3 questions

10 Building a strategic managing innovation model

Talking isn’t doing. It is a kind of good deed to say well; and yet words are not deeds. (Shakespeare, Henry VIII )

Strategic management is not a box of tricks or a bundle of techniques. It is analytical thinking and commitment of resources to action.

(Peter. F. Drucker)

Learning objectives This chapter explores:

1 Rethinking reality. 2 What is wrong with the conventional approach to strategic management. 3 Taking a new approach to strategic innovation. 4 Reviewing the business, markets and market offerings, and creation of customer per-

ceived value. 5 Basic processes of strategic innovation. 6 Characteristics of strategically innovative companies. 7 Enabling strategic innovation.

Introduction This chapter addresses the need for the management of organisations to take a strategic approach to innovation if they wish to obtain and sustain a ‘market edge’ in the contemporary business context. If top management in organisations accept that innovation is an important concern for their business they need to regard expenditure on creativity and innovation as an investment item and not an activity that can be starved of resources when business fortunes are under pressure. In increasingly over-supplied domestic markets incremental innovation, whilst sound, is unlikely to result in radical or breakthrough innovations. Boards must realise that a holistic, rather than piecemeal, approach needs to be taken to innovation management. The pursuit of profitable innovations is potentially a risky activity. If a strategic approach is adopted then most innovation projects will result in a profitable return. However, some will fail and organisations must prepare to absorb the cost.

To play safe many organisations like to operate conventional strategic blueprints and apply conventional business school approaches. In under-supplied markets this does generate

204 Linking creativity to strategic innovation

a positive outcome. Such driving ‘by numbers’ does work and is both effective and efficient. In turbulent market conditions (buyers’ markets) this is often found to be wanting. New think- ing is required. The chapter explores (see Figure 10.1):

• What is wrong with conventional strategic approaches today. • What is meant by strategic innovation. • How to design and enable a strategic innovation management model.

Figure 10.1 Building a strategic innovation model.

Building a strategic managing innovation model 205

Context Figure 10.2 presents the 13 step strategic innovation model recommended in this text.

Step 1: checking the now before thinking about the how

Metaphors have a valuable capacity to help us see the wood from the trees. To see things and relationships that concern us from a different perspective. They enable us to reframe our thoughts and stimulate creativity – the core of innovation. Before presenting some thoughts that will assist in designing a strategic innovation model it is pertinent to spend a little time thinking about key relationships through the use of metaphor. Complex relationship sets can at first be confusing and a good metaphor can often clear the way and help us understand how concepts interact.

Einstein explored the interaction between mass, space and time in his celebrated research on relativity. In his book Future Perfect Davis wrote that the world is moving from a world dominated by Newton to a world dominated by Einstein (1987). A comparable change in the business world is the move from buyers’ (old world) markets to customers’ markets and the information age. In such conditions established ideas can become constraints that block crea- tive thinking and hence innovative projects. Take the case of watches. Wind-up mechanical analogue time pieces were challenged by a market drive led by Swatch that resulted in cus- tomer demand for fashion watches. Digital watches have changed the direction of the watch market, which in turn has been challenged by the abandonment of wrist watches in favour of mobile phones. In similar vein the fasteners have morphed from buttons, laces and zips to Velcro (Lorentz and Lorentz, 2012).

Most businesses are still based primarily on the equivalent of Newtonian physics. Can they be transformed with regard to their innovative efforts if they become more Einsteinian? Let’s spend a little time rethinking the relationship between mass, time and space in the business world.

Organisations and their structures are physically dissolving and diffusing across space and time as they decentralise, globalise and morph into flexible networking systems. They used to be defined on the basis of the old world focus of mass and tangibility. Organisations used

Figure 10.2 13-step model.

206 Linking creativity to strategic innovation

to be defined on the basis of where they were. Now they are increasingly to be found in the ether. Digital technology has created a new world where the emphasis is on information and the growth of diffuse interconnecting networks such as the Internet. Information is interest- ing from an Einsteinian point of view, as it does not have mass. (See Figure 10.3.)

