Chapter 9: Strategic Innovation
Learning outcomes:
Explain the concept of strategic innovation;
Discuss the nature of value innovation, its importance and how it can be encouraged;
Use the relevant tools to identify potential innovation.
Discuss the concept of disruptive innovation;
Explain why disruptive innovation can be a threat to an existing business;
Suggest ways that an existing business can deal with disruptive innovation;
Discuss innovation at the bottom of the pyramid.
9.2 Exploring the concept of strategic innovation
Strategic innovation represents a fundamentally new way of competing, or a ‘fundamentally
different’ strategy for competing in an industry. Strategic innovation is not, however, the
same as technological innovation, which is the use of new processes, machinery, or
applications that embody knowledge of how to do things, or how to make things.
Three important schools of academic thought are associated with strategic innovation:
Value innovation: Firms that make their competitors irrelevant through value innovation are
able to achieve sustained high growth in revenue and in profits. Strategic innovation is the
search for new ways of competing on the basis of customer value in existing industries. This
approach involves finding the ‘Blue Ocean’, or new markets, rather than competing in the
‘red ocean’.
Disruptive innovation: According to Schumpeter, ‘creative destruction’ occurs as an
inherent feature of the market system, as a process of “industrial mutation… that incessantly
revolutionises the economic structure from within, incessantly destroying the old one,
incessantly creating a new one”.13 Disruptive innovation relates to the destruction, or
disruption of markets through innovation.
Bottom of the pyramid: Bottom of the pyramid innovation refers to innovations that target
the large numbers of the world’s poor. The spending power of these people can be
harnessed if appropriate products and services can be offered.
9.3 Value innovation
In the process of formulating strategy, an organisation should bear the following four aspects
of value in mind:
Value is both subjective and objective: The subjective view of value is perception based –
value is in the eye of the beholder – while the objective view of value is intrinsic to the
product itself and is related to product quality.
Value is comparative, personal, and situational: Value is comparative in the sense that the
value of product A can only be assessed in relation to product B. It is personal in the sense
that value may vary among people who make the assessment. It is situational in the sense
that an evaluation of value may reflect either the prevailing circumstances or a particular
context.
, Value is a preference: ‘Value as preference entails the making of evaluative judgments in
accordance with some set of standards, rules, criteria, reasons, norms and selective
systems, goals, or ideals.’
Value is experiential: Consumers do not buy products or services as an end in themselves,
but as a means of solving a problem. Thus, value is derived from the experience of actually
‘consuming’ the product or service, not in possessing the product.
9.3.1 How do I apply value innovation to achieve competitive advantage?
Less successful firms were found to follow ‘conventional strategies’; they focused on
‘beating’ their competition on different measures. In contrast, the more successful firms were
found to follow a strategy of ‘value innovation’, which sought to do something ‘new and
different’; a process that was less focused on their competitors.
Kim and Mauborgne identified 5 fundamental differences between more and less successful
firms based on dimensions of strategy:
1. Industry assumptions: The conventional strategic view tends to regard the
conditions of an industry to be given. In contrast, the value innovation logic stresses
that ‘blockbuster ideas’ and ‘quantum leaps’ in value can provide a firm with
opportunities, even in industries that are mature.
2. Strategic focus: When comparing their strengths and weaknesses to those of
competitors, companies tend to let these comparisons dictate their strategy choices.
3. Customers: Whereas firms that usually look to keep and grow their customer bases
tend to end up segmenting offerings to meet more and more specialised
requirements of customers, firms that apply value innovation look for shared features
that customer’s value.
Learning outcomes:
Explain the concept of strategic innovation;
Discuss the nature of value innovation, its importance and how it can be encouraged;
Use the relevant tools to identify potential innovation.
Discuss the concept of disruptive innovation;
Explain why disruptive innovation can be a threat to an existing business;
Suggest ways that an existing business can deal with disruptive innovation;
Discuss innovation at the bottom of the pyramid.
9.2 Exploring the concept of strategic innovation
Strategic innovation represents a fundamentally new way of competing, or a ‘fundamentally
different’ strategy for competing in an industry. Strategic innovation is not, however, the
same as technological innovation, which is the use of new processes, machinery, or
applications that embody knowledge of how to do things, or how to make things.
Three important schools of academic thought are associated with strategic innovation:
Value innovation: Firms that make their competitors irrelevant through value innovation are
able to achieve sustained high growth in revenue and in profits. Strategic innovation is the
search for new ways of competing on the basis of customer value in existing industries. This
approach involves finding the ‘Blue Ocean’, or new markets, rather than competing in the
‘red ocean’.
Disruptive innovation: According to Schumpeter, ‘creative destruction’ occurs as an
inherent feature of the market system, as a process of “industrial mutation… that incessantly
revolutionises the economic structure from within, incessantly destroying the old one,
incessantly creating a new one”.13 Disruptive innovation relates to the destruction, or
disruption of markets through innovation.
Bottom of the pyramid: Bottom of the pyramid innovation refers to innovations that target
the large numbers of the world’s poor. The spending power of these people can be
harnessed if appropriate products and services can be offered.
9.3 Value innovation
In the process of formulating strategy, an organisation should bear the following four aspects
of value in mind:
Value is both subjective and objective: The subjective view of value is perception based –
value is in the eye of the beholder – while the objective view of value is intrinsic to the
product itself and is related to product quality.
Value is comparative, personal, and situational: Value is comparative in the sense that the
value of product A can only be assessed in relation to product B. It is personal in the sense
that value may vary among people who make the assessment. It is situational in the sense
that an evaluation of value may reflect either the prevailing circumstances or a particular
context.
, Value is a preference: ‘Value as preference entails the making of evaluative judgments in
accordance with some set of standards, rules, criteria, reasons, norms and selective
systems, goals, or ideals.’
Value is experiential: Consumers do not buy products or services as an end in themselves,
but as a means of solving a problem. Thus, value is derived from the experience of actually
‘consuming’ the product or service, not in possessing the product.
9.3.1 How do I apply value innovation to achieve competitive advantage?
Less successful firms were found to follow ‘conventional strategies’; they focused on
‘beating’ their competition on different measures. In contrast, the more successful firms were
found to follow a strategy of ‘value innovation’, which sought to do something ‘new and
different’; a process that was less focused on their competitors.
Kim and Mauborgne identified 5 fundamental differences between more and less successful
firms based on dimensions of strategy:
1. Industry assumptions: The conventional strategic view tends to regard the
conditions of an industry to be given. In contrast, the value innovation logic stresses
that ‘blockbuster ideas’ and ‘quantum leaps’ in value can provide a firm with
opportunities, even in industries that are mature.
2. Strategic focus: When comparing their strengths and weaknesses to those of
competitors, companies tend to let these comparisons dictate their strategy choices.
3. Customers: Whereas firms that usually look to keep and grow their customer bases
tend to end up segmenting offerings to meet more and more specialised
requirements of customers, firms that apply value innovation look for shared features
that customer’s value.
