Assessing the technological
capabilities of firms: developing a
policy tool
Howard Rush1, John Bessant2 and Mike Hobday1
1
Centre for Research in Innovation Management, University of Brighton, The Freeman Centre,
Falmer, Brighton, BNI 9QE, UK. H.J.Rush@bton.ac.uk, M.G.Hobday@brighton.ac.uk
2
Advanced Institute of Management Research and the Tanaka Business School, Imperial College,
South Kensington Campus, London SW72AZ, UK. j.bessant@imperial.ac.uk
The development of technological capabilities results from an extended learning process and
external policy agents can play an important role in its development. This paper outlines trends
in governmental and non-governmental policy initiatives and the use of concepts such as
capability and absorptive capacity, which are positioned within generic-staged models of
capability maturity. This paper describes the development of a technology capability
assessment/audit tool that has been designed to help locate firms within four archetypes based
upon their level of maturity on nine key dimensions of the management of technology. The tool
is intended to help bridge the gap between our theoretical understanding of the principles of
technology management and policy practice – allowing policy makers to design mechanisms
that focus resources in areas of greatest need through the appropriate selection of policy
mechanisms and the targeted design of policy. The use of this tool in field experiments is
described along with the implications for policy making.
I
nnovation matters – unless an organisation
changes its offerings (product/service innovation) and the ways it creates and delivers those
offerings (process innovation), it risks compromising its survival and growth. In the long term,
however, it is not specific innovations but rather
the capability to generate a stream of product and
process changes that matters. This puts emphasis
on the way in which innovation is managed and
deepened. Such capability is not a natural endowment. It results from an extended learning process
gradually accumulating processes, procedures,
routines and structures, which, when embeded,
is often referred to in practice as ‘the way we do
things around here’.
Although important, the development of the
capabilities necessary to innovate does not always
take place and so becomes a legitimate concern
for external policy agents. For example, a trade
association may worry about the capabilities of
weaker firms in its sector in terms of their international competitiveness, or a major customer in
a supply chain might have concerns about its
weaker members being able to deliver on time
and to required quality. A local government
agency may wish to see stronger firms in its
region in order to preserve employment or to
stimulate economic growth. Dealing with such
weaknesses traditionally involves several blunt
policy options, including various forms of investment support that attempt to fill the gap caused
by insufficient capability within the target organisations. However, an increasingly popular approach has been to intervene with the specific
objective of developing or enhancing innovation
capability.
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Howard Rush, John Bessant and Mike Hobday
The term innovation covers an extremely broad
range of activities including, among other things,
organisational, financial, marketing and technological innovation. This paper, and the assessment tool described, focuses on the latter – those
capabilities directly associated with the development, acquisition and use of technology. In this
paper, we outline some of the trends in the
evolution of capability-related policy. As encouraging as some of these policy developments
have been, particularly in their recognition that
firms are not all the same, the change in policy
emphasis also raises a number of important
questions and issues that we address in turn.
These include:
How is innovation capability defined and what
aspects do we want to improve?
How is innovation capability distributed
across the population of firms – so that policy
agents can target specific development levels
rather than assume that one policy size fits all?
How can we measure these levels and can tools
be developed to assist policy agents in their
effort?
The paper describes a technological capabilities
assessment tool intended as an aid to policy
makers in the identification of the strengths and
weaknesses of firms within a sector or a region in
order to be able to design policies that can be
better targeted and aligned to the policy objectives. The discussions that follow on the questions
raised above provide the underpinnings of the
assessment tool, which has now been used in different contexts in Korea, Thailand and Ireland.1
1. Evolution of capability-related policy
Recent policies designed to contribute to the
building of technological capabilities have their
antecedents as far back as the late 1970s. Vickery
and Blau (1989) and Arnold and Thuriaux (1998)
describe a wide range of programmes that proliferated through OECD countries during the 1980s
specifically designed to promote the application
and diffusion of technologies such as micro-electronics, flexible manufacturing systems or computer-aided design. These schemes, which usually
involved financial inducement or some form of
rudimentary intermediary support, were often
judged to have been successful (if somewhat
limited) in meeting their stated aims and objectives of increasing the takeup of new technologies
(Northcott et al., 1985, 1986). However, because
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such policy solutions often involved a standardised and formulaic approach, their impact on
the development of capabilities was patchy and
only indirect at best – usually a consequence of
‘learning-by-doing’.
Over time and in response to a more thorough
exploration of the processes underlying the management of technology, there has been a discernible shift in the type of schemes on offer that
recognise that different firms face different types
of problems and require a different range of
solutions. Policies have increasingly been aimed
at specially improving technological capabilities.
In some cases, what had previously been the
domain of centralised national governmental departments or agencies has now become the preserve of regional authorities. At this level, there is
likely to be a better understanding of the needs of
the firms in the local areas, making it possible to
design programmes with a tighter fit to local
requirements.
Some of these policies involve an evolution in
the roles played by intermediary structures (Carlsson and Jacobsson, 1993). Innovation consultants, for example, are employed to act as
counsellors, helping firms identify and articulate
their needs, or as a broker, enabling them to
access relevant sources of support (Skaug, 1992;
Bessant and Rush, 1995; Boden and Miles, 1998).
