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1. Introduction

The role of market research in the development of discontinuous new products Paul Trott

The author Paul Trott is a senior lecturer at the Portsmouth Business School, University of Plymouth, Southsea, UK Keywords Market research, Innovation, New product development Abstract Market research results frequently produce negative reactions to discontinuous new products (innovative products) that later become profitable for the innovating company. Famous examples such as the fax machine, the VCR and James Dyson's bagless vacuum cleaner are often cited to support this view. Despite this, companies continue to seek the views of consumers on their new product ideas. The debate about the use of market research in the development of new products is longstanding and controversial. This paper reviews the literature in this area and examines the extent to which market research is justified and whether companies should sometimes ignore their customers. The paper offers a conceptual framework that may help companies to decide when market research findings may be helpful and when they may hinder the development of discontinuous new products. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft

European Journal of Innovation Management Volume 4 . Number 3 . 2001 . pp. 117±125 # MCB University Press . ISSN 1460-1060

In his award winning ``business book of the year'' [1] Clayton Christensen (1997) investigated why well run companies that were admired by many failed to stay on top of their industry. His research showed that in the cases of well managed firms such as Digital, IBM, Apple and Xerox, ``good management'' was the most powerful reason why they failed to remain market leaders (sic). It was precisely because these firms listened to their customers and provided more and better products of the sort they wanted that they lost their position of leadership. He argues that there are times when it is right not to listen to customers. Recent research by Ovans (1998) supports this claim. He suggests that purchase-intention surveys are not effective predicators of sales of new products. The research revealed that people are not generally reliable predictors of their own long-term purchasing behaviour. The type of question used and whether or not the question is placed in context greatly affects the reliability of such market research. James Dyson has good reason to be suspicious of the role of market research in new product development. Not only did he struggle for many years to get anyone in the UK to believe it was worth manufacturing his bagless vacuum cleaner, he faced the same scepticism when he launched in the USA (Thrift, 1997). Many industry analysts and business consultants are now arguing that the devotion to focus groups and market research has gone too far (Christensen, 1997; Martin, 1995; Francis, 1994). Indeed, the traditional new product development (NPD) process of market research, segmentation, competitive analysis and forecasting, prior to passing the resultant information to the research and development (R&D) department, leads to commonality and bland new products. This is largely because the process constrains rather than facilitates innovative thinking and creativity. Furthermore, and more alarming, is that these techniques are well known and used by virtually all companies operating in consumer markets. In many of these markets the effect is an over-emphasis on minor product modifications and on competition that tends to focus on price. Indeed, critics of The author is grateful for the comments of the anonymous reviewers on an earlier draft.

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the market-oriented approach to new product development argue that the traditional marketing activities of branding, advertising, positioning, market research and consumer research act as an expensive obstacle course to product development rather than facilitating the development of new product ideas. For many large multi-product companies it seems the use of market research is based upon accepted practice in addition to being an insurance policy. Many large companies are not short of new product ideas ± the problem lies in deciding in which ones to invest substantial sums of money (Trott et al., 1995), and then justifying this decision to senior managers. Against this background, one can see why market research is so frequently used without hesitation, as decisions can be justified and defended. Small companies in general, and small single product companies in particular, are in a different situation. Very often new product ideas are scarce; hence, such companies frequently support ideas based upon their intuition and personal knowledge of the product. This is clearly the situation with James Dyson's bagless vacuum cleaner (Dyson, 1998). Morone's (1993) study of successful US product innovations suggests that success was achieved through a combination of discontinuous product innovations[2] and incremental improvements. Indeed, Lynn et al. (1997) argue that: in competitive, technology-intensive industries, success is achieved with discontinuous product innovations through the creation of entirely new products and businesses, whereas product line extensions and incremental improvements are necessary for maintaining leadership. This, however, is only after leadership has been established through a discontinuous product innovation. This may appear to be at variance with accepted thinking that Japan secured success in the 1980s through copying and improving US and European technology. This argument is difficult to sustain on close examination of the evidence. The most successful Japanese firms have also been leaders in research and development. Furthermore, as Cohen and Levinthal have continually argued (1990; 1994), access to technology is dependent on one's understanding of that technology. Adopting a technology push[3] approach to product innovations can allow a company to

target and control premium market segments, establish its technology as the industry standard, build a favourable market reputation, determine the industry's future evolution, and achieve high profits. It can become the centrepiece in a company's strategy for market leadership. It is, however, costly and risky. Such an approach requires a company to develop and commercialise an emerging technology in pursuit of growth and profits. To be successful, a company needs to ensure its technology is at the heart of its competitive strategy. Merck, Microsoft and Dyson have created competitive advantage by offering unique products, lower costs or both, by making technology the focal point in their strategies. These companies have understood the role of technology in differentiating their products in the marketplace. They have used their respective technologies to offer a distinct bundle of products, services and price ranges that have appealed to different market segments. Such products revolutionise product categories or define new categories, such as Hewlett-Packard's Laser-jet printers and Apple's (then IBM) personal computer. These products shift market structures, require consumer learning and induce behaviour changes; hence, the difficulties for consumers when they are asked to pass judgement. It seems the dilemma facing companies is twofold: (1) At the policy level: to what extent should companies pursue a strategy of providing more room for technology development of products and less for market research that will surely increase the likelihood of failure, but will also increase the chance of a major innovative product. (2) At the operational level: to what extent should product and brand managers make decisions based upon market research findings.

2. The use of market research in new product development: a review of recent thinking In one of the most comprehensive reviews of the literature on product development, Brown and Eisenhardt (1995) develop a model of factors affecting the success of product development. This model highlights the distinction between process performance and product effectiveness and the importance of

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agents, including team members, project leaders, senior management, customers, and suppliers, whose behaviour affects these outcomes. The issue of whether customers can hinder the product development process is not, however, discussed. It is argued by many from within the market research industry that only extensive market research can help to avoid large scale losses such as those experienced by RCA with its Videodisc, Procter & Gamble with its Pringles, and General Motors with its rotary engine (Barrett, 1996). Sceptics may point to the issue of vested interests in the industry, and that it is merely promoting itself. It is, however, widely accepted that most new products fail in the market because consumer needs and wants are not satisfied. Study results show that 80 percent of newlyintroduced products fail to establish market presence after two years (Barrett, 1996). Indeed, cases involving international high profile companies are frequently cited to warn of the dangers of failing to utilise market research (e.g. Unilever's Persil Power and R.J. Reynold's smokeless cigarette). Given the inherent risk and complexity, managers have asked for many years whether this could be reduced by market research. Not surprisingly, the marketing literature takes a market-driven view, which has extensive market research as its key driver (Booz, Allen and Hamilton, 1982). The benefits of this approach to the new product development process have been widely articulated and are commonly understood (Cooper, 1990 and Kotler, 1998). Partly because of its simplicity, this view now dominates management thinking beyond the marketing department. Advocates of market research argue that such activities ensure that companies are consumer-oriented. In practice, this means that new products are more successful if they are designed to satisfy a perceived need rather than if they are designed simply to take advantage of a new technology (Ortt and Schoormans, 1993). The approach taken by many companies with regard to market research is that if sufficient research is undertaken the chances of failure are reduced (Barrett, 1996). Indeed, the danger that many companies wish to avoid is the development of products without any consideration of the market. Moreover, once a product has been carried through the early stages of development it is sometimes painful to raise

questions about it once money has been spent. The problem then spirals out of control, taking the company with it. The issue of market research in the development of new products is controversial. The debate will continue for the foreseeable future about whether product innovations are caused by technology push or market pull factors. The issue is most evident with discontinuous product innovations, where no market exists. First, if potential customers are unable adequately to understand the product, then market research can only provide negative answers (Brown, 1991). Second, consumers frequently have difficulty articulating their needs. Hamel and Prahalad (1994) argue that customers lack foresight; they refer to Akio Morita, Sony's influential leader: Our plan is to lead the public with new products rather than ask them what kind of products they want. The public does not know what is possible, but we do.

This leads many scientists and technologists to view marketing departments with scepticism, as they have seen their exciting new technology frequently rejected due to market research findings produced by their marketing department. Market research specialists would argue that such problems could be overcome with the use of ``benefits research''. The problem here is that the benefits may not be clearly understood, or even perceived as a benefit by respondents. King (1985) sums up the research dilemma neatly: Consumer research can tell you what people did and thought at one point in time: it can't tell you directly what they might do in a new set of circumstances.

This is particularly the case if the circumstances relate to an entirely new product that is unknown to the respondent. New information is always interpreted in light of one's prior knowledge and experience. Rogers' (1995) studies on the diffusion of innovations as a social process, argues that it requires time for societies to learn and experiment with new products. This raises the problem of how to deal with consumers with limited prior knowledge and how to conduct market research on a totally new product or a major product innovation. In their research analysing successful cases of discontinuous product innovations, Lynn et al. (1997) argue that firms adopt a process of probing and learning. Valuable experience is gained with

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every step taken and modifications are made to the product and the approach to the market based on that learning. This is not trial and error but careful experimental design and exploration of the market often using the heritage of the organisation. This type of new product development is very different from traditional techniques and methods described in marketing texts. Knowing what the customer thinks is still very important, especially when it comes to product modifications or additional attributes. There is, however, a distinction between additional features and the core product benefit or technology, hence its emphasis in the framework shown in Figure 1. This framework also places emphasis on the buyer rather than the consumer, for the buyer may be the end user but equally may not, as is the case with industrial markets. Moreover, for a product to be successful it has to be accepted by a variety of actors such as fellow channel members. The buyer is nonetheless a key actor. In industrial markets, the level of information symmetry about the core technology is usually very high indeed (hence the limited use of market research), but in consumer markets this is not always the case. For example, industrial markets are characterised by: . Relatively few (information rich) buyers. . Products are often customised and can involve protracted negotiations regarding specifications. Figure 1 Circumstances under which market research may hinder the development of innovative new products

.

And, most importantly, the buyers are usually expert in the technology of the new product (i.e. high information symmetry about the core technology).

The above discussions imply the first proposition: P1: that low information symmetry between buyer and consumer will limit the usefulness of any market research undertaken. In situations of low information symmetry, consumers have difficulty in understanding the core product and are unable to articulate their needs and any additional benefits sought. Conversely, in situations of high information symmetry consumers are readily able to understand the core product and hence, are able to articulate their needs and a wide range of additional benefits sought. In the case of discontinuous product innovations, the use and validity of market research methods is questionable (von Hippel and Thomke, 1999; Elliot and Roach, 1991). As far back as the early 1970s, Tauber (1974) argued that such approaches discourage the development of major innovations. It may be argued that less, rather than more, market research is required if major product innovations are required. Such an approach is characterised by the so-called technology push model of innovation. Products that emerge from a technology push approach are generated with little consideration of the market. Indeed, a market may not yet exist as with the case of the PC and many other completely new products. Frequently, consumers are unable to understand the technology in question and view new products as a threat to their existing way of operating. Martin (1995) argues that: . . . customers can be extremely unimaginative . . . trying to get people to change the way they do things is the biggest obstacle facing many companies.

Indeed, Ortt and Schoormans (1993) posit that potential consumers are not able to relate the physical aspects of a major innovative product with the consequences of owning and using it. Similarly, Hamel and Prahalad (1994) argue that while market research can help fine-tune product concepts, it seldom is the spur for an entirely new product concept. Consequently, most conventional market research techniques deliver invalid results. 120

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There are some well-known cases where companies have ignored the views of their customers. Chrysler, for instance, developed the original mini-van in the USA, despite research showing that people recoiled at such an odd-looking vehicle. At the time of launch, the product was revolutionary in appearance. Today, however, that basic design is the industry standard. The difficulty faced by product and brand Managers is deciding whether feedback is surmountable scepticism or genuine lack of market acceptance. In technology-intensive industries such as IT products, consumers are often hesitant over any new purchase because of the rapid introduction of replacement and improved versions. This has led to adverse consumer reaction to rapid product improvements (Dhebar, 1996). Discontinuous product innovations or radical product innovations, frequently have to overcome the currently installed technology base ± usually through displacement. This is known as the installed base effect. The installed base effect is the massive inertial effect of an existing technology or product that tends to preclude or severely slow the adoption of a superseding technology or product. This creates an artificial adoption barrier that can become insurmountable for some socially efficient and advantageous innovations. An example of this is the DVORAK keyboard, which has been shown to provide up to 40 per cent faster typing speeds. Yet, the QWERTY keyboard remains the preference for most users because of its installed base, i.e. its widespread availability of keyboards that have the QWERTY configuration (Herbig, et al., 1995). The idea of being shackled with an obsolete technology leads to the notion of switching costs. Switching is the one-time cost to the buyer who converts to the new product. Porter (1985) notes that switching costs may be a significant impediment to the adoption of a new consumer product. Buyer switching costs may arise as a result of prior commitments to a technology () and to a particular vendor ( ) (Jackson, 1985). Computer software is an obvious example where problems of compatibility frequently arise. Similarly, buyers may have developed routines and procedures for dealing with a specific vendor that will need to be modified if a new relationship is established. The effect of both types of switching costs for a buyer is a

disincentive to explore new vendors. All else being equal, buyers will be motivated to stay in existing relationships to economise on switching costs (Heide and Weiss, 1995). It is the extent of the installed base that influences the  cost of switching. This yields the second proposition: P2: that a high installed base effect will limit the effectiveness of any market research.

