SC3 Strategic Management

Module 7

Innovation Technology and

Strategy
Introduction
In this module we will learn about the role of technology and innovation
in the strategic design for future of the organisation. Innovation can be
incremental or radical or it can be studied in terms of being embedded in
the process or the product design. The fundamental reason for innovation
is that it is essential for the long term sustainability and profitability of the
organisation. The changes in the immediate technology environment and
the overall macro environment are taking place faster shortening the lead
time available for the organisations to respond with high degree of
preparedness. The situation in which change will emerge and there will be
sufficient time for it to replace the old technology with the new one has
long gone.
The mobile phone industry, which in the most recent past has altered the
way and extent people communicate, has to contend with the emergence
of smart phones which will replace the cell phone. Smart phones are more
compact and combine multi-functionality of video, Internet access, email,
music, games and camera. Organisations such as Apple and Microsoft
have grown on the strength of innovation. As the Asian economies come
in their own right on the world’s economic stage the push for innovation
is being felt within them also. Samsung (Korea), Huawei (China),
Toshiba (Japan), Larsen and Toubro (India), and HTC (Taiwan) are some
of the innovative Asian organisations.
Innovation was important, but now it is central to an organisation’s
survival. The process of innovation spans the development of technology,
the articulation of technology strategy and the embedding of innovation
culture in the overall organisational culture. The module will explore the
relationship between technologies, innovation and strategy. It will provide
an overview of the role of top management in setting the agenda for
innovation.

155
Module 7

Upon completion of this module you will be able to:

 define technology and innovation.

 describe the main components of the technology strategy.
 differentiate between incremental and radical innovation.
Outcomes  differentiate between product and process innovation.
 explain the role of innovation in enhancing competitiveness.
 discuss the emerging innovation scenario in Asia.

Chief Technology: A senior level position vested with the

Officer responsibility of aligning the technology with
strategic requirements.

Diffusion of The process by which innovation permeates the

Terminology innovation: market.

Disruptive Innovation that is new and different from any

innovation: existing process/product and is game changing.

Innovation: Development of something new, usually a product

or a process of manufacturing.

Radical innovation: An innovation that is totally different from

anything that exists today.

Sustaining Gradual innovation aimed at improving product or

innovation: process.

Technology: Application of the principle of science to develop

products/ services.

Technology strategy interface

In strategic management our concern is with the organisation’s
sustainability. Being open systems, organisations are susceptible to many
changes that take place in the external environment and have the potential
to have positive or negative impacts. Over the last two decades
globalisation, advances in information communication technology and the
compression of time to transfer products from one economy to another
have brought to centre stage the role of technology in strategic decision
making. In many quarters technology is seen today as the factor that
underlines competitiveness. Technology can be described as the branch of
knowledge that deals with the application of principles of science and

156
 SC3 Strategic Management

engineering to develop products and services with relevance to the

society. Examples include medical technology, information technology,
green technology and recycling technology.
Technology can be developed by many different types of organisations
such as defence and research and development centres, university and
academic institutions, government-sponsored or owned research
organisations, and commercial organisations. A commercial organisation
can develop technology on its own, or partner with others to develop it or
source it from them. Technology enables an organisation to tap the
opportunities created by new markets. Technology is important for:
 Reducing the cycle time leading to cost advantage and better time
management.
 Cost reduction by process improvement.
 Cost reduction by raw material substitution.
 New product development.
 Creating and supporting information technology-based
organisation forms.
 Improving the quality and performance of the product.
 Creating new industries.
 Serving new markets or un-served needs.
From this list it is evident that technology can be a leveraged for
competitiveness – it can be used to lower costs, create differentiation or
develop entirely new businesses in new markets or both for the
organisations. Technology is a resource with tremendous impact value.
Organisations have the wherewithal for producing as well as spreading
the product or its benefits to the society. They have the resources to bring
scientists, technologists and managers together for purposive innovation.
Organisations come up with products that are new and capable of solving
long-standing problems. By developing and bringing new
products/materials/processes to the market, technology develops solutions
to most issues that concern human beings such as transportation,
communication, entertainment, health, agriculture, infrastructure,
industry, and education. It also changes the rules of interaction for trade
and commerce among organisations and countries. GE, Microsoft and
Apple leverage their technology prowess with other resources to develop
and market products that are efficient and in demand.
Technology is seen as a resource to enhance efficiency transparency in
transactions. Use of technologies in some core socioeconomic functions
enhances efficiency and accessibility. For example the use of IT to
provide education through the various multimedia tools, and so on has
increased the effectiveness of the learning process. Education through
distance learning is accessible to more people. The enabling role of IT in
smoothing government-to-citizen transactions such as payment of
scholarships or specific subsidies to some segments is well known in the
emerging countries. In commercial products such as cars convergence of
digital with the mechanical technology has enhanced the effectiveness of

157
Module 7

driving the vehicle- in terms of fuel efficiency, quality of ride, monitoring

of routes and safety of the drive.
From research and development to technology management
As is the case with the management of other resources, technology too
requires assignment of specific responsibility and strategy for its
management. The responsibility for the development of technology has
historically been with the research and development departments. The
intensity of effort of the research and development department depends
upon:
 The volatility of the external environment (less volatile
environment requires lesser infusion of innovation)
 The life cycle stage of the industry early growth and maturity are
periods of greater emphasis on innovation compared to stability.
 The innovation dynamics of the industry. Some industries are
innovation centric, such as medical diagnostic, and cars (hybrid
cars development) others such as aluminium smelting are not.
Higher education is an emerging sector for increased innovative
intensity as out-of-the-box technology solutions learning are
developed enabled.
If an organisation operates in an environment where product or process
changes are frequent, top and functional managers appreciate each other’s
support and motivate technologists for being proactive. However, in
industries where the changes are infrequent and innovation is one of the
discontinuities, the organisation is trying to understand and settle with,
technologists, top and functional managers may not have a good rapport.
The intricacies, prospects, risks and costs of benefits imperative for
technology change are not perceived to be of strategic importance.
With the growth and spread of information technology within and outside
organisations, many organisations felt that there were many discontinuous
changes on the technology front and the research and development
department may not be the only place from where innovations could
emerge for the next generation of products. Partnership and alliances
could be explored to speed up R&D or to develop new technologies. This
trend led to transformation of the position of the R&D general manager to
that of the Chief Technology Officer. The Chief Technology Officer is
more common in high technology intensity industries such as computers
and information technology than in those where the rates of technology
change are slower. The Chief Technology Officer’s domain is to analyse,
appraise and develop new technologies across a broad band of
applications. The Chief Technology Officer is responsible broadly for
assessing the technology need of existing, new and emerging industries.
The Chief Technology Officer is expected to have a wider view of
technology and its relevance for strategic choices. The CTO must be
capable of interacting with external research organisations, customers.
There is growing evidence that increased spending on R&D leads to
higher returns. Overall, in North America and Europe, the spending on
R&D has been rising and according to some estimates was 24 per cent of
the total revenue of the organisations. What is the optimum level of R&D
investment an organisation should make to leverage technology for

158
 SC3 Strategic Management

competitiveness? There is no answer to this, though technology leverage

is the concept that has been used to answer this question (Scholefield,
1993).
Technology leverage is the extent of influence that a business’s
technology base has on competitiveness. In some industries, such as smart
phones, medical diagnostics and energy generation, technology bases is
critical for competitiveness, but in some, such as chemicals, the price of
petroleum-based raw materials determines competitiveness as it does in
commodity based businesses.

Technology strategy
It is the compilation of alternatives that a firm uses to address the
technological threats and opportunities in its external environment to
guide a firm in acquiring, developing and applying technology for
competitive advantage. It is, however important that the development of
technology is in sync with other strategic choices which a firm evolves.
The technology strategy of the organisation addresses the strategic issues
pertaining to:
 Resource appropriation to develop technology capability.
 Leveraging technology across the value chain.
 Choice between technology leadership and technology
followership (these issues are consistently discussed in the
subsequent text).
Since the operational efficiency of technology depends on the efforts
made by a firm to assimilate and modify it to suit specific requirements, it
is important to keep a sound technology strategy as a part of innovation
strategy.
Technology strategy of an organisation has to be constantly reviewed and
monitored so as to cope with the dynamic environment. Feedback loops
built into the technology strategy are an important way to adjust and
reconfigure the technological capabilities.
Various dimensions of technology strategy of a firm can be understood
through the substance and enactment of technology strategy.
Competitive strategy stance
Technology strategy as an instrument of more comprehensive corporate
strategies defines the role which technology can play as a source of
competition to sustain advantage in product differentiation or cost or to
develop new products/lines of business to make inroads in uncharted
areas. Organisations may decide to undertake a technology leadership
posture so as to focus their research and development initiatives on
creating innovations based on state-of-the art technologies combined with
possible first-mover advantages. This may lead them to capture premium
segments, achieve economies of scale, set industry standards or control
distribution channels or be the first ones in a hitherto un-served market.
Technology-follower firms emphasise pursuing strategies that involve
low-cost manufacturing of proven products and technologies.

