Econ20005 Competition And Strategy | Assessment Answers

A major challenge in the management and strategy literature is to understand why firms lose their innovation engine and stall over time.

 

Most organisations gradually consume all their growth potentials, fail to renew their innovation capabilities and eventually decline.

 

The assignment will involve three tasks: explore why firms fail to innovate continuously.

 

Second, explore organisational design characteristics that enhance a firm’s innovation capabilities and help it re-generate its growth potentials.

 

And, third, explore key innovation strategies a firm may pursue to maintain its growth potentials.

 

The analysis must be richly informed by theory and well documented historical cases. 

Introduction

The concept of innovation may be construed to be one of the keys and crucial aspects of business studies as the same involves consideration of different factors that are considered to be both internal and external to the business. The scope of discussion and analysis of innovation concept in the business and industry context has been wide and the researchers have been able to present different and varied viewpoints with respect to the success and failure of the business in terms of innovative capabilities. The print report derives its core context from the theory and practice of innovation as nurtured by the management of the businesses.

At the very beginning of the study, the researcher focuses on the overall concept of innovation and briefly touches upon the different dimensions associated with the terminology. The subsequent parts of the study may be considered to be divided into three different parts wherein the first part, the researcher analyses the causes why the companies consistently fail to innovate in the market and industry; in the second part, the mutual relationship between the organisational design characteristics and innovative capabilities have been asserted and assessed and the third part throws light on the key innovation strategies adopted by the corporate houses. The report also draws a referenced to Time Warner’s case study. Finally, the researcher wraps up the discussion by way of conclusion through a recommendatory note.

Overview of Innovation: A Conceptual Framework

Innovation may be defined as a summation of all strategies that may be used and applied by the management in order to be in the market, compete with the market players and sustain with growth potential in future for a longer time horizon (Schubert, 2010). Innovation, in commercial terms, may be construed to be the combination of both internal factors of the business such as the process attributes, operational excellence, organisational goals and objectives and on the other hand, the external forces that may include the market factors, competitive landscape, customer expectations and demand and supply forecasts etc. In this context, it is worth to note that the technically sound offering design may not necessarily mean its real usefulness in the market. For example, the innovative approach may produce a technically and technologically sound product or devise that however, may not be able to gather mass appeal because of its larger cost considerations (Rahaman, 2009). Therefore, innovation does not denote the fresh or something new in the market; rather it should also encompass as the concept of its practicality in real terms that can create a disruption in the market in terms of meeting changing needs and preference of customers with its own value proposition (Schubert, 2010).

Reasons for Failure towards Innovation

Innovation is a strategy or rather combination of business strategies that are being implemented and applied by the business for the purpose of achieving long-term corporate goals in the most efficient and effective manner. Almost every business has their own sets of strategies, operational approaches and process of execution (Harvard Business Review, 2018). The success story of the corporate affairs may involve the successful application of such strategies in a practical scenario. However, as the business grows, there remains a risk of maintaining a status quo in terms of holding the same strategy sets irrespective of market reactions and changes (Rahaman, 2009). It has often been observed that the management o businesses achieving significant growth in shorter time span may not be ready to implement changes within the operational workflow, business strategies or even the marketing approaches following a change in market demand or customers’ expectations (Harvard Business Review, 2018). The contributory elements that probably once upon a time helped them to active growth may not be helpful in the present context to even sustain. The management should understand this and the tragedy is most of the managers fail to realise the same and as a result, the business falls because of the lack of continuity in innovation.

Figure 1: The Dynamic of Failure: Innovation Perspective

(Source: Harvard Business Review, 2018)

The figure above shows the attributes which may considerably contribute towards the failure. Here, the interesting part is that all these elements have been success factors for the business once which now may have become obsolete or resistance to innovation (Sanbonmatsu et al. 2013). For example, the once successful strategy sets of the business may make the management blind to the changing needs and demands of the customers. They may not be able to foresee and perceive what presently the market is demanding for. In other words, the strategy sets may become blinders for the business. Similarly, the business process also transforms into routines (Harvard Business Review, 2018). Such routinisation is utmost needed, however, in response to shifting market conditions. Also, the relationship with the stakeholders (ranging from suppliers to customers etc) may become shackles. The market shift often makes the established relationship shackles which may lead to active inertia. Such a relationship may hinder the product development or market penetration process. For example, Dell Computers started selling directly to the customers when the relationship with distributors did not work out well. The model was lately adopted by IBM and HP leading to financial loss (Zacharias, 2014). Lastly, the corporate value may turn to be dogmas. Polaroid is a classic example where the corporate value system used to believe in the research & development (R&D) heavily without considering how the market may respond to the same. Huge investment in product development not supported by marketing and promotion ultimately led the company into disaster (Sanbonmatsu et al. 2013).