Some policies have also expanded the roles of
innovation consultants to act as facilitators in
learning networks, which are proving to be an
increasingly popular mechanism for local innovation policies (Bessant et al., 2003). Other structural
mechanisms include the provision of specialist
information centres, or specific financial support
to encourage research and development (R&D) or
technology transfer activities (Autio and Wicksteed, 1998; Trend Chart, 2004, Howell, 2006).
Increasingly, such interventions have emerged
from non-governmental policy agents. For example the Industry Forum programme in the United
Kingdom has a capability development initiative
targeted at weaker players in the automotive
components supply chain and was established
by key buyer firms through their trade association, the Society of Motor Manufacturers and
Traders (Bateman and David, 2002). A number of
major buyer firms have been attempting to develop better capability across their supply chains
through various forms of supply chain learning
initiative, following the well-established example
of Toyota. (AFFA, 2000; Dyer and Nobeoka
2000; Bessant, Kaplinsky and Morris, 2003) At
the regional level, a number of cluster initiatives
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Assessing the technological capabilities of firms
Table 1. Different modalities for supporting development of innovation capability (a selection)
Delivery option
1. Outreach/‘missionary’ services where firms are approached by field agents or counsellors to help them recognise
and identify needs for change
2. Benchmarking and other measurement/comparison processes that enable targeting of manufacturing development
3. Strategic development process via a structured methodology that enables firms to create a framework within
which change will be located
4. Support for technology search — where the problem is not clearly articulated
5. ‘Technology signposting’ — facilitating access where problem is clearly articulated
6. Facilitating access to funding for specific projects
7. Access to demonstration projects
8. Support for technology transfer — short-term access/consultancy
9. Support for long-term technology transfer — e.g. Universities or Research Institutes to industry
10. Access to specialist equipment on occasional basis — e.g. specialist test services
11. Facilitating experience-sharing and learning
12. Assistance with training and development
13. Major technical project/contract research
14. Network access – links to expertise via database, directory, listings, etc.
Updated from Dodgson and Bessant (1996).
have also made the development of technological
capability a key feature (Martinussen, 1995; Keeble and Williamson, 2000, Morosini, 2004).
Table 1, while not intended to be comprehensive, provides a breakdown of 14 of the delivery
options that have, often in combination, been
incorporated into programme designed to assist
firms in developing their technological capabilities. Outreach services (1) using ‘innovation
counsellors’ have, for example, been used with
the UK Manufacturing Advisory Service and in
the US Manufacturing Extension Program as well
as the Canadian IRAP scheme. Benchmarking (2)
is a regular feature of both government programmes such as those offered by the German
Fraunhofer IPK and non-governmental programmes such as the confederation of British
Industry’s PROBE initiative. Support for technological search (4) was the key component of the
UK Supernet programme and the Finish Tekes
technology clinics, whereas access to demonstration projects was used by Inside UK Enterprise
Technology Enterprise. Technology transfer (9)
from universities to industry has been a longstanding focus of the Irish Techstart programme
and the UK Knowledge Transfer Partnership
(formerly the Teaching Company Scheme).
1.1. Capability, absorptive capacity and
the use of maturity models
Instrumental to the development of the policy
options outlined above has been the deepening
understanding of concepts such as capability and
absorptive capacity.
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Capability implies an ability to do something
and we are particularly interested in this as
applied to searching out and using technology
for strategic advantage. Perhaps the most significant concept in relation to this is that of absorptive capacity, which, according to Cohen and
Levinthal (1990, p. 128), is ‘an ability to recognize
the value of new, external knowledge, assimilate
it, and apply it to commercial ends’. It is, therefore, to be found in the underlying knowledge and
experience base of the firm that enables capabilities (technological or otherwise) to be generated.
A growing number of studies have operationalised and elaborated upon this concept. Zahra and
George (2002), for example, argue that absorptive
capacity consists of four distinct capabilities:
Acquisition – the search for new knowledge;
Assimilation – understanding new knowledge;
Transformation – seeing how new knowledge
can be used in the context of the firm’s issues
and existing knowledge; and
Application – implementation of actions enabled by the new knowledge.
Martin et al. (2003) develop these further,
suggesting that:
Acquisition is the organisation’s dynamic capacity to identify and acquire external knowledge (speed, intensity and direction of
knowledge acquisition);
Assimilation being the organisation’s routines
and processes that allow it to understand and
process information from external sources;
Transformation being the capability to develop
and fuse new with existing knowledge; and
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Exploitation (which we understand to be similar to Zahra and George’s use of the term
‘application’) as the capacity and routines of
an organisation to use its acquired and transformed knowledge to refine, build on and
leverage existing learning competencies.
Clearly, these concepts can be applied to the
domain of technological innovation where we
suggest that it refers to the ability to find and
use technology to secure and sustain competitive
advantage. However, while the ability to acquire,
assimilate, transform and apply (or exploit) new
knowledge is necessary for all successful organisations, firms differ in their awareness of the need
to change and in their abilities to effect such
changes. Increasingly, attention has, therefore,
focused on the concept of maturity models, which
can be used to benchmark an organisation’s
competence in some particular activity against a
body of knowledge. Such models tend to show
generic levels of capability development from a
low base up to one of excellence. For example
Hillson (2003) proposes a model of project management maturity, relating to an organisation’s
awareness of the effectiveness of its project management practices and describes the Project Management Maturity Model (ProMMM). The model
describes four levels of increasing project management capability (naı̈ve, novice, normalised and
natural), with each of these levels calibrated in
terms of four dimensions (culture, process, experience and application).
