Int. Journal of Business Science and Applied Management, Volume 5, Issue 1, 2010

Achieving synergy between strategy and innovation: The key

to value creation

C. Brooke Dobni

Edwards School of Business, University of Saskatchewan

An innovation perspective provides an unencumbered clean sheet view of the future, as it is only

concerned with what opportunities lie ahead. It prompts the organization to consider the question of

“what future state do we want to achieve?” as opposed to the orchestrated approaches of strategic

planning that promotes incrementalism. The perspective chosen will often determine whether an

organization is a competitive innovator and competitive imitator.

In today‟s economic environment, organizations are required to create differentiable value. To do so

requires a certain synergy between strategy and innovation. This article outlines the importance of

C. Brooke Dobni

1 INTRODUCTION

About 10 years ago, in his article The dirty little secrets of strategy, Gary Hamel (1997) suggested

that the capacity for strategic innovation will be the next competitive advantage for companies around

the world. However, the secret Hamel referred to is that strategy itself does not lead to innovation.

Understanding the differences and the relationships between them is foundational to becoming

innovative. What we will eventually discover is that strategy and innovation are mutually exclusive –

both in definition and function. Yet with the proper prospective, they are complementary and powerful

when they co-exist and are effectively leveraged.

2 THE BENEFITS OF INNOVATION

Enhancing the innovative ability in organizations is one of the most important levers to increasing

profitability and growth in organizations. To illustrate this, three separate studies undertaken by top

American consulting organizations, one done by Strategos (2004) and another two published by Arthur

D. Little (1994, 2005) suggest that there is huge untapped potential to improve profit growth through

addressed all elements of innovation capability including idea management, technology and resource

management, the product/service development process, and market intelligence to name a few. In the

end, both Strategos and Arthur D. Little concluded that in spite of the fact that most companies viewed

innovation as extremely important (as high as 85% in one study), only 15% of organizations considered

themselves to be successful at creating an innovation environment. Still the quest for innovation

continues, and for good reason.

Very simply, innovation matters. In addition to the performance outcomes already mentioned,

innovative organizations have the following in common. First and foremost, they are value creators in

that they continue to break through to the next level because they are constantly defining it. Second,

they understand that it is the sum of the people who, through the way they think and act, allow the

upon a vision for innovation.

These platforms have afforded organizations the strategic logic to build and leverage

competencies to support innovation. They compete on the basis of their innovation blueprint in that

they are able to better define, engage and pursue uncharted market space. This is in contrast to the

model of strategic fit still practiced by many which essentially promotes competitive imitation. This

contrast is significant in a time when productive lives of strategies are getting shorter.

What is clear is that innovative firms are more successful over the long term. They have unique

DNA in that they are more creative, have a desire to succeed, possess a common sense of purpose and

constituency, and they are empowered (Dobni, 2006, 2008; Govindarajan and Trimble, 2005). They

understand the relationship between strategy and innovation, and they have identified the

Int. Journal of Business Science and Applied Management / Business-and-Management.org

3 THE PITFALL OF STRATEGY

communicating what is not possible. This in turn affects employee culture, and the organization‟s

innovation orientation (Jaswalla and Sashittal, 2003). More often than not, organizations seeking

innovation revert to the strategy process instead of introducing a context to support innovation. Trying

to introduce innovation as a strategic initiative to be channeled through the strategy process will prove

to be a false start. Eventually, competitive positioning elements, such as providing better service,

product or service enhancements, and even new product and service introductions – will be relegated to

a hygiene status. This promotes hyper-competition and eventually, strategy convergence. In reality,

these organizations are not fortifying their strategic position by being innovative, they may in fact be

diluting it by trying to be innovative.

Faced with convergence, some organizations retreat up market to more profitable segments, others

stake out positioning in the core market battlefield and hunker down, yet others exit or are forced out of

business altogether. It is a zero-sum game that always results in fatalities. The ones that survive this

spiral either have deep pockets or are simply better strategists and have figured out more effective short

4 INNOVATION AND STRATEGY ARE NOT RELATED

It is important not to confuse strategy with innovation. Innovation has been broadly defined by

both academics and practitioners, however it is nothing more than a state of being while strategy, also

widely defined - is nothing more than a process of doing. By definition, the two are not related – not

even second cousins. Unfortunately, managers try to piggy back the two only to discover that the

„process of doing‟ with all of its budgets, levels, and timelines stifles the „state of being.‟ Managers

have to understand that innovation is achieved through an imperative internalized by employees, and

hierarchies that lead to desired outcomes. These lock step practices are the very things that stifle and

even run counter to innovation. Third, strategy formulation is analytical and intuitive, and based on a

platform of rational incrementalism – often forcing organizations to forecast the future based on past

experiences. These configurations are often easy to decode and copy by competitors. Innovation on the

other hand works quite differently. It sees organizations defining a desirable future state (not trying to

predict it), and then working toward that state, irrespective of corporate history. Innovation is not

bounded by a schedule, or monopolized by a few, nor stifled by boundaries, structure and rules. It does

not consider assumptions developed through past observations. In a sense, innovation is not

institutionalized by tradition.

This is echoed by the Arthur D. Little survey. Survey respondents commented that practices

process and they lacked an innovation context. It is easy to see why this has occurred, as the strategy

C. Brooke Dobni

5 IF STRATEGY IS WORKING, WHY INNOVATE AT ALL?

we forget its beginnings. They started out as a local family-based retailer. Sam Walton‟s decision to

build a second, and a third and a fourth store, and so on resulted from an emergent strategy process – an

opportunity to fill a need, but more so to take advantage of logistical and managerial efficiencies. He

did not plan to pre-empt competitor in-roads into small U.S. centers, it just happened that the big

players of the time were deliberately saturating the large suburban areas first, and blinding themselves

to the opportunity that rural markets possessed.

The reality is that Wal-Mart could be considered to be both innovative and emergent opportunists

long before these terms were being coined as the new management imperative. This innovation created

value differences that lead to the sustainable competitive advantage they enjoy today - that primarily

being their logistical network to support operations. It works so well that they dominant the

marketplace. And make no mistake, they continue to innovate in this area, we as consumers just don‟t

see it. We benefit from it. They are a price leader and a cost leader and they deliver what customers

value – everyday low prices. It is the same focus on logistical and managerial efficiency that proves to

American culture, again, like Wal-Mart. Yet today, although they are still competitive, they do not hold

the same market power and concentration ratio as Wal-Mart does. Does McDonalds have the same

brand identification in the eyes of consumers as Wal-Mart – definitely; do they have the same market

dominance as Wal-Mart – no. Why is this the case? McDonalds let the industry define them – they

practiced textbook strategy and evolved with the industry. And now, the fast food industry displays all

the symptoms of strategy spiral. McDonalds is all strategy and little innovation. The industry has

changed and the customer has changed and McDonalds has struggled to keep abreast. Had McDonalds

adopted an innovation orientation years ago, they might not have found themselves in a convergence

where you are. Alternatively, McDonald‟s is lagging behind in its previous abilities to closely follow

consumer taste preferences by offering customers new menu choices – therefore not delivering the

sustained levels of value. It can likely be argued that its last notable successful product introduction

was the Chicken McNugget launched in 1983. Even though McDonald‟s owns one of the most

recognized corporate brands and their international operations remain successful, they are having

trouble introducing a new lunch sandwich. They are in for a tough ride because they have no

innovation context, thus no innovation gain.

6 THE INNOVATION GAIN: THE BENEFITS OF CO-EXISTENCE

creation will require organizations to invest in undervalued business platforms, consider untapped

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When it is time for deep strategic change, strategy in itself will simply not be enough. Rather,

best utilize it. Since organizations are predominantly guided by the strategy process, to affect value

creation and experience an innovation gain, they will need to play in the „grey zone.‟ This zone

represents opportunity space, and to take advantage of it, organizations need to slowly introduce a

context that promotes a more market-oriented and value-focused approach. This also needs to be

complemented with an implementation environment that encourages some degree of venture

experimentation. Specifically, employees need to be able to try new things which invariably involve

higher levels of risk without the fear of failure.

Figure 1: Managing the Grey Zone - Innovation Gain

This grey zone is potentially significant, and is best illustrated by Henry Mintzberg (1994).

C. Brooke Dobni

executed; how strategy as a process and innovation as an orientation intersect will determine the

toward niche and specialty markets. Currently, even though Anheuser-Busch and Miller dominate

American brewing (over 50% of all beer consumed in the USA), small and regional brewers are

making inroads. This is evidenced in the 1,400 micro-breweries in the United States that now command

up to 10% of the beer market, and it continues to grow.

The microbrew movement is comprised of brewers with ambition and ideas poised to capitalize on

the potential for value creation. Pony Express Brewery, located in the heartland of the USA, is an

example of a micro-brewer who has achieved an innovation gain. Their annual growth is now

registered in double digits in a beer consumption market that is mature and displays all of the

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ascending focus on emergent opportunities. The key point here is that value creation is implemented

Administration to limit the sales and distribution of their products. This move lead to a surprise backlash

from gun clubs and gun rights groups which included large scale boycotts of Smith and Wesson guns, and

the flooding of the market with used Smith and Wesson firearms – thereby cutting into their market share.

