The Dual Role of Industrial Design in the New Product Development Process of Small and Medium-sized Enterprises (SMEs): Social Network Perspective By K.F. Chan1

Theresa Lau2

Alex Chunn3

Abstract SMEs focus more on developing industrial design (ID) in the new product development (NPD) process when undertaking transformation from OEM to ODM/OBM. Besides using RBV and capabilities approach, we attempt to explore whether the social network approach and its brokerage theory could be used to explain the roles of ID. Based on literature review, it is found that ID could play the dual role, i.e. brokerage and cohesive role in the NPD process and they also produce a positive impact on NPD performance.

Keywords: Industrial Design, New Product Development, SMEs Development, Social Network Theory, Team Innovation

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Associate Professor, Department of Management and Marketing, Hong Kong Polytechnic University Associate Professor, Department of Management and Marketing, Hong Kong Polytechnic University 3 DBA student, Graduate School of Business, Hong Kong Polytechnic University 2

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1. Introduction Many SMEs are in the process of transforming from the stage of Original Equipment Manufacturers (OEMs) to the stage of Original Design Manufacturers (ODMs) or Original Brand Manufacturers (OBMs) to enhance their added value in the market and this phenomenon is particularly true in the emerging economy like China. To help facilitate the transformation process successfully, SMEs are required to shift their focus from manufacturing orientation to the orientation towards marketing, design and branding, which would further support the firms to implement new product development (NPD) process effectively. In this paper, our overall objective is to explore conceptually the role of industrial design (ID) for SMEs in the NPD process, from the social network perspective, so that it would help to complete the transformation from OEM stage to ODM/OBM stage.

Industrial design (ID) has emerged as a valued creative resource, so from the standpoint of resource-based view (RBV) (e.g. Wernerfelt, 1984; Amit, 1993), ID could add value to SMEs in the new product development process, particularly in the front end (Rosenthal and Capper, 2006; Ende, 2007). Moreover, the utilization of ID resources can be further addressed by the perspective of dynamic capabilities, where the uniqueness of the resource is integrated and ultimately the true competitive advantage is realized (Teece,1998; Jevnaker, 2002). However, the question remained to be addressed is: How to best describe ID’s integration and utilization within a firm? Since the role and responsibilities of ID in the NPD process is not seen as a single task performed by a single actor and in most cases, it is a process resulting from an interaction among various parties, it should be described as a setting that is typically collaborative in nature, requiring work between team members from different areas of expertise and responsibility including marketing, ID, engineering, purchasing, manufacturing, etc. Within such context, the paper is then attempt to shed some light on the following specific questions:

a) Apart from the traditional perspectives of RBV and dynamic capabilities, is there any other alternative to explain the integrative roles and responsibilities of industrial design in the new product development process of SMEs?

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b) How could we explain the relationship between industrial design and collective/team creativity in the product development process of SMEs?

c) What specific functions industrial design would perform in different stages of an SME’s new product development process and what factors, with particular reference to social network perspective, would affect the NPD performance?

2. Conceptual Development

As the study is exploratory in nature, we would aim at developing the plausible propositions based on a priori theoretical framework that covers the subject discipline in industrial design. Specifically, extensive literature search on two major areas is conducted in the conceptual development process: the NPD process of SMEs and the social network theory.

(1) Industrial Design and NPD Process of SMEs NPD is a good place to start when researching the interaction of ID in a team environment. This setting is typically collaborative in nature, requiring work between team members from different areas of expertise and responsibility including marketing, ID, engineering, purchasing and manufacturing, etc. In this case, ID must collaborate with team members to define, develop and deliver a finished product. In this context, ID is involved in the creative front-end, which requires divergent thinking and conceptual skills through to the convergent phase of consolidating options and reaching consensus on the final design strategy.

