Their Approaches To Innovation Commerce Essay

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No matter how hard companies try, their approaches to innovation often don't grow the top line in the persistent, profit-able way that investors or even outsources expect. For many companies, there's a huge difference between what's in their business plans and the market's expectations for growth.

Introduction

Business growth in today's intensely competitive environment is a harsh dispute and a tough challenge, thus innovation is required along with huge effort and good external and internal coordination to success.

Growth does not mean bigger size; however, it means bigger value. Also, it does not mean to hit the records in a short period of time; but it means moving up confidently and wisely.

The essence of growth is to maintain competitive advantage over a long period in a way that competitors can't imitate, and there are many strategies and approaches to achieve this.

Externally, companies can be involved in some strategic growth strategies like: product development, market development, market penetration, and diversification. Some of the implemented techniques are: mergers and acquisitions, joint ventures and alliances, agreements, licensing, and outsourcing.

Also, companies must examine the micro-environment and detect any changes regarding customers' needs or taste, competitors, and suppliers.

Companies can rely on analysis like: SWOT; In order to evaluate company's situation and create a fit between the internal inputs and external conditions for a better output quality.

Internally, companies must be aware of the effect of leadership and culture on performance. All people in charge should participate in creating effective office policies in order to create a good work atmosphere where people are motivated and stimulated to innovate and be productive.

Of course, innovation is the leading force to growth and profitability, because it is the core of competitive advantage. Innovation means creativity and offering new ideas or a unique set of values and attracting customers by shifting their attention away from competitors.

Furthermore, as mentioned earlier innovation is highly related to leadership style and company's culture. Management's attitude determines the level of innovation involved in the business.

And -as all new ideas- measurement is a must! Innovation should be measured based on the combination of ideas involved and evaluated based on past performances. Metrics are of future performance, they indicate whether the right inputs are coming into the innovation process, and what they'll be in future. However; this task is not as simple as it sounds because there is always a high risk involved in new ideas.

That's why, it is said: growth is not that easy! It involves high risks, huge efforts, extensive researches, and high level of coordination with a touch of creativity.

Motivation of the Study

Recently, a study published by Larry Selden and Ian C. MacMillan, has highlighted a fact that "it takes more than good intentions to innovate"

Innovation is a necessary ingredient for sustained success-it protects the tangible and intangible assets against the erosion of the market.

Sometimes, organizations mislead the way during the journey of growth and overcome the must of innovation. Innovation is imperative to grow your top and bottom lines. Innovation produces changes that are essential to survival of the company.

To add up, another article that was published by, Alfred Marcus called "Persistent Winning and Losing - Be the best not the biggest", is being considered also in the blue print for this research paper.

Marcus divided the companies in term of growth into two groups: companies who performed better than their competitors for a short period of time, and those who maintained their growth for a long period of time.

Objectives of the Study

Innovation as a process:

True, innovation needs freedom, but it also needs control and supervision. And it requires creativity but it also demands value creation. A good innovation process guides ideas from commercialization. It is a balance of freedom and discipline.

Innovation process starts with creating the setting for ideas to flourish, and then have a net to capture the ideas as they emerge; have proactive management of the innovation portfolio, and procedures to bring the ideas to market.

Measures - the arena of innovation:

It is extremely important to measure whether the company has the right setting for ideas to the value created from innovation. These measurements reflect the health of the innovation in the past

Metrics are of future performance, they indicate whether the right inputs are coming into the innovation process, and what they'll be in future.

Motivating people to take risks:

The best reward is to recognize the person or team. A team can be rewarded by tickets to a hockey game rather than member "prizes". A person with viable idea will be more motivated if upper management shows support (verbally and by committing recourses).

As innovation becomes riskier, setting milestones becomes harder and they should be determined only at the end of the project. People expect to be recognized by their efforts and to be fairly compensated for the value created.

Internal efficiency - Value chain analysis:

Which was advised by Porter (1985), described the within the organization that go to makeup a product or a service. It allows an organization to ascertain the costs and value that emanates from each of its vale activities.

Findings (Body)

My humble research here will be related to what is behind-the-scenes for every growing organization. Lots of articles discussed the strategies implemented in a more practical way. And here I will focus on the theoretical part of growth. How growth is achieved, what are the different strategies of growth, how they are implemented, what are the needed analysis to keep in touch with internal and external changes, how to grow in a competitive environment and how to overcome competitors, how to minimize risk throughout the whole process, and finally, what are the valuable internal assets that help to achieve that, like leadership, culture and values, and how those motivate individuals and affect innovation.C:\Users\User\Desktop\Ansoff_Matrix.jpg

Corporate level strategy:

This strategy sets the direction in which the organizations will go and it answers the questions: "why we exist, how we'll achieve our purpose, how resources will be allocated?"

