This post is an interpretation and summary of the article published in the June 2015 edition of Harvard Business Review titled You Need and Innovation Strategy.
What is an innovation strategy?
An innovation strategy is a set of processes that helps companies find new problems and solutions. Like any strategy, the innovation strategy must be specific to each company’s competitive needs and strengths, and must be linked to the business core value proposition.
Why is an innovation strategy important?
There are two causes that explain why an explicit innovation strategy is important:
- Aligning competing priorities. Without an explicit strategy, companies can wind up pursuing competing priories. Without an orchestrating strategy, diverse perspectives, a critical component of successful innovation, can become self-defeating.
- Overcoming inertia. Routine innovation is where companies play to their strengths. Without an innovation strategy, companies fail to overcome inertia and follow prevailing patterns.
How to develop an innovation strategy?
The process of developing an innovation strategy starts with the articulation of specific objectives that may enable the company achieve a sustainable competitive advantage. These objectives should answer the following questions:
- How will innovation create value for potential customers? Successful innovation must induce customers to pay more, save money, or access a larger societal benefit such as improved health or clean water. Specific benefits could include:
- Ease of use
- How will the company capture the value that innovations generate? Intellectual property alone cannot prevent customers from defecting to rivals. Companies must think through complementary assets, capabilities, products or services to keep their position strong.
- What types of innovations should be pursued? There are four kinds of innovations:
- Routine innovation builds on core competences and serves existing customers. For example, new versions of an existing product.
- Disruptive innovation requires a new business model but not necessarily new technology.
- Radical innovation involves a purely technological innovation. For example, pharmaceutical companies moving from chemically-synthesized drugs to biotech. The customers and business models don’t change.
- Architectural innovation combines technological and business model disruptions. Requires new competences and new ways to earn profits. For example, successful digital photography companies mastered the building of new hardware and changed from making money selling film, paper, chemicals and services, to making money by selling cameras.
- How does each innovation type fit with the business strategy? Innovation types can be combined or create a continuum. An innovation type may be suitable for the present set of circumstances, while a different type may become necessary as the business encounters new challenges.
- What is the right innovation process? The innovation process must be chosen based on the innovation type:
- Routine and disruptive innovations call for a highly structured process designed to solve as much of the technical and market uncertainty as possible early on.
- Radical and architectural innovations require more experimental, iterative and rapid prototype-driven process.
Implementing the innovation strategy
Who is responsible? Because innovation cuts across just about every function, it is the responsibility of senior leaders to orchestrate such a complex system.
Follow these steps to implement the strategy:
- Allocate resources to each innovation type
- Manage trade-offs
- Manage the instincts of individual functions to satisfy their own interests
- Recognize that the strategy must evolve with continual experimentation, learning and adaptation.
Advice for companies in different stages
A company whose core business is maturing should seek new opportunities through business model innovations and radical technological breakthroughs.
A company whose platforms are growing rapidly would want to focus on building and extending them through routine innovation.