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How technology‐driven business strategy can spur innovation and growth Strategy & Leadership How technology-driven business strategy can spur innovation and growth Saul J. Berman, Jeff Hagan, Article information: To cite this document: Saul J. Berman, Jeff Hagan, (2006) "How technology‐driven business strategy can spur innovation and growth", Strategy & Leadership, Vol. 34 Issue: 2, pp.28-34, https://doi.org/10.1108/10878570610700848 Permanent link to this document: https://doi.org/10.1108/10878570610700848 Downloaded on: 22 July 2018, At: 16:37 (PT) References: this document contains references to 0 other documents. To copy this document:
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The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. *Related content and download information correct at time of download. D ow nl oa de d by K ap la n A us tr al ia A t 1 6: 37 2 2 Ju ly 2 01 8 (P T ) https://doi.org/10.1108/10878570610700848 https://doi.org/10.1108/10878570610700848 How technology-driven business strategy can spur innovation and growth Saul J. Berman and Jeff Hagan F or more than a century, business leaders have viewed technology as the primary means to execute and implement their business strategies. However, many of today’s most exciting and ‘‘disruptive’’ innovations now tend to occur at the intersection of market insight and technological know-how, making technology an input to the strategy process rather than an after-the-fact enabler. Guided by this insight, many of the companies that are seizing the initiative in this new competitive environment are doing so by taking a fundamentally different approach to strategy development – an approach we call technology-driven business strategy. The new premium on market-savvy, technology-driven strategy has several important implications. First, technology matters when it comes to driving growth and, thus, to the formulation of business strategies. This is widely accepted for technology intense businesses such as Cisco, Motorola and IBM (the ‘‘bit handlers’’), but increasingly is the case for companies dealing in everyday products such as household appliances and vending machines (‘‘atom companies’’), where new advances in mobile communications and sensor technologies, are radically changing the basis of innovation, consumer value and competition[1]. As a further example, it is reckoned that by 2010 more than 90 percent of the innovation in the automotive industry will be electronics related. Second, when factoring in technology, know-how is often sufficient. Many innovation-based strategies are based on the unique market application of an existing integrated set of technologies rather than requiring technological breakthrough. Third, innovation emerges where market insight and technological insight intersect, a process that is often easier to harness within the small entrepreneurial firm than in the larger, more established organization. Finally, the competitive advantage afforded by know-how can be fleeting, requiring companies to keep setting the pace within this rapidly changing technology and business context or risk being blown away by it. How technology-driven strategies drive innovation To learn more about how successful businesses innovate and incorporate the technology variable into business strategy development, the IBM Institute for Business Value studied ten companies that are known within their respective industries for strong innovation. These companies’ innovations stood out because they accomplished one or more of the following three achievements: 1. Changed the basis of competition. At a particular point in time, within any given industry, businesses typically compete on a specific subset of performance dimensions such as product features, price, customer service or breadth of offerings. Companies most often invest energy in beating the competition along these ‘‘accepted’’ performance dimensions. Innovative companies, on the other hand, play to a different set of strengths. Instead of competing head-to-head with industry rivals on historical performance measures, they differentiate themselves through a new dimension thatq IBM Corporation. PAGE 28 j STRATEGY & LEADERSHIP j VOL. 34 NO. 2 2006, pp. 28-34, Emerald Group Publishing Limited, ISSN 1087-8572 Saul J. Berman is a Partner and Global Leader of the Business Strategy Practice of IBM Business Consulting Services (saul.berman@ us.ibm.com). Jeff Hagan is an Alliance Development Manager within IBM Business Consulting Services (jehagan@ us.ibm.com). q IBM Corporation. D ow nl oa de d by K ap la n A us tr al ia A t 1 6: 37 2 2 Ju ly 2 01 8 (P T ) exploits an emerging or unarticulated market need. For instance, an industrial products company might shift the basis of competition from product features to rapid fulfillment, or a services company could change the focus from price to convenience. This type of innovation delivers new value to consumers, while creating competitive differentiation for the innovative company[2]. 