Strategy of Innovation Behaviour of Enterprises
Konstantin Burnyshev
When management analyses its innovation strategy, the essential characteristic of the
innovation process is its purposefulness, its development in strict conformity with
directions laid down earlier. From this presupposition follows the need to recognise
the strategic thinking of the management of the enterprises and of the controlled
overcoming of the barriers that stand in the way of innovation. However, empirical
research in innovationally active enterprises shows that such a rationalistic and
‘management-centric’ approach has its limitations and does not take fully into account
the real situation of initiation of innovations in which there is often an element of
spontaneity. In relation to this situation in this chapter our aim is to understand ‘not so
much the overt aims of the innovation project articulated by the chiefs as the logic of
the process of innovation activity itself (the latently existing directions)’.1
Spontaneity and lack of system may characterise not only the initial stage but the
whole process of innovation through its full extent. In some enterprises, periods of
spontaneous and purposeful regulation of the innovation process may alternate, which
may be expressed in the predominance of an ‘active’ or a ‘passive’ modernisation
policy.
Moreover, it is difficult to describe the process of innovation from the point of view
of any one change. In most cases it is a complex measure, giving rise to various
transformations in the enterprises. This process develops very complexly and
dynamically, with the simultaneous influence on it of a whole set of internal and
external factors. And only in a few enterprises is renewal carried out according to a
previously worked-out programme. Usually the initial innovation (for example, the
acquisition of equipment) is the detonator of a whole chain of changes in the
organisation of the enterprise, in labour relations, in relations with suppliers and
consumers of the products. Our research materials provide convincing evidence of the
fact that the initiators of innovation do not always imagine the whole scale of the
subsequent changes, are not always ready for them and are not always able to cope
with them.
In this situation it is difficult to say that a clear strategy is evident in the actions of the
management of the enterprise in the full sense of this word. The traditional understand
of strategy is only appropriate to those circumstances in which the management fairly
clearly formulates the aims and the means of the attainment. In other cases one can
speak of strategy in the sense of an established practice realised in the framework of a
more or less thought-out scheme (inventions). As a rule there is a programme in
relation to the initial stage of the innovation process but the need for additional
changes (reorganisation of production, changes in the work regime and increase in
employment) is perceived as something unexpected. Programmes for change in other
spheres of activity of the enterprise are either completely absent or exist in the most
general form.
Thus ‘one cannot define the strategy of contemporary Russian enterprises as a
completed long-term plan, in which, on the basis of a conceptual idea a global
Алашеев С. Консерватизм инноваций // Инновации в постсоветской промышленности. Под
ред. В.Кабалиной. Ч.1. Сыктывкар, 2000. С. 181.
1
perspective of the aims is determined and the fundamental decisions regarding their
achievement are defined. There is neither the experience nor the possibility to work
out such plans. What can be called a strategy in enterprises today most often takes the
form of the practice of combination of short and medium-term planning’.2
The variety of innovation strategies identified by us in the course of the research is
basically explained by the initial differences between the enterprises and the varied
conditions under which they act. In some contemporary research one can also find
confirmation of the imperfections of post-soviet industry and, correspondingly, of the
various types of enterprise behaviour, although the typology of enterprises is built on
other foundations: ‘Contemporary Russian industry is multiform in the sense that its
structure is based both on post-soviet enterprises, whose main task is adaptation to
market conditions, and newly created small and medium businesses, whose basis is
the entrepreneurial motivation to make profits and conquer the market’.3 Our research
confirms the fact that it is the case that in new enterprises, which do not have a ‘soviet
history’ the logic of the innovation process is significantly different. Nevertheless, in
the focus of the research conducted within the framework of the project on ‘The
management of innovation and the modernisation of post-soviet industry) is
traditional soviet enterprises, so the typology of innovation strategies of enterprises
developed in this chapter concerns only the traditional sector of industry.