All organizations wish to maximize their shareholders value. And this value can be obtained through persistent growth techniques. (page 220)

A.1 Growth strategies: (page 221)

In order to grow organizations can pursue a number of different strategies depending on the level of risk they are prepared to tolerate, their resources and capabilities, and their management expertise.

Ansoff devised a matrix to analyze the different strategic directions organizations can pursue:

Figure A.1

Market penetration: increase market share in existing markets using existing products

Market development: entering new markets with existing products

Product development: developing new products to sell in existing markets

Diversification: developing new products to serve new markets

The first three strategies are relevant to organizations that operate within the boundaries of an individual business. However, diversification broadens the scope of activities into different businesses.

Table A.1

General characteristics

Market penetration

Product development

Attract new customers

Increase the usage of existing customers

Relies on organization's existing resources and capabilities

Low risk

Focus on product quality, services and promotions

Innovation is crucial

Changing consumer markets

When product life-cycles is short

Expensive with high risk of failure

Needs active monitoring for customer needs

Market development

Diversification

Relies on organization's existing resources and capabilities

Targeting new customer segments

New geographical areas

Devising new uses for the product

Slight changes might be needed to fit market (social/ cultural adjustments)

Less experience in new markets creates risk

Broader scope of activities

Unrelated diversification: greatest level of risk

Related diversification: connected through value chain, Reducing the reliance on one market which reduces risk

A.2 Implementing growth strategies: (page 230)

These four dimensions can be implemented through several strategic decisions like; mergers and acquisitions, internal developments, joint ventures, and strategic alliances.

Mergers occur when two organizations join together in a single organization to share their combined resources. This type of decision will help to complement both efforts by strengthening their geographical coverage and reach different clients.

Acquisitions occur when one organization seeks to acquire another, often smaller, organization. This acquisition may be in the interest of both organizations, where the acquiring company has financial resources and the acquired-firm possess proprietary technology but needs funds. It may be in a form of shares of the new organization or in cash payment.

Internal development (organic growth). This involves the organization using its own resources and developing the capabilities it believes will be necessary to compete in the future. However, many argue that this approach takes a lot of time while the product life cycle is becoming shorter.

Joint venture occurs when two organizations form a separate independent company in which they own shares equally. This is where international marketing usually get involved.

Strategic alliance when two or more separate organizations share some of their resources and capabilities but stop short forming a separate organization. The idea is to share knowledge that couldn't be possessed before.

A.3 Portfolio analysis (Boston consulting group BCG Matrix): (page 239)

This analysis can be seen as a tool of measuring growth compared to industry and competitors, and how resources are allocated in order to achieve targeted positions.

BCG plots organizational strategic business units (SBU) according to its industry growth rate (attractiveness) and its market share (competitive position). Each SBU is represented by a circle which represents the amount of revenue generated by the unit.

Figure A.3

C:\Users\User\Desktop\growth_share_matrix.gif

Stars: business units that are characterized by high growth and high market shares.

Cash cows: business units that have high market shares in low-growth or mature industries.

Question markets (problem child) businesses which compete in high-growth industries but have low market shares.

Dogs: businesses which have low market shares within low-growth industries.

This analysis is useful to measure the competitive position by assessing business strength/ weakness.

A.4 SWOT analysis: (page 117)

SWOT analysis refers to strength, weaknesses, opportunities and threats. Strength and weakness refer to the organizations internal environment over which the organization has control. Strengths are areas where the organization excels in comparison with its competitors, while weaknesses are areas where the organization may be at a comparative disadvantage. Opportunities and threats refer to the organization's external environment over which the organization has much less control. SWOT analysis can usefully conduct once an audit of the external environment and the firm's own internal environment has been completed.

In formulating strategy an organization should seek to match its strengths and weakness to the opportunities and threats it faces in its external environment. This analytical audit provides the organization with a better understanding of how it might best serve its markets, but it not simply is about that, it's also about being aware of how the external environment may evolve. Over time these can move in different directions, making strategy formulation problematic.

For that we can combine the tools of analysis drawn from the general environment, the competitive environment and an internal analysis of the organization to produce a SWOT analysis.

Business Level Strategy

The organization sets the overall or corporate strategy and the role of the business unit is to devise a strategy which allows it to compete successfully in the marketplace and to contribute to the corporate strategy. At this point, the question asked is: How are we going to compete in our chosen business?

Business level strategy is a means of formulating a competitive strategy at the level of individual business unit.

B.1 Sustainable competitive advantage: (page 4, 138)

Competitive advantage may usefully be thought of as that which allows an organization to meet customers' needs better than its rivals. Its resource may derive from a number of factors including its products or services, its culture, its technological know-how, and its processes. To be sustainable, however, the competitive advantage must be difficult for competitors to imitate.

