Application for International Business Research and Travel Funding ANTECEDENTS AND CONSEQUENCES OF INNOVATIVE CAPABILITY IN THE CHINESE AUTOMOBILE INDUSTRY Principal investigator: Zheng J. Zhao Co-investigator: George M. Marakas (MIS sub-project) Co-investigator: James P. Guthrie (HR sub-project) I. Summary of Research Objectives In recent years, both business practitioners and scholars in the management field have realized that a firm’s sustainable competitive advantage comes from its ability to recombine its employees’ knowledge in order to foster innovation and new products or services. Research in strategy, HRM, MIS, and other business disciplines have examined this issue, yet from their own parochial perspectives. Research to date has rarely drawn upon multiple disciplines to attain a holistic view of all the factors affecting firms’ innovative capabilities. The main purpose of this research is to study the effects of various resource and management factors (e.g., strategy, HRM, MIS, and etc.) on a firm’s innovative capability and outcomes. We use a longitudinal and multi-disciplinary survey approach within the context of the Chinese auto industry. As a first step, we will establish a comprehensive survey instrument designed to assess the resources and managerial factors that we believe have the potential to contribute to a firm’s innovative capability. We will then conduct the survey in the automotive industry in China. These data will then be used to address a series of research questions, forming the basis for multiple, substantive research outcomes. This project was initiated by the principle investigator’s collaboration with the Society of Automotive Engineers in China (SAE-China). SAE-China will assist the principle investigator to promote, pilot test, and administer the survey beginning in June 2007. In return, the principle investigator is expected to present key findings to SAE-China’s annual conference scheduled in September 2007. The collaboration platform between SAE-China and the principle investigator provides a wonderful opportunity to investigate multi-disciplinary determinants of innovative capabilities in the most dynamic market in the world. This opportunity calls for scholars from different disciplines to work together in designing the survey instrument, analyzing data, and presenting results to multiple audiences. In the present case, the research team consists of specialists in the information systems, HRM and strategic management disciplines. Our study will address such questions as: (1) What role does innovation strategy play in creating innovative capability, (2) What role does HRM, particularly the use of high performance work systems, play in creating innovative capability? (3) What role does MIS play in creating innovative capability? (4) Do the above factors act as complements or substitutes in the creation of innovativeness? (5) Do Chinese indigenous firms differ from MNCs and MNC joint ventures with regard to innovative strategy, MIS and HRM? (6) Do these differences, in turn, influence differences in innovative capability across these firms? (7) Finally, what impact does innovative capability have on firms’ performance? 1 II. Significance to International Business In addition to the general academic value of this research in the area of innovation and knowledge creation/management, this research also carries significance to international business due to its unique empirical setting. First, China is clearly one of the most important emerging markets in the global economy. Whereas China is currently known for having a comparative advantage in terms of low-cost production capabilities, developing indigenous innovative capabilities has become China’s foremost national objective. But, how will China accomplish this lofty goal? What organizational factors or resources will help create this capability? These are the questions not only pondered by Chinese government and business leaders, but are also relevant to all countries participating in the global economy – especially those in emerging markets. Second, the Chinese auto industry is a very interesting empirical setting for several reasons. On the practical side, this industry is quite global. The U.S. and many other western countries have made large investments in China. Examining the innovative capability and the relevant contributing factors in this industry will be beneficial not only to indigenous firms but also to MNCs and joint ventures. On the academic side, this industry provides an ideal setting for research on innovation, resources and capabilities for two reasons. First, there is a high level of variation in firms’ ownership types, managerial styles, resources, capacities, HR practices, MIS usages, and innovation outcomes. This variation will allow for meaningful inter-firm comparisons. Second, firms in this industry are in the early stage of