Strategy of Innovation vs. Innovation Strategy
Shareholders and board members are demanding a vision for the future and an innovation strategy to get there. Regardless of whether the company is public or private, the story is the same. How will these old, inflexible companies survive in industries facing disruption from scrappy, nimble, three person startups? How are those zero budget startups miraculously gaining market share?
In 2008, Blockbuster CEO Jim Keyes said, “Neither RedBox nor Netflix are even on the radar screen in terms of competition.” Fortunately, most legacy companies have learned from Blockbuster and Kodak that to stay competitive, companies need to innovate or the revenue will plummet.
So what’s a CEO to do? “Our strategy is to innovate.”
In response to disruption, every day another company announces the launch of an accelerator or plans for “digital transformation” (whatever that is).
But what’s a strategy to innovate without an innovation strategy?
Hope as a Strategy
Consumer behavior and market forces are changing fast and the world seems to be covered with a deluge of new technology and new competition on every side. Holding on for dear life and maintaining the status quo is not a strategy; it’s a recipe for drowning in a wave of disruption.
Everyone knows this, and it’s hard to find someone who thinks that companies can ignore disruption. But “go innovate” often translates to “go do stuff” without any guarantee that the “stuff” is even relevant in the industry.
A better strategy? Just about anything.
Innovation Strategy vs. Process
When the strategy is “innovate,” the implementation of that strategy looks a lot like process.
All the buzzwords come out to play. We start our growth boards. The innovation steering committee meets once a quarter. We do our portfolio mapping. We set up a stage gate process for our brand new corporate accelerator.
It’s not that these things or processes in general are inherently bad.
There are some great accelerators out there. Buzzwords are only problematic when they are used without purpose or understanding. These may be smart, necessary ideas, but they are not a strategy. They are tactics at best, and process at worst.
We mistake process for strategy because implementing process feels like we’re in control. It’s satisfying, it’s safe, and it’s what corporations know how to do.
That’s a strategy of innovation. It’s following orders to “go innovate,” but without a clear understanding of what we are trying to accomplish. How will we even know when we succeed?We cannot let a nice, clean process that looks good on paper be our innovation strategy. Click To Tweet
Strategy, Process, and Tactics, oh my!
We need to start by understanding the differences between strategy, process and tactics. They’re common terms and they feel familiar, but that familiarity is what conceals the confusion.
Let’s start with the element that precedes all of them:
Vision: What does the future look like?
Vision is our desire to create the future.
It’s us, thinking about the world as it is now, and the world we want to live in. What do we want it to look like? What are the changes we should make? How will we make people happy? Where should we go? Why innovate at all?
What are the trends that are increasing? What trends are decreasing? How is the world being reshaped? Regardless of your actions, what will the future look like?
A vision goes beyond a pithy one-liner for the company website (although those are great, too).
“GOOGLE: To organize the world’s information and make it universally accessible and useful.”
Google’s vision statement is elegant, but hidden in that statement is an understanding that the amount of data in the world is constantly doubling. We’re smothered in notifications and every fact in the world is at our fingertips.
But human beings are incapable of sorting through all of that raw data. We need to be able to transform that data into truly useful information that can answer life’s critical questions. (Like figuring out if Black Panther would beat Batman in a fight. #wakandaforever)
Google understands the exponential data production trend and what the future looks like. Based on that, the company has a vision statement of what service it can provide in that future. The complete vision is not simply what Google would like to do. The vision should be a description of the future and what role the company will play in it.
If innovation is a journey, let’s imagine that we’re in Florida and our vision of the future is moving to New York.
(Note: Military examples are more traditional when discussing terms like strategy and tactics, but I’ll skip it in favor of something more universal.)
A Plan is not a Strategy
Strategy is a weird word.
According to Merriam Webster it means “a careful plan or method.” Wikipedia says strategy is “a high level plan to achieve one or more goals under conditions of uncertainty.“
Both sources use the word “plan.” So we can start there and say that a strategy is our general plan for creating our vision of the future. It’s our understanding of the world as it is now, what the future should look like, and an idea of how we can get to that future.
Personally, I don’t like the word “plan.” It implies just following a checklist. When things don’t go according to plan, it doesn’t necessarily mean we’re abandoning the strategy. It means the situation doesn’t match our expectations, and we have to adapt our actions to fit reality.
Sometimes that means ditching the strategy entirely, but more often than not, we keep the same strategy and just implement that strategy differently.
Google’s strategy for organizing the world’s information may be to invest heavily in machine learning and artificial intelligence. That would allow it to better parse data into small nuggets of information that are easily digestible to humans.
That strategy is not a plan or a checklist. Google might invest in several internal machine learning or artificial intelligence products. They may invest in external companies. They may invest large sums of money or very little.
What is a strategy?
A strategy is a heuristic for making decisions under uncertainty.
It’s a mental shortcut for effective problem solving. These mental shortcuts help us to make decisions quickly. They make up the core of the high-level plans we make.
In our journey, if we’re heading to New York, our strategy could be to go north.
It is not a complete plan or checklist mapping out which roads to take or which airlines are best. But when a bus pulls up and we have the option to get on, we can ask, “Is this bus going north?” That services as a mental shortcut to decide if we should get on or not.
Spoiler alert, “go north” is a mediocre strategy, but we’ll use it in our example. A slightly better one might be “go north unless there is cheaper, faster transportation available in another direction.”If strategy is a heuristic for making decisions under uncertainty, then tactics are making those decisions. Click To Tweet
Tactics: Decisions in the momentTactics are the acts of making decisions in the face of immediate circumstances that cannot be foreseen. Click To Tweet
Our vision may feel clear, but how we get there isn’t clear. There are always unknowns. We may detect trends, but how they manifest and the pace of change might vary significantly.
