Business Strategy Innovation and Product Innovation

It is interesting to note how many companies in recent years have adopted ‘‘innovation’’ as a core value or as part of their mission statements. If we as a society have moved from the Information Age to the Knowledge Age, then this relatively new emphasis on innovation is quite logical. When information is ubiquitous and is no longer a source of competitive advantage, it is the innovative use of that information (via knowledge) that differentiates people, companies, and nations. Innovation may become the basis of all competition in the future. Innovation is the new competitive arena where present-day gladiators, equipped with similar information and access to similar resources, try to outsmart one another to victory.

As we work with and read about corporations today, we see the focus of innovation being placed primarily on the products that they are creating. Go to a company’s Web site. If they talk about innovation or have an Office of Innovation, it is frequently related to the work done in their Research & Development labs. Innovation is usually thought of as invention. Innovation is usually new technology being turned into something unique and tangible that the company can sell. For those companies with strong R&D departments, this focus on the invention of innovative products is probably a key element of their corporate strategy.

There are, however, other elements of a corporate strategy beyond innovative products that can help companies compete in their markets. Besides having a product to sell, companies have to make that product and then get it into the hands of customers (and meet their customers’ needs). To do this, companies create specific functions such as manufacturing, sales, distribution, and marketing.

These functions and how they interrelate make up the company’s business model. The effectiveness and efficiency of the business model is a critical element of a company’s strategy. Michael Porter, the corporate strategy guru at Harvard Business School, highlighted the importance of ‘‘fit’’ of the functional activities that make up a company’s strategy when he wrote, ‘‘Strategic fit among many activities is fundamental not only to competitive advantage but also to the sustainability of that advantage. . . . Positions built on systems of activities are far more sustainable than those built on individual activities.’’

The implication here is that the most innovative product on the market may not be able to compete against a less advanced product that has a unique or superior business model. Dell Computer is a successful company because of its innovative business model (selling customized computers via the Internet and use of a very strong supply chain management), not because of its superior computers. Therefore, companies that do not have a world-class R&D capability may still be able to compete effectively in markets if they focus their efforts on building a superior business model.

Given the strategic importance of a company’s business model in its ability to compete in the marketplace, it is logical that efforts put into improving the business model could provide real value to a company. If that is true, then companies should place at least as much ‘‘innovation’’ focus on the other elements of the business model (and how they interact) as they currently do on the product side.

Strategy innovation is a process of applying innovative thinking to the entire business model of a company, not just to its products or inventions.