Innovations can create a huge opportunity for success, as they enable a company to create a competitive advantage by having differentiated products, services or business models. Hence an innovative strategy is highly recommended in order to achieve high business growth, in case you are willing to expose you to a higher degree of risk. Being successful with an innovative strategy requires a multidimensional approach and an integrative strategic management. This content is highlighted from a theoretical point of view and confirmed by my personal experiences in the business simulation game capsim.
However the financial performance after round 4 is worse than the competition, double digit growth in sales and a market share of more than twenty percent in the three fastest growing segments has been achieved. The main experiences can be concluded as follows: For being a successful market leader it is not sufficient to reach double-digit growth, instead you have to keep an eye on the competition and have to achieve higher growth rates than the competitors.
Vision, mission and strategic goals are important and build a guideline for every decision, but it is hard to stick to an innovative strategy, which requires high investment, in case of financial problems. Applying an innovative strategy is combined with adventure and a high exposure to risk. It can be detected that implementing an innovative strategy in real life is very complex and that small mistakes can have a negative impact in the long term. However mistakes can happen fast, as a multitude of multidimensional decisions has to be taken as an entrepreneur.
As the literature is not able to support you in the complex decision process, gathering experiences is highly recommended. Table of Contents Example Report for Task 1 I Executive Summaryi Table of Contentsii 1. Introduction3 2. Innovative strategies and high business growth3 2. 1Definitions3 2. 2Characteristic elements of an innovative strategy5 2. 3Critical success factors for implementing an innovative strategy 6 2. 4Importance of an innovative strategy for high business growth7 2. 5Risks of innovative strategies for high business growth7 3.
My innovative strategy in Capsim8 3. 1My mission, vision and strategy in Capsim8 3. 2Impact of the innovative strategy on my business decisions8 4. Achieved results in Capsim with my innovative strategy9 4. 1Quantitative and qualitative results after round 49 4. 2Assessment and explanations of the results11 5. Experiences with my innovative strategy 12 6. Conclusion13 List of references15 1. Introduction The aim of our business simulation game capsim is to reach at least double-digit growth.
According to recent literature an innovative strategy can help a company exciting its customers, outperforming competitors, building a new product portfolio and therefore it can be an important step on the way to high growth rates for a company (Bowonder et al. 2010; Stewart 2006). Such information aroused my interest and so I was motivated to find out, if and how an innovative strategy can work successfully. Consequently I decided to apply an innovative strategy in the first four rounds of capsim.
Now it is the aim of the report to present my experiences with it. Therefore my report is divided into two parts. The first part presents theoretical information about innovative strategies. It gives an idea what innovative strategy management means, how it is implemented and why it is important for business growth. Based on this knowledge, my approach is described in the second part. My original plan, the related decisions, the results and the experiences of my innovative strategy can be read there.
Thus, in the summary my experiences are concluded and a short comparison to the theory is presented. 2. Innovative strategies and high business growth 2. 1 Definitions In this section the main terms for the context are defined and explained, such as innovation and innovation management, strategy, strategic management and innovative strategies as well as business growth. 2. 1. 1 Innovation and innovation management If you are searching for a definition for innovation you can find a number of different ones.
Basically they all include the idea of creating something new. Referring this idea to business, the definition of Westland seems to be appropriate. It says an ‘innovation is a product or service with a bundle of features that is – as a whole – new in the market, or that is commercialised in some new way it opens up new users and consumer groups for it’ (Westland 2008, p. 6). According to that, innovations can occur for products, services, processes and business models (Stamm 2008).
Beside these categories, there are three different levels of innovations, depending on the degree of novelty involved: incremental innovations are minor changes. When implementing these changes, something is done in a better way than it has been already done before, so there’s nothing significantly new. Substantial innovations are mid-level in significance both to customers and to the company (Tucker 2008). Radical innovations, also known as breakthrough innovations, transform the way you think and have a big impact on the company and the customers in a whole (Tucker 2008; Bessant & Tidd
2008). Innovation isn’t a single event, it’s an extended process of picking up on ideas and turning them into reality. This process is strongly influenced by internal and external factors such as leadership, employees, culture, different stakeholders and market conditions. According to that it is the task of an innovation management to implement and encourage an integrative framework and therein a repeatable process of creating and realising ideas while considering all stakeholders and especially the strategy of a company (Igartua, Garrigos & Harvas-Oliver 2010).
The management of innovation includes tasks such as the management of technology and product-portfolios, encouraging innovative thoughts and ideas, creating a creative company culture or assuring a higher ability of implementing changes (White & Bruton 2007). Finally it is the aim of the integrative approach of innovation management to coordinate all the singular activities with regard to the strategy. 2. 1. 2 Strategy and strategic management A strategy ‘is a coordinated set of actions that fulfill a firm’s objectives, purposes and goals (White & Bruton 2007, p.
36). Accordingly strategic management is cross-functional framework, including ongoing processes of making and coordinating entrepreneurial decisions systematically with the aim of achieving the company’s goals. It includes questions about technology, innovation, the organizational structure, processes, procedures, systems, people or knowledge management. The strategic process can be divided into three main activities: planning, implementation as well as evaluation and control (White & Bruton 2007).
2. 1. 3 Innovative strategy As a consequence, it becomes clear that innovation management can be one element of the whole strategic management of a company. As innovation becomes more and more important its strategic meaning has increased. In case a company calls its strategy an innovative strategy, it supports his emphasis on including the ideas of innovation management in his strategic planning, implementation and evaluating process. 2. 1. 4 Business growth
As Achtenhagen, Naldi & Melin (2010) made clear; there are many different possibilities and ways to define business growth. According to my first approach, interpreting the given goal of achieving double digit growth in capsim, business growth should be defined as growth in sales in this paper. 2. 2 Characteristic elements of an innovative strategy During the strategic planning process the ideas of innovation have to be included in the vision, the mission as well as in the strategic and operative goals of the company (White & Bruton 2007).
For having an innovative strategy, the identification of opportunities, how customers can be impressed in an innovative way, is necessary. The result should become clear in the strategic plan. Typical opportunities can be found in market positioning, understanding customer needs, reinventing your business model or redefining the value-added for the customer (Tucker 2008). After you have made this strategic decision, you have to find out what abilities and capacities you need and what measures and instruments are necessary, for achieving your strategic goal.
Typical elements are technology management, portfolio management, project management, cycle-time management, performance measurement, organizational design, the creation of an innovative leadership and organizational culture, marketing, market research and knowledge and intellectual property management (Igartua, Garrigos & Harvas-Oliver 2010). Human resource management, external relations and financial management build the fundamental base and consequently have to be considered, as well.
All these elements have to be aligned and managed in an aggregated and superordinated way regarding the strategy, in order to achieve the goals of the company (Meyer 1998). Further characteristics of an innovative strategy are the higher involvement of creativity and adventure in the whole strategic management process as well as the higher exposure of risk (White & Bruton 2007). 2. 3 Critical success factors for implementing an innovative strategy According to Bodley-Scott (2011) it is essential that the goals of the innovation and the strategic management are adjusted, so that the whole organisation works in the same direction.
In other words, the strategy should drive innovation (Meyer 1998). As a next step, he proposes to use ‘a statement of innovation intent’ (2011, p. 65) to link the strategy with the organisation. It should include information about the necessity of new products, customers, markets and capabilities and it should be used as a guideline. Therefore it should help to give a common sense about the importance of being innovative in a company to all stakeholders. As a consequence it is a first step towards an innovative company culture (Bodley-Scott 2011). The drivers of innovation are the employees of a company.
Accordingly it is essential to create a broad and multifunctional participation in the organisation and to motivate and convince them for being personally involved in the innovation process (Meyer 1998). This is only possible with a high top-management attention and leaders who have a vision for innovation and who are able to share it (Igartua, Garrigos & Harvas-Oliver 2010). Besides that, a clear innovation process to support any innovative ideas in a company makes the broad employee involvement much easier. Hence Meyer (1998) recommends establishing a defined but flexible innovation process.
