Knowledge and Innovation Management: Developing Dynamic Capabilities to Capture Value from Innovation

Knowledge and Innovation Management: Developing Dynamic Capabilities to

Capture Value From Innovation

Marianne Gloet & Danny Samson, University of Melbourne, Australia

Abstract

This qualitative research examined the links between business models, business strategy and innovation and investigated the extent to which knowledge and innovation management (KIM) contributes to the processes of value creation, value networks and value capture across six organizations characterized by successful innovation performance and strong KIM practices. The development of KIM as a dynamic capability increases the capacity of an organization to add value to the existing business model through innovation, and also provides opportunities for superior performance. The analysis of the data revealed the main areas where KIM was well established as a dynamic capability within these organizations, as well as gaps and challenges, particularly in terms of delivery of both innovation performance and business success. Findings from this exploratory research also suggest that the development of dynamic capabilities in KIM are dependent on robust measurement practices, and that feedback and reinvestment of value captured are essential to sustained competitive advantage.

1. Introduction

Business models, business strategy and innovation are inextricably linked. As Teece [1] points out, the core element of a business model defines and determines the way in which a business enterprise delivers value to customers and converts that value to profit. Teece argues that without a well-conceived and well-embedded business model, it is almost impossible to capture value from innovations within an organization. Although there are variations concerning the definition of business models, for Drucker [2] it is about identifying the customer and what the customer values, while for Magretta [3], business models consist of stories that provide an explanation of how enterprises work. Amit & Zott [4] assert that a business model outlines the manner in which value is extracted from the exploitation of business opportunities by focusing on the content, structure and governance of transactions within an enterprise.

Essentially a business model sets out the way in which a business creates and delivers value, but a successful business model can be easily replicated by competitors, even if it does not deliver the same degree of value. So innovation in the business as well as innovation of the business model itself can be a significant competitive advantage, if it is sufficiently differentiated. A ‘good’ business model provides attractive value propositions for customers through careful consideration of cost and risk elements in order to capture value and develop sound products and services [1]. The existence of superior human capital, technology, governance and leadership is not enough to create sustainable competitive advantage if the business model is not suited to the competitive environment. Business models and the concept of business strategy, while related, are not the same; for Casadeus-Masanell & Ricart [5], a business model reflects the realized strategy of an enterprise.

It is important that firms wishing to capture value from innovation have a sound business model in place. The design and implementation of a viable business model is just as important to value capture as developing innovation itself; as Teece [1:190] suggests, selection and design of an appropriate business model constitutes a “key microfoundation of dynamic capabilities”. Dynamic capabilities can contribute much to an enterprise through sensing, seizing and transforming various elements within the business model, but the business model needs to be right. So questions regarding value creation, value delivery and value capture are germane not only to extracting value from knowledge and innovation, but also to assist in developing appropriate dynamic capabilities within an organization that will ensure its sustainability and success. Given the inextricable links between knowledge and innovation, we focus our attention on the development of knowledge and innovation management (KIM) as a dynamic capability to capture value from innovation within a given business model. KIM can be regarded as a natural extension of the Australian Knowledge Management Standard [6:8] which posits knowledge management as a cross-disciplinary construct. For purposes of this paper, we define KIM as:

…the design, implementation and review of social and technological activities and processes to improve the creation, sharing, dissemination and use of knowledge to support innovation. KIM is concerned with innovation and sharing behaviors, managing complexity and ambiguity through knowledge networks and connections, exploring smart processes, and deploying people-centric technologies across various innovation processes and activities.

2. Literature Review

The way in which a business competes and differentiates itself through innovation is the value proposition. In order to achieve sustained competitive advantage, firms must have a strategic understanding of their particular value proposition and constantly seek to identify new competencies to support the business model [7]. This involves the development of a stream of dynamic capabilities, “the capacity to sense opportunities and to reconfigure knowledge assets, competencies and complementary assets and technologies to achieve sustainable competitive advantage.” [8:73]. Embedded within the resource-based theory of the firm [9] [10] [11] [12] [13] [14] [15]), the notion of dynamic capabilities is well established in the literature as s significant source of competitive advantage, particularly within knowledge intensive organizations. Dynamic capabilities consist of various resources and management strengths that cross cut a range of business functions. Through sensing, seizing and transforming opportunities that arise in the organizational environment, firms gain competitive advantage by continually developing and reconfiguring available resources, both tangible and intangible [16].