Innovation Strategy
First Mover Strategy (Internal routes of Innovation)
About being first to market with a new product or service. Most obvious and appealing for innovation. It has been given renewed emphasis by 'dot com era', where many new-start ups stressed the need to be first to market, often as expense of profitability. Many organisations have been suuccessful in employing this strategy. For example, Sony Walkman revolutionized the audio equipment market when it brought out the Walkman music player. Therefore, Although copied, being first helped confirm Sony's reputation and establish them as a major player in the field. Benefits 1) Gives opportunity to establish technology lead. A headstart may enable a firm to get further along the 'learning curve', thereby securing a cost advantage over rivals. However, the learning curve varies from industry to industry and in some it is not significant. Some just have greater capacity to learn, thereby more important perhaps than a headstart. 2) Ability to acquire scarce resources, thereby empting later arrivals in the market. These resources might include: locations, suppliers or distribution facilities. Therefore acquisitions of resources is important, especially in some field such as: retailing, where locations can be critical. Nonetheless, it is by no means certain that acquisition of scarce resources will be crucial for competitiveness. 3) Provides opportunity to build customer base ahead of competitors. Building market share this way provides opportunity to 'lock-in' customers, who for example, find it inconvenient or expensive to switch to other firms (Apple Iphone). Limits to effectiveness 1) Innovation can ultimately fail in the marketplace, even if a company is first to market, as big differences can can exist between industries. 2) Pace of technological change and rate at which market is expanding can affect suitability of a first mover advantage. Technological change has characteristic of drawing in new competitors, who ultimately could bring new capabilities and competing designs to the field, the likes of which had not been experienced before. For example, Osborne was the first company to produce and market a portable computer. However, it weighed 24lbs and this highly innovative computer was quickly superseeded by much lighter models as laptop technology rapidly evolved. Same logic applies to rapid market changes which provide potential competitors to enter the market.
Technology Strategy
Development and use of technological competences. Concerned with decisions about tech that org use in order to deliver products and services to customers. Decisions likely to include which technologies should org employ? how much money should org invest in tech? How should tech be developed? Tech strategy likely to be critical in industries such as aerospace, biotechnology and computing.
Derivative Strategy
Essentially involves applying a new technology to an existing product to create a new product. Aims to capitalise on existing product market position, in order to gain market entry for the 'new' product. Hence a hybrid strategy. Cannot be used by new firms. Although for existing, attractive strategy. Keeble (1997), notes that exploitation of new technologies is not confined to npd, can also occur through 're-innovation' or complete re-design. For example, the developent of a heat gun for paint-stripping, by Black and Decker, was applied to existing components from a product, due to uncertainty new tech might fail to take off. This lowered development cost and scale of investment in innovation. Hence, derivative strategy was used, but tech not completely new.
Spin offs (External routes to innovation)
Happens where one firm creates another in order to exploit the innovation. An attractive option where technology of innovation is not closely related to core technology of the firm, as it avoids unnecessary distractions. Parent Company divests itself of the technology by selling off the subsidiary company where it is based. Can be sold by: (Sale to another company, MBO sold to its managers or sold to a venture capital org who will invest in company with view of selling it off later in future. Can generate substantial sum, compared to future income stream associated with licensing. If parent company, for instance is anxious to re-invest proceeds in other ventures (Core Business and new ventures) , then clearly spin off has attractions.
Innovation Strategy
Is about whether/when/where to enter the market? Involves tactical decisions about level of r&d, type of innovation or appropriate intellectual property rights to employ. (Whether) may seem rather drastic, might be appropriate to let another org, that is equipped with expertise and financial resources to carry out the implementation, via external route, form of open innovation. (When) most crucial, yet timing of innovation is often not questioned, as its often assumed that being first to market is best strategy, however not always the case, for example the first jet airliner, De Havilland Comet. Had a series of crashes, designers underestimated demands of high-speed flights. (Where) to innovate is not so much a mater of geography as whereabouts,in terms of the market, should one innovate. In particular, is there an alternative to a full scale assault on the market? Are there particular market niches which it might be better to target?
External Routes to Innovation
Most crucial decision for strategic decisions: Should company enter the market with its innovation? Appropriate for a number of reasons. As a consequence of these reasons, company may want to transfer new technology to third party. 1) Lack of resources Company that developed the technology, i.e. the patent holder, may lack not just the necessary finance to exploit the technology, but also the facilities or the staff 2) Lack of Knowledge May not have sufficient knowledge of manufacturing, marketing, or distribution channels. Often occurs when scientists have developed a new technology, but lack the commercial background to exploit it. 3) Poor fit with the company's strategy Technology may be one that has applications in markets that are too small, too remote, or too specialized to be of value for the company that has developed the technology 4) Lack of Reach If technology has applications that span markets across the world, then it may be that the company does not have the global reach to market technology applications in all these markets.
