Successful Innovation Management: In Search of a Crisis?

Transcription

EUROPE
MANFRED PERLITZ AND HELGE LÖBLER
Successful Innovation Management : In Search of a
Crisis?
Introduction
Incentives for Innovation
Since the end of the 1970s much discontent has been
expressed about a decrease in capital expenditures
by Western companies . 1 This investment gap measured by corporate investment as a declining
percentage of GNP - is cause for concern, 2 and reflects a low level of innovation. Clearly, during the
period under consideration, Western companies did
not find enough opportunities for capital expenditures that would have yielded higher returns than
they anticipated from investing the money in the financial markets . The low level of innovation and
the resulting investment gap led not only to lower
economic growth rates but also hindered structural
change . 3
One possible reason for this development is
related to the conditions under which managers are
willing to take risks . Investments and innovations
are generally accompanied by high risks and uncertain returns . The relationship between investment
and innovation gaps, an the one hand, and expected
profits and equity capital, an the othet, is extensively
covered in the literature,4 which presumes a positive
correlation between the willingness to take risks and
profit expectations .5 This assumption is also pos-
tulated in the Portfolio-Selection-Theory.6 Similarly,
in the Risk-Analysis-Model of D .B . Hertz a positive
correlation between profit expectation and a risktaking attitude is assumed . 7
However, the hypothesis of a positive correlation between profit expectation and risk-taking behavior in investment or innovation decisions is not
undisputed . Bowman for example, found that highly profitable American companies showed a lower
willingness to take risks than less-profitable ones .
He described this phenomenon as a "Risk/ReturnParadox ." 8 This raised the question as to whether
the profit expectations are the only determinant for
the risk-taking attitude of companies . Many empirical studies have analyzed the relationship between
profit expectations and risk-taking attitudes .9 Figure 1 distinguishes those studies which focus an analyzing the effect of risk/return patterns an innovation decisions from those which focus mainly an the
effect of risk/return patterns at the individual or firm
level . All of these studies lead to a fundamental question : Are innovations initiated by chances for profit, or does Schumpeter's hypothesis hold, i.e ., that
crises serve as motivators of innovation? 10 If the latter is true, different risk/return patterns have to be
seen as the decisive determinants of innovation . The
following analysis of this issue is based an an empirical study in which 230 executives from twenty large
Professor Dr. Manfred Perlitz is a member of the Department o f International Management, University of Mannheim,
Germany and Professor Dr. Helge Löbler is a member of the Department of Marketing, University of Leipzig, Germany.
BUSINESS & THE CONTEMPORARY WORLD • 3e1995
91
risk/return pattern as an incentive
for innovation
gap in research
PerlitzlLöbler 1989
PerlitzlLöbler 1985
Schumpeter 1947
Schumpeter 1911
v
Risk/Return
aucus et al. 1993
Kahneman/Tversky 1992*
Perlitz/Löbler 1989
Thaler/Johnson 1990*
Fiegenbaum et al . 1988
Cohen et al . 1987*
Marsh/Swanson 1984
Perlitz/Löbler 1985**
Bowman 1980
Laughhunn et al . 1980181"
Neumann et al . 1979
Kahneman/Tversky 1979*
Conrad/Plotkin 1968
risk/return
an a corporate level
risk/return
an an individual level
* Research was based an students' decision making
Research was based an managers' decision making
**
Figure 1 : Synopsis of Former Studies
German corporations were confronted with different simulated situations . Tables 4 and 5 show the
age structure and educational backgrounds of the
respondents, and Tables 6 and 7 summarize the results of the survey.
92
Definitions
Innovation. "Innovation" sterns from Latin (innovatio) . Its semantic meaning is "renewal" or "creating something new ." In the last decade innovation management has become a key issue for
companies . A frequently cited definition of Innovation by Knight reads : "Innovation is adoption
of a chance which is new to an organization and
BUSINESS & THE CONTEMPORARY WORLD • 3
4,
1995
INNOVATION MANAGEMENT
to its relevant environment ." 11 Geiger and Heyn
more precisely define innovation as an approach to
a solution having advantages compared to previous solutions . 12 While an invention represents the
creation of new knowledge (discovery), innovation
refers to the commitment to develop, an the basis
of that invention, a new product or process, and to
market the result(s) .
