The innovative organization
Approaches to Innovation Strategy
As such, we can define different approaches to innovation strategy.1 The first one is the “proactive” approach where we have a strong orientation toward research and have the first-mover approach. This leads to a lot of knowledge within the organization, but the approach of the “first mover” also introduces high risks. The goal of these companies is to radically change current products and services and/or constantly change technologies or processes in such a way that we gain an increased performance of products and services. Proactive organizations are sometimes also called “creators” and are characterized with a closed innovation approach and a focus on a limited number of big bets. Examples of such organizations are Apple, Tesla, and Netflix.2
A second approach is called “active,” and here the company keeps on defending existing technologies, while at the same time it’s prepared to move on new markets or technologies once they are proven. Again we need access to knowledge and information in the firm, but the expose to risk is reduced compared to the proactive approach as we wait on the first movers to make their mistakes and based on the lessons learned we move as well. This means that there is still a medium risk as moving later inside the market can prove to be fatal as well. Incremental innovation and in-house research and development are some of the key characteristics that we see in this approach.
The divide between proactive and active companies isn’t that clear-cut as there is an entire range of approaches possible that lie between these two “extremes.” Some organizations focus on delighting customers and use their insights to keep the customer at the center of innovation. An example of such a company is Starbucks. A second approach that lies somewhere in between are those firms that wish to leverage their core business model and focus their innovations on the expansion of that model. Here an example is Toyota. A third and final approach we can distinguish here is where organizations leverage on their core capabilities to expand in other industries and try to dominate those as well. This approach allows for a lot of experimentation and trusts on an open and innovative culture such as we can see at Amazon.
The third approach is called “reactive” and refers to companies that are followers in the market. They don’t have a real approach toward innovation but are rather focused on their operations. As these companies focus on their current work and approach, they look for low-risk opportunities. This means that they implement solutions that have been tried and tested in the market before they move on to these technologies as well. They can be described as the “laggards” we discussed earlier and don’t want to risk their current business by introducing new risks. This approach has as a key characteristic that solutions are incrementally adopted once they have been proven.
Finally, there are the “passive” companies that actually don’t include innovation at all in their strategy. They only respond to change when customers demand certain changes and as such people are required to act on it. Of course, these approaches only represent an “idea” of what the strategy can be, while in the next pages we will go in some more detail on what this can mean for the company as a whole and we will dive into some examples as well on how certain leading innovating companies have taken an approach toward innovation.
Depending on the industry you are operating in, one strategy might come more natural than another one. The more active or proactive you become, the more risk you take regarding new solutions and innovations. In some cases these new solutions bring huge award and drive the company forward for the coming years. This increased risk can lead in some cases to huge losses and might even affect the possible future of the entire company. However, taking a continuous passive approach toward innovation might actually hurt your company in the long run as competitors will start taking the leading position. You cannot keep on relying as an organization on the “old and trusted” as your environment keeps on changing and developing. It is important to understand when you should be taking a calculated risk and when you should wait to see what is happening in the overall industry. Understanding when to do what is what differentiates good managers from great ones.
Mission, Vision, and Values
We need to create a common goal that makes sense for both the organization and the people working for it. Nothing is worse than creating a goal that doesn’t make sense for the people working at the company, certainly when the people making the decisions aren’t acting for that same goal. It will make people feel alienated from the company and will eventually lead to talent leaving the company and looking for a different environment that does provide the right environment. When done right, all stakeholders involved in your projects will go the extra mile and actually accept changes and challenges more easily.
Stakeholders across the entire enterprise environment can be empowered and given more control over their work. As there is a clear idea of the goal and direction of the company, they can help to achieve some important steps toward this.
Also when a clear goal is available, it becomes obvious what challenges lie ahead and what problems need to be overcome to be able to achieve what we want.
I think this clearly helps to underline the importance for any company to have a clear goal. If you look through the mission and vision statements, you will discover that many of them are boring, way too long, filled with empty words, or simply lack any inspiration. The same accounts for the values of a company. In some cases you will find lists of up to 20 words that are so general, you simply cannot find or discover what the identity of the organization really is. Or you will discover three keywords that are explained in an entire booklet (not going to name any companies here but you know who you are). The mission, vision, and values, the purpose of the company, it all needs to lead to a story that we understand and we are able to support.4
Quality: When employees are focused on delivering the best and continuously focus on how they can improve upon the current way of doing things, this can foster innovation and creativity as well.