Carnegie Mellon’s Capability Maturity Model
(CMM) for software proposes levels that are
based on the existence of best-practice software
development processes to ensure programme
reliability, and the degree to which a firm sticks
to these processes in the face of environmental
disruption. It identifies the practices that are basic
to implementing effective processes as well as
advanced practices. It also assigns to those
practices associated maturity levels ranging from
unrepeatable to a mature, well-managed process.
Typically, a path is recommended through the
various practices for achieving higher levels of
maturity and, therefore, improving an organisation’s processes. The CMM consists of five stages:
initial, repeatable, defined, managed and optimising, with objectives similar to the ProMMM, but
contextualised in terms of software processes
(Curtis and Paulk, 1993).
Finally, total quality management (TQM)
practices have been categorised at levels leading
up to a ‘black belt’. Before being awarded such a
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status, individuals must demonstrate problemsolving, project management and team leadership
skills. The systematic training approach followed
typically involves five problem-solving steps of:
define, measure, analyse, improve and control
(Ingle and Roe, 2001).
1.2. How is technological capability
distributed across a population?
Attempts have also been made to develop such
approaches for the innovation field. For example
Bell’s (2003) competency levels model for technological innovation in which organisations pass
from the point of ‘acquiring and assimilating
imported technologies’, through phases of ‘technology deepening and upgrading’ and ‘closing in
on the international technological frontier’ to
reach a stage where the organisation is ‘generating core advances at international frontiers’. This
describes a process of moving from low or zero
capability, developing minimal capability up to a
level of competence, ultimately to become (high)
performers.
In a similar fashion, Arnold and Thuriaux
(1998) describe four degrees of a firm’s levels of
knowledge relating to technological capability.
These degrees of ‘mastery’ are conceived in terms
of boxes that progress from opaque to transparent and closed to open in a series of boxes,
starting with a closed ‘black box’ through stages
of ‘grey’ and ‘white’ box to an ‘unboxed’ state at
which point a firm is generally able to develop
significantly new variants or innovations.
Whether the learning is generated internally or
brought in from external sources, the aim is to
move towards an ‘unboxed’ state. Arnold and
Thuriaux’s scheme can be viewed as a base level,
(black box) with only an awareness of the problem (not of the solution) and so requiring a
search for new knowledge, and three succeeding
levels of understanding that roughly correspond
to the assimilation and transformation levels of
Zahra and George (2002). There are similarities in
this view to the extended model of absorptive
capacity put forward by Zahra and George (2002)
that saw two distinct activities – assimilation and
transformation – being involved.
Drawing on these ‘competency’- or ‘maturity’level approaches, we suggest that the development
of technological capability can be seen as a set of
‘punctuated equilibrium’ states. As firms move
into more complex environments, they need a
richer set of capabilities to deal effectively with
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Assessing the technological capabilities of firms
the threats and opportunities that confront them.2
We discuss this model in terms of four archetypes
that characterise these states.
Type 1 firms can be labelled as unaware or
passive and these are characterised as being ‘unconscious’ or unaware about the need for technological change in what may be a hostile
environment and where technological know-how
and ability may be vital to survival. These firms
do not know where or what they might improve,
or how to go about the process of technological
upgrading. As such, they are highly vulnerable to
competitive forces. For example, if low-cost
competitors enter the market, or if customers
require faster delivery or higher quality – they
are not able to pick up relevant signals or
respond quickly. Even if they do, they may waste
scarce resources by targeting the wrong kind of
improvement.
Such firms are characterised by a fire fighting,
crisis style of management with little if any longterm strategic focus (Bessant, 1999). Often family
owned and with a strong local orientation, their
biggest limitation is their relative isolation. Their
capabilities are limited to reactive innovation,
often as sub-contractors supplying goods and
services to other firms. Emphasis in innovation
is almost entirely on process change with a strong
focus on cost as the key competitive driver.
Key problems in this group can be described as
a lack of:
awareness of potential problems or of resources (including human resources) that
might help deal with them;
motivation to change;
managerial skills to prioritise and planning for
change;
implementation skills; and
awareness or access to national innovation
system (especially the ability to identify relevant partners or service providers).
Not surprisingly, unaware or passive firms are
ill prepared in all major areas of technology
acquisition, use, development, strategy and so
on. Such firms usually have a predominantly
‘local’ orientation and, technological change,
when it does happen, is often dominated by
suppliers and confined to ‘off–the-shelf’ solutions.
