Management of quality and innovation in a changing business environment : future challenges and opportunities 9781845441760, 9781845440121

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12/08/2004

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Volume 15 Number 5 2004

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Journal of

Manufacturing Technology Management Formerly Integrated Manufacturing Systems Management of quality and innovation in a changing business environment: future challenges and opportunities Guest Editor: Milé Terziovski

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Journal of Manufacturing Technology Management Volume 15, Number 5, 2004

ISSN 1741-038X

Management of quality and innovation in a changing business environment: future challenges and opportunities Guest Editor: Mile´ Terziovski

Contents 382 Access this journal online 383 Abstracts & keywords 385 Guest editorial 387 The risk to organisational excellence by processes that limit managerial knowledge and perception Rod Gapp 394 Relationship between TQM and innovation: an empirical study Prakash J. Singh and Alan J.R. Smith

402 Exploring the relationship between knowledge management practices and innovation performance Marianne Gloet and Mile´ Terziovski 410 International technology transfer: perceptions and reality of quality and reliability David Bennett and Hongyu Zhao 416 Managing change and innovation in IT implementation process Annie Bartoli and Philippe Hermel

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Abstracts & keywords

The risk to organisational excellence by processes that limit managerial knowledge and perception Rod Gapp Keywords Knowledge management, Quality, Organizational performance

The focus on organisational excellence in the first instance must be excellence, defined by The Australian Concise Oxford Dictionary as “surpassing merit; thing in which persons etc. excel,” where to excel is to “be superior”. To be excellent one must exceed the existing, to “do more than is warranted by, go beyond the limit set by . . . surpass.” This paper examines the limits to organisational excellence by investigating the knowledge base behind the perceptions, values and beliefs that have developed both within business and business education over the last 100 years and provides supporting argument from relevant researchers. These authors postulate that such developments have placed limits at both the managerial and organisational levels by developing attitudes and beliefs that are actually in opposition to the real concept of capitalism. Such limits disempower the agents who have the real ability to achieve excellence within the organisation through increasing quality, effectiveness and cooperation.

Relationship between TQM and innovation: an empirical study Prakash J. Singh and Alan J.R. Smith Keywords Total quality management, Innovation, Structural analysis, Modelling

It is generally acknowledged that organisations need to be innovative in order to survive and Journal of Manufacturing Technology Management Volume 15 · Number 5 · 2004 · Abstracts & keywords q Emerald Group Publishing Limited · ISSN 1741-038X

prosper. Some advocates of total quality management (TQM) have suggested that it provides the necessary platform for inculcating innovation in organisations. Intuitively, TQM components involving sound and effective practices on leadership, customer focus, relations with suppliers, employee inter-relationships, information/communication systems and management of processes and products do appear to enable organisations develop culture of innovation. A robust TQM-innovation relationship appears to be conceptually plausible, but little empirical evidence has so far been offered to support this proposition. In this paper, this relationship is explored. Empirical data were taken from a survey of 418 Australian manufacturing organisations. Structural equation modelling technique was used for statistical analysis. Results show that there is insufficient statistical evidence to suggest that TQM is related to innovation. There could well be a more complex relationship between these concepts.

Exploring the relationship between knowledge management practices and innovation performance Marianne Gloet and Mile´ Terziovski Keywords Knowledge management, Innovation, Performance appraisal

The process of innovation depends heavily on knowledge, and the management of knowledge and human capital should be an essential element of running any type of business. Recent research indicates that organisations are not consistent in their approach to knowledge management (KM), with KM approaches being driven predominantly within an information technology (IT) or humanist framework, with little if any overlap. This paper explores the relationship between KM approaches and innovation performance through a preliminary study focusing on the manufacturing industry. The most significant implication that has emerged from the study is that managers in manufacturing firms should place more emphasis on human resource management (HRM) practices when developing innovation strategies for product and process innovations. The study shows that KM contributes to innovation performance when a simultaneous approach of “soft HRM practices” and “hard IT practices” are implemented.

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Abstracts & keywords

Journal of Manufacturing Technology Management Volume 15 · Number 5 · 2004 · 383–384

International technology transfer: perceptions and reality of quality and reliability

reality of quality and reliability between the groups.

David Bennett and Hongyu Zhao Managing change and innovation in IT implementation process

Keywords Technology led strategy, Product development, Quality, Reliability management, United Kingdom, China

Annie Bartoli and Philippe Hermel

Impressions about product quality and reliability can depend as much on perceptions about brands and country of origin as on data regarding performance and failure. This has implications for companies in developing countries that need to compete with importers. For manufacturers in industrialised countries it has implications for the value of transferred technologies. This article considers the issue of quality and reliability when technology is transferred between countries with different levels of development. It is based on UK and Chinese company case studies and questionnaire surveys undertaken among three company groups: UK manufacturers; Chinese manufacturers; Chinese users. Results show that all three groups recognise quality and reliability as important and support the premise that foreign technology based machines made in China carry a price premium over Chinese machines based on local technology. Closer examination reveals a number of important differences concerning the perceptions and

Keywords Innovation, Change management, Quality, Communication technologies, France

After the prophetic messages about the contributions of information technologies (IT) on firms, we face warning signals on the unavoidable need for change management, and the perverse side effects of IT improvements when they are not integrated within a strategic and managerial framework. The analysis of practices concerning the introduction of IT in organisations shows that often, the context and the process are neglected; as for the content, it is centred on tools rather than on the needs to be satisfied. A managerial typology of barriers to change that differentiates risks of strategic or structural nature, and cultural or behavioural nature, explains the lack of quality in operations. In order better to manage the implications of IT evolution, i.e. their downstream incidences, it is necessary to have steered upstream in defining the objectives, analysing the needs, taking into account the socio- organisational context, and the implication of actors.

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Guest editorial

Guest Editor Mile´ Terziovski

About the Guest Editor Mile´ Terziovski is an Associate Professor in Strategy and Innovation Management at undergraduate and post-graduate level. He is the Executive Director of a research centre the EACC Centre for Global Innovation Management, at The University of Melbourne. He is a multi-disciplined professional with 17 years experience in line management and project management positions with CRA-RTZ. He gained his PhD in Business Strategy from the Melbourne Business School and worked at Monash University before joining The University of Melbourne. He has extensive consulting experience with more than 50 organisations in the public and private sectors, in strategic and operations management, such as, Bosch Australia, Motorola, Toyota, Dow Chemical and many others.

Journal of Manufacturing Technology Management Volume 15 · Number 5 · 2004 · pp. 385–386 q Emerald Group Publishing Limited · ISSN 1741-038X

This special issue is primarily based on papers presented at the 5th International and 8th National Research Conference on Quality and Innovation Management held at the Melbourne Business School, The University of Melbourne. Over 100 delegates attended the conference from Austria, China, England, France, Hong Kong, Macedonia, Scotland, Singapore and the USA. The organising committee decided to expand the breadth of the conference by adding the keyword “innovation” to the name of the conference. The conference addressed the theme: “Management of quality and innovation in a changing business environment: future challenges and opportunities”. This theme was considered appropriate given the announcement, at the time of the conference by the Prime Minister of Australia, Mr John Howard, to spend over $5 billion on innovation and R&D over the next several years. Innovation is a complex process, one easily identified as being of critical importance for organisational success, yet not easily managed. As international competition intensifies and product life cycle shortens, the pressure to innovate heightens. However, there are many questions in the literature and the popular media about the efficacy of quality and innovation management. Some claim that the quality movement is “dead” and that “quality” has been a passing fad. The special issue provides a balanced view on this debate. Some of the papers provide evidence that supports the Malcolm Baldrige National Quality Award winners that total quality management (TQM) does have a strong relationship with innovation, which in turn have a significant impact on business performance. For example, for the fourth year in a row, the “Baldrige Index” has outperformed the Standard & Poor’s 500 (S&P 500) by almost 3 to 1. The Baldrige Index is made up of publicly traded US companies that have received the Malcolm Baldrige National Quality Award. NIST “invested” a hypothetical $1,000 in each of the six whole company winners of the Baldrige Award – ADAC Laboratories, Eastman Chemical Co., Federal Express Corp., Motorola Inc., Solectron Corp. and Zytec Corp. The investments were tracked from the first business day of the month following the announcement of award recipients (or the date they began public trading) to 1 December 1997. Another $1,000 was hypothetically invested in the S&P 500 at the same time. Without a doubt, TQM was found to have a significant and positive impact on profitability. Others such as Singh (in this issue) conclude based on empirical findings that there is no empirical support for the relationship between

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TQM and innovation. However, Singh also concludes that while his results show no empirical support for the relationship between TQM and innovation, it is conceivable that the constructs are related in more complex ways and that further research is required to test the relationships. Therefore, the message for practitioners is that management of quality and innovation is becoming a major imperative for organisations in a

changing business environment. As researchers we must continue our quest to push the boundaries in this exciting field by expanding our research agendas and engaging in international research collaboration. This approach will provide a critical mass of research that is required for quality and innovation management to take a forward step in becoming management theories in their own right.

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1. Introduction

The risk to organisational excellence by processes that limit managerial knowledge and perception

The fallacy lay in the goals set by management, not their agents. Instead of setting numerical quotas, management should work on improvement of the process. A flow diagram displays a process. The problem is how to improve it. The PDSA cycle will help (Deming, 1994, p. 32).

Rod Gapp

The author Rod Gapp is Director Masters of Management (Innovation and Change) and (Research), Department of Management, Griffith Business School, Griffith University, Gold Coast, Queensland, Australia.

Keywords Knowledge management, Quality, Organizational performance

Abstract The focus on organisational excellence in the first instance must be excellence, defined by The Australian Concise Oxford Dictionary as “surpassing merit; thing in which persons etc. excel,” where to excel is to “be superior”. To be excellent one must exceed the existing, to “do more than is warranted by, go beyond the limit set by . . . surpass.” This paper examines the limits to organisational excellence by investigating the knowledge base behind the perceptions, values and beliefs that have developed both within business and business education over the last 100 years and provides supporting argument from relevant researchers. These authors postulate that such developments have placed limits at both the managerial and organisational levels by developing attitudes and beliefs that are actually in opposition to the real concept of capitalism. Such limits disempower the agents who have the real ability to achieve excellence within the organisation through increasing quality, effectiveness and cooperation.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/1741-038X.htm Journal of Manufacturing Technology Management Volume 15 · Number 5 · 2004 · pp. 387–393 q Emerald Group Publishing Limited · ISSN 1741-038X DOI 10.1108/17410380410540372

At face value this starting point, recommended by Deming for addressing many of the issues confronting organisations, seems a simple statement with its associated action appearing straightforward. However, the organisational transformation shifts required are huge for they relate not only to a shift in perception, but also in organisational power via shifts in individual control. In describing processes such as Deming’s system of profound knowledge, it is necessary to summarise it in a structured way; doing so develops a very real concern of presenting a complex multidimensional strategy as a simple framework (Gapp, 1999a, b, 2000). This is the case in a great deal of the quality management literature where tools and techniques used in quality implementation are presented as if they are the complete application of quality management. These approaches fail to come to grips with the managerial and organisation shifts that underlie the transformation required for actual process to succeed.

2. Systems management from a traditional Western perspective The system-concept is to managers of all kinds what the concept of numbers is to mathematicians . . . it is the framework inside which the managers are constantly striving to influence the future . . . Systems theory is now growing rapidly in the engineering fields largely under the influence of automation (Revans, 1966, pp. 43-4).

Figure 1 is a typical of university management text’s representation of a system (DuBrin, 1997; Daft, 1998). However, one extremely important aspect is completely forgotten – that of the impact of variation. When compared to Deming’s (1994) “appreciation of a system,” the above is truly similar to the concept of “numbers to a mathematician”; i.e. it is readily described but clinically sterile. Revans (1966, p. 46) himself supports this concept when discussing learning and individual growth within organisations: “Change is not the progress of scientific invention alone; it must include the emergencies, interruptions and alterations that occur from day to day, perhaps from hour to hour, in complex systems, as they rise and fall”. Revans (1966) fails to link this to the understanding of a system, with the level of importance that is required.

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Figure 1 Typical textbook diagram of a system

. . . from the beginning he (Taylor) designed and explained his reorganisation as part of a social revolution which rejected both the pessimistic view of the class struggle and the optimistic humanist view of such things as profit sharing. Taylor replaced both with a rational, scientific system to which all employees would adhere. The future deans of the Harvard Business School visited Taylor in 1908, were seduced and decided to design their program around this theory. Taylor and his disciples supported them by regularly coming to Harvard to lecture. In 1924 there were already six hundred students and the Harvard Casebooks were in one hundred colleges. Directly or indirectly Taylorism has dominated business school methodology and changed business structures around the world. The case method (as per the Harvard Casebook) is above all famous for bringing a detached, abstract approach to the conduct of business... This training can’t help but have an effect on students . . . Imagination, creativity, moral balance, knowledge, common sense, a social view – all these things wither. Competitiveness, having an ever-ready answer, a talent for manipulating situations - all these things are encouraged to grow. As a result amorality also grows; as does extreme agressivity when they are questioned by outsiders; as does a confusion between the nature of good versus having a ready answer to all questions. Above all, what is encouraged is the growth of an undisciplined form of self-interest.

This statement is equally true for an open system, which by definition is constantly subject to change and thus variation: “The open system model reflects a combination of external focus and flexible structure. Management’s primary goals are growth and resource acquisition” (Daft, 1998, p. 66). The argument and diagram demonstrate that the simplification of the system allows it to be described as a method for improving performance through adopting the best way (work design) for a worker to contribute to production. Taylor described it (see Robbins and Barnwell, 1994, pp. 31-2): By adopting the concepts of: (1) replacing rule of thumb with scientific determination within the configuration of job design; (2) the use of science in the selection and training of workers; (3) the use of science in the setting of objectives by management for the worker; and (4) the division of labour into supervision and execution.

Rather than having developed modern systems thinking, it is easier and therefore more common to backtrack to a previous level of understanding, i.e. Taylorism or Scientific Management. Through such a focus, instead of creating an appreciation for Quality Management, the organisation takes on the characteristics described by Pauchant and Mitroff (1992, p. 106): To machine-orientated thinkers such as Adam Smith or Frederick Taylor, people and departments were treated as interchangeable parts. If one part of the machine - or person - broke down, then in principle it could be replaced by another without having to repair the rest of the machine. The amazing thing about such metaphors is not that ultimately they fail, as they must, but rather that they hold for as long as they do.

The strong focus on the scientific method within the development of managers is supported by our limited ability to adapt: “learning processes show that adoption is not so much the acquisition of new knowledge as the rearrangement of what is already familiar” (Revans, 1966, p. 46). The Japanese writers, Ishikawa (1982, 1985, 1989, 1990) and Imai (1986), express their observation of the scientific management implication on the West with the following:

The argument that emerges shows a lack of managerial development and the reasons are explained by the following two points. First: Research into learning processes shows that adoption is not so much the acquisition of new knowledge as the rearrangement of what is already familiar, for this three conditions are needed: (1) to perceive the new relationship against the background of the old; (2) to try it out in practice; and (3) to observe the effects (Revans, 1966, p. 46).

The second point, the impact that Taylorism has on today’s management thinking, comes from Ralston-Saul (1993, pp. 119-21):

The Taylor method is one of management by specialists . . . All workers have to do is simply do what they are told to do and follow the standards set . . . In today’s world, where workers are well-educated and self-aware, this method cannot be imposed on them. The Taylor method does not recognise the hidden abilities workers possess. It ignores humanity and treats workers like machines. It is no wonder that workers resent being treated that way and show no interest in their work . . . In Europe . . . there is a kind of class consciousness . . . that borders on discrimination against those who are less fortunate . . . In postwar Japan . . .e´litism seems to be disappearing . . . this is a desirable development; e´litism is something akin to the Taylor method. (Ishikawa, 1985, pp. 25-6). In the West, the often heterogenous composition of the workforce and the adversarial relations between labour and management may make it difficult for

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investigated and understood, Ralston-Saul (1993) demonstrates that scientific management (Taylorism) has also had little rigorous investigation. Yet its claims have had a far greater impact on the structuring of business in the Western world over the last 100 years than any other approach. scientific management’s application, within whatever environment it has been used, benefits the existence of the organisation’s structure rather than the organisation’s true productivity. Thus, as an approach, scientific management is as much a political concept as a method for managing organisations.

management . . . Japan’s relatively homogeneous population has a more uniform educational background and social outlook, all of which tends to simplify management-labour relation (Imai, 1986, p. 47).

It is this background that leads to the view, “the principles of planning, organising, controlling, and specialisation (all aspects still found in modern management and strategy texts) have led to a model of supposed efficiency that all too often stumbles over its multiple mechanisms and blocks effectiveness” (Mink et al., 1986, p. XII). It is within this environment that McGregor’s (1960, p. 44) well-known concept comes into prominence: “If employees are lazy, indifferent, unwilling to take responsibility, intransigent, uncreative, uncooperative, this is due to the traditional assumptions and methods of organisation and control”. Based on such a narrow definition and the use of existing research, where does this approach leave us? What is the future of the last century of study and the application of methods of organisational functioning and processes? Fromm (1955, p. 2) suggests the following: Are we confronted with a tragic, insolvable dilemma? Must we produce sick people in order to have a healthy economy, or can we use our material resources, our inventions, our computers, to serve the ends of man? Must individuals be passive and dependent in order to have a strong and well functioning organisation.

