Innovation Strategy: Need of Alignment With Business Strategy

The meaning of ‘entrepreneurship’ is not limited to ‘starting a new venture’, it is also about innovatively solving the problem and/or adding value in the market space.

  – Sohan Babu Khatri –

While we see and experience a fair share of innovations in startups and entrepreneurial ecosystems, the same is not quite evident in the world of established corporates and big businesses. However, terms like ‘innovation’ and ‘entrepreneurship’ have found ample space in the interviews, interactions and speeches of the business leaders. Quotes like “We must innovate to grow,” “We must create customer value through innovation,” “There is no other choice than to innovate to stay ahead of competitors”, “We need to be employees and organization with an entrepreneurial mindset”, or should prepare to perish” – are all-too-common general statements that we hear and read quite frequently in corporate planning sessions and retreats these days. This is a good sign indeed! But rarely the essence of these words/quotes and their meanings are manifested within the corporate practices, policies, strategies and systems.

The meaning of ‘entrepreneurship’ is not limited to ‘starting a new venture’ as a process, but as a phenomenon and principle, it is about innovatively solving the problem and/or adding value in the market space. Hence, ‘innovativeness’ is at the ‘core’ and ‘heart’ of ‘being entrepreneurial’ – which can apply for an individual to an institution; irrespective of the job responsibility, domain of work, size of business and sector/ industry it belongs to.

Given the leadership understands the value of ‘being an entrepreneurial organization’ and keeps ‘innovation’ as its strategic priority, two major aspects need to be consolidated in an organizational system and culture before creating and running the innovation process engine within the organization. One, the organization needs to be transformed to be an innovative entity.

It needs to go through a deeper level metamorphosis, or even serious genetic engineering of its seven Ss (Shared Values, Style, Strategy, Systems, Structure, Staff and Skills – Ref: McKinsey 7-S Model – Developed in the 1970s by Tom Peters and Robert Waterman, former consultants at McKinsey & Company). Second, it needs to have a clear innovation strategy as a derived product of its overall business strategy. These two aspects are highly correlated to one another, and this article shall focus on the second aspect related to the innovation strategy and its relation with the business strategy.

One of the reasons why organizations fail to innovate and capture the business value of innovation is the lack of an innovation strategy that is congruent with the overall business strategy. A strategy is a coherent and reinforcing set of decisions, actions, resources and behaviors which creates a sustainable competitive advantage through leveraging the organizational strengths and competencies aimed at achieving a specific goal. If an organization wants to be innovative, they need to articulate a strategy that leverages its innovative capabilities, and efforts and aligns with its overall business strategy.

An organization generally resorts to the best practices like open innovation, cross-functional and decentralized teams, project-based agile management, hatching and spinning off internal startup ventures, corporate sponsorships for innovative projects, external alliances, crowdsourcing, customer-centered innovation efforts through collaboration, etc. However, all of these should strategically re-enforce one another and form a coherent gestalt of interdependent processes and structures in order to channel collective efforts into the ‘success’ of the organization. Moreover, their prioritization and implementation require a trade-off. Considering all of these decisions, actions and efforts as separate musical instruments, an innovation strategy is a conductor which orchestrates all of them creating wonderful music, which stands out and wins the market. Every organization at the best of its essence would have a unique way that works in order to unleash its competitiveness through the design of a specific system matching the needs of the present and future. Innovation strategy works toward the discovery of such needs, systems and potentials. Without an innovation strategy, it would be difficult to integrate and align diverse ideas, perspectives, approaches, learning and experience toward common priorities. Its absence would only create confusion and sometimes even chaos, which can lead an organization towards failure – established innovative practices ultimately turning out to be a ‘Frankenstein’.

A clear and effective innovation strategy:

  • Clarifies priorities and goals and helps focus innovative efforts on reaching those goals.
  • Creates congruencies and alignments among diverse ideas, thoughts, processes and functions.
  • Helps organizations innovate continuously and avoid falling into the success trap
  • Creates a clear path and way of breaking the path dependency through the creation of innovation-led competitive advantages.
  • Prioritizes the resource allocations to the most prioritized and connected innovation efforts.

