A Descriptive Model of the Intra-Firm Innovation Process

Author(s): Kenneth E. Knight

Source: The Journal of Business, Vol. 40, No. 4 (Oct., 1967), pp. 478-496
Published by: The University of Chicago Press
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 A DESCRIPTIVE MODEL OF THE INTRA-FIRM
INNOVATION PROCESS
KENNETH E. KNIGHT*

AS A resultof the rapidadvancesbeing what he learnedin childhood,but a great up-

made in science and technology,
innovation has become a key con-
cept in today's society. Every industry
and segment of Western society worries
about the introductionof improvements
in products, about productionprocesses,
heaval.... To assail the changes that have
unmooredus from the past is futile, and in a
deep sense, I think, it is wicked. We need to
recognizethe changeand learn what resources
we have [41,pp. 10-11].
I. INTRODUCTION

and about organizationalchangesin their A. DEFINITION

environment. The businessman investi- Many problems arise in defining "in-
gates new productsand productionproc- novation"within an organizationbecause
esses to see if they represent improve- of the value judgments attached to the
ments that he could adopt. Similarly,the term. One definitionwould be that when
averagehuman inquiresboth consciously a firm does something different it inno-
and unconsciouslyinto changes that will vates. The difficultyhere is that most of
make his life easier and more enjoyable. us expect an innovation to be something
While change is all around us, the most "good."We expect an economicimprove-
outstanding feature of innovation is its ment (cost savings, profit, etc.) to be of
mysteriousness. value to the organization. We also use
Both social and physical scientists "innovation" to refer to a socially ac-
have continually pointed out the tre- ceptable change. There can be negative
mendous changes in all aspects of our innovation-alternatives that do not be-
society today. The general feeling of come economicallyadvantageous-or an
most of us was summarizedby Oppen- unsuccessful innovation-modifications
heimerwhen he wrote: that eventually fail because they are not
In an important sense this world of ours is a accepted by society. Many problems
new world, in which the unity of knowledge, the arise if we try to define "innovation" as
nature of human communities, the order of so- an improvementtoward a socially desir-
ciety, the order of ideas, the very notions of
society and culture have changed and will not
able objective or to differentiatebetween
return to what they have been in the past. What large and small improvements.We pro-
is new is new not because it has never been therepose the followingdefinition:An innova-
before, but because it has changed in quality. tion is the adoptionof a changewhich is
One thing that is new is the prevalence of new- new to an organizationand to the relevant
ness, the changing scale and scope of change
environment.
itself, so that the world alters as we walk in it,
so that the years of man's life measure not some Including the term "adoption" in the
small growth or rearrangementor moderation of definition of innovation implies that the
* Assistant professor,GraduateSchool of Busi- organization has gone beyond the con-
ness, StanfordUniversity. ception of a new idea and begun to apply
478

