Implementing and Adopting Innovation: Case Study of Skype

The present assignment focuses on a real business situation which involves the implementation and adoption of innovation. The case study is comprised of four primary parts which explore the process of innovation development, the promoters of innovation, the internal and external reaction within business resources and the likely strategic implications and business model for further development which can be proposed. In this respect, the assignment explores Skype as an example of business organisation which adopts innovation on a continuous basis and the various strategic implications to which this behaviour is associated.

Skype is an information communication technology (ICT) which is one of the most popular products used by different consumer segments in the process of communicating over the Internet. This platform provides users with the opportunity to communicate and interact via a low cost channel. The company’s growth is promoted by the continuous internationalisation and globalisation of markets. Moreover, not only continuous internationalisation influences the development of Skype, but Skype itself can be seen as a promoter of globalisation – removal of market and country boundaries.

In this context, Skype has grown through the continuous application of incremental innovation. The company has been adopting innovative applications and targeting different customer segments through the products and services provided. However, the present assignment would not only explore these strategy approaches to competitiveness but primarily focuses on the organisational and structural innovation of Skype. The report particularly focuses on the acquisition of Skype by E-bay and the organisation implication this has. Pay Pal as another integrative part of this acquisition is also presented and discussed.

Innovation Characteristics

Innovation management and development has grown as one of the most popular fields within social sciences. It has attracted the interest of scholars for many years. For example, Schumpeter (1950) who is the pioneer within the discipline proposes that innovation is the development of a novel solution which alters past perceptions. Schumpeter (1950) characterised the process of innovation development with the concept of creative destruction explaining that innovation restructures the way past patterns are perceived through the implementation of novelty (Hospers, 2005). However, it is essential to be outlined that innovation is not only characterised by its novel characteristics but by the commercial importance which it has (Tidd et al., 2005). In other words, an innovative solution is both new and applicable to the respective market.

Apart from the above mentioned characteristics, it is also important to be outlined that innovation can be recognised in different forms and degrees. For example, innovation can be seen primarily as incremental and radical (Afuah, 2003). Incremental innovation occurs when little novel changes are applied within an organisation (Tidd et al., 2005). It is often that incremental innovation is practiced on a continuous basis and thus is known as a process of continuous improvement which has applications in companies as Toyota and their total quality management (TQM) core strategic values (Afuah, 2003; Bessan and Francis, 1999). Contrary to the incremental innovation, the radical one is characterised with profound changes within an enterprise (Francis and Bessant, 2005).

Apart from the degree of innovativeness, it is also important to be outlined that business organisations can exploit different types of innovation. The academic literature mainly outlines two main types such as product and process innovation (Boer and During, 2001; Damapur and Evans, 1984). As it can be logically proposed based on the names, the product innovation mainly concerns the products and the process innovation is implemented within the business processes to promote efficiency and effectiveness (DiLiello and Houghton, 2008). However, apart from product and process innovation, organsiational innovation is also seen as another essential type.

In this context, the present analysis is specifically focuses on organisational innovation in the case of E-Bay’s acquisition of Skype and how this affected to the mutual organisational innovativeness. The organsiational innovativeness is ‘mutual’ as this acquisition has affected both parties in a unique way (Hof, 2005). However, it should be also underlined that as E-bay has adopted and largely promoted the payment platform Pay Pal therefore the implications which Pay Pal has on Skype should be also considered (Vitzthum and Konsynski, 2009).

The organisational impact which this acquisition has on Skype is substantial. On the one hand, Skype has been having significant popularity in Europe and Asia but lacked high exposure in the large American market. In this respect, as E-bay is one of the leading e-commerce platforms n the US therefore Skype would be able to benefit for such co-operation. However, the innovative characteristics of this venture do not come from the increased market exposure but from the integration of three different business models: Skype, E-bay and Pay Pal. This can be identified as a clear example of Schumpeter’s creative destruction, when old and orthodox patterns are substituted by novel behaviour (Hospers, 2005; Schumpeter, 1950).

Furthermore, the characteristics of this organisational innovation not only should be identified within the structural implications only but also in relation to internal business resources. For example, organisational innovation promotes the interaction between different groups of employees which as a return increases the creative capability of the enterprise due to continuous knowledge-sharing and idea generation (Tushman and O’Reilly, 1997). This is the reason why, through this acquisition, Skype not only does gain the opportunity to get popularised within different markets but also benefit from the exchange of insight. Human resource management and in particular the collaborative performance of employees is essential to the promotion of innovation (Dodgson and Rothw, 1994). In other words, organisational innovation can promote the development of other types of innovation, such as process and product innovation as part of the internal collaborative processes.

