Developing the Framework for an Innovation Strategy

Innovation plays an important and dual role, as both a major source of uncertainty and change in environment , and a major competitive resource within the firm. In this we develop what we think is the most useful framework for defining and implementing corporate innovation strategy.

We begin by summarizing the well known debate in corporate strategy between rationalists and incremental approaches to the characteristics of technological innovation; we conclude that the latter approach is more useful, given the inevitable complexities and uncertainties in the innovation process. We then describe and evaluate Michael Porter’s pioneering framework that links innovation strategy to overall corporate strategy we conclude that its major strength is in linking the firm’s technology strategy to its market and competitive position. But it both underestimates the power of technological change to upset established market and competitive conditions and overestimates the influence that managers actually have over corporate choice in technology strategy. For this reason, we propose that the most useful framework so far is the one developed by David Teece and Gary Pisano. It gives central importance to the dynamic capabilities of firms and distinguishes three elements of corporate innovation strategy : (1) competitive and national positions (2) technological paths, (3) organizational and managerial processes.

Rationalists or incrementalist Strategies for Innovation:

The long standing debate between rational and incremental strategies is of central importance to the mobilization of technology and to the purpose of corporate strategy. We begin by reviewing the main terms of the debate and conclude that the supposedly clear distinction between strategies based on choice or on implementation breaks down when firms are making decisions in complex and fast changing competitive environments. Under such circumstances formal strategies must be seen as part of a wider process of continuous learning from experience and from others to cope up with complexity and change.

Notions of corporate strategy first emerged in the 1960s. A lively debate has continued since then amongst the various schools or theories. Here we discuss the two most influential the rationalist and the incrementalist . The main protagonist are Ansoff of the rationalist school and Mintzberg amongst the incrementalists. An excellent summary of the terms of the debate can be found in Whittington and a face to face debate between the two in the strategic management Journal in 1991.

Rationalist Strategy:

Rationalists strategy has been heavily influenced by military experience where strategy (in principles) consists of the following steps (1) describe understand and analyze the environment (2) determine course of action in the light of the analysis ; (3) carry out the decided course of action. This is linear model of rational action: appraise, determine and act. The corporate equivalent is SWOT : the analysis of corporate strengths and weaknesses in the light of external opportunities and threats. This approach is intended to help the firm to:

1) Be conscious of trends in the competitive environment.
2) Prepare for a challenging future.
3) Ensure that sufficient attention is focused on the longer term, given the pressures to concentrate on the day to day.
4) Ensure coherence in objectives and actions in large, functionally specialized and geographically dispersed organizations.

However, as John Kay has pointed out, the military metaphor can be misleading. Corporate objectives are different from military ones: namely to establish a distinctive competence enabling to satisfy customers better than the competition – and not to mobilize sufficient resources to destroy the enemy. Excessive concentration on the enemy (i.e. corporate competitors) can result in strategies emphasizing large commitments of resources for the establishment of monopoly power, at the expenses of profitable niche markets and of a commitment to satisfying customers’ needs.

More important show, professionals experts including managers, have difficulties in appraising accurately their real situation, essentially for two reasons. First their external environment is both complex, involving competitors, customers, regulations , regulators, and so on. And fast changing including technical, economic, social and political change. It is therefore difficult enough to understand the essential features of the present, let alone to predict the future. Second managers in large firms disagree on their firms’ strengths and weaknesses in part because their knowledge of what goes on inside the firm is imperfect.

Source: Managing Innovation

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