Strategic innovation...what is it?
By MT:2909 on Aug 04, 2009
By Frank Buytendijk, Vice President and Fellow, Enterprise Performance Management, Oracle
Usually when we use the word innovation, it refers to improving products or services. Sometimes this is a gradual process, like adding functions to a software product or adding more customer service options (like self-service check-in for airlines). Sometimes innovation can be radical, such as the Nintendo Wii, which changed the game console market almost overnight, or flying cars that are currently being prototyped (a process that will take many years).
But innovation doesn’t always have to be products and services. Business models can be innovative as well. Look at the Apple iPod. Although the design and the user interface are very slick, the true innovation is not in the hardware, but in the integration with iTunes. Apple solved a fundamental dilemma in the music business. The existing business model in music--selling CDs--was declining in popularity. The alternative model, downloading music via peer to peer networks, had legal issues. Apply made downloading easy and integrated enough for people to actually prefer this over downloading music for free.
Another example of business model innovation is software-as-a-service (SaaS), or on demand. The true innovation is not in the license versus subscription structure (Capex vs Opex), but in opening up of new capabilities. Traditionally, only large companies can manage full-functionality software and deal with the global complexity. However, globalization and regulation do not differentiate between large and smaller organizations. The software that a smaller organization could manage would not provide enough functionality to handle their own complex globalization and regulatory issues. SaaS and related models allow smaller organizations to run fully functional software. The dilemma has been ‘broken.’
Business model innovation usually is about ‘breaking the code,’ where code would mean the way you usually do things--how you believe things work. Innovation is finding a way to eliminate those limiting beliefs.
This is the same way of thinking I’d like to apply to strategy, which is full of limiting beliefs as well. One of the most common misconceptions about strategy is that it's about making choices, about the either/or questions. As Porter says, either cost leadership or differentiation. Or, according to the value disciplines of Treacy and Wiersema, either customer intimacy, product innovation or operational excellence. Strategy innovation is about finding ways to do and/and, and eliminate those limiting beliefs.
I believe the Oracle strategy has done so. Remember the ‘$1 billion saved’ advertisements from a few years ago, where Oracle saved that much money by implementing its own software in a single instance? The cost savings turned out to be not even the most important result. Oracle’s efforts turned out to be the basis for the current innovative product strategy: ‘best of breed from a one stop shop.’ A complete and open product set, integrated using a common middleware layer. Choice for customers, without the burden of having to integrate yourself. Another dilemma broken. And with the single view of the customer that Oracle has established in its own business, we have global insight into what customers are doing.
There's operational excellence and product innovation and customer intimacy, and we can’t say one is more important than the other. They’re all equal parts in the Oracle mix. Strategy innovation in action.