In a world of hyper competition, innovation is imperative to gain competitive advantage. However, the coin has a flip side, as innovations are often expensive and can be easily imitated by competitors. In this study, the nature of small and midsize enterprises (SMEs) acting on niche markets with few players have been investigated and explored, resulting in a set of Key Success Factors (KSF). The four key research questions answered in this study are: Can innovation lead to competitive advantages? Which type of innovations has the most impact? Are there any differences acting on a niche market (with oligopolistic characteristics) compared with other market structures? What are the key success factors when establishing an innovation process?
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
4.5. Strategy, capabilities and key success factors 12
4.6. The innovation process 15
4.7. Market structure and competition 18
4.8. Conclusions 20
5. INVESTIGATION 22
5.1. Objectives, research questions and hypothesis 22
5.2. Investigation design and methodology 22
5.2.1. Research methodology 22
5.2.2. Questionnaire design 23
5.2.3. Sampling strategy 23
5.2.4. Data analysis techniques 23
5.3. Findings and analysis 23
5.3.1. Can innovation lead to competitive advantages? 28
5.3.2. Is there any difference if acting on an oligopolistic market compared with other market structures? 28
5.3.3. Which type of innovations has the most impact on competitive advantages? 29
5.3.4. What are the perceived key success factors when establishing an innovation process in order to gain competitive advantages on an oligopolistic market? 29
5.3.5. Linking innovation personas to KSFs 37
6. CONCLUSIONS AND RECOMMENDATIONS 39
6.1.1. Competitive advantages 39
6.1.2. Differences on oligopolistic markets 40
6.1.3. KSF 40
6.1.4. Organisational aspects 41
6.1.5. Recommendations 41
7. REFERENCE LIST 45
3
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
1. INTRODUCTION TO BEARING
Bearing Consulting Ltd. (“Bearing”) is a United Kingdom based management consulting company. We
have offices in London, Stockholm, Barcelona, Geneva and Johannesburg and we work with projects
world-wide. Bearing Consulting is a partnership, owned by senior consultants. The business was
established in 2001 and has operated under the Bearing brand name since 2004.
We work in close cooperation with academic research institutions and many international and
regional Innovation Systems. Some of our consultants have an academic career in parallel with their
consulting practice.
4
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
2. EXECUTIVE SUMMARY
In a world of hyper competition, innovation is imperative to gain competitive advantage. However,
the coin has a flip side, as innovations are often expensive and can be easily imitated by competitors.
In this study, the nature of small and midsize enterprises (SMEs) acting on niche markets with few
players have been investigated and explored, resulting in a set of Key Success Factors (KSF). The four
key research questions answered in this study are: Can innovation lead to competitive advantages?
Which type of innovations has the most impact? Are there any differences acting on a niche market
(with oligopolistic characteristics) compared with other market structures? What are the key success
factors when establishing an innovation process?
The investigated sample of respondents are employed, or work for firms, up to the size of 250
employees distributed all over the world within the verticals of professional services, merchandising,
retail and Technology-Media-Telecommunications (TMT).
One of the key findings is that management system innovation, sales and marketing innovations, and
product innovation confer the strongest competitive advantage. There is also trade aspect to be
taken into consideration, e.g. merchandising and retail generally rank product innovation highest
while professional services and the TMT sector rank process innovation as most important.
Moreover, data analysis confirms that technology driven innovations and management innovations
have the most positive impact on competitive advantage. Sustainability of the competitive advantage
is, however, not possible to judge according to the investigation or the literature review, as previous
research says that innovation can lead to sustainable competitive advantages, while more recent
research indicates that it might be problematic to gain sustainable competitive advantages. It is likely
that static KSF need to be replaced with a more dynamic approach, but this is out of the scope of
this study and part of Bearing Research Program.
It is also surprising that, among respondents, using innovation to keep competitors out was strongly
correlated with being a technology driver but only weakly correlated with the capability of
understanding emerging technologies and trends. This calls for a recommendation to develop
capabilities for exploring and understanding emerging technologies and trends.
Generally speaking, SMEs are strong in the ideation phase and weak in the commercialisation phase,
following the pattern observed in larger corporations. However, the investigated SMEs do not use
outsourcing to strengthen their capabilities, which is also a bit surprising, as this could potentially
increase their ability to move into new areas. This is also one of the recommendations made to SMEs
going forward with radical and technology driven innovations.
The conclusion of the study is that SMEs acting on niche markets benefit from increased profit and/or
keeping their competitors out. Perceived KSFs are partly dependent upon the purpose of innovation;
whether the firm is trying to keep competitors out or if the firm is trying to increase its profit. In
total, there are 21 KSFs, which are all important but different ranked according to the purpose, the
type innovation work, the market structure as well as the trade in which the firms operates. At the
end of the study, five comprehensive recommendations are made together with conclusions and
discussions about the findings.
5
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
3. RESEARCH OBJECTIVES, PROBLEMS AND SCOPE
The research problem is investigating how innovations can be used to gain competitive advantage,
and the level of analysis is set to analyse on a company level (which is also the entity). The scope
of the investigation is niche market with oligopolistic market structure and SME companies, while the
objective of the investigation is to identify perceived KSFs when establishing an innovation process
to gain competitive advantages through innovations.
The research questions are: Can innovation lead to competitive advantages? If yes, which type of
innovations has most impact on competitive advantages? Moreover, are there any differences if acting
on a niche markets with oligopolistic market structure compared with other market structures?
Finally, what are the KSFs when establishing an innovation process to gain competitive advantages on
a niche market?
6
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
4. REVIEW OF CURRENT THINKING
According to (Encyclopedia Britannica, Inc., 1974) an innovation is „the introduction of new
technologies, held by some writers to be a primary factor in economic growth which is the core of
my research problem‟. Innovations are driven by opportunities and capabilities. Drucker (1998)
pointed out four areas of opportunities which exist within a company: unexpected occurrences,
incongruities, process needs and industry and market changes. Outside the company, there are three
additional sources of opportunities: demographic changes, changes in perception and new knowledge.
It is also possible to consider the linkage to other organisations as an asset in itself. Tovstiga and
Birchall (2005) argue that firms are nodes in lager networks which create value by transforming
opportunities into businesses by strategic deployment of capabilities. Moreover, they argue that firms
are continuously looking for opportunities within the environment, turning them into a competitive
advantage through transformation innovation, and ultimately gaining profitable growth. To
summarise, innovation can be seen from two perspectives; from the internal perspective of a firm‟s
capabilities, and from the external market perspective where the performance can be measured and
success judged (Tovstiga & Birchall, 2005).
There are three kinds of innovation strategies that most companies apply to; there are need seekers,
market readers and technology drivers. The need seekers look for potential opportunities by
applying superior understanding of the market and rapid go-to-markets, market readers capitalise on
existing trends and understanding of markets, while technology drivers drive for breakthrough
innovations based on new technology (Jaruzelski & Dehoff, 2010).
In current thinking, there are several types of innovations that are discussed, as well as what is called
strategic innovation and innovation of business models. Another trend, known as open innovations,
is where innovations are driven in symbiosis with external parties. Many practitioners, as well as
academics, point out the importance of building the right capabilities, adopting the leadership style as
well as understanding and developing corporate culture to maximise the value of innovation work.
The literature review is divided into sections reflecting these different aspects of innovation
management.
4.1. Type of innovations
„Innovation can be categorised by level of aggregation, from the first level which is improvements on
an individual level, to the second level which is functional level like processes, to the third level which
is the company level and typically concerning the value chain and radical product and service
innovations to the last and the fourth level which is the industry level typically concerning
breakthrough innovations changing the playing field. Another way of categorise innovations is
whether it is aiming at a new market or not as well as the level of aggregation, or scope, which can
be combined as illustrated in Figure 1 (Assink, 2006).‟
„The nature of innovations can be described by the scope of innovations in combination with either a
quantifiable outcome or a non-quantifiable outcome (Tovstiga & Birchall, 2005)‟. Both Tovstiga and
Birchall (2005) and Assink (2006) point out scope, or aggregation level, as one of two characteristics
and the market or the outcome as the other characteristic. Tovstiga and Birchall (2005) point out
quantifiable and operational scope as institutional innovations while Assink (2006) points out
technology, concept or product innovations with existing means on an existing market as incremental
7
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
innovations. Moreover, Tovstiga and Birchall (2005) call non-quantifiable and strategic scope radical
innovations, while Assink (2006) points out new technology, concept or product innovations on a
new existing market as breakthrough innovations. Also see Figure 1.
