Why did we make that cheese?

An
empirically based framework for
understanding what drives innovation
activity
Hanne Harmsen, 1 Klaus G. Grunert 1 and
Francis Declerck 2
1
The MAPP Centre, The Aarhus School of Business, Haslegaardsvej 10, DK-8210 Aarhus V,
Hanne.Harmsen@mar.hha.dk Klaus.Grunert@mar.hha.dk
2
ESSEC-IMIA, Avenue Bernard Hirsch, BP 105, 95 021 Cergy-Pontoise Cedex, France. declerck@edu.essec.fr

In the more recent product development literature the interplay between R&D skills and competencies
and market skills and competencies is seen as a major determinant of successful innovation. The study
reported in this article was done in order to cast more light on these two constructs in an industry with
low R&D expenditures, but where product development is nevertheless considered to be strategically
important. That industry is the food processing industry. The results of a series of case studies
indicate that constructs other than R&D and market orientation may be more appropriate for
understanding innovation and explaining innovation success in the case material. A new set of
constructs focusing on what causes specific innovation activities to occur is proposed and a revised
framework is developed.

Received views on innovation and success the detection and fulfilment of unfilled needs and
wants of potential customers, and innovation success

I nnovation is regarded as a major source of

companies' competitive advantage. The literature
on innovation and innovation success is vast and
covers numerous perspectives, levels of analysis, and
objectives (e.g., Barclay, 1992; Cooper, 1990; Craig
and Hart, 1992; Johne and Snelson, 1988; Lilien and
Yoon, 1989; Rothwell, 1992; Sundbo, 1994; von
Hippel, 1988). For a general overview, however, it
seems reasonable to say that there have been two
major views on innovation. In one view, innovation
and innovation success is closely linked to technolo-
gical change and to research and development
(R&D) activities: a view prevailing in the industrial
economics literature. In the other view, mainly taken
in the marketing literature, innovation is regarded as
is therefore closely linked to the concept of the
degree of market orientation of the innovative
company.
More recent literature has emphasized the need for a
balance between the two views and the importance of
an interplay between R&D and market orientation for
successful innovation to occur (Burgelman and Sayles,
1986; Conway and McGuinness, 1986; Cooper, 1984b;
Crawford, 1997; Gatignon and Xuereb, 1997; Ny-
stroÈm, 1990). The prevailing view of innovation today
thus seems to be that R&D and market orientation
(representing technology push and market pull, re-
spectively) are both necessary for successful innova-
tion. This view can be reconciled in the framework
shown in Figure 1. Both R&D and market orientation,

R&D Management 30, 2, 2000. # Blackwell Publishers Ltd, 2000. Published by Blackwell Publishers Ltd, 151
108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.
Hanne Harmsen, Klaus G. Grunert and Francis Declerck
and their interplay, are regarded as major determinants
of innovation in the form of new products or processes,
which, when they are well-received by customers, can
contribute to superior business performance.
While Figure 1 gives an overview of commonly used
constructs and their interaction, specific definitions of
the terms are subject to an ongoing debate. We will
therefore briefly describe how we use the terms
included in the model.
With regard to market orientation, we follow
Jaworski and Kohli (1996), who conclude that the
recurrent elements of definitions of market orientation
are (a) focus on the customer, (b) external orientation,
(c) focus on being responsive to customers, and d)
focus on more market players (e.g. competitors) than
just customers. Thus, with market orientation we here
associate an external orientation that gives a high
priority to customers and to providing value to
customers. As value to customers also depends on
competitors' offerings, it also implies a focus on
competitors. In the market orientation literature, the
concept has most often been operationalized and
measured as a number of activities, for example related
to collection, dissemination and response to market
R&D market
orientation
innovation
innovativeness
customer
acceptance
performance
Figure 1. A framework for analyzing innovation.
152 R&D Management 30, 2, 2000
information. For a fuller discussion of the concept of
market orientation see Bisp (1999).
As for R&D, we follow the 1980 Frascati Manual
(OECD, 1981), which notes that R&D is a part of the
innovation process, the whole process consisting of the
scientific, technical, commercial and financial steps
necessary for successful development and marketing of
new or improved manufactured products, the com-
mercial use of new or improved processes or equip-
ment, or the introduction of a new approach to a social
service. R&D is only one of these steps, and in the
manual R&D is distinguished from activities like new
product marketing, parent-related work, financial and
organizational change, design engineering, industrial
engineering and manufacturing start-up. R&D is thus
related to the early activities of the innovation process,
mostly concerning scientific developments. These
definitions have been incorporated into the Oslo
Manual and are now used by the OECD and Eurostat
in, for example, innovation surveys.
In defining innovation, we include both product and
process innovations, and we distinguish between the
invention and the innovation (invention being a part of
R&D). Product innovations are products that are
perceived to be new by either the producer or the
customer; the latter can be both end-users and=or
distributors. Process innovations refer to new processes
which reduce the costs of producing existing products
or enable the production of new products (see Gobeli
and Brown, 1987; Grunert, et al., 1997; and Wind,
1982 for an in-depth discussion of this view on
innovation).
According to Figure 1, the level of and interaction
between R&D and market orientation will influence
both innovation and innovativeness. The term innova-
tiveness has two meanings: a characteristic of a
particular innovation (e.g. incremental vs. radical),
and a characteristic of a company, where, e.g.
innovation speed, innovation willingness, innovation
capacity, and innovation quality have been associated
with the term. Here we employ the term innovativeness
as a company characteristic covering, for instance, the
number of product innovations launched in a given
period, the number of product innovations launched
which have become long-term successes, the average
radicality of the company's product innovations, and
the percentage of sales accounted for by new products.
The dotted lines in Figure 1 represent the attempts
that have been made to empirically test the relation-
ships between R&D and business performance, and
between market orientation and business performance.
R&D is usually measured in terms of input (R&D to
sales ratio) or seen as a company resource (does the
company in question have R&D facilities or not), and
relating such measures directly to business perform-
ance has not resulted in clear-cut evidence (Cooper,
1984a; Narin et al., 1987; Scherer, 1984). Market
orientation is usually measured in terms of specific
# Blackwell Publishers Ltd 2000

