Strategic management is to define the main directions of the company on a time horizon of medium or long term (over three years). It is first of all to the general management of the company prioritize the key objectives (growth, profitability, security etc.), taking into account the specific characteristics of the company and those of its environment (Chakravarthy & White, 2002). The study of the environment and resources (available or missing) of the company leads to external and internal diagnostic highlighting the strengths and weaknesses of the company. It assesses the competitive intensity of the industry in which the company operates and to identify the specific skills of the firm which can be converted into competitive advantages.
Strategic management has the purpose of making important decisions aimed at achieving the objectives. These decisions affect all players in the business are readily reversible and commit the firm over a time horizon longer than three years. The relevance of these decisions is often crucial to the success or failure of the company. Thus, the strategic orientations can be conducted on the basis of identified internal core competencies (Hamel & Prahalad, 1989) and organizational capabilities and their effective implementation. Strategic management should allow to develop these skills by transforming it into competitive advantages. Strategic management is to plan action preserving flexibility in case of unexpected and ensure good coupling between the external environment and internal organization of the company.
Operational management, on the other hand, is the implementation of the guidelines set by the strategic management based on many decisions and actions that are the heart of operational management (Christensen et al, 2003). This is driving the business by ensuring optimal utilization of available resources and to coordinate the various members of the organization towards its objectives. The main actors responsible for operational management are functional (production, personal, business etc.) and middle management (department heads, foremen). The action part of operational actors is in a limited time frame (a few days to three years) and does not bind the company irreversibly.
Well- managed businesses usually start their planning by defining mission and vision statements. Although the starting point is both necessary and admirable, it is not usually become usable by management until the mission translates into a strategic plan that is then used to guide operations. Managers gain an understanding of the difference between strategic and operational objectives because this distinction plays a major role in the transformation of a global vision into concrete, specific and benchmarks tasks and objectives. Daily, weekly or monthly operations are implementing using major strategic objectives. Operational or tactical objectives are set out strategic objectives in mind and provide a way for managers and staff to decompose a large strategic goal into manageable tasks. For example, the realization of the strategic goal of a 25 percent increase in sales requires achieving the operational objective to develop and implement an advertising strategy effectively with other operational objectives.
As the strategic objectives, operational objectives should be specific and measurable, even if their objective is narrower. The most important difference between a strategic plan and an operational objective is its timing; operational objectives are short-term goals, while strategic goals are long term goals. Strategic and operational objectives also work differently in practice that the strategic objectives are often too large to make sense as a specific set of tasks of daily or weekly projects. Operational objectives, on the other hand, are specific and short-term enough to be considered usable every time in a day. Even if the strategic and operational objectives are significantly different, it is important to recognize that they are closely linked.
An organization is unlikely to achieve a strategic objective if it fails to effectively translate realistic business goals. At the same time, the operational objectives lack cohesion with each other and with the overall mission of the organization if they are not designed to affect the achievement of strategic objectives. In other words, the strategic objectives become useful when they are translated into operational objectives and operational objectives are only effective if they are designed to serve a strategic plan objective (Johnson et al, 2003).
Decision-making at different levels of corporate planning is also one of the most discussed topics in the research strategy. Rationality and analysis is often directly associated with the concept of a strategic decision making. The analysis of the decision-making process is the origin of the work on the strategy formation. The analysis of the environment and resources is primarily the strategic reflection phase. Once this phase is completed and proposed various solutions and opportunities, the decision phase is characterized by a specific time and place (management committee meeting, board of directors, etc.). Once the decision is made, it is assumed to be implemented, theoretically exactly as it was intended.
Action is often disconnected from a prior decision and is then rationalized by reflection and decision ex post. So there can be action without a prior decision, and this action is the result of micro organizational procedures, which, added to the organization, create all sense. The second dimension of this link between decision and action is the existence of strict action after a decision. Business leaders, faced with many contradictions, placed at the heart of the agency relationships, organized hypocrisy in making decisions that will reassure and satisfy stakeholders, without organizational action of changes. Finally, the link between decision and action is further weakened in the case of "emergent strategies". In this case, there is indeed a decision and action, causing a result, other concomitant decisions, changing organizational or environmental conditions which will profoundly alter the expected outcome from the action initiated by the decision (Jarzabkowski, 2003). More specifically, the action is transformed by these emergent phenomena and corresponds more to what had been decided beforehand.