In terms of organisational development, a thorough basic improvement programme is urgently
needed. Assistance is required in enabling these
firms to recognise the need for change developing
a strategic framework, identifying appropriate
changes, and in acquiring and implementing
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necessary technologies. They also require assistance in sustaining this process of change over the
long term.3
Type 2 firms might be defined as reactive in that
they recognise the challenge of change and the
need for continuous improvements in their technological capabilities but are unclear about how
to go about the process in the most effective
fashion. As their internal resources are often
limited and they lack the key skills and experience, they tend to react to technological threats
and possibilities but are often unable to shape and
exploit events to their advantage. Their external
networks are usually poorly developed, with most
of their technological know-how coming from
their suppliers and following other firms in their
sector. Typically, this group treats symptoms
rather than causes of problems; for example,
dealing with bottleneck operations by replacing
machinery only to find that the problem becomes
worse because the root cause is, in fact, production scheduling. Such firms are, therefore, often
characterised by inappropriate innovation as
much as by a lack of it. Other key problems
include the lack of:
detailed awareness of innovation challenges –
for example, they would not be well aware of
the nature of the technological frontier, only
that they lie some way behind it (included in
this is a lack of awareness to anticipate
change);
awareness of broader market and competitive
drivers – their innovation agenda is often set
through signals filtered via key customers or by
imitative behaviour related to similar firms;
awareness of the full range of technological
options to upgrade capability – usually manifest in an emphasis on investment in new
technology packaged into capital equipment
rather than an interest in improved or different
use of existing resources within the firm;
awareness of distinctive competency or the
need to identify and build this;
internal resources or the awareness of the full
range of resources available within the national
innovation system – often manifest in a reliance on a few regular sources of technology
and limited search behaviour;
capability in articulating core problems and a
tendency to treat symptoms rather than deal
with root cause issues;
strategic orientation to technological change
(instead of the tendency towards piecemeal
innovation);
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Howard Rush, John Bessant and Mike Hobday
a framework for prioritising innovation or for
ensuring that changes support the business
strategy; and
implementation capability.
The needs of this group centre first on the
development of a strategic framework for technological change, so that key priority areas can be
addressed. Allied to this are needs in searching
wider for solutions, in exploring new concepts
(e.g. changing production layout rather than
simply acquiring new machinery) and in acquiring
and implementing new products and process
capabilities. In the longer term, such firms could
be expected to develop an internal capability for
strategic upgrading and require less and less
support.4
Type 3 firms have a well-developed sense of the
need for technological change. We refer to these
as strategic in that they are capable of implementing new projects and in adopting a strategic
approach to the process of continuous innovation. They have a clear idea of what has to be
done, when and by whom, and have the internal
capabilities in both technical and managerial
areas and can implement changes with skill and
speed (what might be described as having an
‘ability to think within the box’). These firms
benefit from a deliberately developed strategic
framework in terms of search acquisition, implementation and improvement of technology, including the ability to network and collaborate
effectively towards these ends. Nevertheless, strategic firms still face a number of problems,
including the following:
they tend to lack the capabilities to re-define
markets through new technology (e.g. by developing new product categories either alone
or in partnership with others, which can result
in new market niches and segments – such as
IBM managed in e-commerce, Nokia did in
mobile communications or Sony achieved with
the Walkman);
they lack the capabilities to create new market
opportunities;
they exhibit the tendency to compete within the
boundaries of an existing industry and may
become ‘trapped’ in a mature or slow-growth
sector; and
they have a limited knowledge of where and
how to acquire new technologies beyond the
boundaries of their traditional business.
Overall, these companies have strong in-house
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ogy in the medium and long term. In some areas,
these firms may be behind the international technological frontier but they have important foundations upon which to build. The needs of this
group are essentially around providing complementary support to internal capabilities and challenging existing business models. Improving
access to specialist technical and marketing expertise, enabling access to new networks of technology providers (e.g. overseas sources) can assist
these firms to think ‘outside’ of the industrial box
they find themselves in, should the need arise.
Such firms may also benefit from occasional,
project-based support from consultancy companies or from specialist research and technology
organisations, locally or internationally. These
firms may benefit from improved access to graduates and from linking up with universities that
offer new ideas, access to advanced technology
and new skills.5
Firms in our final category (type 4) have welldeveloped sets of technological capabilities and
are able to help define the international frontier.
We refer to these firms as creative in that they are
able to adopt a proactive approach to exploiting
technology for competitive advantage. They are
at ease with modern strategic frameworks for
innovation and take it upon themselves to rewrite the rules of the competitive game with
respect to technology, markets and organisation.
Strong internal resources are coupled with a
high degree of absorptive capacity that can enable
diversification into other sectors, where their own
skills and capabilities bring new advantages and
re-define the ways in which firms traditionally
compete, or wish to compete. Their technology
and market networks are extensive so that they
are kept informed about new technological opportunities and remain in touch with suppliers of
equipment and ideas.
There are unlikely to be more than a few firms
in this category at any one time and they are
generally seen as ‘risk takers’. The needs of this
group are mainly around complementing existing
internal capabilities with outside sources, assessing risks and uncertainties and sustaining their
position as ‘rule breakers’. They tend to be open
companies that collaborate and learn from partners in the external environment and invest in
developing new technologies and resources. From
time to time, projects emerge that threaten
to disrupt their existing businesses and they are
often in a strong position to convert such
threats into new market opportunities. Such firms
may need to develop new contacts with specialist
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groups in order to resolve complex technical
problems and generate new opportunities. While
not without their own concerns (e.g. risk associated with heavy investments outlay, intense
international competition, etc.), they are often in
a position to make useful contributions to
government policy as they try to position and
develop their national systems of innovation for
the future.6
1.3. How can we measure technological
capability?
Identifying archetypes that characterise each of
four ‘punctuated equilibrium’ states in the development of technological capabilities, however,
remains an academic exercise of only limited
value to policy actors. A means of accurately
locating firms within the framework is still required in order that their strengths and weaknesses can be identified and appropriate policies
and organisational development strategies are
applied.