It should use a structured step-by-step logic to steer and manage innovation, enable efficient teamwork, eliminate innovation bottlenecks and optimize time to market, adopt methods and techniques to support innovation and to establish mechanisms to resolve interface issues (Igartua, Garrigos & Harvas-Oliver 2010). Furthermore the process has to include data from up-to-date market researches to assure the concentration on the customer and market needs as well as the position of the competition, as they are decisive for the business success (Stamm 2008).
As innovation is about creating something new and being ahead of the competition, it is a highly time critical issue, so process management through the whole organisation for reducing time to market is essential. 2. 4 Importance of an innovative strategy for high business growth As the global competition is highly increasing, innovation gets more and more essential for business growth (Meyer 1998). Bodley-Scott says, ‘success will come from our ability to differentiate products and services from those of the competition’ (2011, p.
64), as this can be only achieved by innovative ideas and an effective innovation management, the importance of an innovative strategy becomes clear. Consequently, the ‘differentiation through product and service innovation becomes the basis for building competitive advantages today’ (Bodley-Scott 2011, p. 64). Tucker confirms the importance of innovations for high growth by the citation of different studies, which found out that ‘high growth firms do a lot of innovating’ (2008, p. 15) and that over a longer time period an ‘innovating company is likely to benefit from a higher-growth rate than its competitors’ (2008, p.
16). 2. 5 Risks of innovative strategies for high business growth Innovation is defined as something new, so market research data or experiences are not available to a high extent. As a consequence it is connected with uncertainty, which means that innovations are at the same time opportunity and threat. Every innovation carries two risks: a technology risk and a marketplace risk. First, there is the technology risk, it is about the functionality of the product, and in a second step, there comes the marketplace risk, which means that you can never know if and for which price customers will buy your product (Treacy 2004a).
The level of risk depends on the category of innovation. Radical innovations can have a high payoff as they set up temporary barriers for competitors, but they are extremely risky, as technologies may prove unreliable and as customers need to be convinced about their existence and their value (Westland 2008). Hence, you can never know if the customer is willing to pay for all your innovation management efforts. Incremental innovations make sure that they go in accordance with the needs of the customers, so they have a lower risk and failures are managed more easily (Westland 2008).
Accordingly, it is important for a company to have a balanced risk portfolio (Igartua, Garrigos & Harvas-Oliver 2010) and it is recommended to try to get the maximum advantage out of minimal innovations (Treacy 2004a). 3. My innovative strategy in Capsim 3. 1 My mission, vision and strategy in Capsim As Treacy makes clear, (2004b, p. 4) ‘market positioning, when done right, is perhaps the easiest way to grow, because it requires little more than establishing a presence in the fastest-growing segments’.
Accordingly, I defined my vision in capsim as ’reaching a yearly double digit growth rate through the most innovative products in the fastest growing segments’. After round 8, there should be two products in each of the segments high-end, performance and size, as they have the highest growth rates (as can be seen in table 1). Thus, it is my mission to deliver ‘premium innovative products for technology orientated customers’. As the capsim information make it easy to spot those growth opportunities, the challenge lies in implementing the strategy and in participating in the market growth.
It was my plan to get a good position in the segments early, so that the growth rates become like a ‘wind propelling [me] forward’ (Treacy 2004b, p. 6). Traditional Low End High-End Perf. Size Market Growth 9% 12% 16% 20% 18% Table 1: Growth rates per round and per segment in capsim My innovative strategy is combined with the aim of being market leader in the fast growing segments. This should be achieved by an intensive customer orientation, fast research & development (R&D) cycle times, consequent product improvement and an innovative culture, while following a high-price strategy.
The growth should be a continuous process concerning capacity and employee increase. 3. 2 Impact of the innovative strategy on my business decisions In this part of the text, it is described how I planned to take my decisions in accordance with my strategy. My results and experiences are presented below. I planned to focus my activities consequently on the fast growing segments – in the means of marketing & sales, research & development and capacity expenditures. Furthermore, I would like to launch new products for the growing segments as early as possible.
