Resolving the Process vs. Product Innovation Dilemma: A Consumer Choice Theoretic Approach

There has been considerable emphasis on the strategic importance of process and product innovation in the management literature. What actually constitutes process and product innovation, however, is a confused issue in the current literature. Are product and process innovations separate, or are they on a continuum? The importance of addressing this issue is that research over the past few decades has attributed Japan's increasing competitiveness to its propensity to process innovate. This paper uses a consumer-based approach to distinguish between process and product innovation using a model based on choice theory. An empirical illustration of the model is also presented. The model is then used to emphasize the need to pursue an integrated strategy of process and product innovation in response to consumer wants. The model also helps managers decide on the appropriate mix of process innovation relative to product innovation for R&D resource allocation purposes.