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of this organization starts dealing with a qualitatively new object of management — the innovation-and-investment project;
• intensification of the stream of changes in the organi-
zation in connection with the innovation restructuring. The
streams of strategic changes should be combined with stable
current production processes. It is necessary to provide a com-
bination of interests and approval of solutions of strategic, sci-
entific and technical, financial, production, and marketing
management.
Innovation aspects of the basic strategy
of the organization
Basic strategies are divided into four primary groups:
• strategies of intensive development;
• strategies of integration development;
• strategies of diversification development;
• reduction strategies.
When the strategy of intensive growth is applied, the organization gradually increases its potential by the best use of
the internal forces as well as by the best use of the opportuni-
ties given by the external environment. Local innovations are
implemented.
The strategy of integration growth is:
• the strategy of integration with suppliers and supply-
ing structures (vertical integration down);
• the strategy of integration with industrial consumers
and sales structures (vertical integration up);
• the strategy of integration with the industry organiza-
tions, both developing and producing ones (horizontal
integration).
All the three strategies of integration growth are connect-
ed with organizational innovations.
71
The group of strategies of diversification growth includes:
1. The strategy of the design diversification (it is also
called "the centered strategy" as the technology, industry and
market do not change). It aims at searching and using additional opportunities in the operating business for the production of
structurally new products. Thus, the existing production remains in the center of business, while the new production arises both on the basis of those opportunities that are available in
the tapped market, and on the basis of the technology being
used (the technology has to be "effective"), as well as on the
basis of other advantages of the enterprise. It is the strategy of
an intra-branch and intra-market product innovation, which uses the synergy effect.
2. The conglomerate strategy ("net" or complete) of the
diversification growth. The firm masters the types of activity
that are not connected with its traditional profile, either in
technological or commercial respect. The product portfolio is
updated considerably. There appears a situation "new products — a new market": both product and marketing innovations
are available; the risk and complexity of management double.
3. The strategy of reduction consists in identifying and
reducing irrational costs that can cause innovation actions: the
use of new effective materials, technologies, methods of man-
agement, organizational structures.
3.2. TYPES OF INNOVATIVE BEHAVIOR OF FIRMS
The basis for the national classification is the biological
approach to the classification of competitive behavior offered
by the Russian scientist L. G. Ramensky and used for the classification of the companies and the relevant competitive strate-
gies. According to this approach, the strategic behavior can be
subdivided into four types:
72
• violent behavior, characteristic of large companies
with a large-scale production, entering the mass market either
with its own or with acquired new products, and being ahead of
their competitors due to serial production and a scale effect.
In Russia, they include large complexes of the defense and civil industries;
• patient bahaviour, consisting in the adaptation to the
narrow segments of the wide market (niches) by specialized
production of new or modernized products with unique characteristics;
• exploring behaviour, meaning an entry into the mar-
ket with a new (considerably innovative) product and capturing
some part of the market;
• commutant bahaviour, consisting in the adaptation to
the conditions of demand of the local market, in taking the
niches that for one reason or another have not been occupied
by "violent" and "patient” companies; in developing new types
of services after the introduction of new products and new
technologies, imitation of innovations and their promotion to
the different groups of consumers.
The author associating the types of firms as well as the
types of their competitive behavior with the fauna ("foxes",
"mice", "lions", etc.) is the Swiss expert H. Frizevinkel.
Ramensky’s and Frizevinkel's classifications are closely interrelated with each other (Table 3.1).
73
Characteristics of enterprises according to the type
Type of competitive behavior
(L. G. Ramensky's classification)
"violent
behaviour"
"patient
behaviour"
"exploring
behaviour"
"commutant
behaviour"
Type of the company (classification of H. Frizevinkelya)
"Lions",
"Hippopotamuses"
Competition
Recency of
The needs
fies
mass, but
standard
Production
universal and
large,
Stability of
the company
Expenses on
opment
Parameters
Table 3.1
of the strategic competitive innovation behavior
level
the indus-
’s
try
entering the
market
that it satis-
profile
Size of the
company
Research
and Devel-
"Elephants",
high low Average Average
new mature new new, mature
mass, standard
mass
large
high
high averages
"Foxes" "Swallows" "Mice"
non-
specialized experimental
average and
small
high low low
innovative local
average and
small
high no
small
small
74
The factors
vantage
Dynamics of
development
Costs
low
average
low
low
Product
quality
The degree
variety
Research
t type
of power in
the competi-
tive
struggle,
power ad-
the
high performance
high average high low
adaptation
to a special
market
advancing
in
innovations
flexibility
average high average average
of product
and
Developmen
Sales
network
average narrow no narrow
improving adaptive advanced no
its own or
controlled
its own or
controlled
no no
Advertizing mass scale specialized no no
3.3. STRATEGIC ASPECTS
OF THE ORGANIZATION MANAGEMENT
The strategic period is much longer than the tactical peri-
od of the organization development, and for each specific organization, this ratio is specific and individual.
Five forces of the competition predetermine a business’s
profitability because they influence not only the prices fixed by
firms, but also the expenses that they should suffer, as well as
the amount of money investments required so as to be able to
compete in this industry.
