Part 7 – Innovativeness, culture and the ambidextrous organization
How businesses can innovate while delivering today
Why do some businesses manage to innovate again and again, while others struggle when technology, customer needs and markets change? Innovativeness is not just about ideas, creativity or access to new technology. The organisation must be able to discover new knowledge, learn, experiment, prioritise and implement new solutions – while the existing business must deliver quality, productivity and results. The research of, among others, James G. March, Charles O'Reilly, Michael Tushman, Wesley Cohen and Daniel Levinthal provides us with a scientific basis for understanding this organisational duality.
From individual innovations to innovative capability
A business can succeed with one innovation without necessarily being particularly innovative.
A new product can be a success. A project can develop a new service. An employee can find a better work process. A new technology can be implemented with good results.
But innovation ability is about something more fundamental.
The question is whether the business has the capacity to renew itself repeatedly .
Can it detect changes in its environment? Can it learn from customers and employees? Can it understand new technology? Can it acquire knowledge from outside? Can it experiment before all the answers are known? Can it terminate projects that don't work? And at the same time, can it turn new ideas into solutions that are actually put into use?
Innovative ability is therefore not a single activity.
It arises through the interaction between people, competence, culture, leadership, organization, resources, learning and the ability to act .
It turns innovation ability into an organizational capacity.
James G. March – exploration and exploitation
One of the most important theoretical starting points is found in James G. March.
In the 1991 article Exploration and Exploitation in Organizational Learning, March analyzed the tension between two basic forms of organizational activity.
Exploration is about searching, variation, risk-taking, experimentation, flexibility and discovery, among other things.
Exploitation is about, among other things, improvement, efficiency, implementation, production and execution.
Both are necessary.
A business that is merely exploring can produce an endless stream of ideas and experiments without being able to turn them into stable products, services, or results.
A business that only utilizes what it already knows can become very efficient – but at the same time increasingly better at doing something that gradually loses relevance.
This is the organizational dilemma of innovation.
The business needs both today's operations and tomorrow's opportunities .
Exploration – looking for what the business doesn't yet know
Exploration involves uncertainty.
When a business investigates a new technology, experiments with a new service, or attempts to understand an emerging customer need, it doesn't necessarily know what the outcome will be.
Many attempts will fail.
Some ideas turn out to be technically impossible.
Others lack a market.
Some are getting too expensive.
Others are replaced by better ideas.
This can make exploration difficult in organizations that are primarily driven by short-term efficiency and predictable returns.
Existing businesses have numbers.
It has customers.
It has budgets.
It has history.
The new idea often has assumptions.
This does not mean that the organization should invest uncritically in all new ideas. It means that exploration must be assessed on different premises than mature operations .
Exploitation – getting better at what we already know
Exploitation is at least as important.
Products must be produced.
Customers must be served.
Patients must be treated.
The plane must go.
Online stores must work.
Salaries must be paid.
Systems must be stable.
Quality must be maintained.
Existing operations can be improved through learning, standardization, automation and continuous process development.
This is also the world of innovation.
Much of the incremental innovation we described in Part 2 occurs precisely through increasingly better utilization of existing knowledge and capabilities.
The problem only arises if exploitation displaces exploration.
What makes the business efficient today may then reduce its ability to discover what it needs tomorrow.
Why organizations favor the familiar
There is a structural reason why exploitation often takes over.
The results of improvements in existing operations are often closer in time and easier to measure. The organization knows the market, the technology and the work processes. There is less uncertainty.
Exploration yields more uncertain results, often much later.
Thus, budgets, performance management and decision-making processes can systematically favor the existing.
It creates a self-reinforcing mechanism.
The business invests in what it already can do.
It's getting better at this.
The results confirm that the investment was sensible.
Thus, it invests even more in the same expertise and the same activities.
Over time, success itself can become a limitation.
There is also an interesting connection to Christensen from Part 3.
Established businesses can make rational decisions based on existing customers and financial demands and yet become vulnerable when new development paths arise.
The ambidextrous organization
It is in this tension that the concept of organizational ambidexterity becomes central.
Ambidexterity basically means being able to use both the right and left hand.
Applied to organizations, the concept describes the ability to handle activities that require different – and sometimes conflicting – organizational logics.