The argument to this point, has at its foundation the following principles: . Systems and processes are the areas where greatest gain or improvement can be made within an organisation (Revans, 1966, 1971; Juran, 1988, 1992, 1995; Senge, 1990; Deming, 1986, 1990, 1994). . It is management’s responsibility to “direct the efforts of all components towards the aim of the system . . . Everyone must understand the aim of the system” (Deming, 1994, p. 50). . Many of the approaches that have been used to develop and educate managers in the concepts of systems and processes are still based on Scientific Management (Taylorism) or some variation of this idea. Therefore, management’s understanding of what open systems and systems management are, how they can be managed, where improvements can be found and who is and should be involved is minimal (Revans, 1966; Ralston-Saul, 1993, 1997; Senge, 1990; Deming, 1986, 1990, 1994; Gapp and Boulton, 1995a, Gapp, 1998a, 1999a, b, 2000; Juran, 1994). . Just as Foley (1999a, b, 2000a, b) argues that quality management has not been rigorously

Lastly, as addressed by Fromm (1955), Mink et al. (1986), McGregor (1960), Deming (1986, 1990), Ralston-Saul (1993, 1994, 1997), Peck (1990, 1993) and others, we are at a crossroad in the way we manage organisations. The direction taken will not only impact on the quality of our organisations, but society itself.

3. A response to traditional Western management An explanation of profound knowledge best starts with the concept of a system, or as Deming (1994) called it, “Appreciation of the System”: “In my experience, most troubles and most possibilities for improvement add up to proportions something like this, 94 per cent belong to the system (the responsibilities of management) and 6 per cent are attributable to special causes” (Deming, 1994, p. 33). At this junction, the following statement provides further understanding of the motivation behind the thinking of the system of profound knowledge: “Education, industry and government should interact as a system with cooperation – win, win” (Deming, 1994, p. 29). Education is a valuable starting point for developing this understanding: The task of impressing on people the guiding ideals and norms of our civilisation is, first of all, education. But how woefully inadequate is our educational system for this task (Fromm, 1955, p. 344). If our future lies in specialty products and services as mass production moves to automation and to other countries, then improvement of education in this country is even more vital (Deming, 1994, p. 145).

Fromm (1955, pp. 344-5) elaborates further with the following:

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Our high schools and colleges continue with the task of providing their students with the knowledge

The risk to organisational excellence

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thrown off. In other words, for the first time in Western history, our most respected institutions are preaching social anarchy . . . The effect on contemporary students of pushing them further into imbalance has been to create ever-increasing human problems. . . . a new course . . . aimed at the “problems of the family, the individual’s emotional life and the tension between career goals and personal aspirations.” The professor (Zaleznik, 1985, cited in Ralston-Saul, 1993, p.122) assigned to this course admitted that, “we have been abstracting people out of management as if they didn’t exist . . . Students have been taught to be utilitarians and calculators. (As a result) often they are running away from the intimacy of family life and running away from themselves.”

they must have to fulfil their practical tasks in life, and with the character traits wanted on the personality market. Very little, indeed, do they succeed in imbuing them with the faculty of critical thought, or with character traits, which correspond to the professed ideals of our civilisation.

Deming (1994, pp. 145-6) was also critical of the Western education system in that it: “fosters competition in the attainment of grades, merit ratings, scores and gold stars. Competition demoralises the people who are prevented from winning the top grade or the top job”. For this purpose Deming (1994, p. 152) recommended cooperation which “builds character, is basic to human nature, and makes learning more enjoyable and productive”. Deming (1994, p. 8) elaborates the argument in the following way:

He went on to draw a surprising conclusion: The capacity for intimacy and nurturing is a characteristic of the most effective leaders. Not only is there a direct connection between the capacity to give and personal satisfaction, but also it seems to release more creativity (Ralston-Saul, 1993, p. 122).

People are asking for better schools, with no clear idea how to improve education, nor even how to define improvement of education.

When investigated from a profound knowledge approach the lack of understanding of the systems required to generate the knowledge and capability is seen via the following statement: Americans have no objection to the idea of a national curriculum, the American Achievement Tests will examine the results of education. They have nothing to say about how those results are produced, what teachers do in class from one day to the next, what instructional materials are chosen, what lesson plans are followed. They should result in less regulation of the means of education, because they focus exclusively on the ends (Deming, 1994, pp. 46-7).

This is not just limited to the primary and secondary system. Deming (1994, p. XV) believed that business schools were perpetuating the present style of management which in his words: “is a modern invention - a prison created by the way in which people interact”. He advocated teaching students the theory of profound knowledge for transformation and the immense damage that comes from: The evils of short-term thinking; Ranking people, teams, plants, divisions with reward at the top, punishment at the bottom; . The evils of the merit system; . Losses from management by results, tampering; and. Demoralisation and losses from incentive pay and pay for performance (for the simple reason that performance cannot be measured) (Deming, 1994, pp. 143-4).

Miner (1986) provides empirical evidence to support the arguments of Deming, Fromm and Ralston-Saul. This research provided an in-depth analysis of the last 25 years of management education in the USA; with the deficits found and the remediation required being consistent with the arguments presented in this section. The roles and implications of rewards, punishments and motivation as components of learning, have one of the best and most in-depth explanations in Kohn’s (1993) book, Punished by Rewards. Kohn believes that most learning and motivation is based on “Do this and you will get that”. He sees rewards and punishment as two faces of the one coin and that the contribution is very limited and only truly effective in the short-term: “Rewards do not require any attention to the reasons that developed in the first place” (Kohn, 1993, p. 59). This is linked to Glasser’s (1990, p. 22) research, which concludes: Incentives have a detrimental effect on performance when two conditions are met. First, when the task is interesting enough for subjects that the offer of incentives is a superfluous source of motivation; second, when the solution to the task is open ended enough that the steps leading to a solution are not immediately obvious.

. .

Ralston-Saul (1993) supports and expands this argument with a great level of detail and explanation. In summary, he says the following: The late twentieth century is actually the first era in which the leading centres of elite education have either turned their backs on the question of restraint or have actually taught that it should be

Scientific management (as stated earlier by Mink (1979, p. XII)) has “the principles of planning, organising, controlling, and specialisation” at the core of its application. When this concept of measuring and controlling is placed into an educational context we see the similar implication with students as we do with employees. Ryan and Stiller (1991, p. 149) state:

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The more we try to measure, control, and pressure learning from without, the more we obstruct the

The risk to organisational excellence

Journal of Manufacturing Technology Management

Rod Gapp

Volume 15 · Number 5 · 2004 · 387–393

tendencies of students to be actively involved and to participate in their own education. Not only does this result in a failure of students to absorb the cognitive agenda imparted by educators, but it also creates deleterious consequences for the affective agendas of schools (that is, how students feel about learning) . . . Externally imposed evaluations, goals, rewards, and pressures seem to create a style of teaching and learning that is antithetical to quality learning outcomes in school, that is, learning characterised by durability, depth, and integration.

Deci et al. (1982, pp. 152-3) add to the argument: [. . .] when teachers feel pressured by superiors they tend to become more controlling with their students . . . [When it is] emphasised that they are responsible for their students’ performing up to standards . . . teachers tend to . . . give children less choice and less opportunity for autonomous learning. This behaviour, in turn, is likely to have deleterious effects on the children’s intrinsic motivation.

These negative aspects of education have important implications on the development of managers and management theory. It is here that Western management’s dependent relationship with performance appraisal stems and Kohn (1993, p. 129) clearly expresses the deficiencies of such programs: Moreover, “any individual’s performance is, to a considerable extent, a function of how he is managed,” as McGregor put it, so the manager is in part evaluating herself without appearing to do so. Assessments of individuals also overlook the extent to which any one person’s performance grows out of an exchange of ideas and resources with colleagues and otherwise reflects the indirect contribution of the larger system . . . As McGregor pointed out, performance appraisals also elicit “rationalisation, defensiveness, inability to understand, (and) reactions that the superior is being unfair or arbitrary” whenever people receive an evaluation that isn’t as positive as what they think they deserve. The legendary statistical consultant W. Edwards Deming, with his characteristic gift for understatement, has called the system by which merit is appraised and rewarded, “the most powerful inhibitor to quality and productivity in the Western world.” He adds that it “nourishes short-term performance, annihilates long-term planning, builds fear, demolishes teamwork, nourishes rivalry and . . . leaves people bitter”.

This is an essential explanation of Deming’s (1986) Point 10, “Eliminate slogans, exhortations, and targets for the workforce,” and Point 11 “Eliminate numerical quotas”. It also justifies two of Deming’s (1994) “wrong styles of management”: “Ranking of people and the use of individual rewards and punishments,” and “Reliance on MBO and MBR”. This is the essence of Deming’s (1986, 1994) belief that the system is the major source of variation and thus the major

source of error; 90 per cent to 94 per cent of the error within any type of organisation is a result of the system or the way the system is managed. Western management typically spends between 5 per cent to 15 per cent of their effort on improving the system and the remaining 85 per cent to 95 per cent on assessing the individual. The simple maths shows clearly that the lack of managerial vision and the controlling focus of effort can produce only minimal short-term outcome. The approaches taken by Kohn (1990a, b, 1992, 1993, 1996) are based on the works of McGregor (1960), Herzberg (1966, 1986, 1987), Maslow (1954, 1968) and Deming (1986, 1990, 1994). Kohn (1993) writes of the motivation to learn and lists the following facts: . Individuals do not need to be rewarded to learn. . Rewards are less effective than intrinsic motivation for promoting effective learning. . Rewards for learning undermine intrinsic motivation. To this extent the concept of profound knowledge, when fully understood, is a managerial approach to this way of thinking. Taken in the context of Fromm’s (1955, p. 346) The Sane Society: “this is an important alternative to the existing limited focus of education. For many people the age of 30 or 40 is much more appropriate for learning – in the sense of understanding rather than memorising – than school or college age, and in many instances the general interest is also greater at the later age than at the stormy period of youth. It is around this age also at which a person should be free to change his occupation completely and hence to have a chance to study again . . . A sane society must provide possibilities for adult education, much as it provides today for the schooling of children.” Deming (1994, p. 145) builds on this by recommending: “Joy in learning comes not so much from what is learned, but from learning. Joy on the job comes not so much from the result, the product, but from contribution to optimisation of the system in which everybody wins”. A growing belief in education and the importance of knowledge as an organisational asset has driven what has become the foundation of the latest trends in organisational development. These trends have formed the bases which underlie the organisational learning concepts put forward by authors such as Argyris (1982, 1990, 1993, 1999), Argyris and Schon (1974, 1978, 1996), Senge (1990, 1994, 1995, 1996), Starkey (1996), Watkins and Marsick (1996), Kline and Saunders (1993), Dick and Dalmau (1990a, b), and Dick (1989, 1991, 1992). As Deming (1994, p. 6)

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puts it, “this change will require knowledge. In other words, our problem is education and development of a culture that puts value on learning”. Peck (1993, p. 5) encapsulates the importance of the relationship between society, civility, and business:

Argyris, C. (1999), On Organizational Learning, 2nd ed., Blackwell Business, Malden, MA. Argyris, C. and Schon, D.A. (1974), Theory in Practice: Increasing Professional Effectiveness, 1st ed., Jossey-Bass Publishers, San Francisco, CA. Argyris, C. and Schon, D.A. (1978), Organizational Learning: A Theory of Action Perspective, Addison-Wesley, Reading, MA. Arygris, C. and Schon, D.A. (1996), Organizational Learning II: Theory, Method and Practice, Addison-Wesley, Reading, MA. Daft, R.L. (1998), Organisational Theory and Design, 6th ed., South-Western College Publishing, Cincinnati, OH. Deci, E., Spiegel, N.H., Ryan, R.M., Koestner, R. and Kauffman, M. (1982), “Effects of performance standards on teaching styles, behavior of controlling teachers”, Journal of Educational Psychology, Vol. 74 No. 6, pp. 852-9. Deming, W.E. (1986), Out of the Crisis, Massachusetts Institute of Technology, Cambridge, MA. Deming, W.E. (1990), “Foundation for management of quality in the Western world”, paper presented at the meeting of the Institute of Management Sciences, Osaka. Deming, W.E. (1994), The New Economics, for Industry, Government, Education, 2nd ed., MIT Press, Cambridge, MA. Dick, B. (1989), Searching a Participative Community Planning Process, Interchange, Brisbane. Dick, B. (1991), Helping Groups to be Effective: Skills, Processes and Concepts for Group Facilitation., Interchange, Brisbane. Dick, B. (1992), Design for Learning, Interchange, Brisbane. Dick, B. and Dalmau, T.D. (1990a), Values in Action: Applying the Ideas of Argyris and Schon, Interchange, Brisbane. Dick, B. and Dalmau, T.D. (1990b), From the Profane to the Scared: Small Groups as Vehicles for Cultural Change, Interchange, Brisbane. DuBrin, A.L. (1997), Essential of Management, 4th ed., SouthWestern College Publishing, Cincinnati, OH. Duncan, W.J. and Van Matre, J.G. (1990), “The gospel according to Deming, is it really new?”, Business Horizons, Vol. 33 No. 4, pp. 3-9. Foley, K. (1999a), “The future of quality management in the contemporary business enterprise”, Monash Mt Eliza Business Review, July, pp. 56-70. Foley, K. (1999b), “Quality management: bag of tools or a coherent theory of management”, paper presented at the Third International and Sixth National Conference on Quality Management, Melbourne. Foley, K. (2000a), “Revisiting the ‘Foundations’ of quality management, Homer who?”, Proceedings Fourth International and Seventh National Research Conference on Quality Management, Sydney. Foley, K. (2000b), “W(h)ither quality management”, Proceedings Fourth International and Seventh National Research Conference on Quality Management, Sydney. Fromm, E. (1955), The Sane Society, Rinehart, New York, NY. Gapp, R.P. (1998), “Three year case study overviewing the successful simultaneous implementation of both process management and self-managed teams”, Proceedings World Innovation and Strategy Conference Incorporating the Fourth International Symposium on Quality Functional Deployment, Sydney. Gapp, R.P. (1999a), “Quality principles, a successful foundation upon which to build a learning organisation”, in Ho, S. (Ed.), Proceedings of the Fourth International Conference on ISO 9000 and TQM, Hong Kong, Hong Kong Baptist University, pp. 524-30.

Although a far more complex matter than that superficial politeness, civility certainly does have to do with how we humans relate with each other. Whenever there is a relationship between two or more people, an organisation of some sort is involved. Genuine civility is then, in part, consciously motivated organisational behaviour.

4. Conclusion The thoughts put forward by Deming, Kohn and others provide not only a greater understanding of quality, but also clarity. A shift in knowledge rather than the mere adaptations of existing thought processes that exist within the relevant organisation generate this increased clarity (Revans, 1966). As a result, Deming’s 14 Points, Deadly Diseases and the system of profound knowledge take on a truer meaning and with new wisdom the intuitive reader starts to interpret the significance of the concepts rather than seeing them as a simple outline or plan. Duncan and Van Martre (1990, p. 6) view Deming’s approach not as a mere philosophy but as a “new religion,” where “Deming’s system required a mental revelation rather than sophisticated techniques”. Essential to this is the acquisition of new knowledge as a replacement for old, the development of a real quality platform on which to built a cooperative model as seen in the system of profound knowledge. Without this shift in thinking, how will excellence be truly understood let alone obtained? It is achieving this challenge that will free the abilities of all involved to move to a vision of shared glory. Thus, abandoning the existing reliance on ill directed managerial interventions such as management by objectives and punishment and reward, which stifle motivation and fail to understand the implications to the system in its entirety.

References Argyris, C. (1982), Reasoning, Learning, and Action, Individual and Organizational, 1st ed., Jossey-Bass, San Francisco, CA. Argyris, C. (1990), Overcoming Organizational Defences, Facilitating Oganizational Learning, Allyn & Bacon, Boston, MA. Argyris, C. (1993), Knowledge for Action: A Guide to Overcoming Barriers to Organizational Change, Jossey-Bass, San Francisco, CA.

