Measuring Process Innovation Performance at State-Owned Companies

Measuring Process Innovation Performance at State-Owned Companies: History

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Subjects: Engineering, Industrial | Management

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Several state-owned companies (SOEs) have successfully implemented process innovation. Human resources and organizational factors, such as leadership, problem understanding, strategy, and culture, affected the success of process innovation in SOEs, even more than the research and development budget, support, and commitment factor of a given company. Meanwhile, cost efficiency was the main factor driving a company’s motivation to implement process innovation. The success factors in implementing process innovation are an essential consideration for the management of other SOEs eager to improve their company’s innovation performance, especially process innovation. Success factors were carried out comprehensively for all implementation indicators of process innovation, including inputs, process (idea generation, idea selection, and idea implementation), outputs and outcomes, diffusion, culture, strategies, and push and pull factors.

success factors
process innovation
state-owned enterprises

1. Introduction

Innovation is a business activity carried out by a company in its development efforts by creating added value in its business processes [1]. A company has a differentiating competence to face global competition with other competitors with added value. Several studies have witnessed a positive correlation between innovation and increased company business performance [2,3,4]. The Ministry of State-Owned Enterprises (SOEs) of Indonesia encourages the growth of a culture of innovation in state-owned companies. This is an effort to increase the role of SOEs in the Indonesian economy, which is considered relatively low compared other countries. Pranoto [5] presented data that the contribution of Indonesian SOEs to Indonesia’s overall GDP was only 6%; compared to other developing countries in Latin America, Mexico, Brazil, Argentina for example have reached 8%, 15% for countries in Africa, and up to 50% contribution of SOEs for overall GDP in the Middle East region countries. Since 2013, the Ministry of SOEs has held an innovation competition among state-owned companies. While various kinds of innovation arose from the event, only a small number of SOEs participated. This shows that not all SOEs can foster a culture of innovation in their corporate environment. Innovation culture can grow positively when subjected to reliable innovation management. A good innovation management system is significant in influencing the number of innovations in a company, although it does not directly determine the success of innovation in that company.

Based on the open innovation concept, innovation management is one of the types of knowledge that can be copied or transferred from one company to another [6]. Some companies meet difficulties in their innovation; therefore, they have to adopt open innovation [7]. While process innovation tends to be tacit [8], its conditions differ in state-owned companies. SOEs are under the auspices of the same institution (Ministry of SOEs), and they are required to synergize with one another [9]. Thus, the process of transferring knowledge between SOEs is relatively frictionless. Mathrani and Edwards [10] stated that organization structure and management style have a significant role in knowledge transfer. With the same management characteristics evident among state-owned companies, the copying process will be easier, albeit with minor adjustments/modifications. Companies proven to be sustainable in successful innovation can be an example for other SOEs when it comes to managing their own innovations. Tajudeen et al. [11] also found positive correlation between external technology exploitation (ETE) and the effort of increasing a company’s innovation performance.

SOEs also continuously strive to improve their business performance. Even some SOEs are starting to expand abroad. In order to survive in global competition, SOEs must improve themselves in doing innovation. Postpaid electricity products by PT PLN (power production company), the production of liquid fertilizer by PT Pupuk Indonesia (Indonesian fertilizer holding company), the conversion of household fuel consumption from kerosene to LPG by PT Pertamina (oil and gas company)—even the promotion of electric induction cookers by PT PLN—are all examples of successes of product innovation by SOEs. Some additional examples of the success of process innovation include the development of automatic train stops (ATS) and e-ticketing by PT Kereta Api Indonesia 9train operator company), dust return technology by PT Semen Indonesia (Persero) Tbk. (portland cement holding company), the application of digital technology at several airports by PT Angkasa Pura (airport operating company), the emergence of several android-based customer service applications, such as m-banking, owned by state-owned banks, and PLN Mobile, developed by PT PLN. The best example of successful marketing innovation is King Market, created by PT Bulog (logistics company), which can utilize Bulog’s warehouses for online food distribution (Panganan.com). The Ministry of SOEs encourages several SOEs from the same industry cluster to form a holding company in organizational innovation. PT Semen Indonesia (Persero) Tbk. and PT Pupuk Indonesia are two real examples of successful organizational transformation. This description of success in innovating can be one of the knowledge transfer materials between SOE companies; therefore, other SOEs can do the same. This is an area of study in the research that we accomplished.

2. Innovation

Innovation is essential in almost all fields. Knight [15] defines innovation as adopting new changes to an organization and its relevant environment. Furthermore, the word adoption means that an organization has a new idea and then implements it. Similar definitions are noted in some of the literature (e.g., [16,17,18]). Academics have slightly different views of “new” in the definition of innovation. Academics argue that innovation is something new for organizations that have just adopted it, not something that previously has never existed [19,20,21,22,23].

