MBIE1903-8273

Enterprise Innovation
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WEEK 4: Innovation Strategy
 Choosing The Right Strategy
Decide how your organization is going to play the
Innovation Game. Senior Management’s responsibility.
Each Management Team crafts its own strategy, adapts to
changing conditions and chooses the right time to make
key moves.
Remember – the innovation strategy must support the
business strategy.
 Choosing The Right Strategy
 The amount and type of innovation (radical/semi-
radical/incremental) varies depending on the strategy and the
competitive environment.
 Timing is everything (YouTube Case Study).
 People in the organization must understand your innovation strategy.
 Clear game plan and alignment of the key players is vital. You
cannot succeed otherwise.
 Choosing The Right Strategy
 Dominant firms are more aggressive.
 But dominance is not a strategy, it is an outcome.
 Strategy depends on the diversity of investment within the innovation
matrix.
 Play to Win (PTW) Strategy
 “Is the innovation investment expected to create one of the key
sources of our competitive advantage?” - An emphatic YES to the
question.
 The goal of PTW strategy is to produce significant competitive
advantages that cannot be easily or quickly matched by
competitors (either through incremental/semi-radical/radical).
 PTW is a market leading strategy that relies on semi-radical
innovation to drive transformation in the organization and create
market changing ideas/products.
 PTW Strategy

Typical of high-technology startups.

These companies are highly focused on bringing a new
technology or business model to market.
Their future is almost entirely dependent on it. The
failure rate is high and reflects high risk involved
(technical or management execution).
Such companies do not have a strong investment
portfolio and this lack of depth makes the PTW strategy
extremely risky.
Young companies have limited resources and need to
be very focused in the beginning.
 PTW Strategy

Once the start ups are successful they can move to

a more diversified innovation portfolio that puts a
premium on additional incremental innovation.
Many companies have an issue with this.
It is common to see significant turnover at the top
when this happens – board or investor intervention
becomes necessary.
Early part of DotCom has numerous examples of
successes and failures. Examples - WebVan a
failure. Amazon.Com a success.
 PTW Strategy
Larger and established firms have a broader portfolio
and these provide a hedging function significantly
lowering risks.
GE, Apple, Google and their formidable flow of
innovations.
Toyota’s lean manufacturing and launch of the Prius
Hybrid are examples of a PTW strategy.
Adoption of a PTW strategy depends on external or
internal conditions. At times it may be wise to stay in the
game and adopt a Play Not to Lose Strategy (PNTL) and
then push at an appropriate time.
 Play Not to Lose (PNTL) Strategy
 Adopted when there are less than optimal external or internal
conditions (too may competitors, regulatory roadblocks, high
degree of uncertainty – or significant internal constraints such as
inadequate resources, lack of culture etc.)
 Includes more incremental innovation in the portfolio – aims to
ensure that the company stays in the game by moving quickly
and taking calculated risks.
 Following this approach, the company adopts a ‘wait and watch
attitude’ within the external environment and makes
improvements in its internal capabilities – attempting to wear
down competition and shift to PTW in due time.
 PNTL Strategy
Companies with PNTL are often in fragmented
industries where changes to technologies and
business models occur relatively infrequently.
Continuous incremental innovations make them
winners.
Some companies with PNTL strategies may find it
difficult to move to a PTW strategy due to lack of
sufficient capability (e.g. MATTEL dolls and BRATZ
produced by MGA Entertainment).
 PNTL Strategy
Companies that adopt a PNTL strategy could be risk
averse and not want to be the first to commercialize
risky semi-radical or radical innovations.
Sometimes PNTL strategies exist because management
cannot commit to a clear PTW strategy. In this case,
PNTL strategies are a compromise - it is then dangerous
in terms of effectiveness of execution.
This strategy is sometimes called the ‘fast follower
strategy’. This is a mistake as the PNTL is not limited to
following another’s move but has a series of preemptive
and reactive moves.
 PNTL Strategy
Choosing a PNTL strategy could be a smart
management decision but being forced into one
because company is not prepared, is poor
management.
Oil Industry – EXXON, HALLIBURTON AND
SCHLUMBERGER.
 PNTL Strategy
The entire Healthcare providers industry has been
locked into a PNTL innovation strategy.
They have been struggling for survival due to major
emphasis on cost reduction and incremental
innovation to shore up revenues and profits.
Baby diaper wars – Kimberly Clark and P&G.
Sometimes external and internal challenges may not
point in either PTW or PNTL strategies – it could be
something in between the two extremes.
 Innovation – Too Much of A Good Thing