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Gapp, R.P. (1999b), “Leadership, learning styles, and dealing with individual difference, keys to quality management in a learning environment”, Proceeding Third International and Sixth National Research Conference on Quality Research, Melbourne. Gapp, R.P. (2000), “What you see is what you get, a model for understanding the difficulties in applying profound knowledge by organisational type”, Proceedings Fourth International and Seventh National Research Conference on Quality Research, Sydney. Gapp, R.P. and Boulton, S. (1995), “Implementing process management and natural work teams within the South East Queensland Electricity Board, putting theory into practice”, Proceedings The Association of Management 13th Annual International Conference, Vancouver, British Columbia, 2-5 August. Glasser, W. (1990), The Quality School: Managing Students without Coercion, Harper Perennial, New York, NY. Herzberg, F. (1966), Work and the Nature of Man, World Publishing, Cleveland, OH. Herzberg, F. (1986), “One more time, how do you motivate employees?”, Harvard Business Review, January-February, pp. 53-62. Herzberg, F. (1987), “Workers’ needs, the same around the world”, Industry Week, Vol. 21 September, pp. 29-32. Imai, K. (1986), Kaizen, The Key to Japan’s Competitive Success, McGraw-Hill, New York, NY. Ishikawa, K. (1982), Guide to Quality Control, Asian Productivity Organisation, Tokyo. Ishikawa, K. (1985), What Is Total Quality Control?, Prentice Hall, Englewood Cliffs, NJ. Ishikawa, K. (1989), “How to apply companywide quality control in foreign countries”, Quality Progress, Vol. 22 No. 9, pp. 70-4. Ishikawa, K. (1990), Introduction to Quality Control, Chapman & Hall, London. Juran, J.M. (1988), Juran on Planning for Quality, Productivity Press, Cambridge, MA. Juran, J.M. (1992), Juran on Quality by Design: The New Steps for Planning Quality into Goods and Services, Maxwell Macmillan International, New York, NY. Juran, J.M. (1994), “The upcoming century of quality”, Quality Progress, Vol. 27 No. 8, pp. 29-37. Juran, J.M. (1995), Managerial Breakthrough: The Classical Book on Improving Management Performance, rev.ed., McGraw-Hill, New York, NY. Kline, P. and Saunders, B. (1993), Ten Steps to a Learning Organisation, Great Ocean Publishers, Arlington, TX. Kohn, A. (1990a), The Brighter Side of Human Nature, Altruism and Empathy in Everyday Life, Basic Books, New York, NY. Kohn, A. (1990b), You Know What They Say . . . The Truth about Popular Beliefs, Harper Collins, New York, NY. Kohn, A. (1992), No Contest, the Case against Competition, rev. ed., Houghton Mifflin, Boston, MA. Kohn, A. (1993), Punished by Rewards, Houghton Mifflin, Boston, MA. Kohn, A. (1996), Beyond Discipline, From Compliance to Community, ASCD, Alexandria, VA.

McGregor, B. (1960), The Human Side of Enterprise, McGraw-Hill, New York, NY. Maslow, A.H. (1954), Motivation and Personality, Harper & Row, New York, NY. Maslow, A.H. (1968), Towards a Psychology of Being, 2nd ed., Van Nostrand Reinhold, New York, NY. Miner, J.B. (1986), “Managerial role motivation training”, Journal of Managerial Psychology, Vol. 1 No. 1, pp. 25-30. Mink, O.G., Shultz, J.M. and Mink, B.P. (1986), Developing and Managing Open Organizations, OHRD Associates, Austin, TX. Pauchant, T.C. and Mitroff, I.I. (1992), Transforming the Crisis-prone Organisation, Jossey-Bass, San Francisco, CA. Peck, M.S. (1990), The Different Drum, Random House, Sydney. Peck, M.S. (1993), A World Waiting to Be Born, Bantam Books, New York, NY. Ralston-Saul, J. (1993), Voltaire’s Bastards: The Dictatorship of Reason in the West, Penguin, London. Ralston-Saul, J. (1994), The Doubter’s Companion: A Dictionary of Aggressive Common Sense, Free Press, New York, NY. Ralston-Saul, J. (1997), The Unconscious Civilisation, 1st ed., Free Press, New York, NY. Revans, R.W. (1966), The Theory of Practice in Management, MacDonald, London. Revans, R.W. (1971), Developing Effective Managers: A New Approach to Business Education, Praeger, New York, NY. Robbins, S.P. and Barnwell, N. (1994), Organisational Theory in Australia, Prentice-Hall, New York, NY. Ryan, R.M. and Stiller, J. (1991), “The social contexts of internalization, parent and teacher influences on autonomy, motivation, and learning”, in Pintrich, P. and Maehr, M. (Eds), Advances in Motivation and Achievement, Vol. Vol. 7, JAI Press, Greenwich, CT, pp. 115-49. Senge, P. (1990), The Fifth Discipline, Random House, New York, NY. Senge, P. (1994), “Slow threats”, Executive Excellence, Vol. 11 No. 4, pp. 5-6. Senge, P. (1995), “Creating quality communities”, in Gozdz, K. (Ed.), Community Building, Renewing Spirit and Learning in Business, New Leaders Press, Sterling & Stone, San Francisco, CA. Senge, P. (1996), “Leading learning organisations”, Training and Development, Vol. 50 No. 12, pp. 36-7. Starkey, K. (Ed.) (1996), How Organisations Learn, International Thomson Business Press, London. Watkins, K.E. and Marsick, V.J. (1996), Creating the Learning Organisation, Vol. 1, ASTD, Alexandria, VA.

Further reading Turner, G.W. (Ed.) (1988), The Australian Concise Oxford Dictionary, Oxford University Press, Melbourne.

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1. Introduction

Relationship between TQM and innovation: an empirical study Prakash J. Singh and Alan J.R. Smith

The authors Prakash J Singh is Lecturer in Operations Management, Department of Management and Alan J.R. Smith is Senior Lecturer, Department of Mechanical and Manufacturing Engineering, both at The University of Melbourne, Victoria, Australia.

Keywords Total quality management, Innovation, Structural analysis, Modelling

Abstract It is generally acknowledged that organisations need to be innovative in order to survive and prosper. Some advocates of total quality management (TQM) have suggested that it provides the necessary platform for inculcating innovation in organisations. Intuitively, TQM components involving sound and effective practices on leadership, customer focus, relations with suppliers, employee inter-relationships, information/ communication systems and management of processes and products do appear to enable organisations develop culture of innovation. A robust TQM-innovation relationship appears to be conceptually plausible, but little empirical evidence has so far been offered to support this proposition. In this paper, this relationship is explored. Empirical data were taken from a survey of 418 Australian manufacturing organisations. Structural equation modelling technique was used for statistical analysis. Results show that there is insufficient statistical evidence to suggest that TQM is related to innovation. There could well be a more complex relationship between these concepts.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/1741-038X.htm

Journal of Manufacturing Technology Management Volume 15 · Number 5 · 2004 · pp. 394–401 q Emerald Group Publishing Limited · ISSN 1741-038X DOI 10.1108/17410380410540381

Similar to the experience in most developed countries, firms in the Australian manufacturing sector face unprecedented levels of competition. This intense competition is a result of rapidly expanding international trade, the gradual removal of trade protection, deregulation of key industries, reforms to labour markets and industrial relations, and rapid technological changes (Hatzichronoglou, 1999; World Trade Organization, 2000; Brooks et al., 1999). The manufacturing sector firms find themselves competing intensely with multinational and local companies for customers in both domestic and export markets. Many manufacturing organisations have responded by using quality-based strategies (Foley et al., 1997). These organisations realise that providing products and services that are of high quality can lead to significant improvements in profitability, productivity and competitiveness (Crosby, 1979; Deming, 1986). Total quality management (TQM) is one of several quality-based practical approaches that many organisations use. TQM has been promoted as an approach to management that enables organisations to become customer and quality focused (Easton and Jarrell, 1998). While many definitions have been suggested, a definition by the US Department of Defence that succinctly captures the essence of the concept is: TQM utilizes both quantitative (technical) methods and human resource (behavioural) practices to improve material and service inputs, intra- and interorganizational processes, and to sharpen the focus on meeting customers’ needs (Forker et al., 1997).

Almost in parallel to calls made for organisations to become quality focused, organisations have also been urged to become more innovative. Innovation, at the company level, involves “applying ideas new to the firm in products, processes, services, organisations, management or marketing” (Sheehan, 2000a). The concept involves a lot more than conventional R&D or the application of technology. It ranges from a few major discoveries or changes to a “million little things” which improve the operations of firms (Sheehan, 2000b). While organisations in the manufacturing industry generally understand the imperative for being innovative, developing the culture of innovation has been difficult for many (Eckermann and Lin, 2000). There is little consensus on the best and most practical approach to achieve an organisation-wide innovation focus. The absence of an empirically validated and universally acceptable innovation implementation

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Volume 15 · Number 5 · 2004 · 394–401

model is one of the factors that could be hindering the systematic up-take of innovation in many organisations. This paper explores the possibility of using TQM as the basis for developing a culture of innovation. The central question that is addressed is whether TQM can be used as a vehicle for inculcating innovation. Given the high level of familiarity (and possibly support) for TQM, if it can be shown that TQM assists organisations to become innovative, then the innovation implementation process may be made easier. However, examination of the research literature shows that there is a paucity of empirical research that systematically examines the relationship between TQM and innovation. This paper attempts to make a contribution in this area through a study based in Australia.

propensity to undertake innovation), the factors hampering innovation and the sources of innovation. The results showed that only one third were technologically innovative. There are several reasons for this. The manufacturing sector is small and does not have the critical mass to undertake innovative activities. Another reason is that a significant proportion of the large firms are foreign owned and these organisations undertake minimal levels of innovative activities locally. Also, there is a lack of easily available finance to support the high cost of innovation activities. Finally, there are problems associated with: lack of skilled personnel; difficulties with legislation, regulations, standards and taxation; and excessive perceived risk. For those manufacturers undertaking innovation, the main sources of ideas were linked to their day-to-day operations. Although internal R&D has long been a major source for technological innovation, the surveys showed that it is not the only significant source. Other important sources include requests from and expectations of clients/customers; innovations of other businesses in the same industry; suppliers of materials, components and equipment; and other areas within the business not involved in R&D. The surveys showed that organisations have many objectives in undertaking innovation. Improving product quality was the most significant objective, and the least important was to increase overseas market share. Other significant objectives included replacing phased out products, reducing energy consumption or environmental damage and meeting government standards, regulations and legislation. Extending product range within main product field was viewed as unimportant. In summary, the levels of innovative activities undertaken by manufacturing organisations in Australia are low. This places the sector at a disadvantage when it comes to competing with other countries.

2. TQM and innovation 2.1 TQM In the last decade, several attempts have been made to determine the key constructs of TQM (Saraph et al., 1989; Flynn et al., 1994; Ahire et al., 1996). As a result, there is a convergence of opinion that when organisations implement TQM, they are engaged in, inter alia,continuously improving operations, meeting customer requirements, reducing rework, thinking long-range, increasing employee involvement, redesigning processes, conducting competitive benchmarking, measuring results constantly, and fostering closer relationships with suppliers. Proponents of TQM claim that organisations that implement it well generate many benefits including higher quality products, reduced costs, more satisfied customers and employees, and improved financial performance (Easton and Jarrell, 1998). In Australia, many organisations have implemented TQM. Several empirical studies (Anderson and Sohal, 1999; Samson and Terziovski, 1999) have shown that the experience of Australian organisations mirrors that of other western countries. While there is considerable degree of frustration about the practical difficulties in realising the benefits of TQM, organisations that have put in concerted effort in implementing TQM have achieved results in one or more areas. 2.2 Innovation The Australian Bureau of Statistics (1997) carried out two major surveys (1993-1994 and 1996-1997) on innovation in Australia. These surveys focused on technological innovation in the manufacturing sector. It measured, inter alia, the innovation status of businesses (i.e. their

2.3 TQM and innovation relationship There are many common aspects to TQM and innovation (Prajogo and Sohal, 2001). They both emerged as partial answers to the intense competitive pressure that manufacturing sector organisations are facing. Some elements of TQM and innovation are similar. For example, continuous improvement is a key feature of both TQM and innovation. Also, “open” culture is seen as an important aspect of TQM and innovation. These commonalities suggest that organisations that implement TQM well could also be more innovative than organisations that do not. If this proposition is true, then it can further be implied that TQM can be a vehicle that organisations use

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Volume 15 · Number 5 · 2004 · 394–401

to become innovative. To determine if this is so, it is necessary to test the relationship between TQM and innovation. This proposition can be presented as: P. TQM enables organisations to be innovative.

ISO 9000 quality management standards, the Australian Quality Awards Business Excellence model (Australian Quality Council, 1998) and TQM was used to capture all aspects of an organisation’s quality management practices, business environment and performance. Perceptions of managers in charge of quality were measured using a five-point Likert scale (1: strong agreement; 2: agreement; 3: neutral; 4: disagreement; 5: strong disagreement). This instrument was tested for reliability and validity. The information obtained thus provided a comprehensive picture of the operations of the organisations.

This proposition can be represented in diagrammatic form as shown in Figure 1. TQM is described as a high order factor consisting of several constructs, which, as described previously, were derived from an analysis of TQM literature. If the relationship is found to be weak, then it will be concluded that there is no simple link between TQM and innovation. On the other hand, if a strong positive relationship is found, then it will be possible to contend that TQM leads to innovation. The rest of this paper provides details of how the relationship between TQM and innovation was empirically evaluated.

3. Research method 3.1 Source of empirical data Empirical data were obtained through a random survey of 1,053 Australian manufacturing organisations. A total of 418 organisations responded, representing a response rate of 42 per cent. The level of analysis for this study was limited to one plant per organisation. This ensured that the sample was not biased by multiple sites from large companies. It was also necessary to ensure that the sample consisted of sufficient number of organisations that were practising TQM. Several indicators suggested that this was the case: the sample consisted of organisations that were registered to ISO 9000 standards; 31 percent claimed to have formally implemented TQM; and, some had applied for national and other quality awards. 3.2 The research instrument A comprehensive quality management measurement instrument that was based on the

3.3 TQM and innovation measures A sub-set of the total information obtained from the survey, limited to TQM and innovation aspects only, was used in this study. A total of 35 items representing various aspects of TQM were extracted. These items were selected because they have been widely referred to in the TQM literature. These items were split into seven separate logical constructs. Similarly, four items representing innovation were grouped into one construct. Table I shows the constructs (column 1) and the number of items initially assigned to each construct (column 2). A summary of these items is presented in Table II. 3.4 Statistical analysis of data The TQM-innovation relationship presented in Figure 1 is in the form that can be analysed with the structural equation modelling (SEM) technique (Hair et al., 1998; Schumacker and Lomax, 1996). In this study, the AMOS 4.0w (Arbuckle and Wothke, 1999) software package was used. In terms of SEM procedure, the twostep approach suggested by Burt (1973) was used. In the first step, the measurement models were evaluated to ensure that the items used to measure the constructs were adequate. Only after the measurement models were accepted as “proper” measures of the constructs was the second step

Figure 1 Relationship between TQM and innovation

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Relationship between TQM and innovation

Journal of Manufacturing Technology Management

Prakash J. Singh and Alan J.R. Smith

Volume 15 · Number 5 · 2004 · 394–401

Table I Descriptive statistics and parameter estimates of composite measures of constructs of TQM and innovation No of items (initial)

No of items (final)

Mean

Std dev.

Reliability

Regression weight

Measurement error variance

Top management leadership

8

6

2.174

0.749

0.889

0.706

0.062

Customer focus

5

5

2.133

0.692

0.822

0.627

0.085

Employee relations

7

6

2.512

0.659

0.857

0.611

0.062

Relationship with suppliers

5

5

2.205

0.659

0.797

0.589

0.088

Communication and information systems

4

4

2.439

0.759

0.885

0.713

0.066

Competition

1

1

2.460

1.090

1.000

1.000

0.000

Process/product management

5

4

2.414

0.582

0.583

0.444

0.141

Innovation

4

4

2.525

0.604

0.757

0.525

0.189

Composite

carried out. This involved the assessment of the structural model where the relationships between the constructs are shown. By using this two-step approach, the typical problem associated with the single-step approach (assessing measurement and structural models simultaneously) of not being able to localise the source of poor model fit, was overcome (Kline, 1998). The model in Figure 1 consists of eight constructs that are measured by a total of 39 items. The number of parameters (i.e. variances, covariances, regression weights and measurement error variances) that would need to be calculated is very large and violates the recommended sample size to number of parameters ratio of greater than 10 to 1 (Hair et al., 1998). The sample size of 418 is insufficient for the full model. In order to cope with this small sample size, a data reduction technique was employed. This technique involved a three-stage process. First, the measurement model for each construct was treated as a one-factor congeneric model (where the measurement error variance terms and the regression weights were not constrained to be equal) to check if the specified items provided adequate fit. Second, the results of this initial assessment were used to make refinements to the models that improved the fit of the data to the models. Finally, composite parameters were calculated. The parameters that were calculated first were the weighted mean and variance for each composite measure. Then the maximised reliability coefficients, in the form suggested by Werts et al. (1978), were calculated for all the constructs. These composite scale reliabilities were then used to fix the composite variable regression coefficients and measurement error variances in the structural model as suggested by Munck (1979). .

Having reduced all the measurement models to composite measures, the full structural model was then evaluated. Prior to conducting SEM analysis, several constraints were specified. Constructs and standard error variance terms were made “scale invariant” by fixing the unstandardised regression weights to 1 (Hair et al., 1998). The asymptotically distribution free (ADF) technique was used to “fit the data to the model” because it is a scale and distribution free procedure (Schumacker and Lomax, 1996). Heywood cases (negative error variances) were fixed at small positive values (Hair et al., 1998). Also, missing data and “not applicable” responses were substituted with values calculated using the “expectation-maximization” iterative method of SPSSw statistical analysis package.

