This article was produced and financed by BI Norwegian Business School
Don't go down with Kodak
Companies have to give their all on two fronts in order to be successful. They have to do what they are already good at, while also trying something new.
Should companies concentrate on developing what they are already good at through small-scale, continuous innovation, or should they take a risk and try something completely new?
“More and more people are now arguing that you have to do both – making use of what you’re good at now while also doing your best to develop brand new products and services,” points out Paulina Junni, a postdoctoral candidate at BI Norwegian Business School.
But it’s easier said than done.
Many companies are more preoccupied with making the most of their existing products and services than taking a chance on learning something completely new. They prefer to focus on what they think is safe rather than taking any risks.
It is risky to try new things, and it doesn’t only cost money – it takes up a lot of time too.
“But it might be necessary to try new things to survive in the longer term,” stresses Junni.
In recent years, a number of studies have been carried out on when it pays to focus on small-scale, continuous innovation, e.g. how to get more out of what we are good at now (exploitation), and when it pays to focus on innovation in entirely new areas (exploration).
Reviewed almost 70 studies
Several studies have also considered whether it pays to do both at once.
Particularly rewarding for knowledge-based and high-tech companies
Junni and her research colleagues have carried out a study of previous research in this area to see whether focusing on both new development and exploiting what you are already doing pays off.
The researchers have reviewed almost 70 previous studies included in their analysis.
“This review has shown that it does pay to focus on both new development and making use of what you’re already good at,” says the researcher.
According to Junni, it is particularly rewarding for knowledge-based and high-tech companies as well as other companies operating within dynamic markets to focus heavily on both these fronts.
“Companies competing in markets characterised by rapid change must always be on the lookout for new ways of being competitive in the long term.”
Schibsted has done just that
The media industry is one example of an industry undergoing rapid change where companies have to both develop their core skills and embrace innovation.
Even though the media group Schibsted had a dominant position in the advertising market, through Aftenposten in particular, the group chose to invest in classified ad site Finn.no.
Net-based Finn.no is now an important contributor to the Schibsted Group’s profits.
The aviation industry, music industry and publishing industry are other examples of industries undergoing rapid change.
Kodak is a prime example of what happens if you risk only developing what you are already good at. Kodak chose not to take on the competition by branching into digital photography technology, and now they are out of the running.
Must aim higher
The study also shows that it is not enough to divide your efforts equally between new development and use of existing resources.
This dual effort must be made at a high level. It is not enough simply to distribute a small amount of resources thinly and evenly between the two areas.
It is expensive and risky to invest in both new development and use of existing resources. The study shows that the positive effect on performance is greater when the analysis level goes from a lower to a higher level in the organisation. For example, from individual to team to business unit to company level.
This may indicate that it is important to have an organisational structure which ensures that these endeavours will be profitable. This may, for example, involve connections between different levels of the organisation.
It also points towards designing work processes and reward systems to support both new development and use of existing resources.
Junni also suggests that it may be advantageous for management to get involved in the work by making sure that investments in new development and use of existing resources achieve the desired results.
Four tips for managers
Junni has come up with four pieces of practical advice for companies that want to be competitive:
- Make the most of what you are already good at. See what you could make better use of through small-scale, continuous improvements
- Keep an eye out for new opportunities. Take a chance on developing brand new products and services
- When making a choice between one and two: Both, please. And a lot of both
- Management are responsible for ensuring that the company achieves the desired results from focusing heavily on new development and use of existing resources
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Read the Norwegian version of this article at forskning.no
