Chapter 6

Defining the Organization's

Strategic Direction

2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Strategic Management of
Technological Innovations

I. Industry Dynamics

II. Formulation Tech.

Innovation Strategy

III. Implementing Tech.

Innovation Strategy

2.
2. Sources
Sources of
of
Innovation
Innovation

6.
6. Defining
Defining the
the Firms
Firms
Strategic
Strategic Direction
Direction

10.
10. Organizing
Organizing for
for
Innovation
Innovation

3.
3. Types
Types && Patterns
Patterns of
of
Innovation
Innovation

7.
7. Choosing
Choosing
Innovation
Innovation Projects
Projects

11.
11. Managing
Managing New
New
Product
Product Development
Development
Process
Process

4.
4. Standard
Standard Battles
Battles &&
Design
Design Dominance
Dominance

8.
8. Collaboration
Collaboration
Strategies
Strategies

12.
12. Managing
Managing New
New
Product
Product Development
Development
Teams
Teams

5.
5. Timing
Timing of
of Entry
Entry

9.
9. Protecting
Protecting
Innovation
Innovation

13.
13. Crafting
Crafting aa
Development
Development
Strategy
Strategy

Learning Objectives
A coherent technological innovation strategy
leverages the firms existing competitive
position and provides direction for future
development of the firm.
Formulating this strategy requires:
Appraising the firms environment,
Appraising the firms strengths, weaknesses,
competitive advantages, and core competencies,
Articulating an ambitious strategic intent.

6-3

Key Terms
Porters five-force model
Stakeholder analysis
The role of complements
The value chain
A source of sustainable
competitive advantages
Core competencies

Core rigidities

Dynamic capabilities

Strategic intent

Resources

Capabilities

The Balanced scorecard

Copyright 2014 Pearson Education, Inc. Publishing as

Prentice Hall

Assessing the Firms Current

Position
External Analysis
Two common methods are Porters Five-Force Model
and Stakeholder Analysis.
Porters Five-Force Model
1. Degree of existing rivalry. Determined by number of firms,
relative size, degree of differentiation between firms, demand
conditions, exit barriers.
2. Threat of potential entrants. Determined by attractiveness of
industry, height of entry barriers (e.g., start-up costs, brand loyalty,
regulation, etc.)
3. Bargaining power of suppliers. Determined by number of
suppliers and their degree of differentiation, the portion of a firms
inputs obtained from a particular supplier, the portion of a suppliers
sales sold to a particular firm, switching costs, and potential for
vertical integration.
6-5

Assessing the Firms Current Position

4. Bargaining power of buyers. Determined by number of buyers,
the firms degree of differentiation, the portion of a firms inputs sold
to a particular buyer, the portion of a buyers purchases bought from
a particular firm, switching costs, and potential for vertical
integration.
5. Threat of substitutes. Determined by number of potential
substitutes, their closeness in function and relative price.
Recently Porter has acknowledged the role of complements. Must
consider:
a) how important complements are in the industry,
b) whether complements are differentially available for the products
of various rivals (impacting the attractiveness of their goods),
and
c) who captures the value offered by the complements.

6-6

Assessing the Firms Current Position

Five-Force Model

6-7

Assessing the Firms Current Position

Stakeholder Analysis
1. Who are the stakeholders.
2. What does each stakeholder
want.
3. What resources do they
contribute to the organization.
4. What claims are they likely to
make on the organization.

6-8

Assessing the Firms Current Position

Internal Analysis
1. Identify the firms strengths and weaknesses. Helpful to consider each
element of value chain.

6-9

Assessing the Firms Current Position

2. Assess which strengths have potential to be
sustainable competitive advantage
Rare
Competitive
Valuable
Advantage
Sustainable
Durable
Competitive
Inimitable
Advantage

Resources are difficult (or impossible) to imitate when they are:

Tacit
Path dependent
Socially complex
Causally ambiguous

6-10

Identifying Core Competencies and

Capabilities
Core Competencies: A set of integrated and
harmonized abilities that distinguish the firm in the
marketplace.

Competencies typically combine multiple kinds of abilities.

Several core competencies may underlie a business unit.
Several business units may draw from same competency.
Core competencies should:
Be a significant source of competitive differentiation
Cover a range of businesses
Be hard for competitors to imitate

6-11

Identifying Core Competencies and

Capabilities

6-12

Research Brief

Identifying the Firms Core

Competencies
Gallon, Stillman and Coates offer a step-bystep program for identifying core
competencies.
Module 1 -- Assemble a steering committee, appoint a
program manager, and communicate the overall goals
of the project to all members of the firm.
Module 2 -- Constructing an inventory of capabilities
categorized by type. Assess their strength, importance,
and criticality.
Module 3 Organize capabilities by both their
criticality and the current level of expertise within the
firm for each.
Module 4 Distill competencies into possible
candidates for the firm to focus on. No options should
be thrown out yet.
6-13
Module 5 -- Testing the candidate core competencies

Risk of Core Rigidities

When firms excel at an activity, they can
become over committed to it and rigid.
Incentives and culture may reward current
competencies while thwarting development of new
competencies.
Dynamic capabilities are competencies that enable
the firm to quickly respond to change.
E.g., firm may develop a set of abilities that enable it to
rapidly deploy new product development teams for a new
opportunity; firm may develop competency in working with
alliance partners to gain needed resources quickly.

6-14

Strategic Intent
Strategic Intent
A long-term goal that is ambitious, builds upon and stretches firms core
competencies, and draws from all levels of the organization.
Typically looks 10-20 years ahead, establishes clear milestones
Firm should identify resources and capabilities needed to close gap between
strategic intent and current position.

6-15

Theory In Action
The Balanced Scorecard
Kaplan and Norton argue
that effective performance
measurement should
incorporate:
Financial perspective
Customer perspective
Internal perspective
Innovation and learning

6-16

Discussion Questions
1. What is the difference between a strength, a competitive
advantage, and a sustainable competitive advantage?
2. What makes an ability (or set of abilities) a core competency?
3. Why is it necessary to perform an external and internal
analysis before the firm can identify its true core
competencies?
4. Pick a company you are familiar with. Can you identify some of
its core competencies?
5. How is the idea of strategic intent different from models of
strategy that emphasize achieving a fit between the firms
strategies and its current strengths, weaknesses, opportunities
and threats (SWOT)?
6. Can a strategic intent be too ambitious?
6-17