3000 words strategic innovation in 24 hours

Targeting innovation and implications for capability development

Dave Francis a , John Bessant

b,*

a Centre for Research in Innovation Management (CENTRIM), University of Brighton Brighton, UK

b School of Management, Cranfield University, Cranfield, Bedfordshire MK43 0AL, UK

Abstract

Innovation is often described in terms of changes in what a firm offers the world (product/service innovation) and the ways it creates and

delivers those offerings (process innovation). Arguably this definition is insufficient since it does not take into account two other areas where

innovation is possible-market position and business models. Market position relates to the situation where an established product/service

produced by an established process is introduced to a new context; here the innovation management challenge is concerned with issues like

adoption behaviour and technology transfer. Business model innovation relates to the situation in which a reframing of the current

product/service, process and market context results in seeing new challenges and opportunities and letting go of others.

Each of these poses challenges for the ways in which innovation is organised and managed—what we term innovation management

capability. The paper explores some of these challenges and also looks at the additional issues raised by discontinuous innovation, moving

beyond the steady state conditions of ‘doing what we do but better’ to a new set of conditions in which ‘doing different things in different

ways’ becomes the norm.

q 2004 Elsevier Ltd. All rights reserved.

Keywords: Innovation; Targeting; Innovation capability; Discontinuous innovation

1. Introduction

Since the Palaeolithic period (Curwin, 1954) some, but

not all, human societies formed enterprises that created new

or improved artefacts, devised ’better’ processes, developed

new ways of selling and devised alternative models of

organising (Diamond, 1997). These enterprises were

innovative—they found ways to exploit the latent potential

of ideas. Innovation can be defined simply as “the successful

exploitation of new ideas” (DTI, 1994). Others have defined

innovation more elaborately, but in similar terms; for

example (Baumol, 2002) writes that innovation is:

“the recognition of opportunities for profitable change

and the pursuit of those opportunities all the way through

to their adoption in practice”.

Embedded in these definitions is the notion that

innovation can be managed. For example, Drucker (1994)

argues that innovation is a core process for a firm; he

suggests that: “in…a period of rapid change the best-

perhaps the only-way a business can hope to prosper, if not

survive, is to innovate. This is the only way to convert

change into opportunities. This, however, requires that

innovation itself be organised as a systematic activity”

(Preface 1).

It follows that enterprises that are better able to manage

innovation than others and demonstrate a record of

successfully exploiting new ideas can be said to possess,

at least for a period of time, a superior ’innovation

capability’. Developing such capability is an important

strategic issue since innovation plays a key role in survival

and growth of enterprises. Baumol (op cit) argues that,

“virtually all of the economic growth that has occurred since

the 18th century is ultimately attributable to innovation”.

This is also true at the level of the firm. Tidd et al. (1997) in

their review of the field conclude that:” Management

research suggests that innovative firms—those which are

able to use innovation to differentiate their products and

services from competition—are on average twice as profit-

able as other firms”.

The words ’on average’ in Tidd et al’s assessment are

important. The contribution of innovation to the profitability

of a firm is not straightforward. Some innovation initiatives

have proved to be dysfunctional, occasionally leading to

catastrophic losses. Even an ’excessive’ rate of innovation

can be disadvantageous as Yoffie and Cusumano (1999)

illustrated when considering the increasing resistance of

0166-4972/$ - see front matter q 2004 Elsevier Ltd. All rights reserved.

doi:10.1016/j.technovation.2004.03.004

Technovation 25 (2005) 171–183

www.elsevier.com/locate/technovation

* Corresponding author. Tel.: þ44-1234-751-122; fax: þ44-1234-751-

806.

corporate clients to rapid product developments by

Netscape in the mid-1990s (Yoffie and Cusumano 1999).

So innovation capability needs to include the ability to make

such strategic assessments.

It is reasonable to assume that an innovative firm must

generally possess ’innovation capability’—an underlying

capacity to gain advantage by implementing more and better

ideas than rivals. However, innovation capability may not

be a unitary set of attributes—just as physical fitness can be

sustained in different ways so different kinds of innovation

may require distinctive approaches. Indeed, it may be that

the capability needed to support some types of innovation

conflicts with that needed to support other types. (For

example, this situation is central to the argument surround-

ing the ‘innovator’s dilemma’ in dealing with both

sustaining and disruptive technologies. (Christenson, 1997).

2. Targeting innovation

An important aspect of innovation is its functionality—

i.e. the uses made of innovation capability. We refer to this

as ’targeting’. The well-known case of a Japanese company,

Komatsu Ltd., helps us to understand the importance of

targeting the exploitation of innovation capability. In the

1960s Komatsu made dumper trucks for the local market.

The chairman, Ryoichi Kawai, decided that Komatsu would

strive to topple Caterpillar from being the undisputed

number one in the EME (Earth Moving Equipment) sector.

This statement of strategic intent was called ’Maru-C’-

which means, approximately, ’encircle Caterpillar’. The

executives at Komatsu did not know how they would

achieve their strategic intent, but it provided an overriding

direction that guided initiatives in quality management,

product design, marketing and so on. Komatsu grew

stronger and, in the 1980s, Caterpillar was plunged into

severe loss (more than $1 billion over 11 quarters) caused

mainly by competition from Komatsu. Ryoichi Kawai took

the company through four distinct stages on its path from

obscurity to beating Caterpillar in many core markets. The

four stages were:

† improve quality

† reduce costs

† develop innovative products

† devise new methods of sales and financing

These waves of focused innovation were undertaken

sequentially. The argument used by Komatsu’s manage-

ment was that undertaking too many initiatives at the same

time would fragment effort and permit non-achievement.

The Komatsu case demonstrates that it is possible to target

innovation capability on firm-specific strategic goals and

that these vary over time.

3. The four ‘P’s of innovation targeting

When Komatsu sought to improve quality, reduce costs,

develop innovative products and devise new methods of

sales and financing they did more than develop new or

improved products. They had to improve processes, change

their marketing and think about their company in a new way

(as a global not Japanese firm). This is typical. Innovation

capability is not confined to improving products: it can be

targeted in four main ways. Fortuitously, these all begin

with a ‘P’.

P1 innovation to introduce or improve products;

P2 innovation to introduce or improve processes;

P3 innovation to define or re-define the positioning of the

firm or products;

P4 innovation to define or re-define the dominant

paradigm of the firm.

These 4Ps are not tight categories: they have fuzzy

boundaries. Nor are they alternatives: firms can pursue all

four at the same time. There are linkages between them; a

firm using innovation capability for positioning, for

example, will be highly likely to introduce or improve

products. It is possible to define P3 and P4 as variations of

re-framing—either concerned with what the offerings

the organisation provides or what identity it pursues

(Tidd et al., 1997). However, the 4Ps provide a structured

approach to examining the opportunity space for

innovation.

4. Innovation in product

New product and service development is an obvious

target for innovation capability and can be considered on

several dimensions. For example (Wheelwright and

Clark, 1992) identify criteria that differentiate products

including number, timing and rate of change of product

platforms, whether they are variations or derivatives, the

frequency of introduction/refresh rate, relationship with

strategy and degree of modularity. They point out that

product innovation is influenced by the state of industry

maturity:

In relatively young industries, such as medical instru-

ments, every development effort appears to be a platform

effort (to broaden the firm’s market coverage), with

incremental changes targeted primarily at correcting

deficiencies in the platform products.

The resource requirements for product development can

vary over time—with the development of product platforms

requiring more effort over a sustained period. A firm may be

able to plan for several generations of products over a life

cycle with derivatives in between. Here, innovation can be

D. Francis, J. Bessant / Technovation 25 (2005) 171–183172

seen as strategy-driven and deliberate rather than emergent

or serendipitous (Randale and Rainnie, 1996).

Product innovation is also applicable to service firms 1

whose ’products’ are, to some extent, created in real time.

For example (Singh, 1991) notes that in Singapore Airlines,

“the innovative spirit gave the travelling public the first

slumberettes on Boeing 747 upper decks, jackpot machines

to relieve boredom and round-the-world fares”.

The issue of timing can be significant. (House and Price,

1991) cite a McKinsey report that suggests that, “on

average, companies lose 33% of after-tax profit when they

ship products six month’s late, as compared with loses of

3.5% when they overspend by 50% on product develop-

ment” (92). The management of the product development

provides a complex decision-taking task for the firm.

Uncertainty and risk can rarely be avoided and rules of

game theory can seem more applicable than direct cause and

effect relationships (McDonald, 1963).

The process of new product development can, in itself, be

the target of innovation. Arguably the greatest resource in

the future for product innovation will be in the use of the

internet for accessing customers and, using mass-customi-

sation and agile techniques, it may be possible for firms to

devise a distinctive product for each customer (Goldman

et al., 1995). Here, the product is presented as an ’envelope

of possibilities’ rather than a pre-determined entity. This

notion presents intriguing challenges; it may become

possible for a customer to participate actively in the

development of a unique product.

At one level the notion of innovation in products offered

is simple. All a firm has to do is to find ways of providing

superior functionality and/or price and signal this to the

market. It can be argued that any initiative in which the

added value exceeds the added cost by an acceptable margin

should be undertaken. Such a stance is simplistic—as the

following case example of ABC Lighting demonstrates,

product development requires making decisions with

unknown consequences, making ’bets’ and channelling

limited resources.

5. Managing product innovation within ABC Lighting

ABC Lighting 2

in 1990 had more than 8000 products in

their catalogue, some of which were slow-moving, lacked

competitive advantage or were priced more highly than

competitors’ offers. An obvious remedy would be to go

through the catalogue and determine to innovate with some

products and cut out others. Why was not this done? The

view of top management was that a pruning of the product

list could prove counter-productive as ABC Lighting’s

strategy was to offer a ’total solution for the building

contractor’ rather than a partial offer of superior products.

Some managers argued that the firm had to offer certain

categories of products at low levels of profitability in order

to be able to fulfil all the requirements of large contracts that

were generally offered to a sole supplier. In addition, each

product put through the factory bore a share or burden of the

factory’s cost overhead. It could be that, if a marginally

profitable but large volume product was cancelled, the

added burden on other highly profitable lines, perhaps

smaller in volume, might be sufficient to propel them into

loss.

Managers realised that decisions about innovation in

products offered could have multiple effects on market

perceptions and was linked in somewhat obscure ways to

profitability. Criteria used to make decisions could not be

readily quantified. For example, no one could say how many

contracts would be lost if ABC stopped supplying

Emergency Lighting. Product development was given

significant resource in ABC Lighting but was limited and

some initiatives required more or different forms of effort

than others. The added value of intensive product develop-

ment could frequently only be assessed by surmise;

competitors’ intentions in the area were rarely clear 3

and,

lastly as mentioned above, the link with the firm’s

overarching product policy was complex.

Historically, several of the fundamental technological

innovations in lighting had been invented by ABC Lighting,

including halogen lighting. ABC Lighting had developed

the concept, proven it, taken out patents, devised complex

production machines and assessed the potential market as

’huge’. From such a technological base the business

question became ’should we develop a halogen light

product range?’ and, since the ingredients of competitive

advantage appeared to be present, the answer was ’yes’.

ABC Lighting’s range of halogen lighting products was

launched and rapidly became world-leaders. The product

found a ready market amongst commercial designers and

profit margins were well above average. However, other

major players, notably Philips, saw the rapid growth of the

halogen lighting market and invested considerable research

resources in devising alternative technologies. It was not

long before ABC Lighting saw its margins dropping and

competitors’ products being made in volumes beyond the

capacity of ABC Lighting’s factories.

The initial reaction of an observer is to say ’well it’s a

story of a firm that couldn’t capitalise on their advantage,

but at least they had the benefits of excellent margins at

1 The distinctive features of a service have been defined as Irons (1993).

Managing Service Companies: Strategies for Success. Wokingham,

England, Addison-Wesley: (1) They are transient-leave only memories or

promises. (2) Cannot be separated from the person of the provider. (3) They

cannot be stored. (4) Standardisation is only partly possible. (5) Constant

supervision is almost impossible. (6) The consumer is a participant. (7) The

consumer is a participant. 2

Case material drawn from a presentation at INSEAD in March 1994.

Certain details have been disguised.

3 There were cases where competitors deliberately set out to confuse the

company and try to cause it to abandon certain product development

processes or ’waste’ resources developing others.

D. Francis, J. Bessant / Technovation 25 (2005) 171–183 173

the beginning’. This was true but developing the halogen

lighting range absorbed a huge amount of resource from the

managing director, the R&D lab, production engineers and

marketing staff. It was the focus of a great deal of strategy

formulation and problem-solving effort. In effect, the

decision to develop the halogen product deprived other

products of development resources. 4

ABC Lighting provides a useful case to assist in the

understanding of the interplay between management

decision-making, industry logics and new product develop-

ment. Here was a company with a long history, a full range

of firm-specific capabilities, a uniquely talented R&D

facility, global scope and a strong market presence being

unable to survive as a light sources manufacturer. They were

too small a player in an industry where economic logic

favoured huge producers. This did not apply in the lighting

fittings business, which was retained and operated success-

fully in markets ruled by a different strategic logic.

It can be seen from this example that managing

innovation in product can be a complex task in which

branding policies, market development trajectories, industry

logics, resource availability, technological opportunism,

intrapreneurship and other factors influence decisions.

Accordingly, it would be incorrect to define product

innovation ’merely’ as an internal middle-level managed

process—rather it is a major element of strategy. Targeting

innovation capability on developing new and/or improved

products can involve multiple actors engaged in complex

and inter-linked processes with a single end in view—

creating value at an acceptable cost for the customer.

6. Innovation in process

Processes are widely (Clarysse et al., 1998), accepted as

a target for innovation initiatives. Processes are sequences

of activities, often proceeding horizontally across the

organisation, that are transformations. 5

There is consider-

able scope in improving the operation of existing processes,

through taking out waste of various forms and optimising

them for high performance. (Gallagher et al., 1997). For

example, new technology can add precision, improved

training can increase conformance or process mapping can

identify time wasted in unnecessary activities (Stalk Jr.

1993). Much of the ‘lean thinking’ agenda is based on this

principle.

There is also considerable scope for identifying new

process routes which offer better performance along one or

more dimensions. For example, the history of the chemical

industry is based on a series of continuous improvements to

established processes punctuated by occasional introduction

of novel process which radically shifted the physical and

chemical rules (such as moving from batch to continuous

processing or changing the thermodynamics) and in doing

so enhanced yields by an order of magnitude.

Processes interact, sometimes in complex ways (Hey-

gate, 1996). In a simple organisation, for example a dentist’s

reception area, 6

there may be processes in place for

registering patients, keeping records, stock management,

making bookings, arranging rotas, logging staff time,

arranging maintenance work, cleaning the waiting

room, reminding patients of forthcoming visits and so on.

At least some of these processes will be interdependent and

core processes like maintaining hygiene will be particularly

important. Innovation in processes in this relatively simple

environment is unlikely to be coherently managed—

different agents will play distinctive roles and ideas for

improvement arise from a variety of sources. For example,

there is a likelihood that reception staff will notice

weaknesses in some processes or see opportunities and

take initiatives to bring about improvements themselves

without reference to senior personnel (Hummel-Kohler and

Kristof, 1997). From time to time, problems or opportunities

may occur that require a formal review and changes will be

made on a planned basis. The dentists, who have the highest

status in the system, will make suggestions or issue

instructions—as may patients and suppliers. Moreover,

trade journals will contain occasional articles on improving

reception services that give inspiration. The dental practice

may decide to submit itself to an overarching set of

disciplines like ISO 9000.

It can be seen that ownership of innovation in processes

in the dentist’s reception area is likely to be diffuse, even

though there may be a practice manager in a co-ordinating

role (Sirkin and Jr, 1990). There are a variety of sources of

critical observations and improvement ideas and several

ways in which decisions are taken to initiate change. Such

complexity in the ownership of process innovation is typical

although major processes, like the layout of a new

automated production line, will generally be managed

using a systematic approach. This is more difficult to

achieve where sub-processes evolve in a number of ad hoc

ways (McHugh et al., 1995). Those directly involved may

4 During the later stage of this case study ABC Lighting reported a loss on

its light source business and sold it. 5

The term ’transformations’ is derived from systems theory. Each

process in an organisation is conceptualised as a system with defined inputs,

transformation processes and outputs. Systems models have been influential

since socio-technical systems Trist (1978). On Socio-Technical Systems.

Sociotechnical Systems: A Sourcebook. J.J. Sherwood. San Diego,

University Associates: 43-57. began to be articulated in the 1950s and

open systems planning was conceptualised in the 1960s McWhinney

(1972). Open Systems and Traditional Hierarchies. nternational Conference

on the Quality-of-Working-Life, Arden, Institute for Developmental

Organization.. At the strategic level Porter (1985). Competitive

Advantage: Creating and Sustaining Superior Performance. New York,

The Free Press. used the underlying philosophy in his concept of the value

chain. A more recent iteration of organisational analysis using the systems

metaphor is re-engineering Hammer and Champy (1993). Reengineering

the Corporation: A Manifesto for Business Revolution. London, Nicholas

Brealey Publishing..

6 This example was suggested by comments by Roper (1996). Explaining

Small Business Growth and Profitability, NIERC, Belfast.

D. Francis, J. Bessant / Technovation 25 (2005) 171–183174

be the best people to identify improvement possibilities and

effect change (Bessant, 1992). There can be multiple actors

dealing with multiple processes in multiple ways.

The diversity of agents playing roles in process

innovation means that they tend to develop without an

overall coherence. Accordingly, they can be inefficient,

patchy and/or inherently contradictory. Approaches such as

business process re-engineering (Hammer and Champy,

1993) seek to overcome such weaknesses, identify core

processes and subject them to intensive development.

