The purpose of this section is to discover the key elements of how traditional manufacturing can create more value with innovation. In other words, the industry eagerly needs to choose innovation as a key factor in its transformation. Furthermore, the key elements derived from the literature review can help to build a meaningful model to be analyzed.
2.1. Innovation for Traditional Manufacturing
Traditional Manufacturing tends to have a small scale of operation, high production costs, and weak competitiveness, generally. While facing dramatic and rapid changes in global competition and the economic environment, the manufacturing industry also confronts problems such as an aging workforce, shorter product lifecycle, more customized needs, and rising labor costs. Many activities have been initiated in this industry to increase production value and accelerate industrial restructuring and upgrading to strengthen competitiveness and sustainability. Thus, the issue of innovation regarding manufacturing has attracted much attention in terms of how to increase manufacturing response speed, production efficiency, and flexibility. Moreover, manufacturing is suggested to meet the increasingly competitive global product quality and production costs. Many companies have managed to close the gap between productivity and quality. Established manufacturing companies also recognize that many customers are reluctant to pay high prices for quality improvements. For example, adjusting production through innovation in the German manufacturing industry focused on customized products and quicker market introduction [
15]. In addition to introducing new products and modes of production, research and development (R&D) departments also support the opening up of new markets and reinventing their businesses to provide the best possible service to these markets [
16]. Thus, some scholars have stated that innovation can come from two main sources: (1) in-house R&D using the company’s accumulated knowledge and (2) imitating the innovations of others to make increase competitiveness and hopefully reinforce any advantages [
17,
18].
Innovation means focusing on creativity for better or new products to increase consumer satisfaction and ensure a higher return of investment [
19]. It is important for businesses to compete effectively in the market through higher economic value and happier customers [
20]. One of the key components of innovation is value creation. Creating value in innovation stimulates enterprises to produce benefits for the environment and society to make them sustainable. Design-driven innovation aims at a branding strategy and hopes to find a niche in the market [
21,
22]. Hence, design-driven innovation can be considered as an effective strategy for success in organizational business models.
Several factors can affect a company’s research allocation, such as fluctuations in raw material and energy prices, rapid changes in interest rates and exchange rates, and the increase in working conditions and social welfare costs. Continuous product innovation seems to improve new product development performance during challenges. Value proposition can be used as a means to eliminate waste and improve product development to provide value for end consumers [
23]. An organization’s capabilities and intangible assets effectively provide value, which is vital in a competitive environment [
24]. Constrained by limited resources, the consideration of the economic return rate generated by products/services based on the value proposition has a better opportunity to boost the profitability of enterprises [
25]. The value proposition is then regarded as an important key factor in this research.
In recent years, many companies have begun to involve customers in different goods and service-related processes. This integration of customer needs and preferred business models is believed to be a new trend for the future [
26]. This means that companies create and develop appropriate business models that enable their customers to fully integrate into their business activities to increase their competitiveness [
27]. Therefore, in the process of enterprise innovation, customers also play an important role. No matter how much the external environment faced by the company changes, it is extremely important to integrate the consumer’s business strategy. Recognizing the value of integrating customer needs creates a strong influence on corporate innovation, especially the importance of customer perception of resource value. This is why customers and companies work together to define the creation of corporate value [
28,
29].
In terms of supply and demand, consumption and production often go hand in hand. Changing one component in a product may create a chain reaction [
30,
31]. Companies are constantly affected by market trends when designing innovative products. For example, when most consumers are positive towards sustainable products, it encourages a company to produce more environmentally friendly products. Consumers interested in environmentally friendly products have also formed a green consumer market value [
32,
33]. Consumers use their consumption behavior to express support for the company’s production. This results in companies continuing to innovate and combine the desired products of customers. Therefore, in order to prevail in a highly competitive market, producers must respond to customer needs and increase customer satisfaction in different situations [
34]. Proper production, marketing, and resource utilization strategies become very important as a result.
For companies, the development of new products is an important factor in sustainable operations; thus, product design is seen as necessary for innovation and success [
35]. However, the design and development of new products require considerable time, capital, and other costs, which is not an issue that traditional manufacturing can easily overcome. In addition, the uncertain risks faced by new product development may drag down the entire business operation. Therefore, some scholars have suggested knowledge sharing between suppliers and customers can help to improve the success rate of new product development [
36,
37,
38]. When suppliers share knowledge at all stages of product development, this promotes insights and technologies in components, system processes, or project management. This helps to create new product value, reduce design risk, and gain competitive advantages in design [
39,
40,
41]. When customers share their own experience in the development of the product and participate in the design concept and decision-making process, this increases suppliers’ success dramatically [
42]. Past research has also pointed out that knowledge integration is important for enabling buyers and sellers to share and use knowledge and create new knowledge. Hence, how to provide a good knowledge integration mechanism is essential to improve efficiency and innovation. It can not only enhance integration efficiency but also promote innovation. Thus, capacity and knowledge play extremely important roles in helping companies innovate.
