Miller (1982) Innovation in Conservative and Entrepreneurial Firms- Two Models of Strategic Momentum

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Innovation in Conservative and Entrepreneurial Firms- Two Models of Strategic Momentum...

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Innovation in Conservative and Entrepreneurial Firms: Two Models of Strategic Momentum Author(s): Danny Miller and Peter H. Friesen Source: Strategic Management Journal, Vol. 3, No. 1 (Jan. - Mar., 1982), pp. 1-25 Published by: Wiley Stable URL: http://www.jstor.org/stable/2485899 . Accessed: 20/09/2014 15:08 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp

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Strategic Management Journal, Vol. 3, 1-25 (1982)

Innovation in Conservative and Entrepreneurial Firms: Two Models of Strategic Momentum DANNY MILLER Ecole des Hautes Etudes Commerciales, Montreal, Canada and McGill University, Montreal, Canada

PETER H. FRIESEN McGillUniversity,Montreal,Canada

Summary Two very difJerent nmodelsoJ pr-oductinnovation ar-epostulated and tested. The con rvative m-odelassumes that ininov-ationis peijormed reluictanitly-,mainl/ in r-esponiseto serious challenges. It therefore pr-edic-ts that innoration will co rrelate positively with environmental, injformation processing, structlural and decision nmaking variables that

represent, or help to recognize antd cope with these challenges. In conitrast,the entrepreneurial modlel supposes that innovation is alwavys aggressiv-ely plursued and w-vill be very high unless decision makers are warnedto slow down. Thusnegative correlations are predicted between innovation and the v-ariables that cant provide such warning. Co}rrelationialand curvilinear regression anialyses revealed that each mi1odelwvassupported by conservativeand entrepreneurialsub-samples, respectively, in a diverse sanmple oj 52 Canadian firmns.

INTRODUCTION There is much controversy in the literature on organizational innovation. According to Downs and Mohr (1976:700): Perhaps the most alarming characteristic of the body of empirical study of innovation is the extreme variance among its findings, what we call instability. Factors found to be important for innovation in one study are found to be considerably less important, not important at all, or even inversely important in another study. This phenomenon occurs with relentless regularity ... In spite of the large amount of energy expended, the results have not been cumulative. Of the 38 propositions bearing directly on the act of innovation cited by Rogers and Shoemaker (1971:350-376), 34 were supported in some studies and found to receive no support in others. The four consistently predictive propositions were treated in very few studies. We believe that in studies of product innovation, many of the conflicts in the literature have been caused by the failure of researchers to take into account the nature of the innovative strategy of the firm, something that is often determined by executives on the basis of their goals and temperaments. Some executives decide that regular and extensive innovation in product lines or services and product designs should be a vital element of strategy. Their 'entrepreneurial' firms may

0143-2095/82/01000 1-25$02.50 c 1982by JohnWiley& Sons, Ltd.

Received 9 December 1980 Rev?ised 24 April 198!

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Danny Miller and Peter H. Friesen

try to obtain a competitive advantage by routinely making dramatic innovations and taking the concomitant risks. Other organizations are run by more conservative managers who may view innovation as costly and disruptive to production efficiency. Such 'conservative' firms will innovate only when they are very seriously challenged by competitors or by shifting customer wants The thesis of this paper is that the impact upon product innovation of environmental, information processing, structural and decision making variables will vary significantly and systematically among entrepreneurial and conservative firms; that future research on the determinants of innovation must consider organizational strategy. Based on previous empirical research, the paper develops distinct arguments concerning the determinants of innovation in conservative and entrepreneurial firms. It then presents data from a diverse sample of 52 Canadian business firms which show how different are the correlates of product innovation for both kinds of firms. The scope of the paper is limited to innovations in product lines, produict designs, and services offered. It does not extend to technological or administrative innovations. Only business firms are studied. Our arguments or findings may not hold for other types of organizations. Finally, although we sometimes talk about the 'determinants' of innovation, the direction of causality is always in doubt, and, strictly speaking, we should refer only to 'correlates' of innovation.

MOMENTUM

AND INNOVATION

Miller and Friesen (1980) have shown that momentum is a pervasive force in organizations; that past practices, trends and strategies tend to keep evolving in the same direction, perhaps eventually reaching dysfunctional extremes. For example, the implementation of bureaucratic controls may be followed by more of the same until the organization begins to take on a very mechanistic mantle. Centralization of authority often continues until the organization becomes an autocracy, while decentralization can lead to the proliferation of uncoordinated departmental fiefdoms. Miller and Friesen (1980) found that the same might be true of innovation. Firms with a propensity to innovate become still more innovative, sometimes passing the point of dramatically diminished returns. Conservative firms on the other hand sometimes drift towards complete stagnation. It is reasonable to believe that momentum and its resultant excesses will be attenuated by influences that warn of the dangers of conservative and entrepreneurial extremes. There may be a number of such mitigating influences. First, they may take the form of information processing devices such as scanning and control systems that bring information about the environment and operating efficiency to decision makers. Second, they may include structural integration devices that inform decision makers of the consequences of innovation. Finally, they may comprise decision making methods such as the amount of analysis, planning and consideration of overall strategy, which describe how carefully information is being processed. Dangerous momentuminduced extremes of too much or too little innovation are expected to be reduced by these warning devices. If this is true, the determinants of innovation must vary as a function of the type or direction of innovation invoked by a firm's innovation strategy. In samples of innovative firms where the danger is reaching too high a level of innovation mitigating factors such as the use of information processing and decision making devices will correlate negatively with innovation. That is, firms with good warning systems will be less innovative than firms that lack such systems. In contrast, for samples of firms pursuing conservative low innovation' strategies, the operative danger is most likely to be strategic stagnation. Here the mitigating factors will correlate positively with innovation as effective warning systems serve as an incentive for innovation. In other words, the

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Innovation in Conservative and Entrepreneurial Firms

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existence of momentum implies that we need at least two models to predict innovation, the first applicable in conservative firms, the second, in bold entrepreneurial firms. We shall present and test these models in an attempt to resolve some of the conflicts in the literature on innovation.

THE CONSERVATIVE

MODEL OF INNOVATION

The literature on product innovation, although fraught with conflict, seems to point preponderantly to a conservative model of innovation. Basically, the model implies that innovation is not a natural state of affairs, that it must be encouraged by challenges and threats, and that it requires a particular type of structure and an effective information processing system to make conservative managers aware of the need for change. We contend that the conservative model will apply to firms that perform very little innovation or risk taking. These are roughly reminiscent of the reactors of Miles and Snow (1978), the stagnating firms of Miller and Friesen (1978), and the adapters of Mintzberg (1973). Here, innovation is performed infrequently, and, perhaps, because of its disruptive nature, reluctantly. The conservative model suggests that innovation will only take place when there are felt pressures. It postulates four types of prerequisites, or at least strong facilitators, of innovation. First, there must be environmental challenges before innovation occurs. For example, because they create a need for innovation, factors such as environmental dynamism and hostility would be expected to correlate positively with innovation. Second, there must be information about these challenges brought to key decision makers by effective scanning and control systems. Third, there must be an ability to innovate, that is created by adequate resources, skilled technocrats, and structural devices. Arnd finally, there must be decision making methods appropriate for innovation projects. For example, the extent to which key decision makers analyse innovation-related information and use it for planning and strategy development is expected to correlate positively with innovation. As we shall see, many of the findings in the literature seem to support our conservative model. What follows are some specific predictions implied by this model. Environmental variables Myers and Marquis (1969) found that 53 per cent of the product and technological innovations in their sample came in response to market, competitive, or other external environmental influences. The more diynamic and hostile (i.e. competitive) the environment, the greater the need for innovation and the more likely it is that firms will be innovative. When competitors' products change rapidly or when customer needs fluctuate, the conservative model hypothesizes that innovation will be common. In stable environments this is less likely to be true (Burns and Stalker, 1961). Another environmental dimension may also be germane: namely, that of heterogeneity. Firms operating in many different markets are likely to learn from their broad experience with competitors and customers. They will tend to borrow ideas from one market and apply them in another. According'to Wilson (1966), the greater the diversity of the organization, the greater the probability that innovations will be proposed, and the greater the probability that organization members will conceive major innovations. Of course diversity in organization personnel, operating procedures, technologies and administrative practices increases with environmental heterogeneity (Peters, 1969). Information processing variables Burns and Stalker (1961) have argued that mechanistic structures impede innovation while organic structures facilitate it, in part because the former have much less information processing capacity.