Economic reforms present such enterprises with a whole series of problems
(‘challenges’) related to the need to renew and develop. However, in practice each of
the enterprises that we researched, at the moment of carrying out the research, found
itself in a unique innovationally problematic situation, expressed in a particular
combination of internal and external factors of the innovation process. The case study
method (monographic research) allowed us to develop and test the hypothesis that the
‘condition’ of the enterprise, the problem situation in which it finds itself, is not static
and has a dynamic tendency, to change. In the cases described in the three stages of
the research we can see characteristics of the ‘initial’ stage, then the efforts which the
enterprise undertakes to resolve the problem and, finally, the ‘final’ situation to which
the development of events leads. Some enterprises lived through not one but several
problematic situations and some remained in a static condition.
The nature of the innovation process is dialectical. On the one hand, it is
discontinuous: we visit the enterprise and describe the situation which has arisen at
that particular moment in time. On the other hand, through the perceptions of the
participants we can establish a retrospective view of the development of events and in
the course of observation over several years we can describe the subsequent steps and
changes in the situation.
Despite the multiplicity of individual ‘trajectories’ of behaviour of enterprises in
changing situations, we can speak about innovation strategies as a generalisation from
a large number of individual cases and understand them as a regular change in the
condition of the enterprise.
Бизюков П. Инновационные стратегии и практики инновационной деятельности //Инновации в
постсоветской промышленности. Ч.1. С. 190-191.
3
Балабанова Е.С., Грудзинский А.О. Институциональные условия трансфера технологий //
Социологические исследования. 2001. № 4. С. 40.
2
Two bases for the definition of problem situations
Most significant, in our view, is the two bases for the definition of problem situations
(conditions) in which enterprises find themselves in a particular period of time. They
are fairly universal and the majority of managers somehow or other ascribe to them
exclusive significance in understanding the nature of the reforms being undertaken in
the enterprises. True, for the chiefs they appear in the form of two key problems: ‘lack
of resources’ and ‘fall in demand’.
The first basis is resources. In the analysis of the innovation mechanism in the section
‘Evolution of the social mechanism of innovation’ its composition has been examined
in detail. For our task the important points are, first, that resources have a complex
structure: financial, material, informational, social and so on, and, second, they may
often be interchangeable (convertible). Thus, industrial premises or equipment may
be sold or rented out, so converted into financial resources. Highly skilled personnel
do not need additional training to introduce new technology (they economise on
financial resources) and may serve as a source of innovation ideas and activities. If the
appropriate motivation of workers ‘suffers’ over a period of time the relative level of
pay may fall (there is a conversion of social into financial resources) and so on. Thus
in future we will speak about the absence, limitations or adequacy of resources.
Taking into account the fact that the enterprises that we studied belong to various
branches of industry and are located in various regions, each having its own history of
development, there are no strong criteria by which to allocate a concrete enterprise to
one group or another. Here we base ourselves on the influence which resources exert
on the innovation activity of the enterprise.
The absence of resources signifies that the enterprise is basically in a position (though
often with great difficulty) to sustain its current production activity. Innovation
activity is implemented in such an enterprise, for example, by renewing equipment,
developing its resources and taking some out of commission; insignificant structural
changes, reorganisation of management and so on.
Limited resources allow the enterprise to realise innovations in a step-by-step way. In
this method they lose their integrated, complex character, they are laid out in a chain
and innovation activity has an episodic, ‘flickering’ character.
If the enterprise has (or receives) sufficient resources it can implement full-scale
complex transformation.
The second basis for the classification of problem situations is the characteristics of
the demand for the goods produced by the enterprise. The key problem for the
majority of the traditional enterprises that we studied was the sharp fall in demand in
the transition for the administrative-command (planned) to the market economy. Such
a reduction of demand in many cases initiates the innovation activity of the enterprise.
In some cases a high demand (as a result of a monopoly position of the enterprise on
the market) reduces innovation activity.
The specific feature of the post-soviet period is that demand is determined to a lesser
extent (than in a developed market economy) by market factors. It is determined by
non-market factors: the interference of the state and local authorities, the law,
particular economic infrastructures and so on. To simply the analysis of practice we
will use the term ‘demand’, having in mind the integral character of this criterion and
including within it ‘non-market’ factors.