4. Results and analysis 4.1 Confirmation of TQM constructs By way of an example, Figure 2 illustrates the threestage data reduction technique in diagrammatic form for the TQM construct “Customer focus”. Figure 2(a) is the output of the first stage. The measurement model is in the form of a one-factor congeneric model where all the items are nonunifactorial and the measurement error variances of the items are not constrained to be equal. The outputs confirm these assumptions, i.e. the regression weights and the measurement error variances are dissimilar. Figure 2(a) also shows the measures of fit between the empirical data and the model. Five popular measures of fit (Hair et al., 1998; Schumacker and Lomax, 1996) are shown: Chi-square (x2 – acceptable fit: p . 0:05); Normed chi-square (x2/df – acceptable fit: 2 , x2 =df , 3; overfit: x2 =df , 1); goodness-of-fit

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Volume 15 · Number 5 · 2004 · 394–401

Table II TQM and innovation constructs and items TQM

Innovation

Top management leadership Top management encourages long-term strategic thinking Top management generates consensus on future direction Organisation encourages participation of all stakeholders Quality regarded as top competitive priority Top management committed to quality Top management accepts responsibility for quality Sufficient people to do quality-related activitiesa Remuneration system based on quality of outputa

Innovative processes/products/services have been commercialised R&D leads to development of world-class techniques/technologies The rate of innovation of new operational processes The rate of introduction of new products and services

Customer focus Organisation is aware of customer requirements Processes/activities increase customer satisfaction Customer satisfaction is a measure of quality Customers are encouraged to provide feedback Customers help design new products/processes Employee relations Employees work in teams Employees are responsible/exercise leadershipa Employees know their roles and goals Employees find their work very fulfilling Organisation has ‘open’ culture Employees continuously improve work output Employees are fully trained for the work they perform Competitors Organisation benchmarks itself Relationship with suppliers Long-term stable relationships with suppliers is sought Organisation seeks assurance of quality from suppliers Suppliers get info to improve quality/ responsiveness Suppliers involved in development of new products Quality is the main criterion for choosing suppliers Communication/information systems Data/documents on quality readily available Data on quality are always timely Data on quality widely shared Employees provided with feedback Product/process management Physical work environment is safe for employees Strong emphasis is given on quality in design Employees have “zero-defects” mentality SPC techniques are useda Products/processes are inspected/tested

Note: aItem eliminated from final measurement model, and therefore not included in the composite measure calculations

index (GFI – acceptable fit: 0.95 , GFI , 1; reasonable fit: 0:9 , GFI , 0:95); Tucker-Lewis Index (TLI – acceptable fit: TLI . 0:95; reasonable fit: 0:9 , TLI , 0:95; lack of model parsimony: TLI . 1); root mean-square error of approximation (RMSEA – acceptable fit: RMSEA , 0:05; reasonable fit: 0:05 , RMSEA , 0:08). For the measurement model in Figure 2(a), three of the five measures are reasonable or outside of the acceptable fit range. This suggests that the data did not adequately fit the

model. Figure 2(b) shows the measurement model after improvements suggested by the SEM analysis (not shown in this paper) and which have adequate theoretical support had been incorporated. Essentially, these changes involved co-varying two pairs of measurement error variances. The results of making these changes are that four measures of fit are within the acceptable range. Figure 2(c) shows the results of aggregating the items of the measurement model of Figure 2(b) to produce a composite “Customer focus” measure.

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Figure 2 One-factor congeneric model and outcome of using data reduction technique for the “Customer focus” construct of TQM

This three-stage process was used to produce composite measures for the other seven constructs in the model. The parameters for the composite measures for these constructs are shown in Table I. It can be seen that except for the “Process/product management” construct, all others had adequate reliabilities with coefficients greater than the threshold value of 0.7 (Hair et al., 1998). Hence care needed to be taken when the Process/product management construct was included in the structural model, because this construct had the potential to distort the results. 4.2 Confirmation of second order TQM construct Before the relationship between TQM and innovation could be investigated, it was first necessary to confirm that the TQM constructs were related to TQM. This was tested with a second order confirmatory factor analysis model where it was assumed that if the constructs were related to each other, they would all load on a higher order factor nominally called TQM. The model was set up as shown in Figure 3. The results show that empirical data did not adequately fit this second order TQM model. Closer examination of

the parameters show that the Product/process management construct is the main cause for producing the “unacceptable fit” results. This was not surprising because, as explained earlier, this composite measure is unreliable. When this construct is eliminated from the structural model, there is reasonable fit of the data on the second order TQM factor. 4.3 Confirmation of the innovation construct As indicated earlier, the concept of innovation was measured with four items. Although not comprehensive, it was felt that these items provided adequate measure of innovation. The SEM results confirmed this. The method for producing a composite measure described in section 3.4 above and illustrated with the Customer focus construct in section 4.2 was used for the innovation construct as well. The descriptive statistics and parameter estimates of the composite innovation measure are shown in the last row of Table I. 4.4 TQM and innovation relationship Having obtained the composite measures of TQM and innovation constructs, it was then possible to

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Figure 3 Second order TQM confirmatory factor analysis model

Figure 4 TQM and innovation SEM

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examine the relationship between them. Figure 4 shows the structural equation model that was developed for this purpose. The results of the analysis show that there is no evidence that the empirical data adequately fit the proposed TQMinnovation model. Even after the removal of the unreliable Product/process management construct, no significant improvements in the fit indices are noted.

Burt, R.S. (1973), “Confirmatory factor-analysis structures and the theory construction process”, Sociological Methods & Research, Vol. 2, November, pp. 131-87. Crosby, P.B. (1979), Quality Is Free, McGraw-Hill, New York, NY. Deming, W.E. (1986), Out of the Crisis, MIT Center for Advanced Engineering Study, Cambridge, MA. Easton, G.S. and Jarrell, S.L. (1998), “The effects of total quality management on corporate performance: an empirical investigation”, Journal of Business, Vol. 71 No. 2, pp. 253-307. Eckermann, B. and Lin, G. (2000), “Development of culture of innovation”, Conference Proceedings of Eighth International Conference on Manufacturing Engineering, IEAust, Sydney. Flynn, B.B., Shroeder, R.G. and Sakakibara, S. (1994), “A framework for quality management research and an associated measurement instrument”, Journal of Operations Management, Vol. 11, pp. 339-66. Foley, K., Barton, R., Busteed, K., Hulbert, J. and Sprouster, J. (1997), Quality, Productivity and Competitiveness: The Role of Quality in Australia’s Social and Economic Development, Wider Quality Movement c/- Standards Australia, Strathfield. Forker, L., Mendez, D. and Hershauer, J. (1997), “Total quality management in the supply chain: what is its impact on performance?”, International Journal of Production Research, Vol. 35 No. 6, pp. 1681-701. Hair, J.F. Jr, Anderson, R.E., Tatham, R.L. and Black, W.C. (1998), Multivariate Data Analysis, Prentice-Hall, Englewood Cliffs, NJ. Hatzichronoglou, T. (1999), The Globalisation of Industry in the OECD Countries, The Organisation for Economic Co-operation and Development, Paris. Kline, R.B. (1998), Principles and Practice of Structural Equation Modeling, Guilford Press, New York, NY. Munck, I.M.E. (1979), Model Building in Comparative Education: Applications of the LISREL Method to Cross-national Survey Data, Stockholm: Almqvist & Almqvist & Wiksell, Stockholm. Prajogo, D.I. and Sohal, A.S. (2001), “TQM and innovation: a literature review and research framework”, Technovation, The International Journal of Technological Innovation and Entrepreneurship, Vol. 21 No. 9, pp. 539-58. Samson, D. and Terziovski, M. (1999), “The relationship between total quality management practices and operational performance”, Journal of Operations Management, Vol. 17 No. 4, pp. 393-409. Saraph, J.V., Benson, P.G. and Schroeder, R.G. (1989), “An instrument for measuring the critical factors of quality management”, Decision Sciences, Vol. 20 No. 4, pp. 810-29. Schumacker, R.E. and Lomax, R.G. (1996), A Beginner’s Guide to Structural Equation Modeling, Lawrence Erlbaum, Mahwah, NJ. Sheehan, P. (2000a), “Firms in the Australian innovation system”, Conference Proceedings of Innovation Summit, Melbourne, DISR, Australian Commonwealth Government, Sydney. Sheehan, P. (2000b), “New frameworks for innovation and growth: theory and policy”, Conference Proceedings of Innovation Summit, Melbourne, DISR, Australian Commonwealth Government, Sydney. Werts, C.E., Rock, D.R., Linn, R.L. and Joreskog, K.G. (1978), “A general method of estimating the reliability of a composite”, Educational and Psychological Measurement, Vol. 38, pp. 933-8. World Trade Organization (2000), Annual Report 1999, World Trade Organization, Geneva.

5. Conclusion The relationship between TQM and innovation proposed in this paper has not been supported by the empirical data. Having used the two-step approach to SEM, it is evident that the reason for this lack of empirical support is not due to “problems” with the measurement models, but because of the inefficacy of the structural model. The overall results suggest that viewing the relationship between TQM and innovation in the form that is presented in this paper leads to the conclusion that there is no firm link between TQM and innovation. It should be noted that the model presented in this study reflects a rather simplistic linear relationship between TQM constructs and innovation. It could well be that the TQM constructs and innovation are related in a more complex way. Indeed, business excellence frameworks such as the Australian Quality Awards, which were initially seen as TQM models, postulate that the constructs are inter-related in complex ways. While the results of this study show no empirical support for simple linear relationships, it is conceivable that the constructs are related in more complex ways. The next phase of this study will examine if indeed there is empirical support for these more complex models.

References Ahire, S.L., Golhar, D.Y. and Waller, M.A. (1996), “Development and validation of TQM implementation constructs”, Decision Sciences, Vol. 27 No. 1, pp. 23-56. Anderson, M. and Sohal, A.S. (1999), “A study of the relationship between quality management practices and performance in small businesses”, International Journal of Quality and Reliability Management, Vol. 16 No. 9, pp. 859-77. Arbuckle, J.L. and Wothke, W. (1999) AMOS 4.0, SmallWaters, Chicago, IL. Australian Bureau of Statistics (1997), Year Book Australia, ABS Catalogue No. 1301.0, ABS, Canberra. Australian Quality Council (1998), Australian Quality Awards for Business Excellence Framework, Australian Quality Council, St Leonards. Brooks, R., Gruenwald, P., Lee, J. and Salgado, R. (1999), Australia: Selected Issues and Statistical Appendix, International Monetary Fund, Washington, DC.

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Exploring the relationship between knowledge management practices and innovation performance Marianne Gloet and Mile´ Terziovski

The authors Marianne Gloet is Senior Lecturer, School of Management, RMIT University, Melbourne, Australia. Mile´ Terziovski is Associate Professor, Euro-Australian Cooperation Centre for Continuous Improvement and Global Innovation Management, The University of Melbourne, Parkville, Australia.

Keywords Knowledge management, Innovation, Performance appraisal

Abstract The process of innovation depends heavily on knowledge, and the management of knowledge and human capital should be an essential element of running any type of business. Recent research indicates that organisations are not consistent in their approach to knowledge management (KM), with KM approaches being driven predominantly within an information technology (IT) or humanist framework, with little if any overlap. This paper explores the relationship between KM approaches and innovation performance through a preliminary study focusing on the manufacturing industry. The most significant implication that has emerged from the study is that managers in manufacturing firms should place more emphasis on human resource management (HRM) practices when developing innovation strategies for product and process innovations. The study shows that KM contributes to innovation performance when a simultaneous approach of “soft HRM practices” and “hard IT practices” are implemented.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/1741-038X.htm Journal of Manufacturing Technology Management Volume 15 · Number 5 · 2004 · pp. 402–409 q Emerald Group Publishing Limited · ISSN 1741-038X DOI 10.1108/17410380410540390

1. Introduction In its ideal form, innovation has the capacity to improve performance, solve problems, add value and create competitive advantage for organisations. Innovation can be broadly described as the implementation of both discoveries and inventions and the process by which new outcomes, whether products, systems or processes, come into being (Williams, 1999). The process of innovation depends heavily on knowledge, particularly since knowledge represents a realm far deeper than simply that of data, information and conventional logic; indeed, the power of knowledge lies in its subjectivity, underlying values and assumptions that underpin the learning process (Nonaka and Takeuchi, 1995). As old distinctions between manufactured objects, services and ideas are breaking down; knowledge assumes a more pivotal role within organisations (Davenport and Prusak, 1998). According to Stewart (1997), the management of knowledge and human capital should be an essential element of running any type of business, yet few individuals understand this challenging area; and, given the potential of knowledge management (KM) and intellectual capital as sources of innovation and renewal, business strategy should be focusing more on these issues. This paper explores the relationship between KM and innovation through measuring the effects of knowledge management approaches and innovation performance through a preliminary study focusing on the manufacturing industry.

2. Literature review 2.1 Defining KM The focus on issues of power and intellectual capital in the general business and management literature has implications for the study of KM. Where information management was viewed as a somewhat neutral and normative servicing system in the organisational literature in the 1970s (Handy, 1976; McRae, 1971), today KM has emerged as a discrete area in the study of organisations to the extent that it has become recognised as a significant source of competitive advantage (Nonaka, 1991; Nonaka and Takeuchi, 1995; Davis, 1998; Matusik and Hill, 1998; Miller, 1999; Moore and Birkinshaw, 1998; Stewart, 1997). Although having emerged as a field of study in its own right, KM has been criticised for being a misnomer and an oxymoron The authors wish to thank Christopher J. Miller for making available his database and allowing them to utilise certain aspects of the data for this paper.

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(Coleman, 1999), or for being “fuzzy” and imprecise (McCune, 1999). While KM has a concrete and tangible side characterised by people, physical systems and processes, there is a great deal of scope for interpretation, as KM practices are highly subjective in nature and subject to various interpretations. There is no shortage of definitions of KM (Liebowitz, 1999); however, for the purposes of this paper we will highlight two broad definitions. For Beckman (1999), KM concerns the formalisation of and access to experience, knowledge, and expertise that create new capabilities, enable superior performance, encourage innovation, and enhance customer value. Coleman (1999) defines KM as an umbrella term for a wide variety of interdependent and interlocking functions consisting of: knowledge creation; knowledge valuation and metrics; knowledge mapping and indexing; knowledge transport, storage and distribution; and knowledge sharing.

when organisations attempt to adopt elements of both approaches, this leads to problems of a serious enough nature to undermine a business. Sveiby (1997) has also referred to two distinct approaches to knowledge management, one focusing more on people, the other more on technology. Indeed, contemporary knowledge management approaches appear to represent extensions of either organisational learning or business information systems, and these KM approaches tend to be driven predominantly within an IT or humanist framework or paradigm, with little if any overlap (Gloet, 2000). This divide between KM approaches has ramifications for both organisational learning and innovation processes. One body of literature on KM has its origins in approaches to IT, information systems and related issues. This canon supports an IT paradigm. In contrast, a competing body of literature supports a humanist paradigm in which the social relations of organisational knowledge are paramount. While this latter paradigm recognises the technical side of KM, it also highlights the significant influence of people in the process of managing and interpreting knowledge. Whereas literature in the IT paradigm focuses more on tangible aspects of KM, such as collection and manipulation of information, the humanist paradigm concerns itself more with the nature of learning and the harnessing knowledge as an organisational resource. Compared to the “hard” IT paradigm, the “soft” humanist paradigm accords more attention to organisational slogans, metaphors, and symbols (Nonaka, 1991). Consequently, the analysis of KM in a humanist paradigm is open to more interpretive explanations. To confound the study of KM in general, the two paradigms necessitate two very different approaches. In the IT paradigm, researchers have accepted various extensions of information processing/business information systems management as springboards into KM. As a consequence, their research focuses on the collection, storage, and manipulation of essentially objective or explicit data, employing methodologies that implicitly construct an organisation as an information processing system. This diverts attention to how data are processed, collected, and stored (Lado and Zhang, 1998). Given this implicit focus in the IT paradigm, most KM tools revolve around information systems and software (Fusaro, 1998). Within the humanist paradigm, recent literature highlights the role of individuals and groups in the processes of knowledge sharing and manipulation, particularly with regard to highly interpretative

2.2 Approaches to KM Definitions of the term “knowledge” vary considerably, and often such definitions are not clearly explicated in either the research literature or in the operational context. For the purposes of this paper, information can be characterised as “data endowed with relevance and purpose” (Drucker, 1998), while knowledge can be defined as “information combined with experience, context, interpretation, and reflection” (Davenport et al., 1998). Accordingly, all organisations deal in knowledge. However, organisations can choose between competing systems and processes to acquire, manage, and disseminate knowledge. These systems and processes are explicit as well as implicit and can be influenced by personal and organisational values and ideologies. In terms of an organisation’s internal systems, organisations actually filter acquired knowledge. For example, one organisational culture may support a devolved structure in KM while another’s culture may choose more centralised systems. In another organisation, information technology (IT) will drive KM while another organisation will favour a more human approach. At various points as knowledge moves through an organisation, choices are made about the most appropriate way to manage its flow. Research by Hansen et al. (1999) has indicated that organisations do not adopt a uniform approach to knowledge management. They outline two distinct strategies utilised when selecting a KM approach: a codification strategy, centred around IT resources; and a personalization strategy, centred around human resources (HR). Their research also suggests that in the rare cases

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forms of knowledge. Other themes in the paradigm include the distinctions between tangible and intangible knowledge, or explicit versus tacit knowledge (Nonaka and Takeuchi, 1995; Nonaka, 1991). In addition, other studies explore the role of knowledge and learning at the systems, organisational, and cultural level of an organisation (Nevis et al., 1995). Other literature in the area of KM suggest that a number of organisational or infrastructural elements have the power to influence the success or otherwise of KM within an organisation. These include: a healthy organisational culture and support infrastructure (Beckman, 1999; Zand, 1997; Quinn et al., 1997); management support and proactive leadership (Davenport, 1996; Beckman, 1999), empowerment of employees (Davenport and Prusak, 1998; Liebowitz and Beckman, 1998); understanding KM as a business strategy (Ruggles and Holtshouse, 1999); strong communication channels (Koulopoulos and Frappaolo, 1999); and a commitment to developing and sustaining a climate for learning within the organisation (Starbuck, 1997; Liebowitz and Beckman, 1998).

skills and training (Becker and Gerhart, 1996). There is also reference to the need for a strong IT infrastructure within the organisation (Beckman, 1999; Libowitz and Beckman, 1999; Zand, 1997; Davenport and Prusak, 1998). In addition, in order to understand better the nature of innovation, management must ensure that innovation is woven into an organisational culture (Cottrill, 1998). Several researchers have emphasised the pivotal role of the management of knowledge, particularly in creating an internal working environment that supports creativity and fosters innovation (Amabile et al., 1996; Carnegie and Butlin, 1993; Soderquist et al., 1997). The literature indicates the need to formulate a method within a framework, to confront empirical data in the interest of pursuing further insights into the complex relationship between knowledge and innovation. The following research questions are articulated for analysis in this paper: RQ1. Is a KM model based on IT and human resource managment (HRM) a reliable and valid instrument for measuring and predicting the relationship between KM practice and innovation performance? RQ2. Is there a significant and positive relationship between KM practices based on IT and HRM and innovation performance?

