How do firms innovate with limited resources in turbulent markets?

Copyright © eContent Management Pty Ltd. Innovation: Management, policy & practice (2014) 16(3): 430–444.

How do ﬁrms innovate with limited resources in turbulent markets? PELIN BICEN AND WILLIAM H A JOHNSON Black School of Business, The Pennsylvania State University, Erie, PA, USA

Abstract: This study explores the question of how firms innovate with limited resources in turbulent markets utilizing the comparative case studies of 10 start-up companies. The evidence discovered while studying resource-limited innovation at these 10 companies suggests that the effect resource utilization has on innovation performance is moderated by four attitudinal factors that act as catalysts for successful innovation when resources are limited. The four factors are: Intention, Inspiration, Integration, and Indefatigability. These factors are the foundation of ‘lean innovation capability’ such that companies, in the presence of these attitudinal factors, use limited resources in creative ways. The study’s results suggest a need to reconsider the conventional wisdom regarding the need for the abundance of resources in order to successfully innovate. In fact, utilizing the case data, we argue that limited resources managed with these four-attitudinal factors lead to superior innovation performance, which is underutilized and inefficiently deployed in more munificent environments. Keywords: radical innovation, resource limitations, slack resources, bricolage, comparative cases, lean innovation capability, resource-advantage theory

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ox, Inc., is a golden child among Silicon Valley start-up tech companies these days. Investors have confidence that Box is successfully tapping into the enterprise cloud-computing market, which is a fast-paced setting with an annual double-digit growth rate. Box’s daily battles are with industry behemoths like Google, Oracle, IBM, and the biggest of them, Microsoft. Microsoft’s collaboration tool SharePoints is currently serving more than 65,000 companies in this crowded market; however, there is a broad sense that they are falling behind. Disenchanted customers have begun to migrate to Box (Markowitz, 2014). The question is – how does Box do it? As a start-up company, how does it conceptualize and manage its limited resources to perform better than industry behemoths, like Microsoft, in highly competitive cloud-computing market? We are interested in studying this question and the following research is a step towards finding the answers… The story of Box, Inc., is not unusual in turbulent markets, where firms mainly focus their efforts on game-changing radical innovation practices. Compared to other forms of innovation, radical innovation embeds new technologies, addresses emerging trends, and represents discontinuities for the market (Wind & Mahajan, 1997). Radical innovation can propel small new firms into a position of industry leadership, as in the case of Box, and can bring down large established

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companies that fail to meet the emerging needs of customers, as with Microsoft (Chandy & Tellis, 2000; Srinivasan, Lilien, & Rangaswamy, 2002). Although there are anecdotal evidences that small new firms with limited resources can challenge the status quo of industry leaders, there has been little research on resource-limited innovation, and how it happens in turbulent markets. In this paper we explore this resource-limited innovation phenomenon. Our research is organized around the question of how firms radically innovate with limited resources. In order to avoid too much complexity, the boundary condition is startups in turbulent markets. Startups, by default, have limited resources1; and the ones that compete in turbulent markets with radical innovation 1

INNOVATION: MANAGEMENT, POLICY & PRACTICE

In this paper, we adopt Hunt’s (2000) definition of resources as the tangible and intangible entities available to firms that enable them to produce market offerings that have value for some market segment(s). Hunt (2000) categorizes resources as financial (cash reserves and access to financial markets), physical (plant, raw material, and equipment), legal (trademarks and licensees), human (e.g., the skills and knowledge of individual employees, including, importantly their entrepreneurial skills), relational (e.g., relationships between competitors, suppliers, and customers), organizational (e.g., controls, routines, cultures, competencesincluding, importantly, a competence for entrepreneurship), and informational (e.g., knowledge about market segments, competitors, and technology).

Volume 16, Issue 3, December 2014

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How do firms innovate with limited resources in turbulent markets?

offerings (e.g., Box) are even more resourcelimited because changes in demand, competition, and technology are so fast and discontinuous that resources to innovate are either unavailable or quickly become obsolete (Eisenhardt, 1989; Katila & Shane, 2005; Shane, 2001). To begin exploring this phenomenon, we conducted comparative case studies at 10 startup companies in several turbulent markets. There are two main findings from this study. First, the evidence suggests that the value of a resource depends on the context in which it is used. Second, we found that four organizational attitudinal factors – namely: intention, inspiration, integration, and indefatigability – moderate the relationship between resources and innovation performance (see Figure 1). These factors enable companies to prioritize and reconfigure resources for positive innovation outcomes. Our finding that resource limitation, managed with these four attitudinal factors, can be enabling is intriguing. These attitudinal factors, while potentially important to innovation in general, appear to be even more salient in the context of resource-limited innovation. This is an important nuance in our research, which needs emphasis. That is, these

factors represent the catalysts that help companies both overcome the seemingly negative effects, as well as extenuate the positive aspects, of having limited resources. In essence, these factors affect innovation outcomes positively by building lean innovation capability; and, thereby encouraging companies to use what resources are available in creative ways. They help companies to reallocate and reprioritize important resources. Briefly, the findings of the study show that resource limitation may seem to be a negative condition, when in fact it is not – and in fact may lead to positive results, if managed wisely. BACKGROUND There are several arguments on how the amount of resources is linked to innovation performance. One research stream, the slack resources literature, emphasizes the idea that limited resources (negative slack) inhibits the innovation process, and has a negative impact on innovation performance. Researchers in this school of thought argue that firms involved in radical innovation practices must mobilize excess amounts of resources to incorporate new technologies, invent new processes, and develop new capabilities to create new

