You Need an Innovation Strategy

It is a rare CEO who doesn’t list innovation as a top priority. But innovation remains an elusive beast for most. Massive R&D investments have been made, processes built, training courses run, and yet successful outputs – exciting new products and services – are few and far between. Why is it so hard? Not because of failure to execute, according to innovation and competitive strategy expert Gary Pisano. The problem is the lack of innovation strategy.

It sounds simple. Companies regularly define their overall business strategy (their scope and positioning) and specify how various functions – marketing, operations, finance, R&D – will support it. Yet, “during my more than two decades studying and consulting for companies in a broad range of industries, I have found that firms rarely articulate strategies to align their innovation efforts with their business strategies,” explains Pisano in his article, “You Need an Innovation Strategy,” published in the June issue of Harvard Business Review.

Like the creation of any good strategy, the process for developing an innovation strategy should start with a clear understanding and articulation of specific objectives related to helping achieve sustainable advantage. This requires going beyond all-too-common generalities, such as “We must innovate to grow,” “We innovate to create value,” or “We need to innovate to stay ahead of competitors.” Those are not strategies; they provide no sense of the types of innovation that might matter (and those that won’t), says Pisano, a Harvard Business School professor who has spent decades researching and teaching innovation.

A robust innovation strategy should answer three pivotal questions:

  1. How will innovation create value for potential customers?
  2. How will the company capture a share of the value its innovations generate?
  3. What types of innovations will create and capture value, and what resources are needed?

Based on his research and that of other authorities in the field, including Harvard Business School colleagues Clayton Christensen and Rebecca Henderson, Pisano characterizes four categories of innovation: routine, disruptive, radical and architectural. Critics tend to discount routine innovation that leverages a company’s existing technical capabilities and business model, and extol disruptive innovation. But Pisano believes that thinking is simplistic. In fact, the vast majority of profits are created through routine innovation – think Intel, Microsoft, Apple.

“There is no magic formula… [it’s] one of balance and mix,” he explains. And because innovation cuts across functions, only senior leaders can determine the right innovation recipe and set the strategy.

In doing so, Pisano says, they must recognize that “Like the process of innovation itself, an innovation strategy involves continual experimentation, learning and adaptation.”

Stern Strategy Group: