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How do organizations become innovative, and what role does opportunity-seeking play in all this? That is what we will examine in the following video.
We want to:
Example: AAD’s Transformation
Consider the company AAD. Historically active in oil and gas, it transformed into a green-energy provider by heavily investing in technological innovations. It expanded its portfolio, especially in offshore wind, developing floating wind turbines for deeper waters. It also innovated in energy storage (e.g., power-to-X technologies). By 2023, AAD had patented about 640 technologies in offshore wind and energy storage. In sum, it shifted from fossil fuels to renewables by focusing on cutting-edge technology.
Why is AAD considered innovative? Let’s clarify what innovation really is.
Defining Innovation
Innovation has three core features:
Innovation does not have to be successful by definition. Success is the goal, but even failures can lead to learning and later innovation. Innovation can refer to both the process (innovative activities) and the outcome (new products, services, or business models).
Why Do Organizations Innovate?
Why don’t companies just do “business as usual”? One theoretical perspective is the Behavioral Theory of the Firm, which helps us understand how managers and organizational decision-makers behave, set goals, and adapt.
Behavioral Theory of the Firm: Key Points
Organizational Search and Innovation
Search is the process by which organizations generate new ideas and explore alternatives. This does not happen automatically—firms must actively seek out solutions. Search can target:
Search activities can be done by top management, departments, or external service providers (consulting firms). The outcome of a successful search can be organizational adaptation—identifying ways to change and improve.
Behavioral Theory Propositions
The Innovation Process
Innovation is typically described in five steps:
Open Innovation
Open innovation means opening the firm’s innovation processes to external contributors (inbound) or revealing internal knowledge externally (outbound). This can happen in monetary or non-monetary forms:
Involving Customers in Innovation
Customer involvement can be categorized into three levels:
Key Takeaways
We look forward to seeing you in the next video!
how do organizations become Innovative and what role does opportunity seeking play in all this this is what we'll lookat in the following video so what we want to understand andto learn in this video is basically the fundamentals of innovation so what does innovation mean and how can we Defineinnovation and in the next step we also want to see why organizations engage in organizational search activities so whydo organizations search for becoming more Innovative and what role does it play and in the last step we also wantto understand Innovation strategies and processes of organizations to do this let's take alook at an example and here we have the firm aad aad historically was active inthe oil and gas industry and it transformed to become a provider of green energy and uh to do so it hasinnovated uh yeah tremendously and developed uh significant technologicaladvancements in the field of green energy so um it it expanded itsportfolio of Technologies uh especially in offshore wind technology and itdeveloped offshore wind turbines that floated um and allowed the constructionof wind farms in deeper water uh especially in the Northern sea but then after that they expanded uh also toother areas on this planet um they also Beyond uh windturbines they uh innovated in the field of energy storage um so they wanted tostore the electricity that they generated especially with their wind farms and uh here they developedbatteries and power to X Technologies so power to diverse uh storage uh yeahAlternatives uh and to to give you an idea um so all that patented alone in2023 round about 640 patents especially in offshore wind and energy storage andthis what not uh a single year but in the in the past in the last decade or sothey has they have filed for a lot of patents so in some allat shifted fromfossile fuels to renewable energy and did so by investing heavily in uhtechnological innovations and Technology development and uh thereby yeah uh makethe company yeah more sustainable and futureproven so when thinking about this example why can we say that oset is anInnovative company so what is the definition or what are the defining features of innovation so basicallyinnovation has three core features first it is kind of an activity this meansthat you generate new ideas that you develop something and and that something has to be implemented so it's generationdevelopment and implementation second it is also an object of a product service processstructure or business model so Innovation can happen on different levels as said like on for example theproduct level being a product Innovation on a process level being a process Innovation so Innovation can takedifferent forms and of course innovation has an element of novelty so this element of novelty means that it issignificantly significantly improved so it is something new to the focal organization or new to a particularmarket so um being different on different dimensions like productservice or process for example um Innovation also can differ on like what is improved is it the focal organizationis it something new in a different market and in a certain market so when thinking about Innovation and this alsois shown by the the Latin word of this Innovation is about being somethingnew however like when we talk about Innovation Innovation does not necessarily mean it's successful soInnovation can of course be successful that's then what we are all aiming for but Innovation does not have to be orshould not take success um as part of the definition because Innovation can also be the the result of failure forexample so you can learn you can adapt to your learning or to um former failures and this can also becomeinnovative in way so success should not be part of the definition of innovationand we call that then if it is so the pro-innovation bias and of course Innovation canpertain to a process as well as the outcome of the letter so it can be for example the novative activity or as Ialready said um new product services or of course also business models so nowthat we understood what Innovation is the question is why does a company like allad and all example uh why does such acompany feel the need to innovate right so why don't they do business as usualwhy do they innovate and somehow renew themselves and there is a theoreticalperspective that we want to introduce here that helps us understanding why firms yeah search for Alternatives howto become a different company in the future and that theory that we want tointroduce is the so-called Behavior theory of the firm and the behavior theory of the firm it's um it's it'saiming at understanding why uh managers why organizationaldecision makers uh behave in the way they do why they transform or change acompany um and um yeah tries tounderstand this process tries to understand why uh decisions are made in a certain way and uh What uh managesjust do and in the in in its Essence the behavior Theory tries to understand whyand how certain gos goals are defined in an organization um whether uh and how uhdecision makers uh yeah look at goal achievement and how that is evaluatedwhen this is considered a failure and um how organizations based on achievinggoals or setting goals uh in the end start searching for information but alsofor Innovation and somehow the behavior Theory tries also to explain what mightbias this search process and um how these biases or why these biases are uhaffected by the humans that make the decisions in the organizations and especially theirexperiences and there are a few assumptions about human behavior that guide the behavior theory of the firmfirst of all it's about bounded rationality so while actors strive forrational decisions uh at the same time they have limited information processing capacityso in the end we cannot yeah get all the information uh and even if we would haveit we couldn't process all the information to Major purely rational decision so that it's is the heart ofbounded rationality and somehow the attention of managers is a bottleneck uhthat selects uh information that uh pronounces or that puts some informationcenter stage when uh making a decision and uh in and sometimes managers evenuse juristic so some rules of thumb during the decision processes uh and thereby um yeah some uhrule of thumbs can also be standards uh and ways of doing thingsthat have been historically developed and thereby guide uh how the organization will behave in the futurebased on what it has done in the past a second assumption it is about uh what wecall satisfying so um the idea is because umwe have bounded rationality we cannot Define the absolute maximum Optimum ofuh what we could achieve instead companies set some goals and and theyseek to satisfies these goals right so they try to uh achieve what goals havebeen set and try to um yeah in the end uh come up with an acceptable solutionand this holds tool to various uh potential goals that we can have in an organization being it production goalssales goals profit goals so we never know the optimum and try to maximizethese goals but in the the end we will have a certain uhyeah uh yeah goal and level that we want to achieve for that goal and uh we tryto satisfies these um yeah these goals and when we're talking about goalsit's also the question or it's always relayed or combined with the question of how do we Define the goals how do wereach the goals and yeah what what make our goals um yeah how do you say thatmeasurable or in a way um attainable so this is what we call aspirations so uh when we call we talkabout aspirations aspirations is kind of the way where we set the goal or the motivation behind setting the goals soum the idea of aspirations is basically on two steps so first of all we identifya meaningful goal or a meaningful goal variable so for example profit market share or something like that then whenwe know what we want to achieve or rain at the end it's the question of how do we do so so do we want to have anespecially High Market profit or market share or um where do we want to set the bar so the Second Step then is definingaspiration levels with regards to the goal variable like as I said profit or market share for example so translatingthis then in the Second Step means that for example lowest level of goal attainment um is fine or we say that uhwe want to achieve for the best possible so this then is another aspir ation level um yeah often you can also combinethis with concrete numbers where you clearly State what you want to achieve so these are the two steps of uhaspirations so where do these aspiration types or where do these aspirations come from so what is the basis on that youare building your aspirations and there you can Define two different ways so it's on the firstand side historicalaspirations so you're setting the aspirations and then of course also the goals uh B based on past outcomesachieved by the organization so you're saying for example you're combining to the past and you're combining thepresent to the past the second type is social aspirations so you um set basedon comparison you set the goals or the um the aspiration based on socialcomparisons so you're comparing to other organizations um or you're comparing toother actors in a market so it would be perfect if we have would have all the information so if weknow everything we need to know for a certain goal that we set ourself but clearly this is not the case so uhsatisfying requires achieving the aspiration levels for all go variables so we're setting our goals and we aredefining the variables accordingly based on the knowledge that we have and this is then like our aspiration level thatwe have for all these goals and the availability or the available information in themarket so how do an organ organization can search or like what is organizational search and there's afamous quote and it says alternatives to the current set of activities do not suddenly appear on the decision Maker'sdesk they have to be generated through a process of searching so this means thatum yeah having new information of course and of course also knowing the Alternatives is a lot of work becauseyou have to do search and also organizations have to have a search process so so what can you search foryou can of course search for new products and processes but you can also search for new organizational structuresso if it's clear that you want to change something internally you're searching for new structures new ways ofstructuring or you are searching for um for example Alliance Partners or eveninternally you're searching for a new personal staff like for example you're searching for a new CEO so these are allpossibilities where you can um search or where you where search activities um cantake shape so to say so um search activities of course can be performed bymultiple actors um it's clear that of course the top management can uh search for processes structures you name it umof course also um departments or external service providers like consultancies for example they can alsoPro um perform the search process for anorganization so in brief organizational search yields information about Alternatives and triggers organizationaladaptation what does that mean it means that of course you're searching for information you're searching forAlternatives so you know the status quo and you're looking at okay what can be changed and if you identify ways ofchange or new information and your search process is then so-called um kind of successful then organizationaladaptation might happen Okay so far we know some important vocabulary we knowabout satisficing we know about aspirations and we know about search now let's bring that together in order toexplain um why in the end organizations might look for uh ways toadapts into another um yeah another another status of or shape okay so let'suh bring together a few of the things and come up with some propositions thatthe behavior Theory makes so first of all um decision makers will in the endsee that certain goals have a conflict right you need to make tradeoff among goals and typically organizations willgive conflicting goals to different subunits um so that uh that's a way ofresolving these conflicts additionally organizations will try to avoiduncertainty so um organizations if if wedo long range planning so foresight on the long run this will in the end resultin the way that we have much more uncertainty as if we would plan more short-term oriented because on the shortrun you get much more feedback right if you plan for 10 years uh then it's there's a lotof uncertainty compared if you would plan just for a month or so because you get feedback during that month and thenyou will adapt this is somehow a firefighting approach right where you uhlook for um yeah shortterm feedback then the question uh and takingthis together will lead up to to some of the uh hypothesis laid out later let'sjust introduce some well yeah one more idea here and that's the idea ofproblemistic search so search activities just we as we have heard thatorganizations will search um they uh will not happen just randomly they aretypically motivated and uh the idea is that they are stimulated by a problemand directed towards finding a solution so for instance it could be that we do not achieve our aspiration that we haveset thereby we have a problem and thereby we start searching for New Alternatives so we could have theaspiration that we want to achieve a profit margin of let let's say 10% butwe did not achieve this so we are now having a problem and that is a motivation for us to in to induce whatwe call problemistic search so we are looking for a solution for that problemand want to find it and it could be that such an a way of finding new solution isan innovation process in the end so what's here meant by search is simple-minded right so USIC us usuallyum we will uh look for uh yeah Solutionsin the direct uh yeah very close to the problemum and uh will only look farther away indifferent or completely different ways of solving that problem when we did notum achieve uh yeah our goals achieve our aspirations right so that means that wewill if we are a a firm in a given industry producing a certain product andthat product doesn't fulfill all the the Set uh targets then we will perhapsslightly adapt that product to Market needs instead of developing somethingcompletely new for that market segment and one reason for that is thatsearch is biased somehow by the prior experiences and trainings of the membersbut also perhaps biased by internal conflicts and differences in uhorganizational power that might uh exist in the organization that certain uhhumans or certain uh um units of the firm might have such might just havemore power and thereby bias somehow what is seen as a fruitful way to developfurther to search so together this leads um to some predictions about whatInnovation or Innovative search uh could look like according to the behaviorTheory first of all it's about problemistic search organizations will intensify The Innovation search effortswhen the performance relative to the aspiration decreases right so if we setsome aspirations and we monitor these aspirations over time and our performance relative to the aspirationlevel decreases then an organization will start uh looking for new uhSolutions right so that's problemistic search slack search means organizationsmight intensify Innovation efforts when we have a lot of slack resource so if wehave unused resources if we have resources that could be used uh somehowbut we do not know how then this will uh show us that we have a problem rightthat we do not know how to use our uh resources and we will try to find asolution for that and