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EVALUATION OF INNOVATIVE POTENTIAL OF SMEs USING THE FUZZY LOGIC



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EVALUATION OF INNOVATIVE POTENTIAL OF SMEs USING THE FUZZY LOGIC

130.Hana Janáková



Abstract

In a changing business environment customer requirements are increasingly demanding supply and service growth, higher market competition and also technological developments and the globalization of business. The innovative capacity seems to be an ultimate condition for the competitiveness of all types of enterprises. The innovation potential of the company is essentially its internal characteristics. The measurement of innovation potential in SME and describe how to manage the companies innovation potential for reaching the business goals. To know how to measure innovation potential in SME by different approaches and methods using the artificial intelligence, for instance fuzzy logic can be applicable for innovation potential management. Fuzzy logic is a form of many-valued logic and it deals with reasoning approximate rather than fixed and exact. Because of human language response to questions fuzzy logic is useful for evaluating and transforming words or sentences to numbers for quantitative evaluation of certain human meanings. The paper focuses on a system for assessing the innovation potential of the manufacturing company using fuzzy logic. To meet the objective it is therefore necessary to identify criteria characterizing the sources of business, properly organize them and suggest ways of assessment so that it can be applied method.


Key words: innovation potential, fuzzy logic, innovative potential management, SME (small and medium enterprises)
JEL Code: O31, C18, C69

131.Introduction


Innovation is now becoming a key to gaining competitive advantage of business growth, it can sell customer value which can be strategically focused on new product development and innovative approach to solve problem innovation can also be described the process of generating and implementing ideas. However, for a development should be objectified indicators that allow for the identification of critical points, respectively exploit competitive advantage. The basis how to set an innovation is knowledge flow values in different stages of the innovation process of a company. The main aim of innovation is output transformation to innovation activities into successful product or new idea. The issue of the assessment of innovative potential of enterprises is currently being addressed in two methodological directions: the first represents the implementation issues of innovation in integrated measurement of performance businesses and the second specializes in assessing innovation potential as a specific component of corporate responsibility. The importance of measuring innovation potential is directly linked with terms such as evaluation of the innovation capital of the company, evaluation of knowledge capital and innovation potential. Innovation potential also affects the market value of the company, business plan, the creditworthiness of a company in obtaining credit, increase competitiveness, sustainable development and so on.

Innovative processes are specific instrument business and the operations. Paper analyses basic approach of evaluating of innovation potential of small and medium enterprises in order to develop pragmatic assessment methodology for the measurement. Fuzzy logic as a many-valued logic, which deals with reasoning that as approximate rather than fixed and exact, due to human language fuzzy logic is useful for evaluating and transforming sentences to numbers for quantitative evaluation of some human meanings. Measuring innovation potential of the SMEs is necessary to focus on two main factors. The first is the perception of the company as an organization that is an object of comparison with other companies where you need to focus on performance, efficiency and so on and the second factor thus setting the company as a whole. When measuring innovation potential is necessary to distinguish carefully measured factor.


132.1 Evaluation of innovation potential


The implementation of a new significantly improved idea which can be innovation or innovative processes as a new marketing or a new organisational method in business practices, also workplace organisation etc. Nowadays, innovation and innovative potential of SMEs are key aspect in the growth of production and productivity because innovation activities can be in the scientific, technological, organisational, financial and commercial area intended to lead to the implementation of innovations. Impacts of innovations on firm performance range from effects on productivity and efficiency with important impacts at industry and national levels which are changes in international competitiveness and in total productivity and an increase in the amount of knowledge flowing through networks. Adequate projection innovation capacity in relation to increasing the efficiency of business processes guarantees the strategic growth of the company and focused management decisions to position the knowledge of flow values represented the innovation. It is currently not possible to implement innovation in companies without coexistence of several process and product parameters often high cost of research and development of new products respectively. Their parts and improving production parameters are covered by the sales proceeds only from a certain threshold sales. Experience shows that a large part of production is highly capital intensive and requires enormous capacity utilization, so it is important to know what the cost ratio between produce outputs and inputs invested. The production capacity of the company is usually made up of a portfolio of different products and endeavours to achieve rational and competitive production forces producers to define the optimal size and innovation capacity to bind optimal costs of innovation on which we expect to be paid in full in the form of sales revenue.

