innovation capability and competitive adv--2firms

8/8/2019 Innovation Capability and Competitive Adv--2firms

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Innovation Capability and Competitive Advantage:

A Case Study of Two Brazilian Firms1

Adriana Marotti de Melloa, Wander Demonel de Limaa,c, Eduardo Villas Boasb,Roberto Sbragiab, Roberto Marxa

a

Production Engineering Department of the Polytechnic School of the University of So Paulo (PRO/EP-USP), Brazil

b University of So Paulo School of Economics, Business Administration and Accounting (FEA/USP), Brazilc Federal University of Itajub (IEPG/UNIFEI), Brazil

Abstract--This study investigates practices used by firms to

link their innovative capability to competitive advantage. The

basic assuption is that innovative capability is conditioned by a

serie of factors regarding to cultural, resources, competences

and external conexions that promote competitive advantage

through creation and introduction of new/improved products to

the market. An exploratory and case study is used, based on two

Brazilian Firms in different industries. The results indicated

that the innovative capabilite assumes different meanings in

different settings, thus resulting in different impacts on firm

competitive advantage.

1

I. INTRODUCTION

Innovation is a key element of corporate competitivenessin the 21st century, and has therefore attracted specialattention from management researchers and practitioners.Although this theme has been in the spotlight over the pastfew years, its discussion is in no way recent. In the 18thcentury, Adam Smith noted the relationship between capitalaccumulation and manufacturing technology, as he studiedconcepts relating to technological change, the division oflabor, production growth, and competition [10].

One may observe a division of the research on innovation

into two large fields. The first, based on economic theory,focuses on the differences in patterns of innovation betweencountries and industry sectors, the evolution of technologyover time, and differences in propensity to innovate in agiven sector; that is, a macro view of innovation. The secondarea, focusing on the micro level and individual companies,has the study of product development processes as one of itsconcerns [7].

However, in order to benefit corporate competitiveness, by providing new products or processes to set a companyapart from its competitors, innovation cannot be restricted toresearching new technologies and developing new products.After development, new technologies may fail upon being

transformed into products and services; products andservices, in turn, may be commercially unsuccessful despitesuccessful development. A survey carried out by managementconsultancy firm Booz Allen Hamilton notes that, within asample of 1000 innovative global companies, the most

1 This paper was originally written as a coursework requirement for EAD5837, Management of Technological Innovation within the Firm(instructor: Prof. Roberto Sbragia), University of So Paulo School ofEconomics, Business Administration and Accounting (FEA/USP), 2007.

successful were not necessarily those that invested the mostresources in R&D [12]. Andreassi and Sbragia [2] alsoobtained similar results in their studies. It may therefore besaid that innovation goes beyond investment in R&D andtechnology; it is a more wide-ranging and complex process,the result of complex interactions on local, national andglobal levels between individuals, corporations and otherknowledge-producing institutions that warrant further study[3].

Innovation can improve companies competitiveness, but,in order to do so, it requires a different set of managementknowledge and skills than that used in running the firms day-to-day operations [20]. This set of knowledge andmanagement skills may be termed companies innovativecapacity, as defined by Hii and Neely [11]: the internal

potential to generate new ideas, identify new marketopportunities and implement marketable innovations throughexploration of the companys existing resources andcapacities.

As innovative capacity is a key element of companiescompetitiveness in the current global scenario, knowledge ofhow to make this innovative capacity operational that is,how the company should be organized and managed in orderto develop products, services, and processes that actuallyoffer sustainable competitive advantages over time can bequite interesting. This article seeks to contribute to thediscussion of this matter, and, more specifically, todemonstrate how a company could create an organizationalenvironment conducive to the development of productinnovation, drawing from its corporate culture, itscompetencies and, finally, its relationship with otherinstitutions. To this end, a literature search on the theme was

performed and an exploratory research on the innovationmanagement process in two companies, both consideredinnovative, and each belonging to a different industry sectorin Brazil, was carried out .

The article is organized as follows: in section II, theconceptual basis of the study is synthesized; section III

presents research methodology; section IV has results of theempirical study carried out at the two subject companies; andfinally, under section V, results are discussed andconclusions presented, noting some study limitations andsuggesting further research.