Rethinking time

Time is an important factor in human life and of vital importance to companies and organi- sations. Time is money. Time-poor customers demand timely service. Let us consider how time affects the market offerings (product/services). Ever since the dawn of the industrial age successive technological advances, such as Just in Time, have speeded up mass production. Sophisticated networks and logistics quickly link customers and producers. Amazon can deliver books within hours to a customer’s door. Music can be instantly downloaded from the Internet. Fast food companies work hard to keep their promise. Instant bookings can be made for planes and trains. Instant transactions can be conducted with the banks. Airlines touch down and take off in record times to avoid heavy landing fees. Companies and organi- sations that are able to bring customer-perceived value (CPV) innovations speedily to market can gain real competitive advantage. High-tech companies find that their product/service life cycles are increasingly shrinking under competitive pressure. Life has become a 24-hour, seven-day a week phenomenon. Many now expect to be served instantly by suppliers.

Rethinking space

Life is lived in space and this, like time, is under pressure. Many are space-poor and live in small flats and houses and in ever more crowded locations. Small has become beautiful to many. Basic mass-market offerings, often the only choice in sellers’ markets, are giv- ing way to increased concentration on customising market offerings to individuals who place a premium on design and brand image. Restaurants and other leisure providers have to pay close attention to customer experience factors such as ambiance and service atten- tion. Technological items such as desktop computers are giving way to sophisticated mobile smartphones. Thinner wallets are on sale now as many have reduced their use of paper

Figure 10.3 Rethinking space, time and mass.

Building a strategic managing innovation model 207

currency in favour of conducting purchases with credit and debit cards. TV sets, smartphones, watches take up less space and/or are designed to multitask, reducing the need for people to purchase additional equipment. Many TVs now offer programme recording, mobile phones are equipped with sophisticated digital cameras, and digital watches can keep a running check on their owner’s health and use of time.

Rethinking mass

As well as time and space, market offerings are also being transformed by mass. Whilst many products are becoming smaller (taking up less space) they are also becoming smarter. Bookshelves and video cabinets are being replaced by cloud locations. Wikipedia has sig- nificantly reduced the potential for hardback encyclopaedias. Digital photographs and presentations can be viewed on tablet computers and smartphones thus substantially reduc- ing the demand for projection equipment. Cars are getting lighter, providing potential for improved engine performance and speed capability.

Linking the Einstein metaphor with strategic innovation

The main thrust of Einstein’s Theory of Relativity is commonly summed up in his E = MC2 formula where E represents kinetic energy, M, mass and C2, the speed of light. With a degree of licence the formula can be related to the factors impacting on time, space and mass in com- pany and organisational domains. Let’s redefine the components of the formula as follows:

E = Management expertise and enterprise M = Market offerings (product and service packages) C2 = speed of delivering innovative products to market. Next see if the conventional approach to strategy can help.

Step 2: conventional approach to strategic innovation

In the light of the previous section there appears to be lot wrong with conventional approaches to strategy with regard to the traditional strategic factor set of content, content and tools (Figure 10.4).

Figure 10.4 Traditional strategic factor set.

208 Linking creativity to strategic innovation

Content

• Too much focus on best practices, operational effectiveness and incremental improve- ments in costs and profits.

• Too much imitation of competitor’s moves. • Too much holding onto strategic position. • Operational effectiveness is not strategy.

Process

• Strategy as adaptation of last year’s plan (no searching for new opportunities, differen- tiation and new growth).

• Planning being too formal and analytical. • Little if any creativity. • Validity of assumptions.

Tools

• Too analytical. • Focus on control. • Developed for a different purpose. • Conventional tools provide a snapshot of conventional wisdom.

The conventional factors can be matched with the adapted Einsteinian variables as shown in Table 10.1.

Table 10.1 Matching conventional factor sets with Einstein’s variables

Conventional strategic factor set Key adapted Einsteinian variables

Content Market offerings (M) Process Speed of commercialisation of innovations (C) Tools Management expertise and experience (E)

Step 3: basic processes of strategic innovation

Four key stages

The four key stages of the strategic innovation process (Figure 10.5) are:

1 visualising strategy 2 generating ideas 3 evaluating ideas 4 implementation.

VISUALISING STRATEGY

• Communicating the organisation’s vision and strategy for achieving it. • Describing the strategy.

Building a strategic managing innovation model 209

• Building a common picture and language, metaphors can be particularly powerful in this regard. Identifying possible areas of innovation; defining the kind of innova- tion that drives growth and helps meet strategic objectives. When senior executives ask for substantial innovation in the gathering of consumer insights, the delivery of services or the customer experience, for example, they communicate to employees the type of innovation they expect. In the absence of such direction, employees will come back with incremental and often familiar ideas.

GENERATING IDEAS

• Generating as many ideas as possible. • Using internal and external sources. • Taking people out of their workplace environment. • Invoking a variety of people and views.

EVALUATING IDEAS

• Applying a structured approach. • Encouraging strategic experimentation.

IMPLEMENTATION

• Addressing the barriers. • Demonstrating the need for change. • Involvement. • Communication. • Learning and acceptance of possible project failure. • Sense of urgency. • Adding innovation to the formal agenda at regular leadership meetings. This sends an

important signal to employees about the value management attaches to innovation.

Key principles

Step 4: innovation action plan

Strategic innovation is the planned creation of growth strategies, new product categories, ser- vices or business models that change the game and generate significant new perceived-value for consumers, customers and organisations (Birkinshaw et al., 2008).

Figure 10.5 Four key stages of the strategic innovation process.

210 Linking creativity to strategic innovation

Strategic innovation is a multi-functional approach that brings together all the creative assets, capabilities and disciplines of an organisation to produce breakthrough innovative ideas to drive business growth. In a world that is changing rapidly and in unpredictable ways, strategic inno- vation becomes vital in order to adapt to change. Strategic innovation is about innovating the strategy itself. It requires a substantial review of the real situation of the organisation and needs a willingness on the part of senior executives to sanction and foster a climate which encourages innovation. This usually involves a change in modus operandi and the provision of sufficient resources. Strategy involves answers to three basic questions that define a business:

1 Who are a company’s customers? 2 What CPV does the organisation provide? 3 What business model is best suited to the revised corporate mindset?

As such, approaching strategic innovation involves:

• reviewing the business; • reviewing the market; • reviewing the market offering; • re-examining how CPV is created and delivered; • redesigning basic processes of strategic innovation.

Practice

Step 5: reviewing the business

Table 10.2 Reviewing the business

Switch the strategic goal • From beating the competition to being different • Create awareness in the organisation

Challenge industry assumptions • Look across substitute industries • Look across strategic groups • Look at completely different industries and countries • Blur industry boundaries

Challenge assets and capabilities • Use current assets and skills or start again? • Mobilise hidden assets

Challenging mindsets and paradigms

• What are the main industry assumptions, relating to pricing, customers, products and services, delivery, etc.?

• Does the industry have a product-centric, customer-centric or competency-centric approach? What would a change in approach entail?

• Is the organisation constrained by the current assets and capabilities? • Do your major competitors possess the same or similar assets? • What are the organisation’s unique assets that cannot be easily imitated by competitors? • Do companies without these assets face a cost disadvantage in obtaining them? • Which of the company’s assets or capabilities are obsolete? • Which new assets does the organisation have to acquire to achieve a competitive advantage?

Building a strategic managing innovation model 211

Step 6: reviewing the market

Deciding which customers to target

Table 10.3 Deciding which customers to target

Existing New

Most profitable Less profitable Most satisfied Less satisfied Focus on differences Focus on commonalities Focus on finer segmentation Focus on de-segmentation Focus on attributes – preferred by customers Focus on circumstances – what is needed to do the job

Challenging mindsets and paradigms

• Who are the firm’s current customers? • What are their needs? • Why are they buying the company’s product or service? What jobs are customers trying

to do? • Which customer needs are the company actually meeting? • Are there customer segmentations with similar needs that the company is not serving? • Which customer needs can be serviced best with the company’s unique competencies? • Who is the real final customer? • How can existing assets and capabilities be leveraged? • Discover what customers really want rather than what they say they want.