Individuality: Each individual in the firm should be respected for their skills, ideas, capabilities, and personality as a whole. Each of them brings unique value to the company and as such has to be respected. When they come up with their own ideas, they should be respected for those ideas and others shouldn’t get away with the credit.
Trust: All stakeholders and employees need to have the feeling that they are working in an honest, open, and collaborative environment. People need to be able to trust the people in their team and as such work together. This form of collaboration allows people to share their ideas and help create new innovations.
Creativity: Not very strange if we want to stimulate innovation that creativity could be a value to live by. By listing creativity as a goal, we want to integrate brainstorming, collaboration, and imagination as facets of the way we work together.
Other possible values could be leadership where we want people that come up with certain ideas or innovations are stimulated to show and share their vision with their colleagues. This way they can help steer the future of the company in the right direction. You could also add values such as accountability, measurement, or even others to the list. Together they can help create the environment that we are looking for. As I mentioned before, we shouldn’t stay with words alone and also show these values in practice. People should be rewarded when they have the right ideas and are willing to take the next step, while at the same time we should allow failure. Failure is part of innovation, as we try out new ideas and solutions. Not everything can be a success. However, if we are able to show that failure isn’t punished but is rather seen as a lesson for the future, this might open up employees to share their own ideas and values.
Executives and management should really live and breathe the values they put forward. When innovation and creativity become one of those core goals, it should be clearly communicated to all employees and efforts from people that come up with great ideas deserve reward. When this becomes part of the company culture, also external stakeholders will get a more positive impression of the organization and what it tries to achieve.
An example might help here as well. If we have a closer look at the mission statement of Apple for 2020, we can read that their mission is “Apple strives to bring the best user experience to customers through its innovative hardware, software, and services.” What do we see? There is a clear focus on the customer and user experience as Apple wants to offer the “best user experience.” With this statement it is also implied that they want to improve the lives of their customers by offering them innovative solutions focused on their overall product (software, hardware, and services). Another implication of this statement is that Apple wants to offer top-quality products, where we keep the focus on the customers we serve as they are the center of our mission.
The vision statements look like the following: “We believe that we are on the face of the earth to make great products and that’s not changing.” From this statement we can read some similar aspects as we saw before in the mission statement. Apple wants to continuously focus on great products and therefore has a focus on innovation, specialization, and expertise. Only when these components are in place, the company is capable to make right to the promise they are making.
Inclusion and diversity
Education
Accessibility
Environment
Supplier responsibility
Privacy
Each of these values holds a promise toward the public and how the organization as a whole functions. Looking for inclusion and diversity, the company promises to be an example for society and draw from these differences to make the organization stronger. With all the expertise the company holds, it has invested heavily in education all over the world, sharing its knowledge with everyone willing to learn. Its products are developed in such a way that they are accessible for everyone. They continuously drive product development to make sure that it remains this way as technology advances. Their other core values focus on the privacy of its users, where they have done a lot of work over the last couple of years, promise to reduce their impact on the environment, and boast supplier responsibility to create quality products for their customers.
All of these components are also thrown together in its slogan: Think different.
A second example I would like to share here is Google. The mission statement reads as follows: “to organize the world’s information and make it universally accessible and useful.” If we read this mission statement, we might not immediately have guessed that Google is the company behind it, but once you know, it makes perfect sense, doesn’t it? The focus of the world’s largest search engine is on the information it can provide. There are a couple of components that we can extract from this mission statement. First of all there is the “world’s information” that it tries to digest and make available to everyone. This is done by properly “organizing” everything it can find in a way that makes it “universally accessible” and “useful.” The promise that we read here is that Google wants to be the primary source of information to be found all over the world. At the same time it also wants to be accessible so that all users can make use of this information in an easy and user-friendly manner. Important is that we shouldn’t be forgetting that Google isn’t a nonprofit organization. They make their money making use of the search engine, the data they are able to collect, and the advertising they sell. Organizing the world’s information has become a very lucrative business.
The vision statement is “to provide access to the world’s information in one click.” Here we clearly continue in the flow created by the mission statement of the company. Where we focus on accessibility, the vision holds the promise that we want to make things even more easy for the end users to make use of the search engine and make information available to the public.
We want to work with great people.
Technology innovation is our lifeblood.
Be actively involved; you are Google.
Don’t take success for granted.
Do the right thing; don’t be evil.
Earn customer trust and user loyalty and respect every day.
Sustainable long-term growth and profitability are key to our success.
Google cares about and supports the communities where we work and live.
Each of these company values can be translated into clear goals of the organization. Where we want to work with great talent, the people themselves also have to fit the organization. Technology innovation is one of the core things we would like to achieve. They also call upon their employees to become actively involved and never take their success for granted. Perhaps the most famous of their values is this one: don’t be evil. Combining the mission, vision, and values of Google gives you the image of a great organization to work for and a company that focuses on the customer and the world.
Company Culture
The clan-oriented company has a family-like environment where we can find a strong focus on mentoring, nurturing, and doing things together. Here trust and cooperation are strong fundaments within the company.
The adhocracy-oriented company is more dynamic and entrepreneurial. It is in these types of organizations that we can find more innovation, risk-taking, and front-running. We want to be the first to come up with an idea or trying out a solution.
The market-oriented culture is a more result-oriented organization with a focus on competition, achievement, and, in essence, getting the job done.
Finally, there are the hierarchy-oriented cultures where there is structure and control in place with a focus on efficiency, stability, and doing things the right way.
Innovation and good ideas should be rewarded, and the people responsible should receive recognition for the work they have done.
Resources should be dedicated to innovation and creativity.
Learning should be strongly encouraged throughout the organization, and people should be rewarded for their efforts.
Dialogue and debate should be promoted, as it helps people to speak their mind and discuss their ideas openly with one another.
Where we promote debate, we should also make sure that people actually listen to one another. You might not be able to enforce this, but if management sets the proper example, others will follow.
Information and data should be shared openly throughout the company for all employees so that they can help digest this data and come up with new solutions on the challenges the company as a whole is facing.
Open communication should be enforced. Nothing worse than a management board that only wants to bring “good news” yet still finds itself explaining in the same message that they are going to reduce bonuses and take other actions (it has happened to me personally, so please don’t think it doesn’t happen in practice).
If employees are properly motivated and inspired, they might take up extra work just to help promote motivation throughout the company.
Workshops and innovation labs help people learn about creativity and help them express their ideas. Don’t underestimate the power of these learnings and workshops. They can help to empower people within the company.
As you can see, there are many different ways in which you can influence corporate culture so that innovation becomes a major part of the company. One shouldn’t underestimate the power such gestures can have on the people working in the organization. Even when you don’t see direct results in the short term, you are implementing these changes for the long terms. Certainly cultural changes don’t happen overnight, and we need to push through if we want to see our goals become a reality. You also don’t have to spend huge budgets, as some of these actions come at no cost at all, while the results can be great.
When it comes to strategy and strategic decision making, there are several frameworks out there that can help you along the way. You will see that most of these aren’t directly focused on innovation or change, and you will probably already have heard of them. Nevertheless, you shouldn’t underestimate the power of these tools and theories as they can help you analyze both the external environment in which you are operating and your own company. Based on your findings, you can adjust both the company strategy and the focus on innovation.
Company Structure
There are several ways one could have a look at the company structure. Each of them influences the culture of the organization and how the values of the company find meaning for the employees. Also here we should have sufficient attention for the impact that the company structure has on the creative process and innovation capability of the organization. First of all, there are the hierarchical company structures which are probably the oldest and most well-known. We see a pyramid-like structure here where we have several layers of employees and management that slowly trickle down to the employees that make up the majority of the company. There are several ways such a hierarchy can be organized. The first one is called the “functional organizational structure” where the company is divided into departments such as marketing, sales, business, and so on.6 Here we see high specialization among the employees as they make part of a certain aspect of the organization. This is a major advantage for each of the departments as they can consolidate expertise, but the disadvantage is that people tend to get stuck in their own departments, as if they are clans which have to compete with one another over budget and prestige. This can turn into a very negative vector for innovation as projects need to receive funding from different departments and/or that knowledge is locked away in these departments so that we never end up in an environment where we can come up with solutions that are supported across the organization.