The generic process steps „The stage gate process at Agilent‟ (Tovstiga & Birchall, 2005), the
„Innovation Radar‟ (Sawhney, Wolcott, & Arroniz, 2006) as well as Hansen & Birkinshaw‟s (2007)
KPIs are all usable tools when discussing KSF and looking at how to measure and manage them.
4.7. Market structure and competition
Thirty years ago, Michael Porter introduced his framework „Five Forces‟ (Porter, Competetive
Strategy: Techniques for Analyzing Industries and Competision, 1980) and the concept that
competition is made up of five forces. The five forces are entry of new competitors, threats of
substitutes, barging power of buyers, barging power of suppliers and rivalry among the existing
competitors (Porter, Competetive Strategy: Techniques for Analyzing Industries and Competision,
1980). According to Porter (1990, 1996), competitive advantage is gained by pressure and challenge
and sustainable competitive advantage is gained based on something distinctive and different within a
company, and not just excellence in operation and cost-cutting, which will always converge within the
industry.
The market today is global and hypercompetitive, no competitive advantages is sustainable and all
competitive advantage erodes. Companies must actively aim to disrupt their own as well as their
19
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
competitors competitive advantages in order to cope with the hyper competitive market, and for
that a new 7S model has been developed; to be used to identify own strengths and weaknesses as
well as analysing the industry and the competitors (D'Aveni, 1995). Figure 6 shows D'Aveni‟s (1995)
7S‟s model.
Figure 6 The new 7S’s model (Source: D'Aveni, 1995)
However oligopolistic market structure has an inherited dualistic nature, it provides you with a
competitive advantage but competitors will imitate and you need to innovate over and over again;
leading to less growth than in a market with more competition and/or larger population (Shrieves,
1978; Le, 2008).
When it comes to innovation of business models, they are possible to imitate as they become known
to the market when launched. When launching a new business model one should always calculate
what competitors‟ moves will be; which can be either reduced price or new business models
(Casadesus-Masanell & Zhu, 2010).
In the work of D‟Aveni et al. (2010), they point out that in a world of hyper competition sustainable
competitive advantages might not exist anymore or at least not over time and as one single
competitive advantage. They comment that temporary competitive advantages are increasing in
importance and perceived sustainable competitive advantages are decreasing in importance as the
market becomes more complex and it gets increasingly easier to imitate and/or disrupt earlier
previous competitive advantages. They suggest using chaos theory models, as well as the theory of
complex systems, to deal with the new situation at the same time as they open for the possibility that
temporary competitive advantages might just be a special case of Porter‟s five forces, where low
barriers and low entries are combined with high power of suppliers and buyers leading to an hyper
20
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
competitive industry rivalry with many and short competitive advantages. Their conclusion is that
firms must build their ability to search for and adopt temporary competitive advantages being able to
handle multi-strategies to gain and keep market share.
When answering the research questions and designing the data collection method, it is of relevance
to take the market structure and its complications into consideration.
4.8. Conclusions
According to Tovstiga and Birchall (2005), innovation is used to differentiate firms based on its
capabilities to gain a competitive advantage on the market, and the perspective of innovation can
either be internal factors as the capabilities or external factors as whether an innovation, based on
the supply and the demand, will succeed or not. In the literature review, it is clear that innovations
can be incremental and disruptive, and that there are several kind of possible innovation strategies
such as need seekers who look for potential opportunities by applying superior understanding of the
market and rapid go-to-markets, market readers who capitalise on existing trends and understanding
of markets, and technology drivers who drive for breakthrough innovations based on new technology
(Jaruzelski & Dehoff, 2010). Internally, possible capitalisation of capabilities, according to, for example,
Kelly and Littman (2005), Coyne (2007), and Loewe et al. (2001), seems to be dependent upon
leadership style as well as personalities of the people and the organisation. Moreover, each strategy,
according to Jaruzelski and Dehoff (2010) call different capabilities to success. The capabilities for
success, or KSFs, can also be divided into actual and perceived key success factors (Grunert and
Ellegaard, 1992). Actual KSFs are the ones that by certainty lead to expected results, while the
perceived ones are expected to lead to certain results There are also, according to the literature
review, several kinds of innovation possibilities - according to Trott (2008), there are eight kinds of
innovations.