PICMET 2008 Proceedings, 27-31 July, Cape Town, South Africa (c) 2008 PICMET

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II. CONCEPTUAL BASIS

A. Innovation: Different concepts and perspectivesInnovation has been studied by many authors in different

fields, and has therefore been defined in different ways. In itsepistemological sense, innovation could be defined as doingsomething new [20]. Accordingly, the common groundshared by the several definitions of innovation is the idea ofsomething new, be it a characteristic of a product orservice, of a process, a technique, or a new use for a productor service. Tushman and Nadler [21] therefore distinguishtwo types of innovation: product innovation, when there is achange in the product manufactured by the organization orthe service it offers; and process innovation, which is achange in the way a product is manufactured or a service is

provided. Zawislak [24] includes management innovation inthis type.

The definition adopted by the OECD/Eurostat OsloManual [18] divides innovation into four specific segments:the implementation of a new or significantly improved

solution for the company, be it a new product, process,organizational method or marketing method, with theobjective of reinforcing the companys competitive

positioning, improving its performance or increasing itsknowledge. According to the Manual, product innovationentails significant changes in the potentials andfunctionalities of products and services, which may include

both completely new goods and services and importantimprovements to existing products. Process innovations aresignificant changes in production and distribution methods.Organizational innovation refers to the implementation ofnew organizational methods, new management practices,such as changes in business practices, human resources

management, organization of labor or the firms externalrelations. Finally yet importantly come marketinginnovations, which involve implementation of new marketingmethods, including changes in product and packaging design,changes in product promotion and placement, and changes in

pricing methods for goods and services.This paper focuses on product innovation, that is, the

development of new products or the significant improvementin product performance, such as to bring competitiveadvantages to the developing companies. However, weattempted not to limit our scope to the strictly technologicalaspects of innovation, but to extend it as far as possible to all

processes capable of turning an idea into a product with an

edge on the market [3]. From this broader concept of productinnovation, the need is evident for an organizationalenvironment that is conducive to new product development not simply high-tech aspects, but also the development ofconcept and ideas for products with market potential. Asheavy R&D spending is no guarantee of commerciallysuccessful innovation development, the company mustdevelop the capacity to innovate throughout its value chain,

by working on different functional areas involved in the

process, including marketing, technological, and productiveaspects [12].

B. Innovative Capacity and Competitive AdvantageAccording to Tidd, Bessant and Pavitt [20], the innovation

process is key to the companys business; it is associated withrenewal and evolution of the business, renewing what thecompany has to offer and how it creates this. In order to doso, each firm may adapt the innovation process to its ownspecificities, in order to integrate the process into the firmsway of building knowledge. Large companies, for instance,may have their own R&D labs or may outsource research;small businesses, on the other hand, prioritize speedy,empirical development of solutions, based on practical

problem-solving experience.Baraano [4] argues that innovation is a complex

technological, sociological, and economic process thatinvolves a highly intricate set of interactions, both within thefirm and between it and its economic, technical, social, andcompetitive surroundings. Success is therefore not expected

to be satisfactorily justified by one or two factors alone.According to the author, no element can be effective by itselfand, thus, no one management tool or technique will be ableto create an environment that is conducive to innovation.What is actually found is a set of different (though strictlyinter-related) factors that must work in an integrated mannerto create and reinforce an environment that fosters thesuccess of technological innovation in the company.

According to Hii and Neely [11], a companys innovativepotential is not derived from a single specific skill, but ratherfrom a set of skills termed innovative capacity, which isdefined as the internal potential to generate new ideas,identify new market opportunities and implement marketable

innovations through exploration of the companys existingresources and capacities. It would be the result of the severalinterrelationships between its corporate culture, resources,competencies, and relationships with other organizations, asshown in These four constituent factors of innovativecapacity will be discussed below.

Figure 1 Building innovative capacityAdapted from Hii and Neely[11]

Capacidade

Inovadora

Cultura

Recursos

Competncias

Redes Inter-

organizacionais

Vantagem

Competitiva

Innovative

capacity

Culture

Resources

Competencies

Interorganizationalnetworks

Competitive

advantage


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1) Organizational Culture

According to Hii and Neely [11], a companys culturemolds its main abilities and its knowledge base, in tandemwith the existing physical structure and managerialenvironment. It influences the way in which things are doneand employee relationships. Organizational culturedetermines which knowledge is valued and how it is diffusedto employees, setting the company apart from its competitors.

Maximiano [14] also highlights the corporate culturescapacity to differentiate. To the author, as well as defining theway in which a companys personnel interact with oneanother and with the environment, organizational culture alsodistinguishes one firm from another. In fact, organizationalculture comprising the set of knowledge valued anddiffused among employees is what distinguishes a

particular company from others in all aspects, including itsinnovation process. Seeking to better understand thegeneration and accumulation of knowledge within thecompany and how it may contribute to formingorganizational culture, Lemon and Sahota [13] listed the main

repositories of knowledge in a company, namely: theenvironment; its mission, vision, and values; technology;knowledge structures; the management style andorganizational structure; individuals; the collective; andorganizational memory.

