STRATEGIC MANAGEMENT

Session 7
Growth & Change:
“Adapting to Environmental Change”

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Course Structure 6: McKinsey
growth & change 7: Oticon
8: Sabena

making strategy

positioning Resources &

capabilities
1: Nespresso
2: African Communications Group
3: Barnes & Noble vs. Amazon 5: Swiss Watch Industry
4: Fairmont Lake Louise
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Recap: “Growth & Change: Organizational
Environment”
Internal organizational environment
 The internal organization (structure, incentives, people, culture)
needs to ‘fit’ the strategy
 The elements need to fit with each other
 How internal processes contribute to competitive advantage 
e.g. consulting businesses (keeping knowledge inside)

The influence on growth

 Resources often can be thought of as ‘stocks’ and ‘flows’, which
are interconnected (bathtubs metaphor)
 The internal organization helps accumulate important resources
 As such, the organization itself – developed over a long period of
time through an evolutionary process – may become the basis of
sustained competitive advantage. 3 3
 First, some clarification:
What exactly is today’s class about?

This may be an invisible issue, unless you are looking for it.

Key thrust : make yourself aware of the issue

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 Two main topics for the session*

•What is the source of most observed

changes in organizations?
• The industry life cycle

•Why is innovation so difficult?

• Organizing for continuous innovation – How can
managers foster continuous innovation?

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 Fundamental questions about organizational
change ...

Organizational change is extremely hard but is all around

us!

Thus, one may ask, where does most change come from?
What are the sources of organizational change?

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 MINI-LECTURE:
Long term evolution of industry life
cycles

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 LONG RUN CHANGE: TWO UNDERPINNING
IDEAS...

1. Long run changes in the “TECHNOLOGY of production” in

most industries tends to follow somewhat regular and
predictable stages

2. This has a profound effect on long-run INDUSTRY change—

producing somewhat regular patterns

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REGULAR, CONTINUOUS ADVANCES...

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...PERIODICALLY INTERRUPTED BY
TECHNOLOGICAL DISCONTINUITIES

CD
vinyl lp

cassette

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 LONG RUN CHANGE: TWO UNDERPINNING
IDEAS...

1. Long run changes in the “TECHNOLOGY of production” in

most industries tends to follow somewhat regular and
predictable stages

2. This has a profound effect on long-run INDUSTRY change—

producing somewhat regular patterns

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 Research on population ecology and
organizations
• Hannan & Freeman. 1977. “The population ecology of organizations.” American Journal of
Sociology.
• Carroll & Delacroix. 1982. “Organizational mortality in the newspaper industries of Argentina
and Ireland: An ecological approach”. Administrative Science Quarterly.
• Carroll, Preisendorfer, Swaminathan, & Wiedenmayer. 1993. “Brewery and brauerei: The
organizational ecology of brewing.” Organization Studies.
• Usher & Evans. 1996. “Life and death along gasoline alley: Darwinian and Lamarckian processes
in a differentiating population”. Academy of Management Journal.

• etc… etc…

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 Research on population ecology and
organizations
• Hannan & Freeman. 1977. “The population ecology of organizations.” American Journal of
Sociology.
• Carroll & Delacroix. 1982. “Organizational mortality in the newspaper industries of Argentina
and Ireland: An ecological approach”. Administrative Science Quarterly.
• Carroll, Preisendorfer, Swaminathan, & Wiedenmayer. 1993. “Brewery and brauerei: The
organizational ecology of brewing.” Organization Studies.
Darwinian processes in industries: “Variation,
• Usher & Evans. 1996. “Life and death along gasoline alley: Darwinian and Lamarckian processes
selection
in a differentiating population”. and
Academy retention”!
of Management Journal.

• etc… etc…

Jean –Baptiste
Charles Darwin
Lamarck
1809-1882
1744-1829

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Industries tend to follow a “Life Cycle”

Ex: Typical Pattern of Number of Firms over

Time

Industry sales

further consolidation
Rising Oligopoly

Stabilzation or
Net Entry

Shakeout

Time

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Industries tend to follow a “Life Cycle”..and key
success factors change over time

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 MINI-LECTURE:
Long term evolution of industry life
cycles

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 Technology S-curve

Traditional dimensions of merits

Maturity

Dominant design
Performance/Value

Technological
discontinuity

Ferment

Time
Technological
discontinuity
Challenge of competing is not just to establish a high performance position, but simply
to survive the process of change. 17
 VERY-MINI-LECTURE:
Trade-offs between growing and
changing capacities

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The tension between growing and changing
resources and capabilities (…and position),
A tension occurs between a firm’s ability to growth resources and
capabilities, particularly during a period of cumulative technological
development, and a firm’s ability to change resources and capabilities,
specifically needed in a period of technological substitution.