The front-end of the NPD process is critical in ensuring that a project has the best chance for success. Many studies advocate that the front-end process is geared towards reducing the uncertainty surrounding an idea to a point where it meets with a firm’s set of predetermined selection criteria (Kim 2003; Moenaert, Caeldries et al. 2000). Ende (2007) conducted a thorough concept exploration that is vetted and consolidated early in the NPD process (i.e., the front-end) minimizes the risk of unknown issues emerging in the project during the implementation phases where the cost of change is higher, more difficult to correct and timing consuming to implement.

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In this collaborative role with role sharing and redefining of responsibilities, it is becoming increasingly challenging to universally define ID’s place within a firm. This is especially true for transitional firms that are either transforming from an OEM to ODM/OBM strategy or simply looking strategically toward a heightened marketing orientation strategy. Issues that are likely to arise in this process of defining ID evolving roles and responsibilities in NPD are concerns such as job creation, job sharing, and job territoriality with team members. These issues will need to be addressed, but ultimately a more substantive understanding of how ID interacts with NPD team members and to what degree and form ID takes a leadership role in NPD process is needed. This is especially important in the creative front-end of NPD where information gathering, problem framing, reframing, divergent conceptualization, consolidating, visualizing, demonstrating and validating are important processes required in the early divergent concept development and later convergent design selection phases of NPD front-end.

(2) Social Network Theory Overview

Use of networks as a means to acquire resources has received much focus in management literature over recent years. (Borgatti and Foster 2003). “Structuralist’ perspective advocates that the types of resources that can be acquired from a network depend on the structure of the network relations (Adler 2002). The structural perspective reveals essentially two distinct—though not necessarily opposing—views on how structure affects the benefits that can be obtained from social networks (Ende 2007).

a) Structural Holes Theory (Burt 1992) describes structural holes as separation between non-redundant contacts. This hole or gap serves as a buffer, like an insulator in an electric circuit. Burt further explains that two contacts that can bridge a structural hole are “in some degree additive rather than overlapping”. Actors that connect across structural holes and form “weak ties”, defined by (Granovetter 1973) have been shown to provide knowledge searching benefits (Hansen 1999), giving actors autonomy (Perry-Smith 2003) and accessible to a diverse range of information. (Granovetter 1973).

b) Social Cohesion Theory

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Coleman’s (1988) view on social cohesion is that it “refers to the extent to which relations between people are surrounded by third-parties, the so-called friends.” This is a view built from Granovetter’s (1973) work on tie strength, and later research expounded on this theory to further include that strong ties are characterized by frequent two-way interactions (Hansen 1999), though begin more difficult to establish can create trust (Regan 2003) and help facilitate the transfer and building of knowledge (Hansen 1999; Uzzi 1999; Handley 2006; Roberts 2006).

The above two theories of social network forms the fundamental basis for the dynamics of team interaction in the front-end of NPD process of SMEs.

3. Development of Hypotheses (1) ID’s Role as Creative Broker in the front-end of NPD The front-end of NDP requires gathering of information and resources based on initial insights and direction given to the team. As reviewed in the above literature, the innovation process requires divergent thinking and cross-referencing of information, concepts and perspectives. In NPD, the team often consists of regular team members making them homogenous by nature thus subject to group think. This is not conducive to divergent explorative concept development. Based on the idea of creative brokerage, this is a critical opportunity for an actor to bring into the group new and different information from outside the homogenous knowledge and experiences that can reside in a team.

ID can play a valuable role in early divergent concept development given their particular skill sets in free association and visualization. It is at this critical conceptual phase that the role of creative broker can also enhance ID’s contribution by giving them and the team access to new ideas and perspectives. Furthermore, it is because of ID’s particular creative skills that this role as creative broker can heighten ID’s influence because they can integrate information and ideas into concepts before they can be rejected without being completely understood and realized within the context of a concept. It is in the added role of creative broker that ID can reach beyond their basic design service limitations and provide an opportunity for creative activities to fully reach their potential with enhanced and innovative perspectives and insights.

