Barriers of Organizational Innovation
Management in China
Chapter 2
Literature Review
2.1 Introduction of Organizational Innovation
(OI)
It has been emphasized that
organizational creation is fundamental to the process of innovation, which then
constitutes part of the system that produces it. The ability and capacity of an
organization to innovate is a precondition for the successful utilization of
inventive resources and new technologies. Thus, in this sense, the introduction
of new technologies often presents complex opportunities and challenges for
organizations, leading to changes in managerial practices and the emergence of
new organizational forms. Therefore, organizational and technological
innovations are intertwined. In essence, the term organizational innovation
refers to the creation or adoption of an idea or behavior new to the
organization (Lam, 2004). As such, the innovation can be a new product, a new
service, a new technology, or a new administrative practice (Hage, 1999), which
provides the edge or competitive advantage of an organization in its respective
market. In this sense, organizational innovation, such as through the
introduction of new products and new services, can provide new employment
opportunities and positive balances of trade, thus, protecting the nation’s
standard of living. Practically, since a nation’s economic development depends
largely on the continued launching of new products, governments have become
concerned about innovation. This is because many organizations and nations alike
perceive the innovation of products, services, technologies, and administrative
practices as assisting with the articulation of study of significant
breakthroughs in science, the development of superior military equipments, the
creation of interdisciplinary programs in higher education, the reform of
welfare, and many others. In other words, the study and the recognition of the
importance of organizational innovation concerns some of the most basic problems
in the society, and thus, can be deemed as important and relevant (Hage, 1999).
2.2 Introduction of Organizational Innovation
Management (OIM)
It has been stressed that businesses
nowadays have come to realize the importance of innovation for survival in a
world of global competition (Hage, 1999). This is because every organization in
today’s generation has been exposed and has already been aware of the fast-paced
market and industrial environment that it has due to the continuous,
simultaneous, and dynamic changes that happen in relation to science,
technology, and communication. Because the concept of organizational innovation
pertains to the adoption or creation of a new idea or behavior in an
organization, the management of such a concept would also be relevant. It has
been reported that in the management literature, innovation serves to drive
corporate success and is a strategic endeavor contributing to the
differentiating capacity of an organization. Innovation is said to be a
high-risk activity, unpredictable, complex, dynamic, non-routine based, involves
creativity, and is difficult to control (Huizenga, 2004). With such
characteristics, it can be perceived that an organization that would be devoting
itself to innovation would be needing the magic hands of management in order to
govern, control, and direct its success. In this regard, the concept of
Organizational Innovation of Management or OIM pertains to the management of the
chances, the risks, and the changes in the organization, in relation to its
dedication and commitment in implementing and adapting to innovation. This also
involves directing and committing to the development of the organization through
determining the potential pitfalls and uncertain, high-cost and results. It
pertains to the appropriate delegation of resources that might render value in
the long run. More importantly, OIM is about enhancing and motivating change in
the organization, thus, involving and developing people to accept, learn, and
execute changes in terms of work, skills, and competencies in the organization
(Huizenga, 2004).
2.3 Relationship between OI and OIM
As stated and emphasized earlier,
the concept of organizational innovation pertains to the creation or adoption of
a new idea or behavior in an organization, while the concept of organization
innovation management or OIM pertains to the management of the creation or
adoption of a new idea or behavior in an organization. From the definitions of
the two concepts themselves, it can be understood and deduced that a significant
relationship exists between them. This is because in order for an organization
to effectively and efficiently undergo its needed changes, it must then be able
to come up with a new idea or behavior that would serve to be a relevant and
appropriate answer to its needs. However, the utilization and implementation of
the said changes or innovation strategies in the organization would not be as
useful and significant without proper management, control, and direction. This
is because through effective management, the use and the implementation of
innovations in the organization would be based on scientific research and data,
and thus, would be appropriate for the needs of the organization, in terms of
responding to the demands of consumers, its environment, its workers or
employees, and its industry.
The concept of Organizational
Innovation is deemed to be closely integrated with the concept of Organizational
Innovation Management, given the different factors that interplay between them.
