The term “strategic innovation” has often a fuzzy meaning. It’s used to mean important innovation, or urgent innovation. Sometimes, “strategic innovation” may refer to C-level innovation projects. Each of these terms provide a shed of light on the meaning of “strategic innovation”, but they fail to answer a more fundamental question on the purported strategic nature of innovation. In other words, what is it that makes innovation strategic? How can one differentiate strategic innovation from non-strategic innovation?
Evidently, the term “strategic innovation” implies a connection between innovation and strategy, such that strategic innovation realizes corporate strategy. Michael Porter, a Harvard management Professor widely credited for providing a fresh look on corporate strategy, argues that firms may pursue 3 different generic strategies:
- cost-leadership
- differentiation
- focus
I/ Defining cost leadership
Cost leadership means producing a product at a lower relative price than competition, while meeting basic customer needs. Examples of cost-leadership include Southwest Airlines. According to Joan Magretta, a former Partner at Bain & Company, the firm has a lower relative cost per seat miles. This is the result of innovations focusing on cost-leadership. Here’s one example: gate turnarounds. Southwest does it faster, and as a result gets more out of its assets – its costs per plane and per employee are lower than those of rivals. To do so, Southwest identified all activities involved in the gate turnaround process and found ways to shorten their completion. In some cases, Southwest asked Boeing to make minor changes to its planes in order to reduce gate turnaround time. Thus, cost-leadership innovation means finding ways to reduce costs, without sacrificing customer value.
II/ Defining differentiation
Differentiation means producing a unique product meeting a unique set of needs sold at a higher relative price. Examples of successful differentiation include Apple’s iPad. Today, the tablet market boasts many competitors offering technical specifications that are comparable and sometimes superior to the iPad. However, the iPad beats competition on user-friendliness, a key differentiator. Steve Jobs, much like Leonardo da Vinci who once claimed that “simplicity is the ultimate sophistication”, is reported to have asked his teams to “simplify, simplify, simplify” the iPad. Today, consumers are willing to pay a higher relative price for a product that’s easier to use than competing products. Thus, strategic innovation, in the case of differentiation, means finding ways to optimize a specific set of differentiators that are most relevant to a specific set of needs. Thus, when Apple is developing new ways to increase user-friendliness, then they are pursuing strategic innovation.
III/ Defining focus
The last generic strategy is focus. A focus strategy selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others. In this case, strategic innovation would mean innovations that are particularly relevant to the specific segment of customers the company is targeting. In 2006, Nintendo launched the Wii, a video-game system targeting women, adults and the elderly, rather than the more traditional gamers. Nintendo lured these new clients into video games by creating a new playing experience. Focus innovations include a new joystick, new games focused on movements rather than pushing buttons and new benefits bringing exercise and improved health. Thus, strategic innovation, in the case of a focus strategy, refer to innovations that better meet the specific needs of the targeted segment.
- improve differentiation
- reduce costs
- tailor to segment specific needs
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