Step 7: reviewing the market offering

Table 10.4 Reviewing the market offering

Focus on existing assets Start again, or use existing assets in a new way Single product or service Total solution, bundling Functional appeal Emotional and experiential appeal Specific buyers Chain of buyers Focus on market offering Focus on function to be met and the job to be done Build in new customer-perceived value features Raise, reduce, create, eliminate selectively

Challenging mindsets and paradigms

• Which of the company’s assets, capabilities and core competencies are truly unique? • Which of these does the customer value? • What are the customer’s needs and wants? What is the job that they are trying to do?

What is the problem that they are trying to solve? • What job can customers not get done? • How can the company build on core competencies to meet these needs more effectively? • Why are non-customers not buying the company’s market offerings? • Does the company welcome customer involvement in co-creation projects?

212 Linking creativity to strategic innovation

• What trends are evident? (See Chapter 14.) • How might they change customer’s priorities? • What do companies in similar or different industries or countries offer? • How can the company serve less profitable needs in a profitable way? • What emotions does the company’s market offering evoke? • What alternative technologies might meet customer requirements?

Step 8: creating customer-perceived value

Buyer experience cycle

A new market offering has to appeal to customers by promising a high level of CPV at an acceptable price that will generate an acceptable return to the company. Market knowledge can be gathered from regular market research. Attention to the expectations of buyers with reference to the stages of the buyer experience model (Figure 10.6) will assist company’s innovation activity. Relatively straightforward incremental innovations should become obvi- ous quickly. Radical or breakthrough innovations usually take longer to emerge.

PURCHASE

• How long does it take to find a market offering? • Is the place of purchase attractive and accessible? • How secure is the buying environment? • How quickly can a purchase be made?

DELIVERY

• How long does delivery take? • How difficult is it to unpack the purchased item?

Figure 10.6 Buyer experience cycle.

Building a strategic managing innovation model 213 USE

• Is any training or expert assistance required? • Is the purchase item easy to store when not in use? • Does the purchase meet CPV expectations?

SUPPLEMENTS

• Are any other items and/or services needed (e.g. Internet security software to go with purchase of a new tablet) to gain full utility form the market offering?

• How costly are they?

MAINTENANCE

• Does the purchase require regular maintenance? • How easy is it to arrange this?

DISPOSAL

• Does use of the market offering create waste? • How easy is it to dispose of this waste?

The customer-perceived value matrix

Successful innovating companies expand the buyer experience cycle by adding researched attributes of CPV. Table 10.5, for purpose of illustration, adds five such attribute factors on the ‘x axis’.

Table 10.5 Customer-perceived value map matrix

Purchase Delivery Use Supplements Maintenance Disposal

Customer utility Customer

convenience Ease of use Packaging Prestige Environmental

friendliness

The ‘y-axis’ illustrates ways in which companies can deliver CPV attributes. Customer productivity attribute factors – helping customers do things faster, better or in easier ways. By placing a new market offering on one of the 36 spaces of the customer-perceived value map, companies can quickly see if/how the new innovation is positively differentiated over existing market offerings. Over and above highlighting opportunities for incremental innovations the CPV map is a valuable means of suggesting potential radical innovations (Table 10.5).

214 Linking creativity to strategic innovation

CPV map positioning

Starbucks revolutionised the office-workers’ coffee break, traditionally coffee in delis or fast-food outlets. Competitors offered fast plus cheap coffee – in terms of the CPV map competitors focused on delivering productivity in the purchasing experience.

Starbucks, however, moved into a new space entirely; by opening chic coffee bars with an exotic mix of brews, the company injected fun and cachet into the coffee pur- chasing experience. They innovated in the fun and image attribute CPV factor space.

Same CPV factor at a new buyer decision stage:

Innovation through extending a CPV attribute to different parts of the customers’ buy- ing experience.

Amazon burst into the book retail business by offering a superior delivery service to that of conventional book shops by shipping purchases directly to customers within a few hours of registering their orders. In terms of the map this was productivity in the delivery sector of the CPV map.

New CPV factor at a new buyer stage:

Alto, a disposable fluorescent bulb manufactured by Phillips. Most bulb manufacturers competed to offer customers more productivity in use;

they did not pay attention to the fact that the bulbs had to be carried off to a special dis- posal facility because of their harmful mercury content. By creating a bulb that could be disposed of in an environmentally friendly way Phillips moved into a whole new CPV space – environmental friendliness in disposal.

