ISSN 2189-9592

Journal of Japanese Management
Vol. 3, No.1, November 2018

JFMRA
Japan Federation of Management Related
Academies

Editor-in-Chief
Fangqi Xu (Japan Creativity Society, Kindai University)
Editors
Yukio Takagaki (Japan Academy of Management, Surugadai University)
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Editorial Board
Shintaro Abe (Japan Academy of Consumer Education, Josai International University)
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ISSN 2189-9592

Journal of Japanese Management
Vol.3, No.1, November 2018

JFMRA
Japan Federation of Management Related
Academies

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Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Contents

Recommended paper by Japan Cost Accounting Association
Budgeting Patterns in Japanese Companies and Their Relationship with Explorationand Exploitation: An Exploratory Study・・・・・・・・・・・・・・・・・・・・・・・・p.1
Takeyoshi Senoo

Selected papers from the Proceedings of the International Conference on Creativity andInnovation 2018
A Conceptual Framework for Responsible Innovation
Kim Hua Tan and Tetsuo Yamada ・・・・・・・・・・・・・・・・・・・・・・・・p.22
Design protection in managing sustainable user-driven innovation in SMEs ・・・・・p.30
Gunnar Prause, Laima Gerlitz and Thomas Hoffmann

Notice of the Best Paper Award
Tetsushi Fujimoto, Hideki S. Tanaka and Shiming Xia’s paper・・・・・・・・・・・・p.48

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Budgeting Patterns in Japanese Companies and Their
Relationship with Exploration and Exploitation: An
Exploratory Study
Takeyoshi Senoo

Faculty of Commerce, Chuo University
Japan Cost Accounting Association
Abstract
This

study

aims

to

empiricallyclassify

thebudgetingpatterns(configurations) of general Japanese companies and present an exploratory
description of the relationship between the patterns and organizational learning interms of exploration and exploitation. Drawing on Sponem and Lambert’s (2016)
typology of budgeting in French companies, this research conducted a similar
analysis utilizing the results of a questionnaire survey administered to companies
listed on the First Section of the Tokyo Stock Exchange. According to the results,
the budgeting practices of general Japanese companies can be classified into threepatterns: flexible, strategic, and poor. These patterns differ from the characteristicsof “Japanese-style” budgeting noted in the literature. Flexible budgeting resembles
a combination of the features characteristic of the yardstick budget and the loose
budget patterns presented by Sponem and Lambert (2016). Strategic budgeting issimilar to Sponem and Lambert’s (2016) interactive budget and poor budgeting are
similar to what they term indicative budget. Sponem and Lambert’s (2016) coercive
budget, which fundamentally prioritizes posterior control, was not perceivable in
the results. Furthermore, the results of the analysis on the relationship withorganizational learning in terms of exploration and exploitation showed that of thethree patterns, strategic budgeting displayed a pronounced tendency toward
exploration.
Keywords
Budgeting patterns, Japanese-style budgeting, Management control systems,
Exploration, Exploitation, Configurational approach1

Journal of Japanese Management Vol.3, No.1, November 2018(1) Introduction

ISSN 2189-9592

budgeting is related to organizational

Despite budgeting being at thelearning in terms of exploration andcore of management control systems

exploitation, the degree of such learning(MCS), it has been constantly subjected

may differ according to the budgeting

to criticism (Hansen et al., 2003; Lee etpattern.

al., 2010). Nevertheless, most companies

Given the above discussion, thisengage in budgeting and are aware that

study

poses

the

it has some effect (Libby and Lindsay,

questions (RQs).

following

research2010). Furthermore, budgeting is now
different than it was in the past because

RQ1: How can the budgeting practices of

there

general Japanese companies be classified

has beenanincreaseintheresearch that describes the influence of

empirically?

budgeting on organizational learning andRQ2: How are such patterns related toinnovation (Horii, 2015). In particular,organizational

recent studies have shown that budgeting

exploration and exploitation?

learning

in

terms

of

is related to exploration and exploitation,
which

are

two

organizational

importantlearning

types

of

This study conducts an exploratory

requiredtoinvestigation of the above questions andsecure a competitive advantage (Bedford,

presents

2015; Fukuda, 2015; Yoshida et al.,findings from a questionnaire survey

2015a).

administered to companies listed in the

However,theeffectivenessofadiscussion

based

on

the

First Section of the Tokyo Stock Exchange.

budgeting practices varies given theirdifferent characteristics and the multiple(2) Literature Review

patterns (configurations) of combining

1. Budgeting patterns (configurations)them (Hansen and Van der Stede, 2004;

In recent years, research interest

Sponem and Lambert, 2016). Moreover, it

in MCS as packages of mutually related

hasJapanesecontrol practices has been increasing

companies practice a unique “Japanese-(Malmi and Brown, 2008). However, thestyle” of budgeting that differs from those

types of patterns for control practiceof other countries (Lee et al., 2012).

linkages in general companies remain

beenclaimedthat

Despite this, there is a lack of

unclear.

Bedford

and

Malmi

(2015)

research that empirically examines the

adopted a configurational approach tobudgetingempiricallypatternsofJapaneseexaminetherelationshipcompanies. Thus, such a classification

between accounting and other control

would help to accurately describe thepracticescomplexassociation of such combinations withbudgetingpractices ofsuchorganizations. Furthermore, even though2and,furthermore,theJournal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

context factors. 1 Conducting a cluster

budgeting patterns: yardstick, coercive,

analysis using the characteristics of 22interactive, loose, and indicative. The

control practices as input variables, they

following

discussion

derivedauthor’sinterpretationataxonomy

configurations

of

and

five

control

described

summarizes
of

these

the
five

the

characteristic patterns in terms of therelationships with the context factors ofdegree of importance in prior, concurrent,

technology, environment, and strategy.

and posterior control. 2 The reason for

Two of the control configurations—action

doing so is that many studies analyzing

and hybrid control—differed from those“Japanese-style” budgeting (e.g., Lee etin the literature.

al., 2012) use these categories.

Demonstrating the same under-First, the involvement of high-standing, Sponem and Lambert (2016)

level executives in senior management isshed light on budgeting configuration.

necessary because a yardstick budget

They

the

formation requires managerial partici-

budgetingpation. Furthermore, it can be inferredcharacteristics and their relationshipthat emphasis is placed on prior andwith the role of, and satisfaction with,concurrent control because revision isbudgeting.

budgetingrare. Second, among the patterns thatpatterns using a cluster analysis with 11

exhibit a strong linkage of the budget

budgetingwithempiricallyassociationofexaminedvarious

Theyclassified

characteristics

as

input

variables. The results highlighted five
1

of

and

group

for

budgetingpracticesthatparts,

comprises managerial accountants. They

components, mechanisms, or attributes.

classify these characteristics into prior,

The configurational approach refers to a

concurrent,

strand of research that attempts to (1)control. In particular, the prior stage

understandincludesMCS

multipleevaluation

rewards, a coercive budget generally

Configuration refers to the specificarrangement

performanceasaresultofandposterior

participation,

stages
type

for
of

combinations of such diverse elements

negotiation, and difficulty of meetingand (2) present the fundamental patterns.

budget targets. The concurrent stage

This

consists

approachcanbeconsideredofbudgetvariance,

budgetconsistent with an understanding of MCS

revisions, and budget reforecasts. The

as packages of mutually related control

posterior stage includes budget-based

practices (Bedford and Malmi, 2015;

evaluations and rewards. Furthermore,

Sponem and Lambert, 2016).

involvement in budgeting，budget details,

2

Sponem and Lambert (2016) employs

characteristics

establishedinand degree of budget formalization arethecharacteristics that span across the time

literature, and they conceptualize the 11

scale.

characteristics on the basis of a focus
3

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

places importance on posterior control,

necessarily

while an interactive one emphasizes priorJapanese companies. As described above,and concurrent control through manager

itparticipation in budget formulation andcompanies practice a unique “Japanese-senior management involvement in thestyle” of budgeting that differs from thosebudget process. However, target difficultyof other countries (Lee et al., 2012). 3

hasremains low and the degree of budgetary

apply

been

to

budgetingclaimedFurthermore,

that

the

in

Japanese

relationshiprevision is average in the case of an

between the budgeting patterns andinteractive budget. Third, an interactive

context factors remains unclear.

budget is similar to interactive control
systems (ICS) (Simons, 1995) but differs

2. Japanese-style budgeting

owing to its strong linkage with rewards.

This study will reference Lee et al.

Fourth, among the patterns demons-(2010, 2012) and recent field studies totrating a weak link of the budget withpresent the characteristic aspects of thisperformance evaluation and rewards, aunique “Japanese-style” of budgeting inloose budget warrants the participation

Japanese companies in the context of theof high-level management in the budget

three stages of control discussed earlier:formulation, although the involvement ofprior, concurrent, and posterior.

senior management in the budget process

There are three key arguments

is low and the budget is subject towith regards to the prior control that isfrequent revisions. As a result, emphasis

observed in the budgeting of Japaneseis placed on prior control. Fifth, anCompanies.

indicative budget exhibits low levels ofbudgeting in Japanese companies is said

most budgeting characteristics; in otherto possess a prior control function (Lee etwords, the budget is less likely to beal., 2012). Kishida’s (2013) survey, forconsidered

instance,forcontrol

purposes.

First,

showedhighofparticipation

has the highest levels of satisfaction, an

managers

indicative one has low satisfaction levels.

budgeting. Second, budgetary slack ispatterns

identifiedbySponem

and

and

both

degreeFurthermore, while an interactive budget

While it is possible that the fivebyaparticipative

theirconsideredtobecompanies(Ueno,

departmental

subordinates

low

in

1997).

inJapaneseIn

their

Lambert (2016) are characteristic ofcomparative study, Lee et al. (2012)

Frenchnotmainly examined this aspect in four

“Japanese-style” management accoun-style management (Yoshida et al., 2012,

3

ting

companies,

impliesthey

managementmay

accounting

pp.2-3). This study interprets the latter

originating in Japan or the practice of

as “Japanese-style” budgeting and the

management accounting closely related

analysis explores whether such practices

to the organizational context of Japanese-

exist.
4

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Japanese companies and discussed the(2013) indicated that budgeting is more

systems used by each company to meet

often used as an ICS than as a diagnostic

challenging targets. Third, as in the casecontrol system.

of non-Japanese companies, the criticism

As for posterior control, a weakof a weak linkage between strategy andlink has been noted between performancebudgeting targets (Hansen et al., 2003)

evaluation and financial rewards in the

may be valid for Japanese companies too.

budgetingpracticesof

While Shimizu (2013) noted the value ofJapanesecompanies(Asada,linking a balanced scorecard (BSC) with

However,thisthe budget, few Japanese companies haveowing to the rise of pay-for-performance

been reported as implementing BSCs

systems (Lee et al., 2010).