In reality, many traditional manufacturing industries are currently short of funds, which makes companies unable to ideally innovate. Therefore, proper funding is greatly needed, especially for traditional manufacturing. For example, investors in developed countries providing financial and management support to many innovative companies has helped bring innovative products, services, and business models to the international market. As pointed out in past scholars’ research, such investments could improve economic growth, increase labor force quality, and reduce barriers to entrepreneurship [
43,
44,
45]. Such a strategy has proven to be effective if domestic and foreign investors can provide sufficient funds to companies ready to innovate [
46,
47]. Thus, adequate funding and support is believed to be critical to a company’s long-term development and innovation capabilities.
In view of the significance of the key success factors for innovation, this study considers the key success factor to be the work that a firm wants to achieve in order to fulfill its business objectives. If an enterprise cannot execute the key factor well, the consequences not only impact enterprise goals but also their overall survival. Innovative design is the prerequisite to improve industrial value and manage competition in traditional manufacturing. Therefore, we propose the key success factor combined with the importance of innovation should be placed on top of all goals, strategies, and objectives of an enterprise. If a firm can master these important factors, it ensures that it can remain competitive and innovative. The six constructs supported by the literature review are as follows:
2.1.1. Design-Driven Innovation (Criteria One, C1)
It is difficulty to master the design-driven approach to innovation. Making design through R&D an integral part of the business process can add value to products and create potential markets. The interplay between functional and semantic aspects of a product illustrates the role of technology in design-driven innovation [
48]. Design-driven innovation focuses on the innovation of product meanings, and companies all need to create value for multiple stakeholders [
49]. It is not only a key factor in the development of technology and products but also has a comprehensive impact on the overall performance of the product [
50]. Verganti [
51] proposed a design-driven innovation approach that is based on the combination of design information as a source of innovation. It shows a model that is more valuable to the industry and it is believed that complex social cultural factors constituting the design pattern can even drive market demand. Several modern technology developments are derived from the process of such demand. Therefore, the design-driven innovation of the industry, as well as future development, is an important indicator to determine whether the industry has the ability to innovate.
2.1.2. Value Proposition (Criteria Two, C2)
Afuah [
52] pointed out that innovation can be divided into product innovation and process innovation. Innovation can then be defined as a valuable new idea and the result of adoption by the whole organization as a value proposition. The value proposition can include technology, design, new product marketing, or a new manufacturing process. Press and Cooper [
50] also argued that innovation is an industry’s value proposition that does not only work in a single part, such as product innovation, process innovation, management innovation, market innovation, and organizational innovation. One can provide new values to customers, redefine customer needs, and provide new services which are the sources of competitive advantages and create differentiation [
53]. To sum up, a user-centered value proposition can develop more successful innovative business models.
2.1.3. Integration (Criteria Three, C3)
Recognizing the consumer’s interest in innovative products allows companies to focus on the real needs of consumers to meet innovation. Value creation and integration for consumers is at the heart of demand-side strategy research and is a core element of almost any business model [
54]. Integrating technology and customers’ real demands as a solution can create the context for the evolution of innovative development and growth [
55]. Integration is necessary to achieve ambidexterity for most firms, allowing them to use available organizational knowledge to meet the needs of existing customers [
56]. Thus, an innovative product-based solution does not only provide excellent quality and perfect performance to achieve a competitive advantage but also provides products that integrate with consumer needs.
2.1.4. Production and Market Resources (Criteria Four, C4)
The concept of innovation allows organizations to invest in R&D activities. These organizations invest heavily to provide customers with the most advanced products through production and other resources from the market [
57,
58]. Such products are developed after extensive research to identify the potential for destructive innovation [
59]. By exploring the true meaning of radical innovation, an organization gives itself the ability in the process of production to realize technological breakthroughs. Therefore, the capability of production to utilize resources from the market naturally occurs in the process of high growth of the organization and ultimately makes it a market leader. Therefore, industrial innovation needs to assess its own production and market resources as another critical factor.
2.1.5. Capacity and Knowledge (Criteria Five, C5)
In the past, industry members believed that the key capacity to success was the dissemination of specific knowledge via media. Potentially, this can be done with internal and external partners (suppliers, customers, and internal stakeholders) to produce innovative products. Knowledge sharing has thus been well recognized in this context [
60]. For manufacturing, it depends upon how colleagues disseminate knowledge such as design information to pursue collective knowledge and realize a desired product. As Hoopes and Postrel [
61] stated, the unique patterns of knowledge-sharing that result from such integrating practices can create a potential source of competitive advantage. Therefore, it is necessary to assess whether the industry has the capacity and knowledge to lead the industry to innovation.
2.1.6. Funding and Support (Criteria Six, C6)
Since the mid-1980s, the world economy has evolved into a knowledge-based economy driven by rapidly changing technologies and markets [
62]. Small- and medium-sized enterprises (SMEs) play an important role in economic performance. However, many SMEs, such as traditional manufacturing, often lacked financial support, which makes it difficult to exploit new technology and boost productivity. In order to link the innovation concept to the technology industry, most governments have set up research laboratories to support innovation or have given specified funding. Financial, policy, and research support is considered significant for innovation [
63]. Therefore, there is a need to assess whether the industry has extra funding and support for innovation.