Charles O'Reilly and Michael Tushman have been among the most important researchers in further developing this perspective. They describe organizational ambidexterity as the ability to handle exploration and exploitation simultaneously , and link this to the ability of organizations to adapt to change over time.
This does not mean that all employees should necessarily spend half their time on operations and half on experimentation.
It is about the organization's overall capacity.
The business must be able to do different things in different ways – while at the same time the activities belong to the same strategic whole.
Structural ambidexterity
One solution is to organize exploratory and exploitative activities differently.
Existing operations may require standardization, clear responsibilities, productivity goals, and stable processes.
An exploratory innovation environment may need greater freedom, different measurement parameters, higher tolerance for uncertainty, and other competencies.
O'Reilly and Tushman's research shows how exploration and exploitation can be organized through separate entities with different systems, processes, competencies and cultures, while at the same time being tied together through common strategic direction and senior management.
This is often called structural ambidexterity .
However, that doesn't automatically solve the problem.
If the exploratory unit is completely isolated from the rest of the business, it may develop exciting ideas that never gain access to the customers, production, technology, or distribution needed to create value.
Separation must therefore be combined with integration .
Ambidexterity can also be created in other ways
Research on ambidexterity has evolved beyond the notion of separate organizational units.
Businesses may attempt to separate exploration and exploitation over time. In some periods, the organization explores new opportunities; later, it concentrates on implementation and scaling.
Other perspectives place greater emphasis on the context in which employees work, allowing individuals and teams to alternate between exploratory and exploitative activities.
There is therefore no one universal organizational model for ambidexterity.
The central question is the same:
How does the organization manage to protect long-term exploration without destroying short-term execution capability – and vice versa?
Cohen and Levinthal – the ability to absorb knowledge
Here we link Part 7 directly back to Open Innovation.
In 1990, Wesley Cohen and Daniel Levinthal introduced the concept of absorptive capacity .
They described the business's ability to recognize the value of new external information, assimilate it, and apply it commercially as crucial to its innovation capability.
This is a very important point.
Access to knowledge is not the same as the ability to use the knowledge.
A business can collaborate with the world's best university and still learn little.
It can buy the latest technology without understanding how it should be applied.
It can collect huge amounts of customer data without developing customer insights.
It may hire experts without managing to integrate their knowledge into the organization.
Cohen and Levinthal also argued that absorptive capacity relies to a significant extent on previously related knowledge .
This creates a paradox:
The more the business learns, the better it can become at learning more.
Innovation capability is built before the business needs it
This makes absorptive capacity a long-term strategic issue.
Expertise cannot always be purchased the moment the need arises.
Over time, organizations build language, experiences, professional environments and mental models that enable them to understand new developments.
Cohen and Levinthal therefore describe absorptive capacity as historical and path-dependent. Failure to invest in competence at an early stage can reduce the organization's ability to develop certain capabilities later.
This is particularly relevant when faced with artificial intelligence.
An organization that has built digital competence, data understanding and technological curiosity over many years approaches AI from a different starting point than an organization that has long considered digitalization as a purely IT issue.
Innovation capability is built before you know exactly what innovation you will need later.
Innovation culture – more than being positive about new ideas
The term innovation culture is often used loosely.
A business can have colorful premises, idea competitions, innovation days, and creative workshops without necessarily having a strong innovation culture.
Culture becomes interesting when it influences how people actually act.
Can employees challenge established solutions?
Can bad news travel up the organization?
Is it legitimate to say that a project is not working?
Are people rewarded only for today's results, or also for relevant learning?
Can professional communities collaborate across disciplines?
Are ideas evaluated based on quality or who suggested them?
Is there room for professional disagreement?
And does the organization learn from experiments that did not yield the desired results?
Here we encounter Teresa Amabile's research from Part 6 again. Creativity does not depend only on the individual's characteristics. The work environment, motivation, resources and organizational conditions affect people's ability to develop new and useful ideas.
Innovation culture is therefore not what the organization says about innovation. It is manifested in what the organization does when someone challenges the existing.
Experimentation does not mean limitless risk-taking
Innovative organizations are often described as organizations that "dare to fail."
The wording can be misleading.
The goal is not wrong.
The goal is learning at an acceptable cost and risk .
A good experiment reduces uncertainty.
The business identifies an assumption, tests it on a limited scale, observes the result, and uses the knowledge to determine the next step.
In some contexts, the experiment may be cheap and harmless.
In others – for example, healthcare, aviation, finance or critical infrastructure – experimentation must take place within strict safety and regulatory frameworks.
Innovativeness therefore does not mean choosing innovation over control.
It involves understanding where, how and under what conditions it is appropriate to experiment .
Psychological safety and learning
Organizational learning requires that information actually emerge.
If employees fear negative consequences for pointing out mistakes, asking questions, or challenging established decisions, the organization may lose knowledge it already has.
Psychological safety does not mean the absence of demands or disagreement. It is about people experiencing it as possible to take interpersonal risks by, among other things, asking questions, admitting mistakes, or promoting divergent views.
This is particularly important for innovation.
An organization that only hears good news learns slowly.
An organization where employees can say "this isn't working" has the opportunity to do something about the problem.
Thus, culture also becomes an information infrastructure.
The difficult role of management
Innovation cannot be completely delegated to an innovation department.
Management must manage competing needs.
It must protect today's business.
At the same time, it must invest in future opportunities.
It must set requirements for results.
But it cannot demand the same kind of predictability from an early experiment as from a mature business unit.
It must end bad innovation projects.
But it must avoid punishing people for well-founded experiments that yielded valuable learning.
It must give freedom to new initiatives.
But at the same time, ensure that they can access the rest of the organization's resources when they need to scale.
O'Reilly and Tushman precisely place significant emphasis on the role of top management in orchestrating these contradictions and holding different organizational units together through an overall strategic purpose.
Ambidexterity is therefore not just organizational design. It is also a leadership task.
Three real examples
IBM – new businesses alongside the established
IBM is a classic case in O'Reilly and Tushman's research on organizational ambidexterity.
The challenge was how a large established business could develop new growth areas while still delivering on its existing business.
Through the work with Emerging Business Opportunities, new initiatives were identified and followed up in a way that gave them attention and support from top management. O'Reilly, Harreld and Tushman's IBM study is among the key empirical works related to ambidexterity.
The point is not that all businesses should copy IBM.
The point is that new initiatives often need different conditions than the established business , while at the same time they may be dependent on its resources.
Toyota – improvement as organizational capacity
We used Toyota in Part 6 as an example of the role of employees in continuous improvement.
Here we see the company from a different angle.
Continuous improvement is not just about individual employees coming up with ideas. It requires systems and working methods that make problem identification, problem solving and learning part of ordinary operations.
This means that innovation does not just become a project alongside work.
Improvement becomes part of the work.
Toyota particularly illustrates the exploitation side of innovation capability: systematic learning and improvement of existing processes.
The challenge for any established business is to simultaneously combine this ability with exploration when more fundamental changes become necessary.
3M – knowledge, people and experimentation
3M also appeared in Part 6 through its work with lead users.
The company is interesting here because it has long been associated with organizational mechanisms that are intended to provide space for technical exploration, collaboration, and the development of new ideas.
But the interesting thing is not the myth that innovation occurs if employees are simply given "free time."
The interesting thing is the combination:
competence + organizational room for maneuver + knowledge sharing + resources + commercialization ability.
An idea creates no value if the organization never manages to develop and implement it.
Thus, 3M is also an example of the connection between creativity and organizational innovation capability.
Innovativeness and Open Innovation
Part 4 taught us that knowledge can be found outside the organization's own walls.
Section 7 adds an important condition:
The business must be able to absorb the knowledge.
Open Innovation without absorptive capacity can become a collection of partnerships without much learning.
Customer collaboration without the internal ability to translate the insights into action can become reports no one uses.
University collaboration without relevant internal expertise can make it difficult to understand the significance of the research.
Acquiring a technology company helps little if the organization destroys the expertise and culture it wanted to acquire.
Innovative ability is therefore also about connecting capacity – the ability to bring different knowledge environments together and make the knowledge applicable.
Innovation capacity in the public sector
The same basic principles apply in the public sector, but the framework may be different.
A hospital should deliver safe treatment today while simultaneously developing tomorrow's treatments.
A municipality must deliver stable services while developing new digital work processes.
A school should conduct teaching while also learning and developing pedagogical practice.
Public innovation cannot therefore be understood as a choice between stability and renewal.
Society needs both.
