A FRESH LOOK AT INCREMENTAL AND RADICAL INNOVATION IN THE ENTREPRENEURIAL FIRM

A FRESH LOOK AT INCREMENTAL AND RADICAL INNOVATION IN THE ENTREPRENEURIAL FIRM Highly innovative and entrepreneurial firms, those generating ideas aimed at new and enhanced products, manufacturing processes and services, require entrepreneurial leaders who successfully manage the innovation process to discover or create, and then exploit opportunities (Oster, 1994: Venkataraman & Shane, 1998). This paper investigates whether innovations, categorized into incremental and radical, could be arranged in a progressive hierarchy of ascending order according to scope and scale. We examined environmental characteristics (dynamism); organizational characteristics (age, size and intrafirm linkages); organizational processes (improvisation, experimentation and transitioning); and managerial characteristics. Our findings suggest that a different mix of environmental and organizational characteristics and processes explain incremental and radical innovation. Highly innovative and entrepreneurial firms, those generating ideas aimed at new and enhanced products, manufacturing processes, and services, require entrepreneurial leaders who successfully manage the innovation process to discover or create, and then exploit opportunities (Oster, 1994: 302: Venkataraman & Shane, 1998). The innovation processes of those highly innovative and entrepreneurial firms is influenced by a number of environmental, organizational, and managerial forces, although researchers rarely investigate whether such forces, rather than operating in isolation, comprise a set of factors that in combination, influence the ability of firms to innovate. Moreover, studies that distinguish between types of innovations are rare (Damanpour, 1992; Drazin & Schoonhoven, 1996; Klein & Sorra, 1996), although different types of innovations range from the minor or incremental to the major or radical. We investigated whether, innovations categorized into incremental and radical, could be arranged in a progressive hierarchy of ascending order according to scope and scale. We examine the influence of the following factors for incremental and radical innovation: environmental characteristics (dynamism); organizational characteristics (age and size of the firm); structural characteristics (intrafirm cross linkages); organizational processes (improvisation, experimentation, and transitioning or sequenced steps); and managerial characteristics (education, age, tenure in the position, and tenure with the company). We chose to examine these relationships in two different industries: aerospace, and electronics/telecommunications. We chose these two industries because they are highly dependent on entrepreneurial managers for developing innovation for competitive advantage and survival. Incremental and Radical Innovation Differentiating between incremental and radical innovation is somewhat a matter of degree. According to a punctuated equilibrium or metamorphosis model of convergence and reorientation (Gersick, 1988), organizations evolve through relatively long periods of stability in their basic patterns of activity that are punctuated by “relatively short bursts of fundamental change” (Romanelli & Tushman, 1994). Tushman, Newman, and Romanelli (1986) examined four major organizations and found that technology evolves through relatively long periods of incremental change punctuated by relatively rare innovations that radically improve the state of the art. Most innovations simply build on what is already there, requiring modifications to existing functions and practices, but some innovations change the entire order of things, making obsolete the old ways (Van de Ven, Polley, Garud & Venkataramen 1999: 171). Herbig (1994) describes higher order innovations as those that serve to create new industries, products, or markets (for example, lasers). Lower order innovations, by contrast, involve three types of innovation: (1) continuous innovation, the introduction of a modified product (for example, product line extensions), (2) modified innovation, slightly more disruptive innovation such as the introduction of a technology that performs the same basic functions (for example, electric pencil sharpener), and (3) process innovation or improvements in the way existing products are being produced (for example, TQM and CAD). In accordance with the work of Herbig (1994), we define incremental (first or lower order) innovation as low in cost and breadth of impact that here refers to the following broad categories of innovation: procedural (managementdetermined innovations in rules and procedures.); personnel-related (innovations in selection and training policies, and in human resource management practices); process (new methods of production or manufacturing); and structural (innovative modifications to equipment and facilities and new ways in which work units are structured). We define radical (higher or second-order) innovation as major in