Wednesday, August 1, 2012

How to Differentiate through Innovation - here is a strategy that works



Lead Question: How to create an Innovation Strategy that will lead to Differentiation ?

I took up the role of Innovation Differentiation Leader at a Multinational Company two years back. Our team's focus was on growing the business in emerging markets through product innovation. I spent the first 30 days defining and getting acceptance from folks on (a) what should be the focus of our innovation efforts and the next 30 days on (b) if product differentiation is the purpose of our innovation, then how should we define and achieve sustainable differentiation ?. I share the general wisdom on this topic, my own experience and the key learning here.

I realized that the first and most important step is to decide what particular kind of value we want to deliver to whom.

Differentiation 

When it comes to strategy, I would like to hear Porter's thoughts first. I came across three excellent tips from Porter on differentiation - differentiate yourself, deliver value and be consistent.

Read Rowan Gibson's interview with Michael Porter, hosted at Innovation Excellence,


# 1. Differentiate yourself 
 It’s not just a matter of being better at what you do-it’s a matter of being different at what you do.
Increasingly, the companies that will be the true leaders will be those that don’t just optimize within an industry, but that actually reshape and redefine their industry. The important thing is to try to shape the nature of competition, to take control over your own destiny.
# 2. Deliver Value
A good strategy makes the company different and gives it a unique position. And a unique position involves the delivery of a particular mix of value to some array of customers which represents a subset of the industry. 

# 3. Be consistent

It’s not good enough just to be different. You’ve got to be different in ways that involve trade-offs with other ways of being different. In other words, if you want to serve a particular target customer group with a particular definition of value, this must be inconsistent with delivering other types of value to other customers. If not, the position is easy to imitate or replicate.
Porter also advises when is it time to change at the Strategy 

  • when the fundamental needs of the customer group shift. 
  • or when the particular type of product is no longer distinct. 
  • or when the trade-offs are eliminated by new technology or customer changes.

Strategy to Innovate across the Value Chain


The only way to have an advantage is through innovation. But this innovation has to involve a consistent strategic direction. There has to be a strategic vision within which you are innovating. A company has to have something distinctive at the end of the day that it is reinforcing.
To me (Porter), innovation means offering things in different ways, creating new combinations. Innovation doesn’t mean small, incremental improvements – these are just part of being a dynamic organization. Innovation is about finding new ways of combining things generally.
The essential core of strategy is cross-functional or cross-activity integration. It’s not the ability to come up with a better production process or the ability to come up with a great ad. It’s the capacity to link and integrate activities across the whole value chain and to achieve complementarities across many activities. It’s where the way you do one thing allows you to do something else better.
In this context, i like the framework on Innovation Value Chain proposed by Hansen & Birkinshaw (HBR) - organizations need to have clear strategies to achieve excellence in all three areas -  idea generation, conversion and diffusion.
My Experience - what worked and what didn't


In the first few months of my role, i focused on improving our idea generation capacity. I conducted focused ideation sessions and trained technologists in divergent and convergent thinking techniques. I also exposed our technologists to a wide variety of opportunities that were identified by the Marketing team. In a short period of six months, I could train the team in idea generation techniques and we came up with good ideas.
In the next twelve months, i shifted my focus to Idea Conversion. Here my aim is to quickly get value out of the idea. Align the idea to a customer need and / or a business growth opportunity. The conventional stage-gate process that we had for managing the conversion of idea into value was not very helpful - it was very stifling - the team was increasingly getting frustrated. I felt the need for bringing in some flexibility - ask more qualitative questions rather than quantitative ones till Gate 2. We incubated our ideas till Gate 2 - we demonstrate proof of concept (POC) and showcase the new idea to the business.
But the real challenge was in Idea Diffusion - how to disseminate the new idea across the company and the get buy-in from the key stakeholders - this was not easy. Our idea to innovation conversion ratio suffered because we were poor at idea diffusion. I am yet to find the right way to do this - I have been experimenting with many different approaches. Hence I have to use many words to discuss this and I will save this discussion for my next blog post.
Key Takeaways
  • The ultimate aim of innovation is differentiation.
  • The most critical thing is to decide on what value we wish to create to whom.
  • To realize the value, we need to have strategy to excel in all phases of innovation across the value chain - Idea generation, conversion and diffusion.

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