activities such as generating market intelligence,
dissemination of the resulting information within the
company, and taking measures to respond to changes
in the market (Atuahene-Gima, 1996; Jaworski and
Kohli, 1993; Kohli and Jaworski, 1990). And there is
some empirical evidence on a positive relationship
between a higher degree of market orientation and
business performance (Doyle and Wong, 1996; Green-
ley, 1995; Jaworski and Kohli, 1993; Lusch and
Laczniak, 1987; Narver and Slater, 1990; Oosthuizen,
1994; Ruekert, 1992).
However, investigations of this kind raise more
questions than they answer. Neither R&D nor market
orientation can be expected to have a direct effect on
business performance. R&D and market orientation
can influence innovation processes and innovation
activities, whose outcome can then influence business
performance. Innovation is a necessary mediator, and
the way in which R&D and market orientation
together affect innovation as a possible cause of
success is therefore an important area for further
research. In addition, we find that some industries are
quite innovative in the sense that they put out a large
number of new products or invest considerably in
process development, but their level of R&D is
notoriously low. The food industry is a good example
of this (Grunert et al., 1997).
This leads us to the following question for the
present investigation. How can we describe, at a more
detailed level, how R&D and market orientation
contribute to superior business performance by the
way in which these affect product and process
innovations? Which other intra-company factors, in
addition to R&D and market orientation, are im-
portant in understanding the determinants of success-
ful innovation?
Research method and empirical basis
Our research questions call for the identification of
new constructs, the refinement of theory, and the
development of new theory. A qualitative approach is
therefore called for. Based on qualitative evidence, we
hope to be able to propose a new or refined model of
how R&D and market orientation influence business
performance via innovation. This model can then be
tested quantitatively in later research.
We use the food industry as an example. Large
numbers of new food products are developed and
launched every year, and innovation is often cited as a
key success factor in an environment characterized by
more intense competition and increasing customer
power (Grunert, et al., 1996). At the same time, R&D
levels in the food industry are quite low (Grunert, et
al., 1997). This may be a reason why the food industry
has not been used as the focus of innovation studies
# Blackwell Publishers Ltd 2000
Understanding what drives innovation activity
(Harmsen, 1996). But how, then, does innovation in
the food industry come about?
We employed a case-study approach in this study.
The term case study covers various qualitative
approaches (Denzin and Lincoln, 1994). Yin (1987)
defines case studies as `an empirical enquiry that:
investigates a contemporary phenomenon within its
real-life context; when the boundaries between the
phenomenon and context are not clearly evident; and
in which multiple sources of evidence are used'. In this
case we conduct collective case studies (as opposed to
intrinsic or instrumental case studies) (Stake, 1994).
The unit of analysis is the product development
function in each company and each case can on its
own illustrate the product development function in a
food-processing company. At the same time it is
intended that the twelve cases together will lead to a
better understanding of the factors influencing innova-
tion activities and also to new theoretical propositions.
The unit of analysis has been the individual
company. To an increasing degree the food marketing
literature recognizes the importance of supply chains
or partnerships (Mohr and Spekman, 1994; Skinner et
al., 1992; Wierenga, 1997). In this research we have
tried to take this development into account by
including a number of questions on channel structure
and influence on innovation activities.
The research team in this project consisted of eight
researchers from six European countries, all profes-
sionally involved in agro-food management research.
The researchers were responsible for choosing two case
companies in their country (a total of twelve cases),
representing food companies engaged in innovation
activities. Further we made sure that the case
companies maximized in variation on a number of
variables which were expected to have an influence on
the innovation process: size, brand manufacturer
versus private label manufacturer, independent com-
panies versus companies belonging to food conglom-
erates, export oriented versus domestically oriented,
level of value-added, type of product manufactured.
Data collection was based on semi-structured inter-
views with managers in the companies, site-visits, and
company documents. The researcher from the country
in question paired up with a second researcher from
one of the other countries and together they conducted
the case. An interview guide was developed on the
basis of a literature review and with special regard to
the framework in Figure 1 to ensure that all cases
followed the same form (see case guideline in appendix
A). We acquired information on importance and type
of innovation in the company, organization of the
innovation process, the role of R&D in innovation,
product versus process innovations, financial aspects
of R&D, market orientation, external relationships
relevant to the innovation process, including those
with suppliers, customers, and research institutions,
market strategy, type of market served by the
