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MARKET LEADERSHIP THROUGH INNOVATION

P.J. Wanninayake

2012

MARKET LEADERSHIP THROUGH INNOVATION

By

P.J. Wanninayake

B.Sc. (Eng.) (Pera)

1

A Management Case Study Paper submitted to the Postgraduate

Institute of Management, University of Sri Jayewardenepura, in partial

fulfillment of the requirements of the Master of Business Administration

Degree

Colombo – Sri Lanka

MARKET LEADERSHIP THROUGH INNOVATION

By

P.J. Wanninayake

(MBA/12/3149)

2

has been accepted by the Postgraduate Institute of the Management of the University of

Sri Jayewardenepura, in partial fulfillment of the requirements of the Master of Business

Administration Degree

……………………… …………………………

Supervisor Director

………………………. ……………………..

Date Date

Declaration

I certify that this management case study does not incorporate without acknowledgement,

any material previously submitted for a degree or diploma in any university, and to the

best of my knowledge and belief it does not contain any material previously published or

written by another person, except where due reference is made in the text.

…………………

P.J. Wanninayake

December 30, 2013

3

TABLE OF CONTENTSList of Tables III

List of Figures IV

List of Abbreviations V

Acknowledgements VI

Executive Summary VII

4

5

List of Abbreviations

SLT – Sri Lanka Telecom

OECD – The Organization for Economic Cooperation and Development

CBSL – The Central Bank of Sri Lanka

IP – Internet Protocol

IPVPN – Internet Protocol Virtual Private Network

IGO – International Gateway Operators

IP-MPLS – Internet Protocol- Multiprotocol Label Switching

IPLC – Internet Protocol Leased Circuits

N.V. – Naamloze vennootschap (Public Company in Netherlands)

NGN – Next Generation Networks

6

Chapter 1 : INTRODUCTION1.1 Background

Innovation is essential for business survival in highly competitive markets where it is

increasingly difficult to differentiate products and services. Businesses that are not

growing through new product and service introduction are likely to decline as their

existing sales portfolio inevitably matures. The single most important factor in a

company’s level of innovation competence is building an innovative culture that has total

leadership commitment. (Hamel, 2006).

Today, there is no other industry touches as many technology-related business sectors as

telecommunications, which, by definition, encompasses not only the traditional areas of

local and long-distance telephone service, but also advanced technology-based services

including wireless communications, the Internet, fiber-optics and satellites. Telecom is

also deeply intertwined with entertainment of all types.

Sri Lanka’s Telecom industry has been overcrowded during the last couple of years and

this remains the key medium-term risk to telecom operators in the country. This

competition intensifies with several operators competing for a total addressable

population of 21.7 million and offering almost the same services to the customers.

Competition among the operators is so vast that it is difficult to stay ahead in the

competition.

Hence, Sri Lanka Telecom being the market Leader should possess the elements of

innovative organization. This study will focus on presence of innovative culture through

its key determinants to see such elements in their success.

1.2 Company information

For over 50 years, Sri Lanka Telecom has been the strength and backbone of Sri Lanka

telecommunication taking the nation through the years. Every minute, every day,

technologies and capabilities change, improve and innovate almost as we watch. Sri

Lanka telecom is right there at the forefront of this wave of the future.

Sri Lanka telecom is one of the most valuable blue chip companies with an annual

turnover in excess of Rs. 56 billion. The company is listed on the Colombo stock

exchange. The two main shareholders of Sri Lanka Telecom are the Government of Sri

Lanka which held 49.5% and Global Telecommunications holdings N.V. of Netherlands

7

which owned a 44.98% stake. The balanced share is publically traded. (Annual Report,

2012).

1.3 Theme of the Case Study

The theme of the case study is market leadership through innovation. According to the

annual report 2012, Sri Lanka telecom is the nation’s number one integrated

communication service provider and the leading broadband and backbone infrastructure

service provider in the country. They have done this continuously over the past few years

amidst the huge competition in the industry with the new telecom regulatory policies

which are not favorable to Sri Lanka Telecom. The total number of players in the

telecommunications industry after the removal of SLT’s monopoly power on international

calls in 2002 has been increased dramatically. The total number of operators including

newly licensed International Gateway Operators (IGOs) by the end of 2004 was seventy-

seven (CBSL, 2004). So, they were able to sustain the leadership in the market with this

turbulent environment.