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 MODEL OF THE INNOVATION PROCESS
it. There is a significant difference be-
tween the generation of the idea (crea-
tivity) and its introductioninto practice.
The innovation of a new product occurs
whenthe productis conceived,produced,
andused. The innovationof a production
processis complete only after it is in op-
eration. The innovation of an organiza-
tionalstructureis accomplishedwhen the
system has been set up and made opera-
tional.
When we use the phrase "new to the
organizationand to the relevant environ-
ment,"we are not limiting an innovation
to the first known use by mankindbut to
the referencegroups of the potential in-
novator. Introducing simple hand tools
into agriculturaluse in a primitive cul-
ture representsan innovation,just as the
first use of a complex biochemicaltech-
nique or elaborate mechanical farming
machineryin the United States is an in-
novation.
In this paper the processof innovation
is consideredas a specialcase of the proc-
ess of changein an organization.The two
differonly in the novelty of the outcome.
Sincethere are no data either to support
or refute this statement, "change" and
"innovation" will be used interchange-
ably in this paper. Hopefully, the follow-
ing analysis will be more general than a
discussion of innovation alone and will
also apply to change that people would
normallynot considerinnovations.
B. PSYCHOLOGISTSAND INNOVATION
Psychologists have emphasized two
relevant aspects of innovation-creativ-
ity and change in individuals' behavior
and beliefs. One major area of research
on creativity has been the determination
and measurementof different aspects of
creativity in individuals (e.g., [21]). An-
othermajorobjective of researchon crea-
tivity has been to understandthe thought
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479
processes that humans use to produce
new and novel ideas (e.g., [39, 57]).
Psychologistshave studied the processof
change in people in such areas as influ-
ence and persuasion (e.g., [22]). These
studies have investigated variables such
as messagesource,appealof the message,
and the personalityof the personreceiv-
ing the message to determinethe impact
of a given message on an individual'sat-
titudes and behavior. Research spurred
by Lewin [28] has led to the analysis of
the forces within a given individual that
produce change. From Lewin's work
evolved investigationsin groupdynamics
describingthe functioningof groups and
how they help shape and changethe atti-
tudes and behavior of an individual [6].
Further work in this direction has pro-
vided the applied behavioral scientist
with a frameworkwhich he can use to
create change. The objective of Bennis,
Benne, and Chin [2, p. 3] was "the appli-
cation of systematic and appropriate
knowledgeto human affairsfor the pur-
pose of creating intelligent action and
change."
C. ECONOMISTS AND INNOVATION
Economists have been the social sci-
entists who have carriedout the most di-
rect studies of innovation.However,they
have focused on the implications of in-
troducingnew developmentsratherthan
on the process itself. Economists have
presentedhypotheses as to the impact of
research and development on economic
growth (e.g., [1, 9, 19, 38, 51]). They
have investigated the role of govern-
ment's support of researchand develop-
ment (e.g., [38]) and the spillover into
civilian endeavorsthat results from gov-
ernment research and development ex-
penditures for defense efforts (e.g., [52,
56]). Economists with the assistance of
psychologists have investigated the
480 THE JOURNALOF BUSINESS
sources of innovation by measuringthe
personality characteristicsof the inven-
tor in order to provide descriptions of
past innovators (e.g., [29, 47]). They
have also studied and describedthe tim-
ing of inventions (e.g., [12, 30, 34, 47]).
One of the most interesting arguments
among economists concernsthe percent-
age of innovationsfrom large as opposed
to small firms and the relative advan-
tages of greater versus limited competi-
tion in increasing innovative behavior
(e.g., [13, 23, 33, 46, 48]). A final topic
that economistshave investigated exten-
sively is the rate of diffusionof new de-
velopments (e.g., [18, 31, 32]).
D. SOCIOLOGISTSAND INNOVATION
Sociologists have emphasized change
in their studies of organizations.Much of
this work has investigated (1) technolog-
ical developments and the impact they
have upon the social structure and be-
haviorof our society (e.g., [5, 40, 44]) and
(2) the creation of positive approaches
and steps that would facilitate change
[10, 11, 17].
In discussingplans for change,sociolo-
gists have emphasizedthe importanceof
unanticipatedconsequences.As early as
the writings of Marx, it was pointed out
that in the free-enterprise economy
events occur that no one desires. Entre-
preneurs who make modifications in
their behavior to increase profits may
find that their actions create a situation
of overproduction or economic depres-
sion. More recent sociologicalstudies of
organizational behavior (e.g., [16, 37,
49]) discuss a multitude of unanticipated
consequencesthat result from attempts
to change organizationsand the people
in them. Many sociological studies on
change have also emphasizedthe devel-
opment of strong resistance to change
(e.g., [16, 43]).
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E. RESEARCH ON THE PROCESS OF
ORGANIZATIONALINNOVATION
In summary,we find that the research
done by these psychologists,economists,
and sociologistshas helpedus understand
how individuals develop ideas, the reac-
tion of social structuresto new ideas, and
the importanceof new ideas to economic
development. One important but rela-
tively neglected aspect of the innovation
process has been the analysis of what
goes on within the organization-the
medium throughwhich new ideas get in-
troducedinto our society (e.g., which or-
ganizations are more likely to innovate,
what type of developments they are
likely to introduce, and which people
within an organization enacted the in-
novative behavior of the organizations).
An analysis of what goes on within an
innovative organization is the focus of
this paper.
The process of organizationalinnova-
tion consists of two majorphases: (1) the
creation of the idea and its development
and (2) the introductionand adoption of
the idea. Most of the research that has
been done on innovation has been di-
rected toward the first phase. While the
creation of the idea is crucial, the avail-
able evidence indicates that the innova-
tors often Ire not the creators [4]. We
will briefly review this literature on con-
ditions for creativity in the next section.
We will then concentrateon how innova-
tion occurs in an organizationalcontext.
There is little existing researchor theory
on the second phase.
II. CONDITIONS FOR CREATIVITY
Man has the capacity to combine ele-
ments, ideas, observations,and imagesin
manners not previously conceived by
himself or other men. Researchershave
not been able to enter the minds of crea-
tive individuals to study what actually
 MODEL OF THE INNOVATIONPROCESS
occurs. Instead they have been forced to
base their beliefs on investigations of the
attributes of a creative individual (e.g.,
the way he spends his time and his per-
sonality), the qualities of a creative solu-
