Abstract for: The Process of Strategic Innovation: A System Dynamics Approach

The paper presents a System Dynamics model that explores process of strategic innovation. Strategic innovation is the result of a dynamic process that enables companies to redefine the way to do business delivering more non-monetary value to customers with a high level of operational effectiveness. The firmís ability to generate and implement strategic innovation is determined by the diffusion on a certain degree of entrepreneurial orientation among front-line managers. Entrepreneurial orientation is determined by the introduction of organisational innovations that allow the release and the control of the entrepreneurial energy embedded in the organisational structure. Front-line managers contribute to the renewal of the firmís strategy developing strategic initiatives supported with resource allocated by top managers. The effectiveness of the process of strategic innovation is influenced by top managersí ability to recognise main feedback structure and to control two critical trade-offs. First they have to balance the entrepreneurial orientation of middle-level managers with a certain degree of strategic discipline to govern the selection and integration process of new strategic initiatives, secondly they have to balance resource allocation to support exploration activities finalized to generate new strategic initiatives and exploitation activities that allow strategic initiative development and integration in the strategy of the firm.