Unlocking Strategic Innovation

Competitive Success in a Disruptive Environment

Surja Datta, Sandeep Roy, Tobias Kutzewski

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000360547
• Edition: 1
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

This new book explores how firms achieve competitive advantage in a disruptive, digital and globalized business landscape.

An integrative framework, 'The Four Rs of Competitive Success', is introduced, which covers the four core pillars of global strategy: resources and capabilities, technology and innovation (recombination), internationalization and international markets (reach), and physical and virtual location (roots). It then explains how competitive advantage is achieved through an interaction of these four drivers against the backdrop of a globalized and digitized world. It is uniquely practical in its approach, combining theoretical understanding with international case studies and real-life examples throughout each chapter, including Apple, IKEA and Microsoft.

Unlocking Strategic Innovation is concise, applied reading for postgraduate students studying international business, corporate strategy, innovation and digital strategy, as well as academics in the field. It will also be important reading for practitioners looking to gain further understanding of how firms compete and flourish in a global and technology-driven environment.

1

Introduction

In 1902, the Minnesota Mining and Manufacturing Company was established with the intention to extract corundum, an aluminium oxide. In the same year, a new speed record was set in France by Léon Serpollet; driving a car with a steam-engine. Over more than one century, the number of changes the company experienced are countless – two World Wars occurred, numerous political, social and economic changes as well as technological innovation affected the company. But not the company’s prosperity. 3M, as the company is currently known, is one of the most innovative and adaptive companies in the world. So, how has 3M achieved this considerable feat?

This book is concerned with one main question. How do firms achieve competitive advantage within an increasingly disruptive environment? The disruption comes in various forms. Your products become obsolete, your services are no longer required, the business model of your firm is not fit for purpose, your competitors are suddenly not local but global. The disruptions and the consequent uncertainty are driven by two key factors – globalization and digitization. The current strategic thinking acknowledges that the process of globalization has gathered pace in the last thirty odd years, but it is strangely reluctant to accept that the complexity of the macro environment has therefore gone up exponentially. This book charts out a different course. It holds the view that driven by globalization and digitization, the business environment has altered paradigmatically. The changes are not incremental; they are radical. To thrive in this altered state, firms need an approach that is different from the one that delivered success in the second half of the twentieth century. Much of the current thinking on business strategy and innovation was developed in an era that was more stable, where the variables required to be considered for decision-making were relatively few. There is a need to adapt that thinking to the current reality, and this is one of the main goals of the book.

The ideas and the arguments of the book may appear relevant to only for-profit firms, but we hold the view that these are as relevant to not-for-profit enterprises, particularly those that compete in private markets. For example, Oxfam is a not-for-profit enterprise, but it is also a multinational firm competing with other for-profit organizations in multiple product markets. The theories, ideas and arguments presented in this book are valid for not-for-profit enterprises like Oxfam as well.

Much of the strategic management literature is preoccupied with the dynamics of large corporations, whereas the vast majority of business firms out there comprises small and medium sized enterprises (SMEs). There is then a disconnect between the theoretical ideas and the practice of strategy. This book attempts to redress this imbalance. We want this book to be useful to both students and practitioners of strategy. The theories, concepts and business cases that are covered in the book have been selected from the perspective of a representative business firm, and the representative firm is not the big multibillion pound generating corporation. Rather, it is an SME operating in a hypercompetitive market which is imbued with disruptive uncertainty.

When we say we are concerned with the competitive advantage of firms it may appear that we are essentially talking about firm level dynamics, like the fluctuations in available resources and changes in competences, as well as the business strategies of organizations to cope with those dynamic changes. However, this is not the case at all. It provides just the steppingstone to a much broader understanding of how companies are affected in their way of organizing. As we shall see in the following chapters, the competitive advantage of a firm is based on several key variables, firm-specific resources and competences being just one of them. The reality is that competitive success emerges out of a constellation of factors, some within the control of the firm, some outside of it. And yes, this means that chance plays a relevant role in firms’ competitive success; however, following a popular saying, we can say that fortune tends to favour the prepared firm. Successful firms are not merely artefacts of a series of accidents, neither are they the results of some tremendously effective hyper-planning strategy evoked.