Align innovation strategy to the business strategy: An innovation strategy that does not support the business strategy through the creation of sustainable (or transient) competitive advantage will only work towards derailing the business out of its path to success and goals. It should be connected to business goals and objectives along with the aspects of business strategy like sources of competitive advantage, strategic positioning, strategic fit and strategic tradeoff. For example, an academic institution that includes ‘winning through a unique blend of progressive and traditional teaching-learning approaches’ in its business strategy would make the mistake of not prioritizing the innovative efforts toward the exploration of the complementarities between a such diverse set of approaches in its innovation strategy.

A good, effective and robust innovation strategy, while in an effort to align itself to the overall business strategy, should have clear answers to the following questions:

  1. What are the innovation goals and objectives that innovation strategy should aim towards and how do they form crucial stepping stones toward the achievement of the business goals and objectives?
  2. How should innovation create value for existing and potential customers (and who are they?) in order to align with the customer-centered decisions and activities as signaled by the business strategy? What aspects of customer value (time, effort, cost, ease, etc.) should the innovation aim towards?
  3. What kinds of and how much of organizational resources (tangible, intangible and capabilities) will be mobilized and affected by the innovation efforts and how such resource allocation decisions align with the ‘valuable’ (central to meeting customer needs, contributes to the overall profit, scarce and not easily inimitable, durable/ sustainable over an extended period of time and in control/ command of the organization) resources or efforts towards creating such valuable resources that support the strategic moves?
  4. How will the company capture a share of the value its innovations generate? How do we make sure that the innovations and innovative processes are entrenched from the competitive actions and reactions? How strategic fits (complementary activities, resources, assets, capabilities, products, or services) envisioned by the business strategy and its implementation are affected positively by the innovation efforts?
  5. How should innovation efforts and investments in it contribute towards the creation and sustenance of ‘differentiators’ (ways to be different than other market players) as envisioned by the business strategy? How should innovation efforts and actions complement the business decisions supporting the creation of competitive advantage as mentioned in the business strategy?
  6. Given the business strategy, which dimensions of innovation (product/ service, process, positioning, paradigm, or some combination of them) should be of focus for innovative efforts and what types of innovation (incremental, breakthrough/ radical, architectural/ component/ business model or disruptive) will be effective in creating and capturing value for the company? How to align resources for each of such dimensions and types ensuring they match with the ones as mandated by the business strategy?
  7. What are the ways and methods (for example, demand-pull or supply push) we apply in each stage of the innovation process and value chain (Search-Select-Implement-Capture) in order to ensure that it compliments and supports the strategic actions aimed towards competitive advantage as intended by the business strategy?
  8. Has the business strategy mandated the change in style and patterns of the organization? If so, then how should innovation and related actions support such changes?
  9. How do the trade-offs (for eg. trade-off between the requirements of demand-pull vs. supply push approaches) implied by various approaches and types of innovation selected in innovation strategy (for example, open innovation as an approach is risker than closed R&D when it comes to intellectual properties and trade secrets) match with the strategic trade-off mandated by the business strategy (for example, choosing not to provide a customized solution for a niche in favor of differentiated solution for the mass)?
  10. Which stakeholders will be involved in the process and who are responsible within the organization for the various aspects of innovation processes and steps and how are they pivotal to the implementation of the strategic initiatives as indicated by the business strategy?

How to develop such an effective and robust innovative strategy that aligns with and compliments business strategy perfectly? The secret sauce is ‘leadership’. It’s the top management that can answer such critical questions and create such alignments. However, the practice of leadership to be exercised is quite different from classical participatory and democratic leadership. While such attributes are necessary, they are not sufficient for creating and driving innovative organizations. The real challenge is the diffusion of such innovation strategies across the organization and recognizing that innovation strategies must evolve. Such a strategy should be taken as a representative hypothesis that should be tested against the ever-changing realities of industry, consumers, technologies, regulations, and competitors. As products and their features require evaluation with time in order to stay relevant and competitive, so too must innovation strategies. Continual experimentations validated learning emancipating from the market and effective pivoting should be the hallmarks of any innovation strategy as the process of innovation itself.

Khatri is Management Consultant and Educator.

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