Innovation Culture and Competencies in Aerospace Industry

Dr. George Gafencu, DBA, PMP, DTM

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Innovation culture and competencies in Aerospace was the topic of a paper published by Capella University in late 2018, and the analysis is still current. The rate of business environment changes is unparalleled in the current time. In this regard, the studies concerning business uncertainty and solutions to fight the uncertainty had a new focus after the Great Recession (Reeves, Levin, Harnoss, & Ueda, 2018; Saleh & Watson, 2017). One of the solutions the literature presented to remove uncertainty is increasing organizational innovation. The current paper explores aspects of culture and innovative competencies as they apply in the case of a company, Honeywell Aerospace. Honeywell Aerospace is a subsidiary of Honeywell International (NYSE: HON, Fortune 77). The study starts with a literature review in the field. The study focuses on analyzing the concepts of innovation competencies, the use of strategic alliances, on analyzing the culture and organizational climate inside the target firm. The investigation focuses on elements already existing, elements missing, and suggestions for improvements.

#innovationculture #innovationcompetencies #innovationstrategy #businessstrategy #competitiveadvantage #dynamiccapabilities #strategicalliances #productinnovation #businessinnovation

Literature Review on Innovation Culture and Competencies in Aerospace

The literature review has four sections, starting with the theories concerning innovation competencies. The review continues with the culture and climate and the use of alliances. The last section analyzes the connections between the theories presented in previous sections.

Innovation Competencies

Barreto (2009) conducted a review of the dynamic capabilities theories and the agenda in the field. Among the leading theories of dynamic capabilities are the theories first published in Teece, Pisano, and Shuen (1997), updated in Teece (2007) as sensing, seizing, and reconfiguring capabilities. The sensing capabilities are responsible for getting information about potential opportunities for growth or business improvements, and the seizing opportunities are responsible for focusing the resources and implement the opportunities grasped by the sensing capabilities. The reconfiguring capabilities are responsible for the continuous renewal of the company. The dynamic capabilities development increase the innovativeness of the organization. Day and Schoemaker (2016) presented six dynamic capabilities components rooted into Teece’s concept of dynamic capabilities, which are innovation competencies (peripheral vision, vigilant learning, probing, flexible investments, organizational redesign, and external environment shaping).

In the context of innovation competencies, Wilson and Doz (2011) presented the manner the company can flow information inside the organization via agile innovation (attracting, foraying, and experiencing). Šebestová and Rylková (2011) showed the importance of learning processes for improving innovation inside the organization. Hsien-Tang and Hsi-Peng (2010) identified other dimensions of innovation competencies, such as customization capabilities, human resources capabilities, and R & D capability of emerging technologies.

Culture and Climate

The literature reviewed showed that specific culture and climate could bolster innovation inside the organization (Capozzi, Dye, & Howe, 2011; Isaksen & Ekvall, 2010; McCreary, 2010; McGrath, 2011). Among the culture elements fostering innovation inside the organization, increasing the gender diversity inside the organization promotes the development of dynamic capabilities (Bogodistov, Presse, Krupskyi, & Sardak, 2017). Spreading the decision-making inside the organization, for example, by the implementation of the polyarchy, increases the innovation inside the organization as well (Felin & Powell, 2016). Teece (2004) showed that a culture of learning increases innovation inside the organization. McGrath (2011) showed that a company benefits from increased innovation when it promotes creative experimentation. Additionally, Edgeman and Eskilsen (2012) showed the manner an organization can develop viral innovation by hiring several types of employees (connectors, mavens, and salesmen).

In what concerns the climate elements fostering innovation inside the organization, Isaksen and Ekvall (2010) outlined the importance of encouraging healthy debates and discouraging conflicts. Battistella, De Toni, and Pillon (2016) showed that breaking barriers inside the organization and encouraging internal cooperation brings a plus of innovation inside the organization. Costello and McNaughton (2016) demonstrated that e-learning processes lead to the development of dynamic capabilities, which in turn increase the innovation inside the organization. Leavy and Sterling (2010) showed that allowing process improvements is the easiest way to trigger innovation organization-wide.

Strategic Alliances and Partnerships

Thompson, Peteraf, Gamble, and Strickland (2016) showed that the initiation of strategic alliances and partnership leads to a higher level of innovation inside the organization. Phelps (2010) demonstrated that the diversity of the alliance portfolio increases the explorative innovation linearly inside the organization. Furthermore, Caner and Tyler (2015) showed that the more depth and breadth of internal knowledge the company has, the less R & D strategic alliances and partnerships are effective in increasing innovation. Miranda (2016) showed that strategic alliances and partnerships lead to an increase in the absorption capacity in the companies, with the result an increase of innovation output.

