Innovation Creation inside the Latvian Firms: Influential Factors Analysis

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1 Innovation Creation inside the Latvian Firms: Influential Factors Analysis Ilona Dubra 1 Abstract - In context of globalization and rising competition it should be admitted that firms should recognize as a crucial source for survival and for profitability in a knowledge-based economy. In this respect, the fact are widely known that innovative firms commonly have higher global market share, higher growth rates, higher profitability and higher market valuations. That is why it is needed to analyse the factors that may have an impact on creation in organizational level. In the context of the paper there were applied such economic science quantitative and qualitative research methods as monographic, grouping, reference, generalization, graphical analysis and content analysis. The purpose of the paper to analyze the impact of the factors that affect enterprise capacity level. The main tasks of the paper are stated as following: - to investigate of the main theoretical aspect of the concept of - to analyse those factors, which significantly contribute to the innovativeness of enterprises - provide the review of the empirical findings of factors impact on creation. - summarize pilot research findings In the context of the paper main attention was driven to analysis of the definitions of the. The second part revealed the nature of the most important factor influence on the capability. The paper reveals the wide range of definition as well as stress out the importance of analysis of key factors that may have a high impact on enterprise creation on the basis of pilot research analysis. Keywords: enterprise, factor analysis, N I. INTRODUCTION OWADAYS, is at the top of agendas of many chief executive officer s. Innovation is considered a fundamental component of entrepreneurship and main determinant of business success. Innovation is needed for firms that are eager to develop and improve competitive advantage and reach new markets [16]. Innovation is recognized as a important element in the process of value creation. That is why it is needed to analyze what factors influence on growth of capacity level. 1 Ilona Dubra. PhD student in University of Latvia, Faculty of economics and management working at AS LUXHOUSE, Latvia ilona.dubra@inbox.lv II. INNOVATION CREATION IN ORGANIZATIONAL LEVEL Schumpeter was the first who defined as creation of new combinations. According to Schumpeter is associated with introduction of 1) good or new quality of good; 2) a new method of production; 3) new market; 4) the conquest of new source of supply of raw materials; 5) new organization of any industry [14]. According to Clarysse et al. [3] and Lundvall [9] classifications it is possible to identify four determinants of (Figure 1). Technological/Technical Product Process Non-Technological/Non- Technical Fig. 1. Four determinants of Organizational Market Ludvall argue that can be considered an ongoing process of leaving, searching and exploring that results in new products, new processes, new forms of organization and new markets. According to Eurostat is the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations [6]. A product is the introduction of a good or service that is new or significantly improved with respect to its characteristics or intended uses. A process is the implementation of a new or significantly improved production or delivery method. An organisational is a new organisational method in the enterprise s business practices (including knowledge management), workplace organisation or external relations that has not been previously used by the enterprise. A marketing is the implementation of a new marketing method involving significant changes in product design or packaging, product placement, product promotion or pricing. 512

2 III. THE FACTORS OF INFLUENCE ON INNOVATION CAPACITY In the context of the paper it is needed to analyse the determinants of five factors (Human capital, Research and Development, Collaboration on, Culture oriented on and Market orientation) that may have a high impact on creation. Human Capital Market orientation Innovation Culture orientated on Collaboration on R&D Fig.1. The Conceptual Research Model of Innovation Creation Determinants (created by author) Taking into consideration the economy s globalization and market s liberalization, the evaluation of the impact that Enterprise culture orientated on, Market orientation, Human capital, Research & Development and Collaboration on have upon creating within the enterprises confronted competitive pressures, stands for each modern enterprise. A. Enterprise culture orientated on Woodman announced that organization culture, compensation and resources are determinants of creative behaviour in enterprises [18]. The entrepreneurial culture that facilitates, is defined as following the way of thinking and acting that generates values an attitudes in the company that tend to stimulate ideas and changes that could represent improvements in the functioning and efficiency of the company [15]. Firms with entrepreneurial culture are sustained by commitment to. Within organization it is needed to inspire individual initiative, provide autonomy and participative decision-making, promote rewards for success as well as ensure tolerance of failure and risk taking. B. Market orientation Market oriented organizations draw their attention to constant information collection about target-customers needs and competitors capabilities and also such organizations use collected information continuously to create superior customer