Strategy and Innovation - Essay Example

Strategy and innovation Contents Introduction 3 Innovation 3 Strategy 5 Strategy and innovation: synergy and differences 6 Internal directions, technology and innovation 6 Innovation and its essence 8 Co-existence of Innovation and Strategy: Benefits and risks 9 Balancing strategy and innovation 12 Conclusion and future managerial Implications 14 Reference List 16 Introduction The concept of innovation and strategy has evolved over years. 10 years back, global expansion or creating a new brand or line extension might have been termed as strategic innovation. However, the global business and economic scenario has changed and organizations are facing tough competition in terms of creativity and differentiation. Simple planning cannot be termed as innovation or strategic initiative. Understanding the relationship and link between strategy and innovation is the prime topic of discussion in the current study with extended objective of providing leverage to managers and marketers in terms of maximum utilization. This can also be considered as the prime barrier to sustainable value differentiation. This is also one of the prime objective as well as observation point of the current research study. Innovation Literature on innovation has claimed that innovation can be considered as one of the crucial success for the survival and growth of any firm. It has also been proportionally related to sustainable and competitive advantage to any company. Despite the presence of various definition and concepts on innovation, researchers have not been able to conclude one single definition for innovation. According to Vyas (2009), five different expression of innovation can be represented as follows; 1. Development of entirely new products or service or qualitative improvements in existing service or products. 2. Implementation of a new process of industrialisation 3. Market openings in new and un-penetrated regions 4. Development of sources for new inputs or raw materials 5. Newly formed industrial organisations. According to Therrien, et al. (2011), innovation can be described as a complex procedure related to processes and production functions. Here, companies try to build and acquire unique technological, strategic and marketing competence. These competencies can be acquired through resources and capabilities possessed by the organisation. Another important factor is transformation of these resources into distinctive innovation by innovation capabilities. At an organisational level, innovation represents the propensity and receptivity of the firm to establish and create new ideas leading to development as well as launch of new services and products. According to OECD and Eurostat (2005), Innovation is described as “implementation of a new or significantly improved product (good or service), process, a new marketing technique or a new organisational method in business practice, workplace organisation or external relations.” From the above definition it is clear that innovation in this contemporary business and economic environment is not confined to a simple change in the service or product or brand extension to a new market, but can spread across various facets of an organisation including operations, logistics, planning and implementation process, channels and even human resource management. The ultimate goal of any innovative action is to increase the performance of firm as well as bring sustainable advantage to the firm. Early studies confined innovation to five major types’ namely new resources and materials, new process for production, new products, new forms or organisations and new markets. Other authors included managerial and business model, as categories of innovation. However, looking at the changing role of organisations and industries as well as increasing competition, marketing and organisational innovation can be described as follows; 1. Product Innovation: Product innovation involves introducing either a completely new or an improved service or product into the market. The improvement can be made in terms of its users or characteristics. Cotemporary process innovations include improvement in materials and components, technical specifications, software incorporation, improving the functional characteristics or user friendliness of products. 2. Process innovation: Such an innovation involves establishing new and more improved delivery or production methods. It might need replacement or improvement in software, equipments or techniques. 3. Marketing Innovation: This calls for implementing new methods or marketing. This might include changing the packaging or product design, product promotion, product placement or changes in the overall pricing strategy. The objective of marketing innovation are better satisfaction of consumer needs and wants, creating new market opportunities or optimising sales and revenue in a particulate life cycle of a service or product. 4. Organisational innovation: It involves implementing enhanced organisational processes in various business practices, external and internal relations of firms. The objective here can be enhancing the overall organisational performance by reduction of transactional or administrative costs, improvement in workplace satisfaction, better access to organisational assists, reduced supplier costs, operational and logistics efficiency and overall improvement in quality management. The above categorization of innovation will be useful while studying various case studies ad examples relating the link between innovation and business strategy. It will also help in understanding the important features of business strategy that drive innovation and how these features can be enhanced as well as stored for optimal utilisation. Strategy Strategy can be characterised as a plan, positioning or a master process, specifically created and implemented for the fulfilment of a particular objective or goal. . However, modern as well as postmodern theories lean towards cognition, behavioural as well as symbolist theories. Literature surrounding strategy can be studied under three schools of thought namely, dynamic capability, boundary and configurations. However, during implementation, process overlap of the above mentioned theories can occur. The present strategic view is focused on optimal utilisation of resources and capabilities as well as fulfilment of stakeholder expectations. Planning, processing and positioning