159
Module 7

A company can outperform rivals only if it can preserve the difference

which it has established.
Value chain stance
It refers to the technological capabilities that the firm decides to develop
internally – the core technologies. The other technologies used by the
firm are the peripheral technologies. A firm can decide whether to deploy
its resources on those few technological capabilities that create
competitive advantage or to develop numerous other capabilities in which
it may not have any obvious advantage. The scale and business focus of a
firm decides the scope of its technology strategy.
Resource commitment stance
The emphasis on resource commitment to technology determines the
depth of a firm’s technology strategy. Greater technological depth enables
an organisation to be flexible and respond to new customer demands. The
technology choice of a firm can also be explained as a trade-off between
fixed and variable costs; the higher the investment in fixed costs
(advanced technologies) the less a firm needs to spend on variable costs.
Management stance (Organisational fit)
This refers to the extent an organisation can structure itself so as to meet
the requirements of competitive, value chain and resource commitment
stances. Decentralised laboratories are more suited for application of
technologies and not for generation of new technologies. But they are
better suited for products related research due to being closer to markets.
A centralised structure is more suited to developing fundamental R&D
required for building distinctive technological capabilities.

Enactment of technology strategy

Technology strategy is enacted through the sourcing and deployment of
technology.
Sourcing
Internal sourcing of technology depends on the firm’s R&D capability.
The main purpose of R&D spending is to gain greater efficiency and
effectiveness and access to newer markets. R&D efforts lead to
generation of knowledge and to building a firm’s absorptive capacity.
Internal development of technology results in proprietary technology
which a firm can use to create an advantage. It is a risky option, because
the success of the technology is not guaranteed in the market. The
decision to source technology internally has a comparatively higher score
in appropriability (extent to which benefit from research activity can be
captured).
External sourcing of technology can take place through licensing,
strategic technology agreements and mergers and acquisitions or
alliances. External sourcing of technology has to be done after
considering;
 The extent of integration possible between the existing and the
new technology.

160
 SC3 Strategic Management

 The ease of availability of technology may imply that it is easily

available to competitors also. How then would the organisation
develop an advantage with technology or synergy between the
other elements of strategy to have a sustainable advantage?
 Transaction costs (the ease with which contracts for the purchase
or sale of technology can be written, executed and enforced
without leading to unexpected outcomes that impose large costs
on one or both parties) and the implications for the Intellectual
Property rights for the organisation have also to be understood.
A mixed internal/external approach is another alternative through funding
of joint ventures, collaborative research or strategic alliances.
Product and process development
While taking a decision to develop products firms need to decide whether
technology would drive the development of the product (technology
push) or product development and/or market development would drive
the development of technology (market pull). Every product is composed
of a number of technologies.
In the process of product development with the use of high order IT a
theoretical framework for collaborative design and production
development Digital Enterprise Technology is sought. It configures
digital product and process development technologies which link design
data at various levels of completeness, with a high degree of real-time
measurement from the production environment to ensure the product’s
tolerance specification and the selected production and assembly
processes. It helps to reduce the implementation risk and streamline the
assembly and integration processes.
Deployment of technology in the value chain processes enables an
organisation to enhance operational capabilities. For example, the
adoption of enterprise resource planning (ERP) systems across the value
chain ( inbound logistics, operations and marketing and sales and
distribution ) can be used by a firm to not only improve its inventory and
fixed assets turnover but also lead to efficiencies in marketing, sales and
distribution. The customer relationship management (CRM) value chain
helps to improve the efficiency of firms by organising, aligning and
integrating the organisation processes along the value chain between the
customer, the firm and its extended enterprise.

Innovation
In recent decades innovation and technology have emerged as important
considerations in the formulation of strategy. What would be the nature of
the future technology change? In which domains would technology
change happen? How would the change impact our long term
profitability? These are some of the questions asked with reference to the
technology change. An organisation has to convert technology into a
tangible form. It does so through innovation. Innovation is drawn from
the Latin word innovare which means to renew, to alter or to make new.
“The introduction of new goods (…), new methods of production (…),
the opening of new markets (…), the conquest of new sources of supply

161
Module 7

(…) and the carrying out of a new organisation of any industry.”

(Schumpeter, 1942)
The root cause of any useful action for the future has its seed in ideas –
ideas about how solutions to problems in the form of products can be
different and, how new technologies can shape the future of things to
come. The implementation of ideas is innovation. Innovation is about
newness, about an entirely different perspective to a problem or a
situation. Innovation has been described very succinctly by the Webster’s
Online as “a new idea method or device.” Innovation is the
transformation of technology into products and processes within the
organisation which are an improvement over the earlier ones or totally
different ones. Innovation is the conversion of an idea into a marketable
product. Lumpkin and Dess (1996) define innovation as “a firm’s
tendency to engage in and support new ideas, experimentation and
creativity for the development of new processes”. Innovations have
altered the way people work, act, think and behave. Innovations can
create or disrupt organisations.
Innovation according to Narayanan (2001) “refers both to the output and
the processes of arriving at technologically feasible solution to a problem
triggered by a technological opportunity or customer need.”
Organisations do not stagnate because they don’t have ideas; they do so
because they have not been able to implement them, in other words they
haven’t been able to innovate. It has been established that innovation has
led to growth and profitability of business organisations. Organisations
are the vehicles through which humans have created products and
services to satisfy their various existential, financial, social, wellbeing and
medical needs. The organisations founded on innovations of electricity,
spinning jenny, printing press, and telephone to name a few, eventually
spawned major industries of their times, created wealth and employment.
The necessity for the organisations to innovate has been aptly described
by Joseph Schumpeter (1942) “as soon as quality, competition and sales
effort are admitted into the sacred precincts of theory, the price variable is
ousted from its dominant position. But in capitalist reality as
distinguished from its textbook picture, it is not that kind of competition
which counts but the competition from the new commodity, the new
technology, the new source of supply, the new type of organisation (the
largest-scale unit of control for instance) – competition which commands
a decisive cost or quality advantage and which strikes not at the margins
of the profits and the outputs of the existing firms but at their foundations
and their very lives. This kind of competition is as much more effective
than the other.”
In the last two decades innovation has emerged at the centre stage of
corporate existence as the older paradigms of consumption and
conversion of resources give way to newer ones.
If human nature is presumed to be disposed towards innovation can the
organisations lag behind? However, being purposive and committed to
wealth creation, organisations would seek tangible benefits from
innovation. The innovation can lead to the development of products that
are far superior to the existing ones. It can also lead to cost advantages
because of substitution by cheaper raw materials or technology. It can

162
 SC3 Strategic Management

also create hybrid advantage of both superior product and cost advantage.
Technology can be a distinguishing feature if it is proprietary. A
proprietary technology may give access to new markets, uses that were
previously unimaginable. The extent to which organisations will innovate
is shown in the Figure 7.1.

Within realm of
Improvise
existing products
Alternatives to
Problem solution

Beyond realm of
Innovate
existing products

New Product New Process

Figure 7.1

Activity 7.1
Describe in your own words the differences between innovation and
technology as well as the interrelationship between them. Give three
examples of technology and three of innovation here. Please use
photographs if the examples are of such a nature (for example, modern
Activity sonography used in medical diagnostics is based on the sonar waves
technology developed for use by the navy).

Innovation shifts
Modern organisations are in the business of developing solutions to
people’s problems. These are not merely existential issues-based
solutions, but those that affect the vast majority’s quality of life. Citizens
expect the organisations to balance the consumption of ecologically
fragile materials and equitably distribute the natural resources among the
citizenry. These expectations, especially in the context of the emerging
markets where resources are becoming scarcer and consumption is rising,
make innovation all the more important. For organisations to be
successful in the next decade the innovation agenda has to meet the needs
and expectations in very imaginative, accessible, quick and cost efficient
ways. Innovations in the manufacturing and distribution of food items are
innovations that meet existential needs whereas the innovation for green
cars and vertical farming addresses the long-term sustainability need of
human kind and the innovations that make mobile banking possible aim

