Innovation Strategy
is a business
imperative …
but HOW?
Thought Paper
28 January 2017
Authors
Aaron D’Souza
Nirojan Poovendran
Letsema Strateg y & I nnovat ion Pract ice
CONFIDENTIALITY AND PROPRIETARY
A n y u s e o f t h i s m a t e r i a l wi t h o u t t h e p e r m i s s i o n o f L e t s e m a C o n s u l t i n g i s
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Innovation Strategy
January 2017 – Page 2
“Innovation” is certainly a buzzword
in the world of business today. With
the development of technology
occurring at its most rapid rate in
history, it’s not hard to see why.
1
Only 12.2% of the Fortune 500 companies in 1955
were still on the list in 2015, thus illustrating that the
threat of organisations being forced into the realms of
irrelevancy either as a whole or in part, is certainly
something for all executives to take heed of.
Furthermore, the rate of churn continues to increase:
corporations in the S&P 500 Index in 1958 remained
on the index for an average of 68 years, whilst their
tenure on the index in 2012 was a mere 18 years.
To complicate matters, “creative destruction” (a term
2
coined by Joseph Schumpeter in 1942 , stating that
the economy is ever-evolving and losses occur
alongside profits as progress is made) is more relevant
than ever before.
Competition resulting from
technological advancements is rife, and threats to
corporations are increasingly being experienced from
non-traditional industry players. More and more, these
non-traditionalists are eating away at the periphery of
businesses’ proverbial “lunches”, and it’s only a matter
of time before they’re all gone.
Innovation is a choice
Simply put, innovation is the development and
implementation of something new that achieves value
within the market place, for customers, the
organisation itself and its stakeholders.
The
Massachusetts Institute of Technology (MIT), a world
leading tertiary institute, defines innovation as an
3
equation
where innovation is not possible without
something new being created, and the value extraction
thereof being realised.
[Innovation = Invention *
Commercialisation]
However, envisioning and executing on the new, whilst
having to ensure the existing continues to deliver the
same value in order to pay the bills, can be a
challenging proposition.
Being innovative takes
courage and commitment and concerted effort, at all
levels of the organisation. Innovation has to be
embedded at a strategic, tactic and operational level of
the
organisation
for
sustainable
competitive
advantage.
Basic principles for innovation success
A number of principles should ideally be adopted when
choosing to be innovative:
So, does this spell only doom and gloom for existing,
powerful organisations that have ruled their empires for
extended periods of time? Most certainly not – in fact,
the constant turnover of organisations is a positive
indication of the dynamism and innovation that
characterises a strong, consumer market-orientated
economy. This day and age should be seen as an
opportunity for incumbents to create value that they’ve
previously not been able to tap into, as the hypercompetitiveness of economies accelerates.
The
competitive advantage companies have earned over
the years can be preserved and continuously evolve,
leveraging intricate relationships with their customers,
a wealth of information that is unavailable to new
competitors and deep industry experience that only
time allows for.
1.
2.
3.
That being said, change in the form of innovation is
imminent and must be done in earnest. Einstein once
said, “If you do what you always did, you will get what
you always got”. The fastest movers will prevail; the
rest will be left behind. Given that innovation is an
imperative, it’s important to understand what
innovation is and how to go about it in order to extract
the benefits it offers.
1
2
www.Fortune.com; www.archive.fortune.com
www.econlib.org – Creative Destruction
4.
5.
3
Acknowledgement that change is required must
occur before commitment to change can be
realised.
Deciding to innovate should be a strategic decision
made by the most senior executives. As innovation
cuts across almost all functions, only senior
leadership is capable of orchestrating such complex
change.
Innovation needs to form part of the strategy of the
business and should be communicated as such.
This should be translated into goals set and all
levels of the organisation should understand the
requirement and intention to change, thereby
allowing for the enablement of innovation efforts as
opposed to the thwarting of them.
Accountability must be built into the change effort.
A living innovation strategy is imperative - as with
any decision that is expected to yield results,
innovation requires a strategy with the intention of
helping the company achieve a sustainable
competitive advantage.
“What is innovation” – MIT YouTube channel
Innovation Strategy
January 2017 – Page 3

