The document discusses strategies for innovation, including rationalist and incrementalist approaches. The rationalist approach involves analyzing the environment, determining a course of action, and implementing it, while the incrementalist approach involves making deliberate small changes, evaluating the effects, and adjusting the approach. The document also discusses Porter's five forces model for technology and competitive analysis, and analyzing a firm's dynamic capabilities including processes, position, and potential paths. Finally, it notes that while small firms have strengths like agility, they also have weaknesses in developing complex technologies.

1. Theme 3
Developing the Framework for
an Innovation Strategy
Managing Innovation

2. Outline
1. ‘Rationalist’ or ‘Incrementalist’
Strategies for Innovation?
2. Technology and Competitive Analysis
3. The Dynamic Capabilities of Firms
4. Innovation Strategy in Small Firms

3. “Rationalist” or “Incrementalist” Strategies for
Innovation?
describe, understand and analyse
the environment;
determine a course of action in
the light of the analysis;
carry out the decided course of
action.
Rationalist Strategy

4. Rationalist’ or ‘Incrementalist’ Strategies for
Innovation?
 This approach is intended to help the firm to:
 Be conscious of trends in the competitive environment
 Prepare for a changing future.
 Ensure that sufficient attention is focused on the longer
term, given the pressures to concentrate on the day-to-
day.
 Ensure coherence in objectives and actions in large,
functionally specialized and geographically dispersed
organizations.

5. • ‘I think there is a world market for about five
computers.’ (T. Watson, 1948)
• ‘Gaiety is the most outstanding feature of the
Soviet Union.’ (J. Stalin, 1935)
• ‘I cannot conceive of any vital disaster
happening to this vessel.’ (Captain of Titanic,
1912)

6. “Rationalist” or “Incrementalist” Strategies for
Innovation?
Make deliberate steps (or changes)
towards the stated objective.
Measure and evaluate the effects of
the steps (changes).
Adjust (if necessary) the objective and
decide on the next step (change).
Incrementalist Strategy

7. “Rationalist” or “Incrementalist” Strategies for
Innovation?
Incrementalist Strategy
Symptom diagnosis Treatment Diagnosis
adjust
treatment
cure
Design development adjust design test retest operate

8. Innovation Process: definition and main stages
The implications for the processes of
strategy formation:
• Given uncertainty, explore the implications of a
range of possible future trends.
• Ensure broad participation and informal channels
of communication.
• Encourage the use of multiple sources of
information, debate and skepticism.
• Expect to change strategies in the light of new
(and often unexpected) evidence.

9. Technology and Competitive Analysis
The ‘Five Forces’ Driving Industry Competition

10. Technology and Competitive Analysis
Porter’s generic technology strategies

11. Technology and Competitive Analysis
firms must decide between two market strategies
• firms aim at being first to market, based on technological Leadership
Requirements
• a strong corporate commitment to creativity and risk-taking,
• close linkages to major sources and to the needs of customers.
Innovation ‘leadership’
Innovation ‘followership’
• aim at being late to market, based on imitating (learning) from
the experience of technological leaders
Requirements
a strong commitment to competitor analysis and intelligence, to reverse
engineering and to cost cutting and learning in manufacturing.

12. The Dynamic Capabilities of Firms
To be strategic, a capability must be
honed to
a user need
unique difficult
to replicate
So that there are
customers
so that the
products/services
can be priced without
too much regard for
the competition
so that profits
will not be competed
away

13. The Dynamic Capabilities of Firms
strategic dimensions of the firm
Processes Position Paths
the way things are
done in the firm, or
what might be
referred to as
its ‘routines’, or
patterns of current
practice and
learning.
its current
endowment of
technology and
intellectual property,
as well as its
customer base and
upstream relations
with suppliers
the strategic
alternatives
available
to the firm, and the
attractiveness of the
opportunities which
lie ahead

14. Innovation Strategy in Small Firms
Misleading assertions about innovation in small firms

15. Innovating firms have
the following characteristics:
Similar
objectives
Organizatio
nal
strengths
Different
sectors
Technological
weaknesses

16. Innovating firms have
the following characteristics:
Similar
objectives
to develop and combine
technological and other
competencies to
provide goods and services that
satisfy customers better than
alternatives, and that
are difficult to imitate.

17. Innovating firms have
the following characteristics:
ease of communication, speed
of decision-making, degree
of employee commitment and
receptiveness to novelty. This is
why small firms often
do not need the formal
strategies that are used in large
firms to ensure communication
and co-ordination.
Organizatio
nal
strengths

18. Innovating firms have
the following characteristics:
small firms make a greater
contribution to innovation in
certain
sectors, such as machinery,
instruments and software, than
in chemicals, electronics
and transport.
Different
sectors

19. Innovating firms have
the following characteristics:
specialized range of
technological competencies,
inability
to develop and manage
complex systems, inability to
fund long-term and risky
programmes.
Technological
weaknesses