tion, and factors in the environment that
foster creativity.
A. CHARACTERISTICSOF CREATIVE
INDIVIDUALS
Existing research leads us to the fol-
lowing conclusions about the creative
problem-solving process '
1. Creative problem-solving appears to be a
high-risk activity, that is, often erratic and
unpredictable.
2. Creative people appear to have a detached
devotion to their work; they have a deep
commitment to the problem they are trying
to solve, yet they are not so deeply immersed
that they are unable to see the problem in a
broader perspective.
3. Creative people are receptive to all kinds of
ideas. They will consider them and judge
them on their merits.
4. Creative people rely on free exploration in
that they actively go out and search for new
alternatives, advice, ideas, and opinions from
a wide variety of sources.
5. Creative individuals appear to commit them-
selves to a specific solution to their problems
later than their less creative counterparts.
6. Creative people tend to be non-conformists
and question authority and existing problem
solutions.
B. CHARACTERISTICSOF ORGANIZATIONS
THAT FOSTER CREATIVITY
The environment in which the individ-
ual participates has an important influ-
ence on his creativity. As one illustration
of the importance of the organizational
environment, consider "Gresham's Law"
of planning-routine drives out plan-
ning-which implies that when a person
is deeply involved in a very highly rou-
1 There are many recent studies that have at-
tempted to summarize our knowledge of creativity.
Detailed descriptions of our beliefs about creativity
can be found in [20, 42, 53, 54, and 55].
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481
tine activity he is not likely to involve
himself in creative problem-solving.He
is not likely to question his existing be-
havior and, therefore, is unlikely to be
creative. This indicatesthat an organiza-
tion which keeps employeesimmersedin
very routineactivities is not likely to be a
very creative one.
Social psychologists have pointed out
the great influencewhich groups have in
the determination of the goals, beliefs,
and behaviorof their members.The indi-
vidual seeks the supportof the groupand
in return abides by the norms of the
group. Extrapolating from this, we can
hypothesize that groups could have a
strong norm that either supports or dis-
courages creativity and innovation. We
would hypothesize that organizations
which reward people for creative ideas,
allow freedomto select and pursueprob-
lems, provide open communicationchan-
nels, and encouragedifferentand unusual
points of view would both attract and
develop more creative people. We know
that many organizations have tried to
foster an atmospheresimilar to the one
just outlined by setting up special
"think" groups through brainstorming
or Synectics sessions.
While there has not been extensive re-
searchon characteristicsof organizations
that foster creativity, we can conclude
that this is an importantarea for further
research.2
III. INNOVATION
The creative idea and its development
represents the seed germinated by the
innovator. To develop a clear picture of
the processby which new ideas are intro-
duced into an organization,we must pro-
vide a way of classifyingthe innovations.
2 Steiner [54] gives the most extensive discussion
of this topic.
482 THE JOURNALOF BUSINESS
A. INNOVATION CATEGORIES
We present a scheme based upon four
majortypes of innovations.We must em-
phasize that these four categories of in-
novations are highly interrelatedso that
an innovation of one type is very likely
to create additional changes in one or
more of the other three categories.
1. Product or service innovations.-
These are the introductionof new prod-
ucts or services which the organization
produces,sells, or gives away.
2. Production-process innovations.-
These are the introduction of new ele-
ments in the organization's task, deci-
sion, and informationsystem or its physi-
cal productionor service operations,the
advances in the technology of the com-
pany.
3. Organizational-structureinnovation.
-This includes the introduction of al-
tered work assignments, authority rela-
tions, communicationsystems, or formal
rewards systems into the organization.
This category is in part complementary
to category 2 since it includes the for-
mal interactions and authority relations
among the participants in the organiza-
tion that are establishedto form the pro-
duction process. In addition, this third
category includes the other aspects of
formal interaction among the people in
the organization.
4. People innovation.-This is one of
two alternatives that produce direct
changes in the people within the organi-
zation: (a) altering the personnelby dis-
missing and/or hiring and (b) modifying
the behavior or beliefs of the people in
the organizationvia techniques such as
educationor psychoanalysis.
The innovations in each of these four
categories could have either positive or
negative impact on the goal achievement
of an organization.
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B. INNOVATION RADICALNESS
In addition to the positive or negative
dimension of an innovation, we must
consider the extent to which it differs
from existing alternatives. We will use
two independentmeasuresof radicalness.
First, performanceradicalnessdescribesa
measure of the increase (or decrease) in
the ability to perform a required task.
For many innovations we will be able to
talk about the change in performanceit
creates relative to the existing products
or services, production processes, or
people. To determine performanceradi-
calness, it is necessaryto obtain a meas-
ure of output of the organization,prod-
uct, etc. "Performance radicalness,"
then, is definedas the amount of change
in output that results from one innova-
tion when comparedwith a second one.
A largechangein output, positive or neg-
ative, that results from the introduction
of a new idea is definedas an innovation
high in performanceradicalness.
Second, structuralradicalnessdefines a
measureof the extent to which the struc-
tural arrangementdiffers from existing
ones. All four categories of innovations
will have a measureof structuralradical-
ness. For example,with productsor serv-
ices the amount of changein the physical
design of the productor the design of the
proceduresinvolved in the service would
be a measure of the structural radical-
ness. In the case of organizational-struc-
ture innovation, structural radicalness
would be measured by the extent to
which the various elements such as com-
munication, authority, or reward ar-
rangements in the organization have
changed. To determine the structural
radicalness,it is necessary first to devel-
op a description of the structure of the
product, production process, organiza-
tional structure, or behavior of people.
 MODEL OF THE INNOVATION PROCESS
This structurewill consist of several lev-
els where the lower levels represent ele-
ments which specify in greater detail the
higher elements. Such a structural de-
scriptionwould mean that a change in a
higher structural level would require a
change in all the lower ones. With such a
description,changesin the highest, most
general,structurallevels will be the more
radical changes (see [24] for an elabora-
tion of this concept).
With this general frameworkfor de-
scribing different innovations we now