Here, as in the case of resources, it is expedient to distinguish three situations:
– high demand – equal to or exceeds the capacity of the enterprise and allows it to
improve its economic situation and increase its resources;
– medium demand – less than the capacity of the enterprise, the volume of sales
does not permit a significant improvement in the economic situation of the
enterprise or quickly to increase its resources;
– low demand – there is virtually no demand for the products of the enterprise,
which worsens the economic position and constantly reduces the enterprise’s
resources.
In relation to each of the bases selected by us for the analysis of innovation strategies
there is a tendency forcing the enterprises sooner or later to undertake innovation
activity. Thus, resources (in a static situation) gradually depreciate: the buildings and
equipment get older, inflation erodes monetary investments, the technology,
buildings, methods of management and so on become obsolete.
Demand for the product (as a result of the activity of competitors and the development
of the market) destroys or reduces the economic efficiency of the selected segment of
the market. As a result of the action of these tendencies the enterprise finds itself not
in a stable environment (a ‘lake’) but in unsteady business conditions (a ‘river’) and
has to adapt to them (to ‘row’).
However, reality might disrupt this scheme and at a particular moment the resources
of the enterprise might unexpectedly increase. For example, inflation and the sharp
fall in the rouble over a period increased the value of hard currency reserves or of
contracts for which the enterprise was paid in hard currency. Demand is also liable to
fluctuate and might sharply increase for reasons which do not depend on the
enterprise.
Enterprises try to control both these tendencies, to reduce the risk of chance
fluctuations and do this above all through innovation activity and modernisation. ‘The
sharp fall in the purchasing power of economic subjects, and correspondingly also in
the demand for engineering products put many enterprises in this branch on the edge
of survival. In these conditions it was necessary to innovation, including in the
principles of management, almost nobody expressed any disagreement. The question
was exactly how to dispose of the available resources in order to get the maximum
possible effectiveness from their use’.4
These two bases of the grouping of enterprises – resources and demand – are interrelated (through innovation) and can serve both as the aim and as the means. An
enterprise undertaking innovation activity conquers a growing share of the market,
makes profits and, as a result, expands its resources. And, conversely, the expenditure
of resources on innovation and development allows the enterprise more and more to
crowd its competitors and capture the market.
Typical situations
The combination of the three variants of demand and the three variants of resource
provision gives us nine typical situations into which one the enterprises can fall. Each
Кобяк О. Роль инновационных процессов в формировании культуры хозяйствования
предприятий машиностроения// Инновации в постсоветской промышленности. Ч.2. С.227.
4
problem situation (the condition of the enterprise) may give rise to a corresponding
predominant innovation strategy, which is directed at resolving the problem and
changing the situation in the most favourable direction: increase resources and
increase demand.
RESOURCES (R)
Sufficient
«AGRESSIVE»
«IMPROVEMENT»
«PROSPEROUS»
«REGRESSION»
«SURVIVAL»
«STABILISATION»
«AGONY»
«CRISIS»
«EXPECTANCY»
3
Not sufficient
2
Absent
1
1
2
3
Weak
Medium
High
(D)
DEMAND
The absence of resources puts any enterprise on the verge of bankruptcy – so in any
market situation the basic aim will be to seek (or to accumulate) resources for
development, the renewal of production and so on. In the case of a lack of demand for
the products the enterprise management will consider the variant of the liquidation of
the enterprise.
R1:D1. The situation of ‘agony’ invites a strategy of liquidation, that is sale of the
remaining products, equipment, buildings, other resources and redundancy of the
labour force. This usually occurs within the framework of the bankruptcy of the
enterprise. However, not one of the enterprises studied within the framework of our
project, was liquidated. In our sample we included only enterprises in which
innovation had been conducted fairly successfully.
R1:D2. Average (not high) demand and the lack of resources puts the enterprise in a
situation of ‘crisis’. The innovation strategy of such an enterprise lies not in the
renewal of production but in the reduction of expenditure. The activity of
management is directed to the search for outside investors, who are often found
through the bankruptcy procedure.
