The effect of process management on different types of innovations: An analytical modeling approach

We investigate the trade-off between R&D efficiency and creativity during the development of a new product. A firm's ability to balance efficiency with innovation positively affects its capacity to maintain its competitiveness. Although the trade-off between efficiency and creativity has long been discussed in terms of practical application, little analytical research has been performed to enhance theoretical understanding. To redress this gap in the literature, we present an extreme value model that accounts for innovation type and competition intensity, and offer a set of theoretical and practical insights to demonstrate that the effects of process management depend on the nature of the innovation employed. We show that the inverse relationship between efficiency and creativity is more pronounced if R&D projects represent paradigm-shifting innovations rather than incremental innovations. We then demonstrate how competition drives firms to decrease investment in innovation activities and improve process efficiency to maximize profit. Our results suggest that process management activities are less recommended for firms that pursue radical innovation and the acceleration of growth.