To Hii and Neely [11], the management system, rewards,incentives, and training are the bases that allow modeling ofthe generation and accumulation of knowledge by employees.They highlight the influence of an incentive system onemployees beliefs regarding creative activities; themanagement system is described by the routines that guideallocation of the companys resources. Neely and Hii [17]associate organizational culture to several factors, including

knowledge of the companys mission and objectives, strategygeared towards innovation, the existence of an organizationalstructure that privileges teamwork, and encouragement totake risks related to innovative activity.

Molina-Palma [16] defines the organizational culturedimension of innovation by the following values: beinginnovative and willing to experiment with new ideas, beingopportunistic, not constrained by many rules, and willing totake risks. With these characteristics, the author claims,managers who perceive the companys culture to be highlyinnovative feel comfortable carrying out projects that arenew, untested, and risky. High management support for itscreation and maintenance is therefore of the utmost

importance.In short, based on the review of the literature, fourindicators that would constitute an innovation-directedorganizational culture can be defined: innovation strategy inthe company; supportive high management; risk aversion;and systems in place to encourage innovation.

2) Resources

Penrose [19] says that a firm comprises, firstly, a varietyof productive resources and, secondly, a managerial

environment that connects and coordinates individual andcollective activities in order to attain desired goals. Withinthis concept, new products and services are created from themanagements capacity to respond rapidly to opportunities inthe market. According to Barney [6], a companys resourcesmay be divided into three separate categories: physicalresources, human resources and organizational resources.These constitute inputs to the productive process, in this caseideas generated, which may also be classified as a fourthresource category.

Based on the studies reviewed, the following indicatorswere developed in order to measure the different categoriesof resources: Innovation-directed financial resources R&D

spending and spending on new product launch (FinancialResources); Number of people involved in innovation(Human Resources); Number of engineers, includingtechnicians, masters and doctorate holders (Human

Resources); Existence of a structured R&D function withinthe company (Organizational resources).

3) CompetenciesAllied to resources, competencies are for the most part

responsible for the quantity of new products and servicesdeveloped by the firm [11]. Competencies may be defined asthe skills needed to coordinate and allocate companyresources towards the fulfillment of tasks. They could beclassified as a group of capacities or processes necessary forthe conception and implementation of innovation.Distinguishing personal competencies from organizationalones is of the utmost importance. Several authors havediscussed the competencies employees of innovativecompanies should have, but the model proposed by Hii and

Neely [11] focuses on organizational competencies. These

competencies provide evidence of how the firm uses itscapacities to carry out processes.Of the countless processes executed by a company, some

stand out as more characteristic of innovative organizations,such as: the capacity to generate and pick up on ideas;management of a project portfolio; formulation,communication, and management of corporate strategy,through the use of indicators; and the capacity to manage,develop and make use of all knowledge presented to thecompany by employees [16].

It is therefore paramount that companies that wish to beinnovative have knowledge of the market they are part of andthe technological trends of its sector, taking notice of

opportunities of new products or services that may bedeveloped. The innovative company should also have inplace systematic processes for new product development thatallow constant development and implementation ofinnovation in the firms products, be it radical or incremental.

The following indicators were selected to identify, for thepurposes of this study, the innovative capacity of the subjectcompanies with regard to their competencies: Processes ofnew idea generation; Processes of new product development;New product implementation; Production management and


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continuous improvement; Project management; Knowledgeof the market; Knowledge of technology.

4) Interorganizational networks

Adler and Shenbar [1] use the term external assets tocharacterize a companys connection to the environment.They outline three types of relationship with external entitiesthat can be a source of innovation:1- Connections to consumers: relates to the extent of access

the company has to consumers decision-making process.Also includes that which the company may learn fromconsumers, including new product ideas.

2- Connections to suppliers, sales teams, and sources ofscientific and technical knowledge: relates to the qualityof the companys connections to the best people in thefield and to whether these relationships are sufficientlycollaborative.

3- Horizontal connections through partnerships andalliances, trade associations and informal relationships:

these connections can be a source of substantialknowledge to guide development of the companystechnological assets.

