Thinking about innovation and strategy

 I've been asked several times lately to write about, or perhaps more specifically, to opine about, innovation strategy.  If you are a somewhat regular reader of this blog or my work generally, you may know that I think talking about innovation strategy conflates two very important ideas that are related but not the same thing.  I find it useful to consider first the definition of these two concepts.

 Innovation Definition

Innovation, in its simplest form, is simply turning good ideas into some valuable action.  That action may be creating a new product, or developing a new channel or business model.  Of course, innovation can span a range of impacts and outcomes, from very incremental product innovation to industry changing business model innovation.

Strategy Definition

Strategy, on the other hand, is an entirely different beast.  Strategy is often difficult to define.

When I Google definition of strategy, this definition pops up.  It's just one of several, but I think I like it the best:  a plan of action or policy designed to achieve a major or overall aim.  

Several important things to note about this definition:

1. It is a plan of action or a policy - that is, strategy is extenuated over a period of time.  Strategy is not a momentary action or a project.
2. It is designed - which means that strategy is carefully considered with a significant end goal in mind
3. It has a specific outcome - the successful execution of strategy should result in a meaningful outcome

Now, reviewing the two definitions, we can see why these words are often conflated.  Innovation hopes to achieve a specific outcome, but most often a much more tactical solution like creating a new product.  Innovation is an action, but it is not often a plan or policy.  Innovation should be designed, but is rarely so carefully considered.

How are these two concepts related

In my view, innovation is a means through which strategy can be realized.  That is, once you've identified a strategy, innovation is one of the important tools in the toolbox that may help you achieve your strategy.

One of my favorite frameworks for thinking about strategy is Treacy's 3 competitive positions, which are competitive positions that are simplified from Michael Porter's work.  The three competitive positions are:

 - Product Leadership

 - Customer Intimacy

 - Operational Excellence

Typically, you can look at a market or industry and see one clear leader in each of these competitive positions, and others simply trying to compete.  

When we consider these positions, one could argue that Product Leadership is most closely aligned with innovation, and to some extent that's true.  Note that product leadership isn't necessarily the newest or the most ornate product.  Product leadership is simply the best product, and a company can create and iterate good products without a lot of innovation.

Next, consider customer intimacy.  This means getting as close to the customer as possible and understanding their needs. In this case you can innovate the customer experience by understanding customer journeys, and create new relationships and touch points, but you can accomplish some of these results through other means.

Some people would argue that Operational Excellence is not associated with innovation, because it typically has to do with efficiency and cost reduction.  I am as comfortable innovating in this regard as any other focus, just the actions and outcomes are different.

Perhaps you'll see where I am going with this.

Innovation is a tool that may help you accomplish your strategy.

It's an interesting conundrum that the companies that have excellent strategy and use innovation as one means to accomplish their goals are very successful, but companies that lard up their language with innovation but lack good strategy aren't as successful.

There may be a few companies that have "innovation" as their strategy, but I'm not aware of them.  A singular focus on innovation as a "a plan of action or policy designed to achieve a major or overall aim" will leave a company exhausted and bankrupt.  Innovation is always important, since growth and differentiation are important, but strategy is more important than innovation, and "innovation" by itself is not a corporate strategy.  

Now, if you were to ask:  OK, where should I focus my innovation efforts?  Then I'd respond with, tell me what's most important in your strategic efforts and where innovation can make a difference.  If your strategy for example is customer intimacy, then I would ask:  how might we use innovation to create new channels, new customer journeys and new relationships to improve customer intimacy.  Note that innovation should be able to provide a major impact on customer intimacy, but it is not the only tool in the toolbox.  You can also improve customer intimacy by training your front line workers, changing how you communicate with customers, shifting corporate focus and rewards and compensation models to emphasize customer intimacy.  

That is to say:  Innovation is one tool to help you accomplish your goals, and once you have clarity about your strategic goals, you can then determine where and when to leverage innovation.

Takeaway

The purpose of this post is not to relegate innovation to a lesser role, but to place its priority and use in a context.  When executives say they need innovation, the response should be:  we need strategy.  Once the strategy is determined, (hopefully well developed and implemented successfully) then where and when to leverage innovation should become much more clear.