innovative capability development. This provides an opportunity to see the full life cycle of innovative capability development. This study, with samples ranging from state-owned, private, wholly-owned foreign firms, and joint ventures with various levels of foreign shares, has the potential to compare innovative capabilities, practices, and outcomes among different types of firms. It may also shed light on whether entry mode and equity share play a role in MNCs’ innovative capabilities, practices, and outcomes in this industry. Assuming continued cooperation from SAE-China and participating firms, our plan calls for data collection across several years. This will allow for an examination of trends in innovative capabilities, practices, and outcomes of various types of firms. This will also allow us to better understand the causal relationships between a firm’s managerial practices (such as strategy, HRM, MIS) and its innovative capability, as well as the causal relationship between innovative capability and organizational outcomes. 2 III. Research Plan, Supporting Data, and Proposed Time Schedule Background Business organizations have been repeatedly warned that future competitive success hinges on their ability to exhibit ever-increasing levels of innovation and creativity. A number of years ago, Tom Peters (1990) authored an article entitled “Get Innovative or Get Dead”. A few years later, the title of a Forbes magazine article (Young, 1994) suggested that firms must “Innovate or Die”. Although somewhat over-stated, these sentiments forcefully capture the importance of innovation for business organizations. In more recent years the interest and emphasis on innovative capability has accelerated. Much of the emphasis on innovation has been subsumed under broader discussions of corporate entrepreneurship or intrapreneurship (i.e., innovation and entrepreneurship within established firms). Technological diffusion, shortened product life cycles and globalization have imposed an entrepreneurial imperative across a wide swath of industries. Innovation and new venturing are the sine qua non of entrepreneurship -- hallmarks of entrepreneurial behavior within business organizations (Zahra, Jennings & Kuratko, 1999). The promotion of innovation and entrepreneurship has also been a central focus of policy discussions among government officials, including the Chinese government. Thus, knowledge creation and innovation are considered central to comparative advantage and organizational success. Against this backdrop, our basic research question is: What organizational factors help foster these outcomes? Our theoretical framework for exploring this question is the resource-based view (RBV). Drawing on multiple theoretical perspectives, the RBV argues that a firm represents a pool of resources and capabilities which, in turn, can be an important source of competitive advantage (e.g., Barney, 1991; Grant, 1996; Wernerfelt, 1984). The potential for competitive advantage derives form a firm’s ability to exploit the unique features of its collection of resources and capabilities. In this study we intend to examine and identify organizational resources that help create competitive advantage through their influence on innovative capability. Among other organizational factors, we believe that strategy, MIS and HRM, in the form of high performance work systems, may play important roles in fostering organizational innovation. Strategy. One way to describe innovation strategies is from the perspective of a two-by-two matrix, with “self-reliant vs. collaborative” strategies on one axis and “original innovation vs. imitation” strategies on the other axis. This implies that a firm may adopt the any of the the following four strategies: “self-reliant original innovation”, “self-reliant imitation”, “collaborative original innovation”, and “collaborative imitation”. There are pros and cons for adopting each of these innovative strategies. Few studies in the strategy literature have systematically examined the effects of different innovative strategies on the innovation outcome. In addition, more generic competitive strategies such as differentiation and cost leadership (Porter, 1980) may also play a role in a firm’s intent, commitment, practice, capability, and innovation outcomes. HRM. Strategic human resource management (SHRM) has emerged as a major paradigm in the HR field (Dyer & Reeves, 1995). A common theme in this developing literature is discussion and research on high performance work systems (HPWS), or HR practices equipping employees with skills, information, motivation and latitude yielding a work force that is a source of 3 competitive advantage. A number of empirical studies over the last decade have supported the belief that human resource management systems can, in fact, impact organizational success (e.g., Arthur, 1994; Datta, Guthrie & Wright, 2005; Delery