Chapter 7: Innovation Strategies

Learning Objectives
After reading this chapter, you should be able to understand and articulate answers to the
following questions:
1. What is Entrepreneurial Orientation?
2. Why should companies innovate?
3. What are the four types of innovation?
4. What are the four stages of the product life cycle and crossing the chasm?
5. What are the ways firms might cooperate with their competitors?
Introduction
A firm's commitment to innovation, particularly driven by an entrepreneurial orientation,
plays a pivotal role in shaping its competitive strategies. This approach encourages continuous
improvement of existing products, the development of new offerings, and exploration of novel
market opportunities. Innovations, whether focused on existing or new markets and utilizing
existing or new technologies, provide a pathway for firms to differentiate themselves. Beyond
individual efforts, collaboration through joint ventures, strategic alliances, mergers, or co-
opetition becomes crucial for pooling resources and expertise. The importance of innovation is
emphasized as a cornerstone in strategic management, as static business-level strategies cannot
sustain competitiveness in a dynamic market. This adaptability is essential for entering new
markets and meeting evolving customer demands, especially as firms implement broader
corporate and international strategies, where cooperative measures assist in acquiring the
necessary resources and capabilities for successful innovation and market entry.
7.1. Entrepreneurial Orientation
Entrepreneurial orientation (EO) refers to the strategic mindset and organizational culture
that promotes and encourages entrepreneurial behavior within a company. It encompasses a set
of entrepreneurial traits, practices, and processes that drive innovation, risk-taking, and
proactiveness. There are several key components of entrepreneurial orientation:
 Innovativeness: Entrepreneurial firms are characterized by their commitment to
innovation. They actively seek new ideas, technologies, and processes to improve
products, services, or operations, fostering a culture of creativity and adaptability.
 Risk-Taking: Entrepreneurial orientation involves a willingness to take calculated risks.
This includes venturing into new markets, introducing novel products, or investing in
untested technologies. A tolerance for uncertainty is essential for seizing opportunities
that traditional, risk-averse organizations might avoid.
 Proactiveness: Entrepreneurs are proactive in identifying and pursuing opportunities
rather than merely responding to market conditions. They exhibit a forward-looking
approach, anticipating changes in the business environment and positioning themselves to
capitalize on emerging trends.
  Competitive Aggressiveness: Entrepreneurially oriented organizations are often
competitive and assertive. They actively seek a competitive edge and are willing to
challenge established norms and competitors, aiming for a leadership position in their
industry.
 Autonomy: Entrepreneurial firms often encourage autonomy and independence among
their employees. This autonomy fosters a sense of ownership, empowering individuals
and teams to take initiative and make decisions that contribute to the company's
entrepreneurial spirit
 Customer Focus: Successful entrepreneurs are customer-oriented, emphasizing a deep
understanding of customer needs and preferences. They are agile in responding to
changing market demands and are quick to tailor products or services to meet customer
expectations.
 Learning Orientation: Entrepreneurial orientation involves a commitment to continuous
learning. Organizations with an entrepreneurial mindset view failures as opportunities to
learn and adapt, promoting a culture of experimentation and improvement.
An entrepreneurial orientation is not limited to startups; established companies can also
foster this mindset to enhance their competitiveness and sustainability. The degree of
entrepreneurial orientation within a firm can vary, and it often depends on leadership,
organizational culture, and the overall strategic direction of the company. Embracing
entrepreneurial orientation is crucial in today's dynamic business environment, where rapid
changes and uncertainties require firms to be agile, innovative, and proactive to thrive.
In the Philippine banking industry, there are examples of entrepreneurial orientation
demonstrated by certain banks that exhibit innovative practices, risk-taking, and a proactive
approach.
Digital Transformation Initiatives:
UnionBank of the Philippines: UnionBank has been a pioneer in embracing digital
transformation. It introduced its "The Ark" innovation hub, focusing on creating a fully digital,
branchless banking experience. The bank has invested heavily in technology, adopting
blockchain for various applications and launching innovative digital services to enhance
customer experience.
Partnerships and Collaborations:
BPI (Bank of the Philippine Islands): BPI has shown entrepreneurial spirit through
strategic partnerships. For example, BPI collaborated with fintech companies to enhance its
digital offerings. Such partnerships allow traditional banks like BPI to leverage the innovation
and agility of fintech firms to stay competitive and address changing customer expectations.
Innovative Product Offerings:
Security Bank: Security Bank has been recognized for its innovative product offerings.
The bank has introduced tailored products and services, such as a digital lending platform for
personal loans, to meet the diverse financial needs of its customers. This reflects an
entrepreneurial mindset in adapting to changing market demands.
Customer-Centric Approach:
ING Philippines: ING has entered the Philippine market with a focus on a customer-
centric and fully digital banking experience. By offering online account opening, high-interest
savings accounts, and a user-friendly mobile app, ING demonstrates an entrepreneurial
orientation in catering to the preferences of digitally-savvy consumers.
7.2. Blue Ocean Strategy
Blue Ocean Strategy is a business strategy framework developed by W. Chan Kim and
Renée Mauborgne, first introduced in their 2005 book titled "Blue Ocean Strategy: How to
Create Uncontested Market Space and Make Competition Irrelevant." The fundamental idea
behind Blue Ocean Strategy is to move away from competitive markets, referred to as "red
oceans," where businesses vie for a share of existing market space, and instead, create new
market space or "blue oceans" where competition is irrelevant.
Key concepts of Blue Ocean Strategy include:
 Red Oceans vs. Blue Oceans:
Red Oceans: These represent existing industries and markets where competition is intense.
Companies here compete for a limited pool of customers, and the market space is often saturated.
Blue Oceans: These symbolize untapped, innovative market spaces where competition is
minimal or nonexistent. Businesses can create and capture new demand by offering unique value
propositions.
 Value Innovation:
Blue Ocean Strategy emphasizes "value innovation," which is the simultaneous pursuit of
differentiation and low cost. By offering a product or service that stands out from the
competition and is also cost-effective, a company can attract a new customer base.
 Four Actions Framework:
This framework suggests that to create a blue ocean, companies should focus on four key
actions:
 Eliminate: Identify and eliminate factors that the industry takes for granted but can be
removed without reducing the overall value.
 Reduce: Scale down certain features or services that are over-designed or over-
delivered.
 Raise: Enhance aspects that are typically overlooked or under-invested in by industry.
 Create: Introduce new elements or features that the industry has never offered.

