International Business StrategyLecture 7

Innovation and Change

This Week’s Objectives

After the lecture, seminar and linked readings and reflection, to

Discuss the role of different types of innovation and change in building and sustaining competitive advantage

Evaluate the challenges of managing innovation and change processes within multinational enterprises

Compare and contrast incremental and transformational approaches to change

Identify the role you would prefer to play within the change process – do you see yourself as a manager, a leader, and/or a change agent?

Changing The Business Model

1) Customer Value Proposition Who are your target customers? What is the problem or need you will help them

with? How will you meet their needs?

2) Key Resources (needed to deliver the CVP)3) Key Processes (Porter’s Value Chain activities)4) Profit Formula (costs and revenues)

Managers look at how these factors will vary as the SCALE of output rises over TIME – lead times, throughput, cash flows over SPACE – do you need to adapt the business

model when you move beyond your home market?(Johnson, M.W., Christensen, C.M. and Kagermann, H. (2008)

Reinventing Your Business Model. Harvard Business Review. 86/12 p: 50)

Innovation within the Product Life Cycle (Frynas & Mellahi 2011:

Ch 11)

Product innovation: the development of a new or enhanced product Process innovation: the implementation of a new or improved production or delivery method

The Strategic Management Process:

Supports Innovation and Change Strategic management is “the process of strategic

decision-making that sets the long-term direction for the organisation” (Frynas & Mellahi, 2011: 8)

The central thrust of strategic management is achieving a sustainable competitive advantage

The strategy-making process involves ‘key decisions’ made by negotiation within the organization and with its business partners and other interested parties (stakeholders - Week 8)

Many MNEs are in fact business groups with interlocking shareholdings and a complex network of relationships linking subsidiaries incorporated separately in each location (partly for tax reasons - Week 9) – this complicates negotiations further

Capabilities and Competitive Advantage

Competitive advantage: The ability to use resources effectively and to deliver

a combination of price and performance valued by the target group of buyers

better than the competition generating superior profit levels for the firm

Distinctive capabilities: a wide range including innovation, flexibility and reputation (Week 4)

Must create value for customers, be rare and hard to copy

If they are valuable but not rare, they are necessary or threshold – rather than distinctive or core – resources

Innovation as a capability: springs from an organisation’s ability to manage change and to learn from experience and from environmental cues

Three Models of Innovation

(Bartlett et al 2011: Ch 5)

Central: pursuing efficiency Global strategy, centralised hub configuration,

strong product (business) managers Local: building responsiveness

Multinational strategy, decentralised federation configuration, strong geographic (area) managers

Transnational: sharing learning Transnational strategy, integrated network

configuration, locally leveraged and globally linked Remember Week 6? A complex organisational

form, governed by simple rules (Sull and Eisenhardt 2012)

Functional managers scan globally for new ideas, both inside and outside the organisation - and champion new ideas within the MNE

Geographic managers identify the need for new ideas, develop their own and implement others locally

MNEs: Motives, Strategies and Organizational Configurations

Decentralized Federation

(Europe, 1930s)Resource seeking motives

Multinational strategyIntegrated Network

(worldwide, 1990s onwards)Global scanning motivesTransnational strategy Coordinated

Federation (USA, 1950s)

Market seeking motivesInternational strategy

Centralized Hub (Japan, 1970s)

Competitive positioning motives

Global strategy

Remember Lecture 6?

