About a year ago, I participated in my first triathlon. It was designed for beginners with sprint lengths: 800-yard swim, 15-mile bike ride, and 5k run. There were also events for super-sprint, duathlons, combined swimming and biking, and relays of all combinations. Upon arrival the night before the event, it took about an hour to even find the packet pick-up location. To me, the whole event was unorganized and tremendously confusing.
First, the ladies in the super-sprint only swam one lap but sprint participants swam two laps. Unfortunately, there was no buoy, marker, or person indicating where to exit the swimming area. The cycling leg was even worse as there was road construction, forcing several hairpin turns and it was raining so the road was covered in slick mud in several places. Again, there was no sign or person indicating where to exit back to the staging area and all event participants rode a different number of laps. The run, likewise, had only a cone in the middle of the sidewalk indicating where to turn for the 5k, but also included running through several inches of water under a small access bridge and competing with the landscaper vehicles on the so-called “track”.
Having never participated in a triathlon previously and knowing that this was “beginner’s” event, I had expected more direction, signs, and assistance. I had no idea where the finish line was, and I couldn’t even judge my competitive pace since I had no idea who was participating in which events or combination of events. Most surprising to me and against all odds, I finished first in my age group! But the organizers did not give any age-group awards, despite this being the most expensive race in which I had ever participated.
Here’s the lesson. You can win the race even if you don’t know where the finish line is. What counts is preparation and being ready to adjust to conditions (it was raining and a chilly 55 deg F during the triathlon). In the world of business and #innovation, we call such preparation and pivoting strategy.
Watch the 30-second video summary and read on!
Strategy for Innovation Management
Strategy is the most important element of innovation. An organization must be prepared with a game plan, even if you don’t know where you’ll end up. In innovation, we tackle strategy through three elements: markets, technology, and the product (brand or category). Many of the key strategy frameworks address these factors. You’ll want to know your own strategy as well as the dominant strategy of your competitors.
Classical Business Strategies
Harvard professor Michael Porter discusses strategy from a perspective of market scope and marketing approach. Are you selling products and services to a broad or narrow market segment? Are you trying to win by lowest cost or by uniqueness? As you answer these questions for your own organization – and that of your most important competitors – you can begin to understand your customers better and you’ll be able to create the technological innovations necessary to win. (Learn more about the Porter strategies in my book, NPDP Certification Exam Prep: A 24-Hour Study Guide.)
Broad Market Strategies
In a broad market strategy, you are appealing to as many customers as possible. Your product or service is valuable to a wide range of consumers and segments. Your customer base may be global.
The first broad market strategy is called cost leadership. In this strategy, the product or brand leads the category because it has the lowest cost of production. Often this coincides with slim profit margins, but the firm can realize significant revenues due to the large customer base. A small profit margin multiplied by zillions of customers amounts to a lot of money! Walmart deploys the cost leadership strategy effectively with large-scale wholesale and distribution practices.
At the other end of the broad market strategies is the differentiation strategy. With this situation, the firm still targets a large global market but expects sales conversions due to their unique approach to product development, technology, and marketing. Product features offer special elements or access to services that are unavailable with more conventional products.
Profit is realized by a higher selling price even though slightly fewer customers may purchase the product. Macy’s is still the largest department store in America and competes using a differentiation strategy. Compare your own shopping experiences at Walmart and Macy’s to get a sense of the difference between the broad market strategies of cost leadership and differentiation.
Narrow Market Segments
An innovation or business strategy focused on a narrow market segment designs and develops products for a set of customers that share common characteristics or needs that are not widespread in the global market. Many specialty products and those for hobbies fall into this situation. The hardware and supplies for fly fishing have a very limited market, including geographical and demographic elements. Thus the segmentation, or focus, strategy deploys product and services for a very narrow market segment.
Firms realize profit with a focus strategy through intimate knowledge of their customers. Knowing your customer better than your competitor and anticipating their needs in advance allows the firm to set a price point that recovers development costs and a healthy profit margin. The risk of a narrow market strategy is from new technologies that make the product solution cheaper to manufacture or for customers to acquire, thus becoming a product that appeals to a broad market. Typically, such technology pressures lead to commoditization of product categories and tighter profit margins.
Identifying Your Innovation Strategy
You must identify both your business strategy and your innovation strategy. The business strategy frames the overall growth objectives of the firm, especially over the long-term. How much cash does the business hold? Are there acquisition opportunities (or threats)? Is the company growing its global footprint? What sales and distribution plans are in place to manage expenses?
On the other hand, the innovation strategy identifies how the firm can design and develop new products and services to meet these business goals. A key element of the innovation strategy is risk tolerance. Is the firm willing to accept initially low sales in exchange to build a larger customer base over several years? What does a “failed” innovation look like? Is it okay for the company to expand beyond the known market to acquire new customers with different needs? Are you investing in new technologies?
As you answer these (tough) questions about the future direction of the organization, you must also address the competitive threats in your industry and in tangential industries. Borders was a great bookstore that did not adequately recognize the threat that Amazon posed to physical retailers. We still have Barnes and Noble as a physical retailer for books, but the market has narrowed too much for multiple competitors.
It is important to identify the strategies of low-cost competitors who are seeking to serve broad markets, especially during the ongoing economic crisis. Technologies that move sales to online platforms are endangering almost every business product-oriented busines model. Even the service industry is shifting to online platforms. Your task is to examine ALL competitors – the obvious ones as well as the ones that practice in industries that might seem unrelated today. Borders did not adequately anticipate online book sales, or the advent of reading on-the-go with a tablet.
A Strategy to Win
In the triathlon, the only place I could easily identify was the staging area. I knew where my bike was parked. I didn’t realize it was several hundred yards between the swimming area and the staging area or about a quarter mile from the staging area to the road. The running leg is still a mystery to me – people were passing in both directions on a narrow 3-foot wide sidewalk, interrupted occasionally by the landscapers using the same path forcing runners into the muddy grass.
How did I win my age group? I was prepared. Being prepared means you have a strategy. Your strategy must address the elements of your business in which you excel and identify the threats of all competitors. I trained hard for the triathlon by swimming at my local pool, riding my bike on a long loop from the pool, and then running back to the pool to get my car. But, during the actual event, I needed to pivot. I’m best at cycling for long, straight distances and not with lots of turns. Preparation allows you to adapt your strategy by understanding your markets and technologies, and by understanding your competitors.
Do you know your strategy? Is it time to narrow your focus or expand to serve more customers? Join me for the two-part Reset Your Strategy workshop on 18 and 20 August. Register here – special discounts for the unemployed.
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Building Innovation Leaders
I am inspired by writing, teaching, and coaching. I tackle life with an infusion of rigor, zeal, and faith. It brings me joy to help you build innovation leaders. Teresa Jurgens-Kowal is an experienced innovation professional with a passion for lifelong learning with a PhD in Chemical Engineering and an MBA in Computer and Information Decision Making. My credentials include PE (State of Louisiana), NPDP, PMP®, and CPEM, and I am a DiSC® certified facilitator. Contact me at email@example.com or area code 281 + phone 787-3979 for more information on coaching for entrepreneurs and innovators.