1.1 Types of innovations


Good or service improved significantly with respect to its characteristics or intended uses are product innovation that includes new ideas or improvements in specifications in technical components or also materials, incorporated software, or other functional characteristics. A product innovation is the act of bringing something new to the market place that improves the range and quality of products.

A process innovation is a new way of making or delivering goods or services, which includes significant changes in techniques, equipment and/or software due to the current time places high demands on managers, as well as other employees, forcing them to think about how best to optimize business processes. The improvement and optimization of production processes encounters end constraints and therefore it is necessary to look for potential for increasing the efficiency of business processes and other business sector innovations are the ideal place because its outputs and influence the future of the company from the customer's perspective as well as a business owner.

New ideas of innovations can be marketing innovation, which consist of the implementation of a new marketing method involving changes significantly in design of products and packaging, placement, promotion or also the last “4P” pricing.

Implementation of a new organisational method such as changes in the business practices, organization of the workplace or company’s relationship with the outside is the organisational innovation.

1.2 Measuring innovation potential


Innovations and innovative potential of SME as a part of a process that is managed with long term perspective and the best measured in long time increments (months, years) but rather in completion of targeted goals. The following types of measures can be incorporate into a balanced innovation scorecard and linked to performance evaluation and reward and recognition systems:

  • Leading innovation measures where the richness and robustness of growth and innovation platform and clusters of ideas or opportunities are selected and developed. Strength of strategic and leadership commitment to growth through innovation as expressed in strategic initiatives, targets and leadership metrics.

  • In-process innovation measures in which the risk-adjusted net present value of the innovation pipeline and the return on investment in that pipeline. Innovation capacity and capability build (including partnerships and networks) relative to targets and competition.

  • Lagging innovation measures as amount of earnings or revenue growth achieved through innovation relative to targets and industry competitors and overall competitive position Success of individual innovation projects (from concept to customer) and overall platform or new business development programs.

The most known methods of comprehensive evaluation of innovative performance enterprises provides a method of "balancing system performance indicators" - Balanced Scorecard with the main principe that business performance is measured shift of four balanced perspectives - financial, customer, internal business processes and learning and growth of businesses and for each undertaking the prospect of a set of intentions, their peace, objectives and initiatives. The corporate audit of competitiveness is the second elaborated a comprehensive assessment methodology peace the competitive position of the components, main modules assessment of the conduct of the business, market position, products, technology, quality control and innovation level. The methodology is based on an expert evaluation of defined parameters and achievements conditions compared to competitive average and top level businesses. Another may be, for example also the application of procedures consulting firms for innovation and re-engineering projects. In this type of methodology is the expert´s questionnaire innovations incorporated in the processes of supplier - customer chain.

Cooperation based methodology for assessing the innovation potential of SMEs - Map readiness of enterprises to innovate, that is training module to enhance the innovation performance of firms and proposes mechanisms for implementing the system of work with innovations in the company. The methodology focuses on several problem circuits associated with innovation potential of company. The methodology of innovative processing of OECD characteristics consists of the comparable indicators of innovation. As part of the EU's innovation strategy was introducing standardized set of indicators for evaluation of innovation. Range of indicators allows insight into the number of important areas affecting innovation process and resulting data also give valuable investment information and performance individual countries or regions.


