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1 Corporate innovation strategy
Maria Kaninia [10-936-342] Tuesday, May 10, 2011
The resources of a ﬁrm consist of a set of productive assets, typically categorised into three main types: • Select a strategy based on these elements and diﬀerentiate from the competitors.
• Expand the resources identiﬁed as a poten• Tangible: Financial assets and physical retial long-term proﬁt-generator for the future. sources such as production plants or equipment are included in this category. Therefore, the ﬁrst step to form a successful • Intangible: Technology, patent portfolio, strategy is to locate the potential for competireputation (“brand equity”) and culture are tive advantage that is hidden in the current list of resources. In the case of tangible resources, included here. this requires a good insight into the business sec• Human resources: Technical and soft tor, since the estimated monetary “book” value of assets does not provide information on the corskills of workers and executives. responding strategic value (which is given by the In the following, it is discussed how this set of potential to exploit the tangible assets for adresources aﬀects the strategy chosen and impleditional value creation). Intangible assets typmented by a ﬁrm. ically have signiﬁcant strategic value for generThe strategy of a ﬁrm can be based on its ating competitive advantages, even though this internal resources and capabilities, as opposed value is not depicted in “book” valuations (it to being guided by the external environment. is however approximated by the capitalisation This provides stable anchoring for the ﬁrm, esachieved by the ﬁrm in stock markets). It is also pecially in a swiftly changing, market-driven ennotoriously diﬃcult to quantify the value of huvironment. According to this scenario, the ﬁrm man resources. There are various methodologies cultivates speciﬁc technological capabilities and that are applied to assess the performance and subsequently, after examination of the opportupotential of the employees “stock”, including asnities in the current state of the market, it ofsessment of individual performance, of interperfers products based on these capabilities. Evisonal relationships and ﬁnally of the aggregated dence shows that capability-driven (rather than “organisational culture”. market-driven) strategy has proven more resilient A critical parameter in achieving the desired for ﬁrms in various technological sectors. target of a ﬁrm is the ability to eﬃciently utilise In order to utilise the competitive advantage the above-mentioned types of resources in conderived from superior internal resources as a junction. This capacity to combine resources source of proﬁt (which is the ultimate goal of the is deﬁned as “organisational capability”. Espeﬁrm), it is necessary to: cially important competences which allow the • Identify and understand the unique elements ﬁrm to signiﬁcantly increase the delivered ﬁnal value of its products or enter new markets are of the ﬁrm’s resources and capabilities. 1
Maria Kaninia [10-936-342]
Innovation Systems and Technical Change 4.1 Corporate innovation strategy technological know-how has a short expiration date). Second, a resource may or may not have the property of transferability, which indicates whether a resource is mobile between diﬀerent ﬁrms. Several resources are inherently non-transferable (e.g. because of geographical limitations), while others may appear transferable (e.g. a team of experts) but be actually dependent on a speciﬁc organisational context. Last, several capabilities developed by a ﬁrm might or might not be replicable. Even in the case of easily replicable competences, the incumbent ﬁrm retains an advantage by having experience with integrating the competence into the value chain. 3. Extract proﬁt: For a ﬁrm, it is especially important to ensure that the developed competitive advantages remain bound to the ﬁrm. This creates a certain ambiguity in the case of intangible resources which are by deﬁnition bound to key experts (who then acquire large bargaining power within the ﬁrm). Developing strong corporate systems and reputation is a defense mechanism for the ﬁrm, because it means that individual skills are more valuable within the structure of the ﬁrm.
deﬁned as “core competences”. In order to identify these critical competences, two approaches can be used: • Functional analysis: Each principal functional area is separately examined in order to “discover” organisational capabilities (e.g. innovative product development is a competence within the R&D functional area). • Value chain analysis: It is based on a sequential chain of primary activities and parallel overlapping support activities. It has the advantage that the entire path of value creation is visible (as opposed to the fragmented view in functional analysis). Through both methods one can observe the hierarchical structure of organisational capabilities. At the top level, a speciﬁc capability may extend over several functional areas and rely on several lower level sub-capabilities. As we move to the bottom levels, more speciﬁc competences are identiﬁed, which belong to a single functional area. Furthermore, it is relatively unclear how certain organisational capabilities are developed. One view is that they develop as an implicit routine through “learning-by-doing”, meaning that the coordinated interaction of individuals at various stages of the value chain may, through constant repetition and revision, be optimised to reach a high level of eﬃciency. A trade-oﬀ might be a diﬃculty to adapt to new situations, since a new set of routines would have to be “rehearsed” to reach a good level of eﬃciency. Based on the above, the ability to generate proﬁt by systematically exploiting the resources and capabilities of a ﬁrm can be divided into the following sub-tasks:
In conclusion, it could be said that resources and capabilities, combined within a suitable organisational context, can provide a ﬁrm with a solid structure for building strategy. However, in order to have a long-term sustainable strategy, it is critical to constantly re-evaluate and strengthen the portfolio of competitive advantages of the ﬁrm. This task is diﬃcult because it deals with intangible assets and human resources which cannot be easily quantiﬁed, thus requiring 1. Establish competitive advantage: A good understanding and insight of the ﬁrm and competence must have the following two the relevant markets in order to pinpoint speciﬁc properties in order to evolve into a competi- strengths and competitive advatnages. tive advantage: Scarcity (otherwise the competence is merely a necessity in order to surSource: Grant, R.M., 2008. Contemporary vive in the market) and relevance to the in- Strategy Analysis, Chapter 5. Blackwell Pubtended market (otherwise the competence is lishing, Oxford, pp. 123-143 an unneeded feature).
2. Sustain competitive advantage: Several factors aﬀect the potential of a certain competence to generate proﬁt in the long-term. Durability determines how long a resource remains productive (as an example, brand equity tends to have a long life-span, while 2