Integration of Innovation and Entrepreneurship with Strategy

Integration of Innovation and Entrepreneurship with Strategy

The integration of innovation and entrepreneurship with strategy can be defined as a vision directed strategic analysis with a core focus on innovative and entrepreneurial behaviors that continuously develop the organization through the identification and development of innovative and entrepreneurial opportunities that result in value creation and sustained competitive advantage. For innovation and entrepreneurship to be ingrained into the very existence of the organization, it must be integrated into the organizational strategy. Organizations like Apple, Dell, and Southwest Airlines capture the essence of a strategy that is unique, innovative, and entrepreneurial in defining and creating market value.

The integration of innovation and entrepreneurship with strategy allows top management to develop strategies that concentrate on (1) competitive advantages that are a core part of strategic management and (2) the identification and development of opportunities for which future competitive advantages can be developed and sustained. It is the simultaneous use of existing advantages and the identification of future opportunities that sustains competitive advantage and the ability to continuously create value and wealth. The integration is beneficial to SMEs and large corporations as it helps SMEs develop their strategies toward competitive advantage and large corporations to become more innovative and entrepreneurial.

The model presented in Figure 4.1 identifies three core dimensions: (1) innovation and entrepreneurial strategic analysis, (2) strategic choice for value creation and competitiveness, and (3) strategic implementation for wealth creation and sustained competitive advantage. The first dimension specifies the key factors influencing the process at different levels, including environmental factors, organizational factors (behavior and climate), and customers and stakeholders. The second dimension focuses on options and choices available from the analysis, specifically focusing on the utilization of resources and the entrepreneurial actions from the first dimension that are used to develop current opportunities while simultaneously exploring new opportunities that will create value. These actions occur primarily at the organizational level. Finally, the implementation of selected opportunities will create advantages for the organization, customers and stakeholders and society through value creation, knowledge, opportunity, competitiveness, and societal developments.

Figure 4.1 The Integration of Innovation and Entrepreneurship with Strategy

Innovation and Entrepreneurial Strategic Analysis

This analysis involves four main areas: (1) the external environment, (2) the entrepreneurial climate, (3) entrepreneurial behavior, and (4) customer and stakeholder focus.

External Environment

The external environment has been recognized as having a strong influence on the existence and effectiveness of innovation and entrepreneurial activity. Monitoring, assessing, and evaluating the external environment to ensure the right decisions are made and actions implemented is not part of a one-time implementation but needs to be continuous in order to ensure organizational success and competitiveness. Different environmental conditions result in different organizational approaches to innovation and entrepreneurship. In times of economic growth and prosperity, innovation and entrepreneurship emerge as a result of key opportunities. During economic recession, innovation and entrepreneurship occur out of necessity as market conditions significantly change and competition is intensified; only the innovative organization will survive.

The external environment affects an organization’s ability to identify or create opportunities and subsequently their ability to develop those opportunities in a competitive advantage. Munificence, dynamism, hostility, andinterconnectedness are important environmental factors for the integration of innovation and entrepreneurship with strategy. Environmental munificence facilitates acquiring resources and the identification of opportunities in addition to the ability to develop the resources and opportunities to create competitive advantage. Organizations seek out environmental munificence, which refers to the level of resources in a particular environment that can support sustained growth, stability, and survival (Dess & Beard, 1984). The environment many organizations face is inherently dynamic and uncertain. Dynamism refers to the extent to which an organization’s operating environment is rapidly changing and subject to high levels of uncertainty. This uncertainty results in an inability to adequately access external environmental conditions, creating ambiguity during the strategic decision-making process. This results in decision makers lacking adequate knowledge for identifying and developing new opportunities. Research has shown that organizations frequently respond to challenging environmental conditions such as those present in dynamic environments by innovating and engaging in entrepreneurial behaviors. Hostile environments incentivize organizations to pursue innovation as a source of competitive advantage. Hostility tends to create threats for the organization and stimulates the pursuit of innovation and entrepreneurship. Theories of interconnectedness, including networks and social capital, explain the paths organizations pursue to build capabilities. Open innovation, discussed in Chapter 3, in which large corporations and SMEs share ideas, knowledge, skills, and opportunities, supports the integration of innovation and entrepreneurship with strategy. Ford engages customers in “what’s next,” taking the organization’s open innovation model to the next level; Philips has established partnerships all over the innovation stages from basic innovation to commercialization; Telefónica has established a network that involves over 1,000 partners, and they have seven research centers mostly in Spain and close to technology parks. By applying ideas from its collaborative network, an organization can fill the innovation gap and maintain the balance between their search to achieve competitive advantage as well as identify and develop opportunities and therefore maintain the entrepreneurial mind-set needed for effective integration. SMEs are able to use creativity to create unique innovation while reducing any inhibiting factors associated with their size and limited resources. As a result of slack resources, large corporations are able to explore opportunities outside their traditional domain and in the process can leverage existing business practices.

