A New Strategic Approach for the Innovation Economy - Poised Strategy
Having considered the deficiencies of the traditional strategic management approaches for the ICT sector in Chapters 1 and 2, this section of Chapter 3 will now analyse an approach to strategic management proposed by Davenport et al. (2006) in their book, Strategic Management in the Innovation Economy. This builds on the complexity and competing on the edge approaches to strategy discussed earlier in this chapter.
The strategic management approach formulated by Davenport et al. (2006) was called ‘Poised strategy’ and was defined as managing multiple business models in order to sustain disruptive value innovation in collaborative business networks (Davenport et al. 2006: 168). This definition reinforces the points made earlier in the chapter regarding the need to avoid a single mind-set or strategy (multiple business models), the importance of adopting a systems approach with interdependent agents (collaborative business networks) as well as their being punctuated equilibrium between incremental and radical innovation (sustaining and disruptive value innovation). Each component of the ‘Poised Strategy’ definition will now be analysed in more depth starting with:
Poised strategy: the concept of ‘organisational poise’ according to Davenport et al. (2006: 168) referred to a dynamic capability rooted in a specific mind-set, range of diverse dexterities/ambidextrous capabilities (Tushman and O’ Reilly 1996) and an ability to effectively rejuvenate itself (i.e. to positively re-energise and change itself). The opposite to this would be an ‘unpoised strategy’ where the organisation had a limited managerial mind-set, a narrow range of dexterities (e.g. unable to move into diverse or emerging business landscapes) and/or paralyzing inertia (lack of positive, creative energy for change). The high innovation companies in the ICT sector such as Google, Apple and Intel and Amazon therefore have poised strategies but many of the incumbents in the industries they have disrupted have suffered from unpoised strategies i.e. books, newspapers, music, banking and travel.
Poised strategy and organisational energy relate very closely to the systems theory (Bertalanffy 1972) discussed earlier in the chapter since all single, traditional business models are subject to a high degree of entropy i.e. the loss of energy in closed business systems (Pascale 1999). Poised strategy, therefore, focuses on rejuvenating the enterprise through dynamic re-energising activities based on multiple business models in various ecosystems.
Multiple business models: business models are the strategies or architectures that an organisation uses to create value. In the stable industrial economy, firms would adopt a single business model in a particular industry. Formulating only one successful business model that becomes quickly ‘traditional’ is inadequate in the innovation economy. Therefore, successful high innovation firms are the ones that are able to manage several business models simultaneously (Davenport et al. 2006). A firm needs a portfolio of business models with new business models replacing traditional ones. This is something that Amazon has been very good at as it continuously expands its range of products as well as adjusting its pricing strategies through bundling and other changes to its marketing mix. This is very similar to Brown and Eisenhardt’s (1998) time pacing discussed earlier in the chapter where firms launch new products on a regular basis.
This does not mean that a traditional business model should be closed down, just that the traditional and new/emerging/incubating/develop- ing business models have to be managed simultaneously. The new business models may also eventually supersede the traditional business model and make it obsolete i.e. Microsoft having to move on to a cloud software platform away from its traditional PC-based software platform despite the latter’s continued profitability and high margins. A hypothetical range of business models include the traditional business model, the reinvented business model, the experimental business model and the new incubating business model. Google is a good example of a firm that currently has a range of different business models that complement one-another. Its traditional model is its original browser based search engine. Google has reinvented this business model through the roll out of the Android mobile software platform and app store which enables users to access the search engine via mobile devices and not just PCs and laptops. The experimental new business models that are currently under development are semantic search and artificial intelligence (deep learning) that are designed to upgrade the current accuracy of its search engine and take the search process to a completely new level. Google has seven products that claim a billion or more users each (The Economist 2016) whereas Facebook has four products that each attract audiences of over a billion including Whats App, Messenger, Groups and the main social network (Business Insider 2016).
Sustaining and disruptive value innovation: firms need to possess both sustaining (incremental) and disruptive (inflective and radical) innovation capabilities (Christensen and Raynor 2003). Radical innovations frequently lead to the establishment of disruptive technology platforms which then evolve incrementally over time in a similar way to the personal computer (PC) and mobile computing platforms.
Collaborative business networks: the innovation economy has become increasingly networked. Knowledge and innovation for new value creation arise from collaborative relationships in value networks particularly business ecosystems (Iansiti and Levien 2004) - which we will discuss in Chapter 4 - and technology clusters such as Silicon Valley (Porter 1998). The Internet and ‘open’ innovation (crowdsourcing) are also a key success factors (Chesbrough 2003, 2010; Von Hippel 2005).
The poised strategy approach (Davenport et al. 2006) proposes that a company is viewed not as a member of a single industry but as part of a business ecosystem (Moore 1996) that crosses a variety of industries and that it is open to multi-dimensional knowledge impacts and influences (ecosystem theory will be discussed in more detail in Chapter 4). From an ecosystem perspective, the boundaries of the firm and industry are regarded as variable and shaped by many actors in the business community (Tiwana 2014). The strategy focus of an individual firm is to co-shape and co-perform with other players in the business community and to build coopted capabilities (including customers) in the ecosystem, often around new innovations. The critical dimension of an ecosystem is that it spans a variety of industries, stakeholders, organisations, markets and customers and not only those limited to an organisation’s traditional industry, customer base and supply chain. According to Davenport et al. (2006: 179) this is a reflection of a new business reality that highlights a proliferation of new industries, the blurring of traditional boundaries and the deconstruction of old industries.