 Six Paths Framework:

 This framework provides a systematic approach to rethinking industry boundaries by
exploring six different paths:
 Look across industries.
 Look across strategic groups within industries.
 Look across the chain of buyers.
 Look across complementary product and service offerings.
 Look across functional-emotional orientation of an industry.
 Look across time.
 Execution of Blue Ocean Strategy:
Implementation is crucial for the success of Blue Ocean Strategy. It involves aligning the
entire organization with the new strategy, overcoming internal resistance, and effectively
communicating the value proposition to customers.
7.3. Types of Innovation
In the realm of strategic management, innovation plays a crucial role in helping
organizations gain a competitive advantage, adapt to changing environments, and achieve long-
term success. Various types of innovation are integrated into strategic management practices to
drive growth and meet organizational objectives. Here are some key types of innovation in the
context of strategic management:
 Incremental Innovation: In strategic management, organizations often pursue incremental
innovation to make gradual improvements in existing products, processes, or services.
This allows for steady progress without radical disruptions.
 Disruptive Innovation: Disruptive innovation involves introducing entirely new products,
services, or business models that can significantly alter the competitive landscape.
Strategic management may involve identifying and capitalizing on disruptive
opportunities to gain a competitive edge.
 Open Innovation: Open innovation in strategic management refers to collaborating with
external partners, such as customers, suppliers, or research institutions, to share ideas,
technologies, and expertise. This approach fosters creativity and can lead to breakthrough
innovations.
 Business Model Innovation: Strategic management often involves rethinking and
innovating the organization's business model. This could include changes to revenue
models, value propositions, distribution channels, or cost structures to gain a competitive
advantage.
 Digital Innovation: Strategic management in the digital age requires organizations to
leverage technology for innovation. This could involve adopting new digital business
models, incorporating emerging technologies, or transforming traditional processes
through digitalization.
 Collaborative Innovation: Collaboration is a strategic innovation approach where
organizations work together to achieve shared goals. This could involve partnerships,
alliances, or joint ventures to pool resources, share risks, and accelerate innovation.
  Strategic Alliances and Partnerships: Forming strategic alliances and partnerships is a
type of innovation in strategic management. This involves collaborating with other
organizations to access complementary resources, share expertise, and enhance
competitive capabilities.
 Cultural Innovation: Strategic management may involve fostering a culture of innovation
within the organization. This cultural innovation focuses on creating an environment that
encourages creativity, risk-taking, and learning from failures.
 Sustainable Innovation: Sustainability is increasingly becoming a strategic priority.
Sustainable innovation in strategic management involves developing environmentally
friendly products, processes, and practices to address societal and environmental
concerns.
 Platform Innovation: Creating or leveraging platforms can be a strategic innovation. This
involves building ecosystems or platforms that allow the organization to connect with
customers, partners, and developers to create additional value.
 Portfolio Innovation: Managing a diversified portfolio of products, services, or business
units is a strategic innovation approach. This involves continuously evaluating and
adjusting the mix of offerings to meet changing market demands.
The effective integration of these types of innovation into strategic management can help
organizations navigate dynamic environments, respond to market shifts, and stay ahead of the
competition. Strategic innovation is an ongoing process that requires a proactive and adaptive
approach to achieve sustainable success.
In the context of the banking industry in the Philippines, various types of innovation have
been observed. Here are some examples:
 Digital Banking and Mobile Apps: Many banks in the Philippines have embraced digital
transformation by introducing user-friendly mobile banking apps. These apps allow
customers to perform various transactions, including fund transfers, bill payments, and
account management, using their smartphones.
 Contactless Payments: Banks have introduced contactless payment options, such as debit
and credit cards equipped with Near Field Communication (NFC) technology. This
innovation promotes faster and more convenient transactions, especially in retail
environments.
 Online Account Opening: To attract new customers and streamline the onboarding
process, some banks in the Philippines have introduced online account opening services.
This allows individuals to open bank accounts without visiting a physical branch,
enhancing accessibility.
 Blockchain and Cryptocurrency Initiatives: While the use of cryptocurrencies is still
evolving, some banks in the Philippines have explored blockchain technology for secure
and transparent transactions. This innovation has the potential to revolutionize processes
like cross-border payments.
  Financial Inclusion Initiatives: Banks in the Philippines have implemented initiatives to
promote financial inclusion, such as offering microfinance services and collaborating
with fintech companies to reach unbanked or underserved populations.
 Data Analytics for Personalized Services: Banks are increasingly using data analytics to
understand customer behavior and preferences. This enables them to offer personalized
services, targeted marketing, and tailored financial products based on individual needs.
 AI-Powered Chatbots and Customer Service: Some banks have integrated artificial
intelligence (AI) into their customer service channels. AI-powered chatbots assist
customers with inquiries, provide information, and facilitate a more efficient customer
service experience.
 Biometric Authentication: To enhance security and streamline authentication processes,
banks in the Philippines have adopted biometric technologies such as fingerprint and
facial recognition for customer identification and access to digital services.
 Green Banking Initiatives: Several banks in the Philippines have implemented
environmentally friendly practices, such as paperless transactions, green financing
options, and sustainability-focused investments, aligning with global trends toward
responsible banking.
 Cybersecurity Measures: Given the increasing threat of cybercrime, banks in the
Philippines continually invest in innovative cybersecurity measures to protect customer
data and maintain the integrity of their digital infrastructure.