1.4 Scope of the Case Study

Innovation is the key to competitive advantage in a highly turbulent environment. The

telecommunication industry in Sri Lanka has faced this turbulence in recent years and Sri

Lanka Telecom in particular was able to keep its market leadership with this utmost

competition. Therefore, this study will specifically look at how Sri Lanka Telecom as an

operator sustained market leadership through their innovation strategies. SLT provides

facilities and services in the area of voice, data, video and mobile to its customers.

However this study is limited to facilities and services in the area of voice, data and video

as mobile services are handled through its fully own subsidiary Mobitel. These services

which are unmatched in scope, range from domestic and international voice, advance data

transmission services which include internet services on leased lines, broadband leased

circuits, to IP services such as IPVPN based on IP-MPLS technology, total corporate

solutions, satellite uplink services, IP transit, IPVPN, IPLC and international voice traffic

transit services to global telecom operators and cooperates, NGN services and wholesale

services etc. (Annual Report, 2012)

8

1.5 Limitation of the Study

The study has several limitations. Firstly, there are inherent limitations in measuring

construct such as commitment, intention for innovation which is essentially a mental

construct. Secondly, it does not consider some other external factors such as Political,

Environmental, and Social etc. which would influence innovation. Also, this case does

not consider any of the subsidiary companies of SLT.

Chapter 2 : LITERATURE REVIEW

2.1 Introduction

Joseph Schumpeter can be considered the father of innovation as a key management

concept from his seminal work of 1934 where he argued the economic development is

driven by innovation by a process of creative destruction. Graduated in Economics,

Schumpeter produced articles, essays and dozens of books in the first half of the twentieth

century, many of which are still cited and used today in different areas of knowledge, as

reported by Rubens Vaz da Costa in the preface to the Brazilian edition of one of major

books written by Schumpeter: “Theory of Economic Development: an inquiry into

profits, capital, credit, interest rate and the economic cycle” (Schumpeter, 1934 as cited in

Fábio L. et al, 2011). Also, it is in this book that Schumpeter presents one of the first

definitions of innovation. This work characterizes the fundamental phenomenon of

economic development, associated to innovation and entrepreneurship and having the

company as the basis for its studies.

Regarding the definition of innovation, still according to Schumpeter, it should cover five

cases or areas in the perspective of creating new combinations: (a) introduction of new

goods - a new product or service or a new quality of both that no one has launched

yet .The novelty is characterized in such a way that can lead the company to implement

rehabilitation activities for consumers to familiarize themselves with the new good, (b)

introduction of a new method or production process - this is a new way of processing

production or marketing products or services that have not yet been tested or experienced

by any organization, (c) opening a new market - when the firm develops or creates a new

market, where no other company has yet entered, with the area of a particular country in

9

question as a basis, regardless of whether that market has existed or not, (d) acquiring a

new source of raw materials or semi-manufactured goods - creating or obtaining a new

source of raw material supply for industry and related to the previous case, i.e., no matter

this source has been previously established or existed, (e) establishing a new organization

of any industry - this case generally involves creating a new business or a new market

structure which is characterized by a certain uniqueness of the firm - a monopoly - given

the position it may occupy with the new organization. (Fabio L., Michael S. D. & Valmir

E. H., 2011).

Tidd, Bessant and Pavitt (2008 as cited in Fabio L. et al, 2011), however, instead of five

cases of innovation, believe that innovation can take four forms, which are close to those

earlier described by Schumpeter (1934): (a) product innovation - changing things

(products or services) that a company offers, (b) process innovation - changes in the way

products / services are created and delivered, (c) position of innovation - changes in the

context in which product / services are introduced, (d) paradigm innovation - changes in

the underlying mental models that guide what the company does. The line that divides

one type of innovation from the other is tenuous, according to Tidd, Bessant and Pavitt

(2008). Sometimes it is difficult to assert that a particular innovation has taken place only

in the product, or process, or any of the other forms. (Fábio L. et al, 2011).

Various definitions of innovation can be found in the specialized literature. Most authors

present concepts of innovation, highlighting elements that they considered to be most

relevant (Cantú, Zapata, 2006 as cited in Fabio L. et al, 2011). In search of greater

conceptual uniformity as well as understanding of innovative processes and

standardization in the use of data on innovative activities of industry, the Organization for

Economic Cooperation and Development (OECD) created the Oslo Manual, which

carries both the concepts and classifications, and a set of guidelines and policies for the

measurement of innovation in the international arena.

