Jansen, J. J., Van Den Bosch, F. A., & Volberda, H. W. (2006). Exploratory innovation, exploitative innovation, and performance: Effects of organizational antecedents and environmental moderators. Management Science, 52(11), 1661-1674.
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This comment is written about: Jansen, J. J., Van Den Bosch, F. A., & Volberda, H. W. (2006). Exploratory innovation, exploitative innovation, and performance: Effects of organizational antecedents and environmental moderators. Management Science, 52(11), 1661-1674.
The article shows several key insights that are worth exploring more deeply.
Centralization negatively impacts innovation since it limits the flow of new and diverse ideas. Simultaneously it reduces the autonomy an employee has, which is needed to foster new ideas. However, despite often hypothesized centralization does not significantly affect exploitative innovation. The next key insight is that formalization supports exploitative innovation, by providing structures and allowing organizations to standardize their processes by making the more repeatable. Regarding exploratory innovation no negative effect was found and when designed appropriately can even enable innovation. This can be done by introducing structures that allow for creative approaches and by support new ideas. Finally, connectedness, which positively affects both exploratory and exploitative innovation within a firm. By allowing „hall talk“ and spontaneous interactions ideas grow. On one hand, by sharing knowledge about best practices efficiency is improved. On the other hand, the often cross-department communication brings new ideas, which can lead to new innovations. Finally, it should be mentioned that the environment a company is in, more specifically the market dynamism and the competitiveness also play a big role.
The key managerial implications of this article can be summarized as follows:
Hire different perspective backgrounds to increase innovation. Managers should prioritize recruiting individuals from diverse backgrounds to enhance the company’s innovative capacity. Diversity in perspectives promotes [exploitative and exploratory] innovation. This diversity in thought can unlock new opportunities and approaches to problem-solving within the organization. Align strategy with management and innovation preferences. Effective management requires aligning the firm’s core strategy with the preferences of leadership, personnel capabilities, and innovation objectives. Firms can also adopt an ambidextrous approach; organizations can pursue different types of innovation across various units. Leadership must focus on allocating the right resources to implement their strategy successfully. Employ connectedness to increase innovation for the firm. Well-connected social networks within the organization contribute to greater innovation capacity. Social connectedness facilitates both exploratory and exploitative innovation by fostering communication and collaboration across teams. However, managers should be mindful of reduced productivity from excessive socializing and set clear processes to balance connection with work.
The study has several key limitations that may affect the generalizability of its findings.
First, its timeline constraints assess innovation outcomes only one year after implementation, which may not capture long-term effects. For example, Tesla, founded in 2003, achieved consistent profitability around 2019, and Amazon’s advertising segment became a significant profit driver about 15 years after its launch. Second, the study’s focus on the heavily regulated financial services sector limits generalizability to other industries like technology and FMCG, which evolve faster and face different innovation challenges. Lastly, the study’s focus on exploratory and exploitative innovation overlooks other forms, such as disruptive innovation. For instance, EU emissions regulations have driven traditional automakers to innovate with electric vehicles, highlighting how external pressures shape innovation strategies.
Additional References:
[1] Nie, X., Yu, M., Zhai, Y., & Lin, H. (2022). Explorative and exploitative innovation: A perspective on CEO humility, narcissism, and market dynamism. Journal of Business Research, 147, 71–81. https://doi.org/10.1016/j.jbusres.2022.03.061
[2] Stephan, Billinger., Kannan, Srikanth., Nils, Stieglitz., Terry, R., Schumacher. (2021). Exploration and exploitation in complex search tasks: How feedback influences whether and where human agents search. Strategic Management Journal, 42(2):361-385. doi: 10.1002/SMJ.3225
[3] Argyres, N., Rios, L. A., & Silverman, B. S. (2020). Organizational change and the dynamics of innovation: Formal R&D structure and intrafirm inventor networks. Strategic Management Journal, 41(11), 2015–2049. https://doi.org/10.1002/smj.3217. T
Grewal, R., Cline, T. W., & Davies, A. (2003). Early-Entrant Advantage, Word-of-Mouth Communication, Brand Similarity, and the Consumer Decision-Making Process. Journal of Consumer Psychology, 13(3), 187-197
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The paper Grewal, R., Cline, T. W., & Davies, A. (2003). Early-Entrant Advantage, Word-of-Mouth Communication, Brand Similarity, and the Consumer Decision-Making Process examines how word-of-mouth communication and brand similarity influence consumer decision-making processes, particularly focusing on the competitive dynamics between early and later entrants in a market. This analysis presents key insights from the paper and implications for managers based on those insights. Moreover, it acknowledges the limitations of these insights and suggests two readings that provide further insights on the topic.
Firstly, positive word-of-mouth (WOM) plays a crucial role in memory-based decision-making. Vivid WOM, such as face-to-face communication, is more effective than pallid forms, like printed information, boosting the chances that consumers will favour later entrants while reducing their consideration for early entrants. Secondly, brand similarity also influences outcomes. While high similarity between early and later entrants generally benefits the early entrant due to consumer familiarity, strong positive WOM can shift the advantage toward later entrants by enhancing their credibility. Last but not least, the decision-making context further shapes these dynamics. In memory-based tasks, early entrants often benefit from stronger recall, but in stimulus-based decisions, where direct brand comparisons are possible, the advantage may shift, giving later entrants a better chance to stand out.
Based on the key findings, certain managerial implications could be drawn. Firstly, managers of late-entrant brands should prioritise generating and amplifying positive word-of-mouth (WOM) to increase their chances of being considered and chosen by consumers. This can be achieved by delivering strong customer experiences, fostering community engagement, and leveraging influencers to promote authentic brand interactions. It’s also important to avoid positioning the late-entrant brand too similarly to the early entrant unless there is strong positive WOM supporting it, as high brand similarity tends to favour the market leader. Instead, late entrants should focus on differentiating themselves through unique features, innovation, or alternative value propositions. Thirdly, in industries with highly differentiated brands, such as luxury versus budget markets, these insights may be less relevant, as consumers typically do not see the brands as direct competitors, reducing the impact of similarity and WOM.
The article comes with its own set of limitations, particularly in markets for low-involvement, low-risk products (e.g., paper towels or toothpaste), where word-of-mouth (WOM) and brand similarity have less influence. In these markets, consumers prioritise convenience, price, and availability over brand differentiation, reducing the impact of WOM. Overused or biassed WOM, such as excessive influencer promotions or paid endorsements, also loses effectiveness, leading to consumer scepticism. Furthermore, the use of student-based experiments can create biassed results, as they may not represent the general population. Additionally, the effectiveness of positive WOM varies by industry, with low effects seen in sectors like luxury, where consumers don’t view brands as direct competitors.
Finally, to offer further insights into the topic of the paper, two additional articles were suggested. The first article: Lim, J. S., & Bhargava, M. (2020). How Digital Word-of-Mouth Affects Consumer Decision-Making. Management Science, 66(5)
It explores how online reviews, recommendations, and ratings influence consumer choices, particularly in the e-commerce space. The study reveals that eWOM plays a significant role in reducing the perceived risk and enhancing consumer confidence, making it a crucial factor in the modern digital economy
The second article Lisjak, M., Bonezzi, A., & Rucker, D. D. (2021). How Marketing Perks Influence Word of Mouth. Journal of Marketing, 85(5), 128-144 examines how marketing perks like rewards and exclusive offers affect WOM behavior. It finds that valuable perks enhance WOM by boosting consumers’ self-image, while transactional or manipulative perks reduce authentic WOM. The study highlights the importance of aligning perks with consumer motivations to encourage positive WOM.
Covin, J. G., Slevin, D. P., & Heeley, M. B. (2000). Pioneers and followers: Competitive tactics, environment, and firm growth. Journal of Business Venturing, 15(2), 175-210.
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The paper “Pioneers and Followers” by Covin. J, Slevin. D, and Heeley. M discusses the relevance of competitive tactics between pioneers and followers in benign and hostile environments. More specifically, the paper analyzed in detail a set of ten hypotheses to assess the impact of different competitive levers on firms’ growth rate for each of the two environments mentioned.
Based on the findings, we believe the most relevant key insights to be related to, firstly, the speed of sales growth. While it may not necessarily be linked to the market entry position of a company, there are differences when choosing different competitive tactics in hostile and benign environments. In hostile environments, pioneering allows firms to escape price-based competition and achieve growth with high prices by focusing on a broad geographical distribution and a limited product line, while followers should concentrate on cost reduction. Finally, another key insight is that in benign environments followers can thrive by charging relatively high prices and competing based on non-price factors, while pioneers can achieve significant sales growth by offering superior products and expanding their distribution channels rather than exerting extensive control over them.
With regards to the implications of the findings presented in this paper, what stands out as interesting is that pioneers operating in hostile environments should focus on differentiating their product portfolio rather than increasing prices to achieve high growth rates. Managers should therefore aim to create a relatively smaller number of distinctive products (compared to competitors) by limiting their product line to ensure a tight fit with the market and to best address growth potentials. For pioneers operating in benign environments, managers appear to experience the most growth when they do not exercise extensive control over distribution channels. Managers should therefore consider allowing their distribution channel members more autonomy while concentrating on expanding the number of channels. For followers in hostile environments, managers should seek to reduce their cost structures and follow low-price strategies to compete more effectively with pioneers on a price basis. The adoption of advanced process technologies can positively impact cost structures in this regard. On the other hand, followers operating in benign environments are faced with less cost pressure on the production side and might want to put more of their resources into the development of differentiated products or services to seize untouched market demand.
The following situations are some of the cases where the key insights do not apply, having a wider distribution network is a critical success factor for pioneers in benign environments according to the paper. Contrary to this, Tesla’s distribution network is narrow, but it is still successful for a pioneer in a benign environment. Distribution network is a tradeoff in vertical integration, if a company chooses to maintain control over the supply chain to maintain quality and brand image it will opt for a narrow distribution network, but it still provides conditions for growth. Next, regarding wider distribution network benefitting pioneer more the followers in a benign environment we can find an exception in the Chinese e-commerce market. Alibaba was the pioneer in the market connecting the buyers and sellers of products on an online platform. But JD.com, a follower, was able to overtake Alibaba by having better, wider and reliable distribution/delivery channels. This is because the distribution network is the critical winning factor in the e-commerce industry and is important for all players. Finally, the paper gives the insight that a pioneer in a hostile environment uses more advanced technology and processes. This is not true in cases of radical innovation, which allows followers to overtake the pioneer. For example, Google beat and overtook Yahoo, the pioneer in the search engine industry, in its search engine performance and market share by using critical innovations.