FIGURE 1: BUILDING LEAN INNOVATION CAPABILITIES UNDER CONDITIONS OF LIMITED RESOURCES



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Pelin Bicen and William H A Johnson

markets (Bourgeois, 1981; Damanpour, 1987; Greve, 2003; Levinthal & March, 1993; Mishina, Pollock, & Porac, 2004; Nohria & Gulati, 1996; Tan & Peng, 2003; Voss, Sirdeshmukh, & Voss, 2008). For example, Mishina et al. (2004) argued that slack resources help firms cope with the uncertainties of radical innovation by providing them with higher flexibility in seizing market and technological opportunities needed to generate radical offerings. A second view, though it is not as extensive as the first, has emphasized that the very presence of limited resources make firms more focused, seek diverse information, and be more creative. This literature also discusses how abundance of resources can detract from an organization’s innovation capabilities (Amabile, Conti, Coon, Lazenby, & Herron, 1996; Christensen & Bower, 1996; Danneels, 2002; Hamilton & Singh, 1992; Katila & Shane, 2005; Troilo, De Luca, & Atuahene-Gima, 2014). It is also argued that the effects of resource limitation on innovation performance is context dependent. For example, Katila and Shane (2005) found that firms with limited resources are significantly more innovative than established firms when the technology is radical, and when the innovation takes place in highly competitive and smaller markets. Further, Voss et al. (2008) showed that characteristics of slack resources (e.g., rarity and absorption of slack resource) may lead to risk aversion, and detract from an organization’s exploration and innovation capabilities. Although these views vary in detail, none deals with one key reality. When it comes to radical innovation, returns are difficult to predict and so are the resources needed to drive these returns. One reason is that radical innovation often involves the creation of new product categories in customers’ minds and might prompt unexpected strategic responses from competitors (Troilo et al., 2014). As Mahoney and Pandian (1992) note, the services and rents that resources yield depend upon firms’ dominant logic. This leads to the questions: When resources are limited what is the mental model, or dominant logic, that drives the innovation process? How do firms conceptualize and use their limited resources when it comes to the unpredictable nature of radical innovation?

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The existing views rest on the assumption that firms need a pool of resources that is in excess of the minimum necessary to produce a given level of organizational output (Nohria & Gulati, 1996). In support of this view, it is suggested that slack endows a firm with the ability to take advantage of opportunities afforded by the environment (e.g., Weinzimmer, 2000). However, especially in turbulent environments, changes in social trends, competitive threats, and technological advancements make the decision very difficult. Questions of – what to innovate? and, if innovating, what resources are needed in advance? … and what connection among the resources, competencies, and mental models will drive the innovation process? – are pervasive. We are left wondering whether the abundance of resources argument described by existing views is realistic when it comes to radial innovation practices. Anecdotal evidence suggests that extant views may inaccurately describe how resource-limited innovation happens. This observation, coupled with the limited research base on resource-limited nature of innovation, led to the comparative case study research described in this paper. METHOD This research used a comparative case study design that allowed replication logic, where a series of cases is treated as a series of experiments, each case serving to confirm or disconfirm the inferences drawn from the others (Yin, 1984). As the purpose of the research project was theory generation and exploration, issues of generalization do not apply. That is, a large ‘n’ is not necessary at this point of exploration, rather it is important that convergence of concepts takes place and generated themes, which have the required aspects of validity and reliability (Gibbert, Ruigrok, & Wicki, 2008, p. 1467), emerge from a re-iterative analysis of the (largely textual) data (Eisenhardt & Graebner, 2007; Siggelkow, 2007). We collected data until we reached a point of theoretical saturation (e.g., no longer hearing or seeing new material information). Table 1 describes the 10 start-up companies studied.





TABLE 1: FIRM CHARACTERISTICS Biotech firm

Age

14

Energy firm

Optic vision firm

9

8

Weather forecast B2B firm 5

Weather forecast B2C firm 5

No. of employees

Around 30

Around 10

Around 40

Around 50

Around 15

Industry

Bio-technology

Green technologies

High-tech vision

Software enterprise

Software enterprise

Health management firm

Data file sharing and content management firm

Athletic shoe firm

Payment software firm

Organic food supply chain firm

Age

7

9

6

5

8

No. of employees

Around 15

Around 500

Around 30

Around 500

Around 40

Industry

Pharmaceuticals

Software enterprise

Sports apparel

Software enterprise

Green house farming

Based on an extensive literature review we developed an interview protocol that was pretested using academics and technological entrepreneurs. Members of the research group conducted interviews with the co-founders of the 10 start-up companies2. These firms provided for differentiation and integration on a spectrum of startups in high-turbulent environments. We conducted the interviews with the start-up founders. Besides using the semi-structured interviews as the primary data source, we also utilized archival data and company documents as a supporting data source. The unit of analysis was defined as the ‘innovation experience’ of start-up founders, and, as per a grounded theory approach (Glaser & Strauss, 1967), we were particularly interested in the innovation experience of the participants. As such, innovation was defined by the participants themselves – although in all cases this usually meant either the creation of a new product and/or service or process design that altered the consumption and usage patterns of customers and prompt firms to develop new competences or skills (Damanpour, 1991).

