Innovation Strategy

Strategy Recalls

In this unit we see:

  • what strategy is, 
  • how it relates to innovation.

There is nothing more concrete than an innovation strategy! Let's start by understanding what strategy is and how it relates to innovation. 

The purpose of the strategy is the increase of the company's profitability in the long run.Profitability can be influenced by factors:

  • attributable to the sector/industry in which a company chooses to compete (corporate strategy); 
  • related to the way a company competes in an industry (business strategy) and generates competitive advantage (outperformance against competitors). 

To generate competitive advantagea company's strategy must:

  1. Be consistent with both theexternal environment of the company, as well as with those of its internal environment (create FIT situation). 
  2. Orchestrating the internal resources so as to create value for end-users, thus selling and making profits.

We emphasise the importance of consistency. It is often the case that changes in the environment or the imitation of competitors make desirable goals that are not attainable with internal resources, and it is also the case that internal resources are not optimally utilised to meet the challenges and seize the opportunities offered by the external environment. 

What is value?

The value is the ability of an enterprise to satisfy with a good or service the needs or desires of an end customer, measured by the customer's willingness to pay for it. 

The value is the price which buyers are willing to pay in exchange for a good produced by the company.

The perception of value is subjective and depends very much on the characteristics and expectations of the user, its market (if it in turn is a company, in the case of B2B), its geographical location and its context. 

The characteristics of the end users (different targets and/or different target markets) must be studied very carefully, bearing in mind that the company must do what the end user wants, starting with an understanding of what creates value for the latter ("Make things people want and not make people want things"). 

Innovative strategy

An innovative strategy answers some fundamental questions. One of these is:

How Innovation creates value for potential customers?

Let us recall the basic strategies that a company may choose to pursue and try to understand how they relate to innovation:

  • Leadership cost: value creation for the end user is in cost containment/low prices (undifferentiated products/commodity).
    • Process innovation can allow for the containment of production/processing costs through: investment in production facilities; utilisation of economies of scale; intensive cost control; reengineering activities; other. 
    • Also organisational innovation and in the business modelscan be useful in pursuing an innovative cost leadership strategy. 

On the topic of 'innovating business models', there are textbook examples of companies that have sought and gained a competitive advantage by innovating their business model, with an important focus on cost containment: DELL, in the PC industry; IKEA in the furniture industry; Ryanair in the airline industry. 

Differentiation: value creation for the end user is in access to a differentiated and differentiating offer (specialty). 

  • Differentiation is based on innovation of the offer (service and/or product), with the aim of generating uniqueness in terms of: novelty, performance, customisation, design, brand, cost containment and/or risk reduction for the end user, accessibility, social responsibility, customer experience and emotional characteristics.
  • Differentiation is a fundamental lever to innovate one's offer, because it allows one to work on the uniqueness that is at the basis of the very concept of innovation.

Focus: creation of value for the end user either through cost leadership or through differentiation, in a specific market segment, geographic, relative to user groups, relative to particular functions. 

  • Innovative strategy is effective when it is designed with an awareness of what generates competitive advantage (choice of how to create value for the end user). 
  • Competitive advantage must be 'maintained' over time. So a central issue for companies is how to make sustainable e lasting competitive advantage.
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