combine to form the fundamentals for strategy (Johnson, Scholes and Whittington, 2005). Two broad positioning views are available while formulating any business or organisational strategy. These are resource based as well as competitive based. While resource is majorly internal analysis, competitive view relies on external analysis within similar companies as well as industry. Strategy creation and implementation is not a one day process or one step technique; it requires precise time, effort and skills for successful implementation. While resource based analysis helps in understanding and enhancing the internal environment of the organisation; external analysis helps in understanding the level of dynamism possessed by the organisation. For instance, external view of competition can be evaluated through industry analysis or sector overview in terms of financial performance. Further differentiation of strategy will be helpful to understand in detail the practices and logic behind strategy in various setting and backgrounds. Corporate strategy depends on economisation, comparative and competitive advantages as well as learning curve. Business strategy considers market competition as its major focus. Operational strategy, on the other hand, focuses on elements responsible for delivering the organisational and business strategies (Whittington 2002) Strategy and innovation: synergy and differences There has been a lot of debate on the link or relationship between innovation and synergy however, many times they are confused as one by managers and marketers. It should be noted that researchers are still trying to find out the potential influence of one over other. While innovation in its most basic term is condition of being; strategy is merely the doing process. In order to survive and thrive, managers will have to understand that innovation can only be achieved through imperative internalization. Forces embedding organisational innovation are found to be quite different from those guiding strategy. For instance, innovation can be unpredictable and exploitive- based on value creation, market orientation or transference. On the other hand, process of strategy focuses on control and planning. Strategy is also consistent with schedules, budgets, cycles and time frames as well as hierarchal report for getting desired outcomes. The same practices and schedules might create issues and become a barrier to innovation. Formulation of strategy takes place through intuition and analysis and is based on rational increment. Here, future forecasts are majorly done based on analysis of past performances. However, this process is often easily decoded and copied by competitors. Innovation, however, is not confined in any schedule or boundary, rule or structure. No assumption is developed in the process of innovation (Rubera and Kirca, 2012.). Internal directions, technology and innovation Researchers are increasingly realizing the fact that innovation can be central influencing element of the overall strategy of any firm. This is more evident in case of firms seeking international competitiveness in present business environment. Even though there is still debate on the relationship between innovation and its role in providing international competitiveness, researchers believe that firm innovation can be positively influenced by international diversification. According to Hitt, Hoskisson and Kim (1997), “this is particularly true in the new competitive landscape in which increased global competition in many markets has placed more emphasis and importance on innovation as a means to develop and maintain competitive advantages.” In order to believe in any innovation strategy, one has to realise the critical influence of internal business and organisational environment in forming firm competitiveness. According to Tang (1998), internal environment can be typically evaluated from the climate, resources, structures and culture of an organisation. Many researchers have also accepted that factors occurring inside organisations need more attention in order to establish innovative features in an organisation. One of the major challenges faced by innovative firms is ensuring that innovation is not confused with pricing strategies or merely enhancing the efficiency of the planning process. This is more apt for smaller innovative firms where resources as well as the pathways for utilising these resources are limited. Many research studies have indicated that innovation in terms of technology has been proved to be more fruitful and competitive compared to mere changes in pricing strategies. However, it is also important to note the industry or sector these research studies are dealing with. Critics have also argued that firms are increasingly focussing on diversification of their services and product and corporate executives are increasingly shifting from strategies to controlling the financials, showing the asymmetries in their information processing abilities. Therefore, it is considered critical to continue focussing on the factors or elements responsible for competitiveness in an industry. It is also important to understand that there are no set rules or guidelines for innovation. There is no particular organisational design that will fit into every innovation strategy, and vice versa. The internal environment discussed above depends on its people, human resources as well as their involvement level in the process of innovation. Even though creativity is essential, it all depends on the efficiency in integration and communication as well as level of cooperation among groups, individuals and departments within the infrastructure and skill base of the firm. In order to become effective, firms require proper structuring in a manner allowing fruitful co-existence between innovation and operation. It also means letting information flow from one department to other. According to Song, Montoya-Weiss and Schmidt (1997), establishing proper internal communication as well as efficient cross-functional linkages is described as most critical success factors during new product development processes. Other studies have demonstrated that co-operations among different departments within an organisation is found to have significant influence on manufacturing, marketing, research and development processes as well as human resource. Thus, having a pool of creative employees and workers is regarded as critical for innovation and creativity