2

There were at least two co-founders in each start-up. We talked to two co-founders in each company. Because of the time limitation that co-founders had, all the co-founders were interviewed at the same time.


Interviews consisted of seven open-ended questions. Following the methods of inductive research, these questions were supplemented with the ones that seem to assist in understanding the emerging themes. The interviews were typically around 90 minutes, conducted via virtual conference, phone conferences, and in-person. The interviews started with how the founders defined innovation based on their experiences. Each founder was then requested for a description of their start-up’s competitive environment, and their firm’s innovation strategies. In the second part of the interview, we asked each founder to provide us with one successful and one failed innovation project that they thought was resource-limited. We also asked questions about how they defined resource limitation. In this section, we not only concentrated on facts and events but also founders’ interpretation of them. The last part of the interview focused on their start-up’s capabilities that helped them to manage and configure limited resources. Two researchers conducted each interview with one responsible for the interview and the other for taking notes. Besides interviews, researchers examined industry reports and company documents. One researcher also attended one of the start-up’s all-day major strategy meetings via conference call. In this meeting, the main discussion was to decide on how to


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configure limited resources for their upcoming innovation project. In the analysis part, we used methods for building theory from case studies and crafted our findings (Eisenhardt, 1989; Glaser & Strauss, 1967). This process started with selecting pairs of firms and listing the similarities and differences between each pair by categorizing them based on available resources, competitive environment, business models, market types, and innovation strategies. We used NVivo 9 software for managing data. With the preliminary findings, each case was revisited to deepen our understanding of the underlying dynamics. Further, the preliminary analysis was shared with key participants. Case notes were modified based on their feedback. We also used existing literature to sharpen the insights. HOW TO INNOVATE WITH LIMITED RESOURCES IN TURBULENT MARKETS?

A number of themes were generated from the analysis of the qualitative data on how resourcelimited innovation was possible3. We named these themes the ‘IN’ factors of resource-limited innovation. Findings show that in the presence of these attitudinal factors having limited resources has positive effects on innovation outcomes. The data also suggested that the development of dynamic capabilities (Eisenhardt & Martin, 2000) supported the maintenance over time of a system of resource-limited innovation. As the firms we studied developed innovative products or services under conditions of limited resources, they also got better at handling such situations. What follows are findings of our observations and analysis. Table 2 summarizes this study’s evidence on the effect of four attitudinal factors

3

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The generated themes were named using the ‘IN’ terminology in order to produce a mnemonic device and to represent concepts that could be affected as managerial actions. For example, the textual analysis revealed words like passion, which has been incorporated here under the category ‘inspiration’ (because management can ‘inspire’ organizational actors towards passion for innovation); focus, which forms the basis for ‘intention’ and customer value proposition for ‘integration,’ for example.


on resource-limited innovation. We assessed this effect from interview and story data. In Table 2 we use quotes from our interviews to give examples of the experience of the innovators with each of the factors discovered in the data. Intention Drucker (2002) noted that although there are innovations that spring from well-established businesses with well-endowed resources; most innovations result from a conscious, focused, purposeful search for innovation opportunities. Therefore, he contended that the term, innovation, corresponds not to an enterprise’s age or size but to a certain kind of mindset. The data from this research indicates a similar view. Founders of the startup companies that we interviewed stated that the mindset of strong intention helped them focus on what needed to be done. We define intention as knowing what needs to be achieved, why it needs to be achieved, and also knowing how resource availability and allocation affects the process of that achievement. With a strong intention of what needs to be done, not having enough resources forces companies to be creatively focused (Goleman, 2013). Literature on creativity has consistently found that resource constraints allow people to eliminate distractions and focus on the solution based on what is available to them (e.g., Amabile et al., 1996; Simon, 1979). Recent research on design thinking states that limited resources make the need for new possibilities clearer and allow innovators to see combinations of solutions to problems often not ‘within view’ when resources are plentiful (Martin, 2009). With a strong intention, limited resources point managers to the locus of needed innovation; and, they also help reframe the problem and discover new opportunities in the process (Amabile, 1996). The biotechnology reagent start-up we studied illustrates the role of intention. They discovered a new possibility in the form of imaging technology when their resources were strictly limited. The intention was to explore a new kind of imaging agent. One founder stated ‘it motivated us to think that the technology that we were working on would help the surgeons to very accurately



Reliable weather forecast Informational software technology for Financial energy conservation

Next 1 hour higher accuracy weather forecast technology

Recyclable pill dispenser with scheduled medication

File sharing and content management in businesses

Jump enhancing sneaker technology

Easy and portable payment for businesses

Designs and operates greenhouse farms

Weather forecast B2B firm

Weather forecast B2C firm


Health management firm

Content management firm

Athletic shoe firm

Payment software firm

Organic food supply chain firm

INNOVATION: MANAGEMENT, POLICY & PRACTICE Relational Organizational

Relational Legal Financial

Financial

Financial Relational Informational Physical Legal

Financial Relational

Relational Informational

Financial

Informational Financial

High-tech optic glass technology

Optic vision firm

Financial Physical Financial Relational

Low-cost industrial furnaces

Imaging technology

Biotechnology firm

Asset sale and fee based model Niche re-segmented market

Asset sale Niche re-segmented market Subscription model and fee based model Low-cost re-segmented market

Subscription model Low-cost re-segmented market

Subscription model Niche re-segmented market

Subscription model Niche re-segmented market Subscription model and multisided platform model Niche re-segmented market

Asset sale New market Asset sale Low-cost re-segmented market Asset sale Niche re-segmented market

Important limited Context (business resources model and market type)

Energy firm

Innovation project

Firm

TABLE 2: RESOURCE-LIMITED INNOVATION

Inspiration: ‘passion for work is what drives me … it makes me inspirational and have full of emotional energy … then, I get things done’

Inspiration: ‘In our hiring process, we specifically evaluate people based on how much passion and drive that they have to solve really complicated problems’

Indefatigability: ‘We believe it is the ability combined with zeal and with capacity from working long hours that makes you strive when you don’t have the resources needed’

Integration: ‘When resources are strictly limited what makes the difference between success and failure in your innovation efforts is answering the questions of who are the interested parties, what is my core value proposition to them, and how can I make them engaged in the process of innovation’ Integration: ‘It was nearly impossible to figure out what resources are important before understanding the fundamental drive of end-user behavior. Customer comes first. Everything else is secondary’ Indefatigability: ‘Innovation means having a strong mind set and gratitude about failures.’

Intention: ‘Knowing clearly what we wanted to achieve and what would be the ultimate benefit to our stakeholders made us find ways to get to our goal irrespective of the resources that we were missing’ Inspiration: ‘It never occurred to us that we had limited resources. We had passionate people in the team. That is all it matters’

Intention: ‘I was determined to solve the problem given that we did not have financial resources to come up with low-cost technology’

Intention: ‘… just thinking of saving many people with a better technology locked us in to our goal’

Attitudinal factors examples



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place and image the tumor.’ The other founder highlighted that existing technology does not do a good job, and many patients lose their lives because of a lack of better technology. He said, ‘just thinking of saving many people with a better technology locked us in to our goal.’ Both founders mentioned that when they started thinking about the project, they realized that they needed more resources, and financial resources were one of their biggest limitations. One founder claimed: ‘Innovation in biotechnology is very expensive. Some of the instruments we needed were half a million dollars or more. We just did not have it, nor had we the time to raise funding for it.’ But, the clear vision and strong intention kept them going. They told us, ‘there’s no doubt that it spurs creativity to have limited resources, especially when you have a very strong intention to save many people’s lives… This is why we worked really hard and came up with a way, even though it was probably not quite as nice as the halfmillion-dollar instrument, we were able to do with less than $1,000 worth of parts and pieces, cobble together an imaging station, so we could at least get the preliminary data that we needed.’ The high-tech optic vision firm also indicated the role of intention in resource-limited innovation. They discussed the intention in the frame of focus and clear strategic direction. Both founders highlighted that they really did not have the resources that they needed to invent the optic technology that they were dreaming about. But, they also mentioned, ‘we accepted the fact that we did not have resources; but it actually helped us. We had a crystal clear goal and strategic direction. Knowing clearly what we wanted to achieve and what would be the ultimate benefit to our stakeholders made us find ways to get to our goal irrespective of the resources that we were missing. It is that simple. Having a clear vision made us resourceful.’ Why does the strong intention help founders to make resource-limited innovation happen? Research on cognitive psychology indicates that the presence of a focus and determined goal under resource limitations boosts creativity. With resource constraints, a person with strong intention starts looking for unconventional ways to get around the constraints (Kahneman, 2011;

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Norris & Epstein, 2011). Focus and a clear goal direct people to confront the problems that people without a clear goal are content to leave alone. In that sense, constraints reframe problems and force one to brainstorm in novel ways (Csikszentmihalyi, 1988). Inspiration One simply cannot sustain the energy and commitment necessary for successful innovation when important resources are lacking without the determination and focus that passion for an idea (and injection of the energy to pursue it) can bring (Andriopoulos & Lewis, 2009). We found this factor extremely important to successful innovation under resource limitations as the executives we talked with specifically mentioned it more frequently than any other factor. The data suggested that inspiration could be affected by selecting passionate candidates for a project up-front but certain techniques for inspiring passion with available personnel were also used. For example, some companies have 1-day off for employees to encourage them to work on their personal projects (e.g., Google). Others used similar brainstorming forums to generate ‘inspired’ solutions to problems in the innovation process that were constrained by limited resources. This implies the use of ‘liquid networks’ that increase the serendipity of employees and encourage people to change ideas, inspired by each other’s ideas communicated via brainstorming (Mainemelis, 2010). For example, one of the founders of the payment software company indicated, ‘… in our hiring process, we specifically evaluate people based on how much passion and drive that they have to solve really complicated problems. We are tackling with issues that nobody attempted to solve before because they are really difficult. And, we don’t have enough money or connections to take it to a different level. For that, we are very careful choosing people with drive to solve fundamental problems.’ Passion and inspiration seemed to be a powerful blending of personal expression, challenge, and pride. Based on the findings, it seemed to be that zeal emanates from an intense desire for work that will solve a fundamental market problem. For example, the founders of the B2B weather





forecasting software company underlined the importance of how inspiration and passion fueled the resource limited innovation process: … It was very challenging to bring two sides, university and industry, to work together on this project given their structural differences. But, once we clarified the question and had a clear idea of how much value it can bring to both sides there was excitement and synergy. We all knew that once we come up with a product we can save millions of dollars in energy use. Academics were excited about solving the basic question and industry was excited about executing the innovative idea. We all were inspired to solve it … and, we actually did. It never occurred to us that we had limited resources. We had passionate people in the team. That is all it matters.

