Strategic Planning vs. Strategic Innovation

Strategy is half-baked without innovation. It is necessary to distinguish strategic planning from strategy innovation. Organizations typically carry out strategic planning by studying past data and predicting the future. The mistake here is the assumption that the future would resemble the past.

Strategic planning aims to extend the existing value proposition. Strategy innovation creates new business models, is market centric and aims to find new value proposition. Hence strategic planning is predominantly analytical while strategic innovation is creative.

However, strategic innovation is incomplete in isolation and hence strategic planning cannot be ignored altogether. The two can perfectly co-exist; one tending to the current and the other building the future. Even in future, the learnings and best practices of the past can be implemented as strategic planning would prop up strategic innovation.

Given below is a table by Professor Robert Johnston, which summarizes the differences between the two approaches.

Strategic Planning	Strategy Innovation
Analytical	Creative
Numbers-driven	Insights-driven
Company-centric	Market-centric
Logic/Linear	Heuristic/Iterative
Today to tomorrow	Tomorrow to today
Extend current values	Create new values
Fit the business model	Create a new business model

Innovation vs. Invention

Often our general understanding confuses the line differentiating the two strategies when it comes  "invention" & "innovation". While the former implies new ideas or products that have been derived from an individual's ideas or from scientific research, the latter is more about prospecting, mining, refining and adding value to the idea. In short, 'Innovation is the commercialization of Invention'.

There have been various examples in the world's history of breakthrough inventions but failed innovations. Also, there are numerous examples where the inventors generated little or no returns while others who marketed it as an innovation amassed millions in revenue.

AT&T laboratories, in 1947, created the world's first transistor. Though patented organization could not find a suitable application for it. Thus an outstanding invention failed to develop as an innovation. However, in 1952 they licensed it  to out and companies like Texas Instruments, Sony and IBM acquired a technology that produced billions of revenues.

Another company which missed out on big opportunities would be Xerox. It was the world's first to develop a personal computer, a graphical oriented monitor, a word processing software, a workstation, a laser printer, a Ethernet, a hand-held mouse in its Palo Alto Research Center (PARC). Yet it profited from almost none of these.

Thus continues the dilemma of whether to invent or innovate !!!

Collaborative Research and Open Innovation

One of the value disciplines or strategies of 'market makers' defined by Michael Treacy and Fred Wiersema is Product Leadership which requires the firm to produce a stream of state-of-art products and services. Innovation thus becomes the key to success of such a strategy. However as companies grow larger and more inorganic, the traditional innovation model of internal R&D is barely or actually rarely able to compete with high level of topline growth. Is there a different model then? Yes indeed! We look at a model of collaborative Research or in P&G's words C&D i.e. Connect & Develop.

Open innovation is a rather old idea and can be traced back to the ‘60s, however it has gained importance under different names in the recent years due to mainly two reasons. First is the increased competitiveness in the industrial landscape and secondly outburst and easy accessibility of new technologies. While the first reason has put pressure on firms to reduce the lead time for new product/service development, the second reason has made it possible for creativity to come from small firms and even individuals. If larger firms want to solve their first problem, they have to leverage on the second one. This leads to open innovation.

Open innovation advocates that firms should use external ideas as well as internal ideas. It assumes that since the boundaries between a firm and its environment have become more permeable, innovations can easily transfer inward and outward.Many companies like IBM, Eli Lilly and P&G have successfully used open innovation. It is believed that such a model will become the dominant model in the coming days. So what do we require for such a model to succeed?

Firstly since ideas come from external sources, firms have to develop a receptive culture. This might require a major cultural change because traditionally organizations are secretive of 'ideas'.

Secondly the implementation of such a model will require developing a network of appropriate external resources. Because the possible sources from which ideas can generate is limitless, the choice of resources should be such that it aligns with the innovation needs of the firm.

Thirdly it should be understood that only the idea generation part is being done with external collaboration, the major part of implementation and distribution still remains with the firm. So the firm has to develop these areas as per the requirement of the product or service. And most importantly the internal R&D should be utilized to adapt the ideas as per the company requirements otherwise the firm runs the danger of being in areas which are not related to its businesses.

In the recent days with increased globalization, collaboration is already seen to be a dominant strategy in marketing, manufacturing and many non core activities of the firm. In the coming days, innovation will also find itself greatly influenced by it !