The innovation strategy
A strategy is a plan aimed at achieving a specific
competitive goal. It can align diverse groups within an
organisation, clarify objectives and priorities and help
focus efforts. Defining an innovation strategy ensures
that innovation improvement efforts are specific and
targeted towards designing an innovation system to
match your organisation’s competitive requirements.
A robust innovation strategy is comprised of 8 crucial
components. The framework shown here ‘frames’
these components, highlighting the predominant
objective of each.
ASPIRE
PHILOSOPHY
FOCUS
METHOD
CONFIGURE
MANAGE
IMPROVE
What do we
want to
achieve for
our
customers,
the
organisation,
its
stakeholders
and our
community?
What is our
innovation
ideology and
principles,
including risk
appetite?
Which
opportunity
areas will we
choose to
focus on and
which will
we exclude?
How will we
achieve
competitive
differentiation –
products,
services,
business
models,
technology?
What
combination
of internal
and external
innovation
structures
and
programmes
will we
utilise and
how can we
enable
these?
How will we
determine
the optimal
portfolio mix
and govern
decisions to
ensure
innovation
success?
How can we
continuously
evolve our
innovation
strategy to
progress our
innovation
success?
ALIGN
Each of the above components can be decomposed
into a combination of questions, guiding thoughts, and
expected outcomes or deliverables to provide the
required amount of detail to the strategy.
This
approach sets the basis of the Letsema innovation kit
to assist in formulating robust innovation strategies and
the execution thereof for various organisations.
1. Aspire
At the helm of all good strategies exists a clearly
articulated direction, objectives and expected
outcomes that set out what success looks like. Many
organisations typically portray this direction within a
vision statement that is often well crafted from a
motivational and inspirational perspective.
The key to improving the chances of success for a
particular high-level vision to be realised, is to ensure
that this success can be quantifiably measured using
appropriate targets and performance metrics that are
cascaded down through the organisation.
Aspirational elements of an innovation strategy can be
formulated by considering a number of key questions,
including (but not limited to) the following:



What does our value proposition currently offer
to our customers and what will this value
proposition look like in the future?
Where is the ‘reason to change’ emanating
from? Is it push or pull-driven - proactive or
reactive change based on external factors?
What success criteria (targets, KPIs etc.) can
be put in place to ensure that our vision is
realised?
Is Innovation clearly articulated and defined in
the strategy?
Importantly, an organisation’s innovation aspirations
should be ambitious enough to enforce a culture of
diversified innovation activities that progress the
business to operate in a way that is representative of
the times.
2. Philosophy
Being ambitious in our aspirations sets the bar high,
thereby forcing the organisation to gear up to realise
success.
In the absence of an agreed-upon
philosophy around innovation, the culture of the
organisation is likely to be inconsistent, leading to a
plethora of downstream stumbling blocks. A common
example of such a stumbling block is an idea that
shows promise and potential profitability, but one that
would cannibalise an existing product or department.
Would the development and implementation of this
idea be allowed to continue?
There are various such instances that determine the
success or failure of innovation programmes.
Investing the time and energy to debate and agree
upon the philosophy of the organisation up-front, whilst
not eradicating the possibility of issues later on,
certainly provides a guideline for the organisation to
follow in the execution of ideas.
A few examples of thoughts to drive the ideology and
principles are as follows:




Do we want to be seen as innovation leaders
within the market?
What risk appetite do we have in relation to an
innovation opportunity?
Can innovations compete or co-exist with
current business products and/or services?
If two projects (either two innovation-based or
one innovation-based and the other driven by
existing business) were to compete for
resources at any given point in time, what
Innovation Strategy
January 2017 – Page 4

criteria will be utilised to determine which one
is prioritised?
Do we have an appetite to acquire businesses
or partner with industry players, or will we
develop all our creations in-house?
3. Focus
development of the innovation strategy, these are
merely meant to provide a broad outline.
The “how” of innovation strategy typically revolves
around attaining an understanding of what is most
likely to succeed and why. Obtaining insight into the
following elements can help executives more
effectively mobilise the strategy:


Strategy is as much about what we “will do” as it about
what we “won’t do”. Distilling the Do’s from the Don’ts
creates strategic boundaries within which the
innovation initiative can thrive. Casting the net too
wide could, and in many instances does, detract efforts
from potential high-value opportunities that are likely to
be missed or not given the appropriate attention, as
smaller, less valuable ones are investigated.

Focus can be created by investigating and analysing
dimensions that describe the innovation playing field
for the organisation. Primarily, a combination of the
following, non-exhaustive dimensions are utilised to
create this focus:








Which customers would we focus on and why
these?
What needs do they have?
Which geographies, markets and categories
are attractive?
What technological landscapes will we focus
on?
Which industry synergies make sense?
On what areas of the value chain will we
focus?
Will we focus on products or services or both?
Which divisions and functions are most
susceptible to market innovations?
The insights gleaned from this type of analysis allows
for more accurate investment decisions to be made,
thereby giving your organisation’s innovation initiative
a significantly better chance of succeeding, as funding
and capacity are less likely to be bottlenecks.
4. Method
This component answers the question of how to run
the show now that the stage has been set. Arguably
the trickiest of the components, “Method” defines the
activities required to determine “how innovation value
will be created”. In doing so, it provides a strong
indication of how best to allocate investment resources
across various innovation initiatives.
A few determinants can provide insight into the
question of “how” but it must be noted that in the