163
Module 7

to improve the quality of life by easing transactions, delimiting the

necessity of physical presence, freeing some time.
A list of the most innovative organisations is published annually by
Business Week. In 2009, a panel of academics from the University of
Pennsylvania’s Wharton School was asked to collectively rate
innovations and came up with a list of the top 30 over the last 30 years.
Our purpose here is not to examine the merits of the choice but to notice
the shift towards convergent technology. In a lay language we may say
that earlier businesses of cars, textiles, steel manufacturing, railways and
so on, were based more on the mechanistic aspects. On the other hand,
organisations that have been profitable and have experienced growth in
recent past, are from businesses where the convergence, linkage and
interface with other technologies is very high such as mobile telephony,
entertainment, and medical diagnostics. The top thirty innovations as
reported on the website http://www.smartplanet.com/blog/business-
brains/top-30-innovations-that-changed-the-world/4007 are:
1. Internet, broadband, WWW (browser and html)
2. PC/laptop computers
3. Mobile phones
4. E-mail
5. DNA testing and sequencing/Human genome mapping
6. Magnetic Resonance Imaging (MRI)
7. Microprocessors
8. Fibre optics
9. Office software (spread sheets, word processors)
10. Non-invasive laser/robotic surgery (laparoscopy)
11. Open source software and services (Linux, Wikipedia)
12. Light emitting diodes (LED)
13. Liquid crystal display (LCD)
14. Global positioning systems (GPS)
15. Online shopping/ecommerce/auctions (such as eBay)
16. Media file compression (jpeg, mpeg, mp3)
17. Microfinance
18. Photovoltaic Solar Energy
19. Large scale wind turbines
20. Social networking via the Internet
21. Graphic user interface (GUI)
22. Digital photography/videography
23. Radio frequency identification (RFID) and applications (e.g., EZ
Pass)
24. Genetically modified plants
25. Bio fuels
26. Bar codes and scanners
27. Automated teller machines (ATMs)
28. Stents
29. Static random access memory (SRAM) flash memory
30. Anti-retroviral treatment for AIDS.
From this list we can infer the difference in the scope and focus of pre
and post digitisation innovations. Most of these innovations are solution-
oriented, are based on convergent technologies (digital, mobile, imaging

164
 SC3 Strategic Management

and so on) impact the quality of life of a common consumer, enhance

efficiency and have the potential to create a new industry.

Pre Digitisation Innovations Post Digitisation Innovations

Product centric. Technology centric.

Profitability main focus. Experience and sustainability

emergent focus.

Rate of technology diffusion from Rate of technology diffusion from

developed to developing developed to developing
economies slow. economies much faster.

Country centric innovation Poly centric innovations i.e.

innovations in major R&D centres
in emerging economies.

Efficiency and functionality Effectiveness and technology

improvement focused. convergence focused.

Table 7.1

The organisation’s architecture for innovation

The responsibility for innovation lies with either the research or
development department or the technology department depending on the
structure of the organisation. Further, the innovation has to be diffused
across the organisation and be embedded in the various processes for its
results to be optimised. Here, leadership has a mediating role. Innovation
is also a large-scale change in the organisation and, as with similar
changes, the stewardship of top management is critical for its successful
implementation in the organisation. Three different paradigms can be
used to understand the genesis of innovation.
 What drives the innovation-dominant customer group or
organisation?
 The extent of change that the innovation will bring about.
 Is the innovation process driven or product driven?

What drives the innovation?

There are two ways the product can reach the market. The innovation can
be led by the organisation or by the customer, depending on the nature of
the sophisticated understanding of the product by the customer
(Naryanan, 2001). Alternatively the innovation can be led by the
organisation. The scope and circumstances for these innovations are
presented in the Table 7.2.

165
Module 7

Customer-Led Innovation Organisation-Led Innovation

Customer is knowledgeable Customer is not too aware about the

and savvy technology and its benefits

Customers are innovative Organisation has developed the

and may be ahead of the technology and its application to
organisation on the learning different products. The customers are
curve. Organisation is at the beginning of the learning curve.
receptive.

Technology has been in use Technology is new. The innovation

and the customers have for it has been radical. The customers
developed expertise. will adapt to the technology
gradually.
Innovation is incremental to
the customers.

Table 7.2

What is the extent of change the innovation will bring

about?
The change brought about by innovation can be reactive status quo,
incremental, transitional or radical transformational. Organisations are
keener for innovation which leads to profitability in the short or long run.
For organisations it is difficult to sustain technology-based leadership.
Very few organisations find it feasible in the long term to maintain a
position similar to that of 3M’s (manufacturer of the original Post-it)
leadership based on innovation. Most organisations, instead, carry out
slower incremental changes in product, process delivery and for
profitability. The type of innovation in an organisation can be arranged
along a continuum as shown in Figure 7.2.
Reactive
Status Incremental Transitional Radical

Extend of
Low Innovation High
Figure 7.2

Reactive Status Quo Innovation

This is a situation when an organisation is reactive in being innovative.
Innovation is not driven by its strategic choice, nor is it the fountainhead
of change in an organisation. Instead, innovation is driven by forces
external to the organisation. For example, an organisation shifts to a
“cleaner” Euro II compliant engine because it is mandated by the
government to do so. In a seller’s market an organisation can get by with
reactive status.

166
 SC3 Strategic Management

Incremental Innovation
Organisations bring about incremental changes in products/processes
because incremental changes are easy to implement and also lead to
perceptible differentiation of the product. For example, consider the
incremental change in Intel Chips: Pentium I, Pentium II, Xeon, and
Continuum to suit the different generations of computers. The different
quality improvement approaches such as Kaizan are also incremental
change-centred approaches. Such change captures value (cost reduction→
low price; better quality → fewer complaints) but the basic architecture
and paradigm of technology remains.
Transitional innovation
Many innovations are based on transitional innovations, cars being a case
in point. For similar engine power, the change in exteriors or accessories
can upgrade or downgrade a model making it suitable for different ranges
of price preferences. It can be architectural or modular. Architecture
implies the change in the outward appearance and internal configuration
of the components to reduce, enlarge or differentiate the functionality of
the product. For example, a ceiling fan’s components of blade and motor
can be used to create fans for industrial use or table fans. The power of
the internal components will be altered to suit the functionality. The size
and power capacity of the components changes, but their relationship to
the components within the design remains unaltered. The 1980s brought
miniaturisation of the chips used in hard disks. With each miniaturisation
the linkage among the components had to be changed but the basic
components and their basic relationship remained the same.
Modular transformation refers to the significant change in the elements
and technology of the product. For example, the change from analogue
dialling to digital in a telephone is a modular innovation. Around the
1980s most hard disk manufacturers substituted the ferrite read/write
heads with thin-metal heads. This is an example of modular innovation.
Xerox was the market leader in the photocopiers. Photocopying,
colloquially, was called Xeroxing. Canon on the other hand was a
relatively new entrant. Anticipating that it would be difficult to beat
Xerox in the large photocopiers market Canon focused on the emerging
small copiers market. Meanwhile, Xerox developed some maintenance
policies that were not user friendly. The small copier market required that
Canon change the architecture of the photocopier. Canon was able to
leverage the change in the architecture with marketing and maintenance
policies designed to serve the users of small photocopiers. Xerox, like the
proverbial dinosaur, could not respond in time and lost substantive market
share and dominance to Canon.
According to Christensen (1997) organisations are good at responding to
and developing evolutionary changes. These changes can be called
Sustaining Innovations. The industry leaders develop sustaining
innovations but generally do not develop or fail to be as successful with
disruptive innovations. The sustaining innovations enable them to
maintain higher margins.

167
Module 7

Radical innovation
These innovations entail changes in the components architecture, and
knowledge as well the processes in the organisation. In the case of
microchips, the shift from magnetic to optical technology required a
radical change. The end product, its efficacy, components have been
altered. From the chip example we can see that what may emerge as the
incremental change can progress to a radical change. Understanding and
keeping track of this progression is important for an organisation so that it
can understand and prepare to deal with the changes as they would
require a different set of competencies at the different stages of
progression. Thus if the competitor is changing the architecture or
modularity it may signal to the leading organisation that it should analyse
what is the trigger for the shift in architecture or modularity. Does it
indicate basic structural shifts in the industry, or are its innovation efforts
in the right direction?
Most organisations run into trouble when dealing with revolutionary
changes, called Disruptive Innovation. The products developed as a result
of disruptive innovations initially have lower margins. No organisation
has the knowledge or the process to deal with disruptive innovation.
Usually start-ups are better off at developing disruptive innovation. They
require new organisation knowledge and systems. In organisations that
have very set and standardised routines such innovations are difficult to
bring about. Usually such changes redefine the industry and its dominant
paradigms.
Amazon’s concept of selling books through the Internet changed a very
basic premise of book retailing – that of holding many titles. Amazon
developed a new model for book retail based on different paradigms –
this being a radical innovation. Amazon has redefined the concept of a
book store. Shuffling it from bricks and mortar to bricks and clicks.
Robots have changed steel manufacturing from being highly labour
intensive to capital intensive. Radical innovations have a capacity to
fundamentally alter an industry’s value chain and consequent
formidability.
Is the innovation product or process driven?
New products or an increase in the efficiency of the
manufacturing/marketing/services etc. can be brought about by either
change in the product or the process. Superior technologies in the long
run drive out inferior technologies. The displacement can be because of
the progression in the technology or the substitution of an older
technology by a new one. Pagers were driven out by mobile phones;
personal computers replaced personal calculators, telephones displaced
the telegraph, stencil-based copying was replaced by the photocopier and
so on.
Process based innovations
These include innovations or application of technology to hitherto manual
processes. The scope of process innovation spans: work methods,
equipment, logistics, and distribution. The extensive use of automation,
computers, information technology, lean manufacturing, mass
customisation, just-in-time inventory management, total preventive

