Strategic Management Summary

Contents
Lecture 1................................................................................................................................................3
Christensen & Raynor, 2003: Why Hard-Nosed Executives Should Care About Management Theory
...........................................................................................................................................................3
Notes from Videos..............................................................................................................................4
Extras from Zoom Seminar.................................................................................................................5
Lecture 2................................................................................................................................................5
Porter, 2008: The Five Competitive Forces That Shape Strategy........................................................5
Barney, 1991: Firm Resources and Sustained Competitive Advantage..............................................8
Ginsberg, 1994: Minding the Competition: From Mapping to Mastery (Reference Only)................10
Helfat & Winter, 2011: Untangling Dynamic and Operational Capabilities: Strategy for the (N)Ever-
changing World (Reference Only).....................................................................................................13
Extra notes from Videos...................................................................................................................13
Lecture 3..............................................................................................................................................16
Bower & Gilbert, 2007: How Managers’ Everyday Decisions Create or Destroy Your Company’s
Strategy............................................................................................................................................16
Kahneman, Lovallo, & Sibony, 2011: Before you make that big Decision…......................................17
For presentation (if needed).........................................................................................................19
Kalling, 2007: The lure of simplicity: learning perspectives on innovation (Reference only)............20
Extra notes from Videos/slides.........................................................................................................20
Lecture 4..............................................................................................................................................20
Ghemawat, 2017: Globalisation in the age of Trump.......................................................................21
Meyer, 2015: When Culture doesn’t translate.................................................................................22
Bartlett & Ghoshal, 1988: Organising for Worldwide Effectiveness: The Transnational Solution.....23
Hofstede, 1994: The Business of International Business is Culture..................................................26
Lecture 5..............................................................................................................................................28
Greenhalgh & Rogers, 2010: The Nature and Importance of Innovation.........................................28
Sawhney, Wolcott, & Arroniz, 2006: The 12 different ways for companies to innovate..................32
Henderson & Clark, 1990: Architectural Innovation: The Reconfiguration of Existing Product
Technologies and the Failure of Established Firms...........................................................................33
Extra Notes from Video....................................................................................................................35
Lecture 6..............................................................................................................................................36
Drucker, 2002: The Discipline of Innovation.....................................................................................36
Hamel, 2006: The Why, What, and How of Management Innovation..............................................37

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 Harris, Bhatti, Buckley, & Sharma, 2020: Fast and Frugal Innovations in Response to the COVID-19
Pandemic..........................................................................................................................................39
Extra Notes from Videos...................................................................................................................39
SAS Video.........................................................................................................................................40
Case Study P&G................................................................................................................................41
Lecture 7..............................................................................................................................................42
Nagji & Tuff, 2012: Managing your innovation portfolio..................................................................42
Day & Shea, 2019: Grow Faster by Changing Your Innovation Narrative.........................................44
Christensen, 1992a: Exploring the Limits of the Technology S-Curve. Part 1: Component
Technologies....................................................................................................................................45
Christensen, 1992b: Exploring the Limits of the S-curve. Part 2: Architectural Technologies..........46
Seebode, Jeanrenaud, & Bessant, 2012: Managing Innovation for Sustainability............................47
Extra Notes from Videos...................................................................................................................49
Eight Tests for Innovative Ideas........................................................................................................50
Case Study: DBS – from the “World’s Best Bank” to building a future-ready enterprise......................51
Lecture 8..............................................................................................................................................56
Prahalad, 2006: The innovation Sandbox.........................................................................................56
Martin & Kemper, 2012: Saving the Planet: A tale of two strategies...............................................56
Case Study........................................................................................................................................57
Lecture 9..............................................................................................................................................58
Porter & Kramer, 2011: Creating Shared Value................................................................................58
Kanter, 2011: How great Companies think differently.....................................................................60
Petriglieri, 2020: Are our Management Theories outdated?............................................................62
Preparation for class.........................................................................................................................63
Extra Notes from Videos...................................................................................................................63
Lecture 10.............................................................................................................................................63
Fine, Hansen, & Roggenhofer, 2008: From lean to lasting: Making operational improvements stick
.........................................................................................................................................................63
Johnson, Christensen, & Kagermann (2008): Reinventing your business model..............................64
Pisano, 2015: You need an innovative strategy................................................................................67
Lecture 11.............................................................................................................................................69
Dyer, Gregersen, & Christensen, 2009: The Innovator’s DNA..........................................................69
Hamel & Välinkangas, 2003: The Quest for Resilience.....................................................................69
Martin & Golsby-Smith, 2017: Management is much more than a science.....................................71

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3
Lecture 1

Christensen & Raynor, 2003: Why Hard-Nosed Executives Should Care About
Management Theory

 “A theory is a statement predicting which actions will lead to what results and why”
 Theories are valuable in (at least) two ways:
o They help us to make predictions
o They help us to interpret the present
 Most managers use theory without noticing it; often they are even opposed to theory
 Article has a threefold objective:
o Establishing the central role that theory plays in managerial decisions
o Describe how good theories are developed and can improve over time
o Develop a sense for which theories can be trusted and which not
 Theory is a hypothesis of what causes an observed phenomenon to happen. And theories can
be refined afterwards (example of country’s natural resources vs Italy’s tile production 
cluster building for process-based competitive advantage)
 When building theory it is crucial to differentiate between the correlation between attributes
and the causal mechanism
o Too often, an apparent correlation is used as a valid theory, without explaining the
cause of the correlation
 You cannot apply any theory to any case – you should consider novel ideas, but whether you
need to innovate or focus on core competences depends on the situation

Theory Building

The theory building process can be split into three aspects:

1. The importance of explaining what causes an outcome (instead of just describing attributes
empirically associated with that outcome)
 Identification of the most visible attributes that seem to be correlated with a particular
outcome
 Basis for categorisation
 Starting point, but rarely much more
2. The process of categorization that enables theorists to move from tentative understanding to
reliable predictions
 It is crucial to understand failures as well – too often researchers are focussed on excellent
examples and ignore failing companies that could provide valuable lessons
 Good theories are circumstance contingent – that is they predict not only what causes what
and why, but the causal mechanism explains different outcomes in different situations
 “Circumstance-contingent theories enable managers to understand what it is about their
present situation that has enabled their strategies and tactics to succeed. And they help
managers recognize when important circumstances in their competitive environment are
shifting so they can begin "piloting their plane" differently to sustain their success in the new
circumstance”
3. The importance of studying failures to building good theory

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  One of the reasons fads come in waves in management research is that researchers often
neglect failure and look for ‘best practices’
 To create circumstance-contingent theories one has to ask “When doesn’t it work?”
 Managers need to understand what situation they’re in (and which not), and theory needs to
be able to communicate in which situation a certain approach works

Always repeat until you end up with a solid theory

Judging which theory works and will help in a certain situation

Recommendations that might help to judge what works for you:

 In an early stage, researchers might publish articles that simply describe a phenomenon.
These articles can be a good foundation for subsequent research
 “Beware of work urging that revolutionary change of everything is needed”
 Never trust authors who claim that their theories work for all companies in all situations
 If authors classify the phenomenon under observation into categories accept that this is no
final theory yet – it only shows the relationship
 Correlations are sometimes masque as causations in form of adjectives (humble CEOs etc). A
real theory needs to include a mechanism; a description of how something works
 Progress in theories comes from failures – a researcher’s findings can never be the final word

Notes from Videos

About Strategic Management

 A science of organisational performance

o Why are certain organisations better than others; reasons the performance of a firm
changes
 Strategic Theory of the Firm: Someone is prepared to invest
 Strategic Management: Managing internal resources and competencies in a rapidly changing
environment (new tech, markets, societal norms and values, legislations etc), creating ana
managing new businesses
 Most things we do are guided by some form of theory – good and bad ones. Often, managers
do not admit this
 Optimal solutions (aka different theories) come in waves  societal phenomena are
reflected in management theory and concepts
o Current important issues in lecture video
 There is not one optimal solution, but different ones fit different firms and situations

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  Corporate behaviour and strategy is not separated from the rest of the world  Firms want
to appear politically correct and go with the tune of times
 Really successful firms develop their own business models and then are imitated by others

What is a theory?

 A more or less qualified guess, which is testable, and which stands despite repeated attempts
to falsify it (Karl Popper)
 Theories guide our actions constantly (at least in Biz Admin)
 Kurt Lewing: Nothing is as practical as a good theory
 Important to differentiate between the nature of different theories: some take on scientific
theory, some of advice
o  Descriptive vs prescriptive
 Many theories appear tempting – but often you need to choose, certain things are opposing
each other (social media vs customer orientation, innovation vs. core competence etc)

Extras from Zoom Seminar

Assignment: 5k words; Corona, Analysis+practical implications to innovate out of this crisis

Lecture 2

Porter, 2008: The Five Competitive Forces That Shape Strategy

 No matter in which industry you operate, there are five competitive forces that shape how
profitable your firm is
 Differently strong, but always existing in all industries

1. Threat of entry

 New entrants bring new capacity and want to gain market share  pressure on prices
 How serious this threat is depends on entry barriers: high barriers  low threat
 When the threat is high, incumbents need to keep prices low or boost investment to deter
new rivals
 These barriers of entry are:
o Supply-side economies of scale: larger volumes lead to lower cost/unit
o Demand-side benefits of scale: do customers prefer to buy when many others buy
there too / think networks, compatibility, trust in firm etc
o Customer switching cost: how easy is it for customers to switch to new entrants?
o Capital requirements: how much money needed upfront? Depends on type of
financing too – R&D makes it more difficult, airlines usually get loans cause planes
have high resale value
o Incumbency advantages independent of size: vary from geographical locations,
access to raw material, tech, established brand identities etc

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 o Unequal access to distribution channels: new food items must push others off
supermarket shelves, if there is no access to distribution channels a new entrant
might have to build their own
o Restrictive government policy: depending on the product, laws and policies can
hinder an entry (alcohol in Sweden), amplify (protective policies, subsidies for local
products), nullify (making R&D available for all firms)
 On top of that a new entrant is faced with the possibility of an incumbent retaliating;
important to evaluate how vigorously the established firm will and can push back

2. The power of suppliers

 Powerful suppliers can set the prices and leave a firm with limited leverage
 Suppliers are powerful when
o They are more concentrated than the industry it sells to (think MS and PC
manufacturers)
o They don’t depend on one group for profits – the more diversified their revenue
streams are, the more likely they are to extract every cent from every group
o The switching cost to another supplier are high
o They offer differentiated products (one reason why pharmaceuticals are so
expensive)
o There is no substitute to the supplier (pilots unions)
o The threat of forward integration is credible
3. The power of buyers
 Powerful customers can force down prices, demanding better quality or service, or playing
competitors against each other
 Buyers are powerful when
o There are few buyers or the volume of purchase is enormous
o The industry’s products are standardised or undifferentiated
o Buyers face low switching costs
o The threat of backwards integration is credible
 Additionally, it is important to understand when buyers are price sensitive:
o A single large expense is often thought about
o Strapped for cash?
o Quality of supplier’s product does not affect own product
 In general, this holds true for B2B and private customers
 Intermediate customers can gain significant power when they can influence the purchasing
decisions of customers downstream  working around can work (Shimano)
4. The threat of substitutes
 A substitute performs the same or a similar function as an industry’s product by a different
means
 This threat can be downstream or indirect; that makes them hard to find sometimes
 High threat of subs affects profitability negatively
 The threat is high if
o It offers an attractive price-performance trade-off to the industry’s product
o The buyer’s switching cost to the substitute is low
5. Rivalry among existing competitors
 High rivalry limits profitability
 The intensity of rivalry is greatest if

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 o Competitors are numerous and/or roughly equal in size
o Industry growth is slow
o Exit barriers are high
o Rivals are committed and have aspiration for industry leadership
o Firms cannot read each other’s signals well
 Price competition is the worst form of rivalry in terms of profitability – easy to match by
others, too
o Competition on other dimensions, such as product quality, dimensions, support
services, brand image etc is less harmful for profitability
 Note: When all firms compete on the same dimension you end up at a zero-sum game: one
firm’s gains are another firm’s losses
 Strategists need a clear understanding of the industry and their rivals and their structural
underpinnings and strategies – sometime rivalry can be good for everyone

Factors to consider

 Industry growth rate: high growth rate not always positive

 Technology and innovation: often overrated
 Government: Neither inherently good nor bad
 Complementary products or services: Important to keep in mind; neither inherently good nor
bad

Changing industry structures

 We slowly see entire industries change

 Changes in any of the factors above can drastically affect an entire industry
 M&As can change rivalry immediately

Understanding all this is the start point for strategists  The firm can then be positioned. Strategists
need to trim every single part of the value chain to one niche. Five forces-framework helps to
understand an industry and then find a potential niche that can be exploited. Similarly, the
framework allows managers to spot industries that may seem great, but entering them would cause
a sea full of troubles.