Innovations can be classified according to
many criteria . Common classifications are product,
process and social innovations . 13
Product innovation refers to either a new
product or the improvement of an existing one . 14
Often companies consider as an innovation a product they bring to market which they had not previously produced, even if this product had already
been marketed by other companies . In the following, however, we define product innovation as a
product, or service, which has not previously been
an the market . Variations an existing products we
define as product improvements . By the term process innovation we mean either a new or an improved manufacturing process 15 in which the application of new knowledge results in increased productivity or quality in the production process .
Social innovations involve either changes in
standards and/or changes in the forms of interaction
between individuals or groups of individuals . 16
Risk. The concept of risk, defined in different
ways in the literature, can be divided into three main
categories . 17 Those in the first category, based an
Knight's definition, make a distinction between risk
and uncertainty. 18 Risk is defined by a decision Situation where an a priori probability or where a posteriori statistical probabilities exist . The second category defines risk or venture by the possibility that
the objectives might not be reached or be only partly achieved. 19 The third category makes no distinction between risk and uncertainty ; both concepts are
used synonymously. 20 In this last case, insufficient
information is entered under uncertainty . 21
In order not to restrict our study, we use both
the definition of risk by Knight as well as the definition of risk based an the difference between an es-
tablished target and the actual achievement of the
target .
Risk Aversion and Risk Taking . Since decisions to innovate involve great uncertainty, the decision maker will try, by using additional sources of
information, to reduce the uncertainty to an acceptable level, or he will not take that risk at all . If he decides to keep the current Situation unchanged in the
interests of remaining at a security level that appears
easier to manage, he will reject the risk . On the other
hand, there are risk takers who see mainly opportunity in every risky decision . Thus one can distinguish
risk-avoiding and risk-taking behavior. 22
Decisions to Innovate
Opportunities and Risks of Product
Innovations
Empirical research shows that new product ideas are
characterized by a very low probability of success .
Buggy found that out of 600 product ideas only thirty turned into successful market entries . 23 Experience has demonstrated that only 3 percent to 5 percent of all product ideas result in market success .
If, however, new product ideas are properly evaluated, screened and analyzed, the rate of success increases 20 percent and 25 percent . 24 Even considering this higher success rate, the chances of returns
an innovative product ideas are highly uncertain .
When a company has to make an innovation decision, there are those in the company who see mainly the 75 percent to 80 percent likelihood of failure, white others only see the 20 percent to 25 percent probability of success . In this respect Witte 25
distinguishes between a "Power-promoter" and an
"Idea-promoter ." The Power-promoter is the person
in the company who has the power to convince the
risk averters that it may be worthwhile to undertake the risk . The Idea-promoter provides the support to overcome the competency barriers . In practice, the Power-promoter offen has a tendency to
Orient himself toward the 70 percent to 75 percent
BUSINESS & THE CONTEMPORARY WORLD • 3 . 1995
93
probability of failure, while the Idea-promoter, who
is mostly fascinated by his own ideas sees mainly the 20 percent to 25 percent likelihood of success . The chances that a product innovation will
be initiated depend, therefore, an the interaction
between Power-promoters and Idea-promoters and
their readiness to take risks . In innovation management the role of the Power-promoter is the crucial
one, because he is the only person able to transform
an invention into an innovation . Hence, in our empirical study, we concentrated our analysis an the
risk-taking behavior of the Power-promotor.
Opportunities and Risks of Process
Innovations
While the chances of success for innovative product ideas are relatively low, empirical research shows
that process innovations have a considerably higher probability of success . 26 A survey by Biehl shows
that the higher the degree of novelty, the higher are
the chances of success for process innovations . 27
Consequently, the initiation of a process innovation
requires a lower risk-taking attitude an the part of
the decision maker than is the case with product
ideas .
Innovations and Decision Making
Our earlier discussion of the Risk/Return-Paradox
suggested that the willingness to undertake risk
depends an the specific situation of an individual
(for example, the Power-promotor) or a company.
