Customers involvement and firm absorptive capacity in radical innovation: The case of technological spin-offs
Introduction
The role of customers in new product development (NPD) is well documented in the innovation literature. Firms can gain from knowledge exchanges with customers (Fang, 2008, Noordhoff et al., 2011, Truong et al., 2012), and these exchanges improve their capacity to research and develop new products that fit market needs (Coviello and Joseph, 2012) and increase the probability of financial returns (Danneels, 2007, Levinthal and March, 1993). This logic posits that firms should do their best to serve their customers (Govindarajan et al., 2011, O'Cass and Ngo, 2011).
Although customers may help companies bring incremental innovation in NPD, researchers have contended that involving customers may be ineffective or even detrimental to radical innovation, which is defined as a product that is new to both customers and the focal firm (Markides, 2006) and follows a substantially different technological trajectory than existing products in the same category (Abernathy, 1978, Anderson and Tushman, 1990).When a firm overemphasizes its focus on existing customers, it may not recognize opportunities that arise in emerging markets (Day, 1999). Similarly, some innovative firms limit their attention to their best customers, who tend to drive innovation along the path that best serves their own needs (Christensen, 1997, Christensen and Bower, 1996). Indeed, given the degree of newness and different technological trajectory, radical innovation is rarely driven by demand, and it may be counterintuitive to involve mainstream customers in the development of this type of innovation. On the basis of this assumption, Markides and Geroski (2005) posited that radical innovation often results from a supply-push process rather than a market-pull process for new technologies. Such an assumption is more relevant to Business to Consumers (B2C) rather than Business to Business (B2B) or Business to Research Centers (B2RC) markets, as these latter tend to embrace newness and possess sufficient advanced technical capabilities to co-innovate with suppliers.
However, several recent studies have suggested that under certain conditions, customer orientation can play an important role in the radical innovation process. Customers can foster the innovation process if (a) the customer portfolio is diverse; (b) customers are willing to commit financial and technological resources; and (c) customers are involved early in the creation stage (Coviello and Joseph, 2012). The success of radical innovation may be more closely related to customer orientation in mainstream markets than in emerging markets (Govindarajan et al., 2011), in which the high risk of investing in radical innovation may satisfy mainstream customers offering immediate market opportunities, even though emerging customers constitute a smaller market that offers long-term opportunities. This current debate encourages us to investigate the conditions under which customer involvement can help firms develop or stall radical innovations.
We argue that, in the absence of organizational learning, customer involvement is not efficient at helping the firm develop radical innovations. In our study, successful customer involvement in the development of radical innovations is related not only to a firm's intrinsic qualities but also to its ability to develop an absorptive capacity to exploit new knowledge and increase the likelihood of commercialization success. Consequently, we use Zahra and George (2002) notion of both potential and realized absorptive capacity to investigate how acquiring knowledge from customers can either facilitate or hinder a firm's quest for radical innovation.
This research's contribution to the area of customer involvement in the radical innovation process is twofold. First, our study provides further insight into the dynamics of customer participation in the NPD process and the marketing capabilities of young firms seeking to manage customer involvement, both identified as major gaps in the literature (Coviello and Joseph, 2012), by examining how the level of customer involvement at different stages has improved or impeded the process of developing radical innovations within young technological firms. Specifically, we examine the firm's role of absorptive capacity in internalizing the knowledge gained from customers. Past studies show that customers can bring valuable insights for product creation and development, but few have addressed the challenge of a firm's capacity to internalize these insights from the perspective of absorptive capacity.
Second, we focus on a particular type of new ventures which has received limited attention in the past, namely scientific spin-offs. Spin-offs are relatively common in science-based high-technology industries (e.g., biotechnologies, Arts et al., 2013; c.f. Capaldo et al., 2014), and a growing number of public institutions, including universities and scientific institutions, establish spin-offs to market their scientific knowledge (Fini et al., 2016). Spin-offs' salient impacts make them a relevant study subject because of their strong influence on the economy (Bolzani et al., 2015, O'Shea et al., 2008, Scaringella and Chanaron, 2016, Vincett, 2010), society (O'Shea et al., 2008, Scaringella and Chanaron, 2016), and future entrepreneurial initiatives (Ciuchta et al., 2016).
Scientific spin-offs are also different from regular start-ups or SMEs. Spin-offs rely on different knowledge bases (Colombo and Piva, 2012), have access to unique capabilities from parent institutions (Basu et al., 2015, Chatterji, 2009, Klepper, 2001), benefit from learning in dyadic relationships (Agarwal et al., 2004, Chatterji, 2009, Phillips, 2002), enjoy privileged access to “local searches” (Rosenkopf and Almeida, 2003), benefit from parental heritage (Agarwal et al., 2004, Basu et al., 2015, Klepper and Sleeper, 2005), achieve superior potential absorptive capacity (Colombo and Piva, 2012), may suffer from transmitted inertia (Ferriani et al., 2012), are rather long-term oriented (Fini et al., 2016), do not necessarily rely on customer involvement (Fini et al., 2016), have a better survival rate (Agarwal et al., 2004, Basu et al., 2015, Bolzani et al., 2015, Fackler et al., 2016, Phillips, 2002, Smith and Ho, 2006, Stinchcombe, 1965), and achieve superior performance (Chatterji, 2009). Given these major differences, studying potential and realized absorptive capacities in the specific case of spin-offs would be a valuable contribution to the existing literature.
