Definition of strategy innovation

This often involves changing or innovating the business models – the template on how the firm is going to make money - to make a company more competitive. Strategy innovation requires changing or bringing new value propositions, services and production processes.

There are four different types of strategy innovation

a) The first one is imitation, where there is little or only marginal innovation involved. In this scenario, companies mimic value propositions and business processes currently known in the industry. The success of such an approach may depend on factors that are external to the company – such as industry growth.

In a growing industry, for example consumer electronic goods sector, there may be opportunities for many imitators. Examples of such products are tablets, the portable computer devices, and there are various brands on the market including Apple’s iPad, Samsung’s Galaxy and Motorola Xoom.

Generally, the consumer electronics goods sector, but probably not at the high-end, profits are often transitory, as competitive differences between the companies in the industry are minimal or non-existent

b) A second type of strategy innovation is market-based strategy innovation that is focused on bringing value propositions new to the industry or by diversifying into neighbouring markets and segments by seeking demand for different products and services in the sector. For instance, Nintendo’s ability to make a success out of the Wii was partly due to the fact that it made games (consoles) for a wider market. Instead of just producing games, they created a wide-range of applications, such as fitness and exercise programmes for the Wii, making use of a board that weighs you and monitors the movement of your body when you stand on it.  The underlying technologies that went into creating the Wii were not entirely new, but the value proposition and the market definition was new to the industry.  Market definition here involves issues of who the customer is, and what does she want in terms of features, prices, access, and delivery.

c) In contrast, the third type of strategy innovation, namely technology-based innovation involves using management processes and technologies not seen in the industry.

Reconfiguring the activity chain and system by Toyota meant that the company had a critical look at the way cars were designed, developed, manufactured and retailed. This then led to a more effective and efficient set of internal activities and management practices such as just-in-time approaches that were interfaced with external supplier and distribution activities.

Such an approach by Toyota, particularly in relation to its manufacturing system, shifted the advantage in the industry in its favour, as a result of increased efficiency and productivity at its car plants.

The cars that were manufactured by Toyota were not particularly innovatively designed or targeted a new segment – they were targeted at the same mass market segments as the rest of the industry, but the reconfiguration of the activity chain allowed Toyota to gain an advantage by providing well-crafted and quality products, in comparison to what its main competitors offered at that time.

d) The final type, market and technology-based innovation involves combining value propositions new to the industry or creating a new market with the help of technology and new ideas.

Groupon, the social networking-based group purchasing website provides a new way of offering discounts to its customers who are also subscribers of the site. Deals cover meals in restaurants and beauty treatments.

Subscribers buy time-limited vouchers online for local businesses.  Groupon keeps half the money and the rest goes to the business (which also gets a lot of new customers).

A specific number of people must sign up to activate the discount.  Groupon's success is due to users referring the site to friends over Facebook. [1]

The company’s dramatic growth reflects its early success in building a market-leading position on the internet’s new frontier – the highly fragmented but lucrative market for advertising, coupons and other marketing from local businesses that was once dominated by local newspapers and Yellow Pages directories.

It has done so with a pay-for-performance model, made possible by the internet, that goes beyond the traditional marketing methods used to win new customers.

"It is all performance based," says Mason [CEO of Groupon]. "They are only paying for the customers that come through the door. There’s never been anything like that before, and that’s why I think we’ve been so successful.” [2]

Groupon is making money by giving companies a new opportunity to market themselves and gain new customers - the value proposition - by using social networking and the latest technology.

In other words, a whole new market with its value propositions, activity models and ecosystem. [3]

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