Five key points to consider when developing an innovation strategy

May 5, 2016 by ahmed


Originally posted on Innovation Management by Wouter Koetzier & Christopher Schorling

From our talks with innovation management practitioners and business executives it seems that not many organizations have a well-defined and integrated innovation strategy. To find out more about how to go about creating and executing such a strategy, we spoke to Wouter Koetzier and Christopher Schorling at Acceture who encourage a very pragmatic and execution-oriented approach.

1. When an organization realizes that they need an innovation strategy, what are the five key things they need to consider very carefully when starting to develop it?

The innovation strategy defines the role of innovation and sets the direction for innovation execution. However, the role of innovation in helping organizations achieve growth targets is often unclear and the revenue growth from innovation is insufficient, unless managed with great rigor. While there is lots of theory about and many good (and not so good) books on innovation strategy, many companies fail to develop and execute an innovation strategy.We work with clients to help them take a very pragmatic and execution-oriented view on this.

Once we start to work with a client to develop an innovation strategy, we seek to develop a common understanding of the definition of the innovation strategy’s purpose. When we speak about innovation at Accenture, we speak about successfully commercializing new ideas, i.e. inventions with market impact or in other words the notion of innovation = invention x scaling. However, ‘new’ can have different meanings, ranging from new on the world market to new in one specific industry, but already established in another industry, to new to a company or maybe even just new to some of us. The word ‘strategy’ implies that we are talking about something with a potentially large impact on the company, i.e. does not include just a series of incremental product line extensions.

Based on this understanding, the following are five things that we believe make up a good innovation strategy:

First, an innovation strategy needs to be truly inspiring and should describe a desirable future state for the company.
This is a high bar as it rules out a single-minded focus on incremental add-ons to the business. Rather, it requires the organization to aim higher. You have probably often read in literature that the innovation strategy should be derived from the corporate strategy to clearly define how the organization sees opportunities for growth and makes explicit choices about the role of innovation, which is absolutely not wrong. Still, we think that to some extent it should be the other way around. Opportunities and possibilities formulated in an innovation strategy should actually provide input and shape the overall corporate strategy. Invention is done everywhere. In fact, the value that is derived for many large companies by scouting inventions, connecting the dots between many singular ideas and inventions into one big platform innovation and fully scaling it to maximize potential benefits.

Second, the innovation strategy needs to be ambitious in terms of providing the basis to break away from the competition, beat the competition, and create new spaces.
Too many innovation strategies that we have seen tend to be “me too” (and mostly incremental). Even if executed according to plan, they fail to deliver the truly sustainable competitive advantages that can only be derived by performing above the overall market growth level and exceeding average profit margins.

Again, the innovation strategy should aim higher and help the company outpace anybody else in a contested space. If the so-called strategy does not seek to push those boundaries, the strategy in all practicality is probably just a product roadmap of business extensions, not an innovation strategy.

Third, the process of developing the strategy needs to be open
Open means bringing the outside in and working under the assumption that the other seven billion people on our planet may have insights that do not exist within a particular company’s boundaries. Even today this is something that many people find hard to accept. One client once joked: “We actually invented the not-invented-here-syndrome in our company.” Companies are settled into the way they innovate.

The statement above gives you a good idea of how hard it is for companies to open up and avoid merely settling. At the same time, this should not be mistaken as an excuse for failing to come up with a great innovation strategy based on internal ideas and conviction. Being open is just a great way to raise the bar in terms of ambition and to more quickly get to more mature plans. By the way, as opening up the innovation pipeline is not just a matter of mindset, new technologies play an important role in making openness commercially feasible.

Fourth, an innovation strategy must also be specific to the time in which it is developed
As it is grounded in the reality of a company’s environment, and it reflects the available capabilities, technologies and gaps that may need to be filled. What do we mean by this? It is important to describe with great precision which specific innovation initiatives should be pursued, and where to invest and compete.
The strategy should answer a number of questions like: What growth platforms represent the best chances for the company to win in the market? And, what is the rough business case per growth platform? This is the step where the overall risk related to the execution of the innovation strategy should be assessed in the context of the overall company situation. It is not by coincidence but due to the inherent uncertainty that venture capital funds place a portfolio of bets. Still, a corporation should carefully consider how many eggs to put in a single basket. But bear in mind – Mark Zuckerberg recently put it nicely: “The riskiest thing is to take no risks.” (Accompanying Letter to Investors to the United States Securities and Exchange Commission Registration Statement, 2012).

The innovation strategy also needs to explore possible market developments and scenarios while defining the most attractive market opportunities.

Finally, an innovation strategy needs to be adaptive and to evolve over time
Incorporate learning, allow adjustments to the desired course and maybe even allow an organization to cut its losses if required. This typically does not fit with the classic annual corporate planning cycle. An innovation strategy and the respective execution should be capable of adapting the moment there are new insights, even if that requires moving in multiple directions to raise the aspiration you had at the beginning. After all, Rome was not built in a day. Likewise, innovation sometimes requires more time than originally estimated.

2. How should organizations use an innovation strategy to avoid it just collecting dust on a shelf or simply filling memory on a computer? For example, what can you tell us about steps an organization can take to create the required momentum for executing on the innovation strategy?