Triggers and Promoters of the Innovation

The triggers and promoters of innovation can be divided into internal and external ones. The internal triggers in the present case are the desire of E-bay and Skype to grow in greater capabilities and competitiveness within diverse markets. As it was already outlined Skype had good exposure in Europe and Asia but lacked the same success in United States (Vitzthum and Konsynski, 2009). On the contrary, Skype as a prominent e-commerce platform in the US lacked significant exposure to European and Asian consumers as opposite to the intensive revenue generation in North America (Amber, 2000). Furthermore, the third ‘element’ in this partnership, Pay Pal at the time of the merger was still in the beginning of its growth and therefore this collaboration looked highly positive to Pay Pal’s increased business capabilities and market reach.

Apart from the internal drive which is always a highly influential promoter of innovation and business competitiveness, the external environment can be suggested to be another substantial stimulus to this acquisition. For example, globalisation and the continuously intensified communication between international customers influence technological development and therefore information and communication technologies as Skype have substantial opportunity to grow. Furthermore, another important trigger to the organisation is the increased market competitiveness. The adoption of innovation is generally associated to both positive and negative external sources. As it is in the present case, these are the market opportunities which the acquisition provides and the industrial competitiveness and threats which may have negative impact on the performance of the organisations.

The internal and external sources of innovation, however, should not be perceived as ultimately separate entities. For example, the internal strengths of a business contribute to the business’ ability to exploit external opportunities and overcome external threats. In this respect, the resource based view (RBV) theory can be used as an analogue, suggesting that a firm’s strength derives from its internal dynamics and this promotes business continuous competitiveness (Barney, 2001). In the present context, it can be proposed that the current case of organisational restructuring and innovation affects the increased resource capabilities of the business and thus promotes the venture’s greater competitiveness.

Reactions to the Adopted Innovation

As Joseph Schumpeter suggests, innovation is a phenomenon which causes disruption and change (Hospers, 2006; Schumpeter, 1950). This is the reason why, innovation and all processes related to its adoption creates certain internal and external reaction. In the present case, the reactions of E-bay’s acquisition of Skype and integration of Pay Pal cannot be assessed entirely from internal perspective as the author of the present report cannot access this internal information. However, there are certain outcomes which can be clearly recognised in the academic literature which can be conceptually and theoretically integrated in the current analysis.

One of the primary reactions which can be identified in the internal environment of a company when innovation is adopted is the rejection by employees to accept the proposed change (Hiatt and Creasey, 2003). This is especially common in the cases of organisational restructuring which is resulted by mergers and acquisitions (Fedor and Harold, 2004). Employees perceive this as a risk to their career and job stability. However, the present acquisition cannot be recognised with any major physical and structural transformations and therefore it may not have had such a substantial impact over employees.

Another reaction which can be identified with such a horizontal diversification and organisational innovation is seen within the external context and in particular in customers and competitors (Cook, 2004). For example, customers become interested in the collaborative propositions which the brands are likely to provide. For example, Skype has been continuously innovating and applying some incremental innovations and improvements due to the wider market share the company is exposed to. This is the reason why, Skype has developed various video and communication application within its platform to fit the needs of multiple customer segments. This is true innovation, not only it needs to be novel but it also need to have commercial and market value (Damanpour, 1991).

Strategic Characteristics

The present case reveals an innovative organisational situation – the acquisition of E-bay of Skype. This is an approach of horizontal diversification by E-bay which not only does have substantial impacts on E-bay but on Skype as well. This is an example of the interconnectivity of innovation – it cannot be conducted in isolation and it has effect on multiple business aspects. For example, the organisational innovation resulted in Skype’s producing a continuous incremental innovation, developing and introducing new applications to fit the needs of various segments. The platform introduced multiple video streaming which is highly applicable to ordinary users, families and business conferencing. This multiple application of innovation is exactly the purpose and value of the phenomenon.

It is important to be underlined that innovation is a powerful source of competitiveness but it needs significant internal commitment. This is the reason why, leadership can be recognised as essential promoter of innovative behaviour. Leadership is the process which motivates and inspires organisational commitment. In the context of incremental innovation, employees need to be continuously committed to promote the innovative performance of the business.