R&D Management 30, 2, 2000 153
Hanne Harmsen, Klaus G. Grunert and Francis Declerck
company, and general factual information on the
company like size, sales volume, and organizational
structure. The informants were chosen in a way which
ensured that all levels and functional groups involved
in the innovation process were tapped. This meant that
there were varying sets of informants in the various
companies, because of differences in organizational
structure, size, and in the way in which innovation was
organized, but informants typically covered general
manager, product development manager, marketing or
commercial manager, production manager, quality
control manager. The number of informants inter-
viewed in a particular company varied from one to six.
All interviews were tape-recorded. An individual case
report was prepared for each case and sent to the
informants for validation.
Results from the case studies: some examples
All cases were analysed in relation to the constructs in
Figure 1. How were innovative activities planned and
carried out? To which extent were the companies
actually innovative, and to which extent were they
successful in their innovations? To which extent did the
case companies have R&D facilities, or have links to
external R&D facilities? To which extent were they
market oriented? How was the interplay between R&D
and market orientation?
The overall picture, which emerged, is that the case
companies ± even those that can be labelled successful
innovators ± had neither a high degree of R&D nor of
market orientation. At the same time some of them are
quite innovative. But if the innovative activities in
these companies are not driven by R&D, by market
orientation, or by their interplay, how then can we
explain their innovativeness? In the following, a brief
version of five of the cases might give some indications,
which we will then try to generalize in the next section
of the article. Due to space limitations only five of the
twelve cases are presented. We have chosen these as
they represent the depth of the empirical material well:
there are medium-sized and large companies, produ-
cers of branded and private label products, there are
companies that are nationally and internationally
oriented, well established and young, family-run and
professional, with close links to retailers or more
independent, and finally companies which differ in
their amount of innovation activities. In appendix B all
case studies are summarized with regard to the most
important constructs. 1
Tholstrup Cheese A=S
This is a private Danish dairy company, producing and
marketing speciality cheeses, almost entirely under
their own brand name. The company exports approxi-
mately 85% of its overall volume and has positioned
154 R&D Management 30, 2, 2000
itself as an innovative company with a strong brand.
Today Tholstrup has about 650 employees and an
annual turnover of about ECU110 million. Product
innovation is central to the company. They define
themselves as having a niche strategy, where they
launch products perceived to be new by all actors on
the market. The high degree of innovativeness of their
products is for example mirrored in the fact that one of
their recent innovations, a moulded cream cheese,
made it necessary to define a new category in official
cheese trade statistics.
Idea generation is undertaken internally by a product
development committee. Neither input from research
institutions, internal R&D, nor market information play
a major role in the generating of ideas. Market
information is not used because `if the consumers want
it, it is not new,' and suppliers of ingredients are for
example never allowed to participate, as they are seen as
the sector's intelligence agents. Tholstrup does not
engage much in co-operation with retailers on the
development of new products, because they do not
believe this leads to products with the degree of
innovation they are looking for. Direct customers are
in that respect kept at an arm's length, and the company
believes that it is able to manufacture products of a
quality that is so high that they create a consumer pull
effect. Intuition ± `we know a good thing when we see
it' ± experience ± both in terms of market knowledge
and knowledge of cheese production ± and a very
strong commitment to high quality products (as defined
by themselves) seems to be what generates the ideas.
During product development, products are tested on
the market several times, which involves both tests of
products and of packaging. Market orientation activ-
ities are thus performed quite intensively, but more to
check and fine-tune the new product than to initiate it.
Market communication in the form of TV commercials
and advertisements in print media is carried out, but to
a limited extent. Tholstrup believes that the high quality
of its products is the real vehicle for brand positioning.
About two thirds of all product development
projects require some kind of process innovation. This
may be either new production equipment or adapta-
tion of existing production equipment. Frequently also
new packaging equipment is required. Often new
products are produced in a more manual way in the
beginning followed by processes with a higher degree
of automation being developed when the success of the
new product becomes apparent. Some process innova-
tions are initiated independently of product innova-
tions, usually because they can lead to a cost reduction.
However, care is taken that process optimization will
not influence product quality negatively.
Groko B.V.
Groko is a medium-sized (220 employees) Dutch
company that mainly produces frozen vegetable-based
# Blackwell Publishers Ltd 2000

