The Uncertainty-Embedded Innovation Process : A study of how uncertainty emerges in the innovation process and of how firms address that to create novelty

Despite much discussion in the literature of uncertainties in relation to the innovation process, there is little knowledge of how they emerge in this process. This thesis accordingly aims to understand how uncertainty emerges in the innovation process and how firms address that uncertainty to create novelty from the process. Uncertainty is embedded in the innovation process (Jalonen, 2012), which implies that it is not only a factor affecting the innovation process but also an outcome of the process itself. To fulfil the purpose of this study, it is important to understand how the innovation process unfolds over time. It is well established that innovation is a process of recombining resources (Schumpeter, 1934) through the performing and linking of certain activities in sequence (Richardson, 1972; Dubois, 1994; Bankvall, 2011) by various actors (i.e., firms and organizations) in a network context (Håkansson and Olsen, 2012; Lampela, 2012; Love and Roper, 2001; Pittaway et al., 2004; Powell et al., 1996). To fulfil the purpose of this study, the following research question has been asked: How and why do actors undertake and link resource recombination activities in a network context, thereby managing uncertainties in the innovation process? The thesis investigates the innovation process in two companies. One of the companies had completed its innovation journey and the other had almost done so. The discussion gives a detailed account of: the activities these companies performed alone and jointly with their partners in a network context; the resources they exchanged with each other and recombined to bring new solutions to the market; the uncertainties created in the process of recombining the resources; and the activities they undertook in response to address these uncertainties. The innovation process in the case companies is analysed in light of a conceptual model developed here based on Dubois’ (1994) “end product related activity structure model”, Håkansson’s (1987) “ARA model/network model”, and Goldratt’s (1997) “critical chain concept”. This study identifies the conditions under which uncertainties emerged in the innovation process in the studied companies. One of the significant conditions was resource unavailability, which was caused by actors’ reluctance to share resources, prohibition by government policy, and the resources’ own conflicting conditions and internal resistance (Håkansson and Snehota, 1995; Håkansson and Waluszewski, 2002; Waluszewski, 2004). Resource unavailability caused inertial and repetitive activities and delayed the process of producing an outcome, having such an impact on the activities under the condition of path dependency (Arthur, 1994; David, 2000). Another observed condition was the actors’ lack of knowledge of resource combination (Jalonen, 2011). A type of uncertainty that seriously affects the outcome of the innovation process is the activity void, a situation in which no activity is taking place. Activity voids are created from resource unavailability either by an actor’s reluctance to share resources or by the outcome of combining conflicting resource properties. The outcome of the innovation process is therefore affected by the key actor’s attempt to reduce the activity void by making compromises at the three levels, interplay among which construct the process, i.e., actors, resources, and activities. To manage uncertainties, managers make many compromises when they perform and link various activities. Although the underlying motivation for making compromises is rational, it is boundedly rational (Simon, 1957) because by making compromises, managers forego expectations of having all the properties or of being able to plan, undertake, and link activities as intended. This study also reveals that sometimes actors prefer not to make compromises despite knowing that this might cost a great deal. Accordingly, the findings suggest that compromises made within a working relationship allow actors to produce novelty without deviating from the desired path by ensuring access to resources and partners’ abilities. On the contrary, compromises not made in the relationship can threaten actors’ ability to produce the desired novelty, as the exchange of partners’ resources and abilities is hindered in a poor relationship. Compromises made in resource configuration and activities threaten actors’ ability to produce the desired novelty by limiting their choices, while compromises not made in resource configuration and activities allow actors to produce the desired novelty without deviation