Therefore in our study we distinguish two fundamentally different situations . In the first Situation what we have termed an "opportunity case" - the
company is already in a profitable position . In this
situation, if an individual or a company can, without
innovating, expect even higher positive returns, will
this increase the willingness of a Power-promotor or
a company to take the higher risk of innovation?
The second situation assumes that the company is
in a crisis - what we have termed a "crisis case ."
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The question is whether the Power-promotor or the
company would behave differently, depending upon
which of the two situations each is in .
To address this question we simulated both
an opportunity and a crisis case for our survey . For
each of these cases, we assumed "certain" and "uncertain" alternatives . For the opportunity case, characterized by a company in an overall profitable Situation, we assumed an investment with a certain
(i .e ., an assured) return an investment (ROI) of 10
percent (see Table 1) . In real life such a certain return would take the form of a secure investment
(e .g ., a bank deposit) or a "continue-as-now" decision within the company. Two uncertain alternatives
differing in their probability distribution an profitability were set against the certain-alternative Situation . In the first uncertain alternative, we assumed
a 75 percent probability of a 15 percent ROI, with
a remaining 25 percent probability of a 0 percent
ROI (Decision 1) . In the second uncertain alternative, we assumed a 75 percent probability of a 0 percent ROI, with a remaining 25 percent probability
of a 45 percent ROI (Decision II) . Table 1 summarizes the alternatives in our opportunity case .
The difference between the uncertain alternatives is that in Decision 1, Table 1 the likelihood of
failure (represented by a 0 percent return) is only 25
percent, whereas in Decision II it is 75 percent (see
Table 1) . Furthermore, the increase in returns from
10 percent (the certain alternative) to 15 percent (the
first uncertain alternative) is a high probability (75
percent), while the very considerable improvement
in returns from 10 percent (the certain alternative)
to 45 percent (the second uncertain alternative) has
a relatively low probability (25 percent) .
As noted earlier, process innovations are typically characterized by the potential for improved returns and limited risk . Therefore, the uncertain alternative in Decision 1, Table 1 broadly corresponds
with a process innovation .
Although the chances of success for product
innovations are relatively low, if new product ideas
do lead to successful innovations, greater returns
can often be expected . We have tried to simulate this
situation with the uncertain alternative in Decision
BUSINESS & THE CONTEMPORARY WORLD • 3 . 1995
INNOVATION
Table 1 :
MANAGEMENT
Opportunity Case
Certain Alternative
Uncertain Alternatives
Probability
Returns
Probability
Returns
Decision 1
(process innovation)
100%
10%
25
75
0%
15 %
Decision Il
(product innovation)
100%
10%
75
25
0 %
) 2nd . Alt .
45
Alternatives
II, through which a considerable improvement in the
expected returns can be assumed (from the 10 percent ROI (the certain alternative) to the 45 percent
ROI through the uncertain alternative in Decision
II) . On the other hand, the likelihood of a drop in
returns to 0 percent is very high (75 percent) . Therefore we can broadly identify the uncertain alternative in Decision II with a product innovation .
We also studied crisis situations wherein the
Power-promotor and the company had to expect
losses . We defined as the certain alternative a loss of
10 percent an investment (see Table 2) . In real life,
this alternative could result from a continue-as-now
decision . We set two uncertain alternatives against
the certain loss of 10 percent .
The first uncertain alternative is characterized
by a high probability (75 percent) that the company can achieve break-even (ROI of 0 percent) which
will lead out of the loss situation . In this alternative,
however, there is also a 25 percent probability that
the company will suffer a negative ROI of 45 percent
(see Decision III in Table 2) . We used Decision III to
stimulate process innovation, which can lead to rationalization within the company . If rationalization
is unsuccessful, however, the company will lose its
competitiveness, and this will lead to the high losses
assumed here.
Our second uncertain alternative in Decision
IV, Table 2 reflects a situation in which a company has a 75 percent probability of suffering a negative ROI of 15 percent, with a remaining probability of 25 percent that it will reach the break-evenpoint (ROI of 0 percent; Decision IV) . Given the 75
percent probability of failure and only a 25 percent
ist . Alt.
probability that the company will come out of the
crisis, this uncertain alternative reflects a productinnovation decision (see Tables 2 and 3).