It has been reported that there are
two types of innovation that can be used by an organization, namely, autonomous
and systemic innovation. An autonomous innovation is one that can be introduced
to the market or to the consumers without massive modification of related
products and processes. An example of this kind of innovation is the
introduction of power steering, which did not initially require any significant
alternatives to the design of cars or engines (Lam, 2004). This form of
innovation is usually what is being done by most organizations, as through
autonomous innovation, less research, fewer costs, and fewer alterations of
products and processes are involved. In this regard, an organization would be
able to effectively respond to the needs of its customers, with fewer expended
money or budget, but with increased profits. Aside from increased profits,
products in the market, which underwent autonomous innovation still pertain to
the previous products targeting previous customers, who would be perceived to
retain loyalty to the use of that particular product. On the other hand, the
second type of innovation is systemic innovation, which favors integrated
enterprises because it requires complex coordination amongst various subsystems,
and hence is usually accomplished under one roof. An example of a systemic
innovation is the complete redesigning of many automobiles in the 1980s,
producing front-wheel drive vehicles (Lam, 2004). From this, it can be perceived
that the primary relationship of Organizational Innovation and Organizational
Innovation Management is effectively determining the type of innovation an
organization needs to undergo or implement. An organization must first determine
the type of innovation they need before coming up with the next step or plan. In
this sense, this involves determining the problems of the company or
organization, which need to be addressed through innovations. As such, an
organization must not be able to adopt or create a new idea or behavior
immediately without thinking and planning about it. Therefore, the relationship
of the two concepts involve integrating together in order to determine the
problems or issues in the organization that need to be addressed through
innovations. An example of this would be to determine first why a certain brand
of deodorant is not profiting in the market. Identifying the problem would mean
choosing this particular brand of deodorant to undergo innovation or significant
changes.
Identification of the problem, which
needs to be answered or addressed through innovation leads to careful planning,
organizing, and research. After identification of the problem, the organization
can now determine what type of innovation its product/s can undergo. Basing on
the current example, innovation of the deodorant brand in question would mean it
has to undergo autonomous innovation. Research for the organization would mean
the company would be obtaining relevant data and information regarding the
performance of the deodorant brand in the market, involving the feedback of
consumers and users of the product. In addition, the costs, duration, and
processes involved in its production must also be taken note of in order to
critically analyze and evaluate the overall performance of the product to be
undergone innovation. After relevant research and data gathering, planning would
be the next step to take. Through effective and efficient planning, the company
would then be able to synchronize its resources and its objectives to the
changes that must be done to the product. Careful planning would then lead to
organizing, which would allow the company or organization align their goals to
the interests of their customers. In this sense, the second factor or aspect in
stating the relationship between Organizational Innovation and Organizational
Innovation Management involves assisting organizations to careful data
gathering, research, and planning, which would be helpful for implementing
changes in the organization. Careful and critical planning of the steps to be
taken by the organization in relation to the changes or innovations it may take
would be the best strategy to do, as this would help the organization lessen
future problems and crises, during the actual implementation of the said
changes.
It has been pointed out that
managers in an organization need to be trained to create mechanisms and systems
that support and facilitate innovation, which is not confined to the management
of researchers, engineers, and advertising professionals alone. More and more,
managers of all functional areas must need to know how to create an optimal
level of organizational innovation in their departments (Fischer, 2001). In this
regard, it can be stressed that the third indicator of the existing relationship
between Organizational Innovation and Organizational Innovation Management is
providing and emphasizing the skills and competencies managers must have in
order for the organization to effectively and efficiently implement innovations
and changes needed by the company. The relationship between the two concepts
emphasizes the need for managers to possess a number of skills and competencies,
and assume roles in the organization. Such skills include strong leadership
skills, the ability to develop people, excellent communication skills, good
interpersonal skills, the ability to handle stress effectively, problem-solving
skills, and time management skills (Gido and Clements, 2005). In terms of role,
managers must take on a variety of them, which would enable them to perform the
different skills required of them. Such roles include becoming leaders,
motivators, good listeners, commanders, planners, organizers, and consultants.
