Increase innovativeness: By shaping managerial perceptions of their environments

Nils Plambeck, Professor of Strategy and Business Policy - March 15th, 2012
Blue lightbulb switched on

Business environments evolve quickly and constantly. But how exactly do changes in technologies, demand, or regulatory rules lead to the development of new products? What triggers corporate innovativeness? According to Nils Plambeck and his at times surprising findings, the answer is multidimensional.

Nils Plambeck ©HEC Paris

HEC professor of strategy and business policy, Nils Plambeck’s primary research interests cover the determinants and consequences of cognition in an organizational context. (...)

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“I was interested in finding out what triggers innovation,” says researcher Nils Plambeck. “Given that this process would not work the same way for everyone, I knew I had to approach the question from an interpretive or cognitive angle.” Plambeck’s next question was thus, what kind of managerial perspectives inspire innovativeness? “We know from former research that negative emotions are the kind that most often elicit action, because they signal a need for change, yet, in spite of this, negative cognition receives only limited attention in previous research on entrepreneurship. So I chose to make the role of negativity in innovation a key focus of my study.” It also occurred to Plambeck that how managers see the world is very much driven by the organization in which she finds herself; in other words, organizational context is likely to influence the degree to which managers negatively interpret industry events. “I took an integrated approach to the phenomenon, exploring the interplay between managerial negativity and firm context, investigating how each separately and also jointly influences entrepreneurial activity.”


THINKING NEGATIVELY LEADS TO LESS INNOVATIVE PRODUCTS

Plambeck explains that when a manager evaluates a change to the industry environment in a negative light, they are assessing this event as likely to lead to losses for the company; put another way, managers with negative perceptions of triggering events feel threatened. Previous research shows that when threatened, decision-makers tend to seek less information, or information that is already familiar to them, making themless likely to seek out the kind of new information that will lead to the development of more innovative products. Hence, Plambeck’s hypothesis: the more negative a manager’s perceptions of the trigger event, the less innovative the resulting product. Ultimately, Plambeck’s findings confirm that negative interpretation of a trigger event is associated with products that are less innovative. Armed with this new insight, how can leaders practically control for cognition in innovation? The first step is identifying the factors that influence the negativity of managerial perceptions.


FIRM STRATEGY INFLUENCES HOWMANAGERS SEE THEWORLD

In his research, Plambeck distinguishes between more defensive firm strategies, characterized by a focus on maintaining market position, and more offensive firm strategies, characterized by a constant search to capitalize on new opportunities, with the goal of investigating a potential correlation between degree of firm defensiveness and negativity of managerial response to industry change. Ultimately Plambeck confirms that more defensive firm strategies lead to more negative perceptions in managers. “When firm strategy primes executives to see the external environment as a threat that they must defend the company against, their attention is led to more negative information than executives primed by an offensive strategy to view the external environment as a source of new opportunities.” Plambeck also investigated the extent to which the influence of firm strategy on innovativeness is mediated by managerial cognition. In other words, does having a defensive or offensive strategy predetermine innovativeness, or is its role in the perceptions of firm managers how it influences innovativeness? Plambeck finds that strategy in fact affects innovativeness in both ways: it partly predetermines innovativeness, by guiding company values and objectives, and it also influences innovativeness via its effects on managerial negativity.


INNOVATIVENESS: NOT A QUESTION OF MONEY

Plambeck identifies an ongoing debate over the role of firm resources in entrepreneurial activity. According to one school of thought, greater R&D resource leverage puts larger firms in position to develop more innovative products. Greater resources are also identified as a buffer that protects firms from uncertainties, potentially freeing managers to experiment more liberally. On the basis of these arguments, Plambeck set out to confirm if higher levels of resources cause managers to evaluate events less negatively. Meanwhile, the other side of the debate argues that high levels of resources can actually impede innovation, because greater size necessitates more formal rules and control mechanisms, which hamper innovativeness. Consequently, Plambeck also identifies a second, seemingly contradictory hypothesis on the effects of firm size: the greater the level of resources, the less innovative the products. Plambeck measured size in terms of number of employees and availability of slack resources. Ultimately, his findings confirm that more resources lead managers to respond less negatively to industry change and, similarly, that more resources do not lead to a lack of innovativeness. However, perhaps surprisingly, Plambeck found that, although not a deterrent to innovation, slack resources are also not a direct driver of innovativeness. Overall, Plambeck found that firm size affects managerial cognition, which influences innovativeness, but does not directly impact the degree of innovativeness of new company products.


“What these findings suggest is that if you want to be highly innovative, you may want to change your approach if you have a defensive strategy,” says Plambeck. “Seek outside information, and perhaps do not wait for triggering industry events to develop new products, because managers often perceive such events as threatening, and that negativity will lead to less innovative results.”



Based on an interview with Nils Plambeck and his article, “The development of new products: The role of firm context and managerial cognition.” ( Journal of Business Venturing, Elsevier 2011 )

PRACTICAL USES
PRACTICAL USES

By identifying what influences top managerial decision-making processes, Plambeck’s research makes it possible to adjust consciously for cognitive influences. “The first step is to be aware of this process of cognition.” Plambeck suggests practically controlling for cognition by reaching outside of the company. “Have you tried looking at the issue from a different angle? Talk to people outside the company, who are not exposed to the factors within your firm that shape your views on a given issue. Discussions with company outsiders — especially of industry events that seem crucial — do not necessarily happen naturally, which is why many companies organize formal collaborations with universities, consultants, or other companies.

METHODOLOGY
METHODOLOGY

To test his hypotheses, Plambeck and his research team collected data from 84 companies in the German automobile supplier industry. Researchers called each company CEO by phone to request the company’s participation and the name of the person in charge of product innovation. Questionnaires were then sent to the person identified as product innovation head. Questions tested for the degree of defensiveness of company strategy, availability of slack resources, the degree of innovativeness of the most recently developed product, and the degree of negativity of the respondent’s interpretations of the event(s) that triggered the innovation.