Is radical innovation truly necessary for survival for

all organizations at all times?
A lack of innovation specially radical innovation
can lead to failure.
Investing in radical innovation at the wrong time
or in the wrong amounts could also be fatal.
 Innovation – Too Much of A Good Thing

It is possible to ‘innovate and die’ by taking the wrong

kinds of risk and by playing the wrong kind of strategy.
Also, too many innovative ideas out there for
companies to process clouds their judgement on which
ideas are truly great.
Clouded by this excess, the companies take on too
much innovation or the wrong types of innovation and
waste their investments.
Case Study – Play to Win Strategy - STARBUCKS
 Play to Win Strategy - STARBUCKS
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Clearly defined Innovation Strategy Drives
Change

Case Study – Procter & Gamble

(P&G had great difficulty transforming from its
conservative and cautious organization into one that
could embrace more aggressive doses of innovation.
It also learned that attempting to change everything
at once is not a formula for success).
 Factors – Internal and External – affect
selection
INTERNAL EXTERNAL
Technical Capabilities Capabilities externally

Organizational Capabilities Industry Structure

Success – Current business model Competition

Funding Rate of technological change

Top Management Vision

 Internal Factors - Technical Capabilities

Amount of technology innovation depends on the

current capabilities that the company has
internally or can access through its innovation
network.
A company that has traditionally competed on
incremental technology improvements will have a
tough time suddenly including a semi radical
technology dimension to its strategy.
 Internal Factors - Organizational Capabilities

The ability to nurture innovation also depends on

whether the company has the organizational
capability to do this.
Shifting to a more radical innovation approach
will not happen if the organizational and
management capabilities are not present.
 Internal Factors – Current Business Model

Core capabilities become core rigidities and

result in an inability to grow internal ventures
in successful companies.
The greater the success, the greater the
potential resistance to change.
 Internal Factors - Funding

An obvious, forgotten requirement.

Too much or too little can be equally dangerous and
could result in misallocation of resources chasing business
models that have not been well tested.
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Internal Factors – Top Management

Management has a large set of options to

position the company, and management talent
has a very relevant role in selecting and
evolving the company’s innovation strategy.
 External Factors - Capabilities In The External
Network
Accessing relevant capabilities is vital.
Requires collaboration with other organizations that have
complementary resources.
You need a network that reaches inside and outside your
organization.
Ability to create sustainable alliances with partners becomes
important.
 External Factors – Industry Structure

A careful analysis is required to determine main obstacles

and opportunities for innovation.
Understanding of the dominant industry value chain – who
dominates and why?
 External Factors - Competition

Quality and speed of innovation of your competitors and

yours will determine the future state of the market.
Your organization may be well positioned but competitors
could change or new ones may enter and competitive
dynamics could change.
Rate of Technological Change – when new advances
outdate your product, identify the approaching changes well
in advance.
 Risk Management and Innovation Strategy

As we move up and to the right of the Innovation Matrix, the

level of risk we take is higher.
A PTW strategy is riskier than a PNTL strategy because it relies on
a larger component of semi-radical and radical innovation.
The center of gravity and the breadth of the innovation portfolio
determine the level and type of risk that needs to be managed
during execution.
 Risk Management and Innovation Strategy

Companies keen to lead and change the industry are cases in

point.
They rely on being first and creating value through larger leaps
of technology or business model innovation. They also invest in
incremental innovation.
E.g. Apple followed up IPOD and ITUNES by introducing the IPOD
mini and sharing the IPOD technology with HP effectively putting
up a front against cheaper versions from Sony and online music
offerings from Microsoft.
 Strategy and the Innovation Rules
 Defining the Innovation Strategy and the resulting portfolio characteristics is
the first major responsibility of a company’s leadership.
 Forming the strategy in the context of the Innovation Model and defining
the balance of the portfolio is the responsibility of the leaders.
 E.g. Steve Jobs the leading force in defining Apple’s innovation strategy
and innovation portfolio.
 Strategy and the Innovation Rules

 3 important questions –what portfolio of innovation types do we need, how

much business model innovation, how much technology innovation?
 Senior management needs to identify its core competencies and innovate
around them – Think Apple, GE, WalMart, DELL, P&G and Toyota.
 Align innovations with competency and strategy.
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Questions?