion of more mature technologies. Often available infrastructure and skills cannot support full integration into the global economy. While such problems may be most marked within the rapidly development in countries such as China, they exist to some extent in all economies. The stresses inherent in this emerging global system of have been highlighted by the current difficulties of the East Asian economies. The tight coupling of the system propagates the diverse problems of these individual nation states across the globe. This paper argues that globalisation undermines the separation of manufacturing and service activities and the distinction between products and services and examines the emergence of strategies and alliances across regional and organisational boundaries with a model derived from design management.
Global and Local Capabilities
I
n the post-Cold War era, global economic integration grew rapidly, and disparate national and regional cultures became increasingly interlinked within networked and globalised organisations. Information technologies facilitated these changes through the reduction of transaction costs and the alteration of the relative advantages and economies of size. However, this has led to a complex layering of labour markets, both internal and external to the developed economies driving the process. The imperatives of the emerging global market have led developed economies to shift their focus towards the end of the production
Volume 8
Number 1
March 1999
chain where product differentiation and customer support can maintain demand for goods and services. At the same time specific markets and specific technologies are at different points in the cycle of growth, maturity and decline. Segregation and exclusion are producing an unevenness of development within and between economies. Whether socially or geographically based, this threatens the prospects of achieving the goals of sustainability as defined by writers such as Welford (1995) who emphasises the shift from the notion of growth to that of sustainability in development by citing the Bruntland criterion developed by the EU of meeting present needs without compromising future generations. # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.
GLOBAL PRODUCTION AND GLOBAL CONSUMPTION
Globalisation of the world economy has increased the significance of intellectual capital leveraged by information and communication technology. To understand how this has undermined the separation of manufacturing and service activities and the distinction between products and services we must examine new forms of locational and functional differentiation across a globalised network of invention, innovation and implementation. This situation presents the organisations and alliances which comprise the global production system with the challenge of delivering continuous innovation at the cutting edge while ensuring effective diffusion of more mature technologies. Unlike the ``appropriate technology'' promoted during the 1970's, this implies a control of diffusion from the technological core. The degree to which the key participants are themselves truly international or transnational is open to debate. Consequently this paper seeks to relate aspects of the late twentieth century world economy and corresponding emergent organisational forms to both their developing technical infrastructure, and the historical and cultural particularities that ensure diversity and friction throughout an emerging global system that is often presented as a seamless technological artefact. The current East Asian economic crisis, which gives urgency to this task, is rooted in a diverse range of economies reflecting equally diverse policies and strategies. Design as an activity unifying product, process and organisation across geographical and cultural boundaries can play a critical role in placing these strategies in a global context.
Global Production/Global Consumption? The complexity of our world has become better appreciated following the removal of what Ohmae (1995) terms the ``bi-polar discipline'' of the Cold War. This obscured differences within and between members of the Eastern and Western blocs and consigned the remainder of humanity to the disparagingly termed ``Third World''. Some triumphalist writers in the West have accorded information and communication technologies a key role in the erosion of monolithic state control in the former Eastern bloc. However, their accompanying assertions that a technically driven globalised economy can solve the remaining problems facing us are being increasingly challenged with evidence of the exclusion of economically marginal performers from decision making and by the onset
# Blackwell Publishers Ltd 1999
9
of simultaneous crises across the varieties of capitalism deployed by the developmental states of East Asia. Europe, North America and East Asia all contain the most advanced levels of economic development alongside developing economies. Each region faces the challenge of supporting balanced growth in peripheral areas where available infrastructure and skills cannot support full integration into the global economy. There seems some degree of consensus that in the post-cold war era difference and diversity are resources. Delamaide (1994) explores the synergies flowing from the reassertion of historical cultural and economic linkages, while Ohmae (1995) argues for ``zebra strategies'' which play to the relative strength of the most developed components of national economies in order to create regional synergies. Both are discussed below. Although linkages between the advanced areas of developing economies are creating new regions irrespective of national boundaries, few national governments are prepared to relinquish responsibility for the development of the state as a whole. While the assertion that national or even international regional government no longer has a significant role in development is now increasingly challenged, differential development entrenched through dependence upon a global infrastructure driven by the priorities of the dominant developed economies threatens the legitimacy of the nation state. The development of cooperative economic mechanisms such as NAFTA and ASEAN suggest that there are means of achieving development which retain a role for national governments. However, the emergence of economic groupings as large as APEC, with the imminent addition of Russia, Vietnam and Peru, or the proposals for further expansion of the European Union threaten the original coherence and logic of these associations.
Chains, Networks and Webs Dicken (1998) enumerates the repertoire of trans-national corporations which accommodates direct foreign investment, joint ventures with local companies and alliances, both permanent, as with the recent merger of Mercedes-Benz and Chrysler, and temporally and geographically limited partnerships such as that between Siemens, IBM and Toshiba in relation to the European market (see Castells; 1996; p.194). Such arrangements involve significant cross-cultural accommodation, as with the acceptance of German workforce representation at board level by the U.S. side of the automotive merger. Dicken's use of a
Volume 8
Number 1
March 1999
10
CREATIVITY AND INNOVATION MANAGEMENT
generic production chain to understand the consequences of the accompanying strategy shifts for firms, governments and workers is discussed below. The geographical separation of a periphery providing raw resources and a basic market from a core containing transformation processes and sophisticated markets can be identified in European and earlier forms of colonialism. However, the emergence of a global market has led to the progressive relocation of basic manufacturing processes to the periphery and a consequent a shift in focus in developed economies towards the end of the production chain where product differentiation and customer support can maintain demand for goods and services. The integration of this emergent system can be overstated since specific markets and specific technologies are at different points in the cycle of growth, maturity and decline at any time. Consequently, the organisations and alliances which comprise the global production system are presented with the challenge of delivering continuous innovation at the cutting edge while ensuring effective diffusion and exploitation of more mature technologies.
Modelling the Web Such layering of interests and resources requires some form of representation akin to the logos used by Mintzberg (1979) to illustrate the influence of context on his organisational typology. A basic production chain is used by Dicken to map a geographical hierarchy involving resources, manufacturers and consumers (Dicken; 1998, Figure 1.1). This metaphor is being superseded by the idea of global production networks. Research and development, routine manufacturing, final assembly and after-market support may all be present in the same location, yet each may be contributing to different product chains and sectors. The re-distribution of these activities during the product life cycle further undermines the traditional concepts of centre and periphery. The orderly transfer of these functions from core to periphery across the product lifecycle described by Hirsch (1967) is replaced by an interpenetration of core and periphery in which market and raw materials source, production and consumption are increasingly co-located. Dicken (1998) demonstrates that information and communication technologies underpin the global system, offering opportunities for participation in the ``information economy'' to peripheral areas. Information and communication technologies have enabled the disaggregation of the production
Volume 8
Number 1
March 1999
chain into a network by locating each activity specifically at it point of greatest comparative advantage. The ability to disaggregate the intellectual capital produced by the divergent stage of the design process from the convergent, focused discipline of the production process (see below for discussion of Jones; 1980) has been enhanced by the ability to control production lines from across national boundaries. In some instances complementary manufacturing takes place at both ends of such relationships, however, Lipietz (1992) argues that the ability to separate production from consumption signals the end of the ``Fordist compromise'' which underpinned the Keynsian social-democratic paradigm. Production workers remote from the destination market no longer need to be paid sufficiently well to consume the products of their own labour. Castell's (1989) view of the creative milieu captures the complex web of relationships necessary to support genuine innovation. Despite this, and despite the better understanding of the value of diversity, a simplistic isomorphism re-appears in models of the adoption process which still reflects Rogers' (1983) model of diffusion from centre to periphery. The general dissemination of ``lean production'', and of models of science cities and science parks derived from specifically U.S. synergies between university and commercial research are evidence of the persistence of a ``one-way'' approach. Both Route 128 and Silicon valley have been imitated globally, with varying success: Castells and Hall (1994) show that attempts to engineer such creative situations have produced very mixed results, both within their original cultures and beyond. In contrast Castells (1996) describes a form of network organisation which is composed of components of larger corporations, collaborating in specific spatial and temporal circumstances, while the main companies are still pursuing global strategies of direct competition. The framework of the network organisation appears to offer an opportunity for smaller players to access resources from and to compete within global networks. Inoue (1998) describes a ``virtual village'' in which small enterprises are able to form and reform alliances in order to provide high technology services to larger companies. However, the additional accessibility and flexibility of advantage offered to smaller players is accompanied by the capability of larger firms to restructure in such a way that they can enter niche markets yet still draw on their wider resource base. Potential advantages are offset by the ability of some larger firms to de-
# Blackwell Publishers Ltd 1999
GLOBAL PRODUCTION AND GLOBAL CONSUMPTION
couple key business units better to target customers and markets traditionally served by much smaller firms.
Cores, Peripheries and Rims The divisions within the emerging ``global economic system'' create two additional problems which undermine the broader sustainability of development. The newly industrialising countries that are in the process of catching up are engaged in a process in which development and growth are synonymous. They are understandably sceptical of advice which suggests that they should adhere to higher standards than those applying at the equivalent stage in the development of the dominant established economies. Additionally, significant parts of the globe are excluded from this process of catch-up. Their difficulty lies in maintaining even relatively modest economic objectives. Exclusion from policy making processes or from influence over the emerging global production system reduces their ability to negotiate over the sustainable exploitation of the primary resources they have traditionally contributed to the global system. The issues reflect an emergent ``information apartheid'' within the global economy and the spatial strategies facilitated through information and communication technologies threaten any prospect of integrated development by allowing a ``cherry-picking'' approach to both the human and physical resources of developing regions driven by external criteria. The foundations of a ``Pacific Century'' and a possible Pacific focus for the global economy were laid during the nineteenth century by the successful acquisition, adoption and subsequent re-export of externally developed technology by Japan (Morris-Suzuki; 1994). David and Wheelwright (1989) argue that many such regional shifts can only be understood in the context of waves of capitalist development operating on a world-wide scale. The current level of internationalised trade itself is no novelty. Hirst and Thompson (1996) demonstrate that on many significant measures the world economy was at least as internationalised in the period prior to the First World War. However, they refuse to attribute any qualitative change to the technologies which have emerged since then, identifying the electric telegraph and steam navigation as the key facilitators of integrated world trade. Nevertheless there must be some qualitative shifts associated with the nearinstantaneous transfer of almost unlimited amounts of information between almost any two points on the surface of the planet. The
# Blackwell Publishers Ltd 1999
11
application of information and communication technologies (ICTs) to globalised of financial markets has contributed to the internationalisation of economic decisionmaking and transformed the volume and flow of resources from waves to tsunami.
Regions: Transnational, National and Sub-national The emerging global system is not a uniform network, it presents different challenges for the new century for each member of the dominant economic ``triad'' of Europe, North America and East Asia identified by Ohmae (1985). The success of Japan and other Asian economies in transferring, transforming and re-exporting socio-technical systems inevitably provoked a response which resulted in the rapid diffusion of innovations in all directions. This depends on the widespread use of ICTs but the emerging global system of production, distribution and consumption is not uniform. The rapid pace of growth in favoured areas also creates regional imbalances within regions and nation states where available infrastructure and skills cannot support full integration into the global economy. While these may be most marked within the most rapidly developing economies such as China, they exist to some extent in all economies. Dicken (1998) and Dunning (1993) show that the majority of direct foreign investment is within and between members of this triad. For example, the European Union is particularly keen to encourage European investment into Asia's developing economies, with initiatives such as ``Asia Invest'' aimed at smaller and medium sized companies which may benefit from resource sharing between European development and Asian manufacture. While this initiative is focussed on the actual and potential resources of the less developed Asian economies, the E.C./UNCTAD report on European Union direct investment is aimed at both developing and developed regions of Asia (EC/UNCTAD; 1996). Localities within each region of the `triad' are restructuring rapidly in an attempt to obtain or ensure a continued prosperous place within the global system. Both proponents of globalisation such as Ohmae and more critical reviewers such as Dicken (1998) recognise that differences within individual national states in both developed and developing regions may be at least as significant that those between them. Using 1991 statistics, Ohmae (1995) shows that China's national average per capita GDP of US$317 masks regional variations in GDP
Volume 8
Number 1
March 1999
12
CREATIVITY AND INNOVATION MANAGEMENT
ranging from US$164 and 197 in Guizhou and Guangxi to US$1,218 and 1,527 in Beijing and Shanghai. While continuing rapid economic development has raised all of these measures since 1991, the differentials remain. The logic of this current wave of technologydriven globalisation has impacted on significant sectors of the developed economies themselves. Both Japan and Britain are finding that only specific geographical areas or economic sectors are benefitting fully from integration into the global economy. As with other forms of technology transfer premised on foreign direct investment, smaller local organisations and enterprises may gain little, finding instead that key resources are diverted to the support of incoming capital, hampering their own development. Inward investors may ``cherry-pick'' demographically, establishing greenfield developments remote from existing competing companies. Such tactics allow investors both the inducements offered by local authorities and a workforce whose age structure represents a significant cost advantage in itself. The resulting regional ``beauty contests'' may result in supporting technologies, in particular the information and telecommunications infrastructure, optimised for these externallydriven actors. Differences between centre and periphery and between large and small scale economic activity become central to an understanding of the impact of globalisation and its supporting technologies. Ohmae's ``zebra strategies'' combine the most developed components of several national economies in order to create regional synergies. However, the resulting patterns of development, dependent upon a global infrastructure driven by the priorities of the dominant developed economies can only entrench inequitable development within national economies. Both Ohmae (1995) and Delamaide (1994) mount arguments for the acknowledgment of complementary regional associations in contrast to national boundaries. However, implicit and explicit in Ohmae's zebra strategy is the view that national or even international regional government no longer has a significant role in development. While this is increasingly challenged, there are differences of opinion over which level of government: regional, national or transnational, is best equipped to deal with particular negotiations over a location's relationship to the wider economy. Organisations, whether commercial, regulatory or voluntary, are increasingly confronted with the need to operate across a multiplicity of boundaries, whether geogra-
Volume 8
Number 1
March 1999
phical, political or cultural, in order to function within the emerging global system. Delamaide offers a perspective on pre-existing historical and cultural linkages which predate both the recent cold war divisions, and the emergence of current nation states. In many areas such as the Baltic, these older linkages can be seen re-emerging in the panEuropean context. Elsewhere, he draws attention to the pivotal role of Turkey as a link between Europe and the Turkic republics of the former Soviet Union. Such cultural synergies offer a means of retaining regional coherence in the face of continuing expansion of entities such as the European Union. Kirlidog (1997) demonstrates the implications for technical support through an examination of the impact of Turkish business practices on the implicit assumptions of imported executive information systems. Cultural interoperability is likely to become as significant as technical inter-operability in the global economy (see Kaye and Little; 1996)
Crisis, which Crisis? Recent events in the East Asian economies have undermined the idea of a rapid and unproblematic process of globalisation, driven by ``miracle economies''. Some acknowledgment of Krugman's (1996) views on the uncritical acceptance of high growth rates over relatively short periods from very low base levels is welcome. Unfortunately the immediate impact in the West has been to reject out of hand the development strategies which delivered past growth even though the very different forms of crisis across the affected economies and the different responses at national level reflect the diversity of approaches within the region. In some respects it is the success of these strategies which has brought the growing economies to the point at which a paradigm shift from catch-up to sustained production of new technologies is required. At least part of the current crisis in East Asia is a reflection of the difference between the problems of technological leadership and those of catching-up with leading economies. Orru, Biggart and Hamilton (1991) reveal strikingly different forms of intrasocietal isomorphism among the relatively new industries of Japan, Taiwan and South Korea, despite their relatively close historical associations. Subsequently a better understanding of the dynamics of the strategies employed in East Asia has come through Kim's examination of the historical connection but significant difference between the chaebol, zaibatsu
# Blackwell Publishers Ltd 1999
GLOBAL PRODUCTION AND GLOBAL CONSUMPTION
and keiretsu company networks (Kim; 1996); Redding (1996) and Wong (1996) have provided a better understanding of Chinese business practice to the West. The recent economic turbulence on the western Pacific rim demonstrates the diversity of problems facing the participants in this network. Economies such as Korea which have been highly successful during the catching up phase of development show that different socio-technical paradigms are needed to sustain growth in the conditions of lower absolute growth encountered in relatively mature markets. Participation in the development of the intellectual resources necessary for the next stage of development requires even more direct integration into the emerging world system and a greater institutional alignment within and between regions. Japan's earlier lead means that debate there over new economic strategies has intensified further since the collapse of the bubble economy, but consensus has not been achieved over exactly what changes should be made to the institutional structures which supported post war development. Institutional arrangements, such as the readily available long-term finance sourced from within the Japanese keiretsu, until recently the envy of western companies, are increasingly recognised as a liability not an asset both within and beyond Japan itself. The resulting accumulated bad debt is a major component of the current economic and political impassse. China, as East Asia's largest economy has the advantage of size and continuing scope for the established high growth paradigm. However, this size also increases the problems of regional differentials in development. The successful business networks of Hong Kong can only be developed so far into the wider hinterland before cultural and linguistic differences impede their further extension. European and North American companies have sought to emulate aspects of Asian strategies for some time and comparative advantage has been eroded as Asian methods, building on the western industrial model have been re-exported to the original industrial core of Europe and North America. Nuki (1998) shows that this in turn has engendered a response based on accelerating the product life cycle through the application of ICTs at all stages of development and production.
Repositioning across the Web Mature economies seeking to remain at the cutting edge of technology in a maturing
# Blackwell Publishers Ltd 1999
13
global market are shifting focus towards the end of the production chain where product differentiation and customer support can maintain demand for goods and services seems essential. As a consequence, the distinction between products and services becomes less obvious. This end of the chain requires closer adjustment to cultural variation among the users and customers. James and Howell (1998) examine the use that Asian companies are making of the R & D facilities they are establishing or acquiring within the United Kingdom. Evidence suggests that access to both knowledge for market adjustments and broader intellectual capital are the objectives. both the British government and the European commission are encouraging companies to seek alliances and opportunities in the opposite direction, both as a means of accessing the market potential of Asian growing economies and as a means of improving offshore manufacturing resources in relation to both home and export markets. Evidence of an increasing focus on the end of the chain where product differentiation and service provision allow competitive advantage to be developed can be seen at ICL in its post-Fujitsu incarnation. It has moved further from it original manufacturing hardware base to position itself as an information services provider that can support the specificities of a European business environment. This end of the chain is more culturally variable and success reflects specific local or regional knowledge. Evidence of a ``value chain'' approach (Porter 1990) can be seen in a very different industry. Both ICI and Unilever have been engaged in moving along the production chain, to the area of higher added value, with Unilever passing its specialist chemical division to ICI in order to concentrate on the delivery of differentiated brands based on these feedstocks. Meanwhile ICI has off-loaded it bulk chemical business to firms content to compete primarily on price at the commodity end of this chain. Dicken's (1998) use of the production chain to analyse the dynamics of the global economy is revealing. In common with Porter's representation of the value chain (Porter; 1990, Figures 2.3 and 2.4), a range of critical support activities is modelled at each stage of this generic model. By linking primary production with quaternary post-delivery support of goods and services, a variety of service activities wrap around the core thread of the production chain. Dicken demonstrates the traditional view of the service sector as evidence of a ``post-industrial'' or advanced economy. A quaternary sector is seen as the logical development of a preponderance of
Volume 8
Number 1
March 1999
14
CREATIVITY AND INNOVATION MANAGEMENT
intellectual capital over physical capital. The dynamic growth of deregulated financial services and the broadly perceived shift from manufacturing to service industries supports such a view. The fact that as prestigious a company as General Electric is making more money from its financial services than its engineering efforts might seem to confirm services as a successor to primary, secondary and tertiary activities.
Design Paradigms and Paradigm Shifts A broad level of analysis is needed both to accommodate global links and to examine regional economic activities in the context of the paradigm shift from catch-up based on rapid growth rates to technological leadership. A shift in the view of innovation and product-life cycle to that of process life-cycles, akin to double loop learning is part of the required change. The repositioning of effort across the production network may be better understood from the perspective of the design philosophies and methods that have been applied to both product and processes during the last three decades. Galbraith (1977) staked the claim that information systems design was in effect organisation design. Information systems designer have in turn drawn heavily and effectively on a wide body of more general design research and theory. In parallel to the development of organisation theory through and beyond the framework of systems theory, design methodologies have reflected a changing understanding of the processes and the role of the participants and wider stakeholders in them. Scott (1992) argued that organisation theory could be seen as developing from a closed rational systems view of classic management theory to an open natural systems view able to accommodate influences from the institutional and technical environments (see Little; 1990 for a view of this shift from a design decision-making perspective). Jones (1980) presents design methods extant in the sixties and seventies, and relates them to generic models of the design process. This model consists of three stages: A. Divergent Search B. Transformation C. Convergence In the divergent searching of the possible solution space for a design problem, the objectives are unstable and tentative, the problem boundary is unstable and undefined and evaluation is deferred. The sponsors brief
Volume 8
Number 1
March 1999
is a starting point, subject to revision and the aim is to increase uncertainty and widen the range of possibilities. The transformation process is, in effect the imposition on to results of Divergent Search of a pattern which will allow convergence to a single solution. At this stage objectives, briefs and boundaries are fixed, critical variables and constraints are recognised and the problem is divided into sub-problems for parallel or serial treatment. The freedom to change sub-goals, and rapid evaluation of alternative choices are needed and the personal capabilities and orientation of the team are critical at this stage. The convergent activities have as their objective the reduction of uncertainty. This stage requires a very different orientation. Persistence and rigidity of mind become a virtue. Unforseen sub-problems may prove critical at this stage, and cause recycling to earlier stages. The models used to represent remaining alternatives become more detailed and concrete. This essentially linear model of design can be seen in the ``waterfall'' model of information systems design (e.g. Birrell and Ould; 1985). Here the need for re-cycling indicated by Jones is accommodated between successive stages of development and refinement. The waterfall model can also be reflected in Dicken's chain, the global redistribution of the components of production can be seen to be dependent upon effective communication across the feedback loops linking each stage which is dependent, in turn on globally available ICTs. In this context the relative success of the newly industrialising countries can be seen as a highly effective entry at the convergent stage, involving efficient production utilising mature technologies. The response of players to the emerging new web-oriented ``technoeconomic paradigm'' (Perez, 1985) is instructive for both nation states and sub-national regions. Arguably Japan has developed accomplishments in the transformation stage with highly innovative products derived from newer technologies, but feels less proficient at the divergent stage which can be likened to the development of basic research strategies and fundamental innovation tracks. Taiwan's relatively effective response reflects a range of cultural and economic linkages. Taiwan has followed a classic route of state sponsored development, particularly in the area of information technology (Tsai; 1993). Companies such as Tatung reflect the same Japanese colonial influence which produced the sprawling portfolios of the Korean chaebols. However, the chaebols closely mimic
# Blackwell Publishers Ltd 1999
GLOBAL PRODUCTION AND GLOBAL CONSUMPTION
the rigidities of the pre-war Japanese zaibatsu. In addition, the nature of state patronage through credit rationing in Korea (Zeile; 1996) has encouraged companies to second-guess areas of potential state support by moving into business sectors in anticipation of future support. This has created even greater diversity within the company groupings that that inherent in the Japanese model. In Taiwan the mix of traditional Chinese business networks described by Numazaki; (1996) with a state provided or sponsored infrastructure has produced a different outcome from both Korea and from Hong Kong. In the latter, the key British colonial legacy was as much the legal as the technical infrastructure. Hong Kong has turned away from the pursuit of a higher technology trajectory within the production chain, seeking to maximise current advantage within its P.R.C. hinterland. The relatively narrowly targeted strategies of Taiwanese firms, have delivered world class performance in key areas of information technology. Dominance has been achieved in motherboard design and fabrication. The manufacturing capability in the ``silicon forge'' service provided to overseas designers requiring prototype chips has allowed participation at key points in the production network. Foreign companies such as Texas Instruments operating in Taiwan do so in order to produce high-value products, not to pursue outright cost advantage. From this level of performance, companies such as Acer have developed a more integrated presence as full-range manufacturers. The reassertion of Greater China in regions of former European and Japanese colonisation has been of particular benefit to Taiwan, with some 35,000 enterprises now established on the mainland (China Intercontinental Press; 1997). Taiwan's connection to the Japanese economy means that Taiwanese inward investment to the P.R. China represents a layering of regional cross influences and a transfer of a range of capabilities and traditions. The relative independence of Taiwanese financial institutions has allowed positive features of the Japanese development strategy to be emulated while avoiding some of the negative consequences. Malaysia, a country with comparable population base, may still be stuck with the essentially convergent tasks of global production despite efforts to shift to transformative and divergent activities via the Multimedia Super Corridor and related initiatives, emphasising the difficulty of achieving an effective policy mix (Wilkinson et al., 1998). Just as the view of organisational relationships have moved towards network or web
# Blackwell Publishers Ltd 1999
15
paradigm, so have models of the design process shifted to accommodate less linear and more situational views of design. The implications of a shift from a hierarchical to a network or web view of organisations is foreshadowed by Thompson (1967) in terms of coalition formation across the organisation, and by Mintzberg (1979) in the form of work constellations. Within design the acknowledgment of design participation of users (Cross; 1972) also shifted models of the design process into less hierarchical and more situated paradigms. In the discipline of information systems, Avison et al. (1998) describe the evolution of Multiview-2, a design methodology intended both to encompass soft systems methods and to accommodate a view of organisations as networks of related but varying interests and priorities. It replaces the linearity of its predecessor with a related set of tools any of which might be applied to a specific situation Design can be regarded as the unifying activity or process throughout the production chain and across the production network. Design determines the output, whether artifact or service, it also determines the configuration of processes and deployment of resources across the network.
