Summary Changing Businesses
Strategically
Course objectives ✓
Analyse why previously successful companies fail to sustain their competitiveness in the wake
of new technological and/or business model innovations.
Develop ideas to revise a company’s business model to leverage its core competencies in
innovative ways.
Appraise the value of external knowledge for innovation and identify appropriate sources for
valuable external knowledge.
Define a company`s innovation ecosystem and describe the role of complementary external
parties in developing new strategies to maintain competitive advantage.
Select appropriate leadership practices to guide a company through strategic change.
Table of Contents
Summary Changing Businesses Strategically......................................................................1
Session 1: Changing environment and inertia.....................................................................2
Changing a business strategically...................................................................................................................2
Sources of inertia............................................................................................................................................4
How to overcome inertia?..............................................................................................................................5
Session 5: Business model innovation.................................................................................7
What is a business model?.............................................................................................................................7
Why a new business model?..........................................................................................................................8
Business model transformation......................................................................................................................9
Competing with dual business models.........................................................................................................10
Session 6: Open innovation..............................................................................................13
Knowledge-based view of the firm on open innovation..............................................................................14
Session 7: Strategic alliances and strategic change...........................................................19
Strategic alliances – why? – RBV..................................................................................................................20
Alliances and competitive advantage...........................................................................................................21
The relational view.......................................................................................................................................22
Development of trust...................................................................................................................................23
Reformulation of the RBV.............................................................................................................................25
Session 8: Governance in innovation ecosystems..............................................................26
Innovation within ecosystems......................................................................................................................27
Governance of ecosystem transactions........................................................................................................28
Boundaries of the firm – Knowledge-based view.........................................................................................30
Boundaries of the firm – transaction cost theory........................................................................................31
Session 9: Leadership and strategic change......................................................................32
Leaders and strategic change.......................................................................................................................33
Motivating people.........................................................................................................................................34
Challenges of leading change.......................................................................................................................34
,Session 1: Changing environment and
inertia
In this session (objectives):
How can new technologies and business models change the competitive landscape in an industry?
Why are incumbents (established companies in an industry) badly hit by these changes?
How can incumbents embrace new developments and stay competitive.
Readings:
Sull DN. 1999. Why good companies go bad. Harvard Business Review 77(4): 42-+.
Kapoor R, Klueter T. 2015. Decoding the Adaptability–Rigidity Puzzle: Evidence from Pharmaceutical Incumbents’ Pursuit
of Gene Therapy and Monoclonal Antibodies. Academy of Management Journal 58(4): 1180-1207.
Case:
Capabilities, Cognition, and Inertia: Evidence from Digital Imaging
Tripsas, M., & Gavetti, G. (2000). Capabilities, Cognition, and Inertia: Evidence from Digital Imaging. Strategic
Management Journal, 21(10/11), 1147-1161.
Case question: Could Polaroid have avoided its decline?
Was it at all possible? Why or why not?
Why did Polaroid go down?
What should Polaroid have done?
New technologies and business models change the competitive landscape in an industry by
redefining how customer value is created. New technologies are developed constantly, but
their impact on companies depend on whether new business models are needed or not.
Hence it is important to draw distinction between invention and innovation
Companies need to adapt to changing value perceptions to remain competitive. There are
many successful companies that go down rapidly, not because they lack the new
technologies, but because they cannot adapt to changing realities of competition.
Sustaining technologies those for which no new business models are need
Disruptive technologies those for which new business models are needed
Changing a business strategically
Successfully adapting a business to change competitive landscape has three dimensions:
Phycological: the managers and employees need to be psychologically convinced
that change is needed, and ready to implement necessary change actions.
Technological: companies should be able to develop necessary technological
capabilities, or otherwise access them.
Relational: companies need to have relational capabilities to develop and manage
their collaborations with external partners.
2
,Why is it difficult for companies to adapt to changing environmental conditions?
Example: Why did Nokia fail?
Nokia was too late to realize that the future of mobile phones was touchscreen. It
could also be the case that they just did not believe in the value creation of
touchscreen.
They insisted on their unpopular Symbian operating system for too long rather than
embracing Android.
Still, Nokia spent 20 billion euros on R&D between 2007-2010
Why can’t good firms adapt?
Due to Inertia: A tendency to do nothing or remain unchanged.
Managers’ mindsets are shaped by old ways of doing business which made them
successful so far.