within an organisation. Till now, strategic human resource has been described as one of the essential requirement for innovation. The current business environment, where every promotional plan, marketing or advertisements strategy can be copied within no time, it has become crucial for companies to keep themselves ahead in the competition. One of the pathways for this competitive advantage can be achieved through technological innovation. As described earlier, innovation is not confined to new product or service development but also involved increasing the efficiency of the overall operations. Technological innovation involves creation of services, products or process which is way ahead of the current generation (Markides, 1999). Researchers on this field of study have argued that responsiveness and speed are the two major attributes which provide benefits to managers and marketers while employing technological innovation. There is a growing acceptance that speed influences the innovation process in a positive manner. Heavy investments in product innovation as well as research and development have resulted in positive results. However, this competitive advantage might be short-term for the organisation and marketers will have to redo the process again and again. In turn, organisations can use technology to achieve competitive advantage in areas which are still undiscovered and even ignored by their competitors. These include enhancing the overall operational and logistics process through technology. Many organisations have been using technology to achieve competitive advantage over their competitors. For instance, courier company FedEx has achieved competitive advantage through implementing technological innovation in its operations. Entire logistics process of FedEx is extensively monitored so that any delay is quickly tracked and minimised. The delivery trucks and vehicles are also equipped with tracking devise enabling the drivers to choose the shortest and safest route, thereby increasing delivery speed. Innovation and its essence Firms often question the significance of innovation, especially when they boast a successful strategy. In order to understand the relationship between the two, Wal-Mart and McDonalds can be sued as examples. Both American, yet at present, have occupied different positions in their respective industry. It can be noted here that Wal-Mart has not really been innovative. However, they are among the top retailer worldwide. This position is supported by an integrated, sustainable and strategic positioning. Looking back at their history, it can be seen that Wal-Mart started as a family business. However, the business decision of expanding and filling the growing opportunity was more because of the managerial and logistics effectiveness. Most of the progress taken by Walton was not deliberate and intentional and happened because majority of big players were focussing on large and suburban areas, leaving rural areas un-penetrated. This innovative measure taken by Wal-Mart is long before management and marketers started giving attention to the concept itself. Wal-Mart established value difference leading to sustainable advantage for future growth and development. A major point to note here is that Wal-Mart did not stop working on its biggest differentiator, proving value offerings to its consumers, even after it dominated the marketplace. They quickly became cost leader and price leader and started delivering lowest prices to their customers. Let us look at another firm with similar birth settings. McDonalds too started as a small shop, however, gaining a first mover advantage. They started off with excellent vision, leadership, marketing as well as location advantage. Though they are at a competitive position today, the market power as well as concentration ratio is not as same as Wal-Mart. McDonalds basically followed textbook strategy and grew with the food sector. As a result, the fast food strategy is little innovation and all strategy. As a result, while Wal-Mart is continuously defining and driving the industry, McDonalds is struggling for customer share. Co-existence of Innovation and Strategy: Benefits and risks Productivity of strategies has reduced and management are rigorously searching for new avenues for sustainability and growth. Many leaders and experts in high managerial position are indicating fresh value creation approaches dominating the market and forcing industries to revamp their strategies and business models in order to survive. In order to create a successful and long term value creation, organisations will have to consider customer insights which are still untapped, invest in business platforms considered undervalued, create sustainable positioning advantage or pursue underexploited capabilities in an aggressive manner. Given the conditions where marketers are looking for every opportunity to capture available resources and capabilities, having a first-mover advantage or untapped resources are a rare phenomenon. While marketers are pressing for deep strategic changes in their organisational, strategy in its fundamental form is not simple. Rather, it is a combination of game-changing formulas executed in a tactical manner which cannot be copied. It also involved certain degree of risks as well as adjustments. Every business model supporting innovation has to go through the above architecture. However, majority of firms are not ready to change or alter their short term gains and benefits for ling term sustainable advantage because they are able to see only risks and adjustments and are ignorant of the innovative future. For organizations to experience innovation gain and affect effective value creation, they will have to act in the grey zone. This theory was best illustrated by Mintzberg (1994), according to which, this grey zone is an opportunity and in order to take advantage of this zone, firms will have to deliberately create a circumstance promoting a more value-focused and market oriented approach. They will also have to complement their approaches with the surrounding environment encouraging venture experimentation. In short, employees should be able to take high risks and tray new ideas and concepts without fearing failure or breakdown. In actual practice, however, pure forms of emergent or deliberate strategies are rarely found. In majority of cases, realised and final strategy is often a mixed one. Even though organisations