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Danny Miller and Peter H. Friesen

Subsequent literature has shown that there are at least two types of information processing categories that can influence innovation. Aguilar (1967), Baker, Siegman and Rubenstein (1967), Utterback (1971). Keller and Holland (1975) and Tushman (1977) have called attention to the role of scanning the environment, claiming that a primary limitation on a firm's innovativeness is its ability to recognize the needs and demands of its external environment. Perceived market needs accounted for 75 per cent of the ideas for innovation (Baker et al., 1967). This is confirmed by the work of Carter and Williams (1957), Myers and Marquis (1969) and Mueller (1962), and the survey of Rogers and Shoemaker (1971:372-373). Controls also are said to facilitate innovation. Controls that monitor task performance and financial results are said to identify areas of weakness and to prompt remedially oriented innovations (Rosner, 1968; Downs, 1966: 191). Structural variables One important structural variable that has been demonstrated to be associated with innovation is (or concentration) of authority for decision making. According to Thompson centralilation (1969: 25): ... dispersal of power is important because concentrated power often prevents imaginative solutions of problems. When power meets power, problem solving is necessarily called into play ... Dispersed power, paradoxically, can make resources more readily available to support innovative projects, because it makes possible a larger number and variety of subcoalitions. It expands the number and kinds of possible supporters and sponsors. Hage and Aiken (1970) seem to concur, but Normann (1971) disagrees, claiming that the major innovations, which he calls 'reorientations', were made in companies which were either family owned or otherwise had a strong concentration of power. Only a powerful leader is able to overcome resistance to change and to make bold innovations. Rogers and Shoemaker's (1971: 384) review indicates that Normann's (1971) position is the one most strongly supported by previous studies. Technocrats and professionals such as scientists and engineers possess the knowledge and training that often make them most capable and motivated to discover new products and processes. Professional employees may best be able to recognize the need for change (Hage and Aiken, 1970: 33) and therefore firms that have a high percentage of influential technocrats will tend to be the most innovative. Mohr (1969) has emphasized the need for organizational resources in prompting innovation. Most major innovations are too costly to be undertaken by organizations that are short of financial capital. Abundant material, capital equipment, and human resources are also necessary. For example, some kinds of innovation require laboratories, scientists, and financial slack resources that are not needed for day-to-day operations. New product introductions often require much expenditure for R & D, test-marketing and changes in production facilities. The final structural dimensions that we shall consider have been introduced by Lawrence and Lorsch (1967). They are dijjerentiation and integration, respectively. For our purposes, the first will refer to the extent to which an organization's products require different marketing and production methods and procedures (our indicants of this scale will differ from Lawrence and Lorsch (1967)). Hage and Aiken (1970) have argued that the existence of very different groups in the firm will make available more varied sources of information for developing new programmes. Complex innovations require a diversity and richness of inputs which are most likely to be available only in differentiated organizations (Wilson, 1966; Thompson, 1969). But differentiation causes conflicts

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Innovation in Conservative and Entrepreneurial Firms

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among sub-units and departments unless there are integrative devices used to ensure effective collaboration. It is necessary to keep departmental parochialism to a minimum. In carrying out complex new product innovations it may be necessary for members of the R & D, marketing, finance, and production departments to work together intensively. Unless there are integrative devices such as task forces, interdepartmental committees, integrative personnel, or matrix structures, collaboration is difficult and conflicts and mistakes result (Lawrence and Lorsch, 1967; Galbraith, 1973). Decision making variables The final set of variables that can stimulate innovation in conservative firms describes the way executives use and process information in decision making. Given that the organization gathers the appropriate information about the environment and about organizational performance through its scanning and control systems, and given that this information is communicated to appropriate decision makers, it is still necessary for this information to be used and evaluated by executives charged with making key decisions. For example, if conservative executives ignore relevant information that signals the need to innovate, then innovation will not take place. Some important decision making style variables are degree of analysis of information, amount of planning, and the amount of explicit conceptualization of strategies. The more anal sis is performed by key decision makers, that is, the greater the tendency to search deeper for the roots of problems and to generate the best possible solution alternatives, the more likely it is for innovation opportunities to be discovered and actualized. Managers who make seat-of-the-pants decisions are unlikely to spend the time and effort required to recognize the need for innovations. This may be true, for example, of Cyert and March's (1963) satisficing and uncertainty avoiding firms, and of Lindblom's (1968) remedially focused organizations. Planning horizons (or Juturity, as we shall call the variable) are also very likely to influence organizational innovation. Executives who are concerned with putting out fires will be too preoccupied with such matters of the moment to be able to assess the long-term adequacy of their product lines and product designs. They will fail to perceive the need for innovation. The more future-oriented the firm, the greater the concern with change and therefore with innovation (Ansoff, 1965; Andrews, 1980). Our final variable is the consciousness of strategy and concerns the degree to which strategies have been explicitly considered and deliberately conceptualized. Executives whose attention is devoted exclusively to non-strategic matters tend to muddle-through and are much less likely to engage in product innovation (Mintzberg, 1973; Miles and Snow, 1978; Miller and Friesen, 1978), but where there is a concerted attempt to decide upon the product-market orientation of the firm, there is a greater likelihood that target markets will be defined more broadly. Consideration is given to goals and opportunities, and therefore to programmes of innovation.

THE ENTREPRENEURIAL

MODEL OF INNOVATION

In sharp contrast to the conservative model, we now outline the entrepreneurial model which applies to firms that innovate boldly and regularly while taking considerable risks in their productmarket strategies. The entrepreneurial strategy might be followed, for example, by Collins and Moore's (1970) and Mintzburg's (1973) entrepreneurial firms, Miles and Snow's (1978) prospectors, and Miller and Friesen's (1978) adaptive, innovative, and impulsive firms. According to the entrepreneurial model, innovation is seen as good in itself, as a vital and central part of strategy. The entrepreneurial model postulates that firms will engage in much innovation unless

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Danny Miller and Peter H. Friesen

there are certain key obstacles acting to stop it. First, innovation will be very high unless good scanning or control systems reveal it to be too expensive or wasteful, that is, there will be negative correlations of scanning and controls with innovation. Second, effective analysis of decisions, futurity, and explicit and conscious considerations of strategy will also guard against the natural tendency towards innovative excess. Here again we expect to find negative correlations. Third, because strategy is expected to be the main driving force behind innovation, the role of environment as an innovation incentive will be reduced. However, because innovation can itself induce environmental dynamism and heterogeneity, there still should be positive correlations between innovation and environment. Finally, the frequently observed positive covariance between innovation and structural factors such as technocratization, and differentiation should prevail, but at a lower level of significance than for conservative firms. This is again because goals and strategy, not structure or environment, are claimed to be the prime causes of innovation in entrepreneurial firms. Now we can derive some predictions that follow from the entrepreneurial model. Environmental variables For entrepreneurial as for conservative firms, environmental variables are expected to relate positively to innovation. Entrepreneurial firms are often found in dy)namic and hostile environments because their venturesome managers prefer rapidly growing and opportuneful settings; settings which may have high risks as well as high rewards. Such firms may even be partly responsible for making the environment dynamic by contributing challenging product innovations (Peterson and Berger, 1971). Because innovation prompts imitation, the more innovative the firms, the more dynamic and competitive (hostile) their environments can become. Innovation is also likely to be positively correlated with heterogeneity because firms that innovate are more likely to come up with products and services that can be exploited in different markets (Chandler, 1962). Notice that in entrepreneurial firms, unlike conservative firms, innovation may cause dynamism, hostility, or heterogeneity, rather than the other way around. If so, the greater latitude for strategic choice (e.g. to innovate in stable environments) will cause correlations between innovation and environment to be lower in entrepreneurial samples than in conservative samples. Information processing variables Traditionally, the impact of information processing variables upon innovation has not been clear. Although there have been numerous empirical studies, these often conflict. For example, Rogers and Shoemaker (1971:373-374) found 46 studies that showed early adopters of innovations to have greater exposure to information channels than later adopters, while 14 studies did not support this finding. They also found that 12 studies showed that earlier adopters scan or seek information about innovations more than later adopters, while two studies contradicted this. We believe that for studies of business firms, this conflict can be resolved by examining the role of strategy. While we postulated that samples of conservative firms would demonstrate correlations between innovation and information processing, an opposite relationship might be obtained in entrepreneurial samples. Some entrepreneurial firms may have a tendency to innovate too much. A proclivity towards taking risks, and an innovation-embracing ideology can cause firms to squander resources in the pursuit of superfluous novelty. An effective control framework can flag the need to reduce the scope and expense of projects and to slow down an overly rapid pace of innovation. Scanning the environment to monitor the more parsimonious strategies of competitors is also expected to have a dampening effect upon innovation as opportunities for resource savings are discovered.