3. Using market research in the development of discontinuous new products: a conceptual framework Firms can enable consumers to gain direct knowledge of their new products through first-hand experience. There are a variety of techniques used to trial new products such as using in-store samples, mailing samples to consumers' homes, product demonstrations and service samples and demonstrations. In addition, consumers can gain information second-hand via company advertisements, packaging, point-of-purchase displays and Internet sites (Kardes, 1998). For innovative new products, one approach used is to gather together innovators and early adopters to gather their views on a product idea. The problem here of course is that the focus of the study is on the characteristics of the population rather than on the innovative product. For example, innovators and early adopters are characterised by a high disposable income. The examples cited in the previous sections serve to illustrate the dilemma facing firms: market research may reveal genuine limitations with the new product, but it may also produce negative feedback on a truly innovative product that may create a completely new market. This is why there have been so many research studies in this area (Myers and Marquis, 1969; Rothwell, 1977, 1992; Cooper and Kleinschmidt, 1993; Hart, 1993). And why there is such a wide variety of interesting cases of both successful and less successful research projects, which are extremely valuable starting points for analysis. Drawing on this literature, an attempt has been made to explore the circumstances under which market research might hinder the development of innovative new products. This has yielded a framework that provides useful insights into both policy and operational issues. The impetus for the

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development of this framework was the realisation that substantial uncertainty exists about decision making based upon market research findings. This uncertainty could be usefully divided into two independently identifiable dimensions that can be described as: (1) Information symmetry about the core technology between producer and buyer[4]. (2) The installed base effect. Quadrant 1: Learning from lead users Under these conditions, market research teams are usually taught to collect information from users at the centre of their target market. They conduct focus groups and analyse sales data, reports from the field, customer complaints and requests, and so on. Then they rely on their own creative powers to brainstorm their way to new ideas. Teams that follow this method assume that the role of users is to provide information about what they need, and that the job of in-house developers is to use that information to create new product ideas. The ``lead user'' process takes a fundamentally different approach. Lead users are users whose present strong needs will become general in a marketplace months or years in the future (von Hippel, 1986). It was designed to collect information about both needs and solutions from the leading edges of a company's target market and from markets that face similar problems in a more extreme form. Development teams assume that knowledgeable users outside the company have already generated innovations; their job is to track down especially promising lead users and adapt their ideas to the business's needs (von Hippel and Thomke, 1999). Quadrant 2: Market research may hinder the development of innovative new products Under these conditions, initial market research may produce negative findings due to a lack of information and knowledge on the part of the buyer(s). It should be possible to educate and convince buyers of the benefits of the innovative new product. Indeed, the key issue here is how the benefits can be best articulated to the consumer. With a low level of information symmetry, however, consumers will have difficulty articulating their needs. It is clear that care needs to be exercised when conducting market research with innovative new products. In forecasting

buyer's reactions to the innovative product, it is important to consider the product's or the technology's functional performance. That is, what it will do for the end-customer. Ortt and Schoormans (1993) suggest that one approach is to use ``quasi-experts''. These are consumers who have specific knowledge of related products and have specific knowledge of the usage context. In such cases it can be argued that there exists improved information symmetry between the producer and consumer vis-aÁ-vis the core technology of the product. Quadrant 3: Market research unhelpful Under these conditions, market research is extremely difficult and arguably unhelpful. This area is dominated by industrial buyers operating against a backcloth of a highinstalled technology base. In such cases it seems the role of third party intermediaries is significant. For example, within the information technology (IT) industry the role of IT analysts have been shown to influence notably the success, or not, of a new product launch (Vestey, 2000). The use of third-party experts to analyse, comment and pass on their views to potential buyers dominates this area. Quadrant 4: Market research unable to warn of potential difficulties with the new product Under these conditions, market research is unable to offer much insight due to the low levels of information on the part of the buyer(s). Indeed, due to the high-installed base effect it is extremely difficult to convince buyers to purchase the new product. Frequently the changes involved are substantial. This may be to distribution arrangements, pricing, and internal reorganisation. This will be further compounded if the buyer has low understanding of the technology. This may prevent the buyer from comprehending the potential benefits. Also, consumers will have difficulty articulating their needs. As with Quadrant 2, the use of ``quasi-experts'' may be helpful.

4. Policy and operational considerations This paper has sought to investigate the extent to which, and under what conditions, market research may hinder the development of discontinuous new products. This is without question a controversial subject and

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has been debated for many years. There is ample evidence to suggest that market research can help firms develop improved products. However, there is also some evidence from the literature that firms may be concentrating their efforts on short-term activities, such as altering product attributes, rather than investing in more risky discontinuous product ideas (Morone, 1993; Lynn et al., 1997). The conceptual framework presented here, attempts to offer the practising product manager some guidance on when market research may be helpful and when its findings need to be treated with care. The operationalisation and subsequent empirical testing clearly are indicated in terms of further research. There are, however, some policy and operational considerations. If sufficient care is not exercised by managers, market research can be used to support conservative product development decision making. This paper has highlighted the difficulty faced by many managers in the field of new product development. In many crucial new product development decisions, the course of action that is most desirable over the long run is not the best course of action in the short term. This is the dilemma addressed in the debate about short-termism. That is, an emphasis on cutting costs and improving efficiencies in the immediate future, rather than on creativity and the development of innovative new product ideas for the long term. What is of concern, is not the desire to cut costs but the apparent disregard of the implications and damage that such policies may bring about, and in particular the neglect of the company's ability to create new business opportunities for the future wellbeing of the company (Trott, 1998). Management needs to create new business opportunities for the company to ensure it is successful in the long-term. Many of the world's largest chemical companies, such as Shell, Du-Pont and ICI, have for many decades afforded their scientists a percentage of their time to work on projects they considered interesting and of future potential value. This implies a willingness to invest in risky innovative new product ideas. The shortterm view places emphasis on conservative decision making supported by market research findings, with its in-built failings and inability to source innovative new products. In neglecting attention to their creative activities, companies may seriously affect their

ability to innovate. Clearly, there are many companies like ``3M'', ``Rubbermaid'' and ``Lucas'' (Robinson, 1997), that have not lost sight of the importance of creating new products for their future markets. Yet senior management thinking is often driven by management accountancy principles and the goal of ensuring costs are lower than revenues. The chief executive of BP Chemicals acknowledged recently that ``cost reduction is a miserable management job but conceptually it is easy'' (Houlder, 1994). All of which leads to, at best, a management style that is reluctant to take risks and, at worst, a blame-seeking culture that forces managers to ensure they can defend any decision they make; hence, the value given to market research findings. Highlighting the importance of capabilities in R&D, technology development and channel management in new product development is not new, but Moorman and Slotegraaf (1999) suggest that product development is most effective when firms exhibit both capabilities. Furthermore, they argue that not all capabilities are valuable as single assets and more emphasis should be placed on the value of complimentary assets. Arguably, the need for innovation and creativity in market research is no less than in any other area of management. If market research is to provide useful effective information for helping organisations compete, it needs to be capable of bringing forth insights and viewpoints from respondents. This is the challenge for market research. Some of the more recent research on new product development argues that successful firms are able to deploy complimentary capabilities in technology and marketing (Moorman and Slotegraaf, 1999). This is based on the view that product development integrates inside-out (R&D) and outside-in (effective management of customer and channel relationships) capabilities. It is worthy of note that capability rich firms are more apt to draw correct inferences about the value of external information (Cohen and Levinthal, 1990, 1994).

5. Conclusions Market research can provide a valuable contribution to the development of innovative products. The difficulties lie in the selection

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and implementation of research methods. It may be that market research has become a victim of its own success; that is, business and product managers now expect it to provide solutions to all difficult product management decisions. Practitioners need to view market research as a collection of techniques that can help to inform the decision process. The conceptual framework outlined in this paper should help product and brand managers to consider when and under what circumstances market research is most effective. The right sort of market research can be invaluable. The problem is that within consumer markets there are technology-intensive and technology-vacant industries. In many of the technology intensive industries such as telecommunications, computer hardware and software, these firms are able to utilise their industrial market heritage to balance the need for technology and listen to the needs of consumers. In technology-vacant consumer markets, such as food and personal care, the danger is that the technology agenda is completely dominated by market research findings. Minor product modifications may keep a product and brand competitive in the short term, but if long-term growth is sought then more free-thinking and creativity needs to be afforded to the R&D department.

Notes 1 Christensen (1997) When New Technologies Cause Great Firms to Fail, was awarded the Financial Times business book of the year award in 1999. 2 Discontinuous innovations often launch a new generation of technology; whereas continuous product innovations involve improving existing technology. 3 The technology push approach to npd centres on trying to deliver the most effective technology available. 4 The term buyer is used here to take account of industrial markets, professional users and nonprofessional users (Pannenborg, 1986).

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Introduction

Leading for innovation through symbiosis Amar Dev Amar

The author Amar Dev Amar is Professor of Management at the School of Business, Seton Hall University, South Orange, New Jersey, USA. Keywords Employee involvement, Innovation, Leadership, Organizations, Groups, Management styles Abstract Based on the experiences with various organizations, this article summarized how managers should lead their innovation employees for most effectiveness. The main thesis is that innovation employees give higher performance when their managers practice symbiotic leadership style. The article describes how managers can achieve this. Four characteristics that they can apply to guide their leadership style to create a work symbiosis are given. Another contribution of this article is a set of recommendations to mimic the aspects of symbiotic leadership applicable in any organization where the operating environment is uncertain, the task is unstructured, and the manager cannot provide a clear direction to his employees. Through the practice of these recommendations, managers of all types of organizations should get higher productivity from their employees due to the employees' individual innovations. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft European Journal of Innovation Management Volume 4 . Number 3 . 2001 . pp. 126±132 # MCB University Press . ISSN 1460-1060

Whereas the technology is putting a tremendous pressure on organizations of all kinds to creatively integrate it in their operations, it is also bringing out a very new breed of organizations that work primarily with new knowledge and create technological applications as their main products and services. These new organizations may be in the form of a complete small firm or one department or section of a larger corporation. In whatever form these may exist, they thrive on the innovation of their employees in pioneering applications of the available scientific and technological knowledge or their own proprietary inventions. The number of these organizations has tremendously increased during the last decade of the 20th century. The current century is supposed to belong to them as the whole world moves towards the knowledge era. These organizations will become the most important segment of successful economies around the world. The economic race in the future will be won by those nations who will learn how to manipulate knowledge into successful applications that improve the quality of human life. However, unfortunately, not enough research has occurred in understanding how best to manage these organizations. Many managers do not have enough experience in managing these ± especially in managing young innovative employees of these organizations who mostly belong to the newer generations. While on the one hand, members of these generations will make most of those who will be available for employment in the 21st century; on the other hand, they practically monopolize the ability to work with the cutting-edge technology. The management principles and practices that have proven successful in getting work from employees in production organizations of the twentieth century do not work in these organizations. The management functions dealing with the human side of organizations ± such as leading, motivating, and controlling ± for these firms are quite different from what have worked successfully in managing production organizations. The sociological and behavioral theories that guided the leading function of management practice for these organizations have become inapplicable in the case of these knowledge employees. Their behavior, personalities, and character

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traits are so different that almost none of the developed management functional theories remain applicable in their case. It may be so because the available management theory does not provide techniques that are designed specifically to suit these employees. Although a lot is coming out at developing an understanding on their sociology and psychology, there is a substantial gap between the theory and what is applicable to these employees working in innovation environment. This work makes an attempt to fill that void in the area of leading. It should make managers introspect, examine their leadership styles, and adapt what they had been using to manage other employees to suit the personality of these new generations. The main objective is how best to employ the technology talent that these employees have to offer. In addition to helping innovation organization managers in how to lead their employees towards the attainment of goals important to the organization, the principles developed in this work should be useful to managers in all organizations, because this will cause an increase in innovation and productivity from all employees. This is particularly true because technology has proliferated in organizations of all types. In fact, no contemporary firm in any industry can succeed without the use of the state-ofthe-art technology in design, development, production and distribution of their products and services. This article is based on experience and the study of various organizations in different industries.

Successful innovation leader behavior Over three decades of working with many organizations, I have observed that creativity that turns into superior organizational financial or strategic performance does not come only from scientific laboratories or through the corporate R&D efforts. It can be achieved through changes in management practices. For example, back in the founding days of the US-based computer manufacturer Hewlett Packard, its founders broke the mold by eliminating organizational hierarchies and introducing innovative practices such as profit-sharing and cubicles (Burrows, 2001) ± which sound so standard and normal today. Although innovation has a profound effect on

the whole organization, research shows that in high-technology firms, the leader's shortterm compensation is related to innovation in the organization (Balkin et al., 2000). In some form, any employee at any level of the corporate hierarchy can use creativity in making a difference in the functioning of his or her department that could translate into greater benefit for the organization. Many times, creativity could come in small amounts but may still make a meaningful impact on the organization. One can see creativity reflect in better quality products, efficient processes, safe operations, new clients, better-serviced customers, efficient distribution, competent suppliers, satisfied and productive employees, and fulfillment of or compliance with the codes. The list can go on. This kind of small-scale creativity can make a difference everywhere in the organization and every employee can contribute towards its achievement. In most cases, creative endeavors start through individual initiatives and efforts. However, to derive greater and widespread benefit from such endeavors, most organizations want to organize creativity effort so that it can be turned into innovation. They want to know how best to structure and lead the groups assigned the task of bringing innovation in an organizational setting. In my study of several organizations and how their leaders successfully brought about innovation, I have observed that the leadership style that works best is not the typical traditional leadership ± neither transactional nor charismatic. In practice, due to the changing behavior of organizations in general, none of the traditionally established and practiced leadership techniques works in any organization. A number of managers are aware, and the researchers are discovering this fact through extended experimentations. One such study conducted in organizations operating under conditions of perceived environmental uncertainty is reported by Waldman et al. (2001). Based on a statistical study of 48 Fortune 500 firms, they discovered that neither transactional nor charismatic leadership predicted significant variance in organizational performance. Expecting any one of them to work in the tumultuous, uncertain, time-pressed environment of innovation organizations is unrealistic.

