Innovation Systems and Technical Change

4.1 Corporate innovation strategy

Maria Kaninia [10-936-342]

The resources of a firm consist of a set of pro- • Select a strategy based on these elements
ductive assets, typically categorised into three and differentiate from the competitors.
main types:
• Expand the resources identified as a poten-
• Tangible: Financial assets and physical re- tial long-term profit-generator for the future.
sources such as production plants or equip-
ment are included in this category. Therefore, the first step to form a successful
• Intangible: Technology, patent portfolio, strategy is to locate the potential for competi-
reputation (“brand equity”) and culture are tive advantage that is hidden in the current list
included here. of resources. In the case of tangible resources,
this requires a good insight into the business sec-
• Human resources: Technical and soft tor, since the estimated monetary “book” value
skills of workers and executives. of assets does not provide information on the cor-
responding strategic value (which is given by the
In the following, it is discussed how this set of
potential to exploit the tangible assets for ad-
resources affects the strategy chosen and imple-
ditional value creation). Intangible assets typ-
mented by a firm.
ically have significant strategic value for gener-
The strategy of a firm can be based on its
ating competitive advantages, even though this
internal resources and capabilities, as opposed
value is not depicted in “book” valuations (it
to being guided by the external environment.
is however approximated by the capitalisation
This provides stable anchoring for the firm, es-
achieved by the firm in stock markets). It is also
pecially in a swiftly changing, market-driven en-
notoriously difficult to quantify the value of hu-
vironment. According to this scenario, the firm
man resources. There are various methodologies
cultivates specific technological capabilities and
that are applied to assess the performance and
subsequently, after examination of the opportu-
potential of the employees “stock”, including as-
nities in the current state of the market, it of-
sessment of individual performance, of interper-
fers products based on these capabilities. Evi-
sonal relationships and finally of the aggregated
dence shows that capability-driven (rather than
“organisational culture”.
market-driven) strategy has proven more resilient
A critical parameter in achieving the desired
for firms in various technological sectors.
target of a firm is the ability to efficiently utilise
In order to utilise the competitive advantage
the above-mentioned types of resources in con-
derived from superior internal resources as a
junction. This capacity to combine resources
source of profit (which is the ultimate goal of the
is defined as “organisational capability”. Espe-
firm), it is necessary to:
cially important competences which allow the
• Identify and understand the unique elements firm to significantly increase the delivered final
of the firm’s resources and capabilities. value of its products or enter new markets are

1
 Innovation Systems and Technical Change
Maria Kaninia [10-936-342] 4.1 Corporate innovation strategy

defined as “core competences”. In order to iden- technological know-how has a short expi-
tify these critical competences, two approaches ration date). Second, a resource may or
can be used: may not have the property of transferabil-
ity, which indicates whether a resource is
• Functional analysis: Each principal func- mobile between different firms. Several re-
tional area is separately examined in order sources are inherently non-transferable (e.g.
to “discover” organisational capabilities (e.g. because of geographical limitations), while
innovative product development is a compe- others may appear transferable (e.g. a team
tence within the R&D functional area). of experts) but be actually dependent on a
• Value chain analysis: It is based on a sequen- specific organisational context. Last, sev-
tial chain of primary activities and parallel eral capabilities developed by a firm might
overlapping support activities. It has the ad- or might not be replicable. Even in the case
vantage that the entire path of value creation of easily replicable competences, the incum-
is visible (as opposed to the fragmented view bent firm retains an advantage by having
in functional analysis). experience with integrating the competence
into the value chain.
Through both methods one can observe the hier-
archical structure of organisational capabilities. 3. Extract profit: For a firm, it is espe-
At the top level, a specific capability may ex- cially important to ensure that the devel-
tend over several functional areas and rely on oped competitive advantages remain bound
several lower level sub-capabilities. As we move to the firm. This creates a certain ambigu-
to the bottom levels, more specific competences ity in the case of intangible resources which
are identified, which belong to a single functional are by definition bound to key experts (who
area. then acquire large bargaining power within
Furthermore, it is relatively unclear how cer- the firm). Developing strong corporate sys-
tain organisational capabilities are developed. tems and reputation is a defense mechanism
One view is that they develop as an implicit rou- for the firm, because it means that individual
tine through “learning-by-doing”, meaning that skills are more valuable within the structure
the coordinated interaction of individuals at var- of the firm.
ious stages of the value chain may, through con- In conclusion, it could be said that resources
stant repetition and revision, be optimised to and capabilities, combined within a suitable or-
reach a high level of efficiency. A trade-off mightganisational context, can provide a firm with a
be a difficulty to adapt to new situations, since asolid structure for building strategy. However,
new set of routines would have to be “rehearsed” in order to have a long-term sustainable strat-
to reach a good level of efficiency. egy, it is critical to constantly re-evaluate and
Based on the above, the ability to generate strengthen the portfolio of competitive advan-
profit by systematically exploiting the resources tages of the firm. This task is difficult because it
and capabilities of a firm can be divided into the deals with intangible assets and human resources
following sub-tasks: which cannot be easily quantified, thus requiring
1. Establish competitive advantage: A good understanding and insight of the firm and
competence must have the following two the relevant markets in order to pinpoint specific
properties in order to evolve into a competi- strengths and competitive advatnages.
tive advantage: Scarcity (otherwise the com-
petence is merely a necessity in order to sur- Source: Grant, R.M., 2008. Contemporary
vive in the market) and relevance to the in- Strategy Analysis, Chapter 5. Blackwell Pub-
tended market (otherwise the competence is lishing, Oxford, pp. 123-143
an unneeded feature).

2. Sustain competitive advantage: Several