R1:D3. Condition of ‘expectancy’ - high demand for the products of the enterprise
does not force management to conduct active transformation, all the more so when it
does not have resources. The products sell and on the basis of the profits decommissioned equipment may be replaced, perhaps with more up-to-date equipment.
With such a passive strategy the situation may develop 1) in the direction of a loss of
the enterprise’s market position as a result of the arrival of strong competitors on an
attractive segment of the market 2) the accumulation of sufficient of its own resources
to conduct large scale innovation 3) the arrival of an outside investor.
R2:D3 ‘Stabilisation’ – also a situation of high demand. But the enterprise, having
some resources, uses them to strengthen its market niche. The strategy of stabilisation
of the position does not require large-scale innovation, it has a local character or it
continues to accumulate resources for a radical transformation.
The absence of demand for the products spurs the enterprise to more active efforts,
particularly if it has some resources. If they are not sufficient the enterprise
nevertheless tries to change the situation, establishing the production of different
products.
R2:D1 ‘Regression’: new products which the enterprise begins to produce are
technologically more simple than those whose production it has abandoned. These
leads to the overall degradation of the enterprise (use of more primitive equipment
than it had, gradual reduction of the skill level of the employees and so on).
R3:D1 ‘Agression’: if the enterprise has sufficient resources it can undertake
wholesale diversification (change of product and sometimes also the branch of
production). As a rule, it uses for this quite up-to-date technology and imported
equipment.
A medium level of demand (often unstable and fluctuating) induces the enterprise to
the following innovation strategies:
R2:D2. In a situation of ‘survival’ with sufficient resources there is an imitation of
innovational development: the existing technology in the enterprise is modernised, the
existing products are somewhat modified, the production and management structure is
improved and so on. Some enterprises try to realise larger scale transformations but
the limited resources mean that it can only be done in small steps, losing the
integrated character of the transformation and the returns being postponed into the
indefinite future.
R3:D2. In the situation of ‘improvement’ the resources allow the enterprise to
concentrate its efforts on the development of the product. The aims of this innovation
strategy are to increase the quality, reduce the cost and widen the product range.
R3:D3. In the ideal situation of ‘prosperity’ the enterprise has everything it needs to
implement long-term innovation plans. The strategy of development of the product (or
market segment) requires the undertaking (or financing) of scientific research and the
development of new technology. The strategy of growth is aimed at the widening of
the business (expansion).
The variants of situation presented in the scheme are fairly dynamic. Using the
examples of the enterprises in which we conducted case studies one can see changes
in situation even over the relatively short period (three years) that the project lasted.
The ideal direction of development of the enterprise according to the scheme is 1) to
increase its own resources – for an enterprise without resources; 2) to take steps
(innovations) to increase the demand for the product – for those enterprises whose
products are not in demand. However, in reality the trajectory of an enterprise does
not always correspond to such an ideal.
Innovation strategies in survival situations
In the course of the economic reforms in the CIS countries the majority of enterprises
in which our research was conducted have found themselves in a survival situation
(some earlier, some later). Even the most prosperous of traditional enterprises have
not always had a sufficient ‘reserve of assurance’ to consolidate their position.
Friz was in situation R3:D3 for a long time – high demand for its
products and sufficient resources. Plenty of state resources provided for
the intensive growth and development of the enterprise. Thus, in 19802 a new building was constructed and at the same time a rapid low
temperature method of glazing facing tiles was introduced which made it possible to
complete the operation in 25-30 minutes. The removal of glazing tiles in tunnel ovens
relieved around 100 people of heavy manual work. Despite the successes in the
production of ceramic tiles, its output was clearly insufficient. Thus it was decided to
expand the enterprise. There was an increase in production of floor and facing tiles. It
was intended to organise the production of a new type of product – ceramic sanitary
items.
However, subseqeuntly the situation at the prosperous enterprise Friz became more
difficult. Competition intensified and it became more difficult to sell the production.