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Innovation in Conservative and Entrepreneurial Firms

7

Structural variables For much the same reasons as those presented in the corresponding section of the discussion of the conservative firms, most structural variables are predicted to have a positive correlation with innovation in entrepreneurial firms. The only qualifier we must add is that, in general, the positive relationships between structure and innovation should be weaker in the entrepreneurial sample. This is because the innovativeness of entrepreneurial firms is believed to be determined more by the strategy of the firm and the aims of its venturesome top managers than by structure. It would not be surprising to find some entrepreneurial firms that have a tendency to innovate a great deal even though their structures are less than ideal for this, according to the literature supporting the conservative model. The integration variable should be negatively correlated with innovation in entrepreneurial samples. Integrative devices such as committees. task forces, and integrative personnel bring important facts to bear upon decisions. The innovation proposals of enthusiastic but reckless executives are likely to be pared down by departments whose aim it is to ensure effective resource management and efficiency. Decision making variables The variables called anal}ysis, Jufturit.1, and consciousness oj strategy are expected to correlate negatively with the degree of product innovation. Essentially the same rationale applies to substantiate these predictions as was presented in the section on information processing variables. Analysis, planning, and the deliberate attempt explicitly to formulate strategies will provide the firm with a better knowledge of its opportunities and excesses. Any tendency to overindulge in product innovation may be curbed by these activities.

METHODOLOGY The variables and questionnaires In order to test the predictions derived in the last section we employed a lengthy questionnaire to gather information on variables of environment, information processing, organization structure, decision making style, product innovation, and risk taking. Appendix 1 presents the questionnaire. All scale items were averaged for each variable to obtain the variable scores. Table 1 presents the construct reliability measure of each of our variables. In every instance, the Cronbach alpha measure (which averaged 0.74 for all variables) well exceeded the guidelines set up by Van de Ven and Ferry (1980:78-82) for measuring organizational attributes. Construct reliability therefore appeared to be very acceptable. Data sample Our data sample consists of 52 business firms that range in size from sales of less than $2,000,000 to those of over $1 billion. Mean sales are $237 million and the standard deviation is $649 million. The average number of employees is 2270. Firms are in industries as varied as retailing, furniture manufacturing, broadcasting, pulp and paper, food, plastics, electronics, chemicals, meatpacking, publishing, construction, and transportation. No industry represents more than 10 per cent of the sample. Still, we cannot pretend here to have a random sample since its geographic area is restricted to the Montreal region, and because firms were chosen by teams of second year MBA students according to their personal interests. However, because of the broad representation of types and sizes of businesses, and because no one type of firm dominates the sample, these exploratory findings should have a high degree of generality.

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Danny Miller and Peter H. Friesen

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Table 1. Means, standard deviations and Cronbach alpha's Conservative sample N=29 Mean S.D.

Variables Environment Dynamism Heterogeneity Hostility Information processing Scanning Controls Structure Centralization Technocratization Resources Differentiation Integration Decision making Analysis Futurity Consciousness of strategy Product innovation Risk taking *

Entrepreneurial sample N= 18 Mean S.D.

Total sample N=52 Mean S.D.

Cronbach alpha

3.7 3.5* 3.9t

1.3 1.6 1.1

4.4 4.7* 4.7t

1.6 1.4 1.0

3.9 4.1 4.2

1.4 1.6 1.1

0.74 0.84 0.55

4.6 4.3

1.3 1.5

4.8 4.6

1.4 1.9

4.7 4.4

1.4 1.7

0.74 0.69

5.2 3.4t 4.4 2.8t 4.8

1.0 1.3 1.4 1.7 1.2

4.9 4.9t 4.2 4.6t 4.9

1.5 1.7 1.2 1.4 1.0

5.1 4.0 4.3 3.5 4.8

1.2 1.7 1.3 1.7 1.2

0.79 0.69 0.68 0.88 0.71

3.9 3.8 3.4* 2.3t 3.Ot

1.0 1.4 1.6 0.8 1.0

4.3 4.5 4.5* 5.3t 4.7t

1.5 1.4 1.4 0.8 0.8

4.0 4.1 3.9 3.5 3.6

1.3 1.5 1.6 1.6 1.2

0.62 0.83 N/At 0.77 0.91

andt signifythatthesamplemeansdiffersignificantlyat the 0.05and0.01 levelsof significanceusinga two-tailedt-test.

t Only one scalewas used to measurethis variable.

All responses to the questionnaire were obtained by interviews. This ensured that executives could have any vague items explained to them and it removed any problem of missing data. While it is difficult to estimate a response rate, most interviewing teams were able to obtain cooperation from the first company they contacted. About 30 per cent of the teams approached two or three firms before they were able to gain admission to the firm to carry out their field study. All respondents used in the analysis had the rank of divisional vice president or higher. In 67 per cent of the cases, more than one respondent per firm completed the questionnaire. In such a case, the ratings of the highest ranking respondents were used. Where responses differed by more than two points on the scales among the respondents, responses were averaged. This happened for 8 per cent of all the scores. In 73 per cent of the cases, the data was supplied by the chief executive. Inter-rater reliability was adequate across all of the variables. The scores of the raters were significantly correlated at beyond the 0.01 level of significance for all of the variables. In cases of diversified and divisionalized companies, each division was treated as a separate entity to ensure that questions could be answered unambiguously. Thus, five of the 'firms' in the sample were really 'divisions rather than autonomous organizations. In every case the divisions represented profit centres and were controlled on the basis of their financial performance. To carry out our analysis, we had to split the sample into two groups which were unambiguously conservative and entrepreneurial. Two dimensions were used to achieve this: innovation and risk taking. Firms whose scores on innovation and risk taking averaged less than or equal to 3.5 on the 7 point scales were classified as conservative (innovation and risk taking were positively correlated with a product moment correlation of 0.51 and an N of 52). Such firms tended to be risk averse and engaged in relatively little product innovation. Firms whose score on innovation and risk taking

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Innovation in Conservative and Entrepreneurial Firms

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averaged greater than or equal to 4.5 on the 7 point scales were classified as entrepreneurial. Firms with average scores of greater than 3.5 and less than 4.5 tended to be in a grey area. They manifested high risk taking and low innovation, or vice versa, and therefore were deleted from the sub-sample analysis because they could not be unambiguously classified.