From these exceptions we can see that the key insights, although useful, should not and cannot be applied to all situations. This is because the importance of the factors highlighted would differ for each industry and we must understand how the competitive and environmental forces interact while developing strategy.
We identified the following video & article, which we believe give further insights into the effects of market entry order: “The Half-Truth of First Mover Advantage. Northeastern University” (2018) and “Pioneer, Early Follower or Late Entrant: Entry Dynamics with Learning and Market Competition European Economic Review” (Chen, C., Ishida, J., & Mukherjee, A., 2023). The video provides support for timing tradeoffs and efficiency gains for late market entrants while the article, on the other hand, establishes a unified framework for the tradeoffs faced by potential new entrants based on pre-entry learning and post-entry market competition.
Show lessLevinthal, D. A. (2011). A behavioral approach to strategy—what’s the alternative? Strategic Management Journal, 32(13), 1517-1523.
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The paper “A Behavioral Approach to Strategy—What’s the Alternative?” by Levinthal (2011) explores the link between behavioral mechanisms and rational approaches in the area of strategic decision-making. This analysis presents key insights from the paper and implications for managers based on those insights. Moreover, it acknowledges the limitations of these insights and suggests two readings that provide further insights on the topic.
Firstly, a key insight of the paper is that behavioral mechanisms are essential to each rational approach. As the paper does not explicitly define the rational approach, we clarify it as a logical process of decision-making that consistently has an underlying reason. The behavioral approach uses insights from psychology to explain how, when and why humans may behave in certain ways (Economicseducation, 2023). Secondly, business strategy does not offer straightforward optimum solutions due to its inherent complexity. The bounded human rationality limits the specification of the problem itself and the evaluation of all the alternatives possible. The third key insight is that to address complex strategic problems, rationality must be seen as a process. This consists of two steps: the first being the simplification of the actual reality into “Small World Representations” (Levinthal, 2011), and the second the preservation of ambiguity regarding action-outcome linkages.
Based on these insights, several implications can be drawn for managers. First of all, decision-makers are encouraged to diversify their knowledge input. To do this, managers are advised to seek a broad spectrum of opinions and information. The implication of a broad input of information, as derived from the key insights, can indeed mitigate risks associated with behavioral biases, e.g., the overconfidence bias or the herd mentality bias. Another implication is to be flexible and adaptable in strategic decision-making. Moreover, to further promote these values, managers should foster an organizational culture that values flexibility, adaptability, and feedback from others. Walmart’s failed market entry in Germany is evidence of the risks of rigid strategies and not adapting to the respective situation. Finally, managers should use a goal structure that aligns with the ability of the decision-maker to make trade-offs among outcomes. In particular, if they can make such trade-offs it is recommended to use a comprehensive goal structure that entails several sub-goals. On the other hand, if they cannot make such trade-offs, decision-makers would be better off using a simpler goal structure focused on one specific goal.
Nonetheless, it is important to consider that there are also limitations to such implications and to the article itself. The process of diversifying knowledge can indeed lead to decision-making paralysis if managers find themselves overwhelmed by the amount of information. Additionally, while promoting adaptability and flexibility, it is essential to keep the vision of the organization in mind, ensuring that strategies remain anchored to a consistent overarching goal. Another limitation is that the article does not consider the relation between rationality in strategic decision-making and the time span available to take a decision.
Finally, to offer further insights into the topic of the paper, two additional articles were suggested. The first article: Scholten W., de Vries F., Besieux T. (2022). A Better Approach to Avoiding Misconduct. Harvard Business Review. https://hbr.org/2022/05/a-better-approach-to-avoiding-misconduct.
It discusses the challenge of preventing misconduct in financial firms and introduces the concept of behavioral risk management, emphasizing the influence of risk factors on workplace behavior. It shares a common focus with Levinthal’s paper, emphasizing the significance of understanding and addressing human behavior in organizational strategies.
The second article: Nobre, F. C., Machado, M. J. C., & Nobre, L. H. N. (2022). Behavioral biases and the decision-making in entrepreneurs and managers. Journal of Contemporary Administration, 26(Sup. 1). https://doi.org/10.1590/1982-7849rac2022200369.en
It explores the impact of behavioral biases on the decision-making abilities of managers and entrepreneurs by focusing on the context of investment decisions. It complements Levinthal’s work by delving into the practical implications of behavioral biases in real-world decision-making scenarios.
Show lessArgote, L., & Epple, D. (1990). Learning curves in manufacturing. Science, 247(4945), 920‑924. https://doi.org/10.1126/science.247.4945.920
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Executive Summary on the Article Learning Curves in Manufacturing by Linda Argote and Dennis Epple (1990) [Group 3: Tristan Nagelmackers, Clément David, Maxence Sing, Valentin Goumaz]
This article mainly assesses the learning curve effects observed in the manufacturing industry, which are usually computed as the fact that an industry reduces its costs by a Ratio (p) when it doubles its cumulative production. Argote and Epple assess the differences observed in learning curve effects within the same industries. While differences in learning rates should be observed in industries producing different kinds of products, the authors note that this difference is often more dominant in organizations making the same products. The article then denotes potential reasons explaining those fluctuations and affirms that they are mainly due to Organizational forgetting, Turnover, Transfer of knowledge (from products and/or organizations), and Economies of Scale. Furthermore, Argote and Epple explain that first-mover advantage can be countered by companies entering the market later and taking advantage of the learnings of the first mover (before organizations begin with production).
These insights can have managerial implications, mainly three that could allow managers to avoid “knowledge depreciation,” which would negatively influence learning curve effects. Firstly, the jobs and procedures should be routinized to prevent organizational forgetting. That would reduce the dependency a company has on a few specific individuals (e.g., experts in a task). Moreover, routinizing jobs and procedures also helps reduce the costs related to training new employees and reduces the time needed to onboard them in the company. Secondly, it would be relevant to implement robust management systems capable of optimizing the transfer of productivity gains. That would require the development of more standardized processes across the production, allowing the capture and preservation of knowledge without losing it in the event of the departure of a skilled employee. Moreover, cross-functional collaboration should be fostered, ensuring knowledge sharing and retention between functions across the organization. And thirdly, it would be advised that the organizations implement knowledge performance metrics and benchmarking, guaranteeing a regular assessment of the employees regarding their level of knowledge. That means that employees should be assessed frequently to allow the management to check the level of knowledge across the organization and take appropriate measures. In addition, it would be relevant to benchmark the organization’s performance against industry leaders and best practices to identify areas where improvements can be made.
Although this article provides many valuable elements, it is limited to some extent. First, this article was written by Argote and Epple in 1990. Even if some features stayed the same in the past 30 years, it is to be considered that the data used and the findings can be outdated if we compare them with the actual industry standards. Indeed, this article focuses its results on the production of discrete products (e.g., planes, boats, etc). That was the main focus at that time, but since then the research evolved and included continuous process industries and new implications were derived. Furthermore, the actual research added more outcome measures (I.e., more than the traditional labor hours). A second limitation that can be noted is that the article, to some extent, focuses on the “learning of employees” (e.g., in the chapter related to turnover). Recent research showed that while learning the labor force was contributing to learning curve effects, it was relatively marginal. The aspects of how the company is organized and its access to technology are nowadays more considered and could be added to the article of Argote and Epple to complete it.
To conclude, we can refer to two articles that provide an updated view of the learning curve effect and that were also used for the present research. The first article [1], partially written by Linda Argote (one of the same authors of the text we analyzed), develops the new trends in the research on learning curve effects and provides a good update on the analyzed articles. The second article [2] also provides updated insights on the learning curve topic but specifically focuses on production. Besides, this article wraps up and analyzes relevant literature on the subject and, therefore, represents a good way to enhance the research on the topic with further lectures.
REFERENCES:
[1] Argote, L., Lee, S., & Park, J. (2021). Organizational Learning Processes and Outcomes : Major findings and future research directions. Management Science, 67(9), 5399‑5429. https://doi.org/10.1287/mnsc.2020.3693
[2] Glock, C. H., Grosse, E. H., Jaber, M. Y., & Smunt, T. L. (2019). Applications of Learning Curves in Production and Operations Management : A Systematic Literature review. Computers & Industrial Engineering, 131, 422‑441. https://doi.org/10.1016/j.cie.2018.10.030
Show lessAnthony, S. D., Eyring, M., & Gibson, L. (2006). Mapping your innovation strategy. Harvard Business Review, 84(5), 104-13.
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Mapping your innovation strategy [1]: Executive Summary
The article, by Anthony, Eyring & Gibson (2006) [1] aspires to elaborate a plan for a company to create and define its innovation strategy.
Key insights
One of the main points of the article is that, according to the authors, disruptive innovations is the type of innovation that can create the most potential for growth. While incumbent companies tend to turn to incremental innovations to not go too far away from their core business, the authors say that disruptive innovations could create more growth. Another important insight is that, when assessing innovation projects, companies should focus on patterns instead of numbers. Using financial estimates early would be inaccurate and would tend to choose projects in large and measurable markets which are actually markets that are often hostile to disruptive innovation. Finally, a last key insight is that adaptation and flexibility is key and the mantra “invest a little, learn a lot” can help being adaptable.
Key actions
The first key action would be to clarify what the company won’t do and to use what is called the playbook for disruptive innovations. This means combining both a list of innovation characteristics that worked in the past with four criteria to which a successful innovation strategy should conform to. This enables companies to access a customized list of questions/elements that the innovation should conform to that represents the market’s idiosyncrasies. Second, to avoid having to use precise financial estimates, companies can play the “Game of zeros”. This implies trying to estimate whether the project will generate a 6, 7 or 8 “0” revenue. Third, providing fast passes to innovation projects can enable companies to capture fast trends and avoid complicated processes of approval as to quickly put a product on the market and cut the competition short.