scope, breadth, and cost that here refers to strategic innovations or the creation of new products or services offered or markets served. Although not formally tested as a hypothesis, incremental and radical innovations require different degrees of change that may be explained by a different mix of environmental, organizational, structural, and managerial forces, and therefore may need to be managed differently (Rogers, 1995; Van de Ven et al., 1999). Angle (1989) in his work with the Minnesota Innovation Research Program (MIRP) found that different cultural characteristics (individualism versus collectivism) affect incremental and radical innovations differently. Herbig (1994) found that the conditions that favored high-order or radical innovations (for example--computers) differed from those favorable to incremental innovation (for example—new and improved products). Van de Ven and colleagues (1999) argue that some organizations may be better suited to one type of innovation but not the other, and different degrees of novelty need to be managed differently. For example, structural variables that increase the degree of incremental innovation may simultaneously decrease the degree of radical innovation. Complexity theory argues that organizations are characterized by a continuous pattern of large and small changes, and that larger systems change occurs exponentially less frequently than small ones do (Anderson, 1999). Accordingly, we expect that Hypothesis 1: Entrepreneurial managers will report incremental innovation with significantly greater frequency than radical innovation. Relating Environmental Characteristics to Innovation Complexity theory argues that environmental pressures that continually shift drive internal organizational change. The more dynamic the external environment perceived by entrepreneurial managers, the greater the perception of an environment favorable to innovators. Firms in high velocity environments with short product cycles must engage in rapid and continuous innovative change in order to survive (Brown & Eisenhardt, 1997). An uncertain and rapidly changing environment serves to reduce structural rigidity and organizational inertial, thereby opening up opportunities to innovate. Accordingly, Hypothesis 2: Entrepreneurial managers will positively relate perceived environmental dynamism to incremental and radical innovation. Relating Organizational Characteristics to Innovation “The older, larger, and more successful organizations become, the more likely they are to have a large repertoire of structures and systems which discourage innovation” (Van de Ven, 1986: 596). “While resources are necessary to innovate on a consistent basis, there do not appear to be substantial economies to scale in the discovery of new ideas. Thus small firms may well innovate where larger firms often fail” (Oster, 1994: 302). With increasing size and age comes “bureaucratic procedures. that often constrain innovation unless special systems are put in place to motivate and enable innovative behavior” (Van de Ven et al., 1999: 201). Herbig (1994) states “large industrial research laboratories are a relatively minor source of radical inventions, but a main source of process or evolutionary inventions”. Hypothesis 3: Entrepreneurial managers will negatively relate age and size of the firm to incremental and radical innovation. Relating Structural Characteristics to Innovation Complexity theory highlights the fact that the work of organizations is carried out by agents who are “partially connected to one another, so that the behavior of a particular agent depends on the behavior (or state) or some subset of all the agents in the system” (Anderson, 1999: 219). The innovation process is a product of a networking building effort (Van de Ven, 1986), and lateral relationships inside an organization that create an environment favorable to innovation (Brown & Eisenhardt, 1997; Legnick-Hall, 1992; Spender & Kessler, 1995). To bring a product to market requires that organizations “form linkages, upstream and downstream, lateral and horizontal” (Kessler & Charkrabarti, 1996: 1166, 1171). Kolodny, Liu, Stymne, and Denis (1996) studied the introduction of innovative flexible technologies in twelve companies in Sweden, France, and Canada, and found successful companies transitioned to flatter organizational structures with more horizontal communication. Thus we predict: Hypothesis 4: The greater the number of intrafirm structural linkages, the greater the incremental and radical innovation of the firm. Relating Process to Innovation Improvisation and experimentation. From a complexity theory perspective, innovation cannot be planned but must evolve, and requires emergent and dynamic processes such as openness and improvisation (Lewin, 1999: 215). Brown and Eisenhardt (1998) in their study of groundbreaking study of firms in the computer industry found, among other things, that successful innovators were able to improvise, experiment, and choreograph transitio