A sustainable competitive advantage is about performing different activities or performing similar activities in different ways. In other words the company must be capable of producing value to the consumer that is recognized as being superior to that of its competitors.

An organization's resources must have four attributes to provide the potential for a sustainable competitive advantage:

It must be valuable: they provide efficiency and effectiveness. Porter's five forces and SWOT analysis seek to identify these resources that exploit opportunities.

It must be a rare resource: one of the rare resources is leadership.

It must be difficult to imitate

There should be no strategic substitute for this resource (substitutability)

B.2 Generic Competitive strategies: (page 185)

Porter argues that competitive strategy is about developing a defendable position in an industry which enables you to deal effectively with the five competitive forces and thus generate a superior return on investment for the firm.

To achieve superior value that is recognized by the consumer the firm can do one of two things. First, it can offer its product/ services at a lower price than rivals but without sacrificing the quality of the product. Second, it can produce a differentiated product which consumers perceive to be of better value than rivals' offerings, and thus charge a premium price for its goods. Also, the firm must choose which market segments it wants its products to compete within.

Figure B.2

Porter combined these strategies in the Three Generic Strategies Model. It is important to mention that generic means it is applied for different types of organizations in different industries.

C:\Users\User\Desktop\screenshot.gif

Overall cost leadership strategy

This strategy is when an organization seeks to achieve the lowest cost position in the industry without sacrificing its product quality. A cost leadership strategy requires an organization to pursue:

Aggressive construction of efficient-scale facilities

Vigorous pursuit of cost reductions from experience

Tight cost and overhead control

Avoidance of marginal customer accounts

Cost minimization in areas like R&D, service, sales force, and advertising

Of course, risk is associated with every strategic decision at any level. And for the cost leadership strategy, risks are:

The strategy can prove expensive as the organization continually updates its capital equipment.

There is also the ease of imitation by competitors.

Change in technology may invalidate past investments in capital equipment and allow competitors to take market share.

Customers tastes may change, which results in them being less price sensitive and more willing to pay for a differentiated product with higher prices.

Differentiation strategy

Differentiation strategy is aimed at a broad market and involves the organization competing on the basis of a product or service that is recognized by consumers as unique. This difference must be sufficiently valued by consumer's it the extent that they are willing to pay a premium price for it. A major benefit of producing a differentiated product is that rivals will find it difficult to imitate. The aim of the differentiation strategy is not to focus primarily on costs, it is clearly important that the organization has some knowledge of its cost structure such that any differentiation achieved can be set at a price customers will be prepared to pay, and that easily covers the cost of the differentiation.

Organization may differentiate their product offerings in a variety of ways:

Design or brand image.

Customizing products to suit consumer's specific requirements.

State-of-the-art technology.

Marketing abilities.

Reliability.

Product engineering skills.

Creativity.

Customer service.

As with an overall cost leadership strategy, a differentiation strategy has inherent risks.

The high price charged for differentiation is not so far above competitors that consumers perceive the difference as not worth paying, it results in reduced brand loyalty.

Buyers may decide that their need for a differentiated product has declined.

Competitors may narrow the attributes of differentiation which results in consumers being faced with a viable substitute.

Focus strategy:

This strategy is aimed at serving a segment (or segments) of the market by undertaking either cost or differentiation strategies. Porter argues that by focusing on a narrow segment or niche of the market, the organization may be better placed to meet the needs of buyers than competitors who are trying to compete across the whole industry. Focused organizations can achieve competitive advantage.

Risk involved with focus strategy:

The segment may not be durable and customer preferences may change.

Broad-based competitors believe the segment represent an attractive sub-market and outfocus the focuser.

The difference between the segment and the main market narrows, leaving the focused-based competitors at a disadvantage.

These strategies determine the competitive stamina, and competition is one of the major factors affecting organization's growth.

Functional Level Strategy

Functional strategy deals with the lowest level of strategic decisions. It includes all activities regarding human resources, R&D, finance, operational plans, marketing and other divisions along with the tactical marketing plan for a specific product market.

At this stage, competitive advantage and synergy are found through a well-integrated program of marketing mix elements (4Ps: product, price, place, promotion) tailored to the needs and wants of potential customers in a targeted market.

In order to link this strategic level with the rest of our essay and not to drift away from the growth context, functions and marketing decisions will not be discussed in details. However, our focus will be on the internal factors/ environment which affect these decisions, like; leadership style, organizational culture, motivation, reward system, innovation, and level of risk.

C.1 Leadership: (page 340)

Leadership is concerned with creating a shared vision of where the organization is trying to get to, and formulating strategies to bring about the changes needed to achieve this vision.