‘In the past we hardly ever worked ‘for the stores’, but now periodically we are overstocked’ (interview with an employee).
The policy of innovation in a situation of inadequate resources and medium demand
(usually falling) (R2:D2) has its own distinguishing features. Basically the decision to
introduce innovations rests on an ideology not of development but of survival, ie. To
maintain the functions which are vitally important for the enterprise. The aims of
innovation come down in the first instance to preserving the enterprise, conserving
the existing form of its functioning and not to the receipt of profits.
From such a passive strategy most of the enterprises studied by us began their
development. This strategy was followed by those enterprises for whom there were no
significant changes in their market position or their specialisation during the 1990s.
The innovation processes in them are expressed weakly, or proceed in a routine way.
The engineering enterprise Spitsa can serve as a typical example. At the beginning of
the 1990s Spitsa had an established niche on the market for bicycles.
In conditions of crisis and decline the management of the enterprise
chose a passive strategy of survival, trying at any cost to preserve
the integrity of the labour collective, the existing product range and
traditional economic relations. And although money from several large bank loans,
including some in hard currency, was dissipated for these purposes, the economic
position of the enterprise remained difficult, the products sold badly, there were
stoppages and compulsory unpaid leave and the enterprise fell into debt to its
suppliers of raw materials, energy to the budget and off-budget funds, clients and so
on. The passive survival strategy, chosen in such difficult conditions by the
management of the enterprise, implied a rejection of expensive technical and
technological innovations and large-scale product innovations. At Spitsa a tactic of
isolated innovations prevailed, when new products were produced in small batches,
often to order, after the filling of which the assembly of the items was discontinued.
The consequence of this was that the majority of innovation projects realised by the
enterprise in the period 1995-7 (motorcycle ‘Krokha’, integrated rehabilitation system
for the disabled, cycle trailer, young people’s sledge and snow-cat), were considered
by the management to have been unsuccessful since they ‘did not particularly improve
the economics of the factory’ and, as a result, were partially or completely frozen.
The passive survival strategy corresponds to the traditional model of innovation. The
innovation is basically ‘cosmetic’. Innovation comes down to the substitution of more
modern for obsolete equipment without any significant changes in the technological
process. The introduction of new products is very qualified and is limited to a change
in particular components in the framework of the established technology of
production.
In a survival situation ‘the management of the enterprise felt that the situation of
status quo was fraught with hopeless defeat by competitors on the product market and
in relation to this they undertake spontaneous attempts to change anything, to make
the enterprise competitive … Such innovations from the point of view of management
strategy are ‘reactive’, not related to any previously worked out plans for the
development of production and are reminiscent of ‘patching holes’. As a rule they do
are not accompanied by any kind of significant changes in the social structure or
management strategy of the enterprise.’5
For innovation strategies in a survival situation the typical solution to a problem is
more often with the use of its internal reserves than by acquiring an external infusion.
Naturally, in a situation in which there is a significant gulf between the existing
resources and the expenditure required for innovation the problem is resolved either
by a strategy of ‘small steps’ (Sova), or various kinds of technical-economic
compromises (buying equipment in parts, reorientation to cheaper but ‘unfinished’
domestic equipment (Sibirskii Khladokombinat), forced use of cooperation
(Kotlomash), purchase of unintegrated (Ugol’naya) or second-hand (Zvezda)
equipment.
The strategy of ‘relying on one’s own efforts’ is also found in interaction with
scientific organisations servicing the innovation process. In conditions of limited
financial possibilities the management of the enterprise clearly prefers to use the
existing intellectual potential, accumulated in the departments of the chief designer,
chief technologist, industrial subdivisions and so on.
Innovation strategy in a crisis situation
As our research has shown, enterprises can find themselves in a completely
unfavourable situation as a result of a reduction of demand for the product and/or a
reduction in resources.
The absence of demand makes it pointless to produce the traditional products and the
enterprise tries to produce something else. However, if it does not have sufficient
resources (R2:C1) such attempts lead to a regressive innovation strategy – the
production of new products using a significantly simpler technology than those
produced previously.