Process innovation can be facilitated by systematic

analysis and by comparative benchmarking. Specific

techniques include: process mapping, activity analysis,

constraints analysis, kaizen, problem analysis, video

recording, modelling, time compression, statistical

analysis, pilot experimentation, process management,

problem-solving fora and cost structure analysis. These

techniques have the effect of raising consciousness about

problems and opportunities, thereby increasing the

probability that innovative initiatives can be undertaken

(Burgess, 1994).

Not all process innovations are within firms. (Perry

et al., 1999) describe a form of process innovation at the

level of the value stream or supply chain. In the early

1990s the textile, clothing and footwear industries in

Australia were in danger of being overwhelmed by more

efficient foreign suppliers. The Australian government

funded the ’Quick Response Program’ to facilitate

increases in speed-to-market. This took the form of a

series of workshops that included participants from all

components in a supply chain. The results showed

improvements of between 74% and 100% on key

indicators over four years. Interestingly, the development

of mechanisms for open communication was considered

just as significant by participants as the adoption of a

standard for electronic data interchange.

Processes present a fertile and extensive set of targets for

innovation. Multiple small improvements can accumulate

into large gains. Major processes can be improved or

re-engineered, perhaps incorporating new technologies. All

processes, including those at the strategic apex of the firm

and within the value stream, are potential candidates.

7. Innovation in position

A positional innovation does not significantly affect the

composition or functionality of the product 7

but the

meaning of the product in the eyes of the potential customer

(Kim and Mauborgne, 1999a – c) and/or the market

segments selected as targets.

Positional innovation is not mentioned by some com-

mentators on innovation management who prefer to adopt

a narrower product-process definition. Nevertheless, the

realisation that innovation can be positional is supported by

some publications. For example (Guest et al., 1997) point

out that, for some products, “success depends on finding

innovative ways of bringing to the market products that

appeal to potential buyers”.

It can be argued that the capacity of firms to be

innovative in product positioning has grown over the past

50 years for two main reasons. Firstly, there has been an

improvement in the prowess of marketing and advertising

agencies to construct meanings in potential customers

enabled by their increasing skills, availability of market

research data and the proliferation of means of persuasion

(Tull and Hawkins, 1993). Secondly, low cost data

processing means that customer profiling can be elabo-

rated, practical and instant. Using this capacity presents

specific management challenges. In a mass market billions

of pieces of information could be collected about

customers and potential customers but marketing

decisions need to be based on a limited number of salient

factors, hopefully interpreted with brilliance and insight.

(Kim and Mauborgne, 1999a – c) suggest that managers

need to “(i)magine a market universe that is made up of

known and unknown market space” and they argue that

there is a need to “(b)reak free from competitive

convergence”.

Most cases of positional innovation relate to firms,

brands or products. However, institutions can go through the

same process (Irons, 1993). For example, the Labour party

successfully positioned itself as ’New Labour’ before the

1997 general election in the UK. This required a host of

changes in personalities, power-structures, policies and

practices, apparently following a similar change model to

that adopted by commercial firms.

Product positioning can be summarised as ’what the firm

would like typical customers from targeted groups to feel

and say about their product (and company)’. There are many

examples of successful positioning and re-positioning

(Gummesson, 1987). For example, the Daily Mail reposi-

tioned itself as the leading newspaper in the UK for women

readers in the 1980s, the BBC repositioned itself as a global

media corporation in the 1990s, Henley Management

College repositioned itself as Britain’s largest internet-

based provider of MBA degrees between 1987 and 1993 and

Manchester United FC positioned itself as a fashion brand in

1994 – 96.

The central feature of an innovative product position-

ing strategy is the management of identities, through

advertising, marketing, media, packaging and the

manipulation of various signals. These topics are

extensively discussed in the literature of brand manage-

ment (Doyle, 1997). Positional innovation can change the

characteristics of a market or create a market that does

not exist.

An example is the global brand of ice cream—Haagen-

Daz (Joachimsthaler and Taugbol, 1995). This brand was

7 Product attributes may be changed but these are minor compared with

the revised marketing stance.

D. Francis, J. Bessant / Technovation 25 (2005) 171–183 175

developed by Grand Metropolitan, whose marketing

specialists 8

noted in the 1980s that ice-cream was associated

with children or unsophisticated adults. They decided to

create a hitherto unknown product—an ice-cream for

sophisticated adults that fell into the category of an

’affordable luxury’. Many initiatives followed, including

product formulation, packaging, advertising, selection of

distribution channels and global product standardisation

codes. Haagen-Daz has become a global brand of adult ice-

cream and tapped a new market. The case suggests that

product identity can be as significant as tangible product

attributes. Some positional innovations are so radical in

thinking that they could be considered to be innovations in

paradigm (discussed below)-the development of Haagen-

Daz ice cream would be an example, as neither the concept

of an adult ice cream, nor the ambition of global branding

for ice cream, had been previously developed it required

multiple innovations of mind-set to launch and develop the

product.

Product positioning includes the four elements of

innovation (idea—adoption—application—benefit) and

may excel at the first stage (Beatty, 1997). For example,

some would use the word ’brilliant’ for the notion of

associating a leading brand of toilet paper with the

gentleness of a puppy or connecting a brand of petrol

(perhaps the ultimate commodity product) with the vitality

of a tiger. The final element in the innovation process,

harvesting benefits, is difficult to evaluate but this can be

attempted (Tull and Hawkins, 1993).

Firms can seek build a distinctive market position by

the management of identity. It is a frequent occurrence to

hear a person choosing to buy a product as it comes from

Sony, Gap or Harrods. In these cases the firm itself can

be seen as a brand in itself. (Kim and Mauborgne,

1999a – c) discuss the case of Southwest Airlines and

comment that by:

“focussing on the key discriminating factors of both

flying and driving, and by eliminating everything else,

Southwest has inserted itself creatively between

airlines and surface transport, thereby creating a new

and highly profitable market”.