Geography is History is Geography Delamaide (1994) mounts a case for the reemergence of historical geographical and economic synergies across Europe since the end of arbitrary Cold War division. The political geography underlying these connections goes back to the Hanseatic League or the Holy Roman Empire. Delamaide's attribution the patterns of potential development across an enlarging European Community to a range of geo-historical connections suggests that the globalising IT slogan Geography is History employed recently by British Telecom should be reversed. Enduring cultural links, whether established through trade, migration or colonisation can be identified throughout the emergent global system. Nobes and Parker (1981) present a range of taxonomies of variation in accounting practice across the globe, which relate zones of influence both to the initial development of modern accounting in Scotland and England, its subsequent spread though other Anglophone cultures and the effect of alternative models on the emergence of spheres of influence. In India the legacy of English as a lingua franca, particularly in the southern states where it is most significant, has been of some benefit in the establishment of an export oriented
Volume 8
Number 1
March 1999
16
CREATIVITY AND INNOVATION MANAGEMENT
software industry. Dhillon, Hackney and Ranchod (1998) argue that the benefits of essentially off-shore participation in the global economy are limited for the economy as a whole. Significantly, English may have served primarily as a stepping stone for this industry. There is already evidence that further expansion into Asian markets is driving the acquisition of East Asian languages by Indian workers. For East Asia itself variations in economic robustness attributed to historically derived cultural resources have been discussed above.
Windows of opportunity Marvin (1988) describes the social learning curve associated with the introduction of new electrically-based technologies at the turn of the last century. Given the time taken for a general understanding of the appropriate use of the telephone to emerge, it is not surprising that a global consensus on the more recent generation of information and communication technologies underpinning the current wave of globalisation is still to emerge. What is clear is that the necessary paradigm will not emerge on its own. Would-be participants need some window of opportunity through which to gain influence and access. Kalpinsky and Posthuma (1992) demonstrate the transferability of organisational technology in the form of Japanese manufacturing practice without high levels of capitalisation. Marginal players, in this case East African manufacturing companies, can make significant improvements in their performance without substantial capital investment. The adoption of the organisational approaches utilised in Japan can transform efficiency and effectiveness in companies in developing economies without the supporting technology usually associated with it. The opportunity exploited here was the gains from relatively cost-free reorganisation. These were achieved through the use of intellectual resources which needed some consonance with the cultural assumptions embedded within the imported techniques. However, to compete directly with developed economies a similar level of capital resources is required. Ultimately access to state of the art technology is necessary for full participation in the global economy. However, access to such technology is no guarantee of its appropriate use. The use of technology, rather than the technology itself is the key to appropriateness, and to sustainability but the organisational and cultural segmentation of potential users requires an adequate fit to
Volume 8
Number 1
March 1999
varying needs and the capacity for adjustment over time. This implies a cultural wrapping for the technical standards The technology also must be available in a mature and robust form capable of adaptation to specific situations (Kaye and Little; 1996). Sproull and Kiesler (1991) demonstrate that a process of organisational learning is needed to move beyond the technical effects of direct substitution of information technology for manual processes. The gains reported by Kaplinsky and Posthuma were achieved through the use of intellectual resources which needed some cultural consonance with the cultural assumptions embedded within the imported techniques. The transformative gains in effectiveness represented by Zuboff's (1988), ``informated organisation'' will come about in the globalised arena only through an understanding of the meaning of cultural interoperability at both pre-competitive and competitive stages of development (Kaye and Little; 1996). Standards are the vehicle used to achieve interoperability and the notion can be applied to each level of interaction within and between organisations. Standards themselves cannot solve the problems confronting actors in the global economy. While there is a cultural dimension to the established practice and expectations within organisations which imparts its own dynamic to the diffusion and adoption of socio-technical systems across cultural settings, simply to ascribe differences in outcomes to ``cultural difference'' between adopters offers little guidance for either potential adopters or for policy-makers. O'Hara-Devereaux and Johansen (1994) argue a distinction between work cultures, both professional and corporate and the primary culture in which an organisation is embedded. For them the synergy between levels is a potential resource, but the tendency towards a convergence determined by the primary culture is seen as an obstacle to crosscultural working. Culture needs to be decomposed into issues related to the historical, geographical and institutional setting in which organisation and individual must operate. The business recipes and frameworks grounded in these differences offer a view of ``culture'' of more direct value to actors (see for example Marceau; 1992).
Exclusion and Inclusion East Asia faces an additional challenge in the development and diffusion of appropriate standards. The emergence of English as a global language emphasises the existence of
# Blackwell Publishers Ltd 1999
GLOBAL PRODUCTION AND GLOBAL CONSUMPTION
both cultural and linguistic barriers within East Asia and between East Asia and the rest of the world economy (Crystal; 1997). Key innovations in information technology have succeeded where they were mapped on to existing cultural frameworks. Thus the spreadsheet could readily mimic the twenty column analysis paper already in use in western economies. In East Asia a number of economies have been relatively late adopters of many facets of office automation because of a range of cultural differences, not least their use of non-Roman characters. Shepard (1993), writing from direct experience, sets out the technical complexities of networking in an environment that must move beyond the ASCII standard. Technologies that do not incorporate the requirement of a specific alphabet have been adopted, and Castells and Hall (1994) attribute the refinement and promotion of fax technologies by Japanese companies as evidence of their need to support logographic text. Rather than attempting to overcome cultural barriers, such users have applied available technologies to more directly relevant areas of advantage. However, in an era of bit-mapped graphics and machine translation, the unifying basis of the Chinese script provides a clear advantage through its independence from regional variations in spoken language. Castells (1997) cites the Zapitista movement in Mexico as an example of an oppositionist response to the exclusion from the benefits of the global economy of those paying its greatest social and economic costs. Significantly it utilises the very information and communication technologies that facilitates the system under criticism. The image of the laptop and satellite phone in the rain forest is a potent one, however, in regions of less stark contrast between those included and those excluded, similar forms of resistance and opposition can be found. Castells points out that fundamentalist appeals are not confined to the Muslim world, as evidenced by the rise of the U.S. Militia movements which draw on specific historical precedence, and make an equally significant commitment to the Internet. The phenomenon of the One Nation party in Australia reflects the desperation of those most impacted by successive governments' policies towards global markets. The recent waterfront dispute in Australia saw farming organisations from this hinterland pitched against organised labour. Again, as with the earlier British dock dispute there was a globalised response from the threatened workforce, but pace, Hirst and Thompson, despite the web-sites, this was a reflection of
# Blackwell Publishers Ltd 1999
17
long traditions of collaboration through the earliest international network (excluding the Silk Road). The difference in outcome of the two disputes reflects local differences in mainstream political support for organised labour as much as use of technology. The rapidity of technical development, particularly in ICTs is constantly reducing entry costs, and rendering obsolete extant technical infrastructures. Such a situation favours later entrants, and permits them some chance of catching up. Older colonially oriented communication infrastructures are already obsolete. It is now widely acknowledged that the characteristics of the Internet designed to enable its ARPANet predecessor to operate under nuclear attack also ensure its global accessibility. Currently the proposals for direct satellite mobile communications via systems based on large numbers of low earth orbit satellites offer unintended advantages to currently marginal groups. The network coverage will of necessity be equally dense and universal across the majority of the planet's surface beneath the hundreds of orbiting satellites. Whether this opportunity further to reintegrate or redefine core and periphery is used successfully will reflect the extent to which cultural and historical resources are mobilised in conjunction with the technology itself.
References Avison, D.E., Wood-Harper, A.T., Vidgen, R.T. and Wood, J.R.G. (1998) A further exploration into information systems development: the evolution of Multiview 2 Information Technology & People, 11 (2), 124±139. Birrell, N.D. and Ould, M.A. (1985) A Practical Handbook for Software Development, Cambridge University Press, Cambridge, UK. Castells, M. (1996) The Rise of the Network Society, Blackwells, Oxford UK. Castells, M. (1997) The Power of Identify, Blackwells, Oxford UK. Castells, M. and Hall, P. (1994) Technopoles of the World: the making of 21st century industrial complexes, Routledge: London UK. China Intercontinental Press (1997) Questions and Answers concerning the Taiwan Question and Reunification of China, China Intercontinental Press, Beijing, P.R.C. Cross, N. (ed) (1972) Design Participation, Academy Editions, London UK. Crystal, D. (1997) English as a Global Language, Cambridge University Press, Cambridge UK. David, A. and Wheelwright, T. (1989) The Third Wave: Australia and Asian Capitalism, Left Book Club, Sydney, Australia. Delamaide, D. (1994) The New Super-regions of Europe, Penguin, New York, USA.
Volume 8
Number 1
March 1999
18
CREATIVITY AND INNOVATION MANAGEMENT
Dicken, P. (1998) Global Shift: Transforming the world economy, (3rd ed) Paul Chapman, London UK. Dhillon, G., Hackney, R. and Ranchod, A. (1998) The Best of Times: The Worst of Times: The emergence of networked organisations in India, In Bannerjee, P., Hackney, R., Dhillon, G. and Jain, R. Business Information Technology Management: Closing the international divide, Har Anand, New Delhi. Dunning, J.H. (1993) Multinational Enterprises and the Global Economy, Addison-Wesley, Reading, USA. EC/UNCTAD (1996) Investing in Asia's Dynamism: European Union direct investment in Asia, European Commission/UNCTAD Division on Transnational Corporations & Investment, Office for Official Publications of the EC, Luxembourg. Galbraith, J. (1977) Organization Design, Addison Wesley, Englewood, USA. Hirst, P. and Thompson, G. (1996) Globalization in Question, Polity Press, Cambridge UK. Hirsch, S. (1967) Location of Industry and International Competitiveness, Clarendon, Oxford UK. Inoue, T. (1998) Small businesses flourish in virtual village Nikkei Weekly, 26 Jan 1998, p.1. James. A.D. and Howells. J. (1998) Global companies and local markets: the internationalisation of product design and development activities in three East Asian companies. In Little, S. McDonald, M. Rees, P. Thorpe, R. and Warren, R. (eds) Procedings of 2nd Global Change Conference: The Impact of Asia on the 21st Century, Manchester Metropolitan University, Manchester UK. Johnson, H.T. and Kaplan, R.S. (1989) Relevance Lost: the rise and fall of management accounting, Harvard Business Press, Cambridge MA. Jones, J.C. (1980) Design Methods: Seeds of human futures, (2nd ed) Wiley, Chichester UK. O'Hara-Devereaux, M. and Johansen, R. (1994) Globalwork: bridging distance, culture and time, Jossey-Bass, San Francisco, USA. Kaplinsky, R. and Posthuma, A (1994) Easternisation: the spread of Japanese management techniques to developing countries, Frank Cass, Ilford UK. Kaye, R. and Little, S.E. (1996) Global business and cross-cultural information systems: technical and institutional issues of diffusion Information Technology & People, (9) 3, 30±54. Kim, E.M. (1996) The industrial organisation and growth of the Korean Chaebol: integrating development and organizational theories, In Hamilton, G.G. (ed) Asian Business Networks, deGruyter, Berlin. Kirlidog, M. (1997) Executive Computing in a Developing Country: A Case Study Evaluation of Turkish Experience PhD Thesis, University of Wollongong NSW. Krugman, P. (1996) Pop Internationalism, MIT Press, Cambridge, USA. Lipietz, A. (1992) Towards a New Economic Order: Postfordism, ecology and democracy, Polity Press, Cambridge. UK. Little, S.E. (1990) Task Environments and Institutional Environments: understanding the context of design decision-making Design Studies, (11) 1, 29±42.
Volume 8
Number 1
March 1999
Marceau, J. (ed) (1992) Reworking the World: Organizations, Technologies and Cultures in Comparative Perspectives, De Gruyter, Berlin, Germany. Marvin, C. (1988) When Old Technologies were New: thinking about electric communication in the late nineteenth century, Oxford University Press, New York, USA. Mintzberg (1979) The Structuring of Organizations: a synthesis of the research, Prentice-Hall, Englewood Cliffs, USA. Morris-Suzuki, T. (1994) The Technological Transformation of Japan: from the seventeenth to the twentyfirst century, Cambridge University Press, Cambridge UK. Nobes, C.W. and Parker, R.H. (1981) Comparative International Accounting, (2nd ed) Phillip Allan, Deddington UK. Numazaki, I. (1996) The role of personal networks in the making of Taiwan's guanxiqiye (related enterprises), In Hamilton G.G. (ed) Asian Business Networks, deGruyter, Berlin, Germany. Nuki, T. (1998) Earlier and Faster ± a new trend of Japan's production strategy, In Bannerjee, P., Hackney, R., Dhillon, G. and Jain, R. Business Information Technology Management: Closing the international divide, Har Anand, New Delhi, India. Ohmae, K. (1985) Triad Power: the coming shape of global competition, Free Press, New York, USA. Ohmae, K (1990) The Borderless World: Power and strategy in the interlinked economy, Collins London UK. Ohmae, K. (1995) The End of the Nation State: The rise of regional economics, Free Press, New York, USA. Orru, M., Biggart, N.W. and Hamilton, G. (1991) Organizational Isomorphism in East Asia, In Powell, W.W. and DiMaggio, P.J. The New Institutionalism in Organisational Analysis, University of Chicago Press, Chicago, USA. Perez, C. (1985) Microelectronics, Long Waves and World Structural change: New Perspectives for Developing Countries World Development, 13(3), 441±63 Porter, M.E. (1990) The Competitive Advantage of Nations, Macmillan, London UK. Rogers, E.M. (1983) Diffusion of Innovations, (3rd ed) Free Press New York, USA. Redding, S.G. (1996) Weak organisations and strong linkages: managerial ideology and Chinese family business networks, In Hamilton, G.G. (ed) Asian Business Networks, deGruyter, Berlin, Germany. Scott, W.R. (1992) Organizations: Rational, Natural and Open Systems, Prentice Hall, Englewood Cliffs, USA. Shepard, J. (1993) Islands in the (Data) Stream: Language, Character Codes, and Electronic Isolation, in Japan In Harasim, L.M. Global Networks: Computers and International Communication, MIT Press, Cambridge, USA. Sproull, L. and Kiesler, S. (1991) Connections: new ways of working in the networked organization, MIT Press, Cambridge, USA. Thompson, (1967) Organizations in Action, McGraw-Hill, Englewood Cliffs, USA.
# Blackwell Publishers Ltd 1999
GLOBAL PRODUCTION AND GLOBAL CONSUMPTION
Tsai, H-J. (1993) An Evaluation of Spatial Aspects of IT Strategies in Taiwan, MSc dissertation, University of Wollongong, Wollongong, Australia. Welford, R.J. (1995) Environmental Strategy and Sustainable Development, Routledge, London UK. Wilkinson, B., Gamble, J., Humphrey, J., Morris, J. and Anthony, D. (1998) International production networks and human resources: the case of the Malaysia electronics industry, Paper presented at 2nd Conference on Global Change: The impact of Asia in the 21st Century, Faculty of Management and Business, Manchester Metropolitan University, April 1998. Wong, S-L. (1996) Chinese entrepreneurs and business trust In Hamilton G.G. (ed) Asian Business Networks, deGruyter, Berlin.
# Blackwell Publishers Ltd 1999
19
Zeile, W. (1996) Industrial policy and organizational efficiency: the Korean chaebol examined, In Hamilton G.G. (ed) Asian Business Networks, deGruyter, Berlin, Germany. Zuboff, S. (1988) In the Age of the Smart Machine, Basic Books, New York, USA.
Stephen Little is at the Faculty of Management and Business, Manchester Metropolitan University. Email
[email protected].
Volume 8
Number 1
March 1999
20
CREATIVITY AND INNOVATION MANAGEMENT
Networks of Innovation, Networks of Production, and Networks of Marketing: Collaboration and Competition in the Biomedical and Toolmaking Industries in Australia Jane Marceau Introduction
M
uch public attention has been focussed recently on ways in which modern western economies can make the transition from earlier forms of industrial organisation to those characteristic of the `learning economy' of the coming century. Some countries, including Australia, are beginning to realise that the existing structure of their economies and the forms of their business organisations will not ensure competitive success. Governments and industries have been seeking ways to help firms and industries to compete in highly turbulent environment where they face competition from both low-wage countries and countries with powerful industries and well-functioning national systems of innovation. Recent work by Marceau, Manley and Sicklen (1997) has shown the fragile nature of Australia's industrial structure. Analysis using input-output analysis shows that, in comparison with other smaller industrial economies, such as Finland, and NIEs such as Korea, Australia has few centres of major linkage for different industries and very few intra-industry trading links. In many areas the structure lacks the key client-supplier relationships which encourage innovation through the effective exchange of information and products which stimulate new knowledge about products, markets and technologies. Few firms can find partners with which to link for such purposes. Moreover, the same study showed how in most key sectors industries are dominated by a few or a very few key large players, almost entirely foreign-owned multinationals.
Volume 8
Number 1
March 1999
These players dominate the markets in their fields and largely determine technological and product outcomes. Further, evidence gathered from the Australian Bureau of Statistics (ABS) and other sources shows that these companies are not especially innovative and invest relatively little by international standards in R&D, especially D (DIST 1996). Understanding the problems facing many industrial sectors in Australia after the continuous reduction in protective trade barriers occurring over the last 10±15 years has led both federal and State governments to set in place programs aimed at upgrading the capability of both firms and industries. In the 1980s this occurred via the `Button' plans for the automotive and TCF industries, through such initiatives as the Partnerships for Development and Factor(f) programs. In the 1990s a new approach was felt necessary. One major element of the new programs was the Business Networks Program, aimed at upgrading the capability of small firms in any industries which were interested. The Program was nearly an exact copy of successful programs in Norway and Denmark. The networks created were `hard' ones, created using formal mechanisms, network brokers, business plans and so on. In all, by the time the Program ended in June 1998, there were some 400 networks in operation across a broad spectrum of industries. Some of these worked very well. Others looked and look much more shaky and in many areas had yet to conduct their first common projects after several years. Given these differences, the question arises of why some work and some do not. Most literature examining this has focussed on the # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.
INNOVATION, PRODUCTION AND MARKETING NETWORKS
internal functioning of the networks, on the internal relationships between members determining levels of trust and cooperation beyond that required by the business plan (see e.g. Buttery and Buttery, 1994 and 1995; Clegg 1995; Fulop and Kelly 1995 and 1996; Gelsing 1995). Analysts have looked at the formal structure of the networks, examining such questions as whether they had a formal plan, whether members had invested joint funds in the venture and whether the members had similar levels of expectation about results and similar willingness to devote time to the success of the venture. Some have also looked at network management structures and the skills of the manager and the markets in which the firms operate. These may, however, not be the only factors affecting success or failure of the network organisational form. Moreover, there are many kinds of networks which are less formalised but nonetheless of considerable importance in the analysis of cooperation and the causes of its success or failure in different industry structures. This paper uses two small studies of two industries in Australia to suggest that one of the key factors in determining the success of collaborative ventures lies in the organisation of the external environment rather than the climate internal to the network. This means that the success or failure of networks must be explored not just in terms of organisational form but also of the power relationships that affect success in the sectors in which they work and hence in the context of the many factors which determine business success, including education, previous experience and the reasons which led the owners of the small firms concerned to set up their businesses and the technological levels reached in the early phases. These include the structure of the industries concerned and the position the firms hold. Very few analysts, however, have looked at these critical factors. This paper uses the data gathered during the two studies in 1997 and 1998 to indicate the extra factors which need to be considered in looking at the success or failure of `third way' organisational firms such as networks.
Elements of networks `Network' is a concept much used by analysts to make sense of organisational relationships between economic actors which do not fit either of the main traditional notions of what firms do since they are clearly based neither on market nor on hierarchy. In practice,
# Blackwell Publishers Ltd 1999
21
networks are hard to define and may well be even harder to create or manipulate by policy action, at least in areas where there has been little prior connection between players (for a useful summary of work on networks see Riemens 1996). Some writers see networks as filling `structural holes' or the interstices between formal organisations and they see the dynamics of the networks as at least as important as the structures and formal organisations which they link (Burt 1992). In some ways, the biomedical companies studied for this project also seem to be working in the interstices between the dominant players in the health system ± the regulators, the hospitals and the large firms which import both major equipment, consumables and medicos ± while the toolmakers are trying to create horizontal relationships in a business environment dominated by large players who determine the nature and direction of a production chain. This indicates clearly the importance of the structural environment in which networks of small firms have to play. Another important consideration is the direction of the sectors where the networks are working. In the biomedical device industry the critical force driving markets in costcutting in the public hospital system in Australia and the failure of one funding policies to take account of the informal userproducer relations which drive innovation in the medical device industry. In the auto and white goods industries which form, or have formed, the critical customer base for most toolmakers the chains of production are determined by the assemblers who have to compete with developments in the strategies employed by their overseas headquarters and who find it usually more convenient to deal with larger players overseas than to develop the capability of smaller local suppliers. They operate a split system of supply ± they raise the capability of their large suppliers by putting in place mechanisms and long term rules for supply which emphasise price, quality and delivery times. Conformity with these demands enables suppliers to have major input into design and new mechanisms of concurrent engineering. They receive longterm contacts and hence some market certainty. Smaller players, however, tend to receive no such contacts although forced to compete on the same terms. The cyclical nature of the auto industry also means that many firms `freeride' and offer to work for very low prices in return for work tiding them over the next cyclical hump. The net effect is to raise the competitive bar for all firms supplying the industry.
Volume 8
Number 1
March 1999
22
CREATIVITY AND INNOVATION MANAGEMENT
For certain observers, networks are a newly prominent and empirically visible element of the emerging productive system. There are several interpretations of their importance Some see them as the motors behind the `Third Italy' model of economic development and as alternatives particularly to the large hierarchical productive forms of organisation (Piore and Sabel, 1984; Chandler 1990). Others see participation in networks as a means for small and medium firms to deal with the burdens of financial, technological and information needs which are increasing in weight and complexity. In this case, networks are often seen as having some of the characteristics of joint ventures, strategic alliances and other more formal and structural links. Development of such networks is increasingly seen as the way forward in the innovation race, especially for SMEs, and thus as deserving specific public policy encouragement (see, for example, writers such as Cooke, Camagni and others who discuss the functioning of `innovative milieux'). Since networks in practice have different functions and serve different roles they vary along several dimensions and contain several elements. Relationships generated by network interaction also vary. The most important include: . social relationships based on trust, includ-
ing non-trading links that inform a business's strategic decisions. Here the unit of analysis is the person(s) involved, with the organisations around them providing context, opportunities, support and constraint; . production or industrial relationships based on commercial transactions and contracts. Here the focus is mainly on linkages between users and producers of traded goods and services. The unit of analysis is the firm, both individual firms and the group of firms which collaborate in some form of productive activity. Other relationships, notably the close product development links between users and producers, also may spread out to include other players. When they do this they may be seen as part of both innovation and production networks; . exchange relationships based on linkages specifically related to companies' innovation activities, such as joint pre-competitive R&D. These are often better understood as strategic partnerships and collaborations, especially those which are established between large firms where new products are reaching the mass market stage. Here again the unit of analysis is the firm or group of firms.
Volume 8
Number 1
March 1999
In all these cases, what are seen as network relationships vary along a number of dimensions. The major variations seem to derive from: the degree to which collaborating firms need to be or are geographically co- or closelylocated; the nature of the cooperation between them, notably whether cooperation is single or multi-stranded; the period of linkage, especially whether the links in the network are essentially long term and continuous or are sporadic; the intensity of the relationship, the degree to which it is critical to the business that the area works; the formality of the relationships, especially whether relations are contractual or informal; the centrality of the relationships to the conduct of the firms' business; and the degree of coordination that is involved in network activities. Finally, and related to this last issue, there is the question of the number of partners involved and the degree of equality in the relationships.
