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Abstract:
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Increased globalization in business competition makes the ability to innovate and to redefine
strategy crucial to a company. An interesting question however is if a management team can control
innovation and strategic renewal of the company at all; or do such changes emerge, driven by
external events or by bottom-up processes in the organization? The present research project
addresses some of these issues through the overall research question “How does innovation strategy
evolve?”
The research question is examined in a specific empirical context. Since 2001, I have worked as an
internal innovation consultant at Novo Nordisk A/S; a pharmaceutical firm founded in 1923
operating in a well established industry (insulin for diabetes treatment), characterized by intensive
investments in Research and Development. I took advantage of this unique access to the internal life
of an organization and consequently set up my research project as a longitudinal in-depth case study
of the medical device innovation activities at Novo Nordisk A/S covering the period 1980-2008. The
study specifically analyzes the relationship between the classic core product of the firm (insulin) and
complementary products (medical devices, such as insulin ‘pens’), which hold the potential to either
enhance the value of the core product, or to become a distinct business of its own.
Burgelman’s evolutionary theory of strategy making, especially his ‘internal ecology model’
(Burgelman 1991, 2002), has been chosen as the basic theoretical framework for the project. Some
expansions of this framework, however, were needed. First, the present study puts greater emphasis
on analyzing the external environment and its influence on internal strategy processes. Second, the
analysis includes the role of management cognition, especially the notion of the corporate dominant
logic (Prahalad & Bettis, 1986; Bettis & Prahalad, 1995), understood as an enduring top management
worldview or mindset based on reinforcement of experiences from the past.
With regard to results, the present study identifies a more entrepreneurial role of the top
management driven induced strategy process than traditionally described in evolutionary theory. In
this case study, strategic variation and trial-and-error learning is not restricted to the autonomous
initiatives in the ‘internal ecology’; on the contrary, top management cognition creates strategic
visions or hypotheses, which are enacted as experiments in the market, for example in the form of
new product categories. External feedback determines the destiny of these strategic experiments.
Thereby innovation strategy (in case, for medical devices) serves as a strategic laboratory at
corporate level, so to speak.
The device-based strategic experiments face the challenge of escaping the gravity of the dominant
logic, which repeatedly pulls the strategy back towards the well-known success formula, centered on
the drug itself (i.e. the insulin). Thus, the induced strategy process mediates core assets
(pharmaceutical drugs) and complementary assets (medical devices), by swinging the pendulum
between cycles of innovation strategy which define the devices as core or complementary respectively. Hence, the balance between what is defined as core and what is defined as
complementary in the corporate innovation strategy seems to be dynamic and negotiable.
As a consequence of the cycles of strategic experimentation, the corporate induced strategy process
acts as a force of strategic entrepreneurship, seen over extended time.
The implications for research point towards a new paradigm of strategic research in the ‘middle
ground’ between rational choice theory and evolutionary theory, as proposed by Gavetti & Levinthal
(2004). The present research project suggests that a firm’s ability for strategic adaptation depends
both on strategic context determination of autonomous initiatives in the ‘internal ecology’ and on
ability to enact induced strategic experiments with alternating innovation strategies in the market.
This theory of ‘inbound’ and ‘outbound’ strategic search establishes a dynamic understanding of the
corporate induced strategy process. In this understanding, innovation strategies act as hypotheses,
which create strategic dissonance between vision and reality and thereby drive strategic learning.
The implications for management practice are first recognition of how fortunate it has been for
Novo Nordisk to sustain the core business strategy, protected by the dominant logic. This fact relates
to a background where the core market proved to hold immense growth potential, and the industry
was relatively stable compared to for instance the IT industry. On the other hand, Novo Nordisk’s
success is partly due to cycles of strategic experiments with complementary assets for innovation, in
case medical devices. Top management initiated these explorative experiments and the learning was
utilized for expansion of the position within the core business. Hence, one can conclude that a
company should explore and utilize the value of complementary assets, since these are perfect tools
for strategic experimentation without risking the core business. |
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