Strategic innovation

For innovation to effectively deliver business value, it must be focused and part of the organisation s strategy for competitive success. The fundamental notions of customer value, operational excellence and alignment will determine the focus that will be most effective and valuable .

Innovation may be focused on:

• new and improved products (such as software and biotechnology products)

• processes (for example, new iron smelting technologies and information and communication technologies)

• organisational development (for example, new forms of employment).

A chief executive has to build a business that is closely aligned with its customers. In a value-for-money world, he or she has no choice in this matter. To build this overall alignment effectively, the chief executive must align four key elements (as illustrated in Figure 6.1).

Figure 6.1: An innovating enterprise aligns the business with the customer

1. Strategic or business purpose.

2. The products, services and processes that deliver real value to customers.

3. The organisation that creates the focusing environment in the business.

4. The people in the organisation whose efforts and creativity create improvement.

In addition, the business must also focus on continuously delivering returns to keep the owners satisfied. All five areas, not just products and services, are potential targets for innovative action.

The chief executive also needs to pick the right innovating thrust . Through our research we have identified the three most effective and beneficial approaches to innovation. They are described in Figure 6.2.

Figure 6.2: The innovating thrust

The strategic leap is a high-risk, high-return approach that usually is based on commercialising invention. Success rates are low, but the rewards with success can be very large. Typically the strategic leap identifies and seizes a white space in the marketplace .

The other two approaches are both essential to the medium enterprise. Continuous incremental improvement depends on engaging all employees in the search for improvements to products and processes. It is a disciplined, creative and inclusive process that builds mastery of process and deep understanding of value for customers. Step change is a discontinuous process that adds significantly different products or makes a major improvement in process (for example by removing bottlenecks from a production process).

Which innovating thrust is right for an organisation will depend on the size of the business and the amount and type of available resources. Figure 6.3 shows the different patterns of attention of innovating enterprises of varying sizes.

Figure 6.3: Patterns of the innovating thrust

Small innovating enterprises fall into two groups ”those that aim for leadership (or fast followship) in their industry segment and those that don t. In the first group , a small number do strategic leaps ”particularly those businesses that rely on a distinctive product or service offering. Most focus on significant step changes. But in general, the focus is not on continuous incremental improvement (that is, on a systemic, disciplined approach in innovation). Small size confers big advantages in communication and agility and allows enterprises to change course quickly when needed, such as to exploit emerging market success.

In medium- sized innovating enterprises, the chief executive has often built the business to its current size. While they are concerned with finding step change improvements for customers, the organisation is also seeking to optimise for the customer the value of existing products and processes. One of the key shifts from small to medium-sized business is the development of a systemic focus on sustained productivity improvement and on new and improved products and services.

By contrast, successful large innovating enterprises focus on all three streams of innovation. The approach they take depends upon whether they perceive they will get their best return from strategy, process, organisation or people. For many of these companies, very large value can be unlocked by making organisational innovations that unleash the creativity of front-line employees or allow the large business to act with the flexibility and responsiveness of a small business.