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issn 1822 – 8402 european integration studies. 2009. no 3
THE MoDEL of MoDERN INNoVATIoN INfLuENCE To
CoMpETITIVENESS AT RECESSIoN
Česlovas purlys
Vilnius Gediminas Technical University
Abstract
The article deals with influence of modern innovations on enterprises competitiveness. The different
concepts of competition, from D. Ricardo and H. Adams up to M. porter and Kim Chan and R. Mouborgne
are analysed. The results of comparative analysis are provided in table 1. Different models of competition
and competitiveness are analyzed. There is stressed that very important role plays M. porters‘ 5 market
forces, Diamod and Dubble diamond models and latest modifications made in the model. Some drawbacks
of competitiveness models from K. Lancaster up to A. Rugman and latest authors as well as the author are
submitted in table 2. The weakness of the Diamond model discovered and modification of Diamond model is
made by incorporating the innovation in the model as it is proposed in picture 1.
The importance of innovations for competition of enterprises is disclosed. The definitions of innovation
and competitiveness of different authors are submitted. Innovation as risky process in competition
from J. Shumpeterian economic view to innovation up to p. Drucker and McMeekin and D. Soutterton
commercionalization as well as Eu innovation policy are analyzed. Short analysis of Lithuania’s position in
the Eu economy on innovation is made.
The G. Brennan’s optimistic idea on innovations at recession period that innovation could be a chance
for companies to leapfrog their competition is stressed. Some data from fray’s analysis demonstrating the
idea mentioned are provided in the article. According to Ch. frey, founder and editor of Innovation tools,
innovation climate has improved in 47,5 % of companies, and only for 25,9 % of respondents – has worsened
at recession. But because the customers even at recession tend to the innovative, reasonably priced and hyped-
up products and because the markets at recession are tightened, it is good time to invest in research and
renew the products, processes, structure and management as main elements of competitiveness, as it has been
recommended by Lisbon strategy. The impact of main areas of innovation on competition criteria (goals) is
shown in picture 2 and impact of main elements of management improvement is shown in picture 3. Thus
model of interaction between main innovation management factors shows direct and indirect influence of
innovation on reengineering, competitiveness and employees satisfaction.
The importance of innovative enterprises of Lithuania for the competitiveness of Lithuanian economy is
stressed. It well demonstrates analysis of activity of innovative enterprises a uAB “five Continents”, uAB “
Alna”, uAB “Information Technologies Centre”. But main point in the article is methodology for construction
the model of direct and indirect influence of segregated elements of innovation management on segregated
criteria of organizational competitiveness. The main suggestion is to enhance the activity of organizations at
recession by improving strategies mainly by restructuring, training the personnel and management.
Key words:
Innovation, innovative models, competitiveness, interaction between innovations and competitiveness.
Introduction
Innovative, oriented to change enterprises are
the keystone of countries economy and competition
beacons. Innovation and new technologies become
inevitable for withstand the constraints of competition
challenges in overstocked markets at recession period.
Although there are many scientific publications on the
subjects of innovations and competitiveness, but the
interaction is still not discovered between them suitably.
Especially is not discovered the influence of segregated
elements of innovation model for a segregated elements
of competitiveness.
For implementation of innovations very important
role play information technologies, the development
of which is very fast and accelerated in the recent
years. Information and newest technologies for
effective Information by itself and newest technologies
for effective information collection, handling and
submission become more important for competition
than ever. It also demonstrates investigation activity of
13 Lithuanian companies working with and creating
ISSN 1822-8402 EUROPEAN INTEGRATION STUDIES. 2009. No 3
211
information technologies by themselves e.g. UAB:
„Penki kontinentai“, „Informacinės technologijos“,
„Alna“, „ SONEX Technologies“, „ Baltic Amadeus“,
etc.
The M Porter‘s Diamond model to demonstrate the
role of some factors for competition and its place between
the other factors is often used by different authors as
background for analysis of competition factors. But the
main point of the article is methodology of construction
of the model of influence of segregated elements
of innovation on segregated criteria of organization
competitiveness. The model and conclusions are
formulated on basis of research and data from research
booked by the Ministry of Economy and European
Commission and Innovation tools research. Data on
activity of the entities mentioned are collected from
information published in different information sources.
For the reason of property rights protection non published
data from the enterprises are used only for formulation of
findings and suggestions.
Subject of research – Innovation models proposed
in scientific literature, situation in implementation of
innovations in world economy and Lithuania and results
of activity of innovative enterprises in Lithuania.