 A manager who is familiar with the forces in an industry can exploit industry changes when
spotted early enough.
 Managers can further shape or reshape an industry by redistributing profits
o Either redivide profits between competitors or expanding overall profits
o To do so, backwards/forward integration, change business models

In this article, Porter revisits his own framework – many good examples, and he takes it one step
further by actually providing a list of pitfalls and a few broad ideas for industry analysis. Actually
helpful for managers.

Back in my Bachelor a prof said that it was too often used on firm level rather than on industry level –
I think Porter addresses that issue, or at least makes it very clear that this is an industry analysis.

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Barney, 1991: Firm Resources and Sustained Competitive Advantage

 SWOT analysis broadly used, split into internal and external analysis
 Sets out to develop a model that can describe whether or not a firm’s particular resource can
be source of a sustained competitive advantage
 Firm resources can be split into three groups (for the sake of this article at least)
o Physical capital resources; human capital resources; organisational capital resources
 Theoretical scenario: In an industry with totally homogenous resources, no firm can have a
sustained competitive advantage
o What about first mover advantage?  For it to be present, resources have to be
heterogenous to at least some extent
o What about barriers to entry?  Same here, resources need to be mobile and
heterogenous to a certain extent
 Assumption: A firm’s resources are heterogenous and immmobile

 To be the basis for a sustained competitive advantage, a firm resource must possess four
attributes:
o Valuable (exploits an opportunity and/or neutralises threats in a firm’s environment)
o Rare (within a firm’s industry and/or competition); (don’t mistake the common
resources as unimportant though)
o Imperfectly imitable (firms that do not have these resources cannot easily obtain
them or create them). Three possible reasons include
 Unique historical conditions
 This is interesting, cause he breaks with previous ideas – basically
says that a firm’s history can lead to rare and inimitable resources.
Pathdependency here can lead to comp advantage(e.g. location that
turns out to be better in hindsight, or a culture that was hip back in
the day and now turns out to be better)
 Link between resources possessed and comp. advantage is causally
ambiguous
 In this case, competitors cannot copy the resource
 Important to know that this affects the firm that has an advantage as
well (otherwise competitors would engage in knowledge transfer
activities)
 Resource is socially complex
 E.g. interpersonal relationships between managers, corporate
culture, reputation among suppliers. Often not causally ambiguous,
but impossible to simply create
o Substitutability: there cannot be strategically equivalent substitutes for this resource
that are valuable but neither rare or imperfectly imitable
 Can refer to managers; visions, other stuff – sometimes with vastly different
backgrounds, but still a substitute
 These attributes are empirical indicators of how heterogenous and immobile a firm’s
resources are and, therefore, how useful they can be in obtaining a sustained competitive
advantage

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Application of the framework

There are three ways how the framework can be used:

Strategic planning and sustained competitive advantage

 Trend: Strategic planning as competitive advantage

o Valuable? Yes, they enable firms to spot opportunities and threats
o Rare? No, many firms engage in those activities.
o Inimitable? No, even in industries in which it’s rare, it’s not inimitable
o Substitutable? Not really, but nevertheless:
 on its own not a basis for sustained competitive advantage
 Does obviously not prevent firms from obtaining this advantage – but it cannot be the single
source thereof

Information processing systems and sustained competitive advantage

 IT-systems on their own can be purchased anywhere by anyone, so they are neither rare nor
inimitable
 (back in 1991), a good management team might be a substitute for them

Positive reputations and sustained competitive advantage

 Rare? Probably (depending on the industry though)

 Imperfect imitability? Depends, if based on historical things, yes. Can also be thought of as a
socially complex relationship, so inimitable, yes.
 Substitutes? Disputed, can a warranty or long-term contracts be a replacement for
reputation?
  Overall, could be, yes – but depends on industry and circumstances

Discussion

 Some argue that social welfare concerns have been abandoned, this model suggests that
strategic management research can be in line with the social welfare concerns of economists
o Exploiting VRIS resources is efficient and creates welfare  Efficiency rents, rather
than monopoly rents (cause advantage is not monopoly based and inefficient, it’s
free market with a better competitor, thus efficient)
 Some suggest that economic models of organisational phenomena are not compatible with
the models in organisational behaviour theory.
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 o This model opposes this claim: The VRIS resources include a broad range of
organisational, social, and individual phenomena that are part of both areas.
  In fact, this model combines the economic point of view with the business
side
 Firm resource endowment is a crucial part of the model: Managers cannot control every
single attribute of a firm. Therefore, the factors that a firm can influence are crucial
o Managers are the ones understanding what can be endowed and decide how to do
so

Conclusion: Firms cannot purchase a sustained competitive advantage on the market, it has to be
found in resources that are controlled by the firm with the four aforementioned characteristics.

In case we present:

 Quite a few common assumptions that this article breaks with.

 Interesting point: many successful firms have been used as case studies, but the underlying
theory of history’s impact on firms is in its infancy
 Q: VRIO as follow-up?
 In general: very interesting,
 Examples: globally recognised brand name (e.g. Coca-Cola, Colgate)
o Valuable? Deffo
o Rare? Sort of, Pepsi is not on the same level; colgate does not have global
competitors
o Inimitable? Pretty much – the brand recognition is outstanding
o Substitute? No, there’s a reason Pepsi never caught on to this extent

Criticism

 Typewriter example – what if there is no demand

 Looks at individual resources, leaves out synergetic effect – cloud solutions

Ginsberg, 1994: Minding the Competition: From Mapping to Mastery (Reference

Only)

 Attempts to fill a gap in academic literature, videlicet the lack of a framework visualising the
processes through which managers’ mental models and capabilities cause advantage-
producing decisions
 Builds a sociocognitive capability model (cognition that occurs in a social context or through a
social process)
o A resource-based framework that examines the cognitive and social processes
through which human and organizational resources are converted into group
capabilities for strategy development
 Human capital as VRIS resource: based on intelligence (valuable, rare, cannot be imitated,
cannot be substituted)
 A sustainable competitive advantage requires more than just the assembly of valuable and
rare human and organizational resources: it’s an intricate interplay of resources and
processes
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There are numerous sociocognitive obstacles described in-text, and then an ability to overcome them
is formulated. Overcoming these obstacles leads to a number of hypotheses

15 propositions are made by the author that, he claims, describe sustained competitive advantage
from a sociocognitive point of view.

1. Proposition 1: All else being equal, firms characterized by jointly high levels of comprehension,
creativity, and consensus are more likely to have supernormal profits than those characterized by
mixed, or jointly low, levels
2. Proposition 2: The greater is a firm's corporate mastery, i. e., its ability to resolve tensions
between conflicting strategy-making forces, the more likely it will be to achieve jointly high levels
of comprehension, creativity, and consensus.
3.
4. Proposition 4a: All else being equal, top management groups with low dilemma resolution
abilities are more likely to take a contingency factor approach to strategy process design than
those with medium or high levels.
Proposition 4b: All else being equal, top management groups with medium dilemma resolution
abilities are more likely to take a multiple mode approach to strategy process design than those
with high or low levels.
Proposition 4c: All else being equal, top management groups with high dilemma resolution
abilities are more likely to take a discrepant mode approach to strategy process design than
those with medium or low levels.
5. Proposition 5: All else being equal, the better the fit between group composition and strategy
development activity, the more effective will be group performance
6. Proposition 6: All else being equal, groups characterized by heterogeneity in personal attributes
and abilities will be more effective in identifying strategic issues than those who are not
7. Proposition 7: All else being equal, groups characterized by heterogeneity in personal attributes
and abilities will be more effective in generating and selecting strategic options than those who
are not.
8. Proposition 8: All else being equal, groups characterized by heterogeneity in personal attributes
and abilities will be more effective in negotiating objectives and resource require- ments than
those who are not.

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9. Proposition 9: All else being equal, strategy development groups characterized by homogen- eity
in personal attributes, and heterogeneity in task-specific abilities, will be more effective in
executing competitive strategy recommendations than those who are not.
10. Proposition 10: All else being equal, the greater the maximum cognitive abilities of a group and
the greater the mean of its social competencies, the greater will be its strategy development
capability.
11. Proposition 11: All else being equal, the more heedful are the interrelations of a group's
members, the greater will be the group's intelligence and strategy development capability.
12. Proposition 12: All else being equal, the greater the maximum cognitive abilities of a group and
the greater the mean of its social competencies, the greater will be the group's mapping and
modeling ability.
13. Proposition 13: All else being equal, the greater the group's mapping and modeling ability, the
more heedful will be interrelations among group members and the greater will be the group's
strategy development capability.
14. Proposition 14: Firms with generalized, cross- functional structures are more likely to have
heedful interrelating within and between groups than those with highly specialized functional
structures
15. Proposition 15: Firms with reward systems that use organization-wide and team-related
performance criteria are more likely to have heedful interrelating both within and between
groups than those with reward systems that use subunit and individual-related performance
criteria.

The article:

 Underscores the importance of understanding sources of firm heterogeneity and sustained

competitive advantage
 Emphasises the value of process-related questions and research designs in furthering our
understanding of the ways in which capabilities and advantaged are shaped over time
 Highlights the role of groups or teams as the basic unit of sociocognitive capability and
economic performance

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Helfat & Winter, 2011: Untangling Dynamic and Operational Capabilities: Strategy
for the (N)Ever-changing World (Reference Only)

 Wants to explain why there has to be a blurry line between dynamic and operational
capabilities
 Operational capabilities enable a firm to make a living in the present; equal to maintaining
the status quo
 Dynamic capabilities enable a firm to alter how it currently makes its living. Can include
altering operational capabilities, the resource base of the organisation, or features of the
ecosystem
 While the two capabilities differ in their purpose and in their intended outcome it is
impossible to draw a bright line between them:
o Change is always occurring to at least some extent
 Important to realise that on the surface things might stay the same, but
small changes occur beneath the surface
 Don’t look from afar and conclude that the firm has no dynamic capabilities
o We cannot distinguish dynamic from operational capabilities based on whether they
support what is perceived as radical vs non-radical change; or new vs existing
business
 Often, operational capabilities have dynamic attributes, too
o Some capabilities can be used for both operational and dynamic purpose
 Market access and distribution channels can assist in both, new and existing
products or technologies

Extra notes from Videos

Lecture slides feature a bit of a background and history of strategic management research.

Strategy theory: Theories about spatial and temporal performance variation (in other words: Why
are certain companies better than others and how come performance changes over time?)

Industrial organisation perspective: Uses firm performance as the result and consequence of
external forces. Most prominent rep: Michael Porter. Also called the structured conduct performance
perspective (SCP).

Recall The classics, such as generic strategy, five forces, BCG matrix…

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The Value Chain:

The Resource-based view (RBV): the opposite of the industrial organisation perspective and Porter.
Barney (1991) article;

Process rather than planning/position: Up until the 1970s much focus was on static issues, positions,
or contents such as market position, cost position etc. Planning, especially in the LR, was possible and
viable. Nowadays, we have moved from “What?” to “How?”. It’s more about the how do firms create
positions, which obstacles need to be managed?
Previous strategy would focus on the relation between position and performance: organisational
structure and profit margin; size, degree of diversification and more. But the question is: How do
firms reach a particular organisational structure and profit margin; size, degree of diversification and
more

 Strategy Process View:

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Business Models: A certain fatigue towards the Porter vs RBV debate; neither perspective is
exclusive. Certain BM models come in waves; and they are holistic. Important to understand that we
have command over the internal processes (purchasing, scale, lean operations etc) and a choice of
the outside factors (markets, products, differentiation, quality)

Johnson et al. (2008)s BM (I read this article in JU; look up): Value proposition, profit formula, key
processes, key resources.