In fact, the need for ambidexterity may be particularly evident precisely where the consequences of failure in existing operations are great.
Innovative ability must therefore be combined with professionalism, legal certainty, quality, security and democratic responsibility .
AI as a new test of organizational innovation capacity
Artificial intelligence illustrates very well the difference between buying technology and having the ability to innovate.
Almost any business can now access advanced AI tools.
That doesn't mean everyone will create the same amount of value with them.
The difference may lie in the organization.
Do employees have the competence to understand the opportunities and limitations?
Is there good data?
Can the business identify relevant problems?
Can it conduct controlled experiments?
Can professionals and technologists collaborate?
Can solutions be integrated into existing work processes?
Can the organization handle privacy, security, and liability?
And can it learn faster than technology develops?
KI thus makes an old point even clearer:
Technological access is not the same as organizational capacity.
Innovative ability and value creation
Here Part 7 meets the core of the Value Creation series.
Innovation can create new products, services, processes and business models.
But lasting value creation requires the organization to be able to do more than produce ideas.
It must be able to choose.
Learn.
Implement.
Improve.
Exit.
Scale.
And renew yourself again.
Value creation therefore also lies in the organization's acquired ability to combine people, knowledge, technology and resources over time .
This ability is difficult to see in traditional accounting.
A business can have the same buildings, machinery and financial capital as a competitor and yet have dramatically different innovative capabilities.
The difference may lie in the competence.
The culture.
The relationships.
The management.
The history.
The ability to learn.
And the organization's ability to turn knowledge into action.
It is invisible capital in a very concrete sense.
From BI to Oxford and San Francisco
Innovative ability becomes particularly interesting when we connect the theory to the experiences from Innovation and commercialization at BI . Commercialization requires precisely the transition from exploration to implementation: from opportunity and idea to a solution that someone can actually use.
The Oxford seminars represent the importance of knowledge, research, and learning. But Cohen and Levinthal remind us that external knowledge only gains value when the organization has the competence to understand and apply it.
San Francisco and Silicon Valley provides a different perspective: environments where new businesses and technologies are continuously emerging, while established businesses attempt to innovate without losing the strength of existing businesses.
Thus, theory and practice meet in the same question:
How do we build organizations that can both deliver what we already know – and learn what we don't yet know?
Copenhagen – the city as an image of ambidexterity
And that's why we're keeping Copenhagen in this section.
The city actually gives us a very good metaphor.
Historic buildings coexist with modern architecture. The bicycle coexists with the metro. Old port areas are given new functions. The city's existing structure is used while new solutions are developed.
The point is not that Copenhagen is thus an "ambidextrous organization."
The point is visual:
Renewal does not always have to mean that everything existing has to be demolished.
Organizations face the same challenge.
They must take care of what works – while creating space for what does not yet exist.
A precise professional definition
Based on the research, we use this working definition:
Innovative capability is an organization's sustained capacity to discover, develop, absorb, combine and implement new knowledge and new solutions, while learning from and further developing existing operations.
The ambidextrous organization is the organization that manages to handle the fundamental tension between exploration and exploitation – between exploring new opportunities and effectively utilizing and further developing existing capabilities.
This is not a permanent balance that can be found once and then managed.
Markets change.
Technologies change.
Customers change.
Competence changes.
Thus, the balance must also change.
In short
Innovative ability is not primarily about how many ideas a business has.
It is about what the organization is able to do with knowledge and ideas over time .
James G. March gave us the distinction between exploration and exploitation. O'Reilly and Tushman showed how organizational ambidexterity can help organizations handle both simultaneously. Cohen and Levinthal showed why prior knowledge and absorptive capacity are crucial to understanding and applying new external knowledge.
Together they point towards an understanding of innovation that is far greater than creativity and technology.
The innovative business is not necessarily the one that comes up with the most ideas. It is the one that manages to learn, explore, implement and renew itself – without losing the ability to deliver.
And that gives us a perfect starting point for Part 8 , where we can gather the threads from the entire series and ask what innovation actually means for management, businesses, and value creation .
Recommended literature
Innovation is a comprehensive field of research that has developed through contributions from economics, strategy, organizational theory, entrepreneurship, technology, and research on people and organizations. For those who wish to delve deeper into the theories and concepts covered in this series, there are a number of key original works and textbooks.
