Strategic Entrepreneurship – Innovation as Source of Competitive Advantage
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Strategic entrepreneurship – Innovation as source of competitive advantage
Global organizations face the challenge of adapting frequently to meet the needs of their customers, suppliers, and share-holders. Creating value for stakeholders is becoming increasingly difficult even for leading players like General Motors (GM) and Ford. A stream of continuous value-creating innovations by global competitors (e.g., Toyota and Honda) has challenged GM & Ford to reinvent themselves continuously.
The challenge of continuous and dynamic change is affecting firms across multiple industries. These include even the IT Services Industry such as Accenture / IBM / Infosys & TCS and their business models & Service models are changing the nature of competition. The winners and losers resulting from changes in this particular industry remain unknown. Consider a situation where Complete Customer relationship management service for any organization ( which will have been implemented, supported & serviced ) by any of the traditional players being replaced by a cloud offering from an organization Salesforce.com for which payment can happen on pay-per-use model & supported by niche player whose entire business model is predicated on this.
Being able to create a more attractive value proposition for customers is making it quite difficult for some of the more traditional players like IBM or Accenture since that means cannibalization of their existing revenue stream, changing the Business model of service & delivery and altering the Relationship matrix with customers in complete linear model.
Challenging nature of competing in a global environment creates several tension-filled questions for firms:
In what markets should we compete? Should we offer standardized products across all markets or should we modify our products for local preferences?
How much risk are we willing to accept to compete in markets with which we are not deeply familiar? What kinds of skills should we develop in order to become more innovative?
The issues raised by these questions have the potential to create tensions in todays firms. Though all of these tensions (and certainly few more) are important, What is of interest is a particular tension that change creates for firms; specifically, the need for a firm to learn how to simultaneously exploit today that which it does well relative to rivals, while also exploring to determine what it needs to do to be successful in the future. In essence, this tension is between doing what is necessary to exploit todays competitive advantages and exploring today for innovations that can be the foundation for the firms future competitive advantages. We think that the abilityto effectively manage this tension is rapidly becoming a key differentiator between maintaining organizational success and facing dwindling performance over time. The Fortune 100 annual survey rankings indicate that only 26% of the 100 companies listed remained on the list after 20 years and managed to do this successfully.
Firms ability to manage this tension is the core of strategic entrepreneurship. First, we need to understand Strategic entrepreneurship as a concept with the potential to influence the degree of success organizations can achieve while engaging their rivals in competitive exchanges. Second – Strategic entrepreneurship hastwo components: exploration and exploitation, differences in operational activities, organizational structure, and organizational culture that contribute to effective strategic entrepreneurship.
What is Strategic entrepreneurship – Balance between Exploration & Exploitation
Strategic entrepreneurship (SE) is a term used to capture firms efforts to simultaneously exploit todays competitive advantages while exploring for the innovations that will be the foundation for tomorrows competitive advantages. Effective SE practices result in a firm being able to form a balance between opportunity-seeking (i.e., exploration) and advantage-seeking (i.e., exploitation) behaviors. Effective SE helps a firm position itself such that it is capable of properly responding to the types of significant environmental changes that face many of todays organizations and helps the firm develop relatively sustainable competitive advantages.
Sustainable advantages are not only rare & valuable, but also difficult for competitors to fully understand, and difficult to imitate as a result of that lack of understanding. As this initial discussion of SE suggests, continuous innovation is at the core of what firmsare able to achieve as a result of balancing exploitation and exploration.
2.1. The challenge of strategic entrepreneurship: In spite of its benefits, firms find it difficult to balance exploration and exploitation due to several reasons
The outcomes of investments made in the firms exploratory capabilities are uncertain. Stakeholders. For e.g. Sup-pliers often are uncertainty avoiders, exploratory actions may lack appeal, due to their experimental nature and the lack of certainty that positive outcomes will accrue from them. Employees initially find exploratory actions to be difficult and perhaps undesirable. In general, those working in companies prefer the known to the unknown. Exploitation, which takes place by exercising familiar organizational routines, is preferred at the expense of exploration.
The fragility of the process used to transition from exploration to exploitation is a second reason. The operational, structural, and cultural changes must take place for a firm to transition from to exploiting current competitive advantages as the source of todays competitive success to exploring for new opportunities (as well as new ways to take advantage of them). Thus, when transitioning, the firm moves from a concentration on diversity with the intent of creating newness (i.e., seeking new opportunities, new market space, and new advantages) to a concentration on successfully using current skills and routines as the source of todays advantages.
Although SE has great promise, the complexity of the individual sets of actions, and the actions taken to transition fromexploration to exploitation and from exploitation to exploration, as well), poses significant challenges.
2.2. An expanded view of strategic entrepreneurship
Strategy is concerned with the firms
long-term development – no of elements such as decisions regarding scope, how resources are to be acquired and managed,