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«The effect of business transformation and innovation economics on sustainable corporate competitive advantage William P. Creamer Strayer University ...»

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Research in Business and Economics Journal

The effect of business transformation and innovation economics on

sustainable corporate competitive advantage

William P. Creamer

Strayer University

Pesi Amaria

Management Consultants

ABSTRACT

This study examined the sustainable competitive advantage for domestic, international,

and global corporate entities gained from the use of business transformational and innovation

economics. Additionally, this study determined the importance and influence of business factors that trigger growth and innovation for sustainable competitive advantage. A mixed-method approach was employed to examine the experiences of business leaders, thought leaders, and Clevel executives regarding the impact of transformational factors, such as the open model for collaboration, shortened product lifecycles, and innovation economics on successful growth and innovation for sustainable competitive advantage. In summary, this study researched, tested and analyzed the significance of the above statements and the associated hypotheses were framed from the study’s Research Question.

Keywords: Business transformation, innovation economics, sustainable competitive advantage (SCA), global marketplace, open collaboration, product lifecycles Copyright statement: Authors retain the copyright to the manuscripts published in AABRI journals. Please see the AABRI Copyright Policy at http://www.aabri.com/copyright.html.

The effect of business transformation, page 1 Research in Business and Economics Journal

INTRODUCTION

Successful business leaders and C-level corporate executives (CEOs, Presidents, COOs, CMOs, CTOs, CFOs, etc.) across a wide gamut of industries face the challenge of facilitating corporate innovation and growth while ensuring the efficient allocation of scare resources. This delicate balancing act has become a focal point in modern business, where the realities of the old adage “innovate or die” are hammered home by the current fragility of the global economy.

Where innovation is concerned, the issue has never been the lack of great ideas; rather, the real management challenge often lies in the process of direct application, implementation, and rapid commercialization (Govindarajan & Trimble, 2005).

John Chambers, president and founder of Cisco Systems and perhaps one of the most influential business thought leaders of modern times, stated recently that corporate America’s future hinges on its ability to practice, harness, and switch from traditional business operating models to those that feature more open collaboration and development (McGregor, 2009).

Chambers argued that open innovation offers the best platform for leveraging organizational science, knowledge, and experiential learning to foster rapid creative development, implementation, and new business leadership. Similarly, Jeffery Immelt, General Electric (GE)’s CEO and thought leader, characterized today’s economic landscape as a new frontier that offers the opportunity for continued corporate change (McGregor, 2009). Both Chambers and Immelt firmly believe that business transformation will continue to be the universal challenge, constraint, and constant for businesses leading into the future, i.e., innovate or die.

The challenge to management often begins with the undertaking of a new breakthrough idea that transforms the company’s core values to reflect new core competencies (representative of this new breakthrough concept) and a new value proposition (Chesbrough, 2003; 2006; 2007).

Govindarajan and Trimble (2005), Chesbrough (2006), and Palimisano (2006) discusses that the organization’s perilous struggle to accomplish a successful transformation involves more than raising new funds and sources of capital. The struggle often entails attracting and enlisting key support within the organization for a new voyage into an uncertain and somewhat confusing high risk environment. Consequently, the captain of this “vessel” must reform and enlist his/her crew while facing strong competitive “turbulence” and persistent “gale-force winds.” The journey’s successful navigation, often a test of leadership, is further challenged by the necessity to leverage and align the full faith, support, and commitment of all valued stakeholders. This daunting task comprises what some authors have described as the primary challenge to accomplishing the “third order change” or Level Three Change necessary for business transformation (Govindarajan & Trimble, 2005; Chesbrough, 2006; Palimisano, 2006).

The topic of sustainable corporate growth through continued innovation is viewed by many business experts as a critical success factor. However, many of these experts have cited concerns in meeting and satisfying the demanding resource requirements of long term growth and short term shareholder demands. Employing the traditional merger and acquisition strategy has often realized less than optimum results (Christensen & Roth, 2004; Charan & Lafley, 2008).

The precursors for a corporation’s continued growth and performance (as witnessed by the value of a company’s stock compared to those of its peers) are established through a myriad of diverse yet linked strategies that together make up the foundation of that company’s operations and growth initiatives. Of these precursors, a company’s plan for organic (internally driven) growth derived from a successful rapid innovation process of concept generation, innovation, development, implementation, and commercialization, shows clear linkages to measures of that The effect of business transformation, page 2 Research in Business and Economics Journal company’s value in the marketplace. Significant empirical research and a variety of case examples point to the additional market premium or value embodied in the corporate per share stock price gained from implementing a business transformation process based on organic growth (Carlson & Wilmot, 2006; Charan & Lafley, 2008; Chesbrough, 2007, 2006; Christensen & Roth, 2004; Jonash & Sommerlatte, 2000).