Limitations
A limitation of this paper is that it states that disruptive innovations create the most potential for growth. However, incremental innovation is always a big factor of successful companies. It then depends on in which market you play and on if you are already implemented or not. A second limitation is that some companies, for example NGO’s, might not want to play the game of zeros but rather use other metrics more suited to what they are looking for. Ultimately, a last limitation is that for some industries such as renewable energy, “invest a little, learn a lot” has to be “invest a lot, learn a lot”, since it is not possible to learn and progress significantly without making large investments first.
Further references
In the first additional article [2], the authors highlight the importance of creating a culture centred on innovation, an adhocracy culture, to promote flexibility, risk taking and to allow the company to innovate. The last article [3] mentions that it is capital to implement an ambidextrous approach to innovation. They state that a company can face two types of contexts: either normal periods or black swans which are disruptive events. They underline the importance of being ready to face these disruptive events but also to compete in calmer periods.
References
[1] Anthony, S. D., Eyring, M., & Gibson, L. (2006). Mapping your innovation strategy. Harvard Business Review, 84(5), 104-13.
[2] Chatzoglou, P. and Chatzoudes, D. (2018), “The role of innovation in building competitive advantages: an empirical investigation”, European Journal of Innovation Management, 21(1), pp. 44-69. https://doi.org/10.1108/EJIM-02-2017-0015
[3] Calandro, J., & Paharia, V. (2019). Disruptive technologies, “Black Swans” and corporate innovation strategy. Strategy & Leadership. DOI:10.1108/BIJ-08-2020-0443
(Article) Uotila, J., Maula, M., Keil, T., & Zahra, S. A. (2009). Exploration, exploitation, and financial performance: analysis of S&P 500 corporations. Strategic Management Journal, 30(2), 221-231.
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Executive summary: Group 1 (Buytaert Antoine, Lefant Maxime, Pivarnik Lukas, Winroth Emma)
The paper presents the question of undergoing exploration or exploitation among S&P 500 companies and how it affects their financial performance. Exploratory activities are defined as, “search, variation, risk-taking, experimentation, play, flexibility, discovery, innovation” and exploitation activities are defined as, “refinement, choice, production, efficiency, selection, implementation, execution”. The paper discovered a positive curvilinear relationship between companies that focus on exploratory activities and their financial performance, measured in terms of market capitalization. This is most significant in industries with relatively high R&D spending, whereas in industries with relatively low R&D, the benefit is negligible. Another point indicated in the paper is that the best financial results were achieved by companies having a balance between exploratory and exploitation activities. The paper also points out that the majority of companies, across all sectors, engage in below optimum exploratory activities.
The major managerial implication of this paper regards the importance of exploration, which fosters entrepreneurial opportunity recognition and creates capabilities for staying viable in environmental changes. In line with previous research, the paper concludes that big corporations overemphasize exploitation. Results suggest that the presence of explorative activities and the right balance between explorative and exploitative activities has a relatively higher impact on financial performance for firms operating in environments with higher technological dynamism. To make viable financial and strategic decisions, firms should therefore assess two parts of their environment- the internal and external. The internal environment should be assessed in terms of the relative part of business activities constituting explorative versus exploitative activities. The article provides different examples of methods from earlier studies regarding this, e.g., resource allocation, surveying key personnel, and quantifying variables surrounding a firm’s technological search activities, although these have limited generalizability.
In the next step, firms should assess the environment in terms of frequency of technological change, impacting the rate of obsolescence of competencies and resources and thus the need for exploration. If adopting the implications to a corporate group, managers could further adopt a holistic view resource devotion to the corporate group, as firms operating in less R&D and technology environments could benefit from the long-term performances of explorative activities happening in other parts of the portfolio. However, again, the major implication the article provides is that managers should ensure enough relative devotion to explorative activities in parts of the corporate portfolio which is surrounded by more technological and R&D activities and change. It should however be noted that the paper does not clarify if the balance of explorative and exploitative activities is set to the industry or fixed.
Further, each paper comes with a few limitations per se. In the case of our paper, we identified 3 main limitations that readers should be aware of when reading the paper. Those three limitations are three attention points when trying to apply the main insights of the paper to other companies. First, there’s the question of the size of the company concerned. The article sticks to analyzing very big companies, part of the S&P 500, while 99% of the Business in the Western World are SME’s, and while 6 to 8 on 10 people worldwide work for those SME’s. Second, there’s the time period question. The study addresses data covering period 1989-2004. We are nearly 20 years later, and the game has changed, due to different innovations & macro trends (IT, Energetic Transition, …). Finally, there’s the question of the geographic location, with this study being conducted only in the US. A reader working in Europe or Asia should so be aware of the specificities of this market before trying to replicate the model to his own market.
Regarding further references, the first article investigated the notions of exploration and exploitation in times of crisis with different small and medium-sized companies in order to measure their impacts on the performance of these companies. They then created a framework to examine these two concepts and finally concluded that the severity of crisis a firm is exposed to acts as a positive contingency for the impact of exploration on firm performance level and variability, and as a negative contingency for exploitation’s level and variability effects. The last paper investigated the trade-off between exploration and exploitation and the role of absorptive capacity; The article argues that ambidexterity is not always effective and that sometimes a specialization in exploitation or exploration is way better than trying to do a trade-off; We chose that article because it allows managers to know what strategy to apply, ambidexterity or specialization.
Show lessSawhney, M., Wolcott, R. C., & Arroniz, I. (2006). The 12 different ways for companies to innovate. MIT Sloan Management Review, 47(3), 75.
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Key Insights
Innovation myopia is common, and it leads to missed opportunities and missed competitive advantages. Innovation myopia is having a mistaken view of what innovation is and its scope. That can lead to companies looking alike and competing on similar innovation, losing all the benefits of it, while innovation should allow companies to gain a sustainable competitive advantage and give value to the customers.
Innovation is possible along all business dimensions of the innovation radar framework. This framework is based on the 4 key dimensions of a business: what (the offerings), who (the customers), how (the process used), and where (their presence). Alongside 8 additional business dimensions (platform, solutions, customer experience, value capture, organization, supply chain, networking, and brand), firms can use this framework to guide their innovations.
Innovation is a complete integrated system. In other words, innovation along one business dimension can impact the other dimensions both positively and negatively.
Managerial implications
From an internal point of view, the radar framework is a very useful tool to evaluate where a company stands in terms of innovation, and which dimensions are already tackled, or not. When putting an innovation in place, it also enables the managers to evaluate the overall impact of this change, which of course should be positive on each of the dimensions. Finally, and depending on what was discovered, managers could find new innovative opportunities to grow and develop their business.
Secondly, a company could benchmark its innovation profile with the innovation profiles of its competitors. By benchmarking innovation profiles, a firm could identify the strengths and weaknesses of its competitors with regards to innovation. In addition, it could determine the dimensions in which no one of its competitors is innovating and analyze whether it would bring customer value. It could enable a company to acquire a sustainable competitive advantage and change the nature of competition.
The Limitations
One limitation identified is within the innovation radar framework itself. While the framework addresses the key questions of what, who, how and where through the 12 dimensions of business innovation, it fails to address the timing of innovation. Due to first- and second-mover advantages and disadvantages, the timing of innovation is a critical aspect that managers need to consider. To address this limitation, managers should consistently benchmark their innovation profile against other competitors to decide when to capitalize on opportunities, and when to avoid innovation myopia.
A second limitation is about sustainability. While firms should innovate when it creates value for customers and the firm, considering potential negative externalities that could be created in that process is also important in innovation. Sustainable innovation (“innovation that reconcile economic, environmental and social goals”) could be an alternative form of innovation that companies could pursue. We recommend managers to include sustainability in the decision process of innovation.
Also, the organization culture was not tackled in the article but represents an important element to make sure innovation will be encouraged, supported, and then will bring results to the company. Educating people about that and make it part of the core business is indeed crucial to involve them in the process and to make the changes work.
Show less(Article) Ireland, R. D., & Webb, J. W. (2007). Strategic entrepreneurship: Creating competitive advantage through streams of innovation. Business horizons, 50(1), 49-59.
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The main message of this article is that companies have to find the right balance between exploration and exploitation in order to exploit their current competitive advantage while at the same time building their competitive advantage of tomorrow. Indeed, in an organization, there is a tension between exploiting the current advantage (exploitation) and investing in innovations in order to prepare the future (exploration). This paper proposes strategic entrepreneurship as a solution to find this right balance, which is characterized by three elements: balancing exploitation and exploration, balancing the ressources between exploitation and exploration, and by continuous streams of innovation.
To achieve this right balance, managers can follow this three steps methodology. They first have to understand what they should focus on: exploration of exploitation as well as the factors that make the balance lean one way or the other. Factors such as the frequency and significance of changes happening in the firm’s industry, the type of market in which the firm competes – slow or fast-cycle – and lastly, the firm’s resources and capabilities must be taken into account. Secondly, once they have correctly analyzed these factors, managers are able to determine how to balance their resources. Last but not least, re-introduce middle-level managers. Indeed, they play two crucial roles in Strategic Entrepreneurship.
There are several mechanisms to foster exploration and exploitation. Operationally, the best way to boost exploitation is by focusing on internal development, as individuals within the firm have intimate knowledge about products and processes that just need to be stimulated. M&A can increase firms’ knowledge and resources and thus develop exploration. It can also lead to gaining more control over the supply chain, synergies, hence fostering exploitation. Structurally, decentralized authority and semi-formalized processes are three factors that enhance exploration processes in a company, providing autonomy to individuals and allowing them to pursue a larger number of opportunities. On the other hand, a centralized structure and highly specialized and formalized routines foster exploitation. Culturally, firms promoting experimentation will promote exploration, while certainty in tasks and outcomes, specific and short term goals, and a focus on capabilities will shift the focus on exploitation.
