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Strategy & Innovation Management, Summary
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Summary of all the mandatory articles, lectures and online sessions, with important figures, lecture slides, all divided per week.
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Strategy & Innovation Management – summary of the researchpapers and lectures
Brenda Giethoorn
28-10-2021
WEEK 1
Pisano, G. (2015) You Need an Innovation Strategy. Harvard Business Review, 46 (June): 44-54.
An innovation strategy must address how innovation will create value for potential customers, how
the company will capture a share of that value, and what types of innovation to pursue.
Critics tend to discount “routine” innovation that leverages a company’s existing technical capabilities
and business model and extol “disruptive” innovation, but that is a simplistic view.
A strategy is nothing more than a commitment to a set of coherent, mutually reinforcing policies or
behaviors aimed at achieving a specific competitive goal. Firms rarely articulate strategies to align their
innovation efforts with their business strategies. But without a strategy to integrate and align the
perspectives around common priorities, the power of diversity is blunted or, worse, becomes self-
defeating.
Companies must think through what complementary assets, capabilities, products, or services could
prevent customers from defecting to rivals and keep their own position in the ecosystem strong. In
thinking about innovation opportunities, companies have a choice about how much of their efforts to
focus on technological innovation and how much to invest in business model innovation. Together
they suggest four quadrants, or categories, of innovation:
- Routine innovation, builds on a company’s existing technological competences and fits with its
existing business model—and hence its customer base.
- Disruptive innovation, requires a new business model but not necessarily a technological
breakthrough.
- Radical innovation, is the polar opposite of disruptive innovation. The challenge here is purely
technological.
- Architectural innovation, combines technological and business model disruptions.
The vast majority of profits are created through routine innovation.
Corning’s demand-pull approach (finding customers’ highly challenging problems and then figuring out
how the company’s cutting-edge technologies can solve them) is limited by customers’ imagination and
willingness to take risks. A supply-push approach—developing technology and then finding or
creating a market—can be more suitable when an identifiable market does not yet exist.
There are four essential tasks in creating and implementing an innovation strategy:
1. Answer the question “How are we expecting innovation to create value for customers and for our
company?” and then explain that to the organization.
2. Create a high-level plan for allocating resources to the different kinds of innovation. Ultimately,
where you spend your money, time, and effort is your strategy, regardless of what you say.
3. Manage trade-offs. Because every function will naturally want to serve its own interests, only
senior leaders can make the choices that are best for the whole company.
4. Recognizing that innovation strategies must evolve.
Zollo, M., Minoja, M., & Coda, V. (2018) Toward an Integrated Theory of Strategy. Strategic
Management Journal, 39(6): 1753-1778.
1
,The firm’s “entrepreneurial formula” is
conceptualized as a set of strategic
decisions concerning five elements:
1. The competitive system where the
firm decides to operate;
2. The products that the company offers
to its actual and potential customers,
who select them after a comparison
with similar offers from the focal
firms’ rivals;
3. The “stakeholder system” including
all the providers of production factors,
with the exception of suppliers, with
their interests, expectations about firm’s behavior, and power to influence it;
4. The set of proposals that the firm, explicitly or implicitly, makes to its stakeholders—in terms of
compensation, personal development, financial returns, support for local communities’
development, and so on—in return for their contributions, their commitment, and their support;
5. The firm’s structure, broadly defined, including resources and capabilities that enable and support
its value proposition on both the competitive and the stakeholder systems.
The “entrepreneurial formula”, can be analyzed at two different levels: the first one, at a business-
unit level, representing the competitive strategy; and the second one, at corporate level, the so-called
firm’s social strategy.
Competitive strategy leads to success in terms of “dominance” in a given competitive arena. A firms
social strategy is successful to the extent that it gives rise to cohesion, trust, and satisfaction of and
among firm’s stakeholders. The two dimensions of performance jointly lead to profitability, as
measured by indicators like return on investment and return on equity.
This research focuses on the two “extreme” options of
each strategy:
- Cost leadership vs. differentiation for
competitive strategy. Both require a firm to
conduct some of the activities along the value chain
in a “distinctive” way. Differentiation relies more
on creating distinctiveness in the product offer.
- Internal (organic) vs. external (acquisitive)
growth for corporate strategy. Future work will
refine the analysis not only by considering hybrid growth modes but also by analyzing choices
related to corporate scope.
- Integration vs. arms-length relationship for stakeholder strategy. An integrative stakeholder
strategy entails the involvement of selected stakeholders in strategic decision-making processes
that are relevant to their interests. The adoption of a given stakeholder strategy, in turn, is affected
by a firm’s stakeholder culture in two related ways: (1) by constituting a common interpretive
frame on the basis of which information about stakeholder attributes and issues is collected,
screened, and evaluated and (2) by motivating behaviors and practices—and, by extension,
organizational routines—that preserve, enhance, or otherwise support the organization’s culture.
Stakeholder advantage is defined as the degree to which the interests and expectations of the firm’s
stakeholders (other than customers) are comparatively satisfied by the firm’s engagement proposals
(prospects offered) vis-à-vis those of other firms present on the same resource markets, that is, the
benefits they receive with respect to their opportunity costs.