The goal of research – determine the influence of
modern innovations for competitiveness and suggest
the model of interaction between innovation elements
and competitiveness criteria as well as suggestions for
improvement of interaction between innovations and
competitiveness.
The methodology of research – logic analysis of
scientific literature, reports, statistic data published
and some unpublished research materials (only for
formulating model and suggestions).
Conceptual overview of competition theories
The essence of competition were analyzed by many
variety of authors. First concept of competition has been
formulated in XIX century by A. Smith (1904) and D.
Ricardo (1817), J. Clark (1887), R. Ely (1901) H. Adams
(1887), who examined the conception of monopoly
and oligopoly price discrimination, and dynamics of
processes in the markets. Schumpeter, J. (1934) described
competition as fight of old with new. According to him
market accepts the new sceptically, but if innovators
succeed to implement novelty the competition tools
withdraws enterprises using old technologies, while
J.Clark pays much attention to the competition restrains
and limitation factors.
Nowdays in global economy competition theory is
based on eight main factors of competition: national
economy potential, economy internacionalization,
government activity, financial sector, infrastructure,
management, science and technology, and human
resources. Baldvin and M. Porter (1996) accented that
well known five market forces express the essence of
competition: existing present competitors, bargaining
forces of suppliers and buyers, new competitors and
possible substitutes. At the end of XX century has
been spread different concepts: of market share, as
the main criteria of market power, scale economies,
generic strategies, mergers and acquisitions, competitive
environment etc. The variety of concepts on competition
still exists and are highlighted differently by different
authors (see table 1).
Table 1. Concepts of competition
Authors Concepts (statements) of competition
Vanberg (1996) Framework of rooles, conditioning pecularities of functioning and could serve as target for purposeful
undertaking of human beings.
International
Wocabulary
(1990, 2000)
1) rivalry of manufacturers for favorable economic conditions. (economic aspect)
2) one of the forms of fight for the same conditions for existence or reproduction of single or few organisms
(biological aspect)
Saviotti Kraft
(2004)
Style that companies compete for products selected by consumers. The interaction intensity proportional
to product advantages.
M.Porter (1990) Dynamic developing process, sustainable developing area in which appear new products and marketing
streamlines, new markets and market segments and new manufacturing processes.
Kerber (2006) „Test of hyphotesis on competition“ were the knowledge are generated and promulgated through
imitation.
Jucevičius (2006) Competition is notably complex category but not situation or mode measured by one or few parameters
by using all possible conditionning within the frame of concentric range of competition and right for free
choose.
Source: Šliburytė L. (2000. p. 34).
ISSN 1822-8402 EUROPEAN INTEGRATION STUDIES. 2009. No 3
212
The concepts of competition are changing according to
changes in Generic Management concepts from F. Taylor
up to e- governance as well as competition theories from
A. Smith and D. Ricardo up to intelligence in rivalry and
„blue ocean“ strategy. Aggressiveness, commitment,
confidence, competition, voluntary cooperation are not
only attitudes or behavior: it‘s rather intangible assets.
The variety of competition concepts (paradigms) can
be grouped in three groups: 1) resource – based view
suggests that firms over time accumulate unique resources
and skills that allows firms get distinctive competences;
2) the country industry view or related to the external
view of competition; 3) business network approach that
accents the importance of business relations (buyer-
seller relationships, cooperation, etc.). J. Strandskov
(1999) from Arhus School of Business argues that each
of the paradigms relies on three different sets of sources:
firm specific advantage (FASs), localization specific
advantages (LSAs), and relationship specific advantages
(RSAs) Accentuating the role of human resources for
firm competitiveness Ch. Kim and R. Mauborgne (2005)
stressed that organization can become great only if it
recognizes people as main factor of activity effectiveness.
The sixth principle of „blue ocean“ strategy presented by
them stresses that to build peoples trust and commitment
deep in the ranks and inspire their voluntary cooperation,
organizations need to build execution into strategy from
the very beginning. Also it must be counted all kind of
resources including psychological ones.
Conceptual analysis of innovation theories and
policy
There are different concepts of innovation treated in
scientific literature. Most often innovations are treated
as risky process oriented for change for converting
knowledge into competitive product or service. According
to J. Schumpeter innovation is more economical than
technological phenomenon. Any technological invention
will be not accepted as innovation if it will not motivate
economy or net profit growth. A. McMeekin and
D.Southerton (2007) holds that invention becomes
innovation only when it is commercialized. A.
