Production Planning & Control,

Vol. 16, No. 4, June 2005, 339–344

Introductory paper
From continuous improvement to collaborative
innovation: the next challenge in supply
chain management
R. L. CHAPMANy* and M. CORSOz
yInCITe Research Group, College of Law and Business, University of Western Sydney,
Locked Bag 1797, Penrith South DC, NSW 1797, Australia
zDepartment of Management, Economics and Industrial Engineering, Politecnico di Milano,
Piazza Leonardo da Vinci, 32 20133 Milano, Italy

This paper considers the growing importance of inter-company collaboration, and develops
the concept of intra-company continuous improvement through to what may be termed
collaborative innovation between members of an extended manufacturing enterprise (EME).
The importance of ICTs to such company networks is considered but research has shown that
no amount of technology can overcome a lack of trust and ineffective goal setting between key
partners involved in the cross-company projects. Different governance models may also
impact on the success or otherwise of the network. This paper provides an overview of the
main topics considered in this Special Issue.

Keywords: Collaboration; Innovation; Continuous improvement; Networks; Extended

manufacturing enterprise

1. Introduction will become the daily operational priority (Fine 1998),

but will still not be enough. The real source of sustain-
In order to survive in an increasingly globalized and able competitive advantage will rather be the ability to
competitive marketplace, companies today must build, become involved and create value in innovation and
and rely upon, close relationships with customers and improvement processes involving the whole EME
suppliers (Venkatesan 1992, Quinn and Hilmer 1994, (Lambert and Cooper 2000). In many industries, parti-
Quinn 1999). The battlefield of competition is therefore cularly those involving complex products and services,
moving from the level of individual firms to one of the R&D is already conducted as a collaborative process.
extended manufacturing enterprise (EME) (Gomes- This is also the case for most innovative small compa-
Casseres 1994, Rie and Hoppe 2001). Firms take part nies that are often unable to sustain the costs and risks
in end-product supply networks that compete against of innovation, and need to rely on competencies from
alternative end-product networks. The long term suc- partner companies.
cess of a firm is therefore highly dependent upon the But while inter-company collaboration in radical
success of the key network (or networks) in which it innovation is a reality, collaboration in small-step
operates (Lambert and Cooper 2000). All business pro- innovation (or continuous improvement) of products
cesses and systems should therefore be revisited using and processes is considerably less common. Although
EME logic. Effective management of the supply chain apparently simpler, continuous innovation within a net-
work of companies requires a much deeper integration
between companies along the supply chain and a change
*Corresponding author. Email: r.chapman@uws.edu.au in culture that not only involves selected teams, but
Production Planning & Control
ISSN 0953–7287 print/ISSN 1366–5871 online # 2005 Taylor & Francis Group Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/09537280500063269
340 R. L. Chapman and M. Corso
is extended to the key business processes within the
participating organizations.
2. Intercompany collaboration and innovation in networks
Internationalization of markets, increasing complexity
of new technologies and increasing speed of innovation
are some of the key drivers that make competition hard
at the single company level and call for a much deeper
attention to the design and management of interactions
among companies (Douma 1997). As a result, in the last
decade a wealth of theories on interaction between
companies has been developed including fundamental
contributions such as transaction cost economics
(Coase 1937, Williamson 1975) and network theories
(e.g. Håkansson 1989) as well as applied theories on
outsourcing, purchasing, and supply chain management.
All of these theories attempt to explain, from different
approaches, how a company can gain competitive
advantages by looking outside its borders and
establishing close relationships with other companies.
However, there is still a lack of clarity in the termi-
nology used to describe the interaction between firms:
networks of companies, virtual organizations, customer-
supplier collaboration; extended (manufacturing) enter-
prises, dynamic networks, strategic alliances, and joint
ventures are just a few among the interrelated concepts
and terms that have been introduced and discussed
in the various management theories.
The concept of ‘a network of companies’ emphasizes
how, by interacting with one another, companies can