168
 SC3 Strategic Management

maintenance, total quality management, and outsourcing are examples of

process innovations.
A more efficient process can replace an existing one (hub and spoke
model in the airline industry) or the efficiency of the existing one can be
improved (as in the total quality management system.) The change in
process introduces efficiencies in the value chain which makes it
imperative for competitors to follow suit. The lead time that an
organisation has till competitors catch up is the time in which the
organisation has maximum gains, provided its other systems are also
aligned well with the process change. For example, in the combined use
of information technology and outsourcing, Nike is far ahead of many
other organisations. The objective of the process change is to gain an
appreciable advantage over the competitor by basically changing the
value constellation in the industry.
Product-based innovation
Innovations that embody technology to enhance a product’s quality,
functionality, usability, flexibility and thus the market reach are product-
based innovations. Product innovations through transformational
architectural/modular or radical change open up new markets within and
outside the country. For example, General Electric developed a cheaper
portable electrocardiogram machine to be used in the emerging markets;
most car makers such as Renault and Volkswagen are keen to introduce
diesel engine variants to the market as diesel is much cheaper fuel than
petrol.
The importance an organisation will give to innovation is contingent on
its externalities, the resource available to support innovation and the
extent to which innovation is critical to be competitive. Innovation
involves a degree of risks. Therefore, the extent of acceptance and
preparedness for innovation is also a matter of strategic vision and top
management commitment for innovation.
To be innovative, an organisation needs:
 An entrepreneurial mind set – which can visualise, articulate and
create an end product on the basis of the idea. It may be the
reason that innovation in very large organisations becomes very
difficult to bring about unless it is a part of the corporate DNA.
 The availability of resources – of special importance is human
resources. First rate people produce first class results.
 An actionable idea which has an operational validity.
 An idea with economic validity that should be able to produce
economic results.
 An attitude to take risk and deal with uncertainty.
Figure 7.4 shows the relationship among innovation and other factors.

169
Module 7

Top Management
Vision, Commitment,
Support

Internal Strategic Focus External

People Technology
Resources Environment

Innovation

Figure 7.4

Innovation is important as it underlies the decision to:

1. Improve and optimise the operations. The improvement in the
operations is the basis for market expansion and short-term
profitability. However, sustained incremental improvisations may
create a position of superiority as has been the case of the
Japanese car manufacturers (Honda, Toyota). The emphasis on
quality upgrading and consistent improvements in the product
established them in the American market.
2. Develop emerging businesses. Improved technology is an
advantage for gaining ground in emerging businesses.
Innovations brought about by Samsung and Apple in the smart
phone category gives them an advantage over Nokia. Nokia was
tremendously successful with earlier generation of phones. It also
developed hardy cheaper phones for the burgeoning Asian
market, especially India, but as the Android platform becomes
cheaper and offers greater functionality the first mover or upstarts
have an advantage to offer to the market cheaper phones. In other
words more innovative companies could replace Nokia in the
price-sensitive market for new generation mobile phones.
3. Create future businesses. Future businesses gradually emerge
from the need set that remains unanswered by the present set of
devices. As the market volume shifts to the emerging countries,
the some businesses of the future would also emerge from there.
Access to sustainable energy is one such emerging business.

Diffusion of innovation
The innovation has to permeate the market place to be commercially
successful. If diffusion is successful other firms may imitate the product
or the process.
In India, a fair complexion is considered desirable and a measure of
beauty among women. Sensing the pervasiveness of being fair to be
considered beautiful, Hindustan Unilever launched a cream branded Fair
and Lovely which became the largest selling cosmetic cream in the world

170
 SC3 Strategic Management

in terms of volumes and a net revenue generator for HLL. Many

companies aspiring to latch on to the fairness product bandwagon
imitated Fair and Lovely and many similar sounding products flooded the
market. Even cosmetic majors such as L’Oreal felt compelled to offer
similar products and extend the range of their other cosmetics such as
face-washes and sunscreens, also to have a “Fairness” component in
brand name. Calvin Care, a company that gave the shampoo range of
Hindustan Lever a run for its money, launched Fairever to counter Fair
and Lovely. This is imitation.
The diffusion process is influenced by the characteristics of the
population in which the diffusion will take place. In Asian markets
consumption is relatively more influenced by the socio cultural norms.
The case study given below explains the role social conditioning and
timing can play in the acceptance of a product. It is possible that a high
quality product may not be acceptable because the dominant social mores
do not view its use favourably.

Case study
Diffusion and culture of consumption
In India there is a tradition of having snacks with evening tea. Most of the
times these used to prepared at home and stored for consumption during tea
time. Women pride themselves in preparing fresh tasty snacks for the
Case study family and believe that this effort in the kitchen shows their concern and
commitment to the family.
An Indian company which had been successful with a domestic fire
extinguisher decided to launch air-tight containers for storage of the tea
time snacks. The containers were of very good quality and predated
Tupperware containers in the Indian market. The manufacturers believed
that the quality of the product would ensure rapid acceptance. However, the
contrary happened. The containers found very few buyers. Feedback from
consumers showed the problem lay in a sphere the company had not
thought of!
In India preference is given to fresh food items. Many households have a
practice of making instant snacks for tea time. Gradually there was a shift
towards market-made snacks, namkeens, as they are called. Even the
market-made snacks are kept for just two to three days and consumed, and
then fresh ones are brought. The capacity of the container to keep food
fresh had inadvertently been construed to mean that lazy homemakers kept
food for a long time in such containers and were less concerned about the
health of their family members Peer group pressure was too strong for
women to buy the containers and risk having the label of being lazy
homemakers. USP, the manufacturer, had banked upon the capacity of the
containers to maintain freshness, but in real life became its most critical
reason for lack of sales.
About ten years later Tupperware entered the Indian market using the
multi-level marketing route with referencing as essential to buy the product.
The Tupperware product was accepted more easily. Not only was the
referencing for the product more positive from the peer group but the

171
Module 7

extended range of the containers did not signal the containers as being used
only for storing snacks and hence condemned for use by lazy homemakers.
The extended range made the product acceptable and provided the ease of
sheltering one’s use from judgment by others. By the time Tupperware
products were brought to the Indian market many more women had joined
the work force and there had been a significant shift in the attitude of
women regarding the acceptability of stored food items for consumption
and the number of days they could be stored and still considered fresh.
From this case we can see that in the diffusion of the product, the cultural
functionality for usage, as well as the timing also plays an important role.
The adoption of a product depends on the speed with which users learn to
use them. With innovation, the product, process, design, and user interface
changes. The user may have to learn about some attributes and applications.
For example, there are many applications in smart phones which younger
consumers learn about faster than the older consumers.
The characteristics of innovation and the overall support from the networks
and technological inter-relatedness also impacts diffusion. Innovation is
accepted with relative ease if there is a clear advantage, an ease of
transition from the older to the new and if it fits in with the existing
organisational routines. If large-scale changes have to be made in existing
systems for adopting the technology, diffusion may be problematic.

Innovation in Asia
For many years Asian organisations have built upon the technology of
Reflection the West. Gradual, but consistent improvement followed relentlessly by
the Japanese car makers created a situation in which the Japanese cars
performed far better than their American counterparts in the U.S. The
diversity in the consumption patterns, income levels, education levels
and the asymmetry of provisioning of resources such as drinking water
and power drives innovation in Asia. In Asia there is a substantial
market for both ultra luxurious products as well as for products at the
other end of the spectrum.
The thrust of the innovation strategy is to develop innovative products,
distribution and business models suited to the local social, cultural and
economic environment. According to Agtameal (2007) the Asian and
emerging economies are capable of developing products that are of good
quality and affordable by a large population. Organisations in these
countries can develop a USD 3000 car (Tata Nano), USD 300 computer,
USD 30 mobile phone and a 2 cent per minute telephone call!
Some of the salient features of the Asian countries that have an impact
on the innovation thrust (thrust includes the direction the degree and the
speed of innovation that the organisation works upon) are:
 Emerging middle class.

172
 SC3 Strategic Management

 Low purchasing power.

 High aspiration levels.
 Rapid diffusion of information.
 Geographical dispersal of markets.
 Large consuming population.
 Complex political systems.
 Developing economic and social infrastructure.
 Growing entrepreneurial culture.
 Regional disparities in growth.
 Heterogeneity of markets and consumption.