In the face of unknowns, we need to constantly make decisions. We must re-evaluate and assess our position.
If the strategy is to go north, one tactic might be to take a plane. Another might be to take a taxi. Yet another, to ride a bike. We have to decide on the tactic based on the current facts and available resources.
We might want to rent a car, but perhaps we only have enough cash on hand to take a bus. Taking a bike might be enjoyable, but our legs can’t peddle the 2,500 miles from Miami to New York.
If Google decides to purchase Iris.ai, that is a tactical decision. It can only be made long after Google had already set its innovation strategy. After all, Iris.ai didn’t exist when Google first created its vision or developed its strategy of investing heavily into machine learning and artificial intelligence. It would be impossible for Google to predict which companies will be founded in the next five years, or even five months. Let alone know in advance which ones will be successful enough to warrant M&A dollars.
Tactics depends on facts that cannot be predicted.
Process: Automated DecisionsProcess is the automation of tactical decisions. Click To Tweet
Process is a set of rules that dictate what we should do in any given circumstance. It’s a checklist or a plan that cannot be modified or changed because…well…those are the rules! Giant corporations are great at following the rules!
Heading to New York, the applicable rule might be to take the first mode of transportation that is heading north if we can afford it.
Our C-level executives already decided on the process. Our Governance Risk and Compliance department has signed off. HR has implemented a company-wide training program and a laminated copy of the rules has been stapled to our forehead.
Let’s get back to our example. We’re in Miami and we have $100. A taxi pulls up honking at us. It is headed north.
This process dictates we hop in. We take the taxi about 70 miles north and then we’re stuck in West Palm Beach. Yay process.
A decent entrepreneur or intrapreneur should ignore process when faced with a tactical decision that the strategy could not or did not foresee.
It’s better to make a decision based on facts, rather than to just get in a northbound cab to demonstrate progress to the C-level. At the very least, let’s check for discount plane tickets or if a bus might get us further in the long run.
We need to avoid a standardized process making an automatic decision when faced with situations where a tactical decision based on facts is necessary.
Process is not the Enemy
That’s not to say all process is bad.
If we had to make a tactical decision about where to put each foot when walking down the street, we’d probably never get anywhere.
I routinely get lost in thought on my walk to work and can’t remember a few blocks, but I still arrive safe and sound. Sometimes, having autopilot is useful.
But in cases of extreme uncertainty where our strategic plan offers unclear or contradictory guidance, most tactical decisions should not be automated.
If the decision is not risky and uncertain, what does it have to do with innovation? It may be important decision, but it is probably irrelevant to innovation. Thai food or pizza is a critical dinner decision for me, but it doesn’t qualify as innovation.
Innovation exists in a world of extreme uncertainty.
Imagine Google decides that purchasing Iris.ai fits with its strategy. The M&A department will use its rigorous system in place to determine an acceptable valuation. If the rule is $500,000 USD per engineer and Iris.ai has 10 engineers, that’s a maximum offer of $5,000,000 USD.
If Iris.ai asks for $20,000,000 USD, then the deal may be immediately rejected based on the basic parameters set. Process just killed a strategic acquisition. Yay process.
Remember, everyone thought Facebook was crazy to buy Instagram for $1B USD based on standard valuation.
Putting the Pieces Together
We have a vision of where we are and where we want to be. To get there, we have strategy, which will help us make choices and guide our actions.
We will surely face obstacles along the way. Some will be predictable and expected. Others will surprise us.
For things we predict, we will have a process to follow. For those that are unforeseen, we will override the process and make tactical decisions.
We now have a much better understanding of where strategy fits into the big picture.
What is an Innovation Strategy?
If a strategy is a heuristic for making decisions under uncertainty then an innovation strategy must relate to innovation decisions. These decisions include:
- What areas will we invest in?
- How much will we invest?
- How will I divide that investment up into an innovation portfolio?
- Who will make investment decisions?
- What capabilities will we need to build to support those investments?
- What capabilities are we not capable of building and must acquire or form a partnership for?
An innovation strategy is important because all of these are long term decisions. As such, they must be based on our vision and the impact of trends. They are not decisions we can put off until later when we have the ideal amount of information. If we make the decisions later, we will be too late.
If the amount of video data in the world is doubling, then waiting 10 years to develop AI video content analysis is far long. At that point, Google has lost. They can only hope to make a good acquisition…or maybe even be acquired by a better competitor!
These long term strategic decisions ultimately serve one goal: to generate options.
We do not need to execute every option available. But we when we have more information, options allow us a choice. Instead of being forced down a particular path guided by legacy systems, we can choose between the best possible alternates.
An innovation strategy is a set of long term investment decisions and frameworks for generating options under extreme uncertainty. An innovation strategy provides guidance on where to invest resources so that a company can achieve its vision for the future.
Lessons Learned on Innovation Strategy
A true innovation strategy must go beyond dictating tactics and setting up processes.
“Go Innovate” is not a strategy. We need a strategy for how and what we innovate.
Our strategy should be a guide for our innovation efforts. It must set clear boundaries as to which behaviors and tactics are, and are not, acceptable for the innovation strategy.
- Don’t mistake process for strategy.
- Tactics are decisions based on new facts.
- A strategy is not a plan, but a mental shortcut for how to implement the vision.
- Everything starts with a vision of how the world should be and our place in it.
What should I write next? Tweet and let me know:What are the critical ingredients of an innovation strategy? Click To Tweet
OrHow can we make strategy and process work together? Click To Tweet