Why does inspiration help founders to make resource-limited innovation happen? Leadership psychology researchers have found that passion for one’s idea is what drives entrepreneurs to face extreme uncertainty and perhaps resource shortage (Timmons, 2000). It helps them confront opportunity and challenges with fervor and zeal (Baum & Locke, 2004). As the founder of the organic food supply chain firm stated: ‘passion for work is what drives me … it makes me inspirational and – full of emotional energy … then, I get things done.’ Integration One of the broadest definitions of innovation comes from Schumpeter (Edquist, 1997, p. 9). ‘Innovation is setting up of a new production function. This covers the case of a new commodity as well as those of a new form of organization. Recalling that production in the economic sense is nothing but combining productive services … that innovation combines factors in a new way, or that it consists in carrying out new combinations.’ In his extensive definition, he highlights especially the notion of new combinations of existing factors, meaning the use of existing resources in a way that they have not been used before. The data here support this view and suggest that the ability to combine factors in novel ways requires system integration thinking, which is driven by a mindset that puts customer focus at the forefront of innovation strategy, enforces strategic integration with partners, and emphasizes corporate flexibility and quick responsiveness (Rothwell, 1994).


For example, almost all of the respondents in our study highlighted the importance of being customer centric, and integrating their core insights into the innovation process in novel ways. They mentioned that they don’t have proven ways to run the radical innovation projects that they undertake. Many projects that they work on are new both to them and the industry that they are in. This forces them to find out whether there is a market for their offerings before they actually start developing them. That means customer development by incorporating customer feedback in the innovation process comes before product development (Blank, 2013). This forces companies to think ahead about what resources need to be prioritized, reconfigured, and integrated into their system (Griffin & Hauser, 1993; Kim & Mauborgne, 2005). For example, the founders of the health management start-up said: ‘we decided to redesign the pharmacy experience, and it is not easy. In order to change the experience, you need to understand the system that drives that experience. This why we started with the end-user, and tried to understand why they act the way they act. The more we researched it, the more we saw that there is a complicated, complex, and highly inter-connected system that drives their behaviors. It was nearly impossible to figure out what resources are important before understanding the fundamental drive of end-user behavior. Customer comes first. Everything else is secondary.’ The importance of being customer-driven value and how that helps firms to reallocate and reprioritize limited resources was the main discussion in an interview with the B2C weather forecast company founders: ‘When resources are strictly limited what makes the difference between success and failure in your innovation efforts is answering the questions of who are the interested parties, what is my core value proposition to them, and how can I make them engaged in the process of innovation. Answering these questions makes a big difference in how you decide to utilize and prioritize your limited resources with a focused attention.’ Why does the attitude of integration help founders to make resource-limited innovation happen? It may have something to do with companies adopting an abductive reasoning, which


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is one of the core concepts in the cognitive psychology theory of sense making (Klein, Moon, & Hoffman, 2006). As Martin (2009) and Brown (2008) describe, radical innovation follows a knowledge funnel. It starts with the mystery (imagination), followed by heuristics (ideation), and ends with a last stage called algorithm (implementation). Imagination brings a variety of forms of mysterious questions. Developing heuristics helps bring the mystery down to a manageable size and organize the exploration of possibilities. Algorithm converts the general rule of thumb to a simplified solution formula. This process requires a different kind of reasoning that Martin (2009) calls ‘abductive logic’ which is about what could be rather than what it is or should be as declarative reasoning demands. Abductive reasoning is less certain, and thereby has more space for intuition, than analytical thinking. It also has greater consistency and replicability than intuitive thinking. Its objective is not to derive a conclusion that is declared to be true or false but rather it enables the combination and integration of seemingly un-linkable ideas. Abductive reasoning works especially well with multi-faceted and complex problems and resource-limited innovation provides such a context. Under resource limitations, finding out what companies need is an abductive sense making process where the main goal is to forge connections and integrations between seemingly unrelated ideas (Kolko, 2009). Indefatigability Radical innovation is risky. Companies that are involved in radical innovation projects fail at far higher numbers than the rate the industry usually cites (Gage, 2012). New ventures are good examples for risky radical innovation projects. They operate under extreme uncertainty and rapid change as well as resource shortages. It is reported that 9 out of 10 start-ups fail4 (Ghosh & Nanda, 2014). Then, the question becomes what makes that one company succeed? 4

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Entrepreneurship research has focused on finding general personality traits and motives of successful entrepreneurs, and its correlation with performance. Research results suggested that personality traits matter when it comes to success (e.g., Locke, 2000). The data from the current study support this view. To cope with challenges that highly turbulent environments bring, entrepreneurs have to be indefatigable, or in other words, they have to have ‘grit.’ Grit entails working strenuously toward challenges, maintaining effort and interest over long periods despite failure, adversities, and plateaus in progress (Duckworth, Peterson, Matthews, & Kelly, 2007). For example, content management start-up founder praised the attitude of indefatigability in their resource-limited innovation efforts: Innovation means having a strong mind set and gratitude about failures. Failures are invaluable learning experiences. With persistence and commitment, when you fail you fail forward. Actually, when you have limited resources and fail in your attempts to innovate, you have a clear idea of why you failed. Abundance of resources may blur the vision and slow the process of learning from failures. This is why I like working in small companies and resource-limited contexts. With strong commitment, resource limitation pushes you to be resourceful.