It is significant that the word ’creatively’ is used in the

assessment of Southwest’s strategic processes. Kim and

Mauborgne assert that the company’s possessed a superior

ability to perceive a latent need and devise a business

system to fulfil it. This is an example of positional

innovation and Southwest’s new business model was,

arguably, an innovation in paradigm (see below)—demon-

strating that the two can be interdependent. More generally,

Kim and Mauborgne suggest that it “is in the space between

substitute industries that tremendous opportunities exist for

creating new markets”. If this is correct, then positional

innovation is particularly potent from a managerial

perspective.

8. Innovation in paradigm

This final ’P’ is more contentious. Not all scholars

support the notion that ’paradigm’ is a legitimate target for

innovation capability. However, it is not unknown, for

example (Rickards, 1999) observes: “Today the term

’paradigm’ has found its way into the vocabulary of

organizational management, in such terms as ’paradigm

switch’ and ’paradigm breakthrough’. The expressions are

broadly taken to imply that a traditional belief system-the

old paradigm-has been replaced by a new way of under-

standing, a new paradigm”.

The collective mind-set of the organisation, referred to

by Yves Doz as the ’organisational orthodoxy’, 9

has a

sense making function. But it is not always functional as

it can persist beyond the point of relevance. As (Grove,

1998) points out, there are times (’strategic inflection

points’) when managers may know that their current

approach is failing but may not know what new

paradigm to adopt. Here a ’pre-framing’ activity can be

required-that can be termed ’exploration’, ’learning’ or

’entering a void’.

Innovation in paradigm includes a requirement for

learning, including self-reflection (Kolb, 1983) and/or

discourse. In a metaphorical sense it is necessary for actors

in an organisation to ’look into the mirror’ and see

themselves as having adopted just one of several options

in the way that they have framed reality and opportunity.

Here reflection is a key enabler and the level needs to be

deep and, potentially, transmutational (Cooperrider and

Srivastva, 1987).

Although there is a significant degree of fuzziness in

definition, it is useful to categorise two types of innovation

in paradigm. These are:

Type A—innovation in inner-directed 10

paradigms

Type B—innovation in outer-directed paradigms

(business models)

8.1. Type A—inner-directed paradigms

Type A innovation capabilities targets organisational

values and people management policies. (Abrahamson,

1991) calls these ’administrative technologies’. These can

be important as, for example (Steele, 1975) asserted

“(o)ne of the most important concepts to emerge from

8 Additional information regarding this case was gathered from an

ex-marketing manager of Haagen-Daz in confidence by the first author.

9 Personal communication to the first author.

10 The concept of inner-directed and outer-directed is adapted from

Riesman et al. (1953). The Lonely Crowd: A Study of the Changing

American Character. New York, Doubleday.

D. Francis, J. Bessant / Technovation 25 (2005) 171–183176

behavioural science consulting is, in my opinion, the

notion of social invention. This is simply the realisation

that social settings do not have to be taken only as they

occur by chance”.

The significance of changes in inner-directed paradigm is

underlined by (Binney and Williams, 1997) who suggest:

“Underlying the patterns of behaviour that define

organisations are the mental models that people have,

the assumptions and frameworks that enable them to

make sense of the world… it is these mental models or

paradigms that ultimately organisations have sought to

change”.

There are cases in which such ’mental models’ appear

to have changed. In the late 1960s, General Foods (GF)

had a low performing dog food plant in Chicago. In 1969

the company decided to relocate the factory on a green-

field site in Topeka, Kansas and to use the new plant as a

laboratory for innovative forms of work organisation

including autonomous work groups, payment for skills,

commitment to the quality of work life, operator-led

problem solving, participative decision-making and non-

authoritarian leadership styles (Ketchum and Trist, 1992).

The initiative was led by the factory director, Ed

Dulworth, 11

and supported by Professor Richard Walton

as a facilitator (Walton, 1977).

This was one of the first experiments in ’innovative work

organisations’ to be the subject of systematic research and

was managed according to a distinctive set of values, many

of which were derived from a socio-technical systems

framework (Trist, 1978). The socio-technical experiment at

Topeka stimulated root-and-branch innovation in the social

organisation of a factory. According to Dulworth, in

consequence, a wealth of process innovations followed

which resulted in superior performance and gave employees

an enriched experience of work. The adoption of a new

organisational paradigm is more than a process innovation

(discussed above) as it requires a shift in values and

associated power structures. In the case of the Topeka GF

plant, many processes were revolutionised—as Dulworth

said in an interview with this researcher, “we challenged all

of the givens”. The case also highlights another important

aspect of innovation. It can service other stakeholders than

the management, shareholders and customers. Employees

can also benefit (Ketchum and Trist, 1992).

The Topeka case, and similar experiments in organis-

ational form, had innovation as a superordinate goal. This

was pointed out by Ketchum and Trist (1992) who was

organisation development manager for GF during the 1970s.

Ketchum wrote twenty years later:

“equally important is the replacement of a climate of

low risk taking with one of innovation. This implies

high trust and openness in relations. All of these

qualities are mandatory if we are to transform

traditional technocrat bureaucracies into continuous

adaptive learning systems”.

Ketchum and Trist described the origins of the ’new’

paradigm in the 1970s, which they termed ’third-order

diagnosis of problems of organisational performance’.

Importantly, industrial plants that adopted this new

paradigm were up to 40% more productive than their

counterparts (21) at the time when a financial evaluation

was conducted. Ketchum and Trist describe these as

“organizational innovations”.

The underlying principle in Ketchum’s observation is

that bureaucracy is unfriendly to innovation. Somewhat

contentiously he, and others, for example (Nutt and Backoff,

1997), argue that innovation capability cannot be achieved

by the installation of systematic management of new

product and process development. Rather, the fundamental

social architecture of organisation needs to be rebuilt to be

’innovation friendly’ (Hurst, 1995). Equally disadvanta-

geous, in their view, was the alienating and de-humanising

effect of working in a bureaucratic form of organisation

where individuality was perceived as a threat (see Beynon,

1973 for a vivid description of this form of social setting).

