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Strategic Innovation
Strategic innovation can redefine potential customers; one example is Canon's pioneering focus in the 1970s on the development of photocopiers aimed at small businesses and home offices rather than large corporations. Strategic innovation also can reconceptualize delivered customer value, as in IBM's shift from selling hardware and software products to selling complete solutions in the 1990s. Or strategic innovation can redesign the end-to-end value chain architecture, as in Dell Computer's direct sales model, introduced in the 1980s.

You can download excellent powerpoint slides on Marketing Strategy and Marketing Management HERE.

Strategic innovation proceeds with strategic experiments—high-growth-potential new businesses such as OnStar, Tremor, and Moviebeam— that test the viability of unproven business models. Strategic experiments have ten common characteristics.

1. They have very high potential for revenue growth (e.g., 10x over three to five years).
2. They target emerging or poorly defined industries created by nonlinear shifts in the industry environment.
3. They are launched before any competitor has proven itself and before any clear formula for making a profit has emerged.
4. They depart from the corporation's proven business definition and its assumptions about how businesses succeed. GM moved from selling automobiles to offering services, a different value proposition requiring an unfamiliar set of business processes to deliver that value. Procter & Gamble shifted from consumer products to business services, a new customer base and unproven technology for delivering value. And Disney augmented its con¬tent production with new direct-to-consumer distribution, a change in all three elements of the business definition.
5. They leverage some of the corporation's existing assets and capabilities in addition to capital; they are not simply financial investments.
6. They require the corporation to develop some new knowledge and capabilities.
7. They revolutionize the-definition of a business rather than enhance performance within the proven business definition through product line extensions, geographic expansions, or technological improvements.
8. They involve multiple dimensions of uncertainty across multiple functions. Potential customers may be mere possibilities. Value propositions are often only guesses, because customers diem-selves have not figured out exactly what they want. And the processes and technologies for delivering products or services are often unproven. The unanswered questions in our examples included, for example, which of many possible services would OnStar's customers value most? How well would Tremor compete against traditional mediacentric approaches to marketing? How would movie-distribution technologies evolve and affect Moviebeam's viability? No amount of research could have resolved these mammoth uncertainties before launch.
9. They remain unprofitable for several quarters or more and thus are too expensive to repeat. You get only one chance.
10. They are difficult to evaluate. Feedback is delayed and ambiguous, and leaders may not know for several quarters whether they are succeeding or failing.

Not All Innovations Are Equal
There is no shortage of published ideas on how best to manage innovation. Empower employees. Encourage initiative. Cultivate risk raking. Overcome mindlessness such as, "We do it this way because it has always been done this way." But managers need more than such generic advice because there are many different kinds of innovation, and each requires a profoundly different managerial approach.

This book focuses strictly on strategic innovation, which differs sharply from three other categories of innovation:

Continuous process improvement involves countless small investments in incremental process innovations. General Electric excelled at this pattern of innovation through its well-known six sigma program.

Process revolutions also improve existing business processes, but in major leaps—say, a 30 percent increase in productivity—through the implementation of major new technologies. For example, Wal-Mart is investing heavily in "smart tags" (radio frequency identification, or RFID, tags), which identify what a product is, where it is, where it has been, how it has been handled, and so on. The technology may revolutionize processes for tracking con¬sumer products from production to consumption and yield dramatic new supply chain efficiencies.

Product or service innovations are creative new ideas that do not alter established business models. Consumer products companies such as toy and game manufacturers excel in this type of innovation and are constantly priming developers for the next Cabbage Patch doll, Tickle Me Elmo, or Razor scooter.

Strategic innovations, such as OnStar, Tremor, and Moviebeam, may include innovations in process or product but always involve unproven business models.

You can download excellent powerpoint slides on Marketing Strategy and Marketing Management HERE.

Innovative strategies alone—without changes to either the underlying technologies or the products and services sold to customers—drive the success of many companies, such as IKEA and Southwest Airlines.

The four types of innovation require different managerial approaches, because they differ along three important dimensions: the expense of a single experiment, the time frame over which results become apparent, and the ambiguity of results. For example, a single process improvement is inexpensive, and its effects are quickly evident and measurable against past operational performance. Process revolutions cost more and take longer. Major product or service innovations, even those that retain the proven business model, generally involve more capital still—enough that a string of failures could sink a corporation— and results may remain uncertain for several quarters. Strategic innovations generally require the greatest investments over the longest time periods, and results can remain indecipherable for years.

These differences in expense, time frame, and uncertainty factor in to such decisions as who should lead and participate in an innovation initiative, how resources should be allocated, how progress should be assessed, when die plug should be pulled, and so on.

Source :
Thomas Doorley and John Donovan, Value-Creating Growth: How to Lift Your Company to the Next Level of Performance. Jossey Bass. You can obtain this fine book here