The most important indicator that
emphasizes the relationship that exists between Organizational Innovation and
Organizational Innovation Management is the presence of strategies or
interventions that would assist the organization and its members to undergo the
process of change or innovation. The presence of strategies or interventions,
such as individual, group, inter-group, and organizational interventions
(Rotwell and Sullivan, 2005) indicate that an organization values the
development and improvement of its human resources in order to cope or adapt to
the changes that must be implemented in the organization. In addition, the fact
that organizations bother themselves with strategic and organizational planning
and analysis means that the coping with the changes happening in the
organization matter to them, as such changes significantly influence the many
processes that would determine the success or failure of the organization in its
respective industry. In essence, the most important link between the two
concepts is to assist in coming up with useful and relevant strategies that
would be essential in allowing an organization to undergo its needed changes.
2.4 Background of China Manufacturing Industry
and OIM Situation
Manufacturing is one of the most
fundamental activities of human beings and the cornerstone of survival and
development for society through creating tremendous public wealth. Its industry
is the foundation of national productivity and the pillar of the national
economy. This holds true for China, as its manufacturing industry is rapidly
rising the world as never before. This has been brought about by its reform and
opening up to the outside world, along with its entry into the World Trade
Organization. As such, China is now the 4th largest manufacturing
power in the world, second only to the United States, Japan, and Germany. It has
been emphasized that its important mark in its sudden emergence is the rapid
expansion of China’s production capability. Over 100 kinds of products of 10
trades including household appliances, medicines, electronic devices, toys and
many others rank the first in the world in terms of output. The total trade
value of export and import in mainland China has been up to US$ 1150 billion in
2004, second only to the United States and Germany (Limin et al., 2005). In
addition to this, its population reached over 1.3 billion people in the middle
of 2007, thus, making it the world’s largest and most populous country
(Rosenberg, 2007). Thus, its large population contributes to its increase in
terms of production in the manufacturing industry, as more and more citizens
become the hands that drive the many and large manufacturing industries in the
country. The increase then of the population leads to the increase of
individuals that China can induce for labor. Moreover, the liberalization of
China’s economy, most especially its manufacturing sector led to produce a
devastating effect not only to the Mexican economy, but to the American economy
as well. This is because jobs are going overseas at an increasingly rapid rate,
mostly to China. A look at what happened to the textile industry alone is
disturbing. According to the findings of the National Council of Textile
Organizations, China now controls half of the apparel market of the United
States in product areas where quotas have been removed. The reason for this is
that U.S.-based corporate interests have infused it with money, infrastructure,
technology, and business savvy. They have even moved their plants to China
(McManus, 2006). In this sense, the multinational organizations that have
dominated the market of China, along with significant impacts of globalization
in the world have contributed to the development of the manufacturing industry
of the country. Thus, it can be deduced that the opening up of the economy and
market of China has done the country, its economy, and its society good.
However, despite the high regard for the massive
production associated with the manufacturing industry of China, it has been
stressed that the gap between its own manufacturing industry and the
industrially developed countries is becoming noticeable. China’s manufacturing
industry can be described as large, but not strong, and is still way behind
developed countries in terms of the enterprise scale, technical level or the
international market scale, international competitiveness, and the position in
international division of labor. Furthermore, a number of problems or loopholes
can be seen through China’s manufacturing industry, such as the low level of
technical standards and the lack of professional talent versed in technical
standards. Problems with the standardization field of China include serious
backwardness, lag in standards, serious divorce of formulation of standards from
market demand, and the lack of professional talent familiar with, and versed in
technical standards, such as of ISO standards. In this sense, the presence and
the persistence of such problems serve to hamper and be regarded as constraints
to the development of China’s economy, especially in terms of the development of
its manufacturing industry (Limin et al., 2005).
From this, it can be perceived that China’s
manufacturing industry serves to be one of the largest producers in the world,
and this is brought about by the economic and business opportunities provided by
the multinational organizations and investors. Along this is the large number of
its population, serving to increase the number of individuals to be used for
labor. However, the presence of problems and loopholes in China’s manufacturing
industry means that a lot of polishing must still be done. Thus, in this sense,
the role of Organizational Innovation and Organizational Innovation Management
comes into the picture.