Jakubavičius, R. Strazdas. K. Gečas (2003) stressed that
it doesn’t matter what would be a technological invention,
it will be never accepted as an innovation, if it doesn’t
stimulate the economy and solid-profit increasing. In
order to get a solid-profit organization has to get unique
advantage in comparing with competitors in internal and
global markets.
According to European Commission, innovation
policy – as a generic policy – is set of actions intended to
raise the quantity and efficiency of innovative activities. In
turn, innovative activities are the creation, adaptation and
adoption of the new products, processes or services. By
creating a culture that encourages and respects employee
contribution, organization can continuously outpace the
competition what is very important by implementing the
new innovation model. A. McMeekin and D. Southerton
(2007) are pointing out, that innovation means an
integrated creation, development, general prevalence
and efficient resort of the new technologies in daily
human activity. Thus the companies ought to follow S.
Derry‘s (2009) suggestion quickly and effectively weed
out those ideas and innovations that do not meet five
basic selection criteria: value, suitability, acceptability,
feasibility, endurance. Ch. Kim and R. Mouborgne
(2005), are right by suggesting six market transformation
steps and stressing that though of market constrains it
is possible to predict how to change market convention
and how to create „blue ocean“ and readjust the market
systematically. Though it is known for the Government
that the background of productivity and competitiveness
of industry and country prosperity are the innovative,
oriented to changes and adaptation of latest knowledge
enterprises, Lithuania is one of less developed countries
in EU in the contention. As has been stressed by B.
Melnikas, A. Jakubavičius, R. Strazdas (2000). Lithuania
has significantly lower output from input for innovations
than Poland, Greece, Hungary, Slovac Republic, Check
Republic, Malta or Romainia and Bulgaria.
Analysis discovered that according to 5 innovation
criteria: motivation of innovation, knowledge creation,
dispersion, implementation and intellectual property,
Lithuania falls in cluster with Greece, Spain, Bulgaria
and Russia. According to INNOBAROMETER (2004)
estimation Lithuania was on the 5th place from the bottom
between EU countries on intellectual property, on 7th
place in knowledge creation and only on entrepreneurship
and innovations – on the middle of the line. Only 8.9 per
cent of entities that has an opportunity to get support from
innovation support schemes has seized the opportunity.
That is because only ¼ of Lithuanian companies are
investigating in research of the new technologies, ¾ of
Lithuanian entities does not provide innovative activity.
Innovative activity of the remainder entities are limited
by adaptation of innovative technologies created in
developed countries. Thus strategic innovative models
offered in scientific literature are used too slightly in
Lithuania.
Innovation as key factor of competitiveness at
recession
Special attention to innovations ought to be paid at
recession period because there is little chance to invest
for market expansion: all markets are shrinked. For
illustration the Innovation Climate survey, provided
by Ch. Frey (March 2009), founder and editor of
Innovation tools may be submitted. According to Survey
(352 companies investigated) innovation climate has
improved in 47,5 % of companies, and only for 25,9 %
of respondents – has worsened (of which for only 8 %
ISSN 1822-8402 EUROPEAN INTEGRATION STUDIES. 2009. No 3
213
– got significantly worse). Looking at budget used for
innovation as an objective criteria it seems that recession
all in all has positive impact: in 28,2 % companies
innovation budgets has increased and 36,9 % did not
changed the budgets whilst only 18,2 % decreased by
more than 30 %. One half of companies (50,9 %) use –
incremental innovation (product innovation) strategies,
whilst breakthrough innovation and disruptive innovation
get a lot of press these days as an inadequate at recession
period. As G. Brennan (2009 ) stresses: while others are
tightening their belts, truly successful companies use the
recession as a chance to leapfrog their competition. They
know that if they focus on innovation while others are
cutting costs, they will quickly catapult past everyone
else.
For innovation to be more than a modern word it has
to be incorporated into a business‘s structure. For this A.
Bruce (2009) suggests six „Ps“ model for innovations
to be successful: Planning, Pipeline, Process, Platform,
People, and Performance as an elements of an integrated
framework. Recession encourages the enterprises and
employees to work harder, to plan tighter, to speed
the processes. As St. Lindegard (2009) points out to
get the best out of the recession situation companies
usually: 1) clean up the portfolio and get rid of „living-
dead“ projects; 2) pay more attention to develop better
processes and set sharper deadlines to make innovation
more efficient; 3) pay more attention to external partners
to get extra funds for innovation; 4) larger companies
can acquire innovation cheaper as the price promising
smaller companies drops. G. Brennan suggests 7 creative
ways that innovation can help for recession – proof the
business: 1) use open innovation to reduce R&D costs;
2) use process innovation to reduce operating costs; 3)
use innovation to match supply and demand; 4) solve
the customers pain; 5) fail cheaply; 6) before you can
multiply, you must first learn to divide; 7) use innovation
to improve supplier‘s business. And he stresses the
bottom line by saying “use innovation to leapfrog the
competition“. But the model does not show which of the
elements in the circle is more important for enterprise
competitiveness than another one. Thus, it is a necessity
to estimate and rate them by impact power criteria. S.