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  More in course book

Lecture 3

Bower & Gilbert, 2007: How Managers’ Everyday Decisions Create or Destroy Your
Company’s Strategy

How strategy gets made

 “How business really gets done has little connection to the strategy developed at corporate
headquarters”  This article about the real strategy of a firm
 Strategy as resource allocation
 The factors that affect strategic commitment can be split into two groups:

Organisational Structure: responsibility is divided up among various individuals, which has

consequences for how strategy gets made

 Knowledge (within an organisation) is dispersed  relevant expertise is scattered

 Power (within an organisation) is dispersed  corporate machinery can be incredibly slow to
obtain permissions and approvals from different levels of management and directors
 Roles determine perspectives  Different people within an organisation have different sets
of responsibilities and therefore different objectives

Decision-making processes: Similarly, the way decisions are made affects strategy

 Processes span multiple levels; activities proceed in parallel, independent tracks  Barely
any company nowadays is simply following a top-down hierarchy. Rather, strategy gets made
at any moment on lower levels
 Processes are iterative  Commitments must be made, revised, and stepped up as new data
becomes available. Constant, recurring process

Who’s in charge?

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  Example of intel exiting memory biz: lower-level managers had already pulled the plug, but
R&D funding was still flowing and no communication had been made to customers

General managers

 Not only the CEO, but general managers can be found on all levels and run operations in their
areas; they run the fundamental processes that make MNCs possible
 Often decide without or before corporate approval  keep things running in their area of
responsibility

Operational managers

 Might not be aligned with corporate strategy or receive contradictory orders

 They can lead change from lower-levels before top management realises what happens

Customers

 Especially in industries where few customers account for most of the sales volume they have
a virtual veto right

Capital markets

 Influence management performance and strategy

 Earnings pressure or drops in share prices can lead to crucial strategic decisions

 These four groups crucially impact the resource allocation, and thereby, the strategy of a
firm. Top leaders and senior managers need to be aware of that and follow these guidelines:
1. Understand the people whose names are on the proposals you read: know their track
records; know their judgement abilities and judge them accordingly
2. Recognise the strategic issue and make sure it’s addressed: Ask the Qs “Should we support
this business idea?” and “Is this proposal the right way to do it?”
3. When a debate reflects fundamental differences about the strategy, intervene: bring
together managers from different areas, with different expertise and responsibilities to align
the firm’s general managers (“getting knowledge power and position power in the same
room at the same time”; can be tricky to direct for CEOs)
4. Use operational managers to get work done across divisional lines: Some regional managers
might oppose collaborations, so build a cross-divisional team from medium-level managers,
no matter what their superiors think (they might see the resource allocation process as a
means to protect their turf)
5. The leadership has to connect the dots: bottom-up approaches don’t add up to one
corporate view. Top management has to frame them together into one corporate view
6. Create a new context that allows leadership to circumvent the regular resource allocation
process: If a disruptive idea pops up on a lower management level, this is often not handled
well by the corporation – give them the freedom of their own SBU

No number crunching can ever replace judgement by the people in charge of operations and a top
manager’s judgement of those people  “Align bottom-up processes with top-down objectives.
That’s how you drive strategy in a big organisation”

18
Kahneman, Lovallo, & Sibony, 2011: Before you make that big Decision…

System 1 and 2

Why is it difficult to detect our biases?

 Mode for Thinking, System 1

o Intuitive
o Effortless
o Constant confirmation of the world
o Simple, we do not consciously focus on or analyse the task
 Mode for Thinking, System 2
o Reflective
o Effortful
o Monitoring and assessing the world
o Demanding
 Both systems operate simultaneously but mostly System 1 determines behaviour

Biases

 While most managers are familiar with typical biases, the awareness thereof has not led to
better decision-making, which is bad, cause reducing biases can boost returns up to 7%
 People are incapable of recognising their own biases – but they can neutralise other people’s
 Article gives a 12 Q checklist to point out cognitive biases in other people’s thinking that can
help to make big decisions and spot the biases and flaws in the proposals
o Can be split into three categories

19
Application

 Use in serious, not routine decisions

 Who should review? Only someone who is not yet biased, cannot be someone close to the
proposing team
 The biggest issue is to decide when to apply system 2 – shall not become the standard

Kalling, 2007: The lure of simplicity: learning perspectives on innovation (Reference

only)

20
  Sets out to investigate obstacles to innovation by using organisational learning and
management theory
 Successful learning and innovation depend on three groups of factors:
o Managing knowledge itself
o Managing the organisational context
o Managing and responding to institutional factors such as norms and values of the
organisation and its environment
 This article focusses on the two latter, since knowledge management has been researched
thoroughly

 Learning and innovation depend strongly on both the organisational context and internal and
external institutional forces
 These institutional forces affect both the organisational context and the knowledge related
factors behind learning
 The lure of simplicity refers to the implicit or explixit force that makes us choose the known
rather than the unknown because the threshold cost and the uncertain rewards of
embarking on the unknown simply does not match the benefits of sticking to what is known

Extra notes from Videos/slides

Strategic decisions are important since they involve big bets and often large amounts of capital. They
depend on a number of factors:

 Analysis for sure, but difficult to make 100% reliable

 Politics
 Risk propensity
 Relations
 Rhetoric
 Position, past success
 Path dependency - assets as well as legacy of culture and competence
 Groupthink inside firm and industry
 Mimicking
 And a certain amount of luck – nothing to rely on though

Lecture 4

Ghemawat, 2017: Globalisation in the age of Trump

 Core argument: do not overreact to the nationalistic and anti-globalisation movements we

see

21
  Before 2008: everyone was overreacting in the other direction – hyping globalisation and
thinking world was becoming flat
 Post 2008, nobody knew what direction the world was heading (more globalisation or
retreat?)
 While globalisation has not stopped or retreated, the media coverage and tone in
conversations has grown increasingly critical
o One reason: Even execs think the world is a lot more globalised than it actually is
 Author calls this globaloney – the wrong believe that we live in a truly global world in which
geographic location, time, even language etc are no longer obstacles
o The law of semi-globalization: International business activity, while significant, is
much less intense than domestic activity.
o The law of distance: International interactions are dampened by distance along
cultural, administrative, geographic, and, often, economic dimensions (Think
Uppsala model)
 Example of 1930s recline of globalisation – and the effects today would be a lot less, no
matter how big a trade war ay be coming
 MNCs have always shown tendencies to me less profitable abroad than in their domestic
markets
o False believe and temptation to compete literally globally (example car industry:
Toyota only make that has significant market share in Asia, EU, North America, and
developing countries)
 Even today, less than 10% of Fortune’s 500 earn >20% of their revenue in each of the triad
regions
 And overall, only about 0.1% of global firms are multinationals (although this understates
their importance)

How to compete

To profit from globalisation companies have three options:

1. Adaptation: companies adjust to cross-country differences to be locally responsive. Boosts

revenues and market share by tailoring products and services to suit local tastes and needs.
2. Aggregation: delivers economies of scale by expanding operations into regional or global
markets.
3. Arbitrage: exploits differences in labour costs, tax regimes, and other factors between
national and regional markets.

 In times of increasing protectionism firms can look to adaptation – but not too much, since
they’d lose the benefits of being an MNC compared to local firms if they adapt every single
thing
 Regarding arbitrage: looking at the supply side of globalisation rather than the demand side:
This has actually decreased a bit, but is still hugely important
 Example India IT – Indian firms trying to compete from India with the world vs American
firms moving to India
 Best might be a middle way

Society’s role

22
  Increasingly important today: factors other than competitiveness such as politics, media
interactions, public opinions, social consciousness and ethical standards etc
 IBM and Nazi Germany example – what about firms building Trump’s wall today?
 The backlash against globalisation is – in part – also a backlash against big business
 Many feel left behind by globalisation – largest inequality in US since 1920s

Thomas’ four key points:

1. Organisation (region based structures; less distance (Uppsala model) between countries)
2. Market selection (Find affinity, multinationalisation
3. Competition (adaptation, arbitrage, aggregation)
4. Social engagement

Meyer, 2015: When Culture doesn’t translate

 In time of globalisation employees become more culturally diverse, geographically dispersed,

and often they don’t have a shared cultural background, vision, or norms anymore
 Two members from the same culture can implicitly communicate, often without noticing 
unspoken cues. Amongst international employees who are spread around the world and
have different backgrounds more structure and bureaucracy is needed
 However, unspoken communication is often part of corporate culture that gets lost
 Another problem: The “we vs them” thinking in employees

Corporate culture vs local culture

 In many subsidiaries overseas employees feel like they need to choose between their culture
and the (imported) corporate culture [example Thai manager’s role in phone conferences]
 If a certain thing (e.g. discussion) is what your firm is based on – export it, make sure this
happens in offices around the world
 Problem: If you hire the locals who act out of the local norm, they might struggle to close the
deals for which you hired them
 How to deal with the differences
 Identify the dimensions of difference: Where lie the differences; along what lines?
 Give everyone a voice: Important to make sure that everyone gets a say, even ppl from a less
open culture – actively invite them. Things that can help to ensure this are 1) to send the
agenda of a phone/video conference well in advance and allocate time slots for each
office/unit to speak; 2) Insist that everyone use global English and speak slowly and clearly;
assign someone with a neutral English to recap and summarise after every speaker; 3) check
with international offices or ppl from other cultures, they might feel like they can only speak
upon explicit invitation
 Protect your most creative units: Formalise where you can, but keep creative units out of it –
let them do their own, informal meetings and set it up the way they prefer. Some of these
creative units rely on implicit communication and fluid processes
 Train everyone in key norms: When going abroad most firms need to adapt to at least some
cultural norms, but you should also train local employees to adopt certain corporate culture
23
 norms. Especially in China, this can help Chinese employees to overcome their impression of
rude communication from HQs
 Be heterogenous everywhere: If everyone is a local in their respective offices fault lines will
appear. Have someone from HQ abroad and bring foreigners to HQ; have a similar avg age in
all offices; ensure diversity

Getting culture right becomes increasingly important and firms that fail to do so will stumble on a
global marketplace.

Bartlett & Ghoshal, 1988: Organising for Worldwide Effectiveness: The Transnational
Solution

 In a globalised world there are two pressures: the need for global operations and integration,
and the one for local responsiveness
 European and US firms often had a network of decentralised subsidiaries – literally MMCs
o But difficult to coordinate
 Japanese firms had the opposite problem. Operations centralised in home country; the world
considered an integrated whole
 No firm in one country can copy the success formula of a firm in another – in fact, both
pressure work at the same time
o Calls for transnational capabilities

Making Central Management flexible

 To learn how to make a centralised structure efficient around the globe we look to
Matsushita in Japan

The author find three points that should help managers to achieve global coordination without
compromising local market sensitivity

1. Gaining subsidiary input: Multiple linkages

 Build linkages between SBUs that might otherwise not be committed to a product or
understand what consumers want
 They work both ways: funnel information to the HQ, and share important information with
local managers
 Each local SBU linked to someone in HQ who understands them and can represent them on a
corporate level
2. Linking direction to needs: Market mechanisms
 Linkages also ensure that HQ and top managers feel the pressure the lower and middle
managers feel in their respective markets
 Various research labs: Half the R&D budget for the general, corporate wide lab; the other
half for smaller ones in subsidiaries  creates competition among different research groups;
forces them to think market oriented. Matsushita calls this the market mechanism

24
  Senior sales personnel travels to the HQ to see next year’s product line-up once a year. They
know their respective markets and can determine what they buy, if changes for a specific
market need to be made, or if they refuse a new product altogether
3. Managing responsibility transfer: Personnel flows
 Fixed career flows, e.g. for engineers; they move after a certain number of years, their
project goes with them etc. Research lab to pre-production labs to production development
etc
 Production and research are integrated

Making local management effective

 To learn how decentralised national operations respond in an entrepreneurial, innovative

way to their respective markets without corporate machinery: Phillips

The authors identify three critical elements that ensure effective local management and that can
guide other firms

1. A cadre of entrepreneurial expats

 Expat positions in international subsidiaries are attractive – often these subsidiaries
contribute a considerably larger revenue share than the domestic operation
 International experience is needed to achieve top level; and many are happy to go since the
domestic subsidiaries are in fancy cities; it’s not uncommon to spend 2-3 years in each
subsidiary and then move on to the next one
 They are still integrated in the HQ’s operations, but are much more willing to defend their
current station/subsidiary. They form a group of their own; and this willingness to represent
their current office makes Phillips attractive for local managers as well
2. Integration of technical and marketing functions within each subsidiary
 In each subsidiary there is a three-headed committee instead of one CEO – the respective
heads of technical, commercial, and finance functions come together to lead the subsidiary
o Shared responsibility and joined decision making
 Three levels of this integration takes place, from very low to top management
3. Decentralised authority and dispersed responsibility
 Each unit has substantial authority over every aspect of business that affects them
 This leads to a strong intrapreneurial culture, responding to each market
 With capital assignment and size, SBUs need responsibility and autonomy; as well as a
reward system for solving their own, regional problems

Building transnational capabilities

MNCs often struggle with mismatched strengths and weaknesses: opportunities and threats might
arise in regions, markets, or environments different from where the response tools are located. 
environment-resource mismatch (the organization has excessive resources in environments that are
relatively noncritical, and very limited or even no resources in critical markets that offer the greatest
opportunities and challenges)

The solution hereto can be the loosening of bonds between ownership and control of resources
within the firm. This achievement is a major step in becoming a transnational company  Firms with

25
the ability to manage across national boundaries, retaining local flexibility while achieving global
integration.

Three main characteristics can be identified:

1. Interdependence of resources and responsibilities

 The organisational configuration needs to be based on a reciprocal dependence amongst
units
 Each unit should depend on any other unit for their respective expertise
 Constant adjustments of organisational responsibilities and relationships are needed
 Strong interdependent units in each market, sharing with a strong HQ base
 Central decision making and R&D, but under constant consideration of SBUs information and
input
o Whenever needed, the personnel could be ordered to the HQ to help in designing
products or their respective markets
 Some product lines are outsourced in terms of both management and R&D completely
 “Dynamic interdependence is the basis of a transnational company – one that can think
globally and act locally”
 entrepreneurial and innovative subsidiary companies that work within a corporate
framework defined by knowledgeable and creative headquarters product and functional
groups
2. Interunit integrating devices
 Effective organisational integrating mechanisms are needed to link operations
 Three pillars of interunit integration are
o a clearly defined and tightly controlled set of operating systems
o a people-linking process employing such devices as temporary assignments and joint
teams
o interunit decision forums, particularly subsidiary boards, where views could be
exchanged and differences resolved.
 Strong central control over key elements of strategic operations are needed
 One factor that plays an important role: interpersonal relationships – often built abroad (e.g.
teams of 100 or so sent to subsidiaries)
 Local national boards as forums to resolve problems and align corporate and local strategy
3. National competence, worldwide perspective
 Management attitude should be simultaneously locally sensitive and globally conscious
 While feeling highly responsible for their SBU, employees feel as part of global operations

Hofstede, 1994: The Business of International Business is Culture

 Internationally operating firms need to handle corporate culture and national cultures
o National cultures are a given fact, corporate culture is somewhat manageable
 Culture as “the collective programming of the mind which distinguishes the members of one
category of people from another”

Hofstede’s five dimensions of culture (the classic)

26
 1. Power distance: Extent to which less powerful members of a culture accept and expect
unequal power distribution (inequality defined from below)
2. Individualism vs Collectivism: degree to which individuals live together and are integrated in
groups
3. Masculinity vs femininity: distribution of roles between women and men; assertive vs caring
cultures
4. Uncertainty avoidance: a society’s tolerance for uncertainty and ambiguity
5. Long vs short term orientation: thrift and perseverant vs respect for tradition, fulfilling social
obligations

Management theory and culture

 Every manager and scholar brings their own set of cultural beliefs, values etc to the table
o These are only applicable in their context and might/will not work anywhere else
 Some classic theories need to be adapted to other cultures:
1. Performance appraisal systems: In individualistic cultures direct feedback from superiors is
expected and improves performance. In collectivistic cultures that destroys harmony by
costing an employee’s face
2. Management by objectives: Subordinates have to negotiate about their objectives with their
superior – only works in low power distance environments and rather low uncertainty
avoidance. In Germany, things are more formal
3. Strategic Management: assumes weak uncertainty avoidance; although taught in other
cultures less often used there
4. Humanisation of work: attempts to make work more interesting and rewarding. Job
enrichment (e.g. give individual tasks to employees) vs semi-autonomous work groups to
work together.

 Important to keep in mind the fundamental differences in Eastern and Western cultures

Organisational cultures

 Different from national cultures

 Founders and leaders of a corporation create symbols, heroes, rituals
o A work organisation is not a total institution though; the values are imposed and can
be changed
 Employees values cannot be changed, but certain ones can be activated
 Often, there are large differences in practices between corporations in one country but the
values remain the same (due to basic cultural attributes)
 The remaining differences can be organised into six dimensions of organisational culture
1. Process-oriented vs result-oriented: p-o dominated by technical and bureaucratic routines; r-
o by a common concern for the outcomes. Also referred to as the level of homogeneity
2. Job-oriented vs employee-oriented cultures: Job performance more important than anything
else; responsibility for employees’ wellbeing
3. Professional vs parochial cultures: White-collar workers identify with their profession vs with
their employer
4. Open vs closed system cultures: How easy is it for newcomers to be admitted? Internal vs
external communication
5. Tightly vs loosely controlled cultures: degree of formality and punctuality within the
organisation; also depends on industry though
6. Pragmatic vs normative cultures

27
Managing organisational cultures

 Superficial, but hard to change ( collective mind)

 External, independent observations can reveal subcultures that might need different
approaches
o Consider whether to accept or attempt to change subcultures
 To change organisational culture, make sure leaders on all levels are aligned; then change
organisations structure, functions, practices etc. Communication is key; takes a long time,
rather than a one-action thing
 Additional difficulty for multinationals that operate in vastly different cultures
o Cross-national organisational cultures can help to bridge these differences
o Common practices, not common values keep multinationals together
 Structure and culture of an organisation are closely linked
o What should be coordinated from where, how tight o loose should coordination be?
 Organisations are held together by ppl  two positions take on key roles
o Country business unit managers who link local SBU culture with corporate culture
o Corporate diplomats; who are 100% representative of corporate culture and have
lived in various countries/can deal with different backgrounds and cultures
 Conclusive, people management is key – you need the right ppl in the right spot at the right
moment – constantly

Lecture 5

Greenhalgh & Rogers, 2010: The Nature and Importance of Innovation

 Innovation defined as the application of new ideas to the products, processes, or other
aspects of the activities of a firm that lead to increased value
 The two types of innovation are
1. Product innovation: the introduction of a new product, or a significant qualitative change
in an existing product; bringing something new to the markets place that improves the
range and quality of products on offer
2. Process innovation: the introduction of a new process for making or delivering goods and
services; new way of making or delivering goods or services
 When is change innovation?
o Products and processes can be
 New to the firm
 New to the domestic market
 New to the world market
 Invention/discovery vs innovation: the first internal, the latter needs to bring value to the
customer: Inventions  Innovation  Diffusion

28
Innovation is rarely a linear process through these steps; instead there is constant feedback and even
once diffusion starts early feedback might lead to changes in the final product. This is called
incremental innovation (as opposed to drastic innovation, a wide range of applications, processes,
often allows many other innovations. Think steam or internal combustion engines, internet)

The microeconomic effects of innovation

 The impact of innovation depends on the market structure (monopoly vs perfect

competition)
 Examples of price, output, and consumer surplus effects of a process innovation in article
o In perfect competition there is little or no incentive to innovate processes
o Even in monopolies process innovation is desirable
 Recall: monopolies set price=marginal revenue

29
 Product innovation Process innovation
Perfect
competition

Monopoly

Note about distinguishing the two types: In practice it is often rather difficult to distinguish a process
from a product innovation – the reason being that one firm’s finished product can become part of
another firm’s process.

Interaction between producers and users of innovation

 Frequently, user opinions can change an innovation/new product

 Innovation can be seen as a complex, interactive process
 Four groups of industries in terms of tech acquisition and use (based on Pavitt, 1984)
1. Supplier dominated: importing new elements of process tech but making little
contribution via in-house R&D
2. Scale intensive producers: contribute quite a lot of their own innovations and turn these
into profit through the operation of large-scale continuous production processes
3. Specialized suppliers: their main focus is the generation of product innovations in
intermediate goods or capital equipment for use in other sectors
4. Science-based sectors: firms engage intensively in in-house R&D based on advances in
universities and public research institutions to produce both new products and new
processes
5. Later added/ information sensitive: firms in finance, retail, and publishing
6. Later added/ software-related

30
  An innovation always benefits more players than just the innovator – and it’s important that
all of them pay their share (customers, intermediaries, further innovator who build on the
initial etc)
o If this is not the case, risk of market failure (market system cannot come to optimal
outcome)

Scenarios and debates that can lead to market failure

Is new knowledge a public good?  Appropriability problem

 Public goods are nonrivals; can be used simultaneously by many ppl (defence of a country)
 Often also nonexcludables: Use by one party still implies access for all
 Private firms will not develop anything at a price of zero  inefficient, some users will be
excluded since it costs
o From a welfare PoV, any information should be free of charge
 In the RW, new knowledge is barely ever free of charge (patents, recipes etc)

Are there externalities from innovative activity?

 Production externalities arise when the profit-seeking activities of one firm create positive or
negative effects for other firms and where these side effects are not priced and cannot be
sold through the market
 Different stages of the innovation process have different externalities – basic R&D is more of
a public good and thereby improves everyone’s welfare

Indivisibilities, uncertainty, and capital markets

 Problem with indivisible projects with high fixed costs and low marginal profits: firms might
not undertake them
o Think software: distribution and production costs are neglectable; R&D costs are
enormous
 Imperfect markets would sell software for cheap; leading to lack of new software

Patent races and duplication

 More relevant than ever right now

 Multiple firms working towards the same goal (e.g. covid vaccination) leads to duplication of
R&D costs
o Also called a patent race; implies that the winner takes all the profits (or at least the
majority)

How to avoid market failure

Four main policies to avoid underprovision and market failure

1. Public provision of a public good: public funding for basic research (e.g. at universities or in
certain fields of interest)
2. Club provision of a local public good: members pay initial high fee, lower ones afterwards.
But only member get the benefits (think of joining golf club: 1 st fee 10,000€, afterwards 200 a
month; non-members are excluded). Research joint ventures are such an example, where
numerous firms come together to develop something that is really expensive; afterwards the
participants get to use that tech

31
 3. Pigovian subsidies: taxes to nullify externalities. The idea is similar to public provisions, but
this is near-market aimed
4. Definition of property rights: With proper property rights licenses can be written and the
inventor profits from other users  market works again. All forms of IP protection are part
of this category.
It’s a walk on the edge of a knife to protect IP rights without granting monopoly-like powers
to one firm

Firms competing through innovation

 Creative destruction (Schumpeter, 1942)

 All comes together: IP rights protect the firm’s innovation and make innovation desirable;
better products attract customers from competitors, those go bankrupot or are forced to
innovate themselves.
o Also points out the incompatibility between perfect competition and
innovation/entrepreneurial activity

Sawhney, Wolcott, & Arroniz, 2006: The 12 different ways for companies to innovate

 Important not to define innovation too narrowly – if all firms develop the same, there is little
room for differentiation and blinds companies for opportunities
 Business innovation is much broader in scope than product innovation and can lead your firm
into the future; similarly traditional R&D does not necessarily do so

Defining business innovation

“The creation of substantial new value for customers and the firm by creatively changing one or more
dimensions of the business system.”