2.5 OI and OIM in China
It has been reported that
organizational innovation is the premise and basis for technology innovation.
Chinese companies normally conduct organizational reforms when adjusting
agencies and appointing new leaders (Global ). Thus, with its opening, it can be
assumed that Chinese enterprises were dedicated in the process of organizational
innovation in order to improve and develop its economy. In emphasizing the
process of organizational innovation in China, a number of factors must be taken
note of. In addition, both internal and external organizational innovation must
also be emphasized. It has been stressed that internal organizational innovation
in organizations refers to the system by which internal venture companies are
formed, internal project organizations are formed and branch companies are
established. This may also be referred to as facilitating ‘entrepreneurship’,
which is a good way to create an innovative environment, in order to protect the
company against the loss of creative talent (Global ). This is usually done by
establishing a number of company branches within the country in order to gather
more talents and manpower to drive the operations of a company. On the other
hand, external organizational innovation in the company involves the flexible
operation of coordination technology, merger technology, and
virtual-organization technology, which are all aimed at increasing enterprise
competitiveness. Making use of virtual manufacturing methods to gain access to
external resources and to more effectively employ internal resources of the
company are examples (Global ). One way of doing this is through mergers or
acquisitions, which would incorporate the technology of one firm to the other,
thus, would provide more innovation and power for the combined technologies and
company.
The process of organizational
innovation in China can be emphasized through the changes that can be observed
in its economy. These changes are said to be part of China’s dedication to
innovate, as such changes enable the nation to be regarded as one of the largest
market in the world, which significantly participates in the overall development
of the world economy. Primarily, it has been stated that after 15 years of
negotiation, China’s accession to the World Trade Organization membership has
rapidly demonstrated price competitive impacts on OECD economies (Gu and
Dodgson, 2006). Competition is increasingly more vigorous, and extends
everywhere, from domestic market to global market, from technology alliance to
virtual organization, and from outer environment of enterprise to inner one. At
the same time, the innovation enterprises in China are increasingly more
frequent and rapid. Nowadays, the innovation actually becomes the main driving
force of enterprise growth, thus, emphasizing the fact that it is inevitable to
lose in the global market competition if enterprises or companies have no
innovation activity (Xu et al., 2002). In addition, regional case studies
include the development and innovation in consumer goods manufacturing clusters
in China, local cluster earning in the context of the global value chain,
Chinese cell phone manufacturers’ regulation, technology, market, skills and
competence, mass customization of life and health insurance, and Shanghai
regional innovation systems for generating economic development. Aside from the
development of its manufacturing and service industries, it has also be pointed
out that the development of Hong Kong from trade hub to innovation hub is
explored in the role of Hong Kong innovation system in linking China to global
markets. The global Chinese diaspora network is examined as entry point to
knowledge-based development in local economies (Gu and Dodgson, 2006). From
this, it can be perceived that the innovations of China, including the city of
Hong Kong emphasize the development and improvement of its economy.
However, given the changes that
happen to the present generation in terms of the development of technology and
communication, China has also been actively coping with such changes. One way of
coping through such changes is its rapid catch-up with computer industrial
technologies. The Chinese computer market was small and almost negligible
throughout the 19810s, as was the domestic computer industry. However, at the
start of the 1990s, accompanying the opening up of the market to foreign
competition, the Chinese computer market was growing at an extraordinary pace.
Market size has grown from almost negligible to the second largest in Asia, with
more than four million units shipped at the end of 1998. In the early 1990s,
when the market was just opened up, foreign competition had effectively wiped
out domestic producers. However, in a period of merely six years, indigenous
firms had staged a comeback. The share of indigenous producers in the largest
segment, the personal computer market, increased from less than 30% in 1991 to
67% in 1997. It is widely predicted that the Chinese market will continue to
experience rapid growth and will become one of the world’s largest in the early
years of the new millennium. The share of domestic makers will continue to rise.
