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Innovation in Business: What It Is & Why It’s So Important

• 08 Mar 2022

Today’s competitive landscape heavily relies on innovation. Business leaders must constantly look for new ways to innovate because you can't solve many problems with old solutions.

Innovation is critical across all industries; however, it's important to avoid using it as a buzzword and instead take time to thoroughly understand the innovation process.

Here's an overview of innovation in business, why it's important, and how you can encourage it in the workplace.

What Is Innovation?

Innovation and creativity are often used synonymously. While similar, they're not the same. Using creativity in business is important because it fosters unique ideas. This novelty is a key component of innovation.

For an idea to be innovative, it must also be useful. Creative ideas don't always lead to innovations because they don't necessarily produce viable solutions to problems.

Simply put: Innovation is a product, service, business model, or strategy that's both novel and useful. Innovations don't have to be major breakthroughs in technology or new business models; they can be as simple as upgrades to a company's customer service or features added to an existing product.

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Types of Innovation

Innovation in business can be grouped into two categories : sustaining and disruptive.

• Sustaining innovation: Sustaining innovation enhances an organization's processes and technologies to improve its product line for an existing customer base. It's typically pursued by incumbent businesses that want to stay atop their market.
• Disruptive innovation: Disruptive innovation occurs when smaller companies challenge larger businesses. It can be classified into groups depending on the markets those businesses compete in. Low-end disruption refers to companies entering and claiming a segment at the bottom of an existing market, while new-market disruption denotes companies creating an additional market segment to serve a customer base the existing market doesn't reach.

The most successful companies incorporate both types of innovation into their business strategies. While maintaining an existing position in the market is important, pursuing growth is essential to being competitive. It also helps protect a business against other companies affecting its standing.

Learn about the differences between sustaining and disruptive innovation in the video below, and subscribe to our YouTube channel for more explainer content!

The Importance of Innovation

Unforeseen challenges are inevitable in business. Innovation can help you stay ahead of the curve and grow your company in the process. Here are three reasons innovation is crucial for your business:

• It allows adaptability: The recent COVID-19 pandemic disrupted business on a monumental scale. Routine operations were rendered obsolete over the course of a few months. Many businesses still sustain negative results from this world shift because they’ve stuck to the status quo. Innovation is often necessary for companies to adapt and overcome the challenges of change.
• It fosters growth: Stagnation can be extremely detrimental to your business. Achieving organizational and economic growth through innovation is key to staying afloat in today’s highly competitive world.
• It separates businesses from their competition: Most industries are populated with multiple competitors offering similar products or services. Innovation can distinguish your business from others.

Innovation & Design Thinking

Several tools encourage innovation in the workplace. For example, when a problem’s cause is difficult to pinpoint, you can turn to approaches like creative problem-solving . One of the best approaches to innovation is adopting a design thinking mentality.

Design thinking is a solutions-based, human-centric mindset. It's a practical way to strategize and design using insights from observations and research.

Four Phases of Innovation

Innovation's requirements for novelty and usefulness call for navigating between concrete and abstract thinking. Introducing structure to innovation can guide this process.

In the online course Design Thinking and Innovation , Harvard Business School Dean Srikant Datar teaches design thinking principles using a four-phase innovation framework : clarify, ideate, develop, and implement.

• Clarify: The first stage of the process is clarifying a problem. This involves conducting research to empathize with your target audience. The goal is to identify their key pain points and frame the problem in a way that allows you to solve it.
• Ideate: The ideation stage involves generating ideas to solve the problem identified during research. Ideation challenges assumptions and overcomes biases to produce innovative ideas.
• Develop: The development stage involves exploring solutions generated during ideation. It emphasizes rapid prototyping to answer questions about a solution's practicality and effectiveness.
• Implement: The final stage of the process is implementation. This stage involves communicating your developed idea to stakeholders to encourage its adoption.

Human-Centered Design

Innovation requires considering user needs. Design thinking promotes empathy by fostering human-centered design , which addresses explicit pain points and latent needs identified during innovation’s clarification stage.

There are three characteristics of human-centered design:

• Desirability: For a product or service to succeed, people must want it. Prosperous innovations are attractive to consumers and meet their needs.
• Feasibility: Innovative ideas won't go anywhere unless you have the resources to pursue them. You must consider whether ideas are possible given technological, economic, or regulatory barriers.
• Viability: Even if a design is desirable and feasible, it also needs to be sustainable. You must consistently produce or deliver designs over extended periods for them to be viable.

Consider these characteristics when problem-solving, as each is necessary for successful innovation.

The Operational and Innovative Worlds

Creativity and idea generation are vital to innovation, but you may encounter situations in which pursuing an idea isn't feasible. Such scenarios represent a conflict between the innovative and operational worlds.

The Operational World

The operational world reflects an organization's routine processes and procedures. Metrics and results are prioritized, and creativity isn't encouraged to the extent required for innovation. Endeavors that disrupt routine—such as risk-taking—are typically discouraged.

The Innovative World

The innovative world encourages creativity and experimentation. This side of business allows for open-endedly exploring ideas but tends to neglect the functional side.

Both worlds are necessary for innovation, as creativity must be grounded in reality. You should strive to balance them to produce human-centered solutions. Design thinking strikes this balance by guiding you between the concrete and abstract.

Learning the Ropes of Innovation

Innovation is easier said than done. It often requires you to collaborate with others, overcome resistance from stakeholders, and invest valuable time and resources into generating solutions. It can also be highly discouraging because many ideas generated during ideation may not go anywhere. But the end result can make the difference between your organization's success or failure.

The good news is that innovation can be learned. If you're interested in more effectively innovating, consider taking an online innovation course. Receiving practical guidance can increase your skills and teach you how to approach problem-solving with a human-centered mentality.

Eager to learn more about innovation? Explore Design Thinking and Innovation ,one of our online entrepreneurship and innovation courses. If you're not sure which course is the right fit, download our free course flowchart to determine which best aligns with your goals.

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Innovation Strategy: Developing Innovative Strategies in Business

Published: 27 February, 2024

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Table of Contents

Innovation has become an imperative for organizations worldwide, yet the multitude of methods and frameworks available often lead to confusion rather than clarity. While various approaches focus on specific aspects such as user experience or design thinking , they often fail to provide a cohesive strategy for innovation from start to finish. An innovation strategy is key to capturing and  sustaining innovation , it serves as a detailed roadmap, comprising a series of strategic steps that propel an organization toward its future objectives. Beyond being a mere guide for business success, this roadmap is essential for ensuring a company remains competitive in its industry by continually devising new and innovative approaches to address challenges.

At Digital Leadership , our core belief is that by harnessing emerging technologies and innovative business models , we can revolutionize customer experiences. Crafting an innovation strategy is crucial for a company’s success. It entails fostering collaboration within the organization to stimulate new ideas and establishing a well-thought-out framework for future growth. It’s crucial to understand that no two innovation strategy plans are identical. 

We specialize in making and putting into action creative plans that work and help organizations not just accept innovation but to do well in the always-changing digital world through our innovation consulting services to bring business growth through innovation as an essential roadmap that leads enterprises towards their unique success. Utilizing our Innovation Blueprint service as a starting point provides a robust foundation for your business. We carefully assess how you currently approach innovation and smoothly integrate those practices into your overall business plan .

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Corporate training, innovation consulting and much more.

What is Innovation Strategy?

An innovation strategy is a planned and organized way of using new technologies and creative ideas to bring about significant changes in a company. It involves creating a detailed plan that closely matches the company’s main goals, encouraging a culture of constant improvement. Think of an innovation strategy as a commitment to a shared goal of innovation, including a structured set of activities designed to drive the future growth of the organization. 

Each innovation strategy is unique. This innovation strategy plan is more than just a guide for business success; it functions as a compass, steering the organization through new and creative approaches to address challenges. Developing a company innovation strategy includes clearly defining an innovation mission, aligning activities with long-term business goals , and promoting a culture that welcomes change and creativity. Following such a strategy ensures that organizations stay ahead in their industries, always adjusting and evolving to meet emerging needs.

Much more innovation approaches, you will find in our book  “ How to Create Innovation “.  Recognizing that innovation is a dynamic process, this guide emphasizes adaptability. Stay ahead of the curve by understanding how  innovation strategies  evolve with market dynamics, ensuring sustained relevance and competitiveness.

The Only Book On Innovation You’ll Ever Need

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Business Innovation Strategy: What is Innovation Strategy In Business

In the business environment, remaining competitive necessitates ongoing evolution to address evolving customer demands. Establishing an innovation strategy becomes imperative for organizations aiming to excel in this dynamic setting. One prevalent initial step in crafting such a strategy involves gaining a comprehensive grasp of the organization’s innovation initiatives and overarching business goals . This encompasses identifying the market landscape, comprehending customer requirements, and discerning the most effective strategies to optimize customer satisfaction while utilizing resources efficiently.

Once you have a grasp of your organization’s innovation landscape, the next step is to define a common innovation mission. This mission should align with your overall business strategy and focus your innovation efforts on creating value for your customers. An effective innovation strategy must also include setting specific innovation goals and metrics to measure success. By establishing clear objectives, businesses can better track their progress and adapt their innovation programs as needed.

So, Why are Innovation Strategies Important in Business

• Generating and capitalizing on returns from innovations serves as a primary source of competitive advantage.
• Complex and resource-intensive activities like R&D, product design, and collaboration can impact a firm’s competitive standing. Without strategic guidance, these efforts may yield fragmented and short-term outcomes.
• With globalization, firms face a multitude of opportunities and threats across various markets. A strategic approach to innovation helps navigate this landscape effectively.
• Organizational structures and innovation processes must align with the overall corporate strategy. For instance, R&D efforts may differ depending on whether the firm aims to lead or follow in innovation.
• Articulating long-term strategic objectives for innovation is crucial for engaging with public-sector policies, fostering collaborations, and attracting patient investors.
• A firm that prioritizes innovation strategically is more likely to attract talented individuals seeking opportunities for creative engagement.

The “UNITE Innovation Approach” Model acts as a guide for entrepreneurs to build a strong innovation strategy framework. This model smoothly combines market insights, aligns with business goals, and offers a structured way of generating and implementing ideas. By employing the UNITE model, entrepreneurs gain a strategic advantage, ensuring that their innovation efforts are intentional steps toward lasting success, not haphazard. 

