Innovation Strategy: A 5-Step Guide to Building Yours (2021)

innovation strategy

96% of executives consider innovation as a strategic priority (source).

But developing an effective innovation strategy can be challenging:

Where do you actually get started?

In this article, we’ll share 5 specific steps (illustrated with models and examples) you can take to start building an innovation strategy that works for your company.

Whether you’re an executive, a strategy leader or a corporate innovator, you will learn actionable strategies that will help you drive more value for your organization and transform your business from what it is today to what it aspires to be tomorrow.

Let’s get started.
 

Innovation Strategy: A 5-Step Guide to Building Yours (2021)

Table of Contents

What is an innovation strategy (and why is it important)?

An innovation strategy is “a commitment to a set of coherent, mutually reinforcing policies or behaviors aimed at achieving a specific competitive goal” (source: 500 Startups, Unlocking Innovation Through Startup Engagement).

And here are two important facts:

80% of executives believe that their current business models are at risk for disruption (source: McKinsey).

84% also say that innovation is important to their growth strategy. 

What does that tell us?

A majority of corporate leaders acknowledge the importance of embedding innovation in their global growth strategy because they understand it’s critical to keep them relevant.

5 practical steps for developing an innovation strategy

1. Start with your innovation goals

innovation goals

To get started, we need to talk about goals.

Consider:

  • What are the most important things we need to do as a business?
  • What are the strategic priorities for the company?
  • What are our business goals?


If you can clearly articulate the priorities for your organization, it will be much easier to identify how innovation can help you impact the bottom line.

Here are three examples of strategic business priorities:

  • Diversify revenue streams
  • Decrease operating costs
  • Launch new products


Based on these, some of your business goals – and by extension, innovation goals – could be to…

  • Build and test a whole new business model within 2 years
  • Reduce operating costs by 15% next year
  • Launch two new product lines within the next 3 years

When it comes to defining goals, make sure they are following the S.M.A.R.T. goals framework: specific, measurable, attainable, realistic and timely. See details on how to do that here.

2. Define the resources you will need to achieve these goals

innovation resources

Usually, resources fall under the following categories:

  • Physical resources: raw materials, buildings, machines, and equipment.
  • Human resources: employees (experience, knowledge, and creativity) and leadership support.
  • Intellectual resources: patents, copyrights, and partnerships.
  • Financial resources: funding required and mechanisms or sources of funding, such as internal innovation fund, strategic investment, etc.


For instance, here are some of the resources you could need:

  • Leadership support on recommended improvements
  • Budget to engage an innovation consulting firm to help you achieve your innovation goals
  • Partnerships with startups to help launch a new product
  • Budget for new team hires to build innovation capabilities


Now that you have a good sense of the goals you are trying to accomplish and what resources you need to achieve them, the next step is to complete an Innovation Maturity Assessment.

Download your innovation statement

We’ve put together a practical framework to help you build an effective innovation strategy.

Inside, you’ll find 7 steps to start developing an innovation roadmap for your organization, along with real-world examples to guide you along the way.

3. Assess the innovation maturity of your organization

The Innovation Maturity Assessment is a practical framework tool to help companies analyze their innovation capabilities.

The goal for you here is to clearly understand your company’s current innovation strengths and areas for improvement. The Assessment is broken down into 5 different categories:

Strategy, People & Culture, Processes, Tools, and Metrics.

Below are some questions you can ask yourself – and your team – from each category:

  • Strategy: does your organization have an established innovation program with a planned activity program?
  • People and culture: does the organization support experimentation and failure?
  • Processes: does the organization plan, fund, and run an innovation activity program?
  • Tools: is the organization using modern digital tools to empower employee and cross-team collaboration?
  • Metrics: does the organization track clearly defined innovation KPI’s?

After completing the Assessment, you can move on to picking your focus.

Pro tips for assessing the maturity of your organization

innovation maturity

At Runway, as we work with clients to understand their innovation maturity, we usually examine three essential aspects of their organization:

Budget

Has leadership made a budget commitment to the innovation program for more than one year – or is it ad hoc?

While you can achieve some progress and positive outcomes within a year, it is in the second and third years where you will truly begin to generate tangible outcomes that positively impact the company or business unit’s bottom line.

Infrastructure alignment

To what degree are key internal stakeholder groups aligned and engaged with the innovation strategy?

Specifically, are your organization’s Legal, Procurement and related departments working with the innovation group to achieve its objectives – or – are they actively blocking your ability to execute the innovation strategy?

As an innovation team begins to activate their strategy, it is critical to engage these departments early, so that they understand your objectives and have time to adapt current processes as needed.

This issue is most often exposed as innovation teams begin to work with startup companies as customers or partners. Be warned. Failure to engage these internal departments can cause unexpected and significant delays, potentially limiting your ability to achieve the innovation strategy goals and putting at risk the ability to obtain ongoing funding to sustain the innovation effort. 

Incentives for innovation

One aspect of a successful innovation strategy that perhaps gets the least attention is the need to align your organization’s incentive structure to incorporate and support the innovation strategy.

If business unit leaders are not incentivized to participate with the organization’s innovation activities, it can be quite difficult for the innovation group to achieve their goals; thereby significantly limiting an organization’s capabilities for competitive differentiation and meaningful growth. Changes to incentive structures take time in large organizations. Start talking to your Human Resources professionals early.

