Application of design principles to Strategy Innovation

In order to achieve market disruption we need to apply strategy innovation to the way we approach the development of competitive strategies, business models and process.

Traditional strategy development is not enough if we want to achieve something more than linear growth.

Traditional strategy development uses a basis for its definition our mission and vision and analyzes external and internal environments to define the targeted position for the organization.

This approach focus on what others have done in the past or are planning to do, which doesn’t help to define an innovative approach.

We need radical changes if we want to find uncontested market spaces (Blue Ocean) and new breakthrough strategies and business models.

Design principles for Strategy Innovation

We can use existing design principles and processes to create new strategies that provide us a competitive advantage over other firms.

Design is not linear, so the approach to be followed is a dynamic process with different iterations:

  1. Collect information: the main goal in this phase is to collect market data, insigths from customers, competition and our own organization. This data will allow us to formulate the problem our organization is trying to solve.

  2. Ideation: this phase involves several cycles of a) create models, prototypes and rough plans and b) validate the result against the problem we identified in the phase 1.

  3. Testing: implement / execute the strategy and compare its results with the expected outcomes to evaluate its performance. In this phase it is important to apply the seven rules for sucessful strategy execution:

    • Keep it simple: clearly describe what the company will and won’t do
    • Challenge assumptions: ensure that the market and environment information is accurate
    • Speak the same language: agree on a common framework to assess the performance
    • Discuss resource deployment early: allocate resources to implement the strategy when needed
    • Identify priorities: state clearly the strategic priorities
    • Continuously monitor performance: track results against the plan
    • Develop execution ability: make selection and development of managers a priority

Further reading

Sources of competitive advantage

A company has a market competitive advantage when it ouperforms its competitors.

Companies can achieve a sustainable competitive advantage by two means:

  1. By implementing a resource-based strategy resulting from the deployment or access of unique resources which allows improving effiency and effectiveness.

  2. By having a privileged market position where competitors have no incentives to access the marketdue to the impossibility of replicating existing competitors’ setup in a profitable way. This is the case when firms have committed during a long time to: expand their production capacity, brand proliferation strategies for their products, or investing in intangible properties.

Companies must clearly identify what is the real source of their above-normal results so they can take better decisions on how to exploit and protect their market advantage.

Resource based strategies

In order to get a competitive advantage from resources, they must be unique and have to be acquired at a price below their discounted net present value.

Sustaining a resource based competitive advantage depends on how difficult is for competitors to build a similar resource position. Different factors such as property rights to scarce resources, geographical location and information assymetries can help to protect this competitive advantage.

Privileged market position strategies

In this case, the advantage is the result of the impact of strategic commitments that have long-term impact and are difficult to reverse as in general involve important sunk costs.

There are different sources of privileged market positions:
Absolute cost advantages: consequence of long-term investments which allow reducing produciton costs.
Network externalities: benefit derived from the use of a product increases with the number of consumers purchasing compatible products.
Proliferation of product varieties: dominant firms can crowd a product space in order to gain market share at the expense of their rivals by producing several products adapted to specific product characteristics, locations or brands.

Further reading