share resources, thereby achieving greater capacity
and workload flexibility (Hines 1994). Personnel, for
example, may be managed as a resource pool in a
network of companies: the same person may work in
different firms over time in order to balance workload.
The term ‘virtual organization’ is also applied to
networks to emphasise how, depending on opportu-
nities, the network is capable of reconfiguring internal
relationships, sharing out product orders between mem-
bers, in order to be more flexible and faster in answering
market needs. Besides balancing workload capacity,
a key motivation for networking is the opportunity
for mutual learning and wider access to competencies.
Ebers and Jarillo (1998) state that the competitive
advantage of a network arises from five sources: mutual
learning, a strategy of co-specialization, better infor-
mation and resource flows, economies of scale, and
organizing market structure with network members.
Governance mechanisms of networks can vary
depending on appropriation concerns and co-ordination
costs (Gulati and Singh 1998). The greater the appro-
priation concerns and the higher the co-ordination costs,
the more a hierarchical governance mode is likely to be
chosen. The major governance modes, in hierarchical
order, are joint ventures, contractual agreements and
non-contractual agreements (Jagdev and Thoben 2001).
Whatever the governance modes, stability and effec-
tiveness of a network is strongly dependent on softer
issues such as open communication, knowledge sharing,
trust and common goals (Stuart et al. 1998, Beeby and
Booth 2000, Tomkins 2001).
One of the most popular forms of networking today
in daily activities is outsourcing. Although every out-
sourcing activity may offer opportunities for improve-
ment and innovation (Quinn 2000), this form of
networking is primarily concerned with cost reduction
and work load balancing.
For radical or discontinuous innovation opportu-
nities, joint development and co-design are the most
typical forms of networking (Stuart et al. 1998,
Whipple and Gentry 2000). Compared with intra-
organizational research and development (R&D)
projects, network-based initiatives allow lower risk
and faster access to critical competencies.
When looking at continuous innovation and
improvement processes, the most common form of
inter-company interaction is customer-supplier
collaboration. Collaboration consists of customer and
supplier(s) working together, over an extended period
of time, for the benefit of both (Ring and van de Ven
1992). According to Spekman et al. (1998) collaboration
is the last step of a transition from open-market
negotiation, through co-operation and co-ordination,
to collaboration, where each step is characterized by
higher level of integration, joint planning and
technology sharing among partners.
According to Kogut (1988), the primary motives for
customer–supplier collaboration include enhancing
market position, lowering transaction costs and learning
from each other. Like in other forms of inter-company
relation, success in collaboration is strictly on the level
of trust, coordination, information quality and sharing,
and joint problem solving (Monczka et al. 1998,
Tomkins 2001).
Compared with the other related concepts collabora-
tion emphasizes the idea of widespread involvement
and interdependence between actors at all levels,
daily based information exchange, integration of busi-
ness processes and joint work and activities (Lamming
1993). In combination, all these ideas result in the con-
cept of the EME (Busby and Fan 1993, Stock et al.
2000): supplier(s) and customer(s) along a supply net-
work which integrates their processes, extending each
other in knowledge and capacities. The firms within
the EME combine their activities, knowledge and
capabilities on a structural, durable and joint basis in
 From continuous improvement to collaborative innovation
order to maximize the benefits for the involved
companies.
The overall performance of the EME is the result
of the interaction between the companies’ personnel,
and the integration of inter-company processes.
Therefore the improvement of performance should
involve the collaborative generation, implementation
and evaluation of improvement activities on an intra-
company level as well as the inter-company level
(Cagliano et al. 2003).
3. Continuous innovation as the next challenge
in supply chain management
Differentiating continuous improvement (CI) and
continuous innovation is difficult as the concepts are
partly overlapping. In one sense there is really no point
in attempting such a differentiation as both the small-
step continual improvement activities are necessary, as
well as the more dramatic, on-going technological-,
organizational- and market-based changes normally
considered under the term innovation. Many scholars
from different fields of management studies have rein-