value [4]. Taking into consideration that appropriate information was gathered and used, it is possible to reduce the level of risk that is associated with invention. Moenart and Souder identify four types of uncertainty with respect to product : consumer uncertainty, referring to unrealized consumer requirements; technological uncertainty, relating to ignorance of technical solutions; competitive uncertainty, regarding lack of knowledge about the competition; and resource uncertainty, relating to absence of information regarding the resources available to create [11]. The process of learning about customers allows an enterprise to identify characteristics of customer segments as well as uncover emerging markets needs and also package customer knowledge itself as a determinant of a new product offering. C. Human capital Human capital theory indicates that individuals with more or higher quality human capita, for instance, skills, knowledge, and expertise developed through education and personal experience, achieve higher performance [2]. Knowledge is the most critical competitive asset that enterprise possesses and that a large part of that knowledge is laying in its human capital. Innovation requires individuals with unique and exclusive knowledge [7]. Enterprises need to employ employees with high creativity, intelligence and expert knowledge that form the fundamental source for new ideas and knowledge in order to reach high capacity level [17]. D. Research & Development Research and experimental development (R&D) activities comprise creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications. There are two basic statistical variables in this domain, namely R&D expenditure and personnel [6]. Besides R&D, other forms of innovative activities may be distinguished in the process. According to the Oslo Manual [12], these are acquisition of disembodied technology and know-how, acquisition of embodied technology, tooling up and industrial engineering, industrial design, other capital acquisition, production start-up and marketing for new or improved products. R&D generates not only new knowledge in the sense of s but also contributes also to the absorptive capacity of the company by increasing the skills of the employees who were involved in R&D process [5]. E. Collaboration on Liyanage and Mitchell [8] refer that collaboration between academia and industry remains dependent upon the cultural, organizational and management characteristics of the partners engaged in the cooperative activity. Firms should invest in inhouse research and development in order to gain competitiveness. In this respect, firms should be involved not only to the open science community, but also highly engaged in research collaboration [4]. Pecas and Henriques (identified the model of university-industry cooperation. As the matter of fact there are three basic stages [13]: 1) Preparation - the contact between university side and firm top management side should be established. It is critical to define the objects of the project on the brainstorming basis. It is needed to involve the 513

3 firm top management attention especially on the first phase in order to improve employees involvement in the following phases as well as to ensure the connection between the projects results and firm expectations.; 2) Diagnosis - it is vital to define the project tasks, taking into consideration the interests of both sides. It is needed to provide not only clear tasks but also exact methodologies, in order to simplify the communication and avoid errors. In this respect it is needed to apply modern approaches and methodologies, for example, single minute exchange of die, just-in-time, total quality management, total productive maintenance, manufacturing resource planning in order to fulfil the needs of the both sides.; 3) Solution development - represents the specified solution selected on the basis of the previous phase. The content of each solution should be evaluated in details as well as its technical and economical impact should be estimated. Although, it is widely recognized that the idea and concepts of university-industry partnerships are not new and usually it is argued that universities are treated as a vital source of knowledge for industry [1]. Matkin stated that in USA some prestigious universities were established especially to support research relationship between university and industry more than one century ago [10]. IV. QUESTIONARY CONTENT A research project namely pilot research was conducted in order to: determine next steps of research such as sample size; clear up that research planned will actually work; make sure that the questions set are answerable and find tools to be used in actual work. Sample questions were presented using a fivepoint Likert scale. In the context of pilot research there were questioned 10 enterprises in Latvia. The employees of the enterprises were asked to fill in questionary form and provide the answers on the following blocks: 1. Enterprise data 1.1. Enterprise industry 1.2. The year of foundation 1.3. The number of employees 1.4. Location of enterprise 2. Enterprise culture orientated on 2.1. Top management sets strategic objectives; staff mainly decides how to achieve the objectives 2.2. Inter-disciplinary teams work on important projects 2.3. Formal procedures and control support creativity and 2.4. Organizational structure supports the flow of information 2.5. The staff are encouraged to be creative and innovative 2.6. Possible conflicts are successfully solved 2.7. Innovative suggestions of the staff are evaluated 2.8. Mistakes regarding creative and innovative efforts of individuals are tolerated and used as the opportunity for further learning 2.9. In selection of employees, special attention is devoted to abilities such as creativity, independent opinion, self confidence, perseverance, self-control, management of complex problems, risk taking 3. Market orientation 3.1. To what extent does your firm collect information about changes in your market? 