Among the most important contributions are Joseph A. Schumpeter's work on innovation, entrepreneurship and creative destruction, Peter F. Drucker's research and writings on systematic innovation, Clayton M. Christensen's theory of disruptive innovation and Henry Chesbrough's work on Open Innovation. Eric von Hippel's research on user innovation and lead users provides important perspectives on the role of users, while James G. March, Michael Tushman and Charles O'Reilly have had a major impact on the understanding of exploration, exploitation and organizational ambidexterity.
Teresa Amabile's research on creativity and organizations and Amy Edmondson's research on learning and psychological safety contribute to the understanding of the human and organizational prerequisites for innovation. The OECD and Eurostat's Oslo Manual is also a key international reference for how innovation is defined, classified and measured.
Through the individual articles in the Innovation series, relevant literature and research are presented in more detail. The goal is to return to key original sources where possible, while also using more recent research to show how the theories have developed, been challenged, and are applied today.
The Innovator's Solution: Creating and Sustaining Successful Growth
Authors: Clayton M. Christensen and Michael E. Raynor
Short review
In this sequel to The Innovator's Dilemma, Clayton Christensen shows how businesses can translate innovation theory into practical strategy. The book explains how companies can identify new growth opportunities, develop disruptive innovations, and build organizations that thrive in rapidly changing markets.
Why we recommend the book
While The Innovator's Dilemma explains why established businesses are often challenged, The Innovator's Solution provides concrete advice on how to meet the challenges. The book is therefore a natural next step for anyone who wants to understand innovation, strategy and long-term value creation.
The Innovator's DNA: Mastering the Five Skills of Disruptive Innovators
Authors: Jeff Dyer, Hal Gregersen and Clayton M. Christensen
Short review
What characterizes people who create groundbreaking innovations? The authors identify five key skills – observation, questioning, experimentation, networking and association – that are common to the world's most innovative leaders and entrepreneurs.
Why we recommend the book
This book shifts the focus from organizations to the people behind innovation. It shows that creativity and innovation can be developed through deliberate training and experience. The perspectives align well with the philosophy behind Invisible Capital, where human competence and curiosity are the most important drivers of development.
Competing Against Luck: The Story of Innovation and Customer Choice
Authors: Clayton M. Christensen, Taddy Hall, Karen Dillon and David S. Duncan
Short review
In this book, Clayton Christensen further develops the theory of Jobs to Be Done – the idea that customers do not primarily buy products, but "hire" them to solve specific needs. Through practical examples, the authors show how businesses can develop products and services that address customers' real-world challenges.
Why we recommend the book
For anyone working in customer experience, service design, and innovation, this is one of the most insightful books ever written. It reminds us that value creation always starts with understanding the people we are developing solutions for – a fundamental principle of Invisible Capital.
The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail
Author: Clayton M. Christensen
Short review
The Innovator's Dilemma is considered one of the most influential books on innovation and technological change. Clayton M. Christensen introduces the theory of disruptive innovation and explains why even the most successful businesses can fail when new technologies and business models challenge established markets. Through a series of examples, he shows how companies often focus on today's customers and incremental improvements, while overlooking innovations that later change entire industries.
Why we recommend the book
This is one of the books that has had the greatest impact on modern innovation thinking. When I first read it, it gave me a whole new perspective on why some businesses succeed in transformation, while others lag behind – even when they are well led. The insight has been an important part of my own understanding of digitalization, innovation and change management, and many of the reflections in The Invisible Capital build on the ideas Clayton Christensen presents in this classic. The book is as relevant today, in the face of artificial intelligence and digital transformation, as it was when it was published.
Open Innovation: The New Imperative for Creating and Profiting from Technology
Author: Henry Chesbrough
Short review
Henry Chesbrough introduced the concept of Open Innovation and changed the way many businesses think about research and development. He shows how companies can create more innovation through collaboration with customers, universities, start-ups, suppliers and other external partners.
Why we recommend the book
Open Innovation has had a major influence on modern innovation thinking and was also an important topic during the seminars in Oxford and San Francisco. The book shows why future value creation occurs in the interaction between people, businesses and knowledge environments – not within closed organizations alone.
Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant
Authors: W. Chan Kim and Renée Mauborgne
Short review
Blue Ocean Strategy challenges businesses to shift their focus away from fierce competition and instead create new markets with little or no competition. The authors present strategies and models that help organizations develop innovative products, services, and business models.