User-producer relations Much work has been carried out in recent years on the innovation process (see e.g. Dodgson and Rothwell, 1994). Most important in relation to the theme of this paper is work carried out in the USA and the UK on innovation in the scientific instrument and biomedical industry over the last few decades. This work indicates the importance of users in creating new products. Work carried out in the 1970s, for example, by von Hippel in the USA found that on average 77% of innovations in the scientific instrument group he was studying were generated by users rather than instrument manufacturers (1976). He later showed how the importance of userproducer interaction varied according to the degree to which the innovation depended on new scientific findings. Where such science was less important, Riggs and von Hippel (1994) found that it was manufacturers who generated more of the ideas. Similarly, Roberts showed that the process of medical device innovation is dominated by individuals, usually in academic or clinical settings (1988:40). Results of these studies, he said, permit us to conclude inventive users are the principal driving force behind most medical device innovations (1988:41). Similar results have been found in the UK (Shaw 1994) and Denmark (Lotz 1991). There have also been studies which look at the `user' notion and innovation more broadly. The first derives from the work of Porter (1990) and his colleagues on the sources of the competitive advantage of nations. Porter focuses on the role of demand
# Blackwell Publishers Ltd 1999
INNOVATION, PRODUCTION AND MARKETING NETWORKS
conditions as a factor in competitive firms' success and especially the kind of challenging demand generated by leading-edge customers. In Porter's analysis the leading edge customers are other firms. In Australia, the leading edge customers in the biomedical field are more frequently in the public sector, notably in the universities and hospitals which are centres of use of high technology as well as of its production. In the toolmaking sector, leading edge users are also increasingly critical to the creation of markets for local firms. Thus, while leading users may be critical to business success as Porter suggests, their influence is generated and is effective in different ways in different sectors and at different periods of specific technological trajectories. The structural position of the firms concerned differs considerably between the sectors studied. Despite the dominance of many areas of the health supply system in Australia of foreign-owned multinationals who import only, a number of local companies and subsidiaries of others have developed in Australia to design and manufacture particular products, drugs, devices and instruments. It is these companies, many of which are owned by foreign multinationals but which manufacture in Australia, which form the focus of the study reported here. In contrast, many of the firms in the toolmaking sector are long established elements of a clearly defined production chain which has been undergoing massive change in managerial and physical technologies. These have been dictated to the smaller suppliers, not negotiated with them in the way of the biomedical device firms. To understand what this means for the firms concerned it is important to understand where the firms are coming from in terms of technological base and expertise in both management of change and of the technologies and products concerned. Moreover, the toolmakers face a situation of rapid technological upgrade where many players are at the same level and make essentially the same products. The focus is on the process whereby they are made. Firms who are upgrading their capability via massive investment in the technologies now demanded by existing major clients all face a situation where the bigger firms with larger toolrooms are able to be top class. In toolmaking you can still not upgrade and probably get by on very narrow margins in the short-run but if you invest you still face market uncertainty and stiff competition on all fronts from bigger and technologically better players. It seems fairly likely therefore
# Blackwell Publishers Ltd 1999
23
that the industry is on a trajectory where it will polarise sooner or later and those now in the middle will be overtaken. In the biomedical sector, however, most of the firms studied were in niche markets where they had few if any competitors in Australia. They had made their business on the basis of the services in product design and manufacture which they could sell to a relatively small group of clients. These clients had autonomy over their purchasing decisions and were able and willing to pay the firms' costs and a small margin via the prices paid. The organisation of hospital purchasing and the financial control systems now increasingly being put into place in major medical facilities, however, are challenging the autonomy of the medical professionals who used to determine purchasing decisions and the prices payed. At the same time, the shift to new biomaterials and the trend towards miniaturisation are changing the rules of the game. Surgeons now may be less able to determine the kinds of devices they wish to use because the knowledge about new materials and so on is now too sophisticated to be grasped at the device design level by non-scientific specialists. Increasingly therefore medical devices of many kinds are becoming `commodified' and subject to the same `general' sales techniques as pharmaceutical drugs.
The population of firms studied and their owners Most literature on entrepreneurship and firm creation focuses just as do many of the networks analysts referred above on the characteristics of the people concerned rather than their structural position and the nonpersonal characteristics they and the enterprises they create possess. This paper looks at the skills, technologies and experience open to most firms in the sectors we are discussing. It is striking how closely the firms and their creators studied in the 1990s are to a population of small firms in the Australian manufacturing sector I studied in the 1980s. We asked questions about most aspects of firms' activity in order to build as complete a picture as possible from which to investigate further the details of the innovation networks concerned. This section of the paper presents the data which indicate the nature and functioning of the firms' side of the networks.
i) The biomedical device industry Most of the firms studied were small. Fifteen were independently-owned while 19 were
Volume 8
Number 1
March 1999
24
CREATIVITY AND INNOVATION MANAGEMENT
subsidiaries of larger organisations, of which 15 were foreign-owned multinationals. They were long established. At least half had been in business for at least 20 years. Many had recently undergone some quite dramatic downsizing in employment terms, although now most have stabilised their turnover. Thirty of the firms were located in New South Wales and five in Victoria. Of the independents, 8 had started with a new product idea. In contrast, among the subsidiaries the biggest group had started with a distribution idea (8/19) and started manufacturing only later. Most of the 11 independents claimed that the idea had originated from their own research. Some had close user relations right from the beginning since between a fifth and a quarter had used ideas which came from users to create their firms. Most of the owners of the device firms had received only an apprenticeship training. The majority had been `born' into their firm or had worked in a larger organisation before creating their own enterprises. They had left that organisation because of a product idea for which they saw a market niche or because they felt they had such product ideas but could not persuade the employing firm to accept them. They thus left their former employers with relatively little management experience or expertise but a solid grounding in the technologies available and suitable for underpinning new product development at the time. These firms thus were product innovators.
from enterprises which became their first major clients. Their lack of management experience before creating their own firms is also similar to the biomedical firms. It is striking that they were also very similar to the metal manufacturers I studied in 1982. The population of the 1982 study thus to some extent represents the previous generation of firms in the metal products and toolmaking industry, the `fathers' of the present sample. The similarity of age to many of the biomedical firms also suggests that the same period was a fecund one for the creation of firms across a wide variety of sectors. Its similarity may stem from the industrial structure. Many people worked in large firms and were able to translate successfully their product ideas into practice using the technological level they had acquired working in the larger enterprises. The high level of stability in their environment is also shown by the location decisions of the firms studied. Like their predecessors in 1982, the majority of companies had selected their location because it was close to where they lived as well as near to their clients (a lesser motivation). This is one reason why co-location of toolmaker companies and biomedical device firms does not signify clustering in any but a geographical sense. The companies varied in numbers of employees, from 16 to 77. These are small firms by metal trades manufacturing size which averaged 55±58 persons in 1980 but seem to be rather larger than the majority of toolmakers.
ii) The Toolmaking sector We have detailed data on 18 firms, located in South Australia and New South Wales. The firms had been created between 1958 and 1993, with half 15 to 20 years old. While the majority were founded by their current owners, some were founded by fathers and inherited by their sons. Most are owned by sole proprietors, although some have up to four partners. Some studies of networks suggest that they are more likely to be successful if owned by several partners because the directors are used to sharing power (e.g. Buttery and Buttery, 1995). Our sample is too small to test this hypothesis. The companies in the toolmaking sector were also largely created by similar kinds of people in terms of social, educational, entrepreneurial and professional experience. The majority came from toolmaker backgrounds. Most of the owners of the firms had received a technical education, usually an apprenticeship in toolmaking. Many came
Volume 8
Number 1
March 1999
Networks of innovation, networks of production and networks of marketing Preliminary analysis of the data gathered in the course of the studies reported here suggests that it is useful to consider the nature of what the networks are intended to do or do if they are not of the Business Program kind but are more informal. In particular, it may be useful to distinguish between three purposes for networks and their use. One kind is focussed more on innovation. In the biomedical field networks link usersproducers and science sources together and are developed by producer firms with the specific aim of securing the information and ideas sources needed for product development. While for these firms there could have been added advantages in participation in
# Blackwell Publishers Ltd 1999
INNOVATION, PRODUCTION AND MARKETING NETWORKS
formal network of the Business Program kind those networks would have had to serve other purposes because they seemed to already have the necessary linkages. It may well be that participation in more formal networks could assist the firms to gain scale and access on affordable terms to emerging technologies and new markets. A second kind of network is more focussed on production. This arises as a separate kind of informal network because it seems that firms deal differently with the many potential actors in their environment who can be relevant when they are focussing on innovation or on production. The two kinds of network overlap and indeed include many of the same players but they come together differently in practice. None of the firms was deeply embedded in networks of production which would link them more closely to their suppliers and involve sharing facilities which would enable them to afford more advanced equipment and thus innovate in process rather than product areas, and indeed even perhaps use the more advanced production technologies to create products outside their current scope. Nor did the toolmakers transform their relationships into networks of innovation. The toolmaker networks in most cases were in fact marketing networks, designed to broaden the markets available to the network members. To achieve this goal they used their collective capacity to tender for large projects. This gave them or potentially gave them some advantages, although in most cases the networks had not yet added much to their existing markets. It also gave them some visibility they would not otherwise have had. The potential to transform the marketing networks into production and even innovation networks was there in the network format and organisation. Why then did they not use that capacity when it could have been so advantageous? The answer conventionally given is that the players in networks in most cases do not trust each other sufficiently. This is put down to the excessively `independent' mentality said to typify small businesses as a genre. It seems, in contrast, that the inability to take the next step stems more from the sociological position, the experience and skills of the population concerned. Most respondents had either been brought up in independent business or had recognised what they saw as an opportunity to make more money. They had most worked in large enterprises before creating their own. They had left, however, with almost no managerial skills and with good knowledge of only relatively low levels of technology. These are `working
# Blackwell Publishers Ltd 1999
25
class capitalists' competing essentially on price in a market dominated by large clients and a population of suppliers very like themselves. Their experience has in no way prepared them for close working with other people in a manner which involves collaboration and sharing of production capacity. They see sharing of capacity not as the opportunity to specialise in their equipment or research and development facilities but as the possibility of undertaking larger jobs. Since their major clients continue to push them on price, even though they have added quantity, quality and speed, there has been no-one leading them to specialise rather than just go for scale. Realisation of the need to specialise is now dawning and some networks have transformed their operations so as to include some of the higher value-added elements associated with design and to include firms with complementary capabilities. The fact that they have registered this need is largely to do with how they have been led by industry leaders from outside, not from reading the trends themselves. Once led they are able to work together because they realise that this is the way to transform their market position. These networks are potentially able to transform marketing networks into fully fledged networks of production. The biomedical industry firms may find this transformation very difficult to make, not because they are any more `independent' in their attitudes but because they are not in formal networks and because there is no-one leading them from outside. Their production position has been such that there has never been any clear need to collaborate over production or to form alliances to produce scale which could have formed the basis for genuine networks of production. There is little collective infrastructure available for them. Their major clients are not organised in the same way as assemblers of vehicles or computers: they have never, as organisations, taken a `product' focus but only a service focus. Companies in the biomedical device sector face one further problem when it comes to forming fully fledged networks of production. This stems from the patchy nature of Australia's industrial structure described at the beginning of this paper. There are very few potential partners. The counterpart of the fact that these firms faced very little competition in their selected fields, meaning that they were effectively operating in niche markets, is that there are very few potential partner firms. In contrast to the situation faced by the toolmakers where there is a plethora of
Volume 8
Number 1
March 1999
26
CREATIVITY AND INNOVATION MANAGEMENT
similar firms with whom to link and then specialise, the biomedical firms face a situation where there is almost no-one with the appropriate `complementary assets' identified by Teece (1987). The third part of production networks is suppliers. Most biomedical device and toolmaker companies tried to establish long-term relations with their suppliers but in the majority of cases the three most important components came from overseas. While most firms said that succession in establishing these relations was critical to the success of the business as a whole, reliance on overseas suppliers means that local networks of production are fragile and there is almost no-one with whom to link further up the chain. This situation also affects the capacity of the companies to innovate since Australian purchasers are a very small proportion of their suppliers' clients and hence have little influence on critical areas of the innovationproduction process. While they can and do modify some of the components, the lack of contact with suppliers means that local firms receive little knowledge of other input from expert suppliers. They simply receive a product.
Conclusion This small study has aimed to shed light on the ways in which companies in the biomedical and toolmaking industries in Australia are involved in different kinds of networks. Using the evidence from the two studies carried out in 1997 and 1998 the paper suggests that the chances of success of networks both formal and informal vary very considerably according to the structure of the industry in which they are operating and to the relationships pertaining there between the principal clients and their small firm suppliers. It suggests that the ways in which networks develop and the potential of networks to create better capability and market success vary according to the characteristics of the trajectories of the technologies and the clients concerned rather than the `internal' characteristics of the networks or the personal characteristics of the members. It suggests that interfirm relationships are usually more important than independent ones. It is also important to understand the sociological trajectories of the individuals concerned in terms of their education and professional experience and the ways these link to the technological and productive organisation characteristics of their industrial environment.
Volume 8
Number 1
March 1999
It is especially clear that there are periods which encourage the creation of small businesses by people with particular skills. It is likely that the kind of small businesspeople who now dominate many industrial sectors, often coming from the shopfloor after serving technical apprenticeships, largely results from an era of stable technologies and protected markets. Such people are not well equipped either by training or experience to cope with major shifts in technologies, products, processes and purchasing policies. They are willing to share marketing efforts because these do not threaten the essentials of their businesses. As long as they face a situation where most firms are similar in their industry and hence compete on price rather than innovation they will be less than keen to share other risks. It is not that they are `conservative' or `excessively independent of spirit': it is more that they do not understand the fundamental shifts and they seldom possess the analytical tools to assess the new situation. Hence they all invest in the same new technologies, seeking temporary advantage, not realising that permanent advantage is obtained on other bases. The paper suggests therefore that networks and their success cannot be properly analysed in isolation from the structure and trajectory of their industry, or at least of their immediate segment of it. Similarly, policymakers wishing to upgrade the capability of Australia's industrial players need to take account of the sociological and industrial position of those players and of their technological capacity when deciding on programs of assistance. In the case of networks, one size definitely does not fit all. Any national system of innovation only operates fully to the extent that innovation systems and production systems may coincide. While the first may work well, linking companies closely through formal and informal attachments with knowledge-generating institutions and supporting innovation actors, a different set of imperatives drives the production system. Even in this small sample, it was clear that the costs of doing business, including generating one's own R&D but more especially in taking the decision to manufacture, weigh very heavily. This is where nations interested in generating further manufacturing may need to provide special financial arrangements and assistance to export for a small country such as Australia. Networks of distribution and networks which create scale may continue to need public stimulation. Such reorganisations seldom seem to create themselves where smaller firms are concerned, especially where the
# Blackwell Publishers Ltd 1999
INNOVATION, PRODUCTION AND MARKETING NETWORKS
owners of such firms have not received high levels of education and managerial skills.
Acknowledgements This paper and the projects on which it is based owe a great deal to the very skilled assistance and interviewing talent of my friends, students and ex-students, Wendy Riemens, Karen Manley and Ester Gerasimou.
References Burt, R. (1992) Structural Holes: The Social Structure of Competition. Cambridge, Mass.: Harvard University Press. Buttery, E. and Buttery, A. (1994) Business Networks, Melbourne: Longman. Buttery, E. and Buttery, A. (1995) The Dynamics of the Network Situation, AusIndustry Business Network Program, Canberra. Camangi, R. (ed.) (1991) Innovation Networks: Spatial Perspectuves. London: Belhaven. Chandler, A. (1990) Scale and Scope: the Dynamics of Industrial Capitalism. Cambridge, Mass.: Belknap Press of Harvard University Press. Clegg, S. (1995) `Developments in the theory of business networks', in Ausindustry Business Networks Business Growth, Canberra: AGPS pp. 52±55. Cobb, R. (1997) `Flexible Business Networks', Economic Development Review, 15 (1), 30±32. Cooke, P., Moulaert, F., Swyngedouw, E., Weinstein, O. and Wells, P. (1990) Towards Global Localisation. London: University College of London Press. Department of Industry, Science and Tourism (DIST) (1996) Australian Business Innovation: A Strategic Analysis. Canberra: AGPS. Dodgson, M. and Rothwell, R. (eds) (1994) The Handbook of Industrial Innovation. Aldershot: Edward Elgar. Fulop, L. with Kelly, J. (1995) A Survey of Industry Network Initiatives in NSW ± Final Report, Commonwealth Department of Housing and Regional Development. Fulop, L. with Kelly, J. (1997) A Study of Business Networks in Australia, Australian Business Chamber. Gelsing, L. (1991) Network Cooperation ± Achieving SME Competitiveness in a Global Economy, Danish Technological Institute.
# Blackwell Publishers Ltd 1999
27
Gelsing, L. (1995) `Evaluating Network Programmes', Firm Connections, 3 (1), pp. 6±7 Industry Commission (1997) A Portrait of Australian Business Canberra: AGPS. Hippel, E. von (1976) `The dominant role of users in the scientific instrument innovation process', Research Policy, 5, 212±239. Hippel, E. von (1987) `Successful products from customer ideas', Journal of Marketing, January: 39±49. Lotz, P. (1991) Demand side effects on product innovation: the case of medical devices. Copenhagen Business School, Institute of Industrial Research Marceau, J. (1984) Small Manufacturing Enterprise in Australia. Melbourne: Victorian Department of Employment. Marceau, J., Manley, K. and Sicklen, D. (1997) The High Road or the Low Road: Alternatives for Australia's Future. Sydney: Australian Business Foundation Limited. Piore, M. and Sabel, C. (1984) The Second Industrial Divide. New York: Basic Books. Porter, M. (1990) The Competitive Advantage of Nations. London: Macmillan. Riemens, W. (1996) Innovation Networks and Public Policy. Thesis submitted for the degree of Ph.D at the Australian National University, Canberra. Riggs, W. and Hippel, E. von (1994) `Incentives to innovate and the sources of innovation: the case of scientific instruments', Research Policy, 23, 459±469. Roberts, E. (1988) `Technological innovation and medical devices' in K. Ekelman (ed.) New Medical Devices: Invention, Development and Use. Washington: National Academy Press. Shaw, B. (1994) `User-supplier links in innovation' in M. Dodgson and Rothwell, R. (eds) The Handbook of Industrial Innovation. Aldershot: Edward Elgar, pp. 275±284. Teece, D. (1987) `Capturing value from technological innovation: integration, strategic partnering and licensing decisions' in B. Guile and Brooks, H. (eds) Technology and Global Industry. National Academy Press. Vet, J. de and Scott, A. (1992) `The Southern Californian medical device industry: innovation, new firm formation and location', Research Policy, 21, 145±161.
Jane Marceau is Professor of Management and Pro-Vice Chancellor (Research) at the University of Western Sydney, Macarthur, Australia.
Volume 8
Number 1
March 1999
28
CREATIVITY AND INNOVATION MANAGEMENT
Improving Product Innovation Processes: Moving Beyond Universalistic Prescription to Encompass Diversity Paul K. Couchman, Richard Badham and Michael Zanko Introduction
O
ver the past decade, there has been a veritable explosion of interest in product innovation (for recent reviews see Craig and Hart, 1992; Brown and Eisenhardt, 1995; Dougherty, 1996). However, most of the research literature arising from this interest has come from the USA, Europe and Japan, and so far little has emerged from other countries located around the Pacific Rim. This paper derives from a research program which, inter alia, seeks to redress his knowledge gap, and is based on case studies of product innovation projects in Australia and Indonesia. Since the late-1960s, there has been considerable research on product innovation in a number of areas related to organisation studies. One area, largely informed by a marketing perspective, has sought to identify the factors (product, market and organisational) that contribute to the success and failure of new products. Within this area, a series of influential surveys of new product projects has explored the determinants of success and failure (e.g. Myers and Marquis, 1969; Maidique and Zirger, 1984; Cooper and Kleinschmidt, 1987) and has developed models of the critical elements of the new product development and introduction process. Another broad area consists of a diverse body of literature which contributes to management theory and practice. The focus of this management literature has tended to be more on the organisation rather than on the development project. Contributions focusing on product innovation have come from three fields within this body of literature.
Volume 8
Number 1
March 1999
Firstly, the field of strategic management has long been concerned with new product strategy, as more recently exemplified by Wheelwright and Clark (1992). Secondly, within the field of organisational design, studies have sought to relate management approaches (e.g. Burns and Stalker, 1961), organisational structure (e.g. Lawrence and Lorsch, 1967) and co-ordination mechanisms (e.g. Galbraith, 1973) to demands arising from an organisation's environment. An influential perspective within this stream, contingency theory, has focused on how organisations respond to environmental change and complexity. Contingency theorists have argued that appropriate organisational structure is contingent on environmental demands, and that different types of lateral co-ordination mechanisms (or cross-functional forms) are appropriate under different levels of task diversity and uncertainty. Integration is a central concept within this stream, continuing a long tradition among management theorists (e.g. Follett, 1949). Thirdly, a stream of studies has examined communication within and across development teams (with a particular focus on external communication as a boundaryspanning behaviour). The central premise that has emerged from these studies is that the more effectively team members communicate with each other, and with key personnel outside the team, the more successful the development process is likely to be (e.g. Ancona and Caldwell, 1992). While the large and growing product innovation literature is very fragmented, with little cross-disciplinary integration, there has been some convergence on what factors contribute to successful new product introduction (e.g. see Brown and # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.
IMPROVING PRODUCT INNOVATION PROCESSES
Eisenhardt, 1995), often presented in the form of ``recipes for success'' (Oliver et al., 1997). Our involvement in this area of research interest began in a way that was somewhat different to the more conventional organisational studies. We were engaged in conducting an action research study which focused on a particular approach to the organisation and management of product development projects, ``concurrent engineering'' (CE). Specifically, the overall aim of our research was to establish the conditions under which this approach could be most effectively implemented within Australian manufacturing companies. The concept of CE emerged in the USA in the late-1980s, and has since been enthusiastically promoted as ``the product development environment for the 1990s'' (Carter and Baker, 1992), and as ``. . . . one of the most significant contemporary trends in new product development'' (Gerwin and Susman, 1996). Although CE has all the hallmarks of a management ``fad'', it has become institutionalised as a concept with a dedicated journal, many conferences, numerous books and other publications, an industry award in the USA, and a number of dedicated research centres. Our research involved working with Australian manufacturers to help them develop and introduce CE as a means of improving their product development performance (notably by reducing development lead-times and costs, and by expediting the transition from the development phase to full production). Very early in this research we encountered some major problems. Firstly, there was considerable confusion as to what CE actually means. We discovered that there were different interpretations of the concept, and indeed many practitioners in industry even saw it as nothing particularly new (e.g. as case study company engineers told us: ``CE is nothing more than good engineering design practice'', and ``We are already doing that here''). Secondly, our review of the CE literature (which, until recently, has developed largely independently of the organisation-related literature cited above, and seems in many ways to be re-discovering issues that have long been discussed in the field of organisational studies) revealed that, although there were often claims of the benefits to be obtained (e.g. de Graaf, 1996, page 26), the problematic nature of its implementation had received relatively little attention (for recent exceptions, see Driva and Pawar, 1996; Jukes et al., 1998). This paper is a reflective exploration of these problems. The first part of the paper presents a background to CE and in so doing attempts to provide some conceptual clarifi-
# Blackwell Publishers Ltd 1999
29
cation. Secondly, we develop a critique of the universalistic tendencies in much of the prescriptive CE literature. This tendency is the perspective that CE offers the ``one best way'' which is universally applicable. We then conclude with a contingency view of the implementation of CE. That is, whether or not to adopt CE, and if so in what form, depends on a number of factors, but notably on the nature of the product and the type of new product project.