3.2. How frequently does your firm collect information about changes in your market? 3.3. What percentage of innovative ideas has your firm attracted from market information during the last five years? 3.4. How often do the staff who is not directly involved with sales/marketing meet with customers to learn how to serve them better? 3.5. What is the extent of your firm s knowledge about the market segments in your industry? 3.6. What is the extent of your firm s knowledge of competitors? 3.7. To what extent do you share information about market changes among different departments within the firm? 3.8. How many new products have been developed with information about your customers and competitors during the last five years? 3.9. How often has your firm applied market research information for business decisions during the last five years? How often has your firm used market research information from other professional organizations during the last five years? 4. Human capital 4.1. Enterprise human resources are very intelligent and innovative 4.2. Enterprise human resources are very talent 4.3. Enterprise human resources are specialized on their jobs 4.4. Enterprise human resources create new ideas and knowledge 4.5. Enterprise human resources are best performers 4.6. Enterprise human resources are high qualified professionals 4.7. Enterprise human resources obtain high experience level 4.8. Training courses at working place in the following sphere:, production process improvement or development, product improvement and design 4.9. Training courses at working place in the following sphere: work organization, management skill 5. Research & Development 5.1. There is constant knowledge assimilation from different sources 5.2. Enterprise obtain specific technological equipment, software, machinery 5.3. Sufficient scientific research personal amount is involved in enterprise innovative activity promotion 5.4. Scientific research results are commercialized 5.5. Expenses on R&D activities increased in comparison with the previous year 5.6. There is a R&D department inside the enterprise 6. Collaboration on with 6.1. Universities and/or scientific research institutions 6.2. Consultants 6.3. Suppliers 514

4 6.4. Customers 6.5. Another enterprises 6.6. Collaboration atmosphere is prevailing inside the enterprise 6.7. There is inside collaboration between enterprise departments 7. Innovation intensity (Yes/No) 7.1. Enterprise had developed new products/services during last 3 years 7.2. Enterprise plans to introduce new products/services in 3 years 7.3. Enterprise had introduced new technology performance improvement during last 3 years 7.4. Enterprise plans to introduce new technology performance improvement in 3 years 7.5. Enterprise had introduced some changes in organizational system during last 3 years 7.6. Enterprise plans to introduce some changes in organizational system in 3 years 7.7. Enterprise had introduced some marketing changes during last 3 years 7.8. Enterprise plans to introduce some marketing changes in 3 years V. STATISTICAL DATA ANALYSIS R&D Market orientation Culture Human Capital Collaboration on 2,92 3,34 3,29 3,43 3, Fig. 3. Mean value of the evaluated factors. (created by author) The highest mean figures were implicated in such factors as Enterprise culture orientated on (3,43), Research & Development (3,34) and the lowest mean figures were devoted to Market orientation (3,29), Human Capital (3,26) and Collaboration on (2,92). In the context of the conducted research it must be admitted that such determinants: Inter-disciplinary teams work on important projects (3,8), the extent of your firm s knowledge about the market segments in your industry (3,8), the extent of your firm s knowledge of competitors (3,9), Enterprise human resources are high qualified professionals (3,7) and Enterprise obtain specific technological equipment, software, machinery (4,8) were evaluated especially high. On the contrary such determinants as mistakes regarding creative and innovative efforts of individuals are tolerated and used as the opportunity for further learning (2,9), the staff who are not directly involved with sales/marketing meet with customers to learn how to serve them better (2,8), firm used market research information from other professional organizations during the last five years (2,8), scientific research results are commercialized (2,7), expenses on R&D activities increased in comparison with the previous year (2,5), collaboration on with Universities and/or scientific research institutions (2,3) with suppliers (2,8) and customers (2,8). Only half of observed enterprises have own Research and Development department inside the company No Yes Fig. 4. Innovation capacity of the observed enterprises. (created by author) In the context of intensity it should be announced that 80% of observed enterprises plan to introduce new products/services, some changes in organizational system and some marketing changes in 3 years and also the same amount of the enterprises had introduced new technology performance improvement, some marketing changes during last 3 years. 