However the implication of those findings also presents some constraints; in other words operational, structural, and cultural limits. Operationally, M&A could not foster exploration or exploitation when there is too much imbalance between the size of the companies. The risk for a small company is to get eaten by a bigger one which only aimed at killing competition by buying the smaller one. Structurally, some firms might aim at a perfectly flat structure. For instance, Buurtzorg’s employees directly report to the CEO. Therefore, implementing mid-level managers might not be relevant since that would be inconsistent with the needs and the strategy of the company. Culturally, a firm might not allow employees to access some data due to confidentiality which makes launching new experimentation more difficult. While firms’ administrative inadaptability could make the process slow due to paperwork, it is also not certain that employees will be willing to use an experimentation environment.
The following two articles are offering further insights into 2 interesting topics related to strategic entrepreneurship. Firstly, the effect of the CEO’s regulatory focus on the level of engagement in exploration and exploitation in a firm is discussed. Secondly, the dangers of making the leap from exploitation to exploration are considered.
Kammerlander, N., Burger, D., Fust, A., & Fueglistaller, U. (2015). Exploration and Exploitation in Established Small and Medium-sized Enterprises: The Effect of CEOs’ Regulatory Focus. Journal Of Business Venturing, 30(4), 582-602.
Swift, T. (2015). The perilous leap between exploration and exploitation. Strategic Management Journal.
Show lessVidal, E., & Mitchell, W. (2013). When do first entrants become first survivors?. Long Range Planning, 46(4-5), 335-347.
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KEY INSIGHTS
This paper, written by Elena Vidal and Will Mitchel in 2013, aims at explaining why first entrants on a market often fail, and the strategies that could help them survive.
There are three main reasons why first entrants often fail:
– They face difficulties determining the customer needs, hence offering features that do not meet customer expectations.
– It is very challenging to create sustainable barriers to entry for new entrants. First movers lack proper IP protection.
– Despite having strong core competencies, first entrants lack the complementary resources needed to support their full business model. Competitors can move much faster in this area and replicate the successful resources without many of the failures.
MANAGERIAL IMPLICATIONS
There are two managerial implications for companies aiming to survive as first entrants on a market :
– The company needs to possess both core and complementary resources. By mastering those types of resources, it has a greater chance of long term survival and financial success. It can acquire those resources by luck, by having a founder with relevant prior experience or by outsourcing the acquisition of those resources.
– The company needs to be aware of its potential competitors and to have a view of its set of resources. There are three different scenarios that may occur if the company only possesses core competencies:
– The best case scenario for a first entrant is if the competitor has neither core nor complementary resources as it gives time for the company to develop a full business model. In this case, the company should develop its complementary resources internally.
– The worst case scenario is if the competitor has both core and complementary resources so that it will be able to make a better entrance and compete quite rapidly against the first entrant. In that case, the company should avoid entering first and learn from the entry of another competitor.
– The two intermediate scenarios are when competitors have either core or complementary resources. The outcome is quite uncertain for the first entrant. In those cases, the company should acquire complementary resources externally in order to be much faster.
LIMITATIONS
One limit of the paper is that it does not address the fact that a company can possess both core and complementary resources, and still fail. Sometimes it is not only about having the resources, but also about the efficiency to implement them, the speed to cope with the market and the vision of the top management.
Another limit of this article is that the market environment is also important for the success of an early entrant. Indeed, some companies do not possess complementary resources, but they succeed because of strong barriers to entry, while others benefit from regulations allowing them to lead a market without the need to innovate.
FURTHER REFERENCES
Yao, X., Zhang, P., Lu, X. , & Huang, L.(2020). Early or Late? Entry timing in online IT service markets and the moderating effects of market characteristics. Journal of Business Research,114,265-277. : Entry timing has a U-shaped effect on a firm’s performance in the online IT services market.
Klingebiel, R., & Joseph, J.(2016). Entry Timing and Innovation Strategy in Feature Phones. Strategic Management Journal, 37(6), 1002–1020. : The alignment between entry timing and strategy is crucial.
Besharat, A., Langan, R.J, Nguyen, C.G.(2015).Fashionably late: Strategies for competing against a pioneer advantage. Journal of Business Research, 69(2), 718-725. : Late entrants can either compete on new attributes or pre-existing ones, depending on the value of those attributes.
Show lessGiesen, E., Riddleberger, E., Christner, R., & Bell, R. (2010). When and how to innovate your business model. Strategy & leadership. 38(4), 17-26
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1. Key insights
This article, based on the learnings from 28 successful business model (BM) innovators, is divided into two parts: the “When?” and the “How?”. Concerning the “When?”, the article highlights two times for innovating your BM: during periods of economic growth and at times of turmoil. Concerning the “How?”, the article presents the “Three As” framework: a company must be Aligned, Analytical, and Adaptable to successfully innovate their BM.
2. Implications
To implement an innovative BM, companies must align internally and externally:
– By identifying the value-creating characteristics of the new customer value proposition and understanding the link between them. They must be integrated into the company’s processes.
– By creating a collaborative BM with its suppliers and customers. This will align the customer value proposition’s objectives among all the supply chain and improve their collaboration.
– By including all the existing capabilities and competitive advantages that the company currently has.
To execute their BM innovation effectively, managers should use business intelligence to:
– Build environmental foresights to assess their BM innovation options.
– Assess the financial impact that the BM innovation options would have.
– Gather and analyse data in real time to be able to react quickly to environmental changes.
Managers should also adapt and build flexibility into the BM. Concretely, managers should:
– Show strong leadership and perseverance to overcome inherent organizational inertia.
– Instaure an agile culture of innovation with more responsiveness, less hierarchy in decision making and responsibility handed to small agile groups.
– Do pilot projects to see if the new BM will work and won’t put existing models at risk.
– Shift from fixed assets to variable assets to enable a faster response to changes in market conditions.
3. Limitations
Firstly, there is an important missing aspect when talking about “When to innovate”: companies were not thinking much about BM innovation to become more sustainable when the article was written (2010) but it is becoming more and more frequent now and companies shouldn’t wait for a period of economic growth or for a short-term, immediate industry crisis to do so. Secondly, in the “Three As” framework, the authors advise to enter an “open BM” in order to be more aligned. However, an open BM encourages sharing of knowledge and of information, which might not be a good strategic decision for all companies. Thirdly, it is difficult to generalise this approach based on the data used. As we have no information on the 28 companies that were used to confirm this theory as it may explain the innovative success.
4. Further references
Amore, M. D. (2015). Companies learning to innovate in recessions. Research Policy, 44(8), 1574–1583. https://doi.org/10.1016/j.respol.2015.05.006 : This article explains why some companies achieve better results than others in downturn innovation. In fact, crisis stimulates innovation by forcing companies to explore new horizons but also creates ressources and prediction problems. Moreover, this study found that companies that already had an experience with innovation (measured by the R&D increase since the last recession) in the past are more likely to succeed in a downturn innovation.
Saebi, T., Lien, L. B., & Foss, N. J. (2017). What Drives Business Model Adaptation? The Impact of Opportunities, Threats and Strategic Orientation. Long Range Planning, 50(5), 567-581. https://doi.org/10.1016/j.lrp.2016.06.006 : This article focuses on BM innovations caused by external factors (threats or opportunities) and explains that companies are more likely to innovate their BM while facing threats rather than opportunities. Moreover, this paper argues that the past strategic orientation of a company can cause routines, that impact future BM innovations and prevent the firm from responding to changes.
Rijamampianina, R., Abratt, R., & February, Y. (2003). A framework for concentric diversification through sustainable competitive advantage. Management Decision, 41(4), 362-371.
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KEY INSIGHTS
90 percent of companies’ efforts to diversify outside of their core business have failed. Based on this statement, Rijamampianina et al. (2003), have developed a 4-step framework to improve a firm’s performance through effective concentric diversification.
First, a firm should create a competitive advantage. Second, it should make its competitive advantage sustainable in its traditional business by investing into raising barriers to imitation. Third, the firm can diversify by leveraging its sustainable competitive advantage into any logically adjacent markets it wishes to enter. Finally, this will result in an improved business performance and stronger competitive advantage for the firm.
Companies that have successfully diversified concentrically, having focused on one core business in which they hold a competitive advantage and clear leadership, will grow sustainably over extended periods of time.
KEY MANAGERIAL IMPLICATIONS
First, managers need to make their competitive advantage sustainable by raising barriers to imitation in 4 different ways:
1. Make it difficult for competitors to replicate your business model by having a strong strategic fit between all the business units.
2. Adapt rapidly to opportunities or threats that will impact their competitive advantage.
3. Create unique tangible and intangible capabilities that are non-imitable by nature or that would take ages to acquire.
4. Invest in the development of their core to create an economic barrier for competitors.
Secondly, managers should focus on concentric diversification that reinforce the competitive advantage. To do so, managers should first concentrate on understanding their key assets before diving into other adjacencies that are close to the core business. This means identifying their customers, capabilities, products, distribution channels and other strategic assets such as patents, brands and position. After, managers should diversify concentrically by leveraging their existing competitive advantage in new markets.
KEY LIMITATIONS
Although the framework is quite general and explicit, there are some situations where it should not be applied. These situations are based on the main gaps of the framework:
• the praise of a sustainable competitive advantage no matter what;
• the long term perspective and numerous steps of the framework;
• the idea that a safe strategy is the best;
• the assumption that your core competencies are always worth keeping and investing in.
We have identified three business situations where this framework should not be applied:
1. In a declining industry, even though you may hold a sustainable competitive advantage in that particular industry. As the overall perspective of that industry is shrinking, in the long run your revenue will inevitably shrink as well.
2. In a firm with investors and management looking for high risk and high return. Concentric diversification is a safe strategy as it offers lower but highly probable returns. Nonetheless, some companies are willing to try out much riskier strategies with the potential of higher wins.
3. In a sinking business where your core competencies are not as relevant as you think and where you struggle to gain a presence on the market. Then, it may be worth qualifying your core competencies as “sunk costs”, move on and completely change your business model. This is the case especially for young companies.
FURTER REFERENCES
Zook, C. (2017, December 6). The New Rules for Growing Outside Your Core Business. Harvard Business Review. https://hbr.org/2015/05/the-new-rules-for-growing-outside-your-core-business: This article emphasizes why companies in 2015 have a higher probability of success while diversifying far away from their core business than companies in 2005.