Source: Goodman, M. R. V., Durham University.

Step 9: characteristics of strategically innovative organisations

Figure 10.7 shows an organisational structure that supports strategic innovation.

Culture

• Has a questioning attitude. • Rewards success and failure; is critical of inaction. • Tolerates mistakes. • Welcomes change. • Supports risk taking and change. • Supports teamwork and collaborations.

Structure

• Fast and flat. • Small units.

Building a strategic managing innovation model 215

• Encourages collaboration. • Autonomous teams at front line.

Processes

• Fast and unbureaucratic. • Decentralised decision making. • Support idea generation, experimentation and execution.

Systems

• Support the process of strategic innovation. • Enable collaboration • Reward risk taking and action. Set performance metrics and targets for innovation.

Leaders should think about two types of metrics: the financial (such as the percentage of total revenue from new market offerings) and the behavioural. What metrics, for exam- ple, would have the greatest effect on how people work? Leaders can also set metrics to change ingrained behavior, such as the ‘not invented here’ syndrome, by requiring 25 per cent of all ideas to come from external sources.

• Used to create relationships with customer.

People

• Four types of people drive innovation: inventors, entrepreneurs, extreme individual achievers in their fields (such as the arts, entertainment, or sports) and super mentors. Variety (internal and external).

• Collaboration. • Educated in regard to strategy and needed skills.

Figure 10.7 Organisational structure to support strategic innovation.

216 Linking creativity to strategic innovation

Action

Step 10: purpose of strategic innovation

The innovation strategy defines the role of innovation and sets the direction for innovation execution. However, the role of innovation in helping organisations achieve growth targets is often unclear and the revenue growth from innovation is insufficient, unless managed with great rigour. Many companies fail to develop and execute an innovation strategy.

It is important to develop a common understanding of the definition of the innovation strategy’s purpose. Is it about successfully commercialising new ideas, i.e. inventions with market impact? However, ‘new’ can have different meanings, ranging from new on the world market to new in one specific industry but already established in another industry, to new to a company or maybe even just new to some of us. The word ‘strategy’ implies taking action with a potentially large impact on the company, i.e. does not include simply a series of incre- mental product line extensions. Based on this understanding, the following are five factors that make up a sound innovation strategy:

1 It should be inspiring. 2 It should be ambitious and challenging. 3 The approach should morph closed and open ideation sources. 4 It should be within the capabilities of the organisation. 5 It should be iterative and capable of adaptation over time.

Organisations should:

• Allow time and space for creative thinking. • Encourage and motivate people to pursue ideas. • Use resources to start small-scale experiments. Just do it! • Encourage risk taking. • Challenge old habits and ways of doing things.

Step 11: transformation through strategic innovation

One of the most frequently asked questions is how companies can transform their organisa- tion to become more innovative and create a culture of continuous innovation that enables strategic renewal. A simple question but a big challenge that touches the fundamentals of why anyone would want to start a business. Businesses exist because of opportunity and this is why innovation is a key driver of business success. But what enables successful innova- tion? How can it be embedded in an innovation culture?

Many executives experience difficulty and disappointment in their ability to stimu- late innovation. What explains the gap between the leaders’ aspirations and execution? Starting to build an organisation in which innovation plays a central role is often far more frustrating than most executives ever imagine it to be. When people read or hear about successful companies that pursue one good opportunity after another they admire them and try to understand how they do it. The Apples and Googles of this world, the Legos and Virgins all have great stories to share and each is a worthwhile company to study. But benchmarking, copying or emulating doesn’t guarantee success; on the contrary, it

Building a strategic managing innovation model 217

often leads to disappointing results. If the ambition is a complete transformation of an organisation into one where innovation is at the core of what the company does then there are better ways. Sustaining innovation to create a flow of real market offerings that deliver CPV is even harder. There are no best-practice solutions to seed and cultivate innovation. The structures and processes that many leaders reflexively use to encourage it are necessary but not sufficient. People and corporate culture are the most important drivers of innovation. A disciplined rather than an ad hoc approach focusing on three people-management fundamentals has the potential to produce the building blocks of an innovative organisation.