Table 3 describes the situations simulated
through the different alternatives .
Resuits
Table 6 shows the results for process innovations . It
compares the certain alternatives (continue-as-now
or certain investment) with the uncertain alternative
of a process Innovation . If we assume that a manager is risk neutral, he should choose the alternative
of process innovation in order to maximize the expected value of his returns . However, 61 percent of
the managers in the opportunity case (Decision 1, Table 1) preferred the certain alternative to the insecure process innovation . Here, risk aversion at a significance level of 0 .05 was observed .
This is a very interesting result : In a situation
where managers could afford to take risks (opportunity case) they behaved like risk averters and preferred a certain investment or a continue-as-now decision in comparison to an uncertain process innovation, even though the latter alternative had a high
chance (75 percent) of success . This behavior is not
too difficult to explain . In such a decision situation,
a risk-taking attitude of a manager could endanger
his career. This has to do with information . If one
measures information content (Al) as the difference
between what one expects and the actual outcome,
then the general expectation in an opportunity Situation is that the company will generate a profit . Under
BUSINESS & THE CONTEMPORARY WORLD • 3 • 1995
95
Table 2 :
Crisis Case
Alternatives
Certain Alternative
Probability
Returns
Probability
Returns
Decision III
100%
-10%
25%
75%
0% 1
-45 % 1 Ist . Alt .
Decision IV
100%
-10%
75%
25 %
0%
-15 %
Table 3 :
2nd . Alt.
Decision-Making Situations Researched
Certain Alternative
Opportunity Case
Continue-as-Now or
Certain Investment
Process
Innovation
Product
Innovation
Crisis Case
Continue-as-Now
Process
Innovation
Product
Innovation
these circumstances, the manager generates a profit,
erably more often initiated than in an opportunity
but the Al for his superiors is close to zero, because
case . So the same manager who, in an opportuni-
everybody expected a profit . If, however, he gener-
ty Situation, was a risk averter becomes, in a crisis
ates a loss in this situation, everybody will ask why
he is producing a loss when everybody else is pro-
situation, a risk taker. This behavior is again easy
to explain . In a crisis case the general expectation
ducing a profit . Thus, "bad information" about this
is that the company will produce a loss . Even if the
manager is generated, thereby endangering his future career. Why should he take that risk if he has the
manager produces an even higher loss than anticipated, the DI, taking the increased risk of failure in-
secure alternative through which he will lose noth-
to account, remains relatively low. The negative Im-
ing. Risk aversion from his point of view may be a
pact an his career may even be marginal, because
better strategy than taking the risk of creating "bad
everybody generates losses . If, however, he brings
information" about his performance .
the company to the break-even point, he will be-
In the crisis case (Decision III, Tables 2 and 6),
the homo economicus, to avoid the 25 percent probability of a negative 45 percent ROI, should choose
come the turnaround manager and generate positive
DI for his career . Risk taking for the manager now
pays off. Thus, our research has shown that the risk-
the continue-as-now alternative . In our study, how-
taking attitude of managers depends an the situa-
ever, 85 percent of the managers opted for the pro-
tion of the company : A crisis situation leads to higher risk taking and therefore innovations can be eas-
cess innovation against the continue-as-now alternative (see Table 6), even though the expected value
of the return of a process innovation could be lower
ier achieved . An opportunity Situation seems to be
an obstacle to innovations . Perhaps only few things
(-15 percent) than the -10 percent of the continue-
can constitute a higher obstacle for innovations than
as-now alternative (see Table 2, Decision III) . Here,
the present success of a company . Thus, if one joins
the significance level is 0 .001 . Table 6 clearly shows
a profitable company and suggests innovations, the
likelihood of change is relatively small .