Fleury and Fleury [9] also highlight the possibility ofseeking extra-organizational resources to help in the firmsinnovation process, after the company has learned to organizeits own resources. Based on the conclusions of the authorsstudied, the following questions should be able to indicatehow the interorganizational relationship would affect thefirms innovative capacity: Which are the main sources ofinnovation ideas used; and Who develops innovation(company itself / third parties)

C. Summary of Conceptual BasisBased on the studies analyzed and the dimensions

identified, Table 1 summarizes the constituent variables ofinnovative capacity, their definition and the indicatorsselected to measured them through field research.

TABLE 1 CONSTITUENT ELEMENTS OF INNOVATIVE CAPACITY IN COMPANIESVariable Definition

Hii & Neely [11];Molina-Palma [16]

Indicators in company

Culture Companys support of innovation - Companys innovation strategy- High management support- Risk aversion- Systems to encourage innovation

Resources Financial, physical, human, and intellectualresources that support innovation

- Financial resources directed at innovation R&D/new product launch spending

- Number of people involved in innovation- Number of engineers, technicians, masters and

doctorate holders- Established, structured R&D function

Competencies Competencies developed by the company forinnovation development

- Processes of new idea generation- Processes of new product development

- New product implementation- Production management and continuous improvement- Project management- Knowledge of market- Knowledge of technology

InterorganizationalNetworks

Sources of innovation do not exist within thefirm alone: they also comprise the its clients,suppliers, competitors, and partnerships withresearch institutes and universities

- Which are the sources of ideas for innovation- Who develops innovation

III. METHODOLOGY

The question of how to make innovative capacity that is,how the company is organized and managed to develop

products, services and processes that actually offer

sustainable competitive advantages over time operational incompanies still has not had its variables and theoreticalconstructs well defined and established in the literature.Therefore, this theme may be considered to still be at thetheory building stage.

When there is no certain definition for the constituentconstructs and variables of the theory that would explain agiven phenomenon, the case study is particularly useful as aresearch method [22]. For this reason, the research presentedin this paper will be of a qualitative nature and carried out

through the case study method. Nonetheless, qualitativeresearch has its disadvantages. The first is greater difficulty inassessing the validity and reliability of results [15]. Anotherdisadvantage of such studies is the possibility of their

becoming excessively complex and overly detailed, which

would hamper identification of the relationships mostimportant to the construction of a theory. Finally, qualitative,case study-based research may lead to non-generalizableresults, as only part of the phenomenon is being studied [8].Despite these drawbacks, qualitative case study research is,according to Eisenhardt [8], the best choice for research instages where little is known of a given phenomenon.

As study subjects, two Brazilian companies displaying product innovation, acting in different sectors (metal packaging and petrochemicals), which were rated as


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innovative in the ndice Brasil de Inovao2 were chosen..Following procedures proposed by Yin [28], three datacollection sources were used for the case study, namely,documentation (provided by the companies and obtained attheir websites), semi-structured interviews and directobservation.

The interviews conducted could be considered the mostimportant source of information for the study. Using semi-structured questionnaires, executives, engineers, andtechnicians of each subject company were individuallyinterviewed. At the packaging company (Brasilata), twoexecutives from the Human Resources department, one fromthe Quality department and one from Product Development,were interviewed. Four executives were interviewed at the

petrochemicals firm (Oxiteno): two from the R&D area andone each from the Technology and Production departments.

Another data collection method employed was in locoobservation. According to Yin [28], observation is anadditional way of collecting evidence for a case study.Informally direct observations were made during field visits

to the firms in order to conduct interviews. This observationwas useful to provide additional information on the studytopics and include an interpretation of the interviewees

perception of the theme.

IV. DESCRIPTION OF STUDY CASES

A. BrasilataBrasilata S.A. Embalagens Metlicas is a locally owned

company, founded in 1955, with three production units, inSo Paulo (So Paulo), Estrela (Rio Grande do Sul) and RioVerde (Gois). It employs around 900 staff and had earningsof approximately R$ 360 million for the year 2006. It is a

major player in the metal packaging sector (cans, pails, etc.) a pulverized market largely composed of small and medium-sized companies. Brasilata manufactures containers for foodand chemicals (mostly paints and solvents). In the foodmarket in particular, it faces competition from manufacturersof other types of packaging, such as Tetra Pak and PET

bottles.Brasilata is recognized by the market as an innovative

company, an exception in a sector dominated bymanufacturers that depend on suppliers for innovation. It hasreceived several Brazilian and international awards for its

products, including thePrmio Brasil de Inovao, promotedby the State University of Campinas (Unicamp) in 2006. For

three years (2000, 2001 and 2004), it was considered one ofthe top companies to work for in Brazil byExame magazine,

