Blogs

Manufacturing and Service Firms in Nigeria Undertake Organizational Innovation Differently

A study of over 1,300 companies across the manufacturing and service sectors of Nigeria’s economy has shown that companies in the two sectors introduce non-technological innovations differently. Organizational innovation, an example of non-technological innovation, includes the introduction of new or improved business methods in the operation of a company.

Non-technological innovations are crucial facilitators of companies’ competitiveness. Specifically, organizational innovations do not directly lead to physical products that are placed on the market, but they affect the creation and marketability of products and services offered by companies. In fact, organizational innovation is sometimes considered as a prerequisite for technological innovation.

The activities and practices that make up organizational innovation contribute immensely to the returns on innovation and help companies to develop unique skills that make it difficult for others to imitate their capabilities. While competitors can directly imitate a company’s products and services, they find it difficult to copy organisational innovation, which mostly comprises routines performed by staff and often leave no tangible trails. This shows a limitation of excessive emphasis on technological innovation as a driver of business competitiveness.

The study explored how manufacturing and service firms implemented, from 2005 to 2010, improvements in i) business practices, ii) work responsibilities and decision-making processes, and iii) relationship with external entities.

Most of the companies studied were medium sized and had fewer than 250 employees. One in three manufacturing companies and three in five service companies were located in Lagos. This is understandable since Lagos is the commercial capital of the country. Placed side by side, manufacturing and service firms implement organizational innovation due to different factors.

Determinants of improvements in business practices

Among manufacturing companies, improved processes such as new technologies, logistics or distribution often require adjustment of existing routines, naturally leading to the introduction of new business practices within the organization.

The location of a company and changes in the market are the major drivers of improvements in business practices among service firms. Service companies that are located near other related service companies benefit from the resources and knowledge of one another. Service firms that introduce market innovation are likely to introduce new business methods.

Since they do not produce “tangible goods,” service firms seem to concentrate on constantly improving their market approach in order to increase performance, efficiency, customer value and other business practices. This is especially important to them since consistent innovation in output and processes are vital for them to remain competitive in global market.

Determinants of improvements in work responsibilities and decision-making process

Since creating or marketing new products often requires organizational changes, manufacturing companies that introduced product and marketing innovations are more likely to initiate new work responsibilities and decision-making practices. Among service firms, the bureaucratic system tends to improve if the company also has introduced process or marketing innovations.

Determinants of improvements in relationship with external entities

Improvements in products and marketing are key drivers of new external relations among manufacturing firms. However, size and the implementation of process innovations are determinants of the implementation of new market relations among companies in the service sector.

Bigger companies in the service sector tend to implement innovations in external relations more readily because of their resource advantage over smaller ones. Smaller companies usually have limited knowledge, skills and financial resources to implement new external relations with other key actors, thus restricting them to routines, which do not offer fresh ideas.

Implications of implementing these organizational innovations

Since organizational innovations are reflected in routines and practices within an organization, they cannot be easily measured like technological innovations, which are often physical products. However, a few connections can be made between these innovations on one hand and other elements of innovation in a company’s performance in other areas.

Over half of the manufacturing companies that introduced organizational innovation also introduced new or improved products into the market while about two out of three improved their production processes. The trend was similar among service companies. Service companies that implemented process innovations are more likely to implement organizational innovation. Improvements in products and marketing among manufacturing firms complemented new business practices, workplace organization and external relations.

From the study, the three organizational innovation practices are complementary to one another. That a practice is complementary to another means that carrying out the activity brings benefit to the other business activity. For example, introducing a new project evaluation tool (new business method) by a service company is complementary to interaction with clients (external relations) when the new tool makes interaction with clients more successful.

Take home

An innovation strategy that works well in a manufacturing company may not work effectively in a company that renders services. Managers responsible for innovation should especially note this because previously successful strategies that are implemented across sectors based on familiarity may not deliver on their promises, not because of the invalidity of the strategies but because of differences in contexts. Organizations must decide the right combination of innovation practices that will drive their performance within available resources.

Nigeria, as well as other developing countries, needs policy that can facilitate regular interaction of small and medium enterprises (SMEs) with institutions that provide knowledge of innovation and best practices.

Reference:

David Adeyeye, Abiodun Egbetokun, Omolayo Oluwatope & Maruf Sanni (2019) The determinants and complementarity of organizational innovation practices among Nigerian manufacturing and service firms, African Journal of Science, Technology, Innovation and Development, Volume 11 Number 2, DOI: 10.1080/20421338.2018.1552649