Leadership, however, should not be confused with management as these are different approaches to people management, development and co-ordination. Management can be explained as the process of executing business processes and operations in an efficient manner whereas leadership is the approach of doing the right things – identifying solutions where no structure guidance exists. This is the reason why leadership is needed to stimulate employees’ commitment to innovation (Alves et al., 2007). People management and team work are essential to innovation development as this process stimulate idea generation and knowledge sharing between different individuals which is synthesised in the creation of a novel and meaningful solution.

References

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Alves, J., Marques, M., Saur, I. and Marques, P. (2007) ‘Creativity and Innovation through Multidisciplinary and Multisectoral Cooperation’, Creativity and Innovation Management, Vol. 16, No. 1, pp. 27 – 34.

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Barney, J., Wright, M. and Ketchen Jr., D. (2001) ‘The resource-based view of the firm: Ten years after 1991.’,Journal of Management, vol. 27, no. 6, pp. 625 – 641.

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Bessant, J. and Francis, D. (1999) ‘Developing strategic continuous improvement capability’, International Journal of Operations & Production Management. Vol. 19, No. 11, pp. 1106 – 1119.

Boer, H. and During, W.E. (2001) ‘Innovation. What innovation? A comparison between product, process and organisational innovation’, International Journal of Technology Management, Vol. 22, No. 1/2/3, pp. 83 -107.

Cook, S. (2004), Change management excellence: using the four intelligences for successful organizational, Kogan Page Publishers. Available from: http://books.google.co.uk/books?id=Y9BcWvY-0SMC&printsec=frontcover&dq=change+management&lr=#v=onepage&q=&f=false [Accessed: 04/03/11].

Dahlgaard, J. J., Kristensen, K. and Kanji, K. G. (1998) Fundamental of Total Quality Management. London: Chapman & Hall.

Damanpour, F. (1991) ‘Organizational Innovation: A Meta-Analysis of Effects of Determinants and Moderators’, The Academy of Management Journal, Vol. 34, No. 3, pp. 555 – 590.

Damanpour, F. and Gopalakrishnan, S. (2001) ‘The Dynamics of the Adoption of Product and Process Innovations in Organizations’, Journal of Management Studies, Vol. 38, No. 1, pp. 45 – 65.

Dewar, D. R. and Dutton, E. J. (1986) ‘The Adoption of Radical and Incremental Innovations: An Empirical Analysis’, Management Science, Vol. 32, No. 11, pp. 1422 – 1433.

Fedor and Harold (2004) Effects of Change and Change Management on Employee Responses: An Overview of results from multiple studies [online]. Available from: http://www.cpbis.gatech.edu/research/workin g_papers/CPBIS-WP-04-02%20Herold_Fedor_Change%20 Management%20Fall%202004.pdf [Accessed: 04/04/11]

Francis, D. and Bessant, J. (2005) ‘Targeting innovation and implications for development’, Technovation, Vol. 25, No. 3, pp. 171 – 183.

Hiatt, J and Creasey (2003) Change management: the people side of change, Prosci. Available from: http://books.google.co.uk/books?id =zQTy8mk8kZYC&printsec=frontcover&dq=change+management#v=onepage&q=&f=false [Accessed: 04/04/11]

Hof, R. (2005) ‘Why ebay is buying Skype,’ Businessweek. Retrienved: 10/09, form: http://www.businessweek. com/the_thread/techbeat/archives/2005/09/why_ebay_is_buy.html. [Accessed: 05/04/11].

Hospers, J. G. (2005) ‘Joseph Schumpeter and His Legacy in Innovation Studies’, Knowledge, Technology & Policy, Vol. 18, No. 3, pp. 20-37.

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Schumpeter, J. (1950) Capitalism, Socialism and Democracy. (3rd ed.) New York: Harper & Row.

Leede, de J. and Looise, K. J. (2005) ‘Innovation and HRM: Towards an Integrated Framework’, Creativity and Innovation Management, Vol. 14, No. 2, pp. 108 – 117.

Tidd, J., Bessant. J. and Pavitt. K. (2005) Managing Innovation. (3rd ed.) Chichester: John Wiley & Sons Ltd.

Tushman, M. L. and O’Reilly, C. (1997) Winning through Innovation: A Practical Guide to Leading Organizational Change and Renewal. Boston: Harvard Business School Press.

Van de Ven, A. H., Polley. E. D., Graud. R. and Venkataraman. S. (1999) The innovation journey. New York: Oxford University Press.

Vitzthum, S. and Konsynski, B. (2009) ‘EBAY’s Acquistion of Skype SA: Valuing the Voice of the Buyer,’ The Communications of the Association for Information Systems, vol. 24, no. 6, pp. 89 – 104.

