THEORETICAL FRAMEWORK

In the 21st century, the transition to “innovation economy” determines countries’ overall per­formance of sustainable economic growth and social development. While innovation guarantees employment growth and particularly sustainable growth, it also empowers the social well-being and quality of life for the countries (Tutar et al, 2007, 197).

As mentioned above, considerable literature has been accumulated on the subj ect of innovation, which is widely seen as the basis of a competitive economy (Adams et al, 2006, 21).

Definitional Landscape

The word ‘innovation’ comes from a Latin term “innovatus” that concerns mainly using new methods (Tutar et al, 2007, 197; Yalcinkaya, 2010, 382; Karagoz, 2009, 151; Ccliklas, 2008, 5). The first and seminal definition of innovation was proposed by Schumpeter (1934). The term was associated with economic development and was defined as a new combination of productive resources. Schumpeter, by and large, was interested in defining five specific cases connected to inno­vation like the introduction of new products, new production methods, exploration of new markets, conquering of new sources of supply and new ways of organizing business (Schumpeter, 1934; Iilci et al, 2008, 25). Since then, the concept of innovation has evolved significantly over the last 40 years. One of the reasons for innovation being one of the most discussed topics in today’s busi­ness, as well as political and academic area, is that innovation is now vital for institutions, industries and countries due to high competitiveness of ho­mogeneous products and services (Arikan et al, 2003, 362; Sati and I§ik, 2011, 538-539).

The innovation processes that the firms deal with have changed very little although the busi­ness environment has changed significantly (Tidd, 2001, 165). Despite many models ofinnovation at the firm level, it occupies a variety of theoretical positions (institutional theory, cognitive theories, transaction cost economics, and resource-based view) where each theory contributes a piece to the innovation puzzle (Lawson and Samson, 2001, 378).

Today there are several scopes and definitions of the term ‘innovation’ (see Table 1). However, an accepted comprehensive framework guiding managers toward successful innovation does not yet exist (Lawson and Samson, 2001, 378). The concept is notoriously ambiguous and lacks either a single definition or a measure (Adams et al, 2006, 22; Celiklas, 2008, 4).

Drucker defines the concept of innovation management as “the activities of the company to perform innovation activities in a process under control by stimulating administrative activities, as well as irregular and complex structure in order to adapt to changes in the internal and external environment” (Drucker, 2003,120). According to £elikta§ (2008), “Innovation, involving a process formed by challenging ideas adopted to commercialization, is a series of organizational and individual behaviour patterns associated with defined resource allocation decision-points” (ςelikta⅛, 2008, 5).

Considering the statements mentioned above, we can define innovation as “The development of new ideas giving added value and the applica-

Table 1. Perspectives on innovation

tion of these ideas in individuals’ lives” or in the corporate dimension it is “The application of an idea to a marketable product or service, as well as a new or improved production process or distribu­tion method.” In this regard, it can be stated that innovation refers to a process in which a business differentiates its products and services from its competitors and develops them through renewal or regeneration.

Growing Importance of Innovation

Today, the importance of innovation for corpora­tions has grown so much that (Qalipinar and Baς, 2007, 445) maintaining productivity, increase in the market share, and competition between organizations depend on innovation (Ya⅛ιnkaya, 2010, 384). Innovation has become an indispens­able source of dynamism of economic growth of countries, increasing employment and better quality of life (Qalipinar and Baς, 2007, 446; Sati and I§ik, 2011, 539-540). However, in order to call it as an innovation, the product or service must be gradually “new for the company” and the economic value must be provided (Sati and I§ik, 2011, 538-539). For larger organizations, innovation fulfills the important tasks in innova­tion process such as;

1. Increase in profits,

2. Increase in the number of new products on their portfolio,

3. Increase in sales and market share and dis­tribution performance,

4. Reduction in deployment time in increasing productivity and

5. Reduction in costs with better use of resourc­es and time (Sati and I§ik, 2011, 545-546).

In addition, the factors that result in the emer­gence of innovation can be summarized as follows.

The requirement of new products and services: Since corporations operate under complexity and uncertainty, the internal organization (functional structure) of the firm, the definition of business divisions based on product-market linkages, and networks with other organizations (suppli­ers, customers and collaborating organizations) influence the capability of a firm to develop and commercialize new products and services (Tidd, 2001,181).

Acceleration of the new economic order: In the competitive environment, it becomes more and more difficult to survive only by imitating the work of the competitors and their products (Sati and I§ik, 2011,539-540). As a matter of fact, the transforma­tion from the industrial society to the knowledge society has revealed the need for administrators who have acquired the related information to be able to obtain and maintain the advantage of efficiency and competitiveness of the company.

Changing Competition Policies: Today’s en­terprises are faced with intense competitive pres­sures from the global market where the economic globalization limits have been removed (B ayιndιr, 2007, 244; Karabay, 2010, 3). Consequently, the pressures from the environment compel the corpo­rations to make continuous innovation activities, to follow the latest developments, and adapt to these developments. Evidently, the competititon makes companies gravitate to the capabilities and resources necessary in a natural and flexible way (Bayindir, 2007, 244).

