Strategies for Speed: A Success Factor in Competitive Business Environments

158

Strategy: A View from the Top

requires

Executives must

a speed initiative

Requirements of Sp~ed

As a strategie weapon,

that every

aspect of an organization be focused on the pace at which work is

foster a "fast" culture within

accomplished.

their organizations. The agility that cornes from a speed orienta-

tion and carefully tailored resource investments provides the pre-

a firm's

competitive means to change and accelerate

requisite

strategie course. SpecificaIly, action must be taken on the follow-

the business mission, creating a speed-

ing issues:

the

compatible

business,

and commit-

ting to new performance metrics.

communications

focusing business process reengineering,

refocusing

culture,

upgrading

within

Refocusing the Business Mission

When the board and officers articulate a long-term vision for a

they provide a basis for shared expecta-

speed-oriented company,

the

tions, planning,

increase in speed throughout

and performance

the organization.

evaluation

regarding

Creating a Speed-Compatible Culture

an organizational

A company can facilitate speed by nurturing

culture that is conducive to speed and by adopting an evaluation

system that rewards those who can increase aspects of organiza-

including TQM,

tional speed. Change management

benchmarking,

time-based competition, outsourcing, and partner-

ing, can each play a raIe in focusing an organization on increasing

facets of its overall speed.

techniques,

Upgrading Communication

The increase in speed requires dramatically

for clear and timely communication.

expect instantaneous

facturers, suppliers, and service providers.

communication

upgraded methods

aIl parties

between customers, manu-

Increasingly,

Refocusing Business Process Reengineering

Business process reengineering

to reorga-

nize a company to eliminate barriers that create distance between

rethinking

employees and customers.

It involves fundamentally

(BPR) is undertaken

Chapter 7 Business Unit Strategy: Contexts and Special Dimensions

159

and redesigning a process to enable a custo]Jler focus to permeate

all phases of business activity. The deployment

is

evaluated to determine how they can best con tribu te. Upgrading

is the true

not eliminating

employee

intent of BPR.

of employees

contributions

employees,

Committing to New Performance Metrics

A specifie set of metrics has proven valuable in gauging a firm's

progress in improving performance frOIDits investments

in speed.

The metrics include sales volume,

innovation rate, customer satis-

faction, processing time, cost contraIs, and marketing specifies,

such as innovation support,

leaming, and initiatives.

Methods to Speed

The development

begins

of speed as a competitive

with an ~nternal analysis by a firm to determine where speed

exists and where it does not. Companies

then look to quickly

eliminate any "speed gaps." Three categories of methods domi-

na te corporate option lists: streamlining

upgrading

technology, and forming partnerships.

operations,

advantage

Operations

Streamlining

Many companies enter new markets with a level of competitive

information that would have traditionally been labeled as insuffi-

investment. However, most of these firms are not

cient to support

a new strategie

adopted

quality;

marginalizing

ability to ob tain quick postim-

schema. With a speed-enhanced

and to respond

plementation

feedback frOID the marketplace

with unparalleled speed in making adjustments,

inno-

successful

vations no longer need to be flawless at introduction.

they have

Technology

Upgrading

Using the latest informational

panies are able to roll out new product

common goal of speed-foeused

lT is to connect manufacturers

with retailers to enhance information sharing and to streamline

ln turn, shortening pipelines

and accelerate product distribution.

to create speed, eom-

faster. The

technologies

information

160

Strategy: A View from the Top

speeds products to shelves and satisfies customers with less

costly inventories. Doubling back technology enables companies

to learn customers'

their

preferences.

to better anticipate

buying patterns

that

responsiveness

Forming Partnerships

is a proven way to shorten the time

Sharing business burdens

col-

(Le., "partners

needed to improve market

lapse time"). Ford Motor Company's

partnership with General

Motors and DaimlerChrysler provides a front-page example. The

joined to develop an Internet

three major auto manufacturers

portal

links their purchasing organizations with 30,000 raw

material suppliers. These Web-based exchanges also increase the

to cus-

speed with whieh the automobile

tomer inquiries at every stage along the supply chain.

