Innovation Strategy
Introduction
In a world where change is the only constant, innovation has emerged as the main source of competitive advantage for many firms around the world. Recent business history is full of examples of companies like Nokia which had fallen behind their competitors due to their inability to innovate consistently. While the companies based in United States played a bigger role in churning out innovative products for much of the 20th century, the explosion in the information available and the fast spread of globalization made business firms from emerging countries too to look at innovation to fuel their future growth. Proper allocation of resources between the different projects undertaken by a firm plays a significant role in the success of the innovation strategy of a firm. Similarly, acquisition of smaller firms which come out with path breaking innovations also play an important role in the successful implementation of the innovation strategy of a firm.
INNOVATION STRATEGY
Innovation strategy can be defined as a plan developed by a firm to encourage the advancements in technology, usually by making investments in the research and development activities, but might vary in context to the nature and the type of firms in question (Bossink, 2002). With the increasing competition from the new aggressive Asian players and the near stagnant global economy since the financial crisis of 2007-2008, companies looking to grow healthily are looking towards the adoption of innovation strategy. Companies which have successfully innovation strategy like Amazon, Starbucks, and Apple had successfully defied the economic slowdown and continue to experience healthy growth rates even in the present turbulent times. There is even a marked change in the way innovation strategy is now being perceived by the management and analysts. For years, the domain of innovation strategy was believed to be the exclusive preserve of the Research & Development (R&D) departments of the organizations and was viewed from a strict technological perspective.
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ALLOCATION OF RESOURCES
Irrepective of how well sourced, innovation efforts may end failing. Projects which look sound in the beginning can end up failing, while projects which look unconvincing in the beginning may end up being spectacular success stories.Proper allocation of resources to the various innovation programs undertaken by a firm can help in solving this problem effectively. But the scarce resources available to firms need to be carefully allocated to among the uncertain innovation endeavors. The choice of the resource allocation strategy directly impacts the performance of the innovation. The policy of allocation of resources to a large number of innovative projects raises the sale of the new products especially when they are new to the market (Diamantopoulos, et al. 2003).Generally, firms’s innovation strategies are often organized as portfolios of projects. Organization of projects into portfolios gives a lot of benefits to firms by their effective management like boosting R&D productivity, efficient allocation of scarce resources and achieving financial goals (Cooper, Edgett, and Kleinschmidt 2014). For the managers of these portfolios of projects, the generation and management of project variants is of vital importance. The process of resource allocation during the innovation process is revisited by the firms at multiple points. Decisions which are made at such points determine the breadth and selectiveness of resource allocation. When resource commitments are made selective at these multiple decision points, it enhances the flexibility of resource allocation leading to the restriction of the range (Klingebiel & Rammer, 2009). In a study done by (Kliengebiel and Rammer 2014) it was empirically proven that the choice of resource allocation strategy impacts innovation performance. In their study, it was found that allocating resources to a broader range of innovation projects increased product sales. In addition, it was also found that performance benefit of breadth is higher for firms that allocate resources between projects at the later stages of the innovation process.
CORPORATE VENTURING
Effecive management of a portfolio of projects can also be made by acquiring some projects which are still at an operational level and those which are reaching their conclusion. One of the ways in which new projects can be added to the portfolio of projects is by buying new projects from small firms through corporate venturing.Corporate venturing is a means by which bigger companies buy a stake in smaller companies in order to get control over their innovations. Bigger companies extend both financial and managerial resourcs to smaller companies in return for access to the latest technology developed by the latter.As knowledge and information is now available to more and more number of people and firms across the world, many smaller businesses are staying at the forefront of new innovations. Many technological breakthroughs, new software applications, and breakthrough improvements to existing technologies are now being made by small businesses. For example, big IT companies like Facebook and Google regurlary buyout smaller companies like Android and WhatsApp for gaining access to their breakthrough products and technologies. For bigger corporations, corporate venturing is a vehicle to successfully capture innovation on a global scale. It is very important that companies encourage innovation to maintain a competitive advantage and their increase market share. There is an increasing need to search for the latest innovations to be carried outside the regular organizational activities and the ongoing managerial business. Smaller businesses with nimbler organizational structures can innovate faster than bigger corporates. But the financial and managerial resources at their disposal to scale their businesses further are very limited. Access to the resources of bigger corporations can give a boost to the future R&D activities of the smaller firms.
Corporate venturing can take many forms. At a basic level, corporate venturing can just be a financial investment to gain a control over the smaller firm. This is generally done through a special fund setup specifically setup for the purpose of investing in stratup growth companies. But in many cases, corporate venturing can also be much more than being purely financial. Some bigger firms enter into strategic alliances with smaller companies and help them further develp their products and services which can yield benefits to both the firms in the longterm. This form of corporate venturing may or may not involve any infusion of monetary resources into the smaller firms.There are two main motives behind corporate venturing, viz. direct and indirect motivations (Blackholm 1999). Direct motivaions include new business creation, accelerated growth, and diversification through new ventures. Indirect motivations include development of new competencies, strategic renewal, access to new cutting edge technologies. In a study by Dushnitsky and Lenox (2006) it was proved that corporate venturing will create greater firm value well when firms overtly pursue corporate venturing to gain and harness novel technology. Using data from a panel of corparte venturing projects, the authors presented evidence which was consistent with the study’s proposition. For a long time corporate venturing was looked down warily by bigger businesses (Lerner 2013). But they now realize that the maintenance of the present business is far too big a task for the people in it to have much time for creating the new, the different business for tomorrow. Hence they are open to acquiring smaller firms to gain an edge in the market.
CONCLUSION
During the times when change is the order of the day, all the major firms globally are now investing in innovation. Every firm is now coming out with an innovation strategy as firms with good innovative strategies are now dominating their respective fields. In order to make the innovation strategies, proper allocation of resources remains the key. Effective management of a portfolio of projects and allocation of resources between them can be achieved through acquisition of small firms rather than carrying out all the innovation activities within the firm. Firms which can identify the smaller firms with brilliant ideas and snap them up can dominate tomorrow’s business world easily.