Kim, H., Hong, S., Kwon, O., & Lee, C. (2017). Concentric diversification based on technological capabilities: Link analysis of products and technologies. Technological Forecasting & Social Change, 118, 246-257. doi:10.1016/j.techfore.2017.02.025: This article responds to the needs for concentric diversification by focusing on how firms can find new business opportunities based on their technological capabilities.
Show lessExecutive Summary: Makri, M., & Scandura, T. A. (2010). Exploring the effects of creative CEO leadership on innovation in high-technology firms. The Leadership Quarterly, 21(1), 75-88.
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The main message of this article is that successful strategic leaders in a high-technology firm should exhibit both creative and operational characteristics. Leaders of high-technology firms are also responsible for making decisions regarding investments in innovation and as innovation is a very important asset in high-tech firms, the paper studies the relationship between innovation quantity, quality and novelty and creative leadership.
Key Insights
1, There are two type of characteristics in leaders in a high-technology firm: creative and operational. An operational leader will have an external focus when it comes to innovation and would be skilled for communication with the external environment. Creative characteristics are characterised by a focus on developing human and social capital as well as the ability to create a supportive environment within the organisation.
2, Results from the study show that the best CEOs have a balance between creative and operational characteristics. They simultaneously display creative and operational quality to help balance the innovation quality, quantity and novelty as they are able to manage creative people internally as well as communicating and identifying external opportunities.
3, Creative leaders are more important for enhancing innovation quality, quantity and novelty. Exploring new ideas, taking risks, and leveraging human and social capital are dimensions of leadership that enhance a firm’s competence in pursuing basic research agendas which in turn can lead to more influential innovations.
Managerial Implications
1, A mix of creative and operational skills is needed: those executive leaders who combine creative and operational skills are able to invent, develop and commercialize simultaneously. They can focus on internal (creative) and external (operational) environment.
2, Importance of company culture: a culture which supports experimentation, creates a dedicated R&D department or support behaviors of R&D, allowing for employees to take risks, time, without fear of retribution might contribute to the innovation process.
3, Rewarding the leaders according to innovation objectives: CEOs’ evaluation and appropriate pay/reward regarding their innovative performance is an effective way for a firm to be more innovative. Rewarding them for creating valued knowledge is key. Objectives in terms of performance on innovation must be part of the compensation structure.
Limitations
1, CEO might struggle to always conciliate the operational and creative side of leadership. Managers needs to simultaneously focus on the internal and the external environment which is not easy task.
2, Building compensation structures even partly on characteristics might seem unfair and subjective. Also it might end up impeding the culture of the firm. Further research is needed in this subject.
3, Managers have to be aware that this study only focuses on innovation in high-tech firms, where patents are indicators of innovation and that the implications might not apply to other sectors.
4, Furthermore, managerial responsibilities are rarely the exclusive domain of one single individual, rather a management board’s, however the article only mention the CEO’s desired characteristics.
Further references
1, Jia X., Chen J., Mei L. (2017) How leadership matters in organizational innovation: a perspective of openness, Management Decision 56(1), 6-25: The article suggest that different leadership styles exert different influences on the organization’s innovation performance.
2, Denti L., Hemlin S. (2012) Leadership and innovation in organizations: A systemic review of factors that mediate or moderate the relationship, International Journal of Innovation Management 16 (03), 1-20: The study’s aim was to investigate the contingency factors and mechanisms between leadership and innovation, i.e., the moderating and mediating variables
(Article) Kim, W.C. & and Mauborgne, R. (2004). Value Innovation : the Strategic Logic of Hight Growth. Harvard Business Review, 75(1),102-12.
(Article) “Govindarajan, V., & Trimble, C. (2004). Strategic innovation and the science of learning. MIT Sloan Management Review, 45(2), 67”
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1. KEY INSIGHTS
We can identify 3 main insights in this paper. Each one of them will be cited before being explained in more details afterwards.
First, strategic innovation differs from product or technological innovation. According to this paper, it means that a strategic innovation breaks with past practices in at least one of the three following areas:
1. The value chain design.
2. The conceptualization of delivered customer value.
3. The identification of potential customers.
Strategic innovation involves exploring the unknown to create new knowledge and new possibilities. It proceeds with strategic experiments to test the viability of new business ideas. It is a future-oriented concept that contains a creative discovery.
Secondly, managers should replace their traditional planning and control systems by a Theory-focused planning. Historically, planning and control systems were designed to implement a proven strategy by ensuring accountability under the presumption of reliable predictability. Planning systems for strategic experiments, by contrast, should be designed to explore future strategies by supporting learning, given the unpleasant reality of reliable unpredictability. Planning must support the objective of testing a strategy through experimentation. Reliable predictions are not possible. When the future is unknowable, the foremost planning objective must be learning, not accountability. This is where theory focused planning enters in the game.
Third, there are 6 changes to be made to implement a Theory-focused planning. The first three changes relate to building a theory to make predictions (the forward-looking part of planning). The second set of changes to traditional planning relates to testing the theory by comparing the predictions with actual outcomes (the evaluative part of planning). In the following section, we will see what are those changes and how to actually put those in practice (see the managerial implications part).
2. MANAGERIAL IMPLICATIONS
According to the paper, the absence of entrepreneurship has led to the death of many companies. It is therefore crucial to encourage this competence (boost entrepreneurship) by launching and learning from strategic experiments – trial and errors experiments. Companies should foster a culture of innovation that encourages collaboration across business teams and functions.
Secondly, managers should adopt a Theory-Focused Planning. Forget about the preconceived idea that you can predict the future. Forget about accountability but reinforce the science of learning under the reality of unpredictability. Managers should learn and react quickly to these learnings (trials by errors). In a conventional planning mind-set, there is no time for re-evaluations, only an urgency to work harder which escalate to tensions. To adopt a Theory-Focused planning, there are six changes to make from the conventional planning system:
1. Level of detail: Lessons are not in details but in critical unknowns: market, technology or cost.
2. Communication of expectations: Traditionally there are numbers as worst-case scenario and best-case
scenario. It is actually better to focus on the theory/assumption underlying the prediction:
• Influence or bubble-and-arrow diagram.
• How spending (R&D, manufacturing, marketing and sales) influences revenues (cause and effect
relationship of the unknowns).
3. Nature of predictions: Instead of making specific numerical predictions for specific dates, try to predict trends:
• Supplement influence diagrams with trend graphs which enable to represent many predictions over small
interval of times.
4. Frequency of strategic reviews: Review performance at least monthly to enable managers to learn quickly.
5. Perspective in time: Consider the history of the strategic experiment in its entirety and look at trends over
time. Lessons are embedded in history.
6. Nature of measures: Instead of relying on a mix of financials and nonfinancials to measure outcomes, focus on
leading indicators:
• Leading indicators are indicators that provide the first clues to whether the assumptions in the plan are
realistic or not.
3. LIMITATIONS
We highlighted 3 main limitations of those key insights and implications for managers. First, the paper says that planning within strategic experiments must emphasize learning, not accountability. However, learning by experiment is just the first step to find new innovations, but accountability will remain a solid pillar to evaluate the performance of a new path in business innovation in order to know where to push investments.
Then, when complexity, volatility and uncertainty are increasing in a certain sector, managers should keep in mind the trade-off between risk and expected returns, the risk could be different during strategic experiments compared to the traditional business. So it is crucial to assess the risks of a new path before investing business resources into it. Experiments are costly and they have to be in line with business resource boundaries.
Finally, hiring the best talents is key to optimally implement a Theory-Focused planning system in complex and volatile sectors. Redesign new business models or explore new path via strategic experiments require new soft skills for future leaders such as creativity, critical thinking, curiosity, a maker instinct, clarity (related to review of past decisions), dilemma flipping, an immersive learning ability in new environments and rapid prototyping (fail early, fail often, fail cheaply).
4. ADDITIONAL RESOURCES
We suggest other relevant sources related to the topic of our article:
1. (Article) Bouhali, R., Mekdad, Y., Lesbir, H., Ferkha, L. (2015). Leaders Roles for Innovation: Strategic Thinking and Planning. Procedia – Social and Behavioral Sciences, 181, 72-78.
The main point of this paper is to explain the difference between strategic planning and strategic thinking. Strategic planning is upward focused, looking at ensuring how tactics link up to corporate goals and strategies while strategic thinking is downward focused, looking at ensuring that meaning and purpose are diffused throughout the organization so that appropriate goals and tactics can be developed to meet the real needs of the organization. Strategic planning in this sense is more linked to the work of classical management, while strategic thinking is linked more to the work of leadership.
2. (Article) Sreeramana, A. (2016). Innovations in Experimental Learning – A Study of World Top Business Schools. Journal of Scientific Research and Modern Education (IJSRME), 1(1), 360-375.
3. (Video) Educause. (2016). 7 Keys to Strategic Innovation. Retrieved from Youtube: https://www.youtube.com/watch?v=Pufgvx4DBJM&fbclid=IwAR228cWhHSqySKzEUL7jyAZx5Bfl093Rdp3yNjdcbMQs6Hu_CvE_XkUI3t4&app=desktop, on October 4th 2019.
Show less(Article) Shenkar, O. (2010). Copycats: how smart companies use imitation to gain a strategic edge. Strategic Direction, 26(10), 3-5.
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Charlotte Boonen, Mayank Deora, Heloise de Villenfagne, Arun Baskaran
(Article)“Copycats : How smart companies use imitation to gain a competitive advantage ” written by Oded Shenkar issued by Emerald Group publishing in 2010.
The following paper will review the main points discussed during the presentation of the article entitled “Copycats : How smart companies use imitation to gain a competitive advantage ” written by Oded Shenkar issued by Emerald Group publishing in 2010.
The main key insights of the article are the following; Humans and animals have always relied on imitation to survive in a hostile environment. The pace of imitation is evident. In the 19th century, 100 years were needed to copy an innovation. Since the second half of the 20th century, only 2 years are sufficient. The question is why companies copy? One of the biggest advantages of imitating is that they benefit from a freeride.This means a situation where someone benefit from something without paying for it. In this case, they save money on R&D but also in marketing , because the product is already used and known. They can easily adapt what the pioneer did, to perfectly fit to what the customer expect. We do not have to think that imitation is embarrassing, we should put it into center stage strategically and operationally. Imitation as not to be seen as an obstacle to innovation but a driver. An imovater is a firm that understand that imitation is supportive of innovation. So we can say that is a fusion between innovation and imitation to create a competitive advantage.