Organizational processes evolved to run the current business efficiently are difficult
to change
Investing in new resources to embrace the new technologies or business models
involves difficult trade-offs in resource allocation decisions
Incumbents are too fixated on how they learned to create customer value, and struggle
when new technologies or business models require them to revise the way they create
value.
Population ecology theory
Organizations, like living organisms, are born, grow and die. In order to survive and grow,
organizations need to be able to replicate their outputs (products & services) consistently
and efficiently by develop their processes:
Design of a process Application of the
(e.g., new product process (start developing
development process) new products)
Learning by doing
Refinement of the
process (how can the
process be enhanced)
This cycle makes organizational processes more efficient but also more rigid (difficult to
change or adapt):
Due to conflicts of interest among organizational members it is difficult to make
agreements about how to change the existing processes.
Environmental changes, which require new processes, also create uncertainty: it is
difficult to understand how existing processes should be changed to make them
more effective.
3
, The rigidity of the processes can result in organizational inertia.
Example: Nokia found out they had to change their software (already way too late) but was
too afraid to admit the inferiority of their software. Also, their product development was set
up in such a way, that they specified the new phone, designed it and then produced it
without refinement.
Sources of inertia
1. Strategic frame rigidity
Strategic frames are the mindsets that shape how managers see the business world and how
they believe customer value should be created:
What business are we in?
How do we create value?
Who are our competitors?
Which customers are crucial?
For managers who have been successful by relying on their strategic frames to make
decisions, it is difficult to accept that a new mindset is needed.
2. Routine rigidity
Organizational routines are established procedures to carry out organizational tasks i.e., the
way things work in an organization. the cycle of population ecology theory
Organizations learn how to deal with situations and develop practices and procedures.
Over time, these practices and procedures are perfected and become automated responses
to business situations (they become locked-in routines). Routines are useful because they
enable efficient operations however, they are also hard to change, or rigid because prevents
employees from considering new ways to work.
3. Resource rigidity
The inability of established organizations to change the resources in which they invest.
Incumbents tend to invest in resources that have been useful to develop a competitive
advantage in the past. They hesitate to invest in new resources that have become important
due to new technologies and business models.
Incumbents fail to realize the importance of new resources and fear of losing their current
customers. Also, constraints can be placed by investors and capital markets due to the fear
of stocks losing their value.
4
Strategically
Course objectives ✓
Analyse why previously successful companies fail to sustain their competitiveness in the wake
of new technological and/or business model innovations.
Develop ideas to revise a company’s business model to leverage its core competencies in
innovative ways.
Appraise the value of external knowledge for innovation and identify appropriate sources for
valuable external knowledge.
Define a company`s innovation ecosystem and describe the role of complementary external
parties in developing new strategies to maintain competitive advantage.
Select appropriate leadership practices to guide a company through strategic change.
Table of Contents
Summary Changing Businesses Strategically......................................................................1
Session 1: Changing environment and inertia.....................................................................2
Changing a business strategically...................................................................................................................2
Sources of inertia............................................................................................................................................4
How to overcome inertia?..............................................................................................................................5
Session 5: Business model innovation.................................................................................7
What is a business model?.............................................................................................................................7
Why a new business model?..........................................................................................................................8
Business model transformation......................................................................................................................9
Competing with dual business models.........................................................................................................10
Session 6: Open innovation..............................................................................................13
Knowledge-based view of the firm on open innovation..............................................................................14
Session 7: Strategic alliances and strategic change...........................................................19
Strategic alliances – why? – RBV..................................................................................................................20
Alliances and competitive advantage...........................................................................................................21
The relational view.......................................................................................................................................22
Development of trust...................................................................................................................................23
Reformulation of the RBV.............................................................................................................................25
Session 8: Governance in innovation ecosystems..............................................................26
Innovation within ecosystems......................................................................................................................27
Governance of ecosystem transactions........................................................................................................28
Boundaries of the firm – Knowledge-based view.........................................................................................30
Boundaries of the firm – transaction cost theory........................................................................................31
Session 9: Leadership and strategic change......................................................................32
Leaders and strategic change.......................................................................................................................33
Motivating people.........................................................................................................................................34
Challenges of leading change.......................................................................................................................34
,Session 1: Changing environment and
inertia
In this session (objectives):
How can new technologies and business models change the competitive landscape in an industry?
Why are incumbents (established companies in an industry) badly hit by these changes?
How can incumbents embrace new developments and stay competitive.
Readings:
Sull DN. 1999. Why good companies go bad. Harvard Business Review 77(4): 42-+.
