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Measuring the degree of novelty of innovation based on Porter's value chain approach

https://doi.org/10.1016/j.ejor.2016.07.049Get rights and content

Highlights

  • A new method for the measurement of degree of novelty is proposed.

  • It is based on Porter's value chain approach and proposes a process-oriented model.

  • It considers novelty with its impact on all company value chain activities.

  • The 2-additive Choquet integral is used to measure the degree of novelty based on the impact level on activities.

  • The model helps firms make adoption decisions and determine resource requirements.

Abstract

Measurement of the degree of novelty is extremely important to avoid risk and carry out a sound innovation process. This research attempts to offer a different conceptual framework to understand and measure the degree of novelty of an innovation. It is based on Porter's value chain approach and proposes a process-oriented model that considers the possible impact of a particular technology on the discrete business processes in a firm's value chain. A new technology employed by companies is expected to impact the value chain activities by requiring reorganization in the current value chain of the company. The 2-additive Choquet integral is used to measure how such impacts will be reflected on the degree of novelty of that technology. An application of the proposed model to technology alternatives for the energy sources of electrical automobiles is presented. The model is applied in a battery manufacturing company. Technology alternatives to be measured in terms of the degree of novelty consist of the nickel metal hydride battery, the lithium-ion battery and fuel cell technologies. The results indicate that fuel cell technology has the highest degree of novelty among the three energy sources for electrical automobiles.

Introduction

There is a clear consensus among scholars and practitioners that innovative products are driving forces of technological, industrial and societal change (Ahuja and Lampert, 2001, Schoenmakers and Duysters, 2010). Innovativeness, from a macro perspective, is the capacity of a new innovation to create a paradigm shift in the science and technology and/or market structure in an industry; from the micro perspective, it is the capacity of a new innovation to influence the firm's existing marketing resources, skills, knowledge, capabilities, or strategy (Garcia & Calantone, 2002). Every innovation contains a certain degree of novelty, which is important for several reasons. The degree of novelty (and the degree of risk it entails) has been deemed as a major factor explaining the commercial success or failure of innovations (Danneels and Kleinschmidt, 2001, Duhamel and Santi, 2012, Kleinschmidt and Cooper, 1991). It also has an important impact on the firm level. Significant innovations affect the innovation performance of organizations (Prajogo & Sohal, 2006) and present great opportunities in terms of growth and expansion into new areas as well as establish dominant positions for companies in the market (Choi et al., 2016, Danneels and Kleinschmidt, 2001). In addition, a high level of novelty of innovations may be very risky for the firm, especially when they require a high level of firm resources and are problematic with regard to management of the innovation process.

As prior research (Amara et al., 2008, Danneels and Kleinschmidt, 2001) also suggests, the degree of novelty is extremely important and requires a better understanding for academic circles and organizational policy management to avoid risk and carry out a sound innovation process. Early detection of the degree of novelty of an innovation in a company is useful for policy makers because they can then evaluate the innovation proposal, prepare themselves at an earlier stage, and design an appropriate innovation strategy. However, the literature lacks measurement of novelty. Most of the literature focuses on the determination of antecedence, and very few show efforts to measure the degree of novelty (i.e., Dahlin and Behrens, 2005, Strumsky and Lobo, 2015). In addition, in spite of the progress made by past research, the conceptualizations of innovativeness remains rather vague; the measures of innovation lack precision and consistency (Daneels & Kleinschmidt, 2001) and do not intend to measure innovativeness and rank different technology alternatives in terms of the degree of novelty. To fulfil this need, this study intends to design a model for the measurement of the degree of novelty of innovation from the firm perspective based on Porter's value chain approach. The value chain approach is a method for decomposing the firm into strategically important activities (Stabell & Fjeldstad, 1998), and the overall value-creating logic of the value chain with its generic categories of activities is valid in all industries (Porter, 1985). We focus on novelty with its impact on all company value chain activities. By means of this approach, we avoid a commonly used approach by relevant literature that often considers novelty with its impact on only several dimensions of firm perspective, such as the amount of resources and production capabilities. In addition, overestimation or underestimation of the degree of novelty by firms may cause problems in investment decision making, such as accepting incorrect innovation projects or rejecting correct projects. It may also create problems with regard to resource requirements and allocations. Another contribution of this research is to provide a decision making model that compares competing innovation project proposals and ranks them according to the degree of novelty, thus helping firms selecting the most appropriate innovation project for their firm.

Section snippets

Conceptual background

Innovation requires novelty; therefore, every innovation contains a certain degree of novelty. Novelty concerns the technological distance from older and current competing innovations. Because not all innovations are the same, they are frequently classified into typologies as a means of identifying their innovative characteristics or degree of novelty (Garcia & Calantone, 2002). The degree of novelty is investigated from variety of perspectives, such as firm, customer, and product perspective.

Research design

This study utilizes Porter's value chain approach and develops a process-oriented model that considers the possible impact of a new technology on all company value chain activities. Because of this approach, the model developed focuses not only on selected aspects of firm but on all firm activities. The Choquet integral is used to measure how such impacts are reflected in the degree of novelty. The hierarchical structure of the assessment model of the degree of novelty is shown below in Fig. 1.

An application of the proposed model to technology alternatives for energy sources of electric automobiles

The model developed is applied to technology alternatives for energy sources of electric automobiles. In the race to cut carbon emissions, a global demand for clean, green technology and more sustainable modes of transport is rising, renewable energy has risen in popularity since its efficiency has continuously improved and its cost is continuously reduced (Kraa et al., 2014). A major transformation for the automobile, referred to as a new DNA, can be achieved by moving from the present

Conclusions

In the literature, there are many studies that often consider novelty with its impact on only several dimensions of firm perspective. This research utilizes a widely accepted strategic management model of Porter as a new approach to the innovation research field in that it focuses on the definition of the degree of novelty on an innovation's impact on all company value chain activities. According to this approach, the degree of departure from the current level of value chain activities for an

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