This has to be viewed in the context that the computer market is one of the most
open and competitive markets in China, and the competitiveness of Chinese
domestic PC makers is based mostly on price and performance. Another indication
of its innovation is the fact that China is catching up in the computer industry
as a net exporter of computer electronics goods around the world. Although
foreign-invested firms played important roles in this respect, indigenous
Chinese firms such as Legend and China Great Wall Computer are among the largest
exporters. In fact, Legend is now one of the world’s largest suppliers of
computer motherboards and add-on cards. In addition, indication that China’s
computer industry is catching up includes sophisticated computer information
systems integration technologies. This is best demonstrated by China’s
technology leadership in markets for pictographic electronic publishing system
(Lu, ). With these accomplishments, it can be seen that the potential of the
Chinese industry to be regarded as it is has been proven, thus, making it highly
capable of innovation, not only in the organizational level, but in a national
level as well.
Aside from the telecommunication and
computer industries, organizational innovation in China is also evident in both
the food and toy manufacturing industries. Following the increase in the
population of China is the development in its food manufacturing industry, to
produce more food for the growing population. The food industry of China is
expected to generate an income of US$241.8 billion in 2005, which is a 325%
increase in 8 years. Its post-Communist market is being driven by the increased
spending power and changing food habits of the country’s ever-wealthier people.
However, there are significant risks with an emerging market of this size,
complexity, and relative immaturity (“The Food Industry in China”, 2005). Thus,
with this, it can be understood that the agricultural and manufacturing
industries in China cannot cope up with the sudden upsurge of China’s
population. In order to do so, several strategies are being implemented by the
nation, which in one way or another produces negative or undesirable effects.
Lastly, in terms of China’s organizational innovation, its toy manufacturing
industry becomes one of the most evident proofs. It has been reported that
cheap, plastic toys the kind found in stores, fast food restaurants, fairs,
daycare centers, cereal boxes and homes in many countries, almost all come from
China. The Chinese toy industry, the largest in the world, generates billions of
dollars in export profits and employs millions of people in thousands of
factories. These factories are in important part of the economic boom that has
lifted many out of poverty in the country. However, it has its own dark side
too, as it entails excessive working hours, dangerous equipment and chemicals,
cramped employee dormitories, abusive managers, crooked hiring practices, and
pay below even China’s minimum wage (“The Toy Industry in China”, 2005).
From the above discussion, it can be
pointed out that the organizational innovation in China involves the development
of its different sectors, through development of different products and
services, through mass production of goods, and through international and global
communication and interrelationships. In this sense, it can be perceived that
amongst other developing countries, China seems to be the country that would be
best fitted to develop into a First World Country. This is because despite its
increase in population, China has been continually improving its standing in
terms of communication, technologies, strategies, and management. It can be seen
that the performance of Hong Kong as one of Asia’s information and technological
hub has brought about advantages in China as a whole. Its opening up to other
markets has increased Western influence in the country, thus, granting and
providing China its changes in terms of technology, language, and management.
However, despite the fact that organizational innovation in different firms and
industries in China presents positive effects to its economy and world image,
many still believe that China is immature and not ready and stable to be
regarded as such. Thus, in this regard, such immaturity produces a number of
setbacks or problems in China’s manufacturing industry, which would surely
produce problems in individual organizations. Given such problems and setbacks,
the role of Organizational Innovation Management comes into the picture. This is
because, through OIM, the many problems or setbacks in the manufacturing
industry of China, along with its individual organizations can be lessened or
controlled effectively.
However, before pointing out the
specific strategies and ways of managing organizational innovation in the
Chinese industry, the evaluation and discussion of the type of organizations and
its employees, including the culture and practices evident in organizations must
be stressed. This is because knowing the specific culture and practices in
Chinese organizations would be relevant information in specifying how Chinese
organizations manage the process of organizational innovation.