1 Executives can formally integrate innovation into the strategic-management agenda of senior management. In this way, innovation can be encouraged but also managed, tracked and measured as a core element in a company’s growth aspirations.

2 Executives can make better use of existing (and often untapped) talent for innovation by creating the conditions that allow dynamic innovation networks to emerge and flourish.

3 Executives can take explicit steps to foster an innovation culture based on trust among employees. In such a culture, people understand that their ideas are valued, trust that it is safe to express those ideas and oversee risk collectively, together with their manag- ers. Such an environment can be more effective than monetary incentives in sustaining innovation.

This list of steps is not exhaustive. Still, given the limited time and means – as well as the short-term performance pressures that executives constantly face – pursuing innovation with anything other than existing talent and resources often is not an option. These three funda- mentals are a practical starting point to improve an organisation’s chances of stimulating and sustaining innovation where it matters most – among a company’s people.

Step 12: holistic approach to strategic innovation management

• Make innovation a central topic in leadership programmes. • Set aside capital budget for truly innovative projects. • Train creative problem-solving facilitators charged with supporting innovation through-

out the company. • Enrol all employees on courses in business innovation. • Install a business ‘innovation room’ in all business units and at company headquarters. • Include innovation as a significant component of employees’ bonus plans. • Schedule time in business review meetings to discuss business unit innovation performance. • Create an innovation pathway to review and fast track the most promising ideas. • Build an innovation portal to give people access to innovation tools and data and assist

them to input their ideas. • Develop a set of metrics to track innovation inputs, throughputs and outputs. • Allow time and space for creative thinking. • Encourage and motivate people to pursue ideas. • Resources should be used to start small-scale experiments. Just do it! • Encourage risk taking. • Challenge old habits and ways of doing things.

218 Linking creativity to strategic innovation

Step 13: key issues of intent

There are three key issues of intent that businesses should focus on to address this challenge:

1 create a clear purpose for the organisation; 2 use that purpose to make innovation happen from day one; and 3 take policy steps and commit to sustain strategic innovation processes.

Create purpose

Often companies state their ambition in numbers, e.g. market share, percentage growth, mar- gins, etc. However, the problem with numbers is they very seldom excite most of us unless we’re discussing world records!

Organisations need a clear vision and purpose (Hamel and Prahalad, 1989) that connect on a more emotional level, something that is engaging, exciting and provides a compelling reason and a clear direction to seek opportunity for the business. A purpose should describe what the company aspires to, an ambition should describe what it wants to achieve. Both should be clearly linked to opportunity because that is at the heart of why the company is in business. Also the ambition needs to be stated at the right level. All in management positions should continually ask does the company have a clear aspiration that stretches the imagination and stimulates innovation.

Innovation has become a core driver of growth, performance and valuation. Executives see innovation as the most important way for companies to accelerate the pace of change in today’s global business environment. Leading strategic thinkers are moving beyond a focus on traditional product and service categories to pioneer innovations in business processes, distribution, value chains, business models and even the functions of management. Strategy should be a clear and detailed statement of an organisation’s vision, ambition or future state. It provides direction and drives the organisation to make clear choices about where they will compete. This is why strategy and innovation are very closely linked (Pisano, 2015). Opportunity informs strategy and strategy drives choice on an ongoing basis about which opportunities to pursue and which to ignore.

Make innovation happen

Opportunity drives innovation whereas processes and organisational development (OD) ena- ble innovation to happen efficiently and repeatedly. It is necessary to design processes, and develop capability and the right organisational culture to support innovation in the longer term. But innovation is initially about generating excitement, about realising people’s ideas. It has the power to mobilise teams to focus on delivering something new and of value to the business. People generally do not get excited about processes and organisational design. Starting with that kills any momentum that may have been generated initially.

Instead, focus often tends to be on running innovation challenges that activate and execute company strategy. These challenges range from what could be termed early stage (broader opportunity areas that need to be explored) to late stage (specific ideas an organisation wants to realise), and from management innovation (new ways to organise, lead, coordinate or motivate) to practical (engaging the wider organisation or even beyond for ideas). So rather than solely focusing on a ‘breakthrough innovation’ which rarely comes right first time it is better to start innovating incrementally, building momentum, removing obvious roadblocks along the way and learn what works best in organisational circumstances. Designing a strate- gic innovation model should be an iterative process that is encouraged by top management.