Entrepreneurial Climate

An entrepreneurial climate reinforces the development of expected behaviors among individuals throughout the organization. To integrate innovation and entrepreneurship with strategy requires an entrepreneurial climate that (1) is supported and facilitated by top management with an entrepreneurial vision; (2) promotes entrepreneurial actions by pursuing and encouraging the pursuit of innovative and entrepreneurial opportunities that can create new business for the organization or increase competitiveness in the existing business domains; and (3) implements the innovative and entrepreneurial actions through the organization’s core competencies, which can be used to develop opportunities for competitive advantage. Top management is responsible for developing an entrepreneurial climate that is supported with the appropriate structure, systems and culture.

Entrepreneurial Behavior

Entrepreneurial behavior is seen as an important path to improved performance in all types of organizations. Entrepreneurial behavior and strategic and resource capabilities are important for an organization to develop opportunities and achieve competitive advantage as the sources of its long-term success. The entrepreneurial mind-set is manifested through many specific actions. Entrepreneurial alertness, entrepreneurial self-efficacy, and entrepreneurial effectuation are individual level indicators of entrepreneurial behavior. Their measures are grounded in individual level psychological and cognitive theories. Entrepreneurial alertness entails the ability to notice opportunities that have been overlooked. Entrepreneurial leaders with high self-efficacy frequently contribute to enhanced revenue and employment growth in the organization. Drive, passion, and entrepreneurial self-efficacy motivate managers to pursue and realize strategic and entrepreneurial goals that are fundamental to the integration of innovation and entrepreneurship with strategy. Effectuation argues that experts use logic to transform means into new outcomes that they themselves may not have initially anticipated. Cognitive ability to effectuate is used to create opportunities in the environment and to achieve short-term competitive advantages. The motivation and encouragement for innovation and entrepreneurship, combined with the utilization of resources and capabilities, foster an innovative and entrepreneurial culture in the organization and the development of market niches in the environment over time that contributes to value and wealth creation.

Customer and Stakeholder Focus

To benefit from the integration of innovation and entrepreneurship with strategy, the focus must be on achieving an array of objectives that are important to customers and stakeholders. An organization must know what customers value and identify the needs of their customers and then create the differentiated products and services to match those needs. When an organization not only satisfies but exceeds the demands of their customers, they are differentiating themselves from average performers and giving themselves greater opportunity for long-term growth and sustained competitive advantage. If SMEs and large corporations do not engage in opportunity identification and development, an innovative, entrepreneurial organization will introduce a better product that provides more value to customers and take their market away. The unique approach to video rental introduced by Netflix drove Blockbuster into bankruptcy. Similarly, iTunes has taken the market of major music stores, creating closures worldwide.

Strategic Choice for Value Creation and Competitiveness

Based on the innovation and entrepreneurial strategic analysis, top management must make strategic choices that will create value and achieve competitive advantages with the objective of being sustained over time. Top management actions must be comprehensive in synchronizing the various resources while simultaneously addressing both strengths and weaknesses to realize competitive advantages that help them pursue future opportunities leading to sustained competitive advantage and value creation.

Strategic Implementation for Value Creation and Sustained Competitive Advantage

The closer the organization’s strategy is linked to their core competencies and integrated with the internal activities, the easier it will be to implement. The implementation of a strategy that is integrated with innovation and entrepreneurship requires flexibility and adaptability. A truly innovative and entrepreneurial organization that is focused on creating value and sustained competitive advantage recognizes that implementation involves an iterative process; this organization makes all the necessary adjustments to make their strategy successful. A successful strategy creates advantages for the organization, customers and stakeholders, and society.

