How Established Firms Can Innovate Like Startups

Historically, startups and small business firms have been most successful in creating innovation in contrast to established firms. However, innovation by itself does not differentiate between small and large firms, and any company, therefore, irrespective of size, can innovate successfully. Not every established firm is a failure and not every start-up is successful.

Technology is a source of opportunity, an important driver of change, a source of competitive advantage, and a major driver of competition between established firms and startups. Research indicates that any kind of change in the firm’s external environment offers opportunities for new companies to challenge the established firms. Technological change is a major obstacle for established firms because these firms face difficulties in dealing with technological change. In particular, some technological changes that are very harmful are competency destroying, architectural innovation, and disruptive technologies. Therefore, these forces of change can obstruct the progress in innovation. But if we can understand change and adapt to these changes or initiate a change, we can manage it. By learning how to manage strategic change, an established firm can manage innovation successfully. Here are some useful strategic approaches that can assist established firms in understanding and manage change, and innovate successfully include:

Figure 1. Link between technology and competitive advantage

Manage Change and Innovation Strategically

Figure 1 shows how technology and technological change (or any change) are related to innovation. Innovation forms a key link between technology and competitive advantage, and technological change is linked to innovation through opportunities. But to manage innovation and generate competitive advantage through it, it requires embedding strategic management into the innovation process to compete successfully and generate the needed competitive advantage.

When it comes to generating innovation, established firms are myopic, rigid, bureaucratic, and lack strategic flexibility that requires a long-term commitment toward the development of important resources to meet future innovation challenges. To manage innovation strategically, firms should emphasize innovation in their mission, demonstrate flexibility, and respond swiftly to changes. They should conduct periodic restructuring that involves changes in strategy, structure, culture, and senior staff members to accommodate change and innovation. Additionally, due to a lack of peripheral vision, established firms find difficulty in identifying the right opportunities, and at the same time do not respond or respond slowly to threats. DuPont, once a dominant technological leader at one time, failed to recognize and cope with the threat of low-cost polymers that was coming from Asia. To innovate successfully, firms must know how to strategically manage change (external and internal) and innovation simultaneously. The winners will be those who have a well-articulated product innovation strategy, strategically manage change and innovation simultaneously, minimize innovation risk or remove the barriers to innovation, understand the sources of competitive advantage, and put together the resources and capabilities required to generate innovation.

Become an Ambidextrous Organization

Organizational ambidexterity is part of, or is similar to, strategic management. Organizational ambidexterity is the ability of an organization to explore and exploit simultaneously to enable an organization to gain and sustain a competitive advantage in the long-run. Two types of organizational ambidexterity are most common: structural and contextual ambidexterity. In structural ambidexterity exploration and exploitation, activities are undertaken by different units within the same organization. In contextual ambidexterity, exploratory and exploitative activities are undertaken simultaneously within the same organizational unit. The theory of organizational ambidexterity was developed in recent years, but it has been practiced by successful organizations for decades to become and remain successful. For example, over the past three decades, some successful organizations have simultaneously undertaken new product research and development (R&D) to explore new product opportunities and sustain engineering efforts to sustain the company’s existing products long before the theory of ambidextrous organization was developed.

Develop New Capabilities

One of the most arduous tasks of strategic management is to keep the firm in tune with its external environment to remain successful in the long-run. Established firms generally find difficulties in sustaining the advantage they had before due to a lack of strategic management. Adapting to the external environmental changes and to innovate requires building new capabilities. Building new capabilities requires integration skills to integrate resources. But building new capabilities poses a significant challenge to established firms due to their existing capabilities that are embedded in their structure and culture. Therefore, the same capabilities that the established firm developed over time in the past have now become core rigidities—which means the firm finds difficulty in developing new knowledge and capabilities. Therefore, to overcome this issue, most large firms undertake periodic restructuring to stay aligned with their external environment.

Perform Knowledge Management Activities to Enhance Capabilities

Knowledge (Explicit & tacit) management activities: identifying, developing, retaining, sharing, replicating, transferring, and integrating knowledge, can be used to contribute towards the development of organizational capabilities to create innovation by established firms. Knowledge management activities can help an organization in developing capabilities by harnessing and integrating the knowledge that is present within an organization. It offers enormous potential for enhancing the effectiveness of capability development. A firm can develop new knowledge or combine its existing knowledge to develop new products and processes to create value for the firm. Ikujiro Nonaka’s knowledge conversion framework can be used to convert, systematize, replicate, and transform knowledge to create a massive amount of value. For example, Ford and McDonald’s were able to expand worldwide through replication and systematization of knowledge.

References and Further Reading

1. R. M. Grant, Contemporary Strategy Analysis (United Kingdom: John Wiley & Sons, Ltd., 2013), Chapters 8 and 9.
2. T. L. Wheelen & J. D. Hunger, Strategic Management & Business Policy (NJ: Prentice Hall, 2000), Chapters 1 and 11.
3. Robert G. Cooper and Scott J. Edgett, Product Innovation and Technology Strategy (USA: Product Development Institute Inc., 2009), Chapters 1 and 3.
4. Ashok N., “Managing Innovation through Dual Planning Systems,” A&N Strategy Consulting (June 1, 2017).
5. C.A. O’Reilly and M. L. Tushman, “Organizational Ambidexterity: Past, Present and Future,” Harvard Business Review (May 2013).