Chapter 1: Introduction
This chapter can be seen as an introductory part of this bachelor thesis, since this chapter introduces the topic of this thesis: innovation. Innovation is an important issue for firm’s growth and competitiveness, and the aim of this thesis is to relates innovation to financial crisis and to discuss how to manage innovation strategy during a downturn. This first chapter gives an introduction and the problem statement together with research questions which will be answered further in this thesis.
1.2 Problem Indication
The world is fast becoming a complicated place to life. Ages ago we were working on the field and exchanging goods for other goods to survive. Lords, kings and other high class people had the opportunity to get luxury goods due to their position. Industrial revolutions made an end to this way of life. Today we are living’ in the third revolution which is affected by fast economic changes and has competitive characteristics. To gain competitive advantage, a company should continuously invest in innovation (Hamel, 2000; Almeida et al. 2009), and therefore innovation has an important leading role in today’s economy.
Innovation can be defined as the commercial or industrial application of something new, such as a new product or process, a new type of organization, a new source of supply or product market (O’Sullivan, 2006 & Schumpeter, 1996; 66). Innovative companies are those that have the ability to see connections, to spot opportunities and to take advantage of them. (Tidd & Bessant, 2009).
Innovation is an expensive process whose outcomes are uncertain (O’Sullivan, 2006). It is expensive as the innovation process requires resources which companies may not have and need to gain, also because it takes a lot of time before the benefits can be measured. In the meanwhile a lot of internal and external changes can arise which may affect the outcome. As not all the companies have internal financial possibilities, innovation can be financed with external finance. Today’s financial crises make investors more careful in choosing the investments with higher returns. In the case of innovative projects however, investors must be willing to take great risk even if there is no guaranty the innovation will be a breakthrough innovation (Crawford & Di Benedetto, 2008).
Financial crisis, which have become more frequent since 1970’s, are creating an unorthodox set of challenges for companies all over the world. According to Nielsen (2009): “Instead of dealing with the challenges of managing growth and expansion many companies are now faced with the challenge of maneuvering in a highly volatile competitive landscape characterized by increased uncertainty, increased turbulence, and a general downward trend in many aspects of the economy.”
The distinguishing feature of innovation has become crucial in today’s fast changing economy which suffers of financial crisis now and then. According to Fischer (2004), it is scholars’ liability to protect innocent countries and their citizens by mitigating the impact of financial crisis. To do so, this thesis will attempt to discuss how companies should manage their innovation strategies to keep their competitive advantage in response to financial crisis.
1.3 Problem statement
“A crisis, such as the financial crisis that we have been experiencing over the last couple of years, can be either an opportunity for important new innovation, or a time of setback when innovation is delayed, or even reversed” (Shiller, 2010; 14). How companies can manage their innovation strategy in times of financial crisis is a result of this thesis formulated by the following problem statement:
‘How can a company manage its innovation strategy to keep its competitive advantage in response to financial crisis?’
1.4 Research Questions
The problem statement covers several terms: innovation strategy, competitive advantage, and financial crisis. Before answering the problem statement, following research question based on the three terms will be answered:
Innovation strategy and competitive advantage
What is innovation and which innovation strategies lead to competitive advantage?
Financial markets and innovation strategy
How financial markets affect innovation and innovation strategies?
Financial crisis affect innovation strategies
How financial crisis affect innovation strategies in the long and short term?
1.5 Research Design and data collection
This bachelor thesis is based on a literature study and thence it has an objective descriptive character. Books and academic papers are the most used source of information for this thesis. Scientific literature, like journals and books (secondary sources), are the bases of this study. They have been collected from the Library of Tilburg University and the Library of Radboud University Nijmegen. Specifically journals are gathered by JSTOR, Abi/inform, Wiley, ScienceDirect, Web of Sience, Elsevier and more. The non-probability sampling procedure, known as the snowball method, has been used to separate the usable information from the unusable information.
The topic of this bachelor thesis is innovation and the sub topic has been designed at the moment enough knowledge and data was gathered to be useful for research. A result of this process is this research proposal, and can be seen as a start of the ongoing project.
This thesis will be structured in line with the three research questions, which are formulated before. The first chapter will briefly introduce the topic of this thesis, followed by the problem statement and research questions. The second chapter contains de definition of innovation and strategies that are characteristic for innovation related to competitive advantage. The third chapter will discuss how financial markets affect innovation and innovation strategies. The last research question will be discussed in chapter four. In the fourth chapter not only financial crisis and innovation will be discussed, but also how firms have reacted on different financial crisis in the past. The purpose of the final chapter is to answer the problem statement by given an overall conclusion, discussion and recommendations. In order to that, this chapter describes the impact of innovation strategies on the competitive performance of an industrial company during a financial crisis.
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