2The ndice Brasil de Inovao (Brazil Innovation Index) is based on datafrom the Pesquisa Industrial de Inovao Tecnolgica (IndustryTechnological Innovation Survey, PINTEC-2003/IBGE) and the Pesquisa

Industrial Anual(Annual Industry Survey, PIA-EMPRESA-2003), providedby the companies, and complemented by patent data provided by theInstitutoNacional de Propriedade Intelectual (INPI, Brazilian patent office). TheIndex is an initiative ofInovao Uniemp magazine.

and is still one of the study cases analyzed by the InnovationForum of the Getulio Vargas Foundation (FGV-SP)3.

1) Innovative Capacity at Brasilata

a. CultureTo Brasilata, innovation is a question of market

survival, as metal packaging has been gradually replacedby other materials, such as PET, in the past few years.The companys strategy consists of obtainingcompetitive advantages over its current and potentialcompetitors through product differentiation and costreduction. As a result of this strategy, Brasilata hasdeposited 32 patents both in Brazil and abroad, 12 ofwhich were developed over the past three years. Thecompany currently licenses the Plus and Bipluscanning technologies, which allow re-closing of thecontainer lid several times after it is first opened,

particularly to companies in Mexico and Italy, as well asother markets to which their products are exported.

The company believes this performance is the result

of developing a strongly innovation-driven corporateculture. Since the 1980s, when the firm faced a severefinancial crisis, constant innovation of management

practices has been considered critical to its survival. Anexample of this mindset is its highly peculiar approach to

people management, with a strong commitment on the part of high management to the job stability of theiremployees (or inventors, as staff are referred to withinthe company). Another concern is with transparency anddisclosure of financial information across all hierarchicallevels: the board holds monthly and quarterly meetingswith all employees to present financial results.

Another practice quite common in Brasilata is the

constant encouragement of employees of all levels tosuggest ideas and provide criticism, through what isknown as Projeto Simplificao (SimplificationProject). According to one of our interviewees, the firmconsiders the project to be the foremost promoting factorof their innovation culture and a powerful knowledgemanagement tool. The project was set in motion in 1987,as part of a Total Quality Management/Kanban/Just-In-Time implementation program. It began as a program togather ideas on improving processes, but over time,

became the main communication channel between topmanagement and operational staff.

In 2006, an average of 121 ideas were proposed per

employee a strikingly high volume, even byinternational standards. Employees are held to thenumber of ideas sent for analysis, and ways ofestablishing a yearly goal of ideas per employee iscurrently under study. One interviewee claimed the

program is successful only because it is the result of acontinuous, 20-year to implement a work philosophy

3 Data obtained from in-company interview, the Brasilata website(www.brasilata.com.br) and Barbieri [5]


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geared directly at innovation. This effort may be creditedto the companys remarkably stable management, as itsdirector-superintendent who largely idealizedBrasilatas management philosophy has held the

position for nearly 30 years. The companys board ofdirectors and management level are composed for themost part of house employees who have been with thecompany for their entire careers, many employedinitially as interns or even from the firms operationalsector.

As part of the encouragement of an innovativecorporate culture, any well-intentioned errors that may

be committed during product or process development arewritten off as training expenses by management. Toone interviewee, not trying something is worse thantrying and getting it wrong Knowledge developmentwould only be possible through learning, and some errorsmay be inevitable in the process.

b. Resources

Brasilata is quite a pared-down company, with fewhierarchical levels and a simplified organizational

structure; around 90% of its staff works on the factoryfloor. There is no dedicated sector in charge of R&D, butthere is a simple Product Development area with fouremployees, including a coordinator who holds a MastersDegree in Packaging Development. The area is equippedwith machinery for prototyping and prototype testing.All employees in Product Development are originallyfrom the operational area. This area is responsible for thetechnical development of product projects, but is notexclusively in charge of proposing ideas and technicalsolutions. The department analyses product ideasgenerated through Projeto Simplificao, and alsoreceives suggestions from suppliers and technicalassistants, who make regular visits to the companysclients.

c. Competencies / InterorganizationalNetworksThe innovation development process at Brasilata,

from idea inception to new product (or process)implementation, may be described by the model

presented in Fig.2.

Figure 2 Brasilata innovation model.After Barbieri [5] and in-company interviews.

