OUR APPROACH TO STRATEGY AND INNOVATION
We believe that strategy must be driven from the future not from he past. Most companies get "locked in" to the formulas that made them successful and their strategy is built upon what worked in the past. Like samurai fighting against machine guns they defend the "tried and true" way of doing business and invest in better swords and faster techniques (what we call "Defend and Extend"). In our view a strategy must not only recognize today's changed competitive world but must anticipate the competitive world of tomorrow and focus on creating new business models ("success formulas") that satisfy future unmet needs. As Wayne Gretzky famously noted when asked about his key to success: "I skate to where the puck is going to be, not where it has been."
Companies such as Virgin, Apple, Honda, ITW, and GE are continually pushing themselves into growth markets even when those markets are potentially unrelated to traditional customers, technologies, or other core strengths. They keep growing and producing above-average returns regardless of market conditions. There is a fundamental difference in the strategic approach used by these companies, including:
1. Focus planning on future scenarios. Most organizations build their plans to serve traditional customers and market segments with current technologies and skill sets. These companies emphasize future scenario development—they don’t fixate on where they are, but on where they want to be. What’s important to planning isn't what's "core" but rather what new market opportunities can be identified or created.
2. Obsess about competitors. These companies are obsessive about understanding competitors—both direct and indirect—to better anticipate their actions and behaviors. They interview lost and unhappy customers to identify competitor moves they may have overlooked and they never dismiss any competitor, no matter how obscure or weak they appear. They realize that fringe competitors often bring to market completely new solutions that create market shifts.
3. Be highly disruptive. Disruptions are used to challenge status quo behaviors and force new ones to occur, rewarding their people for challenging conventional thinking, approaches, and processes and creating new ones. Launch white-space teams to fill competitive gaps and create new success formulas - with explicit permission to violate internal standards (margin, volume, quality, technologies, etc.) and without the need to compete with the existing business for people or money.
4. Use a portfolio management approach to developing the strategic plan. It is impossible to predict the future, but it can be anticipated by establishing a planning framework that monitors critical trends and continually rebalances the priorities of the portfolio based upon the future as it unfolds, This allows a company to be ready to satisfy emeging needs when they arise and well before competitors.
1. Focus planning on future scenarios. Most organizations build their plans to serve traditional customers and market segments with current technologies and skill sets. These companies emphasize future scenario development—they don’t fixate on where they are, but on where they want to be. What’s important to planning isn't what's "core" but rather what new market opportunities can be identified or created.
2. Obsess about competitors. These companies are obsessive about understanding competitors—both direct and indirect—to better anticipate their actions and behaviors. They interview lost and unhappy customers to identify competitor moves they may have overlooked and they never dismiss any competitor, no matter how obscure or weak they appear. They realize that fringe competitors often bring to market completely new solutions that create market shifts.
3. Be highly disruptive. Disruptions are used to challenge status quo behaviors and force new ones to occur, rewarding their people for challenging conventional thinking, approaches, and processes and creating new ones. Launch white-space teams to fill competitive gaps and create new success formulas - with explicit permission to violate internal standards (margin, volume, quality, technologies, etc.) and without the need to compete with the existing business for people or money.
4. Use a portfolio management approach to developing the strategic plan. It is impossible to predict the future, but it can be anticipated by establishing a planning framework that monitors critical trends and continually rebalances the priorities of the portfolio based upon the future as it unfolds, This allows a company to be ready to satisfy emeging needs when they arise and well before competitors.
"Defend and Extend" No Longer Works
For decades companies have prospered through “Defend and Extend” (D&E) Management—establishing a success formula, then improving and protecting it against competitors. In the Industrial Economy this worked well because size, economies of scale, and entry barriers were important. But today, due primarily to the emergence of information transparency, success formulas are being duplicated practically overnight—robbing companies of their competitive advantage. Practicing D&E Management in this environment is a prescription for failure, and yet that is what almost every company, large and small, is doing.
For decades companies have prospered through “Defend and Extend” (D&E) Management—establishing a success formula, then improving and protecting it against competitors. In the Industrial Economy this worked well because size, economies of scale, and entry barriers were important. But today, due primarily to the emergence of information transparency, success formulas are being duplicated practically overnight—robbing companies of their competitive advantage. Practicing D&E Management in this environment is a prescription for failure, and yet that is what almost every company, large and small, is doing.
Selective Use of Open Innovation Techniques
One of the challenges in identifying new market opportunities is finding potential solutions to future market needs that have been identified in the innovation process as well as finding unobvious applications for existing technologies.
We have incorporated within our overall approach to innovation access to a global network of technology and market experts using open innovation techniques. This can often make the difference in unlocking growth opportunities that would be impossible to uncover with the budgets and resources typically available to most companies—especially small to mid-sized businesses.
One of the challenges in identifying new market opportunities is finding potential solutions to future market needs that have been identified in the innovation process as well as finding unobvious applications for existing technologies.
We have incorporated within our overall approach to innovation access to a global network of technology and market experts using open innovation techniques. This can often make the difference in unlocking growth opportunities that would be impossible to uncover with the budgets and resources typically available to most companies—especially small to mid-sized businesses.