According to the Manual (OECD, 2005, p: 55), innovation is either the “implementation

of a new significantly improved product or process, or a new marketing method, or a new

organizational method in business practices, local workplace organization or external

relations. “ In general, the Oslo Manual identifies four types of innovations: (a) product

innovation, (b) process innovations, (c) organizational innovations, and (d) marketing

10

innovations. This classification seems to address some of Schumpeter’s ideas, with only

the innovation of input supply missing.

Product innovations, as recommended by the Manual (OECD, 2005), are preceded by

substantial changes in the characteristics and / or composition of the products or services.

Process innovations refer to significant changes in the method of production or

distribution. Organisational innovations are related to the creation and development of

new organizational forms, as well as changes in business practice in internal and external

environments of the company. And as for marketing innovations, these are changes in

product design, packaging and more specifically, the establishment of new pricing

methods and creation of new markets. (OECD, 2005).

Some definitions of innovation are strongly linked to technology and, sometimes, even

the terms ‘innovation’ and ‘technology’ are used interchangeably (Rogers, 2003 as cited

in Fabio L. et al, 2011). However, innovation can be distinguished from ‘technological

innovation’, as it is possible to design different applications of innovation - organizational

innovation, social innovation, economic innovation, technological innovation, strategic

innovation - taking into account the innovation process and the different areas of an

organization (Freeman, 1982a; Cantu and Zapata, 2006; Hernandez, 2009 as cited in

Fabio L. et al, 2011).

In an organization environment, innovation is often expressed through behaviors or

activities that are ultimately linked to a tangible action or outcome. (Dobni C. B., 2008).

Examples of this include the implementation of ideas surrounding new product/services

or modifications to existing ones (product or market focus), restructuring or cost savings

initiatives, enhanced communications, personnel plans (process related), new

technologies (technology/research and development based), unique employee behaviors

(behavioral based), or organizational responses to opportunities (strategic) and unscripted

situations (Martins and Terblanche, 2003; Robbins, 1996; West and Farr, 1990 as cited in

Dobni C. B., 2008). In these situations, the metric for success is dependent on the nature

of the outcome itself and is often measured against changes in performance.

West and Farr (1990) define innovation as: the intentional introduction and application

within a role, group or organization of ideas, processes, products or procedures, new to

11

the relevant unit of adoption, designed to significantly benefit the individual, the group,

organization or wider society.

Hamel (2006) described innovation more broadly as: a marked departure from traditional

management principles, processes and practices or a departure from customary

organizational forms that significantly alters the way the work of management is

performed.

These definitions suggest that innovation is very much contextual – from an

organizational culture perspective – and the extent to which an organization can be

regarded as innovative will be circumscribed by its culture. (Dobni C.B., 2008).

Prather’s (2010) experience leading the DuPont Center for Creativity and Innovation led

him to develop the Innovative Competence Model consisting of the three arenas of

education, application and leadership. Developing an internal competence for innovation

requires a systemic approach in all three arenas. DuPont initially concentrated on the

education and application arenas and naively assumed that the leaders would know how

to lead it. ‘We know now that total leadership commitment from the top is the single most

important factor in a company’s level of innovation competence and its innovation

success’ (Prather, 2010).

However, innovation is more than just behaviors and activities. A meta-analysis of the

literature by Damanpour in 1991 would suggest that a broader conceptualization of

innovation is required. Damanpour (1991) considered the relationship between

organizational innovation and 13 of its potential determinants. He uncovered statistically

significant associations for nine of the determinants, some of which included

specialization, functional differentiation, managerial attitude toward change, technical

knowledge resources, and external and internal communication. An empirical measure for

a broader conceptualization was achieved by Wang and Ahmed in their theoretical

development of a construct of organizational innovation. In their article, they propose and

define organizational innovativeness as: an organization's overall innovative capability of

introducing new products to the market, or opening up new markets, through combining

strategic orientation with innovative behavior and process (Wang and Ahmed, 2004).

Their definition of innovativeness was multi-dimensional, as was their construct which

included the dimensions of product, market, process, behavior and strategic innovation. It

12

is probably safe to say that that innovation is associated with creativity and change

(Drucker, 1991; Hellriegel et al. , 1998 ; Robbins, 1996 as cited in Dobni C. B., 2008), or

is regarded as something new which leads to change (West and Farr, 1990). Thus, it

would appear that the standard for innovativeness is multi-dimensional, and grounded in

product/service, process, behavioral (cultural), and infrastructure aspects.