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The UNITE Innovation Approach | Overview

Steps of developing innovation strategy framework.

Innovation is crucial not only for large corporations but also for small and medium-sized enterprises (SMEs). It serves as a vital competitive advantage and is often considered a core capability of firms. For SMEs, innovation is particularly important due to resource constraints, making it an effective means to enhance productivity and performance. However, research findings on Heineken Beverage Industry reveal that the organization’s innovative strategies, particularly in process, market, and product innovation, are weak and fail to significantly contribute to its performance and productivity levels. To strengthen their innovation efforts, SMEs can follow several steps in developing an effective innovation strategy.

Step 1: Innovation Strategy Setup

In the crucial first step of Setup within the innovation strategy , organizations lay the groundwork for success. This involves defining the business intentions and direction, outlining high-level Search Fields, and identifying detailed Opportunity Spaces. By articulating the Business Intention, organizations clarify the problem they aim to solve or the legacy they aspire to leave behind, ensuring alignment with organizational goals.

You can now access the complete Business Intentions Package, including a full presentation, related models and instructions for use.

The UNITE Business Intentions

Utilizing tools like the Search Field Matrix aids in analyzing dimensions like trends and market segments, guiding prioritization of areas for innovation within the overarching innovation strategy. Opportunity Spaces then pinpoint specific intervention sites, outlining Jobs to be Done and target customers in alignment with the innovation strategy’s objectives. Building the core team, led by an experienced entrepreneur, is essential for executing the innovation initiative effectively. Operating in a protected environment, clear goals are set for each stage, with regular updates provided to stakeholders, ensuring smooth organizational setup and progression through subsequent stages.

You can now access the complete UNITE DEFINITION OF SEARCH FIELDS & OPPORTUNITY MATRIX, including a full presentation, related models and instructions for use.

THE UNITE Definition Of Search Fields & Opportunity Spaces

Step 2: problem/solution fit.

In step 2 of developing an innovation strategy, the focus is on achieving Problem/Solution Fit , and aligning customer needs with viable solutions. This involves three key streams of work: Stream A delves into understanding Jobs to be Done, Stream B crafts a Value Proposition, and Stream C defines the Business Model. Bringing the team up to speed is essential, involving active briefings with stakeholders and thorough research to refine objectives. Properly framing the broader objective, clarifying the JTBD, and conducting initial market research are vital steps before proceeding further, ensuring a solid foundation for subsequent actions.

You can now access the complete UNITE PROBLEM / SOLUTION FIT, including a full presentation, related models and instructions for use.

The UNITE Business Model Innovation Patterns

The Jobs-to-be-Done (JTBD) framework is a powerful tool for understanding customer needs and driving innovation. By focusing on tasks rather than demographics, businesses gain deep insights into their target market. Through qualitative interviews and quantitative surveys , companies validate insights and identify growth opportunities. This approach helps in creating solutions that precisely match customer needs, reducing the risk of failure and increasing market success. Continuous iteration based on customer feedback ensures a competitive edge in today’s customer-centric landscape. Embracing JTBD is essential for fostering innovation and delivering value to customers.

You can now access the complete JTBD Customer’s Job Statement Package, including a full presentation, related models and instructions for use.

The UNITE Jobs-To-Be-Done Statement & Map

It offers a systematic approach to understanding customer needs and shaping innovative solutions. By focusing on the tasks or objectives customers are trying to accomplish, rather than just their demographic or psychographic profiles, businesses can uncover deep insights into unmet customer needs and opportunities for improvement.

To effectively outline the tasks and activities customers undertake to fulfill their job using the UNITE Jobs-to-be-Done Universal Job Map, convene your team and set up a whiteboard or wall with eight columns representing the eight steps in the Job Map. From defining and planning to concluding, each step provides insight into the customer’s journey. For example, when purchasing a bottle of wine, steps may include defining preferences, locating a store, preparing by comparing options, confirming the choice, executing the purchase, monitoring the taste, modifying preferences based on satisfaction, and concluding the purchase experience. Understanding these steps is vital for developing solutions that precisely meet the customer’s needs.

You can now access the complete Jobs to be Done Universal Map Package, including a full presentation, related models and instructions for use.

At this stage, having gone through the Jobs-to-be-Done process and developed initial Customer Promises, we find ourselves within a relatively narrow solution space ripe for exploration using methodologies like Design Thinking. The next step involves translating these initial promises into robust solutions by treating each promise as a mini-opportunity Space. Ideation is the key here. We encourage exploring a plethora of ideas, ranging from ambitious “moonshots” to targeted solutions addressing specific but unsolved problems. It’s about being smart in approach, knowing when to think big and when to focus narrowly, all while keeping the original customer needs at the forefront.

To navigate this process effectively, we recommend leveraging frameworks such as the Value Proposition Canvas . This tool provides a structured approach to deep dive into the value proposition, ensuring alignment with customer needs and market demands. Crafting a robust value proposition isn’t just about generating ideas; it’s about understanding the core essence of what your offering brings to the table. By embracing ideation, divergence, and strategic frameworks, businesses can unlock innovation potential and create value propositions that resonate deeply with their target audience.

You can now access the complete Business Model Canvas Package, including a full presentation, related models and instructions for use.

The UNITE Business Model Canvas

(3) solution/market fit (mvp).

In step 2, we’ve pinpointed our customers’ needs, tested potential solutions, and outlined a solid business model. However, jumping straight into execution is risky. While we may have a good grasp of what our customers want, our concept hasn’t been fully validated yet. Step 3 of developing an innovation strategy, where customers actually buy and use our product, is crucial for true validation. Rushing into scaling before perfecting our concept can lead to wasted resources and the need for costly adjustments later on. It’s essential to ensure our business concept is finely tuned before expanding.

Innovation strategy hinges on the meticulous execution of a Minimum Viable Product (MVP) , a streamlined version of your offering that validates key business assumptions while conserving resources. The MVP approach, epitomized by Zappos’ early success, emphasizes real-world validation over elaborate prototypes, focusing on tangible customer experiences. Yet, challenges like imitation and reputational risk loom large, necessitating strategic differentiation and brand management. Moreover, maintaining quality is paramount, ensuring that the MVP not only functions but delights users, fostering genuine feedback. Executing an MVP entails two phases: development and launch, followed by rigorous testing and iteration. This iterative process drives continuous improvement , steering your innovation strategy towards tangible value creation .

You can now access the complete Unite Solution/Market Fit (MVP) Scorecard, including a full presentation, related models and instructions for use.

The UNITE Problem-Solution Fit & Minimum Viable Product (MVP) Scorecards

In the initial phase of MVP development and launch, four key work streams drive the process: Marketing focuses on brand development and campaign planning, while the Business stream refines models and tests pricing strategies. Product & UX teams develop and test the MVP, while Technology sets up technical infrastructure. Phase B shifts focus to live testing and tweaking, with Marketing launching test campaigns and Business refining operating models.

Step 4: Build & Scale Your Innovation Strategy

After countless tests and a number of pivots and iterations, you have quantitatively proven with real customers that you have achieved a Solution/Market Fit. In other words, your product works and customers have actually bought it! In Stage 4 of developing an innovation strategy, you will be shifting gears and moving from incubation (concerned with finding a working Business Model) to acceleration (building and scaling the identified Business Model). With your business concept now proven and well-defined, the next challenge is getting it to scale. That is the core purpose of this stage: to build and scale the business concept that you have been working on thus far and now get it out into the market to scale as quickly as possible. But moving from your business concept (the strategy) to an actual business (the execution) is inherently difficult. Many organizations fail to bridge the Strategy-Execution Gap , meaning they fail to implement the strategy, or business concept, they originally designed. According to the available statistics, up to 70% of organizations struggle with moving from strategy to execution.

One key ingredient we propose to overcome the Strategy-Execution challenge is to establish how you are going to execute using a well-defined and communicated Operating Model. The Operating Model Canvas emerges as a potent solution, offering a blueprint for execution. Establishing a well-defined and communicated Operating Model is pivotal in overcoming the Strategy-Execution challenge.

You can now access the complete GROWTH-HACKING PROCESS, including a full presentation, related models and instructions for use.

The Growth-Hacking Process

To ensure the effectiveness of the innovation strategy , it is imperative to embed innovation within the organization’s processes and overall strategic framework. This necessitates the allocation of resources, including time, finances, and skilled personnel, to innovation initiatives, while fostering a culture that champions and rewards innovative thinking.

By adhering to these guidelines for formulating an innovation strategy , businesses can position themselves for sustained success and growth amidst a rapidly evolving market landscape. Through a steadfast commitment to customer value creation and adaptability to uncertainty, organizations can pave the path to industry leadership through innovation.

Types of Innovation Strategies

Elaboration on innovation strategy typologies has been provided by various scholars (Freeman and Soete 1997; Goodman and Lawless 1994). These typologies encompass proactive strategies, characterized by technological and market leadership with a strong research focus, often associated with firms embracing first-mover advantages and taking significant risks. Active strategies involve defending existing technologies and markets while remaining agile to respond swiftly to emerging opportunities. Reactive strategies, on the other hand, are adopted by firms with a slower response to innovation, often prioritizing cost-cutting measures over technological advancements. Finally, passive strategies entail engaging in innovation only in response to customer demands, typically involving low-risk initiatives.

Examples of passive strategies can be observed among supplier firms in industries like automotive manufacturing, where lower-tier suppliers often rely on fulfilling specifications rather than driving innovation themselves.

1) Proactive Innovation Strategy

Being ahead in innovation defines successful companies that stand out in the ever-changing business world. These forward-looking organizations don’t just react to changes; they actively search for new opportunities and predict future trends. This proactive approach allows them to take control of the market by introducing fresh and distinctive products or services that capture consumer attention.