Derry (2009) stressing the importance of employees
creativity at recession points out that once company
have set an integrated innovation framework and trained
employees in innovation tools and processes they are
going to generate a lot of ideas.
Innovation and competitiveness interaction
models
For reaching competitiveness task in 7th and 8th
decades of XX century enterprises most attention paid
to advertising and branding. Than attention has been
noted for improvement of productivity and value added.
To-day most attention is noted for how to survive and
improve competitiveness in global markets at recession.
At recession competitiveness became even more
important and complex problem. Thus as C. Franczek
(2008) pointed out the roots of company – human
potential – could be strenghtened by long-lasting hedging
strategic policy by safeguarding good management,
high skills, and innovative environment. One of the main
ways to become competitive in knowledge society is
implementation of perspective innovations. That is why
interaction between innovations and competitiveness
became very important for research and practice. In
the chain of competition models described in literature,
very important role plays M. Porters‘ 5 market forces
and Diamod and Dubble diamond models and latest
modifications made by different authors, including Nine
factors model. The advantages of the models are that by
using more factors the better accuracy is reached. But
the models also have some drawbacks. Special attention
for M. Porters Dimond model analysis by the scientists
from Lithuania and other countries has been provided.
The weak points of the model has been analyzed by the
K. Lancaster (1966), C. Baird (1975), S. Oster (1999),
A. Rugman (2000), V. Snieska and V. Kavaliauskaite
(2003). Some drawbacks of competitiveness model from
K. Lancaster up to A. Rugman and latest authors as well
as INNOBAROMETER are submitted in the table 2.
Table 2. Some drawbacks of M. porters‘ Diamond models
No Authors Short comments
1 K.Lancaster (1966),
C. Baird (1975)
Customers get satisfaction from and are oriented to characteristics of goods/services but
not form goods itself
2 V. Kvainauskaitė,
V. Snieška (2003)
The model is difficult to implement in practice, and in well-stocked markets it is about
impossible to get enough information on every product.
3 S. Oster (1994) Model can not discover competitiveness factors in integrated economies.
4 A. Rugman (2000) Model does not fit correctly for developing economies: it has been constructed for well
developed ones.
5 Č. Purlys Model does not estimate innovations as factor influencing competitiveness
Composed by author
ISSN 1822-8402 EUROPEAN INTEGRATION STUDIES. 2009. No 3
214
On the basis of the publications new Diamond model,
modified by the author is proposed in picture 1. The main
improvement of the Diamond model is incorporation of
innovation as the very important influence factor for
organizational competitiveness at recession.
Chance
Enterprise Strategy
and Structure
Enterprise Competitiveness
Governmental
Policy
Connected and
Related Industries
Factors Influencing
Activity
Employe
eMotivati
on
International
Competition
Innovation
Iimplementation
picture 1. Modified theoretical model for research of competitiveness (original from porter, M. 1990)
The higher turbulence of market the more difficult
to estimate the demand of goods/services as well as
other factors influencing competition. Demand capacity
depends on prices of the goods. But the customers usually
tend to the innovative, reasonably priced and hyped-up
products that usually are ensured by implementation of
innovations. And whereas implementation of innovations
became an important factor to ensure competitiveness
it ought to be included in Diamond model. As it is
proposed in the model, implementation if innovations
play few roles: it influences competitiveness directly
by price wars and offensive („red ocean“) strategies
and indirectly through motivation of employees and
all factors of enterprise activity and sometimes via
lobbistic activity through governmental policy. Thus it is
good time to invest in research and renew the products,
processes, structure and management as main elements
of competitiveness, as it has been recommended by
Lisbon strategy and European Commission. The model
of said above could be as shown in picture 2.
Competitive advantages The main criteria (goals)
Product ( price/quality) Sales increase
Process Profit
Structure Customers satisfaction
Management Employee creativity
picture 2. Model of competitive advantages influence on companies results
In turn every of advantages are complex. Let’s
look at management element (advantage) in detail.