that in a crisis case, a process innovation is consid-
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Table 4 :
Age Structure (Age Groups Proportion in %)
up to 30
31-35
36-40
41-45
46-50
51-55
56 and older
2 .2
10 .8
26 .6
28 .8
16 .5
12 .9
2 .2
Table 5 :
Educational Background
Field of Education :
Qualifications Acquired
in Education
Science
Business,
Administration,
Social Science
Others
No Reply
Doctorate
9 .2%
1 .5%
0%
0 .8%
Higher Education
42 .3%
13 .9%
2 .3%
5 .4%
Others, Especially
Apprenticeship
5 .4%
15 .4%
1 .5%
2 .3%
Table 6 :
Attitude Towards Risk in Process Innovations
Certain
Uncertain
Opportunity Case*
(Decision I, Table 1)
Continue-as-Now or
Certain Investment
Process Innovation
N=87
61%
(N=53)
39%
(N=34)
Continue-as-Now
Process Innovation
15%
(N=13)
85%
(N=74)
Crisis Case**
(Decision III, Table 2)
N=87
* Significance Level < 0 .05
* * Significance Level < 0 .001
Table 7 compares the certain alternative of an
investment or the continue-as-now scenario with a
product innovation (Decision II, Tables 1 and 7, Decision IV, Tables 2 and 7) . Table 7 shows that in
an opportunity Situation the certain investment or
continue-as-now scenario is by far preferred to the
uncertain product innovation (Decision II, Tables 1
and 7). The managers had a high-risk aversion in the
opportunity case even if the expected value of return
of the certain alternative is lower than that of the un-
certain alternative . This risk-taking attitude of managers is easily understood . Why should a manager,
taking the above mentioned AI into account, opt for
a 75 percent likelihood of failure if he can choose
the certain alternative which will yield an ROI of 10
percent? It would be a great achievement if he could,
with a 25 percent probability, reach an ROI of 45
percent . In this case, however, the German saying,
"Victory has many fathers, defeat none," might appropriately be applied . Even if successful, the man-
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Table 7 :
Attitude Towards Risk in Product Innovation
Opportunity Case*
(Decision II, Table 1)
N=143
Crisis Case**
(Decision IV, Table 2)
N=143
Certain
Uncertain
Continue-as-Now or
Certain Investment
75
(N=107)
Product Innovation
Continue-as-Now
Product Innovation
29%
(N=41)
71%
(N=102)
25
(N=36)
* Significance Level < 0 .001
* * Significance Level < 0 .00 1
ager will not get all of the credit - others, however
inappropriately, will claim their share . So the positive impact of a higher risk-taking attitude an his
future career might become marginal .
In a crisis situation, however, the continueas-now scenario is hardly opted for (29 percent),
whereas the alternative of product innovation is selected by 71 percent of the managers (Decision IV,
Tables 2 and 7) . Both decisions (II and IV, Tables 2
and 7) have a significance level of 0 .001 . If managers
wanted to maximize the expected value of returns
and be risk neutral, they had to choose, in the crisis
case the continue-as-now alternative . Again, the decision is obvious if one considers the managers' Situation . Managers will see the possibility of generating
a positive AI for their career by taking the higher risk
even if this alternative has only a 25 percent probability of occurring . If disaster strikes, they can point
to the fact that the certain alternative would also
have produced a negative 10 percent ROI . Again the
results demonstrate that the firm's Situation at the
moment of decision shapes the risk-taking or riskavoiding attitudes of managers, and risk neutrality
cannot be assumed in the described decision alternatives . Table 7 demonstrates that product innovations are more likely to occur in crisis cases than in
opportunity cases .
Tables 6 and 7 also show that in an opportu-
98
nity case, process innovations are preferred to product innovations . In both decisions (Decision 1, Talfiles 1 and 6, and Decision III, Tables 2 and 7) the
certain investment or the continue-as-now alternative is preferred :
Where ">" means "is preferred to," we
find :
Investment or Continue-as-Now > Process Innovation > Product Innovation .
Also in a crisis case, process innovation is preferred
to product innovation . But it is clear that a crisis
case generates considerable initial forces favoring
both process and product innovation . In crisis cases, managers behave as follows :
Process Innovation > Product Innovation > Continue-as-Now.
These results indicate, furthermore, that in an opportunity case it is considerably more difficult for an
Idea-promoter to find a Power-promoter willing to
take risks .