In a similar manner, the rest of the three parameters, as shown in the figure, may also constitute as dynamics of failure. In the word of researchers and experts, such a phenomenon is called “Active Inertia”. The term has often been used to explain the corporate failure that has occurred not because of lack of action but the lack of inappropriate action at an appropriate time and place. This is basically an organisational tendency or inclination towards maintaining a status quo or following specific sets of behaviours, irrespective of signalling indicating rapid and disruptive market shifts (Hellmann and Thiele, 2008).

Organisational Design & Innovation Capabilities: Mutual Relationship

It is observed that organisational size is a matter of concern in terms of innovative capabilities. It has been noted that the big organisations often fail to adopt the new trends and technologies with their huge overhead and complex cost structure. Start-ups with efficient cost structure and the lesser amount of fixed cost components much easily adopt the trends and thereby create the newer sets of innovations strategies that are market ready and adoptive (Scott, 2014).

There have been number of cases where it has been tested that the big organisations often fail to respond to the market needs properly only because of the fact that they have their own sets of rules and operational guidelines embraced themselves in so deep manner that they feel reluctant to even react to the changing patterns of consumers’ and market’s choice and preferences (Scott, 2014).

However, some researchers have proved the other way round. There have been examples of big companies running successfully their innovation strategies and aptly able to create a value in the market only because of the fact that these are big houses. For example, Thermo Electron Corporation in Waltham has been using their innovative approach of employee reward scheme that has significantly contributed towards their operational excellence. A few years back, the management used to compensate their employees through cash bonuses and performance linked employee stock options. However, it was identified that the provision of employee stock option may not seem to be a logical proposition. This is because the stock price reflects the overall performance of the business across all units and hence, there remains fair amount of probability of getting one particular business unit’s better performance diluted in the form of average out. In simpler terms, employees involved in a particular project or segment or division or unit of the organisation which has performed comparatively well than other business divisions or units should also be compensated accordingly. However, stock price, being the average of the entire unit’s performance may not be able to compensate accordingly (Sinha, 2016). Therefore, the management thought of repackaging some of the equity of the business in some of the business units and spinning-out in the market separately for the public trading purpose. It is worth to note that such proposition has immensely added value to the risk-reward ratio of the company and the management has been satisfied with the employee compensation scheme that has made a positive effect on the operational excellence also (Service Futures, 2018). Hence, it may be construed that the size of the organisation has a direct bearing on the innovative capabilities of the business, though the innovation is primarily a management aspect where the mindset plays the most critical part (Ramzi, 2015).

Key Innovation Strategies

Before discussing the key innovation strategies that the management may need to adopt, it is worth to note that there are few factors which may limit the innovation. The managers should identify those first and assess and design the innovation strategies accordingly. It may be noted that some of the financial tools and techniques used to evaluate the impact and extent of innovation strategies may not be used judiciously by the management. For example, the discounted cash flow (DCF) or the net present value (NPV) techniques are effective; however, the management may apply such tools to underestimate the real returns and benefits of proceeding with an investment (Ramzi, 2015). It has often been observed that the company executives often compare the cash flows generated out of the innovation against the default situation of doing nothing, which incorrectly assumes the fact that the business will continue its present situation for an indefinite period of time if such investments in innovative projects are not being made. Such strategies vitiate the primary base of innovation as the assumptions behind the innovative approach as adopted by the management are not tested for its applicability (Alghamdi, 2018).

Moreover, the use of short-term earnings per share (EPS) may also be looked at. At times, the EPS may be construed by the management as a benchmark for assessing the value created out of proposed innovation strategies (Bianchini et al. 2016). However, the same may not be an ideal tool as far as such assessment is concerned, especially in the context of projected outcome and related shifts in the market value of the shares. Finally, it may be noted that these financial tools are not ineffective if they are being used cautiously and judiciously so that their usage does not create a systematic bias against successful innovation (Service Futures, 2018).

Case Study of Times Warner: An Insight into the Innovation Incapability

In the context of innovation, it may be wise to discuss the case study of Time Warner. The media house in the US had been merged with US telecom giant AT&T for a deal of $85.4 billion in the year 2016. Such deal was the essence of innovation not being properly executed by Time Warner. The old media house was not able to compete with modern days' fast-changing and evolving media and entertainment industry across the world (The Hollywood Reporter, 2018). Though the deal was attempted to be blocked by the US Government, the antitrust lawsuit committee, after few days; trial, gave a clean chit to the deal without any pre-conditions. Such a deal may be viewed to be a strategic move from an innovation standpoint. The Court held that the deal should be allowed so that the people in the USA could enjoy the video entertainment in more affordable, mobile and innovative manner (The Hollywood Reporter, 2018).

