Everything you need to know about building an innovation strategy 

Innovation is more than just a buzzword. It’s the lifeblood of any forward-thinking organization. Yet, too often, brilliant ideas fizzle out, not for lack of creativity, but due to the absence of a proper framework to help them grow. 

We’re talking about a blend of an empowering culture, sufficient resources, and a profound understanding of customer needs. While the popular narrative often paints innovation as a serendipitous stroke of genius, the reality is far less random. The true catalyst behind successful innovation is a well-structured innovation strategy. 

What is an innovation strategy?

An innovation strategy is a plan that guides an organization in its efforts to introduce new ideas, processes, or products. 

It’s more than just a checklist but rather a comprehensive approach that intertwines with every area of the organization. A solid innovation strategy ensures great ideas are recognized, evaluated, and developed, transforming them from fleeting sparks of inspiration into tangible, market-changing realities.

An Innovation strategy:  

• Takes into account the business’ strengths and weaknesses 
• Takes into account the market and customer needs 
• Is beneficial to the company’s wider goals
• Is about creating an environment where ideas are not only born but thrive and mature
• Is structured yet flexible
• Isn’t about being different for the sake of it 
• Isn’t about copying competitors for the sake of it 

Why is innovation strategy important? 

• Staying ahead in a competitive market: Neglect innovation, risk lagging behind. A solid strategy keeps a business not just in pace with current trends but also ahead of future changes.
• Meeting customer needs: Customers rightly have high expectations. An innovation strategy helps businesses stay in tune with these evolving demands.
• Driving growth: Innovation is a major growth driver. It opens up new markets, attracts new customers, and creates additional revenue streams. An innovation strategy identifies and exploits these growth opportunities as best as possible.
• Improving efficiency: Innovation also means finding more efficient ways of doing things, be it through process improvement, cost reduction, or enhanced productivity. A good innovation strategy helps you work more efficiently. 
• Fostering a culture of innovation: A clear strategy encourages employees to think creatively and contribute ideas.
• Risk management: Don’t put all your eggs in one basket! By diversifying products and services, companies can mitigate risks like stagnation or a single product becoming obsolete. 

The four types of innovation strategy

There are four main types of innovation strategy. The route you choose will depend on your business and wider goals. Let’s take a closer look. 

1. Routine (aka ‘incremental’) innovation

Routine innovation refers to the regular, incremental improvements made to existing products, services, or processes. 

It’s not about reinventing the wheel — it’s about making it run smoother via little evolutions that (hopefully) lead to improvements in efficiency, cost, or user experience. It’s often driven by customer feedback and competitive pressure.

This approach is less risky compared to other types of innovation because it builds on the existing knowledge and resources. It’s ideal for industries where constant, gradual improvement is essential for staying relevant.

2. Disruptive innovation 

This is where things get exciting and, well, a bit risky. 

Disruptive innovation is all about shaking things up. It’s the kind of innovation that introduces a product or service so different that it creates a new market, replacing existing ones and often displacing established market leaders. 

We often see it coming from startups and small businesses. Think Uber, Airbnb, and Netflix. These innovators didn’t just make small tweaks to existing products; they completely changed the game. 

The key to disruptive innovation is not just being different but offering something that’s accessible and affordable, opening up new customer segments. It often starts by targeting an overlooked market segment and then rapidly moves upmarket, capturing more of the mainstream audience. 

3. Architectural innovation

Architectural innovation is about rethinking how the components of a product or service are put together. It doesn’t necessarily involve creating new things. Instead, it’s about leveraging existing parts or technologies in a novel way to deliver unique value. 

Imagine taking all the pieces of a puzzle and rearranging them to create an entirely new picture. That’s architectural innovation in a nutshell.

For businesses, architectural innovation offers a way to create competitive advantage without the need for radical new technologies or high-risk ventures. It’s about being clever with what you have and seeing the potential for rearrangement and reconfiguration. 

4. Radical innovation

Radical innovation is where we talk about big leaps and major breakthroughs. It represents a significant departure from existing practices, often leading to products or services that fundamentally change the industry or the market.

For example, the first smartphone was a radical innovation. It wasn’t just a better phone — it completely transformed how we communicate, access information, and entertain ourselves.

This kind of innovation requires a combination of bold vision, significant investment, and a tolerance for risk. It’s about thinking beyond the current limitations and imagining what could be possible. Companies that engage in radical innovation are often seen as pioneers in their fields.

What are the steps for developing an innovation strategy?

Your innovation strategy should be tailored to your organization’s specific context and goals. Here’s a breakdown of the six steps involved:

Step 1: Set the stage

First, you need to lay the foundations. 

Choose your innovation approach

• Assess your current position: Understand where your company stands in its industry. Are you a market leader, challenger, or a new entrant? Your position can influence the type of innovation strategy you choose.
• Align with business strategy: Ensure the innovation strategy complements your overall business strategy. For example, if your strategy is about market expansion, consider an innovation strategy that focuses on reaching new customer segments or geographies.
• Risk tolerance and resources: Evaluate your organization’s risk tolerance and available resources. Different types of innovation require different levels of investment and risk-taking.

Set clear objectives 

• Long-term and short-term goals: Define what you want to achieve both in the short term and the long term. These goals should be specific, measurable, achievable, relevant, and time-bound (SMART).
• Market and customer focus: Your objectives should include aspects related to market positioning and customer satisfaction. How will your innovation strategy help you better serve your customers or capture a larger market share?
• Internal improvement objectives: Don’t forget internal goals like improving operational efficiency, employee engagement, or enhancing agility.