consumer products, supplemented by a small amount
of prepared added-value products like TV dinners. The
company is quite successful in developing and intro-
ducing products in these categories, and has a steady
flow of new products. Half of the turnover comes from
sales to retail chains under private labels, and this part
is expected to grow in the future. The company seems
to follow a `challenger' strategy by producing imita-
tions of products introduced as branded products as
efficiently as possible. This strategy is realized by virtue
of the company's considerable know-how in produc-
tion, and a product development competence which
comes down to being able to analyse and imitate
products on the market.
No use is made of external research institutions, and
marketing research techniques are hardly used by the
company, because only products that have already
established themselves as successes are imitated.
Process innovations to reduce costs further have the
continuous attention of management.
The company is market oriented to the extent that it
monitors competitors to find out about the introduc-
tion of new products that might be interesting for
Groko to imitate. Also, Groko has close links to
retailers, who will ask Groko to imitate specific
products which the retail chains want to sell under
their private label. Groko believes that retailers want
an alternative to the more expensive branded products,
and that therefore they supply Groko with market
information.
The success of Groko seems not to rest on specific
products produced, but rather on its ability to analyse
existing products and turn them into cost-effective
production processes.
Brioche Pasquier
This is a French, family-owned company focusing
especially on pre-packed pastry (especially brioche).
With a growth rate of approximately 20% per year, the
company today has 1300 employees and is considered
to be very successful. Brioche Pasquier originated as a
local bakery managed by two brothers, but its brioches
are now distributed to major French retail chains. The
product range is limited, covering around ten different
products. Production takes place with a high degree of
automation, and distribution is extensive with daily
deliveries to supermarkets. In terms of innovation, this
company only introduces a few new products,
although line extensions are developed and marketed
occasionally. Instead, its success is based on process
innovation. Producing, packaging, and distributing a
product, traditionally sold in bakeries, to supermarkets
on a large volume scale is the key to its success. Process
innovations aimed at the production process, at the
distribution process, and in the area of electronic
communication with retailers is the focus of most
innovation activities in the company. Approximately
# Blackwell Publishers Ltd 2000
Understanding what drives innovation activity
10% of Brioche Pasquier's turnover is invested to
improve production efficiency and increase
automation.
In terms of market orientation, Brioche Pasquier has
close links to retailers, and its level of service to
retailers is very high (delivering products and filling
shelves once or twice per day). Products are priced
approximately 15% higher than those of competitors,
and 80% of the products are sold under the company
brand. Advertising is restricted to in-store promotion,
PR-activities, e.g. sponsoring local sports events, and
vouchers for various merchandise, all aimed at school
children (the main target group). Even without
intensive marketing campaigns, brand awareness in
the target group is quite high.
Royal Greenland A=S
Royal Greenland A=S is among the world's largest
producers of fish and shellfish products and is owned
by the State of Greenland. It has more than 3000
employees and an annual turnover of approx. ECU300
million. During the last five years the company has
changed its strategy from mainly serving industrial
customers to manufacturing and selling products to
consumer markets, in many countries under its own
brand name. As the prawn catch (historically the most
important product for Royal Greenland) has de-
creased, the company attaches more importance to
value-added products and product development. The
development department in Denmark deals with ready
prepared frozen dishes and smoked products; new
products cover everything from small adaptations to
products that are new in the market place. In 1994, 30
new convenience products were introduced, 10 ±12 of
which could be labelled `new products', whereas the
rest covered adaptations to local preferences or legal
requirements or variations of current products.
R&D plays an insignificant role in the development
process. A few projects mainly related to raw materials
and processing prawns, however, have been carried out
in co-operation with universities. Until recently the
emphasis has been on prawns and the optimization of
the vertical chain from catch to supermarket shelves.
Process innovations or improvements were concerned
with increasing efficiency and reducing costs. The
current broader product portfolio means less focus on
cost reductions and process optimization.
Market orientation during product development,
defined as the extent to which product development is
based on information about consumer needs, dissemi-
nation of this knowledge to relevant parties within the
organization, and responsiveness to this information,
has until now not been very high at Royal Greenland
A=S. However, it differs slightly for two types of
development projects, namely those concerning private
label products and those concerning products mar-
keted under their own brand. For private label
R&D Management 30, 2, 2000 155
Hanne Harmsen, Klaus G. Grunert and Francis Declerck
projects, the close interaction with the customer means
that Royal Greenland A=S indirectly has access to the
retailer's market knowledge about consumer demands
and trends (if they have this kind of information).
However, this information does not reach Royal
Greenland A=S in the early phases of product
development, where idea generation is most often
handled by the company itself. RG does not contact
the retailer until they can present a number of different
concepts for new products. Up until this point Royal
Greenland A=S relies on existing knowledge and
experience and selection of concepts does not involve
consumers. Occasionally, test sales are conducted
before launch.
Products that are developed to be sold under the
Royal Greenland brand are also developed without
much market contact, to a large extent based on the
knowledge and experience of employees and subjective
estimates from subsidiaries. The development process
is mostly concerned with the core product and the
development of appealing prototypes is a key step in
the development process. It is the preferences of key
players in the development function as well as their
volume estimates that guide the development. Recently
a number of products have been tested with con-
sumers, but this is not a formal part of the develop-
ment process. Market communication is developed in
co-operation with advertising agencies and is not tested
either. Once the products have been launched, sales
figures are followed closely, but no formal market
research is done if a product fails to live up to
expectations and is delisted.
As convenience products are considered a future
growth area and development of products in accord-
ance with consumer and customer demands considered
a key factor of success, activities aimed at increasing
market orientation during product development have
recently been initiated.
Philipp Reiter KGH Fleischwaren
With 550 employees, the German, family-owned com-
pany, Philipp Reiter, is nominally a large food
processing company. It produces traditional meat
products, which it distributes and sells through its
own retail shops and restaurants. The distribution and
retail part of the business employs around two thirds of
the staff. All shops and restaurants are situated near the
factory (maximum distance 70 km), and the restaurants,
which are usually combined with a retail shop closing at
6 pm, mainly cater to lunch-time customers.
Most of the 350 products, including 150 different
sausages, have been on the market for decades, but the
company has recently introduced a range of chilled
ready meals and continues to develop new variants.
Objective product quality is in focus. The quality
concept is related to traditional recipes, careful
selection of ingredients, and a gentle production
156 R&D Management 30, 2, 2000
process aimed at harming products as little as possible
in the production process. Process innovations that
could lead to considerable savings are rejected if they
are believed to compromise objective product quality.
Product development has focused on other products
than sausages, especially ready meals. Ideas for new
products come from the development group, and are
not based on formal market research or contacts to
universities or other R&D sources. The company has a
rather informal approach to its product development.
The development team consists of the owner, the
quality control manager, the restaurant manager, and
cooks from the restaurants. They meet once a month to
discuss new products. Selection and improvement of
prototypes are made by the development team based
on their experience and personal preferences. Before
final launch, the products are marketed in a limited
number of restaurants to get a feel for consumer
response and to further improve the product. New
products are marketed via local advertising on TV and
in newspapers.
Regarding market information, the company has
close contact to consumers in the restaurants, and the
development team gets information from shop man-
agers on what the customers like and dislike. No
formal market research has been carried out, and
potential customers are not surveyed in any way.
Towards a new model
Having concluded that, in most of the companies we
looked at, R&D is of minor importance in the
innovation process, it is not likely that its interaction
with market orientation will or should have a strong
influence on innovation. In some companies, the
interaction between R&D and market orientation is
institutionalized in product development committees or
innovation teams, which comprise both the marketing
manager and the product development manager. How-
ever, information from most case studies is insufficient
in order to evaluate the importance of this interaction.
While the role of R&D and its interaction with market
orientation does not correspond to our framework, the
cases also clearly show that there is considerable
innovation, both in terms of process and product
development. The cases also suggest that companies
differ in the degree to which they are successful
innovators. Part of the differences in success may be
explained by varying degrees of market orientation, but
it seems that there are additional factors at work, which
our original framework did not take into account. We
therefore propose a revised framework.
A new set of constructs
We would like to propose two new constructs which we
think may be useful in structuring what we observed,
# Blackwell Publishers Ltd 2000