Strategic and operational dimensions of management are complementary in nature. Operational management and planning falls within a framework defined by the strategic management and the decisions of operational decisions must take into account the opportunities and constraints of the business environment, the objectives set by senior management. However, in large companies, it is not always easy to ensure effective link between strategic and operational management. Strategic decisions which, by nature, upset the habits of field are sometimes misunderstood and criticized (e.g. closure of a production site). This is why it is important to integrate in the culture of the company, its values and its history in the choice achieved by strategic management. Internal communication also plays an essential role (Liedtka, 2001): it is necessary to explain the strategic coherence to not demobilize actors of operational business. In this regard, two pitfalls must be avoided:
· Strategic management should not lead to the definition of a framework too strict or too ambitious, in which the operational management could not find way to express themselves;
· Operational management practices should not be rigid (otherwise hinder strategic changes needed) or lose sight of the strategic directions pursued
The 1990s saw the development of an important line of research on the role of innovation in strategy and transformation of processes design. Definition of innovation varies from one person to another depending on their interests. The first confusion surrounding the definition of innovation is that it is used in place of creativity or invention. While creativity is the ability of the individual to create, produce new and feasible ideas to combine and rearrange items, innovation is the result of creativity and added value to action (execution). In the broadest sense, innovation can be likened to any changes introduced into the economy by any agent who results in a more efficient use of resources. This definition is derived from the economic approach to innovation. And this is due to the fact that innovation is primarily an economic term that was imposed because of the evolution of capitalism.
Two decades ago, the attention of the company is focused on reducing costs and control of production chains around standardized products. In the 1990s, the impact of globalization has ruined the benefits gained. It has therefore become necessary for firms to innovate in order to survive. Innovation is seen as an essential condition for survival and development for many companies. Although innovation is a key driver of growth for the company, it causes many failures and show that the innovation process is complex and full of uncertainties (Schlegelmilch et al, 2003). Hence, it is important for the company to create conducive climate for innovation process.
This leads us to the question: To what extent, innovation is the key factor in the success of the business? In a competitive and constantly changing face of business environment, companies do reflect on the innovation that is essential to ensure their growth and development. Indeed, companies can go through innovation to develop sustainable competitiveness. Thus, companies are looking to develop innovations taking into account the risks associated with it (Kim & Mauborgne, 1999). Innovation enables companies to enhance their competitive position in the markets. Indeed, the innovation enables companies to increase their productivity, improve the quality of their products or services and to develop key skills. Innovation enables companies to improve especially their non-price competitiveness.
As competition levels in the contemporary commercial world continues to rise, it has become highly important for companies to seek alternative business strategies in order to maximize profitability and growth potential (Parker, 2005). This justifies why this research is conducted in order to bring insight to businesses that seek to establish a good strategy for enhancing competitiveness.
This research will be highly useful, both in the academic and business circles. This research is anticipated to play a great academic role as it seeks to explore a field of study that is yet to be significantly explored. It is notable that while most businesses have sought to enhance productivity through increased innovation, few are actually willing to risk their resources in new markets. It therefore opens room for more research regarding the possibilities that innovation could have on businesses.
This will not only occur through increased knowledge about this subject, but also, through the development of new research areas by addressing research gaps that may emanate from this research. Companies are bound to benefit significantly from the research which will determine whether the use of innovation as a strategy to enhance competition would work well or whether they should consider other alternatives.
The main aim of this research is to establish the relevance of strategic innovation in businesses that seek to promote competitive advantage. The aim is to establish the benefits and disadvantages that are associated with strategic innovations and thereby offer solutions to businesses seeking to make new investments.
