IMI - Innovation Management Institute

Management Control in the Front End of Innovation

Authors Poskela Jarno
Type Dissertion
Release date Nov. 6, 2009
Publisher Helsinki University of Technology, Department of Industrial Engineering and Management. Doctoral Dissertation Series 2009/11. Espoo 2009
ISBN 978-952-248-122-1 (print), 978-952-248-123-8 (electronic)

Abstract

Should management control the front end of innovation in companies? And if so, how? This thesis examines the use of management control in the front end of innovation, how the different management control mechanisms are associated with front end performance, and how technology and market uncertainty influence this relationship.

The front end of innovation is generally regarded as the most troublesome phase of the innovation process and at the same time as one of the greatest opportunities to improve the overall innovation capability of a company. The front end of innovation has been characterized as a highly uncertain and creative phase, thereby requiring considerable amounts of freedom and independence for those executing front end activities. However, a certain amount of control is necessary to secure the effective use of resources and the achievement of the company's strategic goals. The current findings on management control and its influence on performance in a new product development context in general are conflicting. For example, while many authors argue that behavioral control kills creativity, others emphasize the advantages of improved communication and coordination created by process formalization. Some authors stress the importance of setting specific and challenging strategic goals for development work, yet other articles indicate this inhibits creativity and learning. One challenge in interpreting the conflicting results of existing management control research in a new product development context is the fact that most studies treat the front end of innovation simultaneously with product development projects, thereby averaging the totally different characteristics of these two innovation phases. Studies investigating management control in the front end of innovation are still scarce. This theoretical gap is the focus of this thesis.

This study develops a framework for management control in the front end of innovation and tests hypotheses on the relationship between different management control mechanisms and front end performance. Management control is covered through seven variables: input control, front end process formalization, outcome-based rewarding, strategic vision, informal communication, participative planning, and intrinsic task motivation. Product concept superiority and strategic renewal are used as front end performance indicators, reflecting both the short-term and long-term development needs of the organization. The influence of technology and market uncertainty as potential moderators on the control mechanism–performance relationship is investigated in relation to front end process formalization and outcome-based rewarding. Data from the front end phase of 133 new product development projects from different large and medium-sized Finnish companies have been collected and analyzed. A factor model was used to test the validity of the management control framework and a linear regression analysis used for hypothesis testing.

The results show that management control mechanisms are associated with performance in different manners depending on the performance variable used. Front end process formalization, strategic vision, and intrinsic task motivation were positively associated with product concept superiority. No association was found between input control, outcome-based rewarding, informal communication, participative planning, and product concept superiority. The results show that input control and intrinsic task motivation were positively associated with strategic renewal in the front end of innovation. No association existed between front end process formalization, outcome-based rewarding, informal communication, participative planning, and strategic renewal. Three significant moderating relationships were found in the study: Market uncertainty positively moderates the positive association between front end process formalization and product concept superiority; Technology uncertainty negatively moderates the relationship between front end process formalization and strategic renewal, i.e. under high technology uncertainty, front end process formalization is negatively related to strategic renewal; Technology uncertainty also negatively moderates the relationship between outcome-based rewarding and strategic renewal, i.e. under high technology uncertainty, outcome-based rewarding is negatively related to strategic renewal.

This study contributes to management control literature by making management control in the front end of innovation the focal point – an area which is still barely touched in management control theory. The findings contribute to the body of knowledge of front end management by showing that management should be actively involved in the front end of innovation and by providing evidence of the importance of this phase on a firm's dynamic capabilities. This thesis contributes to contingency theory also by demonstrating how both market uncertainty and technology uncertainty moderate the association between management control mechanisms and front end performance. The findings have practical implications for management as they show certain mechanisms lead to effective control in the front end of innovation.

Keywords: management control, front end, innovation, innovation management, uncertainty, performance

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