75
Characteristic
Operational
management
Strategic
management
Mission, purpose
Production of
Survival of the
functioning
Object found in the focus
Insight into the
Outside look at
environment
Time management
Aiming at short-
term prospective
Aimong at a
outlook
Comparison of strategic
and operational management
Table 3.2
of attention of the
management
goods and services
for the purpose of
income acquisition
as a result of their
offering
organization,
search for the
ways of more
effective use of
resources
organization in
the long term pe-
riod by means of
establishing
dynamic balance
with the
environment,
which can help to
solve problems
of individuals
interested in the
organization’
the organizations,
search for new
opportunities in
competitive
struggle, keeping
the track of and
adapting to
changes in the
term and medium-
76
long-term
Characteristic
Operational
management
Strategic
management
Basis for the construction
of a management system
Functions and
technology
People, systems
Approach to the
Workers are a
functions
Workers are the
The criterion of
The degree of
Good time and
environment
organizational
structures,
procedures,
equipment and
of information
support, market
personnel management
management efficiency
The works by M. Porter, professor of Harvard Business
School, are considered to be classical works on the analysis of
the business competition. He states that competition in any
sphere of the economy is characterized by the interaction of
five main forces that are as follows: an ability of suppliers to
negotiate about the price; an ability of buyers to discuss the
price; an availability of new competitors to appear; struggle
between the actual competitors; an availability of product substitutes to appear.
resource of the
organization, they
are the performers
of certain working
activities and
profitable and
rational use of the
potential
production
basis for the
organization, its
main value and
source of
wellbeing
accuracy of
reaction of the
organization to
new requests of
the market and
changes in the
77
The general potential of the business profitability de-
creases in the face of the introduction of new competitors and
products substitutes. Powerful suppliers and buyers who are
able to discuss the prices, protecting their own interests, also
reduce the profit of a definite organization.
Stability of business success has to do with permanent
changes. Therefore, so as to keep and develop the business
success by means of constant preservation of the competitive
advantage, the organization doing its own business has to make
constant adequate strategic and operational changes.
Basic competitive strategy
The basis for the concept of the basic competitive strate-
gy (BCS) is the idea that each strategy of the kind relies on a
certain competitive advantage. To achieve it, the organization
needs to choose a specific strat egy.
In practice, the strategies that are used in real business
are as follows.
Differentiation strategy. The purpose of the strategy is to
provide a product with distinctive properties that are important for
the buyer and the distinguish these goods from competitive offers.
Differentiation, as well as cost leadership, protects the organization from competitive forces, but in an absolutely different
way. In spite of the fact that availability of distinctive qualities
requires, as a rule, higher costs, successful differentiation allows
the commercial organization to achieve bigger profitability be-
cause the market is ready to agree on this higher price.
The strategy of cost leadership. Low costs are in the cen-
ter of attention of this whole strategy. They are low in compari-
son with those of competitors. Cost leadership creates a relatively effective protection against all five competitive forces
described above.
78
Focusing strategy (according to Porter) is a specialization on meeting the needs of one market segment or specific
group of buyers without tending to cover the whole market. Its
purpose is to satisfy the wants of the chosen target segment
better than competitors can do it. Such strategy can rely both
on the differentiation and on cost leadership, but only within a
target segment. As a result, the focusing strategy splits into the
following two basic competitive strategies:
• the focused cost leadership;
• the focused differentiation.
Only one basic competitive strategy can be chosen and
used for the purposes of a definite business situation.
The chain of value creation (Value Chain)
Types of activities found in the case of competition in
any specific industry can be divided into several categories.
They are combined in the so-called chain of value creation. All
types of activities making up this chain somehow influence the
ultimate consumption cost of the product.
The purpose of the organization is to create and to pre-
serve the maximum number of components of the competitive
advantage in terms of both links of the chain and the elements
of the value system.
The leading organizations that have managed to be highly competitive for many years, aim to ensure as much benefits
as possible, both in terms of all links in the chain and in different elements of the whole system of value.
Characteristics of an effective strategy
Strategic management is an organic synthesis of art theo-
ry and positive experience.
The opposites of an effective strategy are:
79
• absolute irrationality;
• limited rationality.
The first characteristic is mental correctness of the cho-
sen and/or developed strategy. It includes awareness and un-
derstanding of the absolute opposites of an effective strategy
mentioned above.
The second characteristic is a situation. An effective
strategy always integrates characteristics of this very situation
into the key factors of the future (strategic) success of this spe-
cific organization.
The third characteristic is the strategy uniqueness.
To achieve future business success, the strategy of a definite organization should include some powerful constituents
that (under the conditions of real business operation) will make
this business significantly different from its main competitors.
In other words, the organization has to positively differ in
something essential in this business from its competitors. It is
related to the so-called Gauss’s principle (Grinel's axiom): Two
species of animals never occupy one niche in the natural environment; if two species occupy the same niche, they will develop different types of behavior, or one species will be oppressing the other.
A conscious approach to the strategic uniqueness means
a target search for opportunities of the future business success
at the place that hasn’t been yet occupied by the competitors.
But it is necessary to keep in mind that strategies that are based
on imitating something that has already been done by the leading competitors, can only bring a competitive advantage of a
lower level, even in case of finding successful situational and
unique imitating decisions.
The fourth characteristic is a future uncertainty as a strategic opportunity.
Nowadays, the environment in which the organization
finds itself is changing faster and faster and is becoming more
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