(Yoshida et al., 2012).
Next,

in

terms

tendency

Nevertheless,ofconcurrent

argue

that

all

it

traditionalmayis1997).
changedifficultJapanesetocompanies

control, first, it is possible that budget

possess similar budgetary characteristics.

revisions, which are also practiced in

Furthermore, relationships are possible

severalareamong the various characteristics. Thus,

more common in Japanese companies.

there is significant value in classifying

For instance, 20% of companies in Yokota

theet al.’s (2013) survey responded that “Thecompanies.

non-Japanesecompanies,

budgetingpracticesofJapanese

initial budget is fixed and is not revised
at all during the period”. 4 However, in

3. Relationship with exploration and

Libby and Lindsay’s (2010) survey on

exploitation

business units in North America, about

When classifying the budgeting

half of the respondents reported thatpatterns“Budgets are fixed. No changes made todifferences in organizational contexts

them”. Second, vertical interaction isthat align with such patterns are highlycommon in the budget formulation of

likely. This study focuses on two types ofJapanesecompanies,

thatorganizational learning—exploration andbudgetingis

ICS

exploitation—as

utilized

implying
as

an

of

Japanesecompanies,

organizational(Kobayashi, 1990). Lee et al. (2012) also

contexts. 5 Exploration and exploitation

showed that interactions are common inare concepts proposed by March (1991):

concurrent control. Similarly, Kishida

the former refers to radical learning in

However, approximately 70% of thecompanies reported “reviewing andrevising, as required” on a regular or
irregular basis; in other words, budget
revisions were not necessarily carried out.
5 As Fukuda (2015) noted, in analyses onorganizational learning, organizationaltheorientation.

4

relationshipbetween

MCS

learning is often understood as orientation toward organizational learning. This
study adopts the same approach byfocusing

and
5

on

organizational

learning

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

the pursuit of new knowledge and theinlatter is incremental learning based oncompanies; and (3) the simultaneous use

utilizing existing knowledge.

of both in companies with tendencies

This study focuses on exploration

exploitative

towardinnovation-orientedorganizational

ambidexterity.

and exploitation for two reasons. First,

Yoshida et al. (2015a) analyzed thethere is an increase in research that

influence of exploration and exploitation

describes the influence of budgeting andon

MCS on organizational learning andaccounting

innovation. Horii (2015), for example,

indicatedconducted

performance

bothqualitative

and

four

Japanese-typemanagement

behaviors.
that

the

The

resultslink

betweenevaluation

andrewardquantitative studies to show the positive

increases with a rise in exploration

effects of setting challenging goals andorientation.

fixing budgetary targets on organizational learning and product innovation.

(3) Research Design

Second, the concept of organizational

1. Analysis method

ambidexterity—wherein an organization

The

present

analysis

method,simultaneously pursues exploration andwhich is based on Bedford and Malmi

exploitation—has become a key focus in(2015) and Sponem and Lambert (2016),

organizational learning and innovationis performed as follows. First, a cluster

research (O’Reilly and Tushman, 2013;

analysis was conducted to classify the

Yoshida et al., 2015a).

budgeting

In recent years, there has been agrowthinresearch

relationshipofexploration

andshowing

patternsofJapanesecompanies. Each cluster was interpretedthethrough an analysis of variance andwithmultiple comparison procedures on the

exploitation. Fukuda

input variables. Similarly, an analysis ofbudgeting6(2015) showed that operational divisions

varianceandmultiplecomparison

with an orientation toward exploratory

procedures was performed to investigate

learning tend to have higher perceptions

the relationship of budgeting patternsof achieving budgetary targets and thatwith exploration and exploitation.

the use of funds for ICS contributes tosuccessfulorganizational

learning.

2. Data collection

Bedford (2015) utilized Simons’ (1995)

The data were compiled using aframework to show the positive effect onquestionnaire survey conducted by aperformanceinresearch team, of which the author is acompanies oriented toward exploratory

member. The purpose of the survey was toinnovation; (2) diagnostic control systems

elucidate the current state of manage-Bedford (2015) and Fukuda (2015)
analyzed the relationship between MCS

and exploration and exploitation, withbudgeting included as a part of the MCS.

byusing:

(1)

ICS

6

6

Journal of Japanese Management Vol.3, No.1, November 2018

ment accounting, including budgeting
andperformance

management. 7

ISSN 2189-9592

The following analysis employsOndata from 234 companies. Responses fromJanuary 14, 2014, the survey was sent to

13 companies are excluded owing to

1,752 companies listed on the First

missing values for questionnaire items.

Section of the Tokyo Stock Exchange witha response deadline of January 31, 2014.

3. Measurement of variables

The number of respondent organizations

This study

was 247 (response rate: 14.1%). 8

relatedtomeasuredbudgetary

variables

characteristics

This study uses the survey results

utilized in the classification of Japanese

for two reasons. First, while the survey

companies’ budgeting practices and those

was not designed to investigate theassociatedwithresearch

exploitation.

Becausequestions of

this

study

in

exploration
there

and
is

no

particular, it contains many items related

established scale for both, the existing

to the characteristics of budgeting andliterature was consulted to the greatest

performance management. Second, toextent possible.

empiricallyclassify

thebudgetingFirst,

anexploratory

factorpractices of general Japanese companies,

analysis was performed on the 12 items

it seems appropriate to use a survey thatthat were selected, based on Sponem andtargets all companies listed on the First

Lambert (2016), from the questionnaire

Section of the Tokyo Stock Exchange,

items for budgeting characteristics. Two

including

traditionalquestionnaire items were not heavily

industry-based

loaded on any factor; however, they weremany

companies,

major

without

restrictions.
7

As

will

still converted into the “No changes tobequestionnaire

discussed

items

for

later,

thedistribution of companies listed on the“Challenging

First Section of the Tokyo Stock Exchange

performance targets” and “Performance-(intermediate

reward link” are related to performancetion of the Securities Identification Codemanagement

notCommittee). Second, in terms of thebudgeting characteristics. This is because

difference in organizational size (i.e.,the survey considers budgeting a core

consolidated

performance

numbercharacteristics,

management

technique(Yoshida et al., 2012, p.163).
8

of

industry-type

sales

and

classifica-

consolidated

employees)

betweenrespondents and non-respondents, only

See Yoshida et al. (2015b) for details on

the manufacturing industry had a highly

the survey method. As for the non-consolidated

response bias, first, the results for the(Yoshida

goodness-of-fit

implies the absence of any serious non-test

showedthat

respondents’ industry-type distribution
conformed

to

the

7

of

employees

et al., 2015b, p.167).

response bias.

industry-type

numberThis

Journal of Japanese Management Vol.3, No.1, November 2018budgetary

targets”

the(Appendix Table 1). Items with high“Strategic budget formulation” variableloadings for each factor were named

and each was measured with a single“Degreequestionnaire item. This is because they“Interactive budgeting”, and “Assignment

are related to important concepts thatof specific targets to individuals”. In thewill be discussed in this section. A repeat

operationalization of the variables, theanalysis

items

average values of the items that were

resulted in the extraction of three factors

heavily loaded on each factor were usedwithas scale scores.

excludingeigenvalues

variable

these
of

and

ISSN 2189-9592

two

one

or

higherofbudgetarysophistication”,

Table 1. Results of the exploratory factor analysis on performance-reward link(n = 234)
Questionnaire Item

Performance-

Mean

Std. Dev.

3.65

1.26

.95

4.21

1.19

.93

Business unit regular employee

3.40

1.30

.83

Business unit director

4.68

1.36

.66

Business unit lower manager (subsection
chief)
Business unit middle manager (section
chief level)

Reward Link

Note 1: A factor analysis was conducted using a principal factor method. Factor
loadings of 0.4 and higher are rendered in bold.
Note 2: All questionnaire items in response to the question “To what degree is thefinancial reward of individuals with the following rank related to businessperformance?” were measured on a seven-point scale, ranging from 1 = “Not at all
related” to 7 = “Very strongly related”.
Next,

to

the

1, only one factor—“Performance-reward

targets”

link”—with an eigenvalue of one orvariable, one item was selected andgreater was extracted, and its scale score

measured from the questionnaire items

was calculated as the average values ofrelatedthe four relevant questionnaire items.

“Challenging

tooperationalize

performance

performance

management.

Then, to grasp the posterior control

Appendix Table 2 presents the

aspect, an exploratory factor analysis wasvariables

performed

fourcharacteristics used in this analysis as aquestionnaire items as were used inresult of the above. These somewhat

Yoshida et al. (2015a). As shown in Table

correspond to Sponem and Lambert’s

on

the

same

8

relatedtobudgetingJournal of Japanese Management Vol.3, No.1, November 2018(2016) constructs. 9 The variables are

ISSN 2189-9592

Finally,an

exploratory

factorassociated with the characteristics ofanalysis based on He and Wong (2004)

Japanese-style budgeting, as describedand using the same six questionnaire

above in terms of prior, concurrent, anditems as those in Yoshida et al. (2015a)

posterior

wascontrol.

First,“Degreeofperformed

for

exploration

andbudgetary sophistication”, “Challenging

exploitation. In Yoshida et al. (2015a),

performance

one questionnaire item did not load

budgettargets”,

formulation”

and

to

heavily on either factor. This item wasparticipative budgeting, budgetary slack,excluded and the analysis was repeated.

and

and

As shown in Appendix Table 3, twobudgetary targets, respectively. Second,

factors with eigenvalues of one or higher“No changes to budgetary targets” andwere extracted. As per the interpretation“Interactive budgeting” are related toof the items with heavy factor loadings,

budgetthe two factors were termed “Exploration”

the

link

are

“Strategic

betweenrevision

relatedstrategy

and

ICS.

Third,“Allocationofspecific

toand “Exploitation”. According to Yoshida

individuals”

and“Performance-reward

et al. (2015a, p.56), items loading heavily

link” are related to posterior control

on the former indicate a tendency tocharacteristics.

emphasize

Sincetargets“Challenging

innovativeness

and

new

performance targets”, “Strategic budget

markets and prioritize new technology,

formulation”,

toproducts, and services. On the other hand,budgetary targets” are each measured bythose loading heavily on the latter denotea single questionnaire item, as noted

a tendency toward kaizen and employees

above, their scales may be subject toachievingreliability

and

10

simultaneously. In the operationalization

Cronbach’s

alpha

the

of the variables, the average values of theremaining items are 0.7 or greater,

items that heavily loaded on each factor

indicatingwere used as the scale scores. 11 Both

and

no

“No

changes

validity
valuesinternal

issues.
forconsistency

multipletargets

problems.

have Cronbach’s alpha scores of 0.7 or

However, there are points of difference.
For example, certain elements of theconstructs relating to the degree ofbudgetary detail and the degree to which
the budget is formalized are included in
the “Degree of budgetary sophistication”
and“Interactive
budgeting”.
Furthermore, budget revision and budget
reforecast, as well as budget-based
evaluation and rewards, are notdifferentiated at a conceptual level.
10 In Sponem and Lambert (2016) too,budget revision was measured using asingle questionnaire item and, thus, it ishighly likely that the scale is subject toreliability or validity issues.
11 While Yoshida et al. (2015a) focused onthemanufacturingindustry,
theirmethod to measure the relationship of“Performance-reward
link”
with
“Exploration” and “Exploitation” isidentical to that adopted in this study.
This
research
still
conducts
anexploratory factor analysis because it
expands the scope of analysis beyond the
manufacturing industry to organizations

99

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

more, implying no internal consistency

mance targets” and “No changes inissues.

budgetary targets”, indicating that nonchallenging and achievable performance(4) Results
1.

targets are maintained and the initial

BudgetingpatternsofJapanesebudgetary targets are flexible. Thus, thiscompanies

cluster was named “Flexible budgeting”.

To classify the budgeting patterns

Furthermore, the values for the degree ofof Japanese companies, a hierarchicalbudgetary sophistication and interactive

cluster analysis was conducted using as

budgeting were high, implying that priorinput variables the seven budgetaryand concurrent control is emphasized.

characteristics measured above (Ward’s

Cluster two (C2) showed the highest

method): “Degree of budgetary sophisti-

values for all characteristics, except

cation”,

performance

strategic budget formulation, implying

targets”, “Strategic budget formulation”,

that control is emphasized in all phases“Notargets”,(pre, concurrent, and post). This cluster“Interactive budgeting”, “Allocation of

was termed “Strategic budgeting”. In

specific

andcluster three (C3), the values for most of“Performance-reward link”. The input

the budgeting characteristics were lower

variables

thethan those of the first two clusters,

analysis. Then, on the basis of the results’suggesting that the budget is unlikely todendrogram, three final clusters werebe used for control purposes. This cluster

defined.

“Challenging

changestotargets
werebudgetary
toindividuals”,

standardizedaone-waywasandmultiple

Appendix Table 4 shows, 92 (39.3%)

comparison procedures (Tukey-Kramer

companies used flexible budgeting, 95

method) were performed on the input(40.6%) companies implemented strategic

variables. The results are presented inbudgeting, and 47 (20.1%) companies

Appendix Table 4. The significance level

reported poor budgeting. Furthermore,

for the statistical analyses was set at 5%.

organizational size and industry type did

analysis

Subsequently,

for

12

of

Clustervariance

one

(C1)

reported

the

named

“Poor

budgeting”.

As

not vary by cluster. 13

lowest levels of “Challenging perforin the non-manufacturing industries. It isnoteworthy that the analysis results are
identical to those of Yoshida et al. (2015a).
12 The pseudo F-statistic, which is thefollowed by 34.94, with three clusters.
Almost all the companies were in C1,
rendering

Harabasz,1974),

interpretation

was decided to include three clusters.

clusters in a hierarchical cluster analysis
andclusterdifficult. Thus, if two clusters were set, it

index used to determine the number of(Calinski

the

13

was

The results of the one-way analysis ofvariance for average consolidated sales

highest at 39.50, with two clusters,( F -value (2,231) = .169, p -value = .845)
10

Journal of Japanese Management Vol.3, No.1, November 2018

2. Relationship with exploration andsection (1).

exploitation
To

ISSN 2189-9592

To determine if the budgetary
relationshippractices of general Japanese companies

patternsofcan be empirically classified, let us

Japanese companies and exploration andcompare the results of this study with the

exploitation, the former was set as thepatterns

identified

independent variable and the latter two

Lambert(2016)

were the dependent variables. In addition,

concept of “Japanese-style” budgeting.

betweenelucidatethethebudgetinga one-way analysis of variance andFirst,

inandflexible

Sponemandre-examine

thebudgetingisamultiple comparison procedures (Tukey-

pattern resembling a combination of

Krameraspects that are characteristic of themethod)were

performed.

Appendix Table 5 presents the results.

yardstick

The analysis results showed arelationshipbetween

the

and

loose

budgetpatterns

presented in Sponem and Lambert (2016).

budgeting

Both patterns involve a high degree ofpatterns of Japanese companies andmanagerial

participation

exploration and exploitation. The results

formulation.

Flexibleoftheparticular, has a high degree of budgeting

differences across all patterns indicatedsophistication. However, it differs fromthat poor budgeting had the lowest mean

the yardstick budget, which may not be

score

and

subject to frequent revisions. Flexible

exploitation and the differences with thebudgeting also differs from the looseotherstatisticallybudget pattern, which may not emphasize

significant. By contrast, strategic budge-

interactive budgeting in the concurrent

ting had the highest mean scores forstage. In addition, the findings indicate a

explorationarelatively weak performance-reward link,statistically significant difference in theresembling the “Japanese-style” budge-

meanting patterns with prior and concurrentthemultipleforcomparisonsbothpatterns

andscoresof

exploration
were

exploitation, withofexploration

when

compared with flexible budgeting.

sectionpresents

budgetbudgeting,incontrol, as noted in Lee et al. (2012).

(5) Discussion
This

in

the

Furthermore,

frequentbudgetaryrevisionsthatbudgetary

imply

the

targets are not challenging.

implications of the results in the context

Second,strategic

budgetingisof the two research questions posed insimilar to Sponem and Lambert’s (2016)

andemployeeof an independence test (chi-square test)

numbers ( F -value (2,231) = .255, p -value(χ 2-value (62) = 73.456, p-value = .151)= .775) revealed no statistical differenceindicated no significant relationship withinthe clusters.

averageconsolidated

organizational

size

betweentheclusters. As for industry type, the results
11Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

interactive budget and poor budgeting isinvestigate

how

these

patterns

aresimilar to what the authors term an

related to organizational learning inindicative budget. Strategic budgeting

terms of exploration and exploitation.

prioritizes not only prior and concurrent

First,

themeancontrol but also posterior control, while

exploration

andexploitationloose budgeting may not be used forsignificantly lower for poor budgeting

control purposes. Both differ from thethan the other patterns. Under any ofcharacteristics

these

of

“Japanese-style”

scoresorganizational

for
were

learningbudgeting, as has been noted in theorientations, emphases on prior andliterature.

theconcurrent budgetary control by creating

characteristics of strategic budgeting,refined budgets and both regular andwhere targets are fixed and relatively

irregular discussions will be effective.

Furthermore,difficult,differinteractive

frombudget,thoseofsuggestingan

Second, a comparison of flexible

that

and

strategic

budgetingchallenging targets can be maintained. 14

significantly

higherFinally, Sponem and Lambert’s

explorationfor(2016)

coercive

fundamentallybudget,emphasizes

whichposterior

Previous

studiescertainbudgetingtherevealed

a

score

for

mean
latterhave

pattern.

impliedthatcharacteristics

cancontrol, was not perceivable in the results.

effectively increase exploration, such as

In fact, about 80% of the companies

maintaining challenging targets (Horii,

reportedstrategic

2015), using the budget as an ICS

budgeting. Thus, it can be concluded that

(Bedford, 2015), and strengthening the“Japanese-style”

commonly

performance-reward link (Yoshida et al.,prioritizes prior and concurrent control.

2015). In contrast to studies highlighting

Nevertheless, the two groups can be

the influence of individual characteristics

defined on the basis of the importance(Bedford, 2015; Horii, 2015; Yoshida et al.,placed on “Allocation of specific targets to2015), this study showed a relationshipindividuals”

between exploration and the strategic

using

and

flexibleorbudgeting“Performance-rewardlink” (i.e., whether posterior control isbudgetingemphasized).

various characteristics. In terms of an

Next,

which

combines

comparison

of

poor

interactive budget, Sponem and Lambertthebudgeting(2016) argue that by placing importancepatterns and of flexible budgeting withon prior and concurrent control, budget-

strategic budgeting will allow us to

based

However, as shown in Appendix Table
4, even though the scores are relatively
higher than those for other patterns, it isnotable that “Challenging performancetargets” and “No changes in budgetary
targets” returned an average value ofapproximately four on a seven-point scale.

budgetingapattern,

with

other

14

12

performance

evaluation

andJournal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

rewards as a form of posterior control cantargets”, “Strategic budget formulation”,

be appropriate. Thus, it can be said thatand “No changes in budgetary targets”.

Japanesecompanies

strategic

Second, given the differences inbudgeting maintain challenging targets,the abovementioned budgeting charac-

combine budgetary characteristics, andteristic variables and other aspects, thearemethod adopted in this study was not theorientedusing

towardexploratoryorganizational learning.

same as that used in Sponem andLambert (2016). Thus, it is possible that

(6) Conclusions

the analysis results are attributable toDrawing on Sponem and Lambert’scontext differences between Japan and(2016) typology of budgeting in French

Francecompanies, this study conducted a similar

analyticalanalysisshouldusing

theresults

of

a

or

to

the

use

of

different

methods.

Futureresearch

considerconducting

anquestionnaire survey administered tointernational comparative study using

companies listed on the First Section of

the same methods.

the Tokyo Stock Exchange. According toThird, the relationship between

the results, the budgeting practices ofthegeneralbecompanies and organizational learning inclassified into three patterns: flexible,

terms of exploration and exploitation canstrategic, and poor budgeting. Thesebe considered as an implied relationship.

patterns differ from the characteristics ofAn“Japanese-style” budgeting noted in thenecessary to examine the relationships

literature. Furthermore, the results on

with

the

technology, environment, and strategy.

Japanese

relationshipcompanies

with

can

organizational

budgetingin-depthother

patterns

analysiscontextofis,factors

Japanese

therefore,
such

as

learning in terms of exploration and

Finally, to classify the budgeting

exploitation showed that of the threepatterns of general Japanese companies,

patterns, strategic budgeting displayed aan analysis targeting all companies listed

particular tendency toward exploration.

on the First Section of the Tokyo Stock

Despiteits

contributions,thisExchange (including many traditional

study is not free from limitations.
First,
extantdespiteliterature,

characteristic

major companies) without industry-basedreferencing
therestrictions was considered appropriate.

budgeting

As discussed in Section (4), no difference

in

the

was found across organizational size andsubjecttoindustry for the three patterns. However,reliability or validity issues. In particular,

it is possible that the results could differ

it is necessary to develop a scale with

if the analysis focused on small- andhigher levels of reliability and validity formedium-sized enterprises or industries

the constructs “Challenging performanceinclustervariables

theanalysis

may

used
be

13

rapidlychanging

environments.

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Future studies might consider limiting

Cluster Analysis. Communications intheir analyses to specific organizational

Statistics , 3(1), 1-27.

scales or industries.

Fukuda, Junji (2015). Soshiki Gakusyuu
to MCS tono Kankei: Shitsumonhyou

Acknowledgements

Chousano

Bunseki

Kekka

yori

The data used in this study were

(Organization Learning and MCS: A

compiled through a collaborative survey

Mail Survey). The Hosei Journal of

conducted by Professor Eisuke Yoshida

Business , 52(1), 43-57.

(Keio University) and research colleagues.

Hansen, Stephan C., David T. Otley andConsent was provided by all participants

Wim

to use the survey results to develop thePractice Developments in Budgeting:study. In particular, Professor YoshidaAnprovided valuable feedback. The author is

Perspective. Journal of Management

deeply grateful.

Accounting Research , 15, 95-116.

This study was supported by JSPS

A.

Van

der

Overview

Stede.
and(2003).

Research

Hansen, Stephan C. and Wim A. Van der

KAKENHI Grant Number JP26780250.

Stede. (2004). Multiple Facets ofBudgeting: An Exploratory Analysis.

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Henka

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Libby, Theresa and R. Murray Lindsay.
(2010).

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Business School Press.
Sponem, Samuel and Caroline Lambert.

Kaikei Kenkyu no Furontia ( The(2016).

Frontiers of Management Accounting
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Budget Characteristics, Roles and

Chuokeizai-sha.