Why we recommend the book
This book has inspired leaders around the world to rethink strategy and innovation. Instead of competing for the same customers, it shows how businesses can create new value through creativity and differentiation. The perspectives align very well with the themes of innovation, digitalization, and long-term value creation in Invisible Capital.
Outside Innovation: How Your Customers Will Co-Design Your Company's Future
Authors: Patricia B. Seybold
Short review
Patricia Seybold shows how businesses can create better products and services by actively involving customers in the innovation process. The book describes how dialogue, co-creation and close collaboration with users can provide better solutions and stronger competitiveness.
Why we recommend the book
Customers often hold the most important insights into how products and services can be improved. This book emphasizes the importance of listening, involving, and learning from users – a perspective that is echoed in many of the articles on The Invisible Capital. Innovation rarely happens alone; it is created in the interaction between people.
Blown to Bits: How the New Economics of Information Transforms Strategy
Authors: Philip Evans and Thomas S. Wurster
Short review
This book analyzes how digital information is changing competitive conditions, markets, and business strategies. The authors explain how the internet is disrupting established structures and creating new opportunities for businesses that are able to think differently.
Why we recommend the book
Although written early in the internet revolution, the book describes many of the developments that still characterize business today. It provides valuable perspective on how digitalization affects value chains, competition, and innovation – themes that are central to Invisible Capital.
Wikinomics: How Mass Collaboration Changes Everything
Authors: Don Tapscott and Anthony D. Williams
Short review
Wikinomics shows how openness, sharing and collaboration across organizations create new forms of innovation and value creation. Through a number of international examples, the authors describe how digital networks make it possible to develop products, services and knowledge together.
Why we recommend the book
This book was groundbreaking when it was first published, and many of the ideas have since become a natural part of everyday digital life. The perspectives on collaboration, knowledge sharing, and open innovation processes align very well with the philosophy behind Invisible Capital, where people and networks are at the center of value creation.
The Competitive Strategy: Techniques for Analyzing Industries and Competitors
Author(s): Author: Michael E. Porter
Short review
Competitive Strategy is Michael E. Porter's classic work on how companies can understand the competition they find themselves in and develop a position that provides a basis for long-term profitability. Porter shifts the focus from the individual competitor to the structure of the entire industry and shows how competition is affected by customers, suppliers, new entrants, substitutes and the rivalry between existing companies. This forms the basis for what has later become known as Porter's Five Forces. The book is also about how companies can choose a competitive strategy on the basis of this analysis. It thus established an analytical language for strategy that has gained great importance in both research, teaching and practical strategy work.
Why we recommend the book
We recommend Competitive Strategy because it provides the analytical foundation for much of the thinking Porter later develops in What Is Strategy?. If a company is to choose a unique strategic position, it must also understand the competitive forces, the industry structure and the factors that affect the ability to create and retain value. The book is particularly useful because it reminds us that strategy is not just about internal goals, plans and ambitions. Strategy must be developed in the face of customers, competitors, suppliers, technology and structural changes in the market. Together with What Is Strategy?, the book therefore provides a much richer picture: First, the company must understand the competitive arena. Then, it must choose how to be different.
Competitive Advantage: Creating and Sustaining Superior Performance
Author(s): Author: Michael E. Porter
Short review
In Competitive Advantage, Porter moves the analysis from the industry to the business itself. The main question is how competitive advantage is actually created. One of the book's most important contributions is the value chain, where the business is understood as a system of activities that collectively develop, produce, market, deliver and support a product or service. Competitive advantage cannot therefore be understood only through products or overall strategies; one must examine the activities that create costs, differentiation and value. This understanding later becomes central to Porter's argument about strategic fit: the activities must not only be good in isolation, but also fit together and reinforce each other.
Why we recommend the book
We recommend Competitive Advantage because it brings strategy right down to where value is actually created: in the activities the business performs. This makes the book particularly relevant together with What Is Strategy?. When Porter argues in 1996 that strategy consists of performing different activities than competitors, or performing similar activities in other ways, this builds on the thinking he developed here. For our perspective on value creation, this is particularly interesting. Value does not arise because the business has formulated a strategy on a document, but through people, expertise, technology, processes, collaboration and activities that together enable the business to create something that customers value. The book therefore provides an important connection between strategy, competitive advantage and actual value creation.
