THE POWER

OF

S TRATEGY

Innovation

A New Way of Linking Creativity and

Strategic Planning to Discover Great

Business Opportunities

Robert E. Johnston, Jr.

J. Douglas Bate

PART ONE

THE WHAT AND WHY OF STRATEGY INNOVATION 1

Chapter 1

Strategy Meets Innovation

Chapter 2

Strategy Innovation Is Managing the Future

Chapter 3

Strategy Innovation Is Not Strategic Planning

Chapter 4

The Discovery Progress

P A R T O N E

THE WHAT AND

WHY OF S TRATEGY

Innovation

Chapter 1

S TRATEGY MEETS INNOVATION

If an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself except its basic beliefs. The only sacred cow in an organization should be the basic philosophy of doing business.

—THOMAS J.WATSON

No corporate strategy lasts forever. Companies that get all the components of their business models working together can often drive their success for many years. But at some point, they start to run out of gas. Many companies are shocked to hear the financial engine sputter, having never paid much attention to their fuel gauge. Others have an eye on the gauge but don’t have a clue where the next service station is located, so they coast along, hoping to get lucky.

Then there are companies that have scouted out the road ahead and know their refueling options. With their eyes watching the road, the map, and the fuel gauge, they fill up the tank before it gets too low. Even older models, with the proper tune-up and constant refueling, can remain cruising at the speed limit for decades.

Your company needs strategy innovation initiatives to understand the road ahead and know your options for keeping the product tank full and the financial engine running smoothly.

What is strategy innovation?

Strategy innovation is shifting a corporation’s business strategy in order to create new value for both the customer and the corporation.

In a dynamic marketplace, every business runs the risk that its current business model will become obsolete. As long as there is customer value to be delivered, there will be companies interested in delivering it. New companies will create innovative, more efficient business models in order to compete in profitable industries. Consider the case of Wal-Mart. Starting as a discount retailer to the underserved population of rural areas, it needed to develop a new, more efficient retailing business model in order to survive in that segment of the retailing market. Using sophisticated technology and a streamlined distribution system, Sam Walton created a new business strategy in the retail industry that created value for both his rural customers and for his company. The superiority of their innovative business model ultimately led to Wal-Mart’s domination of that entire industry. The strongest survive.

In other dynamic industries of the twenty-first century, new technologies, new materials, and new distribution channels are continually changing the competitive landscape. Companies such as Nokia, Charles Schwab, and IBM recognized the potential of these changes, altered their business strategies, and have been able to take advantage of the emerging growth opportunities in wireless communications, financial services, and computer services. Companies such as K-Mart, USAirways, and Digital Equipment Corporation either did not see the trends in their industries or refused to alter their business strategies in times of change, and they have suffered the consequences. As Jack Welch, the highly successful former CEO of General Electric, once said about companies in dynamic markets, ‘‘When the rate of change outside exceeds the rate of change inside, the end is in sight.’’