Process exaptation: The true determinant of innovation capability for non-R&D intensive SME's?

Abstract: Current innovation thinking promotes R&D as the core determinant of innovation success and yet, this is of limited innovation significance for non-R&D intensive firms. Research of LMT firms' highlights the pursuit of... [ view full abstract ]

Abstract:

Current innovation thinking promotes R&D as the core determinant of innovation success and yet, this is of limited innovation significance for non-R&D intensive firms. Research of LMT firms' highlights the pursuit of innovation that reinforces the core business through incremental product development and process specialisation, limiting the potential for 'pivot' in the competitive trajectory of the firm. Many LMT firms are SME in scale and demonstrate significant organisational longevity, indicating ability to innovate and respond of turbulent economic shifts to remain competitive. Policy-makers desire to enhance the value-adding potential of such firms but current policies have not had the desired impact. In an effort to better understand the innovation routines of LMT SME’s, this research focuses on a small number of incidents where radical innovation has had a transformative shift on the firm’s business operations. This research explores three such recent innovation incidents, linking their occurrence to a process of exaptation rather than strategic intent or adaptation within their existing market. We explore how the process of exaptation occurs and if it might be a ‘third’ way of innovation between R&D push and market need pull, that is the true determinant of innovation capability for these LMT SME's.

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Keywords: LMT industry; SME innovation; Process innovation; Exaptation.

1.  Research problem:

Traditionally innovation studies have been focused more on large-scale, R&D intensive firms at the expense of firms in low to medium-low tech (LMT) industries.  Santamaria et al. (2009; 507) suggest that this innovation bias may be due in part to the “pre-eminence of the linear model of innovation, the configuration of R&D statistics and misunderstanding the innovation process” but irrespective of the cause, it has resulted in a gap in our understanding of the innovation routines of non R&D intensive sectors, especially within smaller scale firms which dominate such sectors.  SME’s operate in a very different context to large-scale firms, often highly constrained by lack of resources such as skills, infrastructure, time and finance (Hoffmann et al., 1998) and thus face greater challenges in achieving innovation to sustain organisational growth.  A further acerbation for SME’s operating in LMT sectors is that their market offerings are often commodity-based \ relatively low value added, something which limits the profits available to reinvest into the firm for future innovation (Dooley et al., 2017).  Research highlights that much of LMT innovation activity reinforces existing business and does not nurture radical shifts in strategic trajectory.  Despite these adverse environmental conditions and lack of investment in traditional R&D, many non-R&D intensive SME’s demonstrate an organisational longevity and ability to adapt to environmental shock to remain sustainable and even grow.  Thus, addressing the research question of how LMT SME’s innovation and pivot towards more value adding context is understanding not only of value for the sector but also for all SME’s struggling to innovate. 

2.  Current understanding

Much of LMT industry populations are dominated by mature SME firms (Spithoven et al., 2011), who are indigenous and often located outside of the large urban centres.  Firm level studies that have explored LMT innovation reveal that non-R&D-intensive firms generally perform more weakly with regard to product innovation compared to R&D-intensive firms. More recent research of non-R&D-intensive firms suggests such firms do innovate in their own right but that their innovative capability may be based on subtler, alternative routines such as problem solving, experimentation and entrepreneurial orientation. 

Through his research, Hirsch-Kreinsen (2015) identifies the three dominant strategies of low-tech firm innovation as step-by-step incremental product innovation, customer orientation/niche market segments and process specialisation.  Process innovation describes the development, adoption or implementation of technologically new or significantly improved production methods within the organisation that allow firms to produce its goods in a way no-one else can (e.g. precision, flexibility), or in a way that is better than anyone else (e.g. higher levels of quality, cost efficiency or customization in production).  Despite its importance for the LMT sector, very little is known about the nature of technical process innovation or its role in shifting the strategic trajectory of the firm towards a more attractive future (Dooley et al., 2017; Som, 2012). Engagement in process innovation is generally viewed as relatively lower level potential in terms of the long-term competitive advantage it can provide a firm since it can be replicated by competitors.  However, in specific circumstances, it can contribute to develop new capabilities that becomes the foundation for future product innovation opportunities.  LMT firms tend towards step-by-step, incremental product innovation, reinforcing the existing market offering and consequently, radical pivot is seldom.  Likewise, due to their resource constrained context of LMT SME’s, their acquisition of process technology for process innovation often requires management to be highly frugal and inventive in achieving their objectives, often resorting to purchase of second hand equipment or recondition of existing equipment rather than the ‘state of the art’ technology.  This practice results in a secondary process of ‘creative repurposing’ (Garud et al, 2016), where the introduced equipment is modified and tailored to meet production requirements.  In certain incidents, this can result in new, enhance organisational capability arising not only from the intentional introduction of the technology but also from the discovery of purpose for latent functionality within the introduced equipment.  Although not a regular occurrence within process innovation, when occurring, it can offer the potential to underpin a new era of growth for the firm that reinforce its sustainability. Applying an evolutionary biology theory to exploration of the LMT process innovation highlights the occurrence of certain incidents of ‘exaptation’ can result in innovation of a greater degree of change that would be the norm.  Exaptation is a process where “a feature, now useful to an organism, that did not arise as an adaptation for its present role, but [instead] was subsequently co-opted for its current function” (Gould, 1991: 43). 

3.  Research question

This research seeks to explore the phenomenon of technical process innovation, stepping into this research gap to add new empirical insights in how process technologies emerge and are exploited for value creation within SME’s with low R&D intensity.

4. Research design

Drawing on past explorative case study research of LMT SMEs, this research study focuses on a sub-sample of technical process innovation cases where the process technologies introduced resulted in the unexpectedly emergence of novel organisational capability and subsequent product innovation for the firm. The analysis applies a holistic approach by considering not only “planned” technical objectives of the project, but also the emergence of technical process innovation based on continuous learning, improvement efforts and opportunity recognition.  By synthesising findings of these ‘exaptation’ process innovation, this paper will explore the development of innovative capabilities that can transform the direction of the firm towards a more beneficial future.

5. Findings

The findings highlight

• The presence of an exaptation process within firms, where ‘latent’ process functionality is experimented with, post-commissioning, and on occasion through synergy with market responsiveness and entrepreneurial endeavour, results in innovation of a greater degree of change that would be the organisational norm.
• The importance of the DUI-mode of learning (Jensen et al., 2007) and the dialectic tension between frugal necessity and entrepreneurial opportunity recognition that underpins the exaptation process within SME firms.
• While the norm of innovation theory is that product innovation drives process innovation, the findings highlight that in exaptation incidences, process innovation drives product innovation and that this emergent development can have transformative impact on the firm.

6. Contribution

Although full findings have yet to be analysed, this research is of relevance both for the academic researcher and practitioners of innovation management.  The findings enhance understanding of how non-R&D intensive firms innovate and the routines that support this.  Secondly, the ability of process innovation driving product innovation is contrary to dominant thinking of innovation management (Utterback, 1994) and yet helps explain why certain LMT SME’s successfully transition to offering higher value offerings to the market.  Thirdly, the finding that the LMT SME resource-constrained context nurtures a DUI-mode dynamic capability, that supports necessary risk management practices offer potential insights for all SME management in traversing the innovation ‘valley of death’.  Finally, the findings highlight the impact that exaptation of process technologies has for the firm and supports the view that this practice may be a core innovation determinant that allows these firms continue to exist in spite of modern competitive challenges and questions the classification of R&D expenditure.

Reference List

In full paper due to word count