Innovation and Strategy

Rajan Varadarajan, Satish Jayachandran, Naresh K. Malhotra, Satish Jayachandran, Rajan Varadarajan

• Publisher: Emerald Publishing Limited
• Year: 2018
• ISBN:
  9781787548305
• Topic: Business
• Subtopic: Marketing
• Index: Business

Innovation is the process of value creation through use of relevant knowledge, capabilities and resources for conversion of ideas into new products, processes and practices, and improvements in existing products, processes and practices. Innovations of various types and forms are crucial to achieving and sustaining a competitive advantage in the marketplace, the principal focus of competitive strategy. Product innovations play a central role in various strategic marketing contexts such as meeting consumers' needs and wants, responding to changes in consumers' preferences, shaping consumers' preferences, entering new markets, enhancing a firm's market position in presently served product-markets, differentiating the firm's product offerings from competitors' offerings, neutralizing the effects of competitors' actions, and preemption and deterrence of competitors. Against this backdrop, articles published in this volume focus on substantive issues in innovation, marketing strategy, and the nexus of innovation and marketing strategy. The substantive issues addressed in these articles include sources of innovation, customer involvement in innovation, innovations in a digital environment, innovations in an information rich environment, the role of market foresight and design orientation as organizational capabilities in new product development and new product performance, and the effects of market orientation, organizational culture, trust and commitment on business performance.

CONCEPTUAL PAPERS

STRATEGIC DECISION MAKING IN AN INFORMATION-RICH ENVIRONMENT: A SYNTHESIS AND AN ORGANIZING FRAMEWORK FOR INNOVATION RESEARCH

Neeraj Bharadwaj

ABSTRACT

Purpose - In the era of Big Data, larger volumes of data arrive in various forms at an increasing pace but of questionable quality and value. The abundant information (that emanates from these 5Vs – volume, variety, velocity, veracity, and value) taxes the bounded capacity of managers. This chapter introduces a taxonomy of approaches available for strategic decision making in an information-rich environment, several of which showcase that automation can help to augment (not supplant) managerial decision making. This taxonomy is then applied to an innovation context. Mapping a stylized version of the phases of the innovation process (i.e., front-end innovation, new product development, commercialization) onto the four decision-making approaches yields an organizing framework for understanding strategic decision making in the realm of innovation. The chapter concludes by identifying promising areas for future research.

Methodology/approach - This conceptual chapter: (1) explicates the foundational terminology regarding strategic decision making in a marketing context; (2) provides a primer on the era of Big Data and making strategic decisions in an information-rich environment; (3) introduces a taxonomy, which features approaches to decision making in an information-rich environment; and (4) applies the taxonomy in an innovation context to yield an organizing framework.

Findings - This chapter focuses on the nascent field that is emerging at the intersection of innovation, marketing strategy, and information-rich environments, and breaks new ground by exploring automation available to aid managerial decision making in this realm.

Practical implications - The main practical implication is to elucidate that managers can apply different approaches to decision making in today’s information-rich environment. Tables 2–4 provide to managers 12 examples of the types of decision making in an innovation context.

Originality/value - This chapter introduces a new taxonomy to classify four approaches for making strategic decisions in an information-rich environment, and extends that framework to the innovation realm. This framework aims to prompt researchers to explore important topics that exist at the intersection of innovation, marketing strategy, and managerial decision making in an information-rich environment.

Keywords Innovation; Big Data; information-rich; attention; strategic decision making; marketing strategy

Today’s decision-making environment is information-rich. Managers have at their disposal a trove of customers’ prepurchase, transactional, and post-purchase data that is being captured, processed, indexed, and stored so that useful information is available in real time. The information can be combined with text, images, and video from Internet and social media activity, and such external macroenvironmental inputs as the state of the economy, regulatory conditions, and weather patterns to generate a more complete understanding of buyer behavior and new product opportunities. Walmart managers, for example, rely on a state-of-the-art analytics computing ecosystem consisting of over 200 streams of internal and external information on demand and supply to make important business decisions (Marr, 2017a).

While the availability of abundant, diverse information in real time can represent a boon, the potential of having a “God-like view of the marketplace” (Stucke & Ezrachi, 2016) can also represent a bane. The reason is that the wealth of information comes at a cost: it “creates a poverty of attention” (Simon, 1971, p. 40). Current scholarly discourses have recognized that the abundance of information taxes the bounded cognitive capacity of managers (see, e.g., assertion from managers that “we are drowning in data!” noted in Bharadwaj & Noble, 2015), as have exhortations from executives. Satya Nadella, chief executive officer of Microsoft, summarizes that “the true scarce commodity is increasingly human attention” (Mosendz, 2014).

Fortunately, advances in technology represent a means to automate some tasks that previously absorbed managerial attention (Hodson, 2016; Ng, 2016; Zilis & Cham, 2016). Increasingly, an organized collection of devices (e.g., sensors, computer portals, servers), software, and databases serve as decision-making aids that permit managers to capture data, index the data so that it is organized into useable information for decision making, and store it in the form of reports (outlining lessons learned), datasets, and real-time dashboards that are readily accessible (see, e.g., Nonaka & Takeuchi, 1995; Pugh & Dixon, 2008). These decision-making aids are referred to as marketing management support systems (MMSS) in the literature, and deemed as “useful tools to help marketing decision makers carry out their jobs” (Van Bruggen & Wierenga, 2009, p. 209).