According to the literature review, it seems clear that innovation might provide competitive
advantages but, according to researchers such as Le (2008) and Shrieves (1978), it is a dualistic
relationship between innovation and oligopolistic market structures, it provides you with a
competitive advantage but competitors will imitate and you need to innovate over and over again;
leading to less growth than in a market with more competition and/or larger population.
In the investigation, the literature review will provide the foundation for designing the data collection,
as well as academic and practitioners thinking, to compare and contrast the key finds against.
The data collection will be based on the findings in the literature review and structured around three
key questions; Why, What and How as shown in Figure 7, based upon the work of Jaruzelski and
Dehoff (2010), Trott (2008), Kelly and Littman (2005) and Loewe et al (2001).
21
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
Figure 7 Why, What and How to innovate, based upon the work of Jaruzelski and Dehoff (2010), Trott (2008), Kelly and Littman (2005) and Loewe et al (2001).
Wh
y Company Strategy
•Incremental/ Disruptive
•Need seekers
•Market readers
•Technology drivers
Wh
at Product Innovation
Process Innovation
Organisational Innovation
Management Innovation
Production Innovation
Commercial/Marketing Innovation
Service Innovation
Ho
w Style
•Cauldron
•Spirale
•Fertile
•PacMan
•Explorer
People
•10 Faces of Innovation
Capability
•Ideation
•Project selection
•Product development
•Commercialisation
22
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
5. INVESTIGATION
5.1. Objectives, research questions and hypothesis
In order to fulfil the objective of the investigation, the following research questions shall be
answered:
Can innovation lead to competitive advantages?
Which type of innovations has the most impact on competitive advantages?
What are the perceived KSFs when establishing an innovation process in order to gain
competitive advantages on an oligopolistic market?
Are there any differences when acting on a niche market with oligopolistic characteristics
compared with other market structures?
Based on the literature review, the hypothesis is that innovation can lead to competitive advantages if
the leadership, strategy, culture, processes and capabilities are in place (Quelin, 2000; Loewe et al.,
2001; Danneels, 2002; Govindarajan andTrimble, 2005; Kelly and Littman, 2005; Tovstiga and Birchall,
2005; Day, 2007; Rigby et al., 2009; Flynn et al., 2010). However, there are different reasons to
innovate, which can be need seekers, market readers and technology drivers (Jaruzelski & Dehoff,
2010).
Regarding the second research question, about what type of innovations that have most impact on
competitive advantage, the literature review supports the hypothesis that strategic innovations, such
as disruptive technologies, management innovations or new business models, are most likely to
provide sustainable competitive advantages (Kim and Mauborgne, 1997; Govindarajan and Trimble,
2005; Hamel, 2006), which will be explored within the investigation.
Based on the literature review, the hypothesis is that the capabilities for success, stated within
Jaruzelski and Dehoff (2010) and shown in Table 2, is general KSFs also valid for oligopolistic markets
as several of the top performances, acting on an oligopolistic market (e.g. Google, Apple, Toyota and
Intel).
5.2. Investigation design and methodology
5.2.1. Research methodology
The research is deductive where the hypothesis, gained from the literature review, is tested and then
linked back to research questions. The research objective is descriptive; it is about understanding and
discussing the impact of the perceived KSFs when establishing an innovation process in order to gain
competitive advantages on niche markets with oligopolistic market structure. The research design is
fixed and quantitative, based on primary data. Primary data collection methods are divided into
surveys as well as observations, whereas surveys can be self-completion surveys or interview-based
surveys (Hair, Money, Page, & Samouel, 2007). The data collection method that will be used is self-
completion via an internet-based questionnaire.
In the investigation, secondary data also will be used for compare and contrast. The source of the
secondary data will the listed capabilities from Jaruzelski and Dehoff (2010), shown in Table 2.
23
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
5.2.2. Questionnaire design
In order to be able to answer the research questions fulfilling the research objective, the
questionnaire has been divided into five sections covering company data, why innovate, what to
innovate, how to innovate and results.
5.2.3. Sampling strategy
In this study, purposive sampling, also called judgmental sampling, is used as sampling method as a
very specific kind of organisations, the unit of interest, will be analysed, i.e. niche SMEs acting on an
oligopolistic market where innovation is used as a part of their corporate strategy.