There are different types of strategic alliances and partnerships. A first classification comes from where in the industry, the partners align (Ahn, Kim, & Moon, 2017). In this regard, associations with companies in the same industry are horizontal alliances, while associations with customers or suppliers are vertical alliances. ). Li and Atuahene-Gima (2001) provided a classification based on the purpose of the association (manufacturing, development, R & D, marketing, sale, or services).

Satta, Esposito De Falco, Penco, and Parola (2015) provided insight on alliances involving aerospace partners. Satta et al. (2015) showed that alliances involving similar resources increase innovation inside organizations, similarly with alliances with universities and other research bodies. In the same context, Shin, Kim, and Park (2016) showed that companies with complementary resources work better in the pharmaceutical industry compared with companies with similar resources, which contradicts the findings of Satta et al. (2015).

Analysis of the Innovation Theories

The present section showed three approaches to innovation inside the organization (innovation competencies, culture, climate, and alliances). Additional literature review shows that these theories connect one the other at a very intimate level. Schweitzer (2014) showed that there is an alliance capability inside the organization, supporting the theories shown in Thompson et al. (2016). Thompson et al. (2016) presented the study case of Genentech, creating a dynamic capability out of creating a broad portfolio of strategic alliances.

There are connections between organizational knowledge and dynamic capabilities, as reflected by Nieves, Quintana, and Osorio (2016). Based on Nieves et al. (2016), good knowledge management inside the organization lead to an improvement of dynamic capabilities. Additionally, Caner and Tyler (2015) showed that a more considerable breadth and depth of the organizational knowledge decrease the need and results of strategic alliances and partnerships.

Degravel (2015) showed that there is a connection between the national culture and the organizational capabilities of the management. In the same vein, Freiling and Fichtner (2010) showed the connection between the organizational culture and the innovation competencies of the organization. As a consequence of the literature review, all the theories presented help with the innovation inside the companies. However, there are some limitations to consider when combining these approaches to maximize the benefit of innovation. When deciding what theory would work or not inside the organization, a manager would need to make an inventory on the existing competencies before committing to implement other competencies to avoid redundancies and inefficiencies.

Case Study for Innovation Culture and Competencies in Aerospace: Honeywell Aerospace

The company in the discussion is Honeywell Aerospace, a subsidiary of Honeywell International (NYSE: HON, Fortune 500: 77). Based on Honeywell International Inc. (2018c), the subsidiary is profitable. Based on Soshkin (2017), Honeywell Aerospace is a diversified manufacturer of aerospace parts, being one of the incumbents of its market. Honeywell International Inc. (2018c) that the company allocates yearly about 5% of its sales to R&D activities in new and improved products. Based on Corporate Affiliations (2018), Honeywell International Inc. posted 477 new patent applications in the U.S. only, between July 2017 and November 3, 2018. The number of patents posted reveals an intense activity at the level of the MNC. The investigation moves next to analyze the innovation potential of the subsidiary based on the concepts presented in the literature review.

Innovation Competencies

Based on Honeywell International Inc. (2018c), the company has R & D facilities in the U.S., the Czech Republic, India, and China. The company would have a favorable situation to apply the agile innovation presented in Wilson and Doz (2011). However, most of the products manufactured by the subsidiary are subject to export control regulations (Department of State, 2018). Additionally, foreign governments have their regulations for exports of products with dual (civilian/military) applications. In this regard, government regulations prevent information from flowing freely over the borders, and the company could not take advantage of agile innovation.

The company created the Advanced Technology Group to increase the innovation of new products inside the organization (Honeywell Aerospace, 2018b). The group hired top scientists and engineers to research ideas of new products, consistent with the idea of sensing capability,  as defined by Teece, Peteraf, and Leih (2016). However, the activities of the group stop at the level of product or product improvement proposal. The company is slow in implementing new products and services, based on Honeywell International Inc. (2018c). Increased innovation would result if the group were able to conduct fast prototyping and provide the company with preliminary designs instead of proposals only.