Create a vision for innovation

• Vision statement: Develop a clear and inspiring vision statement. This will act as a guiding light for your team and stakeholders, keeping everyone focused.
• Communicating the vision: Everyone, from top management to entry-level employees, should understand and buy into the vision.

Integrating with organizational culture

• Cultural alignment: Does your company culture support innovation? You’ll be in for a tough ride if not. If necessary, work towards evolving the culture.
• Encouraging participation: Foster a culture where employees at all levels are encouraged to contribute ideas and participate in the innovation process.

Step 2: Identify the opportunities and threats

This step is akin to scanning the horizon with a telescope, looking for both treasures and storms.

Spotting opportunities

Opportunities are like bright, shiny gems in the marketplace waiting to be discovered. 

• Market trends: Keep an eye on emerging trends. What’s gaining popularity? What are consumers gravitating towards?
• Technological advances: Technology moves fast. New innovations open doors to new products, services, and ways of doing business.
• Competitive landscape: Analyze your competitors. What are they doing well? Where are they failing? Can you fill a gap?
• Regulatory changes: Sometimes, changes in laws or regulations can create new opportunities for businesses.

Identifying threats

Threats are the storms on the horizon that could potentially harm your business. They require a defensive strategy to mitigate:

• Market competition: New entrants or shifts in competitors’ strategies can threaten your market position.
• Technological obsolescence: Falling behind in tech can be a major threat in today’s digital world.
• Changing consumer preferences: If your products or services no longer align with what customers want, that’s a clear threat.
• Economic fluctuations: Economic downturns can impact consumer spending and business investments.

Step 3: Identify areas for growth

This involves looking inward at your business and outward at the market to understand where you can expand or improve.

Internal analysis

• Resource allocation: Are you using your resources well? Could they be redirected for better growth?
• Performance metrics: Analyze your business’s performance data. Which areas are excelling? Where is there room for improvement?
• Innovation capability: Evaluate your current capability to innovate. Do you have the right talent, technology, and processes?

External exploration

• Market gaps: Look for gaps in the market that your business can fill. Are there unmet customer needs?
• New markets: Consider geographical or demographic markets you haven’t tapped into yet.
• Partnerships and collaborations: It’s possible to achieve growth through strategic partnerships or collaborations, combining strengths for mutual benefit.

Step 4: Know what your customers want

Innovation doesn’t exist in a vacuum. It’s not just about coming up with cool ideas because you can — it’s about solving actual problems and addressing real needs. That’s where customer discovery comes in. 

• What are their pain points? 
• What do they wish they had that they currently don’t? 
• What might they want in the future?
• How can your product or service make their lives better?

This step will usually involve market research, customer surveys, interviews, and observation, as well as a healthy dose of intuition. 

The goal is to gather as much information as possible about your customers’ behaviors and expectations. This data then helps you see what they want, as well as what they might want in the future (but perhaps don’t know it yet).

Step 5: Develop your core capabilities

This is about making sure you have the right skills and resources to help your strategy flourish. 

Take stock of what you currently have

What are your strengths? Where do you excel? This could be anything from a talented R&D team, a strong brand, the latest technology, or unique manufacturing processes. 

It’s equally important to identify areas where you might be lacking. Do you have the technological expertise? Is your team equipped with the right skills? Are your processes agile enough to support rapid innovation?

Bridging the gaps

Once you’ve identified the gaps, it’s time to bridge them. This might involve training your staff, hiring new talent, investing in new technologies, or revamping your processes. It could also mean teaming up with other companies that can complement your strengths and compensate for your weaknesses.

Remember, your capabilities are not just about what you can do today — they’re about what you’ll need tomorrow to stay competitive.

Step 6: Establish your innovation system

Finally, create the right environment and processes to foster innovation.

Building the infrastructure for innovation

Innovation needs a supportive ecosystem. This means having the right systems in place, which could involve: 

• Setting up a dedicated innovation team or department
• Establishing innovation labs
• Creating cross-functional teams that bring together diverse perspectives
• Utilizing collaboration tools so teams can work smarter and more efficiently. Project management software in particular can help you keep teams and stakeholders aligned, thanks to task assignment and automatic notifications.

But it’s not just about the physical setup; it’s also about the processes and methodologies you use. Are you employing design thinking, Agile methodologies, or lean startup principles? The techniques and approaches you choose should align with your innovation objectives and company culture.

Encourage a culture of innovation

Culture is as important to innovation as processes. Create an environment where creativity is encouraged, where failure is seen as a learning opportunity, and where employees feel empowered to bring forward new ideas.

Take advantage of training programs, idea incubation platforms, or reward systems. It’s about sending a clear message that innovation is valued and supported at all levels of the organization.

Choose continuous improvement

Finally, remember that establishing your innovation strategy isn’t a one-time event. It’s a continuous process of learning, adapting, and improving. As your organization grows and the market evolves, so too should your approach to innovation.

Mastering the innovation process 

Developing and implementing an innovation strategy is a dynamic journey. It’s not just about coming up with new ideas — it’s about creating a structured approach to turning those ideas into value-creating products, services, and processes. 

• Remember what innovation strategy is and why you’re doing it
• Explore different types of innovation 
• Develop your strategy and approach on an ongoing basis
• Create a supportive environment 
• Use collaboration tools to make teamwork easier 

By understanding and applying these principles, businesses can not only respond to changing market dynamics but actively shape them. And this proactive approach is what ultimately separates the market leaders from the followers.