proceedto describefactors that influence
the innovativeness of an organization
IV. THE INNOVATIVE ORGANIZATION
Today's firm is continually evolving.
In many instances we find it actively
searchingfor new products, new produc-
tion processes,modificationsin organiza-
tional structure, new people, or contin-
ued education for currentpersonnel.An
organizationrepresentsan adaptive sys-
tem that must continually improve its
performanceto keep alive in modern so-
ciety. We mentioned earlier the impor-
tance of referencegroupsin moldingper-
sonal objectives and desires. One of the
reference groups for most individuals
workingfor a particularfirm is the com-
pany itself. Being in an organizationin-
fluences the behavior of every partici-
pant. Although it is impossible to talk
about a generalset of normsor goals for a
companyand expect that everyonein the
organization accepts them, there are
some general forces that can be attrib-
uted to the activities and performanceof
the firm. To describe the innovation
process in a company, it is important to
consider problem-solvingwithin the or-
ganization and to examine the desire of
the company for different types of in-
novations.
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483
We hypothesizethat organizationsdif-
fer in their recognition of the need for
changes, in their search patterns, and in
their searchproceduresto find a satisfac-
tory solution.The organization'srecogni-
tion of the problemis determinedpartly
by its ability (or inability) to obtain the
goals it has set. If it meets its goals, it is
successful;if not, it is a failure. Here we
must draw a careful distinction between
what an outsider sees and what the par-
ticipants believe. Our interest is in the
perceptionof the insiders-whether they
feel their organizationis successful.
Cyert and March [7] wrote about the
organization's perception of its success
based upon researchconcerninglevel of
aspiration. They hypothesized that an
organization'sperceivedsuccess depends
upon its past history rather than on an
absolute level of performance. One or-
ganization may be doing exceptionally
well in the eyes of society, but, because
it is doing poorly relative to its past ex-
perience, the participants perceive the
performanceas unsuccessful. Moreover,
within an organizationdifferentsubunits
will often have different perceptions of
the organization's success. The varia-
tions occur because of the members'dif-
ferent objectives and their many stand-
ards for measuringperformance.
Cyert and March [7] hypothesized
that the innovative behavior of an or-
ganization will differ depending upon
whetherit perceivesitself as successfulor
unsuccessful.An experimentby Knight,
Leavitt, and Freidheim[26]made a simi-
lar hypothesis, and the results indicated
that groups indeed exhibit different be-
havior under conditionsof success, mod-
erate success (i.e., a close second), and
failure. In discussing our model of the
organizationalsearch process below, we
will talk about several degreesof success
484 THE JOURNALOF BUSINESS -
-andthe types of searchthat are likely to
ensue.
Another factor that determinesan or-
ganization's recognition of the need to
innovate is its goals. In many situations
the individuals and groups within the
firm will have a specific objective to in-
troduce new developments. Innovations
stimulatedby this objective will be more
regularand routine. Routine innovation
will represent our first example of pres-
sure which an organizationasserts on its
membersto introducenew ideas.
A. ROUTINE INNOVATION
For some people innovation is an as-
signed task. We will classify this type of
change as programed innovation, since
these changesare clearly specifiedby the
organization. There may be creative
problem-solving in the creation of the
idea, but once it occurs the organization
has well-definedroutines and procedures
for evaluating and implementing the
idea. Style changes are the types of
changes that we usually see in the cate-
gory of programed innovation. Minor
modificationsin the product and minor
extentions of the product line are other
developments that usually occur rou-
tinely. Many American industries-au-
tomotive, home appliance, soft goods,
and most other consumergoods-can be
classified as style merchandisers,where
the structure,elements,and performance
characteristicsof products change little
over the years but the style, colors, and
minor decorative options change quite
drastically from one year to another.
These style changes are necessary if the
organizationis to continue to thrive and
produceproducts that are demandedby
the public. Style innovations occur in
most of these organizationsas a routine
procedure.The firmhas a subunit to cre-
ate or gather new design ideas. The de-
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sign grouphas virtually completeauthor-
ity to make changesin the productline or
the product style from year to year, and
these changes create only minor (if any)
disturbances within the organization.
The innovations deal with the product
and come regularlyso that the organiza-
tion expects that every six months the
next season's style will be introduced.It
is infrequentthat programedinnovations
deal with the productionprocess,organi-
zational structure, or people within the
organization.
B. NON-ROUTINE INNOVATION
Now considerinnovations that are in-
fluenced by the success or the lack of
success of the organization.For matters
of simplicity,and becauseof our inability
to distinguish accurately between de-
grees of success or failure, we will divide
our non-programedinnovation into only
two categories.First, slack situations are
those in which the organizationperceives
itself as successful. Cyert and March [7]
hypothesized that success produces ex-
cess resourceswhich the firm can decide
to use in a variety of ways-slack. Sec-
ond, in the distress condition the organi-
zation perceivesitself as being unsuccess-
ful.
1. Slack innovation.-Slack conditions
occur when the organization is rather
contented with itself. Under these situa-
tions we expect to find wide searchon the
part of the organization for new ideas.
The search carried on by the organiza-
tion will be externalto the organization's
structure and people. The search will be
supplementary-research and develop-
ment laboratorieslooking for new prod-
ucts, new processes,a new group to add
to the organization.As another example,
the norm for education in our society
implies that in a slack condition we can
expect an organizationto emphasizeedu-
 MODEL OF THE INNOVATION PROCESS
cation for its employees to provide them
with new knowledgeand skills.
One major hypothesis we are making
is that the intent of the people within the
organizationin a slack situation is to try
not to disturb the internal structureand
operation of the organization. The or-
ganization in the slack condition spends
heavily on researchand developmentac-
tivities to keep on top of the new knowl-
edge in its world in orderto get a signifi-
cant head start on its competition in 'the
area of new products and processesthat
will keep the company successful in the
future. The organizationin a slack condi-
tion obtains a new group or additional
educationfor severalemployeesin opera-
tions research, behavioral science, or
marketingresearch.While applyingtheir
skills and knowledge, these people often
bring about innovations in the organiza-
tional structure and people although
these represent changes that the com-
pany had not planned on. Operations-
research groups interested in facilities-
scheduling and behavioral scientists in-
terested in management educat1ionand
organizationaldesign have recently en-
tered organizations under slack condi-
tions. After being given power and influ-
ence in the organization,they have often
produced innovations in the organiza-
tion's structure.
2. Distress innovation.-The second
conditionthat we describedis that of the
unsuccessfulcorporation.A company in
an unsuccessful position is likely to
searchfor differenttypes of changesthan
it would in a slack situation. Knight et al.
[26] and Cyert and March [7] hypothe-
sized that internal changes 'will occur
rather than changes in products or proc-
esses. The company does not have the
excess resourcesto look outside. It can-
not affordthe risk and high cost of intro-
ducing a new product or process, and,
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485
instead, the company will emphasize
cost-reduction projects. The company
will often fire the president, reshuffle
people, and apply great pressure to cut
costs in an effort to become successful
again.
Under conditions of mild distress we
hypothesize that the organization be-
haves logically. That is, the organization
adopts moderate rather than extreme
steps or great alterations.If these do not
work, the company moves to great dis-
tress wherewe expect more radicalmeas-
ures and random search. These more
radicalmoves are seen as being necessary
and functional as-the company finds it-
self seriously threatened and in greater
need to find a significant performance
improvementto save itself. We hypothe-
size that a companyin great distresswill
behave less predictably than organiza-
tions under the other conditions we de-
scribed.
Our hypotheses about slack and dis-
tress innovations representone explana-
tion of why Mansfield [33] and Knight
[24]found that the successfulfirmsmade
more radical and more frequent product
and process innovations than the unsuc-
cessful firms. Since most of the existing
data on innovation come from research
on technologicalchanges,we can do little
more than-hypothesize about distress in-
novation. But distressinnovation is very
important, and although it is not as
glamorousas new technologies,we badly
need data to test the hypotheses just
proposed.
C. GENERAL MODEL OF ORGANIZA-
TIONAL SEARCH
We have briefly describedthree types
of search. These three categories can be
combinedinto a general search model in
which we predict the behavior of an or-
ganization's search endeavors. For in-
486 THE JOURNALOF BUSINESS
stance, we hypothesize that programed
innovation in American firms is inde-
pendent of the slack or distress condi-
tions of the organization. A company
whose slack innovations are successful
will remain in a slack condition. Should
the firm fail to introduceprofitablenew
developmentswe predict it would move
to the distress situation. Likewise, an
organizationin the distress condition is
likely to move to the slack condition if
its distress innovations are successful.
We will even hypothesize that in a dis-
tress conditionthe companywill initially
concentrate upon the internal changes,
the cost reductions,and the reshufflingof
people. If these attempts prove unsuc-
cessful,the firmwill move from mild dis-
tress to greater distress and will attempt
a wider and more frantic search.Figure 1
outlines the flows we hypothesize.
The GeneralModel of Organizational
Search serves as a frameworkthat de-
scribes the organizationalenvironment.
An organizationinnovates only when its
participants carry out the introduction
of a new idea. As with creativity, we ob-
serve significant variation in the extent
to which differentpeople are innovative.
V. THE INNOVATOR
The innovatorrepresentsthe interface
betweenthe creativeidea and the organi-
zation. The innovator or change agent
introduces and carriesout the introduc-
tion of the idea. For a personto innovate
he must have two attributes. First, he
must have an idea and the desire to in-
troduce it. Second, he must have the
means with which he can successfully
bring about the change.
A. DESIRE TO INNOVATE
Innovation rarely just occurs in an
organization.It is broughtabout by con-
scious efforts of one or more individuals
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to create change. We will attempt to de-
scribethe processby which these individ-
uals manage to alter the products,
productionprocesses,structure,or people
of an organization.Onceagain,we should
mention that case studies of innovation
frequentlyfind the innovatorto be some-
one other than the creator.We frequently
see an entrepreneurwho latches on to one
or more ideas and tries to "sell" them to
an organization or develop a new or-
ganizationin which he can use the ideas.
Because there are almost no data about
what goes on in the mind of the innova-
tor, this section will consist of hypotheses
that we wish to explore.
1. Theinnovator'sproblem-solving proc-
ess-rational aspects.-The innovatorhas
a practical problem to be solved and
searches for an idea or discovery that
will solve it, or he has an idea or discov-
ery and he tries to find a practical prob-
lem that his knowledge will solve. We
need to consider the innovator's prob-
lem-solving process (see Fig. 2). In this
section we hypothesize that the process
of the innovator differs from the non-
innovator in only two respects-what he
sees as the problem and what alterna-
tives he considersin his search to find a
solution to the problem.
We hypothesize that first a problem
must be recognized.As we can see from
our general model of the innovative or-
ganization, there are many explicit in-
novation-problem categories that con-
front the individualsin today's organiza-
tions in the form of routine style and
product changes, new-product develop-
ment, management education, or engi-
neeringto decreaseproductioncosts. To-
day's organizationshave many employ-
ees looking outside the organization to
find situations or problems which the
"firm" should worry about, examining
what the competitionis doing, determin-
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488 THE JOURNALOF BUSINESS
ing what new needs their customershave,
or exploring new scientific and techno-
logical developments.In the search that
follows to solve the problem, the poten-
tial innovator arrives at an alternative
that would result in his producing an
innovation or change.
In the individual's search to find a
problem solution, he must work within
the limits of his cognitive capabilities
[35].Therefore,we expect to find the in-
dividual innovating in an area of his
knowledgeand experience.
with both a detailedunderstandingof the
problem to be solved and knowledge of
the specific technology that led to each
particulardevelopment.
In areasthat are not tied to very com-
plex technologies, we can expect to find
innovatorswho searchfor ideas that they
could exploit-the promoter.To increase
innovation, organizations should bring
individualswith knowledgeof a problem
into contact with people who have skills
or knowledge that offer potential solu-
tions to their problemsor should place a

