Business Dictionary defines Innovation Strategy as "A plan made by an organization to encourage advancements in technology or services, usually by investing in research and development activities. For example, an innovation strategy developed by a high technology business might entail the use of new management or production procedures and the invention of technology not previously used by competitors."
Innovation strategy is not about selecting activities to pursue that are different from those of competitors. This is the myth that misleads. Selecting activities is not strategy. An innovation strategy is about creating winning products, which means products that are in an attractive market, target a profitable customer segment, address the right unmet needs, and help customers get a job done better than any competing solution. Only after a company produces a winning product or service should it consider what activities are needed to deliver that product or service.
Types of innovation strategies
Innovation strategies can be classed as proactive, active, reactive and passive (Dodgson et al. 2008).
- Proactive: Companies with proactive innovation strategies tend to have strong research orientation and first-mover advantage, and be a technology market leader. They access knowledge from a broad range of sources and take big bets/high risks. Examples include: Dupont, Apple and Singapore Airlines. The types of technological innovation used in a proactive innovation strategy are:
- 1 .radical - breakthroughs that change the nature of products and services
- 2. incremental - the constant technological or process changes that lead to improved performance of products and services.
- Active: Active innovation strategies involve defending existing technologies and markets while being prepared to respond quickly once markets and technologies are proven. Companies using this approach also have broad sources of knowledge and medium-to-low risk exposure; they tend to hedge their bets. Examples include Microsoft, Dell and British Airways. These companies use mainly incremental innovation with in-house applied research and development.
- Reactive: The reactive innovation strategy is used by companies:
- which are followers
- have a focus on operations
- take a wait-and-see approach
- look for low-risk opportunities.
They copy proven innovation and use entirely incremental innovators. An example is Ryanair, a budget airline which has successfully copied the no-frills service model of Southwest Airlines.
- Passive: Companies with passive innovation strategies wait until their customers demand a change in their products or services. Examples include automotive supply companies as they wait for their customers to demand changes to specification before implementing these.
The Need for an Innovation Strategy
It is a rare CEO who doesn’t list innovation as a top priority. But innovation remains an elusive beast for most. Massive R&D investments have been made, processes built, training courses run, and yet successful outputs – exciting new products and services – are few and far between. Why is it so hard? Not because of failure to execute, according to innovation and competitive strategy expert Gary Pisano. The problem is the lack of innovation strategy. It sounds simple. Companies regularly define their overall business strategy (their scope and positioning) and specify how various functions – marketing, operations, finance, R&D – will support it. Yet, “during my more than two decades studying and consulting for companies in a broad range of industries, I have found that firms rarely articulate strategies to align their innovation efforts with their business strategies,” explains Pisano. Like the creation of any good strategy, the process for developing an innovation strategy should start with a clear understanding and articulation of specific objectives related to helping achieve sustainable advantage. This requires going beyond all-too-common generalities, such as “We must innovate to grow,” “We innovate to create value,” or “We need to innovate to stay ahead of competitors.” Those are not strategies; they provide no sense of the types of innovation that might matter (and those that won’t), says Pisano, a Harvard Business School professor who has spent decades researching and teaching innovation. A robust innovation strategy should answer three pivotal questions:
- How will innovation create value for potential customers?
- How will the company capture a share of the value its innovations generate?
- What types of innovations will create and capture value, and what resources are needed?
Based on his research and that of other authorities in the field, including Harvard Business School colleagues Clayton Christensen and Rebecca Henderson, Pisano characterizes four categories of innovation: routine, disruptive, radical and architectural. Critics tend to discount routine innovation that leverages a company’s existing technical capabilities and business model, and extol disruptive innovation. But Pisano believes that thinking is simplistic. In fact, the vast majority of profits are created through routine innovation – think Intel, Microsoft, Apple. “There is no magic formula… (it’s) one of balance and mix,” he explains. And because innovation cuts across functions, only senior leaders can determine the right innovation recipe and set the strategy. In doing so, Pisano says, they must recognize that “Like the process of innovation itself, an innovation strategy involves continual experimentation, learning and adaptation.”
The Innovation Landscape Map(see figure below)
When creating an innovation strategy, companies have a choice about how much to focus on technological innovation and how much to invest in business model innovation. The matrix which considers how much a potential innovation fits with a company's existing business model and technical capabilities, can assist with that decision.
Innovation Strategy Implemention Firstly, you’ll have to define clearly what is the desired outcome, what it is that you want to get from your innovation efforts. Do you want to:
- Develop a new product?
- Protect or expand your market share?
- Sell or licence your company/product to another organisation?
- Create greater staff retention?
- Improve operational efficiency?
- Increase recognition in the marketplace?
These are all questions that should be carefully considered before moving forward. Once you have made a decision of what is most important for you and your organisation, you’ll then need to take steps towards putting an innovation strategy plan in place. To develop an innovation strategy there are a few points that need to be considered, as these will set the direction for the innovation execution and will enable everyone in the organisation to “sing from the same hymn sheet”, so to speak:
- An innovation strategy needs to be inspiring and communicate the organisation’s vision clearly.
- Needs ambitious objectives that will make an organisation stand out from the competition and have a real competitive advantage.
- The development process needs to be open and take different visions into consideration.
- The innovation strategy must be time specific – meaning that it should be done specially for the period of time in which it was developed so that any gaps can be closed
- That being said, the strategy also needs to be flexible, to allow tweaks and updates over time.
- The innovation strategy needs to ultimately tie in with the overall business strategy to ensure that you’re working towards the same objectives.
These are only, of course, just a few ideas to inspire and give you a starting point. However, the importance of dedicating some time and effort to getting an innovation strategy right from the start will pay off in the end.
Business Model Innovation
Business Value of Innovation
Chief Innovation Officer
Diffusion of Innovation Theory
Innovation Adoption Curve
IT Enabled Innovation
- Why Companies Must Align Innovation Strategy With Business Strategy Forbes
- Do you need an innovation strategy? Jeffrey Phillips
- 5 Key Points to Consider when Developing an Innovation Strategy InnovationManagement
- Innovation Strategy: 4 Key Tactics of Top Growth Companies harvard.edu
- Why Innovation Strategy is Horribly Broken, and What to do About It Fahrenheit212
- Innovation Strategy – Defining how You Manage Uncertainty Larry Schmitt
- Here's Why Your Innovation Strategy Will Fail Inc.