Within proactive innovation strategies, several paths contribute to an organization’s overall success:

• Product Innovation: At the core of being proactive in innovation is making new and groundbreaking products. Companies that do well put money into research and development, always trying to do things that haven’t been done before to meet new needs and go beyond what customers expect. Whether it’s using the latest technology or coming up with creative designs, creating innovative products is a big reason why these companies lead the market.
• Process Innovation : To ensure internal efficiency and stay ahead of the competition, organizations with a proactive innovation strategy focus on optimizing their internal operations. Process innovation becomes crucial, streamlining workflows, improving productivity, and fostering a culture of continuous improvement.
• Business Model Innovation : Recognizing that how value is provided and money is made is as crucial as the products themselves, organizations embracing proactive innovation strategies engage in business model innovation. This involves reimagining the fundamental structure of the business, exploring new revenue streams, and adapting to changing market dynamics.
• Open Innovation : Proactive innovators often collaborate with external partners, startups, or research institutions through open innovation practices. By tapping into a broader pool of ideas, expertise, and resources, these organizations enrich their innovation ecosystem and stay at the forefront of industry advancements.
• Sustainability Innovation: Forward-thinking companies, under a proactive innovation strategy, increasingly incorporate sustainability into their product development and business practices. This aligns with societal and environmental expectations, positioning them as responsible and future-ready entities.

Essentially, a proactive innovation strategy goes beyond mere adaptation; it positions organizations as catalysts of change, architects of the future, and leaders in industries where innovation is the key currency.

For instance, proactive innovators like DuPont and Apple exemplify a commitment to technological leadership through continuous innovation. Microsoft, employing an active strategy, strategically leverages existing technologies while adapting swiftly to market shifts. In contrast, firms like Dell may adopt a more reactive approach to technology adoption but remain proactive in their production and distribution models.

2) Active Innovation Strategy

Active innovation represents a dynamic approach for organizations to swiftly respond to market changes and evolving customer preferences. Embracing flexibility and agility, companies adopting this strategy proactively lead rather than merely follow in the ever-changing business landscape. Key aspects of the active innovation framework include:

• Proactivity : Organizations take the lead in meeting the needs of the continually evolving market.
• Incremental Innovation : Constant, small improvements to existing products or processes keep offerings up-to-date and aligned with customer preferences.
• Service Innovation: Beyond product creation, organizations focus on enhancing the overall customer experience by listening to customer feedback and adapting services accordingly.
• Adaptability : Rapid response to new demands, including staying abreast of technological changes.
• Technology Innovation: A pivotal component, organizations prioritize staying updated on technological advancements to provide modern solutions in the digital era.

Active innovation places a premium on a proactive mindset, swift actions, and a deep understanding of the market. This strategy positions organizations not only to navigate changes effectively but also to capitalize on new opportunities, establishing them as leaders in their respective industries.

3) Reactive Innovation Strategy

In the Reactive Innovation Strategy , businesses respond to market changes as needed. While not always the first to introduce groundbreaking products, these companies prioritize adaptability in the competitive environment. Cautious in their responses, organizations employing this strategy carefully evaluate market shifts before making changes. Though the pace of innovation may be slower compared to proactive approaches, this strategy holds advantages, especially in industries where stability and a deep understanding of market dynamics are paramount.

Strengths of Reactive Innovation:

• Adaptive Innovation: Enables precise adjustments in response to changes, maximizing resource utilization.
• Cost Innovation: Focuses on finding cost-effective solutions and operational efficiencies.

For organizations embracing Reactive Innovation , balancing responsiveness with forward-looking anticipation is key. While not always the first movers, strategic and well-timed responses to market shifts make them resilient players in the ever-changing business landscape. This approach proves particularly relevant in industries experiencing gradual changes, where staying attuned to market demands remains the primary focus.

4) Passive Innovation Strategy

In passive innovation , organizations show limited involvement in the innovation process , often missing opportunities and potential advancements. This cautious approach relies on established practices, avoiding proactive exploration. However, this passivity, while providing stability, can be a double-edged sword, risking stagnation in a quickly changing landscape.

• Imitative Innovation: Organizations that embrace passive innovation may tend to copy successful ideas from competitors or industry leaders, finding security in proven models but sacrificing the agility and originality of more proactive strategies.
• Stability vs. Stagnation: While passive innovation gives a sense of stability, organizations must be aware of potential downsides, including the risk of falling behind in industries where rapid advancements are the norm.
• Open Innovation Bursts : To counteract potential stagnation, passive innovation strategies may benefit from occasional bursts of open innovation. Drawing on external ideas and collaborations brings in fresh perspectives and helps maintain relevance in dynamic industries.

Developing an effective innovation strategy requires a comprehensive approach, incorporating key elements and following a systematic framework. By understanding the market, aligning strategies with business goals , and fostering a culture of innovation , organizations can stay ahead in the ever-evolving business landscape. The examples of successful innovation strategies from industry leaders further highlight the importance of innovation in achieving sustained business growth and competitiveness.

This nuanced understanding of innovation strategy underscores the dynamic interplay between technological advancements, market dynamics, and organizational capabilities, shaping firms’ strategic orientations towards innovation.

Innovation strategies vary widely, each tailored to specific organizational contexts and objectives. Also, there are five styles of Innovation Strategies

• Leadership ignites entrepreneurial energy within teams.
• Culture of rapid innovation and creation of new business models.
• Suitable for industries facing rapid changes.
• Management involves sharing the vision, establishing internal markets for ideas, and encouraging intrapreneurship.
• Managers innovate within existing business structures.
• Transformation of business structures over time.
• Ideal for companies seeking significant yet sustainable change.
• Management practices include experimentation, empowering teams, and customer-centricity.
• Exploration of new directions beyond existing strategic assets.
• Pursuit of radical change in response to limited growth opportunities.
• Management involves identifying crucial assets, encouraging cross-pollination of ideas, and seizing opportunities beyond core areas.
• Conducting low-cost experiments to overcome obstacles hindering major innovations.
• Cautious yet progressive approach to innovation.
• Suitable when significant opportunities are sensed, but details remain unclear.
• Management practices include goal-focused research, patience, and continuous exploration.
• Outsourcing creativity and investing in startups.
• Acquisition of promising startups.
• Feasible with available resources to leverage discoveries from smaller players.
• Management involves maintaining internal R&D capacity, scouting for acquisition prospects, and efficient integration processes.

Innovation Strategy of the Four main Types of Innovation

Four primary types of innovation —radical, architectural, disruptive, and incremental—provide a comprehensive innovation strategy framework for organizations to navigate the complexities of innovation and achieve their strategic objectives. Each type offers unique opportunities and challenges, catering to different levels of risk tolerance and resource availability. Understanding these distinct approaches to innovation is essential for organizations seeking to adapt, evolve, and thrive in an ever-changing marketplace. Let’s explore each type of innovation strategy in detail to gain insights into their applications and implications for organizational success.

• Radical Innovation : Radical innovation involves the development of entirely new technologies, products, or services that often disrupt existing markets or create entirely new ones. It represents a significant departure from current offerings and requires a high level of investment and risk.
• Architectural Innovation : Architectural innovation focuses on reconfiguring or redesigning existing systems, processes, or components within an organization to create new value. It involves changing the underlying structure or design of a product or service while keeping its core functionality intact.
• Disruptive Innovation : Disruptive innovation refers to the introduction of a product, service, or business model that fundamentally changes the way an industry operates, typically by targeting underserved or overlooked segments of the market. It often starts at the low end of the market and gradually improves to challenge established competitors.
• Incremental Innovation : Incremental innovation involves making small, gradual improvements to existing products, processes, or services over time. It focuses on optimizing and refining existing offerings rather than introducing radical changes, making it a lower-risk approach to innovation.

Innovation Strategy Examples

(1) apple innovation strategy.

Apple’s innovation strategy revolves around creating groundbreaking products that seamlessly integrate hardware, software, and services. Their focus on user experience and design sets them apart in the technology industry. This dedication matches the core of t he marketing innovation strategy – putting user happiness first by creating new and exciting solutions.

(2) Amazon Innovation Strategy

Amazon’s innovation strategy centres around customer-centric approaches, such as one-click purchasing, Prime membership benefits, and advanced supply chain management. Their focus on enhancing customer experience sets the standard for e-commerce.

(3) Tesla Innovation Strategy

Tesla’s innovation strategy includes advancements in electric vehicles, renewable energy solutions, and autonomous driving technology. Constantly pushing boundaries, Tesla exemplifies the essence of value innovation strategy, delivering cutting-edge solutions that reshape the automotive industry.

(4) Netflix Innovation Strategy

Netflix’s innovation strategy lies in content creation, personalized recommendations, and streaming technology. They continually invest in original content and technological advancements to stay ahead in the entertainment industry.

(5) Microsoft Innovation Strategy

Microsoft’s innovation strategy encompasses a diverse range of products and services, from operating systems to cloud computing. Their commitment to empowering individuals and organizations through technology fuels continuous innovation.

(6) Google Innovation Strategy

Google’s innovation strategy revolves around search algorithms, online advertising, and a wide array of digital services. Their commitment to organizing the world’s information and making it universally accessible drives innovation in various sectors.

(7) Nike Innovation Strategy

Nike’s innovation strategy focuses on product design, materials, and technological advancements in sportswear. They continuously introduce new technologies, such as Nike Adapt, to enhance athletic performance and customer experience.

Types of Innovation Strategies Examples

Innovation strategies can vary significantly depending on the industry, organizational goals, and market dynamics. Here are several types of innovation strategies along with examples:

• Example: Apple’s continuous development of the iPhone, introducing new features and designs with each iteration.
• Example: Toyota’s implementation of lean manufacturing principles, led to streamlined production processes and reduced waste.
• Example: Netflix transitioning from a DVD rental service to a subscription-based streaming platform, revolutionizing the entertainment industry.
• Example: Airbnb’s platform, enables individuals to rent out their properties to travellers, disrupting the traditional hospitality industry.
• Example: Procter & Gamble’s Connect + Develop program, which sources innovation ideas from outside the company to fuel new product development.
• Example: Tesla’s electric vehicles disrupt the automotive industry by challenging traditional gasoline-powered vehicles with innovative technology.
• Example: Coca-Cola introduces new flavours or packaging variations of its beverages to maintain consumer interest and market relevance.
• Example: SpaceX’s development of reusable rocket technology, aims to revolutionize space travel and exploration.

Elements of a Great Innovation Strategy

Crafting an innovation strategy plan entails navigating a dynamic landscape, demanding a flexible and multifaceted approach.

