Review of Innovation Practices in Small Manufacturing Companies Anthony Warren and Gerald Susman Smeal College of Business The Pennsylvania State University With the assistance of Jonathan Butz Anupam Jaiswal Prashant Jhaveri Tolga Sakman Prepared for National Institute of Standards and Technology United States Department of Commerce Table of Contents Executive Summary......................................................................................................................5 1. Background..........................................................................................................................9 2. Definition of Innovation As Applied to This Project.........................................................14 3. Models of Innovation.........................................................................................................15 4. Taxonomy Derived by Testing Factors Related to Innovation Success ............................17 4.1 Development of Primary Categories and Key Factors .............................................17 4.2 Research Methodology .............................................................................................21 4.3 Results.......................................................................................................................22 5. Support for Factors Included in the Empirically Derived Taxonomy ...............................27 5.1 Manufacturing OR Service? .....................................................................................27 5.2 The Role of Information Technology on Innovation................................................28 5.3 Business Model Innovation: The Bridging Function................................................31 5.4 Corporate Culture......................................................................................................31 5.5 Knowledge Management to Support Dynamic Product Development.....................32 5.6 Education and Outreach Implications.......................................................................36 6. Taxonomy Based on Assessing Foreign Models of Innovation ........................................37 6.1 Mittelstand Companies .............................................................................................37 6.2 Clusters .....................................................................................................................39 6.2.1 Definitions of Clusters .....................................................................................39 6.2.2 Cooperation and Competition within A Cluster ..............................................41 6.2.3 Virtual Clusters – Challenging Cluster Conventions.......................................42 6.2.4 Implications of the Secondary Research on Clusters.......................................45 6.3 Chaebol and Keiretsu................................................................................................46 7. Recommendations for the MEP Program ..........................................................................48 7.1 Provide Outreach Programs that Emphasize New Innovation Models.....................49 7.2 Develop “Train the Trainer” Course on Innovation Using Hybrid Problem-Based Learning ..........................................................................................49 7.3 Undertake Casework with MBA Programs ..............................................................50 7.4 Develop an Innovation Portal for U.S. SMEs...........................................................50 References ..........................................................................................................................53 List of Figures ............................................................................................................................3 List of Tables ............................................................................................................................3 List of Appendices ........................................................................................................................4 2 List of Figures Figure 1: Accelerating Waves of Technology Driven Social Disruptions.................................9 Figure 2: Growth in Number of Trade Agreements .................................................................10 Figure 3: International Securities Ownership...........................................................................11 Figure 4: International Currency Flows as a Multiple of Trade...............................................12 Figure 5: Synchronous Product Development..........................................................................34 Figure 6: Virtuous Knowledge Management Cycles ...............................................................35 Figure 7: Percentage of Population with Access to the Internet (2002)...................................43 Figure 8: Market Share of Semiconductor Products ................................................................44 List of Tables Table 1: Primary Categories for a Taxonomy.........................................................................18 Table 2: Secondary Factors for Taxonomy Development ......................................................21 Table 3: Outline for Discussion ..............................................................................................23 Table 4: Final List of Interviewees .........................................................................................24 Table 5: Results of Interviews Mapped onto Taxonomy........................................................25 Table 6: Cultural Attributes of Successful Innovative Enterprises.........................................33 3 List of Appendices Appendix 1: Task Order 5, Review of Innovation Practices in Small Manufacturing Companies, Statement of Work ..........................................................................55 Appendix 2: Current Debate on Innovation, Competitiveness and Offshoring.......................58 Appendix 3: Summary of Simons’ Research on Mittelstand Companies ...............................62 Appendix 4: The Warsaw, Indiana Cluster..............................................................................65 Appendix 5: Golf Equipment Cluster, Carlsbad, California....................................................68 Appendix 6: Additional Research and Experimentation on Virtual Clusters in Italy and Canada .............................................................................................70 Appendix 7: European E-Hubs Consortium Supporting Virtual Clusters...............................72 Appendix 8: Taprogge GmbH, Company T ............................................................................75 Appendix 9: PBR, Company P ................................................................................................90 Appendix 10: Company B (Anonymous) ..................................................................................99 Appendix 11: ChemStation, Company C ................................................................................102 Appendix 12: DeAngelo Brothers, Inc./DBI Services, Company D .......................................111 Appendix 13: Lutron Electronics Company, Inc., Company E...............................................118 Appendix 14: Summit Industries, Inc, Company F .................................................................124 Appendix 15: Company G (Anonymous)................................................................................131 Appendix 16: Company H (Anonymous)................................................................................138 Appendix 17: Restek, Company R ..........................................................................................145 Appendix 18: Lakeshore Cryotronics, Inc., Company L.........................................................149 4 Executive Summary This document is the final report for Task Order #5 (Appendix 1). The report is framed to answer the following question. “How do SMEs, both domestic and foreign, identify, develop, acquire, and implement innovations in their businesses?” The following definition of innovation was adopted: Successful innovation is the use of new technological knowledge, market knowledge, and business models that can deliver a new product or service, or product/service combinations, to customers who will purchase at prices that will provide profits. This definition served as a guide to develop three primary categories of organizational functions, internal, external, and bridging (see table below). Within each primary category, a set of key factors was hypothesized to be related to innovation success. These hypothetized relationships were based on secondary research from the academic and business literature. They were tested by conducting interviews with senior executives of SMEs that had shown a persistent and successful history of innovation, and represented a variety of market sectors, both domestic and foreign. The strategy for taxonomy development was to identify one or more patterns of factors that were related to success, and associate firms with them. A second strategy for taxonomy development was to take existing foreign models of innovation and assess their respective merits and applicability to the U.S. context. The foreign models were Mittelstand companies, geographical clusters, and chaebol/kereitsu. Primary Key Categories Success Factors IP management, knowledge management, IT