Innovation Strategy

Introduction

Need to articulate and align innovation strategy efforts with overall business strategy. This strategy will determine the trade-offs of various practices (see below).

It is best if the strategy does not try to imitate somebody else's system; however, learning from them is a good idea.

The strategy needs to address

"...how innovation will create value for potential customers, how the company will capture a share of the value, and what type of innovation to pursue..."

Gary Pisano, 2015

This will require continual experimentation and adaptation.

Many innovation initiatives fail and successful innovators have a hard time sustaining their performance like Polaroid, Nokia, Sun Microsystem, Yahoo!, Hewlett-Packard, etc

Strategy is nothing more than

"...A commitment to a set of coherent, mutually-reinforcing policies or behaviours aimed at achieving a specific competitive goal. Good strategy will promote alignment among diverse groups within an organisation, verify objectives and priorities, and help focus efforts around them..."

Gary Pisano, 2015

If do not have a clear, coherent innovation strategy, it ends up in a 'dog's breakfast' of different practices like

"...dividing R&D into decentralised autonomous teams, spawning internal entrepreneurial ventures, setting up corporate venture-capital arms, pursuing external alliances, embracing open innovation and crowd sourcing, collaborating with customers, and implementing rapid proto-typing..."

Gary Pisano, 2015

Need to develop an innovation system, ie

"...a coherent set of interdependent processes and structures that dictates how the company searches for novel problems and solutions, synthesises ideas into a business concept and product designs, and selects which project gets funded. Individual best practices involve trade-offs. And adopting a specific practice generally requires a host of complementary changes to the rest of the organisation's innovation system..."

Gary Pisano, 2015

Need to be aware if different parts of the organisation are pursuing conflicting priorities, irrespective of business strategy. For example,

- sales focusing on the pressing needs from their customers

- marketing could be pursuing opportunities like delivery of the brand through complementary products and/or expanding market share through new distribution channels, etc

- R&D scientists and engineers seeing new technological opportunities, etc

Diversity of thought is important, ie

"...Diverse perspectives are critical to successful innovation. Without a strategy to integrate and align these perspectives around common priorities, the power of diversity is blunted or, worse, becomes self-defeating..."

Gary Pisano, 2015

Need to go beyond the all-too-common generalities like

- we must innovate to grow

- we innovate to create value

- we innovate to stay ahead of competitors, etc

A robust innovation strategy should answer the following questions:

i) how will innovation create value for potential customers?

It needs to create value by obtaining customers willing to pay more money and/or providing a larger societal benefit like improved health, etc. Other benefits may include

"...product performs better or makes it easier or more convenient to use, more reliable, more durable, cheaper, and so on..."

Gary Pisano, 2015

For example Apple makes its products easier to use than those of its competitors and provides a seamless experience across its expanding range of devices and services. It focuses on integrated hardware-software development, proprietary operating systems and design.

ii) how will the organisation capture a share of the value its innovations generate?

As a value-creating innovation attracts imitators very quickly, the price of the product will fall. Thus the need to invent complimentary assets, capabilities, products or services which will keep your customers loyal. For example, Apple designs complimentarities between its devices services: its iPhone is linked to its iPad, etc. Also, Apple controls the operating system which makes it an indispensable player in the digital arena.

"...one of the best ways to preserve bargaining power in an ecosystem and blunt imitators is to continue to invest in innovation..."

Gary Pisano, 2015

An example is a furniture factory in northern Italy that supplies to large world-wide-based retailers from its factories in its home region.  As these retailers have access to dozens of other suppliers around the world, including low-cost manufacturers and with it being hard to protect design patents, there is no guarantee of continued business. However, the factory has been able to thrive by investing innovatively in new designs and sophisticated process technologies; the former allows it to win business early in the product life cycle and the latter allows it to defend against rivals and low-cost countries as products mature.

iii) what types of innovation will allow the organisation to create and capture value and what resources should each type receive?

In addition to technological innovations being drivers of economic value and competitive advantage, there is business model innovation; there are 4 types:

    a) routine (builds on an organisation's existing technological competencies and fits with the existing business model including customer base; it is like a sports team's home advantage, ie playing to your strengths; as this is the least effective form of innovation, it should have low priority. For example, it is like a contact lens company focusing on adding colour tints and modifying lens design, ie

"...incremental refinement of existing products (demanded by markets to stave off mounting short-term losses in market share) and process improvements (demanded by manufacturing to reduce costs, which was, in turn, pushed by finance to preserve margins as prices fell).."

Gary Pisano, 2015)

    b) disruptive (requires a new business model but not necessaroly technological breakthroughs; it challenges or disrupts the business models of other companies)

    c) radical (challenges are purely technological; polar opposite of disruptive technology)

    d) architectural (combines technological and business model disruptions; the most challenging form of innovation)

(for more detail, see Landscape Innovation Technique/Map)

The ideal situation is using different types of innovation simultaneously so that they become complementary, rather than substitutes. It involves an approach of balance and mix. Some examples:

- Microsoft did with its Windows software (routine), ie made massive operating profit, and laid the foundation for other breakthroughs (architectural), like cloud (number 2 in the world behind Amazon).

- Google is experiencing rapid growth through routine innovations in its advertising business. At the same time, it is exploring opportunities through radical and architectural innovations such as driverless cars, Google ex-facility, etc

- Apple is making routine innovations around the iPhone while exploring wearable devices payment systems

- traditional automobile makers still focus on revenue and profits from traditional fuel powered vehicles. However, they are introducing alternative-energy vehicles like hybrid, electric, etc plus working on advanced alternatives like hydrogen-fuel-cell motors

In summary

"...There are four essential tasks creating in an innovation strategy. The first is to answer the question 'how are we expecting innovation to create value for the customers and our company?' and then explain that to the organisation. The second is to create a high level of allocating resources to different kinds of innovation. Ultimately, where you spend your money, time, and effort is your strategy......the third is to manage trade-offs. Because every function will naturally have to serve its own interests..."

Gary Pisano, 2015

 

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