Strategic innovation

Innovation strategy

The following sections summarise the essence of the three elements – Strategy, System, and Leadership – as outlined by Gary Pisano in his book Creative Construction.

The role of innovation in an organisation is to ensure it remains relevant in the future. It can be seen as a form of insurance – essential for maintaining or increasing the company’s value for its stakeholders – rather than focusing solely on short-term quarterly financial results.
Therefore, the first task of an innovation strategy is to define the appropriate size of the “insurance premium against irrelevance” – that is, the level of investment in innovation.

Answering the following questions can help owners, the board, and the C-suite determine the innovation strategy and appropriate resource allocation:
How fast is your core market growing? This indicates how much you need to branch out to tap into new growth in stagnating or even shrinking core markets.

• What are the unmet customer needs? This highlights the value of business model innovation, especially when customer needs and convenience preferences change – an aspect that is often underestimated.
• What is the existing technological paradigm? This reflects the evolutionary or disruptive nature of a technical paradigm shift, which dictates the appropriate pace for adapting the necessary skills and mindset.
• How are barriers to imitation created? This indicates the potential of hard-to-replicate innovations and original business models that can become future profit platforms.

Any company can innovate in a myriad of ways. But without a coherent innovation strategy, you risk dissipating your resources. Therefore, the second task of an innovation strategy is to define the type of innovation needed.

Four archetypes of desirable innovations can be distinguished:

1. Routine innovation – takes advantage of a company’s existing technical competences and fits into its existing business models
2. Disruptive innovation – builds on a company’s current technical abilities but extends or overhauls its business model and possibly disrupts that of competitors
3. Radical innovation – leverages established business models but requires new technical competencies (and corresponding paradigms)
4. Architectural innovation – combines business model innovation with technical innovation. It is difficult to pursue, typically involves drastic paradigm shifts, and few companies have mastered it.

Innovation system

The type and scale of innovation your organisation needs are key factors that define a dedicated innovation system or operating model designed to deliver innovation impact.

Operating models are familiar to every established company. The commonly used operations mindset focuses on control and directly guides people to routinely deliver a defined quality of output.

In contrast, the innovation operating model aims to influence innovation indirectly by defining structures that support and foster the necessary innovation culture (input) rather than prescribing a specific output.

However, managing culture is demanding and tricky. If not handled well, typical features of an innovation culture can become counterproductive.

Hence, the innovation operating model must adequately resolve the following dilemmas:

“Tolerance for failure, but no tolerance for incompetence”

To avoid recklessness or sloppiness, you need to recruit outstanding performers and maintain high performance standards

“Willingness to experiment but highly disciplined”

Trial-and-error approaches help you and your organisation learn. However, you must define clear criteria to ensure that your experiments will move your efforts forward

“Psychologically safe but brutally candid”

While preserving an atmosphere of mutual respect, allow for open discussions and explicit, even fierce, criticism

“Collaborative but individually accountable”

Establish a system of collective responsibility while holding people accountable for their deliverables

“Flat but with strong leadership”

The less we rely on clear procedures, i.e. formal management, the more leadership is required – leadership that is more ad-hoc and tailored to align with goals, priorities, and funding

Top-level leadership role

Few companies would have their employees work on laptops and software more than 10 years old, as they trust the efficiency improvements of new IT systems and digitalised processes.
Yet many companies still operate under management practices and paradigms that are decades old. Being a constructive creator also means installing appropriate management technologies (practices) to foster innovation capabilities, while reviewing and dismantling obsolete leadership methods.

The final part of Gary Pisano’s book Creative Construction highlights the paramount importance of leadership when embracing innovation with impact.

Innovating during a downturn

In light of the current developments pointing towards another economic downturn, we have received many questions about lessons on innovating during times of crisis.

We are happy to address this – and intentionally take a counterintuitive viewpoint: What if we focus on the opportunities that arise from a crisis?

Based on past recessions, three key opportunities tend to arise for innovators – as downturns often force them to do what they arguably should have been doing all along

The mentioned stories are truly transformational. With the blessing of hindsight, they can be seen as genius and brazenly bold moves. But in each case, a de-risking of these strategic bets can be observed.

A clear pattern emerges as leadership advice:

1. Prune prudently: Take a hard look at what is in your innovation portfolio. Cut at least 50%!
2. Re-feature to cut costs: Drive cost-cutting from a customer-centric perspective
3. Share the innovation load: Embrace open innovation and find smart ways to collaborate
4. ​Master smart strategic experiments: It is never easier to experiment than during a downturn, which makes it even more important to do it with the proper discipline