Strategy Innovation vs. Strategic Planning

If you are intrigued by the potential of strategy innovation for your company, be aware that you will not get it from your current strategic planning process. You will have to create a separate process for strategy innovation, one that is:

• Creative
• Market-centric
• Heuristic (discovery-driven)

Creative

Strategy innovation requires a creative process, not an analytical one. It requires people to listen to customers in new ways, design new types of products, and envision strategies for markets that do not currently exist. It is a process that is as disciplined and structured as strategic planning but uses creativity, rather than analysis, as the primary tool. The raw materials for strategy innovation are insights, which are new perceptions and new understandings of value. Insights can come from listening to or observing customers— their words, actions, emotions, and wishes. Insights can come from listening to industry experts or thought leaders as they explain their understanding of the present and future dynamics of a marketplace. Insights can also come from listening to people who are not entrenched in your industry, company, or culture, as they are in the best position of offering a fresh perspective.

The quality of the insights necessary for strategy innovation cannot come from statistics. People with a strong analytical orientation can participate in the strategy innovation process (everyone has the potential for creativity), but they must check their quantitative tools and mind-sets at the door. They can have them back when it comes time to evaluate and quantify the business opportunities developed by the strategy innovation process. However, the process for strategy innovation is a creative one, not an analytical one.

Market-Centric

Strategy innovation requires a market-centric process, not one that is company-centric. For many, this shift is as significant as the Copernican revolution. You will recall from high school science class that Copernicus identified the sun as the center of the universe (heliocentric model). Just like people used to believe that the sun and stars revolved around the earth, many of today’s corporate executives believe that their companies are the center of their business universe, and that all other stakeholders (shareholders, suppliers, customers, and employees) revolve around them. Customers must shop at hours most efficient for the company. Suppliers must change their delivery schedules to meet the company’s needs. Employees must move to a new location if the company wants them to. Strategy innovation proposes, instead, that customers and the dynamics of the marketplace are the center of the business universe (market-centric), and that wise companies will consider setting their orbits around them. If customers need call centers to receive the service they need, companies should consider changing their business models to create them. If Third World markets need household products at lower prices, companies should explore innovative ways of providing them.

To be clear on this point, we are not suggesting that companies meet all customer needs or sacrifice sound financial management to fulfill those needs. Successful strategy innovation requires that a new business opportunity add significant value for both the customer and the company to be worthwhile. However, the starting point for that consideration should be the needs of the customer/ market, not the company’s needs.

Heuristic

The strategy innovation process is not as predictable and linear as the strategic planning process in most companies. Revising plans and updating numbers have a predictability that allows you to schedule strategic planning sessions months in advance. Strategy innovation is a grassroots, discovery (‘‘heuristic’’) process that is dependent on the quality of the insights gained along the way. Sometimes it happens quickly, sometimes it takes many iterations before a breakthrough is achieved. Customer interviews might not reveal new expressions of value in the first month of trying. An examination of future market dynamics may suggest several very different future scenarios that will take a while to sort out and evaluate. There will be starts and stops, dead ends, and a need to revisit previous work done. The iterative nature of the process means that the imposition of deadlines may affect the quality of the output. That is, a team may be forced to stop exploring because of a deadline, rather than because they have already discovered all the great insights they need. Flexible timing is more accommodating to the heuristic nature of the strategy innovation process.

Another difference between traditional strategic planning process and a strategy innovation process is the orientation toward time. There is a natural tendency in the strategic planning process to start the planning with ‘‘today’’ and then make projections, based on historical trends and today’s statistics, out to ‘‘tomorrow.’’ It is starting with the known and working toward the unknown. This near-term to long-term work flow reinforces the evolutionary nature of the strategic planning process.

The strategy innovation process, on the other hand, works best in the other direction: It starts with ‘‘tomorrow’’ and then plans backwards to ‘‘today.’’ To be successful, the search for new business opportunities cannot be constrained by today’s corporate conditions or today’s market conditions. The search for opportunities cannot get bogged down in arguments over resource allocation. Strategy innovation is decidedly future-oriented. It must be able to transcend today’s conditions and imagine what is possible in the future. After identifying potential new business opportunities in the future, the planning works backwards to identify the key strategic milestones to get there. In this way, the more tangible appeal of new growth opportunities acts as a ‘‘future-pull,’’ which will help the company in its decisions on resource allocation.

Where traditional strategic planning focuses on building value in current markets, strategy innovation focuses on creating new value in new markets. In the 1960s, Xerox had a near monopoly on the sales and servicing of large copy machines to large businesses. Their business model consisted of a direct sales force that sold leased, highend equipment, and an extensive service network (profit center) to keep the equipment operating. In their strategic planning processes at the time, much of Xerox’s focus was no doubt on determining how to extend or improve the current value delivered to current customers, e.g., faster machines, new sorting methods, faster service response, or better leasing plans. These means of value-enhancement can help grow revenues while leveraging the company’s current strategy and business model.

However, there are also other ways of delivering value to customers. Canon discovered a different way to deliver value in the copier market. Using their skills in microelectronics and optics, they developed a copier with a replaceable cartridge, which they sold as the first personal copier. Aimed at small businesses and individuals, these copiers were inexpensive, required little or no maintenance, and could be purchased through existing retail channels. Canon used strategy innovation to redefine value in the marketplace for copying machines. As with Canon, the opportunity to create new value has tremendous revenue potential. At the same time, it will likely require a company to consider the development of a new business model in order to implement the new strategy. Xerox stayed with their old business model for a long time and suffered for it.