Drawing on literature on the management of
an innovation process, we have attempted to link
knowledge about key abilities in technological
innovation to states of development of technological capability that enable a firm to choose and
use technology to create strategic competitive
advantage. Studies that particularly influenced
our thinking in developing the tool included
developed country studies on technology development such as Ansoff and Stewart (1967), Teece
and Pisano (1994), Utterback and Abernathy
(1975), Kay (1993) and Hamel and Prahalad
(1994), Tidd et al. (1997). Important studies
focusing on developing countries included Kim
(1997); Choi (1994), Fransman and King (1984),
Gerstenfeld and Wortzel (1997), Dahlman et al.
(1985). Organisational learning studies also underpin the importance of capability development
in firms (e.g. Argyris and Schon, 1978; Stata, 1989;
Leonard-Barton, 1992; Garvin, 1993). The tool
also builds directly upon previous World Banksponsored research (Arnold et al., 2000). This
literature has provided the foundation for our
attempt to link knowledge about key abilities in
technological innovation to states of development
of technological capability that enable a firm to
choose and use technology to create strategic
competitive advantage. We have identified nine
principal components as being fundamental to the
model. These are:
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Initial awareness of the need to change and
willingness to begin looking inside and outside
the firm for possible triggers for change. This
refers to the ability of senior management to
recognise the role of technology in competitiveness and the dangers of ‘standing still’ in
today’s highly competitive environment.
Searching out triggers for change – picking up
demand signals from the market or within the
firm about the changes needed or picking up
signals about potential opportunities raised by
new technological developments. This is the
ability to scan or monitor external technology
events and trends, which might affect the
company or provide opportunities for growth
or competitiveness.
Building of core competencies – recognition of
requirements for technology through a systematic and regular audit of its current competencies and a comparison of those that it
needs to develop or acquire in order to become
or remain competitive. This category refers to
the success of a company in defining its individual technological strengths and build up a
unique advantage in specific areas. A company
with a strong technological competence with
an understanding of how its distinctive technological strengths differ from its competitors
and how to further develop its skills and
knowledge to remain competitive. It will have
well-developed methods for protecting and
exploiting its intellectual property.
Development from these of a technology strategy – some clear idea of where to change and
why. Formulating a technology strategy is a
key part of the overall business strategy of any
leading firm. This is the process by which
visions, objectives and priorities are set and
communicated. Even the best-resourced organisation cannot do everything with respect to
technology, and so part of the strategic challenge lies in choosing which technology activities to conduct in house and which to
outsource to partners.
The exploration and assessment of the range of
technological options available – making comparisons between all the options available that
can be achieved through some form of benchmarking, feasibility studies, etc. – and selection
of the most appropriate option based upon the
comparison. Leading companies are able to
gather information on the range of technological options available, chose quickly among
competing solutions and identify the most
appropriate source that ‘fits’ with their needs.
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Howard Rush, John Bessant and Mike Hobday
A leading firm is able to make a comparison between or ‘benchmark’ the various
options available and can reliably select the
most appropriate option based upon this
comparison.
Acquisition of the technology. Once a new
technology option is decided upon, a firm
needs to deploy the resources to exploit it
either by creating technology via in-house
R&D, or acquiring it through a joint venture
or technology licensing, etc. In some cases, this
may be a simple matter of buying off-the-shelf,
or it may involve exploiting the results of
research already carried out. In other cases, it
might require extensive search and research to
acquire the technology; some of these avenues
are likely to involve extensive negotiation
around price, specification, transfer of knowledge, property rights, etc.
Implementation, absorption and operation of
the technology within the firm. Having acquired or developed technology, a firm needs
to implement the technology within the organisation, which may involve various stages of
further development to final implementation
or launch, as in the case of a new product or
service or a new manufacturing process or
method within the organisation (and learning
how best to use it). This may involve extensive
project planning and management activities
and may require configuration or both technology and organisation to obtain a good and
workable fit.
Learning forms an important part of the building of technological competencies and involves
reflecting upon and reviewing technology projects and processes within the firm, in order to
learn from both successes and failures. In
leading firms, this learning process can become
conscious and formal leading to continuous
improvement in effectiveness, efficiency and
strategy formulation. In order to learn how to
manage the other technological competencies/
components better, a firm needs to develop
internal methods to capture systematically relevant knowledge from its own (and other
firms’) experience and act on this knowledge
in order to sustain technological development
in the long term.
Exploiting external linkages and incentives. In
each of the eight previous components, firms
can and, in some cases, should make use of
external suppliers of technology and related
services (e.g. consultancy companies, government research institutes, universities). In addi-
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tion to giving an indication as to the level of
technological sophistication and openness of
the firm, this dimension can also give an
indication of how well developed are the
external support systems for technology
development.
These can map on to a simple model of technological change over time that involves several
stages based upon the four archetypes described
in the previous section. Although, as presented,
such a model may appear to be a linear process,
we recognise that there are numerous interactions and feedback loops between different
components.
Using the nine-component framework described above, we can generate a series of questions to ask firms to help assess their
technological capability. Such questions, with
the aid of the corresponding guidance notes that
accompany them, can allow a trained manager,
academic researcher or policy maker to identify
those behaviour and routines that contribute to
or are necessary for the development of a firm’s
technological capabilities. For example, a
firm that makes no effort to scan its environment
for signals about threats and opportunities is
likely to be much weaker than one that has
in place sophisticated mechanisms for spotting
and evaluating signals about relevant changes –
such as the emergence of new technologies.
We can apply this approach to the whole of
the nine components of the model incorporated
into the tool and assign a score against the
firm in each of the dimensions of technological
capability.
