Facing saturated markets, companies have found that traditional growth models are, at best, a source of incremental revenue replacement given the rate of commoditization and price erosion due to increased competition. As a result, forward-looking companies are focusing on more sophisticated forms of innovation—strategic innovation—to provide a platform for new, sustained growth. Strategic innovation, a fusion of strategy and innovation, is best understood as innovation at the core of the business concept level. It involves the introduction of new business models (frameworks for creating customer and economic value) that radically transform industry economics and upend entire markets, often at the expense of sleepy industry incumbents.
Today’s competitive environment presents difficult challenges for executives in many mature organizations: global competition, industry convergence, disruptive technologies, new entrants, evolving customer needs, and the rapid commoditization of products and services. Facing ongoing growth and earnings pressures, executives are increasingly asking people to ‘think differently’ about the business, to look at markets expansively, and to conceptualize new sources of customer value that will catalyze new businesses and revenue streams. In the language of the new competitive playing field, they are asking for strategic innovation.
A radical ethos underpins much of the thinking around strategic innovation given its power to transform customer expectations, the rules of competition, and industry economics. In Gary Hamel’s terms ‘Pioneers do not make minor adjustments to established business concepts, they rethink them from the ground up in unconventional ways to create entirely new models’. As Hamel admonishes, ‘a company that is not experimenting with new business concepts is probably living on borrowed time’.
The evidence, however, shows that most strategic breakthroughs are launched by newcomers, the so-called nontraditional competitors, not industry incumbents. Notwithstanding this imperative, why then is strategic innovation so difficult to achieve in mature organizations? The answer, we believe, may lie in the dynamic interplay between two person-environment factors in mature organizations: cognitive complexity and the invisible hand of organizational orthodoxy.
Strategic innovation is by nature a cognitively complex process requiring sophisticated ways of knowing and higher-order learning capabilities. It requires much more than simply ‘being creative’. According to the prestigious researcher on innovation Jeffrey S. Kuhn, conceptualizing new sources of customer value, business models and revenue streams in a complex, dynamic environment requires sophisticated cognitive