Build an Innovation Strategy to Avoid Corporate Innovation Failure
When looking to create sustained in-market impact to provide new growth for the business, an intentional and rigorous strategy creates the best opportunity to strike gold over and over again.
Corporate innovation often feels like a guessing game. On one extreme it can seem like a dark art practiced by a select few experts with opaque methods. On the other end of the spectrum, companies can seem like they are flailing trying anything and everything they can think of to see what sticks. Both approaches miss the point that inventing new products, services and businesses, like any growth activity, is an intentional craft that works best when you have run a clear strategic approach. The best way to set your company up for successful innovation practices starts with a documented innovations strategy explicitly stating what opportunities you will and (most importantly) won't spend time and effort working on.
One of the most common lies in innovation is that someone can guess what will or won't gain adoption in market. Markets, customers, and the activity of competition is too complex to understand in theory. Despite the best intentions of business schools, you can't model your way to product success. While companies can't predict the market, they can make clear choices as to where they will focus their efforts to strike gold. An innovation strategy is the document that details where the company will place its bets for what new growth opportunities to go after. You can use this a structured agreement between the organization and the teams running innovation initiatives. You don't want this to be some academic exercise on what innovation means to the company, but rather a detailed explanation of innovation initiatives aligned to the larger company strategy.
The detail of the strategy must include what are the specific elements of new product or services value proposition the company is willing to experiment with. Are we going to test new business models? New technologies? New audiences and markets? New sales channels and customer interactions? And to be explicit about what areas are of no interest or off-limits for key reasons. No one wants to buy a car made by a candy company, but there may be value for a CPG company in looking at a direct-to-consumer monthly snack subscription model targeted to professional services businesses. Setting these focuses teams to avoid spending time trying to follow every potential variable in creating value propositions.
With limited time and resources, it is often more important to be explicit about what areas are outside the realm of focus for these teams. In this way, you avoid wasting time and effort on things the company doesn't have the appetite to take forward, regardless of how successful they are in the market. This helps make the resulting solution more likely to be adopted by existing business units with sustained go- to0market capabilities. This can help you avoid the trap, for example, by ensuring that a business model that feels too foreign or an audience you have no existing sales channel for isn't developed.
With the strategic bounds of innovation set, next you will want to dig deeper into placing your bets. There are opportunities around a company’s existing customers, channels, and capabilities. And at the opposite end of the spectrum more speculative opportunities around new audiences and technologies. The job of an intentional corporate innovation thesis is to distribute resource and capital between incremental innovation and moonshots. The often-cited rule of thumb is investing resource and capital into 70% horizon 1, 20% horizon 2, and 10% horizon 3 innovation.
This decision is unique to the company, the business unit and the environment that each company is operating in. For example, a retail company with declining revenues facing market headwinds will have a very different risk appetite over 18 months than a B2B medical manufacturer looking for global expansion. As with any portfolio of investment, you will want to revisit this thesis every year to ensure your allocation and returns are aligned to this investment thesis. Likewise, it is important to adapt the ‘risk profile’ of the thesis to changes in the market, capabilities, competition, and company goals brining consistent learning into the process annually. Anything more frequent than this will not give you time to realize the outcomes of your investments.
This is critical as the corporate innovation strategy and thesis can set growth guidance for everything from long-term build/partner/buy strategy to individual product teams conducting in-market design research. The innovation strategy and thesis set out the objectives explaining why you are undertaking innovation and what fits that definition for your companies position and goals. This is not to be confused with an innovation operating model or charter which tend to focus more on how your organization will undertake innovation in practice and the mechanics of how all the stakeholders interact. That is best saved for another post.
Being explicit in your innovation strategy helps avoid some common pitfalls I have seen Fortune 5000 clients get stuck with often. First, we are very rarely looking to build a single product or service. Innovation strategy sets the intention for a machine that continually uncovers new customer value to grow market-share and revenue. This flywheel requires a balance where teams can iterate at pace to quickly find new valuable solutions while reducing the risk of wasted time, resources, and capital. There are some key goals that an innovation strategy can increase the likelihood of overall success:
1. Kill pet-projects quickly that aren't delivering realizable customer or business value. Every executive has an itch they want to scratch. If these are rooted in clear market demand or capabilities, these projects can kill moral as well as suck up resources better used on more fruitful opportunity areas.
2. Make more targeted bets that will support the overall companies’ business goals. No one likes to change, but narrowing the focus to opportunities that we know the business has appetite for reduces the political sell-through needed and the likelihood for outright rejection by the organization.
3. Increase the likelihood of success instead of reducing failure. Net-new innovation is very very hard, and filled with many reasons why new products or services fail. We want to ensure that at every stage we intentionally set the conditions to increase the chances for successful creation and adoption by the market and our organization to improve our ROI.
4. Set objective goals to measure successful outcomes. It is easy to get swayed by the newest technologies, what our competitors are doing, and focusing on the needs of senior executives over actual customers. Temptation and anxiety in business is everywhere (looking at you blockchain) and while there will be unicorns, chasing shiny objects is the quickest way to deplete your teams and resources.
All of this is to say that innovation is a marathon and not a sprint. When looking to create sustained in-market impact to provide new growth for the business, an intentional and rigorous strategy creates the best opportunity to strike gold over and over again with the least wastage.