2.3 Innovation There are numerous definitions of innovation in the literature; however, most definitions share common themes relating to knowledge, which may be turned into new products, processes and services to improve competitive advantage and meet customers’ changing needs (Nystrom, 1990). Carnegie and Butlin (1993) define innovation as “something that is new or improved done by an enterprise to create significantly added value either directly for the enterprise or directly for its customer.” Livingstone et al. (1998) refer to innovation as “new products or processes that increase value, including anything from patents and newly developed products to creative uses of information and effective human resource management systems”. Regarding the sources of innovation in management, De Toni et al. (1998) identify six sources of innovation, Drucker (1985) identifies seven sources and Edquist (1997) refers to nine. More recently, the Continuous Improvement and Innovation Management Project (CIMA) has identified four enabling mechanisms that contribute to continuous innovation and improvement, these being capabilities, behaviours, contingencies and levers (Gieski, 1999). 2.4 KM and innovation From the literature, a number of elements of successful KM have been identified. HR can be seen as a strategic lever in creating competitive advantage through the value of the knowledge,

3. Theory and framework Rigorous research involving the management of innovation is scarce (AECD, 1998). While a growing body of literature has attempted to understand innovation, the literature shows definite gaps in the investigation of KM processes and innovation. Therefore, this study will pose specific, relevant hypotheses in an attempt to gain a greater understanding of the relationship between innovation and KM practices relating to both human resources and IT resources. The following hypotheses are tested in this study: H1. A KM model based on humanist/IT criteria is a reliable and valid instrument for measuring and predicting the relationship between KM practice and innovation performance. H2. There is a significant and positive relationship between elements of HR/ humanist approaches to KM and innovation performance. H3. There is a significant and positive relationship between elements of IT focus on technological advancement (e-commerce) to KM and innovation performance.

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4. Methodology

6. Discussion

This study utilised the results of a questionnaire which had been previously developed by one of the authors’ research students. This original questionnaire had been developed to investigate much broader perspectives on innovation in the manufacturing industry. The instrument was completed by operational or strategic managers within the selected organisations. The objectives of the original questionnaire were to establish the extent to which companies were innovating in their operations and to gain greater insight into the drivers of continuous improvement and innovation in manufacturing. Specific variables were isolated from the original questionnaire and utilized for the purposes of this research. In order to guarantee content validity, the literature on KM and innovation was canvassed in order to ensure a match. The target population included Australian and New Zealand manufacturing companies across a large range of industries in both the private and public sector. The sample size totalled 70. The data were analysed using SPSS for Windows version 10.0. In order to reduce the number of independent and dependent variables, factor analysis was performed. Cronbach alpha coefficients were calculated to test the instrument’s reliability. Multiple regression was used to test the relationships between the variables as stated in the hypotheses.

The regression analysis produced equations that represent the best prediction of the dependent variable from several of the independent variables. Therefore, the objective of the multiple regression analysis was to determine which independent variables (constructs) were important in predicting innovation performance. 6.1 Bi-variate correlation analysis Table IV shows the bi-variate correlation coefficients of factors of KM model and their relationship with the innovation performance construct developed earlier. Although the correlation coefficients in Table IV were generally above 0.2 and were highly significant it is interesting to note that three out of the four constructs have a significant and positive relationship with innovation performance. 6.2 Regression model Table III shows the multiple regression of the four factors of the KM model regressed on the dependent variable F5: innovation performance. From these analyses, our intent was to test H1, H2 and H3 and hence contribute to knowledge about the relationship of KM and innovation performance. 6.3 Testing of H1 H1.

5. Quantitative analysis 5.1 Factor analysis results Hair et al. (1987, p. 225) describe the application of factor analysis as a means by which to analyse the interrelationships among a large number of variables (questionnaire items/ responses) and explaining these research variables in terms of their common underlying dimensions (factors/constructs). Factor analysis resulted in the 15 independent variables being reduced to three factors/constructs, and the ten dependent variables being reduced to one construct. A cut-off loading of 0.300 was used to screen out variables that were weak indicators of the constructs. According to Hair et al. (1987, p. 239), factor loadings greater than +0.30 are considered significant, while loadings over +0.50 are considered very significant. Most factor loadings were well above the +0. 50 level, and as such, can be considered as demonstrating a high level of significance (see Tables I-III).

A KM model based on humanist/IT criteria is a reliable and valid instrument for measuring and predicting the relationship between KM practice and innovation performance.

Content validity. A category is considered to have content validity if there is general agreement from the literature that the model being tested has measurement items that cover all aspects of the variable being measured. Since selection of the initial measurement for the KM items was based on the extensive review of international literature we claim that we have captured sufficient independent variables to develop constructs of sufficiently high explanatory power. Construct validity. A measure has construct validity if it measures the theoretical construct that it was designed to measure. The construct validity of each of the four constructs was evaluated by using Principal Components Factor Analysis (Nunnally, 1978). The measurement items for each of the categories were factor analysed. The results in Tables I and II show items with factor loadings greater than 0.30.

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Table I Factor analysis results: independent variables Factor loading

Cronbach’s alpha

Factor 1 – IT focus on technological advancements IT innovations are often aligned with technological advancements IT systems are directly related to innovations in “product” development IT is the key to diffusing knowledge throughout the enterprise E-commerce is an innovation that has the potential to “revolutionise” this company

0.353 0.444 0.429 0.449

0.63

Factor 2 – IT focus on quality and productivity Impact of IT on productivity/process improvements Impact of IT on product innovation Impact of IT on quality (product/process/service) Impact of IT on lead time (customer response/time to market)

0.695 0.457 0.395 0.482

0.67

Factor 3 – HRM focus on product and process innovation HRM’s impact on product innovation HRM’s impact on lead time (customer response/time to market) HRM’s impact on production cycle time IT systems are directly related to innovations in “process” development

0.430 0.651 0.692 0.295

0.71

Factor 4 – HR and it focus on organizational learning and knowledge management HRM’s impact on productivity/process improvement HRM’s impact on quality(products/processes/services) IT functions are a key element in the operation of the enterprise Organisational learning is assisted with a constantly updated knowledge database

0.396 0.416 0.325 0.603

0.70

Variables

Table II Factor analysis results: dependent variables Variables

Factor loading

Cronbach’s alpha

Factor 1 – innovation performance Productivity/process improvement

0.560

Product innovation

0.766

Quality (product/process/service)

0.644

Lead-time (customer response/time to market)

0.841

Production cycle time

0.768

0.77

Dependent variable entered: innovation performance Multiple R 5 0.923 R squared 5 0.851 Adjusted R squared 5 0.842 Standard error 5 0.39744 ANOVA Regression Residual

DF 4 65

Sum of squares 58.733 10.267

Mean square 14.683 0.158

F ¼ 92:955

Criterion validity. This is also known as predictive validity or external validity. In this instance, it is concerned with the extent to which the model is related to independent measures of innovation performance. The criterion related validity of the KM model was determined by examining the multiple correlation coefficient computed for the four categories and a measure of innovation

performance (R ¼ 0:923 as shown in Table III). This indicates that the four categories of the KM have a high degree of criterion-related validity when taken together. The Adjusted R Squared for this model was found to be 0.842. This means that 84.2 per cent of the variance in innovation performance is explainable by the four constructs developed in this study.

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Table III .Summary of regression analysis Independent variables

Standardised coefficients beta

t

Sig. of t

0.023 0.511

0.363 8.047

0.718 0.000

0.504

8.577

0.000

0.240

4.008

0.000

Factor 1 – IT focus on technological advancements Factor 2 – IT focus on quality and productivity Factor 3 – HRM focus on product and process innovation Factor 4 – HR and IT focus on organisational learning and knowledge management

Reliability. Internal consistency for the four categories of the KM was estimated using Cronbach’s alpha, which ranges between the values 0.00 and 1.00 (Hair et al., 1992). Using the SPSS for Windows reliability test program, an internal consistency analysis was performed separately for each of the categories of the KM model. The analysis revealed that maximisation of the Cronbach alpha coefficient would require eliminating some items from each category of KM. The reliability values shown in Tables II and III generally meet or exceed prevailing standards of reliability for survey instruments (Hair et al., 1992). The first hypothesis, which stated that the KM model is a reliable and valid instrument for measuring and predicting the relationship between KM practice and innovation performance, is found to be supported. Each of the four categories did form a “solid” construct, and based on the above we support H1.

6.5 Testing of H3 H3.

There is a significant and positive relationship between elements of IT focus on technological advancement (e-Commerce) to KM and innovation performance.

With reference to Tables III we make the observation that the IT focus on technological advancement construct has a t ¼ 0:363, Sig :t ¼ 0:718. Furthermore, from Table IV we make the observation that the Pearson Correlation Coefficient for the relationship between the IT focus on technological advancement construct and innovation performance r ¼ 20:418

significant at the 0.01 level of significance. Based on this data we reject H3.

7. Discussion of results 6.4 Testing of H2 H2.

There is a significant and positive relationship between elements of HR/ humanist approaches to KM and innovation performance.

With reference to Tables III we make the observation that the NR construct has a t ¼ 8:577, Sig:t ¼ 0:000. Furthermore, from Table IV we make the observation that the Pearson Correlation Coefficient for the relationship between the HR construct and innovation performance r ¼ 0:741 significant at the 0.01 level of significance. Based on these data we support H2.

It is important to note from these results, that we cannot suggest that for a single company, IT/ technological advancements should not be improved because they are not related to organisational performance. Nor can we directly say that this construct leads to worse performance, and that the KM is “wrong” because some of the factors do not contribute positively to explain performance variance. The study was crosssectional and descriptive of a sample at a given point in time. It appears that this explanatory variable had a significantly negative regression coefficient because of the way the least squares fit treated the common variance of the explanatory

Table IV Correlation matrix of independent and dependent constructs

F1 F2 F3 F4 F5

F1: e-commerce and technology

F2: quality and productivity

F3: human resource management

F4: organisational learning/KM

F5: innovation performance

1.00 2 0.640** 2 0.093 2 0.279* 2 0.418**

1.00 0.208* 0.232* 0.657**

1.00 0.555** 0.741**

1.00 0.632**

1.00

Notes: * Significant to 0.05, one-tailed; ** Significant to 0.01, one-tailed

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variables. In terms of managerial insights, the correlations and regression show that Constructs 2, 3, and 4 in Table III are highly significant predictors of innovation performance. However, the analysis shows that, if the objective of a model such as the KM model described above was to maximise the variance explanation of innovation performance, then HRM focus on product and process innovation is the strongest predictor, followed by IT focus on quality and productivity and a combination of HRM and IT focus on organisational learning and KM.

8. Conclusions and implications for managers Based on the results of this exploratory study we conclude by answering the two questions articulated at the beginning of this paper. Our first conclusion is that a KM model based on IT and HRM focus is a reliable and valid instrument for measuring and predicting the relationship between KM practices and innovation performance. Our second conclusion is that there is a significant and positive relationship between KM practices based on a combination of IT/HRM and innovation performance. From this point it can be argued that organisations should strive for an integrated approach to KM in order to maximise innovation performance leading to competitive advantage. However, we found a significant and negative relationship between elements of IT focus on technological advancement (e-commerce) and innovation performance. This may be explained to a certain extent by the fact that e-commerce is still in its early stages, and therefore a sense of confidence in e-commerce as a major force in improving and sustaining innovation performance may not be shared by the managers surveyed. As the study was limited to the manufacturing sector, it may be argued that a multiple sector survey could yield different results. It may, for instance, be speculated that managers in the service sector may view e-commerce as having greater potential to influence innovation performance. Given the exploratory nature of the study, and the small sample size, it is clear that further investigation into the relationship between e-commerce and innovation performance is needed on a larger scale. The most significant implication that has emerged from the study is the conclusion that managers in manufacturing firms should place more emphasis on HRM practices when developing innovation strategies for product and process innovations. The study shows that KM contributes to innovation performance when a simultaneous approach of “soft HRM practices” and “hard IT practices” are implemented.

References AECD (1998), Hard and Soft Technologies: Integrated Benchmarking and Best Practice in the Australian Electronics Industry, AECD, Melbourne. Amabile, T., Conti, R., Coon, H., Lazenby, J. and Herron, M. (1996), “Assessing the work environment for creativity”, Academy of Management Journal, Vol. 39 No. 5, pp. 1154-84. Becker, B. and Gerhart, B. (1996), “The impact of human resource management on organizational performance, progress and prospects”, Academy of Management Journal, Vol. 39 No. 4, pp. 779-801. Beckman, T.J. (1999), “The current state of knowledge management”, in Liebowitz, J. (Ed.), Knowledge Management Handbook, CRC Press, Boca Raton, FL. Carnegie, R. and Butlin, M. (1993), Managing the Innovative Enterprise: Australian Companies Competing against the Worlds Best, Business Council of Australia, Melbourne. Coleman, D. (1999), “Groupware: collaboration and knowledge sharing”, in Liebowitz, J. (Ed.), Knowledge Management Handbook, CRC Press, Boca Raton, FL. Cottrill, K. (1998), “Reinventing innovation”, Journal of Business Strategy, Vol. 19 No. 2, pp. 47-51. Davenport, T. (1996), “Some principles of knowledge management, strategy, management”, Competition, p. Winter. Davenport, T. and Prusak, L. (1998), Working Knowledge, Harvard University Press, Boston, MA. Davenport, T.H., De Long, D.W. and Beers, M.C. (1998), “Successful knowledge management projects”, Sloan Management Review, Vol. 39 No. 2, pp. 43-57. Davis, M.C. (1998), “Knowledge management”, Information Strategy, Vol. 15 No. 1, p. Fall. De Toni, A., Nassimbeni, G. and Tonchia, S. (1998), “Innovation in product development within the electronics industry”, Technovation, Vol. 19 No. 2, pp. 71-80. Drucker, P. (1985), Innovation and Entrepreneurship, Heinemann, London. Drucker, P.F. (1998), “The coming of the new organization”, Harvard Business Review on Knowledge Management, Harvard Business School Press, Boston, MA. Edquist, C. (1997), Systems of Innovation: Technologies, Institutions and Organizations, Pinter, London. Fusaro, R. (1998), “Rating intangibles no easy task: Eli Lilly measures the value of knowledge management”, Computerworld, Vol. 32 No. 48, p. 8. Gieski, J.F.B. (1999), “Continuous Improvement and Global Innovation Management Trial Project”, Euro-Australian Cooperation Centre Newsletter, No. 2. Gloet, M. (2000), “Knowledge management: implications for TQM”, in Ho, S. and Leong, C. (Eds), Proceedings of the Fifth International Conference on ISO9000 and TQM, Hong Kong Baptist University, April. Hair, J., Anderson, R., Tatham, R. and Black, W. (1992), Multivariate Data Analysis, 3rd ed., Macmillan, Sydney. Hair, J.F. Jr, Anderson, R.E. and Tatham, R.L. (1987), Multivariate Data Analysis with Readings, Macmillan, New York, NY. Handy, C. (1976), Understanding Organizations, Penguin, Harmondsworth. Hansen, M.T., Nohria, N. and Tierney, T. (1999), “What’s your strategy for managing knowledge?”, Harvard Business Review, March-April. Koulopoulos, T. and Frappaolo, C. (1999), Smart Things to Know about Knowledge Management, Capstone, Dover, NH. Lado, A.A. and Zhang, M.J. (1998), “Expert systems, knowledge development and utilization, and sustained competitive

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advantage: a resource based model”, Journal of Management, Vol. 24 No. 4. Liebowitz, J. (Ed.) (1999), Knowledge Management Handbook, CRC Press, Boca Raton, FL. Liebowitz, J. and Beckman, T. (1998), Knowledge Organizations: What Every Manager Should Know, St Lucie Press, Boca Raton, FL. Livingstone, L., Palich, I. and Carini, G. (1998), “Viewing strategic innovation through the logic of contradiction”, Competitiveness Review, Vol. 8 No. 1, pp. 46-54. McCune, J.C. (1999), “Thirst for knowledge”, Management Review, April. McRae, T.W. (Ed.) (1971), Management Information Systems, Penguin, Harmondsworth. Matusik, S.F. and Hill, C. (1998), “The utilization of contingent work, knowledge creation and competitive advantage”, Academy of Management Review, Vol. 23 4 October. Miller, W. (1999), “Building the ultimate resource”, Management Review, Vol. 8 No. 2. Moore, K. and Birkinshaw, J. (1998), “Managing knowledge in global service firms: centres of excellence”, Academy of Management Executive, Vol. 12 No. 4 November. Nevis, E.C., DiBella, A.J. and Gould, J.M. (1995), “Understanding organizations as learning systems”, Sloan Management Review, Vol. 36 No. 2, pp. 73-85. Nonaka, I. (1991), “The knowledge creating company”, Harvard Business Review, November/December.