For having short R&D cycle times, there should be a focus on main R&D projects and the automation should stay low. Beside that, good knowledge management and having two innovative products in each segment should help to create learning effects, which should lead to reduced R&D times, as well. To implement the customer orientation, the customers buying criteria and the customer buying service score were planned to have the highest priority, according to that customer awareness and the accessibility should be high for my main market segments.
Consequent product improvement should be achieved by a regular upgrade of the products and by highly qualified employees. The prices should stay on a high level for gaining good profit margins and consequently a stable financial position. I thought early that this would be important, especially for financing the necessary investment in capacities and new product launches. To ensure long term financial stability, emergency loans should be avoided in any case.
Additionally, it was planned to have a good capacity management to assure that the customer demand can always be covered with the available capacities, especially for the (new) products in the fast growing markets. Hence the customer delivery service should be on a high level. The innovation culture of my company and the quality awareness of my employees are hard to influence in capsim, but I thought it can be useful to have a solid and consequent HRM-policy, where qualification and training is important, where continuous employee increase is aspired and where overtime should not be the standard.
Finally, it seemed essential for me, to use all the available information for having an eye on the competition, in order to achieve the market leader position. All these measures seemed to be inevitable, so it was clear to me that high investments would be necessary for reaching a good competitive position in an early stage, which would be – in my opinion – the base for being successful. Nevertheless, I decided to try this risky way, and hoped that I would earn the payoff after the first rounds of high investments.
The theoretical information about the necessity of a higher risk-exposure for being innovative supported my way. 4. Achieved results in Capsim with my innovative strategy 4. 1 Quantitative and qualitative results after round 4 Table 2 shows the sales development of round one to four. My company Andrews reached an average growth of 11 percent over the four rounds and is therewith in line with the minimum goal of double digit growth. Table 2: Sales development in Capsim from round one to four While looking at table 3, the market share per segment can be analysed.
It can be assessed that Andrews achieved a market share of more than twenty percent in each of the strategic market segments, but couldn’t reach the market leader position in one of them. Table 3: Market share per segment and per company at the end of round four Regarding the income statement and the stock market the situation is worse in comparison to the competitors as partially presented in table 4. Andrews had the highest costs and consequently the lowest EBIT-margin. Nevertheless, emergency loans weren’t necessary and the equity ratio is still high as it amounts to 50 percent. Table 4: Financial information per company after round 4
Two new products were developed and launched. The product Asenso was introduced in round 2 in the high-end segment and reached a market share of 14. 8 percent in round 4. Annelie was brought into the market in round 4 in the performance segment. According to the strategy the capacities of the products in the traditional and low-end segment were reduced, whereas the investment in new capacities for the other segments took place early, especially for the new products. The HRM investment was continous and the indicators such as turnover rate or productivity index reflect a stable position in comparison to the competition.
4. 2 Assessment and explanations of the results When examining the figures of table 2, it becomes obvious that double digit growth is not enough in fast growing markets, as it is only the fifth highest average growth rate of all companies in the market. Thus, I will change my mission to ’growing faster than the competition through the most innovative products on the fastest growing segments’ – only by doing this my strategic goal of market leadership can be achieved. My focus on the high growth-rate segments can be clearly seen in table 3.
But it becomes visible that the implementation of the strategy was not consequently enough, as Andrews is still active in all five segments. No product has really reached a high market share in its segment in comparison to the competition. The maintenance of products in five segments and the introduction of two new products required too many financial resources, such as for marketing and sales as well as for capacities and R&D. Companies, who are not operating in all segments, do not have this burden. This may be the reason for my bad EBIT situation and as a consequence the low performance on the stock market.
This assumption can be confirmed by table 4, where it can be seen that the SGA costs are on a high level in comparison to the competition. Besides that, my labour costs are relatively high. As there was no overtime work in round 4, this may come from my lower level of automation. For conclusion, I would say that Andrews performed acceptable concerning sales and product launches, but the financial performance has to be improved and the focus of the innovative strategy on the main segments as well as on the competitors has to be intensified. 5. Experiences with my innovative strategy
First of all I would say, it is a big help to have a strategy at all, which is a kind of guideline. In every situation when I was not sure about how to decide I tried to align my decision with my presented strategic focus. Although I knew before that being risky would be necessary, it was hard to decide which degree of risk is appropriate. Hence, I know now that in some situations more risk would have been better. As already mentioned the focus on the new segments was not consequent enough and I spent too much money for maintaining enough capacity and a satisfying customer survey score in all segments.