A second hierarchical structure is called “product-based divisional structure.” Here we see again departments, but here they are made up of product lines such as electronics, cars, household goods, and so on. Within these departments, we combine the strengths of marketing, sales, tech, and more. Again, here we see both advantages and disadvantages. It might offer strength to certain product lines as we have all expertise necessary to produce and sell products in one department. It can certainly help with the innovation efforts as well, as we have all expertise directly available in the team which can directly support creativity and problem solving from different perspectives. On the other hand, this type of structure might be difficult to scale and leads to duplicate resources across departments.
Third is the “market-based divisional structure” where departments focus on a specific market segment (i.e., residential, commercial, business, government). This leads to similar advantages and disadvantages as the previous structure but might even add internal competition to the mix as markets aren’t always clearly defined. Similarly, you could have the “geography-based divisional structure” where once again we might end up with duplication of resources, competition across regions, and in some cases even decentralization (which isn’t necessarily a bad thing, but you should be prepared to make this choice).
Next to hierarchical structures, you can also have the matrix structure where employees have dual relationships with different departments. These can be a combination of functional and product-based structures which become linked in such a matrix. The key advantage of such a structure is that we allow for centers of excellence to develop in functional environments while at the same time products or markets have dedicated people. This allows for knowledge to be shared, and solutions that work in different markets can easily be cross-shared. It shouldn’t sound very surprising that this greatly improves the creativity and innovation capability of a company. The major disadvantage is that you create a very complex company environment.
A completely different approach is offered by the “circular structure” which looks, as you might have suspected, as a couple of circles. The inner circle makes up the executive layer of the organization and widens with each new circle that is added until we end up at all employees. Even though there is still some hierarchy here, we can see that we end up with a flatter organization which allows for a better information flow and open communication. These key elements are often missed in other organizational structures and are key if we want to have an innovative organization. However, also here we might end up with a complex organization as people no longer have a clear view to whom they have to report.
Finally, there are the flat organizations which no longer rely on strong hierarchies but rather have people directly working together on “the same level” so that there can be no question on seniority. As people are allowed to work more as equals, a lot of the classic company stress is cancelled out. You can also promote open communication, information flow, and creativity this way as employees have a better sense of how they can work with one another. However, a clear issue with this approach is when debate leads to no clear outcome. There is no clear line of superiors in place who can make the final decision in some cases which can slow down the company in its approach and actions.
As there are many different company structures out there, it is important that your organization has one that fits the strategy and culture of the company. Based on the choice you make, this has a direct impact on how innovation and creativity should and can be promoted throughout the company. None come with only advantages, but by understanding the risks and possible disadvantages of your approach, you might take appropriate action to mitigate these as much as you can.
Porter’s Five Forces
Competitors: Who are the other players in the industry and the market that we are up against? What do we know of them and how are they approaching the same market?
Substitute products: What other products or services are available that might be used instead of the products and services that we are offering?
Bargaining power of suppliers: What is the power of the suppliers we are relying upon?
Bargaining power of consumers: What is the power of the consumers in our industry?
The threat of new entrants: What is the likelihood that new competitors will enter the market and try to take a piece of the market share?
Even though the model of Porter is not focused on innovation, and Porter himself has stated he would have created the model differently if he would have to perform the work again today (the customer would become the central element instead of the competitors), it can still have its uses when we look at innovation strategy.7 Porter did account for the possibility of new market entrants, and these entrants could disrupt an existing market. Even though the focus might not have been on the disrupting element of such new market entrants, in the world of today and certainly when we focus on innovation, this element should be taken into consideration. Also the focus on buyers, that now more than ever want personalized service and focus, is an element we have to focus on. Finally, there are the substitutes which are the new products and services that can enter the market if you allow for the proper focus on these substitutes.
So even though Porter’s model might not be the first example that comes to mind when you think about innovation strategy, it can help you to develop a company approach that certainly takes this aspect into account.
A World of Matrices
Several strategy matrices have been developed over time. Even though the focus is on the development of an overall strategy for the company, they can still help in determining an approach toward innovation that is appropriate for our organization. In the following I will give an introduction to a few of these matrices.
BCG Matrix
Question marks: The question marks have a high growth and a low share. With these businesses we don’t know yet what the future will bring. They might become stars over time if they are able to gain market share but they also carry the inherent risk that they might turn into dogs.