Follower/Latecomer Strategy
Often known as imitation strategy, this involves taking a 'wait and see' approach, rather than perceiving innovation as a race in which being first to market is critical. When it becomes clear that there is high level of consumer acceptance in market or number of competing designs begins to diminish, then and only then does latecomer enter the market. Benefits of strategy 1) 'Free rider effect', is where latecome is able to utilise benefit of investments made by pioneer firms as they entered the market earlier. Investments might include, educating consumers to promote market acceptance, providing infrastructure to promote ease of use with intention of supporting innovation. If benefits cannot be contained or limited from these investments, rivals will eventually copy and take advantage, hence latecomers may actually gain advantage from work of pioneers. 2) 'Info spill-over effect', arise where diffusion of technologies over time results in reduced r&d costs for latecomers. Pioneer firms over time, will find it difficult to contain in-house knowledge and expertise that develop while working on a new tech, for example wireless tech from Nintendo Wii, which was imitated over time and improved on by Microsoft Xbox. Therefore, once in public domain, latecomers will be able to access it, without having to undetake major r&d and expenditure. Gives latecomer a cost advantage over pioneer firms. 3) 'Learning effects', where latecomers are able to learn from the mistakes and failures of others. For example, Comet and Boeing (aerospace industry). Level of uncertainty likely to be key factor. If problems associated with tech becomes more widely known and uncertainty reduces, so scope for learning becomes much greater. Limits to effectiveness Latecomer strategy is not without risk, as there is always possibility of being completely left behind and as a result shut out of the market, for example process innovation of floating glass by Pilkington and Coming, the latecomer. It would be imperative, therefore, to judge when these conditions, mentioned above, are likely to apply in order to limit probability of missing out on opportunities. However, the risks may not be as great as some imagine and may well be counter-balanced by advantages derived from learning from the mistakes others have made.
Side Entrance Strategy
Often new technologies are uncompetitive to existing products due to costs and even overall performance. This strategy is about achieving market entry via a small niche in the market rather than a full-scale assault on the main market itself. By aiming for a niche, they might be able to target needs that are not being met or not well in the main market. For example, JCB targeted niches with their hydraulic excavator instead of main market, as the new tech could not compete with the cable operated excavators at the time due to power deficiences. However, tech improved over time and JCB were able to gain a foothold, they were then able to move into the mainstream market. Therefore, a company can gain market presence, then as tech matures and costs fall, innovation can be extended to main market. Benefits (especially for new entrant firms) 1) Avoids head to head competition with well established players in the market. Can be significant for new entrants that don't possess resources on the scale of their more established counterparts. 2) Offers opportunity to prove a new technology or a new application for a technology. Gives chance to demonstrate tech, where customers can see it in action and make judgement of value. 3) Scope for learning new technology and thereby enhancing it. Via successful incremental innovations the tech can be improved and firms start to move up the s-curve. Market niches provides chance to learn tech in a more protected environment.
Licensing (External route to innovation)
Open to org that can exercise control over their intellectual property rights. Under license, patent-holder normally retains intellectual property rights over technology but allows licensee to use technology in products or services it develops, in return for a loyalty fee. For example, licensing agreements usually include a minimum level of return, licensee is guaranteed to receive. However, exact financial returns will vary according circumstances. Licensees will typically be those that posses assets the owner of the technology does not have such as: 1) Knowledge Might be market knowledge, resulting from substantial market presence or result of experience working in a particular market. Take long time to acquire, not easily assimilated through learning. Therefore, may be better to grant license to someone who has this kind of knowledge 2) Access to finance Some form of long term capital since this is what the innovation is likely to require. 3) Motivation Would need the motivation to carry out the innovation themselves. Innovation is a long and difficult process and requires necessary motivation to see it all the way through. Exploiting proprietary technology externally through licensing depends on factors 1) Complementary assets in production and marketing 2) Transactions costs associated with complementary assets 3) Competition in the final product market
Nature of Strategic Management
Strategic decisions have long term consequences, often impact upon a lot of people, lot of money involved. Decisions often left with senior managers, although individuals and groups may be influential as well. Strategic decisions and associated strategies can typically be ordered in a hierarchy, with business strategy at apex, functional strategy in the middle and product/service strategy at base.