1.3 Indicators of innovation potential


There are a numbers of indicators used for the valuation of the innovation potential for instance payback period, internal rate of return, profitability index, economic value added or the most widespread theory is the most preferred method present value (PV) and then also net present value (NPV). Innovation potential is a summary of business opportunities and the ability to innovate including: intellectual possibilities related to technological documentation, patents, licenses that are available as well as inventions, models, designs and prototypes. Material options as machinery and instrumentation, pilot plants, research, experimentation and laboratory equipment. Moreover, as the financial capacity mainly own and other sources, including the possibility of their acquisition, investment, budget and grant possibilities for the company. Not excluding the possibility of involving staff human resources of the company, qualified personnel, scientists and researchers. The options of infrastructure as its own research institutes, design department, quality management. In additional resources that are needed to improve the results of innovative activities such as partner and personal relationships with the scientific and research centres, experience in strategic project management and others.
Tab. Indicators of innovation potential

The primary criteria for the innovation potential

The secondary criteria for the innovation potential

Intellectual possibilities

Patents

Licenses

Quality management

Material resources

Instrumentation

Automatization of activities

Financial resources

Total debt of the company

The company's liquidity

Bonita of the company

R & D funding

Personal resources

Willingness to innovate by employees

The level of education workers

Own scientists and researchers

Infrastructural resources

Research centres and laboratories

Design department

Additional resources

Supplier-customer relations

Cooperation with universities and scientific research centres

Product Life Cycle

Information Systems of the company

Source: own processing

133.2. Measurement concept of fuzzy logic


Fuzzy logic was introduced by American cybernetics and informatics L. A. Zadeh, when in 1965 he published a famous work of fuzzy sets in the journal Information and Control. Fuzzy logic resp. fuzzy sets are effective theoretical framework for modelling fuzzy terms which are vagueness and it can be used to specify vaguely bounded concepts. This mathematical discipline refutes the traditional assumption of the total area of all considerations. In many cases man works with concepts that are ambiguous and imprecise. It is a kind of logic that recognizes more than just true and false terms. Using fuzzy logic problems can be presented with a degree of truth and falsity. The classical logic, adopted bivalence principle values other than true or false and every statement has one of these values - values of statements are taken from the set {0, 1}, for instance, every statement is either true (1) or false (0). To reduce the risk of impact of the possible adoption of incorrect decisions based on uncertain assumptions is therefore useful to model uncertainty means necessary. The best known tools to express uncertainty are fuzzy set theory and this area of ​​mathematics is based on the concept of many-valued logic offers a much wider opportunity to express uncertainty as commonly used Boolean´s (bivalent) logic. The main advantage of the fuzzy classification in comparison with the classical logic is the element which is not limited to a single class but can be assigned to multiple classes. In addition fuzzy classification and fuzzy method support qualitative and quantitative indicators. The way and methods of data processing through fuzzy logic is one of the options developed to capture and allow working more efficiently with vague concepts. The theory of fuzzy logic is based on intuitive reasoning and takes into account human subjectivity and uncertainty and it allows working with unclear and ambiguous concepts of human speech, so verbal expression. Use of linguistic expressions and variables hides the complexity of the application domain and allows for more intuitive processes and human-oriented interview.

Fig. Fuzzy logic methodology concept



Source: own processing

Fuzzy sets constitute extremely effective theoretical framework for modelling vagueness of the terms with which it is possible to specify vaguely bounded concepts such as height, age and the like. Our world is full of well demarcated terms, which we do know fairly well handled intuitively through our natural language.


2.1. The concept of fuzzy logic


Treatment of results as two-level fuzzy processing means that the evaluation takes place twice - after consecutive ingestion fuzzy system using two different methodologies for processing data obtained from the survey. This system is chosen because it is an attempt to create a concept of a full evaluation of the survey on the basis of partial surveys. For numerical calculations has been proposed methodology. Linguistic expressions are used as variables are based on the complexity of the application domain.