forced the essential need for organisations to change
and improve their performance continuously in order
to cope with market demands, global competition and
changing technology (Porter 1990, Hamel and
Prahalad 1994, Douma 1997). These requirements
establish the need for firms to be simultaneously
good at operational effectiveness and strategic flexi-
bility, attributes previous considered to be antithetical
(Boer and Gertsen 2003). The merging of CI into con-
tinuous innovation is a consequence of increasing
market turbulence and customer sophistication with
simultaneous pressures for reduced lead times greater
product complexity.
An apparently simple approach in concept, CI how-
ever, appears to be difficult to design, implement and
develop successfully: ‘Despite its attractions, evidence
suggests that CI often fails, or fails to take root in
organisations which try to implement it. Arguably this
is a problem of design and management of CI systems’
(Bessant 1998). A whole body of knowledge emerged in
the last two decades dealing with implementation of CI
and its effects on ‘people performance’ beside business
performance (Boer et al. 2000).
A strong limitation of the literature on CI is the unit
of analysis: most contributions deal with the concept of
CI within the context of single companies (Imai 1986,
Deming 1986). This focus on stand-alone companies is
also evident in definitions: Bessant and Caffyn (1994),
for instance, define CI as ‘an organisation-wide process
of focused and sustained incremental innovation’.
341
Similarly Boer et al. (2000) define CI as ‘the planned,
organised and systematic process of ongoing, incre-
mental and company-wide change of existing practices
aimed at improving company performance’.
As firms are forced to re-examine the way they
do business and increasingly rely on inter-company
collaboration, it becomes clear that the level of
individual firm is not sufficient for identifying and
implementing many of the most significant improve-
ments (Harland et al. 1999). The EME becomes
the most appropriate unit of analysis for CI and
incremental innovation (Busby and Fan 1993, Stock
et al. 2000).
However, there is still a substantial lack of empirically
grounded contributions and theories on the concept of
CI in an inter-organisational setting. Due to organiza-
tional and geographical separations between partners
involved, EMEs can hardly rely on established organiza-
tional and managerial mechanisms that support contin-
uous improvement at company level. New information
and communication technologies (ICTs) can play a
fundamental role in bridging these gaps, and this is
where we might consider that CI is moving into contin-
uous innovation. Internet applications in particular are
becoming more and more popular (Malone et al. 1989,
Kalakota 2000, Whitaker et al. 2001, Temkin 2001).
In addition to e-procurement and e-sourcing that are
more specifically concerned with supporting commer-
cial and contractual interactions among companies,
e-collaboration applications are becoming a reality
through trial applications in different industries
(Cagliano et al. 2003). E-collaboration allows customers
and suppliers to increase coordination and collaboration
through the Internet in terms of inventory management,
demand management, production planning and control
and new product development (Porter 1998, Lee and
Whang 2001). By using Internet applications experts
from different supplier and customer companies
may work closely together, thus building a sort of
virtual space for collaboration that brings to reality
the concept of the EME (Ross 1999, Kalakota 2000,
Borders et al. 2001).
However, research and practice on the application of
ICTs to EME collaboration is still in its infancy.
Interestingly, the main source of these constraints
definitely does not lie in the available technology.
Knowledge management studies highlight how, even
with suitable ICT-support, the learning and sharing of
experience among people is a non-trivial process that
requires proper facilitation at the organizational and
managerial level. Good theories and tools to support
CI and knowledge sharing at the EME level are
therefore one of the main challenges today in supply
chain management.
342 R. L. Chapman and M. Corso
4. Papers in this special issue
The eight papers in this special issue of Production
Planning & Control cover a range of topics of direct
relevance to the topics of CI and continuous innovation
within company networks. Cagliano et al. describe an
action research study of the application of traditional
CI processes (PDCA cycle) within an EME in the
aerospace industry while Boer et al. consider the factors
affecting the development of effective inter-company
improvement (which they term Collaborative Improve-
ment). In a paper titled ‘Driving the Collaborative
Improvement Process’, Middel et al. develop a preli-