The evidence frOIDbusiness practiee supports

the emergence

in busi-

of speed as a critieal success factor as a primary element

ness unit strategy. The company goal of accelerating speed to sat-

isfy consumer needs is becoming less of an option and more of a

mandate

can be

survival. Fortunately,

for

the pressures

systematie

change that they face in accelerating their speed. Methods avail-

able for implementing

quiekly estab-

lished and are backed by the records of success faster firms enjoy.

businesses

and requirements

are becoming

in evaluating

for financial

companies

upgrades

respond

Creating Value Through Innovation

Value creation greatly depends on innovation. Sustained profitable

growth requires more than judicious acquisitions or careful "sub-

traction" by shedding

Many comparues recognize they need to generate more value froID

core businesses and leverage their core competencies more effec-

tively. These strategie initiatives,

increase the demand for

innovation. ID

or downsizing.

unprofitable

operations

in tum,

Innovation is a major strategie challenge for most companies.

coined the concepts of disruptive and

Clay ton M. Christensen

sustaining innovation to describe what he caUs the "Innovators'

Dilemma" -how successful companies with established products

Chapter 7 Business Unit Strategy: Contexts and Special Dimensions

161

can keep frOIDbeing pushed aside by competitors with newer,

cheaper products

and become a

serious threat.ll

that will, over time, get better

He notes that

incumbent

in sustaining

industry

engage

year-to-year

incremental,

breakthrough

mostly

focuses on "better" products. Some sustaining

simple,

dramatic,

froID analog to digital and froID digital

the y represent

bring a better product

higher margins

leaders.

to the best customers

a real technological

into the market

technologies,

advance,

innovation-innovation

leaders and competitors

that

are

are

innovations

others

improvements;

such as the transition

to opticaI. Although

their effect was to

that could be sold for

served by the industry

and,

products

therefore, not attractive

New entrants and challengers have greater freedom to engage

that may not be as

in disruptive innovation-Iaunching

to

good as the existing products

that are simple, and often more afford-

current ~ustomers, but

and

able. These new entrants

underserved

segments of the market and create a beachhead for

competition for mainstream customers with improved products

calls this disruptive innovation not because it

later. Christensen

defines a technological breakthrough,

but because it disrupts the

established basis of competition.

find acceptance in undemanding

The computer

hardware

industry

innovation. The introduction

the mainframe

disruptive

disrupted

rupted minicomputer

Blackberries and Palm Pilots, disrupted notebook computers.

computer dis-

sales. Wireless handheld devices, su ch as

industry. The personal

offers many examples of

of the minicomputer

Although industry leaders can survive a disruptive attack and

retain their leadership position, strong evidence suggests that the

only way to do so is by creating a separate unit. The reason is that

the separate entity needs the freedom to create a business model

that is tuned to the new disruptive way of doing business, which

ultimately leads to the demise of the business model of the parent

company. When the minicomputer

the mainframe,

IBM was late but survived by creating a separate business unit in

computer dis-

Rochester, Minnesota. Later, when the personal

IBM set up a separate business unit in

rupted the minicomputer,

disrupted

162

Strategy: A View from the Top

to its business model helped IBM sur-

Florida. Such adjustments

vive as the only major computer company from the 1960s.

General Electrie is weIl known for its capacity to reinvent

itself.

in the last 30 years, GE succeeded

ln every major transformation

by setting up or acquiring new disruptive business units and seIl-

ing off or shutting clown ones that had reached the end of their

to transform the business

economie lives.

model of an existing business unit as a way of "catching up" to

the new basis for competition imposed by disruptive innovations.

can keep a company viable for many

years; targeting current customers exclusively can be damaging in

the long fun. To start a new-growth business, noncustomers often

to understand. Discovering

are the most

and stimu-

why they are not customers

lates growth.

Sustaining innovation

It never attempted

encourages

innovation

customers

important

A focus by incumbents on profit rather than growth can impede

thereby inhibiting growth.12 Publie companies, under

innovation,

pressure from Wall Street to produce steady returns, face a partieu-

larIy strong challenge. Investors and industry analysts are likely to

expert

the company to generate more of its earnings growth from

profitability, whereas company executives tend to prefer earnings

to corne from increasing revenue. However,

there is empirieal

evidence that

the more a company' s earnings corne from either

profitability improvement or revenue growth at the expense of the

strategy is inher-

other, the more likely it is that

ently flawed.13 The differing emphases between investors

and

executives

often have better

companies

to invest for the long term and pursue disruptive

opportunities

innovations, whieh require a long time to develop and mature

and might produce

in the early stages of

development.