Stars: These have both a high growth and a high market share. With products and services that fall under this section of the matrix, we are able to generate a lot of cash which we require to invest again to ensure the position as star. If we are able to do so, they can turn into cash cows over time.
Dogs: Here we are dealing with both low growth and a low market share. We are dealing with low to negative return on our investments so that it is simply not worth it to longer focus on these products and/or services in our portfolio.
Cash cows: With cash cows we have low growth but a high market share. We don’t have to invest much while at the same time the returns are significant. The generated cash can be used to invest into stars.
Based on the analysis you make with this portfolio matrix, you can decide where your investments can go. This way it can be a great tool to help you decide where your innovation efforts should go next. As the goal of our efforts is focused on creating value for the company, identifying the dogs and question marks is key to make sure that we move forward in the right direction.
Ansoff Matrix
Diversification: With this strategy we want to offer new products and services to a new market. Here we deal with high risk as we have a lot of different unknowns, even though we can try to mitigate the risk in part as we can work through related diversification (new product related to existing one) and unrelated diversification (entirely new product).
Market development: One that is focused on varying who an existing product is sold to. Here the risk is related to the new market we try to approach.
Market penetration: We try to expand the value of an existing product on an existing market. This is a low-risk strategy as we already have a customer base to build on.
Product development: We focus on an existing market but enter with a new product or service line. Here we need to build knowledge and offer innovation to create these new products and services for our customers.
This matrix is generally used to help determine growth strategies for the company. This growth strategy can either focus on market growth or on product growth. When we focus on product growth, we know that innovation and knowledge are of great importance. However, if we want to enter new markets or grow the existing one, innovation once again is a consideration to make if we want to ensure future success.
GE-McKinsey Nine-Box Matrix
The nine-box matrix is used as well for portfolio planning similar to the BCG matrix; however, there is a larger decision matrix to take into account. It should be used as well to evaluate the different products and services that are offered, if they are part of a larger portfolio of individual businesses that make up the entire organization. Even though it is used as a larger decision matrix for our overall strategy, it can be used as well to stimulate innovation and change in the right business units and service lines that will eventually bring value to the company.
The decision to invest (where we check the market attractiveness with the strength of the business unit) almost naturally leads to a decision of innovation and change.
Treacy and Wiersema’s Value Disciplines
Product leadership: These companies are focused on bringing the best and most innovative product offering.
Customer intimacy: These organizations wish to offer great customer service and relationship management.
Operational excellence: These companies have a range of the cheapest products and services through cost-efficiency.
This framework can help the company decide over an organizational strategy, while this in turn would have an immediate impact on where the investment, innovation, and change efforts will be focused on. That is why this framework certainly deserves a place here, as it can be the decision grounds for any future development we want and can perform inside the enterprise.
Blue Ocean
When we talk about strategy, one of the famous examples here is that of red ocean vs. blue ocean. The red ocean represents all the industries that are in existence today.9 Within these red ocean industries, the boundaries are already defined and competitors try to gain as much market share as they possibly can. It is this increased competition that eventually turns the water bloody. Blue oceans on the other hand are industries that aren’t in existence yet today. In these industries demand is still greater than supply and there is space for everyone to grow. Goals in the blue ocean consist of making the competition irrelevant, break the value-cost trade-off, and focus on uncontested market space. The strategy also focuses on differentiation and low cost, which is achievable contrary to what other strategy models such as Porter’s model claim. More specifically, blue ocean innovations are created in that region where we are able to positively impact the cost structure and the value proposition to the customer.
Which factors in the industry that are taken for granted or are seen as the basis of some of the actions taken could in fact be eliminated?
What factors could we reduce well below the industry average?
What factors could we raise well above the industry average?
What factors could we create that have never been offered before?
The answers on these questions could help your innovation process move forward and change the entire enterprise strategy as well.
Value Chain Analysis
Even though it cannot be added as a framework, value chain analysis is still a very interesting strategy tool where companies can analyze their own internal activities and are able to identify those that are most valuable and which can be improved.
Each of the aspects in the value chain is analyzed to determine where we can discover our competitive advantages which give us an advantage both on cost and differentiation but, more importantly, to understand what activities are needed to deliver the value proposition.
