ESCP researchers tried to understand how firms overcome market-based innovation barriers and achieve innovation performance using a combination of mindsets and actions. In so doing, they provided more nuanced insights into how effectuation orientation can help firms. This has important implications for innovation policy and innovation management.
“The received wisdom from the growing body of literature that addresses innovation performance has highlighted that innovation is closely associated with firms’ competitive advantages and financial performance,” PhD graduate Sebastian Szambelan and professors Yi Dragon Jiang and René Mauer explain in the European Management Journal. “Yet achieving innovation is particularly difficult for established firms because they may face market-based barriers, defined as barriers related to the external market environment the firms are confronted with.” Examples of such barriers are competitive rivalry on price, technology, product quality, reputation or brand, as well as missing market demand. Market-based barriers can be perceived as the given characteristics of a market environment to which organizations must adapt.
However, in a dynamic market many companies have difficulties in overcoming these barriers: In a 2018 survey of 270 corporate leaders in strategy, innovation, and research & development roles by KPMG and Innovation Leader (an online resource for corporate innovation teams), the inability to act on signals crucial to the future of the business was cited as one of the most important obstacles to innovation (42% of respondents). “We asked about two related barriers in our survey: how well does your company ‘pick up’ on signals of change, and how well does it act on them? Only 18% of respondents said that their companies had trouble with the former — so at most companies, there’s awareness of disruptive start-ups entering their sector, or changing customer purchase behaviours. The problem is acting on those signals,” writes Innovation Leader Co-founder and CEO Scott Kirsner in the Harvard Business Review. “Too many companies wait for the annual strategic off-site to roll around before they address the changing dynamics of their market.”
“In fact, we know relatively little about how organizations can overcome market-based barriers”, the researchers add. Recent research on the topic can be organized from two perspectives: the mindset-based view, represented by an organization’s culture and underlying values; and the action-based view, represented by certain actions taken to build leadership, management processes, or human capital. However, little research has systematically investigated how both mindsets and actions can help firms overcome these innovation barriers. “A deeper understanding of this subject could provide new insights into our knowledge of how firms can achieve this, and therefore catalysed our thinking and helped us approach the innovation phenomenon in a novel way.”
To tackle this research question empirically, they relied on a quantitative research design using survey data from 157 established organizations in Germany. Conceptually, they borrowed the effectuation orientation construct from the entrepreneurship literature. Effectuation orientation (EO) is defined as a strategic orientation that reflects a firm’s direction toward proactively shaping and designing the external environment, and creating new markets. The dimensions of this construct fall into two categories: (1) firms’ mindsets, represented by effectual control orientation (ECO); (2) firms’ actions, represented by four effectual action orientation (EAO) dimensions (affordable loss orientation, contingency orientation, means orientation, and partnership orientation).
“The results from our analyses show that EO is highly relevant for studying how firms overcome market-based innovation barriers,” they consider. “Our study further emphasizes variations in how effectual actions are related to perceived market-based innovation barriers, which in turn influence innovation performance. Specifically, it discusses ECO as a firm’s underlying effectual mindset, a mindset that triggers the remaining action-based effectuation orientation dimensions.” The findings thereby offer insights into the effectuation and innovation literature, and they hold several promising implications for practitioners:
- First, the study interprets market-based innovation barriers as socially constructed perceptions. Having such a conceptualization in mind instead of seeing innovation barriers as given and uncontrollable obstacles, which might prevent potential innovation activities from being pursued, it shows practitioners that they might be able to reduce and overcome certain innovation barriers.
- Second, ECO is introduced as a novel firm-level orientation driven by a mindset towards controlling the environment and co-creating its future. Building on this ECO, the implementation of the effectual action orientation dimensions shows promising effects on the perceived market-based innovation barriers. In particular, focusing on given means rather than inaccessible means or unavailable forecasts could yield more realistic solution spaces.
- When looking at the characteristics underlying effectual means orientation, firms could focus more on initiatives for which they have the relevant capabilities or the greatest motivation. This would at the same time help them to leverage existing knowledge and expertise in the best possible way.
- Furthermore, an openness to contingencies and their association with opportunities helps in perceiving the market more positively and thus in reducing perceived market-based innovation barriers. Specifically, this effectual dimension suggests that firms establish a firm mindset that allows them to perceive new information or setbacks as opportunities. They could then exploit contingencies effectively.
- Additionally, as other publications have already shown affordable loss orientation and partnership orientation are still worth pursuing. However, practitioners should be more aware of their possible consequences on perceived market-based innovation barriers. If these barriers are perceived as higher than before, managers might understand where such an increase originates from and could act accordingly.
“Ultimately, this study shows that lowered perceived market-based innovation barriers are positively associated with a firm’s innovation performance,” the researchers conclude. “This highlights the importance of understanding the perceived levels of innovation barriers, what they originate from, and how they can be overcome.”