The reason why it is important to distinguish between these two types of advantages is that they are
generated (or destroyed) through different market mechanisms, product markets on one side and
2
,factor markets on the other. We expect that managers might have little awareness of the three effects,
that they rarely make joint decisions across competitive, growth, and stakeholder strategies.
The joint effects that we will describe below
might occur due to the presence and implicit
influence of four types of integrative
mechanisms:
1. Stakeholder synergies, occur when one
type of strategy—defined as an
“integrated set of actions”—creates
value for two or more (groups of )
stakeholders simultaneously. This joint
value creation takes place when
“managers can identify novel
combinations of different utilities, each
valued by different stakeholder groups, which may be increased together”.
2. Resource or capability spillovers, a resource or capability spillover (arrow B in Figure 3) occurs
when a given resource (or capability) can be leveraged to implement two (or more) different
strategies. We illustrate here three types of capabilities that might be of particular relevance for
the strategic choices we consider:
o Adaptive change (dynamic) capabilities can be considered an integration mechanism across
different strategic choices, since a firm’s capability to initiate and deploy organizational change
to respond to the interests and needs of one class of stakeholders (customers included) on a
specific issue can be leveraged to tackle other strategic issues of relevance for other classes of
stakeholders.
o Learning capabilities can also act as integration mechanisms when the challenge to develop a
certain type of organizational capability necessary to tackle a given strategic issue may require
similar learning processes necessary to develop different capabilities. Learning capabilities
include processes such as brainstorming and debriefing to share insights related to upcoming
or past experiences (knowledge articulation processes).
o Relational capabilities consist of a firm’s capacity to initiate and develop trust-based
relationships. They manifest themselves as mechanisms enabling the sharing of know-how and
private information with customers and stakeholders.
3. Organizational culture spillovers, defined as “a set of core managerial values that define how they
conduct business” can support, or hinder, the joint deployment of multiple strategic choices made
in different domains (arrow C in Figure 3).
4. Feedback effects, linking performance outcomes with strategic choices and firms’ endowment of
resources and capabilities. We distinguish between three types of feedback effects:
o The first one acts when the degree of satisfaction of a given stakeholder Y (e.g., a local
community) for the value received affects its commitment and support (e.g., through granting
authorizations or permissions, facilitating access to funding, etc.) to managers for the
implementation of a given strategy (arrow D1 in Figure 3).
o The second one occurs when the satisfaction of a given stakeholder influences the
magnitude and quality of its contribution to the stock of firm resources and capabilities (e.g.,
by providing flows of revenues as well as technical or market know-how through knowledge
and information sharing) (arrow D2 in Figure 3).
o The third feedback effect occurs when a certain strategy involves learning activities that, in
turn, influence the stock of a given capability (arrow D3 in Figure 3).
3
, In the first pair of strategies, defined by the combinations of competitive and stakeholder strategy
alternatives, we will argue that there are two combinations that are likely to be more value enhancing
than the other two. The first one combines differentiation-driven competitive strategy with
integrative stakeholder strategy. The second one combines cost leadership strategy with arms-
length stakeholder strategy. Stakeholder integration and differentiation are synergistic for two main
reasons. First, stakeholder integration itself can be a lever of differentiation, by making a given product
or service unique and valuable to the eyes of customers. Second, an integrative approach to
stakeholders is more likely, compared to an arms-length approach, to attract the level of commitment
and support required for the effective implementation of a differentiation strategy. A cost leadership
strategy may result in a higher risk to undermine the effectiveness and credibility of an integrative
stakeholder strategy, in comparison with a differentiation strategy, by producing incoherent messages
during stakeholder interactions and overall negative synergistic effects.
Proposition 1: Competitive and Stakeholder Strategies. All else being equal, the combinations of
differentiation and stakeholder integration strategy, on one hand, and of cost leadership and arms-
length stakeholder strategy, on the other, are expected to create more value for stakeholders (including
customers) than the other two possible combinations of competitive and stakeholder strategies.
For what concerns the second pair of strategies considered, defined by the combinations of growth and
stakeholder strategy alternatives, we will argue that two combinations are likely to be more internally
coherent and thus more value enhancing than the others: organic growth strategy with integrative
stakeholder strategy, on the one hand, and acquisitive growth with arms-length stakeholder
strategy, on the other. The combination of acquisitive growth and arms-length stakeholder strategy
appears particularly synergistic for the two following reasons. First, acquisitions require high speed and
full control of decision-making processes, which becomes increasingly difficult as the degree of
stakeholder integration rises. Second, the implementation of the post acquisition integration design
usually requires at least a minimal amount of cost synergies to be identified and realized, which might
face increasing difficulties when stakeholder involvement in decision-making processes is routinized
and consensus on how to realize the synergy potential must be achieved.
As far as the other integrative mechanisms are concerned, adaptive change capabilities related to
sensing and responding to different stakeholder demands support the deployment of both an
acquisitive as well as an organic growth strategy. However, in a comparative perspective, they might
4
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