Lockett (1988) emphasizes four
important points evident in the Chinese culture that affect organizations,
namely, respect for age and hierarchy, group orientation, face, and the
importance of relationships. In terms of respect for age and hierarchy, it can
be emphasized that the widespread Chinese respect for age and seniority comes
from Confucian values, as an older person is often seen as more experienced,
wiser, and in some not clearly defined way, superior to those younger in the
organization and other types of groups. In addition, such respect stems from the
fact that Chinese are influenced and conscious of social stratification, deeming
the society as a pyramid shaped structure, with a paramount ruler at the top, a
variety of officials in the middle, and the rest of the individuals at the
bottom (Bucknall, 2008). The recognition of each individuals belonging to each
level of the pyramid is believed to be the cause of peaceful coexistence of each
individuals in the organization, thus, extending the sense and importance of
respect to older individuals and to superiors. In relation to this is the second
major influence that affects the management of Chinese organizations, which is
group orientation. In relation to the concept of the pyramid, group orientation
pertains to the recognition of the members of the organization of their
respective groups and standings or positions in the organization. Thus, with
such group orientations, an individual belonging in the lowest level of the
organization cannot mingle or interact with the members belonging to the highest
or elite level. As such, it is already innate and natural for Chinese workers to
regard their specific group levels and classification, whether in the
organization or in the larger context of the society. In addition, the concept
of group orientation emphasizes the high regard of the Chinese for their
families. It has been reported that the group tradition was reinforced by their
experience of communism, where people were forced to participate in group
discussions and any individual who stood out might later be punished. The group
is seen as a source of strength and comfort, and business decisions are
generally made on a consensus basis, within the framework dictated by the
highest authority of the top management, be it a highly placed politician or
public servant, the owner of the firm, or the Chief Executive Officer. This
second factor indicates that many adult Chinese are unwilling to make decisions
on their own. Thus, a seemingly one-person problem in a particular factory may
eventually be solved by a decision taken only after extended discussion by the
group, otherwise, it might not be solved at all (Bucknall, 2008).
The third factor that influences the management
of organizations in China is the concept of face. Face, in the literal context
of the Chinese culture means ‘honour’, ‘good reputation’, or ‘respect’. It has
been emphasized that four types of face can be recognized, namely, 1)
Diu-mian-zi, or the situation when one’s actions or deeds have been exposed to
people; 2) Gei-mian-zi, which involves the giving of face to others through
showing respect; 3) Liu-mian-zi, which is developed by avoiding mistakes and
showing wisdom in action; and 4)wherein the face is increased through others,
such as when someone complementing a person to an associate (“China – Language,
Culture, Customs, and Etiquette”, 2008). In essence, losing face means the
degradation of one’s honour, which is mostly avoided by members of the
organization, and generally by most Chinese. The last major influence of the
Chinese culture in relation to organizational management is the importance of
relationships. It has been stressed that harmony is an important part of the
Confucian heritage being observed and practiced by the Chinese. It is believed
that if everyone in the society or the community plays an important role, then
overall harmony will be preserved. For this particular reason, self-discipline
and moderation are important elements of human behavior, which influences
harmony (Bucknall, 2008). In addition, aside from literally avoiding forthright
conflicts and confrontations between and among individuals of the group, the
Chinese also uses non-verbal communication in order to express what they want
and what they feel regarding a certain situation. It has been pointed out that
since the Chinese strive for harmony and are dependent with their groups, they
rely heavily on facial expression, tone of voice, and posture to tell them what
someone feels. They interpret frowning a sign of disagreement, making them
maintain an impassive facial expression when speaking. It is also disrespectful
to stare into another person’s eyes, thus, in crowded places, the Chinese avoids
eye contact in order to give themselves privacy (“China – Language, Culture,
Customs, and Etiquette”, 2008). Aside from these four major influences that
affect that management of organizations in China, several other characteristics
of the Chinese can be pointed out, which present significant impacts to the
management of Chinese organizations.
Chinese are said to be collectivistic, in
contrast to the individualistic Westerners. Collective social control is being
achieved through shame or face, and personality governance is attained through
guanxi (). It has been pointed out that to get over a major barrier to
communications due to the habit of the Chinese to divide people into insiders
and outsiders, people develop a network of contacts and personal relationships
for whom they do favors and from whom they ask favors in return. This is guanxi,
which means possessing influence or “pull” that one can use with the contacts he
or she have developed in the right places. Without guanxi, it is difficult for
an individual to accomplish much, and with it a person can have more
opportunities and achieve a surprising number of things (Bucknall, 2008).
