What is the link between business strategy and innovation?
It reminds me of the days when quality programs were regarded as both ‘strategic’ and ‘innovative’. The first movers into quality management achieved increased returns and profits. Soon quality programs became commonplace. They were less of a strategic advantage. They became simply the basic price of admission to the competitive game.
For the most part treat innovation and strategy as separate practices within the firm’s management system. If a company tries too hard to push them together, it can create confusion.
Some confusion arises from the multiple meanings of the word strategy.
I have given my view on what strategy is in more detail here.
I see strategy as a decision, which is approved by a very senior manager, has effects that are substantial and long term and is accompanied by an integral risk analysis is. The absence of any one of these suggests we are not talking about strategy. It represents a clear logic for choosing to do one thing and not other things. The choices involved are about improving the overall performance of the business at manageable levels of risk.
I see the frequent assertion that the strategy was good but the execution was poor as very unhelpful.
The formation of the strategy should include full assessment of capabilities to execute. If that capacity is missing then that is in itself a strategic issue. See also the link to the right on the work of Richard Rumelt.
Failure to execute strategy is a failure indeed. It is a failure of top management!
Innovation and strategy differ in that ‘failure’ is required in the innovation process. Innovation is an inherently risky, messy process. Many mistakes are part of the learning process. If you could execute an innovation process without mistakes, it would not be an innovation process! This does not mean innovation is simply a matter of random lashing about in the dark. Nor is it flashing about in a glow of inspiration! It is somewhere along a spectrum between mess and method! The position on the spectrum depends on the situation.
The famous dictum of Thomas Edison that it is one percent inspiration and 99% perspiration may have been accurate for many of his innovations. A well-known one is his work on electric lighting. For other innovations, it may be more like 20% inspiration, 80% methodical work.
Rarely does a useful innovation come simply from a flash of inspiration. It usually takes years of preparation to become an overnight success!
It is ironic that the light bulb symbolizes the brilliant flash of inventive inspiration. It actually represents the hard graft of searching for solutions. I believe that this is what Edison meant.
Many firms think of strategic innovation purely in terms of product improvement. Frequent attempts at product innovation may help keep market share. This may well be the case when carried out across a large range of products.
Often there is no real attempt at systematic analysis of the effect of such moves on the overall profitability of the firm. Without careful study of the effect on customers, firms may face a backlash.
Innovation guided by the firm wide application of principles can build profits.
An example of close strategy-innovation linkage is at Apple.
The Apple approach to strategic innovation involves a few seemingly vague principles. For example “Do what you love”, and “Sell dreams not products”.
The explanation is fleshed out in Carmine Gallo’s book The Innovation Secrets of Steve Jobs: Insanely Different Principles for Breakthrough Success.
These apparently vague guidelines align with disciplined processes. These include idea evaluation and development methods that focus relentlessly on improving the customer experience. The product is one aspect of a complete system that affects the lives of customers. This is the experience from purchase, through unpacking and setting up, use, and support. The approach, while strong in the design areas, flows through the whole Apple enterprise. This is in contrast to some companies that spend a great deal on a research and development, including market research, and yet cannot seem to link strategy through innovation to improved profits.
Many perceive Apple as obsessed with cosmetic product innovation. One key to the firm’s success is that they are not so obsessed with product strategy and innovation that they overlook other sources of innovation that can lead to sustainable profits. For example, strategy and innovation were well linked in their collaborating with the music industry. They addressed the seemingly insoluble problem of music file sharing breaking copyright. Customers had a good experience in using the product, and they felt better about doing the right thing!
When a business enterprise can relate strategy and innovation in the whole business within its environment, rather than just improve specific product features, the longer lasting will be the profits from their efforts at innovation.
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