Creating

eludes many companies

because'ît

practiees.

Strategie planning too often centers on existing or closely related

products

to drive

innovation is a product of anticipat-

future demand.

customer needs in a cre-

ing, assessing, and fulfilling potential

based, but

is technology

innovation

ative manner. Sometimes

a culture of innovation

suggests why private

than on opportunities

strategie planning

short-term losses

the company's

and services

ln contrast,

transcends

traditional

rather

Chapter 7 Business Unit Strategy: Contexts and Special Dimensions

163

from the firm' s recognition of explicit or latent

often it springs

customer needs.

in the

Innovation can be directed at any point

customer or company value chain, from sourcing raw materials

to value-added,

after-sale services.

Although many businesses pur sue innovation,

for almost 100

years Minnesota Mining & Manufacturing

(3M) has succeeded

because its business model is based on a culture that is geared to pro-

ducing innovative products. Best known for Post-it Notes, Scotch

Guard, and Scotch Tape, 3M' s business segments include industrial,

transportation, graphies and safety, health cafe, consumer and office,

electronics and communications, and specialty materials.

Because of the company' s unparalleled

success as an innova-

tor, its approach deserves broader consideration. Fundamentally,

six mandates drive innovation at 3M:

1. Support

innovation from research and development

to cus-

tomer sales and support.

2. Understand

and analyze

the future by trying to anticipate

future trends. 3M has developed a program called "Foresight"

in which industry

survey the remote and external

for changes in technology and other trends ta

environments

identify new market opportunities,

experts

3. Establish

stretch goals. This driver

to 3M

because it is a measure that encourages growth. One example

sales target. This target is

of a stretch goal is the new-product

that 40 percent of sales will be from products

introduced in

the Fast 4 years.

ln addition, 10 percent of sales will be from

products

4. Empower

introduced in the current year.

employees

called "Greenfields.1I

is important

to meet goals. At 3M, this is accom-

rule." This gives

to devote 15 percent of their

plished through its 40-year-old "15 percent

3M researchers

time to any creative

approval

idea or project,

the opportunity

is not required.

and management

5. Support broad networking across the company. This driving

force calls for the sharing of discoveries within the company.

A 3M corporate policy states that

technologies belong to the

company, which signaIs that research results are to be shared

across all of its six business segments.

164

Strategy: A View from the Top

6. Recognize

and reward

people. An innovative

program at 3M rewards

peer-

nominated award programs and a corporate "hall of fame."

innovative

innovative

through

people

of

takes

Fostering

a culture

innovation

time and effort.

Although there is no universal model for creating an innovating

environment, a look at successful companies reveals certain com-

mon characteristics. First, a business needs a top-leveZcommitment

in the attitudes

to innovation. Commitment

of top executives, through their communication of their belief to aIl

levels of the organization in the benefits of innovation, and in their

willingness to sponsor and guide new-product

to innovation is evident

activity.

blocks

stumbling

Second, a business needs a long-term locus. "Quarteritis,"

the

is one of the most

is an

Innovation

top- or

in the future, not a rescue mission for current

preoccupation with the next quarter's

common

investment

bottom-line problems.

a business

a flexible organization structure.

Innovation rarely flourishes in a rigid structure, with complicated

approval processes or with bureaucratic delays and bottlenecks.

to innovation.

results,

Third,

needs

Fourth, a business needs a combination of looseandtightplan-

aIl direct,

and

ning and controI. Allocating

other costs to a development

ifs

demise. Few innovative ideas caTIimmediately be translated into

that cover aIl of their own costs or meet

commercial ventures

conventional payback requirements.

to create an environment

indirect, overhead,

guarantees

project virtually

for innovation

a business

Finally,

needs a system of appropriate incentives. Reward systems in maTIr

companies are oriented toward existing businesses, with short-

outweighing

term considerations

and

caTI flourish only

market development

objectives.

failure is accepted,

when risk taking is encouraged,

and managers are held accountable for missing opportunities

as

weIl as exploiting them.

longer-term innovation

Innovation

occasional

Relationship Between Innovation and Performance

Evidence on the relationship between research and development

(R&D), innovation,

is inconsistent.