Previous research found that successful entrepreneurs must know how to acquire, systematize, and integrate resources needed to start and grow an organization (e.g., Bhide, 2000; Stevenson, 1985; Timmons, 2000). Baum and Locke (2004) found that entrepreneurs’ tenacity is related to managing their resources for growth. Similarly, the data here suggest that under strict resource limitations, having grit and tenacity enable entrepreneurs to sustain high-levels of practice for many years. They deliberately set for themselves long-term objectives and don’t swerve from them, even in the absence of the most significant resources (Duckworth et al., 2007). For example, a high-tech athletic shoe start-up founder mentioned:

Failure is defined as failing to see the projected return on investment such as not being able to meet the revenue growth rate or date to break even on cash flow.


… we failed in our early attempts… But, we had a strong confidence in our ability to succeed… We believe it is the ability combined with zeal and with capacity from




working long hours that makes you strive when you don’t have the resources needed … you just find a way to get them… Actually, having access to limited resources made us think harder. It made us even more creative and efficient given the vision we had. All in all, resource limitation is a positive force in innovation especially when you have confidence (in your abilities), and you focus your effort intensely over a long period of time.

Why does the attitude of indefatigability help founders to make resource-limited innovation happen? Consistent with having grit and tenacity, entrepreneurs in our study showed the trait of self-efficacy, a core concept in social-cognitive theory, defined as task-specific self-confidence (Bandura, 1996). It indicates a strong belief in one’s ability to organize and execute the courses of action required to manage prospective situations especially in extreme uncertainty. Self-efficacy enables founders to form a stronger sense of commitment to their activities, and recover quickly from failures. They view limitations and problems as tasks to be mastered.

the context in which it is used. Findings show that two contextual factors are essential in understanding which resources are important: Market type and business model type. Market type can be grouped as new markets, existing markets, and re-segmented markets5 (Blank, 2013). For example, the energy firm was functioning in a re-segmented (cost-efficient) market. One of the founders of the firm stated: … by being in the energy business for a long time, we know what is needed … low-cost energy. Many companies operate with high operational cost and reflect that on their prices. We not only found a way to reduce the operational cost, but also came up with a technology that will reduce the energy bill of businesses. Being a start-up made it difficult to have access to essential resources because they are mainly financial. This is why we focused on the human resources and invented a low cost technology to reduce the energy cost.

In another example, the payment software company decided to enter a new market. The founder of the start-up said: … payment was always a burden for small business owners. If they can find an easier payment procedure for their customers, they can enlarge their customer base. It is a brand new market – nobody approached it before because the problem is complicated. We had a solution to it, but since the market is new there was no proven ways. Therefore, the most essential resource was the relational resource – building relationships with small business owners. Once we had the market acceptance, it was easier to get money from ventures … if you are operating in a new market, the most important resource is relationships.

TOWARD A MODEL OF RESOURCE-LIMITED INNOVATION IN TURBULENT MARKETS

This research explored how to disentangle the relationship between limited resources and radical innovation in high-turbulent environments. Such environments are particularly challenging for innovation, especially for resource-limited firms, because rapid changes in customer needs, competitors’ moves, advances in technology, and market regulations make the decision about what resources are needed difficult. In high velocity environments information is either unavailable or becomes obsolete, that is what makes innovation a challenging and risky attempt. Taken together, our findings contribute to the nascent studies of resource-limited innovation in many ways. They offer deeper understanding of the consequences of resource constraints, and identify the factors under which they are heightened. This additional knowledge illuminates the strategic question on whether radical innovation can thrive under resource limitation. The findings are depicted in Figure 1. They are organized around three central ideas. First, we found that the value of a resource can not be determined in a vacuum, but depends on


Another important contextual factor that emanated from the data was the business model. 5

Blank (2007, pp. 24–25) defines: (1) new market as a large customer base that could not do something before because of true innovation creating something never existed before, or dramatically lower cost creating a new class of users; (2) existing market as a market where the basis of competition is all about the product and product features; (3) niche re-segmented market as a market where the customers are offered some characteristic of the new product as radical enough to change the rule and shape of the existing market; and (4) low-cost re-segmented market where the customers are offered to buy good enough performance with low-end of the price spectrum.


