An intellectual capital-based differentiation theory of innovation practice

Published date21 October 2013
Pages608-633
Date21 October 2013
DOIhttps://doi.org/10.1108/JIC-02-2013-0024
AuthorJohn Dumay,Jim Rooney,Lisa Marini
Subject MatterInformation & knowledge management,Knowledge management
An intellectual capital-based
differentiation theory
of innovation practice
John Dumay, Jim Rooney and Lisa Marini
Accounting Department, University of Sydney Business School,
Sydney, New South Wales, Australia
Abstract
Purpose – The purpose of this paper is to respond to calls to research recognising impediments to
innovation practice. The paper argues that decision-making preferences by risk-averse managers are a
key impediment to the organisational support required for the commercialisation of new ideas, by
exploring the relationship between forms of intellectual capital (IC) and innovation. As a result,
categories are derived that contrast with the current grand theo ry that IC drives innovative practices.
Design/methodology/approach – The paper critically examines cross-sectional empirical data
gathered through semi-structured interviews with 27 Australian executive managers from leading
Australian companies and the public sector. These interviews elicited narratives about successful and
unsuccessful innovations where interviewees had significant involvement in the outcome. In all, 54
narratives of innovation from executive managers – 27 successes and 27 failures, were analysed using
the repertory grid technique to unearth patterns about the process of innovation, especially in relation
to the stability of the business environment and the need for innovation.
Findings – The paper finds that successful innovation in a context identified as demonstrating risk-
aversedecision-makingbehaviours requires differentmanagementapproaches, dependingon whether the
innovationis radical, evolutionary or incremental. The paperdiscovers 12 different factorscontributing to
innovation processes and identifies those that are more likely to contribute to the success of innovative
endeavours. From this the current grand theory that IC drives innovative practices is challenged by
developingan IC-based differentiation theory of innovation practice.
Research limitations/implications – As always, the observations and conclusions reached are
limited to the 27 interviews and the Australian context. Further, findings are based on the authors’
objectiveanalysis. Aswith any qualitativestudy the authors alsocaution aboutgeneralising the findings,
and as with any theory it should be used to develop insights into actions, rather than prescribing them.
Practical implications – For educatorsit highlights the need to teach studentsto critique innovation
rather than acceptingthat all innovation is beneficial. Forresearchers it shows they must avoid success
bias by investigating both successful and failed innovations, developing differentiation theories of
innovation practice. The findings highlight how senior managers responsible for enabling and
resourcing innovation need to develop skillsfor identifying the innovation type enabled, matching it to
an appropriatestrategic approach. Finally,for policy makers it shows how differentforms of successful
innovationrequire different approaches, and each can be encouraged, developedand enabled differently.
Originality/value – The paper is novel because it addresses the interaction and complexities of the
differentfactors that enable successfulinnovation and possiblycontribute to innovation failures,and the
types of innovation relevant to each context. This approach is in contrast to the contemporary
innovationliterature, which tends to focus on successful radical innovation.As a result, the paper offers
a more holisticview of the diverse and interrelatedfactors that impact innovationsuccess and/or failure.
Keywords Innovation, Practice, Intellectual capital, Differentiation theory, Grand theory
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1469-1930.htm
Received 24 February 2013
Revised 8 May 2013
Accepted 9 May 2013
Journal of Intellectual Capital
Vol. 14 No. 4, 2013
pp. 608-633
rEmeraldGroup Publishing Limited
1469-1930
DOI 10.1108/JIC-02-2013-0024
Funding for this research was provided by the University of Sydney and KPMG. The authors
Dr Robert Kay and Dr Chris Goldspink from Incept Labs Pty for their research support and
collaboration. They also thank Fiona Crawford from the Editorial Collective for her invaluable
editorial contributions.
608
JIC
14,4
Introduction
The purpose of this paper is to develop an understanding of behavioural influences
on current innovation practice and their association with intellectual capital (IC).
Thus the aim of the study is to address the question, “What categories of IC contribute
to managers’ perceptions of successful or unsuccessful inn ovation processes and
how does this contribute to the grand theory linking IC as an enabler of innovation?”
Based on field studies in which these behavioural influences are present, the research
explores the relationship between IC and innovation and develops categories that
contrast with the current grand theory (Dumay, 2012) that IC drives innovative
practices (e.g. Humphreys et al., 2010) to develop an IC-based differentiation theory
(see Llewelyn, 2003) of innovation practice.
Developing a differentiation theory of innovation practice is novel because most
contemporary studies focus on either radical or incremental innovations, while this study
seeks to understand the enabling conditions for innovation from the perspective of all three
types of innovation, being radical, evolutionary and incremental. To do so the research
critically examines cross-sectional empirical data gathered through semi-structured
interviews (Qu and Dumay, 2011) with 27 Australian executives from leading Australian
companies and the public sector. These interviews elicit narratives about successful and
unsuccessful innovations where interviewees had significant involvement in the outcome.
The narratives of innovation are analysed using the repertory grid technique (Fransella
and Bannister, 2004) to unearth patterns about the process of innovation, especially in
relation to the stability of the business environment and the need for innovation.
The paper contributes to the IC and innovation management literature by examining
the link between IC and innovation, and the conditions associated with innovation success
and failure and not just successful innovations (see Sveiby et al.,2009),byproviding
insights into the factors promoting innovation and those hampering innovation.
Developing these insights opens the potential for identifying how educators, researchers,
practitioners and policy makers can critique the success bias associated with innovation
(Sveiby et al., 2012), identify the type of innovation being developed, link innovation to
strategy and enable conditions to promote a greater likelihood that future innovations
will be successful.
Literature review: linking IC and innovation
Innovation is a multifaceted expression used at strategic and operational levels of
business, encompassing business processes, products and services, competitor intelligence,
business policy, policy formulation and understanding customers. As innovation is power
and value laden, it also encompasses a variety of research perspectives informed by
theories in economics, sociology and psychology. In particular, this review identifies the
grand theory linking innovation with IC , which implies the relationship is overwhelmingly
positive. Since the first stages of developing IC as a management technology, innovation
has been identified “as the principal determinant of competitiveness” (Petty and Guthrie,
2000, p. 157).
However, research has also shown that the outcomes derived from innovative
processes are difficult to predict (Tidd, 2001). Furthermore, the measurement of
inputs and outputs is challenging and dependent on the business environment in
which the company operates (Tidd, 2001). This is at least partly due to the difficulty
in establishing a relationship between measures of innovation and firm performance
(Tidd, 2001, p. 169) “because innovation management best practice is contingent on
a range of factors”. An initial review of the practice literature on innovation identifies
609
Theory of
innovation
practice

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