While the brightest ideas may arise unexpectedly, innovations never arise by chance but are consciously developed within contexts where certain practices and procedures are already at work. This clarification is in order if we think about how innovation, or rather its “permanence,” has often remained a mirage despite huge investments, dedicated teams, and formidable insights – and the cautionary tales of giants such as Eastman Kodak Company, Polaroid, or Blockbuster, to name a few, constantly remind us of this.
So the question that people have been asking over the past decades, not only scholars and academics but also and especially companies, is this: why do initiatives, often carried out with considerable budgets and intensive efforts by R&D departments, often fail in their attempt to produce real innovation? And why, if innovation has been produced, do the companies that have achieved that goal fail to maintain and advance it?
Simply put: why is it so difficult to build a lasting ability to innovate? One of the most cited and convincing answers is given to us by Gary P. Pisano, who in his celebrated article in Harvard Business Review identified the reason for this blockage, so common and so frequent in the innovation development process, not so much as a lack of action but rather in the absence of an innovation strategy.
Before explaining why every company should adopt an innovation strategy let’s pause for a moment: what exactly does an innovation strategy consist of?
What is an innovation strategy and why integrate it into your business strategy
First, let’s clarify what a strategy is.
A strategy can be defined as the set of policies or behaviors that an organization designs and implements to achieve a specific goal within a competitive environment.
For a strategy to work, it’s necessary for all teams involved on a project to be aligned on shared goals and priorities. In the article we mentioned above, Pisano noted how innovation efforts were rarely systematized and integrated within overall corporate strategies (which define the company’s operational scope and market positioning). And this misalignment inevitably ended up impoverishing and depowering any innovative development process. What was missing,” Pisano concluded, “was an innovation strategy.”
An innovation strategy has the goal of realizing a new product (or service, or business model) whose value is clearly perceived and for which customers are willing to pay. In an innovation strategy, therefore, the business goal is innovation itself, and this goal must be deliberately pursued by executing a detailed action plan that is geared toward achieving future organizational growth and seamlessly incorporated into the overall business plan.
The dangers of not integrating your innovation strategy
Without an innovation strategy, efforts to create, improve, and make innovation relevant are reduced to a list of tactics that, while effective if done individually, fail to make an impact altogether. This is because an organization’s ability to innovate comes from a coherent system of interdependent processes and structures.
Dividing research and development functions into autonomous and decentralized teams, motivating internal initiatives, pursuing alliances with other players in the supply chain, and implementing rapid prototyping are just some of the actions that must be taken synergistically and incorporated into the structure of the organization in order to make a profound and lasting impact.
A company that does not adopt an innovation strategy will not be able to make the decisions necessary to integrate all components of the innovation process.
Without an innovation strategy, different areas of the same organization (salespeople, marketers, project managers, area managers, people in the R&D department) might pursue different agendas, moving in opposite directions even in the presence of a single corporate strategy. If different perspectives are critical to producing valuable innovation, a strategy is essential to integrate and align these perspectives around common priorities.
If we then drop the theory into concrete reality, we discover that each company has its own original way of connecting strategy and innovation within a model that must first be functional to the specific needs of the company itself.
How to connect innovation to strategy: taking the customer’s point of view and creating a dominant ecosystem
Taking the consumer perspective is the first step in linking innovation and strategy. A company will only be able to use innovation as a lever to gain a competitive advantage if it is able to create value for a target audience: improve the performance of a product by making it easier to use, more reliable, more durable, cheaper, or provide some really significant social benefit or even offer commodities at significantly lower prices and with an exceptional level of service quality. These are just a few of the many ways that an innovation can create value.
In addition to having a listening attitude toward its consumers, a company must carefully monitor the market. To capture a share of the value generated by its own innovations, an organization must keep an eye on “imitators,” companies that take advantage of weak intellectual property regulations (which can vary widely from country to country) and use the results of another company’s innovative process for their own profit. When these imitators enter the market, they manage to create enough pressure on prices to reduce the value originally acquired by the innovator.
However, if the innovator company has managed to create a real and sufficiently dominant ecosystem around its innovation—an ecosystem articulated in suppliers, distributors, and other companies in the supply chain—it may be able to retain sufficient bargaining power to capture and retain most of the value of the innovation, even for a long time, for itself. It needs to identify the complementary resources, capabilities, products, and services that might convince its customers not to switch to the competition.
The most famous example of this innovation strategy that promotes loyalty? Probably Apple, which designs its devices and services to be perfectly and sometimes exclusively complementary: by controlling the operating system, Apple makes itself an indispensable player in that particular cross-section of the digital universe (iPhone owners often prefer to use an iPad or Mac rather than the tablet or PC offered by a competitor).
