People Innovation Excellence

LINKING STRATEGY AND INNOVATION (Part 1)

Oleh Hendry Hartono, S.E., M.M., Erwin Halim, SPt., M.M., Yohannes Kurniawan, S.Kom., S.E., MMSI. and Yerki Teguh Basuki

Abstract Strategy and innovation are not related, and to have relation among the two, it needs a synergy between strategy and innovation. This paper proposes a conceptual model that synergize among the two. Innovation becomes strategic when it is fully integrated into the fabric of the organizational planning and management process. Organizations typically have several strategic themes or focus areas, such as: Operational Excellence, Sustainability, or Strategic Partnering. Innovation can be a strategic theme, as well. As a theme, Innovation can be viewed through each of the four perspectives of the balanced scorecard. The research methods using literature review as a systematic search of published work to find out what is already known about the intended research topic, find out what has been done in terms of the problem that is being investigated and to ensure that duplication does not occur, and to identify and analyze all information written about a topic, but also to gain any insight and to have understanding the problem that is being investigated. In this paper, we have shown how innovation can be addressed as a strategic theme, part of a balanced scorecard that includes the other themes that matter to the organization as well.

Keywords: SMEs, business environment, Indonesia, analysis, information system.

1. Background

In today’s competitive environment, innovation is becoming more and more relevant, mainly due to three major trends: intense international competition, fragmented and demanding markets, and diverse and rapidly changing technologies. Firms that are adapted to the needs and wants of target customers are in a better position to create a sustainable competitive advantage (Alegre-Vidal et al., 2004). Dobni (2010) argue that enhancing the innovative ability in organization is one of the most important levers to increasing profitability and growth in organizations. Innovative firms are more successful over long term if they are more creative, have desire to succeed, possess a common sense of purpose and constituency, and they are empowered (Dobni, 2010). This mean firm must understand the relationship between strategy and innovation, and they have identified the configurations that are best suited to their environment, and also know how the business will achieve its objectives (Dobni, 2010; Stankevice and Jucevicius, 2010).

Dobni (2010) argue that it is important not to confuse strategy with innovation. Innovation has been broadly defined by both academics and practitioners; however it is nothing more than a state of being while strategy, also widely defined – is nothing more than a process of doing. By definition, the two are not related – not even second cousins. Unfortunately, managers try to piggy back the two only to discover that the “process of doing‟ with all of its budgets, levels, and timelines stifles the “state of being.‟ Managers have to understand that innovation is achieved through an imperative internalized by employees, and not as a strategic planning goal.

The forces that embed innovation in an organization are quite different than those that guide strategy. Here are some differences. First, innovation is exploitative and unpredictable – premised on a market orientation (Dobni, 2010) value creation and transference, and defining new opportunity space. The strategy process is focused on planning and control. Second, consistent with planning and control – strategy involves budgets, schedules, time frames and cycles, and reporting hierarchies that lead to desired outcomes. Third, strategy formulation is analytical and intuitive, and based on a platform of rational instrumentalism – often forcing organizations to forecast the future based on past experiences (Grant and Jordan, 2012). These are often easy to copy by competitors. Innovation on the other hand works quite differently. It sees organizations defining a desirable future state, and then working toward that state. Innovation is not bounded by a schedule, or monopolized by structure and rules. In the light of this, we raise the research questions:

  • How achieving synergy between strategy and innovation?
  • How build innovation into firm’s strategy?
  • How can be structured in order to get a solid conceptual model?

2. Methodology

The research methods using literature review as a systematic search of published work to find out what is already known about the intended research topic. A literature review allows the researcher to find out what has been done in terms of the problem that is being investigated and to ensure that duplication does not occur. Literature review that using in this paper is not only to identify and analyze all information written about a topic, but also to gain any insight and to have understanding the problem that is being investigated.

3. Literature Review and Conceptual Framework

Innovation is a strategic option for improving the organization and making it more competitive (et al., 2005: 1159). As it is referred to the study of Hitt et al. (1997) and Tidd and Bessant (2009), innovation is defined as the doors opening to both global and international competitive advantage through: providing the marketplace with new or unique products/services; creating entry barriers that provide the necessary resources to develop innovation through learning; and creating new values that reshape the rules of competitive environment (Montes et al., 2005: 1159).

Innovation is very important, especially for companies that produce technology-driven products, with the risk of technological obsolescence and in environments characterized by competitive intensity, technological and market dynamism. Organizations around the globe are encountering a joint challenge that is the need to improve the performance to capitalize on rapid change, and to establish or recapture competitive advantage to ensure their survival, profitability and successful running in dynamic competitive environment. Innovativeness of firms and organizations depends on internal factors such as the firm’s innovative capability, size and structure, learning orientation and strategic orientation and external factors such as network of partners, external communication and the industrial environment in which the company is located.

The experts define two main categories of innovation: First, Breakthrough Innovation (O’Conner, 2009; A.Koen et al., 2010) – truly new products, services or business models that fundamentally disrupt customer buying patterns and competition in the industry or operating environment. Personal computers, the internet, and nanotechnology are good examples of breakthrough innovation. The mythology of breakthrough innovations usually includes images of the lone inventor working away in a garage, or “skunk works” separated from the politics of a parent corporation. But, in fact, many everyday products we use today – such as the Internet – were originally breakthrough innovations generated through public-private collaborations in federal agencies such as NASA and the Department of Defense. Second, Sustaining Innovation (Larson, 2000; Liddle and El-Kafafi, 2010) – incremental improvements in products or services that extend the life of or build upon what was once a breakthrough. The introduction of a new version of Windows would be an example of sustaining innovation, and, before that, the annual introduction of new models in the auto industry (Honda CRV type for example). In the government sector, examples would include automating services such as passport applications using the Web (Ditjen Imigrasi, www.imigrasi.go.id ) – to use new technology to deliver mandated services more efficiently and effectively. Sustaining innovation is a much more “manageable” process, and many large corporations like Microsoft excel at it. Breakthrough innovation, on the other hand, is often messy, unpredictable, and may even create conflicts within an organization as the breakthrough disrupts entrenched interests and ways of doing things.

Conceptual Model

On the basis of above discussion, the following hypothesized conceptual model is how achieving synergy between strategy and innovation.untitled


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