This question may actually imply an approach for developing an innovation strategy that we believe would not be very promising. Sorry for breaking this up, but to some extent it seems to indicate a sequential approach consisting of a strategy development phase decoupled from the execution of the strategy. The criteria associated with a strong innovation strategy as we outlined above consists of being inspirational, ambitious, grounded in reality and adaptive. We like to think of innovation strategy development and execution as a highly overlapping if not integrated process. So, if the innovation strategy meets the criteria above, we believe the strategy is not likely to collect dust on a shelf. But of course, it is not that simple. There are more steps a company should take to create the required momentum.

The first one is about innovation leadership
This may sound obvious, but in our experience it is the number one reason for success or failure. The leadership should come from the top – at the very least in the form of active top management sponsorship but better in form of active personal involvement, guidance and inspiration for the respective innovation teams. But, leadership, which can come in different shapes and forms, also is supposed to come from all key members of the innovation team. Not even the most brilliantly articulated innovation idea or plan can compensate the active involvement of a dedicated innovation team. Innovation strategy has to be more than just empty phrases of confession to innovation. It needs high-level commitment of someone who is obsessed with innovation.

Second, the execution of an innovation strategy needs a home in or outside the organization
Many believe that innovation is better done in a start-up environment, rather than in a corporation. Indeed, there are many reasons why innovation is not easily executed within a corporate environment, but entrepreneurs know that it is not easy in a start-up either. There are great success stories of corporate innovators (e.g. Apple and Proctor & Gamble) and for every successful startup there are probably five to ten that failed. So, we should not be too simplistic about this. Multiple considerations drive the decision about the optimal home. For example, proximity to the core business, availability of critical talent, and cost synergies should all be considered.

We recommend following two simple rules: The higher the risk of conflict with the current core business, the more separated your innovation should be from the parent organization; and the more your innovation requires access to existing corporate assets, the less separated it should be from the parent organization. Also, corporations should face the reality that innovating in the context of running an important daily business is virtually impossible. In contrast, management is strongly focused on today’s sales targets and this quarter’s financial results. But, making innovation happen is a full-time job and mostly even a lifetime obsession.

Corporations should face the reality that innovating in the context of running an important daily business is virtually impossible.

The third step is about focus and being realistic about how many and which kind of innovation initiatives a company can drive simultaneously
Even though we recommend paying particular attention to big ideas, we know that the success of disruptive innovations is highly uncertain and understand that it is important for companies, especially large organizations, to have a clear picture of predictable outcomes. No automotive supplier will develop a new product out-of-the-box without already having the demand of an automotive OEM. Overcoming this reality may be the most difficult step an organization must take to successfully execute the innovation strategy.

Organizations should differentiate between innovations that are developed for existing products; those sold on existing channels to well-known customers with a highly-predictable payoff; and those (disruptive) innovations with an uncertain future and yet the potential for massive payoffs. When Apple developed the first iPhone, they were enthusiastic and obsessed with the idea of how they could transform the mobile phone market, even if they could not predict how successful the product could be. But, what they did is focus and put the effort on one project, the iPhone (‘Steve Jobs’ by Isaacson, 2011).

We often see companies with too many projects that are too incremental in nature. Leading innovators run a focused portfolio of innovation projects with a conscious risk-growth potential trade-off decision. You need to find a way forward and determine how to avoid the Innovation Death Spiral.

To do that, companies need to decide which innovation to follow, how to significantly increase their technology success rate and reduce their time to market. One way to achieve that is to open up the innovation process, i.e. embrace open innovation. The opportunity cost of closed innovation is low access to brain power, expertise, existing solutions and problem solving capacity. By contrast, a paradigm shift to open innovation, where companies invite external experts to participate in the innovation process, accelerates and de-risks innovation programs and creates innovation at much lower costs and with a higher probability of finding the right solution.

Once the context for execution is set up, the focus should be on building the right team. The mix of people required strongly depends on the specifics of the strategy to be executed, but there are a few common requirements – next to the leadership profile already mentioned. The people involved need to find a certain level of excitement and thrill in taking a risk to achieve something big. When one of our clients tried to form a team to go after a substantial technology innovation opportunity in a separate organization the main concern among some of the internal researchers interviewed was, how would the newly created entity pay contributions to their retirement plan. It was easy to see that this mindset would not fit with a highly ambiguous environment. Another interesting question in this context is: How much experience should such a team have? Too much “relevant experience” sometimes stands in the way of approaching something in a new way. So it may be more advantageous to place more experienced people in advisory roles so that the innovation team can take what it believes it needs but is not slowed down in its zeal to explore new paths.

To conclude, we do not want to create the impression that successfully executing an innovation strategy is deterministically plannable. However, adhering to the principles described above increases the odds of success, even if it does not guarantee success. Smart hard work needs to come together with a bit of luck. Steve Jobs, one of the most gifted innovators of our time, put it like this: “You have to trust in something. Your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life” (Stanford Commencement Speech, 2005). So, place your bets, tilt your odds, and make your luck.

We often see companies with too many projects that are too incremental in nature.

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