The lack of market demand forced the enterprise Stanok to reorient a
significant part of its production to the production of timber
processing machines, whose technology was much lower than the
numerically controlled tools that it had been making. The enterprise
temporarily resolved the problem of survival in changing economic conditions by
means of a regressive type of innovation. Of course, the basic strategic aim of the
enterprise (to preserve its independence, capacity for work and production integrity)
was achieved but at considerable cost (it lost its place as leading producer on the
market, reduced the quality level of its products, weakened its skill-professional
Тартаковская И. Инициирование инновации // Инновации в постсоветской промышленности.
Ч.1. С. 184.
5
structure, reduced its production labour force by half , cut to a minimum the
mechanism of transfer of industrial skills, cut the social sphere).
The military engineering firm Chelnok reoriented itself to the production of consumer
durables. The factory obtained new equipment, but because of its limited financial
resources it could buy very little new equipment and most often they adapted old outof-date resources and equipment. Periodically they changed only the spare parts and
accessories, designed and made in the factory itself.
Another clear example of such a strategy is that of a mechanical factory analysed at
the first stage of the research. In 1993 the enterprise produced altogether 69 woodworking machines, but in recent years the production of machines has been cut to 8–
11 units. The management of the enterprise tried to compensate for the fall in the
production of products for which there was no demand by producing consumer goods
whose production did not require much skill of the enterprise’s workers. An additional
form of production was consumer items such as fences, gates, chests to preserve
vegetables, stoves for dachas and banyas and so on. For the enterprises and
organisations in the city the enterprise began to produce refuse bins, hatches, pipes
and so on. There were cases in which the workers themselves introduced the
production of particular types of consumer goods and sold them through the enterprise
shop. All orders were short-term and did not make it possible to improve the
economic situation. Apart from the fall in production, there were problems with the
payment of wages (the size and the timeliness of payment) which, in turn, led to a loss
of labour resources from the enterprise. The best specialists in the factory began to
leave for more stable enterprises where the pay was better and was paid on time.
Thanks to the wide range of consumer goods produced, barter deals and offset trade
the management of the enterprise was able to remain in production, maintain the
required working capital and a collective of 581 workers.
The other unfavourable situation is a lack of resources with limited
demand (R1:D2). In a crisis situation there is not the money for a
radical reorientation of the enterprise and the search for new
customers is problematic. In such a situation the most natural strategy
appears to be that of a substantial reduction in costs. His motive for
innovation policy is clearly demonstrated by several of the enterprises studied (in
particular, Ogni, Khleboprodukt, Sovok).
Very often this category of innovation implies the permanent or temporary closure of
unprofitable production, the removal and renting of production premises and the
general cutting off of elements of the enterprise which are ineffective in the given
market conditions (for example, the Kemerovo enterprise Tabletka). In such situations
basic more profitable directions of production are developed and the range of products
produced is adjusted. Correspondingly, there are often staff redundancies. If funds
appear they are spent on resource-saving technologies – innovations aimed at
economising on costs.
In a crisis situation steps are often taken to rationalise management, which is reflected
in the introduction of computerisation of the accounts and information in the
planning-economic department, departments of labour and wages, bookkeeping,
supply and marketing. Often it is precisely with this that changes in the enterprise
begin, but one gets they impression that they are incidental, decisions are taken on the
basis of impressions gained by the director on foreign trips and are not a logical
element of an innovation strategy. In any case, it does not lead to a significant
reduction in management costs and before long its initiators realised that structural
changes were not sufficient for the revival of production, more radical steps were
needed. ‘The low volume of sales is a result of the uncompetitiveness of production.
We need new products, at the level of world quality, together with them our niche in
the market, we need volume’ (director, Khimik).
The road to success
An exist from the most unfavourable situations (R1:D1) (R2:D1) (R1:D2) is achieved
as a rule as a result of securing external investment. Very often the external investors
appears in the course of the bankruptcy proceedings of the enterprise or even initiate
the bankruptcy proceedings themselves with the aim of changing the management of
the enterprise.