and which, together with market orientation, may be
helpful in explaining success by innovation. We call
them product orientation and process orientation.
Product orientation is in the marketing literature
usually defined as some kind of opposite of market
orientation: one's thinking starts with the product
instead of what it does for customers. Kotler (1988)
holds that product-oriented companies are guided by
the product concept, which holds `that consumers will
favour those products that offer the most quality,
performance, and features. Managers in these product-
oriented organizations focus their energy on making
good products and improving them over time' (p. 14),
and he continues by suggesting that `product-oriented
companies go about designing their products in the
wrong way' (p. 15) and concludes that `the product
concept leads to marketing myopia, an undue con-
centration on the product rather than the need' (p. 15).
This point was earlier raised by Levitt (1960), who
claimed that product orientation led to a wrong
definition of which industry one belonged to, risking
the survival of companies and industries.
In some of our cases, however, we encountered a
positive product orientation, which seems not to be in
opposition but a supplement to market orientation.
Product orientation, the way we would like to view it,
has to do with respect for the product manufactured,
an emphasis on pride of craftsmanship, an emphasis on
objective product quality, even a positive emotional
attachment to the products ± and this orientation
pervades all parts of the organization. Tholstrup and
Philipp Reiter are examples of such companies. In
product-oriented companies, innovation is concerned
first of all with products, not with processes (although
a product innovation may lead to some process
innovation). Innovations are concerned with creating
more value: with putting more value into the products
so that one can present the product to customers with
the pride which lies in offering a superior product.
Whereas thinking in the product-oriented company
is centred on products, process orientation conse-
quently indicates that the company's usual terms of
reference are not a set of products manufactured, but a
set of processes, as we saw in both the Groko and
Brioche Pasquier cases. Production units, not prod-
ucts, are what are to be optimized, and are conse-
quently also the focus of innovation. The process-
oriented company emphasizes efficiency, cost manage-
ment, and thinking in terms of the whole food chain,
not just the manufacturing step. Process-oriented
companies tend to have strong links both up and
downstream, and increasing value-added might be
attempted by integrating additional links of the food
chain into the company, not by trying to put more
value into the products manufactured.
We believe that, in a given company, one of these
orientations will be dominant. A company can score
highly only on one of the orientations. Specifically, we
# Blackwell Publishers Ltd 2000
Understanding what drives innovation activity
find it difficult to imagine that a company can be both
product- and process-oriented. Of course, a product-
oriented company can have a certain degree of process
orientation in some of its departments and vice versa,
but we find it hard to imagine that a company has
organization-wide high degrees of more than one
orientation. This is a departure from the view found
in the traditional innovation literature, which empha-
sizes that product innovations will lead to process
innovations, and that the two types of innovation are
interrelated in a temporal sequence. Abernathy and
Utterback (1978) argue that companies' innovative
patterns occur in a consistent, predictable way, where
radical product innovations are followed by incre-
mental innovations, once a dominant design has been
found, and later by process innovations aimed at
reducing costs and improving efficiency. Following our
point of view, these patterns would be based on
changes in orientations, which we find unlikely,
because the orientations are deeply rooted in the
company and are unlikely to change in a similar way in
most companies.
Orientations, competencies, and behaviour ...
The term `orientation', although widely used, is
actually a quite diffuse one. A major issue is whether
orientation is a mental construct, or whether it is
mirrored in the manifest behaviour of=within organi-
zations. This issue has been discussed at some length in
the market orientation literature (Bisp et al., 1996;
Dreher, 1994) without any definite conclusion being
reached. We would like to propose here that an
orientation is a mental construct which guides and
evaluates behaviour, and thus is close to values and
norms. Orientations therefore also guide the acquisi-
tion and perfection of skills and knowledge, and thus
the development of competencies and capabilities.
Manifest behaviour, in our case actual process and
product innovation, will then be a result of the
competencies and capabilities built up and used in
accordance with the prevalent orientations. This goes
both for the individual and the organizational level.
The view that orientations guide and influence
competence development, which then guides and
influences behaviour, is illustrated in Figure 2.
We would also like to propose that a major
difference between orientation and competence is that
competencies, or part of them, can be outsourced,
whereas orientation cannot. A product-oriented com-
pany can purchase a process innovation on the market
if that is necessary to support the production of the
products they love, and a process-oriented company
can try to buy new product ideas from a consultancy
company. Orientations cannot be outsourced. One
may try to supplement a predominant company
orientation by networking with other companies, but
we would like to suggest that the choice of partners in a
R&D Management 30, 2, 2000 157
Hanne Harmsen, Klaus G. Grunert and Francis Declerck
orientation: competence:
values/norms skills/knowledge
Figure 2. Orientation, competence, and behaviour
network will tend to favour partnership among
companies with comparable orientations. We also
would like to suggest that the orientation of a company
will have a major influence on which competencies are
outsourced and which are developed in-house. A
product-oriented company will develop most prod-
uct-related competencies in-house, while it may out-
source process competencies. The reverse will be true
for process-oriented companies. To put it another way,
the competencies that are directly linked to the
company orientation can be perceived as the most
central competence or the core competence of the
company.
This view of orientation is different from the one we
started with in Figure 1. In Figure 1, market orienta-
tion was defined as a set of activities, which is in
accordance with the literature dealing with the
relationship between market orientation and business
performance. As a consequence of the discussion
above, we would like to apply the same distinction
between orientation as a mental construct, competen-
cies, and actual behaviour to the market orientation
construct. Market orientation is thus defined as a way
of thinking in terms of customers and markets, and
putting this thinking first: market competencies are
knowledge and skills concerned with market aspects,
and finally manifest behaviour refers to the specific
activities carried out to collect, disseminate, and
respond to market information.
Orientations and success
We argued earlier that the predominant orientation of
the company will influence the development of
competencies, which implies that a product-oriented
company will have product-related competencies
among the ones most central. In the competence
literature it has been discussed extensively how and
under which conditions competencies are positively
linked to performance outcome (Bogner and Thomas,
1994; Hamel and Heene, 1994; Hitt and Ireland, 1985).
Barney (1991) lists four requirements. Competences
or resources as he labels them should be (a) valuable,
(b) rare, (c) imperfectly imitable, and (d) without direct
substitutes. We believe that on a conceptual basis
product or process orientation can fulfil these require-
ments, the argument being that they are valuable when
they are paired with the right kind of market
orientation, which will direct the company towards
158 R&D Management 30, 2, 2000
manifest behaviour:
innovation
offering the relevant market value and at the same time
it will contribute to the development of company
competences in accordance with the developments of
the market. The specific variations of the orientations
and resulting competencies will be rare and imperfectly
imitable because they will have been built over time
and influenced by the specific events in that company.
In that sense they can be seen as consisting of various
kinds of more or less embedded knowledge (Leonard-
Barton, 1992).
The last requirement that the specific competence
cannot be substituted by other competencies is a bit
more problematic as we actually argue that food
companies can have success with either a product or a
process orientation. This means that on a specific
product market, both companies with a strong product
orientation and a strong process orientation could be
successful, since they would give value to the market in
two different ways. The actual possibility of substitut-
ing one for the other is still unlikely, since the history
and time dependent development of the competencies
make them difficult to imitate.
While process and product orientation on this
conceptual basis fulfil the requirements of links to
positive company performance, naturally only a test of
the model will reveal whether this is actually the case.
Company orientation and marketing strategy
The concepts of product and process orientation may
appear quite familiar to readers acquainted with the
marketing strategy literature. Specifically, they may
appear to be quite similar to the generic marketing
strategies proposed by Porter and others (Abell, 1980;
Day, 1984; Porter, 1980). A process orientation seems
to be quite similar to a cost leadership strategy, and a
product orientation seems to be similar to a differ-
entiation strategy. We would like, however, to point
out some basic differences between what we have in
mind and the generic marketing strategies.
Firstly, generic marketing strategies are concerned
with a company's basic decisions about how to obtain
a competitive advantage. Their intellectual roots are in
the design and planning schools of business strategy
(Mintzberg, 1990a,b), which assume that business
strategy is a question of top-down implementation of
decisions about a company's basic positioning. Since
we relate the concepts of process versus product
orientation to the values and norms of the members
# Blackwell Publishers Ltd 2000