In a crisis situation, however, the Ideapromoter will find greater receptivity for his innovative ideas with a Power-promoter, since the latter
will want to clutch at that straw which could help
him out of the crisis . These results match those of
the Schumpeter thesis (a crisis situation as a promotor for innovations) and modifies the classical thesis
of the risk/return approach (positive correlation between risk taking and the expectation of a positive
return) . Empirical surveys an the Allais' paradox
show a similar aversion to risk in favorable situations . Respondents were asked whether they would
prefer a certain alternative (with a secure return of
$100) to an uncertain one with a 10 percent probability of a $500 return, an 89 percent probability of
a $1,000 return, and a 1 percent probability of a $0
return) . 2 ß Although the expected value of the uncertain alternative was $940 ($500 x 10 percent [$50]
+ $1,000 x 89 percent [$890] = $940), the majority
of respondents chose the certain alternative . 29 These
results showed that management theory should view
the company's situation as having a major impact
an the willingness to innovate . 30
Crisis and Innovations
The results of this study, although seemingly obvious, raise a crucial question : Do companies need a
crisis to become innovative? Maybe "need" is too
strong a term, but clearly a crisis Situation is highly conducive to innovation in a company . This fact
suggests a very interesting model for the innovation
process at the company level, with many implications for innovation management . Figure 2 summarizes the model . Assume a new company . From experience we know that many newly founded companies fall . If an the other hand, the company succeeds, it nonetheless evolves into an opportunity Situation, in which it develops an attitude of risk aversion . As it behaves like risk averters it does not innovate; it especially avoids product innovations . Because it neglects product innovation it is sooner or
later faced with structural problems in its productportfolio. 31 The result - crisis . As we have Seen,
managers develop a higher willingness to take risks
in a crisis situation. They want to restructure the
company. As Figure 2 shows, the first activity they
prefer is process innovation ; e .g., measures to rationalize the company's activities . They even opt for
product innovations to get out of the crisis . If they
do not succeed, the company drops out ; if they are
able to restructure the company, it overcomes the
crisis and moves to the next opportunity Situation .
And the whole process begins again .
Our research at the company level supports
the empirically founded Kondratieff 32 cycles and
the Batra33 cycles of development . Also, the interrelations between the various factors shown in Figure 2 indicate that companies may need a crisis to innovate, or at least that a crisis is very helpful in eliciting innovation . This theory of structural change
stemming from crises also explains phenomena of
the last four decades . This is especially true for the
losers of World War II : Germany and Japan . The development of the overall economy and the development of companies are closely knit . The crisis years
from 1945 to 1955 promoted a risk-taking attitude
in both the German and Japanese economies . Since
the two countries had nothing to lose, choosing between the uncertain alternatives was the only alternative, since the continue-as-now approach was impossible . This risk-taking attitude led, until the midfifties and the beginning of the sixties, to a structural change through process and, later, product innovations . West Germany, overcoming its crisis in
the mid-sixties, evolved in the late sixties and early
seventies into an opportunity situation . During the
latter period, German companies had enough certain alternatives to remain profitable, hence innovation was not seen as especially necessary . This attitude, however, led the Germans, in the mid-seventies
and early eighties, into a new crisis situation. Since
then the German companies have been keenly aware
of the need to innovate . Currently, Germany is striving to regain its competitive strength through structural change based an innovation .
Germany's experience demonstrates how
questionable it is to regard profit opportunities as
conducive to innovation. During the sixties, German
companies enjoyed high equity and profitability levels, growing markets and economic and political
stability. Despite all of these positive ingredients,
the innovation gap we are deploring today emerged
during that period .
99
crisis situation
opportunity situation
willingness to
take nsk
risk
aversion
no
innovations
y
structural
problems
i
opportunities
cnsis
successful
Figure 2 :
Crisis Development
Willingness to innovate presupposes crisis .
There is a high likelihood that the current crisis in
Japan has developed in the same way that its counterpart did in Germany. The feeling of having a superior economy and Japanese success in the world
markets have led Japan into the same Position that
Germany was in ten to fifteen years ago . Then the
Germans joked about the British disease, meaning
that the decline of the United Kingdom's economy
was due to British complacency . Nowadays the Koreans joke about the Japanese disease which refers
to the complacency in Japan .
