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«Strategic innovation in the convergence era Sang M. Lee* Department of Management, University of Nebraska, 209 CBA, UNL, Lincoln, NE 68588-0491, USA ...»

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Int. J. Management and Enterprise Development, Vol. 9, No. 1, 2010 1

Strategic innovation in the convergence era

Sang M. Lee*

Department of Management,

University of Nebraska,

209 CBA, UNL,

Lincoln, NE 68588-0491, USA

E-mail: slee1@unl.edu

*Corresponding author

David L. Olson

Department of Management,

University of Nebraska,

256 CBA, UNL,

Lincoln, NE 68588-0491, USA

E-mail: dolson3@unl.edu

Silvana Trimi

Department of Management,

University of Nebraska, 276 CBA, UNL, Lincoln, NE 68588-0491, USA E-mail: strimi2@unl.edu Abstract: Megatrends are shaping the rapidly changing global economy. These trends have also brought a convergence revolution, creating a new business environment ‘convergenomics’. An in-depth analysis of convergences from organisational factors to technologies, industries and biological-artificial systems is presented with numerous real-world examples. Then, strategic innovation approaches to create new values on the value chain are suggested in the new environment of convergenomics. The impact of convergenomics on organisational value creation leads to new strategic innovation approaches. The role of strategic innovation in convergenomics is discussed along with its impact on the value chain.

Keywords: enterprise development; convergence revolution; convergenomics;

strategic innovation; value chain.

Reference to this paper should be made as follows: Lee, S.M., Olson, D.L. and Trimi, S. (2010) ‘Strategic innovation in the convergence era’, Int. J. Management and Enterprise Development, Vol. 9, No. 1, pp.1–12.

Biographical notes: Sang M. Lee is currently the University Eminent Scholar, Regents Distinguished Professor, Chair of the Management Department and Executive Director of four outreach centres at UNL. He is a world-renowned scholar in the fields of multiple objective decision making, global business and operations/information systems management. His seminal work, Goal Copyright © 2010 Inderscience Enterprises Ltd.

2 S.M. Lee, D.L. Olson and S. Trimi Programming for Decision Analysis published in 1972, laid the foundation for multiple objective decision making based on hierarchical priorities. Since then, most of his professional work has been in the areas of productivity and quality management, global business strategies, information and telecommunication technologies and developmental economics. He has published more than 50 books and more than 300 journal articles.

David L. Olson is the James & H.K. Stuart Professor in MIS Chancellor’s Professor at the University of Nebraska. He has published research in over 100 refereed journal articles, primarily on the topic of multiple objective decision making. He teaches in the management information systems, management science and operations management areas. He has authored or coauthored 20 books, including Decision Aids for Selection Problems, Managerial Issues of Enterprise Resource Planning Systems, Introduction to Business Data Mining and Enterprise Risk Management. He is a Fellow of the Decision Sciences Institute.

Silvana Trimi is an Associate Professor of Management Information Systems at the University of Nebraska – Lincoln. Her research interests include internetbased organisational innovation, e-business, u-computing, e-government, m-government and knowledge management. Her studies have been published in a number of journals including Communications of the ACM, Int. J.

Production Research, Information and Management, Industrial Management and Data Systems, Int. J. Public Administration, etc.

1 Introduction

Welcome to the brave new world of convergenomics, a new business environment created by the convergence revolution. Convergence is commonly referred to the synergetic combination of different objects or ideas for other contexts. Convergence revolution has brought enormous opportunities to develop new products, services, values, business models and life styles. It has also brought new challenges to knowledge sharing, collaboration, competition and innovation. There are megatrends that are shaping the way people behave and organisations work. Convergenomics is the result of these fast developing megatrends in the connected global economy.

Globalisation and digitisation are the two most obvious trends that have helped flatten the world, as Thomas Friedman (2007) asserted. The end of cold war politics in 1989 opened up and accelerated globalisation through increased economic interdependence among nations. Technology and digitisation are accelerating globalisation with a speed never known before. Technologically advanced countries, such as the USA, UK, Germany, Japan, South Korea and Finland, and export-oriented nations such as China and India, use advanced information and communication technologies (ICTs) to efficiently conduct business globally. Even many underdeveloped nations are taking advantage of wireless mobile devices to connect to the global community. Anyone with internet access can use the web to be in contact and do business with anyone around the world.

Strategic innovation in the convergence era 3 Another megatrend is commoditisation of processes. Through standardisation and quality certification, operational processes become scalable. Thus, bundling, unbundling and rebundling of processes are feasible. Such approaches create new opportunities for global outsourcing and interorganisational collaboration.

There are other profound social, economic and political undercurrents in play. For example, changing demographics present a much different world map with new opportunities and looming social/political problems. The rapidly increasing older generation and the drastic decrease in the younger generation present new challenges for most developed and some developing countries. Changing industry mix in the developed and fast developing countries is another major force that has moved the economic centre of gravity from agriculture to manufacture and now to knowledge-intensive service industries.

Megatrends have varying degrees of impact on the business environment. Their most profound impact occurs when they interact and interplay (converge). The convergence revolution is at the centre of the whirlwind of global change and has resulted in convergenomics. By convergenomics, we mean the emergence of a new business environment as a result of rapid changes in megatrends involving new technologies, demographics and ever fierce global competition. To be competitive in convergenomics, organisations must behave differently through strategic innovation which requires exploration of new frontiers to create new values. In this paper, we discuss the convergence revolution and its impact on creating a new business environment through convergenomics. We also present new strategic innovation ideas in convergenomics.

