Continuous innovation that stands the test of the market

This section, to mark 50 years since the founding of SDA Bocconi, presents a selection of the ideas advanced by faculty members representing seminal work in management research: relevance, concreteness, scientific rigor, and impact on the community are the four pillars underpinning the path proposed here. The SDA Insight initiative is part of the broader project, “50 Years of Ideas.”

To respond to the rapidly accelerating changes in the market in recent years, companies feel the need to work to constantly renew their products. And in fact, many studies point to new product creation as the most natural driver to spark renewal at a company level, and the most effective way to transform change in to a constant, endemic process.

Nonetheless, continuous renewal is the outcome of three specific, dynamic capabilities embedded in the company: creating and developing knowledge, absorbing knowledge in production cycles, and periodically reconfiguring knowledge in all company processes.

To gain a better understanding of these three organizational capabilities identified in the scientific literature, we provided empirical evidence based on the experience of Oticon A/S in an article published in 2003 in the journal Industrial and Corporate Change. Oticon A/C, a leading hearing aid manufacturer, demonstrated an impressive ability to create and sustain its competitive advantage. The number and nature of its new product launches in the 1990s showed the clear aptitude of this Danish multinational in managing product development and innovation.

After a major organizational transformation in the late 1980s, Oticon A/S built its strategic renewal on the three organizational capabilities mentioned above. This allowed the company to multiply the new product rate by 100%, slash time to market by 50%, and escalate the contribution of new products to total profits by 250%.

The first dynamic skill of the company (creating and developing knowledge) was deeply rooted in the commitment to long-term growth, consisting of specific investments in scientific knowledge (in the acoustic, audiological and psychoacoustic fields). This enabled Oticon A/S to absorb new knowledge (which otherwise would have been lost in the organization) and to launch new products on the market. What also emerged from our analysis was that the individual and organizational creativity innate to the corporate culture are what make the company capable of generating continuous innovation.

The Oticon A/S case suggests that a variety of factors influence the innovative process, including shared values and social norms, an effective communication system, human resource management systems that motivate employees, and modern project management techniques. Yet these factors can be considered basic building blocks that underpin the process of knowledge creation, but only the company’s organizational capabilities and managerial processes can combine them in a virtuous way.