Nonaka, I. and Takeuchi, H. (1995), The Knowledge Creating Company: How Japanese Companies Create the Dynamics of Innovation, Oxford University Press, New York, NY. Nunnally, J. (1978), Psychometric Theory, McGraw Hill, New York, NY. Nystrom, H. (1990), Technological and Market Innovation: Strategies for Product and Company Development, John Wiley & Sons, London. Quinn, J.B., Baruch, J. and Zien, K.A. (1997), Innovation Explosion: Using Intellect and Software to Revolutionize Growth Strategies, The Free Press, New York, NY. Ruggles, R. and Holtshouse, D. (1999), The Knowledge Advantage, Capstone, Dover, NH. Soderquist, K., Chanaron, J. and Motwani, J. (1997), “Managing innovation in French small and medium sized enterprises: an empirical study”, Benchmarking for Quality Management and Technology, Vol. 4 No. 4, pp. 259-72. Starbuck, W. (1997), “Learning by knowledge-intensive firms”, in Prusak, L. (Ed.), Knowledge in Organizations, Butterworth-Heinemann, Boston, MA. Stewart, T. (1997), Intellectual Capital: The New Wealth of Organizations, Nicholas Brealey, London. Sveiby, K. (1997), The New Organizational Wealth: Managing and Measuring Knowledge-based Assets, Berrett-Koehler Publishers, San Francisco, CA. Williams, A. (1999), Creativity, Invention and Innovation, Allen & Unwin, Sydney. Zand, D. (1997), The Leadership Triad: Knowledge, Trust and Power, Oxford University Press, London.

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1. Introduction

International technology transfer: perceptions and reality of quality and reliability David Bennett and Hongyu Zhao

The authors David Bennett is Professor of Technology Management, Aston Business School, Birmingham, UK. Hongyu Zhao is Senior Consultant, Euro-Group International Inc., Beijing, China.

Keywords Technology led strategy, Product development, Quality, Reliability management, United Kingdom, China

Abstract Impressions about product quality and reliability can depend as much on perceptions about brands and country of origin as on data regarding performance and failure. This has implications for companies in developing countries that need to compete with importers. For manufacturers in industrialised countries it has implications for the value of transferred technologies. This article considers the issue of quality and reliability when technology is transferred between countries with different levels of development. It is based on UK and Chinese company case studies and questionnaire surveys undertaken among three company groups: UK manufacturers; Chinese manufacturers; Chinese users. Results show that all three groups recognise quality and reliability as important and support the premise that foreign technology based machines made in China carry a price premium over Chinese machines based on local technology. Closer examination reveals a number of important differences concerning the perceptions and reality of quality and reliability between the groups.

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Journal of Manufacturing Technology Management Volume 15 · Number 5 · 2004 · pp. 410–415 q Emerald Group Publishing Limited · ISSN 1741-038X DOI 10.1108/17410380410540408

Impressions about the quality and reliability of products can depend as much on perceptions about brands and country of origin as on the evidence of hard data regarding performance and failure. This is clearly evidenced from the information contained in Table I, which shows the results of some research carried out by Gallup on behalf of the American Society for Quality Control concerning perceptions of product quality from different countries of origin (ASQC/Gallup, 1991). The survey was conducted among about 1,000 US, 1,000 German and 1,500 Japanese consumers. From Table Ia it can be see that there is a clear consensus between US, Japanese and German customers that Japan produces the best quality televisions and video recorders. However, from Table Ib the perception among the same three sets of consumers is that the best quality cars come from their own country. These biases among customers towards certain countries of origin has significant implications for companies in developing countries that need to compete with importers in their domestic markets and wish to develop their own sales internationally. For established manufacturers in industrialised countries it also has implications for the value they can attach to their product and process technologies when globalising their production through technology transfer arrangements with partners. This paper considers the issue of quality and reliability when machine tool technology is transferred between suppliers and acquirers in countries with different levels of development. Although machine tools are purchased by industrial customers rather than domestic consumers, they are still subject to the influence of country of origin on quality perceptions. For example, one study of machine tool buyers found that the USA and Germany were rated higher than Japan, with Brazil rated below all three of them (White and Cundiffe, 1978). Although this study is now rather dated and the results would probably be different today, it does still demonstrate that national differences are important in this industry.

2. Technology transfer to the machine tool industry in China The growth of globalised manufacturing has been especially rapid over recent years and international technology transfer, coupled with cross border manufacturing, is now seen as an effective means of accessing foreign markets and resources. This is especially the case with transfers between

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Table I Perceptions of different nationalities’ product quality (percentage of respondents choosing each country of origin) Country of origin

US customers

Japanese customers

German customers

(a) “Best quality” televisions and VCRs USA Japan Germany Do not know

28 66 1 5

2 91 1 6

2 59 37 2

(b) “Best quality” cars USA Japan Germany Do not know

41 36 18 5

1 71 23 5

2 18 78 2

Source: ASQC/Gallup (1991)

developed and developing countries (Kaplinsky, 1990; Roessner and Porter, 1990). An example can be seen in China’s machine tool industry, which has maintained a rapid annual growth as the country has industrialised. Its annual output value doubled by the early 1990s compared with the mid 1980s making it among the world’s top five machine tool industries in terms of output value. There has also been a rapidly increasing domestic demand, which in recent years has grown annually at around 17 per cent per annum making it currently the world’s third largest market for machine tools. However, the machines produced in China have traditionally been of low value and made in large quantities. Also many of them are exported to developing counties, so despite this dramatic increase in output, the industry cannot meet the demand for high quality computer numerically controlled (CNC) machines that are required by China’s modernised state enterprises, sino-foreign joint ventures and wholly foreignowned subsidiaries. The shortage of domestically produced machine tools of sufficient quality and reliability has resulted in large numbers of imports from the major industrialised countries. Although this situation suggests that China may look like a continuing destination for future foreign machine tool exports this is unlikely to be the case without accompanying technology transfer to subsidiaries or Chinese partners. Also the investment incentives that are offered in the form of tax reductions and the lower costs of labour and materials favour the transfer of foreign technology to local companies. As a result, foreign machine tool manufacturers have shown considerable interest in establishing technology collaborations with Chinese partners. The authors have been carrying out research into the machine tool industry in China for a number of years with funding from the British Council and the UK Engineering and Physical

Sciences Research Council. This paper draws on several strands to this research in order to address the issue of quality and the perception question. The research builds on earlier investigations into the transfer of technology to China and the perceptions and expectations of suppliers and acquirers (Bennett et al., 1997; Zhao et al., 1997). In carrying out the research empirical data have been gathered from company case studies in the UK and China. Questionnaire surveys have also been undertaken of three groups of companies: (1) UK (and UK-based) machine tool companies who have transferred or are potential transferers of technology to China; (2) Chinese machine tool manufacturers, covering most of the key enterprises in the industry, who have imported or plan to import technology through various forms of transfer arrangements; and (3) a selection of companies in China that use Chinese and foreign as well as co-produced machine tools.

3. Methodology Case study data for the research were obtained through visits to companies in the UK and China. Semi-structured interviews were carried out based on prepared question checklists. Some companies were visited several times during the research to provide a longitudinal perspective. The case study data mainly were gathered by the Chinese author, who was a research associate at the time. He was usually accompanied by the UK author on the first visit. On some occasions the visits were organised by collaborators at the Peoples’ University in Beijing and Tianjin University and carried out by the UK author with Chinese university staff acting as interpreters. In the UK, case study data were gathered from ten companies in the machine tool industry. Most

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were end-product manufacturers while some others produced parts. Five of the companies were actively engaged in technology transfer projects in China. The other five were not transferring technology to China at the time but were considering doing so. However, some of them had technology transfer projects in other countries. In China, case study data were gathered from 16 machine tool manufacturers. Five of these were partners of UK case companies who transferred technology to them. Another had previously been involved in transferring technology from a UK company shortly before it went into liquidation. All the remaining companies had varying experience of technology transfer from other foreign countries (including Japan, USA, Germany, France, Italy and Sweden). Chinese user information was gathered through case studies of 12 companies in the automotive, aerospace, precision machinery and tool-making industries, all of which require the use of high quality CNC machines. The questionnaire survey of Chinese machine tool manufacturers was carried out with the assistance of the People’s University of China in Beijing using contact details supplied by the China Machine Tool and Tool Builders Association. The questionnaire was prepared in English and translated into Chinese by the research associate. People’s University staff reverse-translated the questionnaire to ensure there were no errors or language ambiguities. The questionnaire was mailed to 100 key machine tool manufacturers throughout China and 58 companies provided usable responses. Within the responses details of 79 “technology transfer experiences” were provided. In the UK the questionnaire survey was carried out in collaboration with the Machine Tool Technologies Association. It was sent to 34 members of the association who it was known were transferring technology or selling machine products to China. A total of 11 usable responses were received. The survey of users was conducted directly by approaching user case companies and obtaining their agreement to complete the questionnaire. In addition a seminar for companies was held in the Chinese city of Chengdu and was arranged through the local machine tool association where participants were requested to complete the user questionnaire. Altogether 30 usable replies were obtained from users in the sectors described previously. The three questionnaires were designed with both unique and common question areas so that comparisons could be made between the different respondent groups where relevant. In the surveys respondents were asked to assess the importance of various factors influencing

transfer and to evaluate the transfer results from their actual experiences. The degree of “importance” was scaled, with a score of 6 meaning imperative and 1 meaning not important or irrelevant. Scores in-between referred to varying degrees of importance. The rating of the transfer results and product feature performance were scaled, with 10 meaning completely satisfied and 1 meaning not at all satisfied. Scores in-between referred to varying degrees of satisfaction. From among the Chinese manufacturers who responded, 79 technology transfers were reported from foreign companies. Other results from the surveys are described elsewhere, especially those relating to how suppliers and acquirers value transferred technology (Bennett et al., 1999).

4. Results 4.1 Expectations about prices For most Chinese machine tool companies an increase in financial returns is an important immediate benefit from acquiring technology. Technology transfer is expected to generate increased financial returns through greater revenues because of the higher price of the machine tools and/or increased sales. Table II shows the price differences between equivalent CNC machine tools of foreign and Chinese origin expected by UK machine tool makers and Chinese machine tool makers and users. This table shows that transferring foreign technology to the Chinese machine tool industry is expected by all three groups to result in general purpose CNC products using this technology commanding higher prices than Chinese machines using local technology. However, the price gap (approximately 30 per cent) is still much smaller than for imported foreign machines (more than 80 per cent). The case studies suggest that this is because there remains a perception that the quality of a Chinese built machine is still lower than an imported machine, despite the technology used being of foreign origin and foreign partners being involved in their manufacture. The fact that there is fairly common agreement among all three groups regarding the price differences for general purpose CNC machines would suggest that this perception is probably an accurate one. Although all three groups have similar expectations on price differences for generalpurpose machines there are much greater differences in price expectations for special purpose machines. This is perhaps not surprising because special purpose machine building depends much more on tacit knowledge and acquired experience

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Table II Expected price differences between equivalent CNC machine tools Price difference compared with equivalent Chinese machine tools expected by: UK machine tool companies Chinese machine tool companies (% higher) (% higher)

Chinese users (% higher)

General purpose CNC machines Chinese machines based on foreign technology Imported foreign machines

27 82

35 84

33 87

Special purpose CNC machines Chinese machines based on foreign technology Imported foreign machines

79 334

57 130

46 112

than building general-purpose machines. This would make the transfer of technology from foreign companies more difficult and it would also take longer. Again, therefore, the general perception is probably accurate. However, between the three groups the expected gap for special purpose machines varies greatly. UK companies perceive the gap to be much larger (334 per cent) than do both Chinese machine tool makers (130 per cent) and users (112 per cent). This would suggest that there is a perception among the Chinese manufacturers that the transfer of tacit knowledge and acquired experience is easier, and can be carried out faster, than is expected by the UK suppliers of the technology. Chinese users seem to share the view of Chinese manufacturers, thinking that the price gap is even smaller. The perception about the superiority of imported foreign machines is borne out in Table III in which it is shown that foreign technology provides higher satisfaction in improving competitiveness through quality and performance features such as reliability, processing consistency, accuracy, productivity, functionality and appearance. This perception about their superiority over locally built machines means that, despite their higher prices, foreign machine tools

have been selling increasingly well in China in recent years and have captured an overwhelming market share. As a result, according to the China Machine Tool and Tool Builders Association (CMTBA), the Chinese manufacturers’ market share of CNC machine tool sales fell from 70 per cent in 1990 to less than 40 per cent in 1997, despite their efforts to upgrade the quality of their products through technology transfer. 4.2 Perceptions about the risk of transfer Table IV provides a comparison of the degree to which the UK machine tool companies were satisfied with the results of their technology transfers compared with their expectations. It also shows the relative importance of the benefits being sought as rated by the companies. In general, suppliers’ transfer benefits were only partly satisfied compared with expectations. For example cost reduction, the third most important expected benefit, was least well achieved and even the two most important expected benefits, increased market sales and enhancement of strategic position, received no more than a 0.50 satisfaction rating. This suggests that there is a considerable amount of expected benefit that has not been obtained. A more detailed assessment of the factors influencing risk is provided in Table V. This is

Table III Relative importance of product features and comparisons between machines of different origins

Product features Reliability Ease of use and maintenance Consistency Accuracy Functionality Processing productivity Appearance

Importance (a)

Imported machines (b)

5.7 5.1 5.0 4.7 4.4 4.2 4.1

8.8 8.2 8.9 9.0 8.8 8.4 9.1

Performance of machines of different origin Chinese machines/foreign technology (c) 7.0 7.7 7.3 7.8 7.6 7.5 7.3

Chinese machines (d) 5.3 6.9 5.9 6.4 6.4 6.1 5.3

Notes: In column (a) 6 is the maximum possible score while in columns (b), (c) and (d) 10 is the maximum. See the methodology section for further explanation of the scores Source: All three surveys

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Table IV Importance of benefits and the actual results of UK machine tool manufacturers’ technology transfers compared with expectations (1 ¼ completely satisfied) Suppliers’ expected transfer benefits

Importance of transfer benefits

Degree of satisfaction with actual results

5.30 5.00 4.40 4.20 4.10

0.44 0.50 0.28 0.39 0.50

3.40

0.28

Market entry or increased sales Enhancement of strategic position locally Reduction in production costs Meeting local customers’ requirements Improvement of after-sale service Acquisition of low cost local components Source: Survey of UK machine tool manufacturers

Table V Assessment of technical, market and collaborative risks based on actual transfer experiences (1 ¼ complete satisfaction) UK suppliers’ assessmenta

Chinese acquirers’ assessmenta

Technical risks – main technical uncertainties associated with transfer Quality of end-product Cost advantage for the transferred product in the local market Absorption of technology Solution to technical problems Effective use of technology

0.62 0.58 0.37 N/a N/a

0.29 N/a 0.28 0.36 0.29

Market risks – main uncertainties affecting future market sales Partner’s ability to win orders Competitiveness of end-product (quality to price ratio) Customer’s confidence in quality and reliability Product performance in meeting customers’ needs

0.58 0.53 0.50 0.42

N/a 0.38 0.30 0.33

Collaboration risks – main uncertainties affecting collaboration between partners Financial stability of foreign partner “Goodness” of collaboration Supply of key components Control of the technology being transferred

0.40 0.37 N/a 0.33

0.35 0.41 0.39 N/a

Consideration of risk in technology transfer

Note: aAssessments are differences between actual results and complete satisfaction. The lower the value, the lower the implied risk Source: Surveys of UK and Chinese machine tool manufacturers

based on the actual experiences of the UK and Chinese machine tool manufacturers regarding technical, market and collaborative factors. The differences between the results from actual experience and complete satisfaction can be regarded as an indicator of risk. The survey results in Table V provide an explanation of the poor achievement of transfer benefits previously detailed in Table IV, from which it can be seen that suppliers perceive the risks to be higher than do acquirers for every aspect other than “goodness” of collaboration. Among the common risks the quality of end products resulting from the transferred technology was identified to be most problematic by UK technology suppliers, as indicated by the high level of risk for this factor. This in turn causes low levels of product performance and reduced customer confidence. The high supplier specific risk associated with obtaining cost advantage also leads

to lower product competitiveness as reflected in the quality to price ratio.