of an organization, and the way they relate to
organizational behaviour in the acquisition of skills
and knowledge, they cannot be expected to change
quickly, and the degree of process or product orienta-
tion of a company is something which has evolved over
time and is linked to organizational history. If we want
to relate them to the strategy concept, we would have
to call them emergent strategy (Mintzberg and Waters,
1985): a basic business outlook that has developed over
a longer time period, and which cannot be altered at
short notice by making strategic decisions at the
executive level.
The Royal Greenland case is an example in which it
seems that a strategic marketing decision was not in
line with the historically developed dominant orienta-
tion. Historically, Royal Greenland is process-or-
iented, with an emphasis on optimizing a food chain
from catching prawns in the Greenland waters to
putting them on the shelf in European supermarkets.
The decision to engage in the production of frozen
ready meals, i.e., products with considerable value-
added and with a rather high degree of innovation, is
not compatible with the predominant orientation,
which makes building up the required competencies a
difficult matter.
Secondly, low costs by large volumes, which is at the
core of the cost leadership strategy, are compatible
with both product and process orientation. As has
been shown before (Phillips et al., 1983), an emphasis
on high product quality can lead to lower costs based
on scale advantages if high (objective) quality is what
the market desires. And process orientation can lead to
low costs not only by large volumes and the scale
advantages resulting from this, but also by establishing
processes which lead to flexible production and thus
enable the company to tailor processes to customer
specifications at low cost, if tailored products is what
the market desires, as the Groko case has shown.
This brings us to the third, and most important
difference. We believe that both product and process
orientation lead to success only when the company in
question is able to undertake actions that the market,
e.g. customers or consumers, value. To identify what
the market values requires market competencies. Based
on our cases, it seems reasonable to expect that the
market competencies required for achieving success
based on product orientation differ from those
required for achieving success based on process
orientation. A product-oriented company will be
successful to the extent that its emphasis on a high
objective product quality is related to a good under-
standing of its customers, making sure that the high
quality is also in fact appreciated by customers, and
especially by end users. Important market competen-
cies for product-oriented companies will, in other
words, be related to understanding consumers ± their
needs, their underlying motives, their acceptance of
new products, their shopping behaviour, their intake of
# Blackwell Publishers Ltd 2000
Understanding what drives innovation activity
product information. The Tholstrup case is an example
of a product-oriented company with good consumer-
related market competencies, whereas the Philipp
Reiter case seems to be one where such competencies
are lacking. A process-oriented company will be
successful to the extent that it finds the market where
there is a set of customers who appreciate the
production possibilities which the processes bring
about, and to the extent it keeps an eye on competitors
and their process capabilities. Specific examples could
be building relationships with retailers through perma-
nent communication links, co-operating with regard to
logistics and data processing, and finding ways of
integrating the customer into company decision-mak-
ing. These were the types of market competencies we
saw at Groko and Brioche Pasquier.
Since we argue that innovation in a company to a
large extent is driven by its orientation, we can also
expect that some companies will mainly be driven by a
market orientation. Although we did not find examples
of this among our case companies, we see no reason
why this could not be the case. In such a situation, the
market competencies in the company will direct the
acquisition and development of product and process
competencies needed to fulfil the needs and wants
identified. One could speculate that this kind of
company might have a broader product base and
more varied technologies than product or process
oriented companies, as its main driver would be the
ability to meet the requirements of the market.
Relating this to the marketing literature, this would
be a market-oriented company in the sense that it
would be driven by the marketing concept and not
`just' use market competencies to check and direct its
products.
A new model
This brings us to a revised framework, which is shown
in Figure 3. We now look at three orientation
constructs: product orientation, process orientation,
and market orientation. We believe that a company
will mainly be driven by one of the orientations (in the
figure, as an example, product orientation, indicated in
bold). The competencies that are directly related to the
orientation, i.e. for market orientation the market
competencies, for product orientation the product
competencies, and for process orientation the process
competencies will be the most central or in other words
the core competencies of that company (in the figure,
product competencies, indicated in bold). The orienta-
tion and the core competence will influence and direct
the acquisitions of the other two sets of competencies,
which can be labelled supplementary competencies. All
companies will need all three types of competencies to
some extent as, e.g. a product-oriented company has to
develop process competencies in order to produce the
products they love in a cost-efficient way and has to
R&D Management 30, 2, 2000 159
Hanne Harmsen, Klaus G. Grunert and Francis Declerck
ORIENTATION
– product
– process
– market
CORE COMPETENCE
– product
– process
– market
SUPPLEMENTARY
COMPETENCIES
– product
– process
– market
INNOVATIVE ACTIVITIES
– product & process innovation
MARKET ACCEPTANCE
PERFORMANCE
Figure 3. A revised model of innovation success in low-tech
companies.
develop market competencies in order to be able to
check whether there is a market for the product they
are planning to introduce and whether adaptations
have to be made (supplementary competencies for a
company with a product orientation are indicated in
bold). We can imagine a process-oriented company
which never develops any new products but is
innovative in optimizing the production process ± an
example in which they would score low on product
competencies. But the cases show that some process-
oriented companies develop lots of `new' products ±
possibly imitations or products with a low degree of
newness. These companies develop product competen-
cies in a process-oriented way ± for example by
institutionalizing and optimizing the process of analys-
ing competitors' products and turning them into
product `innovations' of their own.
The whole set of competencies, and the process and=
or product innovations they lead to, will then have an
impact on company performance. If the innovation
aims at increasing customer value, its effect on
company performance will depend on whether the
market accepts the product innovation. If the innova-
tion aims at cost reduction, the effect on company
performance is not necessarily contingent on market
acceptance ± although a reduction of costs will usually
be related to prices, which will result in a reaction from
160 R&D Management 30, 2, 2000
the market. The revised model is still a model which
attempts to explain how innovation can have a positive
impact on performance. It is thus not meant as a
complete model to explain company success. The
model argues that a company, if it is to be successful
by innovation, has to score high on one of the
orientations, and will have to develop a set of
corresponding core competencies, supplemented by
competencies in the two other areas.
The question whether a company can be successful
without being innovative is outside the scope of our
model, but we believe that this is hard to imagine.
Most markets change over time, which requires
adaptation to the market, and consequently being
innovative in some way or another.
R&D no longer appears in our model as a separate
force. R&D is `relegated' to an instrumental force in
developing product or process competencies, directed
by process or product orientations. A product-oriented
company will look for R&D as one of several inputs
which can help bring about innovative products. In the
same way, a process-oriented company will use R&D
to optimize processes. R&D, no matter whether inside
or outside the company, may even trigger both process
and product innovations ± but only to the extent
decision-makers in the company regard it as helpful in
supporting the values embedded in their orientations.
Implications for management, R&D policy,
and research
We set out to investigate to what extent it seems
reasonable to explain innovation and innovation
success in a low-tech industry with the constructs
derived from the literature ± first and foremost R&D
and market orientation. Based on our case studies, we
found that neither market orientation nor R&D
seemed to explain the level and kind of innovations
taking place in the companies. A new set of constructs
was developed, distinguishing between orientations,
competencies, and actual behaviour. In the new
model the degree of product, process, and market
orientation, respectively, are hypothesized to explain
the kind of competencies developed in companies,
and, based on those, the kind of innovative activities
undertaken. It was further hypothesized that a
company cannot be successful by innovation without
adequate market competencies. Furthermore, which
market competencies are adequate is expected to
differ between companies driven by product and
process orientations.
Since this research is of a qualitative nature, the
following implications should be regarded as indica-
tions of areas that might benefit from the results and
not as validated normative implications.
For management, an implication of the study is that
when trying to understand or change the innovation
# Blackwell Publishers Ltd 2000