70% of observed enterprises had introduced some changes in organizational system during last 3 years and 90% plan to introduce new technology performance improvement in 3 years. Finally all enterprises developed new products/services during last 3 years. VI. CONCLUSION The model shown in Figure 1 was derived from theoretical findings announced in previous author scientific papers well as from the studies and experts opinion known for intensity and its supporting factors in Latvian organizations. Observed enterprises obtain high intensity due to such factors determinants as high knowledge level about the market segments and competitors, as well as due to high qualified human resources that are treated as professionals and due to specific technological equipment, software, machinery that the enterprise obtains. Although this research has provided relevant applications to help us understand the relationship among organizational culture, human capital, enterprise intensity, R&D, collaboration on and market orientation it is important to recognize limitations associated with this research. Data collection was limited to one country: Latvia. Information was collected from only one person in each respondent enterprise. Therefore, the enterprise manager was selected as the key source of information, because author assumed that she or he can provide the most valid answers to organizational level questions. Despite of all these limitations, the selected methods were appropriate for achieving the goal of this analysis and there were made some important contributions. 515

5 In the matter of implications and suggestions for further research it must be argued that it is needed to extend research with statistical figure analysis. Survey questions are answerable and there is an opportunity to test hypothesis on the ground of acquired findings. ACKNOWLEDGMENT Author thanks European Social Fund, Ryoichi Sasakawa Young Leaders Fellowship Fund, and University of Latvia for financial and moral support. REFERENCES [1] Agrawal, A. (2002), University-to-industry knowledge transfer: literature review and unanswered questions, International Journal of Management Reviews, Vol. 3 No. 4, pp [2] Barney, J. (1991), Firm resources and sustained competitive advantage, Journal of Management, Vol. 17 No. 1, pp [3] Clarysse, B., Van Dierdonck, R., Gabriels, W., Lambrechts, J., Uytterhaegen, M. (1998), Strategische verschillen tussen innovative KMOs, Publication No. 5, IWT, Brussels. [4] Dubra, I. (2011), Key Factors Affecting Development of the Enterprise Innovation Capacity Current Issues in Economic and Management Sciences Conference Proceedings. ISBN , Riga: University of Latvia, pp. [5] Dubra, I. (2011), Innovation and Research & Development intensity:the theoretical aspects and European case study, Social Tehnology Highschool paper collection, ISBN , Riga, Latvia. [6] Eurostat Pocketbooks (2011) Science, tehnology and in Europe 2011 edition. ISSN X. European Commission. [7] Hitt, M.A., Bierman, L., Shimizu, K., Kochhar, R., Direct and moderating effects of human capital on strategy and performance in professional service firms: A resource-based perspective. Academy of Management Journal 44(1), [8] Liyanage, S., Mitchell, H. (1994), Strategic management of interactions at the academic-industry interface, Technovation, Vol. 14 No. 10, pp [9] Lundvall, B.A. (1992), National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning, Frances Printer, London. [10] Matkin, G. (1990), Technology Transfer and the University, Macmillan Publishing, New York, NY. [11] Moenart, R.K., Souder, W.E. (1990), An information transfer model for integrating marketing and R&D personnel in NPD projects, Journal of Product Innovation Management, Vol. 7 No. 2, pp [12] OECD/Eurostat (1997), Proposed Guidelines for Collecting and Interpreting Technological Innovation Data Oslo Manual, The Measurement of Scientific and Technical Activities Series, Paris. [13] Pecas, P., Henriques E. (2006) Best practices of collaboration between university and industrial SMEs. Benchmarking: An International Journal, Vol. 13 No. ½, pp [14] Schumpeter, J.A. (1934), The Theory of Economic Development, Harvard University Press, Cambridge, MA. [15] Steele, J., Murray, M., Creating, supporting and sustaining a culture of. Engineering, Construction and Architectural Management 11(5), [16] Stock, G.N., Greis, N.P. and Fisher, W.A. (2002), Firm size and dynamic technological, Technovation, Vol. 22, pp [17] Taggar, S. (2002), Individual creativity and group ability to utilize individual creative resources: A multilevel model. Academy of Management Journal 45(2), [18] Woodman, R., Sawyer, J., Griffin, R., Toward a theory of organizational creativity. Academy of Management Review 18(2), Ilona Dubra holds the Master degree in Economics and is enrolled in PhD course (both University of Latvia, Economic and Management Faculty). Member of the Board of Directors in JSC LUXHOUSE since April Assistant lecturer at University of Latvia, Economic and Management Faculty since September Author of the following published papers: Dubra, I. Human capital: theoretical aspects and measurement approaches, Human Potential Development: Search for Opportunities in the New EU States, ISBN , 2010, Vilnius, Lithuania.; Dubra, I. Intellectual capital and organizational performance in bank industry, EACES 2010, ISBN , University of Tartu, Estonia.; Dubra, I. Significance of Innovation Activities in the Challenging Socio-Economic Environment of Today. University of Latvia, Riga, 2011, Vol.766..: Economics and Management, pp European Social Fund, Ryoichi Sasakawa Young Leaders Fellowship Fund grant holder. Research interests: business economy,, human capital, education, organizational behaviour Membership in Young Researchers group National Economy in Riga, Latvia since September