Innovation Strategy

Who isn’t tired of all the pointy-haired CEOs claiming “Our strategy is to innovate.” or  “Innovation is our strategy.” while performing innovation theater in isolated labs and accelerators (a great read on that here) without having a real innovation strategy? Yet still, this is a tough term to define. If it were up to us we wouldn’t even have included it in the glossary as it combines two of the most overused and strained terms in business. We feel this rather should fill a PhD thesis than a quick reference definition. But as you and our clients have asked for our take on it over and over again, we’ll give it a try:

First of all, we sympathize with the notion of strategy as ‘choice’. This school of thought views strategy as the commitment to a coherent set of interrelated and mutually reinforcing choices that position an organization to win in its market. In general business strategy-making, this includes first choosing a winning aspiration (vision, purpose, values, etc.), followed by a cascade of decisions derived from it: ‘Where to play’ — the arenas to compete in; ‘How to win’ — the firm’s value proposition(s) and competitive advantage(s); ‘How to do it’ — the capabilities required to win; and ‘How to lead’ — which management and support systems will be needed to enable all this . Once such a system is in place it gets hard for competitors to copy, especially its backend parts as only its obvious, customer-facing parts are visible . The hidden parts of value creation are in the culture and the system, which become hard-to-copy competitive advantages themselves.

If we now combine this simplified notion of ‘strategy’ with innovation, one could say that an organization gets ‘strategic about it’ when it chooses to not view the latter as an episodic, chance-driven or heroic act from a scattered set of individuals or departments within the organization, but rather as a discipline that permeates the entire organization. For that to happen, leadership needs to decide: 1) to view innovation as a way to achieve growth via experimenting for different possible futures (innovation thesis replaces the winning aspiration) and to become more systematic about doing so. This means leadership is also willing to: 2) prioritize innovation opportunities via disciplined portfolio management and be clear about the kinds of innovation to pursue (where to play); 3) deal with the trade-offs between short-term exploitation of existing markets and the long-term exploration of future business opportunities (where to play + how to win); 4) align diverse parts of the organization around common priorities and build respective innovation capabilities that can enable the different types of innovation (‘how to do it’); and 5) create an underlying innovation system as a foundation for all of the above .

This is our “quick’n dirty” definition of innovation strategy.

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