Leaders are involved in many activities, such as, dealing with change, developing a vision and setting a direction for the organization, formulating strategy, aligning stakeholders with the organization vision, motivating and inspiring employees, and recognize and reward success.

In this untidy world, the effective leader is primarily an expert in the promotion and protection of values, and dealing with the shaping of values. Their role is to build consensus throughout the organization. Their actions are a part of a guiding, directing and signaling process that are necessary to shape values in daily operations.

So we can see that leadership is the heart of every organization, leaders help to create the internal office culture. Based on leader's skills individuals perform. One of the important aspects is the reward system, by which the leader can stimulate employees to perform better.

The reward can be with sentimental value, or it can be through materialistic value such as bonuses, gifts, or promotions.

The leader can bring a touch of creativity and innovation to the company or he/she can be traditional and motivate employees to follow the old ways.

C.2 Organizational culture: (page 330)

Organizational culture can be defined as the pattern of basic assumptions that a given group has invented, discovered, developed in learning to cope with its problems of external adaptation and internal integration. In simple words, it is the values and believes that members for an organization hold in common.

This culture can include such things as dress code, symbols, office layout, attitudes, or certain norms.

A strong sense of culture or shared values can help to coordinate, motivate, and guide individual behavior (how they perceive, think, feel). This invariably excludes the need for formal control systems to manage employee behavior, because people function better based on trust and motivation, not by force.

An organization culture can be a force for change and innovation but it may also be an impediment to change. As we discussed before, leaders can affect the direction of an organization, they can be risk takers and try out new ideas and lead the company to success, or they can be conservative and stick to the old school and avoid risk.

C.3 Motivation: (pages 313, 343, 349)

As it has been discussed earlier, leadership and motivation are interrelated factors. Motivation is a trait found in almost all effective leaders, which is a desire to achieve for the sake of achievement. People who are motivated will be passionate about their work and always seek to improve what they are doing. They constantly seek to measure their individual performance and that of their organization. They are committed to their organization and will not be readily influenced to move for any financial gain. In seeking to stretch themselves, motivated individuals will also be looking to improve their organization.

Any organization needs change, and change requires an adjustment in people's behavior. Leadership helps motivate people by satisfying our human needs for achievement, recognition, and a sense of belonging.

C.4 Innovation: (page 371)

Innovation is the creation of better or more effective products, processes, services, technologies, or ideas that are accepted by markets, governments, and society. Innovation differs from invention in that innovation refers to the use of a new idea or method, whereas invention refers more directly to the creation of the idea or method itself.

Stacey suggests eight steps to help leaders encourage innovation and create new strategic direction:

Develop new perspective on the meaning of control; innovation may be more likely to come about if leaders allow self-organizing processes and learning groups to develop.

Design the use of power, the group dynamic that is conducive to complex learning occurs when the leaders power is used to create an environment in which the assumption that are the basis for decision can be challenged, and there is opened questioning of the status quo.

Encourage self-organizing groups.

Provoke multiple cultures, this allows new perspectives to proliferate across the organization by moving people from different business units and functions' to create a more culturally diverse organization.

Present ambiguous challenges instead of clear long-term objectives or visions.

Expose the business to challenging situations.

Devote explicit attention to improving group learning skills.

Create resources slack, when top management invest sufficient time, effort, and organization resources a new strategy directions and innovations in the organization will occur.

C.5 Risk and environment: (page 42)

The true way of growth and success is to try to keep the general environment under control, and to achieve that we have to learn about three important concepts scanning, monitoring and forecasting the environment.

The purpose of scanning and monitoring the general environment is to try to discern changes, however small, that have the potential to disrupt an organization competitive environment, it is up to the organization to monitor them and see if they might become a trend that can affect its industry.

1-Scanning the organization

Most environmental conditions facing organization are complex, uncertain and prone to change and they are complex because of the sheer volume of data that exists in the environment. Discontinuities refer to the threats faced by organizations and industries that have the potential to undermine the way they do business. We have three goals for an analysis of general environment suggested by Fahey and Narayanan

Analysis should be easy to understand

Should provide important intelligence for strategic decision makers

Analysis should facilitate strategic thinking in organization.

We must mention that scanning has been made cost effective with the advent of the internet. At the same time it has provided an opportunity to access a wealth of data which requires time and effort to structure properly.

2-monitoring and forecasting environment

While scanning the environment monitoring takes place it can be seen as the activity that follows these initially disparate signals and tracks them as they grow. If scanning does not exist we wouldn't be able to monitor the environment.

Lastly, the purpose of scanning and monitoring the general environment is to aid the organization in developing viable forecasts of future trends before they become an unmitigated threat.

Risks, structural uncertainties and unknowable are the three main types of uncertainties that an organization could face

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