A brief note on the writing style. We want to avoid ‘academese’,¹ the jargon-laden passive style of writing that academics often use to communicate with other academics. As mentioned before, we want this book to be read by both students and practitioners. They are our main readers, not other academics. With this in mind, we have kept the writing style conversational, and have not burdened the text with excessive references. We have provided extensive endnotes and bibliography at the end of each chapter that reflects the solid theoretical underpinnings of this book, so readers who are interested in following through with any idea, theory or concept, can do so without any problem.

This book has a point of view. It does not merely consolidate the extant literature on competitive success, although our point of view is built on a synthesis of that body of knowledge. The main argument is that competitive success is delivered through the four Rs: Resources, Reach, Recombination and Roots. Each of these is discussed in detail in subsequent chapters, but briefly here: ‘Resources’ are those tangible and intangible assets that firms have access to and/or have control of. ‘Reach’ relates to the extent of the firm’s operation. A multinational corporation (MNC) for example and for obvious reasons has more reach than a domestic firm. ‘Recombination’ is now widely recognized as the main process that brings about innovation: new products and services that provide the dynamism of the global economy. Last, but definitely not the least, is the matter of ‘roots’, the place from where the firm originates and/or is based. Place is often underappreciated as a factor of competitive success; we try to redress this imbalance in the book.

The four variables link with each other in interesting ways. For example, the ‘roots’ of an organization impact its ‘reach’ and ‘resources’ in a significant manner. We discuss the interdependencies between the four Rs in Chapter 8. There are of course other factors that merit consideration, but we hold that the four Rs are central to achieving competitive advantage; they matter even more in the current ‘Age of Uncertainty’. This way of thinking also pushes back against prevalent monocausal explanations of competitive success.

The four Rs act as prompters for evaluating firm competitiveness:

•Where are their roots?

•How far is their reach?

•What resources can they control and/or have access to?

•How good are they in recombining ideas and resources?

As we start answering these questions, an overall picture of a firm’s competitive position starts to emerge. The four Rs framework (see Figure 1.1) is the meta concept of this book which helps us to integrate the insights generated in the individual chapters that follow. We hope that the interlinkages that exist between the four Rs would become apparent as you go through the chapters; however, we make them more explicit in the concluding chapter of the book.

Figure 1.1The four Rs of competitive success

The book is structured in the following way. In Chapter 2 (Globalization, digitization and disruptive uncertainty), we explain how the business environment has been transformed over the last thirty years and is now filled with high levels of uncertainty and disruption. We use the concept of Global Flows to demonstrate how these flows are making the external environment more disruptive. The speed of Global Flows has accelerated through digitization of business processes. We suggest in the chapter that focusing on the velocity of Global Flows, impacted by national ‘barriers’ and ‘expeditors’, is essential for developing an understanding of this disruptive uncertainty. We point out that this uncertainty is, however, Janus-faced – while it is true that firms can suffer losses from the disruption, they can also benefit from it. It is the latter which is often overlooked in business strategy texts. In this chapter, we elaborate on this duality of uncertainty.

Chapter 3 (Resources: Assets, capabilities and strategic positioning) explores the notions of resources and capabilities, and how they relate to competitive success. Firm-specific resources and capabilities are held to be central to the generation of competitive advantage in strategy texts. But how does one determine which resources and capabilities are key to competitive success? How do firms ensure that their resources deliver success within a changing environment? The chapter answers these key questions. An alternative perspective in strategic management is that profitable companies emerge out of attractive industries. The argument here is that the structure of the industry is the main driver of firm profitability. Strategic positioning of the firm is about achieving the ‘fit’ between organizational assets and industry dynamics. Both perspectives have their individual strengths and weaknesses and the chapter covers them in detail.