2 Convergence evolution

Convergence is a consequence of the ingenuity and adaptability of the human being.

Humans have the ability to learn and creatively transmit the knowledge gained for various practical uses. Convergence can be as simple as combining an eraser with a

pencil to as complicated as combining biology with information technology:

biotechnology. Today, we are living through a new wave of convergence i.e. changing the way societies, organisations and people work. Convergence revolution is opening new opportunities to create new values and in different ways than was the case with traditional business. Table 1 presents the general evolution of convergence.

Table 1 Evolution of convergence

–  –  –

2.1 Component/product convergence Convergence of components and products has existed throughout time. Clock radios are a result of converging two mature products as components of a new product. Cell phones represent convergence of functions such as internet access, music, photograph and even telecommunications. The electro motion toothbrush is another good example of convergence obtained by combining electronic skills of the Braun Oral-B toothbrush and battery technology. Nike and Apple have recently combined the iPod with gym equipment, allowing health club members to make exercise more entertaining. These two organisations also provided wireless systems embedded in Nike running shoes to communicate with the iPod Nano for monitoring the heart beat, running speed and distance the runner is recording while listening to music. LCD technology has allowed development of more realistic video games, better quality movies on airplane flights and enhanced ability to learn and teach (Anonymous, 2007). E-book devices may replace books and newspapers through the use of ambient light from the surrounding area, yielding sharp images readable even in bright sunlight. Once a page is displayed, no further power is needed to keep it visible, as power is only consumed during updating.

Newer devices have also been found to be easier on human eyes. This technology has been brought to market by Sony (marketing the Reader), Amazon (Kindle) and Motorola (Motofone).

2.2 Functional convergence In the 1990s, BPR was an innovative approach to cut across functions, developing new work processes, with the intent of identifying the best way of doing things. Many functional organisations, such as R&D, manufacturing, marketing, finance and human resources, had become isolated silos with limited interfaces. Process innovation through BPR represents functional convergence to develop efficient and lean value chains. Today, enterprise systems are an extreme form of functional convergence through unifying of organisational databases and reporting systems.

Dell computer streamlined its value chain by disintermediating wholesalers and retailers to provide speedy delivery of PCs to customers. Physicians Mutual shifted from a centralised, mainframe-computing environment to a distributed server-based framework to allow broader access to their information system. As part of the change, business processes were redesigned and a new service-oriented architecture was installed. The system enabled the information technology group at Physician’s Mutual to improve service in a rapidly growing environment that was increasingly distributed (Anonymous, 2006a).

McDonalds was instrumental in making the fast food industry a major component of the USA (and even the world’s) economy. Prior to 1950s, you could get food in one of many independent restaurants, each with its own décor and cooking style. McDonalds came up with a business functional style, bringing mass production to the food industry.

Processes were created to make a limited set of products available in short periods of time, by low-cost labour that followed carefully laid out instructions. This idea led to a massive revolution in food distribution in the USA. It had side effects in that it made food obtained during travel less risky from botulism. Advances in ICT, e-business and global supply chains require streamlined and agile management.

Strategic innovation in the convergence era 5

2.3 Organisational convergence In the era of e-global and digital economy, organisations have the opportunity to collaborate with other firms to enrich their value chain. Strategic alliances and joint ventures with suppliers, component assemblers, distributors and even competitors are good examples of organisational convergence. Vendor participants in supply chains such as Wal-Mart, Nike and Dell are required to have strong collaborative functions.

Interorganisational relationships (IORs) or business-webs (b-webs), where each partner organisation brings its own core competence to the value chain, are new business models that agile organisations are using to become and remain competitive (Tapscott et al., 2000). Supply chains are being created that link previously independent organisations, at least temporarily, into cooperative assemblies and draw upon the specialties of participants from around the globe. For example, Nike is simply a brand management firm, while all of its products are produced by its partner organisations all over the world.

2.4 Technology convergence Since the 1980s, there have been numerous revolutionary convergences of seemly heterogeneous technologies to create new products, services, new processes or even new technologies (Bacon and Leung, 2007). The most prevalent convergences have involved information and communication technology (ICT), biotechnology, engineering, nanotechnology and artificial intelligence. We have seen liquid-crystal displays (LCDs) replace clock dials and all kinds of meters in automobiles. Science has miniaturised LCDs, enabling convergence with computer devices, leading to brilliant small displays for texts and graphics. The electroluminescence of organic compounds can be utilised to build organic light-emitting diodes (OLEDs), thinner and brighter than LCDs, with wider viewing angles. These devices have thus far appeared as secondary displays on the exterior of mobile phones or in music displays.

In the pharmaceutical industry, many new drugs have been introduced through convergence of biotechnology, agriculture and chemical engineering. There is the potential to treat patients at the genetic structure level. Neural technology is the convergence of biology with computer science (Talbot, 2005). Neuroscientists are interested in the neocortex as it promises better understanding of how to treat psychiatric disorders and brain diseases, and explain how learning and memory work.

Technology convergence also includes application of modelling approaches taken from engineering and applied to biology. These efforts can lead to biological computers.

Convergence of engineering and biotechnology has also yielded remarkable new products and services such as magnetic resonance imaging (MRI) and positron emission tomography (PET) scanning. Further development may lead to atomic force microscopy, enabling scanning at the cellular and sub-cellular level.

2.5 Industry convergence Industry convergence occurs when two or more previously distinct industries become direct competitors or cooperators or create a new one. Apple’s iTune, which competes with music distributors, is the convergence of IT and music industries. When Walt Disney went into the travel convention business, which was a convergence of entertainment, hotel and golf industries.

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