The audit tool was originally developed to
carry out in-depth case studies, postal questionnaires and rapid face-to-face interview audits. The
version of the tool presented in Table 2 is a highly
simplified, summary version of the full tool presented in Bessant et al. (2000). It can be used for
an initial ‘filtering’ of firms and does provide a
good indication of the range of questions covered
by the in-depth tool.7
The questions (1–24) call for a subjective assessment of the nine dimensions of capability by
one or more senior managers of the individual
firm, according to the scale in the table (which
corresponds to the four levels of capability).
Questions 1–11 are more focused on how aware
of technological issues the firm is, while questions
12–24 concentrate on how well the firm is
able to achieve results in practice. For each
firm, a graphical representation of the level of
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Table 2. Short version of the innovation capability audit tool
Technology activity area
Key
questions
Assessment score
Reactive –
weak to average
capability
2
Strategic –
strong
capability
3
Creative –
very strong
capability
4
N/A
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Assessing the technological capabilities of firms
R&D Management 37, 3, 2007
Q1 þ 2 Awareness
1 To what extent does technology play a part in your company’s business
strategy?
2 Which technologies are most important to your business?
Q3 þ 4 Search
3 How does your firm assess technological opportunities and threats?
4 Who (person or group) is responsible for technology assessment within your
company?
Q5 þ 6 Building a core competence
5 Please describe any special technological strength your company benefits
from?
6 How does your company use technology to create business opportunities for
the future?
Q7 þ 8 þ 9 Technology strategy
7 How skilled is your management in formulating a technology strategy to
meet business goals?
8 What are the main technology priorities of your firm?
9 How does technology fit in with the ‘vision’ of your company?
Q10 þ 11 Assessing and selecting technology
10 How does your company go about selecting the technology it needs for its
business?
11 How do you know when you have selected the best technology option?
Q12 þ 13 Technology acquisition
12 How does your company go about acquiring technology from external
sources once it is selected?
13 Which external technology suppliers are most important to your business?
Q14 and 15 Implementing and absorbing technology
14 How are your various technology activities (e.g. engineering and R&D)
organised within your company?
15 How are projects for introducing new technologies organised?
Q16, 17 and 18 Learning
16 Does your company have systems for assessing technology projects? If so,
please elaborate.
17 Does your company learn effectively from one technology project to
another? If so how?
18 Does your firm carry out post-project reviews? Please describe.
Q19–24 Building external linkages
Unaware –
very weak
capability
1
230
19 Do you utilise any Government agencies or schemes when developing
technology? If so, which ones?
20 Do you use any private consultancy organisations to assist you in
technology assessment? If so, who?
21 Do you use any outside bodies to help you develop technology? If so who?
22 Do you hire any external organisations to help you assess your technology
performance? If so who?
23 Do you work with any universities in key technology projects? If so which
one/s?
24 Do you collaborate with any government research institutes for future
technology projects? If so which one/s?
Assessment score
Technology activity area
Table 2. (Contd.)
Key
questions
Unaware –
very weak
capability
1
Reactive –
weak to average
capability
2
Strategic –
strong
capability
3
Creative –
very strong
capability
4
N/A
Howard Rush, John Bessant and Mike Hobday
R&D Management 37, 3, 2007
capabilities against each of the nine dimensions is
then generated, usually in the form of a ‘spider
diagram’ (as depicted in Figure 1).
The short version of the tool not only provides
a simple mechanism for rapidly auditing the
capability of individual firms but also a way of
benchmarking the strengths and weaknesses
of individual firms against the ‘best-practice’
model defined by creative-type firms. The aim is
not to develop precise quantitative measurements
but to rapidly generate a picture of how well the
firm performs overall, and key areas of strength
and weakness across the nine dimensions (as
in Figure 1).
An example of one component section of the
in-depth tool is also depicted in Table 3.
Conceivably, the in-depth version of the tool
could also be used ‘in-house’ by managers with
sufficient expertise (as might, e.g. be found in a
large firm that fell into our strategic or creative
categories) or by private management consultants
as part of an organisational development programme. However, it was designed to be used by
policy agents (ideally innovation counsellors) who
might typically require a day of training in the use
of the tool. Use of the short version of the tool
might typically require a couple of hours from a
single or several appropriate managers depending
upon the size of the firm. To undertake a full
assessment naturally requires more time and
effort and the identification of appropriate personnel. However, by employing experienced innovation consultants using an extended
interview/focus group process and working with
managers who have been prepared for the task in
advance, one should be able to complete the task
in the equivalent to 1–3 days, depending on the
size of the firm.
Historical case material is gathered and a
‘story’ covering technological progress and key
milestones is obtained from each company. Basic
information on the company’s history, number of
employees, turnover, product markets and technologies required is also checked and updated
during the interview. Explanatory answers to the
audit questions are written up to provide a
detailed, qualitative assessment for each firm.
Although scores are assigned that allow for the
positioning of the firm, it is recognised that such
scores still represent a subjective process and
some of the capabilities being assessed are, to
some degree, intangible – which is why the explanatory answers and adherence to the guidelines provided are important for retaining
confidence in the tool’s reliability.
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Assessing the technological capabilities of firms
Awareness
4
3.5
Linkages
Search
3
2.5
2
1.5
1
Learning
Core competence
0.5
Best practice model
Company x profile
0
Implementation
Strategy
Acquire
Assess/selection
Figure 1. Profile of results.