and Doty, 1996; Guthrie, 2001; Huselid, 1995). We believe that high performance work systems help firms succeed, in part, due to their ability to stimulate knowledge creation and innovation. A high performance work system engenders broad perspectives and experience sets, aligned interests, information sharing and participatory mechanisms – all of which enhance prospects for spontaneity, innovation and alternative strategy-generation throughout the organization (Wright & Snell, 1999). By developing broad repertoires of skill and behavior, many high performance work system elements promote employee innovative capability and intrapreneurship. MIS. MIS is another important factor that facilitates an organization’s knowledge sharing and knowledge creation processes. Studies have found that MIS contributes significantly to all levels of organizational learning and technical distinctive competencies (Real, Leal, & Roldan, 2006). The adoption of data warehouse and data mining contributes to new product quality and shorter time-to-market (Li & Zhao, 2006). Information systems also improve organizational capital (Snell & Youndt, 1995). Potential Contributions As noted, because of its importance to sustainable organizational competitiveness, increased understanding of the organizational determinants of innovative capability is an important undertaking. This is particularly essential in an economy attempting to transition from a comparative advantage based on low-cost, labor-intensive work to one focused on knowledge creation and innovation. The Chinese auto industry is an example of an industry attempting to make this transition. From an academic perspective, we hope to increase understanding of the mechanisms and processes that help firms’ innovate. Our practitioner sponsors and partners have this same interest. Our study will contribute to the innovation and international business literature in the following ways. First, this study will answer the following research question in a fine-grained way by administering a multi-respondent and multi-job function survey. The main research questions are: (1) What role does innovation strategy play in creating innovative capability, (2) What role does HRM, particularly the use of high performance work systems, play in creating innovative capability? (3) What role does MIS play in creating innovative capability? (4) Do the above factors act as complements or substitutes in the creation of innovativeness? (5) Do Chinese indigenous firms differ from MNCs and MNC joint ventures with regard to innovative strategy, MIS and HRM? (6) Do these differences, in turn, influence differences in innovative capability? (7) What impact does innovative capability have on firms’ performance? Second, with a multi-disciplinary design, this study has the potential to examine the effects of various managerial factors such as strategy, HRM, and MIS on a firms’ innovative capabilities and outcomes. . This will allow for an identification of the relative contribution of each factor as well as an examination of the relationship among these factors as determinants of innovativeness. Third, this study, with samples ranging from state-owned, private, wholly-owned foreign firms, and joint ventures with various levels of foreign shares, will allow us to compare innovative 4 capabilities, practices, and outcomes among different types of firms. It may also shed light on whether entry mode and equity share may play a role in MNCs’ innovative capabilities, practices, and outcomes in this industry. Finally, we plan on collecting data longitudinally over several years. This allows for an examination of trends in innovative capabilities, practices, and outcomes within various types of firms. Moreover, this longitudinal design will help our understanding of the causal relationships between a firm’s managerial practices (such as strategy, HRM, MIS) and its innovative capability, as well as the causal relationship between innovative capability and outcomes. Methods We will conduct this project using a multi-respondent and multi-job function mail survey approach. The sample of this project includes about 400 sizable (with total asset above100 million USDs) automotive assemblers and suppliers that operate in China. With the backing of SAE_China, we hope to achieve a response rate of around 40%. For each participating firm, data will be collected from one senior executive, one R&D manager, one HR manager, one MIS manager, and 2 to 5 engineers who have participated in R&D activities. Survey instruments are designed differently for each type of respondent. However, there will be some overlap in survey questions as a check on measurement reliability. Anticipated Project Schedule This research contains two major stages: (1) a theory-guided field study consisting of semistructured interviews and field observations and (2) a survey study using a mail survey approach. The first stage has been completed as of Jan. 2007. Field interviews are recorded and will be transcribed and coded. Now the main focus is on Stage Two, i.e. the survey study. Here is the tentative plan for the survey study. 