PRODUCT INNOVATION STRATEGIES AND COST EFFECTIVENESS ON PURCHASING ENVIRONMENT

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PRODUCT INNOVATION STRATEGIES AND COST EFFECTIVENESS ON PURCHASING ENVIRONMENT

CHAPTER ONE

INTRODUCTION

Background of the study

A right innovation strategy can help firms to overcome the problems they encounter concern- ing striving for a sustainable competitive advantage (Kuratko, et al., 2005). The firm’s innovation process is guided by an explicit or implicit innovation strategy, which provides direction toward specific resources, and help focus the efforts of the entire organization on common innovation goals (Oke, 2007). In this paper, we analyze empirically the relationship between firms’ choice of innovation strategy and their performance. According to Schumpeter, firms have an option to choose an innovation strategy involving product,

process, market or organizational innovation1. This can be termed as “simple” innovation

strategy, because firms decide to engage in only one type of innovation. Recent evidence, however, shows that a good portion of innovative firms chooses to combine various types of innovation at the same time, i.e. “complex” innovation strategy (Tavassoli and Karlsson, 2015). Considering both simple and complex innovation strategies, this implies that, in total, firms can choose between sixteen different innovation strategies2. However, both theoretical and empirical studies have devoted minor attention to other innovation strategies than those related to technological innovation (Haned, Mothe & Nguyen-Thi, 2014; Oh, Cho & Kim, 2014). This is clearly a serious limitation, because the co-existence and co-evolution of different types of innovation is important for firm performance (Damanpour & Aravind,

2012). Since productivity gains are related to production efficiency and factor saving, it is argued that an analysis of the effects of innovation on productivity that focuses exclusively on product innovation is indeed too restrictive (Polder et al, 2010).

1.2 Statement of the problem

Expanding the scope of analysis of innovation strategies beyond the field of technological innovation is crucial. This will provide a much richer understanding of firms’ choices of innovation strategies as well as of the effects of different simple and complex innovation strategies on firm performance (Le Bas, Mothe & Nguyen-Thi, 2015). More complex innovation strategies are more demanding in terms of firm capabilities and we argue that firms that are capable of implementing complex innovation strategies also will achieve a better performance3 (Gera & Gu, 2004).

1.3 Objectives of the study

1. To understand the impact of product innovation strategies on cost effectiveness on purchasing environment

2. To understand the relationship between product innovation strategies and cost effectiveness on purchasing environment

1.4 Research questions

1. What is the impact of product innovation strategies on cost effectiveness on purchasing environment

2. What is the relationship between product innovation strategies and cost effectiveness on purchasing environment

1.5 Research hypothesis

H0: There is no relationship between product innovation strategies and cost effectiveness on purchasing environment

H1: There is a relationship between product innovation strategies and cost effectiveness on purchasing environment

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