Value proposition to customer
Sources of competitive advantage and how
these can be strengthened
4
Across which innovation categories should
our efforts and resources be spent
- Disruptive innovation – relying on business
model changes but sticking with existing
technology
- Routine innovation – leveraging existing
technology and the existing business
model,
lending
to
incremental
improvements in business performance
- Architectural innovation – utilising a
combination of business model and
technological changes
- Radical innovation – focusing entirely on
disruptions in technology to create value
Internal vs. external innovation efforts – how
much emphasis do we place on where the
ideas emanate?
Innovation models – stage-gate vs. rapid
prototyping vs. other models
Project management approaches including
Waterfall, Agile etc.
5. Configure
Based on insights gleaned from the analyses done
across the other strategic components, the
organisation’s innovation configuration and structure
can be determined. Various innovation programmes
exist depending on the appetite of the business to
explore opportunities internally or externally to the
organisation.
Some typical configurations are mentioned in the
pictured table.
4
The Innovation Landscape Map – Corning; Gary P. Pisano –
“You need an innovation strategy”, June 2015; “Mapping
your innovation strategy” – www.hbr.org
Innovation Strategy
January 2017 – Page 5
Innovation
programme
type
Dedicated
teams / units
Innovation
platform
Incubator /
Accelerator
Investment
Acquisition
Partnerships
Description
Organisations
Mandated to develop
strategy, create a
portfolio of
innovation
opportunities and
develop these
RMB, BMW,
MasterCard
Internal employees
are encouraged to
innovate in their daily
jobs and submit
ideas that are
evaluated usually
through a
competitive process
at senior levels
FNB, RMB,
Discovery
External individuals
or businesses
(usually startups) are
encouraged to
develop their ideas
within the
organisation.
Support is provided
to these entities in
the form of funding,
desk space and
other admin-related
perks
RMI’s Alpha
Code, GE
Garages
Funding of startups,
and revenue-line
proven companies to
yield market data,
block competition
and make further
investment
Acquiring of
companies that are
of interest and
integrating them into
the organisation’s
business and
structures
RMI’s Alpha
Code,
Goldman
Sachs, BBVA
Tapping into external
organisations’
knowledge and
expertise to co-craft
solutions
Galvanize,
General
Assembly
Furthermore, the “Configure” component deals with the
requisite budgets and skillsets required to deploy the
appropriate resources to each programme identified.
6. Manage
The value that an organisation’s innovation efforts
surmount to rests in execution. A set of criteria to
manage the execution of the innovation portfolio can
be enforced, including:





Oracle,
Santander,
Microsoft,
Google
Ensuring appropriate governance structures
are in place to effectively manage investment
priorities across the business and trade-offs
within the portfolio as well as the strategy
Identifying
the
appropriate
business
champions and sponsors, and ensuring
accountability is associated with all ideas and
opportunities
Regular feedback across programmes and
business units to ensure strategic and
operational alignment
Performance assessments of each programme
to identify sustainability and congruence with
strategic objectives
Reporting on the activities and performance of
the portfolio to inform the Innovation Strategy,
going forward
Effective management of an innovation portfolio can
significantly increase the chances of value-creation for
the business, ensuring there is minimal or no wastage
of resources and a vibrant innovation culture. The
converse applies as well: poor management can result
in limited success and undesired losses, which
discourage the business from pursuing further
innovation agendas.
7. Improve
Strategies should live within an organisation.
A
stagnant strategy is soon outdated with minimal, if any,
benefits being realised.
A good innovation strategy uses a combination of
programmes to innovate and is not limited to either
internal or external sources; rather, it embraces the
collective genius to yield better results.
A good innovation strategy continuously changes
according to the times, market conditions, the
competition and the organisation itself.
A great
innovation strategy is improved upon regularly and is
also used to inform the corporate strategy.
Improvements to the strategy should be made as data
and insights are acquired through investigation and
occasional analysis. The innovation portfolio should
also be examined at regular intervals in a given
financial year.
Innovation Strategy
January 2017 – Page 6
8. Align
Case Study
A usually unspoken component of innovation,
“Alignment” is arguably one of the most critical
requirements for successful transition to a new desired
operating state. It is so crucial that we have depicted it
as a cross-cutting component within our framework.
Towards the end of 2015 a major Corporate
Investment Bank called on Letsema as a partner to
assist in setting up and enabling a new Innovation Unit
aimed at creating disruptive new products.
One of the most difficult aspects of innovating is
ensuring that your business’ leaders and operational
staff make decisions that work towards the same goals
and objectives in a congruent manner. On the flip
side, the benefits of achieving alignment cannot be
understated.
Effective communication, robust governance and a
unified culture are areas to focus on when attempting
to create alignment. These should be enforced early
on and continually reiterated to give the strategy a
fighting chance.
Innovation is a complex process and not simply a
handful of ideas that sporadically flash across minds.
All individuals within an organisation need to be
committed to the cause, with the onus on the most
senior leadership to drive and enforce change.
When done correctly, the benefits of innovation are
enormous. To experience value-creation the business
needs to constantly work at improving, keeping in mind
the promise of a new and improved version of itself.
A short case study is provided in the following two
pages in infographic format, to showcase the
successful approach and impact over the course of
2016 to the client’s organisation through its innovation
efforts. >> see next page
Innovation Strategy
January 2017 – Page 7
Innovation Strategy
January 2017 – Page 8