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Various key resources appear to be needed depending on the type of business model. For example, the energy startup firm required financial resources for the production of its industrial furnaces and also for the production facilities; but, having limited access to financial resources empowered them to invent their low-cost furnace. Also, the founder of the startup firm mentioned that they outsourced the production facility in a more cost-efficient way. In another example, the B2C weather forecast firm required informational resources to work on software that forecasts weather conditions with more accuracy than what is available in the market. They had a business model called fremium, where at least one substantial customer segment is able to continuously benefit from a free-of-charge offer, and they are financed by another customer segment that are willing to pay for premium quality service (Anderson, 2010). In this business model, the most important resources are large customer bases and informational resources. As one of the founders stated: … the idea, that is the ability to forecast weather with more accuracy in the next 1 hour, was not so new; but, it was interesting that nobody has done anything about it. As a start-up we did not have much resources, so we needed to think harder. Given the virtual app model we had, when we connected the dots we realized that all we needed was to use the hidden infrastructure – smart phones with built-in GPS, cloud computing resources that can be rented, open source algorithms, and all weather stations and satellites for weather data, and generate large customer base with a crowd funding campaign. We knew that five percent of our customer base was willing to pay for the app for premium features. But, the real drive came from the ninety five percent free customer base. They helped us configure the user interface.

The second major finding in our research is the need to build an organizational system that incorporates all aspects of the four ‘IN’ factors of resourcelimited innovation. That is, each factor appeared to play off of one another, being necessary but not sufficient, and synergistically helping to create what we call lean innovation capability. Based on the findings and literature on dynamic capabilities, we define lean innovation capability as a higher order dynamic capability that reflects a firm’s ability to experiment with initial ideas by constantly iterating the initial

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offering through continuous market feedback in order to achieve superior performance. Findings show that the four attitudinal factors are the main foundation of this capability. For example, in order to experiment with a risky unproven idea one needs to have the belief in an idea how it will work (intention and inspiration). Constant iteration needed to tweak the idea means one needs to have to have the grit and tenacity (indefatigability) to deal with new ideas and anticipate and overcome failures and misfortunes. The only way towards success is to continue the task until it works (Duckworth et al., 2007). Each failure teaches the person how to look at the problem from a different angle, and to eventually make vital connections between seemingly un-linkable ideas (integration). In such ways, failure and ‘playing’ under limited resource conditions leads to bisociation in creative acts (Koestler, 1964). Specifically, in the resource-advantage theory framework the lean innovation capabilities fit the concept of renewal competences, which Teece and Pisano (1994) described as ‘dynamic capabilities’ and Dickson (1996) as ‘learning how to learn.’ Based on resource advantage (R-A) theory, we envision lean innovation capabilities as renewal competences that stimulate resource-limited innovation by enabling firms to: (1) anticipate unmet customer needs, wants, and preferences; (2) envision market offerings that might be attractive to such segments; and (3) foresee how to develop, configure, or create the required resources/competences to produce the envisioned market offerings. Third, lean innovation capabilities also appear to be influential in creating new resources and capabilities from re-combinations of resources and actions created in response to dealing with a resource-limited environment. Thus, we seem to have found a perpetual, virtuous cycle of innovation when resource-limited innovation is managed head-on with the ‘IN’ factors and the development of subsequent lean innovation capabilities. Figure 1 can be read as following: The penurious resource environment and context of innovation create certain tensions in terms of resource limitations and their potential effect on innovation outcomes. The development and enactment of lean innovation capabilities catalyzed by the four ‘IN’ factors discussed earlier can overcome that tension





and lead towards successful innovation outcomes. Firms learn through competition as a result of feedback from their innovation performance, which, in turn, informs how to cultivate and create a culture driven by four ‘IN’ factors that lead to developing lean innovation capabilities. As can be seen in Table 2, all 10 of the cases experienced significant resource limitations but a number of these limitations were actually seen as having a positive effect on the innovation efforts when they were affected by the presence of the ‘IN’ factors. The main contribution of the current study, as illustrated in Figure 1, is that limited resources can lead to successful innovation but only under conditions of developing lean innovation capabilities characterized, in part, by the four ‘IN’ factors identified in the study data. The main point is that: Clarifying the intention of innovative ideas and communicating this clearly to stakeholders with the purpose of inspiring them; and, further linking up ideas whose connections were not previously suspected, and even if obvious, seem to escape detection; and finally, having the endurance and concentration of effort to cultivate the connected ideas to the point of making the ideas reallies at the heart of successful resourcelimited innovation. Innovation (whether characterized as new products/services, business models, or processes) is more than positively affected via developing lean innovation capabilities. CONCLUSION Though researchers are still working on a consensus regarding a formal definition of radical innovation, recent attempts provide a consistent approach to its dimensions. Green, Gavin, and Aiman-Smith (1995) incorporate two dimensions to radical innovation: (1) technological and market uncertainty; and (2) technical and business inexperience. Due to its uncertain nature, radical innovation requires new skills, system thinking, and a certain mindset (Drucker, 2002). Radical innovation projects take considerable amount of time to complete, and during that time frame many exogenous events change the course of progress. The high degree of unpredictability, especially in turbulent markets, make resource allocation a major issue – either it is


