Economics of

Innovation

Organisational Innovation
Instructor : Professor Zhao Yulin
Presenter : Kumara Uluwatta

Thursday, April 16, 2009 1

Outline
 Challenges in organisational
innovations – conceptual
considerations
 Different forms of organisational
innovation
 Measurement of the outcomes of
organisational innovations
 Barriors to organisational innovations

 Some empirical studies

 Conclusions
Thursday, April 16, 2009 2
 Challenges in organisational
innovations
 Organisational innovations are addressed by
different academic disciplines from different
theoretical backgrounds (organisational
science, economics, work psychology,
sociology etc.)
 No single commonly accepted definition and
theory base
 Outcomes of organisational innovations are
difficult to define and measure
 Specific (new) set of performance indicators
necessary for the measurement of
organisational innovations

Thursday, April 16, 2009 3

Invention or Innovation?

 Invention – an idea or model for

a new product or system, not yet
entered the economic system.
 Innovation – accomplished with
commercial transaction involving
new product or system. It is a
part of the economic system
-Schumpeter

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Innovation- Five types

 New products
 New methods of production
 New sources of supply
 Opening of new markets
 New ways of organizing
businesses
- Schumpeter (1934)

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 Oslo Manual (2005)
 1992 (1st ed.) : measuring technological
innovation
 1997 (2nd ed.) : measuring technological
innovation + collection of non-technological
innovation data “technological change both
calls for and results from institutional and
organisational change”.
 2005 (3rd ed.) : includes organisational and
marketing innovations “organisational
innovations are not only a supporting factor
for product and process innovation; they
can also have an important impact on firm
performance on their own”
Thursday, April 16, 2009 6
Innovation

“An innovation is the implementation

of a new or significantly improved
product (good or service), or process,
a new marketing method, or a new
organisational method in business
practices, workplace organisation or
external relations”
- Oslo Manual (2005)
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Organisational innovation

“Implementation of a new
organisational method in the firm’s
business practices, workplace
organisation or external relations.”

“Changes in firm structure or

management methods that are intended
to improve a firm’s use of knowledge, the
quality of goods and services, or the
efficiency of work flows.”
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  A new organisational method in
business practices: e.g. codifying
knowledge; education and training
schemes; supply chain management;
business reengineering; lean
production; quality management
systems
 In workplace organisation: new
methods for distributing responsibility
and decision making among employees
 In external relations: with other firms or
public institutions or customers
Thursday, April 16, 2009 9
Organisational innovation
on entreprsie level

 Organisational structure
– job rotation, job enrichment, job enlargement, coaching
functions, teamwork, smaller business units, netwerking,
outsourcing, adapting technology and production
process…
 Organisational procedures
– quality management, environmental management,
preventive maintenance, just-in-time, supply
management, knowledge management…
 Supporting systems: personnel policy and
industrial relations
– personnel, working hours, competence management,
training, labour conditions (pay systems, contracts),
industrial relations, workers participation, legislation...

Thursday, April 16, 2009 10

 Organisational innovations
can be understood in
different ways
 Enablers for other types of innovations:
implementation and use of other forms of
innovations (e.g. material product, service
or technical process innovations) might be
linked to organisational innovations
 Distinct form of innovation - direct source of
competitive advantage: organisational
innovations can directly improve
performance
 Prerequisites for knowledge development in
firms: Firms' ability to acquire, create and
make the best use of competencies, skills
and knowledge is closely linked to
Thursday, April 16, 2009 11

organisational and managerial practices

 Organisational innovations can be
understood as the non-technical part of
process innovations
 Unlike product and service innovations,
process innovations are not directly
implemented in the market
 While the effects of product and service
innovations can be directly measured by
monetary indicators, the effects of process
innovations are not directly visible in shares
of sales and are therefore more difficult to
measure.
 Schumpeter: success (economic, market,
social etc.) distinguishes an innovation from
an invention, therefore organisational
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innovations need to be defined and

 Organisational innovation
vs. organisational change
 Organisational innovation involves a certain
degree of intentionality
 Organisational innovation typically has a
specific aim – intended outcome
 Organisational innovation is mostly an
organizational change, but not every
organisational change is also an
organisational innovation
 The distinction between organisational
change and organisational innovation is
clearly possible ex post – after the outcome
can be observed (due to time-lag)
Thursday, April 16, 2009 13
Measuring different forms
of organisational innovation