According to the company, this model reflects the way inwhich innovation is generated and developed by it,accounting not only for ideas generated by employees andclients, but also the firms relationship with external entities,such as research institutes, suppliers and developmentagencies. At the center of the model, reflecting thecompanys internal organizational structure, interdependency

may be noted between all the areas involved, reflecting theresult of organizational changes undertaken by the firm andthe simplicity of its structure, which privileges contact

between all sectors. Therefore, there is no single structuredprocess for innovation development; it is ad-hoc, accordingto the type of innovation developed, which provides thecompany with greater agility in product development.

Ideas obtained through Projeto Simplificao are not the

only sources of innovation. Relationships with clients,suppliers, and research institutions are also paramount to

product development. As an example, we may mention a partnership between Brasilata and CETEA (PackagingTechnology Center of the So Paulo State Institute of FoodTechnology) for product development abd testing. Brasilataalso relies on its machinery and raw material suppliers for

product development assistance. In the development of thePlus paint pail, for instance, partnerships wuth thecompanys machinery supplier and clients were fundamental,as the new lid closing technology developed required changesin raw material specifications and process changes on theclient side.

ProductDevelopment

ProcessDevelopment

Implementation

Sales andAftermarket service

Quality

Production

IdeaSources

EmployeesClients

SuppliersScholarly

articles

Standards

and LegislationEtc.

ExternalSupport

Clients

RegulatoryAuthorities

Teaching andResearchInstitutions

DevelopmentAgencies

SuppliersEtc.


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B. OxitenoOxiteno Indstria e Comrcio S.A. is a locally owned

subsidiary of the Ultra group, operating in Brazil and Mexico.It is the top producer of ethylene oxide and its derivatives inSouth America, and an important manufacturer of chemicalspecialties and catalysts. Its products are employed in thecosmetics, detergents, paints, PET packaging (plastic bottles),textiles, and agrochemicals markets, among others. It is oneof the largest firms in the Brazilian petrochemicals sector,and exports its products to over 40 countries. Oxitenoemploys around 1000 staff in its five Brazilian productionunits: Camaari (Bahia), Triunfo (Rio Grande do Sul),Suzano, Trememb and Mau (So Paulo); the latter is hometo its Technology Center.

1) Innovative Capacity at Oxiteno

a.Culture:Oxiteno has been operational for over 30 years in the

petrochemicals sector, manufacturing commoditychemicals, catalysts, and specialty chemicals (mainly

surfactants). With growing international competition andhigh oil prices, the profitability of basic chemicals has

been decreasing over the past few years; the company istherefore attempting to shift its focus to the specialtychemicals market. In this scenario, product innovationhas become critical.

Oxitenos corporate culture has always been directedat operational excellence, focused on production costefficiency. Although operational excellence is stillstrategically important to the company, its managementalso believes that a stronger innovation-driven culture isnecessary. One marker of this trend is the offering of anInnovation Management course to mid-level managers.

Although the company has obtained good results onthe innovation front over the past years, it can still beconsidered conservative with regard to its willingness totake the risks inherent to innovation. This stance may be

partly explained by the sectors characteristics. Oxitenooperates in a segment where the investment required todevelop a new product is high and amortization periodsare long; consequently, innovation proposals requiregreater maturity.

b.Resources:Oxiteno allocates approximately 2% of its net

earnings to RD&E (Research, Development and

Engineering), above the Brazilian average and that of itssector. 4 Around 12% of its staff (approximately 140 people) is involved in RD&E activities. Of these 140,28% have technical education, 61% are chemical,engineers or chemists, and 11% hold master or doctoraldegrees. The Mau (So Paulo) unit houses the firms

4Average technological intensity (as measured by relative R&D spendingover earnings) of the 20 most innovative industrial activities in Brazil is1,0%. Data source: IBGE, Pintec 2003.

Technology Center, a 41.000 square-foot facility thatreceived an investment of around US$31 million inlaboratory equipment and pilot plants, used to developnew products and processes.

The RD&E function is carried out by three differentstructures within the company. The first is the New

Business Developmentarea, directly connected to thecompany Superintendency, and responsible foridentifying new market opportunities in already existingtechnologies in the company or the market, and also fordeveloping new scenarios or technologies, such asalcohol and oleochemicals. This area is also in charge ofdeveloping long-term operation strategies and projects.

