Decision-making for New Product Development in Small Businesses

Mary Haropoulou, Clive Smallman

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9780367504120
• eBook ISBN: 9781351730495
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

What goes on in a small firm that lives or dies by its capacity to innovate? How are decisions made on new product development, and how does that feed into the ecological, social and financial sustainability of the firm? This book answers the questions through an in-depth look at a small business that manufactures high-end carpet yarn.

Using advanced analytical techniques to interrogate rich qualitative data, the book draws together established theories of decision-making and new product development, coupled with thinking about business sustainability to improve our understanding of this important area of business practice. The book further reinforces the importance and role of organizational learning in organizational decision-making, based on novel analysis of empirically developed qualitative data.

1 Sustainability, decision-making and new product development

Sustainability defined

This study originated in our personal interests in ecological sustainability in business. This is a phenomenon that excites considerable debate and has done so for some time. Our first contact with the subject came in 1993 in a short course on Environmental Management in Small and Medium Sized Enterprises at Bradford University in the UK. The course was developed by Richard Welford, an eminent scholar of corporate environmentalism (Welford, 1996, 1997a, 1997b, 2000), and was amongst the first courses worldwide to address this issue. From that time, research and reporting upon the issue of ecologically sustainable business, has grown almost exponentially (Dunphy, Griffiths, and Benn, 2007).

However, sustainability per se, has acquired a much broader meaning in common business usage than the one that is focused solely on ecological impacts. In addition to a firms impact on the natural environment, sustainability is now commonly used in discussion of a business’s financial position (Luffman, Sanderson, Lea, and Kenny, 1991; Tirole, 2006) and, more recently a business’s position as a good corporate citizen (Banerjee, 2008; Matten and Crane, 2005). This latter development is of course a better reflection of the original conceptualization of sustainability (WCED, 1987).

We follow Costanza (2000), viewing business as an economic production system (Haropoulou, Smallman, and Radford, 2013). This system is a chain of sub-systems that extends from the extraction of raw materials through production processing, marketing and sales and eventually to disposal or recycling (Caldwell and Smallman, 1996). In an orthodox economic model this chain is concerned with ‘adding’ economic value as raw materials are transformed to finished goods. Hence, in its original formulation, the value chain’s focus is on the efficient supply of raw materials to efficiently manufacture goods or to efficiently produce services (Porter, 1985) through optimizing an organization’s primary activities (e.g., inbound logistics, operations, outbound logistics, marketing and sales, service). In a conventional economic production system, financial sustainability is a principle requirement of continuing to operate any business; ecological and social sustainability are matters of conscience.

In heterodox ecological economics, the focus of the supply chain is on the ecologically sustainable production of goods or service provision. This requires not just optimization of primary activities, but also considered approaches to secondary functions (e.g., procurement, information and production technology services, human resource management, firm infrastructure services, corporate governance and executive management). Ecologically sustainable production extends not just to production processes; through the secondary functions of product creation and development, ecological sustainability may be built-in (McDonough and Braungart, 2002). In Costanza’s (2000) formulation, the wider ecological economic model also stresses the importance of returns to physical, human and social capital, accommodating the three elements of sustainability previously outlined.

Radical as it is, the ecological economic model is far from enjoying universal acceptance by orthodox economists or businesses. Moreover, the adoption of ecologically and socially sustainable business practices varies across the world. However, it is fair to say that sustainability in its broadest definition is on the business agenda of many companies worldwide, many of whom have made conscious decisions to not only improve their financial performance, but also to optimize the ecological and social impacts of their operations.

The research question

The question that guides this book grew out of a study that we conducted during 2009 to assess the impact of a New Zealand wool yarn manufacturing company (WYM)¹ on the natural environment. WYM occupies a position as a premium yarn supplier to major carpet manufacturers in New Zealand, Australia, the USA and Europe, who operate mainly in the corporate carpet market. Knowing of our research interest in business sustainability, John,² an owner-director of WYM, invited us to assess the ecological impact of their operations. As a starting point we used life cycle assessment (LCA), an established tool used to assess ecological impacts associated with all stages of a product’s life (Baumann and Tillman, 2004).