Approach. Management Accounting(2012). Yosan Surakku to Nihonteki

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Exploring

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Yosan Kanri (Budgetary Slack in

DifferencesA

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Ueno, Susumu (1997). Nichi-bei Kigyou

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Bunkaronteki Apurouchi ( Budgeting

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Tokyo:and Zhiming Xu (2015b). Waga Kuni
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Ikkai) – Seizougyou to Hiseizougyou(2015a). Tansaku to Shinka ga Nihon

tono

Kigyou no Kanri Kaikei Koudou ni

Genka Keisan Hen (Survey on the

AtaeruCurrent

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exploitationof

Yobiteki

Kenkyuexplorationon

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GaiyoutoJapaneseandManagement Accounting (No. 1) – A

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JournalofManagement Accounting Research ,Volume). Kigyou Kaikei , 67(1), 166-

companies).

171.

16

Industries:

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Appendix Table 1. Results of the exploratory factor analysis on budgeting characteristics (n = 234)
Degree of
Questionnaire Item

Mean

Std. Dev.

Assignment of

Budgetary

Interactive

Specific

Sophisticatio

BudgetingTargets tonIndividuals

Processes and procedures related to budget and operations are clear

5.31

1.19

.87

−.12

−.07

Budgetary plans (e.g., sales, profit, and cost price [costs]) are set to a finely detailed level

5.34

1.13

.84

−.11

.00

Middle managers are sufficiently involved in the process of setting budgetary targets

5.19

1.30

.64

.21

.04

Middle managers are sufficiently involved in the process of setting business targets

5.19

1.28

.57

.10

−.07

4.38

1.25

.52

.23

.13

5.32

1.29

−.12

1.05

−.00

5.34

1.29

.03

.84

−.08

Implementation plans are continuously revised to enable responses to situation changes

4.93

1.34

.18

.46

.06

Specific business targets are assigned to individuals

4.34

1.54

−.01

.00

.97

Specific budgetary targets are assigned to individuals

3.84

1.70

−.05

−.05

.70

Business plans (e.g., delivery date, specifications, and quality [new product development
and sales]) are set to a finely detailed level
When initial budgetary targets and actual results diverge, upper management of thebusiness unit and middle managers engage in discussions
Upper management of the business unit receives regular reports on the budget
implementation process and has regular discussions with middle managers

Degree of Budgetary
Sophistication
Factor Correlation

Interactive Budgeting
Assignment of SpecificTargets to Individuals

1
.57

1

.45

.33

1

Note 1: A factor analysis was conducted using a principal factor method with promax rotation. Factor loadings of 0.4 and higher are rend ered in bold.
Note 2: There was a marginal difference in the questionnaire for the manufacturing and non-manufacturing industries. The items specific to non-manufacturing industries
are presented in square brackets.

17

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Appendix Table 2. Descriptive statistics for budgeting characteristic variables (n = 234)
No. ofQuestionnaire

Minimum

Maximum

Mean

Std. Dev.

Cronbach’s α

5

2

7

5.08

.97

.85

1

1

7

3.55

1.39

N/A

1

1

7

3.82

1.40

N/A

1

1

7

3.51

1.80

N/A

3

2

7

5.20

1.13

.83

2

1

7

4.09

1.47

.74

4

1

7

3.98

1.12

.90

Items
Degreeofbudgetarysophistication
Challenging

performancetargets
Strategic

budgetformulation
No changes to budgetary
targets
Interactive budgeting
Allocationofspecific

targets to individuals
Performance-reward link

Note: For “Challenging performance targets” and “No changes to budgetary targets” , participants were asked to respondto the statements “Performance targets are set at a challenging level that cannot be easily achieved” and “Initialbudgetary targets are not changed, regardless of changes in the situation”. Their responses were measured on a seven point scale, ranging from 1 = “Not at all” to 7 = “Totally”. For “Strategic budget formulation”, respondents were asked“How is the budget formulated?” Their responses were measured on a seven-point scale, ranging from 1 = “The budget isformulated by adding an amount for new ventures to the previous year ’s results” to 7 = “Resources are selectively allocatedfrom a strategic viewpoint to achieve management strategy” .

18

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Appendix Table 3. Results of the exploratory factor analysis on exploration and exploitation (n = 234)
Questionnaire Item
Employees are encouraged to act innovatively and not be risk
averseImportance is placed on new market entry and breaking new
groundDevelopment of new technologies and products [new products andservices] is prioritized in resource allocation
Kaizen activity is conducted on a daily basis/continuously

Mean

Std. Dev.

Exploration

Exploitation

4.12

1.42

.81

.01

3.75

1.30

.61

-.05

4.11

1.34

.60

.06

4.74

1.23

.01

.79

4.33

1.11

−.01

.77

Employees are independently oriented toward the simultaneousachievement of multiple targets, such as cost price [costs], quality,and functionality
Factor Correlation

Exploration

1

Exploitation

.52

1

.71

.75

Cronbach’s αNote 1: A factor analysis was conducted using a principal factor method with promax rotation. Factor loadings of 0.4 andhigher are rendered in bold.
Note 2: There was a marginal difference in the questionnaire items for manufacturing and non-manufacturing industries.
The items specific to non-manufacturing industries are presented in square brackets.
Note 3: The questionnaire items were measured on a seven -point scale, ranging from 1 = “Not at all” to 7 = “Totally”.
Note 4: “Importance placed on increasing satisfaction levels of existing customers rather than new customers” did notload heavily on either factor and, thus, was excluded from the analysis.

19

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Appendix Table 4. Results of the analysis on Japanese companies’ budgeting patterns
C1

C2

C3

Flexible

Strategic

Poor

Budgeting

Budgeting

Budgeting

5.23

5.54

3.20

ANOVA

MCP
(Tukey-Kramer

F -Stat.

Significance

3.88

79.66

.000

C2 > C1 > C3

3.95

3.45

7.39

.001

C2 > C1

4.09

3.99

2.96

12.46

.000

C1, C2 > C3

2.87

4.01

3.77

10.79

.000

C2, C3 > C1

5.46

5.62

3.82

70.59

.000

C2, C1 > C3

3.23

5.35

3.22

116.32.000

C2 > C1, C3

Performance-reward link

3.91

4.34

3.41

11.9

.000

C2 > C1 > C3

n

92

95

47

Degreeofbudgetarysophistication
Challenging performancetargets
Strategic

budgetformulation
No changes to budgetary
targets
Interactive budgeting
Allocationofspecific

targets to individuals

Note: The lowest values are underlined and the highest are rendered in bold.

20

Method)Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Appendix Table 5. Results of the analysis on relationship with exploration and exploitation(n = 234)
MCP

ANOVA

C1

C2

Flexible

Strategic

Budgeting

BudgetingExploration

3.95

4.34

3.38

13.77

.000

Exploitation

4.56

4.87

3.81

18.20

.000

C3
Poor Budgeting(Tukey-F -Stat.

SignificanceKramerMethod)C2 > C1 >C3
C2, C1 > C3

Note: The lowest values are underlined and the highest are rendered in bold.

(Received: August 31, 2018)(Accepted: October 23, 2018)21

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

A Conceptual Framework for Responsible Innovation
Kim Hua Tan

Nottingham University Business School, the United Kingdom.
Email: kim.tan@nottingham.ac.uk
Tetsuo Yamada

University of Electro-Communications
Graduate School of Informatics and Engineering, Japan.
Email: tyamada@uec.ac.jp
Abstract
This paper proposes a framework to assist firms in achieving sustainable and responsible
innovation in their research and innovation processes. It unravels how Japanese firms (such as
Shiseido, Toyota, Rakuten etc.) have successfully takes into account of effects and potential
impacts on the environment and society when accelerating their product innovation and services.
For example, Nintendo Inc., a world leading Japanese consumer electronics and video gamecompany, is one of the most influential in the industry for its reputation in corporate social
responsibility (CSR) and rapid innovation. The ability of Japanese firms to launch new products
in rapid succession over short periods of time is worth worldwide attention, as this could informthe next generation of innovation. In this paper, we discuss the framework that sets out thecornerstones for responsible product innovation.
Keywords
Accelerated Innovation, Creativity, Responsible, Low Cost, Corporate Social Responsibility(1) Introduction
The term Responsible Innovation (RI) or‘Responsible Research and Innovation’ is an
emerging language for science and society,especially in the UK, Europe and in the USA.
The most widely cited definition of RI is of Rene
von Schomberg (2011), who defines RI as‘Responsible Research and Innovation is atransparent, interactive process by whichsocietal actors and innovators become mutually
responsive to each other with a view to the(ethical) acceptability, sustainability andsocietal desirability of the innovation process

and its marketable products (in order to allow aproper embedding of scientific and technologicaladvances in our society)”. In a nutshell, the ideaof responsible innovation is to engage public
participation early into the research and productdevelopment process and embed the processwith a sound scientific and technological risk
assessment approach (Stilgoe et al, 2013). So far,
RI stirs great expectations, hence requires
tighter scrutiny (Nerlich & McLeod, 2016).
Practitioners and academics need an easy tointerpret framework to better understand andinterpret RI in practice.
22

Journal of Japanese Management Vol.3, No.1, November 2018

Nonetheless, the concept of RI is notentirely novel. Eco-innovation has been widely
implemented in Japan in 80s. Japanese
products, with strong synthesis of aesthetic,
harmony and function is well suited tomaintaining humanity, environmental friendly
and connection in a technology driven world(Yamada, 2008). For example, Nintendo Inc., aworld leading Japanese consumer electronics
and video game company, is one of the mostinfluential in the industry for its reputation incorporate social responsibility (CSR) and rapid
innovation (Nintendo, 2018). The ability ofJapanese firms to launch new products in rapid
succession over short periods of time is worth
worldwide attention, as this could inform thenext generation of innovation, especially RI.
This paper aims to unravel how Japanesefirms have successfully takes into account ofeffects and potential impacts on theenvironment and society when accelerating
their product innovation. Drawing on literature
as well as best practices from various firms, inthis paper, we propose a framework that sets out
the cornerstones for responsible productinnovation.

ISSN 2189-9592

in Japan, Xu and Nash (2013) argue that
innovation can be structured into four
dimensions i.e. product innovation, process
innovation, business innovation, and social
innovation. The four dimensions proposed by Xu
and Nash (2013) are overlapped with the OECD
Oslo manual. Especially, the organisational andmarketing innovation dimension of the OECD(2005) is grouped under the business innovation
dimension in the Xu and Nash’s work.
In sustainable term, all innovations may
be categorised into eco-innovation, green
innovation or responsible innovation. In thissection, we adapt Xu and Nash (2013) fourinnovation structure as the theoreticalarguments that underpin our framework on
responsible innovation. We do acknowledge
stakeholders(i.e.
governments,
NGOs,
community actors, employees) play a significant
role in responsible innovation because frequent
meaningful interactions between firms andstakeholders can influence the economic,
environmental, and social activities. We thenlinking the proposed framework with the
responsible innovation concept. We use
examples and good practices of existing
Japanese firms to discuss how the framework
may add to the current discourse andmanagement on responsible innovation.