Others argue that the word adoption signals something new in a company’s environment [23,24,25]. The Organization for Economic Cooperation and Development [26] divided the novelty of innovation into three levels: global, institutional, and intermediate. At a global level, innovation is the first change implemented. Institutional level innovation means that the innovation in question has just been implemented in an institution but has previously been implemented in other institutions. The OECD defines innovation in [27] as follows:

Chapter 146: Innovation is the implementation of (i) a new product (good or service); (ii) new processes; (iii) new marketing methods; (iv) new organizational methods; significant improvement in business practices, workplace organization, or external relations.
Chapter 150: A common feature of innovation is that it must be implemented; new or better products are implemented when introduced in the market; new processes, marketing methods, or organizational methods are applied when they are actually used in the company’s operations.

From the two points above, the definition of innovation is related to products and processes and two methods: marketing and organization. Product and process innovations must be new or significantly improved, while both methods (marketing and organization) must be novel. Apart from being new or significantly improved, a product must be introduced into the market. A new process or method must be used in the operation of a given company. Innovation takes place when both conditions are fulfilled.

Another definition describes innovation as a multi-stage process of an organization for turning ideas into new products or services and improving processes that can compete in the right market [28]. One of the more straightforward principles of innovation is explained as the successful exploitation of new ideas [29]. The UK government uses this brief description in the manufacturing sector to compete in a global market with challenges from developing countries, including China and India [30]. Merriam-Webster [31] defines innovation in a modern way as the following: a new idea, creative thinking, or new imagination in the form of a device or method. Innovation, in this case, is an application of a better solution to meet new requirements or market needs.

3. Innovation Classification

Several perspectives are used to distinguish between different kinds of innovation. Innovation is distinguished according to the field in which it is implemented, such as product innovation (goods/services), process innovation, marketing innovation, and organizational innovation [27].

Chapters 156–157: Product innovation is the introduction of new or significantly improved goods or services concerning their characteristics or uses. This includes significant improvements in technical specifications, components, and materials, built-in software, user-friendliness, or other functional characteristics.
Chapter 169–170: Process innovation is the adoption of new or improved production or delivery methods. This includes significant changes in techniques, equipment and/or software. Process innovation is usually carried out with the aim of reducing unit costs of production or delivery, to improve quality, or to produce or deliver a product.
Chapter 169–171: Marketing innovation is the application of new marketing methods that involve significant changes in product design or packaging, product placement, promotion, or pricing of products. Marketing innovation is aimed at better meeting customer needs, opening new markets, or positioning the company’s products in the market, with the aim of increasing sales.
Chapter 177–178: Organizational innovation is the application of new organizational methods in the company’s business practices, workplace organizations, or external relations. Organizational innovation can be intended to improve firm performance by reducing administrative or transaction costs, increasing workplace satisfaction (and thus labor productivity), gaining access to non-tradable assets (such as uncodified external knowledge), or reducing supply costs.

Types of innovation are distinguished according to the development of their sustainable purposes. These include traditional (economic), social, environmental (green), and sustainable innovation. Silvestre and Ţîrcă [32] created a matrix of the four differences based on two main dimensions of concern—social and environmental. Traditional innovation is carried out according to the traditional goal (paradigm) of establishing a company for maximizing profits and is more oriented toward financial output [33,34]. Dawson and Daniel [35,36] proposed social innovation as an innovation that is carried out to contribute to community welfare and increase social capital. Environmental innovation [37,38], better known as green innovation [39], or specifically as low-carbon innovation [40], is innovation carried out on products or processes (methods) to reduce harmful impacts on the environment. Sustainable innovation, which is balanced between the three pillars of sustainability (economic, social, and environmental), is an innovation that focuses on environmentally friendly technology by considering the socio-economic aspects of a company. Various terms have been widely used to provide a clear description of this type of innovation, including sustainability-oriented innovation [41,42], socio-ecological innovation [43], sustainability-related innovation [44], sustainable innovations or sustainability innovations [45], sustainable development innovation [46], and innovations toward sustainability [47].

An innovation’s type is distinguished based on its emergence alongside the strategic development of its business model towards changes in the market and the technology used [48,49]. Kulakauskaite [50] provided a simple definition of the four types of innovation: incremental innovation means product development, disruptive innovation is the introduction of new products, architectural innovation means entering new markets, and radical innovation is the creation of new markets. It consists of incremental/routine, architectural, disruptive, and radical innovations. Incremental/routine innovation is the most common type of innovation companies carry out by utilizing existing technology to provide added value to a product (goods or service) for the current market/customer. Architectural innovation is carried out by applying technology in a current business model to new markets/customers. Disruptive innovation is innovation achieved with new technology introduced to the current market/customer, often requiring updates to a company’s business model strategy. Radical innovation is an innovation carried out by a company with updates to the technology to create or increase markets/customers without making strategic changes to its business model.