manage to control this through their architecture, it is not possible to have a successful emergent strategy. This can be attributed to its un-planned and undefined nature which is difficult for organisations to achieve. Most of the firms are goal oriented; prefer linking strategy to their objectives and goals and work by allocating budgets and resources to plans which are identifiable and concrete. These habits do not sustain emergent strategy and in order to take advantage of this strategy, organisations will have to pursue hunches and take changes. For instance, in case of majority of start-ups and entrepreneurships, there are limited or no resources, limited data for supporting decisions, lack of proper planning, no futuristic models or no specific time line to be followed. In order to establish themselves successfully in the market, these start-ups depend on their intuition, confidence as well as absorbing power. Even though emergent strategy is full of invariable risk, new ideas need to be carried forward and properly executed. The manner innovation as orientation and strategy as process intersect will conclude the level of innovation gain in a firm. Many examples can be illustrated showing influence of innovation gain. Here a successful co-existence of innovation and strategy is showcased. The industry in discussion is brewing industry. It can be easily said that innovation is least expected in this industry, as it is all about distribution and market penetration. However, invasion of craft beer and micro-brewery in America can be considered as an interesting example of innovation gain. Micro-brewing is small- scale production of beer. The products are generally targeted towards speciality and niche markets. At present, Miller and Anheuser-Busch dominate American brewing market with more than 50 percent of American consumers loyal to these brands. However, regional and small brewers are also making their way into the competition. This is evident from the increasing number of micro-brewers which has crossed 1400 mark and at present hold about 10 percent of the total American beer market (Verhees and Meulenberg, 2004 Dobni, 2010). The micro-brewery movement was started by brewers with ideas and ambition and a conviction to capitalize the opportunity for value creation. Pony Express Brewery, situated in the middle of USA, is an apt example of a medium sized brewer achieving innovation gain through value creation as well as sustainable risk. At present, their annual growth is in double digits. The market of beer is mature and exhibits all characteristics of industry convergence. However, the company is continuously growing and increasing its value among US consumers. Pony Express has been involved in many innovative steps which are now paying off. At first, they Pony Express have defied the strategic logic of brewery industry. They have successfully emphasized the notion that good things can come in smaller packages too. The good things were defined as quality, taste as well as customer experience. It is not being said here that quality of bigger brands like Budweiser is lacking. The entire brewing industry is supported by same raw materials, ingredients as well as brewing technology. While bigger brands and mega-brewers are majorly focussed on takeovers and mergers with the objective of achieving desirable concentration scale and ratios, micro-brewers have been concentrating on establishing an entirely unique and new experience to its customers. It can be easily said that these micro-brewers were successfully able to create a niche culture of beer consumption for their customers. Pony Express was also able to innovate though it’s marketing and production process, and in the course, was able to educate customers about beer. They were able to successfully increase the importance of their products. This was done by analysing the taste, type, drinking experiences as well as appearance of their products. The developed niche is based on value creation for individuals desiring for it. The firm has been able to create a differentiated experience as well as competency level which have become extremely difficult for its bigger counterparts to duplicate. Like Pony Express, Casella Wines also recognised the opportunity space for innovation. It is an Australian Winery who challenged the existing business models and logics pertaining to the Wine sector. Common and deliberate strategies followed by major Australian wine producers included quality positioning as well fighting for the prestigious price point. However, Casella entered the Australian market doing exact opposite. Wine was made uncomplicated and less pretentious. Their brand was jargon less and labelled it as ‘Yellow Tail.’ Though this, they successfully launched a social drink available for everyone (Dobni, 2010). They had straightforward positioning logic; de-emphasizing regions, soils, ageing process and oak and selecting an adventurous and fun drinking experience. The above approach broke the general perception of wine as a luxury and inaccessible drink and introduced Casella to the mushrooming American middle class wanting to be erudite and knowledgeable wine consumers without compromising their affordability. The opportunity space achieved by both wine and viewing industry was a direct result of challenging the established and long standing industry rules and guidelines, introduction of new action plans based on untapped customer information and focussing on emerging and under developed market opportunities. Balancing strategy and innovation Innovation persuades an organisation to follow unusual and risky paths and make commitment towards activities which are fundamentally different and even new. However, while implementing these changes, it is absolutely essential to maintain a proper balance between strategy and innovation. The current study is extensively elaborated that lies while implementing innovation and strategy at different levels. Thus, it is important to create circumstances which will be a fir for both strategy and innovation as well as will successfully capitalise both features. The initial responsibility for establishing this environment lies with the management. Innovators from the top positions have successfully overcome the strategy concept and transformed their firms into an innovative one; empowering employees to look for new opportunities and deliver sustainable value (Moller, Rajala, and Westerlund, 