Recommended Readings on Strategic Innovations to Grow Sales

In the November newsletter we discussed how to downsize your organization during difficult times. Unfortunately you can downsize your company to death.  Here are two books that demonstrate how you can grow sales through strategic innovation.

10 Rules for Strategic Innovators from Idea to Execution by Vijay Govindarajan & Chris Trimble.  ISBN 1-59139-758-8

This book shows you how to build a breakthrough new business within a profitable old one. Even world-class companies eventually hit the ceiling on growth. That is what makes emerging industries so attractive. These markets represent huge opportunities for capturing long term growth and competitive advantage. But because they lack a proven formula for making a profit, they are risky and expensive—with dire consequences for failure.

Vijay Govindarajan and Chris Trimble argue that every organization’s survival depends on strategic experiments that target such untested markets, but few firms understand how to implement them successfully. Too many managers think that a great idea is enough to get them from business plan to profitability, but somewhere in the middle of the innovation process, most organizations stumble. In Ten Rules for Strategic Innovators, Govindarajan and Trimble reveal where firms go wrong on their journey from idea to execution—and outline exactly what it takes to build a breakthrough business while sustaining excellence in an existing one.

Strategic innovation can redefine potential customers as in the case with Canon’s pioneering focus in the 1970’s on the development of photocopiers aimed at small businesses and home offices rather than large corporations. Strategic innovation also can reconceptualize delivered customer value, as in IBM’s shift from selling hardware and software products to selling complete solutions in the 1990’s. In 2001, Procter & Gamble launched Tremor, a new marketing service for other corporations. Seeking more effective marketing mechanisms for its own products, P&G had experimented with systematic approaches to generating word-of-mouth referrals. The company had invented methods for identifying talkative opinion leaders within groups of teenagers, based in part on how they used the Internet. P&G then encouraged these leaders to try products, discuss them with their friends, and distribute coupons and samples to anyone interested. In two years, P&G had built a marketing army of more than two hundred thousand teens. When P&G recognized that it could provide other companies with access to this network for a fee, it launched Tremor.

A more recent strategic innovation that is not discussed in this book is Tata Motors new car for India’s people.  This car sells for $ 2,500 making it the world’s cheapest car. The strategic innovation involved redesigning a car that will fit the budget of the millions of Indian families who could not afford to buy a traditionally designed car.  This car called the Tata “Nano” has no air conditioning, no electric windows, no power steering, no air bags, a top speed of 43 KM an hour, the small engine is in the trunk, the body work is made of sheet metal and plastic and the front end is made up of plastic and adhesive with no welding. Can you imagine a western or Asian automobile company designing such a car? Tata Motors has done it and will soon be selling a million of these Nano cars a year. Can you imagine that first year’s sales are 250,000 cars? The innovation here is that most auto company tried to penetrate the emerging Indian car market by stripping down a current car design. The resulting selling price was still much too high for the average middle class Indian family. Ford stripped down a sedan and achieved a $18,000 price tag that was not affordable to the average Indian family.  What Tata did was to start with a fresh design that resulted in an affordable car for the Indian people.

Strategic innovation tests the viability of unproven business models. As in the Canon and Tata Motors examples they have a very high potential for revenue growth in the 10 times area over three to five years. They target emerging or poorly defined industries created by non-linear shifts in the industry environment. They are launched before any competitors have proven themselves and before any clear formula for making a profit has emerged.

Based on an in-depth, multi-year research study of innovative initiatives at ten large corporations, Vijay Govindarajan and Chris Trimble identify three central challenges to strategic innovation:

1. Forgetting some key assumptions that made the current business successful. For example, Tata Motors is India’s largest commercial vehicle manufacturer which requires robust and durable designs. The Tata engineers and designers started with no pre-conceived designs and within   four years they achieve the innovative break through low cost design that could be assembled.
2. Borrowing assets from the established organization to fuel the new one. Tata used its commercial vehicle business to support the high cost of designing the new Nano car.
3. Learning how to succeed in an emerging and uncertain market. For example, Tata has learned to succeed in the second largest emerging car market in the world while established global car manufacturers failed to make any significant inroads.
4. The authors illustrate ten rules to help organizations overcome these challenges, and show how firms must rewire their “organizational DNA” across four main areas: staffing, structure, systems, and culture, in order for a promising new venture to succeed. They also spell out the critical role senior executives must play in managing the inevitable tensions that arise between today’s business and tomorrow’s.
5. Breakthrough growth opportunities can make or break companies and careers. Ten Rules for Strategic Innovators can be your guide to execution and profitable growth in unexplored territory.

Blue Ocean Strategy-How to Create Uncontested Market Space and Make the Competition Irrelevant by W. Chan Kim and Renee Mauborgne.  ISBN 1-59139-619-0

If you read this book you will never see your competition in quite the same light. It presents a compelling case for pursuing strategy with a creative and not a combative approach. These strategies, highlighted by the experiences of companies in diverse fields such as watches, wine, cement and the circus, are not only original but practical. This superb book was reviewed in the Mastermind Digest of February 2008.

Wishing everyone a very restful seasonal break and happy readings as you plan for an innovative and successful 2009.

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