• Nurturing an Innovation culture : Establishing an environment that fosters creativity and embraces change is crucial for fostering innovation.
• Embracing Digital Transformation strategy : Incorporating technology to enhance processes and business models is a key aspect of digital transformation.
• Top-Level Endorsement: Securing commitment and support from senior leaders is essential for successful innovation initiatives.
• Strategic Resource Allocation : Wisely allocating resources to support novel and imaginative ideas is paramount.
• Customer-Centric Focus : Prioritizing and comprehending customer needs throughout the innovation process is indispensable.
• Agile Adaptation : Remaining receptive to agile methodologies facilitates swift adjustments to evolving circumstances.
• Performance Measurement: Implementing metrics to assess the success and impact of innovation efforts is vital.
• Investment in Research and Development: Devoting funds to research and development endeavors represents a valuable investment.
• Learning from Risks and Setbacks: Cultivating a culture that embraces risk-taking and views failures as learning opportunities is critical.
• Innovative Business Models : Continuously reimagining and innovating fundamental aspects of the business model adds a layer of dynamism to the innovation strategy.

In essence, innovation is the cornerstone of organizational longevity and competitive advantage. By embracing diverse innovation strategies such as technological advancements, architectural refinements, disruptive shifts, and incremental enhancements, businesses can unlock fresh opportunities and deliver unique value propositions. Whether through revolutionary changes or gradual refinements to existing offerings, innovation is pivotal for adapting to market fluctuations and seizing value.

Central to these pursuits is the evolution or reinvention of the business model. By aligning with customer preferences, organizations can develop innovative solutions that resonate with consumers, thereby bolstering market presence and fostering growth. Ultimately, a well-crafted innovation strategy empowers organizations to stand out from the competition, achieve objectives, and ensure sustained success in today’s fiercely competitive business arena.

Frequently Asked Questions

(1) what role do senior leaders play in achieving innovation strategy.

Senior executives wield significant influence in propelling innovation strategy forward. Their unwavering commitment, backing, and visionary guidance establish the organizational ethos. They allocate resources judiciously and foster an atmosphere conducive to experimentation and bold risk-taking.

(2) How is product innovation strategy delineated in business?

Product innovation strategy in business encompasses the formulation and introduction of novel or refined products to satisfy consumer demands and attain a competitive edge. It revolves around the conception of pioneering features, designs, or functionalities that distinguish the product within the market milieu.

(3) What delineates the trifecta of Innovation Strategies?

The trinity of innovation strategies comprises proactive, active, and reactive approaches. Proactive strategies entail a proactive quest for novel opportunities, active strategies pivot swiftly in response to market dynamics, while reactive strategies are triggered only by exigencies.

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The eight essentials of innovation

Updating a classic.

January 4, 2024

In the years since this article was first published, McKinsey has continued to explore the topics it covers. Read on for a summary of our latest insights.

Innovation may sound like a creative art: hard to quantify, dependent on lightning-bolt inspiration, subject to the availability of magic dust and luck. It’s true that innovation relies, to an extent, on the vagaries of ingenuity. But according to McKinsey research, innovation—and, crucially, the type of outperformance that innovation can spark in organizations—is much more likely to happen when there is a rigorous process  in place to bring ideas to fruition.

The simple fact is that innovation translates to growth : innovation leaders generate almost twice as much revenue growth from innovation as their competitors. Our research in the years since the COVID-19 pandemic has found that these organizations, which we call “innovative growers,” do this by cultivating four best practices :

• Link innovation to growth aspirations and reinforce its importance in strategic and financial discussions.
• Pursue multiple pathways to growth, both in core businesses and when entering adjacent customer segments, industries, or geographies. Innovative growers also only enter markets where there are clear opportunities to create value.
• Invest productively in all innovation capabilities, including research and development, resourcing, and operational agility.
• Cultivate strong M&A capabilities, particularly programmatic dealmaking.

Innovation can be especially rewarding when deployed as a crisis-management measure . During periods of uncertainty, organizations that invest in innovation—contrary, perhaps, to the impulse to batten down the hatches—are also more likely to emerge ahead of competitors. More specifically, innovative organizations are more likely to find emerging pockets of growth  in times of uncertainty.

Looking ahead, we expect innovative organizations to keep outpacing their peers. Our 2023 McKinsey Global Survey  reveals a striking connection  between organizations’ innovation capabilities and their abilities to increase value through the newest digital technologies, including generative AI. Everyone is talking about gen AI, but organizations with strong innovative cultures are walking the walk, too: thirty percent of top innovators we surveyed said they are already deploying gen AI at scale in their innovation and R&D functions, more than six times the rate of companies that are lagging on innovation. Top innovators are also already reaping significantly better business outcomes from their AI investments than slower-moving competitors.

Articles referenced:

• “ Companies with innovative cultures have a big edge with generative AI ,” August 2023
• “ Innovation: Your solution for weathering uncertainty ,” January 2023
• “ Committed innovators: How masters of essentials outperform ,” June 2022
• “ Innovation in a crisis: Why it is more critical than ever ,” June 2020

It’s no secret: innovation is difficult for well-established companies. By and large, they are better executors than innovators, and most succeed less through game-changing creativity than by optimizing their existing businesses.

Yet hard as it is for such organizations to innovate, large ones as diverse as Alcoa, the Discovery Group, and NASA’s Ames Research Center are actually doing so. What can other companies learn from their approaches and attributes? That question formed the core of a multiyear study comprising in-depth interviews, workshops, and surveys of more than 2,500 executives in over 300 companies, including both performance leaders and laggards, in a broad set of industries and countries (Exhibit 1). What we found were a set of eight essential attributes that are present, either in part or in full, at every big company that’s a high performer in product, process, or business-model innovation.

Since innovation is a complex, company-wide endeavor , it requires a set of crosscutting practices and processes to structure, organize, and encourage it. Taken together, the essentials described in this article constitute just such an operating system, as seen in Exhibit 2. These often overlapping, iterative, and nonsequential practices resist systematic categorization but can nonetheless be thought of in two groups. The first four, which are strategic and creative in nature, help set and prioritize the terms and conditions under which innovation is more likely to thrive. The next four essentials deal with how to deliver and organize for innovation repeatedly over time and with enough value to contribute meaningfully to overall performance.

To be sure, there’s no proven formula for success, particularly when it comes to innovation. While our years of client-service experience provide strong indicators for the existence of a causal relationship between the attributes that survey respondents reported and the innovations of the companies we studied, the statistics described here can only prove correlation. Yet we firmly believe that if companies assimilate and apply these essentials—in their own way, in accordance with their particular context, capabilities, organizational culture, and appetite for risk—they will improve the likelihood that they, too, can rekindle the lost spark of innovation. In the digital age, the pace of change has gone into hyperspeed, so companies must get these strategic, creative, executional, and organizational factors right to innovate successfully.

President John F. Kennedy’s bold aspiration, in 1962, to “go to the moon in this decade” motivated a nation to unprecedented levels of innovation. A far-reaching vision can be a compelling catalyst, provided it’s realistic enough to stimulate action today.

But in a corporate setting, as many CEOs have discovered, even the most inspiring words often are insufficient, no matter how many times they are repeated. It helps to combine high-level aspirations with estimates of the value that innovation should generate to meet financial-growth objectives. Quantifying an “innovation target for growth,” and making it an explicit part of future strategic plans, helps solidify the importance of and accountability for innovation. The target itself must be large enough to force managers to include innovation investments in their business plans. If they can make their numbers using other, less risky tactics, our experience suggests that they (quite rationally) will.

Establishing a quantitative innovation aspiration is not enough, however. The target value needs to be apportioned to relevant business “owners” and cascaded down to their organizations in the form of performance targets and timelines. Anything less risks encouraging inaction or the belief that innovation is someone else’s job.

For example, Lantmännen, a big Nordic agricultural cooperative, was challenged by flat organic growth and directionless innovation. Top executives created an aspirational vision and strategic plan linked to financial targets: 6 percent growth in the core business and 2 percent growth in new organic ventures. To encourage innovation projects, these quantitative targets were cascaded down to business units and, ultimately, to product groups. During the development of each innovation project, it had to show how it was helping to achieve the growth targets for its category and markets. As a result, Lantmännen went from 4 percent to 13 percent annual growth, underpinned by the successful launch of several new brands. Indeed, it became the market leader in premade food only four years after entry and created a new premium segment in this market.

Such performance parameters can seem painful to managers more accustomed to the traditional approach. In our experience, though, CEOs are likely just going through the motions if they don’t use evaluations and remuneration to assess and recognize the contribution that all top managers make to innovation.

Fresh, creative insights are invaluable, but in our experience many companies run into difficulty less from a scarcity of new ideas than from the struggle to determine which ideas to support and scale. At bigger companies, this can be particularly problematic during market discontinuities, when supporting the next wave of growth may seem too risky, at least until competitive dynamics force painful changes.

Innovation is inherently risky, to be sure, and getting the most from a portfolio of innovation initiatives is more about managing risk than eliminating it. Since no one knows exactly where valuable innovations will emerge, and searching everywhere is impractical, executives must create some boundary conditions for the opportunity spaces they want to explore. The process of identifying and bounding these spaces can run the gamut from intuitive visions of the future to carefully scrutinized strategic analyses. Thoughtfully prioritizing these spaces also allows companies to assess whether they have enough investment behind their most valuable opportunities.

During this process, companies should set in motion more projects than they will ultimately be able to finance, which makes it easier to kill those that prove less promising. RELX Group, for example, runs 10 to 15 experiments per major customer segment, each funded with a preliminary budget of around $200,000, through its innovation pipeline every year, choosing subsequently to invest more significant funds in one or two of them, and dropping the rest. “One of the hardest things to figure out is when to kill something,” says Kumsal Bayazit, RELX Group’s chief strategy officer. “It’s a heck of a lot easier if you have a portfolio of ideas.”

Once the opportunities are defined, companies need transparency into what people are working on and a governance process that constantly assesses not only the expected value, timing, and risk of the initiatives in the portfolio but also its overall composition. There’s no single mix that’s universally right. Most established companies err on the side of overloading their innovation pipelines with relatively safe, short-term, and incremental projects that have little chance of realizing their growth targets or staying within their risk parameters. Some spread themselves thinly across too many projects instead of focusing on those with the highest potential for success and resourcing them to win.