5.2.4. Data analysis techniques
The data was collected in a database where all data is coded. No editing is required as all questions
are mandatory and no questionnaires will be closed without being complete. Moreover, the
questionnaires was tested on a sample before final data collection.
The secondary data from the study with Jaruzelski and Dehoff (2010) is used to discuss and enrich
the generalisability of the collected data in the survey.
A limitation with the research design is that actual KSFs are not investigated, and another limitation is
that the survey does not measure how the firms perceive their actual KSFs. Instead, the survey is
focused on perceived important KSFs within the organisations investigated.
5.3. Findings and analysis
The investigated sample of respondent is employed or work for firms up to the size of 250
employees. The distribution of employees is shown in Figure 8, and as
Figure 10 shows, 83% are operating on the European market. The three major trade segments
among the respondents are professional services (37%), merchandising and retail (34%) and
Technology-Media-Telecommunications (TMT).
Africa3%
Asia3%
Europe83%
North America9%
South America2%
Geographical market
24
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
Figure 8 Number of Employees of the respondents
Figure 9 Trade of respondents
1 - 10 Empl.31%
11 - 50 Empl.40%
51 - 250 Empl.29%
Number of Employees
Venture Capital2%
TMT (Technology-Media-
Telecommunications )21%
Professional Services, e.g. education,
training, consulting
37%
Merchandising and retail
34%
Helthcare2%
Industry, e.g. manufacturing
and raw material4%
Trade
25
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
Figure 10 Geographical market of the respondents
The reason for innovating is mostly linked to perceived needs and possible improvements, as can be
seen in Figure 11, however as also shown, radical changes is an important reason to innovate. The
respondents, in general, seem to seek needs and market opportunities prior being driven by new
technologies. There is no significant difference between the different trades in which the respondents
operate.
Figure 11 Why innovate
Africa3%
Asia3%
Europe83%
North America9%
South America2%
Geographical market
-
1,00
2,00
3,00
4,00
5,00
6,00
7,00
All respondents, average
TMT, average
Professional Services average
Merchandising and retail, average
26
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
On average, the respondents innovate their processes, sales and marketing at most and their product
systems at least. However, as Figure 12 shows, the spread of product innovation is rather high.
Merchandising and retail innovate products prior to other innovations while professional servise
score lowest on this category.
Figure 12 What to innovate
The innovation style of the respondents is, according to Loewe et al.‟s (2001) typology, The
Cauldron, The Spiral Staircase and The Fertile Field, while no respondent‟s organisation is a PacMan
or Explorer (shown inFigure 13). The major innovation style is The Cauldron, which is an
entrepreneurial style where the business model is frequently challenged (Loewe, Williamson, &
Wood, 2001).
In Figure 14, innovation style is distributed upon the questions about whether the competitor is
imitating or whether the respondent‟s organisation is imitating, as well as whether the respondents
believe innovation leads to better profit and/or keeping the competitors out of their market. The
entrepreneurial innovators, the Cauldrons, are most convinced that they keep the competitors out
by innovations, while The Spiral Staircase innovators,a style where you climb upwards without losing
the over-all goal (Loewe, Williamson, & Wood, 2001), are most convinced that they get better profit
from applying from innovation and that they are imitated by their competitors. The Fertile Field
innovators, a style where the organisation tries to use existing capabilities and resources in a new
way (Loewe, Williamson, & Wood, 2001), are imitating their competitors most among the
respondents. The Fertile Field respondents are also convinced that innovation leads to higher profit
and helps slightly to keep the competitors out. However, The PacMan style, a style where you invent
and outsource and finance start-ups. (Loewe, Williamson, & Wood, 2001), is not represented by any
of the respondents which is contra indicatory to Haq and Sen‟s (2011) belief that smaller firms tend
to outsource their core organizational competencies, as 71% is of the respondent‟s organisations are
small firms with less than 51 employees. No conclusions can be made, and further research is
needed. Neither is the The Explorer, a style where you explore possibilities and invest time and
money in them without demanding short-term profit, represented. One possible explanation for this
-
1,00
2,00
3,00
4,00
5,00
6,00
All respondents, average
TMT, average
Professional Services average
Merchandising and retail, average
27
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
could be the fact that the sample is SME companies, which normally have smaller budgets than larger
companies.