1.4. Using the tool: some snapshot cases
The first test of the tool was in policy-oriented
research in Korea for the World Bank (Hobday
et al., 2001, 2004). Before this, most studies of
Korean industry focused on policy issues, sector
and industrial surveys or macroeconomic analysis. There were relatively few studies of firm-level
innovation management. The use of the tool
was to provide an assessment of the technological
strategies and capabilities of Korean firms. A test
sample of 25 firms was selected, with the sample
constructed to cover a wide range of sector
groupings (e.g. electronics and automobiles)
as well as examples of local, foreign-owned
and joint venture firms. The aim was not to
attempt to construct a representative or random
sample, but to choose industries on the basis of
export importance, technology intensity and
export vs. local market orientation. Given the
size and complexity of the Korean industrial
base, the sample was inevitably partial. In
selecting firms for the testing of the tool, we
hoped to gain a fairly wide spread of firmlevel perspectives in order to carry out comparisons and point to general levels of industrial
capability. Given the small size of the sample,
the findings were indicative rather than
conclusive, although they pointed to some fairly
consistent results regarding the level of technical
capabilities among Korean firms and the challenges facing them.
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In terms of the lessons learned in the use of the
tool itself, it was realised that evidence collected
could be largely ‘snapshot’, relying on the interviewee’s memory of recent history, rather than a
thorough analysis of past events. The importance
of interviewee selection was clearly important
and, time permitting, multiple interviews. Data
collected should also be supplemented (in advance of the interviews if possible) by using
secondary sources (e.g. annual reports, patent
searches) that might be available from the company (e.g. annual reports) or web searches of
business news and stock market analysts’ assessments, etc. (In our opinion, the use of such
secondary sources can prove valuable in contextualising the results from the tool and the interviewees’ understanding of the response obtained
in the interview but are unlikely to ever replace
the need for face-to-face interviews.) Notwithstanding these limitations, the tool was able to
locate firms within the competence or maturity
framework model, providing both a detailed audit
on the nine capability components, as well as an
interesting assessment of the range of capabilities
within and between sectors. The study was also
able to provide interesting insights into whether
latecomer firms were in a position to begin to
compete on the basis of new product development
and in-house research and development. The
capabilities audit tool helped to show, among
other things, the potential supporting role that
leading capital goods producers could provide to
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Section 7: Implementing and absorbing technology
Having acquired technology, a firm needs to implement the technology within the organisation, which may involve various stages of further development to final launch, as
in the case of a new product or service in the external market place, or a new manufacturing process or method within the organisation.
This often involves further innovation as the technology is adapted and reconfigured.
As well as in-house knowledge and skills, a leading firm will usually need well-developed project management capabilities to ensure implementation is effective and efficient.
Question
Underlying themes
How to interpret the response
How do you manage the process of implementing
technology-based projects?
Successful firms have skills and experience in project
management.
How do you manage risk in development projects?
Successful firms operate some form of risk
management – such as the use of a ‘stage-gate’
framework to guide product development.
How do you ensure co-operation and communication
between different functions in the firm – R&D,
engineering, production, marketing, etc.?
Successful firms are able to engage cross-functional
expertise (e.g. marketing, production, quality) to
create new products/processes.
If the firm is inexperienced or incapable of project
management there is a high risk that projects will run
over time or budget.
Without a suitable risk management framework the
firm may find itself unable to monitor progress or to
stop projects which have run into difficulties or no
longer fit the strategy.
If the firm is unable to bring different functions
together during the project there is a risk of costs and
time problems.
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Summary score
On the basis of the answers to these (and other) questions, where would you position the firm on this scale?
Score
1
2
3
4
Typical characteristics
The firm has little project
management experience or
structure. Projects can easily
drift out of control.
The firm has some project man
agement expertise but has no
framework for risk management or continuing assessment
of project progress.
The firm makes use of a risk
management framework and
has project management skills.
The firm has a well-developed
framework for risk management and is experienced in
project management. It has
structures and processes in
place to enable cross-functional co-operation and early
involvement.
Your assessment
Howard Rush, John Bessant and Mike Hobday
232
Table 3. Example from full audit tool
Assessing the technological capabilities of firms
firms seeking to develop need products. Far
greater R&D investment was also needed and a
re-orientation of the role played by Korean
universities and government-funded research
institutes.
The second major testing of the tool was in a
subsequent World Bank study examining capability building in Thailand (Hobday and Rush,
2002). The aim was to show how firm-level information can be used to inform policymaking help to
‘fine tune’ technology programmes according to
the level of technological development of different
kinds of firms. It was recognised that, generally, the
information available to policy makers via R&D
statistics, patent data, innovation surveys, etc., is at
too high a level of aggregation to distinguish systematically between different groups of firms. We
used this opportunity to test the tool as a means
of providing information on technological levels,
dynamics and problems facing local firms.
On this occasion, it was decided to select a
single sector of high importance to the country; in
this case, electronics, because of its position as the
largest export sector in Thailand and as an
example of a high-technology industry with substantial upgrading potential. Electronics was also
deemed to be of interest because of the mix of a
variety of different foreign-owned and national
firms thought to be at different stages of technological development.