These tendencies get reinforced by a sluggish resource-reallocation process. Our research shows that a company typically reallocates only a tiny fraction of its resources from year to year, thereby sentencing innovation to a stagnating march of incrementalism. 1 1. See Stephen Hall, Dan Lovallo, and Reinier Musters, “ How to put your money where your strategy is ,” McKinsey Quarterly , March 2012; and Vanessa Chan, Marc de Jong, and Vidyadhar Ranade, “ Finding the sweet spot for allocating innovation resources ,” McKinsey Quarterly , May 2014.

Innovation also requires actionable and differentiated insights—the kind that excite customers and bring new categories and markets into being. How do companies develop them? Genius is always an appealing approach, if you have or can get it. Fortunately, innovation yields to other approaches besides exceptional creativity.

The rest of us can look for insights by methodically and systematically scrutinizing three areas: a valuable problem to solve, a technology that enables a solution, and a business model that generates money from it. You could argue that nearly every successful innovation occurs at the intersection of these three elements. Companies that effectively collect, synthesize, and “collide” them stand the highest probability of success. “If you get the sweet spot of what the customer is struggling with, and at the same time get a deeper knowledge of the new technologies coming along and find a mechanism for how these two things can come together, then you are going to get good returns,” says Alcoa chairman and chief executive Klaus Kleinfeld.

The insight-discovery process, which extends beyond a company’s boundaries to include insight-generating partnerships, is the lifeblood of innovation. We won’t belabor the matter here, though, because it’s already the subject of countless articles and books. 2 2. See, for example, Marla M. Capozzi, Reneé Dye, and Amy Howe, “ Sparking creativity in teams: An executive’s guide ,” McKinsey Quarterly , April 2011; and Marla M. Capozzi, John Horn, and Ari Kellen, “ Battle-test your innovation strategy ,” McKinsey Quarterly , December 2012. One thing we can add is that discovery is iterative, and the active use of prototypes can help companies continue to learn as they develop, test, validate, and refine their innovations. Moreover, we firmly believe that without a fully developed innovation system encompassing the other elements described in this article, large organizations probably won’t innovate successfully, no matter how effective their insight-generation process is. 

Would you like to learn more about our Strategy & Corporate Finance Practice ?

Business-model innovations—which change the economics of the value chain, diversify profit streams, and/or modify delivery models—have always been a vital part of a strong innovation portfolio. As smartphones and mobile apps threaten to upend oldline industries, business-model innovation has become all the more urgent: established companies must reinvent their businesses before technology-driven upstarts do. Why, then, do most innovation systems so squarely emphasize new products? The reason, of course, is that most big companies are reluctant to risk tampering with their core business model until it’s visibly under threat. At that point, they can only hope it’s not too late.

Leading companies combat this troubling tendency in a number of ways. They up their game in market intelligence, the better to separate signal from noise. They establish funding vehicles for new businesses that don’t fit into the current structure. They constantly reevaluate their position in the value chain, carefully considering business models that might deliver value to priority groups of new customers. They sponsor pilot projects and experiments away from the core business to help combat narrow conceptions of what they are and do. And they stress-test newly emerging value propositions and operating models against countermoves by competitors.

Amazon does a particularly strong job extending itself into new business models by addressing the emerging needs of its customers and suppliers. In fact, it has included many of its suppliers in its customer base by offering them an increasingly wide range of services, from hosted computing to warehouse management. Another strong performer, the Financial Times , was already experimenting with its business model in response to the increasing digitalization of media when, in 2007, it launched an innovative subscription model, upending its relationship with advertisers and readers. “We went against the received wisdom of popular strategies at the time,” says Caspar de Bono, FT board member and managing director of B2B. “We were very deliberate in getting ahead of the emerging structural change, and the decisions turned out to be very successful.” In print’s heyday, 80 percent of the FT ’s revenue came from print advertising. Now, more than half of it comes from content, and two-thirds of circulation comes from digital subscriptions.

Virulent antibodies undermine innovation at many large companies. Cautious governance processes make it easy for stifling bureaucracies in marketing, legal, IT, and other functions to find reasons to halt or slow approvals. Too often, companies simply get in the way of their own attempts to innovate. A surprising number of impressive innovations from companies were actually the fruit of their mavericks, who succeeded in bypassing their early-approval processes. Clearly, there’s a balance to be maintained: bureaucracy must be held in check, yet the rush to market should not undermine the cross-functional collaboration, continuous learning cycles, and clear decision pathways that help enable innovation. Are managers with the right knowledge, skills, and experience making the crucial decisions in a timely manner, so that innovation continually moves through an organization in a way that creates and maintains competitive advantage, without exposing a company to unnecessary risk?

Companies also thrive by testing their promising ideas with customers early in the process, before internal forces impose modifications that blur the original value proposition. To end up with the innovation initially envisioned, it’s necessary to knock down the barriers  that stand between a great idea and the end user. Companies need a well-connected manager to take charge of a project and be responsible for the budget, time to market, and key specifications—a person who can say yes rather than no. In addition, the project team needs to be cross-functional in reality, not just on paper. This means locating its members in a single place and ensuring that they give the project a significant amount of their time (at least half) to support a culture that puts the innovation project’s success above the success of each function.

Cross-functional collaboration can help ensure end-user involvement throughout the development process. At many companies, marketing’s role is to champion the interests of end users as development teams evolve products and to help ensure that the final result is what everyone first envisioned. But this responsibility is honored more often in the breach than in the observance. Other companies, meanwhile, rationalize that consumers don’t necessarily know what they want until it becomes available. This may be true, but customers can certainly say what they don’t like. And the more quickly and frequently a project team gets—and uses—feedback, the more quickly it gets a great end result.

Some ideas, such as luxury goods and many smartphone apps, are destined for niche markets. Others, like social networks, work at global scale. Explicitly considering the appropriate magnitude and reach of a given idea is important to ensuring that the right resources and risks are involved in pursuing it. The seemingly safer option of scaling up over time can be a death sentence. Resources and capabilities must be marshaled to make sure a new product or service can be delivered quickly at the desired volume and quality. Manufacturing facilities, suppliers, distributors, and others must be prepared to execute a rapid and full rollout.

For example, when TomTom launched its first touch-screen navigational device, in 2004, the product flew off the shelves. By 2006, TomTom’s line of portable navigation devices reached sales of about 5 million units a year, and by 2008, yearly volume had jumped to more than 12 million. “That’s faster market penetration than mobile phones” had, says Harold Goddijn, TomTom’s CEO and cofounder. While TomTom’s initial accomplishment lay in combining a well-defined consumer problem with widely available technology components, rapid scaling was vital to the product’s continuing success. “We doubled down on managing our cash, our operations, maintaining quality, all the parts of the iceberg no one sees,” Goddijn adds. “We were hugely well organized.”

In the space of only a few years, companies in nearly every sector have conceded that innovation requires external collaborators. Flows of talent and knowledge increasingly transcend company and geographic boundaries. Successful innovators achieve significant multiples for every dollar invested in innovation by accessing the skills and talents of others. In this way, they speed up innovation and uncover new ways to create value for their customers and ecosystem partners.

Smart collaboration with external partners, though, goes beyond merely sourcing new ideas and insights; it can involve sharing costs and finding faster routes to market. Famously, the components of Apple’s first iPod were developed almost entirely outside the company; by efficiently managing these external partnerships, Apple was able to move from initial concept to marketable product in only nine months. NASA’s Ames Research Center teams up not just with international partners—launching joint satellites with nations as diverse as Lithuania, Saudi Arabia, and Sweden—but also with emerging companies, such as SpaceX.

High-performing innovators work hard to develop the ecosystems that help deliver these benefits. Indeed, they strive to become partners of choice, increasing the likelihood that the best ideas and people will come their way. That requires a systematic approach. First, these companies find out which partners they are already working with; surprisingly few companies know this. Then they decide which networks—say, four or five of them—they ideally need to support their innovation strategies. This step helps them to narrow and focus their collaboration efforts and to manage the flow of possibilities from outside the company. Strong innovators also regularly review their networks, extending and pruning them as appropriate and using sophisticated incentives and contractual structures to motivate high-performing business partners. Becoming a true partner of choice is, among other things, about clarifying what a partnership can offer the junior member: brand, reach, or access, perhaps. It is also about behavior. Partners of choice are fair and transparent in their dealings.

Moreover, companies that make the most of external networks have a good idea of what’s most useful at which stages of the innovation process. In general, they cast a relatively wide net in the early going. But as they come closer to commercializing a new product or service, they become narrower and more specific in their sourcing, since by then the new offering’s design is relatively set.

How do leading companies stimulate, encourage, support, and reward innovative behavior and thinking among the right groups of people? The best companies find ways to embed innovation into the fibers of their culture, from the core to the periphery.

They start back where we began: with aspirations that forge tight connections among innovation, strategy, and performance. When a company sets financial targets for innovation and defines market spaces, minds become far more focused. As those aspirations come to life through individual projects across the company, innovation leaders clarify responsibilities using the appropriate incentives and rewards.

The Discovery Group, for example, is upending the medical and life-insurance industries in its native South Africa and also has operations in the United Kingdom, the United States, and China, among other locations. Innovation is a standard measure in the company’s semiannual divisional scorecards—a process that helps mobilize the organization and affects roughly 1,000 of the company’s business leaders. “They are all required to innovate every year,” Discovery founder and CEO Adrian Gore says of the company’s business leaders. “They have no choice.”

Organizational changes may be necessary, not because structural silver bullets exist—we’ve looked hard for them and don’t think they do—but rather to promote collaboration, learning, and experimentation. Companies must help people to share ideas and knowledge freely, perhaps by locating teams working on different types of innovation in the same place, reviewing the structure of project teams to make sure they always have new blood, ensuring that lessons learned from success and failure are captured and assimilated, and recognizing innovation efforts even when they fall short of success.

Internal collaboration and experimentation can take years to establish, particularly in large, mature companies with strong cultures and ways of working that, in other respects, may have served them well. Some companies set up “innovation garages” where small groups can work on important projects unconstrained by the normal working environment while building new ways of working that can be scaled up and absorbed into the larger organization. NASA, for example, has ten field centers. But the space agency relies on the Ames Research Center, in Silicon Valley, to maintain what its former director, Dr. Pete Worden, calls “the character of rebels” to function as “a laboratory that’s part of a much larger organization.”