7.4. Implementing Innovation

Joint Ventures, Strategic Alliances, and Mergers and Acquisitions are strategic
management approaches that involve collaboration and consolidation between organizations.
Each approach has its own characteristics, benefits, and challenges.
 Joint Ventures:
Definition: Joint ventures (JVs) involve two or more organizations combining their resources and
expertise to create a new entity. This new entity operates independently, and the partners share
the risks, costs, and profits.
Characteristics:
 Partners contribute capital, resources, and expertise.
 Shared decision-making and governance.
 Limited lifespan, often with a specific goal or project in mind.
Benefits and Challenges:
 Benefits: Risk-sharing, access to new markets, combining complementary capabilities.
 Challenges: Potential conflicts between partners, differences in organizational culture,
and challenges in decision-making.
Example: Joint Venture: Ayala Land and Eton Properties
 Ayala Land, one of the largest real estate developers in the Philippines, has engaged in joint
ventures with various partners to develop projects. One notable example is the joint venture with
Eton Properties, resulting in the creation of Eton City in Santa Rosa, Laguna. This collaborative
effort allowed both companies to leverage their expertise and resources for a large-scale mixed-
use development.
 Strategic Alliances:
Definition: Strategic alliances are collaborative arrangements between two or more organizations
without creating a new entity. They are governed by contracts and focus on achieving specific
goals or objectives.
Characteristics:
 No creation of a new entity.
 Governed by contracts defining the terms of collaboration.
 Flexibility in terms of duration and scope.
Benefits and Challenges:
 Benefits: Cost-sharing, risk mitigation, access to partner's expertise.
 Challenges: Dependence on effective contract management, potential conflicts of interest,
and challenges in maintaining commitment.
Example: Globe Telecom and Ant Financial (Alipay)
Globe Telecom, one of the major telecommunications companies in the Philippines, formed a
strategic alliance with Ant Financial, the financial affiliate of Alibaba Group. Through this
partnership, Globe Telecom integrated Alipay's mobile payment platform into its services,
providing customers with digital financial solutions and enhancing the digital payment
ecosystem in the Philippines.
 Mergers and Acquisitions:
Definition: Mergers involve the combination of two organizations into one, often between firms
of similar size. Acquisitions occur when one company (acquirer) purchases another (target),
typically a smaller firm.
Characteristics:
 Mergers involve combining two entities into one.
 Acquisitions involve one entity (acquirer) taking control of another (target).
 Can result in the creation of a more powerful and competitive organization.
Benefits and Challenges:
 Benefits: Synergy, increased market share, economies of scale.
 Challenges: Cultural integration issues, resistance from employees, regulatory hurdles.
Example: Jollibee Foods Corporation and Mang Inasal
Jollibee Foods Corporation, a leading Philippine fast-food company, engaged in mergers and
acquisitions to expand its market share. In 2010, Jollibee acquired Mang Inasal, a popular fast-
food chain specializing in grilled chicken. This acquisition allowed Jollibee to diversify its
product offerings and strengthen its presence in the Filipino fast-food market.
In strategic management, the choice between joint ventures, strategic alliances, mergers,
or acquisitions depends on the specific objectives, industry dynamics, and organizational
capabilities. Each approach offers unique advantages and poses distinct challenges, requiring
careful consideration of factors such as organizational culture, strategic fit, and the desired level
of collaboration. Successful implementation of these strategies often involves effective
communication, strong leadership, and a thorough understanding of the risks and benefits
involved.