(2) Towards a Conceptual Framework for
Responsible Innovation
There is no shortage of terms forinnovation i.e. incremental innovation (Proctor
et al., 2004), disruptive innovation (Tan &Perrons, 2009), radical innovation, open
innovation (Tan et al. 2015), serial innovation(Chung and Tan, 2017), transformative
innovation (Li and Tan, 2017), and accelerated
innovation (Tan & Zhan, 2016). In the OECD
Oslo Manual (2005), innovation is categorised
into four types i.e. product innovation, process
innovation, organisational innovation, andmarketing innovation. Based on a long-term
study of innovation and creativity management

1. Product Innovation
Product innovation is not just about
improvement of functions, quality or esthetics.
Product innovation should also take into accountfactors from various levels ranging from social
ecology, society, to individual. A good example is
Shiseido, one of the leading hair care firms inJapan. The firm produces many well-known
products that make people happy throughbeauty (Shiseido, 2018). Shiseido also supports
women empowerment in its business operations
and respects diverse beauty. Though most23

Journal of Japanese Management Vol.3, No.1, November 2018

products are ‘designed’ in Japan, the firm
strongly promote ethical supply chain andrecycling of resources (see Table 1). The wholeprocess from sourcing, manufacturing, logistics,
selling, and recycling is well thought out for eachand every product in Shiseido.

ISSN 2189-9592

Table 2: Process Innovation
Process

SocialSociety

Individual

innovation

ecology

ToyotaRecycling

Initiatives

Respect

based

for traffic forsocietysafetyindividual

andTable 1: Product Innovation
Product

SocialSociety

innovation

ecology

Shiseido

Ethical

Women

Makes

supplyempowepeoplechain,

rment,

happy

resources

respect

throughrecycling

diversebeautysystems

Individual

3. Business Innovation
At the corporate strategy level, business
innovation aims to create value for firms. It
typically involves a business model to offer (orbundle) existing products or services tocustomers but at a higher value. Especially withthe advent of internet and technology, many
firms are able to ‘disrupt’ incumbent players
through business innovation. A new businessmodel can open up novel ways to generate
revenue as well as adding values to consumers
through integrating services, new solutions, andunique customer experiences. For example,
using e-commerce, Rakuten allows consumers toshop from home, a service offering that provides
much convenient to millions of shoppers. All
purchases through Rakuten are protected andsometime shoppers may enjoy more ‘perks’ (i.e.
extended guarantee, longer refund date etc.)
than buying from a physical store (see Table 3).

beauty2. Process Innovation
A process innovation normally involve
new production or methods. Toyota is a world
famous process innovation firm. Toyota
Production System aka Lean Manufacturing isbeing actively adopted by governments,
universities, NGOs, and firms worldwide to
improve their product or service operations.
Through process innovation, Toyota enables cars
to be manufactured in high quality, exceeding
safety requirements, yet at an affordable pricefor consumers (Toyota, 2018). The 7 waste
concept also helps to educate managers to take awider view on their operations from sourcing of
raw materials to product end of life recycling
potential (see Table 2). Toyota production
system respect individual worker and pursuingsustainable operations in very processes. For
example, the karakuri is an automatedmechanism to reduce workers’ stress and labour.
The approach is suitable for most assembly
operations and it relies on gravity and simple
mechanism,
hence
eliminates
energyconsumption in production.

Table 3: Business Innovation
Business

SocialSociety

Individual

innovation

ecology

RakutenSocialLatestIndividual

entreprentechnolpurchaseeur

ogy

protection

programaddress

tolocal
issuesBy using latest technology, Rakuten also
initiated projects with communities to address
24

Journal of Japanese Management Vol.3, No.1, November 2018

local issues (Rakuten, 2018). With its specificknowledge and vast IT resources, Rakuten
works with local entrepreneurs to grow theirbusinesses and help to promote social harmony.

social innovation by taking advantage of its
accumulated experience and ability to create
enjoyable experiences that keep consumers
coming back for more (Nintendo, 2018). For
example, the Wii Family Version allows wholefamily members to enjoy entertainment together
and to improve social bonding. Its mission isbringing smiles to the community.
Based on the four innovation structure,
Table 5 shows the proposed responsible innovation framework.
The proposed framework was developed
based on the belief that we can collectively
engage with the social, environmental, politicaland ethical dimension of responsible innovation.
The goal of the framework is to provide guidancefor practitioners, academics, policy makers tomake research and innovation more inclusive
and responsive. In line with Xu and Nash (2013),
we view the four types of innovation as the
structure of responsible innovation, but it is not
one after another. Some cases may havecommenced by business innovation, and some bysocial innovation, product innovation or process
innovation. Hence, the steps are not neatly
sequential stages, but that there is considerable
iteration between steps. Table 5 shows
circulating arrows to indicate iteration.

4. Social Innovation
As the name implying, social innovation
involves changes (new technology or business
schemes) that have an impact on society. A good
example of social innovation is by Nintendo, oneof the world’s largest video game companies. Its
mission is not just fun and entertainment foreveryone, but also “Bringing Smiles to Future
Generations” (Nintendo, 2018). To ensure that
products are safe for everyone, especially young
children, Nintendo has established its own
designsafetystandards
for
product
development. Game ratings systems enable
individual to select games that are suitable andacceptable to them. Moreover, Nintendo’s
products also has integrated parental controls
for parents to allowing family members to enjoy
games with peace of mind (see Table 4).
Table 4: Social Innovation
SocialSocialinnovation

ecology

Nintendo

ISSN 2189-9592

Society

Individual

StrictIncorporGamecontent

ating

ratings

guidelines,

games

systems for

games

into

target age

complyschoolrange,

Sociallocal

lessons

Integrated

ecologyregulation

toparental

Productsenhancecontrols

innovation

andcultures

Table 5: An Iterative Process in the Responsible
Innovation Frameworklearning

Process
innovation

Nintendo also utilized its uniquestrengths of hardware-software integrated
development and its characters, beloved acrossgenerations, to incorporate games into school
lessons (Nintendo, 2018). Nintendo achieves

Businessinnovation
Socialinnovation

25

Society

Individual

Journal of Japanese Management Vol.3, No.1, November 2018

The framework enables managers tounderstand the extent to which a firm embraces
moral, environmental, social, and governancefactors into its innovation, and ultimately the
impact these factors have on the firm and society.

ISSN 2189-9592

pressure by its stakeholders (government,
communities,
NGOs,
consumers,
andemployees) to response towards their need for abetter product, environment and society. In
another words, Toyota constantly enduring
obligations throughout the entire process of a car
manufacturing from idea generation until thedisposal stage. The purpose of the case is to show
how Toyota can collectively engage with thesocial, environmental, political and ethicaldimension of responsible innovation.

(3) Case example
In this section, we will use a test case(Toyota) to illustrate the application of the
proposed framework. As one of the world largest
automakers, Toyota constantly facing great

Table 6: Toyota’s Responsible Innovation Framework Example
Social ecology

Society

Individual

Ethical supply chain

Fun to drive and zerocasualties

Product innovation

Smart mobility

Process innovation*

Recyclingbased Initiatives for traffic Respect for individual
society and systemsafetyBusiness innovation

Enriching life
communities

Social innovationof Personal devices and High quality andself-driving technology. environmental
performance car for
stress free driving
Contribute to local Distribute income to Income
andjobcommunities
and local people
security
reducedeconomic
inequality*See section 2.2 for Process innovation dimension

Corporate Social Responsibility (CSR) is
core to Toyota in staying ahead of competitorsand maintaining its position and reputation in
the automotive industry (Toyota, 2018). The key
is to balance its profits and the welfare of thesociety, consumers, and environment. The
Kaizen philosophy is one of the Toyota corevalues that underpin product innovation.
Designing a car that is fun to drive and at thesame time to achieve zero casualties are two
important objectives that Toyota committed fully.
Toyota constantly continuously developing new
safety technologies (i.e. Toyota Safety Sense),

and improving on existing ones to cover more
and more products in the Toyota lineup (Beatty,
2018). Thoughout the product development
stages, Toyota maintain a genuine commitment
to social responsibility and ethical businesspractices. In the long term, Toyota will meet thechallenging goal of smart mobility by innovating
vehicle technology to realize comfortable,
convenient lifestyles that offer people peace ofmind (Toyota Global, 2018).
In Toyota, CSR activities are implemented
throughout the course of daily operations basedon its corporate philosophy. Hence, Toyota is able
26

Journal of Japanese Management Vol.3, No.1, November 2018

to integrate product and process innovation intobusiness innovation to generate revenue as wellas adding values to consumers throughintegrating services and solutions. For example,
Prius, a low emission Toyota model using full
hybrid powertrain technology is a highenvironment performance car. It provides highly
educated and environmentally conscious
consumers a stress free driving experience.
Toyota also capitalizes on its superior
competences in product and process innovation
to develop commercial viable self-driving cars
(Pham, 2018). Ultimately, one of Toyota’s visions
is to contribute to the safest, most responsible
ways of transporting people and to enriching the
lives of communities around the world (Toyota,2018).
Today, Toyota also giving a large proportion of
its profits back to local communities to achieve ahealthier environment and reduce economic
inequality (Toyota, 2018). In order to contribute to thesociety, Toyota has involved in various environmental
and social innovation activities, including
philanthropy, community relations, anddiversity and inclusion (Mazzoni, 2014). Besides
creating job opportunities for local communities
through its global operations, Toyota also utilizes
its global know-how to help nonprofits do more
for the communities. This is a win-win social
innovation strategy as it not only creates value
in the communities, but Toyota also learn frompeople they partner with and bring learnings
back into its business (Mazzoni, 2014).
All in all, this simple test case illustrates thefeasibility of using the proposed framework to
capture the essence of responsible innovation in
Toyota. The proposed framework can underpin apractical and systematic approach for firms to better
understand and support the governance of
responsible innovation.

ISSN 2189-9592

Responsible innovation has a strong
moral basis. In other words, innovations should
happen in an ethical and democratic way whilestaying economic competitive during times ofgreat socio-economic challenges (Nerlich &McLeod, 2016). The proposed framework (seeTable 5) captures the essence of responsible
innovation. The framework provides anumbrella linking various aspects of therelationship between products/innovation andsociety, public engagement, gender equality,
ethics, and governance. The framework wedeveloped is not the ‘silver bullet’ for responsible
innovation. Traditionally, managers are too
preoccupied with the product of innovation. The
framework seeks to shape a constructive
engagement between questions of innovations
and responsibility, and allows managers tocollectively embed science, social, ethic,
governance, and equality early in the innovation
process.
Clearly, researches about RI will become
more prominent in the future because scienceand innovation have become very complicated at
the global level and need to be addressedcollectively. Science and technology, which was
the focus of firms have lost the potential to create
responsible innovation. Japan had learned tobroaden the concept of innovation to encompass
policy that lead to encompass the social spherei.e. social ecology, society and individual. We
have shown Japanese companies developed
innovative and social responsible products
through merging and integration of different
technologies/science and business models. The
inclusion of stakeholders inside and outside thecompanies, enables responsible innovation to
occur at record speed.
Although, the concept of RI is
straightforward and convincing, to put into
practice firms need to be prepared to makechanges in several operations strategy(4) Discussion and conclusion
27

Journal of Japanese Management Vol.3, No.1, November 2018

dimensions(structural,
infrastructural,cultural). Far too frequently innovation andengagement with the wider communities iscarried out relatively informally. A formal
framework provides a mechanism for mitigating
this tendency by allowing managers/researchers
to decompose the complexity of RI into
manageable steps. Managers had different
mental models of how their organisations,products and services operated, and might
therefore make different opinions on the possible
RI strategies. The Toyota illustrative case (Table6) indicates that the framework is feasible andcan be applied to undertake responsible
innovation analysis systematically. It enables
managers to explore innovation dimension andsustainability in depth while concurrently
maintaining a visual and transparent trail,
enhancing the rigour of the processes. The
framework allows managers to visualise the RI
dimensions and relationships with stakeholders.
The framework provides a formal tool for
iterative group discussion, where managers
learn and modifying their understanding of RI,
ideas, beliefs and even their thought processes
over time. Application of the framework canprovide a number of insights into aspects of RI
which add to academic understanding and could
form the basis of further work.