Recommendation

The evaluation in the report discloses that the state of “active inertia” must be avoided. In order to do the same, the mindset of the management may need to be changed which inculcates the changes and accommodate any tuning in line with the market expectations. Besides, the management must be technologically ready to embrace the shifts in the macro environmental elements of the businesses. For the purpose of achieving such goals, few recommendations may be provided. Firstly, new leaders may be sought for; however, the source may be from within the company but from outside the core business (Tsai and Liao, 2016). In doing so, the “inside-outsiders” may contribute significantly towards the thinking line of the management from a different dimension and outlook, which is the base for innovation. Another alternative is to assemble management teams that leverage the strengths of both insiders and outsiders. A third approach is for inside managers to imagine themselves as outsiders. It is needless to mention that this last approach is completely and radically opposite to the first one, where the essence of such options mainly lies within the fact that the attitude of outsiders is different and hence, the fresh sets of ideas may be helpful to break the “active inertia” and related status quo (Filippini et al.2017).

Conclusion

Based on the discussion and analysis performed in the preceding sections of the report, it may be concluded that the concept of innovation has a wide connotation ni business context. Most of the businesses fail primarily as because the management often fails to understand the true essence if innovation and adjust themselves accordingly. Planned and well-thought prudent decisions and strategies on the corporate goals and objectives may make the organisations sustainable in the long-run.

References

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Bianchini, S., Pellegrino, G. and Tamagni, F. (2016). Innovation Strategies and Firm Growth. SSRN Electronic Journal, 5(7), pp.132-148

Filippini, R., Agostini, L. and Nosella, A. (2017). The ambidextrous organisation and knowledge exploration and exploitation: the mediating role of internal networking. International Journal of Business Innovation and Research, 14(1), pp.122.

Harvard Business Review. (2018). How Can Big Companies Keep the Entrepreneurial Spirit Alive?. [online] Available at: https://hbr.org/1995/11/how-can-big-companies-keep-the-entrepreneurial-spirit-alive [Accessed 11 Sep. 2018].

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Harvard Business Review. (2018). The Business of Innovation: An Interview with Paul Cook. [online] Available at: https://hbr.org/1990/03/the-business-of-innovation-an-interview-with-paul-cook [Accessed 11 Sep. 2018].

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Harvard Business Review. (2018). You Need an Innovation Strategy. [online] Available at: https://hbr.org/2015/06/you-need-an-innovation-strategy [Accessed 11 Sep. 2018].

Hellmann, T. and Thiele, V. (2008) Incentives and Innovation: A Multi-Tasking Approach. SSRN Electronic Journal, 3(7), pp.22-46

Rahaman, M. (2009) Bad Luck or Bad Policy: Why Do Firms Fail?. SSRN Electronic Journal, 4(6), pp.22-48

Ramzi, T. (2015) Why Southern Mediterranean Countries Fail to Innovate?. Management and Economics Research Journal, 01, pp.46.

Sanbonmatsu, D., Strayer, D., Medeiros-Ward, N. and Watson, J. (2013) Who Multi-Tasks and Why? Multi-Tasking Ability, Perceived Multi-Tasking Ability, Impulsivity, and Sensation Seeking. PLoS ONE, 8(1), pp.e54402.

Schubert, T. (2010). Marketing and Organisational Innovations in Entrepreneurial Innovation Processes and their Relation to Market Structure and Firm Characteristics, Review of Industrial Organization, 36(2), pp.189-212

Scott, N. (2014). Ambidextrous Strategies and Innovation Priorities: Adequately Priming the Pump for Continuous Innovation. Technology Innovation Management Review, 4(7), pp.44-51.

Service Futures. (2018). Harvard Business Review: “You need an innovation strategy”. [online] Available at: https://servicefutures.com/harvard-business-review-need-innovation-strategy/ [Accessed 11 Sep. 2018].

Sinha, S. (2016) ‘Managing an ambidextrous organization: balancing innovation and efficiency’. Strategic Direction, 32(10), pp.35-37

The Hollywood Reporter. (2018) Turner International Launching Digital Ventures and Innovation Unit. [online] Available at: https://www.hollywoodreporter.com/news/turner-international-launching-digital-ventures-innovation-unit-942877 [Accessed 11 Sep. 2018].

Tsai, K. and Liao, Y. (2016) ‘Sustainability Strategy and Eco-Innovation: A Moderation Model’. Business Strategy and the Environment, 26(4), pp.426-437

Zacharias, N. (2014). Ambidextrous Ambidexterity: Two New Worlds of Exploration and Ambidexterity. Academy of Management Proceedings, 2014(1), pp.12453.