FINDINGS: DISTINCTIONS BETWEEN CONSERVATIVE AND ENTREPRENEURIAL FIRMS We called our sub-samples 'conservative' and 'entrepreneurial' and must now justify these appellations. We cannot from our data directly determine the underlying management philosophies or motives of the firms in these groups. However, it is possible to determine whether the partitioning of the sample based upon risk taking and innovation produced other intergroup differences among the variables, differences that are consistent with the themes of conservatism and entrepreneurialism. Our characterization of entrepreneurial firms was loosely based upon Miller and Friesen's (1978) innovators and entrepreneurs, Miles and Snow's (1978) prospectors, and Mintzberg's (1973) entrepreneurial organizations. 1 We would thus expect the entrepreneurial sample to display many of the collateral characteristics proposed for their firms by these authors. From Table 1, we can see that this expectation is fulfilled. Most notable are the significantly higher degrees (than for conservatives) of environmental hostility and organizational differentiation (c.f. Miller and Friesen, 1978), heterogeneity and technocratization (Miles and Snow, 1978), and consciousness of strategy (Mintzberg, 1973). The rate of growth in sales for the entrepreneurial firms from which we could obtain data averaged 14.7 per cent per annum for the last three years of operation. This is significantly higher (at the 0. 10 level) than the 8.2 per cent rate of growth for conservatives, and this finding is again consistent with the characterizations in the literature. It is not hard to surmise possible reasons for the sub-group differences. For example, perhaps entrepreneurial firms operate in more heterogeneous markets and become more differentiated as a consequence of their innovativeness. Innovations can lead them into new and different markets. Also, a high level of technocratization might be necessary to help such firms innovate and cope with their more hostile and diverse environments. Finally, consciousness of product-strategy and futurity may be high because major innovations force firms to consider where they have been and where they wish to be. Turning to the conservative firms, we can again see that the figures in Table 1 are consistent with characterizations in the literature. The attributes of low differentiation, market homogeneity, low differentiation, and unconscious strategies, are in line with features of the types that served as a conceptual genesis for our conservatives, namely, Miles and Snow's (1978) defenders, Miller and Friesen's (1978) stagnating firms, and Mintzberg's (1973) adapters. The conservatives' collateral attributes make sense in the light of the low levels of risk taking and innovation. Low innovation forces firms to operate in environments that are not very hostile or challenging. It requires very few scientists, engineers, or other innovation-facilitating technocrats. Also, firms can be relatively undifferentiated because environments are simple and unthreatening. Finally, the tendency to adhere to past products and practices makes rare the need consciously to reconceptualize strategy or to have high levels of futurity. We were concerned that the observed differences in the sub-samples might derive from sources 1 It is important to note that the term 'entrepreneurial' is used here in its broadest sense, namely to refer to bold risk taking and high levels of innovation, and not to owner-managed or small, centralized companies.

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Danny Miller and Peter H. Friesen

having nothing to do with the strategies implied by our models, sources such as environmental dynamism, information processing and decision making characteristics, resource availability, industry, and firm size. Perhaps all firms receiving and analysing the same information about their environments and having the same resources would be equally innovative. Or perhaps, instead of being related to strategy, innovation is solely a function of industry differences, firm size, or environmental dynamism. Fortunately, these alternatives could be ruled out. Table 1 reveals no significant differences in the levels of dynamism, scanning, controls, analysis or resources between the samples. Also, firms do not differ significantly in size (number of employees averaged 1830 for entrepreneurs and 2480 for conservatives these figures were not significantly different at the 0. 10 level). Finally, we could detect no systematic differences in the industry composition of the samples. For instance, both conservative and entrepreneurial firms were found in industries such as retailing, food, banking, telecommunications, transportation, meatpacking, electronics, furniture manufacturing, aircraft parts, and chemicals. Thus overlap was considerable. Some industries that were unique to conservatives were drugs, distilling, apparel manufacturing, automotive parts and computer services, while industries unique to entrepreneurial firms included boat-building, plastics, and pollution control. It is reasonable to believe that both entrepreneurial and conservative firms could be found in all of these industries. To conclude, we seem, roughly speaking, to have effected a categorization that manifests both discriminant and convergent validity. However, a word a caution is in order. We have shown that so far our sub-sample statistics are consistent with our models of conservative and entrepreneurial behaviour. We are therefore tentatively justified in applying the interpretations and predictions derived from these models to the respective sub-samples. This does not mean, however, that there are no interpretations inconsistent with our models that can also be used to explain the figures of Table 1 ol the correlational and regression results that we shall be discussing. This is always the case, but particularly here. Our models were couched in dynamic terms and relate to managerial motives and cognitions, but the data are cross-sectional and do not measure motives or cognitions directly. Thus, while our interpretations are and will be consistent with our data, they will be by no means uniquely determined by them. Subsequent longitudinal research will be necessary further to explore the findings and inferences of this exploratory study.

CORRELATIONAL

ANALYSIS

We can now begin to test the predictions that were implied by the conservative and entrepreneurial models of innovation. Some of the relevant data are to be found in Table 2, which presents the product-moment correlations between product innovation and all other variables for conservative and entrepreneurial sub-samples and for the total sample. It shows rather strong confirmation of many of the predictions of the respective models. We shall discuss the findings for each class of variables in turn. Environmental variables Our discussion predicted that there would be significant positive correlations between environmental variables and innovation for both types of firms, but that strategic choice rather than environmental pressures would play a greater role in promoting innovation in entrepreneurial firms. The opposite was postulated for conservative firms. The implication was that environmentinnovation correlations would therefore be higher for conservatives. While our results were consistent with this conjecture they cannot be unambiguously interpreted. Although all correlations are significant at or beyond the 0.05 level in the conservative sample, only one

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Innovation in Conservative and Entrepreneurial Firms Table 2.

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Product-moment correlations with innovation

Variables Environment Dynamism Heterogeneity Hostility Information processing Scanning Controls Structure Centralization Technocratization Resources Differentiation Integration Decision making Analysis Futurity (planning) Consciousness of strategy

Conservative sample N = 29

Entrepreneurial sample N= 18

Total sample N= 52

Significance levels of differences in rs between samples (Fisher transform)?

0.32t 0.36t 0.33t

0.36* 0.28 0.25

0.361 0.491 0.43$

NS NS NS

0.27* 0.38t

-0.36* -0.41t

0.08 0.07

0.05 0.005

0.15 0.18 0.13 0.26* 0.11

0.25 0.15 -0.30 -0.09 -0.33*

-0.03 0.44$ -- 0.05 0.48t -0.03

NS NS 0.09 NS 0.09

0.13 0.41$ 0.47t

-0.39t -0.67t -0.47t

0.09 0.20* 0.33t

0.05 0.001 0.001

t, t, respectively, indicate that the correlation coefficient is significant at the 0.10, 0.05, and 0.01Ilevel of significance. ? We wished to determine if the correlation coefficients of both sub-samples represented populations having the same true correlation p. We tested the hypothesis using the ratio Z1 -Z2 UT(ZI

-

Z2)

where Z. represents the Fisher transformed value of the correlation coefficients r" such that, Z

log,(I

+ rx) rxy

and U(Z,-Z2)=

(N1-3

N2-3).

correlation is significant at beyond the 0. 10 level in the entrepreneurial sample. Unfortunately, we cannot make too much of these differences, since none are statistically significant using Fisher's Z statistic. What is more, the differences in the significance levels may be due mainly to the fact that the entrepreneurial sample is smaller than the conservative one. Thus we have achieved only very weak support for our hypothesis. While environment seems to be importantly related to innovation for the total sample, our initial sense that the relationship would be more strongly determined in conservative sub-samples must await further testing. Longitudinal studies should help to decide whether environment prompts innovation in conservative firms and if the reverse direction of causality obtains in entrepreneurial firms. As it stands, it is just as credible from the correlational analysis that one simple linear model can explain the relationship between environment and innovation. The more dynamic, hostile, or heterogeneous the environment, the higher the level of innovation. This result should be held in abeyance however pending the examination of our multiple regression models. Information processing variables Both of the information processing variables show the predicted statistically significant differences