Fig. Evaluation methodology of fuzzy logic



Source: own processing

Tab.2 The grading scale of selected indicators of innovative potential




Indicator of innovative potential

The grading scale

1

Patents

none

working on it

few of them

average

many of them

2

Licenses

none

working on it

few of them

average

many of them

3

R & D funding

none

working on it

implemented but not working

implemented partially

implemented and working

4

Instrumentation

none

working on it

partially instrumented

average instrumented

fully instrumented

5

Automatization of activities

none

working on it

partially automatized

average automatized

fully automatized

6

Total debt of the company

none

starting

partially

average

fully

7

The company's liquidity

none

starting

partially

average

fully

8

Bonita of the company

none

starting

partially

average

fully

9

Quality management

none

starting

partially

average

fully

10

Willingness to innovate by employees

none

starting

partially

average

fully

11

The level of education workers

none

starting

partially

average

fully

12

Own scientists and researchers

none

starting

partially

average

fully

13

Research centres and laboratories

none

starting

partially

average

fully

14

Design department

none

starting

partially

average

fully

15

Supplier-customer relations

none

starting

partially

average

fully

16

Cooperation with universities and scientific research centres

none

starting

partially

average

fully

17

Product Life Cycle

none

starting

partially

average

fully

18

Information Systems of the company

none

starting

partially

average

fully

Source: own processing

Fig. 3 Scheme of double - levelled fuzzy system



Source: own processing

Indicators from Table 2 are grouped into sections. Each section is evaluated separately. First group is in Figure 2. Each input is in numerical values – e.g. number of patents, number of licences, amount of instrumentation in €, amount of automatization in € and number of research and development projects. Via fuzzy inference system (Mandami) partial indicator is evaluated. Together 4 groups of indicators are created. Selection of groups is visible from Table 2. This four groups are connected together in new fuzzy logic system, where final innovative potential indicator is evaluated. Each group have influenced final indicator according Mandami deffuzification system. Output of evaluation process is within range 0-1, where 0 is zero innovative potential and 1 is maximal potential.

We have to point, that for evaluation defuzzification method is used centroid, implication method is “min”, and aggregation method is “max”. For inputs – membership function is used type – “trap” shape and for output membership function is used “gauss” shape. Each input has 5 membership functions and outputs have 3 membership functions.

Total score consists of a two-level fuzzy system (see Fig. 3) evaluated at three degrees - deep, vertical and horizontal. Depth evaluation means a number of questions in the survey. Vertical assessment says the number of selected and evaluated factors therefore assess every aspect of the (survey) separately through partial hypotheses. For horizontal evaluation is considered fuzzy two- level system.

On the basis processing can be results called two-level fuzzy system. First level where the answers of respondents are assessed individually and it enters the proposed system are the questions of the survey and then the second level assessment of the importance of responses as a whole, where enters the system are already in the overall results

134.Conclusion


This paper is focused on a system for assessing the innovation potential of the small and medium enterprises, using fuzzy logic. To meet the objective was necessary to identify indicators of innovation potential characterizing the sources of business, properly organize them and suggest ways of assessment so that it can be applied method, mathematical discipline – fuzzy logic for measuring innovations and innovative potential contribution in the area of new innovative methods for evaluation of innovation potential. New concept has been verified and evaluated in SME in different EU countries. Currently more SME are evaluated for wide statistical analysis. From evaluation first group has most significant influence on final innovative potential of SME.

135.References


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ŠIMKOVÁ, H. 2006. Inovačný potenciál podniku - oblasť stratégia. Herľany : s.n., 2006. In: Národná a regionálna ekonomika VI, s. 400-403. 80-8073-721-5.

TARSKI, A. Úvod do logiky a metodologie deduktivnich věd, přeložil Pavel Materna, Academia, Praha, p. 11. 1969

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Contact


Hana Janáková

Slovak University of Technology

Institute of Management, Bratislava, Vazovova 5, 812 43 Bratislava 1, Slovakia

HJanakova@gmail.com, hana.janakova@stuba.sk





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