Booz Allen Hamilton's The Global Innovation 1000 study in 2006

and financial performance

Chapter 7 Business Unit Strategy: Contexts and Special Dimensions

165

found no significant statistical relationships between R&D spend-

success.14 The study identified the

ing and measures of finandal

1,000 public comparues around the world that spent

the most on

R&D. Spending was highly concentrated, with the 20 largest R&D

accounting for $116 billion, or 28 percent, of the total.

spenders

The top 20 comparues have a median R&D-to-sales ratio that is 1.8

limes that of the remaining sample, but fail to achieve a corre-

sponding finandal gain.

ln contrast

representing

innovation translates

involved 1,070 executives,

Boston Consulting Group' s (BCG) Innovation 2006 global sur-

63 countries and all

ver

to the Booz Allen Hamilton research,

major industries.

into superior

the BCG research found that

long-term stock market performance.

innovative

companies identified by survey respondents had a median annu-

frOID 1999 through 2005, a full 300

alized return of 14.3 percent

basis points beUer than that of the S&P Global 1200 median.15

Similarly, The Innovation Premium, published

in 1999 by the

correlation

Monitor Group,

between a company' s effective focus on innovation and organic

growth, and ils future shareholder

a strong positive

The 25 most

demonstrated

returns.16

to drive profits.

and Profitability

Innovation

Research suggests that executives lack confidence in their compa-

nies' ability to use innovation

ln a Forrester

froID manufacturing

Research study, 67 percent of respondents

firms considered themselves more innovative

than competitors,

but only 7 percent identified themselves as very successful in meet-

in the BCG

ing their innovation performance goals.17 Respondents

Innovation 2006 survey questioned the effectiveness of their R&D

spending; 48 percent of those surveyed were unsatisfied with the

finandal

returns on their companies'

investments in innovation.

The reason for the lack of success in translating

into profitable performance

records of the Fortune 50 sponsored

Executive Board. The study concluded

growth inhibitor

the innovation process."18

innovation

surfaced in a study of the growth

by HP and the Corporate

the single biggest

of

that

for large companies was "mismanagement

166

Strategy: A View from the Top

63 percent said their companies

Another explanation for the lack of success in innovation is a

the met-

lack of measurement metI:ies or the failure to implement

ries effectively.

ln conjunction with the Innovation 2006 survey,

BCG invited a group of senior executives to complete a separate

survey on innovation metries and measurement.19 Of the 269

respondents,

track five or fewer

metries. Only 47 percent said they apply postlaunch metries spo-

radieally, and 8 percent said they do not apply them at all. Fully

half of all companies do not closely track the efficiency of their

innovation

indieated

processes. Less than half of respondents

their firms link employee incentives directly to innovation

that

metries consistently,

R&D investments

successful products

fail to generate

if at all.

failure

products,

to successfuIly

financial gains for three main reasons:

innovative

innovative products once they are on the market, and failure to

in a timely manner. Many corpo-

market

products

innovative

in development: One estima te is

rate projects are abandoned

to generate one market-

that

place

aIl

of success with innova-

research indieates

tions is small:

it takes 125 to 150 new initiatives

report

the probability

success.20 Others

commercialize

statistics,

different

that

but

and

failure to develop truly

. Koudal and Coleman find that more than 85 percent of new

ide as never make it to market, and of those that do

product

make it to market, 50 to 70 percent

. ln a global study of 360 industrial

fai1.21

firms launching 576 new

industrial products, Stevens and Burley found an overall suc-

froID launch.22

cess rate of 60 percent

. Ogawa and Pillar have confirmed the problems of new

product commercialization, with newly launched products

suffering froID failure rates often reaching 50 percent or

greater.23

. Delays in getting a product

Mc Kinsey & Co. found that a product

market will miss out on 33 percent of the potential profits

over the product's

lifetime.24

to market can be extremely costly.