Table of Contents

References 9

Introduction to the Case study

The present cases study focuses on Apple which is one of the leading and most innovative producers of technologies and entertainment devices. The company is continuously growing in size and is attracting greater market share. In this respect, the analysis focuses on the particular product and service innovation which are provided by the organisation to sustain continuous competitiveness. It is essential to be underlined that product and process innovation should not be perceived as separate entities (Afuah, 2003). It is often that business organisation incorporate both product and process innovation as interconnected elements of a mutual strategy of industrial competitiveness (Francis and Bessant, 2005).

It should be also underlined that often, process innovation is stimulated as a natural outcome of product innovativeness, it appears as a logical and complementary derivative. It is also important to be mentioned that the present case study focuses on another essential element of the development and introduction of innovation, such as business leadership. It specifically focuses on the company’s most prominent decision-maker and leader Steve Jobs, and analyses his approaches to business management and innovation leadership.

Innovation – Types and Characteristics

As already revealed in the previous case study, innovation is a popular phenomenon which pioneer Joseph Schumpeter describes as the process of creative destruction. In other words, innovation is a novel solution which has commercialised applicability and significant market value (Hospers, 2005; Freeman and Soete, 1997; Kleinknecht and Mohnen, 2002). This definition clearly describes the innovation which is produced by Apple, one of the leading technological innovators. The company utilises a number of innovative products in its iPhone, iPad and iPod series of entertainment products.

The innovative performance of the organisation can be recognised as highly distinctive. The company utilises and merges different types and degrees of innovativeness. The academic literature describes primarily two types of innovation such as, product and process innovation (Storey, 2000). However, often companies can utilise a mix of the two as it is in the case of Apple. The company has popular products as iPad, iPod and iPhone which are complemented by the innovative platform iTunes where users can download music and create playlists to play on their iPods. Moreover, there are hundreds if not thousands of applications which are created by Apple software developers which are downloaded and used on any of the iPad and iPhone devices. This is an example of how the company engages customers through a full life cycle – they are provided with innovative products and service from the save brand which ensures long-term loyalty and re-purchase (Iacobucci and Calder, 2003; Kotler and Keller, 2008).

The innovative management of products and services at Apple has been led by a management and leadership approach which can be identified with high level of confidentiality, secrecy and partial isolation. Contrary to the conceptual understanding in the academic literature that innovation is stimulate through continuous knowledge sharing and idea generation, Steve Jobs promoted an environment of micro-management and high level of internal control. However, this has led to paradoxical results – Apple is continuously generating market share, profitability and above all customers’ loyalty (Daft et al., 2010).

One of the explanations for this outcome can be related to the resource based view theory. Similarly to the previous case study on Skype and E-bay, Apple seems to be also taking advantage of the strength of its internal resources. The resource based view theory suggests that a company’s success is derived from the uniqueness and competitiveness of its internal resources (Johnson and Scholes, 2008).This approach is closely related and relevant to the leadership and management initiatives practiced by Apple’s main decision-maker Steve Jobs.

Jobs’ approaches to people management can be identified and strict but with high level of fairness. However, this leadership and management approach sustains certain risks as too much of micro-management and strictness may decrease employees’ creativity and innovative capabilities (Daft et al., 2010; Goleman, 1998). Employees are essential source to innovation development and therefore people management should stimulate an environment which promotes the expression of employees’ creativity and innovativeness, such as: team work; knowledge sharing; initiativeness; risk taking; company and market wide exposure (Rogers, 1995; Tushman and O’Reilly, 1997; Van de Ven et al., 1999).

Innovation Promoters and Obstacles

One of the primary promoters of Apple’s innovative capabilities is the significant strength of internal resources and capabilities. In other words, in order for a company’s resources to be considered as contributory to the overall business competitiveness and innovativeness they need to be rare, unique and valuable not only to the particular organisation but to the market place (Barney, 2001). In this respect, the internal resources which are in possession of Apple perform in a highly competitive manner.

In this context, one of the greatest promoters of the company’s innovativeness is the leadership approach conducted by Jobs which focuses on growth of internal technological capacity and utilisation of internal employees’ skills. However, it should be underlined that this type of leadership and internal management can lead to certain problems in the company. On the one hand, the substantial commitment practiced by Jobs is a clear indicator of a strong leadership (Day, 2000; Gill, 2006). He is devoted to the wellbeing of the company and therefore he often practices micro-management.