SWOT
Perhaps not a key element when we try to determine the strategy of the company, the SWOT analysis has both its use in strategy and innovation management. As one in six ideas actually deliver on what they promise and lead to profit for the organization, it is key that we understand how we should evaluate our ideas.11 For those of you that aren’t familiar with the SWOT analysis, it is a method that is used to evaluate the strengths (S), weaknesses (W), opportunities (O), and threats (T) involved in our strategies and innovative ideas. You can also divide these four aspects in an internal and external review, where strengths and weaknesses are the internal elements we try to analyze, while the opportunities and threats make up the external landscape we operate in.
Strengths: What are the advantages of our innovation? How does it compare to our competitors in the market? What are the unique selling points of the idea? How does it build on the strengths of the company? Where do we differentiate ourselves when we focus on the innovation itself?
Weaknesses: Where do we fall short when we want to bring the idea to life? What issues can be discovered in our initial design? What can we improve in our way of working and/or the idea? Where do we fall short compared to our competitors?
Opportunities: What opportunities are brought by the innovation? How do we play on current trends? What other innovations are currently ruling the market? How can we translate our strengths for these opportunities?
Threats: What are the existing competitors for our innovation? What is the risk to our company when we move forward? What is the uncertainty related to the new idea? What is the suspected lifetime of the innovation in the market? What other ideas might threaten our approach?
SO: If we are able to build upon our strengths, we can improve upon the opportunities as well and achieve our goals.
WO: In some cases we need to focus on overcoming our weaknesses to be able to reap the benefits of the opportunities in the market.
ST: We can use our strengths to reduce the threats we are dealing with in the market environment.
WT: If we are dealing with some important weaknesses on top of threats in the market, we have to focus on reducing these weaknesses as much as we can as well as reduce the influence of these external threats.
Only when we are able to work on all of these can we create a coherent strategy that can benefit the firm both in the short term and in the long term.
Pass-Fail Evaluation
Does the idea comply with the company strategy?
Does it resonate with the company customer base?
Is the budget for the idea acceptable?
Do we have the basic resources available?
…
Even though there is not much more to the technique itself, it can be a very powerful tool when you want to evaluate ideas quickly and do so based on more than a “personal feeling.” This way people can get direct feedback on why certain ideas were eliminated and in what direction new innovations should be sought for.
Evaluation Matrix
The evaluation matrix is another tool similar to pass-fail evaluation but takes it a step further. The ideas we have generated are processed through an entire set of evaluation criteria to which the ideas are scored (generally a scoring between 0 and 5 is used). As the ideas are evaluated to a much broader set of questions relating to the company strategy, impact on the organization, stakeholders, budget, resources, project management, timeline, and so on, we are much better able to determine whether it is worth to pursue an idea.
Concluding Remarks
This chapter might not have shocked your world. The concepts and ideas I have brought forward here are well-known to most. However, still we see many companies where they aren’t properly implemented so that creativity and innovation remain limited. Rather than looking for new insights here, you might ask yourself the question as to why that is. How is it possible that so many different companies boast their focus on innovation and creativity and fail? Is it because their words are nothing more than that, “words”? Or are their deeper issues we are dealing with? And perhaps the most important question of all: Why is your organization still failing? Are there certain aspects that are still overlooked or have we simply not begun with giving innovation a proper place in the overall strategy of the company? Are we not expressing enough our values? Or are we lacking in our communication? Another killer of innovation and creativity is not giving people proper reward or recognition for their efforts. If others are allowed to run with the ideas of people, many will stop sharing the ideas they have and we can be stopped in our tracks. If we want to become an innovative organization, these changes might come slowly but are necessary to become successful in the long run. However, don’t be mistakes as when innovation doesn’t become part of the overall strategy and the core values of the company, you have already failed. Innovation isn’t something you can push through quickly when it suits you best. Creativity must be nurtured and allowed to grow within your organization. Do it right, and you will be able to move forward, do it wrong, and you will keep on relying on external sources to help you or, even worse, fail as a company.
If we are able to create a healthy cultural environment where people feel confident to share their ideas, can trust on the information that they are given, and are rewarded for their work and creativity, we have built the first major block which is required to create an innovative organization. It influences the way we think, interact with one another, and perceive our work. We should nurture such an environment carefully as one wrong event can poison the company. In such a case it might take years to bring the organization back in the right direction.