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Work symbiosis The successful leadership of innovation groups is the one that creates and permits to operate them more as a symbiosis than as a standard production shop. In many ways, leaders of innovation organizations deliberately defy the practices of these shops. Typically, an innovation leader structures the creativity team such that his or her personage and role do not appear at the center of its workings. The team is designed not to require the leader to occupy a key position in almost all group activities, or to act as its sole director, prime mover, or motivator. The organization is designed to let the leader be not prominently visible. The hierarchy configuration sets confused distinction between the leader and the remaining members of the creativity group. Their roles are designed to form a human symbiosis. Through his management style, the leader assures that all members collectively take credit, and accept blame, for the outcomes. He or she gives to the group members any and all recognition and benefit for the achievements that genuinely belong to them. Leaders of innovation organizations assure that their leadership emanates from their individual creative initiatives, intellectual preeminence, and technical or unique expertise that bring value to each individual constituting the group. They draw a very small part of their power ± mainly for the initial identification ± from the formal or the legitimate sources. Their power mostly rests in their personal influence ± in subtle ways ± through their capacity to help their followers in doing better on whatever they are doing or want to do or is of importance to them. It comes mostly from their ability to win confidence of those they lead ± not from any type of legitimacy or personal charisma. They believe that their creation and maintenance of a symbiosis will turn individual initiatives and goals into group cooperation that will eventually translate into direct benefit for the organization. Additionally, they provide an environment that permits every member of the group to be a leader of the group in some form or function. The addition of subtleties dimension to the leadership of innovation organizations takes on a special significance because, we have observed that, a large number of innovation employees for several reasons do not ask for

their leader's assistance. The first reason may be that they are not convinced that their leader can provide meaningful answers to the technical problems on the innovation project on which they are working. With that belief, they may not even let it be known that they need any assistance or allow them to be led. The second reason that is true many times is that they themselves may not know that they need to be led. That is why the leader has to lead them subconsciously. This type of innovation leadership is really an incognito leadership ± a group of role-switching leaders and followers, all in one, may be without any organizational or even operational distinctions. This style of leadership that permits and facilitates all members of a group to act as leaders is possible only in symbiotic organizations. It gives rise to a feeling of omnipotence among all members of the group and helps breed innovation. This is the main reason why symbiotic design is the recommended design for groups assigned creative tasks. I have further observed that if we set aside the differences in leadership practices that occur due to the differences in the individual styles of leaders, there remain primarily four transferable characteristics that are common to the behavior and practices of successful innovation leaders in creating symbiotic design applicable to leading an innovation group. These are dormant existence, catalytic interaction, reversed followership, and mutualism described below in detail. Symbiotic characteristic 1: dormant existence Successful innovation organizations defy the management design credo that requires every employee to have one assigned leader within the structure of the organization. Organizations use different titles to identify them. In the pretechnology era, they were called ``foremen'', ``linemen'', or ``boss''. In contemporary organizations, these titles have been revised to the ones that connote the lack of traditional authority and dyadic relationship of supervisor and subordinate. Some of these newer titles are ``group leader'', ``team leader'', and ``mentor''. Nevertheless, no one should be misled, because in most organizations the new leaders are and operate like the supervisors in the old organizations. However, in innovation organizations, to allow the flourishing of creativity, these relationships have to become

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very lax. Innovation leadership should not have prominent existence. It should function on as-needed basis: If needed it should always be there, but it should not be evident. In its operation, it should promptly rise to the occasion when needed and quickly ebb as the leadership returns things back to normal. This leadership is in complete contrast to the traditional leadership that is pushed down from the top by the power of the leader within the confines of the organizational structured hierarchy. It is pulled in by those who need to be led because of the situation in which they get. Organizations that are more interested in transactional work do not reflect to the above characteristic. Take, for example, a leading health care provider in the northeast that we studied. It obviously did not want to create a symbiosis when it defined the role of the department head of its customer service department by flouting the concepts of leadership in a symbiosis. It was very clearly understood by this head and his subordinates that he was there to make sure that his employees were promptly at their desks when the clock struck the start time to handle problems from patients and providers. Further, that their timecards were correct, periodic reviews were done on time, and employees whose productivity fell below the set targets were issued written warnings. The department head knew and operated as if he was the boss and the controller of the department. On the other hand, the employees also well understood his posture and clearly knew that they were not there to devise new things or to think creatively about their work. Moreover, they also knew that he was not there to provide the leadership for creatively enhancing their productivity or innovatively advancing their performance to a higher level. The obvious outcome of this behavior was that the organization was really getting hurt because of the lack of an available structure that will allow symbiotic interaction among the employees enabling them to evolve leadership on their own from among their peers in the group. Moreover, their formal leader had not done anything to overcome this shortfall. The only opportunity that they had for the occurrence of this type of interaction came only in their own time. Our observation showed that the creativity would have occurred, succeeded by higher productivity, in this department if the employees did not have a close-supervising

manager, and the functions that he was performing were simply automated. This would have allowed the creation of an environment emulating symbiosis for the employees yielding a leader only when anyone of the employees needed to be led. In that case, it would have been the person being led that would have made the leader a leader through vesting his or her acceptance in the leader, rather than the leader imposing his authority on him or her. This is the formula for turning any group into an innovation organization for finding unique solutions to employees' specific problems. Symbiotic characteristic 2: catalytic interaction The big difference between work and creative output is the demand that they put on human functions for their execution. Creativity is not something like a product or service that can be got as output from employees, which can be counted to know how fast the worker is working, and whose quality can be assessed against set standards to know how well a worker is doing. A leader should know that innovation is not something that he could get from his employees. He can only develop an environment that would be conducive to the emanation of creativity from his employees and he can only hope that it will turn into innovation of use to the organization. It is for these reasons that innovation leadership has to be catalytic in nature ± at both psychological and operational levels. To be able to act only as catalyst at operational level, innovation leaders function very much like those whom they are supposed to lead ± keeping the same size and scope of responsibility and authority. As their routine, they are responsible for performing the same functions, as do those who may need their leadership. Moreover, these functions are performed under the same working conditions, as do their followers. The formal organizational structure allows the leaders to so operate that their followers can solve all their problems on their own with the leader as a catalyst only. Not just that, they make sure that at the psychological level the followers believe that they actually solved all their problems fully on their own ± without any help from their leader. The innovation leadership has to inculcate in them a feeling of empowerment that conveys to them that they solved their problems on their own without any help from their leaders. This will cause among the followers a sense of I can do

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confidence. This is truly subconscious leadership ± because it operates at a subconscious level. It is only through this subconscious approach that leaders will be able to seat the learning deep into the psyche of their followers ± never to be forgotten. It will sprout at the right time, long after its actual occurrence ± when probably it will be actually needed. This is how managers can become leaders in innovation organizations. It can be best operationalized in a symbiotic environment.

as frequently as they want, (c) from department to department, (d) from assignment to assignment, and (e) from manager to manager. It may also include (e) refusal to accept any manager that is assigned by the organization as their leader. It may also allow innovation workers the opportunity to (f) work independently, or (g) decide to have a titular leader only. The purpose of all this is to operationalize the concept of leadership as reversed followership.

Symbiotic characteristic 3: leadership as reversed followership Because of the futility of authority in getting innovation from workers, the leadership that works in innovation organizations is not the leadership that most managers have known from their training in b-schools. It is a sort of reversed followership ± the acceptance of innovation workers to be followers of the manager who wants to lead them. Because this leadership operates in the reverse, we call it the reversed followership (in the absence of any other suitable word to convey this concept). In this model, the leadership is given by the person who wants to be led to the person whose leadership he wants. The leader becomes a leader because the follower gives him his leadership. It is like the follower accepting to take someone as a leader, rather than an external force, such as the organization, assigning someone as his leader. This process results in a followership, which has its roots in the psychological force in the follower that made the leader a leader ± virtually a creation of the follower who really needed it. The psychological followership leader contributes mostly as an inactive psychological motivator. However, since most of innovation leadership is motivational, this type of leadership becomes as much as or more effective than the best form of organizational hierarchical leadership that rests in the structure. Innovation organizations can practice the followership leadership in a number of its diluted forms if the management finds it inoperable, or unacceptable to the culture of the organization, in its pure form as presented above. Reversed followership may be designed to exist in these organizations in one or more of the following forms that espouse the spirit of the concept. This may amount to (a) permitting innovation workers full freedom to move around the organization, (b)

In abstraction In operation, innovation workers can be trained to apply reversed followership in its abstract form. In that case, it can function in place of a real, physical leader ± maybe even without the presence or knowledge of the person whose leadership is being sought. It may function in parallel or as a supplement, or in lieu of the formal organization-assigned leader or manager. In this form, the effective leadership for innovation, in addition to coming from someone at a higher level in the hierarchy, can also come from an individual or from several others from all across different levels of the organizational hierarchy, as reversed followership. It does not take away any aspect of the formal, hierarchical leadership. Since it is pulled in by a follower from someone who may not even be aware that he is functioning as a leader, it can always work in conjunction with the hierarchical leadership. Nevertheless, the innovation objectives will be served best if it functions in isolation of the hierarchical leadership or, as a second choice, with the hierarchical leadership functionally dormant. The psychological followership The reversed followership leadership can also work at psychological level ± the follower modeling and learning from the behavior of someone without active intervention of this individual. In many organizational settings, it may start out as reversed followership leadership and after initial interaction may turn to the psychological level. This way, the follower eliminates the need of constant contact and dependence on the leader. A widespread use of reversed followership can facilitate the functioning of organizations without any formal leader ± moving towards a leaderless organization ± a true symbiosis. The psychological followership type leadership has a huge advantage over

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structured leadership, because it has built-in acceptance from the follower, may not need a physical contact, and its application knows no bounds. Because of the power of this type of leadership, the span of control in organizations can be made very wide, and it becomes possible for a supervisor to cover a large variety of skills. The learning achieved through followership is never unlearned. Another advantage of psychological followership is that there may never be a need to seek any further leadership to learn that same or similar skill or ability again or to achieve a fresh motivation to engage in the acts that have been received through the followership leadership. We have observed the existence of the reversed followership type of leadership in many organizations ± small and large, and innovation teams and production shops. Whereas it is working very well in some, in some other organizations, where insecure hierarchical leaders feel threatened, it only operates covertly. In these organizations, the groups so operate that their members deliberately would not let their hierarchical leaders know of the existence of such alternative relationships in their organization. Symbiotic characteristic 4: mutualism The leading force in symbiosis is mutualism ± the mutualism as it relates to symbiosis. It is because of this mutualism that both parties in this relationship have a great interest in the success of the relationship. The dyad, the leader and the follower, works hard to make it successful. Whereas, the follower has the inherent interest in the success of the relationship, the leader's interest is also present because the relationship, and he as a leader, exists only if it continues to achieve the success. Therefore, service to the follower becomes of topmost importance to the leader. The complexity of bringing an idea to full fruition through commercial innovation requires group effort. Organizations are set up by design to facilitate innovation activity in contemporary environment. Although, innovation is mostly initiated by individuals, it thrives in organizations based on the group coexistence and mutualism. To breed and buoy innovation, it is essential that the leaders operate innovation groups as symbioses. Therefore, these groups function best when success and reward, as well as failure and punishment, from their outcomes affect every

member of the group equal to the proportion of their contribution, and no one, not even the group leader, would take a disproportionate share. That is the fundamental modus operandi of a symbiosis. If it is so practiced in an organization and is so understood by the group members, the group's effort in bringing out innovation will increase. It is also very important for the group to know that the detrimental outcome from the group effort will harm everyone in the group, in the same manner, as does the success. This is how symbiosis germinates and grows innovation in organizations. The organization should practice certain principles espousing the stylebearing symbiotic characteristics. Thus, the task of innovation leaders becomes how to enhance mutualism in the group. The leader can bring this in the group through conscious initiatives to mold its system, operation, and culture. He or she develops management practices that achieve this.

Practical recommendations to mimic symbiosis Although creation of a symbiosis is more a function of the right environment and symbiotic practices than organizational structure and processes, however, following are some of the managerial policies that can help in the mimicking of these characteristics of a symbiosis: . First, organizational control of the group should be only administrative and facilitative. . Organizations can turn an innovation group into a symbiosis by allowing the members to be led by principles that may be established by the organization or be based on certain universal values, rather than rules and whims of their managers. . Third, the group task assignments and work distribution among the members should be willfully left obscure so that it allows them to perforate into areas that are not chartered, unplanned, or unexplored. This will allow the members' actions to be guided by the opportunities as they arrive. Moreover, members will pick assignments on which they may perform best. . The organization should not set clear, structured, substantial rewards for success, or punishment for failure. The

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symbiosis should be so designed that they, on their own, be able to set their rewards and punishments. Members of a symbiosis should feel empowered to pursue the opportunities as they see them fit. The organization should train them to have a sense of being in control and responsible for all that could happen around them. They should clearly understand that the group does not have a defined leader, mentor, or manager, and that the group members are in it together, at the same level. Political behavior corrupts symbiosis and plays against innovation ± its raison d'eÃtre. The organization should assure that the symbiosis does not become a political entity. It may periodically engage in a scrutiny to assure its continuance as a non-political entity.

In conclusion This paper argues that leading an innovation group is not like leading a work group such as the ones that are commonly structured into traditional organizational designs popular in the twentieth century. This style of leadership has evolved in these organizations and is suited for structured tasks in a hierarchy. It derives its mandate and authority from the organizational hierarchy. The use of this leadership style to lead innovation groups or organizations would be a great misapplication. The author has observed from his studies that successful innovation leaders achieve success by creating an environment of symbiosis in which they help their employees set mutually beneficial ambitions, and provide each one a forum to achieve them. This style of leadership is specifically adapted to suit the needs of the innovation group and its team member so that they operate with optimal creativity.

Some of the given findings from the studies of innovation organizations can be transplanted to the management of all organizations, because innovation has become an essential ingredient for success of all kinds of organizations, in particular the ones where a large number of employees are from Generations X and Y. These twentyfirst century employees do not have the behavioral characteristics of the traditional production shops of the last century. Nevertheless, they have the potential to make immense contribution to organizational innovation and growth through enhancements in productivity because of their knowledge and understanding of the technology. Leading them according to the traditional leadership principles will be ineffective. The right technique to lead them follows from the operations of symbiosis. This work has suggested symbiotic leadership practices and techniques that managers in all organizations can use to create a symbiosis for the productive deployment of any work group through human creativity, especially in groups assigned the task of organizational innovation. This way, the managers will give innovation workers an environment that allows the best emanation of their creativity.

References Balkin, D.B., Markman, G.D. and Gomez-Mejia, L.R. (2000), ``Is CEO pay in high-technology firms related to innovation?'', The Academy of Management Journal, Vol. 43, pp. 1118-29. Burrows, P. (2001), ``The radical: Carly Fiorina'a bold management experiment at HP'', Business Week, 19 February, pp. 70-80. Waldman, D.A., Ramirez, G.G., House, R.J. and Puranam, P. (2001), ``Does leadership matter? CEO leadership attributes and profitability under conditions of perceived environmental uncertainty'', The Academy of Management Journal, Vol. 44, pp. 134-43.

