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Sustainable Growth Through Strategic Innovation

Driving Congruence in Capabilities

Mitsuru Kodama

From detailed reviews of existing dynamic capabilities, this book presents a theoretical model of a strategic innovation system as a corporate system capability to enable a large company to achieve strategic innovation. The book includes in-depth case studies to illustrate the importance of strategic innovation capabilities.
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Mitsuru Kodama

Japanese mobile phone manufacturers (NEC, Fujitsu, Panasonic, Sharp, and so on) including NTT DOCOMO and KDDI were slow to respond to the emergence of smartphones. According to existing research, it can be interpreted that the cause of this failure to respond to changes in the environment (markets and technologies) was the strong pull of habits built up over a long time and capabilities grown through experiences in their existing businesses, e.g., competency trap, core rigidities, or the innovators dilemma. However, looking deeply into the organizations in large corporations facing the need to change, it’s clear that negative interactions (capabilities abrasion and friction) between the diverse capabilities within a large corporation are often the cause of the inability to respond with new potential technologies or products. In contrast, SoftBank, a young player in the mobile telephone business and the only Japanese mobile telephone carrier that was not dragged down by negative interactions between its capabilities, was successful in its strategy transformation, as it demonstrated strategic innovation capabilities by executing capabilities congruence through configuration of its dynamic organizational forms both in itself and between it and other companies. This chapter analyses and describes in detail the negative interactions between capabilities that can hinder capabilities congruence (capabilities abrasion and friction), and presents theoretical and practical implications for successful strategic innovation.

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Mitsuru Kodama

First, as implications related to the issues of the first points, the chapter deepens the discussion from the Capabilities Map perspective in contrast to Helfat and Winter (2011), who assert that it is impossible to draw clear boundaries between the two types of capabilities, that of DC and OC. Second, the chapter presents a model of the corporate system for sustainable capabilities congruence and sustainable growth enabled by the demonstration of continuous strategic innovation capabilities. This chapter discusses the “sustainable strategic innovation model” that achieves “external and internal congruence in capabilities” that lead to sustainable strategic innovation. Third, the chapter presents new propositions on the boundaries vision of practitioners, which is also a cognitive capability as intuition to uncover the best intangible assets (and co-specialized assets). The chapter offers new propositions on four specific factors as elements of micro strategy practiced through the demonstration of boundaries vision to achieve optimal asset orchestration processes.

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Mitsuru Kodama

Strategic innovation dynamically brings about strategic positioning through new products, services and business models, and is a dynamic view of strategy that enables a large corporation to maintain its competitiveness and establish sustainable growth. For these reasons, large corporations have to be innovators that can reinforce their existing positions (businesses) through incremental innovation, while at the same time constantly renew or destroy existing business through radical innovation. From detailed reviews of existing capabilities theories (resource-based theory of the firm, dynamic capabilities, and so on), and further theories deeply related to the characteristics of corporate or organizational capabilities and field data on sustainable growth of global corporations, this chapter presents the concept of a “Capabilities Map” derived from existing research into the characteristics of dynamic capabilities responding to environmental conditions such as dynamic temporal shifts and factors of uncertainly.

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Mitsuru Kodama

As a first discussion, this chapter presents the examples of the global semiconductor businesses of Qualcomm and TSMC, and how these large corporations coordinate virtual and vertically integrated value chains through global partnerships with horizontal divisions of tasks in the semiconductor industry not only to drive their innovation activities, but also to offer new value for customer innovation. Skillfully using their semiconductor industry business models, the business strategies at both Qualcomm and TSMC are to configure modular organizations and networked modular organizations as dynamic organizational forms that include their customers and partner corporations. Thus, business model through orchestration of co-specialized assets dispersed both in an out of the company is central to their organizational strategy. This chapter observes and analyses these research questions from perspective of the three factors of capabilities congruence, and describes how Qualcomm and TSMC redefine their corporate boundaries to maximize the success of their open innovation by executing capabilities congruence by configuring dynamic organizational forms to respond to dynamic changes in the environment. Contrasting that, the chapter also presents how standardized and regulated unified development, design and manufacturing brought about excessively inflexible intangible capabilities that hindered capabilities congruence at Japanese semiconductor manufacturers.