The genesis of this book was triggered when, part way through what was a relatively simple LCA, John asked two questions:

“What are we going to do with it when you finish?”

“How can we learn from it and make the business better than it is?”

When we looked at the underlying logic of these questions, John laid out an issue he felt was common amongst industrialists. He observed that much of the analysis done in the name of ecological sustainability ‘stops’ at the point when an LCA report or something similar is produced. John further observed that what commonly follows after an LCA is often ‘greenwash’; that is public relations releases or marketing efforts that are deceptively used to promote the perception that a company’s policies or products have a lower ecological impact than is actually the case (Strasser, 2011). Taking a more constructive approach, John viewed the LCA as having the potential to start a much grander project, one in which the assessment fed into decisions around a new strategy for WYM and ultimately the wool carpet industry. John also linked decision-making to the way that Paul (fellow owner-director) worked with their customers, creating new products not just in advance of their requirements, but also in response to them. Indeed, in the end, LCA has only a very minor influence on the present study, but it is important to note the contribution that it made as a foundation for this work.

Consequently, linking together organizational decision-making, new product development and business sustainability, in this book we ask:

“How do organizational decisions around new product development affect sustainable business outcomes?”

Theoretical foundation

In order to theoretically situate our work (Golden-Biddle and Locke, 2007, pp. 27, 31–37), we looked at the literatures on organizational decision-making, new product development and business sustainability. Individually, these literatures are huge; in combination they are overwhelming. In order to tightly constitute a theorized ‘storyline’ (Golden-Biddle and Locke, 2007, pp. 25–46), we carefully reviewed samples selected from each literature on the basis of frequent citation, the recommendation of academic colleagues and the journals in which they were published.³ In so doing we followed best practice in undertaking a literature review. Where we perceived that a source demanded further analysis, we followed its citations back. What we were seeking was evidence of progressive coherence (Golden-Biddle and Locke, 2007, pp. 34–36) in the development of relevant concepts or evidence of the potential for constructing a coherent synthesis of thus far unrelated theories (Golden-Biddle and Locke, 2007, pp. 33–34), not to mention the ‘space’ in which we might make a theoretical contribution. It took a significant amount of effort and time to identify relevant theory and, eventually, a potential contribution. In the constraints of this monograph we do not attempt to detail the ‘whole’ of the literatures we utilized. Instead, we synthesize a coherent theoretical framework based on three narrow but highly cited and reputable communities of scholars. We now outline, to varying degrees the three main scholarly contributions that we exploit in this book.

A note for the reader is that the following paragraphs are imbalanced towards conceptualizing sustainability; this is because sustainability may be used in several contexts and is conceptualized in many different ways. In fact, we find that decision-making and strategic product creation feature much more heavily than ‘sustainability’ in the outcomes of our study, but, arguably, they are much more clearly defined in their literatures.

In terms of organizational decision-making, we elected to follow the influential body of the Carnegie School of organizational theory as an appropriate theoretical base (Cyert and March, 1992; March and Simon, 1993; Simon, 1997).

Theory on new product development (NPD) is large and widespread across many disciplines. Marketing is especially dominant in the development of NPD theory, but we sought a more managerial perspective (focusing on process more than product). Earlier work in decision-making (Smallman and Moore, 2010) supported by links drawn from the literature on the behavioural theory of the firm led us to the work of Sanchez (1995; Sanchez, 1996, 2002; Sanchez and Mahoney, 1996) on strategic product creation. What Sanchez (1995) describes as NPD is about incremental innovation, that is adapting existing techniques, technologies or materials to create product variants or synthesizing existing with new techniques, technologies or materials to create product variants (Ettlie, Bridges, and O’Keefe, 1984).