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12

Danny Miller and Peter H. Friesen

between the conservative and entrepreneurial samples of firms. Scanning serves to bolster innovation in firms that are classified as conservative. Attempts to gather information from the environment may make managers aware of the disadvantages of their own product lines and the superiority of the product lines of competitors. Scanning also can point out changing customer desires and buying patterns. In other words, scanning demonstrates the need for innovation to conservative managers. It tells them that it is time to change products and product lines. The conservative nature of these firms ensures that unless this occurs there will be very little innovation. The entrepreneurial firms show an opposite relationship between scanning and innovation. A significantly negative correlation is manifested. Perhaps this finding is caused by information that induces highly innovative and risk embracing executives to slow down. Scanning may reveal that competitors succeed without introducing many new products, that they cut costs by taking advantage of long production runs, product standardization, and the 'economies of stability'. Market research may show that customers favour established brands, or pay attention to factors of price and quality more than variety and novelty. The effect of such information might be to reduce superfluous and expensive product-innovation. The same duality in the findings occurs when we examine the relationship between the use of organizational controls and innovation. Controls indicate the need for innovations in conservative firms while pointing to the need to curb innovative excesses in entrepreneurial firms. It is interesting that the relationship between controls and innovation is greater than that between scanning and innovation. Controls provide concrete financial information that is harder to explain away or to rationalize. Controls may indicate to entrepreneurial executives that a great deal of money has been spent on innovation and that very little return has been forthcoming. They may show that reserves of capital have been badly depleted, that productivity and efficiency has fallen, or that scrap rates have escalated because of too much product line diversity or change. In conservative firms controls may reveal significant declines in market share, a dramatic reduction in the sales of older, more obsolete products, and declining profitability.

Structural variables Modest support has been found for the predictions of Normann (1971) and Rogers and Shoemaker is positively correlated with innovation. The reasons (1971: 384) who postulated that centralization for this prediction were given earlier. However, we hesitate to place much reliance on the finding since none of our coefficients is significant at the 0.10 level, and the negative sample-wide correlation coefficient appears to confuse things. Perhaps in some types of organizations, centralization boosts innovation, while in others it serves to obstruct it. Miller (1979) found that this relationship varied in magnitude and direction according to the developmental or evolutionary path being followed by the firm. The confusion in the literature surrounding this relationship may be due to a failure to distinguish carefully among different organizational types. Unfortunately, our findings are not very enlightening on this point. Technocratization is positively correlated with innovation in both of the sub-samples as well as in the total sample. This is in line with most of the predictions in the literature (c.f. Hage and Aiken, 1970; Zaltman, Duncan and Holbek, 1973). It is interesting that the sample-wide correlation is much more significant than the correlations of the conservative and entrepreneurial sub-samples. This may be because the conservative firms are less technocratized and less innovative than the entrepreneurial firms. When the sub-samples are combined, a very positive correlation results. Unfortunately, this result too contributes little new information since it merely supports the consensus in the literature.

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Innovation in Conservative and Entrepreneurial Firms

13

The finding on r-esourcearailabilit l surprised us at first. We predicted a positive correlation with innovation for both sub-samples, but got a negative one for the entrepreneurial firms. Perhaps this is because among very high innovators, resources are depleted by too much expenditure on new designs and new products. Among the more restrained innovators in the entrepreneurial sample, resources are less likely to be squandered. This confirms the notion that many entrepreneurial firms tend to overspend on innovation and that scanning and control devices are required to inform managers of the hazards of this practice. Collectively, the results so far seem to be telling a story that is consistent with our models. We predicted that dijierentiation and i'ntegraltion would both correlate positively with innovation, but more so in the conservative than in the entrepreneurial sample. This is what we found. Differentiation is significantly correlated with innovation in the conservative sample. Perhaps high levels of differentiation may help conservative firms to innovate because they generate a greater variety of new product ideas (Lawrence and Lorsch, 1967). The existence of diverse groups of specialists and practical managers may create an appropriate environment for creativity (Wilson, 1966). This does not, however, seem to be the case in the entrepreneurial sample. where there is actually a slightly negative correlation between innovation and differentiation. We predicted that innovation in entrepreneurial firms might be a function of the personality and goals of top executives rather than the nature of the organization's structure. The findings are consistent with this. So is the relatively high correlation between centralization and innovation in the entrepreneurial firms. Powerful top executives are unencumbered by other more risk-averse managers. They are therefore free to innovate more boldly and intensively. The amount of innovation may 'thus be more a function of the personal predilections of the executives in entrepreneurial firms than of the degree of differentiation. Indeed, in extremely differentiated firms, it is more difficult for a chief executive to hoard power, and his impact on innovation will decline correspondingly. It is possible that this may be the cause of the negative correlation between innovation and differentiation in entrepreneurial firms. We also found that integration may facilitate innovation somewhat in the conservative firms and restrain it in the entrepreneurial firms. The first relationship is not surprising. It has been widely predicted in the literature (Lawrence and Lorsch, 1967; Galbraith, 1973). Innovation requires the collaboration of various departments and groups of specialists in order to generate ideas for new products, and to plan and actualize their design, production, and marketing. However, the relatively low correlation coefficient for innovation and integration in the conservative sample seems to indicate that integration is not a very key factor in innovation. Perhaps some conservative firms wait so long to innovate that they are finally forced into it. They must eventually come up with new products even if they do not have adequate integrative mechanisms to do so effectively. Thus the integration-innovation relationship will be weak. Also, the availability of integrative mechanisms will not serve as a very great inducement to innovate to conservatives who are reluctant to recognize that their product lines need updating. Perhaps then, for conservatives, integration may be a better predictor of innovative success or effectiveness than of the amount of innovation. As we hypothesized, in entrepreneurial firms, integration seems to behave like an information processing device. It can serve to warn executives of the dangers or costs of excessive innovation. This might happen as, say, cross-functional committees allow production managers to resist pressures from marketing or R&D departments to introduce new products. There is a freer exchange of information so departments that must bear the brunt of too much innovation will be capable of communicating the nature of their difficulties to other departments. This makes it likely that remedial action will be taken more quickly. Hence the negative correlation between innovation and integration in the sample of entrepreneurial firms.

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14

Danny Miller and Peter H. Friesen

Decision making variables We hypothesized that the decision making variables would behave very much like the information processing variables; they would tend to boost innovation in conservative firms and to curb excessive innovation in entrepreneurial firms. Again, the findings strongly support the prediction. Analysis,futurity and consciousness of strategy formulation correlate positively with innovation in conservative firms and negatively in entrepreneurial firms. The activity of analysing decisions, carefully weighing alternative courses of action, planning future activities, and explicitly formulating strategy causes there to be a greater awareness of the problems and opportunities facing the firm. In sluggish reactive firms, this may tend to boost innovation, while in overly innovative firms it can reduce innovation.

MULTIPLE REGRESSION ANALYSIS In order to test the models further, multiple regressions were run on the conservative and entrepreneurial sub-samples. The results confirmed the correlational findings and explained a very high percentage of the variance in our dependent variable of innovation. Stepwise regression procedures were used to obtain the best models with our variables. A partial F statistic of 1.0 was used as the cutoff point to ensure that only the most predictive variables would be used. For the conservative sample, the best equation was: INNOVATION =-1.74

+ 0.25 DYNAMISM + 0.26 HOSTILITY + 0.11 SCANNING

+ 0.26 FUTURITY + 0.16 CONSC. STRATEGY Partial Fratios for the variables were 12.4, 9.5, 2.6,13.3, and 5.7, respectively, with 1, 27 degrees of freedom; all but the third were significant at beyond the 0.05 level. The R2 was 0.678, the multiple R was 0.823, and the adjusted R2 was 0.608. The overall F statistic was 9.67 which is significant at beyond the 0.01 level with 5, 23 degrees of freedom. Essentially then, the conservative model was strongly supported. Environmental, information processing, and decision making variables were significantly and positively related to innovation in samples of conservative firms. For the entrepreneurial sample, we obtained the following regression equation: INNOVATION

= 3.74-0.17

SCANNING

-

0.14CONTROLS

+ 0.27 TECHNOCRATIZATION -

0.31 FUTURITY

-

+ 0.20 CENTRALIZATION

+ 0.30 DIFFERENTIATION

0.15 RESOURCES

Partial Fratios for the variables were 2.1, 3.1, 4.9, 9.8, 7.2, 7.7, and 1.6, respectively, with 1, 16 degrees of freedom. All but the first and last were significant at beyond the 0.10 level. The R2 was 0.785, the multiple R was 0.886, and the adjusted R2 was 0.634. The overall F statistic was 5.21, which is significant at beyond the 0.01 level with 7, 10 degrees of freedom. The entrepreneurial model is strongly supported. It is notable that while environmental dynamism and hostility were prominent in the conservative regression model, no environmental variables approached significance in the entrepreneurial model. Perhaps then, as predicted, strategic goals and top executive motivations are more important than environment in promoting innovation in entrepreneurial firms. This is consistent with the significant relationship between centralization and innovation. Powerful entrepreneurial top executives can more easily implement bold innovations than can those who must share their power with more conservative counterparts.