Thus far an inner-directed paradigm shift has been

discussed as if it were a single event. There is evidence that

a flow of paradigm changes, a form of episodic revolution in

paradigms, is needed—at least in some industries. This is

suggested by comments on Microsoft from one of its senior

managers:

“what distinguishes Microsoft is that we’re not afraid of

making paradigm shifts, largely because our senior

management is very technical. We understand the

technology, which at the end of the day is really what

drives the industry.” (Cusumano and Selby, 1996)

Cusumano implies that paradigms can be managed, and

that it can be important to do so. It is reasonable to assume

that explicit paradigm management would be especially

important in industries where the structure of thinking is

advancing in generational ways.

8.2. Type B—innovation in outer-directed paradigms

(business models)

Type B innovations of paradigm relate to business

models-these are the system of coherent, comprehensive,

explicit and/or implicit constructs used by managers

to understand their firm and shape its development

(Senge, 1992).

This form of innovation in paradigm is outer-directed in

the sense that it seeks to provide an organisational formula

11 Two tape recorded interviews between Ed Dulworth and the first author

(made in 1973 and 1975) were consulted in preparation for this section of

the article.

D. Francis, J. Bessant / Technovation 25 (2005) 171–183 177

for thriving in, generally, a competitive environment.

Hence, the test of the efficacy of a business model is

whether it provides the necessary conceptual architecture

for a firm to gain and sustain competitive advantage. As

such, it is more extensive than the market-facing positional

innovation discussed above. An early comprehensive

approach to strategic positioning was described in (Tregoe

and Zimmerman, 1982). They argued that firms need a

Driving Force (a dominant paradigm) and that they can

only have one at a time. Tregeo and Zimmerman described

8 12

different possible driving forces, each of which

required a distinctive pattern of assets, capabilities and

strategies. The relationship between the Driving Force

concept and innovation capability was discussed by (Tregoe

et al., 1989):

“There is a wide range of opportunities for future

business development facing just about every organiz-

ation: deeper penetration of existing markets with

existing or improved products; expanding to new

markets with current or improved products; developing

or acquiring new products for current markets; develop-

ing new products for new markets. No organization can

pursue all future business development options simul-

taneously. If it does, scarce resources become dissipated,

as do the creativity and energy of those involved.

Focus is lost, and with it the discipline to achieve the

vision”.

(Slywotzky et al., 1999) extended this approach and

argue that there are unifying principles around which a

firm’s activities need to be aligned. It is possible, Slywotzky

et al argue, to identify 30 or so patterns, several of which

may be unfolding at the same time. They argue that what is

frequently needed is innovation at the level of business

design-the structure of thinking shared by the power elite of

the firm that determines policy and practice. Describing

firms that had found their way out of a profitless position

(for example, Swatch) Slywotzky and his co-authors write:

“In each of these cases, business design innovation

brought the business back to sustained profitability. In

each of these cases, at least one player created a

paradigm shift, a change in the rules of the game, in

order to create new kinds of value that had not

previously existed in the industry”.

There can be multiple innovations to be undertaken in

pursuit of a new business design, each of which is aligned to

the new meta-patterns selected. This raises the interesting

issue of how alignment is to be managed of a rapid flow of

innovation initiatives in product, process (market) position

and (organisational) paradigm.

The choice of business model shapes innovations in

product, process and position. The Slywotzky framework

provides an intermediate level of analysis between the

generic dynamic resource of innovation capability and the

specific needs of a particular organisation. Rather than

saying, “all organisations are the same” or “all organisations

are different” the approach asserts that, “you need to

understand what your dominant strategic thrust is and the

attributes that firms in your classification need. How

effective are you in each of these?”

A change in business model can have revolutionary

implications. Keith Todd, then Chief Executive of the IT

company ICL (now part of Fujitsu) commented on the

extent of change in the company in the following way: “ICL

started as a manufacturing company. Now it has no

factories—we put together service products. For companies

like ours, these are fundamental discontinuities. They’re on

the scale of the Berlin Wall coming down” (Jackson, 1998).

Sub-systems within organisations can also be the targets

for paradigm innovation. Indeed, they are a natural location.

For example, a training function may move from promoting

a business school-based approach to executive education to

running an in-house action learning programme (Ulrich,

1997) or a finance function may move from cost analysis

to activity based costing (Srinidhi, 1998). Such paradigm

shifts can be the spur for multiple innovative initiatives

(Ulrich, 1995).

Perhaps the most dramatic forms of reconfiguration

business model follows acquisitions, mergers, joint ventures

and alliances. These may be undertaken specifically to

provide an appropriate resource base for innovation, as

seems, for example, to have been the rationale for the

merger between AOL and Time Warner, described (Hill and

Waters, 2000) as “revolutionising the way that news,

entertainment and the internet are delivered to the home”.

In this case the Internet distribution capability of AOL was

merged with the content provider, Time Warner, following a

’convergence strategy’. That this can be a risky endeavour is

shown by the decline in share values after the merger.

9. Moving beyond the steady state

Up till now we have been considering the 4Ps

framework in the context of mapping innovation under

what might be termed ‘steady state’ conditions, in which

firms are concerned to ‘do what they do, but better’. As

we have seen there is considerable scope within this

envelope, especially in exploring all of the four target

areas. But it is also clear that organisations need to

develop the capacity to explore ‘outside the box’ and

identify radical ‘do different’ options for innovation, again

using all of the four dimensions. The danger is that if they

12 Unfortunately for academic researchers the Driving Force concept is

company-confidential as it is used as the foundation for an extensive

strategic consulting business. The company were forthcoming with

published material but would not allow access to their extensive case

library.

D. Francis, J. Bessant / Technovation 25 (2005) 171–183178

do not contemplate such moves-even if they appear to

conflict with current portfolio of activities-they risk being

usurped by competitors, often new entrants to their

marketplace. Such discontinuities can arise through

technological changes moving the frontier of possibilities

but discontinuity can also emerge on the demand side with

the emergence of totally new markets or where the rules

of the game are significantly changed within existing

markets Table 1 lists some examples of discontinuity and

the ‘do different’ challenge.