· To determine the benefits associated with business innovation
· To establish the complexities and hurdles in implementing strategic innovations into the organization
· To identify the relevance of the innovative strategy for companies seeking competitive advantage.
· Do the business innovations offer a good solution for companies that seek competitive advantages in the global arena?
· On which factors should organizations work while implementing innovative strategy into the business?
· what are the hurdles and impediments in implementing innovative business strategy into the organization?
This study is limited to using pre existing (secondary) data. It is limited in that it is student level research and the most preferred method as access to required data can be obtained at little or no cost to the researcher. Journal, periodicals, newspaper articles and internet were the sources used to prepare this research paper. Thus, for student level research it is the most preferred method because it is not possible for students to perform expensive research.
The rising levels of competition and the fact that markets are becoming largely saturated to a great extent has led to the adoption of innovative strategies by companies in a bid to enhance their competitive advantage. The possibility of success in their strategies however depends on how they are used and how well they are executed. This is an indication that companies need to choose the best alternative strategies among the available ones to enhance the probability of success and ensure the desired objectives are met (Hollensen, 2011; Aswathappa, 2006).
Besides increasing competition, customer tastes and preferences are changing at a high rate and the need for proactive strategies that improve customer satisfaction is inherent. Companies must continually work towards providing unique products and services to attract customers and to promote their profitability levels (Shepherd & Shanley, 1998). Further in the quest for business success, business innovation that allows companies to be industry leaders is highly encouraged to enhance survival.
Innovation is a key factor in the competitiveness and profitability of companies and is therefore an essential element of business strategy. Thus, innovation allows the company to have a competitive advantage in terms of cost or product supply. When innovation is in the production process, it gives the company an advantage in terms of cost. In this case, the company may either apply a strategy of lower prices or a strategy to increase margins. When innovation focuses on products, the company differentiates itself from its competitors (Johnson et al, 2008). Differentiation strategy is often adopted by innovative organizations which can coexist alongside the large MNCs. While innovation provides a competitive advantage, profitability is uncertain; it may hinder the development of the company.
The example of the invention of nylon by Dupont and the development process of instant photo by Polaroid have provided to these companies substantial annuity. However, the profitability of innovation is uncertain because of its anti-competitive effects. The innovation has an impact on the structure (number of competitors) and nature (Non-price competition) of competition and can therefore lead to distortions from the traditional competitive model (perfect competition). Aiming at an optimal allocation of resources, the authorities may design a policy to monitor anti-competitive effects of innovation, thus remove the extra profits tied to innovation (Govindarajan & Kopalle, 2004). This occurred in a case involving the world's leading manufacturer of computer software Microsoft and European authorities. Enjoying the beginning of a technological advantage, Microsoft had a hand succeeded in imposing on microcomputers manufacturers its operating systems (MS-DOS and Windows) and other signed contracts with them on the basis of a so-called "per processor" which required manufacturers to equip their devices with Microsoft software. The firm of Bill Gates built over 80 years a virtual monopoly on market application software by "killing the competition." This ended in July 1994 through the combined action of the Ministry of Justice and the U.S. Commission in Brussels.
To acquire new technologies, companies can proceed in several ways. In-house research is in the field of large businesses because it is long and requires significant funding. The partnership is also a way for some companies to reduce the costs of research. This is particularly the case with the automotive supplier Valeo. Valeo, in order to meet the costs of research of important development and embedded computing had established numerous partnerships with specialists in electronics as Raytheon, Iteris and Pioneer.
The Austrian economist Joseph Schumpeter presented an analysis of the innovation to explain the evolution of capitalist economies. According to him, innovation is the introduction of new process technology, new products, new sources of raw materials and new forms of industrial organization. Innovation is precisely the source of the dynamics of change in the capitalist economy. For Schumpeter, there can be no capitalism at steady state. Economic development is marked by a series of revolutions and the alternating phases of growth and stagnation (long cycles). In this dynamic economic innovations play a major role. Technical progress is Schumpeter engine of economic growth. Not only capitalism is never stationary, but it could never be. It is constantly evolving but this evolution is met: the successive phases of prosperity downturns (Baumol, 2002).
