The best innovation strategy
It’s one thing for a company to prioritize innovation. It’s quite another to reap the rewards over the long run. The hard reality is that most product innovations will fail the market test. Our research has shown that a company can increase their R&D returns by better aligning their innovation initiatives to their core business strategies, management systems and cultural norms & practices. A recent survey of global innovators bears out this learning
In their annual survey of the top 1000 global innovators, Booze & Company looked at the relationship between strategy, culture and innovation. Three different approaches to innovation emerged from the corporate feedback – Needs Seeker, Market Reader and Technology Driver.
Many high performance firms such as Dell,Toyota and Samsung are Market Readers. They use innovation to keep up with, not outflank, competition in their core markets. These enterprises take a cautious approach to innovation preferring to be “fast followers.” On the other hand, Needs Seekers like P&G, GE and 3M pursue customer-centric innovation strategies. They actively survey current and potential customers about their existing or unmet needs in order to shape new products and services. Technology Drivers like Google, Apple and HP let their technology direction and existing intellectual property dictate the pace and scale of their innovation. Technology Drivers seek out first mover advantage with breakthrough products that redefines existing markets or creates new market space.
According to the research, all three innovation approaches were successful in delivering positive financial results. However, the study found that the Needs Seekers had a superior approach to turning potential innovation into superior financial performance. Six of the top ten most innovative companies were Needs Seekers, although they represented only two of the ten largest R&D spenders. This variation in innovation outcomes did not trace to R&D spending levels or prior success. Rather, differences came down to how enterprises managed two critical organizational variables: how receptive were their cultures to innovation and how innovation efforts were aligned to their business and functional strategies.
Needs Seekers out-perform as a result of their deep understanding of the customer and innovation management expertise in areas like failure analysis and commercialization. These firms combine excellence in customer research, product development and operations with tight strategic alignment and an innovation-accelerating culture. They are also very open to collaborating with external organizations for ideas and technology. Needs Seekers are passionate about delivering and marketing superior products that address customer needs and experiences.
Because of management, resource and cultural factors, not every company can be (or wants to be) a Needs Seeker. These organizations can be successful by borrowing from the Needs Seeker playbook and maximizing their own unique attributes.
Market Readers will drive innovation by staying attuned to local markets customers and competitors. Once a Market Reader detects an important product innovation hitting the market, they must be quick to replicate, and if possible, leapfrog it. As a result, they require effective decision making and resource allocation mechanisms, agile product development and close partnerships with their supply chains.
Technology Drivers seek both incremental and game-changing product innovations. They fund both applied and basic R&D initiatives, looking to develop compelling platform technologies that can germinate new product categories and create legions of new customers. To be successful, these companies must: have an ambitious, technology-inspired vision; foster creativity and technical excellence, and; encourage collaboration between R&D, marketing and product groups. As well, Technology Drivers will regularly seek out exploitable ideas and innovations from outside their organizations using sophisticated Open Innovation strategies.
Although there are different paths to accelerating innovation, all firms can leverage the above best practices: expert innovation management capabilities, strong familiarity with relevant markets, customers and technology ecosystems, cross-functional strategic alignment and an innovation-supportive culture.
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