If you are looking to assess where your organization stands today and where it needs to focus so you can capture value from innovation, we can help you.

4. Pick your focus and identify which type of innovation you want to go after

innovation focus

Focus is important because people in your company need two things:

First, have a sense of what the priorities of the organization are and second, what their priorities need to be.

So the question is:

What should your company focus on when it comes to building an innovation strategy?

There are two major approaches you can take when it comes to picking your focus.

Internal and external focus 

  • Internal focus (business). Focused on increasing overall business efficiency by improving internal processes. An example here would be to transform your internal sales process and focus on full lifecycle customer management.
  • External focus (customers). Focused on improving customers’ experience or creating a new product/service to increase revenue.


To figure out your focus between the two, ask yourself:

Can we best achieve competitive advantage by enhancing the organization’s internal operations or our customers’ experience?

Problem focused and opportunity driven

  • Problem focused. Focused on solving current problems either within the organization or customer pain points.
  • Opportunity driven. Focused on creating new solutions, even when there’s not necessarily a problem to be solved yet.


To figure out your focus between these options, consider:

Am I solving current problems or am I trying to create new value the industry hasn’t seen yet?

Here is a good framework that recaps these different approaches:

innovation framework

Image source

Taking things a step further, here are the 4 combinations of these focuses and their main action item.

  • Internal + problem focused → Focus on optimizing your current resources and processes
  • Internal + opportunity driven → Focus on improving customer experience
  • External + problem focused → Reinvent internal processes
  • External + opportunity driven → Create a new value for customers 


Solidifying your focus will help you define what methodologies, frameworks, and strategies you need to be implementing in order to reach your innovation goals. 

Now that you have your focus in mind, let’s move on to the different types of innovation. 

 

Identify which type of innovation you want to go after 

 
You very likely can’t do it all at the same time.
 
What will your focus be based on your innovation goals, resources, and maturity?
 
There are three main types of innovation.
 
 
Let’s review each one of them so you can assess what would be the best fit for your organization based on your goals.
 

Product innovation

The most common type of innovation.
 
This refers to either adding new features to current products or services, or creating completely new offers from scratch. These improvements are a great way to either stay ahead in the industry or gain a competitive advantage. New technologies or new customer pain points usually bring about product innovation. 
 
Peloton is a great example of product innovation. 
 
Initially, Peloton released a stationary bike that came with live digital cycling classes. Over the years, their app has transformed into a hub of guided workouts – running, cycling, HIIT, meditation, and much more. This interactive experience has also fostered a large (and growing) community of fitness enthusiasts. 
 

Process innovation

Unlike product innovation, process innovation focuses more on improvements in methods regarding the production or delivery of a product/service, instead of making any changes to the final product itself. This type of innovation can be done by implementing a new technique or new technology to a process. 
 
A specific example would be adding an AI Chat Bot to your website or customer service page.  
 

Business model innovation

This type of innovation refers to fundamental and holistic changes in how your business operates. 

A business model typically encompasses the answers to these four questions:

  • Who is your target customer?
  • What do you offer the customer?
  • How do you create value?
  • How do you generate revenue?

Business model innovation aims to find new streams of revenue by changing at least two of these four answers. 

An example of business model innovation is Netflix. Before Netflix, movie lovers would turn to Blockbuster and Redbox to rent DVD’s for a certain period of time. 

When Netflix released their subscription-based streaming service, this completely changed the product and value offered to the customer and how revenue was generated. Netflix charges customers a monthly fee in order to give them access to hundreds of movies and shows without having to leave their house. 
 
Now that you have an understanding of the three main types of innovation, let’s move on to developing an innovation statement for our organization.

5. Develop an innovation statement

statement


An innovation statement is a simple, yet powerful framework for creating an effective innovation strategy for your organization.

Not only is it a great way to summarize the different components of your innovation strategy.

It’s also a practical resource you can share with your management to get their support and alignment on what initiatives should be pursued.

Here are 5 steps for building your innovation statement:

1. The innovation goal for [company/business unit] is: _____

2. To achieve this goal, we plan to: ______

3. To do this, we will need the following resources: _____

4. We will use the following impact metrics to measure our progress towards the objective: ____

5. Which will provide the following teams/business units [insert teams] with these benefits: _____

Bonus: the innovation statement. A simple, 7-step framework for building a powerful innovation strategy

Defining your innovation strategy is critical to achieving your goals.

Our team at Runway has pulled together a detailed framework to help you start off on the right foot. Inside, you’ll find 7 steps to start building an innovation roadmap for your organization, along with concrete examples to guide you along the way.

How to use the framework:

  • Breakdown and describe your innovation strategy (and have it fit on one single page)
  • Use it as your innovation “North Star” as you engage with key stakeholders at different levels across your organization
  • Build clarity and achieve alignment 
 
To get your innovation statement framework, just let us know where to send it.
 

Conclusion 

To start developing an effective innovation strategy for your organization, we recommend you to take the five following steps:

1) Solidify your foundations – goals, initiatives, and resources 
2) Complete your innovation maturity assessment
3) Pick your focus 
4) Understand the 3 main types of innovation
5) Build your innovation statement