The management as well as product has a very strong
impact to all criteria (goals) of competition: sales, profit,
customer and employee satisfaction as process influence
mainly on customers and employee satisfaction while
profit is influenced mainly by product, structure and
management. Thus selection of competitive strategy
depends on prioritization of goals. For example if
company needs badly to increase sales or/and profit it
must improve product structure and management, if
company wants to increase employees creativity it must
improve process, structure and management, etc.
Looking for management improvement from the
innovation point of view the main elements will be
research and development, creativity training, information
technologies and knowledge management. Thus model
of interaction between main innovation management
factors and competitiveness at recession period ought to
be as it is shown in picture 3.
ISSN 1822-8402 EUROPEAN INTEGRATION STUDIES. 2009. No 3
215
Results
Research & Development Operational 2-3 years in advance
Creativity Trainning Reengineering and job
enrichment
New products
Information Technologies
New ideas for quality and
growth
Competitiveness
New skills Employees Creativity
Knowledge Management
Employee satisfaction and
loyalty
Sales expansion and
profits
picture 3. Interaction model of innovation and competitiveness at recession period (by author)
As it is viewed from the model the interaction is
quite complex: some are direct when others – collateral
or both as for competitiveness. The model ought to
be filled out by feedbacks but than the picture as it is
composed becomes difficult to grasp. Most complicated
is influence to competition of new ideas and new
skills. According to our investigation (2008) it is seen
especially in communication and information technology
enterprises, as UAB“Penki kontinentai“, „Alna“, UAB
„Įnformacinių technologinių centras“ etc. that reached
very good results on information technology: many of
them are Microsoft partners and some has gotten „Golden
partners of Microsoft “ awards. Almost all are growing
rapidly, has very important contracts and are working
for Latvia, Kazachstan, Uzbekistan, United Kingdom,
etc. As an example, the competitive capacity of UAB
„Penki kontinentai“ could be demonstrated by its growth
rapidity in 2001-2007 as it is shown in table 3.
Table 3. uAB „penki kontinentai 2001-2007 activity results, mln. LTL
Criteria 2001 2002 2003 2004 2005 2006 2007 2008 data still not
availableConsolidated turnover 25,0 76,8 80,2 82,7 220,0 305,0 382,0
Of it: products 25,0 65,5 67,0 60,3 93,0 144,0 178,0
services – 11,3 13,2 22,4 127,0 261,0 204,0
Source: http://www.5ci.lt
Research showed that the very important elements of
competitiveness of the firms are skilled employees and
quality of products (software and equipment) and services
in software implementation Concentration resources
for creativity training and knowledge management
at recession period is most important and effective
strategies for competitiveness in nearest future, though at
operational period it seams as waste of time and money.
As research shows the best policy at recession period
is concentration of efforts on processes reengineering
creativity training and knowledge management.
Especially it is recommended for enterprises working on
information technologies. As P. Sloan (2009) stresses on
his interview „they need people who are disruptive, ....
people who are challenging ..... people with challenged
thinking, ..... people who are counter-cultural“. Newly
thinking creative people determine future of Lithuania,
the small country with only resource – its people.
Following of Winston Churchill quotation we are out of
time and we are out of money, therefore, gentleman, we
will have to think. There is no other way for Lithuania’s
competitiveness as creativity training and knowledge
management.
Conclusions
Innovations is the life blood of competitive company.
The ability to produce innovative product using the
most advanced methods becomes the dominant source
of competitive advantage in knowledge society. Even
a single winner product that will emerge from the
ISSN 1822-8402 EUROPEAN INTEGRATION STUDIES. 2009. No 3
216
innovation process can highly effect the competitiveness
of the company. Against all the recession odds global
markets still present many opportunities for expansion
for companies willing act as innovators. Companies in
every country and all industry sectors must innovate to
survive in recession.
Innovation typically adds value for organization
but may also have negative effect, because it is always
connected with risk. As innovations are estimated in few
aspects: as beneficial and risky, as phenomenon and as a
process, as technological and social, all aspects should
be analyzed carefully at recession period. To follow the
Lisbon strategy innovation must become one of key
factors ensuring competitiveness.
To get the best out of the recession situation the
companies ought to: 1) clean up the portfolio and reject
not very effective projects; 2) pay more attention to
develop better processes and sharpen deadlines; 3) pay
much attention to external partners to get funds for
innovation; 3) use process innovation to reduce operating
costs; 4) use open innovation to reduce R&D costs; 5)
use time and resources available for skill and creativity
development and knowledge management.
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The article has been reviewed.
Received in March, 2009; accepted in April, 2009.