Chapter 4 (Recombination: The process of innovation) focuses on the relationship between innovation and the generation of competitive advantage. Innovation is essentially the process of creating something novel through the recombination of ideas, resources and capabilities. How does this recombination occur in practice? How critical is innovation for firm profitability? What kinds of innovation do firms specialize in? The chapter addresses these questions and explains how the disruptive environment is forcing firms to find new routes to innovation, Open Innovation being the most prominent among them.

There are very few sheltered industries out there that are immune to global competition. Chapter 5 (Reach: Going global) explores the link between international operations and competitive advantage. What benefits are accrued by extending one’s reach? What are the barriers to extending reach? What additional organizational complexities arise when a firm goes global? What strategies do firms deploy to achieve competitive success in global markets? Why and how are some firms ‘born global’? Is it even possible to achieve competitive success as a pure domestic player in today’s disruptive environment? These questions are explored in detail in the chapter.

Chapter 6 (Roots: Power of the place) investigates a paradox. We live in the Age of Digitization; however, quite paradoxically, the firm’s physical location has never been more critical to competitive success. It is not a coincidence that many successful ‘digital’ firms are clustered together in close physical proximity in the Silicon Valley. We are writing this book in the midst of the Covid-19 pandemic and efforts are ongoing across the globe to come up with efficient testing and of course a vaccine for immunization. These efforts are not equally distributed across the world, rather they are concentrated in specific places and Oxford is one of them. The bioscience cluster in Oxford has already produced a fast 90-minute test for Covid-19 and it is widely expected that the vaccine currently in development by Oxford University can deliver the desired outcome. It is very likely that this bioscience cluster in Oxford will get bigger going forward, as more pharmaceutical and biotech companies relocate to the region to benefit from the specialized knowledge that exists there. Place is underestimated as a success factor in conventional strategy textbooks. In contrast, we argue that place is one of the key determinants of firm competitiveness. Companies often have a choice of locations where they can put down roots, where they base their headquarters. That decision can enormously affect the competitive success of the firm in times to come. We explain the importance of roots or location in this chapter.

Chapter 7 (Creating options: Harnessing the power of uncertainty) juxtaposes the hyperrationality that underpins most strategy and innovation frameworks with the emerging idea of Optionality, which is essentially about embracing uncertainty. Optionality is about minimizing the downside while keeping the upside open. This requires a different mind-set when it comes to strategizing about competitive success. Optionality requires the organization to be comfortable with a series of small losses as that opens up the possibility of a big payoff. Conventional strategic thinking assumes that managers/strategists have perfect foresight which is obviously at odds with the reality. Option thinking does not demand such a superhuman feat from its practitioners; it requires them to be rational yet cognizant of the limits of that rationality. The chapter shows how some of the limitations of the conventional strategy frameworks can be overcome through insights generated from option thinking.

In conclusion, in Chapter 8 (Bringing it all together), we show how the integrative four Rs framework pulls together the four drivers of firm competitiveness. The linkages are illustrated through various case studies. It has been said that all theoretical ideas are products of their time. Our time is fraught with uncertainty and disruptions brought on by the twin forces of globalization and digitization. The endeavour here is put forward a framework that explains firm competitiveness in this dynamic environment.

A note on the case studies

We have provided several case illustrations in the following chapters. The cases have been carefully selected to complement the theories that have been discussed within the main text. Within the main text, we have referred to many business cases to illustrate the conceptual points that are being made. The long case studies within the boxes do not refer to the theories directly but they relate, one way or the other, to the theories covered in the chapter. These long case studies are designed to provoke conversations among students and practitioners about how they relate to the conceptual ideas discussed in the main sections. We have provided some kickstarter questions at the end of each case study; we call them ‘pointers to strategic conversations’.

Note

1See for example, Steven Pinker’s engaging article on the topic ‘Why Academics Stink at Writing’ available at: https://stevenpinker.com/files/pinker/files/why_academics_stink_at_writing.pdf.

2

Globalization, digitization and disruptive uncertainty

Uncertainty and strategy are integrally linked together. Strategy is essentially about navigating an uncertain future. Yet, standard strategy texts treat uncertainty as a topic not worth exploring in detail....