Manufacturing companies need to be innovative to ensure long term success. This requires organisations to reconcile the conflicting temporal demands of a dynamic business environment and the more gradual development of infrastructure, systems and people. This challenge is explored by examining the relationship between a firm’s innovation propensity and the profile of its portfolio of manufacturing resources.
The Theory of Performance Frontiers is used to characterise the capability profile arising from a firm’s suite of assets and resources. The theory contends that the distance between a firm’s operating frontier (OF) and its asset frontier (AF) is related to the manufacturing unit’s ability to be agile and flexible. A new measure is developed and validated that represents the gap between the frontiers – the OF-AF Gap.
The organisation’s innovation propensity is shown to have a negative impact on firm performance unless it is accompanied by a correspondingly large OF-AF gap. It is therefore important that the gap is actively managed by addressing its three constituent elements.
Firstly, organisational learning should be planned along the technological trajectory of the business ahead of current needs. Secondly, product development resources should be balanced between exploitative and explorative projects, with exploration grounded in the fertile areas created by prior knowledge-acquisition activities. Thirdly, justification for investment in physical assets should not be limited to project-related benefits, but should incorporate the capability-building value new equipment brings to the organisation. The acquisition of equipment that has capability beyond immediate project-specific requirements then becomes more justifiable in a financial environment where return-on-investment is king.
The research concludes by developing a simple tool that allows an organisation’s OF-AF gap to be enumerated on a normalised scale. This unlocks the potential for firms to benchmark themselves against industry norms and to numerically incorporate the capability-building value of asset investments in financial justifications.