The strategy of ‘innovation after bankruptcy’ takes place when the enterprise is
practically reestablished from the zero point, and the lack of success of the previous
strategy has become obvious. In these conditions any reform, supported with finance,
cannot fail to have a positive effect (compared to the complete stoppage and collapse
of the enterprise). Examples of enterprises in which this kind of innovation has taken
place among our case studies are the Syktyvkar enterprises kurochka Ryaba and
Keramika, the Moscow meat-processing combine AMIS and Khimmash in
Kemerovo. In such cases the passive strategy, following the crash, is transformed into
an active one (market research is undertaken, the range of products is substantially
increased and so on). Innovation from nothing is usually also accompanied by social
innovations (contracts, control of the labour force, in the case of Keramiki the use of
the ‘vakhtovyi method’). Modernisation after bankruptcy can be considered a specific
problem situation, in which the introduction of innovations is undertaken most
intensively. Quite often after bankruptcy there is a change in the management team
for a more up-to-date and market-oriented one, so the initiators of innovation are
managers who have entrepreneurial experience. In some cases the initiators and,
which is very important, the financial investors allowing the realisation of innovations
are external owners. Besides, bankruptcy is quite an opportune starting point for
innovation activity, since the freezing of the debts of the enterprise in the process of
readjustment sometimes implies the attraction of investment.
The bankruptcy of Ryaba in the middle of the 90s showed that work in the old way
was no longer possible. Thus the question of the regeneration of the enterprise was
closely related to changes in its work, which would allow it to survive in conditions of
stiff competition.
But the bankruptcy procedure may not even begin if the enterprise has sufficient
‘administrative-political’ resources, which management can ‘convert’ into investment.
In 1995, as a result of the crisis processes, the Belarussian firm Traktor was making
losses of 9 per cent. At that time the output of tractors had fallen by three-quarters and
at the same time the whole territory of the factory was crammed with unfinished
products which could not find a market. Debts rose rapidly. However, from October
1995 to October 1996, following the nomination of a new general director, the factory
increased its output in constant prices by eight per cent. In 1997 it increased by 10.4
per cent and profits were more than tripled.
The positive change is basically explained by the fact that the
government of the Republic helped Traktor in 1995-7 by postponing
the payment of tax debts, supported it with budget subsidies and with credit
guarantees. It was also given various exemptions from tax and import duties on the
import of materials and parts. The government also negotiated the removal of
excessive tariff barriers at the borders with Russia and other CIS countries. ‘In these
conditions, the collective of the association, having seen good prospects, was able to
mobilise itself to resolve new and complex tasks’(general director).
In a situation of regression, Bumazhnik gradually gave up
production of fairly low quality wall-paper. Having found outside
investors, the management of Bumazhnik in the middle of the 1990s
adopted a policy of producing its main product, paper, of a high
quality which could be sold on the external market, and on technological innovation.
The management well understood that without sufficient investment in technical reequipment it would not be able to sustain the current level of production, quality and
competitiveness of production on the internal and external markets. The volume of
investment on technical re-equipment of Bumazhnik in recent years has not fallen and
comprises a significant proportion of the profits of the enterprise. The total
expenditure each year is 100-130 million roubles. The improvement of the basic
product (situation R3:D2) and increased quality was accompanied by the introduction
of technical, technological, production, organisational and other kinds of innovation.
The innovation strategy at Bumazhnik has a complex character and aims at the longterm receipt of profits (transition to situation R3:D3).
The gradual accumulation of experience of the introduction of innovations and
improvement of the economic condition of the enterprise leads to a situation in which
the aims of innovation activity are no longer reduced only to survival. The
management of the enterprise ceases to be satisfied with a passive survival strategy,
oriented to the rejection of expensive technical and technological innovations and
large-scale product innovation. The tactic of isolated innovation, when the production
of a new product is achieved in small batches, often to order (after which the
production of the articles is discontinued) is related to the survival strategy and has no
future. Product innovation makes sense only when it is on a large scale, related to the
improvement of technology and the modernisation of production, and yields the
creation of a complex: producer – consumer alongside the investment of their money.