 Complexity and different aggregation

levels of organizational innovations:
Organisational innovation is not one
aggregated concept, but is composed
of many different aspects such as,
Decentralized organizations,
TQM, HRM, Lean Mgt,
Innovative work systems (great
variety of specific indicators)

Thursday, April 16, 2009 14

  Different life cycle of organisational
innovations: Organisational
innovations do not have a 'sell-by-
date' as product and service
innovations tend to have (typically
3 years). Novelty does not seem to
be the single main criterion defining
an organisational innovation

 Interfirm vs. intrafirm diffusion of

organisational innovations The
extent of implementation within the
firm seems to be important. Partial
implementation vs. full use of
organisational concepts makes a
great difference
Thursday, April 16, 2009 15
 Measuring the outcomes of
organisational innovation
 Different organisational innovations can aim at
the same outcome (e.g. task integration and
flexible working schedules both aim at increased
flexibility) Different organisational innovations can
be conflicting in their effects (e.g. standardisation
might increase quality but at
the same time decrease flexibility) There is no
"one best indicator" to measure the
effect/outcome of organisational innovation, given
that organisational
innovation itself is a multidimensional
phenomenon and however there are two
categories of outcomes.
Firm level outcomes
Employee level outcomes
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Potential firm level
outcomes of organisational
innovations:

 Improved quality of goods or services

 Reduced costs
 Reduced time to respond to
customers or suppliers
 Increased flexibility (product, process
flexibility)
 Increased productivity
 More product or service innovations
Thursday, April 16, 2009 17
Potential employee level
outcomes of organizational
innovations:

 Improved employee satisfaction

 Improved work-life balance
 Increased autonomy at work
 Increased motivation

Thursday, April 16, 2009 18

 Barriers to sustainable
Organisational innovation
 lack of senior level vision and commitment to
sustainability
 Nervousness over taking a pioneering or leadership
role on
sustainable innovation
 Sustainability is not seen as area of business
opportunity
 Sustainability issues are rarely included in the
corporate strategy, business development and/or the
‘opportunity search’ process
 Lack of awareness of sustainability/environmental

awareness amongst key business functions

 Organisational systems and procedures are often
inflexible (Bureaucracy,
Bureaucracy structure, communication and
risk aversion etc.)
 Product designers and design consultancies still have
a poor
Thursday, April 16, 2009 19

understanding of sustainability
Some empirical studies

 Massimo G. Colombo, Marco Delmastro and Larissa

Rabbiosi, University of Pavia, Autorità Garante della
Concorrenza e del Mercato and Politecnico di Milano Lean
organisation, “High Performance” work practices and
profitability: Evidence from panel data
 Davide Antonioli, Massimiliano Mazzanti, Paolo Pini
and Ermanno Tortia, University of Ferrara Technological
and organisational innovations, industrial relations and firm
performances: An analysis of the determinants of innovation
activities
 Michela Marchiori and Angelo Caruso, University of
Urbino Pursuing success in enterprise innovation: modelling
and managing its inner complexity
 Fabrizio Cesaroni and Andrea Piccaluga, St.Anna School
of Advanced Studies and University of Lecce Technology
transfer from Italian universities: is an entrepreneurial
university model starting up?
Thursday, April 16, 2009 20
 Conclusions
 Organisational innovations can be understood both
as enablers for other types of innovations and as a
distinct form of innovation (direct source of
competitive advantage)
 Measurement of organisational innovations and
their effects is methodologically challenging :-
Complexity of organisational innovations –
organisational innovation is a multidimensional
phenomenon (different aggregation levels) -
Longer life cycles of organisational innovations
than of product or service innovations (novelty less
important) - Significant differences regarding the
intrafirm diffusion of organisational innovations
(extent of implementation) - Multidimensional
relationship between organisational innovations
and their outcomes (complementarity vs.
conflicting effects) - Structural equation modelling
offers the possibility to consider some of these 21
Thursday, April 16, 2009

aspects
THANK YOU

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