Theory around business sustainability in all of its forms is less coherent, because it falls into different or loosely related literatures focused on financial performance, corporate reputation and the ecological and social impacts of organizations. Clearly conceptualizing the latter two aspects of business sustainability is made more difficult because they are often mixed together. This is understandable given their origins in the concept of sustainable development, defined by the World Commission on Environment and Development (1987) as

development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Hence, sustainable development contains within it two key concepts:

1. 1 The concept of ‘needs’, in particular the essential needs of society, to which overriding priority should be given (social sustainability); and
2. 2 The idea of limitations imposed by the state of technology and social organization on the ecological systems ability to meet present and future needs (ecological sustainability).

The theory on assuring financial sustainability of firms is well established in the accounting, economics and finance literatures (Tirole, 2006). In essence financial sustainability comes down to executive management finding the right balance of profitability, trading position (capital employed, revenue, stock, profit), liquidity, gearing (Luffman et al., 1991, pp. 76–92) and risk (Jorion, 2007).

Ecological sustainability in business, whilst heavily researched, does not yet enjoy an established academic consensus. Opinion is widely divided between those who dispute the basis of arguing for ecological sustainability – climate change denial (Lomborg, 2001) – and those who adopt a much more radical position – corporations are evil – (e.g., Welford). We adopt a more measured view, as advocated by (Dunphy et al., 2007, p. 52)

we do not have to create a new political economy to achieve sustainability. It is enough to ensure that innovative environmental goods and services become a source of profit … market, government and NGOs all have a role to play in industrial transformation incorporating more ecologically friendly principles.

Achieving this relies on organizations progressively adapting their value chain from conventional to ecologically sustainable production or service provision, evidenced in a range of quantitative measures and qualitative observations (Dunphy et al., 2007, p. 17).

As noted previously, social sustainability is often mixed in with ecological sustainability. Perhaps even more than the natural environment, the duty of businesses to be socially responsible is often the subject of passionate disagreement. However, in this work we adopt the approach of an authoritative scholar in the area who recently synthesized much of the literature (Banerjee, 2008), although even he is prone to mix together the social and ecological concepts:

(1) corporations should think beyond making money and pay attention to social and environmental issues; (2) corporations should behave in an ethical manner and demonstrate the highest level of integrity and transparency in all their operations; (3) corporations should be involved with the community they operate in terms of enhancing social welfare and providing community support through philanthropy or other means.

(Banerjee, 2008, p. 62)

There is a very limited literature that links decision-making with new product development (Ozer, 2005; Yahaya and Abu-Bakar, 2007). There is a more established body of knowledge around sustainable design (e.g., McDonough and Braungart (2002)), but not specifically sustainable product creation. We found no literature other than this that links across the three principle bodies of knowledge that we have explored.

Intended contribution

The literatures on organizational decision-making and strategic product creation evidence a progressively coherent understanding of the nature and process of these organizational activities. Our understanding of financial sustainability too demonstrates progressive coherence, although recent world events would suggest that the theory is incommensurate (in need of alternative ideas) – (Golden-Biddle and Locke, 2007, pp. 40–44). The knowledge of ecological and social sustainability is emergent; there are indicators of coherence around specific approaches. However, whilst this body of knowledge cannot be described as incoherent (Golden-Biddle and Locke, 2007, pp. 39–41), our understanding of ecological and social sustainability in a business setting is nowhere near...

Table of contents

• Cover
• Half Title
• Series
• Title
• Copyright
• Dedication
• Contents
• Lists of figures
• Lists of tables
• Acknowledgements
• 1 Sustainability, decision-making and new product development
• 2 Theory in decision-making, new product development and sustainability
• 3 Methods for following the practice of small business management
• 4 Observations on decision-making, new product development and sustainability in a small business
• 5 Theoretical perspectives on decision-making, new product development and sustainability in a small business
• 6 Conclusions
• Index