7.3: Why Innovate?

Innovate to Capture Markets

Innovation can be a key strategy to stay ahead of the competition. Firms who sit still, perhaps satisfied with their success, will find themselves outsmarted and left behind, with the competition winning over their customers. An innovation strategy coupled with an entrepreneurial orientation will help keep customers buying.

Automobile manufacturers have used this strategy of innovation for years. Every year, a new innovation of nearly all car models comes out in the fall season. The new year’s model may look a little sleeker, have some safety improvements, or be connected to the internet. These innovations entice consumers to sell their existing car to have the latest look or technology. Cell phone manufacturers do the same thing, coming out with a new model almost annually, with more memory, a faster processor, a better camera, etc. Where would Apple be today if they stopped with the iPhone 7? Drug manufacturers are always innovating by doing research to find the next medication to slow Alzheimers or cure skin cancer.

Figure 7.3: Apple’s iPhone has continued to boast new features since its initial release in 2007.

Innovation is usually the strategy of new startup IT companies. A new software program is developed or a new way to do interactive video games can meet a need or provide a service that consumers want. It is the innovation strategy that propels the organization forward. This is not to discount the need for a business-level/competitive strategy such as focused differentiation, as the firm still needs to determine their business-level strategy and optimize it. Often a differentiation strategy, broad or focused, can be used for a new, innovative product or service and priced high, because the competitors are few or none.

Joseph Addison, an eighteenth century poet, is often credited with coining the phrase “He who hesitates is lost.” This proverb is especially meaningful in today’s business world. It is easy for executives to become paralyzed by the dizzying array of competitive and cooperative moves available to them. Given the fast-paced nature of most industries today, hesitation can lead to disaster. Some observers have suggested that competition in many settings has transformed into hyper-competition, which involves very rapid and unpredictable moves and countermoves that can undermine competitive advantages. Under such conditions, it is often better to make a reasonable move quickly rather than hoping to uncover the perfect move through extensive and time-consuming analysis.

The importance of continuous learning also contributes to the value of adopting a “get moving” mentality. Success in business often depends on executives learning from a series of competitive and cooperative moves, not on selecting ideal moves. In some circumstances, advantages can be created by taking decisive action, even if the decision is based on incomplete information.

Blue Ocean Strategy

It is best to win without fighting. – Sun-Tzu, The Art of War

A blue ocean strategy involves creating a new, untapped market rather than competing with rivals in an existing market (Kim & Mauborgne, 2004). This strategy follows the approach recommended by the ancient master of strategy Sun-Tzu in the quote above. Instead of trying to outmaneuver its competition, a firm using a blue ocean strategy tries to make the competition irrelevant (Table 7.2). Baseball legend Wee Willie Keeler offered a similar idea when asked how to become a better hitter: “Hit ’em where they ain’t.” In other words, hit the baseball where there are no fielders rather than trying to overwhelm the fielders with a ball hit directly at them.

Nintendo openly acknowledges following a blue ocean strategy in its efforts to invent new markets. Perrin Kaplan, Nintendo’s former vice president of marketing and corporate affairs for Nintendo of America noted in an interview, “We’re making games that are expanding our base of consumers in Japan and America. Yes, those who’ve always played games are still playing, but we’ve got people who’ve never played to start loving it with titles like Nintendogs, Animal Crossing and Brain Games. These games are blue ocean in action” (Rosmarin, 2006). Other examples of companies creating new markets include FedEx’s invention of the fast-shipping business and eBay’s invention of online auctions.

Firms that create blue oceans experience a temporary competitive advantage. How long “temporary competitive advantage lasts” in a blue ocean strategy depends on the particular combination of internal and external factors that create the opportunity in the first place. Needless to say, the more successful a company is with a blue ocean strategy, the more attention they will receive from potential competitors who want to get into a position to benefit from those same advantages.

It’s a big ocean out there! When pursuing a blue ocean strategy, executives try to create and exploit vast untapped markets rather than competing directly with rivals. See several examples of firms following a blue ocean strategy below.

Table 7.2 Blue Ocean Strategy

Examples of Firms Following a Blue Ocean Strategy

The interactive features of Nintendo’s Wii transformed playing video games from a hobby for the hardcore gamers into a treasured family event.

Coffee shops were once the domain of old men, insomniacs, and chain-smoking urban hipsters. By reinventing coffee shops, Starbucks made the $4 latte a must-have item for college students, business people, and soccer moms.

At a time when cars were only for the wealthy, Henry Ford envisioned cars that were affordable to the typical American. Ford priced his vehicles so that his assembly line workers could afford them.

eBay’s invention of online auctions extended the auction experience—and the chance to buy that rare Elvis plate—to anyone with internet access.

Golf can be frustrating to even skilled players. Callaway’s creation of the Big Bertha club with an oversized head made golf appealing to a whole new set of weekend warriors.

A classy, affordable wine for novice wine drinkers? Casella wines (maker of Yellow Tail) steered clear of wine snobs and sommeliers and instead created fun and simple tastes for the masses.

Key Takeaway

• Firms must continually innovate to stay ahead of the competition. Blue ocean strategy is one way that innovation can capture new markets.

Exercises

1. Find a key trend from the general environment and develop a blue ocean strategy that might capitalize on that trend.

References

Kim, W. C., & Mauborgne, R. (2004, October). Blue ocean strategy. Harvard Business Review, 76–85.

Rosmarin, R. (2006, February 7). Nintendo’s new look. Forbes. Retrieved from http://www.forbes.com/2006/02/07/xbox-ps3-revolution-cx_rr_0207nintendo.html.

Image Credits

Figure 7.3: Fotois.com. “iPhone 4S Unbox.” CC BY 2.0. Retrieved from https://flic.kr/p/avJQdj.