 It’s about new value, not new things. Customers decide what they spend their money on –
that’s what matters
 Business innovation comes in many flavours: can be everything from niche markets, to
improving customer experience, to financial trickery
 Business innovation is systematic: Careful consideration of all business aspects is needed; a
great product that does not reach its market cause there are no distribution channels will fail

The innovation radar

32
  360 degree view of business
innovation possibilities
 The framework presents and
relates all of the dimensions
through which a firm can
look for opportunities to
innovate
 Four key dimensions
(offerings, customers,
processes, presence) are
complemented by 8 smaller
dimensions

For details, see article – lots of examples and in-depth explanations

Application

 Firms can e.g. use the radar to map competitors’ innovation and focus on other areas
o Such analysis can reveal strengths and weaknesses of one’s firm together with
opportunities and threats

Henderson & Clark, 1990: Architectural Innovation: The Reconfiguration of Existing

Product Technologies and the Failure of Established Firms

Incremental vs radical innovation

Incremental innovation Radical innovation

introduces relatively minor changes to the
existing product, exploits the potential of the
established design, and often reinforces the
dominance of established firms
- reinforces the capabilities of established
organizations
based on a different set of engineering and
scientific principles and often opens up whole
new markets and potential applications
- forces them to ask a new set of questions, to
draw on new technical and commercial skills,
and to employ new problem-solving approaches

 Architectural innovation refers to changes in the way in which the components of a product
are linked together, while leaving the core design concepts (and thus the basic knowledge
underlying the components) untouched


33
 Core concepts
Reinforced Overturned
Linkages between core Unchanged Incremental Modular innovation
concepts and innovation
components Changed Architectural Radical innovation
innovation

Architectural change involves a rearrangement of the way in which components (whose fundamental
technological basis remains unchanged) relate to each other within a product’s system design.
Modular innovation is a fundamental change in the technological approach employed in a
component, where the product architecture is fundamentally left unchanged. Incremental change
refers to ( 1) improvements in component performance that build upon the established technological
concept or (2) refinements in system design that involve no significant changes in the technical
relationships among components. Radical innovations involve both a new architecture and a new
fundamental technological approach at the component level. (taken from Christensen, 1992a)

 Completely new innovation often a period of confusion with many attempts to capture
market share – until a dominant design is established
o Once a dominant design is established, it is not questioned every time a new product
is designed (think of cars; dominant design in engine-drivetrain-transmission) 
signals the general acceptance of an architecture
 Once established, new components knowledge becomes more valuable than architectural
knowledge; it’s about refinement innovations
 Groups focus on the core components of the architecture, and have channels to
communicate (both implicit and explicit
 This paper focusses on the role of communication channels, information filters, and problem-
solving strategies in managing architectural knowledge
 Architectural knowledge is managed implicitly, cause it’s established and not questioned –
component knowledge can lead to competitive advantage, so it’s managed explicitly

Problems created by architectural innovation

 Difficult to identify (radical innovations are obvious; the information filters might screen out
information that could develop architectural innovation
 Tendency to stick to existing beliefs  not apparent to overthink established ways of doing
things
 Second major problem: application. The recognition alone is not enough
o Exploration in design and the assimilation of new knowledge
o Can be easier for smaller firms (think start-ups)
 Think Tesla – pretty much the first to really build a functioning electric car;
never had the heritage of internal combustion

The article then has a major case study and test of framework in the semiconductor
photolithographic alignment equipment industry.

34
Extra Notes from Video

 Most innovations are not product innovations – think roundabouts, red cross, biz models etc
 Some innovations might need infrastructure – think light bulbs without electricity
 Necessity is the mother of innovation (with a few exceptions)

Innovation vs Invention (based on Schumpeter)

 Invention is an idea, a sketch or a model for a new or improved device, product, process, or
system. It has not yet entered to economic system, and most inventions never do.
 Innovation is accomplished only with the first commercial transaction involving the new
product, process, system, or device. It is part of the economic system.
o Nowadays we often include social value

Types of Innovations

Dimensions of Innovation

- What type of innovation?  Modality of change (product-process)

- How much of a change?  Extent (radical-incremental) and complexity (component-
architecture)
- What do we change?  Material (physical-intangible), Relatedness (replacement or
extension of products), and Appropriability/imitability (difficult or hard to hang on to)
- When do we change?  Cycle of innovation (time between discontinuities)

An example for the type of change

35
History of innovation

1. Industrial Revolution (1770-1840): process innovations (mechanisation), technological

developments (iron, textile), sources of finance: own capital
2. Age of steam and railway (1840-1890): diffusion of steam power to other sectors, diffusion to
other countries, development of electricity, gas, steel, joint stock companies
3. Age of electricity and steel (1890-1940): electricity takes over from steam as main power
source, growth of avg. firm size, shift from ind. to corporate
4. Age of mass production (1930/40-1980): organisation of work around assembly line, rise of
multinational companies
5. The information age (1980/90-)

The issues of the 21st century:

 Acceleration of knowledge production and knowledge distribution

 Market expansion
 Market virtualisation
 Rise of active users
 Growing concern with sustainability issues
 Development of technological and social infrastructure
 Increasing influence of government

Lecture 6

Drucker, 2002: The Discipline of Innovation

 Successful entrepreneurs don’t have an entrepreneurial personality – they have a

commitment to the systematic practice of innovation
o Innovation as specific function of entrepreneurship

36
  Innovation defined as “the effort to create purposeful, focused change in an enterprise's
economic or social potential”
 While some innovations are simply a brainwave, most are the result of thorough analysis;
videlicet in seven possible scenarios. 1-4 internal (firm), 5-7 external
1. Unexpected occurrences
 Example of IBM selling the machines they had built for banks to libraries instead
 Both unexpected successes and failures are such a form of innovation; a product used for a
different purpose than originally planned
2. Incongruities
 If there is one step in a process that does not match the others; try to fix that
 Can also refer to a mismatch between assumptions and reality
3. Process Needs
 If a process needs one more bit to run smoothly add it
4. Industry and Market Changes
 Industry structures change, frequently, and often overnight. This can open up a niche for
innovation
5. Demographic Changes
 The most visible and reliable source
6. Changes in Perception
 If the general public has an opinion, feed it
 On an emotional, not rational level: create sth that appeals to ppl’s feelings, fears, emotions
etc
7. New Knowledge
 The superstars of entrepreneurship
 Takes time and has a mind of its own – like a superstar
 When it comes around though, much excitement; too many new firms doing the thing, few
survivors when industry begins to settle in and the innovation based on new knowledge
becomes normal

 To spot these trends innovators have to be look out, watch, listen, analyse
 Spot the opportunity, analyse it, exploit it
 “Above all, innovation is work rather than genius”

Hamel, 2006: The Why, What, and How of Management Innovation

Most firms have standardised processes for R&D and technological innovation – barely any firm has
the same rigorous procedure for the most important form of innovation: management innovation

Why management innovation matters

 Management breakthroughs and innovations can lead to massive competitive advantages

o Often the impact is much bigger than any R&D creation could ever be
 Creates long-lasting advantages when it meets one (or more) of these conditions:
1. The innovation is based on a novel principle that challenges management orthodoxy
 Think Toyota’s advantage; they valued their employees innovative ideas and gave
them the chance to solve problems and innovate processes
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 2. It is systemic, encompassing a range of processes and methods
 Think wholefoods – customers and employees as a community; different teams in
each store; these teams get bonusses and have massive autonomy regarding stock,
products etc. Cap on exec salaries
3. It is part of an ongoing program of invention, where progress compounds over time
 Think GE and how it grows its managers and next gen managers. Dedicated training
facilities, feedback etc – they value their ppl and appreciate the importance of good
managers

What is Management Innovation?

“A marked departure from traditional management principles, processes, and practices or a

departure from customary organisational forms that significantly alters the way the work of
management is performed; it changes how managers do what they do.”  List of explanatory fields
in article

 Management processes are the gears that turn management principles into everyday
practices

How to become a management innovator

 Barely any company has processes for management innovation

 Author suggests to start with the following principles
1. Commit to a bigger problem
 Identify areas or tough trade-offs that are seemingly not avoidable
 Identify what the corporation is bad at
 Emerging challenges?
2. Search for new principles
 Think of the early days of Visa
 Think how management has changed since the industrial revolution –
nowadays we think variety, competition, allocation flexibility,
devolution, activism
o Someone was to first to suggest offshoring
 Nowadays, everyone can hire a consultancy and obtain knowledge to
remain competitive – overcome bog standard procedures
 You might want to overthink bureaucracy – it was invented when
managers thought of ppl as paid robots without a brain and without
the right to actively be a member of an organisation
o Nowadays, some of the great organisations are more a
community than a hierarchy
 HR as “wonderful human qualities”, whereas
competitors look at workforce in numbers
3. Deconstruct your management orthodoxies
 Much of what managers see as scientific groundwork is actually a
dogma disguised as unquestionable truth
 If employees think change has to come from the top and only the CEO
can cause it they need to be managed to change their mindset – a CEO should allow them to
proactively change things
o Think of Google’s grassroot projects
 “As old certainties crumble, the space for management innovation grows.”

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4. Exploit the power of analogy
 Many analogies have the power to suggest new management theory and ways of doing
things – spot them elsewhere and implement them

Once you’ve identified a big problem look at the processes and answer a set of questions (in article);
assemble cross-sectional teams that are involved in the process in one way or another; ask them for
improvements  slowly change things; not everything at once

Harris, Bhatti, Buckley, & Sharma, 2020: Fast and Frugal Innovations in Response to
the COVID-19 Pandemic

 Covid has let to plenty of frugal innovations

o Frugal innovation defined as “doing more, with less, for the many, and being
creative, innovative and resourceful in the face of institutional voids and resource
constraint”
 Serve the bottom of the pyramid; many frugal innovations come from poorer
countries
 In times of crises everything changes, from the way we live to the speed at which innovations
pop up and are approved; and overall firms, governments, people working together

The article then provides a list of examples with regards to the health care sector

Extra Notes from Videos

The innovation process

The opportunities for innovation depend additionally on numerous contextual factors:

39
  Type of sector e.g. pharma vs. music, public vs. private
 Size of your firm e.g. start up vs. multinational corporation
 The country and region where you are active
 The stage in the industry life cycle e.g. new market vs. old market
 Political regulations e.g. deregulation of energy, fossil fuel regulations

Due to Covid: Rise in Frugal Innovations – these are the dimensions:

Lastly, growing importance of the public: many recent innovations come from households; and
crowdsourcing for ideas becomes increasingly important

SAS Video
https://www.youtube.com/watch?v=ShfsBPrNcTI&feature=youtu.be

 People with a sense of nationalism and patriotism don’t like hearing things about their
country andheritage they don’t agree with, or negative things – and I assume most criticism
came from the far right
 SAS is trying to say “travelling is good, bring back the best from abroad home

Case Study P&G

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  P&G saw the need to drastically change to remain leader in the CPG industry
 Creation of GrowthWorks – a “SBU led, corporately supported” incubator for new ideas
 P&G accustomed to clear SR metrics, mid+long-term didn’t fit their financial tracking and
career systems
o 130 start-up ideas under the umbrella of growthworks didn’t know how to continue
 Time to make changes in the metric system
 Major R&D efforts and innovations with huge budgets  nowadays not enough time to do
that and it was mainly incremental innovations
 During the crisis 2008 the need for more drastic innovations arose
 Change in leadership w Kathy Fish
 They identified “irresistible superiority” – factors that led to customers buying the brands
over and over again
o This feat should be the new standard for innovation as well
 Change in corporate culture to really include IS everywhere
 After a visit to silicon valley, “lean startup spread like a wildfire”
 GrowthWorks emerged as an organic team with experts from all SBUs, passionate about
transforming the firm
o Like a concierge service for the SBUs – teaching, problem-solving, learning hub
 Approach: Usually no lengthy experiments with million-budgets, but rather “here’s 20k,
you’ve got 6-8 weeks to show me sth
 Implementation of a growth operating system (with help of Bionic)  see page 6
 The changes were difficult to implement since employees had years of experience in meeting
metrics; they were not used to working on disruptive innovations or cross-functionally
 Challenge of who got promoted, and putting the right people in the right place
 New metric: entrepreneurial stewardship  awarding learning
 Another challenge: entrepreneurial management requires different capabilities than general
management – leaders need to be taught how to lead new innovation groups as well
 Problem: With basically each project and founder running as SBU – they didn’t have the
people to bring the product to the market, build websites, gather data etc
  Implementation of “the garage” – a one-stop shop for all the general skills needed for any
product – IT, marketing, sales, analysts, supply chain managers etc
o Functions like an internal enabler
 Another problem: operations too scaled up; no way of serving niche segments with small
demands or quickly changing what’s on the market.  new supply chains were built

Lecture 7

Nagji & Tuff, 2012: Managing your innovation portfolio

 Lack of innovation management leads to many glorious ideas never making it to

development; crushed in infancy
 Framework to map innovations:
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 Can assist firms in making strategic innovation decisions
o Research shows that the ideal allocation is 70% core innovations, 20% adjacent, and
10% transformational in terms of share price
o But the other way around in terms of returns (see pic to right)
 Key point: Overall innovation management is crucial

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  The ratio also depends on the industry, competitive position, and stage of development (of
the enterprise)
 Problem: Vastly different managerial approaches to the three types; few companies are good
at all three

Five key areas

1. Talent – find the right people for the right type of innovation
2. Integration – integrate the right ppl in existing teams and structures
3. Funding – core and adjacent are often less costly, but transformational innovations require
significant amounts of R&D cash. Have a dedicated fund or even separate entity for those
innovations
4. Pipeline management – Mechanisms to track ongoing initiatives, monitoring of progress
5. Metrics – How to monitor? Financials for core and adjacent innovations, managers need to
identify metrics to monito transformational innovation. (ex. Google only wants to learn from
some innovations, they never see a penny in return)

 Key for starting proper, organised innovation management: understand your initiatives and
innovation engines
 Leaders need to identify the most promising ideas and kill off the rest before it drains the
budget
 Manage innovation as an integrated system within the overall portfolio goals – reliable driver
of growth

Day & Shea, 2019: Grow Faster by Changing Your Innovation Narrative

 Corporations that (want to) lead should have an innovation narrative

 There are various ways of creating this narrative, the researchers identify four actions that
have proven successful
 Narratives, especially innovation narratives, are based on past actions – how is R&D and
innovation handled in a certain company?
 The article explains how to identify a firm’s narrative; and once identified, how a
CEO can bring it to life in four steps (they identified 18, but these are the most
dominant ones)

1. Invest in innovation talent: The leadership team signals a strong commitment to innovation
through visible and sustained investments of resources and time.
2. Encourage prudent risk-taking: Innovative companies foster a tolerance for risk throughout the
organisation by accepting internal cannibalisation, endorsing a fail-fast approach, and learning
from innovation disappointments.
3. Adopt a customer-centric innovation process: The process used by growth leaders starts with
deep insights into customers and anticipates emergent needs.
4. Align metrics and incentives with innovation activity: The innovation dashboard emphasises
learning over scorekeeping and creates a credible link to rewards and recognition for innovation
accomplishments.

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  The authors classify firms as Growth laggards, average performers, or growth leaders –
depending on how innovation – savvy they are
 A growth-affirming narrative can help leaders to focus and prioritise their innovation efforts

Christensen, 1992a: Exploring the Limits of the Technology S-Curve. Part 1:

Component Technologies

 Technology S-curve used to describe the substitution of new for old technologies at industry
level
 This paper: examines implications at firm level

The S-Curve

States that in a technology’s early stages, the rate of progress in performance is relatively slow  As
the technology becomes better understood, controlled, and diffused, the rate of technological
improvement increases.  In mature stages technologies reach a natural limit and it becomes
increasingly harder to improve them.

 It’s one reason why so many completely new techs stem from smaller firms; incumbents
might focus on improvements rather than radical innovation
 Depending on the context, a researcher chooses the measuring unit on the horizontal axis


Four propositions about usefulness of S-curve for managers (firm level rather than industry)

1. At the industry level, using a high-level measure of product performance curves can provide
rather convincing explanations of why alternative technologies have made or have failed to make
substantial inroads against currently dominant technology.
2. To achieve good performance managers need to commit to a number of projects to improve
component technologies or to revamp the architecture of a product. The Scurve an be useful to
find out when the best moment is to do so
3. S-curves can successfully describe a firm’s previous experience – but they’re no good to describe
the future; thus they’re not prescriptive at all

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4. Competitor’s architectural innovations can be difficult to spot cause they’re often part of a
market innovation (think CDs being replaced by iPods and then Spotify). Sometimes, an Scurve
can be crossed from underneath by a new S-curve for a better substitute product.

Idea is this:

The author concludes, that S-curves at an aggregate firm level provide insights into the future and
when the potential for discontinuities comes. However, there is no clear evidence of a first mover or
attacker advantage – firms that moved later matched the first mover’s product performance. In
terms of component technologies, incumbents seem to always have an advantage over would-be
attackers. This is the other way around for architectural technology patterns.

Christensen, 1992b: Exploring the Limits of the S-curve. Part 2: Architectural

Technologies

 As mentioned above, in architectural innovations the entrant firm is more likely to possess an
attacker’s advantage
 In general, the first firm to introduce an architectural innovation has an advantage over the
followers
o Main reason: these often lead to emerging markets (iPod) and smaller attackers
often focus on these markets
 Or are better at attacking them – established firms can always sell more
improved products to their customers. An architectural innovation might be
harder since it redefines the product’s functionality
 Bears the risk of irrelevance (Nokia and smartphones) – new technologies can push existing
ones out of their markets:

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  Example of steam ships (Tech B) replacing wind vessels (Tech A) – steam boats developed for
inland application on lakes and rivers; once the tech became competitive with wind on
transoceanic journey the makers of wind vessels were so far behind that they got pushed out
of their own market and replace d by the makers of steam vessels that had previous
experience in inland-boats.

Summarised in 3-step process (not proven at this point) New architecture ( 1) redefines the
functionality of a product or process, (2) is initially deployed in a new or remote market segment, and
(3) invades established markets after reaching a level of commercial scale and maturity in that new
market.

Summary of the two papers

 S-curves can provide an important perspective on what happened in the past at an industry
level
 Difficult to use them for technology planning  Four issues that suggest using caution
1. Substantial differences can exist across firms in the level of performance at which technologies
appear to mature.  Benchmarking a number of competitors in an-S-curve graph might be
useful
2. Observed maturation of a product may be the result rather than the cause of the launch of an
alternative development programme within a firm
3. There are plenty of alternatives to switching S-curves at a component level
4. Timely S-curve switching is critical when confronting architectural change. Important for
managers to evaluate architectural innovation both in its technological and market dimensions.

Seebode, Jeanrenaud, & Bessant, 2012: Managing Innovation for Sustainability

 The need for sustainable solutions is undisputed – this article: innovation management in this
light

46
  Innovation waves: 5 so far, sustainability could be the big sixth one
 The “Best practice” approach to innovation is a suite of routines around which the search for
innovation is organised  authors argue that this is not enough
 Corporations might struggle to think outside the box; their core competencies might become
core rigidities
 Authors argue that sustainability-led innovation (SLI) forces firms to let go of established
approaches – SLI involves with new knowledge components (new tech, markets,
environmental or regulatory conditions etc) and firms need to develop enhanced absorptive
capacity.
o In particular, they need capability (and enabling tools and methods) to acquire,
assimilate and exploit new knowledge and to work at a systems level.

Managing system-level innovation

 Looking for innovation must happen not only near or far from core knowledge concepts but
also across configurations

 Horizontal axis describes the number of elements and their potential interactions  rising
complexity implies increased difficulty because of another number of potential applications
o The left column: component level; innovation within an assumed core configuration
o The right column: new and emergent architectures; alternative ways of framing
among complex elements
 Architectural innovation is a crucial part in SLI, which requires bringing in multiple new
elements and stakeholders  SLI will take place in the right column
o Reframing example: lean thinking in Japan; US approaches to factory labour didn’t
work, so they reconfigured the way their factories work
o Co-evolve=’edge of chaos’ - impossible to predict what’ll be important
 Three core principles: be in there, be in there early, be in there influentially
 Zone 3 (reframing) is associated with the eco-efficiency concept “doing more with less”
o 3 Rs: reduce, reuse, & recycle
 Zone 4 (co-evolving) requires significant systems level thinking around emergent and
radically different solutions and co-evolution of technical, organisational, and socio-economic
structures
o One aspect: shared value; coworking of players that have never worked together
before
o Drastic change – shifts in employment and lifestyle will come

Reconfiguring an organisation’s innovation approach is a major strategic undertaking and rethink.

Numerous models to achieve this have emerged. BCG says SLI will become mainstream, but many

47
firms will struggle with the radical change required to move away from established R&D and
innovation engines. Riding the sixth wave of innovation challenges incumbents.

The article then describes the case of Philips as a case study how to achieve long-term rethinking

Extra Notes from Videos

Innovation Strategies

Goals:

 promote alignment among diverse groups within an organization (principal/agent problem)

 clarify objectives and priorities
 help focus efforts around them
 helps you design a system to match your specific competitive needs
 can help an organisation to change its prevailing patterns
 not copy other successful systems

No firm is like the other, one firm’s successful strategy might not work for any other enterprise.
Guiding questions evolve around

 How innovation can create value for potential customers and the firm
 How can the firm capture a share of the value its innovations generate
 What types of innovation allow value creation and capture; resource allocation

The Process Model of Innovation

More about the S-curve

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Implications about different innovation strategies using the S-curve:

1. ” Switching to new component technology S-curve” OR ”Extending performance of

established component technologies”
2. “Compete in established markets” OR “Going into emerging, new, distant markets”

Core abilities in innovation management include:

Eight Tests for Innovative Ideas

1. Valuable benefits
a. Does the innovation provide benefit that are clearly superior to existing alternatives?
b. Can you articulate the ‘value proposition’ of what is new and why it is better in value
terms, that customers can appreciate?
2. Leadership team
a. Do the key people involved in this innovation have the knowledge, skills, experience
and courage to take it through to fruition?
3. Scale up
a. Can the innovation be mass produced with consistent quality to satisfy the market
need?
4. Marketing
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 a. Have you assessed demand, and do you have a channel to the consumer?
b. Marketing includes design, branding, pricing, distribution, sales, and other factors
5. Intellectual property
a. Dou have control over the intellectual property (IP) for the innovation?
b. Control can be achieved through ownership or license arrangement.
6. Return on investment
a. Will the innovation generate enough profit to make it worthwhile?
b. You need to consider risk and the time the innovation will take to implement.
7. Corporate social responsibility
a. Does the innovation make progress on all three dimensions of value creation
outcomes (financial, environmental, and social)?
8. Strategic fit
a. Is the innovation consistent and aligned with the firm’s overall business strategy?

Case Study: DBS – from the “World’s Best Bank” to building a

future-ready enterprise

 Case is second phase of DBS’ digital transformation

 Multiple times named bank of the year; leader in digital transformation. Began in 2009 to
transform the business model
 Constant attacks from fintech start-ups
 In 2015 second phase of digital transformation started to fight off the start-ups and other
competitors entering the market
 The changes encapsulated in “GANDALF cheese wheel”

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The change was driven by these five key capabilities

 All about the user experience; the bank should be invisible

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  Next step: the launch of Digibank, a mobile-only bank in India. They didn’t have experience
and simply experimented
o Required only 20% of a traditional bank’s set-up
 First only basic banking; in a second step introduction of more services including credit cards
and loans

Creating a 26,000-person start-up: making people your key differentiator

 Whole enterprise approach; shared vision approach required cultural change  introduction
of an innovation group
 Innovation advocates from the innovation group placed in each SBU; plenty of contact with
start-ups and trends
 Big part of change: innovation team not in charge of innovation, but of making innovators.
Everyone should be a part of it  “letting 26,000 flowers bloom”
 Not about the tech – but about how you use it
 The five qualities of a 26,00-person start-up: Customer obsession, data-drive, tale risk and
experiment, agile, be a learning organisation
 Flexible staff participation allowed to move employees around and assign them to those
projects they wanted to work on
 “Acquire, transact, engage” (all digitally)
 In general, empowerment of the people

 Managing basically done using scorecards: they assign times for tasks
o Ensure that enough time is spent on the core business and also on transforming the
industry

 DBS became the first bank in the world to develop (and thoroughly test) a method to
measure the financial value created by digitalisation
o In 2017: 42% of customers digital, but 63% of income from that sector

Fusing business and technology through platform reorganisation

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  Platform here refers to a combination of technology assets and the talents that support,
manage, and guide those tech assets, as well as the funding underneath technology and
talent
o E.g. the employee platform: all tech assets, all staff related to them, and all funding
meant to reduce friction for employees or improve employee experience
 Identified platforms can be grouped into four overarching categories:
o Business platforms (front facing business such as consumer banking)
o Enterprise support platforms (supporting functions across all businesses such as
finance and HR)
o Enterprise-shared platforms (support multiple businesses, e.g. customer data, API
development, AI, blockchain, chatbots etc)
o Enabling platforms (technological infrastructure, cybersecurity, access management)
 Management system based on two-in-a-box system: all platforms led by one business and
one tech person making all the decisions together
o This allowed tech backlogs and business backlogs to be mashed together
 Always vision for future, imagine what world looks like in 2030

Questions

1. What is the motivation behind the Second phase of the digital transformation?

 Continued threat from both start-ups and incumbents/established corporations entering

their industry (e.g. Alibaba)
 Growing institutional constraints for organic expansion and acquisition-led growth, especially
in emerging markets
 DBS saw the possibility to use fintech to drive growth in those markets – technology-led
growth

2. How did DBS reimagine a digital future? Analyse DBS approach based on the four
components:

1. Firms in the future

2. Customers in the future
3. The IT function in the future
4. The workforce in the future

 Firms (or at least banks) will become part of customer’s lives, they’ll be invisible, a constant
companion; BUT AI based customer support
 Customers will find their everyday needs fulfilled by banks
 IT

3. Do you agree with DBS approach and how they imagine the future?

1. What are the risks and possible threats with DBS new business model?
2. Would you have done something differently?

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  Customers might still prefer real tellers for big transactions
 Growing privacy concerns in the developed world – who’s got my data, what do they do with
it?
 No, I think their approach makes perfect sense.