I mainly did this during the game as I started to get in financial problems and the market size and therewith the possible revenue of the traditional and the low-end segment was seductive. Thus, I experienced different things: first, I realized that a balanced portfolio between products in different lifecycle-stages is very helpful for your financial performance as you have products with stable revenues and profit margins who can deliver the money for the investment in capacities and R&D for new products.
Second, it became clear that sticking to a strategy is very hard in times of financial problems. A strategy can only be successful if all the dimensions of the business are put together in the right mix that means being innovative requires spending in R&D, marketing & sales, capacities as well as human resources. As soon as you save too much money for one element the spending in the other parts can be for nothing. Accordingly, it was hard for me to be economically with my financial resources as I always had the feeling that everything is important.
As a consequence, the financial problems started and this situation made it difficult to hold on my main strategy, especially as short-term measures became urgently and I had to change my plans spontaneously. For example, I had to set aside investments in automation, which would have been helpful for reducing my high labour costs. Thus, the implementation of my planned decisions, as presented above, was sometimes not possible, as circumstances had changed or as the financial resources did not let me. Therewith the complexity and the multidimensional connections in strategy implementing
became obvious. Treacys words the ‘time to launch big innovations is not when they are necessary for your business but when they are essential to the marketplace’ (2004a, p. 30) became true in my capsim game, as I realized that it is for nothing to have a better performance or a smaller size and therewith an even more innovative product than the competition, in case it does not meet the customer buying criterias. The customer penalises small variations to their requirements at once. Hence, using the market research data and concentrating on the customer focus is essential for avoiding market risks.
According to my experience, the competition in the fast growing markets is increasing from round to round, so even the third most important buying criteria can be crucial. Deciding about product features is even harder for new innovative products, where performance and size have to be configured two years before the product launch, so the customers buying criteria have to be predicted. Besides that, I confirm what Westland said that the ‘greatest unknown in any innovation is consumer demand’ (2008, p.
53) – accordingly I did some mistakes by buying too much capacity for new products too early or by producing to many products and creating a too high amount of stock. In other cases I was not risky enough and the amount of production was too low, so I lost possible sales and dissatisfied my customers. Finally it can be said that doing only one mistake can have strong negative consequences, which can maybe never be repaired and therewith cause long term problems. But as there are so many decisions to take, one mistake can happen very fast. 6. Conclusion
According to the theory innovations can create a huge opportunity for success, as they enable a company to create a big competitive advantage by having differentiated products, services or business models. Hence, an innovative strategy is highly recommended in order to achieve high business growth. Applying the theoretical knowledge to capsim I defined an innovative mission, vision and strategy for the business simulation game and tried to use the strategic goals as a guideline for my decisions. The results after round 4 were not very satisfying and the financial situation is worse in comparison to the competition.
Nevertheless, different experiences were made. First of all, I had to adapt my vision, as I realized that achieving double digit growth is not enough for reaching a market leader position in innovative markets. Second, by playing capsim I learned the meaning of the integrative strategic management approach in “reality”, so applying the strategy required a multifunctional and multidimensional way of thinking and decision-making was always a difficult trade-off. Originally planned decisions were not possible because circumstances had changed. In this complexity, different mistakes with huge negative business impacts can happen fast.
Consequently my third experience was that the theoretical information about the higher risk exposure and the higher level of adventure of an innovative strategy can be confirmed. Finally, I found out that it is really hard to combine an innovative strategy with a stable financial position. Hence, it can be concluded that the theoretical information from the first part of the text concerning innovative strategic management can be affirmed by my capsim experiences. However it has to be added that the complexity of real live became not clear in the literature and therefore learning by making experiences is very important.