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Innovation in Conservative and Entrepreneurial Firms

15

The observed levels of significance for variables of technocratization and differentiation probably result from the tendency for innovation to require experts and more complex structures, or, perhaps, vice versa (Burns and Stalker, 1961; Lawrence and Lorsch, 1967). Finally, the negative regression coefficients that were expected for information processing and decision making variables also were found. CURVILINEAR REGRESSION ANALYSIS OF THE COMBINED SAMPLE The correlational and regression results suggest that there might be a curvilinear relationship between information processing and decision making variables and the level of product innovation. At low levels of innovation there should be a positive correlation between innovation and information processing or decision making variables, while at high levels of innovation a negative relationship would be manifested. An inverted U-shaped curve such as the one in Figure 1 is expected to result.

Information Processing Decision Making Variab les

HIGH orr

LOW

\_X LOW

H IGH Product

Innovation

Figure 1. Innovation,informationprocessing,and decisionmaking

The regression equation that would reflect this relationship is: Y= x + where the 2X2, dependent variables would be scanning, controls, analysis, futurity and consciousness of strategy, /,BX1,while the independent variables would be innovation and innovation-squared. The results of the analvses are given in Table 3. They are based upon data from all 52 firms in the sample. In all but one regression, the additional variance explained by the x2 term is statistically significant at beyond the 0.05 level. This is shown by the second partial Fstatistic for each equation. The appropriateness of the curvilinear function appears to be unquestionable. The inverted U shape of the curve is indicated by the negative beta coefficients for all of the second order independent variables. An examination of the information processing variables of Equations 1 and 2 of Table 3 reveals that the total Fstatistics are only significant at about the 0.10 level. This may indicate that there is some substitutability among the variables of scanning and controls in influencing innovation. In some cases, controls may flag the need to boost or curtail innovation, while in other cases, scanning may serve this purpose. If so, we should expect that when we perform regression using an information processing composite variable that is formed by taking an average of scanning and control scores, the significance of the results will be boosted. Equation 6 shows that this is exactly what happens. The decision making variables of futurity and consciousness of strategy manifest very significant curvilinear relationships with innovation (see Equations 4 and 5). The analysis variable does not, perhaps because it displayed only a very modest positive correlation with innovation in the conservative sample. Nonetheless, the overall finding for the decision making composite variable

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16

Danny Miller and Peter H. Friesen Table 3. Results of curvilinear regression analysis

General form: Y = a + /,(Innovation) + fB2(Innovation)2 + 1.25I-0.16I2 4.0+ 4.3+ Controls 1.85 + 1.571 - 0.2012 4.8t 4.5t F= Analysis = 2.60 + 0.851 - 0. 1012 2.4 2.1 F= Futurity = 0.97 + 1.811 - 0.2212 F= 9.3? 7.9? Con. Str. =-0.09 + 2.201 - 0.2512 12.8? 9.6? F= I. P. Comp. =2.23 + 1.411-0.1 812 7.2? 6.7+ F= D. Mkg. Comp. = 1.16 + 1.621-0.1912 9.6? 11.9? FTotal Comp. = 1.59 + 1.541 - 0.1912 12.1? 10.3? F=

1. Scanning-2.61 F*-

2.

3. 4.

5. 6. 7. 8.

Total F=2.2

R2 =0.08

Total F=2.4t

R2=0.09

Total F= 1.3

R2=0.05

Total F=5.2?

R2=0.17

Total F=8.5?

R2=0.26

Total F=3.61

R2=0.13

Total F=7.0?

R2=0.22

Total F=6.6?

R2=0.21

* In all cases the partial F statistic is given for the 'innovation' and 'innovation squared' independent variables, with 1, 49 degrees of freedom. The total Fapplies to the whole regression analysis and has 2, 49 degrees of freedom. t,t ? indicate the statistical significance of an F-test at the 0.10, 0.05 and 0.01 levels, respectively. Though the R2 statistics are small, this is not a serious problem since we are not using the regressions to predict the scores along the dependent variables. We merely wished to show that the relationship between innovation and intelligence variables is of the inverse-U type.

(formed by taking the mean score of analysis, futurity, and consciousness of strategy) shown in Equation 7 is highly significant. Again, it is possible that there exists some substitutability among the variables. Finally, we decided to take a total composite of all five variables relating to information processing and decision making. Again the curvilinear relationship between the composite and innovation variables is highly significant, as we can see from Equation 8. In all except Equation 3, our predictions were well supported.

CONCLUSI ON Two very different models of innovation were proposed and tested. Each seemed to be substantially borne out in different sub-samples of firms. The 'conservative' model views product innovation as something done in response to challenges, occurring only when very necessary. The model predicts that innovation will not take place unless: (a) there are serious challenges, threats, or instabilities in the environment; (b) these are brought to the attention of managers and consciously analysed by them, and (c) structural, technocratic, and financial resources are adequate for innovation. In short, positive and significant correlations are expected of innovation with environmental, information processing, decision making, and structural variables. The predictions of the conservative model were borne out for our sub-sample of conservative firms. A very different 'entrepreneurial' model was also proposed. This model predicts that innovation is a natural state of affairs; that it will be boldly engaged in unless there is clear evidence that resources are being squandered in the pursuit of superfluous novelty. The model postulates that

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innovation in Conservative and Entrepreneurial Firms

17

innovation will tend to be excessive and extremely high unless: (a) information processing (scanning and control) systems warn executives of the dangers of too much innovation, and (b) analytical and strategic planning processes and structural integration devices do the same. In other words, negative correlations of innovation with information processing, decision making, and structural integration devices are expected. The entrepreneurial model also predicts low order positive correlations of innovation with environment and more significant positive correlations with structural devices. Goals and strategies rather than environment or structure are seen to be the key impetuses to iinnovation. Most of the predictions derived from the entrepreneurial model were borne out by our sub-sample of entrepreneurial firms. A central message that emanates from this research is that the determinants of product innovation in firms are to a very great extent a function of the strategy that is being pursued. The impact of structural, information processing, decision making, and even, to a lesser degree, some environmental and structural devices appears to be a function of whether firms have adopted a conservative or an entrepreneurial strategy. Many of the conflicts in the innovation literature that have been highlighted by Rogers and Shoemaker (197 1), Downs and Mohr (1976), and Zaltman et a!. (1973) show promise of being resolved when we begin to look at strategy as a mediating influence in the relationships between innovation and its context. Indeed, one must take very seriously John Child's (1972) suggestion that we view organizations in a less deterministic light and pay more attention to the role of strategic choice. To understand the relationships among innovation, structure and environment, it may be necessary to study managerial motives, ideologies, and goals. On a somewhat more practical plane, the research suggests that in addition to making remedial efforts to stimulate innovation in stagnating firms, it might also be useful to take care that innovation does not become an end in itself. It is necessary to ensure that the rate of innovation does not outstrip its utility or the organization's ability to pay. If Miller and Friesen (1980) are correct, there may be a tendency for any organizational trend to have momentum, that is, to feed upon itself, perhaps being protracted past the point of usefulness. This might be true of the drift towards excessive conservatism or excessive entrepreneurialism. Practitioners should begin to focus upon the second danger as well as the first. We shall close with a note of caution. Our findings suggested the applicability of two distinct models of innovation in different contexts, but these models are probably not the only ones consistent with our data and indeed go beyond the data in the explanations that are offered. Further longitudinal research into the impact of managerial motives and goals upon innovation, and their relationships to environment and structure would at this time be most useful to help provide a more solid basis for our conclusions.