How do YOU see the future and to become a future-ready enterprise?

1. Which aspects of running a business might see the most change in the future?
2. How might digital technologies impact us in the next 10-15 years?
3. Where might we see threats and opportunities?
4. Where might we see our new growth trajectory?
5. What are we evolving towards?

 Sustainability will become even more important, and especially in Europe, customers will
look for good corporate citizenship
 Digitalisation will increase even more once 5G is here, automatisation. More and more jobs
will be done by robots rather than by people; which creates new jobs. Online shopping will
become even more important
 Threats: many low-skill jobs might get lost – will we still need shop attendents in 15 years?
Also, data protection – firms already know everything about us and their knowledge about us
is increasing
 Evolving into a more connected society, also into a society in which firms know everything
about us.

4. What are the main strategic capabilities in the transformation journey? Try to identify where
these capabilities came from (e.g. Drucker)

1. Digital agility
2. Customer centricity
3. Employee creativity

 1  industry and market changes (no room for growth, growing importance of digital
products; the time had come for a more digital approach to banking)
 2  Incongruities
 3  process needs – without the employees on board the entire approach would fail

5. Use the innovation radar on DBS and the second phase of digital transformation.

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Lecture 8

Prahalad, 2006: The innovation Sandbox

 Sandbox innovation are serving the bottom of the pyramid, it’s about rethinking established
ways
 Four qualities of innovation from the innovation sandbox:
1. The innovation must result in a product or service of world-class quality
2. The innovation must achieve a significant price reduction – at least 90% off the cost
of a comparable product or service in the West
3. The innovation must be scalable: it must be able to be produced, marketed, and used
in many locales and circumstances
4. The innovation must be affordable at the bottom of the economic pyramid, reaching
people with the lowest levels of income in any given society
 One sector that sees a flood of them: health care in India
 To use the sandbox identify the restrictions first (the four walls of a sandbox)
 Once restrictions are defined, unconventional thinking within the sandbox begins.

In the case study about the health care sector in India that is:

 Specialisation – make the most of the resources, establish a brand, attract donors. Reach
levels that general hospitals cannot reach
 Pricing – make it accessible to everyone. One example includes a health insurance for entire
villages
 Capital intensity – Reduce cots drastically wherever possible
 Talent leverage – have ppl doing the same surgery over and over again rather than different
ones. Train ppl to do one job but to do it well; on a big scale that is enough
 Workflow – Redesign processes to make them more efficient and, again, have ppl doing one
step only
 Customer acquisition – scale is everything, so attract customers to come
 Values and organisation – All staff and members share the same values; easy to work
together

The importance of an ecosystem

 Firms often need to work together to allow for these innovations to work
 Those firms need to rethink business models, align themselves with their target consumers,
and accept constraints

Martin & Kemper, 2012: Saving the Planet: A tale of two strategies

 Businesses need to be at the core of every debate about the environment

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 o They produce the innovations that reduce resource use and make the future more
sustainable
o They consume vast amounts of resources and pollute the environment more than
anything else
 Malthus vs Solow; two different views on the issue:
o Malthus argues that in a world with rising population we won’t be able to feed
everyone, costs of resources will rise while wages fall. At some point nobody can
afford having children  drastic decline in population
 The basic fear is that economic growth comes at the expense of the world’s
natural resources. We steer towards a natural limit at which we used up
resources and destroyed the planet so much while growing consumption and
population that mass famine, starvation, global collapse of systems are
inevitable
o Solow argues instead that we need to innovate and grow within the boundaries of
the planet by making better technology and work more efficiently
 Exhausting natural resources is actually not too bad since they can be
substituted
 “Duelling theories breed inaction. For a consumer, a company, or even a government, the
easiest course is to wait and hope for clarification on which is the right strategy.”
 The authors here argue that neither of the two extremes makes any sense and is correct, but
that both have fair points and should be taken into consideration
o Sadly, attempts to combine them have only led to confusion and dysfunction so far
 Social pressure is a powerful way to generate commitment. No corporation wants ongoing
backlashes against its practices
 Regulations need to come slowly – you can’t go from one trash can to five. But they work;
people cut down on electricity if they see a decreased bill and cash
 A combination of three tools to drive conservation: regulation, economic incentives, and
social or moral pressure

Making the choice between Solovian innovation and Malthusian conservation

 Innovation is a long-term strategy, new tech takes time

 Thus, when the threat is imminent: Malthusian conservation based on the three tools above
 But when there’s time, opportunity for innovation arises
 However, always have the other side in mind, too; it’s not an either-or choice

Case Study

Questions

How to mitigate cash flow risk?

How are the expansion plans affected by the risk of cash constraints?

Ability to export the culture which made them so successful in the first place?

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How to leverage the value of different cultural contexts while maintaining the quality and the pace of
innovation they had enjoyed at this point?

Lecture 9

Porter & Kramer, 2011: Creating Shared Value

 Diminishing trust, increasing blame for society’s failure, outdated value approach are just
some of the problems firms face in the 21 st century
 Companies should bring business and society back together (rather than looking at “social
responsibility” which, per definition, places societal issues at the periphery
 Solution: shared value – creating economic value while also creating value for society
o Chance to legitimise business again, drive innovation and productivity growth; new
era of business
 Governments and business have seen each other as obstacles to their goals; with firms
ignoring externalities and gov regulation for environmental protection etc
 Shared value is about expanding the total pool of economic and social value

 Shared value as the opposite of Milton Friedman’s critique of CSR

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  The idea is that companies can create economic value by creating societal value. Three ways
to do so:
1. Reconceiving Products and Markets
 Businesses missed the most important needs of society, viz better housing, health, help for
the aging, better nutrition etc  that began changing now
o Can be more effective that governments telling people what to do; firms better at
marketing healthy food and eco-products
 Similar idea as Prahalad’s innovation sandbox – looking at the poorer population and their
cumulative enormous purchasing power
 With small changes firms can gain massive profits in underdeveloped markets; improving the
quality of life for millions while generating big revenues
2. Redefining Productivity in the Value Chain
 Locally sourced products reduce the costs for transportation while cutting down on
emissions
 Environmentally friendly technologies are often more cost efficient for the firm
 The main areas with massive potential for improvement and shared value innovation are
o Energy use and logistics: as mentioned above, reducing shipping distances has a
double-positive effect
o Resource use: new technologies allow a more efficient and conscious use of raw
materials, water, and packaging. Will reduce landfill, cut costs, and be good for
Johnny Polar Bear
o Procurement: away from price pressure, forcing even small suppliers to cut costs
wherever possible. A more conscious approach, looking at supplier relationships,
quality, better for environment.
o Distribution: Think of the rise of E-books – less paper used for traditional books. Even
more important: social entrepreneurs as franchisee, or with their own idea, backed
by big corporate money
o Employee productivity: The focus on holding down wage levels, reducing benefits,
and offshoring is beginning to give way to an awareness of the positive effects that a
living wage, safety, wellness, training, and opportunities for advancement for
employees have on productivity.
o Location: Increasingly firms are reallocating their value chain closer to their home
market; bring home jobs, decrease emissions from transportation, less reputation of
exploiting cheap labour  Strong competitors establish their roots in the community
3. Enabling local cluster development
 Success of any firm depends on the infrastructure and supporting companies around it;
productivity and innovation strongly impacted by clusters
 By building clusters, firms take another step to rethinking the value chain and cuttong down
on transportation
 Framework conditions affect productivity of the cluster, which means firms can improve
them together by e.g. building roads in poorer countries
o To help the communities companies need to identify gaps and deficiencies in areas
such as logistics, suppliers, distribution channels, training, market organisation, and
educational instructions. Then identify the weakness that puts constraints on your
company (e.g. lack of skilled workers; improve education)  shared value

Shared value in practice

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“Not all profit is equal. Profits involving a social purpose represent a higher form of capitalism, one
that creates a positive cycle of company and community prosperity”

 Shared value thinking represents a new way of thinking und understanding customers,
productivity, and external influences on corporate success.
 Always look at it in conjunction with strategic and market decisions; must be close to existing
operations
 Making the world a better place, together. By simultaneously focussing on creatinf benefits
for the firm and society
 It holds the key to unlocking the next wave of business innovation and growth
o And a way to earn trust again for businesses

Kanter, 2011: How great Companies think differently

 Traditionally firms are all about making money – their sole purpose and the measurement of
how successful they are at it; todo in financial terms
o However, the author argues that truly great corporations act differently; they have a
purpose to change society for the better
 Institutional logic (this purpose) needs to be aligned with economic logic (traditional money-
focused thinking), but not subordinate
o The author argues that institutional logic should take a place along the financial logic
as guiding principle In every part of the organisation

Six ways in which corporations use institutional logic

1. A common purpose
 “Conceiving of the firm as a social institution serves as a buffer against uncertainty and
change by providing corporations with a coherent identity.”
 Where do corporations get their coherent identity from?
o A purpose that employees can align with and that is good for the world
o Affirming purpose and values through service can be part of a firm’s identity
expression
 “Great companies identify something larger than transactions to provide purpose and
meaning”
2. A Long-Term Focus
 “Thinking of the firm as a social institution generates a long-term perspective that can justify
any short-term financial sacrifices required to achieve the corporate purpose and to endure
over time.”
 Investments in the human side of a corporation can rarely be justified using short-term
financial metrics, but they help create sustainable, meaningful institutions
 In M&A “emotional integration” is important, even though it might cost more in the SR
3. Emotional Engagement
 “The transmission of institutional values can evoke positive emotions, stimulate motivation,
and propel self-regulation or peer regulation.”

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  People influence one another and can in/ or decrease performance
 Well-understood values and principles are an emotional appeal and increase performance
 Make the employees feel their purpose for society (example of P&G van helping Mums in
West African communities
4. Partnering with the Public
 “The need to cross borders and sectors to tap new business opportunities must be
accompanied by concern for public issues beyond the boundaries of the firm, requiring the
formation of public-private partnerships in which executives consider societal interests along
with their business interests”
 In each country and market firms must build a relationship with government officials, public
intermediaries, suppliers, customers.
o These external stakeholders care about the firm’s engagement in nearby
communities
 Public-private partnerships to address societal needs grow in importance
o These projects add substance to claims that firms serve society
5. Innovation
 “Articulating a purpose broader than making money can guide strategies and actions, open
new sources for innovation, and help people express corporate and personal values in their
everyday work.”
 Important: sending ppl around, some innovators from one country might have solutions for
problems in another country
 Creating opportunities for individuals to use company resources to serve society
6. Self-Organisation
 “Great companies assume they can trust people and can rely on relationships, not just rules
and structures. They are more likely to treat employees as self-determining professionals
who coordinate and integrate activities by self-organizing and generating new ideas”
 Managers in great companies understand that formal structures can hinder innovation; each
SBU needs a certain level of responsibility and autonomy
 Organisations need to encourage the creation of self-establishing networks; facilitate them
through communication platforms
 Self-organising communities can be a potent force for change propelling companies in
directions they might not have take otherwise

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The six principles described here are interrelated and share many characteristics. For great

companies building an institutional logic a coherent, holistic pursuit in which elements reinforce one

another, are intertwined, reflect a logic and leadership style that permeate the corporation

Petriglieri, 2020: Are our Management Theories outdated?

