The Importance of Strategic Innovation
Through the cycle of boom and bust, a fundamental truth remains. The world keeps changing. New digital technologies are transforming the services sector. Nanotechnology and genetic engineering are revolutionizing the pharmaceutical and semiconductor industries. Formerly distinct industries such as mass media entertainment, telephony, and computing are converging. Globalization brings new markets, nontraditional competitors, and new sources of uncertainty such as armed conflict in the Middle East and the entry of China into the WTO. More subtle changes are important as well, including the aging of the population in developed economies, and the rise of a new middle class in emerging economies. This dynamic environment affects new industries and old, high tech and low tech, manufacturing and services.
As a result of these forces, companies find that their strategies need almost constant reinvention – either because the old assumptions are no longer valid, or because the previous strategy has been imitated and neutralized by competitors, or because technological developments and globalization offer unanticipated opportunities.
Strategic innovation refers to this process of reinventing strategies. Despite some commonalities, strategic innovation is not synonymous with technological or product innovation. New technologies do not always yield successful products. Similarly, new products are not always strategically salient. There also exist many companies (e.g., Southwest Airlines) whose success appears to be driven by innovative strategies without much innovation in either the underlying technologies or the products and services being sold to customers. Strategic innovation is innovation in the strategy itself.
More concretely, strategic innovation represents the following types of creative departures from historical industry practices:
- Innovations in the design of the end-to-end value chain architecture (e.g., Dell Computer);
- Innovations in the conceptualization of delivered customer value (e.g., IBM’s shift from selling hardware and software products to selling complete solutions);
- Innovations in the identification of potential customers (e.g., Canon’s pioneering focus on the development of photocopiers targeted at small businesses and home offices rather than large corporations).
Thus, your company can innovate strategically without necessarily introducing new products, as Dell has done. You can take the same old product but go to market differently. A company should explore innovation opportunities in every part of the value chain. Strategic innovation, therefore, is not the purview of R&D department alone. Everyone in the company can and should play an important role.
Has your company engaged in strategic innovation, in response to fundamental changes in your industry?