Regarding, the implications, the article proposes eight different rules to follow in order to ensure a good imovate. A first set of four rules expresses ways to spot the appropriate imovation to be implemented. First, the company shouldn’t reinvent the wheel, and thus make sure to offer additional value or cheaper cost. Secondly, companies should recognize and reward imitation to create a positive perception around it. Thirdly, it is crucial to look beyond your own territory and rather seek for unknown, remoted firms to find a great innovation to imitate. Finally, the context must be understood and the environment must fit with the imovation. The second set of rules are related to the implementation of the imovation. First, analysis should be conducted in order to understand the causal explanation between the innovation and each of its individual component, secondly, not only timing is important, the real purpose of the imovation must also be fixed when launching, thirdly, the company shouldn’t forget to consider risk and costs linked with the imovation and finally, a defensive strategy should be ready when other players will start to imitate in their turn.
Limitations
Although the article talks about eight general rules for a firm to succeed in ‘imovation’, but how should the firm prevent second order imitation i.e. another firm imitating it. Without a proper defence strategy, the competitive edge of ‘imovating’ firm is not sustainable in long run. It might use intellectual property rights (IPR) to safeguard its territory, but lose legislations in many geographies makes it a bit easier for imitators to copy someone.
The author talks about cost advantages to an imitating firm. This will hold true only if the first mover and second mover have comparable resources. If the second mover does not have similar capabilities, it might end up incurring higher cost than the first mover. It is imperative to have a resource based view (RBV) in order to better understand the internal resources and capabilities. The four important aspects of VRIO framework should be compared before trying to imitate a first mover.
Further Research
Casadesus‐Masanell, R. and Zhu, F. (2013), Business model innovation and competitive imitation: The case of sponsor‐based business models. Strat. Mgmt. J., 34: 464-482. doi:10.1002/smj.2022
Ellen Enkel and Florian Mezger, (2013), IMITATION PROCESSES AND THEIR APPLICATION FOR BUSINESS MODEL INNOVATION: AN EXPLORATIVE STUDY, International Journal of Innovation Management (ijim), 17, (01), 1-34
Ordanini, A. , Rubera, G. and DeFillippi, R. (2008), The many moods of inter‐organizational imitation: A critical review. International Journal of Management Reviews, 10: 375-398. doi:10.1111/j.1468-2370.2008.00233.x
Show less(Article) Coeurderoy, R., & Durand, R. (2004). Leveraging the advantage of early entry: proprietary technologies versus cost leadership. Journal of Business Research, 57(6), 583-590.
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Executive Summary – Group 5
Key insights
The paper, published by R. Coeurderoy and R. Durand in 2004, analyses the early entry advantages with regards to proprietary technology and cost-leadership strategy. Regarding the competitive advantage in general, the authors state that if a pioneer wishes to maintain a sustainable advantage it must do so through the establishment of resource barriers (e.g. brand, relationships) and economies of time (acquired with time and expertise).
– When it comes to early mover’s advantage related to technology proprietary, this latter highly depends on the firm’s capability to develop and protect its technological resources. As a result, it means that the company should impede technology diffusion within the industry.
– Next, the authors point out that there is no early entry advantage associated with cost leadership strategy (and nor even with fast followers). Indeed, the only competitors that may benefit from that strategy are the late followers.
Implications
– The fact of keeping undisclosed the sources of innovation will protect first mover from early followers and to maintain its early mover’s advantage. Nevertheless, it is quite difficult to keep the secret of the mechanism or features of a technology, especially in the long-term. Indeed, there are 3 main legal ways to discover the benefits of a company’s technological insights : a potential early follower hires ex-employees, the method of reverse engineering and eventually asks the suppliers of the first mover in order to understand how the product works.
– In case of quick and easy imitation, followers can benefit from the pioneer’s incurred costs and enter more efficiently the market. That being said, being more efficient than the first entrant does not mean that entering the market is always a good decision. Some circumstances such as the pioneer’s strong brand loyalty, patent on a product, partnering with key suppliers and high switching costs, can discourage a firm to enter the market. Especially in case of reaping increasing returns advantages, it is very difficult to face a competitor who has a technology adopted in an early stage and who may have the benefits from market power through self-reinforcing positive feedback mechanisms.
Limitations
– Only existing companies have been analysed. Ineed, first movers companies which closed were not taken into account. If included, results might have been different and more reliable.
– The article mentions that companies should protect their technology in order to remain competitive. That being said, they also have to innovate and adapt their technology to remain relevant and up to date. Kodak and Blockbuster did fail to adapt and went bankrupt.
– The study neglects the geographical aspect. Indeed, the authors state that the first mover should protect its technology and the follower focus on cost leadership. Nonetheless, in some countries, such as India, Venezuela and Brazil, there might be issues due to a lack of intellectual property protection. Regarding cost leadership, in very poor countries, first movers might also have to focus on costs since the purchasing power is very low.
– Last, sometimes it might be wise to do the opposite of protecting its technology. Licencing a technology can be beneficial in two specific cases : when customers do not want to be locked to one single offer and when spreading the technology propels an increase of competitiveness among suppliers.
Further references
The first article discusses Walmart’s cost leadership strategy and how the multinational captured significant shares of the market. If a company chooses a cost leadership strategy and at the same time raises sustainability objectives, it can find solutions that may have benefits in both areas.
The second reference states that long-term market leaders are more likely to be later entrants, while the first entrants (who failed to launch what became successful markets), have disappeared from memory, although the failures laid the groundwork for success by subsequent entrants. In a more positive vein, a minority of early entrants actually do survive and gain sustainable advantages. The conditions include core and complementary resources held by early entrants and their potential competitors.
References
STANKEVICIUTE, E., GRUNDA, R., BARTKUS, E., Pursuing a cost leadership strategy and business sustainability objectives: Walmart case study, Economics and Management, 2012, 17(3), pp. 1200-1206.
VIDAL, E., MITCHELL, W., When do first entrants become first survivors?, Long Range Planning, 2013, 46(4-5), pp. 335-347.
Show less(Video) Knut Haanaes: Two reasons companies fail — and how to avoid them (TED talk)
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According to the lecturer Mr. Haanaes, a former senior partner at BCG, two of the biggest reasons companies fail is pertaining to their inability to balance Exploration and Exploitation strategies. In fact, research shows only 2% efficiently manage both at the same time.
On the one hand Exploration is about conducting research and engaging in intensive R&D to bring radical innovation. On the other hand, Exploitation is about bringing incremental improvements, e.g. in processes.
Two reasons can explain their struggle in finding the balance. Firstly, the perpetual search trap. It refers to a company constantly enhancing its offering, that becomes obsolete even before it is brought to market. Secondly, the success trap is the case in which a company relies on a successful historical product and fails to identify the need to change.
To avoid those, Mr. Haanaes suggests to always remain skeptical about your success, and think in multiple time scales. In fact, considering a company’s value over one year, about 30% comes from innovation. On a 10 year scale, it accounts for 70%, highlighting the need to balance exploitation on short term and exploration on the longer term.
Key Implications
The implications of falling in the different traps or just relying in one of the two types of innovation are huge, and that is why there is a need to act to face this problem. As said before, seeing the examples of Virgin Galactic, Apple self-driving car, or a sustainable Unilever, thinking in multiple time scales is key for the company in order to continuously grow and be present in the future, trying to acquire that 70% in ten years.
The second implication is more linked to the mindset of the company and the innovators, after reading the paper of J. T. Gourville and the TED Talk, is obvious that the mindset of the innovator has to be skeptical. And the company and the innovator should take a step back and look rationally the value that has been created and added, and also the view of the innovation in order to have a complete perspective of the situation and not fall in the over-value of the innovation itself.
Key Limitations
It goes without saying that one of the limitations of this talk is that the external environment has big consequences on a firm’s endeavour in balancing exploration and exploitation. A market’s competitive intensity, appropriability regime and previous exogenous shocks are some of the elements influencing the choice.
Most importantly, we felt it was important to underline a second axis used to further depict the innovation mode : closed vs open innovation. Closed innovation refers to the mindset that innovation has to stem from inside a company. In other words, internal R&D is the best way to find the best idea to win over the market. On the other hand open innovation refers to embracing the external sources of innovation and developing opportunities with external players. A study even creates a new taxonomy for the modes of innovation : open exploration/exploitation and closed exploration/exploitation adding more depth to the strategic choice.
As a conclusion, it is important to know that exploitation and exploration strategies exist, and that finding the right balance between the two is key in the achievement of your objectives. However, these strategies have their own implications and you need to keep them in mind : remain skeptical to change and think in longtime scale.
Additional resources :
Ericson, A., Kastensson, A. (2011). Exploit and explore : Two ways of categorizing innovation projects. International Conference on Engineering Design, ICED11.
Schulze, P. (2009). Balancing Exploitation and Exploration. Organizational Antecedents and Performance Effects of Innovation Strategies. Springler Gabler.
Gourville, J. T. (2004). Why Consumer’s Don’t Buy: The Psychology of New Product Adoption. Harvard Business School
Sources:
Lavie, D., Stettner, U. & Tushman, M.L. (2010). Exploration and Exploitation within and across organisations. The Academy of Management Annals, 4(1), 109-155.
Clausen, T. H., Korneliussen, T., & Madsen, E. L. (2013). Modes of innovation, resources and their influence on product innovation: Empirical evidence from R&D active firms in Norway. Technovation, 33 (6-7), 225-233.
(Article) Henderson, R. (2006). The innovator’s dilemma as a problem of organizational competence. Journal of Product Innovation Management, 23(1), 5-11.
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Executive Summary:
This article, published in 2006 by Rebecca Henderson, entails the overall aim to identify some limitations regarding Christensen’s book called the Innovators Dilemma’s published in 1997. It tries to take a better grasp of what is happening at the organizational level of incumbents when they are being disrupted by new entrants and to reanalyse the incumbent’s defaulting approach.
