Many companies ask how they can create and implement an innovation strategy. However, I find that starting with strategy is usually the wrong way to approach innovation.
Companies should start by identifying their innovation capacity.
In order to understand how innovation works inside businesses, you have to understand how companies make their money. The two main factors that typically determine the innovation capacity of a business are its cash flows and the risk tolerance of leadership.
On one end of the spectrum are new startup companies. They have no cash flows. So if a batch of startups begins working on innovative products in a similar space, the only way to gain traction is by creating something they can sell or gain investment for. Therefore they are highly incentivized to take the innovation risks necessary to create such products because they have little other options.
On the other end there are old large public and private companies. They already have “cash cow” products that they must continue to invest time, money and resources in. They are focused on maximizing returns on their current inventories because their existing infrastructure, supply chains, employees, culture, etc support the status quo. When they look at ROI, they can measure the return on investment from older products because they have data on their side. And when executives and managers are measured against ROI and not innovation, they are less likely to take any risks to create something different from the norm.
For individuals, risk tolerance and decisiveness are the factors that typically give you their innovative capacity. This is not to be confused with innovative ability. Many big companies have very innovative individuals, but their capacity to push the boundaries of that ability is limited to how much risk they can take and the efficiency of the decision making process. For example you limit innovative capacity if no one wants to risk capital, job security, reputation, resources, etc and the decision making process is very slow.
Companies should begin by really determining their innovation capacity, then moving forward with strategies and activities that match. Not doing so is why many company innovation programs start off with everyone excited about innovation and end up leaving everyone disappointed when nothing new happens.
Businesses must look in the mirror and ask “how innovative do we really want to be and what are we willing to do to achieve it.” To put it in oversimplified terms, they could have a finite focus on adding features to existing products (low innovation capacity). They could expand their product range to adjacent product markets (medium innovation capacity). Or they could choose to create something new and outside of their current product or customer areas (high innovation capacity).
The way businesses can approach innovation and actually have a chance to pull it off is to first determine their innovation capacity or desire to increase that capacity. Then they can deploy tools to kick start that particular innovation process.
Based on their innovation capacity, companies can then deploy appropriate resources into these three areas: INSIGHTS, STRATEGY and ENERGY.
Problem Context + Customer Feedback + Market Timing = INSIGHTS
Company Abilities + Short/Long-Term Thinking + Team Focus = STRATEGY
State of Mind + Individual Actions + Corporate Commitment = ENERGY
INSIGHTS + STRATEGY + ENERGY = INNOVATION
Out of these three parts, the two that businesses miss out on the most are INSIGHTS and ENERGY. There is no shortage of STRATEGY – just look at Google searches, business books, industry benchmarks or leading consulting reports.
What’s mostly missing is companies actually taking the time to talk to customers 1-on-1 and get INSIGHTS as to what their strategy should include. Then once the strategy is built, businesses should not omit the need to provide their innovation teams the ENERGY to keep moving forward, be flexible and survive long enough to see innovation success.