APPENDIX:

QUESTIONNAIRE

Please answer the following questions for the industry that accounts for the largest ',>of your sales (in other words, your principal industry). Always answer by circling the correct digit unless otherwise noted. How rapidor intense is each of the following in your main industry? Please circle the number in each scale that best approximates the actual conditions in it. Environmental dynamism (V. 1) I. Our firm must rarely change its marketing practices to keep up with the market and competitors.

I

X -

1 2

3

4

5

6

7

Our firm must change its marketing practices extremely frequently (e.g. semiannually).

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18

Danny Miller and Peter H. Friesen

2. The rate at which products/ services are getting obsolete in the industry is very slow (e.g. basic metal like copper).

I

I

I

2

3

4

5

6

7

3. Actions of competitors are quite easy to predict (as in some primary industries).

1 2

3

4

5

6

7

4. Demand and consumer tastes are fairly easy to forecast (e.g. for milk companies).

1 2

3

4

5

6

7

1 2

3

4

5

6

7

1 2

3

4

5

6

7

5. The production/service technology is not subject to very mnuchchange and is well established (e.g. in steel production). Environmental heterogeneity (V. 2) 6. We are a very undiversified firm and cater to the same buyers (e.g. local beer firms).

1

The rate of obsolescence is very high (as in some fashion goods and semi-conductors). Actions of competitors are unpredictable.

I

Demand and tastes are almost unpredictable (e.g. high fashion goods). The modes of production/ service change often and in a major way (e.g. advanced electronic components). We are a highly diversified conglomerate and operate in unrelated industries (e.g. Litton, Gulf and Western).

Are there great differences amongst the products/services you offer, with regard to: About the same for all our products

Varies a great deal from one line to another

II

7. customers' buying habits

1 2

3

4

1 2

3

1 2

3

6

7

4 5

6

7

4 5

6

7

5

8. the nature of the competition 9. market dynamism and uncertainty Environmental hostility (V. 3) 10. The environment causes a great deal of threat to the survival of our firm.

I 1 2

I 3

I

I 4

5

6

There is very little threat to survival.

7

How severe are the following challenges: This is not a great threat

This is a very substantial threat

11. tough price competition 1 2

3

4 5

6

7

12. competition in product quality or novelty

1 2

3

4 5

6

7

13. dwindling markets for products

Il 1 2

3

4 5

6

7

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Innovation in Conservative and Entrepreneurial Firms

I

14. scarce supply of labour/ material

I

I

I

-

1 2

3

4

5

6

7

1 2

3

5

6

7

I

15. governmentinterference

19

I

I 4

Scanning (V. 4) Rate the extent to which the following scanning devices are used by your firm to gather information about its environment: Not ever used

Used extremely frequently

1 2

lI 3 4

5

6

7

Il 1 2

3

4

5

6

7

18. forecasting sales, customer preferences, technology, etc.

I

I

1 2

3

4

5

6

7

19. special market research studies

1 2

3

4

5

6

7

16. routine gathering of opinions from clients 17. explicit tracking of the policies and tactics of competitors

I

Controls (V. 5) Rate the extent to which the following control devices are used to gather information about the performance of your firm: Used rarely or for small part of operations

Used frequently or throughout the firm

20. a comprehensive management control and information system

i 1 2

3

4

5

6

7

21. use of cost centres for cost control

I l 1 2 3

4

5

6

7

22. use of profit centres and profit targets

I

--

1 2

3

4

5

6

7

23. quality control of operations by using sampling and other techniques

1 2

3

4

5

6

7

24. cost control by fixing standard costs and analysing variations

1 2

25. formal appraisal of personnel

I I

A

A

I 3

4

l

l

1 2 3 4

5

6

7

I 5

6

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7

20

Danny Miller and Peter H. Friesen

Centralizatlon(V. 6) Which levelsof managementare usually responsiblefor makingdecisions of the following types? Divisional top Functional top executives or executives if functional ones Topmost if no divisional Middle divisional levels of managers structure structure management Capital budgeting

1

New production introduction

1

Acquisitions of firms

1

Pricing of major product lines

1

Entry into major new markets

1

3 5 (Scales 26, 32, and 38) 3 5 (Scales 27, 33, and 39) 3 5 (Scales 28, 34, and 40) 3 5 (Scales 29, 35, and 41) 5 3

1

(Scales 30, 36, and 42) 3 5

Hiring and firing senior

7 7 7 7 7 7

(Scales 31, 37, and 43)

personnel

Score scales 32 to 37 to indicatewhich levels of managementare responsiblefor initiatingeach of the above decisions (use g/4s)t and scales 38 to 43 to indicate which levels approvethem.

Technocratization(V. 7) 44. In decision making, there is great reliance on personnel with experienceand common sense.

I I 1 2 3 4 5 6 7 Some of both

In decision making, there is great reliance on specialized technically trained line and staff personnel.

45. In your operations,what is the requiredlevel of formal technicalcompetenceof your firstline supervisors? No training beyond at most high school (e.g. supermarkets).

46. The firm employs very few

professionals such as engineers, scientists, and accountants (less than I per cent of people other than first line production workers).

1 2 3 4 5 6 7 Varies considerably by functional area

X

I

I I

1 2 3 4 5 6 7 About 5 per cent of work force

A minimum of a bachelor's degree with specialization(e.g. consulting, engineeringfirms, etc.).

The firm employs many such

personnel (over 20 per cent of people other than first line production workers).

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Innovation in Conservative and Entrepreneurial Firms

21

Resource availability (V. 8) Rate the abundance of the following resources for your firm: This resource is very scarce and/or prohibitively expensive

This resource is quite plentiful

47. Capital 1 2 48. Skilled labour

3

4---

4

5

6

7

4-4+ 1 4 5

6

7

2

3

1 2

3

4

5

6

7

1 1 2

! 3

4

5

6

7

l

I

49. Material supplies 50. Managerial talent

DIifferentiation(V. 9) How many distinctly different (i.e. unrelated) product lines or services does your firm market? 51. Only one. 1 2

3

4

5

6

More than 10 (e.g. conglomerate firm).

7

How similar are these product lines or services in terms of (i) the technology used to produce them and (ii) their markets'? 52. Technology: very similar technologies (e.g. all produced with similar equipment). 53. Markets: very similar in terms of required marketing strategy, types of customers, pricing, etc. (e.g. one product, one market).

1

2

3

4

5

6

Very dissimilar (e.g. customized production for one, mass production for another).

7

Very dissimilar markets in terms of required marketing strategy (if selling both boxed cereals and industrial cement).

-

1

2

3

4

5

6

7

Integration (V. 10) In assuring the compatibility amongst decisions in one area (e.g. marketing) with those in other areas (e.g. production), to what extent are the following 'integrative mechanisms' used ? 54. Interdepartmental committees which are set up to allow departments to engage in joint decision making.

I I

I

1 2

3

I 4

5

1 2

3

4

5

7

6

7

I

55. Task forces which are temporary bodies set up to facilitate interdepartmental collaboration on a specific project.

6

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22

Danny Miller and Peter H. Friesen

56. Liaison personnel whose specific job it is to coordinate the efforts of several departments for purposes of a specific project.

l 1 2

3

4

5

6

7

To what extent is decision making at top levels in your firm characterized by participative, cross-functional discussions in which different departments, functions, or divisions get together to decide the following classes of decisions? Rare use of committees or infrequent informal collaboration

Frequent use of committees and/or informal interdepartmental collaboration

57. Product or service related decisions concerning production, marketing, and R & D strategies.

l l 1 2

3

4

5

6

7

58. Capital budget decisions the selection and financing of long term investments.

I 1 2

3

4

5

6

7

1 2

3

4

5

6

7

II

59. Long term strategies (of growth diversification, etc.) and decisions related to changes in the firm's operating philosophy. 60. Each department makes decisions more or less on its own, without regard to other departments. 61. Often there is a lack of complementarity between decisions made in one department and those in another.

