In his book Strategic Innovation, professor Allan Afuah provides us with a comprehensive strategic framework for assessing the profitability potential of a strategy or product.- the value of “new game” strategies – in the face of rapid technological change and increasing globalization.
A brief Interview of Professor Allan Afuah by Deborah Holdship
Let’s start by talking about strategic innovation in the most general sense.
You have a framework called the AVAC analysis that anyone can use to evaluate the potential of a new game strategy, no matter the scale.
Afuah: AVAC answers the question: What do you do when things are done differently and you want to make money from it? AVAC stands for activities, value, appropriability, and change. The idea behind it is very simple: If strategy is about performance, it’s about having a competitive advantage, and shouldn’t there be some way to evaluate the profitability potential of your strategy? So if you define strategy as a set of activities a firm performs to create and capture value, that profit is what will give you competitive advantage. When you think that way, suddenly the problem of assessing the profitability potential of a strategy becomes a lot simpler: Let me see how each activity contributes to the value I am trying to create and also contributes toward my ability to capture that value instead of someone else. And remember: If there’s change happening, you want to know if the activities you are performing allow you to take advantage of that change. If not, someone else will. And then the value you’ve created is useless or someone else has captured it. Using AVAC, you may even decide to initiate that change yourself.
Crowdsourcing and “the long tail” are a couple of fascinating phenomena you explore in the book. Let’s talk about crowdsourcing in terms of new game strategy. Specifically, there’s a company called Innocentive that illustrates the concept beautifully.
Crowdsourcing itself is a new game strategy. But Innocentive takes it to the next level: It created a business out of facilitating crowdsourcing on behalf of firms.
Reverse positioning is another type of new game strategy. You cite the Nintendo Wii as one example where it worked really well.
Then Nintendo came in and said: “Wait a minute. There may be people who don’t want to spend that much time on a game or may be totally frightened by all these buttons. Suppose we go after old technology that nobody pays much attention to and doesn’t cost too much?” Wii still meets the requirements of those who want to play one or two hours and who don’t care about graphics being so sophisticated and tantalizing. And with each console Nintendo ships, they already are making money.
By the way, many of the hardcore gamers just laugh at that. But that’s okay. You don’t have to satisfy the whole world. Look at Ikea. They said: “Our furniture is not going to last a long time and it doesn’t cost very much. And we don’t even have delivery.” Some people are like, “What? You cannot do that.” Others are like, “That is great. That’s what I’ve wanted this whole time.”
Now we’re seeing it with these netbook computers. They may not have as much memory, they’re not very sophisticated. They are light and have a small screen. But they can cost less than $500. And that’s absolutely wonderful for some people. That’s a new game strategy. You are doing things differently. You are entering a product space no one is in at the moment.
Are some industries more amenable to new game strategies than others?
When you embark on a new game strategy, you’re going to need people in the firm to be on board with the change. This can be the most challenging part, right?
Next, we have the godfather: someone very high up in the firm who backs the project. Lee Iacocca was the godfather for the minivan at Chrysler. If you mess with the project, you are messing with him. When you have a clear godfather, people who otherwsie would have sabotaged the idea or not worked hard enough to change the culture will work harder than before.
Then you have the boundary spanner. What happens during most new games and most innovation is that the knowledge everyone has is not enough — that what you need actually comes from the outside. But not everybody within the organization speaks the new language or knows people outside who speak the new language. So you generally need somebody who can act as a liaison, who understands both worlds.
And of course, the traditional role is always the project manager.
There is a term in your book: coopetitors. I thought it was a typo, but it’s not.
When you work with people like that, sometimes you might compete if they produce products that go up against yours. But you know very well that without them you will not live. So look at your supply, your customer, even your competitor. There will be times when you cooperate. And when you cooperate, keep in mind that you have to try to capture some value there. And when you compete, there are always ways you can cooperate and still come out ahead.
Imagine you are making a pie. You need a piece to bring home — and a bigger one than the other guy. But don’t take all of the pie, or your competitor will starve to death and there will be no one to work with next time. And others will run away altogether. At the same time, if you make the pie, and then just celebrate about what you created, someone else may take the whole pie when you’re not paying attention. And you go hungry.
We are trying to get this into every strategy person’s head to really understand. But we still live in a world where some people think strategy is only about how much value you can capture. Others think it’s not just about capture but how much value you can create. I’m saying it absolutely has to be both.
For more information, contact: