The Impact of Inter-Firm Relations on Creativity and Innovation

List of Content

1 Introduction

2 Methodology

3 Research Variables
3.1 Inter-FirmRelations
3.2 Creativity and Innovation

4 Literature Review

5 Overview of Discussion
5.1 Creativity, Innovation and Implementation
5.2 Learning Organization Perspective
5.3 Product Innovation in Emerging International Joint Ventures
5.4 Innovation Intensity of Firms and Inter-Firm Cooperation
5.5 Inter-Firm Relations benefitting IT innovation

6 Discussion
6.1 Firm Size
6.2 Historical Tracking

7 Conclusion

8 Limitations and Future Research

9 References

List of Tables

Table 1. Results Regarding and Service Firms

Table 2. Overview of Present Impacting Factors

Table 3. The Factors Necessary to be Investigated in the Future

List of Figures

Figure 1. Various Types of International Alliances

Figure 2. Relation between Creativity and Innovation

Figure 3. Path from Learning Organization to Knowledge-Sharing and Firm Innovation

1 Introduction

Innovation is what drives human kind to advance constantly, discovering new levels of thought and reality. It improves all our lives severely and made possible to progress in a world that is filled with threats for “human survival”. Innovation takes place in almost every field of live, from modern high-tech computer technologies and genetic engineering up to aerospace and shipbuilding or even mining activities. With regard to business, innovation proves to be one of the most interesting concepts of the new century allowing the usage of more efficient and cost saving technologies, including the ever life-transforming implementation of the internet in the workplace. Without innovation, businesses would not operate and certainly not survive for very long in an environment, which is itself ever changing and to which one needs to adapt to, in order to stay ahead of one’s competitors.

With attention to the field of business, innovation is formed most commonly through inter-firm relations on some level. There are of course a variety of inter-firm relation forms, where each type of collaboration serves a specific goal. Examples include joint ventures (Kamminga, 2007) , strategic alliances of diverse origins i.e. joint manufacturing, Research and Development (R&D), geographically composed alliances (Lasserre, 2007) etc. Inter-firm relations are a perquisite for this paper, i.e. that the effect of inter-firm relations on innovation is not questioned. In contrast, the concept of trust, which many authors agree to be fairly important in the success of inter-firm relations has been discussed thoroughly in earlier literature (Luhmann, 1998; Mayer et al., 1995; Jones and George, 1998; Newell and Swan, 2000; Seppaenen et al., 2005) and is not dealt with in this paper. Conversely, it is looked upon the diacritic components of creativity and innovation (Brazeal and Herbert, 1999; Pretorius and Millard, 2000), in order to understand how it is created and implemented into a firm.

Although various researchers have called attention to inter-firm relations and their effect on innovation (Koschatzky, 1994; Ring and van de Ven, 1994; Whittaker and Boner 1994; Kishida et al., 2005; Pretorius and Millard, 2005; Patrakosol and Olson , 2006; Zhou et al., 2008) , relatively few studies so far (Teece, 1986; Toedtling and Trippl , 2005; Ozman, 2009) have examined the topic from an integrative point of view. While some research has been done on individual variables chosen by the researchers beforehand for a certain firm in a specific industry and setting, there has been a small amount of research towards a much more universal approach. The here presented study therefore aims at gaining comprehensive insight into the fundamentals of the previously described approach. In particular the objective of this study is to analyse how the characteristics of inter-firm relations influence creativity and innovation. This is done by contextualising the factors used in previous literature and analysing their impact on innovation as well as the implementation processes.

The literature on the importance of inter-firm relations explains the building of inter-firm networks (Harris et al., 2000; Ozman, 2009). The creation of such networks was firstly discussed in studies by Ring and van de Ven (1994) as well as Koschatzky (1998), who focused on the innovation intensity of firms in the two sectors, manufacturing and service. The main concern regarding this point is co-operative inter-organizational relationships of firms. However, co-operative inter-organizational relationships were thoroughly assessed at a later point in time by Liao (2006), who specialised in knowledge-sharing behaviour, suggesting that it is the behaviour of employees, which increases the knowledge-sharing process and therefore enhances firm innovation. This stands in contrast to other theories (Lasserre, 2007), stating that the knowledge-sharing process correlates with the communication technologies and structure at hand.

Following the two points made above, the built-up of inter-firm relation networks and employee behaviour, literature also elucidates whether increased inter-firm relations have a positive effect on firm performance (Kishida, 2005).

In this study we propose a concept of inter-firm relations based on the results and theories of the above presented papers. The theories are applied in a narrow spectrum, merely including those conclusions, which are relevant for answering the research question. The here presented thesis argues that all variables have to be taken into consideration when analysing how inter-firm relations influence innovation. Therefore, depending on the nature of the above given characteristics, a carefully pertained selection process is crucial for picking the right variables for analysing a given situation. A theoretical framework, which is both, flexible in its application and evident in its applicability, is the ultimate goal of this thesis.

