Strategic Innovation and Why It’s Important

Most leaders will claim their innovation strategies yield strategic benefits. Yet how many of these initiatives are simply random acts of creativity or a hodgepodge of innovation best practices?

This could partially explain McKinsey’s finding that 86 percent of executives see innovation as a top three priority, but less than 10 percent are satisfied with their organization’s innovation performance.

The aim of strategic innovation is significant growth and value for the organization, its customers, and other stakeholders.

Driving innovation is especially important with today’s rapidly evolving business dynamics, where upstart competitors or regulatory risk can change the game at any time.

It starts with an innovation framework tied to strategic goals.

Companies cannot take a scattershot approach to innovation.

Technological advancements and business disruptions move too fast to drive innovation with anything less than a strategic plan.

Unfortunately, too many business leaders use this approach to drive innovation. As a result, the outputs are seldom aligned with the organization’s current strategic objectives.

Innovation that’s truly strategic requires a structured way for driving value. It focuses on disruptive opportunities to grow the business.

Strategic innovation results in new strategies, markets, products, technologies and/or business models. It creates significant value for the business and, in many cases, value for the customers.

Strategic versus incremental innovation

For perspective, incremental innovation (aka sustaining or routine innovation) has a short-term focus. In contrast, strategic innovation explores how the organization can grow the business in the future.

Incremental innovation builds upon a company’s current foundation. The focus is making improvements and upgrades to existing products and services. The organization is trying to optimize value and growth within its established markets and customers – and stay competitive in the short term.

Strategic innovation, on the other hand, is a systematic method to go beyond the confines of the status quo and develop game-changing innovation. The endeavor requires creative input and buy-in from the initial idea to delivery.

Both kinds of innovation are important. However, strategic innovation becomes especially important when looking at a company’s long-term success – especially during fast-paced change and disruption.

Strategic change involves taking an objective, hard look at the company’s direction and business model. It’s an inquisitive approach, reexamining everything and asking probing questions such as:

• Do we need to change our strategy or business model?
• What new services or products need to be developed?
• How can we capture new customers and customer segments?
• What markets should we be in?
• How can we make our value delivery more efficient?

Executive teams lead this process, but moving from ideas to strategic value requires a culture of innovation.

Innovation thrives when leaders encourage cross-functional collaboration. Teams and functions should feel free to voice ideas and experiment in an Agile manner:

• Work quickly
• Fail fast
• Incorporate learnings and customer feedback, and repeat

This is not a free-for-all, though. Guardrails exist to mitigate risk and ensure teams are doing the right work.

Teams should understand how their day-to-day work is aligned with strategy. This alignment ensures that strategy informs the work being funded, planned, and executed – and vice versa.

Achieving consensus on strategic change

Strategic alignment starts with the C-suite. But how do you get your company’s top decision-makers on the same page?

The truth is that leaders may not be aligned on the current strategy, especially in siloed organizations. Consider this excerpt from a Harvard Business Review article titled “A New Approach to Strategic Innovation,” which says:

“In almost half the companies we have worked with, members of the management team held varying understandings of their company’s strategy.”

A lack of a shared vision can lead to conflicting priorities, goals, and incentives. Innovation projects may be loosely tied to strategy – if at all. Consequently, the company could be investing in initiatives that bring little to no value to the business.

That’s why it’s important for companies to prioritize strategic innovation and actively facilitate alignment between strategy and delivery.

Leadership teams must come together to cut through any haze and revisit the strategy with fresh eyes. Going through this process creates consensus around the corporate strategy and the strategic goals, such as increasing revenue, expanding into new markets, or increasing customer retention.

Executives further their commitment by providing input on the business model and identifying threats and weaknesses. These can be:

• Internal weaknesses and vulnerabilities: lack of digitization or no expertise in a certain area
• External threats: competitors, regulatory uncertainty, or changing customer demands and expectations

From this exercise, the team determines what changes to make, turning the weaknesses into innovation goals. This leads to an assemblage of projects that will support the strategy and achieve the objectives.

Having achieved consensus, leaders can analyze the current innovation portfolio against the revised strategy and goals. This helps determine which projects to keep, which to cut, where to reallocate resources, and other important decisions that ensure organizational capacity is used to meet the company’s high-priority initiatives.

Keep in mind the process does not end here. Driving strategic innovation isn’t a once-off process – it is continuous.

As business conditions evolve and the innovation program generates new growth opportunities, companies will need to adjust the strategy, goals, and what work they invest in. This requires end-to-end visibility into initiatives, financials, and resources, along with access to accurate, objective, and timely data.

Accurate, up-to-date information is important for creating business agility and informed decision-making that empowers leaders to feel more confident about their strategic investments.

This type of data enables quick pivots so companies can make faster, smarter decisions. Executives and managers can determine exactly how alterations to the portfolio, programs, and projects will impact the organization by looking at valuable real-time insights.

And the right framework enables leaders to operationalize the strategy. Here’s how.

With the promise of strategic innovation, organizations are capable of creating disruptive change by generating high-growth opportunities and capitalizing on them. But how do you achieve this level of innovation and deliver new products and services that support the strategy?

The answer is a strategic innovation framework that combines various dimensions to encourage innovation, increase growth, and deliver more value to stakeholders.

1. The managed innovation process

   An effective strategic innovation framework moves you from the beginning of an idea all the way through its implementation. It provides a structure for the entire organization to consistently deliver breakthroughs.

   The idea-generation process consists of more than simple brainstorming. Companies should employ convergent thinking, looking at the usual consumer and market trends, competitive analyses, and other business elements.

   Divergent thinking is where executives must get out of their comfort zones. Creative ideas, future visioning techniques, and willingness to imagine outside the core business are all components. This is where the seeds of your breakthroughs are born.

   Many organizations and individuals find it difficult to back away from the day-to-day and think divergently. Some are risk averse. Others focus on short-term projects, especially if the company is beholden to delivering quarterly results.

   Failure to engage in the process and follow the system leads to the same conventional, incremental ideas that may not be vetted thoroughly against strategy. You could be wasting resources on the wrong investments and miss strategic innovation opportunities that give your enterprise an advantage over the competition.

2. Create strategic alignment

   Innovation projects often fail because leaders are at odds over strategy and execution. Executive teams may be in lockstep on the strategy but cannot link it effectively to the work teams deliver.

   It’s imperative to be aligned on:

   • Funding and resource allocation
   • What projects and work to prioritize
   • Which teams will work on which projects
   • How teams and departments will work together to drive innovation

   Furthermore, employee buy-in happens when executives treat innovation as a core component and top priority in advancing the organization’s objectives. When teams see little connection between strategy and execution, achieving the desired strategic outcomes can be difficult.

   On the other hand, alignment done right is a great motivator. Everyone can rally around the innovation strategy. Employees at all levels will take ownership of the strategic plan and work towards achieving the goals.

   You must build an organizational culture reinforcing strategic objectives to achieve this. Read the Economist Impact survey, “Bridging the Gap: Turning Strategy into Reality” to learn how.

3. Understand emerging industry trends

   Many organizations are better at operations than innovation. Strategic innovation forces management teams to look into the future. Data analysis should be done in this context.

   Actively explore where your industry is heading.

   Instead of asking, “What do our customers want?” ask what problems need to be solved or what gaps exist in the market: your market, adjacent markets, or a totally new market.

   This also entails thinking about how you can bring emerging technologies into your business, such as generative AI. As emerging technology develops, think of how you can integrate it into your business model in a way that drives value.

4. Understand your customer’s needs

   Innovative ideas can emerge from a better grasp of what customers are experiencing. Existing customer data may provide some of this.

   Companies should be proactive with adopting a qualitative, bottom-up approach that leverages customer insights in the innovation process.

   The company could conduct focus groups, administer surveys, or involve customers in ideation projects. Agile teams often work closely with customers to gain quick feedback. Collect as much as you can, with an eye towards closing gaps or developing new solutions.

   Complement customer input with exploratory consumer research about future possibilities that could inform your innovation strategy. For example, your organization could experiment with new technology or investigate other industries to bring in non-traditional techniques and services your competitors don’t use.

   

5. Assess your ability to act

   Organizational readiness means you can deploy the innovation strategy and drive execution. Strategic innovation requires navigating a host of factors and potential obstacles, such as operational, cultural, and financial challenges.

   People want to learn and grow but are hesitant to try new applications or adapt their practices.

   Three forms of organizational readiness will help you assess your company:

   • Cultural readiness: This is cultivating a culture of innovation if you don’t already have one. Can your organization think differently, generate ideas, take calculated risks, and create innovative solutions?
   • Process readiness: Do your business processes and practices help cross-functional teams collaborate and deliver on innovation projects?
   • Structural readiness: This is having the structures and technology in place to support innovation. Do you have the means and agility to move people and money around to projects with the highest potential?

   Your readiness in these three areas informs your ability to effectively implement and deliver strategic innovation.

6. Transform ideas to impact

   This is the execution stage, where effective strategic alignment and planning pay dividends. In practice, the company needs the ability to translate innovative ideas into business results.

   Business leaders should:

   • Create a roadmap and timeline, define success metrics, and identify the work involved
   • Prioritize and plan the work, and ensure the work stays aligned with strategy
   • Establish feedback loops and facilitate continuous improvement

   This is an area where visibility is key.

   Business leaders need insight into the work being done and whether it aligns with the organization’s vision. Access to real-time, accurate data enables them to understand interdependencies, resolve resource conflicts, and see potential issues in time to prevent them. That way, key decision-makers can confidently invest in initiatives that drive the company forward.

Those eureka or “light bulb” moments are few and far between. If your innovation efforts are isolated and not tied to strategy, you risk investing in initiatives that provide no business value. Strategic innovation is a growth-focused, systems approach to moving the company forward.

Using a strategic framework helps stimulate and deliver ideas that increase revenue and value. The process harnesses employees’ collective talent, skills, and creativity under one strategic banner. In short, it will increase your chances of success when driving innovation.

To dive further into strategic innovation, download the eBook “Connecting the Dots Between Strategy and Delivery.”