difficult to configure which resources are needed in advance, or resources become obsolete quickly (McDermott & O’Connor, 2002). Therefore, we can say that radical innovation, especially in turbulent markets, is resource-limited by nature. Then, the question becomes what really allows some firms to innovate with limited resources, whereas many others ossify and perish? The answer is not easily found. For example, in highly turbulent start-up environments where resources are strictly limited, 9 out of 10 start-ups fail (Ghosh & Nanda, 2014). We suggest that managers who need to innovate under conditions of limited resources (whether it is the common budget issue of financial resources or more sublime resources such as informational or relational sources) need to set up an integrated system that relies on the ‘IN’ factors that we delineated from our case studies. The ‘IN’ factors emanating from the study are examples of attitudinal aspects of companies that can be practiced and developed in building lean innovation capabilities to overcome resource limitations. These, by no means, are necessarily the only factors that might help and so more research is needed. However, these factors played a conspicuous role in affecting successful innovation in the situations of resource limitations that we studied. In essence, the presence of these factors helps to both overcome the seemingly negative (and extenuate the positive aspects) of being in a resource-limited environment. For example, financial resource limitations are often argued to have a negative effect on innovation outcomes in general (e.g., Troilo et al., 2014; Voss et al., 2008). However, utilizing the four ‘IN’ factors under financial limitations can actually positively affect innovation outcomes by encouraging companies to use what resources are available in creative ways. As such, what seemed to be negative when the ‘IN’ factors are not present is in fact positive when they are present. In essence, attitude is everything! Certainly, innovation requires investments in resources but anecdotal evidence suggests that companies with strong innovation systems (predicated on the ‘IN’ factors) that do more with less can be effective innovators under some resource limitations. Our continuing research program is demonstrating the factors associated with such


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strong innovation systems. During these times of intense economic realities and the discovery and promotion of reverse innovation systems in which innovation is developed in ‘bottom of the pyramid’ economies and transferred back to the more developed economies (Hang, Chen, & Subramian, 2010; Immelt, Trimble, & Govindarajan, 2009) – we are beginning to learn more about how to get the most out of what little resources we can put ‘in’ to the innovation effort. The ‘IN’ mindset that makes resource-limited innovation possible can become a transformative force in companies. From this research, a perspective is beginning to take shape that challenges traditional thinking about the need for slack resources to innovate. This emergent view places crucial importance on developing an integrated system where the lean innovation capabilities rooted in the IN mindset is central. Others have argued that having excess amounts of resources are crucial in experimenting with risky innovative ideas (e.g., Nohria & Gulati, 1996). The view here is that, although resources are important, there are foundational mindset characteristics that lead managers to think about what resources are important, and how to configure resources in creative ways. Therefore, it is not only the resources, but also the mindset that drives the use and configuration of these resources, which profoundly influences successful innovation outcomes. Second, this view emphasizes a systems approach. The direct linkage between resources and innovation, and the question on how much resource is needed to innovate, has dominated the literature (e.g., Mishina et al., 2004; Voss et al., 2008). The results of current research suggest the limitations of that approach. Findings reveal the complexity, process-based, and recursiveness of innovation systems. Innovation is prompted by the learning process of firms. As the feedback loop in Figure 1 shows, firms learn through competition as a result of the feedback from the innovation performance outcomes signaling what capabilities/competences need to be developed, which, in turn, signals which resources need to be configured, created, and developed. In that sense, R-A theory literature may be particularly relevant to get additional

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insights on the recursive model of resource-limited innovation (Hunt, 2000). Finally, the emergent perspective highlights context as integral to the discussion on resourcelimited innovation. Findings indicate that context (business model and market type) influences the decision about which resources are essential. Depending on the context, firms may adapt their mental models and mindset and shift from seeking what is traditionally needed to what can be done creatively to create/configure resources. There are some limitations to this research. Namely, we do not suggest generalization of our findings. This preliminary case-based research was designed to explore and discover new themes that can later be used as a basis for empirical testing in more generalizable, survey-based sampling research. The current research addresses the process of resource-limited innovation, especially in high turbulent environments. Having start-ups in our sample is admittedly an extreme situation, a setting that places an extraordinary premium on resource limitations. Indeed we chose these firms particularly for that boundary condition. However, if the ideas presented here survive further empirical tests, they have the potential to offer general lessons for organizations as they face the trials and tribulations of resource-limited innovation. ACKNOWLEDGEMENTS The authors acknowledge the helpful suggestions of the editor and anonymous reviewers, who helped improve this article, as well as the startups who provided their time and insights during the interviews, making the execution of this study possible. We also acknowledge the suggestions from the American Marketing Association Winter Conference 2014, Business Markets Conference 2013, and Academy of Management Conference 2014 attendees. REFERENCES Amabile, T. M., Conti, R., Coon, H., Lazenby, J., & Herron, M. (1996). Assessing the work environment for creativity. Academy of Management Journal, 39(5), 1154–1184. Anderson, C. (2010). Free: How today’s smartest businesses profit by giving something for nothing. New York, NY: Hyperion.





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Accepted 13 August 2014

N O W AVA I L A B L E NETWORK ANALYSIS APPLICATION IN INNOVATION STUDIES A special issue of Innovation: Management, Policy & Practice – Volume 12 Issue 1 – 120 pages – ISBN 978-1-921348-32-7 – April 2010 Editors: John Steen and Tim Kastelle (University of Queensland Business School, Queensland, Australia) http://www.innovation-enterprise.com/archives/vol/12/issue/1/marketing/ www.e-contentmanagement.com

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