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Preface and acknowledgments

Driving Congruence in Capabilities

Mitsuru Kodama

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Mitsuru Kodama

Once total global demand for color film peaked in the year 2000, Fujifilm of Japan nosedived into debt by 2005 forcing the company to rapidly restructure. Nevertheless, Fujifilm had accumulated a wide range of technologies in the film business, and also had considerable brand power. Fujifilm had chemical, mechanical and software resources with which it had been taking on the global competition, which, in a sense, also enabled the company to come together and take up the challenge of structural reform. Around this time, Fujifilm took a huge turn towards massive strategy transformation in its “Second Foundation.” Moreover, in this second founding, Fujifilm’s mid-term “Vision 75” business plan included top-down orders in the company to raise new cash cows. This resulted in the company producing hit products one after the other such as the Astalift cosmetics lineup, the similar case search system designed for lung cancer diagnosis support, and the polarizing tack film indispensable to LCD panels. There were massive differences between the strategic reactions of Kodak and Fujifilm when the digital camera appeared on the global scene. In contrast to the structural reforms Fujifilm achieved in the face of attack on its capabilities, Kodak’s strategy was to defend its capabilities. Kodak limited itself to protecting its existing patented capabilities, and was unable to structurally reform its capabilities by seeking out or creating new capabilities for transformation. Using comparative research, this chapter discusses and analyzes differences in strategic approaches of Fujifilm and Kodak, from the perspective of corporate governance reform. The chapter also goes into detail about Fujifilm demonstration of dynamic capabilities through asset orchestration by building of a triad model for strategic communities (SC) spanning both the insides and outsides of the company, which led to the company’s successful strategy transformation. Finally, the chapter presents the concept of “strategic community-based firm” as a new governance system that brings about dynamic capabilities through the formation of strategic communities.

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Mitsuru Kodama

Strategic innovation dynamically brings about strategic positioning through new products, services and business models, and is a dynamic view of strategy that enables a large corporation to maintain its competitiveness and establish sustainable growth. For these reasons, large corporations have to be innovators that can reinforce their existing positions (businesses) through incremental innovation, while at the same time constantly renew or destroy existing business through radical innovation. From detailed reviews of existing dynamic capabilities theories, and further theories deeply related to the characteristics of corporate or organizational capabilities, this book presents a theoretical model of a strategic innovation system (and a sustainable strategic innovation model) as a corporate system capability to enable a large company to achieve strategic innovation. Furthermore, through several case studies, the book discusses the importance of strategic innovation capabilities to achieve a dynamic spiral of the two completely different ordinary and dynamic capabilities on the Capabilities Map, skillfully used and combined to achieve swift or slow incremental innovation as exploitation and radical innovation as exploration. This final chapter presents implications gained from the theoretical framework of this book and a number of case studies, a conclusion, and future research issues.

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Mitsuru Kodama

This chapter clarifies the differences between the two types of capabilities indispensable to companies, “dynamic capabilities” and “ordinary capabilities,” by focusing on the dynamically changing characteristics of the boundaries of informal organizations. The chapter also clarifies the dynamic innovation process that companies need to achieve strategic innovation (incremental innovation and radical innovation) to grow sustainably. In addition, the chapter extracts the factors of capabilities (strategic innovation capabilities) required for sustainable growth through the continued execution of corporate incremental and radical innovation. The chapter presents the important “strategic innovation capabilities” of leading companies that entail the dynamic spiral of the two distinct types of capabilities on the time axis – the dynamic and ordinary capabilities on the Capabilities Map – which are skillfully used appropriately or combined to achieve fast or slow incremental innovation for exploitation and radical innovation for exploration.

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Mitsuru Kodama

This chapter presents the concept of “capabilities congruence,” which is a business factor in large corporations that brings about sustainable growth over the long term by achieving strategic innovation as the corporation enacts dynamic capabilities and strategic innovation capabilities. The chapter also clarifies three important insights about capabilities congruence (Insight-1: Dynamic congruence with the corporate capabilities (corporate systems) with environments; Insight-2: congruence between different capabilities within corporations (in corporate systems); Insight-3 congruence by orchestrating different co-specialized assets both in and out of corporations). As new perspectives, the chapter describes how leaders and managers in large corporations achieve congruence across diverse internal and external boundaries by perception and cognition of the changing boundaries between environments and corporate systems and between various capabilities in corporate systems, in regards to the process of changing capabilities between their own companies, the environment and other companies. In rapidly changing environments, factors for executing capabilities congruence dynamically are of great importance for a corporation to achieve strategic innovation. Moreover, regarding capabilities between Capabilities Maps and between the domains in those Capabilities Maps that are often born in large companies, this chapter discusses how negative interactions can seriously inhibit capabilities congruence.