Individual Recognition Search Problem-Solution

of a
Problem N Process Innovation

For example: Satisfactory solution:

1. Frustration 1. Memory 1. Productor
(block) 2. Search strategy service
2. Curiosity 3. Criteriafor 2. Production
3. Competition evaluating po- process
4. Programed routine tential solution 3. Organizational
change structure
4. People
FiG. 2

Currently,psychologists are involved person with new skills or knowledgeinto

in extensive researchto understandhow
individuals solve problems. As we learn
more about how individuals use their
memory,develop and changetheir search
strategy (heuristics), and evolve criteria
to determinewhen a possible solution is
acceptable, we will greatly increase our
understandingof the innovator.Until we
learn more about how the innovator
solves problems we must confine our
analysisto generalexternalfactorswhich
describe the innovator and the innova-
tive situation. In a study of innovationin
the digital-computerindustry, covering
hundreds of computer innovations be-
tween 1944 and 1962, Knight [251found
that the firmsthat innovated had people
a situation that exposes him to problems
that his special competence can solve.
2. Theinnovator'sproblem-solvingproc-
ess-his rolein the organization.-Recog-
nizing the importance of the logical as-
pects of problem-solvingis not enough;
the emotional aspects must also be con-
sidered.Emotional and social factors are
likely to play a very important part in
the behavior of the innovator. Unlike
creativity, innovation almost always in-
volves social interaction. We should ex-
pect, therefore, that a person's beliefs
about himself and his relationshipswith
other people will be very important in
determiningwhether or not a particular
individual is an innovator.

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 MODEL OF THE INNOVATIONPROCESS
Goffman [15] hypothesized a strong
connection between an individual's be-
havior and the image he has of himself.
There are many groups in our society
which under certain conditionsare likely
to be innovative as the result of the im-
age of their function in the society-their
role in life. For example,most of the sci-
entific, engineering,and industrial com-
munitiesin the Westernworldhave come
to accept the belief that to innovate is
desirable. We could almost say it is a
generalfeeling that change itself is desir-
able in Western society. Considerable
prestigeand social status is attached to a
person who innovates, the person on the
forefront, the person who expands the
horizons of knowledge and introduces
that knowledge to society as an innova-
tion.
Deviants are anothercategory of indi-
viduals whom we see as innovators.The
deviant rebels against the existing au-
thority by questioningan organization's
existing processes, products, organiza-
tional structure,and people. He continu-
ally looks for ways to criticize current
behavior and suggests alternatives. Peo-
ple become deviants for emotional rea-
sons of which they are often unaware.
Professionalsof all types representan-
other category of innovators in our so-
ciety. The professional typically is not
fully committed to the organization
which employs him. He retains a com-
mitment to the norms of his profession.
Many organizations have accountants,
lawyers, scientists, engineers,operations
researchers, psychologists, etc., all of
whom belong to and spend much of their
time interacting with a reference com-
munity outside the organization. For
some people the orientation of his refer-
ence communitywill be for change;other
personsjust strive to bringabout changes
that would make the organization that
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489
employs them consonantwith the norms
of their profession.
Strong referencegroups often develop
where a individuals come together be-
cause they are the same age, have shared
similar experiences, etc. They then de-
velop their own norms and set out to
modify the organization.Socialpsycholo-
gists observe that people in our culture
depend heavily upon social support. For
this reason we find that a group of co-
horts is often present when innovation
occurs. The cohorts could be men who
are all the same age, a group which has
an educational experience that differs
from the other members of the firm, a
groupof workersdrawntogether because
they interact with each other every day,
etc.
Situations where groupsof cohorts be-
cameinnovatorswerestudiedby Selznick
[49] and Dalton [8], who found that
groupswith mutualinterestswereformed
to create or resist change. These two de-
scriptive studies point out that an or-
ganization consists of many cohort
groups trying to obtain different objec-
tives. Cyert and March [7, pp. 26-43]
describedthe processby which organiza-
tional goals are determinedas the forma-
tion of coalition objectives through bar-
gainingamongthe differentgroupsin the
organization. The organization repre-
sents a dynamic system in which new
groups of cohorts form and others die so
that there are continually shifting de-
mands upon the organizationfor changes
in products, processes, organizational
structure,and people.
There are two types of cohorts, with
differentinnovation objectives. The first
group consists of individuals both from
within and outside the organization-in-
ternal-externalcohorts. A group of pro-
fessionals or semiprofessionalsin an or-
ganization such as lawyers, scientists, or
490 THE JOURNALOF BUSINESS
computer systems programers is an
exampleof this type of cohort. The sec-
ond type consists of people within the
organizationwhose interests and refer-
ence groups are inside the firm-local
cohorts.
The internal-externalcohorts, in con-
trast with the local cohorts, have strong
external ties so that we can expect that
their innovation objectives will differ
from those outlined in Figure 1. Because
of their more cosmopolitaninterests, the
internal-externalcohortsare likely to ex-
hibit less fluctuation in their innovation
strategy between slack and distress con-
ditions. We can expect the internal-
external cohorts to be more likely than
the local cohorts to advocate mild inno-
vations in organizationalstructure and
peoplein a slack situation. Alternatively,
the internal-externalcohorts will be less
likely to advocate radicalorganizational-
structure or people innovations in the
distresssituation.
B. POWER TO INNOVATE
For an individual to introduce a new
idea successfully, he must have the ca-
pacity either within himself or available
within those who supporthim or his idea
to carryout the change.The powerneeds
to be only great enough to cover those
aspects of the environment that will be
altered.
Control of the environment to be
changedoccursat all levels in the organi-
zation. If we talk about the operatorof a
machinetool, he probablyhas the power
to make limited changesin the setup pro-
cedures, minor modificationsin the use
of the tool, or small adjustments in the
speed at which the machine runs. The
organizational president, on the other
hand, has great control over all types of
innovation in his organization. The in-
novations from a machine-tool operator
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will be much less radical than those of a
corporate president. In these examples
both men operatewithin an environment
where they have the capability of seeing
that the innovationis successfullyimple-
mented. For this reason there is great
truth to the statement that most impor-
tant innovations are imposed from the
top down.
1. Formal organizational power.-
There are two ways that we can view the
formal organizationalpower and its im-
pact upon an individual's ability to in-
troduce new ideas.
a) Formalorganizationalhierarchy (a
few examplesare illustrated in Table 1):
Basically the higherthe person'sposition
in the formal hierarchy,the more likely
he is to be a successfulinnovator and the
more radical the development that he
will be able to introduce. Alternatively,
at the lowerlevels of the organizationthe
people can introducefewer and less radi-
cal types of innovations.The hypotheses
hold for both positive and negative in-
novations.
b) Formal decision-makingand task
activity: The second form of formal or-
ganizationalpowerderivesfrom the posi-
tion of individualsin the decision-making
system. Today we can describe a large
organizationas having three levels of de-
cision activities, which differ in the
amount and types of innovations ex-
pected from them. Thus, these three lev-
els of decision and work activity are
majordeterminantsof the formalorgani-
zational power to innovate. This power
comes from individuals attending to
problems that have been assigned to
them by the organizationwhere part of
their job is to create change and innova-
tion within the organization(e.g., organi-
zation planners, market researchers,en-
gineers, and operations researchers).
Formal approval is given for their in-
 MODEL OF THE INNOVATION PROCESS 491
novating. These individuals are often environmentwithin which the organiza-
professional or semiprofessional and, tion operates to develop a combination
therefore, seen as competent because of of routine and slack innovations.
special training or experience. Activity at the highest level attempts
The lowest level of decision-making to modify and improve the activities at
and task activity consists of routine pro- the middle level. Organizationaldesign
duction-getting the raw materials to- and long-rangeplanning are examplesof
gether, manufacturingthe product, sell- the highest level activity aimed at creat-
ing the finished good, and record-keep- ing slack innovations such as moving
ing. The tasks at this level are not aimed into new product areas or setting up new
at producinginnovation, and we expect researchfacilities. A rough model of the
TABLE 1
POSITION IN THE FORMAL HIERARCHY AND POWER To INNOVATE