Asian markets therefore provide ample opportunities for innovation

ranging from the most sophisticated pharmaceutical research labs/car
research centres to innovations centred on cost reductions in common
appliances. For example, different organisations of varying sizes and
belonging to different industries are working at creating commercial
viability of eco-friendly energy sources such as geothermal, solar, wind,
and biomass, with some degrees of success. Using the terminology of
Prof Clayton of the Harvard Business School, in the Asian markets there
is scope for the development of sustaining innovation as well as
disruptive innovation. The focus of innovation is on:
 Modification of the product quality.
 Innovation in raw materials etc to reduce costs.
 Innovations in the delivery systems.
 Automation and digitisation for efficiency.
 Innovations to make consumption possible where there is none.
 Innovations to meet the quality aspirations of the emerging
customer class.
 Innovation in service delivery, management processes and
organisation systems and design.

Incremental innovation in quality to a point where quality was seen as

the mantra was the hallmark of Japanese companies which was later
followed by Korean organisations. In India and China, innovation has
been the outcome of the liberalisation of their economic policies and the
opportunities which the consuming population presents. The
consumption spectrum includes the innovations to fulfil basic needs
such as electricity to ultra sophisticated medical care. In India, mobile
providers are able to offer the cheapest call rates, an upstart can change
the game in the shampoo market and a range of low cost cars for
personal and commercial use can be developed because of the large pool
of consumers.

173
Module 7

Innovation and strategic fit

Technological innovation is an important competitive tool; it improves an
organisation’s performance across functions and different managerial
activities There is empirical evidence suggesting a strong interaction
between growth in sales and different innovations; between expenditure
on R&D (as a proportion of sales) and new product announcements and
with performance measures such as value added and market to book
value. Service process innovations result in improvement to the service
provider’s productivity and flexibility; more rapid production and/or
delivery of services; improvement in quality of services provided;
increased market presence through a wider range or a more “user-
friendly” set of services. Product-process innovation has a positive impact
on financial results, market position and bargaining power.
Impact of organisational factors on innovation and technology
strategy
The extent of organisational learning is the main ingredient for fostering
innovation. We now identify major organisational factors that create
learning environment which further promotes innovation.
Open communication channels – The higher the degree of openness, the
better the learning environment.
Training and Development programme – though not for innovative inputs
as such – is one of the channels to upgrade technological capabilities of
the firm through provision of better learning opportunities.
Learning is known to be promoted by inter-functional integration which
can be brought about by job rotation, and formation of interdivisional
teams.
Existence of reward systems for furthering and sharing knowledge is also
an important ingredient as more informalisation in the organisational
structure.
Leaders’ dispensation to innovation helps create a culture of innovation
which is an important variable for fostering innovation. According to
John Kotter, organisations such as Eastman Kodak which at the time of
inception were driven by a very strong innovation culture, lapse into a
complacency that inhibits their capacity to see, analyse and act upon the
wave of innovation driving the industry. Film-based technology had given
way to the digital technology, yet Kodak did not realise that the basic
dynamics of the industry had changed. Photographic equipment, such as
cameras, were more “electronic products” than the “cameras” as Kodak
saw them. This transition of the product gave Sony a chance to develop
cameras for a more contemporary photographer who wanted ease of
operation and fun while taking pictures. Pictures were no longer family
portraits for nostalgia. In the film segment Fuji Film was performing
better than Kodak. Kodak could never fully make a transition from film-
based to digital technology across the entire spectrum of photography:
cameras, filing of digital photos, archiving or retrieving. Had Kodak seen
the shift in technology and acted, it could have been the leader in
integrating the digital aspect with the Web (with help from smaller

174
 SC3 Strategic Management

Internet-based companies) but it didn’t. Non-responsiveness to these

changes was not so much a matter of inability to transit, as it was a matter
of inability to grasp the need for tsunami-spurring change within the
organisation.

Within your group discuss the reasons for the differences in behaviour
of organisations when it comes to innovating. In your discussion explore
the different aspects of this behaviour by referring to successful
organisations such as 3M and unsuccessful ones such as Kodak. You
Discussion will also choose to study and discuss the local organisations in your
region and country. Note the different points of view and write a short
note on key variables that impact an organisation’s response to
innovation.

Module summary
In this module you learned about the crucial role technology and
innovation play in strategic decisions. Technology is the science through
which much of innovation happens. Innovation can also take place within
Summary the ambit of processes, systems and design. The main objective of
innovation is to create a more efficient and effective organisation. Ideally
the innovation must be sustainable and lead to competitive advantage of
some nature.
Organisations can be innovative with products or processes
incrementally or radically. Consistent incremental innovations also lead
to sustainable advantage. It is difficult to copy the subtle changes
consistent incremental innovation brings about. Innovation centred on
developing those products and processes that fulfil unmet needs give an
organisation a first mover advantage and such innovations are the trend
and need in Asian and emerging markets.

175
Module 7

Assignment
Explore the trends towards innovation in your country. What are the
most innovative businesses? Why do you think they are innovative is
innovation led by demand or pro-activism of the organisation? How have
the innovative organisations performed economically over the past three
years? Maintain a record of all the sources from which you have gathered
Assignment information and present the report to your instructor. The report should
not exceed ten A4 size papers typed in 12pt font and one and half space.

Assessment
Given below are the cases Chotu Kool and the Solar Kiosk from India
and Ethiopia which explain how innovations develop products that are
simple but within the resource constraints for which they have been
Assessment innovated they are unique and capable of making people’s lives better.
This does not imply that all innovation in the Asian or emerging
economies has to be basic and address the issue of functionality within
resource constraint. It implies that there are many opportunities to be
innovative in these two types of economies. Such innovations can prove
to be a breakthrough when their use transcends the assigned boundary
and is more widely accepted. In that situation they pose a challenge to
established products and technologies.

Chotu Kool
The Chotu Kool refrigerator launched by Godrej and Boyce (a firm in the
business of real estate, FMCG, industrial engineering, appliances,
furniture, security and agricare) weighs about 8 kilograms, is portable and
is priced at USD 70. The challenge was to develop a fridge that didn’t use
electricity, was portable and affordable for the 71 million households who
earn USD 5 a day. The fridge would be used to cool five to six bottles of
water and stock three to four kilograms (six to eight pounds) of
vegetables. Availability of the cooling device also makes it possible to
keep medicines under ambient conditions.
The fridge uses the same principle for power as laptops. The power
source is a small fan and a chip. Its electricity consumption is half that of
an ordinary fridge. It stays cool using high end insulation. The power
source couldn’t be mains electricity as power supply is erratic and of poor
quality, consequently even in higher income village households a fridge
isn’t a common device. In the absence of mains power the recourse is the
diesel generator which is expensive to buy and maintain. The fridge was
developed in consultation with village women so as to accommodate their
requirements and build familiarity and acceptance.

176
 SC3 Strategic Management

A fridge similar to Chotu Kool is used in the West for barbeque beer
chillers. This innovation is not a stripped down version of a superior
product but developed to meet the needs of a population that is socially,
culturally and economically different. If Chotu Kool is successful in the
rural market is there a possibility that the same finds a place in urban
households for its compact size, affordability and ease of use?

Solar Kiosk
Innovation in emerging economies has to address the non-availability of
basic resources taken for granted in the developed world. One such
innovation is the Solar Kiosk launched in the African nation of Ethiopia
on 15th July, 2012. The Solar Kiosk offers clean non-polluting power to
those people whose only other source of power is kerosene or diesel fuel
which is unhealthy and heavily polluting. Mains power availability is
poor and erratic. Equipped with rooftop photovoltaic panels, the energy
hub provides enough power for solar lighting, mobile phones, car
batteries, a computer and even a solar fridge. Furthermore, local residents
will be able to purchase solar lanterns, mobile phones, re-charge cards
and refreshments that one typically finds in a kiosk. Since the kiosk is
most likely to house the only refrigerator in the community, it can also be
used to store community emergency supplies and medicines. The solar
kiosk is the innovation of the German firm Graft Architects. Its idea is to
provide an autonomous unit that sells energy tools and products. With
about 1.5 billion people around the globe who remain without access to a
stable source of light, the Solar Kiosk is intended to provide a safe and
affordable solution for inhabitants in off-the-grid areas. As a local
business, Solar Kiosk will provide training and secure jobs to several
people from the community. This will include training that will educate
kiosk operators on how solar products work, how to maintain them, and
the everyday workings of a sustainable business.
The Solar Kiosk concept is designed as a light-weight structure that is
delivered in a kit of parts. The kiosk can be assembled on site using local
materials and in extreme cases can even be transported on the back of a
donkey. The basic model can be modified to create a larger structure or a
series of small kiosks, while the largest Solar Kiosk prototype can
generate enough power to run a telecom tower.