Organizational Advantages

New technology and innovation is critical for most all organizations. Many organizations are building relationships with university technology development programs as an external source for new technologies and products. Simultaneously, an increasing number of universities have built technology transfer programs in which they develop new technologies and transfer them to the private sector for commercialization. As such, the university becomes a source of R & D for these organizations. Some organizations use acquisitions to gain access to new technologies and highly valuable innovations. These acquisitions are common in the pharmaceutical industry and in other high-technology industries such as software development. Acquisitions are frequently practiced by technology-oriented organizations such as Microsoft and Cisco, with the objective of gaining access to new software ideas and technologies. Another advantage of developing new technologies and innovation is the creation of new knowledge, which usually leads to new market opportunities and contributes to competitive advantage.

Customer/Stakeholder Advantages

Sound implementation is one that focuses on providing value for customers, building value for stockholders, and generating benefits for other stakeholders and wider community. Successful innovations generate new value for customers and stakeholders. Competitors identify the opportunity created by some innovations and aim to develop a modified version that provides customers with goods or services that have greater reliability, customization, accessibility, higher quality, excellent customer service, and a lower cost than other competing organizations.

Societal Advantages

Innovation and entrepreneurial activities are a major contributor to bringing about economic growth and development, creating new jobs, and enhancing market value. Novel innovations can be used to address a number of environmental issues. Innovation and entrepreneurial activity can help build new economic, social, institutional, and cultural environments and thereby provide significant benefits to society at large.

Top Management Support

Top management support as well as the appropriate organizational structure, systems, and culture are necessary ingredients for the integration of innovation and entrepreneurship with strategy. In an innovative and entrepreneurial organization, top management influences and motivates individuals to identify and develop opportunities in search of competitive advantage.

While structures and systems are necessary for the management and control of an organization, they need to have some flexibility for innovation and entrepreneurship to develop. Strategic flexibility involves a willingness to continuously rethink and make appropriate adjustments to the organization’s strategies, structure, systems, and culture. Research has found that an innovative and entrepreneurial organization is more adaptable and flexible to change with decentralized decision making; fewer organizational layers; open channels of communication; and closely integrated R & D, manufacturing, and marketing functions. This flexibility allows an organization to quickly respond to the fast-changing dynamic and complex external environment, thereby creating a position where opportunities can be more readily identified and developed with greater potential to develop competitiveness compared to more bureaucratic organizations.

Culture influences a number of aspects of organizational activity including how people behave and interact. Truly entrepreneurial organizations need to have innovation and entrepreneurship as the core element of their culture. Positive cultures are in line with the organization’s vision, mission, and strategies and help promote desired behavior. Top management must manage a culture that applauds successes, learns from failures, and provides screening mechanisms to facilitate innovation and entrepreneurship. Failure is a necessary part of the innovation process because from failure comes the greatest learning and the development of new models. This is recognized by many companies such as Amazon, Facebook, and Google. Innovative organizations build and develop the right culture and systems that encourages innovative behaviors as well as being willing to accept failures and learn from them. Innovative companies never make the same mistake twice; they make different ones, and most importantly, they learn from them all.

For organizations to successfully balance identifying and developing opportunities, searching for competitive advantage is necessary but challenging in today’s economic environment. Achieving this balance requires a positive culture that is in line with the organization’s vision and strategies, top management support, and an organizational structure that is capable of supporting the dual needs of identification and development. The most effective balance between identifying and developing is influenced by competitive environment in which the organization operates. Top management’s abilities to strategically structure the resources to develop capabilities that can be effectively leveraged within the existing competitive environment support the organization’s efforts to gain competitive advantage and create value and wealth.

Integrating innovation and entrepreneurship with strategy requires a positive culture and an organization to have a supportive top management team and be able to develop the structures and systems that support such a strategy. If, for example, an organization chooses to pursue open innovation as a strategy, there must be a fit between the culture and the strategy, and they must have top management support and be able to develop the capabilities, structures, and systems to support this open/collaborative approach like Xerox. Frequently researchers at Xerox work directly with customers and deploy ethnographic methods to learn about what the customer really wants. The customer is considered a partner in innovation and they encourage what they call “dreaming with customers” about future aspirations.