Among scientific spin-offs, there are major differences between spin-offs that may emerge from: research centers, universities, and corporations. Each category of spinoff is differently able to use technology and to identify and exploit opportunities. The commercialization of technologies, the trajectories of growth, and the performance are category specific, and Fini and Toschi (2015) emphasized the differences between academic and private start-ups in term of organizational blueprints and cognitive abilities.
Despite new ventures' importance in these high-technology industries, our literature review has identified little existing research concerning them emerging from research centers; however, they deserve more attention from scholars because of their specificities. Scientific institutions' technological spin-offs are distinctive from other types of spin-offs because they often spring from the parent institution's intention to market an advanced technology. Thus, these spin-offs primarily focus on technology-push processes and are less inclined to possess and develop customer management skills. Our findings focus on science-based spin-offs emerging from research centers and are not generalizable to university spin-offs or corporate spin-offs.
In the following sections, we first introduce the theoretical background and then describe the qualitative method used to investigate three spin-offs created from a research center in the Grenoble area. Finally, we analyze and discuss the benefits and challenges of customer involvement in radical innovation and the duality of market and technology absorptive capacity for spin-offs.
Section snippets
Theoretical background
We study customer involvement in a spin-off's pursuit of radical innovation from the lens of absorptive capacity by first discussing the distinction between potential and realized absorptive capacity according to Zahra and George (2002) in Section 2.1, followed by a review of customer involvement's benefits and challenges in the development of radical innovation across acquisition in Section 2.2, assimilation in Section 2.3, transformation in Section 2.4, and exploitation in Section 2.5 in line
Case and sample selection
Our study consists of three cases of spin-offs from CEA–LETI.1 CEA was created in 1941 and develops both military and civilian applications
Analysis of the results
In the analysis, we present the cases of Tronics, Beamind, and STMicroelectronics.
Discussion
Although previous research has suggested that customer knowledge can help firms create and develop valuable new products, few studies have investigated the question of how firms internalize such knowledge; consequently, we know little about the processes that are involved in the acquisition, assimilation, transformation, and exploitation of knowledge from customers. Furthermore, this gap is even greater when it comes to the development of radical innovation from spin-offs, a largely
Conclusion, limitations, and future research
Our contribution followed Davis's (1971) recommendations to differentiate an interesting theory (deny assumptions from an audience) from a non-interesting one (affirm assumptions from an audience). He argued that the evaluation of interesting research is about “what seems to be a good phenomenon is in reality a bad phenomenon” (p. 321). In our work, we did not study the bad phenomenon but, instead, the limitation of customer involvement in radical innovation. In this study, we identified the
Acknowledgments
The authors would like to thank Professor Henry Chesbrough, faculty director of the Garwood Center for Corporate Innovation at the Haas School of Business, University of California, Berkeley, for sponsoring part of their research. We would also like to thank Professor Jean-Jacques Chanaron, the project director of the Grenoble EURODITE research team; Bernard Chapelet, the former director of the center TIME; and the numerous persons active in the European research program EURODITE for their
Laurent Scaringella is an assistant professor and director of the Master of Science in International Marketing at the ESC Rennes School of Business. He holds two BSc, one from Turku Polytechnics and another from Université Pierre Mendès France. He holds MIB and DBA degrees from Grenoble Ecole de Management. He was involved in several projects funded by the European Commission during the course of his doctoral studies. He is a Visiting Scholar at the Haas School of Business at the University of
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Cited by (0)
Laurent Scaringella is an assistant professor and director of the Master of Science in International Marketing at the ESC Rennes School of Business. He holds two BSc, one from Turku Polytechnics and another from Université Pierre Mendès France. He holds MIB and DBA degrees from Grenoble Ecole de Management. He was involved in several projects funded by the European Commission during the course of his doctoral studies. He is a Visiting Scholar at the Haas School of Business at the University of California, Berkeley. He has published articles in journals such as Technological Forecasting and Social Change, the Journal of Engineering and Technology Management, the International Journal of Entrepreneurship and Small Business, the International Journal of Entrepreneurship and Innovation Management, European Journal of Innovation Management, and the Journal of Organization Design.
Raymond E. Miles is Professor Emeritus in the Walter A. Haas School of Business at the University of California, Berkeley, where he joined the faculty in 1963 after completing his Ph.D. at Stanford University. He has been a visiting professor at several universities in Europe and the USA and served as Dean of the Walter A. Haas School of Business from 1983 to 1990. He has published six books and over eighty articles and book chapters. His research over the past decade has focused on organization designs for collaborative innovation.
Yann Truong is Associate Professor of Marketing at the University Bourgogne Franche Comté, Burgundy School of Business-CEREN. His research interests lie in firm innovation capabilities, green innovation, and legitimacy judgment formation in entrepreneurship. His research has appeared in outlets such as the Journal of product Innovation Management, Industrial Marketing Management, R&D Management, European Journal of Marketing, and Technological Forecasting and Social Change.