These days, many companies find it more and more difficult to meet the challenging revenue and profit growth targets demanded by the insatiable financial community. In this context, many corporate leaders notice that their current strategies may no longer align so well with the changing competitive environment of the early 21st century. So it’s time for a new round of Strategic Planning, isn’t it?

Strategic Management (or Strategic Planning) aims to help a company beat its competition by finding better ways to compete in existing markets. Thereby, the firm tries to exploit the existing demand by extending the current value that it offers on the market. Based on Michael Porter’s famous competitive strategic paradigm, a company needs to make the value-cost trade-off by making a strategic choice between low cost and differentiation. Then, the firm’s business model and the whole system of a firm’s activities need to be aligned with its strategic choice of low cost or differentiation. To achieve this, the company engages in an analytical planning process that is logical and linear, numbers-driven, focuses on the company and its traditional competitors and tries to extrapolate the future from today’s market parameters.

This traditional methodology of Strategic Management or Strategic Planning resembles the mental processes involved in playing a game of chess (with more than two but not too many players involved). It served companies sufficiently well in the stable and predictable decades of the mid-twentieth century. But time has moved on. In the early 21st century, many well-established practices of the business game have changed. Some have vanished completely. Today’s “business chess” is a very different game altogether with many more players and with many once set-in-stone rules being in flux. Today’s competition no longer only takes place in the local marketplace with the same well-known peers. It happens on a global scale and also increasingly in virtual markets with many new, flexible and lean players. In addition, we see a paradigm shift in many areas from competition and a closed-source model to cooperation via strategic partnerships and large-scale global collaboration in the virtual world. Just think of the emergence of collaborative efforts such as the online encyclopedia Wikipedia or the open-source software movement.

Consequently, over the past few years, Strategy Innovation has emerged as a new strategy method to better accommodate the multifold changes in modern business. And its objectives are diametrically opposite those of traditional Strategic Management. If you start a Strategy Innovation exercise for your company, you make an effort to create uncontested new market space by creating new value that allows you to generate and capture new demand. In other words, your objective is not to get a bigger piece of the same old revenue pie as compared to your peers (as is the case in Strategic Management). Instead, your aim is to create a completely new pie altogether.

A Strategy Innovation initiative aims to make the competition irrelevant by creating a new, better business model that allows a firm to break the traditional value-cost trade-off of Michael Porter. As such, you align the whole system of a firm’s activities with its strategic choice of being both a low-cost provider and at the same time offering superior, meaningful value that leads to differentiation.

Strategy Innovation still requires some of the basic analytical tools of the rational approach of traditional strategic management. But for the most part, its methodology follows a rather “right-brain” approach that is heuristic and iterative and that draws heavily on your imagination and intuition. As Albert Einstein commented: “Imagination is more important than knowledge. Knowledge is limited, but imagination encircles the world.”

Strategy Innovation requires you first to re-focus your efforts from a company-centric to a strongly market-centric perspective. You explore the future market environment to gain new insights. You aim to discover possible fields of tomorrow’s growth. Then, you generate ideas for meaningful, novel strategic actions that allow you to conquer some of these new market spaces. Finally, you work backwards and specify the action steps that you need to take today to realize a new, uncontested market territory that promises superior, sustainable business growth in the foreseeable future.

In order to effectively pursue a strategy innovation exercise, the leadership team of a company needs to agree to three basic assumptions about the future:

1. Proaction: The future does not yet exist and can be created. Proactive companies influence tomorrow’s marketplace and change the rules of the game with their strategic actions taken today. For example, Nokia was an internationally unknown Finnish rubber company that mainly sold its products into the former communist bloc states. After the end of the Cold War and the collapse of the former Soviet Union, the company realized the emerging new opportunities in mobile telecommunication and has become Europe’s leading brand.
2. Foresight: The future cannot be precisely predicted, but its forces such as trends and possible discontinuities can be identified.
3. Individualization: The future is not one-size-fits-all. It is proprietary to a company based on its core values. Therefore, each company needs to discover its future by itself. While an outside Strategy Innovation Expert will add value by facilitating the process, the key insights and ideas for meaningful strategic actions need to be developed by the company itself — it cannot be delivered by a consultant or deduced from hypothetical moves of your competitors.

So what is the best strategy method for preparing your company for the competitive game of modern chess in the early 21st century? Playing it safe and doing another logical, numbers-driven round of strategic planning? Or betting your luck on the creative, more flexible new discipline of Strategy Innovation? I urge you to go for the latter, thereby remembering the following fine advice of Michelangelo: “The greater danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.”

© Dr. Detlef Reis 2007. This article was published in parallel in the Bangkok Post under the same title on 25 October 2007.