Strategic Response – Linking Innovation to Strategy

The Challenge:

Organisations see the importance of innovation but continue to squander resources chasing poor ideas.

The Kepner-Tregoe Response

Successful companies link innovation to their strategy through articulating their “Innovation Intent”.

With fragile economic growth threatened by the impact of reduced public spending, patterns of low demand and over supply are likely to be with us for a while.

In such challenging times, success will come from our ability to differentiate products and services from those of the competition. As we in the more advanced economies have largely ceded the battle for cost differentiation to competitors in developing countries, differentiation through product and service innovation becomes the basis for building competitive advantage today. This year, the European Union has placed innovation at the heart of its Europe 2020 strategy, recognising that at a time of public budget constraints, major demographic changes and increasing global competition, Europe’s competitiveness and future standard of living depends on the ability to drive innovation in products, services, business and social processes and models.

The focus on innovation is nothing new. It’s been a mantra in boardrooms for some years and much has been researched and written on why some organisations are more successful than others in this important area. Typical of these studies is the UK Chartered Management Institute’s recent “Innovation for the recovery” study, which includes an exploration of the barriers to, and catalysts for, effective innovation. As one might expect in the current climate, the barriers include lack of money, time and resources but also identify weak leadership strategy and unclear business goals as being a principal barrier. Conversely, the study highlights senior leadership’s development of an innovation strategy, or an Innovation Intent, with related priorities, to be a catalyst for success.

The development of a statement of Innovation Intent aligned to the overall strategy of the business seems obvious, but this is not the case at many organisations today. Companies with strong internal innovation programmes but a weak link to strategy are only slightly more likely to succeed at innovation than those that have relatively poor innovation processes.

Some of the warning signs that an organisation does not have a clearly aligned Innovation Intent might include:

• Ideas are rejected or programmes cancelled after expending enormous resources because they are not a “strategic fit.”
• Decision makers conclude that there is a shortage of meaningful innovative ideas welling up from inside (and outside) the organisation.
• Frequent directional changes in the thrust of innovation result in a flurry of project cancellations and new project starts.
• Idea generators and innovators are frustrated by the low acceptance rate for their ideas.

Creating a statement of Innovation Intent assumes that there is an overall business strategy in place.

Formulating a strategy requires the most senior executives in the enterprise to make fundamental choices about the future of the business. Those choices are made by answering a series of pin-pointed questions which must include:

1. What are our fundamental values?
2. How far into the future will we look?
3. What products/services will we offer or not offer?
4. What customer groups and geographic areas will we and will we not serve?
5. What will fuel our growth?
6. What products and markets represent our greatest potential and require the most significant investment?
7. What will cause us to succeed?

These questions make it clear that the firm’s strategic success is vested in the products and services it will offer and to which markets they are sold. When the strategy formulation team does not answer these questions during strategy formulation, it will not be possible to articulate a clear Innovation Intent.

Innovation ivent

With a strategy formulated and communicated throughout the organisation, the statement of Innovation Intent becomes the backbone for initiatives and provides a framework for effective decision making. The statement of Innovation Intent must answer five key questions:

1. What is the thrust of our future business that cannot be met by our existing products and services?
2. What is the scope of new products/services and customers/markets that will and will not be considered?
3. What are the future priorities and emphasis for new products/services and new customers/markets?
4. What new products are required to implement the strategy successfully?
5. How will the new product contribute to business success?

The statement of Innovation Intent is the link between the operational aspects of innovation and the business strategy. It translates the strategic goals into product and market specific guidelines to guide the innovation process of the organization. It is important that the Innovation Intent defines both the targeted product /market combinations and those that are off-limits.

When is an idea is a good idea?

Successful companies have systematic, methodical approaches linked to their business strategy to screen innovative ideas. To confirm the linkage, they use the strategy and innovation Intent to develop the screening criteria. Most screening criteria will ask the following basic questions about a proposed innovation:

• Strategic Fit and Leverage (Why us?)
• Probability of Technical Success (Does the technology work?)
• Probability of Commercial Success (Is there a win?)
• Reward Potential (Will winning be worth it?)
• The Commercial Concept (What will be made and sold?)
• Plan to Proceed, risks and resources required

All of the companies with high performance processes answer these questions before committing to development. Some answer them during preliminary investigation, while others answer the questions in the final review of the business proposition before full-scale development.

Conclusion

Successful companies start by looking at their strategy to decide what role innovation should play in the overall growth of the company. From the strategy, management must construct a statement of innovation intent which defines how acceptable an innovative idea is likely to be. Once completed, they must carefully communicate the statement of Innovation Intent to the community of idea originators who in today’s interconnected world are as likely to be customers and consumers as those special people in their special rooms. Finally, the organisation needs a screening process to decide which ideas it will pursue.

References:

European Commission. 2010 Europe 2020 Flagship Initiative Innovation Union. Brussels: European Commission

Patterson, F., Kerrin, M. 2009 Innovation for Recovery. London: Chartered Management Institute https://kepner-tregoe.com

 

S B-S; Copyright © Kepner-Tregoe, Inc. All rights reserved. 1st November 2010