In an ecosystem crowded with competitors ready to capitalize on innovation no longer covered (or covered blandly) by a patent, continuing to invest in innovation is surely one of the best ways to preserve bargaining power.
The importance of innovation strategy: culture of growth, design thinking, and continuous innovation
An innovation strategy helps companies and institutions expand strategically through the systematic adoption of new tools and processes.
In order for an innovation strategy to produce real growth, it must be consistent with the organization’s business model, mission, and value proposition. At the same time, it must also operate, in a transformative sense, on the corporate culture, becoming a common heritage that is internalized at all levels.
An innovation culture is also a culture of growth if it encourages employees to develop design thinking, an approach to problems conducted from different angles with which multiple solutions can be tested and the results of which are consolidated to achieve collective advancement.
It is design thinking, the social technology that combines operations and individual talent to help people unleash their creativity. Developed to understand and address customer experiences, design thinking also profoundly reshapes the experiences of the innovators themselves. Through planning structured moments of dialog, teams build a design idea together by negotiating compromises whenever differences arise.
An innovation strategy also promotes continuous innovation, the constant improvement of existing products, services, and technologies that proceeds by circumscribed, gradual, and incremental updates. Continuous innovation occurs dynamically and continuously and saves time, increases performance quality, and maintains customer loyalty. This is because it does not radically change the product, purchasing habits, or usage patterns.
Without an innovation strategy that actively promotes continuous innovation, it’s unlikely that a company will gain (and more importantly retain) a competitive advantage and keep customers engaged over the long term.
Innovation strategy: key benefits
Companies of all sizes, from start-ups to multinationals, can benefit enormously from implementing an innovation strategy.
- An innovation strategy can be highly effective in outlining the goals of innovation activities and organizing efforts to achieve them. A growth-oriented innovation strategy establishes the goals and steps needed to accomplish the entire journey.
- An innovation strategy helps companies overcome obstacles: the expected, the inevitable, and the unexpected. It deploys available resources and leverages methodologies and processes to test new ideas.
- In a shared innovative corporate culture, which is an essential requirement of innovation strategy, employees are generally more motivated and work more efficiently. While individual initiative is rewarded, different teams work together toward a clear common goal. The result is an overall increase in productivity.
While technology is very often the main driver of competitive advantage, there are innovations that have revolutionized entire industries—in some cases even creating a market from scratch—that are less about technological development and more about other innovative dimensions. In the case of Netflix, Amazon, LinkedIn, and Uber, for example, the innovation strategy has been more about the business model than about technologies.
In thinking about innovation opportunities, companies have the opportunity to modulate their innovation strategy, choosing whether and how much to focus on technological innovation and whether and how much to invest in business model innovation.
The point is that there is no single type of innovation and certainly no single innovation strategy that applies to all organizations.
Types of innovation strategy: a map for orientation
In the Innovation Landscape Map, the progress of the innovation process is described along two axes: one shows the degree to which an innovation is driven by technological change, while the other shows the degree to which an innovation is driven by change in the business model. When they intersect, the two dimensions identify four quadrants:
- Routine innovation: builds on a company’s current capabilities and serves the existing customer base. Identifies additional versions of a product that is already on the market.
- Disruptive innovation: presents a new business model that challenges or otherwise forces competitors to change their business models.
- Radical innovation: requires technological innovation that can still fit into the existing business model.
- Architectural innovation: comes from the combination of new technology and a change in the business model.
In this graphic representation, technological development and business models give rise to four categories of innovation. These categories exist on a continuum and should therefore not be conceived as rigidly separate and exclusive. The map, precisely because it depicts fluid, multifaceted, and evolving situations, can be a valuable tool in building an innovation strategy that is capable of intervening in reality as it develops.
An innovation strategy for companies that want to stay relevant
While traditional approaches to innovation (such as in-house research and development) continue to make important contributions, the field of innovation has been radically redefined in recent decades by the rise of concepts such as open innovation, crowdsourcing, and co-creation.
In general, innovation strategy can be conceived as a hypothesis, to be continuously tested on markets, technologies, regulations, and competitors. This is because innovation strategies are subject to continuous experimentation, learning, and adaptation, in the same way that products must evolve in functionality and design to remain competitive.
An organization must be flexible enough to respond dynamically to unmet customer needs, even before customers themselves realize they have those particular needs. But in order to find a solution to often largely unexpressed needs, it’s not enough for a company to recognize its strengths; it must enhance them within a structured and sustainable innovation strategy.
This is why having an innovation strategy that is open to external influences and can be continuously updated is now more essential than ever before.