RADICALNESS,BY CATEGORY
OF INNOVATIONS

FORMAL
ORGAZATIONAL
Product or Production Organizational P
HIERARCHY People
Service Process Structure
(SELECTEDExA1WPLEs)

High Med. Low High Med. Low High Med. Low High Med. Low

Chiefexecutiveoffi-
cer X ........ X ..... .. X .X ..... ..X .....
Vice-president. X ..... ..... X ..... ..... ..... X X ..... .
Staff Division head. X ...X.......... ..... X ..... ..... X .....
person- I
nel at Plant manager. ..... .......... . .... X.. X X .
.....
several I
levels General supervisor. ..... ............... X .X ...... ..... . . . ..X... X
kForeman . . .| . X .. ..| X . | | | |.| X

Worker......... ..... . X ..... .. X ........... . ..... ........

to find few new ideas originating here. interaction between the levels of task
The few modificationsmade will be of activities is summarizedin Figure 3.
low radicalness. A few examplesof an individual'sposi-
The second level of decision-making tion in the formal decision-makinghier-
and task activity is aimed at changing archy and his power to innovate are
and improvingthe routine productionof shown in Table 2.
the people at the lowest level. Examples c) Creation of a new organization:
of individualsat this secondlevel are sci- This third techniqueis a subset of formal
entists working on the creation and de- organizationalpower but deserves spe-
velopment of new products, engineers cial consideration. Frequently we find
working on improving the production that in order to introduce an innovation
process, and market researchersevaluat- a new subunit or new organizationis de-
ing sales techniques. The tasks at this veloped, creating structural innovation
level have the people interact with the to introduce another innovation. This

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492 THE JOURNAL OF BUSINESS

new semiautonomousunit has both the and Heron [45] for the jet engine. To
desire and the power to innovate. Crea- date, this form of innovation seems to
tion of a new organizationalimage occurs have occurred most frequently for a
because the parent firm ignores a new product, service, or production process.
development. MacLaurin [30] pointed The new unit couldbe a completelysepa-
this out for the developmentof commer- rate firm or a subunit of the established
cial wireless transmission and Schlaifer organization.