1. Literature review (completed) 2. Discuss the general project direction and plan among all parties involved in the research (completed) 3. Secure funding (in process) 4. Obtain local academic and industry support in China (completed) 5. Questionnaire design o Preliminary draft in Chinese (completed) o Evaluation of the draft questionnaire by experts in the Chinese auto industry (completed) o First revision of the Chinese questionnaire (v. C1) –to be completed by 3-1-07 o English translation of C1 (v. E1)– to be completed by 3-1-07 Pilot test o Packet preparation – by 3-15-07 o Administration – 3-20-07 o Evaluation of results – by 4-15-07 o Second version of the Chinese questionnaire (v. C2) – by 5-1-07 5 o English translation of C2 (v. E2) and back translation – by 5-15-07 Survey administration and collection o Printing and packaging – by 5-30-07 o Promotion and pre-survey contact – by 5-30-07 o Administration Mailing of survey questionnaires – by 6-30-07 Follow-up reminders – by 7-15-07 o Collection and database development – by 8-15-07 Data processing – by 9-15-07 o Data quality examination o Construct validity, reliability check o Index creation o Regression and structural equation modeling Result presentation and publication o SAE-china annual conference – Sept.-07 o Working papers IMVP conference – due May-08 AOM conference – due Jan-08 o Targeted journals AMJ SMJ JOM In conclusion, we believe this project addresses interesting and important research questions using appropriate methodologies in a dynamic industry and national context. As such, we believe it has the potential to generate a number of high-profile research outcomes. REFERENCES Arthur J. 1994. Effects of human resource systems on manufacturing performance and turnover. Academy of Management Journal 37: 670-687. Barney JB. 1991. Firm resources and sustained competitive advantage. Journal of Management 17: 99-120. Datta, D.K., Guthrie, J.P. & Wright, P.M. 2005. HRM and labor productivity: Does industry matter? Academy of Management Journal, 48(1): 135-145. Delery JE & Doty DH. 1996. Theoretical frameworks in strategic human resource management: Universalistic, contingency and configurational perspectives. Academy of Management Journal 39: 802-835. Dyer L & Reeves T. 1995. Human resource strategies and firm performance: What do we know and where do we need to go? The International Journal of Human Resource Management 6: 656-670. 6 Guthrie JP. 2001. High involvement work practices, turnover and productivity: Evidence from New Zealand. Academy of Management Journal 44: 180-190. Huselid MA. 1995. The impact of human resource management practices on turnover, productivity, and corporate financial performance. Academy of Management Journal 38: 635-672. Li, L., & Zhao, X. 2006. Enhancing competitive edge through knowledge management in implementing ERP systems. Systems Research and Behavioral Science, 23(2): 129. Peters, T. Get Innovative or Get Dead. California Business Review. Fall 1990. Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors New York: The Free Press Real, J. C., Leal, A., & Roldan, J. L. 2006. Information technology as a determinant of organizational learning and technological distinctive competencies. Industrial Marketing Management, 35(4): 505. Snell, S. A., & Youndt, M. A. 1995. Human resource management and firm performance: Testing a contingency model of executive controls. Journal of Management, 21(4): 711. Wright, P.M. & Snell, S.A. 1999. Toward a unifying framework for exploring fit and flexibility in strategic human resource management. Academy of Management Review, 23: 756-772. Young, J. 1994. Innovate or die. Forbes, 153: 1067. Zahra, S.A., Jennings, D.F. & Kuratko, D.F. 1999. The antecedents and consequences of firmlevel entrepreneurship: The state of the field. Entrepreneurship: Theory & Practice, 45-63. 7 Curriculum Vitae Please refer to the attachments for the CVs of the principal and co-investigators. Other Sources of Funding International Motor Vehicle Program Research Fund The principal investigator has not applied for this fund yet, since the fund will not be available for application until June 2007. Due to the decline in the sources of this fund, it is highly uncertain whether funding will be available. Budget DESCRIPTION round trip travel from Lawrence, KS to Beijing, China by the principle and co-investigators local travel in China living expenses survey cost RA at KU RA at Tsinghua data purchase grand total UNIT 3 UNIT EXPENSE $1,600.00 TOTAL EXPENSE $4,800.00 3 50 400 200 100 1 $1,000.00 $150.00 $10.00 $10.00 $10.00 $3,000.00 $3,000.00 $7,500.00 $4,000.00 $2,000.00 $1,000.00 $3,000.00 $25,300.00 8