12.2. STRATEGIC CHOICES IN TECHNOLOGICAL INNOVATION

At the broadest level, several strategic choices exist that serve as general guidelines for innovation, providing direction so that efforts ultimately support the overall goals of the organization. These strategic choices are:

• Degree of innovation

• Types of innovation that are to be emphasized

• The overall approach to the market

• Resource commitment

12.2.1. Degree of Technological Innovation

How much innovation is expected to contribute to the organization in comparison to the present core business activities? Andrew and colleagues (2007) provide a range of common measures related to technological innovation. These include inputs such as financial resources and people; processes such as resource efficiency, actual versus planned time to market, and milestone compliance; and output measures such as number of new products and services launched, market share growth, new product success rates, number of patents filed, and publications written. The choice of the measures most appropriate will vary depending on an organization's circumstances and goals (e.g., profit or not-for-profit status). It is wise to use a set of metrics versus only one. Collectively these metrics should reflect not only research input, but its application, that is, innovation. For example in a company, R&D as a percentage of sales alone is not a measure of innovation, as innovation implies that the R&D leads to a product that is marketed. Booz Allen Hamilton's annual survey of innovative companies distinguishes between those that dedicate the most funding to R&D and those that leverage it in the marketplace as measured by profitability per dollars of R&D invested (Jaruzelski and Dehoff, 2007). In 2007, for example, only two of the top 20 companies that invested the most in R&D—Nokia and Samsung—also leveraged it well. Similarly, in a government, not-for-profit, or university setting that emphasizes innovation, metrics should address not only investment in research, but also success in licensing and spin-off activity, or some other appropriate measure of how research findings are used for commercial or noncommercial purposes. For organizations that emphasize process innovation, appropriate measures include increased efficiency, cost reduction, and improvements in cycle time or resource use.

For degree of technological innovation, broad questions might include the following:

What percentage of revenues (or profits) should be from existing core business?

What level of investment should be directed toward the core business?

What percentage of revenues (or profits) should be derived from innovation?

What level of investment should be directed toward innovation?

12.2.2. Types of Innovation

In addition to the emphasis placed on the core business and innovation, another important strategic choice regards the types of innovation that will be pursued. As discussed before, R&D based innovation can be roughly categorized into incremental and radical, which vary in risk and expected reward. Ideally a portfolio of projects that vary in risk is best. For example, Anthony and colleagues (2008, p. 47) suggest a 50/30/20 split, targeting core improvements/logical extensions of the core business/ and new growth initiatives.

The key questions here are:

Of revenues (or profits) from innovation, what percent should come from:

Incremental improvements on the organization's current offerings in the market?

• Improvements on existing product or service offerings

• Derivatives from existing product or service offerings

• Process technologies that make production of existing products and services more efficient

Radical innovation that involves creation and development of breakthrough products or processes

12.2.3. Overall Approach to the Market: Timing and Presence

Two major strategic concerns relate to market entrance:

Note that the decision to follow in the market does not preclude becoming a dominating player, as the follower can gain the benefit of mistakes made by the first mover and/or by taking a different path. IBM-compatible personal computers lagged behind those of Apple, but eventually asserted leadership in the marketplace. Similarly, choosing to focus on a niche market does not necessarily relegate an organization to secondary status. If multiple products are continually provided to the niche market, revenues can grow to substantial levels. Consider Intel, and its dominance of PC-based microprocessors. Another example is Bang and Olufsen, which has consciously chosen to pursue a high-end niche in consumer electronics in which their reputation in performance and design remains unmatched.

12.2.4. Resource Commitment: How Will the Innovation Strategy be Supported in Funding and Time?

The choices between emphasizing core business and innovation; distributing investment among incremental and radical innovations; pursuing market leadership or followership; and dominant versus niche presence are a function of attitude as well as resources. An approach that emphasizes radical innovation in which the organization is first to arrive in the market it intends to dominate, requires substantial commitment to the spectrum of internal R&D, as well as engineering, design, and marketing. This offensive approach demands high risk tolerance, a long-term time horizon, and the ability to make wise and fortuitous bets on innovation that ultimately pays off handsomely. If these strategic choices are to have meaning, resources—in people and dollars—need to be set aside for different types of innovation initiatives consistent with strategic objectives.