there's a third preposition it's called the threatrigidity hypothesis that means um organizations in case ofperformance shortfalls will engage in problemistic Surge activities but onlyin cases when the organization survival is not threaded right because if it'sthreaded then it might uh happen that it's yeah that there's so much stressfor the organization that there might be um members of the organization that donot want to change tremendously and thereby um yeah stick more to the statusquo and therefore uh a strong or huge threat to the organization will not umresult in problemistic search but will more or less result in anot any more uh moving and searching organization so it's somehow stalledthat organization so we now talked a lot about what is innovation and what issearch and of course we learned that Innovation and also organizational search is not like coming out of theblue so whether it is about process Innovation service Innovation product Innovation um the the journey or TheInnovation process behind that can be described as the following so there is afstep um Innovation process that I want you to or what that I want you um to toto tell you about now so first of all there's the definition of search Fields because of course you're not searchingfor everything so you kind of have to narrow down the search field and you have to Define what is the search fieldum that you are um looking at so when you are for example want to define thesearch field you do a strategic analysis so you could do a market analysisresource analysis or technology analysis so um for example looking at the marketyou could you could look at the competitors uh about for example how easy it is to enter the market so youyou clearly um have a look at the market around you um you could also talk about strategy development so you have to askyourself where when and how um do we um do we search and of course focus on thefocus the timing and the process so after the definition of the search field the outcome might be an innovationstrategy the second step is the search for ideas so you need to Define where you want to search for ideas so youcould of course internally or externally search for ideas looking at the internal search it's about a technology push R&Dor suggesting schs schemes for example as an activity external search howeveris more about Market pull customer involvement or open Innovation meaning you're involving external the externalenvironment in in your um ideation search so when you did that then theoutcome might be an idea set so you have a different set of different ideas the third step is the ideaevaluation and in that you can of course do the Strategic technological economicway so in a strategic way to evaluate the ideas is does it fit to the strategyand does it fit to the portfolio logic in a technological way you're looking at the feasibility Effectiveness or forexample desirability of the idea that you want to evaluate and in an economic term it's more aboutthe market potential and the cust commercial variability so does the market really want the idea that you areevaluating so after the third step you might have a project portfolio so youmight have a concreter idea of the project that you're doing and how feasible um they are or like how youcould evaluate them at the end then the fourth step is about the idea implementation so the development anddesign of how to implement the idea it's about Target costing platform strategiesor project management so you really have to think about okay how should the project in order to be implemented bemanaged or do we have a certain platform strategy if so how do we have to uhDefine this strategy and then at the end of the idea implementation stage it might be the working prototypes that areyour outcome and after all these like all these four steps then it's about theproduct launch as the last step of the Innovation process and this is really where you want to have the productlaunched on the market so Market launch strategy plays a certain role and of course Market tests so you have to testyour idea or your project inside um product inside the market and then ofcourse once it is in the market you have to do a performance analysis so youmeasure the results you um have a look at the Innovation project as as the whole so um what is the conclusionoverall and you hand over to life cycle management orline management so then theoutcome clearly is the market product so we have seen so far here thatuh based on the behavior Theory we might engage in such a field or in such aninnovation process in a given field where we have experienced a problem right so that would be how this processis initiated and then we talked about the search for ideas here and the different ways of doing it internally orexternally how this could look like internally I mean that's perhaps straightforward we have an internal R&Ddepartment but let's dive a bit more deeper in the in the external search andwe ask ourself where can we search for innovative ideas and we have alreadyheard a term called open Innovation so what is that so open Innovation meansthat we can somehow open up our Innovation department and we can do thisinbound meaning that we try to uh get external input into our Innovationdepartment or outbound meaning that we try to make something out of what wehave developed here not by developing a certain product but by just uh yeahreleasing that that uh that knowledge that we generated to our externalenvironment and we could do this uh in a non-monetary or monetary monetary waywhat does it mean let's take a look first of all at inbound non-monetary open Innovation activities that could bethat we develop and generate idea or knowledge together uh with customers orjust by observing customers that we do it with our suppliers with startups with competitors universities you name itright with different potential partners and could use them to Source ideas from them and get them into our InnovationDepartment another one would be acquiring right