ED HESS Professor and Batten Executive-in-Residence MICHAEL LENOX Professor and Executive Director, Batten Institute Dynamic Strategy Processes for Innovation

The Research Hourglass What drives innovation and growth? How does one create and manage a growth strategy?

Change is the new constant… Globalization Technology Hypercompetition Demise of Sustainable Competitive Advantage Shorter Product Lifecycles Secrecy and Surprise is Difficult First Mover Advantage Temporary Velocity of Change Is Increasing

Yet, the current approach to Strategy Making is static Historically, strategic analysis has been static:  Driven by 5 Forces, Competencies, BCG 2 X 2  Driven by Porter’s 2 Basic Business Models  Historically, a Top-Down Process Traditional strategy tools were created in a less dynamic business environment

New knowledge has emerged about growth & innovation In last 10 years, research has highlighted that growth and innovation are dynamic processes:  Growth results from experimental learning and requires the right kind of internal environment and processes  Growth is an iterative process that requires adaptation, constant evaluation of new inputs and learning with frequent review of resource allocations Classical economic models do not adequately model growth:  Biology & complexity theory better model growth & innovation  Schumpeter and behavioral revolution in economics

Modernized for this high velocity hypercompetitive global business environment Recognizing the dynamic, learning process that underlies growth and innovation Growth demands a new approach to Strategy Making!

The Emerging Darden School of Thought Venkat’s work on entrepreneurial ecosystems Saras Sarasvathy’s work on effectuation Jeanne Liedtka’s work on growth leaders Michael Lenox’s work on open innovation and dynamic competitive models Raul Chao’s work on innovation portfolios Ed Hess’ work on growth systems and processes

Our Dynamic Strategy Model

The Competitive Cycle Every business segment evolves and goes through a continuous cycle characterized by Emerging, High Growth, and Mature stages The Stages are begun by discontinuities, annealization, and shake-outs. The length of each stage and the severity of the shakeouts or disruptions varies by industry What stage is your business in, how long do you think that stage will last and how will you fare in the upcoming shakeout?

The Competitive Lifecycle EMERGENT MATURE GROWTH DISRUPTION ANNEALING SHAKEOUT

Competitive Cycles Emerging Stage: Disruption, innovation, new entrants, no dominant design, standards High Growth: Winnowing out, standards, designs, models become more dominant. Scaling processes become critical. Few winners evolve. Mature: Growth rates revert, scale, efficiencies, and improvements dominate

Innovation Capabilities Innovation requires 4 different competencies: Design, Commercialization, Scaling, Improvements These competencies require different mindsets, processes, tolerances for risk and mistakes, and environments

Innovation Capabilities Dominant capabilities change in different stages Strategic choice: what capabilities do you build or own, but, or foster Examples: Coca Cola, P&G, a pharma, a( MIKE ADDITIONS)

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Growth Initiatives Portfolio Consistent innovative companies create annual portfolios of initiatives that are managed, pruned, added to monthly- quarterly. Portfolios are created taking into account both short- term and long-term growth needs Portfolios include top-line revenue and bottom line efficiency and productivity initiatives Portfolios include improvements ( better, faster & cheaper),

Growth Initiatives Portfolio Long-Term Short-Term Bottom-LineTop-Line B A F