Central Innovation (Japan 1980s)

I

I

I I

I

I

S-R-I

• Headquarters Senses world-wide opportunities• Centralised assets and resources favour unitary global

Responses • Implementing strategy is decided centrally and executed

locally • Typical of centralised hub configuration, positioning

perspective

Local Innovation (Europe since 1930s)

S-R-IS-R-I

S-R-I S-R-I

S-R-I

S-R-IS-R-I

• National units Sense local needs• Distributed assets and resources allow local Response• Local-for-local Implementation• Typical of decentralized federation configuration, resource seeking approach

Transnational Innovation: Two Emerging Processes

Locally leveraged Local opportunity sensed – and responded

to – by subsidiary Implementation carried out worldwide

Globally linked Shares the resources and capabilities of

many operations New activity is jointly created and managed

The Integrated Network:Locally Leveraged and Globally

Linked

Subsidiaries: Develop specialised resources and capabilities and then share them

Centre

Centre: Co-ordinates flows of people, money and information supporting a complex process of shared strategic decision making

Overall: this is a learning organisation, that is, a knowledge-creating company (Nonaka 1991)

Managing Global R&D Networks (Frynas & Mellahi 2011: 370)

Networking Beyond the Boundaries of the

Organisation The learning organisation has its limits: tends to adopt

evolutionary (small-step, or continuous) rather than revolutionary (episodic, disruptive) patterns of change

Experience of Procter and Gamble (Huston and Sakkab 2006)

example of Pringles potato crisps: application of radically new printing technology to add words and pictures

P&G had adopted the integrated network configuration in late 1980s, but couldn’t make this leap alone

Networking with outsiders (entrepreneurial SMEs) supported cutting-edge new product development

Markides C. And Geroski P. (2005) Fast Second. Wiley ebook: suggests that

SMEs are best at creating radical new markets Established corporations are best at scaling up and

consolidation - so both sides can gain from alliances

Connection to our core text:Frynas & Mellahi (2011) Ch 10

Evolutionary, continuous change is also known as incremental change (pp. 318-9)

Revolutionary, disruptive change is also known as transformational change (pp. 319-20)

Our core text authors have referenced their table on this (p. 319) to UHBS’ own Professor Ralph Stacey – but beware...

In Stacey’s view, transformational change (in products and delivery methods: top down) is different from transformational management processes (interactions which change people’s way of thinking through conversation)

Differences between Incremental and

Transformational Change

Incremental change Transformational change

Management Leadership

Doing things better

or doing more of them

Doing things very differently

or doing different things

Bottom-up Top-down

Fundamental beliefs unaffected Fundamental beliefs changed

Efficiency Effectiveness

Transformational Conversations and

Organisational LearningDe Wit & Meyer (2010: Ch 9, The Organizational Context)

The organizational leadership perspective (Kotter 1990: What Leaders Really Do. Harvard Business Review, 68, 3: 103-111): organizations thrive when a strong leader runs them well

Develops a distinctive vision and decides what to do: proposes transformational change

Inspires others and uses central control to ensure compliance The organizational dynamics perspective (Stacey 2007):

whether leaders like it or not, they are involved in an interdependent relationship with their followers: they struggle to make a difference and on a good day, they engage in transformational conversations

Through the interplay of intentions, people change their thinking

Leaders help order to emerge by setting simple rules, influencing the way followers think when solving problems: people use their learning to make better business decisions

Emergent strategy develops as organized chaos (Brown and Eisenhardt 1998: Competing on the edge : strategy as structured chaos . Harvard Business School Press)

Maybe it depends on their style… (Frynas & Mellahi 2011: 331-333)

Or maybe it depends on the skills of the change agents

who work for them...

Change Agents: Key skills (Frynas and Mellahi 2011: 325-331)

Clear understanding of top management objectives including how and why these change

Political awareness – ability to mediate conflict Sensitivity to the views of employees including

classic phases of the coping cycle (denial, defence, discarding, adaptation, internalization)

Communication and negotiation Team-building and leadership Individual characteristics: energy, enthusiasm,

high tolerance of ambiguity and risk

This Week’s Objectives

After the lecture, seminar and linked readings and reflection, to

Discuss the role of different types of innovation and change in building and sustaining competitive advantage

Evaluate the challenges of managing innovation and change processes within multinational enterprises

Compare and contrast incremental and transformational approaches to change

Identify the role you would prefer to play within the change process – do you see yourself as a manager, a leader, and/or a change agent?