ISSN 2189-9592

framework against reality should be carried out.
In addition, a process to operationalise theframework is needed in order for practitioners
and academics to utilise the framework
effectively. Thus, a set of questions as well as
steps to apply the framework should be
developed.
Acknowledgements
This research was partially supported by
the Japan Society for the Promotion of Science(JSPS), Invitational Fellowships for Research inJapan (Long-term), L18560, and KAKENHI,
Grant-in-Aid for Scientific Research (A),
18H03824, from 2018 to 2019.
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approach in pursuit of zero casualties
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(5) Limitations and future directions
We have argued how the proposed
framework can facilitate the generation andcommunication of RI. One limitation is that theframework is based on the discourse of literatureand best practices and have not been empiricallytested. The other obvious limitation is that theeconomic aspect of responsible innovation has
not been included in the framework. We hope
this paper will stimulate additional theory
building and conceptual development within the
RI discipline. Future research to test the RI

Mazzoni, M. (2014). “Toyota’s Social Innovation
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(2015). Harvesting big data to enhance
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Von Schomberg, Rene (2011). ‘Prospects forTechnology Assessment in a frameworkof responsible research and innovation’in: Technikfolgen abschätzen lehren:

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Xu, F. & Nash, W. R. (2013). The Structure of
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Yamada, T. (2008). Design Issues for Inverse
Manufacturing Systems in JapaneseCases. Northeast Decision Sciences
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(Selected: September 19, 2018)(Accepted: October 20, 2018)29

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

Design protection in managing sustainable user-driven
innovation in SMEs
Gunnar Prause

Tallinn University of Technology, Estonia

Email: gunnar.prause@ttu.ee

Laima Gerlitz

Wismar Business School, Germany

Email: laima.gerlitz@hs-wismar.deThomas Hoffmann

Tallinn University of Technology, Estonia

Email: thomas.hoffmann@ttu.ee

Abstract
Innovative products and services – which are an essential precondition to economic
prosperity and welfare in society as such – result increasingly from cross-sectorial combinationof technologies, design and business models. The recent design “wave” in management andinnovation gained growing attention in the context of entrepreneurship and innovation. In
recent decades, design became also part of the discourse of social responsibility. Designers
interpreted their social role as complementarity to business strategies, and design was meant
to bridge pure industrial thinking and social responsibility. Today, design adopts acomprehensive holistic thinking and addresses social, cultural, environmental, political andeconomic provinces in the context of globalisation, industrial expansion, increasing consumption.
Numerous approaches came to light under design management or design-driven
innovation provinces. Indeed, they have been a promising key to develop, perform competitively
and grow in a sustainable way. Yet, sustainable and responsible innovation development andthe outputs thereof on the product, service or marketing level embrace also issues that are linked
to the ownership and stakeholders involved in the innovation process, namely, intellectual
property right (IPR) aspects – in both national and international contexts.
From an IPR perspective, it has to be taken into account that design-driven innovation is
becoming a more and more prominent example of user-driven innovation, resulting in thechallenge of how to distribute to prosumeristic users a “fair share” of the company’s profit basedon the economic exploitation of the prosumer’s contribution. Indeed, industrial design issue hereis just as significant as in patents or utility models.
The authors took part in several European research projects on design management, open
innovation and related IPR topics with a focus on transnational entrepreneurship. The researchis based on semi-structured interviews, qualitative and quantitative surveys, expert
assessments from diverse European countries as well as on a comparative analysis of the legal
national and international regulations on the issue. The paper highlights and discusses resultsof important aspects of IPR for design management processes, thus forging innovation and30

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

sustainable entrepreneurial growth.
Keywords
Design management, IPR, open innovation, user-driven innovation, SMEs
(1) Introduction

sustainable

Design-driven

e.g.

in

the

enjoysmanufacturing sector, enables to generate

growing importance on the entrepreneurial

technological innovations or achieve social

agenda and cases like “Braun” products ofinclusion through being heart within social

Dieter Rams that inspired Apple’s designers

innovation development process (Brown &or the Russian “Gopniki” look. But most

Wyatt, 2010). Indeed, as the scholarly

approaches and concepts for design-driven

discourses showcase, design has become an

innovations areoriented on

important tool related to the businesscompanies,

realistici.e.

management

innovation

imprints,

anddevelopment,

innovation

andentrepreneurship (Borja de Mozota, 1998,

innovation for entrepreneurs and specific2003a, 2003b, 2006; Raulik et al., 2008;

SME-suitable implementation concepts are

Prause & Thurner, 2014). By echoing Zhao

hardly to find. This makes it complicated for(2005)

SMEs to benefit from design-related cost(cultural), social (external environmental),saving, business processes’ improvements

managerial (entrepreneurial), technologicaland sustainability, which have been proven by

and environmental domains that integrate

research studies (GDC, 2010; Gerlitz &design can drive innovation, accelerate newPrause, 2017). Indeed, traditionally design

knowledge

has been affiliated with products and their

Therefore, the focus turns from traditional

uses, their shapes, colours, etc. or just been

design towards design management (DM), i.e.

treated as a matter of mere styling but today,thehowever, design has been “repositioned”, andbetween design and business in the SME

new possibilities were opened up for design tocontext, leading to innovation (Norman &play:business

Verganti, 2014). Innovation is the key to bothdevelopment, industrial and social innovationcompetitiveness and growth (Borja de Mozota,

and, recently, digital and responsible economy2011). Consequently, DM is rather placed

domains (Hack et al., 2013; Inglewood &within the area of strategic management

Young, 2014; Morelli, 2007).

where network dimensions play a crucial rule,

Designoffeasible

design-driven

withinconcepts

large-scale

manufacturing,usedefficientorganizational

experienceandfeasible

generation.

collaboration

manufacturing any longer, but also for daily

affect SME performance in the regional

life. It acts as a driving force on the entire

context.

and

just

and

of

connecting and intertwining dimensions thatprocess

notinterplayformanufacturing

is

an

the

entireBut today, innovation is increasingly

lifecycle. Design affects the entire ecosystemcomplex, fast, interactive, and requires theand leaves positive ecological, environmental,

connection
31

ofexternalandinternal

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

knowledge bases (Pavitt, 1984; Chesbrough,intellectual property rights as well as

2003; Asheim & Gertler, 2005; Malerba, 2005;

safeguard that unique product design that isPrause & Thurner, 2014). Consequently,

distributed and used globally. Unfortunately,

firms acquire knowledge from a variety ofprotection of design is not unique organised

sources and actors at various spatial scales

globally. Furthermore, there exists huge

(Smith,2006),

difference compared to patents that are

combining it with internal knowledge andapplicable all around the world. In the EU

competences. For this purpose, firms may

member states, one needs just to pay a fee andmaintain

meet

2000;

and

Tödtling

use

et

al.,

different

types

of

other

formalrequirements

for(e.g. Community designatinteractions and transfer channels (Gilsing etregistrational., 2011). Localized design expertise is crucial

EUIPO, Germany, France, Spain). Anotherfor competitiveness as innovation processes

approach appears for the Member States ofrely on the interplay between local andthe World Intellectual Property Organisation

complementary global knowledge and design(WIPO), where a registration of productexpertise (Gertler & Levitte, 2005; Boschma

design within the WIPO protects the design& Ter Wal, 2007). Thus, globalisation andin line with an examination by the designatedemergence of global networks, new social andMember States as well as in accordance withenvironmental challenges have jeopardised

the Geneva Act of the Hague Agreement (DPA,

innovation and growth opportunities. This is2017).

especially true for the SME sector andProtection of product design can be

performance of individual regions of the EU.

located in the context of Responsible Research

Certain EU regions located outside the core ofand Innovation (RRI), which is the mostindustrial activity or being more remoted

recent and mainstream discourse in the EUfrom metropolitan areas are subject to a(EC, 2012b, 2013d). RRI can be considered as

fiercer competition from other economicallypart of a set of ideas and initiatives

strong regions or global players. SMEs are

addressing socially responsible innovation. It

regarded as a backbone and vehicle ofdescribes research and innovation processes

regional and national economy. Thus, in ordertaking into account effects and potential

to strengthen regions that are exposed to

impact on the environment and society. This

competition more than the other, there isapproach is part of the European Researchneeded support for SMEs. They play crucial

Agenda and has been integrated into EUrole in generating growth, attracting new

programmes and projects. Until now, a large

investments

enabling

number of EU projects have been funded byclusters to evolve and ensuring employability

the European Commission in order to developof regional people (EC, 2012a, 2013a, 2013b,

the RRI governance framework (Res-AGorA,

2013c, 2015, 2017; GII, 2018).

2014).

Sinceandbusinesses,

product

designplays

an

By accessing protection of productimportant role for the company’s businessdesign from the IPR point of view, thesuccess, the questions arise how to protect

questions appear often in the context of open
32

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

source and user-driven innovation. It is

and entrepreneurial management practices.

because of the open distribution of forms andExisting DM concepts appear to either to be

their products in the globalised economy.

absent or distant from their feasibility in
SMEs (EC, 2009, 2013; Prause et al., 2012).

(2) Theoretical background

Existing approaches and models are rather

Traditional manufacturing SMEs are

driven by transfer of best practices from large

forced to search for new innovative andcompanies, which made them less feasible forsustainable solutions in order to survive on

SMEs,

the macro-regional or global scale. It might beconsidering the environmental ecosystem ofargued here that in order to better equip for

SMEs, addressing less their specific needs

the global competition, local and regionaland challenges, SMEs performance practices

needs and challenges need to be tackled first,

and networking interactions (Gerlitz et al.,beforescale.

2016; Gerlitz, 2018; Gerlitz & Prause, 2017).

