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How to Develop a Robust Innovation Strategy

Posted on February 12th, 2016 by in Chemical R&D

Steve Toton Robust Strategy Post Pic

Within a corporation, it’s a fairly common practice to develop a five-year Business Strategy to be presented to the CEO and senior executive team, forecasting an outlook of revenue growth and earnings for the next five years, and detailing out a strategy of how our business unit will achieve its goals.  Many of these business strategies are compiled with endless templates of financials and highly aspirational goals of growth, but what they don’t include is a clear outline of the choices that are necessary to compete and grow.

We highlight Innovation as the key component of growth – and see phrases like “we will be the Market or Technology leader in our industry” or “we will be perceived by our customers as the Innovation leader,” but never include any details on how to accomplish these aggressive aspirations. I believe that an Innovation Strategy is just as important as a Business Strategy – and in many cases, is the critical component for revenue and earnings growth.

I’ve seen many different methods and frameworks for developing a strategy, but one of my favorites is outlined in a book called “Playing to Win” by A.G. Lafely and Roger L. Martin (Harvard Review Press).  The book articulates a strategic framework using five components:

  1. Winning Aspirations
  2. Where to Play
  3. How to Compete
  4. Capabilities
  5. Management Systems

This book gives you a fair amount of practical information and examples on how to build a winning strategy. But as you know, applying it internally takes a significant amount of information, insight, discussion, debate and iterations to get it right.  Probably the most compelling part of the book is that “Strategy is a Choice”. In other words, a robust strategy gives the organization a direction of what and what not to do to successfully achieve our goals.

In my experience, if you focus on the first three components, you’ll be well on your way to building an Innovation Strategy:

  • Winning Aspirations

This component of the strategy should articulate your goals.  It’s okay to have an aspiration statement like “Drive growth beyond our traditional business by leveraging our capabilities,” however it’s important to be very tangible.  I believe you need to set a financial target for how much Innovation will be delivered over the next five years. Without a financial goal, it makes it difficult to align with the business strategy and track progress.

So, for example, if your business goals are 10% year over year revenue growth, you should indicate what % contribution will come from the Innovation pipeline.  This does not include revenue from acquisitions, market growth, capital expansion, etc.

You can also set other financial targets such as earnings, or gross margin, but make sure you have the internal financial systems needed to track your progress.

  • Where to Play

This component of your strategy should articulate how you are going to make choices. If a business unit has targeted a specific market or growth domain(s) where they believe they have or can acquire the capabilities to succeed, or if the business unit is going to grow through applications development or transformation, they should say it…

The point is that you need to be specific on where you will play, in a way that helps the organization prioritize and align its resources and capabilities. It should be a key criterion in prioritizing the portfolio.

  • How to Compete

This component of your strategy should articulate how you will execute your strategy.  You may need to highlight the competencies that are necessary to win.  For example, dependencies on internal venturing or partnering, any key innovation processes you need to develop or implement, or any resources you need hire.  You may even set investment targets, e.g., 60% growth and 40 % replacement.

I know this framework may seem simple, but the information, discussion and debate necessary to build it will take some time. Trust me, it’s well worth the investment.

If a robust Innovation strategy helps the organization make choices, just think about the waste it eliminates, and the alignment and motivation it brings to achieving significant revenue growth to a corporation. If you do develop an Innovation Strategy, by all means, make sure you communicate it to the entire organization. It may generate some interesting Q&A, but it will be well received.

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Stephen Toton

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