The need to consider discontinuities means that

the framework of 4 Ps needs to be expanded, as shown in

Table 2, to take account of the whole innovation agenda.

The problem in terms of developing innovation

capability is that the set of behavioural routines and

accompanying structures and processes to deal with

innovation of the ‘do better’ variety may not be sufficient

to deal with the challenges of ‘do different’. As

Utterback and other commentators point out, under

conditions of discontinuity within industries incumbent

firms tend to do badly and are sometimes displaced by

new entrepreneurial players (Utterback, 1994). At the

limit there may be conflict between the routines for ‘do

better’ and ‘do different’ innovation. For example, as

Christensen points out, the ‘good practice’ model for ‘do

better’ innovation creates a self-reinforcing and virtuous

circle in which close working with customers gives

insight into their innovation needs which can be

translated into better products and services to serve

those markets well (Christenson, 1997). But whilst this is

extremely effective for dealing with an existing market, it

is a powerful filter cutting out signals about new or

emerging markets with different characteristics. Conse-

quently even ‘good’ firms which had been successful in

innovation with previous combinations of technology and

market find themselves surprised and their markets

disrupted by new entrants with a different proposition-

and sometimes they make the discovery at too late a

stage to respond effectively.

The implications of this are that organisations need to

ensure that their ‘innovation agenda’ covers the entire

spread of the 4Ps illustrated in Table 2-and that they develop

capabilities to deal with each of these areas (Fig. 1).

10. Using the 4Ps approach for strategic development

From studying the four Ps it is clear that it is possible to

target innovation capability in different ways. One firm

might invest significant sums of money, and a great deal of

creativity, into developing a new range of products, perhaps

based on the latest technology. Another company may keep

Table 1

Examples of discontinuities and their triggers

Example Trigger

Transition from valve-based to solid state

electronics

Technological change, particularly the development of the transistor and subsequently

integrated circuits. Many of the major player in the glass valve industry did not make a

successful transition to the new era of solid state, whilst other new players—for example,

Texas Instruments, emerged at this time

Deregulation of utilities markets Old monopoly positions in fields like telecommunications and energy were dismantled and

new players/combinations of enterprises emerged. In particular, energy and bandwidth

become increasingly viewed as commodities. Innovations include skills in trading and

distribution-a factor behind the considerable success of Enron in the late 1990s as it emerged

from a small gas pipeline business to becoming a major energy trade (Hamel, 2000). Although

Enron failed to capitalise on their innovative business model (financial concerns became

apparent in 2001 and the company became insolvent) their re-conceptualisation of business

opportunities remains an example of significant innovation in paradigm. The Enron case

demonstrates the risks inherent in radical change where bold moves are called for. Without a

track record is difficult for prudent decisions to be made-unquantifiable chances may be needed

to be taken

Dismantling of political systems The post-Cold War experience in Eastern Europe or the transition from apartheid in South

Africa led to conditions in which new rules of the competitive game applied (Barnes et al.,

2001). Incumbent firms in those regions were ill-equipped to jump trajectories and many failed

as a consequence

Emergence of new market constituencies Christenson’s work on disk drives suggests that new markets that later become mainstream and

set trajectories/define the innovation envelope begin at the fringes and are often not detected

by established players (Christenson, 1997). Under these conditions ’good practice’ recipes like

staying close to existing customers, whilst effective for ’do better’ types of innovation may not

be sufficient to help with the transition to new markets and product platforms

Diminishing innovation space within mature

industries

Firms in mature industries may seek to escape the constraints of diminishing space for product

and process innovation and the increasing competition of industry structures by either exit or

by radical reorientation of their business (Baden-Fuller and Stopford, 1995). For example,

Preussag’s move from primary production (lead and other ore smelting) into a broad based

conglomerate and from there into a focused tourism business

D. Francis, J. Bessant / Technovation 25 (2005) 171–183 179

its products more or less the same but invest a great deal in

trying to change the way that potential customers

perceive the firm, as oil companies appear to do. The

question arises, ’can the 4Ps help a firm to take better

strategic decisions?’

The answer is, we believe, ’yes’. The 4Ps approach helps

companies in three principal ways: focussing effort,

managing interdependencies and enlarging choice. An

example illustrates this point.

Nine innovation activities were listed on the diamond

chart, including:

† building totally customised products for customer’s

individual orders (paradigm);

† using sensors in the next generation of lawn mowers to

avoid roots and stones (product)

† re-positioning the company’s products as female-

friendly as more women are keen gardeners (position)

† installing 3D design software in the RandD depart-

ment (process)

The selection of just nine major innovation initiatives

gave focus to R&P’s innovation management; the firm

Table 2

The innovation agenda

‘Do better’ innovation ‘Do different’ innovation

Product/service innovation-change

in what is offered

This is incremental product development.

For example, the Bic ballpoint was originally

developed in 1957 but remains a strong

product with daily sales of 16 million units.

Although superficially the same shape closer

inspection reveals a host of incremental

changes that have taken place in materials,

inks, ball technology, safety features, etc

Radical shift to new product concept for the

firm, perhaps for the industry as well. An

emerging example of this could be the

replacement of the incandescent light bulb

originally developed in the late 19th century

by Edison and Swan (amongst others). This

may be replaced by the solid state white light

emitting diode technology patented by

Nichia Chemical. This technology is 85%

more energy efficient, has 16 times the life of

a conventional bulb, is brighter, more flexible

in application and is likely to be subject to the

scale economies associated with electronic

component production

Process innovation-change in the

ways in which it is created

and delivered

These are incremental improvements in key

performance parameters-for example, cost

reduction, quality enhancement, time

reduction, etc. A good examples of

incremental process innovation can be found

in the ’lean production’ field where intra and

inter firm efforts to drive out waste have led

to sometimes spectacular performance

improvements-but achieved within the same

envelope established by the original

processes (Womack and Jones, 1997)