Another interesting theme that is emerging from the literature, and one which is

consistent with Damanpour's analysis particularly as it relates to external and internal

communications, is the relationship between innovation and market orientation. Market

orientation is widely known as an organizational culture that supports behaviors that

dictate how employee's think and act as it relates to implementation of the marketing

concept (Day, 1990; Kohli and Jaworski, 1990). Key capabilities of a market orientation

include such things as market sensing, customer linking, competitor sensing and customer

service. Other capabilities include technology development, new product/service

development, and organizational communication. To date, attempts to capture the market

orientation construct in the context of a cultural antecedent have been very successful

(Kohli and Jaworski, 1990; Narver and Slater, 1990; Jaworski and Kohli, 1993; Kohli et

al. , 1993 ; Deng and Dart, 1994 as cited in Dobni C. B., 2008). A market-oriented culture

is also foundational in supporting innovation (Marinova, 2004).

The literature provides a very strong link respecting the relationship between

innovativeness and culture. For example, it has been found that levels of innovativeness

in an organization are associated with cultures that emphasize learning development, and

participative decision making (Hurley and Hull, 1998 as cited in Dobni C. B., 2008).

These same authors report that a significant void exists in current models of market

orientation due to inadequate constructs related to innovation. Another study by Aldas-

Manzano et al. (2005 as cited in Dobni C. B., 2008) concludes that market orientation and

innovation are not isolated fields and “some tools and policies considered in the

innovation scale are more heavily used by the firms more orientated to the market.” This

observation was supported by O'Cass and Ngo (2007 as cited in Dobni C.B., 2008) when

their findings indicated that “market orientation is a response partially derived from the

organization's innovation culture.” At the very least, it can be argued that the antecedents

of an innovation culture are similar to those of a market-oriented culture.

13

2.2 Summary

In conclusion, innovativeness in an organization can be broadly defined – ranging from

the leadership commitment and organizational intention to be innovative, to the capacity

to introduce some new product, service or idea through to the introduction of processes

and systems which can lead to enhanced business performance. As important, a critical

part of innovativeness is the cultural openness to innovation (Zaltman et al. , 1973 as cited

in Dobni C. B., 2008). This is also evidenced by the connection between market

orientation and innovation. Cultural openness is concerned with the organization's

cultural attention needed to recognize the need for innovation (Van de Ven, 1986). This

focus will ultimately determine whether innovation initiatives are adopted or rejected.

How organizations achieve an innovative state, and ultimately how we measure it is as

important as the definition itself. (Dobni C.B., 2008). This is widely evident in the

literature on market orientation and organizational culture, and the findings in respect to

innovation and market orientation. The prevailing conclusion is that a market-oriented

culture seems to underlie organizational innovativeness (Hult et al. , 2004 as cited in

Dobni C.B., 2008). According to Subramanian and Nilakanta (1996), innovativeness is an

enduring trait in organizations that is manifested over time. This is also consistent with

the extant literature, including Schein (1984) and Weick (1985), who both point to culture

as the linchpin to innovation in organizations. (Dobni C.B., 2008). Thus, the objective of

this study is to shed light on the innovation culture construct.

Successful organizations have the capacity to absorb innovation into the organizational

culture and management processes of the organization (Syrett and Lammiman, 1997;

Tushman and O'Reilly, 1997 as cited in Dobni C.B., 2008). According to Tushman and

O'Reilly, organization culture lies at the heart of innovation. They, along with others

believe that culture influences creativity and innovation in a number of ways including

socialization processes and the value proposition communicated through structures,

policies, and day-to-day artifacts and practices and procedures. (Dobni C. B., 2008)

Culture in organizations is defined as the deeply seated (and often subconscious) values

and beliefs shared by employees at all levels, and it is manifested in the characteristics

(call them traits) of the organization. It epitomizes the expressive character of employees

and it is communicated and reinforced through symbolism, feelings, relationships,

language, behaviors, physical settings, artifacts, and the like (Schein, 1984 as cited in

14

Dobni, 2008). This is supported by rational tools and processes defined by the strategic

architecture of the organization (Dobni, 2006; Dobni and Luffman, 2003), and through

expressive practices of employees (Coffey et al. , 1994 as cited in Dobni, 2008). To

change the organization's focus, say to one of innovation, often requires a change in the

organization's general cultural orientation.