Chesbrough [51] introduced different innovation models based on the use of innovation resources: close innovation uses internal resources, whereas open innovation involves a company’s external resources. The use of a close innovation strategy provides benefits to an organization by increasing the ability of the primary movers, human capital that positively influences the implementation of innovation [52] and protects company assets, especially knowledge and/or intellectual property (IP) [53]. An open innovation strategy provides wider access to external innovation assets [51,54,55,56] while also minimizing the risk of innovation failure borne by the company [57,58].

4. Process Innovation

Edquist [59] proposed the implementation of organizational and technological aspects in process innovation. While the OECD has defined process innovation through [27], it later updated it with the term technological process innovation (TPI) [26] to show a more precise distinction from organizational process innovation [58,60,61,62,63]. TPI is adopting new or significantly improved technological production methods, including product delivery methods. These methods may involve changes in equipment or production organization or a combination of these changes and may be derived from new knowledge. The methods may be intended to produce or deliver a new or technologically improved product, which cannot be produced or delivered using conventional production methods, or primarily to increase production efficiency or delivery of an existing product. This information relates to organizational and operating methods, quality control, and other manufacturing procedures. Teece [64] divided the technology category in this innovation process into two types: hardware such as tools, equipment, and blueprints, and information used to run hardware more effectively.

Milewski et al. [65] provided a functional design for the process innovation life cycle that includes: (1) ideas—the initial stages of the emergence of innovation object process candidates triggered by performance gaps related to the process; (2) adoption—activities to facilitate innovation by determining investment decisions; (3) preparation—technology development and organizational change planning; and (4) installation—the implementation of the process including the setting of technology and the introduction of organizational change. Success in each stage of the innovation process is highly dependent on the suitability of technology, knowledge assets, and human capital capabilities [66]. In addition, other factors can also have an impact on the implementation of process innovation, such as time availability [67], the accuracy of a company’s strategy [68], and an organization’s willingness to make changes [69,70].

Process innovation is a source of competitive advantage for companies. With a competitive advantage, organizational performance increases [71]. It is an essential element for the long-term survival of a company by preparing it to change its business environment permanently [65]. Research conducted by [17] showed a positive linear relationship between innovation and performance. In addition, process innovation created cost efficiency [70] due to a reduction in the company’s operational costs [72]. Another consequence of process innovation is the emergence of new knowledge [73] and the possibility of companies registering process innovations to obtain patents (IP) so that they have an advantage over competitors [74]. However, on the other hand, process innovation has several dangerous consequences, including high monetary costs caused by the purchase of equipment, salaries, and training to use process innovation tools efficiently and effectively, including investment in knowledge management systems.

5. Process Innovation in SOEs

SOEs (BUMN in Indonesian) are business entities under the Indonesia Ministry of SOEs established by the state, and they are required by law to tackle the following objectives: contribute to national economic growth, the pursuit of profit, public services, business pioneers, assisting a low economic group of entrepreneurs, cooperatives, and the community (Law No. 19 of 2003). The Ministry of SOEs has held an innovation competition between SOEs since 2013 with the title BUMN Innovation Award. The event is held to encourage state-owned companies to continue innovating and improving their corporate values. This event has created many process innovations, including the following:

Development of a signal violation prevention system, or ATS, by PT Kereta Api Indonesia. ATS is a type of safety equipment that can regulate the movement of trains automatically by stopping the speed of a train according to the condition of the railroad if the driver violates a signal. In addition, PT Kereta Api Indonesia also innovates by implementing e-ticketing to reduce passenger queues at stations.
PT Semen Indonesia (Persero) Tbk. introduced a dust return system to improve its dual function PPC cement products with by-pass process technology. Dust return is a fine waste material that results from grinding in the raw mill process and from circulating feed in the SP calciner. With an acceptable size of about 10 microns, dust return can be added directly into PPC cement without going through the final grinding process. This is achieved by following the turbulence process of the separator fan. The use of dust return can increase cement production by up to 8% without increasing the workload of the cement mill machine.
Since 2018, PT Petrokimia Gresik has implemented process innovations on a bulk product unloading system at its internal port. Process innovation is carried out by replacing, modifying, and adding several supporting structures to the loading and unloading process. The new system can increase equipment availability from 80.6% to 96%. In addition, the breakdown time was recorded as being seven times shorter (from 231.25 to 30.75 h), and the thickness of the waste product decreased from 3 to 0.4 cm.

This entry is adapted from the peer-reviewed paper 10.3390/joitmc8020095

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