Building a strategic managing innovation model 219

Sustain model development

If top management stress the importance of company strategy and innovation, this will build core beliefs that will ensure that what has been started is boosted to last and forms the basis of strategic renewal. Motivating individuals and teams with Innovation Challenges (capability building: learning by doing) are useful to start to develop and sustain a company’s strat- egy, build momentum and communicate real results to the business. Innovation Challenges are highly participative, engaging activities, which enable people to develop capability in organisations from day one. When teams work on innovation challenges they will learn and adopt new behaviours through specific tools and techniques and understand the principles that support them.

Systemic challenges (learning by doing) require systemic solutions and capability build- ing is but one element of that process, which also includes the sponsorship of appropriate training courses for employees. Other elements include portfolio management, innovation processes, organisational structures, metrics and leadership development. A committed policy to developing and sustaining strategic innovation is necessary to embed and scale innovation across an organisation.

In many organisations the top three ways managers spend time making decisions about innovation involve determining what types or strategies to focus on, who gets to work on the resulting projects and how to commercialise the fruits. Few spend time on targets, metrics and budgets for innovation. That is telling, since executives whose companies do have such targets and metrics feel the greatest confidence in their decisions.

Final thoughts

There are three essential questions and one challenging acceptance for executives in creating and implementing an innovation strategy:

• How is innovation expected to create value for customers and for the company? • How can we create a high-level plan for allocating resources to the different kinds of inno-

vation? Ultimately, where a company spends money, time, and effort is their strategy. • How can we manage trade-offs, as every function will naturally want to serve its

own interests? Only senior leaders can make the choices that are best for the whole company.

• Recognise that innovation strategies must evolve. Any strategy represents a hypothesis that is tested against the unfolding realities of markets, technologies, regulations, and competitors. Just as product designs must evolve to stay competitive, so too must inno- vation strategies. Like the process of innovation itself, an innovation strategy involves continual experimentation, learning and adaptation.

Summary It is hoped that this text will provide readers with an appreciation of the key principles asso- ciated with creativity and strategic innovation management. Just as the opening quote from Shakespeare’s Henry VIII declares, words are not enough unless followed by action. The 14-step prototype model described in this chapter is intended to act as a stimulus for readers to walk the talk and to gain practical experience in real time. Interpret the 14-step model in the light of the key characteristics of proven strategically innovative companies.

220 Linking creativity to strategic innovation

Questions for discussion 1 How do you check the now before addressing the how? 2 Why does the conventional approach to strategic innovation management so often disap-

point? 3 What is the buyer’s experience cycle and how can it help in the development of strategic

innovation plans? 4 What are the main characteristics of strategically innovative companies?

Case exercise

Yamaha Motor Company: ‘Revs your Heart’

In October 2015 at the Tokyo Motor Show Hiroyuki Yanagi, President, CEO and Representative Director of Yamaha Motor Co., Ltd, announced that the company planned to invest $1.1 billion to accelerate new growth strategies. He aimed to achieve a 2 trillion yen turnover within three years and an overall operating profit of 10 per cent. This would require the addition of at least one new business area such as cars, three-wheelers or robots. Currently the main interests of the company lie in its activities in engines and electric motors, body engineering in motorcycles and marine vessels, control systems, and manufacturing engi- neering technology. Innovation in these core areas will drive both incremental and radical new products and services as the company evolves and develops its technologies. Evolution is very important to Yamaha, and it is constantly trying to create powerful new combinations based on these four areas, including power sources and technologies. Such combinations include motorcycles and engines, motorcycles and electric motors, and three-wheelers in new frames or new bodies with motorcycle engines.

PAS, the world’s first electrically power-assisted bicycle, is another innovation created by Yamaha Motor in the early 1990s, when the Japanese market was developing environmental consciousness. As restrictions and regulations were increasingly surrounding the motorcycle market, the company’s engineers were motivated to create a new type of mobility combin- ing human and electric power in a solution that does not require licences or helmets. Twenty years later, almost a half million units are still sold annually in Japan and almost 1 million units in Europe. It is especially popular in Germany and the Netherlands.