Also interesting to notice is that, in Figure 14, more respondents state that they are imitated than
imitating, which might be the perceived reality but questionable.
Figure 13 Innovation style, based on Loewe et al. (2001) typology, from left to right; The Cauldron, The Spiral Staircase, The Fertile Field , The PacMan, and The Explorer.
Figure 14 Innovation style distributed on competition aspects
0
5
10
15
20
25
30
Entrepreneurial where the
business model is frequently challenged
You clime upwards without losing the over-all
goal, always innovate to do things better
Tries to use existing
capabilities and resources in a
new way
We invent and outsource it
We explore possibilities
investing time and money
without demanding short-
term profit
Innovation Style
0
1
2
3
4
5
6
7
Our competitors are imitating
our innovations
We are imitating our competitors innovations
We keep our competitors out by our innovation
work
We believe we do get
better profit from driving innovation
work
Entrepreneurial where the business model is frequently challenged
You clime upwards without losing the over-all goal, always innovate to do things better
Tries to use existing capabilities and resources in a new way
28
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
5.3.1. Can innovation lead to competitive advantages?
Based on the literature review, the hypothesis is that innovation can lead to competitive advantages.
On a 7 point Likert scale, the respondents state that they somewhat (5.85 in mean and 6.0 in
median) agree that they get better profit by driving innovation work and slightly agree (5.02 in mean
and 5.0 in median) that they keep the competitors out by working with innovation. The results are
shown in Table 4, and the standard deviation is small (1.45 and 1.35) with a mean and median which
are close to each other, meaning that this is the general opinion without large deviations. Based on
the literature study as well as the data analysis, the conclusion can be drawn that SMEs‟ action on an
oligopolistic market can gain competitive advantages by applying innovation thinking and acting
resulting in better profit or keeping the competitors out.
We keep our competitors
out by our innovation
work
1-7
(7=Strongly
Agree)
We believe we do get
better profit from driving
innovation work
1-7 (7=Strongly
Agree)
Mean 5,02 Mean 5,85
Median 5,00 Median 6,00
Standard Deviation 1,45 Standard Deviation 1,34
Table 4 Competitive advantage of innovation
5.3.2. Is there any difference if acting on an oligopolistic market compared with other market
structures?
Based on the literature review, the hypothesis is that innovation not necessarily will provide higher
growth on an oligopolistic marker rather keeping the competitor in place (Shrieves, 1978; Le, 2008).
By studying the correlation between whether the respondents believed they kept the competitors
out and the kind of innovation they applied (improvements or radical) and the reason for that (need,
market, new technology) the hypothesis can be tested. Table 5 show the results and, as seen, there is
a fairly strong correlation between keeping competitors out and radical innovations as well as
whether the respondents were need seekers or technology drivers, but not market readers. It also
seems logical that market readers do not keep competitors out rather imitating them. The
conclusion, based on the literature study as well as the data analysis, is that SMEs acting on
oligopolistic markets apply for radical innovations and are need seekers or technology drivers,
keeping their competitors out through their innovation work.
Improvements Radical
Need
seekers
Market
readers
Technology
drivers
We keep our competitors out
by our innovation work 0,26 0,37 0,39 0,05 0,39
Table 5 Oligopolistic characteristics
29
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
5.3.3. Which type of innovations has the most impact on competitive advantages?
The hypothesis is that strategic innovations, such as disruptive technologies, management innovations
or new business models are most likely to provide sustainable competitive advantages (Kim and
Mauborgne, 1997; Govindarajan and Trimble, 2005; Hamel, 2006). In Table 6, the correlation is
shown between the type of innovation and the results of it (keeping competitors out and/or getting
better profit). The strongest correlations are between product innovation and keeping the
competitors out, and between process innovations and getting better profit. In Table 5, it is also
shown a rather strong correlation between radical and technology driven innovations and keeping
competitors out. Management systems and sell and marketing innovations also have a correlation
with keeping competitors out, even if the correlation is strongest to the product innovations. The
data analysis confirm the hypothesis that technology driven innovations and management innovations
has a positive impact on the competitive advantage, however it is not possible to verify whether it is
temporarily or sustainable.
