Theme 3

Developing the Framework for

an Innovation Strategy

Managing Innovation

Outline

1. ‘Rationalist’ or ‘Incrementalist’

Strategies for Innovation?

2. Technology and Competitive Analysis

3. The Dynamic Capabilities of Firms

4. Innovation Strategy in Small Firms

“Rationalist” or “Incrementalist” Strategies for

Innovation?

describe, understand and analysethe environment;

determine a course of action in the light of the analysis;

carry out the decided course of action.

Rationalist Strategy

Rationalist’ or ‘Incrementalist’ Strategies for

Innovation?

This approach is intended to help the firm to:

Be conscious of trends in the competitive environment

Prepare for a changing future.

Ensure that sufficient attention is focused on the longer

term, given the pressures to concentrate on the day-to-

day.

Ensure coherence in objectives and actions in large,

functionally specialized and geographically dispersed

organizations.

• ‘I think there is a world market for about five

computers.’ (T. Watson, 1948)

• ‘Gaiety is the most outstanding feature of the

Soviet Union.’ (J. Stalin, 1935)

• ‘I cannot conceive of any vital disaster

happening to this vessel.’ (Captain of Titanic,

1912)

“Rationalist” or “Incrementalist” Strategies for

Innovation?

Make deliberate steps (or changes) towards the stated objective.

Measure and evaluate the effects of the steps (changes).

Adjust (if necessary) the objective and decide on the next step (change).

Incrementalist Strategy

“Rationalist” or “Incrementalist” Strategies for

Innovation?

Incrementalist Strategy

Symptom diagnosis Treatment Diagnosisadjust

treatment cure

Design development adjust design test retest operate

Innovation Process: definition and main stages

The implications for the processes of

strategy formation:• Given uncertainty, explore the implications of a

range of possible future trends.

• Ensure broad participation and informal channels

of communication.

• Encourage the use of multiple sources of

information, debate and skepticism.

• Expect to change strategies in the light of new

(and often unexpected) evidence.

Technology and Competitive Analysis

The ‘Five Forces’ Driving Industry Competition

Technology and Competitive Analysis

Porter’s generic technology strategies

Technology and Competitive Analysis

firms must decide between two market strategies

• firms aim at being first to market, based on technological Leadership

Requirements

• a strong corporate commitment to creativity and risk-taking,

• close linkages to major sources and to the needs of customers.

Innovation ‘leadership’

Innovation ‘followership’

• aim at being late to market, based on imitating (learning) from

the experience of technological leaders

Requirements

a strong commitment to competitor analysis and intelligence, to reverse

engineering and to cost cutting and learning in manufacturing.

The Dynamic Capabilities of Firms

To be strategic, a capability must be

honed to

a user needunique difficult

to replicate

So that there are

customers

so that the

products/services

can be priced without

too much regard for

the competition

so that profits

will not be competed

away

The Dynamic Capabilities of Firms

strategic dimensions of the firm

Processes Position Paths

the way things are

done in the firm, or

what might be

referred to as

its ‘routines’, or

patterns of current

practice and

learning.

its current

endowment of

technology and

intellectual property,

as well as its

customer base and

upstream relations

with suppliers

the strategic

alternatives

available

to the firm, and the

attractiveness of the

opportunities which

lie ahead

Innovation Strategy in Small Firms

Misleading assertions about innovation in small firms

Innovating firms have

the following characteristics:

Similar objectives

Organizational

strengths

Different sectors

Technological weaknesses

Innovating firms have

the following characteristics:

Similar objectives

to develop and combine

technological and other

competencies to

provide goods and services that

satisfy customers better than

alternatives, and that

are difficult to imitate.

Innovating firms have

the following characteristics:

ease of communication, speed

of decision-making, degree

of employee commitment and

receptiveness to novelty. This is

why small firms often

do not need the formal

strategies that are used in large

firms to ensure communication

and co-ordination.

Organizational

strengths

Innovating firms have

the following characteristics:

small firms make a greater

contribution to innovation in

certain

sectors, such as machinery,

instruments and software, than

in chemicals, electronics

and transport.

Different sectors

Innovating firms have

the following characteristics:

specialized range of

technological competencies,

inability

to develop and manage

complex systems, inability to

fund long-term and risky

programmes.

Technological weaknesses