Many product innovation studies have described key determinants that should lead to successful incremental product innovation. Despite numerous studies suggesting how incremental product innovation should be successfully undertaken, many firms still struggle with this type of innovation. Developing new products and services on a regular basis is one of the key activities for many organizations. New products are a means to gain market share and ensure the viability of companies. They have been referred to as the crucial sources for competitive advantage (Tushman et al. 1997). This is also the case for incremental product innovations. Incremental product innovations are not radically different from the current product portfolio, but are often refinements and extensions of existing products of a company and seem to involve primarily exploitation-oriented activities.
Micro regulative forces
Organizational structures and procedures are among the most frequently studied institutional elements. Many formal authority structures have defined clearly specified procedures to be followed, as well as associating penalties in the case of failure. In his case study in Canadian mining, Wicks clearly portrayed organizational structures as ‘organizationally-imposed’ rules controlling the behavior of employees. Elsbach argued that organizational procedures dictate the behavior of organizational members. Regulative forces have been associated with obtaining compliance with the field in which they are embedded and the pursuit of self-interest. When these rules are violated, punishment is administered. Formal structures and procedures and organizational systems therefore prohibit and enable individual behavior. Incremental innovations seem to benefit from structures and procedures that are familiar to organizational members. These innovations are typically consistent with the prevailing organizational archetypes (Greenwood and Hinings 1993), which suggests that developing and implementing them will be considered legitimate and should not be too problematic.
Micro normative forces
Normative forces introduce a prescriptive, evaluative, and obligatory dimension into social life, reflecting the values (what is preferred) and norms (how things should be done) of the social system. People in specific organizational roles are expected to fulfill certain social obligations). In the Westray mine example, Wicks showed that the underground miners fulfilled at least two roles; organizational roles and non-work roles. In the organizational roles certain ideas about how to act as a miner were stressed, whereas in non-work roles their families expected them to behave differently. Appropriate behavior reflects the normal way in which people do what they are supposed to do and is based on behavior that is expected and valued by other actors. These expectations are often perceived as external pressures to which one must conform. In the financial sector consistent performance at a high level and processing competency are highly valued. Raising uncertainties or increasing risks is not consistent with the ruling values and norms and is therefore most likely to be avoided. However, since incremental innovation is of an evolutionary nature, only a limited number of uncertainties are involved and firms are likely to engage in such innovation.
Micro cultural-cognitive forces
Cultural-cognitive forces include shared systems of meaning that arise in processes of interaction between organizational members. Eventually these systems are taken for granted by individual actors because humans tend to habitualize their actions. By repeating actions they become patterns that can be reproduced and transmitted to new entrants. Shared systems of meaning can arise within groups, but may differ between groups within the same organization. Dougherty empirically demonstrated that groups with distinct identities based on professional disciplines respond differently to new product development efforts. This is largely the result of frames that individuals use to make sense of their environment. Information has to be consistent with these frames or it will be repressed or ignored. Kaplan argued that framing is a political and self-conscious process in which meaning is negotiated between groups of individuals. This means that the frame that appeals to one group within the organization may not appeal to another group that has a different system of meaning.
The financial services sector in the Netherlands is an interesting research context for increasing our understanding of micro institutional forces in incumbent firms. It is a highly institutionalized sector that has been confronted with major changes that have challenged these firms to invest in new products. However, banks and insurance companies are not known for their innovativeness and many financial companies in the Netherlands struggle with incremental product innovation. A study by Volberda et al. (2001) showed thThis type of innovation mainly concerns improvements in existing ‘combi-products’. Combi-products resemble architectural innovations. The separate component parts of these products already exist, yet either the combination is new or one of the components has changed which creates new linkages with other components. As such, they also resemble Garud and Nayyar’s (1994) notion of transformative capacity in which firms combine resources spread over the organization. In our case, we are interested in improved versions of these products. This means that the linkages between components remain unchanged and the core concepts are reinforced. These improved combi-products are labeled incremental innovations. The complexity of these innovations concerns the reorganization of interdependent administrative procedures and the co-ordination of the multiple departments involved.
Two product development projects in separate business units were selected in each of the firms in close consultation with a business unit manager (see Table 2). Two selection criteria were used. The products had to be so-called improved combi-products, meaning that besides functional departments (such as actuaries, marketing, IT, and legal affairs) more than one product department was involved in the development process due to the multiple aspects of the product.
The organizations in our study demonstrated that new project based organizational structures did not function as they were supposed to at work floor level. Individual actions that were aimed at avoiding the old departmentalized structure were in some cases sanctioned. Exchanging information between departments was experienced as being difficult and at times undesirable.
Formal rules and procedures dictate organizational behavior in many business units in the financial services sector. Although these rules are often meant to improve the efficiency and effectiveness, they may also affect business units negatively. This was clearly the case in the unsuccessful projects in our study. Whereas employees in banks and insurance companies used to be appraised and rewarded for the number of policies processed, in the new structures this had not changed. Especially for smaller projects this has had its effects. Team members often hardly work on these projects because they fear that they will be sanctioned if the departments’ targets are not reached. The functional heads of departments were, therefore, unwilling to free some of their employees to work on new product development projects. As a result, incremental projects sometimes take up to 24 months to be completed.
The existing information systems are also an important regulative force, which set hard boundaries for new products yet to be developed. Product developers in all twelve failed projects complained that the IT department often claimed that when some new product was being developed the adaptations needed in the system were not possible. This necessitated adjustments in the product concept. In all twelve cases, this meant that the product concept was less innovative than was originally intended and as such the information systems inhibited the development of new products. A complicating factor is that it is not possible for people outside the IT department to judge whether adjustments to the systems are possible. It was frequently mentioned that IT personnel were not really interested in product development and often claimed that something was not possible. Most new products are still IT driven or at least guided by the state of IT. Most of the time the product concept would be adjusted in line with IT possibilities, because it was considered impossible to change the information systems.
One of the key features of the successful projects is their separation from the regular organization, not leaving room for ‘outside’ interference. The bureaucratic influences from the organization were successfully kept away from these projects, meaning that the team members could concentrate on their project tasks without being bothered with routine day-to-day activities. Several respondents claimed that the only way to avoid the excessive rules and procedures in their organizations was to isolate their projects. In these situations separate structures were designed to shelter the new product from the standing organization. Furthermore, in the successful projects the team members were reluctant to use formal rules and procedures.
Key to all the successful projects in our study was the idea of ‘letting go’. Several business unit managers claimed that every innovation project required a slightly different approach. They stressed, however, the importance of creativity and freedom to maneuver as the key to success.
The innovation literature emphasizes that incremental innovations do not differentiate much from existing product portfolios and therefore routine procedures and capabilities are sufficient to initiate this type of innovation. However, many incumbent firms still struggle with incremental product innovation efforts despite the numerous studies suggesting solutions to overcome potential barriers. Occasionally they are capable of successfully developing incremental innovations, which means that the innovation is developed and launched onto the market rapidly and smoothly. The main reason for this variation in success does not only come from better organizing projects or more sophisticated use of the available tools to develop new products, as has often been suggested by the new product development literature (e.g. Cooper 1999; Kahn 2004).