Innovation isn’t always strategic, but strategy making surely must be innovative. Strategy is about allocating resources today to secure a better tomorrow. It is important to understand the nuances and complexities of innovation as they relate to strategy. Here is my list of the four most important:
Some industries are faster paced than others. The smart phone industry has gone through several disruptive changes in just a decade. Yet the steel industry’s technology shifts took place over a hundred-year period. Managerial “best practices” in a fast-paced industry don’t necessarily apply to everyone, everywhere.
I put all innovations into two broad categories. Linear innovations (which are consistent with the firm’s current business model) and non-linear innovations (not perfectly continuous with the current business model). We need to add another layer of complexity to those categories. That is, innovations can be incremental or radical. Consider a School of Business I know. A linear, incremental innovation would be if professors from different disciplines co-taught a course. A radical (but still linear) innovation would be a major overhaul of the two-year MBA curriculum. If they were to fundamentally change their business model by offering an online MBA, that would be non-linear. Not only is there no well-understood process for creating such a program, but doing so would require it to build an entirely new set of capabilities.
Innovation is about commercialising creativity. If a firm is not making money with an idea, there is no innovation. The real challenge lies in the long, frustrating journey toward converting an idea into a fully scaled-up, profitable business. Moreover, this isn’t always about coming up with new products and services. We tend to think of a shiny new product offering when we picture “strategic innovation”, but that’s too limited. Apple has disrupted several industries using new business models, not new technologies. And Toyota changed the auto industry forever with a systemic process innovation (the lean production system).
There are two significant problems if the firm’s leader is the only one worried about strategy. First, strategy is about adapting to change. The people at the bottom of the organisation are closer to customers and the competitive environment than the CEO. Second, the company needs to selectively forget the past as it invents the future. The CEO will have the most difficulty in forgetting, especially if the CEO was responsible for creating the status quo. The people at the bottom of the organisation not only are closest to the future, they have the least vested in the firm’s history.
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