INNOVATION AND COMPETITIVE
ADVANTAGE , FACT OR FAD ? [P APER 5]
The goal of Paper 5 is to begin to explore the relationship between aesthetic design and performance by examining how aesthetic design can contribute to competitive advantage of new services and how this contribution is moderated by the competitive environment. Existing research on competitive advantage, strategy, success factors in service innovation and design is used to develop four hypotheses:
Hypothesis 1a: Firms putting more emphasis on the use of aesthetic design in new service development will be more likely to gain competitive advantage through differentiation than firms putting less emphasis on the use of aesthetic design.
Hypothesis 1b: The stage of commoditization for firms’ offerings will moderate the relationship between aesthetic design in new service development and competitive advantage. The higher the stage of commoditization, the stronger the relationship between aesthetic design and competitive advantage.
Hypothesis 2a: Firms putting more emphasis on the use of aesthetic design in new service development are better able to sustain competitive advantage than firms putting less emphasis on aesthetic design.
Hypothesis 2b: The relative importance of aesthetic design in a firm’s sector moderates the relationship between aesthetic design in new service development and the ability to sustain competitive advantage. The greater the importance of aesthetic design in the firm’s sector the weaker the relationship between aesthetic design and the ability to sustain competitive advantage.
Hypotheses 1a and 1b use the ability to command higher prices than competitors as a measure of competitive advantage. This measure is chosen because customers’ willingness to pay for a service is likely to be related with perceived value and aesthetic design can contribute to and communicate such value.
There is a potential problem with using higher pricing as a dependent variable, since higher pricing can constitute a competitive strategy in its own right. For example, a firm might decide to raise its prices in an attempt to signal quality or appeal to an upscale target market. In such cases higher pricing may be completely unrelated to aesthetic design. Examining the moderating effect of pressure to reduce prices as well as the direct relationship between higher pricing and aesthetic design helps to mitigate this potential problem. Another possible strategy is to lower prices in an attempt to increase volume, which in turn can call for lowering of costs or operating with lower returns on sales. This issue is addressed in Paper 6, where the relationship between aesthetic design and sales volume and profits, respectively, is examined.
The moderating factor considered for competitive advantage is pressure to reduce prices, which is characteristic of commoditization.
Hypothesis 1a is not supported by the data, while hypothesis 1b is supported.
This suggests that aesthetic design contributes to competitive advantage when pressure to reduce prices is high or, in other words, under conditions of commoditization.
Hypotheses 2a and 2b use a measure of sustainable competitive advantage as their dependent variable, namely managers’ evaluations of how difficulty it would be
for their competitors to imitate their firms’ services. This is a measure of an isolation mechanism and is used based on the assumption that the knowledge required for aesthetic design is to a large degree tacit. The moderating factor considered for sustainable competitive advantage is the importance of aesthetic design in a firm’s sector. If aesthetic design competencies are not widely used or appreciated in a sector it is likely to be difficult to imitate aesthetic design, whereas it becomes much easier to match or duplicate if industry specific aesthetic design competencies are widely available. Hence, the use of aesthetic design can itself become a minimum requirement for competition rather than a source of differentiation and the hypothesis is that the importance of aesthetic design in a firm’s sector will moderate the relationship between emphasis on aesthetic design and the ability to sustain competitive advantage.
Hypotheses 2a and 2b are both supported. Aesthetic design is directly related with sustainable competitive advantage and, when aesthetic design interacts with the moderating factor of sector design importance the relationship is weaker.
This suggests that aesthetic design contributes to sustainable competitive advantage as long as aesthetic design is not itself a minimum requirement for competition.
Paper 5 takes advantage of the longitudinal nature of the survey-based data and uses measures of aesthetic design in one year and measures of competitive advantage one year later. Thus the pitfalls of using cross-sectional data to measure both sides of a relationship that has an inherent time lag are avoided.
Use of the empirical data for Paper 5 is shown in Figure 5.5. Paper 5 uses the first round of the survey-based data to obtain measures of aesthetic design, which is the independent variable in the analysis, as well as control variables and the first interacting variable (moderating factor) for commoditization (pressure to reduce prices). Dependent variable values, the measures of competitive advantage, are obtained from the second round of the survey-based data. Expert evaluations of sector design importance provide data for the second moderating variable.
Figure 5.5: Paper 5’s use of the data and connections with other papers.
As discussed previously, the issue of performance is key in this research as a whole since the issues of if and how aesthetic design is used are of little interest if using aesthetic design in service innovation is not related with positive outcomes.
Paper 5 represents the first exploration of this relationship. As has been described here and as will be discussed in more detail in the Conclusions section, the findings of this paper are that there are positive relationships between aesthetic design in service innovation and competitive advantage, which in turn can contribute to performance, but these relationships are contingent upon moderating factors in the competitive environment. These moderating influences are an important discovery that highlight the necessity of considering interacting factors when examining the relationships between aesthetic design and performance.