5. Summary and conclusions The results of the research show that UK and Chinese manufacturers and Chinese users of machine tools all recognise quality and reliability as being important to ensuring the commercial success of technology transfer and the capture of addition value downstream in the value chain. They also demonstrate that foreign technology based machine tools made in China carry a significant price premium over Chinese machines based on local technology, but the price premium carried by imported machines is even higher. However, closer examination reveals a number of important differences concerning the perceptions and reality of quality and reliability between the

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groups as well as the risks associated with technology transfer. These differences will have a strong influence on a number of factors including the value assigned to the technology under the transfer arrangement, the form and method of transfer, and the long-term success of partnership agreements.

Bennett, D.J., Zhao, H., Vaidya, K.G. and Wang, X.M. (1997), “Transferring manufacturing technology to China: supplier perceptions and acquirer expectations”, Integrated Manufacturing Systems: The International Journal of Manufacturing Technology Management, Vol. 8 No. 5, pp. 283-91. Kaplinsky, R. (1990), “Technology transfer, adaptation and generation: a framework for evaluation”, in Chatterji, M. (Ed.), Technology Transfer In the Developing Countries, Macmillan Press, London. Roessner, J.D. and Porter, A.L. (1990), “Achieving technologybased competitiveness in developing countries”, in Chatterji, M. (Ed.), Technology Transfer in the Developing Countries, Macmillan Press, London. White, P.D. and Cundiffe, E.W. (1978), “Assessing the quality of industrial products”, Journal of Marketing, Vol. 42, pp. 80-6. Zhao, H., Bennett, D.J., Vaidya, K.G. and Wang, X.M. (1997), “Perceptions on the transfer of technology to China: a survey of British companies”, Technology Management: Strategies and Applications, Vol. 3 No. 3, pp. 241-59.

References American Society for Quality Control (ASQC)/Gallup (1991), Looking for Quality in a World Marketplace, ASQC, Milwaukee, WI. Bennett, D.J., Vaidya, K.G. and Zhao, H. (1999), “Valuing transferred machine tool technology: relating value to product attributes and preferences of acquirers”, International Journal of Operations and Production Management, Vol. 19 Nos 5/6, pp. 491-514.

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1. Introduction

Managing change and innovation in IT implementation process Annie Bartoli and Philippe Hermel

The authors Annie Bartoli is Professor of Business Adminstration and Philippe Hermel is Professor of Management, both at the Management Research Center “LAREQUOI”, University of Versailles Saint-Quentin-en-Yvelines, Guyancourt, France.

Keywords Innovation, Change management, Quality, Communication technologies, France

Abstract After the prophetic messages about the contributions of information technologies (IT) on firms, we face warning signals on the unavoidable need for change management, and the perverse side effects of IT improvements when they are not integrated within a strategic and managerial framework. The analysis of practices concerning the introduction of IT in organisations shows that often, the context and the process are neglected; as for the content, it is centred on tools rather than on the needs to be satisfied. A managerial typology of barriers to change that differentiates risks of strategic or structural nature, and cultural or behavioural nature, explains the lack of quality in operations. In order better to manage the implications of IT evolution, i.e. their downstream incidences, it is necessary to have steered upstream in defining the objectives, analysing the needs, taking into account the socio- organisational context, and the implication of actors.

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Journal of Manufacturing Technology Management Volume 15 · Number 5 · 2004 · pp. 416–425 q Emerald Group Publishing Limited · ISSN 1741-038X DOI 10.1108/17410380410540417

All around the world today, the scientific literature in management, just like the specialised press on the economics and management of firms, is “drawn” by a topic which one can describe of general interest: the impact of the development of information technologies (IT) on all industry branches. The situation in France confirms this trend. Thus, the conferences of researchers in the management of this topic multiplied [1] as well as the articles or special papers in management journals [2]. One can pinpoint three trends in the reflexions emitted on this subject: (1) The “instrumental” approach was, for a long time, dominant: numerous works describing and praising the technological merits of the new tools of information and communication, put forward the contributions in regard to speed, reliability, and accessibility of these deep technological changes. They are generally presented as opportunities impossible to miss for all organisations, the fact of not seizing them being regarded as a considerable risk. On a practical level, the implementation of new IT within this framework is often treated exclusively as a data-processing project, entrusted to the expert specialists in the tool. (2) Another logic is about the impact of the IT for the whole company, in particular in the field of management concerning the various facets of the concept of “network”: not only the relation between the information systems (IS), but also more especially the relation between actors and organisations, which induce strategic, organisational and managerial implications (Kalika, 2000). This approach tends to not confuse the end (the performance of the organisation) and the means (the IT) and shows that these technologies are not neutral at all since they can act on all the functions of the company. Generally, this trend recommends “to rethink the company” to take account of the potential contributions of the IT. One also finds interesting studies on the new forms of management appearing in the “start-up” companies mostly based on these new technologies (Dondey and Igalens, 2000). (3) A third current adopts a much more pessimistic position and underlines the many disappointments brought by new IT when they are integrated without considering the globality of the organisation. Some warn us against the mode phenomenon; others rise against the formal and informal power the

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experts of these systems in the companies are entitled with; a third category finally denounces the rise of a two speed economic world, with on one side the “start-ups of the Net”, and on the other the companies known as “traditional”. Our contribution endeavours to partially reconcile these three approaches by showing the need for strategically controlling the change (Bartoli and Hermel, 1986) induced by these technological innovations, in order to benefit from the contributions of IT tools, to anticipate the managerial implications of their utilisation and to develop a strategy to avoid barriers to IT innovation. The idea is also to promote a total quality process (of conception and of implementation) of the innovation in IT. Indeed, we consider that the introduction of the IT into companies completely constitutes a socioorganisational and strategic change, which is a source of strong interpellation of the whole company system. Consequently, the quality of the management of this change is determining, at least as much, if not more, than the quality of the technology itself. Our communication first presents some of the main significant work on change and innovation in the organisations in order to study from them the possible applications in the field of IT. Then, we analyse the main barriers to innovation in the management of IT, to propose finally some conditions for assuring the management quality of this change.

2. Which concepts of change and innovation? The whole field concerning the multiple transformations affecting companies in time regularly goes between the two concepts of “change” and “innovation”, accompanied by various adjectives (strategic, organisational, technological, etc.). Often, the field of reference of the particular author is determining in the use of either terminology: the economists are more used to the term of “innovation”, while the sociologists and the managers have “classically” preferred “change” before, and now turn more into the term of “innovation”. What about the respective meanings of innovation and change? Some definitions given to each of the two concepts are clearly distinct. In the standard model of technical innovation (Arrow, 1985), it is the modification of the production function of a company, which adopts a new technique that enables it to be more competitive

on its markets. As for change, it has been often defined as a difference between the state of a company at a T0 time and the state of this same company at a Tn time. More generally, the change would represent a modification for the company, while the innovation would be an absolute move forward going past the current field of the company considered. One can wonder which concept is more appropriate to the development of IT in companies. In certain cases, it is truly about innovation, provided the studied company and the organisations of its environment (competitors, partners) have not yet used the same method of work (that it is of product innovation, technological innovation, socio-organisational innovation, etc). But this case will not happen often. Thus, when the company already was equipped in advanced IT, or that its direct environment was, it is less a situation of innovation, in the traditional sense of the term. On the other hand, one can consider by extension that all the cases of introduction or development of IT are changes for the company, since they transform it from its initial state. The theoretical frames of reference remain anyway extremely varied; we will briefly summarize the principal “stages” which appeared on this subject during the 20th century. 2.1 The innovation generated by the economic agents Initially, with the famous works of Schumpeter (1961) it is the concept of innovating entrepreneur which is underlined. Within this framework “Innovation” is more promoted than “Change”. Schumpeter is one of the first to have been really interested in the determinants of the industrial and economic evolutions and to use the term of innovation. Hitherto, the majority of the economists considered “technical progress endogenous to science”, without identifying the actors or levers having an impact on this progress. Schumpeter underlines the role of the contractors, as economic agents whose function is to carry out new combinations in the productive exploitations and who are their active elements. Later, he underlined the role even more determining of research and development teams, at the origin of the innovation which results from a “routine process”. The contemporary references of the economy of innovation still often have “Schumpeterian” roots. Thus, the thesis of the “Science Push” (from science to the market) causing technical progress, is partly related to the logic of the innovating entrepreneur. As for the studies on the relation between the structures of market and innovation,

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they are often inspired by the second work phase of Schumpeter which show that the competing confrontation causes a process of creative destruction, the old being substituted by the new. More recently, economists of the evolutionary approaches of the firm (Freeman, 1982; Dosi, 1982) changed the traditional visions of technological innovation and industrial growth. In particular, they consider the innovation as a process, which transmits impulses connecting the new technical ideas and the markets. Innovation is seen as an interactive complex process, which goes against the linear and sequential model of “Science Push”. In the context of the economy of innovation, the implementation of IT in organisations is not directly concerned insofar as those technologies have not a direct relation with the markets. Nevertheless, the e-business experiences can be analysed within the framework of the evolutionary approach of the firm, as interactive complex processes laying on intern flows of information carried by new technologies and stimulating the relations of the company with its customers. As a whole, the work of innovation economists is at a relatively distanced level of analysis compared with the operating of organisations. The sociologists of organisations develop, from the 1930s, company research permitting an understanding of certain determinants of internal change.

dimension in the works of Lewin (1947). In addition to his constant concern to study the change “in movement” by methods of research-action, the major contribution often reminded in connection with Lewin is its fundamental model of the planned change. This author conceived change as the modification of forces that maintain behaviours inside a system in a state of balance. More specifically, the behaviour is constantly the result of two sets of forces: those that tend to maintain the status quo and those which incite to change. According to him, the process of change will follow the three following phases: (1) Unfreezing: a period of easing, opening, divergence, information, setting in question. (2) Moving: transition and change: a transformation period of behaviours and opinions, and the training to new behaviours. (3) Refreezing: a consolidation, stabilisation of change, with appropriation of new behaviours.

2.2 Sociological approaches of the change in organisations At the beginning, sociologists focused their attention on the concept of “change” and not on “innovation”. Thus, change emerges with those internal approaches to organisations: the question of the working conditions and their impact on productivity is concerned, with the famous experiments of General Electric’s Hawthorne workshops (Mayo, 1933). The context is initially that of the “behaviorist” trend, which developed in the USA not only in reaction to Taylorism and Fordism, but also to seek new sources of effectiveness taking into account the human factor. The central goal of this work is to improve the working environment and to reduce conflicts for a better performance of the company. Researchers having led the “Hawthorne” experiment tested the reactions of personnel to various kinds of social and organisational changes, and highlighted the stimulating effect of the very principle of change and its process, more than the contents of it, as well as the phenomenon of group in a context of change of working conditions. The psycho-sociological comprehension of the phenomena related to change takes an essential

This work can usefully be revisited in the case of the IT implemented in companies. Indeed, the two sets of forces, maintaining the status quo or incentive to change, can be identified (although seldom analysed) within the organisations, which develop new “modern” IS to increase their performance. It is interesting to remember that Lewin recommends to reducing the forces “barriers” rather than increasing the “accelerating” forces, this last case being likely to cause major blocks. However, one can often note that the actors who control the implementation of the IT, behave somehow against the recommendations of Lewin, that is, seeking to impose the change. Today, change is also in the heart of the trends of sociology of the organisations discipline which is highlighted in France by the works of Crozier (1979). Researchers of this field highlight certain success conditions of change: it is necessary to be felt as a need, to be defined as a problem to solve, and to be led like an individual or collective project (in the sense that nothing can change by simple incantation or by “decree”). However precisely, many barriers to the implementation of IT in the company seem related to the absence of clarification of both the real needs and the problems to be solved. “Fashion” or the illusion of systematic contributions of the IT led to promote the instrument without always connecting it to an overall project. If change has been central to the work of sociologists for a long time, innovation is also becoming at the heart of research today. The research in sociology of the innovation, particularly in France (Callon and Mustard, 1992), now shows a reality without any linearity

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and is described according to a “swirling” model, resulting from social interrelationships and techniques which give form to the innovation. Innovation is created in the company by ceaseless round trips, which go from the designer to the creator. The process of innovation does not result in carefully separated phases: on the contrary, all the phases are described as “considerably muddled”. There again, the parallelism with the situation of the IT in companies is seizing, since the “swirling” approach of innovation in the IS is frequently observed. Other works, carried by management researchers trying to develop “sciences of action”, also go in the same direction. It is the case of the research on strategic change.

majority of works lead to the interactivity of the variables and the non-determinism of technology. The case of the introduction of IT gives way to the traditional “technology-organisation” duality. More and more nowadays, companies have to lean on this duality in their experiences. The question is often to know whether it is initially necessary to reconsider the information system via computerisation and then to adapt the organisation or the reverse. The argument of the technological constraints allegedly impossible to circumvent, to be integrated with priority, is often proposed, to the dismay of the users who undergo them while regretting not being able to make more relevant organisational choices. This example illustrates the need for repositioning the change induced by IT within a managerial framework.

2.3 Strategic and structural dimensions of change Change has been studied much in connection with the external environment and its pressure on strategy and structures. These problems are developed in the works of Chandler (1974, 1962), and the contingency school (Lawrence and Lorsch, 1967). According to Chandler (1974, 1962), change constitutes a succession of stages of design and application rhythmed by the crises of the environment. The change is thus perceived first of all as a constraint, which rejoins the theory of the contingency connecting change to the constraints imposed by the environment. The crisis is conceived as a creative rupture, factor of propagation of modernised methods. In this context, two types of strategies are distinguished: a defensive one and an offensive one. As for the organisational change, it is conditioned to the success of the strategic change. Thus, the change generally occurs in cascade: initially in the environment, then on the level of the strategy, and finally in the structures of the company. Concerning this sequential approach, many theoretical debates took place among the researchers in management (Mussche, 1974) to show the interactivity (and not the linearity) of three dimensions “Environment”, “Strategy”, “Structures”, and their evolutions. The technological factor is relatively little integrated in the internal analyses of companies in the 1960s, but it is found on the level of the external environment. The works of Woodward (1965) and of Thompson (1967) thus contribute a great share to the comprehension of the evolutions by studying the reciprocal relations between technology and organisation. If there is not a “best way” to organise or reorganise the company, it seems, however, that there is a particular structure appropriate to each technological context. However finally, the

2.4 The double technological and managerial point of view The 1970s saw the research starting again on the socio-organisational change, within the particular framework of the organisational development (OD) (Bennis, 1969) trend and of the socio-technical approach. Designs and uses of the OD deal with a great diversity of activities which includes the improvement of team work of senior executive, structural changes or job enrichment in an organisation. This paradigm can go as far back as Lewin, who many describe as the main pioneer of OD, and continues to our days with, for example, the management of business process change (reengineering) or project management. Indeed, it is a question of controlling an integrated process of planned change, regarding the organisation as a system (Cummings and Huse, 1989). Change is then seen as an intervention process starting by a total diagnosis and continuing with phases of strategic formulation and implementation to end in the evaluation of the process and its impact. Other managerial approaches of change have multiplied. Thus, the concept of organisational training develops, under the impulse in particular of Argyris and Schon (1978) and Argyris (1993). These authors draw attention to the distinction between two levels of training: the “single loop” is the usual direct training, within a framework already well defined, which facilitates the progressive familiarisation; the “double loop” supposes a rupture in reasoning, the passage to an higher level calling into question the “master programs” having led to the action. This same author also brings a thorough analysis of the barriers to change, through the concept of “defensive routines” which are important in order to discover them, to analyse and to be able to go past them.

