Innovation and competitive advantage: what we know and what we need to learn

Journal of Management, June, 1992 by Cynthia A. Lengnick-Hall

Innovation, technology advances, and competitive advantage are

connected by complex and multidimensional relationships. This article

begins by examining four factors that shape the relationship between

innovation and competitive advantage. Routes to corporate entrepreneurship

(research and development units, intrapreneurship/internal

ventures, external joint ventures and acquisition) are compared in

terms of these criteria. The debates and questions that set the stage for

further research in this area conclude the article.

Demands for organizational innovation and technological advantage are increasingly crucial components of competitive strategy for many firms (Buffa, 1984; Butler, 1988; Miller 1989). Most firms face serious competitive challenges due to the rapid pace and unpredictability of technology change (Ansoff, 1988). Industries dependent on highly sophisticated technologies and firms engaged in multinational competition are particularly vulnerable to the need for continuous and rapid modification of their product features and the ways in which they conduct business (Teece, 1987; Waterman, 1987). Hax (1989) argues that global strategies are dependent in large part on accelerating the speed at which innovations are translated into profitable commercial ventures. These conditions have led management theorists and practitioners alike to call for more creativity in management practices, products, and production processes (Wheelwright, 1987) and for greater attention to be paid to the technology strategy a firm employs (Malekzadeh, Bickford, & Spital, 1989; Miller, 1989). When new product or process development is a key strategic requirement, a firm must be able to advance technology and know-how, exploit these capabilities, and gain market acceptance of new ideas, concepts, and production requirements (Scarpello, Boylton, & Hofer, 1986).

Several common themes emerge repeatedly across studies to suggest that the link between innovation activities and competitive advantage rests primarily on four factors. One, innovations that are hard to imitate are more likely to lead to sustainable competitive advantage (e.g., Clark 1987; Porter, 1985). Two, innovations that accurately reflect market realities are more likely to lead to sustainable competitive advantage (e.g., Deming, 1983; Porter, 1985). Three, innovations that enable a firm to exploit the timing characteristics of the relevant industry are more likely to lead to sustainable competitive advantage (e.g., Betz, 1987; Kanter, 1983). Fourth, innovations that rely on capabilities and technologies that are readily accessible to the firm are more likely to lead to sustainable competitive advantage (e.g., Ansoff, 1988; Miller, 1990).

This article begins by considering the four factors that define the relationship between corporate innovation with competitive advantage in greater detail. The second section offers a look at how different approaches to corporate entrepreneurship result in different opportunity and problem patterns related to these four factors. Some of the relationships enhance innovation activities; others make innovation more difficult. Some make it easier to sustain the benefits of successful innovations; other relationships make this more challenging. The last section of the article examines questions and debates that can provide an agenda for further study of innovation and competitive strategy.

Imitability

The less a strategy can be imitated, the more durable the source of competitive advantage (Porter, 1985). Given the array of capabilities needed to sustain effective corporate entrepreneurship, innovation provides an attractive source of competitive advantage if it creates positive synergy for the finn. Likewise, if the innovation process or the outcomes of innovation are difficult to copy, effective corporate entrepreneurship becomes an increasingly important ingredient in sustaining competitive advantage. Some (e.g., Lawless & Fisher, 1990) suggest that product form, function, pricing, and distribution offer potential avenues for reducing imitability for innovative firms. Others argue that managerial innovations, such as the strategic management of human resources (Lengnick-Hall & Lengnick-Hall, 1988; Schuler and Jackson, 1989), or information-based innovations, such as new market research techniques (Tornatzky & Solomon, 1985), provide more durable routes to competitive positioning than can be gained from product innovations. Still others (e.g., Spencer & Triant, 1989) recommend that firms only specialize in developing technologies that have pivotal importance to their business in order to protect imitability of key competitive elements. The common thread is identifying outcomes that are difficult for other firms to replicate.

The concept of strategic configurations (Malekzadeh, et al., 1989; Miller & Mintzberg, 1984; Van de Ven & Drazen, 1985) provides a useful way to look at innovation and imitability. Strategic configurations describe broad, natural bundles of various elements that compose a firm's strategy such that distinct archetypes or attribute constellations are produced. Configurations expand the notion of fit from looking at paired elements (e.g., strategy and structure; size and technology) to multidimensional clusters. Three arguments in support of configuration approaches are offered by Miller and Mintzberg (1988): internal consistency, population ecology, and incrementalism. Configurations represent a synthesis of strategic preferences and constraints, but do not specify direct causal relationships among individual factors. The premise of configurations is compatible with the growing body of empirical evidence supporting an intrinsic intertwining of strategy formulation and implementation (Burgelman, 1984).