Pro
ducts
Pro
cesse
s
Organ
isation
Man
agem
ent
system
s
Pro
ductio
n
Sell an
d
mark
etin
g
Custo
mer
Service
We keep our competitors
out by our innovation work 0,26 0,10 0,03 0,21 0,04 0,19 0,11
We believe we do get better
profit from driving
innovation work 0,17 0,28 0,12 0,12 0,08 0,13 0,15
Table 6 Different type of innovation
5.3.4. What are the perceived key success factors when establishing an innovation process in order
to gain competitive advantages on an oligopolistic market?
Based on the literature review the hypothesis is that capabilities for success, stated within Jaruzelski
and Dehoff (2010) and shown in Table 2, is general KSFs also valid within oligopolistic markets. The
data collected is compared and contrasted with the secondary data from the study of Jaruzelski and
Dehoff (2010). The secondary data is based upon a survey with large corporations while this study is
concerned with SMEs, which must be taken into consideration.
The data is collected through the questions 5.1 to 5.21, and are all on a 5 point Likert scale (same
scale as used in the secondary data. The standard deviation is low, no question has more than 1.18 in
standard deviation. The data is categorised as in the study of Jaruzelski and Dehoff (2010); Ideation,
Project Selection, Product Development and Commercialization, which also fits the innovation
process of Tovstiga and Birchall (2005).
30
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
Figure 15 Importance of KFS within the Ideation Phase of The Innovation process.
The ideation phase is the highest ranked phase among the respondents, with an average of 3.98
compared with the other phases with an average between 3.22 and 3.65. In the secondary data, the
average in all four phases is more or less equal (between 2,02 and 2,04) meaning that each phase is
considered as to be of equal importance, while among the studied SMEs the ideation phase is
considered as the most important phase. As can be seen within Figure 15, the largest deviation
between SMEs‟ and the secondary data is that SMEs consider it to be much more important with
supplier and distributor engagement within the ideation process. A possible explanation might be lack
of internal resources, compared with the large corporations, leading to an external engagement with
suppliers and distributors. The conclusion is that all five KSFs, shown in Figure 15, are important and
considered as KSFs to SMEs and the ideation phase in itself is considered most important of all
phases to the SMEs. The involvement of suppliers and distributors are more important to the SMEs
than to larger corporations, which are named G1000 after Global 1000 within the study of Jaruzelski
and Dehoff (2010).
The most important KSF within the project selection is, according to both to primary and secondary
data, the ongoing assessment of the market potential while rigorous decision making around portfolio trade-
offs are not considered as important or unimportant among the SMEs. Noteworthy is also that the
strategic disruptive decision-making and transition plan is considered remarkably less important to the
larger corporations than to the SMEs. The project selection data is shown in Figure 16. The
conclusion is that ongoing assessment of the market potential, project resource requirement forecasting and
planning, technical and risk assessment/management and strategic disruptive decision-making and transition
plan are the KSFs for the SMEs in this study.
- 1,00 2,00 3,00 4,00 5,00
Supplier and distributor engagement in the ideation
creation process
Independent competitive insights from the
marketplace
Open innovation/capturing ideas at any point in the
process
Detailed understanding of emerging technologies and
trends
Deep consumer and customer insights and
analytics
Ideation
Merchandising and retail, average
Professional Services average
TMT, average
All respondents, average
G1000, average
31
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
Figure 16 Importance of KFS within the Project Selection Phase of The Innovation process.
Regarding product development, both SME respondents as well as the large corporations investigated
within the study by Jaruzelski and Dehoff (2010), point out reverse engineering as the least important
capability. The most important, in regards to both SMEs and large corporations, is the engagement
with customers to prove real-world feasibility. Product platform management, design for specific goals and
supplier-partner engagement in product development. Moreover, there is a difference between
merchandising and retail compared with professional services regarding design for specific goals where
the merchandising and retail considering it somewhat important while professional services regarding
it neither important nor unimportant. The data is shown in Figure 17. The conclusion is that KSFs for
product development is engagement with customers to prove real-world feasibility to both SMEs and large
corporations while Product platform management, design for specific goals and supplier-partner engagement
in product development are all considered as slightly important to SMEs and not KSFs.
- 1,00 2,00 3,00 4,00 5,00
Strategic disruption decision making and
transition plan
Technical risk assessment/management
Rigorous decision making around portfolio trade-offs
Project resource requirement forecasting
and planning
Ongoing assessment of market potential
Project Selection
Merchandising and retail, average
Professional Services average
TMT, average
All respondents, average
G1000, average
32
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
Figure 17 Importance of KFS within the Product Development Phase of The Innovation process.