Concurrent Engineering as a Concept The term ``concurrent engineering'' first came to prominence in the USA in the late-1980s (e.g. Winner et al., 1988). Although it is often claimed to be an innovative approach to the management of new product projects, it clearly has its roots in earlier developments in the field of engineering (e.g. Ziemke and Spann, 1993; Smith, 1997), its central themes have long been articulated in the management literature (e.g. Follett, 1949; Lawrence and Lorsch, 1967; Takeuchi and Nonaka, 1986; Clark and Fujimoto, 1991; Wheelwright and Clark, 1992), and it has been reported that some Japanese companies have been employing this sort of approach since at least the late-1960s (Whitney, 1994). An early formal definition of the concept, and still perhaps the most widely-cited, indicates the central elements of the approach: ``Concurrent engineering is a systematic approach to the integrated, concurrent design of products and their related processes, including manufacturing and support. This approach is intended to cause developers, from the outset, to consider all elements of the product life cycle from conception through disposal, including quality, cost, schedule, and user requirements.'' (Winner et al., 1988, page v) The two main themes here are the ``integration'' of functional departments or specialisations and of design considerations, and ``concurrence'' in project activities. It is our interpretation that CE, as a remedial organisational philosophy centred on the notion of integration, seeks to address two major problems often encountered in product development projects: (a) ``silo-ing'' (i.e. the various functional departments involved in the different activities of development and introduction become compartmentalised with a consequent breakdown in cross-functional communication), and (b) ``relay race'' development processes (i.e. development proceeds in a linear way, with few overlapping or
Volume 8
Number 1
March 1999
30
CREATIVITY AND INNOVATION MANAGEMENT
simultaneous activities, whereby each department completes its work before handing this ``over the wall'' to the downstream function for the next step in the sequence). These problems have long been identified in the management literature, and are widely acknowledged to be a cause of budget blowouts, schedule over-runs, and a loss of customer focus in product development projects. CE seeks to address these problems through: . improving the levels of cross-functional
integration ± i.e. breaking down the functional silos through better lateral communication, co-ordination and collaboration; . ensuring that there is early integration of design ± i.e. considering all elements of the product life cycle, and the associated production process design considerations, during the earliest design phases; . increasing the levels of concurrence in a project ± i.e. compressing project time-lines by maximising overlaps and parallel activity between the various phases and tasks in the product development cycle.
Effective cross-functional integration, with associated high levels of ongoing two-way communication and collaboration between functional specialists, is a necessary basis for the other two aims. Without this integration, neither early design integration nor the maximised concurrence of activities (producing the desired compression of lead times) is possible. For example, two highly interdependent tasks could not be conducted in parallel by the respective functional specialists unless these functions were well integrated. But, while there is widespread agreement on what CE seeks to do, there is considerable disagreement as to how this approach should be implemented. An early systematisation in the CE literature was to define CE-in-practice in terms of a set of principles (Schrage, 1993; Ranky, 1994), typically involving: the use of cross-functional product development teams, customer and supplier involvement in the development process, the concurrent design of the product and its manufacturing process, computer-based product modelling and performance simulation, the use of structured analytical methods (e.g. Quality Function Deployment, Design for Manufacture, etc.), and a continuous improvement orientation. According to this approach, the more a company had implemented these principles in their product development projects, the more it was considered to have adopted CE. Most proponents now agree that to implement this approach requires a combination of
Volume 8
Number 1
March 1999
inter-related elements (e.g. Winner et al., 1988; Haddad, 1996; Hull et al., 1996), often involving organisational and technological changes. It is through an appropriate mix of such changes that the desired integration and levels of activity concurrence can be achieved and supported. Unfortunately, there are two major drawbacks to this conceptualisation, and to much of the CE literature generally. Firstly, there are implicit universalistic tendencies in the prescriptions offered. It is often implied that the key elements of CE (and most notably the cross-functional team; see Trygg, 1993) are universally applicable to all projects and to all companies. Secondly, while the CE approach and the associated principles provide some useful guidelines, the framework provides no guidance on the implementation of the generic principles in specific contexts. In other words, what elements should be applied in which contexts, and how should particular elements be applied? But while consideration of these questions is central to successful implementation, it is not addressed in the ``recipes for success'' literature.
Beyond Universalistic Prescription It is clear that the CE approach does provide a valuable framework for improving the performance of new product introduction projects, particularly for companies which develop and market ``elaborately transformed manufactures'' (e.g. those in the automotive, whitegoods, aircraft and consumer electronics industries) in Western economies such as the USA. But it is not so clear that CE is universally applicable across all contexts and projects, and neither can it be accepted that there is ``one best way'' to implement CE principles (a viewpoint that has more recently begun to be acknowledged in the CE-related literature; e.g. Pawar and Reidel, 1994; US Department of Defense, 1996). Rather, the successful implementation of the CE approach is contingent on a range of factors both internal and external to a particular organisational context. In criticising the tendency towards universalistic prescription in the product innovation literature, we explore two main arguments. Firstly, we examine the proposition that there may be situations where the application of CE is not appropriate. Secondly, noting the extremely diverse nature of new product development projects, we develop a contingency perspective which argues that the application of CE principles will vary considerably according to project type and context.
# Blackwell Publishers Ltd 1999
IMPROVING PRODUCT INNOVATION PROCESSES
Is a Concurrent Engineering Approach Always Applicable? There is a growing recognition in the literature that CE is not applicable across all new product projects. This is perhaps not surprising, given that in the management literature it has been accepted for some time that: ``. . . . one size does not fit all. The best way to organise for successful innovation depends on the opportunity cost and entry risk in that instance. When market requirements are clear and competitors' plans are obvious, for example, development should have a markedly different focus than when user needs are in flux or when a core technology isn't working out or, for that matter, when competitors launch products sooner than expected.'' (Krubasik, 1988, page 46) Furthermore, studies in the field of management have shown that ``accelerated'' or ``rapid'' development projects do not always result in commercial success (Meyer and Utterback, 1995), and that there are ``hidden costs'' to adopting such approaches to product innovation (Crawford, 1992). These hidden costs include: the driving out of potentially-profitable breakthrough innovations, a higher probability of making mistakes, management problems arising from team dynamics, unexpected inefficiencies which lead to longer delivery lead-times, and unsustainable pressure on support resources. These findings and arguments are now being taken up in the CE literature. For example, Handfield (1994) argues that CE practices (in particular those that seek to maximise simultaneous activity in order to reduce lead times) may not be suitable for the development of ``breakthrough'' products which introduce radical new technologies because of hidden costs such as higher defect levels in the resulting manufactured product. The theme that CE is not appropriate in specific contexts has been confirmed in other studies. AitSahlia et al. (1995) demonstrated that in technology-driven industries, such as computers or pharmaceuticals, a CE approach to the organisation of projects may lead to increased development costs that are not compensated for by the reduced time-tomarket (furthermore, the latter is a benefit which does not always result in commercial success, and in cases of premature release can even lead to new product failure). They conclude by cautioning CE proponents: ``. . . to carefully consider the costs and benefits of such an approach. One should
# Blackwell Publishers Ltd 1999
31
be aware that unilateral application of concurrent development may have cost consequences that are much worse than serial development if care is not taken with the organizational design.'' (AitSahlia et al., 1995, pages 169±170) It is becoming increasingly clear that, while a CE approach is eminently suitable for incremental innovations, it may not be so appropriate for the development of more radical breakthrough products and in environments characterised by high levels of technical uncertainty (e.g. Iansiti, 1995). Not only may the risks of failure be too high, but the approach may not be sufficiently flexible to enable firms to deal with failures and unexpected changes in the environment.
The Heterogeneous Nature of Product Innovation Contingency theory has a long history in the field of organization studies (e.g. Burns and Stalker, 1961; Lawrence and Lorsch, 1967; Galbraith, 1973). More recently, Olson et al. (1995) have applied resource dependency theory (e.g. Pfeffer and Salancik, 1978) to the coordination of product development processes, and have argued that ``. . . . the degree of innovativeness or newness of the product being developed is an important moderator of the impact of different coordination structures on the development process and its outcomes.'' (Olson et al., 1995, page 48) Such a contingency perspective not only challenges the universal panacea approach of many prescriptive frameworks, it also points to the heterogeneous nature of product innovation. Much of the CE literature presents a somewhat homogeneous view of new product projects (i.e. typically based on the design and development of ``clean sheet'' complex products like automobiles or computers). But there is rather a vast variation in the types of projects that fall within the broad category of ``product innovation''. This may be broadly defined as encompassing the conception, the creation (or design and development), the realisation through release to production, and the ongoing management once released of a ``new'' product. We identify three dimensions to the heterogeneity of product innovation projects. Firstly, as Cooper (1988) has noted, there are varying levels of product newness or novelty, which can be defined in terms of its degree of newness to the company and of its newness to the market. Using these two
Volume 8
Number 1
March 1999
32
CREATIVITY AND INNOVATION MANAGEMENT
dimensions of novelty, a well-established typology of ``new'' products (Booz, Allen and Hamilton, 1982) identifies six distinct categories of new products: new-to-the-world products (or ``true innovations''), new product lines (not new to the market, but new to the firm), extensions to existing product lines (not new to the market, but also new to the firm), incremental improvements to existing products (not so new to the market but with a degree of newness to the firm), repositionings (new applications or markets for existing products), and cost reductions (not at all new, but re-designed for manufacture at lower cost). Many firms engaged in product innovation pursue a mix, or portfolio, of these types of new product. The development and/or introduction of each type of new product will involve different resources and different activities; e.g. repositionings will involve no product development activity whatsoever, whereas true innovations will often require intensive R&D activity drawing on a diverse array of specialist functions. So, while CE may be applicable to some of these categories of new product (e.g. new product lines, product line extensions, and even incremental improvements), it may not be so relevant for others (e.g. repositionings and cost reductions), and as noted above in some industries may not be appropriate for breakthrough products. Secondly, not only is there varying degrees of new product novelty, the variety of manufactured products is also enormous, ranging from simple single-component items, such as plastic cutlery, through to complex systems such as automobiles, aircraft and computers. Most of the CE literature has focused only on the latter category, yet a majority of manufacturers do not make such complex products. Product variability negates the notion of a universally-applicable set of CE principles and practices. For some contexts, the oftprescribed CE elements are simply not relevant: ``One reason why `solutions' have tended to be inappropriate is that the findings have been stilted in favour of the largest industries which develop the most complex new products of all (for example the automotive and aerospace industries). A more realistic scenario, however, is to conceive that firms have varying needs for CE and that the level of `need' is governed primarily by the level of complexity of new products that are produced by firms.'' (Poolton and Barclay, 1996, page 321) One attempt to address this issue has been to relate differing levels of ``need'' for CE
Volume 8
Number 1
March 1999
principles and practices to different levels of product complexity as measured along two dimensions (complexity of internal structure and complexity from the perspective of the end-user). The matrix so derived can be divided into four distinct categories (i.e. simple, component-driven, interface-driven, and complex products), each of which will require a specific mix of the organisational, process, systems, tool, and technique elements deployed under a CE approach (Poolton and Barclay, 1996). A third dimension adding complexity to the nature of product innovation is customer type (see Figure 1). New products are developed, manufactured and sold through two main mechanisms: either under contract to a specific customer or introduced and sold in particular markets (either industrial or end-consumer). Contracted product development projects are organised very differently from those that are market-oriented. In the latter, conceptualisation, design and development are driven by interpretations of market wants and needs. The extent to which this type of new product meets the needs of its targeted customers is ultimately determined when the product is launched. For contracted products, by contrast, key elements of the new product design are determined in direct negotiation with the customer both before and during a project. Given the differences in the organisational and management requirements of the two different types of project, the applicability and implementation of CE will vary considerably across the two types. This diversity in new product projects, and its implications for the application of CE, can be illustrated with two contrasting Australian case studies (see Table 1 below). The first case was on the development of a simple (i.e. 6 components), mass-produced plastic sprinkler for sale in a domestic market. The company involved had a manufacturing site which was 80 km. away from its Head Office. A small sales-oriented Marketing Department was based at the Head Office, and a small R&D unit (5 staff) was located on the manufacturing site where it worked closely with the 2 manufacturing engineers and other production staff. The new product resulted from a decision by Marketing to rationalise a product line, so the new product was essentially an improvement rather than a breakthrough. Design was initiated by the R&D unit when it received a brief from Marketing. While the project started well ± with early input from manufacturing, extensive R&D to optimise product performance, and concurrent product and tooling design ±
# Blackwell Publishers Ltd 1999
IMPROVING PRODUCT INNOVATION PROCESSES
33
Figure 1. New Product Project by Customer type
Table 1. Contrasting product development projects New Product Characteristics
Product A (military system)
Product B (plastic sprinkler)
Newness
New product line
Improved product
Complexity
High internal Low external
Low internal Low external
Customer
Military contract
Consumer market
it began to slip as it moved towards the planned product release date. Communication and co-operation between the three departments involved in the project degenerated, leading to a major schedule over-run on the product launch. The second case was that of a manufacturer of military communication systems (complex products) which won a defence contract to develop a new type of portable transceiver (a new product line for the company, but well within its core competency). This company
# Blackwell Publishers Ltd 1999
was project-oriented and had 600 staff in a range of functional specialisations available for development projects. Initial development work on the product was commenced prior to the bid for the contract, and the negotiated contract provided a detailed specification (within the framework of highly-structured defence procurement) of the project and its outcomes. As development proceeded, management problems led to schedule over-runs. The regular project co-ordination meetings did not provide an effective forum for
Volume 8
Number 1
March 1999
34
CREATIVITY AND INNOVATION MANAGEMENT
communication, the development of a common perspective on the project, or the sharing of ideas. The project leader was not very team-oriented, and was unable to change entrenched company behaviour patterns, such as low levels of pro-activeness of personnel from downstream functions during attempts to involve them early in design. Despite attempts to claw back schedule slippage, the project continued to run late which ultimately led to problems with the customer. In both cases, a CE approach would have been helpful, but in quite different ways given the radically different contexts and product types. That is, the central CE elements of integration and concurrence (if successfully implemented) could have contributed to more successful project outcomes and avoided the problems experienced in the two projects. But by examining the demands arising from the two contrasting types of new product project, it can be seen that there would be key differences in the means required to achieve cross-functional integration, in the nature of customer and supplier involvement, and in the technological support for the process. Thus for the more internally complex product (i.e. with a higher number of subsystems, components and manufacturing processes), which was also less familiar to the company, there was a much higher level of interdependence between the functional specialists involved and hence a greater need for communication, cooperation and coordination. The externallydriven project schedule was also much more demanding. This sort of situation requires ``heavyweight'' project leadership, with tight project and configuration management, and a need for cross-functional teamwork (ideally involving a collocated, project-dedicated team). A higher level of technological support, e.g. with networked computers, and the use of CAD and CAE tools to model the system and its components, would also have been of considerable benefit. The simpler new product, which was also more familiar to the company, only involved three functional departments: Marketing, R&D and Production. Each of these departments was most actively involved at different phases in the development cycle, and interdependence between these functions was much less. Because of this, interdepartmental coordination could have been effectively achieved without a full-time project team; e.g. through regular inter-departmental meetings, a senior manager to ensure that the functional departments did cooperate and share information, and the adoption of more
Volume 8
Number 1
March 1999
bureaucratised procedures within each department. The need for technological support would also be more limited, e.g. to an integrated CAD/CAM system and a number of design-facilitating CAE tools such as mouldflow analysis. Again, with respect to customer and supplier involvement, two contrasting pictures emerge. For the product developed under contract to a single customer, there is ongoing liaison (often intensive) with the customer and formally-scheduled design reviews. Given the complexity of the new product, early supplier involvement is critical for key components and materials, especially for those which have long delivery lead times. Customer involvement for the marketed product will take a very different form, and will be sporadic rather than continuous. Market research could be undertaken at a pre-development stage in order to clarify customer requirements and preferences, and also at a later stage customers could be involved in field trials of advanced prototypes. Supplier involvement for this type of product is much less critical, with perhaps only a need for the early interaction with a tooling manufacturer (e.g. by way of a preliminary tooling specification). This analysis could, of course, be extended further and developed at a greater level of detail, but the argument should be clear. While the general aims of CE are applicable to the two projects, the implementation of these aims is contingent on the project context, which is determined in large part by the type of ``new'' product being developed.
Conclusion In this paper, we have argued for a contingency approach towards the application of CE. CE may not always be a useful approach to product development and, in those cases where it is, it cannot be simply implemented through the mechanistic application of universal principles and practices. Our case studies have also revealed that managing the implementation process is critical to gain the potential benefits of CE. Implementation is not always a straightforward process, not least because it often requires cultural change within an organisation and entails organisational politics (Buchanan and Badham, forthcoming), and managers frequently underestimate the magnitude of the task. But while various success and failure factors have been identified (e.g. Evans, 1993; Maddux and Souder, 1993; Jukes et al., 1998), there have been very few detailed
# Blackwell Publishers Ltd 1999
IMPROVING PRODUCT INNOVATION PROCESSES
published studies of the implementation of CE. Even rarer are studies of the introduction of this approach outside of the advanced industrialised economies. Preliminary findings from a case study of the attempted introduction of CE in an Indonesian high technology company (Couchman et al., 1998) indicate that locally-specific factors may play a role in the origins and nature of the implementation problems observed. In that case there was a failure by senior management to successfully introduce the concept in a new development project, and little success in building the necessary high levels of communication and collaboration between the functional departments involved, both problems which appeared to derive from the social context (e.g. the local management culture and social institutions). So, we would conclude that, although CE does appear to offer a useful framework for many firms in advanced industrialised economies that wish to improve their new product development capability, much more research needs to be conducted on its applicability and implementation requirements in different contexts and across different countries. Furthermore, while our research has been concerned with a particular concept, CE, the findings could be applied to the application of almost any other management ``fad'' such as Total Quality Management, Business Process Reengineering, and team-based work. Finally, from a more practical perspective, if a firm is contemplating the introduction of CE, either as an improvement or a remedial strategy, it should first carefully analyse its needs as well as its internal and external environments to determine whether this approach is appropriate.
References AitSahlia, F., Johnson, E. and Will, P. (1995) Is concurrent engineering always a sensible proposition? IEEE Transactions on Engineering Management, 42, 166±170. Ancona, D.G. and Caldwell, D.F. (1992) Bridging the boundary: external process and performance in organizational teams. Administrative Science Quarterly, 37, 634±665. Booz, Allen and Hamilton (1982) New Product Management for the 1980s. New York: Booz, Allen and Hamilton. Brown, S.L. and Eisenhardt, K.M. (1995) Product development: past research, present findings and future directions. Academy of Management Review, 20, 343±378. Buchanan, D. and Badham, R. (forthcoming) Power, Politics and Organizational Change: Winning the Turf Game. London: Sage.
# Blackwell Publishers Ltd 1999
35
Burns, T. and Stalker, G.M. (1961) The Management of Innovation. London: Tavistock. Carter, D.E. and Baker, B.S. (1992) Concurrent Engineering: The Product Development Environment for the 1990's. Reading, MA: Addison-Wesley. Clark, K.B. and Fujimoto, T. (1991) Product Development Performance: Strategy, Organization and Management in the World Auto Industry. Boston, MA: Harvard Business School. Cooper, R.G. (1988) Winning at New Products. London: Kogan Page. Cooper, R.G. and Kleinschmidt, E.J. (1987) New products: what separates winners from losers? Journal of Product Innovation Management, 4, 169±184. Couchman, P.K., Zainnudin, J., Badham, R. and Zanko, M. (1998) Implementing concurrent engineering in an Indonesian high technology company. In Karwowski, W. and Goonetilleke, R. (eds.) Manufacturing Agility and Hybrid Automation ± II. Santa Monica, CA: IEA Press. Craig, A. and Hart, S. (1992) Where to now in new product development research? European Journal of Marketing, 26, 1±49. Crawford, C.M. (1992) The hidden costs of accelerated product development. Journal of Product Innovation Management, 9, 188±199. de Graaf, R. (1996) Assessing Product Development ± Visualizing Process and Technology Performance with RACE. Amsterdam: de Graaf. Dougherty, D. (1996) Organizing for innovation. In Clegg, S.R., Hardy, C. and Nord, W.R. (eds.) Handbook of Organization Studies. London: Sage. Driva, H. and Pawar, K.S. (1996) The development of a generic framework for the implementation of concurrent engineering. International Journal of Computer Applications in Technology, 9, 165±173. Evans, S. (1993) Implementation: common failure modes and success factors. In Parsaei and Sullivan (eds.), op. cit. Follett, M.P. (1949) Coordination. In L. Urwick (ed.) Freedom and Coordination: Lectures in Business and Organization by Mary Parker Follett. London: Management Publications. Galbraith, J. (1973) Designing Complex Organizations. Reading, MA: Addison-Wesley. Gerwin, D. and Susman, G. (1996) Guest Editorial: Special Issue on Concurrent Engineering. IEEE Transactions on Engineering Management, 43, 118±123. Haddad, C.J. (1996) Operationalizing the concept of concurrent engineering: a case study from the U.S. auto industry. IEEE Transactions on Engineering Management, 43, 124±132. Handfield, R.B. (1994) Effects of concurrent engineering on make-to-order products. IEEE Transactions on Engineering Management, 41, 384±393. Hull, F.M., Collins, P.D. and Liker, J.K. (1996) Composite forms of organization as a strategy for concurrent engineering effectiveness. IEEE Transactions on Engineering Management, 43, 133±142. Iansiti, M. (1995) Shooting the rapids: managing product development in turbulent environments. California Management Review, 38, 37±58.
Volume 8
Number 1
March 1999
36
CREATIVITY AND INNOVATION MANAGEMENT
Jukes, S.A., Lettice, F.E. and Evans, S. (1998) Improving product development performance: two approaches to aid successful implementation. In Jerrard, B., Trueman, M. and Newport, R. (eds.) Managing New Product Innovation. London: Taylor and Francis. Krubasik, E.G. (1988) Customize your product development. Harvard Business Review, November± December 1988, 46±52. Lawrence, P.R. and Lorsch, J.W. (1967) Differentiation and integration in complex organizations. Administrative Science Quarterly, 12, 1±47. Maddux, G.A. and Souder, W.E. (1993) Overcoming barriers to the implementation of concurrent engineering. In Parsaei and Sullivan (eds.) op. cit. Maidique, M.A. and Zirger, B.J. (1984) A study of success and failure in product innovation: the case of the US electronics industry. IEEE Transactions in Engineering Management, 4, 192±203. Meyer, M.H. and Utterback, J.M. (1995) Product development cycle time and commercial success. IEEE Transactions on Engineering Management, 42, 297±304. Myers, S. and Marquis, D.G. (1969) Successful Industrial Innovations. Washington, DC: National Science Foundation. Oliver, N., Dewberry, E., Nilson, P. and Shamir, T. (1997) Connecting product to process: the design and development processes of companies with classleading products. Research Papers in Management Studies WP 33/97. Cambridge: University of Cambridge. Olson, E.M., Walker, O.C. and Ruekert, R.W. (1996) Organizing for effective new product development: the moderating role of product innovativeness. Journal of Marketing, 59, 48±62. Parsaei, H.R. and Sullivan, W.G. (1993) Concurrent Engineering: Contemporary Issues and Modern Design Tools. London: Chapman and Hall. Pawar, K.S. and Reidel, C.K.H. (1994) Achieving integration through managing concurrent engineering. International Journal of Production Economics, 34, 329±345. Pfeffer, J. and Salancik, G.R. (1978) The External Control of Organizations: A Resource Dependency Perspective. New York: Harper and Row.
Volume 8
Number 1
March 1999
Poolton, J, and Barclay, I. (1996) Concurrent engineering assessment: a proposed framework. Proceedings of the Institution of Mechanical Engineers, 210, 321±328. Ranky, P. (1994) Concurrent/Simultaneous Engineering ± Methods, Tools and Case Studies. Guildford: CIMware Ltd. Schrage, D.P. (1993) Concurrent design: a case study. In Kusiak. A. (ed.) Concurrent Engineering: Automation, Tools and Techniques. New York: John Wiley. Smith, R.P. (1997) The historical roots of concurrent engineering fundamentals. IEEE Transactions on Engineering Management, 44, 67±78. Takeuchi, H. and Nonaka, I. (1986) The new product development game. Harvard Business Review, 64, 137±146. Trygg, L. (1993) Concurrent engineering practices in selected Swedish companies: a movement or an activity of the few? Journal of Product Innovation Management, 10, 403±415. U.S. Department of Defense (1996) DoD Guide to Integrated Product and Process Development. Washington, DC: Office of the Under-Secretary of Defense (Acquisition and Technology). Wheelwright, S.C. and Clark, K.B. (1992) Revolutionizing Product Development. New York: The Free Press. Whitney, D.E. (1994) Integrated design and manufacturing in Japan. Target, 10, 7±16. Winner, R.I., Pennell, J.P., Bertrand, H.E. and Slusarczuk, M.M.G. (1988) The Role of Concurrent Engineering in Weapons System Acquisition. Alexandria, VA: Institute for Defense Analyses. Ziemke, M.C. and Spann, M.S. (1993) Concurrent engineering's roots in the World War II Era. In Parsaei and Sullivan (eds.) op. cit.
Paul K. Couchman, Richard Badham and Michael Zanko are at the Department of Management, University of Wollongong, Wollongong, NSW 2522, Australia.
# Blackwell Publishers Ltd 1999
MANAGING COLLABORATIVE QUALITY
37
Managing Collaborative Quality: A Challenging Innovation Thekla Rura-Polley and Stewart R. Clegg This paper investigates the theoretical challenges involved in developing an administrative innovation: managing collaborative quality. The emergence of new collaborative organizational forms has left managers in a quandary: how can they manage quality where several organizations come together to produce a product or deliver a service? In the past most quality definitions and techniques focused exclusively on intra-organizational quality. In strategic alliances, networks, project organizations and other collaborative arrangements, such an intra-organizational focus leads to severe limitations. This paper shows how the current status of collaboration and quality research poses serious challenges for companies that want to develop innovative approaches to managing collaborative quality.