From these examples it is clear that innovation is not always hi tech and
that innovation can happen on its own initiative as it did in the case of
Chotu Kool or with assistance. The main idea is the benefits of the
innovations should be clearly spelled out and the commercial viability
must be built in.
In Asia innovation is driven by multinationals as well as large Asian
conglomerates such as Samsung and smaller organisations.
Multinationals in Asia realise that the Asian market needs product and
process innovations suited to the needs and peculiarities of the region. GE
has stepped up its research facility in Bangalore, India. Innovations are
not confined to low-technology areas but are taking place across

177
Module 7

industries ranging from green automobiles (Nissan’s Leaf Car) to solar

panels and electricity. In Asia, innovations in service delivery are also
taking place in health care education, use of e-platforms. Perhaps the
large population, heterogeneous geography, and multiple political
ideologies all create a cauldron of interesting flavours in which
innovation is only limited by imagination.
In your country too there could be an innovation similar to Chotu Kool.
Develop a case on one similar innovation indicating the need the
innovative features and possibility of its large scale acceptance.

References
Agtmael, A. van. (2007). The Emerging Markets Economy: How a New
Breed of World Class Companies is Overtaking the World.
London: Simon and Schuster.

Reading Christensen. C. (1997). The Innovator’s Dilemma. Boston. Mass:

Harvard Business School Press.

Lumpkin,G.T. & Dess. G.G. (1996). Clarifying the Entrepreneurial

Ambition Construct and Linking it to Performance. Academy of
Management Review.28. pp. 135-172.

Naryanan, V.K. (2001) Managing Technology and Innovation for

Competitive Advantage. ( South Asian Edition). New Delhi:
Pearson Education.

Schumpeter. J. (1942.) Capitalism, Socialism and Democracy. Accessed

at transcription: English uccb.edu on 10th July 2012

Scholefield, J.H. (1993). The Development of R and D Planning Model

at ICI. R&D Management, Vol. 24, Issue 1, pp. 91-97.

178
 SC3 Strategic Management

Module 8

Social Responsibility and

Corporate Strategy
Introduction
Organisations are institutions within society. They have grown to
enormous proportions and consume almost all the resources that the
planet has to offer. Over the last 30 years there has been an increasing
concern about the responsibility of the modern commercial organisation
towards society. Why should the business organisations be burdened with
social responsibility is an often asked question. The answer lies in the
size, clout and resources organisations have acquired over the last 150
years. Undoubtedly, the main business was to earn profits, at the same
time prudence required that they act responsibly towards the society
within which they function.
The evolution of social concerns has happened over time and
organisations have responded by choosing to be more proactive rather
than reactive. Earlier, social concerns were separated from the
mainstream of decision making and were not integrated with the strategic
focus of the organisation. For modern organisations the choice is not so
much about to do or not to do, but how and to what extent the legitimate
concerns of society must be integrated in the strategic decision making.
Corporate social responsibility implies a commitment of the organisations
to be ethically, economically, socially and ecologically responsive on a
voluntary basis. This extends beyond the regulatory compliance and the
actions taken thus are is in excess of the compliance requirements. The
voluntary compliance of social and ecological responsibility of companies
is called Corporate Social Responsibility (CSR).

179
Module 8

Upon completion of this module you will be able to:

 demonstrate an understanding of the evolving nature of societal

concerns.
 define social responsibility in the corporate context.
 enumerate the difference between a stakeholder and shareholder
Outcomes concerns.
 demonstrate an understanding the different stakeholders’ claims.
 develop a social responsiveness model.
 examine the relatedness of corporate strategy with societal
strategy
 apply the social responsiveness model to real life/case based
situations.

Discontinuous: A fresh change in the environment.

Ecologic: Pertaining to air, water, forest, soil, flora and fauna

of the region the business operates in.

Terminology Free enterprise: A doctrine that propagated a regulation free

environment for business to operate in. The market
mechanisms are supposed to be the regulatory
mechanism. The doctrine was developed by the
economist Adam Smith; however, human greed
did not follow the market regulations creating a
need for government controlled regulations.

Shareholder: Those stakeholders whose primary concern is

capital appreciation and wealth maximisation.

Social The determination to serve a social segment to

responsiveness: what extent in what manner

Stakeholder: Diverse groups of people such as the government,

public, community, consumers, banks, vendors’
institutions who have an interest and stake beyond
capital appreciation in a business organisation.

180
 SC3 Strategic Management

The Genesis of Social Concerns

Organisations are institutions within the society. For the first time in
human history there came an institution that produced goods and services
as well as generated enough wealth for its own growth. Growth of the
business organisation was fuelled by the entrepreneurial activity which
led to economic prosperity for many countries. It was expected that the
business organisation would on its own act in a manner conducive to the
overall well-being of the society. The Adam Smith doctrine of “free
enterprise” prevailed for some years. In due course, it became evident that
the free enterprise doctrine did not necessarily lead to desirable results for
all the stakeholders. Business organisations resisted some of the
regulatory moves and insisted on the efficacy of the free enterprise
mechanism. Economists such as Milton Friedman were vociferous critics
of loading the business organisation with any responsibility other than the
generation of profits. Businesses set up social responsibility programmes
to counter the criticism. Special programmes that addressed the concerns
of dominant stakeholders were initiated in areas such as employee
welfare, education, vocational training, and customer safety. These were
usually stand-alone programmes and not linked to the strategic decisions
of the organisations. Most such programmes were taken care of by the
administrative and public relations departments. Over the last several
decades it has become clear that business and society have to coexist and
have to find common ground and neither the rhetoric of free enterprise
freedom nor that of excessive controls would lead to the common ground.
In Asian countries “free enterprise” was constrained by the belief that
government should take up the tasks of the business organisations and get
into active manufacturing and provisioning of services for citizens’
welfare. The dominance of the government in some countries such as the
former Soviet Union and China, and the adoption of the mixed economy
model in India created a system where government is also in business.
Both the free enterprise dominated and the government dominated
systems had their respective drawbacks and failures. The question of
businesses’ societal involvement had no clear answers yet it was evident
that the answer lay more with businesses.
Businesses had grown to enormous proportions and consumed almost all
the resources that the planet has to offer. Some of the negative by-
products of business behaviour that attracted attention were:
 Contamination of the natural environment and reluctance to bear
the costs of clean-up.
 Pursuing strategies hostile to the customer such as cartelisation,
monopoly pricing, goods that are sub-standard and do not adhere
to specifications.
 Ignoring the consequences of irresponsible consumption and
ignorance of the life cycle approach to product management.
 Indulging in anti-social behaviour such as giving bribes, selling
harmful products through false advertising, discrimination and
dishonesty.

181
Module 8

 Callous attitude towards workers, employees and even customers.

 Interference of business interests with national interests. Crony
capitalism is the bane of social and economic progress in many
countries because it is not true entrepreneurship but subversion of
due processes by some for huge pecuniary advantages.
If business behaviour was to be plotted in terms of concern for
profitability and concern for social issues then the business behaviour
could be placed in broadly four quadrants:
1. Low concern for both profitability and social concern undesirable
behaviour.
2. Low concern for profitability but high concern for social issues –
this would be irresponsible behaviour because the first
responsibility is to be self-reliant and generate resources for self
and society.
3. Low concern for social issues and high concern for profitability
would indicate a self-centred behaviour which will attract stiff
regulation in the absence of self-regulation.
4. High concern for both profitability and society. This is an elusive
ideal behaviour.
Most of the organisations may be more middle of the road than being any
of the extremes. The four quadrants indicate the broad drift of the
organisation if not an absolute positioning.

Figure 8.1

Why business organisations should be expected to be more socially

responsible is an oft asked question. The answer to the demand for
responsible behaviour lies in the size, clout and resources the business
organisations have acquired over the last 150 years of existence. Table
8.1 lists the size of some of the organisations in comparison to the Gross

182
 SC3 Strategic Management

Domestic Product of some of the countries and is a testimony to the

capabilities of the organisations to solve some of the most endemic
problems that humankind faces, largely brought on by the production
consumption cycle.

Organisation Revenue Country GDP

in billion in
USD$ billion
USD$
2012

Exxon Mobil 486.4 Thailand 346.0

(oil, gas)

Royal Dutch Shell 470.0 Malaysia 279.0

Wal-Mart 466.0 Singapore 240.0

BP (formerly British 384.4 Philippines 225.0

Petroleum)

Vitol 297.0 Pakistan 211.0

(Grade Oil Trading

Sinopet 273.4 New Zealand 142.0

(oil and gas)

Chevron 253.7 Hungary 140.0

Conoco Phillips 251.0 Vietnam 123.0

Toyota 235.8 Sri Lanka 59.0

State Grid Corporation of 226.0 Mauritius 11.3

China

Table 8.1

Distinction between the expectations of the shareholders and the

stakeholders is understood to be the reason for conflict between the
provisioning for social concerns and the drive for higher profits. The
shareholders are one kind of stakeholders who seek capital appreciation
and returns from an organisation. On the other hand stakeholders (whose
numbers are more) are those whose interests are not financial return but a
better quality of transactions as and when they interact with the business
organisation. These stakeholders include the community, government,

183
Module 8

customers, banks, employees, and other organisations, in fact anybody or

organisation who deals with a business is its stakeholder. Figure 8.2
shows the different stakeholders (the white coloured circle) and their
broad expectations regarding economic performance issues, social
performance issues and the ecologic issues (in the purple circles.)