Despite the uncertainties in global markets Yamaha Motor’s sales have been better than most Japanese companies. In developed markets, this growth can be explained by the yen, which is much weaker now compared to previous years. About 60 per cent of the company’s business comes from emerging economies, while 40 per cent comes from advanced econ- omies, similar to most Japanese automobile manufacturers. Yamaha Motor has grown its market share in both advanced and emerging economies. In the last three years, the company has gained significant market share in advanced economies, especially the United States and Europe, largely due to its range of best-selling models in the big motorcycle category.

Production volumes declined a little in 2015 due to the general economic slowdown in most emerging markets. Production in Asia and mainland China declined almost 10 per cent. Yet in spite of generally declining production, sales grew in other advanced economies, due to increased sales of premium motorcycles. In Asia, customers are stepping up to high-end motorcycles, so that’s why their sales were up even though volume was down.

In the past three years the company has restructured the business by improving products and reducing costs. In addition, it was successful in motorcycle racing, such as MotoGP.

Building a strategic managing innovation model 221

The company’s 2015–18 strategic plan assumes that growth in emerging economies will remain sluggish for the next two to three years, meaning that business in these regions will be slow. At the same time, advanced markets are expected to remain strong enough to overcome the emerging markets and enable the company to achieve the same level of global profits as in its last trading year. By 2018 sales are targeted to reach 2 to 3 trillion yen and deliver at least a 9 per cent operating profit.

Yamaha is proud to be a ‘Kando’ – or excitement – creating company and it is pursuing a number of CSR programmes to realise its vision, which is to provide ‘Kando’ to its custom- ers. Although Yamaha Motor and Yamaha Corporation are independent corporate entities, they are united by ‘one passion’, which is to be unique both in the music and transportation industries. They share the same brand charter and a common commitment to passion, innova- tion and quality, and for the creation of Kando.

Kando in Japanese refers to an emotional feeling that people have when they experience something that exceeds their expectations. If the experience just meets their expectations, then it doesn’t draw an emotional response. The experience must surpass their expectations to draw the emotional response of Kando. That is their brand and what it says about Yamaha.

Yamaha Motor’s 2015–18 strategic plan allocates 130 billion yen for new growth strate- gies. Four themes have been identified for new growth.

1 Personal mobility – through bicycles, motorcycles, scooters, multi-wheelers, recrea- tional vehicles and compact four-wheelers, all featuring the ‘unique style of Yamaha’.

2 Marine business – Yamaha is the leading brand in the world in the marine market. The marine business currently accounts for sales of almost 300 billion yen and 20 per cent operating profit, which is a unique business model.

3 Solutions business, which includes robotics, surface mounters and unmanned systems, such as drones.

4 Foundational technology development.

In the growing personal mobility market the company is now advancing research on compact four-wheelers and multi-wheelers, such as twin-front-wheel systems. In the marine business, where Yamaha Motor already has solid market leadership and strong engine know-how, it is developing more integrated controls for total boat systems, as well as advanced on-board IT systems to further improve performance and customer experiences.

In the marine business the company plans to expand its operations as a system supplier offering not only engines but also boat packaging, boat control systems, IT systems, and marine-life value.

The company’s hallmark motorcycle business only delivers a 6 per cent operating profit compared to 20 per cent in its marine business. It is a market where there is growing competi- tion from Honda and Suzuki. In Japan, there is a need to continue restructuring the business, as it is still importing most of its motorcycles and scooters from Taiwan, which leaves it vulnerable to currency fluctuations. As the Taiwanese currency is linked to the U.S. dollar, importing items from Taiwan turns out to be very expensive, since the dollar is very strong and the yen is weak against the dollar. In Europe, there are new emissions regulations, called Euro 4, which will require additional expenditure on R&D to further upgrade the emissions performance of products.

Artificial intelligence (AI) and robotics offer considerable growth potential to the large automobile and motor companies. At the Tokyo Motor Show in 2016 Yamaha presented the ‘Motobot’ robotics and automated systems it has developed and embedded in its new