This thesis is structured into eight sections, excluding the introduction. In the “Methodology”, a short detailed plan is laid out on how this research was conducted and why it is structured in its current way. The section ‘Research Variables’ presents the two variables this study focuses on, mainly ‘inter-firm relations’ and ‘creativity and innovation’. This is done from a theoretical point of view, in order to introduce the theoretical concepts behind the conducted research itself. Afterwards a literature review is given, which serves as a fundamental platform in understanding the examined papers and their relevance of this research. Each paper is also described in the following section (section 5). What follows is the “Discussion”, the main part of the thesis, which is divided in two broad topics, mainly ‘firm size’ and the ‘historical tracking’ of innovation. To sum up the thesis finishes with “Conclusions and Limitations”, as well as “Suggestions for future research”.

2 Methodology

This study does not conduct its own surveys and gather primary sources from interviewees of a certain kind, but rather uses the secondary sources of published scientific literature. As such it is limited to its application.

Secondary sources, mainly academic articles are used to present two concepts (i) inter-firm relations and (ii) innovation. These concepts form the basis of this thesis, providing insight on the definition of these terms and narrowing the research down to one field: the association between inter-firm relations and innovation, endowing with an extra level of consideration, which is the human factor.

After the three concepts are presented, a literature review is given, where five main articles have been chosen from academic literature, in order to formulate previous completed research and therefore receive a glimpse of the future of business innovation. This section is followed by a thorough discussion, which analyses two main points (i) firm size and (ii) historical tracking of innovation.

Conclusions and limitations of this paper are listed at the end of this paper. Afterwards an outlook on some possible future research is given.

3 Research Variables

In this section theoretical models and data regarding the two research variables, (i) inter-firm relations and (ii) innovation are introduced. The first point is inter-firm relations, where one can identify on which type of inter-relation the paper focuses on (Lasserre, 2007), followed by the second part, innovation, where the author classifies the creation of creativity and innovation into four main parts (Pretorius and Millard, 2005). This section serves also as a clarification and theoretical focal point of this thesis, in that explanations concerning the applicable theory are included below.

3.1 Inter-Firm Relations

Inter-Firm relations are often the basis of success, efficiency, worldwide expansion and growth. However, it is to be mentioned that there are many different forms of inter-firm relations, such as strategic alliances, joint ventures, mergers etc. Furthermore, there are various forms of e.g. strategic alliances. The main known concepts of strategic alliances are described in the Figure 1.

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Figure 1. Various Types of International Alliances.

Source: Global Strategic Management (Lasserre, 2007).

An individual explanation for each type of alliance is given below:

Global Reach Alliances: These alliances are formed, due to the fact that firms are relatively close to each other and/ or are targeting the same geographical market.

Global Leverage Alliances: This kind of strategic alliance is the one most relevant to firm innovation, since in this case a minimum of two firms are collaborating with regard to R&D and joint manufacturing. Moreover, innovation increases can be expected, since scientists/ experts from two different firms, often having acquired different specialist knowledge in a particular field, work and develop projects together. Joint manufacturing adds to that.

Alliances for Market Entry: As the name already gives away, this kind of strategic alliance is initiated with the purpose of entering a foreign market with little/ no knowledge about local tastes and likings.

Alliances for Country Resources Access: Alliances for country resource access exist, due to firms requiring particular resources e.g. diamantes, which can only/ especially be found in certain countries on the globe. Acquiring the needed resources quick and effectively, while keeping costs down is the goal.

In recently completed studies, strategic alliances, in particular the ones entered into due to innovation purposes, increased in popularity, due to the flexibility and long term specialization in specific sectors (Whittaker and Boner, 1994). It becomes apparent that there are enormous benefits to be gained from forming an external strategic alliance with another firm, e.g. resources, sales channels, networks and increased capital.

On the other hand, disadvantages can be noticed, although, mostly once the partnership has been set in motion. Disadvantages include spending much initial capital and most importantly time on creating, supporting and maintaining the relationship. Another point is comprised of the possibility of being deceived by partner, either by the firm not living up to its promises, stealing technology or increasing the risk factor by leaking information.

Due to the variety of reasons on which strategic alliances are based on, this paper will mainly consider those kinds of collaboration forms, in which the focus lays on innovation i.e. global leverage alliances. Examples of such alliances are found in learning strategic alliances, and R&D partnerships in joint ventures.

This concludes the theoretical aspect of inter-firm relations necessary to have been introduced keeping in mind the discussion of this thesis. The following point continues to explain the definition and process of creativity and innovation.

3.2 Creativity and Innovation

According to Brazeal and Herbert (1999) ‘creativity is the enabling process by which something new comes into existence’. Creativity and innovation are closely related, in that creativity is often viewed as the initial milestone, or as the first step towards innovation.

Innovation can be defined as ‘the successful implementation of creative ideas’ (Brazeal and Herbert, 1999). Innovation marks the actual execution of the creative process, commercializing the invention, therefore turn it into profit. The steps towards the end product hitting the market are outlined below (Figure 2).

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Figure 2. Relation between Creativity and Innovation.

Source: Pretorius and Millard (2005).

1. The line to the successful implementation of creativity, marked by innovation, begins with the recognition of an opportunity for improvement. This might have been created through an ever changing environment, new perspectives, or simply by the identification of certain problems in a given climate.
2. The second step includes the actual idea, the combination of processes in a particular way, which eventually leads to improvement and efficiency and/or effectiveness.
3. The third step entails the invention itself, may it be a product, service, process or combination of the three.
4. The final step marks commercialization; e.g. this could represent a product hitting the market and starting to make profit, but it might as well present a new resource, which can be used for future research and/or product development etc.

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