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Innovation and firm size: an empirical study for Spanish engineering consulting companies Daniel Arias-Aranda Beatriz Minguela-Rata and Antonio RodrõÂguez-Duarte

The authors Daniel Arias-Aranda, Universidad de Granada, Granada, Spain. Beatriz Minguela-Rata and Antonio RodrõÂguezDuarte, Universidad Complutense de Madrid, Madrid, Spain. Keywords Size, Innovation, Service systems, Organizational structure Abstract This paper studies the influence of firm size over degree of innovation in a service sector, specifically in engineering consulting and technology services in Spain. A multiple regression analysis was used to test hypothesis about firm size positive influence over degree of innovation in services. To avoid distortions in this main relationship, three control variables were introduced (degree of standardisation, degree of customisation, and number of firm's activities). Results seem to indicate that firm size, measured by turnover, is related positively with degree of innovation, independently of moderate influence of control variables. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft

European Journal of Innovation Management Volume 4 . Number 3 . 2001 . pp. 133±141 # MCB University Press . ISSN 1460-1060

Introduction Nowadays, firms continually develop new products, services and processes in order to enhance competitive positioning and confront the hostile and turbulent current global environment. In this context, innovation activities are becoming a crucial need and not an option anymore, as pointed out by many authors (see for instance, Clark and Fujimoto, 1991; Tushman and Nadler, 1986, among others). There are many studies that relate innovation to business size for manufacturing industries (Baldwin and Scott, 1987; Scherer and Ross, 1990; Acs and Audretsch, 1990, 1991, among others). However, few of them take into account the service sector as a source of innovations. Moreover, serviceinherent peculiarities, such as intangibility, impossibility of patenting and perishable nature (Fitzsimmons and Fitzsimmons, 1998) modify innovation patterns and management techniques for service industries. In this paper, we initially define the innovation concept in order to review the state of the art regarding the relationship between degree of innovation and firm size. Afterwards, we state the central hypothesis according to which there is a strong positive relationship between firm size and degree of innovation that is applicable to service industries. Finally, we broach the empirical analysis on a sample of Spanish engineering consulting firms in order to arrive to the final conclusions.

Innovation and firm size Innovation can be defined as the creative process through which new products, services or production processes are developed for a business unit (Tushman and Nadler, 1986). Innovation is usually associated to radical advances in products or productive configurations. However, most successful innovations are based either on the cumulative effect of incremental changes of products and production processes or on creative combinations of already existing techniques, ideas or methods. Hence, innovation activities are not exclusive of R&D areas. Innovation The authors would like to thank TECNIBERIA (AsociacioÂn de Empresas de IngenierõÂa, ConsultorõÂa y Servicios TecnoloÂgicos) for their help and support in questionnaires reception.

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activities also require other functional areas such as marketing and operations to interact (Lawrence and Lorsch, 1967; Song et al., 1997) in order to gather market needs to technological and operational capabilities (Tushman and Nadler, 1986). This innovation process is shaped by information-processing activities, which translate consumer needs and technological opportunities into valuable information for operations management (Clark and Fujimoto, 1989). Innovation literature justifies the existence of a positive effect of firm size on the innovation activity (see Cohen, 1995, for a broad literature review and Yin and Zuscovitch, 1998, for theoretical background). Capital market imperfections as a source of competitive advantages for big firms are set as one of the main arguments sustaining the relationship between firm size and innovation. According to this idea, firm size influences positively in R&D projects financing possibilities because of internal funds availability and stability for larger firms. Another argument pointed out by innovation literature refers to R&D returns, which are higher when innovators detain a higher sales volume to share innovation fix costs (especially for process innovations). It is also argued that R&D is more productive in larger firms as a result of trade-offs between R&D and other non-manufacturing areas such as marketing and financing, which are usually more efficient in larger firms. Finally, it is also suggested that large diversified firms are able to reach scope economies in a faster way while reducing innovation risks. Opposite arguments have also been suggested in innovation literature (see Scherer and Ross, 1990, pp. 652-3). One of them relates firm growth with decreasing efficiency in R&D activities because of loss of management control. Moreover, larger firms increase bureaucracy control, which hinders R&D activities. Also, when firms grow, incentives for individual scientists and entrepreneurs might weaken due to the diminishing opportunities which benefit from individual efforts in innovation. In many cases, hierarchies-established conservatism in larger firms contributes to obstruct such incentives. Even with those arguments, there is consensus that in most industries, R&D activities increase proportionally to firm size for single sector studies (Baldwin and Scott,

1987; Scherer and Ross, 1990). However, such consensus has been broadly understood in the way that firm size does not necessarily impel R&D activities (opposite to Schumpeter's (1934) ideas). Fisher and Temin (1973) argued that Schumpeter's hypothesis should be referred to the relationship between innovative output and firm size instead of R&D as innovative input. Acs and Audretsch (1990, 1991), Pavitt et al. (1987) and Scherer (1965) proved that small firms tend to achieve high innovation rates in relation to size. Also, R&D productivity (innovations per R&D unit) tends to decrease with firm size. Bound et al. (1984) analysed patenting activity arriving to similar conclusions: the ratio of patents per dollar spent in R&D in small firms (with less of a million dollar sales) is higher than the one for larger firms. Still, the idea that R&D productivity decreases with firm size is mainly predominant. According to this background, we can conclude that the three most reliable empirical frameworks relating innovation and firm size are the following: (1) R&D activity increases ± usually in a proportional way ± with firm size. (2) Innovations tend to increase ± less than proportionally ± with firm size. (3) R&D productivity tends to decrease with firm size. Even though Cohen and Klepper (1992) suggest that larger firms hold a substantial advantage when accomplishing R&D activities, they also point out two common characteristics that push firms to innovate. These are the appropiability conditions, which force firms to benefit from R&D activities by applying innovations in a firm's outputs, and limited growth conditions due to innovation investments. Firm size, for these authors, is not considered to have a significant influence in innovation by itself. Nevertheless, most of these studies do not formulate adequately the effect of R&D activities on firm size and growth. There is no common agreement on this topic. Also, the service sector is scarcely considered for these kind of studies. Therefore, in this study we intend to analyse the relationship between firm size and degree of innovation for service organisations. Such relationship is established in the following hypothesis:

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H1. Firm size influences firm's degree of innovation positively in service organisations.

Research methodology Engineering consulting firms in Spain Sector justification appears in most innovation studies in order to clarify possible effects of distortion for different industries. For this study, a service sector is analysed, particularly engineering consulting firms in Spain. Such choice is based on the five following assumptions that support the aims of this research: (1) This sector requires high-technology investments and civil responsibilities. Such circumstances force firms to continually innovate products as well as processes in order to remain competitive. (2) Customers require a high level of quality standards and innovations, as they can be easily informed of new product and processes in the global market through information technologies. (3) Engineering consulting firms hold an important technological and knowledge management component. They absorb new technical advances quickly, so they need to properly manage the new acquired knowledge. (4) These organisations deliver high addedvalue services by analysing, comparing and developing studies and projects, which simulate the final execution of new constructions. (5) This sector is especially significant from a macroeconomic point of view. However, it lacks studies about strategic and management issues. Sample description This study used a final sample of 71 firms over 127 questionnaires sent, which covers more than half of relevant existing firms, according to Spanish Ministry of Industry data for 1998 (Ministerio de Fomento, 1998). Tables I and II show a description of the sample by Activity group, Turnover and Workforce. Most sample firms are in the range of 300,000 and three million Euros turnover (60 per cent approx.) for the three activity groups, and 56 per cent of the firms in the sample are in the range of ten and 99 employees.

Size measures According to recent studies (Buesa and Molero, 1998; Cohen and Klepper, 1996; Scherer, 1991), firm size is measured through turnover and workforce. Hence, we will desegregate our main hypothesis in two subhypotheses: H1a. Firm size, measured through turnover influences service degree of innovation positively. H1b. Firm size, measure through workforce influences service degree of innovation positively. Innovation measures Degree of innovation can be measured focusing on both input and output points of view. In this case, this kind of measure does not seem valid, because of the differential aspects of service organisations. For this reason, an index was developed using four items based on the work of Berry et al. (1991), Bowen and Youngdhal (1998) and Sampson (1996). These items are concerned with the following four basic dimensions of service design and development process: (1) degree of innovation for the service process; (2) degree of innovation for service delivery; (3) importance of customer perception about the innovation process; and (4) the existence and importance of a new services design and development team. Cronbach's alpha for this index is 0.9331. Partial indicators were developed in order to know the firm positioning according to the innovation items. Such indicator combines the different items in order to measure the firms' trends. A global indicator was developed to measure innovation trends, taking into account that the indicator's rank should be limited to values from 1 to 5. So, it was designed as follows: Ebn ˆ j… j…

5‰…

Pb

Piˆa ‰j…5 biˆa

Pd

Piˆc d iˆc

Ain ÿ

Pd

Piˆc d

Ain †‡

Ain ÿ iˆc Ain †j‡ P Ain ÿ 5 biˆa Ain †j ‡ 1Š P Ain ÿ 5 biˆa Ain †j ‡ 1Š

being: Ebn the indicator. Ain the score obtained in question i of block n in the questionnaire. Rank [a,b] represents questions scoring towards one of the trends in each block.

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Table I Sample description by turnover (euros) and group of activity Civil Turnover <= C300.000 ± = C600.000 = C3.000.000 C600.001 ± = = =6.000.000 C3.000.001 ± C =6.000.000 >C Total = C300.000

Firms

Per cent

7 11 11 3 3 35

20.0 31.4 31.4 8.6 8.6 100

3 3 4 0 2 12

Table II Sample description by number of employees Number of employees <10 employees 10 ± 99 employees 100 employees

Firms

Per cent

21 40 10

29.6 56.3 14.1

Rank [c,d] represents questions scoring towards opposite extremes of rank [a,b] in each block. P P Hence, … diˆc Ain ÿ 5 biˆa Ain † represents the smallest reachable value, assuming that one firm scores the highest value (5) in all questions in one of the trends and the smallest (1) in all the questions of the opposite trend. P P On the other hand, …5 biˆa Ain ÿ diˆc Ain † represents the smallest reachable value for a firm positioned at one extreme, scoring the smallest (1) and the highest (5) for the opposite trends. Once the extremes and possible intermediate values are calculated, the indicator is transformed into a scale from 0 to 5 by adding to the value obtained, the smallest reachable value plus 1. The value obtained is finally divided by the highest reachable value adding the smallest value plus 1 in order make the scale positive. One unit is added in both sides of the fraction for the range to start in the value of 1. Finally, this value is multiplied by 5 to transform it to the 1 to 5 scale. Such indicator was also used for the control variables. Control variables Three control variables were included in the analysis on the basis that they could have a significant influence on the dependent variable (degree of innovation). Such variables are based on the following arguments: . Degree of standardisation could have a negative influence on new services, as new processes are designed mainly for reducing or even minimising task variability (Bowen and Schneider, 1985). Such reduction is

Group of activity Industrial Firms Per cent

.

.

136

25.0 25.0 33.3 0 16.7 100

Environmental Firms Per cent 7 7 8 2 0 24

29.2 29.2 33.3 8.3 0 100

achieved by fixing and pre-establishing the different ways every task is performed. Consequently, a trend towards workforce specialisation in order to increase efficiency is observed (Mills and Morris, 1992). Thus, the process increases standardisation, so new changes for products or services usually alter process uniformity (Hart, 1996). For this kind of standardised process, new services development possibilities decrease. In order to measure degree of standardisation, we designed 11 items concerning workforce empowerment, task variability, tasks procedures, etc. Cronbach's alpha for our standardisation indicator is 0.6844. Degree of customisation could be positively associated with the development of new services. Customisation involves a high degree of communication and interaction with the customer (Bolton and Drew, 1991; Collier, 1994, 1996). Service delivery should be flexible enough to satisfy the changing requirements of different customers (George, 1990; McCutcheon et al., 1994; Tersine and Harvey, 1998). Thus, innovation capabilities for new in-services and processes should be able to face and manage environment variability. We use six items to measure degree of customisation, with a Cronbach's alpha of 0.6240. Finally, the relationship between the number of firm's activities and degree of innovation is supported by statistical evidence in different studies (Argyres, 1996; Doi, 1985; MacDonald, 1985; Suzuki, 1993). However, there is no clear consensus in literature about such relationship. In this research we intend to analyse it including an indicator about the number of firm's activities. Table III shows all variables.

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Table III Variables Variables

Type

TURN: Turnover per year in millions of Euros NEMP: Number of employees INNV: Degree of innovation STND: Degree of standardisation CUST: Degree of customisation NACT: Number of firm's activities

Continuous Continuous Continuous [ranking from 1 to 5] Continuous [ranking from1 to 5] Continuous [ranking from 1 to 5] Continuous

Statistical analysis Descriptive statistics of the dependent and control variables are shown in the Table IV. Correlation's coefficient are shown in Table V. A multiple stepwise regression model is used in this research in order to test the hypotheses previously stated. The dependent variable was degree of innovation, while the regressor is the firm size measure. The statistical procedure is developed using initially only one predictor variable (firm size) then, control variables are added in order to test their influence. Furthermore, collinearity tests (both tolerance and variance inflation factor, VIF) are calculated to test the significance of the different variables. We used the statistical software program SPSS v. 9.0 for Windows.

