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• By the end of this chapter you will understand:
• The importance of innovation strategy as a
Chapter 3 Innovation framework to guide the process of change;
strategy
• The three core elements of innovation strategy
Learning formulation:
objectives • Strategic analysis – exploring where we could
innovate;
• Strategic choice – choosing between different
options;
• Strategic implementation – planning to make
innovation happen;
• The importance of dynamic capability and the role
of innovation strategy in building this.
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1 Concept 1. Concept
The central propositions of this chapter
1. Firm-specific knowledge – including the capacity to exploit it – is an • Three elements of corporate innovation strategy:
essential feature of competitive success.
2. An essential feature of corporate strategy should therefore be an (i) competitive and national positions,
innovation strategy, the purpose of which is deliberately to accumulate
such firm-specific knowledge. (ii) technological paths,
3. An innovation strategy must cope with an external environment that is (iii) organizational and managerial processes.
complex and ever changing, with considerable uncertainties about
present and future developments in technology, competitive threats and
market (and non-market) demands.
4. Internal structures and processes must continuously balance
potentially conflicting requirements: a. to identify and develop
specialized knowledge within technological fields, business functions
and product divisions; b. to exploit this knowledge through integration
across technological fields, business functions and product divisions.
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Fundamental debate in corporate strategy between
‘rationalist’ and ‘incrementalist’ approaches 2. The role of innovation strategy
• Given the conditions of uncertainty, ‘incrementalists’ argue that
the complete understanding of complexity and change is
impossible: our ability both to comprehend the present and to
predict the future is therefore inevitably limited.
• In such circumstances the most efficient procedure is to:
Make deliberate steps (or changes) towards the stated objective.
Measure and evaluate the effects of the steps (changes).
Adjust (if necessary) the objective and decide on the next step
(change).
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Strategy as a roadmap for
Why strategy? change
Innovation strategy provides a direction for change, helping the
organization get towards where it wants to go. It may not be a
simple ‘master plan’ or the realization of the entrepreneur’s initial
Business Plan; more likely it will adapt and change over time.
But it is a guiding framework which helps focus and deploy limited
resources in change projects that move the organization forward.
That’s important if the organization is to survive and grow over
time.
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Key themes in making strategy 3. Classification of innovation strategies
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Innovation strategies in the real world
• Three distinct clusters of good practice are observable: • Rational approach to innovation strategy
Technology drivers, which focus on scouting and developing • Incremental approach that stresses continuous adjustment in
new technologies and matching these to unmet needs, with the light of new knowledge and learning
strong project and risk management capabilities.
Need seekers, which aim to be first to market, by identifying
emerging customer needs, with strong design and product
development capabilities.
Market readers, which aim to be fast followers and conduct
detailed competitors analysis, with strong process innovation.
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Fundamental debate in corporate strategy between
‘rationalist’ and ‘incrementalist’ approaches
• We propose that such a framework is the one developed by • Rationalist strategy: where strategy (in principle) consists of the following steps:
(i) describe, understand and analyse the environment;
David Teece and Gary Pisano. (ii) determine a course of action in the light of the analysis; and
• It gives central importance to the dynamic capabilities of firms (iii) carry out the decided course
• This approach is intended to help the firm to:
and distinguishes three elements of corporate innovation Be conscious of trends in the competitive environment.
strategy: Prepare for a changing future.
(i) competitive and national positions, Ensure that sufficient attention is focused on the longer term, given the
pressures to concentrate on the day to day.
(ii) technological paths, Ensure coherence in objectives and actions in large, functionally specialized and
geographically dispersed organizations.
(iii) organizational and managerial processes.
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Implications for management Blue Ocean, Red Ocean Innovation Strategies
• The first concerns the practice of corporate strategy, which should be • Blue Ocean represents all potential markets that currently do not exist and must
seen as a form of corporate learning, from analysis and experience, be created. In a few cases, whole new industries are created, such as those
how to cope more effectively with complexity and change. spawned by the Internet; but in most cases, they are created by challenging the
The implications for the processes of strategy formation are the boundaries of existing industries and markets. Therefore, both incumbents and
following: new entrants can play a role.