2. Broke the rules of scale. Within each industry, a certain set of implicit rules often exists around scale. For example, a new model of car must sell x units over the product’s life to be profitable, or a new book must sell x copies in its first printing to break even. Behind these heuristics are certain assumptions about scale that guide capital investment decisions, allocation of resources and market selection and entry strategies. Most companies seek to optimize operations within these boundaries. Innovative companies, however, also look for ways to break these rules – often leveraging technology to deliver profit at a lower scale point or, conversely, achieve scale advantage where previously none existed. eBay is a prime example: it managed to create scale advantage in a market that was long considered regional and hyper-fragmented. 3. Introduced totally new business models. In each industry, a dominant business model usually prevails. Using the standard business model (the operating model employed to deliver on its value proposition and generate profits), traditional competitors seek to drive greater efficiencies and increase revenues. Meanwhile, innovative companies are constantly seeking out alternative business models that have the ability to disrupt or undermine the incumbent industry business model. Here again, technology can play a pivotal role, allowing a business model to emerge that does not rely on the historical operating model or profit mechanisms, often shifting large amounts of market value to the innovative competitor. With its direct-to-consumer, build-to-order model, Dell turned its industry’s traditional build-to-stock model on end – allowing the company to avoid high-cost channels and excess inventory that often plagued rivals. The accomplishments of the companies studied also reinforce the IBM view of innovation; in every case, these companies combined market insight with technological know-how to break stride with their competitors (see Exhibit 1). Looking across the broad cross-section of businesses and industries analyzed, there were no revolutionary inventions that precipitated their innovations. Most of the technologies involved were not proprietary – and most had been available for quite some time. However, these companies’ familiarity and knowledge of technology provided a new lens through which they could explore solutions to market needs and opportunities. And that timely combination led to innovation. Technology-driven strategy innovators – common principles and practices We have observed six common principles that innovative companies, like the ten in our study and others that we have worked with, seem to follow in their approach business strategy development: 1. Consider technology a core input. Instead of viewing technology only as enabler of their business strategies, businesses should consider it a primary input to strategy formulation – on par with other necessary variables such as customers, markets and competitors. At Boston Coach, business strategies have to balance various (sometimes competing) objectives: customer satisfaction, operational efficiency and revenue growth. As dispatching, Boston Coach’s core business process, became increasingly complex, it ‘‘ Many innovation-based strategies are based on the unique market application of an existing integrated set of technologies rather than requiring technological breakthrough. ’’ VOL. 34 NO. 2 2006 jSTRATEGY & LEADERSHIPj PAGE 29 D ow nl oa de d by K ap la n A us tr al ia A t 1 6: 37 2 2 Ju ly 2 01 8 (P T ) seemed unlikely that the company could simultaneously address their business objectives with a single strategy – until they decided to factor technology into their business strategy development process. The company hired a research team to identify applicable technological innovations and assess potential business implications. Based on the research findings, the team created a proprietary scheduling algorithm and optimization engine capable of refining complex dispatch schedules in real time. These innovations have become the foundation for a new operating model that has the capacity to support up to a 10 percent increase in sales without additional vehicles, drivers or dispatchers, while simultaneously increasing productivity by 10 to 20 percent[3]. By factoring technological possibilities into its core business strategy, Boston Coach was able to break the rules of scale that had been implicitly governing its approaches up to that point. With its innovation, the company redefined the ‘‘norms’’ for revenue capacity per vehicle and the cost of a near-perfect on-time pickup rate – and set a new competitive benchmark. 2. Revisit strategy and technology context regularly. For many industries, the technology context has the potential to change more rapidly than the historical three- to five-year strategic planning cycle. Thus, companies need to continuously manage and revise strategy to proactively take advantage of the evolving technological environment rather than reacting to technology-induced changes to their markets and businesses. Hertz, for instance, has continually leveraged wireless and satellite technologies to create new operational capabilities and customer solutions that deliver value to the customer and differentiate it in a market susceptible to commoditization. 3. Uniquely manage emerging business opportunities. Companies need separate organizational procedures, structures and policies to manage emerging business opportunities differently than their core businesses, allowing market insight and technological know-how to intersect and innovations to take root. When Norwich Union embarked on its