Innovation strategies provide a framework and focus to your innovations—if you know how to use them.
There is a lot of information out there about how to inspire an innovation culture on your team. Much of that information provides innovation best practices that have worked well for other companies, such as hosting hack-a-thons, decentralizing R&D, etc. But best practices and tactics have little effect without the use of an innovation strategy that is tailored to the unique needs, values, and core competencies of your organization.
Innovation strategies can be a bit tricky, and some view them as being too limiting on the flexibility and agility that innovation inherently needs. However, having an innovation strategy is critical to your success because it provides a vision and a framework for your investment in innovation activities, which can easily become a free-for-all as many leaders can attest to.
Without a clear strategy, innovation investments may be made in something that does not align with your organization’s core competencies or values. Your research team may successfully develop a new innovation that your business operations have no infrastructure to bring to market effectively. Or, you may have multiple groups duplicating efforts (or, worse, counteracting each other) in their innovation investment rather than collaborating.
A basic innovation strategy must define the who, what, why, and how of your short and long-term vision. These definitions will focus your thinking, and efforts, on value-driven innovation. There are no right or wrong answers to how you define each of these sections, they will vary based on your specific market and needs. What you don’t want to do is leave the definitions unfinished or too ambiguous for anyone to be able to make sense of them.
Innovation is more than just a fun business buzzword of the day. Innovation must be results-driven in order to create value for your organization and your customers (or potential new customers). There are several types of innovation, but innovation strategy falls into two main buckets that most leaders and managers work in: sustaining innovation and disruptive innovation.
Disruptive innovation is often what we think of when we think of innovation. Disruptive innovations are those that create a new market, business model or process, or new technology. Disruptive innovation is by far the more glamorous innovation type, but it also requires a lot of investment in research and development—and risk—to make it happen.
Sustaining innovation leverages the successes (and failures) or disruptive innovation to create incremental improvements in existing innovations, processes, features, etc. Sustaining innovation typically happens in response to customer feedback and typically provides organizations with much higher returns and profit margins than disruptive innovation.
Disruptive innovation needs more investment and a longer timeline but will provide great value to your organization in the long-run. Disruptive innovation is reinforced by sustaining innovation, which will help improve on the original innovation while also providing additional revenue to invest in further innovation. The bottom line is that you need to include both disruptive and sustaining innovation plans in your innovation strategy to make it work for you.
Answer the question: Who are we creating value for?
Of course, the first answer is you’re creating value for your organization. But in order to do that, you must think about your external stakeholders that will create the target market for product or service innovations. There are several likely answers to this question, and you will have to determine which are the correct answers for your innovation strategy.
Existing Customers & Target Market
Your existing customers and target market will typically be your main target market for sustaining innovation strategies. As you collect data and customer feedback about your product, service, and value chain, you and your team will be prepared to develop sustaining innovations that will delight them and create greater customer loyalty. This data will also help you innovate to create competitive advantage in your existing target market and gain market share.
Both sustaining and disruptive innovation can help you expand your offerings into complementary markets, so this will largely depend on what new market you are looking to break into.
For example, if you currently dominate a niche market and want to take your product to more of a mass market offering, it’s typically going to be a disruptive innovation that will allow you to do this. HBR provides a great example of how disruptive innovation works in this strategy in discussing how Google disrupted the operating system market (that was previously dominated by Apple and Microsoft) with the Android system by simply giving it away for free.
On the other hand, if you are looking to expand into a similar or easily accessible niche market, sustaining innovation may be enough to get you there through incremental changes in your product or service offering.
Amazon is a great example of how this works. Of course, Amazon is touted as a highly innovative company and they have certainly disrupted the retail market—and are continuing to disrupt other markets. However, Amazon began by targeting the bookselling market and initially only sold books. As the company continually improved its eCommerce and distribution operations, it added more product lines. Little by little, it has become the behemoth it is today, not only as a retail giant, but also a content streaming provider, self-publishing resource, and so much more.
Disruptive innovation aims to either create a new market or break into a new market in a big way. On a basic level, new markets are created when there is an unmet consumer need. Technological innovation often dominates this space, but product, service, and business model innovations can also effectively create new markets.
Whole Foods is an example of a brand that created a new market through this type of innovation strategy. As American consumers became increasingly concerned about the ingredients in their food and industrial agricultural processes, the founders of Whole Foods saw an opportunity to create and fill a niche market.
The why in your innovation strategy must be more detailed than a general statement as to why your organization needs to innovate. Everyone knows that innovation is important to long-term sustainability. You need to define specifically why your innovation strategy goes in the direction you are planning, and why your current or planned future market will care about it.
The why of your innovation strategy should reflect your organizational Why, meaning that your innovation strategy must be aligned with your values and your mission in order to be relevant and contribute to achieving organizational goals.
Many leaders and managers start with how when they are planning for innovation. The how is purposefully last in your innovation strategy, because the what, who, and why help determine the how. You can’t start investing in innovation without first knowing what you are planning to innovate, who the innovation is targeted to, or why you are doing it in the first place!
Once that is determined, you can start looking at how you are going to structure innovations and what systems need to be put in place to make your innovation strategy work for you.
Some organizations create a research and development team or department that is separate from the rest of the business operations whose sole purpose is to move innovation strategies forward. More popular these days are agile, multi-disciplinary teams that come together to collaborate on a project and create innovative solutions, then disband and move on once the project is complete. Some innovation structures are specific and project-focused, while others are more informal and give employees authority and flexibility to work on ideas that they think could have an impact for the business.
There are a variety of innovation strategies that organizations use to create competitive advantage in the marketplace. Making innovation strategies work for you involves dedicated planning as to what innovations have the greatest potential to create value and leverage your core strengths, who will benefit from the innovations, why your market will care about the innovation and why you are investing in specific innovations, and how your will drive your innovation strategy forward and measure results.