Key insights:
The author tries in a first stage to refute Christensen’s cognitive and political explanation on why incumbents cannot respond to disruptive innovations. The cognitive explanation identifies the problems that incumbents have with their data. Hence, it explains that incumbents simply don’t have the knowledge to identify these new needs of consumers. The political explanation orientates the problem around the fact that the managers that are responsible for the most important products or services of the firm simply get higher budgets allocated than new, risky and innovative projects. These two explanations are refuted by the author who says it is a competence-based problem. More specifically, it says that the incumbents recognized the threat beforehand but that they chose to ‘ignore’ it because they are simply not capable of answering to those new needs of consumers.
In a second stage the author refutes Christensen’s view on how incumbent firms only focus on their best consumers who assure their higher margins and therefore fail to identify new needs. On the other hand, Henderson says that it is constraints that imply this situation. In particular, the constraints on the firm’s organizational competence which are indeed anticipated by the firm.
Managerial implications:
As for the key takeaways, one should remember that there are three reasons why established firms fail too often to identify disruptive innovations. Namely, they simply don’t possess the organizational competence or their cost structures and distribution channels don’t allow them to radically change their offer or they focus too much on brand awareness rather than on consumer needs.
On top of that, a firm can better evaluate disruptive innovations by having a thorough knowledge of its core resources and competences, its consumer map and to avoid organizational inertia by broadening its knowledge on consumers but also on non-consumers.
Limitations:
Nevertheless, when talking about incumbents being disrupted one could argue that this practice very rarely succeeds. Hence, the number of start-ups declines more and more and the failure rate of start-ups increases more and more. On top of that, the M&A market of start-ups surges at an increase of 42% in 6 years. Furthermore, the example given about the confectionary industry being disrupted by the energy bars can be quickly refuted when analysing its current state. In particular, the energy bar market is dominated by the incumbents who have their own energy bars on the market and who have made acquisitions of the biggest newcomers.
Further references:
Yu, D., & Hang, C.-C. (2010). A reflective review of disruptive innovation theory.
International Journal of Management Review, 12(4), 435-452.
King, A.-A., & Baatartogtokh, B. (2015). How Useful Is the Theory of Disruptive Innovation?. MIT Sloan Management Review, 57(1), 77-90.
Christensen, C.-M., Hall, T., Dillon, K., & Duncan, D.-S. (2016). Competing against luck: The Story of innovation and customer choice (1st Ed.). HarperBusiness.
Schlegelmilch et al. (2003) ‘Strategic innovation: The construct, its drivers and its strategic outcomes’
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What are the key insights of the paper?
The first insight of the paper was the concept of strategic innovation, considered as
the combination of strategy and innovation, based on: the fundamental questioning of
existing models and rules, the reshape of the market, and a series of substantial value
improvements for customers. The second insight is the definition of the four drivers
of this type of strategy: company culture, processes, people (within and outside the
company), and resources – these should be aligned to the innovative strategy to be
successful in its implementation. The last insight was relative to the outcomes
generated by strategic innovation, which are related to customers and competition.
Strategically innovative companies create value proactively, delivering superior value
to their customers making competition irrelevant.
What are the managerial implications of those insights?
The first implication is that managers should value people’s inputs. The departments
involved in the implementation of the strategy should be involved in its “creation”, as
they can better understand how it can be incorporated in their functional area. In
addition, people’s inputs should not be discriminated based on the fact that they are
younger with less experience. Secondly, managers should focus on creating the
trend and their own market space, independent of customers or competitors.
Companies should try to offer customers what they don’t know they want, and
educate them to want what they offer. Lastly, managers should find the optimal
combination between analytical and growth-visions processes to elaborate their
strategy; this allow companies to identify where they are, and where they can be.
What are the limitations of those insights and our outstanding issues?
Even if the innovation process should be spread widely and horizontally within the
company, many companies that successfully implemented innovation strategy are
centralized. Amazon is an example of a very successful company with centralized
decision-making power. Furthermore, innovation is a means and not an end that helps
companies achieve their strategic goals. As these goals can be several, we do not
consider the possible outcomes to be restricted to only competition and customers.
For example, LUSH, a green soap producer, could be strategically innovative and its
main outcome would be sustainability. Finally, the framework provided to design an
innovation strategy is useful, but it lacks psychometric measurements of drivers and
outcomes, which leaves it pretty abstract.
Further Readings
Moon, Y., 2004. Birth of Swatch. Harvard Business Review.
https://hbr.org/product/birth-of-the-swatch/504096-PDF-ENG
Ram Nidumolu, C. P. (2009, September). Why Sustainability Is Now the Key Driver
of Innovation ? Harvard Business Review .
http://www.billsynnotandassociates.com.au/images/stories/documents/sustainability_t
he_key_driver_of_innovation.pdf
Paladino, A. (2007). Investigating the Drivers of Innovation and New Product
Success: A Comparison of Strategic Orientations. The Journal of Product
Management , 24 (6), 534-553.
Hamel (1998) “Strategy innovation and the quest for value”
Read more
The main purpose of this paper is to describe some points on which the
organization need to focus in order to pursue a successful innovation strategy. The
author treats the innovation strategy as the only tool for the pioneers of the market to
renew their success and the only way for new entrants to survive. To create wealth for
the company it is needed to focus on the game of strategy innovation but not on the
growth. However, it is very important to understand that there is a plenty of good
strategies that have never been implemented. The most important challenge for the
company’s management will not be the proposition of a unique innovation strategy and
its content, but the ability to conduct the strategy.
The author claims that in order to be successful the company should create a set
of preconditions that can catalyze the emergence of an optimum strategy. The article
introduces 5 types of preconditions for the emergent innovation strategy. First one is
about attracting new people to the process of strategy creation: new people means new
vision, which can help to go beyond the usual boundaries. Second precondition suggests
that people responsible for strategy creation should always try to find new contacts and
new conversations, because they need to search for opportunities of new insights. The
third one introduces the concept of return on emotional investment: individuals will
embrace a change if they know that they have a voice in inventing the future of their
company. The fourth precondition suggests that managers must constantly search for
new lenses to reconceive the environment to increase the probability of strategy
innovation. And the last precondition is about the continuous involvement in the new
experiments.
In this article the innovation strategy is seen as the most powerful tool. However,
we identified some limitations or obstacles that companies may encounter while
applying it. Firstly, not every company has means to run new experiments and the
failure, can ruin their reputation, image, strategy if the company is still young. In
addition to that, it may be difficult to involve newcomers in the implementation a
strategy if the result is uncertain, which is often the case. Moreover, the author did not
pay attention to product innovation. Indeed, it can also create wealth for the company as
it enables it to enter new market and thus, the need to think about innovation strategy
to survive is reduced. Lastly, companies have to be cautious because you can’t really
follow a strategy if constantly change, that’s why it could be useful to set some KPIs.
For the further readings we suggest the article written by Donald Sull, Rebecca
Homkes, and Charles Sull (2015) “Why Strategy Execution Unravels—and What to Do
and a book written by Joe Tidd, John Bessant, and Keith Pavitt (2005) “Managing
Innovation: Integrating Technological, Market and Organizational Change”, Part II: pp
107-234 – developing a framework for innovation strategy.
Markides, C., & Sosa, L. (2013). Pioneering and first mover advantages: the importance of business models
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The authors of “Pioneering and First Mover Advantages: The Importance of Business Models”, Constantinos Markides and Lourdes Sosa, aim at demonstrating the relationship between business models and exploiting first mover advantages.
According to authors, there is a large gap in literature about first mover advantages concerning the influence of business models on the performance of companies. The authors display following key points to illustrate and prove this issue:
1) There is a general consensus among scholars that there are both advantages and disadvantages of acting as a first mover in each market;
2) Business models could have a substantial impact on the usefulness of the first mover advantages.
The authors present their managerial implications to pioneers and late entrants. For pioneers the authors suggest that they should target the average consumer, focus on the functionality of the product and cutting costs to sell it at a lower price. Such companies should enhance customers’ loyalty and try to widen the ultimate market, they should keep exploiting their first mover advantages. However, the limitations here are that first mover advantages tend to get weaker over time, and some pioneers successfully grow by providing additional value to customers rather than lowering prices.
For late entrants the authors suggest that they should use innovative strategies and accept lower profit margins to combat incumbents. But, as first mover advantages erode over time, the importance of an innovative business strategy decreases. There are also examples of late entrants that could achieve higher profit margins from the very first days on the market.
Pioneers should use business model and product innovations to respond to late entrants (for example, by shifting the basis of competition). Authors suggest that they should try to differentiate and cut costs at the same time. But it is hard to achieve low cost and differentiation simultaneously. Besides, late entrants might outperform incumbents on the new basis.
After further research, we suggest following articles to deepen knowledge in this field:
1) “Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate New Markets” by Markides.
2) “Game Changing Strategies: How to Create Market Space in Established Industries by Breaking the Rules” by Markides.
3) “First to market, first to fail? Real causes of enduring market leadership” by Tellis.
4) “The business model: recent developments and future research” by Zott.
REFERENCES
1) Markides, Constantinos, and Lourdes Sosa. “Pioneering and first mover advantages: the importance of business models.” Long Range Planning 46.4 (2013): 325-334.
2) Markides, C., Geroski, P., 2005. Fast Second: How Smart Companies Bypass Radical
Innovation to Enter and Dominate New Markets. Jossey-Bass, San Francisco.
3) Markides, C., 2008. Game Changing Strategies: How to Create Market Space in Established Industries by Breaking the Rules. Jossey-Bass, San Francisco.
4) Tellis, G., Golder, P., 1996 Winter. First to market, first to fail? Real causes of enduring market leadership. Sloan Management Review, 65e75.
5) Zott, C., Amit, R., Massa, L., 2011. The business model: recent developments and future research. Journal of Management 37 (4), 1019e1042.