When a set of innovations is widespread, it feeds a phase of prosperity, until it became a routine from which no further significant progress, and new entrepreneurs are thus encouraged to open new paths, the boldest example of paving the way for the following (innovation clusters). But this destabilizes the economy ruining producers’ inadequate competition, deflation resulting from the repayment of the credit for innovation. A phase of "creative destruction" necessarily accompanies the diffusion of change and uncertainty in this period temporarily stops the emergence of new entrepreneurs.
Innovation is now seen as a process of collective creation. It is not a simple initiative of isolated individuals. The large size of companies and the concentration can thus foster innovation (economies of scale in research and development, financing easier especially when research is expensive and random etc.). However, businesses can find their place in innovation processes especially when integrated in networks (e.g. Silicon Valley).
A majority of businesses mostly seek to identify strategies that they could use in enhancing competitiveness and profitability, given the rising level of competition and changing customer demands (Stirtz, 2006). The selection of a good strategy however cannot be established without a proper review of the factors associated with that strategy so as to establish its effectiveness in solving the identified problem (Seshadri, 2005). This involves exploring the advantages, disadvantages, costs and risks that the business is likely to face in utilizing such a strategy. The company must be able to weigh the costs against benefits to determine whether the strategy is really worth the effort and whether they should utilize an alternative strategy to obtain better results.
According to Smith (2008), the strategy to be chosen must be well aligned with the organization’s objectives, hence the need to study and make a summative conclusion. This study aims at exploring the innovative strategy with the sole objective of determining the benefits that a business is likely to gain from taking up the strategy while reviewing the costs/disadvantages that the business is expected to face in the event that chooses this strategy. It is notable that by choosing the innovative strategy, the business may either succeed or fail and it is therefore of great concern that the company is armed with full information regarding the strategy so as to make an informed decision (Zhou 2006, p. 396).
The organizations in the adoption of a strategy of innovative cost leadership (Porter, 1980) is dictated by the nature of the activity and aims to meet the demands of customers who want most innovative products but at a reasonable rates. Companies, however, facing competition from new producing countries, the domination of the costs quickly becomes inadequate. This explains the increase in strategies of differentiation in the business.
Despite numerous indications within both the design and implementation of the innovative strategy, the question remains of how to ensure the sustainability and survival of the company. This is expected to offer its customers a higher value than competitors. To do this, managers of the company are required to implement a strategy to retain its customers and cope with the current changes in the competitive environment or to withstand this environment and to circumvent the various dimensions of competitiveness.
In fact, the choice of an innovative strategy is based on the terms of competitiveness are cost and value. These two variables of cost and perceived value, which are the source of competitive advantage, position the company in the competition in order to select one of two competing generic strategies as identified by Porter (1980). The author develops a model theory that identifies, depending on the nature of competitive advantage, cost leadership and differentiation strategies which involve the operation of a sustainable and defensible competitive advantage. Otherwise, the company can get bogged down in middle way.
However, the relevance of the very notions of innovation in cost leadership and differentiation is criticized. In a context of globalization and competition acceleration changes in technology, the components of the Porter model do not allow to account for the complexity of the organizations’ environment (Mintzberg, 1988). In addition, the conditions for leadership in terms of costs (cost reduction transaction, economies of scale, experience effect, etc.) would, in fact, independent of those making the difference in the possible offer (Murray, 1988; Hill, 1998). Otherwise, cost leadership and differentiation cannot be considered a priori as mutually exclusive types of strategies.
Porter (1980) confirms that a single type of competitive advantage can be an asset to the company to obtain a strong position against the competition. The combination of the two assets is the costs and the value can give a representation different from Porter. This representation takes into account the size dynamics of strategy and competitive advantage that is more adapted to the current context. To better understand the importance of this idea, it suffices to show that one advantage can often be imitated and led to a revision of the initial strategy.