Changing Customer Profile: By enhanced innovation capacity, it becomes possible for the organization to meet customer requirements more effectively by evaluating the strengths in strategic market opportunities ahead of the competition (Sati and I§ik, 2011, 539). From this perspective, innovation should be considered in a strategic manner (Nijssen and Frambach, 2000; Burmaoglu and Sepen, 2011, 12).

Development of Technology: Innovation can emerge from new technological and non-techno- logical knowledge. Non-technological innova­tions are closely related to the know-how, skills, and working conditions which are embedded in organizations (Wef, 2012, 7). The most related indicator regarding technological innovation is research and development activities (R&D) (Calipinar and Bap, 2007, 447).

The question of “Why do corporations in­novate?” is another common concern both in academic and business atmospheres. There ap­pear to be various purposes in the background of innovation. Here, we can state three purposes of innovation below:

• The viability of the business: This is as­sociated with the production of more than one product or providing more than one service. The variety of products and ser­vices brings about more competition in the market. A company, therefore, has to renew itself constantly.

• To become a leader in the market: In order to be a leader, a corporation should adopt the major innovations in the market. In this sense, the company can manipulate the market in its own interest and find an opportunity to define the conditions of competition alone.

• To increase profit: Profitability is one of the most important business goals for success. Innovations may reduce the cost, shorten the production process, and in­crease performance and efficiency if they manage and measure it successfuly. All these positive developments will increase the profitability of the company (Orucu et al, 2011, 62; Taylan, 1996, 5-6).

As mentioned above, innovation has critical importance on economic growth, prosperity, international trade and regional development. However, in order to measure innovation capacity, corporations need significant indicators. Some of the key innovation indicators may be listed as follows (Karaoz and Albeni, 2004, 4):

• Periodical innovation surveys (micro and macro perspective),

• Patents, patent applications and patent us­

age rights for sale,

• Scientific publications,

• R&D expenditures and activities,

• Number of researchers,

Above all, R&D expenditures appear to be the widely used innovation indicator both by the academics and practitioners.

Types of Innovation

In the related theory, there are various concep­tualizations that have come so far regarding the types of innovation. However, due to the hetero­geneity of services, it is not appropriate to make a precise classification dividing innovation into types (Celiktas, 2008, 12). The types of innovation that have been widely classified in the literature are described:

Product Innovation

This type of innovation involves changes in the products or services that an organization offers (Tidd, 2001, 179; Yavuz, 2010, 146; E⅛i et al, 2008, 26). Product innovation can be defined as a reflection of a firm’s commitment to developing and marketing products that are new to the firm and/or the market (Li and Gima, 2001, 1124). Although it is a common practice in manufacturing firms in general, product innovation plays much more important role in the food industry (Calipinar and Bae, 2007, 448).

Market Innovation

Market innovation is associated with the imple­mentation of new marketing methods including fundamental shifts in product design/packaging, product promotion or pricing, and product place­ment (E⅛i et al, 2008, 27). Such innovation fo­cuses on differentiating the behaviors of potential customers during the purchasing process (Yavuz, 2010, 147).

Technological Innovation

This type of innovation covers both technological products/services and processes. There can be significant technological changes in the existing products and processes that are also included in the scope of the technological innovation as well as the development of a new product or process (Calipinar and Bae, 2007, 447). Technological in­novation of products can either be a new product, a technologically improved product or a product that can be technologically introduced (TUSIAD, 2003, 27).

Process Innovation

Process innovation appears as an optimized imple­mentation method of production or a significantly improved way of production or distribution (Elςi et al, 2008, 25; Tidd, 2001, 179). This definition is general enough to apply to a wide variety of products, processes, and administrative kinds of innovations (Van de Hen, 1986, 591). It could be argued that process innovations are related to the innovative act of business on the development of or creation of the product (Yavuz, 2010, 147). Process innovation comprises the introduction of information systems, telecommunication systems, the perfection of expert systems, and methodolo­gies that are used to support the process (Gadrey et al, 1994, 9). It can be stated that each innova­tion activity can be undertaken alongside other activities, but with different degrees of emphasis. For example, in predominantly technology-driven companies, the emphasis is frequently placed on product innovation rather than on market inno­vation. Similiarly, for companies that are under threat, considerable emphasis is placed on process innovation (Johne and Davies, 2000, 7).

Organizational Innovation

Innovation activities carried out in all companies other than technology-based companies not only include technological innovation but also organiza­tional innovation (Calipinar and Bae, 2007, 447). Generally, this type refers to the new or different embodiments bringing together human and mate­rial resources within an organization in the most optimal way (Yavuz, 2010, 147). Organizational innovation aims to increase the company’s per­formance, job satisfaction, labor productivity and reduce the cost of supply by reducing transaction costs or administrative costs (Celikta⅛>, 2008, 18).

Organizational innovation and marketing in­novation can be categorized as non-technological innovations, and are at least as important as tech­nological innovation. For example, in the event that the company makes technological innovation by using the results of Research & Development (R&D) but not marketing innovation, it becomes impossible for the company to be able to capture enough commercial success with the product developed compared to the competition’ (Elςi et al, 2008, 27). Investments, in this sense, build the necessary physical infrastructure for technological development to create and spread technological innovations throughout firms (Arican et al, 2011, 37-38). Despite the importance of technological investments, for the innovation to provide sustain­ability the firms have to consider also its strategic perspective. In this regard, the association between strategy and innovation are analyzed in the fol­lowing sections.