Introduction to Strategy & Innovation Management
The problem: Innovation remains a frustrating pursuit. Failure rates are high, and even successful
companies can’t sustain their performance. The root cause is that companies fall into the trap of
adopting whatever best practices are in vogue or aping the exemplar innovator of the moment.
The solution: Managers should articulate an innovation strategy that stipulates how their firm’s
innovation efforts will support the overall business strategy. This will help them make tradeoff
decisions so that they can choose the most appropriate practices and set overarching innovation
priorities that align all functions.
The steps: Creating an innovation strategy involves determining how innovation will create value for
potential customers, how the company will capture that value, and which types of innovation to
pursue. Just as product designs must evolve to stay competitive, so must innovation strategies as the
Firms often fail to develop an innovation strategy that fits best with their business.
Good strategies: promote alignment among diverse groups within an organization, clarify objectives
and priorities, and help focus efforts around them.
Without an innovation strategy, innovation improvement efforts can easily become an uncoherent
set of best practices, as a firm may lack the required innovation system to be able to actually
Innovation system = a coherent set of interdependent processes and structures that dictates how
the company searches for novel problems and solutions, synthesizes ideas into a business concept
and product designs, and selects which projects get funded.
An organization’s capacity for innovation stems from an innovation system.
No innovation strategy no innovation system no successful innovation.
Simply copying what other firms do to promote innovation is not the answer. There is no one system
that fits all companies equally well or works under all circumstances.
An explicit innovation strategy enables a firm to design an innovation system that match its specific
So without an innovation strategy:
Firm won’t be able to make trade-off decisions and choose all the elements of the
Different parts of firm tend to develop conflicting interests and priorities – even if there’s a
clear business strategy. Different business units may pursue different ideas. A strategy is
needed to integrate and align the different perspectives around common priorities, or the
diversity will become self-defeating.
EX: Corning: innovation strategy that is closely linked to the firm’s business strategy and core value
proposition. This drives long-term innovation leadership. Despite that Corning is one of the few firms
that still has a centralized R&D laboratory and invests heavily in manufacturing technology, its clearly
articulated innovation strategy is very effective for their business. Centralizing R&D enables
researchers from diverse disciplinary backgrounds underlying the firm’s core technologies to
collaborate. Although, Corning’s strategy will not work for everyone: long-term investments in
research are risky.
Another firm that manages to connect innovation to its strategy is the pharmaceutical BMS. It
understood that their new business strategy (emphasizing the cancer market) required a net
innovation strategy (shifting technological capabilities toward biologics).
How to create a good innovation strategy?
Start with a clear understanding and articulation of specific objectives related to helping the
company achieve a sustainable competitive advantage. This requires going beyond the obvious
and common kind of “strategic thinking” for innovation.
A robust innovation strategy should answer the following questions:
How will innovation create value for potential customers?
o Besides that it is important to choose what kind of value your innovation should
provide, it’s critical to stick to this, since capabilities needed to create such value are
value-specific, and takes time to develop.
How will the company capture a share of the value its innovations generate? (Through IPP)
o New value-creating innovations also attract imitators. Thus, the firm must make
sure that it is able to capture most of the value from an innovation. This could be
realized in a market that is not easy to enter; where suppliers, distributors and other
firms involved in delivering an innovation have sufficient bargaining power.
So, if customers switch to another firm, it will incur switching costs.
o Way to preserve bargaining power: continuous investments in innovation.
What types of innovations will allow the company to create and capture value, and what
resources should each type receive?
o Firms could either create value by focusing in technological innovations or business
o Hence, when creating an innovation strategy it can choose how much it will invest in
technological innovation or business model innovation.
o The Innovation Landscape Map characterizes innovation along two dimensions:
1. Degree to which it involves a change in technology.
2. Degree to which it involves a change in business model.
o The matrix considers how a potential innovation fits with a firm’s existing business
model and technical capabilities; and assist with the investment decision.
o Routine innovation: builds on existing customer base.
o Disruptive innovation: requires a new business model, but not necessarily a
o Radical innovation: purely technological innovation.
o Architectural innovation: combines technological and business model disruptions.
Most challenging for incumbents to pursue.
o A firm’s innovation strategy should specify how the different types of innovation fit
into the business strategy and the resources that should be allocated to each.
o Main takeaway from this Innovation Landscape Map: there is not one preferred
type! Different kinds of innovation can become complements, rather than
substitutes, over time. E.g., a firm that merely introduces a disruptive innovation
without following it up with a stream of improvements will not hold new entrants at
bay for long.
o Also, no magical formula for resource allocation; it will be company specific and
contingent on certain factors (e.g., rate of technological change, magnitude of the
technological opportunity, intensity of competition and company strengths).
A company whose core business is maturing may have to seek opportunities through business model
innovation and radical technological breakthroughs. But a firm whose platforms are growing rapidly,
may want to focus on sustaining and extending them. Key: have a good balance and mix of
innovation types requires “ambidexterity”.
Without a clear innovation strategy that everyone in the firm should focus on, different business
units and functions will make their own resource allocation decisions that would each favor their
own projects, as these were seen as the most pressing.
Especially, an innovation strategy matters most when an organization needs to change its prevailing
Not only will an explicit innovation strategy help to understand which practices might be a good fit
for the organization, but it also helps to navigate the inherent trade-offs:
Crowdsourcing: yes or no? It may help to exploit large numbers of diverse problem solvers,
but they are not beneficial in all contexts.
o Yes: highly diffused knowledge base, relatively inexpensive ways to test proposed
solutions, modular system.
o No: concentrated knowledge base, expensive testing, system with integral
Customer involvement (“co-creation” in the innovation process): yes or no?
o Yes: close collaboration with customers reveals insights that can lead to novel
offerings. Demand-pull approach may require close collaboration to tap into
customer needs. subs with competence-exploiting mandates.
o No: working closely with customers will blind you to opportunities for truly disruptive
innovation. So choosing the demand-pull, you risk missing out on technologies for
which markets have not yet emerged. Supply-push approach does not require close
collaboration with customers, since it focuses on developing technology first and
then finding or creating a market. Risk here is that you may create technologies that
never find a market. subs with competence-creating mandates.