The combination of generic strategies has been the subject of controversy between the researchers. Some, such as Galbraith & Schendel (2000), Hambrick (2003) and Parker & Helms (2002) etc. reject the notion of combination strategies of Porter, and think that it necessarily leads to the median path. These researchers believe that only the singular strategy can bring sustainable and decisive advantage to the company. The risk arises if the company does not adopt a clear strategy and is guided by decisions taken at random or by trial and error. The
result in such a situation may be poor and can lead the company to a critical state.
However, if the capacity of the business permits, it may take more than one strategies without risking its successful strategy and can thus avoid sinking into the middle lane. Porter generic strategies appear, according to this logic, more flexible and have a range of choices and options through a combination of base strategies (Murray, 1988). They help guide the company more clearly, making more difficult for a competitor to imitate its sources of competitive advantage. Indeed, a majority of research is in this sense defend the thesis of combination of competitive strategies (Philips et al, 1993; White, 1996; Murray, 1988; Miller, 1992). These authors have shown that this type of combined strategy gives the company a more favourable position as compared to the competition. They think that today the company is more flexible and have various committed organizational skills to deter competition. At this time, its objectives cannot be achieved with the implementation of a single strategy. In this regard, Murray (1988) explains that a strategy of cost that rivals a differentiation strategy must also be a differentiation strategy and vice versa.
Miller (1992) states that the most effective strategies, which offer fewer imitation attempts, are those based on the simultaneous control of a set of innovations which include marketing skills, production, product design, distribution and prices, etc. In contrast, the contributions mentioned above are limited to a level of formulation of the problem without solutions. By cons, there is a possibility of offering a combination model that facilitates understanding of emergence combined in a sequence in time process strategies. Inspired by the writings of this author and "convinced" of the possibility of combining the two innovative and competitive strategies (cost and differentiation), the question is how this combination can it be viable? To do this, it is necessary to mention, in addition, other generic term strategies of Porter. They suffer from lack of generality and instrumentality. Therefore, strategic management researchers have attempted to refine this concept by offering alternative typologies.
To make each time the concept of generic strategy more operational, the studies have multiplied to offer different types (Mintzberg, 1988). However, these types do not reflect the continuous environmental complexity. It is argued that previous types are simply the refinements of Porter and do not now solve the problems of generality and lack of instrumentality raised by authors like Kotha and Vadlamani (2005). They emphasize on the existence of two strategic direction of lower costs and differentiation.
A company needs a series of temporary advantages instead of one. This range of benefits can be achieved only through a possible combination of generic strategies. In other words, the proposed dynamic approach does not answer the question of combination of generic strategies. As argued above, the combination is effective if two different strategies are adopted simultaneously and not successively. This approach promotes the development and implementation of a strategy considered together, the two dimensions: lower costs and differentiation provide the company with the two types of competitive advantages.
The willingness of adopting lean differentiation strategies to approach more classic cost leadership, led the company to manage a portfolio of heterogeneous innovation projects. We classify them using two criteria:
· The strategic axis to which they belong (domination by cost or differentiation, distinguishing in the latter case the reactive and proactive innovations);
· The nature of the proposed solution
The typology established by Henderson & Clark (2000) distinguishes innovations as "Incremental" and "radical" from the concept of "dominant design ". It is the impact of the solution on the dominant design of the client which is considered. Nevertheless, the crux of the strategy is not innovation or successful single project but is rather the ability to build a path of sustainable successive innovations introducing significant disruptions in the products identity, markets and technologies. One of the contributions of this current is to bring the importance of the concept of knowledge creation in the innovative process (Nonaka & Takeuchi , 2007) and, more specifically, to characterize the relationship between the process of knowledge creation and the creative process of products (in particular the concept of "product line" developed by Hatchuel & Weil, 1999).
Several recent studies analyze the dynamics resulting in systems design sectors (Benghozi et al, 2000). If auto companies and their first-tier suppliers is certainly one that has been most widely studied (Clark & Fujimoto, 2008). It is different for companies producing raw materials involved in the upstream stages of the industrial sectors, companies typically manufacturing chemical or steel. The new design models developed in manufacturing companies are adapted to the specific situation of the upstream companies.
