Proactive Innovation strategy
The College of St. Scholastica
Ekta Gupta
In
their paper Peterková, Gruberová (2012) “Proactive
Innovative Strategy” aim highlight the importance of innovative potentials for
the strategic management of firm. Authors suggest, strengthening competitive
fight evoked with the hyper competition and globalization in entrepreneurial
environment urge entrepreneurial subjects to change their business strategy
which is oriented to quality and price to business strategy based on innovations.
Entrepreneurial strategies needs transition from
reactive to proactive strategies. The reactive strategies are based on analysis
of competitive conditions and profit-oriented strategic plans. The principle is
SWOT analysis which results from what is now and find how to improve. On the
other hand the proactive strategy focused on changing the competitive space in
which is the firm situated or in which the firm pursues creating quite new
space for satisfaction of unknown need so far. They are strategies resulting
from innovative potential. Besides this the
proactive strategy can encounter the delimitation of dynamic strategy which means the ability to change its strategy
thereby obtain the lead before the competition. According to Doz and Kosonen
(2011) the base is strategic agility which is qualified with three dimensions:
strategic sensibility, integrated group participation and flexibility of
resources. Assumption of these competences makes it possible to ensure to grow
potential.
The innovative potential poses the
potential of change, one of competitive potentials empowering mechanism of
mobility (Mikoláš, 2005). This potential displays “the general qualification of
enterprise for success, permanent pursuance of own vision” (Pittner &
Švejda, 2004). The innovative level of potential is judged from different
points of view of functioning of enterprise namely in light of technical and
technological, material equipment, economical and financial (for example
efficiency of spent financial sources or sources of financing of innovative
plan), business activity and marketing , R&D, social and management above
all the ability to provide for development of innovative potential (Pittner
& Švejda, 2004). Under the term innovation
according to J. A. Schumpeter we can find “an evolutionary form of invention
which is ready to be produced and sold on the market” (Keklik, 2003).
In the event that the firm has
technical innovation it can realized two types of innovative strategies.
The firm which is an initiator of offensive strategy,
is an initiator of technical improvement and it sets the trend of technical
development of whole branch. On the other hand, the firm asserting the
defensive strategy makes use of results of technical improvement and ensure its
diffusion. The type of used strategy is dependent upon the entrepreneurial
power of producer and upon the attractively of branch. To the group of offensive strategies according to Slávik
(1999) is ranged a front-end and an adaptive strategy. The front-end strategy
is typical for innovative leader on the market in particular industrial branch
which produces a product on the top technical level which is destined only for
particular customer segment. In the case of adaptive strategy of firm it can
produce a product on Loir technical level and it focuses on a broad group of
customers. This strategy is realized with
firms which want to forbear the risk related to high spending on research and
development of new products or processes. The offensive strategy is realized
above all in global pilot enterprises which have character of transnational
firms. They bear their activities on their own research and development and
support of scientific-technological parks and universities.
The second group of defensive
strategies is formed with imitative, license and accepting strategy. The
imitative strategy is based on fast imitation of results of global pilot
enterprises realized a top and an adaptive strategy. This strategy is elected with firms which haven’t strong
research and development. The use of this
strategy can lead to technical backwardness of firm. The enterprise which
finally takes up products and technologies of produces which leaved the market
to meet another demand realize the accepting strategy. This strategy poses for the enterprise a strategy of
innovative lag.
It turns out that the proactive
strategy based on innovative potential is the principle of competitive
advantage of firm on several markets.
References
Peterková, J., & Gruberová, V.
(2012). Proactive Innovative Strategy. China-USA Business Review, 11(2), 225-236.
INSURANCE
Organizational form theory argues
that the organizations that survive in any economic activity are the ones that
deliver the product at the lowest possible price while covering agency and
production costs (Jensen and Meckling 1976, Fama and Jensen 1983a, 1983b,
Hansmann 1985). Within the insurance industry, the two main
organizational structures are mutual and stock. The continued coexistence of
mutual and stocks in the insurance industry suggests that each type operates and survives where it has a comparative
advantage (Fame and Jensen, 1983). McMinn (2011) explained the
structures of stock and mutual shares as “Mutual and stock companies differ fundamentally in the manner in
which they structure the manager, owner and customer functions. In a
mutual organization, the customers are also the owners. Customers provide
capital, own the residual value of the firm, and bear the risk. In a stock
organization, the owners and customers are distinct, the owners supply capital
and receive the residual value of the firm, and the risk is shared between
owners and customers. The mutual form is free from
conflict of interest as both parties are one.” Viswanathan and Cummins
(2003) states owners in a stock firm can control managerial behavior more
effectively through a number of market-based mechanisms that are not available
in the mutual ownership form (Viswanathan and Cummins, 2003). Managerial
discretion hypothesis suggests, stock firms are hypothesized to perform better than
mutual in activities that require greater managerial decision making authority (Mayers
and Smith, 1981, 1988). The maturity hypothesis argues that mutual would be more
prevalent in line with a longer expected duration, either in the contract period
or settlement period. In long-term contractual arrangements, opportunities
exist for owners and managers to extract value from policyholders by increasing
the riskiness of firm assets, increasing leverage, or taking on more risky
projects. According to the expense preference hypothesis, mutual managers are
predicted to be less successful in minimizing costs than the managers of stock insurers,
because of the more limited mechanisms for monitoring and controlling
management behavior in the mutual ownership form (Boose, 1991; Kroll, Wright,
and Theerathorn, 1993). Viswanathan and Cummins (2003) stated “Mutual-to-stock
conversions have been occurring for many decades in both the life- health and
property-liability industries. The increased product complexity requires
greater managerial control that is facilitated through the stock ownership form”.