Richard Ottoo’s (1998) research focused on the key factors that form a strong capital structure that contribute to sustainable corporate growth opportunities. The major premise of his research can be stated as, “real growth options are not endowed on companies but are instead acquired through competitive investments” (Ottoo, 1998, p. iv). He further stated that strategic corporate investments in research and development assets across the company often result in productive technologies, which in turn enable rapid patent growth and protection to guarantee indefinite flows of monopoly rents. Ottoo’s research supports the premise that a corporate entity’s future performance is directly tied to and positively correlated with the strategic (i.e., long-term) application of the following growth factors: (1) R&D outlays of the firm and its rivals, (2) expected manufacturing capital, (3) cost of hedging the entity’s volatility, (4) low cost of interest (availability of and access to credit), (5) expected monopoly rents, (6) conditional probability of innovation, (7) correlation between capital investments and R&D project value, and (8) advertising spending.

Another significant participant and contributor to the spectrum of innovation research was Joseph A. Schumpeter, whose early works (in the 1930s) featured the concept of creative destruction, or continual renewal. Schumpeter’s theory has been described in terms of the “perennial gale of creative destruction” (Schumpeter, 1975 in Foster & Kaplan, 2001). This study considered many works from a rich body of evidence in an effort to derive, identify, and determine the reoccurring factors, trends, and predictors related to successful innovation, growth and sustainability.

The research problem explored and resolved in this study identified the paramount growth factors and characteristics shown to be positively linked with continuous (versus discrete) innovation and growth, as applied to business transformation and innovation economics.

Accordingly, the objective and purpose satisfied by this study was to identify significant growth factors driving and supporting successful growth and innovation.

PURPOSE OF THE STUDY

This study focused primarily on the identification of, and impact generated by, the growth factors necessary for sustainable corporate performance. In particular, this research addresses the impact of innovation and the primary growth factors for successful and sustainable competitive advantage.

RESEARCH QUESTION

What are the factors of business transformation and innovation economics required by domestic, international, and global corporate entities, to achieve sustainable competitive advantage?

–  –  –

LIMITATIONS OF THE STUDY

This study provides relevant and current day findings from the collective body of research available in scholarly journals and contemporary field work from the nation’s leaders in business practice management and assessment. The research includes (but will not be limited to) the following: (1) characteristics of innovation and change in an organization, (2) innovation theories and best practices, (3) application of innovative processes and theories to individuals and organizations, (4) survey findings from practice leaders in the field, (5) findings from professional surveys conducted by this study, and (6) principles and practices for implementing innovation and continuous change.

Anticipated Significance of the Study

The significance of this study contribution can be seen in its expansive research, investigation, analysis, and determination of the key findings that support the hypotheses that form the foundation of the accompanying research.

This study investigated and identified key benchmark parameters, growth factors, variables, and practices supporting successful corporate innovation, growth, and performance.

Where this study departs from earlier works will be in the deep content, research and analysis across all sectors referenced (manufacturing, service, high technology, and retail) in support of the hypotheses.

LITERATURE REVIEW

The literature review discusses the following areas: (1) characteristics of innovation and growth, (2) innovation economics (IE) and level three transformation, (3) open model for collaboration and innovation, (4) continuous innovation using the open model and IE, and (5) organizational structure for shortened product lifecycles.

Characteristics of Innovation and Growth

Measuring a firm’s innovativeness or propensity to innovate remains an important, albeit murky, science. This “ability to innovate” has often eluded the understanding of most companies and scholars, while rising to top of the mind for many of business thought leaders. Carayannis and Provance (2008) described the ability to innovate as consisting of three vital factors: (1) propensity, (2) performance, and (3) posture.

Carayannis and Provance (2008) constructed an index of performance similar in nature to Kaplan and Norton’s (1993) balanced scoreboard and Altman’s (1968; 2000) famed financial constructs used in measuring and forecasting continued growth. Carayannis and Provance concluded that most of the literature and associated research tends to focus on a linear input through output process in manufacturing and ignores the impact of the multiple variable concepts. The tendency among researchers, according to the authors, is to derive a composite index that is often incomplete. To support this point Carayannis and Provance identified a more complete set of requirements and measures of innovation that cover a wide range of innovation performance. These measures or growth factors are: (1) alignment, (2) training and orientation, (3) sales share of R&D expenditures, (4) sales share of internal venture capital, (5) various The effect of business transformation, page 4 Research in Business and Economics Journal process-oriented measures, and (6) newness of innovation, new to the firm, new to the industry, sales derived from innovation, number of patents, and profits.



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