The second area is Development and Applications,connected to the Commercial department. This area is incharge of the technical development of new products ornew applications for products the company alreadymanufactures. It is structured according to the targetmarket segments of the companys products, and dividedinto departments: Food Additives, Agrochemicals,

Personal Care, etc. The company also has laboratoriesthat provide analytical research support and a technicalinformation center, which conducts scientific literatureand patent searches. It is focused on market needs,identified by department technicians or by Sales andMarketing personnel.

The third area responsible for R&DE activity Process and Technology , attached to the Industrialdepartment, is directed at the development of new

processes to meet the needs identified by staff atApplication or New Business. This department alsoincludes the Catalyst Development area, which followsits own product development process, due to the

specificity of its products.

c.Competencies:The new product development at Oxiteno, from idea

inception to the implementation of the new product (or process), may be briefly described as shown in Fig.3.Depending on the type of project, the outlined steps may

be executed simultaneously, and their duration dependson the type of product, its degree of novelty, and theresources required the development of a new molecule,requiring new process, for instance, may take up to twoor three years.

The catalyst development flowchart is similar, but the

catalyst area (part of the Industrial department) is solelyresponsible for the entire development process. Thetimeline of new catalyst development is longer it mayextend to five years and its implementation depends onclient-side testing.


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Figure 3 Simplified new product development flowchartDevised by authors from study data

Oxiteno has an internal group, known as theTechnological-Scientific Committee, to aid in thedevelopment of technological strategies. It is composedof academic researchers and specialist consultants of the

petrochemicals industry, both Brazilian and from othercountries. This committee convenes every six months orso to discuss future trends in the sector and suggeststrategic technology directions for the company. The

most recent meeting was late last year, where, amongother topics, the committee detected future opportunitiesfor growth in the surfactants and oleochemicals nichesegments.

The current product development structure shows aconcern for meeting market needs and the needs ofspecific segments. Consequently, a strong concern forthe technical knowledge and expertise of employees can

be noticed. Even in commercial areas, the employmentof engineers and/or chemists is commonplace, as thecompany believes technical expertise to be paramountfor competency building, and also considers client andsupplier information to be important input for process

and product innovation. Due to the technologies and processes used by the company, a certain level oftechnical knowledge and training is required even offactory floor operators and laborers.

Oxiteno preferentially hires personnel throughinternships and trainee programs, and targets graduatesof first-line universities and trade schools.

d.InterorganizationalNetworks:The main source of innovation ideas for Oxiteno is its

customer base. A concern on the part of the companywith being directly in touch with its customers can beseen in the structural organization of the ProductDevelopment area. As well as product development, thecompany also offers services to its clients, such asanalysis and testing in company laboratories or pilot

plants.Another important source of innovation at Oxiteno is

its network of relationships with universities andresearch institutes. Contact with academic research is

particularly important to the catalyst area. The theory ofcatalyst development is still not fully established orunderstood by the market and academia; it is still at the

building stage, and therefore requires fairly heavy basicresearch work which would mean high risks and longdevelopment timelines for the company. In this segment,agreements between companies and researchers ateducational institutions, to arrange the execution of

development stages more closely dependent onexploratory research, are quite commonplace.

In areas that are considered strategic for thecompanys future, but in which the company still has nointernal competency, the establishment of partnerships

between the firm and research institutions or universitiesis also common. An example of such a partnership wasthe joint publication with FAPESP (the State of SoPaulo Research Foundation) of a call for proposals foralcohol and sugar chemistry projects to be executedcollaboratively. Another initiative is a nanotechnologyresearch program for the catalysts, agrochemicals, andthermoplastics segments, in partnership with the State

University of Campinas (Unicamp), the FederalUniversity of So Carlos (UFSCAR), the FederalUniversity of Campina Grande (UFCG), and the FederalUniversity of Rio de Janeiro (UFRJ).

A summary of the constituent elements of innovativecapacity found at Oxiteno is presented in Table 3.

V. DISCUSSION AND CONCLUSIONS

One may say that innovation is a wide-ranging andcomplex process, the result of interactions between severalfactors, including individuals, customers and clients,competitors, suppliers, the market, research centers, and otherknowledge producing institutions. Innovation may indeedimprove corporate competitiveness; however, to become areality, it requires a set of diverse management knowledge,

practices and skills. This set may be termed innovativecapacity of a firm, as defined above.