However, on the other hand, this micro-management approach can result in certain difficulties and obstacles to the production of innovation. This can reduce employees’ freedom to be creative and innovative, to take initiative and risks in their decision-making which are all important components in the process of innovation management and development (Daft et al., 2010; Slack et al., 2007; Tidd et al., 2005).

Reactions and Restrictions to Innovation

The reaction to Apple’s innovation can be divided into internal and external. The internal reaction is related to employees’ performance to the development and introduction of innovation. In the present case, Jobs is one of the primary stakeholders in this process of innovation development which can be suggested to restrict employees’ commitment to the process of innovation development. As it was already outline, innovation development is a process which requires a people management approach which stimulates employees’ creativity and innovativeness (Alves et al., 2007; Storey, 2000).

Furthermore, especially in the case of a cumulative product and process innovation, employees need to be provided with company-wide exposure (Leede and Looise, 2005). In the present case, however, the manger of the company restricts employees’ involvement in multiple processes. This restricts the ability of employees to get inspired by different departments, responsibilities and ideas. This is fundamentally important to the process of idea generation and creative destruction, when old patterns and thinking habits are substituted by innovative solutions (Hospers, 2005).

Another essential restriction which needs to be clearly outlined is the industrial isolation of Apple as compared to other brands. In other words, it can be suggested that Apple refrains from collaborating with other industrial players. On the one hand, this protection is needed in the cutting edge technological industry. On the other, hand, however, Apple misses out on opportunities for strategic partnerships, co-operative research and development, and industrial collaboration (Drucker, 1991). These are all essential components for the continuous and successful adoption of innovation. In other words, in order for a company to be able to produce product and process innovation it needs to have substantial exposure to the industry and market trends (Dodgson and Rothw, 1994).

In this context, as it can be identified from Apple’s comparative industrial isolation which is product of Jobs’ autocracy management may result in certain long-term risks and unfavourable internal and external reactions. For example, employees motivation may decrease due to the lack of responsibility, ownership and team work to which they are exposed. This is the reason why, employees may become passively aggressive and thus cease being productive due to undermined professional morale. However, it is also important to be outlined that this operational isolation may also have impacts on the industrial competitiveness in the sector. Other technological companies may embrace a copy-cat approach and adopt Apple’s innovation, therefore Apple will face increasing competitiveness rather than fruitful industrial partnerships (Ettlie, 1999; Kleinknecht and Mohnen, 2002; Kotler and Keller, 2008).

Strategy Development and Leadership

Another important issue is the strategic development and continuous leadership approaches of the company. Apple is one of the leading providers of entertainment technological devices. The company utilises both product and process innovation which provides them with the opportunity to attract greater customers’ interest and stimulate customers’ loyalty which is essential to sustaining continuous revenue generation (Groucutt et al., 2004; Kotler and Keller, 2008).

Apart from the combination of product and process innovation, it is interesting to be outlined that Apple also utilises different degrees of innovativeness. The academic literature outlines two primary degrees of innovative impact, such as radical and increment (Bessant, 2003). In this respect, the radical innovation produced by Apple can be recognised in the highly innovative devices which it produces.

For example, the switch from ‘walkman’ and CD player music devices to Apple’s iPod is radical. In the same sense it is the company’s iPhone which is pioneer of the ‘smart phones’ in the industry. However, this radical innovativeness is also accompanied by incremental novelty – Apple produces different upgrades on the devices and new models are released each year. This type of industrial performance has highly influential marketing impact. In other words, customers are continuously engaged with Apple’s novel propositions and therefore their life time purchasing is extended (Hollensen, 2007).

Another essential aspect of the management of the company is the leadership approach which is applied by Steve Jobs. As it was already identified, the decision-maker focuses on the management of an authoritarian approach of managing employees. This causes certain internal secrecy and business isolation. Although, secrecy may be justified as important and necessary condition to survive in the high-tech industry, business isolation cannot be recognised as a positive outcome especially in the context of innovation management (Francis and Bessant, 2005).

Finally, the personal approach to management and micro-management deployed by Jobs is also another leadership choice which can be criticized. In other words, through his leadership approaches, Jobs does not promote and sustains intellectual capital within the organisation. For example, if he leaves the company all the ideas, rules, processes and perceptions will leave with him. The primary contributor to this unfavourable outcome will be the reduced engagement of employees on a company-wide level. Apple is currently one of the most innovative companies in the market but the business innovativeness needs to be continuously sustained and updated in order for the company to be able to adequately serve the needs of customers.