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Today, in the companies, consultants in organisation or in IS practice (without always the knowledge . . .) the modes of intervention relevant to the OD. Two cases seem to arise: consultants regarding IT operation as linear and procedural, and consultants preferring a flexible and contingent approach in their interventions, even if a framework of reference exists to ensure the conditions of success. In this second case, the implementation of IT is generally based on a phase of analysis of needs and context, making it possible to define objectives and to direct the choices and the operation of the IS consequently. To fight the phenomenon of “defensive routines”, tools of accompaniment (communication, formation, early implication of the users) must be envisaged, and allow two-way exchanges in the process. In any case, these approaches remain rare and do not compensate for the many errors noted in the management of changes induced by IT. We also have to note the works of the latter 15 years on the “Process-Content” couple of change (Bartoli and Hermel, 1989). They show that the success of the change depends at least as much on the quality of the piloting of its process than on the quality of the design of its contents. Pettigrew (1987) proposes a model in form of the triptych “Context-Content-Process”, pointing out the importance of these three dimensions in the piloting of the change. However, it is often precisely on those dimensions that the introductions of the IT in companies fail. Indeed, one can fear that the context and the process are regularly neglected. As for the contents, it is not inevitably better when it is centred on the tool and not on the needs to satisfy. Finally, the 1980s saw also the development of the concept of technical, even technological, change with in particular all the studies on the impact of computerisation on companies, and the revisited reflections on the traditional relation between organisation and technology. This research was made at the border between the field of management and the field of IS (Baumard and Benvenuti, 1998). Thus, research in management was especially focused on the change in all its forms, innovation remaining a privileged field of work in economy or sociology. It is during the 1990s that innovation, under a managerial angle, finds its main status of “nobility”, partly taking back the subject change, including this of strategic change. In the first place, it is on technological innovation in companies that it is sensible to be interested in. The innovation generated by the IT becomes a major concern, in particular to ensure an implementation in conformity with the expectations caused by these new technologies. The question is then implicitly

focused on the quality of the implementation of innovation.

3. Quality of the implementation of innovation As we have seen, the majority of the works on innovation and change are centred either on the contents of transformations, or on their early pre-determinants. The questions of implementation are seldom studied, except for some of the most recent approaches. 3.1 The still ambiguous statute of “implementation” Relegated a long time to the level of “intendance will follow”, the implementation was often neglected in the management and strategic literature. The first works on strategic management [3] are focused on strategic diagnosis and formulation, considering that the continuation of the process belongs to a purely operational logic. We have to wait the end of the 1970s and after (Mintzberg, 1993) to see the global solutions of strategic management valorizing the importance of both the implementation and the steering stage (Bartoli and Hermel, 1989). Consequently, the strategic process is supposed to go past several traditional dichotomies between “external strategy” and “internal strategy”, between “analysis” and “action”, between “strategic” and “operational”. However, two extreme positions, continue to exist in the practices of companies: some are privileging action at all costs, which focus on the “toolbox” at the expense of the strategic framework in which the action is registered; others are the elitists of strategy, preferring to edict orientations and goals conceived out of the realities of the field and who consider actions and tools as having to follow at all costs. Concerning the management of IT, two logics can as well be observed: .

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The first case corresponds to the technocrat vision of IS considered as ends in themselves that intrinsically carry performance. The second case almost reflects the situation of the leader who lays down some strategic orientations and a very general schedule of conditions for the technicians of IT, and who expects an immediate implementation without fault diffused everywhere, and almost with some “magic”.

To the contrary, the focus should be made on controlling the strategic implementation, essential phase of the process of change induced by new IT.

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In reality, what are exactly those famous IT about which everyone speaks, without sometimes being even sure whether we are speaking about the same reality? Without claiming to propose a joint and single definition of IT, we can collect from the specialised literature today three keys idea which make it possible to mark out the perimeter a little: (1) In a schematic way, new IT diffused in the organisations are all technologies which combine data-processing and network, with some of them also adding the audio-visual component. The concept of “convergence” is often evoked to show that it is this integration of different technologies which causes the emergence of new functionalities. (2) In spite of the frequent tendency to call them “new”, these technologies already have a certain seniority. Actually, it is their development and their use in all mediums that are newly developed. (3) Today, IT are often associated to the Internet, but that is very restrictive, Internet being only one of the networks which makes it possible to convey information resulting from other technologies.

(Thie´tart, 1979) are taken into account very early in the IT projects (Hermel, 1996): . Finality: definition of objectives, clearness on the reasons legitimating the choices. . Organisation: roles and missions, taking transverse processes into account. . Animation: implication of the actors at various levels (consultation of the users, project management, communication, training). . Control: piloting of the implementation, analysis of variations, evaluation of impacts.

These key ideas thus make it possible to draw part of the borders of IT but are not enough to apprehend their multiple impacts and implications. Indeed, by their integration within companies and organisations, ITare likely to cause changes in many fields: Initially, IS of the company have to evolve. Indeed, after having known one period of centralisation, IS had been decentralised during the years spent on the development of micro-processing. In some cases, this decentralisation of IS could create problems of internal coherence. However, hardly had the companies time create order in their architecture system, that the emergence of the network protocol Internet protocol (IP) has come to put into question the whole design (. . .) by opening the internal network of the company to the Internet network (Issac, 2000). More generally, all the functions of the company are affected by these technologies: marketing (in particular e-trade, relations with markets via the Web sites, etc), production and logistics (contributions of the IT to the electronic management of flows, for example), Research and development(R&D) (networks of alliance in R&D, conveyed and stimulated by the IT), human resources management (“online” recruitment and training), etc. But these impacts are potential and not automatic and are likely to cause positive effects for the company only if the interactions of the IT with various dimensions of management

Indeed, for better management and control of the implications of the IT, i.e. their incidences downstream, it is also necessary to control the upstream namely the analysis of the needs, the definition of the objectives, the taking into account of the socio-organisational contexts, the implication of the actors, and the creation of indicators. It is only in this condition (which relates to the quality of the design of change) that can be obtained factors for the quality of the implementation of change. However, to avoid non-quality in the steering process of innovation induced by IT, it is still necessary to circumvent the barriers to change likely to appear in this type of project. 3.2 Barriers to innovation in the management of IT A qualitative investigation of 12 French experts in information systems, most of them IT implementation programme leaders, was carried out under our supervision in September 2000. Its main objective was to identify and analyse the barriers likely to appear in companies, as well as the conditions of success in this kind of process. The results of this investigation were then brought closer to the theoretical framework of the “integrated development” and of its typology which concerns the barriers to change, while distinguishing those of a strategic nature, a structural nature, a cultural nature or a behavioural nature. 3.2.1 Strategic barriers The strategic barriers are strong when the introduction of the IT is neither accompanied by a clarification of objectives, nor by an identification of needs, and is not integrated in a global project. It is the triptych of Pettigrew (Context-Process-Content) which is thus neglected. The interviewed experts brought on this field some interesting illustrations. Let us quote before all the case of counselling firm in IS which simultaneously received two requests from two different prefectures for the installation of a territorial IS.

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The comparison of the formal content of both requests are quite illustrative: . The prefecture “A” had worked out a detailed schedule of conditions in which the desired implementation of the IT was associated to quite precise needs, aiming in particular at facilitating the organisation of the building permits, the management of the water rising, etc. Thus, prefecture “A” formulated its objectives and its needs without specifying the use of a given tool or a particular technique. . The second prefecture, “B”, on the contrary, had formalised a specific written request for an intranet site, a forum, and other electronic tools without really defining the needs, the goal not appearing, and even less the global project in which these techniques could fit.

(Hammer and Champy, 1993) initially set up IS and then reconfigured the transversal processes concerned. One of the companies regretted the situation concerning the process of sales administration: the reengineering group wanted to formalise the roles and missions combining central coordination and local empowerment; and contrary to this first wish, they finally had to give it up because of the constraints of the ERP which had just been set up. Consequently, it was then necessary “to twist” the organisation and the roles of the actors to enter the mould of the new established system, thus creating factors of rigidity where one sought at the beginning fluidity and flexibility. Another structural barrier is due to uncontrolled interpellation of the traditional hierarchical lines. Indeed, introduction of the new IT can cause a direct access to all kinds of information to all actors in the company. To be effective it is also often accompanied by more transversal and less vertical operating modes. Lastly, it can lead to direct access to the head managers, in particular via electronic mail. Consequently, some stress conditions in the company can appear from this, if “the game rules” and operation principles are not defined. Finally, the structure of jobs is also affected: new functions appear (Webmasters), others are forced to reconfigure themselves with risk of disappearing (secretaries, or even data processing specialists). Multiple examples of difficulties in these fields are thus given by the people interviewed, within sight of their experience in companies.

The interviewed expert estimated that some of the conditions for success were already clear for prefecture A. On the other hand, if he did not manage to have the request of the prefecture B reformulated, the risks of barriers were so great that he would rather not to take the assignment. Another strategic risk is the incompatibility of two perspectives on time: the time of the detection of information, and the one of the strategic decision-making process. Thus, one can consider that the strategic screening is facilitated by new information technologies, but: “For example when an expert or a watcher identifies a significant weak signal, how much does it take us to incorporate this signal in a collective vision and to draw the formal conclusions from it?” (Ballay, 2000). This example thus draws attention at the same time to the difficulties of strategic decision, and on structural constraints intern to the company. 3.2.2 Structural barriers The structural barriers appear especially when the technique or the information system introduced is transposed without adaptation to the specific context. It is the problem of the absence of contingency of the tool that is proposed here. Several interviewed experts evoked the example of the integrated IS (enterprise resource planning (ERP)) which one sets up today at the global level of the company for the management of all functions (administration of the sales, purchases, logistics, human resources, etc). One of the most powerful products on the market is “SAP” that many French companies bought, investing thus heavily in budget and time. The problem occurs when ERP is set up before organisational reflections. It is obviously then not the tool in itself that is to be blamed, but the chronology of the process led in the company. Thus, some companies which launched out processes of business reengineering process (BPR)

3.2.3 Cultural barriers Two levels of analysis are highlighted here: the level of “company culture”, and the level of “culture of actors and group of actors”. The first one considers the frames of references, systems of values, styles of management, national and local contexts in which the considered company operates (Hermel, 1996). For instance, the case of the multinational firms or the multi-sites national companies is evoked by certain interviewed experts. The decision of a central bureau to promote and implement IT in all the sites of the firm often encounters cultural barriers: either certain countries do not have a sufficient level of development of technologies, or the operating modes of the local organisation remain based on other forms of exchanges of information (the verbal mode, for example) and the arrival of these new tools is a true cultural shock. The organisational training not being neither easy nor spontaneous, follows periods of destabilisation. The second level raises the question of the cultures of actors: the cognitive capacities,

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the forms of knowledge, the practices, and the mental structures are concerned. What processes of IT introduction take into account these dimensions? This question is often neglected. However, the main difficulty lies in the inadequacy between the cognitive capacities of men and the technical capabilities of tools. It is not that one of these categories is of higher capacity than the other, but rather that they are of different nature. Indeed, on the one side exist some limits of human capacities, which cannot exploit all the potential contributions of the IT. Even if the data processing and storage capacity increases, the capacity of attention of men remains constant (Thomas and Davenport, 2000). On the other side, the richness of the human capacities appears to be higher than the technical possibilities. One can refer here to Piaget (1964) who defines knowledge as a relation between the subject and the object: knowledge is thus neither in reality “as is”, nor in the subjectivity of men, it is generated by the adequacy which is established between the one and the other. Consequently, it cannot be easily instrumentalized! An expert quotes, on this subject, the illusion of the contributions of the electronic forums, supposed to cause debate favourable to the development of knowledge. Actually, they often do not exceed the status of directory of questions and answers, hardly going past the status of an improved email. However, the true constructive discussion requires a culture of work in-group, collective capacities of listening, and a shared motivation that the tools are not enough to create. In addition, and recalling the research on knowledge management, more particularly on tacit knowledge (Nonaka and Takeuchi, 1995) one notes that the foundations of human knowledge and know-how contain implicit internal data, which are not expressed. Consequently, all the richness of human knowledge can only be partially, and not completely, shared. Besides, it cannot be entirely transmitted by technical tools, as sophisticated as they can be. These set of considerations makes possible to understand better why certain interviewed experts recommend “not to treat IT project as a data-processing project” and to regard it as a global project of management having implications on the structures, on the procedures, but also on men, their values and their cultures, and finally being conscious of the limits inherent to all these perspectives.

All the people interviewed evoked identifiable counter-productive acts in the process of implementation of IT in companies. The majority explain them by a too weak consideration of the needs for accompaniment of change regarding the considered actors. Thus, the reactions of rejection, or at least of passive resistance, are frequent and more or less well analysed. The users of IT can be destabilised by the change for several reasons:

3.2.4 Behavioural barriers Even if the behaviours are unstable, they are not entirely random, nor neutral. They are identifiable (through acts or speech), unlike the strategies of the actors which determine them.

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because they were not implicated (The`venet, 1992) beforehand and could not express their expectations, their interrogations or their fears, which are useful for the design of the project; because they were not informed (and even less trained) to familiarise themselves afterwards with the new tools and to understand their contributions and underlying reasons; and because the unknown is initially perceived as carrying negative stakes through the lack of explanation of possible positive stakes.

Several experts also stress the need to look after two major variables of accompaniment: communication and training. In addition, the originators of the projects are likely to miss the know-how in the steering of the change project. Experts insist on the need to manage the type of change according to the principles of project management (team, pilot, objectives, programming, followed). However, the data processing specialists in companies generally did not acquire these competencies and have difficulties to exceed their traditional role. Teaching the know-how is also often strange to them, in particular when it comes to simplify and to make understandable the presentation of IT projects. And that increases the fear of the users of not succeeding in adapting. These behavioural preoccupations are then sources of blockings and are prejudicial to the projects. Finally, a last great behavioural difficulty appears in the field of time management. The usual reflexes of the company actors towards time are destabilised by the introduction of the IT. Indeed, these techniques induce a dual relation concerning the time factor, in particular between urgency and significance. Thus, some ask themselves: “Do new technologies make us time sick?” (Heriard Dubreuil, 1998). In fact, these tools tend to create phenomena of false urgency, and to put the individuals in situations of perpetual reactivity, which increase the famous feeling of stress at work.

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4. Conclusion

References

The many barriers to change located in the programs processes of IT development are undoubtedly significant determinants of the famous resistance to change which is wrongly regarded as inevitable and intrinsically related to innovation. Actually, if this resistance is found in a particularly acute way today in the IT implementation within organisations, this situation would rather be originated by a lack of quality of the overall project. We have tried to show that problems of quality of the design and implementation of innovation appear with IT, which can generate consequently non-quality in the overall operation of the company. In order to reduce these risks, the introduction and the development of IT must be conceived and controlled as a true process of change with its global effects. In other words, a total quality approach can be essential for the management of this type of innovation. It is likely indeed to bring about several contributions (Hermel and Accard, 1999): to ensure the relation between technological and strategic stakes of the innovation; to regulate the relations between actors of innovation processes; and consequently, to establish the basis of an adapted steering of these innovation processes. The barriers to innovation in the management of IT are thus not inevitable and impossible to circumvent. To go past them, it is important that the strategic, structural, cultural and behavioural dimensions of these projects are taken into account with a real perspective of total quality of change.

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Notes 1 See as examples: the 4th Conference CIMRE “Networks and Competences” at the University of Corse, France, 21-22 September 2000; the IAE Conference in Bayonne – University of Pau, France, September 2000; the AGRH Conference in Paris in November 2000. 2 See for example the special issue of the Revue Franc¸aise de Gestion on “E-management” in June-July-August 2000, or the journal Qualite´ en Mouvement of which the central file in August 2000 was on the new technologies in the quality management, or the September 2000 issue of the Le Monde Informatique which titrates “The information system in search of a chef d’orchestre”, or Entreprises & Carrie`res (July-August 2000) devoted to “All that Internet will change for the HR function”, or Les Echos Management which devoted in the last months several issues to “the art of the management of information”. 3 See the current “LCAG” (Policy Business, of Harvard), strategic Planning (Ansoff), competitive Strategy (BCG, Mc Kinsey) etc.

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Managing change and innovation in IT implementation

Journal of Manufacturing Technology Management

Annie Bartoli and Philippe Hermel

Volume 15 · Number 5 · 2004 · 416–425

Lewin, K. (1947), “Group decisions and social exchange”, in Mac-Coby, J.E., Newcom, T.W. and Harley, E. (Eds), Readings in Social Psychology, Holt, Rinehart and Winston, New York, NY. Mayo, E. (1933), The Human Problem of Year Industrial Civilization, Macmillan, New York, NY. Mintzberg, H. (1993), The Rise and Fall of Strategic Planning, Prentice Hall, Englewood Cliffs, NJ. Mussche, G. (1974), “The relations between strategies and structures in the economic re-examined company”, Revue Economique, January. Nonaka, I. and Takeuchi, H. (1995), The Knowledge-creating Company: How Japanese Companies Create the Dynamics of Innovation, The Oxford University Press, New York, NY. Piaget, J. (1964), “Problems of genetic psychology”, Six Psychology Studies, Gonthier, Geneva. Pettigrew, A. (1987), The Management of Strategic Change, Basil Blackwell, Oxford. Schumpeter, J. (1961), The Theory of Economic Development, (first published in 1912 in German), Oxford University Press, New York, NY.

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Further reading Ansoff, I. and DeClerk, R.P. (1968), From Strategic Planning to Strategic Management, John Wiley & Sons, New York, NY. Crozier, M. and Friedberg, E. (1977), L’Acteur et le Syste`me, Seuil, Paris. Schumpeter, J. (1976), Capitalism, Socialism and Democracy, (first published in 1942 by Harper and Brothers, New York, NY), Harper Colophon, New York, NY.

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