Big companies do not easily reinvent themselves as leading innovators. Too many fixed routines and cultural factors can get in the way. For those that do make the attempt, innovation excellence is often built in a multiyear effort that touches most, if not all, parts of the organization. Our experience and research suggest that any company looking to make this journey will maximize its probability of success by closely studying and appropriately assimilating the leading practices of high-performing innovators. Taken together, these form an essential operating system for innovation within a company’s organizational structure and culture.

Marc de Jong is a principal in McKinsey’s Amsterdam office, Nathan Marston is a principal in the London office, and Erik Roth is a principal in the Shanghai office.

The authors wish to thank Jill Hellman and McKinsey’s Peet van Biljon for their contributions to this article.

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5 Effective Steps to Creating a Powerful Innovation Strategy

Updated on: 1 March 2023

Innovation is an organization’s path to survival. In a world of rapid change and increasing competition, innovation has become essential to maintaining business growth, competitiveness, and productivity.  

Innovation is one of the key activities in a company’s operations. Innovation is a long and complex process that takes an abstract idea and converts it into a successful product or service. A proper strategy in place to execute it ensures that you do it well. 

In this post, we are exploring 5 effective steps for developing a powerful innovation strategy.

What is an Innovation Strategy

“Innovation transforms insight and technology into novel products, processes and services that create new value for stakeholders, drive economic growth and improve standards of living.”

In the simplest of terms, innovation is the process of bringing new, unique, and creative ideas into reality. An organization following an innovation strategy uses innovation to execute its business strategy. In other words, an innovation strategy guides the process of resource allocation, enabling the organization to achieve its long-term goals through the use of innovation.  

“An innovation strategy guides decisions on how resources are to be used to meet a firm’s objectives for innovation and thereby deliver value and build competitive advantage.” – Mark Dodgson, David Gann, Ammon Salter (The Management of Technological Innovation: Strategy and Practice)

A company’s innovation strategy should specify how the different types of innovation fit into the business strategy and the resources that should be allocated to implement these innovations.

An innovation strategy paves the way to 

• Improve the ability to retain customers 
• Reduce competitive intensity
• Improve product or service performance  
• Increase the chances of becoming a market leader 
• Preserve bargaining power in an ecosystem and blunt imitators

Types of innovation

• Gradual/ incremental innovation (continuous innovation) is based on abilities that can be easily learned and developed in an organization and has a low-risk low return. 
• Radical innovation (discontinuous innovation) on the other hand may change the structure of an industry dramatically and has a high-risk high return. 

Innovation Matrix

The innovation matrix as introduced by VIIMA helps categorize innovation based on two dimensions; the technology it uses and the market it operates in. It, thus, visualizes the most common types of innovation.

Based on these categories, three major types of innovation an innovation strategy can be based on can be identified, 

• Product innovation; occurs in the development of new products, modifications in established products, or in the usage of new materials or components in the manufacture of established products
• Process innovation; refers to the development of and implementation of significantly improved organizational processes through the integration of new technologies
• Business model innovation; refers to the improvements done to an existing business model or the creation of a new one to better meet the needs of customers

The Innovation Value Chain 

The innovation value chain provides a framework to identify which innovation approach makes the most sense for a company to adopt. It enables managers to find the company’s weaknesses and become more aware of an apt approach to implement for success. 

The framework includes three phases 

• Idea generation ; creating and sourcing new ideas from internal and external environments to achieve a competitive advantage in the marketplace.
• Conversion ; selecting and screening the best idea and implementing them. While this involves transforming knowledge into innovations in the form of new products, processes, or organizational forms, special focus should be placed on the company budget and strict funding criteria to avoid shutting down the development of the idea. 
• Diffusion ; spreading the idea across the organization. Find the relevant communities in the organization to support and spread the new product or service, process, and practices across geographic location, consumer groups, and channels. 

How to Develop an Innovation Strategy 

Determine the innovation strategy objective .

Developing an innovation strategy should start with understanding the reason behind developing one in the first place or the objectives you want to achieve by implementing it. 

To identify your innovation strategy objectives, examine the overall business objectives that help the company achieve sustainable competitive advantage. This will clear the path for your innovation strategy as it should eventually support the overarching goals of the organization.

Get the executive team onboard 

Engage the leadership team in dialogue and ensure that they are aware of the innovation objectives established and what it means for them as well as the future of the organization. During the discussions also identify, 

• External changes that could be occurring at present and in the future as a result of innovation 
• The implication of such changes on the company 
• Scope of innovation; identifying opportunities for innovation, whether to improve existing products or services or introduce brand new products to new markets
• Business outcomes; financial results, social impact, new economic models, market leadership,  etc. 
• The gaps that must be closed to deliver the chosen innovation scope, especially in terms of processes, skills, and resources needed and company culture
• Barriers to and enablers of the innovation strategy.  Barriers can come in the form of embedded beliefs on how the business should operate and enablers can show up as core capabilities or resources.  

Their involvement is necessary to create a shared vision of success with innovation at the core.

Gather customer insight 

Understanding customer needs will inform the direction of the development of the innovation idea. It will also enable you to formulate a strategy that works and create value-creating innovations that will ultimately generate a good return on investment.

In order to create value for potential customers with your innovation strategy, you need a thorough understanding of your market and the customer segment you are catering to. 

(Utilize a customer persona to gather insight on customers’ demographic characteristics, needs, challenges, and ambitions and apply that knowledge to generate a solution.)

Allocate resources 

When allocating resources for new areas for growth and renewal, reserving resources for the core business growth should also be taken into consideration. By conducting a comprehensive audit on the current innovation landscape of the organization you can determine and understand how much time, effort, and money are allocated to different innovation initiatives. 

The Harvard Business Review has introduced the Innovation Ambition Matrix to determine how to allocate resources based on the type of innovation initiative.

The matrix describes 3 types of innovation and how resources should be split among them,  

• Core initiatives – refer to efforts to make incremental changes to existing products and incremental inroads into new markets. For example, through new packaging or added service convenience. Such efforts can draw on resources the company already has. 
• Transformational initiatives – refer to creating new offers to serve new markets and customer needs. This may require assets the company is unfamiliar with. 
• Adjacent innovations – involves leveraging something the company does well into a new space. This type of innovation allows a company to draw on existing capabilities but necessitates putting those capabilities to new uses.

Research conducted by HBR shows that companies that allocated about 70% of resources to core initiatives, 20% to adjacent ones, and 10% to transformational ones outperformed their peers.

However, the right balance will vary from company to company and according to factors such as industry, competitive position, and the company’s stage of development.

To learn more about striking and maintaining the right balance between the allocation of resources and the innovation initiative, refer to this article here.

Develop an innovation system 

Not all organizations are likely to possess the capabilities to execute successfully at all three levels of innovation ambitions identified above.

However, HBR emphasizes that the companies that have got it right, have usually focused on five key areas of management that help them excel at the three levels of innovation ambition, and hence enable them to maintain a sustainable innovation system with the organization. 

• Talent : includes the skills needed to execute core, adjacent, and transformational innovation initiatives. 
• Integration : refers to organizing and managing the skills in the right way, with the right mandate, and under the conditions that will help them succeed.
• Funding: refers to determining how to fund the innovation initiatives. Core and adjacent innovations can be funded by the relevant business unit’s P&L through annual budget cycles. Transformational innovations, on the other hand, require a sustained investment that comes from an entity (i.e. executive suite and the CEO).  
• Pipeline management : mechanisms to track and monitor ongoing initiatives and ensure that they are progressing according to plan.
• Metrics : what measurements should inform management. While traditional financial metrics are appropriate for measuring core and adjacent initiatives, a combination of noneconomic and internal metrics should be used to evaluate transformational efforts.

Developing an Innovation Strategy 

The innovation strategy of a competitor or an industry leader may not work for you. While you can learn from their best practices, an explicit innovation strategy to match your own competitive needs will be effective in the long run. 

Follow the innovation strategy steps explained above to formulate a robust strategy and better coordinate your innovation process. 

Got anything to add to our guide? Let us know in the comments below.

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Innovation Blog

Business innovation strategy: 9 key pillars for success in 2021.

• Published on: January 6, 2021
• Author: masschallenge

More than 80% of leaders at large corporations believe innovation is crucial for business growth. And yet, many companies have no innovation strategy.

Technology and digital disruption continue to advance at breakneck speed, leading all industries into a future where business agility counts just as much as having an experienced C-suite.

It doesn’t matter what industry you operate in now—the choice is the same for all companies:

Innovate or get left behind.

Without a solid plan that maps out how you will achieve your goals and establish a sustainable business built to adapt to a rapidly-changing digital landscape, you’re bound to struggle.

In this article, we’ll find out what an innovation strategy is, why it matters, and then we’ll give you the ideas and inspiration to start innovating at your company.

What is an Innovation Strategy?

An innovation strategy is a clearly-defined plan of structured steps a person or team must perform to achieve the growth and future sustainability goals of an organization.

Innovation  aims to create original value, such as new solutions to adapt in changing industries or solve impeding social, health, or economic challenges. A strategy is a plan that details precisely how you will bring your vision into reality.

Essentially, a strategy acts as a heuristic that we can rely on when facing tough decisions. Ergo, an innovation strategy provides people with a framework for critical decision-making relative to company innovation, such as:

• In what areas will we invest?
• How much will we invest?
• Who will make investment decisions?
• What capabilities will we need to develop to support our investments?
• What capabilities can we not build, which we must then acquire or form a partnership to provide?

All of these questions are long-term decisions. When devising an innovation strategy , we must consider our goals and the potential for change over several years.

Why Are Innovation Strategies Important?

Typically, the most effective business models, markets, and products follow a similar growth cycle, often visualized as an S-curve , where diminishing returns set in sometime after the initial growth trajectory.

This slowdown in growth is inevitable, and yet, many companies are taken off-guard. We can’t simply ignore these decisions. If you decide to wait until there is a lull in growth or sales until you gather more information, it may be too late.

In 2008, Blockbuster CEO Jim Keyes said, “Neither RedBox nor Netflix are even on the radar screen in terms of competition.”

This bold claim came even though Blockbuster had lost 75% of its market value between 2003 and 2005.

By 2010, the DVD rental store declared bankruptcy, succumbing to the indomitable rise of Netflix and the streaming television era.

