I’ve written a series of posts over the past year about connecting innovation to strategy. Looking back a these there are two main points that keep jumping out.
The first of these is to recognize which of the three horizons the business is in. Innovating in Horizon 3, with the development of speculative but potentially disruptive businesses is different from horizon 1 innovation where the objective is to improve margins and efficiency in current business to improve profitability or grow market share.
The second point is that innovation in horizon one is about delivering a particular value proposition. In a post from a few weeks ago I wrote about generic value propositions in lowest total cost, best product offering and solutions based on customer intimacy. Having clarity around the value proposition is important becuase the business activities, culture and performance management for delivering each of the value propositions is very different. In a best-product company, there is heavy emphasis on technology and product innovation and the culture of the business is very entrepreneurial. In a lowest cost business, process innovation and tight control over operations is important. The problem occurs when companies try to combine value propositions without understanding the choices and tradeoffs that are needed to excel in each of them. Doing everything invariably puts companies in a ‘zone of medicority’. They become OK at every thing but have competitive advantage at nothing.
One way to visualize how a company excels in a particular value proposition is to set out business processes in an activity map that shows reinforcing links between operations. The example shown below is a well known activity map of Ikea done by Michael Porter.
It’s pretty clear from the activity map that these activities are all working together to deliver a lowest total cost value proposition. However, if you look at it as a network then it becomes apparent that some activities are more central and connected than others. For example, having a lot of inventory on site helps several other activities in the map.
Visualizing a value proposition as a map of activities is useful for innovation managers because it helps to prioritize innovation projects. Again, when faced with a choice to allocate funding, it is more likely that investments is innovation in inventory management or modular furniture design will enhance the value proposition of the business because they are lynchpins within the activity map.
Linking innovation to strategy is important but to get this right we need to understand the processes within the organization that are critical to delivering the strategy.