The organization – through its employees - has been able to align with this new reality by expanding into

other products that benefit from the Smith and Wesson reputation for quality and endurance, yet fall

outside of the core product portfolio affected by the boycott. Their new market and segment focus

included high end bicycles for police forces, home security safes, heavy duty flashlights, wood pellet

grills and smokers named after various pistol cartridges, leather jackets, automotive accessories and even

C. Brooke Dobni

For this to occur, managers and employees first have to consider the impact that an innovation

The success of this pursuit will also depend on how organizations are able to connect with the

emergent side of the strategy process all the while managing the deliberate side to its advantage. To

achieve this new balance, it will be necessary to defect from stagnant practices and processes, and

allocate resources to create a context to nurture and sustain new growth. This is affected through the

market orientation held by employees and the confidence they have concerning execution. Factors that

prove to be the tipping point include creative and market-oriented employees, systematic processes to

generate new ideas, and an environment that supports a “freedom of failure” mindset toward

implementation.

Pursuing innovation is a long term commitment that requires financial, human, and structural (in

terms of technology and physical) resources. At the very minimum, there has to be an emphasis on the

employee as it relates to skills and learning, technological and financial support, and rewards and

incentives. These are invariably cited in innovation surveys as lacking. The combinations of these -

resources outside of that required to fund mainstream activities. And the same goes for technology. If

organizations want to be industry driving, then they have to consider the combinations of technology

configurations required to support these offensives, and also be prepared to invest in them for the long

term.

Employees have to be educated about innovation and organizational learning is the process to

support this. Properly tooling employees involves committed education and training programs that

focus on developing processes that facilitate the learning and reinforcement of new behaviors. To stay

on course, organizations have to determine what they are attempting to achieve, and then move to fill

performance, as well as innovation (Desarbo et al, 2005; Kirca et al, 2005; Verhees and Meulenberg,

2004). One reason for this is that value creating opportunities are best identified by observing and

understanding the relevant business cluster – the industry, competitors and customers, emerging

technology, channels, and knowledge flows. A market orientation presents a portfolio of innovation

ideas based upon an employee‟s understanding of the marketplace and the competitive context.

Employees can offer perspectives and define opportunity space that will drive product/service

modifications and new offerings. A market orientation describes the extent to which employees

understand the relevant business environment, but also in turn, convert this understanding into value.

Key knowledge areas include market sensing (customer product and service preferences), contextual

awareness (competitors‟ positioning efforts), and cluster knowledge (forces affecting the business

employees who are sources of knowledge. This knowledge is fuelled by interactions with customers

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common goals. The degree to which this knowledge is shared (the organization‟s knowledge

performance also increase (Marinova, 2004; Rodan and Galunic, 2004). By linking nuggets of market-

based knowledge from multiple sources into a cohesive and workable innovation enterprise,

organizations create differentiable value. The end result is that their innovation model is simply better.

Respecting market orientation and execution – or employee specific behaviors - the results

indicate that across-the-board, employees are at a deficit as it concerns the appropriate level of market

and industry knowledge to make proactive decisions. Probably most revealing is the notion that

employees find the implementation of innovation related activities difficult in spite of the fact that they

felt psychologically empowered to be innovative. Results of this survey are consistent with the findings

There are a couple of key implications for managers. First, as managers develop a better

understanding of the relationship between strategy and innovation, they will be better able to establish

an innovation agenda that is palpable. As this synergy is achieved, innovation gains become more

likely. For example, the greatest barriers to innovation are related to internal company issues such as

synonymous with the capabilities approach to strategy, thus circumscribing the degree of orientation

possessed by an organization would be displayed through its capabilities to support and sustain

behavior conducive to the development of this orientation. Capabilities emanate from individual

employees and include complex bundles of skills and accumulated knowledge that enable firms to

coordinate activities and make use of their assets. On an aggregate level, an organization‟s core

competencies support positions of advantage. If we relate to this school of thought, then the real

challenge for management is to identify and develop these behaviors or capabilities, and subsequently

harness them so that they are deployed in a manner that will foster the development of a sustainable

through culture. Because of this, it may not be possible for all organizations to attain desired or ideal

levels. Accordingly, managers need to think long and hard about the level of innovation they should

pursue, and to understand the factors of such an orientation that can be most impacting for them.

If the decision is made to pursue enhanced levels of innovation, then the process of

implementation becomes the focus, including an understanding of the barriers currently being imposed

as a result of the strategy model employed. We have identified many of these pitfalls already. The

choice of which capabilities/behaviors to nurture and which investment commitments to make must be

guided by a shared understanding of the competitive context, the needs of the customers, the current