Kapoor R, Klueter T. 2015. Decoding the Adaptability–Rigidity Puzzle: Evidence from Pharmaceutical Incumbents’ Pursuit
of Gene Therapy and Monoclonal Antibodies. Academy of Management Journal 58(4): 1180-1207.
Case:
Capabilities, Cognition, and Inertia: Evidence from Digital Imaging
Tripsas, M., & Gavetti, G. (2000). Capabilities, Cognition, and Inertia: Evidence from Digital Imaging. Strategic
Management Journal, 21(10/11), 1147-1161.
Case question: Could Polaroid have avoided its decline?
Was it at all possible? Why or why not?
Why did Polaroid go down?
What should Polaroid have done?
New technologies and business models change the competitive landscape in an industry by
redefining how customer value is created. New technologies are developed constantly, but
their impact on companies depend on whether new business models are needed or not.
Hence it is important to draw distinction between invention and innovation
Companies need to adapt to changing value perceptions to remain competitive. There are
many successful companies that go down rapidly, not because they lack the new
technologies, but because they cannot adapt to changing realities of competition.
Sustaining technologies those for which no new business models are need
Disruptive technologies those for which new business models are needed
Changing a business strategically
Successfully adapting a business to change competitive landscape has three dimensions:
Phycological: the managers and employees need to be psychologically convinced
that change is needed, and ready to implement necessary change actions.
Technological: companies should be able to develop necessary technological
capabilities, or otherwise access them.
Relational: companies need to have relational capabilities to develop and manage
their collaborations with external partners.
2
,Why is it difficult for companies to adapt to changing environmental conditions?
Example: Why did Nokia fail?
Nokia was too late to realize that the future of mobile phones was touchscreen. It
could also be the case that they just did not believe in the value creation of
touchscreen.
They insisted on their unpopular Symbian operating system for too long rather than
embracing Android.
Still, Nokia spent 20 billion euros on R&D between 2007-2010
Why can’t good firms adapt?
Due to Inertia: A tendency to do nothing or remain unchanged.
Managers’ mindsets are shaped by old ways of doing business which made them
successful so far.
Organizational processes evolved to run the current business efficiently are difficult
to change
Investing in new resources to embrace the new technologies or business models
involves difficult trade-offs in resource allocation decisions
Incumbents are too fixated on how they learned to create customer value, and struggle
when new technologies or business models require them to revise the way they create
value.
Population ecology theory
Organizations, like living organisms, are born, grow and die. In order to survive and grow,
organizations need to be able to replicate their outputs (products & services) consistently
and efficiently by develop their processes:
Design of a process Application of the
(e.g., new product process (start developing
development process) new products)
Learning by doing
Refinement of the
process (how can the
process be enhanced)
This cycle makes organizational processes more efficient but also more rigid (difficult to
change or adapt):
Due to conflicts of interest among organizational members it is difficult to make
agreements about how to change the existing processes.
Environmental changes, which require new processes, also create uncertainty: it is
difficult to understand how existing processes should be changed to make them
more effective.
3
, The rigidity of the processes can result in organizational inertia.
Example: Nokia found out they had to change their software (already way too late) but was
too afraid to admit the inferiority of their software. Also, their product development was set
up in such a way, that they specified the new phone, designed it and then produced it
without refinement.
Sources of inertia
1. Strategic frame rigidity
Strategic frames are the mindsets that shape how managers see the business world and how
they believe customer value should be created:
What business are we in?
How do we create value?
Who are our competitors?
Which customers are crucial?
For managers who have been successful by relying on their strategic frames to make
decisions, it is difficult to accept that a new mindset is needed.
2. Routine rigidity
Organizational routines are established procedures to carry out organizational tasks i.e., the
way things work in an organization. the cycle of population ecology theory
Organizations learn how to deal with situations and develop practices and procedures.
Over time, these practices and procedures are perfected and become automated responses
to business situations (they become locked-in routines). Routines are useful because they
enable efficient operations however, they are also hard to change, or rigid because prevents
employees from considering new ways to work.
3. Resource rigidity
The inability of established organizations to change the resources in which they invest.
Incumbents tend to invest in resources that have been useful to develop a competitive
advantage in the past. They hesitate to invest in new resources that have become important
due to new technologies and business models.
Incumbents fail to realize the importance of new resources and fear of losing their current
customers. Also, constraints can be placed by investors and capital markets due to the fear
of stocks losing their value.
4
