Lecture 05 Strategy and

Innovation
INNOVATION STRATEGY

Considerations
How will innovation create value for potential customers?
Identify and build capabilities → capabilities required for each are quite different and
take time to accumulate
How will the company capture a share of the value its innovations generate?
Appropriability: degree to which the firm can take advantage of the potential
economic benefits of an innovation
What types of innovations will allow the company to create and capture value, and
what resources should each type receive?
Should specify how the different types of innovation fit into the business strategy and
the resources that should be allocated to each: the question → balance and mix

2
INNOVATION STRATEGY

Dynamic Capabilities
Firm's ability to integrate, build, and reconfigure internal and external competences
to address rapidly changing environments
‘Dynamic'
Refers to the capacity to renew competences so as to achieve congruence with the
changing business environment
‘Capabilities'
Emphasizes the key role of strategic management in appropriately adapting,
integrating, and reconfiguring internal and external organizational skills, resources,
and functional competences to match the requirements of a changing environment

3
TEECE MODEL

Teece Model
Can be used to predict who will profit from an innovation and to understand what
company will have higher incentives to invest in certain innovations
Imitability and complementary assets have strong influence in determining who will
ultimately profit from an innovation
Imitability
How easily competitors can copy or duplicate the technology or process underpinning the
innovation: intellectual property rights, complex internal routines or tacit knowledge
Complementary assets
Any activity that gravitates around the core innovation, such as distribution channels,
reputation, marketing capabilities, strategic alliances, customer relationships, licensing
agreements, among others

4
TEECE MODEL

Appropriability regime
Environmental factors that govern an innovator's ability to capture the profits generated by
an innovation, and determine the height of barriers to imitation: (1) Strong/effective legal
instruments (2) Nature of technology [degree of codification, complexity, and ease of
reverse engineering]

Tight appropriability regime Weak appropriability regime

Good protection of innovation either through Innovators must turn to business strategy if
legal, or/and through nature of technology they are to keep imitators/followers at bay
leads to a good chance for the innovator of
translating its innovation into market value
for some period of time.

5
End of Presentation