These are radical shifts to new process routes

for the firm and, perhaps, for the industry as

well. For example, the Bessemer process for

steel-making replacing conventional

charcoal smelting, the Pilkington float glass

process replacing grinding and polishing, the

Solvay continuous process for alkali

production replacing the batch mode Leblanc

process, etc

Position innovation-change

in the context in which

it is applied

This includes the launching of a product or

deployment of a process in familiar context

and redefining the perception of a product for

customers. For example, in mobile

telephones a shift has taken place from a

business tool to a leisure and recreation aid,

with considerable associated incremental

product and process development (ring tones,

cartoon displays, text messaging) emerging

as a result of such positional innovation

This requires creating completely new

markets rather than extending and deepening

existing segments or incremental brand

identity changes. (Moore, 1999) For

example, satellite navigation was originally

developed for military use but is now used by

sailors, motorists, surveyors and even

postmen. Christensen’s study of the rapid

evolution of the hard disk drive industry

highlights the ways in which unimagined

markets can quickly become the key

segment.(Christenson, 1997)

Paradigm innovation-change

in the underlying mental

models surrounding it

These are evolutionary changes in the way

that business activities are undertaken that

provide the opportunity for incremental

innovation in paradigm or business model.

An example might be rethinking the Rolls-

Royce motor car business as that of

supplying luxury experience, competing

with expensive watches, holidays, clothes,

etc.-rather than as a transportation

mechanism

These are new business or industry models-

for example, ’mass production’ vs. ’craft

production’. (Freeman and Perez, 1989). An

example of a recent transformational

innovation in paradigm was the development

of internet solutions to many business areas

like banking, insurance, travel, etc. (Evans

and Wurster, 2000)

D. Francis, J. Bessant / Technovation 25 (2005) 171–183180

considered that “it is important not to try to do too much at

once”. Some initiatives, such as re-launching their trimmer

as environmentally friendly, require both product and

positional innovation. Such interdependencies are clarified

by discussion on the placing of an initiative on the diamond

diagram. Also, the fact that the senior management group

had the 4Ps on one sheet of paper had the effect of enlarging

choice-they saw the completing the diagram as a tool for

helping them think in a systematic way about using the

innovation capability of the firm.

11. Further testing of the model

The researchers undertook a preliminary study in order to

assess whether the 4Ps model provided a useful heuristic

device capable of being used by managers. The data set was

collected from five different companies in the Pharmaceutical

Industry (companies 1 – 5 in Table 3 below). Each of

the companies had been asked to prepare an innovation

plan. We analysed the five planning documents and allocated

each planned innovation initiative to one of the 4Ps-either ’do

better’ or ’do different’.

The data indicate that initiatives to innovate in new

products were the most frequent (25 cases) but that multiple

initiatives were planned in each of the other 3P areas as

well. The less well-recognised innovation in paradigm was

as frequent as innovation in process, with innovation in

market position only slightly behind (12 as against 15

mentions).

Out of the 65 planned innovation initiatives in the five

companies, 39 were (for that company) ’Do Different’,

rather than ’Do Better’. It should be noted that the initiatives

that ’made it’ to the innovation plan were those that require

a significant commitment—it is probable that there are

many more that will be undertaken at lower levels of

Fig. 1. shows how the approach was applied in a company (R&P Ltd) making garden machinery. The diamond diagram provides an indication of where and

how they could construct a broad-ranging ‘innovation agenda’.

Table 3

Distribution of innovation plans across the 4Ps

Company P1-DB P1-DD P2-DB P2-DD P3-DB P3-DD P4-DB PB-DD

Co 1 4 3 1 1 2 1 2

Co 2 1 2 3 2 2 2 3 4

Co 3 3 1 3

Co 4 2 1 1 2 1 4

Co 5 2 6 2 2 1 1

Totals 9 15 8 7 5 6 4 11

(DB ¼ ‘do better’ innovation’, DD ¼ ‘do different’)

D. Francis, J. Bessant / Technovation 25 (2005) 171–183 181

the organisation without the requirement for formal

planning. The fact that 60% of the total initiatives were

novel (from the company’s perspective) suggests that ’Do

Different’ innovations need a strategic commitment,

whereas those ’within the box’ do not require the same

level of top management involvement. Hence, it may be

companies have found a simple mechanism for managing

’Do Different’ innovation—i.e. ensure that ’Do Different’ is

owned by top managers.

12. Conclusions

Innovation is widely seen as a critical imperative for

survival and growth of firms. But responding to this

challenge needs to be balanced against the resource

constraints of the organization in terms of money, skills,

time and knowledge base. In this article we have developed

a framework for setting a firm’s innovation agenda

holistically which makes a contribution to thinking about

the strategic portfolio of innovation projects undertaken. It

also focuses attention on areas which may not be

recognized as having innovation potential and on emerging

areas in which it may be desirable to explore potential new

projects.

Acknowledgements

The authors would like to acknowledge the support of the

ESRC/EPSRC Advanced Institute of Management Research

for this research

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Dave Francis is Deputy Director of CENTRIM. He is a behavioural

scientist specialising in competitive strategy, human resource development

and innovation management. He has worked with many organisations in

Europe, the Far East and the USA. Dave has written or co-authored twenty

nine books, including Team Building Strategy, Top Team Building,

Managing Your Own Career, Effective Problem Solving, Unblocking

Organizational Communication and Step-by Step Competitive Strategy.

His latest book (1999) ‘Agile People for Agile Organisations’ has been

published by Gower in the UK.

John Bessant originally a chemical engineer, John has been active in the

field of research and consultancy in technology and innovation manage-

ment for over 25 years. He is the author of 20 books and many articles on

the topic and has lectured and consulted widely around the world. He

currently holds the Chair in Innovation Management at Cranfield

University and is a Visiting Professor at a number of UK and overseas

universities. In 2003 he was awarded a Fellowship with the Advanced

Institute for Management Research and was also elected a Fellow of the

British Academy of Management. He has acted as advisor to various

national governments and to international bodies including the United

Nations, The World Bank and the OECD.

D. Francis, J. Bessant / Technovation 25 (2005) 171–183 183