A new product is always an aggression, an invasion of a new market (situation
R3:D1). In the last analysis, it is a matter of the enterprise searching for its niche. To
find a niche means finding a product which has solvent demand.
This is how Stelkotara resolved its problems, combining its forces
with an attractice partner and regular customer in the form of a
famous producer of vodka, the Almaz factory, which provided the
financial conditions needed to organise upo-to-date production of
vodka bottles. As a result of this alliance, Steklotara was able to
change the old equipment and introduce new capacity, and Almaz, presenting high
demands on the quality of the goods, was supplied with its product in the volume
needed and a supplier with which it could work successfully.
An offensive (active, aggressive) innovation strategy is profitable in the long-term
perspective, but it required new investment at a time when the expenditure on
previous innovations has still not been recovered. Consequently, an aggressive
innovation strategy is based on the continuous development and modernisation of the
products and technology and, as distinct from the attempt to achieve short-term
economic results, its priority is to achieve technological effectiveness. The most rapid
means of increasing the technological level is the introduction of more modern
technology and the fulfilment of this task is served by the corresponding invention,
innovation and also the skills and experience of the workers and an improvement of
the culture of labour.
Among the constantly modernising enterprises quite a lot belong to
the food-processing industry (Paradiz, Pishchevik, Sibirskii
khladokombinat, bakeries in various regions and others). The high
dynamism of their development is related to the fact that they depend
on the situation in oversaturated segments of the market, immediately
serving the population. They exist in conditions of very sharp competition with other
commodity producers, the fluctuation of demand for their products in trade networks
has a very rapid impact on the volume of their sales because the chain connecting
them to the final consumers, the population, are very short. As a result the enterprises
have constantly to change their product range and modernise production in order to
attract the attention of customers and pick up changes in demand: ‘When demand falls
for one kind of product, we have to master a new one, otherwise you go bust. You buy
new technology. The State Standard puts forward the requirements for obligatory
packaging – there is nothing left to do but find and buy equipment and materials’
(director of Samara bakery). Innovation in enterprises of this type is realised
according to a more or less worked out scheme, one can say that it is ‘routine’.
Conclusions
1. Spontaneity and a lack of system generally characterises the innovation system in
post-soviet enterprises. The planning of innovation (including business-planning)
takes place very rarely and in exceptional circumstances. The initiators of
innovation do not always imagine the whole scale of subsequent changes, are not
always ready for them and are not always able to cope with them.
2. We understand an innovation strategy as the established practice of realisation of
innovation. The character of the innovation strategy depends in many respects on
the combination of two conditions: the resources of the enterprise and the demand
for its products. Resource limitations allow the enterprise to realise innovations in
a step-by-step regime. In this case they lose their complexity, they are put together
in chains and innovation activity is episodic and flickering.
3. The reduction of demand for the products is the basic reason forcing the enterprise
to introduce innovations. With a passive strategy the enterprise runs into problems
of demand as a result of the action of competitors and the saturation of the market.
An active innovation strategy allows the enterprise to manage the situation in the
system of co-ordinates ‘resources – demand’.
4. The typical starting position for the majority of post-soviet enterprises is a
situation of survival (insufficient resources – unstable demand). This situation in
many respects defines the character of the innovation strategy which we defined at
the first stage of the research: passivity, staged, isolated (at the expense of
complexity) and so on.
5. The dynamic situation of an enterprise can be in the direction of improvement or
of deterioration. By improvement we understand here increasing resources and or
improving the market demand for the products.
6. Despite the widespread practice of ‘relying on one’s own forces’ to realise
innovation and the modernisation of production, radical transformation is only
possible with the help of large external investors. Taking account of the role of
external investors in the formation and realisation of innovation strategies one can
anticipate the increasing demand for and strengthening role of formal planning of
innovation.