 Covid has led to a midlife crisis of management theories; author calls it an issue of death
 Manager inability to prepare for and manage crises causes unease, in particular the on felt
with Covid now
 Seen from a midlife crisis PoV: Management theory has been stuck in it for years, with the
decreasing trust in capitalism in firms and the new questions arising regarding our planet,
climate change, sustainability, equality, the role of the firm in a social context
o Whether capitalism is dead is debatable, but we now know that It is deadly
 American capitalist leaders argue they can take on social and environmental
issues
o “trying to change the world without wanting to changing it”
 “we need to kill management, I mean putting to rest the way we conceive and portray and
practice management. We need to change our conception of management, of its function in
any enterprise”
 Author argues for the need of a truly human management, making room for body and spirits
alongside intellect and skills. One that doesn’t relentlessly push us to do better, but that
acknowledges human faults
 Challenge: we cannot use the blueprints of the past, but they are deeply rooted
o Psychoanalysis tool
 Many traditional theories tell us to keep going but don’t tell us WHY we should do so
o The more modern question is “what is it worth living for”, o sea working
 With insight and psychoanalysis we can emerge from this midlife crisis stronger than before,
with a more spacious view of who we are, more forgiving, more generous, more resolute and
tolerant at once, more likely to balance our concern for the mechanics and morals of our
actions

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Preparation for class

Barilla Case

 Point out the implications to chairman; tell him that he can keep his discriminating view, but
shouldn’t brag about it  consequences will be drastic backlash from general public, not
only homosexual ppl
 Launch a campaign promoting equality, maybe even providing financial aid to groups
supporting the LGBTQ community?

Examples for articles

 Kanter: Oumph
 Porter&Kramer: Three avocados, a coffee NGO

Extra Notes from Videos

CSR as a key movement we cannot neglect. Thinking about responsibility, ethics, principles,
objectives. The extremes are “cheap CSR” and philanthropy; which is difficult for corporations (easier
for owners, e.g. Bill gates).  In the middle: shared values

CSR innovation areas: Sustainability • Cleantech • ”Smart” (cities/grids/homes etc) • Healthcare •

Food • Transportation • Org Diversity • Safety • Raw material substitution • Two major enabling tech
areas: – Energy – ICT

Lecture 10

Fine, Hansen, & Roggenhofer, 2008: From lean to lasting: Making operational
improvements stick

 Classic lean approach: eliminating waste, variability, and inflexibility

 While more and more firms get into the lean approach many fail to achieve their full
potential
o Reasons include short-sightedness, conflicts between lean thinking and current
employee thinking, underestimate of level of senior management required
 The underlying issue: integration of “hard” operational tools and approaches and “soft”
sides, e.g. leaders who think out side the box in terms of efficiency, connect the board with
lower-level employees etc. Hard to achieve
 Making operational change stick is hard  key challenge
o Operations scattered across continents; with M&A even harder

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  You cannot rush to implement sth without manager’s ability and willingness to implement
and live the changes

How to make operational improvements stick

1. Set high aspirations

 Attend to soft elements as early as goal setting
 Take corporate culture and employee mindsets and attitudes into consideration
2. Making change happen
 Well, obviously. What the fuck would they do otherwise?
3. Take a balanced approach
 B
4. Lead through the line


 This article is the definition of business bullshit!

Johnson, Christensen, & Kagermann (2008): Reinventing your business model

Idea in brief: Breakthrough, game-changing products rarely emerge from established businesses.
That’s because a radically new product usually needs a new business model. It’s possible to
transcend the problem if you can: 1. Understand your existing model at a granular level, so that you
are in position to reinvent it. 2. Come up with a great way to help people get an important job done

 Despite the potential to reshape markets only few known success stories of firms reinventing
business models
 Two problems: Not enough practical reseatch into the processes etc. and not enough firms
understand their current model well enough
 The authors provide a roadmap:
1. Don’t start with thinking about BMs, think about the customer who wants to get a job done
2. Construct a blueprint how to do that job at a profit
3. Compare the blueprint to your existing model and see how much you have to change

A definition of BMs

 BMs consist of four interlocking elements:

1. Customer Value Proposition
 Create value for customer, get their job done
 Plenty of potential – there are always jobs consumers want done and cannot find the right
solution
2. Profit Formula
 Consists of
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 o Revenue model: price *volume
o Cost structure: direct costs, indirect costs, economies of scale. Cost structure will be
predominantly driven by the cost of the key resources required by the business
model.
o Margin model: given the expected volume and cost structure, the contribution
needed from each transaction to achieve desired profits.
o Resource velocity: how fast we need to turn over inventory, fixed assets, and other
assets – and, overall, how well we need to utilise resources – to support our
expected volume and achieve our anticipated profits.
3. Key Resources
 Assets including people, technology, products, facilities, equipment, channels, and brand
 Does not include generic resources that every firm has to
4. Key Processes
 operational and managerial processes that allow firms to deliver value in a way they can
successfully repeat and increase in scale
 Can also be rules, metrics, norms, culture

 CVP and profit formula define value for the customer and the company, respectively, key
resources and processes describe how that value will be delivered to both customer an firm.

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When a new business model is needed

 Opportunity to cater to large groups of potential customers currently shut out of the market
 Opportunity to capitalise on a brand-new technology by wrapping new business model
around it (iTunes store, iPod)
 Opportunity to leverage a tested technology by bringing it to new markets (military tech in
commercial markets)
 Opportunity to bring a job-to-be-done focus where one does not exist yet
 Need to fend off low-end disruptors
 Need to respond to shifting base of competition

Four questions to evaluate whether changing business model will yield satisfying results

 Can you nail the job with a focused, compelling customer value proposition?
 Can you devise a model in which all the elements – the CVP, profit formula, key resources
and processes work together to get the job done in the most efficient way possible?
 Can you create a new business development process unfettered by the often negative
influences of your core business?
 Will the new business model disrupt competitors?

Pisano, 2015: You need an innovative strategy

 The reason that many innovative companies fail has to do with the lack of an innovation
strategy
 Too many firms pursue lots of different innovation strategies without understanding the
bigger picture – the capacity to innovate successfully comes from an innovation system: “a
coherent set of interdependent processes and structures that dictates how the company
searches for novel problems and solutions, synthesises ideas into a business concept and
product designs, and selects which projects get funded”.
o An explicit, written- innovation strategy helps you to design the innovation strategy
that fits your company
o Without an innovation system SBUs might pursue different strategies
 The innovation system connects innovation with strategy
o A good innovative strategy needs to address the following questions:
1. How will innovation create value for potential customers?
 Identify the value you want to create for customers and stick to it
2. How will the company capture a share of the value its innovations generate?
 IP protection is rarely enough to protect the innovation from copycats and rivals
 Find ways to capture the value of an innovation and how to fend off competitors
o One means to do so could be continued investment in innovation
3. What types of innovations will allow the company to create and capture value, and what
resources should each type receive?
 The authors create a 2x2 matrix to describe innovation:

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Different companies need to focus on different types of innovations, depending on markets and
customer preferences, as well as technological developments

Managing trade-offs

 Firms are playing to their strength in routine innovations (likened to homefield advantage)
 All practices to innovate come with trade-offs
o Choosing the right means is critical
o Clarity around which trade-offs are best for the company as a whole (something an
innovation strategy provides) is extremely helpful in overcoming the the barriers
organisational change often requires

The role of leadership

 Creating the capacity to innovate starts with strategy

o That strategy has to come from the most senior leaders
 Four essential tasks:
1. Identify how value is created for both company and its customers
2. Create a plan to allocate resources to different kinds of innovation – think back to article
describing strategy as resources-allocation
3. Manage trade-offs – identify what’s best for the company as a whole
4. Innovation strategies must evolve. Any strategy represents a hypothesis that is tested against
the unfolding realities of markets, technologies, regulations, and competitors. Like the

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 process of innovation itself, an innovation strategy involves continual experimentation,
learning, and adaptation.

Lecture 11

Dyer, Gregersen, & Christensen, 2009: The Innovator’s DNA

 Blub

Hamel & Välinkangas, 2003: The Quest for Resilience

 The world is spinning faster than firms are able to cope with – more failures; many large
corporations gone from “wow” to average
o Momentum is not the force it once was; you can never rest and hope it remains the
same
o It is being undermined by technological discontinuities, regulatory upheavals,
geopolitical shocks, industry deverticalisation and disintermediation, abrupt shifts in
consumer tastes, and hordes of non-traditional competitors
 When momentum runs out, firms rely on resilience – “the ability to dynamically reinvent
business models and strategies as circumstances change”
 Goal should be “zero trauma” – making your own future, rather than letting something else
dictate it; always in tune with the times, opportunities, spotting risks
 Resilience should become an attainable goal. To become resilient, firms need to deal with
four issues
1. The cognitive challenge: A company must become entirely free of denial, nostalgia, and
arrogance. It must be deeply conscious of what's changing and perpetually willing to
consider how those changes are likely to affect its current success.
2. The Strategic Challenge: Resilience requires alternatives as well as awareness - the ability
to create a plethora of new options as compelling alternatives to dying strategies.
3. The Political Challenge: An organisation must be able to divert resources from
yesterday's products and programmes to tomorrow's. This doesn't mean funding flights
of fancy; it means building an ability to support a broad portfolio of breakout
experiments with the necessary capital and talent.
4. The Ideological Challenge: Few organisations question the doctrine of optimisation. But
optimising a business model that is slowly becoming irrelevant can't secure a company's
future. If renewal is to become continuous and opportunity-driven, rather than episodic
and crisis-driven, companies will need to embrace a creed that extends beyond
operational excellence and flawless execution.

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  There is no simple recipe to build resilience, but these are some starting points:

Conquering Denial

 It is (almost) always possible to see changes coming – stop denying it

o Often, the future is more knowledgeable than they admit, rather it’s unthinkable
 Denial is at work
 Three things to avoid denial:
o Leaders should go out there where change happens. Don’t just read about it
o Filter the filterers – avoid people who are too comfortable toiacknowledge the
coming changes, even though they might know about them
 Shadow-board of younger people in their 30s; let them do the actual work to
get their opinion
 Go for drinks with freethinking employees
 Review proposals that never made it onto your table
o Face the inevitability of strategy decay. Strategies go from ripe to rotten in no time at
all. They get
 Replicated by competitors
 Supplanted by better strategies
 Exhausted as markets become saturated
 Eviscerated – customers become increasingly powerful

Valuing variety

 Resilience depends on variety – you need to have several strategic alternatives

 Hamel suggests that firms should have a a lot of smaller investments, rather than a handful
of multi-billion dollar bets
o Thousands of idea will produce a dozen of really successful ones
 Hamel calls external, open innovation “Innovation ghettos”
o Instead, he argues, R&D should be small-scale, but integrated, close to employees,
customers, etc. Pump out at least 100 groundbreaking experiments, each between
10-20k (2003 money).
o Success is an exception, embrace it, and try hard to get success stories – one in a
hundred

Liberating resources

 Free up the resources to support these many smaller projects

 Firms spend too much on marketing to existing customer segments, and too little on growing
strategies
 Not all innovation strategies are risky – if there is a clear customer need, or a way to make it
more convenient for them and the tech exists – what’s risky?
 Firms can be operationally efficient and strategically inefficient
o Difficult to assess strategic efficiency – you don’t know which project will be future
cash generator

Embracing Paradox

 Ideological barrier to resilience

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 o Corporations have been the same since the offset - Do more, better, faster, and
cheaper
 Accelerating pace of change requires accelerating pace of strategy - which can be achieved if
a firm values resilience as high as optimisation

Conclusion

Any company that can make sense of its environment, generate strategic options, and realign its
resources faster than its rivals will enjoy a decisive advantage. This is the essence of resilience. And it
will prove to be the ultimate competitive advantage in the age of turbulence when companies are
being challenged to change more profoundly, and more rapidly, than ever before.

Criticism

 External R&D= ghetto? No mate, I don’t think so!

o Balance between external and internal innovation; R&D – I like outsourcing R&D.
Otherwise even less resilient, cause no touch to start-ups
 At the heart ofthe American experiment is a paradox-unity and diversity  That’s no longer
true
 In general, very outdated (Nokia…)

BUT I kinda agree with him, spawning many, many small projects will lead to some successful ones
(think Google; post-it notes) Intrapreneurship in general – only in tech firms, really? But I thin
external R&D can be a big part of that, via incubators, CVC, start-up incorporation etc

Martin & Golsby-Smith, 2017: Management is much more than a science

@Nouman Enjoy haha

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