Introduction
O
nce upon a time organization studies seemed a relatively sure enterprise. Increasingly, this surety has been the subject of public speculation (Clegg and Hardy 1996; Donaldson 1996; Pfeffer 1993; Van Maanen 1995). The ontological status of organizations has increasingly come into question. What constitute the boundaries of organizations where empirical tendencies, such as networks and sub-contracts, question conventional assumptions concerning the presumed identity of a legal fiction and its employment contracts? Quality management gained wide practitioner acceptance over the last decade, often in a manner unrelated to the changes that have propelled the discussion about new organizational forms. Moreover, little empirical research has linked quality practices to this discussion. Some work explores quality beyond the boundaries of a particular organization as, for example, the case of supplychain management, but it tends to do so from the perspective of a focal organization or from within a dyadic relationship (e.g., Levy et al. 1995). In this paper we will review the collaboration and quality management literature in order to demonstrate how the innovation of managing collaborative quality is hindered by the fragmentation of the existing collaboration and quality literatures. # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.
Significance and Theoretical Background Understanding collaborative quality in management is important for a number of reasons. First, new collaborative organizational forms bring together organizations with clearly defined core competencies that outsource peripheral activities. Strategic complementarity increases in importance as organizations strip down to the bare essentials of their processes and routines in order to respond to emerging markets and global competition. Second, collaboration is important in Australia because of the predominance of the small business sector. Australian competitiveness must rely on businesses collaborating in order to leverage their competitive position and to reduce risk. Third, collaboration expands export opportunities in those emerging markets on which Australia depends (McKinsey and Co. 1993), by leveraging individual productive and export capacities to a collaborative stage of export readiness. Collaboration is necessary to ensure sufficient accumulation of resources and expertise for smaller Australian companies to compete effectively on a world stage. Our premise is that managing quality inside individual organizations will not be sufficient to achieve collaborative quality, any more than will be the holding of a single organization accountable for the quality of a collaborative product or service. Since
Volume 8
Number 1
March 1999
38
CREATIVITY AND INNOVATION MANAGEMENT
collaboration depends on permeating individual organizational boundaries and developing a joint vantage-point that combines the interests of participants (cf. Hardy et al. 1997; Hardy and Phillips 1998), managing collaborative quality goes beyond managing on an organizational basis. It must ensure that quality traverses organizational boundaries. Consequently, there is a need for work that specifically investigates quality in collaborative settings.
Innovation Challenges Collaboration Literature Despite the tremendous interest in the area of intra- and inter-organizational collaboration and the development of a new so-called `collaboration paradigm' (Elder 1996) the literature on collaboration is fragmented and incoherent. This fragmentation stems from the number of literatures that traverse the terrain. At the most economical, such a list includes at least the following (see Table 1). Table 2 sets out a number of definitions of collaboration, which we have found to be influential ± they are cited frequently in the literature. Besides noting the definition itself, we also catalogue what we take to be the key implication. Whilst some common themes emerge in Table 2 around a plurality of social actors searching for solutions to problems or ways of expanding their vision, two persistent problems emerge. First, definitions tend to cluster around a functionalist and instrumental conception of collaboration. Second, collaboration is either conflated by these definitions or attributed to an indeterminate space: collaboration either becomes the indeterminate other of a single organization or is conflated to a whole society. (We term this process `indeterminate conflation'.) Sometimes this is expressed in terms of collaboration being a hybrid space between,
or dimension separate from, markets and hierarchies (Powell 1990; Stinchcombe and Heimer 1985; Williamson 1991). Everything that is neither a pure market nor a pure hierarchy ends up being a form of collaboration in these writings. Consequently, virtually anything in the way of inter-organizational relations that is evidently neither a buyerseller nor an imperative relationship becomes assigned to the conceptually muddy space of collaboration. In the case of both tendencies there is an emphasis on the voluntary and consensual aspects of collaboration. Collaboration is seen as a good thing in its own right, a more trusting and compassionate forms of organizing ± a surprising semiotic shift in the space of 50 years since wartime experience stigmatized collaboration as despicable. Since World War II collaboration has implied largely an amoral bargain, in terms of complicity with a power ± Hitler ± that was both oppressive and evil. The shifting semiotic signifies a cautionary tale: it is important neither to define collaboration in moral terms nor to confuse the ends with the means. One should not assume that collaboration is always positive, or that it leads to beneficial outcomes. The means may be fraught and the end may be war. It is for the above reasons that study of collaborative quality is challenging. Given the cacophony of definitions and the variety of forms of collaboration, it is difficult to delineate the construct of collaborative quality. Shall researchers refer to collaborative quality whenever they speak of quality created by more than one organization? Or shall they only speak of collaborative quality if the collaborators are constituted as such by specific forms of governance? The advantage of the latter conceptualization is the restriction to occasions where specific governance frameworks apply. In this way one can avoid indeterminancy and conflation as well as the functionalist elements in the existing literature.
Table 1: The Fragmented Field of the `Collaboration Paradigm' Focus
Typical research
Strategy Network organizational forms Inter-organizational relationships Organizational domains Learning
Burgelman 1991; 1994; Kanter 1994; Westley and Vredenburg 1991 Handy 1989; Ashkenas et al. 1995; Mills 1993; Quinn et al. 1996; Powell 1990 Oliver 1990; Wood and Gray 1991; Gray 1989a Hardy 1994; Westley and Vredenburg 1997 Powell et al. 1996.
Volume 8
Number 1
March 1999
# Blackwell Publishers Ltd 1999
MANAGING COLLABORATIVE QUALITY
39
Table 2. Definitions of collaboration Source
Definition
Key Focus
Wood and Gray (1991: 146)
``a group of autonomous stakeholders of a problem domain engage in an interactive process, using shared rules, norms, and structures, to act or decide on issues related to that domain''
Functionalist process: Creating a binding universe of meaning shared among autonomous stakeholders is the necessary precursor of collaboration
Gray (1989b: 5)
``parties who see different aspects of a problem can constructively explore their differences and search for solutions that go beyond their own limited vision of what is possible'' ``loosely coupled, multilayered networks of referent organisations designed to lead stakeholders to take voluntary initiatives towards solving a shared social problem''
Functionalist process: Emphasis on constructive exploration and goal-oriented search
Pasquero (1991: 38) Roberts and Bradley (1991: 212)
``temporary social arrangement in which two or more social actors work together toward a singular common end requiring the transmutation of materials, ideas, and/or social relations to achieve that end''
Westley and Vredenburg (1991: 66)
``a variety of partnerships, strategic alliances, and inter-firm networks''
Huxham (1996: 240) Trist (in Huxham, 1993)
``all kinds of inter-organizational relationships'' ``an inter-organizational domain occupying a position in social space between a single organization and society as a whole''
Quality Literature A second challenge, whether from a researcher's or a practitioner's perspective, is posed by the fragmentation of the quality management literature. While collaboration fragmentation stems from different theoretical interests pursued by collaboration researchers, in the quality literature the fragmentation seems to be based upon the different audiences addressed (Dean and Bowen 1994). Two aspects have produced the fragmentation. First, there is a variety of perspectives on managing quality that, despite their particularism, claim to provide managers with universal prescriptions. Some of these emphasize statistical control (Crosby 1979; Deming 1986), while others are oriented towards the relationship between a focal organization and its suppliers or customers (Balle 1997), or towards general business pro-
# Blackwell Publishers Ltd 1999
Functionalist process and structure: Emphasis on a social problem that is consensually defined and a network that is designed to solve the problem Functionalist structure: goal-oriented action occurs within time-limited structure of relations
Indeterminate conflation: anything that is not a single organization is collaboration; presumes `private' and `public' when collaboration between sectors renders such distinctions obsolete Indeterminate conflation: anything that is not a single organization is collaboration Indeterminate conflation: anything that is not a single organization or society is collaboration
cess re-engineering (Hammer and Champy 1994). Because quality management is a marketable product, all authors differentiate their product. A second reason for fragmentation is the relationship between quality emphases and functional differentiation in organizational as well as academic departments. For example quality systems entail leadership, information and analysis, strategic quality planning, human resource development and management, management of process quality, customer focus and satisfaction. Since all of these elements are addressed by different functions within an organization ± as well as researched by different departments within business faculties ± distinctive quality theories developed within management, marketing, operations research and engineering. It is not surprising that this fragmentation has led to a cacophony of quality defini-
Volume 8
Number 1
March 1999
40
CREATIVITY AND INNOVATION MANAGEMENT
tions. In a review of the literature, Reeves and Bednar (1994) found at least four distinct notions of quality: excellence, value, conformance to specifications, and meeting and/or exceeding expectations, each of which is suitable for a distinct research or managerial arena. Other definitions of quality abound as the Table 3 shows. Looking at these definitions, one can see a range of foci. At the top of the list are the specifically focused definitions on aspects such as culture or customer expectations or continuous improvement. Others, in the middle of the list, build on one or other, or both, to produce more composite definitions. Towards the end of the list is an interesting group of definitions that involve various stakeholders of organizations ± customers, employees, shareholders, up to and including the natural environment. Finally, there are what we are tempted to think of as `kitchensink' definitions of quality management ± those that not only define total quality management but do so in a totalizing manner. The range of variation in these definitions could be interpreted as lack of quality. There does not seem to be any agreement on what the phenomenon in question might be. In terms of specific definitions, each focus has problems. The focus on culture, for example, shares similar functionalist assumptions to many of the collaboration definitions. One assumption is that organizations have a culture in the singular. Invariably, this is not a nuanced description of organizational reality. Others betray their engineering origins in their focus on standards and reliability. The stakeholder models are more interesting, especially when framing research on collaboration and quality management. Different stakeholders of one organization may well have different interests that translate into different conceptions of quality ± just as one would expect to be the case with collaborators from different organizations. Another challenge stems from the difficulties associated with aggregating information to develop a theory at a higher level of analysis, in our case from an organizational to an inter-organizational level. Constructs, traits and relations that hold at the organizational level may not apply to the inter-organizational level. The focus of the TQM literature has been at the organizational level, which may not be essential for a theory of collaborative quality. In fact, basing a theory of collaborative quality on insights from organizational quality may be invalid because researchers will focus too much on existing findings, creating blind spots in their thinking.
Volume 8
Number 1
March 1999
A third challenge is presented by different dynamics operating in collaborations compared with organizations. At the organizational level membership may be problematic. Being a member does not necessarily mean ceding priorities and legitimacy to organizational definitions of goals. Ruletropism, where the means become more important than the ends (Merton 1940) is a common phenomenon, as is goal displacement (Gouldner 1955; Selznick 1949; Zald and Denton 1963). Thus, one cannot assume commitment to organizational goals as a norm of membership. Collaborative commitment adds another dimension of complexity: if organizational commitment is questionable, collaborative commitment may be more so.
Modelling Collaborative Quality A collaborative context is not a pure market, where principally price matters, nor a pure hierarchy, where principally authority matters. Any collaboration will display a high degree of social embeddedness: many socially constructed assumptions and expectations will be operative. We have already observed the challenges in both the collaboration and the quality literatures: bringing them together, within one frame, compounds the fundamental problem of how to specify what hypothetical relations between what key variables are theoretically significant. Clearly, this presents problems for theoretical development: where a potentially complex arena of possibilities confronts management theory that is notably under-developed, there are few guides as to the relations that should be specified in any theory. Thus, we turned to general social theory to begin an initial delimitation, drawing on a conception of collaboration as `circuits of power' (Clegg 1989) rather than as structure or functionalist process. The dynamics of professionalization and governance processes, and the inter-subjective processes of sensemaking, trust and communication are central to these circuits. We define these as core factors structuring collaborative quality (see Figure 1). While communicative processes refer principally to the media of communication, communication processes refer to the reasoning that any medium of communication might carry. Professionalization processes refer to achieving knowledge-institutionalization in an industry while governance processes refer to the more or less explicit `rules' that govern an industry.
# Blackwell Publishers Ltd 1999
MANAGING COLLABORATIVE QUALITY
41
Table 3. Definitions of quality Source
Definition
Culture Waldman (1995: 91)
``an integrated, customer focused approach to improve the quality of an organization's processes, products, and services. . . TQM may be viewed more as a shift in thinking and organisational culture.''
Garvin (1984: 25)
Quality is ``both absolute and universally recognizable, a mark of uncompromising standards and high achievement.''
Emery, Summers and Surak (1996: 484)
``TQM focuses the efforts of all members of the organization to continuously improve all organizational processes and increase value to customers, while relying on a clear vision of the organization's purpose.''
Lakhe and Mohanty (1995: 139±140)
``a quest for excellence, creating the right attitudes and controls to make prevention of defects/errors possible and optimize customer satisfaction by increased efficiency and effectiveness.''
Customer Expectations Miller (1993)
``meeting or exceeding the needs and expectations of customers, both internal and external.''
Kiella and Golhar (1997: 184)
``an integrative management philosophy aimed at continuously improving the quality of products and processes to meet or exceed customer expectations.''
Customer Expectations, Continuous Improvement, and Reliability Houghton J R (1994)
``Quality control is about . . . analyzing every aspect of how we work. It's about cutting away bureaucracy...unnecessary levels of management . . . restrictive work rules...and getting employees directly involved. It's about empowering employees to do what's best for the customer.''
Dowse (1993)
``a management philosophy that seeks continuous improvement in the quality of performance of all processes, products and services of an organization. It emphasizes the understanding of variation, the importance of measurement, the role of the customer and the involvement of employees at all levels of an organization in pursuit of such improvement.''
Continuous Improvement and Reliability Klimoski (1994)
``an approach to managing organizations which emphasizes the continuous improvement of quality and customer satisfaction, entails the application of systematic tools and approaches for managing organizational processes with these ends in mind, and involves the establishment of structures such as quality improvement teams and councils for maintaining focus on these ends and enacting organizational improvement processes.''
Walker (1995)
``a philosophy and set of concepts and methods employed throughout an organization by individuals with a view toward continually improving the product or service provided to customers.''
Steingard (1993)
``a set of techniques and procedures used to reduce or eliminate variation from a production process or service-delivery system in order to improve efficiency, reliability and quality.''
Stakeholder Approach Westphal, Gulati and Shortell (1997: 368±369)
``The TQM philosophy has four basic aspects. First, it has a customer focus. . . Second, TQM emphasizes continuous improvement . . . Third, TQM involves structured, problem-solving processes for identifying and solving problems and finding opportunities for improvement . . . Finally, TQM emphasizes employee empowerment. . ..''
Longbottom and Zairi (1996: 580)
``TQM . . . is more attuned with dynamic conditions, an orientation to the customer and a balanced stakeholder perspective for measuring performance.''
Schoonover (1993)
``a philosophy that focuses on improving customer and employee satisfaction, as well as profitability.''
All-encompassing Pulat (1994: 44)
# Blackwell Publishers Ltd 1999
``a global concept which synchronizes the elements of quality performance across the various business functions . . . An operational definition . . . must focus on the implementable attributes of TQM . . . [which are]management leadership, employee involvement, focus on the customer, factbased decision making, continuous improvement, benchmarking, responsibility for quality at the source, [and] quality function deployment
Volume 8
Number 1
March 1999
42
CREATIVITY AND INNOVATION MANAGEMENT
Figure 1. The Collaborative Quality Model
Communicative Processes and Collaborative Quality Interaction in collaborative settings may occur face-to-face or be mediated by technology (conference call, video-conferencing, etc.). Much collaborative activity occurs through organizations that are heavily networked technologically, often with unexpected liabilities. One major liability is that the tacit, implicit and subtle cues attendant upon face-to-face communication disappear: there is no body language on the web or in cyberspace. Hence, possibilities of misinterpreting the meaning of communication increase. Another liability is that when most information flows through technological conduits we tend to privilege its `truthfulness': the news provided by CNN on its web site on the Internet may be as true as news provided by specific interest-groups on their web sites. Judgement of the `interestedness' of the site lapses. Information carried through other conduits is often discounted as less `real' because perceived as less objective. One would not want to propose that faceto-face interaction is necessarily better. Immediate interaction within collaborations may diminish collaborative quality. For example, groups may agree on the lowest common denominator in their interactive processes, while benchmarking much higher standards
Volume 8
Number 1
March 1999
in their individual areas of expertise. Within specific sub-processes and routines that are managed individually by the collaborative parties, quality committed to will be delivered. What may remain at issue will be the nature of the overall, systemic quality of the collaborative product or service as an emergent effect of many separate processes. One outcome of this may be satisfaction, even complacency, with one's own performance standards, even where these may compromise the overall collaborative quality. The tendency will be to blame the inputs of other experts, other trades, for any malfunctions that might be apparent. Inter-organizationally, quality may also be compromised for sociability. In these circumstances a decision may be made to accept what is on offer rather than risk causing offence. Here, quality in collaboration is sacrificed for the comfort zone in sociability. The line of least resistance may have been the determining factor in the quality that was acceptable at some point in the past. Once agreed, the quality becomes taken-for-granted rather than being seen as the result of a changeable and socially constructed process. Quality enhancing communication requires openness in communication, dependent upon attention to specific processes of interaction. Such interactive processes are easier to achieve the more that everyone who is
# Blackwell Publishers Ltd 1999
MANAGING COLLABORATIVE QUALITY
collaborating shares an ideal-speech situation: co-presence, no barriers to entry, equal rights of participation and surplus time in which to reach agreement (Habermas 1984). Few, if any, collaborative arrangements conform to ideal-speech circumstances (Forester 1983). Many collaborative arrangements are characterized by systematically distorted communication. The more that they approach the conditions of the `ideal', the more they will display dialogue and social learning rather than dogma (Deetz 1992); authority rather than tyranny; collaboration rather than manipulation, and sensitivity rather than distraction (Forester 1983).
Inter-subjective Processes: Sensemaking and Collaborative Quality Jones and colleagues (1997), among others, deem a system of shared assumptions and values to be an important coordinating device in collaboration. Weick (1995) refers to the process of creating such a system as sensemaking, where individuals rationalize phenomena that do not appear to be inherently sensible at first sight through the categories available to them in their everyday organizational languages and modes of rationality. In the case of collaboration, sensemaking must translate organizational assumptions and values into collaborative content and meaning. This can be problematic where sensemaking differs greatly across organizations. For example, organizations may develop prescriptive systems when they deal with their own universe of meaning. That meaning may differ from the meaning created by other organizations. Where organizations come together to collaborate, their managers will either share sensemaking or experience conflict (Weick 1995). When different sensemaking worlds collide, collaborators will either negotiate the senses that they do not share or they will produce conflict or indifference. The study of collaborative quality needs to consider sensemaking as it translates between organizational and collaborative life-worlds, where people attempt to make clarity out of fuzzy events and beliefs. Mediating between organizational and collaborative life-worlds are the states of knowledge that actors achieve.
Inter-subjective Processes: Trust and Collaborative Quality Trust is the basis of almost any interdependence voluntarily entered into, from a marriage covenant to an employment contract, to engagement in competitive team sport, or
# Blackwell Publishers Ltd 1999
43
almost any type of collaborative activity. Trust can be defined as a ``willingness to rely on an exchange partner in whom one has confidence'' (Moorman et al. 1992: 315). Moorman and her colleagues' (1992) research established trust as a determinant of relationship quality, members' interactions, commitments and outcomes, providing evidence for the importance of trust in a variety of predominantly one-off exchange relationships. The positive effect may be greater in long term, interdependent collaborative settings. Here the final product or service quality depends on mutual adjustment, exchange of tacit knowledge, frequent and open interaction, commitment to the outcome and a willingness to cope with uncertainty and difficulties on the way (Jones et al. 1997). We hypothesize that these features of trust will increase collaborative quality.
Professionalization and Collaborative Quality A high degree of professionalization increases collaborative quality where isomorphism in structures, standards and norms creates common understanding and expectations among professionals working in different organizations (DiMaggio and Powell 1983; Scott 1995). When unexpected difficulties arise, collaborative quality improves where professional expertise, based on theory driven research and knowledge creation facilitates informed judgement, creative improvisation, and appropriate responses (e.g., Rura 1995). Having achieved professionalization also contributes to ``a general aura of confidence within and outside the organization'' (Meyer and Rowan 1977: 357) facilitating communication among collaborators, reducing opportunism, and leading to smoother operations. In part, this is because entry to a profession depends on highly developed intellectual and social skills. Professionalization, itself, is linked to formalization and standardization of practices (DiMaggio and Powell 1983; Meyer and Brown 1977; Tolbert 1988). Both formalization and standardization allow the creation of product and service specifications that may increase the reliability of production processes and service delivery and thereby increase quality. However, this outcome is neither automatic nor unambiguous. After all, being a professional implies autonomy and professional discretion over processes and practices. As Perrow (1986: 23) pointed out, professionals are trained . . . usually at great public expense, and a large number of rules are inculcated into them. They bring these to the organi-
Volume 8
Number 1
March 1999
44
CREATIVITY AND INNOVATION MANAGEMENT
zation and are expected to act on them without further reference to their skills. While accounting practices differ more widely than one might expect, accountants in general are expected to be familiar with the rules and techniques of accounting. While professionals are familiar with the standard practices of the profession, they also need to know when to follow which rule or when to use which practice. For instance, ``doctors know when they should give certain drugs or what kind of drugs should not be given to certain kinds of people; medicine is a complex body of rather imperfect rules'' (Perrow 1986: 23). Nonetheless, when quality evolves around reliability and is defined as conforming to specifications and meeting expectations, professionalization will most likely increase the probability of achieving collaborative quality outcomes. Conforming to professional specifications is more complex than conforming to specifications defined by technological automation in a production process. More specifically, professionalization is not an automatic, but a political process, where occupational boundaries and knowledge are defined and redefined. New professional groups exist in a highly `political' environment because they seek to extend their power/knowledge claims while simultaneously using these claims to legitimate their actions in doing so. The emergence of a claim to status as a new occupation in these conditions invariably means a redefinition and conquering of existing occupational boundaries. The higher the level of professionalization achieved by an industry, the stricter the requirements for selection and the higher the threshold for entry (Starr 1982). A contested arena of professionalization, where different occupational groups make competing claims to the control of processes, will make the achievement of collaborative quality outcomes difficult. In collaborative industries, another group may perceive professionalization of one group as a loss of power, thus affecting the relations within the collaboration. It will influence the obligatory passage points that define communication and its meaning, because professionalization involves the creation of shared values, norms, and meaning exclusive to a specific professional group within a collaborative arrangement (Barley 1986; Chua and Clegg 1989). Thus, communication between different professional groups might be open to more distortion where the underlying assumptions and meaning can no longer be taken for granted (Forester 1989).
Volume 8
Number 1
March 1999
Governance Processes: Technology and Collaborative Quality Governance processes refer to the structures, rules, norms, etc. that are used to administer a specific collaboration (Jones et al. 1997). They range from formal one-off contracts to implicit, shared norms of understanding (Bradach and Eccles 1989). Governance can either be predominantly explicit, implicit, or a combination of both. Governance processes sometimes produce conflict and sometimes reliable and smooth operations, and thereby affect collaborative quality. Technology can help to routinize complex procedures and processes. Technology reduces complexity by standardizing individual skills and expertise into automated routines. The quality movement has stressed the reduction of variation as a central feature of quality achievements; Foley and his colleagues (1997: 19) name variation as the `raison d'eÃtre of quality management'. Thus, technology that enables reduction of variation through embedded standardization will increase quality. Recent advances in information technology have, as an unanticipated consequence, eased standard setting in industries characterized by collaborative arrangements. For instance, the sharing of standard software ensures the compatibility of formats across different elements and personnel. Such sharing is especially the case in industries whose success depends on collaborative outcomes that can be either sequentially or reciprocally interdependent (Thompson 1967). In such a setting, collaborators will be working in either a serial (sequential) or iterative (reciprocal) relation on a shared product, service or process. Where the inter-relationship is mediated by common standards, embedded in a given technology, then we would anticipate higher quality. Such higher quality derives from reduced variation in inputs and outputs. Extraneous sources of variation in work-flows may be minimized through the use of standards. Standardizing technologies may produce unanticipated outcomes. Skills may be lost. One of the major threats to the continuing existence of occupations is the routinization of knowledge through new technologies. Occupational areas cease to exist as technologies eliminate their skills, such as hot-type setters in the printing industry. Technology eliminates skills by replacing them with automated processes. These skills may be part of the crucial skill-set allowing the non-routine to be dealt with; thus there is a risk of losing surplus skill-capacities vital for non-routine
# Blackwell Publishers Ltd 1999
MANAGING COLLABORATIVE QUALITY
processes. Clients demanding or requesting unusual and non-routine variation require skills that the technology does not contain. Hence, requests for such variation pose problems for quality-attainment. As technological solutions become more widely used, the basis of professionalism, the tacit knowledge and surplus capacities, such as continuous improvement and learning, erode. This erosion jeopardizes the long-term quality of collaborative outcomes, where quality is seen not as a one-off achievement, but as a dynamic and continual process.
