Management Control and Strategic Renewal in the Front End of Innovation

Abstract

Should management control the front end of innovation in companies, and, if so, how? This paper examines the use of management control in the front end of innovation, how the different mechanisms of control are associated with generating strategic renewal, and what the moderating effect of technology and market uncertainty is. The front end of innovation has been characterized as highly uncertain and creative, thereby requiring high levels of freedom and independence for those executing front‐end activities. However, a certain amount of control appears necessary to secure the effective use of resources and the achievement of the company's long‐term objectives. The current findings of management control and its influence on performance in new product development context in general are conflicting. While many authors argue that behavioral control kills creativity, some others emphasize advantages of improved communication and coordination created by process formalization. Some authors stress the importance of setting specific and challenging strategic goals for development work, but some papers indicate that this inhibits creativity and learning. One challenge of interpreting the conflicting results of existing management control research in new product development context is that most studies treat the front‐end phase simultaneously with product development projects, thereby averaging the totally different characteristics of these two innovation phases. Studies that would have investigated management control in the front end of innovation are still scarce. This study develops a framework for management control in the front end of innovation and tests hypotheses on the relationship between different control mechanisms and achieving strategic renewal. The role of technology and market uncertainty as potential moderators of this relationship is investigated. Management control is covered through seven constructs: input control; front‐end process formalization; outcome‐based rewarding; strategic vision; informal communication; participative planning; and intrinsic task motivation. Strategic renewal is used as a front‐end performance indicator. Data from the front‐end phase of 133 new product development projects from different large and medium‐sized companies were collected and analyzed. A factor model was used to test the validity of the management control framework, and a moderated regression analysis was used for hypothesis testing. The results show that input control is positively associated with achieving strategic renewal in the front‐end phase. The results also confirm the importance of intrinsic task motivation of the front‐end group. Under high technology uncertainty, the use of outcome‐based rewarding or front‐end process formalization has a negative influence on strategic renewal.