Results Regarding hypothesis 1a, Table VI shows that TURN comes up in all models as a positive Table IV Means and standard deviations for dependent and control variables (n = 71) Variables

Mean

Standard deviation

Degree of innovation Degree of standardisation Degree of customisation Number of firm's activities

1,6984 2,3837 2,4011 6,4366

1,3507 1,4013 0,7264 2,5056

Table V Correlation's coefficient

CUST INNV TURN NACT NEMP

STND

CUST

INNV

TURN

NACT

ÿ0,381** ÿ0,459** 0,126 0,422** 0,291*

0,643** 0,374** 0,145 0,209

0,588** 0,132 0,305**

0,531** 0,653**

0,492**

Notes: **p  0,01; *p  0,05

and significant variable, which drives to consider hypothesis 1a as supported by the model. The model with TURN variable explains 33.6 per cent of the total variance for firms' innovation degree. Control variables improve the model's R2 in relation to the initial model in which degree of innovation is analysed through the TURN variable. However, these results have to be verified by means of a multicollinearity analysis. In Model 2, STND variable inclusion increases R 2 up to 62.3 per cent. STND variable coefficient is negative and significant. Tolerance and VIF values show a collinearity with no consequences (see Table VII for VIF values). Model 3 combines TURN and CUST variables. Due to correlation between these variables, multicollinearity appears and distorts coefficient values: 16.3 per cent of coefficient value for both variables is due to collinearity. That explains R2 decrease respect to the previous model. Model 4 combines TURN with NACT. NACT variable does not support the control hypothesis. However, VIF value (1,393) suggests those coefficients to be carefully interpreted. Model 5 incorporates NACT variable to Model 2. TURN and STND values coefficients decrease lightly even being significant. NACT coefficient is positive but not significant. Tolerance and VIF values suggest this coefficient to be strongly affected by multicollinearity. Model 6 follows a similar pattern. Therefore, hypothesis 1a and control hypotheses related to STND and CUST variables are supported. Control hypothesis of NACT variable is not supported, probably due to sector characteristics as all models have a high multicollinearity. When hypothesis 1b is analysed, in all models including the CUST variable, NEMP variable coefficient is not significant. It seems that stated relationships for control hypotheses distort such relationship for hypothesis 1b, due to small collinearity values. Consequently, it is not possible to assert whether this hypothesis is significantly contrasted. For the NACT variable, the previous pattern is inverted: for Models 4 and 6, NACT has negative sign being also significant, while in Model 11 NACT is

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Table VI Regression analysis (n = 71) Models Independent and control variables Turnover Degree of standardisation Degree of customisation Number of activities Standardised R2

1

2

3

4

0,694** (0,115)

0,775** (0,087) ÿ0,522** (0,071)

0,477** (0,103)

5

0,852** (0,132)

0,763** (0,104) ÿ0,529** (0,079)

ÿ0,136* (0,060) 0,373

0,0189 (0,052) 0,617

0,914** (0,163)

0,336

0,623

0,540

6

7

8

0,618** (0,117)

0,631** 0,646** (0,092) (0,103) ÿ0,493** ÿ0,391** (0,075) (0,084) 0,889** 0,527** 0,535** (0,158) (0,155) (0,158) ÿ0,116* ÿ0,00156 (0,050) (0,049) 0,568 0,674 0,669

Models Independent and control variables Number of employees Degree of standardisation Degree of customisation Number of activities Standardised R2

9

10

11

12

0,638** (0,239)

1,002** (0,201) ÿ0,577** (0,093)

0,373 (0,193)

13

14

0,663* (0,277)

0,816** (0,218) ÿ0,642** (0,097)

0,431 (0,221)

ÿ0,0132 (0,071) 0,067

0,119* (0,059) 0,429

1,125** (0,172)

0,080

0,404

0,427

15

16

0,692** 0,614* (0,191) (0,203) ÿ0,380** ÿ0,427** (0,093) (0,102) 1,130** 0,787** 0,735** (0,173) (0,176) (0,181) ÿ0,0312 0,00629 (0,056) (0,055) 0,421 0,534 0,536

Notes: **p  0.01; *p  0.05; Standard errors in parentheses

Table VII Tolerance and VIF values Models Independent and control variables Turnover Degree of standardisation Degree of customisation Number of activities

2 Tol. VIF

3 Tol. VIF

4 Tol. VIF

5 Tol. VIF

6 Tol. VIF

7 Tol. VIF

8 Tol. VIF

0,984 1,016 0,984 1,106

0,860 1,163

0,718 1,393

0,706 1,416 0,808 1,237

0,628 1,593

0,775 1,290 0,771 1,297 0,674 1,485

0,625 1,599 0,620 1,613 0,656 1,523 0,575 1,740

0,860 1,163 0,718 1,393

0,590 1,696

0,856 1,169 0,715 1,399

Models Independent and control variables Number of employees Degree of standardisation Degree of customisation Number of activities

10 Tol. VIF

11 Tol. VIF

12 Tol. VIF

13 Tol. VIF

14 Tol. VIF

15 Tol. VIF

16 Tol. VIF

0,915 1,093 0,915 1,093

0,956 1,046

0,758 1,319

0,750 1,334 0,812 1,231

0,739 1,354

0,795 1,258 0,711 1,407 0,743 1,346

0,704 1,420 0,593 1,686 0,696 1,436 0,631 1,585

0,956 1,046 0,758 1,319

138

0,673 1,486

0,954 1,048 0,756 1,322

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significant with positive sign. Models 10, 11 and 12 are characterised by a strong collinearity, so coefficients interpretation is not clear, even though Model 11 shows all coefficients to be significant with signs as expected in previous hypotheses. Finally, Models 13 to 16 show higher significant values than previous models. Signs for NEMP, STND and CUST follow similar patterns as the rest of the models. On the other hand, NACT signs vary in these models so no clear conclusions can be extracted. However, high degrees of collinearity, as shown in Table VII, prevent us from possible existing biases when interpreting these results. In summary, hypothesis 1a, and control hypotheses about STND and CUST variables are supported with these data. However, it cannot be asserted that hypothesis 1b and control hypothesis about NACT are tested (see Table VI).

Discussion Innovation patterns for service industries confirm the common trend according to which, degree of innovation is positively associated to firm size as pointed out by literature (Cohen, 1995). Some control variables support and even modulate such relationship. Service standardisation clearly affects in a negative way the degree of innovation, while customisation appears as one of the innovation-push factors. According to these findings, the customer plays a crucial role in innovation by developing new tradeoffs with different areas such as marketing, operations or R&D. This idea supports the assumption that such trade-offs are more efficient in larger firms, as those are able to acquire or develop technologies that facilitate customer contact. However, the number of different service activities does not seem relevant as well as the number of employees. So, it does not seem that diversified firms reach scope economies while reducing innovation risks in a significant way. Paradoxically, it seems that engineering consulting services tend to standardise most service delivery system activities while offering different service-products. This fact would explain why the number of activities does not affect innovation. General use technologies allow different service delivery while

maintaining a high degree of tasks standardisation. It seems that service innovation is tied to a certain extent to technology adoption. Once process technology is implemented, innovation efforts tend to be driven towards process optimisation. Hence, innovations attempts designed to improve customer satisfaction while affecting process optimisation in a negative way will be less effective and will have fewer possibilities to be implemented. So, smaller firms with a lower component of process technology standardisation detain a wider range of innovation possibilities, as they are not strongly tied to pre-established operations procedures due to standardisation efforts. On the other hand, firms size measured as number of employees is not a good indicator for innovation. Again, as supported by literature (Scherer and Ross, 1990), more people does not necessarily mean more innovative patterns. Organisational structures determine the incentives for innovation while establishing the environmental conditions to either foster or reduce innovation. Usually, bureaucracy grows with firm size concentrating most innovation efforts in the R&D area. On the other hand, smaller firms tend to design organisational structures towards an ad hoc model, so more people can participate in innovation efforts. Both are general trends, but according to data, no clear conclusions can be extracted for engineering consulting service at this point. Although results for this research confirm literature general patterns, an important degree of caution must be previously considered. Variables multicollinearity appears as the most important limitation of the research. Relationships among control variables strongly affect models validity. Only Model 2 seems not to be significantly affected, so conclusions must be mainly based on such model. Collinearity can be due in part to the way variables have been measured as respondents were asked about perceptions of innovation in the firm. In this case, conclusions may not be applicable to other service industries different from consulting engineering firms.

Conclusions This paper studies the influence of firm size over degree of innovation in the services

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sector, specifically in engineering consulting and technology services in Spain. Innovation patterns for service industries confirm the common trend according to which, degree of innovation is positively associated to firm size, and some control variables support and even modulate such relationship. Although results for this research confirm literature general patterns, an important degree of caution must be previously considered. Variables multicollinearity appears as the most important limitation of the research. Relationships among control variables strongly affect models validity. For future research, other significant control variables should be identified in order to develop new models that clarify innovation and firm size relationship. Moreover, innovation patterns for other service sectors different from engineering consulting services are to be analysed.

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Introduction

Internet shopping adoption by Greek consumers Adam P. Vrechopoulos George J. Siomkos and Georgios I. Doukidis The authors Adam P. Vrechopoulos is a PhD candidate in the Department of Information Systems and Computing, Brunel University, Uxbridge, UK. George J. Siomkos is Professor of Marketing and ViceChairman at the Department of Business Administration of the University of Macedonia, Thessaloniki, Greece. Georgios I. Doukidis is Professor of Information Systems at the Athens University of Economics and Business (AUEB) and Visiting Professor at Brunel University, Uxbridge, UK. Keywords Internet, Shopping, Innovation, Electronic retailing, Consumer behaviour, Greece Abstract This paper aims at developing profiles of consumers who have already conducted shopping through the Internet and of those who are interested to adopt Internet shopping as an innovation. Based on the theories and processes of consumer adoption decision and diffusion of innovations, the study measures demographic and behavioural characteristics, as well as perceptions and preferences of Greek consumers towards distance shopping in general and Internet retailing in particular. The survey conducted offers insightful preliminary empirical data based on which detailed profiles of Internet shoppers (``innovators'') and interested-to-adopt Internet shopping (``early adopters'') are developed. The empirical research findings of this study provide relevant managerial implications while setting the foundation for future research directions in this area. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft European Journal of Innovation Management Volume 4 . Number 3 . 2001 . pp. 142±152 # MCB University Press . ISSN 1460-1060

Retailers use new and innovative technologies to gain sustainable competitive advantages (Ghosh, 1994; Lewison, 1994; Mason et al., 1991). Understanding consumers and the consumption process brings a number of benefits, e.g. the ability to assist managers in their decision making, availability of a knowledge base from which marketing researchers can analyze consumers, and assistance to the average consumer in making better purchase decisions, among others (Mowen and Minor, 1998). Consumer research is, therefore, critical to the success of any market. However, according to Lohse and Spiller (1998, p. 81) ``there are large differences between a physical store and its electronic counterpart'' where customers are provided with a completely new and innovative shopping experience. Kannan et al. (1998) state that the Internet is revolutionizing the ways in which products and services are marketed to customers. The Web constitutes an innovative mean of interacting with customers (Palmer and Grifith, 1998), offering them an innovative shopping experience (Wang et al., 1998). It is apparent that online purchases constitute a fundamental change for customers and a key task for electronic commerce is to find out who the actual and potential customers are (Turban et al., 1999). However, the phenomenal growth of the Internet in the last few years may be spawning a new subculture ± that of Web users (Granitz and Ward, 1996; O'Connor and Galvin, 1997). Although, as Currie (1999) supports, one of the central themes of Internet commerce relates to customer research and focus, consumer behaviour in online retailing has not yet been subject of many research projects (Hoffman and Novak 1997). As a result, little is known about the demographics of online customers and even less about the factors influencing their decision to buy (Sieber, 1999). Nevertheless, some initial empirical studies focusing on consumer behaviour on Internet retailing, provide valuable research insights. According to the findings of a survey conducted by Donthu and Garcia (1999), Internet shoppers are more innovative than Internet non-shoppers. Furthermore, other researchers (Vrechopoulos et al., 1999; Scribbins, 1999) found that Web-consumers are well informed

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and very demanding regarding services offered to them and seek high quality information and treatment. Electronic shopping is in the very early stages of development and little is known about consumer attitudes toward adopting, or not adopting this new and innovative type of shopping (Miller, 1995). Eastlick and Lotz (1999) suggest that the strongest predictors of potential adoption of electronic shopping as an innovation are, among others, the perceived relative advantages it offers over other shopping formats. As in Greece, the percentage of Internet shoppers is very low, an attempt was made in this paper to identify the main differences between Internet shoppers and interested-toadopt Internet shopping. The survey undertaken, leads to the market segmentation in two major customer groups, identifying the characteristics of the most attractive customer segments for electronic commerce. The paper then discusses the differences and similarities among these groups against Internet shopping, and identifies the critical success factors that a virtual retailer should consider in order to satisfy each of these groups effectively. Managerial implications, along with future research directions, are provided at the end.

The processes of consumer adoption and diffusion of innovation When a new product or an innovative technology is introduced in the market, consumers learn about it, decide whether to buy it and whether to repeat purchasing it in the future. In other words, they decide whether to adopt it or not. Adoption implies that consumers have accepted the (product or technology) innovation and use it on a regular basis. Innovations are diffused in the market as individual consumers make their decisions to adopt them, at different time intervals. As a result of this aggregation, a normal distribution develops which represents the diffusion process (bottom part of Figure 1). The consumers in a market adopt the same innovation at different times. Based on the time of adoption, typically five categories of consumers can be distinguished (Gatignon and Robertson, 1991; Ram and Jung, 1994; Kyungae and Dyer, 1995; Schiffman and Kanuk, 2000). Consumers belonging to the same category have some common characteristics. Therefore,

marketers develop specific strategies to target each consumer category separately (Brown, 1992; Rogers, 1983). Innovators are those consumers who first adopt the new product or the innovation. They are few in number and are eager to try new ideas and products, are well-educated and can afford any financial risk involved in adoption. They are very well informed about new products by other innovators as well as by impersonal and scientific sources of information. Early adopters are more socially integrated in their local communities than innovators, and are more likely to be opinion leaders. They are typically younger, more educated, belong to a higher social class, and read much more specialized magazines about new products and innovations than the average consumer. They frequently get in contact with salespeople of new products and play a crucial role as opinion leaders who influence other consumers. Early majority consumers adopt the innovation right before the average consumer in the market does. These consumers think a lot before they decide to adopt an innovation. Their characteristics include: larger age, higher educational level, and higher socioeconomic status than the average member of society. They rely heavily on opinion leaders (i.e. early adopters). Late majority consumers delay adoption of the innovation mainly because they are distrustful about new ideas. They decide to adopt after they feel a strong social pressure. They mostly rely on opinions expressed informally by people they know well. They watch electronic media less frequently than others. When laggards decide the adoption of a ``new'' product, or an innovation in general, the product is most likely close to its withdrawal from the market or its substitution from another new product. Laggards are especially distrustful about innovations and are socially isolated. They are older consumers of lower socio-economic levels. Laggards constitute a consumer category of no interest to marketers.