Figure 8.2

The concept of corporate social responsibility

A conflict between the interests of the stakeholder and the shareholder is
endemic while addressing the issue of whose interests to prioritise. The
provisioning to meet the interest of the stakeholders is seen as a dilution
of the financial returns to the shareholders. As a dominant institution of
the society, business is now expected to conduct itself in a manner that
the negative impact of its economic behaviour is reduced. There is a
reasoned logic in the assumption that business has to act voluntarily to
emerge not only as a wealth generating institution but also as a
responsible, sensitive institution of society whose multiple resources and
expertise can be used to improve the human existential conditions. The
stakeholders expect the organisation to optimise its economic, social and
ecologic performance. The three are not isolated from each other but
interlinked.
The economic performance expectations imply that the organisation must
undoubtedly be profitable. An unprofitable organisation does not at all

184
 SC3 Strategic Management

optimise the use of resources most of which are no longer as freely

available as before. Beyond capital appreciation, the organisation is
expected to develop knowledge and intellectual capital which can be
harnessed to meet some of the legitimate but unmet needs of society (the
solar kiosk in the last module is one such example). The compliance of
regulations is mandatory as the regulations are seen as safeguards for the
larger interest and not controls on business. The organisation has
developed sufficient knowledge to comply and at the same time be
profitable.
The economic role of business has the potential to create social disparities
by concentrating more on wealth in the hands of some people. The role of
business in the equitable distribution of the economic benefits is accepted.
In 2012, many billionaires under the stewardship of Berkshire Hathaway
founder Warren Buffet had come forward to pledge large donations for
global humanity causes. Organisations are well-placed to develop
programs for employee welfare and safety, encouraging the
disadvantaged groups to join the main stream through programmes of
inclusive growth or diversity enhancement. Organisations are also well
placed to further learning and sharing for greater good.
Ecological concerns are gaining ground with the depletion of resources,
climate change and ecologic disasters such as the Exxon Valdez accident,
methyl isocyanate leakage at Bhopal plant of Union Carbide. Applying
the simple systems concept to the organisation we see that they consume
resources at the stage of input, transformation and output. In the process,
some of the natural resources get depleted. Resource depletion and
pollution are the two important consequences of production of goods and
services. It is imperative that ecological balance must be maintained in
the production and consumption of the goods and services (Figure 8.3).
This places the onus for responsible behaviour on the organisations.

Figure 8.3

185
Module 8

According to UNIDO (United Nations Industrial Development

Organisation), “Corporate Social Responsibility is a management concept
whereby companies integrate social and environmental concerns in their
business operations and interactions with their stakeholders.”
Corporate social responsibility implies a commitment of the organisations
to be ethically, economically, socially and ecologically responsive on a
voluntary basis. This extends beyond the regulatory compliance and the
actions taken thus are is in excess of the compliance requirements. The
voluntary compliance of social and ecological responsibility of companies
is called Corporate Social Responsibility (CSR).

The triple bottom line approach for CSR

For being socially responsible the triple bottom-line approach is also
advocated. The phrase” “Triple Bottom Line” was coined by John
Elkington in his book Cannibals with Forks: the Triple Bottom Line of
21st Century Business, published in 1997.
The three Ps imply people, profits and planet. The idea of the 3P
approach is that people, planet and profits are interlinked. People are not
only the employees but also those outside. The 3P organisation does not
take decisions that harm or exploit the people (exploitation includes
employment of child labour or unfair employment practices). The planet
refers to the ecologic environment. The 3P organisation is sensitive about
the ecologic footprints its consumption may leave so it refrains from
manufacturing that which is ecologically disastrous or unsustainable. Life
cycle assessment of its products is carried out to facilitate disposal. Profits
are the economic returns. The return is not just the accounting return but
also the return earned on good practices. The 3P approach considers the
argument that involvement with sustainability and community renders
businesses unprofitable, as being untenable.
The triple bottom line approach was first used in the corporate context by
the Shell Group in its 1997 sustainability report. Sustainability was first
defined by the Brundtland Commission of the United Nations in 1987.

Activity 8.1
A group of industries is specified for this activity. The industries are
Medicare, hospitality, cars, mining, entertainment, chemicals, foundry,
textile, food processing and agriculture.
You are required to gather information about the ecologic impact of these
Activity
businesses. You will gather information about main pollutants,
regulations of pollution, type of regulation (on a scale of 1 to 10 rate it in
terms of stringent or lax with 10 being highly stringent) and measures
taken by the organisations to be ecologically responsible.

186
 SC3 Strategic Management

Social responsibility model

For its societal strategy to be meaningful it is important for an
organisation to decide upon the following:
 The extent of its involvement - from reactive to proactive shown
as ‘A’
 The choice of the area it will serve beyond regulatory compliance
shown as ‘B’
 The resources it will commit to the area/ issue shown as ‘C’.

Figure 8.4

The extent of the organisation’s involvement implies whether it seeks a

proactive posture or a reactive one. Usually, the earlier behaviour of the
business organisations has indicated that they chose to be reactive rather
than proactive. The wisdom of being reactive was that the business of
business is business and the organisations should not commit action and
resources till compelled to do so. Unless there was a compulsion there
was no sense in taking any decision as any proactive behaviour will only
invite more restrictions.
The demands placed on a business evolve over time. Usually, there is a
pattern in the emergence of the demand. Let us consider the issue of
automotive emissions. First, awareness at large is created about the
harmful effects of the emissions, the expectation of action follows the
awareness, and some organisations may respond to it and use it as a
differentiating factor. Most others do not respond. There is some
dormancy for the issue and then the demand for action rises and then

187
Module 8

enforcement through legislation is enforced (as shown in the Figure 8.5).

The corporate response is evolutionary and not ad hoc.

Figure 8.5

However, some organisations are more proactive than reactive. Even in

the case of regulations some organisations may set the bar beyond just
regulatory compliance because as the society learns the acceptable levels
of behaviour also change. Whether the organisation will be proactive or
reactive will depend on managerial knowledge and awareness, the type of
industry the business organisation is in, and the economic health of the
organisation.

The choice of the area to be served

Organisations cannot meet all the expectations. However, all the
organisations can meet all the expectations by staggering them among
themselves and meeting those for which the organisation has the
complementary skill and competence set. Having fulfilled the various
regulatory requirements an organisation may choose to address the issues
of ecological, social, governance or economic segments in its
environment. The choice would depend upon the relevance of the sector
to the business, the environment forces driving the attention to the cause/
issue, the skill set that an organisation has and the kind of changes that it
can bring about.

Resource Commitment
Engagement with any issue of concern involves resource commitment.
The organisation has to decide upon how much time, money, manpower,
good will and skills to commit to the cause. The commitment to the issue
is usually determined by the top management.
For example, a carbonated cold drinks manufacturer locates its plant in an
area where the water table is low. The manufacturer will inevitably
consume water and lower the water table still further. This action is a

188
 SC3 Strategic Management

cause of community resentment. In the perception of the community the

organisation has claimed resources for its commercial use and it is natural
that it does something to restore the water table. With the area being
water scarce, the actions of the organisation attract negative publicity. At
this juncture the organisation may treat it as more of a public relations
exercise and highlight some cosmetic action. These will provide
temporary respite. The involvement of senior managers and the
highlighting of the issue to the top management elicit a different response.
The organisation develops a long term plan of water management with
the active involvement of the local community and government
department experts. It initiates voluntary action to improvise measures to
recharge round water and also educate the local community in simple
measures they can adopt for recharge and conservation. It funds those
initiatives. The organisation decides to address issues of sustainable
agriculture and restoration of traditional water bodies and water
harvesting systems. These concerns are aligned with the business interest
of the organisation and at the same time relevant to the community.
Some of the social initiatives are actually economically very beneficial
such as promotion of energy efficiency or recycling. These can be aligned
with the competitive strategy. For example recycling may reduce costs
and also lead to differentiation. Many organisations adopt such measures
as the first steps toward social responsibility. This serves two purposes.
First, such programmes can be aligned with the existing operational
programmes of the organisation. Secondly, the success of such
programmes reduces the managerial scepticism and makes acceptance of
subsequent programmes easier. The programmes are not seen as wasteful
of time.

189
Module 8

Activity 8.2
Identify the top three revenue generating organisations in your country.
Identify the main industries they operate in. Study the social concerns
they have addressed in the last three years. Present your answer in the
given format.
Organisation Key Social issue Key Measurement
Activity Industry addressed Beneficiary used(%age or
and resource any index)
Committed

Next using the figure below plot the social responsiveness of the
PETRONAS Corporation in terms of proactive versus reactive, social
concerns addressed and resource commitment.