Given uncertainty, explore the implications of a range of possible future • Red Ocean strategies:
trends. Create uncontested market space, rather than compete in existing market space.
Ensure broad participation and informal channels of communication. Make the competition irrelevant, rather than beat competitors.
Encourage the use of multiple sources of information, debate and scepticism. Create and capture new demand, rather than fight for existing markets and
Expect to change strategies in the light of new (and often unexpected) customers.
evidence. Break the traditional value/cost trade-off: Align the whole system of a company’s
• The second implication is that successful management practice is never activities in pursuit of both differentiation and low cost
fully reproducible.
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What’s in an innovation
4. Innovation strategy process strategy?
• Strategic analysis – what could we do?
• Strategic selection – what are we going to do, and
why?
• Strategic implementation – how are we going to
make it happen?
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Strategic analysis Exploring innovation space
• Where could we innovate?
• Why would it be worth doing so?
• Map the environment – technologies, competitors,
markets, politics, etc.
• Opportunities and threats?
• Internal capabilities – strengths and weaknesses?
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4Ps dimensions of innovation
Strategic competencies
space
We need to consider that we don’t have completely free choice in
innovation. We need to recognize that there is a degree of what is
called ‘path dependency’ – what we accumulate by way of
knowledge and other resources shapes what we can – and can’t -
do. For example, if we see an opportunity for nuclear power as a
new energy source this might be an interesting possibility – but
pretty hard for us to achieve if we are in the business of ice cream
selling! This ‘resource-based’ view looks from the inside out and
suggests some of the ways in which we could deploy our particular
strengths to advantage.
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Diversity of strategic games for Diversity of strategic games for
innovation innovation (continued)
The survey tool is available at
The MINE (Managing Innovation in the New Economy)
research program at Ecole Polytechnique in Montreal,
[Link].
Canada, together with SPRU, University of Sussex, UK,
conducted qualitative and quantitative studies to gain an
understanding of the diversity of strategies for innovation. Respondents come from firms such as Intel, Synopsys,
Almost 925 chief technology officers (CTOs) and senior Motorola, IBM Global Services, Novartis and Boeing.
managers of R&D (from Asia, North and South America, Executives were asked what competitive forces
and Europe) across all industrial sectors of the economy impact on innovation, what value-creation and -
responded to a global survey. capture activities are pursued in innovating, and what
strategies and practices are used.
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Diversity of strategic games for Strategic planning for
innovation (continued) implementation
Each game is characterized by statistically different value-
creation and -capture activities:
The third stage in innovation strategy development is to plan for
• Patent-driven discovery; implementation. Thinking through what we are going to need and
• Cost-based competition; how we will get these resources, who we might need to partner
• Systems integration; with, what likely roadblocks might we find on the way – all of these
questions feed into this step.
• Systems engineering and consulting;
• Platform orchestration;
• Customized mass-production;
• Innovation support and services.
Source: Miller, R. and S. Floricel (2007) Special Issue, International Journal of Innovation
Management, 11 (1).
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Communicating strategy Policy deployment
• Need to share and enable ‘buy in’; Use how/why charts as an activity to illustrate policy
deployment
• Need to break top level objectives down into
manageable targets; [Link]
• Policy deployment. deployment/
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Dynamic capability 5. Innovation strategy for SMEs
Dynamic capability is ‘appropriately adapting, integrating and re-
configuring internal and external organizational skills, resources and
functional competencies towards a changing environment’:
• competitive and national positions (technology and
intellectual property, as well as its customer base and
upstream relations with suppliers);
• technological paths (the strategic alternatives available to
the firm, and the attractiveness of the opportunities which
lie ahead);
• organizational and managerial processes (the set of
routines which define ‘the way we do things around here’).
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