Value Disciplines

Making it big by selling value is not a recent phenomena. Its an age-old practice which has been tailored across decades to suit the market. What is new is how the the customers define the value. Earlier it was perceived as a combination on quality and price while today's consumer has a more expanded concept including convenience of purchase, after-sale service and dependability among others. Micheal Treacy and Fred Weirsema have captured this new found superior customer value under three parameters- Operational excellence, customer intimacy and product leadership.

Operational Excellence

This implies providing reliable products or services at competitive prices and deliver the same with minimal difficulty or inconvenience. The companies adopting this discipline focus on making their operations lean and efficient. The name which champions this field is Dell. 

Customer Intimacy

The second value discipline focuses on customisation and delivering to the niches. Companies adopting this principle segment their target markets precisely and then tailor their offering to match the demands. A marriage of customer knowledge and operational flexibility leads to excellent customer intimacy and subsequently customer loyalty. Home Depot's are an apt example of the same.

Product Leadership

This discipline comes handy to outrun a competitors product or service by offering customers leading-edge products and services which enhance the use or application of the product. In the sports shoe category, Nike excels in product leadership. Johnson&Johnson also lives up to the challenges of being a product leader as it attracts new ideas, develops them quickly and then looks for ways to improve upon it.

Based on a 3-year study of 40 companies, Treacy & Weirsema have drawn a few conclusions. This indicate that generally market leaders excel at one value discipline while a few mavericks have gone ahead by mastering two. Companies which pursue the same value discipline have remarkable similarities irrespective of the industry segment. Eg. Federal Express, American Airlines, Wal-Mart have operational excellence and thus their systems, structures and cultures are more or less similar. However, this homogeneity is visible only among market leaders in the discipline and not among mediocre. To become an industry leader a company must carefully align its strategy in line with one of the disciplines taking into account its capabilities and culture as well as its competitors strength.

The above is inspired from the works of Micheal Treacy & Fred Weirsema, "The Three Paths to Market Leadership"

Combining Strategy and Performance

My learnings from an article by Michael Mankins and Richard Steele:

Majority companies deliver only 63% of their potential financial turnover. The reason – mismatch between execution and strategy. Leaders often strive for better execution without a sound strategy or try to find newer strategies but do not execute them properly. These situations can be avoided by linking strategic planning and execution and then improving both simultaneously.

There are seven rules for successful strategy execution:

Keep it simple: Clearly describing the company’s dos and don’ts and avoiding vague lofty goals.

Challenge assumptions: Assumptions made during strategy formation must be in line with real market scenario and competitor as well as consumer behaviour

Speak the same language: The entire organization, from top leaders, to finance, marketing, operations and other departments, must all be one the same page regarding the strategy to be followed.

Discuss resource deployments early: Proper planning and forecasting by various departments regarding resource deployment during strategy formation is important.

Identify priorities: Strategic priorities must be made explicit, for everyone to know what to aim for and work for.

Continuously monitor performance: Tracking of real-time results against the proposed plan is important to ensure that the execution is on the right path.

Develop execution ability: Selecting the right persons to execute the strategy is as important as designing the strategy itself. 

Great leaders speaking about Leadership

In the following videos, great leaders CK Prahalad and Narayana Murthy speak their mind about leadership and strategy.

CSR and Strategy

CSR as a Reactive strategy

CSR has been traditionally a reactive strategy for reviving sagging fortunes of companies by gaining confidence of the consumers. The case of Nike and cheap labour is such an example. CSR is viewed by such companies as an additional cost. This approach limits the potential CSR has in enhancing business.

CSR as Image building exercise

While using CSR as a reactive strategy is a back-to-the-wall job, CSR today is seen by companies as an opportunity for building corporate image. Companies’ announcing their plans for various philanthropic activities draws the attention of media and public. This helps in portraying the company as an organization which cares for the society and people associate the company’s products with such goodness as well. Thus if a company can develop a systematic approach for maintaining the focus on CSR activities, this will serve the purpose of positive advertisement as well

CSR for improved operating efficiency

Some companies take care of the environment because it not only helps in operating within the environmental norms set by authorities but also reduces their costs and improves operating efficiency. Moving from the compliance mode to integration of CSR with business goals results in better environmental conditions and simultaneously improves the work environment within the organization, reduces cost and provides a strategic advantage over competitors.

CSR as Source of competitive advantage

Business need to have a clear understanding of the communities that they impact and must be concerned with how their strategy helps these communities grow qualitatively along with their business – both in the short and the long run? The challenge for industries today is to identify social issues that drive its competitiveness both now and in the future. For this to happen, managers must believe that CSR is a source of business opportunity and not a liability.

CSR has the potential to shape business strategies world over.