BMNG Study notes LU2 (Strategic Innovation).docx

**[LEARNING UNIT 2: STRATEGIC INNOVATION]** **[Introduction ]** - Blue ocean strategies and the principles of value innovation are used to pursue opportunities. - Organisational learning can create innovative competitive advantage through absorptive capacity. - Innovation theories...

**[LEARNING UNIT 2: STRATEGIC INNOVATION]** **[Introduction ]** - Blue ocean strategies and the principles of value innovation are used to pursue opportunities. - Organisational learning can create innovative competitive advantage through absorptive capacity. - Innovation theories assist in understanding forces of innovation and disruptive innovation. - Red ocean strategies emerge in overcrowded market spaces. - Business model innovation sets organisations apart in the market. - Application Of BOP innovation strategies can enhance competitive advantage. **To ensure a business maintains innovativeness:** - Understand how to begin the innovation process. - Know the principles of the fuzzy front end of product development. - Applied design thinking. - Individual innovativeness. **[Innovation Opportunities]** ***INNOVATION OPPORTUNITIES PRESENTED BY INNOVATION THEORIES*** - Theories assist in deriving practical implications and predictions. - Risk can be measured, unlike uncertainty. - Disruptive innovation is associated with uncertainty. - Knowledge of theories is useful to manage potential disruptive innovation. ***THEORIES OF INNOVATION*** **Kondratiev's long wave theory of innovation** - Innovations typically "group together" at the end or at the start of long wave cycles. - **Each long wave of innovation follows four stages:** 1. ***Recovery stage:*** economic activity starts to increase 2. ***Prosperity stage:*** economic activity rises to its peak 3. ***Recession stage:*** economic activity begins to drop off 4. ***Depression phase:*** economic activity drops to very low levels. **Predictions of long wave theory that apply to disruptive innovation:** - Changes in long wave cycles can result in large scale disruptive innovation. - Radical innovations typically occur at the start of new long wave cycles. - Long wave cycles can have an influence on various systems, economic and social systems, education, etc. Kondratieff Wave - Definition, How It Works, and Past Cycles **Schumpeter's theory of creative destruction** - Schumpeter's theory of creative destruction describes the process by which ***new innovations replace and render obsolete older technologies***, ***products, or processes.*** - He believes capitalism is characterized by constant change driven by innovation. - Organisations face a process of "creative destruction". - Business strategy only acquires its true significance against the backdrop of creative destruction. - Society benefits from creative destruction through innovations that add value to customers. **Validation for Schumpeter's theory:** - Creative destruction during the industrial revolution. - Past revolutions and those still happening show how creative destruction results in societal benefits. **Schumpeter focuses on companies in five industries that led economic development:** cotton textiles, railroads, steel, automobiles and electric power. **He also emphasises three institutional innovations crucial to the rise of capitalism:** the factory, the corporation and the modern financial system. **The technology S -- curve and disruptive innovation** - The technology S-curve is a framework that illustrates the ***life cycle of technological innovations***, depicting how they progress from initial slow development to rapid improvement and eventual maturity. - There is a "natural limit" associated with technology. - Payoff can be significant if the limits of technologies are known. - Competitive advantage can be achieved by mapping technologies. - Cross discontinuities can be used to manage the transition to new technologies. - Strategic errors that cause market losses in the face of technological changes: technological myopia (this is the failure to recognize or comprehend the implications and progress of technology), misreading market signals and the culture trap.  **Dominant Design Theory** This addresses certain reasons why some organisations don't survive in innovative environments. **A dominant design is:** - ***A specific path*** according to which an industry develops, influenced by technical and market factors, which achieves acceptance in a market over competing designs. - ***Forces a standard on a market*** thus allowing for economies of scale. **Dominant design acts as industry standard and develops when there is/are:** - The presence of collateral assets that offer advantages e.g. brand image. - The influence of government regulation or intervention. - Strategic actions taken at the organisational level. - Bandwagon effects or network externalities in the industry, when a product is more valuable, and others are influenced to buy. **Absorptive capacity** The ability to notice the value of new external information, incorporate it and apply it. Insights provided by absorptive capacity theory: - Increases innovative learning through cumulativeness and expectation formation. - Creates path dependency. Implications of path dependency: - Stops investment in absorptive capacity - A competency trap - The "not -- invented -- here syndrome" Absorptive capacity theory: - If learning stops, an organisation falls behind competitors that continue to learn. - Places knowledge above other resources. - Knowledge can be used to seize innovation opportunities. ***INNOVATION OPPORTUNITIES: VALUE INNOVATION AND COMPETITIVE ADVANTAGE*** Successful organisations ***follow a*** ***value innovation strategy***, which: - Seeks to do something new and different. - Focuses less on competitors. - Creates uncontested market space or blue ocean in existing industries. - Makes competition irrelevant by providing a quantum leap in value. There are fundamental differences between more and less successful organisations based on the dimensions of value innovation strategy. Value innovation can take place on: - The product platform: the physical product. - The services platform: support services e.g. customer service. - The delivery platform: logistics and delivery channels. ***INNOVATION OPPORTUNITIES OFFERED BY BLUE OCEAN STRATEGIES*** Imagining a New Career! -using the Blue Ocean Strategy  ***INNOVATION OPPORTUNITIES PROVIDED BY BUSINESS MODEL INNOVATION*** A business model describes the reason for how a business creates, delivers and captures value. **A business model answers these questions:** - Who is the customer? - What does the customer value? - How do we make money in this business? - What is the economic reason that explains how we deliver value to customers at an appropriate cost? Business model innovation pitfalls: ***New models can conflict with traditional structures of organisation assets by:*** - Resistance to experiments that are seen to threaten the ongoing value of traditional models. - Possibly having different customers or distribution channels. - Possibly being starved of resources that are instead channelled to the still more profitable established technology. When to change a business model: ***Strategic triggers for business model change:*** - Large number of potential customers locked out of a market because solutions are too costly or complicated. - An opportunity arises to take advantage of new technology. - An opportunity exists for "a job to be done" or a focus on a need that can redefine the industry. - If necessary, to protect against low -- end disrupters. - Shift in basis of competition. ***INNOVATION OPPORTUNITIES AT THE BOTTOM OF THE PYRAMID (BOP)*** - BOP market refers to over four billion people in the world that live on less than 2\$ (about R29) per day. - To apply BOP innovation is to focus on total delivery of value. **Converting BOP market into groups of micro -- consumers, producers, investors, and innovators requires a focus on the four A's:** - Awareness - Access - Affordability - Availability **Guidelines to reconceptualise businesses and potential business models:** - BOP reduces the capital intensity to spread capital needs. - BOP requires specialism within the ecosystem. - Volume and scale need to be the basis of affordable pricing. - Understanding the workflow is important to build an innovative business system. - To create a new market, it is necessary to develop ecosystems for acquiring new customers. **[Supportive Organisations]** ***THE ROLE OF LEADERSHIP IN CREATING AN ORGANISATION SUPPORTIVE OF INNOVATION*** ***THE AMBIDEXTERITY THEORY OF LEADERSHIP FOR INNOVATION: LEADERSHIP THAT SWITCHES BETWEEN EXPLORATION AND EXPLOITATION*** **Comprises of three elements leaders can apply:** - Opening behaviours to support exploration. - Closing leader behaviours to enable exploitation. - Temporal flexibility to switch between points 1 and 2 above as needed. ***TRANSFORMATIONAL LEADERSHIP*** Leading people to go beyond self-interests to prioritise the good of the organisation. **Components:** - Idealised influence - Inspirational motivation - Intellectual stimulation - Individualised consideration ***TRANSACTIONAL LEADERSHIP*** Using rewards and punishments to ensure compliance. **Characteristics:** - Contingent reward - Active management by exception - Passive management by exception - Laissez -- faire leadership ***SETTING UP AND MAINTAINING PROCESSES OF INNOVATION*** **Fuzzy Front End (FFE) of innovation:** - ***Is the beginning point of innovation*** where opportunities and concepts are developed ***before formal development process***. Outcomes to strive for in the FFE phase: - Project selection and definition - Managing the time dimension - Managing the people dimension Comparison between the Fuzzy Front End phase and the development phase\... \| Download Scientific Diagram ***DESIGN THINKING*** Creative processes used by designers during the designing that play important roles in strategic innovation. **Why is it different?** - Based on abductive reasoning - Seeks to move from what is known to explore what could be. **Phases in the design thinking process:** 1. Inspiration 2. Ideation 3. Implementation stages ***APPLIED DESIGN THINKING*** Key principles: - Focuses on enabling multidisciplinary collaboration. - Develops new ideas and possibilities. - Source creativity from constraints. - Early prototyping and quickly making changes to prototypes. - Creating new and better models through systems thinking or interrelationships. **[Innovative Individuals]** ***THE UNIQUE INDIVIDUAL*** **Costa and McCrae's dimensions:** - Neuroticism -- together with conscientiousness -- predict career choices. - Extraversion -- preferences for engagement with others and social stimulation -- social skills and team sports and social activities. - Openness to experience -- wide interests and innovativeness. - Agreeableness -- demonstrate compliance and cooperation. - Conscientiousness -- hard working, dedicated and committed. ***INNOVATIVENESS AND INDIVIDUAL'S VALUES*** **Schwartz's values structure:**  **Openness to change vales:** Relates to innovativeness in different ways. - Self -- direction e.g. exploration. - Stimulation e.g. excitement **Conservation values:** Subordination of the self to socially oriented external expectations. - Conformity -- subordination to those encountered - Tradition -- subordination to religion - Security values -- safety **Self -- transcendence values:** Prioritises the welfare of others and nature. - Universalism -- appreciation for broadmindedness - Benevolence -- enhancement of welfare. **Self -- enhancement values:** Motivated to prioritise own interests. - Power e.g. social status - Achievement e.g. competence and accomplishment. - Hedonism e.g. one's own pleasure. **Workplace implications** - It is useful for managers to be knowledgeable about individuals strengths and weaknesses. - Education can increase innovativeness through its association with openness values. - Differences in values have been found to relate to different subjects and political preferences. - To enable innovation in an organisation it is necessary to understand what motivates groups and individuals. - There are many facets of individual behaviour.