1 2

1 2

6

7

There is a great deal of departmental interaction on most decisions.

3 4 5 6 Decisions of the difficult departments neither help or hinder each other.

7

Decisions of the different departments tend to be mutually reinforcing.

3

4

5

Analysis (V. 11) To what extent are the following techniques used in decision making? Used frequently Used rarely 62. The application of operations research techniques, such as linear programming and simulation, to decide upon major production, marketing and financial decisions.

- l 1 2

l 3

4

5

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6

7

Innovation in Conservative and Entrepreneurial Firms

I

63. Periodic brainstorming by

II

senior managementgroups for novel solutions to problems.

1 2 3.4 5 6 7

64. Formalized, systematic search for and evaluation of opportunities for acquisitions, new investments,new markets, etc.

l 1 2 3 4 5 6 7

65. Use of staff specialists to

1 2 3 4 5 6 7

investigateand write reports

23

on major decisions.

66. Choices among strategic alternativestend very often to be made quickly and without precision as time pressuresare often substantial.

1 2 3 4 5 6 7

Much thought and analysis enter into key decisions.

Futurity(V. 12) 67. Decisions aimed at the

resolution of crisis are most common. 68. There is a bird-in-the-hand emphasis on the immediate future in making management decisions.

Decisions aimed at exploiting

1 2 3 4 5 6 7

I

1 2 3 4 5 6 7 Medium term orientation. To what extent are the following activities carried out?

opportunities in the environmentare most common. Long term (over 5 years) goals and strategies are emphasized.

Very frequentlyand intensively

Very rarely/or haphazardly 69. Long term forecasting of sales, profits and the nature of markets. 70. Long term forecastingof the technology relevant to products and services offered by firms. 71. Planning of long-term investments. Consciousnessof strategies (V. 13) 72. Administrativeand product/ market strategieshave not been explicitly conceptualized.

I I I I I 1 2 3 4 5 6 7

I 1 2 3 4 5 6 7

4-X

1 2 3 4 5 6 7

I 1 2 3 4 5 6 7

Strategiesare well and precisely conceptualized and guide the modus operandiand decisions.

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24

Danny Miller and Peter H. Friesen

Product innovation (V. 14) 73. There is a strong emphasis on the marketing of true and tried products or services.

1 2

3

4

5

6

7

There exists a very strong emphasis on R & D, technological leadership, and innovations.

How many new lines of products or services has your firm marketed in the past 5 years? Please exclude mere minor variations. 74. No new lines of product or services in past 5 years. 75. Changes in product lines have been mostly of a minor nature (e.g. putting in towel with the soap). Risk taking (V. 15) 76. There is a strong proclivity to low risk projects (with normal and certain rates of return). 77. Owing to the nature of the environment it is best to explore it gradually via timid, incremental behaviour.

I

I

I

1 2

3

4

i 5

6

7

1 2

3

4

5

6

7

3

4

6

7

I 1 2

1 2

II

I

3

4

5

5

6

7

Hundreds of new lines of products or services in past 5 years. Changes in product lines have usually been dramatic (e.g. changing from mechanical to electric calculators).

The firm has a strong proclivity for high risk projects (with chances of very high return). Bold, wide-ranging acts are viewed as useful and common practice.

REFERENCES Aguilar, Francis. Scanning the Business Environment, Macmillan, New York, 1967. Andrews, Kenneth. The Concept of Corporate Strategy, Irwin, Homewood, Ill., 1980. Ansoff, H. Igor. Corporate Strategy, McGraw-Hill, New York, 1965. Baker, Norman, James Siegman, and Albert Rubenstein. 'Effects of perceived needs on the generation of ideas in R&D labs', IEEE Transactions on Engineering Management, EM-14, 1967, pp. 156-163. Burns, Tom and G. M. Stalker. The Management of Innovation, Tavistock, London, 1961. Carter, Charles and Bruce Williams. Industry and Technical Progress, Oxford, London, 1957. Chandler, Alfred D. Strategy and Structure, MIT Press, Cambridge, Mass., 1962. Child, John. 'Organizational structure, environment, and performance: The role of strategic choice', Sociology, 6, 1972, pp.2-22. Collins, Orvis and David G. Moore. The Organization Makers, Appleton, Century, Crofts, New York, 1970. Cyert, Richard M. and James G. March. A Behavioral Theory of the Firm, Prentice-Hall, Englewood Cliffs, N.J., 1963. Downs, Anthony. Inside Bureaucracy, Little, Brown, Boston, 1966. Downs, George W. and Lawrence B. Mohr. 'Conceptual issues in the study of innovation', Administrative Science Quarterly, 21, 1976, pp. 700-714. Galbraith, Jay. Designing Conmplex Organizations, Addison-Wesley, Reading, Mass., 1973. Hage, Jerald and Michael Aiken. Social Change in Complex Organizations, Random House, New York, 1970. Keller, Robert and Winford Holland. 'Boundary spanning roles in an R&D organization', Academy of Management Journal, 18, 1975, pp. 388-393. Lawrence, Paul R., and Jay Lorsch. Organization and Environment, Harvard, Boston, 1967.

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Innovation in Conservative and Entrepreneurial Firms

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Lindblom, Charles. The Policy-making Process, Prentice-Hall, Englewood Cliffs, N.J., 1968. Miles, Raymond E. and Charles C. Snow. Organizational Strategy, Structure and Process, McGraw-Hill, New York, 1978. Miller, Danny. 'Strategy, structure and environment: context influences upon some bivariate associations', Journal of Management Studies, 16, 1979, pp. 294-316. Miller, Danny and Peter H. Friesen. 'Archetypes of strategy formulation', Management Science, 24, 1978, pp. 921-933. Miller, Danny and Peter H. Friesen. 'Momentum and revolution in organizational adaptation', Academy of Management Journal, 23, 1980, pp. 591-614. Mintzberg, Henry. 'Strategy making in three modes', California Management Reriewv, 16, 1973, pp. 44-53. Mohr, Lawrence B. 'Determinants of innovation in organizations', American Political Science Retview, 63, 1969, pp. 11 1-126. Mueller, W. F. 'The origins of the basic inventions underlying DuPont's major product and process innovations, 1920-1950', in R. R. Nelson (ed.), The Rate and Direction of Intentite Actitvity, Princeton University, Princeton, 1962, pp. 323-360. Myers, Summer and Donald G. Marquis. Successful Industrial Innotation, National Science Foundation, Washington D.C., 1969. Normann, Richard. 'Organizational innovativeness: product variation and reorientation', Administratile Science Quarterly, 16, 1971, pp. 203-215. Peters, Donald H. 'Commercial innovation from university faculty: A study of the invention and exploitation of ideas', Sloan School of Management Working Paper, No. 406-69, M.I.T., Cambridge, Mass., 1969. Peterson, R. and D. Berger. 'Entrepreneurship in organizations', Administrative Science Quarterly, 16, 1971, pp.97-106. Rogers, Everett M. and F. Floyd Shoemaker. Communication of Innovations. A Cultural Approach, Free Press, New York, 1971. Rosner, Martin M. 'Administrative controls and innovation', Behatvioral Science, 13, 1968, pp. 36-43. Thompson, Victor A. Bureaucracy and Innovation, University of Alabama Press, Alabama, 1969. Tushman, Michael L. 'Special boundary roles in the innovation process', Administrative Science Quarterly, 22, 1977, pp. 587-605. Utterback, James M. 'The process of technological innovation within the firm', Academy, of Management Journal, 14, 1971, pp. 75-88. Van de Ven, Andrew and Diane Ferry. Measuring and Assessing Organizations, Wiley, New York, 1980. Wilson, James Q. 'Innovation in organization: notes toward a theory', in James D. Thompson (ed.), Approaches to Organizational Design, University of Pittsburgh, Pittsburgh, 1966, pp. 193-218. Zaltman, Gerald, Robert Duncan, and Jonny Holbek. Innotvations and Organizations, Wiley, New York, 1973.

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