Generating innovation and focusing on theConsequently, there is missing a conceptual

local and regional context needs to be focused

DM approach to innovation in SMEs from theon in order to make a stronger use of theprocessual perspective: how to employ tools,“glocalisation”. This term refers to addressed

what challenges and opportunities are related

local and regional needs and challenges

to the DM embeddedness process and how

instead of concentrating on global integration

does management of design integration take(Courchene, 1995; Porter, 2000; Wolfe, 2002).

place. Furthermore, knowledge is missing on

Here, Design Management (DM) concept canorganisational changes that are based on

help SMEs to strive and achieve innovation as

opportunity

well as to better adopt to globalisation. This

organisational strategy and culture (Gerlitz,

might happen by developing new ways of2018). In addition, we deal here with non-makingutilised potential of DM: design integration

proceeding

adoptingandtoselling

theglobalproducts,

organisational

services,

processes

as

they

were

detached

recognition,

frominnovation,andand utilisation. This appear to be especially

implementing visions that are in line with thetrue for the SME context as well as in policy

needs and challenges of the local and regionaland governance domains and measures thatsetting (Candi, 2006; Steffen, 2010; Figurska,

would enable to decrease the gap in2014).

knowledge and research on what processes
Despite increasing trends of DM

andframeworks

may

be

adoptedbyutilisation within the global scale and in large

enterprises to assist them in becoming

organisations, DM theoretical contributions

design-oriented. As noted by Whicher &and practical applications within the SMEs

Walters (2014), only a few regions in Europe

context is rather scarce (Hack et al., 2012,

have integrated design into their regional or2013; Gerlitz & Prause, 2017). Screening ofmacro-regional innovation policy on regional

the worldwide databases, DM concepts forand local policy levels (p. 4). Thus, practical

SMEs yield just a few entries (Gerlitz, 2018).

application of DM concepts through research

Parallel, DM is marginally utilised in SMEs

projects is demanded (Acklin et al., 2006).
33

Journal of Japanese Management Vol.3, No.1, November 2018

New dynamics in the interaction of
innovation,

entrepreneurship,

as well as the share of the knowledge with theandother. Here, again the already mentioned

regional development appear with the rise ofcases for open design driven innovation likethe smart specialisation and the Industry 4.0

Braun products of Dieter Rams or theconcepts (Gerlitz, 2016; Prause, 2014). BothRussian “Gopniki” fashion look underpins theapproaches embrace distributed networking

importance of the flow of design innovations

interaction

among

and

allow

DM

ISSN 2189-9592

acquisition

of

open

innovation

andonlineknowledge and expertise from a variety ofcommunities around the world. But there

different sources. Especially, for the design

should be a legal framework for these

sector, an inspiration and use of global

considerable transfers of value, providing

patterns, icons, forms or ornaments together

sustainability and a minimum of balance ofwith the protection of their intellectual rights

interests of both users and companies. Legal

becomes crucial for competitiveness and thepractitioners should familiarise themselvesprospect of a company. The no-universal

with user-driven innovation business models“design patent” as a global form of legal

and the implemented technologies (Kerikmäe

protection of design until now made first steps

et al., 2018).

toward patenting industrial design right in

From a legal point of view, there is little

some countries and institutions. On the

demand for a balance of interest to be

European level, there are forms of registeringachieved by instruments of intellectual

design for both the WIPO members andproperty law, as free use of otherwise

several countries all around the world (DPA,

protected rights forms the essence of the2017).

“Open Source Scene’s Spirit”. This means thatSpecial forms of exchange of design

all parties involved in open source innovation

patterns is related to open and user driven

are aware that they – expressly or impliedly –processes that are organised by online

waive their respective IP rights, driven by thecommunities. Following Bartl (2008), theseawareness that they jointly improve a

processes are covered by an open innovation“common good”. But not all open or user-

approach, which underscores the way of going

induced innovations contribute to public

beyond the corporate boundaries, i.e. an

goods. The innovation beneficiary more andactive strategic deployment of environmental

more often happens to be a private and profit-

cloud or external factors of influence tooriented company, making the private user

increase its own innovation potential (Hack etproviding innovation not any more to a publical., 2012, 2013). As a result, innovation occurs

good, but to private assets of that company,

and ideas and design are generated in such ae.g.

society through the interactive creation ofcarpenter’s design cupboard creation onvalue.

innovation

Instagram, which is then found and copied byencompasses such manifestations as to bea furniture company (see further examples atopen for the knowledge of the other,

Baldwin et al. 2006). The value generated bygeneration of the knowledge as a joint action

this innovation is not any more freely

Additionally,

open

34

the

photographyofanamateurJournal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

available on the market, but has to betechnologicalpurchased by each buyer (or other kind of(Schomberg, 2013). The first steps on the EU

customer) individually. In this situation, thelevel have been scientifically narrowed down

exchange of interest is not as balanced as inby Owen et al. (2012) to the three key points

the “Open Source Scene”, and correctionof democratic governance, responsiveness andmeasures imposed by law may be required. As

framing of responsibility, which are to large

these

immaterial

extent overlapping with the EU framework.

character, these correction measures – in

In addition, Stilgoe et al. (2013) highlight asother words forms of legal protection – must

main features for RRI the four dimensions of

be sought among the existing protection

anticipation,

schemes intellectual property.

responsiveness. Thus, meanwhile the RRI

contributions

are

of

advances

reflexivity,

in

our

societyinclusionandOn the European level, the question of

approach found their way into the strategic

protection of product design falls into the area

documents and objectives of the Europe 2020of RRI, which refers to the comprehensive

Strategy to create Smart Growth or into theapproach of proceeding in research andinnovation in ways that allow all stakeholders
that are involved in the processes of researchand innovation at an early stage (A) to obtainrelevant knowledge on the consequences ofthe outcomes of their actions and on the range
of options open to them and (B) to effectively
evaluate both outcomes and options in termsof societal needs and moral values and (C) to
use these considerations (under A and B) as
functional requirements for design anddevelopment of new research, products andservices (EC, 2012b, 2013d). A framework of

Horizon2020

programmes

andrelatedprojects of the European Union, including the
Res-AGorA project (Res-AGorA, 2014).
(3) Methods
The research process described in thepaper followed a manifold research path.
Diverseresearchmethods

have

been

intertwined, considering respective research
approach and research tool. Five techniques
were employed in exploring the objectives ofthe present paper:

RRI consisted of six key points and is

Research types: analytical, qualitative,
historical, empirical, practice-based;

Union



Research approach: qualitative;

highlighting engagement, gender equality,

Research methods: descriptive anddescribed

bytheEuropeanscience education, open access, ethics andqualitative – case studies, semi-

governance. As a result, RRI can be defined as

structured"a transparent, interactive process by whichassessments and observations; andsocietal

actorsandinnovators

becomeinterviews,

expertResearch scope: different researchmutually responsive to each other with a view

activities between 2013 and 2018.

to the (ethical) acceptability, sustainability

The reasoning behind the selection ofand societal desirability of the innovation

the following techniques in the research

process and its marketable products in orderprocess is elaborated in the following.

to allow a proper embedding of scientific andWith regard to the research types, the35

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

paper has chosen analytical, qualitative,

filing in the application (respectively on that

empirical and practice-based way, sincedate, where a first alleged infringement has

during the research process the facts andtaken place in case of non-registered designs),.

empirical

wereThis means that no design that is identical orappropriately analysed and subject to adiffering only in immaterial details from thecritical assessment. The core of the research

design in question has been published,process is the qualitative research approach.

exhibited or put on the market in any other

Important insight views were given in

way before that respective date. Furthermore,qualitative expert interviews and the analysis

a design must have individual character, thusof case studies (Hack et al., 2012, 2013;

meaning that its overall impression must

Prause & Thurner, 2014; Hoffmann & Prause,

differ from already existing designs. In this2015; Gerlitz & Prause, 2017).

context, neither the view of a layman nor theevidence

gathered

opinion of a product designer is decisive. It is(4) Design protection schemes in user-driven

rather an overall impression produced by theinnovation

design on the so-called “informed user” that is

1. International design protection

relevant.

Protection of designs is globally not yet

These criteria are covered by the

harmonised, as it is e.g. already in case fornational design protection law in terms of thepatents, which can be effective all around thefollowing

world. In contrast to other industrial property

harmonised: The U.S. design patent, forrights, protection is granted not only upon

instance, is a form of legal protection granted

registration, but also – similar to copyrights –to the ornamental design of a functional item,by making design available to the public,e.g. jewellery, furniture, beverage containers

despite the fact that the scope and period ofor logos. Providing another example, theprotection is lower for these unregistered

Germandesigns. Both design protection forms shareappearance of industrially manufactured or

anyway some common protection criteria: It

manually crafted products, e.g., clothes,can either protect the design of a flat surface,furniture, vehicles, fabrics, decorative objects

e.g. of a textile or wallpaper, or the design of aor graphical symbols. Parts of products canthree-dimensional object. In this context, thealso be protected by a registered design, forfollowing features as lines, contours, colours,

example, the sole of a sports shoe or the cap ofshape, texture or the materials of a producta writing instrument. Under the German law,play a crucial role. Here, a product is anya registered design (German: “Eingetragenes

industrial or handicraft item, including

Design”), formerly called “Geschmacksmuster”

packaging, get-up, graphic symbols and(in English, “aesthetic model”), is a form of

typographic typefaces as well as parts

intellectual property that extends industrial

intended to be assembled into a complex

design rights over the visual design of objects

product.

that is not purely utilitarian. The term of aA design must be new on the date ofcontents

registered

that

are

designs

generally

protectthe“Geschmacksmuster” is twenty-five years (§36

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

27 (2) GeschmMG) old. It is used for thenational application and registration process

Community design (Bulling et al., 2004;(multilateral

Eichmann & Kühne, 2015; GPA, 2017).

international regulations works establishingIn

general,protection

follows

international

autonomous

new, uniform design rights applicable on the
territory of several nation states. An example

territoriality, i.e. design rights are granted byfor the latter – here for the EU legal space –and under the legal systems of individualis the Council Regulation (EC) No. 6/2002 ofstates. Thus, their protection is generally

12 December 2001 on Community Designs

restricted to the territory of the state that is(Community Designs Regulation), which

granting the design right. As a result, any

grants a unitary right covering all the EU

protection beyond that territory can only be

Member States for up to 25 years forachieved on this basis if parallel national

registered rights (as far as every fifth year thedesignrenewal fees have been paid) as well as threeareprinciple

orofrightsthedesigntreaties)

obtainedinseveralindividual states, usually chosen by the

years for unregistered design rights.

degree of economic interest for product sales.

The community design is granted

On this basis, a bundle of rights can beadditionally to national design protection,

created, covering the relevant geographic

which in the European legal space has

area as a whole. But in fact, such “bundled

anywaytolarge

degreenational rights” are rarely applied for inharmonised

by

the

practice,

implementations into national laws of theconsidering

there

is

a

basic

98/71/ECofalreadythebeenrespective

protection as unregistered design anyway,

Directive

Europeanand there are substantial costs involved in the

Parliament and of the Council of 13 Octoberaccumulation of national rights (filing fees,

1998 by setting up the harmonised standards

publication fees, legal fees, etc.), especially infor eligibility and protection of most types ofcase of design protection of non-durable

registered design.

consumer goods as produced by the fashion

Beyond the EU, the Hague Modelindustry or toy industry, etc. Yet, even

Convention is today the most importantcompanies in branches producing longer-

treatylasting products as, e.g. in the automotive

procedures (but no direct effect, as substantial

industry, electronics industry, etc. usuallynational design law remains applied) in all

restrict themselves to design protection in key

the Member States. This is similar to thesales markets (Hasselblatt, 2017).

Madrid Trade Mark Convention, which also

Still, a maximum of international

providinguniform

registration

unifies only the filing and registration

protection is and has always been envisaged

procedure.

bymaintained by the WIPO Office located in

producers,

just

as

measuresofharmonisation have been induced and partly

international

These

measurestreaties

consistharmonisingproceduresareGeneva.

also already achieved by the international
community.

Registration

The Hague Model Convention consistsofof three separately amended versions of thetheoriginal Convention of 1925, being the37

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592"London Version" (2 June 1934), the "Hague

exceeds by far employees’ motivation (Alexy &Version" (November 28, 1960) and theReitzig, 2013).