Slack Organizational Long- range General

innovation Design Planning economic,
technological,
Slc an
Slack and
: Research & E . M e Operations
social,and
political
innovations
innovahionsI Development
.
Research environment

Minor I ,
spontaneous - Purchasing- Manufacturing
- Sales - Accounting
innovations

Key: -- Formal organizationpower to innovate

-- Informationflow

FIG. 3

TABLE 2
POSITION IN THE FORMAL DECISION-MAKING HIERARCHY AND POWER To INNOVATE

RADICALNESS, BY CATEGORY OF INNOVATIONS

FORMALFuNCTIONALPROBLEM- Pol
Product or Production Organizational
SOLVING HIERARCHY.reoe
(SELECTEDHiERAcEy Service Process Structure
(SELECTED ExA1{PLES)

High Med. Low High Med. Low High Med. Low High Med. Low

Slack innovation:
Organizational design ........... ......... ..... X .. ..... X ..... .....
Long-range planning ....... .......... X ..... .. X . ..... X ..... .....
Slack and routine innovation:
Research and development. X .......... .......... . ........... . X .. ..... X
Engineering .. ................ . X ..... ..... .....X . X . ..... X
Marketing................ ..... .X ...... . X . ..... ..... X .. ..... X
Operations researchers. .
....... X. X ..... ............. X .. ..... X
Minor spontaneous innova-
tions:
Purchasing........ ..... ....... X .......... X . .... ..... ..... ..... X
Manufacturing ........ ..... ..... X ...... .X ..... . X ..... X
Sales ........ ..... . X..... . . .... ..... ..... XX . ... X
Accounting . .
......... ...... .
............ ..... .......... ..... X .. ..... X

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 MODEL OF THE INNOVATIONPROCESS
2. Informal organizational power.-
There are a large number of informal
ways in which individuals are able to
bring about changes in an organization.
Descriptivestudies of organizations(e.g.,
[8, 16]) have given us significantinsights
into these techniques.
a) Cohort group: We have already
discussed the importance of cohorts in
providingthe desireto innovate.Through
the power and strength obtained from
the cohort group, innovators are able to
withstand the politicalstrugglenecessary
to create change.The cohort groupoften
gives a person power and strength in
terms both of organizational influence
and of psychologicalability to withstand
the attacks made upon him.
b) Coalitionformation:Closelyaligned
with the cohortgroupis the formationof
a coalition. Cyert and March [7] de-
scribedorganizationalunits as coalitions
which determineand modify their objec-
tives through bargaining.Therefore,the
bargainingprocess involving individuals
and groups gives them power to intro-
duce new ideas.
c) Bootlegging: In some instances the
innovator may be able to implement a
new idea by keeping the development
undercover from the disapprovingpower
in the organizationuntil it is introduced.
At that time it may be impossiblefor the
organizationto reverse itself.
d) Unanticipated change: Organiza-
tions often introduce changes, expecting
one thing but getting another. These
unanticipated changes are of two types:
first, innovations where the changer is
knowledgeableof the eventual outcome
but does not disclose it and, second, and
most important, where the innovator
makes a specificmodificationwhich, as it
is introduced, creates other important
innovations [3, 16]. For example, the in-
troductionof new technologysuch as the
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493
computer or a new production process
will often produce major unanticipated
innovations in the organizationalstruc-
ture.
VI. CONCLUSION
We have mademany hypothesesabout
the innovation process and situations
that are likely to produce different in-
novations. In conclusion,it is interesting
to look at the data that give us a view of
the flow of innovations in one area. The
only available data have come from lon-
gitudinal studies of a single technology.
Data that have been collected indicate
that most innovation is not a radical
process. The majority of changes which
occur in our society result in an evolu-
tionary stream of rather small, mostly
unnoticed, modifications. Gilfillan [14]
pointed out that in the development of
the ship, from its earliest form to the
current luxury liners and huge tankers,
there has been a steady and continual
stream of improvements,most of which
were rather small, apparently insignifi-
cant changes. When thousands of inno-
vations are combined,they producedra-
matic improvements.Merrill [36] found
that there has been a striking improve-
ment over the past few years in construc-
tion techniques but that most go unrec-
ognized because they are a combination
of many small engineering advances.
Knight [24]found that most of the devel-
opments in general-purposedigital com-
puters resulted from small, undetect-
able improvements,but when they were
combined they produced the fantastic
advances that have occurredsince 1940.
Simon [50] made a similar hypothesis
for the basic sciences. He argued that
there have not been many completely
unexpected breakthroughsin the basic
sciences. New science is the result of the
plodding efforts of hundreds and thou-
494 THE JOURNALOF BUSINESS
sandsof good scientists,and the apparent
revolutionary breakthroughs by a few
men are built upon the hours of tedious
work by the hundreds who preceded
them. Kuhn [27],in presentinghis theory
of the evolution of science, proposed a
very similarprocess.Onceagain, the em-
phasis is on the fact that science is a
series of discrete jumps but that each
development depends upon the small
contributionsfrom many individuals.
It seems reasonable to conclude that
the flow of innovations in organizational
structure and people probably follows
the same pattern of slow evolution. Re-
cent difficulties in trying to produce
greatinnovation and change in organiza-
tions in developing countries appear to
support these conclusions.
Our analysis representsonly a limited
description. A manager could not take
our model and use it to determine the
optimalway to bring about a specificin-
novation in his organization. On the
otherhand, we hope that it will providea
smallstep towarda better understanding
of the innovation process. In presenting
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