Businesses are resource limited and must determine where and in what way to allocate resources to achieve business mission objectives. This translates to why it is so important for business to be creative and actively plan for innovation correctly.
Innovation is a change of direction and it alters investment policy so it is essential from the onset for the business planner to be clear about the current state of product “portfolio”. The planner must recognize how to balance the current products against possible policies for future development and their likely implications in terms of cash flow, market share, return on capital employed and other key components of company objectives.
A successful behavior trait taking hold for successful companies is to develop business models to assess a strategy. These models provide change models expanding on issues such as “what”, that provide a picture of the company now of analysis; and “which”, that suggest alternative action paths for the company to take. Both of these models provide information to build a more complete picture of events within the business and options for future development.
Managers should make use of these models and many don”t. Those that do are more likely to be successful and have the ability to minimize risk of failure. Business managers who do are far more likely to survive. For planners and non-planners there is not a single universal technique that can be applied in all situations.
Use of strategic planning models can be a very important behavior trait for successful companies. Companies that do not use strategic planning models usually don”t because the model does not offer what the customer wants. It may be inadequate because of its analysis of the relationship between company resources and markets. These result in advice about overall investment decisions rather than about the specifics of how to manage the alternatives in the market/business relationship can be shortsighted, since there are always alternatives in order to gain the maximum competitive advantage. Since change is so an important aspect of business continuity, many models don”t necessarily provide assiduous suggestions for what type of change should be considered.
An example of modeling one such model in use by Boston Consulting Group (BCG) subdivides their profit centers into four main subdivisions. This breakdown does help in planning for strategic investment matters but it does not assist the planner in identifying a single product development proposal to investigate further from a number of alternatives. The matrix system comprises the following:
1) Stars, which are products generally with negative cash flow
2) Question marks, which are products with generally negative cash flows but with low relative market share in growing markets
3) Dogs, which are products unlikely to be generating substantial positive cash flows due to the fact that they are in slowly growing markets with low relative market shares
4) Cash cows, that are products that generating cash which have high relative market shares and are established in slowly growing markets.
BCG model like the previous statement in the above paragraph does not define the product enough and does not create opportunities to explore alternatives in which to improve profitability or market share.
The growth concept is divided into five separate levels one being dominant, strong, favorable, tenable and weak and relates this to the stages of market development. The stages are embryonic, growing, mature, and aging, which produce a series of strategic guidelines for company development. The market growth concept provides valuable guidance about broad policies, replacing the concept of market attractiveness in the GE matrix with stages of market growth.
A PLC (product life cycle) are frameworks for planning. It suggests that specific changes in product policy should be followed after the initial product introduction. A major problem is that few products follow “typical” PLC curves. This implies that the organization evaluates the likely progress of each facet of the product”s performance over the ensuing time scale to identify particular areas where investment should be concentrated without a clear indication as to whether that product will follow the predicated path of the PLC.
There are several other types of commonly used models and analysis (Product viability, Market newness, technology position, opportunity cost risk, and the Ansoff matrix) that can be employed each having strengths and weaknesses and should be applied to achieve a specific outcome. By carefully defining the likely market attractiveness for innovation and the resource environment for innovation, management can identify the types of innovation that are appropriate for a particular business unit.
The key components of the market and resource environments are:
1. Market attractiveness is degrees of synergy, market size, barriers to diffusion, the expected product life and the stage of technological development.
2. Resource components are likely to be market position and personnel resource, which combine to yield a definition of the company core competence.
By establishing a weighting scheme the analyst can create a three-by-three grid of market attractiveness versus resource environment to provide a measure of the likely ability of the organization to carry out particular types of innovation and the expected profitability of the proposed innovation policy.
Personnel are the hearts of a continuing effective innovation policy. But, it is just as important that management and leaders are made aware of their unique roles and how crucial their behavior is upon the organization – ultimately the success of the company.
Managers must be able to stimulate conversation and innovation. Leaders must be clear on how paradigm shifts and leadership is interwoven.
Managers must be able to demonstrate paradigm pliancy if they are going to expect others to practice it. The more active managers can be in the search for new paradigms, the more likely those managers will be to have people work with them. An example made in the paradigm text indicated that the piston engine was on its way out in the 1970″s because of the mandates on for a cleaner environment. Once the engine engineers stepped outside the old boundaries, they found that electronics could help to resolve the issue.
Managers must facilitate and encourage cross talk. More and more the answer to a particular problem will lie with someone else and if you don”t apply the cross communication, that idea won”t be brought to surface effectively.
It”s especially important that managers listen. Even when some ideas sound off the wall, you want people to approach with their ideas in an on-going fashion. On the other hand, the merger of these ideas though on their own may seem a bit far-fetched; when combined they offer leverage for the manager to generate great and unique solutions.
In the text, Paradigm, the author Joel Arthur Barker defines a leader, as a person one will follow to place one wouldn”t go by himself or herself. To be successful in the twenty-first century means that leaders will need to be competent on managing within a paradigm and leading between paradigms. One without the other will not work. Successful leaders tend to lead to new paradigms in a variety of ways.
Leaders need to be aware of the pattern of choices that occur during paradigm shifts. Typically three opportunities emerge:
1. Keep the paradigm; change your customer
2. Change your paradigm; keep your customer
3. Change your paradigm; change your customer
Warren Bennis set forth a list of characteristics of leaders in the May 1990 issue of training magazine.
The manager administers; the leader innovates.
The manager has a short-range view; the leader has a long-range perspective.
The manager asks how and when; the leader asks what and why.
The manager has his eye on the bottom line; the leader has his eye on the horizon.
The manager accepts the status quo; the leader challenges it.
Roger Milliken, CEO of Milliken and Company, a privately held textile company in South Carolina demonstrated true leadership when he began his company drive to world-class status in the early 1980″s Though most industry experts predicted the demise of the U.S. textile industry, Milliken continued to pursue excellence. In 1990 Roger Milliken won the noted Malcolm Baldridge Award demonstrating excellence.
Employees operate at different levels, some are visionaries (don”t have people following them), some are leaders, some are managers, some are leaders and even a smaller percentage have all four roles – remarkable is a company that has an individual having all four characteristics.
The most important factor in sector creating innovation is the concentration on academic and theoretical concept development, which demands a specific organizational framework. They contrast with the rapid developmental demands of performance extension, technological reorganization and process innovations and with the need for close contact with the market required by other types of innovation.
Therefore, three broad types of organizational patterns can be described as appropriate for components of the innovation matrix and it can be described as follows:
1. Common room – appropriate for the development of sector creating innovations
2. Rugby scrum – approaches are best for the management of performance extension, technological reorganization and process innovations and those innovations that require a close and continuing contact with the marketplace for effective control
3. Coffee shop – reformation, service, branding, design and packaging are most suited in this sector
Once a company has formulated an innovation policy it must evaluate whether to acquire the expertise from outside the organization (acquisition), to borrow it (licensing), to develop it with a partner with some specific expertise in this area (joint venture), or to concentrate on developing the knowledge internally. By studying how knowledge has been acquired and the problems associated with each route, it is then possible to come to some general conclusions about the best overall method for developing competitive advantage in the 1990″s and beyond.