Diffusion of Innovations Theory: Inconsistency Between Theory and Practice

Diffusion of Innovations Theory: Inconsistency Between Theory and Practice

Francisco Chia Cua (University of Otago, New Zealand) and Tony C. Garrett (Korea University, Korea)
DOI: 10.4018/978-1-60566-659-4.ch014
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Abstract

The literature review on case study design does not explain how the complex relationships (the issues) in a case study are identified. A top down approach, borrowing from argumentation theory, is a distinct contribution of this chapter which introduces the diffusion of innovations (DOI) as a research problem theory applied to the examination of a business case involving the replacement of enterprise systems by a large risk-averse public sector university in Australasia. The business case document is intended to diffuse the innovation to upper management for funding. But, there is a lack of diffusion study about the business case stage (the process) and the business case document (the outcome) as the construct that affects the innovation and its diffusion. A crucial component of the said diffusion research is designing the case study and mitigating the risks of theory-practice inconsistencies. Critical to mitigating that threat are the complex relationships (issues) that should be thoroughly identified. The context of the research provides experiential practical knowledge and analytical lenses to understand the essential components of a case study and the controversies affecting the rigour in the research design. This makes the top down approach of identifying the issues a good methodological base of designing a single-case study in a particular context. It can be useful to post-graduate and PhD students.
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Introduction

FoxMeyer in United States and Fonterra in New Zealand experienced the unexpected undesirable consequences with regards to replacing enterprise systems. FoxMeyer did not succeed in its Project Delta III which bundled with the SAP R/3 and the Pinnacle warehouse-automation. In Chapter 11 (of the Bankruptcy Code), its gatekeepers claimed that their implementation of the enterprise systems drove them to bankruptcy (Caldwell, 6 July 1998; O’Leary, 2000; Stein, 31 Aug 1998; SAP and Deloitte Sued by FoxMeyer, 27 Aug 1998). They sued SAP and Andersen Consulting for a total of US$1 billion dollars. The dairy giant Fonterra put on hold its global SAP ERP project called Project Jedi (Foreman, 2007). Project Jedi is supposed to standardise its disparate manufacturing systems in line with its new business model of “One Team, One Way of Working” (Jackson, 2006; Ministry of Economic Development, Feb 2004). Fonterra justified the suspension of the project: first to reduce further capital spending and second to provide its farmer-shareholders a slightly higher dividends (Jackson, 2006). It did not escalate Project Jedi despite of the huge sunk costs of about NZ$ 260 million from 2004 to 2006.

These consequences highlight a concern in the business case. In large organisations, upper management generally makes accept-reject decision on the basis of a business case. Corporate governance requires a business case for capital expenditure. The innovation could be strategic to a vision or reactive to a crisis. Their executive sponsor explores all options that best fit his strategic or reactive intention and subsequently develops a business case for approval and funding by the upper management. The business case “sells” the innovation. It attempts to diffuse an innovation to the upper management to make favourable accept-reject decision (aka, adoption decision or strategic investment decision). Good business cases sell while the spectacular ones make the upper management over-commit.

An interesting phenomenon.A successful diffusion, that is a good business case, is not necessarily good.

How should the application of the Diffusion of Innovations (DOI) theory be practiced in the context of the business case of replacing enterprise systems? This problem statement has an implication on practice.

Primary problem.What is the most likely application of the Diffusion of Innovations (DOI) theory when practiced in the context of the business case of replacing enterprise systems?

Practitioners gave simpler answers. They asked for practical solutions. On the other hand, academics began with certain premises. Replacing enterprise systems is likely about balancing long-term and short-term achievements, ultimately sustaining growth in the end (Burrell & Morgan, 2005; Dettmer, 2003; Hammer, 1996; Trompenaars & Prud’homme, 2004). It is likely a problem-solving intervention (Thull, 2005) that fosters seamless alignment and comes with a VALUE orientation. The assumptions go on but the practitioners may see them as uninteresting. The practitioners are likely to find a simple framework of a business case that they can use. Here exists the concept of dualism, polarity, or differentiation of practice and theory. Embedded in this concept is a threat of theory-practice inconsistency. Also embedded is a teleology of a theory.