The audit tool identified a wide variety of
firms (both foreign and local) with critical needs
ranging from basic training for production
skills, to engineering support for SMEs, through
to new product development, R&D and advanced
strategic management. From this list, it is
clear that no single policy mechanism could
effectively meet this plurality of needs. We
were able to delineate strengths and weaknesses
for each of the four categories of firms, which
would be of help to policy makers in determining
priorities and where to concentrate-limited
resources.
By concentrating on a single sector, the audit
tool was also useful in identifying a number of
major gaps in the supply chain (some simpler
components and indirect materials as well as in
important technology support areas such as tool
and die making), a variety of infrastructural
problems (in the electricity and water supply)
and particular skills shortages that might be
addressed by appropriate policies – for example
via government-sponsored training and human
resources development in technical colleges and
universities.
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The evidence provided by the tool also indicated that it would be worth considering targeting
policies towards those groups of firms that could
be described as ‘policy receptive’ and that there
might be an advantage in developing technology
policies that address the needs of those firms with
the potential to upgrade technologically, rather
than on the basis of ownership. Upon reflection of
the use of the tool in a single sector, we note that
there is the potential for a degree of sectoral ‘finetuning’ of the tool in order to delve more deeply
into the specific technological capabilities relevant
to any particular sector. What it does allow, as
seen within the study in Thailand, was the ability
to identify, for the policymaker, differences between different market segments, owners, niche
market vs. mass producers, etc., and provide the
sort of information that might be useful in the
targeting of policy.
A third use of the tool is currently underway in
Ireland with a group of firms across a wide range
of sectors. The firms included in the sample are
part of a government-sponsored programme of
assistance. The audit tool/interview approach was
chosen because it was felt that it would provide a
unique insight into a selection of Irish companies,
particularly in their approaches to R&D and the
impact of public funding support on that R&D.
The short version of the tool was used on a
sample of 15 companies from the Irish Medical
Device Association and the full tool with 28
companies who had received RTI funding
through an Enterprise Ireland programme. One
of the methodological findings of this study has
been the possibility that the short version tends to
rate the firm as having higher levels of perceived
capabilities than the full tool completed with the
aid of a knowledgeable consultant. (Hanrahan,
2006).
2. Conclusions: implications for policy
Over the past decade, the design of technology
and innovation policies around the world seems
to indicate that there is now a general acceptance
that, because firms are not all alike, one size (i.e.
type of policy mechanism) does not fit all. That
policies need to be increasingly fine grained is
clear – the challenge is how? The deepening of our
appreciation of the concept of innovation capability of firms at different levels or stages in their
developments, along with the differentiation and
codification of the different components of capabilities that underlie technology and innovation
R&D Management 37, 3, 2007
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Howard Rush, John Bessant and Mike Hobday
management, has improved our recognition of
when and why firms might use external help.
There still remains, however, a substantial gap
between our understanding and practice. Policy
makers and policy researchers still require better
tools. The Technological Capabilities Audit described in this paper is just one tool in the toolkit
that is required. Such tools and their use in field
experiments can help to generate knowledge
about how to build relationships and how to
sustain capability development. Although some
policy makers might conceivably use the Technology Capability Audit tool in their decision making processes to determine which firms receive
financial support, it was not designed with this
intention. Such financial decisions are dependent
upon the specific objectives and design of each
policy, which will differ from country to country
and case to case. Our aim was to provide a means
of assisting policy makers in tailoring support
according to the level of capability of the firm.
While such tools are developed as a means of
positioning, they also contain an educational
aspect, including methods of understanding and
‘unpacking’ difficult concepts such as capability
and innovation. With increasing decentralisation
of policy responsibility comes the need to give a
wide range of policy agents exposure to the
principles of innovation management capability
and such tools can help in their comprehension of
these principles.
Increasing use of tools will help in moving from
theory and research to practice – the identification
of strengths and weaknesses and location on a
capabilities ladder is a necessary step. Ultimately,
the real challenge and need for creativity will,
however, be in the design of support policies and
mechanisms that effectively assist firms.
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Notes
1. The development of the tool was sponsored by the
World Bank as part of the World Bank Project on
Korea and the Knowledge-Based Economy reported
on later in this paper. A work paper, on which this
paper is based, Rush et al. (2006), is to be published
in the workshop proceedings of Innovation Cultures: Challenges and Learning Strategy, Prague,
2005.
2. By ‘complexity,’ we refer to the number of different
elements in the environment and their potential
interaction. Thus, highly complex environments
are inherently uncertain and unpredictable and
require sophisticated capabilities to deal with them
(see Allen, 2001; McKelvey, 2004).
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3. Unaware or passive firms typically benefit from
those policies which include outreach and missionary services, benchmarking, strategic development
and support for technology search, demonstration
projects and other forms of facilitated experience
sharing.
4. Policy mechanisms that are being used with reactive
firms include benchmarking, strategic development
processes, support for technology search, access
to funding for specific projects, demonstration
projects and support for technology transfer,
experience sharing and assistance with training and
development.
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R&D Management 37, 3, 2007
5. Strategic firms benefit from those policies which
include technology signposting, access to funding
for specific projects and support for technology
transfer from, for example, short-term consultancy.
6. Creative firms can benefit from technology signposting, access to funding for specific projects,
support for technology transfer (consultancy), major
technical project contracts and network access.
7. The questions used in the ‘short-tool’ version do not
match directly onto the full tool as, by necessity,
they are limited and must cover wider issues and the
tool is mainly intended as a ‘filtering’ tool for policy
makers.
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