Kodak fell to a similar demise. As smartphones became ubiquitous, Kodak could no longer compete, and in 2012, the company once synonymous with photography filed for bankruptcy and vanished from the camera industry.

These are, of course, highly visible and consumerist examples, but the same dilemmas befall more naunced areas is every industry, whether it be in healthtech, security, sustainability, or infrastructure.

Nothing grows forever, and you can never really know when the inflection point will hit, which is why it is best to always be ready. In other words, you should make innovation a continuous process. Otherwise, it’s only a matter of time before revenue starts tumbling.

Benefits of an Innovation Strategy

Holding on to traditional practices just because “that’s what we’ve always done” is not a strategy for success. That rigid approach is guaranteed to fail in the face of disruption, as proven by Kodak and Blockbuster.

With that in mind, here are four benefits of an innovation strategy:

Improve existing products

When selling any product or service, you must consider the three levers of the value proposition:

• Benefits and features
• Target customers

A good innovation strategy will experiment with these levers, helping sales and marketing teams to reinvent or revert the value proposition of existing products. In doing so, innovation helps to bring more value to the customer, and ultimately, more revenue for the business.

Develop new products

For many, the most appealing benefit of a business innovation strategy is its capacity to generate entirely new ideas. Innovation can birth new products and services to add to your existing lines, or it may open the doors to target new markets, or solve growing societal problems.

By analyzing the customer journey of different consumer types, you can develop a better understanding of purchasing behaviors. This research helps companies identify the key factors that motivate people to make purchases and discover new opportunities by finding markets or products that need improvement.

Optimize revenues

The three variables of profit are price, demand, and costs. For any business strategy to be deemed successful, it must increase profit by reducing costs or raising prices or demand.

Earnings innovation encourages businesses to seek out ways of maximizing their profit. Quite often, the most effective way to do this is by expanding your customer base.

Whether you’re creating a new product or improving your existing ones, the impact on your earnings should be a top priority of your business innovation strategy.

Optimize costs

Increasing revenue is not the only way to drive profits, as you can also use innovation to reduce costs. When you apply new practices and process throughout the organization, you can optimize internal operations in many ways, such as:

• Switching from legacy offline systems to cloud storage
• Moving to paperless systems for all records and communication
• Using live chatbots instead of human customer support staff

Through constant innovation, it’s possible to streamline workflows and teams so that you spend less on administration and more on activities that generate a higher return on investment (ROI).

9 Key Pillars of a Business Innovation Strategy

Creating an innovation strategy is a vital step that gives your team the understanding and directional insight into how individual, departmental, and organizational goals come together to deliver the business objectives.

Here are 9 pillars of an innovation strategy that enable a company to maximize its potential:

You can execute an innovation strategy using one of two models—business model innovation or leveraging existing business model.

• Business model innovation is the process an organization uses to adapt its business model to deliver more value to its customers. By making changes to its value proposition and the underlying business model, a company can gain a competitive advantage.
• Leveraging Existing Business Model focuses on continuous improvement of core business, rather than seeking to build new business models.

Once you have decided on your preferred model, you can experiment with the concepts below:

2. Intrapreneurship

Intrapreneurship is the practice of enabling employees to act as entrepreneurs while they work within a company.

By empowering individuals to think, act, and create their own ideas, a company benefits from a widespread internal culture of ongoing innovation. An organization can provide resources and support to intrapreneurs, helping them launch startups within the organization.

3. Corporate accelerator

A corporate accelerator is an innovation event or program funded by a large enterprise, which typically offers aspiring entrepreneurs the chance to acquire seed capital, mentorship, and important connections.

These programs usually culminate with a demonstration day, where startups pitch their ideas to the host corporation for the chance to secure investment or a partnership.

By including a corporate accelerator in your innovation strategy, you get the chance to build your network with promising new talent in your industry. Moreover, there is an excellent chance you will discover startups and concepts that align with your own business needs and goals.

4. Innovation labs

An innovation lab is a business department that provides a base and supporting resources for startups or R&D teams to work on new ideas that could disrupt the current market.

While these labs may operate independently from the parent company, it’s also possible to house an innovation lab within the main company building and staff it with existing employees.

5. Open innovation program

The traditional model of research and development relies on internal resources and expertise. Existing employees work together to generate, manage, and sustain new business ideas and retain all information within the company, usually within the R&D department.

Open innovation takes a novel approach by opening the company’s doors to external input, welcoming experts, researchers, and bright minds from outside the company to come and share their ideas.

6. External accelerators

An external accelerator is a little different from an in-house corporate accelerator, as your company will not cover the full costs of running the program. As such, this is a low-risk tactic in an innovation strategy, with the potential to deliver fantastic rewards. Like a corporare accelerator, purview to new startups and concepts that align with business needs and goals are exhibithed, but additionally there’s the benefit of opening your eyes to advantageous approaches that were not intially apart of your goals.

By becoming involved, you can actively participate in advancing startups and focusing on particular solutions that appeal to your business, making this type of accelerator a worthwhile venture.

7. Collaboration

The ideas are just the beginning, but it’s only through interaction and discussion with subject matter experts, researchers, and other innovators that you can successfully bring ideas to life.

Having more conversations around an idea with various outside sources makes it easier to identify potential issues and iterate a basic idea until it is something genuinely worth producing.

You should seek praise and criticism at this stage, as it’s important to challenge the concept and debate the pros and cons in-depth.

8. Ideation

Approximately 4 of every 5 employees has an idea to improve the company. Finding ideas is not a challenge—gathering, analyzing, and implementing the best ideas is the struggle for many companies.

Many companies fail because they lack an effective system to take a simple idea and turn it into a practical process that will deliver results. In other words, they don’t have an innovation strategy.

It’s important to explain your ideation processes to all employees to be aware of how the company captures ideas. When you have this system in place and encourage people to contribute, it’s easier to collect and organize new ideas.

9. Measurement

You can’t manage what you don’t measure. And so, one of the most important pillars of your innovation strategy is a plan for how you will measure success.

Think about your goals and the most relevant metrics to track. For example, if your goal is brand awareness, you could track social shares, website traffic, and email subscribers.

With every new idea, monitor its progress, and gauge performance by taking periodic measurements of your key metrics. It’s not always easy to measure innovation, but doing so from the start allows you to determine whether your efforts are successful.

Innovation Strategy Examples

We can see innovation strategy examples in every industry, as companies strive to get an edge in increasingly competitive marketplaces.

As the rise of café culture birthed hipster pop-ups and independent shops, the dominant chains began to lose ground. Keen to avoid a Kodak moment, Howard Schultz jumped to action . The Starbucks CEO invited store managers from all over the world to come together for a conference to redesign the café experience.

As a leader in technology and sustainability, Bühler invests up to 5% of its turnover every year in research and development. To optimize these efforts, in 2016 Bühler identified five core topics that are decisive for driving change:

• Food and Feed Safety: spend 50% of food relevant R&D projects with focus to improve food and feed safety
• Energy, Waste and Water Reduction: reduction by 50% in the value chains of their customers by 2030
• Mobility: make lighter cars with die-casting solutions and create more efficient batteries for electric vehicles
• Nutrition: spend 20% of food relevant R&D projects with focus to improve nutrition
• Digitalization: improve transparency through digitalization and collaboration

By working with an external accelerator, in the case MassChallenge, Bühler received early access to emerging, high-impact technologies and startups across their five core initiatives.

In 2018, Bühler teamed up with Givaudan to support Legria , a new natural sweetener made from waste streams, supporting their waste reduction initiative. The new business model was made more public-appealing by having two companies in support of it, however maintaining economic independence of each other.

The dating app, Tinder , was the first of its kind to gamify dating. The development team approached potential users at college sororities, recruiting signups from a largely female audience before pitching the app to men in the same colleges’ fraternities.

With a personal touch, the company’s clever innovation strategy quickly grew the app’s user base, as many college students joined because they knew other people on the app.

Sometimes, people can be concerned about offending with their reviews online, and therefore, they may not be totally honest.

Airbnb set 14-day deadlines and implemented a double-blind review process, so neither party can view the other’s review until both have been completed. This change paved the way for more spontaneous reviews and more candid, detailed feedback.

Airbnb turned reviews into a bonafide trust factor on their site with this simple move, which people use to make booking decisions. In the long-term, the strategy has helped grow the authority of the website and company.

The growth of the software-as-a-service (SaaS) industry tempted many customers away from traditional hardware technology companies. In the cloud age, IBM knew change was needed and decided to take a startup-like approach to innovation.

In 2014, IBM launched a growth hacking team to explore new ideas and tap into new markets through data-driven creativity. Now, the legacy tech corporation operates with a collection of lean, startup-sized teams within its workforce, encouraging team members to work in an innovation lab style to test new marketing strategies.

Our vision for a better company, product, or value for the customer may feel clear, but how we get there isn’t always so simple. Faced with market trends, changes in consumer preferences, new technology, and disruptive competitors, companies will need a blueprint to stay on track.

An innovation strategy goes beyond simple tactics like campaign ideas and marketing ploys to develop the company’s mission, vision, and unique value proposition against this ever-evolving landscape.

Nowadays, it’s no longer an option.

“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”  – Sun Tzu

MassChallenge gives partners the tools to meet this moment head on while realizing results that make the difference for their businesses. See how companies like MassMutual , Barry Callebaut , Columbia Threadneedle , and Elta Systems  have partnered with MassChallenge to drive their innovation.

Join the MassChallenge program today to give your corporation the edge in the startup era.

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Ideas and insights from Harvard Business Publishing Corporate Learning

Five Steps to Implementing Innovation

We’re all familiar with stories about breakthrough products, services, and processes—the disruptors that grab the headlines and garner eye-popping valuations. And then there are the entrepreneurs who end up on the cover of Bloomberg Businessweek and write best-selling books about the keys to their success. The message seems to be that, through good timing or genius, innovation is the purview of a select few.

But at its core, innovation is simply a way to solve problems and create value in new ways. Overhauling an inefficient process, using customer feedback to breathe new life into a stale product—innovations don’t have to be splashy or game-changing to lead to sustained organizational success. These small but mighty initiatives seldom come from top management or an “idea lab,” but rather from individual contributors and frontline leaders who are closest to the customer and best positioned to understand their needs.