Methodology and sample The study was conducted as part of the ACTIVE and the HERMES projects[1]. The sample of the survey comprised of 500 respondents who were customers of a large

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Figure 1 The consumer adoption decision and diffusion of innovation processes

supermarket chain operating in the greater area of Athens. The retail chain currently operates 87 stores, its personnel reaches 5,000 employees, its sales area covers 105,000 square meters, and the sales turnover exceeds 200 billion GRD. The selection of the sample participants was conducted based on random sampling procedures from nine different areas of Athens. The basic criteria for the participation in the survey, were age range 1845 years and use or ownership of a PC. The questionnaire was pretested for identification of possible problems in clarity, comprehensiveness, accuracy and functionality, before it was given out to the sample. The fieldwork lasted for three weeks. The sample was more well-balanced in terms of some basic demographic characteristics (i.e. sex, age, marital status) of the respondents, and more skewed (toward the higher levels) in terms of family income and education. This last observation is explainable by the ``PC use/ownership'' criterion for participation in the survey.

Analysis of results regarding Internet adoption and use Demographic characteristics Analyzing the demographic characteristics of participants, three separate profiles of Internet shoppers, interested and not interested to do shopping through the Internet, could be developed (Table I). Internet shoppers Consumers who have already used the Internet for shopping purposes are mainly young males and most of them belong to the highest education level. In addition, half of them are single and most of them earn more than the average family income. Finally, most of them are either private employees, scientists or freelancers. Thus, it is possible to cluster Greek Internet shoppers in to a specific customer segment possessing a series of common characteristics. Interested to adopt Internet shopping These are consumers who have decided to adopt Internet shopping in the near future.

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Table I Demographic characteristics of the samplea Interested to adopt Not interested to Internet shopping adopt Internet (n = 175) shopping (n = 242)

Variable

Level

Internet shoppers (n = 29)

Sex

Male Female

58.6 41.4

52.6 47.4

46.3 53.7

Age

18-24 25-34 35-44

17.2 41.4 41.4

23.4 44.0 32.6

20.7 38.0 41.3

Education

Elementary School High School Technical College University Master

17.2 10.3 48.3 24.1

21.7 17.1 52.6 8.6

0.4 21.1 23.1 47.5 7.9

Average family income (in GRD)

Up to 300,000 300,001-500,000 500,001-1,000,000 1,000,001-2,000,000 More than 2,000,000 Don't know/No answer

10.3 20.7 31.0 17.2 3.4

9.7 32.0 42.3 5.1 6.9 4.0

11.6 38.4 33.1 5.8 2.5 8.7

Family status

Single Married Divorced

55.2 44.8

45.7 52.0 2.3

45.0 54.1 0.8

Occupation of head of household

Company holder Executive Manager Private Employee Trade Public Servant Scientist Freelancer Laborer Pensioner Military Other

3.4 3.4 27.6 3.4 10.3 27.6 17.2

4.6 4.0 38.9 6.9 11.4 14.9 9.7 0.6 1.7 2.9 4.6

2.9 3.3 36.0 4.5 16.9 13.6 11.2

6.9

5.8 0.8 5.0

Note: aNumbers refer to percentages (%)

Half of them are male, married and hold university degrees. Approximately 40 per cent of them are private employees, with about average monthly incomes. Not interested to adopt Internet shopping Almost half of the sample belongs to this category (242 participants). Close to 54 per cent of them are female, while almost 80 per cent are between the ages of 25 and 44 years old. Almost half of them possess a university degree, while their monthly income fluctuates between the average and the lower level. Finally, half of them are married and more than one-third are private employees. Respondents interested to adopt Internet shopping in the future, differ slightly from

current Internet shoppers as far as their demographics are concerned. More specifically, Internet shoppers are slightly more educated than future Internet shoppers. The Internet shoppers group is comprised of more scientists and free-lancers. This can be easily explained by the fact that universities' research centers and consulting businesses were the first organizations that adopted the Internet. Behavioural characteristics As Table II indicates, ``distance shopping'' (e.g. through phone, TV, Internet, etc.) has become one of the alternative shopping modes for both of the aforementioned groups,

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Table II Behavioural characteristics of Internet shoppers vs. interested to adopt Internet shoppinga Interested to adopt Internet Internet Shoppers shopping (n = 175) (Already buy; n = 29) Have used for purchasing Through advertising material products and store printed catalogues Phone order Through TV (Telemarketing) Through Internet From newspapers and magazines advertising material Else How often conduct such type of shopping

14.3

17.2 10.3 100 6.9

9.1 9.1

3.4

2.9

Through Through other Internet ways 3.4 6.9 6.9 0.0 10.3 6.9 48.3 13.8 27.6 13.8 3.4 58.6

Very-very often Very often Often Sometimes Few times ± once Never ± Don't know ± Don't answer Most important reasons to buy products from home

10.3

24-hour shopping Save time Avoid crowding in stores Better briefing about products More time for product evaluation and selection Avoid parking problems Is the only way to buy some products Else

7.4

Through Internet 0.0 0.0 0.0 0.0 0.0 100

Through other ways 1.1 2.3 5.1 9.1 8.0 74.4

44.8 75.9 20.7 34.5

13.1 17.1 8.6 4.0

20.7

6.3

3.4 27.6

4.0 12.0

3.4

1.7

a

Note: Numbers refer to percentages (%)

with wider acceptance by Internet shoppers. However, it is also evident that distance shopping is in its infancy at the moment. The 24-hour shopping capability along with the ``save of time'' opportunity, constitute the main reasons for which both groups prefer buying products remotely. It should be noted, however, that because the Internet is the main distance shopping medium which offers a 24-hour basis order capability (unlike other media like TV, phone, etc., which do not usually offer a 24-hour order processing), it is expected that it will be the main distance shopping medium in the future. Perceptions and preferences Table III presents the perceptions and preferences regarding Internet shopping between current and future Internet shoppers. It is indicated that hardware and

software, CD or disks, books and magazines, travel tickets and electronics, are those products that both groups already buy or would buy remotely. On the contrary, food products, clothes, furniture and cosmetics are products that both groups would primarily buy only in store. Furthermore, cash on delivery was evaluated as the most preferred shopping method for both groups, while low prices constitute one of the most valuable services that an Internet store can offer. In addition, Internet shoppers evaluated the ``high quality service/quick delivery'' offered by the Internet store as its most valuable service. This particular finding relates to previously presented results (Table I), about Internet shoppers evaluating the ``save time'' dimension as the most important reason to buy products from home. Correspondingly, future Internet shoppers evaluated the ``wide

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Table III Perceptions and preferences regarding distance and Internet shoppinga

Products that already buy or would buy from home Hardware and software or job CD or Disks Books and magazines Travel tickets Electronics Clothes Furniture Home equipment Cosmetics Sport Food and drinks Else Alternative payment methods preferred

Internet shoppers (Already buy; n = 29)

Interested to adopt Internet shopping (n = 175)

Already buy 58.6 41.4 41.4 13.8 13.8 3.4 3.4 3.4 3.4 3.4 3.4 3.4

Already buy 17,2 55,2 62,1 27,6 37,9 37,9 6,9 37,9 24,1 20,7 6,9 0,0

Only in store 20.7 6.9 13.8 13.8 34.5 86.2 55.2 44.8 48.3 31.0 55.2 3.4

Would buy 51,7 58,6 55,2 62,1 41,4 20,7 24,1 34,5 37,9 41,4 51,7 10,3

20.7

7.4

34.5 20.7 41.4 13.8

0.6 4.0 17.7 3.4

Branded products Wide product variety Low prices High quality service-quick delivery 24 hours service Home/Job delivery Safe payments After sales interest for the customer Else Don't know/No answer

20.7 37.9 51.7 58.6

32.6 56.0 48.6 36.0

37.9 27.6 24.1 10.3

43.4 40.0 22.3 6.9

0.0 0.0

1.1 0.6

Low prices Sales promotions Participation in contests Discount in the total amount of purchases Else Don't know/No answer

51.7 55.2 6.9 34.5

70.3 69.7 8.6 33.7

17.2 3.4

6.9 2.3

Would buy from a virtual Yes store if prices were higher No Don't know/No answer

24.1 69.0 6.9

22.3 65.7 12.0

Tolerable percentage of highest prices

0-10% 10-20% 20-30% Don't know/No answer

20.7 3.4 0.0 75.9

18.3 2.9 0.6 78.3

There should be a minimum purchase limit for free home delivery

Yes No Don't know/No answer

65.5 27.6 6.9

74.3 21.7 4.0

Most valuable services that an Internet store can offer

Incentives for buying through Internet

Credit card through phone or fax Credit card through Internet Credit card on delivery Cash on delivery Through bank account debit

Would buy 6.9 58.6 31.0 37.9 24.1 0.0 0.0 13.8 10.3 10.3 10.3 0.0

Only in store 31,0 10,3 17,2 27,6 34,5 65,5 89,7 41,4 55,2 44,8 65,5 0,0

(continued)

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Table III Internet shoppers (Already buy; n = 29) Minimum tolerable purchase limit for free home delivery

Up to 5,000 5,001-10,000 10,001-15,000 15,001-20,000 20,001-30,000 30,001-50,000 50,001+ Don't know/No answer

10.3 24.1 0.0 10.3 10.3 3.4 3.4 37.9

Interested to adopt Internet shopping (n = 175) 12.0 15.4 7.4 20.6 10.9 4.0 1.7 28.0

Note: aNumbers refer to percentages (%)

product variety'' offered by the Internet store as the most valuable service to them. Furthermore, sales promotions and low prices were found to be the most effective incentives for both groups for buying through the Internet. In addition, most of both groups' respondents (65 per cent-70 per cent) stated that they would not buy from a virtual store if prices were higher, although both groups agreed with the existence of a minimum purchase limit for free home delivery. Based on the discussion thus far, it can be concluded that Internet shoppers are ``innovators'' and interested±to±adopt Internet shopping are ``early adopters'', according to the typology of consumers in the diffusion of innovation process (Figure 1). This observation is especially justifiable, based on all demographic and certain behavioural characteristics and perceptions presented in Tables I, II and III. Evaluation of virtual retail store characteristics Internet shoppers and future adopters also evaluated Internet shopping on 16 dimensions, using a 1-5 scale (1: not important at all, to 5: very important). Figure 2 presents the means of the two groups on all 16 dimensions. The means were plotted on a snake-plot and t-tests were run in order to identify statistically significant differences between each pair of means (Lehmann, 1989). Results indicated that the most significant differences (significance level =0.005) are in the evaluation of the characteristics ``sense of being in a store'', ``recommendations about products'' and ``entertainment'', with Internet shoppers systematically assigning lower evaluations on them. Other statistically significant

differences (=0.01) identified, were the evaluations of the ``on-screen projection of shopping list'', and ``immediate help on exploring the store'' characteristics. Less significant differences had to do with the evaluation of the following dimensions: ``product image on the screen'', ``video projection of products'', and ``personal support during shopping'' at =0.025; ``direct cost calculation of total purchases'', and ``recommendations about products through e-mail'', at =0.05. For all these statistically significant differences, future adopters had higher evaluations than Internet users. The only exception had to do with the ``quality comparison among alternative products'' (at =0.025). Finally, the remaining five dimensions gave differences which were not statistically significant. It should be noted that both groups rated clearly high the following two characteristics of an Internet retail store: (1) Information and price comparisons among alternative products (i.e. information about product prices, costs, product characteristics, images on screen, product comparisons using alternative factors, etc.), which facilitate consumer product comparisons, evaluations and final decisions and choices. (2) Quick access of the store's Web site. This dimension was evaluated with exactly the same high positive score (i.e. 4,5) from both groups. Above average evaluations are given by both groups regarding support and help on exploring the store, through a personalized manner. These observations refer to the evaluation of characteristics of the virtual

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Figure 2 Evaluation of virtual retail store characteristics by Internet shoppers and interested to adopt Internet shopping

store's layout and design along with the supportive mechanisms provided. Finally, Internet shoppers who already have the actual experience, rate the ``sense of being in a store'' dimension below average, while future adopters perceive store atmosphere as an important element of the Internet store. This potentially means that the store atmosphere constitutes a store selection criterion or at least a very important attribute possessed by the Internet store, for those customers that are interested to adopt Internet shopping in the future. Overall, for the majority of the relevant dimensions, the results, interestingly enough, indicate that future adopters, who do not have the experience with Internet shopping yet, evaluated almost all dimensions with higher scores than current Internet shoppers.

Profiling innovators and early adopters: managerial implications Summarizing the results from the preceding analysis, profiles for the two groups under study, can be developed (Table IV). In categories where multiple levels of characteristics are presented, they appear in order of frequency of responses. The presentation format of the table is such that allows quick reference by marketing managers to special characteristics of each group. For example, demographic and behavioural characteristics of consumers interested to adopt Internet shopping, help managers develop promotion strategies for targeting them, as well as using them, at a later stage ± after their adoption of the innovation ± as opinion leaders who will persuade other

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Table IV The profiles of Internet shoppers (``innovators'') and interested-to-adopt Internet shopping (``early adopters'') Characteristics

Internet shoppers

Interested to adopt Internet shopping

Sex Age Education

Mostly male 25-44 University graduates and postgraduate studies 300,000 ± 2,000,000 Single Scientists; private employees; freelancers Internet; phone orders (sometimes; few times) To save time; 24-hour shopping; better briefing about products Hardware and software; CD or disks; books and magazines; travel tickets; electronics

Male and female 18-44 University graduates

Avg. monthly HH income (GRD) Family status Occupation To purchase products, they use (how often) Reasons for buying products from home What products buy from home/job

Buy only in store Preferred payment method Most valuable services offered by Internet store

300,000 ± 1,000,000 Married Private employees; scientists; public servants Advertising material and store catalogues; phone orders; telemarketing Save time; 24-hour shopping; the only way to buy some products Already buy: books and magazines; CD or disks; electronics; clothes; home equipment; travel tickets; cosmetics; sport items Clothes; furniture; cosmetics Furniture; clothes; cosmetics Cash on delivery; credit card through Cash on delivery Internet High quality service ± quick delivery; Wide product variety; low prices; low prices; 24-hour service; wide 24-hour service; home/job delivery product variety Sales promotion; low prices; discount Low prices; sales promotions; discount in total amount of purchases in total amount of purchases No No

Incentives for buying through Internet Would buy from virtual store if prices were higher % tolerable higher prices 0-10% Believe should be a min. purchase Yes limit for free home delivery Min. tolerable purchase limit for Up to 10,000 GRD free home delivery

consumers (i.e. early majority) to also adopt. In addition, information on perceptions and preferences regarding Internet shopping, contribute toward the design of the total product offering, e.g. characteristics of services offered, payment, purchase limits, presentation of products, information provided, and so on. Combining results presented in Table IV and Figure 2, several managerial implications and critical success factors for business effectiveness over the Internet are drawn: . Virtual retailers should offer personalized shopping environments according to their customers' specific needs and wishes. This need is clearly documented by the observation that future Internet shoppers evaluate the dimension ``sense of being in a store'' as very important, while Internet shoppers do not. Technology enabled, it is apparent that the application and

0-10% Yes Up to 20,000 GRD

.

150

provision of a one-to-one instead of a one-to-many shopping experience constitutes a critical success factor. To that end, consumer surveys are strongly encouraged in order to capture consumer requirements and incorporate them into the design phase of the virtual store. Another critical success factor for virtual retailing is the provision of alternative payment methods. The fact that both current and future Internet shoppers rate the ``cash on delivery'' as the most desired payment method (probably for security reasons or due to the fact that they do not possess a credit card), implies that they probably use this as a store selection and choice criterion. Therefore, the provision of this alternative payment method is strongly recommended for virtual retailers. Similarly, all those identified criteria that customers use to select an online store on

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.

.

the Web, should be systematically and closely monitored by virtual retailers through consumer surveys. Product information, price comparison among alternative products and quick access to the store's Web site constitute three very crucial elements that every virtual store's management should consider and offer to its customers, as all these attributes were evaluated as very important from both current and future Internet shoppers. The prices of the virtual retail store must not be higher than those of the physical stores, as both current and future Internet shoppers stated that they would not buy from a virtual store in case prices were higher, regardless of the free delivery service offered to them.

Several alternative types of research are suggested as future research extensions and perspectives of this work. Exploratory, descriptive and causal types of research, tailored to the peculiarities of each market, would undoubtedly accelerate Internet adoption as a shopping medium. However, there are many research directions that should be followed towards achieving competitive advantages through the Web. Some indicative research directions refer to: . Strategic business decisions (i.e. examination of alternative payment methods, product prices, minimum order limits for free-home delivery, etc., in order to identify ultimate combination for the product and store offer). . Shopping interface design (i.e. design of personalized shopping interfaces). For example, a causal type of research measuring the effects of different types of store layout on consumer buying behaviour could provide useful insights for the design and development of effective virtual retail stores and corresponding competitive advantages. However, one could not neglect the fact that customer needs, wishes and behaviours towards Internet shopping, strongly differ among different countries (e.g. Greece vs USA) and different business sectors (e.g. retailing, tourism, banking). Therefore, the limitations of this study direct researchers toward replicating the present study to other geographical markets and business sectors (e.g. the grocery sector).

Note 1 Active project-EP 27046 (1999), ESPRIT Programme (Framework IV), Commission of the European Union. HERMES project is financed by the Greek Secretary of Research and Technology (GSRT).

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1. Introduction

Innovation's dynamics in mobile phone services in France Abdelillah Hamdouch and Esther Samuelides

The authors Abdelillah Hamdouch is Associate Professor at the University of Lille, Lille, France (I) and Researcher in CLERSE (Lille I) and CRIFES-MATISSE (University of Paris I - PantheÂon Sorbonne), Paris, France. Esther Samuelides is Lecturer and Researcher in CRIFESMATISSE (University of Paris I - PantheÂon Sorbonne), Paris, France. Keywords Innovation, Service industries, France, Telecommunications, Communications technology Abstract This paper follows recent research about the importance, the variety and the development of innovation in the service industries. We study the innovations which have appeared in the fast growing activity of mobile telecommunication services in France. These innovations have essentially been commercial, affecting tariffs, marketing formulas and the service-content, including the relationship to customers. Besides, carriers also reconfigured their organization in developing new working tools and innovative partnerships. The emergence and the diffusion of these innovations reveal a systemic and dynamic competitive process. The innovations' path appears specific to each carrier, although the imitation/innovation logic shapes the competition dynamics which prevail within similar service industries. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft

European Journal of Innovation Management Volume 4 . Number 3 . 2001 . pp. 153±162 # MCB University Press . ISSN 1460-1060

What characterizes the innovations developed by companies in the service industries? Many works have recently been published on this topic. The major results are the following: . Innovations in services concern both the introduction of new services (proposed to firms or to individuals) and the reconfiguration or improvement of existing services (Sundbo, 1993; Miles, 1994; Ruyssen, 1988; (Djellal, 1998; Callon, 1999); . Innovations in services are not only the effects of technological innovations in industries, as suggested in Teece (1992). Although such links of causality are evident; for instance, with the introduction of automatic desks in banks or new medical tools in surgery, etc. (Greenan, 1996; Tannery, 1999), the inverse dependency appears when innovations in services ± for instance, in banks and telecommunications services ± transform the industries that use them (Gadrey et al., 1995; Bancel-Charensol, 1999). . The conception and development processes generating service innovations are less formalized than for technological innovations: they are not always developed within companies' R&D facilities and are based on organizational and commercial skills rather than scientific knowledge (Callon et al., 1997; FrancËois, 1998). . Innovations in service industries are as prone to affect the customer/supplier relationship as they are to transform the service (Eiglier and Langeard, 1987; Bressand and NicolaõÈdis, 1988; Gadrey and Gallouj, 1992; Tannery, 1999). In this paper, we confront these results to the particular case of innovations in French mobile phone services since 1987. The three French mobile carriers: Itineris (or France TeÂleÂcom Mobiles), SFR and Bouygues Telecom, have introduced indeed numerous commercial and organizational innovations. We actually distinguish commercial and organizational fields. Doing this, we adopt a different perspective from MeÂnard (MeÂnard, 1995), dealing with organizational changes, or even Gallouj (Gallouj, 1998) describing the innovations' specificity in service industries. These authors do not recognize commercial changes as a specific innovative

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category and, consequently, do not precise the links between organizational and commercial evolutions. We find it relevant to distinguish the service's characteristics (commercial field) and the more complex structure's mechanisms (organizational field). Whereas organization covers resources allocation and coordination mechanisms (Chandler, 1992), commercial trends directly affect the service's and the carrier's image. With these different categories of organizational and commercial innovations, we establish a link between the service content and the company's structure. We examine the following topics: Are commercial innovations easier to develop? Are they more frequent than organizational innovations? What are the connections between commercial innovations and organizational evolutions, i.e. can a company develop innovative services or products without changing its structure? The paper is organized as follows. First, historical perspective is briefly established (section 2). Then, upon examination of the evolutions introduced in mobile phone services in France (section 3), we show how commercial innovations have diffused in the whole sector (section 4) and explain the role of organizational innovations in competition (section 5). In section 6, we identify the interdependencies between the various types of service innovations. Finally, the last section summarizes the main results of the paper and outlines some further likely evolutions in this kind of service sector.

2. Historical perspective In this section, we analyze when and why mobile carriers began to introduce service innovations. Mobile phone services are marketed in France since 1987 for two reasons: (1) new transmission possibilities provided by major technological innovations enabled signals transmission in a situation of mobility, such as digitalization, numerical compression and packet switching; (2) the deregulation process of the European telecommunications industry accelerated the market's liberalization. These technological and legal evolutions forced France TeÂleÂcom ± the historical

monopoly ± to expand its available services and allowed companies to access an already booming market. From 1987, up to the arrival of the third player, Bouygues Telecom, competition between the two carriers France TeÂleÂcom Mobiles and SFR focused on the development of infrastructures to cover most quickly the population and the territory in order to entice customers (primarily professional at the time). The cumulating of subscriptions induces lower prices for new customers. Indeed, these evolutions were determined by the nature of competition in network industries, which is induced by the Increasing Returns Adoption's logic (Arthur, 1989), a combination of scale economies, network effects (Katz and Shapiro, 1985) and a learning curve phenomena. The wider the network will be, the more the costs will fall and, consequently, the network will be all the more enticing for new customers. Thus, carriers will increase their network's value and so on . . . shaping a virtuous cycle. Consequently the carriers' first objectives were in 1987, to expand their network's coverage. Besides, both companies tried to accelerate the conquest of new customers through pricing policies which were more and more differentiated (according to timing and call volume) but essentially not innovating. Bouygues Telecom's arrival in May 1996, has radically changed the nature of competition. The latter chose to target a still virgin market: the massmarket. Indeed, the incumbents had preempted the professional market which seemed the most profitable. To mark its differentiation, Bouygues Telecom resorted to a technological innovation (the digital sound) and defined an innovative marketing policy specifically adapted to the mass-market. Meanwhile, France TeÂleÂcom and SFR, which were being progressively aware of the massmarket's potential, had radically reoriented their strategy. The competition became more intensive; first, through tariffs, then through the telecommunications services' diversification. The more numerous were mobile phone carriers and the wider was their customer base, the more they introduced innovations in services.

3. Innovations development In this section, we study two main innovations' types: organizational and

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commercial. To increase their differentiation, carriers were urged to innovate and significant evolutions took place in the service's characteristics and in the carriers' structure. Table I, hereafter, illustrates this phenomena by giving a sample of the major innovations introduced in the French carriers' supply and organization. In the table, organizational and commercial innovations are set relatively to their application in the company. The categories of functions, tools, products or relations are more closely described in Hamdouch and Samuelides (2000). Commercial innovations modified the service modalities, because such changes

immediately affected the user's evaluation of the service, and thus the carrier's image. The first innovation consisted in discriminating customers according to their communication time. The segmentation became more acute and the choice wider. Carriers offered, for instance, to low-consuming customers ``Discovery'' services to attract them to mobile telephone services. With the growth of the market (in consumers' number, in call frequency per customer and in time per call), companies offered formulas of up to six hours communication time. New services such as taxi or restaurant booking and on-line news became available. Indeed, as the mobile phone was becoming a mass market,

Table I Innovating in mobile telecommunication services Type of innovations Examples in mobile telecommunications Organizational innovations

Functions Department creation: market-watchers, international expansion, operator-distributors and operator-suppliers coordination Customer's division put upstream the organization chart Tools Commission-based sales Real-time measurement of market share Refined indicators of churn and its causes New profitability's and customer acquisition cost's indicators Customer's profile analysis Real-time new customer management Decision-making software based on current customers

Commercial innovations

Relations within the firm Project-based organization Distributor/Supplier/Operator Co-design Subscriptions management granted to distributors Products sold to customers Subscription (credit of communication time per month) On-line services (information, booking, ...) Packs of services (ready to use and purchasable separately) Internet connection Peak and off-peak time discrimination Previous caller identification Pack associated with prepaid card Free voice-mail consultation A posteriori subscription billing Free terminal upgrades Relations to customers On-going customer service Telemarketing Orientation towards the adoption of a more attractive pricing formula Management of the companies' telecommunication consumption Replacement of defective terminals

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customer needs were changing. In order to entice consumers who did not feel the need to use this technology at the beginning, an evolution in the service content, a serviceaccess facility and relevant pricing were required. Consequently, changes were introduced at first in the fares: certain services such as voice-mail consultation became free; there was also time discrimination with offpeak hours. Carriers decided to market communication hours for a fixed subscription per month. Moreover, carriers designed new services in order to incite customers in trying mobile phone (promotions, temporary free options) or they reduced the customers' sunk cost: for certain formulas minimal communication volume and line establishment cost were eliminated. Customers could also choose a short-term relationship with a carrier by buying a certain amount of communication units through prepaid cards. Another important innovation was to sell the service with the terminal (which was often subsidized by carriers), so that the acquisition cost quickly fell and the service access's facility increased. At the organizational level, the adoption of project-based management increased the carrier's flexibility. As technical, legal and marketing staff were gathered in task forces according to current topics, carriers were then able to quickly adopt or reject a project without reconfiguring the whole organization. As carriers' activities were switching from pure carriers to service reseller or Internet access provider, reactivity was necessary. Carriers developed new activities or prioritized activities which previously appeared as minor. For instance, carriers developed new facilities such as ``International Partnership Departments'' devoting specific staff to this activity. Carriers became also progressively aware of the distribution's and marketing's importance. When the sector was still mainly monopolistic, between 1987 and 1992, phone services were more developed in exploring the new technologies' benefits than in taking into account consumer needs. The market scanning only occurred to plan the infrastructure's coverage (Vialle, 1996; Lanza and Antonelli, 1998). As soon as the market opened to competition and rivalry focused on enticing customers, marketing took a key role to set companies' strategies: . the selling staff represented a higher percentage of the whole staff than it had

.

.

.

been in France TeÂleÂcom before liberalization; employees had to be trained to acquire sophisticated marketing techniques, on line consumer assistance was developed and activated 24 hours a day in order to solve first-users' difficulties, carriers systematically resorted to aggressive selling techniques such as direct telephone prospecting or sellers keeping customers regularly informed of new services, the staff was trained in dissuading customers from churning their subscription; in some R&D projects, users and designers gathered in order to co-develop new services according to user needs; the marketing key role even appeared in the organization chart which was split in facilities related to each market target, so that the company was in a better position to design offers adapted to every customer's category, which tends to have increasingly specific needs with the growing services' variety.

Carriers resorted to diversify their outlets through exclusive distributors (which could belong to their own subsidiaries) as well as to independent distributors which were also selling competitors' phone services. Moreover, there was also a move towards large-scale distribution which did not suppress specialized outlets and thus increased the distributors' variety. This diversity was probably implemented in order to augment market penetration by adapting outlets to each target-group. Carriers were trying various modes of distribution to optimize the customer relationship. A distributor whose single activity was to re-sell services was expected to be more creative in designing marketing formulas insofar as it was closer to customers and specialized in selling. Some independent distributors had thus control over pricing or service design as commercial incentives. The reader perhaps wonders whether these numerous organizational and commercial changes should be called innovations, especially because the above-mentioned organizational changes, i.e. customers focused strategies, were often imitated from other industries. However, innovation theoreticians have progressively considered incremental evolutions as genuine

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innovations (Mansfield, 1968). They defined also architectural innovations occurring when companies introduce a new combination of preexisting product characteristics (Henderson and Clark, 1990). Nevertheless, we do not think that every evolution is an innovation. As in Schumpeter works (Schumpeter, 1912), we qualify as innovations, changes that induce a significant evolution in demand or in a carrier's market share. This implies a need to establish indicators in order to determine causality between performance and innovation. Such research concerns appear, for instance; in (Greenan, 1996; FrancËois, 1998), and are of significant use for the study of service innovations. In the mobile telecommunications service industry, carriers have thus developed various innovations both in the commercial field through the pricing, the marketing formula or the service's content, and in the organizational field by developing new functions, tools or partnerships.

4. Commercial innovations and the competitive dilemma In this section, we explain how quickly commercial innovations diffuse in the whole market. First, the speed pace adopted by carriers to introduce commercial innovations and to imitate the innovations introduced by their competitors can easily be explained by the preemption logic previously described. Table II hereafter indicates that competitors react to innovations at the very most in a few months. Then, this reaction time closely depends on the innovation's nature; for instance, whether it introduces global or incremental evolutions. Thus, the first-movers are all the more imitated that they introduce incremental evolutions; that is to say, affecting only one service characteristic. Let us take, for instance, the pricing of each communication second, or the differentiation between primetime and off-peak hours. The diffusion of these evolutions within the sector took only a few weeks. However, when a carrier introduced a new commercial formula, such as a subscription per month for a fixed communication time, or a pack coupling the subscription to the service with the terminal, this innovation was just as systematically

replicated but the imitation-time took a few months. This difference in imitation time is related to the fact that incremental innovations in the service's content only require marginal adjustments to be duplicated by imitators, whereas new service concepts, more complex and requiring a heavier logistic, will imply a deeper reconfiguration of each company' s organization or of its relationship with suppliers and distributors. A commercial innovation is all the more difficult to imitate that it requires an organizational adaptation. Closer examination of Table II reveals that, whatever the level of rupture introduced by the innovation, the imitation is rarely an exact replication. The imitator generally introduces a slight permutation in the innovation so that it can differentiate itself from the competitor and thus projects an innovator's rather than imitator's image. For instance, the introduction by Bouygues Telecom of the unlimited free telecommunications on the weekends was followed the next month by SFR, who offered free telecommunications in the off-peak hours both evenings and weekends. Imitation of commercial innovations generally occurs through incremental innovations that can be put in two categories: (1) the addition of a new characteristic to the innovation introduced by the first-mover; (2) the reconfiguration of the first innovation, for instance in modifying the nature of services proposed in a initial bundled package. These incremental followers' innovations will further be imitated by competitors, including the carrier who had previously introduced the first innovation ... . The mobile telephone industry is characterized through an ongoing race between carriers for introducing innovations in order to maintain and increase their market-shares. This trend does not constitute a strategic option but a necessity, because of the increasing returns and networks effects prevailing on this industry. The dilemma innovator/imitator is more acute in this service industry than in others with slower growth. Indeed, even if imitation occurs quickly in the commercial field and consequently is prone to dissuade carriers to invest in order to develop ``servicial'' innovations, the necessity to keep current customers and to attract new ones urges carriers to behave like first-movers. Given the exponential growth of the market, which last

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Table II The imitation of commercial innovations Major commercial innovations Fixed-rates

Pack

Prepaid card

Free voice-mail consultation

Rewards priming consumer loyalty

Imitation and improvement

Original innovation: 29/05/96 (Bouygues Telecom) 12/11/96 Local Subscription 3H (SFR) 01/01/97 National Subscription 4H (Bouygues Telecom) 07/03/97 National Subscription 2, 3, 4H (Bouygues Telecom) 12/03/97 National Subscription one peak-hour and one off-peak-hour (Itineris) 08/09/97 National Subscription 1, 2, 3, 4, 5H (Itineris) 15/09/97 National Subscription ‰, 2, 3, 5H with weekend hours (SFR) 14/04/98 National Subscription 2, 3, 4, 5, 6, 7, 8H (Itineris) 10/05/99 Off-peak hours' extension to all subscriptions (SFR) 15/10/98 Formula ``Optimum Subscription'' (Itineris) 08/04/99 Carry-forward of minutes in the subscription (Itineris) 06/99 Mixed Subscription (Bouygues Telecom) 11/99 Free weekend communications (Bouygues Telecom) 29/11/99 Free off-peak communications (SFR) Original innovation: 25/10/96 (Bouygues Telecom) 26/05/97 Pack (SFR) 09/06/97 Pack Ola (Itineris) Original innovation: 19/03/97 Mobicarte (Itineris) 06/10/97 Kit Mobicarte (Itineris) 10/10/97 Pack associated with prepaid card (Bouygues Telecom) 12/12/97 Pack with prepaid card (SFR) 25/06/98 Card refill of 1H (SFR) 24/07/98 Card refill of 15 minutes (Itineris) Original innovation: 02/03/98 (Bouygues Telecom) 09/03/98 Free consultation for the service Ola (Itineris) 12/10/98 Free consultation for the off-peak hours formula (SFR) 16/11/98 First minute free consultation of the voice mail for every formula (SFR) 08/03/99 Unlimited free voice mail consultation (SFR) Original innovation: 14/04/98 (Itineris) 06/11/98 Service Alliance, with engagement over 18 months (SFR) 12/98 Sesame Offer associating SFR and the 7 to cumulate points of fidelity (SFR) 10/05/99 Fidelity Offer, ± 20F/month in case of engagement over 18 months (Bouygues Telecom)

year grew by 46 per cent from 20.3 million subscribers to 29.7 million and therefore its saturation in a few years, a first-mover always has a substantial advantage over its competitors. According to the logic of preemption in fast growing markets, every new customer gained is not to be taken by the competitor (if we neglect the rate of churn), especially when the subscription induces a long-term relationship like in the mobile services' subscription, where the minimal term for a contractual relationship is at least of one year.

5. The role of organizational changes As explained in the previous description of the innovations, organizational innovations in mobile carriers' structures were also introduced to develop marketing and reactive skills. We explain how different their effects were compared to commercial innovations. Organizational innovations are less apparent than commercial or technological innovations, because companies keep them secret so that competitors cannot replicate them. They are often planned by top-

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management executives and implemented in the concerned facility by local executives. If some are directly introduced, such as a new sales incentive, most are not immediately effective like training to required skills, new facility creation or partnership development. They also require specific resources to be designed, adapted to the company and successfully implemented (Greenan, 1996) and can be costly, especially when the whole organization is affected. Organizational changes contribute to a company's performance because they deeply affect its functional process. In mobile phone services, innovations that enabled a carrier to scan market trends and to achieve faster detection of consumer's claims or dissatisfaction contributed to design new products. Scanning was also applied for watching competitors, so that carriers could immediately react to successful rival services and prevent popularity's loss. Consequently, organizational changes induced a faster diffusion of the evolutions introduced in the service content or in the customer relationship. As soon as an organizational innovation was revealed through innovative service characteristics, competitors tried to adopt it, though most were difficult to detect or hard to link with carriers' observed performances. As carriers became more market-minded, they needed to absorb technological innovations with the suppliers' cooperation. If the innovations led customers to express their needs and to develop new ones, an innovative supplier-operator coordination became necessary to inform carriers about new transmission technologies. The partnership related to the product named ``pack'', which couples the terminal with the phone service, represents an instructive example of such a cooperation. Carriers and suppliers worked together on terminal specifications or design and carriers could then inform suppliers on customers' needs. Reciprocally, packs enabled carriers to sell ready-to-use services so that terminals were offered for free. Similar partnership benefits are explained in Von Hippel's work, (Von Hippel, 1976), but what is striking in the mobile phone industry is that carriers became mediators between equipment suppliers and consumers because they were frequently in contact with customers through monthly invoicing, on-line services and

assistance, or the design of various and renewable service options. These phenomena can also occur in services which are demand-pull as well as supplypushed (Mowery and Rosenberg, 1979). In the mobile phone industry, to assimilate knowledge and know-how in organizational and commercial fields represents for a carrier a decisive competitive advantage, because it enables the company to link together evolutions prone to intervene either in demand or in technology. A company's power in the mobile phone industry is determined by this coordinator's and intermediary's role whose efficiency varies relatively to organizational specificity. Organizational innovations are consequently necessary to keep a carrier's flexibility, and reciprocally these innovations are generated and favored by flexible organizations. Service innovations differ from technological innovations in industry. Besides, organizational and commercial innovations have distinctive effects. Commercial innovations frequently appear and introduce various degrees of changes (from slight permutations to radical innovations). A carrier frequently needs to resort to them in order to differentiate itself from its competitors and to quickly attract a booming market's demand. As for organizational innovations, they enable carriers to adapt themselves to environmental evolutions or to increase their functional efficiency by affecting internal skills such as open-mindedness, rapidity, flexibility or creativity.

6. Innovation's dynamics In this section, we study how firms can frequently and cumulatively innovate by being aware of the links existing between different innovations. We identify three major trends in the innovation's dynamics in the mobile phone service industry: (1) There are connections between the different types of service innovations. For instance, it is difficult to see how some crucial innovations like the package of services or the pack could have been sold without the support of functional, operational or relational structures adapted to these kinds of products.

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Symmetrically, the organizational specificity determines a carrier's ability to perceive the opportunity of profitable offers by introducing innovative products or customers' relations. (2) The second type of articulations concerns the various spill-overs and spin-offs of the innovations appeared, primarily at the commercial level: . the generalization of a specific innovation to other companies/to other kinds of service; . the reconfiguration of the previous services, thanks to a new marketing formula; for instance, carriers declined subscriptions relatively to their geographic coverage, the time of communications per month, and the associated services; . the association of isolated innovations in new services; for instance, the coupling of the pack and the prepaid card in some ready-to-use ``kits''; . the dissociation of a global product in several elements enabling customers to benefit separately from each of them; for instance, with the introduction of the ``detailed invoicing'' clause optional to each subscription, whereas it previously represented the basic characteristic of an offer specific to professional customers. (3) The third type of connections between innovations in mobile phone services recovers two specific temporal dynamics. First, organizational innovations are progressive and cumulative. They are characterized by a gradual evolution towards organizations which are more oriented to the management of the customer relationship. Second, as for commercial innovations, the innovation process is both cyclic and cumulative, combining radical innovations and the introduction of incremental innovations in the gap between two radical innovations. More basically, these three types of articulations take place in each firm's specific dynamics. Indeed, as shown in Penrose (1959), historical and strategic factors generally affect the trajectory of one company. In mobile phone, Itineris had to adapt France TeÂleÂcom's monopoly culture and its strategy to mobile phone and competitors' commercial aggressiveness. SFR represented a challenger

to France TeÂleÂcom and had to reach quickly the critical size in developing itself in both fixed and mobile phone services. SFR's parent company, Vivendi, was indeed willing to favor the convergence between media and telecommunications. As for Bouygues Telecom, the third carrier, subsidiary of Bouygues conglomerate, the parent company's diversification had been radical and it needed to substantially differentiate itself from the incumbents through innovation in order to break into the market and benefit from the growth. These different historical paths are supported by skills which are specific to each carrier: technological and logistical skills for France TeÂleÂcom, knowledge in network industries and commercial dynamism for Vivendi and, finally, an adaptive culture to market fluctuations and commercial negotiation for Bouygues Telecom. These specific skills condition the innovative ability and we can thus observe a continuity in the innovatory trend of each carrier since 1996. Bouygues Telecom refined the fixed-rate's concept, of which it claimed to be the innovator. It achieved the concept's diversification and the introduction of its characteristics in a whole range of services with the pack's creation, the mix ``prepaidsubscription'', the formula ``free weekend communications'' . . . SFR continuously reconfigured its marketing strategy to target some demographic sections of the population in focusing on price discrimination: ``Friends'' services ± i.e. one hour of free communication between two customers who subscribed simultaneously; ``Essential'' ± formula devoted to women; ``Free ticket'' for young people and unstable customers; ``Off-peak hours'' for private individuals and big consumers; ``The Ones/the Others'' mix of a professional and a private person's subscription. France TeÂleÂcom, the parentcompany of Itineris, applied the characteristics of its fixed telephony's offer to mobile services; that is to say, it managed a combination of prepaid cards, tapering charges and global package of the services: from classical prepaid card to ``Mobicarte'', from the service ``Primaliste'' (pricing reduction in fixed telephony by calling specific numbers) to the option ``NumeÂro Malin'' for mobiles, from graded rates in fixed telephony to discounts in favor of FixedMobile-Internet joint subscriptions.

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We can conclude from this section that the capacity of mobile carriers to generate service innovations and to adapt their products and organization to competitors' innovations and strategies is supported by a specific innovations process management. The specific experience of each carrier had a decisive impact on the trajectory followed by these innovations.

7. Conclusions Organizational and commercial innovations in the mobile phone industry can be explained by the specific nature of the competition within this market. Furthermore, the innovations with respect to their nature, their frequency and their interdependencies reveal specific competitive dynamics. Upon examination of the various innovations' types, be they technical, commercial or organizational, each mobile carrier's trajectory can be reconstituted as well as the industry's trajectory as a whole. Indeed, innovations in mobile phone services followed specific paths in each firm. However, these peculiar trajectories are far from being isolated. Their interdependencies set them in a sector-based dynamic on which the innovation-imitation game prevails. The company's peculiar trajectory constitutes most of its competitive advantage, but the innovation's imitation by competitors tends to diffuse it quickly in the whole market. Consequently, imitation favours the creation of incremental or architectural innovations and also urges the carriers to develop more radical innovations. Finally, organizational and commercial innovations in the mobile phone service industry are far from being marginal or from representing tools of artificial differentiation. The constitution of broadband networks with the introduction of the Universal Mobile Telecommunications System (third mobile generation) gives opportunity for new services and for the new modes' and new structures' establishment, as do the fixedmobile convergence and the introduction of ``intelligent'' terminals which provide access to more and more sophisticated services. The forthcoming evolutions in these fields will maintain the need for organizational and commercial innovations in order to absorb these evolutions, exploit them and at the

same time continuously innovate in order to play a part in the game of preempting the market growth. These phenomena may also apply to other booming service industries, where technological and regulatory evolutions occur as quickly as in the mobile telephone industry. In numerous growing services industries; for instance, in e-commerce or air transport, distribution, consulting and leisure industries, service innovation nowadays represents a must and the central focus in firms' strategies. Because we are considering services and not industrial goods, innovating in the service content and conception as in the customer relationship does not only represent a variable among others to sustain competition, it is indeed the main basis of competition.

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