What is Strategic Innovation?

Innovative thinking can be applied to the strategic planning of an organization to create new opportunities and boost market performance. Strategic Innovation is the creation of growth strategies, new product categories, services, or business models that change the market and generate significant new value for consumers, customers, and the organization. Strategic Innovation takes the road less traveled – it challenges an organization to look beyond its established business boundaries and to create possibilities in an open-minded and creative environment. It has been seen that focusing on the short-term aspects typically yields short-term results, however, firms seeking to make significant breakthroughs identify both, big and innovative ideas.

Strategic Innovation

Strategic Innovation calls for a holistic approach that operates on multiple levels. First, it blends non-traditional and traditional approaches to business strategy, deploying the practices of “Industry Foresight”, “Consumer/Customer Insight” and “Strategic Alignment” as a foundation, and supplementing them with more conventional approaches and models. Second, it combines two paradoxical mindsets: expansive, visionary thinking that imaginatively explores long-term possibilities; and pragmatic, down-to-earth implementation activities that lead to short-term, measurable business impact.

Strategic Innovation can thus be defined as a framework of interdependent content, process, and context dimensions, the application of creativity and innovation to strategic management enabling strategic differentiation and competitive advantage, challenging conventional logic and redefining the company’s business model, creating new markets and value improvements for customers and the company itself. Strategic innovation leads to either: new business models (including a new value chain architecture), or new markets (either by creating new ones or reshaping existing ones), or increased value for both the customer and the company, or a combination of these three.

  • In January 1936, Lever Bros., a subsidiary of Unilever, introduced a new food product in the U.S. market, a vegetable shortening called Spry. The new product went up against Procter & Gamble’s established marker leader, Crisco, which had been introduced in 1912. Spry’s impact was phenomenal: In a single year, it had reached half the market share of Crisco.
  • In the early 1960s, Canon, a camera manufacturer, entered the photocopier market — a field totally dominated by Xerox. By the early 1980s, even after the unsuccessful attempts of IBM and KODAK in the market, Canon emerged as the market leader in unit sales.
  • In 1972, Texas Instruments, a semiconductor chip supplier, entered the calculator business — a field already occupied by Hewlett-Packard, Casio, Commodore, Sanyo, Toshiba, and Rockwell. Within five years, TI was the market leader.
  • In 1976, Apple introduced the Apple II in direct competition to IBM, Watig, and Hewlett-Packard in the professional and small business segment and Atari, Commodore, and Tandy in the home segment. Within five years, Apple had become the market leader.
  • In 1982, Gannett Company Inc. introduced a new newspaper into a crowded field of 1,700 dailies. By 1993, USA Today had become the top-selling newspaper with an estimated 5 million daily readers.
  • In 1987, Howard Schultz bought Starbucks Coffee from the original owners. In the next five years, he transformed the company from a chain of 11 stores to some 280 stores in 1993. Sale revenues grew from $1.3 million in 1987 to $163.5 million in 1993.

The common theme underlying all these accounts is simple: the companies succeeded dramatically in attacking an established industry leader without the help of radical technological innovation.

Sources of Strategic Innovation

How can a manager systematically think about breaking the rules? How does one go about it? How do innovative companies come upon their strategic ideas?

All companies in an industry have to decide three basic issues at the strategic level: Who are going to be the customers? What products or services should be offered to the chosen customer? How should these products be offered?

The answers to the above questions depend on the business the company is currently dealing with. The customers may vary depending on the business, for example, if a company is in the electricity business, the customers will be different from those of the company involved in the energy business.

Every company makes different choices depending on their preferences. Some companies may choose to focus on certain customer segments and offer specific services. While others may choose to be global, offering one or many products or services worldwide.

Once they’ve made a choice, companies are not stuck with these choices forever. A company can always change its customer orientation or the services it provides. However, over time, all the elements of a given industry are taken care of, i.e., most of the possible customer segments are taken care of, most products and services are offered in one form or another, and most possible distribution or manufacturing methods or technologies are utilized.

Strategic innovation occurs when a company identifies gaps in the industry positioning map and decides to fill them. Some such gaps are : (1) new, emerging customer segments or existing customer segments that other competitors have neglected; (2) new, emerging customer needs or existing customer needs not served well by other competitors; and (3) new ways of producing, delivering, or distributing existing or new products or services to existing or new customer segments. Gaps appear for a number of reasons, such as changing consumer tastes and preferences, changing technologies, changing government policies, and so on. Gaps can be created by external changes also.

