Venturing Insights #15 - It's all about Strategy
In open innovation and corporate venturing, strategy is more than just a plan. It’s the compass guiding every decision, partnership, and investment.
Previously on Open Road Ventures: In the last episode of Venturing Insights, part of the short series “It’s all about” we discovered how culture is the engine for corporate innovation. If you missed it, you can catch up here!
Welcome back to our "It’s all about" series! So far, we’ve explored knowledge and culture as critical pillars of innovation success. Today, we dive into another essential element: strategy. In open innovation and corporate venturing, strategy is more than just a plan. It’s the compass guiding every decision, partnership, and investment.
“Culture Eats Strategy For Breakfast”, wasn’t it?
Of course, strategy and culture aren’t substitutes. In reality, one doesn’t eat the other for breakfast (or lunch or dinner). Both are necessary for a business to succeed, but they play complementary roles.
To stretch the breakfast analogy, strategy defines what’s on the menu: of all the possible options out there in the world, what’s actually being served and why? Is it complex or simple? Ambitious or affordable? Designing a menu — just like designing a strategy — requires a keen understanding of customers and their motivations.
Culture, on the other hand, defines the conditions under which that breakfast menu will be delivered. How effective is the communication between front-of-house and back-of-house staff? Do they prioritize speed of service over friendliness? Are staff encouraged to adhere to a strict set of behavioral guidelines or are they encouraged to let their own personalities shine through? Are they happy or stressed? Supportive or siloed?
First of all, what is a Strategy?
A strategy is nothing more than a commitment to a set of coherent, mutually reinforcing policies or behaviors aimed at achieving a specific competitive goal.
The problem with not having a clear Strategy
Why is it so hard to build and maintain the capacity to innovate? The reason is not simply a failure to execute but also a failure to articulate an innovation strategy that aligns innovation efforts with the overall business strategy.
Innovation isn't just about cherry-picking trendy practices—it's about building a cohesive system. While decentralized R&D teams, internal startups, and open innovation sound great, they're not one-size-fits-all solutions.
True innovation stems from a well-designed ecosystem that guides how your company identifies problems, transforms ideas into products, and green-lights projects.
Each so-called "best practice" comes with inherent trade-offs and necessitates careful adjustments within your organization. Without a well-defined innovation strategy, you risk fragmenting your efforts, leading to a disjointed mix of initiatives that don’t collectively serve your long-term goals.
Without a solid strategy, even the most ambitious initiatives can falter.
A well-defined strategy acts as a filter, helping you distinguish between opportunities that align with your long-term vision and those that don’t.
You need an Innovation Strategy
For companies to succeed in today’s competitive landscape, having an innovation strategy tailored to their unique circumstances is essential. This strategy should be a dynamic, evolving framework, continuously refined through experimentation and adaptation.
A company’s innovation strategy should specify how the different types of innovation fit into the business strategy and the resources that should be allocated to each.
Senior leadership plays a pivotal role in setting and maintaining this strategy, ensuring that the approach to innovation cuts across functions and aligns with the company’s broader objectives. As noted in the Harvard Business Review, leaders need to design and support an innovation system that fits competitive needs and balances both routine and disruptive innovation (Harvard Business School).
Ok… but what is it in practice?
A solid innovation strategy isn't just about vague goals like "innovating to grow." or “We innovate to create value”.
An innovation strategy must address how innovation will create value for potential customers, how the company will capture a share of that value, and what types of innovation to pursue.
As Gary P. Pisano stated in a 2015 article, Innovation Strategy needs to answer three crucial questions:
How will innovation create value for customers? This could mean improving product performance, ease of use, or cost-effectiveness.
How will the company capture a share of this value? This involves strategies to defend against imitators and maintain bargaining power in the market ecosystem.
What types of innovations should the company focus on? This requires balancing technological innovation with business model innovation.
The Innovation Landscape Map, a useful framework for categorizing innovation efforts, was developed by Pisano, building on research from notable innovation scholars like William Abernathy, Kim Clark, Clayton Christensen, Rebecca Henderson, and Michael Tushman. This model plots innovation along two key axes: technological change and business model change. While both aspects can vary in degree, this approach creates four main types of innovation. This simple yet powerful tool helps companies visualize and strategize their innovation initiatives across different dimensions.
Companies need to consider how different innovations create value, how to protect that value, and where to allocate resources.
Whether it's Apple's focus on user experience or Netflix's business model revolution, successful innovators have clear strategies guiding their efforts.
A (simplified) approach to define your Innovation Strategy
Assess your current Innovation Capabilities (and your competitor’s)
Conduct an innovation audit (Tidd & Bessant, 2018).
Understand external and internal context with PESTEL analysis (Johnson et al., 2017; Barney, 1991).
Define your Innovation Goals
Align them with corporate strategy.
Set clear, SMART objectives (Kaplan & Norton, 2008; Teece, 2010).
Clarify your Innovation Portfolio
Use the Innovation Ambition Matrix to balance core, adjacent, and transformational innovations (Nagji & Tuff, 2012).
Allocate resources across different time frames using the Three Horizons Model (Baghai et al., 2000).
Map your Innovation Ecosystem
Identify key stakeholders, partners, and competitors. Take inspiration from my article on the Open Innovation Network.
Understand the dynamics and relationships within your ecosystem that can influence your innovation efforts.
Choose the right Venturing Tools
Select appropriate tools like venture funds, accelerators, strategic partnerships etc. (Bundl, 2023). We will discuss deeply about this in a following newsletter post.
Design an Organizational Structure
Define roles, responsibilities, and decision-making processes (O'Reilly & Tushman, 2004).
Design the right incentives system.
Implement and monitor
Develop a roadmap with clear milestones and KPIs (Anthony et al., 2016).
Foster a Culture of Innovation
Build a culture that supports creativity, experimentation, and risk-taking (Amabile & Pratt, 2016). This is tightly linked to my previous post.
Review and adapt
Regularly reassess strategy effectiveness and adjust as needed (Rumelt, 2011).
What kind of innovator are you, and what kind of innovator do you want to be?
Another useful tool for you: the innovation matrix from Board of Innovation.
It is a tool “to help organizations capture a snapshot of their current innovation initiatives (for example, corporate accelerators, communities of practice, training programs or design sprints), orient how they want to approach innovation and take concrete action based on this analysis”. Another good way to tackle step 5 of my quick step-by-step guide.
It is composed of a square divided into four sections. It has two axes: high or low investment in innovation on the vertical axis, and a focus on either external or internal innovation on the horizontal axis. This gives us 4 types of innovators: the hunter, the builder, the explorer, and the experimenter.
Note that any archetype on this matrix isn’t better than the others. A hunter is not better than a builder or even an explorer. They are simply different businesses facing different situations.
Every direction on the matrix also implies trade-offs.
In Conclusion
As we continue our journey through the "It’s all about" series, it’s clear that while knowledge and culture are vital, strategy is the glue that holds everything together. A well-crafted strategy ensures that your innovation efforts are purposeful, aligned, and ultimately successful.
Remember, in the dynamic world of open innovation and corporate venturing, it’s all about strategy. Stay tuned for our next discussion on another critical component driving innovation forward. Until next time, keep innovating and stay inspired!
One last thing…
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As usual… a soundtrack for you: