Role of Creativity and Innovation in Generating Competitive Advantage - Literature review Example

The role and importance of creativity and innovation in generating competitive advantage Creativity and innovation are considered excellent elements for achieving competitive advantage in the 21st century. The process of innovation is supported by technological innovation and good management tools (Woodman, Sawyer and Griffin, 1993). Firms follow various strategies to secure competitive advantage over other players in the industry. This paper presents a discussion on some of the most popular strategies adopted by successful organizations around the world. Porter’s generic strategies Michel E. Porter has emphasized that the motivation behind the formulation and adoption of any strategy is the achievement of competitive advantage. To achieve competitive advantage a business organization is required to build a steadfast choice about the form of competitive advantage it wants to accomplish and the range of resources within which it would strive to achieve that level. Competitive advantage sought by firms can be classified into two basic types; low cost and differentiation (IFM, n.d.). On the basis of these two competitive advantages Porter has come up with three generic strategies (Porter, 2008, p. 12) namely, cost leadership, differentiation, and focus. The last strategy has two sub categories, “cost focus and differentiation focus” (IFM, n.d.). These strategies help the firm deliver a better than average performance. Cost leadership Any firm that follows the strategy of cost leadership, targets at becoming the only producer in the entire industry whose cost of production would be lower than all its competitors. The producer seeks to exploit economies of scale and follow competitive pricing (Richardson and Dennis, 2003). Cost leadership strategy is a key to success for several successful companies; one among them is Walmart (Baroto, Abdullah and Wan, 2012). Differentiation Under this strategy the firm concentrates on becoming unique in the products it offers. It does this by identifying certain product dimensions that consumers value the most. The firm develops its production and marketing strategies in such a way that it can satisfy the customers’ demand for those attributes and hence receives premium price for that uniqueness. For example, Apple Computers makes “differentiation by technology” (Baroto, Abdullah and Wan, 2012, p. 120) to preserve its competitive advantage. Focus The firm selects either a group of segments or a single segment from the industry in which it belongs and optimizes its strategies to serve these segments so well, as to gain competitive advantage over all its competitors. A firm can pursue this by either creating cost advantage in a targeted segment (cost focus) or by developing a differentiation in a targeted segment (differentiation). Tesco follows the focus strategy to blend elements of both differentiation and low cost (Baroto, Abdullah and Wan, 2012). Total Quality Management Total quality management (TQM) is “an art of management” (Singh, Qureshi and Butt, 2007) that became popular with business organizations in 1980s. Clark (1996) has explained that this management strategy focuses on maintaining quality of in all processes running in an organization; manufacturing, human resource, financial procurements, R&D and administration. Implementation of total quality management provides a framework that guides the organization to select competitive advantages in the face of uncertainty. These competitive advantages become the foundation on which operational decisions are made regarding the marketplace (Tseng and Lin, 2008). Quality management is an approach that many firms consider the basis for making differentiation from competing firms (Singh, Qureshi and Butt, 2007). The role played by TQM in a firm is that of creating a demanding work environment and also lay down ways to fulfil the demands through team spirit, mutual trust, honesty, open communication and fun. In this framework, changes are appreciated, fear is defeated and resistance towards change is treated with corrective action. Improvement in organizational effectiveness contributes to profitability by augmenting the market share possessed by the firm (Yasin and Alavi, 1999). One important factor that plays behind the competitive advantage enjoyed by New Zealand based Fisher & Paykel Appliances Ltd. (F&P) is their creativity and innovative capacity (Elliott, 2004). Through extensive case studies and primary interviews Elliot has established an empirical validation of the relationship between “sustainable competitive advantage” (Elliott, 2004) and TQM. The core values harnessed with every level of operation and management within the organization enhances efficiency and competence of the employees, which generate their competitive advantage over other players in the home appliances industry in New Zealand. F&P maintains a mature partnership with the Engineering, Printing and Manufacturing Union (EPMU). F&P looks after health issues of its employees, leadership development, performance and training necessity and recruitment by conducting regular meetings with the EPMU (Harvey, 2006). Notable benefits of this partnership are negotiation with a single union that consists of members belonging to ten different industries in the country, considerable gain in productivity, motivated workforce due to the presence of a beneficial union and employees with the awareness to accept changes and willing to put best efforts for making the optimum production (Ministry of Business, Innovation and Employment, n.d.). Blue Ocean Strategy The “blue ocean strategy” (Autor and Mauborgne, 2005) relates to the techniques of increasing demand and making a breaking move away from existing competition. Rather than making divisions in the existing market in order to increase space for a particular firm, blue ocean strategy allows firms to challenge the cut throat competition, signified by the blood red ocean, and create a new uncontested market space. It makes the existing competition irrelevant to the firm that ventures out of it. Companies that can create a blue ocean for achievement of success do not consider competition a benchmark of performance. A different logic, known as value innovation, guides their management (Autor and Mauborgne, 2005). Blue Ocean Strategy holds value innovation as its keystone. Neither technological innovation nor pioneering marketing strategies are the factors that separate the losers from the winning firms. Research shows that winners incorporate value innovation, which comes with a new method of thinking and implementing strategy that would break away from competition and create a blue ocean. As opposed to the traditional notion of making a trade off between value (differentiation) and cost of the product, blue ocean creators pursue low cost and product differentiation at the same time. Cirque du Soleil has set an example in the world of entertainment by pursuing these two strategies simultaneously. The company has not walked on traditional lines of competing with other firms to hire the most reputed clowns or selecting three ring show venues. It makes multiple circus shows, with each performance having an added intellectual wonder and artistic flavour. This has helped to revive the dwindling demand for circus. Improved comfort level of