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Hypothesis 1: ID’s increased role as a creative broker in the divergent phase of the frontend of NPD directly improves NPD performance in team innovation. (2) ID’s Central Role in Team Cohesion in the Convergent Phase of NPD Selecting a design direction in the front-end of NPD requires a focus and attention. As the team transitions from the divergent process of concept development to the convergent design selection phase, team cohesion becomes important. The review and vetting of concepts require mutual understanding of project parameters and other success factors that are used to filter multiple concepts into one final agreed upon direction. As theory of strong-ties and team cohesion proposes, successful creative development ultimately requires a process of reviewing proposals, reaching an understanding of options and building consensus toward a final solution. ID’s role in this convergent process can be important. ID’s skill in lateral thinking and visualization can help the team understand how valuable aspect of different concepts can be consolidated into a final optimized direction. As ID plays a leadership role in the convergent process, it is important that they be perceived as being well grounded in core understandings that are seen to be important to the team and business. Furthermore, it is important that ID be seen as being able to rationally review and refine options so that they can be fully embraced by the team. When ID can transition to a more central role and build team cohesion in the convergent, design selection phase of the front-end, then the likelihood that the team can successfully refine and execute an optimized solution increases. Hypothesis 2: The closer ID is to the team’s cohesive center in the convergent phase of the front-end of NPD directly improves NPD performance in team innovation.

(3) Structure Holes and Team Creativity/Innovation As outlined in the literature review, structural holes as a network of non-redundant contacts can provide an individual who bridges such holes with information and control benefits (Burt 1992). Furthermore, research applying network structure to creativity focusing on idea generation and argues that good ideas are the results of having nonredundant, heterogeneous contacts that enables a person to generate ideas by combining diverse information (Perry-Smith 2003; Burt 2004; Perry-Smith 2006). To elaborate further, non-redundant contacts are contacts that are only connected to the individual in 6

question and not to each other. Heterogeneous contacts represent different functional backgrounds or levels of tenure (Perry-Smith 2006). These arguments show that bridging of structural holes is beneficial to information gathering and idea generation. It can be asserted that the number of structure holes is related to the performance of NPD in terms of creativity and innovation through information gathering and idea generation.

Hypothesis 3: The number of structure holes is related to NPD performance in terms of team innovation.

(4) The Moderation Effect of Network Ties According to Burt (1992), weak ties of NPD members across and outside groups will support the bridging and free exchange of diverse knowledge. This would help encourage the development of novel ideas of team members through acquisition of diverse information from various connected sources. However, it is also suggested that strong ties of members within group, i.e. the NPD team supports knowledge sharing and consensus building. This would help the effective implementation of novel ideas in the social cohesion stage. As a result, it is asserted that strong tie will moderate the relationship between structure holes and team performance in innovation.

Hypothesis 4: Weak tie strengthens the relationship between the number of structure holes and NPD performance in terms of team innovation.

4. Conclusion In an effort to understand ID’s role within a firm, this paper has proposed utilizing social network theory as a means of research and evaluation. Based on extant brief literature review, we have outlined two key propositions based on social network theory, the role of brokerage and principle of team cohesion, which are offered as key defining roles of ID in the front-end of NPD. First, with regards to the research question to be addressed, we did find some support on the following creativity factors to be related to ID capabilities , e.g. job design (Elsbach 2006), organizational and supervisory encouragement (Amabile, 1996), leadership (Shalley, Zhou, et al., 2004), social networks (Perry-Smith, 2006), help seeking, help giving, reflective reframing, and reinforcing (Hargadon, 2006). Secondly, with the support of literature review, social network theory offers a good alternative perspective 7

which can be used to explain the roles and responsibilities of ID in the process of new product development of SMEs. Furthermore, the brokerage approach under social network is even more relevant to the front end step of how ID help add its creative value to SMEs in their transformation process. Thirdly, it is hypothesized that the following roles of ID, if performed effectively, could contribute to higher performance of NPD: brokerage role (Lingo and O'Mahony 2010), centrality in cohesive role (Borgatti and Foster 2003), structure holes and network ties.

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