Decision-making experts recognize that management teams must have multiple approaches to decision making in their repertoire, ranging from the traditional rational approach to intuition-based and other approaches (Bazerman & Moore, 2011; Kahneman, 2011; Simon, 1997). Accordingly, the first objective of this manuscript is to create a taxonomy of some approaches available for strategic decision making in information-rich environments. Several of these approaches showcase that automation can help to augment (not replace) managerial decision making. The second objective is to couple a stylized version of the phases of the innovation process (i.e., front-end innovation, new product development, commercialization) onto the four decision-making approaches to create an organizing framework for understanding decision making in the realm of innovation, and identify a representative exemplar that can fit into each of the 12 different cells. The third aim is to identify promising areas for future research for those scholars interested in exploring new boundaries at the intersection of marketing strategy, innovation, and managerial decision making in an information-rich environment.

This chapter proceeds as follows. The second section explicates the foundational terminology regarding strategic decision making in a marketing context. The third section discusses strategic decision making in the era of Big Data, and introduces the challenge that is imposed by the copious amount of information available in the decision-making environment on managerial attention. The fourth section advances that technological advances can aid managerial decision making, and advances a taxonomy of four strategic managerial decision-making approaches found in an information-rich environment. The fifth section generates an organizing framework to structure thinking on innovation in information-rich environments. The sixth section identifies future research directions.

EXPLICATING THE MEANINGS OF STRATEGY, MARKETING STRATEGY, AND STRATEGIC DECISION MAKING

It is necessary to begin with an overview of some basic terminology to establish the foundation for the ensuing discussion. The terms that require elaboration include: strategy, marketing strategy, and strategic decision making. Each is addressed in turn.

Strategy refers to “a central, integrated, externally oriented concept of how the business will achieve its objectives” (Hambrick & Frederickson, 2001, p. 52). This definition of strategy establishes the objectives that represent what the business wishes to achieve, and strategy represents the means that are available to reach the desired ends. Furthermore, it advances that strategy consists of five elements: arenas, differentiators, vehicles, staging, and economic logic.

1. Arenas equate to the domain(s) in which the business intends to be active. At a broad level, this entails determining which market segments to pursue and the product categories to offer to the respective segments. The reason is that “who is the customer?” is the crucial question in defining the purpose of the business (Drucker, 1973), and whether to pursue current and/or new customers is critical to marketing (Varadarajan, 2010). In acquisition decisions, firms often obtain other ventures that are complementary in nature to better serve their existing customer base (e.g., the goods-dominant retailer Best Buy acquiring the Geek Squad service team).
2. Differentiators pertain to how the business intends to win in the domains in which it elects to compete. This requires detailing the basis for the customer value proposition, ranging from operational excellence (i.e., focus on operations to make available low price goods and/or services) to customer intimacy (i.e., focus on customers to offer customized solutions at varying price points) to product leadership (i.e., focus on R&D to make available the best-in-class offering) (Treacy & Wiersema, 1993). Microsoft CEO Satya Nadella, for example, has shifted from the product-centric view of his predecessor that the firm was a device and services company to one whose evolution demands improving productivity “of every person and organization on the planet” (Mosendz, 2014).
3. Vehicles take into consideration how a firm will enter into a market. This encompasses specifying whether the business will opt to “make” (do everything in-house) or “buy.” If the latter, the business needs to determine the collaborators (i.e., suppliers, intermediaries, etc.) who can assist to compete in the chosen domains.
4. Staging pertains to the sequence in which the business intends to pursue the arenas and vehicles. This requires designating market segments (i.e., primary, secondary, and tertiary) and determining the speed of expansion given the firm’s (financial, managerial, technical, and production) available resources.
5. Economic logic encapsulates assessing the financial viability of each of the alternative pursuits into the respective arenas. This requires constructing a model that can trace the path (based on economic logic) from an investment to profits, which exceed the cost of capital.

It is commonplace to hear in academic and practitioner discourses alike that marketing is “the science and art of finding, retaining, and growing profitable customers” (Kotler & Armstrong, 2001). Thus, if the objective of business is to make a profit that exceeds the cost of capital, then marketing’s objective is to ensure that the firm receives revenues from its customer portfolio that exceed the costs incurred to obtain new customers and maintain existing ones (Kumar, 2008).

It follows that marketing strategy refers to

an organization’s integrated pattern of decisions that specify its crucial choices concerning products, markets, marketing activities, and marketing resources in the creation, communication, and/or delivery of products that offer value to customers in exchanges with the organization and thereby enables the organization to achieve specific objectives. (Varadarajan, 2010, p. 128)

This definition suggests that marketing strategy requires firms to engage in decisions that specify how the firm should: (1) balance customer retention (a defensive strategy) versus acquisition (an offensive strategy); (2) deliver value to the chosen set(s) of customers through products, channels, and/or communications; and (3) capture value for the firm via its pricing, and optimally allocate resources across the customer portfolio.

Finally, decision makers participate “in the enactment of the environment and the social construction of organizational moves” (Ocasio, 1997, p. 200). These individuals generate a solution when confronted with a problem or opportunity. In order for the decision making to be deemed strategic, it requires adding “to achieve some predetermined objective(s)” to the back end of the above definition to complete the five elements of strategy introduced earlier. Thus, such pressing marketin...