The last element to discuss innovation competencies is the spread of information inside the organization, either informally or formally. Based on personal interviews with the company management, the company does not have a formal knowledge system, either under the form of Wiki pages or informal training. The organization does not offer professional training, and it offers limited education tuition reimbursement. The frequent layoffs and an inadequate human resources policy prevent the company from hiring top engineering talent for product development activities because of the company emphasizing cost short-term rather than long-term perspective. More than that, the retirement of baby boomers drove many top engineers out without a succession plan. Because of employee turnover, inadequate hiring practices, and baby boomers retiring, the company loses the expertise required to create or improve products. At the top level, the management needs to take measures to preserve the knowledge inside the organization, coming currently mostly via onsite consultants and alliances, as discussed in the alliances and partnership section.

Culture and Climate

One of the laudable initiatives the company had is about hiring, training, and promoting women engineers (Honeywell Aerospace, 2018a). The initiatives bring the development of dynamic capabilities (Bogodistov et al., 2017), with the result of an increase in the innovation output. At the same time, the company, based on interviews with management, encourages creative experimentation and does not retaliate against failures if due diligence was present, supporting the findings of McGrath (2011). Additionally, the company offers a platform for healthy debates and discourages conflict. These initiatives, based on Isaksen and Ekvall (2010), bring an increase in innovation inside the organization.

In what regards the organization culture, the company has a set of eight behaviors (Honeywell International Inc., 2018b). Several of the behaviors promoted by the company support innovation and come in support of an organization fostering healthy debate. For example, the behavior “be courageous” requires employees to be unpopular when required and to press forward. Additionally, the company has a behavior called “think big… then make it happen”, addressing directly innovative approaches, the same as “be a zealot for growth.” The company evaluates yearly the employees based on these behaviors and issues awards for employees showing excellence in company behaviors.

Strategic Alliances and Partnerships

Traditionally, the aerospace industry is prone to a growth strategy centered around mergers & acquisitions (Honeywell International Inc., 2018c). However, Honeywell International started moving away from this model, while other larger companies, such as United Technologies Co., centered their business model on massive mergers and acquisitions (Benoit, Mattioli, & Gryta, 2017). As opposite to United Technologies Co., Honeywell International decided to invest in ventures with other organizations (Honeywell International Inc., 2018a). In 2016, the company invested $250M in ventures (based on the 10k form for 2016), looking to purchase stakes in companies starting disruptive innovation in its market.

The subsidiary Honeywell Aerospace started having very diverse partners, contributing to an increased innovative output (Phelps, 2010). Among the partnerships identified for the business, the investigation found alliances with NASA (Brecken, 2017a), foreign aerospace companies (“Honeywell and Israel Aerospace,” 2016), customers (“Honeywell and Lear collaborating on automotive cybersecurity software solutions,” 2017), government agencies (McGrory, 2017), and R & D companies (Timiraos & Mann, 2016). A special note is a partnership with Intel (Brecken, 2017b), making it more manageable and cheaper to certify Honeywell software with the Federal Aviation Administration.

Aside from the strategic alliances and partnerships mentioned above, the company outsources in the U.S. manufacturing, operations, and engineering functions. Based on interviews with the management of the company, the outsources report to Honeywell management and are in regular direct contact with Honeywell employees. Because the company outsources a relatively large part of product development, the interactions with the outsource personnel are beneficial to the company via the information gained, bringing new perspectives and ideas, which foster innovation (Phelps, 2010).

Summary of Analysis

The analysis on Honeywell Aerospace revealed some initiatives that foster innovation inside the organization (hiring top scientists and engineers for sensing activities, promoting gender and overall diversity). At the same time, the company has problems flowing knowledge across the borders due to export compliance constraints. The company has several problems related to retirements in the workforce, employee turnover, and the inability to hire top young engineers, which make the company lose expertise. The company has a robust culture and climate, proper for innovation, and a significant number of strategic alliances and partnerships, bringing knowledge and new products inside the organization.

Conclusions

The study contains an analysis of Honeywell Aerospace, a subsidiary of Honeywell International, Inc. The literature review provided analyzed the leading applicable theories concerning innovation competencies, strategic alliances and partnerships, and climate and culture fostering innovation inside organizations. The study case analyzed the subsidiary through the prism of the innovation theories discussed during the literature review. The investigation found the company has a culture and climate promoting innovation, has a venture structure in place, helping with strategic alliances and partnerships. Outsourcing used is a valuable source of knowledge. At the same time, the company has issues with passing knowledge over the borders, implementing a fast development of products and services, an aging and retiring workplace with no succession plans, employee turnover, and the inability to attract top engineering talent, which hinders innovation inside the organization.

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