In Place of a Conclusion The old model of organizations as independent actors transacting within markets no longer represents organizational realities. While the quality movement has many of the hallmarks of a management fad, it has had, and continues to have, real effects on real management practices. These effects remain empirically under-researched. When organizations collaborate, quality issues do not evaporate nor are they contained purely within the scope of the individual organizations. As organizations respond to the imperatives and challenges of globalization and enter into increased collaborative ventures, they will require an effective theory of managing collaborative quality to do so. Our aim is to provide the empirical bases for its construction.
Acknowledgements An earlier version of this paper was presented to The Seventh Australian and Pacific Researchers in Organisation Studies (APROS) International Colloquium, in Shanghai, PRC, in July 1998. The authors wish to thank participants, in particular Thomas Clarke, for their valuable feedback. The Collaboration Research Group at the University of Technology, Sydney, provided stimulating ideas and comments, which the authors gratefully acknowledge. We thank Margaret Wilkins for editorial assistance.
References Ashkenas, R., Ulrich, D., Jick, T. and Kerr, S. (1995) The Boundaryless Organization: Breaking the Chains of Organizational Structure. Jossey-Bass, San Francisco. BalleÂ, M. (1997) The Effective Organization's Workbook. McGraw-Hill, London.
# Blackwell Publishers Ltd 1999
45
Barley, S. (1986) Technology as an occasion for structuring: evidence from observation of CT scanners and the social order of radiology departments. Administrative Science Quarterly, 31, 78±108. Bradach, J.L. and Eccles, R.G. (1989) Price, authority, and trust. Annual Review of Sociology, 15, 97±118. Burgelman, Robert A. (1991) Intra-organizational ecology of strategy making and organizational adaptation: theory and field research. Organization Science, 2, 239±262. Burgelman, Robert A. (1994) Fading memories: a process theory of strategic business exit in dynamic environments. Administrative Science Quarterly, 39, 24±56. Chua, W-F. and Clegg, S.R. (1989) Contradictory couplings: occupational ideology and organizational context in nursing. The Journal of Management Studies, 26, 2, 103±128. Clegg, S.R. (1989) Frameworks of Power. Sage, London. Clegg, S.R. and Hardy, C. (1996) Representations. In Clegg, S. R., Hardy, C. and Nord, W. R. (eds), Handbook of Organization Studies. Sage, London, pp. 676±708. Crosby, P. (1979) Quality is Free. Penguin, Harmondsworth, UK. Dean, J.W. and Bowen, D.E. (1994) Management theory and total quality: improving research and practice through theory development. Academy of Management Review, 19, 392±418. Deetz, S. (1992) Democracy in the Age of Corporate Colonization: Developments in Communication and the Politics of Everyday Life. State University of New York Press, Albany, NY. Deming, W.E. (1986) Out of the Crisis. MIT Press, Cambridge. DiMaggio, P.J. and Powell, W.W. (1983) The iron cage revisited: institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48, 147±160. Donaldson, Lex (1996) The normal science of structural contingency theory. In Clegg, S. R., Hardy C. and Nord, W. R. (eds), Handbook of Organization Studies. Sage, London, pp. 57±76. Dowse, Richard (1993) Journey of experience. Managing Service Quality, 43±48. Elder, J.O. (1996) Collaborative relationships. Executive Excellence, 13, 7, 16. Emery, C.R., Summers, T.P. and Surak, J.G. (1996) The role of organizational climate in the implementation of Total Quality Management. Journal Of Management Issues, 8, 4, 484±496. Foley, K., Barton, R., Busteed, K., Hulbert, J. and Sprouster, J. (1997) Quality, Productivity and Competitiveness. The Wider Quality Movement, Sydney. Forester, J. (1983) Critical theory and organizational analysis. In Morgan G. (ed.), Beyond Method. Sage, Beverley Hills, CA. Forester, J. (1989) Planning in the Face of Power. University of California Press, California. Garvin, D.A. (1984) What Does Product Quality Really Mean? Sloan Management Review, 26, 1, 25±43.
Volume 8
Number 1
March 1999
46
CREATIVITY AND INNOVATION MANAGEMENT
Gouldner, A. (1955) Patterns of Industrial Bureaucracy. Routledge and Kegan Paul, London. Gray, B. (1989a) Collaborating: Finding Common Ground for Multiparty Problems. Jossey-Bass, San Francisco. Gray, B. (1989b) Negotiations: arenas for constructing meaning. Unpublished working paper, Pennsylvania State University, Center for Research in Conflict and Negotiation, University Park, PA. Habermas, J. (1984) The Theory of Communicative Action. Vol. 1, Reason and the Rationalization of Society. Beacon, Boston. Hammer, M. and Champy, J. (1994) Re-engineering the Corporation: A Manifesto for Business Revolution. Allen and Unwin, London. Handy, C. (1989) The Age of Unreason. Harvard Business School Press, Boston. Hardy, C. (1984) Managing Strategic Action. Sage, London. Hardy, C. and Phillips, N. (1998) Strategies of engagement: lessons from the critical examination of collaboration and conflict in an interoganizational domain. Organization Science, forthcoming. Hardy, C., Phillips, N. and Lawrence T. (1997) Swimming with sharks: tensions in the Canadian HIV/AIDS domain. EGOS Colloquium, Budapest, Hungary. Houghton, J.R. (1994) Leadership's challenge: the new agenda for the 90s. Executive Speeches, 8, 4, 80±85. Huxham, C. (1993) Pursuing collaborative advantage. Journal of the Operational Research Society, 44, 6, 599±611. Huxham, C. (1996) Advantage or inertia? Making collaboration work. In Paton, R., Clark, G., Jones, G., Lewis, J. and Quinlan, P. (eds), The New Management Reader. Routledge in association with The Open University, London, New York. Jones, C.T., Hesterly, W.S. and Borgatti, S.P. (1997) A general theory of network governance: exchange conditions and social mechanisms. Academy of Management Review, 22, 911±945. Kanter, R.M. (1994) Collaborative advantage: the art of alliances. Harvard Business Review, 73, 4, 96±108. Kiella, M. L. and Golhar, D.Y. (1997) Total Quality Management in an R&D environment. International Journal of Operations and Production Management, 17, 2, 184±198. Klimoski, R. (1994) Introduction: A total quality special issue. Academy of Management Review, 19, 3, 390±391. Lakhe, R. R. and Mohanty, R.P. (1995) Understanding TQM in service systems. International Journal of Quality and Reliability Management, 12, 9, 139±153. Levy, P., Bessant, J., Sang, B. and Lamming, R. (1995) Developing integration through total quality supply chain management. Integrated Manufacturing Systems, 6, 3, 4±12. Longbottom, D. and Zairi, M. (1996) Total Quality Management in financial services: an empirical study of best practice. Total Quality Management, 7, 6, 579±594.
Volume 8
Number 1
March 1999
McKinsey and Company (1993) Emerging Exporters. Australian Manufacturing Council, Melbourne. Merton, R.K. (1940) Bureaucratic Structure and Personality. Social Forces, 18, 560±568. Meyer, J.W. and Rowan, B. (1977) Institutionalized organizations: formal structure as myth and ceremony. American Journal of Sociology, 83, 340±363. Meyer, M.W. and Brown, M.C. (1977) The process of bureaucratization. American Journal of Sociology, 83, 364±385. Miller, David E. (1993) Emphasize quality. Telephony, 225, 3, 12±16. Mills, D.Q. (1993) Rebirth of the Corporation. John Wiley & Sons, NY. Moorman, C., Zaltman, G. and Deshpande, R. (1992) Relationships between providers and users of market research. Journal of Marketing Research, 29, 314±328. Oliver, C. (1990) Determinants of interorganizational relationships: integration and future directions. Academy of Management Review, 15, 241±165. Pasquero, J. (1991) Supraorganisational collaboration: the Canadian environmental experiment. Journal of Applied Behavioural Science, 27, 2, 38±64. Perrow, C. (1986) Complex Organizations, a Critical Essay. Third edition. Random House, New York. Pfeffer, Jeffrey (1993) Barriers to the advance of organizational science: paradigm development as a dependent variable. Academy of Management Review, 18, 599±620. Powell, W.W. (1990) Neither market nor hierarchy: network forms of organization. In Staw B.M. and Cummings L.L. (eds), Research in Organizational Behaviour. 12. JAI Press, Greenwich, CN, pp. 295±336. Powell, W.W., Koput, K.W. and Smith-Doerr, L. (1996) Interorganizational collaboration and the locus of innovation: networks of learning in biotechnology. Administrative Science Quarterly, 41, 116±145. Pulat, B.M. (1994) Total Quality Management: a framework for application in manufacturing. The TQM Magazine, 6,1, 1994. Quinn, J.B., Anderson, P. and Finkelstein, S. (1996) New forms of organizing. In Mintzberg, H. and Quinn, J.B. (eds.), The Strategy Process. PrenticeHall, Upper Saddle River, N.J., pp. 350±362. Reeves, C.A. and Bednar, D.A. (1994) Defining quality: alternatives and implications. Academy of Management Review, 19, 419±445. Roberts, N.C. and Bradley, R.T. (1991) Stakeholder collaboration and innovation: a study of public policy initiation at the State level. Journal of Applied Behavioural Science, 27, 2, 209±227. Rura, T. (1995) Professionalization and Isomorphism in Organizational Fields: Catholic Children's Institutions in Germany and the US. PhD Dissertation, University of Wisconsin ± Madison. Schoonover, Jerry (1993) What's the key to quality control? Security Management, 37, 10, 111±112. Scott, W.R. (1995) Institutions and Organizations. Sage, Thousand Oaks. Selznick, Philip (1949) TVA and the Grassroots. University of California Press, Berkeley, CA.
# Blackwell Publishers Ltd 1999
MANAGING COLLABORATIVE QUALITY
Starr, P. (1982) The Social Transformation of American Medicine. Basic Books, New York. Steingard, David S. (1993) A postmodern deconstruction of total quality management (TQM). Journal of Organizational Change Management, 6, 5, 27±42. Stinchcombe, Arthur L. and Heimer, Carole A. (1985) Organization Theory and Project Management. Norwegian University Press, Bergen. Thompson, J.D. (1967) Organizations in Action. McGraw-Hill, New York. Tolbert, P.S. (1988) Institutional sources of organizational culture in major law firms. In Zucker L.G. (ed.), Institutional Patterns and Organizations. Ballinger, Cambridge, MA. pp. 101±113. Van Maanen, John (1995) Style as theory. Organization Science, 6, 133±143. Waldman, D.A. (1995) What is TQM research? Canadian Journal of Administrative Sciences, 12, 2. Walker, Fred H. (1995) `Texas Instruments' and Iowa State University's experiences with the University Challenge program. Quality Progress, 28, 7, 103±106. Weick, K. (1995) Organizational Sensemaking. Sage, Thousand Oaks. Westley, Frances and Vredenburg, H. (1991) Strategic bridging: the collaboration between environmentalists and business in the marketing of green products. Journal of Applied Behavioural Science, 27, 2, 65±90.
# Blackwell Publishers Ltd 1999
47
Westley, Frances and Vredenburg, H. (1997) Interorganizational collaboration and the preservation of global bio-diversity. Organization Science, 8, 381±403. Westphal, J. D., Gulati, R. and Shortell, S.M. (1997) Customization or conformity? An institutional and network perspective on the content and consequences of TQM adoption. Administrative Science Quarterly, 42, 366±394. Williamson, Oliver E. (1991) Comparative economic organization: the analysis of discrete structural alternatives. Administrative Science Quarterly, 36, 269±296. Wood, D.J. and Gray, B. (1991) Toward a comprehensive theory of collaboration. Journal of Applied Behavioural Science, 27, 2, 139±162. Zald, Mayer and Denton Patricia (1963) From evangelism to general service: the transformation of the YMCA. Administrative Science Quarterly, 8, 214±234.
Thekla Rura-Polley and Stewart R. Clegg are at the School of Management, University of Technology, Sydney, PO Box 123, Broadway NSW 2007, Australia.
Volume 8
Number 1
March 1999
48
CREATIVITY AND INNOVATION MANAGEMENT
Global Adjustment in Korean Textiles Dennis McNamara A combination of chronological compression and coordination of serial production has distinguished global adjustment in Korean textiles. Compression denotes the rapid progression from origins to maturity and then decline in what has become one of the world's leading textile manufacturing and exporting nations. One consequence of rapid development has been inconsistencies in the formation of independent industry institutions necessary for adjustment, such as industry associations. Coordination denotes matching supply and demand along a long domestic line of production for export. This line stretches from upstream synthetics and spinners, all the way down to fashion and garments. Three distinct patterns of coordination have dominated the Korean production line. 1) Intra-firm coordination within textile chaebol such as Kabool, Kolon, or Tongkook demand extensive investments upstream and downstream, but permit economies of scale and scope, and facilitate planning and quality control. 2) Inter-firm coordination by the Korean Federation of Textile Industries [KOFOTI] mobilizes state and industry support for extending and refocusing the production line, but remains hampered by excessive competition within the industry, and by conflicting demands between smaller and larger producers. 3) Industry-level supervision of the production line through state control of quotas, trade relations, prices, labor, and on raw material imports, as well as through macrolevel state controls in finance and trade. This paper focuses on the role of associations in global adjustment. Three levels of coordination were critical in addressing the market imperfections of a fast-growing industry, particularly in finance and in balancing production for domestic and foreign markets until recently. I conclude that without a greater role for industry associations in the face of state withdrawal from industry-level coordination, contention rather than productive competition will hamper adjustment along South Korea's long production line.
T
he Asian financial crisis has brought dislocation to South Korean workers, drastically reduced incomes among the middle class, and a perilous squeeze on credit for makers and marketers in the Republic. Statistics offer an impersonal but nonetheless dramatic picture of the change. The seasonally adjusted unemployment rate reached 7% by June of 1998, and some estimate will reach as high as 11% in 1999.1 Positive growth in Gross Domestic Product of 5.5% in 1997 is now projected at negative growth of 7.9% in 1998.2 Global adjustment in key export industries has now drawn the attention of the International Monetary Fund, World Bank, and major international allies, as well as the attention and energy of South Korean government and business alike. Overlooked in the dire picture of bankrupt firms and overexposed banks is the fact of continuing strong exports, including textiles and fabrics. The
Volume 8
Number 1
March 1999
total value of textile and garment exports in 1997 climbed to $18.5 billion, a 4.5% increase over the previous years, and the value is projected to increase a further 3.5% in 1998 to $19.1 billion.3 The fact that South Korea remains among the top six or seven textile exporting nations in the world markets despite the financial crisis lends credence to national goals of $25 billion worth of annual textile exports early in the next century. Yet continued growth demands painful adjustments and it is not yet clear whether industry institutions, including firms, trade associations, and government ministries can remobilize energies from earlier efforts at expansion in a joint effort of adjustment. With a history stretching across five critical decades of change in international markets, Korea's textile industry documents the shift in cross-border economic interdependence # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.
GLOBAL ADJUSTMENT IN KOREAN TEXTILES
from ties based on trade to links of production as well as trade. If we can distinguish with John Dunning and others between scope and intensity of cross-border ties, between connections across disparate geographical positions and degrees of interaction, it is the latter that has most deeply affected the Korean industry today.4 What promoted restructuring in Korean textiles was initially the state-directed investment in chemical and heavy industries at the expense of light industry in the 1970s. At the same time other Asian producers now moved into the regional textile market with lower production costs, forcing Korean producers now to compete even in Southeast Asian markets. The same regional producers also began to compete with Korean producers in the low end of the U.S. market. Dramatic hikes in the factors of production such as wages, electricity, real estate forced labor-intensive industries prematurely into the sunset on the peninsula in the late 1970s, only to be resurrected in part by a humbled state newly appreciative of light industry in the early 1980s. The ``Depressed Industries Law'' of 1985 brought some relief to the hard-pressed textile industry with low-cost loans for improving technology, particularly to the mid-stream sectors of weaving and dyeing critical for maintaining a production line for export on the peninsula. But without national support nor experience in offshore production, Korean mills proved reluctant to move abroad until forced by high wages at home from the early 1990s. Long accustomed to high debt ratios and friendly banks, Korean mills having only recently begun the task of reinvesting in equipment and investing in production abroad, now face a far more dire prospect of bankruptcy in the IMF sidae/ jidai. Few industries better represent the rapid, compressed character of Korea's development path in global markets than the multisector textile industry which pioneered both import substitution and export-oriented phases of industrialization, only to confront the challenges of industrial adjustment well before steel, shipbuilding, autos or electronics. Growth and decline in employment offers one measure of expansion and adjustment, rising to a peak of 750,000 workers for a decade from 1979 prior to a steep decline to only 400,000 by 1996. Apart from the garment industry, only 160,000 workers remained through 1997 in textile production.5 Textiles also offer fertile ground for assessing Korea's recent history of creating comparative advantage in international markets by targeting industries and then coordinating multiple
# Blackwell Publishers Ltd 1999
49
subsectors into a diverse, integrated production line for export. A now familiar Korean pattern of carefully planned and highly successful export strategies, coupled with furious efforts to localize manufacture of everything apart from raw materials, had its origins in textiles. Responsibility for promoting investment and monitoring supplies along a long line to capture ever more extensive areas of value-added production fell largely to the state and designated trade associations in South Korea, and the textile chaebol, in contrast to the prominent role of general trading companies in Japan linking mills, weavers and dyers, and fashion houses.6 But if state and association loom large in the trajectory of textiles in Korea, mogul mills stand alone at the forefront of growth and adjustment where oligopolies still command the high ground of supply and pricing for natural and synthetic fibers. Differences in technology, industrial organization, and scale mark the separate paths of spinning and synthetics across the years of industry formation (1948±60), growth (1961±79), and adjustment (1980±present). Among the earliest of Korea's industrial firms, dedicated cotton spinners kept to their mills long after larger business groups diversified out of laborintensive production, making scale today one salient difference between natural and synthetic fiber producers. Mogul spinners rank among the top three hundred firms, with only Choongnam appearing among the larger Korean firms. In contrast, the extensive capital and sophisticated management of technology necessary for synthetic fiber production attracted larger investors building synthetics firms as core enterprises of leading conglomerates such as Samsung, Sunkyong, Kolon, and Samyang. Synthetics and spinning moguls faced challenges of plant and procurement raw materials in the early years, markets and quotas in the growth period, and finance and credit in the recent years of adjustment. Bargaining of interests among state, capital, and labor in adjustment programs provides the focus for a broader research project on the industry. This paper looks immediately to global adjustment efforts at the industry level, and how these affect changes in the roles of state and trade association. What draws our attention is the effect of globalization on recent adjustment efforts between state and industry as mediated by textile trade associations such as the Korean Federation of Textile Industries [KOFOTI], or the sector-specific Spinners and Weavers Association of Korea [SWAK]. I examine the combination of chrono-
Volume 8
Number 1
March 1999
50
CREATIVITY AND INNOVATION MANAGEMENT
logical compression and coordination of serial production that has distinguished global adjustment in Korean textiles, and then turn to interests and the future of adjustment in conclusion. I find that without a greater role for industry associations in the face of state withdrawal from industry-level coordination, a divisive interest contention rather than productive interest competition will hamper adjustment along South Korea's long production line.
Compression and Coordination I single out chronological compression and multi-level coordination as critical features across the short history of Korea's textile industry in Table 1. Rapid, often uneven growth from colonial spinning mills into a leading producer and sixth largest textile trader today suggests a chronological compression that distinguishes the growth of Korea's industry from neighboring Japan, or its European or American counterparts. A volatile, shifting set of resources due to a variety of factors such as colonial liberation and reversion of Japanese mills to local ownership, U.S. foreign aid, close ties to the U.S. cotton shippers, open export markets coupled with protectionism at home, and access to policy loans and other state supports for industry deeply affected the institutional development of the industry. In a recent study of clientelism and corporatism in Brazil, Nunes highlighted fluctuation in the availability of resources which prompts a heated competition to gain access.7 As opposed to a relatively fixed array of accessible resources more familiar in established industries, the expanding industries of newly industrial countries may face an internal competition to gain entreÂe to state-controlled, or at least state-coordinated sets of resources
critical for survival and success among a small set of major industrial players. Thus, we often find clientelistic relations supplementing more formal contractual ties within institutions as a way to ensure trust and maintain authority, but also to gain access to newly available resources. Both state and oligopoly remain prominent in Korean textiles, leaving a playing field of a small number of major players to contest against each other in times of growth and decline. Other developing nations have followed similar paths of compressed growth, though few comparable to the boom and bust character of the Korean experience from 1948. What further distinguishes the Korean path, however, is the persistent effort to control supply and demand in development of a line of serial production. Certainly one consistent government priority from the 1960s was extension of a line of serial production in textiles from upstream subsectors of synthetics and natural fibers, through the midstream processes of weaving, cutting and dyeing, and then down to the actual sewing of garments downstream. Spinning, weaving, and sewing were already in place by the late 1950s, concentrated in Taegu and Pusan. Government supports for exports in the 1960s spurred development of not only these earlier subsectors, but also of a whole new subsector of synthetics which received a further boost with the HCI campaign of the 1970s and a government-mandated shift into polyester and blended fabric for both production and the local market. The state worked more closely with the industry's peak association, the Korean Federation of Textile Industries (KOFOTI) from the 1980s, but continued to play a major role in industry policy formation and funding, particularly with the industrial estates, and then with a ``depressed industries'' program. What is significant here is not only the state role in
Table 1. Features of Korean textile development
Volume 8
Number 1
Feature
Area of Development
Dynamic
Examples
Chronological Compression
Plant, technology, and markets
Flux of available resources
Foreign aid, policy loans, quotas and export incentives
Multi-level Coordination (intraindustry, inter-firm, intra-firm)
Serial production ± spinning, dyeing, finishing, & garments
Development and integration of sub-sectors
Synthetics industry; priority on upgrading of dyeing sector
March 1999
# Blackwell Publishers Ltd 1999
GLOBAL ADJUSTMENT IN KOREAN TEXTILES
extending Korean industry into multiple subsectors in development of an export production line, but in oversight and intervention along the line to insure adequate supplies and reasonable prices among the various segments. The state which played the role of both midwife and manager in integrating a production line through the 1970s, has now ceded much of that responsibility to KOFOTI, the larger textile chaebol, and to multiple levels of brokers. Serial production begins with the concept of value-added production in manufacturing to match the needs and demands of market and manufacture at home, and exploit a nation's comparative advantage abroad. We find efforts to integrate a long production line in-house within large firms, in chaebol across groups of firms including manufacture and marketing, and in country across subsectors of the textile industry. The Korean state played a major role in the latter national campaign to integrate subsectors with responsibilities in three different areas. A major priority was retaining value-added along the line and reducing costs by localizing production. More than simply an importsubstitution strategy, the state lured investors upstream into synthetics and even petrochemicals with an eye on improving local consumer markets, on expanding production of synthetic fabrics for export among local spinners, weavers and dyers, and on growth in direct exports of filaments and fibers. Balancing local supply and demand for both consumers and for subsectors along the line was also a priority as the state closely monitored operating ratios of textile machinery, restricted access to newcomers in the upstream sectors, and as necessary, provided loans and tax breaks for investment in equipment expansion. Yet a further priority in this complicated task of market monitoring and adjustment was holding down the costs of production and consumption. Basic costs of textile production such as electricity, oil, and various taxes and duties, were fixed with statecontrolled rates. Intent on controlling inflation but also promoting investor confidence within the upstream oligopolies of synthetics and spinning, the state had to balance fixed costs with prices of upstream filament, fiber, and yarn to preserve profit margins for weavers, dyers, finishers, and especially the garment industry downstream. The fact that textile exports from the 1960s quickly emerged as the nation's leading earning of foreign exchange further complicated the task of cost controls for the state.