2008). These companies can be illustrated as examples where innovation and strategy has successfully co-existed. In these organizations more ideas can be found among employees and managers compared to other firms with mediocre development and innovation. The desire to do new things is elevated and fear of failure is minimized. The entire organization is filled with a sense of optimism and opportunity as a direct result of emergent strategy focus. The critical point to be noted here is that implementation of value creation is taking place through individuals and by individuals on behalf of the firm. This is a major critical point where most managers fumble as they are simply not acquainted with a culture where employees are allowed to think as well as act in manner necessary for innovation. Other examples have suggested that creation of value is sometimes best achieved in difficult and tough situations. For instance, Smith and Wesson is an American pistol manufacturing firm established in the year 1852. The company is an apt example of how a combination of strategy and innovation helped in the pistol maker in realigning with the realities of the changing market. This renowned firm has faced numerous challenges, the latest being in 2001 when the company has to sign a deal with Clinton Administration limiting the distribution and sale of the company’s products (Day, 1990; Dobni, 2010). As results, there was an increased backlash from gun rights committees and gun clubs and also resulted in large scale rejection of guns from Smith and Wesson and at the same time market flooding with second hand Wesson guns, thereby decreasing their market share. With the support from its employees, Smith and Wesson have adjusted with the new market reality by expanding its portfolio to those products that can be benefitted from the brand popularity and reputation for endurance and quality. However, these products were essentially different from the core portfolio of the gun maker, especially those affected by the mass rejection. The new segment as well as market for Smith and Wesson focused on products such as safes for home security, high end bicycles benefitting police force, flashlights for heavy duty, leather jackets, wood pellets, smokers for pistol cartilages, automotive accessories as well as cologne for men. It should be noted here that the company was going through a major restructuring process, where the core product portfolio of the company had lost it brand value totally and the company has nothing new to innovate. However, the company recovered quickly from the major blow and tactically established itself in the same market, targeting the same customers but with products which somehow were ignored or left out by other counterparts. As a result, the company quickly established itself in a similar position where it was with its gun portfolio. Companies similar to Smith and Wesson experience numerous challenges while walking on the path of innovation. In many cases, these include drastic operational changes or even going against the strategic comfort. Other types of hurdles might occur in areas such as cognitive, political or motivational. All these challenges incubate in the culture of an organisation and often introduce barriers in the thinking capabilities of the employees and management. In order to bring innovation, organizations will have to minimize these barriers as a whole. A recent survey consisting over 300 Canadian firms reveals the abilities as well as perception regarding innovation. As per results, most of these organizations lacked infrastructure, architecture in terms of technical and financial support as well as knowledge with respect to learning and innovation (Dobni, 2010). Conclusion and future managerial Implications The above research clearly suggests that distinct relationship exists between strategy and innovation. This is more relevant in case of competitive firms where innovation is the major basis for gaining competitive advantage. Innovation is increasingly gaining a crucial position in the industry as management has realised the long term advantages as well as dramatic increase in competitive positioning achieved as a direct result if the innovation gain. The above findings can provide inherent implications. First, it can be concluded that organizational mindset, in general, is focused on short term operations rather than looking at the long term perspectives. Second, even after pursuing goals derived from innovation, they are not able to do justice. This is inherent from the lack of resources, time as well as necessary staff in order to achieve the innovation goal. This is subsequently related to the third implication which suggests that a lack of systematic process will lead to an unfulfilled innovation. It includes several factors such as organisational learning, intentions towards strategy and innovation, structured incentives in order to reward employees projecting innovative behaviour as well as business models and metrics for accessing the effectiveness of innovation. Thus, organisations lacking the above processes are not sure whether the resources implemented by them are resulting in innovation or not. They are also not sure about the criteria on which incentives and rewards are based. In short there is no clear accountability for the occurrence of innovation. The above research study has suggested some strong connection between strategy, technology and human resource management. However, major challenges for organisations lies in aligning their properties such as architecture, skills as well as infrastructure. Literature has also suggested that most of the organisations are stuck between employee enteric and management centric focus (Dobni, 2006). In order to establish innovation, managers will have to develop better understanding of innovation, strategy and the inherent relationship between them. This will help in achieving a synergy. For instance, major innovation barriers include internal organizational issues such as insufficient resources, lack of proper market intelligence, inappropriate corporate culture, uncertain innovation strategy as well as poor incentives. Apart from the above factors, behaviour of the employees such as their attitude, skills, temperament as well as ability to work under pressure are important characteristics required for driving innovation within the culture of an organization. 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