The Strategy Concept I: Five Ps For Strategy by Henry Mintzberg
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This paper looks at the 5 main interpretations of what a strategy is. It labels these as the
5 Ps of strategy. The first P is Plan. This is developed consciously and purposefully by the
organization in advance in order to carry out its mission and set its actions and goals. This is an
interpretation of strategy in the general sense. A more specific interpretation is that of strategy
as a ploy whereby a firm develops a specific strategy in order to threaten or discourage a
competitor. This is highly relevant in the competitive landscape where a company’s strategy is
largely targeted at dealing with its competitors. The third P is Pattern. Strategy here, is a pattern
that emerges over time with consistent actions and behavior of the company. It is not planned.
The fourth P is Position, essentially what the company wants to set as its position in the industry.
It is a collective strategy and connects the internal to the external. These 4 Ps are strategy views
based on the outside view. The fifth P being Perspective is the inside view. It connotes the
personality of the firm and is a shared concept.
A strategy has a process, something that can almost be called a life cycle. First comes the intended
strategy which are the actions that the firm wants to take. This gives rise to the deliberate strategy
which is the plan and the adaptation of the initial strategy to the environment. And finally, if the
actions taken are successful, it leads to a realized strategy. A realized strategy can also come from
an emergent strategy which is not deliberate, i.e. a pattern. In a fast-changing environment like
the one we are evolving in, the importance and the focus we give to emergent strategy is crucial.
The implications for a manager are that they need to understand what the existing patterns are
(both as a firm and in the industry) and find out the missing elements. (E.g. Kodak). They should
consider all the Ps but focus on developing a strategy progressively and avoid mixing the various
types of strategy. Developing a strategy takes time and cannot be done instantly. They should
focus on the emergent strategy (pattern and perspective) to develop a strategy best suited to
them as a firm and be able to adapt their initial strategy to the changes in the market.
The main limitation of the paper is that it is very theoretical, and does not provide any practical
examples or recommendations for managers. Furthermore, it looks only at the external
environment in terms of competition and does not consider other factors (included in
frameworks like SWOT and PESTEL). Strategy also varies with the level and type of business unit.
For example, a sales department would be more outward oriented and look at the ploy strategy
to deal with competition but a department such as HR has to be inward focused and use
perspective to understand the needs of the firm best. Finally, strategy is also affected by the
competitive advantage and the core competencies of the firm which are not considered in the 5
Ps.
For the further reading we suggest to have a look at the several views that exist on the strategic
management topic. Besides the 5Ps from Mintzberg, it is relevant to have a look at the generic
strategies of Porter, reviewed by William B.Gartner in his article : William B. Gartner (1985). The
Academy of Management Review. Vol. 10, No. 4, pp. 873-875.
The emergent concept is also promoted in the research of Quinn through « Logical
Incrementalism » : Quinn, James Brian, Sloan Management Review, v20 n1 p7-19 Fall 1978.
Kim, S. K., Arthurs, J. D., Sahaym, A. and Cullen, J. B. (2013). Search behavior of the diversified firm: The impact of fit on innovation
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According to the paper, diversification has both a negative (1) and positive (2) impact on
innovation : (1) the firm moves away from its core business and gradually loses the ability to
leverage on its core competencies; as a consequence, it experiences an increase in marginal
costs due to the amount of new information to process; moreover, there is a general tendency
towards acquiring innovation rather than developing it in house; (2) conversely, from a
resource-based view (RBV), diversification may enhance innovation because the firms
engaging in diversification are willing to exploit existing resources in order to develop new
competencies; since diversified firms possess more opportunity for the internal use of
knowledge, innovation could also increase basing on the economies of scope arising from
diversification; additionally, transferring technology and skills may be easier within
organizational boundaries rather than beyond them. Search scope moderates the relationship
between related diversification and innovation output such that related diversification is
positively related to innovation output when the firm pursues local search and negatively
related to innovation output when the firm pursues distant search.
Kim et al. underline that managers should try to match their innovation strategy with the
scope of the company. Nowadays, there are many companies that claim to be innovative, but
when creating a corporate strategy they do not look at the bigger picture and do not
incorporate their innovation strategy into it. It needs to be taken into consideration that local
search will help companies to categorize multiple diversification opportunities arising at the
same time and can prevent them from being overwhelmed. Furthermore, managers need to
remember that radical innovation will tend to fit better with an unrelated diversification
strategy, while for incremental innovation managers are advised to use a related
diversification strategy. Moreover, they should focus on building on existing competencies as
well as adding to their knowledge base to achieve higher innovation performance while
making sure that it is consistent with strategic fit. Last but not least, it needs to be said that
economic benefits of innovation are sometimes difficult to quantify immediately and directly.
Regarding the limitations of this paper, we have identified two main aspects. First of all, the
paper states that unrelated diversification strategy is beneficial for a firm exploring unfamiliar
and dissimilar technologies for innovation while it is detrimental to innovation output for a
firm exploiting technologies in the similar and familiar domains. However, this statement
should be more nuanced as some firms achieve innovation productivity with unrelated
diversification while having a narrow search behaviour, such as Mars with their
diversification into pharmaceuticals. Secondly, the causal relationship among diversification,
search behaviour and innovation may differ in ways that they do not capture in the paper.
Therefore, we would advise managers to also take other factors into account and and avoid
taking the results as set in stone.
In conclusion, we decided to further analyse the main topic by addressing two additional
studies. The first one (Aloini, D., Martini, A., 2013) stresses the importance of embracing a
how-to-search perspective in doing business, i.e. maximising the quality of information that
the company can get from its search. In order to accomplish that, a main objective should be
focusing on exploratory activities as a precious means to achieve higher performance. The
second one (Laursen, K., Salter, A. J., 2006) shows that innovation and the amount of search
done in the market are explained by an inverted-U curve relationship, meaning that managers
should focus their attention in a medium-low amount of research, but with the maximum
amount of insights, if they want to be innovative
Appendix:
Aloini, D., Martini, A. (2013). Exploring the exploratory search for innovation: A structural
equation modelling test for practices and performance. Int. J. Technology Management, Vol.
61, No. 1.
Laursen, K., Salter, A. J.(2006). Open for innovation: The role of openness in explaining
innovation performance among U.K. manufacturing firms . Strategic Management Journal,
27: 131–150
Zook, C. (2007). Finding your next core business
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The author of „Finding Your Next Core Business”, Chris Zook, aims at identifying the signs indicating that an enterprise has exhausted its core business. Moreover, he provides the tools to find potential for transformation within the company.
According to the text, there are three key reasons why a given core business loses its potency:
1) It targets a shrinking profit pool, which means being active in an industry with a general negative tendency considering profits available;
2) It practices inherently inferior economics. It may bear outdated features, such as cost structure, which serve as a disadvantage against new entrants;
3) It keeps an unsustainable growth formula. Growth rates plateau once the market reaches saturation and the competition manages to copy incumbent’s ideas.
A common tendency is that detection of such a pitfall comes too late. Thus, it is advised to perform periodical assessments of business’ vitality.
If the core is nearing depletion, it seems tempting to redefine a given business dramatically. However, according to the author, it is far more likely to achieve success by searching for change drivers in company’s interior. Namely, it is claimed, that an answer to the issue of exhaustion lies in overlooked assets. Managers could choose one of three distinctive areas within the organization to search through and find a spark to construct their future core:
1) Undervalued business platforms;
2) Untapped insight into customers;
3) Underexploited capabilities.
However, on the course of our research on the article we have noticed several limitations of the logic provided. Listed below is a selection of our arguments:
1) It does not account for managers opting out from conducting transformations for their own safety;
2) The author did not consider customers not wanting to share their data or providing false information;
3) Developing a valuable capability in-house is time-consuming.
For further research on the topic of core business’ transformation, we would like to suggest the following articles:
1) “Having Trouble with Your Strategy?” by R. S. Kaplan and D. P. Norton. It revolves around the idea of using balanced scorecard to find problems with the strategy;
2) “Assessing Your Strategic Alternatives” by B. Leavy. The author presents how to systematize the new core strategy of a company.
Clausen, T. H., Korneliussen, T., & Madsen, E. L. (2013). Modes of innovation, resources and their influence on product innovation: Empirical evidence from R&D active firms in Norway
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EXECUTIVE SUMMARY
The Paper, published in 2013 on the Technovation journal by Tommy Høyvarde Clausen, Tor Korneliussen and Einar Lier Madsen, analysis a taxonomy of four different modes of innovation impacting the ability of the firm to reach product innovation. The paper relies on data collected through surveys among more than 1000 R&D active firms in Norway.
KEY POINTS
The paper details the four modes of innovation being combinations of open/closed and exploration/exploitation. The distinction between open and close will be the use of internal or external resources. For example, a firm using the opinion of different stakeholders such as clients or suppliers, will be considered as opened. Regarding the exploitation/exploration, the contrast resides on the target of the improvement. For example, the exploitation will try to improve the efficiency and execution of its current processes while the exploration will create something completely new.
Each of the four modes of innovation will affect positively or negatively the firm on its resource base. This latest including both technological and market resources.
Companies holding better technological and market resources are more inclined to generate product innovation.
IMPLICATIONS
To reach product innovation on the best possible path, managers should be aware of some implications of the key points stated above.
• Managers should be aware that modes of innovation directly affect the resource base and therefore the product innovation. Moreover, they should not only think of those links before the launch of a new product innovation process, they should also remember their implications periodically during the implementation of the project.
• Managers should know that combinations between open/closed exploitation/exploration are not mutually exclusive. Indeed, one can always follow a mix of open exploration and open exploitation simultaneously.
LIMITATIONS
We found some gaps in the paper which can impact its conclusions.
• The effect of the mode of innovation chosen by the company may differ with the industry and/or whether it is a service firm or a company producing items.
• The paper focuses on Norway while the effects could be completely different from one country to another.
FURTHER REFERENCES
Herzog, P. (2011) Open and closed innovation: different cultures for different strategies. Springer Science & Business Media.
Hollenstein, H., (2003). Innovation modes in the Swiss service sector: a cluster analysis based on firm-level data. Research Policy 32, 845–863.
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Ireland, R.D., Covin, J.G., & Kuratko, D.F. (2009). Conceptualizing corporate entrepreneurship strategy. Entrepreneurship Theory and Practice, 33(1), 19-46.