The first requirement to becoming a strategic innovator is to identify gaps before everybody else does. However, just identifying gaps does not guarantee a company’s success, but competitively exploiting the gap does.

Proactive Strategic Innovation

How can a company proactively and methodically think about and develop a new game plan? Five general approaches of the prosperous strategic innovators are :

  1. Redefine the business.
  2. A company should think of new customers or new customer segments and develop a game plan that serves them better.
  3. A company should think of new customer needs or wants and develop a game plan that better satisfies these requirements.
  4. Companies should force existing core competencies to build new products or a better way of doing business and then find the right customers.
  5. Start the thinking process at different points. For example, instead of thinking, “This is our customer, this is what he or she wants, and this is how we can offer it,” start by asking: “What are our exclusive capabilities? What specific needs can we satisfy? Who will be the right customer to approach?

Dimensions of Strategic Innovation

The Strategic Innovation framework weaves together seven dimensions to produce an assortment of outcomes that drives growth. The dimensions include:

  1. A Managed Innovation Process
  2. Strategic Alignment
  3. Industry Foresight
  4. Consumer / Customer Insight
  5. Core Technologies
  6. Organizational Readiness
  7. Disciplined Implementation

1. The Managed Innovation Process covers the sequence of activities from the beginning of a scheme through implementation combining traditional and non-traditional approaches to Business Strategy. As a team-based framework, the approach includes part information exchange, part exploration, part mediation, part creative invention, and part improvement thereafter. The Innovation process is divided into two broad modes of thinking: Divergent and Convergent.

  1. Divergent thinking lies at the heart and is open-minded, probing, and curious, deploying non-traditional, creative thinking and future visioning techniques. If not impatient for short-term success then the divergent mode opens the door to the possibility of identifying breakthroughs.
  2. Convergent mode includes the traditional business tools, techniques, and data analysis, potential opportunities are looked into and prioritized, refined, and then often moved through a formal decision-based stage-gate procedure until the most promising ones are implemented.

2. Strategic Alignment is the process of engaging a short-term leadership team, a broad cross-section of the organization, and key external stakeholders in the development of a shared vision. Strategic Alignment can be of two types: Internal Alignment and External Alignment. In the case of the Internal Alignment the Internal Team of the Organization will drive an innovative initiative while in the case of External Alignment, the team has to gather insights from partner organizations by formally making them a part of the co-creation process. This is called an Extended Team which includes representatives from the organization’s supplier, channel, manufacturing, or packaging partners.

3. Industry Foresight is a top-down approach that explores the drivers, trends, enablers, and dislocations within one or more industries. By this step an organization can develop a compelling, proprietary view of the future, enabling it to then define a well-grounded and pragmatic participation strategy.

4. Customer Insight is a qualitative, bottom-up approach that leverages insights into the behaviors, perceptions, and needs of the current and potential consumers/customers by involving them as true partners in the innovation process. Though Consumer /customer participation in corporate strategy is not very usual, there is a tremendous opportunity in involving consumers/customers ( and suppliers and other external stakeholders etc.) as true partners in the innovation process by adopting a Customer / Consumer Insight approach. This approach is not limited to Consumer / Customer but can be extended to channel partners, employees, investors, early adopter non-users, etc.

5. Core Technologies – After having a clear idea of a Consumer Customer’s needs it is not only essential to consider the organization’s technologies but also other capabilities that are integral to success. Such competencies include intellectual property or patents, unique relationships with suppliers and partners, brand equity, speed, and operational agility, or unique business process. Innovation must have a tight link to core competencies. The significant opportunities by partnering, outsourcing, or acquiring new technologies and competencies must be considered for innovation.

6. Organizational Readiness has its importance in the innovative or convergent stage. It mainly refers to the ability to act upon and implement innovative ideas and strategies and to successfully come to grips with the operational, political, cultural, and financial demands that will follow. Organizational Readiness has three dimensions:

  1. Cultural Readiness – Cultural readiness refers to the mindset and norms that allow individuals and teams to think imaginatively, take prudent risks, and seek out, create and introduce innovative solutions.
  2. Process Readiness – Process readiness refers to the general business process and practices that enable functional groups to operate effectively and collaborate toward a common goal.
  3. Structural Readiness – Structural readiness refers to the organizational structures and technologies that support innovation as well as levels of flexibility to assign qualified staff to high-priority projects.

7. Disciplined Implementation includes transition to specific projects or programs, technical product development and design, brand development, building a business case, developing marketing and channel strategies, defining evaluation criteria, developing new business processes, hiring and training, and establishing feedback loops for continuous improvement to the innovation process.

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