The Competitive Advantage of Nations
Author(s): Author: Michael E. Porter
Short review
In The Competitive Advantage of Nations, Porter raises the perspective from business to countries, regions and business environments. The book is based on extensive studies of the competitiveness of ten leading trading nations and examines why certain countries and business clusters are particularly successful in certain industries. A central premise is that national prosperity is not simply something a country inherits through natural resources or other given conditions. It is created, and productivity, innovation, competence, competition and the quality of the environment in which businesses operate are crucial. Here, Porter also develops the well-known diamond model to explain how different national and regional conditions can interact and stimulate competitiveness.
Why we recommend the book
We recommend The Competitive Advantage of Nations because here Porter extends the strategy perspective to the ecosystem surrounding the business itself. Value creation does not occur in a vacuum. Businesses develop in societies with education, research, infrastructure, capital, suppliers, demanding customers, competing businesses and public institutions. This makes the book particularly interesting for understanding value creation as an interaction between people, businesses and society. It also provides an important corrective to the notion that a country's competitiveness can mainly be understood through low costs or access to natural resources. Innovation, productivity and the ability to continuously develop are far more central to Porter's explanation.
Understanding Michael Porter: The Essential Guide to Competition and Strategy
Author: Joan Magretta
Short review
Understanding Michael Porter brings together and explains the most important parts of Michael Porter's strategic thinking in one accessible whole. Joan Magretta herself worked on strategy at the Harvard Business Review and organizes Porter's ideas around two fundamental questions: What is competition, and what is strategy? She explains, among other things, the Five Forces, competitive advantage, the value chain, value creation, trade-offs, fit, and strategic continuity. This makes the connection between Porter's various works clearer than when the concepts are studied separately. The book also includes an interview with Porter.
Why we recommend the book
We recommend Understanding Michael Porter because it helps the reader see the whole picture of Porter's understanding of strategy. Porter is often reduced to the Five Forces or a few models used in isolation. Magretta shows why this is too simple. Competition, value creation, strategic positioning, trade-offs, activity systems, fit and continuity are interconnected. This makes the book a particularly good supplement after reading What Is Strategy?. It makes it easier to understand why Porter does not view strategy as a plan or a collection of goals, but as a coherent system of choices about how the business will create value and compete over time.
HBR's 10 Must Reads on Strategy
Authors: Harvard Business Review, Michael E. Porter, W. Chan Kim, Renée A. Mauborgne and more
Short review
HBR's 10 Must Reads on Strategy brings together some of Harvard Business Review's most influential writings on strategy. The original collection from 2011 features Michael E. Porter's What Is Strategy? as its main article and combines it with works on competitive forces, Blue Ocean Strategy, the organization's vision, business models, strategy execution, and the Balanced Scorecard, among others. The result is not one unified theory of strategy, but multiple perspectives on how organizations can develop, formulate, and execute strategy.
Why we recommend the book
We recommend HBR's 10 Must Reads on Strategy because it places Porter in a broader strategic context. After reading What Is Strategy?, it will be interesting to encounter other central perspectives and see how they complement, challenge, or extend Porter's understanding. The collection also shows why strategy cannot be reduced to a single model. Competitive position, choice, innovation, business model, execution, priorities, and measurement must be seen in context. For the reader who wants to move on from Porter and into the strategy discipline more generally, this is therefore a very good introduction.
Creating a Learning Society: A New Approach to Growth, Development, and Social Progress
Author: Joseph E. Stiglitz and Bruce C. Greenwald
Short review:
Creating a Learning Society examines how knowledge, learning, and technological development contribute to economic growth and long-term value creation. Joseph E. Stiglitz and Bruce C. Greenwald challenge the notion that economic development is primarily about accumulating more physical capital. They argue that society’s ability to create, disseminate, and apply knowledge is crucial to productivity growth and improved living standards. A key point is that learning does not only occur in schools and universities. It also occurs in businesses, through work, production, innovation, and the interaction between people and organizations. Knowledge can also spread from one business and one part of the economy to others.
The book thus provides an important perspective on why human capital, competence, innovation and learning must be understood as central parts of a society's ability to create value over time.
Why we recommend the book
We recommend Creating a Learning Society because it expands the understanding of what lies behind economic value creation.