The basic elements of culture (shared values and beliefs, and expected behavior resulting

from the values and beliefs) influence innovation in two ways; as discussed, through

socialization (Chatman and Jehn, 1994; Louis, 1980; Rich Harris, 1998 as cited in Dobni,

2008) and through basic values, assumptions and beliefs (Tesluk et al. , 1997 ) that become

the guide for behaviors. Thus, a culture supporting innovation engage behaviors that

would value creativity, risk taking, freedom, teamwork, be value seeking and solutions

oriented, communicative, instill trust and respect, and be quick on the uptake in making

decisions. One would expect these behaviors to be desirable and normal, and ones that

should be embedded in the corporate fabric (Lock and Kirkpatrick, 1995 as cited in

Dobni, 2008). Similarly, one would expect such a culture to reject practices and behaviors

that hinder innovation such as rigidity, control, predictability, and stability (Jassawalla

and Sashittal, 2003 as cited in Dobni C.B., 2008).

Chapter 3 : CASE FRAMEWORK AND METHODOLOGY

3.1 Introduction

The key to innovation in organizations resides in the ability to define, instill and reinforce

innovation supporting traits amongst employees. And it appears that innovation will only

flourish under the right circumstances, determinants of which include vision and mission,

customer focus, management processes, leadership, support mechanisms, employee

constituency, and others (Martins and Terblanche, 2003 as cited in Dobni, 2008).

Specifically, management – as suggested by Hamel – has to send the necessary signals to

facilitate a change in the way employees think and act. In turn, employees have to

respond to these changes and take up the challenges and possibilities under the new

management orthodoxies. The ability to successfully achieve a state of innovativeness

will ultimately depend on the propensity of management, the strategic architecture in

15

place to support innovation, and the constituency of employees to whom these efforts are

focused on (Dobni, 2006, 2008).

3.2 Case framework

The case framework is based on innovation. For the purposes of this case study, an

innovation culture has been defined as a multi-dimensional context which includes the

leadership commitment to be innovative, the infrastructure to support innovation,

operational level behaviors necessary to influence a market and value orientation, and the

environment to implement innovation. The dependent variable is innovation culture

which intern leads to performance outcome of the organization. Similar kind of model

with slight variation has been developed by C. Brooke Dobni to measure organization’s

innovation culture from his seminal work of 2008 where he tested his model in financial

industry in Canada. Following model in figure 3.2.1 will be used for this case as the

theoretical framework for the study.

Table 3.2.1: Key Determinants of innovation culture and particular Authors

DeterminantAuthor

Leadership Commitment Hamel (2006), Prather (2010), Martins and Terblanche, 2003, Dobni, 2008

Innovation infrastructureSyrett and Lammiman (1997), Tushman and O’Reilly (1997), Hurley and Hult (1998), Martins and Terblanche (2003), Dobni and Luffman (2003), Wang and Ahmed (2004), Dobni (2006, 2008)

Innovation influenceKohli and Jaworski (1990), Narver and Slater (1990), Jaworski and Kohli (1993), Deng and Dart (1994), Hurley and Hult (1998), Hult and Knight (2004), Aldas-Manzano et al. (2005), O’Cass and Ngo (2007)

Innovation implementation Day (1990), Kohli and Jaworski (1990), Bossidy and Charan (2002), Dobni and Luffman (2003), Marinova (2004), Wang and Ahmed (2004)

Source: Author

16

Figure 3.2.1: Conceptual Model for Innovative culture

Source: Author

3.3 Data collection and Analysis

This paper describes a procedure which explicates the innovation culture construct, and

proposes a multi-item measure of innovation culture predicated on exploratory factor

analysis. These descriptors are derived from extant literature, key informant interviews,

and a survey of employees from Sri Lanka Telecom.

The sample will include management and operational level employees and these

respondents are the ones that are most likely the architects of the environment for

innovation and the ones whose behaviors will be most influenced by an innovation

culture. The goal is to develop a homogeneous sample so as to avoid the risk of inherent

differences and to minimize the effects of variations in test scores.

Further, Company performance data will be presented as quantitative data. It is expected

to gather some more data with respect to the topic based on observations, newspaper

reports, correspondence etc.

17

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