The commercialisation phase has most variation among the trade investigated as can be seen in
Figure 18. Four capabilities out of six are considered as important and they are pilot-user
selection/controlled rollouts, product life-cycle management, product ramp-up and diverse user group
management. Both SMEs and the large corporations consider pilot-user selection/controlled rollouts as
the most important capability within the commercialisation phase. Noteworthy is that there is a large
gap between the studied respondents and the secondary data regarding the capability of the product
ramp-up and diverse user group management. The data is shown in Figure 18. The conclusion is that
pilot-user selection/controlled rollouts, product life-cycle management, product ramp-up and diverse user
group management are KSFs for the SMEs. Moreover, the SMEs have a significant higher perceived
importunateness regarding the product ramp-up and diverse user group management than the
corporations within the secondary data, which might be explained by the characteristics of an
oligopolistic market, where user group management and production ramp-up might be a way of dealing
with the risks of being copied by the competitors.
- 1,00 2,00 3,00 4,00 5,00
Reverse engineering
Supplier–partner engagement in product …
Design for specific goals
Product platform management
Engagement with customers to prove real-…
Product Development
Merchandising and retail, average
Professional Services average
TMT, average
All respondents, average
G1000, average
33
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
Figure 18 Importance of KFS within the Commercialization Phase of The Innovation process.
Comparing the top five KSFs within the study of Jaruzelski and Dehoff (2010) and the respondents of
this study give the result shown in Table 7. Interestingly, three out of five are the same and the other
two differ. Product platform management and pilot-user selection/controlled rollouts are not on the top
five within the investigated respondent, but among the corporations investigated within the global
study of large corporations by Jaruzelski and Dehoff (2010). It might be explained by the focus of
each group; where the large companies might be more systematic while the SMEs might be more
opportunistic, having detailed understanding of emerging technologies and trends and open
innovation/capturing ideas at any point in the process on their top list. It has already been discussed that
companies acting on oligopolistic markets are more likely to apply innovations to keep their
competitors out, which is also in line with a more opportunistic approach rather than systematic and
planned way of working.
- 1,00 2,00 3,00 4,00
Diverse user group management
Production ramp-up
Regulatory/government relationship management
Global, enterprise-wide product launch
Product life-cycle management
Pilot-user selection/controlled …
Commercialisation
Merchandising and retail, average
Professional Services average
TMT, average
All respondents, average
G1000, average
34
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
Global 1000 Respondents
Ongoing assessment of market potential Ongoing assessment of market potential
Deep consumer and customer insights and
analytics
Deep consumer and customer insights and
analytics
Engagement with customers to prove real-
world feasibility
Engagement with customers to prove real-
world feasibility
Product platform management Detailed understanding of emerging
technologies and trends
Pilot-user selection/controlled rollouts Open innovation/capturing ideas at any point
in the process
Table 7 Comparing the top five ranked (average) KSF within the study of Jaruzelski and Dehoff (2010) with the studied respondents.
Figure 19 shows the correlation between the respondents stating they are driving innovation to keep
their competitors out and the twenty-one capabilities, listed in the study of Jaruzelski and Dehoff
(2010). The five most correlated capabilities within Figure 19 is not equal any of the top-5 KSFs
within Table 7, just as it is not the case in Figure 20 where the capabilities are correlated with the
respondents stating they are getting better profit from innovation work. The correlation between
capabilities and the results of the innovation give that the KSF for innovations are dependent upon
whether the respondent innovates to keep their competitors out or perceive that they get better
profit. Among the respondents stating that they are using innovation to keep their competitors out
the top-3 capabilities considered as KSFs, and are
1. Pilot-user selection/controlled rollouts
2. Ongoing assessment of market potential
3. Rigorous decision making around portfolio trade-offs
Among the respondents stating that they get better profit from applying innovation the top-3
capabilities can be considered as the KSFs, and are
1. Rigorous decision making around portfolio trade-offs
2. Ongoing assessment of market potential
3. Supplier and distributor engagement in ideation process
35
INNOVATION KSFs FOR SMEs ACTING ON NICHE MARKETS
Figure 19 Correlation between innovation capabilities and respondents stating they are keeping their competitors out by innovation work