Wednesday, June 8, 2011

Coupling Strategy with Innovation

Fareed Zakaria, host of CNN’s Global Public Square has been delving into innovation, how it effects society and the United States’ position historically and today.  This idea of innovation as a critical part of the National strategy, and most importantly, corporate strategies is not new, but I like that this issue is being revived so I thought I’d explore it a bit here.

First, defining innovation:

John Kao in his article on “Innovation is the set of capabilities (individual, company, societal) that allows the continuous realization of a desired future by transforming what is possible into what is valuable for many.”  I think this is an excellent definition because innovation has to have a value proposition for the company and for consumers.  Adding the “continuous realization” implies that innovation isn’t just a one-time activity on one product or process, but it must be infused into the corporate fabric in terms of the leadership, the culture and the operations.  Since we develop the strategy based on an inherently uncertain future, then innovation is a likely bedfellow for companies who are ready to take on that adventure.  From the 2006 Business Week article, “The World’s Most Innovative Companies,”  “In the 1990s, innovation was about technology and control of quality and cost. Today, it's about taking corporate organizations built for efficiency and rewiring them for creativity and growth.”  I am intrigued by the idea that technology isn’t considered a driver of innovation, but rather a focus on creativity.  Combine this with Kao’s “value proposition” and now we’ve got something!


Now, the effects of incorporating innovation into the strategy:

Business Week joined forces with a Boston consulting firm and surveyed over 1000 global senior managers to identify the most innovative companies and focused on the impediments to innovation.  One fact uncovered was that innovation was named among the top three priorities for 72% of the senior execs, yet half of those reflected dissatisfaction with the returns on their innovation investments.


The article raised some questions for me- when the corporate strategy includes innovation- how would the measure of ROI be identified and compared.  George Stalk, Jr, senior VP with BCG observed, "Some organizations are nearly immobilized by the notion that [they] can't do anything unless it moves the needle…fast innovators organize the corporate center to drive growth. They don't wait for [it] to come up through the business units."  Clearly, Stalk believes innovation should be at the center of the corporate strategy, but, if I’m interpreting “moves the needle” correctly, he would be less likely to be watching for significant ROI numbers.  However Steven Cristol, Founder and Managing Partner of Strategic Harmony® Partners, highlights the conflict corporations face when they are trying to focus on innovation and ROI: “Investor expectations on profitability, quarter to quarter, regardless of how unrealistic, so often drive bad behavior relative to innovation – which clearly needs to about the long view and the requisite patience for handsome but deferred returns. So a disproportionate majority of innovation ends up as incremental rather than breakthrough, whether it’s technology innovation or business model innovation, because investor impatience has too often punished company share prices for investing in longer time horizon innovation.”


If a company is going to position itself to be innovative (in products, or processes), it needs to understand what it means to that company to be innovative and how that is driven from the corporate strategy.  And, as with any measure of progress or success or value or return on investment, some threshold of what is an acceptable range, given a reasonable timeline, needs to be established for innovation. 


References: accessed on 5 June 2011 accessed on 8 June 2011 accessed on 5 June 2011



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