# Blackwell Publishers Ltd 1999
51
Adjustment The campaign for heavy and chemical industries in the 1970s brought growth with inflation and a spiral of wage hikes and interest rates. Sunrise sectors of steel, autos, shipbuilding, petrochemicals, and high technology sectors would soon dethrone textiles as industrial leader, but the promise of further export growth and new opportunities in domestic markets brought renewed state attention and resources to textiles from 1980. Textiles would never recapture their earlier preeminence as leading exporter or industrial employer within the far more diversified and stronger local economy of the 1980s, but could still muster a substantial contribution to trade balances and employment. Textile exports of $571 million in 1971 accounted for a remarkable 42.2% of total exports that year, but given growth in other, higher value-added sectors of heavy and chemical industries, the ratio of textiles to total exports inevitably fell. The value of textile exports topped $7 billion in 1985 but accounted now for only 23% of the total annual value of Korea's exports. Textile exports doubled again in the next five years reaching $14.7 billion in 1990 and $17.7 billion by 1996, but accounted that year for only14% of total Korean exports. Employment was one indicator of maturity. The total number of workers in textiles and apparel held steady at about three quarters of a million workers between 1979 and 1988, including 56,000 workers in spinning alone, before falling off at the end of the decade. Heavy attrition in downstream sectors of apparel left the industry with a total of only 410,430 workers in 1996, and only 25,229 in spinning.8 Mill executives complained in interviews of the difficulty of attracting workers to spinning plants, given the industry's reputation as labor-intensive production that was ``dirty, dangerous, and difficult.'' Spindle capacity and operation was a further indicator of maturity. Spinners continued to expand from 1980 through 1991, with domestic cotton spinning spindle capacity growing from 3.1 million spindles in 1980 to 3.6 million by 1990, and then falling below 2.6 million by 1996.9 Already most of the mogul spinners had transferred some spindles offshore, but the operating ratio of even the smaller number of remaining spindles on the peninsula had fallen from 93% in 1991 to only 88% in 1996. Mill executives everywhere dread the specter of idle machinery. Import of raw cotton was perhaps the clearest indication of a changing profile of production in cotton spinning. GSM program loans from the U.S. and the Korean Foreign
Volume 8
Number 1
March 1999
52
CREATIVITY AND INNOVATION MANAGEMENT
Exchange Fund continued to support imports of raw cotton, but fading levels of consumption led to smaller import volumes.10 Imported stocks of raw cotton for domestic use declined nearly 30% between 1990 and 1996, but more ominous was the fact that factory imports of raw cotton for manufactured exports fell 26% from 258 million kilograms in 1990 to 193 million kilograms in 1996. Production held steady in higher counts and faded in all categories of cotton blended yarns, prompting calls for further specialization of blends. Perhaps most alarming was the freefall in manufacture of commodity cotton yarns up to 19 count, dropping from 45.4 billion tons in 1990 to only 24.8 billion tons in 1996.11 Korean mills had surrendered a cherished market of mass-produced commodity yarns at home and abroad. But decline in spinning did not extend upstream to synthetics where daily capacity of synthetic fiber and filament production rose from 1,300 tons per day in 1980 to 7,000 tons by December of 1996. Nonetheless, the latter firms also had begun to curtail employment, shrinking from 25,000 workers in 1990 to about 21,000 in 1995.12 Profiles of leading firms provided in Tables 2±5 offer a closer look at similar changes evident in the shifting roster of industry oligopolies in spinning and synthetics. The familiar industry profile of familism, concentration or oligopoly within groups or chaebol, and intense political activity has not hampered globalization, particularly recently at textile chaebol such as Kabool in spinning
or Sunkyong in synthetics. The roster of leading companies will no doubt shift soon with further turmoil in a fast-changing industry as firms rush to diversify and specialize production, as well as move offshore. Markets may have dominated the attention of mills in the years of growth, but now finance has emerged as the central issue for most leading textile firms, in part because of changes in the banking industry, but also due to new state-imposed constraints on heavily leveraged firms. What draws our attention is the intense contention of interests spurred by compressed and coordinated development, and the relative weakness of credible institutions for mediating markets.
Association The most significant change in interest representation for the industry has been the growing role of KOFOTI [Korean Federation of Textile Industries]. In the absence of large integrated textile firms spanning the entire production and marketing process, or of general trading companies responsible for domestic sales as well as exports, the Korean government fostered the integration of the long production line for export through associations, and particularly through KOFOTI. The advent of a quota system for textile exports under the Multi-Fiber Arrangement in the 1960s spurred organization of textile export associations under tight government control for the allocation and supervision of
Table 2: Spinners ± structure 1996 Firm Choongnam Sp. Dainong Taekwang Indus. Ilshin Taihan Tex. Tongkook Sp Chonbang Kyungbang Dongil
Employees
Spindles
Capital
Assets
Debts
3,201 4,697 9,609 1,523 2,105 2,631 1,733 1,659 1,453
314,892 296,528 262,112 204,216 186,116 185,008 171,432 164,716 142,008
40.3 72.9 5.5 8.0 5.3 20.0 8.4 7.7 8.5
642.8 544.7 1,155.4 209.7 550.4 259.0 360.8 244.3 332.0
310.7 743.3 595.5 116.9 306.3 200.6 181.9 186.7 165.1
Source: Han'guk Sangjang Hoesa HyoÆpuÃihoe, Sangjang Hoesa ch'ongram 1997 [Annual report of listed companies 1997] (Seoul: Korea Listed Company Association, 1997). Data provided for December of 1996. Number of spindles cited from KOFOTI, ``SoÆmyu sanoÆp byoÆllam 1996 (Annual of the textile industry, 1996),'' p. 62 Units. Capital refers to authorized capital (sugwoÆn chabonguÃm), assets to ``net assets'' (chasan ch'onggye), and debts to ``net liabilities'' (puch'e ch'onggye), all cited in billions of won.
Volume 8
Number 1
March 1999
# Blackwell Publishers Ltd 1999
GLOBAL ADJUSTMENT IN KOREAN TEXTILES
53
Table 3: Spinners ± performance 1996 Firm
Choongnam Sp. Dainong Taekwang Ind. Ilshin Taihan Tongkook Sp. Chonbang Kyungbang Dongil
Sales
Profits
Profit Ratio
Export Ratio
209.8 476.7 1,041.0 184.4 193.4 141.0 206.2 176.5 131.3
732.4 7293.1 29.0 3.0 722.6 79.8 79.0 75.0 76.0
715.9 766.2 4.7 2.1 711.7 76.9 711.4 73.4 74.5
64.6 52.8 70.6 51.6 42.5 56.3 56.3 49.5 39.6
Ownership
Lee Jong-ho et al., 17.5% Midopa 20% Lee Shik-chin et al. 24% Kim Young-ho et al. 36%, Sull Won-sik et al., 28.5% Paek Mun hyon et al. 18.4% Kim Jong-bin et al. 13.4% Kim Kak-jong et al. 12.5% Suh Min-sok 9.6%
Source: Han'guk Sangjang Hoesa HyoÆpuÃihoe, Sangjang Hoesa ch'ongram 1997 [Annual report of listed companies 1997] (Seoul: Korea Listed Company Association, 1997). Data provided for December of 1996. Units. Net sales and net profits (tang'gi suniik) are cited in billions of won. Profit ratio (mae ch'ul aek kyoÆngsang iikruÃl) is computed as net sales divided by operating profits. Export ratio is the percentage of sales for the export market, either direct or through local assemblers.
Table 4. Synthetics - Structure 1996 Firm
Employees
Capital
Assets
Debts
3,555 2,391 1,211 3,068
Filament Fiber/Stable Fiber 1,052 762 744 704
100 100 33 120
1,018.0 1,253.5 418.4 1,166.2
806.6 947.5 330.4 878.3
4,518
Filament Fiber/Staple Fiber 372
70
1,553.7
1,242.4
150 200
1,498.0 2,196.0
1,094.0 1,963.2
150 30
1,425.4 209.7
1,144.4 116.9
Polyester Samyang Corp Sunkyong Indus. Hankook Syn. Saehan Indus.* Nylon Hyosung T & C. Co.* Kolon Indus. Kohap Ltd. Acrylic Hanil Syn. Taekwang Indus.
4,238 1,653 2,244 9,609
Capacity Tons/day
185 156 Staple Fiber 250 217
Source: Korean Investors Service, Sangjang kioÆp punsoÆk (Investment guide to listed companies, Spring, 1997) (Seoul: KIS, April 1997); Han'guk Sangjang Hoesa HyoÆpuÃihoe, Sangjang Hoesa ch'ongram 1997 [Annual report of listed companies 1997] (Seoul: Korea Listed Company Association, 1997). Data provided for December of 1996. Number of spindles provided in KOFOTI, ``SoÆmyu sanoÆp byoÆllam 1996 (Annual of the textile industry, 1996),'' p. 62. Figures on capacity drawn from KCFA, HwasoÆm (Chemical fibers) (March 1997): 88-89. Units. Authorized capital (sugwoÆn chabonguÃm), net assets (chasan ch'onggye), and net liabilities (puch'e ch'onggye) are cited in billions of won. Note that Cheil Synthetics Industries (CIS) was renamed Saehan, and Tongyang Nylon ``Hyosung T. & C. (Technology and Creation).''
# Blackwell Publishers Ltd 1999
Volume 8
Number 1
March 1999
54
CREATIVITY AND INNOVATION MANAGEMENT
Table 5. Performance 1996 - Synthetics Firm
Polyester Samyang Corp. Sunkyong Indus. Hankook Syn. Saehan Indus. Nylon Hyosung T & C. Co. Kolon Indus. Kohap Ltd. Acrylic Hanil Syn. Taekwang Indus.
Sales
Profits
Profit Ratio
Export Ratio
Ownership
544.1 672.5 265.6 743.0
796.2 7541.0 79.0 67.6
73.8 70.1 3.6 0.7
35.5 74.5 64 68
Kim Sang-hong et al. 27.6% Chey Jong-hyon et al. 8.6% Pak Dong-sik 29% Lee Chae-gwan 9.7%
1,104.4 936.5
75.5 100.9
1.8 1.2
54.6 70.2
920.1
82.0
1.2
65.0
Cho Sok-nae et al., 25% Toray 15%; Lee Ung-yol et al. 14.3% Chang Ch'I-hyok 7.9%
585.0 1,041.0
7992.7 290.3
714.4 4.7
42.6 70.6
Kim Chung-won 20.8% Lee Sik-jin et al. 23.8%
Source: Korean Investors Service, Sangjang kioÆp punsoÆk (Investment guide to listed companies, Spring, 1997) (Seoul: KIS, April 1997). Data cited for December 31, 1996. Units. Net sales and net profits (tanggi suniik) are cited in billions of won. Profit ratio (mae ch'ul aek kyoÆngsang iikruÃl) is computed as net sales divided by operating profits. Export ratio is the percentage of sales for the export market, either direct or through local assemblers.
export quotas.13 The growing complexity of textile production then prompted officials to organize an industry-wide umbrella association to supplement the efforts of sectorspecific associations such as SWAK[Spinners and Weavers Association of Korea] or the Korea Chemical Fiber Association. The result was a new peak organization in 1967 titled the ``Korean Federation of Textile Industries (KOFOTI),'' which included 27 organizations among its membership.14 Better funded than many other trade associations, KOFOTI began with an endowment of $14 million, contributed equally by state and member associations. KOFOTI quickly assembled space for present and future needs with prime real estate in the Samsong Section of Southern Seoul. But KOFOTI assumed far greater responsibilities from 1979 with the Industry Rationalization Fund contributed by state and firms, and continues today to supervise its distribution. Like other major trade associations, former government officials closely linked to the Ministry of Trade, Industry, and Energy manage the association. Mr. Yu Deuk-hwan, formerly of the Foreign Ministry, served as Executive Vice-Chairman of KOFOTI before promotion to the post of executive director of
Volume 8
Number 1
March 1999
the Korean Traders Association in 1995. Mr. Yu was promoted to a similar position at the Korean Federation of Industries, in 1996, replaced at KOFOTI by Mr. Chang SoÆk-hwan, former Deputy Minister for trade at MOTIE. Mr. Yu spoke in 1995 of KOFOTI functions such as providing information, promoting trade and fashion, and distributing government finance for medium and small industries in dyeing and finishing according to the textile adjustment plan. Perhaps more important for the wider industry are the long-range textile plans designed by state and industry, and coordinated by KOFOTI. The plans establish goals all along the long textile production line across Korea, and targets for exports. However, I found few executives who shared the enthusiasm of officials at MOTIE and KOFOTI for the recent publication of a Textile Vision through 2005. Indeed, some did not appear to be aware of the document, and others referred to it as a government plan without concrete support. If SWAK has lost ground among its member mogul firms due to sectoral decline and diversification out of the industry, KOFOTI which relies on a cohesive network of participating associations has also suffered in its role of hierarchical coordination of a fast changing industry.
# Blackwell Publishers Ltd 1999
GLOBAL ADJUSTMENT IN KOREAN TEXTILES
Although KOFOTI gives heavy attention to improvement of the midstream sector of dyeing and finishing, and recently of strengthening the fashion industry, both state and association keep a close eye on the development of upstream sectors for provision of basic chemical inputs. Petrochemical production for textiles offers a story within a story of integrated production and cooperation, with state subsidies and administrative guidance at the outset to insure local purchase, but more recently more investment by the firms themselves to insure a local supply, and begin to tap foreign markets. Upstream development of a petrochemical industry has been a stellar success in efforts to better coordinate supply and demand along a line of textile production, but may in time draw textile chaebol off into chemicals rather than textiles. Promotion of investment upstream has been left largely to state bureaus devoted to heavy and chemical industries, and to leading chaebol with the capital and expertise necessary to begin or expand chemical production.
Conclusion Beyond the industry, adjustment raises wider questions of reason and interest in a changing Asian political economy. Schmitter neatly captured the basic economic drives of capitalism: ``quest for profit (or `maximizing discounted net assets'), allocation by competition, drive toward expansion and tendency for accumulation.''15 Certainly the textile chronicle in South Korea provides strong evidence of the drive for profit and expansion, but what of allocation by competition? Serial production begins with the concept of value-added production in manufacturing to match the needs and demands of market and manufacture at home, and exploit a nation's comparative advantage and interests abroad. If interests (ri) represent one side of our story, reason (hamni) or ``organizing principles'' complete the story of vertical integration and adjustment of an industry. Interests and reason represent two sides of collective action, whether the wider effort to bridge private versus public interests, or firm versus industry interests, or specific policies to bring greater rationality or efficiency to market dynamics by creating and then integrating various subsectors within an industry.16 Although the exchange of interests provides a focus important for theoretical and comparative understanding of Korean capitalism, the arena for interest exchange re-
# Blackwell Publishers Ltd 1999
55
mains the continuing reorganization of textile subsectors into a balanced and reliable line of production for export. The Chinese character ri can be translated as ``interests'' or ``profit'' or ``advantage,'' and often carries a negative connotation of selfishness in Korea's more communitarian culture but nonetheless, economic and political interests drive capitalism in Korea as elsewhere in the international system of markets and polities. Linking interests to rational patterns of organization is the task of both state and the business community, and agreements on assignment of export quotas, of capacity expansion, of raw cotton imports, or of credits for improving technology, etc. offer evidence of how interests are actually negotiated and concluded. ``Rationalization'' (hamnihwa) is the conventional Korean translation for reform within an industry and denotes a reorganization to better address market imperfections. Y. H. Lee argued that the Korean state even in the 1990s continues to promote conditions for ``optimally effective, rather than free, competition.'' 17 State and industry in South Korea appeared eager from the outset to localize textile production, and indeed, expand that production line both upstream and downstream. The focus of adjustment was thus not simply investment or marketing of individual firms, but ever more efficient integration among the firms to promote a wider societal goal of serial production. One consistent state priority across the five decades of Korean textiles has been a better balance of supply and demand along the line, and localization of higher value-added subsectors such as upstream petrochemical inputs to ensure supply at reasonable prices from domestic sources. Sectors within the industry have been less keen on integration whenever forced to purchase locally at prices above international market prices, yet appear generally to support localization and indeed, to use state supports to extend the production line within their own conglomerates whenever possible. Investment offshore, diversification, and even integration across the production line of textiles has diluted industry identity upstream among the powerful mogul firms of the industry. At the same time market liberalization and democratization have reduced the state role in the industry. One anomaly of older business associations in Korea has been the prominent state role in their formation and even at times, their funding. I find industry executives identifying SWAK and KOFOTI as largely government operations, and certainly the administration of both is left
Volume 8
Number 1
March 1999
56
CREATIVITY AND INNOVATION MANAGEMENT
to former government officials. With the decline of state funding for the associations, and declining state role in supervision of textile markets and manufacture, the associations have devolved to the status of voluntary associations dependent on mogul firms for their funds and direction. But with less state pressure to cooperate in associations within sectors or across the industry to promote a production line, firms now appear less willing to fund and share information within their own associations. Crises such as adjustment which demand some coordination across the industry have prompted a flurry of meetings and plans, but as one leading SWAK member quipped, ``SWAK is merely a social club (chinmukhoe).'' Mesocorporatism within trade associations appears today at a crossroads of democratization, market liberalization, and industry adjustment.
Notes 1. T'onggyech'oÆng [National Statistical Office, ROK], Han'guk t'onggye woÆlbo [Monthly statistics of Korea, August 1998] (Seoul: National Statistical Office, 1998), p. 99; Economist IntelligenceUnit [EIU], South Korea, Country Forecast Third Quarter, 1998 (London: EIU, 1998), p. 13. 2. Economist Intelligence Unit (EIU). South Korea, Country Forecast Third Quarter, 1998. (London: EIU, 1998), pp. 2, 6, 13. 3. Han'guk SanoÆp Unhaeng [Korea Development Bank]. SoÆlbi t'uja kaehoek chosa [survey of facility investment plans], No 58 (December 1997). Seoul: Han'guk SanoÆp Unhaeng, 1997. 4. John H. Dunning, ``The Advent of Alliance Capitalism.'' pp. 12±50 in John H. Dunning and Khalil A. Hamdani, eds., The New Globalism and Developing Countries (Tokyo: UN University Press, 1997), p. 13. 5. Nodongbu [Ministry of Labor ROK]. Nodong t'onggye yoÆn'gu 1997 [yearbook of labor statistics] (Seoul: Ministry of Labor ROK, July 1997), p. 248. 6. Dennis L. McNamara, Textiles and Industrial Transition in Japan (Ithaca: Cornell University Press, 1995). 7. Edson de Oliveira Nunes, ``Bureaucratic Insulation and Clientelism in Contemporary Brazil: Uneven State-building and the Taming of Modernity,'' Ph.D. diss., University of California, Berkeley, 1984. 8. Han'guk HwasoÆm HyoÆphoe [Korean Chemical Fibers Association], HwasoÆm byoÆllam [Textile annual], relevant years. Volumes include statistics on employment, production, and trade. Latest statistics on employment in spinning were drawn from Taehan Pangjik HyoÆphoe (SWAK), PangjoÆk (Cotton Textile) January 1997.
Volume 8
Number 1
March 1999
9. Han'guk SoÆmyu SanoÆp HyoÆphoe [KOFOTI], SoÆmyu sanoÆp byoÆllam 1996 (Textile industry handbook 1996) (Seoul: KOFOTI, 1997), Table 2.1, p. 58; SWAK, PangjoÆk (Cotton textiles) (Jan. 1997), Statistical Section, p. 1. 10. The GSM-102 program provided longer repayment terms than domestic banks, lower rates, and a stable source of credit for less financially sound mills that would not be likely to even get loans locally. GSM loans in the early 1990s covered 40% to 50% of Korea's total purchases of U.S. cotton. Textile Asia (Nov. 1990): 86. 11. SWAK, PangjoÆk (Cotton textiles) (Jan. 1997), Statistical Section, p. 4. 12. KCFA, HwasoÆm (Chemical Fibers) (March 1997), Tables 1 and 2, pp. 88±89. 13. Korea joined GATT [General Agreement on Trade and Tariffs], and affiliated with the Long-term Cotton Fabrics Agreement, on December 31, 1964. SoÆmyu yoÆnbo 1964, p. 148. 14. ChoÆnguk KyoÆngjein YoÆnhaphoe [Federation of Korean Industries], ChoÆnngyoÆngyoÆn saoÆp chongram 1995 [Report of FKI Activities, 1995] (Seoul: FKI, 1996); SoÆmyu yoÆnbo 1968, p. 66; Eui-young Kim, ``Rethinking the Role of Business Interest Groups in the Political Economy of Korea: A Focus on the Textile Industry,'' paper presented at the conference on ``Transformation in the Korean Peninsula toward the 21st Century: Peace, Unity and Progress,'' East Lansing, Michigan, July 7±11, 1993. 15. Philippe C. Schmitter, ``Sectors in Modern Capitalism: Modes of Governance and Variations in Performance,'' in Renato Brunettao and Carlo Dell'Aringa, eds., Labor Relations and Economic Performance (New York: New York University Press, 1990), p. 4. 16. For a history of the interplay of interest and profit, of interests and passion, and changing definitions of interest in the West, see J. A. W. Gunn, ``Interests Will not Lie. A Seventeenth Century Political Maxim,'' Journal of the History of Ideas, vol. 29, no. 4 (Oct±Dec 1968): 551-564, and Albert O. Hirschman, The Passions and the Interests. Political Arguments for Capitalism before Its Triumph (Princeton: Princeton University Press, 1977). For a review of interest articulation in South Korea, see HyoÆng-pyoÆn Yun, ``Iik t'onghap gwa choÆngdang [Interest groups and political parties],'' in Kim Un-t'ae et al., eds., Han'guk choÆngch'iron [A study of Korean politics] (Seoul: PagyoÆ ngsa, 1976), pp. 350±378. 17. Y. H. Lee, ``The Relationship between the State and the Chaebol, 1980±1993,'' Korea Observer vol. 26, no. 1 (Spring 1995): 52.
Dennis McNamara is at the Sociology Department, Georgetown University, Washington DC 20057, USA.
# Blackwell Publishers Ltd 1999
HONG KONG FIRMS AND THEIR CHINA LINKAGES
57
Historical Trajectories of Innovation and Competitiveness: Hong Kong Firms and their China Linkages Judith Hollows Hong Kong manufacturing firms have been competing in world markets since the 1950's. Their success has been based on low cost and flexible production and an ability to meet very tight delivery schedules as many of their products are short run fashion items for which consumer demand can be fickle. The opening of China in 1978 has enabled Hong Kong firms to sustain their cost advantages in world markets for a further twenty years. However, the rapid economic development of South China in particular, to which Hong Kong is adjacent, and the competition from lower cost economies in Southeast Asia is leading to pressures on Hong Kong manufacturers to rethink their strategies. Ambitions to continue to compete among world class manufacturers has become a survival strategy. The focus of this paper is to identify and explain the historical development of innovation in the strategies of Hong Kong firms to enable them to continue to dominate niche markets in Europe and the USA and develop a presence in the China market.
Introduction
I
``We see a future for Hong Kong as a worldclass industrial power''
s the conclusion of a study by Massachusetts Institute of Technology published in 1997 (Berger and Lester, 1997:xiii). A parallel study led by a Harvard University scholar concluded that: ``Hong Kong also has been distinctive in its ability to develop world-class skills, capabilities, and know-how in some areas and to combine them with world-class skills, capabilities, and know-how imported from abroad'' and that ``The appropriate focus throughout should be to . . . develop distinctive Hong Kong ways of doing things, ways that will be most likely to succeed in the Hong Kong context, and will be most difficult for others to match.'' (Enright et al., 1997:237).
In this analysis of the historical trajectory of innovation and competitiveness in Hong Kong manufacturing firms three distinct phases can be identified.1 These three phases are defined by Hong Kong's relationship with People's Republic of China (PRC). The first phase is `the past' from the late 1940's to the # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.
late 1970's. The second phase is `the present' from the early 1980's to late 1990's, and the third phase is `the future' from the early 21st century. The first phase is one in which the autonomy of the Hong Kong economy from the PRC economy attracted skilful entrepreneurs in particular from Shanghai who sought escape from the Communist regime and set the foundations for Hong Kong as a leading manufacturing centre in the world. The second phase (from the early 1980's to the late 1990's) is one in which Hong Kong capital and managerial talent play a major role in opening up the PRC economy to the world. The third phase (21st century) is one in which the re-unification of Hong Kong with the Mainland in a political sense emphasises the increasing integration of the Hong Kong economy with that of the Mainland. It is envisaged that Hong Kong will play a major role as a regional centre for supplying professional and technological talents and services, and act as a marketplace for technology transfer between the PRC and the rest of the world. The aim of this paper is to discuss the particular contribution of `innovation' in each of these three phases towards maintaining Hong Kong's competitive position in world
Volume 8
Number 1
March 1999
58
CREATIVITY AND INNOVATION MANAGEMENT
markets. Here, the definition of innovation is taken from a Report on Innovation and Technology which was commissioned by the Chief Executive of the Hong Kong Special Administrative Region soon after its formation on July 1st 1997. In this report innovation is defined as . . . increas(ing) the competitiveness of firms by introducing more efficient ways of performing existing activities (cost reduction) or creating greater buyer value (product differentiation). Innovation is defined broadly to include both improved technology and better methods of doing things. Innovation may be manifested in new products or services; improved quality; new ways of production, packaging, marketing or distribution; new markets; new supply sources; new organisations or systems; and so on. (Tien, 1998, para.3.40.) The Tien (1998) report was commissioned to fulfil a need to find a new direction for the Hong Kong economy. Eminent persons from business, academia and public administration were asked to exercise their collective judgement and point to a way forward. Such reports were commissioned also in 1946 and in 1978 when Hong Kong was again at historical junctures. The 1946 report was written at the time of substantial upheavals in China which ultimately led to the communist revolution. These events were not referred to in the report, and its recommendations were soon shown to be irrelevant as entrepreneurs especially from Shanghai proved that the impossible was possible. Similarly the second historical phase identified in this paper (from the early 1980's to the late 1990's) was preceded by a report on diversification commissioned in 1978 to deal with the perceived over-reliance of the economy on the textile and clothing industry established by the Shanghainese. At the time of the deliberations of the Committee on Diversification, the PRC was announcing its `Open Door'' policy. This was not referred to in the report, and its recommendations were soon shown to be irrelevant as the access to cheap labour and land supplies in the PRC enabled Hong Kong entrepreneurs to diversify into some thirty major manufacturing industries2 which have production stations in China and manufacturing support services in Hong Kong. The third report ± of the Commission on Innovation and Technology ± has also been commissioned at a time in which there are significant developments in the PRC in relation to establishing the Special Economic Zones of Shenzhen which is adjacent to Hongkong, and Shanghai as the focal points
Volume 8
Number 1
March 1999
for the development of science and technology for industrial upgrading. This report does refer to such developments in the PRC. As futurology is an inexact science, only history will tell whether this report also becomes irrelevant as forces currently beyond our comprehension provide a new set of resources for innovation in Hong Kong industries. These three historical periods will now be discussed.
The Past In the mid-1940's there was a high level of pessimism in the Hong Kong and Chinese governments about Hong Kong's future industrial development. The Sino-British Industrial Committee set up in 1946 recommended that priority be given to those industries which initially could operate on a small scale within the limits imposed by the infrastructure, could find their raw materials within the Colony, were least likely to be affected by competition from the Japanese, and could find a ready, existing market for their products. Such industries were identified as general engineering works, soap and glycerine, cardboard, and enamelled ironware manufacturing. Cotton textile mills, knitting and weaving factories, were considered to be `unsuitable' largely because of a lack of power and water supplies, the humid climate, and the potential competition from the rehabilitating Japanese textile industry. In the view of the committee: ``It is not considered that Hong Kong will ever be able to compete with the Japanese mills which have a long experience in this type of trade and will certainly have the advantage of cheaper labour than Hong Kong.'' (SinoBritish Industrial Committee. `Report on the Industrial Development in Hong Kong.' 26 March 1947: p.13) How did the Sino-British Industrial Committee fail to see the industrial potential of Hong Kong? In 1946 it had not been able to predict the massive migration of Mainlanders who fled the Communist revolution of 1949. By 1950 the population had risen as a result of migration from China to over two million from 600,000 in 1945. The characteristics of migration before and after the Second World War were quite different. Before the War, the majority of the migrants had come to improve themselves economically and had been peasants, artisans and small traders from Canton province. These migration patterns were to change substantially after World War Two. For the first time there were also
# Blackwell Publishers Ltd 1999
HONG KONG FIRMS AND THEIR CHINA LINKAGES
significant numbers of Shanghainese, many of whom came with substantial experience in running businesses. Their wealthy background enabled them to establish effective networks, so even if they arrived `penniless' they were able to establish businesses very quickly. It is believed that between 1947 and 1955, the Shanghainese brought with them invisible earnings and capital which amounted to 40 per cent of the national income (Szczepanik, 1958:25). The ability of Hong Kong's manufacturing industry to compete in world markets thus has its roots in the textile industry which was founded by these Shanghainese `emigrant entrepreneurs' in the late 1940's/early 1950's (see Wong, 1988). For example in a study of technological change and productivity growth in the post-war textile industry, Burkman (1977:9±15) observed that in the early 1950's the Shanghainese entrepreneurs purchased latest model equipment in international markets and sold increasing amounts of their production in export markets. Burkman found that in Hong Kong as in Japan at that time, investment was aimed at efficient production and international competitiveness, there was extensive capital formation, high production levels, keen competition leading to efficient operations designed to meet world competition. Indeed by the late 1970's the economy was dominated by the textiles and clothing industries ± contributing close to 50 per cent of net manufacturing output.3 This had become a major concern for the Hong Kong government given the increasing protectionist measures in the main export markets of USA and Europe against Hong Kong and the other Newly Industrialising Economies in East Asia. In 1979 a Report on the Advisory Committee on Diversification also identified constraints in labour and land supplies as being a major concern for the future growth of the Hong Kong economy. Thus by 1979, just as the PRC was preparing to implement an `Open Door' policy, the innovative capacity generated by the Shanghainese textile industrialists seemed to have reached its limits, and GDP real growth rates were on the decline from 16.7 per cent in 1976 to 10 per cent in 1978.4 The `business system' developed by the Shanghainese in the twenty years from the 1950's still dominates the Hong Kong economy some forty years later. The cotton spinners obtained their orders through buyers from foreign importers or through mediating import/export companies. The foreign importer dictated the design and the price of the fabric, the mills then competed on
# Blackwell Publishers Ltd 1999
59
the basis of their ability to accept large orders, and their reputation for reliability in meeting quality specifications and delivery dates, rather than simply on the basis of price (Espy, 1970:I). On the basis of these orders, mills were able to negotiate credits for supply of material and working capital. The general lack of emphasis on marketing led to a dependence on buyers, and the development of a contract system by which the manufacturer produced against orders leading to a dependence on those markets from whence the buyers came. This has become known as Original Equipment Manufacturing (OEM) which is the dominant mode of business in Hong Kong's manufacturing sector.
The Present Original Equipment Manufacturing has become the dominant pattern of business practice in the manufacturing sector of Hong Kong, not only for the textile industry, but also for the garment, toys, electrical and electronic goods, watches and clocks industries for which the main markets are USA and Europe. Each of these has achieved prominence in terms of volumes: for example in 1996 Hong Kong ranked first in terms of export value of fur clothing, textiles, clocks, calculators, radios, electric hairdressing apparatus, telephone sets, electric food grinders, mixers and juicers, imitation jewellery, toys and games, travel goods and handbags, artificial flowers and umbrellas, and second in clothing, watches and footwear.5 In particular product areas particular companies have dominance as the largest producers for example in telephone answering machines for the USA market, and low/medium priced cameras. An irony is evident. The 1947 Industrial Development Report was unable to envisage the major structural change in the quality and quantity of the supply of entrepreneurial skill that began to arrive in Hong Kong in 1947 from the PRC. Similarly, the 1979 Advisory Committee on Diversification was unable to envisage how the `Open Door' policy, that had just been announced in the PRC, would provide Hong Kong's manufacturing industry with the necessary land and labour supplies to enable the economy to diversify to the extent that it did. By 1997 the size of Hong Kong's manufacturing base included more than five million workers in Guangdong Province, adjacent to the Special Administrative Region of Hong Kong. (Hong Kong has a population of 6.5 million.) In turn, this meant that there
Volume 8
Number 1
March 1999
60
CREATIVITY AND INNOVATION MANAGEMENT
were 70,000 factories in the Pearl River Delta alone within a day's commuting distance from Hong Kong.6 Hong Kong entrepreneurs have achieved world class manufacturing standards through the judicious use of a combination of cheap migrant labour and sophisticated production process technologies to support high quality, low cost production. The dilemma that Hong Kong manufacturers face for the 21st century is whether to continue to pursue low cost/technology strategies which will require relocation of production to lower cost labour labour markets further inland in the PRC and to countries such as Vietnam and Laos. Or should they move up the value chain in broadly the same product areas or break into new technology intensive industries? Hobday (1997:188) provides a useful trajectory of the development of technologies as evidenced in the electronics industries of Hong Kong and other Newly Industrialising Economies (NIE's). In his study of the electronics industries of the four NIE's of South Korea, Taiwan, Singapore and Hong Kong, he finds that Hong Kong has lagged behind the other three in technological capability as few firms have yet developed Own Brand Manufacturing (OBM) capability. Most of Hong Kong's manufacturing firms in all industries, not only electronics, are still
engaged in OEM/ODM (Original Design Manufacturing). He attributes this in part to government policy, but also to low spending on research and development, to the smaller size of firms, as well as to the type of product ± fast moving consumer goods rather than industrial systems. Davies (1996) identifies Hong Kong business strategies as typically being ``high IQ and low technology''. A crucial ingredient in this situation is the twenty-year advantage Hong Kong has had over its three rivals due to its proximity to China and its low cost land and labour supplies. Hong Kong has been able to pursue for longer low cost manufacturing strategy which has possibly delayed the market pressure to move up the value chain and adopt higher level technologies and invest in the development of Own Brand Manufacturing. The analysis by Hobday (1997:188) shown in Figure 1 illustrates the development path that Hong Kong manufacturing firms are following in their transition from `simple' activities to `complex' activities. Only a few firms are successfully operating at the ODM/ OBM stage in the technology frontier. Most are in the OEM/ODM stage. The managerial implications for Hong Kong firms of this trajectory is shown in Figure 2. The key prerequisite is the development of a fully functionally integrated firm. In the OEM and
Figure 1. Latecomer firms in the NIE's: export-led learning from behind the technology frontier
Volume 8
Number 1
March 1999
# Blackwell Publishers Ltd 1999
HONG KONG FIRMS AND THEIR CHINA LINKAGES
61
Figure 2. Innovation and competitiveness: development of Hong Kong firms NATURE OF BUSINESS
SUBCONTRACTING
OEM
ODM/OBM
ownership
sole/partnership
sole/partnership
public listing/joint ventures
overall strategy
short term survival
development of relationships with customers
product/market development
main products
component parts
low cost/low technology products
main customers
local OEM manufacturers
buyers from overseas markets
functional structure
manufacturing only
manufacturing and buyer liaison
higher cost/higher technology products consumers in overseas markets & PRC full functional integration
vertical integration
nil
partial; strong co-ordination function
optimal vertical integration
geographic structure
single: Hong Kong or PRC
bi-locational developing into tri-locational
multi-locational
strategic partners
none
world class manufacturers (WCM)
R&D, sales & distribution partners
manufacturing strategies
low cost, low process technology acceptable quality
WCM level:, high process technology, zero defects, low cost
product development capability
nil
low cost, medium process technology constant quality improvement for `manufacturability'
ODM stages of development the marketing, sales and distribution functions of the firm are not evident ± the business is still reliant on buyers who have their own marketing and distribution channels in their home markets for the products produced by Hong Kong firms in China. The issue for Hong Kong firms is that these markets are primarily located in USA and Europe, and the managerial capacity required to establish market research, product development and sales and distribution channels in these markets is beyond the competence and resources of most Hong Kong firms.
The Future The continued competitiveness of Hong Kong's manufacturing and related activities is now a major concern of the Hong Kong government. Hong Kong firms are renowned for their short-term cost minimization strategies and avoidance of investment in technologies which require a longer term payback. They have historically lacked sufficient institutional support for the development of technology intensive business because of weak support from the education and financial systems and from government. In 1997 the Hong Kong Special Administrative Region Chief Executive set up a Commission on Innovation and Technology to examine these issues (Tien, 1998). The main observations made in its first report issued in September 1998 can be summarised as follows:
# Blackwell Publishers Ltd 1999
new product development crucial
The importance of a `vision' for Hong Kong as an innovation-led, technologyintensive city. This is defined as developing a focus on improved ``technology'' in every aspect of the value-adding chain including design, production, marketing and distribution. Also included is a focus on non-technological aspects of innovation such as market research, changes in management, work organisation, production development, supply and distribution, and workforce skills. Hong Kong should adapt appropriate high or new technologies, by focusing on product and process innovation, in particular original product design in the traditional `low-tech' manufacturing industries such as toys, textile and garments, plastics and metal industries. In what sense are these proposals innovative in the Hong Kong context? The Tien report identifies the importance of the continued incremental development of OBM capabilities in traditional industries, and also recommends the development of `new' technology intensive industries such as health food, pharmaceuticals based on Chinese medicine, Chinese language based software, and technology to increase agricultural productivity (Tien, 1998: para. 3.17). The key to Own Brand Development is the markets of China and South East Asia, in which the Hong Kong Chinese are in a perfect position to leverage their connections with the Chinese Diaspora and with family `home towns' in China, in particular in
Volume 8
Number 1
March 1999
62
CREATIVITY AND INNOVATION MANAGEMENT
southern China. These connections have already secured manufacturing resources. As these regions develop economically and develop consumer markets, Hong Kong firms are well positioned to engage in market development activities with their current portfolio of products which are not new to the world but new to those markets. These products will be of world class manufacturing standard, and often the market development work may well be in partnership with the world class brand owners with whom the Hong Kong firms have been long term partners in OEM/ODM production. Another supporting factor is the aspirations of the PRC and South East Asian governments to develop their industries along higher technology routes. Japanese, USA and European firms lead the way in this transfer of technology, but Hong Kong firms can also participate because of their long-standing OEM/ODM partnerships with these firms. The question about the future capabilities of Hong Kong firms to develop more intensive technological and innovative business is dependent on the degree to which the institutional framework of their business activities will become more supportive. The change in sovereignty presages a major new configuration of opportunities for Hong Kong firms, in particular in conjunction with the designation by the PRC government of Shenzhen Special Economic Zone (which borders Hong Kong) and Shanghai as China's premier technology centres. In support of this policy, Shenzhen and Hong Kong bureaucrats are studying the feasibility of creating a SEZ-SAR science park ± a hi-tech buffer zone which will accommodate mainland scientists who otherwise would not be allowed to work in Hong Kong (SCMP, October, 28). The Tien Report (1998) also devotes five chapters of recommendations for realising the vision of an innovation-led, technology intensive city, and promises a second report just before the turn of the century with more recommendations about the changes required in the institutional framework in Hong Kong. In conclusion, it is well-worth restating the ironies that have attended the publication of such reports in the past. The parallels between the 1947 Report on the Industrial Development in Hong Kong, the 1979 Report of the Advisory Committee on Diversification, and the 1998 Report Commission on Innovation and Technology are striking. All three reports, necessarily, were bound by the institutional settings at the time of the publication of the reports. The 1947 report was unable to anticipate the significant southward
Volume 8
Number 1
March 1999
population movement from the Chinese mainland in the late 1940s/early 1950s to the benefit of Hong Kong's industrialization. The 1979 report was unable to assess the consequences for Hong Kong of the 1978 `Open Door' policy of the PRC in overcoming land and labour supply constraints for Hong Kong manufacturers. The 1998 report can only hint at the opportunities that commercialization of science and technological developments in China will offer Hong Kong' entrepreneurs in the 21st century. We can only speculate at what events might derail this vision ± the renaissance of Shanghai, the collapse of the Mainland banking sector, or singularly inappropriate choice of technologies. The historical odds, however, suggest that a certain scepticism and caution, as well as optimism, may be in order ± but only in terms that differ distinctly from those foreseen.
Notes 1. The work described in this paper was partially supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region (Project No. QO99). 2. Hong Kong Trade Development Council, (1998) `Trade Developments: Profiles of Hong Kong's Major Manufacturing Industries'. 3. Report on the Advisory Committee on Diversification, p. 21. 4. Report on the Advisory Committee on Diversification, p. 19. 5. Hong Kong Trade Development Council, 1998:iii. 6. Tien, 1998:paras 2.8 & 2.10.
References Burkman, J.H. (1977) `Measurement of technological change and productivity growth in the textile industries of Japan and Hong Kong,' PhD thesis, University of Pittsburg Davies, H. (1996) `High IQ and low technology: Hong Kong's key to success' Long Range Planning, 29, 684±690. Enright, M.J., Scott, E.E. and Dodwell, D. (1997) The Hong Kong Advantage. Oxford University Press, New York. Espy, J.L. (1970) `The strategy of Chinese industrial enterprise in Hong Kong,' DBA thesis, University of Harvard. Hobday, M. (1997) Innovation in East Asia: the Challenge to Japan. Edward Edgar, Cheltenham (pbk. edn.) Hong Kong (1996) Hong Kong Government Hong Kong Trade Development Council (1998) `Trade Developments: Profiles of Hong Kong's Major Manufacturing Industries'. Report on the Advisory Committee on Diversification, 1979. Hong Kong Government.
# Blackwell Publishers Ltd 1999
HONG KONG FIRMS AND THEIR CHINA LINKAGES
Sino-British Industrial Committee (1947) `Report on the Industrial Development in Hong Kong.' Hong Kong Government, 26 March. South China Morning Post, (1998) 28 October. Szczepanik, E. (1958) The Economic Growth of Hong Kong. Oxford University Press, London. Tien, C.L. (1998) The Commission's First Report to the Chief Executive: Commission on Innovation and Technology. Hong Kong.
# Blackwell Publishers Ltd 1999
63
Wong, S.L. (1988) Emigrant Entrepreneurs: Shanghai Industrialists in Hong Kong. Oxford University Press, Hong Kong Judith Hollows, PhD is Assistant Professor, Department of Management, Hong Kong Polytechnic University.
Volume 8
Number 1
March 1999
64
CREATIVITY AND INNOVATION MANAGEMENT
Book of the Quarter Reviewed by Tudor Rickards Thomas Clarke and Stewart Clegg (1998), Changing Paradigms: The Transformation of Management Knowledge for the 21st Century, Harper Collins Business, London, 502 pp, ISBN 0-00-2560157, bibiography, notes, index
T
his book was received by the reviewer at the pre-publication stage. This opens the possibility of the authors' making a few last minute changes, or even major transformations. Somehow all this seems appropriate for a book about change and changing paradigms, with a reviewer having to accept the possibility of unexpected outcomes after the review has been written The uncertainties certainly influenced the authors. The work began when they were colleagues in St Andrews, Scotland. Before the book was complete they had both relocated and were having to rely on electronic communications while operating from roughly opposite ends of the globe. (Yes, they report that they did encounter a few software compatibility issues that fed into their views of the emerging electronic paradigm). What seems pretty likely is the final version, like the one I read, will be a book packed full of practical examples, and bundles of ideas in support of the main theme, the changing shape of the world of management ideas.
A basic thesis Their basic thesis is simply stated. Broadly, technology is contributing, at what seems like an accelerating pace, to a more complex world. Management of that world deals with complex changes, and is likely to require requisitely complex ideas and approaches. As is generally argued, the dominant management view is that management theory, like management practice, is best derived from a scientific approach. That is to say, progress is made by what we generally refer to as scientific principles (hypotheses, verification of facts and so on). An associated
Volume 8
Number 1
March 1999
belief is that the world is open to prediction and control. The changing paradigm recognizes that the world is less predictable, more chaotic than was previously believed. There have been various attempts to describe what is the nature of the new paradigm. These are most often ideas that oppose the known and old beliefs. Thus, the certainties of modernity are opposed by the uncertainties of `postmodernity'. The dehumanised and objective rationality of science is replace by a humanistic and personalised view. Modernity, as Giddens and others have illustrated so well, flows from beliefs in rationality, and logic. Its management style is essentially one that analyses and clarifies through distinctions of right and wrong; this is a belief system that Edward De Bono believes has remained influential since the days of classical Greek philosophic and logical principles. The world can be controlled if we can divide it up into discrete atomistic bits. Organizations can be designed and controlled according to the same modernist principles. De Bono suggests that the shift is away from `rock logic' to `water logic' ± from the fixed to the fluid and fuzzy. Clarke and Clegg suggest the shift is from rational to `strategic thinking, innovation, core competences' (p6). In a nice summary table, the authors suggest that the most important changes do have a coherence. They are largely associated with a shift away from the socalled modernist condition. In some ways the authors have tried to write of the new ideas, in the vocabulary of the old. This is very sensible way of proceeding. After all, those readers looking for a lead can be gently led into the new ideas. Indeed, the main body of the text stands as a compendium of names of influential visionaries # Blackwell Publishers Ltd 1999. 108 Cowley Road, Oxford OX4 1JF and 350 Main St, Malden, MA 02148, USA.
BOOK OF THE QUARTER
whose views have already begun to move into the managerial consciousness via their popularizing books and multi-media contributions. These ideas include globalization, organizational competences, and electronic networking. Most managers now accept the importance of these themes. There are other ideas that seem to me still to be treated with more reservations by practicing managers. These include the notion that we are changing from shareholders/financial performance indicators to stakeholders/non-performance indicators. Another idea is that we are witnessing a shift from `profit/growth/control' by means of a change of objectives to `sustainable enterprise'. I have no problem with these as possible future trends. I do have a suspicion about their widespread acceptance at present. A typical experience recently cropped up in a discussion with a group of managers on emerging trends in people management. The group was working its way through a day-release management degree programme. The executives had strong and robust views of the changes that were impacting on their world. These were uncomplicated versions of the view that the empowerment, sustainability, and commitment were manipulative words used in an attempt by managers to conceal the sustained reality of economic power. While the view has a level of fatalism, and perhaps denial about it, it can hardly be dismissed. I have heard similar views, perhaps with more willingness to admit the possibility of change, from multi-cultural groups of business graduates. Indeed, the view is in it way akin to the debate about the rhetoric or reality of change heard in more academic circles. Clarke and Clegg remind us that we are likely to presented with a world of co-existing viewpoints.
Critique The authors have demonstrated deep knowledge of a remarkably wide range of literature. They have abstracted and condensed and still ended up with a weighty tome dedicated to the cult of the new. Their style suggests similarities in its energy and enthusiasm with that shown by Tom Peters in Liberation Management, and earlier by Alvin Toffler in Future Shock and The Third wave. Like these authors, they collect and accumulate ideas, piling them up to make a substantial, albeit rather baroque structures. Like these writers, Clarke and Clegg have a preference for citations from accessible sources. This
# Blackwell Publishers Ltd 1999
65
lightens what would otherwise be a very heavy read indeed. Some readers may find it a comfort to keep bumping into ideas from old friends, chapter after chapter. Also, however, I suspect that most readers will be led into less familiar territories on a regular basis. Overall, however, I was struck by the increasing difficulties facing authors attempting to write about the new. As the authors make clear, ideas are globalized and disseminated at increasing rates. This leads to the question of what the book is offering. I would see its strengths as a compendium or a collection of views that would be of value to business students undertaking a course on the management of change. There is also much to interest managerial practitioners and consultants. The authority of the authors adds a seal of approval to the views they have captured and expressed. Even in these turbulent times, the ideas are likely to be around long enough for them to be taken seriously. As I indicated, the authors have written and argued in a rather traditional and conventional style. Somehow one expects the changing world of knowledge to invade the medium and the message. Yet, the authors are well versed in the impact of post-modern ideas (See the excellent Handbook of Organizational Studies, co-authored by Clegg, and reviewed as Book of the Quarter in CAIM, Vol. 6, No. 3 1997). Does this matter? Well it might. The authors remind us of the dangers of `Paradigm police' who would impose a dominant view of management on one and all. Yet, the book while stressing the turbulence of changing paradigms, at the same time does so in a reassuring way that our old paradigmatic way of understanding `realities' may not have to change (yet). My concern is that the consequences of changing paradigms reach into the difficult levels of beliefs about the nature of organizational realities. This goes beyond shifts in organisational structures to shifts in the way organisational structures make sense to us. For example, at present there is a lot of interest in learning organisations. However, most of what I read seeks to explain and study the learning organisation in the vocabulary developed for understanding organisations as well-designed machines. This observation is not out of alignment with the book's title ± that `the paradigms are a-changing'. However, it does indicate how new ideas are difficult to disentangle from old ones (a point that has not been lost on postmodern writers). The book draws to a close with a very short concluding chapter. I was left with the feeling that something was missing at this point. I can
Volume 8
Number 1
March 1999
66
CREATIVITY AND INNOVATION MANAGEMENT
see the difficulties of a greater integration of the material. Perhaps here would have been the place for a transformational shift. A poem perhaps? What might stand comparison with the words of the Poet Laureate Thomas Hardy? At the beginning of the 20th century Hardy `leant upon a coppice gate' as the skies darkened and a global war loomed. He heard the singing of a bedraggled thrush at a time where `The land's sharp features seemed to be.. The Century's corpse outleant'. Hardy concluded `So little cause for carolings Of such ecstatic sound Was written on terrestial things Afar or nigh around, That I could think there trembled through
Volume 8
Number 1
March 1999
His happy good-night air Some blessed Hope, whereof he knew And I was unaware' 1 Might our changing paradigms still have space for the poet and the dreamer, as well as the digitalised, globalised, virtual, corporate worker?
Note 1. The poem has stuck in my mind since I learned it, many years ago, as a schoolboy. The verse is from `The Darkling Thrush' by Thomas Hardy, published, among other places, in The New Oxford Book of English Verse, Oxford University Press, (which I used as a reference source).
# Blackwell Publishers Ltd 1999