While innovation in technology has a direct impact on the cost or differentiation, it operates in a competitive advantage by changing other cost trends or unique factors. It can also affect each of the five competitive forces, particularly at the level of entry barriers. It is therefore necessary to focus on technologies that have the greatest lasting impact on cost or differentiation, which has nothing to do with their degree of sophistication. Because of this important role in achieving a competitive advantage, we must also consider the evolution of technology. By providing the means to anticipate a firm can take appropriate initiatives and therefore ownership and strengthen competitive advantage.
In the growth phase, innovations focus on the product. After reaching maturity, the aim is to streamline mass production, where a strong focus on improving manufacturing processes. When approaching the decline, innovations are scarce, technology investments reaching the point of diminishing returns. However, we must not forget that the forecasts of technology must be considered with caution, as the uncertainty is strong in this area. This recall applies equally to the choice of technologies to be developed for the decision to be or not precursor, or the granting of licenses.
The choice of competitors is the second element to influence both on the competitive structure of the industry and benefit. It can be there at the most interesting chapter of the book since it goes against many ideas. The reasoning is indeed to say that competitors can enhance the competitiveness of the firm and improve the industry structure. It may be better to give up deliberately to increased market share. Things are not so simple, however, since this is how to behave towards "good" competitors, while it should focus attacks on "bad."
On a more global level, the presence of competitors avoids prosecution for dominance or monopoly (the example of Microsoft immediately comes to mind). It mainly acts as a deterrent to the entry of a new firm. It makes it more likely the effect of triggering the violent retaliation against a new entrant. This will perhaps already discouraged by the poor state of "good" competitors, which are an illustration of the secondary difficulties faced by firms.
Innovations promote stability and therefore business sustainability in a turbulent environment. Miller (1988) notes that the introduction of innovations on products is an effective strategy in a dynamic environment. As such Dean et al. (1998) estimate that SMEs innovation capacity is greater than large firms. It is said that companies are in a hypercompetitive environment and thus, adopt innovative strategies to ensure their survival. However, these strategies are conditioned by the nature of the activity. It is believed that innovation is a strategy which avoids confrontation with the competitors and provides a sustainable competitive advantage ensuring the survival of businesses.
Some authors state in their research that the competitive strategies of companies include innovation and differentiation from the marketing or the quality and service point of view (O'Gorman, 2001; Hallberg, 2000; Borch et al, 1999). Others say that companies adopt a combination of differentiation strategy and the domination by the costs are assumed to be more outperform their competitors (Namiki, 1988, Porter, 1985, Dess and Davis, 1984). Kazem and Van der Heijden (2006) estimate that the export strategy (which can be considered a geographical differentiation) can be used for growth of SMEs. Indeed, companies can export to avoid stagnant markets premises as a result of market saturation, an increase in competition or still a lack of opportunity.
This decision is based on several factors like the size of the company, its competitive advantage, its management characteristics, the number of external strategic opportunities, its ability to acquire information on target markets, etc. Companies can also use this strategy to acquire new skills. In addition, Blake and Saleh (1995) studied the small family businesses. They show that in an uncertain environment, these companies increase their level of innovation activity. Upton et al. (2001) found that family businesses recorded significant growth target the high end. Indeed, their study showed that 66% of companies are opting for differentiation against 15% for the domination by costs. Van Gils et al. (2004) conducted a survey of 295 family businesses including 258 are SMEs. The authors found that companies do not opt for a precise strategy but a mix of strategies. In fact, 39.3% of firms in the sample opt for a combination of the differentiation strategy, while 14.3% of companies choose a strategy of cost leadership and 18.9% a differentiation strategy themselves. This refers to what be described as a central strategy "a stuck-in-the-middle position." The results of the study show that the innovation and differentiation strategy seems to be driven by the need of internationalization.