According to Clegg, Kornberger, and Rhodes (March 2004), a theory should facilitate the creation of disturbance to the practice so that the organisation will be able to transform itself. This means that a theory should not be simply a tool to understand a practice. It should help the practice create noises and disturbances so that the organisation can transform. A theory should not only be a thinking hat to understand a worm. Rather, it should somehow help that worm to transform itself into a beautiful butterfly. The elements of theory and practice in the primary problem includes this idealism of the butterfly effect.

Primary claim. The most likely application of the DOI theory is the integration of the business case development as part of the innovation process and the business case document as a form of diffusion of the innovation concerned.

Key Terms in this Chapter

Business Case Stream of Diffusion Research: embraces a plurality view of visualising, mapping, and realising future consequences. It permits an attempt to understand the perceived needs (the current state), the solution (aka, the innovation), its alternatives (objects of innovation), the preferred choice, a view of the future (the future state), the desirable expected consequences to achieve, the undesirable expected consequences to avoid, and the perceived positive attributes required.

Risk: connotes a possible negative impact to something of value. It symbolises the probability of a loss.

Perceived Attributes of Using an Innovation: are the Set 2 positive or negative biases that the users have. Similar to the perceived attributes of an innovation (Set 1), what matters is the perception regardless of whether the attributes (eg, perceived usefulness and perceived ease of use) are real or imaginary.

Total Cost of Ownership: also known as TCO, is a rigorous and holistic methodology, which helps in estimating how much an investment will cost to operate over its lifetime. It takes into account all direct and indirect costs. The indirect costs are generally insignificant individually. However, they become very substantial when accumulated over time.

Perceived Attributes of an Innovation: are the Set 1 positive or negative biases that the decision makers have. These attributes may be real or imaginary. However, it is the perception of their presence that matters.

Innovation: represents a product, a service, or an idea that is perceived or should be perceived by the audience or the market in which this innovation is intended to be new and of value.

Initiation Phase: consists of awareness stage and matchmaking stage, which ends with an accept-reject decision. This phase is the first phase of the innovation process. The second phase that follows is the implementation phase. Refer to innovation process.

Business Case: is used both to describe a process and a document. Corporate governance generally compels a business case document as a tool to justify a capital investment (a radical innovation). In this report, the exploitation of an agenda by an executive sponsor is considered a form of diffusion. A completed business case document is a formal written document that argues a course of action, which contains a point-by-point analysis that leads to a decision after considering a set of alternative courses of action to accomplish a specific goal. A business case process walks through the initiation phase of the innovation.

Diffusion: is essentially the communication of a new idea (aka, the innovation) within a social system (such as an organisation) with the intention of convincing the audience to adopt or use the innovation.

Innovation Process: starts with an initiation phase through which the individuals or decision-making units move from identifying and understanding the innovation, to forming an attitude toward that innovation. This subsequently leads to the decision to accept or reject it. The awareness stage is an agenda setting stage. The attitude formation stage is the matchmaking stage in which the executive sponsor attempts to match the attributes of the innovation to the requirement. The accept-reject decision terminates the initiation phase. An accept decision continues the innovation process toward the implementation phase, which consists of the pre-production, production, post-production, and confirmation stages.

Diffusion of Innovations (DOI) Theory: is a theory of Everett M Rogers (1962) that concerns the study of communicating a new idea to individuals or organisations. It can be defined as the study of how, why, and at what rate the new idea (the innovation) diffuses and its adoption takes place.

Implementation Phase: proceeds after the initiation phase of “walking an innovation.” For enterprise systems, this phase consists of pre-production, production, and post-production (also known as upgrade and maintenance). Refer to innovation process.

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