Step

Concept

generation:

New molecule or

new application for

a current molecule

Laboratory

Tests

Pilot plant

Tests

Process project

development or

acquire

technology

Process

Engineering

Process

Implementation

Mktg/Sales/

Application

Development and

Application

Process

technology

Process

technology

Industrial

Units

Development and

Application

Step

Concept

generation:

New molecule or

new application for

a current molecule

Laboratory

Tests

Pilot plant

Tests

Process project

development or

acquire

technology

Process

Engineering

Process

Implementation

Mktg/Sales/

Application

Development and

Application

Process

technology

Process

technology

Industrial

Units

Development and

Application


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Its limitations considered, this paper sought to contribute

to the debate on how companies may create organizational

environments conducive to innovation development, through

its culture, resources, competencies, and through the use of

interorganizational networks; these factors, as a set, areknown as innovative capacity. In the pursuit of this

objective, two case studies of companies showing product

innovation obtained through different practices wereconducted.

Although the obtained results cannot be generalized to the

universe of innovative Brazilian companies, they do tend to

confirm the basic premise that corporate innovation is largelyconditional to the existence of an organizational environment

conducive to its development. Innovation in companies is

therefore not spontaneous, but rather the result of systematic

investment (not necessarily financial) and continuous efforttowards it.

In the subject companies Brasilata and Oxiteno the

success of innovation cannot be satisfactorily justified by oneor two single factors acting as innovation promoters. We

may safely say that, in these companies, no isolated element(culture competencies, resources, and interorganizational

interactions) could possibly be effective. However, it becameclear during the course of this study that innovative capacity

presents with different configurations in different companies,

that is, in some corporate environments, it may be more

strongly influenced by certain constituent factors and less so

by others. In Brasilata, for instance, innovative capacity is built mostly upon its corporate culture and competencies,

while at Oxiteno it is built upon resources andinterorganizational networks, as suggested by Fig.4.

Figure 4 Dimensions of the Innovative Capacity at Brasilata and Oxiteno

After Hii and Neely [11]

Innovative capacity at Brasilata is more specifically based

on the development of an innovative organizational culture

and on competencies (knowledge), as represented byProjeto

Simplificao, which involves the participation of operational

staff on proposing new ideas, incremental suggestions, and

new products. Although it is systematized, the innovation

management process appears to be less dependent on a

formal organizational structure (product development is notrestricted to a single department) and more dependent on (or

more stimulated by) innovation-driven management

practices, many of them simple, such as idea boxes. Onesuch practice is massive employee participation in the idea

generation process, allowing innovation to stem from the

direct interaction of people from different departments.

A likely explanation, besides management practicesadopted, may be a characteristic of the sector Brasilata

operates in; a low technological density sector, where

empirical knowledge of the market and products may be

accessible to a greater number of individuals who may thenact as innovators, contributing competencies whthout

necessarily being employed by a structured, established R&D

department or having in-depth technical expertise on thetheme. In such a scenario, organizational culture and

competency are more important to the promotion ofinnovation than resources and interorganizational networks.

On the other hand, at Oxiteno, although organizationalculture and competencies are important to innovation,

resources and interorganizational networks are more so.

Oxiteno operated in a medium- to high-tech market segment,

and has a structured innovation management process, based

on interaction and relationships with clients, suppliers, andresearch institutions. Unlike Brasilata, where innovation may

stem from different in-company sources and employees at

several departments, the technological complexity anddensity of Oxiteno products and processes would make

spontaneous innovations, not based upon a structured R&D

effort, quite unlikely. This would explain the companystendency of recruiting professionals with a solid backgroundin its target technology areas specifically, chemical

engineers and chemists.

The main sources of ideas for innovation at Oxiteno are

the companys clients and its R&D process. As there is astructured R&D function, the companys concern with being

directly in touch with clients is noticeable. In fact, the

company goes beyond product development and also offersservices to clients, such as analyses and testing in company

laboratories or pilot plants. Another important source of

innovation, as well as clients and R&D, is the firms

relationship with universities and research institutions.

Contact with academia is paramount to development in thecatalyst segment. The theory of catalyst development is still

not fully established, which generates greater risks for

developing companies and justifies higher investment in

basic research, which, according to one interviewee, is bestdone by universities.

An analysis of the results of our empirical study allows usto conclude that the building of innovative capacity can have

different meanings in different types of companies that act in

market segments featuring diverse levels of technology. A


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greater understanding of how the building of innovativecapacity occurs across different industry sectors could assistcompanies in better allocation of their resources to leveragetheir innovative capacity. We suggest that future studieswiden the subject company base to different industry sectorswith diverse technological densities and different sources ofinnovation. More precise measurements for evaluating theavailable indicators of innovative capacity could also beemployed for more quantitatively robust studies.

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