A determinant of the tension between growing and changing resources

and capabilities in a firm stems not only from organizational inertia
forces but also from the process (somehow unintentional and often
unnoticed) of transformation of a firm core capabilities into a core
rigidities.

“Core capabilities and core rigidities: A paradox in managing new

product development”
Dorothy Leonard-Barton. Strategic Management Journal, 1992
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“Core capabilities and core rigidities: A paradox in managing new
product development”
Dorothy Leonard-Barton. Strategic Management Journal, 1992

The up side: Capabilities enhance development

1. Skill/knowledge dimension
2. Technical systems dimension
3. Management systems dimension
4. Values dimension
excellence in the dominant discipline;
pervasive technical literacy
embedded knowledge (timing,
accuracy, etc.)
incentive systems, educational
systems, etc.
empowerment of project members,
high status for dominant discipline

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“Core capabilities and core rigidities: A paradox in managing new
product development”
Dorothy Leonard-Barton. Strategic Management Journal, 1992

The down side: Core rigidities inhibit development

1. Skill/knowledge dimension
2. Technical systems dimension
3. Management systems dimension
4. Values dimension
less strength in non-dominant
disciplines
skills and processes become
outdated
highly skilled people do not work on
undervalued projects
empowerment as entitlement, lower
status for non-dominant disciplines

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 Trade-offs between Growing and Changing capacities

Growing capacities Incremental Changes

Dynamic Capabilities = 1

Changing capacities

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 Trade-offs between Growing and Changing capacities

Growing capacities Disruptive Changes

Changing capacities

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 Trade-offs between Growing and Changing capacities

Growing capacities Disruptive Changes

Dynamic Capabilities = 2
Dynamic Capabilities = 1

Changing capacities

Greater levels of Dynamic capabilities attenuate the trade-offs between

growing and changing capacities. Such capabilities also allow a firm to
respond to disruptive changes with greater level of changing capacities,
without the need of reducing its growing capacities level. 24
 A fundamental tension in organizations

EXPLOITATION EXPLORATION

efficiency innovation
productivity creativity
control autonomy

“Executing” “Adapting”

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 A different strategy requires the creation of a
different organizational environment ...
External Environment

Incentives

People Strategy Structure

Recruiting/Training
Culture

Internal Environment

C. Markides, “All the right moves”, 1999 26

 A different strategy requires the creation of a
different organizational environment ...
‘EXPLOITATION’ Organization
(“executing”)
Structure Bureaucratic. Specialization and
division of labour. Hierarchical
control.
Processes Operating units controlled and
coordinated by top management,
which undertakes strategic planning,
capital allocation, and operational
planning.
Incentives Financial compensation, promotion up Autonomy, recognition, equity
the hierarchy, power, and status
symbols.
People Recruitment and selection based on
the needs of the organization
structure for specific skills: functional
and staff specialists, general
managers, and operatives.
Homogeneity of approaches prevails.
Source: Grant textbook
‘EXPLORATION’
Organization (“adapting”)
Flat organization without
hierarchical control. Task-oriented
project teams.
Processes directed toward
generation, selection, funding, and
development of ideas. Strategic
planning flexible, financial and
operating controls loose.
participation in new venture.
Key need is for idea generators that
combine required technical
knowledge with creative
personality traits. Managers must
act as sponsors and orchestrators.
Diversity is encouraged.
A different strategy requires the creation of a
different organizational environment ...in
addition
• Cross-functional product development teams;

• Product champions provide a means, first, for incorporating

individual creativity within organizational processes and,
second, for linking invention to subsequent
commercialization;

• Buying innovation;

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 Executing vs. adapting

EXPLOITATION EXPLORATION

efficiency innovation
productivity creativity
control autonomy

 Organizations are naturally inclined to slip into one of the two

modes ...

 ... which are mutually exclusive ...

 ... BUT you may need both modes of operation! 29

 Reconciliation? (i.e. ambidexterity)

EXPLOITATION EXPLORATION

efficiency innovation
productivity creativity
control autonomy

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 Reconciliation? (i.e. ambidexterity)

EXPLOITATION EXPLORATION

efficiency innovation
productivity creativity
control autonomy

1. Structural separation: Two units

2. Periodic re-organization

3. Other creative ways

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 4. Other approaches
Use of Big Data
“Crowdsourcing” (e.g., InnoCentive.com)

Open competition
Employees’ “own” time/internal knowledge markets

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 Summary: Change and adaptation
1. The Industry life cycle
• Much change is the result of market selection pressures
• Adapting to environmental change is difficult – but not impossible
• One time radical adaptation – hazardous process
2 Exploitation versus exploration - i.e. “why innovation is so difficult”
• Each requires a different type of organization
• Different attempts to create organizational forms that balance
exploitation (focus on execution & efficiency) and exploration (focus on
adaptation & innovativeness) -> AMBIDEXTERITY!

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