activities in the company, management could benefit
from looking more holistically at the competence set in
the company (this also includes external consultants).
Specific innovations are an outcome of a set of
competencies that are built over time and based on
the orientation of the company. The orientation is
something deeply rooted in the organizations, built
over even longer time, and very difficult to change.
When setting directions for product development,
companies might be tempted to form strategies that
are not at all in harmony with the current stock of
competencies and go against the prevailing orientation.
Such strategies run a high risk of failure.
Apart from acknowledging the specific competencies
of the company, the study has indicated that compa-
nies with different orientations link very differently to
their markets. The market skills needed for a process
and product orientation, respectively, are not the same,
and care should be taken to develop market compe-
tencies that are suitable for the type of innovation the
company pursues.
In the cases we have also seen that one or the other
orientation dominates and influences competence
development and actual behaviour. This implies that
pursuing both types of product development, i.e.
developments of an either process or product-oriented
nature will be problematic because two different sets of
competencies as well as two different kinds of culture
or orientations are needed at the same time.
The study also indicates some implications for R&D
policy. Across different sectors, we have in recent years
seen both national and international programmes
aimed at increasing the level of R&D activities in
industries with traditionally low levels of R&D
expenditure. These programmes seem to be motivated
by a technology push strategy, which holds that higher
levels of R&D investment will ultimately result in
innovation and economic growth both on the company
and the industry level. While the validity of this point
of view has been debated and investigated quite often
without conclusive evidence, this study seems to
indicate that increasing the level of innovation
activities in companies like the ones studied here does
not start with huge R&D investments, but ought to
start rather by understanding the various perception
processes in various types of companies, i.e. how
companies with different orientations seek and use
R&D in their innovation processes, and let this
knowledge be a basis for both research activity and
dissemination programmes. In the companies studied
here we found no `automatic' adaptation of new
research findings and new technologies, we found very
few, if any, formal links to external R&D facilities, and
very little formal search for new R&D developments.
Great care should therefore be taken to understand the
companies and their needs, and motivate and influence
them with results that suit their orientation and way of
thinking.
# Blackwell Publishers Ltd 2000
Understanding what drives innovation activity
Turning to implications for research, a natural first
step is quantitative work to test the hypothesized
relationships. Specifically, it should be tested
* whether there is a link between the prevailing
orientation, the core competencies, and the innova-
tive activities in a company;
* whether innovation activities and innovation suc-
cess can be explained by the level of product,
process, and market competencies;
* whether companies' success by innovation depends
on their market competencies being in accordance
with their product or process orientation.
At a more general level, the study has highlighted the
need for combining strategic and operational levels of
analysis in innovation studies, in order to get a better
understanding of what innovation is about. Within the
product development management research tradition,
these levels of analysis are almost exclusively dealt with
separately, leading to general normative implications,
which might not, in the light of the cases above, be
generally applicable.
In the current study, the unit of analysis has been the
individual company. We have seen tendencies that for
instance a process orientation is more often than a
product orientation associated with close links to
suppliers and distributors. Again, whether this is true
is a matter of a quantitative test. The close vertical
links could, however, suggest that the relevant unit of
analysis for a further study should be the whole vertical
chain.
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Notes
1. A fuller version of the cases has been published in Traill
and Grunert (1997).
Appendix A: Guidelines for the case studies
General procedure
The procedure for conducting the case studies is as
follows:
1. the `local' group member writes a first report on
the case company, based on documents and other
material available to him
2. the companies are interviewed in teams of two,
where the local group member pairs up with
another group member
3. the `non-local' group member writes a second
report, based on the 1st report and the interviews
Whom to talk to
The persons to be interviewed are a marketing
manager, a board member, and a product development
manager (if existent).
What information to get
The cases will be company-level cases, not project-level
cases.
Description of the company
General characteristics
(Comment: most items probably available from
Annual Reports)
# Blackwell Publishers Ltd 2000
Understanding what drives innovation activity
Legal status: limited company, co-operative ...
Formal relationship with other companies, like member
of a holding, joint venture, strategic alliance ...
Number of plants
Number of employees
Financial figures and ratios:
Sales, net worth to total assets, current ratio, liquidity
ratio, debt ratio, net profit to net worth, net profit to
net sales, net profit to total assets
Implementation of quality control systems, ISO 9000
certification, etc.
Company organization
Corporate divisional organization (business unit
structure?)
Management structure
Organization of marketing:
Sales department, ± with ancillary marketing functions
or marketing department (functional, geographic or
product=brand organization)
Marketing information systems, Decision Support
Systems
Relationship of marketing department with other
departments:
R&D, Engineering, Purchasing, Manufacturing,
Finance, Accounting, Credit.
Type of markets served by the company
Market structure and competitive strategies
Characteristics of final consumers
Number and marketing strategies of competitors
Number and marketing strategies of retailers carrying
the product (chains, discounters, specialty shops)
Relevance of other government regulations and
influence of other publics, like consumer unions and
lobby groups.
Growth, ripening or saturation of markets?
Market strategy of company
Mission
Profit target and=or other marketing objectives
(share, ...)
Market strategy:
* focusing on core competences or on diversification ...
* market leader, market follower, specialist, com-
modity producer, market entrant.
* shortening life cycle.
Competitive strategy (focus, differentiate, low cost)
Planning of market strategies (portfolio-analysis,
PIMS ...)
Product policy (quality, assortment, brand, positioning)
Promotional policies (budget, type of promotion, ...)
Distribution strategies, in particular vis-aÁ-vis retail
chains.
R&D Management 30, 2, 2000 163
Hanne Harmsen, Klaus G. Grunert and Francis Declerck
Relationship with suppliers
Purchasing method
* Free market, contract, integration?
* Buying centre?
* One or more suppliers?
Mechanisms used to co-ordinate policies and activities
between company and supplier.
Relationship with other partners
Horizontal cooperation with competitors, with produ-
cers of supplementary products, with suppliers of
know-how, of technology, of equipment
Cooperation with retailers, exporters, agents, whole-
salers, in terms of market information, logistics etc.
Importance of and type of innovation
Market development or innovation by product
development
Share of new products in total sales
Profitability of new products
Type of innovation:
* completely new ± imitation;
* new market, brand, reformulation, design, service,
extending performance, technological re-organiza-
tion, process, packaging.
Perceived pressure for innovation
Perceived profitability of innovations
Perceived lifetime of innovations
Organization of innovations
Which type of innovation management? Special project
teams?
Organization of innovation process from idea genera-
tion until product introduction
Who is involved in which stage of the innovation process?
* inside the company?
* outside the company?
Role and commitment of top management?
Quality of innovation team: Scientific and marketing
expertise
Innovation by R&D, licensing, acquisition and joint
venture
R&D by company or R&D commissioned to research
institutes
Relationship between innovation team and introduc-
tion team?
Use of market research techniques
164 R&D Management 30, 2, 2000
Degree of formalization of the new product develop-
ment process
Innovation policies
New product development strategy
Target number of new products per year?
Is innovation
* `demand driven' or `technology driven'?
* company driven or supplier driven?
* company driven or client driven?
* competitor driven?
Are innovations triggered by consumers, competitors,
distributors or government regulations?
Are innovations concerned with convenience, whole-
someness, health, taste, environment, being special?
What is the role of `credence characteristics?
Are innovations in particular focusing on the core
product or on the augmented product (packaging, ...)?
Are `Me Too' products important?
What is weak or strong in encouraging or discouraging
innovation: communication, organization, education,
management, policy and environment?
Process innovation
To which extent is there process innovation?
Is process innovation mainly based on perceived cost
pressure, on availability of new technology?
What is the relationship between product innovation and
process innovation? Do they profit from each other?
Financial aspects of R&D
How are R&D and innovation in general financed
How are R&D and innovation costs budgeted
Is there profit management of new products after their
introduction to the market
How is the financial risk of R&D and innovation
perceived, and how is it handled
Market orientation
To which extent and how does the company regularly
generate intelligence about its direct customers, about
consumers, about competitors and other relevant
market actors.
How is this information used ± how is it distributed
within the company, which departments receive it, at
which intervals
How is market intelligence used in innovation ± both
in product innovation and in process innovation
Does the company regard itself as market-oriented
# Blackwell Publishers Ltd 2000
 Appendix B
# Blackwell Publishers Ltd 2000

