The link between diversity and resilience: new research shows that the most resilient companies are those that continually orchestrate a dynamic balance of four innovation strategies.

Publication: MIT Sloan Management Review

Publication Date: 22-JUN-05

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COPYRIGHT 2005 Sloan Management Review

Most managers and academics agree that innovation ensures superior performance. But which innovation strategy or strategies best sustain that performance over time? That is, how can companies manage innovation in order to become more resilient? Resilience is both an applicable and an important concept for companies in turbulent times.

The concept of resilience originates in research on child behavior, (1) which indicates that some children prove to be positive, focused, flexible and proactive--in a word, resilient--despite exposure to extremely challenging and stressful environments. (2) There are several ways of conceptualizing and adapting the basic idea of resilience to the business world. Some business writers have focused on corporate attributes, while others have focused on issues such as risk awareness, risk protection and the reduction of vulnerabilities. (3) In strategic management, resilience has been defined as a process capability; in order to reinvent themselves, companies need to overcome barriers to change and develop multiple sources of competitive advantage. (4) We define resilience as the capability to self-renew over time through innovation. Using that definition, we have analyzed a set of resilient companies that have successfully adapted to diverse and turbulent changes over a period of two decades, trying to understand what makes them so capable of continued self-renewal. These companies include some of the world's largest multinationals. (See "About the Research," p. 62.)

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A Portfolio of Innovation Strategies

Innovation can be categorized by whether the innovative resources and capabilities are internal or external, in use or being created. Combining these two dimensions creates four main approaches to innovation. (See "Four Innovation Strategies," p. 63.)

Knowledge Management This involves the use and leveraging of the existing knowledge in an organization. (5) Responsibility for this innovation strategy frequently lies with top management, which creates and protects knowledge initiatives, and with the units that advocate knowledge management, such as human resources or information technology. Important internal resources include employees' intellectual capital and skill sets, which often defy storage in digital format.

Exploration This is the creation of new, internal ideas and resources. Often with the backing of top management, internal units promote exploration in order to discover potential value through experimentation and prototyping. (6) Exploration includes investment in research and development, emerging technologies (7) and experimentation in laboratories and innovation centers. (8) This strategy enables both incremental and radical innovations.

Cooperation Since complementary resources for innovation may exist outside the organization, (9) this strategy pursues the transfer or exchange of existing resources and ideas across organizational boundaries. (10) Cooperation outside the corporate boundary generates new and synergistic resource recombinations and turns them into innovations. (11) Cooperating reduces uncertainty by distributing risk. Mergers and acquisitions, strategic alliances or outsourcing and offshoring relationships frequently offer opportunities to use a partner's complementary resources. In these cases, top management or the relevant units of both organizations take responsibility for important initiatives.

Entrepreneurship Seeking to create new resources, ideas and applications beyond the boundaries of the...

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