minary, underpinning theory for this concept of inter-
company process improvement. Kulmala et al. consider
the levels of inter-organizational operations in a group
of networked software firms and Feller et al. examine
inter-partner process learning within an R&D collabora-
tive network in the telecommunication sector. Weck
considers the project dynamics in two inter-firm R&D
projects while Bartezzaghi and Ronchi examine the
benefits and difficulties for both buyers and suppliers
in using Internet technologies for e-sourcing within
a network of companies. Finally, Albors and Sweeney
review the effectiveness of the network approach to
technology transfer and co-operative innovation using
examples from both Japanese best practice and the
European IRC (Innovation Relay Centre) framework.
5. Summary
Inter-company collaboration and the development of
company networks in many of our traditional and
emerging industry sectors have recently been recognized
as essential requirements for competitive success. What
is needed now is sound theory, practical knowledge and
effective technologies to assist firms in implementing
continuous innovation methodologies within these
networks. Hopefully this special issue will play a part
in achieving these aims.
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Ross Chapman (PhD, BA(Hons), Dip Ed, FAICD, AFAIM, MQSA, MANZAM) has been
employed at the University of Western Sydney, for the last 18 years, and is currently the
Associate Dean (Research) for the College of Law and Business (which includes seven Schools
across these discipline areas). He is also a member of the Management Committee of the InCITe
(Innovation and Continuous Improvement Technologies) Research Group.
Prior to joining the University of Western Sydney Ross spent around eight years in private
industry in technical, QC/QA and R&D management positions, working for several companies
including ICI, Monsanto and North Broken Hill Holdings. Since 1985, he has taught and
researched predominantly in the areas of quality management, continuous improvement, innova-
tion and technology management and operations management. He has also undertaken several
large consultancy projects in the areas of quality systems development, TQM implementation,
organizational change and process re-engineering. Among several professional memberships, he
is an Associate Fellow of the Australian Institute of Management and a Fellow of the Australian
Institute of Company Directors. He has successfully completed the Company Director’s Diploma
from the Australian Institute of Company Directors (AICD) and has been Managing Director of
a small family investment and consulting company for over 10 years.
Ross is author or co-author of three books and over 45 journal and conference papers in
the above areas, plus a further 15 articles on technical and scientific studies and holds two
worldwide patents produced prior to 1985. He is currently Associate Editor or Editorial
Review Board Member for several international journals including the International Journal
of Entrepreneurship and Innovation Management (IJEIM), the TQM Magazine, and Managing
Service Quality. He is a Foundation Member, and Member of the Board, of CINet (the
Continuous Innovation Network—a global network established to bring together researchers
and industrialists working in the field of continuous innovation—is a new way of thinking
about the integrated management and organization of day-to-day operations, improvement
and learning, and innovation and change (see http://www.continuous-innovation.net).

Mariano Corso taught business economics and organization at the University of Pisa until 2002.
At the business school of Politecnico di Milano (MIP) he is director of the University Executive
Master in Management and Organisation Development (Pegaso), director of the Observatory on
Intranet and BtE applications (IntranetFiles) and professor of Knowledge Management and
Organisations in many post graduate programmes. He is a member of the Board and took
part and co-ordinated many national and international research projects.
Mariano Corso earned a Masters and a PhD in management engineering from Politecnico di
Milano, Italy, and is an associate professor of Business Economics and Organisation and
344 R. L. Chapman and M. Corso

Management at the faculty of System Engineering of Politecnico di Milano where he chairs the
course of management engineering at Cremona. At the MIP, the Business School of Politecnico di
Milano, he is director of the Master in Management and Organisation Development and of the
Observatory on Intranet applications.
He has promoted and co-ordinated national and international researches on knowledge
management. He is a board member of the Continuous Improvement Network (CINET) and
co-ordinator of the PhD network. He is the author of more than 70 publications at international
level.