Number of Brand Type of Market Overall

Company Country employees Sector Export Ownership strategy innovation R&D orientation impression

Tholstrup DK 600 Cheese Substantial Private Manufacturer's Fundamentally Little Not used in idea Innovative by
brand new cheese generation; new
every 3 years extensive products,
testing of successful
new products
Brioche F 1300 Brioches, No Private Manufacturer's Industrialize Process- Strong links to Innovative by
Pasquier croissants brand traditional oriented, retailers; some new
product links to consumer processes
universities testing of successful
products
Groko NL 220 Frozen Some Subsidiary Supplier of Imitate leading Limited; links Monitor Innovative by
vegetables of MNE private brands more to suppliers competitors' imitation,
labels cheaply of ingredients products; successful
and strong links
machinery to retailers
Neumarkter D 83 Ecological No Private Manufacturer's Change to Little Little Innovative on
LammsbraÈu beer brand sustainable one
production dimension,
success to
be seen
SkaÊne Erik S 120 Processed Some Subsidiary Manufacturer's 5 new product Little, some Little Low degree of
meats of MNE brand variants per input from innovation
year; varying suppliers of
degrees of machinery
innovation

Understanding what drives innovation activity

Bulmer UK 1200 Cider No Public; 53% Manufacturer's Variations of Considerable, Considerable Medium
of shares brand and basic product links to market degree of
family-owned supplier of outside intelligence innovation,
private R&D teams generation in successful
labels all phases of
product
development
R&D Management 30, 2, 2000

Reiter D 550 Processed No Private Manufacturer's Extend range Little Little Low degree
meats, ready brand, own of ready of
meals distribution meals innovation
Royal DK 3000 Seafood, ready Substantial Public; Manufacturer's Broaden Little Little Medium
Greenland meals owned by brand and product range degree of
Greenland supplier of of ready innovation;
home rule private meals success
labels remains to
be seen

(continued)
165
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Hanne Harmsen, Klaus G. Grunert and Francis Declerck

R&D Management 30, 2, 2000

Appendix B (continued)

Number of Brand Type of Market Overall

Company Country employees Sector Export Ownership strategy innovation R&D orientation impression

SkaÊnemejerier S 700 Dairy products Little Cooperative Manufacturer's Functional Considerable, Some; mainly Innovation
brand and foods, links to in local based on
supplier of technologically universities markets hi-tech;
private sophisticated and other successful
labels products outside
R&D sources
Johma NL 200 Salads Little Subsidiary Manufacturer's Extend product Some; both Market Medium
of MNE brand range; internal and intelligence degree of
new line of links to generation in innovation;
branded outside all phases of successful
vegetables R&D teams product
development
Magdis F 180 Fresh, chilled No Subsidiary Manufacturer's Continuous Little, some Little; mainly Medium
pizzas, pies, of MNE brand and range of links to monitoring of degree of
sandwiches supplier of new variants external competitors innovation;
private R&D teams successful
labels
Pennine UK 600 Chilled ready No Subsidiary Supplier of Continuous Little Strong links to Medium
meals of large private range of immediate degree of
domestic label new variants customer innovation;
company success
dependent
on one
customer
# Blackwell Publishers Ltd 2000