190
 SC3 Strategic Management

Developing the societal strategy of an organisation

We now look at the social commitments of a few leading organisations
and understand the process of development of the societal strategy.
Wal-Mart (www.walmartstores.com/sustainability) by virtue of its sheer
size assumes importance. Wal-Mart has identified renewable energy,
recyclable waste and responsible sourcing as its thrust areas for the year
2012. The global size of the business, the millions of customers,
associates, vendors, and other stakeholders have to be brought on board to
develop any social initiative. For an organisation of the size of Wal-Mart
it is not possible to take up any initiative without building the requisite
capacity. Wal-Mart has developed a sustainability index tool to assess and
improve the sustainability of its products.
Huawei is a China based ICT organisation which has defined its social
responsibility in the following terms:
Bridging the digital divide: Huawei provides customised solutions to
enable people in different regions to access information, takes the
initiative to help underdeveloped regions nurture talent, and form
effective education systems in the field of communications, and to
improve regional technology to promote communications.
Fair operation: Huawei abides by ethical business practices, operates
with integrity, and strictly observes Huawei Business Code of Conduct.
Huawei promotes fair operations, strictly implements “transparent
procurement” and “transparent sales”, and opposes bribery, corrupt
activities, dumping, and monopolies so as to build a harmonious business
environment.
Environmental protection: Huawei actively communicates with customers
on energy conservation and environmental protection. Huawei closely
collaborates with enterprises across the value chain to build
environmentally-friendly networks, and promotes sustainable
development of the industry in order to achieve our objective: “Green
Communications, Green Huawei, and Green World”.
In addition to these initiatives Huawei has been responsive to the needs of
the underprivileged, ravaged by natural calamities citizens of different
countries. The social responsibility expressed in terms of vision, mission
and strategy is shown in the Figure 8.6.

Figure 8.6

191
Module 8

From the cases of Wal-Mart and Huawei cited above some inferences
about the process of responsiveness can be developed.
The organisation takes time to react to the demand to address the social
concerns. It needs time to understand, analyse the situation and articulate
the response. (Figure 8.7 explains this also).
The response to the social concern is generally a top-down approach,
perhaps because social concerns, unlike manufacturing concerns for
quality, are not yet fully integrated down the hierarchy.
Social concerns have to be integrated with the core business. In the case
of Huawei, the concern to minimise the digital divide stems from the core
business. A digitally divided world in terms of those who have access and
those who don’t restricts the choices for the organisation. It is in the
business interest to reduce the digital divide.
Societal concerns to the extent possible should be integrated with the
business processes and ongoing business activities.
Measurement of the social initiative/programme is important for it to be
accepted organisation wide. There are many aspects of these initiatives
programmes that have to be incorporated with the functional processes.
Eventually, all the processes are measurable in some form or the other.
For example, the adherence to pollution norms has to be aligned with
procurement and operations may be on a pilot basis initially and later
made scalable.
Those social initiatives that eventually are the responsibility of the
operating levels such as product safety, waste disposal, responsible
procurement, business development for the disadvantaged segment (for
example, narrowing the digital divide would entail developing affordable
products or community usage which may have different business models)
require additional resource allocation and work and responsibility
redesign. These are also the areas where the resistance to “additional”
jobs can be the highest.
The integration of societal programmes with the mainstream operations
and business strategies can be done at an early stage. The programmes
can be aligned with new product development/access to new
markets/development of innovations/differentiation. The programmes can
be aligned to risk mitigation in terms of has our socially responsible
behaviour reduced the risk of stricter regulation or penalty. Has the public
perception about our actions and organisation improved? Have we been
able to develop alternative supply chains? Cost reductions through
alternative sourcing, promoting energy efficiency, recycling, re-using are
also possible. The organisation can set targets in those areas and take up
larger projects.
The managerial capability to handle societal strategy has to be developed.

The process of societal strategy formulation

Societal strategy formulation, like corporate strategy formulation, is a
complex process. It has a political dimension as well as an analytical one.

192
 SC3 Strategic Management

On one hand there are the aspirations of the stakeholders as detailed in

Figure 8.2. On the other hand there are the constraints imposed by
resources and managerial choices. The constraints that are already in
place have an impact on the societal strategy. For example, the existing
norms in many countries for effluent treatment or emissions will impact
the performance of the strategy in those areas. If the regulations are strict
and the price of non-compliance is high whether or not the segment is on
the managerial agendas it will be served and the resources consumed after
fulfilment of the obligations will be allocated for the other areas. In fact, a
large part of the societal budget may be consumed in the compliance with
existing regulations.
Within these constraints, shown as choice political and compliance
dimensions, the organisation develops its societal strategy as shown in the
Figure 8.7 which is to serve either the cause of socio- efficiency or eco-
efficiency or a combination of the two. The example of the cola
manufacturer above is a combination of both socio and eco efficiency. At
the functional levels the organisation takes up those actions that are to be
integrated with operations.

Figure 8.7

Some of the operationally-oriented functional-level strategies are

sustainable procurement, mandatory disclosures, life cycle approach,
sustainability reporting, and sustainability audit. These are integral to
procurement, compliance in areas such as effluent disposal, operations,
finance, and marketing. Adoption of these in an integrated manner serves
an organisation better than a disjointed or segregated adoption. For
example, if Wal-Mart follows the strategy of responsible procurement and
labels its products as being sourced from women for a cause and the
sustainability accounting apportions cost as a sustainable cost then the
picture within the organisation about the rationale of the action and its
financial accountability is clearer than would be if procurement was a
stand-alone exercise taken up sporadically.

193
Module 8

These functional strategies have to be integrated with the business level

strategies. For example, the sustainable procurement and sustainable
accounting are linked and the procurement indices and percentage should
be a part of the overall procurement rather than a standalone exercise. In a
competitive world only those organisations that serve the niche market for
sustainable products can compete only using sustainable materials.
Gradually, as customer awareness increases and they accept the need to
pay more if need be the sustainable index in procurement can be
increased. Thus customer awareness will have to be a part of the
sustainability strategy. However, there is an emerging market for
sustainable products such as cars (electric) for which a different set of
strategies would work and where the entire value chain will be configured
with different players following the same ethos.
Linking the social agenda of business with the strategic management may
be a complex exercise but not an impossible one. How the agenda can be
a part of the overall strategy should be done from the initial stages to
minimise resistance as the organisation scales up its sustainability actions
across the organisation.
Figure 8.8 sums up the different stages an organisation may go through
before the societal strategy is fully operational.

Figure 8.8

During the first stage, awareness of social issues, is what is of concern

either because it has been made imperative or because the organisation’s
pro-activism has shielded it from an ad hoc response to the imperative
and it can choose its area of focus (also read the description of Figure 8.7)
Once the issues are identified the capability build- up begins with
management support and resource commitment (as explained in the case
of Wal-Mart and Huawei and analysis of process of responsiveness).

194
 SC3 Strategic Management

Articulation of societal strategy which is an outcome of the political

regulatory and choice dimensions is done. The measures for societal
strategy may be simple numbers to begin with. Over a period of time the
organisation leverages these across functions to enhance both its own
performance and the impact.
Reinforcement and audit are done when the organisation begins to make
resource commitment.
Having run a pilot with the above mentioned steps the organisation
replicates for the same issue or another in a larger segment of the
organisation.

Module summary
In this module we have studied the genesis, relevance and adoption of
social responsibility by an organisation. The concern of the society for a
responsible behaviour by the organisation had been developing over
many years. As the problems of ecologic degradation and social
Summary inequities became grave the demand for more responsive action also
grew. For the organisations, being responsive to social concerns was not
easy. They did attempt being attentive to some issues in a standalone
manner but that did not deliver the long term sustainable results society
was looking for. Since societal demands can be met by a coherent
strategy and corporate strategy is based on an analysis of the external
factors in a turbulent environment aligning the societal strategy makes
sense. The two are not different streams but a singular one. The key focus
is can the organisation be socially responsible and commercially viable?
The answer is it has to be and the mechanism by which the demands of
the social concerns can be integrated with long term profitability concern
may not be very smooth but would be with the innovations,
experimentations with evolving models, technologies, and experiences.

195
Module 8

Assignment
In this module we have discussed the need to be socially responsible as
well the three different paradigms that are needed to develop a coherent
plan of action to be so. In your opinion what are the organisational and
environmental barriers and resistance that an organisation can face while
attempting to be socially responsible?
Assignment

Assessment
Explain to what extent are the organisations belonging to the construction
industry in your country socially responsible. Use the social responsibility
staircase to develop your answer. You may find the industry at the level
of being socially responsible and in the process of articulating its societal
Assessment
strategy. You may in that case recommend what steps it needs to take to
scale up its social agenda. In your answer you may make reference to the
extent of regulatory compliance the benefits of the same in terms of
public perception, the managerial capability development, etc.

196