16.5. STRATEGY AND INNOVATION
Our concepts of strategy are often derived from military and athletic contexts—sometimes ancient ones—and thus emphasize an organization's position in relation to enemies or competitors. Michael Porter's ubiquitous Five Forces framework, for example, views an organization's strategy in light of a set of external forces or threats, which includes not only rivals, but suppliers, substitutes, new entrants, and customers (Porter, 2008). And there's a reason Intel's co-founder Andy Grove titled his book Only the Paranoid Survive (1996). Overemphasis on competition, however, can result in defensive "me-too strategies," in which competitors simply attempt to one-up one another, and thus end up as followers rather than leaders. Alternative approaches to strategy seem more conducive to innovation. Kenichi Ohmae (1998), for example, argues that a focus on beating the competition eclipses the real reason companies exist—to provide superior products and services to customers. More recently, in their book Blue Ocean Strategy, Kim and Mauborgne (2005) make a convincing case that organizations that develop strategy around the competition ultimately settle for lower performance than the "pioneers" who develop strategy around creating and satisfying new customer values, and therefore make the competition irrelevant (Table 16.1). They have developed a number of tools to aid in developing blue ocean strategies, one of which is the strategy canvas. The organization first identifies the customer values that are currently assumed, and maps their competitors on the basis of these factors, high or low. They then develop their own strategy by asking:
Which factors that the industry takes for granted should be eliminated?
Which factors should be reduced well below the industry standard?
Which factors should be raised well above the industry standard?
Which factors should be created that the industry has never offered?
| Red Oceans: Settlers | Blue Oceans: Pioneers |
|---|---|
| Limits actions to beating competitors, positioning against them | Makes the competition irrelevant |
| Aligns the whole system of a firm's activities with the strategic choice of differentiation or low cost | Aligns the whole system of a firm's activities in pursuit of differentiation AND low cost |
| Assumes existing buyer values and existing products | Creates new set of buyer values and new products |
| Assumes existing market space | Creates and captures new demand |
[] *Source: Derived from Kim and Mauborgne, 2005.
Kathleen Eisenhardt (1997) has proposed a model for strategy formulation and implementation that is particularly germane to innovative high-technology contexts: fast-changing and highly competitive settings demand fast decisions flexible enough to permit adaptation as circumstances change. Her improvisation model helps companies manage the tension between deciding quickly and adaptively and yet executing on time and on budget, efficiently. The major elements of Eisenhardt's approach are as follows:
Strategic choice is conducted by a small group of decision makers who are highly skilled and who often have specific expertise.
Decision makers rely on limited knowledge of all variables involved in the decision-making process.
Strategy is based on a few operating principles that are rigorously adhered to (e.g., maintaining control of inventory, attentive customer service, low debt: equity ratio).
High levels of communication, formal and informal, are maintained, as is an intense emphasis on real time information.
The focus is on the "now"—there is no dwelling on the past or looking too far out to the future,
A large number of alternatives are generated and considered.
Conflict generating processes are used to create and explore alternatives, but there is no particular decision process and no extensive analysis of most of the alternatives.
Decisions are reached via consensus, with qualification; if consensus cannot be achieved choice falls to a particular member of the group, normally the leader.
Overemphasizing competition also prevents an organization from engaging in "open innovation," which was described earlier in Chapter 14. Open innovation involves interaction not only with customers, but also with partnerships with not-for-profit organizations and even competitors. Anthes (2008) demonstrates that eschewing traditional strategies for gaining advantage over direct competitors in favor of collaboration has allowed icons including IBM, Hewlett Packard, and Microsoft to become better and faster innovators.