The moderating role of managers' uncertainty avoidance values on the performance impact of radical and incremental innovation.

• Author: Moosmayer, Dirk C.
• Position: Report

1. INTRODUCTION

   Shortened product life cycles and increased market volatilities require companies to be more effective in improving existing and in developing new products (Gumusluoglu and Ilsev 2009) in order to keep current business going and to equally assure future competitiveness (Schumpeter 1934; Elenkov and Manev, 2005), e.g. by harvesting an increased WTP for innovative products (Jones and Bouncken 2008). Existing literature extensively discusses different ways to organize for innovation. Moreover, product innovations are at the core of a company's marketing mix (e.g. Kotler and Keller 2006). Hence, there are multiple connections between a company's innovations and the responsibilities of its top management team (e.g. Hoffmann and Hegarty 1993). Nevertheless, the influences of top managers' personal attitudes and subjective perceptions have yet been overly neglected with only a few exceptions (e.g. Koehn 2011).

   Innovations can address products, processes, structures, and the social level of a business (Thom 1980). However, corporate practice usually focuses on product innovations and neglects the other three areas (Pleschak and Sabisch 1996). A potential reason is that some research found that only product but not process innovations increase organisational performance (Koellinger 2008). Moreover, innovations can be described as serving existing or creating new market needs (Martin 1994). Based on this difference, one may discuss how radical an innovation is (Brem and Voigt, 2009), as radical innovations usually create a need and thus trigger a set of incremental innovations that may serve diverse nuances of the newly created need (Abernathy and Utterback 1987). Innovation research has further exposed the high importance of uncertainty as a prerequisite for radical innovations to become successful (Ergeneli, Gohar and Temirbekova 2007), which can be equally understood as risk and opportunity. Moreover, earlier innovation research investigated differences in personal attitudes, perceptions, and values of executives. E.g. Judge and Piccolo (2004) found transformational individual leadership styles to be more effective for managing radical innovation, and Koehn (2011) found this to be moderated by top management's environmental uncertainty perceptions. In this contribution, we go one step closer towards the individual manager and consider managers' personal uncertainty avoidance values. We first review radical and incremental innovations and their link to performance, and then integrate top managers' individual uncertainty avoidance values. We evaluate the model against 160 survey responses from top managers in the medical technology industry and discuss implications.

2. PERFORMANCE IMPACT OF RADICAL AND INCREMENTAL INNOVATION

   2.1 Organizational Performance and Innovation

   Innovation has been identified as an important contributor to organizational performance (Sood and Tellis, 2005). However, this view appears to be somewhat reductive considering the multi-dimensional structure of both, innovation and performance. In line with this heterogeneity of the concepts, the degree of innovations' performance impact identified in empirical studies varies from zero or very small (Eddy and Saunders, 1980; Thorndill, 2006) to substantial and significant (Sorescu and Spanjol, 2008). Innovations change existing and create new markets (Tellis et. al., 2009; Chandy and Tellis, 2000; Srinivaan, Lilien and Ramgaswamy, 2002). Based on innovations, some start-ups become multi-billion industry champions and established corporations may disappear when they lag behind (Hill and Rothaermel, 2003; Tushman and Anderson, 1986). Accordingly, innovations are a key driver of market growth and underlying organizational performance (Sood and Tellis, 2005).

   With regard to their performance impact, the degree of innovativeness has found to be important (Sorescu and Spanjol 2008). Different typologies have been suggested to capture the different degrees of innovativeness (e.g. Kroy 1995). And while some authors applied up to eight different categories, it has been shown that a basic distinction between radical and incremental innovations, which can be seen as two ends of a single continuum (Germain, 1996), appears most reasonable (Garica and Calantone 2002).

   2.2 Radical Innovation

   Radical innovations emerge from fundamental new technologies. They are rare and they may create new markets and destroy old ones (Tellis, Prabhu and Chandy, 2009; Sinha and Noble, 2008). Additionally, they are hard to copy and may thus be more valuable for the organization (Hurley and Hult, 1998). Radical innovations are based on the development and implementation of new products, processes, and technologies (Hill and Rothaermel 2003). Thus they represent fundamental change (Ettlie, Bridges and O'Keefe, 1984) and include the creation of large amounts of new knowledge (Dewar and Dutton, 1986). Market entry of radical innovations is usually associated with discontinuities on a macro (market) level and on the micro (firm/customer) level. Radical innovations tend to be push innovations that create a need of which customers had not been aware before. This often requires substantial investment not only in production but particularly in distribution and communication (Garica and Calantone, 2002) and is thus quite risky. Risk of radical innovations is further increased by longer development cycles and reduced success rates (Leifer, McDermott, Colarelli-O'Connor, Peters, Rice and Veryzer 2000). Additionally innovations may constitute a social risk within the organization as they may break established structures and may require a strategic repositioning of the business (Ettlie et al.1984). Besides company structure, radical innovations produce high uncertainty at the level of the introduced technology and the targeted market (Lynn, Morone and Paulson 1996). Hence, radical innovations, for being successful, require a higher proneness to uncertainty (Hill and Rothaermel, 2003; McDermott and O'Connor, 2002). As it can be assumed that there is certain heterogeneity in the collective perception of change in the organization and one will always find some opposition to radical innovation (Hauschildt 2004), executives position appears to be particularly relevant in this context.

   Innovations that are less frequent, harder to imitate, and more valuable create a distinct competitive advantage. The more distinct innovations are the more durable is the related competitive advantage (Koellinger, 2008). Thus, radical innovations may be assumed to substantially increase organizational performance (Hurley and Hult, 1998).

   H1: Radical Innovativeness increases organizational performance.

   2.3 Incremental Innovations

   In contrast to radical innovations, incremental innovations constitute limited changes of existing products (Dewar and Dutton, 1986; Gatignon, Tushmann, Smith and Anderson 2002). Accordingly, they do hardly require any adaptations in the existing technologies and are thus easy to imitate for competitors (Ettlie et al., 1984...