Machines, technology and financial capital are important, but they do not create productivity growth alone. Behind the development are people who learn, develop knowledge, improve work processes, share experiences and find new solutions.
This makes the book particularly relevant to Invisible Capital and our perspective on value creation: A significant part of society's value-creating capacity is found in the knowledge, competence, and learning ability of the people who participate in the economy.
Stiglitz and Greenwald thus provide an academic foundation for one of the most important relationships in modern value creation:
The Value of Everything: Making and Taking in the Global Economy
Author: Mariana Mazzucato
Short review
In The Value of Everything, Mariana Mazzucato asks a fundamental question: What exactly is value – and who creates it? Mazzucato returns to the historical discussions of value in economics and shows how the understanding of value creation has changed. She challenges the notion that high income, high prices or large profits necessarily mean that correspondingly large values have been created. One of the book's most important contributions is the distinction between value creation and value extraction . Mazzucato examines the financial sector, the pharmaceutical industry, innovation and the public sector, among others, and argues that we must become better at distinguishing between activities that actually create new values, and activities that primarily extract values that have already been created.
The book also challenges the traditional notion that the private sector creates value while the public sector mainly consumes or redistributes it. Innovation and economic development often arise through a complex interaction between public investment, research, businesses, capital and people.
The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations
Author: Philippe Aghion, Céline Antonin and Simon Bunel
Short review
The Power of Creative Destruction is about one of the most important drivers of long-term economic growth: innovation.
Philippe Aghion, Céline Antonin and Simon Bunel build on Joseph Schumpeter's classic idea of "creative destruction" – the process by which new technologies, businesses, products and ideas challenge and replace existing solutions.
But the book is not just about the disappearance of the old. The authors examine why some economies manage to create continuous innovation and productivity growth, while others stagnate. Competition, entrepreneurship, research, education, institutions and public policy thus become important parts of the explanation.
Creative destruction also comes at a cost. New technologies and businesses create opportunities and jobs, but can also make existing skills, tasks and business models less relevant. The challenge is therefore to create societies that both promote innovation and enable people to participate in the transition.
Why we recommend the book
We recommend The Power of Creative Destruction because it shows why innovation is a fundamental driver of value creation .
Value creation is not just about producing more of what we already produce. It also occurs when people develop new ideas, technology, and ways of working that enable us to solve tasks better than before.
This makes the book particularly relevant to The Invisible Capital. Behind innovation are people with knowledge, expertise, creativity and experience. But Aghion's perspective also shows that human capital must be part of a larger system where competition, institutions, research, investment and policy create the conditions for new ideas to actually turn into economic and social development.
The book thus provides an important context in our understanding of value creation:
Knowledge → new ideas → innovation → productivity growth → long-term value creation.
Institutions, Institutional Change and Economic Performance
Author: Philippe Aghion, Céline Antonin and Simon Bunel
Short review
Institutions, Institutional Change and Economic Performance is one of Douglass C. North's most important works on why some societies are more successful than others in creating economic development over time.
North shifts attention from traditional factors of production such as capital and labor to the institutions that shape how people, businesses, and governments act and cooperate. Institutions are society's formal and informal rules of the game – including laws, regulations, norms, traditions, and established ways of organizing interaction.
These rules of the game affect the incentives that people and organizations face. They also affect investments, knowledge development, cooperation, transaction costs, and which economic activities emerge.
North also shows that institutions develop over time. History therefore matters: Today's economic opportunities are influenced by institutional choices and development paths that can stretch far back in time.
Why we recommend the book
We recommend Institutions, Institutional Change and Economic Performance because it explains a crucial aspect of value creation that easily becomes invisible:
Value creation needs good rules of the game.
People may have knowledge. Businesses may have capital. Entrepreneurs may have great ideas. A society may have natural resources and advanced technology. But outcomes are also influenced by the institutions that determine how people can collaborate, invest, compete, make deals, and develop businesses.
This makes North particularly interesting for our understanding of trust as part of invisible capital. Trust is not the same as institutions, but stable rules of the game, credible agreements, and well-functioning institutions can reduce uncertainty and make economic interaction easier.
North thus gives us another important part of the value creation picture:
Institutions → predictability and incentives → cooperation and investment → productive activity → long-term value creation.
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