What is an innovation strategy and what must be considered for it to be effective? Combining two vague terms do not help us in moving forward on the thinking and often result in an even vaguer phrase.
Fortunately, they are vague mostly due to ignorance, so let’s shine some light on them.
The definition I most often use is something new, that is creating value, where:
- newness is defined by the organisation and market’s context, and
- value must be created for both the customer and the organisation.
Innovation includes taking this unnamed something new to market, otherwise it cannot create value.
Innovation is not creativity, or entrepreneurship, although it benefits from both.
The works of Kenneth Richmond Andrews, Harry Igor Ansoff, and Alfred DuPont Chandler Jr., the pioneers of business strategy, are as relevant today as they were when first published.
Andrews defined strategy as:
… strategy is a pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities. – Andrews (1987)
Jarillo (2003) reasons that strategy is about finding ways to make something better and/or cheaper than competitors, in a sustainable way.
Furthermore, he emphasizes that everything a manager can do, from hiring people to firing them, internationalising operations or merging them with another company, is only useful in as much as it lets the company raise its prices (do something better) or lower its costs.
Rumelt (2011) describes good strategy as a mixture of policy and action designed to surmount a high-stakes challenge, with an underlying logic consisting of (1) a diagnosis of the issue at hand, (2) an overall guiding policy explaining how the issue will be handled, and (3) a set of coherent actions designed to focus energy and resources.
Bungay (2011) cautions that strategy is more art than science, because we are unable to build on a significant body of existing knowledge, and every generation of managers must re-learn the basics of strategic logic.
Defining innovation strategy
Continuing the thread, I define innovation strategy as a mixture of policy and action designed to create and take to market something new, with the intent of creating value for the recipients (e.g. customers) and organisation (e.g. in terms of profit).
It should hold up to the strategic logic described by Jarillo, Rumelt, and other fine strategists, and should complement – not supplant – existing strategies of the organisation.
Ansoff (2019) wrote that organisations’ response to changes in their environment primarily consists of marketing strategy and innovation strategy, a combination he called strategic thrust. Kaplan and Norton (1996, 2001, 2004, 2006) always included innovation as a building block of organisation’s overall strategy, be it business or a corporate:
Fig 1: A strategy map represents how the organization creates value (Kaplan and Norton, 2004)
Innovation strategy differs from other strategies by acknowledging that it handles issues characterised by high uncertainty, which require much shorter* feedback loops and governance conducive to rapid adjustment of agreed-upon policies and actions.
*Shorter as in terms of months and weeks, not as in “we will revisit it three years from now when we hire someone to hold a two-day strategic planning workshop.”
Who is innovation strategy for?
- If you are not a large organisation you most likely do not need a separate innovation strategy. Make it a part of your business strategy, and include it in your agenda, but do not spend resources on maintaining a separate strategy.
- If you are a large organisation you most likely can benefit from innovation strategy at the corporate and business level, especially if you are burning money on unrelated innovation initiatives.
There is a correlation between size and complexity of the organisation and the number of different strategies it has.
A startup or smaller SME can function perfectly fine with a single business strategy, which will most often consist of product and marketing strategy.
Large organisations – as in more than one business unit – have the most to gain from multiple strategies, as it helps them focus and orchestrate their efforts across the group.
In their context, corporate strategy applies to the whole enterprise or group, while business strategy describes offerings and markets of individual business units within the organisation.
Ultimately, I agree with Pisano’s (2015) argument that defining innovation strategy is the job of the most senior leaders, as they are the only ones who can orchestrate it across the whole organisation.
Andrews, K. R. (1987). The concept of corporate strategy (3rd ed). Irwin.
Ansoff, H. I., Kipley, D., Lewis, A., Helm-Stevens, R., & Ansoff, R. (2019). Implanting strategic management (3rd ed.). Springer.
Bungay, S. (2011). The art of action: How leaders close the gaps between plans, actions, and results (1st ed). Nicholas Brealey Pub.
Jarillo, J. C. (2003). Strategic logic. Palgrave Macmillan.
Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action. Harvard Business School Press.
Kaplan, R. S., & Norton, D. P. (2001). The strategy-focused organization: How balanced scorecard companies thrive in the new business environment. Harvard Business School Press.
Kaplan, R. S., & Norton, D. P. (2004). Strategy maps: Converting intangible assets into tangible outcomes. Harvard Business School Press.
Kaplan, R. S., & Norton, D. P. (2006). Alignment: Using the balanced scorecard to create corporate synergies. Harvard Business School Press.
Pisano, G. P. (2015). You need an innovation strategy. Harvard Business Review, 93(6), 44–54.
Rumelt, R. P. (2011). Good strategy, bad strategy: The difference and why it matters. Crown Business.
A version of this article was originally published at pesec.no.