The most important finding of our research seems to be, however, that companies, like
1 00
economies, develop in cycles . If one considers the
research of Peters and Waterman an excellent
companies, 34 one has to question why fifty-six of
the sixty-two firms mentioned therein are in a crisis . This Situation can be explained by our model .
The financial ratlos used by Peters and Waterman
typically look good if a company is in an opportunity situation, which according to our theory leads
them in the long term to structural problems . These
findings also correlate to Foster's findings an innovations . Foster has pointed out that present success
is one of the most important obstacles to innovation .
Open Questions
Our analysis leaves a range of questions open to further empirical and theoretical research .
• Do government measures to improve
•
•
•
•
•
•
the profitability of presently successful
companies lead to a decrease in the willingness to innovate and to structural
changes in the company?
Do government subsidies given to companies having structural problems lead
to a decrease in the willingness to innovate because the crisis Situation is felt to
a lesser extent? And does this lead to a
delay of necessary structural change?
Does it make sense at all to provide
companies in an opportunity Situation
with government subsidies for innovations?
Is the explanation of structural change
based an the equilibrium theory still
valid or do we need a theory of disequilibria?
Does the playing down of a crisis situation perhaps hinder rather than further
innovations?
Does an economic policy seeking to
bring about a balance between opportunity and crisis situations create an
attitudinal obstacle to Innovation and
consequently to structural change?
Can business cycles be explained an the
basis of microeconomics?
Our research does not, of course, suggest that measures be taken to deliberately create genuine crises
for successful companies in order to ensure that they
continue to innovate . Rather, the question derived
from our research is: How can successful companies simulate a crisis Situation to keep the Corporation going? Thus far, business administration theory
adequately researched this question . However, several measures taken in the so-called excellent companies examined in the research of Peters and Waterman can be viewed as simulating a crisis . Mod-
ern Innovation management involves chaos theory,
ambitious targets, clear "enemy pictures," reorganizations, delegation of responsibilities, scenario techniques (what will the company look like in ten years
if nothing is done now?), hiring consultants as external Power-promotors and similar measures that
can generate a feeling in the company of an overall crisis situation or that may lead the manager to
see his own survival in the corporation as problematic . Also, target costing can simulate a crisis in a
company . If the maximum costs are fixed, managers
have to think hard about how product and/or process Innovation can lead to the achievement of target
costs . There seems to be a need to generate enough
uncertainty in a company so that managers feel permanently insecure . One has to distinguish, however,
between a stimulating and a paralyzing crisis . In a
stimulating crisis the manager still sees a chance to
succeed ; that there are enough possibilities to overcome present problems . In a paralyzing crisis the
manager is hopeless and helpless . He does not see
any opportunity to emerge from the crisis, hence
innovations will not be undertaken . In this regard,
and in others, we believe that more can be learned
from companies that have successfully overcome a
crisis than from those in an opportunity Situation .
We would, therefore, stress that a search for a crisis,
or simulation of a crisis, can be at least as valuable
as a search for presently successful companies .
Whether or not this research an German managers can be transferred to managers with different
cultural backgrounds needs further research . One
also has to ask whether a crisis imposed from outside of the company leads to the same effect as a crisis from within . Another aspect of future research
leads to the question as to whether managers from
small- and medium-sized companies behave in the
same way as those from large corporations .
Like all empirical surveys, our research raises
more questions than it resolves . Further empirical as
well as theoretical research an the theory of crisis is
needed to analyze its impact an structural changes in
companies and perhaps also in national economies .
The chief aim of this article has been to encourage
discussion of this topic .
101
Notes
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2 . Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung,
Zeit zum Investieren
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1 02
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1 03
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22 . The concepts of risk aversion and risk taking are generally defined as follows : if f(u) is a risk-preference function according to decision theory where u stands for the return, then one speaks of risk-taking attitude when f(u)
is convex ("higher returns are more attractive than low deterrents") and of risk aversion, when f(u) is concave .
W. Krelle, Präferenz- und Entscheidungstheorie (Tübingen, 1968), 140 ; Krelle, Replik zur Erwiderung von Jacob und Leber auf meine Bemerkungen in ihrem Artikel "Rationale Entscheidungen bei Unsicherheit," Zeitschrift
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7 ; E . Mansfield et al ., The Production and Application of New Industrial Technology (New York, 1977), 68 ;
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24 . Booz, Allen, and Hamilton, New Product Management for the 1980s (New York, 1982) ; R.G. Cooper and
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Product Innovation Management 10 (1993) : 90-111 .
25 . E . Witte, Organization für Innovationsentscheidungen . Das Promotoren Modell (Göttingen, 1973) ; Witte, Innovationsfähige Organisationen, Zeitschrift für Organization, vol . 42, 1973, 17-24 ; Witte, Kraft und Gegenkraft im
Entscheidungsprozeß, Zeitschrift für Betriebswirtschaft, vol . 46, 1976, 319-26 .
26 . E . Mansfield, Industrial Research and Technological Innovation : An Econometric Analysis (New York, 1968) ;
Mansfield et al ., The Production and Application of New Industrial Technology (New York, 1977) ; J .E .S . Parker,
The Economics of Innovation, 2d ed . (London/New York, 1978) ; H.W. Mohr, Bestimmungsgründe für die Verbreitung von neuen Technologien (Berlin, 1977) ; J .H . De Young, Jr. and J .F Tilton, Public Policy and the Diffusion
of Technology (The Pennsylvania State University Press, 1978) ; R .G . Cooper and E .J . Kleinschmidt, "Major New
Products : What Distinguishes the Winners in the Chemical Industry?" Journal of Product Innovation Management
10 (1993) : 90-111 ; G . Schewe, Die Innovation im Wettbewerb, Zeitschrift für Betriebswirtschaft, vol . 62, 1992,
967-88 .
27. W. Biehl, Bestimmungsgründe der Innovationsbereitschaft und des Innovationserfolges (Berlin, 1981) .
28 . M . Allais, "Le comportement de 1'homme rationnel devant le risque : Critiques des postulats et axiomes de l'ecole
americaine," Econometrica 21 (1953) : 503-46 . Here, we are referring to the first decision-making situation that
Allais posed to the people tested and not to the parodox resulting from the inconsistent behavior of the people
asked regarding the Bernoulli-Utility Function . The Bernoulli-Rationality has really been widely discussed where
the utility function is concerned ; W. Krelle, Republik zur Erwiderung von Jacob und Leber auf meine Bemerkungen
zu ihrem Artikel "Rationale Entscheidungen bei Unsicherheit," Zeitschrift für Betriebswirtschaft, vol . 48, 1978,
1 04
490 ; H . Schneeweiß, Entscheidungskriterien bei Risiko, op . cit., 77; J .D . Hey, "The Economics of Optimism and
Pessimism : A Definition and Some Applications," Kyklos 37 (1984) : 181-205 .
29 . D . Kahnemann and A . Tversky, "Prospect Theory, An Analysis of Decision under Risk," Econometrica 47 (1979) :
262-91 .
30 . D . Schneider, Gewinnbesteuerung und Risikobereitschaft : Zur Bewährung quantitativer Ansätze in der Entscheidungstheorie, Zeitschrift für betriebswirtschaftliche Forschung, vol . 29, 1977, 633-66 ; S .P. Slatter, "The Impact of
Crisis an Managerial Behaviour," Business Horizons 27 (1984) : 65 .
31 . Slatter, 65-77 .
32 . N . Kondratieff, "The Major Economic Cycles," Review 2 (1979) : 519-62 .
33 . R . Batra, Regular Cycles of Money, Inflation, Regulation and Depression (LC . 85-50598 (Illus .) 1985), 192-99 .
34 . T. Peters and R .H. Watermann, In Search of Excellence (New York, 1982) .
BUSINESS & THE CONTEMPORARY WORLD
•3
9 1995
1 05

Successful Innovation Management: In Search of a Crisis?

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