“Geneva Version” (July 2, 1996), which are all

In spite of this, there are at present noparallel in force, as they addressed different

gratification schemes, which would enhance ainternational needs. It is thus essential tobalance of interest between these voluntary

specify exactly to which version of the Hague

innovators and companies “harvesting” these

Model Convention is referred to.

contribution, which – being of immaterial
character – can only be corrected by

2. Design protection in user-driven innovation

adjustments in the existing intellectual

From an IPR perspective, there are two

property protection schemes for design among

types of user-driven innovation, which differ

protection

by the nature of the “innovation target”,

granted registered design is a strong andwhich may be either a public (i.e. freely

effective right, and also the unregisteredavailable)

good

to

design grants the creator of the design acontributeonentirely

an

which

innovators
privatesystems

discussed

above.

Aandrange of rights ranging from monetaryvoluntary base to a public good, or innovatorscompensation for past infringements tocontribute their achievements in corporate

injunctions against future infringements.

environments on behalf of the employing

In fact, every design made available via

company, which has to re-finance these

online communities is (if the respective

investments via licenses or selling items incriteria in terms of novelty individuality are

which the innovation has been realised. The

given) is at least protected as an unregisteredfirst model is known as “private-collective

design holder according to national law or – ininnovation” (von Hippel & Krogh, 2003) andthe EU – according to the community design

is regularly found in the IT branch, where thisregulation. As most users making their

way open source software is developed ordesigns available in public are not aware ofmaintained (see e.g. Linux); eventual arising

this, in most cases there is little practical

IP rights are deliberately waived. The second,

impact of their disclosure. But the situation

traditional model, has on the other hand tochanges if the private company copies that

protect their innovation in form of IP rights indesign found online and seeks protection of its

order not to be deprived of the profits of its

legal position from the usage of that design

investments

against other third persons: In the caseAnyway, also companies often waive

presented above, the furniture company may

their IPRs, as they realise more and more

eventually intend to apply itself for designthat making their technical state-of-the-art

protection based on the design disclosed on

freely available has the potential to generate

the internet by the amateur carpenter. Whena much higher return in innovation than theit will hand in a respective application for a

private-investment model (Henkel et al.,design at the competent office, in most legal2013), as the intrinsic motivation of thesystems the office will check – among othercontributors forconditions – the novelty of the design. If thetheir freecommitment
38

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

company did not disclose itself the origin ofregistrations concerned furniture (ca. 12,000),

the design, a research by the office may reveal

followed by clothes (ca. 10,000) and graphic

the amateur carpenter as creator, who, in thisdesign objects (ca. 7,000). All in all, thecase, also made his design publicly available

number if design registrations decreased by– depriving it from its novelty. But theabout 22% compared to 2016 but during thecompany’s situation is even at stake if it does

period from 2010 to 2016, the number of

not apply for design protection, but simply

annual design registrations ranged aroundstarts mass production within three years

50,000. Interesting wise, the 2016 figures

after design disclosure, as the initial creator

reveal that the top three leading company

will in many cases be protected at least as

with design registrations consisted of anholder of an unregistered design right.

Italian company (4,200 registrations), a

Depending on the respective legal regime

German enterprise (2,230) and an Austrian(national or international law, depending on

company (1,116). At the end of 2017,

the function of the design office), the amateur

altogether 312,860 design registrations werecarpenter could file a notice of opposition

enrolled in the databases of the German

within a special opposition period, and also

Patent and Trademark Office (GPTMO, 2017).

without such an opposition the company

Although a clear demand for theremains endangered that the user will later

regulation of these forms of cooperation exists,

hand in an action for nullification of thethe legal protection of user’s interest in thedesign, as the conditions for its grant had notcontext of user-driven innovation has not yet

been met, or sue for cease and desist from thebeen settled. Still, there is a similar

usage of his design in case the company did

constellation of interests, which already has

not apply for design protection, but trusted tobeen regulated in detail by law. Just as inhave an unregistered design.

user-driven innovation, an employee not

In

other

words:

Ifacompany

holding any personal shares in the profit of aendeavours the complete exploitation of acompany generates innovation through own

design – and the more attractive the design is,design creations he or she develops throughthe more probable this endeavour will be –, itdaily

has in some way to cooperate with the creator

production, which usually – if they are high-of that design. Otherwise, it will run thequality design ideas – find their way to theconstant risk of a later revocation of its design

company’s management, are respectively

right, including a court order to cease andimplemented into production, hence lead todesist from usage of that design.

the attraction of these products and increase

contact

withproducts

or

their

the profit of the producing company.
(5) Findings and Discussion

The European Commission took from

A closer look at the German statistics

2010 cross-cutting RRI actions and financed aconcerning design protection reveal that incouple of international research projects in2017 about new 44,300 design registrations

order to develop a RRI governance framework.

were executed, and the largest number ofDriving force were here the EU constitutional
39

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

values comprising respect, for human dignity,

successful and artistic design creations,liberty, democracy, equality, the rule of law
and respect for human rights, including therights of persons belonging to minorities.

German Copyright Law grants the author in

Background idea was that innovation andbusiness relations is customary and fair,

new technologies should meet the global

given the nature and extent of the possibility

challenges by respecting the European valuesof use granted, in particular the duration,andfrequency, extent and time of use, andsafeguarding

development,

sec. 32 II 2 an equitable remuneration at an
amount which “corresponds to what insocialcohesion and the maintenance of economic

consideringallcircumstances”

prosperity in the frame of the EU2020

2014; Hasselblatt, 2017).

(Schwab,Strategy (EU, 2012b, 2013d). Important key

This regulation provides at least a

points were dedicated to open access andgeneral approach of how interests of the

ethics as well as to certain extent governance,

creator of a successful design and thewhich are covering the topics of this paper.

employer in the situation of “employee-driven

Among the initiated EU research projects oninnovation” can be balanced. It may be argued

RRI, some were touching design protectionthat this model cannot be applied directly on

and user-driven innovation including the Res-the situation of user-driven innovation, as

AGorA and the IRRESISIBLE projects (Res-there is an essential difference. While the

AGorA, 2018). Both projects looked at the casedesigning employee and his employer are

studies in design and smart manufacturing

bound by a joint employment contract, there

sector and investigated the contextual RRI

is no contractual relationship between theframework. Yet, the legal aspects of ouruser providing attractive design in a virtualresearch have not been discussed, especiallycommunity and the innovation-exploiting

employee’s design rights were not in thecompany.

centre of the research projects so that a clear

But just as the gratification paid to theand generally accepted legal framework is

designing employee does not arise fromstill missing.

contractual

In terms of law, employee’s design
rightsgenerallybut

simplydistributes a respective share of the profit

automaticallymade by the company expected on base of thetransferred to the employer, see e.g. sec. 7 II

new design, the duty to pay a respective

German Design Act (DesignG), unless thegratification on base of copyright law – in ourdesign has been created explicitly beyond theexample sec. 32 I UrhG, including its

creator’s contractual tasks. In contrast to

calculation methods – can be respectively

employee’s inventions, which entitle theapplied to the favour of users in user-driven

employee in return to a respective monetaryinnovation as well, serving exclusively thatgratification

balance of interest also envisaged in user-

(art.

are

relationships,

9-12

ArbNErfG),

theGerman Design Act does not provide any

drivenregulation gratifying the employee for his orcompany’s design strategy sustainable. As theher contribution. Still, in cases of truly

user does often not know, which company may
40

innovation

andrenderingtheJournal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

exploit his design in future, and as there

effects

andpotential

would not be any duty to inform anybody

environment

about eventual designs for users anyway, theimportant basic points dedicated to open

information duties would be reversed, i.e. theaccess, ethics and governance, which areinterested company would be obliged tocovering the protection of design rights indisclose its intention to make use of a specificopen access environments. Some initiated EU

design to its respective author (as far as

research projects on RRI were touchingpossible). If the author does not react within

design protection and user-driven innovationa period of time still to be determined, hisbut a clear legal framework was still missing.

consent would be assumed, thus leaving

The estimation of the benefits of user

untouched his claim for gratification, if heinnovation communities for companies isonly finds out about the use of his design later.

manifold, comprising sustainability aspects

and

impactssociety.

on

These

the
cover

due to stronger user orientation in product(6) Conclusions
The

way

development as well as significant cost
technical

innovationis

aspects due to their analysis of all successgenerated in companies has essentiallydimensions. All phases of the life-cycle supply

changed in recent years, and the trend has

chain

just started. No internal design department ofConsequently, large potentials in the usage ofany company has the resources to compete

design innovations from user communities

with the “creativity of the crowd” provided byhave to be kept in mind when it comes to themillions of private product users every day –evaluation of related tentative IPR payments

in real time, based in real experiences, and –to users.

ofaproductarealsocovered.

so far – at no costs. Thus, companies access

While the exploitation of this design

design ideas or users provide these designs toknowledge is at present basically free forcompanies so far for free, as the “Open Source

private companies and therefore is becoming

Spirit”, which is based on an informal

more and more essential in the firms’ scheme,

understanding of mutual benefit of all actors

the “Open Source Spirit” will sooner or later

involved, leaving any claims for monetary

fade: This is because users will realise thatcompensation aside, is still alive in thethere is not much of a mutual benefit left if

internet community, and as many users dotheir creative contributions that do not serve

not realise that their designs disclosed on thea public good but rather the profit of private

web have indeed an eventually considerablycompanies. This does not mean that the trendhigh market value at all.

to even more user-driven innovation should

The European Union has recognised

be stopped or even reverted. On the opposite,

the importance of these issues and initiatedthe abundant resource of user’s creativity

activities to develop a RRI governanceshould even be explored further, and muchframework addressing socially responsible

more, the communication between users andinnovation. It describes a research andprivate companies should further intensify.

innovation process that takes into accountHence, a legal framework for these41

Journal of Japanese Management Vol.3, No.1, November 2018ISSN 2189-9592

considerable transfers of value is required,handbook of innovation, 291–317.

providing sustainability and a minimum of

Oxford University Press.

balance of interests of both users andcompanies.

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practitioners

familiarise

themselves

Baldwin C., Hienerth C. & von Hippel E.

should(2006). How user innovations becomeuser-driven

commercial products: A theoreticalinnovation business models and implemented

investigation and case study. Researchtechnologies. Such a framework is so far

Policy, 35, 1291–1313.

withlacking in most legal virtual systems, as theBales, R. (2013). US Employment Law

dogmatically closest legal mechanism –perspectives on the issue of who owns

employee’s invention law and copyright law –an employee’s invention. In Pittard, M.;cannot be directly applied on user-driven

Modotti, A.

innovation. This is due to the lack of any legal

Business innovation and the Law.

relationship existing between the innovating

Elgar, 191–2134.

user and the exploiting company. There is still

Bartl,

M.

&(2008).

Danns,WhiteY(Eds.).

Paper:

Open

one element in employee’s copyright law,

Innovation! Available on the Internet:

which is not based on a contract between both

http://hyve.de/cms/upload/f_1599_Whit

parties – a duty to pay a respective

ePaper_OpenInnovation.pdf. [Accessedgratification to the private designer. This duty

15 Jun 2014]

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Borja de Mozota, B. (1998). Structuringuser-driven innovation, respectively – at least

strategic design management: Michael

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