Strategy Innovation as a Strategic Advantage

Although strategy innovation may be critical for success (or survival) in dynamic markets, it can also be a source of competitive advantage in more stable markets. The company that understands how to create value for both their customers and themselves can change the basis of competition in their industry. By creating efficient business systems aimed at delivering this new value in a market, companies not only redefine value but lock out competitors who are unable to replicate the efficient business model that delivers it. Like Wal-Mart, they play the same game with a different set of rules, rules that give them a decided advantage.

Strategy innovation has done for business what the forward pass did for the game of (American) football. Without a change in the rules, football would not have survived its early start-up years. Note in the following story the parallels between the early game of football and many businesses today:

The game of football first emerged on college campuses in the early 1800s. Styled after the game of rugby that was being played in England at that time, football consisted of a group of people moving a ball past another group of people, using whatever means they could. As the game evolved, teams adopted wild and dangerous tactics, such as the flying wedge, for moving the ball up the field. Defenses would respond to these new schemes with actions that bordered on assault. Games were won and lost in violent interchanges around the line of scrimmage, with both teams using brute force to maintain their positions. Plays were predictable, and the ball usually moved slowly, incrementally up the field. Some compared the game to warfare in the trenches of World War I. Injuries were common in those early days, and fatalities became a growing problem. When the number of deaths related to football rose to 33 in 1905, President Theodore Roosevelt stepped in with a mandate. He threatened to ban the sport unless changes were made to the style of play.

In 1906, the Rules Committee of the organization that would become the National Collegiate Athletic Association approved the use of the forward pass for football. This changed significantly the way the game was played. Soldiers in the trenches now had support from their airborne units. Teams now had more options for moving the ball. Rather than having to rely on the standard offense of running-the-ball-up-the-middle for a small gain in yardage, a team could throw a pass over the defense for a larger gain. The game became more complex. Predictability of offensive plays gave way to surprise attacks. Quarterbacks and coaches now had to make decisions on what play to use in any given situation, based on the strengths and weaknesses of the competition and the distance to the goal line. John Heisman and Knute Rockne were some of the first coaches who found effective ways to make the forward pass an integral part of the game. Football became a game of strategy.

The forward pass rule changed the basis of competition in collegiate football. Teams with big, tough players who could become human battering rams no longer had an advantage. Now teams with small, agile, quick pass receivers could compete with the big guys. More colleges fielded football teams, competition grew, and the game survived.

Strategy innovation is the process of finding a way to ‘‘change the rules of the game’’ so that your company’s products, competencies, and assets provide you with a competitive advantage in the marketplace. If you are not the mammoth ‘‘battering ram’’ of a company that can compete in a market on the basis of size, strategy innovation allows you to define a new business where ‘‘small, agile, and quick’’ is the only way to provide customers with value. Starbucks could not have outmuscled and outspent Procter & Gamble and General Foods to gain advertising awareness for their new coffee and shelf space in supermarkets. So they set up small cafes where they not only sold their premium coffees but provided customers with the added value of a European cafe´ experience. Similarly, Minnetonka, Inc., was able to outmaneuver the giant soap companies in the early 1980s by introducing the first liquid soap product, later purchased by Colgate and renamed Softsoap. In his book The Innovator’s Dilemma, Clayton Christensen suggests that this small company advantage is an important force in the marketplace. He writes, ‘‘Large companies often surrender emerging growth markets because smaller, disruptive companies are actually more capable of pursuing them. Though start-ups lack resources, it doesn’t matter. Their values can embrace small markets, and their cost structures can accommodate lower margins. Their market research and resource allocation processes allow managers to proceed intuitively rather than having to be backed up by careful research and analysis, presented in PowerPoint. All of these advantages add up to enormous opportunity or looming disaster— depending on your perspective.’’

This is the essence of strategy innovation: ‘‘changing the rules’’ of how customers receive value and having a business model that delivers that value better than anyone else. In that way, you make your weaknesses in an established market irrelevant, and your innovative business model becomes the new basis of competition in a market that you started.

Constantinos Markides, a professor at the London Business School and author of All The Right Moves, calls strategy innovation ‘‘a fundamental reconceptualization of what the business is about, which in turn leads to a dramatically different way of playing the game in the industry.’’

In his book Leading the Revolution, Gary Hamel cites a number of companies that have dared to reinvent themselves by adopting innovative strategies and creative new business models. He believes that this capability will be required to compete in the markets of the future. ‘‘Unless you and your company become adept at business concept innovation, more imaginative minds will capture tomorrow’s wealth.’’