seats and increased grandeur of tents making them look like epic circuses has created a totally new reason for people to come to their shows (Autor and Mauborgne, 2005). Innovation and change Technological innovation also brings with it certain evils. Firms face the debate about social costs as they implement certain technologies that augment the effect of greenhouse gases. Therefore public authority in many places has slapped firms with the order to adopt greenhouse abatement technologies. However, such technologies do not always bring increasing private returns (Hottenrott, Rexhäuser and Veugelers, 2012). Besides, implementation of environment friendly technologies also sometimes put a negative toll on workers’ productivity. Therefore, at present it is an important issue for firms that are caught between responsibility to lessen social costs and profitability. Research has found that strategic changes in organizations might increase their private returns while successfully implementing carbon dioxide reducing technologies. If several organizations in an industry adopt complementary forms, joint adoption of such technologies would lead to increased level of productivity (Hottenrott, Rexhäuser and Veugelers, 2012). Ford Motor Company has adopted an investment plan of £1.5 billion to develop a low carbon emitting engine technology. The government of UK has offered to provide a support worth £360 million (Ford, 2013). Managing strategic change Change management is the process in which an organization’s direction, capabilities and structure are continually renewed to adapt with the changing needs of its customers (By, 2005). Change is a common feature of all profit-oriented organizations, and is ever-present at their operational as well as strategic levels. It is of utmost important to an organization to objectify its needs of the future and recognize the necessary changes that would allow it to attain these objectives (Burnes, 2009). The concept of organizational change is closely related to the concept of organizational strategy. Since organizational change is undoubtedly an important issue for the management of organizations, managing change is equally important. Change management is increasingly becoming a necessary managerial skill. The need is becoming more intense due the changing technological environment, skill of the workforce, evolving demographical patterns and social values and changing government policies under the effect of globalization. In this preset, the effects of change are not predictable to a large extent; consequences of change are often reacted upon in an undesirable way when compared to business ethics and social expectations (By, 2005). However, in present day competition, an organization can only survive by growing and changing. All change programmes do not become forerunners of organizational development. Successful change management has become a crucial part of organizational management. Practitioners have come to consensus over two issues that have been deemed important for effective management of organizational change. These issues are; the pace of change has become manifold in the present business environment and that it is much faster than that was experienced in the past few decades. Secondly, change arrives in different shapes and sizes as well as both internally and externally (By, 2005). Studies have shown that management of change becomes successful when it depends less on preconceived plans and emphasises more on understanding the depth of complexity of the situation and identifying the options available to redress the situation. Organizations are facing competitive pressures in the context of global changes which leads them to adopt different strategies. The ways in which the organizations operate or negotiate with their suppliers are undergoing changes keeping pace with modern technological advances. The need for change is felt not only to expand in size or turnover but also to maintain its existence in the tight competition (Balogun et al., 2008). However, it is an unfortunate fact that a large proportion of change programmes are rendered ineffective. Commentators have estimated that failure rate is approximately 70 percent of the total number of programmes launched by organizations (Balogun et al., 2008). This fact itself is increasing the need for more effective change management. Implementation skills are no more restricted to the managerial class, but are felt at all verticals throughout the organization. Strategic plans become fruitful only when they are implemented properly. While strategies are a result of objective analysis made by the top management, implementation of these strategies is necessary at the different departments. In many cases, strategies are influenced by human conceptions and are affected by culture, prior experience and assumptions regarding the customers, competitors and the market. Hence these become more of adaption made from past policies, than being tailor-made for the future. The role of a manager skilled in change management is to ensure that strategic debates yield positive outcome rather than being influence by inertia. This requires “a context-sensitive approach” (Balogun et al., 2008, p. 2) since there is no readymade formula that would help the mangers to react in the most appropriate way. Some companies, such as IBM, have experienced consultants who work with their clients and offer them specialized advices on building plans of transformation using industry specific knowledge (IBM, n.d.). Conclusion Organizational creativity refers to the concept of creating a new idea, process, service or product within the intricate social systems in which the firm operates (Woodman, Sawyer and Griffin, 1993). Therefore, creativity can be classified as a part of the innovation process. Innovation can include both creations of new and useful products, services or ideas and adapting the commodities or procedures that was existent in the past to make them fit the current business scenario. This second category of actions, like creativity, also requires investigation into the creative behavioural pattern of employees within the organization as well as of the consumers. In other words, it is closely associated with changes in organizations. Proper management of change is essential since forced changes might adversely affect people’s concepts and acceptability towards change. Good managers encourage risk taking attitude by employees, legitimize conflicts, allow employees to express their ideas freely and provide intrinsic rewards in order to enhance employee creativity and make organizational change programmes successful (Woodman, Sawyer and Griffin, 1993). References Autor, W. C. and Mauborgne, R., 2005. Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Harvard: Harvard Business Press. Balogun, J., Hailey, V. H., Johnson, G. and Scholes, K., 2008. Exploring Strategic Change. New Jersey: Financial Times/ Prentice Hall. Baroto, M. B., Abdullah, M. M. B. and Wan, H. L., 2012. Hybrid Strategy: A New Strategy for Competitive Advantage. International Journal of Business and Management, 7(20), pp. 120-133. Burnes, B., 2009. Managing Change. New Jersey: Financial Times/ Prentice Hall. By, R. T., 2005. Organizational Change Management: A Critical Review. Journal of Change Management, 5(4), pp. 369–380. Clark, F., 1996. 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