When employees from throughout the ranks learn to see themselves as innovators and take steps to make their ideas a reality, the results can be powerful. In addition to furthering a company’s purpose and bolstering its bottom line, employee-driven innovation engages people in ways that carrying out top-down directives never will.

Tips to get you started

Given the growing interest in innovation, it’s no surprise that organizations are looking for clear guidelines on how to implement it. Every innovation is unique. Even so, certain strategies and skills are useful across a range of projects and at all levels of an organization:

• Spot opportunities for innovation. As innovation expert Greg Satell puts it, “No matter what form innovation takes—short, agile sprints or long-term, grand-challenge investments—innovation is fundamentally about solving problems.” As you think about your organization, what problems need solving? Where do opportunities lie? Once you land on some promising ideas, continue to explore them from different angles. By doing so, you may discover even more exciting possibilities.
• Prioritize opportunities. You don’t have infinite time and resources, so prioritize potential innovations depending on where you think you’ll get the most bang for your buck. Narrow in on the two or three ideas you think are most worth digging into, testing, and refining. Then express them as hypotheses you can test through targeted experiments.
• Test your potential innovations. Keep your experiments modest in scope, especially when you’re starting out. You may want to begin with “paper prototypes,” or simple drawings of the new product or process that your end users can interact with to see what works and what doesn’t. They are quick and inexpensive, and they help you figure out where you need to tweak your concept. With each round of testing, move to progressively more complex experiments involving more users.
• Build support for your innovations. Don’t be shy. Make sure the time is right and tell your story to all your stakeholders, including those whose resource backing you need and those who’ll directly benefit from your innovation. You’ll want to tailor your approach based on what’s important to each person and what you need from them.
• Learn from your innovation efforts. You’ve probably heard the mantra “fail fast, learn fast.” After each innovation, list what you would do again and what you wouldn’t. And don’t overthink failure; the key is learn from it and apply those lessons to your next innovation.

We’ve seen these steps work at all levels in an organization. In fact, we even followed them when redesigning our Harvard ManageMentor® innovation-related topics. What process do you follow when implementing innovation in your organization?

Janice Molloy is senior manager, online learning at Harvard Business Publishing. Email her at [email protected] .

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You Need an Innovation Strategy

• Gary P. Pisano

Why is it so hard to build and maintain the capacity to innovate? The reason is not simply a failure to execute but a failure to articulate an innovation strategy that aligns innovation efforts with the overall business strategy.

Without such a strategy, companies will have a hard time weighing the trade-offs of various practices—such as crowdsourcing and customer co-creation—and so may end up with a grab bag of approaches. They will have trouble designing a coherent innovation system that fits their competitive needs over time and may be tempted to ape someone else’s system. And they will find it difficult to align different parts of the organization with shared priorities.

As Corning, a leader in glass and materials science, has found, an innovation strategy must address how innovation will create value for potential customers, how the company will capture a share of that value, and what types of innovation to pursue. Critics tend to discount “routine” innovation that leverages a company’s existing technical capabilities and business model and extol “disruptive” innovation, but that is a simplistic view. A company’s unique competitive circumstances should dictate the innovation portfolio it pursues.

Because innovation cuts across functions, only senior leaders can set an innovation strategy. In doing so, they must recognize that the strategy, like the process of innovation itself, requires continual experimentation and adaptation.

HBR Reprint R1506B

It’s the only way to make sound trade-off decisions and choose the right practices.

Idea in Brief

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 trade-off decisions so that they can choose the most appropriate practices and set overarching innovation priorities that align all functions.

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 environment changes.

Despite massive investments of management time and money, innovation remains a frustrating pursuit in many companies. Innovation initiatives frequently fail, and successful innovators have a hard time sustaining their performance—as Polaroid, Nokia, Sun Microsystems, Yahoo, Hewlett-Packard, and countless others have found. Why is it so hard to build and maintain the capacity to innovate? The reasons go much deeper than the commonly cited cause: a failure to execute. The problem with innovation improvement efforts is rooted in the lack of an innovation strategy.

• Gary P. Pisano is the Harry E. Figgie Jr. Professor of Business Administration at Harvard Business School and the author of Creative Construction: The DNA of Sustained Innovation (PublicAffairs, 2019).

Partner Center

Integrating Innovation Strategy into Your Business Plan

February 15, 2023 Innovation

Jeff Bartel

Chairman and managing director.

Developing and driving innovative ideas are essential to business success and growth. Innovation—whether in products, services, operation, or delivery—allows organizations to improve value for their customers, which can boost satisfaction and build loyalty. However, an innovation culture can only take hold if there is action, testing, adaptation, and collaboration throughout the organization and alignment with the business goals.

Often, businesses fail to implement innovative ideas correctly or allow them to lie dormant despite their potential. Innovative concepts that remain dormant jeopardize business success. Your company can avoid these issues by integrating an innovation strategy into your business plan. 

The Importance of Innovation Strategy in Your Business Plan

Several Fortune 500 companies, including Apple, Alphabet, and Amazon, are synonymous with innovation. Among these corporations, innovation is at the forefront of their business strategies. Embedding innovation into your business offers a range of benefits, such as the following.

• Alignment with Company Goals: You can ensure that all key players work toward the same goals and objectives with an innovation strategy.
• Greater Value for Customers: Strategic integration of innovation within the company typically results in better products and services to the customer.
• Better Collaboration: With an innovation strategy, various departments can work toward different goals. For instance, your sales team focuses on finding new customers, your research and development team may want to introduce new products, and your marketing team may target a new audience. However, with a strategic plan, these goals can work in unison toward one goal. 
• Diverse Ideas: Collaboration can spur a greater diversity of innovative ideas.
• Cost Control: The right innovation strategy can not only help you better select which ideas deserve additional research, but it can also help control research and development costs.

Considering today’s fast-paced, forward-moving market, integrated business innovation strategies are critical to achieving long-term success .

Using Different Types of Innovation Strategy

When it comes to integrating innovation into your business plan, there is no one-size-fits-all approach. Your innovation method depends on your organization’s capabilities, risk level, financial investments, priorities, and scope. The four most common innovation strategies are provided below.

Proactive strategies focus on the innovation of new products. This requires a significant financial investment and has a higher risk factor than other strategy options. Apple is a prime example of a company that takes a proactive approach by introducing new technologies to the consumer market, including the iPhone, iPad, and iWatch. Organizations considering this approach must realize the risks involved since future markets are uncertain.

Companies taking an active innovation approach focus on improving their current offerings while knowing they may need to switch gears quickly to meet emerging consumer demands. As a result, these organizations build upon technology and tools already available in the market.

This strategy requires a high investment but comes with lower risks than proactive strategies. Microsoft is one company that often takes this approach. For example, as the global pandemic forced companies to rely on remote work, Microsoft introduced new collaboration tools .

As the name suggests, companies using a reactive strategy tend to take a wait-and-see approach. They track trends and typically only take action on innovative ideas that are already successful in the market, which can reduce the risk level. For example, discount airline Ryanair took an innovative approach to build a business model that mimics many of Southwest’s successful trends, lowering costs by eliminating offering snacks and drinks during flights.

Companies taking a passive approach to business innovation strategies focus primarily on customer demand. These companies wait for customers to demand change before building an innovation strategy. This strategy requires a smaller investment and comes with fewer risks. For example, app development companies often wait for customer feedback before making app changes or building innovative technology.

How Do You Develop an Innovation Strategy?

The first step in developing an innovation strategy is to set clear goals and objectives. These goals must align with the overall mission of the company. For example, are you working toward developing new goods or services? Are you looking for innovative ways to acquire and retain talent? Do you want to expand your customer base?

When setting these objectives, determine what value you want the innovation to bring to the company and customer. For instance, do you want to improve hiring outcomes? Improve customer satisfaction, Meet customer demands, Enhance the customer experience, and lower labor costs.

Finally, you must develop a plan to communicate innovation goals and objectives to all key players. Then, once you are in the development phase, determine how to introduce this innovation to the customer.

How Do You Implement an Innovation Strategy into Your Business Plan?

Once you set goals and objectives, communicate the plan to all key stakeholders, including executives, managers, employees, clients, contractors, and vendors. Expanding communications to even those outside the company permits all key players to offer suggestions and ideas. This step, in turn, helps to build a culture of innovation.

Corning is a prime example of a company that maintains a culture of innovation . Over its 170-year history, Corning has continuously invested in innovation. From developing the glass enclosure for light bulbs in 1879 to bringing Pyrex into millions of homes for more than 100 years to developing GorillaGlass for modern-day smartphones and cars, Corning’s innovations have made it a leader in glass science, ceramic science, and optical, physical industries. 

Pillars of a Business Innovation Strategy

Keep several pillars of business innovation strategy in mind when developing and integrating them into your business plan.

Business Model vs. Tech and Development Innovation

Determine if you want the organization’s strategies to focus on business model innovation or tech and development innovation. For example, do you want to improve business processes or develop new products? While these two objectives may overlap, understanding the company’s priorities can help determine which innovation techniques to use and what areas to invest in first.

Cross-Functional Collaboration

Cross-functional collaboration is critical to innovation success. Not only do all key players need to work together, but each department must also fully understand the overall goals and objectives of the strategy. Multiple teams may work toward different purposes without this collaboration, which often hinders outcomes.

Advanced Ideation

It is rare for an innovative idea to come from just one source. Instead, innovation is typically a collaborative effort among multiple players. Encourage your employees, even those unrelated to research and development, to share their innovative solutions and ideas. These ideas can come to life through a collaborative effort.

Measure Success

Once an innovation framework is in place, develop metrics to measure the success of its implementation. Only through practical analysis can you ensure any innovative idea’s long-lasting success.

Including Innovation Strategy in Your Business Plan

Innovation is practical only if it aligns with your business goals and objectives. That is why it is vital to integrate a comprehensive innovation strategy into your company’s business plan. The first step to making this happen is to secure executive buy-in. Company executives must approve any strategy and understand the total value of strategic innovation. You also need to focus on communication because an innovation strategy has no impact if it is not actively promoted.

The need for continuous innovation cannot be overstated. Strategic innovation must be integrated into the business plan of any company. Contact Hamptons Group to begin integrating an innovation strategy into your business plan.

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