1. Chapter 9 Strategic Innovation
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

2. © 2014, Cengage Learning EMEA, ISBN 97814082683
Contents
Introduction
The issue of strategic renewal
The paradox of exploitation and exploration
Perspectives on strategic renewal
Managing the paradox of exploitation and exploration
Strategic innovation in international perspective
Readings and Case 9
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

3. The issue of strategic renewal
Characteristics of strategic innovation
There are 4 different processes for strategic renewal.
Strategic innovation as a strategizing process
Strategizing managers must be aware of the unfolding opportunities and threats in the environment and the evolving strengths and weaknesses of the organization
Strategists are working in a context of ‘bounded creativity’, constrained by, e.g. lead time
and resource availability
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

4. The issue of strategic renewal
Strategic innovation
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

5. The issue of strategic renewal
Strategic innovation as an entrepreneurial process
Companies make use of entrepreneurial managers for strategic activities e.g. finding new markets for existing products and services, applying new technologies in current markets and setting up new businesses
Strategic innovation as a change process
The company’s business model and one or more elements of the company’s organizational system will need to be adjusted. ‘Organizational system’ – how the individuals in the firm have been configured and relate to one another.
Firms have organizational cultures as organizational members interact with one another and build up joint beliefs, values and norms.
Some strategic innovation processes require organizational restructuring, e.g. when new products combine resources that are located in separate units.
Organizational processes may need to be redesigned, e.g. as a result of new product offerings.
A change of the firm’s culture may be needed e.g. when
different units are not inclined to share ideas.
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

6. The issue of strategic renewal
General view of the business model and the organizational system
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

7. The issue of strategic renewal
Strategic innovation as an investing process
Strategic innovation requires resources e.g. money, time and management capabilities, and can be considered to be an investment into the company’s future and requires a positive return on invested resources
Investments in innovation compete with mergers, acquisitions and entering new countries
Investments that promise to generate returns in the long term are riskier than short-term options – the same applies to innovation options
Managers must think of the entire process of change from idea generation to managing the renewal process up to the successful implementation of the innovation
Strategic innovation combines: strategizing,
entrepreneuring, changing and investing processes
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

8. The issue of strategic renewal
Inhibitors of strategic innovation
Effects of innovation results – strategists may be reluctant to explore alternatives which have not been successful in the past
Effects of inertia and bias
Effects of feedback – when innovation results are satisfying strategists are not challenged to explore innovations that could be even more successful
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

9. The issue of strategic renewal
Business model renewal
In order to prepare for a competitive future, strategizing managers need to renew several elements of the business model
Strategists can renew each element of the company’s business model:
product offering
value chain
resource base
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

10. The issue of strategic renewal
Outside-in renewal
Managers can renew their value proposition by increasing the perceived product and service value and lowering prices, e.g. improve reliability of its products or create new markets or market segments with existing products
Inside-out renewal
Managers can renew the company’s resource base to create new products and services and improve existing ones e.g. invest in technological R&D, marketing campaign and training of staff
Value chain renewal
Managers can renew some or all elements of the value chain e.g. IKEA has redesigned its processes, from standardizing production processes, developing flat pack
designs and lowering transportation costs.
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

11. The issue of strategic renewal
Two perspectives on business model renewal
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

12. The paradox of exploitation and exploration
Should the company renew itself by improving the current organization (exploitation) or by radically rejuvenating the organization through disrupting technologies and processes (exploration)?
Renewal processes of exploitation can be measured in terms of realized client value (lower price and higher quality). Radical renewal is measured by the extent to which a new industry is created or new customer value is realized.
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

13. The paradox of exploitation and exploration
The demand for sustained renewal
Refers to the process of permanently improving products and services to strengthen the company’s competitive position
Standards are continuously raised
Based on factual information e.g. customer feedback and market research as well as ideas from within and outside the firm
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

14. The paradox of exploitation and exploration
The demand for disrupting renewal
Refers to the process in which current competitive positions are challenged by introducing new technologies and business models
Disruptive innovations do not follow from the facts but need to be invented
Creative thinking is necessary
Read carefully Exhibit 9.1 3M: In search of renewal
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

15. Perspectives on strategic renewal
Sustained renewal is necessary to ensure ongoing improvement of the current business model
Disruptive renewal is necessary to create new business models
The strategic improvement perspective
Companies should focus on improving their business model
All employees should be committed to improving all elements of the business model
Radical innovation initiatives are risky and absorb the most precious resources for corporate renewal
Read carefully Exhibit 9.2 Weber Grills:
Mostly made in America by private equity
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

16. Perspectives on strategic renewal
The radical rejuvenation perspective
Companies should focus on breakthrough innovations
The more radical the departure from the industry rules, the more difficult it will be for competitors to follow and the higher the benefits for the innovator will be
Old ways must be discarded before new methods can be adopted – ‘creative destruction’
Strong company leadership is essential
Sustained improvement comes at the expense of strategically more effective innovations
Read carefully Exhibit 9.3 Hamdi Ulukaya
keeps the yoghurt market fresh
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

17. Managing the paradox of exploitation and exploration
Strategic improvement versus strategic rejuvenation perspective
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

18. Managing the paradox of exploitation and exploration
Parallel processing
Involves separating exploitation and exploration processes in different organizational units while integration takes place at a different (higher) organizational level – ‘spatial separation’
Parallel processing internally – build a separate R&D unit that develops new technologies – outcomes are then transferred to other organizational units
Parallel processing with external partners
Navigating – the entrepreneur explores and then exploits – navigates over time ‘temporal separation’
Balancing – processes can be combined in
the same unit
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

19. Managing the paradox of exploitation and exploration
Exploration and exploitation over the S-curve
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

20. Strategic innovation in international perspective
Countries differ in the strategies they prefer. Japanese companies generally favor the gradualist approach while Western companies generally favor the leap forward.
Geography and individual brilliance – differences in developmental trajectories are determined by the possibilities to foster technologies that enabled progress.
Governmental support – proactive governmental support is often crucial, e.g. development
of aviation to support the war.
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

21. Strategic innovation in international perspective
Internationalization of technology
International transfer of technology by MNEs
Technology cannot just be exported – not possible to narrow technological gaps by foreign direct investment only
Knowledge distribution has become easier by using information technology – communication and information transfer is based on digital technologies so information can be stored, processed manipulated and transmitted between any two places in the world
Some countries have reached the threshold of developing new technologies themselves. Home governments and national capital stimulate the development of technology.
A good indicator of shifting technological innovations is the number of patents awarded – there is an increase in the number of patents granted to applicants from China and the Republic of
Korea.
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

22. Strategic innovation in international perspective
Culture and Technology
Tangible knowledge can be codified and transferred but culture plays an important role and its values are intangible
Countries that are considered to be the most individualistic, US and UK, are capable of great innovations. The US leads the world ranking of Nobel Prizes.
Collectivist cultures have different merits, e.g. Japanese very good at improving processes and products initiated by Americans.
Different cultures deal differently with time – Kaizen sees time as a circle improving production methods also seen as a circle.
Ownership of inventions – Eastern societies have a different attitude towards private intellectual ownership. The teachings of Confucius stress that knowledge is for the benefit of everybody – an obligation to share your wisdom with others. What in the West is considered to be stealing intellectual property rights, in the East is seen as copying
and improving on the findings of an honorable father
figure.
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN