Creating and Delivering High-Performance Innovation

For the past two decades, many technology-based companies have achieved extraordinary growth rates internally through innovation. Before this period, growing internally through innovation had limitations, and firms had to depend on external growth strategies to achieve corporate growth goals and objectives. For example, by 2018, most of the world’s value was created by a set of few companies, such as Apple, Alphabet, Microsoft, Amazon, Facebook, and Alibaba through digital innovation based on digital technologies. However, these companies also grew externally somewhat through acquisitions. This article describes some of the most important issues of innovation that must be addressed to create and deliver high-performance innovative products to customers.

Innovation generates a temporary competitive advantage for the innovative company that can be used to fast build and defend its market position on this lead-time advantage to remain successful. For example, Intel, Cisco, and Nvidia successfully built lead time advantages in manufacturing, quality, and market position. In contrast, the electric vehicle (EV) manufacturers in the US failed to develop a cost leadership market position to compete successfully in the US auto market with Chinese EV manufacturers. Therefore, to stay ahead of the competition, a firm must continuously innovate with a robust innovation strategy, upgrade its resources and capabilities, gain and sustain its market position, and make imitation harder for competitors by developing slow-cycle resources (patents, brand name, secrecy). Innovation has a broad meaning that encompasses all value-creating functional activities of product design and development (or R&D), manufacturing, and marketing of a new (or improved) product or manufacturing process. Innovation occurs when knowledge from all three functional areas interact and combine in an integrated manner.

A firm’s long-run profit or its equivalent enterprise value is considered an indicator of the firm’s performance and a guide to the strategy formulation process. Some other profitability performance measures include market capitalization, operating margin, return on assets (ROA), and return on equity (ROE). Thus, the fundamental goal of the strategy is to maximize performance by maximizing profits over the long term. Here are some important aspects of the innovation components: the three functional strategies described, that are imperative in creating and delivering high-performance innovation.

Marketing Strategy

A Firm’s marketing and innovation strategy are subsets of its business strategy. Marketing involves all aspects of developing a product that is to be sold in the market. It encompasses all business activities, including facilitating selling. Some of the most important aspects of marketing in managing innovation are business model generation, gaining market position, and sustaining market position, which are briefly described below.

Business Model Generation

A business model by definition shows the logic or architecture of value creation. Innovation by itself or in isolation has no commercial meaning. It becomes important only when it creates utility and value for all the stakeholders of the firm. To innovate successfully, a firm should be able to produce and market a product successfully. For this reason, new product development (or R&D) and marketing become the two most crucial functions of the business to create, deliver, and capture value. From the marketing viewpoint, the role of the business model is indispensable in creating market value for the innovative product. The core of marketing is in the business model.

Gaining and Sustaining Market Position

The company’s market position focuses on two key aspects: gaining a market position and defending a market position or sustaining growth in a competitive environment.

Gaining Market Position

The company can gain market share by using three strategies: (1) attracting competitors’ customers or selective demand strategy, (2) attracting new customers, and (3) tapping into new markets or creating new markets.

Defending Market Position

Gaining a market position to achieve growth is not enough, the company should also be able to sustain its profitable growth. Sustainable growth can be achieved in three simple ways: take no action, reposition the offering, and add new offerings. Taking no action means ignoring competitors’ price moves. Repositioning the current offering means reducing costs, moving up/downscale, or increasing or decreasing benefits. Besides adding value to the current customers, to further reposition, a company can add new offerings to better address the needs of new customers. Here, repositioning means changing the value proposition of the new offering in any of the two ways- vertical or horizontal. Vertical repositioning refers to changing the value proposition to a different price range (either higher or lower). Horizontal repositioning also refers to changing the value proposition, but only by altering the product benefits without changing the prices.

Product Innovation and Technology Strategy

The firm’s product innovation and technology strategy is a subset of its business strategy. Most innovation strategies are based on strategic intent: those ambitious goals and objectives that are the passions of the innovators with an intention of what they want to achieve and are not driven by profitability goals. Today, the most successful firms at creating shareholder value are those that give priority to purpose over profit. Samsung Electronics emerged as the world’s largest company based on undertaking a few big ambitious innovative projects that involved an enormous commitment of financial and human resources. The innovation strategy identifies and defines innovation goals and objectives, direction, and areas in which the new product development (NPD) efforts should focus. Focus is one of the most vital strategic themes leading to high-performance innovation. It can be increased by undertaking a strategic analysis of all the options. Focus provides direction for idea generation, criteria for idea screening and project selection, and targets for resource acquisition. The product innovation and technology strategy can be implemented through strategic and tactical portfolio management, which is indispensable in managing the new product development process, to create value and maximize R&D return on investment (ROI).

New Product Development

The implementation process or new product development process begins by transforming the firm’s innovation goals, objectives, and strategy into initiatives (project identification, selection, and prioritization process) to establish portfolios of programs and projects. Further, programs and projects are evaluated for technical performance and against the selection criteria.

Strategic portfolio management involves making high-level investment decisions: where to allocate a firm’s scarce resources (people and funds) and how to split and allocate these resources across project types, markets, technologies, and product types. Tactical portfolio management focuses on deciding on individual projects. This includes decisions about project selection, prioritization, and resource allocation. The benefits of implementing innovation strategies through portfolio management are summarized below.

• Portfolio management helps to bridge the gap between strategy formulation and implementation.
• Aligns strategic goals and strategies to projects, portfolios, and programs.
• Helps in the effective allocation and use of scarce resources.
• Portfolios can be balanced to reduce risk and create the best value for the organization.
• Helps to generate synergies, integrate activities, and enhance business success.

The fundamental purpose of any business is to create value, and through value profit, portfolio management also contributes towards value creation to the firm by choosing and doing the right activities. From the profitability standpoint, portfolio management is used to select and manage portfolios of projects and programs to realize two important additional benefits: it improves the efficiency of investment by eliminating wasteful projects: through prioritizing and selecting the right projects and programs, that is doing the right thing, and also by choosing what not to do. Second, by making investments in high-return portfolios.

Manufacturing or Operations Strategy

During the 1950s and 1960s, the goal of manufacturing, or operations strategy, was to minimize manufacturing costs. After this time, companies have constantly looked for and added additional sources of competitive advantages to remain competitive in the marketplace. Today, due to increased competition and globalization, the goal of operations strategy has shifted from minimizing production costs to maximizing the value added. Value is added through competitive priorities or priorities that we select to support the operations strategy. These priorities are cost, quality, delivery, flexibility, and service. However, the fact is that the firm cannot focus and excel on all competitive priorities simultaneously. Therefore, the management should decide which priorities are critical to the firm’s success. For example, if a company wants to focus on speed of delivery, then it may not be possible for it to remain flexible in its ability to offer a broad range of products. McDonald’s offers a fast delivery service but offers a limited menu of standard products. In contrast, some restaurants prepare on order but take longer time to deliver. Moreover, firms should develop their operations strategy in such a way that complements R&D, marketing, manufacturing, and all other functional strategies.

The firm’s competitive priorities are achieved through core capabilities. Core competencies allow the firm to create market value and achieve competitive advantage. Today, competitive priorities are not restricted to operations strategy. All functional strategies have the potential to generate added value if the priorities support the business strategy. However, we only implement a few depending on the competitive priorities we select and focus on, which are industry and customer-specific. The selection of the functional strategies will also depend on the prevailing key success factors (requirements for success) and trends in the industry. For example, some companies such as Zara, Intel, and Pfizer have developed capabilities in research and new product development to design new products and bring them faster to the market than the competitors, giving them a competitive advantage. One of the best ways to choose and develop an effective functional strategy, including an operations strategy, is to understand customers’ additional needs and satisfy those needs better than the competition by creating and maximizing added value for them.

References and Further Reading

1. R. M. Grant, Contemporary Strategy Analysis (United Kingdom: John Wiley & Sons, Ltd., 2008), Chapters1, 2, 7, 9 and 13.
2. Ashok N., Linking Innovation and Competition to Acquisitions, A&N Strategy Consulting (December 30, 2019).
3. T. L. Wheelen & J. D. Hunger, Strategic Management & Business Policy (NJ: Prentice Hall, 2000), Chapters 4 and 5.
4. Paul Trott, Innovation Management and New Product Development (United Kingdom: Pearson Education Ltd., 2017), Chapters 1 and 4.
5. Robert G. Cooper and Scott J. Edgett, “Product Innovation and Technology Strategy (U. S.: Product Development Institute Inc., 2009), Chapters 1, 3, 4, 5 and 6.
6. A. Chernev, Strategic Marketing Management (USA: Cerebellum Press, 2014), Chapters 1, 2 and 14.
7. Ashok N., A New Business Model Structure, Innovation Strategy, and Competitive Advantage, A&N Strategy Consulting (April 8, 2018).
8. Ashok N., Implementing Strategies through Portfolio Management, A&N Strategy Consulting (December 15, 2014).
9. Ashok N., Managing Innovation through Dual Planning Systems, A&N Strategy Consulting (June 1, 2017).
10. Mark M. Davis, Fundamentals of Operations Management (Ryerson: McGraw-Hill Ltd, 2005), Chapter 2.
11. Ashok N., Developing Multiple Sources of Added Value for Customers, A&N Strategy Consulting (December 27, 2023).