Building a Customer-Focused Innovative and Entrepreneurial Strategy

Effective innovations create new value for customers and help the organization overcome the challenges that the business may face. Organizations must be creative to develop innovation, and the core of their innovation must be focused on what customers want. Many organizations handle innovation well; this is what gives companies like Amazon, Apple, Facebook, Google, and Procter & Gamble (P&G) a strong competitive advantage. The innovative and entrepreneurial strategy must delivere increasing satisfaction to customers. Organizations must have an innovative and entrepreneurial strategy that provides customers with goods or services that have greater reliability, customization, accessibility, higher quality, and at a lower cost than the leading competitors. This requires analyzing and assessing products and services that the organization offers to its customers and through R & D determine how their value can be maintained and enhanced in the future to an achieve sustained competitive advantage.

The most effective way to think about innovation is to evaluate the customer and their needs, wants, and expectations now and in the next 5 years. Without customers, there is no business. The customer is whom the organization is expected to deliver added value and as someone who expects to receive added value. The focus must be on meeting and exceeding the customers’ needs by the innovation. Apple’s iPhone, iPod, and iPad are all spectacular innovations. They respond to the desire of consumers, taking the creative technology and applying it with further creativity into new consumer electronic devices. The iPhone, iPod, and iPad are great examples of the power of customer focus. By being connected with its customers and identifying a gap and customer need, Apple could apply its creativity to add value. The innovation did not just happen. It was customer-focused strategy and R & D that was the result of Apple’s innovation.

A truly customer-focused organization drives innovation, because innovation is the means by which it satisfies the unmet demands of its customers. Creating structures and systems to empower people to be innovative and entrepreneurial is one of the most effective ways for organizations to activate the creative energies of their people. Combined with top management support and commitment, empowerment gives people the freedom and flexibility to take responsibility for innovation and entrepreneurship. Empowerment in the presence of a strong innovative culture produces energy and enthusiasm to consistently work toward producing innovative outcomes that are aligned with external factors and customer demands.

Summary

The increasingly dynamic, complex, and competitive external environment generates significant challenges for organizations today. Organizations that are adaptable, flexible, responsive to opportunities, innovative, and entrepreneurial are in a stronger position not only to adjust to this environmente but to embrace it and seek and develop the opportunities that achieve their goal to create value and sustainable competitive advantage. No organization is isolated from its external environment, and each must be able to adapt with appropriate strategies.

The integration of innovation and entrepreneurship with strategy gives the organization greater potential to identify and develop opportunities that enhance their competitiveness and create more value. The core objective of strategic management is to successfully develop a strong competitive advantage. Innovation and entrepreneurship are concerned with identifying opportunities that can be effectively developed through the organization’s competitive advantages resulting in enhanced value. Competitors are anyone your customer has access to that can fulfill the same need.

Sustaining innovative and entrepreneurial behavior is the result of top management support and encouragement throughout the organization regarding the value of entrepreneurial actions in creating value and gaining competitive advantage. Supportive organizational structure and systems that are flexible and adaptive are fundamental for innovative and entrepreneurial organizations to achieve the balance between opportunity identification and development. Innovation and entrepreneurship must be embedded into the culture of the organization. Top management needs to recognize the importance of developing and supporting a culture through which innovative and entrepreneurial activities are necessary to create value. The culture must (1) eliminate obstacles that inhibit opportunities, (2) promote teamwork, (3) ensure availability of resources, (4) learn from failure, (5) be flexible, and (6) be totally committed to opportunity identification and development.

The organization should have identified the needs of the customers and have created innovative products and services to match those needs. When an organization satisfies and is capable of exceeding customer needs, they are differentiating themselves from average performers and giving themselves greater opportunity for long-term growth and survival. By doing this, they are putting themselves in a stronger position to attract customers, stakeholders, and suppliers. It is the role and responsibility of strategic management to integrate innovation and entrepreneurship with a strategy that motivates and inspires individuals and teams at all levels to be creative and innovative.

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