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Is Management innovation a performance driver?

 

For several years, innovation has been explored in the literature under an exclusive approach where only technical and technological innovations have attracted the interest of academicians, and policy and market makers. Indeed, studies have been focused on tangible and measurable innovation intensity (such as R&D expenditures) and specific innovation performance (mainly the ability to introduce product and process innovations). For instance, empirical evidence is, most often, conducted on radical, competitive and product innovations.

This very restrictive approach is not suitable anymore to capture and assess different and recent issues in innovation. It marginalizes all practices introducing an innovative management style, or a different marketing, or a new organization of the business, or a business model (such as acquisition-buyout system, low cost). Also, developing new products and services is not anymore the R&D team’s business, customers have become active stakeholders: they contribute to the development of products meeting their expectations. They also could get involved in product promotion and distribution. All these examples are management innovations not yet fully explored in innovation literature, mainly because of the absence of a clear framework dedicated to management innovation.

In the last years, businesses and organizations have been facing subsequent crises. They have to meet many economic, environmental and economic defies, to achieve sustainable development. One challenging area attracting increasing interest is the urgent need to rethink their management and their organization.

In 2007, the OECD report shows that more than 50% of existing innovations are non-technological innovations. Most of them are management innovations driven by the introduction of a new business organization or management. The OECD points out that the current innovation definitions are binary and biased, as they are assessing innovations through specific proxies such as tangible assets of innovation (R&D spending) and very specific outcomes introducing significant changes in the business (new or improved products and processes).

The existing definitions cannot capture management innovation’s features when businesses are changing their structure or adopting new management style; they cannot assess the innovation related to the introduction of a new service in a specific market/sector or the improvement of products/services to meet the customers’ expectations and needs.

Accordingly, the OECD set a more inclusive framework and distinguishes four innovation types: product innovation, process innovation, marketing innovation and management innovation.

Emerging literature has been developed in the last years dedicated to management innovation. Many definitions have been introduced. First, organizational innovations have been considered as the adoption of new programs, products and techniques that could improve the decision-making process through the decrease of information asymmetry. However, this approach does take into account key determinants in management innovations such as the individuals and the environment where they are produced. Accordingly, management innovations have been defined as all new and unfamiliar practices adopted in the company, while more recent studies argue that management innovation must generate outcomes that increase financial performance.

It is undeniable that individuals and dynamic interaction are the pillars of organizational innovation where the management process is driven by a balance between individual initiatives and collective work. This balance is hard to identify in the presence of complex hierarchies: large corporates with complex hierarchies suffer a slow decision-making process. One explanation is that communication channels in vertical hierarchies are non-effective which does not help taking advantage of the environment’s opportunities.

Many companies have to rethink their structure to solve communication issues and increase the business involvement in innovative projects. The interaction with the bottom lines of the hierarchy could be a valuable source of interaction with stakeholders and innovative ideas. Taking their needs and expectations into account could increase effectiveness and reaction time. Accordingly many corporates reshaped their structure and adopted a more horizontal hierarchy in order the rebuild a more flexible and dynamic decision-making process.

It seems that management innovations have many positive effects on businesses, but the most significant effect is their ability to drive businesses to rethink their identity, their role and to reshape their structure to better interact with their environment. This approach is virtuous as it rebuilds a more inclusive and sustainable corporate strategy, specifically when it comes to boosting innovation potential.

By Ouidad Yousfi, University of Montpellier

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