so we could try to toget some licenses we could acquire uh external knowledge through merges uhacquire uh a firm or we could just try to get uh employees who then bringcertain uh knowledge into our firm or we uh invest in uh Tech development bylet's say a venture capital fund that we use or corporate Venture Capital that weuse uh to do so in outbound open Innovation non-monetary means that we could justreveal right so we could share our ideas and our knowledge our patents whatever we have the way how we codified ourknowledge uh with external Partners or the general public by just revealing andthat would be outbound uh non monetary Innovation uh or we could strategicallydivest from a certain field right so we could decide we do not want to pursue inthat Tech field in that knowledge field we license out our knowledge we sail uhwe our own uh IP our intellectual property and commercialize it uh uh yeahas a as a license or as a that we sell the whole patent we could also uh buildsome spin offs and sell those spin-offs um to uh yeah to divest from acertain Tech field so different ways of how we could profit from externalknowledge by bringing it into our organization namely inbound or open Innovation or by also giving our uhknowledge away namely outbound open Innovation but the inbound way is one way of generating ideas generatingknowledge that we can then monetize during our Innovation process through uhyeah not only idea generation but also evaluation implementation and then lateruh launch and when thinking or when deep diving a little bit more into the inbound open Innovation idea becausethis is especially interesting when you think of customers being involved in your Innovation process in your ideageneration process so there are different levels of uh customer integration that we want to talk aboutso the first level for example is developing for the customer so the customer is then like serving as aninformant or as a supplier of need information so if you are thinking aboutdeveloping something for the customer of course you have to know the need of the customer that you want to to address inyour Innovation then the second step might be or the second um level ofcustomer integration is uh developing with the customer so instead of developing something for the customerand the customer being an purely informant agent in that way um the second step is about developingsomething with the customer so besides just being an informant the customer isalso a product tester or for example a better user so it's really more an ITiterative process by developing something with the customer together and then the third step mightbe developing something through the customer so um the customer is then an idea provider or a problem solver orprototype developer so instead of testing what an organization is developing or um is handling over to thecustomer the customer itself is part of the Innovation process so the customerthen himself or herself provides an idea or for example develops a prototype thatthen can be used uh by the organization so how can we do thesedifferent forms of customer integration or what are different methods of doing so so if you're thinking aboutdeveloping something for the customer of course it's about interviews because we need the customer as an informant we caninterview the customers we can build focus focus groups with the customers and in doing so the customer supplies uswith uh information and uh explains the need that we can then develop somethingbased on for the customer something else would be telephone interviews or standardizedservice this is also then um a way how the customer can be an informant of theorganization or can provide some uh some ideas for the um organization but theidea of the customer being an informant for the organization this is something that Bridges between the development forthe customer and the development uh with the customer so uh when then jumpingmore to the fear or the sphere of the development with the customer for example online surveys or onlinebehaviors or netnography netnography can uh serve as a valid tool for for exampleusing the customer as a better user and then of course um the idea ofidea competition customer toolkits or lead user workshops lead user meaningthese um customers that are really driving um Innovation or that are uminteracting with the organization and being involved and for example product or service uh Innovation and ideageneration so these tools are really um helpful for developing something throughthe customer because the customer itself is um implemented in The Innovationprocess so what did we learn in this video we talked about innovation in general and how Innovation ischaracterized and what Innovation or how we can Define innovation so we talkedabout Innovation as an activity involving the development of new products services or business models andwe also talked about that Innovation does not necessarily has to be successful and that also um failure canlead at the end to Innovation uh then we talked or we went over to a more theoretical um ideanamely the behavioral Theory and we um had a look at how it explains howorganizations make decisions under uncertainty relying on bound addresses ality andsatisfying um and this is rather than seeking Optimal Solutions um and then wetalked also about the Innovation process so what steps does the Innovation process span and we talked about likefrom idea generation to then at the end the market launch and uh had a deeperlook in how do we search or what does organizational search mean and in thatum in the way of the Innovation process also talked about how to include both in internal as well as external ideas andthen of course in the last step we also thought about what is open Innovation how can we Define open Innovation andespecially how can we include customers and customer feedback into our Innovation strategies we're very muchlooking forward to see you in our next video
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