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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

Product Innovation and CEO Leadership

Product Innovation and CEO Leadership

KANG Wu-Ran

Sept. 30, 2008

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Originally released on July 2, 2008

The pursuit of Korean companies in product innovation has placed them among the top players in OECD countries in terms of input, but results have not matched the efforts, placing Korea in the middle. Overall R&D intensity of Korean companies was 3.2% in 2005, ranking fourth behind Sweden (4.6%), Finland (3.6%), and Japan (3.4%). This figure was much higher than the 2.2% average of OECD countries. However, Korea fell short of its OECD peers in two ratios that serve as an index to denote innovation results, “the weight of companies performing product innovation activities” and “that of companies developing innovative products.” To be specific, product innovation among small-medium-sized Korean companies is very stagnant. According to an OECD survey, 78.1% companies employing 10 to 299 workers replied that they performed no product innovation activities whatsoever, while Korea was positioned only at the middle in terms of the ratio of companies developing “new-to-market” products. As such, Korean companies need to raise the level of product innovation and the degree of novelty of the products developed.

Here, it should be noted that factors involved in product innovation are greatly influenced by CEO leadership. Hence Korean companies need to reconsider what type of CEO leadership will be needed to produce innovative products. Factors influencing product innovation can be classified into four categories : corporate, product, development project, and market. Corporate factors (corporate culture, innovation strategy, organizational structure, etc.) and development project factors (management style, development teams, support from management, etc.) can play a critical role in determining the success of technological development while product factors (including price, quality, and novelty of innovation) and market factors (timely release, competition, marketing) are closely connected to commercial success.

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