that is 6 months late to

Chapter 7 Business Unit Strategy: Contexts and Special Dimensions

167

for Improving Performance

Recommendations

Through Innovation

An overall evaluation of the research on the impact of innovation

leads to six rec-

investments on company financial performance

ommendations

for strategie managers:

'

1. Plan synergy between strategy and innovation.

Firms that

innovate toward achieving a specifie strategie goal improve

their chances of success.25

2. Areas where new opportunities

advantage

exist provide a firm's best chances to profit from innovation.

served, processes

Product and serviee offerings, customers

employed,

in

innovation decisions.26

and core competencies must be considered

and competitive

systems, whieh willleave

3. Profits from innovation in business systems can match those

from product development.27 Firms relying on new products

required to strengthen

alone might exclude the investments

to com-

business

business processes

in the areas of

petitors who strengthen

and financial

information,

marketing,

systems. Benefits of

include a system-wide

innovation

broad-based

for product

infrastructure

innovation,

entry barrier

to would-be competitors,

ties for innovation in the functions and processes.

and other opportuni-

the development

them vulnerable

supporting

of an

4. Look outside

of

internaI

environment

the company's

to

increase the likelihood of success and reduce the risks of inno-

vation. Open business models enable organizations

to be more

effective in creating value by leveraging many more ideas via

the inclusion of external concepts and capture greater value

through more effective utilization of firm assets in the organi-

zation's operations and in other companies' businesses.28

5. Alliances

and corporate venture capital programs allow a

invest-

firm to share the risks associated with exploration

ments.29 Corporate

to furnish

venturing

reliable, practieal, near-term solutions to the innovation chal-

for sourcing complemen-

lenge by providing the opportunity

tary and strategie intellectual property, additional

financial

resources, and skills.3o

has the potential

168

Strategy: A View from the Top

the customer

6. lnvolve customers early and often in the innovation process.

takes an active raIe in

Through co-development,

require-

the innovation process by helping to define product

ments, components,

and materials.31 It can help companies

avoid costly product failures by soliciting new product concepts

frOIDexisting customers, pursuing the most popular of those

ideas, and asking for commitments frOIDcustomers to purchase

and

a new product before commencing

production.32 The use of co-development

is particularly effec-

tive in testing innovative products and in developing products

for relatively small and heterogeneous market segments.

final development

NOTES

1. M. E. Porter, Competitive

Strategy: Techniquesfor Analyzing

Industries and Competitors, New

York, The Free Press, 1980,

Chapters 11 and 12.

2. J. A. Pearce II and R. B.

Robinson, Jr., Formulation,

Implementation, and Control of

Competitive Strategy, 11th ed.,

Chieago, IL, Irwin/MeGraw-

Hill, 2009, Chapter 5.

3. A. E. Serwer, "Huizinga' s Third

Act," Fortune, August 5, 1996;

and T. Ferguson, "Off-the-shelf-

autos: A chat with J. David

Power III," Forbes,February 10,

1997.

4. J. E. Bleeke, "Strategie Choices

for Newly Opened Markets,"

Harvard Business Review,

Sept.-Oet. 1990.

5. Bleeke, 1990, op. cit.

6. A. Florissen, B. Maurer, B.

Schmidt, and T. Vahlenkamp,

"The Race to the Bottom," The

McKinsey Quarterly, no. 3 (2001):

98-107.

7. R. A. D'Aveni, "Strategie

Supremaey Through Disruption

and Dominance," Sloan

Management Review, 1999,40 (3).

8. W. I. Huyett and S. P. Viguerie,

"Extreme Competition,"

McKinsey Quarterly, no. 1 (2005):

47-57.

9. J. A. Pearce II, "Speed

Merehants," Organizational

Dynamics, 2002, 30 (3): 1-16.

10. C. A. de Kluyver, "Innovation:

The Strategie Thrust of the

Nineties," A CresapInsight, July

1988.

11. C. M. Christensen and M.

Raynor, The Innovator's Dilemma:

When New TechnologiesCause

Great Firms to Fail, Boston,

Harvard Business Sehool Press,

1997.

Chapter 7 Business Unit Strategy: Contexts and Special Dimensions

169