Mutual insurers can only increase their capital base through either retained
earnings or surplus notes, a form of highly subordinated debt security (Dumm
and Hoyt, 1999), whereas stock firms can raise funds through a variety of stock
and debt offerings. Prior demutualization studies suggest that
property-liability conversion is motivated by growth potential, capital needs,
and possible management self-interest (Cagle, Lippert, and Moore, 1996; Mayers and
Smith,2002). Evidence also has been presented that the need for capital and the
opportunity to control free cash flow motivate life-health demutualization
(Cole, McNamara, and Wells, 1995; Carson, Forster, and McNamara, 1998).
Harrington and Niehaus (2002) observe that mutuals have a 10% higher
capital-to-liabilities ratio than stocks. Viswanathan and Cummins (2003) stated
the benefit of stocks as “The increased transparency of a stock firm’s financial
condition may generate more favorable borrowing terms. Stocks may be better able
to recover from unexpected investment or underwriting losses due to their
ability to raise new capital. Mutual insurers are distinguished by their lack
of policyholder/owner monitoring of their actions as a key advantage of the
change to stock charter is access to capital markets”.
I think, in this competitive
market it is not a lucrative method to let the authority of decision taking in
the hands of policy holders; as these policy holders may not be well versed
with financial education, their participating in decisions are skeptical and
that is the prime reason of it losing the high returns compare to stock shares.
But still mutual shares are good for who tends to weigh lower returns over
higher risks. As found in studies that mutual shares have comparative lower
production cost, I think it’s not a bad idea to let few mutual shares remain in
market for specific segment of people who may rather not spend in higher risks
stocks. Moreover as market changes are unavoidable, I think it is in best
interest of everyone to have mutual shares and stocks both in the market, which
such flexibility policyholder will feel the luxury of having choice in all kind
of markets to invest their money. Now it is completely dependent on financial
health of a firm to decide how to divide its shares between mutual shares and
stocks. With current legal flexibility of demutualization, I don’t see any
pressing reason converting all mutual shares to stocks. Keeping the competitive
advantages of both structures in mind, I like to conclude that mutual shares
may need more stringent guidelines like allowing only financial educated
policyholders in decisions, however such low risk investment should always be
available to customers.
References
Cagle, J. A. B., R. L. Lippert, and W. T. Moore, 1996,
Demutualization in the Property- Liability
Insurance
Industry, Journal of Insurance Regulation, 14: 343-369.
Fama, Eugene F., and Michael C. Jensen. (1983a) “Separation
of Ownership and
Control.”Journal of Law and
Economics, 26, 301–25.
Fama, Eugene F., and Michael C. Jensen. (1983b) “Agency
Problems and Residual Claims.”
Journal of Law and Economics, 26, 327–49.
Hansmann, Henry. (1985) “The Organization of Insurance Companies:
Mutual versus Stock.”
Journal of Law, Economics and Organization, 1, 125–53.
Jensen, Michael C., and William H. Meckling. (1976) “Theory
of the Firm: Managerial
Behavior, Agency Costs and Ownership Structure.” Journal
of Financial Economics, 3,
305–60.
Mayers, D., and C. Smith, 1981, Contractual Provisions.
Organizational Structure and Conflict
Control in Insurance Markets, Journal of Business, 54:
407-434.
Mayers, D., and C. Smith, 1988, Ownership Structure across
Lines of Property- Casualty
Insurance, Journal of Law and Economics, 31: 351-378.
Mayers, D., and C. Smith, 2002, Ownership Structure and
Control: Property-Casualty Insurer
Conversion to Stock Charter, Journal of Financial
Services Research, 21(1-2): 117-144.
MacMinn, R.
(2011). Mutual versus Stock Insurers: A Synthesis of the Theoretical and
Empirical
Research. Journal of Insurance Issues, 34(2), 101-111.
Viswanathan, K. S. and Cummins, J. D. (2003),
Ownership Structure Changes in the Insurance
Industry: An Analysis of Demutualization.
Journal of Risk and Insurance, 70: 401–437.
doi: 10.1111/1539-6975.t01-1-00058
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