Searching for great strategies
The usefulness of components and the complexity of products inform the best strategy for innovation at different stages of the process.
We focus on answering the question posed for this special issue by elaborating a specific perspective, involving information-enabled search, in which firms add capabilities (or components) that expand what they can accomplish in the product market arena, and the key strategic choices concern the kinds of capabilities that are added. We establish that measuring how a new candidate component interacts with the components we already have can be a reasonable proxy for how they will combine with new components which we don’t yet have. This allows us to compare the performance of “impatient strategies” focused on the current usefulness of a new component and “patient strategies” focused on anticipated long-term usefulness. Their relative performance depends on how far the innovation process has progressed, and on the structure of the innovation space itself. In particular, a flattening in the increase of complexity implies an increase in the relative attractiveness of patient strategies over impatient ones, i.e., constitutes a signal to a switch strategies. It is therefore possible to construct information-based adaptive search strategies, which outperform either random strategies or fixed (patient or impatient) strategies for component selection. And there are broader implications for strategy as well.
More in The structure of innovation
Insights from biology, physics and business shed light on the nature and costs of complexity and how to manage it in business organizations.
A theoretical model of recursive innovation suggests that new technologies are recursively built up from new combinations of existing ones.
The distribution of product complexity helps explain why some technology sectors tend to exhibit faster innovation rates than others.
Firms can harness the shifting importance of component building blocks to build better products and services and hence increase their chances of sustained success.
In systems of innovation, the relative usefulness of different components changes as the number of components we possess increases.