Strategy + Innovation = Competitive Advantage
As summer approaches and you head back to your local amusement park to ride gravity-defying roller coasters, eat deep-fried food and marvel at people’s tattoos, don’t forget to stop by the bumper cars. Whether you’re six- or sixty-years-old, there’s nothing quite like bouncing into other vehicles and not requiring a tow truck for the ride home.
Hopefully, you’re not working for a bumper car business–where the majority of people’s activities are simply reactions: reactions to competitors, reactions to customers and reactions to the market. These constant reactions spin you off into time-sucking tangents that add no real value to you or the business.
Research by professor Michael Porter of the Harvard Business School has shown that for these reactive companies, their low performance is sustained for over a decade. He concludes that low performers adopt losing strategies or management practices that are hard to modify. Another ten-year study of 103 companies showed that strategic blunders were the cause of the greatest loss of shareholder value, an astounding 81% of the time. The hard truth is that nearly 90% of a company’s poor performance is within management’s control. Of course there are lots of good excuses as to why companies are performing poorly, but they are just that: excuses.
Two of the more important business concepts provide us with the opportunity to replace excuses and poor performance with direction and profits. Strategy and innovation are often shown to be two primary contributors to sustained financial excellence and competitive advantage. Interestingly, they are seldom discussed together. In the research process for my next book, I’ve discovered three common elements of strategy and innovation that can help us better understand and influence business success.
Common Element #1: Insight.
An insight is described as the joining together of two or more pieces of information or data in a unique way to come up with a new approach, new product, new service or new solution. Insights come from the ability to wade through the waves of input we receive each day and mentally connect the dots in new and creative ways.
Prolific inventor James Dyso built his billion-dollar business through insights on what frustrated people. His first significant invention–the Ballbarrow–was a wheelbarrow that used a ball instead of a wheel. This insight came from the frustration people had with the wheels getting stuck in the mud and rendered useless.
Innovation, simply defined as “creating new value for customers,” begins with an insight. The insight often centers on a solution to a problem or way to fulfill an unmet need of a customer. To create new value, you need an insight.
Business strategy is defined as the intelligent allocation of limited resources through a unique system of activity to outperform the competition in serving customers. The only way to truly “intelligently” allocate resources is to have insight into how your product or service provides value to customers in ways that are superior to competitive offerings.
Insight Starter: What unsolved problem can you help your customer overcome?
Common Element #2: Differentiation.
At the heart of successful business strategy is the ability to differentiate your offerings from those of the competition in ways that customer’s value. Doing the same things in the same way as the competition and providing the same offerings is a common formula for bankruptcy. Just ask Circuit City and Borders.
Inherent in the definition of innovation is the creation of “new” value. If the value is new, then it’s logical to conclude that it’s different from current offerings. As James Dyson said when he seized leadership of the upright vacuum market from Hoover with his cyclone technology, “And so I have sought originality for its own sake, and modified it into a philosophy which demands difference from what exists if only to redefine a stale market.”
Differentiation Starter: What unique capabilities do we possess that can create differentiated value for customers?
Common Element #3: Value.
The intent of both business strategy and innovation is to create value for customers. Too often, in the day-to-day competitive battles and the weeds of the business, we lose sight of the fact that competitive advantage is nothing more than “creating superior value for customers.” Innovation is the continual hunt for new value; strategy is ensuring that we configure our resources in the best way possible to deliver that value. James Dyson sums it up: “The only way to make real money is to offer the public something entirely new, that has style value as well as substance and which they cannot get anywhere else.”
Value Starter: What is our value proposition and how is it different from competitors?
Strategy development should not be a once-a-year event; it should be an ongoing dialogue about the key business issues and capturing insights from those discussions. Innovation–the creation of new value for customers–is an integral part of the strategy conversation. If your leadership team is not investing at least four hours a month discussing strategy and innovation together, then expect sustained mediocrity. Riding bumper cars can be a fun-filled adventure; being a bumper-car manager, not so much.