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Strategic Innovation

How can a company successfully attack an established market leader? How can it find new ways to compete that everyone else has missed? By breaking the rules of the game in its industry to find new sources of innovation, says this author. In a study of thirty successful attackers, he identified five ways that they think about and develop a new game plan:

1. Redefine the business. A company should ask itself what business it believes it is in, which, in turn, determines its customers, its competitors, and its competitive advantage. Companies traditionally have defined themselves by product, e.g., car companies or airplane companies. Others think of the customer function they are trying to fulfill, such as transportation. A third way of defining a business is as a portfolio of core competencies. Most importantly, a company should go through a four-step process to define itself by listing all possible definitions; evaluating each according to customers served, competitors, market barriers, and so on; choosing one; and asking how competitors are redefining their businesses.

2. Redefine the who. Ask "who is my customer?" Companies can identify customers who are good for the business and those who are bad. And they can identify customer priorities, which can change more often than needs. Companies can locate a customer segment that is not currently served by competitors and design products or services to fill that gap. But, to be successful, a company must choose a niche that eventually grows to become the mass market, and the company's way of playing the game becomes the new game in town.

3. Redefine the what. A company should first decide strategically what products or services it should be selling to its customers. Then it can determine whom to target. The company needs to understand the business that its customers are in and anticipate their needs; it must become customer-oriented rather than supply-oriented. To become a strategic innovator, a company has to be the first to identify new or changing customer needs and priorities and find better ways to satisfy them.

4. Redefine the how. A company can build on its existing core competencies to create a totally new product or way of doing business. It can share competencies across business units, reuse a competence from one unit to create a new business, and expand competencies as it learns new skills.

5. Start the thinking process at different points. In thinking of new ideas and ways to do things, managers need to broaden their perspective and change their angle of focus. If a company usually thinks first of the customer, it should start thinking first of its unique capabilities or of what needs it could serve. It can also examine different definitions of its business in light of new customer segments, new customer needs, or new ways to apply core competencies.

According to Markides, companies can use any one or a combination of the five approaches to kick-start strategic innovation. Ultimately, a company must institutionalize innovation so that it occurs every day and identify obstacles that hinder the company's entrepreneurship.

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