In this chapter we examine innovation strategy as a system of choices that determines where the organization looks for value, with what degree of ambition, and by what means. We show how strategy sets out the “what and why” and entrusts the “how” to people, and how foresight supplies it with a systematic reading of the future.
One organization’s strategic plan included a goal that read: “To be an innovative and pioneering organization.” A year later, its ideas platform had received more than three hundred proposals heading in dozens of directions, from improving the parking lots to building new apps. The evaluation committee could not choose among them, because no one knew which mattered most to the organization, so it picked the ones that were most appealingly presented. Only a handful were ever implemented.
There was no shortage of ideas, and those who proposed them were enthusiastic; the flaw lay in the absence of choice. “To be innovative” is a wish that never rose to the level of a strategy. It says nothing about where people should look, what the organization will decline to invest in, or the criteria by which ideas will be judged. These are the questions from which we set out toward the strategy that answers them.
After studying this chapter, the reader should be able to:
An innovation strategy is a set of interconnected choices that determines why the organization needs innovation, where it will look for value, at what level of ambition, by what means, and how it will allocate its resources. Pisano observed that many organizations invest in innovation without a clear strategy, and so accumulate scattered initiatives that are hard to judge or weigh against one another; a strategy, he argued, is defined by the choices it commits to, and equally by those it rules out (Pisano, 2015).
It follows that a strategy is not a wish list, a general statement, or a table of every proposed initiative. Its essence can be distilled into two questions used throughout the strategy literature: where to play, and how to win (Lafley & Martin, 2013). In innovation, the first refers to the arenas in which the organization looks for new value, and the second to the means by which it will get there: building internally, partnering, or acquiring a ready-made capability (Capron & Mitchell, 2012).
Innovation strategy grows out of the organization’s own context. It starts from the organization’s overarching goals, the challenges that hold it back, and the shifts that may affect its ability to fulfill its mission. Copying fashionable innovation themes detached from these goals is a mistake.
Broad goals are translated into search fields, specific opportunity areas that direct exploration, and then into challenge questions to which employees and partners can contribute. Instead of inviting everyone to propose any idea at all, exploration is steered toward questions such as: How can we make access to the service simpler for a group that current channels do not reach? How can we cut the time lost between two units? Such questions define the what and the why, and leave the solution open.
In this way, strategy aligns with what Chapter 3 presented on cognitive autonomy within boundaries. Search fields and challenge questions are the clear boundaries that give people freedom to think within them, and they make people’s contributions comparable and open to evaluation.
A good innovation strategy has six components, each answering a specific question:
| Component | The question it answers | Example wording |
|---|---|---|
| Rationale | Why do we need innovation now? | Rising demand with flat resources |
| Target outcomes | What value do we want to achieve? | Halve the time it takes to obtain the service |
| Search fields | Where will we look, and where will we not look for now? | Three priority fields, with everything else explicitly excluded |
| Level of ambition | How do we divide our effort between the near and the distant? | Most effort on improvement, with a defined share for future bets |
| Means of delivery | How will we get there? | Internal development, plus partnerships with universities and startups |
| Principles and boundaries | What risks are acceptable, and what must never be sacrificed? | No experiment that compromises the security of personal data |
Each component needs capabilities to support it, including data, expertise, funding and governance; these are the subject of the following chapters in this part.
Dividing initiatives into three time horizons offers a useful language for balancing the present against the future (Baghai et al., 1999).
The horizons are best understood as a flexible framework for thinking, and the common allocation ratios, such as 70/20/10, as indicative estimates; the right allocation depends on the sector, the pace of change, the organization’s maturity and its acceptable level of risk. The model’s core value is that it makes investment in the future visible and deliberate, and keeps Horizon 1 from dominating simply because it is the easiest to forecast and measure.
For public sector organizations, the Organisation for Economic Co-operation and Development (OECD) proposes viewing the portfolio through four facets: enhancement-oriented innovation, which improves the performance of what already exists; mission-oriented innovation, which mobilizes effort toward a specific, ambitious outcome; adaptive innovation, which responds to emerging changes; and anticipatory innovation, which explores future issues that have not yet taken shape (OECD, 2022). The national research, development and innovation priorities presented in Chapter 2 serve as an example of mission-oriented innovation.
Top-down innovation, directed by leadership, identifies priority challenges and mobilizes resources around them. Its strength is clarity and alignment with strategy; its risk is that leaders assume a complete understanding of reality and close off room for discovery. Bottom-up innovation, emerging from employees, draws on knowledge close to the work and to beneficiaries; its risk is that it produces a great many local ideas unconnected to priorities, as in the opening case.
A balanced approach combines the two: strategy sets search fields and boundaries from the top, and employees, beneficiaries and partners fill those fields with opportunities and solutions from below. This combination is the organizational application of the principle “the what and why from leadership, the how from people.” Bottom-up innovation stays disciplined by priorities, while leadership direction stays open to solutions that were not drawn in advance. Clear fields also give participants a sense of meaning in their contribution, since they know which goal their effort serves.
Strategy rests on assumptions about the future, and these assumptions are often implicit: that beneficiaries will keep behaving the same way, that regulations will not change, that available technology will stay as it is. Foresight is the organized effort to make these assumptions explicit and to test them against plausible alternatives.
Ansoff noted early on that strategic surprises are usually preceded by weak signals, that is, early and ambiguous information about a coming change, and that an organization which learns to detect them gains time to prepare before the picture becomes clear to everyone (Ansoff, 1975). Among the most widely used foresight tools is scenario planning, which sketches several plausible and divergent futures rather than predicting a single one, so that the organization’s decisions can be tested against all of them (Schoemaker, 1995).
The value of foresight is measured by what it changes in decisions. What it should yield is new challenge questions, adjustments to search fields, or exploratory initiatives in Horizon 3. Here foresight connects with the external realities scanning matrix introduced in Chapter 2: the matrix is its tool for regular scanning, and scenario planning its periodic tool.
Assumptions, markets, technologies and legislation all change, so an innovation strategy is reviewed periodically, and also whenever a strong signal emerges that alters the organization’s understanding of its situation. The purpose of the review is to verify that the search fields are still the most important, that resources are not all concentrated in Horizon 1, and that experiments have not exposed an error in a strategic assumption.
A strategy does its job when it reaches beyond those who wrote it to those who carry it out. It should be translated into clear challenge questions, published evaluation criteria, funding priorities, and messages explaining why these fields were chosen, and every sector or unit should know its role in it: discovering opportunities, contributing expertise, running experiments, or adopting solutions.
Write down the names of five innovation initiatives your organization is working on now, and ask of each: Which search field in the strategy does it serve? Which challenge question does it answer? If you find initiatives that serve no field, then either the strategy is overlooking a genuine priority that needs to be added, or the initiative is consuming resources outside the chosen direction.
Formulate your organization’s innovation strategy on this single page, then discuss it and share it. If you find you cannot fill in one of its boxes clearly, there is a decision that has not yet been made.